<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 OF 1934
For the quarterly period ended January 31, 2000
/x/ 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>
January 31, July 31,
2000 1999
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS $11,267,212 $11,303,765
PROPERTY, PLANT AND EQUIPMENT -
Net of accumulated depreciation 2,206,429 2,300,138
NOTES RECEIVABLE, Less current portion 396,248 400,607
DEFERRED TAX ASSET 270,865 251,498
OTHER ASSETS 8,385,045 8,535,927
----------- -----------
TOTAL $22,525,799 $22,791,935
=========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES $ 3,863,237 $ 5,406,532
LONG TERM DEBT 2,999,290 3,427,360
----------- -----------
Total liabilities 6,862,527 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 14,481,889 12,824,656
----------- -----------
Total stockholders' equity 15,663,272 13,958,043
----------- -----------
TOTAL $22,525,799 $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 Six Months Ended
January 31, January 31,
----------------------------- -----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET SALES $ 7,761,334 $ 8,054,981 $ 16,594,424 $ 17,858,803
COST OF SALES 4,686,637 5,281,595 10,137,570 12,034,342
------------ ------------ ------------ ------------
Gross Profit 3,074,697 2,773,386 6,456,854 5,824,461
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 1,789,642 1,729,430 3,591,816 3,167,513
------------ ------------ ------------ ------------
Operating Income 1,285,055 1,043,956 2,865,038 2,656,948
OTHER INCOME (EXPENSE):
Interest & Dividend Income 74,070 54,728 140,748 99,612
Interest Expense (74,327) (107,129) (152,370) (217,411)
Other (7,415) (6,104) (5,375) (4,231)
------------ ------------ ------------ ------------
Total Other Income (Expense) (7,672) (58,505) (16,997) (122,030)
INCOME BEFORE INCOME TAX 1,277,383 985,451 2,848,041 2,534,918
Provision For Income Tax (485,352) (372,829) (1,050,805) (961,626)
------------ ------------ ------------ ------------
NET INCOME $ 792,031 $ 612,622 $ 1,797,236 $ 1,573,292
============ ============ ============ ============
EARNINGS PER SHARE:
Basic $ 0.11 $ 0.09 $ 0.26 $ 0.22
============ ============ ============ ============
Diluted $ 0.11 $ 0.09 $ 0.25 $ 0.22
============ ============ ============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 7,000,169 7,000,169 7,000,169 7,000,169
============ ============ ============ ============
Diluted 7,051,588 7,061,212 7,052,306 7,055,358
============ ============ ============ ============
</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 (140,003) (140,003)
Warrants issued for services $ 47,996 47,996
Net income 1,797,236 1,797,236
--------- ------- ----------- ----------- -----------
BALANCE AT JANUARY 31, 2000 7,000,169 $70,002 $ 1,111,381 $14,481,889 $15,663,272
========= ======= =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
January 31,
--------------------------
2000 1999
----------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,797,236 $1,573,292
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 533,097 518,304
(Gain) on sale of securities (829)
Loss on the disposal of fixed assets 342
Options and warrants issued for services 47,997
Deferred income tax asset (19,367)
Changes in operating assets and liabilities:
Accounts receivable - trade 648,335 229,961
Accounts receivable - other 3,751 (75,957)
Inventories (515,109) (575,277)
Prepaid expenses and other assets (143,443) (59,086)
Accounts payable (1,379,637) (971,497)
Accrued liabilities (195,114) 17,299
----------- ----------
Net cash provided by operating activities $ 776,917 $ 657,381
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (73,369) (94,520)
Proceeds from sale of securities 7,752
Loans to third parties - short term (399,884)
Collection of notes receivable 10,463 4,085
Additions to other assets (215,137) (5,880)
----------- ----------
Net cash used in investing activities $ (270,291) $ (496,199)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on borrowings' (396,615) (331,575)
Payment of dividends (140,003)
----------- ----------
Net cash used in financing activities $ (536,618) $ (331,575)
----------- ----------
NET DECREASE IN CASH AND CASH EQUIVALENTS $ (29,992) $ (170,393)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,840,963 2,207,948
----------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,810,971 $2,037,555
=========== ==========
SUPPLEMENTAL DISCLOSURES FOR CASH FLOW INFORMATION:
Cash paid during the period for interest $ 152,370 $ 217,411
Cash paid during the period for income taxes $ 1,267,230 $ 995,490
</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 Six Months Ended
January 31 January 31
2000 1999 2000 1999
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE
Net Income $ 792,031 $ 612,622 $ 1,797,236 $ 1,573,292
-------------------------------------------------------------------
Weighted Average Shares Outstanding 7,000,169 7,000,169 7,000,169 7,000,169
-------------------------------------------------------------------
Basic Earnings Per Share $ 0.11 $ 0.09 $ 0.26 $ 0.22
===================================================================
DILUTED EARNINGS PER SHARE
Net Income $ 792,031 $ 612,622 $ 1,797,236 $ 1,573,292
-------------------------------------------------------------------
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 51,419 61,043 52,137 55,189
-------------------------------------------------------------------
Weighted Average Shares Outstanding, as
Adjusted 7,051,588 7,061,212 7,052,306 7,055,358
-------------------------------------------------------------------
Diluted Earnings Per Share $ 0.11 $ 0.09 $ 0.25 $ 0.22
===================================================================
</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 six month periods ended January 31, 2000 and January 31, 1999:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
January 31 Increase/ January 31 Increase/
========================== (Decrease) ========================= (Decrease)
2000 1999 2000 1999
======================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net sales................. $ 7,761,334 $ 8,054,981 $ (293,647) $16,594,424 $17,858,803 $(1,264,379)
Gross profit............... $ 3,074,697 $ 2,773,386 $ 301,311 $ 6,456,854 $ 5,824,461 $ 632,393
Gross profit as a percent
of net sales.............. 39.6% 34.4% 5.2% 38.9% 32.6% 6.3%
Net income................ $ 792,031 $ 612,622 $ 179,409 $ 1,797,236 $ 1,573,292 $ 223,944
Earnings per share........ $ 0.11 $ 0.09 $ 0.02 $ 0.26 $ 0.22 $ 0.04
Weighted average shares
outstanding............... 7,000,169 7,000,169 7,000,169 7,000,169
</TABLE>
SALES REVENUE
Net sales revenue for the second quarter and first six months of fiscal
2000 were 3.6% and 7.1% below the same periods in fiscal 1999. In the second
quarter, both creosote and penta sales showed marked recoveries from the
declines experienced during the first quarter of the current fiscal year.
However, creosote revenues in particular remained well below the previous
year's level, evidencing the continued deferral of crosstie replacement by a
number of railroad companies. Management believes that sales of its wood
treating chemicals will likely remain soft for the balance of this fiscal
year.
GROSS PROFIT
Gross profit for the second quarter and for the first six months of
fiscal 2000 were approximately $301 thousand and $632 thousand higher than
the same periods in fiscal 1999. Higher per unit creosote and penta sales
revenues coupled with lower per unit manufacturing costs of penta products
were primarily responsible for these gross profit increases.
6
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the second quarter were
essentially unchanged from the prior fiscal year but increased in the first
six months of this fiscal year by approximately $424 thousand as compared with
that same period in fiscal 1999.
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 six months of fiscal 2000, the Company invested
approximately $73 thousand in capital improvements. The principal balance of
the Company's term loan with SouthTrust was approximately $3.8 million as of
January 31, 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.
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 are 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.
7
<PAGE>
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.
PART II -- OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The annual meeting of the shareholders of the Company was held on
November 22, 1999. At that meeting, the shareholders voted to elect all the
nominees for director as follows:
<TABLE>
NOMINEES VOTES FOR VOTES AGAINST
-------- --------- -------------
<S> <C> <C>
David L. Hatcher 6,489,496 12
George W. Gilman 6,489,496 12
Bobby D. Godfrey 6,489,496 12
Fred C. Leonard, III 6,489,496 12
Charles M. Neff, Jr. 6,489,496 12
</TABLE>
The shareholders also voted to ratify the appointment of Deloitte &
Touche LLP as independent accountants and auditors of the Company for fiscal
year 2000. The vote was 6,489,196 votes for the ratification, 300 votes
against and 12 abstentions.
8
<PAGE>
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 second quarter ended
January 31, 2000.
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: Date: March __, 2000
------------------------------
David L. Hatcher, President
By: Date: March __, 2000
------------------------------
Jack Vernie, Controller
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AS OF AND
FOR THE SIX MONTHS PERIOD ENDED JANUARY 31, 2000 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-2000
<PERIOD-START> AUG-01-1999
<PERIOD-END> JAN-31-2000
<CASH> 4,810,971
<SECURITIES> 0
<RECEIVABLES> 3,159,908
<ALLOWANCES> (135,000)
<INVENTORY> 3,059,722
<CURRENT-ASSETS> 11,267,212
<PP&E> 4,285,839
<DEPRECIATION> (2,079,410)
<TOTAL-ASSETS> 22,525,799
<CURRENT-LIABILITIES> 3,863,237
<BONDS> 0
0
0
<COMMON> 70,002
<OTHER-SE> 15,593,270
<TOTAL-LIABILITY-AND-EQUITY> 22,525,799
<SALES> 16,594,424
<TOTAL-REVENUES> 16,594,424
<CGS> 10,137,570
<TOTAL-COSTS> 10,137,570
<OTHER-EXPENSES> 3,591,816
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 152,370
<INCOME-PRETAX> 2,848,041
<INCOME-TAX> 1,050,805
<INCOME-CONTINUING> 1,797,236
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,797,236
<EPS-BASIC> 0.26
<EPS-DILUTED> 0.25
</TABLE>
