U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
z Quarterly report under Section 13 or 15(d) of the Securities and
Exchange Act of 1934
For the quarterly period ended February 28, 2003
Commission file number 0-3492
RESERVE INDUSTRIES CORPORATION
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(Name of Small Business Issuer in its charter)
NEW MEXICO 85-0128783
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
20 First Plaza, Suite 308, Albuquerque, New Mexico 87102
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(Address of principal executive offices) (Zip Code)
505-247-2384
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Issuer's telephone number, including area code
Check whether the issuer: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
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State the number of shares of outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
As of April 10, 2003 - 2,803,763 shares $1.00 Par Value
INDEX
Page No.
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PART I. Financial Information
Consolidated Balance Sheets
February 28, 2003 and November 30, 2002 1
Consolidated Statements of Income
First quarter ended February 28, 2003 and 2002 2
Consolidated Statements of Cash Flows
First quarter ended February 28, 2003 and 2002 3
Footnotes to Consolidated Financial Statements 4
Management's Discussion and Analysis or
Plan of Operation 5 - 7
PART II. Other Information 7
RESERVE INDUSTRIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
FEBRUARY 28, 2003 AND NOVEMBER 30, 2002
ASSETS 2003 2002
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CURRENT ASSETS:
Cash and cash equivalents $ 52,648 $ 61,078
Receivables, less allowance for
doubtful accounts $1,501 202,329 179,516
Receivables from affiliates and
related parties 750,879 727,286
Inventories 241,202 298,218
Prepaid expenses and deposits 104,569 130,017
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Total current assets 1,351,627 1,396,115
PROPERTY, PLANT AND EQUIPMENT, at cost 3,337,601 3,317,968
Less accumulated depreciation
and depletion (1,842,107) (1,773,951)
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Total property, plant and equipment 1,495,494 1,544,017
INVESTMENT IN UNCONSOLIDATED AFFILIATES (875,465) (713,787)
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Total assets $ 1,971,656 $ 2,226,345
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LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Trade accounts payable $ 288,224 $ 373,503
Short-term debt related party 321,263 327,315
Current portion of long-term debt
related parties 753,718 753,718
Current portion of long-term debt 245,546 245,546
Deferred obligations to related parties 5,893,847 5,753,544
Other current liabilities 72,591 70,919
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Total current liabilities 7,575,189 7,524,545
LONG-TERM DEBT, less current portion 208,082 255,706
STOCKHOLDERS' INVESTMENT:
Common stock, $1.00 par value. Authorized
6,000,000 shares, issued and outstanding
2,803,763 shares in 2003 and 2002 2,803,763 2,803,763
Additional paid-in capital 5,471,218 5,471,218
Accumulated deficit (14,086,596) (13,828,887)
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Total stockholders' investment (5,811,615) (5,553,906)
Total liabilities and stockholders'
Investment $ 1,971,656 $ 2,226,345
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The accompanying notes are an integral part of these consolidated
statements. The 2003 and 2002 financial information is unaudited
RESERVE INDUSTRIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE FIRST QUARTERS ENDED FEBRUARY 28, 2003 AND 2002
Three Months Ended
February 28
2003 2002
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REVENUES & OTHER ITEMS:
Sales $ 703,207 $ 410,919
Royalties 71,037 51,454
Interest income 480 839
Income (loss) from affiliates:
Equity in earnings (161,678) (223,201)
Other income - 255
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Total revenues 613,046 240,266
EXPENSES & OTHER ITEMS:
Cost of sales 557,971 348,636
General and administration 173,015 177,134
Interest 71,613 66,264
Depreciation and amortization 68,156 67,570
Total costs and expenses 870,755 659,604
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Pretax income (loss) from
continuing operations (257,709) (419,338)
Provision for income taxes - -
Net income (loss) from
continuing operations $ (257,709) $ (419,338)
EARNINGS (LOSS) PER SHARE:
Income (loss) from operations (0.09) (0.15)
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Net income (loss) per share $ (0.09) $ (0.15)
Weighted Average Number of Shares of
Common Stock Outstanding 2,803,763 2,803,763
The accompanying notes are an integral part of these consolidated
statements. The 2003 and 2002 financial information is unaudited.
RESERVE INDUSTRIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FIRST QUARTER ENDED FEBRUARY 28, 2003 AND 2002
Three Months Ended
February 28
2003 2002
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) from operations $ (257,709) $ (419,338)
Adjustments to reconcile net income
From operations to net cash provided
by operating activities:
Depreciation and amortization 68,156 67,570
Equity in (gain) loss from affiliates 161,678 223,201
Changes in assets and liabilities:
(Increase) decrease in receivables (46,406) 57,663
(Increase) decrease in inventories 57,016 (4,607)
(Increase) decrease in other
current assets 25,448 (12,178)
Increase (decrease) in trade
accounts payable (85,279) 41,335
Increase (decrease)in deferred
obligations to related parties 134,251 91,404
Increase (decrease) in other
current liabilities 1,672 (60,454)
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Total adjustments 316,536 403,934
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Net cash provided (used) by
operating activities 58,827 (15,404)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures - Net (19,633) -
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Net cash provided (used) by
investing activities (19,633) -
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease) in long-term debt (47,624) (121)
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Net cash provided (used) by
financing activities (47,624) (121)
Net increase (decrease) in cash and
cash equivalents (8,430) (15,525)
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Cash and cash equivalents at the
beginning of the year 61,078 76,223
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Cash and cash equivalents at the end
of the year $ 52,648 $ 60,698
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SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid during the year for interest $ 13,612 $ 16,561
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The accompanying notes are an integral part of these consolidated
statements. The 2003 and 2002 financial information is unaudited.
FOOTNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The accompanying statements, which should be read in conjunction with the
Consolidated Financial Statements included in the November 30, 2002 fiscal
year end Annual Report filed on Form 10-KSB, are unaudited but have been
prepared in the ordinary course of business for the purpose of providing
information with respect to the interim periods, and are subject to audit at
the close of the year. However, it is the opinion of the management of the
Company that all adjustments (none of which were other than normal
recurring accruals) necessary for a fair presentation of such periods
have been included.
The Consolidated Financial Statements prepared for fiscal years 2002,
2001, 2000, 1999, 1998, 1997, 1996, 1995,1994, 1993, 1992 and 1991 were
unaudited because the Company elected to not incur the expense of an audit
and to conserve its cash for other corporate requirements.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Results of Operations
First quarter ended February 28, 2003 compared
to the first quarter ended February 28, 2002
For the first quarter ended February 28, 2003, the Registrant had revenues
of $613,046, which resulted in a net loss of $257,709 or $0.09 per share.
For the first quarter ended February 28, 2002, the Registrant had revenues
of $240,266, which resulted in a net loss of $419,338 or $0.15 per share.
The revenues in the first quarter of 2003 increased from 2002 as a result
of an increase in sales from $410,919 to $703,207, an increase in royalty
income of $19,583 and a decrease in equity losses $61,532. The sales at
the Registrant's silica sand operation increased as a result an increase
in demand for the Registrant's low iron glass sand and bunker sand. The
increased demand will continue into part of the second quarter, but then
is expected to return to prior levels for the remainder of the year. The
Registrant's equity income from its affiliated venture
Rossborough-Remacor LLC (R-R) remained in a loss position, as sales
were slow during the first quarter. R-R is continuing its program of
trying to reduce costs and improve both sales and product margins.
The operations of R-R will require continued cooperation from its
suppliers, and R-R is negotiating with them to reduce past due
unsecured debt. R-R is continuing to evaluate all its options
including bankruptcy.
The costs and expenses were $870,755 and $659,604 in the first quarter
of 2003 and 2002, respectively. The cost of sales increased by $209,335
from 2002 to 2003 due primarily to the increased demand for glass sand
and increased mining and tailing costs. The G&A decreased slightly from
2002 to 2003. Some of the expenses contained in the general and
administrative costs pertaining to salaries of the officers and deferred
compensation have been accrued but not paid, as the Company is conserving
its cash.
Liquidity and Capital Resources
Period from December 1, 2001 to February 28, 2002
The Company's net cash provided (used) by operating activities was
$58,827 and $(15,404) for the first quarter ended February 28,
2003 and 2002, respectively. The net cash used by investing activities
was $19,633 and $0 for the same three months in 2003 and 2002,
respectively. For 2003, the capital expenditures were for capital
improvements to the sand project. The Company decreased its long-term
debt by $47,624 and $121 for the three months ended February 28, 2003
and 2002, respectively. The Company's cash and cash equivalents decreased
by $8,430 and $15,525 for the three months ended February 28, 2003
and 2002, respectively.
The Company had working capital deficits of approximately $6.22 million
and $5.98 million for the three months ended February 28, 2003 and the
year ended November 30, 2002, respectively. The working capital deficit
increased as a result of the operating losses. As part of the Company's
program to conserve cash in order to operate the company, part of the
salaries due to the officers of the Company, all of the deferred
compensation due to the deceased chairman's spouse, and part of the
interest due on certain loans were accrued but not paid for the three
months ended February 28, 2003. As of February 28, 2003, these
accruals (salaries, deferred compensation and deferred interest)
exceeded $5.8 million. For the current year, the Company plans to
continue to accrue part of the obligations described in the preceding
paragraph and expects to continue to generate sufficient cash flow to operate.
Forward-Looking Statements. The Company may from time to time make
written or oral "forward-looking statements", within the meaning of the
Private Securities Litigation Reform Act of 1995, including statements
contained in this Form 10QSB and in other documents filed by the Company
with the Securities and Exchange Commission and in its reports to
stockholders, as well as elsewhere. "Forward-looking statements"
are statements such as those contained in projections, plans, objectives,
estimates, statements of future economic performance, and assumptions
related to any of the forgoing, and may be identified by the use of
forward-looking terminology, such as "may", "expect", "anticipate",
"estimate", "goal", "continued", or other comparable terminology. By
their very nature, forward-looking statements are subject to known
and unknown risks and ncertainties relating to the Company's future
performance that may cause the actual results, performance or
achievements of the Company, or industry results, to differ materially
from those expressed or implied in such "forward-looking statements".
Any such statement is qualified by reference to the following cautionary
statements.
The Company's business operates in highly competitive markets and is
subject to changes in general economic conditions, competition,
customer and market preferences, government regulation, the impact
of tax regulation, foreign exchange rate fluctuations, the degree
of market acceptance of the products, the uncertainties of potential
litigation, as well as other risks and uncertainties detailed elsewhere
herein and from time to time in the Company's Securities and
Exchange Commission filings. This Form 10QSB contains forward
looking statements, particularly in the section: Item 2. Management's
Discussion and Analysis of Financial Condition and Results of
Operations, Part II Item 5, Other information, and in some of the
footnotes to the financial statements. Actual results could differ
materially from those projected in the forward looking statements
as a result of known and unknown risks, uncertainties, and other
factors, including but not limited market acceptance of the Company's
products and services, changes in expected research and development
requirements, and the effects of changing economic conditions and
business conditions generally. The Company does not undertake and
assumes no obligation to update any forward-looking statement that
may be made from time to time by or on behalf of the Company.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
An evaluation was performed under the supervision and with the
participation of the Registrant's management, including the Chief
Executive Officer ("CEO") and Chief Financial Officer ("CFO"), of
the effectiveness of the design and operation of the Registrant's
disclosure controls and procedures within 90 days of this report.
Based on that evaluation, the Registrant's management, including
the CEO and CFO, concluded that the Registrant's disclosure controls
and procedures were effective as of August 31, 2002.
Changes in Internal Controls
There have been no significant changes in the Company's internal
controls or in other factors that could significantly affect
internal controls subsequent to the date of their evaluation.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable
Item 2. Changes in Securities
Not Applicable
Item 3. Defaults upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - None
(b) Reports - None
SIGNATURES
In accordance with the requirements of the Exchange Act,
the Registrant caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
RESERVE INDUSTRIES CORPORATION
(Registrant)
/s/ William J. Melfi
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William J. Melfi, Vice President
Finance and Administration
(Principal Financial and
Accounting Officer and
Authorized Officer)
Date: April 15, 2003
CERTIFICATIONS
I, William J. Melfi, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of
Reserve Industries Corporation;
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
And we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent valuation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function): Note: The
Registrant does not have an auditor.
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data and
have identified for the registrant's auditors any material weaknesses
in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated
in this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: April 15, 2003
/s/ William J. Melfi
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William J. Melfi
Vice President Finance and Administration
and Chief Financial Officer
I, Frank C. Melfi, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of
Reserve Industries Corporation;
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
And we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent valuation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function): Note: The
Registrant does not have an auditor.
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data and
have identified for the registrant's auditors any material weaknesses
in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated
in this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: April 15, 2003
/s/ Frank C Melfi
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President and
Chief Executive Officer