<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
/x/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended April 30, 2000
/ / 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.
(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>
PART I --- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
KMG CHEMICALS, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
April 30, July 31,
2000 1999
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS $12,931,185 $11,303,765
PROPERTY, PLANT AND EQUIPMENT -
Net of accumulated depreciation 2,177,900 2,300,138
NOTES RECEIVABLE, Less current portion 394,015 400,607
DEFERRED TAX ASSET 281,397 251,498
OTHER ASSETS 8,211,879 8,535,927
----------- -----------
TOTAL $23,996,376 $22,791,935
=========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES $ 4,746,491 $ 5,406,532
LONG TERM DEBT 2,778,342 3,427,360
----------- -----------
Total liabilities 7,524,833 8,833,892
----------- -----------
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 1,111,381 1,063,385
Retained earnings 15,290,160 12,824,656
----------- -----------
Total stockholders' equity 16,471,543 13,958,043
----------- -----------
TOTAL $23,996,376 $22,791,935
=========== ===========
</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,
--------- ---------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET SALES $ 8,176,294 $ 9,234,191 $ 24,770,718 $ 27,092,994
COST OF SALES 4,889,407 5,815,755 15,026,977 17,850,097
------------ ------------ ------------ ------------
Gross Profit 3,286,887 3,418,436 9,743,741 9,242,897
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 1,731,880 1,670,777 5,323,696 4,838,290
------------ ------------ ------------ ------------
Operating Income 1,555,007 1,747,659 4,420,045 4,404,607
OTHER INCOME (EXPENSE):
Interest & Dividend Income 67,878 45,575 208,627 145,187
Interest Expense (69,015) (88,515) (221,385) (305,926)
Other (5,041) 184,706 (10,416) 180,475
------------ ------------ ------------ ------------
Total Other Income (Expense) (6,178) 141,765 (23,174) 19,735
INCOME BEFORE INCOME TAX 1,548,829 1,889,424 4,396,871 4,424,342
Provision For Income Tax (600,555) (717,981) (1,651,360) (1,679,607)
------------ ------------ ------------ ------------
NET INCOME $ 948,274 $ 1,171,443 $ 2,745,511 $ 2,744,735
============ ============ ============ ============
EARNINGS PER SHARE:
Basic $ 0.14 $ 0.17 $ 0.39 $ 0.39
============ ============ ============ ============
Diluted $ 0.13 $ 0.17 $ 0.39 $ 0.39
============ ============ ============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 7,000,169 7,000,169 7,000,169 7,000,169
============ ============ ============ ============
Diluted 7,047,031 7,067,356 7,050,999 7,063,975
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
KMG CHEMICALS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<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, 1998 7,000,169 $ 70,002 $ 1,063,385 $ 9,142,291 $10,275,678
Dividends (70,002) (70,002)
Net income 3,752,367 3,752,367
--------- ----------- ----------- ----------- -----------
BALANCE AT JULY 31, 1999 7,000,169 $ 70,002 $ 1,063,385 $12,824,656 $13,958,043
========= =========== =========== =========== ===========
Dividends (280,007) (280,007)
Warrants issued for services $ 47,996 47,996
Net income 2,745,511 2,745,511
--------- ----------- ----------- ----------- -----------
BALANCE AT APRIL 30, 2000 7,000,169 $ 70,002 $ 1,111,381 $15,290,160 $16,471,543
========= =========== =========== =========== ===========
</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,
--------------------------
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,745,511 $ 2,744,735
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 799,269 778,651
(Gain) on sale of securities (829)
Loss on the disposal of fixed assets 501
Options and warrants issued for services 47,996
Deferred income tax asset (29,899)
Changes in operating assets and liabilities:
Accounts receivable - trade (283,104) (99,262)
Accounts receivable - other (2,257) (4,227)
Inventories (540,984) (317,543)
Prepaid expenses and other assets (35,271) 14,799
Accounts payable (661,293) (779,957)
Accrued liabilities (45,674) 219,420
Income taxes payable 171,741
-----------
Net cash provided by operating activities $ 1,993,465 $ 2,728,858
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (127,998) (154,763)
Proceeds from sale of securities 7,752
Proceeds from sale of fixed assets 801
Loans to third parties - short term (324,884)
Collection of notes receivable 64,045 6,178
Additions to other assets (224,984) (7,222)
----------- -----------
Net cash used in investing activities $ (281,185) $ (479,890)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on borrowings' (602,093) (1,517,552)
Payment of dividends (280,007) (70,002)
----------- -----------
Net cash used in financing activities $ (882,100) $(1,587,554)
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS 830,180 661,414
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,840,963 2,207,948
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,671,143 $ 2,869,362
=========== ===========
SUPPLEMENTAL DISCLOSURES FOR CASH FLOW INFORMATION:
Cash paid during the period for interest $ 221,385 $ 305,926
Cash paid during the period for income taxes $ 1,825,293 $ 1,498,585
</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, 1999.
(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
2000 1999 2000 1999
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE
Net Income $ 948,274 $ 1,171,443 $ 2,745,511 $ 2,744,734
-----------------------------------------------------------------------
Weighted Average Shares Outstanding 7,000,169 7,000,169 7,000,169 7,000,169
-----------------------------------------------------------------------
Basic Earnings Per Share $ 0.14 $ 0.17 $ 0.39 $ 0.39
=======================================================================
DILUTED EARNINGS PER SHARE
Net Income $ 948,274 $ 1,171,443 $ 2,745,511 $ 2,744,734
-----------------------------------------------------------------------
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 46,862 67,187 50,830 63,806
-----------------------------------------------------------------------
Weighted Average Shares Outstanding, as
Adjusted 7,047,031 7,067,356 7,050,999 7,063,975
-----------------------------------------------------------------------
Diluted Earnings Per Share $ 0.13 $ 0.17 $ 0.39 $ 0.39
=======================================================================
</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, 2000 and April 30, 1999:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
April 30 Increase/ April 30 Increase/
--------------------------- (Decrease) ----------------------------- (Decrease)
2000 1999 2000 1999
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net sales ............... $ 8,176,294 $ 9,234,191 $ (1,057,897) $ 24,770,718 $ 27,092,993 $ (2,322,275)
Gross profit ............ $ 3,286,887 $ 3,418,436 $ (131,549) $ 9,743,741 $ 9,242,897 $ 500,844
Gross profit as a percent
of net sales ............ 40.2% 37.0% 3.2% 39.3% 34.1% 5.2%
Net income .............. $ 948,274 $ 1,171,443 $ (223,169) $ 2,745,511 $ 2,744,734 $ 777
Earnings per share ...... $ 0.14 $ 0.17 $ (0.03) $ 0.39 $ 0.39 $ 0.00
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 first nine months of
fiscal 2000 were 11.5% and 8.6% less than the same periods in fiscal 1999. Net
sales revenue declined on reduced sales volume for both the
pentachlorophenol-based and creosote wood treating products sold by the
Company.
Pentachlorophenol-based product volume has fallen primarily because
utility company consolidations in North America have reduced demand for
utility poles, the principal wood product treated with pentachlorophenol. An
additional factor, however, is that the Company's pentachlorophenol-based
sapstain product has not been renewed for use in its two largest markets,
Chile and Malaysia. Although the Company's pentachlorophenol sapstain will
continue to be used in Europe and elsewhere, management expects that product's
volume will continue to decline significantly over the next several years.
Creosote sales have been adversely affected by the continued deferral of
railroad crosstie replacement by major railroads. Management believes that
sales of its wood treating chemicals will likely remain soft for the balance
of this fiscal year and into the next fiscal year.
6
<PAGE>
GROSS PROFIT
Gross profit for the third quarter and for the first nine months of
fiscal 2000 were approximately $132 thousand lower and $501 thousand higher
than the same periods in fiscal 1999. Higher per unit creosote and
pentachlorophenol sales revenues coupled with lower per unit manufacturing
costs of pentachlorophenol products has helped maintain gross profit in the
face of declining net sales revenue. Management anticipates, however, that the
Company will experience some increase in unit manufacturing costs which will
place additional pressure on gross profit margin in the coming fiscal year.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the third quarter
and for the first nine months of fiscal 2000 were approximately $61 thousand
and $485 thousand higher than the same periods of the prior fiscal year.
The increase resulted in part from increased testing and research
costs for creosote, and from expenses incurred in connection with pursuing the
Company's plan to grow by acquiring niche chemical products. Also, the Company
absorbed additional storage and distribution expenses related to creosote
purchased from Rutgers VFT ("Rutgers"). Prior to November 1998 the Company
acted as an agent on behalf of Rutgers, and those creosote expenses were borne
by Rutgers. As of November 1, 1998, the agency arrangement was terminated and
the Company began to purchase creosote from Rutgers for its own account. Under
the new supply agreement, the Company bears creosote related expenses formerly
absorbed by Rutgers.
OTHER INCOME (EXPENSE)
During fiscal 1999, the Company made principal reductions of $1.7
million on term indebtedness incurred with SouthTrust Bank of Alabama,
National Association ("SouthTrust"). That reduction has had the effect of
lowering interest expense for fiscal 2000.
LIQUIDITY AND CAPITAL RESOURCES
During the first nine months of fiscal 2000, the Company invested
approximately $128 thousand in capital improvements. The principal balance of
the Company's term loan with SouthTrust was approximately $3.6 million as of
April 30, 2000. As of that same date, 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 ISSUES
The Company 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 also sought verification from its key suppliers that
they were Year 2000 compliant and received positive assurances from most of
the Company's key suppliers. The Company has experienced no disruption from
Year 2000 issues.
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.
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, 2000.
8
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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 9, 2000
---------------------------------
David L. Hatcher, President
By: /s/ Jack Vernie Date: June 9, 2000
--------------------------------
Jack Vernie, Controller
