<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
/x/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended April 30, 1999
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ________ to ______
Commission file number 000-29278
KMG CHEMICALS, INC.
(Formerly KMG-B, Inc.)
(Name of Small Business Issuer in its charter)
TEXAS 75-2640529
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10611 HARWIN DRIVE, SUITE 402
HOUSTON, TEXAS 77036
(Address of principal executive offices)
(713) 988-9252
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 / /
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes /x/ No / /
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 7,000,169 shares of Common Stock
Transitional Small Business Disclosure Format (Check one): Yes / / No /x/
<PAGE>
This form amends and restates Form 10-QSB filed by the Company on
June 11, 1999 to correct the amount shown for depreciation in the Consolidated
Statements of Cash Flows for the nine months ended April 30, 1999.
PART I --- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
KMG CHEMICALS, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
April 30, July 31,
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS $ 9,188,791 $ 7,796,260
PROPERTY, PLANT AND EQUIPMENT -
Net of accumulated depreciation 2,306,764 2,382,913
NOTES RECEIVABLE, Less current portion 402,734 408,912
OTHER ASSETS 8,969,097 9,510,916
----------- -----------
TOTAL $20,867,386 $20,099,001
=========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES $ 4,281,833 $ 4,555,022
LONG TERM DEBT 3,635,142 5,268,301
----------- -----------
Total liabilities 7,916,975 9,823,323
----------- -----------
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value,
10,000,000 shares authorized,
none issued
Common stock, $.01 par value,
40,000,000 shares authorized,
7,000,169 shares issued and
outstanding 70,002 70,002
Additional paid-in capital 1,063,385 1,063,385
Retained earnings 11,817,024 9,142,291
----------- -----------
Total stockholders' equity 12,950,411 10,275,678
----------- -----------
TOTAL $20,867,386 $20,099,001
=========== ===========
</TABLE>
See notes to consolidated financial statements.
1
<PAGE>
KMG CHEMICALS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
April 30, April 30,
----------------------- -------------------------
1999 1998 1999 1998
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES $9,234,191 $5,596,462 $27,092,994 $15,392,273
COST OF SALES 5,815,755 3,530,134 17,850,097 9,442,132
---------- ---------- ----------- -----------
Gross Profit 3,418,436 2,066,328 9,242,897 5,950,141
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 1,670,777 900,025 4,838,290 2,613,264
---------- ---------- ----------- -----------
Operating Income 1,747,659 1,166,303 4,404,607 3,336,877
OTHER INCOME (EXPENSE):
Interest & Dividend Income 45,575 54,560 145,187 157,033
Interest Expense (88,515) (305,926)
Other 184,705 176,120 180,474 192,664
---------- ---------- ----------- -----------
Total Other Income (Expense) 141,765 230,680 19,735 349,697
INCOME BEFORE INCOME TAX 1,889,424 1,396,983 4,424,342 3,686,574
Provision For Income Tax (717,981) (530,853) (1,679,607) (1,400,903)
---------- ---------- ----------- -----------
NET INCOME $1,171,443 $ 866,130 $ 2,744,735 $ 2,285,671
========== ========== =========== ===========
EARNINGS PER SHARE:
Basic $ 0.17 $ 0.12 $ 0.39 $ 0.33
========== ========== =========== ===========
Diluted $ 0.17 $ 0.12 $ 0.39 $ 0.32
========== ========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 7,000,169 7,000,169 7,000,169 7,000,169
========== ========== =========== ===========
Diluted 7,067,356 7,046,005 7,063,975 7,044,814
========== ========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
KMG CHEMICALS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
-------------------- ADDITIONAL TOTAL
SHARES PAR PAID-IN RETAINED STOCKHOLDERS'
ISSUED VALUE CAPITAL EARNINGS EQUITY
--------- ------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE AT AUGUST 1, 1997 7,000,169 $70,002 $1,063,385 $ 6,216,420 $ 7,349,807
Dividends (280,007) (280,007)
Net income 3,205,878 3,205,878
--------- ------- ---------- ----------- -----------
BALANCE AT JULY 31, 1998 7,000,169 $70,002 $1,063,385 $ 9,142,291 $10,275,678
Dividends (70,002) (70,002)
Net income 2,744,735 2,744,735
--------- ------- ---------- ----------- -----------
BALANCE AT APRIL 30, 1999 7,000,169 $70,002 $1,063,385 $11,817,024 $12,950,411
========= ======= ========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
KMG CHEMICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
April 30,
-------------------------
1999 1998
----------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,744,735 $2,285,671
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 778,651 190,566
Gain on sale of securities (178,826)
(Gain) Loss on the disposal of fixed assets 501 (6,032)
Changes in operating assets and liabilities:
Accounts receivable - trade (99,262) (483,483)
Accounts receivable - other (4,227) (180,971)
Inventories (317,543) (237,603)
Prepaid expenses and other assets 14,799 (139,406)
Accounts payable (779,957) 654,568
Accrued liabilities 219,420 (35,935)
Income taxes payable 171,741
----------- ----------
Net cash provided by operating activities $ 2,728,859 $1,868,550
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (154,763) (739,673)
Proceeds from sale of securities 223,430
Proceeds from sale of fixed assets 801 7,000
Loans to third parties - short term (324,884)
Collection of notes receivable 6,178 5,790
Additions to other assets (7,222) (64,528)
----------- ----------
Net cash used in investing activities $ (479,890) $ (567,981)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on borrowings' (1,517,552)
Payment of dividends (70,002) (140,003)
----------- ----------
Net cash used in financing activities $(1,587,554) $ (140,003)
----------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS $ 661,414 $1,160,566
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 2,207,948 2,643,070
----------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,869,362 $3,803,636
=========== ==========
SUPPLEMENTAL DISCLOSURES FOR CASH FLOW INFORMATION:
Cash paid during the period for interest $ 305,926
Cash paid during the period for income taxes $ 1,498,585 $1,414,626
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) BASIS OF PRESENTATION - The unaudited condensed consolidated
financial statements included herein have been prepared pursuant to the rules
and regulations of the Securities and Exchange Commission and reflect in the
opinion of management all adjustments, consisting only of normal recurring
accruals, that are necessary for a fair presentation of financial position and
results of operations for the interim periods presented. These financial
statements include the accounts of KMG Chemicals, Inc. and its subsidiaries (the
"Company"). All significant intercompany balances and transactions have been
eliminated in consolidation. Certain information and footnote disclosures
required by generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. The financial statements
included herein should be read in conjunction with the financial statements and
notes thereto included in the Company's annual report on Form 10-KSB for the
year ended July 31, 1998.
(2) EARNINGS PER SHARE - Basic earnings per share has been computed by
dividing net income by the weighted average shares outstanding. Diluted earnings
per share has been computed by dividing net income by the weighted average
shares outstanding plus dilutive potential common shares.
The following table presents information necessary to calculate basic
and diluted earnings per share for periods indicated:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
April 30 April 30
1999 1998 1999 1998
--------------------------------------------------------------
<S> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE
Net Income $ 1,171,443 $ 866,130 $ 2,744,735 $ 2,285,671
--------------------------------------------------------------
Weighted Average Shares Outstanding 7,000,169 7,000,169 7,000,169 7,000,169
--------------------------------------------------------------
Basic Earnings Per Share $ 0.17 $ 0.12 $ 0.39 $ 0.33
==============================================================
DILUTED EARNINGS PER SHARE
Net Income $ 1,171,443 $ 866,130 $ 2,744,735 $ 2,285,671
--------------------------------------------------------------
Weighted Average Shares Outstanding 7,000,169 7,000,169 7,000,169 7,000,169
Shares Issuable from Assumed Conversion of
Common Share Options 67,187 45,836 63,806 44,645
--------------------------------------------------------------
Weighted Average Shares Outstanding, as
Adjusted 7,067,356 7,046,005 7,063,975 7,044,814
--------------------------------------------------------------
Diluted Earnings Per Share $ 0.17 $ 0.12 $ 0.39 $ 0.32
==============================================================
</TABLE>
5
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS.
RESULTS OF OPERATIONS
The following table sets forth the Company's net sales and certain
other financial data, including the amount of the change between the three and
nine month periods ended April 30, 1999 and April 30, 1998:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
April 30 April 30
---------------------------- Increase/ --------------------------- Increase/
1999 1998 (Decrease) 1999 1998 (Decrease)
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net sales.................... $9,234,191 $5,596,462 $3,637,729 $27,092,994 $15,392,273 $11,700,722
Gross profit................. $3,418,436 $2,066,328 $1,352,108 $9,242,897 $5,950,141 $3,292,756
Gross profit as a percent of
net sales.................... 37.0% 36.9% 0.1% 34.1% 38.7% (4.6%)
Net income................... $1,171,443 $866,130 $305,313 $2,744,735 $2,285,671 $459,064
Earnings per share........... $0.17 $0.12 $0.05 $0.39 $0.33 $0.06
Weighted average shares
outstanding.................. 7,000,169 7,000,169 7,000,169 7,000,169
</TABLE>
SALES REVENUE
Net sales revenue for the third quarter and for the nine months ended
April 30, 1999 rose by 65% and 76%, respectively, compared with the same periods
of the prior fiscal year. These increases were primarily due to a significantly
higher volume of creosote sales to former customers of AlliedSignal, Inc.
("AlliedSignal") beginning in July 1998 when the Company began purchasing
AlliedSignal's output of creosote under a long-term supply contract
GROSS PROFIT
Gross profit for the third quarter and for the first nine months of
fiscal 1999 rose by approximately $1.4 million and $3.3 million, respectively,
compared to same periods in fiscal 1998. Most of that increase was attributable
to sales of creosote purchased from AlliedSignal. Gross profit as a percent of
sales declined in the first nine months of fiscal 1999 as compared with the same
period of fiscal 1998 because creosote sales produce a lower gross profit margin
as a percent of sales than do sales of the Company's other products. This effect
has been mitigated somewhat since January 1999 by improved creosote margins.
6
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the third quarter and
for the nine months ended April 30, 1999 increased by approximately $771
thousand and $2.2 million as compared with the same periods of fiscal year 1998.
Most of that increase was a consequence of the AlliedSignal supply contract. In
particular, transportation expenses increased with creosote sales volume and the
Company is amortizing the $4 million of additional consideration paid upon
entering into the supply contract and the $4.5 million paid to AlliedSignal for
its creosote registrations.
OTHER INCOME (EXPENSE)
The net increase in other expenses in the third quarter and for the
nine months ended April 30, 1999 as compared to the same periods in fiscal 1998
was due to increased interest expense of approximately $89 thousand and $306
thousand, respectively, paid to SouthTrust Bank of Alabama, National Association
("SouthTrust") on the term loan secured to finance the AlliedSignal transaction.
LIQUIDITY AND CAPITAL RESOURCES
As of April 30, 1999 the Company had cash and cash equivalents of
approximately $2.9 million, a increase of approximately $661 thousand since the
beginning of fiscal 1999. During the first nine months of fiscal 1999, the
Company generated net cash of $2.7 million from operations, including net income
of approximately $2.7 million. At April 30, 1999 inventories were $318 thousand
higher than at the beginning of fiscal 1999. This increase was attributable to
creosote purchased under the contract with Rutgers VfT N.V. that went into
effect in November 1998.
During first nine months of fiscal 1999, the Company invested
approximately $155 thousand in capital improvements. It also purchased
participations or made short-term loans of $400 thousand, a portion of which
have been repaid leaving a balance on April 30, 1999 of $325 thousand. The
Company also made principal payments totaling approximately $1.5 million on its
term loan with SouthTrust. The principal balance of that term loan was
approximately $4.4 million as of April 30, 1999. As of April 30, 1999 the
Company had no borrowings under its revolving loan with SouthTrust but its
borrowing base availability under that loan was $2.5 million.
7
<PAGE>
YEAR 2000 COMPLIANCE
The Company has reviewed its critical accounting and information
systems for Year 2000 compliance and remedied deficiencies by upgrades to Year
2000 compliant applications and hardware. The cost of these upgrades was less
than $10 thousand. The Company has sought verification from its key suppliers
that they are Year 2000 compliant and asked, if they are not yet so compliant,
those suppliers to provide a description of their plans to become so. Positive
assurances have been received from most of the Company's key suppliers. The
Company has received no indication from any key supplier that a disruption will
occur. However, if suppliers and other third parties with whom the Company
conducts business do not successfully address Year 2000 issues, the Company's
business, operating results and financial position could be materially and
adversely affected. As a contingency plan, therefore, the Company intends to
mitigate a portion of that risk by increasing its finished products and raw
materials inventory. Management believes that the cost of carrying the
additional inventory will not be material to the Company's financial position or
results of operations.
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
Certain information included or incorporated by reference in this
report is forward-looking, including statements contained in "Management's
Discussion and Analysis of Operations". It includes statements regarding the
intent, belief and current expectations of the Company and its directors and
officers. Forward-looking information involves important risks and uncertainties
that could materially alter results in the future from those expressed in these
the statements. These risks and uncertainties include, but are not limited to,
the ability of the Company to maintain existing relationships with long-standing
customers, the ability of the Company to successfully implement productivity
improvements, cost reduction initiatives, facilities expansion and the ability
of the Company to develop, market and sell new products and to continue to
comply with environmental laws, rules and regulations. Other risks and
uncertainties include uncertainties relating to economic conditions,
acquisitions and divestitures, government and regulatory policies, technological
developments and changes in the competitive environment in which the Company
operates. Persons reading this report are cautioned that such statements are
only predictions and that actual events or results may differ materially. In
evaluating such statements, readers should specifically consider the various
factors that could cause actual events or results to differ materially from
those indicated by the forward-looking statements.
8
<PAGE>
PART II --- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the third quarter
ended April 30, 1999.
9
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Company
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
KMG Chemicals, Inc.
By: /s/ David L. Hatcher Date: June 15, 1999
----------------------------------
David L. Hatcher, President
By: /s/ Jack Vernie Date: June 15, 1999
--------------------------------
Jack Vernie, Controller
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AS OF AND
FOR THE NINE MONTHS PERIOD ENDED APRIL 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-START> AUG-01-1998
<PERIOD-END> APR-30-1999
<CASH> 2,869,362
<SECURITIES> 0
<RECEIVABLES> 4,162,957
<ALLOWANCES> (90,000)
<INVENTORY> 2,068,889
<CURRENT-ASSETS> 9,188,791
<PP&E> 4,138,362
<DEPRECIATION> (1,831,598)
<TOTAL-ASSETS> 20,867,386
<CURRENT-LIABILITIES> 4,281,833
<BONDS> 0
0
0
<COMMON> 70,002
<OTHER-SE> 12,880,409
<TOTAL-LIABILITY-AND-EQUITY> 20,867,386
<SALES> 27,092,994
<TOTAL-REVENUES> 27,092,994
<CGS> 17,850,097
<TOTAL-COSTS> 17,850,097
<OTHER-EXPENSES> 4,838,290
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 305,926
<INCOME-PRETAX> 4,424,342
<INCOME-TAX> 1,679,607
<INCOME-CONTINUING> 2,744,735
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,744,735
<EPS-BASIC> 0.39
<EPS-DILUTED> 0.39
</TABLE>
