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 March 31, 1996
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 3,657,487
(Class) (Outstanding as of April 15, 1996)
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [ X ]
<PAGE> 1
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HITOX CORPORATION OF AMERICA
INDEX
Page No.
--------
PART I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Balance Sheets--
March 31, 1996 and December 31, 1995 3-4
Condensed Statements of Income--
three months ended March 31, 1996 and 1995 5
Condensed Statements of Cash Flows--
three months ended March 31, 1996 and 1995 6
Notes to Condensed Financial
Statements 7-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-10
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 11
<PAGE> 2
<PAGE>
<TABLE>
HITOX CORPORATION OF AMERICA
CONDENSED BALANCE SHEETS
MARCH 31, 1996 AND DECEMBER 31, 1995
(in thousands)
<CAPTION>
March 31, 1996 December 31,
(Unaudited) 1995
-------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 112 $ 828
Trade accounts receivable; no allowance for
doubtful accounts considered necessary 1,703 1,130
Other receivables 34 28
Inventories:
Raw materials 2,588 2,923
Finished goods 948 1,141
Supplies 88 90
-------------- --------------
Total inventories 3,624 4,154
Other current assets 128 36
-------------- --------------
Total current assets 5,601 6,176
Property, plant and equipment 9,034 8,983
Accumulated depreciation (4,794) (4,645)
-------------- --------------
4,240 4,338
Other assets 157 171
-------------- --------------
$ 9,998 $ 10,685
============== ==============
<FN>
See Notes to Condensed Financial Statements
</FN>
</TABLE>
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<PAGE>
<TABLE>
HITOX CORPORATION OF AMERICA
CONDENSED BALANCE SHEETS
MARCH 31, 1996 AND DECEMBER 31, 1995
(in thousands, except par value)
<CAPTION>
March 31, 1996 December 31,
(Unaudited) 1995
-------------- --------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 823 $ 1,254
Accrued expenses 236 538
Current maturities of long-term debt 60 59
-------------- --------------
Total current liabilities 1,119 1,851
Subordinated debentures - related party 5,000 5,000
Other long-term debt, excluding current maturities 390 406
-------------- --------------
Total liabilities 6,509 7,257
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 10,603 10,603
Accumulated deficit (8,007) (8,068)
-------------- --------------
3,532 3,471
Less: cost of treasury stock (43) (43)
-------------- --------------
Total shareholders' equity 3,489 3,428
-------------- --------------
$ 9,998 $ 10,685
============== ==============
<FN>
See Notes to Condensed Financial Statements
</FN>
</TABLE>
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<TABLE>
HITOX CORPORATION OF AMERICA
CONDENSED STATEMENTS OF INCOME
(Unaudited)
(in thousands, except per share amounts)
<CAPTION>
Three Months Ended
March 31,
-----------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
Net Sales $ 2,702 $ 2,668
Costs and expenses:
Cost of products sold 1,971 1,915
Selling, administrative and general 516 495
-------------- --------------
Operating income 215 258
Other income (expenses):
Interest income 3 24
Interest expense (144) (171)
Other, net (13) (8)
-------------- --------------
Income before income tax 61 103
Provision for income tax -- --
-------------- --------------
NET INCOME $ 61 $ 103
============== ==============
Income per common share:
Primary $ 0.02 $ 0.03
Fully diluted 0.02 0.03
Weighted average common shares and
equivalents outstanding:
Primary 3,718 3,665
Fully diluted 3,719 3,682
<FN>
See Notes to Condensed Financial Statements
</FN>
</TABLE>
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<TABLE>
HITOX CORPORATION OF AMERICA
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<CAPTION>
Three Months Ended
March 31,
--------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 61 $ 103
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization 163 176
Inventory valuation charge 4 10
Other -- 6
Changes in working capital:
Receivables (579) (425)
Inventories 526 15
Other current assets (92) 29
Accounts payable and accrued expenses (733) 399
-------------- -------------
Net cash (used in) provided by operating activities (650) 313
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (51) (67)
-------------- -------------
Net cash used in investing activities (51) (67)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt (15) --
Proceeds from long-term debt -- 17
Net payments on revolving line of credit -- (2,267)
-------------- -------------
Net cash used in financing activities (15) (2,250)
NET DECREASE IN CASH AND
CASH EQUIVALENTS (716) (2,004)
CASH AND CASH EQUIVALENTS:
AT BEGINNING OF PERIOD 828 2,483
-------------- -------------
AT END OF PERIOD $ 112 $ 479
============== =============
Supplemental disclosure of cash flow information:
Interest paid $ 100 $ 45
Income tax refunds -- 38
<FN>
See Notes to Condensed Financial Statements
</FN>
</TABLE>
<PAGE> 6
<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
1. Accounting Policies
Basis of Presentation
The interim financial statements of Hitox Corporation of America (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 1995 Annual Report on Form
10-KSB.
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amount of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the reporting period. Actual results could differ
from these estimates.
Reclassification
Certain reclassifications have been made to prior years' condensed
financial statements to conform to present reporting classifications.
Stock Based Compensation
The Company grants stock options for a fixed number of shares to employees
with an exercise price equal to the fair value of the shares at the date of
grant. The Company has accounted for stock option grants in accordance with
APB Opinion No. 25, Accounting for Stock Issued to Employees, and, accordingly,
recognized no compensation expense for the stock option grants. The Company
will not adopt FASB Statement No. 123, Accounting for Stock-Based Compensation
and will continue to account for stock option grants in accordance with APB
Opinion No. 25. FASB Statement 123 requires certain disclosures about stock-
based compensation plans for all companies regardless of the method used to
account for them. Effective in 1996 calendar year-end financial statements,
companies that continue to apply APB 25 will be required to disclose pro forma
information as if the measurement provisions of Statement 123 had been adopted
in their entirety.
2. Debt
On August 31, 1995, the Company entered into a new loan agreement (the
"Loan Agreement") with NationsBank of Texas, N.A., (the "Bank"). The Loan
Agreement extends the maturity of a mortgage note on the Company's headquarters
building which had a principal balance of $450,000 on March 31, 1996. The
mortgage note is payable in 77 equal monthly installments of $8,390 each,
<PAGE> 7
<PAGE>
including principal and interest, at an interest rate of 9.5%, and matures
February 28, 2002. The Loan Agreement also increases the amount of the
Company's revolving line of credit from $1,400,000 to $2,000,000, and extends
the maturity date until April 30, 1997. The line of credit provides for
monthly interest payments on any outstanding principal balance at an interest
rate of the Bank's prime rate plus 1%. The Company had no outstanding balance
on the line of credit at March 31, 1996. Both the line of credit and the
mortgage note are secured by the office building, inventory and accounts
receivable. The Loan Agreement imposes financial covenants specifying minimum
working capital, tangible net worth, current ratio, and fixed charge coverage
ratio, as well as a maximum ratio of total debt to capital funds. The
covenants are required to be calculated at the end of each quarter. The
Company was in compliance with all covenants for the quarter ended March 31,
1996.
The Company has $5,000,000 outstanding in subordinated debenture notes
(the "Debentures"), due June 15, 1999, interest payable monthly, with $500,000
quarterly principal repayments to begin on September 15, 1997. The Company was
in compliance with all covenants under the Debenture's governing instrument for
the quarter ended March 31, 1996.
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.
4. Subsequent Events
On May 7, 1996 the Company announced that it has entered into a stock
purchase agreement with a Malaysian company, Syarikat Megawati Sdn. Bhd.
("Syarikat Megawati"), which provides that the Company will issue one million
shares of its common stock to Syarikat Megawati for $4.00 per share, which is a
premium over recent average market prices. The transaction is subject to
approval by the Malaysian Central Bank, and if approved, is expected to close
in approximately 30 days. The Company intends to use the $4,000,000 proceeds
to reduce its outstanding $5,000,000 subordinated debt to $1,000,000. This
will result in a reduction in interest expense for long term debt of $35,000
per month.
<PAGE> 8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
Sales:
Net sales for the first quarter of 1996 were $2,702,000 compared with
$2,668,000 for the same quarter in 1995, an increase of $34,000. The
increase in sales was accomplished in spite of a slow start to the year
caused partly by severe weather in much of the nation.
Gross Profit:
Gross profit for the first quarter of 1996 was $731,000, compared
with $753,000 for the first quarter of 1995. The decrease in gross profit
in 1996 on higher sales was the result of higher raw material costs. The
increase in raw material costs was anticipated and the upward trend in
those costs should have reached a plateau for 1996. Gross profit as a
percentage of sales decreased slightly to 27.1% in the first quarter this
year as compared to 28.2% in the same quarter last year.
Expenses:
Total selling, administrative and general expenses increased from
$495,000 during the first quarter of 1995, to $516,000 for the first
quarter of 1996. This increase is attributed primarily to an expansion of
the sales force which was announced last year.
Interest Income:
In 1996, excess funds deposited in short-term interest bearing
investments resulted in interest income of $3,000. During the first
quarter of 1995, excess funds were deposited in short-term interest
bearing investments resulting in interest income of $4,000. The remaining
$20,000 resulted from a one time foreign currency transaction gain.
Interest Expense:
Interest expense decreased $27,000 in the first quarter of 1996 as
compared with the same quarter last year. Interest expense was higher in
1995 primarily because the Company was paying additional interest on
accrued, overdue and unpaid interest related to its $5,000,000
subordinated debentures. All overdue interest was paid by September of
1995, and the Company has been current on its interest payments since that
time.
<PAGE> 9
<PAGE>
Provision for Income Tax:
The Company has net operating loss and other carry forwards available
to offset the Company's taxable income.
LIQUIDITY AND CAPITAL RESOURCES
The Company's balance sheet continues to be strong, with working capital
increasing to $4,482,000 at March 31, 1996 from $4,325,000 at December 31,
1995. Cash and cash equivalents decreased $716,000 during the first quarter of
1996, primarily due to payments for raw material. Accounts receivable have
increased in the first quarter of 1996 as sales have increased each month.
Inventories have decreased by $530,000 during the first quarter of 1996, as
sales exceeded production for the quarter.
The Company on an ongoing basis will finance its operations principally
through cash flows generated by operations, through bank financing and through
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 (the "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.
On August 31, 1995, the Company entered into a new loan agreement (the
"Loan Agreement") with NationsBank of Texas, N.A., (the "Bank"). The Loan
Agreement extends the maturity of a mortgage note on the Company's headquarters
building which had a principal balance of $450,000 on March 31, 1996. The
mortgage note is payable in 77 equal monthly installments of $8,390 each,
including principal and interest, at an interest rate of 9.5%, and matures
February 28, 2002. The Loan Agreement also increases the amount of the
Company's revolving line of credit from $1,400,000 to $2,000,000, and extends
the maturity date until April 30, 1997. The line of credit provides for
monthly interest payments on any outstanding principal balance at an interest
rate of the Bank's prime rate plus 1%. The Company had no outstanding balance
on the line of credit at March 31, 1996. However, the Company does expect to
utilize the line of credit more in 1996 than it did in 1995, and the present
line of credit is expected to be adequate for the Company's needs in 1996.
The Company owes $5,000,000 in subordinated debt (the "Debentures"). The
Company has executed an agreement for the sale of 1,000,000 shares of its
common stock for $4,000,000, the proceeds of which would be used to pre-pay
principal on the Debentures. (See Note 4 of the Notes to Condensed Financial
Statements).
<PAGE> 10
<PAGE>
PART II
Item 5. Other Information
On May 7, 1996 the Company announced that it has entered into a stock
purchase agreement with a Malaysian company, Syarikat Megawati Sdn. Bhd.
("Syarikat Megawati"), which provides that the Company will issue one million
shares of its common stock to Syarikat Megawati for $4.00 per share, which is a
premium over recent average market prices. Syarikat Megawati is the majority
owner of Malaysian Titanium Corporation ("MTC"), which the Company divested in
1994. The transaction further strengthens the Company's strategic alliance
with Syarikat Megawati, since the Company purchases the raw material for its
primary product, HITOX pigment, under a supply agreement with MTC, and has
appointed MTC as its distributor for HITOX pigments in the Pacific Rim. The
transaction is subject to approval by the Malaysian Central Bank, and if
approved, is expected to close in approximately 30 days.
The Company intends to use the $4,000,000 proceeds to reduce its
outstanding $5,000,000 subordinated debt to $1,000,000. This would result in a
reduction in interest expense for long term debt of $35,000 per month.
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
Signatures
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: May 13, 1996 THOMAS A. LANDSHOF
----------------- ---------------------------------
Thomas A. Landshof, President and
Chief Executive Officer
Date: May 13, 1996 CRAIG A. SCHKADE
----------------- ---------------------------------
Craig A. Schkade, Chief Financial
Officer (Principal Financial and
Accounting Officer)
<PAGE> 11
<PAGE>
<TABLE>
Hitox Corporation of America Exhibit 11
Computation of Earnings Per Share (EPS)
(in thousands, except per share amounts)
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
-----------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
WEIGHTED AVERAGE SHARES OUTSTANDING
Common Stock 3,657 3,657
Common Stock Equivalents, assumed exercise
of stock options and warrants (Treasury
Stock Method at average market value) 61 8
-------------- --------------
Total for Primary EPS 3,718 3,665
Assumed exercise of stock options and warrants
(Treasury Stock Method at greater of average
or end of period market value) 1 17
-------------- --------------
Total for Fully Diluted EPS 3,719 3,682
INCOME
Income for primary EPS:
Net income $ 61 $ 103
Income for fully diluted EPS:
Net income $ 61 $ 103
INCOME PER SHARE
Primary $ 0.02 $ 0.03
Fully Diluted 0.02 0.03
</TABLE>
<PAGE> 12
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> $112
<SECURITIES> 0
<RECEIVABLES> 1703
<ALLOWANCES> 0
<INVENTORY> 3624
<CURRENT-ASSETS> 5601
<PP&E> 9034
<DEPRECIATION> 4794
<TOTAL-ASSETS> $9998
<CURRENT-LIABILITIES> $1119
<BONDS> 5390
0
0
<COMMON> 936
<OTHER-SE> 2553
<TOTAL-LIABILITY-AND-EQUITY> $9998
<SALES> $2702
<TOTAL-REVENUES> 2705
<CGS> 1971
<TOTAL-COSTS> 1971
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 144
<INCOME-PRETAX> 61
<INCOME-TAX> 0
<INCOME-CONTINUING> 61
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> $61
<EPS-PRIMARY> $0.02
<EPS-DILUTED> $0.02
</TABLE>
