-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HGWUdcwUJGICQWnZ3wfLiqsFeU9qh8YXH0p+clcEb/yuvH2KCUL21+IumSaujge6 zKdVMcCRtmubc5dWtEl4dg== 0000842295-97-000016.txt : 19971117 0000842295-97-000016.hdr.sgml : 19971117 ACCESSION NUMBER: 0000842295-97-000016 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: HITOX CORPORATION OF AMERICA CENTRAL INDEX KEY: 0000842295 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL INORGANIC CHEMICALS [2810] IRS NUMBER: 742081929 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-17321 FILM NUMBER: 97717740 BUSINESS ADDRESS: STREET 1: P.O. BOX 2544 CITY: CORPUS CHRISTI STATE: TX ZIP: 78401 BUSINESS PHONE: 5128825175 MAIL ADDRESS: STREET 1: P.O. BOX 2544 CITY: CORPUS CHRISTI STATE: TX ZIP: 78403 10QSB 1 U.S. Securities and Exchange Commission Washington, D. C. 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1997 OR [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from to ------- ------- Commission file number 0-17321 HITOX CORPORATION OF AMERICA (Exact name of small business issuer as specified in its charter) Delaware 74-2081929 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) Furman Plaza Building 418 Peoples Street, Corpus Christi, Texas 78401 (Address of principal executive offices) Issuer's telephone number: (512) 882-5175 None (Former name, former address and former fiscal year, if changed since last report) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date. Common Stock, $0.25 par value 4,657,487 (Class) (Outstanding as of October 22, 1997) Transitional Small Business Disclosure Format (check one): Yes [ ] No [ X ] 1 HITOX CORPORATION OF AMERICA INDEX Page No. -------- PART I. Financial Information Item 1. Financial Statements (Unaudited) Condensed Balance Sheets-- September 30, 1997 and December 31, 1996 3-4 Condensed Statements of Income-- three months ended September 30, 1997 and 1996 and nine months ended September30, 1997 and 1996 5 Condensed Statements of Cash Flows-- nine months ended September 30, 1997 and 1996 6 Notes to Condensed Financial Statements 7-9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9-11 PART II. Other Information Item 5. Other Information 12 Item 6. Exhibits and Reports on Form 8-K 12 Signatures 12 2 HITOX CORPORATION OF AMERICA CONDENSED BALANCE SHEETS September 30, 1997 AND DECEMBER 31, 1996 (in thousands)
September 30, 1997 December 31, (Unaudited) 1996 ------------------- ------------------- ASSETS Current assets: Cash and cash equivalents $ 1,386 $ 1,509 Trade accounts receivable; no allowance for doubtful accounts considered necessary 1,297 1,101 Other receivables 10 70 Inventories: Raw materials 3,792 2,666 Finished goods 1,088 976 Supplies 78 75 ------------------- ------------------- Total inventories 4,958 3,717 Other current assets 79 33 ------------------- ------------------- Total current assets 7,730 6,430 Property, plant and equipment 9,355 9,123 Accumulated depreciation (5,647) (5,204) ------------------- ------------------- 3,708 3,919 Other assets 25 25 ------------------- ------------------- $ 11,463 $ 10,374 =================== ===================
See Notes to Condensed Financial Statements 3 HITOX CORPORATION OF AMERICA CONDENSED BALANCE SHEETS September 30, 1997 AND DECEMBER 31, 1996 (in thousands, except par value)
September 30, 1997 December 31, (Unaudited) 1996 ------------------- ------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 199 $ 165 Accounts payable - MTC 650 418 Accrued expenses 396 257 Current maturities of long-term debt 397 373 ------------------- ------------------- Total current liabilities 1,642 1,213 Other long-term debt, excluding current maturities 731 1,032 ------------------- ------------------- Total liabilities 2,373 2,245 Commitments and contingencies Shareholders' equity: Preferred stock $.01 par value: authorized, 5,000 shares; no shares outstanding -- -- Common stock $.25 par value: authorized, 10,000 shares; 4,657 shares outstanding after deducting 88 shares held in treasury 1,186 1,186 Additional paid-in capital 14,341 14,341 Accumulated deficit (6,394) (7,355) ------------------- ------------------- 9,133 8,172 Less: cost of treasury stock (43) (43) ------------------- ------------------- Total shareholders' equity 9,090 8,129 ------------------- ------------------- $ 11,463 $ 10,374 =================== ===================
See Notes to Condensed Financial Statements 4 HITOX CORPORATION OF AMERICA CONDENSED STATEMENTS OF INCOME (Unaudited) (in thousands, except per share amounts)
Three Months Ended Nine Months Ended September 30, September 30, ----------------------------- ----------------------------- 1997 1996 1997 1996 ------------- ------------- ------------- ------------- Net Sales $ 2,482 $ 3,198 $ 8,651 $ 8,853 Costs and expenses: Cost of products sold 1,712 2,159 5,896 6,197 Selling, administrative and general 474 616 1,764 1,702 ------------- ------------- ------------- ------------- Operating income 296 423 991 954 Other income (expenses): Interest income 19 9 55 17 Interest expense (25) (33) (81) (320) Other, net 3 (2) 5 (25) ------------- ------------- ------------- ------------- Income before income tax and extraordinary item 293 397 970 626 Provision for income tax 5 3 9 3 ------------- ------------- ------------- ------------- Income before extraordinary item 288 394 961 623 Extraordinary item, early extinguishment of debt - (112) - (112) ------------- ------------- ------------- ------------- NET INCOME $ 288 $ 282 $ 961 $ 511 ============= ============= ============= ============= Income per common share: Income before extraordinary item $ 0.06 $ 0.08 $ 0.20 $ 0.15 Extraordinary item - (0.02) - (0.02) ------------- ------------- ------------- ------------- Net Income $ 0.06 $ 0.06 $ 0.20 $ 0.13 ============= ============= ============= ============= Weighted average common shares and equivalents outstanding: 4,727 4,719 4,710 4,085
See Notes to Condensed Financial Statements 5 HITOX CORPORATION OF AMERICA CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands)
Nine Months Ended September 30, -------------------------------------- 1997 1996 ----------------- ----------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 961 $ 511 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 442 475 Inventory valuation charge 4 Extraordinary item 112 Changes in working capital: Receivables (136) (343) Inventories (1,241) (159) Other current assets (46) (41) Accounts payable and accrued expenses 405 (670) ----------------- ----------------- Net cash provided by (used in) operating activities 385 (111) ----------------- ----------------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property, plant and equipment (231) (118) ----------------- ----------------- Net cash used in investing activities (231) (118) ----------------- ----------------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments on long-term debt (277) (5,044) Proceeds from long-term debt -- 1,000 Proceeds from the issuance of common stock -- 3,988 ----------------- ----------------- Net cash used in financing activities (277) (56) ----------------- ----------------- NET DECREASE IN CASH AND CASH EQUIVALENTS (123) (285) CASH AND CASH EQUIVALENTS: AT BEGINNING OF PERIOD 1,509 828 ----------------- ----------------- AT END OF PERIOD $ 1,386 $ 543 ================= ================= Supplemental disclosure of cash flow information: Interest paid $ 81 $ 320 Income taxes paid 9 3
See Notes to Condensed Financial Statements 6 NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) 1. Accounting Policies Basis of Presentation The interim financial statements of Hitox Corporation of America (the "Company") are unaudited, but include all adjustments which the Company deems necessary for a fair presentation of its financial position and results of operations. All adjustments are of a normal and recurring nature. Results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. All significant accounting policies conform to those previously set forth in the Company's fiscal 1996 Annual Report on Form 10-KSB. In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from these estimates. Stock Based Compensation The Company grants stock options for a fixed number of shares to employees with an exercise price equal to the fair value of the shares at the date of grant. The Company has accounted for stock option grants in accordance with APB Opinion No. 25, Accounting for Stock Issued to Employees, and, accordingly, recognized no compensation expense for the stock option grants. The Company did not adopt FASB Statement No. 123, Accounting for Stock-Based Compensation, and will continue to account for stock option grants in accordance with APB Opinion No. 25. FASB Statement 123 requires certain disclosures about stock- based compensation plans for all companies regardless of the method used to account for them. Effective in 1996 calendar year-end financial statements, companies that continue to apply APB 25 are required to disclose pro forma information as if the measurement provisions of Statement 123 had been adopted in their entirety. Such pro forma information was included in the Company's 1996 Form 10-KSB. 2. Sale of Common Stock and Partial Prepayment of Subordinated Debentures On June 26, 1996, the Company completed the sale of 1,000,000 shares of common stock at $4.00 per share to Megamin Ventures Sdn. Bhd. ("Megamin Ventures"), formerly Syarikat Megawati Sdn. Bhd. Megamin Ventures is the majority owner of Malaysian Titanium Corporation ("MTC"), which supplies the Company with its primary raw material, synthetic rutile. The $4,000,000 proceeds from the sale were used to prepay $4,000,000 of the outstanding principal balance on $5,000,000 in 10.5% subordinated debenture notes (the "Debentures") on July 1, 1996. 7 3. Prepayment of Debentures On July 31, 1996, the Company prepaid the remaining $1,000,000 principal balance on the Debentures using the proceeds of a term note under an amended loan agreement with the Company's bank (See Note 4). 4. Debt On July 31, 1996, the Company executed an amended loan agreement (the "Amended Loan Agreement") with NationsBank of Texas, N.A., (the "Bank"), which includes the existing $2,000,000 line of credit and the mortgage note on the Company's headquarters. The Amended Loan Agreement provides a new $1,000,000 term loan (the "Term Loan") to the Company, with an interest rate of 8.17% per annum. The repayment terms of the Term Loan provided for monthly payments of interest only until December 31, 1996, and monthly payments of principal and interest of $31,415 began January 31, 1997, with the final payment due on January 31, 2000. The proceeds of the Term Loan were used to prepay the remaining $1,000,000 principal balance on the Debentures on July 31, 1996. Also as part of the Amended Loan Agreement, the expiration date of the Company's line of credit was extended from April 30, 1997 to April 30, 1998, and the interest rate was reduced from the Bank's prime rate plus 1.0% to the Bank's prime rate plus 0.75%. The Amended Loan Agreement also reduces the interest rate on the mortgage note on the building which includes the Company's corporate headquarters from 9.5% to 9.0%. The Company had no outstanding balance on the line of credit at September 30, 1997. The line of credit and the term notes are secured by the office building, inventory and accounts receivable. The Amended Loan Agreement contains covenants which, among other things, require maintenance of certain financial ratios. The Company was in compliance with all covenants for the quarter ended September 30, 1997. 5. Commitments The Company purchases its primary raw material, synthetic rutile, under a supply agreement (the "Supply Agreement"). The Supply Agreement contains a take or pay arrangement for specified quantities on a yearly basis, with a fixed price for the first two years of its five year term. The first price adjustment, a 3.6% increase, is effective for orders placed in 1997, the third year of the Supply Agreement. 6. Impact of Statement of Financial Accounting Standards No. 128 In February 1997, the Financial Accounting Standards Board issued Statement No. 128, Earnings per Share, which is required to be adopted on December 31, 1997. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods. Under the statement, primary earnings per share will be replaced with basic earnings per share and fully diluted earnings per share will be replaced with diluted earnings per share. For the three month and nine month periods ended September 30, 1997 and September 30, 1996, Statement 128 results in only one change in earnings per share. For the nine month period ended September 8 30, 1997, the new basic calculation results in an earnings per share of $0.21, compared with reported earnings per share of $0.20. 7. Impact of Statement of Financial Accounting Standards No. 129 In February 1997, the FASB issued SFAS No. 129, Disclosure of Information about Capital Structure. This Statement consolidates existing guidance on disclosures about the Company's capital structure into one Statement. SFAS No. 129 is effective for financial statements for periods ending after December 15, 1997. Because the Company already makes the disclosures required by this Statement, the adoption will have no impact. 8. Impact of Statement of Financial Accounting Standards No. 130 In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income. This Statement establishes standards for the reporting and display of comprehensive income and its components in the full set of financial statements, and does not address recognition or measurement of comprehensive income and its components. The adoptions of this Statement will not have a material effect on the financial statements. SFAS No. 130 will become effective in 1998, however, earlier adoption is allowed. 9. Impact of Statement of Financial Accounting Standards No. 131 Also, in June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information. SFAS No. 131 establishes standards for the reporting of financial information from operating segments in annual and interim financial statements. This Statement requires that financial information be reported on the basis that it is reported internally for evaluating segment performance and deciding how to allocate resources to segments. SFAS No. 131 will become effective in 1998. Because the Company is in a single line of business, it will not be affected by SFAS No. 131. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS Sales: Net sales for the third quarter of 1997 were $2,482,000 as compared to $3,198,000 for the same quarter in 1996. Total net sales for the nine months ended September 30, 1997 were $8,651,000 compared with $8,853,000 for the same period in 1996. Sales of the Company's primary product, HITOX pigment, were lower in the third quarter of 1997 and year to date compared with 1996, but were partially offset by increased sales of the Company's other primary product, BARTEX pigments. 9 Gross Profit: Gross profit for the third quarter of 1997 was $770,000, as compared with $1,039,000 for the third quarter of 1996, a decrease of $269,000. Gross profit as a percentage of sales was 31.0% in the third quarter this year as compared to 32.5% in the same quarter last year. The year to date gross profit for the nine months ended September 30, 1997 was $2,755,000, or 31.8% of net sales compared with $2,656,000 or 30.0% of net sales for the same period of 1996. The improvement in the 1997 year to date gross profit percentages compared with the same period of 1996 is the result of lower raw material costs and improved efficiency in 1997. Expenses: Total selling, administrative and general expenses decreased from $616,000 during the third quarter of 1996, to $474,000 for the third quarter of 1997, representing a decrease of $142,000 or 23.1%. Total selling, administrative and general expenses increased from $1,702,000 during the nine months ended September 30, 1996, to $1,764,000 for the same period of 1997, representing approximately a 3.6% increase. The lower expenses in the third quarter of 1997 compared with the third quarter of 1996 are primarily due to lower performance based benefits, and selling expenses. The increase from the first nine months of 1996 to the first nine months of 1997 is attributable to higher 1997 salaries and technical expenses. Interest Income: During the third quarter of 1997, excess funds were deposited in short- term interest bearing investments resulting in interest income of $19,000. For 1996, interest income for the third quarter was $9,000. For the nine months ended September 30, 1997, interest income was $55,000 compared to $17,000 for the corresponding period in 1996. The increased amounts of interest income are due to higher cash balances available for investment in 1997. Interest Expense: Interest expense decreased $8,000 in the third quarter of 1997 as compared with the same quarter last year. For the nine month period ended September 30, 1997, interest expense decreased $239,000, compared with 1996. Interest expense was lower in 1997 because on July 1, 1996, the Company prepaid $4,000,000 of the outstanding principal balance on its subordinated debentures (the "Debentures"), using proceeds from the sale of the Company's common stock. The remaining $1,000,000 principal balance on the Debentures was prepaid in full on July 31, 1996, using the proceeds of a new $1,000,000 term loan with a lower interest rate. Provision for Income Tax: The Company has net operating loss and other carry forwards available to offset the Company's regular taxable income. However, the Company is subject to alternative minimum tax. Provision for income tax was $5,000 for the third quarter of 1997 and $9,000 for the nine months ended September 30, 1997. 10 LIQUIDITY AND CAPITAL RESOURCES The Company's balance sheet is strong at September 30, 1997. Working capital increased from $5,217,000 at December 31, 1996 to $6,088,000 at September 30, 1997. Cash decreased from $1,509,000 at December 31, 1996 to $1,386,000 at September 30, 1997. During the nine month period, cash from operating activities totaled $385,000, while $277,000 was used in financing activities and $231,000 was used in investing activities. Accounts receivable increased at September 30, 1997 compared with December 31, 1996, due to a change in the mix of customers and terms in the relevant periods. Inventories as well as accounts payable and accrued expenses have increased, primarily due to raw material in transit. The Company had no outstanding borrowings on its line of credit at September 30, 1997, which has a limit of $2,000,000. The Company on an ongoing basis will finance its operations principally through cash flows generated by operations, through bank financing and through cash on hand. The Company has a continuing need for working capital to finance raw material purchases, primarily synthetic rutile, which is now purchased under a supply agreement (the "Supply Agreement") with its former subsidiary, Malaysian Titanium Corporation. The Supply Agreement contains a take or pay arrangement for specified quantities on a yearly basis, with a fixed price for the first two years of its five year term. The first price adjustment, a 3.6% increase, is effective for orders placed in 1997, the third year of the Supply Agreement. On July 31, 1996, the Company executed an amended loan agreement with the Bank (the "Amended Loan Agreement"). The Amended Loan Agreement provides a new $1,000,000 term loan (the "Term Loan") to the Company, with an interest rate of 8.17% per annum. The repayment terms of the Term Loan provided for monthly payments of interest only until December 31, 1996, and monthly payments of principal and interest of $31,415 began January 31, 1997, with the final payment due on January 31, 2000. The proceeds of the Term Loan were used to prepay the remaining $1,000,000 principal balance on the Debentures on July 31, 1996. Also as part of the Amended Loan Agreement, the expiration date of the Company's line of credit was extended from April 30, 1997 to April 30, 1998, and the interest rate was reduced from the Bank's prime rate plus 1.0% to the Bank's prime rate plus 0.75%. The Amended Loan Agreement also reduces the interest rate on the mortgage note on the building which includes the Company's corporate headquarters from 9.5% to 9.0%. 11 PART II Item 5. Other Information On October 30, 1997 the Board of Directors of Hitox Corporation of America accepted the resignation of Thomas A. Landshof as the President and Chief Executive Officer of the Company. Bernard A. Paulson, an outside Director, will assume the duties of CEO on an interim basis. Item 6. Exhibits and Reports on Form 8-K Page No. (a) Exhibit 11 - Earnings per share 13 Exhibit 27 - Financial Data Schedule 14 (b) Reports on Form 8-K None Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Hitox Corporation of America - ---------------------------------- (Registrant) Date: November 13, 1997 BERNARD A. PAULSON ---------------- ---------------------------------- Bernard A. Paulson, Acting Chief Executive Officer Date: November 13, 1997 CRAIG A. SCHKADE ----------------- ---------------------------------- Craig A. Schkade, Chief Financial Officer (Principal Financial and Accounting Officer) 12 Hitox Corporation of America Exhibit 11 Computation of Earnings Per Share (EPS) (in thousands, except per share amounts) (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, ------------------------ ---------------------- 1997 1996 1997 1996 ----------- ----------- ----------- --------- WEIGHTED AVERAGE SHARES OUTSTANDING Common Stock 4,657 4,657 4,657 4,012 Common Stock Equivalents, assumed exercise of stock options and warrants (Treasury Stock Method at average market value) 70 61 40 73 ----------- ----------- ----------- --------- Total for Primary EPS 4,727 4,718 4,697 4,085 Assumed exercise of stock options and warrants (Treasury Stock Method at greater of average or end of period market value) - 1 13 - ----------- ----------- ----------- --------- Total for Fully Diluted EPS 4,727 4,719 4,710 4,085 INCOME Income for primary EPS: Net income $ 288 $ 282 $ 961 $ 511 Income for fully diluted EPS: Net income 288 282 961 511 INCOME PER SHARE Primary $ 0.06 $ 0.06 $ 0.20 $ 0.13 Fully Diluted 0.06 0.06 0.20 0.13
13 EX-27 2
5 1000 9-MOS DEC-31-1997 SEP-30-1997 $1386 0 1297 0 4958 7730 9355 5647 $11463 $1642 731 0 0 1186 7904 $11463 $8651 8711 5896 5896 0 0 81 970 9 961 0 0 0 $961 $0.20 $0.20
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