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, 2000
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from __________ to __________
Commission file number 0-17321
TOR MINERALS INTERNATIONAL, INC.
(Exact name of small business issuer as specified in its charter)
Delaware
(State or other jurisdiction of
Incorporation or organization)
722 Burleson Street, Corpus Christi, Texas 78402
(Address of principal executive offices)
Issuer's telephone number: (361) 882-5175
HITOX CORPORATION OF AMERICA
(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 5,279,187
(Class) (Outstanding as of August 1, 2000)
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [ X ]
1
TOR MINERALS INTERNATIONAL, INC.
INDEX
Page No.
PART I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Condensed Balance Sheets
June 30, 2000 and December 31, 1999 3
Consolidated Condensed Statements of
Income -- three and six months ended
June 30, 2000 and 1999 4
Consolidated Condensed Statements of
Cash Flows -- three and six months ended
June 30, 2000 and 1999 5
Notes to Consolidated Condensed
Financial Statements 6-9
Item 2. Management's Discussion and Analysis
Of Financial Condition and Results of
Operations 10-13
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 14
2
TOR MINERALS INTERNATIONAL, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
JUNE 30, 2000 AND DECEMBER 31, 1999
(in thousands, except par value)
June 30, 2000 December 31,
(Unaudited) 1999
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 785 $ 2,330
Trade accounts receivable, net 2,331 1,334
Other receivables 50 12
Inventories: 6,718 6,490
Other current assets 174 42
------------ ------------
Total current assets 10,058 10,208
Property, plant and equipment, net 10,498 2,710
Other assets 12 43
------------ ------------
Total assets $ 20,568 $ 12,961
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 687 $ 1,389
Accrued expenses 691 512
Notes Payable - short-term 1,153 --
Current maturities of long-term debt 946 --
------------ ------------
Total current liabilities 3,477 1,901
Other long-term debt, excluding
current maturities 5,070 --
------------ ------------
Total liabilities 8,547 1,901
Shareholders' equity
Common stock $0.25 par value 1,320 1,193
Additional paid-in capital 15,198 14,316
Accumulated deficit (4,497) (4,449)
------------ ------------
12,021 11,060
------------ ------------
Total Liabilities and Stockholders' Equity $ 20,568 $ 12,961
============ ============
See Notes to Consolidated Financial Statements
3
TOR MINERALS INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
(in thousands, except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
2000 1999 2000 1999
-------- -------- -------- --------
NET SALES $ 4,018 $ 2,959 $ 7,458 $ 6,038
COSTS AND EXPENSES:
Cost of products sold 3,045 2,085 5,590 4,098
Selling, administrative & general 986 664 1,759 1,332
-------- -------- -------- --------
OPERATING INCOME (LOSS) (13) 210 109 608
OTHER INCOME (EXPENSES):
Interest income 15 18 38 33
Interest expense (152) -- (209) (4)
Other, net (1) 1 14 16
-------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME TAX (151) 229 (48) 653
Provision for income tax -- 2 -- 15
-------- -------- -------- --------
NET INCOME (LOSS) $ (151) $ 227 $ (48) $ 638
======== ======== ======== ========
Earnings (loss) per common share:
--------------------------------
Basic $ (0.03) $ 0.05 $ (0.01) $ 0.14
Diluted $ (0.03) $ 0.05 $ (0.01) $ 0.14
Weighted average common shares
and equivalents outstanding:
Basic 5,279 4,667 5,110 4,662
Diluted 5,279(1) 4,749 5,110(1) 4,720
------------------------------------------
(1) No shares were added to the number
of basic shares in the computation
of diluted earnings per share because
the effect would be antidilutive
See Notes to Condensed Financial Statements
4
TOR MINERALS INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
June 30,
-----------------------
2000 1999
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ (48) $ 638
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 347 241
Gain on sale of asset(s) (1) (10)
Other Assets 18 --
Changes in working capital:
Receivables 584 (301)
Inventories 1,122 (497)
Other current assets (6) (60)
Accounts payable and accrued expenses (1,704) 315
--------- ---------
Net cash provided by
operating activities 312 326
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of TMM, net of cash acquired (4,848) --
Additions to property, plant and equipment (276) (486)
Proceeds from sale of asset(s) 1 666
--------- ---------
Net cash provided by (used in)
investing activities (5,123) 180
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt (1,198) (389)
Proceeds from long-term debt 4,455 --
Proceeds from issuance of common stock 9 24
--------- ---------
Net cash provided by (used in)
financing activities 3,266 (365)
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,545) 141
CASH AND CASH EQUIVALENTS:
AT BEGINNING OF PERIOD 2,330 1,737
--------- ---------
AT END OF PERIOD $ 785 $ 1,878
========= =========
Supplemental disclosure of
cash flow information:
Interest income $ 37 $ 33
Interest expense 145 4
See Notes to Consolidated Financial Statements
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. ACCOUNTING POLICIES
Basis of Presentation
The interim financial statements of TOR Minerals International, Inc.
(the "Company") (formerly Hitox Corporation of America) 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 1999 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 1999 Form 10-KSB.
2. Acquisition of TOR Minerals Malaysia
(formerly Malaysian Titanium Corporation, Sdn. Bhd.)
On March 6, 2000, the Company announced the purchase of Malaysian
Titanium Corporation, Sdn. Bhd. ("MTC"), a private Malaysian company.
Subsequent to the acquisition, MTC changed its name to TOR Minerals
Malaysia, Sdn. Bhd.., ("TMM"). The sale and purchase agreement (the
"Agreement") was signed in Malaysia effective March 1, 2000, and provided
for the purchase by the Company of all of the issued and outstanding shares
of TMM from Megamin Ventures Sdn. Bhd., ("Megamin"). Megamin is also the
Company's largest shareholder, with approximately 28% of the Company's
outstanding shares as of December 31, 1999. After giving effect to the
Agreement, Megamin owns approximately 35% of the Company's outstanding
shares as of March 1, 2000. Prior to the Agreement, Megamin had one
appointee to the Company's Board of Directors. Per the Agreement, the
Company nominated an additional person to serve on the Company's Board of
Directors as a representative of Megamin.
6
Pursuant to the terms of the Agreement, the Company paid $3,775,000 in
cash and issued 500,000 shares of its common stock in exchange for 100% of
the shares of TMM. The Company's shares closed at $2.00 on the effective
date of the Agreement. The Company also agreed to pay Megamin a total of
approximately $1,050,000 in 4 equal semi annual payments beginning July 1,
2000. The discounted present value of those payments is approximately
$955,000. Transaction costs are estimated to total $155,000. The Company
recorded the transaction as a purchase, with a cost of approximately
$5,885,000, plus assumption of TMM's bank debt of approximately $4,000,000.
TMM is the Company's sole supplier of Synthetic Rutile, the raw
material for the Company's proprietary titanium pigment HITOX (Registered
Trademark). TMM is also producing HITOX pigment in Malaysia under a
license from the Company and is selling HITOX pigment in Asia and Europe.
TMM was previously a subsidiary of the Company and was sold to Megamin
and other investors in 1994. The acquisition provides the opportunity to
control the raw material supply for the Company's primary product, HITOX
pigment, and represents both a low cost production site for HITOX pigment
and marketing opportunities outside the U.S. market.
3. Debt
The Company's $2,000,000 line of credit with Bank of America (the
"Bank") expired April 30, 2000, and a new $2,000,000 line of credit (the
"Line") was established with the Bank that expires on April 30, 2002. The
interest rate for the Line is either a fixed or floating rate, at the
Company's option. The floating rate is the daily Eurodollar rate plus 225
basis points, and the fixed rate is available in 30, 60 or 90 day tranches,
at 225 basis points above the Eurodollar Rate for the chosen time period.
The amount of credit available to the Company under the Line is limited to
the lesser of $2,000,000 or 80% of eligible accounts receivable. At June
30, 2000, $1,573,000 was available to the Company under the line and the
Company had no outstanding borrowings under the Line on that date. The
Company has one term loan with Bank of America for $3,500,000. The
proceeds of the loan were used to finance the purchase of TMM. The loan is
to be repaid in full in a single payment on October 5, 2001. The company
may prepay all or part of the principal outstanding at any time without
penalty, subject to any restrictions caused by the choice of interest rate.
The interest rate is the Bank's prime rate or the LIBOR rate plus 225 basis
points, as chosen by the Company. The LIBOR based rate is available in 30,
60 or 90-day tranches, with a minimum of $1,000,000 for any one tranche.
If a LIBOR based rate is used the Company cannot prepay any principal
related to that tranche for the period chosen without paying a penalty.
The Company currently is using a 90-day tranche for the entire $3,500,000
principal balance with an effective interest rate of 9.09% per annum.
The Company's subsidiary, TMM, has loan agreements with two banks in
Malaysia, HSBC Bank Malaysia Berhad and RHB Bank Berhad, which provide a
total short term credit facility of $6,447,000. At June 30, 2000 TMM had
utilized $1,357,000 of that facility, including $1,153,000 outstanding
under an export credit refinancing facility (ECR). ECR, a government
supported financing arrangement specifically for exporters, is used by TMM
for short-term financing against customers' purchase orders. In addition,
TMM has two term loans outstanding with principal balances outstanding of
$350,000 and $1,211,000 at June 30, 2000. Both loans have an effective
interest rate of 8.8% per annum.
7
4. Pro Forma Financial Information
The results of operations for the six-month period ended June 30, 2000
includes the operations of TMM from the acquisition date of March 1, 2000
(see Note 2). Assuming the acquisition of TMM had occurred at January 1,
1999, unaudited pro forma consolidated results of operations for the six
months ended June 30, 2000 and 1999 would have been as follows:
Pro Forma (Unaudited)
Six Months Ended June 30
In thousands, except per share data
2000 1999
---- ----
Net revenue $8,975 $7,382
Net income $434 $229
Net income per share:
Basic $.08 $.04
Diluted $.08 $..04
The pro forma information above is presented in response to applicable
accounting rules relating to business acquisitions and is not necessarily
indicative of the actual results that would have been achieved had the
acquisition of TMM occurred at the beginning of 1999, nor is it indicative
of future results of operations.
8
5. Calculation of Basic and Diluted Earnings per Share
The following table sets forth the computation of basic and diluted
earnings per share:
(in thousands, except per share amounts)
Three Months Six Months
Ended June 30, Ended June 30,
---------------- ----------------
2000 1999 2000 1999
------- ------- ------- -------
Numerator:
Net Income $ (151) $ 227 $ (48) $ 638
Numerator for basic earnings
per share - income (loss) available
to common stockholders (151) 227 (48) 638
------- ------- ------- -------
Effect of dilutive securities: -- -- -- --
------- ------- ------- -------
Numerator for diluted earnings
per share - income (loss)
available to common stockholders
after assumed conversions $ (151) $ 227 $ (48) $ 638
Denominator:
Denominator for basic earnings per
share - weighted-average shares 5,279 4,667 5,110 4,662
Effect of dilutive securities:
Employee stock options -- 79 -- 58
Warrants -- 3 -- --
------- ------- ------- -------
Dilutive potential common shares -- 82 -- 58
------- ------- ------- -------
Denominator for diluted earnings
per share - weighted-average
shares and assumed conversions 5,279(1) 4,749 5,110(1) 4,720
===== ===== ===== =====
Basic earnings per common share:
Net Income (Loss) $(0.03) $0.05 $(0.01) $0.14
====== ===== ====== =====
Diluted earnings per common share:
Net Income (Loss) $(0.03) $0.05 $(0.01) $0.14
====== ===== ====== =====
-----------------------------------------
(1) No shares were added to the number of
basic shares in the computation of
diluted earnings per share because
the effect would be antidilutive.
Options to purchase 273,500 shares of common stock were not included
in the computation of diluted earnings per share because the exercise price
was greater than the average market price of the common shares and,
therefore, the effect would be antidilutive.
9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS
Sales:
Net sales increased $1,059,000, or 35.8% to $4,018,000 in the second
quarter of 2000 compared with $2,959,000 in the same quarter last year.
Pigment sales accounted for $1,040,000 of the sales increase, with TMM
providing $370,000 of those sales. Sales of the Company's HITOX pigment
line increased $626,000 in the second quarter of 2000 compared with 1999,
while sales of the HALTEX pigment line increased $347,000 and sales of the
BARTEX pigment line increased $129,000. For the six months ended June 30,
2000, net sales increased $1,420,000, or 23.5% to $7,458,000 compared with
$6,038,000 for the same period last year. Pigment sales accounted for
$1,390,000 of the sales increase, with TMM providing $470,000 of those
pigment sales. Sales of the Company's HITOX pigment line increased
$683,000, while sales of the HALTEX pigment line increased $569,000 and
sales of the BARTEX pigment line increased $233,000.
Gross Profit:
For the quarter, gross profit increased $99,000 accompanying the
increase in sales. The gross profit percentage decreased from 29.5% to
24.2% due to higher production costs in the US and in Malaysia, and due to
a change in the product mix that included higher sales of lower margin
products. The higher production costs in the US were primarily the result
of higher natural gas prices. At TMM, higher maintenance expenses were
incurred during a two-month period when synthetic rutile was not produced,
which resulted in a negative margin for the quarter. For the year, gross
profit decreased $72,000. The YTD gross profit percentage decreased from
32.1% in 1999 to 25.0% in 2000.
Expenses:
Total selling, administrative and general expenses ("SG&A expense")
increased from $664,000 during the second quarter of 1999, to $986,000 for
the second quarter of 2000, an increase of $322,000 or 48.5%.
Approximately $153,000 of the increase is the result of including SG&A
expenses from TMM in 2000 after the acquisition. The remainder of the
increase is primarily the result of increasing the Company's sales force.
For the year, SG&A expense increased from $1,332,000 in 1999 to $1,759,000
in 2000, an increase of $427,000 or 32.1%. Approximately $196,000 of the
increase in the result of including SG&A expenses from TMM in 2000 after
the acquisition. The remainder of the increase is primarily the result of
higher selling expense in 2000 compared with 1999.
10
Interest Income:
During the second quarter of 2000, excess funds were deposited in
short-term interest bearing investments resulting in interest income for
the quarter of $14,000 compared to $18,000 for the same quarter last year.
For the year, interest income increased from $33,000 in 1999 to $37,000 in
2000. The year to date increase is the result of higher cash balances
available for investment during the first six months of 2000.
Interest Expense:
Interest expense increased $152,000 in the second quarter of 2000 as
compared with the same quarter last year when the Company had no long-term
debt. For the six-month period ended June 30, 2000 interest expense was
$209,000 compared to $4,000 for the same period in 1999. The increase in
interest expense is due to the financing of the purchase of TMM and
interest expense associated with TMM's debt.
Provision for Income Tax:
Due to the utilization of operating loss carryforwards and other tax
benefits both in the US and in Malaysia, the Company recorded no income tax
expense during the second quarter of 2000.
LIQUIDITY AND CAPITAL RESOURCES
The Company's balance sheet is strong at June 30, 2000. Working
capital decreased from $8,307,000 at December 31, 1999 to $6,581,000 at
June 30, 2000. Accounts receivable increased at June 30, 2000 compared
with December 31, 1999 due to higher sales in 2000 and due to the
acquisition of TMM. Inventories increased modestly over the six-month
period ended June 30, 2000, primarily from the acquisition of TMM.
Cash decreased from $2,330,000 at December 31, 1999 to $785,000 at
June 30, 2000. During the six-month period, cash provided by operating
activities totaled $312,000, resulting from changes in working capital.
Net cash used in investing activities totaled $5,123,000 primarily related
to the acquisition of TMM and financing activities provided $3,266,000.
The Company maintains credit facilities with banks in both the US and
Malaysia. In the US, the Company's $2,000,000 line of credit with Bank of
America (the "Bank") expired April 30, 2000, and a new $2,000,000 line of
credit (the "Line") was established with the Bank that expires on April 30,
2002. The interest rate for the Line is either a fixed or floating rate,
at the Company's option. The floating rate is the daily Eurodollar rate
plus 225 basis points, and the fixed rate is available in 30, 60 or 90 day
tranches, at 225 basis points above the Eurodollar Rate for the chosen time
period. The amount of credit available to the Company under the Line is
limited to the lesser of $2,000,000 or 80% of eligible accounts receivable.
At June 30, 2000, $1,573,000 was available to the Company under the line
and the Company had no outstanding borrowings under the Line on that date.
11
The Company has one term loan with Bank of America for $3,500,000. The
proceeds of the loan were used to finance the purchase of TMM. The loan is
to be repaid in full in a single payment on October 5, 2001. The company
may prepay all or part of the principal outstanding at any time without
penalty, subject to any restrictions caused by the choice of interest rate.
The interest rate is the Bank's prime rate or the LIBOR rate plus 225 basis
points, as chosen by the Company. The LIBOR based rate is available in 30,
60 or 90-day tranches, with a minimum of $1,000,000 for any one tranche.
If a LIBOR based rate is used the Company cannot prepay any principal
related to that tranche for the period chosen without paying a penalty.
The Company currently is using a 90-day tranche for the entire $3,500,000
principal balance with an effective interest rate of 9.09% per annum.
The Company's subsidiary, TMM, has loan agreements with two banks in
Malaysia, HSBC Bank Malaysia Berhad and RHB Bank Berhad, which provide a
total short term credit facility of $6,447,000. At June 30, 2000 TMM had
utilized $1,357,000 of that facility, including $1,153,000 outstanding
under an export credit refinancing facility (ECR). ECR, a government
supported financing arrangement specifically for exporters, is used by TMM
for short-term financing against customers' purchase orders. In addition,
TMM has two term loans outstanding with principal balances outstanding of
$350,000 and $1,211,000 at June 30, 2000. Both loans have an effective
interest rate of 8.8% per annum.
TMM is presently dependent upon the Company for purchasing its
synthetic rutile production. TMM's synthetic rutile production capacity is
expected to meet and exceed the short-term needs of TMM or the Company for
synthetic rutile to process into HITOX. As a result, the Company is
endeavoring to find third-party buyers for the excess synthetic rutile
production, so as to enable TMM to operate the plant efficiently and
achieve lower unit production costs through economies of scale. Should
attempts to find third-party buyers of synthetic rutile not succeed, the
Company may adjust production levels of synthetic rutile at the Malaysian
plant to avoid a build-up of inventories and the associated carrying cost.
If production levels of synthetic rutile at TMM are reduced, production
costs there will increase and could negatively effect margins as they did
in the second quarter of 2000.
TMM measures and records its transactions in terms of the local
Malaysian currency, the ringgit. Normally, if the value of the ringgit
compared with the US dollar varied, the Company would report the effects of
translating the ringgit to the US dollar in an equity account in the
consolidated balance sheet. However, Malaysia imposed capital controls and
fixed its ringgit currency at 3.8 ringgits per 1 US dollar in September of
1998 to stem the outflow of short-term capital in the wake of the Asian
financial crisis. The Malaysian government has not changed the fixed
exchange rate since that time. Therefore, no translation account is
necessary in the consolidated balance sheet. There can be no assurance
that the Malaysian government will maintain the current fixed rate of
exchange.
12
OTHER MATTERS
Forward Looking Information
Certain portions of this report contain forward-looking statements
about the business, financial condition and prospects of the Company. The
actual results of the Company could differ materially from those indicated
by the forward-looking statements because of various risks and
uncertainties including, without limitation, changes in demand for the
Company's products, changes in competition, economic conditions,
fluctuations in market price for TiO2 pigments, interest rate fluctuations,
changes in the capital markets, changes in tax and other laws and
governmental rules and regulations applicable to the Company's business,
and other risks indicated in the Company's filing with the Security and
Exchange Commission. These risks and uncertainties are beyond the ability
of the Company to control, and, in many cases, the Company cannot predict
all of the risks and uncertainties that could cause its actual results to
differ materially from those indicated by the forward-looking statements.
When used in this report, the words "believes," "estimates," "plans,"
"expects," "anticipates" and similar expressions as they relate to the
Company or its management are intended to identify forward-looking
statements.
13
PART II
Item 6. Exhibits and Reports on Form 8K
Page No.
(a) Exhibits None
(b) Reports on Form 8-K The Company filed a Form 8-K/A
Current Report dated May 12, 2000
reporting the audited financial statements
and pro forma financial information
related to the purchase of TOR Minerals
Malaysia Sdn. Bhd. (formerly Malaysian
Titanium Corporation, Sdn Bhd.)
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.
TOR Minerals International, Inc.
____________
(Registrant)
Date: August 10, 2000 ________________________________
Bernard A. Paulson, President and CEO
Date: August 10, 2000 ________________________________
Craig Schkade, Chief Financial Officer
(Principal Financial and Accounting Officer)
14
