UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, ~~2018~~2019

[ ] 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~~Employer Identification No.)
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: (281) 980-5522

N/A

Former name, former address and former fiscal year, if

changed since last report.

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.10 per share	TREC	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes X No

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

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

Emerging growth ~~company_____~~company

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes No X_X

Number of shares of the Registrant's Common Stock (par value $0.10 per share), outstanding at ~~November 1, 2018:~~October 29, 2019: ~~24,516,069~~24,714,980.

TABLE OF CONTENTS

Item Number and Description

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

TRECORA RESOURCES AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS


	September 30, 2018 (Unaudited)			December 31, 2017			September 30, 2019 (Unaudited)			December 31, 2018
ASSETS	(thousands of dollars, except par value)						(thousands of dollars, except par value)
Current Assets
Cash	$	1,292		$	3,028		$	9,157		$	6,735
Trade receivables, net	29,787			25,779			25,497			27,112
Insurance receivable	391			—
Inventories	17,828			18,450			13,285			16,539
Investment in AMAK (held-for-sale)							34,090			38,746
Prepaid expenses and other assets	5,466			4,424			3,726			4,664
Taxes receivable	1,554			5,584			182			182
Total current assets	56,318			57,265			85,937			93,978

Plant, pipeline and equipment, net	192,311			181,742
Plant, pipeline and equipment, net							190,345			194,657

Goodwill	21,798			21,798			21,798			21,798
Intangible assets, net	19,412			20,808			17,551			18,947
Investment in AMAK	44,322			45,125
Lease right-of-use assets, net							14,364			—
Mineral properties in the United States	588			588			562			588

TOTAL ASSETS	$	334,749		$	327,326		$	330,557		$	329,968
LIABILITIES
Current Liabilities
Accounts payable	$	13,311		$	18,347		$	10,203		$	19,106
Accrued liabilities	6,018			3,961			7,270			5,439
Current portion of post-retirement benefit	24			305
Current portion of long-term debt	4,194			8,061			4,194			4,194
Current portion of lease liabilities							3,247			—
Current portion of other liabilities	835			870			1,011			752
Total current liabilities	24,382			31,544			25,925			29,491

Long-term debt, net of current portion	101,337			91,021			85,143			98,288
Post-retirement benefit, net of current portion	361			897
Lease liabilities, net of current portion							11,117			—
Other liabilities, net of current portion	1,170			1,611			906			1,352
Deferred income taxes	18,218			17,242			16,646			15,676
Total liabilities	145,468			142,315			139,737			144,807

EQUITY
Common stock‑authorized 40 million shares of $0.10 par value; issued 24.5 million in 2018 and 2017 and outstanding 24.3 million shares in 2018 and 2017	2,451			2,451
Common stock‑authorized 40 million shares of $0.10 par value; issued and outstanding 24.7 million and 24.6 million in 2019 and 2018, respectively							2,472			2,463
Additional paid-in capital	57,147			56,012			59,202			58,294
Common stock in treasury, at cost	(19		)	(196		)	(2		)	(8		)
Retained earnings	129,413			126,455			128,859			124,123
Total Trecora Resources Stockholders' Equity	188,992			184,722			190,531			184,872
Noncontrolling Interest	289			289			289			289
Total equity	189,281			185,011			190,820			185,161

TOTAL LIABILITIES AND EQUITY	$	334,749		$	327,326		$	330,557		$	329,968

See notes to consolidated financial statements.



Table of Contents
	1

TRECORA RESOURCES AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF ~~INCOME~~OPERATIONS (UNAUDITED)

THREE MONTHS ENDED
SEPTEMBER 30, NINE MONTHS ENDED
SEPTEMBER 30,
2018 2017 2018 2017
(thousands of dollars, except per share amounts)
REVENUES
Petrochemical and Product Sales $ 68,613
$ 58,030
$ 198,881
$ 165,945
Processing Fees 4,803
3,478
14,382
13,220
73,416
61,508
213,263
179,165

OPERATING COSTS AND EXPENSES
Cost of Sales and Processing
(including depreciation and amortization of $3,813, $2,565, $9,480, and $7,311, respectively) 66,574
51,638
188,139
147,570

GROSS PROFIT
6,842
9,870
25,124
31,595

GENERAL AND ADMINISTRATIVE EXPENSES
General and Administrative 6,327
5,660
17,216
17,621
Depreciation 205
245
592
655
6,532
5,905
17,808
18,276

OPERATING INCOME 310
3,965
7,316
13,319

OTHER INCOME (EXPENSE)
Interest Income 5
—
26
—
Interest Expense (924 ) (795 ) (2,617 ) (2,109 )
Loss on Extinguishment of Debt (315 ) —
(315 ) —
Equity in Losses of AMAK (1,130 ) (897 ) (672 ) (5,161 )
Miscellaneous Income (Expense) (28 ) 22
(67 ) (42 )
(2,392 ) (1,670 ) (3,645 ) (7,312 )

INCOME (LOSS) BEFORE INCOME TAXES (2,082 ) 2,295
3,671
6,007

INCOME TAX EXPENSE (BENEFIT) (473 ) 577
713
1,970

NET INCOME (LOSS) (1,609 ) 1,718
2,958
4,037

NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST —
—
—
—

NET INCOME (LOSS) ATTRIBUTABLE TO TRECORA RESOURCES $ (1,609 ) $ 1,718
$ 2,958
$ 4,037

Basic Earnings (Loss) per Common Share
Net Income (Loss) Attributable to Trecora Resources (dollars) $ (0.07 ) $ 0.07
$ 0.12
$ 0.17

Basic Weighted Average Number of Common Shares Outstanding 24,483
24,304
24,397
24,267

Diluted Earnings (Loss) per Common Share
Net Income (Loss) Attributable to Trecora Resources (dollars) $ (0.06 ) $ 0.07
$ 0.12
$ 0.16

Diluted Weighted Average Number of Common Shares Outstanding 25,175
25,157
25,138
25,082



	THREE MONTHS ENDED SEPTEMBER 30,						NINE MONTHS ENDED SEPTEMBER 30,
	2019			2018			2019			2018
	(thousands of dollars, except per share amounts)
REVENUES
Product sales	$	59,111		$	68,613		$	185,933		$	198,881
Processing fees	3,604			4,803			11,308			14,382
	62,715			73,416			197,241			213,263

OPERATING COSTS AND EXPENSES
Cost of sales and processing
(including depreciation and amortization of $3,254, $3,813, $11,611 and $9,480, respectively)	53,148			66,574			167,036			188,139

GROSS PROFIT	9,567			6,842			30,205			25,124

GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative	6,401			6,327			18,532			17,216
Depreciation	208			205			629			592
	6,609			6,532			19,161			17,808

OPERATING INCOME	2,958			310			11,044			7,316

OTHER INCOME (EXPENSE)
Interest income	—			5			5			26
Interest expense	(1,211		)	(924		)	(4,111		)	(2,617		)
Loss on Extinguishment of Debt	—			(315		)	—			(315		)
Miscellaneous income (expense), net	74			(28		)	330			(67		)
	(1,137		)	(1,262		)	(3,776		)	(2,973		)

INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES	1,821			(952		)	7,268			4,343

INCOME TAX EXPENSE (BENEFIT)	238			(236		)	1,412			854

INCOME (LOSS) FROM CONTINUING OPERATIONS	1,583			(716		)	5,856			3,489

LOSS FROM DISCONTINUED OPERATIONS, NET OF TAX	(1,002		)	(893		)	(1,120		)	(531		)

NET INCOME (LOSS)	$	581		$	(1,609	)	$	4,736		$	2,958

Basic Earnings per Common Share
Net income (loss) from continuing operations (dollars)	$	0.06		$	(0.03	)	$	0.24		$	0.14
Net loss from discontinued operations, net of tax (dollars)	(0.04		)	(0.04		)	(0.05		)	(0.02		)
Net income (loss) (dollars)	$	0.02		$	(0.07	)	$	0.19		$	0.12

Basic weighted average number of common shares outstanding	24,717			24,483			24,689			24,397

Diluted Earnings per Common Share
Net income (loss) from continuing operations (dollars)	$	0.06		$	(0.03	)	$	0.23		$	0.14
Net loss from discontinued operations, net of tax (dollars)	(0.04		)	(0.04		)	(0.04		)	(0.02		)
Net income (loss) (dollars)	$	0.02		$	(0.07	)	$	0.19		$	0.12

Diluted weighted average number of common shares outstanding	25,053			25,175			25,077			25,138

See notes to consolidated financial statements.



Table of Contents
	2

TRECORA RESOURCES AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)

THREE MONTHS ENDED SEPTEMBER 30


	TRECORA RESOURCES STOCKHOLDERS																			TRECORA RESOURCES STOCKHOLDERS
	COMMON STOCK			ADDITIONAL PAID-IN			TREASURY			RETAINED					NON- CONTROLLING		TOTAL			COMMON STOCK			ADDITIONAL PAID-IN			TREASURY			RETAINED						NON- CONTROLLING		TOTAL
	SHARES	AMOUNT		CAPITAL			STOCK			EARNINGS		TOTAL			INTEREST		EQUITY			SHARES	AMOUNT		CAPITAL			STOCK			EARNINGS			TOTAL			INTEREST		EQUITY
	(thousands)	(thousands of dollars)																		(thousands)	(thousands of dollars)
January 1, 2018	24,311	$	2,451	$	56,012		$	(196	)	$	126,455	$	184,722		$	289	$	185,011
June 30, 2019																				24,715	$	2,472	$	58,920		$	(2	)	$	128,278		$	189,668		$	289	$	189,957

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	—	—		250			—			—		250			—		250			—	—		96			—			—			96			—		96
Issued to Employees	—	—		1,284			—			—		1,284			—		1,284			—	—		186			—			—			186			—		186
Common Stock
Issued to Directors	—	—		82			78			—		160			—		160			—	—		—			—			—			—			—		—
Issued to Employees	—	—		130			155			—		285			—		285			—	—		—			—			—			—			—		—
Stock Exchange (see Notes 8 & 17)	—	—		(66		)	(65		)	—		(131		)	—		(131		)
Net Income																				—	—		—			—			581			581			—		581

September 30, 2019																				24,715	$	2,472	$	59,202		$	(2	)	$	128,859		$	190,531		$	289	$	190,820

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

Stock Options
Issued to Directors																				—	—		—			—			—			—			—		—
Issued to Employees																				—	—		—			—			—			—			—		—
Cancellation of Issuance to Former Director																				—	—		—			—			—			—			—		—
Restricted Stock Units
Issued to Directors																				—	—		75			—			—			75			—		75
Issued to Employees																				—	—		550			—			—			550			—		550
Common Stock
Issued to Directors																				—	—		159			41			—			200			—		200
Issued to Employees																				—	—		(2		)	1			—			(1		)	—		(1		)
Stock Exchange																				—	—		—			—			—			—			—		—
Warrants	—	—		(9		)	9			—		—			—		—			—	—		—			—			—			—			—		—
Net Income	—	—		—			—			2,958		2,958			—		2,958			—	—		—			—			(1,609		)	(1,609		)	—		(1,609		)

September 30, 2018	24,311	$	2,451	$	57,147		$	(19	)	$	129,413	$	188,992		$	289	$	189,281		24,311	$	2,451	$	57,147		$	(19	)	$	129,413		$	188,992		$	289	$	189,281

See notes to consolidated financial statements.



Table of Contents
	3

TRECORA RESOURCES AND SUBSIDIARIES

CONDENSED CONSOLIDATED ~~STATEMENTS~~STATEMENT OF ~~CASH FLOWS~~STOCKHOLDERS' EQUITY (UNAUDITED)

NINE MONTHS ENDED
SEPTEMBER 30,
2018 2017
(thousands of dollars)
OPERATING ACTIVITIES
Net Income $ 2,958
$ 4,037
Adjustments to Reconcile Net Income
To Net Cash Provided by Operating Activities:
Depreciation and Amortization 8,614
6,570
Amortization of Intangible Assets 1,396
1,396
Unrealized Gain on Derivative Instruments —
(51 )
Stock-based Compensation 1,002
2,005
Deferred Income Taxes 975
1,571
Postretirement Obligation (817 ) (8 )
Equity in Losses of AMAK 672
5,161
Bad Debt Expense 152
—
Amortization of Loan Fees 216
154
Loss on Extinguishment of Debt 315
—
Changes in Operating Assets and Liabilities:
Increase in Trade Receivables (4,160 ) (545 )
Increase in Insurance Receivables (391 ) —
Decrease in Taxes Receivable 4,029
218
Decrease in Inventories 622
5,022
(Increase) Decrease in Prepaid Expenses and Other Assets (1,592 ) 387
(Decrease) Increase in Accounts Payable and Accrued Liabilities (2,977 ) 3,356
(Decrease) Increase in Other Liabilities 96
281
Net Cash Provided by Operating Activities 11,110
29,554

INVESTING ACTIVITIES
Additions to Plant, Pipeline and Equipment (19,090 ) (39,250 )
Advances to AMAK, net (114 ) (86 )
Cash Used in Investing Activities (19,204 ) (39,336 )

FINANCING ACTIVITIES
Issuance of Common Stock —
25
Net Cash Received (Paid) Related to Stock-Based Compensation 441
(80 )
Addition to Long-Term Debt 18,177
14,000
Repayment of Long-Term Debt (12,260 ) (8,333 )
Net Cash Provided by Financing Activities 6,358
5,612

NET DECREASE IN CASH (1,736 ) (4,170 )

CASH AT BEGINNING OF PERIOD 3,028
8,389

CASH AT END OF PERIOD $ 1,292
$ 4,219
NINE MONTHS ENDED SEPTEMBER 30

Supplemental disclosure of cash flow information:
Cash payments for interest $ 2,663
$ 3,034
Cash payments for taxes, net of refunds $ 209
$ 227
Supplemental disclosure of non-cash items:
Capital expansion amortized to depreciation expense $ 573
$ 642
Stock exchange (Notes 8 & 17) $ 131
$ —



	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, 2019	24,626	$	2,463	$	58,294		$	(8	)	$	124,123	$	184,872		$	289	$	185,161

Restricted Stock Units
Issued to Directors	—	—		264			—			—		264			—		264
Issued to Employees	—	—		644			—			—		644			—		644
Common Stock
Issued to Directors	10	1		—			6			—		7			—		7
Issued to Employees	79	8		—			—			—		8			—		8
Net Income	—	—		—			—			4,736		4,736			—		4,736

September 30, 2019	24,715	$	2,472	$	59,202		$	(2	)	$	128,859	$	190,531		$	289	$	190,820

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
Cancellation of Issuance to Former Director	—	—		(680		)	—			—		(680		)	—		(680		)
Restricted Stock Units
Issued to Directors	—	—		250			—			—		250			—		250
Issued to Employees	—	—		1,284			—			—		1,284			—		1,284
Common Stock
Issued to Directors	—	—		82			78			—		160			—		160
Issued to Employees	—	—		130			155			—		285			—		285
Stock Exchange	—	—		(66		)	(65		)	—		(131		)	—		(131		)
Warrants	—	—		(9		)	9			—		—			—		—
Net Income	—	—		—			—			2,958		2,958			—		2,958

September 30, 2018	24,311	$	2,451	$	57,147		$	(19	)	$	129,413	$	188,992		$	289	$	189,281

See notes to consolidated financial statements.



Table of Contents
	4

TRECORA RESOURCES AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)



	NINE MONTHS ENDED SEPTEMBER 30,
	2019			2018
	(thousands of dollars)
OPERATING ACTIVITIES
Net Income	$	4,736		$	2,958
Loss from Discontinued Operations	(1,120		)	(531		)
Income from Continuing Operations	$	5,856		$	3,489
Adjustments to Reconcile Income from Continuing Operations To Net Cash Provided by Operating Activities:
Depreciation and Amortization	10,863			8,614
Amortization of Intangible Assets	1,396			1,396
Stock-based Compensation	904			1,002
Deferred Income Taxes	1,268			1,116
Postretirement Obligation	(28		)	(817		)
Bad Debt Expense	(19		)	152
Amortization of Loan Fees	136			216
Loss on Extinguishment of Debt	—			315
Changes in Operating Assets and Liabilities:
Decrease (Increase) in Trade Receivables	1,634			(4,160		)
Increase in Insurance Receivables	—			(391		)
Decrease in Taxes Receivable	—			4,029
Decrease in Inventories	3,253			622
Increase in Prepaid Expenses and Other Assets	914			(1,592		)
Decrease in Accounts Payable and Accrued Liabilities	(6,031		)	(2,977		)
Decrease in Other Liabilities	267			96
Net Cash Provided by Operating Activities - Continuing Operations	20,413			11,110
Net Cash Used in Operating Activities - Discontinued Operations	(164		)	—
Net Cash Provided by Operating Activities	20,249			11,110
INVESTING ACTIVITIES
Additions to Plant, Pipeline and Equipment	(6,978		)	(19,090		)
Proceeds from PEVM	27			—
Net Cash Used in Investing Activities - Continuing Operations	(6,951		)	(19,090		)
Net Cash Provided by (Used in) Investing Activities - Discontinued Operations	2,697			(114		)
Net Cash Used in Investing Activities	(4,254		)	(19,204		)
FINANCING ACTIVITIES
Net Cash (Paid) Received Related to Stock-Based Compensation	(292		)	441
Additions to Long-Term Debt	2,000			18,177
Repayments of Long-Term Debt	(15,281		)	(12,260		)
Net Cash (Used in) Provided by Financing Activities - Continuing Operations	(13,573		)	6,358
NET INCREASE (DECREASE) IN CASH	2,422			(1,736		)
CASH AT BEGINNING OF PERIOD	6,735			3,028
CASH AT END OF PERIOD	$	9,157		$	1,292
Supplemental disclosure of cash flow information:
Cash payments for interest	$	3,749		$	2,663
Cash payments for taxes, net of refunds	$	53		$	209
Supplemental disclosure of non-cash items:
Capital expansion amortized to depreciation expense	$	426		$	573
Foreign taxes paid by AMAK	$	891		$	—
Stock exchange (Note 16)	$	—		$	131

See notes to consolidated financial statements.



Table of Contents
	5

TRECORA RESOURCES AND SUBSIDIARIES

NOTES TO CONDENSED 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~~specialty 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~~Specialty Petrochemicals segment and parent of GSPL


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


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


(6)	AMAK – Al Masane Al Kobra Mining Company – ~~Mining~~Held-for-sale 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, ~~2017~~2018.

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 months ended September 30, ~~2018~~2019 are not necessarily indicative of results for the year ending December 31, ~~2018.~~2019.

We currently operate in two segments, ~~specialty petrochemical products~~Specialty Petrochemicals and ~~specialty synthetic waxes.~~Specialty Waxes. All revenue originates from sources in the United States, 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~~Our investment ~~under~~is classified as held-for-sale and and the equity ~~method of accounting.~~in earnings (losses) are recorded in discontinued operations. See ~~Note 17.~~Notes 16 and 19.

~~Revenue Recognition~~Accounting Standards Adopted in 2019

~~The Company adopted~~In February 2016, the Financial Accounting Standards Board ("FASB") ~~Accounting Standards Codification ("ASC") Topic 606 ("ASC 606")~~issued ASU 2016-02, Leases (Topic 842), ~~Revenue from Contracts with Customers,~~as amended by ASU 2017-13, 2018-01, 2018-10, 2018-11, and 2019-01, in order to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under prior GAAP and disclosing key information about leasing arrangements. The new standard requires that a lessee should recognize a liability to make lease payments (the lease liability) and a right-of-use asset representing its ~~amendments~~with a date of the initial application of January 1, 2018. As a result, the Company has changed its accounting policy for revenue recognition as detailed below. ASC 606 outlines a single comprehensive model for an entityright to use ~~in accounting~~the underlying asset 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~~lease term on the ~~model, an entity is required to~~



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recognize revenue to depict the transfer of goods or services 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.

balance sheet. The Company ~~applied~~adopted ASC 842 in the first quarter of 2019 utilizing 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 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.transition approach. 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 nine months ended September 30, 2017 the Company recognized revenue according to FASB ASC Topic 605 ("ASC 605"), "Revenue Recognition", when:~~elected (1) the ~~customer accepted delivery~~package 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.practical expedients,

~~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 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 30 to 60 days subsequent to point of sale.

Processing Fees - The Company's 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



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~~of consideration received~~which permits it not to reassess under the new standard its prior conclusions about lease identification, lease classification, and initial direct costs 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.~~

~~Specialty Wax segment~~

~~The specialty wax segment~~any existing leases as of the adoption date, and (2) the hindsight practical expedient when determining lease term and assessing impairment of right-of-use assets. In addition, the Company ~~manufactures~~elected the practical expedients related to (1) certain classes of underlying asset to not separate non-lease components from lease components and ~~sells specialty polyethylene~~(2) the short-term lease recognition exemption for all leases that qualify. The adoption of ASC 842 on January 1, 2019 resulted in the recognition of right-of-use assets of approximately $17.0 million and ~~poly alpha olefin waxes and also provides custom processing services~~lease liabilities for ~~customers.~~

~~Product Sales - The Company sells individual (distinct) products~~operating leases of approximately $17.0 million on its Consolidated Balance Sheets, with no material impact to ~~its customers on a stand-alone basis (point-of-sale) without any~~retained earnings or Consolidated Statements of Operations. See Note 8 for further ~~integration. There is no significant modification of any one or more products sold to fulfill another promised product or service within any~~information regarding the impact of the adoption of ASC 842 on 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.consolidated financial statements.

2. RECENT ACCOUNTING PRONOUNCEMENTS

In ~~May 2014, the 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 ASC Topic 605,~~ ~~Revenue Recognition~~ ~~and most industry-specific guidance throughout the ASC, 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. The Company completed its assessment of the impact of the adoption of ASU 2014-09 across all revenue streams. This included reviewing current accounting policies and practices to identify potential differences that would result from applying the requirements under the new standard. We completed contract reviews and validated results of applying the new revenue guidance (Note 1).

~~In February 2016,~~January 2017, the FASB issued ASU No. ~~2016-02,~~2017-4, ~~Leases~~Intangibles - Goodwill and Other (Topic ~~842),~~350). The amendments in ASU 2017-4 simplify the measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Instead, under these amendments, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value; however, the loss should not exceed the total amount of goodwill allocated to that reporting unit. The amendments are effective for public business entities for the first interim and annual reporting periods beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The amendments also eliminate the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. An entity still has ~~subsequently issued several supplemental and/~~the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The Company has goodwill from a prior business combination and performs an annual impairment test or ~~clarifying ASUs to increase transparency~~more frequently if changes or circumstances occur that would more-likely-than-not reduce the fair value of the reporting unit below its carrying value. During the year ended December 31, 2018, the Company performed its impairment assessment and ~~comparability among organizations by recognizing all lease transactions (with terms in excess~~determined the fair value of ~~12 months)~~the aggregated reporting units exceed the carrying value, such that the Company's goodwill was not considered impaired. Based on the ~~balance sheet as~~most recent assessment, the Company cannot anticipate future goodwill impairment assessments. The Company does not anticipate a ~~lease liability~~material impact from these amendments to the Company's financial position and results of operations. The current accounting policies and processes are not anticipated to change, except for the elimination of the Step 2 analysis.

In June 2018, the FASB issued ASU No. 2018-07, 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 Company adopted this ASU on January 1, 2019 and it did not have a ~~right-of-use asset (as defined). The~~material effect on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820) - Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which is designed to improve the effectiveness of disclosures by removing, modifying and adding disclosures related to fair value measurements. ASU No. 2018-13 is effective for fiscal years beginning after December 15, ~~2018,~~2019, including interim periods within those fiscal years, ~~with earlier application permitted. Upon~~and the ASU allows for early adoption in any interim period after issuance of the ~~lessee will apply~~update. The adoption of this ASU is not expected to have a significant impact on 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 has established a project team to analyze ASU No. 2016-02 and is reviewing current accounting policies and procedures to identify potential differences and changes which would result from applying the required new standard to it's lease contracts, and is developing and implementing appropriate changes to internal control processes and controls to support the accounting and disclosure requirements. The Company has identified the population of lease agreements, comprised primarily of railcar lease arrangements, as well as office space and equipment, and is assessing the impact of other arrangements for potential embedded leases.Company’s consolidated financial statements.

In ~~February 2018,~~June 2016, the FASB issued ASU No. ~~2018-02,~~2016-13, ~~Income Statement — Reporting Comprehensive Income~~Financial Instruments - Credit Losses (Topic ~~220): Reclassification~~326), to require the measurement of ~~Certain Tax Effects from Accumulated Other Comprehensive Income~~.expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable forecasts and applies to all financial assets, including trade receivables. The main objective of this ASU ~~2018-02 was issued~~is to ~~address~~provide financial statement users with more decision-useful information about the ~~income tax accounting treatment~~expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. ASU No. 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, and the ASU allows for early adoption as of the ~~stranded tax effects within other comprehensive income due to~~beginning of an interim or annual reporting period beginning after December 15, 2018. The Company is currently assessing 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")~~impact this ASU will have on ~~December 22, 2017, which changed the Company's income~~its consolidated financial statements.



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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 total or in part using a full retrospective or modified retrospective method. The amendments of the ASU are effective for periods beginning after December 15, 2018. Early adoption is permitted. The Company believes there will be no material impact to the consolidated financial statements as a result of this update.

~~In June 2018, the FASB issued ASU No. 2018-07,~~ ~~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 are effective for public companies for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. The Company is assessing the effect of ASU 2018-02 on its consolidated financial statements.

3. TRADE RECEIVABLES

Trade receivables, net, consisted of the following:


	September 30, 2018			December 31, 2017			September 30, 2019			December 31, 2018
	(thousands of dollars)						(thousands of dollars)
Trade receivables	$	30,239		$	26,079		$	25,930		$	27,564
Less allowance for doubtful accounts	(452		)	(300		)	(433		)	(452		)
Trade receivables, net	$	29,787		$	25,779		$	25,497		$	27,112

Trade receivables ~~serves~~serve 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:


	September 30, 2018		December 31, 2017		September 30, 2019		December 31, 2018
	(thousands of dollars)				(thousands of dollars)
Prepaid license	$	2,217	$	1,919	$	1,411	$	2,419
Prepaid catalyst	620		779
Prepaid insurance	26		—
Spare parts	1,557		954		1,816		1,597
Other prepaid expenses and assets	1,046		772		499		648
Total	$	5,466	$	4,424
Total prepaid expenses and other assets					$	3,726	$	4,664

5. INVENTORIES

Inventories included the following:


	September 30, 2018		December 31, 2017		September 30, 2019		December 31, 2018
	(thousands of dollars)				(thousands of dollars)
Raw material	$	3,135	$	3,703	$	3,278	$	4,742
Work in process	164		27		157		173
Finished products	14,529		14,720		9,850		11,624
Total inventory	$	17,828	$	18,450	$	13,285	$	16,539

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

Inventory included ~~petrochemical~~Specialty Petrochemicals products in transit valued at approximately ~~$4.5~~$3.1 million and ~~$3.7~~$4.1 million at September 30, ~~2018,~~2019, and December 31, ~~2017,~~2018, respectively.

6. PLANT, PIPELINE AND EQUIPMENT

Plant, pipeline and equipment consisted of the following:



	September 30, 2019			December 31, 2018
	(thousands of dollars)
Platinum catalyst metal	$	1,580		$	1,612
Catalyst	4,387			3,131
Land	5,428			5,428
Plant, pipeline and equipment	259,435			253,905
Construction in progress	4,442			4,343
Total plant, pipeline and equipment	$	275,272		$	268,419
Less accumulated depreciation	(84,927		)	(73,762		)
Net plant, pipeline and equipment	$	190,345		$	194,657



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~~6. PLANT, PIPELINE AND EQUIPMENT~~

~~Plant, pipeline and equipment consisted of the following:~~

September 30, 2018
December 31, 2017
(thousands of dollars)
Platinum catalyst metal $ 1,612
$ 1,612
Land 5,428
5,428
Plant, pipeline and equipment 254,560
186,946
Construction in progress 1,927
50,996
Total plant, pipeline and equipment 263,527
244,982
Less accumulated depreciation (71,216 ) (63,240 )
Net plant, pipeline and equipment $ 192,311
$ 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 $0 and $218,000 for the three and $731,000 and $878,000 for the nine months ended September 30, 2018 and 2017, respectively.~~

Labor capitalized for construction was approximately ~~$0.1 million~~nil and ~~$0.8~~$0.1 million for the three months and ~~$2.2~~$0.1 million and ~~$2.4~~$2.2 million for the nine months ended September 30, ~~2018,~~2019 and ~~2017,~~2018, respectively.

Construction in progress during the first nine months of 2019 included Advanced Reformer unit improvements and pipeline maintenance at SHR and equipment modifications at TC. Construction in progress during the first nine months of 2018 included equipment purchased for various equipment updates at the TC ~~facility; new reformer unit, tankage upgrades, and an addition to~~facility, the rail spur at SHR. Construction in progress during the first nine months of 2017 included equipment purchased for the hydrogenation/distillation unit and updates to B Plan equipment at the TC facility; new reformerAdvanced 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 ~~$24,000~~$0.2 million and $0nil for the three months and ~~$24,000~~$0.7 million and ~~$25,000~~nil for the nine months ended September 30, ~~2018~~2019 and ~~2017,~~2018, respectively.

7. GOODWILL AND INTANGIBLE ASSETS, NET

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

Goodwill was $21.8 million and $21.8 million as of September 30, 2019 and December 31, 2018, respectively.

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


	September 30, 2018							September 30, 2019
	Gross		Accumulated Amortization			Net		Gross		Accumulated Amortization			Net
Intangible assets subject to amortization (Definite-lived)	(thousands of dollars)							(thousands of dollars)
Customer relationships	$	16,852	$	(4,494	)	$	12,358	$	16,852	$	(5,617	)	$	11,235
Non-compete agreements	94		(75		)	19		94		(94		)	—
Licenses and permits	1,471		(469		)	1,002		1,471		(575		)	896
Developed technology	6,131		(2,453		)	3,678		6,131		(3,066		)	3,065
	24,548		(7,491		)	17,057		24,548		(9,352		)	15,196
Intangible assets not subject to amortization (Indefinite-lived)
Emissions Allowance	197		—			197
Emissions allowance								197		—			197
Trade name	2,158		—			2,158		2,158		—			2,158
Total	$	26,903	$	(7,491	)	$	19,412	$	26,903	$	(9,352	)	$	17,551



	December 31, 2018
	Gross		Accumulated Amortization			Net
Intangible assets subject to amortization (Definite-lived)	(thousands of dollars)
Customer relationships	$	16,852	$	(4,775	)	$	12,077
Non-compete agreements	94		(80		)	14
Licenses and permits	1,471		(495		)	976
Developed technology	6,131		(2,606		)	3,525
	24,548		(7,956		)	16,592
Intangible assets not subject to amortization (Indefinite-lived)
Emissions allowance	197		—			197
Trade name	2,158		—			2,158
Total	$	26,903	$	(7,956	)	$	18,947

Amortization expense for intangible assets included in cost of sales for the three months ended September 30, 2019 and 2018, was approximately $0.5 million and $0.5 million, respectively, and for the nine months ended September 30, 2019 and 2018, was approximately $1.4 million and $1.4 million, respectively.



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

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

Based on identified intangible assets that are subject to amortization as of September 30, ~~2018,~~2019, we expect future amortization expenses for each period to be as follows:


	Total		Remainder of 2018		2019		2020		2021		2022		2023		Thereafter		Total		Remainder of 2019		2020		2021		2022		2023		2024		Thereafter
	(thousands of dollars)																(thousands of dollars)
Customer relationships	$	12,358	$	281	$	1,123	$	1,123	1,123		1,123		1,123		$	6,462	$	11,235	$	281	$	1,123	$	1,123	1,123		1,123		1,123		$	5,339
Non-compete agreements	19		5		14		—		—		—		—		—
Licenses and permits	1,002		26		106		106		101		86		86		491		896		26		106		101		86		86		86		405
Developed technology	3,678		153		613		613		613		613		613		460		3,065		153		613		613		613		613		460		—
Total future amortization expense	$	17,057	$	465	$	1,856	$	1,842	$	1,837	$	1,822	$	1,822	$	7,413	$	15,196	$	460	$	1,842	$	1,837	$	1,822	$	1,822	$	1,669	$	5,744

8. ~~NET INCOME PER COMMON SHARE ATTRIBUTABLE TO TRECORA RESOURCES~~LEASES

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

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

The ~~following table (in thousands, except per share amounts) sets forth the computation~~components of ~~basic and diluted net income per share attributable to Trecora Resources for the three months ended September 30, 2018 and 2017, respectively.~~

lease expense were as follows:

Three Months Ended
September 30, 2018 Three Months Ended
September 30, 2017
Income (Loss)
Shares

Per Share
Amount

Income (Loss)
Shares

Per Share
Amount

Basic Net Income per Share:
Net Income (Loss) Attributable to Trecora Resources $ (1,609 ) 24,483
$ (0.07 ) $ 1,718
24,304
$ 0.07
Unvested restricted stock units 398
379

Dilutive stock options outstanding 294
474

Diluted Net Income per Share:
Net Income (Loss) Attributable to Trecora Resources $ (1,609 ) 25,175
$ (0.06 ) $ 1,718
25,157
$ 0.07



($ in thousands)	Classification in the Condensed Consolidated Statements of Income	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Operating lease cost (a)	Cost of sales, exclusive of depreciation and amortization	$	1,114	$	3,369
Operating lease cost (a)	Selling, general and administrative	34		103
Total operating lease cost		$	1,148	$	3,472

Finance lease cost:
Amortization of right-of-use assets	Depreciation	$	—	—
Interest on lease liabilities	Interest Expense	—		—
Total finance lease cost		$	—	$	—

Total lease cost		$	1,148	$	3,472

(a) Short-term lease costs were approximately $64 thousand during the period.



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The Company had no variable lease expense, as defined by ASC 842, during the period.



($ in thousands)	Classification on the Condensed Consolidated Balance Sheets	September 30, 2019
Assets:
Operating	Operating lease assets	$	14,364
Finance	Property, plant, and equipment	—
Total leased assets		$	14,364

Liabilities:
Current
Operating	Current portion of operating lease liabilities	$	3,247
Finance	Short-term debt and current portion of long-term debt	—
Noncurrent
Operating	Operating lease liabilities	11,117
Finance	Long-term debt	—
Total lease liabilities		$	14,364



($ in thousands)	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows used for operating leases	$	1,127	$	2,260
Operating cash flows used for finance leases	—		—
Financing cash flows used for finance leases	—		—
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	25	$	138
Finance leases	—		—



	September 30, 2019
Weighted-average remaining lease term (in years):
Operating leases	4.8
Finance leases	0.0
Weighted-average discount rate:
Operating leases	4.5	%
Finance leases	—	%

Nine Months Ended
September 30, 2018 Nine Months Ended
September 30, 2017
Income
Shares

Per Share
Amount

Income
Shares

Per Share
Amount

Basic Net Income per Share:
Net Income Attributable to Trecora Resources $ 2,958
24,397
$ 0.12
$ 4,037
24,267
$ 0.17
Unvested restricted stock units 383
360

Dilutive stock options outstanding 358
455

Diluted Net Income per Share:
Net Income Attributable to Trecora Resources $ 2,958
25,138
$ 0.12
$ 4,037
25,082
$ 0.16
Nearly all of the Company’s lease contracts do not provide a readily determinable implicit rate. For these contracts, the Company’s estimated incremental borrowing rate is based on information available at the inception of the lease.

At As of September 30, ~~2018 and 2017, 873,708 and 1,334,087 shares~~2019, maturities of ~~common stock, respectively,~~lease liabilities 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:~~follows:

September 30, 2018
December 31, 2017
(thousands of dollars)
Accrued state taxes $ 157
$ 272
Accrued property taxes 1,350
—
Accrued payroll 1,099
1,407
Accrued interest 31
30
Accrued officer compensation 600
500
Other 2,781
1,752
Total $ 6,018
$ 3,961

~~10. LIABILITIES AND LONG-TERM DEBT~~

~~Senior Secured Credit Facilities.~~ On July 31, 2018, TOCCO, as borrower, and SHR, GSPL and TC, as guarantors (collectively, the “Guarantors”), entered into a Fourth Amendment (“Fourth Amendment”) to our Amended and Restated Credit Agreement (the “ARC”). Pursuant to the Fourth Amendment, the revolving commitment under the ARC (the “Revolving Facility”) was increased from $60.0 million to $75.0 million. Total borrowings under the term loan facility of the ARC (the “Term Loan Facility” and, together with the Revolving Facility, the “Credit Facilities”) were increased to $87.5 million under a single combined term loan, which comprised new term loan borrowings together with approximately $60.4 million of previously outstanding term loans under the Term Loan Facility. The $60.4 million of previously outstanding term loans included the remaining outstanding balances on (i) a $70.0 million single advance term loan incurred to partially finance the acquisition of TC (which we refer to as the “Acquisition loan”) and (ii) a $25.0 multiple advance term loan facility for which borrowing availability ended on December 31, 2015. 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 Fourth Amendment also increased the size of the accordion feature allowing us to request an increase to 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 September 30, 2018, we had $20.0 million in borrowings outstanding under the Revolving Facility and $86.4 million in borrowings outstanding under the Term Loan Facility. In addition, we had $55 million of available borrowings under our Revolving Facility at September 30, 2018.



($ in thousands)	Operating Leases		Finance Leases
2020	$	3,811	$	—
2021	3,559		—
2022	3,391		—
2023	2,571		—
2024	1,243		—
Thereafter	1,329		—
Total lease payments	$	15,904	$	—
Less: Interest	1,540		—
Total lease obligations	$	14,364	$	—



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	11

Disclosures related to periods prior to adoption of ASU 2016-02

The ~~Fourth Amendment also extended~~Company adopted ASU 2016-02 using a modified retrospective transition approach on January 1, 2019 as noted in Note 1. As required, the ~~maturity~~following disclosure is provided for periods prior to adoption. Minimum lease commitments as of December 31, 2018 that have initial or remaining lease terms in excess of one year are as follows:



($ in thousands)	Operating Leases
2019	$	3,670
2020	3,583
2021	3,418
2022	3,107
2023	2,288
Beyond 2023	2,065

9. ACCRUED LIABILITIES

Accrued liabilities consisted of the following:



	September 30, 2019		December 31, 2018
	(thousands of dollars)
Accrued state taxes	249		210
Accrued property taxes	2,572		—
Accrued payroll	812		936
Accrued interest	32		31
Accrued officer compensation	1,251		—
Accrued restructuring & severance	37		1,221
Accrued foreign taxes	—		802
Other	2,317		2,239
Total	$	7,270	$	5,439

10. LIABILITIES AND LONG-TERM DEBT

Senior Secured Credit Facilities

As of September 30, 2019, we had $8.0 million in borrowings outstanding under the revolving credit facility (the "Revolving Facility") of our amended and restated credit agreement (as amended to the date ~~for~~hereof, the "ARC Agreement") and approximately $82.0 million in borrowings outstanding under the term loan facility of the ARC ~~from October 1,~~Agreement (the "Term Loan Facility" and, together with the Revolving Facility, the "Credit Facilities"). In addition, we had approximately $46 million of availability under our Revolving Facility at September 30, 2019. TOCCO’s ability to ~~July 31, 2023 and decreased the interest rate margin applicable to~~make additional borrowings under ~~each~~the Revolving Facility at September 30, 2019 was limited by, and in the future may be limited by our obligation to maintain compliance with the covenants contained in the ARC Agreement (including maintenance of ~~the Credit Facilities. Following the effective date of the Fourth Amendment, borrowings under each of the Credit Facilities bear interest on the outstanding principal amount at~~ a ~~rate equal to London Interbank Offered Rate ("LIBOR") plus an applicable margin of 1.25% to 2.25% (decreased from 2.00% to 3.00%) or, at our option, the Base Rate (as~~maximum Consolidated Leverage Ratio and minimum Consolidated Fixed Charge Coverage Ratio (each as defined in the ~~ARC) plus an applicable margin of 0.25% to 1.25% (decreased from 1.00% to 2.00%~~ARC Agreement)), 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% (decreased from 0.25% to 0.375%) is also payable quarterly on the unused portion of the Revolving Facility. As of September 30, 2018, the effective interest rate for the Credit Facilities was 4.24%. ~~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~~On March 29, 2019,TOCCO, as borrower, and SHR, GSPL and TC, as guarantors, entered into a Sixth Amendment ~~also modified~~(“Sixth Amendment”) to the ARC Agreement. Pursuant to the Sixth Amendment, certain ~~covenants and other provisions~~amendments were made to the terms of the ARC ~~to provide us with additional flexibility,~~Agreement, including ~~(i)~~ increasing the maximum Consolidated Leverage Ratio that must be maintained by TOCCO to 4.75 to 1.00 for the four fiscal quarters ended March 31, 2019, 4.50 to 1.00 for the four fiscal quarters ended June 30, 2019 and 4.00 to 1.00 for the four fiscal quarters ended September 30, 2019. For the four fiscal quarters ended December 31, 2019 and each fiscal quarter thereafter, TOCCO must maintain a Consolidated Leverage Ratio of 3.50 to 1.00 (subject to temporary increase following certain acquisitions).

The maturity date for the ARC Agreement is July 31, 2023. As of September 30, 2019, ~~(ii) decreasing~~ the ~~minimum Consolidated Fixed Charge Coverage Ratio (as defined in~~effective interest rate for 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. Pursuant to the Fourth Amendment, we are only required to comply with the minimum Consolidated Fixed Charge Leverage Ratio covenant beginning with the quarter ended December 31, 2018. In addition to the foregoing, the Term Loan FacilityCredit Facilities was 4.59%. The ARC Agreement contains a number of ~~other~~ customary affirmative and negative ~~covenants. We~~covenants and we were in compliance with ~~all~~those covenants atas of September 30, ~~2018.~~

Following the effectiveness of the Fourth Amendment, all obligations under the ARC continue to be unconditionally guaranteed by the Guarantors and continue to be secured by a first priority lien on substantially all of the assets of TOCCO and the Guarantors under the ARC.

For a summary of additional terms of the Credit Facilities and previous amendments, see Note 13, “Long-Term Debt and Long-Term Obligations” to the consolidated financial statements set forth in our Annual Report on Form 10-K for the year ended December 31, 2017.

~~Debt Issuance Costs.~~ Debt issuance costs of approximately $0.9 million were incurred in connection with the Fourth Amendment and the remaining debt issuance costs of $0.3 million from the previous agreements were expensed and are shown as a loss on the extinguishment of debt on the consolidated statements of income for the three and nine months ended September 30, 2018. Unamortized debt issuance costs of approximately $0.9 million and $0.5 million for the periods ended September 30, 2018 and December 31, 2017, have been netted against outstanding loan balances. 2019.

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

September 30, 2018
December 31, 2017
Acquisition loan $ —
$ 47,250
Term loan 86,406
17,333
Revolving facility 20,000
35,000
Total 106,406
99,583
Debt issuance costs (875 ) (501 )
Total long-term debt $ 105,531
$ 99,082
Less current portion including loan fees 4,194
8,061
Total long-term debt, less current portion including loan fees $ 101,337
$ 91,021

~~11. FAIR VALUE MEASUREMENTS~~

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.



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	12

~~Interest Rate Swap~~For a summary of additional terms of the Credit Facilities, see Note 12, “Long-Term Debt and Long-Term Obligations” to the consolidated financial statements set forth in our Annual Report on Form 10-K for the year ended December 31, 2018.

Debt Issuance Costs

~~In March 2008 we entered into an interest rate swap agreement~~Debt issuance costs of approximately $0.9 million were incurred in connection 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 LIBOR rate. We had designated the interest rate swap as a cash flow hedge under ASC Topic 815,~~ ~~Derivatives and Hedging.~~ ~~However, due~~fourth amendment to the ARC ~~we felt that~~Agreement. Unamortized debt issuance costs of approximately $0.7 million and $0.8 million for the ~~hedge was no longer entirely effective. Due to the time required to make the determination~~periods ended September 30, 2019 and ~~the immateriality of the hedge, we began treating it as ineffective as of October 1, 2014.~~December 31, 2018, have been netted against outstanding loan balances.

~~We assessed the fair value of the interest rate swap using a present value model that includes quoted LIBOR rates~~Long-term debt and ~~the nonperformance risk of the Company and Bank of America based on the Credit Default Swap Market (Level 2 of fair value hierarchy).~~long-term obligations are summarized as follows:



	September 30, 2019		December 31, 2018
	(thousands of dollars)
Revolving Facility	8,000		18,000
Term Loan Facility	82,031		85,312
Loan fees	(694	)	(830	)
Total long-term debt	89,337		102,482

Less current portion including loan fees	4,194		4,194

Total long-term debt, less current portion including loan fees	85,143		98,288

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 atSubsequent to September 30, ~~2018, and December 31, 2017. See discussion~~2019, we made an optional principal payment of ~~our derivative instruments in Note 12.~~$5.0 million against the Revolving Facility, reducing the outstanding amount from $8.0 million to $3.0 million.

~~12. DERIVATIVE INSTRUMENTS~~

~~Interest Rate Swap~~

On March 21, 2008, SHR entered into a pay-fixed, receive-variable interest rate swap agreement with Bank of America related to the $10.0 million (later increased to $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 terminated on December 15, 2017. We received credit for payments of variable rate interest made on the term loan at the loan's variable rates, which are based upon the LIBOR, and 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~~. Beginning on August 15, 2008, the derivative instrument was reported at fair value with any changes in fair value reported within other comprehensive income (loss) in the Company's Statement of Stockholders' Equity. We entered into the interest rate swap to minimize the effect of changes in the LIBOR rate.

Due to the new debt agreements associated with the acquisition of TC, we believed 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 the interest rate swap as ineffective as of October 1, 2014.

~~13.~~11. STOCK-BASED COMPENSATION

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

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

Stock-based compensation expense of approximately ~~$629,000~~$0.3 million and ~~$716,000~~$0.6 million was recognized during the three months and ~~$1,002,000~~$0.9 million and ~~$2,005,000 during the nine months ended September 30, 2018, and 2017, respectively, was recognized.~~

~~Restricted Stock Awards~~

On August 9, 2018, we awarded approximately 40,000 shares of restricted stock to employees at a grant date price of $12.85. The stock will vest six months from the grant date. Compensation expense recognized during the three months ended September 30, 2018, was $171,000.

On January 17, 2018, we awarded 361 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 September 30, 2018, was $0 and$1.0 million for the nine months ended September 30, 2019 and 2018, ~~was $5,000.~~respectively.

~~Restricted~~ Stock ~~Unit~~Options and Warrant Awards

~~On September 1, 2018, we awarded approximately 9,000 shares~~Stock options and warrants granted under the provisions of ~~restricted~~the Stock Option Plans permit the purchase of our common stock at exercise prices equal to ~~a director at a grant date~~the closing price of ~~$14.00.~~Company common stock on the date the options were granted. The ~~restricted~~options have terms of 10 years and generally vest ratably over terms of 4 to 5 years. There were no stock ~~award vests over 2 years in 50% increments. Director’s compensation recognized~~options or warrant awards issued during the three ~~and~~or nine months ended September 30, ~~2018, was approximately $4,000.~~2019 or 2018.

On February 20, 2018, we awarded approximately 102,000 shares of restricted stock units to officers at a grant date price of $12.15. One-half of the restricted stock units vest ratably over three years. The other half vests at the end of three years



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	13

~~based upon~~A summary of the ~~performance metrics~~status of ~~return on invested capital~~the Company’s stock option and ~~earnings~~warrant awards is as follows:



	Stock Options and Warrants		Weighted Average Exercise Price Per Share	Weighted Average Remaining Contractual Life	Intrinsic Value (in thousands)
Outstanding at January 1, 2019	745,830		10.33
Granted	—		—
Exercised	(85,000	)	7.71
Forfeited	(173,830	)	10.10
Outstanding at September 30, 2019	487,000		10.87	3.8	$	—
Expected to vest	—				$	—
Exercisable at September 30, 2019	487,000		10.87	3.8	$	—

The aggregate intrinsic value of options was calculated as the difference between the exercise price of the underlying awards and the quoted price of our common stock. At September 30, 2019, options to purchase approximately 0.1 million shares of common stock were in-the-money.

Since no options were granted, the weighted average grant-date fair value per share ~~growth. The number~~ of ~~shares actually~~options granted ~~will be adjusted based upon relative performance to our peers. Compensation expense recognized~~ during the three months ended September 30, 2019 and 2018, respectively, was ~~approximately $108,000 and for~~$0. During the nine months ended September 30, 2019 and 2018, the aggregate intrinsic value of options and warrants exercised was ~~$252,000.~~approximately $0.1 million and $0.6 million, respectively, determined as of the date of option exercise.

~~Officer compensation~~The Company received no cash from the exercise of ~~approximately $95,000 and $121,000 during the three months and $301,000 and $161,000~~options during the nine months ended September 30, ~~2018,~~2019 and ~~2017, respectively,~~2018. Of the 85,000 stock options exercised, the Company only issued approximately 11,000 shares due to cashless transactions. The tax benefit realized from the exercise was ~~recognized related to~~insignificant.

The Company has no non-vested options as of September 30, 2019.

Restricted Stock Unit Awards

Generally, restricted stock unit awards are granted annually to officers ~~vesting through 2020.~~

~~Director compensation~~and directors of ~~approximately $75,000~~the Company under the provisions of the Plan. Restricted stock units are also granted ad hoc to attract or retain key personnel, and ~~$75,000 during~~ the ~~three months~~terms and ~~$240,000 and $231,000 during the nine months ended September 30, 2018, and 2017, respectively, was recognized related to~~conditions under which these restricted stock ~~unit awards granted to directors vesting through 2020.~~

~~Officer compensation~~units vest vary by award. The fair market value of ~~approximately $79,000 and $106,000 was recognized during the three months and $255,000 and $316,000 during the nine months ended September 30, 2018, and 2017, respectively, related to~~ restricted stock ~~unit~~units granted is equal to the Company’s closing stock price on the date of grant. Restricted stock units granted generally vest ratably over periods ranging from 2.5 to 5 years. Certain awards ~~granted to officers. One-half of~~also include vesting provisions based on performance metrics. Upon vesting, the restricted stock units ~~vest ratably over three years. The other half vests at the end~~are settled by issuing one share of ~~the three years based upon the performance metrics of return on invested capital and earnings~~Company common stock per ~~share growth. The number of shares actually granted will be adjusted based upon relative performance to our peers.~~unit.

Employee compensation of approximately $98,000 and $108,000 during the three months and $300,000 and $323,000 during the nine months ended September 30, 2018, and 2017, respectively, was recognized related to restricted stock units with a four years vesting period which was awarded to officers. This restricted stock vests through 2019.

~~Restricted stock units activity in the first nine months of 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 151,908
$ 12.45
Forfeited (48,631 ) $ 10.88
Vested (92,874 ) $ 11.85
Outstanding at September 30, 2018 398,105
$ 11.72

~~Stock Option and Warrant Awards~~

A summary of the status of ~~our~~the Company's restricted stock ~~option awards and warrants~~units activity is ~~presented below:~~

as follows:

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 (249,879 ) 5.61

Cancelled (200,000 ) 3.40

Forfeited —
—

Outstanding at September 30, 2018 873,708
$ 9.47
4.5
Exercisable at September 30, 2018 873,708
$ 9.47
4.5

~~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.~~



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	14

Directors' compensation of approximately $0 and $30,000 during the three months and $0 and $90,000 during the nine months ended September 30, 2018, and 2017, respectively, was recognized related to options to purchase shares vesting through 2017.

Employee compensation of approximately $0 and $277,000 during the three months and $154,000 and $884,000 during the nine months ended September 30, 2018, and 2017, respectively, was recognized related to options with a 4- year vesting period which were awarded to officers and key employees. These options vest through 2018.

Post-retirement compensation of approximately $0 and $0 during the three months and $679,000 and $0 during the nine months ended September 30, 2018, and 2017, was reversed related to options awarded to Mr. Hatem El Khalidi in July 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 shareholders which would benefit him personally and were not in the best interests of the Company and its shareholders. The Company was successful in litigating its right to withdraw the options and benefits and as such, these options and benefits 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, 2017 for additional information.~~



	Shares of Restricted Stock Units		Weighted Average Grant Date Price per Share
Outstanding at January 1, 2019	405,675		11.27
Granted	190,615		9.22
Forfeited	(123,434	)	10.82
Vested	(136,568	)	11.86
Outstanding at September 30, 2019	336,288		9.83
Expected to vest	336,288

~~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, 2018
Petrochemical
Specialty Wax
Corporate
Eliminations
Consolidated
(in thousands)
Product sales $ 61,675
$ 6,938
$ —
$ —
$ 68,613
Processing fees 2,056
2,799
—
(52 ) 4,803
Total revenues 63,731
9,737
—
(52 ) 73,416
Operating profit (loss) before depreciation and amortization 6,167
415
(2,252 ) —
4,330
Operating profit (loss) 3,516
(936 ) (2,270 ) —
310
Profit (loss) before taxes 2,561
(1,239 ) (3,404 ) —
(2,082 )
Depreciation and amortization 2,651
1,351
16
—
4,018
Capital expenditures 2,562
1,094
—
—
3,656

Three Months Ended September 30, 2017
Petrochemical
Specialty Wax
Corporate
Eliminations
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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	15

Nine Months Ended September 30, 2018
Petrochemical
Specialty Wax
Corporate
Eliminations
Consolidated
(in thousands)
Product sales $ 178,094
$ 20,755
$ —
$ 32
$ 198,881
Processing fees 5,769
8,863
—
(250 ) 14,382
Total revenues 183,863
29,618
—
(218 ) 213,263
Operating profit (loss) before depreciation and amortization 20,655
1,969
(5,234 ) —
17,390
Operating profit (loss) 14,635
(2,051 ) (5,268 ) —
7,316
Profit (loss) before taxes 12,474
(2,926 ) (5,877 ) —
3,671
Depreciation and amortization 6,020
4,020
32
—
10,072
Capital expenditures 16,374
2,716
—
—
19,090

Nine Months Ended September 30, 2017
Petrochemical
Specialty Wax
Corporate
Eliminations
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

September 30, 2018
Petrochemical
Specialty Wax
Corporate
Eliminations
Consolidated
(in thousands)
Trade receivables, product sales $ 22,600
$ 3,896
$ —
$ —
$ 26,496
Trade receivables, processing fees 1,165
2,126
—
—
3,291
Goodwill and intangible assets, net —
41,210
—
—
41,210
Total assets 282,094
115,146
91,647
(154,138 ) 334,749

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.~~12. 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. We received notification from the IRS in March 2018 that audit was complete and acceptance of the refund claims resulting from the Research and Development ("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



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research and development activities. We received notification from the IRS in March 2018 that the audit was complete. We also received notification that Texas will audit our R&D credit calculations for 2014 and 2015. We ~~are in~~were notified by Texas that the audit has been temporarily suspended as the Comptroller's office reviews its audit process ~~of submitting additional documentation to Texas.~~regarding R&D credits. We do not expect any changes related to the Texas audit. Tax returns for various jurisdictions remain open for examination for the years 2014 through ~~2017.~~2018. As of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively, we recognized no adjustment for uncertain tax 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, stock based compensation and a research and development credit for the three and nine months ended September 30, ~~2018. The effective tax rate varies from the federal statutory rate of 35% primarily as a result of state tax expense~~2019 and ~~stock option based compensation offset by the manufacturing deduction for the three and nine months ended September 30, 2017.~~2018. We continue to maintain a valuation allowance against certain deferred tax assets, specifically for mining claims for PEVM, 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 manufacturing deduction, acceleration of tax revenue recognition, capitalization of research and development expenditures, additional limitations on executive compensation and limitations on the deductibility of interest.

13. NET INCOME PER COMMON SHARE

~~We have elected to recognize~~The following tables set forth the computation of basic and diluted net income ~~tax effects of the TCJA in our financial statements in accordance with Staff Accounting Bulletin 118 (SAB 118), which provides guidance for the 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 for 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 one year measurement period to finalize the measurement of the impact of the TCJA.

~~We have recognized the provisional tax impacts related to the acceleration of depreciation and included these amounts in our consolidated financial statements~~(loss) per share for the three and nine months ended September 30, ~~2018. The ultimate impact may differ from these provisional amounts, possibly materially, due to, among other things, additional analysis, changes in interpretations~~2019 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 as2018, respectively.

Net Income per Common Share - Continuing Operations



	Three Months Ended September 30, 2019					Three Months Ended September 30, 2018
	Income (Loss)		Shares	Per Share Amount		Income (Loss)			Shares	Per Share Amount
	(in thousands, except per share amounts)
Basic:
Net income (loss) from continuing operations	$	1,583	24,717	$	0.06	$	(716	)	24,483	$	(0.03	)
Unvested restricted stock units			336						398
Dilutive stock options outstanding			—						294
Diluted:
Net income (loss) from continuing operations	$	1,583	25,053	$	0.06	$	(716	)	25,175	$	(0.03	)



	Nine Months Ended September 30, 2019					Nine Months Ended September 30, 2018
	Income		Shares	Per Share Amount		Income		Shares	Per Share Amount
	(in thousands, except per share amounts)
Basic:
Net income (loss) from continuing operations	$	5,856	24,689	$	0.24	$	3,489	24,397	$	0.14
Unvested restricted stock units			388					383
Dilutive stock options outstanding			—					358
Diluted:
Net income (loss) from continuing operations	$	5,856	25,077	$	0.23	$	3,489	25,138	$	0.14



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Net Income Common Share - Discontinued Operations



	Three Months Ended September 30, 2019							Three Months Ended September 30, 2018
	Income (Loss)			Shares	Per Share Amount			Income (Loss)			Shares	Per Share Amount
	(in thousands, except per share amounts)
Basic:
Net income (loss) from discontinued operations, net of tax	$	(1,002	)	24,717	$	(0.04	)	$	(893	)	24,483	$	(0.04	)
Unvested restricted stock units				336							398
Dilutive stock options outstanding				—							294
Diluted:
Net income (loss) from discontinued operations, net of tax	$	(1,002	)	25,053	$	(0.04	)	$	(893	)	25,175	$	(0.04	)



	Nine Months Ended September 30, 2019							Nine Months Ended September 30, 2018
	Income (Loss)			Shares	Per Share Amount			Income (Loss)			Shares	Per Share Amount
	(in thousands, except per share amounts)
Basic:
Net income (loss) from discontinued operations, net of tax	$	(1,120	)	24,689	$	(0.05	)	$	(531	)	24,397	$	(0.02	)
Unvested restricted stock units				388							383
Dilutive stock options outstanding				—							358
Diluted:
Net income (loss) from discontinued operations, net of tax	$	(1,120	)	25,077	$	(0.04	)	$	(531	)	25,138	$	(0.02	)

Net Income per Common Share



	Three Months Ended September 30, 2019					Three Months Ended September 30, 2018
	Income (Loss)		Shares	Per Share Amount		Income (Loss)			Shares	Per Share Amount
	(in thousands, except per share amounts)
Basic:
Net income (loss)	$	581	24,717	$	0.02	$	(1,609	)	24,483	$	(0.07	)
Unvested restricted stock units			336						398
Dilutive stock options outstanding			—						294
Diluted:
Net income (loss)	$	581	25,053	$	0.02	$	(1,609	)	25,175	$	(0.07	)



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	Nine Months Ended September 30, 2019					Nine Months Ended September 30, 2018
	Income		Shares	Per Share Amount		Income		Shares	Per Share Amount
	(in thousands, except per share amounts)
Basic:
Net income (loss)	$	4,736	24,689	$	0.19	$	2,958	24,397	$	0.12
Unvested restricted stock units			388					383
Dilutive stock options outstanding			—					358
Diluted:
Net income (loss)	$	4,736	25,077	$	0.19	$	2,958	25,138	$	0.12

At September 30, 2019 and 2018, 487,000 and ~~December 31, 2017. The federal income tax return was filed in October 2018, which resulted in net operating tax loss~~873,708 shares of common stock, respectively, were issuable upon the exercise of options and ~~business credit which were carried back to 2015 and 2016.~~warrants.

~~16. POST-RETIREMENT OBLIGATIONS~~14. SEGMENT INFORMATION

~~In January 2008, an amended retirement agreement was entered into with Mr. Hatem El Khalidi; however, on May 9, 2010,~~We operate through business segments according to the ~~Board~~nature and economic characteristics of ~~Directors terminated~~our products as well as the ~~agreement due to actions of Mr. El Khalidi. See Notes 13 and 19. All amounts~~manner in which had not met termination dates remained recorded until a resolution was 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 December 31, 2017, approximately $1.0 million remained outstanding and was included in post-retirement benefits.the information is used internally by our key decision maker, who is our Chief Executive Officer. Segment data may include rounding differences.

~~In July 2015~~Our Specialty Petrochemicals segment includes SHR and ~~June 2018, we entered into retirement agreements with~~GSPL. Our Specialty Waxes segment is TC. We also separately identify our ~~former CEO~~corporate overhead which includes administrative activities such as legal, accounting, consulting, investor relations, officer and ~~current Executive Chairman,~~director compensation, corporate insurance, and our former VP of Accounting & Compliance. As of September 30, 2018 and December 31, 2017, approximately $0.4 million and $0.3 million, respectively, remained outstanding and was included in post-retirement obligations.other administrative costs.

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

~~17. INVESTMENT IN AMAK~~



	Three Months Ended September 30, 2019
	Specialty Petrochemicals		Specialty Waxes			Corporate			Eliminations		Consolidated
	(in thousands)
Product sales	$	53,277	$	5,834		$	—		$	—	$	59,111
Processing fees	1,208		2,396			—			—		3,604
Total revenues	54,485		8,230			—			—		62,715
Operating profit (loss) before depreciation and amortization	10,414		(260		)	(2,670		)	—		7,484
Operating profit (loss)	7,449		(1,808		)	(2,683		)	—		2,958
Profit (loss) from continuing operations before taxes	6,583		(2,071		)	(2,691		)	—		1,821
Depreciation and amortization	1,900		1,548			14			—		3,462
Capital expenditures	2,163		361			—			—		2,524



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	Three Months Ended September 30, 2018
	Specialty Petrochemicals		Specialty Waxes			Corporate			Eliminations		Consolidated
	(in thousands)
Product sales	$	61,675	$	6,938		$	—		—		$	68,613
Processing fees	2,056		2,799			—			(52	)	4,803
Total revenues	63,731		9,737			—			(52	)	73,416
Operating profit (loss) before depreciation and amortization	6,167		415			(2,252		)	—		4,330
Operating profit (loss)	3,516		(936		)	(2,270		)	—		310
Profit (loss) from continuing operations before taxes	2,561		(1,239		)	(2,274		)	—		(952		)
Depreciation and amortization	2,651		1,351			16			—		4,018
Capital expenditures	2,562		1,094			—			—		3,656



	Nine Months Ended September 30, 2019
	Specialty Petrochemicals		Specialty Waxes			Corporate			Eliminations		Consolidated
	(in thousands)
Product sales	$	167,351	$	18,582		$	—		$	—	$	185,933
Processing fees	4,117		7,191			—			—		11,308
Total revenues	171,468		25,773			—			—		197,241
Operating profit (loss) before depreciation and amortization	31,849		(343		)	(7,158		)	—		24,348
Operating profit (loss)	22,885		(4,638		)	(7,203		)	—		11,044
Profit (loss) from continuing operations before taxes	20,093		(5,623		)	(7,202		)	—		7,268
Depreciation and amortization	7,899		4,295			46			—		12,240
Capital expenditures	5,002		1,296			—			—		6,298



	Nine Months Ended September 30, 2018
	Specialty Petrochemicals		Specialty Waxes			Corporate			Eliminations		Consolidated
	(in thousands)
Product sales	$	178,094	$	20,755		$	—		32		$	198,881
Processing fees	5,769		8,863			—			(250	)	14,382
Total revenues	183,863		29,618			—			(218	)	213,263
Operating profit (loss) before depreciation and amortization	20,655		1,969			(5,234		)	—		17,390
Operating profit (loss)	14,635		(2,051		)	(5,268		)	—		7,316
Profit (loss) from continuing operations before taxes	12,474		(2,926		)	(5,205		)	—		4,343
Depreciation and amortization	6,020		4,020			32			—		10,072
Capital expenditures	16,374		2,716			—			—		19,090



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	September 30, 2019
	Specialty Petrochemicals		Specialty Waxes		Corporate		Eliminations			Consolidated
	(in thousands)
Trade receivables, product sales	$	19,129	$	4,081	$	—	$	—		$	23,210
Trade receivables, processing fees	517		1,770		—		—			2,287
Goodwill and intangible assets, net	—		39,349		—		—			39,349
Total assets	293,098		113,007		90,174		(165,722		)	330,557



	December 31, 2018
	Specialty Petrochemicals		Specialty Waxes		Corporate		Eliminations			Consolidated
	(in thousands)
Trade receivables, product sales	$	21,915	$	3,173	$	—	$	—		$	25,088
Trade receivables, processing fees	633		1,391		—		—			2,024
Goodwill and intangible assets, net	—		40,745		—		—			40,745
Total assets	284,367		115,366		91,474		(161,239		)	329,968

15. POST-RETIREMENT OBLIGATIONS

We currently have post-retirement obligations with two former executives. As of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, approximately $0.3 million and $0.4 million, respectively, remained outstanding and was included in post-retirement obligations.

For additional information, see Note 22, “Post–Retirement Obligations” to the consolidated financial statements set forth in our Annual Report on Form 10–K for the year ended December 31, 2018.

16. INVESTMENT IN AMAK (Held-for-Sale)

As of September 30, 2019 and December 31, 2018, the Company had a non-controlling equity interest of 33.3% and 33.4% in AMAK of approximately ~~$44.3~~$34.1 million and ~~$45.1~~$38.7 million, respectively. This investment is accounted for under the equity method. There were no events or changes in circumstances that may have an adverse effect on the fair value of our investment in AMAK at September 30, ~~2018.~~2019.

The Company committed to a plan to sell our investment in AMAK during the third quarter of 2019. Management engaged in an active program to market the investment which resulted in an agreement with certain AMAK shareholders in September 2019, which became effective subsequent to September 30, 2019. See discussion of the Share Sale and Purchase Agreement in Note 19.

As all the required criteria for held-for-sale classification was met at September 30, 2019, the investment in AMAK is classified as held-for-sale in the Consolidated Balance Sheets and reflected as discontinued operations in the Consolidated Statements of Operations for all periods presented. The assets held-for-sale are disclosed by the Company in the Corporate segment. The Company expects to have no continuing involvement with the discontinued operations after the closing date. The gain (loss) from discontinued operations, net of tax, include our portion of the equity in earnings (losses) in AMAK as well as other administrative expenses incurred in Saudi Arabia and transaction costs.

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



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	19

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

Results of Operations


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017			2019			2018			2019			2018
	(thousands of dollars)						(thousands of dollars)						(thousands of dollars)						(thousands of dollars)
Sales	$	19,877		$	9,709		$	53,458		$	11,965		$	19,643		$	19,877		$	60,873		$	53,458
Cost of sales	20,350			11,016			49,411			23,480			19,072			20,350			55,804			49,411
Gross profit (loss)	$	(473	)	$	(1,307	)	$	4,047		$	(11,515	)	571			(473		)	5,069			4,047
General, administrative and other expenses	3,917			2,382			9,083			6,942
Selling, general, and administrative													3,557			2,736			9,102			7,151
Operating loss													(2,986		)	(3,209		)	(4,033		)	(3,104		)
Other income													43			35			396			70
Finance and interest expense													(456		)	(416		)	(1,349		)	(1,201		)
Loss before Zakat and income taxes													(3,399		)	(3,590		)	(4,986		)	(4,235		)
Zakat and income taxes													444			800			1,332			800
Net Loss	$	(4,390	)	$	(3,689	)	$	(5,036	)	$	(18,457	)	$	(3,843	)	$	(4,390	)	$	(6,318	)	$	(5,035	)
Depreciation and amortization	8,899			6,214			24,881			16,880
Net income (loss) before depreciation and amortization	$	4,509		$	2,525		$	19,845		$	(1,577	)

Financial Position


	September 30,		December 31,		September 30,		December 31,
	2018		2017		2019		2018
	(thousands of dollars)				(thousands of dollars)
Current assets	$	44,238	$	23,333	$	41,030	$	44,093
Noncurrent assets	214,708		237,875		191,043		212,291
Total assets	$	258,946	$	261,208	$	232,073	$	256,384

Current liabilities	$	11,569	$	24,439	$	22,107	$	17,160
Long term liabilities	83,826		68,837		74,371		77,366
Shareholders' equity	163,551		167,932
Stockholders' equity					135,595		161,858
	$	258,946	$	261,208	$	232,073	$	256,384

~~The equity~~Changes in Ownership

In the ~~income or loss~~second quarter of 2019, certain shareholders of AMAK ~~reflected on~~transferred a portion of their shares to the ~~consolidated statements~~CEO of ~~income~~AMAK as a one-time retention and performance bonus. The Company transferred 100,000 shares and the transaction reduced our ownership percentage from 33.4% to 33.3%.

In first quarter 2018, we completed an exchange of shares with certain stockholders whereby such stockholders 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. This transaction reduced our ownership percentage from 33.44% to 33.41%.

In connection with the 2018 AMAK share repurchase program, we received net proceeds of approximately $0.4 million during the three months ~~and nine months~~ ended ~~September 30,~~ ~~2018, and 2017, is comprised~~March 31, 2019. AMAK completed the share repurchase program in 2019, at which point all shares repurchased from AMAK stockholders were registered as treasury shares. Upon completion of the ~~following:~~share repurchase program, the Company's ownership percentage in AMAK did not change from 33.4%.

Three Months Ended
September 30, Nine Months Ended
September 30,
2018
2017
2018
2017
(thousands of dollars) (thousands of dollars)
AMAK Net Loss $ (4,390 ) $ (3,689 ) $ (5,036 ) $ (18,457 )

Company's share of loss reported by AMAK $ (1,467 ) $ (1,234 ) $ (1,682 ) $ (6,172 )
Amortization of difference between Company's investment in AMAK and Company's share of net assets of AMAK 337
337
1,010
1,011
Equity in loss of AMAK $ (1,130 ) $ (897 ) $ (672 ) $ (5,161 )



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	1820

The equity in the (losses) earnings of AMAK included in loss from discontinued operations, net of tax, on the consolidated statements of operations for the three and nine months ended September 30, 2019, and 2018, is comprised of the following:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
	(thousands of dollars)						(thousands of dollars)
AMAK Net Loss	$	(3,843	)	$	(4,390	)	$	(6,318	)	$	(5,036	)
Percentage of Ownership	33.29		%	33.41		%	33.29		%	33.41		%

Company's share of loss reported by AMAK	$	(1,279	)	$	(1,467	)	$	(2,103	)	$	(1,682	)
Amortization of difference between Company's investment in AMAK and Company's share of net assets of AMAK	337			337			1,010			1,010
Equity in (losses) earnings of AMAK	$	(942	)	$	(1,130	)	$	(1,093	)	$	(672	)

~~See~~For additional information, see Note 10, "Investment in Al Masane Al Kobra Mining Company ("AMAK")" to the consolidated financial statements set forth in our Annual Report on Form ~~10-K~~10–K for the year ended December 31, ~~2017 for additional information.~~

At September 30, 2018, and December 31, 2017, we had a receivable from AMAK of approximately $235,000 and $121,000, respectively, relating to unreimbursed travel and Board expenses which are included in prepaid and other assets. We did not advance any cash to AMAK during 2018.

~~18.~~17. RELATED PARTY TRANSACTIONS

Consulting fees of approximately $0$32,000 and $25,000 were incurred during the three months and ~~$27,000~~$82,000 and $75,000 during the nine months ended September 30, ~~2017, from IHS Global FZ LLC of which Company director Gary K Adams held the position of Chief Advisor – Chemicals until April 1, 2017.~~

~~Consulting fees of approximately $25,000~~2019 and ~~$19,000 were incurred during the three months and $75,000 and $56,000 during the nine months ended September 30,~~ 2018, ~~and 2017,~~ respectively, from our ~~Executive Chairman,~~Director, 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,~~2019, a new consulting agreement was entered into with Mr. Carter effective through December 31, ~~2018, unless otherwise agreed by the Company and Mr. Carter.~~2019.

~~19.~~18. COMMITMENTS AND CONTINGENCIES

Guarantees

On October 24, 2010, we executed a limited ~~Guarantee~~guarantee in favor of the Saudi Industrial Development Fund ("SIDF") whereby we agreed to guaranty up to 41% of the SIDF loan (the "Loan") to AMAK in the principal amount of 330.0 million Saudi Riyals (US$88.0 million) ~~(the "Loan")~~. The term of the ~~loan~~Loan was originally through June 2019. As a condition of the Loan, SIDF required all ~~shareholders~~stockholders of AMAK to execute personal or corporate ~~Guarantees;~~guarantees; as a result, our guarantee is for approximately 135.3 million Saudi Riyals (US$36.1 million). The ~~loan~~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~~our investment. On July 8, 2018, the ~~SIDF loan~~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.~~30.0 million Saudi Riyals (US$8.0 million). The total amount outstanding toon the ~~SIDF~~Loan at September 30, ~~2018,~~2019, was ~~305.0~~290.0 million Saudi Riyals (US$~~81.3~~77.3 million). See additional discussion including the release of the guarantee in connection with the AMAK sale in Note 19.

Operating Lease Commitments

~~We have operating leases~~See Note 8 for the rental of railcars, office space, and equipment with expiration dates through 2026. Rental expense for these operating leases for the three months ended September 30, 2018, and 2017, was $1.0 million and $1.0 million, respectively, and for the nine months ended September 30, 2018, and 2017, was $3.0 million and $2.7 million, respectively.discussion on lease commitments.

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. The Trial Court dismissed all of Mr. El Khalidi's claims and causes of action with prejudice and the Ninth Court of Appeals affirmed. Mr. El Khalidi 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 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 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.



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	1921

~~adverse effect on our business, prospects, financial condition or results of operations. We may become involved in material legal proceedings in the future.~~

Supplier Agreements

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 September 30, 2019, and 2018, ~~and 2017,~~ were ~~$0.2~~$0.3 million and ~~$0.3~~$0.2 million, respectively, and for the nine months ended September 30, 2019, and 2018, ~~and 2017,~~ were ~~$0.7~~$0.3 million and ~~$1.4~~$0.7 million, respectively.

Environmental Remediation

Amounts charged to expense for various activities related to environmental monitoring, compliance, and improvements were approximately ~~$146,000~~$0.2 million and ~~$119,000~~$0.1 million for the three months ended September 30, 2019, and ~~$430,000~~2018 and ~~$444,000~~ for the nine months ended September 30, 2019, and 2018, were $0.7 million and ~~2017,~~$0.4 million, respectively.

~~20.~~19. SUBSEQUENT EVENTS

~~In mid-September~~Pursuant to a Share Sale and Purchase Agreement (the “Purchase Agreement”) that was effective as of October 2, 2019, the ~~Silsbee facility suffered a power outage causing a shutdown~~Company has agreed to sell its entire 33.3% equity interest in AMAK, to AMAK and certain other existing shareholders of AMAK (collectively, the “Purchasers”) for an aggregate gross purchase price (before taxes and transaction expenses) of SAR 264.7 million (or approximately US$70 million), which will be payable in US Dollars. The Purchasers have advanced 5% of the ~~plant~~purchase price (or approximately $3.5 million) in the form of a non-refundable deposit, which was a condition to the effectiveness of the Purchase Agreement. As of September 30, 2019, deposits of approximately $2.2 million were received and recorded as a reduction in our investment in AMAK. The remainder of the deposits (approximately $1.3 million) were received subsequent to September 30, 2019.

The Purchase Agreement contains various representations, warranties and indemnity obligations of the Company and the Purchasers, including the ~~Advanced Reformer unit. In mid-October, after extensive engineering review and consultations with the technology licensor~~release of the ~~Advanced Reformer unit, it was determined that~~Company's guarantee as described in Note 18. The Purchase Agreement also contains certain termination rights of the ~~unit's catalyst required replacement. Although the unit continues~~Company, including if closing does not occur by November 25, 2019. The transaction is expected to ~~operate, the product is not meeting design specifications thus negatively impacting the unit's expected financial benefit. We are working with the catalyst manufacturer to replace the catalyst~~close in the fourth ~~quarter.~~quarter of 2019, subject to receipt of certain governmental approvals and other customary closing conditions.

On October 29, 2019 the Company experienced a severe weather event at the Specialty Petrochemicals facility in Silsbee, Texas, resulting in a plant shutdown and significant damage to one of the feedstock tanks. The ~~estimated cost~~plant returned to operation November 7, 2019. The Company is determining the financial impact of ~~replacement is $4 million. The replacement will be capitalized~~recovery costs and ~~depreciated.~~

expects some loss of sales volumes.

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

FORWARD LOOKING AND CAUTIONARY STATEMENTS

Some of the statements and information contained in this 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 regarding the Company's financial position, business strategy and plans and objectives of the Company's management for future operations and other statements ~~involve a number~~that are not historical facts, are forward-looking statements. Forward-looking statements are often characterized by the use of words such as "outlook," "may," "will," "should," "could," "expects," "plans," "anticipates," "contemplates," "proposes," "believes," "estimates," "predicts," "projects," "potential," "continue," "intend," or the negative of such terms and other comparable terminology, or by discussions of strategy, plans or intentions.

Forward-looking statements are subject to 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~~from those expressed or implied by such statements. Such risks, uncertainties 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;factors include, but are not limited to: general economic conditions domestically and internationally; insufficient cash flows from operating activities; difficulties in obtaining financing; outstanding debt and other financial and legal obligations; lawsuits; competition; industry cycles; ~~specialty petrochemical~~feedstock, product and mineral prices; feedstock availability; technological developments; regulatory changes; environmental matters; foreign government instability; foreign legal and political concepts; ~~and~~ foreign currency ~~fluctuations, as well as~~fluctuations; not completing, or not completely realizing the anticipated benefits from, the sale of our equity interest in AMAK; receipt and timing of necessary governmental approvals for the sale of our equity interest in AMAK; and other risks detailed in ~~the Company's~~this report, in our latest Annual Report on Form 10–K, including but not limited to Part I, Item 1A. Risk Factors and Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations therein, and in our other filings with the ~~U.S. Securities and Exchange Commission, including~~SEC.



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

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

Overview

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 which is based on the ~~safe~~ manufacturing and marketing of specialty petrochemical products and ~~synthetic waxes. Our business model involves the manufacture~~waxes and ~~sale of tangible products and the provision of~~providing custom ~~processing~~manufacturing 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.~~



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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, ~~2017.~~2018.

~~We believe~~Our preferred supplier position into the specialty petrochemicals market is derived from the combination of our reputation as a reliable supplier established over many years, the very high purity of our products, and a focused approach to customer service. In specialty waxes, we are ~~well-positioned~~able to ~~benefit from capital investments~~deliver to our customers a performance and price point that is unique to our market; while the diversity of our custom processing assets and capabilities offers solutions to our customers that we ~~have completed. As a result of~~believe are uncommon along the D-Train expansion which was completed in 2014, we now have sufficient pentane capacity to readily maintain our share of market growth for the foreseeable future. We believe that both the Advanced Reformer unit and the hydrogenation/distillation unit will contribute to increased revenue and gross margin over time and as we improve reliability. 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 strategy and outlook. U.S. Gulf Coast.

~~In February 2018,~~Enabling our success in these businesses is a commitment to operational excellence which establishes a culture that prioritizes the safety of our employees and communities in which we operate, the integrity of our assets and regulatory compliance. This commitment drives a change to an emphasis on forward-looking, leading-indicators of our results and proactive steps to continuously improve our performance. We bring the same commitment to excellence to our commercial activities where we focus on the value proposition to our customers while ~~attempting~~understanding opportunities to ~~commission~~maximize our value capture through service and product differentiation, supply chain and operating cost efficiencies and diversified supply options. We believe over time our focus on execution, meeting the ~~Advanced Reformer unit at~~needs of our ~~Silsbee facility, the unit overheated and ignited a fire. There was damage to all six heaters in the unit,~~customers 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, in the third quarter we received $0.2 million, and we expect to receive the balance in the fourth quarter.

~~On July 9, 2018, we announced the safe and successful start up~~prudent control of our ~~Advanced Reformer unit at~~costs will create value for our Silsbee facility. In mid-September the Silsbee facility suffered a power outage causing a shutdown of the plant including the Advanced Reformer unit. In mid-October, after extensive engineering review and consultations with the technology licensor of the Advanced Reformer unit it was determined that the unit's catalyst required replacement. Although the unit continues to operate the product is not meeting design specifications thus negatively impacting the unit's expected financial benefit. We are working with the catalyst manufacturer to replace the catalyst in the fourth quarter. The estimated cost of replacement is $4 million. The replacement will be capitalized and depreciated.

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

Review of Third Quarter ~~2018~~2019 Results

We reported third quarter ~~2018 losses~~2019 net income of $0.6 million, up from net loss of $1.6 million ~~down from $1.7 million earnings~~ in the third quarter ~~2017.~~of 2018. Diluted earnings per share are $0.02 for 2019, up from a loss per share of $(0.06) ~~were reported for 2018, down from $0.07~~ in ~~2017.~~2018. Sales volume of our ~~petrochemical~~Specialty Petrochemicals products decreased ~~3.5%~~4.8%, and sales revenue from our ~~petrochemical~~Specialty Petrochemicals products ~~increased 18.0%~~decreased 13.6% as compared to the third quarter 2018. Specialty Petrochemical sales volume declined due to lower Prime product sales which declined 3.0% compared to third quarter ~~2017. Prime product petrochemical sales volumes (which exclude by-product sales) were up 1.8% over third quarter 2017. Wax sales volume increased 12.7% compared to third quarter 2017 and wax~~2018. Specialty Waxes sales revenue was ~~up 23.3%~~down 15.9% compared to the third quarter ~~2017. Trecora Resources gross profit margin decreased to 9.3% of sales in~~2018.

Consolidated Adjusted EBITDA from continuing operations was $4.9 million, for the third quarter ~~2018~~of 2019, compared with consolidated Adjusted EBITDA from ~~16.0%~~continuing operations of $3.1 million, in the third quarter ~~2017.~~of 2018. Consolidated Adjusted EBITDA from continuing operations increased due to substantially better performance in our Specialty Petrochemicals segment as a result of lower feedstock costs, lower operating expenses and improved plant operations. This was partially offset by weaker performance in our Specialty Waxes business.

Non-GAAP Financial Measures

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

We define EBITDA as net income plus interest expense including derivative 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 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 GAAP. These measures are used as supplementalbelieve these financial measures ~~by management and external~~provide users of our financial statements ~~such as investors, banks, research analysts and others.~~with supplemental information that may be useful in evaluating our operating performance. We also believe that ~~these~~such 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.



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	21

Three Months Ended
September 30, Nine Months Ended
September 30,
2018
2017
2018
2017
(Thousands of Dollars)
Net Income (Loss) $ (1,609 ) $ 1,718
$ 2,958
$ 4,037
Interest expense 924
795
2,617
2,109
Depreciation and amortization 4,018
2,810
10,072
7,966
Income tax expense (benefit) (473 ) 577
713
1,970
EBITDA $ 2,860
$ 5,900
$ 16,360
$ 16,082
Share-based compensation 630
716
1,002
2,005
Loss on extinguishment of debt 315
—
315
—
Equity in losses of AMAK 1,130
897
672
5,161
Adjusted EBITDA $ 4,935
$ 7,513
$ 18,349
$ 23,248

Net Income (Loss) $ (1,609 ) $ 1,718
$ 2,958
$ 4,037
Equity in losses of AMAK $ 1,130
$ 897
$ 672
$ 5,161
Taxes at statutory rate of 21% for 2018 and 35% for 2017 (237 ) (314 ) (141 ) (1,806 )
Tax effected equity in losses 893
583
531
3,355
Adjusted Net Income (Loss) $ (716 ) $ 2,301
$ 3,489
$ 7,392

~~Liquidity and Capital Resources~~

~~Working Capital~~

~~Our approximate working capital days are summarized as follows:~~

September 30, 2018
December 31, 2017
September 30, 2017
Days sales outstanding in accounts receivable 38.1
38.4
34.6
Days sales outstanding in inventory 22.8
27.5
19.6
Days sales outstanding in accounts payable 17.0
27.3
18.9
Days of working capital 43.9
38.5
35.4

~~Our days sales outstanding~~when read in accounts receivable decreased slightly as compared to December 31, 2017. Our days sales outstanding in inventory decreased due to the increase in sales volume which reduced inventory on hand. Our days sales outstanding in accounts payable decreased due to construction expenses for the newly completed Advanced Reformer unit. Since days of working capital is calculated using the above three metrics, it increased for the reasons discussed.

Cash decreased $1.7 million during the nine months ended September 30, 2018, as compared to a decrease of $4.2 million for the nine months ended September 30, 2017. Our total available liquidity, which includes cash and available revolving borrowing capacity under the ARC, was approximately $56.3 million and $37.9 million at September 30, 2018 and December 31, 2017, respectively. Going forward, amounts able to be drawn under the Revolving Facility may be limited to maintain compliance with our covenants.



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	22

~~The change in cash is summarized as follows:~~

THREE MONTHS ENDED SEPTEMBER 30,
2018
2017
Net cash provided by (used in) (thousands of dollars)
Operating activities $ 11,110
$ 29,554
Investing activities (19,204 ) (39,336 )
Financing activities 6,358
5,612
Decrease in cash $ (1,736 ) $ (4,170 )
Cash $ 1,292
$ 4,219

~~Operating Activities~~

Cash provided by operating activities totaled $11.1 million for the first nine months of 2018, $18.4 million lower than 2017. For the first nine months of 2018 net income decreased by approximately $1.08 million as compared to 2017. Major non-cash items affecting 2018 income included increases in deferred taxes of $1.0 million, depreciation of $8.6 million and equity in losses of AMAK of $0.7 million. Major non-cash items affecting 2017 income included increases in deferred taxes of $1.6 million, depreciation of $6.6 million, and equity in losses of AMAK of approximately $5.2 million.

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

Accounts receivable increased approximately $4.2 million due to timing of sales later in the quarter, with average days sales outstanding in accounts receivable of 38 days, leading to outstanding receivables at the end of the quarter;

~~Insurance receivable increased approximately $0.4 million (due to a claim filed for the new Advanced Reformer fire) as compared to no receivable in 2017;~~

Prepaid and other assets increased approximately $1.6 million (primarily due to the inventorying of spare parts) as compared to a decrease of approximately $387,000 in 2017 (primarily due to a reduction in prepaid insurance); and

Accounts payable and accrued liabilities decreased $3.0 million (due to decreased construction expenditures) as compared to an increase of approximately $3.4 million in 2017 (due to increased construction expenditures).

~~Investing Activities~~

Cash used by investing activities during the first nine months of 2018 was approximately $19.2 million, representing a decrease of approximately $20.1 million over the corresponding period of 2017. During the first nine months of 2018, the primary use of capital expenditures was for the new Advanced Reformer unit and the addition of a rail spur at the SHR loading facility. During the first nine months of 2017, we continued to purchase equipment for the hydrogenation/distillation unit and the new Advanced Reformer unit along with some tankage and various other facility improvements.

~~Financing Activities~~

Cash provided by financing activities during the first nine months of 2018 was approximately $6.4 million versus cash provided of $5.6 million during the corresponding period of 2017. During 2018, we restructured our loan agreement, as detailed in Note 10. We drew $18.2 million on our line of credit to fund ongoing capital projects during the first nine months of 2018. As discussed in Note 10, proceeds of the new borrowings under the Term Loan Facility were used to repay a portion of the outstanding borrowings under the Revolving Facility. During 2017, we made principal payments on our acquisition loan of $3.5 million, our term debt of $0.7 million, and our line of credit facility of $2.0 million. We drew $14.0 million on our line of credit to fund ongoing capital projects.

conjunction



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	23

~~Anticipated Cash Needs~~with our operating results presented under GAAP, can be used to better assess our performance from period to period and relative to performance of other companies in our industry, without regard to financing methods, historical cost basis or capital structure. These measures are not measures of financial performance or liquidity under GAAP and should be considered in addition to, and not as a substitute for, analysis of our results under GAAP.

EBITDA from continuing operations and Adjusted EBITDA from continuing operations: We ~~believe that the Company is capable~~define EBITDA from continuing operations as net income from continuing operations plus interest expense, income taxes, depreciation and amortization. We define Adjusted EBITDA from continuing operations as EBITDA from continuing operations plus stock-based compensation, plus restructuring and severance expenses, plus losses on extinguishment of ~~supporting its operating requirements~~debt, and ~~capital expenditures through internally generated funds supplemented with borrowings under our ARC.~~plus or minus gains or losses on acquisitions.

~~Results~~The following table presents a reconciliation of ~~Operations~~

~~Comparison~~net income (loss), our most directly comparable GAAP financial performance measure for each of ~~Three Months Ended~~ ~~September 30, 2018~~the periods presented, to EBITDA from continuing operations and ~~2017~~

~~Specialty Petrochemical Segment~~Adjusted EBITDA from continuing operations.

2018
2017
Change
% Change
(thousands of dollars)
Petrochemical Product Sales $ 61,675
$ 52,440
$ 9,235
17.6 %
Processing 2,056
1,519
537
35.4 %
Gross Revenue $ 63,731
$ 53,959
$ 9,772
18.1 %
��
Volume of Sales (gallons)
Petrochemical Products 21,564
22,353
(789 ) (3.5 )%
Prime Product Sales 16,986
16,681
305
1.8 %

Cost of Sales $ 57,156
$ 43,424
$ 13,732
31.6 %
Gross Margin 10.3 % 19.5 %

(9.2 )%
Total Operating Expense* 18,673
15,040
3,633
24.2 %
Natural Gas Expense* 1,265
1,106
159
14.4 %
Operating Labor Costs* 4,837
4,412
425
9.6 %
Transportation Costs* 7,126
6,051
1,075
17.8 %
General & Administrative Expense 2,893
2,595
298
11.5 %
Depreciation and Amortization** 2,651
1,584
1,067
67.4 %
Capital Expenditures 2,562
9,426
(6,864 ) (72.8 )%



	Three Months Ended September 30, 2019
	Specialty Petrochemicals		Specialty Waxes			Corporate			Consolidated
	(in thousands)
Net Income (Loss)	$	6,278	$	(2,071	)	$	(3,626	)	$	581
Loss from discontinued operations, net of tax	—		—			(1,002		)	(1,002		)
Income (Loss) from continuing operations	$	6,278	$	(2,071	)	$	(2,624	)	$	1,583
Interest	895		316			—			1,211
Taxes	803		—			(565		)	238
Depreciation and amortization	171		24			13			208
Depreciation and amortization in cost of sales	1,729		1,524			1			3,254
EBITDA from continuing operations	$	9,876	$	(207	)	$	(3,175	)	$	6,494
Stock-based compensation	—		—			415			415
Adjusted EBITDA from continuing operations	$	9,876	$	(207	)	$	(2,760	)	$	6,909

* Included in cost of sales

**Includes $2,486 and $1,378 for 2018 and 2017, respectively, which is included in operating expense

~~Gross Revenue~~

Gross Revenue for our Specialty Petrochemical segment increased during third quarter 2018 from third quarter 2017 by 18.1%, primarily due to an increase in the average selling price of Petrochemical Products of 21.9%, and a 35.4% increase in processing revenue.

~~Petrochemical Product Sales~~

Petrochemical product sales increased by 17.6% during third quarter 2018 from third quarter 2017 due to an increase in the the average selling price of 21.9%, which was partially offset by 3.5% decline in petrochemical sales volume due to lower sales of by-products. Prime product sales volume were flat as compared to third quarter 2017 but increased 5.6% compared to second quarter 2018. 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 by-products increased to offset higher feedstock cost which were up 37% from the third quarter of 2017. It should be noted that by-products 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 for multiple reasons. First, by-product selling prices were significantly higher in third quarter 2018 compared to third quarter 2017; 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; and lastly we have increased prices for non-formula prime products. Foreign sales volume increased to 25.6% of total petrochemical volume from 22.1% in third quarter 2017.



	Three Months Ended September 30, 2018
	Specialty Petrochemicals		Specialty Waxes			Corporate			Consolidated
	(in thousands)
Net Income (Loss)	$	2,504	$	(1,239	)	$	(2,874	)	$	(1,609	)
Loss from discontinued operations, net of tax	—		—			(893		)	(893		)
Income (Loss) from continuing operations	$	2,504	$	(1,239	)	$	(1,981	)	$	(716	)
Interest	659		265			—			924
Taxes	372		—			(608		)	(236		)
Depreciation and amortization	165		24			16			205
Depreciation and amortization in cost of sales	2,486		1,327			—			3,813
EBITDA from continuing operations	$	6,186	$	377		$	(2,573	)	$	3,990
Stock-based compensation	—		—			630			630
Loss on extinguishment of debt	—		—			315			315
Adjusted EBITDA from continuing operations	$	6,186	$	377		$	(1,628	)	$	4,935



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	Nine Months Ended September 30, 2019
	Specialty Petrochemicals		Specialty Waxes			Corporate			Consolidated
	(in thousands)
Net Income (Loss)	$	17,086	$	(5,623	)	$	(6,727	)	$	4,736
Loss from discontinued operations, net of tax	—		—			(1,120		)	(1,120		)
Income (Loss) from continuing operations	$	17,086	$	(5,623	)	$	(5,607	)	$	5,856
Interest	3,143		967			1			4,111
Taxes	3,006		—			(1,594		)	1,412
Depreciation and amortization	512		72			45			629
Depreciation and amortization in cost of sales	7,387		4,223			1			11,611
EBITDA from continuing operations	$	31,134	$	(361	)	$	(7,154	)	$	23,619
Stock-based compensation	—		—			973			973
Adjusted EBITDA from continuing operations	$	31,134	$	(361	)	$	(6,181	)	$	24,592



	Nine Months Ended September 30, 2018
	Specialty Petrochemicals		Specialty Waxes			Corporate			Consolidated
	(in thousands)
Net Income (Loss)	$	10,402	$	(2,926	)	$	(4,518	)	$	2,958
Loss from discontinued operations, net of tax	—		—			(531		)	(531		)
Income (Loss) from continuing operations	$	10,402	$	(2,926	)	$	(3,987	)	$	3,489
Interest	1,892		802			(77		)	2,617
Taxes	2,387		—			(1,533		)	854
Depreciation and amortization	492		68			32			592
Depreciation and amortization in cost of sales	5,528		3,952			—			9,480
EBITDA from continuing operations	$	20,701	$	1,896		$	(5,565	)	$	17,032
Stock-based compensation	—		—			1,002			1,002
Loss on extinguishment of debt	—		—			315			315
Adjusted EBITDA from continuing operations	$	20,701	$	1,896		$	(4,248	)	$	18,349

Liquidity and Capital Resources

Working Capital

Our approximate working capital days are summarized as follows:



	September 30, 2019	December 31, 2018	September 30, 2018
Days sales outstanding in accounts receivable	35.5	34.4	38.1
Days sales outstanding in inventory	18.4	21.0	22.8
Days sales outstanding in accounts payable	14.1	24.2	17.0
Days of working capital	39.8	31.1	43.9

Our days sales outstanding in accounts receivable at September 30, 2019 was 35.5 days compared to 34.4 days at December 31, 2018, driven by slightly higher Specialty Petrochemicals sales volumes in the quarter. Our days sales outstanding in inventory decreased by approximately 2.6 days from December 31, 2018. Our days sales outstanding in accounts payable decreased due to payment for the Advanced Reformer unit catalyst replacement which was completed in December 2018, severance payments and payment for supplemental wax feed. Since days of working capital is calculated using the above three metrics, it increased for the aforementioned reasons discussed.



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Cash increased $2.4 million during the nine months ended September 30, 2019, as compared to a decrease of $1.7 million for the nine months ended September 30, 2018.

The change in cash is summarized as follows:



	Nine Months Ended September 30,
	2019			2018
Net cash provided by (used in)	(thousands of dollars)
Operating activities	$	20,249		$	11,110
Investing activities	(4,254		)	(19,204		)
Financing activities	(13,573		)	6,358
Increase (Decrease) in cash	$	2,422		$	(1,736	)
Cash	$	9,157		$	1,292

Operating Activities

Cash provided by operating activities totaled $20.2 million for the first nine months of 2019, $9.1 million higher than the corresponding period in 2018. For the first nine months of 2019 net income increased by approximately $1.8 million as compared to the corresponding period in 2018. Major non-cash items affecting 2019 income in the first nine months of 2019 included increases in depreciation and amortization of $12.3 million, deferred taxes of $1.3 million and stock-based compensation of $0.9 million. Major non-cash items affecting 2018 income in the first nine months of 2018 included increases in deferred taxes of $1.1 million and depreciation and amortization of $10.0 million.

Additional factors leading to an increase in cash provided by operating activities included:

Trade receivables decreased approximately $1.6 million. This was due to a decrease in revenues in the third quarter 2019 of $6.7 million, or nearly 9.6%, as compared with the second quarter 2019. Revenues in the third quarter 2018 increased $5.3 million from the second quarter 2018.

Inventories decreased approximately $3.3 million driven by lower inventory in transit primarily due to lower sales to the Canadian oil sands and an overall decrease in value of inventory due to lower feedstock prices. Additionally, our Specialty Wax segment was constrained by disruptions of wax feed supply from a key supplier, resulting in increased sales of existing inventory.

In the first nine months of 2019, we did not have a change in taxes receivable. In the same period of 2018, we collected outstanding taxes receivable of $4.3 million related to prior periods and R&D credits.

Accounts payable and accrued liabilities decreased $6.0 million primarily due to payment for the Advanced Reformer unit catalyst replacement which was completed in December 2018, severance payments and payment for supplemental wax feed.

Investing Activities

Cash used in investing activities during the first nine months of 2019 was approximately $4.3 million, representing a decrease of approximately $15.0 million from the corresponding period of 2018. During the first nine months of 2019, the primary use of capital expenditures was for Advanced Reformer unit improvements and pipeline maintenance at SHR and equipment modifications at TC. This was offset by $1.3 million of proceeds received from AMAK for the repurchase of shares as discussed in Note 10 on our Annual Report on Form 10-K for the year ending December 31, 2018. In addition, $2.2 million related to the deposit was received in connection with the sale of our investment in AMAK discussed in Note 16. Our foreign tax liability resulting from AMAK's share repurchase program was $0.9 million. The cash to pay these taxes was withheld from the proceeds and paid directly by AMAK. As such, net cash received from AMAK was $0.4 million. During the first nine months of 2018, we had capital expenditures related to the hydrogenation/distillation unit and the Advanced Reformer unit along with various other facility improvements.



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	26

Financing Activities

Cash used in financing activities during the first nine months of 2019 was approximately $13.6 million versus cash provided by financing activities of $6.4 million during the corresponding period of 2018. During 2019, we made principal payments on our outstanding credit facilities of $15.3 million. We drew $2.0 million on our line of credit for working capital purposes during the first nine months of 2019. During 2018, we made principal payments on our acquisition loan of $3.5 million, our term debt of $0.7 million, and our line of credit facility of $8.1 million. We drew $18.2 million on our line of credit in the first nine months of 2018 to fund ongoing capital projects.

Subsequent to September 30, 2019, we made an optional principal payment of $5.0 million against the Revolving Facility, reducing the outstanding amount from $8.0 million to $3.0 million.

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 Agreement.

Results of Operations

Comparison of Three Months Ended September 30, 2019 and 2018

Specialty Petrochemicals Segment



	Three Months Ended September 30,
	2019			2018			Change			% Change
	(thousands of dollars)
Specialty Petrochemicals Product Sales	$	53,277		$	61,675		$	(8,398	)	(13.6	)%
Processing	1,208			2,056			(848		)	(41.2	)%
Gross Revenue	$	54,485		$	63,731		$	(9,246	)	(14.5	)%

Volume of Sales (gallons)
Specialty Petrochemicals Products	20,523			21,564			(1,041		)	(4.8	)%
Prime Product Sales	16,431			16,986			(555		)	(3.3	)%

Cost of Sales	$	44,206		$	57,156		(12,950		)	(22.7	)%
Gross Margin	18.9		%	10.3		%				8.6	%
Total Operating Expense*	17,248			18,673			(1,425		)	(7.6	)%
Natural Gas Expense*	1,000			1,265			(265		)	(20.9	)%
Operating Labor Costs*	3,619			4,837			(1,218		)	(25.2	)%
Transportation Costs*	6,997			7,126			(129		)	(1.8	)%
General & Administrative Expense	2,659			2,893			(234		)	(8.1	)%
Depreciation and Amortization**	1,900			2,651			(751		)	(28.3	)%
Capital Expenditures	2,163			2,562			(399		)	(15.6	)%

* Included in cost of sales

**Includes $1,729 and $2,486 for 2019 and 2018, respectively, which is included in operating expense

Gross Revenue

Gross Revenue for our Specialty Petrochemicals segment decreased during the third quarter 2019 from the third quarter 2018 by 14.5% primarily due to an 4.8% decrease in sales volume, a 9.2% decline in average selling price due mainly to lower feedstock costs and lower processing revenues.



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	27

Specialty Petrochemicals Product Sales

Specialty Petrochemicals product sales declined approximately 13.6% during the third quarter 2019 from the third quarter 2018 mainly due to lower product prices for prime products and by-products. Lower prices were primarily driven by lower feedstock costs. Prime product sales volume declined about 3.3% compared to the third quarter of 2018. Compared to the second quarter of 2019 prime product volume declined about 7.3% or about 1.3 million gallons primarily due to lower sales to the Canadian oil sands, and an unplanned outage at a major customer. The sales outlook to the Canadian oil sands continues to remain uncertain due to the government mandated crude production curtailments in Canada and the crude oil pricing environment. Also, we expect a decline in sales demand due to typical market seasonality in many of end-use markets.

By-product sales volumes in third quarter 2019 declined 10.6% from third quarter 2018. By-product sales volume increased 10.1% from second quarter 2019 due to an increase in feed to the Advanced Reformer unit which produces by-products. In the second quarter 2019 feed to the Advanced Reformer was diverted to maximize prime product production to meet certain customer needs . It should be noted that by-products are produced as a result of prime product production and their margins are significantly lower than margins for our prime products. Foreign sales volume increased to 22.4% of total Specialty Petrochemicals volume in the third quarter of 2019, from 21.5% in the third quarter 2018. Foreign sales volume includes sales to the Canadian oil sands.

Processing

Processing revenues ~~increased 35.4%~~decreased approximately $0.8 million or 41.2% in the third quarter 2019 from the third quarter 2018 ~~from third quarter 2017,~~ primarily due to ~~increased sales to two specific existing customers.~~the termination of a customer contract in the fourth quarter 2018.

Cost of Sales

Cost of Sales increased 31.6% during third quarter 2018 from 2017 primarily due to the increase in feedstock cost and higher operating expenses at our Silsbee plant. Our average feedstock cost per gallon increased 37% over third quarter 2017 primarily due to an approximately 39% increase in the benchmark price of Mont Belvieu natural gasoline. Our average feedstock cost per gallon for the third quarter 2018 was flat from the second quarter of 2018. The increase in feedstock costs compressed margins for prime products relative to third quarter 2017. 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 during the quarter. The increase in feedstock costs also 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%~~is highly correlated with the price of crude oil. ~~We expect our~~Our Advanced Reformer unit ~~to enable us to convert~~upgrades the ~~less valuable components in our feed into higher value products, thereby allowing~~by-product stream produced as a result of prime product production. This upgrade allows us to sell our by-products at higher ~~prices.~~

~~The decrease in gross margin percentage from 19.5% to 10.3% was due to higher feedstock costs resulting in margin compression for our prime products as well as higher plant operating expenses.~~

~~Total Operating Expense~~

Total Operating Expense increased 24.2% during third quarter 2018 from 2017. The key drivers for the increase were higher natural gas, electricity, labor, and product transportation costs. Labor costs were up 9.6% in third quarter 2018 from 2017, primarily due to overtime, training and contract labor associated with the start-up and associated operating issues related toprices than would be possible without the Advanced Reformer unit. Certain previously capitalized costs associated with the start-up of the unit were expensed during third quarter 2018. Transportation costs were higher by 17.8% primarily due to an increase in third party freight costs associated with governmental mandates which took effect in the first quarter of 2018, and an increase in the cost of rail freight due to higher shipment volume, higher rail car storage cost at a third-party rail yard as well as higher freight rates.

~~Capital Expenditures~~

Capital Expenditures in the third quarter 2018 were approximately $2.6 million million compared to $9.4 million in the second quarter 2017 reflecting the completion of the Advanced Reformer unit project.



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	25

~~Specialty Wax Segment~~

2018
2017
Change
% Change
(thousands of dollars)
Product Sales $ 6,938
$ 5,590
$ 1,348
24.1 %
Processing 2,799
1,959
840
42.9 %
Gross Revenue $ 9,737
$ 7,549
$ 2,188
29.0 %

Volume of wax sales (thousand pounds) 9,055
8,036
1,019
12.7 %

Cost of Sales $ 9,470
$ 8,216
$ 1,254
15.3 %
Gross Margin 2.7 % (8.8 )%

11.6 %
General & Administrative Expense 1,180
1,107
73
6.6 %
Depreciation and Amortization* 1,351
1,208
143
11.8 %
Capital Expenditures $ 1,094
$ 1,991
$ (897 ) (45.1 )%

*Includes $1,327 and $1,187 for 2018 and 2017, respectively, which is included in cost of sales

~~Product Sales~~

Product sales revenue increased 24.1% during third quarter 2018 from third quarter 2017 as wax sales volume increased 12.7%. Wax sales were constrained by supply issues for our wax feed. Wax sales continue to be limited by supply constraints as opposed to market demand. Our average wax selling price increased 10% reflecting our marketing strategy to enhance pricing and improve sales mix. Customer demand continues to be strong for 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 rates.

~~Processing~~

Processing revenues increased 42.9% during third quarter 2018 from third quarter 2017. The increase is primarily due to higher revenues from hydrogenation/distillation unit and B Plant. We continue to struggle with the reliability of the hydrogenation/distillation unit and we are implementing modifications to improve its performance. B Plant revenues in third quarter 2018 were about $0.6 million. We have identified significant opportunities for improving our operational efficiency and customer demand for our custom processing capabilities continues to be strong.

~~Cost of Sales~~

Cost of Sales ~~increased 15.3%~~declined 22.7% during the third quarter ~~2018~~2019 from the third quarter ~~2017, primarily due to higher plant operating expenses including higher costs for labor, maintenance, storage and utilities.~~

~~Depreciation~~

~~Depreciation increased 11.8% during third quarter 2018 from 2017, primarily due to the hydrogenation/distillation unit coming online in the second and third quarters of 2017.~~

~~Capital Expenditures~~

Capital Expenditures decreased 45.1% during third quarter 2018 from third quarter 2017 primarily due to a decrease in expenditures for construction in progress including the hydrogenation/distillation project.2018. The ~~project came online in second and third quarters 2017.~~



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	26

~~Corporate Segment~~

2018
2017
Change
% Change
(in thousands)
General & Administrative Expense $ 2,252
$ 1,957
$ 295
15.1 %
Equity in losses of AMAK (1,130 ) (897 ) (233 ) (26.0 )%

~~General and Administrative Expenses~~

~~General corporate expenses increased during third quarter 2018 from third quarter 2017. The increase is primarily attributable to increased insurance premiums.~~

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

Equity in earnings (losses) of AMAK increased during third quarter 2018 from third quarter 2017. The equity in losses were impacted primarily as a result of a reduction in AMAK's inventory value for copper and zinc concentrates.

~~AMAK Summarized Income Statement~~

Three Months Ended
September 30,
2018
2017
(thousands of dollars)
Sales $ 19,877
$ 9,709
Cost of sales 20,350
11,016
Gross operating loss $ (473 ) $ (1,307 )
General, administrative and other expenses 3,917
2,382
Net loss $ (4,390 ) $ (3,689 )
Depreciation and amortization 8,899
6,214
Net loss before depreciation and amortization $ 4,509
$ 2,525

AMAK continued to make progress in throughput rates, concentrate quality and recoveries. Approximately 17,000 dry metric tons (dmt) of copper and zinc concentrate were shipped in third quarter 2018 as compared to 8,000 dmt of copper and zinc concentrate in third quarter 2017. This is an approximately 17% increase in shipments compared to second quarter 2018. Third quarter net income before depreciation and amortization shows an improvementdecline of approximately $2$13 million ~~compared to third quarter 2017.~~



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	27

~~Comparison of Nine Months Ended~~ ~~September 30, 2018~~ ~~and 2017~~

~~Specialty Petrochemical Segment~~

2018
2017
Change
% Change
(thousands of dollars)
Petrochemical Product Sales 178,094
147,339
30,755
20.9 %
Processing 5,769
5,078
691
13.6 %
Gross Revenue 183,863
152,417
31,446
20.6 %

Volume of Sales (gallons)
Petrochemical Products 64,586
60,512
4,074
6.7 %
Prime Product Sales 50,729
46,864
3,865
8.2 %

Cost of Sales 160,543
122,351
38,192
31.2 %
Gross Margin 12.7 % 19.7 % (7.0 )%
Total Operating Expense* 51,597
43,161
8,436
19.5 %
Natural Gas Expense* 3,841
3,545
296
8.3 %
Operating Labor Costs* 13,351
11,688
1,663
14.2 %
Transportation Costs* 21,528
18,314
3,214
17.5 %
General & Administrative Expense 8,193
7,914
279
3.5 %
Depreciation and Amortization** 6,020
4,684
1,336
28.5 %
Capital Expenditures 16,374
27,203
(10,829 ) (39.8 )%

* Included in cost of sales

** Includes $5,528 and $4,142 for 2018 and 2017, respectively, which is included in operating expense

~~Gross Revenue~~

~~Gross Revenue for our Specialty Petrochemical segment increased during the first nine months of 2018 from the first nine months of 2017 by 20.6% primarily~~ was largely due to ~~an increase in sales volume for Petrochemical Products of 6.7%, an increase in the average selling~~lower feedstock costs. Benchmark Mount Belvieu natural gasoline feedstock price ~~of 13.2% and an increase in processing revenue of 13.6%.~~

~~Petrochemical Product Sales~~

~~Petrochemical product sales increased by 20.9% during the first nine months of 2018~~declined 31% from the first nine months of 2017 due to an increase in sales volume of 12.7% and an increase in the average selling price of 8.7%. Prime product volume increased 8.2% in the first nine months of 2018 as compared to the first nine months 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 impacted by customer issues. These issues tended to resolve$1.54 per gallon in the third quarter ~~resulting~~of 2018 to $1.06 per gallon in ~~sequential volume growth.~~the third quarter of 2019. Compared to ~~2017, we saw good growth~~the second quarter of 2019 benchmark Mount Belvieu natural gasoline feedstock price for ~~prime products across all major markets. Due to~~ the need to produce additional prime products to support the increase in sales volume, our by-product volume increased 1.5% from 2017. By-product margins in 2018 increased significantly compared with 2017 a 34% increase in selling prices outpaced the rise in feedstock costs. In third quarter 2018, by-product prices benefited from the start up of the Advanced Reformer, which produces higher value products than the previous process. It should be noted that by-product margins are significantly lower than margins for our prime products.

Our average selling price increased for the first nine months of 2018 for two reasons. First, by-product selling prices were significantly higher in the first nine months of 2018 compared to the first nine months of 2017; and second, a large portion of our prime product sales are contracted with2019 declined 12%. Natural gasoline feedstock pricing formulas which are tied to prior month Natural Gas Liquid (NGL) prices which is our primary feedstock. Feedstock prices were about 23% higher in the first nine months of 2018 as compared to the first nine months of 2017. Additionally, we achieved price increases for the spot portion of our prime products business. Foreign sales volume increased to 26% of total petrochemical volume from 17% in the first nine months of 2017.



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	28

~~Processing~~

~~Processing revenues increased 13.6% during the first nine months of 2018 from 2017 due to higher revenues from two custom processing customers.~~

~~Cost of Sales~~

Our Cost of Sales increased 31.2% during the first nine months of 2018 from 2017 primarily due to the increase in feedstock cost as well as higher operating expenses. Our average feedstock cost per gallon increased 25% compared to the first nine months of 2017, primarily due to an approximately 37% 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 nine months of 2018, feedstock cost per gallon increased steadily month to month and more steeply than the first nine months of 2017. The increase in feedstock costs compressed margins for prime products.historically has been volatile. 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 Advanced Reformer unit enables us to convert the less valuable components in our feed into higher value products, thereby allowing us to sell our by-products at higher prices.products.

The ~~decrease in~~ gross margin percentage for the Specialty Petrochemicals Segment increased from ~~19.7%~~10.3% in the third quarter of 2018 to ~~12.7% was due to higher~~18.9% in the third quarter of 2019 driven by lower feedstock costs, lower operating expenses and ~~operating expenses.~~improved margins over feed for by-products.

Total Operating Expense

Total Operating Expense ~~increased 19.5%~~decreased $1.4 million, or 7.6%, during the ~~first nine months of 2018~~third quarter 2019 from 2018. There were several key drivers for the ~~same period in 2017. Labor,~~decrease, including lower labor costs, lower natural gas costs and lower transportation ~~and electricity are the largest individual expenses in this category.~~costs. Labor costs were ~~higher by 14.2%~~lower mainly due to the cost reduction program implemented at SHR in December 2018.

Capital Expenditures

Capital expenditures in the ~~first nine months~~third quarter 2019 were approximately $2.2 million compared to $2.6 million in the third quarter of ~~2018 from 2017. Labor costs were higher primarily due to overtime, contract labor and maintenance associated with~~2018. Following the ~~start-up and commissioning~~completion of the Advanced Reformer ~~unit. Certain previously capitalized costs associated with the start-up of the~~ unit were expensed during the nine months ended September 30, 2018. Transportation costs were higher by 17.5% primarily due to an increase in third party freight costs associated with governmental mandates which took effect in the ~~first~~second quarter of 2018, capital expenditures mainly include routine plant maintenance and ~~an increase~~environmental, health and safety (EH&S) projects.



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	28

Specialty Waxes Segment



	Three Months Ended September 30,
	2019			2018			Change			% Change
	(thousands of dollars)
Product Sales	$	5,834		$	6,938		$	(1,104	)	(15.9	)%
Processing	2,396			2,799			(403		)	(14.4	)%
Gross Revenue	$	8,230		$	9,737		$	(1,507	)	(15.5	)%

Volume of specialty wax sales (thousand pounds)	8,649			9,055			(406		)	(4.5	)%

Cost of Sales	$	8,879		$	9,470		$	(591	)	(6.2	)%
Gross Margin (Loss)	(7.9		)%	2.7		%				(10.6	)%
General & Administrative Expense	1,071			1,180			(109		)	(9.2	)%
Depreciation and Amortization*	1,548			1,351			197			14.6	%
Capital Expenditures	$	361		$	1,094		$	(733	)	(67.0	)%

*Includes $1,524 and $1,327 for 2019 and 2018, respectively, which is included in cost of sales

Product Sales

For the Specialty Wax Segment Product sales revenue decreased 15.9% during the third quarter 2019 from the third quarter 2018 as specialty wax sales volume declined 4.5%. Wax sales were constrained by disruptions of wax feed supply from a key suppliers as they experienced their own operating difficulties. Our wax feed is based on certain by-products produced as a result of polyethylene production at major polyethylene producers' facilities on the US Gulf Coast. Customer demand in the ~~cost of rail freight~~third quarter was strong and our sales remained limited by wax feed supply.

Processing

Processing revenues declined 14.4% or about $0.4 million during the third quarter 2019 from the third quarter 2018. The decrease was due to ~~higher shipment volume, higher rail car storage cost at a third-party rail yard~~lower revenues from the hydrogenation/distillation unit as ~~well as higher freight rates.~~we work to improve the unit's reliability and lower demand from certain custom processing customers.

Cost of Sales

Cost of Sales were lower in the third quarter 2019 from the third quarter 2018 due to lower wax sales.

Depreciation

Depreciation ~~increased 28.5% during~~for the ~~first nine months of 2018~~third quarter 2019 was $1.49 million relatively flat from ~~2017, primarily due to the commissioning of the Advanced Reformer unit.~~third quarter 2018.

Capital Expenditures

Capital Expenditures ~~decreased 39.8% during~~were approximately $0.4 million in the ~~first nine months~~third quarter 2019 compared with $1.1 million in the third quarter of ~~2018 from 2017 primarily due to the decline in capital spending for the new Advanced Reformer unit project which was recently completed. See additional detail above under "Investing Activities".~~ 2018.

Corporate Segment



	Three Months Ended September 30,
	2019		2018		Change		% Change
	(thousands of dollars)
General & Administrative Expense	$	2,670	$	2,252	$	418	18.6	%

General corporate expenses increased during the third quarter 2019 from the third quarter 2018. The increase is primarily attributable to an increase in executive compensation accrual.



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	29

~~Specialty Wax Segment~~Investment in AMAK - Discontinued Operations

2018
2017
Change
% Change
(thousands of dollars)
Product Sales $ 20,755
$ 18,606
$ 2,149
11.6 %
Processing 8,863
8,142
721
8.9 %
Gross Revenue 29,618
26,748
2,870
10.7 %

Volume of wax sales (thousand pounds) 29,140
28,281
859
3.0 %

Cost of Sales $ 27,814
$ 25,219
$ 2,595
10.3 %
Gross Margin 6.1 % 5.7 % 0.4 %
General & Administrative Expense 3,787
3,729
58
1.6 %
Depreciation and Amortization* 4,020
3,233
787
24.3 %
Capital Expenditures $ 2,716
$ 12,047
$ (9,331 ) (77.5 )%

*Includes $3,952 and $3,169 for 2018 and 2017, respectively, which is included in cost of sales



	Three Months Ended September 30,
	2019			2018			Change			% Change
	(thousands of dollars)
Equity in (losses) earnings of AMAK	$	(1,268	)	$	(1,130	)	$	(138	)	12.2	%

~~Product Sales~~Equity in earnings (losses) of AMAK decreased during the third quarter 2019 from the third quarter 2018. The equity in earnings (losses) were impacted by increased selling, general and administrative expenses.

Product sales revenue increased 11.6% during the first nine months of 2018 from the first nine months of 2017 as average wax sales price increased approximately 7.6% while wax sales volumes increased 3.0%. In 2018, wax salesAMAK Summarized Income Statement



	Three Months Ended September 30,
	2019			2018
	(thousands of dollars)
Sales	$	19,643		$	19,877
Cost of sales	19,072			20,350
Gross profit	571			(473		)
Selling, general, and administrative	3,557			2,736
Operating (loss) income	(2,986		)	(3,209		)
Other (expense) income	43			35
Finance and interest expense	(456		)	(416		)
Loss before Zakat and income taxes	(3,399		)	(3,590		)
Zakat and income taxes	444			800
Net Loss	$	(3,843	)	$	(4,390	)

Finance and interest expense	456			416
Depreciation and amortization	8,534			8,899
Zakat and income taxes	444			800
EBITDA	$	5,591		$	5,725

AMAK continued to be constrained by supply issues on third party waxes that we distribute in Latin America and also by limited wax feed supply to our plant. Selling prices for 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 rates.

~~Processing~~

~~Processing revenues increased 8.9% during the first nine months of 2018 from the first nine months of 2017. In the first nine months of 2018, we made~~make progress in ~~correcting operational issues however the plant continued to struggle with consistently~~throughput rates, concentrate quality and ~~reliably operating the hydrogenation~~recoveries. Approximately 18,000 dry metric tons (dmt) of copper and ~~distillation unit. B Plant revenues~~zinc concentrate were shipped in the ~~first nine months of 2018 were about $2.4 million~~third quarter 2019 as compared to ~~$2.2 million~~17,000 dmt of copper and zinc concentrate in the ~~first nine months of 2017.~~

~~Cost of Sales~~

Cost of Sales increased 10.3% during the first nine months of 2018 from the first nine months of 2017, primarily due to increases in labor, depreciation, storage, maintenance and utilities, partially offset by lower wax material costs.

~~General and Administrative Expense~~

~~General and Administrative costs were~~third quarter 2018. Third quarter EBITDA was approximately $5.6 million, relatively flat ~~from 2017.~~

~~Depreciation~~

~~Depreciation increased 24.3% during the first nine months of 2018 from 2017, primarily due~~compared to the ~~hydrogenation/distillation unit coming online in the second and~~ third ~~quarters of 2017.~~

~~Capital Expenditures~~

Capital Expenditures decreased 77.5% during the first nine months of 2018 from the first nine months of 2017 primarily due to the completion of the hydrogenation/distillation project, which came online in the second and third quarters of 2017.quarter 2018.



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	30

~~Corporate~~Comparison of Nine Months Ended September 30, 2019 and 2018

Specialty Petrochemicals Segment


	2018			2017			Change			% Change		Nine Months Ended September 30,
	(in thousands)											2019			2018			Change			% Change
												(thousands of dollars)
Specialty Petrochemicals Product Sales												167,351			178,094			$	(10,743	)	(6.0	)%
Processing												4,117			5,769			(1,652		)	(28.6	)%
Gross Revenue												$	171,468		$	183,863		$	(12,395	)	(6.7	)%

Volume of Sales (gallons)
Specialty Petrochemicals Products												64,438			64,586			(148		)	(0.2	)%
Prime Product Sales												51,801			50,729			1,072			2.1	%

Cost of Sales												140,121			160,543			(20,422		)	(12.7	)%
Gross Margin												18.3		%	12.7		%				5.6	%
Total Operating Expense*												53,983			51,597			2,386			4.6	%
Natural Gas Expense*												3,636			3,841			(205		)	(5.3	)%
Operating Labor Costs*												10,918			13,351			(2,433		)	(18.2	)%
Transportation Costs*												21,405			21,528			(123		)	(0.6	)%
General & Administrative Expense	$	5,234		$	5,978		$	(744	)	(12.4	)%	7,950			8,193			(243		)	(3.0	)%
Equity in losses of AMAK	(672		)	(5,161		)	4,489			87.0	%
Depreciation and Amortization**												7,899			6,020			1,879			31.2	%
Capital Expenditures												5,002			16,374			(11,372		)	(69.5	)%

* Included in cost of sales

**Includes $7,387 and $5,528 for 2019 and 2018, respectively, which is included in operating expense

~~General and Administrative Expenses~~Gross Revenue

~~General corporate expenses~~Gross Revenue for our Specialty Petrochemicals segment decreased during the first nine months of ~~2018~~2019 from the first nine months of ~~2017. The~~2018 by 6.7% primarily due to a decrease ~~is primarily attributable to~~in the ~~cancellation~~average selling price of Specialty Petrochemicals products of 5.8% and ~~reversal~~lower processing revenue of ~~stock compensation expense and other post retirement benefits awarded to Mr. Hatem El Khalidi. See further discussion in Note 13 and 19.~~$1.7 million.

~~Equity in Losses of AMAK~~Specialty Petrochemicals Product Sales

~~Equity in losses of AMAK~~Revenues from Specialty Petrochemicals product sales decreased ~~due to increased profitability~~6.0% during the first nine months of ~~2018 as compared to~~2019 from the first nine months of ~~2017.~~

~~AMAK Summarized Income Statement~~

Nine Months Ended
September 30,
2018
2017
(thousands of dollars)
Sales $ 53,458
$ 11,965
Cost of sales 49,411
23,480
Gross operating income (loss) $ 4,047
$ (11,515 )
General, administrative and other expenses 9,083
6,942
Net loss $ (5,036 ) $ (18,457 )
Depreciation and amortization 24,881
16,880
Net income (loss) before depreciation and amortization $ 19,845
$ (1,577 )

~~AMAK continued significant progress~~2018. This was primarily due to a 5.8% decrease in average selling price as a result of lower feedstock pricing. Prime product sales volumes were up 2.1% or approximately 1.1 million gallons for the first nine months of 2019 compared to the same period in 2018. The increase in sales volume was mainly due to a large sale for supplier qualification at an oil sands customer. Average selling prices decreased as prices for both prime products and by-products declined in concert with lower feedstock costs. By-product margins increased for the first nine months of 2019 compared to first nine months of 2018 ~~in terms~~primarily as a result of ~~throughput rates, concentrate quality~~steady and ~~recoveries. Approximately 42,000 dry metric tons (dmt)~~reliable operation of ~~copper~~the Advanced Reformer unit which upgrades the by-product stream to higher value chemical products that are sold at higher prices than would be possible without the Advanced Reformer unit. By-products are produced as a result of prime product production and ~~zinc concentrate were shipped~~their margins are significantly lower than margins for our prime products. Foreign sales volume increased to 24.1% of total Specialty Petrochemicals volume from 23.0% in the first nine months of ~~2018 as compared to 8,000 dmt of copper and zinc concentrate~~2018.

Processing

Processing revenues decreased $1.7 million or 28.6% in the first nine months of ~~2017. Net income before depreciation and amortization shows an improvement~~2019 from the first nine months of ~~over $21 million year to date compared to 2017.~~

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

~~As discussed in Note 19~~2018 due to the ~~consolidated financial statements, as~~termination of a ~~condition of the Loan from the SIDF~~customer contract 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 believe, based on our analysis, the actual value of plant and equipment on the ground exceeds any exposure related to the corporate guarantee. fourth quarter 2018.

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 30, 2018, was 305.0 million Saudi Riyals (US$81.3 million).



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Cost of Sales

Cost of Sales declined 12.7% during the first nine months of 2019 from the first nine months of 2018 due to the decrease in feedstock cost. For the first nine months of 2019 compared with the same period in 2018, benchmark Mount Belvieu natural gasoline feedstock price declined 24% from approximately $1.49 per gallon to $1.13 per gallon. 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.

The gross margin percentage for the Specialty Petrochemicals Segment increased from 12.7% in the first nine months of 2018 to 18.3% in the first nine months of 2019 driven by lower feedstock costs resulting in better product margins, significantly higher by-product margins primarily due to more reliable operation of the Advanced Reformer unit and lower labor costs as a result of the cost reduction program implemented at SHR in December 2018.

Total Operating Expense

Total Operating Expense increased 4.6% during the first nine months of 2019 from 2018. Lower labor costs and lower other operating expenses were more than offset by $1.9 million increase in depreciation and amortization related to the Advanced Reformer unit which came on line in the third quarter of 2018.

Capital Expenditures

Capital Expenditures in the first nine months of 2019 were approximately $5.0 million compared to $16.4 million in the first nine months of 2018. The bulk of 2019 capital expenditures were related to modifications and improvements to the Advanced Reformer unit and natural gasoline feedstock pipeline maintenance work.

Specialty Waxes Segment



	Nine Months Ended September 30,
	2019			2018			Change			% Change
	(thousands of dollars)
Product Sales	$	18,582		$	20,755		$	(2,173	)	(10.5	)%
Processing	7,191			8,863			(1,672		)	(18.9	)%
Gross Revenue	$	25,773		$	29,618		$	(3,845	)	(13.0	)%

Volume of specialty wax sales (thousand pounds)	26,486			29,140			(2,654		)	(9.1	)%

Cost of Sales	$	26,852		$	27,814		$	(962	)	(3.5	)%
Gross Margin (Loss)	(4.2		)%	6.1		%				(10.3	)%
General & Administrative Expense	3,423			3,787			(364		)	(9.6	)%
Depreciation and Amortization*	4,295			4,020			275			6.8	%
Capital Expenditures	$	1,296		$	2,716		$	(1,420	)	(52.3	)%

*Includes $4,223 and $3,952 for 2019 and 2018, respectively, which is included in cost of sales

Product Sales

Product sales revenue decreased 10.5% during the first nine months of 2019 from the first nine months of 2018 as specialty wax sales volume declined 9.1%. Planned maintenance turnaround at our Pasadena facility in the first quarter of 2019, along with outages at multiple wax feed suppliers, constrained specialty wax production and thereby sales. In addition, in 2018 sales benefited from one-time sales of off-spec product that did not meet customer specifications. Customer demand during the first nine months of 2019 was strong and our sales remained limited by wax feed supply.



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Processing

Processing revenues declined approximately $1.7 million during the first nine months of 2019 from the first nine months of 2018. The decrease was due to lower revenues from the hydrogenation/distillation unit as we work to improve the unit's reliability and lower demand from certain custom processing customers.

Cost of Sales

Cost of Sales decreased 3.5% or approximately $1.0 million during the first nine months of 2019 from the first nine months of 2018 as a result of lower wax sales and lower operating expenses.

Depreciation

Depreciation increased 6.8% during the first nine months of 2019 from the first nine months of 2018.

Capital Expenditures

Capital Expenditures were approximately $1.3 million in the first nine months of 2019 compared with $2.7 million in the first nine months of 2018.

Corporate Segment



	Nine Months Ended September 30,
	2019		2018		Change		% Change
	(thousands of dollars)
General & Administrative Expense	$	7,159	$	5,234	$	1,925	36.8	%

General corporate expenses increased approximately $1.9 million during the first nine months of 2019 from the first nine months of 2018. The increase is primarily attributable to the second quarter 2018 cancellation and reversal of stock compensation expense and other post-retirement benefits totaling approximately $1.5 million previously awarded to Mr. Hatem El Khalidi.

Investment in AMAK - Discontinued Operations



	Nine Months Ended September 30,
	2019		2018		Change		% Change
	(thousands of dollars)
Equity in (losses) earnings of AMAK	(1,418	)	(672	)	(746	)	111.0	%

Equity in earnings (losses) of AMAK decreased during the first nine months of 2019 from the first nine months of 2018. The equity in earnings (losses) were impacted by increased selling, general and administrative expenses.



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AMAK Summarized Income Statement



	Nine Months Ended September 30, 2019
	2019			2018
	(thousands of dollars)
Sales	$	60,873		$	53,458
Cost of sales	55,804			49,411
Gross profit	5,069			4,047
Selling, general, and administrative	9,102			7,151
Operating income (loss)	(4,033		)	(3,104		)
Other income	396			70
Finance and interest expense	(1,349		)	(1,201		)
Loss before Zakat and income taxes	(4,986		)	(4,235		)
Zakat and income taxes	1,332			800
Net Loss	$	(6,318	)	$	(5,035	)

Finance and interest expense	1,349			1,201
Depreciation and amortization	23,604			24,881
Zakat and income taxes	1,332			800
EBITDA	$	19,967		$	21,847

AMAK continued to make progress in throughput rates, concentrate quality and recoveries. Approximately 49,000 dry metric tons (dmt) of copper and zinc concentrate were shipped in the first nine months of 2019 as compared to 42,000 dmt of copper and zinc concentrate in the first nine months of 2018. EBITDA shows a decline of approximately $1.9 million compared to the first nine months of 2018 primarily due to increased cost of sales resulting from a change in inventory valuation methodology and one-time non-recurring expenses.

Contractual Obligations

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.~~2018. See Note 10 for changes to our debt maturity schedule. There have been no other material changes to the contractual obligation amounts disclosed in our ~~annual report~~Annual Report on Form 10-K for the ~~fiscal~~ year ended December 31, ~~2017.~~2018.

Critical Accounting Policies and Estimates

~~Revenue Recognition~~

~~The Company adopted Financial Accounting Standards Board ("FASB") ASC Topic 606 ("ASC 606"),~~ ~~Revenue from Contracts with Customers~~ ~~and its amendments~~with a date of the initial application of January 1, 2018. As a result, the Company has changed its accounting policy for revenue recognition as detailed below. ASC 606 outlines a single comprehensive model for an entity to use in 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 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 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 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.

~~Other critical~~Critical accounting policies are more fully described in Note 2, “Summary of Significant Accounting Policies” to the ~~Notes to Consolidated Financial Statements included~~consolidated financial statements set forth in our Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018. The preparation of consolidated financial statements in accordance with generally accepted accounting principles requires management to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the period reported. By their nature, these estimates, assumptions and judgments are subject to an inherent degree of uncertainty. We base our estimates, assumptions and judgments on historical experience, market trends and other factors that are believed to be reasonable under the circumstances. Estimates, assumptions and judgments are reviewed on an ongoing basis and the effects of revisions are reflected in the consolidated financial statements in the period they are determined to be necessary. Actual results may differ from these estimates under different assumptions or conditions. Our critical accounting policies and estimates have been discussed with the Audit Committee of the Board of ~~Directors. We believe there have been no material changes to our critical accounting policies~~Directors and ~~estimates compared to those~~ discussed in our Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018. For the nine months ended September 30, 2019, there were no significant changes to these policies except for the policies related to the accounting for



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	34

leases as a result of the adoption of ASU 2016-02, Leases, as of January 1, 2019 as described in Note 1 – General and Note 8 – Leases in the accompanying condensed consolidated financial statements.

Recent and New Accounting Standards

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

Off Balance Sheet Arrangements

Off balance sheet arrangements as defined by the SEC means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with the registrant is a party, under which the registrant has (i) obligations under certain guarantees or contracts, (ii) retained or contingent interest in assets transferred to an unconsolidated entity or similar arrangements, (iii) obligations under certain derivative arrangements, and (iv) obligations arising out of a material variable interest in an unconsolidated entity. Our guarantee for AMAK's debt is considered an off balance sheet arrangement. Please see further discussion in Notes 16 and 19 to the Condensed Consolidated Financial Statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

~~Derivative Instrument~~For quantitative and qualitative disclosure about market risk, see Part II, Item 7A, Quantitative and Qualitative Disclosures about Market Risk

~~See Note 12 to~~ in our Annual Report on Form 10–K for the ~~Consolidated Financial Statements.~~

~~Interest Rate Risk~~

~~See Note 12 to the Consolidated Financial Statements.~~



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	32

year ended December 31, 2018. 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, 2017.~~such report.

ITEM 4. CONTROLS AND PROCEDURES.

(a)

Evaluation of disclosure controls and procedures. Our Chief Executive Officer and Chief Financial Officer, with the participation of management, have evaluated the effectiveness of our "disclosure controls and procedures" (as defined in Rules 13a-15(e) and 15(d)-15(e) under the Securities Exchange Act of 1934) and determined that our disclosure controls and procedures were effective as of the end of the period covered by this report.


(b)	Changes in internal control. There were no significant changes in our internal control over financial reporting that occurred during the ~~nine~~three months ended September 30, ~~2018,~~2019, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



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	3335

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

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

ITEM 1A. RISK FACTORS.

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

The risks and uncertainties in the Company's most recent Annual Report on Form 10–K are not the only risks that the Company faces. Additional risks and uncertainties not presently known or those that are currently deemed immaterial may also affect the Company's operations. Any of the risks, uncertainties, events or circumstances described therein could cause the Company's future financial condition, results of operations or cash flows to be adversely affected. There have been no material changes from the risk factors previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018, except as noted below.

Consummation of the sale of the Company's equity interest in AMAK is subject to a number of closing conditions, including receipt certain governmental approvals, that may not be satisfied, and the closing of the sale may be delayed or the sale may not be completed as contemplated, or at all.

Although we have entered into the Purchase Agreement with respect to the sale of the Company's equity interest in AMAK to the Purchasers, we cannot guarantee when, or whether the sale will be completed. The closing of the sale is subject to closing conditions, including the receipt of certain governmental approvals from the Saudi Arabian Deputy Ministry for Mineral Resources and the SIDF (with respect to release of the Company's limited guarantee of the Loan (as described in Note 18)). If the closing conditions are not satisfied or waived (to the extent any such condition may be waived), in either a timely manner or at all, the closing of the sale may be delayed or may not be completed as contemplated, or at all, which could cause us not to realize some or all of the anticipated benefits of the transaction. In addition, the market price of the Company's common stock may reflect an assumption that the pending sale will occur and on a timely basis, and the failure to do so may result in a decline in the market price of the Company's common stock.



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	3436

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

Unregistered Sales of Equity Securities

In connection with certain amendments to his Employment Contract, Peter M. Loggenberg, our Chief Sustainability Officer, was granted 4,400 restricted shares of our common stock on February 21, 2019. The restricted shares were issued pursuant to an exemption from registration under Section 4(a)(2) of the Securities Act of 1933, as amended, and vest in equal increments over a three year period.

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
~~10.1~~2.1*	~~Fourth Amendment to Amended~~Share Sale and ~~Restated Credit~~Purchase Agreement, dated as of ~~July 31, 2018,~~September 22, 2019, among Texas Oil & Chemical Co. II, Inc., 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, Swingline Lender and L/C Issuer (incorporated by reference to Exhibit 10.1 from Trecora Resources' Current Report on Form 8-K, filed August 1, 2018)
~~10.2+~~	~~Consulting Agreement, dated as of July 1, 2018, between~~ Trecora Resources, Al Masane Al Kobra Mining Company and ~~Connie J. Cook (incorporated by reference to Exhibit 10.3 from Trecora Resources' Quarterly Report on Form 10-Q for~~ the ~~quarter ended June 30, 2018)~~other purchasers named therein
31.1**	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
31.2**	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
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**	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



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	3537

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 6, 2018~~ ~~TRECORA RESOURCES~~

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

~~Sami Ahmad~~



	TRECORA RESOURCES

Dated: November 8, 2019	By:	/s/ Sami Ahmad
		Sami Ahmad
		Principal Financial Officer and Duly Authorized Officer



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	3638



PART I – FINANCIAL INFORMATION
ITEM 1. Financial Statements
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of ~~Income~~Operations	2
	Condensed Consolidated Statement of Stockholders' Equity	3
	Condensed Consolidated Statements of Cash Flows	45
	Notes to Condensed Consolidated Financial Statements	56

ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		2022

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk		3235

ITEM 4. Controls and Procedures		3335
	PART II – OTHER INFORMATION
ITEM 1. Legal Proceedings		3436

ITEM 1A. Risk Factors		3436

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds		37

ITEM 6. Exhibits		3537



	Three Months Ended September 30, 2018							Three Months Ended September 30, 2017
	Income (Loss)			Shares	Per Share Amount			Income (Loss)		Shares	Per Share Amount
Basic Net Income per Share:
Net Income (Loss) Attributable to Trecora Resources	$	(1,609	)	24,483	$	(0.07	)	$	1,718	24,304	$	0.07
Unvested restricted stock units				398						379
Dilutive stock options outstanding				294						474
Diluted Net Income per Share:
Net Income (Loss) Attributable to Trecora Resources	$	(1,609	)	25,175	$	(0.06	)	$	1,718	25,157	$	0.07



	Nine Months Ended September 30, 2018					Nine Months Ended September 30, 2017
	Income		Shares	Per Share Amount		Income		Shares	Per Share Amount
Basic Net Income per Share:
Net Income Attributable to Trecora Resources	$	2,958	24,397	$	0.12	$	4,037	24,267	$	0.17
Unvested restricted stock units			383					360
Dilutive stock options outstanding			358					455
Diluted Net Income per Share:
Net Income Attributable to Trecora Resources	$	2,958	25,138	$	0.12	$	4,037	25,082	$	0.16



	September 30, 2018			December 31, 2017
Acquisition loan	$	—		$	47,250
Term loan	86,406			17,333
Revolving facility	20,000			35,000
Total	106,406			99,583
Debt issuance costs	(875		)	(501		)
Total long-term debt	$	105,531		$	99,082
Less current portion including loan fees	4,194			8,061
Total long-term debt, less current portion including loan fees	$	101,337		$	91,021



	Shares of Restricted Stock Units		Weighted Average Grant Date Price per Share
Outstanding at January 1, 2018	387,702		$	11.39
Granted	151,908		$	12.45
Forfeited	(48,631	)	$	10.88
Vested	(92,874	)	$	11.85
Outstanding at September 30, 2018	398,105		$	11.72



	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	(249,879	)	5.61
Cancelled	(200,000	)	3.40
Forfeited	—		—
Outstanding at September 30, 2018	873,708		$	9.47	4.5
Exercisable at September 30, 2018	873,708		$	9.47	4.5



	Three Months Ended September 30, 2018
	Petrochemical		Specialty Wax			Corporate			Eliminations			Consolidated
	(in thousands)
Product sales	$	61,675	$	6,938		$	—		$	—		$	68,613
Processing fees	2,056		2,799			—			(52		)	4,803
Total revenues	63,731		9,737			—			(52		)	73,416
Operating profit (loss) before depreciation and amortization	6,167		415			(2,252		)	—			4,330
Operating profit (loss)	3,516		(936		)	(2,270		)	—			310
Profit (loss) before taxes	2,561		(1,239		)	(3,404		)	—			(2,082		)
Depreciation and amortization	2,651		1,351			16			—			4,018
Capital expenditures	2,562		1,094			—			—			3,656



	Three Months Ended September 30, 2017
	Petrochemical		Specialty Wax			Corporate			Eliminations	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			Eliminations	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



	September 30, 2018	December 31, 2017	September 30, 2017
Days sales outstanding in accounts receivable	38.1	38.4	34.6
Days sales outstanding in inventory	22.8	27.5	19.6
Days sales outstanding in accounts payable	17.0	27.3	18.9
Days of working capital	43.9	38.5	35.4