UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549





FORM 10-Q

(Mark One)



      [X]☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended September 30, 20172020
or


    [ ] ☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934


For the transition period from _________ to __________


COMMISSION FILE NUMBER 1-33926
trec-20200930_g1.jpg
TRECORA RESOURCES
(Exact name of registrant as specified in its charter)

DELAWARE75-1256622
Delaware75-1256622
(State or other jurisdiction of(I.R.S. employer incorporation orEmployer Identification No.)
incorporation or organization)identification no.)

1650 Hwy 6 South,Suite 19077478
Sugar Land, Texas(Zip code)Texas
(Address of principal executive offices)(Zip code)


Registrant's telephone number, including area code: (409) 385-8300(281) 980-5522


N/A
(Former name, former address and former fiscal year, if
changed since last report.report)


Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.10 per shareTRECNew York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities 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.Yes  X   No
Yes  X    No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive DateData File required to be submitted and posted pursuant to Rule 405 of Regulation S-TS–T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yes  X   No
Yes  X    No


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.


Large accelerated filer ____☐Accelerated filer _ X__☒


Non-accelerated filer ____ (Do not check if a smaller reporting company)☐Smaller reporting company ____☒


Emerging growth company_____company ☐


If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.____


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes ☐ No ☒
YesNo  X_


Number of shares of the Registrant's Common Stock (par value $0.10 per share), outstanding at November 4, 2017: 24,306,119.October 26, 2020: 24,817,193.





TABLE OF CONTENTS


Item Number and Description
 
PART I – FINANCIAL INFORMATION
 
1
2
3
4
5
5
6
20
21
31
35
31
35
 
PART II – OTHER INFORMATION
 
32
36
32
36
32
36




PART I. FINANCIAL INFORMATION


ITEM 1. FINANCIAL STATEMENTS.

TRECORA RESOURCES AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

September 30, 2020 (Unaudited)December 31, 2019
ASSETS(thousands of dollars, except par value)
 Current Assets  
Cash$51,862 $6,145 
Trade receivables, net22,656 26,320 
Inventories11,110 13,624 
Investment in AMAK (held-for-sale)0 32,872 
Prepaid expenses and other assets7,016 4,947 
Taxes receivable16,858 182 
Total current assets109,502 84,090 
Plant, pipeline and equipment, net187,898 188,919 
Intangible assets, net13,354 14,736 
Lease right-of-use assets, net11,154 13,512 
Mineral properties in the United States412 562 
TOTAL ASSETS$322,320 $301,819 
LIABILITIES
Current Liabilities
Accounts payable$12,815 $14,603 
Accrued liabilities13,192 5,740 
Current portion of long-term debt4,194 4,194 
Current portion of lease liabilities3,148 3,174 
Current portion of other liabilities447 924 
Total current liabilities33,796 28,635 
  CARES Act, PPP Loans
6,123 0 
  Long-term debt, net of current portion
42,949 79,095 
  Post-retirement benefit, net of current portion
321 338 
Lease liabilities, net of current portion
8,006 10,338 
  Other liabilities, net of current portion
907 595 
Deferred income taxes26,132 11,375 
Total liabilities118,234 130,376 
COMMITMENTS AND CONTINGENCIES (Note 12)
EQUITY
Common stock - authorized 40 million shares of $0.10 par value; issued and outstanding 24.8 million and 24.8 million in 2020 and 2019, respectively
2,482 2,475 
Additional paid-in capital60,875 59,530 
Retained earnings140,440 109,149 
Total Trecora Resources Stockholders' Equity203,797 171,154 
Noncontrolling Interest289 289 
Total equity204,086 171,443 
TOTAL LIABILITIES AND EQUITY$322,320 $301,819 
  
SEPTEMBER 30,
2017
(unaudited)
  
DECEMBER 31,
2016
 
ASSETS
 (thousands of dollars) 
 Current Assets      
  Cash $4,219  $8,389 
  Trade receivables, net  22,738   22,193 
  Inventories  12,849   17,871 
  Prepaid expenses and other assets  3,276   3,511 
  Taxes receivable  3,764   3,983 
          Total current assets  46,846   55,947 
         
  Plant, pipeline and equipment, net
  172,048   140,009 
         
  Goodwill  21,798   21,798 
  Intangible assets, net  21,273   22,669 
  Investment in AMAK  44,225   49,386 
  Mineral properties in the United States  588   588 
  Other assets  21   87 
         
     TOTAL ASSETS $306,799  $290,484 
LIABILITIES
        
  Current Liabilities        
    Accounts payable $12,381  $13,306 
    Current portion of derivative instruments  7   58 
    Accrued liabilities  6,304   2,017 
    Current portion of post-retirement benefit  308   316 
    Current portion of long-term debt  8,061   10,145 
    Current portion of other liabilities  1,131   870 
          Total current liabilities  28,192   26,712 
         
  Long-term debt, net of current portion
  81,011   73,107 
  Post-retirement benefit, net of current portion
  897   897 
  Other liabilities, net of current portion
  1,681   2,309 
  Deferred income taxes  24,654   23,083 
     Total liabilities  136,435   126,108 
         
EQUITY
        
  Common stock‑authorized 40 million shares of $.10 par value; issued 24.5 million in 2017 and 2016 and outstanding  24.3 million and 24.2 million shares in 2017 and 2016, respectively
  2,451   2,451 
  Additional paid-in capital  55,344   53,474 
  Common stock in treasury, at cost  (203)  (284)
  Retained earnings  112,483   108,446 
  Total Trecora Resources Stockholders' Equity  170,075   164,087 
  Noncontrolling Interest  289   289 
   Total equity  170,364   164,376 
         
     TOTAL LIABILITIES AND EQUITY $306,799  $290,484 


See notes to consolidated financial statements.
Table of Contents
1
1



TRECORA RESOURCES AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOMEOPERATIONS (UNAUDITED)

THREE MONTHS
ENDED
SEPTEMBER 30,		NINE MONTHS
ENDED
SEPTEMBER 30,
 2020201920202019
 (thousands of dollars, except per share amounts)
REVENUES   
Product sales$43,570 $59,111 $137,460 $185,933 
Processing fees4,177 3,604 13,028 11,308 
 47,747 62,715 150,488 197,241 
OPERATING COSTS AND EXPENSES
Cost of sales and processing (including depreciation and amortization of $3,887, $3,254, $11,373 and $11,611, respectively)39,290 53,148 127,786 167,036 
    GROSS PROFIT
8,457 9,567 22,702 30,205 
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative5,766 6,401 18,729 18,532 
Depreciation209 208 637 629 
 5,975 6,609 19,366 19,161 
OPERATING INCOME2,482 2,958 3,336 11,044 
OTHER INCOME (EXPENSE)
Interest income0 0 0 5 
Interest expense(508)(1,211)(2,159)(4,111)
Miscellaneous income (expense), net(13)74 (7)330 
(521)(1,137)(2,166)(3,776)
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES1,961 1,821 1,170 7,268 
INCOME TAX EXPENSE (BENEFIT)853 238 (3,942)1,412 
INCOME FROM CONTINUING OPERATIONS1,108 1,583 5,112 5,856 
INCOME (LOSS) FROM DISCONTINUED OPERATIONS, NET OF TAX21,324 (1,002)26,179 (1,120)
NET INCOME$22,432 $581 $31,291 $4,736 
Basic Earnings per Common Share
Net income from continuing operations (dollars)$0.04 $0.06 $0.21 $0.24 
Net income (loss) from discontinued operations, net of tax (dollars)0.86 (0.04)1.06 (0.05)
Net income (dollars)$0.90 $0.02 $1.27 $0.19 
Basic weighted average number of common shares outstanding24,817 24,717 24,795 24,689 
Diluted Earnings per Common Share
Net income from continuing operations (dollars)$0.04 $0.06 $0.20 $0.23 
Net income (loss) from discontinued operations, net of tax (dollars)0.84 (0.04)1.04 (0.04)
Net income (dollars)$0.88 $0.02 $1.24 $0.19 
Diluted weighted average number of common shares outstanding25,394 25,053 25,179 25,077 

  THREE MONTHS ENDED  
NINE MONTHS
ENDED
 
  SEPTEMBER 30,  SEPTEMBER 30, 
  2017  2016  
2017
  2016 
  (thousands of dollars) 
REVENUES            
  Petrochemical and Product Sales $58,030  $52,115  $165,945  $143,662 
  Processing Fees  3,478   5,027   13,220   14,534 
   61,508   57,142   179,165   158,196 
                 
OPERATING COSTS AND EXPENSES                
  Cost of  Sales and Processing                
    (including depreciation and amortization of  $2,565, $2,373, $7,311, and $6,620,  respectively)  51,638   48,237   147,570   125,946 
                 
   GROSS PROFIT  9,870   8,905   31,595   32,250 
                 
GENERAL AND ADMINISTRATIVE EXPENSES                
  General and Administrative  5,660   4,585   17,621   15,525 
  Depreciation  245   192   655   556 
   5,905   4,777   18,276   16,081 
                 
OPERATING INCOME  3,965   4,128   13,319   16,169 
                 
OTHER INCOME (EXPENSE)                
  Interest Expense  (795)  (568)  (2,109)  (1,803)
  Bargain purchase gain from acquisition  --   --   --   11,549 
  Equity in Earnings (Losses) of AMAK  (897)  (2,089)  (5,161)  2,261 
  Gain from Additional Equity Issuance by AMAK  --   3,168   --   3,168 
  Miscellaneous Income (Expense)  22   (72)  (42)  38 
   (1,670)  439   (7,312)  15,213 
                 
  INCOME BEFORE INCOME TAXES  2,295   4,567   6,007   31,382 
                 
  INCOME TAXES  577   1,768   1,970   11,107 
                 
  NET INCOME  1,718   2,799   4,037   20,275 
                 
 NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST  --   --   --   -- 
                 
 NET INCOME ATTRIBUTABLE TO TRECORA RESOURCES $1,718  $2,799  $4,037  $20,275 
                 
Basic Earnings per Common Share                
  Net Income Attributable to Trecora Resources (dollars) $0.07  $0.12  $0.17  $0.83 
                 
  Basic Weighted Average Number of Common Shares Outstanding  24,304   24,223   24,267   24,304 
                 
Diluted Earnings per Common Share                
  Net Income Attributable to Trecora Resources (dollars) $0.07  $0.11  $0.16  $0.81 
                 
  Diluted Weighted Average Number of Common Shares Outstanding  25,157   24,921   25,082   24,964 


See notes to consolidated financial statements.
Table of Contents
2
2



TRECORA RESOURCES AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)

  TRECORA RESOURCES STOCKHOLDERS       
  COMMON STOCK  
ADDITIONAL
PAID-IN
  
TREASURY
  
RETAINED
     
NON-
CONTROLLING
  TOTAL 
  SHARES  AMOUNT  CAPITAL  STOCK  EARNINGS  TOTAL  INTEREST  EQUITY 
  (thousands)  (thousands of dollars) 
JANUARY 1, 2017  24,222  $2,451  $53,474  $(284) $108,446  $164,087  $289  $164,376 
                                 
Stock options                                
  Issued to Directors  -   -   90   -   -   90   -   90 
  Issued to Employees  -   -   884   -   -   884   -   884 
Restricted Common Stock                                
  Issued to Directors  -   -   230   -   -   230   -   230 
  Issued to Employees  -   -   801   -   -   801   -   801 
Common stock                                
  Issued to Directors  25   -   (79)  25   -   (54)  -   (54)
  Issued to Employees  56   -   (56)  56   -   -   -   - 
Net Income  -   -   -   -   4,037   4,037   -   4,037 
                                 
September 30, 2017  24,303  $2,451  $55,344  $(203) $112,483  $170,075  $289  $170,364 

THREE MONTHS ENDED SEPTEMBER 30

 TRECORA RESOURCES STOCKHOLDERS  
 COMMON STOCKADDITIONAL
PAID-IN		TREASURYRETAINED NON-
CONTROLLING		TOTAL
 SHARESAMOUNTCAPITALSTOCKEARNINGSTOTALINTERESTEQUITY
 (thousands)(thousands of dollars)
June 30, 202024,817 $2,482 $60,386 $0 $118,008 $180,876 $289 $181,165 
Restricted Stock Units
Issued to Directors— — 113 — — 113 — 113 
Issued to Employees— — 376 — — 376 — 376 
Common Stock
Issued to Directors— — — — — 0 — 0 
Issued to Employees— — — — — 0 — 0 
Net Income— — — — 22,432 22,432 — 22,432 
September 30, 202024,817 $2,482 $60,875 $0 $140,440 $203,797 $289 $204,086 
June 30, 201924,715 $2,472 $58,920 $(2)$128,278 $189,668 $289 $189,957 
Restricted Stock Units
Issued to Directors— — 96 — — 96 — 96 
Issued to Employees— — 186 — — 186 — 186 
Common Stock
Issued to Directors— — — — — 0 — 0 
Issued to Employees— — — — — 0 — 0 
Net Income— — — — 581 581 — 581 
September 30, 201924,715 $2,472 $59,202 $(2)$128,859 $190,531 $289 $190,820 
See notes to consolidated financial statements.

Table of Contents
3
TRECORA RESOURCES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

  NINE MONTHS ENDED 
  SEPTEMBER 30, 
  2017  2016 
  (thousands of dollars) 
OPERATING ACTIVITIES      
  Net Income $4,037  $20,275 
  Adjustments to Reconcile Net Income        
    To Net Cash Provided by Operating Activities:        
    Depreciation  6,570   5,761 
    Amortization of Intangible Assets  1,396   1,415 
    Unrealized Gain on Derivative Instruments  (51)  (89)
    Share-based Compensation  2,005   1,882 
    Deferred Income Taxes  1,571   6,851 
    Postretirement Obligation  (8)  186 
    Bargain purchase gain  -   (11,549)
    Equity in (earnings) losses of AMAK  5,161   (2,261)
    Gain from Additional Equity Issuance by AMAK  -   (3,168)
    Amortization of loan fees  154   213 
  Changes in Operating Assets and Liabilities:        
    Increase in Trade Receivables  (545)  (355)
    Decrease in Taxes Receivable  218   4,094 
    (Increase) Decrease in Inventories  5,022   (2,573)
    (Increase) Decrease in Prepaid Expenses and Other Assets  387   (1,494)
    Increase in Accounts Payable and Accrued Liabilities  3,356   1,304 
    Increase (Decrease) in Other Liabilities  281   (418)
         
    Net Cash Provided by Operating Activities  29,554   20,074 
         
INVESTING ACTIVITIES        
  Additions to Plant, Pipeline and Equipment  (39,250)  (25,860)
  Cash paid for acquisition of BASF facility  -   (2,011)
  Advances to AMAK, net  (86)  - 
    Cash Used in Investing Activities  (39,336)  (27,871)
         
FINANCING ACTIVITIES        
  Issuance of Common Stock  25   11 
  Payments related to tax withholding for stock-based compensation  (80)  - 
  Addition to Long-Term Debt  14,000   3,000 
  Repayment of Long-Term Debt  (8,333)  (6,250)
         
    Net Cash Provided by (Used in) Financing Activities  5,612   (3,239)
         
NET DECREASE IN CASH  (4,170)  (11,036)
         
CASH AT BEGINNING OF PERIOD  8,389   18,623 
         
CASH AND AT END OF PERIOD $4,219  $7,587 

Supplemental disclosure of cash flow information:   
  Cash payments for interest $3,034  $1,804 
  Cash payments for taxes, net of refunds $227  $277 
Supplemental disclosure of non-cash items:        
  Capital expansion amortized to depreciation expense $642  $829 
   Estimated earnout liability
 $-  $733 



See notes to consolidated financial statements.
Table of Contents
4
3


TRECORA RESOURCES AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30
 TRECORA RESOURCES STOCKHOLDERS  
 COMMON STOCKADDITIONAL
PAID-IN		TREASURYRETAINED NON-
CONTROLLING		TOTAL
 SHARESAMOUNTCAPITALSTOCKEARNINGSTOTALINTERESTEQUITY
 (thousands)(thousands of dollars)
January 1, 202024,750 $2,475 $59,530 $0 $109,149 $171,154 $289 $171,443 
Restricted Stock Units
Issued to Directors— — 308 — — 308 — 308 
Issued to Employees— — 1,044 — — 1,044 — 1,044 
Common Stock
Issued to Directors28 3 (3)— — 0 — 0 
Issued to Employees39 4 (4)— — 0 — 0 
Net Income— — — — 31,291 31,291 — 31,291 
September 30, 202024,817 $2,482 $60,875 $0 $140,440 $203,797 $289 $204,086 
January 1, 201924,626 $2,463 $58,294 $(8)$124,123 $184,872 $289 $185,161 
Restricted Stock Units
Issued to Directors— — 264 — — 264 — 264 
Issued to Employees— — 644 — — 644 — 644 
Common Stock
Issued to Directors10 1 — 6 — 7 — 7 
Issued to Employees79 8 — — — 8 — 8 
Net Income— — — — 4,736 4,736 — 4,736 
September 30, 201924,715 $2,472 $59,202 $(2)$128,859 $190,531 $289 $190,820 

4


TRECORA RESOURCES AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
 20202019
 (thousands of dollars)
OPERATING ACTIVITIES  
Net Income$31,291 $4,736 
Income (Loss) from Discontinued Operations26,179 (1,120)
Income from Continuing Operations$5,112 $5,856 
Adjustments to Reconcile Income from Continuing Operations To Net Cash Provided by Operating Activities:
Depreciation and Amortization10,629 10,863 
Amortization of Intangible Assets1,382 1,396 
Stock-based Compensation1,423 904 
Deferred Income Taxes14,168 1,268 
Postretirement Obligation(1)(28)
Bad Debt Expense(1)(19)
Amortization of Loan Fees136 136 
Loss on Disposal of Assets9 0 
Changes in Operating Assets and Liabilities:
Decrease in Trade Receivables3,665 1,634 
Decrease in Insurance Receivables1,148 0 
Increase in Taxes Receivable(16,675)0 
Decrease in Inventories2,514 3,253 
(Increase) Decrease in Prepaid Expenses and Other Assets(1,370)914 
Decrease in Accounts Payable and Accrued Liabilities(950)(6,031)
Decrease in Other Liabilities510 267 
Net Cash Provided by Operating Activities - Continuing Operations21,699 20,413 
Net Cash Used in Operating Activities - Discontinued Operations(4,124)(164)
Net Cash Provided by Operating Activities17,575 20,249 
INVESTING ACTIVITIES
Additions to Plant, Pipeline and Equipment(10,309)(6,978)
Proceeds from PEVM150 27 
Net Cash Used in Investing Activities - Continuing Operations(10,159)(6,951)
Net Cash Provided by Investing Activities - Discontinued Operations68,530 2,697 
Net Cash Provided by (Used in) Investing Activities58,371 (4,254)
FINANCING ACTIVITIES
Net Cash Paid Related to Stock-Based Compensation(71)(292)
Additions to CARES Act, PPP Loans6,123 0 
Additions to Long-Term Debt20,000 2,000 
Repayments of Long-Term Debt(56,281)(15,281)
Net Cash Used in Financing Activities - Continuing Operations(30,229)(13,573)
NET INCREASE IN CASH45,717 2,422 
CASH AT BEGINNING OF PERIOD6,145 6,735 
CASH AT END OF PERIOD$51,862 $9,157 
Supplemental disclosure of cash flow information: 
Cash payments for interest$2,023 $3,749 
Cash payments for taxes, net of refunds$3,000 $53 
Supplemental disclosure of non-cash items:
Capital expansion amortized to depreciation expense$690 $426 
Cash held in escrow by AMAK$1,877 $0 
Foreign taxes paid by AMAK$240 $891 

See notes to consolidated financial statements.
5


TRECORA RESOURCES AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)



1. GENERAL


Organization


Trecora Resources (the "Company" or "TREC"), was incorporated in the State of Delaware in 1967. Our principal business activities are the manufacturing of various specialty hydrocarbons and syntheticspecialty waxes and the provision of custom processing services.   Unless the context requires otherwise, references to "we," "us," "our," "TREC," and the "Company" are intended to mean Trecora Resources and its subsidiaries.


This document includes the following abbreviations:
(1)TREC – Trecora Resources
a.TOCCO – Texas Oil & Chemical Co. II, Inc. – Wholly owned subsidiary of TREC and parent of SHR and TC
(2)TOCCO – Texas Oil & Chemical Co. II, Inc. – Wholly owned subsidiary of TREC and parent of SHR and TC
b.SHR – South Hampton Resources, Inc. – Specialty Petrochemicals segment and parent of GSPL
(3)SHR – South Hampton Resources, Inc. – Petrochemical segment and parent of GSPL
c.GSPL – Gulf State Pipe Line Co, Inc. – Pipeline support for the Specialty Petrochemicals segment
(4)GSPL – Gulf State Pipe Line Co, Inc. – Pipeline support for the petrochemical segment
d.TC – Trecora Chemical, Inc. – Specialty Waxes segment
(5)TC – Trecora Chemical, Inc. – Specialty wax segment
e.PEVM – Pioche Ely Valley Mines, Inc. – Inactive mine – 55% ownership
(6)AMAK – Al Masane Al Kobra Mining Company – Mining equity investment – 33% ownership
f.AMAK – Al Masane Al Kobra Mining Company – Held-for-sale mining equity investment & discontinued operations
(7)PEVM – Pioche Ely Valley Mines, Inc. – Inactive mine - 55% ownership


Basis of Presentation


The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP") for interim financial information and in conformity with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these unaudited financial statements do not include all of the information and footnotes required by GAAP for complete financial statements and, therefore, should be read in conjunction with the financial statements and related notes contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2016.2019.


The unaudited condensed consolidated financial statements included in this document have been prepared on the same basis as the annual condensed financial statements and in management's opinion reflect all adjustments, including normal recurring adjustments, necessary to present fairly the Company's financial position, results of operations and cash flows for the interim periods presented. We have made estimates and judgments affecting the amounts reported in this document. The actual results that we experience may differ materially from our estimates. In the opinion of management, the disclosures included in these financial statements are adequate to make the information presented not misleading.


Operating results for the nine months ended September 30, 2017,2020 are not necessarily indicative of results for the year ending December 31, 2017.2020.


We currently operate in two2 segments, specialty petrochemical productsSpecialty Petrochemicals and specialty synthetic waxes.Specialty Waxes. All revenue originates from sources in the United States' sources,States, and all long-lived assets owned are located in the United States.


In addition, on September 28, 2020, we own a 33%completed the final closing of the sale of our ownership interest in AMAK, a Saudi Arabian closed joint stock company, which owns, operates and is developing mining assets in Saudi Arabia. We account for ourOur investment underwas classified as held-for-sale and the equity method of accounting.in earnings (losses) are recorded in discontinued operations. See Note 17.5 for additional discussion.


Certain reclassifications have been made to the Consolidated Balance Sheet for the year ended December 31, 2016, related to our adoption of
2. RECENT ACCOUNTING PRONOUNCEMENTS

Recently Adopted Accounting Pronouncements

Effective January 1, 2020, we adopted Financial Accounting StandardsStandard Board ("FASB") Accounting Standards Update ("ASU") 2015-172016-13, Measurement of Credit Losses on Financial Instruments, which changed the way entities recognize impairment of most financial assets. Short-term and long-term financial assets, as noted below in Note 2.

The impact ofdefined by the adoption ASU 2015-17 on the Company's previously issued December 31, 2016, balance sheet is as follows:


standard, are impacted by
6


immediate recognition of Contents
5
  
As Originally
Reported
  
As Retrospectively
Adjusted
 
  (in thousands) 
Deferred income tax asset, current $1,615  $- 
Total current assets  57,562   55,947 
Total assets  292,099   290,484 
Deferred income tax liability, noncurrent  24,698   23,083 
Total liabilities  127,723   126,108 
Total liabilities and equity  292,099   290,484 

2. RECENT ACCOUNTING PRONOUNCEMENTS

In May 2014 the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers ("ASU 2014-09"). ASU 2014-09 supersedes the revenue recognition requirements of FASB Accounting Standards Codification ("ASC") Topic 605, Revenue Recognition and most industry-specific guidance throughout the Accounting Standards Codification, resultingestimated credit losses in the creation of FASB ASC Topic 606, Revenue from Contracts with Customers. ASU 2014-09 requires entities to recognize revenue in a way that depictsfinancial statements, reflecting the transfer of promised goods or services to customers in annet amount that reflects the consideration to which the entity expectsexpected to be entitled to in exchange for those goods or services. This ASU provides alternative methodscollected. The adoption of retrospective adoption and is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. Early adoption would be permitted butthis standard did not before annual periods beginning after December 15, 2016. The Company is evaluating the impact of these amendments, although it does not expect the amendments to have a significantmaterial impact to the Company'son our condensed consolidated financial position or results of operation. The amendments could potentially impact the accounting procedures and processes over the recognition of certain revenue sources. The Company has begun developing processes and procedures to ensure it is fully compliant with these amendments at the date of adoption.statements.


Recent Accounting Pronouncements Not Yet Adopted

In November 2015December 2019, the FASB issued ASU No. 2015-17, 2019-12, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes. The new standard eliminatesSimplifying the current requirementAccounting for organizations to present deferred tax liabilities and assets as current and noncurrent in a classified balance sheet. Instead, organizationsIncome Taxes (ASU 2019-12), which simplifies the accounting for income taxes. This guidance will be required to classify all deferred tax assets and liabilities as noncurrent. The amendments are effective for financial statements issued for annual periods beginning after December 15, 2016,us in the first quarter of 2021 on a prospective basis, and interim periods within those annual periods.early adoption is permitted. The Company implemented ASU 2015-17 by classifying alldoes not expect an impact of it deferred tax assets (liabilities) as noncurrentthe new guidance on January 1, 2017. See Note 1 for effect to the Balance Sheet for December 31, 2016our condensed consolidated financial statements.


In February 2016March 2020, the FASB issued ASU No. 2016-02, Leases2020–04, Reference Rate Reform (Topic 842)848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (ASU 2020-04), which provides guidance to increase transparencyalleviate the burden in accounting for reference rate reform by allowing certain expedients and comparability among organizationsexceptions in applying generally accepted accounting principles to contracts, hedging relationships, and other transactions impacted by recognizing all leasereference rate reform. The provisions of ASU 2020-04 apply only to those transactions (with terms in excess of 12 months) on the balance sheet as a lease liability and a right-of-use asset (as defined). The ASUthat reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. This guidance is effective for fiscal years beginning afterfrom March 12, 2020 through December 15, 2018, including interim periods within those fiscal years, with earlier application permitted.  Upon31, 2022 and adoption the lessee will apply the new standard retrospectively to all periods presented or retrospectively using a cumulative effect adjustment in the year of adoption.  The Company has several lease agreements for which the amendments will require the Company to recognize a lease liability to make lease payments and a right-of-use asset which will represent its right to use the underlying asset for the lease term. The Company is optional. We are currently reviewing the amendments to ensure it is fully compliant by the adoption date and does not expect to early adopt. As permitted by the amendments, the Company is anticipating electing an accounting policy to not recognize lease assets and lease liabilities for leases with a term of twelve months or less. The Company is currently in the process of fully evaluating the amendments and will subsequently implement new processes which are not expected to significantly change since the Company already has processes for certain lease agreements that recognize the lease assets and lease liabilities. In addition, the Company will change its current accounting policies to comply with the amendments with such changes as mentioned above.impact of ASU 2020-04 on our condensed consolidated financial statements.


In March 2016 the FASB issued ASU No. 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which will reduce complexity in accounting standards related to share-based payment transactions, including, among others, (1) accounting for income taxes, (2) classification of excess tax benefits on the statement of cash flow, (3) forfeitures, and (4) statutory tax withholding requirements.  The ASU is effective for annual reporting periods beginning on or after December 15, 2016, and interim periods within those annual periods.  The Company implemented the amendments as of January 1, 2017. The stock based compensation plan has not historically generated material amounts of excess tax benefits or deficiencies and, therefore, there is no material change in the Company's financial position or results of operation, as a result of adopting this Update. For additional information on the stock-based compensation plan, see Note 13.

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In January 2017 the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350).  The amendments in ASU 2017-04 simplify the measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Instead, under these amendments, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value; however, the loss should not exceed the total amount of goodwill allocated to that reporting unit. The amendments are effective for public business entities for the first interim and annual reporting periods beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.The amendments also eliminate the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary.  The Company has goodwill from a prior business combination and performs an annual impairment test or more frequently if changes or circumstances occur that would more-likely-than-not reduce the fair value of the reporting unit below its carrying value. During the year ended December 31, 2016, the Company performed its impairment assessment and determined the fair value of the aggregated reporting units exceed the carrying value, such that the Company's goodwill was not considered impaired. Although the Company cannot anticipate future goodwill impairment assessments, based on the most recent assessment, it is unlikely that an impairment amount would need to be calculated and, therefore, the Company does not anticipate a material impact from these amendments to the Company's financial position and results of operations. The current accounting policies and processes are not anticipated to change, except for the elimination of the Step 2 analysis.

3. TRADE RECEIVABLES


Trade receivables, net, consisted of the following:

 September 30, 2020December 31, 2019
 (thousands of dollars)
Trade receivables$23,084 $26,749 
Less allowance for doubtful accounts(428)(429)
Trade receivables, net$22,656 $26,320 
  September 30, 2017  December 31, 2016 
  (thousands of dollars) 
Trade receivables $23,038  $22,493 
Less allowance for doubtful accounts  (300)  (300)
    Trade receivables, net $22,738  $22,193 


Trade receivables servesserve as collateral for our amended and restated credit agreement. See Note 10.11.


4. PREPAID EXPENSES AND OTHER ASSETS

Prepaid expenses and other assets consisted of the following:

  September 30, 2017  December 31, 2016 
  (thousands of dollars) 
Prepaid license $1,919  $1,919 
Prepaid catalyst  55   187 
Prepaid insurance  255   797 
Other prepaid expenses and assets  1,047   608 
    Total $3,276  $3,511 

5. INVENTORIES


Inventories included the following:

 September 30, 2017  December 31, 2016  September 30, 2020December 31, 2019
 (thousands of dollars)  (thousands of dollars)
Raw material $2,390  $3,627 Raw material$2,543 $2,100 
Work in process  66   12 Work in process122 142 
Finished products  9,960   14,232 Finished products8,445 11,382 
Spare parts ��433   - 
Total inventory $12,849  $17,871 Total inventory$11,110 $13,624 
Effective January 1, 2017, we changed the inventory basis of SHR to FIFO.  We believe that the use of FIFO more accurately reflects current inventory valuation.  The drop in crude oil prices over the last several years has caused LIFO
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value of inventory to be above the FIFO value for each period presented.  There was no LIFO reserve in any of the periods in this filing; therefore, no change is reflected in our current statements for the retrospective application.

Prior to this change, the difference between the calculated value of inventory under the FIFO and LIFO bases generated either a recorded LIFO reserve (i.e., where FIFO value exceeds the LIFO value) or an unrecorded negative LIFO reserve (i.e., where LIFO value exceeds the FIFO value).  In the latter case, in order to ensure that inventory was reported at the lower of cost or market and in accordance with ASC 330-10, we did not increase the stated value of our inventory to the LIFO value.  At December 31, 2016, LIFO value of petrochemical inventory exceeded FIFO; therefore, in accordance with the above policy, no LIFO reserve was recorded.


Inventory serves as collateral for our amended and restated credit agreement. See Note 10.11.


Inventory included petrochemicalSpecialty Petrochemicals products in transit valued at approximately $2.7$2.8 million and $2.1$2.9 million at September 30, 2017,2020 and December 31, 2016,2019, respectively.


Beginning January 1, 2017, due
5. INVESTMENT IN AMAK AND DISCONTINUED OPERATIONS

On September 30, 2020 the Company completed the final closing of the previously disclosed sale of its ownership interest in AMAK (the "Share Sale") to AMAK and certain existing shareholders of AMAK and their assignees (collectively, the "Purchasers"). The Share Sale was completed in multiple closings pursuant to a Share Sale and Purchase Agreement, dated September 22, 2019 (as amended, the "Purchase Agreement"), among the Company, AMAK, and other Purchasers and resulted in aggregate gross proceeds to the expansionCompany of our plantSaudi Riyals ("SAR") 265 million (approximately $70 million) (before taxes and expenses). The Company used a portion of the approximately $60 million in net proceeds from the Share Sale to prepay outstanding borrowings of $30 million under the term loan facility (the "Term Loan Facility") of the Company's amended and restated credit agreement (as amended, the "ARC Agreement"). As of December 31, 2019, the
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Company had a non-controlling equity interest of 33.3% in AMAK of approximately $32.9 million. This investment was accounted for under the equity method.

As a condition to the effectiveness of the Purchase Agreement, the Purchasers advanced 5% of the purchase price (or approximately $3.5 million) in the form of a non-refundable deposit. Pursuant to the Purchase Agreement, (i) with respect to any Purchaser that completed the purchase of all or a portion of the ordinary shares allotted to it under the Purchase Agreement on or before March 31, 2020, the non-refundable deposit paid by such Purchaser (or a portion of such deposit for a partial closing) was credited toward the purchase price of the ordinary shares being purchased and (ii) with respect to any Purchasers that complete the purchase of all or a portion of their allotted ordinary shares after March 31, 2020 but on or before September 28, 2020, an amount equal to 50% of the non-refundable deposit paid by such Purchasers was forfeited to the Company as liquidated damages and such amount was not applied to the purchase price paid by the applicable Purchaser.

On March 26, 2020, the Company and one Purchaser completed the first closing of the Share Sale (the “First Closing”). In connection with the First Closing, the Company sold 4,000,000 ordinary shares for aggregate gross proceeds (before taxes and transaction expenses) of SAR 40 million (or approximately $10.7 million) (inclusive of the full amount of the Purchaser’s non-refundable deposit previously paid of $0.5 million). The Company recorded a foreign tax payable of approximately $0.3 million related to the First Closing.

During the three months ended September 30, 2020, the Company completed additional closings of the Share Sale with respect to its remaining ownership interest in AMAK. In connection with these closings, the Company sold a total of 22,467,422 ordinary shares for aggregate gross proceeds (before taxes and transaction expenses) of SAR 224 million (or approximately $59.9 million) (inclusive of $1.5 million which constitutes 50% of the non-refundable deposits previously paid by certain Purchasers). As none of these third quarter 2020 closings were completed prior to March 31, 2020, the remaining portion of the initial deposits (approximately $1.5 million) were forfeited to the Company as liquidated damages and were not applied to the purchase price. These amounts are included in income from discontinued operations, net of tax. The Company recorded a foreign tax payable of approximately $1.8 million related to the third quarter 2020 closings.

In connection with the completion of the Share Sale, the Company and AMAK entered into an agreement whereby AMAK agreed to withhold approximately $2.1 million of the purchase price to pay the Company's tax obligations in Saudi Arabia. The Company is in the process of finalizing and filing the necessary tax returns in the Kingdom of Saudi Arabia. Upon payment, the Company will have a foreign tax credit which can be used to offset U.S. taxes. As of September 30, 2020, approximately $0.2 million of foreign taxes have been paid. The remaining funds withheld by AMAK are included in prepaid expenses and other assets on the Company's condensed consolidated balance sheet as of September 30, 2020.

As previously disclosed, and as a result of the Company’s investment in AMAK, the Company was required to execute a limited guarantee on October 24, 2010 (the “Guarantee”) of up to 41% of a loan (the “Loan”) by the Saudi Industrial Development Fund ("SIDF") to AMAK to fund the continued construction of the AMAK facilities and to provide working capital needs. The provision of personal or corporate guarantees, as applicable, by each shareholder of AMAK was a condition to SIDF providing the Loan. Pursuant to the Purchase Agreement, the Purchasers (other than AMAK) agreed, upon the completion of the Share Sale, to assume the Company’s obligation under the Guarantee (proportionately based upon such Purchaser’s percentage acquisition of ordinary shares in the Share Sale). While a formal written release of the Company from the Guarantee was not obtained from SIDF prior to closing, the Company believes that the Purchasers’ assumption of the Company’s obligation under the Guarantee effectively eliminates the Company’s liability arising under the Guarantee.

Included in discontinued operations are the following:
 Three Months Ended September 30,Nine Months Ended
September 30,
 2020201920202019
 (thousands of dollars)(thousands of dollars)
Saudi administration and transaction expenses$(2,605)$0 $(2,490)$0 
Equity in earnings (losses) of AMAK682 (942)455 (1,093)
Gain (loss) on sale of equity interest28,510 (325)35,173 (325)
Income (loss) from discontinued operations before taxes26,587 (1,267)33,138 (1,418)
Tax (expense) benefit(5,263)265 (6,959)298 
Income (loss) from discontinued operations, net of tax$21,324 $(1,002)$26,179 $(1,120)

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AMAK's financial statements were prepared in the functional currency of AMAK which is the SAR. In June 1986 the SAR was officially pegged to the U. S. Dollar at SHRa fixed exchange rate of 1 USD to 3.75 SAR.

The summarized results of operations and TC, we began inventorying spare partsfinancial position for AMAK are as follows:

Results of Operations
 Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
 (thousands of dollars)(thousands of dollars)
Sales$23,943 $19,643 $62,632 $60,873 
Cost of sales18,644 19,072 53,294 55,804 
Gross profit5,299 571 9,338 5,069 
Selling, general, and administrative3,808 3,557 8,850 9,102 
Operating income (loss)1,491 (2,986)488 (4,033)
Other income16 43 33 396 
Finance and interest expense(237)(456)(871)(1,349)
Income (loss) before Zakat and income taxes1,270 (3,399)(350)(4,986)
Zakat and income tax (benefit)(240)444 859 1,332 
Net Income (Loss)$1,510 $(3,843)$(1,209)$(6,318)

Financial Position
 September 30,December 31,
 20202019
 (thousands of dollars)
Current assets$37,945 $45,354 
Noncurrent assets204,865 196,564 
Total assets$242,810 $241,918 
Current liabilities$23,622 $27,645 
Long term liabilities100,698 79,348 
Stockholders' equity118,490 134,925 
 $242,810 $241,918 
The equity in the earnings (losses) of AMAK included in income (loss) from discontinued operations, net of tax, on the consolidated statements of operations for the repairthree and maintenancenine months ended September 30, 2020 and 2019, is comprised of the following:
 Three Months Ended
September 30,		Nine Months Ended
September 30,
 2020201920202019
 (thousands of dollars)(thousands of dollars)
AMAK Net Income (Loss)1,510 (3,843)(1,209)(6,318)
Company's share of income (loss) reported by AMAK345 *(1,279)(555)*(2,103)
Amortization of difference between Company's investment in AMAK and Company's share of net assets of AMAK337 337 1,010 1,010 
Equity in earnings (losses) of AMAK682 (942)455 (1,093)
* Percentage of Ownership varies during the period.

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For additional information, see NOTE 6, "INVESTMENT IN AMAK AND DISCONTINUED OPERATIONS" to the consolidated financial statements set forth in our plant, pipeline and equipment.Annual Report on Form 10–K for the year ended December 31, 2019.



6. PREPAID EXPENSES AND OTHER ASSETS

Prepaid expenses and other assets consisted of the following:
 September 30, 2020December 31, 2019
 (thousands of dollars)
Prepaid license$605 $1,209 
Prepaid insurance premiums1,767 0 
Spare parts2,330 1,857 
Insurance receivable0 1,148 
Cash held in escrow by AMAK1,877 0 
Other prepaid expenses and assets437 733 
Total prepaid expenses and other assets$7,016 $4,947 

7. PLANT, PIPELINE AND EQUIPMENT


Plant, pipeline and equipment consisted of the following:

September 30, 2020December 31, 2019
 (thousands of dollars)
Platinum catalyst metal$1,580 $1,580 
Catalyst4,328 4,095 
Land5,428 5,428 
Plant, pipeline and equipment266,128 258,651 
Construction in progress7,516 5,052 
Total plant, pipeline and equipment$284,980 $274,806 
Less accumulated depreciation(97,082)(85,887)
Net plant, pipeline and equipment$187,898 $188,919 

  September 30, 2017  December 31, 2016 
  (thousands of dollars) 
Platinum catalyst metal $1,612  $1,612 
Land  5,428   5,376 
Plant, pipeline and equipment  183,472   154,107 
Construction in progress  42,930   33,391 
Total plant, pipeline and equipment  233,442   194,486 
  Less accumulated depreciation  (61,394)  (54,477)
Net plant, pipeline and equipment $172,048  $140,009 



Plant, pipeline, and equipment serve as collateral for our amended and restated credit agreement. See Note 10.11.

Interest capitalized for construction was approximately $218,000 and $52,000 for the three and $878,000 and $124,000 for the nine months ended September 30, 2017, and September 30, 2016, respectively.


Construction in progress during the first nine months of 20172020 included Advanced Reformer unit improvements and pipeline maintenance at SHR and equipment modifications at TC. Construction in progress during the first nine months of 2019 included equipment purchased for the hydrogenation/distillation project andvarious equipment updates to B Plant equipment at the TC facility; new reformerfacility, the Advanced Reformer unit, tankage upgrades, and an addition to the rail spur at SHR.


Amortization relating to the platinum catalyst, which is included in cost of sales, was approximately $0$0.2 million and $25,000$0.2 million for the three months ended September 30, 2020 and $25,0002019, respectively, and $72,000$0.7 million and $0.7 million for the nine months ended September 30, 2017,2020 and 2016,2019, respectively.


7. GOODWILL AND
8. LEASES

The Company leases certain rail cars, rail equipment, office space and office equipment. The Company determines if a contract is a lease at the inception of the arrangement. The Company reviews all options to extend, terminate, or purchase its right-of-use assets at the inception of the lease and accounts for these options when they are reasonably certain of being exercised.

Leases with an initial term of 12 months or less are not recorded on the Condensed Consolidated Balance Sheets. Lease expense for these leases is recognized on a straight-line basis over the lease term.

The Company has no finance leases.
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The components of lease expense were as follows:
($ in thousands)Classification in the Condensed Consolidated Statements of IncomeThree Months Ended
September 30,		Nine Months Ended
September 30,
2020201920202019
Operating lease cost (a)Cost of sales, exclusive of depreciation and amortization$1,115 $1,114 $3,036 $3,369 
Operating lease cost (a)Selling, general and administrative34 34 102 103 
Total lease cost $1,149 $1,148 $3,138 $3,472 
(a) Short-term lease costs were approximately $0.2 million and $0.1 million for the three months ended September 30, 2020 and 2019, respectively. Short-term lease costs were approximately $0.3 million and $0.1 million for the nine months ended September 30, 2020 and 2019, respectively.

The Company had 0 variable lease expense, as defined by ASC 842, during the periods.
($ in thousands)Classification on the Condensed Consolidated Balance SheetsSeptember 30, 2020December 31, 2019
Assets: 
OperatingOperating lease assets$11,154 $13,512 
Total leased assets $11,154 $13,512 
Liabilities: 
Current: 
OperatingCurrent portion of operating lease liabilities$3,148 $3,174 
Noncurrent: 
OperatingOperating lease liabilities8,006 10,338 
Total lease liabilities $11,154 $13,512 
Three Months Ended
September 30,		Nine Months Ended
September 30,
($ in thousands)2020201920202019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows used for operating leases$925 $1,127 $2,806 $2,260 
Right-of-use assets obtained in exchange for lease obligations:
Operating leases$37 $25 $37 $138 
September 30, 2020
Weighted-average remaining lease term (in years):
Operating leases3.9
Weighted-average discount rate:
Operating leases4.5 %

Most of the Company’s lease contracts do not provide a readily determinable implicit rate. For these contracts, the Company’s estimated incremental borrowing rate is based on information available at the inception of the lease.
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As of September 30, 2020, maturities of lease liabilities were as follows:
($ in thousands)Operating Leases
2020$902 
20213,553 
20223,231 
20232,339 
20241,026 
Thereafter1,082 
Total lease payments$12,133 
Less: Interest979 
Total lease obligations$11,154 

9. INTANGIBLE ASSETS, NET


Goodwill and intangibleIntangible assets were recorded in relation to the acquisition of TC on October 1, 2014.


The following tables summarize the gross carrying amounts and accumulated amortization of intangible assets by major class (in thousands):class:

 September 30, 2020
GrossAccumulated AmortizationNet
(thousands of dollars)
Customer relationships$16,852 $(6,741)$10,111 
Non-compete agreements94 (94)0 
Licenses and permits1,471 (680)791 
Developed technology6,131 (3,679)2,452 
Total$24,548 $(11,194)$13,354 

 December 31, 2019
GrossAccumulated AmortizationNet
(thousands of dollars)
Customer relationships$16,852 $(5,898)$10,954 
Non-compete agreements94 (94)0 
Licenses and permits1,471 (601)870 
Developed technology6,131 (3,219)2,912 
Total$24,548 $(9,812)$14,736 

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  September 30, 2017 
Intangible assets subject to amortization
(Definite-lived)
 Gross  
Accumulated
Amortization
  Net 
Customer relationships $16,852  $(3,370) $13,482 
Non-compete agreements  94   (57)  37 
Licenses and permits  1,471   (364)  1,107 
Developed technology  6,131   (1,839)  4,292 
   24,548   (5,630)  18,918 
Intangible assets not subject to amortization
(Indefinite-lived)
            
Emissions Allowance  197   -   197 
Trade name  2,158   -   2,158 
Total $26,903  $(5,630) $21,273 

  December 31, 2016 
Intangible assets subject to amortization
(Definite-lived)
 Gross  
Accumulated
Amortization
  Net 
Customer relationships $16,852  $(2,527) $14,325 
Non-compete agreements  94   (43)  51 
Licenses and permits  1,471   (285)  1,186 
Developed technology  6,131   (1,379)  4,752 
   24,548   (4,234)  20,314 
Intangible assets not subject to amortization
(Indefinite-lived)
            
Emissions Allowance  197   -   197 
Trade name  2,158   -   2,158 
Total $26,903  $(4,234) $22,669 



Amortization expense for intangible assets included in cost of sales was approximately $0.5 million and $0.5 million for the three months ended September 30, 2017,2020 and 2016, was2019, respectively, and approximately $466,000$1.4 million and $471,000 and$1.4 million for the nine months ended September 30, 20172020 and 2016, was approximately $1,396,000 and $1,415,000,2019, respectively.


Based on identified intangible assets that are subject to amortization as of September 30, 2017,2020, we expect future amortization expenses for each period to be as follows (in thousands):


  
Remainder of
2017
  
2018
  
2019
  
2020
  2021  
Thereafter
 
Customer relationships $282  $1,123  $1,123  $1,123   1,123  $8,710 
Non-compete agreements  5   19   12   -   -   - 
Licenses and permits  26   106   106   106   106   656 
Developed technology  153   613   613   613   613   1,687 
Total future amortization expense $466  $1,861  $1,854  $1,842  $1,842  $11,053 


8. NET INCOME PER COMMON SHARE ATTRIBUTABLE TO TRECORA RESOURCES


The following table (in thousands, except per share amounts) sets forth the computation of basic and diluted net income per share attributable to Trecora Resources for the three and nine months ended September 30, 2017, and 2016, respectively.

follows:
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TotalRemainder of 202020212022202320242025Thereafter
(thousands of dollars)
Customer relationships$10,111 $281 $1,123 $1,123 1,123 1,123 1,123 $4,215 
Licenses and permits791 26 101 86 86 86 86 320 
Developed technology2,452 153 613 613 613 460 0 0 
Total future amortization expense$13,354 $460 $1,837 $1,822 $1,822 $1,669 $1,209 $4,535 

  
Three Months Ended
September 30, 2017
  
Three Months Ended
September 30, 2016
 
        Per Share        Per Share 
  Income  Shares  Amount  Income  Shares  Amount 
Basic Net Income per Share:                  
Net Income Attributable to Trecora Resources $1,718   24,304  $0.07  $2,799   24,223  $0.12 
                         
Unvested restricted stock grant      379           304     
Dilutive stock options outstanding      474           394     
                         
Diluted Net Income per Share:                        
Net Income Attributable to Trecora Resources $1,718   25,157  $0.07  $2,799   24,921  $0.11 

  
Nine Months Ended
September 30, 2017
  
Nine Months Ended
September 30, 2016
 
        Per Share        Per Share 
  Income  Shares  Amount  Income  Shares  Amount 
Basic Net Income per Share:                  
Net Income Attributable to Trecora Resources $4,037   24,267  $0.17  $20,275   24,304  $0.83 
                         
Unvested restricted stock grant      360           297     
Dilutive stock options outstanding      455           363     
                         
Diluted Net Income per Share:                        
Net Income Attributable to Trecora Resources $4,037   25,082  $0.16  $20,275   24,964  $0.81 

At September 30, 2017, and 2016, 1,334,087 and 1,348,437 potential common stock shares, respectively were issuable upon the exercise of options and warrants.

9.10. ACCRUED LIABILITIES


Accrued liabilities consisted of the following:

  September 30, 2017  December 31, 2016 
  (thousands of dollars) 
Accrued property taxes $2,188  $- 
Accrued payroll  1,563   1,097 
Accrued officer compensation  900   - 
Accrued shortfall fees  586   - 
Other  1,067   920 
    Total $6,304  $2,017 

 September 30, 2020December 31, 2019
 (thousands of dollars)
Property taxes2,526 0 
Payroll2,923 1,250 
Royalties133 273 
Officer compensation891 1,687 
Foreign taxes2,237 0 
AMAK transaction costs3,648 1,000 
Other834 1,530 
Total$13,192 $5,740 
10.
11. LIABILITIES AND LONG-TERM DEBT


On October 1, 2014, we entered into an AmendedSenior Secured Credit Facilities

As of September 30, 2020, the Company had 0 outstanding borrowings under the Revolving Facility and Restated Credit Agreement ("ARC")approximately $47.1 million in borrowings outstanding under the Term Loan Facility (and, together with the lenders which from timeRevolving Facility, the "Credit Facilities"). In addition, the Company had approximately $56 million of availability under our Revolving Facility at September 30, 2020. TOCCO’s ability to time are partiesmake additional borrowings under the Revolving Facility at September 30, 2020 was limited by, and in the future may be limited by, the Company's obligation to maintain compliance with the covenants contained in the ARC and BankAgreement (including maintenance of America, N.A., as Administrative Agent for the Lenders, and Merrill Lynch, Pierce, Fenner & Smith Incorporated as Lead Arranger. On March 28, 2017, we entered into a Second Amendment to the ARC with terms which increase the Maximummaximum Consolidated Leverage Ratio financial covenant of 3.25x to 4.00x at March 31, 2017, and 4.25x at June 30, 2017, before stepping down to 3.75x at September 30, 2017, 3.50x at December 31, 2017, and reverting to the original financial covenant of 3.25x at March 31, 2018.

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For Fiscal Quarter EndingMaximum Consolidated Leverage Ratio
March 31, 20174.00 to 1.00
June 30, 20174.25 to 1.00
September 30, 20173.75 to 1.00
December 31, 20173.50 to 1.00
March 31, 2018 and each fiscal quarter thereafter3.25 to 1.00

The Second Amendment also reduces the Minimumminimum Consolidated Fixed Charge Coverage Ratio of 1.25x to 1.10x at March 31, 2017, 1.05x at June 30, 2017(each as defined in the ARC Agreement)).

On May 8, 2020, TOCCO, SHR, GSPL and September 30, 2017, 1.10x at December 31, 2017, before revertingTC entered into a Seventh Amendment to the original financial covenant of 1.25x at March 31, 2018.

For Fiscal Quarter Ending
Minimum Consolidated Fixed Charge Coverage Ratio
March 31, 20171.10ARC Agreement. Pursuant to the Seventh Amendment, certain amendments were made to 1.00
June 30, 20171.05 to 1.00
September 30, 20171.05 to 1.00
December 31, 20171.10 to 1.00
March 31, 2018 and each fiscal quarter thereafter1.25 to 1.00

Also, under the terms of the Second Amendment, twoARC Agreement, including, among other things, to (a) permit the incurrence of additional levelsindebtedness in the form of pricing were added – levels 4loans (the "PPP Loans") under the United States Small Business Administration Paycheck Protection Program (the "PPP") and 5.(b) exclude the PPP Loans from the calculation of the Consolidated Leverage Ratio until such time that any portion of the PPP Loans are not forgiven in accordance with the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act").

 
Level
 
Consolidated Leverage Ratio
 
LIBOR Margin
 
Base Rate Margin
 
Commitment Fee
1Less than 1.50 to 1.002.00%1.00%0.25%
2Greater than or equal to 1.50 to 1.00 but less than 2.00 to 1.002.25%1.25%0.25%
3Greater than or equal to 2.00 to 1.00 but less than 3.00 to 1.002.50%1.50%0.375%
4Greater than or equal to 3.00 to 1.00 but less than 3.50 to 1.002.75%1.75%0.375%
5Greater than or equal to 3.50 to 1.003.00%2.00%0.375%


We were in compliance with all covenants atFor each fiscal quarter after December 31, 2019, TOCCO must maintain a maximum Consolidated Leverage Ratio of 3.50 to 1.00 (subject to temporary increase following certain acquisitions). TOCCO's Consolidated Leverage Ratio was 1.62 and 2.62 as of September 30, 2017.

On July 25, 2017, Texas Oil & Chemical Co. II, Inc. ("TOCCO"), South Hampton Resources, Inc. ("SHR"), Gulf State Pipe Line Company, Inc. ("GSPL"),2020 and Trecora Chemical, Inc. ("TC") (SHR, GSPLJune 30, 2020, respectively. Additionally, TOCCO must maintain a minimum Consolidated Fixed Charge Coverage Ratio as of the end of any fiscal quarter of 1.15 to 1.00. TOCCO's Consolidated Fixed Charge Coverage Ratio was 1.68 and TC collectively1.98 as of September 30, 2020 and December 31, 2019, respectively. As noted above, the "Guarantors") entered into a Third Amendment to Amended and Restated Credit Agreement ("3rd Amendment")Consolidated Leverage Ratio specifically excludes the PPP Loans until such time that any portion of the PPP Loans are not forgiven in accordance with the lenders whichCARES Act. The Company used a portion of the approximately $60 million in net proceeds from timethe Share Sale, discussed in Note 5, to time are parties toprepay outstanding borrowings of $30 million under the Amended and Restated Credit  Agreement (collectively,Term Loan Facility of the "Lenders") and Bank of America, N.A., a national banking association, as Administrative AgentCompany's ARC Agreement.
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The maturity date for the Lenders.  The 3rd Amendment increased the Revolving Facility from $40,000,000 to $60,000,000.  There were no other changes to the Revolving Facility.  Under the ARC as amended, we have a $60.0 million revolving line of credit which matures on October 1, 2019.Agreement is July 31, 2023. As of September 30, 2017, and December 31, 2016, there was a long-term amount of $23.0 million and $9.0 million outstanding, respectively.  The2020, the year to date effective interest rate onfor the loan varies according to several options.  Interest onCredit Facilities was 2.84%. The ARC Agreement contains a number of customary affirmative and negative covenants and the loan is paid monthly andCompany was in compliance with those covenants as of September 30, 2020.

For a commitment feesummary of between 0.25% and 0.375% is due quarterly on the unused portionadditional terms of the loan.  At September 30, 2017, approximately $37.0 million was available to be drawn.  Under the Second Amendment we could draw $31.0 million and maintain compliance with our covenants.

Under the ARC, we also borrowed $70.0 million in a single advance term loan (the "Acquisition Loan") to partially finance the acquisition of TC.  Interest on the Acquisition Loan is payable quarterly using a ten year commercial style amortization.  Principal is also payable on the last business day of each March, June, September and December in an amount equal to $1,750,000, provided that the final installment on the September 30, 2019, maturity date shall be in an amount equalCredit Facilities, see NOTE 13, “LONG-TERM DEBT AND LONG-TERM OBLIGATIONS" to the then outstanding unpaid principal balance of the Acquisition Loan.  At September 30, 2017, there was a short-term amount of $7.0 million and a long-term amount of $42.0 million outstanding.  At December 31, 2016, there was a short-term amount of $8.8 million and a long-term amount of $47.3 million outstanding.

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Under the ARC, we also had the right to borrow $25.0 millionconsolidated financial statements set forth in a multiple advance loan ("Term Loans").  Borrowing availability under the Term Loans ended on December 31, 2015.  The Term Loans converted from a multiple advance loan to a "mini-perm" loan once certain obligations were fulfilled such as certification that construction of D-Train was completed in a good and workmanlike manner, receipt of applicable permits and releases from governmental authorities, and receipt of releases of liens from the contractor and each subcontractor and supplier.  Interest on the Term Loans is paid monthly.  At September 30, 2017, there was a short-term amount of $1.3 million and a long-term amount of $16.3 million outstanding.  At December 31, 2016, there was a short-term amount of $1.7 million and a long-term amount of $17.3 million outstanding.

Debt issuance costs of approximately $0.6 million and $0.7 million for the periods ended September 30, 2017, and December 31, 2016, have been netted against outstanding loan balances.   The interest rate on all of the above loans varies according to several options as defined in the ARC.  At September 30, 2017, and December 31, 2016, the rate was 3.74% and 3.27%, respectively.

The following table summarizes the carrying amounts and debt issuance costs of our long-term debt (in thousands):

  September 30, 2017  December 31, 2016 
       
Acquisition loan $49,000  $56,000 
Term loan  17,666   19,000 
Revolving facility  23,000   9,000 
Total  89,666   84,000 
Less debt issuance costs  594   748 
Carrying balance of debt $89,072  $83,252 


11. FAIR VALUE MEASUREMENTS

The following items are measured at fair value on a recurring basis subject to disclosure requirements of ASC Topic 820 at September 30, 2017, and December 31, 2016:

Assets and Liabilities Measured at Fair Value on a Recurring Basis

     Fair Value Measurements Using 
  September 30, 2017  Level 1  Level 2  Level 3 
  (thousands of dollars) 
Liabilities:            
Interest rate swap $7   -  $7   - 

     Fair Value Measurements Using 
  December 31, 2016  Level 1  Level 2  Level 3 
  (thousands of dollars) 
Liabilities:            
Interest rate swap $58   -  $58   - 

The carrying value of cash, trade receivables, accounts payable, accrued liabilities, and other liabilities approximate fair value due to the immediate or short-term maturity of these financial instruments. The fair value of variable rate long term debt reflects recent market transactions and approximate carrying value.  We used other observable inputs that would qualify as Level 2 inputs to make our assessment of the approximate fair value of our cash, trade receivables,  accounts payable, accrued liabilities,  other liabilities and variable rate long term debt.  The fair value of the derivative instruments are described below.

Interest Rate Swap

In March 2008 we entered into an interest rate swap agreement with Bank of America related to a $10.0 million term loan secured by plant, pipeline and equipment.  The interest rate swap was designed to minimize the effect of changes in the London InterBank Offered Rate ("LIBOR") rate.  We had designated the interest rate swap as a cash flow hedge under ASC Topic 815, Derivatives and Hedging; however, due to the ARC, we felt that the hedge was no longer entirely effective.  Due to the time required to make the determination and the immateriality of the hedge, we began treating it as ineffective as of October 1, 2014.

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We assess the fair value of the interest rate swap using a present value model that includes quoted LIBOR rates and the nonperformance risk of the Company and Bank of America based on the Credit Default Swap Market (Level 2 of fair value hierarchy).

We have consistently applied valuation techniques in all periods presented and believe we have obtained the most accurate information available for the types of derivative contracts we hold. See discussion of our derivative instruments in Note 12.

12. DERIVATIVE INSTRUMENTS

Interest Rate Swap

In March 2008, we entered into a pay-fixed, receive-variable interest rate swap agreement with Bank of America related to a $10.0 million (later increased to $14 million) term loan secured by plant, pipeline and equipment. The effective date of the interest rate swap agreement was August 15, 2008, and terminates on December 15, 2017.  The notional amount of the interest rate swap was $1.0 million and $1.75 million at September 30, 2017, and December 31, 2016, respectively.  We receive credit for payments of variable rate interest made on the term loan at the loan's variable rates, which are based upon the London InterBank Offered Rate (LIBOR), and pay Bank of America an interest rate of 5.83% less the credit on the interest rate swap.  We originally designated the transaction as a cash flow hedge according to ASC Topic 815, Derivatives and Hedging.  Beginning on August 15, 2008, the derivative instrument was reported at fair value with any changes in fair value reported within other comprehensive income (loss) in the Company's Statement of Stockholders' Equity.  We entered into the interest rate swap to minimize the effect of changes in the LIBOR rate.

Due to the ARC discussed in Note 10, we believe that the hedge is no longer entirely effective; therefore, we began treating the interest rate swap as ineffective at that point.  The changes in fair value are now recorded in the Statement of Income.  For the three months ended September 30, 2017, an unrealized loss of approximately $1,000 and a realized loss of approximately $14,000 were recorded.  For the nine months ended September 30, 2017, an unrealized gain of approximately $1,000 and a realized loss of approximately $53,000 were recorded. For the three months ended September 30, 2016, an unrealized gain of approximately $5,000 and a realized loss of approximately $30,000 were recorded.  For the nine months ended September 30, 2016, an unrealized loss of approximately $9,000 and a realized loss of approximately $100,000 were recorded.

The following table shows (in thousands) the impact the agreement had on the financial statements:

  September 30, 2017  December 31, 2016 
       
Fair value of interest rate swap  - liability $7  $58 

13. STOCK-BASED COMPENSATION

Stock-based compensation of approximately $716,000 and $608,000 during the three months and $2,005,000 and $1,882,000 during the nine months ended September 30, 2017, and 2016, respectively, was recognized.

Restricted Stock Unit Awards

On June 16, 2017, we awarded approximately 127,000 shares of restricted stock units to officers at a grant date price of $11.40.  One-half of the restricted stock units vest ratably over three years.  The other half vests at the end of three years based upon the performance metrics of return on invested capital and earnings per share growth.  The number of shares actually granted will be adjusted based upon relative performance to our peers.  Compensation expense recognized during the three and nine months ended September 30, 2017, was approximately $121,000 and $161,000, respectively.

Director compensation of approximately $56,000 and $19,000 during the three months and $169,000 and $32,000 during the nine months ended September 30, 2017, and 2016, respectively, was recognized related to restricted stock unit awards granted to directors vesting through 2020.

Officer compensation of approximately $106,000 and $105,000 was recognized during the three months and $316,000 and $246,000 during the nine months ended September 30, 2017, and 2016, respectively, related to restricted stock unit awards granted to officers.  One-half of the restricted stock units vest ratably over three years.  The other half vests at the end of the three years based upon the performance metrics of return on invested capital and earnings per share growth.  The number of shares actually granted will be adjusted based upon relative performance to our peers.

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Director compensation of approximately $0 and $19,000 was recognized during the three months and $6,000 and $124,000 during the nine months ended September 30, 2017, and 2016, respectively, related to an award of restricted stock units to a director.  The restricted stock unit award vests over 4 years in 20% increments.

Director compensation of approximately $19,000 and $19,000 during the three months and $56,000 and $40,000 during the nine months ended September 30, 2017, and 2016, respectively, was recognized related to restricted stock unit grants vesting through 2020.

Employee compensation of approximately $108,000 and $108,000 during the three months and $323,000 and $323,000 for the nine months ended September 30, 2017, and 2016, respectively, was recognized related to restricted stock units with a 4 year vesting period which was awarded to officers.  This restricted stock vests through 2019.

Restricted stock units activity in the first nine months of 2017 was as follows:

  
Shares of Restricted
Stock Units
  
Weighted Average Grant Date Price per Share
 
       
Outstanding at January 1, 2017  350,891  $11.44 
   Granted  127,281  $11.40 
   Forfeited  (21,201) $10.52 
   Vested  (78,362) $12.00 
Outstanding at September 30, 2017  378,608  $11.37 

Stock Option and Warrant Awards

A summary of the status of our stock option awards and warrants is presented below:

  
Number of Stock Options & Warrants
  
Weighted Average Exercise Price per Share
  
Weighted
Average
Remaining
Contractual
Life
 
          
Outstanding at January 1, 2017  1,348,437  $7.79    
   Granted  --   --    
   Exercised  (14,350)  2.90    
   Expired  --   --    
   Cancelled  --   --    
   Forfeited  --   --    
Outstanding at September 30, 2017  1,334,087  $7.84   4.5 
Exercisable at September 30, 2017  989,087  $8.19   4.8 

The fair value of the options granted were calculated using the Black Scholes option valuation model with the assumptions as disclosed in prior quarterly and annual filings.

Directors' compensation of approximately $30,000 and $30,000 during the three months and $90,000 and $143,000 during the nine months ended September 30, 2017, and 2016,  respectively, was recognized related to options to purchase shares vesting through 2017.

Employee compensation of approximately $277,000 and $308,000 during the three months and $884,000 and $926,000 during the nine months ended September 30, 2017, and 2016, respectively, was recognized related to options with a 4 year vesting period which were awarded to officers and key employees.  These options vest through 2018.

Post-retirement compensation of approximately $0 and $0 was recognized during the three months and $0 and $49,000 during the nine months ended September 30, 2017, and 2016, related to options awarded to Mr. Hatem El Khalidi in July
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2009.  On May 9, 2010, the Board of Directors determined that Mr. El Khalidi forfeited these options and other retirement benefits when he made various demands against the Company and other AMAK Saudi shareholders which would benefit him personally and were not in the best interests of the Company and its shareholders.  The Company is litigating its right to withdraw the options and benefits and as such, these options and benefits continue to be shown as outstanding.  See further discussion in Note 19.

See the Company's Annual Report on Form 10-K for the year ended December 31, 2016,2019.

PPP Loans

On May 6, 2020, SHR and TC (collectively, the “Borrowers") received loan proceeds from the PPP Loans in an aggregate principal amount of approximately $6.1 million under the PPP. The PPP Loans are evidenced by unsecured promissory notes each payable to Bank of America, N.A. The Borrowers fully utilized the PPP Loans to cover payroll and benefits costs in accordance with the relevant terms and conditions of the CARES Act. The PPP Loans mature on May 6, 2022, and bear interest at a stated rate of 1.0% per annum. The Company is pursuing and expects to receive full forgiveness of the PPP Loans in accordance with the provisions of the CARES Act.

Debt Issuance Costs

Debt issuance costs of approximately $0.9 million were incurred in connection with the fourth amendment to the ARC Agreement. Unamortized debt issuance costs of approximately $0.5 million and $0.6 million for additional information.the periods ended September 30, 2020 and December 31, 2019, have been netted against outstanding loan balances.


Long-term debt and long-term obligations are summarized as follows:
September 30, 2020December 31, 2019
(thousands of dollars)
Revolving Facility0 3,000 
Term Loan Facility47,656 80,938 
Loan fees(513)(649)
Total long-term debt47,143 83,289 
Less current portion including loan fees4,194 4,194 
Total long-term debt, less current portion including loan fees42,949 79,095 

12. COMMITMENTS AND CONTINGENCIES

COVID-19

In December 2019, a novel strain of coronavirus, which causes the infectious disease known as COVID-19, was reported in Wuhan, China. The World Health Organization declared COVID-19 a “Public Health Emergency of International Concern” on January 30, 2020 and a global pandemic on March 11, 2020. In March and April, many U.S. states and local jurisdictions began issuing ‘stay-at-home’ orders, which continue in various forms as of the date of this report. Notwithstanding such ‘stay-at-home’ orders, to date, our operations have been deemed an essential business under applicable governmental orders based on the critical nature of the products we offer.

As a result of the impact of the COVID-19 outbreak, some of our customers have experienced a significant decrease in demand. A prolonged economic slowdown, period of social quarantine (imposed by the government or otherwise), or a prolonged period of decreased travel due to COVID-19 or the responses thereto, may have a material negative adverse impact on our ability to sell products, and consequently our revenues and results of operations.

The full extent of the impact of COVID-19 on our business and operations currently cannot be estimated and will depend on a number of factors including the scope and duration of the global pandemic.

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Currently we believe that we have sufficient cash on hand and will generate sufficient cash through operations to support our operations for the foreseeable future; however, we will continue to evaluate our business operations based on new information as it becomes available and will make changes that we consider necessary in light of any new developments regarding the pandemic.

The pandemic is developing rapidly and the full extent to which COVID-19 will ultimately impact us depends on future developments, including the duration and spread of the virus, as well as potential seasonality of new outbreaks.

Operating Lease Commitments

See Note 8 for discussion on lease commitments.

Litigation

The Company is periodically named in legal actions arising from normal business activities. We evaluate the merits of these actions and, if we determine that an unfavorable outcome is probable and can be reasonably estimated, we will establish the necessary reserves. We are not currently involved in legal proceedings that could reasonably be expected to have a material adverse effect on our business, prospects, financial condition or results of operations. We may become involved in material legal proceedings in the future.

Supplier Agreements

In accordance with our supplier agreements, on a recurring monthly basis, the Company commits to purchasing a determined volume of feedstock in anticipation of upcoming requirements. Feedstock purchases are invoiced and recorded when they are delivered. As of September 30, 2020 and December 31, 2019, the value of the remaining undelivered feedstock approximated $5.0 million and $4.2 million, respectively.

From time to time, we may incur shortfall fees due to feedstock purchases being below the minimum amounts prescribed by our agreements with our suppliers. Shortfall fee expenses were approximately $0.2 million and $0.3 million for the three months ended September 30, 2020 and 2019, respectively, and $1.2 million and $0.3 million for the nine months ended September 30, 2020 and 2019, respectively.

Environmental Remediation

Amounts charged to expense for various activities related to environmental monitoring, compliance, and improvements were approximately $0.2 million and $0.2 million for the three months ended September 30, 2020 and 2019, respectively, and $0.7 million and $0.7 million for the nine months ended September 30, 2020 and 2019, respectively.

13. STOCK-BASED COMPENSATION

The Stock Option Plan for Key Employees, as well as, the Non-Employee Director Stock Option Plan (hereinafter collectively referred to as the “Stock Option Plans”), were approved by the Company’s stockholders in July 2008. The Stock Option Plans allot for the issuance of up to 1,000,000 shares.

The Trecora Resources Stock and Incentive Plan (the “Plan”) was approved by the Company’s stockholders in June 2012. As amended, the Plan allots for the issuance of up to 2.5 million shares in the form of stock options or restricted stock unit awards.

The Company recognized stock-based compensation expense of approximately $0.5 million and $0.3 million for the three months ended September 30, 2020 and 2019, respectively, and $1.4 million and $0.9 million for the nine months ended September 30, 2020 and 2019, respectively.

Stock Options and Warrant Awards

Stock options and warrants granted under the provisions of the Stock Option Plans permit the purchase of our common stock at exercise prices equal to the closing price of Company common stock on the date the options were granted. The options have terms of 10 years and generally vest ratably over terms of 4 to 5 years. There were 0 stock options or warrant awards issued during the three or nine months ended September 30, 2020 or 2019, respectively.
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A summary of the status of the Company’s stock option and warrant awards is as follows:
Stock Options and WarrantsWeighted Average Exercise Price Per ShareWeighted Average Remaining Contractual LifeIntrinsic
Value
(in thousands)
Outstanding at January 1, 2020487,000 10.87 
Granted0 0 
Exercised0 0 
Forfeited0 0 
Outstanding at September 30, 2020487,000 10.87 3.0$0 
Expected to vest0 $0 
Exercisable at September 30, 2020487,000 10.87 3.0$0 

The aggregate intrinsic value of options was calculated as the difference between the exercise price of the underlying awards and the quoted price of our common stock. At September 30, 2020, options to purchase approximately 0.1 million shares of common stock were in-the-money.

Since 0 options were granted, the weighted average grant-date fair value per share of options granted during the three and nine months ended September 30, 2020 and 2019, respectively, was 0.

The Company has no non-vested options as of September 30, 2020.

Restricted Stock Unit Awards

Generally, restricted stock unit awards are granted annually to officers and directors of the Company under the provisions of the Plan. Restricted stock units are also granted ad hoc to attract or retain key personnel, and the terms and conditions under which these restricted stock units vest vary by award. The fair market value of restricted stock units granted is equal to the Company’s closing stock price on the date of grant. Restricted stock units granted generally vest ratably over 3 years. Certain awards also include vesting provisions based on performance metrics. Upon vesting, the restricted stock units are settled by issuing one share of Company common stock per unit.

A summary of the status of the Company's restricted stock units activity is as follows:
Shares of Restricted Stock UnitsWeighted Average Grant Date Price per Share
Outstanding at January 1, 2020298,864 9.78 
Granted364,637 6.32 
Forfeited(15,571)11.40 
Vested(71,409)8.40 
Outstanding at September 30, 2020576,521 7.51 
Expected to vest576,521 

14. INCOME TAXES

We file an income tax return in the U.S. federal jurisdiction and a margin tax return in Texas. Previously, the Texas Comptroller selected the R&D credit calculations related to the 2014 and 2015 calendar years for audit. The state of Texas suspended examination of the 2014 and 2015 calendar years in order to perform a comprehensive review of audit procedures to provide consistency. During the fourth quarter of 2019, we received notice that Texas had completed review of its procedures and initiated additional requests for information. In February 2020, we received notice from the Internal Revenue Service ("IRS") regarding the IRS's selection of the Company for an income tax audit for the tax period ending December 31, 2017. We do not expect any material changes related to the federal or Texas audits. Our federal and Texas tax returns remain open for examination for the years 2016 through 2019. As of September 30, 2020 and December 31, 2019, respectively, we recognized no adjustments for uncertain tax positions or related interest and penalties.

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The effective tax rate varies from the federal statutory rate of 21%, primarily as a result of state tax expense, stock based compensation, foreign taxes and a research and development credit for the nine months ended September 30, 2020 and 2019. We continue to maintain a valuation allowance against certain deferred tax assets, specifically for mining claims for PEVM, where realization is not certain.

The CARES Act provides stimulus measures to companies impacted by the COVID-19 pandemic, which include the ability to defer payment for employer payroll taxes, utilize net operating loss ("NOL") carrybacks, increased the limitation on the deductibility of interest expense, technical corrections to allow accelerated tax depreciation on qualified improvement property, as well as allowing qualified business to apply for loans and grants. We have recognized $16.5 million for the NOL carryback claims, which are included in the $16.9 million income tax receivable. On April 30, 2020 we filed our first refund claims for approximately $14.1 million and on June 30, 2020 we filed our second and final refund claims for approximately $2.4 million.

15. SEGMENT INFORMATION


We operate through business segments according to the nature and economic characteristics of our products as well as the manner in which the information is used internally by our key decision maker, who is our Chief Executive Officer. Segment data may include rounding differences.


Our petrochemicalSpecialty Petrochemicals segment includes SHR and GSPL. Our specialty waxSpecialty Waxes segment is TC. We also separately identify our corporate overhead which includes financing and administrative activities such as legal, accounting, consulting, investor relations, officer and director compensation, corporate insurance, and other administrative costs.

 Three Months Ended September 30, 2020
 Specialty PetrochemicalsSpecialty WaxesCorporateEliminationsConsolidated
 (in thousands)
Product sales$37,580 $5,990 $0 $0 $43,570 
Processing fees1,644 2,533 0 0 4,177 
Total revenues39,224 8,523 0 0 47,747 
Operating income (loss) before depreciation and amortization8,538 89 (2,050)0 6,577 
Operating income (loss)5,871 (1,337)(2,052)0 2,482 
Income (loss) from continuing operations before taxes5,311 (1,293)(2,057)0 1,961 
Depreciation and amortization2,667 1,427 2 0 4,096 
Capital expenditures2,084 641 0 0 2,725 

  Three Months Ended September 30, 2017 
  Petrochemical  Specialty Wax  Corporate  Consolidated 
  (in thousands) 
Product sales $52,440  $5,590  $-  $58,030 
Processing fees  1,519   1,959   -   3,478 
Total revenues  53,959   7,549   -   61,508 
Operating profit (loss) before depreciation and amortization  9,319   (587)  (1,957)  6,775 
Operating profit (loss)  7,735   (1,795)  (1,975)  3,965 
Profit (loss) before taxes  7,149   (1,975)  (2,879)  2,295 
Depreciation and amortization  1,584   1,208   18   2,810 
Capital expenditures  9,426   1,991   -   11,417 


  Nine Months Ended September 30, 2017 
  Petrochemical  Specialty Wax  Corporate  Consolidated 
  (in thousands) 
Product sales $147,339  $18,606  $-  $165,945 
Processing fees  5,078   8,142   -   13,220 
Total revenues  152,417   26,748   -   179,165 
Operating profit (loss) before depreciation and amortization  26,294   969   (5,978)  21,285 
Operating profit (loss)  21,610   (2,264)  (6,027)  13,319 
Profit (loss) before taxes  19,750   (2,534)  (11,209)  6,007 
Depreciation and amortization  4,684   3,233   49   7,966 
Capital expenditures  27,203   12,047   -   39,250 


  Three Months Ended September 30, 2016 
  Petrochemical  Specialty Wax  Corporate  Consolidated 
  (in thousands) 
Product sales $47,250  $4,865  $-  $52,115 
Processing fees  2,909   2,118   -   5,027 
Total revenues  50,159   6,983   -   57,142 
Operating profit (loss) before depreciation and amortization  7,813   118   (1,238)  6,693 
Operating profit (loss)  6,366   (987)  (1,251)  4,128 
Profit (loss) before taxes  5,812   (1,063)  (182)  4,567 
Depreciation and amortization  1,447   1,105   13   2,565 
Capital expenditures  5,411   4,066   -   9,477 

 Three Months Ended September 30, 2019
 Specialty PetrochemicalsSpecialty WaxesCorporateEliminationsConsolidated
 (in thousands)
Product sales$53,277 $5,834 $0 0 $59,111 
Processing fees1,208 2,396 0 0 3,604 
Total revenues54,485 8,230 0 0 62,715 
Operating income (loss) before depreciation and amortization10,414 (260)(2,670)0 7,484 
Operating income (loss)7,449 (1,808)(2,683)0 2,958 
Income (loss) from continuing operations before taxes6,583 (2,071)(2,691)0 1,821 
Depreciation and amortization1,900 1,548 14 0 3,462 
Capital expenditures2,163 361 0 0 2,524 
Table of Contents
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  Nine Months Ended September 30, 2016 
  Petrochemical  Specialty Wax  Corporate  Consolidated 
  (in thousands) 
Product sales $129,076  $14,585  $-  $143,661 
Processing fees  6,769   7,766   -   14,535 
Total revenues  135,845   22,351   -   158,196 
Operating profit (loss) before depreciation and amortization  25,699   2,774   (5,128)  23,345 
Operating profit (loss)  21,488   (171)  (5,148)  16,169 
Profit before taxes*  19,696   11,427   259   31,382 
Depreciation and amortization  4,211   2,945   20   7,176 
Capital expenditures  16,812   11,059   -   27,871 
    *Profit (loss) before taxes for the specialty wax segment includes a bargain purchase gain of $11.5 million.

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  September 30, 2017 
  Petrochemical  Specialty Wax  Corporate  Eliminations  Consolidated 
  (in thousands) 
Goodwill and intangible assets, net $-  $43,071  $-  $-  $43,071 
Total assets  246,679   116,494   94,747   (151,121)  306,799 

  Year Ended December 31, 2016 
  Petrochemical  Specialty Wax  Corporate  Eliminations  Consolidated 
  (in thousands) 
Goodwill and intangible assets, net $-  $44,467  $-  $-  $44,467 
Total assets  219,376   113,676   106,428   (148,996)  290,484 

15. INCOME TAXES
 Nine Months Ended September 30, 2020
 Specialty PetrochemicalsSpecialty WaxesCorporateEliminationsConsolidated
 (in thousands)
Product sales$119,202 $18,258 $0 $0 $137,460 
Processing fees4,047 8,981 0 0 13,028 
Total revenues123,249 27,239 0 0 150,488 
Operating income (loss) before depreciation and amortization20,002 2,009 (6,665)0 15,346 
Operating income (loss)12,097 (2,084)(6,677)0 3,336 
Income (loss) from continuing operations before taxes9,901 (1,980)(6,751)0 1,170 
Depreciation and amortization7,905 4,093 13 0 12,011 
Capital expenditures9,067 1,242 0 0 10,309 

 Nine Months Ended September 30, 2019
 Specialty PetrochemicalsSpecialty WaxesCorporateEliminationsConsolidated
 (in thousands)
Product sales$167,351 $18,582 $0 0 $185,933 
Processing fees4,117 7,191 0 0 11,308 
Total revenues171,468 25,773 0 0 197,241 
Operating income (loss) before depreciation and amortization31,849 (343)(7,158)0 24,348 
Operating income (loss)22,885 (4,638)(7,203)0 11,044 
Income (loss) from continuing operations before taxes20,093 (5,623)(7,202)0 7,268 
Depreciation and amortization7,899 4,295 46 0 12,240 
Capital expenditures5,002 1,296 0 0 6,298 
We file an income tax return in the U.S. federal jurisdiction and a margin tax return in Texas. We received notification from the Internal Revenue Service ("IRS") in November 2016 that the December 31, 2014, tax return was selected for audit.  In April 2017 the audit was expanded to include the year ended December 31, 2015 to review the refund claim related to research and development activities.  The audit is ongoing, and we do not expect any adjustment to the return.  If any issues addressed in the audit are resolved in a manner not consistent with our expectation, provisions will be adjusted in the period the resolution occurs.  Tax returns for various jurisdictions remain open for examination for the years 2013 through 2016.  As of September 30, 2017, and December 31, 2016, we recognized no material adjustments in connection with uncertain tax positions.  The effective tax rate varies from the federal statutory rate of 35% primarily as a result of state tax expense and stock based compensation offset by the manufacturing deduction and research and development.  The application for the change in accounting method for inventory from LIFO to FIFO and the change for spare parts inventory are being submitted to the IRS.
 September 30, 2020
 Specialty PetrochemicalsSpecialty WaxesCorporateEliminationsConsolidated
 (in thousands)
Trade receivables, product sales$16,154 $3,606 $0 $0 $19,760 
Trade receivables, processing fees771 2,125 0 0 2,896 
Intangible assets, net0 13,354 0 0 13,354 
Total assets290,266 84,933 131,187 (184,066)322,320 

 December 31, 2019
 Specialty PetrochemicalsSpecialty WaxesCorporateEliminationsConsolidated
 (in thousands)
Trade receivables, product sales$18,911 $3,613 $0 $0 $22,524 
Trade receivables, processing fees748 3,048 0 0 3,796 
Intangible assets, net0 14,736 0 0 14,736 
Total assets289,546 88,245 90,203 (166,175)301,819 

16. POST-RETIREMENT OBLIGATIONSNET INCOME (LOSS) PER COMMON SHARE


In January 2008 an amended retirement agreement was entered into with Mr. Hatem El Khalidi; however, on May 9, 2010,The following tables set forth the Boardcomputation of Directors terminated the agreement due to actions of Mr. El Khalidi.  See Notes 13basic and 19.  All amounts which have not met termination dates remain recorded until a resolution is achieved. As of September 30, 2017, and December 31, 2016, approximately $1.0 million remained outstanding and was included in post-retirement benefits.

In July 2015 we entered into a retirement agreement with former CEO, Nicholas Carter.  As of September 30, 2017, and December 31, 2016, approximately $0.3 million remained outstanding and was included in post-retirement obligations.

See the Company's Annual Report on Form 10-K for the year ended December 31, 2016, for additional information.

17. INVESTMENT IN AMAK

In July 2016 AMAK issued four million shares to provide additional funds for ongoing exploration work and mine start-up activities.  Arab Mining Co. ("Armico") purchased 3.75 million shares at 20 Saudi Riyalsdiluted net income (loss) per share (USD$5.33 per share) and the remaining 250,000 shares are for future use as employee incentives.  We did not participate in the offering, thereby reducing our ownership percentage in AMAK to 33.44% from 35.25%.

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As of September 30, 2017, and December 31, 2016, the Company had a non-controlling equity interest of 33.44% in AMAK of approximately $44.2 million and $49.4 million, respectively. This investment is accounted for under the equity method. There were no events or changes in circumstances that may have an adverse effect on the fair value of our investment in AMAK at September 30, 2017.

AMAK's financial statements were prepared in the functional currency of AMAK which is the Saudi Riyal (SR).  In June 1986 the SR was officially pegged to the U. S. Dollar (USD) at a fixed exchange rate of 1 USD to 3.75 SR.

The summarized results of operation and financial position for AMAK are as follows:

Results of Operations

  
Three Months Ended September 30,
  
Nine Months Ended September 30,
 
  
2017
  
2016
  
2017
  
2016
 
  (Thousands of Dollars) 
Sales $9,709  $318  $11,965  $9,921 
                 
Gross loss  (1,307)  (4,747)  (11,515)  (7,556)
General, administrative and other expenses  2,382   2,463   6,942   6,986 
Loss from operations $(3,689) $(7,210) $(18,457) $(14,542)
Gain on settlements with former operator  -   -   -   17,440 
Net income (loss) $(3,689) $(7,210) $(18,457) $2,898 

Gain on settlements with former operator of approximately $0 during the three months ended and $17.4 million during the nine months ended September 30, 2016, relates to a settlement with the former operator of the mine resulting in a reduction of previously accrued operating expenses.

Depreciation and amortization was $6.2 million and $3.2 million for the three months and $16.9 million and $8.6 million for the nine months ended September 30, 2017, and 2016, respectively.  Therefore, net income before depreciation and amortization was as follows:

  
Three Months Ended September 30,
  
Nine Months Ended September 30,
 
  
2017
  
2016
  
2017
  
2016
 
  (Thousands of Dollars) 
Net income (loss) before depreciation and amortization $2,525  $(4,021) $(1,577) $11,504 

Financial Position

  
September 30,
  
December 31,
 
  
2017
  
2016
 
  (Thousands of Dollars) 
Current assets $22,839  $22,860 
Noncurrent assets  247,335   251,741 
Total assets $270,174  $274,601 
         
Current liabilities $26,315  $8,005 
Long term liabilities  78,265   82,546 
Shareholders' equity  165,594   184,050 
  $270,174  $274,601 

The equity in the income or loss of AMAK reflected on the consolidated statements of income for the three and nine months ended September 30, 2017,2020 and 2016, is comprised2019, respectively.

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Net Income (Loss) per Common Share - Continuing Operations
Three Months Ended
September 30, 2020		Three Months Ended
September 30, 2019
IncomeSharesPer Share
Amount		IncomeSharesPer Share
Amount
(in thousands, except per share amounts)
Basic:      
Net income from continuing operations$1,108 24,817 $0.04 $1,583 24,717 $0.06 
Unvested restricted stock units577 336 
Diluted:
Net income from continuing operations$1,108 25,394 $0.04 $1,583 25,053 $0.06 
Nine Months Ended
September 30, 2020		Nine Months Ended
September 30, 2019
IncomeSharesPer Share
Amount		IncomeSharesPer Share
Amount
(in thousands, except per share amounts)
Basic:      
Net income from continuing operations$5,112 24,795 $0.21 $5,856 24,689 $0.24 
Unvested restricted stock units384 388 
Diluted:
Net income from continuing operations$5,112 25,179 $0.20 $5,856 25,077 $0.23 

Net Income (Loss) per Common Share - Discontinued Operations
 Three Months Ended
September 30, 2020		Three Months Ended
September 30, 2019
IncomeSharesPer Share
Amount		Income (Loss)SharesPer Share
Amount
(in thousands, except per share amounts)
Basic:      
Net income (loss) from discontinued operations, net of tax$21,324 24,817 $0.86 $(1,002)24,717 $(0.04)
Unvested restricted stock units577 336 
Diluted:
Net income (loss) from discontinued operations, net of tax$21,324 25,394 $0.84 $(1,002)25,053 $(0.04)
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 Nine Months Ended
September 30, 2020		Nine Months Ended
September 30, 2019
Income (Loss)SharesPer Share
Amount		Income (Loss)SharesPer Share
Amount
(in thousands, except per share amounts)
Basic:      
Net income (loss) from discontinued operations, net of tax$26,179 24,795 $1.06 $(1,120)24,689 $(0.05)
Unvested restricted stock units384 388 
Diluted:
Net income (loss) from discontinued operations, net of tax$26,179 25,179 $1.04 $(1,120)25,077 $(0.04)


Net Income (Loss) per Common Share
 Three Months Ended
September 30, 2020		Three Months Ended
September 30, 2019
IncomeSharesPer Share
Amount		IncomeSharesPer Share
Amount
(in thousands, except per share amounts)
Basic:      
Net income (loss)$22,432 24,817 $0.90 $581 24,717 $0.02 
Unvested restricted stock units577 336 
Diluted:
Net income (loss)$22,432 25,394 $0.88 $581 25,053 $0.02 
 Nine Months Ended
September 30, 2020		Nine Months Ended
September 30, 2019
Income (Loss)SharesPer Share
Amount		Income (Loss)SharesPer Share
Amount
(in thousands, except per share amounts)
Basic:      
Net income$31,291 24,795 $1.27 $4,736 24,689 $0.19 
Unvested restricted stock units384 388 
Diluted:
Net income$31,291 25,179 $1.24 $4,736 25,077 $0.19 

At September 30, 2020 and 2019, 0.5 million and 0.5 million shares of common stock, respectively, were issuable upon the following:exercise of options and warrants.

17


  
Three months ended
September 30,
  
Nine months ended
September 30,
 
  2017  2016  2017  2016 
  (Thousands of Dollars) 
AMAK Net Income (Loss) $(3,689) $(7,210) $(18,457) $2,898 
Zakat tax applicable to Saudi Arabian shareholders only  -   -   -   320 
AMAK Net Income (Loss) before Saudi Arabian shareholders' portion of Zakat $(3,689) $(7,210) $(18,457) $3,218 
                 
Company's share of income (loss) reported by AMAK $(1,234) $(2,426) $(6,172) $1,250 
Amortization of difference between Company's investment in AMAK and Company's share of net assets of AMAK  337   337   1,011   1,011 
Equity in earnings (loss) of AMAK $(897) $(2,089) $(5,161) $2,261 

See our Annual Report on Form 10-K for the year ended December 31, 2016, for additional information.

We have an advance due from AMAK for reimbursement of fees associated with AMAK Board meetings.  We have not advanced any cash to AMAK during 2017.

18.17. RELATED PARTY TRANSACTIONS


ConsultingThe Company incurred 0 consulting fees of approximately $0 and $0 were incurred duringfor the three months ended September 30, 2020 and $27,0002019, respectively, and $33,000 duringNaN and approximately $0.1 million for the nine months ended September 30, 2017,2020 and 2016,2019, respectively, from IHS Global FZ LLC of which Companyour Director, Gary K Adams held the position of Chief Advisor – Chemicals until April 1, 2017.

Consulting fees of approximately $19,000 and $17,000 were incurred during the three months and $56,000 and $52,000 during the nine months ended September 30, 2017, and 2016, respectively, from Chairman of the Board, Nicholas Carter. Due to his history and experience with the Company and to provide continuity after his retirement, a three yearA consulting agreement was entered into with Mr. Carter in July 2015.2015, which terminated effective December 31, 2019.


19. COMMITMENTS AND CONTINGENCIES

18. POST-RETIREMENT OBLIGATIONS
Guarantees –

We currently have post-retirement obligations with two former executives. As of September 30, 2020 and December 31, 2019, approximately $0.3 million and $0.3 million, respectively, remained outstanding and was included in post-retirement obligations.
On October 24, 2010, we executed a limited Guarantee in favor of the Saudi Industrial Development Fund ("SIDF") whereby we agreed to guaranty up to 41% of the SIDF loan to AMAK in the principal amount of 330.0 million Saudi Riyals (US$88.0 million) (the "Loan"). The term of the loan is through June 2019.  As a condition of the Loan, SIDF required all shareholders of AMAK to execute personal or corporate Guarantees; as a result, our guarantee is for approximately 135.33 million Saudi Riyals (US$36.1 million). The loan was necessary to continue construction of the AMAK facilities and provide working capital needs.  We received no consideration in connection with extending the guarantee and did so to maintain and enhance the value of its investment.  The total amount outstanding
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For additional information, see NOTE 22, “POST-RETIREMENT OBLIGATIONS” to the SIDF at September 30, 2017, was 305.0 million Saudi Riyals (US$81.3 million).

Litigation -

From time to time, we may become party to litigation or other legal proceedings that we consider to be a part of the ordinary course ofconsolidated financial statements set forth in our business. We are not currently involved in any legal proceedings that we believe could reasonably be expected to have a material adverse effectAnnual Report on our business, prospects, financial condition or results of operations. We may become involved in material legal proceedings in the future.

On March 21, 2011, Mr. El Khalidi filed suit against the Company in Texas alleging breach of contract and other claims.  The 88th Judicial District Court of Hardin County, Texas dismissed all claims and counterclaims for want of prosecution in this matter on July 24, 2013.  The Ninth Court of Appeals subsequently affirmed the dismissal for want of prosecution and the Supreme Court of Texas denied Mr. El Khalidi's petition for review.  On May 1, 2014, Mr. El Khalidi refiled his lawsuit against the Company for breach of contract and defamation in the 356th Judicial District Court of Hardin County, Texas.  The case was transferred to the 88th Judicial District Court of Hardin County, Texas.  On September 1, 2016, the Court dismissed all of Mr. El Khalidi's claims and causes of action with prejudice.  Mr. El Khalidi appealed, and the issues have been fully briefed.  Liabilities of approximately $1.0 million remain recorded, and the options will continue to accrue in accordance with their own terms until all matters are resolved.

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Environmental Remediation -

Amounts charged to expense for various activities related to environmental monitoring, compliance, and improvements were approximately $119,000 and $136,000Form 10–K for the three months and $444,000 and $437,000 for the nine monthsyear ended September 30, 2017, and 2016, respectively.December 31, 2019.






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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.


FORWARD LOOKING AND CAUTIONARY STATEMENTS


Except forSome of the historicalstatements and information and discussion contained herein, statements contained in this releaseQuarterly Report on Form 10-Q may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. TheseStatements regarding the Company's financial position, business strategy and plans and objectives of the Company's management for future operations and other statements that are not historical facts, are forward-looking statements. Forward-looking statements are often characterized by the use of words such as "outlook," "may," "will," "should," "could," "expects," "plans," "anticipates," "contemplates," "proposes," "believes," "estimates," "predicts," "projects," "potential," "continue," "intend," or the negative of such terms and other comparable terminology, or by discussions of strategy, plans or intentions.

Forward-looking statements involve a number ofknown and unknown risks, uncertainties, assumptions, and other important factors that could cause the actual results, performance or our achievements, or industry results, to differ materially includingfrom historical results, any future results, or performance or achievements expressed or implied by such forward–looking statements. Such risks, uncertainties and factors include, but are not limited to the following: a downturn inimpacts of: the economic environment; the Company's failure to meet growth and productivity objectives; fluctuations in revenues and purchases;continued impact of local legal,the COVID-19 pandemic on our business, financial results and financial condition and that of our customers, suppliers, and other counterparties; not completing, or not completely realizing the anticipated benefits from, the sale of our stake in AMAK; general economic political and health conditions; adverse effects from environmental matters, tax matters and the Company's pension plans; ineffective internal controls; the Company's use of accounting estimates; competitive conditions; the Company's ability to attract and retain key personnel and its reliance on critical skills; impact of relationships with critical suppliers; currency fluctuations; impact of changes in market liquidity conditions and customer credit risk on receivables; the Company's ability to successfully manage acquisitions and alliances; general economicfinancial conditions domestically and internationally; insufficient cash flows from operating activities; difficulties in obtaining financing;our ability to attract and retain key employees; feedstock, product and mineral prices; feedstock availability and our ability to access third party transportation; competition; industry cycles; natural disasters or other severe weather events, health epidemics and pandemics (including the COVID-19 pandemic) and terrorist attacks; our ability to consummate extraordinary transactions, including acquisitions and dispositions, and realize the financial and strategic goals of such transactions; technological developments and our ability to maintain, expand and upgrade our facilities; regulatory changes; environmental matters; lawsuits; outstanding debt and other financial and legal obligations; industry cycles; specialty petrochemical productobligations (including having to return the amounts borrowed under the PPP Loans or failing to qualify for forgiveness of such loans, in whole or in part); difficulties in obtaining additional financing on favorable conditions, or at all; local business risks in foreign countries, including civil unrest and mineral prices; feedstock availability; technological developments;military or political conflict, local regulatory changes; foreign government instability; foreignand legal and political concepts;environments and foreign currency fluctuations, as well asfluctuations; and other risks detailed in the Company'sour latest Annual Report on Form 10-K, including but not limited to "Part I, Item 1A. Risk Factors" and "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" therein, under similar headings in this Quarterly Report on Form 10-Q, and in our other filings with the U.S. Securities and Exchange Commission including this release, all(the "SEC"). Many of these risks and uncertainties are currently amplified by and will continue to be amplified by, or in the future may be amplified by, the COVID-19 pandemic.

There may be other factors of which we are difficultcurrently unaware or deem immaterial that may cause our actual results to predictdiffer materially from the forward-looking statements. In addition, to the extent any inconsistency or conflict exists between the information included in this report and manythe information included in our prior releases, reports and other filings with the SEC, the information contained in this report updates and supersedes such information.

Forward-looking statements are based on current plans, estimates, assumptions and projections, and, therefore, you should not place undue reliance on them. Forward-looking statements speak only as of whichthe date they are beyond the Company's control.made, and we undertake no obligation to update them in light of new information or future events.


Overview


The following discussion and analysis of our financial results, as well as the accompanying unaudited condensed consolidated financial statements and related notes to consolidated financial statements to which they refer, are the responsibility of our management. Our accounting and financial reporting fairly reflect our business model involvingwhich is based on the manufacturing and marketing of specialty petrochemical products and synthetic waxes.  Our business model involves the manufacturewaxes and sale of tangible products and the provision ofproviding custom processingmanufacturing services.  Our consistent approach to providing high purity products and quality services to our customers has helped to maintain our current position as a preferred supplier of various petrochemical products.


The discussion and analysis of financial condition and the results of operations which appears below should be read in conjunction with the"Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements which appear inOperations"
21


of our Annual Report on Form 10-K for the year ended December 31, 2016.2019. These discussions of results reflect the continuing operations of the Company unless otherwise noted.


Our preferred supplier position into the specialty petrochemicals market is derived from the combination of our reputation as a reliable supplier established over many years, the very high purity of our products, and a focused approach to customer service. In specialty waxes, we are able to deliver to our customers a product performance and price point that is unique to our market; while the diversity of our custom processing assets and capabilities offers solutions to our customers that we believe are uncommon along the U.S. Gulf Coast.

Enabling our success in these businesses is a commitment to operational excellence which establishes a culture that prioritizes the safety of our employees and communities in which we operate, the integrity of our assets and regulatory compliance. This commitment drives a change to an emphasis on forward-looking, leading-indicators of our results and proactive steps to continuously improve our performance. We bring the same commitment to excellence to our commercial activities where we focus on the value proposition to our customers while understanding opportunities to maximize our value capture through service and product differentiation, supply chain and operating cost efficiencies and diversified supply options. We believe we are well-positioned to benefit from capital investments that we have recently completed or that are in progress.  As a result ofour focus on execution, meeting the D Train expansion which was completed in 2014, we now have sufficient pentane capacity to readily maintain our share of market growth for the foreseeable future.  Both the advanced reformer unit and the hydrogenation/distillation project will provide increased revenue and gross margin.  While petrochemical prices are volatile on a short-term basis and volumes depend on the demandneeds of our customers' productscustomers, and overall customer efficiency,growing our investment decisions are based onbusiness while maintaining prudent control of our long-term business outlook. costs, will significantly contribute to enhanced shareholder value.

We continue to emphasize operational excellence and our competitive advantages achieved through our high quality products and outstanding customer service and responsiveness.  We believe these attributes are an important differentiation from our competitors.


Review of Third Quarter and Year-to-Date 20172020 Results


While our third quarter 2020 results continued to be adversely impacted by the COVID-19 pandemic due to its global impact on economic demand as compared to the third quarter of 2019, we saw moderate improvement in customer demand for both our specialty petrochemicals and specialty waxes relative to the second quarter of 2020. We reported third quarter 2017 earnings2020 net income of $1.7$22.4 million, which includes the net gain from the sale of AMAK of $21.3 million. Net income from continuing operations for the third quarter 2020 was $1.1 million, down 31.2% from $2.8net income from continuing operations of $1.6 million fromin the third quarter 2016. Diluted earnings per share of $0.07 were reported for 2017, down from $0.11 in 2016.2019. Sales volume of our petrochemicalSpecialty Petrochemicals products increased 8.2%, anddecreased 12.9% due to lower sales revenue from our petrochemical products increased 11.0%to the polyethylene end-use markets as well as lower sales to Canadian oil sands customers. Sales to other end-use markets were also generally weaker compared to third quarter 2016.  Prime product petrochemical sales volumes (which exclude by-product sales) were up 5.5% over third quarter 2016.  Waxthe same period last year due to the COVID-19 pandemic. Specialty Waxes sales revenue was up 14.9% compared to third quarter 2016.  Gross profit margin increased to 16.0% of sales in third quarter 2017 from 15.6% in third quarter 2016.

We reported year-to-date 2017 earnings of $4.0 million down from $20.3 million from the first nine months of 2016. Diluted earnings per share of $0.16 were reported for 2017, down from $0.81 in the first nine months of 2016.  During the first nine months of 2016 we recorded a bargain purchase gain on the BASF acquisition of $11.5 million and a gain on the additional equity issuance by AMAK of $3.2 million, which significantly impacted both earnings and earnings per share.  Sales volume
20
of our petrochemical products increased 4.3%, and sales revenue from our petrochemical products increased 14.1% as2.7% compared to the first nine months of 2016.  Prime product petrochemical sales volumes (which exclude by-product sales) were up 6.5% over the first nine months of 2016.  Wax sales revenue was up 27.6% from first nine months of 2016.  Gross profit margin declined from 20.4% to 17.6%.  This was largelythird quarter 2019 due to wax feed supply interruptions in the third quarter of 2019. Additionally, during third quarter 2020 we utilized a portion of the net proceeds from the completion of the sale of our ownership interest in AMAK to prepay $30 million on our Term Loan Facility.

Adjusted EBITDA from continuing operations was $7.1 million for the third quarter of 2020, compared with Adjusted EBITDA from continuing operations of $6.9 million in the third quarter of 2019. Adjusted EBITDA from continuing operations increased due to reduced Corporate expenses and higher feedstock costs, higher operating costs,Specialty Waxes revenue, partially offset by depressed performance for Specialty Petrochemicals. Adjusted EBITDA from continuing operations is a non-GAAP financial measure. See below for additional information about this measure and costs relateda reconciliation to Hurricane Harvey.the most directly comparable GAAP financial measure.


Hurricane Harvey ImpactCOVID-19 Pandemic


The financialcontinued global impact of Hurricane HarveyCOVID-19 has resulted in various emergency measures to curb the spread of the virus. We continue to monitor the progression of the COVID-19 pandemic on a daily basis. Our guiding principle is, and has always been, the protection of our people and the communities in which we work, as well as maintaining the overall integrity of our assets. While our essential plant personnel remain on-site, many of our other employees are working remotely. We are continuing to follow the orders and guidance of federal, state, and local governmental agencies, as we maintain our own stringent protocols in an effort to mitigate the spread of the virus and protect the health of our employees, customers, and suppliers as well as the communities in which we work. As an organization, we adopted social distancing behaviors early, executed the necessary changes to enable all possible job duties to be performed remotely and rapidly identified and executed the necessary adjustments to support optimal productivity for all remote workers.

To date, our plants have continued to operate as normal, and our supply chain has generally remained intact, with adequate availability of raw materials. Importantly, under the U.S. Department of Homeland Security guidance issued on April 17, 2020 as updated through August 18, 2020, as well as many related state and local governmental orders, chemical manufacturing sites are considered essential critical infrastructure, and as such, are not currently subject to closure in the locations where we operate. Although there has been some disruption in global logistics channels, we have not experienced significant delays in fulfillment of customer orders.
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The COVID-19 pandemic has had an impact on our business, results of operations, financial position and liquidity for the third quarter of 2020. In comparison to the same period in 2019, in the third quarter we continued to see reduced demand for our products and services in certain end markets, including durable goods such as automotive and construction, which we attribute to the economic slowdown caused by the COVID-19 pandemic. This weakened demand in certain end markets is likely to continue in the near-term and may continue into 2021, and could spread more broadly to our company was significant.  Harvey made landfallother end markets.

Our management will continue to actively monitor the impact of the global pandemic on the Texas Gulf Coastour business, results of operations, financial condition, liquidity, suppliers, industry, investments, and workforce. We do not currently anticipate any material impairments, with respect to intangible assets, long–lived assets, or right of use assets, increases in allowances for credit losses from our customers, restructuring charges, other expenses, or changes in accounting judgments to have a material impact on August 25 and affected operations at both SHR and TC.  We estimate the total negative impact to EBITDA was approximately $1.5 million to $1.8 million.  This includes expenses related to generator rentals, overtime labor, and maintenance and repairs of approximately $0.7 million.  This estimate also includes lost sales due to outages at customer and supplier facilities.  Neither of our facilities suffered any significant damage.
condensed consolidated financial statements.


Non-GAAP Financial Measures


We include in this Quarterly Report on Form 10-Q the non-GAAP financial measures of EBITDA from continuing operations and Adjusted EBITDA and Adjusted Net Incomefrom continuing operations and provide reconciliations from our most directly comparable GAAP financial measures to those measures.


We define EBITDA as net income plus interest expense including derivative gainsbelieve these financial measures provide users of our financial statements with supplemental information that may be useful in evaluating our operating performance. We also believe that such non–GAAP measures, when read in conjunction with our operating results presented under GAAP, can be used to better assess our performance from period to period and losses, income taxes, depreciation and amortization.  We define Adjusted EBITDA as EBITDA plus share-based compensation, plusrelative to performance of other companies in our industry, without regard to financing methods, historical cost basis or minus equity in AMAK's earnings and losses or gains from equity issuances and plus or minus gains or losses on acquisitions.  We define Adjusted Net Income as net income plus or minus tax effected equity in AMAK's earnings and losses and plus or minus tax effected gains or losses on acquisitions.capital structure. These measures are not measures of financial performance or liquidity under U.S. GAAP and should be considered in addition to, and not as a substitute for, analysis of our results under GAAP.

We define EBITDA from continuing operations as net income (loss) from continuing operations plus interest expense, income tax expense (benefit), nordepreciation and amortization. We define Adjusted EBITDA from continuing operations as an indicatorEBITDA from continuing operations plus share-based compensation, plus restructuring and severance expenses, plus impairment losses and plus or minus gains or losses on disposal of cash flows reported in accordance with U.S. GAAP. These measures are used as supplemental financial measures by management and external users of our financial statements such as investors, banks, research analysts and others.  We believe that these non-GAAP measures are useful as they exclude transactions not related to our core cash operating activities.fixed assets.


The following table presents a reconciliation of net income (loss), our most directly comparable GAAP financial performance measure for each of the periods presented, to EBITDA from continuing operations and Adjusted EBITDA and Adjusted Net Income.from continuing operations.

  
Three months ended
September 30,
  
Nine months ended
September 30,
 
  2017  2016  2017  2016 
  (Thousands of Dollars) 
Net Income $1,718  $2,799  $4,037  $20,275 
                 
    Interest expense  795   568   2,109   1,803 
    Depreciation and amortization  2,810   2,565   7,966   7,176 
    Income tax expense  577   1,768   1,970   11,107 
EBITDA $5,900  $7,700  $16,082  $40,361 
                 
    Share-based compensation  716   608   2,005   1,882 
    Bargain purchase gain on BASF acquisition  -   -   -   (11,549)
    Gain from additional equity issuance by AMAK  -   (3,168)  -   (3,168)
    Equity in (earnings) losses of AMAK  897   2,089   5,161   (2,261)
Adjusted EBITDA $7,513  $7,229  $23,248  $25,265 
                 
Net Income $1,718  $2,799  $4,037  $20,275 
                 
        Equity in (earnings) losses of AMAK $897  $2,089  $5,161  $(2,261)
    Gain from additional equity issuance by AMAK  -   (3,168)  -   (3,168)
    Bargain purchase gain on BASF acquisition  -   -   -   (11,549)
    Total of equity in (earnings) losses of AMAK and bargain
     purchase gain on BASF acquisition
  897   (1,079)  5,161   (16,978)
    Taxes at statutory rate of 35%  314   378   1,806   5,943 
    Tax effected equity in (earnings) losses of AMAK and bargain
     purchase gain on BASF acquisition
  583   (701)  3,355   (11,035)
Adjusted Net Income $2,301  $2,098  $7,392  $9,240 
Three Months Ended
September 30, 2020
Specialty PetrochemicalsSpecialty WaxesCorporateConsolidated
(in thousands)
Net Income (Loss)$4,161 $(1,267)$19,538 $22,432 
Income from discontinued operations, net of tax— — 21,324 21,324 
Income (loss) from continuing operations$4,161 $(1,267)$(1,786)$1,108 
Interest507 — 1 508 
Income tax expense (benefit)1,150 (26)(271)853 
Depreciation and amortization183 24 3 210 
Depreciation and amortization in cost of sales2,484 1,403 — 3,887 
EBITDA from continuing operations$8,485 $134 $(2,053)$6,566 
Stock-based compensation— — 489 489 
Adjusted EBITDA from continuing operations$8,485 $134 $(1,564)$7,055 
Table of Contents
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Three Months Ended
September 30, 2019
Specialty PetrochemicalsSpecialty WaxesCorporateConsolidated
(in thousands)
Net Income (Loss)$6,278 $(2,071)$(3,626)$581 
Loss from discontinued operations, net of tax— — (1,002)(1,002)
Income (Loss) from continuing operations$6,278 $(2,071)$(2,624)$1,583 
Interest895 316 — 1,211 
Income tax expense (benefit)303 — (76)227 
Depreciation and amortization171 24 13 208 
Depreciation and amortization in cost of sales1,729 1,524 1 3,254 
EBITDA from continuing operations$9,376 $(207)$(2,686)$6,483 
Stock-based compensation— — 415 415 
Adjusted EBITDA from continuing operations$9,376 $(207)$(2,271)$6,898 
Nine Months Ended
September 30, 2020
Specialty PetrochemicalsSpecialty WaxesCorporateConsolidated
(in thousands)
Net Income$10,150 $(385)$21,526 $31,291 
Income from discontinued operations, net of tax— — 26,179 26,179 
Income (loss) from continuing operations$10,150 $(385)$(4,653)$5,112 
Interest2,158 — 1 2,159 
Income tax benefit(249)(1,595)(2,098)(3,942)
Depreciation and amortization554 71 13 638 
Depreciation and amortization in cost of sales7,351 4,022 — 11,373 
EBITDA from continuing operations$19,964 $2,113 $(6,737)$15,340 
Stock-based compensation— — 1,422 1,422 
(Gain) Loss on disposal of assets(8)17 — 9 
Adjusted EBITDA from continuing operations$19,956 $2,130 $(5,315)$16,771 
Nine Months Ended
September 30, 2019
Specialty PetrochemicalsSpecialty WaxesCorporateConsolidated
(in thousands)
Net Income (Loss)$17,086 $(5,623)$(6,727)$4,736 
Loss from discontinued operations, net of tax— — (1,120)(1,120)
Income (loss) from continuing operations$17,086 $(5,623)$(5,607)$5,856 
Interest3,143 967 1 4,111 
Income tax expense (benefit)3,006 — (1,594)1,412 
Depreciation and amortization512 72 45 629 
Depreciation and amortization in cost of sales7,387 4,223 1 11,611 
EBITDA from continuing operations$31,134 $(361)$(7,154)$23,619 
Stock-based compensation— — 973 973 
Adjusted EBITDA from continuing operations$31,134 $(361)$(6,181)$24,592 

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Liquidity and Capital Resources


Working Capital


Our approximate working capital days are summarized as follows:

September 30, 2020December 31, 2019September 30, 2019
Days sales outstanding in accounts receivable43.7 37.1 35.5 
Days sales outstanding in inventory21.4 19.2 18.4 
Days sales outstanding in accounts payable24.7 20.6 14.1 
Days of working capital40.4 35.7 39.8 
  September 30, 2017  December 31, 2016  September 30, 2016 
Days sales outstanding in accounts receivable  34.6   38.2   34.3 
Days sales outstanding in inventory  19.6   30.2   31.8 
Days sales outstanding in accounts payable  18.9   22.9   16.0 
Days of working capital  35.4   45.5   50.2 


Our days sales outstanding in accounts receivable decreased dueat September 30, 2020 was 43.7 days compared to a decrease in37.1 days at December 31, 2019. The increase was driven by sales during September becauseat both segments at the end of the hurricane.third quarter of 2020. Our days sales outstanding in inventory decreased due to a concerted effort to reduce inventory on hand at both facilities and reduced production associated with the storm.increased by approximately 2.2 days from December 31, 2019, driven primarily by lower sales. Our days sales outstanding in accounts payable decreasedincreased primarily due to construction expenses for the hydrogenation/distillation project at TC nearing completion.a reduced payable to our feedstock supplier driven by lower feedstock prices. Since days of working capital is calculated using the above three metrics, it decreasedincreased for the aforementioned reasons discussed.


Cash decreased $4.2 million during the nine months ended September 30, 2017, as compared to a decrease of $11.0 million for the nine months ended September 30, 2016.  Our total available liquidity which includes cash and available revolving borrowing capacity under the ARC was approximately $35.2 million and $37.9 millionbalance at September 30, 2017,2020 was $51.9 million, an increase of $42.7 million from September 30, 2019. Our cash balance at September 30, 2020 included $68.5 million of proceeds from the completion of the Share Sale (net of the deposit previously paid) and December 31, 2016, respectively.PPP Loans of $6.1 million as well as net debt reduction of $33.3 million.


The change in cash is summarized as follows:

Nine Months Ended
September 30,
 20202019
Net cash provided by (used in)(thousands of dollars)
Operating activities$17,575 $20,249 
Investing activities58,371 (4,254)
Financing activities(30,229)(13,573)
Increase (decrease) in cash$45,717 $2,422 
Cash$51,862 $9,157 
  2017  2016 
Net cash provided by (used in) (thousands of dollars) 
Operating activities $29,554  $20,074 
Investing activities  (39,336)  (27,871)
Financing activities  5,612   (3,239)
Decrease in cash $(4,170) $(11,036)
Cash $4,219  $7,587 


Operating Activities
Cash provided by operating activities totaled $29.6$17.6 million for the first nine months of 2017 $9.52020, $2.7 million higherlower than 2016.the corresponding period in 2019. For the first nine months of 20172020 net income decreasedincreased by approximately $16.2$26.6 million as compared to the corresponding period of 2016.in 2019. Major non-cash items affecting 2017 income in the first nine months of 2020 included increaseschanges in depreciation and amortization of $12.0 million, deferred taxes of $1.6$14.2 million and equity in lossesstock-based compensation of AMAK of $5.2$1.4 million. Major non-cash items affecting 2016 income in the first nine months of 2019 included increases in deferred taxes of $6.9 million, bargain purchase gain from the BASF acquisition of $11.5 million, gain from additional equity issuance by AMAK of $3.2$1.3 million and equity in earningsdepreciation and amortization of AMAK of $2.3$12.3 million.


FactorsAdditional factors leading to an increasethe decrease in cash provided by operating activities included:


•Under the CARES Act, we recorded an income tax receivable related to the carryback of NOL claims. This resulted in an increase in our income tax receivable of approximately $16.7 million. On April 30, 2020 we filed our first refund claims for approximately $14.1 million and on June 30, 2020 we filed our second and final refund claims for approximately $2.4 million.

•Trade receivables decreased approximately $3.7 million. This is due to lower sales within the quarter and we do not expect any collection issues at this time.

·
Inventory decreased approximately $5.0 million (due to an effort to decrease inventory on hand at both facilities and downtime associated with the hurricane which impacted production) as compared to an increaseTable of approximately $2.6 million in 2016 (due to lower sales volume);Contents
25


·Prepaid expenses and other assets decreased approximately $0.4 million (primarily due to a reduction in prepaid insurance due to a finance arrangement) as compared to an increase of approximately $1.3 million in 2016 (due primarily to an increase in prepaid insurance because of higher premiums based upon our higher asset base); and

·Accounts payable and accrued liabilities increased $3.4 million (due to an increase in construction expenditures) as compared to an increase of approximately $1.3 million in 2016 (also due to increased construction expenditures).

These sources of cash were partially offset by the following decrease in cash provided by operations:

·Income tax receivable decreased $0.2 million (due to an adjustment to current taxes related to the change to the LIFO method for inventory valuation) as compared to a decrease of approximately $4.1 million in 2016 (due to the overpayment being applied to 2016 estimated taxes).

•Inventories decreased approximately $2.5 million driven by lower inventory values associated with the decline in feedstock prices.

•Accounts payable and accrued liabilities decreased $1.0 million primarily due to a reduced payable to our feedstock supplier driven by lower feedstock prices, as well as payments to vendors int he first quarter of 2020 for costs associated with the weather event in the fourth quarter of 2019.

Investing Activities


Cash usedprovided by investing activities during the first nine months of 20172020 was approximately $39.3$58.4 million, representing an increase of approximately $11.5$62.6 million overfrom the corresponding period of 2016.  During the first nine months of 2017, the2019. The primary use of capital expenditures was for the hydrogenation/distillation unit and the new advanced reformer unit.  During the first nine months of 2016 we purchased equipment for the hydrogenation/distillation unit, constructionsource of the new reformer unit, a new cooling tower,funds provided by investing activities was $68.5 million of proceeds, net of the deposits previously paid, received in connection with the Share Sale, discussed in Note 5, offset by additions of plant, pipeline and the new custom processing unit; upgraded roads throughout the petrochemical facility; continued to make improvements to storage; purchased the BASF facility; and made various other facility improvements.equipment of approximately $10.3 million.


Financing Activities


Cash provided byused in financing activities during the first nine months of 20172020 was approximately $5.6$30.2 million versus cash used of $3.2$13.6 million during the corresponding period of 2016.2019. In the first quarter of 2020, we drew $20.0 million under our Revolving Facility as a precaution in light of the uncertainty caused by the COVID–19 pandemic. We also received PPP Loans of $6.1 million to maintain the continuity of our workforce, including maintaining compensation and benefits. Utilizing a portion of the net proceeds from the sale of our investment in AMAK, together with cash on hand, we repaid our outstanding balance on our Revolving Facility of $23 million at the end of the second quarter and further reduced our debt with a $30 million prepayment toward our Term Loan Facility. We also made mandatory payments of $3.3 million on our Term Loan Facility. During 2017the first nine months of 2019, we made principal payments on our acquisition loanoutstanding Credit Facilities of $7.0 million and our term debt of $1.3$15.3 million. We drew $14.0$2.0 million on our line of credit to fund ongoingfor working capital projects.  During 2016 we drew $3.0 million on our linepurposes in the first nine months of credit made principal payments on our acquisition loan of $5.3 million and our term debt of $1.0 million.2019.


Anticipated Cash Needs


The COVID-19 pandemic has resulted in significant economic uncertainty and market volatility. In response, we have taken steps to address our liquidity needs during this uncertain period. As of September 30, 2020, we have approximately $51.9 million in cash, combined with an available balance on our Revolving Facility of approximately $56 million. We also benefited from certain provisions of the CARES Act, including certain changes to U.S. tax law and borrowings under the PPP Loans that we believed were essential to support the continuity of our workforce. As a result, we believe that the Company is capable of supportingable to support its operating requirements and capital expenditures through internally generated funds supplemented with borrowingscash on our balance sheet and availability under our ARC.ARC Agreement.


Results of Operations


Comparison of Three Months Ended September 30, 20172020 and 20162019


26


Specialty PetrochemicalPetrochemicals Segment

Three Months Ended September 30,
 20202019Change% Change
 (thousands of dollars)
Product Sales$37,580 $53,277 $(15,697)(29.5)%
Processing1,644 1,208 436 36.1 %
Gross Revenue$39,224 $54,485 $(15,261)(28.0)%
Volume of Sales (gallons)
Specialty Petrochemicals Products17,868 20,523 (2,655)(12.9)%
Prime Product Sales14,734 16,431 (1,697)(10.3)%
By-product Sales3,134 4,092 (958)(23.4)%
Cost of Sales$30,732 $44,206 (13,474)(30.5)%
Gross Margin21.7 %18.9 %2.8 %
Total Operating Expense*17,122 17,248 (126)(0.7)%
Natural Gas Expense*867 1,000 (133)(13.3)%
Operating Labor Costs*4,046 3,619 427 11.8 %
Transportation Costs*5,645 6,997 (1,352)(19.3)%
General & Administrative Expense2,438 2,659 (221)(8.3)%
Depreciation and Amortization**2,667 1,900 767 40.4 %
Capital Expenditures2,084 2,163 (79)(3.7)%
  2017  2016  Change  %Change 
  (thousands of dollars) 
Petrochemical Product Sales $52,440  $47,250  $5,190   11.0%
Processing  1,519   2,909   (1,390)  (47.8%)
Gross Revenue $53,959  $50,159  $3,800   7.6%
                 
Volume of Sales (gallons)                
  Petrochemical Products  22,353   20,665   1,688   8.2%
  Prime Product Sales  16,681   15,818   863   5.5%
                 
  Cost of Sales $43,424  $41,531  $1,893   4.6%
  Gross Margin  19.5%  17.2%  2.3%  13.5%
  Total Operating Expense**  15,040   16,686   (1,646)  (9.9%)
  Natural Gas Expense**  1,106   992   114   11.5%
  Operating Labor Costs**  4,412   4,084   328   8.0%
  Transportation Costs**  6,051   6,701   (650)  (9.7%)
  General & Administrative Expense  2,595   2,105   490   23.3%
  Depreciation and Amortization*  1,584   1,447   137   9.5%
  Capital Expenditures $9,426  $5,411  $4,015   74.2%
* Included in cost of sales
**Includes $1,378$2,484 and $1,291$1,729 for 20172020 and 2016,2019, respectively, which is included in operating expense
** Included in cost of sales


Gross Revenue


Gross Revenue increasedfor our Specialty Petrochemicals segment decreased during the third quarter 20172020 from the third quarter 20162019 by 7.6%28.0% primarily due to an increase inlower sales volumes for prime products and by-products which continued to be impacted by the averageCOVID-19 pandemic. Also, gross revenue was reduced by lower selling price of 1.6% and volume of 8.2% partially offset byprices resulting from a decrease in processing revenue.feedstock costs relative to the same period a year ago.


Petrochemical Product Sales


PetrochemicalSpecialty Petrochemicals segment product sales increased by 11.0%declined approximately 29.5% during third quarter 2017 from third quarter 2016 due to an increase in the average selling price of 1.6% and an increase in volume sold of 8.2%.  Our average selling price increased because of two
reasons.  First, by-product selling prices were significantly higher in the third quarter of 20172020 from the third quarter 2019. Prime products sales volume declined approximately 1.7 million gallons, or 10.3%, from the third quarter 2019 due to lower demand from polyethylene end-use markets as well as lower sales to Canadian oil sands customers. Sales to other end-use markets were also generally weaker compared to the same period last year due to the COVID-19 pandemic. Prime product sales volume increased approximately 1.6 million gallons as compared to the second quarter 2020. By-product sales volumes in third quarter 2020 declined 23.4% compared to the third quarter of 2016; and second, a large portion of our2019 mainly due to lower prime product salesproduction and sales. By-products are contracted with pricing formulas which are tied to prior month Natural Gas Liquid (NGL) prices which is our primary feedstock.  Feedstock prices were higher in third quarter 2017produced as compared to third quarter 2016.  Primea result of prime product volume increased 5.5% in third quarter 2017 as compared to third quarter.  Due to the need to produce additional prime products to support the increase in sales volume, our by-product volume increased 17.0%.  It should be noted that by-productproduction and their margins are significantly lower than margins for our prime products. By-product marginsForeign sales volume increased to 24.6% of total Specialty Petrochemicals volume in the third quarter of 2017 were higher compared tofor 2020 from 22.4% in the third quarter of 2016 mainly due to higher values for certain components in the by-products.2019. Foreign sales volume decreasedincludes sales to 17.3% of total petrochemical volume from 25.7% in third quarter 2016.Canadian oil sands customers.


Processing


Processing revenues decreased 47.8% duringwere $1.6 million in the third quarter 2017 from 2016 due2020 compared to a decrease in reimbursements from a processing customer.$1.2 million for the third quarter 2019.


Cost of Sales

Cost of Sales increased 4.6% during third quarter 2017 from 2016 primarily due(includes but is not limited to the increase in feedstock costraw materials and volume.  Our average feedstock cost per gallon increased 3.2% over third quarter 2016 primarily due to an approximately 13% increase in the benchmark price of Mont Belvieu natural gasoline, which was partially offset by lower penalty payments and other delivery costs.  The increase in feedstock costs compressed margins for the spot or non-formula portion of prime product sales.  These are sales which do not have pricing formulas tied to feedstock costs.  The increase in gross margin percentage from 17.2% to 19.5% was supported by lowertotal operating expenses and an increase in margins for by-products.expense)
Volume processed increased 7.1% over third quarter 2016. 
We use natural gasoline as feedstock, which is the heavier liquid remaining after ethane, propane and butanes are removed from liquids produced by natural gas wells. The material is a commodity product in the oil/petrochemical markets and
27


generally is readily available. The price of natural gasoline normally correlates approximately 90%is highly correlated with the price of crude oil. We expect our advanced reformerOur Advanced Reformer unit which is due online in first quarter 2018 to enable us to convertupgrades the less valuable components in our feed into higher value products, thereby allowingby-product stream produced as a result of prime product production. This upgrade allows us to sell our byproductsby-products at higher prices.prices than would be possible without the Advanced Reformer unit.

Cost of Sales declined 30.5% during the third quarter 2020 from the third quarter 2019. The contract pricing formulas useddecline in cost of sales compared to sell the majority of oursame period last year was driven by depressed sales volumes, lower feedstock costs and lower operating expenses –primarily transportation and natural gas costs. Benchmark Mont Belvieu natural gasoline feedstock price declined 24% from $1.06 per gallon in third quarter 2019 to $0.80 per gallon in the third quarter 2020. Our margin for prime products typically haveincreased in the third quarter of 2020 as a 30 day trailing feedresult of the significant decline in feedstock cost basis; and therefore, are slightly favorablecompared to third quarter of 2019. While feedstock costs were lower in third quarter 2020 compared to third quarter 2019, we did see an increase in feedstock costs throughout the third quarter 2020 as compared to second quarter 2020. By-product margins were materially lower compared to third quarter 2019. This was primarily due to lower component prices combined with the inability to take full advantage during periodsthe quarter of rapidly falling feedstock prices but are unfavorable when prices rise. the product upgrade capability of the Advanced Reformer unit.


The gross margin percentage for the Specialty Petrochemicals segment increased from 18.9% in the third quarter of 2019 to 21.7% in the third quarter of 2020 primarily because of improved prime product margins.

Total Operating Expense(includes but is not limited to natural gas, operating labor, depreciation and transportation)


Total Operating Expense decreased 9.9%$0.1 million, or 0.7%, during the third quarter 20172020 from 2016.  Natural gas, labor, and transportation are the largest individual expensessame period in this category; however, not all of these decreased.2019.

The cost of natural gas purchased increased 11.5% during 2017 from 2016 due to higher per unit cost and an increase in volume consumed.  The average price per MMBTU for third quarter 2017 was $3.22 whereas, for 2016 the per-unit cost was $2.93.  Volume increased slightly to approximately 337,000 MMBTU from about 331,000 MMBTU.  However, volume was down from second quarter 2017 which consumed approximately 417,000 MMBTU.  The reduction in consumption sequentially was due to downtime associated with the hurricane.

Labor costs were higher by 8.0% during 2017 from 2016 primarily due to additional expenses associated with the storm.
Transportation costs were lower by 9.7% primarily due to a decrease in the number of isocontainers and railcars which were shipped.  Isocontainers are utilized primarily for shipments overseas.

In addition, in third quarter 2016 we saw increases in plant maintenance and expenses associated with installation of a processing unit for which we were reimbursed at cost plus a markup fee.  These were minimal during 2017.

General and Administrative Expense

General and Administrative costs for third quarter 2017 increased from 2016 by 23.3% primarily due to an increase in our property tax accrual because of the expiration of abatements.  Group insurance and administrative labor costs also increased.

Depreciation

Depreciation increased 9.5% during third quarter 2017 from 2016 primarily due to 2016 capital expenditures increasing our depreciable base.

Capital Expenditures


Capital Expenditures increased 74.2% duringexpenditures in the third quarter 2017 from 2016 primarily due2020 were approximately $2.1 million compared to the new advanced reformer unit project.  See additional detail above under "Investing Activities".  Due to delays caused by the impact of the hurricane and issues with improper welding by the supplier of certain equipment$2.2 million in the reactor sectionthird quarter of the new unit, we now expect the advanced reformer unit to come online toward the end2019. Third quarter 2020 included approximately $0.5 million for rebuild and repair of first quarter 2018.a feedstock tank.


Specialty WaxWaxes Segment

Three Months Ended September 30,
20202019Change% Change
(thousands of dollars)
Product Sales$5,990 $5,834 $156 2.7 %
Processing2,533 2,396 137 5.7 %
Gross Revenue$8,523 $8,230 $293 3.6 %
Volume of specialty wax sales (thousand pounds)8,821 8,649 172 2.0 %
Cost of Sales$8,558 $8,879 $(321)(3.6)%
Gross Margin (Loss)(0.4)%(7.9)%7.5 %
General & Administrative Expense1,278 1,071 207 19.3 %
Depreciation and Amortization*1,427 1,548 (121)(7.8)%
Capital Expenditures$641 $361 $280 77.6 %
  2017  2016  Change  %Change 
  (thousands of dollars) 
Product Sales $5,590  $4,864  $726   14.9%
Processing  1,959   2,119   (160)  (7.6%)
Gross Revenue $7,549  $6,983  $566   8.1%
                 
  Volume of wax sales (thousand pounds)  8,036   8,248   (212)  (2.6%)
                 
  Cost of Sales $8,216  $6,708  $1,508   22.5%
  Gross Margin  (8.8%)  4.0%  (12.8%)  (320.0%)
  General & Administrative Expense  1,107   1,238   (131)  (10.6%)
  Depreciation and Amortization*  1,208   1,105   103   9.3%
  Capital Expenditures $1,991  $4,066  $(2,075)  (51.0%)
*Includes $1,187$1,403 and $1,082$1,524 for 20172020 and 2016,2019, respectively, which is included in cost of sales


Product Sales


Product sales revenue for the Specialty Waxes segment increased 14.9%2.7% during the third quarter 20172020 from the third quarter 20162019 as specialty wax sales volume increased nearly 0.2 million pounds. In the third quarter 2019 wax sales were depressed due to disruptions to feed supply. There were no material feed supply disruptions during the third quarter of 2020. Wax sales volume in the third quarter 2020 increased approximately 0.5 million pounds as compared to second quarter 2020. However, we continued to see strong growthweakness in wax sales both domestically and in export.  Polyethylene wax sales remained steady during the quarter.  However, volumes ofdomestic customer demand for our traditional products were impacted by the stormspecialty waxes due to outages at ourthe COVID-19 pandemic. The end uses that are most affected are furniture, automotive and infrastructure (pipe and road marking). Our wax feed suppliers.  We continue to make progress in growing sales in our new products for our Hot Melt Adhesives ("HMA") and PVC Lubricant markets.   These products are characterized by generally higher margins and growth rates.  Salesis based on certain by-products produced as a result of these products were down frompolyethylene production at major polyethylene producers' facilities on the second quarter primarily due to summer slowdown at European customers and inventory build at one of our distributors.  In third quarter 2016, sales for these products were insignificant.US Gulf Coast.

28


Processing


Processing revenues decreased 7.6% duringwere $2.5 million in the third quarter 20172020, a $0.1 million increase from the third quarter 2016 primarily due to the impact of the hurricane.  The entire facility was down for a full week during the storm, and when you are selling time, it means zero custom processing revenue for that week.  Additionally, we experienced start-up difficulties with the hydrogenation unit resulting in negligible processing revenues from that unit.  Further, faulty equipment in one of the units in the original plant caused an extended shutdown resulting in further loss of revenues.  This unit will be starting up shortly and running on a high value project through the end of the year.2019.

Cost of Sales


Cost of Sales increased 22.5% duringdecreased 3.6%, or approximately $0.3 million, in the third quarter 20172020 compared to the third quarter 2019. This decrease was primarily driven by lower operating expenses.

Depreciation

Depreciation for the third quarter 2020 was $1.4 million, a $0.1 million decrease from third quarter 2016 primarily due to increases in labor, freight, equipment maintenance, and natural gas utilities.  These cost increases were primarily attributable to the start-up of the hydrogenation/distillation unit.2019.

General and Administrative Expense

General and Administrative costs decreased 10.6% during third quarter 2017 from 2016 primarily due to a decrease in other compensation expense, accounting fees and security service expense.

Depreciation

Depreciation increased 9.3% during third quarter 2017 from 2016 primarily due to the hydrogenation/distillation unit coming online.





Capital Expenditures


Capital Expenditures decreased 51.0% duringwere approximately $0.6 million in the third quarter 2017 from third quarter 2016 primarily due to a decrease in expenditures for construction in progress including the hydrogenation/distillation project.  The project came online in second and third quarters 2017.

Corporate Segment

  2017  2016  Change  %Change 
  (in thousands)    
General & Administrative Expense $1,957  $1,238  $719   58.1%
Equity in earnings (losses) of AMAK  (897)  (2,089)  1,192   (57.1%)
Gain from additional equity issuance by AMAK  -   3,168   (3,168)  (100.0%)

General and Administrative Expenses

General corporate expenses increased during third quarter 2017 from third quarter 2016 primarily due to an increase in officer compensation. Officer compensation increased due to the accrual for 2017 executive bonuses and the reversal of certain accrued expenses2020 compared with $0.4 million in the third quarter of 2016, including2019.

Corporate Segment
Three Months Ended September 30,
 20202019Change% Change
 (thousands of dollars) 
General & Administrative Expense$2,049 $2,670 $(621)(23.3)%

Corporate expenses decreased $0.6 million from the accrual for bonuses when it was determined they would not be awarded.third quarter 2019 primarily due to reduced accounting and consulting fees.


Investment in AMAK - Discontinued Operations
Three Months Ended September 30,
 20202019Change% Change
 (thousands of dollars) 
Equity in earnings (losses) of AMAK$682 $(942)$1,624 172.4 %

Equity in Lossesearnings (losses) of AMAK

Equity include amortization of the difference between the Company's investment in lossesAMAK and the Company's share of net assets of AMAK. For the third quarter 2020, equity in earnings (losses) of AMAK decreased during third quarter 2017were increased from third quarter 2016.  Since the AMAK facility was idle during 2016, they had no sales.  They recorded sales in third quarter 2017 which offset some of their expenses.2019 due to higher metal prices and lower production costs.


29


AMAK Summarized Income Statement

  
Three Months Ended
September 30,
 
  2017  2016 
  (thousands of dollars) 
Sales $9,709  $318 
         
Gross loss  1,307   4,747 
General, administrative and other expenses  2,382   2,463 
Net loss $3,689  $7,210 

Three Months Ended
September 30,
20202019
(thousands of dollars)
Sales$23,943 $19,643 
Cost of sales18,644 19,072 
Gross profit5,299 571 
Selling, general, and administrative3,808 3,557 
Operating income (loss)1,491 (2,986)
Other income16 43 
Finance and interest expense(237)(456)
Income (loss) before Zakat and income taxes1,270 (3,399)
Zakat and income tax (benefit)(240)444 
Net Income (Loss)$1,510 $(3,843)
Finance and interest expense237 456 
Depreciation and amortization7,186 8,534 
Zakat and income tax (benefit)(240)444 
EBITDA$8,693 $5,591 


AMAK continues to upgrade leadership and personnel at the site while filling all significant personnel vacancies.  Sixteen percent more copper concentrate was shipped to the port in third quarter 2017 than in second quarter 2017.  Zinc concentrate to the port was up 38% quarter on quarter.  There was one shipmentApproximately 19,000 dry metric tons (dmt) of lower quality copper and zinc concentrate duringwere shipped in the quarter.  Although AMAK is not yet fully at target throughputs and notwithstanding ongoing water quality and minor plant reliability issues; throughput rates, concentrate quality and recoveries continuethird quarter 2020 as compared to steadily improve. We reported on initial Guyan exploration results.  Exploration continues both at Guyan and the surrounding areas with a similar geological profile.  Exploration results which are expected to extend the life18,000 dmt of the copper and zinc mine assets are anticipated later this year.concentrate in the third quarter 2019.



We completed the sale of our ownership interest in AMAK during the third quarter of 2020. See Note 5 for additional discussion.
26

Results of Operations



Comparison of Nine Months Ended September 30, 20172020 and 20162019


30


Specialty PetrochemicalPetrochemicals Segment

Nine Months Ended September 30,
 20202019Change% Change
 (thousands of dollars)
Product Sales$119,202 $167,351 $(48,149)(28.8)%
Processing4,047 4,117 (70)(1.7)%
Gross Revenue$123,249 $171,468 $(48,219)(28.1)%
Volume of Sales (gallons)
Specialty Petrochemicals Products52,952 64,438 (11,486)(17.8)%
Prime Product Sales44,042 51,801 (7,759)(15.0)%
By-product Sales8,910 12,637 (3,727)(29.5)%
Cost of Sales$102,654 $140,121 (37,467)(26.7)%
Gross Margin16.7 %18.3 %(1.6)%
Total Operating Expense*50,022 53,983 (3,961)(7.3)%
Natural Gas Expense*2,479 3,636 (1,157)(31.8)%
Operating Labor Costs*11,984 10,918 1,066 9.8 %
Transportation Costs*15,422 21,405 (5,983)(28.0)%
General & Administrative Expense7,944 7,950 (6)(0.1)%
Depreciation and Amortization**7,905 7,899 6 0.1 %
Capital Expenditures9,067 5,002 4,065 81.3 %
  2017  2016  Change  %Change 
  (thousands of dollars) 
Petrochemical Product Sales $147,339  $129,076  $18,263   14.1%
Processing  5,078   6,769   (1,691)  (25.0%)
Gross Revenue $152,417  $135,845  $16,572   12.2%
                 
Volume of Sales (gallons)                
  Petrochemical Products  60,512   58,018   2,494   4.3%
  Prime Product Sales  46,867   44,018   2,849   6.5%
                 
  Cost of Sales $122,351  $107,067  $15,284   14.3%
  Gross margin  19.7%  21.2%  (1.5%)  (6.9%)
  Total Operating Expense**  43,161   43,527   (366)  (0.8%)
  Natural Gas Expense**  3,545   2,405   1,140   47.4%
  Operating Labor Costs**  11,688   11,893   (205)  (1.7%)
  Transportation Costs**  18,314   17,850   464   2.6%
  General & Administrative Expense  7,914   6,821   1,093   16.0%
  Depreciation and Amortization*  4,684   4,211   473   11.2%
  Capital Expenditures $27,203  $16,812  $10,391   61.8%
* Included in cost of sales
**Includes $4,142$7,351 and $3,743$7,387 for 20172020 and 2016,2019, respectively, which is included in operating expense
** Included in cost of sales


Gross Revenue


Gross Revenue increasedfor our Specialty Petrochemicals segment decreased during the first nine months of 20172020 from 2016the first nine months of 2019 by approximately 12.2%28.1% primarily due to an increaselower sales volumes for prime products and byproducts as a result of the COVID-19 pandemic and its general impact on the economy. A decrease in the average selling price of 9.4% and an increase in volume of 4.3% offset byprices resulting from a decrease in processing fees.feedstock costs also contributed to the revenue decline.


Petrochemical Product Sales


PetrochemicalSpecialty Petrochemicals segment product sales revenue increased by 14.1%declined approximately 28.8% during the first nine months of 20172020 from 2016the first nine months of 2019 primarily as a result of the COVID-19 pandemic. Prime products sales volume declined approximately 7.8 million gallons or 15.0% from the first nine months of 2019 due to an increaselower demand from the polyethylene end-use markets as well as lower sales to Canadian oil sands customers. Sales to other end-use markets were also generally weaker compared to the same period last year. By-product sales volumes in the average selling pricefirst nine months of 9.4%2020 declined 29.5% compared to the first nine months of 2019 mainly due to lower prime product production and an increase in volumesales. By-products are produced as a result of 4.3%.  Our average selling price increased because of higher pricesprime product production and their margins are significantly lower than margins for prime products and by-products, driven by higher feedstock costs.  A large portion of our prime productproducts. Foreign sales are contracted with formulas which are tiedvolume increased to Natural Gas Liquid (NGL) prices which24.4% of total Specialty Petrochemicals volume in the first nine months of 2020 from 24.1% in the first nine months of 2019. Foreign sales volume includes sales to Canadian oil sands customers.

Processing

Processing revenues were approximately $4.0 million and $4.1 million for the first nine months of 2020 and 2019, respectively.

Cost of Sales (includes but is our primary feedstock.  NGL prices were relatively stablenot limited to raw materials and total operating expense)

Cost of Sales declined 26.7% during the first nine months of 2017 but were significantly higher than2020 from the first nine months of 2016.  Foreign2019. The decline in cost of sales volume decreasedcompared to 19.6% of total petrochemical volumethe same period last year was driven by depressed sales volumes, lower feedstock costs and lower
31


operating expenses – primarily natural gas and transportation costs. Benchmark Mount Belvieu natural gasoline feedstock price declined 42% from 22.7%$1.17 per gallon in the first nine months of 2016.2019 to $0.68 per gallon in the first nine months of 2020. By-product margins were lower compared to the first nine months of 2019. This was primarily due to lower component prices combined with the inability to take full advantage during the the first nine months of 2020 of the product upgrade capability of the Advance Reformer unit due to production rates below minimum threshold required for Advance Reformer unit operation.


ProcessingThe gross margin percentage for the Specialty Petrochemicals segment decreased from 18.3% in the first nine months of 2019 to 16.7% in the first nine months of 2020 driven by fixed cost being spread over lower sales volume.


Processing revenuesTotal Operating Expense (includes but is not limited to natural gas, operating labor, depreciation and transportation)

Total Operating Expense decreased 25.0%$4.0 million, or 7.3%, during the first nine months of 20172020 from 2016 due to reduced fees associated with a new customer who reimbursed us for installation expenses plus a markup duringthe same period in 2019. Operating expense benefited from lower transportation and natural gas costs.

Capital Expenditures

Capital expenditures in the first nine months of 2016 and outages associated with the hurricane2020 were approximately $9.1 million compared to $5.0 million in 2017.

Cost of Sales

Cost of Sales increased 14.3% during the first nine months of 2017 from 2016 due to the increase in NGL prices as mentioned above.  Our average feedstock cost per gallon increased 17.6%; whereas volume processed remained steady.  We use natural gasoline as feedstock which is the heavier liquid remaining after ethane, propane and butanes are removed from liquids produced by natural gas wells.2019. The material is a commodity product in the oil/petrochemical markets and generally is readily available.  The price of natural gasoline normally correlates approximately 90% with the price of crude oil.  The benchmark price of Mont Belvieu natural gasoline increased approximately 21% for the first nine months of 2017 compared to the same period in 2016.  The increase in feedstock cost compressed margins2020 included approximately $4.5 million for the spot or non-formula portion of prime product sales.  These are sales which do not have pricing formulas tied to feedstock costs.  This factor contributed to the decline in gross margin percentage from 21.2% to 19.7%.  Our advanced reformer unit (due online in first quarter 2018) will allow us to convert many of the by-products into higher value products, thereby allowing us to sell our byproducts at higher prices.


Total Operating Expense

Total Operating Expense decreased 0.8% during the first nine months of 2017 from 2016.  Natural gas, labor, and transportation are the largest individual expenses in this category; however, not all of these decreased.

The cost of natural gas purchased increased 47.4% during 2017 from 2016 due to an increase in the average per unit cost and consumption.  The average price per MMBTU for the first nine months of 2017 was $3.32 whereas, for 2016 the per-unit cost was $2.44.  Volume consumed increased to approximately 1,075,000 MMBTU from about 989,000 MMBTU.

Labor costs were lower by 1.7% primarily due to maintenance labor being capitalized to construction in progress.

Transportation costs were higher by 2.6% primarily due to an increase in the number of isocontainer shipments during the first nine months of 2017.  These shipments increased 112.6% and are generally used for overseas shipments.

In addition, during 2016 we saw increases in plant maintenance and expenses associated with installationupkeep of a processing unit forour GSPL pipeline which we were reimbursed at cost plus a markup fee.  These were minimal during 2017.is used to transport our feedstock.


General and Administrative Expense

Specialty Waxes Segment
General and Administrative costs for the first nine months of 2017 from 2016 increased by 16.0% primarily due to an increase in our property tax accrual because of the expiration of abatements.  Group insurance and administrative labor costs also increased.
Nine Months Ended September 30,
20202019Change% Change
(thousands of dollars)
Product Sales$18,258 $18,582 $(324)(1.7)%
Processing8,981 7,191 1,790 24.9 %
Gross Revenue$27,239 $25,773 $1,466 5.7 %
Volume of specialty wax sales (thousand pounds)27,361 26,486 875 3.3 %
Cost of Sales$25,132 $26,852 $(1,720)(6.4)%
Gross Margin (Loss)7.7 %(4.2)%11.9 %
General & Administrative Expense4,120 3,423 697 20.4 %
Depreciation and Amortization*4,093 4,295 (202)(4.7)%
Capital Expenditures$1,242 $1,296 $(54)(4.2)%

Depreciation

Depreciation increased 11.2% during the first nine months of 2017 from 2016 primarily due to 2016 capital expenditures increasing our depreciable base.

Capital Expenditures

Capital Expenditures increased 61.8% during the first nine months of 2017 from 2016 primarily due to expenditures related to construction of the new advanced reformer unit.  Due to delays caused by the impact of the hurricane and issues with improper welding by the supplier of certain equipment in the reactor section of the new unit, we now expect the advanced reformer unit to come online toward the end of first quarter 2018.


Specialty Wax Segment

  2017  2016  Change  %Change 
  (thousands of dollars) 
Product Sales $18,606  $14,585  $4,021   27.6%
Processing  8,142   7,766   376   4.8%
Gross Revenue $26,748  $22,351  $4,397   19.7%
                 
   Volume of wax sales (thousand pounds)  28,281   24,126   4,155   17.2%
                 
  Cost of Sales $25,219  $18,880  $6,339   33.6%
  Gross Margin  5.7%  15.5%  (9.8%)  (63.2%)
  General & Administrative Expense  3,729   3,582   147   4.1%
  Depreciation and Amortization*  3,233   2,945   288   9.8%
  Capital Expenditures $12,047  $11,059  $988   8.9%
*Includes $3,169$4,022 and $2,877$4,223 for 20172020 and 2016,2019, respectively, which is included in cost of sales


Product Sales


ProductSpecialty Wax segment product sales increased 27.6%revenue decreased 1.7% during the first nine months of 20172020 from the first nine months of 2016 primarily2019. In the first nine months of 2020 demand for our specialty wax products was negatively impacted due to on-purpose PEthe COVID-19 pandemic. Specialty wax sales which we are distributing in Latin America for a third party as well as, significant growth involume increased 3.3%, or nearly 0.9 million pounds. In the first nine months of 2019 planned maintenance turnaround at our high value waxes.  PolyethylenePasadena facility, along with outages at multiple wax feed suppliers, constrained specialty wax production and thereby sales saw volume increases of approximately 16.9%, and revenue from these sales increased 20.8%.   As mentioned above, we continuevolumes. There were no material disruptions to make good progress in developing high value markets for our by-product polyethylene waxes.
Processing

Processing revenues increased 4.8%feed supply during the first nine months of 20172020. Our wax feed is based on certain by-products produced as a result of polyethylene production at major polyethylene producers' facilities on the US Gulf Coast.

Processing

Processing revenues were $9.0 million in the first nine months of 2020, a 24.9%, or about $1.8 million, increase from the first nine months of 20162019. The increase was due to increased volumes with existing customers and a numbersignificantly improved operation of new contracts and small trials.  Processing revenue generated from B Plant was approximately $2.2 million, from the new hydrogenation/distillation unit was approximately $0.2 million, andas well as strong revenues from the new hydrogenation unit was approximately $0.1 million.  Excluding the $1.6 million non-use fee that occurred for the last timeother custom processing customers in the first quarter of 2016, custom processing revenues were up over 32% over 2016 numbers. This revenue increase occurred despite the start-up difficulties with the hydrogenation unit resulting in negligible processing revenues from that unit.  Further, faulty equipment in another unit caused an extended shutdown of this unit resulting in further loss of revenue.2020.


32


Cost of Sales


Cost of Sales increased 33.6%decreased 6.4%, or nearly $1.7 million, in the first nine months of 2020 compared to the first nine months of 2019. This decrease was driven by lower polyethylene wax feed cost and reduced operating expenses.

General and Administrative

General and administrative expenses increase approximately $0.7 million in the first nine months of 2020 compared to the first nine months of 2019. This increase was driven by bonus accruals and insurance costs.

Depreciation

Depreciation for the first nine months of 2020 was $4.1 million, a $0.2 million decrease from the first nine months of 2019.

Capital Expenditures

Capital Expenditures were approximately $1.2 million in the first nine months of 2020 compared with $1.3 million in the first nine months of 2019.

Corporate Segment
Nine Months Ended September 30,
 20202019Change% Change
 (thousands of dollars) 
General & Administrative Expense$6,664 $7,159 $(495)(6.9)%

General corporate expenses decreased by $0.5 million during the first nine months of 20172020 from the first nine months of 2016 due2019. The decrease is primarily attributable to increaseslower accounting and consulting fees.

Investment in material cost, labor, freight, repairs and maintenance of manufacturing equipment, and natural gas utilities.AMAK - Discontinued Operations

Nine Months Ended September 30,
 20202019Change% Change
 (thousands of dollars) 
Equity in earnings (losses) of AMAK$455 $(1,093)$1,548 (141.6)%
Material cost increased approximately 69.4% due to material costs associated with the on-purpose PE wax sales we distributed into Latin America as noted above and to support the additional sales volume of polyethylene wax sales.  Labor increased approximately 22.8% due to increased overtime and the addition of new personnel in preparation for the start-up of the new hydrogenation/distillation project.  Freight increased approximately 155.7% due to a change in shipping terms.  We now ship most products with destination terms.  Repairs and maintenance of equipment increased approximately 33.8% primarily due to the addition of B Plant and the introduction of new custom processing projects.  Natural gas utilities increased approximately 84.4% due to an increase in per unit cost as mentioned above and an increase in volume consumed because of B Plant and the new hydrogenation/distillation unit.

General and Administrative Expense

General and Administrative costs for the first nine months of 2017 from 2016 increased 4.1% primarily due to an increase in sales personnel, property taxes, and property insurance due to the addition of B Plant.

Depreciation

Depreciation increased 9.8% during the first nine months of 2017 from 2016 primarily due to addition of B Plant.

Capital Expenditures

Capital Expenditures increased 8.9% during the first nine months of 2017 from the first nine months of 2016 primarily due to expenditures for construction in progress including the hydrogenation/distillation project and various other smaller projects.  The hydrogenation/distillation project is complete; therefore, going forward we expect capital expenditures to return to a more normal level.

Corporate Segment

  2017  2016  Change  %Change 
  (thousands of dollars)    
General & Administrative Expense $5,978  $5,128  $850   16.6%
Equity in earnings (losses) of AMAK  (5,161)  2,261   (7,422)  (328.3%)
Gain from additional equity issuance by AMAK  -   3,168   (3,168)  (100.0%)

General and Administrative Expenses

General corporate expenses increased 16.6% during first nine months 2017 from first nine months 2016 primarily due to an increase in officer compensation.  Officer compensation increased because of the accrual in 2017 for executive bonuses. During 2016 we reversed the accrual for bonuses when it was determined they would not be awarded.

Equity in Earnings (Losses) of AMAK/Gain from Additional Equity Issuance by AMAK


Equity in earnings (losses) of AMAK decreasedincreased during the first nine months 2017of 2020 from the first nine months 2016of 2019. The equity in earnings (losses) were primarily due toimpacted by increased metal prices and reduced production costs during the recognition in 2016 of a gain from a settlement which was reached with the former operatorfirst nine months of the facility and a gain on an additional equity issuance by AMAK.  In addition, the facility recording no sales in second quarter 2017 (please see Noteyear.

Table of Contents
29
17 to the consolidated financial statements for the impact on our statements).  Also, during 2016 the facility was not operating; therefore, their expenses were less.

33


AMAK Summarized Income Statement

  
Nine Months Ended
September 30,
 
  2017  2016 
  (thousands of dollars) 
Sales $11,965  $9,921 
         
Gross loss  (11,515)  (7,556)
General, administrative and other expenses  6,942   6,986 
Loss from operations  (18,457)  (14,542)
Gain on settlement with former operator  -   17,440 
Net income (loss) $(18,457) $2,898 

Nine Months Ended
September 30,
20202019
(thousands of dollars)
Sales$62,632 $60,873 
Cost of sales53,294 55,804 
Gross profit9,338 5,069 
Selling, general, and administrative8,850 9,102 
Operating income (loss)488 (4,033)
Other income33 396 
Finance and interest expense(871)(1,349)
Loss before Zakat and income taxes(350)(4,986)
Zakat and income taxes859 1,332 
Net Loss$(1,209)$(6,318)
Finance and interest expense871 1,349 
Depreciation and amortization20,908 23,604 
Zakat and income taxes859 1,332 
EBITDA$21,429 $19,967 
The team at AMAK continued to upgrade personnel and work on improving operations throughout the quarter.  Shipments
Approximately 52,000 dry metric tons (dmt) of concentrate to the port continue to show steady improvement – along with quality and recoveries.  We reported on initial Guyan exploration results.  Exploration continues both at Guyan and the surrounding areas with a similar geological profile.  Exploration results which should extend the life of the copper and zinc mine assets are expected later this year.

Guarantee of Saudi Industrial Development Fund ("SIDF") Loan to AMAK

As discussed in Note 19 to the consolidated financial statements, as a condition of the Loan from the SIDFconcentrate were shipped in the principal amountfirst nine months of 330.0 million SR (US$88.0 million)2020 as compared to AMAK, we were required to execute a Guarantee49,000 dmt of up to 41% of the Loan.  The decision to provide a limited corporate guarantee in favor of AMAK was difficult as we considered numerous factscopper and circumstances.  One of the factors considered was that without the US$88.0 million from the SIDF, construction activity on the project would likely have ceased.  Another factor considered was that prior to making a firm commitment regarding funding, the SIDF performed its own exhaustive due diligence of the project and obviously reached the conclusion that the project is viable and capable of servicing the debt.  Yet another factor considered was our ability to reach agreement with various AMAK Saudi shareholders whereby they agreed to use best efforts to have their personal guarantees stand ahead of and pay required payments to SIDF before our corporate guarantee.  Finally, we researched numerous loans made by the SIDF to others and were unable to find a single instance where the SIDF actually called a guarantee or foreclosed on a project.  Based on the above, we determined that it waszinc concentrate in the bestfirst nine months of 2019.

We completed the sale of our ownership interest in AMAK during the third quarter of the Company2020. See Note 5 for additional discussion.

Contractual Obligations

Our contractual obligations are summarized in Part II, Item 7. "Management's Discussion and its shareholders to provide the limited corporate guarantee to facilitate completionAnalysis of the mining project in a timely manner.   We also determined that the stand-in-front agreement in conjunction with the actual valueFinancial Condition and Results of plant and equipment on the ground should act in concert to minimize any exposure arising from the corporate guarantee.  The total amount outstanding to the SIDF at September 30, 2017, was 305.0 million Saudi Riyals (US$81.3 million).

Critical Accounting Policies and Estimates

Inventories - Finished products and feedstock are recorded at the lower of cost, determined on the first-in, first-out method (FIFO); or market for SHR.  For TC, inventory is recorded at the lower of cost or market as follows:  (1) raw material cost is calculated using the weighted-average cost method and (2) product inventory cost is calculated using the specific cost method.

Other critical accounting policies are more fully described in Note 2 of the Notes to Consolidated Financial Statements includedOperations," in our Annual Report on Form 10-K for the year ended December 31, 2016.2019. There have been no other material changes to the contractual obligation amounts disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019.

Critical Accounting Policies and Estimates

Critical accounting policies are more fully described in Note 2, “RECENT ACCOUNTING PRONOUNCEMENTS” to the consolidated financial statements set forth in our Annual Report on Form 10-K for the year ended December 31, 2019. The preparation of consolidated financial statements in accordance with generally accepted accounting principles requires management to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the period reported. By their nature, these estimates, assumptions and judgments are subject to an inherent degree of uncertainty. We base our estimates, assumptions and judgments on historical experience, market trends and other factors that are believed to be reasonable under the circumstances. Estimates, assumptions and judgments are reviewed on an ongoing basis and the effects of revisions are reflected in the consolidated financial statements in the period they are determined to be necessary. Actual results may differ from these estimates under different assumptions or conditions. Our critical accounting policies and estimates have been discussed with the Audit Committee of the Board of Directors. We believe there have been no material
changes to our critical accounting policiesDirectors and estimates compared to those discussed in our Annual Report on Form 10-K for the year ended December 31, 2016, except for2019. For the change in inventory valuation method from LIFOnine months ended September 30, 2020, there were no significant changes to FIFO as described in Note 5.these policies.


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Recent and New Accounting Standards


See Note 2 to the Condensed Consolidated Financial Statements for a summary of recent accounting guidance.


Off Balance Sheet Arrangements

As of September 30, 2020, we do not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial statements, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.


Derivative Instrument Risk

Refer to Note 12For quantitative and qualitative disclosure about market risk, see Part II, Item 7A, "Quantitative and Qualitative Disclosures about Market Risk" in our Annual Report on page 13 of this Form 10-Q.

Interest Rate Risk
Refer to Note 12 on page 13 of this Form 10-Q.

10–K for the year ended December 31, 2019. There have been no material changes in the Company's exposure to market risk from the disclosure included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2016.such report.


ITEM 4. CONTROLS AND PROCEDURES.


(a)
Evaluation of disclosure controls and procedures. Our chief executive officer and chief financial officer,(a)Evaluation of disclosure controls and procedures. Our Chief Executive Officer and Chief Financial Officer, with the participation of management, have evaluated the effectiveness of our "disclosure controls and procedures" (as defined in Rules 13a-15(e) and 15(d)-15(e) under the Securities Exchange Act of 1934) and determined that our disclosure controls and procedures were not effective as of the end of the period covered by this report due to the material weakness in internal control over financial reporting as described below.
Material Weakness in Internal Control over Financial Reporting

As described in Management's Report On Internal Control Over Financial Reporting in Item 9A of our Annual Report on Form 10-K for"disclosure controls and procedures" (as defined in Rules 13a-15(e) and 15(d)-15(e) under the year ended December 31, 2016, weSecurities Exchange Act of 1934) and determined that we did not maintainour disclosure controls and procedures were effective internal control over the accounting for our investment in AMAK. Specifically, controls were not appropriately designed, adequately documented and operating effectively related to the accounting for: (1) our equity in earnings of AMAK; and (2) changes in our ownership percentage in AMAK as the result of the sale and issuanceend of shares of AMAK to other investors.  As a result ofthe period covered by this material weakness, we restated our financial statements for the three months ended June 30, 2016, and September 30, 2016, respectively. Thisreport.

(b)Changes in internal control deficiency did not result in any material adjustments to our consolidated financial statements for the year ended December 31, 2016.

Although we have made progress in the remediation of this issue, as indicated below, sufficient time needs to pass before we can conclude that newly implemented controls are operating effectively and that the material weakness has been adequately remediated.   Notwithstanding the material weakness. There were no significant changes in our internal control over financial reporting wethat occurred during the three months ended September 30, 2020, that have concluded that the interim condensed consolidated financial statements and other financial information included in this Quarterly Report on Form 10-Q, fairly present in all material respects our financial condition, results of operations and cash flows as of, and for, the periods presented.

Remediation of Material Weakness in Internal Control over Financial Reporting

During second quarter 2017 we developed and implemented a comprehensive remediation plan.  We believe the enhanced procedures will remediate the material weakness we have identified and generally strengthenmaterially affected, or are reasonably likely to materially affect, our internal control over financial reporting. The material weakness will not be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.  Since, we have not completed the testing and evaluation of the operating effectiveness of controls, the previously disclosed material weaknesses remain unremediated as of September 30, 2017.  Once we complete testing and our evaluation of the effectiveness of the controls by the end of the year, we expect to conclude that the material weaknesses have been remediated.
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(b)
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PART II. OTHER INFORMATION


ITEM 1. LEGAL PROCEEDINGS.


The Company is periodically named in legal actions arising from normal business activities. The Company evaluates the merits of these actions and, if it determines that an unfavorable outcome is probable and can be reasonably estimated, the Company will establish the necessary reserves. We are not currently involved in legal proceedings that could reasonably be expected to have a material adverse effect on our business, prospects, financial condition or results of operations. We may become involved in material legal proceedings in the future.


ITEM 1A. RISK FACTORS.


Readers of this Quarterly Report on Form 10–Q should carefully consider the risks described in the Company's other reports and filings filed with or furnished to the SEC, including the Company's prior and subsequent reports on Forms 10–K, 10–Q and 8–K, in connection with any evaluation of the Company's financial position, results of operations and cash flows.

The risks and uncertainties in the Company's most recent Annual Report on Form 10–K and subsequent reports on Form 10-Q and 8-K are not the only risks that the Company faces. Additional risks and uncertainties not presently known or those that are currently deemed immaterial may also affect the Company's operations. Any of the risks, uncertainties, events or circumstances described therein could cause the Company's future financial condition, results of operations or cash flows to be adversely affected. There have been no material changes from the risk factors previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2016.2019 and the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2020.


ITEM 6. EXHIBITS.


The following documents are filed or incorporated by reference as exhibits to this Report. Exhibits marked with an asterisk (*) are filed herewith and exhibits marked with a double asterisk (**) are furnished herewith.

Exhibit
Number
Description
10(a)Exhibit
Number
Third Amendment to Amended and Restated Credit Agreement dated as of July 25, 2017, among Texas Oil & Chemical Co. II, Inc. and certain subsidiaries and Bank of America, N.A. as administrative agent (incorporated by reference to Exhibit 99.2 to the Company's Form 8-K filed on July 27, 2017 (file No. 001-33926))
Description
10(b)*
31.1*		Form of Trecora Resources Stock and Incentive Plan Restricted Stock Unit Agreement
10(c)*
Form of Trecora Resources Stock and Incentive Plan Amended and Restated Restricted Stock Unit Agreement
31.1**
Certification of Chief Executive Officer pursuant to Rule 13A-14(A)13a-14(a) of the Securities Exchange Act of 1934
31.2**
31.2*
Certification of Chief Financial Officer pursuant to Rule 13A-14(A)13a-14(a) of the Securities Exchange Act of 1934
32.1**
32.1*
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2**
32.2*
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS*XBRL Instance Document (XBRL tags are embedded within the Inline XBRL document)
101.SCH*XBRL Taxonomy Schema Document
101.CAL*XBRL Taxonomy Calculation Linkbase Document
101.LAB*XBRL Taxonomy Label Linkbase Document
101.PRE*XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF*XBRL Taxonomy Extension Definition Linkbase Document
104*Cover Page Interactive Data File (formatted as inline XBRL and included as Exhibit 101)

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.



DATE:  November 8, 2017   TRECORA RESOURCES
                                                (Registrant)


                                                 By: /s/Sami Ahmad
                                                 Sami Ahmad
                                                 Chief Financial Officer
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Table of Contents


TRECORA RESOURCES
Dated: November 4, 2020By: /s/ Sami Ahmad
Sami Ahmad
Principal Financial Officer and Duly Authorized Officer

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