UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

     (Mark One)

OR

Commission File Number 0-4197

United States Lime & Minerals, Inc.

Registrant’s telephone number, including area code: (972) 991-8400

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

None

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

Common Stock, $0.10 par value

     Indicate by check mark whether the Registrant (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 (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes (X) No (  )

     Indicate by a check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not 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-K or any amendment of this Form 10-K. [  ]

     Indicate by check mark whether the registrant is an accelerated filer (as deby Rule 12b-2 of the Act).

Yes (  ) No (X)

     The aggregate market value of Common Stock held by non-affiliates computed as of the last business day of the Registrant’s quarter ended June 30, 2003: $5,773,268.

     Number of shares of Common Stock outstanding as of March 26, 2003: 5,822,596.

DOCUMENTS INCORPORATED BY REFERENCE

     Part III incorporates information by reference from the Registrant’s definitive Proxy Statement to be filed for its 2004 Annual Meeting of Shareholders. Part IV incorporates certain exhibits by reference from the Registrant’s previous filings.

TABLE OF CONTENTS

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PART I

ITEM 1. BUSINESS.

     General. The business of United States Lime & Minerals, Inc. (the “Company” or the “Registrant”), which was incorporated in 1950, is the production and sale of lime and limestone products. The Company extracts high-quality limestone from its quarries and processes it for sale as pulverized limestone, quicklime and hydrated lime. These operations were conducted throughout 2003 by three wholly-owned subsidiaries of the Company: Arkansas Lime Company, Colorado Lime Company and Texas Lime Company.

     The Company’s principal corporate office is located at 13800 Montfort Drive, Suite 330, Dallas, Texas 75240. The Company’s telephone number is (972) 991-8400, and its internet address is www.uslm.com. The Company’s annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act are available free of charge on or through the Company’s website as soon as reasonably practicable after the Company electronically files such material with, or furnishes it to, the Securities and Exchange Commission.

     Business and Products. The Company extracts high-quality limestone from its quarries and then processes it for sale as pulverized limestone, quicklime and hydrated lime. Pulverized limestone (also referred to as ground calcium carbonate) is a dried product ground to granular and finer sizes. Quicklime (calcium oxide) is produced by heating limestone to very high temperatures in kilns in a process called calcination. Hydrated lime (calcium hydroxide) is produced by reacting quicklime with water in a controlled process to produce a dry, white powder.

     Pulverized limestone is used primarily in the production of construction materials such as roofing shingles and asphalt paving, as an additive to agriculture feeds, as a soil enhancement and for mine safety dust in coal mining operations. Quicklime is used primarily in the manufacturing of paper products, in sanitation and water filtering systems, in metal processing and in soil stabilization for highway and building construction. Hydrated lime is used primarily in municipal sanitation and water treatment, in soil stabilization for highway and building construction, in the production of chemicals and in the production of construction materials such as stucco, plaster and mortar.

     Product Sales. In 2003, the Company sold most of its products in the states of Arkansas, Colorado, Kansas, Louisiana, Mississippi, New Mexico, Oklahoma, Tennessee and Texas. Sales are made primarily by the Company’s seven sales employees who call on potential customers and solicit orders which are generally made on a purchase-order basis. The Company also receives orders in response to bids that it prepares and submits to potential customers.

     Principal customers for the Company’s lime and limestone products are highway, street and parking lot contractors, chemical producers, paper manufacturers, roofing shingle manufacturers, steel producers, glass manufacturers, municipal sanitation and water treatment facilities, poultry and cattle feed producers, governmental agencies and electrical utility companies.

     Approximately 650 customers accounted for the Company’s sales of lime and limestone products during 2003. No single customer accounted for more than 10% of such sales. The Company is generally not subject to significant customer risks as its customers are considerably diversified as to geographic location and industrial concentration. However, given the nature of the lime and limestone industry, the Company’s profits are very sensitive to changes in sales volume.

     Lime and limestone products are transported by truck and rail to customers generally within a radius of 400 miles of each of the Company’s processing plants. All of the Company’s sales are made within the United States.

     Order Backlog. The Company does not believe that backlog information accurately reflects anticipated annual revenues or profitability from year to year.

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     Seasonality. The Company’s sales have historically reflected seasonal trends, with the largest percentage of total annual revenues being realized in the second and third quarters. Lower seasonal demand normally results in reduced shipments and revenues in the first and fourth quarters. Inclement weather conditions generally have a negative impact on the demand for lime and limestone products supplied to construction related customers, as well as on the Company’s open-pit mining operations.

     Limestone Reserves. The Company has two subsidiaries that extract limestone from open-pit quarries: Texas Lime Company, which is located 14 miles from Cleburne, Texas, and Arkansas Lime Company, which is located near Batesville, Arkansas. A third subsidiary, Colorado Lime Company, owns limestone resources at Monarch Pass located 15 miles west of Salida, Colorado. No mining took place on the Colorado property in 2003. Existing crushed stone stockpiles on the property were used to provide feedstock to the plant in Salida. Access to all locations is provided by paved roads.

     Texas Lime Company operates upon a tract of land containing approximately 470 acres, including the Cleburne Quarry. The Company owns approximately 2,700 acres adjacent to the quarry. Both the quarry and the adjacent land contain known high-quality limestone reserves in a bed averaging 28 feet in thickness, with an overburden that ranges from 0 to 50 feet. The Company also has mineral interests in approximately 560 acres of land adjacent to the northwest boundary of the Company’s property. The calculated reserves, as of December 31, 2003, were approximately 36,000,000 tons of proven reserves plus approximately 91,000,000 tons of probable reserves. Assuming the current level of production is maintained, the Company estimates that these reserves are sufficient to sustain operations for approximately 90 years.

     Arkansas Lime Company operates the Batesville Quarry and has hydrated lime and limestone production facilities on a second site linked to the quarry by its own standard-gauge railroad. The active quarry operations cover approximately 725 acres of land containing a known deposit of high-quality limestone. The average thickness of the high-quality limestone deposit is approximately 70 feet, with an average overburden thickness of 35 feet. The Company also owns approximately 325 additional acres containing additional high-quality limestone deposits adjacent to the present quarry but separated from it by a public highway. The average thickness of this second high-quality limestone deposit is approximately 55 feet, with an average overburden of 20 feet. The calculated reserves, as of December 31, 2003, were approximately 20,000,000 tons of proven reserves plus an additional 33,500,000 tons of probable reserves. Assuming the projected levels of production after completion of the Phase II modernization and expansion, the Company estimates that reserves are sufficient to sustain operations for approximately 45 years.

     Colorado Lime Company acquired the Monarch Pass Quarry in November 1995 and has not carried out any mining on the property. A review of the potential limestone resources has been completed by independent geologists; however, the Company has not initiated a drilling program. Consequently, it is not possible to identify and categorize reserves. The Monarch Pass Quarry, which had been operated for many years until its closure in the early nineties, contains a mixture of limestone types, including high-quality calcium limestone and dolomite. The Company expects to continue to utilize remaining crushed stone stockpiles on the property to supply its processing plant in nearby Salida.

     Mining. The Company extracts limestone by the open-pit method at its Arkansas and Texas quarries. Monarch Pass is also an open-pit quarry, but is not being mined at this time. The open-pit method consists of removing any overburden comprising soil, trees and other substances, including inferior limestone, and then extracting the exposed high-quality limestone. Open-pit mining is generally less expensive than underground mining. The principal disadvantage of the open-pit method is that operations are subject to inclement weather. The limestone is extracted by drilling and blasting utilizing standard mining equipment. After extraction, limestone is crushed, screened and ground in the case of pulverized limestone, or further processed in kilns and hydrators in the case of quicklime and hydrated lime, before shipment. The Company has no knowledge of any recent changes in the physical quarrying conditions on any of its properties which have materially affected its mining operations, and no such changes are anticipated.

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     Plants and Facilities. The Company produces lime and/or limestone products at three plants:

     The Cleburne, Texas plant has an annual capacity of approximately 470,000 tons of quicklime from three rotary kilns. The plant also has pulverized limestone equipment which has the annual capacity to produce approximately 1,000,000 tons, depending on the product mix. In addition to the Cleburne plant, the Company owns a dormant plant which is located near Blum, Texas on a tract of land covering approximately 524 acres. The Blum plant was acquired in 1989, and its kilns have not been operated since that time. The Company has no plans to operate the kilns at this facility.

     The Arkansas plant is situated at the Batesville Quarry. The plant’s limestone and hydrate facilities are situated on a tract of 290 acres located approximately two miles from the Batesville Quarry to which it is connected by a Company-owned standard-gauge railroad. Utilizing two rotary kilns, including a new kiln completed in the first quarter 2004, this plant has an annual capacity of approximately 420,000 tons of quicklime. The plant also has two grinding systems which, depending on the product mix, have the capacity to produce 400,000 tons of pulverized limestone annually.

     In 1999, the Company commenced a modernization and expansion of the Arkansas facility, to be completed in two phases, which was designed to expand production and improve quality and service, enabling Arkansas Lime Company to compete for new accounts and for the accounts of former customers lost due to quality and service issues. Prior to the modernization and expansion, Arkansas Lime Company had lost various accounts due to poor product quality and service from the now retired vertical lime kilns which were installed in the 1920’s.

     Phase I, which was completed in the second quarter 2001, involved the redevelopment of the quarry plant, rebuilding of the railroad to standard-gauge, purchase of a facility to establish an out-of-state terminal in Shreveport, Louisiana, installation of a new rotary kiln with preheater and additional product storage and loading capacity. Completion of Phase I provided the Company with modern quarry and lime manufacturing facilities.

     The Phase II expansion includes the installation of a second preheater rotary kiln and additional storage capacity substantially identical to the kiln system built in Phase I. Construction of the second kiln system commenced in the third quarter 2003 and is substantially completed as of the date of this report.

     The plans for Phase II also include refurbishing the distribution terminal in Shreveport, Louisiana, which is connected to a railroad, to provide lime storage and distribution capacity to service markets in Louisiana and East Texas. This terminal is currently expected to be refurbished during 2004.

     The Company maintains lime hydrating equipment and limestone drying and pulverizing equipment at both the Texas and Arkansas plants. Storage facilities for lime and pulverized limestone products at each plant consist primarily of cylindrical tanks, which are considered by the Company to be adequate to protect its lime and limestone products and to provide an available supply for customers’ needs at the existing volume of shipments. Equipment is maintained at each plant to load trucks, and at the Arkansas and Blum plants to load railroad cars.

     Colorado Lime Company operates a limestone drying, grinding and bagging facility, with an annual capacity of approximately 50,000 tons, on 8 acres of land in Salida, Colorado. The property is leased from the Union Pacific Railroad for a term of 5 years, commencing June 1999, with renewal options for a further 10 years. This plant’s facilities also include a small rotary lime kiln which is permitted for operation but is presently dormant. A mobile stone crushing and screening plant is also situated at the Monarch Pass Quarry, to produce agricultural grade limestone, with an annual capacity of up to 40,000 tons.

     The Company believes that its processing plants are adequately maintained and insured. Both the Texas and Arkansas plants have recently been modernized and expanded. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Financial Condition.”

     Employees. The Company employed, at December 31, 2003, 201 persons, 23 of whom are engaged in administrative and management activities and seven of whom are engaged in sales activities. Of the Company’s 171 production employees, 115 are covered by two collective bargaining agreements. The agreement for the Arkansas facility expires in January 2005, and the agreement for the Texas facility expires in November 2005.

     Competition. The lime industry is highly regionalized and competitive, with quality, price, ability to meet customer demand, proximity to customers, personal relationships and timeliness of deliveries being the prime competitive factors. The Company’s competitors are predominantly private companies.

     The lime industry is characterized by high barriers to entry, including: the scarcity of high-quality limestone deposits on which the required zoning and permits for extraction can be obtained; the need for lime

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plants to be located close to markets and railroad networks to enable cost-effective production and distribution; clean air and anti-pollution legislation which has made it more difficult to obtain permitting for new sources of emissions, such as lime kilns; and the high capital cost of the facilities. These considerations reinforce the premium value of operations having permitted, long-term, high-quality mineral reserves and good locations relative to markets.

     Producers tend to be concentrated on known limestone formations where competition takes place on a local basis. The industry as a whole has expanded its customer base and, while the steel industry is still the largest market sector, it also counts environmental-related users, chemical users and industrial users, including pulp and paper producers and road builders, among its major customers.

     There is a continuing trend of consolidation in the lime and limestone industry, with the three largest lime companies now accounting for more than two-thirds of North American lime capacity. In addition to the consolidations, and often in conjunction with them, many lime producers have undergone modernization and expansion projects to upgrade their processing equipment in an effort to improve operating efficiency. The Company’s Texas and Arkansas modernization and expansion projects should allow it to continue to remain competitive, protect its markets and position itself for the future. In addition, the Company will continue to evaluate external opportunities for expansion. However, the Company may have to revise its strategy, or otherwise find ways to enhance the value of the Company, including entering into strategic partnerships, mergers, or other transactions.

     Impact of Environmental Laws and Liabilities. The Company owns or controls large areas of land upon which it operates limestone quarries and their associated processing plants with inherent environmental responsibilities and environmental compliance costs, including capital, maintenance and operating costs with respect to pollution control facilities, the cost of ongoing monitoring programs and other similar costs.

     The Company’s operations are subject to various federal, state, and local laws and regulations relating to the environment, health and safety, and other regulatory matters including the Clear Air Act, the Clean Water Act, the Resource Conservation and Recovery Act, and the Comprehensive Environmental Response, Compensation, and Liability Act, as well as the Toxic Substances Control Act (“Environmental Laws”). These Environmental Laws grant the United States Environmental Protection Agency (“EPA”) and state governmental agencies the authority to promulgate regulations that could result in substantial expenditures on pollution control and waste management. The rate of change of Environmental Laws has been rapid over the last decade, and compliance can require significant expenditures. For example, federal legislation required Texas Lime Company and Arkansas Lime Company to apply for “Title V” operating permits that have significant ongoing compliance monitoring costs. In addition to the Title V permits, other environmental operating permits are required for the Company’s operations, and such permits are subject to modification, renewal and revocation. Also, raw materials and fuels used to manufacture lime and calcium contain chemicals and compounds, such as trace metals, that may be classified as hazardous substances. The EPA implemented the Lime MACT regulations in December 2003 to control emissions of hazardous air pollutants from lime plants. Existing plants must determine how the rules apply, then develop and implement a plan to be in compliance by December 2007. The MACT regulations will require additional reporting until the plan is developed and implemented and compliance is demonstrated. The Department of Energy (“DOE”) has commitments from industry to reduce the production of greenhouse gases, such as carbon dioxide. The production of carbon dioxide is inherent in the manufacture of lime and other products, such as cement. Although the DOE’s current efforts to decrease greenhouse gas emissions are voluntary, there is no assurance that a change in the law will not be adopted that would have a material adverse effect on our financial condition, results of operations, cash flows or competitive position.

     In part in response to requirements of environmental regulatory agencies, the Company incurred capital expenditures related to environmental activities of approximately $400,000 in 2003 and $225,000 in 2002. The Company’s recurring costs associated with managing and disposing of potentially hazardous substances (such as fuels and lubricants used in operations) and maintaining pollution control equipment amounted to approximately $400,000 in 2003 and $350,000 in 2002. The Company has not been named as a potentially responsible party in any federal superfund cleanup site or state-lead cleanup site.

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ITEM 2. PROPERTIES.

     Reference is made to Item 1 of this Report for a description of the properties of the Company, and such description is hereby incorporated by reference in answer to this Item 2. As discussed in Note 3 of Notes to Consolidated Financial Statements, the Company’s plant facilities and mineral reserves are subject to encumbrances to secure the Company’s loans.

ITEM 3. LEGAL PROCEEDINGS.

     Information regarding legal proceedings is set forth in Note 8 of Notes to Consolidated Financial Statements and is hereby incorporated by reference in answer to this Item 3.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

     The Company did not submit any matters to a vote of security holders during the fourth quarter 2003.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

     The Company’s common stock is quoted on the Nasdaq National Market® under the symbol “USLM.” As of March 26, 2004, the Company had approximately 500 stockholders of record.

     As of March 26, 2004, the Company had 500,000 shares of $5.00 par value preferred stock authorized; however, none has been issued.

     Effective as of August 5, 2003, the Company is prohibited from paying any dividends in cash through June 30, 2005 without the prior written consent of the Company’s bank lenders. The Company does not intend to request such consent.

     The low and high sales prices for the Company’s common stock, as well as dividends declared on the common stock, for the periods indicated were:

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ITEM 6. SELECTED FINANCIAL DATA.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and Notes to Consolidated Financial Statements.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

FORWARD-LOOKING STATEMENTS.

     Any statements contained in this Report that are not statements of historical fact are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements in this Report, including without limitation statements relating to management’s plans, strategies, objectives, expectations, intentions and adequacy of resources, are identified by such words as “will,” “could,” “should,” “believe,” “expect,” “intend,” “plan,” “schedule,” “estimate,” “anticipate” and “project.” We undertake no obligation to publicly update or revise any forward-looking statements. We caution that forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from expectations, including without limitation the following: (i) our plans, strategies, objectives, expectations and intentions are subject to change at any time in our discretion; (ii) our plans and the results of our operations will be affected by our ability to manage our growth; (iii) our ability to meet short-term and long-term liquidity demands, including servicing our debt; (iv) inclement weather conditions; (v) increased fuel costs; (vi) unanticipated delays or additional cost overruns in completing current or planned construction projects; (vii) reduced demand for our products; and (viii) other risks and uncertainties set forth below or indicated from time to time in our filings with the Securities and Exchange Commission.

OVERVIEW.

     We produce and sell pulverized limestone, quicklime and hydrated lime. The principal factors affecting our success are the level of demand for our products, and whether we are able to maintain sufficient production levels and product quality while controlling costs.

     Inclement weather conditions generally reduce the demand for lime and limestone products supplied to construction related customers that account for a significant amount of our revenues. Inclement weather also interferes with our open-pit mining operations and can disrupt our plant production, as in the case of flooding and winter ice storms in Texas in recent years.

     Demand for our products in our market areas is also affected by general economic conditions, the pace of home construction and the demand for steel, as well as the level of governmental funding for highway construction. In recent years, the demand and prices for lime and limestone products have been improving.

     The Transportation Equity Act for the 21st Century (signed into law in l998 and originally scheduled to expire in September 2003) has been extended and continues to provide federal funding for highway construction. New six-year bills have been proposed by Congress and the Administration that would increase the funding levels by 17% to 70%. Due to wide bi-partisan support, a new bill is expected to pass; therefore, we believe there will be a continuing strong level of demand for lime and limestone products used in highway construction for the next few years.

     Our recent modernization and expansion projects in Texas and Arkansas have positioned us to meet the demand for high-quality lime and limestone products in our markets, with our lime out-put capacity nearly doubling since 1998. These projects have also equipped us with up-to-date, fuel-efficient plant facilities, which should result in lower production costs and greater operating efficiencies, thus enhancing our competitive position. In order for our plants to operate at peak efficiency, we must meet operational challenges, such as those that we confronted at Texas in the middle of 2002, that arise from time to time, including bringing new facilities on line as well as operating existing facilities.

     Our primary variable cost is energy. In recent years, we have faced increased natural gas cost. We have been able to mitigate to some degree the adverse impact of those increases by varying the mixes of fuel used in our kilns, and by passing on some of our increased energy costs to our customers through surcharges on certain products. We have not, to date, engaged in any significant hedging activity in an effort to control our energy costs. We have, however, recently entered into forward purchase contracts for natural gas for the winter months, in order to provide greater predictability to this important cost component, and we may do so again in the future.

     We financed our Texas and Arkansas modernization and expansion projects through a combination of working capital, a common stock rights offering to our shareholders and debt financing, including the issuance of $14,000,000 unsecured subordinate notes in August 2003. Given our increased level of debt, we must generate

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sufficient cash flow to cover ongoing capital and debt service needs. All of our long-term debt becomes due in 2007 and 2008, and we will need to refinance our debt prior to maturity.

     With the second kiln and related storage capacity at Arkansas substantially completed, and the Shreveport, Louisiana distribution terminal currently expected to be refurbished during 2004, we will have completed Phase II of our Arkansas modernization and expansion project. As a result of our Texas and Arkansas projects, our yearly depreciation, depletion and amortization expense included in cost of revenues has increased from $2,788,000 in 1998 to $6,103,000 in 2003. In addition, over that period, our interest expense has increased from $26,000 in 1998 to $4,577,000 in 2003 (excluding $308,000 of interest capitalized in 2003), as the amount of our borrowings has increased.

     In order for us to increase our profitability in the face of these increased fixed costs, we must grow our revenues and cash flow and continue to control our operational and selling, general and administrative expenses, including new corporate governance compliance costs resulting from the Sarbanes Oxley Act of 2002 and associated regulatory requirements. Our new capacity at Arkansas affords us the best opportunity to increase sales.

     We believe that the enhanced production capacity resulting from our modernization and expansion efforts at the Texas and Arkansas plants and the operational strategies that we have implemented will allow us to increase production, improve product quality, better serve existing customers, attract new customers and control our costs. There can be no assurance, however, that demand and prices for our lime and limestone products will remain strong, that we will be successful in selling out our substantial additional new capacity at Arkansas, that our production will not be adversely affected by weather-related or other operational problems, that our results will not be adversely affected by continued increases in energy costs or that we will be able to successfully refinance our long-term debt at acceptable interest rates before it becomes due.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES.

     The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent liabilities, at the date of our financial statements. Actual results may differ from these estimates under different assumptions or conditions.

     Critical accounting policies are defined as those that are reflective of significant management judgments and uncertainties, and potentially result in materially different results under different assumptions and conditions. We believe the following critical accounting policies require the most significant management judgments and estimates used in the preparation of its consolidated financial statements.

     Long-lived assets. We review long-term assets for impairment in accordance with the guidelines of Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”). SFAS 144 requires that, when events or circumstances indicate that the carrying amount of an asset may not be recoverable, we should determine if impairment of value exists. If the estimated undiscounted future net cash flows are less than the carrying amount of the asset, an impairment exists and an impairment loss must be calculated and recorded. If an impairment exists, the impairment loss is calculated based on the excess of the carrying amount of the asset over the asset’s fair value. Any impairment loss is treated as a permanent reduction in the carrying value of the asset.

     Deferred tax assets. We record a valuation allowance to reduce deferred tax assets to the amount that is more likely than not to be realized. We consider future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance. In the event that we determine that deferred tax assets would be realizable in the future in excess of the net recorded amount, an adjustment to deferred tax assets would increase income in the period such determination was made. Conversely, should we determine that all or part of the net deferred tax assets would not be realizable in the future, an adjustment to deferred tax assets would be charged to income in the period such determination was made.

     Contingencies. We are party to proceedings, lawsuits and claims arising in the normal course of business relating to environmental, labor, product and other matters. We are required to estimate the likelihood of any adverse judgments or outcomes to these matters as well as potential ranges of probable losses. A determination of the amount of reserves required, if any, for these contingencies is made after careful analysis of each individual issue, including coverage under our insurance policies. This determination may change in the future because of new developments.

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     Pension plan. We have one noncontributory defined benefit pension plan. All benefits for participants in the plan were frozen as of July 31, 1997. Our costs, credits and funded status for this plan are developed from actuarial valuations. Inherent in these valuations are key assumptions, including discount rates and expected long-term return on plan assets. Future costs, credits and funded status for this plan may change should conditions warrant changes in the assumptions.

RESULTS OF OPERATIONS.

     The following table sets forth selected financial information expressed as a percentage of revenues for the periods indicated:

     Embezzlements. On January 31, 2002, we announced that we had discovered that an employee who had recently left the Company may have improperly diverted Company funds without authorization. Trading in the Company’s common stock on the Nasdaq National Market® (“Nasdaq”) was halted, and the Audit Committee of the Company’s Board of Directors retained outside counsel to conduct a special investigation into the matter. The Audit Committee also retained an independent accounting firm to review our internal controls and to make recommendations for improvement that we implemented. We also contacted the Securities and Exchange Commission (the “SEC”), as well as criminal authorities, and cooperated with the SEC, Nasdaq and criminal authorities with respect to their investigations into this matter.

     The Company’s former Vice President — Finance, Controller, Treasurer and Secretary, Larry Ohms (the “Former VP Finance”), over a period of four years beginning in 1998, embezzled approximately $2,179,000 from the Company. The Former VP Finance voluntarily resigned from the Company on January 22, 2002, approximately one week before we discovered the defalcations. The Former VP Finance has stated that no one else at the Company was involved in perpetrating the embezzlements. From the results of the special investigation and the Former VP Finance’s testimony, we believe this statement to be accurate. In 2002, the Former VP Finance pleaded guilty to one count of wire fraud and one count of making a false statement to the SEC, and on March 24, 2003 was sentenced to a term in federal prison and ordered to pay $2,179,000 in restitution to the Company.

     On March 14, 2002, we received $500,000 in insurance proceeds from our insurance policies covering employee theft. The $500,000 was recorded on the Consolidated Balance Sheet at December 31, 2001 in prepaid expenses and other assets, and recognized in the Consolidated Statement of Operations in other income in the fourth quarter 2001. In addition, we retained counsel for assistance in its efforts to recover the embezzled funds from the Former VP Finance, and to pursue possible civil actions on behalf of the Company against third parties. We filed suit against the Former VP Finance and obtained a judgment against him, including compensatory and punitive damages. The Former VP Finance has claimed not to have any funds.

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     Recoveries were recognized in the quarters in which the recoveries were realized, and the costs of our special investigation, cooperation with the SEC, Nasdaq and criminal authorities in their investigations and ongoing recovery efforts were expensed as incurred. During 2003, we recorded recoveries of $777,000, net of income taxes ($971,000 gross), and embezzlement-related costs of $162,000, net of income tax benefits ($202,000 gross), compared to embezzlement-related costs of $648,000, net of income tax benefits ($683,000 gross), in 2002. We do not anticipate any future material embezzlement-related costs or recoveries.

2003 vs. 2002

     Revenues increased to $45,256,000 in 2003 from $39,162,000 in 2002, an increase of $6,094,000, or 15.6%. The increases in revenues for 2003 primarily resulted from increased lime and pulverized limestone (“PLS”) sales at the Texas and Colorado plants.

     Gross profit was $13,062,000 for 2003, compared to $9,508,000 in 2002, a 37.4% increase. Gross profit margin as a percentage of revenues increased to 28.8% in 2003 compared to 24.2% in 2002. These increases are primarily due to the resolution of operational problems at the Texas plant that occurred during the second and third quarter 2002 and the increase in PLS sales volume. These improvements were partially offset in 2003 by increased natural gas costs and a winter ice storm in Texas that caused the loss of approximately two days of sales and a natural gas curtailment to the Texas plant that resulted in reduced production levels during the first quarter 2003. The total negative price variance for natural gas in 2003 compared to 2002 was approximately $900,000, partially offset by natural gas surcharges on PLS products implemented in early March 2003. Since that time, the surcharges have offset most of the increased natural gas costs.

     Although natural gas prices have declined from their highs in the first quarter 2003, they continued to exceed 2002 price levels during the remainder of 2003. We expect natural gas prices to continue to exceed 2002 prices. Therefore, we have recently increased the sales prices on PLS products by amounts approximating the natural gas surcharges.

     Selling, general and administrative expenses (“SG&A”) increased by $519,000, or 13.1%, to $4,488,000 in 2003, compared to $3,969,000 in 2002. As a percentage of sales, SG&A declined to 9.9% in 2003 from 10.1% in 2002. The increase in SG&A for 2003 was primarily attributable to increases in insurance costs, salaries and employee benefits.

     Interest expense in 2003 increased $248,000, or 5.7%, to $4,577,000, compared to $4,329,000 in 2002. The increase in interest expense in 2003 primarily resulted from the private placement of $14,000,000 of unsecured subordinated notes (the “Sub Notes”), partially offset by $4,533,000 of net repayments of other outstanding debt during 2003. Approximately $308,000 of interest was capitalized in 2003 as part of the Arkansas Phase II expansion project.

     Other, net was $807,000 income in 2003, as compared to $539,000 expense in 2002. Other, net in 2003 consisted of interest, other income and $971,000 of embezzlement-related recoveries, partially offset by $202,000 of embezzlement-related costs. In 2002, $683,000 of embezzlement-related costs was the primary other expense, partially offset by interest and other income. (See Note 2 of Notes to Consolidated Financial Statements.)

     Net income increased $3,224,000 to $3,860,000 ($0.67 per share) in 2003, compared to net income of $636,000 ($0.11 per share) for 2002.

2002 vs. 2001

     Revenues decreased to $39,162,000 in 2002 from $39,753,000 in 2001, a decrease of $591,000, or 1.5%. This primarily resulted from a decrease in sales volume in 2002 compared to 2001. The decrease in revenues primarily resulted from a reduction in Texas highway construction work in 2002 compared to 2001 and operational problems at the Texas plant in June, July and August 2002, partially offset by increased lime sales at the Arkansas plant.

     Gross profit was $9,508,000 for 2002, compared to $10,465,000 in 2001, a 9.1% decrease. Gross profit margin as a percentage of revenues for 2002 decreased to 24.3% from 26.3% in 2001. The decrease in gross profit

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and gross profit margin during 2002 was primarily due to a $253,000 increase in depreciation expense and reduced production at the Texas plant in June, July and August due to operational problems, partially the result of unseasonably wet weather. These were partially offset by increased production and sales at the Arkansas plant. The increase in depreciation primarily resulted from a full year’s depreciation in 2002 on the Arkansas Phase I modernization and expansion, compared to eight months of depreciation in 2001 after Phase I was completed. The reduced production at the Texas plant in 2002 resulted in the depletion of finished goods inventories and increased costs through the purchase of lime from alternative sources to fulfill some sales commitments. Gross profit margin in 2002 was also negatively impacted in the fourth quarter 2002 by increased natural gas prices.

     SG&A decreased by $106,000, or 2.6%, to $3,969,000 in 2002, as compared to $4,075,000 in 2001. This decrease primarily resulted from a reduction in bonus expense during 2002. As a percentage of sales, SG&A was 10.1% in 2002, as compared to 10.3% in 2001.

     Interest expense in 2002 was $4,329,000. This compares to $3,821,000, net for 2001, after $845,000 had been capitalized as part of the Arkansas Phase I project costs during 2001. Gross interest expense in 2002 decreased $337,000 due to $4,458,000 of net repayments of outstanding debt during 2002 and lower interest rates on the Company’s revolving credit facility.

     Other expense, net was $539,000 in 2002, as compared to $380,000 expense in 2001. Other expense, net in 2002 primarily consisted of $683,000 of embezzlement-related costs, partially offset by interest and other income. Other expense, net in 2001 primarily consisted of $980,000 of embezzlement expense, partially offset by $500,000 of insurance proceeds from insurance policies covering employee theft, interest and other income. (See Note 2 of Notes to Consolidated Financial Statements.)

     Net income for 2002 was $636,000 ($0.11 per share), compared to net income of $1,773,000 ($0.32 per share) in 2001.

FINANCIAL CONDITION.

     Capital Requirements. We require capital primarily for our operating costs, seasonal working capital needs, normal recurring capital and re-equipping projects and expansion projects. Our capital needs are met principally from cash flow from operations, our $6,000,000 revolving credit facility and our long-term debt.

     Cash Flows From Operations. Net cash provided by operating activities was $9,521,000 in 2003, compared to $8,207,000 in 2002. The $1,314,000 improvement in 2003 was primarily the result of the $3,224,000 increase in net income, partially offset by changes in working capital. The most significant changes in working capital resulted from a $1,757,000 increase in accounts receivable in 2003, compared to a $497,000 decrease in 2002. The 2003 increase in accounts receivable primarily resulted from a $2,594,000 increase in revenues in the fourth quarter 2003 compared to the comparable 2002 quarter. The $534,000 cash flow resulting from the decrease in prepaid expenses and other current assets in 2002 was primarily due to the $500,000 in insurance proceeds received in March 2002. Accounts payable and accrued expenses increased $718,000 (excluding approximately $1,300,000 of accounts payable and accrued expenses at December 31, 2003 for the Arkansas Phase II Expansion Project) during 2003 primarily due to increased accruals of income taxes and bonuses.

     Banking Facilities, Debt and Rights Offering. On April 22, 1999, we entered into a credit agreement with a consortium of commercial banks for a $50,000,000 Senior Secured Term Loan (the “Loan”). The Loan is repayable over a period of approximately eight years, maturing on March 30, 2007, and requires monthly principal payments of $278,000 which began April 30, 2000, with a final principal payment of $26,944,000 on March 30, 2007, which equates to a 15-year amortization. We paid a fee equivalent to 2.50% of the Loan value to the placement agent.

     The interest rate on the first $30,000,000 of the Loan is 8.875%. The subsequent installments bear interest from the date they were funded at 3.52% above the secondary market yield of the United States Treasury obligation maturing May 15, 2005. The blended rate for the additional $20,000,000 is 9.84%.

     The Loan is secured by a first lien on substantially all of our assets, with the exception of accounts receivable and inventories which secure the $6,000,000 revolving credit facility. The Loan agreement contains covenants that restrict the incurrence of debt, guaranties and liens, and places certain restrictions on the payment of dividends and the sale of significant assets. We are required to meet minimum debt service coverage ratios on an ongoing basis and maintain a minimum level of tangible net worth.

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     On January 31, 2003, the maturity of the $5,000,000 revolving credit facility that we had at that time was extended to July 31, 2003. From January 1, 2003 through March 2, 2003, that revolving credit facility bore interest at LIBOR plus a margin of 1.40% to 3.55%, in accordance with a defined rate spread based upon the then-current ratio of total funded debt to earnings before interest, taxes, depreciation and amortization (EBITDA).

     On March 3, 2003, we entered into a Loan and Security Agreement with another bank for a new $5,000,000 revolving credit facility to replace the prior facility. In addition, we obtained a new $2,000,000 equipment line of credit (available for financing or leasing large mobile equipment used in our operations) from the same bank. The new revolving credit facility is secured by our accounts receivable and inventories, provides for an interest rate of LIBOR plus 2.75% and originally matured on March 1, 2004. The outstanding balance of the revolving credit facility was repaid in full on August 5, 2003 with proceeds from our private placement, discussed below, and the Loan and Security Agreement was amended to allow the revolving credit facility to be increased to $6,000,000 at our option. The weighted average interest rate for our revolving credit facilities for outstanding balances in 2003 was 4.04%. On December 29, 2003, the Loan and Security Agreement was amended to increase the revolving credit facility to $6,000,000 and extend the maturity to April 1, 2005.

     As of December 31, 2003, we had no outstanding balance on the $6,000,000 revolving credit facility. As of December 31, 2003, we had entered into approximately $1,100,000 of operating leases for mobile equipment under the $2,000,000 equipment line.

     In April 2003, we engaged Frost Securities, Inc. (“Frost”) to advise us on possible financing alternatives for the Phase II expansion of our Arkansas facilities. Frost contacted potential sources of financing and obtained several term sheet proposals for a subordinated debt placement from outside investors. In conjunction with the review of the proposals and further negotiations, Frost and management renewed discussions with our two largest shareholders and a third party to determine whether they would be interested in the investment on terms more favorable to the Company than those then available from other potential outside investors.

     On August 5, 2003, we sold $14,000,000 of Sub Notes in a private placement under Section 4(2) of the Securities Act of 1933 to three accredited investors, one of which is an affiliate of Inberdon Enterprises Ltd., our majority shareholder (“Inberdon”), and another of which is an affiliate of Robert S. Beall, who owns approximately 12% of our outstanding shares. We believe that the terms of the private placement are more favorable to us than the proposals previously received. Frost provided an opinion to the Company’s Board of Directors that, from a financial point of view, the private placement was fair to the unaffiliated holders of the Company’s common stock in relation to other potential subordinated debt transactions then available to us. We paid Frost an aggregate of $381,000 for its advice, placement services and opinion.

     The net proceeds of approximately $13,450,000 from the private placement are being used to fund the Phase II expansion of our Arkansas facilities. Terms of the Sub Notes include: a maturity date of August 5, 2008, subject to acceleration upon a change in control; no mandatory principal payments prior to maturity; an interest rate of 14% (12% paid in cash and 2% paid in cash or in kind at our option); and, except as discussed below, no optional prepayment prior to August 5, 2005 and a 4% prepayment penalty if repaid before maturity. The terms of the Sub Notes are identical to one another, except that the Sub Note for the affiliate of Inberdon does not prohibit prepayment prior to August 5, 2005 and does not require a prepayment penalty if repaid before maturity, resulting in a weighted average prepayment penalty of approximately 2.4% if the Sub Notes are repaid before maturity. The Sub Notes include covenants similar to the covenants for the Loan.

     The private placement also included six-year detachable warrants, providing the Sub Note investors the right to purchase an aggregate of 162,000 shares of the Company’s common stock, at 110% of the average closing price of one share of common stock for the trailing 30 trading days prior to closing, or $3.84. After August 5, 2008, or upon an earlier change in control, the investors may require the Company to repurchase any or all shares acquired through exercise of the warrants (the “Warrant Shares”). The repurchase price for each Warrant Share will equal the average closing price of one share of the Company’s common stock for the 30 trading days preceding the date the Warrant Shares are put back to the Company. Changes in the repurchase price for each Warrant Share are accreted or decreted over the five-year period from the date of issuance to August 5, 2008. The investors are also entitled to certain registration rights for the resale of their Warrant Shares.

     As a result of certain negotiations with our existing bank lenders, the Loan and the revolving credit facility were amended to approve the terms of the Sub Notes. As part of these amendments, we are prohibited from paying any dividends in cash through June 30, 2005 without the prior written consent of the bank lenders.

     During the fourth quarter 2000, we required additional capital because the costs to complete both the Arkansas Phase I project and the new pulverized limestone production line at Texas were significantly higher than

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originally anticipated and because our cash flows and operating profits were lower than expected. To meet our short-term liquidity demands, we determined to make a pro rata rights offering to our existing shareholders to raise $10,000,000 in additional equity capital. We also obtained a $5,000,000 bridge loan from Inberdon.

     We commenced the rights offering on December 26, 2000, and it closed on February 8, 2001. In the rights offering, we raised $10,000,000 in additional equity capital, realizing net proceeds of $9,551,000, and issued 1,818,181 shares of common stock at the subscription price of $5.50 per share. We were able to honor in full all over-subscription requests from our shareholders. Our majority shareholder, Inberdon, subscribed for its full pro rata amount and also purchased, at the $5.50 per share subscription price, 461,005 additional shares not purchased by other shareholders in the rights offering, for a total investment of approximately $7,630,000. Immediately following the rights offering, Inberdon owned approximately 59% of our outstanding common stock. The net proceeds of the rights offering were used to repay the $5,000,000 bridge loan from Inberdon, to repay the $4,000,000 outstanding under our revolving credit facility at that time, and for working capital.

     As of December 31, 2003, we had approximately $51,219,000 in total debt outstanding and $6,375,000 of cash and cash equivalents.

     Capital Expenditures. We completed the modernization and expansion project at our Texas facility at the end of 1998. In addition, during the fourth quarter 2000, we commissioned a new line for the production of PLS at Texas and, in 2003, constructed an additional storage facility there. The lack of reliability of a single PLS production line had been a restraining factor on sales to several large customers requiring “around-the-clock” availability. These investments have allowed us to better serve existing customers and to pursue new business opportunities, resulting in new PLS customers during 2002 and 2003.

     The Arkansas modernization and expansion project began in the fourth quarter 1999 and was expected to be completed in two phases. Phase I involved the redevelopment of the quarry plant, rebuilding of the railroad to standard gauge, the purchase of a facility to establish an out-of-state terminal in Shreveport, Louisiana, the installation of a rotary kiln with preheater and increased product storage and loading capacity. We completed Phase I in the second quarter 2001.

     The total cost of Phase I of the Arkansas project was approximately $33,000,000. The $33,000,000 included approximately $1,800,000 of costs associated with the pre-building of certain facilities for Phase II of the project and the purchase of, but not all of the improvements to, the out-of-state terminal in Shreveport, Louisiana.

     The Phase II expansion will double the Arkansas plant’s quicklime production capacity through the installation of a second preheater rotary kiln and additional storage capacity substantially identical to the kiln system built in Phase I. Construction of the second kiln system commenced in the third quarter 2003 and is substantially complete as of the date of this report. The plans for Phase II include the rehabilitation of the distribution terminal in Shreveport, Louisiana, currently expected to be completed in 2004. The estimated total cost to complete Phase II is approximately $16,000,000. We are financing the completion of the Phase II expansion principally through the net proceeds of the August 5, 2003 private placement discussed above.

     We invested $12,014,000 in capital expenditures in 2003, compared to $3,622,000 in 2002. In 2003, approximately $8,500,000 of our capital expenditures related to the Arkansas Phase II expansion project.

     We expect to spend approximately $3,000,000 to $4,000,000 per year over the next several years for normal recurring capital and re-equipping projects at the plant facilities to maintain or improve efficiency and reduce costs.

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     Contractual Obligations. The following table sets forth our contractual obligations as of December 31, 2003:

     Liquidity. At March 26, 2004, we had made no draws on our new $6,000,000 revolving credit facility. We believe that cash on hand, funds generated from operations and amounts available under the revolving credit facility will be sufficient to meet our operating needs, ongoing capital needs and debt service for 2004.

     Additionally, with our anticipated increase in cash flows from operations following the completion of our Phase II expansion project at Arkansas, and funds available under our revolving credit facility, we believe that we will have sufficient capital resources to meet our liquidity needs for the near future and enable us to ref