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, 1997
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 4,657,487
(Class) (Outstanding as of April 15, 1997)
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [ X ]
<PAGE> 1
<PAGE>
HITOX CORPORATION OF AMERICA
INDEX
Page No.
--------
PART I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Balance Sheets--
March 31, 1997 and December 31, 1996 3-4
Condensed Statements of Income--
three months ended March 31, 1997 and 1996 5
Condensed Statements of Cash Flows--
three months ended March 31, 1997 and 1996 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, 1997 AND DECEMBER 31, 1996
(in thousands)
<CAPTION>
March 31, 1997 December 31,
(Unaudited) 1996
------------------- -------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,938 $ 1,509
Trade accounts receivable; no allowance for
doubtful accounts considered necessary 1,247 1,101
Other receivables 108 70
Inventories:
Raw materials 3,608 2,666
Finished goods 688 976
Supplies 75 75
------------------- -------------------
Total inventories 4,371 3,717
Other current assets 135 33
------------------- -------------------
Total current assets 7,799 6,430
Property, plant and equipment 9,207 9,123
Accumulated depreciation (5,350) (5,204)
------------------- -------------------
3,857 3,919
Other assets 25 25
------------------- -------------------
$ 11,681 $ 10,374
=================== ===================
</TABLE>
See Notes to Condensed Financial Statements
<PAGE> 3
<PAGE>
<TABLE>
HITOX CORPORATION OF AMERICA
CONDENSED BALANCE SHEETS
MARCH 31, 1997 AND DECEMBER 31, 1996
(in thousands, except par value)
<CAPTION>
March 31, 1997 December 31,
(Unaudited) 1996
------------------- -------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 141 $ 165
Accounts payable - MTC 1,493 418
Accrued expenses 423 257
Current maturities of long-term debt 381 373
------------------- -------------------
Total current liabilities 2,438 1,213
Other long-term debt, excluding current maturities 933 1,032
------------------- -------------------
Total liabilities 3,371 2,245
Commitments and contingencies
Shareholders' equity:
Preferred stock $.01 par value: authorized,
5,000 shares; no shares outstanding -- --
Common stock $.25 par value: authorized,
10,000 shares; 4,657 shares outstanding
after deducting 88 shares held in treasury 1,186 1,186
Additional paid-in capital 14,341 14,341
Accumulated deficit (7,174) (7,355)
------------------- -------------------
8,353 8,172
Less: cost of treasury stock (43) (43)
------------------- -------------------
Total shareholders' equity 8,310 8,129
------------------- -------------------
$ 11,681 $ 10,374
=================== ===================
</TABLE>
See Notes to Condensed Financial Statements
<PAGE> 4
<PAGE>
<TABLE>
HITOX CORPORATION OF AMERICA
CONDENSED STATEMENTS OF INCOME
(Unaudited)
(in thousands, except per share amounts)
<CAPTION>
Three Months Ended
March 31,
-----------------------------------------
1997 1996
------------------- -------------------
<S> <C> <C>
Net Sales $ 2,851 $ 2,702
Costs and expenses:
Cost of products sold 2,051 1,971
Selling, administrative and general 610 516
------------------- -------------------
Operating income 190 215
Other income (expenses):
Interest income 18 3
Interest expense (28) (144)
Other, net 1 (13)
------------------- -------------------
Income before income tax 181 61
Provision for income tax -- --
------------------- -------------------
NET INCOME $ 181 $ 61
=================== ===================
Income per common share:
Primary $ 0.04 $ 0.02
Fully diluted 0.04 0.02
Weighted average common shares and
equivalents outstanding:
Primary 4,675 3,718
Fully diluted 4,676 3,719
</TABLE>
See Notes to Condensed Financial Statements
<PAGE> 5
<PAGE>
<TABLE>
HITOX CORPORATION OF AMERICA
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<CAPTION>
Three Months Ended
March 31,
-------------------------------------
1997 1996
----------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 181 $ 61
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 146 163
Inventory valuation charge -- 4
Changes in working capital:
Receivables (184) (579)
Inventories (654) 526
Other current assets (102) (92)
Accounts payable and accrued expenses 1,217 (733)
----------------- -----------------
Net cash provided by (used in) operating activities 604 (650)
----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (84) (51)
----------------- -----------------
Net cash used in investing activities (84) (51)
----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt (91) (15)
----------------- -----------------
Net cash used in financing activities (91) (15)
----------------- -----------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 429 (716)
CASH AND CASH EQUIVALENTS:
AT BEGINNING OF PERIOD 1,509 828
----------------- -----------------
AT END OF PERIOD $ 1,938 $ 112
================= =================
Supplemental disclosure of cash flow information:
Interest paid $ 32 $ 100
</TABLE>
See Notes to Condensed Financial Statements
<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 1996 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.
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
did 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 are required to disclose pro forma
information as if the measurement provisions of Statement 123 had been adopted
in their entirety. Such pro forma information was included in the Company's
1996 Form 10-KSB.
2. Sale of Common Stock and Partial Prepayment of Subordinated Debentures
On June 26, 1996, the Company completed the sale of 1,000,000 shares of
common stock at $4.00 per share to Megamin Ventures Sdn. Bhd. ("Megamin
Ventures"), formerly Syarikat Megawati Sdn. Bhd. Megamin Ventures is the
majority owner of Malaysian Titanium Corporation ("MTC"), which supplies the
Company with its primary raw material, synthetic rutile. The $4,000,000
proceeds from the sale were used to prepay $4,000,000 of the outstanding
principal balance on $5,000,000 in 10.5% subordinated debenture notes (the
"Debentures") on July 1, 1996.
<PAGE> 7
<PAGE>
3. Prepayment of Debentures
On July 31, 1996, the Company prepaid the remaining $1,000,000 principal
balance on the Debentures using the proceeds of a term note under an amended
loan agreement with the Company's bank (See Note 4).
4. Debt
On July 31, 1996, the Company executed an amended loan agreement (the
"Amended Loan Agreement") with NationsBank of Texas, N.A., (the "Bank"), which
includes the existing $2,000,000 line of credit and the mortgage note on the
Company's headquarters. The Amended Loan Agreement provides a new $1,000,000
term loan (the "Term Loan") to the Company, with an interest rate of 8.17% per
annum. The repayment terms of the Term Loan provided for monthly payments of
interest only until December 31, 1996, and monthly payments of principal and
interest of $31,415 began January 31, 1997, with the final payment due on
January 31, 2000. The proceeds of the Term Loan were used to prepay the
remaining $1,000,000 principal balance on the Debentures on July 31, 1996.
Also as part of the Amended Loan Agreement, the expiration date of the
Company's line of credit was extended from April 30, 1997 to April 30, 1998,
and the interest rate was reduced from the Bank's prime rate plus 1.0% to the
Bank's prime rate plus 0.75%. The Amended Loan Agreement also reduces the
interest rate on the mortgage note on the building which includes the Company's
corporate headquarters from 9.5% to 9.0%. The Company had no outstanding
balance on the line of credit at March 31, 1997. The line of credit and the
term notes are secured by the office building, inventory and accounts
receivable. The Amended Loan Agreement contains covenants which, among other
things, require maintenance of certain financial ratios. The Company was in
compliance with all covenants for the quarter ended March 31, 1997.
5. Commitments
The Company purchases its primary raw material, synthetic rutile, 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 first price
adjustment, a 3.6% increase, is effective for orders placed in 1997, the third
year of the Supply Agreement.
6. Impact of Statement of Financial Accounting Standards No. 128
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share, which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the statement, primary earnings per share will be replaced with
basic earnings per share and fully diluted earnings per share will be replaced
with diluted earnings per share. The new requirements for calculating basic
earnings per share exclude the dilutive effect of stock options. The new basic
calculation results in the same earnings per share as the primary calculation
for both the first quarter of 1997 and 1996 for the Company. Likewise, the new
<PAGE> 8
<PAGE>
diluted calculation for the Company results in the same earnings per share as
the fully diluted calculation for the first quarters of both 1997 and 1996.
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 1997 were $2,851,000 as compared to
$2,702,000 for the same quarter in 1996. Sales of the Company's primary
product, HITOX pigment, were slightly ahead of the first quarter of 1996, and
BARTEX sales were up 27.2%.
Gross Profit:
Gross profit for the first quarter of 1997 was $800,000, as compared with
$731,000 for the first quarter of 1996, an increase of $69,000. Gross profit
as a percentage of sales increased to 28.1% in the first quarter this year as
compared to 27.1% in the same quarter last year. The improvement in the 1997
first quarter gross profit percentage compared with the first quarter of 1996
is the result of lower raw material costs in the first quarter of 1997.
Expenses:
Total selling, administrative and general expenses increased from $516,000
during the first quarter of 1996, to $610,000 for the first quarter of 1997,
representing an 18.2% increase. The higher expenses in the first quarter of
1997 compared with 1996 are primarily the result of higher selling expenses.
Interest Income:
During the first quarter of 1997, excess funds were deposited in short-
term interest bearing investments resulting in interest income of $18,000. For
1996, interest income for the first quarter was $3,000.
Interest Expense:
Interest expense decreased $116,000 in the first quarter of 1997 as
compared with the same quarter last year. Interest expense was lower in 1997
because on July 1, 1996, the Company prepaid $4,000,000 of the outstanding
principal balance on its subordinated debentures (the "Debentures"), using
proceeds from the sale of the Company's common stock. The remaining $1,000,000
principal balance on the Debentures was prepaid in full on July 31, 1996, using
the proceeds of a new $1,000,000 term loan with a lower interest rate.
<PAGE> 9
<PAGE>
Provision for Income Tax:
The Company has net operating loss and other carry forwards available to
offset the Company's regular taxable income.
LIQUIDITY AND CAPITAL RESOURCES
The Company's balance sheet is strong at March 31, 1997. Working capital
increased from $5,217,000 at December 31, 1996 to $5,361,000 at March 31, 1997.
Cash increased from $1,509,000 at December 31, 1995 to $1,938,000 at March 31,
1997, with operating activities providing $604,000, while $91,000 was used in
financing activities and $84,000 was used in investing activities. Accounts
receivable increased at March 31, 1997 compared with December 31, 1996, due to
higher sales volumes. Inventories as well as accounts payable and accrued
expenses have increased, primarily due to raw material in transit. The Company
had no outstanding borrowings on its line of credit at March 31, 1997, which
has a limit of $2,000,000.
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 first price adjustment, a 3.6%
increase, is effective for orders placed in 1997, the third year of the Supply
Agreement.
On July 31, 1996, the Company executed an amended loan agreement with the
Bank (the "Amended Loan Agreement"). The Amended Loan Agreement provides a new
$1,000,000 term loan (the "Term Loan") to the Company, with an interest rate of
8.17% per annum. The repayment terms of the Term Loan provided for monthly
payments of interest only until December 31, 1996, and monthly payments of
principal and interest of $31,415 began January 31, 1997, with the final
payment due on January 31, 2000. The proceeds of the Term Loan were used to
prepay the remaining $1,000,000 principal balance on the Debentures on July 31,
1996. Also as part of the Amended Loan Agreement, the expiration date of the
Company's line of credit was extended from April 30, 1997 to April 30, 1998,
and the interest rate was reduced from the Bank's prime rate plus 1.0% to the
Bank's prime rate plus 0.75%. The Amended Loan Agreement also reduces the
interest rate on the mortgage note on the building which includes the Company's
corporate headquarters from 9.5% to 9.0%.
<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
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 12, 1997 THOMAS A. LANDSHOF
----------------- ---------------------------------
Thomas A. Landshof, President and
Chief Executive Officer
Date: May 12, 1997 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,
------------------------------------------
1997 1996
------------------- -------------------
<S> <C> <C>
WEIGHTED AVERAGE SHARES OUTSTANDING
Common Stock 4,657 3,657
Common Stock Equivalents, assumed exercise
of stock options and warrants (Treasury
Stock Method at average market value) 18 61
------------------- -------------------
Total for Primary EPS 4,675 3,718
Assumed exercise of stock options and warrants
(Treasury Stock Method at greater of average
or end of period market value) 1 1
------------------- -------------------
Total for Fully Diluted EPS 4,676 3,719
INCOME
Income for primary EPS:
Net income $ 181 $ 61
Income for fully diluted EPS:
Net income $ 181 $ 61
INCOME PER SHARE
Primary $ 0.04 $ 0.02
Fully Diluted 0.04 0.02
</TABLE>
<PAGE> 12
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> $1938
<SECURITIES> 0
<RECEIVABLES> 1247
<ALLOWANCES> 0
<INVENTORY> 4371
<CURRENT-ASSETS> 7799
<PP&E> 9207
<DEPRECIATION> 5350
<TOTAL-ASSETS> $11681
<CURRENT-LIABILITIES> $2438
<BONDS> 933
0
0
<COMMON> 1186
<OTHER-SE> 7124
<TOTAL-LIABILITY-AND-EQUITY> $11681
<SALES> $2851
<TOTAL-REVENUES> 2870
<CGS> 2051
<TOTAL-COSTS> 2051
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28
<INCOME-PRETAX> 181
<INCOME-TAX> 0
<INCOME-CONTINUING> 181
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> $181
<EPS-PRIMARY> $0.04
<EPS-DILUTED> $0.04
</TABLE>
