Form 10Q - Second Quarter 2010
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 June 30, 2010
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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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 [X]
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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 [X]
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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 [X]
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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 July 31, 2010
1,908,188
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Table of Contents
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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 six months ended June 30, 2010 and 2009
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3
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Condensed Consolidated
Statements of Comprehensive Income (Loss) --
Three and six months ended June 30, 2010 and 2009
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4
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Condensed Consolidated
Balance Sheets --
June 30, 2010 and December 31, 2009
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5
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Condensed Consolidated Statements
of Cash Flows --
Six months ended June 30, 2010 and 2009
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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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19
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Item 4.
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Controls and Procedures
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29
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Part II - Other Information
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Item 1.
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Legal Proceedings
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30
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Item 2.
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Unregistered Sales of
Equity Securities and Use of Proceeds
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30
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Item 6.
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Exhibits
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31
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Signatures
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31
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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 June 30,
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Six Months
Ended June 30,
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2010
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2009
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2010
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2009
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NET SALES
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$
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7,928
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$
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5,654
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$
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14,784
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$
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11,357
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Cost of sales
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6,325
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4,789
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11,531
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9,678
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GROSS MARGIN
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1,603
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865
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3,253
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1,679
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Technical services and research and development
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61
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40
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118
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92
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Selling, general and administrative expenses
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971
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725
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1,820
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1,736
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OPERATING
INCOME (LOSS)
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571
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100
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1,315
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(149)
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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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-
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2
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Interest expense
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(112)
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(136)
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(233)
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(248)
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Gain (loss) on foreign currency exchange rate
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34
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(12)
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6
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42
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Other, net
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-
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2
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-
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4
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INCOME
(LOSS) BEFORE INCOME TAX
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493
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(46)
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1,088
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(349)
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Income tax expense (benefit)
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23
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(38)
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34
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(72)
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NET INCOME
(LOSS)
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$
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470
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$
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(8)
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$
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1,054
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$
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(277)
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Less:
Preferred Stock Dividends
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15
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15
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30
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30
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Income (Loss) Available
to Common Shareholders
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$
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455
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$
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(23)
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$
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1,024
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$
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(307)
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Income
(loss) per common share:
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Basic
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$
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0.24
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$
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(0.01)
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$
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0.54
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$
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(0.16)
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Diluted
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$
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0.18
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$
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(0.01)
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$
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0.43
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$
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(0.16)
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Weighted
average common shares outstanding:
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Basic
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1,897
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1,891
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1,894
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1,891
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Diluted
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2,585
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1,891
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2,389
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1,891
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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 June 30,
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Six Months
Ended June 30,
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2010
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2009
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2010
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2009
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NET INCOME
(LOSS)
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$
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470
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$
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(8)
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$
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1,054
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$
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(277)
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OTHER
COMPREHENSIVE INCOME (LOSS), net of tax
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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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(325)
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681
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90
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(200)
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Other comprehensive income (loss), net of tax
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(325)
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681
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90
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(200)
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COMPREHENSIVE
INCOME (LOSS)
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$
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145
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$
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673
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$
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1,144
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$
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(477)
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See accompanying notes.
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TOR Minerals
International, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share and per share amounts)
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June 30,
2010
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December 31,
2009
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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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984
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$
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1,002
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Trade
accounts receivable, net
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4,170
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3,380
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Inventories
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10,859
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9,101
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Other
current assets
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696
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540
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Total
current assets
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16,709
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14,023
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PROPERTY, PLANT AND
EQUIPMENT, net
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17,844
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18,800
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OTHER ASSETS
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45
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53
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Total Assets
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$
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34,598
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$
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32,876
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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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1,840
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$
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1,452
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Accrued
expenses
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2,443
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1,036
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Notes
payable under lines of credit
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1,462
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3,313
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Export
credit refinancing facility
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1,031
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-
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Current
deferred tax liability
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50
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60
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Current
maturities - capital leases
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93
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140
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Current
maturities of long-term debt – financial institutions
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248
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435
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Total
current liabilities
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7,167
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6,436
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LONG-TERM DEBT, EXCLUDING
CURRENT MATURITIES
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Capital
leases
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4
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49
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Long-term
debt – financial institutions
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1,164
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1,477
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Long-term
debt – convertible debentures, net
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1,180
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1,122
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DEFERRED TAX LIABILITY
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640
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577
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Total
liabilities
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10,155
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9,661
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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 6/30/2010 and 12/31/2009
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2
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2
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Common
stock $1.25 par value: authorized, 6,000 shares;
1,908 and 1,891 shares issued and outstanding
at 6/30/2010 and 12/31/2009, respectively
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2,385
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2,363
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Additional
paid-in capital
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25,306
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25,214
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Accumulated
deficit
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(6,783)
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(7,807)
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Accumulated
other comprehensive income:
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Cumulative
translation adjustment
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3,533
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3,443
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Total
shareholders' equity
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24,443
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23,215
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Total Liabilities and
Shareholders' Equity
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$
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34,598
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$
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32,876
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See accompanying notes.
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TOR Minerals International, Inc. and Subsidiaries
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Condensed Consolidated Statements of Cash Flows
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(Unaudited)
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(In thousands)
|
|
|
|
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Six Months Ended June 30,
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2010
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2009
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CASH
FLOWS FROM OPERATING ACTIVITIES:
|
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Net Income (Loss)
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$
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1,054
|
$
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(277)
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Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
|
|
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Depreciation
|
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937
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862
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Share-based compensation
|
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91
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|
50
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Warrant interest expense
|
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33
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|
9
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Deferred income taxes
|
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24
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(75)
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Provision for bad debts
|
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-
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(3)
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Changes in working capital:
|
|
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Trade accounts receivables
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(886)
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(761)
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Inventories
|
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(1,604)
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1,191
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Other current assets
|
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(165)
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(527)
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Accounts payable and accrued expenses
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1,883
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(1,139)
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Net
cash provided by (used in) operating activities
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1,367
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(670)
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CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
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Additions to property, plant and equipment
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(420)
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(578)
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Proceeds from sales of property, plant and equipment
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17
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|
-
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Net cash used in investing activities
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(403)
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(578)
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|
|
|
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CASH
FLOWS FROM FINANCING ACTIVITIES:
|
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|
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Net (payments on) proceeds from lines of credit
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(1,675)
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|
1,098
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Net proceeds from export credit refinancing facility
|
|
1,031
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15
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Payments on capital lease
|
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(75)
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|
(43)
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Payments on long-term bank debt
|
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(292)
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(496)
|
Proceeds from convertible debentures
|
|
-
|
|
1,475
|
Increase in restricted cash
|
|
-
|
|
(475)
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Proceeds from the issuance of common stock,
and exercise of common stock options
|
|
48
|
|
-
|
Preferred stock dividends paid
|
|
(30)
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|
(30)
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Net
cash (used in) provided by financing activities
|
|
(993)
|
|
1,544
|
Effect of
exchange rate fluctuations on cash and cash equivalents
|
|
11
|
|
(283)
|
Net (decrease)
increase in cash and cash equivalents
|
|
(18)
|
|
13
|
Cash and cash
equivalents at beginning of year
|
|
1,002
|
|
191
|
Cash and cash
equivalents at end of year
|
$
|
984
|
$
|
204
|
|
|
|
|
|
Supplemental
cash flow disclosures:
|
|
|
|
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Interest paid
|
$
|
233
|
$
|
236
|
Income taxes paid
|
$
|
10
|
$
|
-
|
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 our Form 10-K filed with the Securities and Exchange Commission
(the “SEC”) on March 24, 2010, the Company was not in compliance
with the Consolidated Fixed Charge Ratio and the Consolidated Funded Debt to
EBITDA 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. As a result, the Bank notified the
Company of its decision to terminate the Credit Agreement.
As
reported in the Company’s Form 8-K filed with the SEC on February 16,
2010, the Bank extended the maturity date on our Line of Credit (the “Line”)
from February 15, 2010 to August 15, 2010. As a result, all of the
Company’s debt owed to the Bank matures on August 15, 2010. The
Company repaid the outstanding balance on its two Term Loans with the Bank in
2009, and at June 30, 2010, the Company had $500,000 drawn on the Line.
In addition, the Company was in compliance with the revised financial covenants
for each quarter ended from June 30, 2009 through June 30, 2010.
The
Company is working diligently to establish a corporate lending relationship
with a new financial institution for the Company’s US operations prior to
August 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 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.
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 June 30, 2010, TMM’s borrowings under
the credit facilities and term loans with HSBC Bank Malaysia, Bhd.
(“HSBC”) and RHB Bank, Bhd. (“RHB”) totaled $1,147,000
and TPT’s borrowings under the credit facility and term loans with
Rabobank totaled $2,186,000. TMM’s credit facilities with HSBC
mature on October 30, 2010 and TPT’s credit facility with Rabobank, which
was renewed on January 1, 2010, has no stated maturity date.
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.
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, 2009, in our Annual Report
on Form 10-K filed with the SEC on March 24, 2010. Operating results for
the three-month and six month periods ended June 30, 2010, are not necessarily
indicative of the results for the year ending December 31, 2010.
Income Taxes:
The
Company records 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 federal and state income tax expense of $12,000 and $4,000,
respectively, and foreign deferred tax expense of approximately $7,000 for the
three month period ended June 30, 2010, compared to a foreign deferred tax
benefit of approximately $40,000 and state income tax expense of $2,000 for the
same three month period in 2009. For the six month period ended June 30,
2010, we recorded federal and state tax expense of $12,000 and $5,000,
respectively, and foreign deferred tax expense of $17,000, compared to a
foreign deferred tax benefit of $75,000 and state income of $3,000 during the
same period of 2009. Taxes are based on an estimated annualized
consolidated effective rate of 3.1% for the year ending December 31, 2010.
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, 2009. 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, 2009. Our tax returns in
various non-US jurisdictions are subject to examination for various tax years
ended December 31, 2004 through December 31, 2009.
As of January 1, 2010, we did not have any
unrecognized tax benefits and there was no change during the six month period
ended June 30, 2010. In addition, we did not recognize any interest and
penalties in our consolidated financial statements during the three and six
month periods ended June 30, 2010. If any interest or penalties related
to any income tax liabilities are imposed in future reporting periods, we
expect to record both of these items as components of income tax expense.
Recently Adopted and Recently Issued Accounting Standards
Transfers and Servicing, Accounting for
Transfers of Financial Assets
In December 2009, the Financial Accounting
Standards Board (the “FASB”) issued guidance addressing the
accounting for transfers of financial assets. This guidance became effective
for the Company on January 1, 2010. The guidance changes how companies account
for transfers of financial assets and eliminates the concept of qualifying
special-purpose entities. Adoption of the guidance did not have an impact on the
Company’s results of operations, financial position or liquidity.
Improvements to Financial Reporting by Enterprises Involved With
Variable Interest Entities
In December 2009, the FASB issued guidance
relating to improvements to financial reporting by enterprises involved with
variable interest entities. This guidance became effective for the Company on
January 1, 2010 and requires the enterprise to qualitatively assess if it is the primary beneficiary of a
variable-interest entity (VIE), and, if so, the VIE must be consolidated.
Adoption of the standard did not have a material impact on the Company’s
results of operations, financial position or liquidity.
The
Company reviewed all other significant newly issued accounting pronouncements
and concluded that they are either not applicable to the Company’s
business or that no material effect is expected on the consolidated financial
statements as a result of future adoption.
A summary of long-term debt to financial
institutions follows:
|
|
(Unaudited)
|
|
|
(In thousands)
|
|
June 30,
|
|
December 31,
|
|
|
2010
|
|
2009
|
Term
note payable to a U.S. equipment financing company, with an interest rate of
5.24% at June 30, 2010, due April 1, 2013, secured by a Caterpillar front-end
loader.
|
$
|
72
|
$
|
84
|
Fixed
rate Euro term note payable to a Netherlands bank, with an interest rate of
7.8% at June 30, 2010, due July 1, 2029, secured by TPT's land and office
building purchased July 2004. (372 Euro)
|
|
455
|
|
547
|
Fixed
rate Euro term note payable to a Netherlands bank, with an interest rate of
4.7% at June 30, 2010, due January 31, 2030, secured by TPT's land and
building purchased January 2005. (370 Euro)
|
|
453
|
|
543
|
Fixed
rate Euro term note payable to a Netherlands bank, with an interest rate of
6.1% at June 30, 2010, due July 31, 2015, secured by TPT's assets. (258
Euro)
|
|
316
|
|
406
|
U.S.
Dollar term note payable to a Malaysian bank, with an interest rate of 2.0%
at June 30, 2010, due June 30, 2010, secured by TMM's property, plant and
equipment.
|
|
91
|
|
191
|
U.S.
Dollar term note payable to a Malaysian bank, with an interest rate of 1.625%
at June 30, 2010, due May 30, 2011, secured by TMM's property, plant and
equipment.
|
|
25
|
|
141
|
Total
|
|
1,412
|
|
1,912
|
Less current
maturities
|
|
248
|
|
435
|
Total long-term
debt and notes payable - financial institutions
|
$
|
1,164
|
$
|
1,477
|
US Bank Credit Facility and Term Loans
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 amended credit agreement, 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 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 (1.59 to 1.0 as of
the quarter ended June 30, 2010)
-
Fixed Charge Coverage Ratio – Maintain a
fixed charge coverage ratio of at least 0.85 to 1.0 (5.39 to 1.0 for the
quarter ended June 30, 2010)
We
also agreed that we will use all proceeds in excess of $1 million that we
received 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. Under the terms of the amendment, 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. In addition, the Line was reduced from $2,500,000 to
$2,250,000.
On
February 12, 2010, we amended the Credit Agreement with the Bank to extend the
maturity date on the Line from February 15, 2010 to August 15, 2010. As a
result of this amendment, all of our debt owed to the Bank will mature on
August 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 Line is secured by the accounts
receivable and inventory of the US Operation.
At
June 30, 2010, the outstanding balance on the Credit Agreement consisted of $500,000
on the Line and we had $1,750,000 available on that date based on eligible
accounts receivable and inventory borrowing limitations. The interest
rate on the Line was 6.25% at June 30, 2010.
Six-percent
Convertible Subordinated Debentures
As
reported in the Company’s Form 8-K filed with the SEC on May 6, 2009, the
Company’s Board of Directors authorized the issuance 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 for 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 SEC 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. As noted above,
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.
Other
Term Loans
On
March 31, 2008, we entered into a term loan with Holt Financing in the amount
of $120,000. The proceeds of the loan were used to purchase a new
Caterpillar front-end loader. The loan provides for amortization over
five years with interest fixed at a rate of 5.24%. Monthly principal and
interest payments commenced on May 1, 2008, and will continue through April 1,
2013. The monthly principal and interest payment is $2,275. The
loan balance at June 30, 2010 was $72,000.
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
was renewed on January 1, 2010 and has no stated maturity date. The
Credit Facility, which has a variable interest rate of Bank prime plus 2.8%
(currently at 7.3%), is secured by TPT’s accounts receivable and
inventory. At June 30, 2010,
TPT had utilized Euro 786,000 ($962,000) of its short-term credit facility.
TPT’s
loan agreements covering both the credit facility and the 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
April 30, 2010, the Company’s subsidiary, TMM, amended its banking
facility with HSBC Bank Malaysia Berhad (“HSBC”) to extend the
maturity date from April 30, 2010 to October 1, 2010. In addition, 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 2,500,000; and (3) a
foreign exchange contract limit of RM 5,000,000 ($154,000, $772,000 and $1,545,000,
respectively).
TMM
is currently in the process of renewing its banking facility with RHB Bank
Berhad (“RHB”) which matured on October 31, 2009. The RHB
facility 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 ($309,000, $2,873,000 and $7,724,000, 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 June 30,
2010, TMM had utilized RM 3,335,000 ($1,031,000) of the ECR facilities.
TMM
is currently negotiating with RHB to extend the maturity date of the bank
facilities from October 31, 2009 to October 31, 2010. The Company is
confident that the bank facilities will be extended; however, there can be no
assurance that the facilities will be extended or as to the terms and
conditions of the extension of the facility. If RHB is unwilling to
extend the maturity dates of the facility, TMM may not have sufficient
liquidity to pay off this indebtedness.
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.
On
June 5, 2010, the Company declared a dividend, in the amount of $15,000, or
$0.075 per share, for the quarterly period ended June 30, 2010, payable on July
1, 2010, to the holders of record of the Series A Convertible Preferred Stock
as of the close of business on June 5, 2010.
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 June
30, 2010. The Company did not hold any non-financial assets and/or
non-financial liabilities subject to fair value measurements at June 30, 2010.
|
June 30, 2010
|
(In thousands)
|
Balance at
June 30, 2010
|
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)
|
$
|
57
|
$
|
-
|
$
|
57
|
$
|
-
|
|
|
|
|
|
|
|
|
|
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:
|
|
June 30, 2010
|
|
December 31, 2009
|
(In thousands)
|
|
Carrying
Value
|
|
Fair
Value
|
|
Carrying
Value
|
|
Fair
Value
|
Long-term
debt, including current portion
|
$
|
1,412
|
$
|
1,163
|
$
|
1,912
|
$
|
1,603
|
Long-term
debt – convertible debentures
|
|
1,500
|
|
660
|
|
1,500
|
|
569
|
|
$
|
2,912
|
$
|
1,823
|
$
|
3,412
|
$
|
2,172
|
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 June 30, 2010 was
approximately Euro 141,000 ($173,000). 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 ($6,418). The net
present value of the lease at June 30, 2010 was Euro 56,000 ($68,000).
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 June 30, 2010 was approximately $12,000. 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 June 30, 2010
was $2,000.
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 June 30, 2010 was approximately $10,000. 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 June 30, 2010 was $15,000.
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 June 30, 2010 was approximately $6,000. 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 June 30, 2010 was $12,000.
Note
7.
|
Calculation
of Basic and Diluted Earnings per Share
|
The
following table sets forth the computation of basic and diluted earnings per
share:
(in thousands,
except per share amounts)
|
|
Three Months
Ended June 30,
|
|
Six Months
Ended June 30,
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
Numerator:
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
$
|
470
|
$
|
(8)
|
$
|
1,054
|
$
|
(277)
|
Preferred Stock Dividends
|
|
(15)
|
|
(15)
|
|
(30)
|
|
(30)
|
Numerator for basic earnings per share -
income (loss) available to common shareholders
|
|
455
|
|
(23)
|
|
1,024
|
|
(307)
|
Effect of
dilutive securities:
|
|
-
|
|
-
|
|
-
|
|
-
|
Numerator for diluted income (loss) per share -
loss available to common shareholders
after assumed conversions
|
$
|
455
|
$
|
(23)
|
$
|
1,024
|
$
|
(307)
|
Denominator:
|
|
|
|
|
|
|
|
|
Denominator for basic income (loss) per share -
weighted-average shares
|
|
1,897
|
|
1,891
|
|
1,894
|
|
1,891
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
Employee stock options
|
|
15
|
|
-
|
|
11
|
|
-
|
Detachable warrants
|
|
673
|
|
-
|
|
484
|
|
-
|
Dilutive
potential common shares
|
|
688
|
|
-
|
|
495
|
|
-
|
Denominator for diluted income (loss) per share -
weighted-average shares and assumed conversions
|
|
2,585
|
|
1,891
|
|
2,389
|
|
1,891
|
Basic
income (loss) per common share
|
$
|
0.24
|
$
|
(0.01)
|
$
|
0.54
|
$
|
(0.16)
|
Diluted
income (loss) per common share
|
$
|
0.18
|
$
|
(0.01)
|
$
|
0.43
|
$
|
(0.16)
|
Excluded
from the computation of diluted earnings per share were a total of 111,000
common shares related to the 200,000 convertible preferred shares at June 30, 2010
and 2009. The convertible preferred
shares were not included in the computation of diluted earnings per share as
the effect would be antidilutive.
For
the three and six month periods ended June 30, 2010 and 2009, approximately 153,000
and 152,000, respectively, of employee stock options were excluded from the
computation of diluted earnings per share because the effect would be
antidilutive.
For
the three and six month periods ended June 30, 2010 and 2009, approximately 315,000
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:
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
Net Sales:
|
|
|
|
|
|
|
|
|
|
|
Customer
sales
|
$
|
4,934
|
$
|
2,252
|
$
|
742
|
$
|
-
|
$
|
7,928
|
Intercompany
sales
|
|
-
|
|
475
|
|
1,519
|
|
(1,994)
|
|
-
|
Total Net Sales
|
$
|
4,934
|
$
|
2,727
|
$
|
2,261
|
$
|
(1,994)
|
$
|
7,928
|
|
|
|
|
|
|
|
|
|
|
|
Location profit
|
$
|
228
|
$
|
179
|
$
|
8
|
$
|
55
|
$
|
470
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
Net Sales:
|
|
|
|
|
|
|
|
|
|
|
Customer
sales
|
$
|
3,861
|
$
|
1,225
|
$
|
568
|
$
|
-
|
$
|
5,654
|
Intercompany
sales
|
|
-
|
|
554
|
|
1,075
|
|
(1,629)
|
|
-
|
Total Net Sales
|
$
|
3,861
|
$
|
1,779
|
$
|
1,643
|
$
|
(1,629)
|
$
|
5,654
|
|
|
|
|
|
|
|
|
|
|
|
Location profit (loss)
|
$
|
52
|
$
|
(155)
|
$
|
28
|
$
|
67
|
$
|
(8)
|
As of and for the six months ended:
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
Net Sales:
|
|
|
|
|
|
|
|
|
|
|
Customer
sales
|
$
|
9,198
|
$
|
4,169
|
$
|
1,417
|
$
|
-
|
$
|
14,784
|
Intercompany
sales
|
|
24
|
|
957
|
|
2,642
|
|
(3,623)
|
|
-
|
Total Net Sales
|
$
|
9,222
|
$
|
5,126
|
$
|
4,059
|
$
|
(3,623)
|
$
|
14,784
|
|
|
|
|
|
|
|
|
|
|
|
Location profit
|
$
|
493
|
$
|
357
|
$
|
98
|
$
|
106
|
$
|
1,054
|
|
|
|
|
|
|
|
|
|
|
|
Location assets
|
$
|
12,081
|
$
|
7,182
|
$
|
15,335
|
$
|
-
|
$
|
34,598
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
Net Sales:
|
|
|
|
|
|
|
|
|
|
|
Customer
sales
|
$
|
7,806
|
$
|
2,617
|
$
|
934
|
$
|
-
|
$
|
11,357
|
Intercompany
sales
|
|
-
|
|
1,342
|
|
1,424
|
|
(2,766)
|
|
-
|
Total Net Sales
|
$
|
7,806
|
$
|
3,959
|
$
|
2,358
|
$
|
(2,766)
|
$
|
11,357
|
|
|
|
|
|
|
|
|
|
|
|
Location profit (loss)
|
$
|
(142)
|
$
|
(179)
|
$
|
(87)
|
$
|
131
|
$
|
(277)
|
|
|
|
|
|
|
|
|
|
|
|
Location assets
|
$
|
12,657
|
$
|
8,051
|
$
|
13,961
|
$
|
-
|
$
|
34,669
|
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 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 US parent company and between subsidiaries are based
upon profit margins which represent competitive pricing of similar
products. Intercompany sales consisted of synthetic rutile (“SR”),
HITOX and ALUPREM.
For the three month period
ended June 30, 2010 and 2009, the Company recorded stock-based employee
compensation expense of $91,000 and $24,000, respectively. For the six
month period ended June 30, 2010 and 2009, the Company recorded stock-based
employee compensation expense of $91,000 and $50,000, respectively. This
compensation expense is included in the selling, general and administrative
expenses in the accompanying consolidated statements of operations.
The Company granted 23,404
and 20,000 options during the six month periods ended June 30, 2010 and 2009.
As of June 30, 2010, all
outstanding options were fully vested, therefore, there is no unrecognized
option compensation expense related to non-vested awards.
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.
A
summary of inventory follows:
(In thousands)
|
|
June 30,
|
|
December 31,
|
|
|
2010
|
|
2009
|
Raw materials
|
$
|
6,284
|
$
|
4,178
|
Work in progress
|
|
1,150
|
|
1,173
|
Finished goods
|
|
2,850
|
|
3,311
|
Supplies
|
|
665
|
|
710
|
Total
Inventories
|
|
10,949
|
|
9,372
|
Inventory
reserve
|
|
(90)
|
|
(271)
|
Net
Inventories
|
$
|
10,859
|
$
|
9,101
|
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. The contract settled on March 1, 2009 at which time we
recorded a net expense of approximately $27,000 as a component of our cost of
sales. At June 30, 2010, there were no natural gas contracts outstanding.
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.
At June 30, 2010,
we marked these contracts to market, recording $57,000 as a current asset on
the balance sheet. For the three and six month periods ended June 30,
2010, we recorded $57,000 and $113,000, respectively, as a component of our net
income. For the three and six month periods ended June 30, 2009, we
recorded $23,000 and $9,000, respectively, as a component of our net loss.
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
|
|
|
|
|
June 30,
|
|
December 31,
|
Derivative Instrument
|
|
Location
|
|
2010
|
|
2009
|
Foreign
Currency Exchange Contracts
|
|
Other
Current Assets
|
$
|
57
|
$
|
3
|
|
|
|
$
|
57
|
$
|
3
|
The following
table summarizes the impact of the Company’s derivatives on the condensed
consolidated financial statements of operations for the three and six month
periods ended June 30, 2010 and 2009:
(In thousands)
|
|
|
|
Amount of Gain (Loss) Recognized in Operations
|
|
|
Location of Gain
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
(Loss) on Derivative
|
|
June 30,
|
|
June 30,
|
Derivative Instrument
|
|
Instrument
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
Natural
Gas
Swap Contract
|
|
Cost
of Sales
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
(27)
|
Foreign
Currency
Exchange Contracts
|
|
Other
Income (Expense)
|
|
57
|
|
23
|
|
113
|
|
9
|
|
|
|
$
|
57
|
$
|
23
|
$
|
113
|
$
|
(18)
|
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, and catalysts applications. We have operations in the
US, Asia and Europe.
Our
US Operation, located in Corpus Christi, Texas, manufactures HITOX, BARTEX,
HALTEX/OPTILOAD and TIOPREM. The facility is also the Global Headquarters
for the Company. The Asian Operation, located in Ipoh, Malaysia,
manufactures SR, HITOX and TIOPREM 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, TOR's sales and profit are likely to be adversely affected.
Following
are our results for the three and six month periods ended June 30, 2010 and
2009. The income (loss) per common share and the weighted average common
shares outstanding have been adjusted to reflect the one-for-five reverse stock
split which was effective February 19, 2010.
|
|
(Unaudited)
|
(In thousands, except
per share amounts)
|
|
Three Months
Ended June 30,
|
|
Six Months
Ended June 30,
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
NET SALES
|
$
|
7,928
|
$
|
5,654
|
$
|
14,784
|
$
|
11,357
|
Cost of sales
|
|
6,325
|
|
4,789
|
|
11,531
|
|
9,678
|
GROSS MARGIN
|
|
1,603
|
|
865
|
|
3,253
|
|
1,679
|
Technical services and research and development
|
|
61
|
|
40
|
|
118
|
|
92
|
Selling, general and administrative expenses
|
|
971
|
|
725
|
|
1,820
|
|
1,736
|
OPERATING
INCOME (LOSS)
|
|
571
|
|
100
|
|
1,315
|
|
(149)
|
OTHER INCOME
(EXPENSE):
|
|
|
|
|
|
|
|
|
Interest income
|
|
-
|
|
-
|
|
-
|
|
2
|
Interest expense
|
|
(112)
|
|
(136)
|
|
(233)
|
|
(248)
|
Gain (loss) on foreign currency exchange rate
|
|
34
|
|
(12)
|
|
6
|
|
42
|
Other, net
|
|
-
|
|
2
|
|
-
|
|
4
|
INCOME
(LOSS) BEFORE INCOME TAX
|
|
493
|
|
(46)
|
|
1,088
|
|
(349)
|
Income tax expense (benefit)
|
|
23
|
|
(38)
|
|
34
|
|
(72)
|
NET INCOME
(LOSS)
|
$
|
470
|
$
|
(8)
|
$
|
1,054
|
$
|
(277)
|
|
|
|
|
|
|
|
|
|
Income
(loss) per common share:
|
|
|
|
|
|
|
|
|
Basic
|
$
|
0.24
|
$
|
(0.01)
|
$
|
0.54
|
$
|
(0.16)
|
Diluted
|
$
|
0.18
|
$
|
(0.01)
|
$
|
0.43
|
$
|
(0.16)
|
2010 Outlook
In
2010, we anticipate market conditions for our products in certain end markets
to improve. Based on our conversations with customers, economic data and
information from other market participants, it appears that the worldwide
demand in the paint and plastics markets has started to stabilize. We saw
significant improvement in our more mature HITOX sales during the last quarter
of 2009, which has continued during the first six months of 2010. In
Asia, HITOX sales for in-country use have increased and we are now starting to
see production rates for HITOX used in export products increase. In
addition to improving market conditions in the US and Asia, HITOX sales are
beginning to benefit from new niche markets, which we are hopeful will generate
additional incremental revenue for HITOX this year.
We
introduced TIOPREM, a titanium dioxide colored pigment, into the market in
2008. While the rate of adoption has been slower than we had originally
anticipated, customer activity has picked up over the past several months and
we are now shipping this product to customers in both the US and Europe.
The
second product we recently introduced, OPTILOAD, is a specialty alumina used in
high performance flame retardant applications. Our new alumina product
offers a high performance, cost effective and environmentally friendly solution
for the new flame retardant and smoke suppression standards that are being implemented
in the US. This is an emerging market with large growth opportunity in
the US during 2010 and beyond.
From
the cost side, increases in energy prices and continued currency movements are
expected to be a challenge; and while we do not plan to fill the positions
eliminated in 2008 and 2009, we have reinstated our employees’ salaries
back to the 2008 level. We are committed to securing and improving on the
savings realized in 2009 from procurement, overhead and working capital programs
and continuing to strengthen the balance sheet using operating cash flows to
further reduce debt levels.
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 us. In addition, the high value-added nature of these
products will allow 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.
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.
Results of Operations
Net Sales:
Consolidated net sales for the three and six month periods ended June 30, 2010 increased
approximately $2,274,000 or 40% and $3,427,000 or 30%, respectively, as compared
to the same three and six month periods of 2009 when we experienced declines in
our consolidated net sales of $1,262,000 or 18% and $2,305,000 or 17%,
respectively.
Following
is a summary of our consolidated products sales for the three and six month
periods ended June 30, 2010 and 2009 (in thousands). All inter-company
sales have been eliminated.
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
Product
|
|
2010
|
|
2009
|
|
Variance
|
|
|
2010
|
|
2009
|
|
Variance
|
HITOX
|
$
|
3,095
|
39%
|
$
|
2,840
|
50%
|
$
|
255
|
9%
|
|
$
|
5,998
|
41%
|
$
|
4,783
|
42%
|
$
|
1,215
|
25%
|
ALUPREM
|
|
2,936
|
37%
|
|
1,781
|
32%
|
|
1,155
|
65%
|
|
|
5,319
|
36%
|
|
4,525
|
40%
|
|
794
|
18%
|
BARTEX
|
|
977
|
12%
|
|
618
|
11%
|
|
359
|
58%
|
|
|
1,819
|
12%
|
|
1,203
|
11%
|
|
616
|
51%
|
HALTEX
|
|
841
|
11%
|
|
333
|
6%
|
|
508
|
153%
|
|
|
1,359
|
9%
|
|
649
|
6%
|
|
710
|
109%
|
TIOPREM
|
|
9
|
<1%
|
|
3
|
<1%
|
|
6
|
200%
|
|
|
86
|
1%
|
|
3
|
<1%
|
|
83
|
2767%
|
OTHER
|
|
70
|
1%
|
|
79
|
1%
|
|
(9)
|
-11%
|
|
|
203
|
1%
|
|
194
|
1%
|
|
9
|
5%
|
Total
|
$
|
7,928
|
100%
|
$
|
5,654
|
100%
|
$
|
2,274
|
40%
|
|
$
|
14,784
|
100%
|
$
|
11,357
|
100%
|
$
|
3,427
|
30%
|
HITOX
sales increased 9% and 25% for the three and six month periods ended June 30,
2010, respectively, as compared to the same periods in 2009 primarily due to an
increase in world-wide demand. This compares to a decline of 19% and 35%
during the same three and six month periods ended June 30, 2009, respectively,
as a result of the weak North American market and the impact of the global
economy.
ALUPREM
sales increased 65% during the second quarter of 2010 and 18% for the six month
period ended June 30, 2010, as compared to the same periods of 2009 primarily due
to an increase in sales in Europe. This compares to a decrease of 19% and
an increase of 15% during the same three and six month periods of 2009,
respectively.
BARTEX
sales increased 58% during the second quarter of 2010 and 51% for the six month
period ended June 30, 2010 primarily due to an increase in volume and our
customer base. This follows a decline of approximately 24% and 30% during
the same three and six month periods of 2009, respectively, primarily as a
result of the downturn in the US economy.
HALTEX
sales increased 153% and 109% for the three and six month periods ended June
30, 2010, respectively. This compares to an increase of 17% and 15% for
the same three and six month periods of 2009, respectively. The year over
year increase is related to new business for our standard HALTEX and newer OPTILOAD
specialty products which are gaining acceptance in the marketplace.
Corpus Christi Operation
Our
Corpus Christi operation manufactures and sells HITOX, BARTEX, HALTEX/OPTILOAD
and TIOPREM 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 six month periods ended June 30, 2010 and 2009 (in thousands), as
well as a summary of the material changes. All inter-company sales have
been eliminated.
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
Product
|
|
2010
|
|
2009
|
|
Variance
|
|
|
2010
|
|
2009
|
|
Variance
|
HITOX
|
$
|
2,164
|
44%
|
$
|
2,100
|
54%
|
$
|
64
|
3%
|
|
$
|
4,182
|
45%
|
$
|
3,598
|
46%
|
$
|
584
|
16%
|
ALUPREM
|
|
883
|
18%
|
|
732
|
19%
|
|
151
|
21%
|
|
|
1,570
|
17%
|
|
2,198
|
28%
|
|
(628)
|
-29%
|
BARTEX
|
|
977
|
20%
|
|
618
|
16%
|
|
359
|
58%
|
|
|
1,819
|
20%
|
|
1,203
|
16%
|
|
616
|
51%
|
HALTEX
|
|
841
|
17%
|
|
333
|
9%
|
|
508
|
153%
|
|
|
1,359
|
15%
|
|
649
|
8%
|
|
710
|
109%
|
TIOPREM
|
|
3
|
<1%
|
|
3
|
<1%
|
|
-
|
0%
|
|
|
75
|
1%
|
|
3
|
<1%
|
|
72
|
< 1%
|
OTHER
|
|
66
|
1%
|
|
75
|
2%
|
|
(9)
|
-12%
|
|
|
193
|
2%
|
|
155
|
2%
|
|
38
|
25%
|
Total
|
$
|
4,934
|
100%
|
$
|
3,861
|
100%
|
$
|
1,073
|
28%
|
|
$
|
9,198
|
100%
|
$
|
7,806
|
100%
|
$
|
1,392
|
18%
|
-
HITOX – Sales during the second quarter increased 17%
and 2% in Canada and South America, respectively, as compared to the same
period in 2009. US sales trailed the second quarter last year by 3%
resulting in a net increase for the quarter of 3%. This compares to
a net decrease in the second quarter of 2009 of 14%. Year to date,
HITOX sales increased 16% primarily related to the gradual improvement in
the construction industry, as compared to a decrease of 31% during the
same six month period of 2009.
-
ALUPREM – Sales during the second quarter increased 21% as
compared to the same three month period in 2009; and, year to date,
ALUPREM sales decreased 29% due to lower sales in the first quarter of 2010
as compared to the same period of 2009. The net change in US sales
of ALUPREM was due to a change in the order pattern of a significant
customer.
-
BARTEX – Increase in US sales of BARTEX primarily related to an increase
in demand from existing customers, as well as new customers.
-
HALTEX – Increase in US sales of HALTEX primarily related to new business,
an increase in demand and the acceptance of our new product, OPTILOAD, in
the market place.
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 ALUPREM
and HITOX sales (in thousands) for the three and six month periods ended June
30, 2010 and 2009 to third party customers. All inter-company sales have
been eliminated.
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
Product
|
|
2010
|
|
2009
|
|
Variance
|
|
|
2010
|
|
2009
|
|
Variance
|
ALUPREM
|
$
|
2,053
|
91%
|
$
|
1,049
|
86%
|
$
|
1,004
|
96%
|
|
$
|
3,749
|
90%
|
$
|
2,327
|
89%
|
$
|
1,422
|
61%
|
HITOX
|
|
193
|
9%
|
|
176
|
14%
|
|
17
|
10%
|
|
|
409
|
10%
|
|
290
|
11%
|
|
119
|
41%
|
TIOPREM
|
|
6
|
<1%
|
|
-
|
0%
|
|
6
|
< 1%
|
|
|
11
|
<1%
|
|
-
|
0%
|
|
11
|
< 1%
|
Total
|
$
|
2,252
|
100%
|
$
|
1,225
|
100%
|
$
|
1,027
|
84%
|
|
$
|
4,169
|
100%
|
$
|
2,617
|
100%
|
$
|
1,552
|
59%
|
-
ALUPREM – Increase in European sales of ALUPREM of 96% and 61% for the
three and six month periods ended June 30, 2010, respectively, primarily
related to an increase in volume, customer base and product mix.
This compares to a decrease of 42% and 34% for the same three and six
month periods of 2009, respectively.
-
HITOX – Increase in European sales of HITOX of 10% and 41% for the three
and six month periods ended June 30, 2010, respectively, primarily related
to gradual improvement in the construction industry. This compares
to a decrease of 40% and 45% for the same three and six month periods of
2009, respectively.
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
six month periods ended June 30, 2010 and 2009 to third party customers.
All inter-company sales have been eliminated.
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
Product
|
|
2010
|
|
2009
|
|
Variance
|
|
|
2010
|
|
2009
|
|
Variance
|
HITOX
|
$
|
738
|
100%
|
$
|
564
|
99%
|
$
|
174
|
31%
|
|
$
|
1,407
|
99%
|
$
|
895
|
96%
|
$
|
512
|
57%
|
OTHER
|
|
4
|
<1%
|
|
4
|
1%
|
|
-
|
0%
|
|
|
10
|
1%
|
|
39
|
4%
|
|
(29)
|
-74%
|
Total
|
$
|
742
|
100%
|
$
|
568
|
100%
|
$
|
174
|
31%
|
|
$
|
1,417
|
100%
|
$
|
934
|
100%
|
$
|
483
|
52%
|
-
HITOX – Increase in Asian sales of 31% and 57% for the three and six
month periods ended June 30, 2010, respectively, primarily related to an increase
in volume related to the continuing improvement in the economy and the
construction industry in Asia. This compares to a decrease of 28%
and 43% for the same three and six month periods of 2009, respectively.
Other Consolidated Results
Gross Margin: For the three and six month periods ended June
30, 2010, gross margin increased approximately 4.9% and 7.2%, respectively.
Primary factors affecting our gross margin include the mix of products sold
during the three and six month periods compared to the same periods of 2009, as
well our efforts to maintain and/or reduce costs and maximize efficiency.
Also contributing to the increase in the gross margin was a reduction in idle
plant time resulting from the timing of our SR production at TMM, as well as an
increase in production at our US operation of over 50%.
Technical Services and Selling, General, Administrative and Expenses
(“SG&A”): Total SG&A expenses increased approximately 33.9%
during the three month period ended June 30, 2010 as compared to the same
period in 2009 primarily due to an increase in option compensation expense,
legal fees and sales commissions. For the six month period ended June 30,
2010, SG&A expenses increased approximately 4.8% primarily related to an
increase in option compensation expense. The Company implemented a 20%
salary reduction for management and staff in February, 2009. Effective
January 1, 2010, the Company reinstated the salaries for management and staff
to their previous level.
Interest Expense: Net interest expense for the three and six month
periods ended June 30, 2010 decreased approximately $24,000 and $15,000,
respectively, as compared to the same periods of 2009, primarily due to a
decrease in long-term debt and our lines of credit, offset by interest on the
debentures and warrants issued in 2009.
Income Taxes: Income taxes consisted of federal and state
income tax expense of $12,000 and $4,000, respectively, and foreign deferred
tax expense of approximately $7,000 for the three month period ended June 30,
2010, compared to a foreign deferred tax benefit of approximately $40,000 and
state income tax expense of $2,000 for the same three month period in 2009.
For the six month period ended June 30, 2010, we recorded federal and state tax
expense of $12,000 and $5,000, respectively, and foreign deferred tax expense
of $17,000, compared to a foreign deferred tax benefit of $75,000 and state
income of $3,000 during the same period of 2009. Taxes are based on an
estimated annualized consolidated effective rate of 3.1% for the year ended
December 31, 2010.
Liquidity,
Capital Resources and Other Financial Information
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 our Form 10-K filed with the Securities and Exchange Commission
(the “SEC”) on March 24, 2010, the Company was not in compliance
with the Consolidated Fixed Charge Ratio and the Consolidated Funded Debt to
EBITDA 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. As a result, the Bank notified the
Company of its decision to terminate the Credit Agreement.
As
reported in the Company’s Form 8-K filed with the SEC on February 16,
2010, the Bank extended the maturity date on our Line of Credit (the “Line”)
from February 15, 2010 to August 15, 2010. As a result, all of the
Company’s debt owed to the Bank matures on August 15, 2010. The
Company repaid the outstanding balance on its two Term Loans with the Bank in
2009, and at June 30, 2010, the Company had $500,000 drawn on the Line.
In addition, the Company was in compliance with the revised financial covenants
for each quarter ended from June 30, 2009 through June 30, 2010.
The
Company is working diligently to establish a corporate lending relationship
with a new financial institution for the Company’s US operations prior to
August 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 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.
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 June 30, 2010, TMM’s borrowings under
the credit facilities and term loans with HSBC Bank Malaysia, Bhd.
(“HSBC”) and RHB Bank, Bhd. (“RHB”) totaled $1,147,000
and TPT’s borrowings under the credit facility and term loans with
Rabobank totaled $2,186,000. TMM’s credit facilities with HSBC
mature on October 30, 2010 and TPT’s credit facility with Rabobank, which
was renewed on January 1, 2010, has no stated maturity date.
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.
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 to
financial institutions debt.
|
|
(Unaudited)
|
|
|
(In thousands)
|
|
June 30,
|
|
December 31,
|
|
|
2010
|
|
2009
|
Term
note payable to a U.S. equipment financing company, with an interest rate of
5.24% at June 30, 2010, due April 1, 2013, secured by a Caterpillar front-end
loader.
|
$
|
72
|
$
|
84
|
Fixed
rate Euro term note payable to a Netherlands bank, with an interest rate of
7.8% at June 30, 2010, due July 1, 2029, secured by TPT's land and office
building purchased July 2004. (372 Euro)
|
|
455
|
|
547
|
Fixed
rate Euro term note payable to a Netherlands bank, with an interest rate of
4.7% at June 30, 2010, due January 31, 2030, secured by TPT's land and
building purchased January 2005. (370 Euro)
|
|
453
|
|
543
|
Fixed
rate Euro term note payable to a Netherlands bank, with an interest rate of
6.1% at June 30, 2010, due July 31, 2015, secured by TPT's assets. (258
Euro)
|
|
316
|
|
406
|
U.S.
Dollar term note payable to a Malaysian bank, with an interest rate of 2.0%
at June 30, 2010, due June 30, 2010, secured by TMM's property, plant and
equipment.
|
|
91
|
|
191
|
U.S.
Dollar term note payable to a Malaysian bank, with an interest rate of 1.625%
at June 30, 2010, due May 30, 2011, secured by TMM's property, plant and
equipment.
|
|
25
|
|
141
|
Total
|
|
1,412
|
|
1,912
|
Less current
maturities
|
|
248
|
|
435
|
Total long-term
debt and notes payable - financial institutions
|
$
|
1,164
|
$
|
1,477
|
US Operations
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 amended credit agreement, 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 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 (1.59 to 1.0 as of
the quarter ended June 30, 2010)
-
Fixed Charge Coverage Ratio – Maintain a
fixed charge coverage ratio of at least 0.85 to 1.0 (5.39 to 1.0 for the
quarter ended June 30, 2010)
We
also agreed that we will use all proceeds in excess of $1 million that we
received 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. Under the terms of the amendment, 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. In addition, the Line was reduced from $2,500,000 to
$2,250,000.
On
February 12, 2010, we amended the Credit Agreement with the Bank to extend the
maturity date on the Line from February 15, 2010 to August 15, 2010. As a
result of this amendment, all of our debt owed to the Bank will mature on
August 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 Line is secured by the accounts
receivable and inventory of the US Operation.
At
June 30, 2010, the outstanding balance on the Credit Agreement consisted of $500,000
on the Line and we had $1,750,000 available on that date based on eligible
accounts receivable and inventory borrowing limitations. The interest
rate on the Line was 6.25% at June 30, 2010.
Six-percent
Convertible Subordinated Debentures
As
reported in the Company’s Form 8-K filed with the SEC on May 6, 2009, the
Company’s Board of Directors authorized the issuance 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 for 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 SEC 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. As noted above,
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.
Other
Term Loans
On
March 31, 2008, we entered into a term loan with Holt Financing in the amount
of $120,000. The proceeds of the loan were used to purchase a new
Caterpillar front-end loader. The loan provides for amortization over
five years with interest fixed at a rate of 5.24%. Monthly principal and
interest payments commenced on May 1, 2008, and will continue through April 1,
2013. The monthly principal and interest payment is $2,275. The
loan balance at June 30, 2010 was $72,000.
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
was renewed on January 1, 2010 and has no stated maturity date. The
Credit Facility, which has a variable interest rate of Bank prime plus 2.8%
(currently at 7.3%), is secured by TPT’s accounts receivable and
inventory. At June 30, 2010,
TPT had utilized Euro 786,000 ($962,000) of its short-term credit facility.
TPT’s
loan agreements covering both the credit facility and the 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
April 30, 2010, the Company’s subsidiary, TMM, amended its banking
facility with HSBC Bank Malaysia Berhad (“HSBC”) to extend the
maturity date from April 30, 2010 to October 1, 2010. In addition, 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 2,500,000; and (3) a
foreign exchange contract limit of RM 5,000,000 ($154,000, $772,000 and $1,545,000,
respectively).
TMM
is currently in the process of renewing its banking facility with RHB Bank
Berhad (“RHB”) which matured on October 31, 2009. The RHB
facility 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 ($309,000, $2,873,000 and $7,724,000, 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 June 30,
2010, TMM had utilized RM 3,335,000 ($1,031,000) of the ECR facilities.
TMM
is currently negotiating with RHB to extend the maturity date of the bank
facilities from October 31, 2009 to October 31, 2010. The Company is
confident that the bank facilities will be extended; however, there can be no
assurance that the facilities will be extended or as to the terms and
conditions of the extension of the facility. If RHB is unwilling to
extend the maturity dates of the facility, TMM may not have sufficient
liquidity to pay off this indebtedness.
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.
Cash and Cash Equivalents
As
noted on the following table, cash and cash equivalents decreased $18,000 for
the six months ended June 30, 2010 as compared to an increase of $13,000 for
the six months ended June 30, 2009.
|
|
(Unaudited)
|
|
|
Six Months Ended June 30,
|
(In
thousands)
|
|
2010
|
|
2009
|
Net
cash provided by (used in)
|
|
|
|
|
Operating
activities
|
$
|
1,367
|
$
|
(670)
|
Investing
activities
|
|
(403)
|
|
(578)
|
Financing
activities
|
|
(993)
|
|
1,544
|
Effect
of exchange rate fluctuations
|
|
11
|
|
(283)
|
Net
change in cash and cash equivalents
|
$
|
(18)
|
$
|
13
|
Operating Activities
Operating
activities provided $1,367,000 during the first six months of 2010. Following
are the major changes in working capital affecting cash provided by operating
activities for the six month period ended June 30, 2010:
-
Accounts Receivable:
Accounts receivable increased $886,000 as compared to an increase of $761,000
for the same period in 2009. The increase in accounts receivable is
primarily due to stronger sales in the second quarter 2010 at each of the
Company’s three operations as compared to the fourth quarter 2009.
Accounts receivable increased $122,000 at the Corpus Christi operation and
$584,000 and $180,000 at TPT and TMM, respectively.
-
Inventories:
Inventories increased $1,604,000 as compared to a decrease of $1,191,000 for
the same period in 2009. Inventories at the Corpus Christi operation
increased $467,000 primarily related to an increase in raw materials which
was partially offset by a decrease in finished goods. TMM’s increased
approximately $1,294,000 primarily due to the timing of SR production and TPT’s
decreased approximately $157,000 primarily due to a decrease in finished
goods
-
Other Current Assets:
Other current assets increased $165,000 as compared to an increase of $527,000
for the same period in 2009. At the Corpus Christi operation,
prepaid expenses increased $110,000 primarily due to insurance and TPT’s
increased $99,000 related to prepaid insurance and pension expense. TMM’s
decreased $44,000 primarily related to insurance.
-
Accounts Payable and Accrued Expenses:
Trade accounts payable and accrued expenses increased $1,883,000 as
compared to a decrease of $1,139,000 for the same period in 2009.
Accounts payable and accrued expenses at the Corpus Christi operation increased
$1,325,000 primarily related to the timing of raw material purchases;
TPT’s increased $266,000 and TMM’s increased $292,000
primarily relating to raw materials for the production of SR.
Investing Activities
We
used cash of $403,000 in investing activities during the first six months of 2010
primarily for the purchase of fixed assets as compared to $578,000 during the
same period 2009. Net investments for each of our three locations are as
follows:
-
Corpus Christi Operation:
We invested approximately $225,000 primarily related to capital
maintenance, production equipment and computer equipment, as compared to $529,000
for the same period in 2009 for equipment related to new process
technologies to convert a majority of our production from natural gas to
electricity.
-
Netherlands Operation: We invested approximately $174,000 at TPT
for new production equipment, as compared to $43,000 for the same period in
2009.
-
Malaysian Operation: We invested approximately $4,000 at TMM
for new equipment, as compared to $6,000 for the same period in 2009.
Financing Activities
We
used $993,000 in financing activities during the six month period ended June 30,
2010 as compared to cash provided by financing activities of $1,544,000 for the
same period 2009. Significant factors relating to financing activities
include the following:
-
Lines of Credit:
Our borrowings on the domestic line of credit decreased $1,600,000 as
compared to an increase of $1,100,000 for the same period 2009 which was primarily
used for working capital. Borrowings at TPT decreased approximately $75,000
as compared to a decrease of $2,000 for the same period in 2009.
-
Export Credit Refinancing Facility (ECR): TMM’s borrowing on the ECR increased
$1,031,000 during the six month period ended June 30, 2010 for working
capital related to the production of SR as compared to an increase of $15,000
for the same period in 2009.
-
Capital Leases:
Capital leases decreased approximately $75,000 related to lease payments
at both the Corpus Christi operation and at TPT during the first six
months of 2010 as compared to a decrease of approximately $43,000 for the
same period in 2009.
-
Long-term Debt – Financial Institutions:
Long-term debt decreased approximately $292,000 during the six month
period ended June 30, 2010. Long-term debt decreased $54,000 and $238,000
at TPT and TMM, respectively. This compares to a decrease in
long-term debt of approximately $496,000 for the same period in 2009.
-
6% Convertible Subordinated Debentures: During the first six months of 2009, we
received $1,475,000 related to the sale of our six percent convertible
subordinated debentures, of which, $475,000 was held in restricted cash at
June 30, 2009, for the purpose of reducing our debt with Bank of America.
-
Proceeds from Issuance of Common Stock: We received $48,000 from the issuance of
common stock during the first six months of 2010 of which $25,000 related
to the exercise of warrants and $23,000 to the exercise of stock options.
-
Preferred Stock Dividends: We paid dividends of $30,000 on its Series
A convertible preferred stock for both the six month periods ended June 30,
2010 and 2009.
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 2009 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 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 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 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, US 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 dismissed Parker’s
complaint. On April 28, 2010, the Company and Parker settled the case out
of court.
Item 2.
|
Unregistered Sales of
Equity Securities and Use of Proceeds
|
In June 2010, one of the holders of our six-percent
(6%) Convertible Subordinated Debentures with attached warrants, issued in
August 2009, exercised the attached warrants. Upon exercise and receipt
of the aggregate exercise price of $25,000, the Company issued 9,434 shares of
common stock to the holder. The Company used the proceeds to reduce our
debt to the Bank.
No
underwriters were involved in the foregoing sale of securities. The sale
was made in reliance upon an exemption from the registration provisions of the
Securities Act of 1933, as amended (the “Securities Act”), set
forth in Section 4(2) under the Securities Act. The sale was made to an
“accredited investor” as such term is defined in Regulation D under
the Securities Act with whom we had a previous relationship and we did not
partake in any general solicitation or advertisement. All of the
foregoing securities sold as a result of the exercise of warrants are deemed
restricted securities for purposes of the Security Act.
Part II - Other Information
(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
|
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.
|
|
|
|
|
____________
|
|
|
|
(Registrant)
|
|
|
|
|
|
|
Date:
|
August 10, 2010
|
|
OLAF KARASCH
Olaf Karasch
President and Chief Executive Officer
|
|
|
|
|
Date:
|
August 10, 2010
|
|
BARBARA RUSSELL
Barbara Russell
Chief Financial Officer
|
|
|
|
|
|
|