UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended ~~September~~June 30, ~~2017~~2018

[ ] 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

TRECORA RESOURCES

(Exact name of registrant as specified in its charter)



DELAWARE	75-1256622
(State or other jurisdiction of	(I.R.S. employer incorporation or
organization)	identification no.)



1650 Hwy 6 South, Suite 190	77478
Sugar Land, Texas	(Zip code)
(Address of principal executive offices)

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

Former name, former address and former fiscal year, if

changed since last report.

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-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

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_____

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 Act).

YesNo No X_

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

August 2, 2018: 24,486,654.

TABLE OF CONTENTS

Item Number and Description

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

TRECORA RESOURCES AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

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~~

~~TRECORA RESOURCES AND SUBSIDIARIES~~

~~CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)~~

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~~

~~TRECORA RESOURCES AND SUBSIDIARIES~~

~~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



	June 30, 2018 (Unaudited)			December 31, 2017
ASSETS	(thousands of dollars)
Current Assets
Cash	$	3,387		$	3,028
Trade receivables, net	26,467			25,779
Insurance receivable	493			—
Inventories	17,003			18,450
Prepaid expenses and other assets	5,188			4,424
Taxes receivable	1,291			5,584
Total current assets	53,829			57,265

Plant, pipeline and equipment, net	192,084			181,742

Goodwill	21,798			21,798
Intangible assets, net	19,877			20,808
Investment in AMAK	45,452			45,125
Mineral properties in the United States	588			588

TOTAL ASSETS	$	333,628		$	327,326
LIABILITIES
Current Liabilities
Accounts payable	$	11,927		$	18,347
Accrued liabilities	5,638			3,961
Current portion of post-retirement benefit	28			305
Current portion of long-term debt	8,061			8,061
Current portion of other liabilities	916			870
Total current liabilities	26,570			31,544

Long-term debt, net of current portion	97,015			91,021
Post-retirement benefit, net of current portion	365			897
Other liabilities, net of current portion	1,297			1,611
Deferred income taxes	18,315			17,242
Total liabilities	143,562			142,315

EQUITY
Common stock‑authorized 40 million shares of $.10 par value; issued 24.5 million in 2018 and 2017 and outstanding 24.3 million shares in 2018 and 2017	2,451			2,451
Additional paid-in capital	56,365			56,012
Common stock in treasury, at cost	(61		)	(196		)
Retained earnings	131,022			126,455
Total Trecora Resources Stockholders' Equity	189,777			184,722
Noncontrolling Interest	289			289
Total equity	190,066			185,011

TOTAL LIABILITIES AND EQUITY	$	333,628		$	327,326

See notes to consolidated financial statements.



Table of Contents
	1

TRECORA RESOURCES AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~INCOME (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



	THREE MONTHS ENDED JUNE 30,						SIX MONTHS ENDED JUNE 30,
	2018			2017			2018			2017
	(thousands of dollars)						(thousands of dollars)
REVENUES
Petrochemical and Product Sales	$	63,569		$	57,016		$	130,268		$	107,915
Processing Fees	4,537			5,099			9,579			9,742
	68,106			62,115			139,847			117,657

OPERATING COSTS AND EXPENSES
Cost of Sales and Processing
(including depreciation and amortization of $2,837, $2,363, $5,667, and $4,746, respectively)	59,964			51,008			121,565			95,932

GROSS PROFIT	8,142			11,107			18,282			21,725

GENERAL AND ADMINISTRATIVE EXPENSES
General and Administrative	4,554			5,740			10,889			11,961
Depreciation	191			205			387			410
	4,745			5,945			11,276			12,371

OPERATING INCOME	3,397			5,162			7,006			9,354

OTHER INCOME (EXPENSE)
Interest Income	14			—			21			—
Interest Expense	(815		)	(678		)	(1,693		)	(1,314		)
Equity in Earnings (Losses) of AMAK	228			(3,298		)	458			(4,264		)
Miscellaneous Expense	(13		)	(22		)	(39		)	(64		)
	(586		)	(3,998		)	(1,253		)	(5,642		)

INCOME BEFORE INCOME TAXES	2,811			1,164			5,753			3,712

INCOME TAXES	596			332			1,186			1,393

NET INCOME	2,215			832			4,567			2,319

NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST	—			—			—			—

NET INCOME ATTRIBUTABLE TO TRECORA RESOURCES	$	2,215		$	832		$	4,567		$	2,319

Basic Earnings per Common Share
Net Income Attributable to Trecora Resources (dollars)	$	0.09		$	0.03		$	0.19		$	0.10

Basic Weighted Average Number of Common Shares Outstanding	24,370			24,256			24,354			24,248

Diluted Earnings per Common Share
Net Income Attributable to Trecora Resources (dollars)	$	0.09		$	0.03		$	0.18		$	0.09

Diluted Weighted Average Number of Common Shares Outstanding	25,014			25,034			25,119			25,044

See notes to consolidated financial statements.



Table of Contents
	2

TRECORA RESOURCES AND SUBSIDIARIES

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, 2018	24,311	$	2,451	$	56,012		$	(196	)	$	126,455	$	184,722		$	289	$	185,011

Stock Options
Issued to Directors	—	—		(10		)	—			—		(10		)	—		(10		)
Issued to Employees	—	—		154			—			—		154			—		154
Cancellations (see Note 13)	—	—		(680		)	—			—		(680		)	—		(680		)
Restricted Stock Units
Issued to Directors	—	—		175			—			—		175			—		175
Issued to Employees	—	—		734			—			—		734			—		734
Common Stock
Issued to Directors	—	—		(78		)	37			—		(41		)	—		(41		)
Issued to Employees	—	—		132			154			—		286			—		286
Stock Exchange (see Notes 8 & 17)	—	—		(65		)	(65		)	—		(130		)	—		(130		)
Warrants	—	—		(9		)	9			—		—			—		—
Net Income	—	—		—			—			4,567		4,567			—		4,567

June 30, 2018	24,311	$	2,451	$	56,365		$	(61	)	$	131,022	$	189,777		$	289	$	190,066

See notes to consolidated financial statements.



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	3

TRECORA RESOURCES AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)



	SIX MONTHS ENDED JUNE 30,
	2018			2017
	(thousands of dollars)
OPERATING ACTIVITIES
Net Income	$	4,567		$	2,319
Adjustments to Reconcile Net Income
To Net Cash Provided by Operating Activities:
Depreciation and Amortization	4,941			4,226
Amortization of Intangible Assets	931			931
Unrealized Gain on Derivative Instruments	—			(38		)
Stock-based Compensation	372			1,289
Deferred Income Taxes	1,073			505
Postretirement Obligation	(809		)	(5		)
Equity in (Earnings) Losses of AMAK	(458		)	4,264
Bad Debt Expense	128			—
Amortization of Loan Fees	161			61
Changes in Operating Assets and Liabilities:
Increase in Trade Receivables	(817		)	(2,839		)
Increase in Insurance Receivables	(493		)	—
Decrease in Taxes Receivable	4,293			783
Decrease in Inventories	1,448			2,752
(Increase) Decrease in Prepaid Expenses and Other Assets	(901		)	36
Increase (Decrease) in Accounts Payable and Accrued Liabilities	(4,742		)	114
Increase in Other Liabilities	104			1,129
Net Cash Provided by Operating Activities	9,798			15,527

INVESTING ACTIVITIES
Additions to Plant, Pipeline and Equipment	(15,434		)	(27,833		)
Advances to AMAK, net	(83		)	(55		)
Cash Used in Investing Activities	(15,517		)	(27,888		)

FINANCING ACTIVITIES
Issuance of Common Stock	—			25
Net Cash Received (Paid) Related to Stock-Based Compensation	245			(55		)
Addition to Long-Term Debt	16,000			12,000
Repayment of Long-Term Debt	(10,167		)	(6,250		)
Net Cash Provided by Financing Activities	6,078			5,720

NET INCREASE (DECREASE) IN CASH	359			(6,641		)

CASH AT BEGINNING OF PERIOD	3,028			8,389

CASH AT END OF PERIOD	$	3,387		$	1,748



Supplemental disclosure of cash flow information:
Cash payments for interest	$	2,394	$	2,721
Cash payments for taxes, net of refunds	$	92	$	220
Supplemental disclosure of non-cash items:
Capital expansion amortized to depreciation expense	$	210	$	435
Stock exchange (Notes 8 & 17)	$	130	$	—

See notes to consolidated financial statements.



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	4

TRECORA RESOURCES AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. GENERAL

Organization

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

This document includes the following abbreviations:


(1)	TREC – Trecora Resources


(2)	TOCCO – Texas Oil & Chemical Co. II, Inc. – Wholly owned subsidiary of TREC and parent of SHR and TC


(3)	SHR – South Hampton Resources, Inc. – Petrochemical segment and parent of GSPL


(4)	GSPL – Gulf State Pipe Line Co, Inc. – Pipeline support for the petrochemical segment


(5)	TC – Trecora Chemical, Inc. – Specialty wax segment


(6)	AMAK – Al Masane Al Kobra Mining Company – Mining equity investment – 33% ownership


(7)	PEVM – Pioche Ely Valley Mines, Inc. – Inactive mine - 55% ownership

Basis of Presentation

The accompanying unaudited 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.~~2017.

The unaudited condensed 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~~six months ended ~~September~~June 30, ~~2017,~~2018 are not necessarily indicative of results for the year ending December 31, ~~2017.~~2018.

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

In addition, we own a 33% interest in AMAK, a Saudi Arabian closed joint stock company, which owns, operates and is developing mining assets in Saudi Arabia. We account for our investment under the equity method of accounting. See Note 17.

~~Certain reclassifications have been made to the Consolidated Balance Sheet for the year ended December 31, 2016, related to our adoption of~~Revenue Recognition

The Company adopted Financial Accounting Standards Board ("FASB") ~~Accounting Standards Update~~ASC Topic 606 ("~~ASU"~~ASC 606") ~~2015-17~~, Revenue from Contracts with Customers and its amendmentswith a date of the initial application of January 1, 2018. As a result, the Company has changed its accounting policy for revenue recognition as ~~noted below~~detailed below. ASC 606 outlines a single comprehensive model for an entity to use in ~~Note 2.~~accounting for revenue arising from all contracts with customers except where revenues are in scope of another accounting standard. ASC 606 superseded the revenue recognition requirements in ASC Topic 605, "Revenue Recognition", and most industry specific guidance. ASC Topic 606 sets forth a five-step model for determining when and how revenue is recognized. Under the model, an entity is required to recognize revenue to depict the transfer of goods or services



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	5

to a customer at an amount reflecting the consideration it expects to receive in exchange for those goods and services. ASC 606 also requires certain additional revenue-related disclosures.

The ~~impact~~Company applied the modified retrospective approach under ASC 606 which allows for the cumulative effect of adopting the new guidance on the date of initial application. Use of the ~~adoption ASU 2015-17~~modified retrospective approach means the Company's comparative periods prior to initial application are not restated. The initial application was applied to all contracts at the date of the initial application. The Company has determined that the adjustments using the modified retrospective approach did not have a material impact on the date of the initial application along with the disclosure of the effect on prior periods.

Accounting Policy

Beginning on January 1, 2018, revenue is measured based on a consideration specified in a contract with a customer. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer. In evaluating when a customer has control of the asset we primarily consider whether the transfer of legal title and physical delivery has occurred, whether the customer has significant risks and rewards of ownership, and whether the customer has accepted delivery and a right to payment exists. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer, are excluded from revenue. Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are included in cost of product sales and processing. The Company does not offer material rights of return or service-type warranties.

For the six months ended June 30, 2017 the Company recognized revenue according to FASB ASC Topic 605, "Revenue Recognition", ("ASC 605"), when (1) the customer accepted delivery of the product and title had been transferred or when the service was performed and the Company had no significant obligations remaining to be performed; (2) a final understanding as to specific nature and terms of the agreed upon transaction had occurred; (3) price was fixed and determinable; and (4) collection was assured. Product sales generally met these criteria, and revenue was recognized, when the product was delivered or title was transferred to the customer. Sales revenue was presented net of discounts, allowances, and sales taxes. Freight costs billed to customers were recorded as a component of revenue. Revenues received in advance of future sales of products or prior to the performance of services were presented as deferred revenues. Shipping and handling costs were classified as cost of product sales and processing and were expensed as incurred.

Nature of goods and services

The following is a description of principal activities – separated by reportable segments – from which the Company generates its revenue. For more detailed information about reportable segments, disaggregation of revenues, and contract balance disclosures, see Note 14.

Petrochemical segment

The petrochemical segment of the Company produces eight high purity hydrocarbons and other petroleum based products including isopentane, normal pentane, isohexane and hexane. These products are used in the production of polyethylene, packaging, polypropylene, expandable polystyrene, poly-iso/urethane foams, crude oil from the Canadian tar sands, and in the catalyst support industry. SHR's petrochemical products are typically transported to customers by rail car, tank truck, iso-container and ship.

Product Sales - The Company sells individual (distinct) products to its customers on a stand-alone basis (point-of-sale) without any further integration. There is no significant modification of any one or more products sold to fulfill another promised product or service within any of the Company's ~~previously issued December 31, 2016, balance sheet~~product sale transactions. The amount of consideration received for product sales is ~~as follows:~~stated within the executed invoice with the customer. Payment is typically due and collected 30 to 60 days subsequent to point of sale.

Processing Fees - The Company's promised services consist of processing customer supplied feedstocks into custom products including, if requested, services for forming, packaging, and arranging shipping. Pursuant to Tolling Agreements the customer retains title to the feedstocks and processed products. The performance obligation in each Tolling Agreement transaction is the processing of customer provided feedstocks into custom products and is satisfied over time. The amount of consideration received for product sales is stated within the executed invoice with the customer. Payment is typically due and collected within 30 days subsequent to point of sale.



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	6

Specialty Wax segment

The specialty wax segment of ~~Contents~~the Company manufactures and sells specialty polyethylene and poly alpha olefin waxes and also provides custom processing services for customers.

Product Sales - The Company sells individual (distinct) products to its customers on a stand-alone basis (point-of-sale) without any further integration. There is no significant modification of any one or more products sold to fulfill another promised product or service within any of the Company's product sale transactions. The amount of consideration received for product sales is stated within the executed invoice with the customer. Payment is typically due and collected within 30 days subsequent to point of sale.

Processing Fees - The Company's promised services consist of processing customer supplied feedstocks into custom products including, if requested, services for forming, packaging, and arranging shipping. Pursuant to Tolling Agreements and Purchase Order Arrangements, the customer typically retains title to the feedstocks and processed products. The performance obligation in each Tolling Agreement transaction and Purchase Order Arrangement is the processing of customer provided feedstocks into custom products and is satisfied over time. The amount of consideration received for product sales is stated within the executed invoice with the customer. Payment is typically due and collected within 30 days subsequent to point of sale.

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, resulting 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 depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. This ASU provides alternative methods 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 but not before annual periods beginning after December 15, 2016.~~ The Company ~~is evaluating~~completed its assessment of the impact of ~~these amendments, although it does not expect~~ the ~~amendments~~adoption of ASU 2014-09 across all revenue streams. This included reviewing current accounting policies and practices to ~~have a significant impact to~~identify potential differences that would result from applying the ~~Company's financial position or~~requirements under the new standard. We completed contract reviews and validated results of ~~operation. The amendments could potentially impact~~applying the ~~accounting procedures and processes over the recognition of certain~~new revenue ~~sources. The Company has begun developing processes and procedures to ensure it is fully compliant with these amendments at the date of adoption.~~guidance (Note 1).

~~In November 2015 the FASB issued ASU No. 2015-17,~~ ~~Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes.~~ The new standard eliminates the current requirement for organizations to present deferred tax liabilities and assets as current and noncurrent in a classified balance sheet. Instead, organizations 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, and interim periods within those annual periods. The Company implemented ASU 2015-17 by classifying all of it deferred tax assets (liabilities) as noncurrent on January 1, 2017. See Note 1 for effect to the Balance Sheet for December 31, 2016

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842),, and has subsequently issued several supplemental and/or clarifying ASUs to increase transparency and comparability among organizations by recognizing all lease 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 ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with earlier application permitted. Upon 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 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.~~processes. In addition, the Company will change its current accounting policies to comply with the amendments with such changes as mentioned above.

In ~~March 2016~~February 2018, the FASB issued ASU No. ~~2016-09,~~ 2018-02, ~~Compensation—Stock Compensation~~Income Statement — Reporting Comprehensive Income (Topic ~~718)~~220): ~~Improvements~~Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. ASU 2018-02 was issued to ~~Employee Share-Based Payment Accounting~~,address the income tax accounting treatment of the stranded tax effects within other comprehensive income due to the prohibition of backward tracing due to an income tax rate change that was initially recorded in other comprehensive income due to the enactment of the Tax Cuts and Jobs Act ("TCJA") on December 22, 2017, which ~~will reduce complexity~~changed the Company's income tax rate from 35% to 21%. The amendments to the ASU changed US GAAP whereby an entity may elect to reclassify the stranded tax effect from accumulated other comprehensive income to retained earnings. The amendments of the ASU may be adopted in ~~accounting standards related to share-based payment transactions, including, among others, (1) accounting for income taxes, (2) classification~~total or in part using a full retrospective or modified retrospective method. The amendments of ~~excess tax benefits on~~ the ~~statement of cash flow, (3) forfeitures, and (4) statutory tax withholding requirements. The~~ ASU isare effective for ~~annual reporting~~ periods beginning ~~on or~~ after December 15, ~~2016, and interim periods within those annual periods.~~2018. Early adoption is permitted. 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,~~believes there iswill be no material ~~change in~~impact to the ~~Company's~~consolidated financial ~~position or results of operation,~~statements as a result of ~~adopting~~ this ~~Update. For additional information on the stock-based compensation plan, see Note 13.~~update.

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	7

In ~~January 2017~~June 2018, the FASB issued ASU No. ~~2017-04,~~ 2018-07, ~~Intangibles – Goodwill and Other (Topic 350).~~Improvements to Nonemployee Share-Based Payment Accounting. ASU 2018-07 simplifies the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions. The amendments in this 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~~companies for ~~the first interim and annual reporting periods~~fiscal years beginning after December 15, ~~2019. Early adoption is permitted for~~2018, including 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 failsperiods within 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.fiscal year. 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~~is assessing the ~~fair value~~effect of ~~the reporting unit below~~ASU 2018-02 on 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'sconsolidated 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.~~statements.

3. TRADE RECEIVABLES

Trade receivables, net, consisted of the following:

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



	June 30, 2018			December 31, 2017
	(thousands of dollars)
Trade receivables	$	26,895		$	26,079
Less allowance for doubtful accounts	(428		)	(300		)
Trade receivables, net	$	26,467		$	25,779

Trade receivables serves as collateral for our amended and restated credit agreement. See Note 10.

4. PREPAID EXPENSES AND OTHER ASSETS

Prepaid expenses and other assets consisted of the following:



	June 30, 2018		December 31, 2017
	(thousands of dollars)
Prepaid license	$	1,919	$	1,919
Prepaid catalyst	682		779
Prepaid insurance	115		—
Spare parts	1,349		954
Other prepaid expenses and assets	1,123		772
Total	$	5,188	$	4,424

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
(thousands of dollars)
Raw material $ 2,390 $ 3,627
Work in process 66 12
Finished products 9,960 14,232
Spare parts �� 433 -
Total inventory $ 12,849 $ 17,871

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.



	June 30, 2018		December 31, 2017
	(thousands of dollars)
Raw material	$	3,147	$	3,703
Work in process	—		27
Finished products	13,856		14,720
Total inventory	$	17,003	$	18,450

Inventory serves as collateral for our amended and restated credit agreement. See Note 10.

Inventory included petrochemical products in transit valued at approximately ~~$2.7~~$3.9 million and ~~$2.1~~$3.7 million at ~~September~~June 30, ~~2017,~~2018, and December 31, ~~2016,~~2017, respectively.

~~Beginning January 1, 2017, due to the expansion of our plant assets at SHR and TC, we began inventorying spare parts for the repair and maintenance of our plant, pipeline and equipment.~~



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	8

6. PLANT, PIPELINE AND EQUIPMENT

Plant, pipeline and equipment consisted of the following:


	September 30, 2017			December 31, 2016			June 30, 2018			December 31, 2017
	(thousands of dollars)						(thousands of dollars)
Platinum catalyst metal	$	1,612		$	1,612		$	1,612		$	1,612
Land		5,428			5,376		5,428			5,428
Plant, pipeline and equipment		183,472			154,107		189,866			186,946
Construction in progress		42,930			33,391		63,510			50,996
Total plant, pipeline and equipment		233,442			194,486		260,416			244,982
Less accumulated depreciation		(61,394	)		(54,477	)	(68,332		)	(63,240		)
Net plant, pipeline and equipment	$	172,048		$	140,009		$	192,084		$	181,742

Plant, pipeline, and equipment serve as collateral for our amended and restated credit agreement. See Note 10.

Interest capitalized for construction was approximately ~~$218,000~~$427,000 and ~~$52,000~~$287,000 for the three and ~~$878,000~~$731,000 and ~~$124,000~~$660,000 for the ~~nine~~six months ended ~~September~~June 30, 2018 and 2017, respectively.

Labor capitalized for construction was approximately $0.9 million and ~~September~~$0.9 million for the three and $2.1 million and $1.6 million for the six months ended June 30, ~~2016,~~2018, and 2017, respectively.

Construction in progress during the first ~~nine~~six months of ~~2017~~2018 included equipment purchased for ~~the hydrogenation/distillation project and~~various equipment updates ~~to B Plant equipment~~ at the TC facility; new 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 and $0 for the three and $0 and $25,000 for the ~~three months and $25,000 and $72,000 for the nine~~six months ended ~~September~~June 30, ~~2017,~~2018 and ~~2016,~~2017, respectively.

7. GOODWILL AND INTANGIBLE ASSETS, NET

Goodwill and intangible 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):



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~~Table of Contents~~



	June 30, 2018
Intangible assets subject to amortization (Definite-lived)	Gross		Accumulated Amortization			Net
Customer relationships	$	16,852	$	(4,213	)	$	12,639
Non-compete agreements	94		(71		)	23
Licenses and permits	1,471		(443		)	1,028
Developed technology	6,131		(2,299		)	3,832
	24,548		(7,026		)	17,522
Intangible assets not subject to amortization (Indefinite-lived)
Emissions Allowance	197		—			197
Trade name	2,158		—			2,158
Total	$	26,903	$	(7,026	)	$	19,877

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							December 31, 2017
Intangible assets subject to amortization (Definite-lived)	Gross		Accumulated Amortization			Net		Gross		Accumulated Amortization			Net
Customer relationships	$	16,852	$	(2,527	)	$	14,325	$	16,852	$	(3,651	)	$	13,201
Non-compete agreements		94		(43	)		51	94		(61		)	33
Licenses and permits		1,471		(285	)		1,186	1,471		(390		)	1,081
Developed technology		6,131		(1,379	)		4,752	6,131		(1,993		)	4,138
		24,548		(4,234	)		20,314	24,548		(6,095		)	18,453
Intangible assets not subject to amortization (Indefinite-lived)
Emissions Allowance		197		-			197	197		—			197
Trade name		2,158		-			2,158	2,158		—			2,158
Total	$	26,903	$	(4,234	)	$	22,669	$	26,903	$	(6,095	)	$	20,808

Amortization expense for intangible assets included in cost of sales for the three months ended ~~September~~June 30, ~~2017,~~2018, and ~~2016,~~2017, was approximately ~~$466,000~~$465,000 and ~~$471,000~~$466,000, and for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018, and ~~2016,~~2017, was approximately ~~$1,396,000~~$931,000 and ~~$1,415,000,~~$931,000, respectively.

Based on identified intangible assets that are subject to amortization as of ~~September~~June 30, ~~2017,~~2018, 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



	Total		Remainder of 2018		2019		2020		2021		2022		2023		Thereafter
Customer relationships	$	12,639	$	562	$	1,123	$	1,123	1,123		1,123		1,123		$	6,462
Non-compete agreements	23		9		14		—		—		—		—		—
Licenses and permits	1,028		53		106		106		101		86		86		490
Developed technology	3,832		307		613		613		613		613		613		460
Total future amortization expense	$	17,522	$	931	$	1,856	$	1,842	$	1,837	$	1,822	$	1,822	$	7,412

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~~June 30, ~~2017,~~2018 and ~~2016,~~2017, respectively.

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	Three Months Ended June 30, 2018					Three Months Ended June 30, 2017
	Income		Shares	Per Share Amount		Income		Shares	Per Share Amount
Basic Net Income per Share:
Net Income Attributable to Trecora Resources	$	2,215	24,370	$	0.09	$	832	24,256	$	0.03
Unvested restricted stock units			349					379
Dilutive stock options outstanding			295					399
Diluted Net Income per Share:
Net Income Attributable to Trecora Resources	$	2,215	25,014	$	0.09	$	832	25,034	$	0.03

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



	Six Months Ended June 30, 2018					Six Months Ended June 30, 2017
	Income		Shares	Per Share Amount		Income		Shares	Per Share Amount
Basic Net Income per Share:
Net Income Attributable to Trecora Resources	$	4,567	24,354	$	0.19	$	2,319	24,248	$	0.10
Unvested restricted stock units			376					350
Dilutive stock options outstanding			389					446
Diluted Net Income per Share:
Net Income Attributable to Trecora Resources	$	4,567	25,119	$	0.18	$	2,319	25,044	$	0.09

At ~~September~~June 30, 2018 and 2017, 924,860 and ~~2016,~~ 1,334,087 ~~and 1,348,437 potential~~shares of common stock, ~~shares,~~ respectively, were issuable upon the exercise of options and warrants.

In first quarter 2018, we completed an exchange of shares with certain shareholders whereby such shareholders traded 65,000 common shares of TREC in exchange for 24,489 shares of our AMAK stock. The 65,000 shares were accounted for as treasury stock.

9. ACCRUED LIABILITIES

Accrued liabilities consisted of the following:



	June 30, 2018		December 31, 2017
	(thousands of dollars)
Accrued state taxes	$	295	$	272
Accrued property taxes	900		—
Accrued payroll	910		1,407
Accrued interest	31		30
Accrued officer compensation	600		500
Other	2,902		1,752
Total	$	5,638	$	3,961

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

10. LIABILITIES AND LONG-TERM DEBT

On October 1, 2014, we entered into an Amended and Restated Credit Agreement ("ARC") with the lenders which from time to time are parties to the ARC and Bank 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~~increased the Maximum 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 Ending	Maximum Consolidated Leverage Ratio
March 31, 2017	4.00 to 1.00
June 30, 2017	4.25 to 1.00
September 30, 2017	3.75 to 1.00
December 31, 2017	3.50 to 1.00
March 31, 2018 and each fiscal quarter thereafter	3.25 to 1.00

The Second Amendment also ~~reduces~~reduced the Minimum Consolidated Fixed Charge Coverage Ratio of 1.25x to 1.10x at March 31, 2017, 1.05x at June 30, 2017 and September 30, 2017, 1.10x at December 31, 2017, before reverting to the original financial covenant of 1.25x at March 31, 2018.



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For Fiscal Quarter Ending	Minimum Consolidated Fixed Charge Coverage Ratio
March 31, 2017	1.10 to 1.00
June 30, 2017	1.05 to 1.00
September 30, 2017	1.05 to 1.00
December 31, 2017	1.10 to 1.00
March 31, 2018 and each fiscal quarter thereafter	1.25 to 1.00

Also, under the terms of the Second Amendment, two additional levels of pricing were added – levels 4 and 5.



Level	Consolidated Leverage Ratio	LIBOR Margin	Base Rate Margin	Commitment Fee
1	Less than 1.50 to 1.00	2.00%	1.00%	0.25%
2	Greater than or equal to 1.50 to 1.00 but less than 2.00 to 1.00	2.25%	1.25%	0.25%
3	Greater than or equal to 2.00 to 1.00 but less than 3.00 to 1.00	2.50%	1.50%	0.375%
4	Greater than or equal to 3.00 to 1.00 but less than 3.50 to 1.00	2.75%	1.75%	0.375%
5	Greater than or equal to 3.50 to 1.00	3.00%	2.00%	0.375%

We were in compliance with all covenants at ~~September~~June 30, ~~2017.~~2018.

On July 25, 2017, ~~Texas Oil & Chemical Co. II, Inc. ("TOCCO"), South Hampton Resources, Inc. ("SHR"), Gulf State Pipe Line Company, Inc. ("GSPL"),~~TOCCO, SHR, GSPL, and ~~Trecora Chemical, Inc. ("TC")~~TC (SHR, GSPL and TC collectively, the "Guarantors") entered into a Third Amendment to Amended and Restated Credit Agreement ("3rd Amendment") with the lenders which from time to time are parties to the Amended and Restated Credit Agreement (collectively, the "Lenders") and Bank of America, N.A., a national banking association, as Administrative Agent for the Lenders. The 3rd Amendment increased the Revolving Facility from ~~$40,000,000~~$40.0 million to ~~$60,000,000.~~$60.0 million. There were no other changes to the Revolving Facility. ~~Under~~Following the ~~ARC as amended,~~effectiveness of the 3rd Amendment, we ~~have~~had a $60.0 million revolving line of credit ~~which matures on~~with a maturity date of October 1, 2019. As of ~~September~~June 30, ~~2017,~~2018, and December 31, ~~2016,~~2017, there was a long-term amount of ~~$23.0~~$45.0 million and ~~$9.0~~$35.0 million outstanding, respectively. The interest rate on the loan varies according to several options. Interest on the loan is paid monthly and a commitment fee of between 0.25% and 0.375% is due quarterly on the unused portion of the loan. At ~~September~~June 30, ~~2017,~~2018, approximately ~~$37.0~~$14.9 million was available to be ~~drawn. Under the Second Amendment we~~drawn; however, only $10.0 million could ~~draw $31.0 million and maintain~~be drawn while maintaining 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 iswas payable quarterly using a ~~ten year~~ten-year commercial style amortization. Principal iswas also payable on the last business day of each March, June, September and December in an amount equal to ~~$1,750,000,~~$1.8 million, provided that the final installment would have occurred on the ~~September 30,~~October 1, 2019 maturity date ~~shall be~~and would have been in an amount equal to the then outstanding unpaid principal balance of the Acquisition Loan. At ~~September~~June 30, 2018, there was a short-term amount of $7.0 million and a long-term amount of $36.8 million outstanding. At December 31, 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~~$40.3 million outstanding.

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Under the ARC, we also had the right to borrow $25.0 million 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 iswas paid monthly. Principal was also payable on the last business day of each March, June, September and December in an amount equal to $0.3 million, provided that the final installment would have occurred on the October 1, 2019 maturity date and would have been in an amount equal to the then outstanding unpaid principal balance of the Term Loans. At ~~September~~June 30, 2018, there was a short-term amount of $1.3 million and a long-term amount of $15.7 million outstanding. At December 31, 2017, there was a short-term amount of $1.3 million and a long-term amount of ~~$16.3~~$16.0 million outstanding. ~~At December~~

On July 31, ~~2016, there was~~2018, TOCCO and the Guarantors entered into a ~~short-term amount~~Fourth Amendment to Amended and Restated Credit Agreement, which, among other things, increased the commitment under the Revolving Facility to $75.0 million, increased term loan borrowings under the ARC to $87.5 million in a single term loan facility (the “Term Loan Facility”), comprising new term loan

borrowings and the previously outstanding borrowings under the Acquisition Loan and Term Loans, and extended the maturity date of ~~$1.7 million and a long-term amount of $17.3 million outstanding.~~the ARC to July 31, 2023. See Note 20.



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Debt issuance costs of approximately ~~$0.6~~$0.3 million and ~~$0.7~~$0.5 million for the periods ended ~~September~~June 30, ~~2017,~~2018 and December 31, ~~2016,~~2017, 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~~June 30, ~~2017,~~2018, and December 31, ~~2016,~~2017, the rate was ~~3.74%~~4.38% and ~~3.27%~~4.07%, 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



	June 30, 2018			December 31, 2017
Acquisition loan	$	43,750		$	47,250
Term loan	16,666			17,333
Revolving facility	45,000			35,000
Total	105,416			99,583
Debt issuance costs	(340		)	(501		)
Total long-term debt	$	105,076		$	99,082
Less current portion including loan fees	8,061			8,061
Total long-term debt, less current portion including loan fees	$	97,015		$	91,021

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~~Hedging.~~; however,~~ 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~~assessed 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. The agreement terminated in December 2017; therefore, there was no outstanding liability at June 30, 2018, and December 31, 2017. See discussion of our derivative instruments in Note 12.

12. DERIVATIVE INSTRUMENTS

Interest Rate Swap

InOn March 21, 2008, weSHR entered into a pay-fixed, receive-variable interest rate swap agreement with Bank of America related to athe $10.0 million (later increased to ~~$14~~$14.0 million) term loan secured by plant, pipeline and equipment. The effective date of the interest rate swap agreement was August 15, 2008, and ~~terminates~~terminated 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~~received 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),~~LIBOR, and ~~pay~~paid 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~~.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.



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	13

Due to the ~~ARC discussed in Note 10,~~new debt agreements associated with the Acquisition, we ~~believe~~believed that the hedge iswas no longer entirely ~~effective; therefore,~~effective. Due to the time required to make the determination and the immateriality of the hedge, we began treating the interest rate swap as ineffective ~~at that point. The changes in fair value are now recorded in the Statement~~as 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.October 1, 2014.

~~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 ~~$716,000~~$(219,000) and ~~$608,000~~$656,000 during the three months and ~~$2,005,000~~$372,000 and ~~$1,882,000~~$1,289,000 during the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, and ~~2016,~~2017, respectively, was recognized.

Restricted Stock Awards

On January 17, 2018, we awarded 251 shares of restricted stock to an officer at a grant date price of $13.85. The stock was immediately vested. Compensation expense recognized during the three months ended June 30, 2018, was $0 and for the six months ended June 30, 2018, was $5,000.

Restricted Stock Unit Awards

On ~~June 16, 2017,~~February 20, 2018, we awarded approximately ~~127,000~~102,000 shares of restricted stock units to officers at a grant date price of ~~$11.40.~~$12.15. 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~~June 30, ~~2017,~~2018, was approximately ~~$121,000~~$108,000 and ~~$161,000, respectively.~~for the six months ended June 30, 2018, was $144,000.

Officer compensation of approximately $95,000 and $40,000 during the three months and $207,000 and $40,000 during the six months ended June 30, 2018, and 2017, respectively, was recognized related to restricted stock unit awards granted to officers vesting through 2020.

Director compensation of approximately ~~$56,000~~$81,000 and ~~$19,000~~$75,000 during the three months and ~~$169,000~~$165,000 and ~~$32,000~~$156,000 during the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, and ~~2016,~~2017, respectively, was recognized related to restricted stock unit awards granted to directors vesting through 2020.

Officer compensation of approximately ~~$106,000~~$79,000 and ~~$105,000~~$106,000 was recognized during the three months and ~~$316,000~~$176,000 and ~~$246,000~~$211,000 during the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, and ~~2016,~~2017, 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~~$98,000 and $108,000 during the three months and ~~$323,000~~$202,000 and ~~$323,000 for~~$215,000 during the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, and ~~2016,~~2017, respectively, was recognized related to restricted stock units with a ~~4 year~~four years vesting period which was awarded to officers. This restricted stock vests through 2019.

Restricted stock units activity in the first ~~nine months~~half of ~~2017~~2018 was as follows:



	Shares of Restricted Stock Units		Weighted Average Grant Date Price per Share
Outstanding at January 1, 2018	387,702		$	11.39
Granted	102,317		$	12.15
Forfeited	(48,631	)	$	10.88
Vested	(92,513	)	$	11.79
Outstanding at June 30, 2018	348,875		$	11.53

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



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	14

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



	Number of Stock Options & Warrants		Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Life
Outstanding at January 1, 2018	1,323,587		$	7.82
Granted	—		—
Exercised	(198,727	)	5.43
Cancelled	(200,000	)	3.40
Forfeited	—		—
Outstanding at June 30, 2018	924,860		$	9.29	4.7
Exercisable at June 30, 2018	924,860		$	9.29	4.7

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~~$0 and $30,000 during the three months and ~~$90,000~~$0 and ~~$143,000~~$60,000 during the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, and ~~2016,~~2017, respectively, was recognized related to options to purchase shares vesting through 2017.

Employee compensation of approximately ~~$277,000~~$0 and ~~$308,000~~$298,000 during the three months and ~~$884,000~~$154,000 and ~~$926,000~~$607,000 during the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, and ~~2016,~~2017, respectively, was recognized related to options with a 44- year vesting period which were awarded to officers and key employees. These options vest through 2018.

Post-retirement compensation of approximately $0$679,000 and $0 ~~was recognized~~ during the three months and $0$679,000 and ~~$49,000~~$0 during the ~~nine~~six months ended ~~September~~June 30, 2018, and 2017, ~~and 2016,~~was reversed 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 iswas successful in litigating its right to withdraw the options and benefits and as such, these options and benefits ~~continue to be shown as outstanding.~~were reversed during the second quarter of 2018. See further discussion in Note 19.

See the Company's Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2017 for additional information.

14. 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 specialty petrochemical segment includes SHR and GSPL. Our specialty synthetic wax 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, 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



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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

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	Three Months Ended June 30, 2018
	Petrochemical		Specialty Wax			Corporate			Eliminations		Consolidated
	(in thousands)
Product sales	$	56,135	$	7,434		$	—		$	—	$	63,569
Processing fees	1,685		2,852			—			—		4,537
Total revenues	57,820		10,286			—			—		68,106
Operating profit (loss) before depreciation and amortization	6,095		1,164			(834		)	—		6,425
Operating profit (loss)	4,440		(201		)	(842		)	—		3,397
Profit (loss) before taxes	3,859		(506		)	(542		)	—		2,811
Depreciation and amortization	1,655		1,365			8			—		3,028
Capital expenditures	3,529		877			—			—		4,406

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.



	Three Months Ended June 30, 2017
	Petrochemical		Specialty Wax			Corporate			Eliminations	Consolidated
	(in thousands)
Product sales	$	50,508	$	6,508		$	—		—	$	57,016
Processing fees	2,071		3,028			—			—	5,099
Total revenues	52,579		9,536			—			—	62,115
Operating profit (loss) before depreciation and amortization	8,761		810			(1,841		)	—	7,730
Operating profit (loss)	7,217		(198		)	(1,857		)	—	5,162
Profit (loss) before taxes	6,598		(269		)	(5,165		)	—	1,164
Depreciation and amortization	1,544		1,008			16			—	2,568
Capital expenditures	9,021		4,931			—			—	13,952



	Six Months Ended June 30, 2018
	Petrochemical		Specialty Wax			Corporate			Eliminations			Consolidated
	(in thousands)
Product sales	$	116,420	$	13,817		$	—		$	31		$	130,268
Processing fees	3,713		6,064			—			(198		)	9,579
Total revenues	120,133		19,881			—			(167		)	139,847
Operating profit (loss) before depreciation and amortization	14,488		1,554			(2,982		)	—			13,060
Operating profit (loss)	11,119		(1,115		)	(2,998		)	—			7,006
Profit (loss) before taxes	9,913		(1,687		)	(2,473		)	—			5,753
Depreciation and amortization	3,369		2,669			16			—			6,054
Capital expenditures	13,812		1,622			—			—			15,434

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



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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



	Six Months Ended June 30, 2017
	Petrochemical		Specialty Wax			Corporate			Eliminations	Consolidated
	(in thousands)
Product sales	$	94,899	$	13,016		$	—		—	$	107,915
Processing fees	3,559		6,183			—			—	9,742
Total revenues	98,458		19,199			—			—	117,657
Operating profit (loss) before depreciation and amortization	16,975		1,555			(4,020		)	—	14,510
Operating profit (loss)	13,875		(469		)	(4,052		)	—	9,354
Profit (loss) before taxes	12,601		(559		)	(8,330		)	—	3,712
Depreciation and amortization	3,100		2,024			32			—	5,156
Capital expenditures	17,777		10,056			—			—	27,833



	June 30, 2018
	Petrochemical		Specialty Wax		Corporate		Eliminations			Consolidated
	(in thousands)
Trade receivables, product sales	$	20,377	$	3,639	$	—	$	—		$	24,016
Trade receivables, processing fees	671		1,780		—		—			2,451
Goodwill and intangible assets, net	—		41,675		—		—			41,675
Total assets	279,161		115,696		92,857		(154,086		)	333,628



	December 31, 2017
	Petrochemical		Specialty Wax		Corporate		Eliminations			Consolidated
	(in thousands)
Trade receivables, product sales	$	20,211	$	2,671	$	—	$	—		$	22.882
Trade receivables, processing fees	983		1,914		—		—			2,897
Goodwill and intangible assets, net	—		42,606		—		—			42,606
Total assets	265,213		117,579		97,880		(153,346		)	327,326

15. INCOME TAXES

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~~We received notification from the IRS in March 2018 that audit ~~is ongoing,~~was complete and weacceptance of the refund claims resulting from the R&D credit for approximately $350,000, which has now been received. We also received notification that Texas will audit our R&D credit calculations for 2014 and 2015. We are in the process of submitting additional documentation to Texas. We do not expect any ~~adjustment~~changes related 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.~~Texas audit. Tax returns for various jurisdictions remain open for examination for the years ~~2013~~2014 through ~~2016.~~2017. As of ~~September~~June 30, ~~2017,~~2018 and December 31, ~~2016,~~2017, respectively, we recognized no ~~material adjustments in connection with~~adjustment for uncertain tax ~~positions.~~positions or related interest and penalties.

The effective tax rate varies from the federal statutory rate of 21% primarily as a result of state tax expense and stock based compensation for the three and six months ended June 30, 2018. The effective tax rate varies from the federal statutory rate of 35% primarily as a result of state tax expense and stock option based compensation offset by the manufacturing deduction for the three and six months ended June 30, 2017. We continue to maintain a valuation allowance against certain deferred tax assets where realization is not certain.

On December 22, 2017, Public Law No. 115-97 known as the TCJA was enacted. The TCJA includes a number of changes to existing U.S. tax laws that impact the Company, most notably a reduction of the U.S. federal corporate income tax rate from a maximum of 35% to a flat 21% for tax years effective January 1, 2018. The TCJA also implements a territorial tax system, provides for a one-time deemed repatriation tax on unrepatriated foreign earnings, eliminates the alternative minimum tax (AMT), makes AMT credit carryforwards refundable, and permits the acceleration of depreciation for certain assets placed into service after September 27, 2017. In addition, the TJCA creates prospective changes beginning in 2018, including repeal of the domestic



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manufacturing deduction, acceleration of tax revenue recognition, capitalization of research and ~~development. The application~~development expenditures, additional limitations on executive compensation and limitations on the deductibility of interest.

We have elected to recognize the income tax effects of the TCJA in our financial statements in accordance with Staff Accounting Bulletin 118 (SAB 118), which provides guidance for the ~~change~~application of ASC Topic 740 Income Taxes, in the reporting period in which the TCJA was signed into law. Under SAB 118 when a Company does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting ~~method~~ for ~~inventory from LIFO~~certain income tax effects of the TCJA, it will recognize provisional amounts if a reasonable estimate can be made. If a reasonable estimate cannot be made, then no impact is recognized for the effect of the TCJA. SAB 118 permits an up to ~~FIFO and~~one year measurement period to finalize the ~~change for spare parts inventory are being submitted~~measurement of the impact of the TCJA.

We have recognized the provisional tax impacts related to the ~~IRS.~~acceleration of depreciation and included these amounts in our consolidated financial statements for the three and six months ended June 30, 2018. The ultimate impact may differ from these provisional amounts, possibly materially, due to, among other things, additional analysis, changes in interpretations and assumptions the we have made, additional regulatory guidance that may be issued, and actions we may take as a result of the TCJA . We did not identify items for which the income tax effects of the TCJA have not been completed, and a reasonable estimate could not be determined as of June 30, 2018, and December 31, 2017, except for changes in estimates that can result from finalizing the filing of the 2017 U.S. income tax return, which are not anticipated to be material.

16. POST-RETIREMENT OBLIGATIONS

In January 2008 an amended retirement agreement was entered into with Mr. Hatem El Khalidi; however, on May 9, 2010, the Board of Directors terminated the agreement due to actions of Mr. El Khalidi. See Notes 13 and 19. All amounts which ~~have~~had not met termination dates ~~remain~~remained recorded until a resolution iswas achieved. The matter was resolved on May 25, 2018 and as of June 30, 2018, post-retirement obligations of approximately $1.0 million for Mr. El Khalidi have been reversed. As of ~~September 30, 2017, and~~ December 31, ~~2016,~~2017, approximately ~~$1.0~~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~~June 30, ~~2017,~~2018 and December 31, ~~2016,~~2017, approximately $0.2 million and $0.3 million, respectively, remained outstanding and was included in post-retirement obligations.

In June 2018 we entered into a retirement agreement with former VP, Accounting & Compliance, Connie Cook. As of June 30, 2018, approximately $0.2 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,~~2017 for additional information.

17. INVESTMENT IN AMAK

In ~~July 2016~~first quarter 2018, we completed an exchange of shares with certain shareholders whereby such shareholders traded 65,000 common shares of TREC in exchange for 24,489 shares of our AMAK ~~issued four million~~stock. The 65,000 shares ~~to provide additional funds~~were accounted for ongoing exploration work and mine start-up activities. Arab Mining Co. ("Armico") purchased 3.75 million shares at 20 Saudi Riyals 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~~treasury stock. This transaction reduced our ownership percentage ~~in AMAK~~from 33.44% to ~~33.44% from 35.25%~~33.41%.

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As of ~~September~~June 30, ~~2017,~~2018, and December 31, ~~2016,~~2017, the Company had a non-controlling equity interest of ~~33.44%~~33.4% in AMAK of approximately ~~$44.2~~$45.5 million and ~~$49.4~~$45.1 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~~June 30, ~~2017.~~2018.

AMAK's financial statements were prepared in the functional currency of AMAK which is the Saudi Riyal ~~(SR)~~("SR"). In June 1986 the SR was officially pegged to the U. S. Dollar ~~(USD)~~("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:



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	18

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.



	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
	(thousands of dollars)						(thousands of dollars)
Sales	$	19,494		$	—		$	33,581		$	2,256
Cost of sales	16,555			8,901			29,061			12,463
Gross profit (loss)	$	2,939		$	(8,901	)	$	4,520		$	(10,207	)
General, administrative and other expenses	3,265			1,971			5,166			4,559
Net Loss	$	(326	)	$	(10,872	)	$	(646	)	$	(14,766	)
Depreciation and amortization	8,281			7,609			15,982			10,664
Net income (loss) before depreciation and amortization	$	7,955		$	(3,263	)	$	15,336		$	(4,102	)

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



	June 30,		December 31,
	2018		2017
	(thousands of dollars)
Current assets	$	33,273	$	23,333
Noncurrent assets	228,733		237,875
Total assets	$	262,006	$	261,208

Current liabilities	$	22,873	$	24,439
Long term liabilities	71,520		68,837
Shareholders' equity	167,613		167,932
	$	262,006	$	261,208

The equity in the income or loss of AMAK reflected on the consolidated statements of income for the three months and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, and ~~2016,~~2017, is comprised of the following:

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	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
	(thousands of dollars)						(thousands of dollars)
AMAK Net Loss	$	(326	)	$	(10,872	)	$	(646	)	$	(14,766	)

Company's share of loss reported by AMAK	$	(109	)	$	(3,635	)	$	(216	)	$	(4,938	)
Amortization of difference between Company's investment in AMAK and Company's share of net assets of AMAK	337			337			674			674
Equity in earnings (loss) of AMAK	$	228		$	(3,298	)	$	458		$	(4,264	)

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,~~2017 for additional information.

~~We have an advance due~~At June 30, 2018, and December 31, 2017, we had a receivable from AMAK ~~for reimbursement~~ of ~~fees associated with AMAK~~approximately $204,000 and $121,000, respectively, relating to unreimbursed travel and Board ~~meetings.~~expenses which are included in prepaid and other assets. We ~~have~~did not ~~advanced~~advance any cash to AMAK during ~~2017.~~2018.

18. RELATED PARTY TRANSACTIONS



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	19

Consulting fees of approximately ~~$0 and~~ $0 were incurred during the three months and $27,000 ~~and $33,000~~ during the ~~nine~~six months ended ~~September~~June 30, 2017, ~~and 2016, respectively~~ from IHS Global FZ LLC of which Company ~~Director~~director Gary K Adams held the position of Chief Advisor – Chemicals until April 1, 2017.

Consulting fees of approximately $19,000 and ~~$17,000~~$18,000 were incurred during the three months and ~~$56,000~~$50,000 and ~~$52,000~~$37,000 during the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, and ~~2016,~~2017, respectively, from our Executive Chairman, ~~of the Board,~~ Nicholas Carter. Due to his history and experience with the Company and to provide continuity after his retirement, a three year consulting agreement was entered into with Mr. Carter in July 2015. In March 2018, a new consulting agreement was entered into with Mr. Carter effective through December 31, 2018, unless otherwise agreed by the Company and Mr. Carter.

19. COMMITMENTS AND CONTINGENCIES

Guarantees –

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 iswas originally 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~~135.3 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. On July 8, 2018, the SIDF loan was amended to adjust the repayment schedule and extend the repayment terms through April 2024. Under the new payment terms the current amount due to SIDF in 2019 is $8,000,000. The total amount outstanding to the SIDF at ~~September~~June 30, ~~2017,~~2018, was 305.0 million Saudi Riyals (US$81.3 million).

~~Litigation~~ -Operating Lease Commitments

~~From time to time, we may become party to litigation or other legal proceedings that we consider to be a part~~We have operating leases for the rental of railcars, office space, and equipment with expiration dates through 2026. Rental expense for these operating leases for the ordinary course of our business. We are not currently involved in any legal proceedings that we believe 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 inthree months ended June 30, 2018, and 2017, was $1.0 million and $0.8 million, respectively, and for the ~~future.~~six months ended June 30, 2018, and 2017, was $2.1 million and $1.6 million, respectively.

Litigation

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~~The Trial Court dismissed all of Mr. El Khalidi's claims and causes of action with ~~prejudice.~~prejudice and the Ninth Court of Appeals affirmed. Mr. El Khalidi ~~appealed,~~filed a petition for review with the Supreme Court of Texas, which was denied April 6, 2018. Mr. El Khalidi filed a motion for rehearing of his petition for review with the Supreme Court of Texas on April 23, 2018. On May 25, 2018, the Supreme Court of Texas denied the motion for rehearing and the ~~issues~~matter is considered closed.

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 ~~been fully briefed. Liabilities~~a material adverse effect on our business, prospects, financial condition or results of ~~approximately $1.0~~operations. We may become involved in material legal proceedings in the future.

Supplier Agreements

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 for the three months ended June 30, 2018, and 2017, were $0.4 million ~~remain recorded,~~ and $0.9 million, respectively, and for the ~~options will continue to accrue in accordance with their own terms until all matters are resolved.~~

six months ended June 30, 2018, and 2017, were $0.5 million and $1.8 million, respectively.

Environmental Remediation

~~Table of Contents~~

~~Environmental Remediation~~ -



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	20

Amounts charged to expense for various activities related to environmental monitoring, compliance, and improvements were approximately ~~$119,000~~$154,000 and ~~$136,000~~$160,000 for the three months ended and ~~$444,000~~$303,000 and ~~$437,000~~$325,000 for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, and ~~2016,~~2017, respectively.

20. SUBSEQUENT EVENTS

On July 31, 2018, TOCCO and the Guarantors entered into a Fourth Amendment to Amended and Restated Credit Agreement (“4th Amendment”) with the lenders party thereto, Bank of America, N.A., as Administrative Agent, Swingline Lender and L/C Issuer, and Citibank, N.A., as an L/C Issuer. Pursuant to 4th Amendment, the commitment under the Revolving Facility of the ARC was increased from $60.0 million to $75.0 million. TOCCO also increased total term loan borrowings under the ARC to $87.5 million in the Term Loan Facility, comprising new term loan borrowings and the previously outstanding borrowings under the Acquisition Loan and Term Loans. Proceeds of the new borrowings under the Term Loan Facility were used to repay a portion of the outstanding borrowings under the Revolving Facility and pay fees and expenses of the transaction. The 4th Amendment also increased the size of the accordion feature allowing TOCCO to request an increase in the commitment under the Revolving Facility and/or the Term Loan Facility by an additional amount of up to $50.0 million in the aggregate, subject to the lenders acceptance of any increased commitment and certain other conditions. As of the date of this Quarterly Report on Form 10-Q, there was approximately $19.0 million in borrowings outstanding under the Revolving Facility and $87.5 million in borrowings under the Term Loan Facility. The Fourth Amendment to the Amended and Restated Credit Agreement increased our available revolving borrowing capacity to approximately $55.9 million.

Pursuant to the 4th Amendment, the maturity date for borrowings under the ARC was extended from October 1, 2019 to July 31, 2023. The interest rates margins applicable to borrowings under the ARC were also reduced to LIBOR plus an applicable margin ranging from 1.25% to 2.25% or, at the option of TOCCO, the base rate plus an applicable margin ranging from 0.25% to 1.25%, in each case, with the applicable margin being determined based on the Consolidated Leverage Ratio (as defined in the ARC) of TOCCO. A commitment fee between 0.20% and 0.30% is also payable quarterly on the unused portion of the Revolving Facility. Borrowings under the Term Loan Facility continue to be subject to quarterly amortization payments based on a commercial style amortization method over a twenty year period; provided that the final principal installment will be paid on the maturity date and will be in an amount equal to the outstanding borrowings under the Term Loan Facility on such date.

The Fourth Amendment also modified certain covenants and other provisions of the ARC to provide us with additional flexibility, including (i) increasing the maximum Consolidated Leverage Ratio that must be maintained by TOCCO to 3.50 to 1.00 (subject to temporary increase following certain acquisitions), with compliance to begin with the quarter ended December 31, 2018, (ii) decreasing the minimum Consolidated Fixed Charge Coverage Ratio (as defined in the ARC) that must be maintained by TOCCO to 1.15 to 1.00 and (iii) eliminating the requirement that TOCCO maintain a minimum asset coverage ratio.

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

FORWARD LOOKING AND CAUTIONARY STATEMENTS

~~Except for~~Some of the ~~historical~~statements and information ~~and discussion contained herein, statements~~ contained in this ~~release~~Quarterly Report on Form 10-Q may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially, including the following: a downturn in the economic environment; the Company's failure to meet growth and productivity objectives; fluctuations in revenues and purchases; impact of local legal, 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 economic conditions domestically and internationally; insufficient cash flows from operating activities; difficulties in obtaining financing; outstanding debt and other financial and legal obligations; industry cycles; specialty petrochemical product and mineral prices; feedstock availability; technological developments; regulatory changes; foreign government instability; foreign legal and political concepts; and foreign currency fluctuations, as well as other risks detailed in the Company's filings with the U.S. Securities and Exchange Commission, including this ~~release,~~report, all of which are difficult to predict and many of which are beyond the Company's control.

Overview



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	21

The following discussion and analysis of our financial results, as well as the accompanying unaudited 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 ~~involving~~which is based on the safe manufacturing and marketing of petrochemical products and synthetic waxes. Our business model involves the manufacture and sale of tangible products and the provision of custom processing 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 Management's Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements which appear in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2017.

We believe we are well-positioned to benefit from capital investments that we have recently ~~completed or that are in progress.~~completed. As a result of the ~~D Train~~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~~contribute to increased revenue and gross ~~margin.~~margin over time. While petrochemical prices are volatile on a short-term basis and volumes depend on the demand of our customers' products and overall customer efficiency, our investment decisions are based on our long-term business outlook.

In February 2018, while attempting to commission the advanced reformer, the unit overheated and ignited a fire. There was damage to all six heaters in the unit, and the damaged equipment had to be replaced. The total repair cost was approximately $3.5 million. Our insurers agreed to cover costs over our $1 million deductible. In the second quarter we received an initial advance payment of approximately $2 million, and we expect to receive the balance in the third quarter.

On July 9, 2018, we announced the safe and successful start up of our advanced reformer unit at our Silsbee facility.

We continue to emphasize operational excellence and our competitive advantages achieved through our high quality products and outstanding customer service and responsiveness. ~~We believe~~Consistent with these ~~attributes are an important differentiation from~~objectives, we strengthened our ~~competitors.~~management team with the recent appointments of Chief Manufacturing Officer and Executive Vice President, Commercial.

Review of ~~Third~~Second Quarter ~~and Year-to-Date 2017~~2018 Results

We reported ~~third~~second quarter ~~2017~~2018 earnings of ~~$1.7~~$2.2 million ~~down~~up from ~~$2.8~~$0.8 million from ~~third~~second quarter ~~2016.~~2017. Diluted earnings per share of ~~$0.07~~$0.09 were reported for ~~2017, down~~2018, up from ~~$0.11~~$0.03 in ~~2016.~~2017. Sales volume of our petrochemical products ~~increased 8.2%~~decreased 5.3%, and sales revenue from our petrochemical products increased ~~11.0%~~10.8% as compared to ~~third~~second quarter ~~2016.~~2017. Prime product petrochemical sales volumes (which exclude by-product sales) were ~~up 5.5%~~down 1.2% over ~~third~~second quarter ~~2016.~~2017. Wax sales revenue

was up ~~14.9%~~15.3% compared to ~~third~~second quarter ~~2016. Gross~~2017. Trecora Resources gross profit margin ~~increased~~decreased to ~~16.0%~~12.0% of sales in ~~third~~second quarter ~~2017~~2018 from ~~15.6%~~17.9% in ~~third~~second 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

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of our petrochemical products increased 4.3%, and sales revenue from our petrochemical products increased 14.1% as 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 largely due to higher feedstock costs, higher operating costs, and costs related to Hurricane Harvey.

~~Hurricane Harvey Impact~~

The financial impact of Hurricane Harvey to our company was significant. Harvey made landfall on the Texas Gulf Coast 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.

2017.

Non-GAAP Financial Measures

We include in this Quarterly Report on Form 10-Q the non-GAAP financial measures of EBITDA, Adjusted EBITDA and Adjusted Net Income 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 gains and losses, income taxes, depreciation and amortization. We define Adjusted EBITDA as EBITDA plus share-based compensation, plus 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. These measures are not measures of financial performance or liquidity under ~~U.S.~~ GAAP and should be considered in addition to, not as a substitute for, net income (loss), nor as an indicator 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.

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

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

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	22



	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
	(Thousands of Dollars)
Net Income	$	2,215		$	832		$	4,567		$	2,319
Interest expense	815			678			1,693			1,314
Depreciation and amortization	3,028			2,568			6,054			5,156
Income tax expense	596			332			1,186			1,393
EBITDA	$	6,654		$	4,410		$	13,500		$	10,182
Share-based compensation	(220		)	656			372			1,289
Equity in (earnings) losses of AMAK	(228		)	3,298			(458		)	4,264
Adjusted EBITDA	$	6,206		$	8,364		$	13,414		$	15,735
Net Income	$	2,215		$	832		$	4,567		$	2,319
Equity in (earnings) losses of AMAK	$	(228	)	$	3,298		$	(458	)	$	4,264
Taxes at statutory rate of 21% for 2018 and 35% for 2017	48			(1,154		)	96			(1,492		)
Tax effected equity in (earnings) losses	(180		)	2,144			(362		)	2,772
Adjusted Net Income	$	2,035		$	2,976		$	4,205		$	5,091

Liquidity and Capital Resources

Working Capital

Our approximate working capital days are summarized as follows:

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



	June 30, 2018	December 31, 2017	June 30, 2017
Days sales outstanding in accounts receivable	34.3	38.4	38.5
Days sales outstanding in inventory	22.0	27.5	25.4
Days sales outstanding in accounts payable	15.4	27.3	16.7
Days of working capital	40.8	38.5	45.1

Our days sales outstanding in accounts receivable decreased due to ~~a decrease~~an increase in sales volume during ~~September because of the hurricane.~~January which were paid before quarter end and are, therefore, not reflected in accounts receivable. Our days sales outstanding in inventory decreased also due to ~~a concerted effort to reduce~~the increase in sales volume which reduced inventory on ~~hand at both facilities and reduced production associated with the storm.~~hand. Our days sales outstanding in accounts payable decreased due to construction expenses for the ~~hydrogenation/distillation project at TC~~new advanced reformer unit nearing completion. Since days of working capital is calculated using the above three metrics, it ~~decreased~~increased for the reasons discussed.

Cash ~~decreased $4.2~~increased $0.4 million during the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, as compared to a decrease of ~~$11.0~~$6.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2017. Our total available liquidity, which includes cash and available revolving borrowing capacity under the ARC, was approximately ~~$35.2~~$18.4 million and $37.9 million at ~~September~~June 30, ~~2017,~~2018, and December 31, ~~2016,~~2017, respectively. The Fourth Amendment to the Amended and Restated Credit Agreement, entered into as of July 31, 2018 as discussed in Note 20, increased our available revolving borrowing capacity to approximately $55.9 million.

The change in cash is summarized as follows:

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



	2018			2017
Net cash provided by (used in)	(thousands of dollars)
Operating activities	$	9,798		$	15,527
Investing activities	(15,517		)	(27,888		)
Financing activities	6,078			5,720
Increase (decrease) in cash	$	359		$	(6,641	)
Cash	$	3,387		$	1,748



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	23

Operating Activities

Cash provided by operating activities totaled ~~$29.6~~$9.8 million for the first ~~nine~~six months of ~~2017 $9.5~~2018, $5.7 million ~~higher~~lower than ~~2016.~~2017. For the first ~~nine~~six months of ~~2017~~2018 net income ~~decreased~~increased by approximately ~~$16.2~~$2.25 million as compared to ~~the corresponding period~~2017. Major non-cash items affecting 2018 income included increases in deferred taxes of ~~2016.~~$1.1 million, depreciation of $4.9 million and equity in earnings of AMAK of $0.5 million. Major non-cash items affecting 2017 income included increases in deferred taxes of ~~$1.6~~$0.5 million, depreciation of $4.2 million, and equity in losses of AMAK of $5.2 million. Major non-cash items affecting 2016 income 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 million and equity in earnings of AMAK of $2.3approximately $4.3 million.

Factors leading to ~~an increase~~a decrease in cash provided by operating activities included:

·	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 increase of approximately $2.6 million in 2016 (due to lower sales volume);

Insurance receivable increased approximately $0.5 million (due to a claim filed for the new advanced reformer fire) as compared to no receivable in 2017;

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)Prepaid and other assets increased approximately $0.9 million (primarily due to the inventorying of spare parts) as compared to a decrease of approximately $36,000 in 2017 (primarily due to a reduction in prepaid insurance); and

~~Accounts payable and accrued liabilities increased $3.4~~Accounts payable and accrued liabilities decreased $4.7 million (due to decreased construction expenditures) as compared to an increase of approximately $0.1 million in 2017 (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).

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Investing Activities

Cash used by investing activities during the first ~~nine~~six months of ~~2017~~2018 was approximately ~~$39.3~~$15.5 million, representing ~~an increase~~a decrease of approximately ~~$11.5~~$12.4 million over the corresponding period of ~~2016.~~2017. During the first ~~nine~~six months of ~~2017,~~2018, the primary use of capital expenditures was for the the new advanced reformer unit and the addition of a rail spur at the SHR loading facility. During the first six months of 2017, we continued to purchase equipment 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 ~~construction of the new reformer unit, a new cooling tower,~~along with some tankage 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.

Financing Activities

Cash provided by financing activities during the first ~~nine~~six months of ~~2017~~2018 was approximately ~~$5.6~~$6.1 million versus cash ~~used~~provided of ~~$3.2~~$5.7 million during the corresponding period of ~~2016.~~2017. During ~~2017~~2018, we made principal payments on our acquisition loan of ~~$7.0~~$3.5 million, ~~and~~ our term debt of ~~$1.3~~$0.7 million, and our line of credit facility of $6.0 million. We drew ~~$14.0~~$16.0 million on our line of credit to fund ongoing capital projects. During ~~2016~~2017, we ~~drew $3.0 million on our line of credit~~ made principal payments on our acquisition loan of ~~$5.3~~$3.5 million, ~~and~~ our term debt of ~~$1.0~~$0.7 million, and our line of credit facility of $2.0 million. We drew $12.0 million on our line of credit to fund ongoing capital projects.

Anticipated Cash Needs

We believe that the Company is capable of supporting its operating requirements and capital expenditures through internally generated funds supplemented with borrowings under our ARC.

Results of Operations

Comparison of Three Months Ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~2017

Specialty Petrochemical Segment

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 %



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	24



	2018			2017			Change			% Change
	(thousands of dollars)
Petrochemical Product Sales	$	56,135		$	50,508		$	5,627		11.1	%
Processing	1,685			2,071			(386		)	(18.6	)%
Gross Revenue	$	57,820		$	52,579		$	5,241		10.0	%

Volume of Sales (gallons)
Petrochemical Products	19,733			20,835			(1,102		)	(5.3	)%
Prime Product Sales	16,092			16,294			(202		)	(1.2	)%

Cost of Sales	$	50,738		$	42,571		$	8,167		19.2	%
Gross Margin	12.2		%	19.0		%				(6.8	)%
Total Operating Expense**	17,081			15,152			1,929			12.7	%
Natural Gas Expense**	1,328			1,355			(27		)	(2.0	)%
Operating Labor Costs**	4,755			4,033			722			17.9	%
Transportation Costs**	7,082			6,567			515			7.8	%
General & Administrative Expense	2,480			2,623			(143		)	(5.5	)%
Depreciation and Amortization*	1,655			1,544			111			7.2	%
Capital Expenditures	$	3,529		$	9,021		$	(5,492	)	(60.9	)%

*Includes ~~$1,378~~$1,494 and ~~$1,291~~$1,376 for ~~2017~~2018 and ~~2016,~~2017, respectively, which is included in operating expense

** Included in cost of sales

Gross Revenue

Gross Revenue for our Specialty Petrochemical segment increased during ~~third~~second quarter 2018 from second quarter 2017 ~~from third quarter 2016~~ by ~~7.6%~~10.0% primarily due to an increase in the average selling price of ~~1.6% and volume of 8.2%~~17.0%, partially offset by a 18.6% decrease in processing revenue.

Petrochemical Product Sales

Petrochemical product sales increased by ~~11.0%~~11.1% during ~~third~~second quarter ~~2017~~2018 from ~~third~~second quarter ~~2016~~2017 due to an increase in the the average selling price of ~~1.6%~~17.0%, which was partially offset by 5.3% decline in petrochemical sales volume due to lower sales of by-products. Prime product sales volume were flat as compared to second quarter 2017. Prime product sales in the second quarter were negatively affected by operating issues at some customers. Average selling price increased as prices for both prime products and ~~an increase in volume sold~~by-products increased to offset higher feedstock cost which were up 34% from the second quarter of ~~8.2%.~~2017. It should be noted that by-product are produced as result of prime product production and their margins are significantly lower than margins for our prime products. Our average selling price increased ~~because of~~for two

~~Table of Contents~~

reasons. First, by-product selling prices were significantly higher in ~~the third~~second quarter ~~of 2017~~2018 compared to ~~the third~~second quarter ~~of 2016;~~2017; and second, a large portion of our prime product sales 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 2017 as compared to third quarter 2016. 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-product margins are significantly lower than margins for our prime products. By-product margins in the third quarter of 2017 were higher compared to third quarter of 2016 mainly due to higher values for certain components in the by-products. Foreign sales volume decreased to ~~17.3%~~21.5% of total petrochemical volume from ~~25.7%~~22.1% in ~~third~~second quarter ~~2016.~~2017.

Processing

Processing revenues ~~decreased 47.8% during third~~declined 18.6% in second quarter 2018 from second quarter 2017 ~~from 2016~~primarily due to reduced production for a ~~decrease in reimbursements from~~specific customer as a ~~processing customer.~~result of unit downtime for inspection work and related repairs.

Cost of Sales

Cost of Sales increased ~~4.6%~~19.2% during ~~third~~second quarter ~~2017~~2018 from ~~2016~~2017 primarily due to the increase in feedstock cost and ~~volume.~~higher operating expenses at our Silsbee plant. Our average feedstock cost per gallon increased ~~3.2%~~34% over ~~third~~second quarter ~~2016~~2017 primarily due to an approximately ~~13%~~44% increase in the benchmark price of Mont Belvieu natural ~~gasoline, which was partially offset by lower penalty payments and other delivery costs.~~gasoline. Our average feedstock cost per gallon for the second quarter 2018 increased 9.4% from the first quarter of 2018. Furthermore during the second quarter feedstock cost per gallon continued to steadily increase month to month. The increase in feedstock costs compressed margins for prime products. We sell our prime products under both formula-based pricing where feedstock costs are passed through to



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	25

the customer and spot or non-formula-based pricing which do not have pricing formulas tied to feedstock costs. Formula-based pricing is used to sell the majority of our prime products and typically has a 30 day trailing feed cost basis. This has an unfavorable impact on margins when feedstock prices are rising as we experienced in the quarter. The increase in feedstock costs also compressed margins for the spot, or non-formula, portion of prime product sales. ~~These are~~We saw sequential improvement in prime product margins compared to first quarter 2018 as a result of increased prices and better 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 lower operating expenses and an increase in margins for by-products.mix.

~~Volume processed increased 7.1% over third quarter 2016.~~

The ~~contract pricing formulas used~~decrease in gross margin percentage from 19.0% to ~~sell the majority of~~12.2% was due to higher feedstock costs resulting in margin compression for our prime products ~~typically have a 30 day trailing feed cost basis; and therefore, are slightly favorable during periods of rapidly falling feedstock prices but are unfavorable when prices rise.~~ as well as higher plant operating expenses.

Total Operating Expense

Total Operating Expense ~~decreased 9.9%~~increased 12.7% during ~~third~~second quarter ~~2017~~2018 from ~~2016.~~2017. Natural gas, labor, and transportation are the largest individual expenses in this ~~category; however, not all of these decreased.~~

category. The ~~cost of natural gas purchased increased 11.5% during~~main drivers for the increase in operating expenses were labor costs and transportation costs. Labor costs were up 17.9% in second quarter 2018 from 2017 ~~from 2016~~primarily due to ~~higher per unit cost~~overtime, training 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 downtimecontract labor associated with the ~~hurricane.~~

~~Labor~~start-up of the Advanced Reformer unit. We estimate the additional non-recurring cost associated with the start-up of the Advanced Reformer to be approximately $1 million. Transportation 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%~~7.8% primarily due to an increase in ~~our property tax accrual because~~third party freight costs associated with governmental mandates which took effect in the first quarter of 2018, and an increase in the ~~expiration~~cost of ~~abatements. Group insurance and administrative labor costs also increased.~~

~~Depreciation~~

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

higher shipment volume, higher rail car storage cost at a third-party rail yard as well as higher freight rates.

~~Table of Contents~~

Capital Expenditures

Capital Expenditures ~~increased 74.2% during third~~in the second quarter 2018 were approximately $3.5 million compared to $9.0 million in the second quarter 2017 ~~from 2016 primarily due to~~reflecting the ~~new~~completion of the 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 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 $ 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 %)



	2018			2017			Change			% Change
	(thousands of dollars)
Product Sales	$	7,434		$	6,508		$	926		14.2	%
Processing	2,852			3,028			(176		)	(5.8	)%
Gross Revenue	$	10,286		$	9,536		$	750		7.9	%

Volume of wax sales (thousand pounds)	10,544			9,581			963			10.1	%

Cost of Sales	$	9,225		$	8,437		$	788		9.3	%
Gross Margin	10.3		%	11.5		%				(1.2	)%
General & Administrative Expense	1,239			1,275			(36		)	(2.8	)%
Depreciation and Amortization*	1,365			1,008			357			35.4	%
Capital Expenditures	$	877		$	4,931		$	(4,054	)	(82.2	)%

*Includes ~~$1,187~~$1,343 and ~~$1,082~~$987 for ~~2017~~2018 and ~~2016,~~2017, respectively, which is included in cost of sales

Product Sales

Product sales revenue increased ~~14.9%~~14.2% during ~~third~~second quarter 2018 from second quarter 2017 ~~from third quarter 2016~~ as ~~we continued to see strong growth in~~ wax sales ~~both domestically and in export. Polyethylene wax~~volume increased 10.1%. Wax sales ~~remained steady during the quarter. However, volumes of our traditional products~~ were ~~impacted~~constrained by ~~the storm due to outages at~~supply issues for our wax feed ~~suppliers. We~~as well as supply of third party waxes that we distribute in Latin America. Wax sales continue to ~~make progress in growing~~be limited by supply constraints as opposed to market demand. Our average wax selling price increased 4.4% reflecting our marketing strategy to enhance pricing and improve sales inmix. Customer demand continues



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	26

to be strong for our ~~new~~higher value waxes including our products for ~~our~~the Hot Melt Adhesives ("HMA") and PVC Lubricant markets. These products are characterized by generally higher margins and growth rates. Sales of these products were down from 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.

Processing

Processing revenues ~~decreased 7.6%~~declined 5.8% during ~~third~~second quarter 2018 from second quarter 2017 ~~from third quarter 2016 primarily~~as we weren't able to fully meet customer needs due to ~~the impact of the hurricane. The entire facility was down~~plant operating issues. B Plant revenues in second quarter 2018 were about $0.8 million. We believe there are significant opportunities for ~~a full week during the storm,~~improving our operational efficiency and ~~when you are selling time, it means zero~~customer demand for our 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 willcapabilities continues to be ~~starting up shortly and running on a high value project through the end of the year.~~strong.

Cost of Sales

Cost of Sales increased ~~22.5%~~9.3% during ~~third~~second quarter ~~2017~~2018 from ~~third~~second quarter ~~2016~~2017 primarily due to ~~increases in~~higher plant operating expenses including higher costs for labor, ~~freight, equipment~~ maintenance, storage and ~~natural gas~~ utilities. ~~These cost increases were primarily attributable to the start-up of the hydrogenation/distillation unit.~~

~~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%~~35.4% during ~~third~~second quarter ~~2017~~2018 from ~~2016~~2017 primarily due to the hydrogenation/distillation unit coming ~~online.~~

~~Table~~online in the second and third quarters of ~~Contents~~

2017.

Capital Expenditures

Capital Expenditures decreased ~~51.0%~~82.2% during ~~third~~second quarter ~~2017~~2018 from ~~third~~second quarter ~~2016~~2017 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 %)



	2018		2017			Change			% Change
	(in thousands)
General & Administrative Expense	$	834	$	1,842		$	(1,008	)	(54.7	)%
Equity in earnings (losses) of AMAK	228		(3,298		)	3,526			106.9	%

General and Administrative Expenses

General corporate expenses ~~increased~~decreased during ~~third~~second quarter ~~2017~~2018 from ~~third~~second quarter ~~2016~~2017. The decrease is primarily ~~due to an increase in officer compensation. Officer compensation increased due~~attributable to the ~~accrual for 2017 executive bonuses~~cancellation and ~~the~~ reversal of ~~certain accrued expenses~~stock compensation expense and other post retirement benefits awarded to Mr. Hatem El Khalidi. See further discussion in ~~the third quarter of 2016, including the accrual for bonuses when it was determined they would not be awarded.~~Note 13 and 19.

Equity in ~~Losses~~Earnings (Losses) of AMAK

Equity in ~~losses~~earnings (losses) of AMAK ~~decreased~~increased during ~~third~~second quarter ~~2017~~2018 from ~~third~~second 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.~~2017.



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	27

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 June 30,
	2018			2017
	(thousands of dollars)
Sales	$	19,494		$	—
Cost of sales	16,555			8,901
Gross income (loss)	$	2,939		$	(8,901	)
General, administrative and other expenses	3,265			(1,971		)
Net income (loss)	$	(326	)	$	(10,872	)
Depreciation and amortization	8,281			7,609
Net income (loss) before depreciation and amortization	$	7,955		$	(3,263	)

AMAK ~~continues~~continued to ~~upgrade leadership and personnel at the site while filling all significant personnel vacancies. Sixteen percent more copper concentrate was shipped to the port~~make progress in third quarter 2017 than in second quarter 2017. Zinc concentrate to the port was up 38% quarter on quarter. There was one shipment of lower quality copper and zinc concentrate during 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 continue 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 liferecoveries. Approximately 14,000 dry metric tons (dmt) of ~~the~~ copper and zinc ~~mine assets are anticipated later this year.~~concentrate were shipped in second quarter 2018 as compared to no shipments of copper and zinc concentrate in second quarter 2017. This is an approximately 40% increase in shipments compared to first quarter 2018.

~~Table~~Comparison of ~~Contents~~

Six Months Ended 26June 30, 2018

and 2017

~~Comparison of Nine Months Ended September 30, 2017 and 2016~~

Specialty Petrochemical Segment



	2018		2017		Change		% Change
	(thousands of dollars)
Petrochemical Product Sales	116,420		94,899		21,521		22.7	%
Processing	3,713		3,559		154		4.3	%
Gross Revenue	120,133		98,458		21,675		22.0	%

Volume of Sales (gallons)
Petrochemical Products	43,022		38,159		4,863		12.7	%
Prime Product Sales	33,742		30,186		3,556		11.8	%

Cost of Sales	103,387		78,929		24,458		31.0	%
Gross Margin	13.9	%	19.8	%			(5.9	)%
Total Operating Expense**	32,924		28,121		4,803		17.1	%
Natural Gas Expense**	2,576		2,439		137		5.6	%
Operating Labor Costs**	8,514		7,276		1,238		17.0	%
Transportation Costs**	14,402		12,263		2,139		17.4	%
General & Administrative Expense	5,300		5,319		(19	)	(0.4	)%
Depreciation and Amortization*	3,369		3,100		269		8.7	%
Capital Expenditures	13,812		17,777		(3,965	)	(22.3	)%

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 %

*Includes ~~$4,142~~$3,042 and ~~$3,743~~$2,452 for ~~2017~~2018 and ~~2016,~~2017, respectively, which is included in operating expense

** Included in cost of sales

Gross Revenue

Gross Revenue for our Specialty Petrochemical segment increased during the first ~~nine months~~half of 2018 from the first half of 2017 ~~from 2016~~ by ~~approximately 12.2%~~22.0% primarily due to an increase in the volume of 12.7%, an increase in the average selling price of ~~9.4%~~8.7% and an increase in ~~volume~~processing revenue of 4.3% ~~offset by a decrease in processing fees.~~.

Petrochemical Product Sales



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	28

Petrochemical product sales ~~revenue~~ increased by ~~14.1%~~22.7% during the first ~~nine months~~half of 2018 from the first half of 2017 ~~from 2016~~ due to an increase in the volume sold of 12.7% and an increase in the average selling price of ~~9.4% and an~~8.7%. Prime product volume increased 11.8% in the first half of 2018 as compared to the first half of 2017. Prime products sales volume in 2018 benefited from strong sales in the first quarter of 2018 while second quarter 2018 prime product sales were flat from second quarter 2017. Due to the need to produce additional prime products to support the increase in sales volume, ~~of 4.3%.~~our by-product volume increased 16% from 2017. By-product margins in 2018 were about flat compared with 2017. It should be noted that by-product margins are significantly lower than margins for our prime products. Our average selling price increased ~~because~~for two reasons. First, by-product selling prices were significantly higher in the first half of ~~higher prices for prime products~~2018 compared to the first half of 2017; and ~~by-products, driven by higher feedstock costs. A~~second, a large portion of our prime product sales are contracted with pricing formulas which are tied to prior month Natural Gas Liquid (NGL) prices which is our primary feedstock. ~~NGL~~Feedstock prices were ~~relatively stable during~~about 23% higher in the first ~~nine months~~half of ~~2017 but were significantly higher than~~2018 as compared to the first ~~nine months~~half of ~~2016.~~2017. Foreign sales volume ~~decreased~~increased to ~~19.6%~~23% of total petrochemical volume from ~~22.7%~~21% in the first ~~nine months~~half of ~~2016.~~2017.

Processing

Processing revenues ~~decreased 25.0%~~increased 4.3% during the first ~~nine months~~half of ~~2017~~2018 from ~~2016~~2017 due to ~~reduced fees associated with~~some improvement in volumes processed and first step processing for a ~~new customer who reimbursed us for installation expenses plus a markup during the first nine months of 2016 and outages associated with the hurricane in 2017.~~project that was completed at TC.

Cost of Sales

Our Cost of Sales increased ~~14.3%~~31.0% during the first ~~nine months~~half of 2018 from 2017 ~~from 2016~~primarily due to the increase in ~~NGL prices~~feedstock cost and volume as ~~mentioned above.~~well as higher operating expenses. Our average feedstock cost per gallon increased ~~17.6%;~~23% compared to the first half of 2017 primarily due to an approximately 35% increase in the benchmark price of Mont Belvieu natural gasoline, which was partially offset by lower shortfall fees and other delivery costs.

During the first half of 2018, feedstock cost per gallon increased steadily month to month whereas ~~volume processed remained steady.~~ in the first half of 2017 feedstock costs were declining. The increase in feedstock costs compressed margins for prime products. We sell our prime products under both formula-based pricing where feedstock costs are passed through to the customer and spot or non-formula-based pricing which do not have pricing formulas tied to feedstock costs. Formula-based pricing is used to sell the majority of our prime products and typically has a 30 day trailing feed cost basis. This has an unfavorable impact on margins when feedstock prices are rising as we experienced in the first half of 2018. The increase in feedstock costs compressed margins for the spot or non-formula portion of prime product sales.

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 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 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. This factor contributed to the decline in gross margin percentage from 21.2% to 19.7%. OurWe expect our advanced reformer unit ~~(due online in first quarter 2018) will allow~~to enable us to convert ~~many of~~ the ~~by-products~~less valuable components in our feed into higher value products, thereby allowing us to sell our ~~byproducts~~by-products at higher prices.

The decrease in gross margin from 19.8% to 13.9% was due to higher feedstock costs resulting in margin compression for our prime products as well as higher plant operating expenses.

~~Table of Contents~~

Total Operating Expense

Total Operating Expense ~~decreased 0.8%~~increased 17.1% during the first ~~nine months~~half of ~~2017~~2018 from ~~2016. Natural~~2017. Labor, transportation and 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.

category. Labor costs were ~~lower~~higher by ~~1.7%~~17.0% in the first half of 2018 from 2017. Labor costs were higher primarily due to ~~maintenance~~overtime, training and contract labor ~~being capitalized~~associated with the start-up of the Advanced Reformer unit. We estimate the additional non-recurring cost associated with the start-up of the Advanced Reformer to ~~construction in progress.~~

be approximately $1 million. Transportation costs were higher by ~~2.6%~~17.4% primarily due to an increase in ~~the number of isocontainer shipments during~~third party freight costs associated with governmental mandates which took effect in the first ~~nine months~~quarter of ~~2017. These shipments increased 112.6%~~2018, and ~~are generally used for overseas shipments.~~

In addition, during 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 the first nine months of 2017 from 2016 increased by 16.0% primarily due to~~ an increase in ~~our property tax accrual because~~the cost of ~~the expiration of abatements. Group insurance and administrative labor costs also increased.~~rail freight due to higher shipment volume, higher rail car storage cost at a third-party rail yard as well as higher freight rates.

Depreciation

Depreciation increased ~~11.2%~~8.7% during the first ~~nine months~~half of ~~2017~~2018 from ~~2016 primarily due to 2016 capital expenditures increasing our depreciable base.~~2017.

Capital Expenditures



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	29

Capital Expenditures ~~increased 61.8%~~decreased 22.3% during the first ~~nine months~~half of ~~2017~~2018 from ~~2016~~2017 primarily due to ~~expenditures related to construction of~~the decline in capital spending for 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.~~project which was recently completed. See additional detail above under "Investing Activities".

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 %



	2018			2017			Change			% Change
	(thousands of dollars)
Product Sales	$	13,817		$	13,016		$	801		6.2	%
Processing	6,064			6,183			(119		)	(1.9	)%
Gross Revenue	19,881			19,199			682			3.6	%

Volume of wax sales (thousand pounds)	20,085			20,245			(160		)	(0.8	)%

Cost of Sales	$	18,344		$	17,003		$	1,341		7.9	%
Gross Margin	7.7		%	11.4		%				(3.7	)%
General & Administrative Expense	2,607			2,622			(15		)	(0.6	)%
Depreciation and Amortization*	2,669			2,024			645			31.9	%
Capital Expenditures	$	1,622		$	10,056		$	(8,434	)	(83.9	)%

*Includes ~~$3,169~~$2,625 and ~~$2,877~~$1,795 for ~~2017~~2018 and ~~2016,~~2017, respectively, which is included in cost of sales

Product Sales

Product sales revenue increased ~~27.6%~~6.2% during the first ~~nine months~~half of ~~2017~~2018 from the first ~~nine months~~half of ~~2016 primarily due to on-purpose PE~~2017 as average wax sales ~~which~~price increased approximately 8% while sales volumes were essentially flat. In 2018, wax sales continued to be constrained by supply issues on third party waxes that we ~~are distributing~~distribute in Latin America and also by limited wax feed supply to our plant. Selling prices for ~~a third party as well as, significant~~wax benefited from our marketing strategy to enhance pricing and improve sales mix. Responding to customer demand, we sold record volumes of our higher value waxes including our products for the Hot Melt Adhesives ("HMA") and PVC Lubricant markets. These products are characterized by generally higher margins and growth in our high value waxes. Polyethylene wax sales saw volume increases of approximately 16.9%, and revenue from these sales increased 20.8%. As mentioned above, we continue to make good progress in developing high value markets for our by-product polyethylene waxes.rates.

~~Table of Contents~~

Processing

Processing revenues ~~increased 4.8%~~decreased 1.9% during the first ~~nine months~~half of ~~2017~~2018 from the first ~~nine months~~half of ~~2016 due~~2017. In the first half of 2018, we made progress in correcting operational issues however the plant continued to ~~increased volumes~~struggle with ~~existing customers~~consistently and ~~a number of new contracts~~reliably operating the hydrogenation and ~~small trials. Processing revenue generated from~~distillation unit. B Plant was approximately $2.2 million, from the new distillation unit was approximately $0.2 million, and from the new hydrogenation unit was approximately $0.1 million. Excluding the $1.6 million non-use fee that occurred for the last timerevenues in the first ~~quarter~~half of ~~2016, custom processing revenues~~2018 were ~~up over 32% over 2016 numbers. This revenue increase occurred despite the start-up difficulties with the hydrogenation unit resulting~~about $2.14 million, a record level since we acquired it 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.~~mid-2016. We believe significant opportunities for improving our operational efficiencies remain.

Cost of Sales

Cost of Sales increased ~~33.6%~~7.9% during the first ~~nine months~~half of ~~2017~~2018 from the first ~~nine months~~half of ~~2016~~2017 primarily due to increases in ~~material cost,~~operations labor, freight, ~~repairs~~equipment maintenance, storage and ~~maintenance of manufacturing equipment, and natural gas~~ utilities.

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~~decreased 0.6% during the first ~~nine months~~half of ~~2017~~2018 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.~~2017.

Depreciation

Depreciation increased ~~9.8%~~31.9% during the first ~~nine months~~half of ~~2017~~2018 from ~~2016~~2017 primarily due to ~~addition of B Plant.~~the hydrogenation/distillation unit coming online.

Capital Expenditures

Capital Expenditures ~~increased 8.9%~~decreased 83.9% during the first ~~nine months~~half of ~~2017~~2018 from the first ~~nine months~~half of ~~2016~~2017 primarily due to ~~expenditures for construction in progress including~~the completion of the hydrogenation/distillation project which came online in the second 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.~~third quarters of 2017.

~~Corporate Segment~~



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	30

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 %)

Corporate Segment



	2018		2017			Change			% Change
	(in thousands)
General & Administrative Expense	$	2,982	$	4,020		$	(1,038	)	(25.8	)%
Equity in earnings (losses) of AMAK	458		(4,264		)	4,722			110.7	%

General and Administrative Expenses

General corporate expenses ~~increased 16.6%~~decreased during the first ~~nine months 2017~~half of 2018 from the first ~~nine months 2016~~half of 2017. The decrease is primarily ~~due~~attributable to ~~an increase~~the cancellation and reversal of stock compensation expense and other post retirement benefits awarded to Mr. Hatem El Khalidi. See further discussion 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.Note 13 and 19.

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

Equity in earnings (losses) of AMAK ~~decreased~~increased during the first ~~nine months 2017~~half of 2018 from the first ~~nine months 2016 primarily due to the recognition in 2016~~half of a gain from a settlement which was reached with the former operator 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 Note

~~Table of Contents~~

~~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.~~2017.

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



	Six Months Ended June 30,
	2018			2017
	(thousands of dollars)
Sales	$	33,581		$	2,256
Cost of sales	29,061			12,463
Gross income (loss)	$	4,520		$	(10,207	)
General, administrative and other expenses	5,166			4,559
Net loss	$	(646	)	$	(14,766	)
Depreciation and amortization	15,982			10,664
Net income (loss) before depreciation and amortization	$	15,336		$	(4,102	)

~~The team at~~ AMAK ~~continued to upgrade personnel and work on improving operations throughout the quarter. Shipments~~made significant progress in 2018 in terms of throughput rates, 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~~Approximately 24,000 dry metric tons (dmt) of ~~the~~ copper and zinc ~~mine assets are expected later this year.~~concentrate were shipped in the first half of 2018 as compared to no shipments of copper and zinc concentrate in the first half of 2017.

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 SIDF in the principal amount of 330.0 million SR (US$88.0 million) to AMAK, we were required to execute a Guarantee 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 facts 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 was in the best interest of the Company and its shareholders to provide the limited corporate guarantee to facilitate completion of the mining project in a timely manner. We ~~also determined that the stand-in-front agreement in conjunction with~~believe, based on our analysis, the actual value of plant and equipment on the ground ~~should act in concert to minimize~~exceeds any exposure ~~arising from~~related to the corporate guarantee.

On July 8, 2018, the SIDF loan was amended to adjust the repayment schedule and extend the repayment terms through April 2024. Under the new payment terms the current amount due to SIDF in 2019 is $8,000,000. The total amount outstanding to the SIDF at ~~September~~June 30, ~~2017,~~2018, was 305.0 million Saudi Riyals (US$81.3 million).



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	31

Contractual Obligations

On October 1, 2014, we entered into an Amended and Restated Credit Agreement with the lenders which from time to time are parties to the Amended and Restated Credit Agreement (collectively, the "Lenders") and Bank of America, N.A., a national banking association, as Administrative Agent for the Lenders, and Merrill Lynch, Pierce, Fenner & Smith Incorporated as Lead Arranger. A second amendment was entered into on March 28, 2017 and a third amendment on July 25, 2017. Refer to Note 10 on page 11 of this Form 10-Q for a detailed discussion.

Our contractual obligations are summarized in Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations," in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017. Other than our obligations under the Amended and Restated Credit Agreement, there have been no material changes to the contractual obligation amounts disclosed in our annual report on Form 10-K for the fiscal year ended December 31, 2017.

On July 31, 2018, TOCCO and the Guarantors entered into a Fourth Amendment to the Amended and Restated Credit Agreement. See Note 20 of the Form 10-Q for a detailed discussion.

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~~net realizable value for SHR. For TC, inventory is recorded at the lower of cost or ~~market~~net realizable value 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 included in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2017. 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 have been discussed with the Audit Committee of the Board of Directors. We believe there have been no material

~~Table of Contents~~

changes to our critical accounting policies and estimates compared to those discussed in our Annual Report on Form 10-K for the year ended December 31, ~~2016, except for the change in inventory valuation method from LIFO to FIFO as described in Note 5.~~2017.

Recent and New Accounting Standards

See Note 1 and 2 to the Consolidated Financial Statements for a summary of recent accounting guidance.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Derivative Instrument Risk

~~Refer to~~See Note 12 ~~on page 13 of this Form 10-Q.~~to the Consolidated Financial Statements.

Interest Rate Risk

~~Refer to~~See Note 12 ~~on page 13 of this Form 10-Q.~~to the Consolidated Financial Statements.

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.~~2017.

ITEM 4. CONTROLS AND PROCEDURES.



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	32

(a)

Evaluation of disclosure controls and procedures. Our ~~chief executive officer~~Chief Executive Officer and ~~chief financial officer,~~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.~~report.

~~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 the year ended December 31, 2016, we determined that we did not maintain 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 issuance of shares of AMAK to other investors. As a result of this material weakness, we restated our financial statements for the three months ended June 30, 2016, and September 30, 2016, respectively. ~~This 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 in our internal control over financial reporting, we 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 strengthen 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.

~~Table of Contents~~

(b)

Changes in internal control. ~~Other than the efforts discussed immediately above in "Remediation of Material Weakness in Internal Control over Financial Reporting", there was~~There were no ~~change~~significant changes in our internal control over financial reporting that occurred during the ~~quarter~~six months ended ~~September~~June 30, ~~2017,~~2018, that ~~has~~have materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.



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	33

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.

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.~~2017.



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	34

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. Exhibits marked with a plus sign (+) are compensatory plans.



Exhibit Number	Description
~~10(a)~~3.1	~~Third~~Amended and Restated Certificate of Incorporation of Trecora Resources
3.2	Amended and Restated Bylaws of Trecora Resources
10.1	Fourth Amendment to Amended and Restated Credit Agreement, dated as of July ~~25, 2017,~~31, 2018, among Texas Oil & Chemical Co. II, Inc. ~~and~~, as Borrower, certain subsidiaries of the Borrower, as Guarantors, the Lenders from time to time party thereto, Citibank, N.A., as an L/C Issuer, 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))~~Administrative Agent, Swingline Lender and L/C Issuer
10.2*+	10(b)*	~~Form~~Retirement Agreement, dated as of June 7, 2018, between Trecora Resources ~~Stock~~ and ~~Incentive Plan Restricted Stock Unit Agreement~~Connie J. Cook
10.3*+	10(c)*	~~Form~~Consulting Agreement, dated as of July 1, 2018, between Trecora Resources ~~Stock~~ and ~~Incentive Plan Amended and Restated Restricted Stock Unit Agreement~~Connie J. Cook
31.1**	~~31.1~~**	Certification of Chief Executive Officer pursuant to Rule 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) 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
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



Table of Contents
	35

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~~ August 6, 2018 TRECORA RESOURCES

~~(Registrant)~~

By: ~~/s/~~/s/Sami Ahmad

Sami Ahmad

~~Chief~~Principal Financial Officer and Duly Authorized Officer

~~Table of Contents~~



Table of Contents
	36



PART I – FINANCIAL INFORMATION
ITEM 1. Financial Statements
	Consolidated Balance Sheets	1
	Consolidated Statements of Income	2
	Consolidated Statement of Stockholders' Equity	3
	Consolidated Statements of Cash Flows	4
	Notes to Consolidated Financial Statements	5

ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		20 21

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk		31 32

ITEM 4. Controls and Procedures		31 32
	PART II – OTHER INFORMATION
ITEM 1. Legal Proceedings		32 34

ITEM 1A. Risk Factors		32 34

ITEM 6. Exhibits		32 35

	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

	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

	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

	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

	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

	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

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

	September 30, 2017		December 31, 2016

Fair value of interest rate swap - liability	$	7	$	58

	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

	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

	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

	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

	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

	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

	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

	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