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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 March 31, 2021
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-20210331_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.____

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 April 25, 2021: 24,875,432.





TABLE OF CONTENTS

Item Number and Description
 
 
 
 
 
 
 
 
  
  
  
 
 
 
  




PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
TRECORA RESOURCES AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2021 (Unaudited)December 31, 2020
ASSETS(thousands of dollars, except par value)
 Current Assets  
Cash$53,026 $55,664 
Trade receivables, net25,929 25,301 
Inventories11,739 12,945 
Prepaid expenses and other assets6,392 9,198 
Taxes receivable2,788 2,788 
Total current assets99,874 105,896 
Property, plant and equipment, net187,923 187,104 
Intangible assets, net12,433 12,893 
Lease right-of-use assets, net9,757 10,528 
Mineral properties in the United States412 412 
TOTAL ASSETS$310,399 $316,833 
LIABILITIES
Current Liabilities
Accounts payable$16,584 $14,447 
Accrued liabilities6,002 6,857 
Current portion of long-term debt4,194 4,194 
Current portion of lease liabilities3,219 3,195 
Current portion of other liabilities639 891 
Total current liabilities30,638 29,584 
CARES Act, PPP Loans
6,123 6,123 
Long-term debt, net of current portion
40,852 41,901 
Post-retirement benefit, net of current portion
319 320 
Lease liabilities, net of current portion
6,538 7,333 
Other liabilities, net of current portion
637 648 
Deferred income taxes25,593 26,517 
Total liabilities110,700 112,426 
COMMITMENTS AND CONTINGENCIES (Note 12)
EQUITY
Common stock - authorized 40 million shares of $0.10 par value; issued 25.0 million and 24.8 million and outstanding 24.9 million and 24.8 million in 2021 and 2020, respectively
2,490 2,483 
Additional paid-in capital61,692 61,311 
Treasury stock, at cost (0.1 million shares)
(692) 
Retained earnings135,920 140,324 
Total Trecora Resources Stockholders' Equity199,410 204,118 
Non-controlling Interest289 289 
Total equity199,699 204,407 
TOTAL LIABILITIES AND EQUITY$310,399 $316,833 
See notes to consolidated financial statements.
1


TRECORA RESOURCES AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS
ENDED
MARCH 31,
 20212020
 (thousands of dollars, except per share amounts)
REVENUES  
Product sales$51,565 $57,183 
Processing fees3,020 4,884 
 54,585 62,067 
OPERATING COSTS AND EXPENSES
Cost of sales and processing
(including depreciation and amortization of $4,055 and $3,952, respectively)
52,240 53,989 
GROSS PROFIT2,345 8,078 
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative7,332 6,674 
Depreciation226 216 
 7,558 6,890 
OPERATING INCOME (LOSS)(5,213)1,188 
OTHER INCOME (EXPENSE)
Interest expense(302)(916)
Miscellaneous income (expense), net110 (62)
(192)(978)
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES(5,405)210 
INCOME TAX BENEFIT1,001 5,653 
INCOME (LOSS) FROM CONTINUING OPERATIONS(4,404)5,863 
INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX 4,857 
NET INCOME (LOSS)$(4,404)$10,720 
Basic Earnings (Loss) per Common Share
Net income (loss) from continuing operations (dollars)$(0.18)$0.24 
Net income from discontinued operations, net of tax (dollars) 0.20 
Net income (loss) (dollars)$(0.18)$0.44 
Basic weighted average number of common shares outstanding24,861 24,765 
Diluted Earnings (Loss) per Common Share
Net income (loss) from continuing operations (dollars)$(0.18)$0.23 
Net income from discontinued operations, net of tax (dollars) 0.19 
Net income (loss) (dollars)$(0.18)$0.42 
Diluted weighted average number of common shares outstanding24,861 25,276 
See notes to consolidated financial statements.
2


TRECORA RESOURCES AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
THREE MONTHS ENDED MARCH 31
 TRECORA RESOURCES STOCKHOLDERS  
 COMMON STOCKADDITIONAL
PAID-IN
TREASURYRETAINED NON-
CONTROLLING
TOTAL
 SHARESAMOUNTCAPITALSTOCKEARNINGSTOTALINTERESTEQUITY
 (thousands)(thousands of dollars)
December 31, 202024,833 $2,483 $61,311 $ $140,324 $204,118 $289 $204,407 
Restricted Stock Units
Issued to Directors— — 113 — — 113 — 113 
Issued to Employees— — 275 — — 275 — 275 
Common Stock
Issued to Employees61 7 (7)— —  —  
Stock Repurchases— — — (692)— (692)— (692)
Net Loss— — — — (4,404)(4,404)— (4,404)
March 31, 202124,894 $2,490 $61,692 $(692)$135,920 $199,410 $289 $199,699 
December 31, 201924,750 $2,475 $59,530 $ $109,149 $171,154 $289 $171,443 
Restricted Stock Units
Issued to Directors— — 94 — — 94 — 94 
Issued to Employees— — 259 — — 259 — 259 
Common Stock
Issued to Directors— — — — —  —  
Issued to Employees30 3 (3)— —  —  
Net Income— — — — 10,720 10,720 — 10,720 
March 31, 202024,780 $2,478 $59,880 $ $119,869 $182,227 $289 $182,516 
See notes to consolidated financial statements.
3


TRECORA RESOURCES AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
 20212020
 (thousands of dollars)
OPERATING ACTIVITIES  
Net Income (Loss)$(4,404)$10,720 
Income from Discontinued Operations 4,857 
Income (Loss) from Continuing Operations$(4,404)$5,863 
Adjustments to Reconcile Income (Loss) from Continuing Operations To Net Cash Provided by Operating Activities:
Depreciation and Amortization3,820 3,492 
Amortization of Intangible Assets461 461 
Stock-based Compensation571 390 
Deferred Income Taxes(924)10,385 
Postretirement Obligation(6)10 
Amortization of Loan Fees45 45 
(Gain) Loss on Disposal of Assets(254)18 
Changes in Operating Assets and Liabilities:
Increase in Trade Receivables(628)(2,077)
Decrease in Insurance Receivables 274 
Increase in Taxes Receivable (16,144)
Decrease in Inventories1,206 5,263 
Decrease in Prepaid Expenses and Other Assets2,803 185 
Increase (Decrease) in Accounts Payable and Accrued Liabilities1,282 (3,739)
Decrease in Other Liabilities(141)(72)
Net Cash Provided by Operating Activities - Continuing Operations3,831 4,354 
Net Cash Used in Operating Activities - Discontinued Operations (53)
Net Cash Provided by Operating Activities3,831 4,301 
INVESTING ACTIVITIES
Additions to Property, Plant and Equipment(4,781)(2,065)
Proceeds from Sale of Property, Plant and Equipment281  
Net Cash Used in Investing Activities - Continuing Operations(4,500)(2,065)
Net Cash Provided by Investing Activities - Discontinued Operations 10,163 
Net Cash Provided by (Used in) Investing Activities(4,500)8,098 
FINANCING ACTIVITIES
Repurchase of Common Stock(692) 
Net Cash Paid Related to Stock-Based Compensation(183) 
Additions to Long-Term Debt 20,000 
Repayments of Long-Term Debt(1,094)(1,094)
Net Cash (Used in) Provided by Financing Activities - Continuing Operations(1,969)18,906 
NET (DECREASE) INCREASE IN CASH(2,638)31,305 
CASH AT BEGINNING OF PERIOD55,664 6,145 
CASH AT END OF PERIOD$53,026 $37,450 
Supplemental disclosure of cash flow information: 
Cash payments for interest$257 $870 
Supplemental disclosure of non-cash items:
Capital expansion amortized to depreciation expense$116 $262 
Foreign taxes paid by AMAK$1,054 $ 
See notes to consolidated financial statements.
4


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 approximately 55% of the capital stock of a Nevada mining company, Pioche Ely Valley Mines, Inc. (“PEVM”), which does not conduct any substantial business activity but owns undeveloped properties in the United States.
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.
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.
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 three months ended March 31, 2021 are not necessarily indicative of results for the year ending December 31, 2021.
We currently operate in two 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.
In addition, on September 28, 2020, we completed the final closing of the sale of our ownership interest in AMAK, a Saudi Arabian closed joint stock company, which owns, operates and is developing mining assets in Saudi Arabia. Our investment was classified as held-for-sale and the equity in earnings (losses) are recorded in discontinued operations. See Note 5 for additional discussion.
2. RECENT ACCOUNTING PRONOUNCEMENTS
Recently Adopted Accounting Pronouncements
In December 2019, 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
5


accounting for income taxes. This guidance was effective for us in the first quarter of 2021. The adoption of this guidance did not have a material impact on our consolidated financial statements.
Recent Accounting Pronouncements Not Yet Adopted
In March 2020, the FASB issued ASU No. 2020–04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (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 LIBOR 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:
 March 31, 2021December 31, 2020
 (thousands of dollars)
Trade receivables$26,229 $25,601 
Less allowance for doubtful accounts(300)(300)
Total trade receivables, net$25,929 $25,301 
Trade receivables serve as collateral for our amended and restated credit agreement. See Note 11.
4. INVENTORIES
Inventories consisted of the following:
 March 31, 2021December 31, 2020
 (thousands of dollars)
Raw material$1,592 $2,580 
Work in process171 138 
Finished products9,976 10,227 
Total inventories$11,739 $12,945 
Inventory serves as collateral for our amended and restated credit agreement. See Note 11.
Inventory included Specialty Petrochemicals products in transit valued at approximately $2.5 million and $3.6 million at March 31, 2021 and December 31, 2020, respectively.
5. INVESTMENT IN AMAK AND DISCONTINUED OPERATIONS
On September 28, 2020, the Company completed the final closing of the previously disclosed sale of its ownership interest in AMAK (the “Share Sale”) to AMAK and certain existing shareholders of AMAK and their assignees (collectively, the “Purchasers”). The Share Sale was completed in multiple closings pursuant to a Share Sale and Purchase Agreement, dated September 22, 2019 (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
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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 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 are 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.
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 is in the process of finalizing the necessary tax returns in the Kingdom of Saudi Arabia. All foreign taxes paid will create foreign tax credit to offset U.S. taxes. As of March 31, 2021, approximately $1.3 million of foreign taxes has been paid. The remaining funds of approximately $0.8 million withheld by AMAK are included in prepaid expenses and other assets on the Company’s consolidated balance sheets as of March 31, 2021.
As previously disclosed, and as a result of the Company’s investment in AMAK, the Company was required to execute a limited guarantee on October 24, 2010 (the “Guarantee”) of up to 41% of a loan (the “Loan”) by the Saudi Industrial Development Fund (“SIDF”) to AMAK to fund the construction of the AMAK facilities and to provide working capital needs. The provision of personal or corporate guarantees, as applicable, by each shareholder of AMAK was a condition to SIDF providing the Loan. Pursuant to the Purchase Agreement, the Purchasers (other than AMAK) agreed, upon the completion of the Share Sale, to assume the Company’s obligation under the Guarantee (proportionately based upon such Purchaser’s percentage acquisition of ordinary shares in the Share Sale). While a formal written release of the Company from the Guarantee was not obtained from SIDF prior to closing, the Company believes that the Purchasers’ assumption of the Company’s obligation under the Guarantee effectively eliminates the Company’s liability arising under the Guarantee.
Included in discontinued operations are the following:
 Three Months Ended March 31,
 20212020
 (thousands of dollars)
Saudi administration and transaction expenses$ $17 
Equity in losses of AMAK (532)
Gain on sale of equity interest 6,663 
Income from discontinued operations before taxes 6,148 
Tax expense (1,291)
Income from discontinued operations, net of tax$ $4,857 
AMAK's financial statements were prepared in the functional currency of AMAK which is the SAR. In June 1986, the SAR was officially pegged to the U. S. Dollar at a fixed exchange rate of 1 USD to 3.75 SAR.
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The summarized results of operations and financial position for AMAK are as follows:
Results of Operations
 Three Months Ended March 31,
 20212020
 (thousands of dollars)
Sales$ $17,937 
Cost of sales 16,821 
Gross profit 1,116 
Selling, general, and administrative 2,680 
Operating income (loss) (1,564)
Other income 17 
Finance and interest expense (531)
Income (loss) before Zakat and income taxes (2,078)
Zakat and income tax (benefit) 533 
Net Income (Loss)$ $(2,611)
Financial Position
 March 31,December 31,
 20212020
 (thousands of dollars)
Current assets$ $29,799 
Noncurrent assets 209,814 
Total assets$ $239,613 
Current liabilities$ $40,919 
Long term liabilities 79,122 
Stockholders' equity 119,572 
 $ $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 months ended March 31, 2021 and 2020, is comprised of the following:
 Three Months Ended
March 31,
 20212020
 (thousands of dollars)
AMAK Net Loss (2,611)
Company's share of loss reported by AMAK (869)*
Amortization of difference between Company's investment in AMAK and Company's share of net assets of AMAK 337 
Equity in losses of AMAK (532)
* 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.
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6. PREPAID EXPENSES AND OTHER ASSETS
Prepaid expenses and other assets consisted of the following:
 March 31, 2021December 31, 2020
 (thousands of dollars)
Prepaid license$202 $403 
Prepaid insurance premiums2,767 4,241 
Spare parts1,944 2,376 
Cash held in escrow by AMAK823 1,877 
Other prepaid expenses and assets656 301 
Total prepaid expenses and other assets$6,392 $9,198 
7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
March 31, 2021December 31, 2020
 (thousands of dollars)
Platinum catalyst metal$1,580 $1,580 
Catalyst4,298 4,325 
Land5,428 5,428 
Plant, pipeline and equipment271,960 270,149 
Construction in progress9,335 6,422 
Total property, plant and equipment$292,601 $287,904 
Less accumulated depreciation(104,678)(100,800)
Total property, plant and equipment, net$187,923 $187,104 
Property, plant and equipment serve as collateral for our amended and restated credit agreement. See Note 11.
Labor capitalized for construction was approximately $0.3 million and $0.6 million for the three months ended March 31, 2021 and 2020, respectively.
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 three months of 2020 included Advanced Reformer unit improvements and pipeline maintenance at SHR and equipment modifications at TC.
Amortization relating to the catalyst, which is included in cost of sales, was approximately $0.3 million and $0.2 million for the three months ended March 31, 2021 and 2020, respectively.
8. LEASES
The Company leases certain rail cars, rail equipment, office space and office equipment. The Company determines if a contract is a lease at the inception of the arrangement. The Company reviews all options to extend, terminate, or purchase its right-of-use assets at the inception of the lease and accounts for these options when they are reasonably certain of being exercised.
Leases with an initial term of 12 months or less are not recorded on the condensed consolidated balance sheets. Lease expense for these leases is recognized on a straight-line basis over the lease term.
The Company has no finance leases.
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The components of lease expense were as follows:
($ in thousands)Classification in the Condensed Consolidated Statements of IncomeThree Months Ended March 31,
20212020
Operating lease cost (a)Cost of sales, exclusive of depreciation and amortization$1,049 $920 
Operating lease cost (a)Selling, general and administrative34 48 
Total lease cost $1,083 $968 
(a) Short-term lease costs were approximately $0.2 million and $0.1 million for the three months ended March 31, 2021 and 2020, respectively.
The Company had no variable lease expense, as defined by ASC 842, during the periods.
($ in thousands)Classification on the Condensed Consolidated Balance SheetsMarch 31, 2021December 31, 2020
Assets: 
OperatingOperating lease assets$9,757 $10,528 
Total lease right-of-use assets, net $9,757 $10,528 
Liabilities: 
Current: 
OperatingCurrent portion of operating lease liabilities$3,219 $3,195 
Noncurrent: 
OperatingOperating lease liabilities6,538 7,333 
Total lease liabilities $9,757 $10,528 
Three Months Ended
March 31,
($ in thousands)20212020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows used for operating leases$903 $947 
Right-of-use assets obtained in exchange for lease obligations:
Operating leases$19 $ 
 March 31, 2021March 31, 2020
Weighted-average remaining lease term (in years): 
Operating leases3.54.3
Weighted-average discount rate:
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.
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As of March 31, 2021, maturities of lease liabilities were as follows:
($ in thousands)Operating Leases
2021$2,691 
20223,273 
20232,380 
20241,066 
2025995 
Thereafter118 
Total lease payments$10,523 
Less: Interest766 
Total lease obligations$9,757 
9. 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:
 March 31, 2021
GrossAccumulated AmortizationNet
(thousands of dollars)
Customer relationships$16,852 $(7,302)$9,550 
Non-compete agreements94 (94) 
Licenses and permits1,471 (734)737 
Developed technology6,131 (3,985)2,146 
Total$24,548 $(12,115)$12,433 
 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 ended March 31, 2021 and 2020, respectively.
Based on identified intangible assets that are subject to amortization as of March 31, 2021, we expect future amortization expenses for each period to be as follows:
TotalRemainder of 202120222023202420252026Thereafter
(thousands of dollars)
Customer relationships$9,550 $843 $1,123 $1,123 1,123 1,123 1,123 $3,092 
Licenses and permits737 74 86 86 86 86 86 233 
Developed technology2,146 460 613 613 460    
Total future amortization expense$12,433 $1,377 $1,822 $1,822 $1,669 $1,209 $1,209 $3,325 
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10. ACCRUED LIABILITIES
Accrued liabilities consisted of the following:
 March 31, 2021December 31, 2020
 (thousands of dollars)
State taxes$45 $125 
Property taxes906  
Payroll2,104 2,282 
Royalties391 260 
Officer compensation368 1,053 
Foreign taxes 1,054 
AMAK transaction costs 559 
Other2,188 1,524 
Total accrued liabilities$6,002 $6,857 
11. LIABILITIES AND LONG-TERM DEBT
Senior Secured Credit Facilities
As of March 31, 2021, the Company had no outstanding borrowings under the senior secured revolving credit facility (the “Revolving Facility”) and approximately $45.0 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 $53 million of availability under our Revolving Facility at March 31, 2021. TOCCO’s ability to make additional borrowings under the Revolving Facility at March 31, 2021 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 1.62 and 1.65 as of March 31, 2021 and December 31, 2020, respectively. Additionally, TOCCO must maintain a minimum Consolidated Fixed Charge Coverage Ratio as of the end of any fiscal quarter of 1.15 to 1.00. TOCCO's Consolidated Fixed Charge Coverage Ratio was 2.13 and 1.80 as of March 31, 2021 and December 31, 2020, respectively.
The maturity date for the ARC Agreement is July 31, 2023. As of March 31, 2021, the year to date effective interest rate for the Credit Facilities was 1.88%. The ARC Agreement contains a number of customary affirmative and negative covenants and the Company was in compliance with those covenants as of March 31, 2021.
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.
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 is currently working on the forgiveness applications and expects to receive full forgiveness of the PPP Loans in accordance with the provisions of the CARES Act.
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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 $0.4 million and $0.5 million for the periods ended March 31, 2021 and December 31, 2020, have been netted against outstanding loan balances.
Long-term debt and long-term obligations are summarized as follows:
March 31, 2021December 31, 2020
(thousands of dollars)
Revolving Facility$ $ 
Term Loan Facility45,469 46,563 
Loan fees(423)(468)
Total long-term debt45,046 46,095 
Less current portion including loan fees4,194 4,194 
Total long-term debt, less current portion including loan fees$40,852 $41,901 
12. 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 March 31, 2021 and December 31, 2020, the value of the remaining undelivered feedstock approximated $14.2 million and $9.2 million, respectively.
From time to time, we may incur shortfall fees due to feedstock purchases being below the minimum amounts prescribed by our agreements with our suppliers. Shortfall fee expenses were approximately $0.4 million and $0.3 million for the three months ended March 31, 2021 and 2020, respectively.
Environmental Remediation
Amounts charged to expense for various activities related to environmental monitoring, compliance, and improvements were approximately $0.3 million and $0.2 million for the three months ended March 31, 2021 and 2020, respectively.
13. 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. During the three months ended March 31, 2021, the Company repurchased 87,758 shares for $0.7 million.
14. STOCK-BASED COMPENSATION
The Stock Option Plan for Key Employees, as well as, the Non-Employee Director Stock Option Plan (hereinafter collectively referred to as the “Stock Option Plans”), were approved by the Company’s stockholders in July 2008. The Stock Option Plans allot for the issuance of up to 1,000,000 shares.
The Trecora Resources Stock and Incentive Plan (the “Plan”) was approved by the Company’s stockholders in June 2012. As amended, the Plan allots for the issuance of up to 2.5 million shares in the form of stock options or restricted stock unit awards.
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The Company recognized stock-based compensation expense of approximately $0.6 million and $0.4 million for the three months ended March 31, 2021 and 2020, respectively.
Stock Options and Warrant Awards
Stock options and warrants granted under the provisions of the Stock Option Plans permit the purchase of our common stock at exercise prices equal to the closing price of Company common stock on the date the options were granted. The options have terms of 10 years and generally vest ratably over terms of 4 to 5 years. There were no stock options or warrant awards issued during the three months ended March 31, 2021 or 2020, respectively.
A summary of the status of the Company’s stock option and warrant awards is as follows:
Stock Options and Warrants
Weighted Average Exercise Price Per Share
Weighted Average Remaining Contractual Life
Intrinsic
Value
(in thousands)
Outstanding at January 1, 2020487,000 10.87 
Granted  
Exercised(20,000)4.09 
Forfeited  
Outstanding at March 31, 2021467,000 11.16 2.6$ 
Expected to vest $ 
Exercisable at March 31, 2021467,000 11.16 2.6$ 
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 March 31, 2021, options to purchase approximately 0.1 million shares of common stock were in-the-money.
Since no options were granted, the weighted average grant-date fair value per share of options granted during the three months ended March 31, 2021 and 2020, respectively, was zero.
The Company has no non-vested outstanding options as of March 31, 2021.
Restricted Stock Unit Awards
Generally, restricted stock unit awards are granted annually to officers and directors of the Company under the provisions of the Plan. Restricted stock units are also granted ad hoc to attract or retain key personnel, and the terms and conditions under which these restricted stock units vest vary by award. The fair market value of restricted stock units granted is equal to the Company’s closing stock price on the date of grant. Restricted stock units granted generally vest ratably over 3 years. Certain awards also include vesting provisions based on performance metrics measured over a 3 year period. Upon vesting, the restricted stock units are settled by issuing one share of Company common stock per unit.
A summary of the status of the Company's restricted stock units activity is as follows:
Shares of Restricted Stock Units
Weighted Average Grant Date Price per Share
Outstanding at January 1, 2020567,563 7.39 
Granted265,183 7.12 
Forfeited(74,280)8.38 
Vested(80,318)7.21 
Outstanding at March 31, 2021678,148 7.12 
Expected to vest678,148 
15. INCOME TAXES
We file an income tax return in the U.S. federal jurisdiction and a margin tax return in Texas. Previously, the Texas Comptroller selected the R&D credit calculations related to the 2014 and 2015 calendar years for audit. The state of Texas suspended examination of the 2014 and 2015 calendar years in order to perform a comprehensive review of audit procedures to provide consistency. During the fourth quarter of 2019, we received notice that Texas had completed review of its procedures and initiated additional requests for information which has been submitted for their review. In February 2020, we received notice from the Internal Revenue Service (“IRS”) regarding the IRS's selection of the Company for an income tax
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audit for the tax period ending December 31, 2017. We do not expect any material changes related to the federal or Texas audits. Our federal and Texas tax returns remain open for examination for the years 2016 through 2019. As of March 31, 2021 and December 31, 2020, 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 state tax expense, stock based compensation, foreign taxes and a research and development credit for the three months ended March 31, 2021 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 have filed carryback claims allowed under these provisions which are included in income tax receivable on the consolidated balance sheets.
In April 2021, we received approximately $2.5 million related to our second and final NOL carryback claims, including approximately $0.1 million of interest income.
16. 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 March 31, 2021
 Specialty PetrochemicalsSpecialty WaxesCorporateEliminationsConsolidated
 (in thousands)
Product sales$44,658 $6,907 $ $ $51,565 
Processing fees1,254 1,766   3,020 
Total revenues45,912 8,673   54,585 
Operating income (loss) before depreciation and amortization2,571 (481)(3,023) (933)
Operating loss(231)(1,957)(3,025) (5,213)
Loss from continuing operations before taxes(297)(1,954)(3,154) (5,405)
Depreciation and amortization2,802 1,476 3  4,281 
Capital expenditures3,567 1,214   4,781 
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 Three Months Ended March 31, 2020
 Specialty PetrochemicalsSpecialty WaxesCorporateEliminationsConsolidated
 (in thousands)
Product sales$50,386 $6,797 $  $57,183 
Processing fees1,244 3,640   4,884 
Total revenues51,630 10,437   62,067 
Operating income (loss) before depreciation and amortization6,490 1,066 (2,415) 5,141 
Operating income (loss)3,872 (262)(2,422) 1,188 
Income (loss) from continuing operations before taxes2,942 (242)(2,490) 210 
Depreciation and amortization2,617 1,328 7  3,952 
Capital expenditures1,601 316   1,917 
 March 31, 2021
 Specialty PetrochemicalsSpecialty WaxesCorporateEliminationsConsolidated
 (in thousands)