UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One) |
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x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the quarterly period ended: September 30, 2014 |
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OR |
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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: 001-12127
EMPIRE RESOURCES, INC.
(Exact name of registrant as specified in
its charter)
Delaware |
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22-3136782 |
(State or other jurisdiction of |
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(I.R.S. Employer |
incorporation or organization) |
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Identification No.) |
One Parker Plaza
Fort Lee, New Jersey 07024
(Address of principal executive offices)
(Zip Code)
(201) 944-2200
(Registrant’s telephone number, including area code)
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?o
Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of
“large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Exchange Act.
Large accelerated filer o |
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Accelerated filer o |
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Non-accelerated filer o |
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Smaller reporting company x
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
The number of shares of the registrant’s
common stock, $0.01 par value, outstanding as of November 11, 2014: 8,976,231
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. |
Financial Statements |
EMPIRE RESOURCES, INC. AND
SUBSIDIARIES
Condensed
Consolidated Balance Sheets
(In thousands except share and per share amounts)
| |
September
30, 2014 (Unaudited) | | |
December 31, 2013 | |
ASSETS | |
| | | |
| | |
Current assets: | |
| | | |
| | |
Cash | |
$ | 4,663 | | |
$ | 2,477 | |
Trade accounts receivable (less allowance for doubtful accounts of $543 and $562) | |
| 97,393 | | |
| 52,696 | |
Inventories | |
| 120,104 | | |
| 139,752 | |
Deferred tax assets | |
| 3,194 | | |
| 3,217 | |
Advance to supplier, net of imputed interest of $87 and $176 | |
| 3,236 | | |
| 3,147 | |
Other current assets, including derivatives | |
| 6,051 | | |
| 6,081 | |
Total current assets | |
| 234,641 | | |
| 207,370 | |
Advance to supplier, net of imputed interest of $3 and $56, and net of current maturities | |
| 841 | | |
| 3,287 | |
Preferential supply agreement, net | |
| 401 | | |
| 641 | |
Long-term financing costs, net of amortization | |
| 962 | | |
| 358 | |
Property and equipment, net | |
| 3,886 | | |
| 3,949 | |
Deferred tax assets | |
| - | | |
| 215 | |
Total assets | |
$ | 240,731 | | |
$ | 215,820 | |
| |
| | | |
| | |
LIABILITIES AND STOCKHOLDERS' EQUITY | |
| | | |
| | |
Current liabilities: | |
| | | |
| | |
Notes payable - banks | |
$ | 132,785 | | |
$ | 107,922 | |
Current maturities of mortgage payable | |
| 1,154 | | |
| 1,290 | |
Trade accounts payable | |
| 33,488 | | |
| 44,058 | |
Income taxes payable | |
| 3,037 | | |
| 2,042 | |
Accrued expenses and derivative liabilities | |
| 8,257 | | |
| 2,844 | |
Dividends payable | |
| 224 | | |
| 215 | |
Total current liabilities | |
| 178,945 | | |
| 158,371 | |
| |
| | | |
| | |
Subordinated convertible debt net of unamortized discount of $865 and $1,368 respectively | |
| 10,135 | | |
| 10,632 | |
Derivative liability for embedded conversion option | |
| 3,860 | | |
| 2,048 | |
Deferred taxes payable | |
| 49 | | |
| - | |
Total Liabilities | |
| 192,989 | | |
| 171,051 | |
| |
| | | |
| | |
Commitments (Note 19) | |
| | | |
| | |
| |
| | | |
| | |
Stockholders' equity: | |
| | | |
| | |
Common stock $0.01 par value, 20,000,000 shares authorized and 11,749,651 shares issued at September 30, 2014 and December 31, 2013 | |
| 117 | | |
| 117 | |
Additional paid-in capital | |
| 13,678 | | |
| 11,937 | |
Retained earnings | |
| 39,280 | | |
| 38,178 | |
Accumulated other comprehensive (loss) income | |
| (217 | ) | |
| 51 | |
Treasury stock, 2,773,420 and 3,177,708 shares at September 30, 2014 and December 31, 2013, respectively | |
| (5,116 | ) | |
| (5,514 | ) |
Total stockholders' equity | |
| 47,742 | | |
| 44,769 | |
Total liabilities and stockholders' equity | |
$ | 240,731 | | |
$ | 215,820 | |
See notes to unaudited
condensed consolidated financial statements
EMPIRE RESOURCES, INC. AND
SUBSIDIARIES
Condensed Consolidated Statements of Income (Unaudited)
(In thousands except per share amounts)
| |
Three Months Ended September 30, | | |
Nine Months Ended September 30, | |
| |
2014 | | |
2013 (see note 20) | | |
2014 | | |
2013 | |
Net sales | |
$ | 159,366 | | |
$ | 126,390 | | |
$ | 444,199 | | |
$ | 370,288 | |
Cost of goods sold | |
| 151,897 | | |
| 121,082 | | |
| 423,228 | | |
| 353,083 | |
Gross profit | |
| 7,469 | | |
| 5,308 | | |
| 20,971 | | |
| 17,205 | |
Selling, general and administrative expenses | |
| 3,819 | | |
| 3,602 | | |
| 10,600 | | |
| 10,361 | |
Operating income | |
| 3,650 | | |
| 1,706 | | |
| 10,371 | | |
| 6,844 | |
Interest expense, net | |
| 1,041 | | |
| 1,156 | | |
| 3,223 | | |
| 3,403 | |
Income before other expenses | |
| 2,609 | | |
| 550 | | |
| 7,148 | | |
| 3,441 | |
Other expenses | |
| | | |
| | | |
| | | |
| | |
Change in value of derivative liability | |
| (2,059 | ) | |
| 1,715 | | |
| (2,239 | ) | |
| (452 | ) |
Loss related to extinguishment of debt converted into common stock | |
| (164 | ) | |
| - | | |
| (164 | ) | |
| - | |
Income before income taxes | |
| 386 | | |
| 2,265 | | |
| 4,745 | | |
| 2,989 | |
Income taxes | |
| 1,080 | | |
| 194 | | |
| 2,985 | | |
| 1,066 | |
Net (loss)/income | |
$ | (694 | ) | |
$ | 2,071 | | |
$ | 1,760 | | |
$ | 1,923 | |
Weighted average shares outstanding: | |
| | | |
| | | |
| | | |
| | |
Basic | |
| 8,814 | | |
| 8,586 | | |
| 8,705 | | |
| 8,585 | |
Diluted | |
| 8,814 | | |
| 11,835 | | |
| 8,964 | | |
| 8,856 | |
Earnings per share: | |
| | | |
| | | |
| | | |
| | |
Basic | |
$ | (0.08 | ) | |
$ | 0.24 | | |
$ | 0.20 | | |
$ | 0.22 | |
Diluted | |
$ | (0.08 | ) | |
$ | 0.06 | | |
$ | 0.20 | | |
$ | 0.22 | |
See notes to unaudited condensed consolidated financial statements
EMPIRE RESOURCES, INC. AND
SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
(In thousands)
| |
Three Months Ended September 30, | | |
Nine Months Ended September 30, | |
| |
2014 | | |
2013 (see note 20) | | |
2014 | | |
2013 | |
Net (loss)/income | |
$ | (694 | ) | |
$ | 2,071 | | |
$ | 1,760 | | |
$ | 1,923 | |
Other comprehensive (loss)/income before tax | |
| | | |
| | | |
| | | |
| | |
Foreign currency translation adjustments | |
| (278 | ) | |
| 119 | | |
| (292 | ) | |
| 81 | |
Decrease in value of interest rate swap liability | |
| 13 | | |
| 13 | | |
| 39 | | |
| 42 | |
Increase in value of marketable securities | |
| - | | |
| - | | |
| - | | |
| 32 | |
Other comprehensive (loss)/income before tax | |
| (265 | ) | |
| 132 | | |
| (253 | ) | |
| 155 | |
Income tax related to components of other comprehensive (loss)/income | |
| (5 | ) | |
| (5 | ) | |
| (15 | ) | |
| (28 | ) |
Other comprehensive (loss)/income, net of tax | |
| (270 | ) | |
| 127 | | |
| (268 | ) | |
| 127 | |
Comprehensive (loss) /income | |
$ | (964 | ) | |
$ | 2,198 | | |
$ | 1,492 | | |
$ | 2,050 | |
See notes to unaudited condensed consolidated financial statements
EMPIRE RESOURCES, INC.
AND SUBSIDIARIES
Condensed Consolidated
Statements of Cash Flows (Unaudited)
(In thousands)
| |
Nine Months Ended September 30, | |
| |
2014 | | |
2013 | |
Cash flows - operating activities: | |
| | | |
| | |
Net income | |
$ | 1,760 | | |
$ | 1,923 | |
Adjustments to reconcile net income to net cash (used in)/provided by operating activities: | |
| | | |
| | |
Depreciation and amortization | |
| 482 | | |
| 518 | |
Change in value of derivative liability | |
| 2,239 | | |
| 452 | |
Loss related to extinguishment of debt converted into common stock | |
| 164 | | |
| - | |
Amortization of convertible note discount | |
| 419 | | |
| 424 | |
Imputed interest on vendor advance | |
| (144 | ) | |
| (231 | ) |
Loss on sale of marketable securities | |
| - | | |
| 32 | |
Amortization of supply agreement | |
| 240 | | |
| 240 | |
Deferred income taxes | |
| 271 | | |
| (503 | ) |
Foreign exchange loss/(gain) and other | |
| 296 | | |
| (23 | ) |
Stock-based compensation | |
| 630 | | |
| - | |
Changes in: | |
| | | |
| | |
Trade accounts receivable | |
| (45,330 | ) | |
| (9,932 | ) |
Inventories | |
| 18,947 | | |
| 21,708 | |
Other current assets | |
| 27 | | |
| (666 | ) |
Trade accounts payable | |
| (10,751 | ) | |
| (8,061 | ) |
Income taxes payable | |
| 995 | | |
| (818 | ) |
Accrued expenses and derivative liabilities | |
| 5,708 | | |
| (1,221 | ) |
Net cash (used in)/provided by operating activities | |
| (24,047 | ) | |
| 3,842 | |
Cash flows - investing activities: | |
| | | |
| | |
Repayment related to supply agreement | |
| 2,500 | | |
| 2,500 | |
Net proceeds from sale of marketable securities | |
| - | | |
| 6 | |
Purchases of property and equipment | |
| (19 | ) | |
| (6 | ) |
Net cash provided by investing activities | |
| 2,481 | | |
| 2,500 | |
Cash flows - financing activities: | |
| | | |
| | |
Proceeds from/(repayments) of notes payable – banks | |
| 25,602 | | |
| (6,594 | ) |
Repayments - mortgage payable | |
| (136 | ) | |
| (127 | ) |
Deferred Financing Costs | |
| (1,005 | ) | |
| (60 | ) |
Dividends paid | |
| (648 | ) | |
| (429 | ) |
Proceeds from stock options exercised | |
| 15 | | |
| - | |
Treasury stock purchased | |
| (13 | ) | |
| (23 | ) |
Net cash provided by/(used in) financing activities | |
| 23,815 | | |
| (7,233 | ) |
Net increase/(decrease) in cash | |
| 2,249 | | |
| (891 | ) |
Effect of exchange rate | |
| (63 | ) | |
| 1 | |
Cash at beginning of period | |
| 2,477 | | |
| 3,136 | |
Cash at end of the period | |
$ | 4,663 | | |
$ | 2,246 | |
Supplemental disclosures of cash flow information: | |
| | | |
| | |
Cash paid during the period for: | |
| | | |
| | |
Interest | |
$ | 3,476 | | |
$ | 2,913 | |
Income taxes | |
$ | 2,737 | | |
$ | 1,955 | |
Non cash financing activities: | |
| | | |
| | |
Dividend declared but not yet paid | |
$ | 224 | | |
$ | 215 | |
Treasury stock issued on conversion of subordinated debt | |
$ | 1,507 | | |
| - | |
See notes to unaudited condensed consolidated financial statements
EMPIRE RESOURCES, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Stockholders’ Equity
(Unaudited)
(In thousands, except per share amounts)
| |
Common Stock Number of Shares | | |
Common Stock Amount | | |
Additional Paid-in Capital | | |
Retained Earnings | | |
Accumulated Other Comprehensive Income/(Loss) | | |
Treasury Stock | | |
Total Stockholders' Equity | |
Balance at December 31, 2013 | |
| 11,750 | | |
$ | 117 | | |
$ | 11,937 | | |
$ | 38,178 | | |
$ | 51 | | |
$ | (5,514 | ) | |
$ | 44,769 | |
Treasury stock acquired | |
| | | |
| | | |
| | | |
| | | |
| | | |
| (13 | ) | |
| (13 | ) |
Treasury stock issued on conversion of
subordinated debt | |
| | | |
| | | |
| 1,256 | | |
| | | |
| | | |
| 251 | | |
| 1,507 | |
Stock based compensation | |
| | | |
| | | |
| 475 | | |
| | | |
| | | |
| 155 | | |
| 630 | |
Stock options exercised | |
| | | |
| | | |
| 10 | | |
| | | |
| | | |
| 5 | | |
| 15 | |
Net change in cumulative translation
adjustment | |
| | | |
| | | |
| | | |
| | | |
| (292 | ) | |
| | | |
| (292 | ) |
Decrease in value of interest rate swap liability, net of deferred tax of $15 | |
| | | |
| | | |
| | | |
| | | |
| 24 | | |
| | | |
| 24 | |
Dividends declared ($0.075 per share) | |
| | | |
| | | |
| | | |
| (658 | ) | |
| | | |
| | | |
| (658 | ) |
Net income | |
| | | |
| | | |
| | | |
| 1,760 | | |
| | | |
| | | |
| 1,760 | |
Balance at September 30, 2014 | |
| 11,750 | | |
$ | 117 | | |
$ | 13,678 | | |
$ | 39,280 | | |
$ | (217 | ) | |
$ | (5,116 | ) | |
$ | 47,742 | |
See notes to unaudited condensed consolidated financial statements
Empire Resources, Inc. and Subsidiaries.
Notes to Condensed Consolidated
Financial Statements (Unaudited)
(In thousands, except for
per share amounts)
1. The Company
The condensed consolidated financial statements
include the accounts of Empire Resources, Inc. (the “Company”) and its wholly-owned subsidiaries, including Empire
Resources Pacific Ltd., the Company’s sales agent in Australia, 6900 Quad Avenue LLC, the owner of a warehouse facility in
Baltimore, Maryland and Imbali Metals BVBA (“Imbali”), the Company’s operating subsidiary in Europe and Empire
Resources de Mexico, our operating subsidiary in Mexico. All significant inter-company transactions and accounts have been eliminated
on consolidation. The Company purchases and sells semi-finished aluminum and steel products to a diverse customer base
located in the Americas, Australia, Europe and New Zealand.
2. Interim Financial Statements
The condensed consolidated interim financial
statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”)
for interim reporting. The information and note disclosures normally included in complete financial statements prepared in accordance
with generally accepted accounting principles in the United States (“GAAP”) have been condensed or omitted pursuant
to such rules and regulations. The interim financial statements should be read in conjunction with the Company’s Annual Report
on Form 10-K for the year ended December 31, 2013.
The Company’s management is responsible
for interim financial information. In the opinion of management, the accompanying unaudited condensed consolidated financial statements
contain all adjustments, which are of a normal and recurring nature, necessary to present fairly the Company’s financial
position as of September 30, 2014 and the results of its operations and cash flows for the three and nine months ended September
30, 2014 and 2013. Interim results may not be indicative of the results that may be expected for the year.
3. Use of Estimates
The preparation of financial statements
in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income
and expenses during the reporting period. Actual results could differ from these estimates.
4. Concentrations
During the nine month period ended September
30, 2014 and 2013 no one customer accounted for 10% or more of our consolidated sales.
The Company purchases metal products from
a limited number of suppliers throughout the world. Two suppliers, PT Alumindo Light Metal Industry and Hulamin Ltd. accounted
for an aggregate of 39% of total purchases during the nine month period ended September 30, 2014, as compared to 50% during the
same period ended September 30, 2013.
The loss of any one of our largest suppliers
or a material default by any such supplier in its obligations to us could have a material adverse effect on our business.
5. Stock Options
Stock-based compensation for an award of
equity instruments, including stock options, is recognized as an expense over the vesting period based on the fair value of the
award at the grant date. As of September 30, 2014, there were outstanding employee stock options to acquire 400 shares of common
stock, which had vested in prior years. During the nine month period ended September 30, 2014, the Company did not grant any stock
options. Treasury shares were issued for 4 stock options exercised during the nine months ended September 30, 2014.
6. Treasury Stock
On July 22, 2008, the Board of Directors
authorized the Company to repurchase up to 2,000 shares of its common stock. As of September 30, 2014, the Company repurchased
a total of 1,268 shares under the repurchase program for an aggregate cost of $3,299. During the nine month period ended September
30, 2014, the Company purchased 3 common shares at a cost of $13. In January 2014 and August 2014, the Company issued a total of
150 common shares out of treasury stock to a non-executive employee as part of a compensation arrangement and in August 2014 issued
254 common shares out of treasury stock on conversion of debt.
7. Inventories
Inventories, which consist of purchased
semi-finished metal products, are stated at the lower of cost or market value. Cost is determined by the specific-identification
method. Inventory is purchased for specific customer orders and the Company’s own inventory. The carrying amount
of inventory which is hedged by futures contracts designated as fair value hedges, is adjusted to fair value.
8. Notes Payable—Banks
Prior to June 19, 2014, we were a party
to credit agreement with Rabobank International, for itself and as lead arranger and agent, JPMorgan Chase, for itself and as syndication
agent, and ABN AMRO, BNP Paribas, RBS Citizens, Société Générale, and Brown Brothers Harriman which
provided for a $200,000 revolving line of credit, including a commitment to issue letters of credit and a swing-line loan sub facility,
with a maturity date of June 30, 2014.
On June 19, 2014 we entered into an amended
and restated committed credit agreement with Rabobank International, for itself and as lead arranger and agent, BNP Paribas, for
itself and as syndication agent, and Société Générale, ABN AMRO, RB International, and Brown Brothers
Harriman as well as a new uncommitted line of credit with Rabobank International, BNP Paribas and Société Générale.
Both credit lines are secured, asset-based credit facilities. The committed credit facility is in the amount of $150,000, and the
uncommitted facility is in the amount of $75,000. The agreement also allows for an additional increase in the committed credit
facility of $75,000, for a total of $300,000, subject to certain restrictions and conditions. Our borrowings under this line of
credit are secured by substantially all of our assets.
Amounts borrowed bear interest at Eurodollar,
money market or base rates, at our option, plus an applicable margin. The credit agreements contains financial
and other covenants, including but not limited to, covenants requiring maintenance of minimum tangible net working capital and
compliance with leverage ratios, as well as an ownership minimum and limitations on other indebtedness, liens, distributions or
dividends, and investments and dispositions of assets. As of September 30, 2014, the Company was in compliance with
all covenants under this credit agreement.
Both credit agreements provide that amounts
under the facilities may be borrowed and repaid, and re-borrowed, subject to a borrowing base test. The committed line of credit
matures June 19, 2017 and the uncommitted credit agreement must be repaid by the Company on or before June 19, 2015 unless otherwise
agreed to. As of September 30, 2014 and December 31, 2013, the credit utilized amounted to, respectively, $213,835 and
$174,605 (including approximately $90,335 and $71,105 of outstanding letters of credit).
Our wholly owned Belgian subsidiary, Imbali,
maintains a line of credit with ING Belgium S.A./N.V., for a EUR 8,000 (US$10,106) commitment for loans and documentary letters
of credit. Loan advances are limited to a percentage of Imbali’s pledged accounts receivables and inventory and bear interest
at EURIBOR plus 1.75%. This secured credit arrangement is unconditionally guaranteed by the Company. As of September 30, 2014,
the outstanding loan amounted to EUR 7,350 (US $9,285), as compared to EUR 3,217 (US $4,422) on December 31, 2013. As of September
30, 2014 Imbali was in compliance with all financial covenants.
9. Mortgage Payable
In connection with the purchase of its
Baltimore warehouse, the Company entered into a mortgage loan, which had outstanding balances of $1,154 at September 30, 2014 and
$1,290 at December 31, 2013. The loan requires monthly payments of approximately $21.6, including interest at LIBOR plus 1.75%,
and matures in December 2014. Under a related interest rate swap, which has been designated as a cash flow hedge and
remains effective through the maturity of the mortgage loan, the Company pays a monthly fixed interest rate of 6.37% to the counterparty
bank on a notional principal equal to the outstanding principal balance of the mortgage. In return, the bank pays the
Company a floating rate, namely, LIBOR, which resets monthly, plus 1.75% on the same notional principal amount.
10. Convertible Subordinated Debt
On June 3, 2011, the Company issued $12,000
principal amount of 10% Convertible Senior Subordinated Notes Due June 1, 2016 in a private placement to selected accredited investors. As
of September 30, 2014, the notes are convertible at the option of the holders into shares of common stock at a conversion rate
of 254.90 shares of common stock per $1,000 principal amount of notes (equivalent to a conversion price of $3.92 per share of common
stock), subject to dilutive adjustment for cash and stock dividends, stock splits and similar transactions, at any time before
maturity. The current conversion price reflects fourteen adjustments for dividends declared on the Company’s common
stock since the issuance of the notes. In addition, if the last reported sale price of the Company’s common stock
for 30 consecutive trading days is equal to or greater than $7.00, and a registration statement is effective covering the resale
of the shares of common stock issuable upon conversion of the notes, the Company has the right, in its sole discretion, to require
the holders to convert all or part of their notes at the then applicable conversion rate. Interest on the notes is payable
in arrears on the first day of June and December every year the notes are outstanding. The purchase agreement pursuant to which
the notes were issued contains covenants, including restrictions on the Company’s ability to incur certain indebtedness and
create certain liens. As of September 30, 2014, the Company was in compliance with all covenants. Officers and directors of the
Company and certain affiliated entities purchased $4,000 principal amount of the notes.
On August 18, 2014, a note holder converted $1,000
principal amount of notes into 254 shares of common stock having a fair value on such date of $1,507. The carrying value of
the note converted was $916, and the carrying value of the related embedded conversion option was $427 resulting in a loss on
extinguishment of the debt of $164.
As a result of transactions which cause
adjustments to the conversion rate, the embedded conversion option has been bifurcated and recorded as a separate derivative liability
at a fair value at issuance of the notes of $2,829, with a corresponding discount recorded on the notes. The derivative liability
is carried at fair value with changes therein recorded in income. The quarterly mark to market of the derivative liability will
result in non-operating, non-cash gains or losses based on decreases or increases in the Company’s stock price, respectively,
among other factors. The non-cash discount is being amortized as additional interest expense over the term of the notes. During
the three and nine month periods ended September 30, 2014, the change in the fair value of the derivative liability resulted in
a loss of $2,059 and $2,239, respectively, and amortization of the discount amounted to $136 and $419, respectively. During the
three month period ended September 30, 2013, the decrease in the fair value of the derivative liability resulted in a gain of $1,715
and during the nine month period ended September 30, 2013 the increase in the fair value of the derivative liability resulted in
a loss of $452. Amortization of the discount amounted to $141 for the three month period and $424 for the nine month period.
The derivative liability was valued using
a lattice model using unobservable level 3 inputs. This technique was selected because it embodies all of the types of inputs that
the Company expects market participants would consider in determining the fair value of equity linked derivatives embedded in hybrid
debt agreements.
The following table summarizes the significant
inputs resulting from the calculations as of September 30, 2014, December 31, 2013 and issuance:
| |
September 30, 2014 | | |
December 31, 2013 | | |
June 3, 2011 | |
| |
| | |
| | |
| |
Equity value | |
$ | 47,401 | | |
$ | 30,708 | | |
$ | 36,811 | |
Volatility | |
| 35 | % | |
| 45 | % | |
| 70 | % |
Risk free return | |
| 0.58 | % | |
| 0.38 | % | |
| 1.60 | % |
Dividend yield | |
| 1.88 | % | |
| 2.79 | % | |
| 2.51 | % |
Strike price | |
$ | 3.92 | | |
$ | 3.99 | | |
$ | 4.65 | |
The majority of the proceeds from the notes
were earmarked for a long term advance in connection with a supply agreement with the Indonesian company PT. Alumindo Light Metal
Industry Tbk (“PT. Alumindo”), a leading producer of high quality semi-finished aluminum products, and its affiliates,
as described below. The Company provided a $10 million non-interest bearing advance to an affiliate of PT. Alumindo to enable
the expansion of capacity within that group of companies’ production network. Agreements entered into in connection
with this loan also provide for a long term, multi-year substantial and preferential supply position from PT. Alumindo's premier
aluminum rolling mill located in Surabaya, Indonesia. The pre-payment advance became repayable to us beginning on January
1, 2013 in monthly installments of $278. As of November 4, 2014, the payments are up to date and current. If the Company and PT.
Alumindo are unable to agree on a product price under the supply agreement for any given quarter, the monthly re-payment obligation
will increase to $556 and the outstanding balance will accrue interest, at the one month U.S. dollar LIBOR rate plus 3.5% per annum,
per month. The entire remaining balance, if any, must be repaid on January 1, 2016. As consideration for this loan, PT. Alumindo
agreed to make available a committed and significant tonnage of production to the Company on a guaranteed and long-term basis,
which should help the Company lessen the risk of an interruption in the sources of its metal supply from PT. Alumindo’s mill
in Surabaya, Indonesia, with which the Company has had substantial experience. The supply agreement calls for increased supply
and minimum tonnages.
Interest at the rate of 3.74%, based on
the interest rate chargeable in the agreement in the event the supplier does not meet its supply commitments, has been imputed
on the non-interest bearing advance and the resulting discount which amounted to $962 has been ascribed to the preferential supply
agreement. Imputed interest is recorded in income over the term of the advance by use of the interest method. The preferential
supply agreement is being amortized by the straight line method over three years starting from January 1, 2013, the date that the
increased supply agreement began. During the three and nine month periods ended September 30, 2014 and 2013 amortization amounted
to $80 in each three month period and $240 in each nine month period.
11. Earnings per Share
Basic earnings per share are based upon
weighted average number of shares of common stock outstanding during each period. Diluted earnings per share are based upon the
weighted average number of shares of common stock outstanding during each period, plus potential dilutive shares of common stock
from assumed exercise of the outstanding stock options using the treasury stock method and assumed conversion of subordinated debt.
The following table sets forth the computation
of basic and diluted earnings per share:
| |
Three Months Ended September 30, | | |
Nine Months Ended September 30, | |
| |
2014 | | |
2013 | | |
2014 | | |
2013 | |
Numerator: | |
| | | |
| | | |
| | | |
| | |
Net income | |
$ | (694 | ) | |
$ | 2,071 | | |
$ | 1,760 | | |
$ | 1,923 | |
Add back of interest on convertible subordinated debt, net of taxes | |
| | | |
| 185 | | |
| | | |
| | |
Add back of amortization of discount on convertible subordinated debt | |
| | | |
| 141 | | |
| | | |
| | |
Adjustment for change in value of convertible note derivative | |
| | | |
| (1,715 | ) | |
| | | |
| | |
Numerator for diluted earnings per share | |
$ | (694 | ) | |
$ | 682 | | |
$ | 1,760 | | |
$ | 1,923 | |
| |
| | | |
| | | |
| | | |
| | |
Denominator: | |
| | | |
| | | |
| | | |
| | |
Weighted average shares outstanding-basic | |
| 8,814 | | |
| 8,586 | | |
| 8,705 | | |
| 8,585 | |
Dilutive effect of convertible subordinated debt | |
| - | | |
| 2,986 | | |
| - | | |
| - | |
Dilutive effect of stock options | |
| - | | |
| 263 | | |
| 259 | | |
| 271 | |
Weighted average shares outstanding-diluted | |
| 8,814 | | |
| 11,835 | | |
| 8,964 | | |
| 8,856 | |
Basic Earnings per Share | |
$ | (0.08 | ) | |
$ | 0.24 | | |
$ | 0.20 | | |
$ | 0.22 | |
Diluted Earnings per Share | |
$ | (0.08 | ) | |
$ | 0.06 | | |
$ | 0.20 | | |
$ | 0.22 | |
In computing diluted earnings
per share for the three and nine months ended September 30, 2014 no effect has been give to the 2,804 common shares issuable
upon conversion of subordinated debt as the effect thereof is anti-dilutive. Similarly, for the nine months ended September
30, 2013, no effect has been given to the 2,986, common shares issuable upon conversion of subordinated debt as the
effect thereof is anti-dilutive. In addition, no effect has been given to options to acquire 266 common shares in computing
diluted earnings per share data for the three month period ended September 30, 2014 as the effect thereof is anti-dilutive.
12. Dividends
On September 19, 2014, our Board of Directors
announced a cash dividend of $0.025 per share to stockholders of record at the close of business on September 30, 2014. The dividend
totaling $224 was paid on October 15, 2014. On June 18, 2014, our Board of Directors announced a cash dividend of $0.025 per share
to stockholders of record at the close of business on July 7, 2014. The dividend totaling $217 was paid on July 18, 2014. On March
25, 2014, our Board of Directors announced a cash dividend of $0.025 per share to stockholders of record at the close of business
on April 7, 2014. The dividend, totaling $217, was paid on April 14, 2014. The Board of Directors will review its dividend policy
on a quarterly basis, and make a determination subject to the profitability and free cash flow and the other requirements of the
business.
13. Derivative Financial Instruments
and Risk Management
The Company uses derivative financial instruments
designated as fair value hedges to manage its exposure to commodity price risk and foreign currency exchange risk inherent in its
operations. It is the Company’s policy to hedge such risks to the extent practicable. The Company enters into high-grade
aluminum futures contracts to limit its gross margin exposure by hedging the metal content element of firmly committed purchase
and sales commitments. The Company also enters into foreign exchange forward contracts to hedge its exposure related to commitments
to buy and sell metals as well as its accounts receivable denominated in international currencies.
The Company’s unrealized assets
and liabilities in respect of its fair value hedges measured at fair value are as follows:
Derivatives designated as fair value hedges | |
Balance Sheet Location | |
September 30, 2014 | | |
December 31, 2013 | |
Asset derivatives: | |
| |
| | | |
| | |
Aluminum futures contracts | |
Other current assets | |
$ | 608 | | |
$ | 1,047 | |
Foreign currency forward contracts | |
Other current assets | |
| 1,143 | | |
| 316 | |
Total | |
| |
$ | 1,751 | | |
$ | 1,363 | |
Liability derivatives: | |
| |
| | | |
| | |
Aluminum futures contracts | |
Accrued expenses and derivative liabilities | |
| (157 | ) | |
| - | |
Total | |
| |
$ | (157 | ) | |
$ | - | |
For the periods ended September
30, 2014 and December 31, 2013, hedge ineffectiveness associated with derivatives designated as fair value hedges was insignificant,
and no fair value hedges were derecognized.
The Company has entered into interest
rate swaps to convert the mortgage for its Baltimore warehouse from a variable rate to a fixed rate obligation. The swap has been
designated as a cash flow hedge and the Company’s unrealized liabilities relating to it measured at fair value are as follows:
Derivatives designated as cash flow hedges | |
Balance Sheet Location | |
September 30, 2014 | | |
December 31, 2013 | |
Liability derivatives: | |
| |
| | | |
| | |
Interest rate swap contracts | |
Accrued expenses
and derivative liabilities | |
$ | 12 | | |
$ | 52 | |
A corresponding debit, net of deferred
taxes, is reflected in accumulated other comprehensive income in the accompanying balance sheets.
The table below summarizes the realized
gains or (losses) of the Company’s derivative instruments and their location in the income statement:
| |
| | |
| |
Three Months Ended
September 30, | | |
Nine Months Ended
September 30, | |
Derivatives in hedging
relationships | |
| | |
Location of Gain or
(Loss) Recognized | |
2014 | | |
2013 | | |
2014 | | |
2013 | |
Foreign currency forward contracts | |
| (a) | | |
Cost of goods sold | |
$ | 392 | | |
$ | (357 | ) | |
$ | (9 | ) | |
$ | 521 | |
Interest rate swaps | |
| (b) | | |
Interest expense, net | |
| (13 | ) | |
| (9 | ) | |
| (41 | ) | |
| (41 | ) |
Aluminum futures | |
| (c) | | |
Cost of goods sold | |
| (3,399 | ) | |
| 2,329 | | |
| (1,694 | ) | |
| 5,482 | |
Total | |
| | | |
| |
$ | (3,020 | ) | |
$ | 1,963 | | |
$ | (1,744 | ) | |
$ | 5,962 | |
| a) | Fair value hedge: the related hedged item is accounts receivable and offsetting losses in the three months September 30, 2014 and
nine months ended September 30, 2013 are included in cost of goods sold in the same respective amounts. Similarly offsetting gains
in the three months September 30, 2013 and nine months ended September 30, 2014 are included in cost of goods sold in the same
respective amounts. |
| b) | Cash flow hedge: recognized loss is reclassified from accumulated other comprehensive loss. |
| c) | Fair value hedge: the related hedged item is inventory and offsetting gains in 2014 and losses
in 2013 are included in cost of goods sold in the same respective amounts. |
14. Fair Value
Authoritative guidance defines fair value
as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date. The fair value hierarchy consists of three broad levels, as described below:
| · | Level 1 - Unadjusted quoted prices in active
markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. |
| · | Level 2 - Inputs other than quoted prices
included within Level 1 that are observable for the asset or liability, either directly or indirectly. |
| · | Level 3 - Inputs that are both significant
to the fair value measurement and unobservable. |
Derivative contracts consisting of aluminum
contracts, foreign currency contracts and interest rates swaps are valued using quoted market prices and significant other observable
inputs. These financial instruments are typically exchange-traded and are generally classified within Level 1 or Level 2 of the
fair value hierarchy depending on whether the exchange is deemed to be an active market or not.
Major categories of assets and liabilities
measured at fair value at September 30, 2014 and December 31, 2013 are classified as follows:
|
|
September 30, 2014 |
|
|
December 31, 2013 |
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories |
|
$ |
94,909 |
|
|
|
|
|
|
|
|
|
|
$ |
106,903 |
|
|
|
|
|
|
|
|
|
Aluminum futures contracts |
|
|
608 |
|
|
|
|
|
|
|
|
|
|
|
1,047 |
|
|
|
|
|
|
|
|
|
Foreign currency forward
contracts |
|
|
1,143 |
|
|
|
|
|
|
|
|
|
|
|
316 |
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap contracts |
|
|
|
|
|
$ |
12 |
|
|
|
|
|
|
|
|
|
|
$ |
52 |
|
|
|
|
|
Aluminum futures contracts |
|
|
157 |
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
Embedded conversion option |
|
|
|
|
|
|
|
|
|
$ |
3,860 |
|
|
|
|
|
|
|
|
|
|
$ |
2,048 |
|
15. Fair Value of Financial
Instruments
The carrying amounts of variable rate notes
payable to the banks and the variable rate mortgage payable approximate fair value as of September 30, 2014 and December 31, 2013,
because these notes reflect market changes to interest rates. The fair value of the subordinated convertible debt approximates
its principal amount of $11,000 at September 30, 2014 and $12,000 at December 31, 2013, which exceeds its carrying amount as a
result of the unamortized discount related to the bifurcation of the embedded conversion option. The fair value of the advance
to supplier approximates its carrying value. Derivative financial instruments are carried at fair value (see Note 14).
16. Business Segment and Geographic
Area Information
The Company’s only business segment
is the sale and distribution of metals. Sales are attributed to countries based on location of customers as follows:
| |
Three Months Ended September 30, | | |
Nine Months Ended September 30, | |
| |
2014 | | |
2013 | | |
2014 | | |
2013 | |
United States | |
$ | 101,907 | | |
$ | 75,667 | | |
$ | 264,604 | | |
$ | 239,818 | |
Latin America | |
| 23,995 | | |
| 26,374 | | |
| 81,263 | | |
| 52,336 | |
Canada | |
| 10,665 | | |
| 11,932 | | |
| 35,348 | | |
| 36,587 | |
Australia & New Zealand | |
| 11,241 | | |
| 8,052 | | |
| 33,647 | | |
| 29,530 | |
Europe | |
| 11,558 | | |
| 4,365 | | |
| 29,337 | | |
| 12,017 | |
| |
$ | 159,366 | | |
$ | 126,390 | | |
$ | 444,199 | | |
$ | 370,288 | |
17. Accumulated Other Comprehensive
Income/(Loss)
Changes in accumulated other comprehensive income/(loss)
by component on an after tax basis are as follows:
Three Months ended September 30, 2014 | |
Foreign Currency Translation | | |
Interest Rate Swap Contract | | |
Total | |
Beginning balance | |
$ | 70 | | |
$ | (17 | ) | |
$ | 53 | |
Other comprehensive (loss) before reclassification | |
| (278 | ) | |
| - | | |
| (278 | ) |
Loss reclassified to operations | |
| - | | |
| 8 | (a) | |
| 8 | |
| |
| | | |
| | | |
| | |
Net current period other comprehensive (loss)/income | |
| (278 | ) | |
| 8 | | |
| (270 | ) |
Ending balance | |
$ | (208 | ) | |
$ | (9 | ) | |
$ | (217 | ) |
(a) Reclassified to following line items in the statement of income: | |
| | | |
| | | |
| | |
Interest expense, net | |
| | | |
$ | 13 | | |
| | |
Income taxes | |
| | | |
| (5 | ) | |
| | |
Net of tax | |
| | | |
$ | 8 | | |
| | |
| |
| | | |
| | | |
| | |
Three Months ended September 30, 2013 | |
Foreign
Currency
Translation | | |
Interest Rate Swap Contract | | |
Total | |
Beginning balance | |
$ | (86 | ) | |
$ | (50 | ) | |
$ | (136 | ) |
Other comprehensive income before reclassification | |
| 119 | | |
| 3 | | |
| 122 | |
Loss reclassified to operations | |
| - | | |
| 5 | (a) | |
| 5 | |
Net current period other comprehensive income | |
| 119 | | |
| 8 | | |
| 127 | |
Ending balance | |
$ | 33 | | |
$ | (42 | ) | |
$ | (9 | ) |
| |
| | | |
| | | |
| | |
(a) Reclassified to following line items in the statement of income: | |
| | | |
| | | |
| | |
Interest expense, net | |
| | | |
$ | 9 | | |
| | |
Income taxes | |
| | | |
| (4 | ) | |
| | |
Net of tax | |
| | | |
$ | 5 | | |
| | |
Nine months ended September 30, 2014 |
|
Foreign
Currency
Translation |
|
|
Interest Rate Swap Contract |
|
|
Available for Sale
Marketable Securities |
|
|
Total |
|
Beginning balance |
|
$ |
84 |
|
|
$ |
(33 |
) |
|
|
- |
|
|
$ |
51 |
|
Other comprehensive (loss) before reclassification |
|
|
(292 |
) |
|
|
|
|
|
|
|
|
|
|
(292 |
) |
Loss reclassified to operations |
|
|
- |
|
|
|
24 |
(a) |
|
|
- |
|
|
|
24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current period other comprehensive (loss)/ income |
|
|
(292 |
) |
|
|
24 |
|
|
|
- |
|
|
|
(268 |
) |
Ending balance |
|
$ |
(208 |
) |
|
$ |
(9 |
) |
|
$ |
- |
|
|
$ |
(217 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Reclassified to following line items in the statement of income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
|
|
|
$ |
39 |
|
|
|
|
|
|
|
|
|
Income taxes |
|
|
|
|
|
|
(15 |
) |
|
|
|
|
|
|
|
|
Net of tax |
|
|
|
|
|
$ |
24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2013 | |
Foreign
Currency
Translation | | |
Interest Rate Swap Contract | | |
Available for Sale Marketable Securities | | |
Total | |
Beginning balance | |
$ | (48 | ) | |
$ | (68 | ) | |
$ | (20 | ) | |
$ | (136 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income before reclassification | |
| 81 | | |
| 1 | | |
| - | | |
| 82 | |
Loss reclassified to operations | |
| - | | |
| 25 | (a) | |
| 20 | | |
| 45 | |
Net current period other comprehensive income | |
| 81 | | |
| 26 | | |
| 20 | | |
| 127 | |
Ending balance | |
$ | 33 | | |
$ | (42 | ) | |
$ | - | | |
$ | (9 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Reclassified to following line items in the statement of income: | |
| | | |
| | | |
| | | |
| | |
Interest expense, net | |
| | | |
$ | 41 | | |
$ | 32 | | |
| | |
Income taxes | |
| | | |
| (16 | ) | |
| (12 | ) | |
| | |
Net of tax | |
| | | |
$ | 25 | | |
$ | 20 | | |
| | |
18. Income Taxes
The disproportionate relationship between income taxes and pre-tax
income for the three and nine month periods ended September 30, 2014 is primarily attributable to no tax benefit being recognized
for the loss from change in value of the derivative liability and the loss related to extinguishment of debt, as such losses will
not be deductible for income tax purposes.
19. Commitments
The Company had $90,335 in outstanding
letters of credit to certain of its suppliers at September 30, 2014 and $71,105 at December 31, 2013.
20. Restatement
Net income for the three months ended
September 30, 2013 has been increased by $600 ($0.07 per share basic and $0.00 per share diluted) from the previously
reported amount, to reflect a reduction in the deferred income tax provision attributable to the income from the change in
value of the derivative liability. Correspondingly, the net income for the three months ended March 31, 2013 has been
decreased by $600 ($0.07 per share, basic and diluted) from the previously reported amount, to reflect an increase in
the deferred income tax provision attributable to the loss from change in value of the derivative liability. Additionally,
the net income for the three months ended March 31, 2014 has been decreased by $218 ($0.03 per share, basic and diluted) from
the previously reported amount. Such adjustments reflect that the loss arising from the change in value of the derivative
liability for the first quarter of 2013 and 2014 and the income from the change in value of the derivative liability in the
third quarter of 2013 are not recognized for income tax purposes.
Adjusted amounts after restatement are
as follows:
| |
Three months ended | |
| |
March 31, 2014 | | |
September 30, 2013 | | |
March 31, 2013 | |
Net income as previously reported | |
$ | 1,026 | | |
$ | 1,471 | | |
$ | 85 | |
Adjustment | |
$ | (218 | ) | |
$ | 600 | | |
$ | (600 | ) |
Net income/(loss) as restated | |
$ | 808 | | |
$ | 2,071 | | |
$ | (515 | ) |
Earnings/(loss) per share as restated: | |
| | | |
| | | |
| | |
Basic | |
$ | 0.09 | | |
$ | 0.24 | | |
$ | (0.06 | ) |
Diluted | |
$ | 0.09 | | |
$ | 0.06 | | |
$ | (0.06 | ) |
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
You should read the following discussion
of our financial condition and results of operations in conjunction with the consolidated financial statements and the notes thereto
included elsewhere in this Quarterly Report on Form 10-Q and our 10-K filed with the Securities and Exchange Commission on March
31, 2014. All numbers used in this discussion are in thousands, except for per share information and percentages.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains
“forward-looking statements,” which include information relating to future events, future financial performance, strategies,
expectations, competitive environment and regulation. Words such as “may,” “should,” “could,”
“would,” “predict,” “potential,” “continue,” “expect,” “anticipate,”
“future,” “intend,” “plan,” “believe,” “estimate,” and similar expressions,
as well as statements in future tense, identify forward-looking statements. Forward-looking statements should not be read as a
guarantee of future performance or results and may not be accurate indications of when such performance or results will be achieved.
Forward-looking statements are based on information we have when those statements are made or our management’s good faith
belief as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual performance
or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that
could cause such differences include, but are not limited to:
| · | loss or default of one or more suppliers; |
| · | loss or default of one or more significant customers; |
| · | default by the counterparties to our derivative financial instruments; |
| · | changes in general, national or regional economic conditions; |
| · | an act of war or terrorism that disrupts international shipping; |
| · | changes in laws, regulations and tariffs; |
| · | the imposition of anti-dumping duties on the products we import; |
| · | changes in the size and nature of our competition; |
| · | changes in interest rates, foreign currencies or spot prices of aluminum; |
| · | loss of one or more key executives; |
| · | increased credit risk from customers; |
| · | our failure to grow internally or by acquisition; and |
| · | failure to improve operating margins and efficiencies. |
For a discussion of these and other risks that relate to our
business and investing in shares of our common stock, you should carefully review the risk factors and other cautionary statements
in our Annual Report on Form 10-K for the year ended December 31, 2013 that was filed with the Securities and Exchange Commission
on March 31, 2014, and those described from time to time in our other reports filed with the Securities and Exchange Commission.
The forward-looking statements contained in this Quarterly Report on Form 10-Q are expressly qualified in their entirety by this
cautionary statement. We do not undertake any obligation to publicly update any forward-looking statement to reflect events or
circumstances after the date on which any such statement is made or to reflect the occurrence of unanticipated events.
Our Business
We are engaged in the purchase, sale and
distribution of semi-finished aluminum and steel products to a diverse customer base located in the Americas, Europe, Australia
and New Zealand. We sell our products through our own marketing and sales personnel as well as through commission based independent
sales agents located in North America and Europe. We purchase products from suppliers located throughout the world. Our two largest
suppliers furnished approximately 39% of our products during the first nine months of 2014 as compared to 50% of our products during
the same period in 2013. While we generally place orders with our suppliers based upon orders that we receive from our customers,
we also purchase material for our own stock, which we typically use for shorter term deliveries to our customers.
Critical Accounting Policies and Estimates
The following discussion and analysis of
our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared
in accordance with generally accepted accounting principles in the U.S. The preparation of financial statements in accordance with
generally accepted accounting principles in the U.S. requires us to make estimates and assumptions that affect the amounts reported
in our financial statements. The financial statements include estimates based on currently available information and our judgment
as to the outcome of future conditions and circumstances. Significant estimates in these financial statements include allowance
for doubtful accounts and the derivative liability for the embedded conversion option in our 10% Convertible Senior Subordinated
Notes Due June 1, 2016 in the principal amount of $11,000. Changes in the status of certain facts or circumstances could result
in material changes to the estimates used in the preparation of the financial statements and actual results could differ from the
estimates and assumptions.
Among the significant judgments made by
management in the preparation of our financial statements are the following:
Allowance for Doubtful Accounts
As of September 30, 2014, we had $97,393
in trade receivables, after an allowance for doubtful accounts of $543. We report accounts receivable, net of an allowance for
doubtful accounts, to represent our estimate of the amount that ultimately will be realized in cash. We review the adequacy of
our allowance for doubtful accounts on an ongoing basis, using historical collection trends, age of receivables, as well as review
of specific accounts, and make adjustments in the allowance that we believe are necessary. We maintain a credit insurance policy
on the majority of our customers. In general, this policy has a 10% deductible; however there are some instances where the co-insurance
may vary and instances where we may exceed the insured values. Changes in economic conditions could have an impact on the collection
of existing receivable balances or future allowance considerations. In addition, changes in the credit insurance environment could
affect the availability of credit insurance and our ability to secure it.
Accruals for Inventory Claims
Generally, our exposure on claims for defective
material is relatively small, as we usually refer all claims on defects back to our suppliers. If we do not believe that a supplier
will honor a material claim for a defective product, we will record an allowance for inventory adjustments.
Results of Operations
General
We are engaged in the purchase, sale and
distribution of semi-finished aluminum and steel products which we purchase from producing mills around the world. The market
prices of materials we purchase, as well as the market price of materials we sell, fluctuate constantly in world markets.
Our cost of sales is composed of metal content, which in part is determined on world metal exchanges, plus a unique fabrication
premium charged by each producer to convert the raw metal to a semi-finished product. In turn, we typically sell to our customers
either on a fixed price basis or based on metal content plus a premium which includes supplier fabrication margin, and costs of
importation, warehousing, and delivery of material to customers. Since metal content costs are the largest component of cost
of sales and selling price, our sales pricing trends and cost of sales trends generally track consistently.
Comparison of Three Months Ended September 30, 2014 and
2013
During the three months
ended September 30, 2014, net sales increased by $32,976, from $126,390 to $159,366 or 26.1% from the same period
in 2013. This increase was due to improved sales volumes in all geographic regions except for Latin America and
Canada, as compared to the same period in 2013.
Gross profit increased by $2,161, to $7,469
during the three months ended September 30, 2014 from $5,308 in the same period of 2013, representing a 40.7% increase, of which
$1,385 is attributable to the increased sales and $776 to an improvement in the gross margin of 0.5% to 4.7% from 4.2%. The improvement
in margin reflects an increase in spot metal business sold on a just-in-time basis, offset by increases in duty and freight outwards.
Selling, general and administrative expenses
during the three months ended September 30, 2014 increased by $217 from $3,602 to $3,819 primarily as a result of sales compensation
based on increased sales.
During the three months ended
September 30, 2014, interest expense decreased 9.9% or $115 to $1,041 from $1,156 for the same period in 2013 as a result of
a lower interest rate environment during the period and reduced interest expense related to the reduction in our convertible
debt. During the three months ended September 30, 2014 and 2013, interest on our 10% Convertible Senior
Subordinated Notes Due June 1, 2016 and amortization of the debt discount in connection with these notes totaled $136 for the
three months ended September 30, 2014 and $141 for the three months ended September 30, 2013.
During the three months ended September
30, 2014 income before other expenses increased from $550 in the same period of 2013, to $2,609 or 374.4%. This improvement is
the result of increased sales, increased gross profit margins, lower interest expense and controlled selling, general and administrative
expenses.
Our 10% Convertible Senior Subordinated
Notes Due June 1, 2016 have an embedded conversion option which has been bifurcated and recorded as a separate derivative liability
at a fair value at issuance of the notes. The derivative liability is carried at fair value with changes in mark to market recorded
in income. The changes in the fair value of the derivative liability resulted in a non-cash non-operating loss of $2,059 during
the three month period ended September 30, 2014, as compared to a $1,715 non-cash non-operating gain during the same period in
2013. The valuation has numerous inputs, however, these changes are driven primarily by the change in the stock price at the end
of both quarters.
Fair value accounting requires
changes in derivative liabilities related to our convertible notes to be charged or credited to income during each accounting
period. Such losses are not tax deductible, and likewise any recoveries of such losses are not taxable upon recovery.
Accordingly, no tax effect was given to the gain of $1,715 and the loss of $2,059 during the quarters ended September 30,
2013 and 2014, respectively. The resultant effective tax rate for the quarter ending September 30, 2013 was 8.6% and 279.8%
for the quarter ending September 30, 2014.
Net income decreased from $2,071 to ($694)
during the three months ended September 30, 2013 and September 30, 2014, respectively. The decrease of $2,765 includes a swing
of $3,774 in the non-cash, non-operating change in value of the derivative liability, offset by our improved operating income
of $1,944, plus an increase of $886 in income taxes.
Comparison of Nine Months Ended September 30, 2014 and
2013
During the nine months ended September
30, 2014, net sales increased by $73,911, from $370,288 to $444,199 or 20.0% from the same period in 2013. This increase
was due to increased sales in all regions except Canada, which experienced a $1,239 decrease, during the period ending September
30, 2014 as compared to the same period in 2013.
Gross profit increased by $3,766, to $20,971
during the nine months ended September 30, 2014 from $17,205 in the same period of 2013, representing a 21.9% increase. The dollar
increase is primarily attributable to increased sales volume and a slight improvement in the margin percentage from freight savings.
Selling, general and administrative expenses
during the nine months ended September 30, 2014 and 2013 increased by 2.3% which is primarily due to increased sales compensation.
During the nine months ended
September 30, 2014, interest expense decreased by $180, to $3,223 from $3,403 for the same period in 2013 as a result of
a lower interest rate environment during the period and reduced interest expense related to the reduction in our convertible
debt. During the nine months ended September 30, 2014 and 2013, interest on our 10% Convertible Senior Subordinated
Notes Due June 1, 2016 and amortization of the debt discount in connection with these notes totaled $1,290 for the nine
month period ended September 30, 2014 as compared to $1,324 for the nine month period ended September 30, 2013.
During the nine months ended September
30, 2014 income before other expenses increased from $3,441 in the same period of 2013, to $7,148 or 107.7%. This improvement is
the result of increased sales, improved gross profit margins, lower interest expense and controlled selling, general and administrative
expenses.
Our 10% Convertible Senior Subordinated
Notes Due June 1, 2016 has an embedded conversion option which has been bifurcated and recorded as a separate derivative liability
at a fair value at issuance of the notes. The derivative liability is carried at fair value with changes in mark to market recorded
in income. The mark to market of the derivative liability resulted in non-operating, non-cash losses driven primarily by an increase
in the Company’s stock price during the period. The changes in the fair value of the derivative liability resulted in a non-cash
non-operating loss of $2,239 during the period ended September 30, 2014, as compared to a $452 non-cash non-operating loss during
the same period in 2013.
Fair value accounting requires
changes in derivative liabilities related to our convertible notes to be charged or credited to income during each accounting
period. Such losses are not tax deductible, and likewise any recoveries of such losses are not taxable upon recovery.
Accordingly, no tax effect was given to the loss of $2,239 during the nine month period ended September 30, 2014. The
resultant effective tax rate for the nine months ended September 30, 2014 was 62.9%.
Net income decreased from $1,923 during
the nine months ended September 30, 2013 to $1,760 during the nine months ended September 30, 2014. The decrease of $163 includes
an increase in the loss on the derivative liability of $1,787, offset by improved operating income of $3,707, less an increase
of $1,919 in income taxes.
Liquidity and Capital Resources
Overview
At September 30, 2014, we had cash of $4,663,
net accounts receivable of $97,393, senior secured debt of $123,500, junior secured debt of $9,285, and subordinated debt of $11,000. Management
believes that cash from operations, together with funds available under our credit facility will be sufficient to fund the cash
requirements relating to our existing operations for the next twelve months. However, we will require additional debt or equity
financing in connection with the future expansion of our operations.
Comparison of Nine Month Periods Ended September 30, 2014
and 2013
Net cash used in operating activities was
$24,047 during the nine months ended September 30, 2014, as compared to net cash provided by operating activities of $3,842 during
the same period in 2013. In the nine months ended September 30, 2014 cash used in operating activities resulted from increases
in trade accounts receivable of $45,330, decreases in trade accounts payable of $10,751, offset by reduction in inventories of
$18,947. We have continued to focus on decreasing inventory and improving inventory turns. However, at this point, we believe that
we have likely reduced inventories to prudent levels relative to sales. We focus on our days’ sales outstanding and our inventory
turnover rate to manage working capital, because accounts receivable and inventory are the two most significant elements of our
working capital.
Our days sales outstanding increased from
46 days in September 2013 to 59 days in September 2014 attributable to continued expansion of sales in Latin America, which has
longer payment cycles. Our inventory in warehouses, available for delivery to customers, as of September 30, 2014 was approximately
38 days of sales as compared to 53 days as of the same date in 2013. Our inventory turn rate, including materials in transit, was
4.9 times or 73 days on hand, as of September 30, 2014 as compared to 4.0 times or 90 days on hand as of September 30, 2013. The
days payable outstanding was 22 days as of September 30, 2014, one day less than on September 30, 2013.
Cash flows provided by investing activities
during the nine months ended September 30, 2014 and 2013, amounted to $2,481 and $2,500 respectively, which is primarily the monthly
repayment by PT. Alumindo Light Metal Industry of the advance related to our supply agreement with PT. Alumindo Light Metal Industry.
Cash flows provided by financing activities
during the nine months ended September 30, 2014, amounted to $23,815, as compared to cash flows used in financing activities of
$7,233 during the same period in 2013. During the first nine months of 2014, we funded the increase in accounts receivable
of $45,330 with borrowings from our line of credit of $25,602 as well as a reduction in our inventory of $18,947. In addition,
we acquired 3 additional common shares at a cost of $13 during the period ended September 30, 2014. We received proceeds of $15
for stock options exercised.
Credit Agreements and Other Debt
We were a party to credit agreement with
Rabobank International, for itself and as lead arranger and agent, JPMorgan Chase, for itself and as syndication agent, and ABN
AMRO, BNP Paribas, RBS Citizens, Société Générale, and Brown Brothers Harriman which provided for a
$200,000 revolving line of credit, including a commitment to issue letters of credit and a swing-line loan sub facility, with a
maturity date of June 30, 2014.
On June 19, 2014 we entered into an amended
and restated committed credit agreement with Rabobank International, for itself and as lead arranger and agent, BNP Paribas, for
itself and as syndication agent, and Société Générale, ABN AMRO, RB International, and Brown Brothers
Harriman as well as a new uncommitted line of credit with Rabobank International, BNP Paribas and Société Générale.
Both credit lines are secured, asset-based credit facilities. The committed credit facility is in the amount of $150,000, and the
uncommitted facility is in the amount of $75,000. The agreement also allows for an additional increase in the committed credit
facility of $75,000, for a total of $300,000 subject to certain restrictions and conditions. Our borrowings under this line of
credit are secured by substantially all of our assets.
Amounts borrowed bear interest at Eurodollar,
money market or base rates, at our option, plus an applicable margin. The credit agreements contains financial
and other covenants, including but not limited to, covenants requiring maintenance of minimum tangible net working capital and
compliance with leverage ratios, as well as an ownership minimum and limitations on other indebtedness, liens, distributions or
dividends, and investments and dispositions of assets. As of September 30, 2014, the Company was in compliance with
all covenants under this line of credit.
Both credit agreements provide that amounts
under the facilities may be borrowed and repaid, and re-borrowed, subject to a borrowing base test. The committed line of credit
matures June 19, 2017 and the uncommitted credit agreement must be repaid by the Company on or before June 19, 2015 unless otherwise
agreed to. As of September 30, 2014 and December 31, 2013, the credit utilized amounted to, respectively, $213,835 and
$174,605 (including approximately $90,335 and $71,105 of outstanding letters of credit).
Our wholly owned Belgian subsidiary, Imbali,
maintains a line of credit with ING Belgium S.A./N.V., for a EUR 8,000 (US$10,106) commitment for loans and documentary letters
of credit. Loan advances are limited to a percentage of Imbali’s pledged accounts receivables and inventory and bear interest
at EURIBOR plus 1.75%. This secured credit arrangement is unconditionally guaranteed by the Company. As of September 30, 2014,
the outstanding loan amounted to EUR 7,350 (US $9,285), as compared to EUR 3,217 (US $4,422) on December 31, 2013. As of September
30, 2014, Imbali was in compliance with all financial covenants.
In addition, we are a party to a mortgage
and an interest rate swap that we entered into in 2004 in connection with the purchase of our Baltimore warehouse. The mortgage
loan, which had an outstanding balance of $1,154 at September 30, 2014, requires monthly payments of approximately $21.6, including
interest at LIBOR plus 1.75%, and matures in December 2014. Under the related interest rate swap, which has been designated as
a cash flow hedge and remains effective through the maturity of the mortgage loan, we will pay a monthly fixed interest rate of
6.37% to the counterparty bank on a notional principal equal to the outstanding principal balance of the mortgage. In return, the
bank will pay us a floating rate, namely, LIBOR, to reset monthly, plus 1.75% on the same notional principal amount.
On June 3, 2011, we issued $12,000 principal
amount of 10% Convertible Senior Subordinated Notes Due June 1, 2016 in a private placement to selected accredited investors. On
August 18, 2014, a note holder converted $1,000 of notes into common stock. The notes are currently convertible at the option
of the holders into shares of common stock at a conversion rate of 254.90 shares of common stock per $1 principal amount of notes,
subject to adjustment for cash and stock dividends, stock splits and similar transactions, at any time before maturity. The
current conversion price reflects 14 adjustments for dividends. In addition, if the last reported sale price of the
common stock for 30 consecutive trading days is equal to or greater than $7.00, and a registration statement is effective covering
the resale of the shares of common stock issuable upon conversion of the notes, we have the right, in our sole discretion, to require
the holders to convert all or part of their notes at the then applicable conversion rate. Interest on the notes is payable
in arrears on the first day of June and December every year the notes are outstanding.
Derivative Financial Instruments
Inherent in our business is the risk of
matching the timing of our purchase and sales contracts. The prices of the aluminum products we buy and sell are based on a constantly
moving terminal market price determined by the London Metal Exchange. Were we not to hedge such exposures, we could be exposed
to significant losses due to the continually changing aluminum prices.
We use aluminum futures contracts to manage
our exposure to this commodity price risk. It is generally our policy to hedge such risks to the extent practicable. We enter into
hedges to limit our exposure to volatile price fluctuations that we believe would impact our gross margins on firm purchase and
sales commitments. As an example, if we enter into fixed price contracts with our suppliers and variable priced sales contracts
with our customers, we will generally enter into a futures contract to sell the aluminum for future delivery in the month when
the aluminum is to be priced and delivered to the customer and repurchase this position once the pricing has been fixed with our
customer. If the underlying metal price increases, we suffer a hedging loss and have a derivative liability, but the
sales price to the customer is based on a higher market price and offsets the loss. Conversely, if the metal price decreases, we
have a hedging gain and recognize a derivative asset, but the sales price to the customer is based on the lower market price and
offsets the gain.
We also enter into foreign exchange forward
contracts to hedge our exposure related to commitments to purchase or sell metals and accounts receivable denominated in some international
currencies. In such cases, we will purchase or sell the foreign currency through a bank for an approximate date when we anticipate
making a payment to a supplier or receiving payment from the foreign customer.
In accordance with generally accepted accounting
principles in the U.S., we designate these derivative contracts as fair value hedges and recognize them on our balance sheet at
fair value. We also recognize offsetting changes in the fair value of the related firm purchase and sales commitment
to which the hedge is attributable in earnings upon revenue recognition, which occurs at the time of delivery to our customers.
The potential for losses related to our
hedging activities, given our hedging methodology, arises from counterparty defaults with banks for our foreign exchange hedging,
the London Metal Exchange for our aluminum hedges, or customer defaults. In the event of a customer default, we might be forced
to sell the material in the open market and absorb losses for metal or foreign exchange hedges that were applied to the defaulting
customers’ transactions. Our results of operations could be materially impacted by any counterparty or customer default,
as we might not be able to collect money owed to us and/or our hedge might effectively be cancelled.
We use futures and forward contracts as
hedges, for no purpose other than to avoid exposure to changes in aluminum prices and foreign currency rates between when we buy
a shipment of aluminum from a supplier and when we deliver it to a customer. Our derivatives are not for purposes of
trading in the futures market. We earn our gross profit margin through our business operations and not from the movement of aluminum
prices.
As part of our business we also engage
in the purchase, sale and distribution of steel products. If we do not have a matching sales contract related to such products,
(for example, any steel products that are unsold in our inventory), we have price risk that we currently do not or are unable to
hedge. As such, any decline in pricing for such products may adversely impact our profitability.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Item 4. Controls and Procedures
Management’s Conclusions Regarding
Effectiveness of Disclosure Controls and Procedures
As of September 30, 2014, we conducted
an evaluation, under the supervision and participation of management including our chief executive officer and chief financial
officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the
Securities Exchange Act of 1934, as amended). There are inherent limitations to the effectiveness of any system of disclosure controls
and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving
their control objectives.
Based upon this evaluation, our chief executive
officer and chief financial officer concluded that our disclosure controls and procedures are effective at the reasonable assurance
level as of September 30, 2014.
Changes in Internal Control over Financial
Reporting
There was no change in our internal control
over financial reporting identified in connection with the evaluation required by
Rule 13a-15(d) and 15d-15(d) of the Exchange
Act that occurred during the quarter ended September 30, 2014 that has
materially affected, or is reasonably likely
to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 6. Exhibits
See Index to Exhibits.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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EMPIRE RESOURCES, INC. |
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Date: November 14, 2014 |
By: |
/s/ Nathan Kahn |
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Name: |
Nathan Kahn |
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Title: |
President and Chief Executive Officer |
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(Principal Executive Officer) |
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By: |
/s/ Sandra
Kahn |
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Name: |
Sandra Kahn |
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Title: |
Vice President and Chief Financial Officer |
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(Principal Financial Officer) |
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EXHIBIT INDEX
Exhibit No. |
Description |
3.1 |
Amended and Restated Certificate of Incorporation (Incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1, No. 333- 179245, filed January 30, 2012) |
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3.2 |
Certificate of Amendment of Amended and Restated Certificate of Incorporation (Amendment No. 1) (Incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-1, No. 333-179245, filed January 30, 2012) |
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3.3 |
Certificate of Amendment of the Amended and Restated Certificate of Incorporation (Amendment No. 2) (Incorporated by reference to Exhibit 3.3 to the Company’s Registration Statement on Form S-1, No. 333-179245, filed January 30, 2012) |
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3.4 |
Amended and Restated By-Laws (Incorporated by reference to Exhibit 3.4 to the Company’s Registration Statement on Form S-1, No. 333-179245, filed January 30, 2012) |
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3.5 |
Amendment No. 1 to Amended and Restated By-Laws (Incorporated by reference to Exhibit 3.5 to the Company’s Registration Statement on Form S-1, No. 333-179245, filed January 30, 2012) |
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3.6 |
Amendment No. 2 to Amended and Restated By-Laws (Incorporated by reference to Exhibit 3.6 to the Company’s Registration Statement on Form S-1, No. 333-179245, filed January 30, 2012) |
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10.1 |
Amended and Restated Credit Agreement dated as of June 19, 2014, by and among Empire Resources, Inc., Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A., “Rabobank Nederland”, New York Branch, as agent for the Banks, each of the Banks, and BNP Paribas, as syndication agent (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed June 25, 2014). |
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10.2 |
Uncommitted Credit Agreement dated as of June 19, 2014, by and among Empire Resources, Inc., Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A., “Rabobank Nederland”, New York Branch, as agent for the Banks, each of the Banks, and BNP Paribas, as syndication agent (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed June 25, 2014). |
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10.3 |
Amended and Restated Security Agreement dated as of June 19, 2014, by and among Empire Resources, Inc., and each Guarantor, in favor of Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A., “Rabobank Nederland”, New York Branch, as agent for each of the Secured Parties (Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed June 25, 2014). |
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10.4 |
Security Agreement dated as of June 19, 2014, by and among Empire Resources, Inc., and each Guarantor, in favor of Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A., “Rabobank Nederland”, New York Branch, as agent for each of the Secured Parties (Incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K, filed June 25, 2014). |
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10.5 |
Intercreditor Agreement dated as of June 19, 2014, by and between Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A., “Rabobank Nederland”, New York Branch, in its capacity as collateral agent for the Committed Lenders, and Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A., “Rabobank Nederland”, New York Branch, in its capacity as collateral agent for the Uncommitted Lenders (Incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K, filed June 25, 2014). |
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31.1* |
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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31.2* |
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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32.1* |
Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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32.2* |
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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101 |
The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2014, formatted in XBRL (eXtensible Business Reporting Language), (i)Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Comprehensive Income, (iii) Condensed Consolidated Statements of Cash Flows, (iv) Condensed Consolidated Statements of Stockholders’ Equity, and (v) the Notes to the Condensed Consolidated Financial Statements |
* Filed
herewith.
EXHIBIT 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY
ACT OF 2002
I, Nathan Kahn, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Empire Resources, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a. | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the period in which this report is being prepared; |
| b. | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles; |
| c. | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and |
| d. | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions): |
| a. | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and |
| b. | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting. |
November 14, 2014 |
/s/Nathan Kahn |
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Nathan Kahn |
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President and Chief Executive Officer
(Principal Executive Officer) |
EXHIBIT 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY
ACT OF 2002
I, Sandra Kahn, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Empire Resources, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a. | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the period in which this report is being prepared; |
| b. | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles; |
| c. | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and |
| d. | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions): |
| a. | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and |
| b. | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting. |
November 14, 2014 |
/s/Sandra Kahn |
|
Sandra Kahn |
|
Vice President and Chief Financial Officer
(Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT
OF 2002
This certification is furnished solely pursuant to Section 906
of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) and accompanies the Quarterly Report on Form 10-Q (the “Form 10-Q”)
for the quarter ended September 30, 2014 of Empire Resources, Inc. (the “Company”). I, Nathan Kahn, the President,
Chief Executive Officer and Principal Executive Officer of the Company, certify that, based on my knowledge:
(1) |
The Form 10-Q fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and |
(2) |
The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods covered in this report. |
Date: November 14, 2014 |
|
By: |
/s/ Nathan Kahn |
|
|
Name: |
Nathan Kahn |
|
|
Title: |
President and Chief Executive Officer
(Principal Executive Officer) |
The foregoing certification is being furnished as an exhibit
to the Form 10-Q pursuant to Item 601(b)(32) of Regulation S-K and Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a)
and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and, accordingly, is not being filed as part of the Form 10-Q
for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not incorporated by reference into any filing
of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
Exhibit 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT
OF 2002
This certification is furnished solely pursuant to Section 906
of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) and accompanies the Quarterly Report on Form 10-Q (the “Form 10-Q”)
for the quarter ended September 30, 2014 of Empire Resources, Inc. (the “Company”). I, Sandra Kahn, the Vice President,
Chief Financial Officer and Principal Financial Officer of the Company, certify that, based on my knowledge:
(1) |
The Form 10-Q fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and |
(2) |
The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods covered in this report. |
Date: November 14, 2014 |
|
By: |
/s/ Sandra Kahn |
|
|
Name: |
Sandra Kahn |
|
|
Title: |
Vice President and Chief Financial Officer
(Principal Financial Officer) |
The foregoing certification is being furnished as an exhibit
to the Form 10-Q pursuant to Item 601(b)(32) of Regulation S-K and Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a)
and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and, accordingly, is not being filed as part of the Form 10-Q
for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not incorporated by reference into any filing
of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
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