Form 10-Q for Third Quarter 2009
United States
Securities and Exchange Commission
Washington, D. C. 20549
____________________________
FORM 10-Q
____________________________
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(Mark One)
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[X]
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QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended September 30, 2009
OR
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[__]
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
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Commission file number 0-17321
TOR MINERALS INTERNATIONAL, INC.
(Exact name of registrant as
specified in its charter)
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Delaware
(State or other jurisdiction of
incorporation or organization)
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74-2081929
(I.R.S. Employer Identification No.)
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722 Burleson Street, Corpus Christi, Texas 78402
(Address of principal executive offices)
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(361) 883-5591
(Issuer’s telephone number)
____________________________
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during
the preceding 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.
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Yes R
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No *
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Indicate by check mark whether the registrant is a
large accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of “accelerated filer and large accelerated
filer” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer *
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Accelerated filer *
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Non-accelerated filer
*
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Smaller reporting company
R
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Indicate by check mark whether the registrant is a
shell company (as defined in Rule 12b-2 of the Exchange Act).
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Yes *
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No R
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Indicate the number of shares outstanding of each of
the issuer's classes of common equity, as of the latest practicable date.
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Class
Common Stock, $0.25 par value
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Shares Outstanding as of November 13, 2009
9,453,492
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Table of Contents
Part I - Financial Information
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Page No.
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Item 1.
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Condensed Consolidated
Financial Statements
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Condensed Consolidated
Statements of Operations --
Three and nine months ended September 30, 2009 and 2008
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3
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Condensed Consolidated
Statements of Comprehensive Income (Loss) --
Three and nine months ended September 30, 2009 and 2008
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4
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Condensed Consolidated
Balance Sheets --
September 30, 2009 and December 31, 2008
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5
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Condensed Consolidated
Statements of Cash Flows --
Nine months ended September 30, 2009 and 2008
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6
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Notes to the Condensed
Consolidated Financial Statements
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7
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Item 2.
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Management's Discussion and
Analysis of Financial Condition
and Results of Operations
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23
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Item 4.
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Controls and Procedures
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36
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Part II - Other Information
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Item 1.
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Legal Proceedings
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37
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Item 3.
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Defaults Upon Senior
Securities
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37
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Item 4.
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Submission of Matters to a
Vote of Security Holders
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38
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Item 6.
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Exhibits
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39
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Signatures
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39
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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, changes in foreign currency exchange rates, increases in the price of
energy and raw materials, such as ilmenite, 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 filings with the Securities 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. The
Company assumes no obligation to provide revisions to any forward-looking
statements should circumstances change, except as otherwise required by
securities and other applicable laws. 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.
TOR Minerals
International, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share amounts)
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Three Months
Ended September 30,
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Nine Months
Ended September 30,
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2009
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2008
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2009
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2008
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NET SALES
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$
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6,441
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$
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7,503
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$
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17,798
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$
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21,165
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Cost of sales
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5,492
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6,527
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15,170
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18,525
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GROSS MARGIN
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949
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976
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2,628
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2,640
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Technical
services and research and development
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54
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62
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146
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189
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Selling,
general and administrative expenses
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687
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1,058
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2,423
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3,287
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Gain on
disposal of assets
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-
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-
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-
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(2)
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OPERATING
INCOME (LOSS)
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208
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(144)
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59
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(834)
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OTHER INCOME
(EXPENSE):
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Interest income
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-
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-
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2
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1
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Interest
expense
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(159)
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(134)
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(407)
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(409)
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Gain (loss) on
foreign currency exchange rate
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(5)
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(4)
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37
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(5)
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Other, net
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-
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1
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4
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11
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INCOME
(LOSS) BEFORE INCOME TAX
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44
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(281)
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(305)
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(1,236)
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Income tax
expense (benefit)
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61
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89
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(11)
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61
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NET LOSS
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$
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(17)
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$
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(370)
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$
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(294)
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$
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(1,297)
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Less:
Preferred Stock Dividends
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15
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15
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45
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45
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Loss Available to Common
Shareholders
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$
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(32)
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$
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(385)
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$
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(339)
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$
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(1,342)
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Loss per
common share:
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Basic
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$
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(0.00)
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$
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(0.05)
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$
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(0.04)
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$
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(0.17)
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Diluted
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$
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(0.00)
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$
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(0.05)
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$
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(0.04)
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$
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(0.17)
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Weighted
average common shares outstanding:
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Basic
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9,453
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7,878
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9,453
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7,876
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Diluted
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9,453
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7,878
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9,453
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7,876
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See accompanying notes.
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TOR Minerals International, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
(In thousands)
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Three Months
Ended September 30,
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Nine Months
Ended September 30,
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2009
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2008
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2009
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2008
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NET LOSS
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$
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(17)
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$
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(370)
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$
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(294)
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$
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(1,297)
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OTHER
COMPREHENSIVE INCOME (LOSS), net of tax
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Net gain on derivative instruments designated and
qualifying as cash flow hedges, net of tax:
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Net gain reclassified to income
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-
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-
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-
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1
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Currency translation adjustment, net of tax:
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Net foreign currency translation adjustment gain (loss)
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362
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(1,509)
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162
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(704)
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Other comprehensive income (loss), net of tax
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362
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(1,509)
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162
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(703)
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COMPREHENSIVE
INCOME (LOSS)
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$
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345
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$
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(1,879)
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$
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(132)
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$
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(2,000)
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See accompanying notes.
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TOR Minerals
International, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except per share amounts)
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September 30,
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December 31,
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2009
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2008
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(Unaudited)
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ASSETS
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CURRENT ASSETS:
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Cash
and cash equivalents
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$
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893
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$
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191
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Trade
accounts receivable, net
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3,021
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2,310
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Inventories,
net
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9,815
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11,839
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Other
current assets
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794
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444
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TOTAL
CURRENT ASSETS
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14,523
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14,784
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PROPERTY, PLANT AND
EQUIPMENT, net
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19,237
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19,515
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OTHER ASSETS
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58
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38
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Total Assets
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$
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33,818
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$
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34,337
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LIABILITIES AND SHAREHOLDERS' EQUITY
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CURRENT LIABILITIES:
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Accounts
payable
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$
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1,268
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$
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2,268
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Accrued
expenses
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1,227
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1,611
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Notes
payable under lines of credit
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3,149
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2,156
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Export
credit refinancing facility
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1,023
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1,458
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Current
deferred tax liability
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60
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56
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Current
maturities - capital leases
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158
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86
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Current
maturities of long-term debt – financial institutions
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858
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1,590
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Total
current liabilities
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7,743
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9,225
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LONG-TERM DEBT, EXCLUDING
CURRENT MATURITIES
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Capital
leases
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74
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141
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Long-term
debt – financial institutions
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1,499
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1,876
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Long-term
debt – convertible debentures, net
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1,105
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-
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Deferred
tax liability
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559
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580
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Total
liabilities
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10,980
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11,822
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COMMITMENTS AND
CONTINGENCIES
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SHAREHOLDERS' EQUITY:
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Series
A 6% convertible preferred stock $.01 par value:
authorized, 5,000 shares; 200 shares issued and
outstanding at 9/30/09 and 12/31/08
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2
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2
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Common
stock $.25 par value: authorized, 30,000 shares;
9,453 shares issued and outstanding at 9/30/09 and
at 12/31/08, respectively
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2,363
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2,363
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Additional
paid-in capital
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25,025
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24,525
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Accumulated
deficit
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(7,950)
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(7,611)
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Accumulated
other comprehensive income:
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Cumulative
translation adjustment
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3,398
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3,236
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Total
shareholders' equity
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22,838
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22,515
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Total Liabilities and
Shareholders' Equity
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$
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33,818
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$
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34,337
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See accompanying notes.
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TOR Minerals International, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
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Nine Months Ended September 30,
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|
2009
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|
2008
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CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
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Net loss
|
$
|
(294)
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$
|
(1,297)
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Adjustments to reconcile net loss to net cash
provided by operating activities:
|
|
|
|
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Depreciation
|
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1,340
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1,483
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Stock-based compensation expense
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78
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119
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Warrant interest expense
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27
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|
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Gain on sale/disposal of property, plant and equipment
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-
|
|
(2)
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Deferred income taxes
|
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(17)
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51
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Provision for bad debt
|
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(61)
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51
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Changes in working capital:
|
|
|
|
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Receivables
|
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(384)
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(1,240)
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Inventories
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2,056
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|
1,223
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Other current assets
|
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(324)
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(189)
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Accounts payable and accrued expenses
|
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(1,436)
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|
1,592
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Net
cash provided by operating activities
|
|
985
|
|
3,891
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
Additions to property, plant and equipment
|
|
(807)
|
|
(1,740)
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Proceeds from sales of property, plant and equipment
|
|
-
|
|
3
|
Net cash used in investing activities
|
|
(807)
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|
(1,737)
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
Net proceeds / (payments) from lines of credit
|
|
926
|
|
(2,903)
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Net proceeds from export credit refinancing facility
|
|
(432)
|
|
759
|
Net payments on capital leases
|
|
(4)
|
|
(34)
|
Proceeds from long-term bank debt
|
|
-
|
|
2,049
|
Payments on long-term bank debt
|
|
(1,208)
|
|
(1,809)
|
Proceeds from convertible debentures
|
|
1,500
|
|
-
|
Proceeds from the issuance of common stock
through exercise of common stock options
|
|
-
|
|
12
|
Preferred stock dividends paid
|
|
(45)
|
|
(45)
|
Net
cash provided by (used in) financing activities
|
|
737
|
|
(1,971)
|
Effect of
exchange rate fluctuations on cash and cash equivalents
|
|
(213)
|
|
(116)
|
Net change in
cash and cash equivalents
|
|
702
|
|
67
|
Cash and cash
equivalents at beginning of period
|
|
191
|
|
376
|
Cash and cash equivalents
at end of period
|
$
|
893
|
$
|
443
|
|
|
|
|
|
Supplemental
cash flow disclosures:
|
|
|
|
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Interest paid
|
$
|
377
|
$
|
409
|
Taxes paid
|
$
|
8
|
$
|
7
|
See accompanying notes.
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The
condensed consolidated financial statements included in this report have been
prepared on a going concern basis, which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of business. As
discussed in Note 3, the Company has significant borrowings which require,
among other things, compliance with certain financial covenants, specifically a
Consolidated Fixed Charge Ratio and a Consolidated Funded Debt to EBITDA Ratio,
on a quarterly basis. As a result of the operating losses incurred
throughout 2008 and the first quarter of 2009, the Company was not in
compliance with these ratio covenants under our US Credit Agreement (the
“Credit Agreement”) with Bank of America, N.A. (the
“Bank”) as of December 31, 2008 and March 31, 2009, and the Company
received notice from the Bank on March 5, 2009 of the Bank’s decision to
terminate the Credit Agreement and require us to pay off all outstanding debt
due to the Bank on April 1, 2009.
As
reported in the Company’s Form 8-K filed with the Securities and Exchange
Commission on May 6, 2009
the Company and the Bank amended the Credit Agreement. Under the terms of
the amendment, the Bank revised the stated maturity date to October 1, 2009
and, subject to the Company’s compliance with the terms and conditions
contained in the amendment, including revised financial covenants, the Bank
agreed not to exercise any of its rights or remedies relating to the existing events
of default under the Credit Agreement.
As reported in the Company’s Form 8-K filed with the
Securities and Exchange Commission on September 28, 2009, the Bank extended the
maturity date on our Line of Credit (the “Line”) and our term loan
(the “Term Loan”) from October 1, 2009 to February 15, 2010. As
a result, all of the Company’s debt owed to the Bank matures on February
15, 2010.
In addition, the most recent amendment reduced the amount
available for borrowing under the Line from $2,500,000 to $2,225,000 and
increased the interest rate on the Line and Term Loan from prime plus two and
one-half percent to prime plus three percent, which was 5.75% at September 30,
2009.
At September 30, 2009, the Credit Agreement consists of the
following:
-
The Line secured by the accounts
receivable and inventory of the Company’s US operation of which
$1,850,000 was outstanding; and
-
The Term Loan, secured by the
property, plant, equipment, accounts receivable and inventory of the
Company’s US operation, in the amount of $266,667.
As
reported in the Company’s Form 8-K filed with the Securities and Exchange
Commission on May 6, 2009, the Company’s Board of Directors authorized the
issuance of up to $4 million of its six-percent (6%) convertible subordinated
debentures with detachable warrants (the “Debentures”) for the
purpose of refinancing, in whole or in part, its debt to the Bank and general
corporate purposes. Under the current authorization, the Company
received, on May 4, 2009, $1 million from the sale of Debentures due May 4, 2016, from three of
the Company’s directors.
As
reported in the Company’s Form 10-Q filed with the Securities and
Exchange Commission on August 10, 2009, the Company received proceeds of
$500,000 from the sale of additional Debentures to six additional accredited
investors, one of which is a director and another of which is a greater than 5%
shareholder. Under
the terms of the Credit Agreement, the Company has agreed to use all proceeds
in excess of $1 million that it receives after May 1, 2009 from the issuance of
any of its capital stock, from capital contributions in respect to its capital
stock, from the issuance of debentures or the incurrence of permitted
subordinated indebtedness (as defined in the Credit Agreement) to prepay the
loans and other obligations under the Credit Agreement. As a result, the Company applied the $500,000 received from the
sale of Debentures to its outstanding real estate loan with the Bank in August
2009.
The
Company is working diligently to establish a corporate lending relationship
with a new financial institution for the Company’s US operations prior to
February 15, 2010, the revised maturity date under the Credit Agreement, to
refinance outstanding debt with the Bank prior to its revised maturity.
However, there can be no assurance that the Company will be able to
successfully refinance the debt or sell any additional Debentures sufficient to
repay the debt due to the Bank. If the Company is unable to refinance the
debt due to the Bank prior to its revised maturity or if the Company defaults
under the terms of the Credit Agreement prior to its revised maturity and the
Bank were to accelerate the maturity of such indebtedness, the Company does not
have sufficient liquidity to pay off the indebtedness owed to the Bank, and the
Bank would be entitled to exercise all of its rights and remedies as a secured
lender under the Credit Agreement which could force the Company into bankruptcy
or liquidation.
The
Company’s two subsidiaries, TOR Minerals Malaysia, Sdn. Bhd.
(“TMM”) and TOR Processing and Trade, BV (“TPT”) have
short-term credit facilities and term loans at banks in Malaysia and the
Netherlands, respectively. At September 30, 2009, TMM’s borrowings under
the credit facilities and term loans with HSBC Bank Malaysia, Bhd.
(“HSBC”) and RHB Bank, Bhd. (“RHB”) totaled $1,464,000
and TPT’s borrowings under the credit facility and term loans with
Rabobank totaled $2,858,000. TMM’s credit facilities with both HSBC
and RHB matured on October 31, 2009 and TPT’s credit facility with
Rabobank matures on December 31, 2009. We are currently working with
these lenders to secure an amendment to extend the maturity date. If
these lenders are unwilling to extend the maturity dates of these facilities,
neither TMM nor TPT have sufficient liquidity to pay off this indebtedness.
Additionally,
the credit facilities with HSBC, RHB and Rabobank are subject to demand
provisions and are subject to certain subjective acceleration covenants based
on the judgment of the banks. While the banks have made no indication
that they will demand payment of the debt in Malaysia or in the Netherlands, in
light of the Company’s liquidity difficulties, there can be no assurances
that this debt will not be called for payment prior to the stated maturity date
or that the stated maturity date will be extended when this debt becomes due.
Since
early 2007, the Company has actively pursued new production methods and new
product development. As a result, the Company introduced new products to
the market in 2008 and completed a new powder treatment facility in Malaysia in
May 2008. In addition, the Company has invested in a new powder treatment
facility at the US operation which was commissioned in April 2009. With
the new process equipment, the Company replaced natural gas with electricity as
the primary energy source at the US operation. The Company believes that
the changes in the manufacturing process in the US and Malaysia, as well as the
potential acceptance of its new products in the market, will improve cash
flows. However, the introduction of new products and the sales volume of
existing product lines may be negatively impacted by the decline in the global
economy. To offset the possible decline in sales revenue associated with
the economy, the Company has implemented numerous cost cutting measures at each
of the three operations, including, but not limited to, reductions in staff,
salaries, travel and other discretionary expenses.
The
events described above raise substantial doubt about the Company’s
ability to continue as a going concern. Our ability to continue to
operate as a going concern is dependent on our ability to successfully
establish a corporate lending relationship with a new financial institution for
the US operation, and/or raise sufficient new capital and improve our operating
cash flows to a sufficient level.
Note
2.
|
Accounting
Policies
|
Basis of Presentation and Use of Estimates
The
accompanying unaudited interim condensed consolidated financial statements have
been prepared in accordance with the rules and regulations of the Securities
and Exchange Commission (“SEC”). The interim condensed
consolidated financial statements include the consolidated accounts of TOR
Minerals International, Inc. and its wholly-owned subsidiaries with all
significant intercompany transactions eliminated. In our opinion, all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair statement of the consolidated financial position, results of operations
and cash flows for the interim periods presented have been made. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such SEC rules and regulations. These condensed
consolidated financial statements should be read in conjunction with the
audited consolidated financial statements for the year ended December 31, 2008,
in our Annual Report on Form 10-K filed with the SEC on March 31, 2009.
Operating results for the three and nine month periods ended September 30, 2009,
are not necessarily indicative of the results for the year ending December 31,
2009.
Income Taxes
We
record income taxes using the liability method. Under this method,
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
Income
taxes consisted of a foreign deferred tax expense of approximately $61,000 for
the three month period ended September 30, 2009, compared to a foreign deferred
tax expense of approximately $86,000 and state income tax expense of $3,000 for
the corresponding three month period in 2008. For the nine month periods
ended September 30, 2009 and 2008, we recorded a foreign deferred tax benefit
of approximately $13,000 and an expense of $53,000, respectively, and state
income tax expense of $2,000 and $8,000, respectively. Taxes are based on
an estimated annualized consolidated effective rate of 3.6%
When accounting for uncertainties in income taxes, we
evaluate all tax years still subject to potential audit under the applicable
state, federal and foreign income tax laws. We are subject to taxation in the
United States, Malaysia and The Netherlands. Our federal income tax
returns in the United States are subject to examination for the tax years ended
December 31, 2006 through December 31, 2008. Our state returns, which are
filed in Texas, Ohio and Michigan, are subject to examination for the tax years
ended December 31, 2005 through December 31, 2008. Our tax returns in
various non-US jurisdictions are subject to examination for various tax years
ended December 31, 2004 through December 31, 2008.
As of January 1, 2009, we did not have any unrecognized
tax benefits and there was no change during the nine month period ended September
30, 2009.
Subsequent Events
We
evaluated all activity of TOR through November 13, 2009, the issue date of the condensed
consolidated financial statements, and concluded that no subsequent events have
occurred that would require recognition in the condensed consolidated financial
statements or disclosure in the notes to the condensed consolidated financial statements.
Recently Adopted Accounting Standards
On
September 30, 2009, we adopted changes issued by the Financial Accounting
Standards Board (the “FASB”) to the authoritative hierarchy of
GAAP. These changes established the FASB Accounting Standards
Codification (the “Codification”) as the source of authoritative
accounting principles recognized by the FASB to be applied by nongovernmental
entities in the preparation of financial statements in conformity with
GAAP. Rules and interpretive releases of the Securities and Exchange
Commission (“SEC”) under authority of federal securities laws are
also sources of authoritative GAAP for SEC registrants. The FASB will no
longer issue new standards in the form of Statements, FASB Staff Positions, or
Emerging Issues Task Force Abstracts; instead, the FASB will issue Accounting
Standards Updates. Accounting Standards Updates will not be authoritative
in their own right as they only serve to update the Codification. These
changes and the Codification itself do not change GAAP. Other than the
manner in which new accounting guidance is referenced, the adoption of these
changes had no impact on the condensed consolidated financial statements.
Fair
Value Accounting. On June 30,
2009, we adopted changes issued by the FASB to fair value disclosures of
financial instruments. These changes require a publicly traded company to
include disclosures about the fair value of its financial instruments whenever
it issues summarized financial information for interim reporting periods.
Such disclosures include the fair value of all financial instruments, for which
it is practicable to estimate that value, whether recognized or not recognized
in the statements of financial position, the related carrying amount of these
financial instruments and the method(s) and significant assumptions used to
estimate the fair value. Other than the required disclosure (see Note 5,
Fair Value Measurements), the adoption of these changes had no impact on the condensed
consolidated financial statements.
On
June 30, 2009, we adopted changes issued by the FASB to fair value
accounting. These changes provide additional guidance for estimating fair
value when the volume and level of activity for an asset or liability have
significantly decreased and includes guidance for identifying circumstances
that indicate a transaction is not orderly. This guidance is necessary to
maintain the overall objective for fair value measurements, which is that fair value,
is the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the
measurement date under current market conditions. The adoption of these
changes had no impact on the condensed consolidated financial statements.
On
June 30, 2009, we adopted changes issued by the FASB to the recognition and
presentation of other-than-temporary impairments. These changes amend
existing other-than-temporary impairment guidance for debt securities to make
the guidance more operational and to improve the presentation and disclosure of
other-than-temporary impairments on debt and equity securities. The
adoption of these changes had no impact on the condensed consolidated financial
statements.
On
January 1, 2009, we adopted changes issued by the FASB to fair value accounting
and reporting as it relates to nonfinancial assets and nonfinancial liabilities
that are not recognized or disclosed at fair value in the financial statements
on at least an annual basis. These changes define fair value, establish a
framework for measuring fair value in GAAP, and expand disclosures about fair
value measurements. This guidance applies to other GAAP that require or
permit fair value measurements and is to be applied prospectively with limited
exceptions. The adoption of these changes, as it relates to nonfinancial
assets and nonfinancial liabilities, had no impact on the condensed
consolidated financial statements. These provisions will be applied at
such time a fair value measurement of nonfinancial assets or nonfinancial
liabilities is required, which may result in a fair value that is materially
different than would have been calculated prior to the adoption of these
changes.
Business
Combinations and Consolidation Accounting. Effective January 1, 2009, we adopted changes issued by the
FASB on April 1, 2009 to accounting for business combinations. These
changes apply to all assets acquired and liabilities assumed in a business
combination that arise from certain contingencies and requires (1) an acquirer
to recognize at fair value, at the acquisition date, an asset acquired or
liability assumed in a business combination that arises from a contingency if
the acquisition date fair value of that asset or liability can be determined
during the measurement period otherwise the asset or liability should be
recognized at the acquisition date if certain defined criteria are met; (2)
contingent consideration arrangements of an acquiree assumed by the acquirer in
a business combination initially at fair value; (3) subsequent measurements of
assets and liabilities arising from contingencies be based on systematic and
rational method depending on the nature and contingent consideration
arrangements be measured subsequently; and (4) disclosures of amounts and
measurements basis of such assets and liabilities and the nature of the
contingencies. The impact of these changes on our condensed consolidated
financial statements is dependent upon acquisitions entered into by the Company
after January 1, 2009.
On
January 1, 2009, we adopted changes issued by the FASB to consolidation
accounting and reporting. These changes establish accounting and
reporting for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. This guidance defines a noncontrolling
interest, previously called a minority interest, as the portion of equity in a
subsidiary not attributable, directly or indirectly, to a parent. These
changes require, among other items, that a noncontrolling interest be included
in the consolidated statements of financial position within equity separate
from the parent’s equity; consolidated net income to be reported at
amounts inclusive of both the parent’s and noncontrolling
interest’s share and, separately, the amounts of consolidated net income
attributable to the parent and noncontrolling interest all on the consolidated
statement of operations; and if a subsidiary is deconsolidated, any retained
noncontrolling equity investment in the former subsidiary be measured at fair
value and a gain or loss be recognized in net income based on such fair value.
The impact of these changes on our condensed consolidated financial statements
is dependent upon acquisitions entered into by the Company after January 1,
2009.
On
January 1, 2009, we adopted changes issued by the FASB to accounting for
business combinations. While retaining the fundamental requirements of
accounting for business combinations, as noted above, including that the
purchase method be used for all business combinations and for an acquirer to be
identified for each business combination, these changes define the acquirer as
the entity that obtains control of one or more businesses in the business
combination and establishes the acquisition date as the date the acquirer
achieves control instead of the date that the consideration is transferred.
These changes require an acquirer in a business combination, including business
combinations achieved in stages (step acquisition), to recognize the assets
acquired, liabilities assumed, and any noncontrolling interest in the acquiree
at the acquisition date, measured at their fair values as of that date, with
limited exceptions. This guidance also requires the recognition of assets
acquired and liabilities assumed arising from certain contractual contingencies
as of the acquisition date, measured at the acquisition date fair values.
Additionally, these changes require acquisition related costs to be expensed in
the period in which the costs are incurred and the services are received
instead of including such costs as part of the acquisition price. The
impact of these changes on our condensed consolidated financial statements is
dependent upon acquisitions entered into by the Company after January 1, 2009.
Other.
On June 30, 2009, we adopted changes
issued by the FASB to accounting for and disclosure of events that occur after
the balance sheet date but before the financial statements are issued or are
available to be issued, otherwise known as “subsequent
events”. Specifically, these changes set forth the period after the
balance sheet date during which management of a reporting entity should
evaluate events or transactions that may occur for potential recognition or
disclosure in the financial statements, the circumstances under which an entity
should recognize events or transactions occurring after the balance sheet date
in its condensed consolidated financial statements, and the disclosures that an
entity should make about events or transactions that occurred after the balance
sheet date. The adoption of these changes had no impact on the condensed
consolidated financial statements as management already followed a similar
approach prior to the adoption of this new guidance.
On
January 1, 2009, we adopted changes issued by the FASB to disclosures about
derivative instruments and hedging activities. These changes require
enhanced disclosures about an entity’s derivative and hedging activities,
including (1) how and why an entity uses derivative instruments, (2) how
derivative instruments and related hedged items are accounted for, and (3) how
derivative instruments and related hedged items affect an entity’s
financial position, financial performance and cash flows. Other than the
required disclosures (see Note 11, Derivatives and Other Financial
Instruments), the adoption of these changes had no impact on the condensed
consolidated financial statements.
Recently Issued Accounting Standards
In
August 2009, the FASB issued changes to fair value accounting for
liabilities. These changes clarify existing guidance that in
circumstances in which a quoted price in an active market for the identical
liability is not available, an entity is required to measure fair value using
either a valuation technique that uses a quoted price of either a similar
liability or a quoted price of an identical or similar liability when traded as
an asset, or another valuation technique that is consistent with the principals
of fair value measurements, such as an income approach (e.g., present value
technique). This guidance also states that both a quoted price in a active
market for the identical liability and a quoted price for the identical
liability when traded as an asset in an active market when no adjustments to
the quoted price of the asset are required are Level 1 fair value
measurements. These changes become effective for TOR on October 1,
2009. Management has determined that the adoption of these changes will
not have an impact on the condensed consolidated financial statements.
A summary of long-term debt follows:
|
|
(Unaudited)
|
|
|
(In thousands)
|
|
September 30,
|
|
December 31,
|
|
|
2009
|
|
2008
|
Term note payable to a U.S.
bank, secured by real estate and leasehold improvements of our US operation,
was prepaid on August 25, 2009.
|
$
|
-
|
$
|
576
|
Term note payable to a U.S.
bank, with an interest rate of 5.75% at September 30, 2009, due February 15,
2010, secured by property, plant and equipment, inventory and accounts
receivable of our US operation.
|
|
267
|
|
342
|
Term note
payable to a U.S. equipment financing company, with an interest rate of 5.24%
at September 30, 2009, due April 1, 2013, secured by Caterpillar front-end
loader.
|
|
89
|
|
106
|
Fixed rate term
Euro note payable to a Netherlands bank, with an interest rate of 5.5% at
September 30, 2009, due June 1, 2009, secured by TPT's assets.
|
|
-
|
|
94
|
Fixed rate term
Euro note payable to a Netherlands bank, with an interest rate of 7.8% at
September 30, 2009, due July 1, 2029, secured by TPT's land and office
building purchased July 2004. (386 Euro)
|
|
565
|
|
560
|
Fixed rate term Euro note
payable to a Netherlands bank, with an interest rate of 4.7% at September 30,
2009, due January 31, 2030, secured by TPT's land and building purchased
January 2005. (384 Euro)
|
|
562
|
|
556
|
Fixed rate term Euro note
payable to a Netherlands bank, with an interest rate of 6.1% at September 30,
2009, due July 31, 2015, secured by TPT's assets. (296 Euro)
|
|
433
|
|
465
|
U.S. Dollar
term note payable to a Malaysian bank, with an interest rate of 1.69% at
September 30, 2009, due June 30, 2010, secured by TMM's property, plant and
equipment.
|
|
275
|
|
525
|
U.S. Dollar
term note payable to a Malaysian bank, with an interest rate of 1.69% at
September 30, 2009, due April 1, 2010, secured by TMM's property, plant and
equipment.
|
|
166
|
|
242
|
Total
|
|
2,357
|
|
3,466
|
Less current
maturities
|
|
858
|
|
1,590
|
Total long-term
debt and notes payable
|
$
|
1,499
|
$
|
1,876
|
US Bank Credit Facility, Term Loans and Convertible Debentures
Bank
of America Credit Facility and Term Loans
On April 30, 2009, we and the Bank amended the Credit
Agreement. Under the terms of the amendment, subject to our compliance
with the terms and conditions contained in the amendment, including revised
financial covenants, the Bank agreed not to exercise any of its rights or
remedies relating to the existing events of default under the Credit Agreement.
Under the terms of the April 30, 2009 amendment, the financial
covenants were replaced with the following:
- Covenants to be based solely on the results of the US
operation
- Current Ratio – Maintain a ratio of current
assets to current liabilities of at least 1.0 to 1.0 as of the quarter
ending September 30, 2009 (1.38 to 1.0 at September 30, 2009)
- Fixed Charge Coverage Ratio – Maintain a fixed
charge coverage ratio of at least 0.85 to 1.0 for the quarter ending September
30, 2009 (1.56 to 1.0 at September 30, 2009)
We also agreed that we will use all proceeds in excess of $1
million that we receive after May 1, 2009 from the issuance of any of our
capital stock, from capital contributions in respect to our capital stock, from
the issuance of debentures or the incurrence of permitted subordinated
indebtedness (as defined in the Credit Agreement) to prepay the loans and other
obligations under the Credit Agreement. As a result, the Company applied $500,000 received from the sale of
Debentures to its outstanding real estate loan with the Bank in August 2009.
On September 28, 2009 we amended the Credit Agreement with
the Bank to extend the maturity date on the Line and Term Loan from October 1,
2009 to February 15, 2010. As a result, all of our debt owed to the Bank
matures on February 15, 2010, provided, if we default on obligations contained
in the amendment, the Bank will have the rights and remedies available to it
under the Credit Agreement and applicable law. The interest rate on the
Line and the Term Loan was increased from prime plus two and one-half percent
to prime plus three percent, which was 5.75% at September 30, 2009. In
addition, the Line was reduced from $2,500,000 to $2,250,000.
At September 30, 2009, the outstanding balance on the Line
was $1,850,000 and we had $35,000 available on that date based on eligible
accounts receivable and inventory borrowing limitations. The Line is
secured by the accounts receivable and inventory of the US Operation and all
outstanding credit on the Line will be due on February 15, 2010.
Six-percent
Convertible Subordinated Debentures
As
reported in the Company’s Form 8-K filed with the Securities and Exchange
Commission on May 6, 2009, the Company’s Board of Directors authorized
the issuance of up to $4 million of its six-percent (6%) convertible
subordinated debentures with detachable warrants (the “Debentures”)
for the purpose of refinancing, in whole or in part, its debt to the Bank and general
corporate purposes. Under the current authorization, the Company
received, on May 4, 2009, $1 million from the sale of Debentures due May 4, 2016, from three of
the Company’s directors.
As
reported in the Company’s Form 10-Q filed with the Securities and
Exchange Commission on August 10, 2009, the Company received proceeds of
$500,000 from the sale of additional Debentures from six additional accredited
investors, one of which is a director and another of which is a greater than 5%
shareholder. Under
the terms of the Credit Agreement, the Company applied the $500,000 received from the sale of Debentures to its
outstanding real estate loan with the Bank in August 2009.
Netherlands Bank Credit Facility, Mortgage and Term Loan
On March 20, 2007, our subsidiary, TPT, entered into a
short-term credit facility (the “Credit Facility”) with Rabobank
which increased TPT’s line of credit from Euro 650,000 to Euro
1,100,000. The Credit Facility, which has a variable interest rate of
Bank prime plus 2.8% (currently at 7.65%), will mature on December 31, 2009 and
is secured by TPT’s accounts receivable and inventory. At September 30, 2009, TPT had utilized Euro 888,000
($1,299,000) of its short-term credit facility. We are currently working
with Rabobank to obtain an extension to the maturity date on the short-term
credit facility from December 31, 2009 to December 31, 2010.
The loan agreements covering both TPT’s credit
facility and term loans include subjective acceleration clauses that allow
Rabobank to accelerate payment if, in the judgment of the bank, there are
adverse changes in our business. We believe that such subjective
acceleration clauses are customary in the Netherlands for such
borrowings. However, if demand is made by Rabobank, we may be unable to
refinance the demanded indebtedness, in which case the lenders could foreclose
on the assets of TPT.
Malaysian Bank Credit Facility and Term Loan
On November 3, 2008, the Company’s subsidiary, TMM,
amended its banking facility with HSBC Bank Malaysia Berhad
(“HSBC”) to extend the maturity date from October 1, 2008 to
October 31, 2009. The HSBC facility includes the following
in Malaysian Ringgits (“RM”): (1) a banker’s acceptance
(“BA”) of RM 500,000; (2) an export line (“ECR”) of RM 5,000,000;
and (3) a foreign exchange contract limit of RM 5,000,000 ($144,000, $1,444,000
and $1,444,000, respectively).
TMM renewed its banking facility with RHB Bank Berhad
(“RHB”) on October 30, 2008, for the purpose of extending the
maturity date of the current facilities from October 31, 2008, to October 31,
2009. The RHB facility, which TMM is still negotiating, includes the
following: (1) an overdraft line of credit up to RM 1,000,000; (2) an ECR
of RM 9,300,000; and (3) a foreign exchange contract limit of RM 25,000,000 ($289,000,
$2,670,000 and $7,223,000, respectively).
The banking facilities with both HSBC and RHB bear an
interest rate on the overdraft facilities at 1.25% over bank prime and the ECR
facilities bear interest at 1.0% above the funding rate stipulated by the
Export-Import Bank of Malaysia Berhad. The ECR, a government supported
financing arrangement specifically for exporters, is used by TMM for short-term
financing of up to 180 days against customers’ and inter-company shipments.
At September 30, 2009, the interest rate
was 3.3% and the outstanding balance on their ECR and BA facilities was RM 3,540,000
($1,023,000).
The borrowings under both the HSBC and the RHB short term
credit facilities are subject to certain subjective acceleration covenants
based on the judgment of the banks and a demand provision that provide that the
banks may demand repayment at any time. We believe such a demand
provision is customary in Malaysia for such facilities. The loan
agreements are secured by TMM’s property, plant and equipment.
However, if demand is made by HSBC or RHB, we may be unable to refinance the
demanded indebtedness, in which case, the lenders could foreclose on the assets
of TMM. The credit facilities prohibit TMM from paying dividends and the
HSBC facility further prohibits loans to related parties without the prior
consent of HSBC.
TMM's borrowing
under the HSBC and the RHB facilities came due on the October 31, 2009 maturity
date. The Company did not repay the amounts due under the HSBC or RHB
facilities at the October 31, 2009 maturity date. TMM is currently
negotiating with both HSBC and RHB to extend the maturity date of both bank
facilities. TMM has not reached an agreement with either lender, and there
can be no assurances that TMM will successfully extend or renew these
facilities. If these lenders are unwilling to extend the maturity dates of
these facilities, TMM will not have the cash resources or access to alternative
financing to pay off this indebtedness, and in such casae, these lenders could
foreclose upon their liens on TMM's property, plant and equipment, resulting in
the possible bankruptcy or liquidation of TMM.
On
September 7, 2009, the Company declared a dividend, in the amount of $15,000,
or $0.075 per share, for the quarterly period ended September 30, 2009, payable
on October 1, 2009, to the holders of record of the Series A Convertible
Preferred Stock as of the close of business on September 7, 2009.
The
following table presents the Company’s financial assets and financial
liabilities that are measured and recognized at fair value on a recurring basis
classified under the appropriate level of fair value hierarchy as of September
30, 2009. The Company did not hold any non-financial assets and/or
non-financial liabilities subject to fair value measurements at September 30,
2009.
|
September 30, 2009
|
(In thousands)
|
Balance at
September 30, 2009
|
Quoted Prices in Active
Markets for Identical Items
(Level 1)
|
Significant Other Observable Inputs
(Level 2)
|
Significant
Unobservable Inputs
(Level 3)
|
Asset for foreign currency
derivative financial instruments
(including forward contracts)
|
$
|
22
|
$
|
-
|
$
|
22
|
$
|
-
|
Our
foreign currency derivative financial instruments mitigate foreign exchange
risks and include forward contracts.
The
fair value of the Company’s debt is based on estimates using standard
pricing models that take into account the present value of future cash flows as
of the balance sheet date. The computation of the fair value of these
instruments is generally performed by the Company. The carrying amounts
and estimated fair values of the Company’s long-term debt, including
current maturities, are summarized below:
|
|
September 30, 2009
|
|
December 31, 2008
|
(In thousands)
|
|
Carrying
Value
|
|
Fair
Value
|
|
Carrying
Value
|
|
Fair
Value
|
Long-term
debt, including current portion
|
$
|
2,357
|
$
|
2,238
|
$
|
3,466
|
$
|
3,143
|
Long-term
debt – convertible debentures
|
|
1,500
|
|
1,500
|
|
-
|
|
-
|
|
$
|
3,857
|
$
|
3,738
|
$
|
3,466
|
$
|
3,143
|
The
carrying amounts reported in the balance sheet for cash and cash equivalents,
trade receivables, payables and accrued liabilities, accrued income taxes and
short-term borrowings approximate fair value due to the short term nature of
these instruments, Accordingly, these items have been excluded from the above
table.
On June 27, 2005, TPT entered into a financial lease agreement with De Lage Landen Financial Services, BV for equipment related to the
production of ALUPREM. The cost of the equipment under the capital lease
is included in the balance sheets as property, plant and equipment and was
$381,181. Accumulated amortization of the leased equipment at September
30, 2009 was approximately Euro 122,000 ($178,000). Amortization of
assets under capital leases is included in depreciation expense. The
capital lease is in the amount of Euro 377,351 including interest of Euro 62,113
(implicit interest rate 6.3%) and Euro 238 in executory costs. The lease
term is 72 months with equal monthly installments of Euro 5,241 ($7,666).
The net present value of the lease at September 30, 2009 was Euro 99,000 ($145,000).
On October 30, 2007, the Company entered into a financial
lease agreement with Dell Financial Services for two computer servers.
The cost of the equipment under the capital lease, in the amount of $12,420, is
included in the balance sheets as property, plant and equipment.
Accumulated amortization of the leased equipment at September 30, 2009 was approximately
$9,000. The capital lease is in the amount of $13,217 including interest
of $800 (implicit interest rate 4.1%). The lease term is 36 months with
equal monthly installments of $367. The net present value of the lease at
September 30, 2009 was $5,000.
On
March 13, 2008, the Company entered into a financial lease agreement with
Toyota Financial Services for a forklift. The cost of the equipment under
the capital lease, in the amount of $26,527, is included in the balance sheets
as property, plant and equipment. Accumulated amortization of the leased
equipment at September 30, 2009 was approximately $6,000. The capital
lease is in the amount of $31,164 including interest of $4,637 (implicit
interest rate 6.53%). The lease term is 60 months with equal monthly
installments of $519. The net present value of the lease at September 30,
2009 was $19,000.
On
September 24, 2009, the Company entered into a financial lease agreement with
Sympatec for a particle analyzer. The cost of the equipment under the
capital lease, in the amount of $68,722, is included in the balance sheets as
property, plant and equipment. Accumulated amortization of the leased
equipment at September 30, 2009 was not significant. The capital lease is
in the amount of $74,220 including interest of $5,498 (implicit interest rate 14.45%).
The lease term is 12 months with equal monthly installments of $6,185.
The net present value of the lease at September 30, 2009 was $63,000.
Note
7.
|
Calculation
of Basic and Diluted Loss per Share
|
The
following table sets forth the computation of basic and diluted loss per share:
(in thousands,
except per share amounts)
|
|
Three Months
Ended September 30,
|
|
Nine Months
Ended September 30,
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
Numerator:
|
|
|
|
|
|
|
|
|
Net Loss
|
$
|
(17)
|
$
|
(370)
|
$
|
(294)
|
$
|
(1,297)
|
Preferred Stock Dividends
|
|
(15)
|
|
(15)
|
|
(45)
|
|
(45)
|
Numerator for diluted loss per share -
loss available to common shareholders
after assumed conversions
|
$
|
(32)
|
$
|
(385)
|
$
|
(339)
|
$
|
(1,342)
|
Denominator:
|
|
|
|
|
|
|
|
|
Denominator for basic loss per share -
weighted-average shares
|
|
9,453
|
|
7,878
|
|
9,453
|
|
7,876
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
Employee stock options
|
|
-
|
|
-
|
|
-
|
|
-
|
Detachable warrants
|
|
-
|
|
-
|
|
-
|
|
-
|
Convertible Preferred Shares
|
|
-
|
|
-
|
|
-
|
|
-
|
Dilutive
potential common shares
|
|
-
|
|
-
|
|
-
|
|
-
|
Denominator for diluted loss per share -
weighted-average shares and assumed conversions
|
|
9,453
|
|
7,878
|
|
9,453
|
|
7,876
|
|
|
|
|
|
|
|
|
|
Basic
loss per common share
|
$
|
(0.00)
|
$
|
(0.05)
|
$
|
(0.04)
|
$
|
(0.17)
|
|
|
|
|
|
|
|
|
|
Diluted
loss per common share
|
$
|
(0.00)
|
$
|
(0.05)
|
$
|
(0.04)
|
$
|
(0.17)
|
Excluded
from the computation of diluted earnings per share were a total of 337,000 and
168,000 common shares related to the 200,000 convertible preferred shares at September
30, 2009 and 2008, respectively. The convertible
preferred shares were not included in the computation of diluted earnings per
share as the effect would be antidilutive.
Stock
options excluded from the computation of diluted earnings per share for the
three and nine month periods ended September 30, 2009 and 2008, were 876,100
and 754,600, respectively. These options were excluded from the
computation of diluted earnings per share as the effect would be antidilutive.
For
the three and nine month period ended September 30, 2009, a total of 2,830,200 shares
of common stock convertible under the debentures and 4,405,200 shares of common
stock exercisable under the warrants were excluded from the computation of
diluted earnings per share as the effect would be antidilutive.
Note
8.
|
Segment
Information
|
The
Company and its subsidiaries operate in the business of pigment manufacturing
and related products in three geographic segments. All United States manufacturing is done at the facility located in Corpus Christi, Texas. Foreign
manufacturing is done by the Company’s wholly-owned subsidiaries, TMM,
located in Malaysia and TPT, located in the Netherlands. A summary of the
Company’s manufacturing operations by geographic area is presented below:
(In thousands)
|
|
United States
(Corpus Christi)
|
|
Europe
(TPT)
|
|
Asia
(TMM)
|
|
Inter-Company
Eliminations
|
|
Consolidated
|
As of and for the three
months ended:
|
|
|
|
|
|
|
|
|
September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
Net Sales:
|
|
|
|
|
|
|
|
|
|
|
Customer
sales
|
$
|
4,243
|
$
|
1,577
|
$
|
621
|
$
|
-
|
$
|
6,441
|
Intercompany
sales
|
|
6
|
|
290
|
|
909
|
|
(1,205)
|
|
-
|
Total Net Sales
|
$
|
4,249
|
$
|
1,867
|
$
|
1,530
|
$
|
(1,205)
|
$
|
6,441
|
|
|
|
|
|
|
|
|
|
|
|
Location profit (loss)
|
$
|
(17)
|
$
|
51
|
$
|
21
|
$
|
(72)
|
$
|
(17)
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2008
|
|
|
|
|
|
|
|
|
|
|
Net Sales:
|
|
|
|
|
|
|
|
|
|
|
Customer
sales
|
$
|
4,567
|
$
|
1,714
|
$
|
1,222
|
$
|
-
|
$
|
7,503
|
Intercompany
sales
|
|
-
|
|
431
|
|
2,403
|
|
(2,834)
|
|
-
|
Total Net Sales
|
$
|
4,567
|
$
|
2,145
|
$
|
3,625
|
$
|
(2,834)
|
$
|
7,503
|
|
|
|
|
|
|
|
|
|
|
|
Location profit (loss)
|
$
|
(395)
|
$
|
(112)
|
$
|
347
|
$
|
(210)
|
$
|
(370)
|
As of and for the nine
months ended:
|
|
|
|
|
|
|
|
|
September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
Net Sales:
|
|
|
|
|
|
|
|
|
|
|
Customer
sales
|
$
|
12,049
|
$
|
4,194
|
$
|
1,555
|
$
|
-
|
$
|
17,798
|
Intercompany
sales
|
|
6
|
|
1,633
|
|
2,333
|
|
(3,972)
|
|
-
|
Total Net Sales
|
$
|
12,055
|
$
|
5,827
|
$
|
3,888
|
$
|
(3,972)
|
$
|
17,798
|
|
|
|
|
|
|
|
|
|
|
|
Location profit (loss)
|
$
|
(159)
|
$
|
(128)
|
$
|
(66)
|
$
|
59
|
$
|
(294)
|
|
|
|
|
|
|
|
|
|
|
|
Location assets
|
$
|
11,935
|
$
|
8,338
|
$
|
13,545
|
$
|
-
|
$
|
33,818
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2008
|
|
|
|
|
|
|
|
|
|
|
Net Sales:
|
|
|
|
|
|
|
|
|
|
|
Customer
sales
|
$
|
12,565
|
$
|
5,783
|
$
|
2,817
|
$
|
-
|
$
|
21,165
|
Intercompany
sales
|
|
69
|
|
785
|
|
4,386
|
|
(5,240)
|
|
-
|
Total Net Sales
|
$
|
12,634
|
$
|
6,568
|
$
|
7,203
|
$
|
(5,240)
|
$
|
21,165
|
|
|
|
|
|
|
|
|
|
|
|
Location profit (loss)
|
$
|
(1,230)
|
$
|
87
|
$
|
104
|
$
|
(258)
|
$
|
(1,297)
|
|
|
|
|
|
|
|
|
|
|
|
Location assets
|
$
|
12,750
|
$
|
10,977
|
$
|
14,659
|
$
|
-
|
$
|
38,386
|
Product
sales of inventory between Corpus Christi, TPT and TMM are based on
inter-company pricing, which includes an inter-company profit margin. In
the geographic information, the location profit (loss) from all locations is
reflective of these inter-company prices, as is inventory at the Corpus Christi
location prior to elimination adjustments. Such presentation is
consistent with the internal reporting reviewed by the Company’s chief
operating decision maker. The elimination entries include an adjustment
to the cost of sales resulting from the adjustment to ending inventory to
eliminate inter-company profit, and the reversal of a similar adjustment from a
prior period. To the extent there are net increases/declines period over
period in Corpus Christi inventories that include an inter-company component,
the net effect of these adjustments can decrease/increase location profit.
Sales from the subsidiary to the parent company are
based upon profit margins which represent competitive pricing of similar
products. Intercompany sales consisted of SR, HITOX and ALUPREM.
For the three month periods ended September 30, 2009
and 2008, the Company recorded an expense of $28,000 and $30,000, respectively,
in stock-based employee compensation expense and for the nine month periods
ended September 30, 2009 and 2008, $78,000 and $119,000, respectively.
This compensation expense is included in the selling, general and
administrative expenses in the accompanying consolidated statements of
operations.
The Company granted 137,500
and 65,000 options during the nine month periods ended September 30, 2009 and
2008, respectively.
As of September 30, 2009,
there was $190,000 of option compensation expense related to non-vested awards
which is expected to be recognized over a weighted average period of 3.18
years.
As all options issued under
the Plan are Incentive Stock Options, the Company does not normally receive
significant excess tax benefits relating to the compensation expense recognized
on vested options.
The
following table reflects the Company’s inventory at September 30, 2009
and December 31, 2008.
(In thousands)
|
|
September 30,
|
|
December 31,
|
|
|
2009
|
|
2008
|
Raw materials
|
$
|
4,706
|
$
|
5,208
|
Work in progress
|
|
1,265
|
|
1,327
|
Finished goods
|
|
3,280
|
|
4,828
|
Supplies
|
|
699
|
|
700
|
Total
Inventories
|
|
9,950
|
|
12,063
|
Inventory
reserve
|
|
(135)
|
|
(224)
|
Net
Inventories
|
$
|
9,815
|
$
|
11,839
|
The Company has exposure
to certain risks relating to its ongoing business operations, including
financial, market, political and economic risks. The following discussion
provides information regarding our exposure to the risks of changing energy
prices and foreign currency exchange rates. The Company has not entered
into these contracts for trading or speculative purposes in the past, nor do we
currently anticipate entering into such contracts for trading or speculative
purposes in the future. The natural gas and foreign exchange contracts
are used to mitigate uncertainty and volatility, and to cover underlying
exposures.
Natural Gas Contracts
We manage the risk of
changes in natural gas supply prices at our Corpus Christi operation using
derivative financial instruments. Natural gas market prices are volatile
and we effectively fix prices for a portion of our natural gas production
requirements through the use of swaps. A swap is a contract between us
and a third party to exchange cash based on a designated natural gas price.
Swap contracts require payment to or from us for the amount, if any, that the
monthly published gas prices from the source specified in the contract differ
from the prices of the New York Mercantile Exchange (NYMEX) natural gas futures
during a specified period. There are no initial cash requirements related
to the swap. The contracts are traded in months forward and settlement
dates are scheduled to coincide with gas purchases during that future
period. We report the fair value of the derivatives on our balance sheet
and changes in fair value are recognized in cost of sales in the period of the
change.
On November 18, 2008, the Company
entered into a natural gas contract with Bank of America, N.A. for 40,000
MM/Btu’s of natural gas which settled on March 1, 2009.
Foreign Currency Forward Contracts
We manage the risk of
changes in foreign currency exchange rates, primarily at our Malaysian
operation, through the use of foreign currency contracts. Foreign
exchange contracts are used to protect the Company from the risk that the
eventual cash flows resulting from transactions in foreign currencies,
including sales and purchases transacted in a currency other than the
functional currency, will be adversely affected by changes in exchange
rates. We report the fair value of the derivatives on our balance sheet
and changes in the fair value are recognized in earnings in the period of the
change.
The following table
summarizes the gross fair market value of all derivative instruments, which are
not designated as hedging instruments and their location in our Condensed
Consolidated Balance Sheet:
(In thousands)
|
Asset Derivatives
|
|
|
|
|
September 30,
|
|
December 31,
|
Derivative Instrument
|
|
Location
|
|
2009
|
|
2008
|
Foreign
Currency Exchange Contracts
|
|
Other
Current Assets
|
$
|
22
|
$
|
-
|
|
|
|
$
|
22
|
$
|
-
|
|
|
|
|
|
|
|
Liability Derivatives
|
|
|
|
|
September 30,
|
|
December 31,
|
Derivative Instrument
|
|
Location
|
|
2009
|
|
2008
|
Natural
Gas Swap Contract
|
|
Accrued
Expenses
|
$
|
-
|
$
|
26
|
Foreign
Currency Exchange Contracts
|
|
Accrued
Expenses
|
|
-
|
|
1
|
|
|
|
$
|
-
|
$
|
27
|
The following table
summarizes the impact of the Company’s derivatives on the condensed consolidated
financial statements of operations for the three and nine month periods ended September
30, 2009 and 2008:
(In thousands)
Derivative Instrument
|
|
Location of Gain
(Loss) on Derivative
Instrument
|
|
Amount of Gain (Loss) Recognized in Operations
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
2009
|
|
2008
|
|
2009
|
|
2008
|
Natural Gas
Swap Contract
|
|
Cost
of Sales
|
$
|
-
|
$
|
-
|
$
|
(27)
|
$
|
-
|
Foreign Currency
Exchange Contracts
|
|
Other
Income
(Expense)
|
|
22
|
|
(68)
|
|
31
|
|
(102)
|
|
|
|
$
|
22
|
$
|
(68)
|
$
|
4
|
$
|
(102)
|
Item
2.
|
Management's Discussion and
Analysis of Financial Condition and Results of Operations
|
Company Overview
We are a global specialty chemical company engaged in the
business of manufacturing and marketing mineral products for use as pigments,
pigment extenders and flame retardants used in the manufacture of paints,
industrial coatings, plastics, catalysts and solid surface applications.
We have operations in the US, Asia and Europe.
Our US Operation, located in Corpus Christi, Texas,
manufactures HITOX, BARTEX, HALTEX and TIOPREM. The facility is also the
Global Headquarters for the Company. The Asian Operation, located in
Ipoh, Malaysia, manufactures synthetic rutile (SR) and HITOX and our European
Operation, located in Hattem, Netherlands, manufactures Alumina based products.
Operating expenses in the foreign locations are primarily in
local currencies. Accordingly, we have exposure to fluctuation in foreign
currency exchange rates. These fluctuations impact the translation of
sales, earnings, assets and liabilities from local currency to the US Dollar.
Our
business is closely correlated with the construction industry and its demand
for materials that use pigments, such as paints and plastics. This has
generally led to higher sales in our second and third quarters due to increases
in construction and maintenance during warmer weather. Also, pigment
consumption is closely correlated with general economic conditions. When
the economy is in an expansionary state, there is typically an increase in
pigment consumption while a slow down typically results in decreased pigment
consumption. When the construction industry or the economy is in a period
of decline, such as is now occurring, TOR’s sales and profit are likely
to be adversely affected.
2009 Outlook
Due to the downturn in the global economy, we have
experienced a decrease in HITOX sales of approximately 32% and a decrease in BARTEX
sales of approximately 23% during the first nine months of 2009 and anticipate
this trend to continue through 2009. However, we have experienced an
increase in our specialty grade ALUPREM sales during the first nine months of
2009 over the corresponding period in 2008 of approximately 9%, which is
primarily related to the purchasing pattern of one of our US customers. In
addition, we have increased sales of our HALTEX products approximately 26%
during the first nine months of 2009. While the decline in the economy
has adversely impacted the introduction of our new TIOPREM and OPTILOAD product
lines, we anticipate that we will be able to sell these products in plastics,
top coat paint and paper applications which were not previously available to us
with our traditional HITOX and HALTEX products.
Our
new production technologies, installed at our Malaysian operation in May 2008
and at our US operation in March 2009, have replaced fuel oil and natural gas
with electricity as our primary source of energy, thereby reducing our overall
energy costs. In addition, we have seen a decrease in the cost of freight
between Malaysia and the US during the first quarter of 2009. As a
result, we were able to secure the delivery of our first shipment of SR, which
arrived at our US operation in April 2009, at approximately 25% less than we
paid for freight in 2008. Based on our current forecast, this shipment of
SR should provide sufficient raw materials to meet our US production through
the first quarter of 2010.
However,
as a result of our projected decrease in worldwide sales of HITOX, our
Malaysian operation has been required to decrease their SR production from the
2008 production level of four months to only two months in 2009. As a
result, we expect to incur additional costs related to idle facility expense in
2009 at our Malaysian operation of approximately $250,000 or an increase of 25%
as compared to 2008.
At
our US operation, we are scaling back our production requirements and reducing
costs in 2009. Based on our forecast, we anticipate a reduction in direct
and indirect production costs of approximately 30% and a reduction in our
SG&A expense of approximately 25%. This is being accomplished through
various cost cutting measures, including a reduction in salaries of
approximately 20%, elimination of overtime, a reduction in staff and a delay in
filling vacant positions. In addition, we are reducing and/or eliminating
discretionary spending. Similar cost savings measures have also been
implemented at our operations in Malaysia and the Netherlands. However, a
portion of the savings may not be immediately recognized due to various laws
and regulations relating to termination benefits in these countries.
There is no assurance that cost reductions will offset our expected revenue
decline in 2009, in which case we would continue to experience a loss from our
operations.
Looking to the future
Our strategy focuses on pursuing niche markets for paints,
plastics, papers and catalysts applications with high value-added products that
produce attractive profit margins and have high barriers to entry by
competitors. Our focus is on products that will provide a solid value
proposition with our customers and therefore sell at a higher average price and
produce more attractive gross margins for TOR. In addition, the high
value-added nature of these products allows us to create close partnerships
with our customers and develop long-term relationships with recurring and
predictable revenue streams.
As we look at our HITOX business going forward, we expect
our traditional HITOX business to remain tied to the strength of the US and
global economy. Our key growth strategy is to introduce newly developed
colored pigments that will expand our addressable market and increase our sales
potential. We are applying technologies developed in our Netherlands
operation to create new high performance fillers and pigments. Unlike our
traditional HITOX products, our new products have high performance
characteristics, much broader end market applications and provide for
value-added premium pricing.
We introduced four new colored pigments that are heat stable
and branded these new products under the name TIOPREM in 2008. In
addition, we introduced our new HALTEX line, OPTILOAD, in late 2008.
While the decline in the economy has adversely impacted the introduction of
these new products, we anticipate that we should be able to sell these products
in plastics, top coat paint and paper applications, which were not previously
available to us with our traditional HITOX and HALTEX products. Accordingly,
while these new products have not significantly contributed to our 2009
operating performance, we believe that these products have the potential to
greatly expand our addressable market and we hope that they will be
contributing to our results in the first half of 2010.
Actual results could differ materially from those indicated
by these forward looking statements because of various risks and
uncertainties. See the information under the caption “Forward
Looking Information” appearing below the Table of Contents of this
report.
The
following are our results for the three and nine month periods ended September
30, 2009 and 2008.
|
|
(Unaudited)
|
(In thousands, except
per share amounts)
|
|
Three Months
Ended September 30,
|
|
Nine Months
Ended September 30,
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
NET SALES
|
$
|
6,441
|
$
|
7,503
|
$
|
17,798
|
$
|
21,165
|
Cost of sales
|
|
5,492
|
|
6,527
|
|
15,170
|
|
18,525
|
GROSS MARGIN
|
|
949
|
|
976
|
|
2,628
|
|
2,640
|
Technical services and research and development
|
|
54
|
|
62
|
|
146
|
|
189
|
Selling, general and administrative expenses
|
|
687
|
|
1,058
|
|
2,423
|
|
3,287
|
Gain on disposal of assets
|
|
-
|
|
-
|
|
-
|
|
(2)
|
OPERATING
INCOME (LOSS)
|
|
208
|
|
(144)
|
|
59
|
|
(834)
|
OTHER INCOME
(EXPENSE):
|
|
|
|
|
|
|
|
|
Interest income
|
|
-
|
|
-
|
|
2
|
|
1
|
Interest expense
|
|
(159)
|
|
(134)
|
|
(407)
|
|
(409)
|
Gain (loss) on foreign currency exchange rate
|
|
(5)
|
|
(4)
|
|
37
|
|
(5)
|
Other, net
|
|
-
|
|
1
|
|
4
|
|
11
|
INCOME
(LOSS) BEFORE INCOME TAX
|
|
44
|
|
(281)
|
|
(305)
|
|
(1,236)
|
Income tax expense (benefit)
|
|
61
|
|
89
|
|
(11)
|
|
61
|
NET LOSS
|
$
|
(17)
|
$
|
(370)
|
$
|
(294)
|
$
|
(1,297)
|
|
|
|
|
|
|
|
|
|
Loss per
basic and diluted common share:
|
$
|
(0.00)
|
$
|
(0.05)
|
|
(0.04)
|
|
(0.17)
|
Results of Operations
Net Sales:
Consolidated net sales for the quarter ended September 30, 2009 decreased
approximately $1,062,000 or 14% compared to the third quarter 2008 primarily due
to decreases in HITOX, ALUPREM and BARTEX sales. For the nine month
period ended September 30, 2009, consolidated net sales decreased approximately
$3,367,000 or 16% primarily due to decreases in both HITOX and BARTEX sales
which were partially offset by an increase in ALUPREM and HALTEX sales.
Following
is a summary of our consolidated products sales for the three and nine month
periods ended September 30, 2009 and 2008 (in thousands). All
inter-company sales have been eliminated.
|
(Unaudited)
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
Product
|
|
2009
|
|
2008
|
|
Variance
|
|
|
2009
|
|
2008
|
|
Variance
|
HITOX
|
$
|
2,890
|
45%
|
$
|
4,030
|
54%
|
$
|
(1,140)
|
-28%
|
|
$
|
7,673
|
43%
|
$
|
11,336
|
54%
|
$
|
(3,663)
|
-32%
|
ALUPREM
|
|
2,266
|
35%
|
|
2,288
|
31%
|
|
(22)
|
-1%
|
|
|
6,791
|
38%
|
|
6,217
|
29%
|
|
574
|
9%
|
BARTEX
|
|
705
|
11%
|
|
739
|
10%
|
|
(34)
|
-5%
|
|
|
1,908
|
11%
|
|
2,463
|
12%
|
|
(555)
|
-23%
|
HALTEX
|
|
475
|
7%
|
|
328
|
4%
|
|
147
|
45%
|
|
|
1,124
|
6%
|
|
892
|
4%
|
|
232
|
26%
|
TIOPREM
|
|
2
|
< 1%
|
|
4
|
< 1%
|
|
(2)
|
-50%
|
|
|
5
|
< 1%
|
|
30
|
< 1%
|
|
(25)
|
-83%
|
OTHER
|
|
103
|
2%
|
|
114
|
1%
|
|
(11)
|
-10%
|
|
|
297
|
2%
|
|
227
|
1%
|
|
70
|
31%
|
Total
|
$
|
6,441
|
100%
|
$
|
7,503
|
100%
|
$
|
(1,062)
|
-14%
|
|
$
|
17,798
|
100%
|
$
|
21,165
|
100%
|
$
|
(3,367)
|
-16%
|
HITOX sales declined 28% in the third quarter 2009 as compared
to the same period in 2008. This follows a decline in the first and
second quarters 2009 of 49% and 19%, respectively, as compared to the same
periods in 2008. For the first nine months of 2009, sales of HITOX
declined by 32% versus the same period a year ago primarily as a result of the
weak North American market and the impact of the substantial downturn in the global
economy. While the adverse economy continues to impact our current year’s
sales, we have experienced a sequential quarter over quarter growth in our
HITOX sales this year.
ALUPREM sales were 1% lower in the third quarter 2009 than in
the third quarter 2008, primarily due to a decline in sales in Europe of
approximately 11% which was partially offset by an increase in US sales.
For the first nine months of 2009, ALUPREM sales increased 9% primarily due to
a change in the ordering pattern of a significant US customer, partially offset
by a decline in European sales.
BARTEX sales declined approximately 5% during the third
quarter 2009 as compared to the same period in 2008. For the first nine
months of 2009, BARTEX sales decreased 23% compared to the same period of
2008. The decrease in BARTEX sales is primarily as a result of the
downturn in the US economy; however, we have experienced a sequential quarter
over quarter increase in BARTEX sales in 2009.
HALTEX sales increased 45% during the third quarter 2009 and
26% for the first nine months of 2009, in each case as compared to the same
periods in 2008. Because our HALTEX product line is not as closely tied
to the construction industry, the product sales have not had as great an impact
from the economic slowdown as our other products. In addition, sales of
our new HALTEX line, OPTILOAD, is gaining acceptance in the marketplace.
Corpus Christi Operation
Our
Corpus Christi operation manufactures and sells HITOX, BARTEX and HALTEX to
third party customers. In addition, we purchase ALUPREM and HITOX from
our subsidiaries, TPT and TMM, for distribution in the Americas. Following is a summary of net sales for our Corpus Christi operation for
the three and nine month periods ended September 30, 2009 and 2008 (in
thousands), as well as a summary of the material changes. All
inter-company sales have been eliminated.
|
(Unaudited)
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
Product
|
|
2009
|
|
2008
|
|
Variance
|
|
|
2009
|
|
2008
|
|
Variance
|
HITOX
|
$
|
2,071
|
49%
|
$
|
2,653
|
58%
|
$
|
(582)
|
-22%
|
|
$
|
5,669
|
47%
|
$
|
7,848
|
63%
|
$
|
(2,179)
|
-28%
|
ALUPREM
|
|
896
|
21%
|
|
751
|
17%
|
|
145
|
19%
|
|
|
3,094
|
26%
|
|
1,165
|
9%
|
|
1,929
|
166%
|
BARTEX
|
|
705
|
17%
|
|
739
|
16%
|
|
(34)
|
-5%
|
|
|
1,908
|
16%
|
|
2,463
|
20%
|
|
(555)
|
-23%
|
HALTEX
|
|
475
|
11%
|
|
328
|
7%
|
|
147
|
45%
|
|
|
1,124
|
9%
|
|
892
|
7%
|
|
232
|
26%
|
TIOPREM
|
|
-
|
0%
|
|
-
|
0%
|
|
-
|
0%
|
|
|
3
|
< 1%
|
|
-
|
0%
|
|
3
|
< 1%
|
OTHER
|
|
96
|
2%
|
|
97
|
2%
|
|
(1)
|
-1%
|
|
|
251
|
2%
|
|
198
|
1%
|
|
53
|
27%
|
Total
|
$
|
4,243
|
100%
|
$
|
4,568
|
100%
|
$
|
(325)
|
-7%
|
|
$
|
12,049
|
100%
|
$
|
12,566
|
100%
|
$
|
(517)
|
-4%
|
-
HITOX –
Sales during the third quarter decreased 10%, 35%
and 37% in Mexico, Canada and South America, respectively, as compared to
the same period in 2008 and US sales trailed the third quarter last year
by 18% resulting in a net decrease for the quarter of 22%. Year to
date through September 30, 2009, HITOX sales decreased in the US market,
as well as in the balance of North America, Central and South
America. The decrease is primarily related to the global decline in
the construction industry.
-
ALUPREM – Increase in US sales of ALUPREM primarily due to a change in the
order pattern of a significant customer.
-
BARTEX – Decrease in US sales of BARTEX primarily related to a decrease in
demand from existing customers as a result of the US economy.
-
HALTEX – Increase in US sales of HALTEX primarily related to an increase
in customer demand and the growing acceptance of our new product,
OPTILOAD, in the marketplace.
Netherlands Operation
Our
subsidiary in the Netherlands, TPT, manufactures and sells ALUPREM to third
party customers, as well as to our Corpus Christi operation for distribution to
our US customers. In addition, TPT purchases HITOX from TMM for
distribution in Europe. The following table represents TPT’s sales
(in thousands) for the three and nine month periods ended September 30, 2009
and 2008 to third party customers. All inter-company sales have been
eliminated.
|
(Unaudited)
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
Product
|
|
2009
|
|
2008
|
|
Variance
|
|
|
2009
|
|
2008
|
|
Variance
|
ALUPREM
|
$
|
1,370
|
87%
|
$
|
1,537
|
90%
|
$
|
(167)
|
-11%
|
|
$
|
3,697
|
88%
|
$
|
5,052
|
88%
|
$
|
(1,355)
|
-27%
|
HITOX
|
|
205
|
13%
|
|
177
|
10%
|
|
28
|
16%
|
|
|
495
|
12%
|
|
705
|
12%
|
|
(210)
|
-30%
|
TIOPREM
|
|
2
|
< 1%
|
|
-
|
0%
|
|
2
|
< 1%
|
|
|
2
|
< 1%
|
|
26
|
< 1%
|
|
(24)
|
-92%
|
Total
|
$
|
1,577
|
100%
|
$
|
1,714
|
100%
|
$
|
(137)
|
-8%
|
|
$
|
4,194
|
100%
|
$
|
5,783
|
100%
|
$
|
(1,589)
|
-27%
|
-
HITOX – European HITOX sales increased 16% in the third quarter as
compared to the same period in 2008. Despite a quarter over quarter
increase in European HITOX sales in 2009, year to date sales are behind
last year 30% which is primarily due to impact of the global economy on
the construction industry, as well as the effects of the foreign exchange
rate.
Malaysian Operation
Our
subsidiary in Malaysia, TMM, manufactures and sells HITOX and SR to third party
customers, as well as to our Corpus Christi operation and TPT. The
following table represents TMM’s sales (in thousands) for the three and nine
month periods ended September 30, 2009 and 2008 to third party customers.
All inter-company sales have been eliminated.
|
(Unaudited)
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
Product
|
|
2009
|
|
2008
|
|
Variance
|
|
|
2009
|
|
2008
|
|
Variance
|
HITOX
|
$
|
614
|
99%
|
$
|
1,200
|
98%
|
$
|
(586)
|
-49%
|
|
$
|
1,509
|
97%
|
$
|
2,783
|
99%
|
$
|
(1,274)
|
-46%
|
BARTEX
|
|
-
|
0%
|
|
1
|
< 1%
|
|
(1)
|
-100%
|
|
|
-
|
0%
|
|
1
|
< 1%
|
|
(1)
|
-100%
|
TIOPREM
|
|
-
|
0%
|
|
4
|
< 1%
|
|
(4)
|
-100%
|
|
|
-
|
0%
|
|
4
|
< 1%
|
|
(4)
|
-100%
|
OTHER
|
|
7
|
1%
|
|
17
|
2%
|
|
(10)
|
-59%
|
|
|
46
|
3%
|
|
29
|
1%
|
|
17
|
59%
|
Total
|
$
|
621
|
100%
|
$
|
1,222
|
100%
|
$
|
(601)
|
-49%
|
|
$
|
1,555
|
100%
|
$
|
2,817
|
100%
|
$
|
(1,262)
|
-45%
|
-
HITOX – Decrease in Asian sales, both for the quarter and year to date,
is primarily related to a decrease in volume related to the impact of the
global economy on the construction industry. While the economy
continues to impact our current year’s sales, we have experienced a
quarter over quarter growth in our HITOX sales in Asia of 70% and 9%,
respectively.
Other Consolidated Results
Gross Margin: For the three month period ended September 30,
2009, gross margin increased approximately 1.7% percent, from 13.0% in 2008 to 14.7%
in 2009. For the nine month periods ended September 30, 2009 and 2008,
gross margin increased approximately 2.3%, from 12.5% to 14.8%. The primary
factors affecting our gross margin include the mix of products sold during the three
and nine month periods compared to the same periods in 2008, as well as a
reduction in the cost of energy and raw materials. Also contributing to
the year to date increase in the gross margin were cost reduction measures
implemented during the first quarter 2009, primarily at the US operation, which
reduced indirect costs approximately 23% primarily related to a reduction in
labor and equipment repairs which were reduced approximately 31% and 49%,
respectively, as compared to the same nine month period 2008.
Technical Services and Selling, General, Administrative and Expenses
(“SG&A”): Total SG&A expenses decreased approximately 34%
and 26% during the three and nine month periods ended September 30, 2009,
respectively, as compared to the same periods in 2008, primarily due to a
reduction in staff, travel and other discretionary expenses. At the US
operation, SG&A decreased approximately 20% and 32%, respectively, compared
to the same three and nine month periods in 2008 as a result of the
Company’s cost cutting initiative implemented during the first quarter
2009. Similar measures have also been implemented at the European and
Asian operations.
Interest Expense: Net interest expense increased approximately $25,000
as compared to the same three month period in 2008 primarily due to the
issuance of debentures and warrants in 2009. For the nine month period
ended September 30, 2009, interest expense was relatively flat due to the 2009
issuance of debentures and warrants which was partially offset by a reduction
in long-term debt.
Income Taxes: Income taxes consisted of a foreign deferred
tax expense of approximately $61,000 for the three month period ended September
30, 2009, compared to a foreign deferred tax expense of approximately $86,000 and
state income tax expense of $3,000 for the corresponding three month period in
2008. For the nine month periods ended September 30, 2009 and 2008, we
recorded a foreign deferred tax benefit of approximately $13,000 and an expense
of $53,000, respectively, and state income tax expense of $2,000 and $8,000,
respectively. Taxes are based on an estimated annualized consolidated effective
rate of 3.6%
Liquidity,
Capital Resources and Other Financial Information
Liquidity
Going Concern
The
condensed consolidated financial statements included in this report have been
prepared on a going concern basis, which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of business. As
discussed in Note 3, the Company has significant borrowings which require,
among other things, compliance with certain financial covenants, specifically a
Consolidated Fixed Charge Ratio and a Consolidated Funded Debt to EBITDA Ratio,
on a quarterly basis. As a result of the operating losses incurred
throughout 2008 and the first quarter of 2009, the Company was not in
compliance with these ratio covenants under our US Credit Agreement (the
“Credit Agreement”) with Bank of America, N.A. (the
“Bank”) as of December 31, 2008 and March 31, 2009, and the Company
received notice from the Bank on March 5, 2009 of the Bank’s decision to
terminate the Credit Agreement and require us to pay off all outstanding debt
due to the Bank on April 1, 2009..
As
reported in the Company’s Form 8-K filed with the Securities and Exchange
Commission on May 6, 2009
the Company and the Bank amended the Credit Agreement. Under the terms of
the amendment, the Bank revised the stated maturity date to October 1, 2009
and, subject to the Company’s compliance with the terms and conditions
contained in the amendment, including revised financial covenants, the Bank
agreed not to exercise any of its rights or remedies relating to the existing
events of default under the Credit Agreement.
As reported in the Company’s Form 8-K filed with the
Securities and Exchange Commission on September 28, 2009, the Bank extended the
maturity date on our Line of Credit (the “Line”) and our term loan
(the “Term Loan”) from October 1, 2009 to February 15, 2010.
As a result, all of the Company’s debt owed to the Bank matures on
February 15, 2010.
In addition, the most recent amendment reduced the amount
available for borrowing under the Line from $2,500,000 to $2,225,000 and
increased the interest rate on the Line and Term Loan from prime plus two and
one-half percent to prime plus three percent, which was 5.75% at September 30,
2009.
At September 30, 2009, the Credit Agreement consists of the
following:
-
The Line secured by the accounts
receivable and inventory of the Company’s US operation of which
$1,850,000 was outstanding; and
-
The Term Loan, secured by the
property, plant, equipment, accounts receivable and inventory of the
Company’s US operation, in the amount of $266,667.
As
reported in the Company’s Form 8-K filed with the Securities and Exchange
Commission on May 6, 2009, the Company’s Board of Directors authorized the
issuance of up to $4 million of its six-percent (6%) convertible subordinated
debentures with detachable warrants (the “Debentures”) for the
purpose of refinancing, in whole or in part, its debt to the Bank and general
corporate purposes. Under the current authorization, the Company
received, on May 4, 2009, $1 million from the sale of Debentures due May 4, 2016, from three of
the Company’s directors.
As
reported in the Company’s Form 10-Q filed with the Securities and
Exchange Commission on August 10, 2009, the Company received proceeds of
$500,000 from the sale of additional Debentures to six additional accredited
investors, one of which is a director and another of which is a greater than 5%
shareholder. Under
the terms of the Credit Agreement, the Company has agreed to use all proceeds
in excess of $1 million that it receives after May 1, 2009 from the issuance of
any of its capital stock, from capital contributions in respect to its capital
stock, from the issuance of debentures or the incurrence of permitted
subordinated indebtedness (as defined in the Credit Agreement) to prepay the
loans and other obligations under the Credit Agreement. As a result, the Company applied the $500,000 received from the
sale of Debentures to its outstanding real estate loan with the Bank in August
2009.
The
Company is working diligently to establish a corporate lending relationship
with a new financial institution for the Company’s US operations prior to
February 15, 2010, the revised maturity date under the Credit Agreement, to
refinance outstanding debt with the Bank prior to its revised maturity.
However, there can be no assurance that the Company will be able to
successfully refinance the debt or sell any additional Debentures sufficient to
repay the debt due to the Bank. If the Company is unable to refinance the
debt due to the Bank prior to its revised maturity or if the Company defaults
under the terms of the Credit Agreement prior to its revised maturity and the
Bank were to accelerate the maturity of such indebtedness, the Company does not
have sufficient liquidity to pay off the indebtedness owed to the Bank, and the
Bank would be entitled to exercise all of its rights and remedies as a secured
lender under the Credit Agreement which could force the Company into bankruptcy
or liquidation.
The
Company’s two subsidiaries, TOR Minerals Malaysia, Sdn. Bhd.
(“TMM”) and TOR Processing and Trade, BV (“TPT”) have
short-term credit facilities and term loans at banks in Malaysia and the
Netherlands, respectively. At September 30, 2009, TMM’s borrowings
under the credit facilities and term loans with HSBC Bank Malaysia, Bhd.
(“HSBC”) and RHB Bank, Bhd. (“RHB”) totaled $1,464,000
and TPT’s borrowings under the credit facility and term loans with
Rabobank totaled $2,858,000. TMM’s credit facilities with both HSBC
and RHB mature on October 31, 2009 and TPT’s credit facility with
Rabobank matures on December 31, 2009. We are currently working with
these lenders to secure an amendment to extend the maturity date. If
these lenders are unwilling to extend the maturity dates of these facilities,
neither TMM nor TPT have sufficient liquidity to pay off this indebtedness.
Additionally,
the credit facilities with HSBC, RHB and Rabobank are subject to demand
provisions and are subject to certain subjective acceleration covenants based
on the judgment of the banks. While the banks have made no indication
that they will demand payment of the debt in Malaysia or in the Netherlands, in
light of the Company’s liquidity difficulties, there can be no assurances
that this debt will not be called for payment prior to the stated maturity date
or that the stated maturity date will be extended when this debt becomes due.
Since
early 2007, the Company has actively pursued new production methods and new
product development. As a result, the Company introduced new products to
the market in 2008 and completed a new powder treatment facility in Malaysia in
May 2008. In addition, the Company has invested in a new powder treatment
facility at the US operation which was commissioned in April 2009. With
the new process equipment, the Company replaced natural gas with electricity as
the primary energy source at the US operation. The Company believes that
the changes in the manufacturing process in the US and Malaysia, as well as the
potential acceptance of its new products in the market, will improve cash
flows. However, the introduction of new products and the sales volume of
existing product lines may be negatively impacted by the decline in the global
economy. To offset the possible decline in sales revenue associated with
the economy, the Company has implemented numerous cost cutting measures at each
of the three operations, including, but not limited to, reductions in staff,
salaries, travel and other discretionary expenses.
The
events described above raise substantial doubt about the Company’s
ability to continue as a going concern. Our ability to continue to
operate as a going concern is dependent on our ability to successfully
establish a corporate lending relationship with a new financial institution for
the US operation, and/or raise sufficient new capital and improve our operating
cash flows to a sufficient level.
Long-term Debt
Following is a schedule of our long-term
debt.
(In thousands)
|
|
(Unaudited)
September 30,
2009
|
|
December 31,
2008
|
Term note payable to a U.S.
bank, secured by real estate and leasehold improvements of our US operation,
was prepaid on August 25, 2009.
|
$
|
-
|
$
|
576
|
Term note payable to a U.S.
bank, with an interest rate of 5.75% at September 30, 2009, due February 15,
2010, secured by property, plant and equipment, inventory and accounts
receivable of our US operation.
|
|
267
|
|
342
|
Term note
payable to a U.S. equipment financing company, with an interest rate of 5.24%
at September 30, 2009, due April 1, 2013, secured by Caterpillar front-end
loader.
|
|
89
|
|
106
|
Fixed rate term
Euro note payable to a Netherlands bank, with an interest rate of 5.5% at
September 30, 2009, due June 1, 2009, secured by TPT's assets.
|
|
-
|
|
94
|
Fixed rate term
Euro note payable to a Netherlands bank, with an interest rate of 7.8% at
September 30, 2009, due July 1, 2029, secured by TPT's land and office
building purchased July 2004. (386 Euro)
|
|
565
|
|
560
|
Fixed rate term Euro note
payable to a Netherlands bank, with an interest rate of 4.7% at September 30,
2009, due January 31, 2030, secured by TPT's land and building purchased
January 2005. (384 Euro)
|
|
562
|
|
556
|
Fixed rate term Euro note
payable to a Netherlands bank, with an interest rate of 6.1% at September 30,
2009, due July 31, 2015, secured by TPT's assets. (296 Euro)
|
|
433
|
|
465
|
U.S. Dollar
term note payable to a Malaysian bank, with an interest rate of 1.69% at
September 30, 2009, due June 30, 2010, secured by TMM's property, plant and
equipment.
|
|
275
|
|
525
|
U.S. Dollar
term note payable to a Malaysian bank, with an interest rate of 1.69% at
September 30, 2009, due April 1, 2010, secured by TMM's property, plant and
equipment.
|
|
166
|
|
242
|
Total
|
|
2,357
|
|
3,466
|
Less current
maturities
|
|
858
|
|
1,590
|
Total long-term
debt and notes payable
|
$
|
1,499
|
$
|
1,876
|
US Operation
Bank
of America Credit Facility and Term Loans
On April 30, 2009, we and the Bank amended the Credit
Agreement. Under the terms of the amendment, subject to our compliance
with the terms and conditions contained in the amendment, including revised
financial covenants, the Bank agreed not to exercise any of its rights or
remedies relating to the existing events of default under the Credit Agreement.
Under the terms of the April 30, 2009 amendment, the financial
covenants are replaced with the following:
- Covenants to be based solely on the results of the US
operation
- Current Ratio – Maintain a ratio of current
assets to current liabilities of at least 1.0 to 1.0 as of the quarter
ending September 30, 2009 (1.38 to 1.0 at September 30, 2009)
- Fixed Charge Coverage Ratio – Maintain a fixed
charge coverage ratio of at least 0.85 to 1.0 for the quarter ending
September 30, 2009 (1.56 to 1.0 at September 30, 2009)
We also agreed that we will use all proceeds in excess of $1
million that we receive after May 1, 2009 from the issuance of any of our
capital stock, from capital contributions in respect to our capital stock, from
the issuance of debentures or the incurrence of permitted subordinated
indebtedness (as defined in the Credit Agreement) to prepay the loans and other
obligations under the Credit Agreement. As a result, the Company applied $500,000 received from the sale of
Debentures to its outstanding real estate loan with the Bank in August 2009.
On September 28, 2009 we amended the Credit Agreement with
the Bank to extend the maturity date on the Line and Term Loan from October 1,
2009 to February 15, 2010. As a result, all of our debt owed to the Bank
matures on February 15, 2010, provided, if we default on obligations contained
in the amendment, the Bank will have the rights and remedies available to it
under the Credit Agreement and applicable law. The interest rate on the
Line and the Term Loan was increased from prime plus two and one-half percent to
prime plus three percent, which was 5.75% at September 30, 2009. In
addition, the Line was reduced from $2,500,000 to $2,250,000.
At September 30, 2009, the outstanding balance on the Line
was $1,850,000 and we had $35,000 available on that date based on eligible
accounts receivable and inventory borrowing limitations. The Line is
secured by the accounts receivable and inventory of the US Operation and all
outstanding credit on the Line will be due on February 15, 2010.
Six-percent
Convertible Subordinated Debentures
As
reported in the Company’s Form 8-K filed with the Securities and Exchange
Commission on May 6, 2009, the Company’s Board of Directors has
authorized, subject to shareholder approval, the issuance of up to $4 million
of its six-percent (6%) convertible subordinated debentures with detachable
warrants (the “Debentures”) for the purpose of refinancing, in
whole or in part, its debt to the Bank and general corporate purposes.
Under the current authorization, the Company received, on May 4, 2009, $1 million from the sale of
Debentures due May 4, 2016, from three of the Company’s directors.
As
reported in the Company’s Form 10-Q filed with the Securities and
Exchange Commission on August 10, 2009, the Company received proceeds of
$500,000 from the sale of additional Debentures to six additional accredited
investors, one of which is a director and another of which is a greater than 5%
shareholder. Under
the terms of the Credit Agreement, the Company applied the $500,000 received from the sale of Debentures to its
outstanding real estate loan with the Bank in August 2009.
Netherlands Operation
On March 20, 2007, our subsidiary, TPT, entered into a
short-term credit facility (the “Credit Facility”) with Rabobank
which increased TPT’s line of credit from Euro 650,000 to Euro
1,100,000. The Credit Facility, which has a variable interest rate of
Bank prime plus 2.8% (currently at 7.65%), will mature on December 31, 2009 and
is secured by TPT’s accounts receivable and inventory. At September 30, 2009, TPT had utilized Euro 888,000
($1,299,000) of its short-term credit facility. We are currently
working with Rabobank to obtain an extension to the maturity date on the
short-term credit facility from December 31, 2009 to December 31, 2010.
The loan agreements covering both TPT’s credit
facility and term loans include subjective acceleration clauses that allow
Rabobank to accelerate payment if, in the judgment of the bank, there are
adverse changes in our business. We believe that such subjective
acceleration clauses are customary in the Netherlands for such
borrowings. However, if demand is made by Rabobank, we may be unable to
refinance the demanded indebtedness, in which case the lenders could foreclose
on the assets of TPT.
Malaysian Operation
On November 3, 2008, the Company’s subsidiary, TMM,
amended its banking facility with HSBC Bank Malaysia Berhad
(“HSBC”) to extend the maturity date from October 1, 2008 to
October 31, 2009. the HSBC facility includes the following
in Malaysian Ringgits (“RM”): (1) a banker’s acceptance
(“BA”) of RM 500,000; (2) an export line (“ECR”) of RM
5,000,000; and (3) a foreign exchange contract limit of RM 5,000,000 ($144,000,
$1,444,000 and $1,444,000, respectively).
TMM renewed its banking facility with RHB Bank Berhad
(“RHB”) on October 30, 2008, for the purpose of extending the
maturity date of the current facilities from October 31, 2008, to October 31,
2009. The RHB facility, which TMM is still negotiating, includes the
following: (1) an overdraft line of credit up to RM 1,000,000; (2) an ECR
of RM 9,300,000; and (3) a foreign exchange contract limit of RM 25,000,000 ($289,000,
$2,670,000 and $7,223,000, respectively).
The banking facilities with both HSBC and RHB bear an
interest rate on the overdraft facilities at 1.25% over bank prime and the ECR
facilities bear interest at 1.0% above the funding rate stipulated by the
Export-Import Bank of Malaysia Berhad. The ECR, a government supported
financing arrangement specifically for exporters, is used by TMM for short-term
financing of up to 180 days against customers’ and inter-company
shipments. At September 30, 2009, the
interest rate was 3.3% and the outstanding balance on their ECR and BA
facilities was RM 3,540,000 ($1,023,000).
The borrowings under both the HSBC and the RHB short term
credit facilities are subject to certain subjective acceleration covenants
based on the judgment of the banks and a demand provision that provide that the
banks may demand repayment at any time. We believe such a demand
provision is customary in Malaysia for such facilities. The loan
agreements are secured by TMM’s property, plant and equipment.
However, if demand is made by HSBC or RHB, we may be unable to refinance the
demanded indebtedness, in which case, the lenders could foreclose on the assets
of TMM. The credit facilities prohibit TMM from paying dividends and the
HSBC facility further prohibits loans to related parties without the prior
consent of HSBC.
TMM's borrowing
under the HSBC and the RHB facilities came due on the October 31, 2009 maturity
date. The Company did not repay the amounts due under the HSBC or RHB
facilities at the October 31, 2009 maturity date. TMM is currently
negotiating with both HSBC and RHB to extend the maturity date of both bank
facilities. TMM has not reached an agreement with either lender, and there
can be no assurances that TMM will successfully extend or renew these
facilities. If these lenders are unwilling to extend the maturity dates of
these facilities, TMM will not have the cash resources or access to alternative
financing to pay off this indebtedness, and in such case, these lenders could
foreclose upon their liens on TMM's property, plant and equipment, resulting in
the possible bankruptcy or liquidation of TMM.
Cash and Cash Equivalents
As
noted on the following table, cash and cash equivalents increased $702,000 from
December 31, 2008 to September 30, 2009 as compared to an increase of $67,000
from December 31, 2007 to September 30, 2008.
|
|
(Unaudited)
|
|
|
Nine Months Ended September 30,
|
(In
thousands)
|
|
2009
|
|
2008
|
Net
cash provided by (used in)
|
|
|
|
|
Operating
activities
|
$
|
985
|
$
|
3,891
|
Investing
activities
|
|
(807)
|
|
(1,737)
|
Financing
activities
|
|
737
|
|
(1,971)
|
Effect
of exchange rate fluctuations
|
|
(213)
|
|
(116)
|
Net
change in cash and cash equivalents
|
$
|
702
|
$
|
67
|
Operating Activities
Operating
activities provided $985,000 during the first nine months of 2009. Following
are the major changes in working capital affecting cash provided by operating
activities for the nine month period ended September 30, 2009:
-
Accounts Receivable:
Accounts receivable increased $384,000 as compared to an increase of $1,240,000
for the same period in 2008. The increase in accounts receivable is
primarily due to stronger sales in the third quarter 2009 as compared to
the fourth quarter 2008. Accounts receivable increased $259,000 at
the Corpus Christi operation and $161,000 at TMM, offset by a decrease at TPT
of $36,000.
-
Inventories:
Inventories decreased $2,056,000 as compared to a decrease of $1,223,000 for
the same period in 2008. Inventories at the Corpus Christi operation
decreased $1,453,000 primarily related to a decrease in both finished
goods and raw materials. TPT’s inventories decreased $139,000 primarily
due to a decrease in finished goods and TMM’s decreased
approximately $464,000 primarily due to a decrease in both raw materials and
finished goods.
-
Other Current Assets:
Other current assets increased $324,000 as compared to an increase of $189,000
for the same period in 2008. At the Corpus Christi operation,
prepaid expenses increased $119,000 primarily due to insurance; at TPT $27,000
related to prepaid insurance and pension expense; and at TMM $178,000
related to prepaid freight related to a shipment of SR to the Corpus
Christi operation.
-
Accounts Payable and Accrued Expenses:
Trade accounts payable and accrued expenses decreased $1,436,000 as
compared to an increase of $1,592,000 for the same period in 2008.
Accounts payable and accrued expenses at the Corpus Christi operation
decreased $120,000 and at TMM decreased $1,447,000. TPT’s
accounts payable and accrued expenses increased approximately $131,000
primarily relating to raw materials.
Investing Activities
We
used cash of $807,000 in investing activities during the first nine months of
2009 primarily for the purchase of fixed assets as compared to $1,737,000
during the same period in 2008. Net investments for each of our three
locations are as follows:
-
Corpus Christi Operation:
We invested approximately $757,000 for equipment primarily related to new
process technologies to convert a majority of our production from natural
gas to electricity, as compared to $376,000 for the same period in 2008
for capital maintenance.
-
Netherlands Operation: We invested approximately $45,000 at TPT for
new equipment, as compared to $37,000 for the same period in 2008.
-
Malaysian Operation: We invested approximately $5,000 at TMM
for new equipment, as compared to $1,324,000 for the same period in 2008 for
equipment related to new process technologies to convert the energy supply
for the production of HITOX from fuel oil to electricity.
Financing Activities
We
received $737,000 from financing activities during the nine month period ended September
30, 2009 as compared to a reduction of $1,971,000 for the same period 2008.
Significant factors relating to financing activities include the following:
-
Lines of Credit:
Our borrowings on the domestic line of credit increased $1,100,000
primarily for the purpose of financing our new processing equipment and working
capital, as compared to a decrease of $2,950,000 for the same period in 2008
which was primarily due to of funds received relating to our 2008 Private
Placement stock offering. Borrowings at TPT decreased approximately $174,000
primarily due to timing of working capital needs as compared to an
increase of $47,000 for the same period in 2008 primarily for the purpose
of financing working capital.
-
Export Credit Refinancing Facility (ECR): TMM’s borrowings on the ECR
increased $432,000 primarily for the purpose of financing working capital
as compared to an increase of $759,000 for the same period in 2008.
-
Capital Leases:
Capital leases decreased approximately $4,000 as a result of the acquisition
of equipment at the Corpus Christi operation which provided approximately
$63,000 offset by a reduction in existing capital leases, primarily at
TPT, of approximately $67,000. During the same period in 2008,
capital leases decreased approximately $34,000 as a result of the
acquisition of equipment at the Corpus Christi operation which provided
approximately $26,000 offset by a reduction in capital leases, primarily
at TPT, of approximately $43,000.
-
Long-term Debt – Financial Institutions:
Long-term debt decreased approximately $1,208,000 compared to an increase
of approximately $240,000 during the same period in 2008. At the
Corpus Christi operation, long-term debt decreased $688,000; at TPT $196,000
and at TMM $324,000.
-
6% Convertible Subordinated Debentures: We received subscription agreements for 60
Units ($1,500,000) of our six percent convertible subordinated debentures
with warrants during 2009. The proceeds from the first 40 Units ($1
million) were used to reduce inter-company debt between the US operation
and TMM related to the purchase of inventory. Proceeds from the
remaining 20 Units ($500,000) have been used to reduce our debt to Bank of
America.
-
Proceeds from Issuance of Common Stock: For the nine month period ended September
30, 2009, we did not receive proceeds from the issuance of common
stock. This compares to $12,000 received from the exercise of
employee stock options for the same period in 2008.
-
Preferred Stock Dividends: We paid dividends of $45,000 on our Series
A convertible preferred stock for both of the nine month periods ended September
30, 2009 and 2008.
Off-Balance
Sheet Arrangements and Contractual Obligations
No
material changes have been made to the “Off-Balance Sheet Arrangements
and Contractual Obligations” noted in the Company’s 2008 Annual
Report on Form 10-K except as noted above.
Item 4.
|
Controls and Procedures
|
Evaluation of Disclosure Controls and Procedures
Under
the supervision and with the participation of the Company’s Chief
Executive Officer and Acting Chief Financial Officer, management of the Company
has evaluated the effectiveness of the Company’s disclosure controls and
procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”))
as of the end of the period covered by this report. Based on that evaluation,
the Chief Executive Officer and Acting Chief Financial Officer concluded that
the Company’s disclosure controls and procedures are effective (i) to
ensure that information required to be disclosed by the Company in reports that
it files or submits under the Exchange Act is recorded, processed, summarized
and reported within the time periods specified in the Securities and Exchange
Commission rules and forms; and (ii) to ensure that information required to be
disclosed by the Company in the reports that it files or submits under the
Exchange Act is accumulated and communicated to the Company’s management,
including the Company’s Chief Executive Officer and Acting Chief Financial
Officer, to allow timely decisions regarding required disclosure.
Changes in Internal Controls
During
the last fiscal quarter, there were no changes in the Company's internal
controls over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f)
of the Exchange Act) that has materially affected, or is reasonably likely to
materially affect, the Company’s internal controls over financial
reporting.
Part II - Other Information
Item 1.
|
Legal Proceedings
|
In late July 2008, we learned that our former chief
financial officer, Steven H. Parker, filed a complaint with the Occupational
Safety and Health Administration, U.S. Department of Labor.
Parker’s complaint was filed on or about July 21, 2008, and alleges that
TOR violated the whistleblower provisions of the Sarbanes-Oxley Act of 2002 by
terminating Parker’s employment in response to Parker’s reporting
to our CEO and a board member of the negative accounting treatment of a
potential transaction. In addition, Parker has claimed that he was
terminated for refusing to perform an illegal act in violation of Texas
law. Parker subsequently notified the Department of Labor that he
intended to bring an action against the Company in the United States District
Court for the Southern District of Texas. Because of Parker’s election
to proceed in the United States District Court, the Department of Labor has
dismissed Parker’s complaint. Relief sought by Parker includes back
pay, reinstatement or front pay in lieu of reinstatement and reasonable
attorney’s fees and costs. We intend to vigorously defend such
legal action. The Company believes that a material loss is remote and
therefore has not recorded a liability related to this matter.
Item 3.
|
Defaults Upon Senior
Securities
|
At
December 31, 2008 and March 31, 2009, we were not in compliance with certain
financial covenants in the Credit Agreement. We received notification
from the Bank on March 5, 2009 of the Bank’s decision to terminate the
Credit Agreement and require us to pay off all outstanding indebtedness owed to
the Bank by April 1, 2009. On April 30, 2009 and September 25, 2009, we and
the Bank amended the Credit Agreement. Under the terms of the amendment,
subject to our compliance with the terms and conditions contained in the
amendment, including revised financial covenants, the Bank agreed not to
exercise any of its rights or remedies relating to the existing events of
default under the Credit Agreement and agreed to extend the maturity date from October
1, 2009 to February 15, 2010. See “Management’s Discussion
and Analysis of Financial Condition and Results of Operations –
Liquidity” for a discussion of the amendment of the Credit Agreement.
Part II - Other Information
Item 4.
|
Submission of Matters to
a Vote of Security Holders
|
Our
Annual Meeting of Shareholders was held on August 21, 2009, at the Omni Hotel,
Corpus Christi, Texas. The following matters were submitted for vote of
the security holders:
Election of Directors
|
|
|
For
|
|
|
|
Withheld
|
Julie
Buckley
|
|
|
8,926,471
|
|
|
|
128,006
|
David
Hartman
|
|
|
8,927,395
|
|
|
|
127,082
|
Doug
Hartman
|
|
|
8,915,682
|
|
|
|
138,795
|
Olaf
Karasch
|
|
|
8,904,095
|
|
|
|
150,382
|
Thomas
Pauken
|
|
|
8,927,238
|
|
|
|
127,239
|
Bernard
Paulson
|
|
|
8,908,874
|
|
|
|
145,603
|
Steven
Paulson
|
|
|
8,915,682
|
|
|
|
138,795
|
Tan
Chin Yong
|
|
|
8,914,915
|
|
|
|
139,562
|
|
|
|
|
|
|
|
|
|
For
|
|
Against
|
|
Abstain
|
|
Broker Non-Vote
|
To increase the authorized
number of shares of our Common Stock
|
8,729,497
|
|
289,011
|
|
35,969
|
|
0
|
To revise the terms of our
outstanding Series A Convertible Preferred Stock
|
6,537,215
|
|
147,648
|
|
20,250
|
|
2,349,364
|
To approve the potential
issuance of our Common Stock issuable upon exercise of warrants to certain
members of our board of directors
|
6,168,007
|
|
524,041
|
|
13,065
|
|
2,349,364
|
To approve the potential
issuance of shares of our Common Stock underlying Debentures and Warrants to
be sold in a private placement
|
6,338,685
|
|
340,063
|
|
26,365
|
|
2,349,364
|
To ratify the appointment
of our independent auditors
|
8,928,508
|
|
110,669
|
|
15,300
|
|
0
|
Part II - Other Information
Item 6.
|
Exhibits
|
(a)
|
Exhibits
|
|
|
Exhibit
31.1
|
Certification of Chief
Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
Exhibit
31.2
|
Certification of Chief
Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
Exhibit
32.1
|
Certification of Chief
Executive Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
Exhibit
32.2
|
Certification of Chief
Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
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:
|
November
13, 2009
|
|
OLAF KARASCH
Olaf Karasch
President and CEO
|
|
|
|
|
Date:
|
November
13, 2009
|
|
BARBARA RUSSELL
Barbara Russell
Acting CFO
|