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


FORM 10-Q
(Mark One)

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

For the quarterly period ended September 30, 2021March 31, 2022
or

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

For the transition period from _________ to __________

COMMISSION FILE NUMBER 1-33926
trec-20220331_g1.jpg
TRECORA RESOURCES
(Exact name of registrant as specified in its charter)
Delaware75-1256622
(State or other jurisdiction of(I.R.S. Employer Identification No.)
incorporation or organization)
1650 Hwy 6 South,Suite 19077478
Sugar Land,Texas
(Address of principal executive offices)(Zip code)

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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.10 per shareTRECNew York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes   X   No       

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S–T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit 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

Non-accelerated filer   Smaller reporting company

Emerging growth company

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

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

Number of shares of the Registrant's Common Stock (par value $0.10 per share) outstanding at October 22, 2021: 24,402,392.May 4, 2022: 23,651,141.





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, 2021 (Unaudited)December 31, 2020March 31, 2022 (Unaudited)December 31, 2021
ASSETSASSETS(thousands of dollars, except par value)ASSETS(thousands of dollars, except par value)
Current Assets Current Assets   Current Assets  
CashCash$44,403 $55,664 Cash$31,937 $30,535 
Trade receivables, netTrade receivables, net31,958 25,301 Trade receivables, net33,572 32,811 
InventoriesInventories15,619 12,945 Inventories20,355 21,134 
Prepaid expenses and other assetsPrepaid expenses and other assets6,643 9,198 Prepaid expenses and other assets3,396 4,313 
Taxes receivable945 2,788 
Total current assetsTotal current assets99,568 105,896 Total current assets89,260 88,793 
Property, plant and equipment, netProperty, plant and equipment, net187,567 187,104 Property, plant and equipment, net186,029 185,521 
Intangible assets, netIntangible assets, net11,512 12,893 Intangible assets, net10,601 11,056 
Lease right-of-use assets, netLease right-of-use assets, net8,746 10,528 Lease right-of-use assets, net7,305 8,170 
Mineral properties in the United States412 412 
TOTAL ASSETSTOTAL ASSETS$307,805 $316,833 TOTAL ASSETS$293,195 $293,540 
LIABILITIESLIABILITIESLIABILITIES
Current LiabilitiesCurrent LiabilitiesCurrent Liabilities
Accounts payableAccounts payable$12,686 $14,447 Accounts payable$12,387 $12,075 
Accrued liabilitiesAccrued liabilities11,044 6,857 Accrued liabilities7,123 5,873 
Current portion of long-term debtCurrent portion of long-term debt4,194 4,194 Current portion of long-term debt4,194 4,194 
Current portion of lease liabilitiesCurrent portion of lease liabilities3,302 3,195 Current portion of lease liabilities3,085 3,227 
Current portion of CARES Act, PPP Loans3,935 — 
Current portion of other liabilitiesCurrent portion of other liabilities542 891 Current portion of other liabilities620 626 
Total current liabilitiesTotal current liabilities35,703 29,584 Total current liabilities27,409 25,995 
CARES Act, PPP Loans, net of current portion
— 6,123 
Long-term debt, net of current portion
Long-term debt, net of current portion
38,755 41,901 
Long-term debt, net of current portion
36,658 37,707 
Post-retirement benefit, net of current portion
312 320 
Lease liabilities, net of current portion
Lease liabilities, net of current portion
5,444 7,333 
Lease liabilities, net of current portion
4,202 4,923 
Other liabilities, net of current portion
Other liabilities, net of current portion
617 648 
Other liabilities, net of current portion
403 417 
Deferred income taxesDeferred income taxes26,420 26,517 Deferred income taxes24,771 24,525 
Total liabilitiesTotal liabilities107,251 112,426 Total liabilities93,443 93,567 
COMMITMENTS AND CONTINGENCIES (Note 12)00
COMMITMENTS AND CONTINGENCIES (Note 11)COMMITMENTS AND CONTINGENCIES (Note 11)00
EQUITYEQUITYEQUITY
Common stock - authorized 40 million shares of $0.10 par value; issued 25.0 million and 24.8 million and outstanding 24.4 million and 24.8 million in 2021 and 2020, respectively
2,497 2,483 
Common stock - authorized 40 million shares of $0.10 par value; issued 25.1 million and 25.0 million and outstanding 23.7 million and 23.6 million in 2022 and 2021, respectively
Common stock - authorized 40 million shares of $0.10 par value; issued 25.1 million and 25.0 million and outstanding 23.7 million and 23.6 million in 2022 and 2021, respectively
2,508 2,499 
Additional paid-in capitalAdditional paid-in capital62,710 61,311 Additional paid-in capital63,406 63,260 
Treasury stock, at cost (0.6 million shares)(5,000)— 
Treasury stock, at cost (1.4 million shares)Treasury stock, at cost (1.4 million shares)(11,486)(11,486)
Retained earningsRetained earnings140,058 140,324 Retained earnings145,324 145,700 
Total Trecora Resources Stockholders' Equity200,265 204,118 
Non-controlling Interest289 289 
Total equityTotal equity200,554 204,407 Total equity199,752 199,973 
TOTAL LIABILITIES AND EQUITYTOTAL LIABILITIES AND EQUITY$307,805 $316,833 TOTAL LIABILITIES AND EQUITY$293,195 $293,540 
See notes to condensed consolidated financial statements.
1


TRECORA RESOURCES AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS
ENDED
SEPTEMBER 30,
NINE MONTHS
ENDED
SEPTEMBER 30,
THREE MONTHS
ENDED
MARCH 31,
2021202020212020 20222021
(thousands of dollars, except per share amounts) (thousands of dollars, except per share amounts)
REVENUESREVENUES   REVENUES  
Product salesProduct sales$70,422 $43,570 $186,647 $137,460 Product sales$79,061 $51,565 
Processing feesProcessing fees4,215 4,177 11,424 13,028 Processing fees4,153 3,020 
74,637 47,747 198,071 150,488  83,214 54,585 
OPERATING COSTS AND EXPENSESOPERATING COSTS AND EXPENSESOPERATING COSTS AND EXPENSES
Cost of sales and processing
(including depreciation and amortization of $4,180, $3,887, $12,317 and $11,373, respectively)
65,663 39,290 175,731 127,786 
Cost of sales and processing
(including depreciation and amortization of $4,079 and $4,055, respectively)
Cost of sales and processing
(including depreciation and amortization of $4,079 and $4,055, respectively)
75,321 52,240 
GROSS PROFITGROSS PROFIT8,974 8,457 22,340 22,702 GROSS PROFIT7,893 2,345 
GENERAL AND ADMINISTRATIVE EXPENSESGENERAL AND ADMINISTRATIVE EXPENSESGENERAL AND ADMINISTRATIVE EXPENSES
General and administrativeGeneral and administrative8,923 5,766 23,928 18,729 General and administrative7,533 7,332 
DepreciationDepreciation218 209 670 637 Depreciation228 226 
9,141 5,975 24,598 19,366  7,761 7,558 
OPERATING INCOME (LOSS)OPERATING INCOME (LOSS)(167)2,482 (2,258)3,336 OPERATING INCOME (LOSS)132 (5,213)
OTHER INCOME (EXPENSE)OTHER INCOME (EXPENSE)OTHER INCOME (EXPENSE)
Interest expenseInterest expense(319)(508)(918)(2,159)Interest expense(283)(302)
Gain on extinguishment of debt2,188 — 2,188 — 
Miscellaneous income, netMiscellaneous income, net(30)(13)213 (7)Miscellaneous income, net69 110 
1,839 (521)1,483 (2,166)(214)(192)
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES1,672 1,961 (775)1,170 
INCOME (LOSS) BEFORE INCOME TAXESINCOME (LOSS) BEFORE INCOME TAXES(82)(5,405)
INCOME TAX (EXPENSE) BENEFITINCOME TAX (EXPENSE) BENEFIT211 (853)509 3,942 INCOME TAX (EXPENSE) BENEFIT(294)1,001 
INCOME (LOSS) FROM CONTINUING OPERATIONS1,883 1,108 (266)5,112 
INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX— 21,324 — 26,179 
NET INCOME (LOSS)NET INCOME (LOSS)$1,883 $22,432 $(266)$31,291 NET INCOME (LOSS)$(376)$(4,404)
Basic Earnings (Loss) per Common ShareBasic Earnings (Loss) per Common ShareBasic Earnings (Loss) per Common Share
Net income (loss) from continuing operations (dollars)$0.08 $0.04 $(0.01)$0.21 
Net income from discontinued operations, net of tax (dollars)— 0.86 — 1.06 
Net income (loss) (dollars)$0.08 $0.90 $(0.01)$1.27 
Net loss (dollars)Net loss (dollars)$(0.02)$(0.18)
Basic weighted average number of common shares outstandingBasic weighted average number of common shares outstanding24,341 24,817 24,562 24,795 Basic weighted average number of common shares outstanding23,600 24,861 
Diluted Earnings (Loss) per Common ShareDiluted Earnings (Loss) per Common ShareDiluted Earnings (Loss) per Common Share
Net income (loss) from continuing operations (dollars)$0.08 $0.04 $(0.01)$0.20 
Net income from discontinued operations, net of tax (dollars)— 0.84 — 1.04 
Net income (loss) (dollars)$0.08 $0.88 $(0.01)$1.24 
Net loss (dollars)Net loss (dollars)$(0.02)$(0.18)
Diluted weighted average number of common shares outstandingDiluted weighted average number of common shares outstanding24,952 25,394 24,562 25,179 Diluted weighted average number of common shares outstanding23,600 24,861 
See notes to condensed consolidated financial statements.
2


TRECORA RESOURCES AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTSTATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30MARCH 31
TRECORA RESOURCES STOCKHOLDERS   TRECORA RESOURCES STOCKHOLDERS  
COMMON STOCKADDITIONAL
PAID-IN
TREASURYRETAINED NON-
CONTROLLING
TOTAL COMMON STOCKADDITIONAL
PAID-IN
TREASURYRETAINED NON-
CONTROLLING
TOTAL
SHARESAMOUNTCAPITALSTOCKEARNINGSTOTALINTERESTEQUITY SHARESAMOUNTCAPITALSTOCKEARNINGSTOTALINTERESTEQUITY
(thousands)(thousands of dollars) (thousands)(thousands of dollars)
June 30, 202124,973 $2,497 $62,138 $(5,000)$138,175 $197,810 $289 $198,099 
December 31, 2021December 31, 202124,990 $2,499 $63,260 $(11,486)$145,700 $199,973 $ $199,973 
Restricted Stock UnitsRestricted Stock UnitsRestricted Stock Units
Issued to DirectorsIssued to Directors— — 439 — — 439 — 439 Issued to Directors— — 133 — — 133 — 133 
Issued to EmployeesIssued to Employees— — 133 — — 133 — 133 Issued to Employees— — 22 — — 22 — 22 
Common StockCommon StockCommon Stock
Issued to Directors— — — — —  —  
Issued to EmployeesIssued to Employees— — — — —  —  Issued to Employees85 (9)— —  —  
Stock Repurchases— — — — —  —  
Net Income— — — — 1,883 1,883 — 1,883 
September 30, 202124,973 $2,497 $62,710 $(5,000)$140,058 $200,265 $289 $200,554 
Net LossNet Loss— — — — (376)(376)— (376)
June 30, 202024,817 $2,482 $60,386 $ $118,008 $180,876 $289 $181,165 
March 31, 2022March 31, 202225,075 $2,508 $63,406 $(11,486)$145,324 $199,752 $ $199,752 
December 31, 2020December 31, 202024,833 $2,483 $61,311 $ $140,324 $204,118 $289 $204,407 
Restricted Stock UnitsRestricted Stock UnitsRestricted Stock Units
Issued to DirectorsIssued to Directors— — 113 — — 113 — 113 Issued to Directors— — 113 — — 113 — 113 
Issued to EmployeesIssued to Employees— — 376 — — 376 — 376 Issued to Employees— — 275 — — 275 — 275 
Common StockCommon StockCommon Stock
Issued to Directors— — — — —  —  
Issued to EmployeesIssued to Employees— — — — —  —  Issued to Employees61 (7)— —  —  
Net Income— — — — 22,432 22,432 — 22,432 
Net LossNet Loss— — — — (4,404)(4,404)— (4,404)
September 30, 202024,817 $2,482 $60,875 $ $140,440 $203,797 $289 $204,086 
March 31, 2021March 31, 202124,894 $2,490 $61,692 $ $135,920 $200,102 $289 $200,391 
See notes to condensed consolidated financial statements.
3


TRECORA RESOURCES AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30
 TRECORA RESOURCES STOCKHOLDERS  
 COMMON STOCKADDITIONAL
PAID-IN
TREASURYRETAINED NON-
CONTROLLING
TOTAL
 SHARESAMOUNTCAPITALSTOCKEARNINGSTOTALINTERESTEQUITY
 (thousands)(thousands of dollars)
January 1, 202124,833 $2,483 $61,311 $ $140,324 $204,118 $289 $204,407 
Restricted Stock Units
Issued to Directors— — 304   304 — 304 
Issued to Employees— — 1,109   1,109 — 1,109 
Common Stock
Issued to Directors68 (7)—   —  
Issued to Employees72 (7)— —  —  
Stock Repurchases— — — (5,000)— (5,000)— (5,000)
Net Loss    (266)(266)— (266)
September 30, 202124,973 $2,497 $62,710 $(5,000)$140,058 $200,265 $289 $200,554 
January 1, 202024,750 $2,475 $59,530 $ $109,149 $171,154 $289 $171,443 
Restricted Stock Units
Issued to Directors— — 308 —  308 — 308 
Issued to Employees— — 1,044 —  1,044 — 1,044 
Common Stock
Issued to Directors28 (3)—   —  
Issued to Employees39 (4)—   —  
Net Income— — — — 31,291 31,291 — 31,291 
September 30, 202024,817 $2,482 $60,875 $ $140,440 $203,797 $289 $204,086 

4


TRECORA RESOURCES AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
THREE MONTHS ENDED
MARCH 31,
20212020 20222021
(thousands of dollars) (thousands of dollars)
OPERATING ACTIVITIESOPERATING ACTIVITIES  OPERATING ACTIVITIES  
Net Income (Loss)Net Income (Loss)$(266)$31,291 Net Income (Loss)$(376)$(4,404)
Income from Discontinued Operations— 26,179 
Income (Loss) from Continuing Operations$(266)$5,112 
Adjustments to Reconcile Income (Loss) from Continuing Operations To Net Cash Provided by Operating Activities:
Adjustments to Reconcile Net Income (Loss) To Net Cash Provided by Operating Activities:Adjustments to Reconcile Net Income (Loss) To Net Cash Provided by Operating Activities:
Depreciation and AmortizationDepreciation and Amortization11,604 10,629 Depreciation and Amortization3,851 3,820 
Amortization of Intangible AssetsAmortization of Intangible Assets1,382 1,382 Amortization of Intangible Assets456 461 
Stock-based CompensationStock-based Compensation1,695 1,423 Stock-based Compensation524 571 
Deferred Income TaxesDeferred Income Taxes(96)14,168 Deferred Income Taxes246 (924)
Postretirement Obligation(22)(1)
Bad Debt Expense— (1)
Amortization of Loan FeesAmortization of Loan Fees136 136 Amortization of Loan Fees45 45 
(Gain) Loss on Disposal of Assets(280)
Gain on Extinguishment of Debt(2,188)— 
Gain on Disposal of AssetsGain on Disposal of Assets— (254)
Other Non-cash Items (Note 6)Other Non-cash Items (Note 6)515 — 
Changes in Operating Assets and Liabilities:Changes in Operating Assets and Liabilities:Changes in Operating Assets and Liabilities:
(Increase) Decrease in Trade Receivables(Increase) Decrease in Trade Receivables(6,657)3,665 (Increase) Decrease in Trade Receivables(762)(628)
Decrease in Insurance Receivables— 1,148 
(Increase) Decrease in Taxes Receivable1,843 (16,675)
(Increase) Decrease in Inventories(Increase) Decrease in Inventories(2,674)2,514 (Increase) Decrease in Inventories779 1,206 
(Increase) Decrease in Prepaid Expenses and Other Assets(Increase) Decrease in Prepaid Expenses and Other Assets2,554 (1,370)(Increase) Decrease in Prepaid Expenses and Other Assets916 2,803 
Increase (Decrease) in Accounts Payable and Accrued LiabilitiesIncrease (Decrease) in Accounts Payable and Accrued Liabilities2,426 (950)Increase (Decrease) in Accounts Payable and Accrued Liabilities1,527 1,282 
Increase (Decrease) in Other LiabilitiesIncrease (Decrease) in Other Liabilities(141)510 Increase (Decrease) in Other Liabilities(4)(147)
Net Cash Provided by Operating Activities - Continuing Operations9,316 21,699 
Net Cash Used in Operating Activities - Discontinued Operations— (4,124)
Net Cash Provided by Operating ActivitiesNet Cash Provided by Operating Activities9,316 17,575 Net Cash Provided by Operating Activities7,717 3,831 
INVESTING ACTIVITIESINVESTING ACTIVITIESINVESTING ACTIVITIES
Additions to Property, Plant and EquipmentAdditions to Property, Plant and Equipment(12,295)(10,309)Additions to Property, Plant and Equipment(4,851)(4,781)
Proceeds from Sale of Property, Plant and EquipmentProceeds from Sale of Property, Plant and Equipment281 150 Proceeds from Sale of Property, Plant and Equipment— 281 
Net Cash Used in Investing Activities - Continuing Operations(12,014)(10,159)
Net Cash Provided by Investing Activities - Discontinued Operations— 68,530 
Net Cash Provided by (Used in) Investing Activities(12,014)58,371 
Net Cash Used in Investing ActivitiesNet Cash Used in Investing Activities(4,851)(4,500)
FINANCING ACTIVITIESFINANCING ACTIVITIESFINANCING ACTIVITIES
Repurchase of Common StockRepurchase of Common Stock(5,000)— Repurchase of Common Stock— (692)
Net Cash Paid Related to Stock-Based CompensationNet Cash Paid Related to Stock-Based Compensation(282)(71)Net Cash Paid Related to Stock-Based Compensation(370)(183)
Additions to CARES Act, PPP Loans— 6,123 
Additions to Long-Term Debt— 20,000 
Repayments of Long-Term DebtRepayments of Long-Term Debt(3,281)(56,281)Repayments of Long-Term Debt(1,094)(1,094)
Net Cash Used in Financing Activities - Continuing Operations(8,563)(30,229)
NET (DECREASE) INCREASE IN CASH(11,261)45,717 
Net Cash Used in Financing ActivitiesNet Cash Used in Financing Activities(1,464)(1,969)
NET INCREASE (DECREASE) INCREASE IN CASHNET INCREASE (DECREASE) INCREASE IN CASH1,402 (2,638)
CASH AT BEGINNING OF PERIODCASH AT BEGINNING OF PERIOD55,664 6,145 CASH AT BEGINNING OF PERIOD30,535 55,664 
CASH AT END OF PERIODCASH AT END OF PERIOD$44,403 $51,862 CASH AT END OF PERIOD$31,937 $53,026 
Supplemental disclosure of cash flow information:Supplemental disclosure of cash flow information: Supplemental disclosure of cash flow information: 
Cash payments for interestCash payments for interest$744 $2,023 Cash payments for interest$237 $257 
Cash payments for taxes, net of refunds$(2,140)$3,000 
Supplemental disclosure of non-cash items:Supplemental disclosure of non-cash items:Supplemental disclosure of non-cash items:
Capital expansion amortized to depreciation expenseCapital expansion amortized to depreciation expense$225 $690 Capital expansion amortized to depreciation expense$11 $116 
Foreign taxes paid by AMAK$1,054 $240 
Foreign taxes paidForeign taxes paid$— $1,054 
See notes to condensed consolidated financial statements.
54


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. The Company's principal business activities are the manufacturing of various specialty petrochemical products, specialty waxes and providing custom processing services.
The Company’s specialty petrochemicals operations are primarily conducted through its wholly-owned subsidiary, Texas Oil and Chemical Co. II, Inc. (“TOCCO”). TOCCO owns all of the capital stock of South Hampton Resources, Inc. (“SHR”) and Trecora Chemical, Inc. (“TC”). SHR owns all of the capital stock of Gulf State Pipe Line Company, Inc. (“GSPL”). SHR owns and operates a specialty petrochemicals product facility in Silsbee, Texas which manufactures high purity hydrocarbons used primarily in polyethylene, packaging, polypropylene, expandable polystyrene, poly-iso/urethane foams, Canadian tar sands, and in the catalyst support industry. TC owns and operates a facility located in Pasadena, Texas which manufactures specialty waxes and provides custom processing services. These specialty waxes are used in the production of coatings, hot melt adhesives and lubricants. GSPL owns and operates pipelines that connect the SHR facility to a natural gas line, to SHR’s truck and rail loading terminal and to a major petroleum pipeline owned by an unaffiliated third party.
The Company owns approximatelypreviously owned a 55% of the capital stock of a Nevadaownership interest in an inactive mining company,corporation, Pioche Ely Valley Mines, Inc. (“PEVM”), which does not conduct any substantial business activity but owns undeveloped properties inwas previously presented as a non-controlling interest on the United States.
Company's financial statements. In November 2019, PEVM entered into a sales contract to sell all of its assets, which include 48 patented and 5 unpatented claims totaling approximately 1,500 acres. The Company also previously owned 33% of a Saudi Arabian joint stock company, Al Masane Al Kobra Mining Company (“AMAK”). The final closing of the sale of our ownership interest in AMAK was completed on September 28, 2020. For more information, see Note 5.November 1, 2021 and resulted in liquidation of substantially all of PEVM's remaining assets. Proceeds from the sale were used to repay outstanding indebtedness of PEVM owed to the Company. PEVM was legally dissolved on February 16, 2022.
For convenience in this report, the terms “Company”, “our”, “us”, “we” or “TREC” may be used to refer to Trecora Resources and its subsidiaries.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and in conformity with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these unaudited financial statements do not include all of the information and footnotes required by GAAP for complete financial statements and, therefore, should be read in conjunction with the financial statements and related notes contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2020.2021, filed on March 10, 2022, as amended by Amendment No. 1 to such Annual Report on Form 10-K, filed on April 29, 2022 (collectively, the “Annual Report on Form 10-K, as amended”).
The unaudited condensed consolidated financial statements included in this document have been prepared on the same basis as the annual 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 ninethree months ended September 30, 2021March 31, 2022 are not necessarily indicative of results for the year ending December 31, 2021.2022.
We currently operate in 2 segments, Specialty Petrochemicals and Specialty Waxes. All revenue originates from sources in the United States and all long-lived assets owned are located in the United States.
Reclassifications
2. RECENT ACCOUNTING PRONOUNCEMENTS
Recently Adopted Accounting Pronouncements
In December 2019,Certain prior period balances have been reclassified to conform to the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (ASU 2019-12), which simplifies the accounting for income taxes. This guidance was effective for uscurrent period presentation in the first quarter of 2021. The adoption of this guidance did not have a material impact on ourcondensed consolidated financial statements.
Recent Accounting Pronouncements Not Yet Adoptedstatements and the accompanying notes.
65


2. RECENT ACCOUNTING PRONOUNCEMENTS
Recent Accounting Pronouncements Not Yet Adopted
In March 2020, the FASBFinancial Accounting Standards Board issued ASUAccounting Standards Update (“ASU”) No. 2020–04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (ASU 2020-04)(“ASU 2020-04”), which provides guidance to alleviate the burden in accounting for reference rate reform by allowing certain expedients and exceptions in applying generally accepted accounting principles to contracts, hedging relationships, and other transactions impacted by reference rate reform. The provisions of ASU 2020-04 apply only to those transactions that reference LIBORthe London Interbank Offer Rate or another reference rate expected to be discontinued due to reference rate reform. This guidance is effective from March 12, 2020 through December 31, 2022 and adoption is optional. We are currently evaluating the impact of ASU 2020-04 on our consolidated financial statements.
3. TRADE RECEIVABLES
Trade receivables, net consisted of the following:Trade receivables, net consisted of the following:Trade receivables, net consisted of the following:
September 30, 2021December 31, 2020 March 31, 2022December 31, 2021
(thousands of dollars) (thousands of dollars)
Trade receivablesTrade receivables$32,258 $25,601 Trade receivables$33,872 $33,111 
Less allowance for doubtful accountsLess allowance for doubtful accounts(300)(300)Less allowance for doubtful accounts(300)(300)
Total trade receivables, netTotal trade receivables, net$31,958 $25,301 Total trade receivables, net$33,572 $32,811 
Trade receivables serve as collateral for our amended and restated credit agreement. See Note 11.10.
4. INVENTORIES
Inventories consisted of the following:Inventories consisted of the following:Inventories consisted of the following:
September 30, 2021December 31, 2020 March 31, 2022December 31, 2021
(thousands of dollars) (thousands of dollars)
Raw materialRaw material$1,928 $2,580 Raw material$5,432 $2,348 
Work in processWork in process187 138 Work in process171 212 
Finished productsFinished products13,504 10,227 Finished products14,752 18,574 
Total inventoriesTotal inventories$15,619 $12,945 Total inventories$20,355 $21,134 
Inventory serves as collateral for our amended and restated credit agreement. See Note 11.10.
Inventory included Specialty Petrochemicals products in transit valued at approximately $4.0$6.4 million and $3.6$4.9 million at September 30, 2021March 31, 2022 and December 31, 2020,2021, respectively.
5. INVESTMENT IN AMAKPREPAID EXPENSES AND DISCONTINUED OPERATIONSOTHER ASSETS
On September 28, 2020, the Company completed the final closing of the sale of its ownership interest in AMAK (the “Share Sale”) to AMAK and certain existing shareholders of AMAK and their assignees (collectively, the “Purchasers”). The Share Sale was completed in multiple closings pursuant to a Share Sale and Purchase Agreement, dated September 22, 2019 (which we refer to herein as the “Purchase Agreement”), among the Company, AMAK, and other Purchasers and resulted in aggregate gross proceeds to the Company of Saudi Riyals (“SAR”) 265 million (approximately $70 million) (before taxes and expenses).
As a condition to the effectiveness of the Purchase Agreement, the Purchasers advanced 5% of the purchase price (or approximately $3.5 million) in the form of a non-refundable deposit. Pursuant to the Purchase Agreement, (i) with respect to any Purchaser that completed the purchase of all or a portion of the ordinary shares allotted to it under the Purchase Agreement on or before March 31, 2020, the non-refundable deposit paid by such Purchaser (or a portion of such deposit for a partial closing) was credited toward the purchase price of the ordinary shares being purchased and (ii) with respect to any Purchasers that completed the purchase of all or a portion of their allotted ordinary shares after March 31, 2020 but on or before September 28, 2020, an amount equal to 50% of the non-refundable deposit paid by such Purchasers was forfeited to the Company as liquidated damages and such amount was not applied to the purchase price paid by the applicable Purchaser.
On March 26, 2020, the Company and one Purchaser completed the first closing of the Share Sale (the “First Closing”). In connection with the First Closing, the Company sold 4,000,000 ordinary shares for aggregate gross proceeds (before taxes and transaction expenses) of SAR 40 million (or approximately $10.7 million) (inclusive of the full amount of the Purchaser’s non-refundable deposit previously paid of $0.5 million). The Company recorded a foreign tax payable of approximately $0.3 million related to the First Closing.
During the third quarter of 2020, the Company completed additional closings of the Share Sale with respect to its remaining ownership interest in AMAK. In connection with these closings, the Company sold a total of 22,467,422 ordinary shares for
Prepaid expenses and other assets consisted of the following:
 March 31, 2022December 31, 2021
 (thousands of dollars)
Prepaid license$250 $500 
Prepaid insurance premiums— 1,145 
Spare parts2,561 2,114 
Other prepaid expenses and assets585 554 
Total prepaid expenses and other assets$3,396 $4,313 
7


aggregate gross proceeds (before taxes and transaction expenses) of SAR 224 million (or approximately $59.9 million) (inclusive of $1.5 million which constituted 50% of the non-refundable deposits previously paid by certain Purchasers). As none of the third quarter 2020 closings were completed prior to March 31, 2020, the remaining portion of the initial deposits (approximately $1.5 million) were forfeited to the Company as liquidated damages and were not applied to the purchase price. These amounts were included in income from discontinued operations, net of tax. The Company recorded a foreign tax payable of approximately $1.1 million related to the third quarter 2020 closings which were subsequently paid in the first quarter of 2021.
In connection with the completion of the Share Sale, the Company and AMAK entered into an agreement whereby AMAK agreed to withhold approximately $2.1 million of the purchase price to pay the Company’s estimated tax obligations in Saudi Arabia. The Company finalized the necessary tax returns in the Kingdom of Saudi Arabia and paid approximately $1.3 million in foreign taxes. All foreign taxes paid created a foreign tax credit to offset U.S. taxes. The Company collected the remaining excess funds of approximately $0.8 million in August 2021.
As previously disclosed, and as a result of the Company’s investment in AMAK, the Company was required to execute a limited guarantee on October 24, 2010 (the “Guarantee”) of up to 41% of a loan (the “Loan”) by the Saudi Industrial Development Fund (“SIDF”) to AMAK to fund the construction of the AMAK facilities and to provide working capital needs. The provision of personal or corporate guarantees, as applicable, by each shareholder of AMAK was a condition to SIDF providing the Loan. Pursuant to the Purchase Agreement, the Purchasers (other than AMAK) agreed, upon the completion of the Share Sale, to assume the Company’s obligation under the Guarantee (proportionately based upon such Purchaser’s percentage acquisition of ordinary shares in the Share Sale). While a formal written release of the Company from the Guarantee was not obtained from SIDF prior to closing, the Company believes that the Purchasers’ assumption of the Company’s obligation under the Guarantee effectively eliminates the Company’s liability arising under the Guarantee.
As the sale of the Company's interest in AMAK was completed as of September 28, 2020, there is no applicable 2021 financial information to present and it is thereby omitted for comparison purposes.
Included in discontinued operations for 2020 are the following:
 Three Months Ended
September 30, 2020
Nine Months Ended
September 30, 2020
 (thousands of dollars)
Saudi administration and transaction expenses$(2,605)$(2,490)
Equity in earnings of AMAK682 455 
Gain on sale of equity interest28,510 35,173 
Income from discontinued operations before taxes26,587 33,138 
Tax expense(5,263)(6,959)
Income from discontinued operations, net of tax$21,324 $26,179 
AMAK's financial statements were prepared in the functional currency of AMAK which is the SAR. In June 1986, the SAR was officially pegged to the U. S. Dollar at a fixed exchange rate of 1 USD to 3.75 SAR.
8


The summarized results of operations and financial position for 2020 for AMAK are as follows:
Results of Operations
 Three Months Ended
September 30, 2020
Nine Months Ended
September 30, 2020
 (thousands of dollars)
Sales$23,943 $62,632 
Cost of sales18,644 53,294 
Gross profit5,299 9,338 
Selling, general, and administrative3,808 8,850 
Operating income (loss)1,491 488 
Other income16 33 
Finance and interest expense(237)(871)
Income (loss) before Zakat and income taxes1,270 (350)
Zakat and income tax (benefit)(240)859 
Net Income (Loss)$1,510 $(1,209)
Financial Position
December 31, 2020
(thousands of dollars)
Current assets$29,799 
Noncurrent assets209,814 
Total assets$239,613 
Current liabilities$40,919 
Long term liabilities79,122 
Stockholders' equity119,572 
$239,613 
The equity in the earnings (losses) of AMAK included in income (loss) from discontinued operations, net of tax, on the condensed consolidated statements of operations for the three and nine months ended September 30, 2020, is comprised of the following:
 Three Months Ended
September 30, 2020
Nine Months Ended
September 30, 2020
 (thousands of dollars)
AMAK Net Income (Loss)1,510 (1,209)
Company's share of income (loss) reported by AMAK*345 (555)
Amortization of difference between Company's investment in AMAK and Company's share of net assets of AMAK337 1,010 
Equity in earnings of AMAK682 455 
* Percentage of Ownership varies during the period.
For additional information, see NOTE 6 “INVESTMENT IN AMAK AND DISCONTINUED OPERATIONS” to the consolidated financial statements set forth in our Annual Report on Form 10–K for the year ended December 31, 2020.
9


6. PREPAID EXPENSES AND OTHER ASSETS
Prepaid expenses and other assets consisted of the following:
 September 30, 2021December 31, 2020
 (thousands of dollars)
Prepaid license$— $403 
Prepaid insurance premiums2,748 4,241 
Spare parts2,219 2,376 
Cash held in escrow by AMAK— 1,877 
Other prepaid expenses and assets1,676 301 
Total prepaid expenses and other assets$6,643 $9,198 
7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:Property, plant and equipment consisted of the following:Property, plant and equipment consisted of the following:
September 30, 2021December 31, 2020March 31, 2022December 31, 2021
(thousands of dollars) (thousands of dollars)
Platinum catalyst metalPlatinum catalyst metal$1,553 $1,580 Platinum catalyst metal$1,478 $1,478 
CatalystCatalyst4,325 4,325 Catalyst4,325 4,325 
LandLand5,428 5,428 Land5,400 5,428 
Plant, pipeline and equipmentPlant, pipeline and equipment280,427 270,149 Plant, pipeline and equipment286,491 282,780 
Construction in progressConstruction in progress8,199 6,422 Construction in progress7,901 7,213 
Total property, plant and equipmentTotal property, plant and equipment$299,932 $287,904 Total property, plant and equipment$305,595 $301,224 
Less accumulated depreciationLess accumulated depreciation(112,365)(100,800)Less accumulated depreciation(119,566)(115,703)
Total property, plant and equipment, netTotal property, plant and equipment, net$187,567 $187,104 Total property, plant and equipment, net$186,029 $185,521 
Property, plant and equipment serve as collateral for our amended and restated credit agreement. See Note 11.10.
In the first quarter of 2022, the Company donated approximately $0.5 million of land and other property, plant and equipment to a local municipal organization, which is included in other non-cash items on the condensed consolidated statement of cash flows.
Labor capitalized for construction was approximately $0.1 million and $0.1$0.6 million for the three months ended March 31, 2022 and $0.5 million and $0.1 million for the nine months ended September 30, 2021, and 2020, respectively.
Construction in progress during the first ninethree months of 2022 included pipeline upgrades and costs related to a scheduled plant turnaround late in the first quarter at our Specialty Petrochemicals facility. Construction in progress during the first three months of 2021 included costs for rebuild and restoration of a distillation tower. Construction in progress during the first nine months of 2020 included Advanced Reformer unit improvements and pipeline maintenance at SHR and equipment modifications at TC.
8.7. LEASES
The Company leases certain rail cars, rail equipment, office space and office equipment. The Company determines if a contract is a lease at the inception of the arrangement. The Company reviews all options to extend, terminate, or purchase its right-of-use assets at the inception of the lease and accounts for these options when they are reasonably certain of being exercised.
Leases with an initial term of 12 months or less are not recorded on the condensed consolidated balance sheets. Lease expense for these leases is recognized on a straight-line basis over the lease term.
The Company has no finance leases.
The components of lease expense were as follows:
($ in thousands)Classification in the Condensed Consolidated Statements of IncomeThree Months Ended March 31,
20222021
Operating lease cost (a)Cost of sales, exclusive of depreciation and amortization$1,164 $1,049 
Operating lease cost (a)Selling, general and administrative13 34 
Total lease cost $1,177 $1,083 
(a) Short-term lease costs were approximately $0.2 million and $0.2 million for the three months ended March 31, 2022 and 2021, respectively.
The Company had no variable lease expense, as defined by ASC 842, during the periods.
107


The components of lease expense were as follows:
($ in thousands)Classification in the Condensed Consolidated Statements of IncomeThree Months Ended September 30,Nine Months Ended
September 30,
2021202020212020
Operating lease cost (a)Cost of sales, exclusive of depreciation and amortization$1,124 $1,115 $3,132 $3,036 
Operating lease cost (a)Selling, general and administrative33 34 102 102 
Total lease cost $1,157 $1,149 $3,234 $3,138 
($ in thousands)Classification on the Condensed Consolidated Balance SheetsMarch 31, 2022December 31, 2021
Assets: 
OperatingOperating lease assets$7,305 $8,170 
Total lease right-of-use assets, net $7,305 $8,170 
Liabilities: 
Current: 
OperatingCurrent portion of operating lease liabilities$3,085 $3,227 
Noncurrent: 
OperatingOperating lease liabilities4,202 4,923 
Total lease liabilities $7,287 $8,150 
(a) Short-term lease costs were approximately $0.2 million and $0.2 million for the three months and $0.5 million and $0.3 million for the nine months ended September 30, 2021 and 2020, respectively.
Three Months Ended
March 31,
($ in thousands)20222021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows used for operating leases$948 $903 
Right-of-use assets obtained in exchange for lease obligations:
Operating leases$— $19 
The Company had no variable lease expense, as defined by ASC 842, during the periods.
($ in thousands)Classification on the Condensed Consolidated Balance SheetsSeptember 30, 2021December 31, 2020
Assets: 
OperatingOperating lease assets$8,746 $10,528 
Total lease right-of-use assets, net $8,746 $10,528 
Liabilities: 
Current: 
OperatingCurrent portion of operating lease liabilities$3,302 $3,195 
Noncurrent: 
OperatingOperating lease liabilities5,444 7,333 
Total lease liabilities $8,746 $10,528 
Three Months Ended
September 30,
Nine Months Ended
September 30,
($ in thousands)2021202020212020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows used for operating leases$924 $925 $2,727 $2,806 
Right-of-use assets obtained in exchange for lease obligations:
Operating leases$610 $37 $630 $37 
September 30, 2021September 30, 2020 March 31, 2022March 31, 2021
Weighted-average remaining lease term (in years):Weighted-average remaining lease term (in years): Weighted-average remaining lease term (in years): 
Operating leasesOperating leases3.23.9Operating leases2.93.5
Weighted-average discount rate:Weighted-average discount rate:Weighted-average discount rate:
Operating leasesOperating leases4.5 %4.5 %Operating leases4.5 %4.5 %
Most of the Company’s lease contracts do not provide a readily determinable implicit rate. For these contracts, the Company’s estimated incremental borrowing rate is based on information available at the inception of the lease.
11


As of September 30, 2021, maturities of lease liabilities were as follows:
As of March 31, 2022, maturities of lease liabilities were as follows:As of March 31, 2022, maturities of lease liabilities were as follows:
($ in thousands)($ in thousands)Operating Leases($ in thousands)Operating Leases
2021$934 
202220223,439 2022$2,563 
202320232,547 20232,619 
202420241,233 20241,298 
202520251,094 20251,123 
Thereafter118 
20262026149 
Total lease paymentsTotal lease payments$9,365 Total lease payments$7,752 
Less: InterestLess: Interest619 Less: Interest465 
Total lease obligationsTotal lease obligations$8,746 Total lease obligations$7,287 
9.8. INTANGIBLE ASSETS, NET
Intangible assets were recorded in relation to the acquisition of TC on October 1, 2014.
The following tables summarize the gross carrying amounts and accumulated amortization of intangible assets by major class:
 September 30, 2021
GrossAccumulated AmortizationNet
(thousands of dollars)
Customer relationships$16,852 $(7,864)$8,988 
Non-compete agreements94 (94)— 
Licenses and permits1,471 (786)685 
Developed technology6,131 (4,292)1,839 
Total$24,548 $(13,036)$11,512 
 December 31, 2020
GrossAccumulated AmortizationNet
(thousands of dollars)
Customer relationships$16,852 $(7,022)$9,830 
Non-compete agreements94 (94)— 
Licenses and permits1,471 (707)764 
Developed technology6,131 (3,832)2,299 
Total$24,548 $(11,655)$12,893 
Amortization expense for intangible assets included in cost of sales was approximately $0.5 million and $0.5 million for the three months and $1.4 million and $1.4 million for the nine months ended September 30, 2021 and 2020, respectively.
Based on identified intangible assets that are subject to amortization as of September 30, 2021, we expect future amortization expenses for each period to be as follows:
TotalRemainder of 202120222023202420252026Thereafter
(thousands of dollars)
Customer relationships$8,988 $281 $1,123 $1,123 1,123 1,123 1,123 $3,092 
Licenses and permits685 22 86 86 86 86 86 233 
Developed technology1,839 153 613 613 460 — — — 
Total future amortization expense$11,512 $456 $1,822 $1,822 $1,669 $1,209 $1,209 $3,325 
128


The following tables summarize the gross carrying amounts and accumulated amortization of intangible assets by major class:
 March 31, 2022
GrossAccumulated AmortizationNet
(thousands of dollars)
Customer relationships$16,852 $(8,426)$8,426 
Non-compete agreements94 (94)— 
Licenses and permits1,471 (829)642 
Developed technology6,131 (4,598)1,533 
Total$24,548 $(13,947)$10,601 
 December 31, 2021
GrossAccumulated AmortizationNet
(thousands of dollars)
Customer relationships$16,852 $(8,145)$8,707 
Non-compete agreements94 (94)— 
Licenses and permits1,471 (808)663 
Developed technology6,131 (4,445)1,686 
Total$24,548 $(13,492)$11,056 
Amortization expense for intangible assets included in cost of sales was approximately $0.5 million and $0.5 million for the three months ended March 31, 2022 and 2021, respectively.
Based on identified intangible assets that are subject to amortization as of March 31, 2022, we expect future amortization expenses for each period to be as follows:
TotalRemainder of 202220232024202520262027Thereafter
(thousands of dollars)
Customer relationships$8,426 $843 $1,123 $1,123 1,123 1,123 1,123 $1,968 
Licenses and permits642 64 86 86 86 86 86 148 
Developed technology1,533 460 613 460 — — — — 
Total future amortization expense$10,601 $1,367 $1,822 $1,669 $1,209 $1,209 $1,209 $2,116 
9. ACCRUED LIABILITIES
Accrued liabilities consisted of the following:
 March 31, 2022December 31, 2021
 (thousands of dollars)
State taxes$288 $192 
Property taxes760 — 
Payroll1,179 1,406 
Royalties454 294 
Incentive compensation3,168 3,508 
Legal165 — 
Professional expenses— 287 
Other1,109 186 
Total accrued liabilities$7,123 $5,873 
9


10. ACCRUED LIABILITIES
Accrued liabilities consisted of the following:
 September 30, 2021December 31, 2020
 (thousands of dollars)
State taxes$107 $125 
Property taxes2,347 — 
Payroll2,653 2,282 
Royalties143 260 
Officer compensation1,134 1,053 
Legal1,384 — 
AMAK foreign taxes and transaction costs— 1,613 
Other3,276 1,524 
Total accrued liabilities$11,044 $6,857 
11. LIABILITIES AND LONG-TERM DEBT
Senior Secured Credit Facilities
As of September 30, 2021,March 31, 2022, the Company had no outstanding borrowings under the senior secured revolving credit facility (the “Revolving Facility”) and approximately $42.9$40.9 million in borrowings outstanding under the senior secured term loan facility (the “Term Loan Facility”) (and, together with the Revolving Facility, the “Credit Facilities”), in each case, under the Company's amended and restated credit agreement (as amended, the “ARC Agreement”). In addition, the Company had approximately $75 million of availability under our Revolving Facility at September 30, 2021.March 31, 2022. TOCCO’s ability to make additional borrowings under the Revolving Facility at September 30, 2021March 31, 2022 was limited by, and in the future may be limited by, the Company's obligation to maintain compliance with the covenants contained in the ARC Agreement (including maintenance of a maximum Consolidated Leverage Ratio and minimum Consolidated Fixed Charge Coverage Ratio (each as defined in the ARC Agreement)).
On May 3, 2021, TOCCO, SHR, GSPL and TC (SHR, GSPL and TC collectively, the "Guarantors") entered into an Eighth Amendment to Amended and Restated Credit Agreement (the “Eighth Amendment”) which amended the definition of Consolidated EBITDA for any Measurement Period (as defined in the ARC Agreement) (including any Measurement Period containing the quarter ended March 31, 2021) to allow for certain add backs not to exceed $5.0 million in the aggregate for the 2021 fiscal year related to charges, expenses and losses arising from or related to the prolonged period of sub-freezing temperatures and snow across the State of Texas and the region in February 2021 (the “Texas freeze event”).
For each fiscal quarter after December 31, 2019, TOCCO must maintain a maximum Consolidated Leverage Ratio of 3.50 to 1.00 (subject to temporary increase following certain acquisitions). TOCCO's Consolidated Leverage Ratio was 1.20 and 1.341.24 as of September 30, 2021March 31, 2022 and June 30,December 31, 2021, respectively. Additionally, TOCCO must maintain a minimum Consolidated Fixed Charge Coverage Ratio as of the end of any fiscal quarter of 1.15 to 1.00. TOCCO's Consolidated Fixed Charge Coverage Ratio was 2.953.43 and 3.073.65 as of September 30, 2021March 31, 2022 and December 31, 2020,2021, respectively.
The maturity date for the ARC Agreement is July 31, 2023. As of September 30, 2021,March 31, 2022, the year to date effective interest rate for the Credit Facilities was 1.86%1.89%. The ARC Agreement contains a number of customary affirmative and negative covenants and the Company was in compliance with those covenants as of September 30, 2021.March 31, 2022.
For a summary of additional terms of the Credit Facilities, see NOTE 13, “LONG-TERM DEBT AND LONG-TERM OBLIGATIONS” to the consolidated financial statements set forth in the Company's Annual Report on Form 10-K, for the year ended December 31, 2020.as amended.
PPP Loans
On May 6, 2020, SHR and TC (collectively, the “Borrowers”) received loan proceeds from loans (the “PPP Loans”) under the United States Small Business Administration Paycheck Protection Program in an aggregate principal amount of approximately $6.1 million. The PPP Loans are evidenced by unsecured promissory notes each payable to Bank of America, N.A. The Borrowers fully utilized the PPP Loans to cover payroll and benefits costs in accordance with the relevant terms and conditions of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The PPP Loans mature on May 6, 2022, and bear interest at a stated rate of 1.0% per annum. The Company filed a forgiveness application for SHR on June 30, 2021 and for TC on July 26, 2021. On September 8, 2021, the Company was notified of full forgiveness for the PPP
13


Loan for TC of approximately $2.2 million. This is recognized as gain on extinguishment of debt in the financial statements. The Company expects to receive full forgiveness of the SHR PPP Loan in accordance with the provisions of the CARES Act.
Debt Issuance Costs
Debt issuance costs of approximately $0.9 million were incurred in connection with the fourth amendment to the ARC Agreement in July 2018. Unamortized debt issuance costs of approximately $0.2 million and $0.3 million and $0.5 million for the periods ended September 30, 2021as of March 31, 2022 and December 31, 2020,2021, respectively, have been netted against outstanding loan balances.
Long-term debt and long-term obligations are summarized as follows:Long-term debt and long-term obligations are summarized as follows:Long-term debt and long-term obligations are summarized as follows:
September 30, 2021December 31, 2020March 31, 2022December 31, 2021
(thousands of dollars)(thousands of dollars)
Revolving FacilityRevolving Facility$— $— Revolving Facility$— $— 
Term Loan FacilityTerm Loan Facility43,281 46,563 Term Loan Facility41,094 42,188 
Loan feesLoan fees(332)(468)Loan fees(242)(287)
Total long-term debtTotal long-term debt42,949 46,095 Total long-term debt40,852 41,901 
Less current portion including loan feesLess current portion including loan fees4,194 4,194 Less current portion including loan fees4,194 4,194 
Total long-term debt, less current portion including loan feesTotal long-term debt, less current portion including loan fees$38,755 $41,901 Total long-term debt, less current portion including loan fees$36,658 $37,707 
12.11. COMMITMENTS AND CONTINGENCIES
Litigation
The Company is periodically named in legal actions arising from normal business activities. We evaluate the merits of these actions and, if we determine that an unfavorable outcome is probable and can be reasonably estimated, we will establish the necessary reserves. We are not currently involved in legal proceedings that could reasonably be expected to have a material adverse effect on our business, prospects, financial condition or results of operations. We may become involved in material legal proceedings in the future.
Supplier Agreements
In accordance with our supplier agreements, on a recurring monthly basis, the Company commits to purchasing a determined volume of feedstock in anticipation of upcoming requirements. Feedstock purchases are invoiced and recorded when they are delivered. As of September 30, 2021March 31, 2022 and December 31, 2020,2021, the value of the remaining undelivered feedstock approximated $18.0$28.3 million and $9.2$19.7 million, respectively.
10


From time to time, we may incur shortfall fees due to feedstock purchases being below the minimum amounts prescribed by our agreements with our suppliers. Shortfall fee expenses were approximately $0.4$0.2 million and $0.2$0.4 million for the three months ended March 31, 2022 and $0.8 million and $1.2 million for the nine months ended September 30, 2021, and 2020, respectively.
Environmental Remediation
Amounts charged to expense for various activities related to environmental monitoring, compliance, and improvements were approximately $0.3$0.1 million and $0.2$0.3 million for the three months ended March 31, 2022 and $0.9 million and $0.7 million for the nine months ended September 30, 2021, and 2020, respectively.
13.12. STOCKHOLDERS' EQUITY
In March 2021, the Company’s Board of Directors authorized the repurchase of up to $20 million in common stock by March 2023 (the “Share Repurchase Program”). The share repurchases will be executed from time to time on the open market, through privately negotiated transactions or through broker-negotiated purchases, in compliance with applicable securities law. The timing and amount of any shares of the Company’s stock that are repurchased under the Share Repurchase Program will be determined by the Company’s management based on its evaluation of market conditions and other factors, including the Company’s stock price, although the Share Repurchase Program may be suspended or discontinued at any time. In connection with the Share Repurchase Program, the Company deposited funds with a broker to facilitate the repurchases. The Company repurchased no shares during the three months and 633,273 shares for approximately $5.0 million during the nine months ended September 30,March 31, 2022 and 2021, respectively. As of March 31, 2022, the value of shares that may yet be purchased under the Share Repurchase Program is approximately $8.8 million.
14.13. STOCK-BASED COMPENSATION
The Stock Option Plan for Key Employees, as well as, the Non-Employee Director Stock Option Plan (hereinafter collectively referred to as the “Stock Option Plans”), were approved by the Company’s stockholders in July 2008. The Stock Option Plans allot for the issuance of up to 1,000,000 shares.
14


The Trecora Resources Stock and Incentive Plan (the “Plan”) was approved by the Company’s stockholders in June 2012. As amended, the Plan allots for the issuance of up to 2.5 million shares in the form of stock options or restricted stock unit awards.
The Company recognized stock-based compensation expense of approximately $0.6$0.5 million and $0.5$0.6 million for the three months ended March 31, 2022 and $1.7 million and $1.4 million for the nine months ended September 30, 2021, and 2020, respectively.
Stock Options and WarrantOption Awards
Stock options and warrantsAwards granted under the provisions of the Stock Option Plans permit the purchase of our common stock at exercise prices equal to the closing price of Company common stock on the date the options were granted. The options have terms of 10 years and generally vest ratably over terms of 4 to 5 years. There were no stock options or warrant awards issued during the three or nine months ended September 30,March 31, 2022 or 2021, or 2020, respectively.
A summary of the status of the Company’s stock option and warrant awards is as follows:
Stock Options and WarrantsWeighted Average Exercise Price Per ShareWeighted Average Remaining Contractual LifeIntrinsic
Value
(in thousands)
Stock Option AwardsWeighted Average Exercise Price Per ShareWeighted Average Remaining Contractual LifeIntrinsic
Value
(in thousands)
Outstanding at January 1, 2021487,000 10.87 
Outstanding at January 1, 2022Outstanding at January 1, 2022467,000 11.16 
GrantedGranted— — Granted— — 
ExercisedExercised(20,000)4.09 Exercised— — 
ForfeitedForfeited— — Forfeited— — 
Outstanding at September 30, 2021467,000 11.16 2.1$— 
Outstanding at March 31, 2022Outstanding at March 31, 2022467,000 11.16 1.6$— 
Expected to vestExpected to vest— $— Expected to vest— $— 
Exercisable at September 30, 2021467,000 11.16 2.1$— 
Exercisable at March 31, 2022Exercisable at March 31, 2022467,000 11.16 1.6$— 
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, 2021,March 31, 2022, options to purchase approximately 0.1 million shares of common stock were in-the-money.
Since no optionsawards were granted, the weighted average grant-date fair value per share of optionsawards granted during the three and nine months ended September 30,March 31, 2022 and 2021, and 2020, respectively, was zero.
11


The Company has no non-vested outstanding optionsawards as of September 30, 2021.March 31, 2022.
Restricted Stock Unit Awards
Generally, restricted stock unit awards are granted annually to officers and directors of the Company under the provisions of the Plan. Restricted stock units are also granted ad hoc to attract or retain key personnel, and the terms and conditions under which these restricted stock units vest vary by award. The fair market value of restricted stock units granted is equal to the Company’s closing stock price on the date of grant. Restricted stock units granted to directors vest ratably overhave a 1one year vesting period, while restricted stock units granted to officers generally vest ratably over 3 years. Certain awards also include vesting provisions based on performance metrics measured over a 3 year period. Upon vesting, the restricted stock units are settled by issuing one share of the Company's common stock per unit.
A summary of the status of the Company's restricted stock units activity is as follows:A summary of the status of the Company's restricted stock units activity is as follows:A summary of the status of the Company's restricted stock units activity is as follows:
Shares of Restricted Stock UnitsWeighted Average Grant Date Price per ShareShares of Restricted Stock UnitsWeighted Average Grant Date Price per Share
Outstanding at January 1, 2021567,563 7.39 
Outstanding at January 1, 2022Outstanding at January 1, 2022586,444 7.32 
GrantedGranted337,443 7.30 Granted194,266 8.78 
ForfeitedForfeited(121,448)7.98 Forfeited(37,058)9.23 
VestedVested(172,114)7.65 Vested(126,823)8.79 
Outstanding at September 30, 2021611,444 7.40 
Outstanding at March 31, 2022Outstanding at March 31, 2022616,829 7.57 
Expected to vestExpected to vest611,444 Expected to vest616,829 
15.14. INCOME TAXES
We file an income tax return in the U.S. federal jurisdiction and a margin tax return in Texas. Previously, the Texas Comptroller selected the R&D credit calculations related to the 2014 and 2015 calendar years for audit. The state of Texas
15


suspended examination of the 2014 and 2015 calendar years in order to perform a comprehensive review of audit procedures to provide consistency. During the fourth quarter of 2019, we received notice that Texas had completed review of its procedures and initiated additional requests for information which has been submitted for their review. We do not expect any material changes related to the Texas audits. Our federal and Texas tax returns remain open for examination for the years 2017 through 2020. As of September 30, 2021March 31, 2022 and December 31, 2020,2021, respectively, we recognized no adjustments 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 foreign tax credits,stock based compensation, state tax expense and stock based compensationother permanent items for the ninethree months ended September 30, 2021March 31, 2022 and 2020. We continue to maintain a valuation allowance against certain deferred tax assets, specifically for mining claims for PEVM, where realization is not certain.
The CARES Act provided stimulus measures to companies impacted by the COVID-19 pandemic, which included the ability to defer payment for employer payroll taxes, utilize net operating loss (“NOL”) carrybacks, increased the limitation on the deductibility of interest expense, technical corrections to allow accelerated tax depreciation on qualified improvement property, as well as allowing qualified business to apply for loans and grants. We filed carryback claims allowed under these provisions and have collected all amounts, including interest. The remaining approximately $2.5 million related to our second and final NOL carryback claims, including approximately $0.1 million of interest income, was received in April 2021.
16.15. SEGMENT INFORMATION
We operate through business segments according to the nature and economic characteristics of our products as well as the manner in which the information is used internally by our key decision maker, who is our Chief Executive Officer. Segment data may include rounding differences.
Our Specialty Petrochemicals segment includes SHR and GSPL. Our Specialty Waxes segment is TC. We also separately identify our corporate overhead which includes administrative activities such as legal, accounting, consulting, investor relations, officer and director compensation, corporate insurance, and other administrative costs.
 Three Months Ended September 30, 2021
 Specialty PetrochemicalsSpecialty WaxesCorporateConsolidated
 (in thousands)
Product sales$61,938 $8,484 $— $70,422 
Processing fees1,419 2,796 — 4,215 
Total revenues63,357 11,280 — 74,637 
Operating income (loss) before depreciation and amortization7,258 2,041 (4,953)4,346 
Operating income (loss)4,413 489 (5,069)(167)
Income (loss) from continuing operations before taxes4,062 2,671 (5,061)1,672 
Depreciation and amortization2,844 1,553 — 4,397 
Capital expenditures3,416 215 — 3,631 
 Three Months Ended September 30, 2020
 Specialty PetrochemicalsSpecialty WaxesCorporateConsolidated
 (in thousands)
Product sales$37,580 $5,990 $— $43,570 
Processing fees1,644 2,533 — 4,177 
Total revenues39,224 8,523 — 47,747 
Operating income (loss) before depreciation and amortization8,538 89 (2,050)6,577 
Operating income (loss)5,871 (1,337)(2,052)2,482 
Income (loss) from continuing operations before taxes5,311 (1,293)(2,057)1,961 
Depreciation and amortization2,667 1,427 4,096 
Capital expenditures2,084 641 — 2,725 
1612


Nine Months Ended September 30, 2021 Three Months Ended March 31, 2022
Specialty PetrochemicalsSpecialty WaxesCorporateConsolidated Specialty PetrochemicalsSpecialty WaxesCorporateConsolidated
(in thousands) (in thousands)
Product salesProduct sales$164,359 $22,288 $— $186,647 Product sales$69,090 $9,971 $— $79,061 
Processing feesProcessing fees4,200 7,224 — 11,424 Processing fees1,488 2,665 — 4,153 
Total revenuesTotal revenues168,559 29,512 — 198,071 Total revenues70,578 12,636 — 83,214 
Operating income (loss) before depreciation and amortizationOperating income (loss) before depreciation and amortization19,570 2,881 (11,973)10,478 Operating income (loss) before depreciation and amortization5,378 1,909 (2,854)4,433 
Operating income (loss)Operating income (loss)11,137 (1,666)(11,729)(2,258)Operating income (loss)2,654 331 (2,853)132 
Income (loss) from continuing operations before taxes10,474 533 (11,782)(775)
Income (loss) before taxesIncome (loss) before taxes2,362 324 (2,768)(82)
Depreciation and amortizationDepreciation and amortization8,433 4,547 12,986 Depreciation and amortization2,729 1,578 — 4,307 
Capital expendituresCapital expenditures10,675 1,620 — 12,295 Capital expenditures4,129 722 — 4,851 
Nine Months Ended September 30, 2020 Three Months Ended March 31, 2021
Specialty PetrochemicalsSpecialty WaxesCorporateConsolidated Specialty PetrochemicalsSpecialty WaxesCorporateConsolidated
(in thousands) (in thousands)
Product salesProduct sales$119,202 $18,258 $— $137,460 Product sales$44,658 $6,907 $— $51,565 
Processing feesProcessing fees4,047 8,981 — 13,028 Processing fees1,254 1,766 — 3,020 
Total revenuesTotal revenues123,249 27,239 — 150,488 Total revenues45,912 8,673 — 54,585 
Operating income (loss) before depreciation and amortizationOperating income (loss) before depreciation and amortization20,002 2,009 (6,665)15,346 Operating income (loss) before depreciation and amortization2,571 (481)(3,023)(933)
Operating income (loss)Operating income (loss)12,097 (2,084)(6,677)3,336 Operating income (loss)(231)(1,957)(3,025)(5,213)
Income (loss) from continuing operations before taxes9,901 (1,980)(6,751)1,170 
Income (loss) before taxesIncome (loss) before taxes(297)(1,954)(3,154)(5,405)
Depreciation and amortizationDepreciation and amortization7,905 4,093 13 12,011 Depreciation and amortization2,802 1,476 4,281 
Capital expendituresCapital expenditures9,067 1,242 — 10,309 Capital expenditures3,567 1,214 — 4,781 
September 30, 2021 March 31, 2022
Specialty PetrochemicalsSpecialty WaxesCorporateEliminationsConsolidated Specialty PetrochemicalsSpecialty WaxesCorporateEliminationsConsolidated
(in thousands) (in thousands)
Intangible assets, netIntangible assets, net— 11,512 — — 11,512 Intangible assets, net— 10,601 — — 10,601 
Total assetsTotal assets298,885 81,477 118,986 (191,543)307,805 Total assets293,854 79,953 109,853 (190,465)293,195 
December 31, 2020 December 31, 2021
Specialty PetrochemicalsSpecialty WaxesCorporateEliminationsConsolidated Specialty PetrochemicalsSpecialty WaxesCorporateEliminationsConsolidated
(in thousands) (in thousands)
Intangible assets, netIntangible assets, net— 12,893 — — 12,893 Intangible assets, net— 11,056 — — 11,056 
Total assetsTotal assets298,198 83,108 127,260 (191,733)316,833 Total assets298,966 79,860 109,292 (194,578)293,540 
17.16. NET INCOME (LOSS) PER COMMON SHARE
The following tables set forth the computation of basic and diluted net income (loss) per share for the three and nine months ended September 30,March 31, 2022 and 2021, and 2020, respectively.
1713


Net Income (Loss) per Common Share - Continuing Operations
Three Months Ended
September 30, 2021
Three Months Ended
September 30, 2020
IncomeSharesPer Share
Amount
IncomeSharesPer Share
Amount
(in thousands, except per share amounts)
Basic:      
Net income from continuing operations$1,883 24,341 $0.08 $1,108 24,817 $0.04 
Unvested restricted stock units611 577 
Diluted:
Net income from continuing operations$1,883 24,952 $0.08 $1,108 25,394 $0.04 
Nine Months Ended
September 30, 2021
Nine Months Ended
September 30, 2020
LossSharesPer Share
Amount
IncomeSharesPer Share
Amount
(in thousands, except per share amounts)
Basic:
Net income (loss) from continuing operations$(266)24,562 $(0.01)$5,112 24,795 $0.21 
Unvested restricted stock units— 384 
Diluted:
Net income (loss) from continuing operations$(266)24,562 $(0.01)$5,112 25,179 $0.20 
18


Net Income (Loss) per Common Share - Discontinued Operations
 Three Months Ended
September 30, 2021
Three Months Ended
September 30, 2020
IncomeSharesPer Share
Amount
IncomeSharesPer Share
Amount
(in thousands, except per share amounts)
Basic:      
Net income from discontinued operations, net of tax$— 24,341 $— $21,324 24,817 $0.86 
Unvested restricted stock units611 577 
Diluted:
Net income from discontinued operations, net of tax$— 24,952 $— $21,324 25,394 $0.84 
Nine Months Ended
September 30, 2021
Nine Months Ended
September 30, 2020
IncomeSharesPer Share
Amount
IncomeSharesPer Share
Amount
(in thousands, except per share amounts)
Basic:
Net income from discontinued operations, net of tax$— 24,562 $— $26,179 24,795 $1.06 
Unvested restricted stock units— 384 
Diluted:
Net income from discontinued operations, net of tax$— 24,562 $— $26,179 25,179 $1.04 
Net Income (Loss) per Common Share
 Three Months Ended
September 30, 2021
Three Months Ended
September 30, 2020
IncomeSharesPer Share
Amount
IncomeSharesPer Share
Amount
(in thousands, except per share amounts)
Basic:      
Net income$1,883 24,341 $0.08 $22,432 24,817 $0.90 
Unvested restricted stock units611 577 
Diluted:
Net income$1,883 24,952 $0.08 $22,432 25,394 $0.88 
Nine Months Ended
September 30, 2021
Nine Months Ended
September 30, 2020
LossSharesPer Share
Amount
IncomeSharesPer Share
Amount
(in thousands, except per share amounts)
Basic:
Net income (loss)$(266)24,562 $(0.01)$31,291 24,795 $1.27 
Unvested restricted stock units— 384 
Diluted:
Net income (loss)$(266)24,562 $(0.01)$31,291 25,179 $1.24 
 Three Months Ended
March 31, 2022
Three Months Ended
March 31, 2021
LossSharesPer Share
Amount
LossSharesPer Share
Amount
(in thousands, except per share amounts)
Basic:      
Net loss$(376)23,600 $(0.02)$(4,404)24,861 $(0.18)
Diluted:
Net loss$(376)23,600 $(0.02)$(4,404)24,861 $(0.18)
At September 30,March 31, 2022 and 2021, approximately 0.6 million and 2020,0.7 million shares of unvested restricted stock units, respectively, were not included in the computation of diluted earnings per share because such restricted stock units would be anti-dilutive.
At March 31, 2022 and 2021, 0.5 million and 0.50.7 million shares of common stock, respectively, were issuable upon the exercise of outstanding stock options and warrants.
19


18. RELATED PARTY TRANSACTIONS
In November 2020, Company Director Adam C. Peakes joined Merichem Company as Executive Vice President and Chief Financial Officer. The Company incurred expenses of less than $0.1 million during the three and nine months ended September 30, 2021 and 2020, respectively, for Merichem Company. At September 30, 2021 and December 31, 2020, we had outstanding liabilities payable to Merichem Company of less than $0.1 million and nil, respectively.
19. POST-RETIREMENT OBLIGATIONS
We currently have post-retirement obligations with 2 former executives. As of September 30, 2021 and December 31, 2020, approximately $0.3 million and $0.3 million, respectively, remained outstanding and waswere not 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, 2020.computation of diluted earnings per share because such options would be anti-dilutive.

20


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. Statements regarding the Company’s financial position, business strategy and plans and objectives of the Company’s management for future operations and other statements that are not historical facts, are forward-looking statements. Forward-looking statements are often characterized by the use of words such as “outlook,” “may,” “will,” “can,” “shall,” “should,” “could,” “expects,” “plans,” “anticipates,” “contemplates,” “proposes,” “believes,” “estimates,” “predicts,” “projects,” “potential,” “continue,” “intend,” or the negative of such terms and other comparable terminology, or by discussions of strategy, plans or intentions.
Forward-looking statements involve known and unknown risks, uncertainties, assumptions, and other important factors that could cause the actual results, performance or our achievements, or industry results, to differ materially from historical results, any future results, or performance or achievements expressed or implied by such forward-looking statements. Such risks, uncertainties and factors include, but are not limited to the impacts of the COVID-19 pandemic on our business, financial results and financial condition and that of our customers, suppliers, and other counterparties; general economic and financial conditions domestically and internationally;internationally including the impact of rising inflation and supply chain issues; the ongoing impact of geopolitical conflict; the impact of actions by activist stockholders; insufficient cash flows from operating activities; our ability to attract and retain key employees; feedstock and product prices; feedstock availability and our ability to access third party transportation; competition; industry cycles; natural disasters or other severe weather events, (such as the Texas freeze event), health epidemics and pandemics (including the COVID-19 pandemic) and terrorist attacks; our ability to consummate, and the costs associated with, extraordinary transactions, including acquisitions, dispositions and other strategic initiatives,business combinations, and realize the financial and strategic goals of such transactions; technological developments and our ability to maintain, expand and upgrade our facilities; regulatory changes; environmental matters; lawsuits; outstanding debt and other financial and legal obligations (including having to return the amounts borrowed under the PPP Loans or failing to qualify for forgiveness of such loans, in whole or in part);obligations; difficulties in obtaining additional financing on favorable conditions, or at all; local business risks in foreign countries, including civil unrest and military or political conflict, local regulatory and legal environments and foreign currency fluctuations; and other risks detailed in our latestthe Annual Report on Form 10-K, as amended, including, but not limited to, “Part I, Item 1A. Risk Factors” and “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” therein, under similar headings in this Quarterly Report on Form 10-Q and in our other filings with the Securities and Exchange Commission (the “SEC”). Many of these risks and uncertainties are currently amplified by and will continue to be amplified by, or in the future may be amplified by, the COVID-19 pandemic and other natural disasters such as severe weather events.
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 and the information included in our prior releases, reports and other filings with the SEC, the information contained in this report updates and supersedes such information.
14


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 the date they are made, and we undertake no obligation to update them in light of new information or future events.
Overview
The following discussion and analysis of our financial results, as well as the accompanying unaudited condensed consolidated financial statements and related notes to condensed 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 manufacturing and marketing of specialty petrochemical products and waxes and providing custom manufacturing services.
The discussion and analysis of financial condition and the results of operations which appears below should be read in conjunction with “Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations” of ourthe Annual Report on Form 10-K, for the year ended December 31, 2020. These discussions of results reflect the continuing operations of the Company unless otherwise noted.as amended.
Our preferred supplier position into the specialty petrochemicals market is derived from the combination of our reputation as a reliable supplier established over many years, the very high purity of our products, and a focused approach to customer service. In specialty waxes, we are able to deliver to our customers a product performance and price point that we believe is unique to our market; while the diversity of our custom processing assets and capabilities offers solutions to our customers that we believe are uncommon along the U.S. Gulf Coast.
21


The specialty waxes business also delivers environmental circularity by using proprietary technology to convert waste products generated by suppliers' polyethylene production to high value solutions for our customers.
Enabling our success in these businesses is a commitment to operational excellence which establishes a culture that prioritizes the safety of our employees and communities in which we operate, the integrity of our assets and regulatory compliance. This commitment drives a change to an emphasis on forward-looking, leading-indicators of our results and proactive steps to continuously improve our performance. We bring the same commitment to excellence to our commercial activities where we focus on the value proposition to our customers while understanding opportunities to maximize our value capture through service and product differentiation, supply chain and operating cost efficiencies and diversified supply options. We believe our focus on execution, meeting the needs of our customers, and growing our business while maintaining prudent control of our costs, will significantly contribute to enhanced shareholderstockholder value.
Review of ThirdFirst Quarter 20212022 Results
We reported thirdfirst quarter 20212022 net income from continuing operationsloss of approximately $1.9$0.4 million, an increase from net income from continuing operationsloss of $1.1$4.4 million in the thirdfirst quarter of 2020.2021. Sales volume of our Specialty Petrochemicals products increased 16.8%17.6% in the thirdfirst quarter of 20212022 as compared to the thirdfirst quarter of 2020.2021. Specialty Waxes sales revenue was up 41.6%44.4% compared to the thirdfirst quarter 2020. Third2021. First quarter 20212022 results continuedimproved primarily due to improve due toincreased pricing, the ongoing economic recovery and stronger demand from our end-use markets. However, our thirdOur first quarter 2021 results includewere significantly impacted by the negative impactsprolonged period of sub-freezing temperatures and snow across the State of Texas and the region in February 2021 (the “Texas freeze event”) including reduced demand and higher natural gas and transportation costs, as well as continued supply-chain disruptions. Third quarter 2020 results were generally weaker due to the impact of the COVID-19 pandemic on end-use markets and our customers.costs.
Adjusted EBITDA from continuing operations was $7.5$5.8 million for the thirdfirst quarter of 2021,2022, compared with Adjusted EBITDA from continuing operations of $7.1$(0.1) million in the thirdfirst quarter of 2020.2021. Adjusted EBITDA from continuing operations increased due to increased selling prices and sales volumes and selling prices. The thirdvolumes. Additionally, the first quarter of 20202021 was impacted by the COVID-19 pandemic. Texas freeze event. As previously disclosed, the Company originally estimated the negative impact of the Texas freeze event to be approximately $5.0 million for the first quarter of 2021. This estimate was subsequently reduced to $3.5 million in the second quarter of 2021 due to a settlement agreement of $1.4 million with a utility provider.
See below for additional information about this measure and a reconciliation to the most directly comparable GAAP financial measure.
COVID-19 Pandemic
The continued global impact of COVID-19 has resulted in various emergency measures to combat the spread of the virus. With the development of variants and increased vaccination rates, the status of ongoing measures varies widely depending on the country and locality. We continue to monitor the progression of the COVID-19 pandemic on a daily basis. Our guiding principle is, and has always been, the protection of our people and the communities in which we work, as well as maintaining the overall integrity of our assets. We are continuing to follow the orders and guidance of federal, state, and local governmental agencies, as we maintain our own stringent protocols in an effort to mitigate the spread of the virus and protect the health of our employees, customers, and suppliers as well as the communities in which we work. As an organization, we adopted social distancing behaviors early, executed the necessary changes to enable all possible job duties to be performed remotely and rapidly identified and executed the necessary adjustments to support optimal productivity for all remote workers.
To date, our plants have continued to operate normally with regard to COVID-19, and our supply chain has generally remained intact, with adequate availability of raw materials. Importantly, under the U.S. Department of Homeland Security guidance issued on April 17, 2020 as updated through August 18, 2020, as well as many related state and local governmental orders, chemical manufacturing sites are considered essential critical infrastructure, and as such, have not been subject to closure in the locations where we operate. However, there have been widespread disruption in global logistics channels and we have experienced some delays in fulfillment of export customer orders.
As an organization, since the start of 2021, we have encouraged our workforce to receive vaccinations against COVID-19 through various means including incentive programs and an on-site vaccination event. However, new variants, particularly the Delta variant, have engendered a resurgence of the virus in many regions. In the midst of changing conditions, we have nevertheless been able to continue to manage our business with minimal impact as we have throughout the COVID-19 pandemic. With improving vaccination rates, we have also recently reopened some of our offices to flex schedule staffing for administrative employees.
Through the third quarter of 2021, we have seen a continued resurgence of demand due to the ongoing recovery of our business and the economy as a whole from the COVID-19 pandemic, which we expect to continue through year end and into 2022. However, numerous uncertainties remain regarding the potential future impact of the COVID-19 pandemic for the remainder of 2021 and beyond (including how the impact of the pandemic on our business and results of operations may change from quarter to quarter), including uncertainties related to the severity of the disease and the emergence of new variants, the continued duration of the pandemic, additional actions that may be taken by governmental authorities and other unintended consequences.
22


Looking forward, our management will continue to actively monitor the impact of the global pandemic on our business, results of operations, financial condition, liquidity, suppliers, industry, investments and workforce. We do not currently anticipate any material impairments, with respect to intangible assets, long-lived assets, or right of use assets, increases in allowances for credit losses from our customers, other expenses, or changes in accounting judgments to have a material impact on our condensed consolidated financial statements.
On March 27, 2020, the CARES Act was signed into law to address the economic impact of the COVID-19 pandemic. On December 27, 2020, the Consolidated Appropriations Act, 2021 was signed into law and includes further relief and stimulus provisions to address economic concerns related to the COVID-19 pandemic. On March 11, 2021, the American Rescue Plan Act of 2021 was signed into law and provides further economic relief and stimulus to deal with the economic impact of the COVID-19 pandemic. We also continue to monitor any effects that may result from these Acts and other similar legislation or actions on our Company.
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 from continuing operations and provide reconciliations from our most directly comparable GAAP financial measures to those measures.
We believe these financial measures provide users of our financial statements with supplemental information that may be useful in evaluating our operating performance. We also believe that such non-GAAP measures, when read in conjunction with our operating results presented under GAAP, can be used to better assess our performance from period to period and relative to performance of other companies in our industry, without regard to financing methods, historical cost basis or
15


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.
We define EBITDA from continuing operations as net income (loss) from continuing operations plus interest expense, income tax expense (benefit), and depreciation and amortization. In the third quarter of 2021, we redefined our non-GAAP measure Adjusted EBITDA to also exclude one-time costs for professional services associated with M&A and strategic initiatives. We define Adjusted EBITDA from continuing operations as EBITDA from continuing operations net of the impact of items we do not consider indicative of our ongoing operating performance, including share-based compensation, gains or losses on disposal of assets, gains or losses on extinguishment of debt, and one-time costs for professional services associated with M&A and strategic initiatives.initiatives and other non-recurring costs. The historical presentation of Adjusted EBITDA in this Quarterly Report on Form 10-Q has been recast to conform to the revised definition.
The following table presents a reconciliation of net income (loss), our most directly comparable GAAP financial performance measure for each of the periods presented, to EBITDA from continuing operations and Adjusted EBITDA from continuing operations.EBITDA.
Three Months Ended
March 31, 2022
Specialty PetrochemicalsSpecialty WaxesCorporateConsolidated
(in thousands)
Net income (loss)$1,765 $324 $(2,465)$(376)
Interest expense283 — — 283 
Income tax expense (benefit)597 — (303)294 
Depreciation and amortization206 22 — 228 
Depreciation and amortization in cost of sales2,523 1,556 — 4,079 
EBITDA$5,374 $1,902 $(2,768)$4,508 
Stock-based compensation— — 524 524 
Costs for professional services associated with M&A and strategic initiatives— — 210 210 
Other non-recurring costs*515 — — 515 
Adjusted EBITDA$5,889 $1,902 $(2,034)$5,757 
* Represents non-recurring charitable contribution as discussed in Note 6.
23


Three Months Ended
September 30, 2021
Specialty PetrochemicalsSpecialty WaxesCorporateConsolidated
(in thousands)
Net income (loss)$2,619 $2,670 $(3,406)$1,883 
Income from discontinued operations, net of tax— — — — 
Income (loss) from continuing operations$2,619 $2,670 $(3,406)$1,883 
Interest expense318 — 319 
Income tax expense (benefit)1,444 — (1,655)(211)
Depreciation and amortization195 23 — 218 
Depreciation and amortization in cost of sales2,649 1,530 — 4,179 
EBITDA from continuing operations$7,225 $4,223 $(5,060)$6,388 
Stock-based compensation— — 572 572 
Gain on disposal of assets12 — — 12 
Gain on extinguishment of debt(1)
— (2,188)— (2,188)
One-time costs for professional services associated with M&A and strategic initiatives— — 2,751 2,751 
Adjusted EBITDA from continuing operations$7,237 $2,035 $(1,737)$7,535 
(1) Extinguishment of debt is directly related to the forgiveness of the TC PPP Loan as discussed in Note 11.
Three Months Ended
September 30, 2020
Specialty PetrochemicalsSpecialty WaxesCorporateConsolidated
(in thousands)
Net income (loss)$4,161 $(1,267)$19,538 $22,432 
Loss from discontinued operations, net of tax— — 21,324 21,324 
Income (loss) from continuing operations$4,161 $(1,267)$(1,786)$1,108 
Interest (income) expense507 — 508 
Income tax expense (benefit)1,150 (26)(271)853 
Depreciation and amortization183 24 210 
Depreciation and amortization in cost of sales2,484 1,403 — 3,887 
EBITDA from continuing operations$8,485 $134 $(2,053)$6,566 
Stock-based compensation— — 489 489 
One-time costs for professional services associated with M&A and strategic initiatives— — 35 35 
Adjusted EBITDA from continuing operations$8,485 $134 $(1,529)$7,090 
24


Nine Months Ended
September 30, 2021
Specialty PetrochemicalsSpecialty WaxesCorporateConsolidated
(in thousands)
Net income (loss)$8,110 $533 $(8,909)$(266)
Income from discontinued operations, net of tax— — — — 
Income (loss) from continuing operations$8,110 $533 $(8,909)$(266)
Interest expense917 — 918 
Income tax expense (benefit)2,364 — (2,873)(509)
Depreciation and amortization595 69 670 
Depreciation and amortization in cost of sales7,838 4,478 — 12,316 
EBITDA from continuing operations$19,824 $5,080 $(11,775)$13,129 
Stock-based compensation— — 1,695 1,695 
Gain on disposal of assets(280)— — (280)
Gain on extinguishment of debt(1)
— (2,188)— (2,188)
One-time costs for professional services associated with M&A and strategic initiatives— — 3,998 3,998 
Adjusted EBITDA from continuing operations$19,544 $2,892 $(6,082)$16,354 
(1) Extinguishment of debt is directly related to the forgiveness of the TC PPP Loan as discussed in Note 11.
Nine Months Ended
September 30, 2020
Specialty PetrochemicalsSpecialty WaxesCorporateConsolidated
(in thousands)
Net income (loss)$10,150 $(385)$21,526 $31,291 
Income from discontinued operations, net of tax— — 26,179 26,179 
Income (loss) from continuing operations$10,150 $(385)$(4,653)$5,112 
Interest expense2,158 — 2,159 
Income tax benefit(249)(1,595)(2,098)(3,942)
Depreciation and amortization554 71 13 638 
Depreciation and amortization in cost of sales7,351 4,022 — 11,373 
EBITDA from continuing operations$19,964 $2,113 $(6,737)$15,340 
Stock-based compensation— — 1,422 1,422 
(Gain) loss on disposal of assets(8)17 — 
One-time costs for professional services associated with M&A and strategic initiatives— — 35 35 
Adjusted EBITDA from continuing operations$19,956 $2,130 $(5,280)$16,806 
Three Months Ended
March 31, 2021
Specialty PetrochemicalsSpecialty WaxesCorporateConsolidated
(in thousands)
Net income (loss)$205 $(1,954)$(2,655)$(4,404)
Interest (income) expense302 — — 302 
Income tax expense (benefit)(486)— (515)(1,001)
Depreciation and amortization200 23 226 
Depreciation and amortization in cost of sales2,602 1,452 — 4,054 
EBITDA$2,823 $(479)$(3,167)$(823)
Stock-based compensation— — 571 571 
Gain on disposal of assets(254)— — (254)
Costs for professional services associated with M&A and strategic initiatives— — 370 370 
Adjusted EBITDA$2,569 $(479)$(2,226)$(136)
Liquidity and Capital Resources
Working Capital
Our approximate working capital days are summarized as follows:
2516


September 30, 2021December 31, 2020September 30, 2020March 31, 2022December 31, 2021March 31, 2021
Days sales outstanding in accounts receivableDays sales outstanding in accounts receivable39.4 40.0 43.7 Days sales outstanding in accounts receivable36.3 40.5 42.8 
Days sales outstanding in inventoryDays sales outstanding in inventory19.3 20.5 21.4 Days sales outstanding in inventory22.0 26.1 19.4 
Days sales outstanding in accounts payableDays sales outstanding in accounts payable15.6 22.9 24.7 Days sales outstanding in accounts payable13.4 14.9 27.3 
Days of working capitalDays of working capital43.0 37.7 40.4 Days of working capital44.9 51.6 34.8 
Our days sales outstanding in accounts receivable at September 30, 2021March 31, 2022 was 39.436.3 days compared to 4040.5 days at December 31, 2020.2021. This decrease was primarily driven by relatively flat receivables as compared to the significant increase in sales revenue. Our days sales outstanding in inventory decreased by approximately 1.24.1 days from December 31, 2020.2021 as we sold off existing inventory during a scheduled plant turnaround at our Specialty Petrochemicals facility late in the first quarter of 2022. Our days sales outstanding in accounts payable decreased due to the payment of accruedrising sales revenue, while actual accounts payable atremained relatively flat as compared to December 31, 2020, primarily related to maintenance spending and certain feedstock payables. In addition, as our sales have increased since the end of last year, our days sales outstanding in inventory and accounts payable have decreased.2021. Since days of working capital is calculated using the above three metrics, it increaseddecreased for the aforementioned reasons.
Our cash balance at September 30, 2021March 31, 2022 was $44.4$31.9 million as compared to $55.7$30.5 million at December 31, 2020.2021.
The change in cash is summarized as follows:The change in cash is summarized as follows:Nine Months Ended
September 30,
The change in cash is summarized as follows:Three Months Ended
March 31,
20212020 20222021
Net cash provided by (used in)Net cash provided by (used in)(thousands of dollars)Net cash provided by (used in)(thousands of dollars)
Operating activitiesOperating activities$9,316 $17,575 Operating activities$7,717 $3,831 
Investing activitiesInvesting activities(12,014)58,371 Investing activities(4,851)(4,500)
Financing activitiesFinancing activities(8,563)(30,229)Financing activities(1,464)(1,969)
Increase (decrease) in cashIncrease (decrease) in cash$(11,261)$45,717 Increase (decrease) in cash$1,402 $(2,638)
CashCash$44,403 $51,862 Cash$31,937 $53,026 
Operating Activities
Cash provided by operating activities totaled $9.3$7.7 million for the first ninethree months of 2021, $8.32022, $3.9 million lowerhigher than the corresponding period in 2020.2021. For the first ninethree months of 2021,2022, net income decreasedincreased approximately $31.6$4.0 million as compared to the corresponding period in 2020,2021, driven primarily by the non-recurrence of the benefit of monetizing deferred taxes in 2020 under the CARES Act.higher selling prices and expanding margins. Major non-cash items affecting income in the first ninethree months of 20212022 included the impact of depreciation and amortization of $13.0$4.3 million, forgiveness of one of the PPP Loans of approximately $2.2 million, and stock-based compensation of $1.7$0.5 million and other non-cash items of $0.5 million. Major non-cash items affecting income in the first ninethree months of 20202021 included the impact of deferred taxes of $14.2 million,changes in depreciation and amortization of $12.0$4.3 million, deferred taxes of $(0.9) million, and stock-based compensation of $1.4$0.6 million.
Additional factors leading to the decreaseincrease in cash provided by operating activities included:
Trade receivables increased approximately $6.7$0.8 million, primarily due to increases in sales volumes.prices. We do not expect any collection issues at this time.
Inventories increaseddecreased approximately $2.7$0.8 million driven primarily by the increaseutilization of inventory to maintain customer shipments during a scheduled plant turnaround at our Specialty Petrochemicals facility late in feedstock prices.the first quarter of 2022.
Prepaid and other assets decreased $2.6 million primarily related$0.9 million. In 2022, the Company elected to finance its insurance premiums, where in 2021 the paymentannual insurance premium was paid in full at the beginning of our foreign tax liability and regular amortization of our prepaid insurance.the policy term.
Accounts payable and accrued liabilities increased $2.4$1.5 million primarily due to one-time costsaccrued payroll.
Investing Activities
Cash used in investing activities during the first three months of 2022 was approximately $4.9 million, representing a increase of approximately $0.4 million from the corresponding period of 2021. The funds used in investing activities during the first three months of 2022 were for professional services associated with M&Aadditions to property, plant and strategic initiatives.
equipment. The above itemsfunds used in investing activities during the first three months of 2021 were for additions and rebuild and restoration of property, plant and equipment of approximately $4.8 million offset by a decrease in taxes receivableproceeds from the sale of $1.8 million as we collected the remaining NOL carryback claims under the CARES Act.assets.
2617


Investing Activities
Cash used in investing activities during the first nine months of 2021 was approximately $12.0 million, representing a decrease of approximately $70.4 million from the corresponding period of 2020. The outflow of the funds used in investing activities during the first nine months of 2021 were additions to property, plant and equipment and the rebuild and restoration of property, plant and equipment associated with the Texas freeze event in February 2021 of approximately $12.3 million, partially offset by approximately $0.3 million in proceeds from the sale of assets. The primary source of the funds provided by investing activities during the first nine months of 2020 was $68.5 million of proceeds, net of the deposit previously paid, received in connection with the sale of our ownership interest in AMAK discussed in Note 5, offset by additions of plant, pipeline and equipment of approximately $10.3 million.
Financing Activities
Cash used in financing activities during the first ninethree months of 20212022 was approximately $8.6$1.5 million versus cash used in financing activities of $30.2$2.0 million during the corresponding period of 2020.2021. During the first ninethree months of 2022, we made mandatory payments totaling $1.1 million on our Term Loan Facility. During the first three months of 2021, we made a mandatory payments totaling $3.3payment of $1.1 million on our Term Loan Facility and repurchased approximately $5.0 million of shares of our common stock under our Share Repurchase Program.
Capital Resources and Requirements
Capital expenditures increased $0.1 million, or 1%, from 2021 to 2022. During the first ninethree months of 2020,2022 we drew $20.0expended approximately $1.5 million underon upgrades to the Revolving Facility aspipeline for GSPL and approximately $0.7 million for a precautionscheduled plant turnaround.
At March 31, 2022, we had $31.9 million in lightcash and cash equivalents and borrowing availability of the uncertainty caused by the COVID-19 pandemic. We also received PPP Loans of $6.1approximately $75 million to maintain the continuity of our workforce, including maintaining compensation and benefits. Utilizing a portion of the net proceeds from the sale of our investment in AMAK, together with cash on hand, we repaid our outstanding balance on our Revolving Facility of $23 million at the end of the second quarter 2020 and further reduced our debt with a $30 million prepayment toward our Term Loan Facility in the third quarter of 2020.Facility. We also made mandatory payments totaling $3.3 million on our Term Loan Facility during the first nine months of 2020.
Anticipated Cash Needs
As of September 30, 2021, we have approximately $44.4 million in cash, combined with an available balance on our Revolving Facility of the full $75 million. As a result, we believe the Company is able to support its operating requirements and capital expenditures through internally generated funds supplemented with cash on our balance sheet and availability under our ARC Agreement in both the short-term (i.e., the next 12 months) and the long-term (i.e. beyond the next 12 months). See Note 11 for additional discussion regarding credit availability.
Our material cash requirements include the following contractual and other obligations.
Debt. Long-term debt obligations approximate $40.9 million as discussed in Note 10.
Leases. The majority of our approximately $7.3 million of operating lease obligations are for railcars as discussed in Note 8.
Other Purchase Obligations. Purchase obligations of approximately $28.3 million are primarily related to commitments for our undelivered feedstock and capital construction projects as discussed in Note 12.
Results of Operations
Comparison of Three Months Ended September 30,March 31, 2022 and 2021 and 2020
2718


Specialty Petrochemicals Segment

Specialty Petrochemicals Segment

Three Months Ended September 30,
Specialty Petrochemicals Segment

Three Months Ended March 31,
20212020Change% Change 20222021Change% Change
(thousands of dollars) (thousands of dollars)
Product SalesProduct Sales$61,938 $37,580 $24,358 64.8 %Product Sales$69,090 $44,658 $24,432 54.7 %
ProcessingProcessing1,419 1,644 (225)(13.7)%Processing1,488 1,254 234 18.7 %
Gross RevenueGross Revenue$63,357 $39,224 $24,133 61.5 %Gross Revenue$70,578 $45,912 $24,666 53.7 %
Volume of Sales (gallons)Volume of Sales (gallons)Volume of Sales (gallons)
Specialty Petrochemicals ProductsSpecialty Petrochemicals Products20,862 17,868 2,994 16.8 %Specialty Petrochemicals Products20,223 17,201 3,022 17.6 %
Prime Product SalesPrime Product Sales17,180 14,734 2,446 16.6 %Prime Product Sales16,556 14,675 1,881 12.8 %
By-product SalesBy-product Sales3,682 3,134 548 17.5 %By-product Sales3,667 2,526 1,141 45.2 %
Cost of SalesCost of Sales$56,069 $30,732 25,337 82.4 %Cost of Sales$64,363 $42,869 21,494 50.1 %
Gross MarginGross Margin11.5 %21.7 %(10.2)%Gross Margin8.8 %6.6 %2.2 %
Total Operating Expense*Total Operating Expense*19,543 17,122 2,421 14.1 %Total Operating Expense*21,348 20,357 991 4.9 %
Natural Gas Expense*Natural Gas Expense*1,735 867 868 100.1 %Natural Gas Expense*2,009 2,976 (967)(32.5)%
Operating Labor Costs*Operating Labor Costs*2,901 4,046 (1,145)(28.3)%Operating Labor Costs*3,199 3,348 (149)(4.5)%
Transportation Costs*Transportation Costs*5,936 5,645 291 5.2 %Transportation Costs*6,280 4,606 1,674 36.3 %
General & Administrative ExpenseGeneral & Administrative Expense2,681 2,438 243 10.0 %General & Administrative Expense3,355 3,074 281 9.1 %
Depreciation and Amortization**Depreciation and Amortization**2,844 2,667 177 6.6 %Depreciation and Amortization**2,729 2,802 (73)(2.6)%
Adjusted EBITDAAdjusted EBITDA5,889 2,569 3,320 129.2 %
Capital ExpendituresCapital Expenditures3,416 2,084 1,332 63.9 %Capital Expenditures4,129 3,567 562 15.8 %
* Included in cost of sales
**Includes $2,650$2,523 and $2,484$2,602 for 2021the first quarter of 2022 and 2020,2021, respectively, which is included in operating expense
Gross Revenue
Gross Revenue for our Specialty Petrochemicals segment increased for the thirdfirst quarter 20212022 compared to the thirdfirst quarter 20202021 by 61.5%53.7%, primarily due to higher sales volumesselling prices and higher selling pricessales volumes for prime products and by-products which were previouslyadversely impacted during the first quarter of 2021 by the Texas freeze event and the ongoing COVID-19 pandemic in the third quarter of 2020.pandemic.
Product Sales
Specialty Petrochemicals segment product sales increased approximately 64.8%54.7% for the thirdfirst quarter 20212022 compared to the thirdfirst quarter 2020.2021. Prime products sales volume increased approximately 2.41.9 million gallons, or 16.6%12.8%, from the thirdfirst quarter 2020,2021, which increase was driven primarily by the continued increase in economic activity, including strong demand from many of our end-use markets.markets, during the first quarter of 2022 together with the adverse impact of the Texas freeze event in the first quarter of 2021. By-product sales volumes in thirdfirst quarter 20212022 increased 17.5%45.2% compared to the thirdfirst quarter 2020.2021. 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 decreasedincreased to 17.6%19.2% of total Specialty Petrochemicals volume in the thirdfirst quarter for 20212022 compared to 24.6%17.8% in the thirdfirst quarter 2020.2021. Foreign sales volume includes sales to Canadian oil sands customers.
Processing
Processing revenues were $1.4$1.5 million in the thirdfirst quarter 20212022 compared to $1.6$1.3 million for the thirdfirst quarter 2020.2021.
Cost of Sales (includes but is not limited to raw materials and total operating expense)
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 is highly correlated with the price of crude oil. Our Advanced Reformer unit upgrades the by-product stream produced as a result of prime product production. This upgrade allows us to sell our by-products at higher prices than would be possible without the Advanced Reformer unit.
Cost of sales increased 82.4% for the third quarter 2021 compared to the third quarter 2020. The increase in cost of sales compared to the same period last year was driven by significantly higher sales volumes, increased feedstock prices and higher utility costs. Benchmark Mont Belvieu natural gasoline feedstock price increased by 103% from $0.80 per gallon in third quarter 2020 to $1.62 per gallon in the third quarter 2021. Sharp increases in feedstock costs were only partially offset by
2819


productCost of sales increased 50.1% for the first quarter 2022 compared to the first quarter 2021. The increase in cost of sales compared to the same period last year was driven by significantly higher sales volumes and increased feedstock prices. Benchmark Mont Belvieu natural gasoline feedstock price increases which ledincreased 66% from $1.33 per gallon in first quarter 2021 to gross margin decline$2.21 per gallon in the thirdfirst quarter of 2021 compared to third quarter of 2020.2022. By-product margins were higher compared to the thirdfirst quarter of 2020.2021. This was due to higher component prices.
The gross margin percentage for the Specialty Petrochemicals segment decreasedincreased from 21.7%6.6% for the thirdfirst quarter of 20202021 to 11.5%8.8% in the thirdfirst quarter of 2021.2022.
Total Operating Expense (includes but is not limited to natural gas, operating labor, depreciation and transportation)
Total Operating Expense increased $2.4$1.0 million, or 14.1%4.9%, for the thirdfirst quarter 20212022 compared to the same period in 2020,2021, primarily due to costs associated with a scheduled plant turnaround of approximately $2.4 million combined with higher transportation costs and offset by lower natural gas and transportation costs offset by outsourcing of certain operating labor.costs.
Capital Expenditures
Capital expenditures in the thirdfirst quarter 20212022 were approximately $3.4$4.1 million compared to $2.1$3.6 million in the thirdfirst quarter of 2020. Third2021. First quarter 20212022 capital expenditures were primarily for maintenance and upkeep of our GSPL pipeline, which is used to transport our feedstock, of approximately $1.5 million and a scheduled plant turnaround of approximately $0.7 million.
Specialty Waxes Segment
Specialty Waxes Segment
Three Months Ended September 30,Specialty Waxes Segment
Three Months Ended March 31,
20212020Change% Change20222021Change% Change
(thousands of dollars)(thousands of dollars)
Product SalesProduct Sales$8,484 $5,990 $2,494 41.6 %Product Sales$9,971 $6,907 $3,064 44.4 %
ProcessingProcessing2,796 2,533 263 10.4 %Processing2,665 1,766 899 50.9 %
Gross RevenueGross Revenue$11,280 $8,523 $2,757 32.3 %Gross Revenue$12,636 $8,673 $3,963 45.7 %
Volume of specialty wax sales (thousand pounds)Volume of specialty wax sales (thousand pounds)9,786 8,821 965 10.9 %Volume of specialty wax sales (thousand pounds)10,328 8,826 1,502 17.0 %
Cost of SalesCost of Sales$9,595 $8,558 $1,037 12.1 %Cost of Sales$10,958 $9,321 $1,637 17.6 %
Gross Margin (Loss)Gross Margin (Loss)14.9 %(0.4)%15.3 %Gross Margin (Loss)13.3 %(7.5)%20.8 %
General & Administrative ExpenseGeneral & Administrative Expense1,175 1,278 (103)(8.1)%General & Administrative Expense1,324 1,235 89 7.2 %
Depreciation and Amortization*Depreciation and Amortization*1,553 1,427 126 8.8 %Depreciation and Amortization*1,578 1,476 102 6.9 %
Adjusted EBITDAAdjusted EBITDA$324 $(479)803 (167.6)%
Capital ExpendituresCapital Expenditures$215 $641 $(426)(66.5)%Capital Expenditures$722 $1,214 $(492)(40.5)%
*Includes $1,530$1,556 and $1,403$1,452 for 20212022 and 2020,2021, respectively, which is included in cost of sales
Product Sales
Product sales revenue for the Specialty Waxes segment increased by 41.6%44.4% for the thirdfirst quarter of 20212022 compared to the thirdfirst quarter of 20202021 due to higher selling prices and volumes. Average selling prices for our specialty waxes increased approximately 28%22% as compared to the same period last year. Specialty wax sales volume increased approximately 1.01.5 million pounds in the thirdfirst quarter of 20212022 compared to the thirdfirst quarter of 2020.2021. Our wax feed is based on certain by-products produced as a result of polyethylene production at major polyethylene producers' facilities on the US Gulf Coast.
Processing
Processing revenues were $2.8$2.7 million for the thirdfirst quarter 2021,2022, a $0.3$0.9 million increase compared to the thirdfirst quarter 2020.2021. The first quarter of 2021 was adversely impacted by the Texas freeze event and the ongoing COVID-19 pandemic.
Cost of sales
Cost of sales increased by 12.1%17.6%, or approximately $1.0$1.6 million, in the thirdfirst quarter 20212022 compared to the thirdfirst quarter 2020.2021. This increase was driven by higher polyethylene wax feed cost and higher purchase prices as well as increased utility charges.prices.
Depreciation
Depreciation for the thirdfirst quarter 20212022 was $1.6 million, a $0.1 million increase compared to the thirdfirst quarter of 2020.
Capital Expenditures
Capital Expenditures were approximately $0.2 million in the third quarter 2021 compared to $0.6 million in the third quarter of 2020.2021.
29


Corporate Segment

Three Months Ended September 30,
 20212020Change% Change
 (thousands of dollars) 
General & Administrative Expense$5,555 $2,049 $3,506 171.1 %
Corporate expenses increased $3.5 million in the third quarter of 2021 compared to the third quarter of 2020 primarily due to one-time costs for professional services associated with M&A and strategic initiatives as well as higher insurance costs.
Investment in AMAK - Discontinued Operations

Three Months Ended September 30,
 20212020Change% Change
 (thousands of dollars) 
 Equity in earnings of AMAK$— $682 $(682)100.0 %
Equity in earnings of AMAK decreased due to the completion of the sale of our ownership interest in AMAK during the third quarter of 2020. See Note 5 for additional discussion.
Results of Operations
Comparison of Nine Months Ended September 30, 2021 and 2020
Specialty Petrochemicals Segment
Nine Months Ended September 30,
 20212020Change% Change
 (thousands of dollars)
Product Sales$164,359 $119,202 $45,157 37.9 %
Processing4,200 4,047 153 3.8 %
Gross Revenue$168,559 $123,249 $45,310 36.8 %
Volume of Sales (gallons)
Specialty Petrochemicals Products58,038 52,952 5,086 9.6 %
Prime Product Sales48,716 44,042 4,674 10.6 %
By-product Sales9,322 8,910 412 4.6 %
Cost of Sales$148,144 $102,654 45,490 44.3 %
Gross Margin12.1 %16.7 %(4.6)%
Total Operating Expense*57,438 50,022 7,416 14.8 %
Natural Gas Expense*4,604 2,479 2,125 85.7 %
Operating Labor Costs*9,683 11,984 (2,301)(19.2)%
Transportation Costs*16,640 15,422 1,218 7.9 %
General & Administrative Expense8,684 7,944 740 9.3 %
Depreciation and Amortization**8,433 7,905 528 6.7 %
Capital Expenditures10,675 9,067 1,608 17.7 %
* Included in cost of sales
**Includes $7,838 and $7,351 for 2021 and 2020, respectively, which is included in operating expense
Gross Revenue
Gross Revenue for our Specialty Petrochemicals segment increased during the first nine months of 2021 from the first nine months of 2020 by 36.8%, primarily due to higher sales volumes for prime products and byproducts. An increase in average selling prices resulting from an increase in feedstock costs also contributed to the higher revenues.
3020


Product Sales
Specialty Petrochemicals segment product sales increase approximately 37.9% during the first nine months of 2021 from the first nine months of 2020, primarily as a result of higher sales volumes and higher selling prices driven by formula based pricing. Prime products sales volume increased approximately 4.7 million gallons, or 10.6%, from the first nine months of 2020 due to higher demand. Sales in the first nine months of 2020 were generally weaker as a result of the impact of the COVID-19 pandemic. By-product sales volumes in the first nine months of 2021 increased 4.6% compared to the first nine months of 2020. 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 decreased to 19.1% of total Specialty Petrochemicals volume in the first nine months of 2021 from 24.4% in the first nine months of 2020. Foreign sales volume includes sales to Canadian oil sands customers.
Processing
Processing revenues were approximately $4.2 million and $4.0 million for the first nine months of 2021 and 2020, respectively.
Cost of Sales (includes but is not limited to raw materials and total operating expense)
Cost of Sales increased 44.3% during the first nine months of 2021 from the first nine months of 2020. The increase in cost of sales compared to the same period last year was driven by higher sales volumes, higher feedstock costs and higher operating expenses – primarily natural gas and transportation costs. Benchmark Mount Belvieu natural gasoline feedstock price increased 104% from $0.72 per gallon in the first nine months of 2020 to $1.47 per gallon in the first nine months of 2021. By-product margins were higher compared to the first nine months of 2020. This was due to higher component prices.
The gross margin percentage for the Specialty Petrochemicals segment decreased from 16.7% in the first nine months of 2020 to 12.1% in the first nine months of 2021 driven by increasing feedstock costs as well as higher operating expenses which were partially offset by product price increases.
Total Operating Expense (includes but is not limited to natural gas, operating labor, depreciation and transportation)
Total Operating Expense increased $7.4 million, or 14.8%, during the first nine months of 2021 from the same period in 2020. Operating expenses were impacted by higher natural gas and transportation costs.
Capital Expenditures
Capital expenditures in the first nine months of 2021 were approximately $10.7 million compared to $9.1 million in the first nine months of 2020. The first nine months of 2021 included approximately $3.8 million for restoration and upkeep of our GSPL pipeline which is used to transport our feedstock. Additionally, the first nine months of 2021 included tower replacement and feed tank restoration costs of approximately $1.5 million as well as restoration costs associated with the damage to plant equipment due to the Texas freeze event in February 2021.
Specialty Waxes Segment
Nine Months Ended September 30,
20212020Change% Change
(thousands of dollars)
Product Sales$22,288 $18,258 $4,030 22.1 %
Processing7,224 8,981 (1,757)(19.6)%
Gross Revenue$29,512 $27,239 $2,273 8.3 %
Volume of specialty wax sales (thousand pounds)27,411 27,361 50 0.2 %
Cost of Sales$27,588 $25,132 $2,456 9.8 %
Gross Margin (Loss)6.5 %7.7 %(1.2)%
General & Administrative Expense3,522 4,120 (598)(14.5)%
Depreciation and Amortization*4,547 4,093 454 11.1 %
Capital Expenditures$1,620 $1,242 $378 30.4 %
*Includes $4,478 and $4,022 for 2021 and 2020, respectively, which is included in cost of sales
31


Product Sales
Specialty Wax segment product sales revenue increased approximately $4.0 million, or 22.1%, during the first nine months of 2021 from the first nine months of 2020. Product sales revenue increased as we were successful in increasing selling prices for our specialty waxes in excess of increases in wax feed costs. Specialty wax sales volume increased slightly, while average selling prices increased due to higher wax pricing and a change in mix of sales to domestic versus export customers. Our wax feed is based on certain by-products produced as a result of polyethylene production at major polyethylene producers' facilities on the US Gulf Coast.
Processing
Processing revenues were $7.2 million in the first nine months of 2021, a decrease of 19.6% from the first nine months of 2020, or about $1.8 million. The decrease was primarily due to the continuing pandemic along with the impact of the Texas freeze event in February 2021.
Cost of Sales
Cost of Sales increased 9.8%, or nearly $2.5 million, in the first nine months of 2021 compared to the first nine months of 2020. This increase was driven by higher polyethylene wax feed cost and higher purchase prices as well as increased utility charges related to the Texas freeze event.
General and Administrative
General and administrative expenses decreased approximately $0.6 million in the first nine months of 2021 compared to the first nine months of 2020.
Depreciation
Depreciation for the first nine months of 2021 was $4.5 million, a $0.5 million increase from the first nine months of 2020.
Capital Expenditures
Capital Expenditures were approximately $1.6$0.7 million in the first nine months of 2021quarter 2022 compared withto $1.2 million in the first nine monthsquarter of 2020. Capital expenditures2021.
Corporate Segment

Three Months Ended March 31,
 20222021Change% Change
 (thousands of dollars) 
General & Administrative Expense$2,854 $3,023 $(169)(5.6)%
Corporate expenses decreased $0.2 million in the first quarter of 2022 compared to the first quarter of 2021 primarily relate to restoration costs associated with the damage to pipes and other plant equipment due to the Texas freeze event in February 2021.reduced accounting and consulting fees.
Corporate Segment

Nine Months Ended September 30,
 20212020Change% Change
 (thousands of dollars) 
General & Administrative Expense$11,722 $6,664 $5,058 75.9 %
Critical Accounting Policies and Estimates
General corporate expenses increased by $5.1 million during the first nine monthsFor a description of 2021 from the first nine months of 2020. The increase is primarily attributable to one-time costs for professional services associated with M&Aour critical accounting policies and strategic initiatives as well as higher insurance costs.
Investment in AMAK - Discontinued Operations

Nine Months Ended September 30,
 20212020Change% Change
 (thousands of dollars) 
Equity in earnings of AMAK$— $455 $(455)(100.0)%
Equity in earnings of AMAK decreased dueestimates, refer to the completion ofinformation under the sale of our ownership interestcaption “Critical Accounting Estimate” in AMAK during the third quarter of 2020. See Note 5 for additional discussion.

Contractual Obligations
Our contractual obligations are summarized in Part“Part II, Item 7. “Management'sManagement's Discussion and Analysis of Financial Condition and Results of Operations,”Operations” in ourthe Annual Report on Form 10-K, for the year ended December 31, 2020.as amended. There have been no other material changes to our critical accounting policies and estimates since the contractual obligation amounts disclosed in our Annual Report on Form 10-K, for the year ended December 31, 2020.as amended.
Critical Accounting Policies and Estimates
32


Critical accounting policies are more fully described in Note 2, “RECENT ACCOUNTING PRONOUNCEMENTS” to the consolidated financial statements set forth in our Annual Report on Form 10-K for the year ended December 31, 2020. The preparation of the condensed 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 and discussed in ourthe Annual Report on Form 10-K, for the year ended December 31, 2020.as amended. For the ninethree months ended September 30, 2021,March 31, 2022, there were no significant changes to these policies.
Recent and New Accounting Standards
See Note 2 for a summary of recent accounting guidance.
Off Balance Sheet Arrangements
As of September 30, 2021, we do not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial statements, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
For quantitative and qualitative disclosure about market risk, see Part II, Item 7A, “Quantitative and Qualitative Disclosures about Market Risk” in ourthe Annual Report on Form 10–K for the year ended December 31, 2020.10-K, as amended. There have been no material changes in the Company's exposure to market risk from the disclosure included in 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 three months ended September 30, 2021,March 31, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
3321


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, as amended, 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, foras amended, except as described below:
The ongoing military action between Russia and Ukraine could adversely affect our business, results of operations, financial condition and cash flows.

In February of 2022, Russian military forces invaded Ukraine. Although the year ended December 31, 2020.length, impact, and outcome of the ongoing military conflict in Ukraine is highly unpredictable, this conflict could lead to significant market and other disruptions, including significant volatility in commodity prices, instability in financial markets, higher inflation, supply chain interruptions, political and social instability, changes in consumer or purchaser preferences as well as increase in cyberattacks and espionage. As a result, governments in the European Union, the United States, the United Kingdom, Switzerland, and other countries have enacted additional sanctions against Russia and Russian interests. Such sanctions, and other measures, as well as the existing and potential further responses from Russia or other countries to such sanctions, supply chain disruptions, tensions and military actions, could adversely affect the global economy and financial markets and could adversely affect our business, results of operations, financial condition and cash flows.
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.
Exhibit
Number
Description
31.1*
31.2*
32.1**
32.2**
101.INS*XBRL Instance Document (XBRL tags are embedded within the Inline XBRL document)
101.SCH*XBRL Taxonomy Schema Document
101.CAL*XBRL Taxonomy Calculation Linkbase Document
101.LAB*XBRL Taxonomy Label Linkbase Document
101.PRE*XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF*XBRL Taxonomy Extension Definition Linkbase Document
104*Cover Page Interactive Data File (formatted as inline XBRL and included as Exhibit 101)
* Filed herewith.
** Furnished herewith.
SIGNATURES
22


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.
TRECORA RESOURCES
Dated: November 4, 2021May 5, 2022By: /s/ Sami Ahmad
Sami Ahmad
Principal Financial Officer and Duly Authorized Officer
3423