trec-20210930

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, 2021

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

OF 1934

For the transition period from _________ to __________

COMMISSION FILE NUMBER 1-33926

TRECORA RESOURCES

(Exact name of registrant as specified in its charter)


Delaware			75-1256622
(State or other jurisdiction of			(I.R.S. Employer Identification No.)
incorporation or organization)


1650 Hwy 6 South,	Suite 190	77478
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 class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.10 per share	TREC	New York Stock Exchange

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

Indicate by check mark whether the registrant has submitted electronically 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 October 22, 2021: 24,402,392.

TABLE OF CONTENTS

Item Number and Description


PART I – FINANCIAL INFORMATION
ITEM 1. Financial Statements
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations	2
	Condensed Consolidated Statement of Stockholders' Equity	3
	Condensed Consolidated Statements of Cash Flows	5
	Notes to Condensed Consolidated Financial Statements	6

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

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk		33

ITEM 4. Controls and Procedures		33
	PART II – OTHER INFORMATION
ITEM 1. Legal Proceedings		34

ITEM 1A. Risk Factors		34



ITEM 6. Exhibits		34

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

TRECORA RESOURCES AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS


	September 30, 2021 (Unaudited)		December 31, 2020
ASSETS	(thousands of dollars, except par value)
Current Assets
Cash	$	44,403	$	55,664

Trade receivables, net	31,958		25,301
Inventories	15,619		12,945

Prepaid expenses and other assets	6,643		9,198
Taxes receivable	945		2,788
Total current assets	99,568		105,896

Property, plant and equipment, net	187,567		187,104


Intangible assets, net	11,512		12,893
Lease right-of-use assets, net	8,746		10,528
Mineral properties in the United States	412		412

TOTAL ASSETS	$	307,805	$	316,833

LIABILITIES
Current Liabilities
Accounts payable	$	12,686	$	14,447
Accrued liabilities	11,044		6,857

Current portion of long-term debt	4,194		4,194
Current portion of lease liabilities	3,302		3,195
Current portion of CARES Act, PPP Loans	3,935		—
Current portion of other liabilities	542		891
Total current liabilities	35,703		29,584

CARES Act, PPP Loans, net of current portion	—		6,123
Long-term debt, net of current portion	38,755		41,901
Post-retirement benefit, net of current portion	312		320
Lease liabilities, net of current portion	5,444		7,333
Other liabilities, net of current portion	617		648
Deferred income taxes	26,420		26,517
Total liabilities	107,251		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 24.4 million and 24.8 million in 2021 and 2020, respectively	2,497		2,483
Additional paid-in capital	62,710		61,311
Treasury stock, at cost (0.6 million shares)	(5,000)		—
Retained earnings	140,058		140,324
Total Trecora Resources Stockholders' Equity	200,265		204,118
Non-controlling Interest	289		289
Total equity	200,554		204,407

TOTAL LIABILITIES AND EQUITY	$	307,805	$	316,833

See notes to consolidated financial statements.


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TRECORA RESOURCES AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)


	THREE MONTHS ENDED SEPTEMBER 30,				NINE MONTHS ENDED SEPTEMBER 30,
	2021		2020		2021		2020
	(thousands of dollars, except per share amounts)
REVENUES
Product sales	$	70,422	$	43,570	$	186,647	$	137,460
Processing fees	4,215		4,177		11,424		13,028
	74,637		47,747		198,071		150,488

OPERATING 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

GROSS PROFIT	8,974		8,457		22,340		22,702

GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative	8,923		5,766		23,928		18,729
Depreciation	218		209		670		637
	9,141		5,975		24,598		19,366

OPERATING INCOME (LOSS)	(167)		2,482		(2,258)		3,336

OTHER INCOME (EXPENSE)

Interest expense	(319)		(508)		(918)		(2,159)
Gain on extinguishment of debt	2,188		—		2,188		—
Miscellaneous income, net	(30)		(13)		213		(7)
	1,839		(521)		1,483		(2,166)

INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES	1,672		1,961		(775)		1,170

INCOME TAX (EXPENSE) BENEFIT	211		(853)		509		3,942

INCOME (LOSS) FROM CONTINUING OPERATIONS	1,883		1,108		(266)		5,112

INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX	—		21,324		—		26,179

NET INCOME (LOSS)	$	1,883	$	22,432	$	(266)	$	31,291

Basic 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

Basic weighted average number of common shares outstanding	24,341		24,817		24,562		24,795

Diluted 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

Diluted weighted average number of common shares outstanding	24,952		25,394		24,562		25,179

See notes to consolidated financial statements.


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TRECORA RESOURCES AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)

THREE MONTHS ENDED SEPTEMBER 30


	TRECORA RESOURCES STOCKHOLDERS
	COMMON STOCK			ADDITIONAL PAID-IN		TREASURY		RETAINED				NON- CONTROLLING		TOTAL
	SHARES	AMOUNT		CAPITAL		STOCK		EARNINGS		TOTAL		INTEREST		EQUITY
	(thousands)	(thousands of dollars)
June 30, 2021	24,973	$	2,497	$	62,138	$	(5,000)	$	138,175	$	197,810	$	289	$	198,099

Restricted Stock Units
Issued to Directors	—	—		439		—		—		439		—		439
Issued to Employees	—	—		133		—		—		133		—		133
Common Stock
Issued to Directors	—	—		—		—		—		—		—		—
Issued to Employees	—	—		—		—		—		—		—		—
Stock Repurchases	—	—		—		—		—		—		—		—
Net Income	—	—		—		—		1,883		1,883		—		1,883

September 30, 2021	24,973	$	2,497	$	62,710	$	(5,000)	$	140,058	$	200,265	$	289	$	200,554

June 30, 2020	24,817	$	2,482	$	60,386	$	—	$	118,008	$	180,876	$	289	$	181,165





Restricted Stock Units
Issued to Directors	—	—		113		—		—		113		—		113
Issued to Employees	—	—		376		—		—		376		—		376
Common Stock
Issued to Directors	—	—		—		—		—		—		—		—
Issued to Employees	—	—		—		—		—		—		—		—


Net Income	—	—		—		—		22,432		22,432		—		22,432

September 30, 2020	24,817	$	2,482	$	60,875	$	—	$	140,440	$	203,797	$	289	$	204,086

See notes to consolidated financial statements.


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TRECORA RESOURCES AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)

NINE MONTHS ENDED SEPTEMBER 30


	TRECORA RESOURCES STOCKHOLDERS
	COMMON STOCK			ADDITIONAL PAID-IN		TREASURY		RETAINED				NON- CONTROLLING		TOTAL
	SHARES	AMOUNT		CAPITAL		STOCK		EARNINGS		TOTAL		INTEREST		EQUITY
	(thousands)	(thousands of dollars)
January 1, 2021	24,833	$	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 Directors	68	7		(7)		—		—		—		—		—
Issued to Employees	72	7		(7)		—		—		—		—		—
Stock Repurchases	—	—		—		(5,000)		—		(5,000)		—		(5,000)
Net Loss	—	—		—		—		(266)		(266)		—		(266)

September 30, 2021	24,973	$	2,497	$	62,710	$	(5,000)	$	140,058	$	200,265	$	289	$	200,554

January 1, 2020	24,750	$	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 Directors	28	3		(3)		—		—		—		—		—
Issued to Employees	39	4		(4)		—		—		—		—		—
Net Income	—	—		—		—		31,291		31,291		—		31,291

September 30, 2020	24,817	$	2,482	$	60,875	$	—	$	140,440	$	203,797	$	289	$	204,086


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TRECORA RESOURCES AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


	NINE MONTHS ENDED SEPTEMBER 30,
	2021		2020
	(thousands of dollars)
OPERATING ACTIVITIES
Net Income (Loss)	$	(266)	$	31,291
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:
Depreciation and Amortization	11,604		10,629
Amortization of Intangible Assets	1,382		1,382

Stock-based Compensation	1,695		1,423
Deferred Income Taxes	(96)		14,168
Postretirement Obligation	(22)		(1)
Bad Debt Expense	—		(1)
Amortization of Loan Fees	136		136
(Gain) Loss on Disposal of Assets	(280)		9
Gain on Extinguishment of Debt	(2,188)		—
Changes in Operating Assets and Liabilities:
(Increase) Decrease in Trade Receivables	(6,657)		3,665
Decrease in Insurance Receivables	—		1,148
(Increase) Decrease in Taxes Receivable	1,843		(16,675)
(Increase) Decrease in Inventories	(2,674)		2,514
(Increase) Decrease in Prepaid Expenses and Other Assets	2,554		(1,370)
Increase (Decrease) in Accounts Payable and Accrued Liabilities	2,426		(950)
Increase (Decrease) in Other Liabilities	(141)		510
Net Cash Provided by Operating Activities - Continuing Operations	9,316		21,699
Net Cash Used in Operating Activities - Discontinued Operations	—		(4,124)
Net Cash Provided by Operating Activities	9,316		17,575
INVESTING ACTIVITIES
Additions to Property, Plant and Equipment	(12,295)		(10,309)
Proceeds from Sale of Property, Plant and Equipment	281		150
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
FINANCING ACTIVITIES
Repurchase of Common Stock	(5,000)		—
Net Cash Paid Related to Stock-Based Compensation	(282)		(71)
Additions to CARES Act, PPP Loans	—		6,123
Additions to Long-Term Debt	—		20,000
Repayments of Long-Term Debt	(3,281)		(56,281)
Net Cash Used in Financing Activities - Continuing Operations	(8,563)		(30,229)
NET (DECREASE) INCREASE IN CASH	(11,261)		45,717
CASH AT BEGINNING OF PERIOD	55,664		6,145
CASH AT END OF PERIOD	$	44,403	$	51,862
Supplemental disclosure of cash flow information:
Cash payments for interest	$	744	$	2,023
Cash payments for taxes, net of refunds	$	(2,140)	$	3,000
Supplemental disclosure of non-cash items:
Capital expansion amortized to depreciation expense	$	225	$	690

Foreign taxes paid by AMAK	$	1,054	$	240

See notes to consolidated financial statements.


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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 nine months ended September 30, 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.

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 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


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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:
	September 30, 2021		December 31, 2020
	(thousands of dollars)
Trade receivables	$	32,258	$	25,601
Less allowance for doubtful accounts	(300)		(300)
Total trade receivables, net	$	31,958	$	25,301

Trade receivables serve as collateral for our amended and restated credit agreement. See Note 11.

4. INVENTORIES


Inventories consisted of the following:
	September 30, 2021		December 31, 2020
	(thousands of dollars)
Raw material	$	1,928	$	2,580
Work in process	187		138
Finished products	13,504		10,227
Total inventories	$	15,619	$	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 $4.0 million and $3.6 million at September 30, 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 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


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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 AMAK	682		455
Gain on sale of equity interest	28,510		35,173
Income from discontinued operations before taxes	26,587		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.


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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 sales	18,644		53,294
Gross profit	5,299		9,338
Selling, general, and administrative	3,808		8,850
Operating income (loss)	1,491		488
Other income	16		33
Finance and interest expense	(237)		(871)
Income (loss) before Zakat and income taxes	1,270		(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 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 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 AMAK	337	1,010
Equity in earnings of AMAK	682	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.


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6. PREPAID EXPENSES AND OTHER ASSETS


Prepaid expenses and other assets consisted of the following:
	September 30, 2021		December 31, 2020
	(thousands of dollars)
Prepaid license	$	—	$	403
Prepaid insurance premiums	2,748		4,241
Spare parts	2,219		2,376

Cash held in escrow by AMAK	—		1,877
Other prepaid expenses and assets	1,676		301
Total prepaid expenses and other assets	$	6,643	$	9,198

7. PROPERTY, PLANT AND EQUIPMENT


Property, plant and equipment consisted of the following:
	September 30, 2021		December 31, 2020
	(thousands of dollars)
Platinum catalyst metal	$	1,553	$	1,580
Catalyst	4,325		4,325
Land	5,428		5,428
Plant, pipeline and equipment	280,427		270,149
Construction in progress	8,199		6,422
Total property, plant and equipment	$	299,932	$	287,904
Less accumulated depreciation	(112,365)		(100,800)
Total property, plant and equipment, net	$	187,567	$	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 $0.1 million and $0.1 million for the three months 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 nine 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. 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 Income	Three Months Ended September 30,				Nine Months Ended September 30,
		2021		2020		2021		2020
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 administrative	33		34		102		102







Total lease cost		$	1,157	$	1,149	$	3,234	$	3,138

(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.

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


($ in thousands)	Classification on the Condensed Consolidated Balance Sheets	September 30, 2021		December 31, 2020
Assets:
Operating	Operating lease assets	$	8,746	$	10,528

Total lease right-of-use assets, net		$	8,746	$	10,528

Liabilities:
Current:
Operating	Current portion of operating lease liabilities	$	3,302	$	3,195

Noncurrent:
Operating	Operating lease liabilities	5,444		7,333

Total lease liabilities		$	8,746	$	10,528


	Three Months Ended September 30,				Nine Months Ended September 30,
($ in thousands)	2021		2020		2021		2020
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, 2021		September 30, 2020
Weighted-average remaining lease term (in years):
Operating leases	3.2		3.9

Weighted-average discount rate:
Operating leases	4.5	%	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 September 30, 2021, maturities of lease liabilities were as follows:
($ in thousands)	Operating Leases
2021	$	934
2022	3,439
2023	2,547
2024	1,233
2025	1,094
Thereafter	118
Total lease payments	$	9,365
Less: Interest	619
Total lease obligations	$	8,746

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:
	September 30, 2021
	Gross		Accumulated Amortization		Net
	(thousands of dollars)
Customer relationships	$	16,852	$	(7,864)	$	8,988
Non-compete agreements	94		(94)		—
Licenses and permits	1,471		(786)		685
Developed technology	6,131		(4,292)		1,839
Total	$	24,548	$	(13,036)	$	11,512


	December 31, 2020
	Gross		Accumulated Amortization		Net
	(thousands of dollars)
Customer relationships	$	16,852	$	(7,022)	$	9,830
Non-compete agreements	94		(94)		—
Licenses and permits	1,471		(707)		764
Developed technology	6,131		(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:


	Total		Remainder of 2021		2022		2023		2024		2025		2026		Thereafter
	(thousands of dollars)
Customer relationships	$	8,988	$	281	$	1,123	$	1,123	1,123		1,123		1,123		$	3,092

Licenses and permits	685		22		86		86		86		86		86		233
Developed technology	1,839		153		613		613		460		—		—		—
Total future amortization expense	$	11,512	$	456	$	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:
	September 30, 2021		December 31, 2020
	(thousands of dollars)
State taxes	$	107	$	125
Property taxes	2,347		—
Payroll	2,653		2,282
Royalties	143