UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)
x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2013
OR
¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from     to

 

Commission file number: 001-12127

 

EMPIRE RESOURCES, INC.

(Exact name of registrant as specified in its charter)

 

Delaware		22-3136782
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		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 ¨

 

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 ¨		Accelerated filer ¨
Non-accelerated filer ¨		Smaller reporting company x
(Do not check if a smaller reporting company)

 

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

 

The number of shares of the registrant’s common stock, $0.01 par value, outstanding as of November 12, 2013: 8,578,351

 

 

TABLE OF CONTENTS

 

		Page
	PART I
Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 4.	Controls and Procedures	22
	PART II
Item 2.	Unregistered Sales of  Equity Securities and Use of  Proceeds	23
Item 6.	Exhibits	23

 

 

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, 2013 (Unaudited)				December 31, 2012
ASSETS
Current assets:
Cash		$	2,246			$	3,136
Trade accounts receivable (less allowance for doubtful accounts of $525 and $521)			63,579				53,551
Inventories			123,973				145,547
Deferred tax assets			3,634				3,306
Advance to supplier, net of imputed interest of $206 and $292			3,118				3,061
Other current assets			4,626				3,965
Total current assets			201,176				212,566
Advance to supplier, net of imputed interest of $89 and $234, net of current maturities			4,087				6,413
Preferential supply agreement			721				962
Long-term financing costs, net of amortization			495				862
Property and equipment, net			3,902				3,987
Total assets		$	210,381			$	224,790
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable – banks		$	117,612			$	124,095
Current maturities of mortgage payable			179				171
Trade accounts payable			27,983				36,048
Income taxes payable			2,219				3,036
Accrued expenses and derivative liabilities			3,538				4,783
Dividends payable			215				-
Total current liabilities			151,746				168,133
Mortgage payable, net of current maturities			1,154				1,290
Subordinated convertible debt net of unamortized discount of $1,509 and $1,933 respectively			10,491				10,067
Derivative liability for embedded conversion option			2,448				1,996
Deferred taxes payable			50				195
Total Liabilities			165,889				181,681
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, 2013 and December 31, 2012			117				117
Additional paid-in capital			11,937				11,937
Retained earnings			37,920				36,641
Accumulated other comprehensive loss			(9	)			(136	)
Treasury stock, 3,165,791 and 3,158,597 shares at September 30, 2013 and December 31, 2012, respectively			(5,473	)			(5,450	)
Total stockholders' equity			44,492				43,109
Total liabilities and stockholders' equity		$	210,381			$	224,790

 

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,
		2013				2012				2013				2012
Net sales		$	126,390			$	137,705			$	370,288			$	429,006
Cost of goods sold			121,082				131,597				353,083				410,123
Gross profit			5,308				6,108				17,205				18,883
Selling, general and administrative expenses			3,602				3,432				10,361				10,191
Operating income			1,706				2,676				6,844				8,692
Other expenses
Change in value of derivative liability			1,715				410				(452	)			361
Interest expense, net			(1,156	)			(1,378	)			(3,403	)			(4,119	)
Income before income taxes			2,265				1,708				2,989				4,934
Income taxes			794				656				1,066				1,883
Net income		$	1,471			$	1,052			$	1,923			$	3,051
Weighted average shares outstanding:
Basic			8,586				8,594				8,585				9,000
Diluted			11,835				11,503				8,856				11,914
Earnings per share:
Basic		$	0.17			$	0.12			$	0.22			$	0.34
Diluted		$	0.06			$	0.09			$	0.22			$	0.31

 

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,
		2013				2012				2013				2012
Net Income		$	1,471			$	1,052			$	1,923			$	3,051
Other comprehensive income/(loss) before tax
Foreign currency translation adjustments			119				43				81				(26	)
Decrease in value of interest rate swap liability			13				11				42				36
Reclassification of loss on sale/(decrease) in value of marketable securities			-				(2	)			32				(4	)
Other comprehensive income before tax			132				52				155				6
Income tax related to components of other comprehensive income			5				3				28				12
Other comprehensive income/(loss), net of tax			127				49				127				(6	)
Comprehensive income		$	1,598			$	1,101			$	2,050			$	3,045

 

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,
		2013				2012
Cash flows from operating activities:
Net income		$	1,923			$	3,051
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			518				506
Change in value of derivative liability			452				(361	)
Amortization of convertible note discount			424				424
Imputed interest on vendor advance			(231	)			(347	)
Provision for doubtful accounts			-				(6	)
Amortization of supply agreement			240				-
Deferred income taxes			(503	)			105
Foreign exchange loss/(gain), and other			(23	)			15
Loss on sale of marketable securities			32				-
Changes in:
Restricted cash			-				(1,410	)
Trade accounts receivable			(9,932	)			(8,854	)
Inventories			21,708				54,451
Other current assets			(666	)			7,452
Trade accounts payable			(8,061	)			(26,366	)
Income taxes payable			(818	)			(1,657	)
Accrued expenses and derivative liabilities			(1,221	)			3,634
Net cash provided by operating activities			3,842				30,637
Cash flows provided by/(used in) investing activities:
Repayment/(advance) related to supply agreement			2,500				(5,000	)
Net proceeds from sale of marketable securities			6				-
Purchases of property and equipment			(6	)			(38	)
Net cash provided by/(used in) investing activities			2,500				(5,038	)
Cash flows used in financing activities:
Repayments of notes payable – banks			(6,594	)			(24,462	)
Repayments - mortgage payable			(127	)			(119	)
Dividends paid			(429	)			(676	)
Deferred financing costs			(60	)			(62	)
Treasury stock purchased			(23	)			(1,932	)
Net cash used in financing activities			(7,233	)			(27,251	)
Net decrease in cash			(891	)			(1,652	)
Effect of exchange rate			1				(1	)
Cash at beginning of period			3,136				4,274
Cash at end of the period		$	2,246			$	2,621
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest		$	2,913			$	4,052
Income taxes		$	1,955			$	2,664
Non cash financing activities:
Dividend declared but not yet paid		$	215			$	215

 

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 Loss				Treasury Stock				Total Stockholders' Equity
Balance at December 31, 2012			11,750			$	117			$	11,937			$	36,641			$	(136	)		$	(5,450	)		$	43,109
Treasury stock acquired																							(23	)			(23	)
Net change in cumulative translation adjustment																			81								81
Decrease in value of interest rate swap liability,  net of deferred tax of $16																			26								26
Reclassification on loss of sale of marketable  securities, net of deferred tax of $12																			20								20
Dividends declared ($0.075 per share)															(644	)											(644	)
Net income															1,923												1,923
Balance at September 30, 2013			11,750				117				11,937				37,920				(9	)			(5,473	)			44,492

 

See notes to unaudited condensed consolidated financial statements

 

 

Empire Resources, Inc. and Subsidiaries.

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

(In thousands, except 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, 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. 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, 2012.

 

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, 2013 and the results of its operations and cash flows for the three and nine months ended September 30, 2013 and 2012. 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. Newly Effective Accounting Pronouncements

 

In February 2013, the Financial Accounting Standards Board issued authoritative guidance on the reporting of reclassifications out of accumulated other comprehensive income (“AOCI”) and changes in AOCI balances. The guidance requires an entity to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of AOCI by the respective line items of net income if the amount is reclassified to net income in its entirety in the same reporting period. The guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2012, with early adoption permitted. The Company adopted this guidance effective January 1, 2013.

 

5. Concentrations

 

During the nine month period ended September 30, 2013, no one customer accounted for 10% of our consolidated sales. During the nine month period ended September 30, 2012 one customer accounted for approximately 10% of our consolidated net 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 50% of total purchases during the nine month period ended September 30, 2013, as compared to 59% during the same period ended September 30, 2012.

 

 

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.

 

6. 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, 2013, there were outstanding employee stock options to acquire 414 shares of common stock, which had vested in prior years. During the nine month period ended September 30, 2013, the Company did not grant any stock options.

 

7. 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 December 31, 2012, the Company repurchased a total of 1,245 shares under the repurchase program for an aggregate cost of $3,222 of which, pursuant to a tender offer which expired on June 29, 2012, 600 shares were purchased in 2012 at a cost of $1,800 ($3.00 per share). During the nine month period ended September 30, 2013, the Company purchased 7 shares at a cost of $23. As of September 30, 2013, the Company repurchased 1,252 shares under the repurchase program for an aggregate cost of $3,245.

 

8. 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.

 

9. Notes Payable—Banks

 

On April 28, 2011, the Company entered into a working capital 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. The $200,000 secured, asset-based credit facility matures on June 30, 2014 and refinanced the Company’s previous $175,000 credit agreement which would have matured on June 30, 2011. This credit agreement also allows additional increases in the line of credit of up to $50,000, subject to certain restrictions. Amounts borrowed bear interest (0.19% at September 30, 2013) at Eurodollar, money market or base rates, at our option, plus an applicable margin.   Our borrowings under this credit agreement are secured by substantially all of our assets. The credit agreement contains financial and other covenants, including but not limited to, covenants requiring maintenance of minimum tangible net worth and compliance with leverage ratios, as well as an ownership minimum and limitations on other indebtedness, liens, and investments and dispositions of assets.   As of September 30, 2013, the Company was in compliance with all covenants under this line of credit.

 

The credit agreement provides that amounts under the facility may be borrowed and repaid, and re-borrowed, subject to a borrowing base test, until the maturity date of June 30, 2014.  As of September 30, 2013 and December 31, 2012, the credit utilized amounted to, respectively, $161,676 and $151,784 (including approximately $48,676 and $33,534 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$10,821) 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, 2013, the outstanding loan amounted to EUR 3,410 (US $4,612), as compared to EUR 4,430 (US $5,845) on December 31, 2012. As of September 30, 2013 Imbali was in compliance with all financial covenants.

 

 

10. Mortgage Payable

 

In connection with the purchase of its Baltimore warehouse, the Company entered into a mortgage loan, which had outstanding balances of $1,333 at September 30, 2013 and $1,461 at December 31, 2012. 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.

 

11. 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, 2013, the notes are convertible at the option of the holders into shares of common stock at a conversion rate of 248.80 shares of common stock per $1,000 principal amount of notes (equivalent to a conversion price of $4.02 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 ten 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, 2013, 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.

 

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 month period ended September 30, 2013, the decrease in the fair value of the derivative liability resulted in a gain of $1,715. 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. During the three and nine month period ended September 30, 2013, amortization of the discount amounted to $141 and $424, respectively. During the three and nine month period ended September 30, 2012, the change in the fair value of the derivative liability resulted in gains of $410 and $361, respectively. During the three and nine month period ended September 30, 2012 amortization of the discount amounted to $141 and $424, respectively.

 

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, 2013 and December 31, 2012:

		September 30, 2013				December 31, 2012
Equity value		$	32,619			$	25,696
Volatility			50	%			55	%
Risk free return			0.63	%			0.54	%
Dividend Yield			2.63	%			3.34	%
Strike Price		$	4.02			$	4.09

 

 

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 loan 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 12, 2013, 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 will 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 began. During the three and nine month period ended September 30, 2013, amortization amounted to $80 and $240, respectively.

 

12. 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,
		2013				2012				2013				2012
Numerator:
Net income		$	1,471			$	1,052			$	1,923			$	3,051
Add back of interest on convertible subordinated debt, net of taxes			185				185				-				556
Add back of amortization of discount on convertible subordinated debt, net of taxes			87				87				-				262
Adjustment for change in value of convertible note derivative, net of taxes			(1,060	)			(254	)			-				(223	)
Numerator for diluted earnings per share		$	683			$	1,070			$	1,923			$	3,646
Denominator:
Weighted average shares outstanding-basic			8,586				8,594				8,585				9,000
Dilutive effect of stock options			263				190				271				195
Dilutive effect of convertible subordinated debt			2,986				2,719				-				2,719
Weighted average shares outstanding-diluted			11,835				11,503				8,856				11,914
Basic Earnings per Share		$	0.17			$	0.12			$	0.22			$	0.34
Diluted Earnings per Share		$	0.06			$	0.09			$	0.22			$	0.31

 

In computing diluted earnings per share 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.

 

13. Dividends

 

On September 12, 2013, our Board of Directors declared a cash dividend of $0.025 per share to stockholders of record at the close of business on September 27, 2013. The dividend, totaling $215, was paid on October 11, 2013. On March 21, 2013, our Board of Directors declared a cash dividend of $0.025 per share to stockholders of record at the close of business on April 4, 2013. The dividend, totaling $215, was paid on April 11, 2013. On June 18, 2013, our Board of Directors declared a cash dividend of $0.025 per share to stockholders of record at the close of business on July 5, 2013. The dividend, totaling $215, was paid on July 17, 2013. 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.

 

14. 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 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				September 30,				December 31,
as fair value hedges		Balance Sheet Location		2013				2012
Asset derivatives:
Aluminum futures contracts		Other current assets		$	308				-
Total				$	308			$	-
Liability derivatives:
Foreign currency forward contracts		Accrued expenses and derivative liabilities		$	101			$	27
Aluminum futures contracts		Accrued expenses and derivative liabilities			61				842
Total				$	162			$	869

 

For the periods ended September 30, 2013 and September 30, 2012, 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				September 30,				December 31,
as cash flow hedges		Balance Sheet Location		2013				2012
Liability derivatives:
Interest rate swap contracts		Accrued expenses and derivative liabilities		$	66			$	111

 

A corresponding debit, net of deferred taxes, is reflected in accumulated other comprehensive loss 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:

 

Derivatives in hedging				Location of Gain or		Three Months Ended September 30,								Nine Months Ended September 30,
relationships				(Loss) Recognized		2013				2012				2013				2012
Foreign currency forward contracts		(a)		Cost of goods sold		$	(357	)		$	(141	)		$	521			$	(750	)
Interest rate swaps		(b)		Interest expense, net			(9	)			(17	)			(41	)			(51	)
Aluminum futures		(c)		Cost of goods sold			2,329				5,157				5,482				10,648
Total						$	1,963			$	4,999			$	5,962			$	9,847

 

a)

Fair value hedge: the related hedged item is accounts receivable and offsetting gains and losses in 2013 and gains in 2012 are included in cost of goods sold in the same respective amounts.

b)

Cash flow hedge: recognized losses reclassified from accumulated other comprehensive loss.

c)

Fair value hedge: the related hedged item is inventory and offsetting losses in 2013 and 2012 are included in cost of goods sold in the same respective amounts.

 

 

15. 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, 2013 and December 31, 2012 are classified as follows:

 

		September 30, 2013												December 31, 2012
		Level 1				Level 2				Level 3				Level 1				Level 2				Level 3
Assets:
Inventories		$	107,307											$	124,274
Aluminum futures contracts			308												-
Liabilities:
Foreign currency forward contracts			101												27
Interest rate swap contracts						$	66											$	111
Aluminum futures contracts			61												842
Embedded conversion option										$	2,448											$	1,996

 

16. 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 (level 2) as of September 30, 2013 and December 31, 2012, because these notes reflect market changes to interest rates. The fair value (level 2) of the subordinated convertible debt approximates its principal amount of $12,000 at September 30, 2013 and December 31, 2012, which exceeds its carrying amount as a result of the unamortized discount related to the bifurcation of the embedded conversion option. The fair value (level 2) of the advance to supplier approximates its carrying value. Derivative financial instruments are carried at fair value (see Note 14).

 

 

17. 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,
		2013				2012				2013				2012
United States		$	75,667			$	88,041			$	239,818			$	293,366
Latin America			26,374				19,378				52,336				44,838
Canada			11,932				11,827				36,587				40,482
Australia & New Zealand			8,052				14,196				29,530				36,681
Europe			4,365				4,263				12,017				13,639
		$	126,390			$	137,705			$	370,288			$	429,006

 

18. Accumulated Other Comprehensive Loss (“AOCL”)

 

Changes in AOCL by component for the three and nine month periods ended September 30, 2013 on an after tax basis is as follows:

 

Three months ended September 30, 2013		Foreign Currency Translation				Interest Rate Swap Contract				Available for Sale Marketable Securities				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, 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	(a)			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

 

 

19. Commitments

 

The Company had $48,676 in outstanding letters of credit to certain of its suppliers at September 30, 2013.

 

 

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 25, 2013. All numbers used in this discussion are in thousands, except for per share information.

 

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, 2012 that was filed with the Securities and Exchange Commission on March 25, 2013, 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 50% of our products during the first nine months of 2013 as compared to 59% of our products during the same period in 2012. 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 $12,000. 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, 2013, we had $63,579 in trade receivables, after an allowance for doubtful accounts of $525. 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, 2013 and 2012

 

During the three months ended September 30, 2013, net sales decreased by $11,315, from $137,705 to $126,390 or 8% from the same period in 2012.  This decrease was due to lower metal pricing as well as lower unit volume shipments in North and South America during the period ending September 30, 2013 as compared to the same period in 2012.

 

Gross profit decreased by $800, to $5,308 during the three months ended September 30, 2013 from $6,108 in the same period of 2012, representing a 13% decrease. The dollar decline is attributable to lower sales volume and reduced gross profit margin in our Australian and Brazilian segments as a result of increased competition from global competitors entering these markets.

 

Selling, general and administrative expenses increased 5.0% or $170, from $3,432 during the three months ended September 30, 2012, to $3,602 in the same period in 2013. Increased payroll, legal and banking costs were partially offset by decreases in professional fees during the quarter.

 

As a result of reduced sales revenue and lower gross profit margin, operating income decreased by $970 during the three months ended September 30, 2013 from $2,676 to $1,706, or a decrease of 36%.

 

During the three months ended September 30, 2013, interest expense decreased 16.1% or $222, to $1,156 from $1,378 for the same period in 2012.  As we rationalized our inventories bank debt declined, resulting in reduced interest expense. During the three months ended September 30, 2013 and 2012, interest on our 10% Convertible Senior Subordinated Notes Due June 1, 2016 and amortization of the debt discount in connection with these notes totaled $441 in both periods.

 

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 gain of $1,715 during the three month period ended September 30, 2013, as compared to a $410 non-cash non-operating gain during the same period in 2012.

 

Net income increased by $419, from $1,052 during the three months ended September 30, 2012 to $1,471 during the three months ended September 30, 2013, primarily as a result of the non-cash non-operating gain in mark to market of the derivative liability.

 

Comparison of Nine Months Ended September 30, 2013 and 2012

 

During the nine months ended September 30, 2013, net sales decreased by $58,718, from $429,006 to $370,288 or 14% from the same period in 2012.  This decrease was due to lower metal pricing as well as lower unit volume shipments in North America, Australia and New Zealand during the period ending September 30 2013 as compared to the same period in 2012.

 

Gross profit decreased by $1,678, to $17,205 during the nine months ended September 30, 2013 from $18,883 in the same period of 2012, representing an 8.9% decrease. The dollar decline during the nine months ended September 30, 2013 was attributable to lower sales volume, even as our gross profit percentage improved to 4.65% as compared to 4.4% during the nine months ended September 30, 2012. The improvement in the percentage gross profit is attributed in part to lower storage costs as a result of lower inventory levels as well as reduced processing costs achieved by rebalancing the products held in inventory.

 

Selling, general and administrative expenses increased 1.7% or $170, from $10,191 during the nine months ended September 30, 2012, to $10,361 in the same period 2013.

 

As a result of reduced sales revenue, operating income decreased by $1,848 during the nine months ended September 30, 2013 from $8,692 to $6,844 during the nine months ended September 30, 2012, or a decrease of 21.3%.

 

During the nine months ended September 30, 2013, interest expense decreased by $716, to $3,403 from $4,119 for the same period in 2012.  As we rationalized our inventories bank debt declined, resulting in reduced interest expense. During the nine months ended September 30, 2013 and 2012, interest on our 10% Convertible Senior Subordinated Notes Due June 1, 2016 and amortization of the debt discount in connection with these notes totaled $1,324 in both periods.

 

 

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 $452, during the period ended September 30, 2013, as compared to a $361 non-cash non-operating gain during the same period in 2012.

 

Net income decreased from $3,051 during the nine months ended September 30, 2012 to $1,923 during the nine months ended September 30, 2013, which was attributable to the decline in sales as well as the $452 non-operating non-cash charge for the change in derivative liability on our convertible senior subordinated debt.

 

Liquidity and Capital Resources

 

Overview

 

At September 30, 2013, we had cash of $2,246, accounts receivable of $63,579, total senior secured debt of $113,000 and subordinated debt of $12,000.  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 Periods Ended September 30, 2013 and 2012

 

Net cash provided by operating activities was $3,842 during the nine months ended September 30, 2013, as compared to $30,637 during the same period in 2012, resulting from reductions in inventories of $21,708 and $54,451, respectively. During 2013, we continued our focus on decreasing inventory and improving inventory turns, however the opportunity for further reduction was limited as inventory levels had already been reduced 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.

 

During the first nine months of 2013, our inventory turn rate was about 4.0 times (or 90 days on hand), compared to our September 2012 rate of about 4.4 times (or 82 days on hand). Our inventory in warehouses, available for delivery to customers, as of September 30, 2013 was less than two months of sales; our inventory in transit was approximately 56% higher than on the same date in 2012, and this accounts for the decrease in the inventory turns.

 

The days payable increased to 23 days as of September 30, 2013 as compared to 18 days as of the same date last year. As of September 30, 2013, our days’ sales outstanding rate was approximately 46 days, as compared to 41 days as of September 30, 2012. This increase is attributable to expansion of sales in new markets which traditionally have longer payment cycles.

 

Cash flows provided by investing activities during the nine months ended September 30, 2013 amounted to $2,500, as compared to cash flows used in investing activities of $5,038 during the same period in 2012. Cash flows provided by investing activities during the nine months ended September 30, 2013 reflects the monthly repayment by PT. Alumindo Light Metal Industry of the advance related to our supply agreement.

 

Cash flows used in financing activities during the nine months ended September 30, 2013 amounted to $7,233, as compared to cash flows used of $27,251 during the same period in 2012.  We repaid $6,594 of our bank debt as our reduction of inventory continued to generate positive cash flow. In addition, we acquired 7 additional common shares at a cost of $23 during the period ended September 30, 2013.

 

 

Credit Agreements and Other Debt

 

On April 28, 2011, we entered into a working capital 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. The $200,000 secured, asset-based credit facility matures on June 30, 2014 and refinanced our prior $175,000 credit agreement which would have matured on June 30, 2011. The agreement also allows additional increases in the line of credit of up to $50,000, subject to certain restrictions. Amounts borrowed bear interest of Eurodollar, money market or base rates, at our option, plus an applicable margin. Our borrowings under this line of credit are secured by substantially all of our assets. The credit agreement contains financial and other covenants including but not limited to, covenants requiring maintenance of minimum tangible net worth of $25,000 plus an aggregate amount equal to 25% of our positive net earnings and compliance with a leverage ratio of not more than 6.00 to 1, as well as an ownership minimum and limitations on other indebtedness, liens, and investments and dispositions of assets. The credit agreement provides that amounts under the facility may be borrowed and repaid, and re-borrowed, subject to a borrowing base test, until the maturity date of June 30, 2014.  As of September 30, 2013, we had direct borrowings of $113,000 outstanding under the credit agreement, bearing interest at 2.69%, and letters of credit of $48,676 to some suppliers, leaving an availability of approximately $38,324 on our credit agreement, or approximately 19%. All of the letters of credit will expire on or before February 29, 2014. As of September 30, 2013 we were in compliance with all financial covenants under this credit agreement.

 

Our wholly owned Belgian subsidiary, Imbali Metals BVBA (“Imbali”), operates under a line of credit with ING Belgium S.A./N.V., with a EUR 8,000 ($10,821) commitment for loans and documentary letters of credit. Loan advances are limited to a percentage of Imbali’s pledged accounts receivables and inventory. This secured credit arrangement is unconditionally guaranteed by us. As of September 30, 2013, Imbali had borrowings of EUR 3,410 ($4,612) under this line of credit, bearing interest at EURIBOR plus 1.75%, leaving an availability of approximately EUR4,590 ($6,209) or approximately 57%. As of September 30, 2013 we were in compliance with all financial covenants under this line of credit.

 

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 $1,333 at September 30, 2013, 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.  The notes are currently convertible at the option of the holders into shares of common stock at a conversion rate of 248.80 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 ten 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 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, 2013, 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, 2013.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting during the quarter ended September 30, 2013 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

PART II - OTHER INFORMATION

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

The following table shows our common stock repurchase for the quarter ended September 30, 2013:

(In thousands except per share amounts)

Period		Total Number of Shares Purchased				Average Price Paid per Share				Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs				Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
July 1, 2013 - July 31, 2013			-			$
August 1, 2013 - August 31, 2013			-			$
September 1, 2013 - September 30, 2013			0.5			$	3.50
Total			0.5			$	3.50				1,252				748

 

In July 2008, the Board of Directors authorized the repurchase of 2 million shares of the Company’s common stock at a maximum price of $3.50 per share.

 

Item 6. Exhibits

 

(a)

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.

 

	EMPIRE RESOURCES, INC.
Date: November 14, 2013	By:	/s/ Nathan Kahn
		Name:	Nathan Kahn
		Title:	President and Chief Executive Officer
			(Principal Executive Officer)
	By:	/s/Sandra Kahn
		Name:	Sandra Kahn
		Title:	Vice President and Chief Financial Officer
			(Principal Financial Officer)

 

 

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)
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)
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)
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)
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)
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)
31.1*		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*		Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101**		The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2013, 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.

 

** Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.