-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Q0Zi5x87/iQWjAiq1S9HdpL2TyAqz5wJd7lcvuVeP/pCdx6C0Dv0DZefz6IC9aFe DkJwE1OMi3zi+enCIJveyQ== 0000842295-98-000016.txt : 19980729 0000842295-98-000016.hdr.sgml : 19980729 ACCESSION NUMBER: 0000842295-98-000016 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980728 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: HITOX CORPORATION OF AMERICA CENTRAL INDEX KEY: 0000842295 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL INORGANIC CHEMICALS [2810] IRS NUMBER: 742081929 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-17321 FILM NUMBER: 98672462 BUSINESS ADDRESS: STREET 1: P.O. BOX 2544 CITY: CORPUS CHRISTI STATE: TX ZIP: 78401 BUSINESS PHONE: 5128825175 MAIL ADDRESS: STREET 1: P.O. BOX 2544 CITY: CORPUS CHRISTI STATE: TX ZIP: 78403 10QSB 1 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, 1998 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) 722 Burleson Street, Corpus Christi, Texas 78402 (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 July 20, 1998) Transitional Small Business Disclosure Format (check one): Yes [ ] No [ X ] 1 HITOX CORPORATION OF AMERICA INDEX Page No. -------- PART I. Financial Information Item 1. Financial Statements (Unaudited) Condensed Balance Sheets-- June 30, 1998 and December 31, 1997 3-4 Condensed Statements of Income-- six months ended June 30, 1998 and 1997 5 Condensed Statements of Cash Flows-- six months ended June 30, 1998 and 1997 6 Notes to Condensed Financial Statements 7-9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10-12 PART II. Other Information Item 5. Other Information 13 Item 6. Exhibits and Reports on Form 8-K 13 Signatures 13 2 HITOX CORPORATION OF AMERICA CONDENSED BALANCE SHEETS JUNE 30, 1998 AND DECEMBER 31, 1997 (in thousands) June 30, 1998 December 31, (Unaudited) 1997 ------------- ------------- ASSETS Current assets: Cash and cash equivalents $ 2,132 $ 1,720 Trade accounts receivable, net 1,499 1,095 Other receivables 11 10 Inventories: Raw materials 4,541 3,919 Finished goods 656 906 Supplies 86 75 ------------- ------------- Total inventories 5,283 4,900 Other current assets 117 31 ------------- ------------- Total current assets 9,042 7,756 Property, plant and equipment 8,021 8,020 Accumulated depreciation (5,490) (5,327) ------------- ------------- 2,531 2,693 Asset held for sale 651 771 Other assets 25 27 ------------- ------------- Total assets $ 12,249 $ 11,247 ============= ============= See Notes to Condensed Financial Statements 3 HITOX CORPORATION OF AMERICA CONDENSED BALANCE SHEETS JUNE 30, 1998 AND DECEMBER 31, 1997 (in thousands) June 30, 1998 December 31, (Unaudited) 1997 ------------- ------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,707 $ 775 Accrued expenses 491 367 Current maturities of long-term debt 346 405 ------------- ------------- Total current liabilities 2,544 1,547 Other long-term debt, excluding current maturities 184 626 ------------- ------------- Total liabilities 2,728 2,173 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 (5,963) (6,410) ------------- ------------- 9,564 9,117 Less: cost of treasury stock (43) (43) ------------- ------------- Total shareholders' equity 9,521 9,074 ------------- ------------- $ 12,249 $ 11,247 ============= ============= See Notes to Condensed Financial Statements 4 HITOX CORPORATION OF AMERICA CONDENSED STATEMENTS OF INCOME (Unaudited) (in thousands, except per share amounts) Three Months Six Months Ended Ended June 30, June 30, --------------- --------------- 1998 1997 1998 1997 ------ ------ ------ ------ Net Sales $2,984 $3,318 $5,941 $6,169 Costs and expenses: Cost of products sold 2,077 2,133 4,177 4,184 Selling, administrative and general 606 680 1,205 1,290 Adjustment of asset held for sale 120 ------ ------ ------ ------ Operating income 301 505 439 695 Other income (expenses): Interest income 22 18 42 36 Interest expense (12) (28) (31) (56) Other, net 3 1 3 2 ------ ------ ------ ------ Income before income tax 314 496 453 677 Provision for income tax 2 4 6 4 ------ ------ ------ ------ NET INCOME $ 312 $ 492 $ 447 $ 673 ====== ====== ====== ====== Earnings per common share: Basic $ 0.07 $ 0.11 $ 0.10 $ 0.14 Diluted 0.07 0.11 0.10 0.14 Weighted average common shares and equivalents outstanding: Basic 4,657 4,657 4,657 4,657 Diluted 4,715 4,685 4,704 4,679 See Notes to Condensed Financial Statements 5 HITOX CORPORATION OF AMERICA CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands) Six Months Ended June 30, ------------------- 1998 1997 ------- ------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 447 $ 673 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 279 294 Adjustment of asset held for sale 120 Other assets 2 Changes in working capital: Receivables (405) (396) Inventories (383) (1,413) Other current assets (86) (82) Accounts payable and accrued expenses 1,056 1,557 ------- ------- Net cash provided by operating activities 1,030 633 ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property, plant and equipment (117) (177) ------- ------- Net cash used in investing activities (117) (177) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments on long-term debt (501) (183) ------- ------- Net cash used in financing activities (501) (183) ------- ------- NET INCREASE IN CASH AND CASH EQUIVALENTS 412 273 CASH AND CASH EQUIVALENTS: AT BEGINNING OF PERIOD 1,720 1,509 ------- ------- AT END OF PERIOD $ 2,132 $ 1,782 ======= ======= Supplemental disclosure of cash flow information: Interest income $ 42 $ 36 Interest expense 31 56 Income taxes paid 6 4 See Notes to Condensed Financial Statements 6 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 1997 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 1997 Form 10-KSB. 2. Prepayment of Mortgage On March 4, 1998, the Company prepaid the remaining $326,617 principal balance on the Company's former corporate headquarters. 7 3. Debt The Company has a loan agreement with NationsBank, N.A., (the "Bank"), which provides the Company with a $2,000,000 line of credit. The Company had no balance outstanding under the line of credit during the second quarter of 1998. The loan agreement was renewed (the "Renewal") effective July 17, 1998. The Renewal matures on April 30, 2000, and reduces the interest rate from the Bank's prime rate plus 0.75% to the Bank's prime rate. The Renewal includes one term loan which had a balance of $530,000 at June 30, 1998, an interest rate of 8.17%, and monthly payments of $31,415. The term loan is scheduled to mature on January 31, 2000. The line of credit is secured by accounts receivable and inventory. The term loan is unsecured. 4. 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, was effective for orders placed in 1997, the third year of the Supply Agreement. The second negotiated price adjustment is effective for orders placed in 1998, the fourth year of the Supply Agreement. The price adjustment resulted in a price decrease for orders in 1998 compared with orders placed in 1997 due to favorable exchange rates and other adjustments. 5. Adjustment of Assets Held for Sale to Fair Value The Company records the value of assets held for sale under Financial Accounting Standards Board Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of". The Company adopted Statement 121 effective January 1, 1995. Statement 121 requires that assets held for disposal be valued at the lower of carrying amount or fair value less cost to sell. Following the initial write-down of an asset to fair value less cost to sell, the Statement requires subsequent revisions to the carrying amount of the asset to be disposed of if the estimate of fair value less the cost to sell changes during the holding period. The Company entered into a verbal agreement to sell its former headquarters building in April of 1998. As a result of the agreement, an adjustment of $120,000 was recorded in the first quarter of 1998 to reduce the asset to fair value. 8 6. 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 Ended June 30, June 30, -------------- --------------- 1998 1997 1998 1997 ------ ------ ------ ------ Numerator: Net Income $ 312 $ 492 $ 447 $ 673 Numerator for basic earnings per share - income available to common stockholders 312 492 447 673 Effect of dilutive securities: -- -- -- -- ------ ------ ------ ------ Numerator for diluted earnings per share - income available to common stockholders after assumed conversions 312 492 447 673 Denominator: Denominator for basic earnings per share -- weighted-average shares 4,657 4,657 4,657 4,657 Effect of dilutive securities: Employee stock options 58 16 47 12 Warrants -- 12 -- 10 ------ ------ ------ ------ Dilutive potential common shares 58 28 47 22 Denominator for diluted earnings per share -- weighted-average shares and assumed conversions 4,715 4,685 4,704 4,679 Basic earnings per common share: Net Income $ 0.07 $ 0.11 $ 0.10 $ 0.14 Diluted earnings per common share: Net Income $ 0.07 $ 0.11 $ 0.10 $ 0.14 Options and warrants to purchase 1,345,486 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 for the second quarter of 1998 were $2,984,000 as compared to $3,318,000 for the same quarter in 1997. Total net sales for the six months ended June 30, 1998 were $5,941,000 compared with $6,169,000 for the same period in 1997. Sales of both of the Company's primary products, HITOXr and BARTEXr pigments were lower in 1998 compared with 1997. The decrease in BARTEX pigment sales is primarily the result of the loss of business from a customer with cyclical purchases. Gross Profit: Gross profit for the second quarter of 1998 was $907,000 as compared with $1,185,000 for the second quarter of 1997, a decrease of $278,000. Gross profit as a percentage of sales was 30.4% in the second quarter this year as compared to 35.7% in the same quarter last year. The year to date gross profit for the six months ended June 30, 1998 was $1,764,000 or 29.7% of net sales compared with $1,985,000 or 32.2% of net sales for the same period of 1997. The decrease in the 1998 second quarter and year to date gross profit percentages compared with the same period of 1997 is primarily the result of higher production costs. Expenses: Total selling, administrative and general expenses decreased from $680,000 during the second quarter of 1997, to $606,000 for the second quarter of 1998, representing a decrease of $74,000. Total selling, administrative and general expenses decreased from $1,290,000 during the six months ended June 30, 1997, to $1,205,000 for the same period of 1998, representing approximately a 6.6% or $85,000 decrease. The decrease from the 1997 to 1998 is primarily the result of lower salary and benefit expenses. The Company recorded a charge of $120,000 in the first quarter of 1998 to write-down to fair value its former headquarters building based on a verbal agreement to sell the building. The Company has subsequently entered into a contract to sell the building and the potential buyer is conducting inspections and feasibility studies within the time period specified in the contract. 10 Interest Income: During the second quarter of 1998, excess funds were deposited in short-term interest bearing investments resulting in interest income of $22,000 compared to $18,000 for the same quarter last year. For the six months ended June 30, 1998, interest income was $42,000 compared to $36,000 for the corresponding period in 1997. The increased amount of interest income is due to higher cash balances available for investment in 1998 as well as a higher average interest rate. Interest Expense: Interest expense decreased $16,000 in the second quarter of 1998 as compared with the same quarter last year. For the six month period ended June 30, 1998, interest expense decreased $25,000, compared with 1997. Interest expense was lower in 1998 because on March 4, 1998, the Company prepaid the remaining $326,617 principal balance on the Company's former corporate headquarters. 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. The provision for income tax was $6,000 for the six month period ended June 30, 1998. LIQUIDITY AND CAPITAL RESOURCES The Company's balance sheet is strong at June 30, 1998. Working capital increased from $6,209,000 at December 31, 1997 to $6,498,000 at June 30, 1998. Cash increased from $1,720,000 at December 31, 1997 to $2,132,000 at June 30, 1998. During the six month period ended June 30, 1998, cash provided by operating activities totaled $1,030,000, while $117,000 was used in investing activities and $501,000 was used in financing activities. Accounts receivable increased from $1,095,000 at December 31, 1997 to $1,499,000 at June 30, 1998 due primarily to higher sales volumes in the quarter ended June 30, 1998, compared with the last quarter of 1997. Inventories, as well as accounts payable and accrued expenses, have increased primarily due to the timing of raw material purchases. The Company had no outstanding borrowings on its line of credit at June 30, 1998, which has a limit of $2,000,000. 11 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 ("MT"). 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, was effective for orders placed in 1997, the third year of the Supply Agreement. The second negotiated price adjustment is effective for orders placed in 1998, the fourth year of the Supply Agreement. The price adjustment resulted in a price decrease compared with orders placed in 1997 due to favorable exchange rates and other adjustments. The Company has a loan agreement with NationsBank, N.A., (the "Bank"), which provides the Company with a $2,000,000 line of credit. The Company had no balance outstanding under the line of credit during the second quarter of 1998. The loan agreement was renewed (the "Renewal") effective July 17, 1998. The Renewal matures on April 30, 2000, and reduces the interest rate from the Bank's prime rate plus 0.75% to the Bank's prime rate. The Renewal includes one term loan which had a balance of $530,000 at June 30, 1998, an interest rate of 8.17%, and monthly payments of $31,415. The term loan is scheduled to mature on January 31, 2000. The line of credit is secured by accounts receivable and inventory. The term loan is unsecured. 12 PART II Item 5. Other Information On October 30, 1997 the Board of Directors of Hitox Corporation of America accepted the resignation of Thomas A. Landshof as the President and Chief Executive Officer of the Company. Bernard A. Paulson, an outside Director, assumed the duties of CEO on an interim basis. Item 6. Exhibits and Reports on Form 8-K Page No. -------- (a) Exhibits None (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: July 28, 1998 BERNARD A. PAULSON ------------------- --------------------------------- Bernard A. Paulson, Acting Chief Executive Officer Date: July 28, 1998 CRAIG A. SCHKADE ------------------- --------------------------------- Craig A. Schkade, Chief Financial Officer (Principal Financial and Accounting Officer) 13 EX-27 2
5 1000 6-MOS DEC-31-1998 JUN-30-1998 $2,132 0 1,499 0 5,283 9,042 8,021 (5,490) $12,249 2,544 184 0 0 1,186 8,335 $12,249 $5,941 5,986 4,177 5,382 120 0 31 453 6 447 0 0 0 447 $0.10 $0.10
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