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, 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 May 1, 2000)
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [ X ]
<PAGE> 1
TOR MINERALS INTERNATIONAL, INC.
INDEX
Page No.
PART I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Condensed Balance Sheets
March 31, 2000 and December 31, 1999 3
Consolidated Condensed Statements of Income-
three months ended March 31, 2000 and 1999 4
Consolidated Condensed Statements of Cash Flows
three months ended March 31, 2000 and 1999 5
Notes to Consolidated Condensed
Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 12
<PAGE> 2
TOR MINERALS INTERNATIONAL, INC.
(formerly Hitox Corporation of America)
CONSOLIDATED CONDENSED BALANCE SHEETS
MARCH 31, 2000 AND DECEMBER 31, 1999
(in thousands, except par value)
March 31, 2000 December 31,
(Unaudited) 1999
-------------- --------------
ASSETS
Current assets:
Cash and cash equivalents $ 1,529 $ 2,330
Trade accounts receivable, net 3,468 1,334
Other receivables 12 12
Inventories 7,062 6,490
Other current assets 279 42
-------------- --------------
Total current assets 12,350 10,208
Property, plant and equipment, net 10,549 2,710
Other assets 19 43
-------------- --------------
Total assets $ 22,918 $ 12,961
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 771 $ 1,389
Accrued expenses 971 512
Notes Payable - short-term 2,909 --
Current maturities of long-term debt 907 --
-------------- --------------
Total current liabilities 5,558 1,901
Other long-term debt,
excluding current maturities 5,188 --
-------------- --------------
Total liabilities 10,746 1,901
Shareholders' equity
Common stock $0.25 par value 1,320 1,193
Additional paid-in capital 15,198 14,316
Accumulated deficit (4,346) (4,449)
-------------- --------------
12,172 11,060
-------------- --------------
Total Liabilities and
Shareholders' Equity $ 22,918 $ 12,961
============== ==============
See Notes to Consolidated Condensed Financial Statements
<PAGE> 3
TOR MINERALS INTERNATIONAL, INC.
(formerly Hitox Corporation of America)
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
(in thousands, except per share amounts)
Three Months Ended
March 31,
-----------------------
2000 1999
---------- ----------
Net Sales $ 3,440 $ 3,079
Costs and expenses:
Cost of products sold 2,545 2,013
Selling, administrative and general 773 668
---------- ----------
Operating income 122 398
Other income (expenses):
Interest income 23 15
Interest expense (57) (4)
Other, net 15 15
---------- ----------
Income before income tax 103 424
Provision for income tax -- 13
---------- ----------
NET INCOME $ 103 $ 411
========== ==========
Earnings per common share:
Basic $ 0.02 $ 0.09
Diluted $ 0.02 $ 0.09
Weighted average common shares and
Equivalents outstanding:
Basic 4,940 4,657
Diluted 4,999 4,679
See Notes to Consolidated Condensed Financial Statements
<PAGE> 4
TOR MINERALS INTERNATIONAL, INC.
(formerly Hitox Corporation of America)
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three Months Ended
March 31,
-----------------------
2000 1999
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 103 $ 411
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities:
Depreciation and amortization 133 112
Gain on sale of asset(s) -- (10)
Other Assets 18 --
Changes in working capital:
Receivables (602) (153)
Inventories 542 (550)
Other current assets (62) (86)
Accounts payable and accrued expenses (426) 250
--------- ---------
Net cash used in operating activities (294) (26)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of MTC, net of cash acquired (4,820) --
Additions to property, plant and equipment (151) (369)
Proceeds from sale of asset(s) -- 661
--------- ---------
Net cash provided by
(used in) investing activities (4,971) 292
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt (389)
Proceeds from long-term debt 4,455 --
Proceeds from issuance of common stock 9 --
--------- ---------
Net cash provided by
(used in) financing activities 4,464 (389)
--------- ---------
NET DECREASE IN CASH AND
CASH EQUIVALENTS (801) (123)
CASH AND CASH EQUIVALENTS:
AT BEGINNING OF PERIOD 2,330 1,737
--------- ---------
AT END OF PERIOD $ 1,529 $ 1,614
========= =========
Supplemental disclosure of cash flow information:
Interest income $ 23 $ 15
Interest expense 21 4
See Notes to Consolidated Condensed Financial Statements
<PAGE> 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. Aquisition of 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. 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 MTC 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 will nominate an additional person to serve
on the Company's Board of Directors as a representative of Megamin.
<PAGE> 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 MTC. 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
will record the transaction as a purchase, with a cost of approximately
$5,885,000, plus assumption of MTC's bank debt of approximately $4,000,000.
MTC is the Company's sole supplier of Synthetic Rutile, the raw
material for the Company's proprietary titanium pigment HITOX (Registered
Trademark). MTC is also producing HITOX pigment in Malaysia under a
license from the Company and is selling HITOX pigment in Asia and Europe.
MTC 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 line of credit with Bank of America expired April 30,
2000. The Bank has agreed to provide the Company with a new line of credit
with similar terms to the expired facility. 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 MTC. 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 chose
to initially use a 90 day LIBOR tranche for the entire $3,500,000 principal
balance with an effective interest rate of 8.36% per annum.
The Company's subsidiary, MTC, 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 March 31, 2000 MTC had
an outstanding balance of $223,000 under the line of credit and $2,686,000
outstanding under the export credit refinancing agreement (ECR). ECR, a
government supported financing arrangement specifically for exporters, is
used by MTC for short-term financing against customers' purchase orders.
In addition, MTC has a total long-term credit facility of $1,921,000 which
has two term loans outstanding with principal balances outstanding of
$350,000 and $1,290,000 at March 31, 2000. Both loans have an effective
interest rate of 8.8% per annum.
<PAGE> 7
4. 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 Ended
March 31,
--------------------
2000 1999
--------- ---------
Numerator:
Net Income $ 103 $ 411
Numerator for basic earnings per share -
income available to common stockholders 103 411
--------- ---------
Effect of dilutive securities: $ 103 $ 411
--------- ---------
Numerator for diluted earnings per share -
income available to common stockholders
after assumed conversions
Denominator:
Denominator for basic earnings per share -
weighted-average shares 4,940 4,657
Effect of dilutive securities:
Employee stock options 59 22
--------- ---------
Dilutive potential common shares 59 22
--------- ---------
Denominator for diluted earnings per share -
weighted-average shares and assumed conversions 4,999 4,679
========= =========
Basic earnings per common share:
Net Income $ 0.02 $ 0.09
========= =========
Diluted earnings per common share:
Net Income $ 0.02 $ 0.09
========= =========
Options to purchase 235,700 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.
<PAGE> 8
5. Pro Forma Financial Information
The results of operations for the three months period ended March 31,
2000 includes the operations of MTC from the acquisition date of March 1,
2000 (see Note 2). Assuming the acquisition of MTC had occurred at January
1, 1999, unaudited pro forma consolidated results of operations for the
three months ended March 31, 2000 and 1999 would have been as follows:
Pro Forma (Unaudited)
Three Months Ended March 31
In thousands, except per share data
2000 1999
---------- ----------
Net revenue $4,956,948 $3,202,767
Net income (loss) $234,657 $143,321
Net income (loss) per share:
Basic $.04 $.03
Diluted $.04 $.03
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 MTC occurred at the beginning of 1999, nor is it indicative
of future results of operations.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
RESULTS OF OPERATIONS
Sales:
Net sales increased $361,000, or 11.7% to $3,440,000 in the first
quarter of 2000 compared with $3,079,000 in the same quarter last year.
Pigment sales accounted for $349,000 of the sales increase, with MTC
providing $100,000 of those pigment sales.
Gross Profit:
Gross profit for the first quarter of 2000 was $895,000 as compared
with $1,066,000 for the first quarter of 1999, a decrease of $171,000. The
decrease in gross profit was the result of several factors, including
higher sales of lower margin products in the first quarter of 2000 compared
with the same quarter of 1999. Also in 2000, production costs were higher
than 1999, which included higher natural gas prices.
<PAGE> 9
Expenses:
Total selling, administrative and general expenses increased from
$668,000 during the first quarter of 1999, to $773,000 for the first
quarter of 2000, an increase of 15.7%. The increase is a primarily the
result of increasing the Company's sales force and the acquisition of MTC.
Interest Income:
During the first quarter of 2000, excess funds were deposited in short-
term interest bearing investments resulting in interest income of $23,000
compared to $15,000 for the same quarter last year. This increase is the
result of higher cash balances available for investment and higher interest
rates during the first quarter of 2000 as compared to the same quarter last
year.
Interest Expense:
Interest expense increased $53,000 in the first quarter of 2000 as
compared with the same quarter last year, due to the financing of the
purchase of MTC and interest expense associated with MTC's debt.
Provision for Income Tax:
Due to the utilization of operating loss carryforwards, the Company
recorded no income tax expense during the first quarter of 2000.
LIQUIDITY AND CAPITAL RESOURCES
The Company's balance sheet is strong at March 31, 2000. Working
capital decreased from $8,307,000 at December 31, 1999 to $6,792,000 at
March 31, 2000. Accounts receivable and inventory increased at March 31,
2000 compared with December 31, 1999 due to the acquisition of MTC and the
Company had $2,909,000 outstanding on MTC's short-term credit facility at
March 31, 2000.
Cash decreased from $2,330,000 at December 31, 1999 to $1,529,000 at
March 31, 2000. During the three month period, cash used in operating
activities totaled $294,000, resulting from changes in working capital,
with the largest change being an increase in accounts receivable. Net cash
used in investing activities totaled $4,971,000 primarily related to the
acquisition of MTC and financing activities provided $4,464,000.
<PAGE> 10
The Company's line of credit with Bank of America expired April 30,
2000. The Bank has agreed to provide the Company with a new line of credit
with similar terms to the expired facility. The Company has one term loan
with Bank of America for $3,500,000, which matures October 5, 2001. The
proceeds of the loan were used to finance the purchase of Malaysian
Titanium Corporation, Sdn. Bhd. (MTC). 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 chose
to initially use a 90 day LIBOR tranche for the entire $3,500,000 principal
balance with an effective interest rate of 8.36% per annum.
The Company's subsidiary, MTC, 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 March 31, 2000 MTC had
an outstanding balance of $223,000 under the line of credit and $2,686,000
outstanding under the export credit refinancing agreement (ECR). ECR, a
government supported financing arrangement specifically for exporters, is
used by MTC for short-term financing against customers' purchase orders.
In addition, MTC has a total long-term credit facility of $1,921,000 which
has two term loans outstanding with principal balances outstanding of
$350,000 and $1,290,000 at March 31, 2000. Both loans have an effective
interest rate of 8.8% per annum.
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.
<PAGE> 11
Subsequent Events
At the Company's annual meeting of shareholders, held May 5, 2000, the
shareholders voted to approve an amendment to the Company's Certificate of
Incorporation to change the name of the Company from Hitox Corporation of
America to TOR Minerals International, Inc. The Company's stock symbol has
changed effective May 10, 2000 from HTXA to TORM.
PART II
Item 6. Exhibits and Reports on Form 8K
Page No.
(a) Exhibits Exhibit 27 - Financial Data Schedule 13
(b) Reports on Form 8-K The Company filed a Form 8-K
Current Report dated March 16, 2000
reporting the purchase of
Malaysian Titanium Corporation, Sdn Bhd.
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
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: May 15, 2000 BERNARD A. PAULSON
Bernard A. Paulson, President and CEO
Date: May 15, 2000 CRAIG SCHKADE
Craig Schkade, Chief Financial Officer
(Principal Financial and Accounting Officer)
<PAGE> 12
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