U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A
z Annual report pursuant to Section 13 or 15(d) of the Securities
and Exchange Act of 1934
For the fiscal year ended November 30, 2000
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 (I.R.S.Employer Identification No.)
of 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
Securities registered pursuant to Section 12(b) of the Act: none
Securities registered pursuant to Section 12(g) of the Act:
Common stock, $1.00 Par Value
Title of each class
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 months and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
--- ---
Check if there is no disclosure of delinquent filers in response
to Item 405 of Regulation S-B is not contained in this form, and
no disclosure will be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10KSB. X
State the issuer's revenues from continuing operations for its
most recent fiscal year. $1,759,700
State the aggregate market value of the voting and non-voting
common equity held by non-affiliates computed by reference to the
price at which the common equity was sold, or the average bid and
asked prices of such stock, as of a specified date within the
past 60 days. As of February 15, 2001 $233,962.
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date. As
of February 15, 2001, 2,803,763 $1.00 Par Value.
PART I
Item 1. Description of Business
(a) Business Development. Reserve Industries Corporation,
a New Mexico Corporation incorporated in 1957, (the "Registrant")
is engaged in the mining and sale of silica sand. The Registrant
conducts these operations in the USA. In addition, the
Registrant holds several properties with mineral potential and
has equity interests in operations that supply services and
products to the steel industry and in operations in the Far East
that process waste slag from the smelting of copper into various
abrasive products used by the ship repair industry.
The Registrant mines and processes silica sand, through its
wholly owned subsidiary Reserve Silica Corporation (Reserve
Silica), located in Ravensdale, Washington, southeast of Seattle.
The mine run sand is extracted from open pit mines and is
transported to an adjacent sand processing plant both of which
are located on Reserve Silica's land. The wet plant crushes,
washes and separates the clay from the mine run sand and
classifies the sand into several products. The wet sand products
are marketed to the cement industry and to golf courses for sand
traps. The facility also incorporates a drying plant, which
further processes the wet sand into dried silica sand for the
glass container industry. During the 1999 and continuing into
the past year, Reserve Silica made improvements to the wet plant
and the drying plant, which increased the production rate and
allowed production of a glass sand with a much lower iron
content. The cost of the improvements, which are continuing, is
over $700,000. Reserve Silica began delivering the low iron
content glass sand in late 1999 and production ramped up during
the last year. Reserve Silica is now producing and selling low
iron glass sand in excess of the target amount of 40,000 tons per
year.
The Registrant, through its wholly owned subsidiaries
Reserve Rossborough Corporation (Reserve Rossborough) and Reserve
Rossborough Ventures Corporation (Reserve Rossborough Ventures),
owns a net 44% equity interest in Rossborough Manufacturing Co.
L.P. (Rossborough), of Avon Lake, Ohio. A description of
ownership is described in footnote 4 of the notes to the
consolidated financial statements. Rossborough provides products
and services to the primary steel industry. It is a major
supplier of magnesium based reagent compounds used to externally
desulfurize hot iron metal and external desulfurization is the
primary business segment of the Partnership. External
desulfurization of hot iron metal is a process in which specially
sized reagents are pneumatically injected into hot iron metal
prior to transforming it into steel. The primary components used
in the process are various blends of magnesium granules, calcium
carbide, lime and other minor compounds. The process is used by
the primary steel industry to improve the quality of its steel by
lowering the amount of sulfur contained in its finished products.
Rossborough has a magnesium grinding facility located near
Walkerton, Indiana that processes both magnesium ingots and
secondary magnesium granules into a size suitable for use in iron
desulfurization. The magnesium granules are blended at Walkerton
with other materials to make the finished desulfurization
reagents. Rossborough is one of the three primary suppliers of
desulfurization services in North America. It has been working
to expand its international operations and is currently operating
internationally through joint ventures in Slovakia, Belgium and
China.
In China, Rossborough has been involved as a subcontractor
on several large desulfurization projects and is supplying co-
injection systems at the Benxi steel mill and the Baotou steel
mill. China is a large market producing as much steel as the
United States and needs to upgrade the quality of the steel
through the removal of excess sulfur. An affiliate of
Rossborough also purchased an operating magnesium smelter located
near the city of Taiyuan in the Shanxi province of China and a
magnesium alloying facility in Taiyuan. Due to problems related
to operating in China the smelter was shutdown and may be
abandoned. The magnesium alloying facility was operated during
the year, but is currently closed and may be moved to another
location. As a result of these problems Rossborough wrote down
the remainder of its loan ($2.7 million) during the fiscal year
ended November 30, 1998.
Rossborough's other business segments include the
manufacture of special refractory lances and slag skimmers used
in desulfurizing operations; the manufacture of custom
desulfurizing reagent injection equipment; the manufacture of
molten metal samplers and thermocouples; the exclusive
distribution of Bimac Inc. ladle powders and slag conditioning
agents; and the distribution of selected other purchased
products. As part of Rossborough's quality assurance program it
is certified, by a certified ISO auditor, as a supplier that
complies with the standards set by the global standardization
organization under the program entitled ISO 9001 and 9002. This
certification indicates to customers a certain level of quality
and process control and is becoming a requirement of the primary
steel industry in their selection of suppliers.
The Registrant owns a 10.9 % stock interest in JPL
Industries Pte. Ltd., (JPL) a Singapore company organized in
1990. The other shareholders are a subsidiary of Jurong
Shipyards Ltd., a Singapore company and two Japanese companies,
Nippon Mining & Metals Company, Ltd. and Mitsui & Company, Ltd.
JPL is in the waste management business. JPL is in the business
of selling processed and unprocessed copper slags that are used
for abrasive blasting purposes. It has a recycling facility that
processes used copper slag abrasives generated by the Singapore
ship repairing industry. The plant mechanically and
hydraulically separates contaminates from used abrasives. The
recycled abrasives are segregated into a coarse size fraction and
a fine slag size fraction. The coarse size fraction is combined
with new copper slag abrasives to make blasting abrasives. The
fine slag fraction is used as a raw material in other products
such as interlocking concrete pavers and as a partial replacement
for sand and aggregates in ready-mix concrete.
During the fall of 1995, JPL authorized the issuance of
S$12.5 million (Singapore dollars) of interest bearing redeemable
convertible unsecured loan stocks. All of these convertible loan
stocks were subscribed by the first quarter of 1996. The loan
was used to finance the second stage of the copper slag
processing and recycle facility and to expand the concrete paver
plant. During the past year JPL issued shares to retire S$5.0
million of the loan stocks. If the all of the convertible loans
are converted into common stock, the Registrant's interest will
be reduced to approximately 7%.
The Registrant has a number of mineral interests that it
deals with in the normal course of business and below is a
description of the properties currently held.
The Registrant, through its wholly owned subsidiary Reserve
Minerals Corporation (Reserve Minerals), has retained economic
interests in three uranium joint ventures located in northern
Saskatchewan, Canada. The retained interests in the Waterbury
Lake Joint Venture and the Dawn Lake Joint Venture are net profit
interests of approximately 0.75% and 1.5%, respectively. The
Registrant owns a 1% royalty on its former 9.063% interest on all
minerals produced in the McArthur River Joint Venture. The
Registrant began to receive royalty income from McArthur and some
or all of the retained net profits interests may become earning
assets in the future. The Registrant is not involved in the
operation of the properties and the reserve and resource
information contained in the following paragraphs is from the
public announcements by the companies or organizations operating
the properties.
The Waterbury Lake Joint Venture includes the Cigar Lake
deposit, which contains proven reserves of 345,000 tons of
uranium reserves at a grade of 22.51%, probable reserves of
236,000 tons at a grade of 11.3% and possible reserves of 565,000
tons at a grade of 8.15%. This equates to approximately 331
million pounds of uranium concentrate, U3O8 (171.2 million pounds
of proven, 58.8 million pounds of probable and 101.5 million
pounds of possible reserves). The deposit covers an area of
approximately 40 acres. The Cigar Lake Mining Corporation,
formed by the Waterbury Lake Joint Venture, has the
responsibility of developing the Cigar Lake property. A special
underground remote mining and transport method, which surpasses
prevailing safety standards, has been developed and successfully
tested within the deposit. Subject to regulatory approval, the
venture has made an agreement in principle to have the majority
of the ore processed at the existing Rabbit Lake mill with the
remainder to be processed at the McClean Lake mill currently
under construction. The project has been undergoing the
permitting process for number of years and in April 1998 the
federal and provincial governments approved the project with
certain conditions. Depending upon market conditions and
regulatory approval the project could begin production in a few
years.
The McArthur River Joint Venture uranium deposit was
discovered in 1988. As a result of underground exploration
drilling, the property now has proven uranium reserves of 768,000
tons at an average grade of 21.0%, which equates to a reserve of
355.5 million pounds of U3O8. In addition the property has
probable reserves of 77,000 tons at an average grade of 23.04%
and indicated resources of 614,000 tons at a grade of 10.74%,
which equates to a probable reserves and indicated resources of
39.0 million and 145.48 million pounds of U3O8, respectively.
The operator of the property is Cameco Corporation. The property
received a construction license in August 1997. Construction was
completed during 1999 and the mine began production in December
1999 and progressed well during the past year. The ore is mined,
crushed and processed into a slurry underground. The ore is
pumped to the surface and transported 80 kilometers to the Key
Lake processing mill. By 2002, Cameco plans to increase annual
production at the Key Lake mill to 18 million pounds of U3O8.
The Dawn Lake Joint Venture has a uranium deposit containing
indicated resources of 436,000 tons at an average grade of 1.93%
and inferred resources of 165,000 tons at a grade of 1.04%, which
equates to a indicated and inferred resources of 18.5 million and
3.8 million pounds of U3O8, respectively.
(b) Business of Issuer. The business of the issuer is as
follows:
1. The Registrant primarily produces and sells silica sand to
the glass, cement and golf course industries. Further
descriptions of the businesses are contained in Item 1. (a)
above.
2. In the majority of cases, the Registrant distributes its
products directly to its customers by truck or rail. Some of the
golf course bunker sand is sold to distributors.
3. The Registrant has not publicly announced any new products
or services. However, as described above it completed
installation of equipment at its sand plant to lower the iron
content of its dried sand and delivered this sand throughout the
year.
4. For the silica sand operation numerous competitors exist,
however competition is limited to regions by the cost of
shipping. The Registrant competes on the basis of keeping prices
in line with the competition and maintaining the quality and
consistency of the products.
5. The Registrant acquires the raw materials for the silica
sand operation from a silica sand deposit owned by the Registrant
and the mine is operated to provide mine run sand as required by
operations.
6. The Registrant deals with relatively few customers. For the
silica sand business, approximately two-thirds of the sales are
made to two long-term customers; Saint Gobain Glass Container Co.
LLC and LaFarge Cement Company.
7. There are no patents or trademarks of material importance to
the Registrant's business. Mining claims, leases and crown
grants are believed held under valid contracts or other evidence
of title.
8. The Registrant does not currently require any new government
approval in order to conduct its business.
9. As with all small and large businesses, the existing and
probable governmental regulations are a significant burden, and
the cumulative effects are potentially detrimental to business
expansion.
10. The Registrant spent less than $100,000 during
1999investigating methods to lower the iron content of its dried
silica sand. As a result of these efforts, the Registrant spent
over $700,000 on new equipment and installation cost in 1999 and
2000. None of these costs have been borne directly by the
Registrant's customers.
11. Federal, state and local laws and regulations relating to
protection of the environment affect the Registrant in many areas
of its operations. Most of the cost and effects of these laws,
in the opinion of management, are currently contained in the
Registrant's financial statements. During 2000, Reserve Silica
spent less than $50,000 to comply with laws and regulations
relating to protection of the environment.
12. The Registrant has 15 full time employees and 1 part time
employee.
Item 2. Description of Properties
(a) Information as to the location of the principal plants
is forth under Item l. above. The silica sand mine and
processing facility is situated on approximately 340 acres and is
owned by Reserve Silica. The mineral property interests are
described in the table below.
RESERVE INDUSTRIES CORPORATION
MINERAL INTERESTS
Gross
Location and Mineral Acres (1)
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Saskatchewan Canada - Uranium
McArthur River Project 211,400 (2)
Waterbury Lake Project 234,300 (2)
Dawn Lake Project 386,800 (2)
(1) Approximate
(2) The company's interest in these projects is described in Item
1.
(b) Investment Policies. In the normal course of business,
the Registrant currently does not deal in investments in real
estate or real estate mortgages.
(c) Description of Real Estate and Operating Data. The
Registrant does not deal in Real Estate investments and a
description of its operating properties is contained above. The
Registrant believes that its operating properties are adequately
insured.
Item 3. Legal Proceedings
(a) Pending legal proceedings - none
(b) Pending governmental legal proceedings - none
Item 4. Submission of Matters to a Vote of Security Holders
The was no submission to the shareholders during the fourth
quarter.
PART II
Item 5. Market For Common Equity and Related Shareholders
Matters.
(a) Market Information. The Registrant's common stock is
currently not publicly traded because the Registrant has elected
to forgo an audit in order to conserve capital for necessary
plant improvements and legal fees in connection with past
litigation. Once the financial condition of the Registrant
improves, its plans to file audited financial statements. Prior
to August 1992, the Registrant was listed on the NASDAQ National
Over-the-Counter Market. Since the Registrant's stock is not
quoted, the Registrant cannot list current prices for its stock.
(b) Holders. On February 15, 2001, the Registrant had
approximately 800 shareholders.
(c) Dividends. The Registrant has never paid a dividend. There
are currently no restrictions or covenants to limit the ability
to pay a dividend.
Item 6. Management's Discussion and Analysis or Plan of
Operation.
Results of Operations. For the year ended November 30, 2000, the
Registrant had revenues of $1,759,700, which resulted in net loss
of $(1,191,579) or $(0.42) per share included in the loss is a
nonrecurring gain of $244,653 related to the closing of the L-Bar
Products, Inc. estate. For the year ended November 30, 1999, the
Registrant had revenues from continuing operations of $446,087,
which resulted in net income of $27,351 or $0.01 per share.
Included in the results were nonrecurring losses of $817,110 and
$101,000 related the sale of a mineral property and losses
related to L-Bar Products, which were offset by a nonrecurring
gain of $2,973,245 from the disposal of discontinued operations
represented by L-Bar Products. Without the nonrecurring gains
and losses, the loss for the year ended November 30, 1999 was
$2,027,784 or $0.69 per share.
The revenues in 2000 increased from 1999 as a result of an
increase in sales from $1,190,808 to $2,160,879 and a decrease in
equity losses from $(943,979) to $(718,154). The sales at the
Registrant's silica sand operation increased as a result of the
introduction of the Registrant's low iron sand, which is
purchased by its glass customer. Sales of the low iron sand
began late last year and were phased-in during the first quarter
of this year. The sales volume for the year was above the
expected 40,000 tons. The plant improvement program was
continued during the year and is planned to be completed by the
end of the second quarter 2001. These final improvements are
expected to reduce the cost of sales. The Registrant's equity
income remained in a loss position as its affiliated partnership
was able to replace the most of sales lost last year, but at a
much lower gross margins, which resulted in a loss for the year.
The costs and expenses were $2,951,279 in 2000 and $3,391,981 in
1999. Included in the costs for 2000 and 1999 are nonrecurring
(gain) cost of $(244,653) and $101,000, respectively, related to
settlement of a L-Bar Products obligations and for 1999 a cost of
$817,110 related to the loss on the sale of a mineral property.
The cost of sales increased by $708,637 from 1999 to 2000 due to
the increased sales described above. The G&A decreased slightly
from 1999 to 2000. The interest costs increased because the loan
to improve the sand plant was paid for a full year.
Liquidity and Capital Resources. The Registrant's net cash
provided (used) by operating activities was $94,263 and
$(337,539) in 2000 and 1999, respectively. The net cash used by
investing activities was $173,225 and $186,740 2000 and 1999,
respectively. Most of the cash used by investing activities in
2000 and 1999 was for capital improvements to the sand project.
The Registrant increased its debt by $68,002 and $500,748 in 2000
and 1999, respectively. The Registrant cash and cash equivalents
decreased by $10,960 and $23,531in 2000 and 1999, respectively.
The Registrant had working capital deficits of approximately
$4.86 million and $4.35 million in 2000 and 1999, respectively.
The working capital deficit increased as a result of the
operating losses. As part of the Registrant's program to
conserve cash in order to operate the company, part of the
salaries due to the officers of the Registrant, all of the
deferred compensation due to the deceased chairman's spouse and
the part of the interest due on certain loans were accrued but
not paid in 2000 and 1999. As of November 30, 2000, these
accruals (salaries, deferred compensation and deferred interest)
exceeded $xx.7 million.
In 2001, the Registrant plans to continue to accrue part of the
obligations described in the 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 10KSB 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
uncertainties 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 10KSB contains forward looking statements, particularly
in the following sections: Item 1. Business descriptions, Item 6
Management's Discussion and Analysis of Financial Condition and
Results of Operations 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 7. Financial Statements.
The following Consolidated Financial Statements of the Registrant
and its subsidiaries are filed as a part of the report and are
attached:
Consolidated Balance Sheets as of November 30, 2000 and 1999
Consolidated Statements of Operations for the Years Ended
November 30, 2000 and 1999
Consolidated Statements of Stockholders' Investment for the
Years Ended November 30, 2000 and 1999
Consolidated Statements of Cash Flows for the Years Ended
November 30, 2000 and 1999
Notes to Consolidated Financial Statements
Because the financial statements are not audited there is no
report of independent accountants.
All other schedules are omitted, as the required information is
not required, or the information is presented in the financial
statements or related notes.
Item 8. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure.
Because of the Registrant's program to conserve cash, it was not
able to retain an independent accountant to audit the financial
statements for the fiscal years of 1991 through 2000.
While the Registrant has not used an independent accountant for
the fiscal years listed above, the Registrant is not aware of any
disagreements with accountants as contemplated by item 304 of SEC
Regulation S-B.
PART III
Item 9. Directors, Executives Officers, Promoters and Control
Persons; Compliance With Section 16(c) of the Exchange Act.
(a) Identify Directors and Executive Officers.
The following paragraphs list the names, ages and business
experience of the directors, each of whom is an executive officer
of the Registrant.
James J. Melfi, Jr., age 72, is Chairman of the Board of the
Registrant. Mr. Melfi was elected Chairman of the Board in April
1985, and he was President from December 1975 to December 1985.
He has been a director of the Registrant since 1970.
Frank C. Melfi, age 64, is President of the Registrant, a
position he has held since December 1985. From 1976 through
December 1985, he was Executive Vice President of the Registrant.
He has been a director of the Registrant since April 1985.
William J. Melfi, age 58, is Vice President of Finance and
Administration of the Registrant, a position he has held since
December 1985. He is also Treasurer of the Registrant, a
position he assumed in July 1995. For more than five years prior
to 1985, he was manager of operations. He has been a director of
the Registrant since January 1993.
All of these directors have been with the Registrant for several
years and are knowledgeable about the Registrant's operations,
problems and opportunities.
The executive officers of the Registrant are elected annually and
serve until such time as their respective successors are elected
and qualified.
(b) Identification of certain significant employees. Not
applicable.
(c) Family Relationships. James J. Melfi, Jr., Frank C. Melfi
and William J. Melfi are brothers.
(d) Involvement in certain legal proceedings.
(1), (2), (3), and (4). Not applicable.
Based solely on a review of applicable forms provided to the
Registrant, the Registrant believes that the officers, directors
and beneficial owners of the Registrant were all in timely
compliance with Section 16(a) of the Exchange Act.
Item 10. Executive Compensation
(a) General. The following text and tables provide
information on the compensation of the Chief Executive Officer
and those officers whose salary and bonus compensation equaled
or exceeded $100,000 for the fiscal years ended November 30,
2000, 1999, and 1998.
(b) Summary Compensation Table.
Summary Compensation Table
Annual Compensation
Name and Principal Position Year Salary Bonus Other
$ $ $
Frank C. Melfi CEO 2000 135,000 27,000 1,927
1999 135,000 27,000 1,927
1998 135,000 27,000 1,340
James J. Melfi, Jr.
Chairman 2000 135,000 27,000 4,933
1999 135,000 27,000 3,501
1998 135,000 27,000 1,000
William J. Melfi
Vice President 2000 135,000 27,000 3,268
1999 135,000 20,000 2,914
1998 100,000 20,000 2,630
The amounts of salary and bonus stated for Mr. Frank C. Melfi,
Mr. James J. Melfi, Jr. and Mr. William J. Melfi represent the
amounts due to them and accrued by the Registrant during the
year. As part of the Registrant's program to conserve cash, all
three individuals accrued part of their annual compensation. Mr.
Frank C. Melfi, Mr. James J. Melfi, Jr. and Mr. William J. Melfi
were paid $21,927, $14,933 and $15,267, respectively of the
annual compensation due them in 2000.
For the fiscal year ended November 30, 1999, the Registrant
established the Reserve Industries Corporation Profit Sharing
Plan for the benefit of all of its eligible employees. As
employees Mr. Frank C. Melfi, Mr. James J. Melfi, Jr. and Mr.
William J. Melfi are also participants in the Plan. To date no
contributions have been made to the Plan.
(c) Option/SAR Grants Table. This table is omitted because
there was no activity in the 2000 fiscal year.
(d) Aggregated Option/SAR Exercises and Fiscal Year-End
Option/SAR Value Table. This table is omitted because there was
no activity in the 2000 fiscal year.
The Registrant has one active stock option plan, which is
described in footnote 7 of the notes to the consolidated
financial statements.
(e) Long-term Incentive Plans. This table is omitted because
the Registrant currently does not have a long-
term incentive plan.
(f) Compensation of Directors. The Registrant did not pay any
fees to directors, as such, as it does not have any directors who
are not employees of the Registrant.
(g) Employment Contracts and Termination of Employment, and
Change-in-Control Arrangements. N/A.
(h) Report on Repricing of Options/SARs. During 2000, none of
the outstanding Options were repriced.
Item 11. Security Ownership of Certain Beneficial Owners and
Management.
(a) Security Ownership of Certain Beneficial Owners. The
following tabulation sets forth the number of shares of Common
Stock held by each person who owned of record, or is known by the
Registrant to own beneficially, five percent (5%) or more of the
Registrant's Common Stock. Included in the table for certain
individuals are the maximum number of shares of the Registrant's
Common Stock, which might be deemed to be beneficially owned
under the rules of the Securities and Exchange Commission by
those individuals. The number of shares beneficially owned by
those individuals includes shares subject to option to purchase,
and the computation of the percentage owned assumes exercise of
such options. The information is as of February 15, 2001
Amount and Nature of Percent
Name and Address Beneficial Ownership of Class
--------------------------------------------------------------
Melfi Corporation Direct
Suite 308, 20 First Plaza 198,500 7.1%
Albuquerque, New Mexico 87102
James J. Melfi, Jr. (1) Direct and Indirect
Suite 308, 20 First Plaza 279,549 9.9%
Albuquerque, New Mexico 87102
Frank C. Melfi (2) Direct and Indirect
Suite 308, 20 First Plaza 291,669 10.4%
Albuquerque, New Mexico 87102
William J. Melfi (3) Direct and Indirect
Suite 308 20 First Plaza 162,349 5.8%
Albuquerque, New Mexico 87102
To the best of the Registrant's knowledge, the principal
shareholders listed have sole voting and investment power with
respect to the shares of the Registrant's Common Stock owned by
such shareholders, except as noted below.
(1) Included in the number of shares opposite Mr. James J.
Melfi, Jr.'s name in the table above are 26,700 shares owned by
his wife, for which beneficial ownership is disclaimed. Mr.
Melfi has sole voting and investment power with respect to the
shares owned by him. James J. Melfi, Jr. and members of his
immediate family own 25 percent of the issued and outstanding
stock of Melfi Corporation, which owns 198,500 shares of Common
Stock of the Registrant, for which he may be deemed to share
voting and investment power. James J. Melfi, Jr. is also an
officer and director of Melfi Corporation.
(2) Mr. Melfi has sole voting and investment power with respect
to the shares owned by him. Frank C. Melfi and members of his
immediate family own 25 percent of the issued and outstanding
stock of Melfi Corporation, which owns 198,500 shares of Common
Stock of the Registrant, for which he may be deemed to share
voting and investment power. Frank C. Melfi is also an officer
and director of Melfi Corporation.
(3) Included in the number of shares opposite Mr. William J.
Melfi's name in the table above are 7,790 shares owned by his
wife for whom beneficial ownership is disclaimed. Mr. Melfi has
sole voting and investment power with respect to the shares owned
by him. William J. Melfi and members of his immediate family own
25 percent of the issued and outstanding stock of Melfi
Corporation, which owns 198,500 shares of Common Stock of the
Registrant, for which he may be deemed to share voting and
investment power. William J. Melfi is also an officer and
director of Melfi Corporation.
(b) Security Ownership of Management. The ownership of Common
Stock by officers and directors is set forth in the table below.
Included in the table are the maximum number of shares of the
Registrant's Common Stock, which might be deemed to be
beneficially owned under the rules of the Securities and Exchange
Commission by each nominee and director and by the officers and
the directors of the Registrant as a group. The number of shares
beneficially owned by each individual and each group includes
shares subject to option to purchase and the computation of the
percentage owned assumes exercise of such options. The text
below the table sets forth certain information as to the extent
to which beneficial ownership consists of the right to acquire
the Registrant's Common Stock. The information is as of February
15, 2001.
Amount and Nature of Percent
Name and Address Beneficial Ownership of Class
----------------------------------------------------------------
James J. Melfi, Jr. (1) Direct and Indirect
Suite 308, 20 first Plaza 279,549 9.9%
Albuquerque, New Mexico 87102
Frank C. Melfi (2) Direct and Indirect
Suite 308, 20 First Plaza 291,669 10.4%
Albuquerque, New Mexico 87102
William J. Melfi (3) Direct and Indirect
Suite 308 20 First Plaza 162,349 5.8%
Albuquerque, New Mexico 87102
Officers and Directors Direct and Indirect
as a group 733,567 25.8%
(1) Reference is made to "Security Ownership of Certain
Beneficial Owners" herein for information regarding the shares of
Common Stock of the Registrant beneficially owned by James J.
Melfi, Jr.
(2) Reference is made to "Security Ownership of Certain
Beneficial Owners" herein for information regarding the shares of
Common Stock of the Registrant beneficially owned by Frank C.
Melfi.
(3) Reference is made to "Security Ownership of Certain
Beneficial Owners" herein for information regarding the shares of
Common Stock of the Registrant beneficially owned by William J.
Melfi.
(c) Changes in control. Not applicable.
Item 12. Certain Relationships and Related Transactions.
(a) Transactions with management and others. The Melfi Family
Trust, which is part of the estate of Mr. James J. Melfi, Sr.,
loaned the Registrant $695,000 in 1991. These funds were used by
the Registrant to purchase 20% of the stock in JPL Industries
Pte. Ltd., a Singapore company organized in 1991. The terms of
the agreement between the Melfi Family Trust and the Registrant
call for a five-year note at 10% interest, which was prime plus
0.5% at the time of the loan, and a warrant to purchase 60,000
shares of the common stock of the Registrant. The loan plus
accrued interest has not been paid. In addition, several times
during 1991, Ruth Ann Melfi, deceased, the wife of the
Registrant's former Chairman James J. Melfi, Sr., lent the
Registrant working capital. In order to conserve cash the
Registrant has not fully repaid this loan. The outstanding
balance of the loan at November 30, 2000 was $145,000, interest
was paid through November 30, 1996. The interest rate on this
loan is 10% per annum. Both of these loans are secured by the
stock in JPL Industries, Reserve Minerals Corporation, Reserve
Rossborough Corporation, and Reserve Rossborough Ventures
Corporation. In 1997, Embro Corporation, which is owned by James
J. Melfi, Jr., Frank C. Melfi and William J. Melfi, lent Reserve
Silica Corporation $65, 000. The terms call for payments over a
36-month period at 11.5% interest, and the loan is secured by the
stock in Reserve Silica Corporation. As of November 30, 2000 the
loan balance was $64,719 plus accrued interest. In addition from
time to time James J. Melfi, Jr., Frank C. Melfi and William J.
Melfi have lent the Registrant working capital. At November 30,
2000 the amount owed pursuant to these loans was $58,536.
Pursuant to certain promissory notes to the Registrant, James J.
Melfi, Jr., Frank C. Melfi and William J. Melfi have borrowed
$126,210, $224,470 and $167,518, respectively. The notes are
unsecured with an interest rate of 7% and are due January 31,
2002.
(c) Parents of Registrant. Not applicable
(d) Transactions with promoters. Not applicable.
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits. See the attached Index to Exhibits.
(b) Reports on Form 8K. There were no reports on Form 8K filed
during the last quarter.
RESERVE INDUSTRIES CORPORATION
EXHIBIT INDEX
Exhibit
Number Description
3.1 Articles of Incorporation dated August 28, l957**
3.2 By-Laws of Reserve Industries Corporation as
amended on June 8, l987**
4.1 Loan Agreement with the Key Bank of Puget Sound
(formerly the Seattle Trust & Savings Bank) dated
February 28, 1986**
4.2 Amendment No. 4 to the Loan Agreement with the Key
Bank of Puget Sound dated June 15, 1987**
4.3 Loan Agreement between Northwest Alloys, Inc. and
L-Bar Products dated August 2, 1990**
4.4 Stock Purchase Agreement with Northwest Alloys,
Inc. dated October 28, 1991**
4.5 Loan Agreement with the Melfi Family Trust dated
October 31, 1991**
4.6 Supplemental Security Agreement with the Melfi
Family Trust dated January 31, 1994**
4.7 Second Supplemental Security Agreement with the
Melfi Family Trust dated May 6, 1996**
9 Not Applicable
10.1 Sohio Agreement (Settlement) dated September 9, l982**
10.2 Amendment to Employment Agreement, J. J. Melfi,
Sr. dated June 20, l978**
10.3 l977 Stock Option Plan**
10.4 Agreement between Central Electricity Generating
Board Exploration (Canada) Limited and Registrant
dated March 23,1984**
10.5 Agreement between Cogema and Registrant
dated May 17, 1984**
10.6 Agreement between 413418 Ontario Limited and
Registrant dated August 31, 1984**
10.7 Agreement to purchase the assets of Industrial
Mineral Products, Incorporated dated March 3, 1986**
10.8 Agreement with Northwest Alloys dated January 1, 1985**
10.9 Agreement with Meridian Minerals Company
dated July 1, 1987**
10.10 Agreement and Plan of Acquisition of Interest
of Rossborough Manufacturing Company
dated August 11, 1987**
10.11 Sales agreement between L-Bar Product,Incorporated
and La Porte Metal Processing Venture dated
September 1, 1987, subject to confidential treatment**
10.12 1987 Incentive Stock Option Plan**
10.13 1987 Nonqualified Stock Option Plan**
10.14 Sales agreement between Rossborough Manufacturing
Company and La Porte Metal Processing Venture
dated September 1, 1987,
subject to confidential treatment**
10.15 Grinding Joint Venture Agreement between L-Bar
Grinding Corporation and La Porte Metal Processing
Company dated September 1, 1987**
10.16 Agreement between L-Bar Canada, Inc. and
Norsk Hydro Canada, Inc. dated March 23, 1989**
10.17 Dispute Resolution Agreement between Reserve
Industries Corporation and Rossborough et al,
dated October 11, 1993**
10.18 Settlement and Release Agreement between L-Bar Products,
Inc. and La Porte Metal Processing Venture et al, dated
September 1, 1993**
10.19 Settlement and Release Agreement between Reserve
Industries Corporation and Northwest Alloys, Inc.,
dated January 28, 1999
11. Not Applicable
12. Not Applicable
13. Not Applicable
16. Not Applicable
18. Not Applicable
19. Not Applicable
21. List of Subsidiaries*
22. Not Applicable
23. Not Applicable
24. Not Applicable
25. Not Applicable
27. Not Applicable
28. Not Applicable
29. Not Applicable
* These exhibits are filed electronically with the report.
** These exhibits were filed as indicated below and are
incorporated herein by this reference thereto:
3.1 1982 10K - Exhibit 3.1
3.2 1987 10K - Exhibit 3.2
4.1 1986 10K - Exhibit 4.1
4.2 1987 10K - Exhibit 4.2
4.3 8K filed August 1990
4.4 1991 10K - Exhibit 4.4
4.5 1992 10K - Exhibit 4.5
10.1 1982 10K - Exhibit 10.6
10.2 1982 10K - Exhibit 10.7
10.3 l976 Proxy Statement
10.4 1984 10K - Exhibit 10.13
10.5 1984 10K - Exhibit 10.14
10.6 1984 10K - Exhibit 10.15
10.7 1986 10k - Exhibit 10.7
10.8 1986 10k - Exhibit 10.8
10.9 1987 10K - Exhibit 10.9
10.10 1987 10K - Exhibit 10.10
10.11 1987 10K - Exhibit 10.11
10.12 1987 10K - Exhibit 10.12
10.12 1986 Proxy Statement
10.13 1986 Proxy Statement
10.14 1987 10K - Exhibit 10.14
10.15 1987 10K - Exhibit 10.15
10.16 1989 10K - Exhibit 10.16
10.17 1993 10KSB - Exhibit 10.17
10.18 1993 10KSB - Exhibit 10.18
10.19 August 31, 1998 10QSB/A - Exhibit 10.19
RESERVE INDUSTRIES CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
Page
Consolidated Balance Sheets - November 30, 2000 and 1999 1
Consolidated Statements of Income - For the years ended
November 30, 2000 and 1999 2
Consolidated Statements of Cash Flows - For the years ended
November 30, 2000 and 1999 3
Consolidated Statements of Stockholders' Investment -
For the years ended November 30, 2000 and 1999 4
Notes to Consolidated Financial Statements 5-11
All other schedules are omitted as the required information is
not applicable or the information is presented in the
accompanying consolidated financial statements or related notes.
RESERVE INDUSTRIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
NOVEMBER 30, 2000 AND 1999
2,000 1999
----------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 6,729 $ 17,689
Receivables, less allowance for doubtful
accounts -0- 362,889 182,652
Receivables from affiliates and related
parties (Note 11) 527,423 481,210
Inventories (Note 2) 182,498 395,153
Prepaid expenses and deposits 73,292 17,745
----------- -----------
Total current assets 1,152,831 1,094,448
PROPERTY,PLANT AND EQUIPMENT,
at cost (Note 3) 3,147,237 3,160,308
Less accumulated depreciation
and depletion (1,249,060)(1,336,409)
----------- -----------
1,898,177 1,823,899
INVESTMENT IN UNCONSOLIDATED AFFILIATES
(Note 4) 2,155,158 2,884,323
----------- -----------
Total assets $ 5,206,166 $ 5,802,670
=========== ===========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Trade accounts payable $ 433,889 $ 319,450
Short-term debt related party 175,000 175,000
Current portion of long-term debt (Note 9) 997,196 993,940
Deferred obligations to related
parties (Note 11) 4,377,963 3,923,141
Other current liabilities (Note 8) 31,466 33,183
----------- -----------
Total current liabilities 6,015,514 5,444,714
LONG-TERM DEBT, less current
portion (Note 10) 558,261 493,516
STOCKHOLDERS' INVESTMENT:
Common stock, $1.00 par value. Authorized
6,000,000 shares, issued and outstanding
2,803,763 shares in 2000 and 1999 2,803,763 2,803,763
Additional paid-in capital 5,871,218 5,871,218
Accumulated deficit (10,042,590)(8,810,540)
----------- -----------
Total stockholders' investment (1,367,609) (135,559)
----------- -----------
Total liabilities and
stockholders' investment $ 5,206,166 $ 5,802,670
=========== ===========
The accompanying notes are an integral part of these consolidated
statements. The 2000 and 1999 financial information is
unaudited.
RESERVE INDUSTRIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED NOVEMBER 30, 2000 AND 1999
2,000 1999
----------- -----------
REVENUES:
Sales $ 2,160,879 $ 1,190,808
Interest income 15,336 9,566
Gain on sale of equipment 110,232 3,465
Income (loss) from affiliates:
Dividends and interest 618 11,912
Equity in earnings (718,104) (943,979)
Consulting fees 7,500 60,000
Other income 183,289 114,315
----------- -----------
Total revenues 1,759,750 446,087
COSTS AND EXPENSES:
Cost of sales 1,932,538 1,223,901
General and administration 772,132 828,280
Interest 258,487 196,867
Depreciation and amortization 232,825 224,823
(Gain) loss on investment (244,653) 101,000
Loss on sale of property - 817,110
----------- -----------
Total costs and expenses 2,951,329 3,391,981
Pretax income (loss) from
continuing operations (1,191,579)(2,945,894)
Provision for income taxes - -
----------- -----------
Net income (loss) from
continuing operations $(1,191,579)$(2,945,894)
DISCONTINUED OPERATIONS:
Gain on disposal of discontinued
operations (net of income tax) - 2,973,245
Net income (loss) $(1,191,579)$ 27,351
=========== ===========
EARNINGS PER SHARE:
Income (loss) from continuing operations $ (0.42)$ (1.01)
Income (loss) from discontinued operations - 1.02
----------- -----------
Net income (loss) per share $ (0.42)$ 0.01
=========== ===========
Weighted Average Number of Shares
of Common Stock Outstanding 2,803,763 2,918,831
=========== ===========
The accompanying notes are an integral part of these consolidated
statements. The 2000 and 1999 financial information is
unaudited.
RESERVE INDUSTRIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED NOVEMBER 30, 2000 AND 1999
2,000 1999
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income from continuing
Operations $(1,191,579)$(2,945,894)
Adjustments to reconcile net income from continuing
operations to net cash provided by operating activities:
Depreciation and amortization 232,825 224,823
Equity loss of affiliates 718,104 950,656
Cash distribution from affiliates - 6,316
(Gain) on disposition of fixed assets (163,289) (3,465)
Loss on sale of property - 817,110
Changes in assets and liabilities:
(Increase) in receivables (226,450) (22,084)
Decrease (increase) in inventories 212,655 (178,203)
(Increase) decrease in other
current assets (55,548) 17,566
Increase in trade accounts payable 114,440 56,010
Increase in deferred obligations to
related parties 589,525 541,628
(Decrease) increase in other
current liabilities (136,420) 197,998
----------- -----------
Total adjustments 1,285,842 2,608,355
Net cash provided (used) by
operating activities $ 94,263 $ (337,539)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property $ - $ 600,000
Capital expenditures - Net (173,225) (786,740)
----------- -----------
Net cash (used) by investing activities $ (173,225)$ (186,740)
=========== ===========
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in short-term debt $ 3,256 $ 39,600
Increase in long-term debt 64,746 461,148
----------- -----------
Net cash provided by financing activities $ 68,002 $ 500,748
=========== ===========
Net (decrease) in cash and cash equivalents$ (10,960)$ (23,531)
Cash and cash equivalents at the beginning
of the year 17,689 41,220
Cash and cash equivalents at the end
of the year $ 6,729 $ 17,689
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 85,268 $ 42,137
The accompanying notes are an integral part of these consolidated
statements. The 2000 and 1999 financial information is
unaudited.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
FOR THE YEARS ENDED NOVEMBER 30, 2000, 1999, AND 1998
Common Stock Additional
$1 Par Value Paid-In Accumulated
Shares $Amount Capital Deficit Total
--------- ---------- ---------- ----------- ----------
BALANCES:
Nov 30, 1998 3,203,763 $3,203,763 $7,458,718 $(8,739,548)$1,922,933
========= ========== ========== =========== ==========
Prior period adjustments
(98,343) (98,343)
--------- ---------- ---------- ----------- ----------
ADJUSTED BALANCE:
Nov30, 1998 3,203,763 $3,203,763 $7,458,718 $(8,837,891)$1,824,590
========= ========== ========== =========== ==========
Common stock retired during
1999 (Note 5) (500,000) (500,000)(1,500,000) - (2,000,000)
Common stock issued during
1999 100,000 100,000 (87,500) - 12,500
Net income
(loss) - - - 27,351 27,351
--------- ---------- ---------- ----------- ----------
BALANCES:
Nov 30, 1999 2,803,763 $2,803,763 $5,871,218 $(8,810,540)$ (135,559)
========= ========== ========== =========== ==========
Prior period
adjustments (40,471) (40,471)
--------- ---------- ---------- ----------- ----------
ADJUSTED BALANCE:
Nov 30, 1999 2,803,763 $2,803,763 $5,871,218 $(8,851,011)$ (176,030)
========= ========== ========== =========== ==========
Net income
(loss) (1,191,579)(1,191,579)
--------- ---------- ---------- ----------- ----------
BALANCES:
Nov 30,2000 2,803,763 $2,803,763 $5,871,218 $(10,042,590)$(1,367,609)
========= ========== ========== =========== ==========
The accompanying notes are an integral part of these consolidated
statements. The 2000, 1999 and 1998 financial information is
unaudited.
RESERVE INDUSTRIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED NOVEMBER 30, 2000 AND 1999
(l) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of Reserve Industries Corporation, a New Mexico
corporation, and its wholly owned subsidiaries, Reserve Silica
Corporation, Reserve Abrasives Limited, Incorporated, Reserve
Rossborough Corporation, Reserve Rossborough Ventures
Corporation, and Reserve Minerals Corporation (collectively "the
Company").
All significant intercompany accounts and transactions have been
eliminated in the accompanying consolidated financial statements.
Investments in unconsolidated affiliates are accounted for by the
equity method (see Note 5) and are stated at cost plus equity in
undistributed earnings (losses).
Marketable Securities
Marketable securities are stated at the lower of aggregate cost
or market value. The cost of securities sold is determined using
the specific identification method.
Inventories
Inventories, consisting principally of raw materials, finished
products and supplies, are valued using the average cost method
at the lower of cost or market value. Production costs included
in inventories represent actual operating labor, raw materials
and supply costs.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Betterments,
renewals and extraordinary repairs that extend the life of the
asset are capitalized; other repair and maintenance costs are
expensed. The cost and accumulated depreciation applicable to
assets sold or retired are removed from the accounts, and the
related gain or loss on disposition is recognized in operations.
Mineral Properties
Mineral properties, acquisition costs and all subsequent direct
costs incurred in retaining, exploring and developing the
properties are capitalized in property, plant and equipment until
production is attained. If management determines that
development and production are not economically feasible, or that
capitalized costs exceed net realizable values, such costs are
charged to operations in the period such determination is made.
Depreciation, Depletion, and Amortization
The cost of machinery, equipment and buildings is depreciated
over the estimated useful lives of the assets using the straight-
line method. Organization costs and goodwill are amortized using
the straight-line method over 60 months and 120 months,
respectively.
Income Taxes
The Company and its domestic subsidiaries file a consolidated
income tax return. Separate tax returns are filed for the
Company's foreign subsidiaries and the corporate entities in
which the Company has equity interests.
Deferred taxes, which result from the effect of temporary
differences in reporting transactions for financial and tax
reporting purposes, will be provided when the Company exhausts
its net operating loss carryforwards.
Earnings (loss) per share
Earnings (loss) per share were computed using the weighted
average number of shares outstanding during each fiscal year.
Shares issuable upon the exercise of options have not been
included in the computation because they would not have a
material impact on earnings (loss) per share.
Business Segments
The Company operates in two different industry segments: the
corporate operations segment and the industrial products segment,
which contains silica sand operations. The silica sand
industrial products operation produces various sand products for
use by the glass, concrete and golf course industries. The
corporate segment includes partnership and equity income.
Statement of Cash Flows
For purposes of the statement of cash flows, the Company
considers all highly liquid debt instruments purchased with
maturity of three months or less to be cash equivalents.
Reclassifications
Certain reclassifications have been made to prior year balances
to conform to current year financial statement presentation.
(2) INVENTORIES:
Inventories consist of the following at November 30:
2,000 1999
----------- -----------
Raw materials $ 72,806 $ 260,204
Finished products 98,880 124,412
Supplies and packaging 9,812 10,537
----------- -----------
$ 181,498 $ 395,153
(3) PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consist of the following at
November 30:
2,000 1999
----------- -----------
Machinery and equipment $ 1,411,083 $ 1,320,706
Mineral properties 487,094 503,193
----------- -----------
$ 1,898,177 $ 1,823,899
(4) INVESTMENT IN UNCONSOLIDATED AFFILIATES:
Rossborough Manufacturing Company and Rossborough Manufacturing
Co. L. P.
The Company owns a 40% stock interest in Rossborough
Manufacturing Company (Rossborough Co.), through its wholly owned
subsidiary, Reserve Rossborough Corporation and a 20% limited
partnership interest in Rossborough Manufacturing Co. L.P.
(Rossborough L.P.) , through its wholly owned subsidiary, Reserve
Rossborough Ventures Corporation. Rossborough Co. is the general
partner and owns 60% of Rossborough L.P. As a result the
Company's net interest in Rossborough L.P. is 44%. Rossborough
L.P. is in the business of providing products and services to the
steel and foundry industries.
Investment in unconsolidated affiliates includes equity in
undistributed earnings. Included in the Company's earnings are
equity in earnings of affiliates and consulting income. The
Company plans to reinvest its undistributed equity earnings in
those affiliates. At November 30, 2000 and 1999, the Company had
$318,056 and $1,033,307 of undistributed earnings of Rossborough
Co. and Rossborough L.P. included in retained earnings,
respectively. The equity in undistributed earnings of
Rossborough Co. and Rossborough L.P. recorded by the Company are
based on financial statements audited by independent public
accountants.
The financial information of Rossborough L.P. is summarized
below for the periods ended November 30:
2,000 1999
----------- -----------
Net sales $40,609,036 $35,574,040
Gross profit $ 4,412,485 $ 2,194,967
Net partnership Income (loss) $(2,081,887)$(3,540,684)
=========== ===========
Total current assets $10,151,792 $10,197,324
Fixed and other assets 8,067,640 6,982,178
----------- -----------
Total assets $18,219,432 $17,179,502
=========== ===========
Current liabilities $14,353,553 $10,376,820
Total long-term liabilities 3,428,571 4,285,714
Total partnership capital 437,308 2,516,968
----------- -----------
Total liabilities and partnership capital $18,219,432 $17,179,502
=========== ===========
JPL Industries Pte. Ltd.
The Company owns a 10.9% stock interest in JPL Industries Pte.
Ltd. (JPL), a Singapore company organized in 1991. The Company's
investment is $692,239 and is included in investment in
unconsolidated affiliates.
(5) DISCONTINUED OPERATIONS:
On December 6, 1991, L-Bar Products suspended operations at its
Chewelah, Washington facility because L-Bar lacked the necessary
funds to continue operation. In November 1992, it was determined
to discontinue the operations of L-Bar Products. In September
1998, the Registrant and the estate of L-Bar Products, Inc.,
reached an agreement to settle all litigation with Northwest
Alloys, Inc. On March 12, 1999, the United States Bankruptcy
Court for the Eastern District of Washington Court approved the
settlement. On April 29, 1999, the litigation was dismissed with
prejudice by the United States District Court for the Eastern
District of Washington. Pursuant to the settlement agreement
Northwest Alloys has paid the funds due under the agreement and
has returned to the Company the 500,000 shares of common stock
issued by the Company pursuant to the October 28, 1991 stock
purchase agreement. During the year, the Trustee completed the
liquidation of the estate in accordance with the terms of the
agreement.
The 500,000 shares of common stock returned by Northwest Alloys
were retired. This resulted in a $500,000 reduction in par value
and a $1.5 million reduction in additional paid in capital.
The disposal of the discontinued operations resulted in a gain as
shown below:
1999
-----------
Elimination of the reserve for discontinued
Operations $ 973,246
Deferred gain from reduction of debt related to the
October 28, 1991 stock purchase agreement 2,000,000
-----------
$ 2,973,246
.
(6) STOCK OPTIONS:
The 1987 Incentive Stock Option Plan (1987 ISO Plan) expired in
1997, however options granted under the plan are still
outstanding. The 1987 ISO Plan provided for the issuance of
options to key employees to purchase up to 90,000 shares in
aggregate of the Company's common stock. Under the 1987 ISO Plan
options for 30,000 shares were outstanding at $1.00 per share,
all of which are exercisable. The option plan provides that the
option price must be equal to or greater than the market price at
the date of grant. No options were exercised under the plan
during 2000 and 1999.
(7) INCOME TAXES:
At November 30, 2000 the Company had net operating loss
carryforwards of approximately $11.3 million, which will expire
between 2001 and 2020. Certain differences exist between the net
operating loss carryforwards available for financial statement
purposes and for Federal income tax return purposes due to
differing treatments of dividend income, depreciation,
exploration and development costs, goodwill and deferred
compensation.
Due to losses from continuing operations in 2000 and 1999, there
is no tax expense computed for the year. Because of the
Company's net operating loss carryforward, the Company did not
present the net tax effect of the losses from discontinued
operations. The table below shows the composition of the income
tax expense (benefit) (000 omitted):
2,000 1999
----------- -----------
Current federal income tax $ (417.0)$ (1,031.1)
Accrual for wages not yet paid 177.6 133.6
Accrual for State Income tax - -
(Reduction) addition to federal
income tax loss carryforward (239.4) (897.5)
----------- -----------
$ - $ -
(8) OTHER CURRENT LIABILITIES:
Other current liabilities consist of the following at November
30:
2,000 1999
----------- -----------
Accrued interest $ 3,990 $ 2,220
Other current liabilities 27,476 30,963
----------- -----------
$ 31,466 $ 33,183
=========== ===========
(9) DEBT:
Long-term debt consists of the following at November 30:
2,000 1999
----------- -----------
Term loan, due December 31, 1997, with annual
interest payments at 10% secured by the stock in
JPL Industries, Reserve Minerals Corporation,
Reserve Rossborough Corporation, and Reserve
Rossborough Ventures Corporation see Notes 4 and 11.
$ 695,000 $ 695,000
SBA term loan, due August 31, 2004, payable in monthly
installments of $9,672.26 including interest at 2.75% over
the prime rate and secured by the assets of Reserve Silica
Corporation and guaranteed by the officers of the
Company.
361,948 401,749
Other notes $ 497,814 $ 390,708
----------- -----------
1,555,457 1,487,457
Less current portion 997,196 993,940
----------- -----------
$ 558,261 $ 493,517
The long-term debt payment schedule consists of the following at
November 30, 2000
2001 $ 997,196
2002 186,234
2003 186,234
2004 141,155
2005 or later 44,238
-----------
$ 1,555,457
(10) BUSINESS SEGMENTS:
The Company operates in the industrial products and corporate
business segments. These business segments are described in Note
1 under Business Segments. In fiscal year 2000, the Company had
three customers in the industrial products segment that accounted
for net sales of 58.7% ($1,253,424), 16.6% ($353,938) and 12.9%
($275,458), respectively. In fiscal year 1999, the Company had
three customers in the industrial products segment that accounted
for net sales of 33.7% ($400,763), 31.8% ($378,285) and 11.3%
($135,057), respectively.
Identifiable assets by segment are those assets involved in the
operation of the segment. Corporate assets are cash and cash
equivalents, security investments, mineral properties, equity
investments and other assets.
The following tables summarize the operations, identifiable
assets and capital expenditures by industry segment as of
November 30:
2,000 1999
----------- -----------
Net sales and revenues:
Industrial Products - Silica sand $ 2,160,879 $ 1,190,808
Corporate 309,475 139,258
Equity in earnings from affiliates (718,104) (883,979)
----------- -----------
$ 1,759,750 $ 446.087
=========== ===========
Segment operating income:
Industrial Products - Silica sand $ 228,340 $ (33,093)
Corporate 316,975 139,258
Equity in (loss) earnings from affiliates (718,104) (883,979)
----------- -----------
(172,789) (777,814)
=========== ===========
Corporate and other expenses:
General and administration 772,132 828,280
Depreciation and amortization
- Industrial products 216,413 207,034
Depreciation and amortization
- Corporate 16,411 17,789
Interest expense 258,487 196,867
Loss on sale of property, investment
& foreign assets (244,653) 918,110
----------- -----------
1,018,790 2,168,080
----------- -----------
(Loss) income from continuing operations $(1,191,579)$(2,945,894)
=========== ===========
Identifiable assets - Industrial Products$ 2,141,080 $ 1,980,188
Identifiable assets - Corporate 3,065,086 3,822,483
----------- -----------
$ 5,802,671 $ 5,802,671
=========== ===========
Capital expenditures
- Industrial Products $ 169,181 $ 785,106
Capital expenditures - Corporate 4,041 1,634
----------- -----------
$ 173,225 $ 786,740
=========== ===========
The following table summarizes financial data by geographic area
as of November 30:
Sales:
United States $ 2,160,879 $ 1,190,808
Far East - 11,912
----------- -----------
$ 2,160,879 $ 1,202,720
=========== ===========
Operating profit (loss):
United States $ (172,789)$ 789,726)
Far East - 11,912
----------- -----------
$ (172,789)$ (777,814)
=========== ===========
Identifiable Assets:
United States $ 4,513,927 $ 5,110,432
Far East 692,239 692,239
----------- -----------
$ 5,206,166 $ 5,802,671
(11) COMMITMENTS AND CONTINGENCIES:
Deferred Compensation
The Company had a deferred compensation plan for its deceased
chairman's spouse who died on January 16, 1998, and the plan was
terminated on that date. The payment of this benefit was
pursuant to a management contract, which provided for monthly
disbursements, adjusted annually for inflation. The obligation,
originally recorded based on applicable mortality rates, was
exhausted during the fiscal year ended November 30, 1991.
Payments made in excess of the obligation recorded were expensed
when either paid or accrued.
Amounts due under the plan were accrued through January 1998, but
no payments were made in 2000, 1999, 1998, 1997, 1996, 1995, 1993
and 1992, because the Company has been conserving its cash. In
both 2000 and 1999, the accrued deferred compensation amounted to
$296,228.
Cash Flow Requirements
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. The Company
is generating revenues from its continuing operations, and the
current level of cash flow is sufficient to sustain operations
and a portion of its general and administrative expenses. The
Company is conserving its cash and has not paid all of the
compensation due to the officers and directors and, as described
above, has accrued part of the deferred compensation. In 2000
and 1999, the accrued compensation due to the officers and
directors amounted to $2,999,324 and $2,555,324, respectively.
During 1991, the Company borrowed $695,000 from the Melfi Family
Trust, in order to purchase the equity interest in JPL Industries
Pte. Ltd. In order to conserve cash. the Company has not paid
all of the interest due on this loan. In 2000 and 1999, the
accrued interest on the loan amounted to $820,390 and $682,627,
respectively.
The Melfi family members have loaned working capital to the
Company. At November 30, 2000, the Company owes $465,415 plus
accrued interest on these working capital loans. In 2000 and
1999, the accrued interest on these working capital loans
amounted to $114,139 and $106,022, respectively.
Pursuant to promissory notes to the Company, officers have loans
amounting to $518,198 and $471,985 in 2000 and 1999,
respectively.
Other
During the normal course of business, the Company has other
commitments, lawsuits, claims and contingent liabilities.
However, Company management does not expect that any sum it may
have to pay in connection with any of these matters would have a
materially adverse effect on the consolidated financial position.
SIGNATURES
In accordance with Section 13 or 15(d) 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)
By /s/ William J. Melfi
--------------------------
William J. Melfi,Vice President
Finance and Administration
(Principal Financial Officer)
Date February 15, 2001
In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the Registrant and
the capacities and on the dates indicated.
Date February 15, 2001 By /s/ James J. Melfi, Jr.
---------------------------
James J. Melfi, Jr. Director,
Chairman of the Board
Date February 15, 2001 By /s/ Frank C. Melfi
-----------------------------
Frank C. Melfi, Director
and President
(Principal Executive Officer)
Date February 15, 2001 By /s/ William J. Melfi
-------------------------------
William J. Melfi,Director and
Vice President Finance and
Administration
(Principal Financial Officer)
Exhibit No. 21
Subsidiaries of Reserve Industries Corporation as of November 30,
2000
Name State of Incorporation
-------------------------- -------------------
Reserve Silica Corporation Washington
Reserve Minerals Corporation Delaware
Reserve Abrasives Ltd., Inc. New Mexico
Reserve Rossborough Ventures
Corporation New Mexico
Reserve Rossborough Corporation New Mexico