U.S. Securities and Exchange Commission
Washington, D. C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from to
------- -------
Commission file number 0-17321
HITOX CORPORATION OF AMERICA
(Exact name of small business issuer as specified in its charter)
Delaware 74-2081929
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Furman Plaza Building
418 Peoples Street, Corpus Christi, Texas 78401
(Address of principal executive offices)
Issuer's telephone number: (512) 882-5175
None
(Former name, former address and former fiscal
year, if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 [ ]
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Common Stock, $0.25 par value 3,656,787
(Class) (Outstanding as of July 31, 1995)
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [ X ]
<PAGE> 1
<PAGE>
HITOX CORPORATION OF AMERICA AND SUBSIDIARIES
INDEX
Page No.
--------
PART I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets--
June 30, 1995 and December 31, 1994 3-4
Condensed Consolidated Statements of Operations--
three months ended June 30, 1995 and 1994 and
six months ended June 30, 1995 and 1994 5
Condensed Consolidated Statements of Cash Flows--
six months ended June 30, 1995 and 1994 6
Notes to Condensed Consolidated Financial
Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-10
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K 11
Signature 11
<PAGE> 2
<PAGE>
<TABLE>
HITOX CORPORATION OF AMERICA AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1995 AND DECEMBER 31, 1994
(in thousands)
<CAPTION>
June 30, 1995 December 31,
(Unaudited) 1994
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 837 $ 2,483
Accounts receivable; no allowance for
doubtful accounts considered necessary 1,641 959
Other receivables 1 132
Inventories:
Raw materials 2,349 2,034
Finished goods 715 984
Supplies 79 97
------------- -------------
Total inventories 3,143 3,115
Other current assets 130 30
------------- -------------
Total current assets 5,752 6,719
Property, plant and equipment 8,976 8,855
Accumulated depreciation (4,399) (4,078)
------------- -------------
4,577 4,777
Other assets 200 231
------------- -------------
$ 10,529 $ 11,727
============= =============
</TABLE>
<PAGE> 3
<PAGE>
<TABLE>
HITOX CORPORATION OF AMERICA AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1995 AND DECEMBER 31, 1994
(in thousands, except par value)
<CAPTION>
June 30, 1995 December 31,
(Unaudited) 1994
------------- -------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 627 $ 217
Notes payable to bank ----- 2,267
Accrued expenses 1,171 866
Current maturities of long-term debt 527 558
------------- -------------
Total current liabilities 2,325 3,908
Long-term subordinated debt, related party 5,000 5,000
------------- -------------
Total liabilities 7,325 8,908
Commitments and contingencies
Shareholders' equity:
Common stock $.25 par value; authorized
10,000 shares; 3,657 shares outstanding
after deducting 88 shares held in treasury 936 936
Additional paid-in capital 10,600 10,594
Accumulated deficit (8,289) (8,668)
------------- -------------
3,247 2,862
Less: cost of treasury stock (43) (43)
------------- -------------
Total shareholders' equity 3,204 2,819
------------- -------------
$ 10,529 $ 11,727
============= =============
</TABLE>
<PAGE> 4
<PAGE>
<TABLE>
HITOX CORPORATION OF AMERICA AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share amounts)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Sales $ 3,204 $ 3,402 $ 5,872 $ 6,411
Costs and expenses:
Cost of products sold 2,122 2,495 4,033 4,680
Selling, administrative and general 645 759 1,144 1,394
-------- -------- -------- --------
Operating income 437 148 695 337
Other income (expenses):
Interest income 8 ----- 32 -----
Interest expense (159) (388) (330) (763)
Other, net (9) 12 (17) 27
-------- -------- -------- --------
Income (loss) before minority
interest and income tax 277 (228) 380 (399)
Minority interest ----- (8) ----- (22)
-------- -------- -------- --------
Income (loss) before income tax 277 (236) 380 (421)
Provision for income tax 1 8 1 33
-------- -------- -------- --------
NET INCOME (LOSS) $ 276 $ (244) $ 379 $ (454)
======== ======== ======== ========
Income (loss) per common share:
Primary $ 0.07 $ (0.07) $ 0.10 $ (0.12)
Fully diluted 0.07 (0.07)<F1> 0.10 (0.12)<F1>
Weighted average number of common and
common equivalent shares outstanding:
Primary 3,772 3,657 3,713 3,657
Fully diluted 3,772 4,213 3,733 4,213
--------------------------------------
<FN>
<F1>
Antidilutive
</FN>
</TABLE>
<PAGE> 5
<PAGE>
<TABLE>
HITOX CORPORATION OF AMERICA AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<CAPTION>
Six Months Ended
June 30,
----------------------------
1995 1994
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 379 $ (454)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation and amortization 349 406
Other 6 24
Changes in assets and liabilities:
Accounts receivable (681) (55)
Inventories (27) 186
Other current assets 31 (351)
Accounts payable and accrued expenses 715 212
------------ ------------
Net cash provided by (used in) operating activities 772 (32)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (120) (26)
------------ ------------
Net cash used in investing activities (120) (26)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on debt (2,298) (7,067)
Proceeds from debt ----- 7,850
------------ ------------
Net cash (used in) provided by financing activities (2,298) 783
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,646) 725
CASH AND CASH EQUIVALENTS:
AT BEGINNING OF PERIOD 2,483 537
------------ ------------
AT END OF PERIOD $ 837 $ 1,262
============ ============
Supplemental disclosure of cash flow information:
Interest paid $ 510 $ 368
Income taxes paid 1 36
Income tax refunds received 39 -----
</TABLE>
<PAGE> 6
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Accounting Policies
The interim financial statements of Hitox Corporation of America and
subsidiaries (the "Company") are unaudited, but include all adjustments which
the Company deems necessary for a fair presentation of its financial position
and results of operations. All adjustments are of a normal and recurring
nature. Results of operations for interim periods are not necessarily
indicative of the results to be expected for the full year. All significant
accounting policies conform to those previously set forth in the Company's
fiscal 1994 Annual Report on Form 10-KSB.
Reclassification
Certain reclassifications have been made to prior years' condensed
consolidated financial statements to conform to present reporting
classifications.
2. Debt
The Company maintains a credit facility with NationsBank of Texas (the
"Bank"). The credit facility includes a $1,400,000 line of credit with an
interest rate of prime plus 3%. There are no amounts outstanding under the
line of credit at June 30, 1995. The credit facility also includes a term loan
with $491,000 outstanding at June 30, 1995. Both the line of credit and the
term loan expired during the second quarter. The Company negotiated an
extension of the line of credit through August 30, 1995 and an extension of the
term loan through August 31, 1995. The Company is attempting to negotiate a
new credit facility with more favorable terms, including a longer duration and
sufficient credit to satisfy the Company's working capital needs, prior to
expiration of the current extensions.
During the quarter ended June 30, 1995, the Company paid accrued and
overdue interest of $450,000 to the holders of the $5,000,000 subordinated
debentures (the "Debentures") under a plan approved by the Bank. The balance
of accrued and overdue interest on the Debentures was $407,000 at June 30,
1995. The Company intends, subject to Bank approval, to continue to make
$150,000 monthly payments to the Debenture holders until the accrued and
overdue interest is paid off in September. In addition, subject to Bank
approval, the Company has agreed to change the current interest payments on the
Debentures from semi-annual payments of $262,500, to monthly payments of
$43,750, beginning August 1, 1995.
3. Commitments
The Company purchases raw materials under a supply agreement (the "Supply
Agreement"). The Supply Agreement contains a take or pay arrangement for
specified quantities on a yearly basis, with a fixed price for the first two
years of its five year term. The Company anticipates that it will need and
take delivery of the quantities stipulated in the Supply Agreement.
<PAGE> 7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
Sales:
Net sales for the second quarter of 1995 were $3,204,000 as compared to
$3,402,000 for the same quarter in 1994. Total net sales for the six months
ended June 30, 1995 were $5,872,000 compared with $6,411,000 for the same
period in 1994. The three month and six month decreases of approximately
$200,000 and $500,000, respectively, are due to the inclusion of sales in 1994
from two former foreign subsidiaries that the Company divested effective
September 30, 1994. Quantities sold and prices were relatively constant after
adjustment for the 1994 foreign sales. Management continues to focus on
marketing HITOX pigments to existing and new markets in the United States,
Canada and Mexico.
Gross Profit:
Gross profit for the second quarter of 1995 was $1,082,000, as compared to
$907,000 for the second quarter of 1994, an increase of $175,000. Gross profit
as a percentage of sales increased to 33.8% in the second quarter this year as
compared to 26.7% in the same quarter last year. The year to date gross profit
for the six months ended June 30, 1995 was $1,839,000, or 31.3% of net sales
compared with $1,731,000, or 27.0% of net sales for the same period of 1994.
The improvement is primarily a result of the divestiture of the Company's
foreign subsidiaries, and is partly a result of a reduction in costs of
domestic operations begun in the latter half of 1994.
Expenses:
Total selling, administrative and general expenses declined from $759,000
during the second quarter of 1994, to $645,000 for the second quarter of 1995,
representing a decrease of approximately 15%. Total selling, administrative and
general expenses decreased from $1,394,000 during the six months ended June 30,
1994, to $1,144,000 for the same period of 1995, representing approximately an
18% decrease. The decreases result principally because 1995 does not include
the two former subsidiaries' expenses, and partly due to the Company's cost
reduction efforts.
Interest Income:
During the second quarter of 1995, excess funds were deposited in short-
term interest bearing investments resulting in interest income of $8,000.
Total interest income for the six months ended June 30, 1995 was $32,000.
Included in the six month total is $20,000 resulting from a one time foreign
currency transaction gain.
<PAGE> 8
<PAGE>
Interest Expense:
Interest expense decreased $229,000 in the second quarter of 1995 as
compared with the same quarter last year. For the six month period ended June
30, 1995, interest expense decreased $433,000 principally because 1994 included
$281,000 of interest expense incurred by the Company's two foreign
subsidiaries. The remainder of the decrease is due to a reduction in the
average line of credit balance outstanding from $3,100,000 in the first six
months of 1994 to $144,000 during the first six months of 1995.
Minority Interest:
During the six months ended June 30, 1995, there was no charge for
minority interest due to the 1994 sale of the Company's foreign subsidiaries.
Provision for Income Tax:
The Company has net operating loss and other carry forwards available to
offset the Company's regular taxable income. However, the Company is subject
to alternative minimum tax.
LIQUIDITY AND CAPITAL RESOURCES
The Company continued to experience improvement in its financial position
in the second quarter of 1995 after the divestiture of its foreign subsidiaries
in the third quarter of 1994. Working capital increased from $2,811,000 at
December 31, 1994, to $3,427,000 at June 30, 1995. The Company applied a
substantial amount of its cash position at December 31, 1994 to pay off the
entire $2,267,000 outstanding balance in its bank line of credit in mid-
January, 1995. The Company had no outstanding balance in its line of credit at
June 30, 1995, and had $1,400,000 available to borrow under its amended line of
credit.
The Company continues to renegotiate the terms of its borrowings and
expects to finance its operations principally through cash flows generated by
U.S. operations, through bank financing and cash on hand. The Company has a
continuing need for working capital to finance raw material purchases,
primarily synthetic rutile, which is now purchased under a Supply Agreement
with its former subsidiary, Malaysian Titanium Corporation. The Supply
Agreement contains a take or pay arrangement for specified quantities on a
yearly basis, with a fixed price for the first two years of its five year term.
The Company anticipates that it will need and take delivery of the quantities
stipulated in the Supply Agreement.
The Company maintains a credit facility with NationsBank of Texas (the
"Bank"). The credit facility includes a $1,400,000 line of credit with an
interest rate of prime plus 3%. There are no amounts outstanding under the
line of credit at June 30, 1995. The credit facility also includes a term loan
<PAGE> 9
<PAGE>
with $491,000 outstanding at June 30, 1995. Both the line of credit and the
term loan expired during the second quarter. The Company negotiated an
extension of the line of credit through August 30, 1995 and an extension of the
term loan through August 31, 1995. The Company is attempting to negotiate a
new credit facility with more favorable terms, including a longer duration and
sufficient credit to satisfy the Company's working capital needs, prior to
expiration of the current extensions.
During the quarter ended June 30, 1995, the Company paid accrued and
overdue interest of $450,000 to the holders of the $5,000,000 subordinated
debentures (the "Debentures") under a plan approved by the Bank. The balance
of accrued and overdue interest on the Debentures was $407,000 at June 30,
1995. The Company intends, subject to Bank approval, to continue to make
$150,000 monthly payments to the Debenture holders until the accrued and
overdue interest is paid off in September. In addition, subject to Bank
approval, the Company has agreed to change the current interest payments on the
Debentures from semi-annual payments of $262,500, to monthly payments of
$43,750, beginning August 1, 1995.
The Company expects that a new credit agreement will be reached with the
Bank or with another financial institution which will continue to allow the
Company to make interest payments to the Debenture holders. The trustee under
the Note Purchase Agreement has waived any default related to payments of
interest or principal on the Debentures through June 30, 1996.
<PAGE> 10
<PAGE>
PART II
Item 6. Exhibits and Reports on Form 8-K
Page No.
--------
(a) Exhibit 11 - Earnings per share 12
Exhibit 27 - Financial Data Schedule 13
(b) Reports on Form 8-K: None
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Hitox Corporation of America
--------------------------------------
(Registrant)
Date: August 10, 1995 THOMAS A. LANDSHOF
--------------- ---------------------------------
Thomas A. Landshof, President
and Chief Executive Officer
Date: August 10, 1995 CRAIG A. SCHKADE
--------------- ---------------------------------
Craig A. Schkade, Chief Financial
Officer (Principal Financial and
Accounting Officer)
<PAGE> 11
<PAGE>
<TABLE>
Hitox Corporation of America and Subsidiaries Exhibit 11
Computation of Earnings Per Share (EPS)
(in thousands, except per share amounts)
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
WEIGHTED AVERAGE SHARES OUTSTANDING
Common Stock 3,657 3,657 3,657 3,657
Common Stock Equivalents, assumed exercise
of stock options and warrants (Treasury
Stock Method at average market value) 115 ----- 56 -----
-------- -------- -------- --------
Total for Primary EPS 3,772 3,657 3,713 3,657
Other potentially dilutive securities,
assumed conversion of 10.5% convertible
subordinate redeemable debentures into
556 shares of common stock ----- 556 ----- 556
Assumed exercise of stock options and
warrants (Treasury Stock Method at
greater of average or end of period
market value) ----- ----- 20 -----
-------- -------- -------- --------
Total for Fully Diluted EPS 3,772 4,213 3,733 4,213
INCOME (LOSS)
Income (loss) for primary EPS:
Net income (loss) $ 276 $ (244) $ 379 $ (454)
Income (loss) for fully diluted EPS:
Net income (loss) 276 (244) 379 (454)
Interest, net of income taxes on 10.5%
convertible subordinate debentures ----- 87 ----- 173
Amortization of loan origination fees,
net of taxes ----- 10 ----- 19
-------- -------- -------- --------
Net income (loss) for fully diluted EPS $ 276 $ (147) $ 379 $ (262)
INCOME (LOSS) PER SHARE
Primary $ 0.07 $ (0.07) $ 0.10 $ (0.12)
Fully Diluted 0.07 (0.03)<F2> 0.10 (0.06)<F2>
--------------------------------------------
<FN>
<F2>
Antidilutive
</FN>
</TABLE>
<PAGE> 12
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> $837
<SECURITIES> 0
<RECEIVABLES> 1641
<ALLOWANCES> 0
<INVENTORY> 3143
<CURRENT-ASSETS> 5752
<PP&E> 8976
<DEPRECIATION> 4399
<TOTAL-ASSETS> $10529
<CURRENT-LIABILITIES> $2325
<BONDS> 5000
<COMMON> 936
0
0
<OTHER-SE> 2268
<TOTAL-LIABILITY-AND-EQUITY> $10529
<SALES> $5872
<TOTAL-REVENUES> 5904
<CGS> 4033
<TOTAL-COSTS> 4033
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 330
<INCOME-PRETAX> 380
<INCOME-TAX> 1
<INCOME-CONTINUING> 379
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> $379
<EPS-PRIMARY> $0.10
<EPS-DILUTED> $0.10
</TABLE>
