U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
Annual report pursuant to Section 13 or 15(d) of the Securities
and Exchange Act of 1934
For the fiscal year ended November 30, 1995
Commission file number 0-3492
RESERVE INDUSTRIES CORPORATION
(Name of Small Business Issuer in its charter)
NEW MEXICO 85-0128783
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
20 First Plaza, Suite 308, Albuquerque, New Mexico 87102
(Address of principal executive offices) (Zip Code)
505-247-2384
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 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 10-KSB. [X]
State the issuer's revenues from continuing operations for its
most recent fiscal year. $1.7 million
State the aggregate market value of the voting stock held by
non-affiliates computed by reference to the price at which the
stock 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, 1996 $230,600.
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, 1996, 3,147,333 $1.00 Par Value
<PAGE>
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, through its wholly owned subsidiary Reserve
Silica Corporation (Reserve Silica), located in Ravensdale,
Washington, southeast of Seattle, mines and processes silica
sand. The mine run sand is extracted from open pit mines
located on leased land and is transported to an adjacent sand
processing plant. The wet plant washes and separates the clay
from the mine run sand and screens the sand into several
products, which are marketed to the cement industry and to golf
courses for sand traps. The facility also incorporates a drying
plant, which produces a dried silica sand for the glass
container industry. Reserve Silica is working to develop other
silica sand products to serve other markets. During the year,
Reserve Silica began a plant modernization program to replace
and upgrade both the wet plant and drying plant. All of the
equipment for the wet plant upgrade has been purchased and
installed. The wet plant upgrade project is scheduled to be
completed in early 1996. The upgrade to the drying plant is
expected to be completed in late 1996.
The Registrant, through its wholly owned subsidiaries Reserve
Trigon Corporation (Reserve Trigon) and Reserve Rossborough
Ventures Corporation (Reserve Rossborough Ventures), owns an
equity interest in Rossborough Manufacturing Co. L.P.
(Rossborough L.P.), of Avon Lake, Ohio. A description of
ownership is described in footnote 5 of the notes to the
consolidated financial statements. Rossborough L.P. is in the
business of providing products and services to the steel and
foundry industries. A major part of Rossborough L.P.'s business
is involved in supplying magnesium based reagents to the steel
industry for desulfurizing iron. Rossborough L.P. has a new
magnesium grinding and product blending facility located near
Walkerton, Indiana, which was completed in April 1995. The
facility processes both magnesium ingots and secondary magnesium
granules into a size suitable for use in iron desulfurization
and also has the capability to provide blended finished
products. Most of the operations performed at the old La Porte
facility have been moved to the new plant.
The Registrant owns a 20% 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
environmental conservation industry. A plant in Singapore has
been constructed the help the Singapore ship repairing industry
dispose of its used copper slag abrasives. The recycle plant
mechanically separates contaminates from used abrasives. The
recycled abrasives are segregated into a coarse size fraction
suitable for reuse as a blasting abrasive and a fine slag size
fraction, which is used to make concrete pavers. JPL is also in
the business of selling processed and unprocessed abrasives made
from granulated copper slag.
During the fall of 1995, .JPL authorized the issuance of S$12.5
million (Singapore dollars) of interest bearing redeemable
convertible unsecured loan stock, of which $11 million has been
subscribed. The loans will be used to finance the second stage
of the copper slag processing and recycle facility and to expand
the concrete paver plant. If the all of the convertible loans
are subscribed and converted into common stock, the Registrant's
interest will be reduced to approximately 7%.
<PAGE>
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 of its former 9.063% interest
on all minerals produced in the McArthur River Joint Venture.
Some or all of the retained economic interests (net profits and
royalty) may become earning assets in the future.
The Waterbury Lake Joint Venture includes the Cigar Lake
deposit, which contains approximately 1.0 million tons of
uranium mineralization at a grade of 14% and an additional 1.1
million tons of uranium mineralization at a grade of 4.5%. This
equates to approximately 385 million pounds of uranium
concentrate, U3O8. 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. During the year, the venture has made
arrangements to have the ore processed at the McClean Lake mill
currently under construction and located approximately 60
kilometers from the orebody. Also in 1995, an environmental
impact statement was submitted for review. Mining is dependent
on the successful completion of the permitting process and the
development of favorable markets, which could occur before the
end of the century.
The McArthur River Joint Venture continued exploration work on
the uranium deposit discovered in 1988. As a result of
underground exploration drilling, the geologic reserves in the
property have been increased to 416 million pounds of U3O8 at
an average grade of 15% U3O8. The operator of the property has
begun the permitting process and an environmental impact
statement was submitted for review in 1995. If the process is
successful, the new mine would begin production before the end
of the century. The mine would replace production from the Key
Lake deposit and the Key Lake processing mill will be used to
process the ore.
The Dawn Lake Joint Venture has a uranium deposit containing
755,900 tons of uranium mineralization at an average grade of
1.97%. This equates to approximately 29.8 million pounds of
uranium.
The Registrant holds various non-producing mineral properties
in the United States. In New Mexico it owns the mineral rights
in a 57,000 acre tract and an 8-1/3% non-participating royalty
on all the minerals in a 60,000 acre tract. Prior drilling has
located some uranium mineralization on these tracts.
L-Bar Products Incorporated (L-Bar Products), a wholly-owned
subsidiary of the Registrant, operated a magnesium recovery
plant located at Chewelah, Washington, north of Spokane. The
plant was closed in December 1991. In March 1995 L-Bar Products
was placed in Chapter 7 liquidation and a trustee was appointed.
Matters pertaining to the L-Bar Products bankruptcy case are
more fully discussed below (reference Item 3. Legal Proceedings).
<PAGE>
(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.
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 leased 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.
7. There are no patents or trademarks of material importance to the
Registrant's business. Mining claims, leases and crown grants
are believed to be 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 has not spent a material amount of funds on
research and development.
11. Federal, state and local laws and regulations relating to
protection of the environment effect the Registrant in many
areas of its operations. Except for L-Bar Products, the cost
and effects of these laws, in the opinion of management, are
currently contained in the Registrant's financial statements.
The State of Washington Department of Ecology (WDOE) (Reference
Item 3. Legal Proceedings) requested that L-Bar Products provide
financial assurance that the residue pile, accumulated at the
Chewelah plant by the previous owners of the plant, can be
removed from the site. L-Bar Products is currently in Chapter 7
bankruptcy liquidation, and this matter is currently
unresolved. It is management's opinion that the Company will
not be liable for this matter, and in any event any liability
can not be estimated, therefore, no amounts have been accrued
for this matter in the accompanying financial statements. The
Registrant has also been sued by Northwest Alloys, the generator
of the material at the Chewelah plant, to provide reimbursement
for its costs for the site remediation that Northwest Alloys has
agreed to perform (Reference Item 3. Legal Proceedings).
12. The Registrant has 19 full time employees and 1 part time
employee in the United States.
<PAGE>
Item 2. Description of Properties
(a) Information as to the location of the principal plants is
forth under Item l. above. The silica sand property is operated
under a mineral lease from the owner. The mineral property
interests are described in the table below.
RESERVE INDUSTRIES CORPORATION
MINERAL INTERESTS
Gross % Net Type of
Location and Mineral Acres Interest Acres Interest
New Mexico - Uranium
L-Bar Ranch
Reserve Tract 57,000 100.00% 57,000 (1) Mineral deed
Exxon Tract 60,000 8.33% 5,000 Royalty
Other 552 50-100% 312 Mineral deed
------- -------
117,552 62,312
Saskatchewan Canada *
Waterbury Lake Project 234,300 (2)
Dawn Lake Project 386,800 (2)
McArthur River Project 211,400 (2)
* Approximate
(1) Subject to a 1/24 royalty interest
(2) The company's interest in these projects is described in
Item 1.
(b) Investment Policies. In the normal course of business,
the Registrant does not deal in investments contemplated by this
section.
(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.
<PAGE>
Item 3. Legal Proceedings
(a) Pending legal proceedings
Northwest Alloys Inc. vs. Reserve Industries Corporation
On April 28, 1994, a complaint for monetary and declaratory
relief was filed in the United States District Court for the
Eastern District of Washington by Northwest Alloys against the
Registrant.
The complaint alleges causes of action for monetary and
declaratory relief for breach of contract and statutory
contribution under the Washington Model Toxics Control Act
(MTCA). For its breach of contract claim, Northwest Alloys
seeks to rely upon an August 2, 1990 guaranty signed by the
Registrant, which Northwest Alloys claims guarantees payment of
the greater of (i) up to $2,000,000 for environmental cleanup at
the Chewelah, Washington site owned and operated by L-Bar
Products, or (ii) certain loan funds in excess of $2.5 million,
plus interest, related to L-Bar Products' alleged obligation to
repay certain loans from Northwest Alloys (estimated by
Northwest Alloys to be $1,291,481 plus accrued and accruing
interest). For the statutory contribution action under the
MTCA, Northwest Alloys seeks contribution for ongoing remedial
costs for alleged soil and ground water contamination at the
L-Bar Products site in Chewelah, Washington. Contribution is
sought from the Registrant for past and present costs incurred,
and future costs to be incurred, by Northwest Alloys to address
the alleged soil and ground water contamination at the L-Bar
Products site.
The Registrant denies any and all liability alleged in the
complaint and is contesting the claims. On June 17, 1994, the
Registrant filed a counterclaim against Northwest Alloys seeking
damages for breach of contract, breach of fiduciary duty, and
declaratory relief regarding environmental cleanup costs at the
site.
Northwest Alloys filed a motion for summary judgment to enforce
the August 2, 1990 guaranty. The motion was heard before the
Court on October 4, 1994 and Northwest Alloys' motion was
denied. On December 6, 1994 an order was entered staying all
further proceedings pending the completion of adversary
proceedings involving the Registrant in L-Bar Product's
bankruptcy proceedings (see below).
L-Bar Products Inc. Bankruptcy Proceedings
On December 13, 1991 L-Bar Products was notified that a
petition was filed against it for an order of relief under
Chapter 7 of the United States Bankruptcy Code, in the United
States Bankruptcy Court for the Eastern District of Washington.
This petition was filed on behalf of three creditors that had
performed work on the capital improvements at the L-Bar Products
plant, prior to plant closure. On July 13, 1992 L-Bar Products
filed a reorganization petition under Chapter 11 of the U.S.
Bankruptcy Code. The case was consolidated in the Bankruptcy
Court for the Eastern District of Washington. On March 15,
1995, the bankruptcy was converted to Chapter 7 and a trustee
was appointed.
L-Bar Products is continuing to pursue resolution of certain
claims against Northwest Alloys (see below).
<PAGE>
L-Bar Products, Inc. vs. Northwest Alloys Inc.
On August 31, 1994, L-Bar Products filed a complaint for breach
of contract, breach of fiduciary duty, equitable subordination,
declaratory relief and recovery of environmental cleanup costs
against Northwest Alloys. The complaint was filed in the United
States Bankruptcy Court for the Eastern District of Washington.
On October 21, 1994 Northwest Alloys filed a third party claim
against the Registrant seeking the same relief as requested in
the case described above. On December 30, 1994, the Registrant
filed a counterclaim against Northwest Alloys seeking relief
similar to that contained in its counterclaim in the case
described above. Because the District Court has stayed all
proceedings in that action, matters involving claims by and
against the Registrant, L-Bar Products and Northwest Alloys are
proceeding in the Bankruptcy Court. Pre-trial discovery
commenced in early 1996.
(b) Pending governmental legal proceedings
WDOE Proceedings
The WDOE named the Registrant and L-Bar Products as potentially
liable persons (PLP) for part of the cleanup related to the
Chewelah site. The basis for naming L-Bar Products was its
status as site owner/operator. The basis for naming the
Registrant is the alleged responsibility of the parent
corporation. It is management's opinion that the Registrant was
a separate entity from L-Bar Products and is not responsible as
a PLP for site contamination.
The WDOE has entered into an administrative order with
Northwest Alloys under which Northwest Alloys has agreed to
undertake testing at the Chewelah site and prepare a proposed
remedial plan for cleanup. L-Bar Products has petitioned the
Bankruptcy Court for approval to agree to the same order in
order to cooperate with WDOE. This request is pending. The
Registrant has declined to enter into the order due to its
insistence that it is not a PLP under the MTCA.
Environmental Protection Agency Proceedings
In the Spring of 1992, the Environmental Protection Agency
pursuant to information contained in a sealed affidavit
uncovered approximately 80 barrels that had contained a spent
sulfuric acid. The barrels were mostly empty but some contained
some "sludge" in the bottom.
In the Spring of 1995, the Justice Department indicted a former
foreman and the former plant manager. An indictment was also
presented against L-Bar Products. The foreman plead guilty to
two counts and was sentenced to three years probation and six
months partial home confinement. The former plant manager plead
guilty to two misdemeanor charges and was sentenced to six
months unsupervised probation. According to news reports, the
former foreman told the federal judge that an employee he
supervised suggested the barrels be buried, and that "there was
really no agreement to do anything... I did not discuss it with
L-Bar Products ahead of time... I guess it just didn't enter my
mind that it might have been considered hazardous (under federal
law)".
L-Bar Products has not yet entered a plea as it did not have an
attorney to represent it. Pursuant to a hearing on this matter,
the Bankruptcy Court has authorized appointment of a special
attorney to represent L-Bar Products in this matter. Such
appointment is subject to creditor approval.
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of the shareholders of the Registrant was
held on November 21, 1995. The primary item of business at the
meeting was the election of Directors of the Registrant to hold
office until the next annual meeting of shareholders or until
successors have been elected and qualified. At the record date
of October 10, 1995 there were 3,147,333 shares outstanding and
entitled to vote at the meeting. The following table lists the
Directors elected and the votes for, against and abstain for
each Director:
Director For Against Abstain
-------- --------- ------- -------
James J. Melfi, Jr. 2,551,882 30,330 23,800
Frank C. Melfi 2,551,882 30,330 23,800
William J. Melfi 2,501,882 80,330 23,800
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. Once the Registrant is in a position to do
so, it 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 can not list current prices for its
stock. The Registrant has been informed that the most recent
transactions have occurred at a price of $0.125 per share.
(b) Holders. On February 25, 1996, 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.
<PAGE>
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Results of Operations. For the year ended November 30, 1995,
the Registrant had revenues of $1,778,137 which resulted in a
net loss of $754,543 or $0.24 per share. For the year ended
November 30, 1994, the Registrant had revenues of $1,438,016
which resulted in a net loss of $943,726 or $0.32 per share.
The revenues in 1995 increased from 1994 as a result of
increased sales and a non-recurring contract settlement of
$344,791. This increase was offset by decreased income from
affiliates. The increase in sales occurred at the Registrant's
silica sand operation. This increase was offset by higher than
expected cost of sales due to the age of the sand plant. A
renovation of the sand plant was begun in mid-1995 and is
scheduled to be completed in early 1996. The renovation is
expected to improve the efficiency of the plant. Approximately
$520,000 of the loss is attributable to a change in the method
of inventory accounting by an affiliate (see footnote 5 of the
notes to the consolidated financial statements).
Liquidity and Capital Resources. The Registrant's net cash
provided (used) by operating activities was $324,041 and
$(236,221) in 1995 and 1994, respectively. The net cash used
by investing activities was $722,512 and $175,886 in 1995 and
1994, respectively. Most of the cash used by investing
activities in 1995 and 1994 was for capital improvements and the
cost of the L-Bar bankruptcy. The Registrant increased its debt
by $401,914 in 1995 and reduced its debt by $88,358 in 1994.
The Registrant had working capital deficits of approximately
$2.1 million and $1.5 million in 1995 and 1994, respectively.
As part of the Registrant's program to conserve cash, 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 have been accrued
but not paid in 1995. During 1994, $231,984 of the accrued
deferred compensation and $110,306 of the deferred interest was
paid by the issuance of common stock (see footnote 12 of the
notes to the consolidated financial statements). As of November
30, 1995, these accruals (salaries, deferred compensation and
deferred interest) exceeded $1.4 million.
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, 1995 and 1994
Consolidated Statements of Operations for the Years Ended
November 30, 1995 and 1994
Consolidated Statements of Stockholders' Investment for the
Years Ended November 30, 1995 and 1994
Consolidated Statements of Cash Flows for the Years Ended
November 30, 1995 and 1994
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.
<PAGE>
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 1995, 1994, 1993,
1992 and 1991. The Registrant has previously used Arthur
Andersen & Co. and may retain them in the future.
While the Registrant has not used an independent accountant for
the fiscal years ended November 30, 1995, 1994, 1993, 1992 and
1991, 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(a) 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 68, 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 59, 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 53, 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 other executive officer of the registrant was Thomas J.
O'Grady, age 63, was Treasurer until his retirement in June
1995, a position he held since February 1988. For more than two
years prior to that he was the Controller of the Registrant.
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. See Legal
Proceedings.
(1) Frank C. Melfi, William J. Melfi and Thomas J. O'Grady
have been executive officers of L-Bar Products, a wholly owned
subsidiary, which in currently in Chapter 7 bankruptcy
liquidation as described in Legal Proceedings.
(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.
<PAGE>
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, 1995, 1994, and
1993.
(b) Summary Compensation Table.
Summary Compensation Table
<TABLE>
<CAPTION>
Name and Principal Position Year Annual Compensation Long-Term Compensation All Other Compensation $
Salary $ Bonus $ Other Restricted Compensation
Annual Stock Options/ LTIP
Comp $ Awards SARS Payouts
</CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Frank C. Melfi CEO 1995 135,000 27,000 674 - - - -
1994 135,000 27,000 752 - - - -
1993 135,000 33,750 870 - - - -
James J. Melfi,Jr Chairman 1995 135,000 27,000 635 - - - -
1994 135,000 27,000 752 - - - -
1993 135,000 33,750 870 - - - -
William J. Melfi V.P. 1995 100,000 20,000 1,663 - - - -
1994 100,000 20,000 987 - - - -
1993 100,000 25,000 987 - - - -
</TABLE>
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 $10,474, $10,435 and $3,413, respectively of
the annual compensation due them in 1995.
(c) Option/SAR Grants Table. This table is omitted because
there was no activity in the 1995 fiscal year.
(d) Aggregated Option/SAR Exercises and Fiscal Year-End
Option/SAR Value Table.
Aggregated Option/SAR Exercises and Fiscal Year-End Option/SAR Value Table.
<TABLE>
<CAPTION>
Name Shares Acquired Value Realized ($) Number of Unexercised Options/SARs Value of Unexecised
on Exercise (#) at FY-End (#) Excercisable/ in-the Money Options
Unexcercisable SAR at FY-End ($)
Excer / Unexcer Excer / Unexcer
</CAPTION>
<S> <c <C> <C> <C> <c.
Frank C. Melfi - - 7,500 / 0 -
CEO
James J. Melfi, Jr. - - 7,500 / 0 -
Chairman
William J. Melfi t - - 6,500 / 0 -
Vice President
</TABLE>
<PAGE>
The Registrant has two active stock option plans, which are
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 longterm 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. Not Applicapble.
(h) Report on Repricing of Options/SARs. During 1995, none of
the outstanding Options were repriced.
Compensation Committee Report
The Board of Directors has appointed a Compensation Committee,
the members of which are Mr. Frank C. Melfi and Mr. James J.
Melfi, Jr. The Compensation Committee also acts as the Stock
Option Committee. During the year ended November 30, 1995, the
Compensation Committee held one meeting. The committee is
responsible for annually reviewing the compensation paid to all
of the executive officers of the Company. The committee
develops recommendations to the Board of Directors for adoption
and/or modification. In determining the compensation to be paid
to each of the executive officers, the Committee reviewed the
experience and performance of the individual executive officer.
The Committee has not adopted objective standards for
determining salary and bonuses for the executive officers, but
takes into consideration all factors which it deems relevant in
evaluating the executive officer's performance.
November 21, 1995
Frank C. Melfi and James J. Melfi, Jr.
Performance Graph
Because the Registrant's stock is not publicly traded, and the
Registrant can not determine a price to compare performance, the
Registrant has not been able to prepare a performance graph.
<PAGE>
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, 1996:
<TABLE>
<CAPTION>
Amount and Nature of Percent
Name and Address Beneficial Ownership of Class
- --------------------------------------------------------------------------
</CAPTION>
<S> <C> <C>
Northwest Alloys Inc. Direct
P.O. Box 115 500,000 15.9%
Addy, Washington 99101
Melfi Corporation Direct
Suite 308, 20 First Plaza 198,500 6.3%
Albuquerque, New Mexico 87102
James J. Melfi, Jr. (1) Direct, Indirect and Option
Suite 308, 20 first Plaza 243,190 7.7%
Albuquerque, New Mexico 87102
Frank C. Melfi (2) Direct, Indirect and Option
Suite 308, 20 First Plaza 255.240 8.1%
Albuquerque, New Mexico 87102
</TABLE>
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 7,500 shares subject to
purchase under an option held by him and 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) Included in the number of shares opposite Mr. Frank C.
Melfi's name in the table above are 7,500 shares subject to
purchase under an option held by him. 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.
<PAGE>
(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, 1996.
<TABLE>
<CAPTION>
Amount and Nature of Percent
Name and Address Beneficial Ownership of Class
- --------------------------------------------------------------------
</CAPTION>
<S> <C> <C>
James J. Melfi, Jr. (1) Direct, Indirect and Option
Suite 308, 20 first Plaza 243,190 7.6%
Albuquerque, New Mexico 87102
Frank C. Melfi (2) Direct, Indirect and Option
Suite 308, 20 First Plaza 255,240 8.1%
Albuquerque, New Mexico 87102
William J. Melfi (3) Direct, Indirect and Option
Suite 308 20 First Plaza 125,790 4.0%
Albuquerque, New Mexico 87102
Officers and Directors Direct, Indirect and Option
as a group (4) 626,120 19.5%
</TABLE>
(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) Included in the number of shares opposite Mr. William J.
Melfi's name in the table above are 6,500 shares subject to
purchase under an option held by him, 7,790 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. 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.
(4) Included in the number of shares owned by officers and
directors as a group in the table above are 22,500 shares
subject to purchase under options.
(c) Changes in control. Not applicable.
<PAGE>
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 is
secured by the stock in JPL Industries, Reserve Minerals
Corporation and Industrial Mineral Products (Phil), Inc., the
Registrant's wholly owned Philippine subsidiary. In addition,
several times during 1991, Ruth Ann Melfi, 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 at November 30, 1995 was $145,000 plus accrued interest.
The interest rate on this loan is 10% per annum. The
Registrant provided no additional security for these loans.
On September 16, 1994, the Registrant issued 231,984 shares of
the common stock of the Company as payment for $231,984 of
deferred compensation accrued on the books of Registrant through
July 31, 1994 and due to Ruth Ann Melfi. This obligation arises
pursuant to management contracts with James J. Melfi, Sr. and
provides for monthly deferred compensation payments to his
surviving wife. In order to conserve cash the Registrant had
not made payments on this obligation since November 1991. The
stock was issued at par value of $1.00 per share.
The Registrant also issued 110,306 shares of common stock to
the Melfi Family Trust as payment of $110,306 of interest
accrued through December 31, 1992 on the loan from the Melfi
Family Trust to the Registrant. The stock was issued at par
value of $1.00 per share.
Prior to issuance of the stock the Registrant obtained an
independent opinion that the transaction was financially fair to
the shareholders of the Registrant.
One of the Registrant's subsidiaries, L-Bar Products, Inc.,
which is currently in Chapter 7 bankruptcy liquidation, had a
supply arrangement with Northwest Alloys, Inc., to process and
market certain waste products from Northwest Alloys' magnesium
plant in Addy Washington. Northwest Alloys lent funds to L-Bar
for the rehabilitation of L-Bar's Chewelah Washington facility.
At November 30, 1995, L-Bar Products owed Northwest Alloys $3.7
million plus accrued interest of approximately $1.2 million
(before any adjustments related to the bankruptcy).
(b) Pursuant to certain promissory notes to the Registrant,
James J. Melfi, Jr., Frank C. Melfi and William J. Melfi have
borrowed $79,795, $152,640 and $96,300, receptively.
(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.
<PAGE>
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, 1996
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, 1996 By /s/ James J. Melfi, Jr.
-----------------------
James J. Melfi, Jr. Director,
Chairman of the Board
Date February 15, 1996 By /s/ Frank C. Melfi
-------------------------
Frank C. Melfi, Director and President
(Principal Executive Officer)
Date February 15, 1996 By /s/ William J. Melfi
---------------------------
William J. Melfi, Director and
Vice President Finance and Administration
(Principal Financial Officer)
<PAGE>
RESERVE INDUSTRIES CORPORATION
EXHIBIT INDEX
Exhibit
Number Description
- -------- -------------------
22. List of Subsidiaries *
* Filed electronically.
<PAGE>
Exhibit No. 22
Subsidiaries of Reserve Industries Corporation as of November 30, 1995
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 Trigon Corporation New Mexico
Reserve Trisal, Inc. New Mexico
L-Bar Products, Inc. Washington
Country of Incorporation
------------------------
Industrial Mineral Products (Phil.) Inc. Philippines
L-Bar Canada Inc. Canada
<PAGE>
RESERVE INDUSTRIES CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
Page
Consolidated Balance Sheets - November 30, 1995 and 1994 1
Consolidated Statements of Income - For the years ended
November 30, 1995 and 1994 2
Consolidated Statements of Stockholders' Investment -
For the years ended November 30, 1995 and 1994 3
Consolidated Statements of Cash Flows - For the years ended
November 30, 1995 and 1994 4
Notes to Consolidated Financial Statements 5-forward
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.
<PAGE>
<TABLE>
<CAPTION>
RESERVE INDUSTRIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
NOVEMBER 30, 1995 AND 1994
ASSETS 1995 1994
- ------- ------------ ------------
</CAPTION>
<C> <S> <S>
CURRENT ASSETS:
Cash and cash equivalents (Note 2) $ 36,383 $ 22,940
Marketable securities (Note 1) - 38,360
Receivables, less allowance for doubtful accounts
of $43,274 in 1995 and $69,382 in 1994 185,757 108,492
Receivables from affiliates and related parties
(Note 12) 396,881 302,016
Inventories (Notes 1 and 3) 112,551 105,694
Prepaid expenses and deposits 30,973 18,159
Investment in limited partnership - 9,900
------------- ------------
Total current assets 762,545 605,561
------------- ------------
PROPERTY, PLANT AND EQUIPMENT, at cost
(Notes 1 and 4) 3,554,738 2,990,178
Less accumulated depreciation and depletion (919,317) (896,356)
------------- ------------
2,635,421 2,093,822
------------- ------------
INVESTMENT IN UNCONSOLIDATED AFFILIATES (Note 5) 4,170,727 4,530,393
------------- ------------
ORGANIZATION COSTS, less accumulated
amortization of $20,750 in 1995 and
$18,644 in 1994 (Note 1) 710 8,596
------------- ------------
GOODWILL, less accumulated amortization
of $29,750 in 1995 and $26,750 in 1994 (Note 1) 250 3,250
------------- ------------
OTHER ASSETS 55,710 55,710
------------- ------------
Total assets $ 7,625,363 $ 7,297,332
============= ============
LIABILITIES AND STOCKHOLDERS'INVESTMENT
- ---------------------------------------
CURRENT LIABILITIES:
Short-term debt related party $ 145,000 $ 145,000
Short-term debt 47,581 -
Current portion of long-term debt (Note 10) 145,005 117,408
Trade accounts payable 450,785 369,212
Deferred obligations to related parties (Note 12) 1,651,537 1,152,462
Other current liabilities (Note 9) 436,448 327,084
------------- ------------
Total current liabilities 2,876,356 2,111,166
------------- ------------
LONG-TERM DEBT, less current portion (Note 10) 1,034,634 707,898
------------- ------------
DISCONTINUED OPERATIONS - L-Bar Products (Note 6) 973,069 992,421
------------- ------------
COMMITMENTS AND CONTINGENCIES (Note 12)
STOCKHOLDERS' INVESTMENT:
Common stock, $1.00 par value. Authorized 6,000,000
shares, issued and outstanding 3,157,333 shares
in 1995 and 3,147,333 shares in 1994 (Note 7 3,157,333 3,147,333
Additional paid-in capital 7,458,718 7,458,718
Accumulated deficit (7,874,747) (7,120,204)
------------- ------------
Total stockholders' investment 2,741,304 3,485,847
------------- ------------
Total liabilities and stockholders'
investment $ 7,625,363 $ 7,297,332
============= ============
</TABLE>
The accompanying notes are an integral part of these consolidated
statements. The 1995 and 1994 financial information is unaudited.
<PAGE>
<TABLE>
<CAPTION>
RESERVE INDUSTRIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED NOVEMBER 30, 1995 AND 1994
1995 1994
------------ -----------
REVENUES:
</CAPTION>
<S> <C> <C>
Sales $ 1,691,913 $ 1,363,334
Contract settlement 344,791 -
Investment income 28,330 28,381
Gains (losses) on sales -
Marketable securities 16,128 (16,959)
Property and equipment (38,552) -
Income from affiliates -
Equity in earnings (328,492) (37,628)
Consulting fees 60,000 101,500
Other 4,019 (612)
------------ ------------
Total revenues $ 1,778,137 $ 1,438,016
------------ ------------
COSTS AND EXPENSES:
Cost of sales $ 1,336,308 $ 1,137,349
General and administration 889,908 966,468
Interest 131,266 148,545
Depreciation and amortization 166,667 123,380
Abandonment 8,531 -
------------- ------------
Total costs and expenses $ 2,532,680 $ 2,375,742
Loss from continuing operations (Note 6) $ (754,543) $ (937,726)
Provision for income taxes (Note 8) - 6,000
------------- ------------
Net loss $ (754,543) $ (943,726)
============= ============
EARNINGS (LOSS) PER SHARE:
Loss from continuing operations $ (0.24) $ (0.32)
Provision for income tax - 0.00
------------- ------------
Netloss per share $ (0.24) $ (0.32)
============= ============
Weighted Average Number of Shares of
Common Stock Outstanding 3,152,347 2,890,381
============== ============
</TABLE>
The accompanying notes are an integral part of these consolidated
statements. The 1995 and 1994 financial information is unaudited.
<PAGE>
<TABLE>
<CAPTION>
RESERVE INDUSTRIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED NOVEMBER 30, 1995 AND 1994
1995 1994
-------------- ------------
</CAPTION>
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss from continuing operations $ (754,543) $ (943,726)
Adjustments to reconcile net income from
continuing operations to net cash provided
by operating activities:
Abandonment Canadian assets 5,780 -
Depreciation and amortization 166,667 123,380
Equity in loss of affiliates 328,629 37,628
Increase in interest receivable from
affiliate (28,320) (28,361)
Cash distribution from affiliates 59,357 280,142
Loss on disposal of investment - 16,959
Changes in assets and liabilities:
(Increase) decrease in trade receivables (172,130) 78,903
(Increase) decrease in inventories (6,857) 43,099
Decrease in other current assets 35,446 16,346
Increase (decrease) in trade accounts payable 81,573 (29,866)
Increase in accrued officer salaries 499,075 201,298
Increase in other current liabilities 109,364 (32,023)
-------------- ------------
Total adjustments 1,078,584 707,505
-------------- ------------
Net cash provided by operating activities $ 324,041 $ (236,221)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of fixed assets $ - $ 8,141
Capital expenditures (703,160) (122,830)
Discontinued operations - L-Bar Products (19,352) (61,197)
-------------- ------------
Net cash used by investing activities $ (722,512) $ (175,886)
-------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of capital stock for interest $ - $ 110,306
Issuance of capital stock for deferred income - 231,984
Issuance of capital stock for services 10,000 -
Increase (decrease) in short-term debt 47,581 (31,388)
Increase (decrease) in long-term debt 354,333 (56,970)
-------------- ------------
Net cash provided by financing activities $ 411,914 $ 253,932
-------------- ------------
Net increase (decrease) in cash and cash
equivalents $ 13,443 $ (158,175)
Cash and cash equivalents at the beginning
of the year 22,940 181,115
-------------- ------------
Cash and cash equivalents at the end of
the year $ 36,383 $ 22,940
============== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 38,302 $ 40,655
Common stock issued during the year for - 110,306
</TABLE>
The accompanying notes are an integral part of these consolidated
statements. The 1995 and 1994 financial information is unaudited.
<PAGE>
<TABLE>
<CAPTION>
RESERVE INDUSTRIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
FOR THE YEARS ENDED NOVEMBER 30, 1995, 1994 AND 1993
Common Stock Additional
$1 Par Value Paid-In Accumulated
Shares Amount Capital Deficit Total
----------- ----------- ----------- ----------- -----------
</CAPTION>
<S> <C> <C> <C> <C> <C>
BALANCES, November 30, 1993 2,805,043 $ 2,805,043 $ 7,458,718 $ (6,176,478 $ 4,087,283
Common stock issued during 1994: (Note 12)
For deferred compensation 231,984 231,984 - - 231,984
For accrued interest 110,306 110,306 - - 110,306
Net loss - - - (943,726) (943,726)
---------- ----------- ----------- ------------ -----------
BALANCES, November 30, 1994 3,147,333 $ 3,147,333 $ 7,458,718 $ (7,120,204) $ 3,485,847
Common stock issued during 1995: (Note 12)
For deferred compensation 10,000 10,000 - - 10,000
Net loss - - - (754,543) (754,543)
----------- ----------- ----------- ------------ -----------
BALANCES, November 30, 1995 3,157,333 $ 3,157,333 $ 7,458,718 $ (7,874,747) $ 2,741,304
=========== =========== =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
statements. The 1995, 1994 and 1993 financial information is unaudited
<PAGE>
RESERVE INDUSTRIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED NOVEMBER 30, 1995 AND 1994
(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, Industrial
Mineral Products (Phil.), Inc., Reserve Trigon Corporation,
Reserve Rossborough Ventures Corporation, Reserve Minerals
Corporation , Reserve Trisal, Inc., L-Bar Canada Inc., and L-Bar
Products Incorporated, (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.
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 is 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.
<PAGE>
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. As reflected in note 6, operations at
L-Bar Products, Inc. (L-Bar Products) were suspended in December
1991 and L-Bar Products was determined in November 1992 to be a
discontinued operation.
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 a
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) CASH AND CASH EQUIVALENTS:
At November 30, 1995 and 1994, the Company had on deposit in a
foreign country $10,177 and $16,083, respectively, which is
restricted from transfer out of the country to the extent of the
foreign subsidiary's retained earnings. Cash transfers out of
the foreign country are subject to a withholding tax.
<PAGE>
(3) INVENTORIES:
Inventories consist of the following at November 30:
1995 1994
----------- ------------
Raw materials $ 101 $ 283
Finished products 19,949 20,136
Supplies and packaging 92,501 5,275
------------ ------------
$ 112,551 $ 105,694
(4) PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consist of the following at
November 30:
1995 1994
----------- ------------
Machinery and equipment $ 1,837,895 $ 1,273,335
Mineral properties 1,716,843 1,716,843
----------- ------------
$ 3,554,738 $ 2,990,178
(5) INVESTMENT IN UNCONSOLIDATED AFFILIATES:
Rossborough Manufacturing Company and Rossborough Manufacturing Co. L. P.
The Company owns a 50% stock interest in Rossborough
Manufacturing Company (Rossborough Co.), through its wholly
owned subsidiary, Reserve Trigon 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 of and owns 60% of Rossborough L.P. A stock
warrant is held by representatives of the former owner to
purchase up to 20% of the Rossborough Co. for $2. The warrant
expires in October 1998. 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 and long-term interest bearing notes
receivable from Rossborough L.P.. Such notes receivable
amounted to $186,000 and $189,000 and at November 30, 1995 and
1994 the accrued interest receivable on these notes amounted to
$183,805 and $155,485, respectively. Included in the Company's
earnings are equity in earnings of affiliates and consulting
income and the Company plans to reinvest its undistributed
equity earnings in those affiliates. At November 30, 1995 and
1994 the Company had $2,181,065 and $2,569,665 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.
<PAGE>
For the year ended November 30, 1994, Rossborough L.P. changed
its method of determining the cost of certain raw material
inventory from the first-in, first-out (FIFO) to the last-in,
first-out (LIFO) method to more appropriately reflect the
inflationary cost increases of certain products. The effect of
the change in 1995 and 1994 was to reduce the carrying value of
inventory and net income by approximately $1,812,000 and
$630,000, respectively. At November 30, 1995 and 1994, 71% and
76%, respectively, of the inventory is valued using the LIFO
method of accounting.
The financial information of Rossborough L.P. is summarized
below for the periods ended November 30:
1995 1994
------------- -------------
Net sales $ 49,985,951 $ 42,636,912
Gross profit $ 5,882,364 $ 5,900,634
Net partnership loss $ (807,506) $ (342,634)
============ ============
Total current assets $ 14,088,484 $ 13,271,762
Fixed and other assets 7,012,146 6,936,622
------------ ------------
Total assets $ 21,100,630 $ 20,208,384
============ ============
Current liabilities $ 9,638,019 $ 9,585,167
Total long-term liabilities 6,593,728 4,783,070
Total partnership capital 4,868,883 5,840,147
------------ ------------
Total liabilities and
partnership capital $ 21,100,630 $ 20,208,384
============ ============
JPL Industries Pte. Ltd.
The Company owns a 20% 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.
<PAGE>
(6) DISCONTINUED OPERATIONS:
Plant Closure
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.
Litigation
On December 13, 1991, L-Bar Products was notified that a
petition was filed against it for an order of relief under
Chapter 7 of the United States Bankruptcy Code, in the United
States Bankruptcy Court for the Eastern District of Washington.
This petition was filed on behalf of three creditors that had
performed work on the capital improvements at the L-Bar Products
plant, prior to plant closure. On July 13, 1992 L-Bar Products
filed a reorganization petition under Chapter 11 of the U.S.
Bankruptcy Code. The case was consolidated in the Bankruptcy
Court for the Eastern District of Washington. On March 15,
1995, the bankruptcy was converted to Chapter 7 and a trustee
was appointed.
On August 31, 1994, L-Bar Products filed a complaint for breach
of contract, breach of fiduciary duty, equitable subordination,
declaratory relief and recovery of environmental cleanup costs
against Northwest Alloys. The complaint was filed in the United
States Bankruptcy Court for the Eastern District of Washington.
Pre-trial discovery commenced in early 1996.
Long-term debt
A term loan with an outstanding amount of $3.77 million plus
interest is owed to Northwest Alloys by L-Bar Products. The
loan is secured by the assets of L-Bar Products and bears
interest at the prime rate. The purpose of the loan was to fund
certain plant improvements in process at the time of the closure
of the plant, as discussed in Note 12. As security for the
loan, Northwest Alloys has a mortgage on all of the assets of
L-Bar Products. In addition, the Company, subject to the Loan
Agreement, signed a guaranty as discussed in Note 12. The loan
is subject to certain covenants and restrictions which relate to
maintenance of working capital, net worth, and accounts payable
of L-Bar Products. L-Bar Products has not made any principal or
interest payments on the loan and is not in compliance with the
loan covenants.
A term loan by L-Bar Products in the amount of $312,192 plus
interest at prime was due November 30, 1991. The loan is
secured by certain mineral rights of the Company with a book
value of $1,417,000. L-Bar Products has numerous other
unsecured creditors.
<PAGE>
Summary financial information
The balance sheet of L-Bar Products is summarized below for the
periods ended November 30:
1995 1994
------------- -------------
Current assets $ 412,449 $ 512,519
Plant, Property & Equip,
net of depreciation 6,593,313 6,614,313
Contractual rights and other assets 810,956 810,956
------------- -------------
$ 7,816,718 $ 7,937,788
============= =============
Current liabilities $ 3,742,009 $ 3,893,052
Long-term debt,
less current portion 3,547,778 3,537,157
Deferred gain on issuance of
stock for debt 1,500,000 1,500,000
------------- -------------
$ 8,789,787 $ 8,930,209
============= =============
Net liability $ 973,069 $ 992,421
============= =============
The operating statement of L-Bar Products is summarized below
for the periods ended November 30:
1995 1994
------------- -------------
Revenue $ - $ -
Cost of sales 32,620 112,074
------------- -------------
Operating loss (32,620) (112,074)
General and administrative expense 66,861 105,561
Interest expense (income) (2,731) (3,467)
Non-cash expense - 23,660
------------- --------------
$ (96,750) $ (237,828)
============= ==============
<PAGE>
(7) STOCK OPTIONS:
The Company has two active stock option plans; the 1987
Incentive Stock Option Plan (1987 ISO Plan) and the 1987
Nonqualified Stock Option Plan (1987 Nonqualified Plan). The
1987 ISO Plan provides 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, at November
30, 1995, 62,750 shares were available for granting further
options, and options for 27,250 shares were outstanding at $2.44
to $3.25 per share, all of which were exercisable. The 1987
Nonqualified Plan provides for the issuance of options to
officers and directors, who can not participate in the 1987 ISO
Plan, to purchase up to 25,000 shares in aggregate of the
Company's common stock. Under the 1987 Nonqualified Plan, at
November 30, 1995, 3,500 shares were available for granting
further options and options for 21,500 shares were outstanding
at $1.625 to $3.00 per share, all of which were exercisable.
All option plans provide 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 plans during 1995 and 1994.
(8) INCOME TAXES:
At November 30, 1995 the Company had net operating loss
carryforwards of approximately $6.9 million (net of 5.6 million
related to L-Bar Products) which will expire between 1996 and
2006. 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. At November 30, 1995
the Company had investment tax and new jobs tax credit
carryforwards of approximately $8,125 which will expire between
1995 and 2001.
Due to losses from continuing operations in 1995 and 1994, there
is no tax expense computed for those years. 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):
1995 1994
------------- -------------
Current federal income tax $ (256.6) $ (318.8)
Accrual for wages not yet paid 186.6 72.8
Partnership income in excess of
equity income 55.0 -
Accrual for State Income tax - 6.0
Addition to federal
income tax loss carryforward 15.0 246.0
-------------- -------------
$ - $ 6.0
============== =============
<PAGE>
(9) OTHER CURRENT LIABILITIES:
Other current liabilities consist of the following at November 30:
1995 1994
-------------- -------------
Accrued interest $ 238,014 $ 161,773
Other current liabilities 198,434 165,351
-------------- -------------
$ 436,448 $ 327,084
============== =============
(10) DEBT:
Long-term debt consists of the following at November 30:
1995 1994
-------------- -------------
Term loan, due September 30, 1996,
with annual interest payments at
10% secured by the stock in JPL
Industries, Reserve Minerals
Corporation and Industrial
Mineral Products (Phil)
see Notes 5 and 12. $ 695,000 $ 695,000
Other notes 15,592 39,718
Capital leases $ 469,047 $ 90,588
-------------- -------------
1,179,639 825,306
Less current portion 145,005 117,408
-------------- -------------
$ 1,034,634 $ 707,898
============== =============
The long-term debt payment schedule consists of the following at
November 30, 1995:
1996 $ 145,005
1997 826,110
1998 or later 208,524
--------------
$ 1,179,639
The net book value of the assets leased pursuant to capital
lease arrangements was $502,594 as of November 30, 1995.
<PAGE>
(11) 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 1995, the Company had two customers in the
industrial products segment that accounted for net sales of
56.7% ($959,243) and 18.2% ($307,474), respectively. In fiscal
year 1994, the Company had three customers in the industrial
products segment that accounted for net sales of 33.9%
($462,902), 29.0% ($396,008) and 15.2% ($207,101), 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:
1995 1994
------------- -------------
Net sales and revenues:
Industrial Products - Silica sand $ 1,640,097 $ 1,263,176
Industrial Products - Abrasives/Other 396,608 99,527
Corporate 69,924 112,941
Equity in earnings from affiliates (328,492) (37,628)
------------- -------------
$ 1,778,137 $ 1,438,016
Segment operating income:
Industrial Products - Silica sand $ 234,068 $ 330,091
Industrial Products - Abrasives/Other 430,594 (104,543)
Corporate 105,659 112,747
Equity in earnings from affiliates (328,492) (37,628)
------------- -------------
441,829 300,667
------------- -------------
Corporate and other expenses:
General and administration 889,908 966,468
Depreciation and amortization
- Industrial products 158,099 119,246
Depreciation and amortization
- Corporate 8,568 4,134
Interest expense 131,266 148,545
Other expense 8,531 -
-------------- -------------
1,196,372 1,238,393
-------------- -------------
Income from continuing operations $ (754,543) $ (937,726)
============== =============
<PAGE>
Identifiable assets
- Industrial Products $ 3,013,871 $ 2,436,990
Identifiable assets - Corporate 4,611,492 4,860,342
-------------- -------------
$ 7,625,363 $ 7,297,332
============== =============
Capital expenditures
- Industrial Products $ 703,160 $ 97,627
Capital expenditures - Corporate - 25,203
-------------- -------------
$ 703,160 $ 122,830
============== =============
The following table summarizes financial data by geographic area
as of November 30:
Sales:
United States $ 1,640,097 $ 1,263,807
Far East 51,816 99,527
-------------- -------------
$ 1,691,913 $ 1,363,334
============== =============
Operating profit (loss):
United States $ 11,233 $ 408,744
Far East 397,779 (106,276)
Canada 32,817 (1,801)
-------------- -------------
$ 441,829 $ 300,667
Identifiable Assets:
United States $ 5,869,318 $ 5,867,395
Far East 1,756,045 1,421,269
Canada - 8,668
-------------- -------------
$ 7,625,363 $ 7,297,332
============== =============
<PAGE>
(12) COMMITMENTS AND CONTINGENCIES:
Environmental Matters
The WDOE named the Company and L-Bar Products as potentially
liable persons (PLP) for part of the cleanup related to the
Chewelah site. The basis for naming L-Bar Products was its
status as site owner/operator. The basis for naming the Company
is the alleged responsibility of the parent corporation. It is
management's opinion that the Company was a separate entity from
L-Bar Products and is not responsible as a PLP for site
contamination.
The WDOE has entered into an administrative order with Northwest
Alloys under which Northwest Alloys has agreed to undertake
testing at the Chewelah site and prepare a proposed remedial
plan for cleanup. L-Bar Products has petitioned the Bankruptcy
Court for approval to agree to the same order in order to
cooperate with WDOE. This request is pending. The Company has
declined to enter into the order due to its insistence that it
is not a PLP under the Washington Model Toxics Control Act MTCA.
It is management's opinion that the Company will not be liable
for the matter discussed above, and in any event, any liability
can not be estimated. Therefore no amounts have been accrued
for this matter in the accompanying financial statements.
Northwest Alloys Inc. vs. Reserve Industries Corporation
On April 28, 1994, a complaint for monetary and declaratory
relief was filed in the United States District Court for the
Eastern District of Washington by Northwest Alloys against the
Company.
The complaint alleges causes of action for monetary and
declaratory relief for breach of contract and statutory
contribution under the Washington Model Toxics Control Act
(MTCA). For its breach of contract claim, Northwest Alloys
seeks to rely upon an August 2, 1990 guaranty signed by the
Company which Northwest Alloys claims guarantees payment of the
greater of (i) up to $2,000,000 for environmental cleanup at the
Chewelah, Washington site owned and operated by L-Bar Products,
or (ii) certain loan funds in excess of $2.5 million, plus
interest, related to L-Bar Products' alleged obligation to repay
certain loans from Northwest Alloys (estimated by Northwest
Alloys to be $1,291,481 plus accrued and accruing interest).
For the statutory contribution action under the MTCA, Northwest
Alloys seeks contribution for ongoing remedial costs for alleged
soil and ground water contamination at the L-Bar Products site
in Chewelah, Washington. Contribution is sought from the
Company for past and present costs incurred, and future costs to
be incurred, by Northwest Alloys to address the alleged soil and
ground water contamination at the L-Bar Products site.
Northwest Alloys filed a motion for summary judgment to enforce
the August 2, 1990 guaranty. The motion was heard before the
Court on October 4, 1994 and Northwest Alloys' motion was
denied. On December 6, 1994 an order was entered staying all
further proceedings pending the completion of adversary
proceedings involving the Company in L-Bar Product's bankruptcy
proceedings.
Deferred Compensation
The Company has a deferred compensation plan for its deceased
chairman's spouse. Amounts due under the plan were accrued, but
no payments were made in 1995, 1993 and 1992 because the Company
has been conserving its cash The payment of this benefit is
pursuant to a management contract which provides 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 have been
expensed when either paid or accrued.
<PAGE>
The deferred compensation accrued from the last payment in
November 1991 through July 31, 1994 amounted to $231,984. In
September 1994, the Company issued 231,984 shares of common
stock at par value of $1.00 per share as payment for the
compensation accrued through July 31, 1994. Prior to issuance
of the stock, the Company obtained an independent opinion that
the transaction was financially fair to the shareholders of the
Company. The Company is continuing to accrue the amount due in
order to conserve cash, and in 1995 and 1994, the accrued
deferred compensation amounted to $114,209 and $28,553,
respectively.
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 1995 and 1994, the accrued compensation due to
the officers and directors amounted to $1,490,987 and
$1,091,378, respectively.
During 1991, the Company borrowed $695,000 from the Melfi Family
Trust, which is part of the estate of Mr. James J. Melfi, Sr.,
in order to purchase the equity interest in JPL Industries Pte.
Ltd. The interest on this loan has been accrued and in
September 1994 the Company issued 110,306 shares of common stock
at par value of $1.00 per share as payment for the interest due
through December 31, 1992. Prior to issuance of the stock, the
Company obtained an independent opinion that the transaction was
financially fair to the shareholders of the Company. The
Company is continuing to accrue the amount due in order to
conserve cash, and in 1995 and 1994, the accrued interest
amounted to $233,527 and $161,733, respectively.
The Melfi Family Trust and other family members have loaned
working capital to the Company. The Company currently owes
$145,000 plus accrued interest on these working capital loans.
In 1995 and 1994, the accrued interest on these working capital
loans amounted to $46,430 and $32,531, respectively.
Pursuant to promissory notes to the Company, officers have loans
amounting to $328,735 and $206,385 in 1995 and 1994, receptively.
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.
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