SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996 Commission File Number - 1-10184
ABATIX ENVIRONMENTAL CORP.
(Exact name of registrant as specified in its charter)
Delaware 75-1908110
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
8311 Eastpoint Drive, Suite 400, Dallas, Texas 75227
(Address of principal executive officers) (Zip Code)
Registrant's telephone number, including area code: (214) 381-1146
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act: Common Stock
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 twelve months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
1,988,564 shares of common stock, $.001 par value, were issued and outstanding
on February 28, 1997.
The aggregate market value of the Registrant's common stock held by
nonaffiliates of the Registrant as of the close of business on February 28, 1997
(an aggregate of 990,609 shares out of a total of 1,988,564 shares outstanding
at that time) was $3,281,392 computed by reference to the closing bid price of
$3 5/16 on February 28, 1997.
Portions of the Registrant's proxy statement for its 1997 annual meeting of
stockholders are incorporated into Part III, herein, by this reference thereto.
<PAGE>
PART I
Item 1. Business
(a) Development of Business
Abatix Environmental Corp. ("Abatix" or the "Company") markets and distributes
personal protection and safety equipment, and durable and nondurable supplies to
the asbestos and lead abatement, industrial safety and hazardous materials
industries. In addition to these products, the Company also distributes tools
and tool supplies to the construction industry. During 1996, the Company sold
over 9,500 products consisting of equipment and supplies to over 4,500 customers
from its eight distribution centers in Texas, California, Arizona, Colorado,
Washington and Nevada. Currently, approximately 68 percent of the Company's
sales are to the asbestos and lead abatement industries, and approximately 13
percent, 7 percent and 12 percent of its sales are to the industrial safety,
construction and hazardous materials industries, respectively. The Company
believes a majority of its sales for the foreseeable future will continue to be
made to asbestos and lead abatement contractors, project organizers and
managers. At present, the Company estimates its share of the asbestos abatement
supply market to be approximately 15 to 20 percent in the geographic markets
served by the Company.
The Company began operations in May 1983 as an industrial safety supply company
located in Dallas, Texas, and was originally incorporated in Texas as T&T Supply
Company, Inc. ("T&T") in March 1984. T&T expanded its operations to become a
supplier to the asbestos abatement industry in January 1986. Abatix was
incorporated in Delaware on December 5, 1988 to effect and complete an Agreement
and Plan of Merger with T&T on December 9, 1988. Unless the context provides
otherwise, all references to the Company include T&T and the Company's wholly
owned subsidiary, International Enviroguard Systems, Inc. ("IESI").
The Company opened its Nederland, Texas sales office in May 1988 and its
Hayward, California distribution location in December 1988. During 1989, the
Company expanded its customer base to supply the hazardous materials remediation
industry.
In March 1989, the Company completed its initial public offering of its
securities with the sale of 300,000 units, each consisting of two shares of
common stock and one redeemable common stock purchase warrant, at a price of
$5.00 per unit. Net proceeds of $1,135,251 were realized from the offering.
Pursuant to provisions of the initial public offering, the Company issued, on
March 2, 1990, a notice of redemption to the warrantholders in respect of all of
its outstanding redeemable common stock purchase warrants which were exercisable
at $3.00 per share. An aggregate of 231,983 of such warrants was exercised
pursuant to the notice. In total, 290,983 warrants were exercised, 8,917 were
redeemed and 100 were not presented, resulting in net proceeds of $805,616.
Proceeds from the exercise of the warrants enabled the Company to increase its
capital base and expand its operations.
<PAGE>
In February 1990, the Company expanded its Hayward location and opened its
Houston, Texas office/warehouse location. In August 1991, the Company opened its
Santa Fe Springs, California office/warehouse location and, in April 1992, the
Nederland, Texas location was converted to a warehouse location. In August 1992,
sales and administrative staff were added to the Santa Fe Springs facility to
initiate distribution services to the construction tools supply industry.
On October 5, 1992, the Company entered into and consummated an Asset Purchase
Agreement with International Enviroguard Systems, Inc. ("IES"), a Texas
corporation, pursuant to which the Company assumed the operation of this company
and issued 250,000 shares of the Company's $.001 par value common stock. IES,
based in Corpus Christi, Texas, was a manufacturer of sorbents, primarily for
the hazardous materials industry. The Company transferred the assets purchased
and liabilities assumed to IESI, a Delaware corporation wholly owned by the
Company.
In response to improved competitive conditions, the Company began asbestos
abatement supply distribution operations in Phoenix and Denver in January and
February of 1993, respectively, and Seattle in January 1994. The Company opened
a distribution center in Corpus Christi, Texas in June 1994 as an attempt to
more fully utilize the IESI facilities.
During 1994, because of increased purchasing power, the Company, through IESI,
began to import certain products sold through not only the Company's
distribution channels, but other distribution companies not in direct
competition with Abatix. The Company will continue to review the direct
importation of products to obtain lower costs.
In December 1994, because of the significant use of cash, the negative impact on
earnings and the limited potential for progress towards profitability, the
Company announced plans to discontinue the sorbent manufacturing business of
IESI. This process was completed during the second quarter of 1995; however,
IESI continues to import products.
The Corpus Christi location was closed as of September 30, 1995 primarily
because the projected costs to operate the facility exceeded the market
potential. As was done prior to opening the Corpus Christi location, Abatix's
Houston facility will serve the central and south Texas area.
In October 1995, the Company expanded its Phoenix location to initiate
distribution services to the construction tools supply industry. In December
1995, the newest facility opened in Las Vegas. Although the Las Vegas operation
will handle the entire product line, its primary focus is the construction tool
industry.
The Company's lease agreement on the building that was occupied by both the
operations of IESI and the Corpus Christi branch included an option to purchase
the building. In March 1996, the Company purchased this facility and
simultaneously sold the building to a third party. This transaction terminated
<PAGE>
the Company's lease obligation. Concurrent with the sale, the Company reversed
the remaining reserves resulting in the special credit and the earnings from
discontinued operations in 1996.
The Company, based on local market conditions, intends to expand and diversify
the revenue base by developing its full product line in all locations.
Acquisitions and the hiring of experienced personnel are two alternatives that
will continue to be explored to accomplish this goal.
(b) Financial Information About Industry Segments
The Company is considered to be in one industry segment for financial reporting
purposes; therefore, no financial information is presented regarding industry
segments.
(c) Narrative Description of Business
Asbestos Abatement Industry Background
Between 1900 and the early 1970's, asbestos was extensively used for insulation
and fireproofing in industrial, commercial and governmental facilities as well
as private residences in the United States and in other industrialized
countries. It is estimated that in the United States, approximately 20 percent
of all buildings, excluding residences and schools, contain friable
asbestos-containing materials that are brittle, readily crumble and are
susceptible to the release of asbestos dust. Various diseases such as
asbestosis, lung cancer and mesothelioma, linked to the exposure to airborne
asbestos, and the presence of asbestos in insulation, service applications and
finishing materials have given rise to the concern about exposure to asbestos.
Public awareness of the health hazards posed by asbestos has increased as the
results of continuing medical studies have become widely known. Business and
other publications and studies have listed asbestos abatement as one of
America's critical problems, and legislation previously introduced to the U.S.
Congress refers to asbestos as "one of the most dangerous substances known to
science." A study performed a few years ago, predicted that as many as 225,000
Americans will die of asbestos related ailments before the year 2000 and that
there are currently 65,000 known cases of asbestosis. Litigation involving
claimants exposed to asbestos has forced several firms to seek the protection of
the bankruptcy courts, and the volume of pending claims has inundated state and
Federal courts throughout the country thus prompting many commentators to
propose legislative solutions.
The United States Environmental Protection Agency ("EPA") estimated, in a survey
conducted in 1984, that asbestos is present in 30 percent of the nation's
110,000 schools and in 20 percent of the nation's 3.6 million government and
commercial buildings. Maintenance, repair, renovation or other activities can
disturb asbestos-containing material and, if disturbed or damaged, asbestos
fibers become airborne and pose a hazard to building occupants and the
environment.
<PAGE>
Prompted by such concerns, Congress, in 1984, authorized the EPA to spend $800
million for asbestos abatement in schools under the Asbestos School Hazard
Abatement Act. In October 1986, Congress passed the Asbestos Hazard Emergency
Response Act ("AHERA") which mandates inspections for asbestos, the adoption of
asbestos abatement plans and the removal of asbestos from schools and facilities
scheduled for demolition. In addition, state and local governments have also
adopted asbestos-related regulations.
Notwithstanding such legislative impetus and continued awareness of health
related hazards associated with asbestos, the budgetary constraints and the lack
of improvement in the industrial sectors continue to limit the number and scope
of asbestos abatement projects. However, as the U.S. economy improves and
commercial real estate demand increases, the Company believes the overall
industry will also improve on a limited basis.
Lead Abatement Industry Background
The hazards of lead-based paint have been known for many years; however, the
federal and state regulations requiring identification, disclosure and cleanup
have been minimal. In early 1996, the EPA and the Department of Housing and
Urban Development unveiled new rules regarding lead-based paint in the
residential markets. The new rules give home buyers the right to test for
lead-based paint before any contracts are signed. In addition, although a
landlord or home seller is not required to test for lead-based paint, the rules
do require disclosure of a known lead hazard.
Many asbestos abatement contractors added lead abatement to their range of
services in an attempt to enter a market considered to be in its infancy. The
asbestos abatement contractors bring experience, equipment and a trained labor
force, working in a regulatory environment. Although the Company does not
anticipate these new rules to result in an increase of lead abatement projects,
management is encouraged by these new rules and their opportunities. Such new
rules could create a long-term positive impact on the Company through
expenditures for equipment and supplies to ensure the safe and proper removal
and disposal of lead paint.
Safety and Hazardous Materials Industries Background
The EPA and the Occupational Safety and Health Administration ("OSHA"), together
over time, have established numerous rules and regulations governing
environmental protection and worker safety and health. The demand for supplies
and equipment by U.S. businesses and governments to meet these rules and
regulations has resulted in the creation of a multi-billion dollar industry.
<PAGE>
As research identifies the degree of environmental or health risk associated
with various substances and working conditions, new rules and regulations can be
expected. These actions inevitably will require more expenditures for supplies
and equipment for handling, remediation and disposal of hazardous substances and
the creation of safe living and working conditions.
Construction Tools Supply Industry Background
Besides the normal hand and power tools, and associated consumable parts,
supplied to the construction industry, the EPA and OSHA have also established
certain rules and regulations governing the protection of the environment and
the protection of workers in this industry.
Currently, the Company supplies the construction tools industry in its Santa Fe
Springs, Phoenix and Las Vegas facilities. This industry is directly tied to the
local economies and more specifically, the real estate conditions within those
markets. The real estate market in the Las Vegas area is strong with vacancy
rates for commercial properties low and rental rates high. The condition of the
real estate industry in the Los Angeles and Phoenix areas remains stable.
Geographic Distribution of Business
The Company distributes over 9,500 personal protection, safety, hazardous waste
remediation and construction tool products to over 4,500 customers primarily
located in the Southwest, Midwest and Pacific Coast. Approximately 54 percent of
its products are sold to asbestos and lead abatement firms, 27 percent to
manufacturing, chemical and petrochemical firms, 7 percent to construction
related firms, 6 percent to hazardous material contractors, 4 percent to resale
accounts and 2 percent to government agencies. The Company considers its
relationship with its customers to be excellent.
The Company maintains 24-hours-a-day/7-days-a-week telephone service for its
customers and typically delivers supplies and equipment within two or three days
of receipt of an order. A substantial amount of asbestos abatement is performed
after working hours, on weekends and on holidays. The Company is prepared to
provide products on an expedited basis in response to requests from abatement
contractors who require immediate deliveries because their work is often
performed during non-business hours, involves substantial costs because of the
specialized labor crews involved or may arise on short notice as a result of
exigent conditions.
The Company maintains sales, distribution and warehouse centers in Santa Fe
Springs and Hayward, California, Dallas and Houston, Texas, Phoenix, Arizona,
Las Vegas, Nevada, Denver, Colorado, and Kent, Washington. The Company expanded
its distribution operations in 1996 by hiring additional sales and support
personnel at certain existing locations.
<PAGE>
Equipment and Supplies
The Company buys products from manufacturers based on orders received from its
customers as well as anticipated needs based on prior buying patterns, customer
inquiries and industry experiences. The Company maintains an inventory of
disposable products and commodities as well as lower cost equipment items.
Approximately 85 percent of the Company's sales for 1996 and 1995 are of
disposable items and commodity products which are sold to customers at prices
ranging from under $1.00 to $50.00. The balance of sales is attributable to
items consisting of lower priced equipment beginning at $20.00 to major product
assemblies such as decontamination trailers which retail for approximately
$15,000. The Company currently does not manufacture or lease any products and
does not perform any repairs thereon. The Company distributes on a limited
basis, disposable items under its own private label.
Except with regard to certain specialty equipment associated with asbestos
abatement activities such as filtration, vacuum and pressure differential
systems, many of the Company's products can be used interchangeably within many
of the industries it supplies. Equipment distributed by the Company includes
manufacturers' product descriptions and instructions pertaining to use.
Marketing
The Company's marketing program is conducted by its sales representatives, as
well as by senior management and the general managers at each of its operating
facilities. These sales representatives are compensated by a combination of
salary and/or commission which is based upon negotiated sales standards. The
Company's personnel participate in training programs at various universities and
training schools which enhance the Company's reputation and recognition of its
name, personnel and services.
Backlog
Substantially all the Company's products are shipped to customers within 48
hours following receipt of the order, therefore backlog is not material to the
Company's operations.
Inflation
The inflation rate for the U.S. economy has averaged approximately 3 percent
annually over the past several years and is projected to be this range for 1997.
the Company believes inflation has not been a substantial concern nor will
inflation have a material impact to the Company's operations or profitability in
the near term, if inflation remains stable. The Company anticipates it would be
able to pass along increases in product costs to its customers in the form of
higher selling prices, thereby having no effect on product margins.
<PAGE>
Environmental Impact
The Company distributes a variety of products in the asbestos abatement industry
all of which require the Company to maintain on file Material Safety Data Sheets
("MSDS") that inform all purchasers and users of any potential hazards which
could occur if the products spilled or leaked. Although the Company provides no
assurance, it reviews all products that could have a potential for environmental
hazards and tries to ensure the products are safe for on site storage and
distribution. The Company currently distributes no products it believes would
create an environmental hazard if leaked or spilled. The Company has safety
procedures in place to minimize any impact if a product were to leak or spill.
Seasonality
Historically, the asbestos abatement services and supply business has been
seasonal as a result of the substantial number of abatement contracts that were
performed in educational facilities during the summer months or during other
vacation periods. The Company believes the non-educational or private sector,
which includes the industrial, commercial and residential markets, is an area of
potential growth, and that seasonality is not a major characteristic of these
markets. In addition to the private sector asbestos business, the Company's
expansion of the hazardous material remediation, industrial safety and
construction tools supply markets have mitigated any seasonal impacts of
government asbestos projects.
Government Regulation
As a supplier of products manufactured by others to the asbestos and lead
abatement, industrial safety and hazardous materials industry, the Company's
operations are not substantially affected by federal laws and regulations
including those promulgated by the EPA and OSHA. Most of the contractors and
other purchasers of the Company's equipment and supplies are subject to various
government regulations, and developments in legislation and regulations
affecting manufacturers and purchasers of the Company's products could have a
substantial effect on the Company.
Competition
The asbestos and lead abatement, industrial safety, hazardous materials and
construction tools supply businesses are highly competitive. These markets are
served by a limited number of large national firms as well as many local firms,
none of who can be characterized as controlling the market. The Company competes
on the basis of price, delivery, credit arrangements and product variety and
quality. The Company's business is not characterized by substantial regulatory
or economic barriers to entry. Additional companies could enter the asbestos and
lead abatement, industrial safety, hazardous materials and construction tools
supply industries and may have greater financial, marketing and technical
resources than the Company
<PAGE>
Employees
As of February 28, 1997, the Company employed a total of 83 full time employees
including 3 executive officers, 8 managers, 43 administrative and marketing
personnel and 29 clerical and warehouse personnel. The Company believes
relations with its employees are excellent.
Item 2. Description of Properties
The Company's headquarters are located in Dallas, Texas and occupy approximately
3,200 square feet of leased general office space in conjunction with the Dallas
branch. This lease expires in July 1999. The eight distribution facilities lease
a total of 101,720 square feet of general office and warehouse space. These
facilities range in size from 6,875 square feet to 18,680 with leases expiring
between February 1997 and November 2000.
Item 3. Legal Proceedings
The Company was named as a defendant in a product liability lawsuit filed in the
Superior Court of the State of California for the County of Los Angeles -
Central District (Placido Alvarez vs. Abatix Environmental Corp., et al, Case
No. BC133537). The Company was also named as a third party defendant in a
wrongful death/product liability lawsuit filed in the District Court of the
State of Texas for the County of Bexar (Maribel Flores vs. Olmos Environmental
Services, Inc., Nutec Industrial Chemical, Inc. and Walter J. Lyssy, Case No.
96-CI-12845). In both lawsuits, the Company has requested (1) indemnification
under the manufacturer's insurance and (2) legal representation at the cost of
the manufacturer. At this time, the Company does not anticipate any material
impact on its financial statements as a result of these cases.
Item 4. Submission of Matters to a Vote of Security Holders
None
<PAGE>
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters
(a) The Company's common stock is traded on The Nasdaq SmallCap Market tier of
The Nasdaq Stock Market under the symbol "ABIX". The following table sets forth
the high and low bid quotations for the common stock for the periods indicated.
These quotations reflect prices between dealers, do not include retail mark-ups,
mark-downs or commissions and may not necessarily represent actual transactions.
Common Stock Price
---------------------------
1995 High Low
- ----------------------- ---------- -----------
First Quarter $ 3 3/8 $ 2 1/16
Second Quarter 2 5/8 2 1/4
Third Quarter 4 2 5/8
Fourth Quarter 4 1/8 2 3/8
1996
- ----------------------
First Quarter $ 4 1/2 $ 3 3/8
Second Quarter 5 1/2 3 5/8
Third Quarter 5 2 7/8
Fourth Quarter 4 1/4 2 7/8
On February 28, 1997, the closing bid price for the common stock was $ 3 5/16.
Because of minimal trading activity since 1989, the Company de-listed its stock
from the Boston Stock Exchange under the symbol "ABIX.B" on July 15, 1996.
(b) As of February 28, 1997, the approximate number of holders of record of the
Company's common stock was 700.
<PAGE>
(c) The Company has never paid cash dividends on its common stock. The Company
presently intends to retain any future earnings to finance the expansion of its
business or repay borrowings on its lines of credit and does not anticipate that
any cash dividends will be paid in the foreseeable future. Future dividend
policy will depend on the Company's earnings, capital requirements, expansion
plans, financial conditions and other relevant factors. Although the Company's
notes payable to bank do not restrict the payment of dividends, they do require
the Company maintain a minimum net worth, which increases each year through
1997. The notes payable to bank also require the Company maintain minimum net
income levels through 1997.
(d) Since November 1994, the Board of Directors has authorized management to
purchase up to 476,500 shares of the Company's common stock. As of December 31,
1996, the Company has purchased 392,750 shares.
(e) In October 1995, the Company amended its Certificate of Incorporation to
reduce its authorized capital from 5,000,000 shares to 500,000 shares of
preferred stock, and from 20,000,000 shares to 5,000,000 shares of common stock.
<PAGE>
Item 6. Selected Financial Data
The tables below set forth, in summary form, selected financial data of the
Company. This data, which is not covered by the independent auditors' report,
should be read in conjunction with the consolidated financial statements and
notes thereto which are included elsewhere herein (amounts in thousands except
per share amounts).
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Selected Operating Results:
Net sales $ 33,067 $ 27,632 $ 25,982 $ 19,085 $ 11,362
Gross profit $ 9,202 $ 7,977 $ 7,164 $ 5,354 $ 3,053
Earnings from continuing operations $ 734 $ 813 $ 580 $ 283 $ 28
Earnings (loss) from discontinued
operations, net of income taxes 22 - (363) (144) (55)
Cumulative effect of change in
accounting principle - - - 20 -
---------- ---------- ---------- ---------- ----------
Net earnings (loss) $ 756 $ 813 $ 217 $ 159 $ (27)
========== ========== ========== ========== ==========
Earnings (loss) per common and
common equivalent share:
Earnings from continuing operations $ .35 $ .36 $ .25 $ .12 $ .01
Earnings (loss) from discontinued
operations .01 - (.16) (.06) (.02)
Cumulative effect of change in
accounting principle - - - .01 -
---------- ---------- ---------- ---------- ----------
Net earnings (loss) $ .36 $ .36 $ .09 $ .07 $ (.01)
========== ========== ========== ========== ==========
Weighted average common and common
equivalent shares outstanding
2,111 2,238 2,330 2,304 2,074
========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
----------------------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Selected Balance Sheet Data:
Current assets $ 9,722 $ 8,230 $ 7,426 $ 6,605 $ 4,055
Current liabilities 6,219 4,659 4,208 3,669 1,898
Total assets 10,678 8,977 8,184 7,341 4,959
Total liabilities 6,219 4,659 4,283 3,724 1,928
Retained earnings 3,244 2,488 1,674 1,457 1,299
Stockholders' equity 4,459 4,318 3,901 3,618 3,031
</TABLE>
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Results of Continuing Operations
Net sales from continuing operations for the year ended December 31, 1996
increased 20 percent to $33,067,000 from $27,632,000 in 1995 due to efforts to
further expand and diversify our customer base. The increase is also a result of
the general economic recovery in the geographic regions serviced by the
Company's facilities. In addition, 1996 included a full year of operation for
the Company's Las Vegas facility. The improved economic conditions, if
maintained, should provide the ability for the Company to grow its revenues in
1997. These efforts also provide the groundwork for broadening the Company's
revenues among its different markets, thereby decreasing its dependence on any
one of its markets.
Industry-wide sales of asbestos abatement products are expected to remain
relatively flat in 1997. However, the Company's sales and share of the asbestos
abatement market are expected to continue to increase primarily because of the
marketplace's recognition of the Company as a reliable and stable supplier.
Spending on asbestos abatement declined in the U.S. over the past several years
due largely to the lack of full recovery in the commercial real estate industry.
Concerns raised about the comparative health risks of removing asbestos and the
costs related to such removal, as opposed to leaving it in place, also have
resulted in the delay or cancellation of some projects. The Company also
believes that as the U.S. economy continues its expansion, it will have a
positive impact on its operations. Notwithstanding the above, the asbestos
abatement industry will likely diminish over time as asbestos containing
materials, last used in construction during 1977-1980, ultimately are removed
from schools, office buildings, homes and factories. A 1992 estimate by an
industry analyst predicted that as much as $80 billion may be spent nationwide
over a 20 year period for asbestos removal, of which the Company estimates $8
billion relates to abatement supplies. Approximately $2 billion in abatement
supplies will be spent during this 20 year period in the geographic areas served
by the Company's eight distribution centers. At this potential rate of
expenditure, and at a presently estimated 15 to 20 percent market share of the
asbestos abatement markets served by the Company, the current and intermediate
term effects of the diminishing market are not expected to have a material
adverse impact on the Company based on its historical ability to increase its
share of this market.
Sales to the hazardous materials remediation, industrial safety and construction
tools supply markets are increasing both in absolute amounts and as a percentage
of revenues to the Company. The Company plans to expand its customer base in
these areas through additional salespeople and expects these revenues to
increase at a faster rate than the asbestos abatement revenues. In addition,
<PAGE>
using the Company's financial strength to expand geographically, it has
diversified its geographical risk allowing the Company to better serve its
regional and national customers.
Gross profit in 1996 of $9,202,000 increased 15 percent from gross profit in
1995 of $7,977,000 due to increased revenues. As expected, margins varied
somewhat from location to location due to sales mix and local market conditions.
The Company's gross profit margins, expressed as a percentage of sales,
decreased to 28 percent for 1996 compared to 29 percent for 1995, primarily as a
result of pressure from our low-price competition. Overall margins are expected
to remain at their current levels in 1997. However, as experienced in 1996,
competitive pressures could negatively impact any and all efforts by the Company
to improve or stabilize product margins.
Selling, general and administrative expenses for 1996 of $7,708,000 increased 22
percent over 1995 expenses of $6,342,000. The increase was attributable
primarily to the higher employment costs as a result of additional marketing and
support personnel and a full year of operations in Las Vegas. Selling, general
and administrative expenses were 23 percent of sales for both 1996 and 1995.
These expenses are expected to remain in their current range for 1997.
In the third quarter of 1995, the Company incurred a special charge of $80,000
to accrue for future lease commitments resulting from the closure of its
distribution center in Corpus Christi, Texas. The noncancelable lease was to
expire in September 1999. The Company's lease agreement on the building that was
occupied by both the operations of IESI and the Corpus Christi branch included
an option enabling the Company to purchase the building. In March 1996, the
Company purchased this facility and simultaneously sold the building to a third
party. This transaction terminated the Company's lease obligation and enabled
the Company to reverse all remaining reserves resulting in the special credit
and earnings from discontinued operations during 1996.
Other expense, net, of $356,000 in 1996 increased 43 percent over 1995 expense
of $248,000. This increase is primarily due to increased interest expense
resulting from higher borrowings on the Company's working capital line of credit
to fund the growth in receivables and inventory. Since the Company's lines of
credit are tied to the prime rate, any increases in the prime rate would
negatively affect the Company's earnings.
See note 5 to the consolidated financial statements for a description of income
taxes.
The Company's credit policies remain stringent, and charge-offs are below
industry experience. Days of sales in net accounts receivable increased one day
from 1995 to 1996. The Company believes the reserve for doubtful accounts is
adequate.
Results of Discontinued Operations
The Company realized earnings of $22,000 or $.01 per share from discontinued
operations, resulting from the termination of the lease obligation in March
1996.
<PAGE>
Net Results
Net earnings in 1996 of $756,000 or $.36 per share decreased $57,000 from net
earnings of $813,000 or $.36 per share in 1995. The 7 percent decrease in net
earnings is due to lower product margins, higher selling, general and
administrative and interest expenses. This decline was partially offset by the
increased sales volume.
New Accounting Standards
In June of 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities" ("Statement 125").
Statement 125 is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996 and is to be
applied prospectively. Management of the Company does not expect the adoption of
Statement 125 will have a material impact on the Company's financial position,
results of operations, or liquidity.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Results of Continuing Operations
Net sales from continuing operations for the year ended December 31, 1995
increased 6 percent to $27,632,000 from $25,982,000 in 1994. The increase in
sales is due to efforts to further expand and diversify revenues without
sacrificing product margins. The increase is a result of recovery in the general
economic conditions in the southwest and the expansion of business along the
pacific coast region.
Gross profit in 1995 of $7,977,000 increased 11 percent from gross profit in
1994 of $7,164,000 due to increased revenues and increased margins. Gross profit
margins, expressed as a percentage of sales, increased to 29 percent for 1995
compared to 28 percent for 1994. As expected, margins varied somewhat from
location to location due to sales mixes and local market conditions. Gross
margins on sales of construction tools and industrial safety products typically
were higher than the Company's average margins, while gross margins on sales of
asbestos abatement and hazardous material remediation products varied from one
market to the next and generally were lower than those of the Company's other
products.
Selling, general and administrative expenses for 1995 of $6,342,000 increased 7
percent over 1994 expenses of $5,933,000. The increase was attributable
primarily to the higher employment costs as a result of additional personnel.
Selling, general and administrative expenses were 23 percent of sales for both
1995 and 1994.
In the third quarter of 1995, the Company incurred a special charge of $80,000
to accrue for future lease commitments resulting from the closure of its
<PAGE>
distribution center in Corpus Christi, Texas. The noncancelable lease was to
expire in September 1999. The Company's lease agreement on the building that was
occupied by both the operations of IESI and the Corpus Christi branch included
an option enabling the Company to purchase the building.
Other expense, net, of $248,000 in 1995 decreased 4 percent over 1994 expense of
$258,000. This decrease is primarily due to decreased interest expense resulting
from lower borrowings on the Company's lines of credit.
See note 5 to the consolidated financial statements for a description of income
taxes.
Results of Discontinued Operations
The Company experienced no impact from discontinued operations to its 1995
financial statements because an estimate of $139,000, net of taxes, was recorded
in 1994 to accrue for the losses from the discontinuance of the sorbent
manufacturing business. This amount included an estimate of a loss from
operations from the date of discontinuance through the expected date of
disposal. The Company ceased the sorbent manufacturing business in the summer of
1995. The remainder of the reserve at December 31, 1995, related to the
obligation under a noncancelable operating lease which was to expire in
September 1999. The lease on this facility, which was shared with the Corpus
Christi branch, included a purchase option.
Net Results
Net earnings in 1995 of $813,000 or $.36 per share increased $596,000 from net
earnings of $217,000 or $.09 per share in 1994. The 275 percent increase in net
earnings is due to the growth in revenues and product margins, and the losses
recorded in 1994 related to the discontinuance of the sorbent manufacturing
business, partially offset by the charge in 1995 to close the Corpus Christi
branch office.
Liquidity and Capital Resources
The Company's working capital requirements historically result from the growth
of its accounts receivable and inventories, offset by increased accounts payable
and accrued expenses, associated with increases in sales volume and the addition
of new locations. Net cash used in operations during 1996 of $1,064,000 resulted
principally from increases in accounts receivable and inventory as a result of
the revenue growth. Operating cash flow was also impacted by more timely
payments causing lower accrued expenses and payables. A non-cash charge to
earnings for depreciation of $392,000 partially offset the cash used in
operations.
Cash requirements for non-operating activities during 1996 resulted primarily
from the repurchase of the Company's common stock totaling $658,000 and
purchases of property and equipment amounting to $611,000. The equipment
<PAGE>
purchases in 1996 were primarily computer and telecommunications equipment,
office furniture and delivery trucks. The Company repurchased its common stock
because of the Board of Directors' belief that it was undervalued in the
marketplace. The Board of Directors has committed to continue purchases in the
marketplace as long as the common stock remains undervalued. The repurchase of
common stock and purchases of property and equipment were funded by borrowings
on the Company's working lines of credit.
Cash flow from operations for the entire year of 1997 is expected to be
break-even, although at any given point, it may be negative. Several factors
contribute to this expectation. The rate of revenue growth in 1997 is expected
to be lower than 1996 and at a level that will not generate significant net cash
flows from operations.
Capital expenditures for 1997 are expected to be less than 1996, since the
Company significantly improved its computer system in 1996. The Company
currently has no plans to expand geographically in 1997, however, the Company
will continue to search for geographic locations that would complement the
existing infrastructure. If another location were to be opened in 1997, the
Company would fund the startup expenses through its lines of credit. Anticipated
cash requirements in 1997 will be satisfied from operations and borrowings on
the lines of credit, as required.
The Company maintains a $5,500,000 working capital line of credit at a
commercial lending institution that allows the Company to borrow up to 80
percent of the book value of eligible trade receivables plus the lesser of 40
percent of eligible inventory or $1,500,000. As of February 28, 1997, there are
advances outstanding under this credit facility of $4,117,000. Based on the
borrowing formula, the Company had the capacity to borrow an additional
$1,158,000 as of February 28, 1997. The Company also maintains a $550,000
capital equipment credit facility providing for borrowings at 80 percent of cost
on purchases. The advances outstanding under this credit facility as of February
28, 1997 were $181,000. Both credit facilities are payable on demand and bear a
variable rate of interest computed at the prime rate plus one-half of one
percent.
Management believes, that based on its equity position, the Company's current
credit facilities can be expanded during the next twelve months, if necessary,
and that these facilities, together with cash provided by operations, will be
sufficient for its capital and liquidity requirements for the next twelve
months.
Except for the historical information contained herein, the matters set forth in
this Form 10-K are forward looking and involve a number of risks and
uncertainties. Among the factors that could cause actual results to differ
materially are the following: federal funding of environmental related projects,
general economic and commercial real estate conditions in the local markets,
inability to pass on price increases to customers, unavailability of products,
strong competition and loss of key personnel.
<PAGE>
Item 8. Consolidated Financial Statements and Supplementary Data
The consolidated financial statements and supplementary data are included under
Item 14(a)(l) and (2) of this Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None
PART III
Item 10. Directors and Executive Officers of the Registrant
This Item 10 is incorporated herein by reference from the Company's definitive
Proxy Statement to be filed with the Securities and Exchange Commission not
later than one hundred twenty (120) days after December 31, 1996.
Item 11. Executive Compensation
This Item 11 is incorporated herein by reference from the Company's definitive
Proxy Statement to be filed with the Securities and Exchange Commission not
later than one hundred twenty (120) days after December 31, 1996.
Item 12. Security Ownership of Certain Beneficial Owners and Management
This Item 12 is incorporated herein by reference from the Company's definitive
Proxy Statement to be filed with the Securities and Exchange Commission not
later than one hundred twenty (120) days after December 31, 1996.
Item 13. Certain Relationships and Related Transactions
This Item 13 is incorporated herein by reference from the Company's definitive
Proxy Statement to be filed with the Securities and Exchange Commission not
later than one hundred twenty (120) days after December 31, 1996.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1 and 2. Consolidated Financial Statements and Financial Statement Schedule
The consolidated financial statements and financial statement schedule listed on
the index to consolidated financial statements on page F-l are filed as part of
this Form l0-K.
<PAGE>
(b) Reports on Form 8-K
None
(c) Exhibits
(1)(a) Form of Underwriting Agreement (filed as Exhibit (1)(a) to the
Registration Statement on Form S-18, filed February 9, 1989).
(1)(b) Form of Selected Dealer Agreement (filed as Exhibit (1)(b) to
the Registration Statement on Form S-18, filed January 11,1989).
(1)(c) Warrant Solicitation Agent and Exercise Fee Agreement (filed as
Exhibit (l)(c) to the Report on Form 10-K for the year ended
December 31,1989).
(2)(a) Agreement of Merger (filed as Exhibit (2) to the Registration
Statement on Form S-18, filed January 11, 1989).
(2)(b) Asset Purchase Agreement (filed as Exhibit (2)(b) to the Report
on Form 8-K, filed October 19, 1992).
(3)(a)(1) Certificate of Incorporation (filed as Exhibit (3)(a)(1) to the
Registration Statement on Form S-18, filed January 11, 1989;
filed electronically as Exhibit 3(i)(a) to the Form 10-Q for the
quarter ended September 30, 1995, filed on November 9, 1995).
(3)(a)(2) Certificate of Amendment of Certificate of Incorporation (filed
as Exhibit (3)(a)(2) to the Registration Statement on Form S-18,
filed January 11, 1989; filed electronically as Exhibit 3(i)(b)
to the Form 10-Q for the quarter ended September 30, 1995, filed
on November 9, 1995).
(3)(a)(3) Certificate of Amendment of Certificate of Incorporation (filed
as Exhibit (3)(i)(c) to the Form 10-Q for the quarter ended
September 30, 1995, filed November 9, 1995; filed electronically
as Exhibit 3(i)(c) to the Form 10-Q for the quarter ended
September 30, 1995, filed on November 9, 1995).
(3)(b) Bylaws (filed as Exhibit (3)(b) to the Registration Statement on
Form S-18, filed January 11, 1989; filed electronically as
Exhibit 3(ii) to the Form 10-Q for the quarter ended September
30, 1995,filed on November 9, 1995).
(4)(a) Specimen Certificate of Common Stock (filed as Exhibit (4)(a) to
the Registration Statement on Form S-18, filed January 8, 1989).
<PAGE>
(4)(b) Specimen of Redeemable Common Stock Purchase Warrant (filed
as Exhibit (4)(b) to the Registration Statement on Form S-18,
filed February 9, 1989).
(4)(c) Form of Warrant to be sold to Culverwell & Co., Inc. (filed
as Exhibit (4)(c) to the Registration Statement on Form S-18,
filed February 9, 1989).
(4)(d) Warrant Agency Agreement between the Registrant and North
American Transfer Company (filed as Exhibit (4)(d) to the
Registration Statement on Form S-18, filed February 9, 1989).
(9)(a)(ii) Form of Escrow Agreement with State Street Bank and Trust
Company (filed as Exhibit (9)(a)(ii) to the Registration
Statement on Form S-18, filed January 11, 1989).
(10)(a) Employment Agreement with Terry W. Shaver (filed as Exhibit
(10)(a) to the Registration Statement on Form S-18, filed
January 11, 1989).
(10)(a)(i) Employment Agreement with Terry W. Shaver effective January 2,
1991 (filed as Exhibit (10)(a)(i) to the Report on Form 10-K for
the year ended December 31, 1990).
(10)(a)(ii) Employment Agreement with Terry W. Shaver effective January 4,
1993 (filed as Exhibit (10)(a)(ii) to the Report on Form 10-K
for the year ended December 31, 1992).
(10)(a)(iii) Employment Agreement with Terry W. Shaver effective January 1,
1995 (filed as Exhibit (10)(a)(iii) to the Report on Form 10-K
for the year ended December 31, 1994).
(10)(a)(iv) Employment Agreement with Terry W. Shaver effective
January 1, 1997.*
(10)(b) Employment Agreement with Gary L. Cox (filed as Exhibit (10)(b)
to the Registration Statement on Form S-18, filed
January 11, 1989).
(10)(b)(i) Employment Agreement with Gary L. Cox effective January 2, 1991
(filed as Exhibit (10)(b)(i) to the Report on Form 10-K for the
year ended December 31, 1990).
(10)(b)(ii) Employment Agreement with Gary L. Cox effective January 4, 1993
(filed as Exhibit (10)(b)(ii) to the Report on Form 10-K for the
year ended December 31, 1992).
<PAGE>
(10)(b)(iii) Employment Agreement with Gary L. Cox effective January 1, 1995
(filed as Exhibit (10)(b)(iii) to the Report on Form 10-K for
the year ended December 31, 1994).
(10)(b)(iv) Employment Agreement with Gary L. Cox effective
January 1, 1997.*
(10)(c) Revolving Credit Agreement with Texas American Bank/Duncanville,
N.A. (filed as Exhibit (10)(c) to the Registration Statement on
Form S-18, filed January 11, 1989).
(10)(d) Demand Credit Facility with Comerica Bank-Texas dated February
15, 1989 (filed as Exhibit (10)(d) to the Report on Form 10-Q
for the Quarter ended March 31, 1989, filed May 15,1989).
(10)(e) Demand Credit Facility with Comerica Bank-Texas dated June 15,
1989 (filed as Exhibit (10)(e) to the Report on Form 10-Q for
the Quarter ended June 30, 1989, filed August 11, 1989).
(10)(e)(i) Demand Credit Facility with Comerica Bank-Texas dated March 1,
1993 (filed as Exhibit (10)(e)(i) to the Report on Form 10-K for
the year ended December 31, 1992).
(10)(e)(ii) Demand Credit Facility with Comerica Bank-Texas extension,
renewal and increase dated June 1, 1993 (filed as Exhibit
(10)(e)(ii) to the Report on Form 10-K for the year ended
December 31, 1993).
(10)(e)(iii) Demand Credit Facility with Comerica Bank-Texas extension,
renewal and increase dated September 22, 1994 (filed as Exhibit
(10)(e)(iii) to the Report on Form 10-K for the year ended
December 31, 1994).
(10)(f) Employment Agreement with S. Stanley French effective October 1,
1992 (filed as Exhibit (10)(f) to the Report on Form 8-K, filed
October 19,1992).
(11) Statement Re Computation of Per Share Earnings (Loss).*
(22) Information Statement dated September 1, 1995 (filed as Exhibit
(22) to the Report on Form 10-K for the year ended
December 31, 1995).
(23) Consent of Independent Auditors.*
(27) Financial Data Schedule for the twelve months ended
December 31, 1996.*
* Filed herewith as part of the Company's electronic filing.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on the 20th day of March,
1997.
ABATIX ENVIRONMENTAL CORP.
By: /s/ Terry W. Shaver
Terry W. Shaver
President, Chief Executive Officer
and Director (Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant, and
in the capacities and on the date indicated.
Signatures Title Date
/s/ Terry W. Shaver President, Chief Executive Officer March 20, 1997
Terry W. Shaver and Director (Principal Executive Officer)
/s/ Gary L. Cox Executive Vice President, March 20, 1997
Gary L. Cox Chief Operating Officer and Director
/s/ Lamont C. Laue Director March 20, 1997
Lamont C. Laue
/s/ Frank J. Cinatl Vice President and Chief Financial March 20, 1997
Frank J. Cinatl, IV Officer (Principal Accounting Officer)
<PAGE>
ABATIX ENVIRONMENTAL CORP. AND SUBSIDIARY
Index to Consolidated Financial Statements
Page
Independent Auditors' Report F-2
Financial Statements:
Consolidated Balance Sheets as of December 31, 1996 and 1995 F-3
Consolidated Statements of Operations for the years ended
December 31, 1996, 1995 and 1994 F-4
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1996, 1995 and 1994 F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 F-6
Notes to Consolidated Financial Statements F-7
Financial Statement Schedule:
II - Valuation and Qualifying Accounts for the years ended
December 31, 1996, 1995 and 1994 F-17
All other schedules have been omitted as the required information is
inapplicable or the information required is presented in the consolidated
financial statements or the notes thereto.
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Abatix Environmental Corp.:
We have audited the consolidated financial statements of Abatix Environmental
Corp. and subsidiary as listed in the accompanying index. In connection with our
audits of the consolidated financial statements we also have audited the
consolidated financial statement schedule as listed in the accompanying index.
These consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Abatix Environmental
Corp. and subsidiary as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1996 in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
/s/KPMG Peat Marwick LLP
Dallas, Texas
March 6, 1997
F-2
<PAGE>
<TABLE>
<CAPTION>
ABATIX ENVIRONMENTAL CORP. AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1996 and 1995
1996 1995
-------------- --------------
<S> <C> <C>
Assets
Current assets:
Cash $ 310,288 $ 415,867
Trade accounts receivable, net of allowance for doubtful accounts of
$376,117 in 1996 and $336,486 in 1995 (note 4) 5,295,849 4,370,595
Inventories (note 4) 3,440,557 3,088,276
Refundable income taxes 285,784 -
Prepaid expenses and other assets 285,791 218,187
Deferred income taxes (note 5) 103,723 136,719
-------------- --------------
Total current assets 9,721,992 8,229,644
Receivables from officers and employees 76,347 70,577
Property and equipment, net (notes 3 and 4) 763,643 593,060
Deferred income taxes (note 5) 80,168 39,657
Other assets 35,822 43,993
-------------- --------------
$ 10,677,972 $ 8,976,931
============== ==============
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable to bank (note 4) $ 4,786,935 $ 2,631,828
Accounts payable 920,153 1,031,481
Other accrued expenses 406,271 845,782
Accrued compensation 106,090 93,249
Net liabilities of discontinued operations (note 2) - 56,813
-------------- --------------
Total current liabilities 6,219,449 4,659,153
-------------- --------------
Stockholders' equity (note 6):
Preferred stock - $1 par value, 500,000 shares authorized; none issued - -
Common stock - $.001 par value, 5,000,000 shares authorized; issued
2,381,314 shares in 1996 and 2,366,314 shares in 1995 2,381 2,366
Additional paid-in capital 2,407,603 2,365,118
Retained earnings 3,243,786 2,487,838
Treasury stock at cost, 392,750 shares in 1996 and 207,100 shares in
1995 (1,195,247) (537,544)
-------------- --------------
Total stockholders' equity 4,458,523 4,317,778
-------------- --------------
Commitments and contingencies (note 10)
-------------- --------------
$ 10,677,972 $ 8,976,931
============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
ABATIX ENVIRONMENTAL CORP. AND SUBSIDIARY
Consolidated Statements of Operations
Years ended December 31, 1996, 1995 and 1994
1996 1995 1994
-------------- -------------- --------------
<S> <C> <C> <C>
Net sales $ 33,066,831 $ 27,632,245 $ 25,981,570
Cost of sales (23,864,836) (19,654,858) (18,817,805)
-------------- -------------- --------------
Gross profit 9,201,995 7,977,387 7,163,765
Selling, general and administrative expenses (7,707,546) (6,342,241) (5,933,246)
Special credit (charge) (note 2) 56,711 (80,000) -
-------------- -------------- --------------
Earnings from operations 1,551,160 1,555,146 1,230,519
Other income (expense):
Interest income 19,840 15,311 6,540
Interest expense (359,712) (258,079) (271,046)
Other, net (15,944) (5,487) 6,880
-------------- -------------- --------------
Earnings from continuing operations before
income taxes 1,195,344 1,306,891 972,893
Income tax expense (note 5) (460,941) (493,514) (392,684)
-------------- -------------- --------------
Earnings from continuing operations 734,403 813,377 580,209
Discontinued operations (note 2):
Loss from operations of discontinued business net
of tax benefit of $125,522 - - (223,746)
Earnings (loss) on discontinuance of business, net
of tax expense of $8,348 in 1996 and net of tax
benefit of $71,857 in 1994 21,545 - (139,487)
-------------- -------------- --------------
Net Earnings $ 755,948 $ 813,377 $ 216,976
============== ============== ==============
Earnings (loss) per common and common equivalent share:
Earnings from continuing operations $ .35 $ .36 $ .25
Earnings (loss) from discontinued operations .01 - (.16)
-------------- -------------- --------------
Net earnings $ .36 $ .36 $ .09
============== ============== ==============
Weighted average common and common equivalent shares
outstanding 2,110,582 2,238,312 2,330,074
============== ============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
ABATIX ENVIRONMENTAL CORP. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1996, 1995 and 1994
Common Stock Additional Treasury Stock
----------------------- Paid-in Retained ------------------------- Total
Shares Amount Capital Earnings Shares Amount Equity
----------- --------- ----------- ----------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 2,275,918 $ 2,276 $2,157,883 $1,457,485 - $ - $3,617,644
Purchase of treasury stock - - - - 26,500 (55,598) (55,598)
Exercise of warrants 40,000 40 117,465 - - - 117,505
Exercise of stock options 3,830 4 4,305 - - - 4,309
Net earnings - - - 216,976 - - 216,976
----------- --------- ----------- ----------- ---------- ------------ -----------
Balance at December 31, 1994 2,319,748 2,320 2,279,653 1,674,461 26,500 (55,598) 3,900,836
Purchase of treasury stock - - - - 180,600 (481,946) (481,946)
Exercise of stock options 46,566 46 85,465 - - - 85,511
Net earnings - - - 813,377 - - 813,377
----------- --------- ----------- ----------- ---------- ------------ -----------
Balance at December 31, 1995 2,366,314 2,366 2,365,118 2,487,838 207,100 (537,544) 4,317,778
Purchase of treasury stock - - - - 185,650 (657,703) (657,703)
Exercise of stock options 15,000 15 42,485 - - - 42,500
Net earnings - - - 755,948 - - 755,948
----------- --------- ----------- ----------- ---------- ------------ -----------
Balance at December 31, 1996 2,381,314 $ 2,381 $2,407,603 $3,243,786 392,750 $(1,195,247) $4,458,523
=========== ========= =========== =========== ========== ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
ABATIX ENVIRONMENTAL CORP. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended December 31, 1996, 1995 and 1994
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 755,948 $ 813,377 $ 216,976
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization 392,019 337,309 307,625
Deferred income taxes (7,515) (104,176) (82,462)
Loss (gain) on disposal of assets 15,805 (11,615) (6,695)
Changes in assets and liabilities:
Receivables (925,254) 58,258 (970,740)
Inventories (352,281) (690,024) (267,700)
Refundable income taxes (285,784) - 236,236
Prepaid expenses and other (62,604) (7,602) (69,867)
Net liabilities of discontinued
operations (note 2) (56,813) 91,627 336,853
Accounts payable (111,328) 238,819 (6,629)
Accrued expenses (426,670) 461,778 200,384
------------ ------------ ------------
Net cash (used in) provided by operating activities (1,064,477) 1,187,751 (106,019)
------------ ------------ ------------
Cash flows from investing activities:
Purchase of property and equipment (611,407) (232,980) (359,205)
Proceeds from sale of property and equipment 33,000 48,091 35,195
Advances to officers and employees (51,270) (50,604) (9,125)
Collection of advances to officers and employees 45,500 38,712 12,130
Other assets, primarily deposits 3,171 (22,057) (2,000)
------------ ------------ ------------
Net cash used in investing activities (581,006) (218,838) (323,005)
------------ ------------ ------------
Cash flows from financing activities:
Exercise of stock options 42,500 70,782 121,814
Purchase of treasury stock (657,703) (481,946) (55,598)
Net borrowings (repayments) on notes payable to bank
2,155,107 (287,890) 344,888
Principal payments on capital lease obligations - (4,719) (3,539)
------------ ------------ ------------
Net cash provided by (used in) financing activities 1,539,904 (703,773) 407,565
------------ ------------ ------------
Net (decrease) increase in cash (105,579) 265,140 (21,459)
Cash at beginning of year 415,867 150,727 172,186
------------ ------------ ------------
Cash at end of year $ 310,288 $ 415,867 $ 150,727
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
ABATIX ENVIRONMENTAL CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
(a) General
Abatix Environmental Corp. ("Abatix") and subsidiary
(collectively, the "Company") market and distribute personal
protection and safety equipment and durable and nondurable
supplies predominantly, based on revenues, to the asbestos
abatement industry. The Company also supplies these products to
the industrial safety and hazardous materials industries and,
combined with tools and tool supplies, to the construction
industry. At December 31, 1996, the Company operated eight
distribution centers in six states. The Company discontinued the
sorbent manufacturing business of its wholly owned subsidiary,
International Enviroguard Systems, Inc. ("IESI"), a Delaware
corporation, in December 1994 (see note 2). However, IESI
continues to import disposable products sold primarily through the
Company's distribution channels.
The preparation of financial statements in conformity with
generally accepted accounting principles 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 revenues and expenses during the reporting
period. Actual results could differ from those estimates.
The accompanying consolidated financial statements include the
accounts of Abatix and IESI. All significant intercompany accounts
and transactions have been eliminated in consolidation.
(b) Inventories
Inventories consist of materials and equipment for resale and are
stated at the lower of cost, determined by a method which
approximates the first-in, first-out method, or market.
(c) Property and Equipment
Property and equipment are stated at cost. Depreciation for
financial statement purposes is provided by the straight-line
method over the estimated useful lives of the depreciable
properties.
(d) Revenue Recognition
Revenue is recognized when the goods are shipped.
F-7
<PAGE>
(e) Earnings (Loss) per Common and Common Equivalent Share
Earnings (loss) per share is calculated using the weighted average
number of common and, when dilutive, common equivalent shares
outstanding during each year. Common equivalent shares are
comprised of dilutive stock options and warrants. Fully diluted
earnings per share are not presented as the effect is immaterial.
(f) Statements of Cash Flows
For purposes of the statements of cash flows, the Company
considers all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents. The
Company held no cash equivalents at December 31, 1996 or 1995.
The Company paid interest of $351,645, $263,707 and $263,850 in
1996, 1995 and 1994, respectively, and income taxes of $736,554,
$544,200 and $155,472 in 1996, 1995 and 1994, respectively.
Significant non-cash transactions include the transfer of accrued
compensation totaling $14,729 to additional paid-in capital upon
exercise of stock options during 1995.
(g) Income Taxes
The Company accounts for income taxes using the asset and
liability method. Under this method the Company records deferred
income taxes for the temporary differences between the financial
reporting basis and the tax basis of assets and liabilities at
enacted tax rates expected to be in effect when such amounts are
realized or settled. The resulting deferred tax liabilities and
assets are adjusted to reflect changes in tax laws or rates in the
period that includes the enactment date.
(h) Long-Lived Assets
On January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
Adoption of this Statement did not have a material impact on the
Company's financial position or results of operations.
F-8
<PAGE>
(i) Stock Option Plan
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("Statement 123"). Statement 123
allows entities to continue to apply the provisions of Accounting
Principles Board Opinion No. 25 ("Opinion 25") and provide pro
forma net income and pro forma earnings per share disclosures for
employee stock option grants made in 1995 and future years as if
the fair-value-based method defined in Statement 123 had been
applied. The Company has elected to continue to apply the
provisions of Opinion 25 and provide the pro forma disclosure
provisions of Statement 123.
(2) Restructuring
On December 15, 1994, the Company announced a formal plan to
discontinue the sorbent manufacturing business of IESI. The Company
recorded an estimated loss on disposal of IESI at December 31, 1994 of
$139,487, net of taxes. This estimated loss on disposal primarily
included costs related to the remaining lease obligation on the
facility, the writedown of fixed assets and inventory to net realizable
value and the estimated loss from operations up to the expected
disposal date. The sorbent manufacturing operations were actually
discontinued in 1995. Except for the remaining lease obligation
discussed below, actual costs through December 31, 1996 have
approximated management's December 1994 estimates. Sales for the
discontinued operations of IESI were $142,000 and $426,000 in 1995 and
1994, respectively.
In the third quarter of 1995, the Company incurred a special charge of
$80,000 to accrue for future lease commitments resulting from the
closure of its distribution center in Corpus Christi, Texas. The
noncancelable lease was to expire in September 1999. Sales for the
Corpus Christi branch were $294,000 and $140,000 in 1995 and 1994,
respectively. The Corpus Christi branch also had operating losses of
$55,000 and $17,000 in 1995 and 1994, respectively.
The Company's lease agreement on the building that was occupied by both
the operations of IESI and the Corpus Christi branch included an option
enabling the Company to purchase the building. In March 1996, the
Company purchased this facility and simultaneously sold the building to
a third party. This transaction terminated the Company's lease
obligation. Reversal of the liability for the remaining lease
obligation resulted in the special credit and earnings from
discontinued operations during 1996.
F-9
<PAGE>
(3) Property and Equipment
A summary of property and equipment at December 31, 1996 and 1995
follows:
<TABLE>
<CAPTION>
Estimated
Useful Life 1996 1995
-------------- ------------ ------------
<S> <C> <C> <C>
Furniture and equipment 5 - 10 years $ 1,592,568 $ 1,114,798
Transportation equipment 3 - 5 years 324,676 311,734
Leasehold improvements 3 - 5 years 54,609 53,650
------------ ------------
1,971,853 1,480,182
Less accumulated depreciation and
amortization 1,208,210 887,122
------------ ------------
Net property and equipment $ 763,643 $ 593,060
============ ============
</TABLE>
(4) Notes Payable to Bank
At December 31, 1996, the Company had two lines of credit with a bank
that are due on demand. A working capital facility allows the Company
to borrow up to 80 percent of the book value of eligible trade
receivables plus the lesser of 40 percent of eligible inventory or
$1,500,000, up to a maximum of $5,500,000. Under this formula, the
Company had the capability to borrow $5,108,000 at December 31, 1996,
of which $4,596,000 ($2,425,000 in 1995) was used. A capital equipment
facility provides for individual borrowings, aggregating up to
$550,000, at 80 percent of the purchased equipment's cost. At December
31, 1996, the Company had borrowed $191,000 ($206,000 in 1995) on this
facility. Each borrowing under the capital equipment line is due on the
earlier of demand or in terms ranging from thirty-six to sixty monthly
installments of principal and interest. During 1995, the Company
negotiated a one-half of one percent reduction in its rate, thereby
reducing the rate of interest on its agreements to prime plus one-half
of one percent. As of December 31, 1996 and 1995, the Company's rate of
interest on these agreements was 8.75 percent and 9 percent,
respectively. These credit facilities are secured by accounts
receivable, inventory and equipment.
The Company's notes payable to bank contain certain financial
covenants. These notes require the Company maintain a minimum net
worth, which increases each year through 1997, and maintain minimum net
income levels through 1997.
F-10
<PAGE>
(5) Income Taxes
<TABLE>
<CAPTION>
Income tax expense (benefit) for the years ended December 31, 1996, 1995 and 1994 consists of:
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Continuing Operations:
Current:
Federal $ 413,759 $ 542,681 $ 320,141
State 72,083 96,233 75,386
Deferred:
Federal (23,775) (120,240) (2,318)
State (1,126) (25,160) (525)
------------ ------------ ------------
Income tax expense related
to continuing operations 460,941 493,514 392,684
Discontinued operations:
Current (9,038) (41,224) (117,760)
Deferred 17,386 41,224 (79,619)
------------ ------------ ------------
Total income tax expense $ 469,289 $ 493,514 $ 195,305
============ ============ ============
</TABLE>
A reconciliation of the normally expected federal income tax expense
relating to continuing operations based on the U.S. corporate income
tax rate of 34 percent to actual expense for the years ended December
31, 1996, 1995 and 1994 follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Expected income tax expense $ 406,417 $ 444,343 $ 330,784
Nondeductible meals and entertainment
expense 13,047 7,232 6,089
State income taxes, net of related federal
tax benefit 46,832 46,908 49,408
Other (5,355) (4,969) 6,403
------------ ------------ ------------
Actual income tax expense relating to
continuing operations $ 460,941 $ 493,514 $ 392,684
============ ============ ============
</TABLE>
F-11
<PAGE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31,
1996 and 1995 follow:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts $ 143,830 $ 132,188
Accrual for loss on branch closure - 28,076
Accrual for loss on the discontinued
operations - 20,393
Property and equipment, principally due to
differences in depreciation 80,168 39,657
Other 11,790 -
------------ ------------
Total gross deferred tax assets 235,788 220,314
Deferred tax liabilities:
Prepaid expenses (51,897) (43,938)
------------ ------------
Net deferred tax asset $ 183,891 $ 176,376
============ ============
</TABLE>
Management has determined, based on the Company's history of prior
operating earnings and its expectations for the future, that operating
earnings will more likely than not be sufficient to realize the benefit
of the deferred tax assets. Accordingly, the Company has not provided a
valuation allowance for deferred tax assets.
(6) Stockholders' Equity
In 1994, the Company adopted a stock option plan (the "Plan") pursuant
to which the Company's Board of Directors may grant stock options to
officers and key employees. The Plan authorized grants of up to 140,000
shares of authorized but unissued common stock. Stock options are
granted with an exercise price equal to or greater than the stock's
fair market value at the date of grant.
At December 31, 1996, there were no additional shares available for
grant under the Plan. The per share weighted average fair value of
stock options granted during 1996 and 1995 was $1.14 and $1.24 on the
date of grant using the Black Scholes option-pricing model with the
following weighted-average assumptions: 1996 - expected dividend yield
of 0%, risk-free interest rate of 7.0% and an expected life ranging
from one to two years; 1995 - expected dividend yield 0%, risk-free
interest rate of 7.0%, and an expected life of one year.
The Company applied Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock
options in the financial statements. Had the Company determined
compensation cost based on the fair value at the grant date for its
stock options under Statement 123, the effect on the Company's net
income and earnings per share for 1996 and 1995 would not be material.
F-12
<PAGE>
The options outstanding at December 31, 1996 expire at various dates
between February 12, 1997 and December 31, 1997 and have exercise
prices between $2.75 and $3.875.
Number of Weighted
Shares Average
Under Price Per
Option Share
---------- ----------
Outstanding at December 31, 1993 25,396 $ 0.50
Granted 150,000 2.55
Exercised (3,830) 0.50
----------
Outstanding at December 31, 1994 171,566 2.29
Granted 20,000 2.63
Exercised (46,566) 1.52
----------
Outstanding at December 31, 1995 145,000 2.71
Granted 7,500 3.88
Exercised (15,000) 2.83
Expired (70,000) 2.46
----------
Outstanding at December 31, 1996 67,500 3.06
==========
Shares exercisable:
December 31, 1994 51,566 $ 1.52
December 31, 1995 75,000 2.50
December 31, 1996 67,500 3.06
F-13
<PAGE>
The Company granted to various consultants warrants to purchase shares
of common stock as part of an agreement to secure their services. These
warrants were granted with exercise prices equal to or greater than the
fair market value of the Company's common stock on the date of grant
and were exercisable immediately. The activity of the warrants granted
to various consultants is summarized in the following table:
Weighted
Average
Number of Price Per
Shares Share
---------- ----------
Outstanding at December 31, 1993 60,000 $ 3.58
Granted 50,000 2.63
Exercised (40,000) 2.94
----------
Outstanding at December 31, 1994 70,000 3.02
Expired (10,000) 3.50
Canceled (50,000) 2.63
----------
Outstanding at December 31, 1995 10,000 4.50
Expired (10,000) 4.50
----------
Outstanding at December 31, 1996 - -
==========
The Board of Directors has approved the repurchase of 476,500 shares of
the Company's common stock in the open market. The Company has
purchased 392,750 shares of stock since November 1994, including
185,650 shares of stock during 1996.
(7) Benefit Plans
The Company has a 401(k) profit sharing plan. Under the 401(k) plan,
eligible employees may request the Company to deduct and contribute a
portion of their salary to the plan. The Company may also, at its
discretion, match a portion of employee contributions to the plan.
Contributions by the Company to the 401(k) plan aggregated $46,549,
$51,358 and $25,657 during 1996, 1995 and 1994, respectively.
(8) Major Customers and Credit Risk
The Company's sales, substantially all of which are on an unsecured
credit basis, are to various customers from its distribution centers in
Texas, California, Arizona, Colorado, Washington and Nevada. The
Company evaluates credit risks on an individual basis before extending
credit to its customers and it believes the allowance for doubtful
accounts adequately provides for loss on uncollectible accounts.
F-14
<PAGE>
Through an acquisition in the third quarter 1996, two of the Company's
customers in the asbestos abatement industry came under common
ownership, although they both remain separate legal entities. As of
December 31, 1996 and 1995, 16% and 2%, respectively, of the trade
accounts receivable before allowances were represented by these two
customers. Additionally, a change in management of the acquired entity
delayed funding on a newly established banking line of credit, thereby
slowing payments to Abatix. Currently, the Company is working closely
with its customers and anticipates payment of the entire balance. Sales
to these two companies represented less than 4% of total sales for
1996.
During 1996, 1995 and 1994, no single customer accounted for more than
10 percent of sales.
(9) Fair Value of Financial Instruments
The reported amounts of financial instruments such as cash, accounts
receivable, accounts payable and accrued expenses approximate fair
value because of their short maturity. The carrying value of notes
payable to bank approximates fair value because these instruments bear
interest at current market rates.
(10) Commitments and Contingencies
The Company leases warehouse and office facilities under long-term
noncancelable operating leases. The following is a schedule of future
minimum lease payments under these leases as of December 31, 1996:
1997 $ 420,763
1998 365,166
1999 153,665
2000 43,220
Thereafter -
----------
$ 982,814
==========
Rental expense for continuing operations under operating leases for the
years ended December 31, 1996, 1995 and 1994 was $491,374, $341,949 and
$320,867, respectively. Rental expense for discontinued operations
under operating leases for the years ended December 31, 1995 and 1994
was $16,479 and $35,600, respectively.
F-15
<PAGE>
The Company has employment agreements with four key employees. The
agreements provide for minimum aggregate cash compensation as follows:
1997 $ 527,700
1998 440,100
1999 81,725
------------
$ 1,049,525
============
The Company was named as a defendant in two product liability lawsuits,
one of which also asserts wrongful death. The Company has requested in
both cases (1) indemnification under the manufacturer's product
liability insurance and (2) legal representation at the cost of the
manufacturer. At this time, the Company does not anticipate any
material impact on its financial statements as a result of either of
these cases.
F-16
<PAGE>
Schedule II
ABATIX ENVIRONMENTAL CORP. AND SUBSIDIARY
Valuation and Qualifying Accounts
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Additions
Balance at charged to Balance at
beginning costs and at end
of year expenses Deductions of year
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Year ended December 31:
Allowance for Doubtful Accounts:
1996 $ 343,750 196,772 164,405 A 376,117
========== ========== ========== ==========
1995 $ 169,776 221,769 47,795 A 343,750 B
========== ========== ========== ==========
1994 $ 87,811 205,460 123,495 A 169,776 B
========== ========== ========== ==========
Reserve for Loss on Discontinuance of
Business:
1996 $ 54,050 - 54,050 C -
========== ========== ========== ==========
1995 $ 193,344 - 139,294 D 54,050 E
========== ========== ========== ==========
1994 $ - 211,344 F 18,000 G 193,344
========== ========== ========== ==========
Reserve for Loss on Closure of Branch
Location:
1996 $ 72,298 - 72,298 C -
========== ========== ========== ==========
1995 $ - 80,000 7,702 H 72,298
========== ========== ========== ==========
</TABLE>
A Represents the write-off of uncollectible accounts.
B Amounts include the allowance for doubtful accounts related to the
Company's discontinued operations, which had balances of $7,264 and $6,543
at December 31, 1995 and 1994, respectively.
C Primarily represents the reversal of the reserves due to the termination
of the Company's lease obligation. See Note 2 to the consolidated
financial statements.
D Represents the losses from operations, the loss on sale of fixed assets
and the payment of lease obligations.
E The balance is included in the net liabilities of discontinued operations
on the consolidated balance sheet.
F Represents the reserve established in December 1994 related to the
discontinued operations. See note 2 to
the consolidated financial statements.
G Cash settlement in exchange for release from the lease on one of the
properties related to the discontinued operations. See note 2 to the
consolidated financial statements.
H Amount is primarily the payment of lease obligations.
F-17
EMPLOYMENT AGREEMENT
THIS AGREEMENT is entered into as of the 31st day of December, 1996 between
ABATIX ENVIRONMENTAL CORP. ("Employer") and TERRY W. SHAVER ("Executive").
PRELIMINARY STATEMENT
Employer is a Delaware corporation with its principle place of business
in Dallas, Texas. Employer is engaged in the sale and distribution of personal
protection and safety equipment and durable and nondurable supplies to the
asbestos abatement, industrial safety and hazardous materials industries.
Executive has substantial business experience and related business skills which
can be utilized in Employer's business. Employer desires to employ Executive
upon the terms and conditions hereinafter set forth, and the Executive desires
to accept such employment. Employer and Executive desire to set forth in writing
the terms and conditions of their agreements and understandings.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, and other good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto, intending to be
legally bound, hereby agree as follows:
I. DEFINITIONS
A. Executive. The term "Executive" as used herein shall mean TERRY W. SHAVER.
B. Annual Salary. For purposes of this Agreement, the term "Annual Salary" shall
mean the compensation payable to Executive as provided for in Section VI (A)
hereof.
C. Disabled. For purposes of this Agreement, Executive shall be deemed to be
"disabled" when, in the reasonable judgment of the Employer, he is unable to
perform substantially all of the duties by reason of him in connection with his
employment hereunder required of physical or mental illness or of injury for
ninety (90) consecutive days.
D. Cause. For purposes of this Agreement, the term "cause" is defined to include
the conviction by a court of law for acts of moral turpitude of Executive or
fraud of Executive relating to the business of the Employer; bankruptcy or
insolvency of the Executive if, in such an event, Executive is unable to perform
substantially all of the duties required of him as described in Section V of
this Agreement; the determination that Executive has become disabled as
described herein; material breach by Executive of the terms and conditions of
this Employment Agreement, or Executive's refusal to follow Employer's
reasonable orders and directions in connection with the performance of
Executive's duties as described in Section V of this Agreement, or any act or
action of executive which materially damages the business interests, reputation
or goodwill of Employer.
II. EMPLOYMENT
Employer hereby employs Executive, and Executive hereby accepts
employment by the Employer upon all the terms and conditions as are hereinafter
set forth.
III. TERM
Subject to the provisions for termination, pursuant to Section XIII
hereof, the term of this Employment Agreement shall commence as of January 1,
1997 and shall terminate on December 31, 1998 (the "Employment Term").
IV. EXECUTIVE'S REPRESENTATION AND WARRANTIES
Executive represents and warrants to Employer that he is free to accept
employment with Employer as contemplated herein, and he has no other prior
obligation or commitments of any kind to anyone which would in any way interfere
with his acceptance, or the full performance of his obligations, under this
Agreement, or the exercise of his best efforts to his employment hereunder.
<PAGE>
V. DUTIES AND EXTENT OF SERVICE
A. Efforts. Executive agrees to devote such working time, energy,
knowledge, and efforts as Employer deems necessary to the performance and
discharge of Executive's duties and responsibilities hereunder and such other
reasonable duties and responsibilities as are assigned to him from time to time
by the Board of Directors of Employer. Executive's duties hereunder shall be
performed at the business offices of Employer, but may also be performed at the
business offices of Employer, but may also be performed at such other places as
may be designated by Employer.
B. Position and Responsibilities. The Executive shall serve as
Executive Vice President and Chief Operating Officer of Employer, with such
duties as are assigned to him by the Board of Directors of Employer consistent
with his status and capacity as an executive of Employer. Following the term of
this Agreement, Employer and Executive shall negotiate in good faith the terms
of renewal hereof.
VI. COMPENSATION
As his entire compensation for services rendered to the Employer during
the Employment Term, in whatever capacity rendered, the Executive shall receive:
A. Annual Salary. Minimum Annual Salary shall be at an annual rate of
$150,000 payable semi-monthly and continuing until termination of Executive's
employment.
B. Bonus. Executive may receive such incentive bonus compensation, if any,
as the Board of Directors shall deem appropriate.
C. Automobile. Employer shall provide Executive an automobile, and provide
all expenses and repairs to such auto.
D. Fringe Benefits. Employer shall provide Executive with normal fringe
benefits provided to its senior executive personnel including a medical program,
automobile, term life insurance, keyman disability, corporate country club
membership and such other fringe benefits as Employer may determine from time to
time. Health benefits for the Executive and his dependents are to be paid by
Employer.
E. Termination Benefits. Employer shall pay Executive semi-monthly his
standard salary for a period of up to ninety (90) days, not to exceed the
termination date of this Agreement, following termination of Executive's
employment hereunder, for reasons other than disability.
VII. DEDUCTIONS
Deductions shall be made from Executive's total annual compensation and
any bonuses for withholding tax and other such taxes as may from time to time be
required by governmental authority.
VIII. EXPENSES
Executive is expected, from time to time, to incur reasonable
entertainment, travel and other expenses for promoting the business of Employer
which will be reimbursed by Employer. Reimbursement for such expenses however
shall be subject to such regulations and procedures as the Employer may from
time to time establish.
IX. FACILITIES
Employer shall provide and maintain such facilities, equipment and
supplies as it deems necessary for the Executive's performance of his duties
under this Employment Agreement.
X. EMPLOYER RECORDS
All books, records and documents relating to Employer's business shall
be the sole and permanent property of the Employer. An employee shall not be
entitled to retain any copies thereof, notwithstanding his participation
therein.
Unless required by service of legal process, no other Employer records
shall be displaced or delivered to, or any information therefrom displaced or
delivered to, or any information therefrom disclosed, to any person not
connected with the Employer except in strict accordance with the rules of the
Employer from time to time established. Employer shall provide Executive
reasonable access to all personnel records relating to Executive's employment
hereunder.
<PAGE>
XI. VACATION
During the term of this Employment Agreement, Executive shall be
entitled to four (4) weeks of annual vacation.
XII. STANDARDS
The Executive shall perform his duties under this Agreement in
accordance with the highest standards of professional ethics and practices as
may from time to time be applicable during the Employment Term.
XIII. TERMINATION OF EMPLOYMENT
A. Events of Termination. The Employment Term may, at the option of the
Board of Directors of the Employer, be terminated upon the happening of any of
the following events:
(1) Whenever the Executive accepts (without having obtained the prior
written consent of Employer) employment with any other company.
(2) Whenever the Executive shall become, without having obtained the prior
written consent of the Employer, a holder of five (5%) percent of the issued and
outstanding Common Stock of a competitor of the Employer, a director of a
competitor of Employer, or an officer, agent, or employee of any other company.
(3) Whenever the Executive and the Employer shall mutually agree in writing
to terminate this Agreement.
(4) At Employer's option at any time for cause, as that term is defined in
Section I.(D) hereof.
(5) If Executive shall suffer a disability as that term is defined in
Section I.(C) hereof provided that Executive shall be entitled to 30 days notice
prior to such termination.
B. Notice of Termination. The Employment Term, may upon 30 days notice at
the option of the Executive, be terminated upon the happening of any of the
following events:
(1) Whenever the Executive and the Employer shall mutually agree in writing
to terminate this Agreement.
(2) Acts of material breach of any provision of this Agreement.
C. Amounts Due Executive/Employer. Within sixty (60) days of termination of
this Agreement for whatever reason, all amounts owing to either party will be
due and payable in full.
XIV. DISCLOSURE OF INFORMATION
Executive acknowledges that, in and as a result of his employment
hereunder, he will be making use of, acquiring and/or adding to confidential or
proprietary information developed by Employer and of a special and unique nature
and value to Employ- Employer, including, but not limited to, the nature and
material terms of business opportunities and proposals available to Employer,
Employer's products, methods, systems and research, the names and addresses of
its customers and suppliers, prices charges and paid by Employer or its
customers, designs and specifications, record cards, customers' and suppliers'
records, customer files, services, operating procedures, methods and systems,
financial records of the Employer and of customers, and other information, data,
and documents now existing or later acquired by Executive or Employer,
regardless of whether any such information, data or documents, qualify as a
"trade secret" under applicable Federal or State law (collectively, the
"Confidential Information"). As a material inducement to Employer to enter into
this Agreement, and to pay to Executive the compensation referred to in Section
VI hereof, along with other considerations provided herein, Executive covenants
and agrees that he shall not at any time during the Employment Term or following
any termination thereof, directly or indirectly, divulge or disclose or use for
any purpose whatsoever (except for the sole and exclusive benefit of Employer,
as reasonably required in connection with his duties to or as otherwise required
by law), any Confidential Information which has been obtained by or disclosed to
him as a result of his employment with Employer. In accordance with the
foregoing, the Executive further agrees that he will at no time retain or remove
from the premises of the Employer records of any kind or description whatsoever
for any purpose whatsoever unless authorized by Employer, and will return all of
the foregoing to Employer upon Employer's request or any termination of his
employment. In the event of a breach or threatened breach by the Executive of
any of the provisions of this Section XIV, Employer, in addition to and not in
limitation of any other rights, remedies, or damages available to Employer at
law or in equity, shall be entitled to a permanent injunction in order to
<PAGE>
prevent or to restrain any such breach by Executive, or by Executive's partners,
agents, representatives, servants, employers, employees and/or any and all
persons directly or indirectly acting for or with him.
XV. COVENANT AGAINST COMPETITION
A. Executive acknowledges that his services to be rendered hereunder
are of a special and unusual character which have a unique value to Employer,
the loss of which cannot adequately be compensated by damages in an action at
law. In view of the unique value to Employer of the services of Executive for
which Employer has contracted hereunder, and because of the Confidential
Information to be obtained by or disclosed to Executive as herein above set
forth, and as a material inducement to Employer to enter into this Employment
Agreement and to pay to Executive the compensation referred to in Section VI
hereof and other consideration provided herein, Executive covenants and agrees
that he will not during the term hereof and for a period of twelve (12) months
from the date of termination of this Agreement for any reason (i) engage,
directly or indirectly, in any business directly competitive with the asbestos
abatement industrial safety or hazardous material remediation supply business of
Employer (the "Activities") in any area within the states that the Company
presently is conducting business or subsequently is conducting business at the
time of the termination of this Agreement; (ii) call upon any customer or
customers of the Employer for the purposes of engaging in any activities for any
person, corporation, or entity other than Employer competitive with the
Activities of the Employer; or (iii) divert, solicit or take away any customer
or customers of the Employer for the purpose of engaging in any activities
competitive with the Activities of the Employer.
B. Executive covenants and agrees that if he shall violate any of his
covenants or agreements provided for pursuant to this Section, Employer shall be
entitled to an accounting and repayment of all profits, compensation,
commissions, remuneration, or benefits which Executive, directly or indirectly,
has realized and/or may realize as a result of, growing out of, or in connection
with any such violation; such remedy shall be in addition to and not in
limitation of any injunctive relief or other rights or remedies to which
Employer may be entitled to at law or in equity or under this Employment
Agreement.
XVI. REASONABLENESS OF RESTRICTIONS
A. Executive has carefully read and considered the provisions of
Section XIV and XV hereof, and having done so, agrees the restrictions set forth
in such Sections (including, but not limited to, the time period of restriction
and the geographical areas of restriction set forth in Section XV hereof) are
fair and reasonable and are reasonably required for the protection of the
interests of the Employer, its officers, directors, and other employees.
B. In the event that, notwithstanding the foregoing, any of the
provisions of Sections XIV and XV shall be held to be invalid or unenforceable,
the remaining provisions thereof shall nevertheless continue to be valid and
enforceable as though invalid or unenforceable parts had not been included
therein. In the event that any provision of Section XV hereof relating to time
period and/or areas of restriction shall be declared by a court of competent
jurisdiction to exceed the maximum time period or areas such court deems
reasonable and enforceable, said time period and/or areas of restriction shall
be deemed to become, and thereafter be, the maximum time period and/or area
which such court deems reasonable and enforceable.
XVII. APPLICABLE LAW; SEVERABILITY
This Agreement shall be governed by and construed pursuant to the laws
of the State of Texas, where it is made and executed. If any terms or part of
this Agreement shall be determined to be invalid, illegal, or unenforceable in
whole or in part, the validity of the remaining part of such term or the
validity of any other term of this Agreement shall not in any way be affected.
All provisions of this Agreement shall be construed to be valid and enforceable
to the full extent permitted by law.
XVIII. NOTICE
Any notices required or permitted to be given pursuant to this
Agreement to the Employer or Executive shall be in writing and shall be deemed
given upon deposit of same in the U.S., certified mail or registered mail,
return receipt requested, first class postage and registration fees prepaid, and
addressed to the principle office of Employer and the most recent address of
Executive shown in the Employer's records, respectively, or such other addresses
as is most recently designated for the respective parties by notice given as
aforesaid.
<PAGE>
XIV. BINDING PROVISIONS AND PERFORMANCE
This Agreement shall inure to the benefit of and be binding upon the
parties hereto, and all such parties agree to be bound by the provisions
contained herein.
XX. AMENDMENT
No amendment or variation of the terms of this Employment Agreement
shall be valid made in writing and signed by the parties hereto.
XXI. ENTIRE EMPLOYMENT AGREEMENT
This Employment Agreement represents the entire agreement between the
parties hereto with respect to the subject matter hereof.
XXII. WAIVER OF VIOLATION NOT CONTINUING
The waiver by either party of a breach or violation of any provision of
this Agreement shall not operate as or be construed to be a waiver of any
subsequent breach.
XXIII. ASSIGNMENT
This Agreement is personal to each of the parties hereto. Employer may
not assign its rights and obligations hereunder without the prior written
consent of Executive.
XIV. HEADINGS AND GENDER
The paragraph headings used in this Agreement are included solely for
convenience and shall not affect, or be used in connection with, the
interpretation of this Agreement. All references to him or her shall be deemed
reference to the Executive regardless of gender.
XXV. COUNTERPARTS
This Employment Agreement may be executed in multiple counterparts,
each of which shall be an original, but all of which shall be deemed to
constitute one instrument.
In WITNESS WHEREOF, the undersigned have hereunto set their hands and
seals on the day and year first above written.
ABATIX ENVIRONMENTAL CORP.
By:/s/ Gary L. Cox
Authorized Signatory
By:/s/ Terry W. Shaver
Terry W. Shaver
EMPLOYMENT AGREEMENT
THIS AGREEMENT is entered into as of the 31st day of December, 1996 between
ABATIX ENVIRONMENTAL CORP. ("Employer") and GARY L. COX ("Executive").
PRELIMINARY STATEMENT
Employer is a Delaware corporation with its principle place of business
in Dallas, Texas. Employer is engaged in the sale and distribution of personal
protection and safety equipment and durable and nondurable supplies to the
asbestos abatement, industrial safety and hazardous materials industries.
Executive has substantial business experience and related business skills which
can be utilized in Employer's business. Employer desires to employ Executive
upon the terms and conditions hereinafter set forth, and the Executive desires
to accept such employment. Employer and Executive desire to set forth in writing
the terms and conditions of their agreements and understandings.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, and other good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto, intending to be
legally bound, hereby agree as follows:
I. DEFINITIONS
A. Executive. The term "Executive" as used herein shall mean GARY L. COX.
B. Annual Salary. For purposes of this Agreement, the term "Annual Salary"
shall mean the compensation payable to Executive as provided for in Section VI
(A) hereof.
C. Disabled. For purposes of this Agreement, Executive shall be deemed to
be "disabled" when, in the reasonable judgment of the Employer, he is unable to
perform substantially all of the duties by reason of him in connection with his
employment hereunder required of physical or mental illness or of injury for
ninety (90) consecutive days.
D. Cause. For purposes of this Agreement, the term "cause" is defined to
include the conviction by a court of law for acts of moral turpitude of
Executive or fraud of Executive relating to the business of the Employer;
bankruptcy or insolvency of the Executive if, in such an event, Executive is
unable to perform substantially all of the duties required of him as described
in Section V of this Agreement; the determination that Executive has become
disabled as described herein; material breach by Executive of the terms and
conditions of this Employment Agreement, or Executive's refusal to follow
Employer's reasonable orders and directions in connection with the performance
of Executive's duties as described in Section V of this Agreement, or any act or
action of executive which materially damages the business interests, reputation
or goodwill of Employer.
II. EMPLOYMENT
Employer hereby employs Executive, and Executive hereby accepts
employment by the Employer upon all the terms and conditions as are hereinafter
set forth.
III. TERM
Subject to the provisions for termination, pursuant to Section XIII
hereof, the term of this Employment Agreement shall commence as of January 1,
1997 and shall terminate on December 31, 1998 (the "Employment Term").
IV. EXECUTIVE'S REPRESENTATION AND WARRANTIES
Executive represents and warrants to Employer that he is free to accept
employment with Employer as contemplated herein, and he has no other prior
obligation or commitments of any kind to anyone which would in any way interfere
with his acceptance, or the full performance of his obligations, under this
Agreement, or the exercise of his best efforts to his employment hereunder.
<PAGE>
V. DUTIES AND EXTENT OF SERVICE
A. Efforts. Executive agrees to devote such working time, energy,
knowledge, and efforts as Employer deems necessary to the performance and
discharge of Executive's duties and responsibilities hereunder and such other
reasonable duties and responsibilities as are assigned to him from time to time
by the Board of Directors of Employer. Executive's duties hereunder shall be
performed at the business offices of Employer, but may also be performed at the
business offices of Employer, but may also be performed at such other places as
may be designated by Employer.
B. Position and Responsibilities. The Executive shall serve as
Executive Vice President and Chief Operating Officer of Employer, with such
duties as are assigned to him by the Board of Directors of Employer consistent
with his status and capacity as an executive of Employer. Following the term of
this Agreement, Employer and Executive shall negotiate in good faith the terms
of renewal hereof.
VI. COMPENSATION
As his entire compensation for services rendered to the Employer during
the Employment Term, in whatever capacity rendered, the Executive shall receive:
A. Annual Salary. Minimum Annual Salary shall be at an annual rate of
$150,000 payable semi-monthly and continuing until termination of Executive's
employment.
B. Bonus. Executive may receive such incentive bonus compensation, if any,
as the Board of Directors shall deem appropriate.
C. Automobile. Employer shall provide Executive an automobile, and provide
all expenses and repairs to such auto.
D. Fringe Benefits. Employer shall provide Executive with normal fringe
benefits provided to its senior executive personnel including a medical program,
automobile, term life insurance, keyman disability, corporate country club
membership and such other fringe benefits as Employer may determine from time to
time. Health benefits for the Executive and his dependents are to be paid by
Employer.
E. Termination Benefits. Employer shall pay Executive semi-monthly his
standard salary for a period of up to ninety (90) days, not to exceed the
termination date of this Agreement, following termination of Executive's
employment hereunder, for reasons other than disability.
VII. DEDUCTIONS
Deductions shall be made from Executive's total annual compensation and
any bonuses for withholding tax and other such taxes as may from time to time be
required by governmental authority.
VIII. EXPENSES
Executive is expected, from time to time, to incur reasonable
entertainment, travel and other expenses for promoting the business of Employer
which will be reimbursed by Employer. Reimbursement for such expenses however
shall be subject to such regulations and procedures as the Employer may from
time to time establish.
IX. FACILITIES
Employer shall provide and maintain such facilities, equipment and
supplies as it deems necessary for the Executive's performance of his duties
under this Employment Agreement.
X. EMPLOYER RECORDS
All books, records and documents relating to Employer's business shall
be the sole and permanent property of the Employer. An employee shall not be
entitled to retain any copies thereof, notwithstanding his participation
therein.
Unless required by service of legal process, no other Employer records
shall be displaced or delivered to, or any information therefrom displaced or
delivered to, or any information therefrom disclosed, to any person not
connected with the Employer except in strict accordance with the rules of the
Employer from time to time established. Employer shall provide Executive
reasonable access to all personnel records relating to Executive's employment
hereunder.
<PAGE>
XI. VACATION
During the term of this Employment Agreement, Executive shall be
entitled to four (4) weeks of annual vacation.
XII. STANDARDS
The Executive shall perform his duties under this Agreement in
accordance with the highest standards of professional ethics and practices as
may from time to time be applicable during the Employment Term.
XIII. TERMINATION OF EMPLOYMENT
A. Events of Termination. The Employment Term may, at the option of the
Board of Directors of the Employer, be terminated upon the happening of any of
the following events:
(1) Whenever the Executive accepts (without having obtained the prior
written consent of Employer) employment with any other company.
(2) Whenever the Executive shall become, without having obtained the prior
written consent of the Employer, a holder of five (5%) percent of the issued and
outstanding Common Stock of a competitor of the Employer, a director of a
competitor of Employer, or an officer, agent, or employee of any other company.
(3) Whenever the Executive and the Employer shall mutually agree in writing
to terminate this Agreement.
(4) At Employer's option at any time for cause, as that term is defined in
Section I.(D) hereof.
(5) If Executive shall suffer a disability as that term is defined in
Section I.(C) hereof provided that Executive shall be entitled to 30 days notice
prior to such termination.
B. Notice of Termination. The Employment Term, may upon 30 days notice at
the option of the Executive, be terminated upon the happening of any of the
following events:
(1) Whenever the Executive and the Employer shall mutually agree in writing
to terminate this Agreement.
(2) Acts of material breach of any provision of this Agreement.
C. Amounts Due Executive/Employer. Within sixty (60) days of termination of
this Agreement for whatever reason, all amounts owing to either party will be
due and payable in full.
XIV. DISCLOSURE OF INFORMATION
Executive acknowledges that, in and as a result of his employment
hereunder, he will be making use of, acquiring and/or adding to confidential or
proprietary information developed by Employer and of a special and unique nature
and value to Employ- Employer, including, but not limited to, the nature and
material terms of business opportunities and proposals available to Employer,
Employer's products, methods, systems and research, the names and addresses of
its customers and suppliers, prices charges and paid by Employer or its
customers, designs and specifications, record cards, customers' and suppliers'
records, customer files, services, operating procedures, methods and systems,
financial records of the Employer and of customers, and other information, data,
and documents now existing or later acquired by Executive or Employer,
regardless of whether any such information, data or documents, qualify as a
"trade secret" under applicable Federal or State law (collectively, the
"Confidential Information"). As a material inducement to Employer to enter into
this Agreement, and to pay to Executive the compensation referred to in Section
VI hereof, along with other considerations provided herein, Executive covenants
and agrees that he shall not at any time during the Employment Term or following
any termination thereof, directly or indirectly, divulge or disclose or use for
any purpose whatsoever (except for the sole and exclusive benefit of Employer,
as reasonably required in connection with his duties to or as otherwise required
by law), any Confidential Information which has been obtained by or disclosed to
him as a result of his employment with Employer. In accordance with the
foregoing, the Executive further agrees that he will at no time retain or remove
from the premises of the Employer records of any kind or description whatsoever
for any purpose whatsoever unless authorized by Employer, and will return all of
the foregoing to Employer upon Employer's request or any termination of his
employment. In the event of a breach or threatened breach by the Executive of
any of the provisions of this Section XIV, Employer, in addition to and not in
limitation of any other rights, remedies, or damages available to Employer at
law or in equity, shall be entitled to a permanent injunction in order to
<PAGE>
prevent or to restrain any such breach by Executive, or by Executive's partners,
agents, representatives, servants, employers, employees and/or any and all
persons directly or indirectly acting for or with him.
XV. COVENANT AGAINST COMPETITION
A. Executive acknowledges that his services to be rendered hereunder
are of a special and unusual character which have a unique value to Employer,
the loss of which cannot adequately be compensated by damages in an action at
law. In view of the unique value to Employer of the services of Executive for
which Employer has contracted hereunder, and because of the Confidential
Information to be obtained by or disclosed to Executive as herein above set
forth, and as a material inducement to Employer to enter into this Employment
Agreement and to pay to Executive the compensation referred to in Section VI
hereof and other consideration provided herein, Executive covenants and agrees
that he will not during the term hereof and for a period of twelve (12) months
from the date of termination of this Agreement for any reason (i) engage,
directly or indirectly, in any business directly competitive with the asbestos
abatement industrial safety or hazardous material remediation supply business of
Employer (the "Activities") in any area within the states that the Company
presently is conducting business or subsequently is conducting business at the
time of the termination of this Agreement; (ii) call upon any customer or
customers of the Employer for the purposes of engaging in any activities for any
person, corporation, or entity other than Employer competitive with the
Activities of the Employer; or (iii) divert, solicit or take away any customer
or customers of the Employer for the purpose of engaging in any activities
competitive with the Activities of the Employer.
B. Executive covenants and agrees that if he shall violate any of his
covenants or agreements provided for pursuant to this Section, Employer shall be
entitled to an accounting and repayment of all profits, compensation,
commissions, remuneration, or benefits which Executive, directly or indirectly,
has realized and/or may realize as a result of, growing out of, or in connection
with any such violation; such remedy shall be in addition to and not in
limitation of any injunctive relief or other rights or remedies to which
Employer may be entitled to at law or in equity or under this Employment
Agreement.
XVI. REASONABLENESS OF RESTRICTIONS
A. Executive has carefully read and considered the provisions of
Section XIV and XV hereof, and having done so, agrees the restrictions set forth
in such Sections (including, but not limited to, the time period of restriction
and the geographical areas of restriction set forth in Section XV hereof) are
fair and reasonable and are reasonably required for the protection of the
interests of the Employer, its officers, directors, and other employees.
B. In the event that, notwithstanding the foregoing, any of the
provisions of Sections XIV and XV shall be held to be invalid or unenforceable,
the remaining provisions thereof shall nevertheless continue to be valid and
enforceable as though invalid or unenforceable parts had not been included
therein. In the event that any provision of Section XV hereof relating to time
period and/or areas of restriction shall be declared by a court of competent
jurisdiction to exceed the maximum time period or areas such court deems
reasonable and enforceable, said time period and/or areas of restriction shall
be deemed to become, and thereafter be, the maximum time period and/or area
which such court deems reasonable and enforceable.
XVII. APPLICABLE LAW; SEVERABILITY
This Agreement shall be governed by and construed pursuant to the laws
of the State of Texas, where it is made and executed. If any terms or part of
this Agreement shall be determined to be invalid, illegal, or unenforceable in
whole or in part, the validity of the remaining part of such term or the
validity of any other term of this Agreement shall not in any way be affected.
All provisions of this Agreement shall be construed to be valid and enforceable
to the full extent permitted by law.
XVIII. NOTICE
Any notices required or permitted to be given pursuant to this
Agreement to the Employer or Executive shall be in writing and shall be deemed
given upon deposit of same in the U.S., certified mail or registered mail,
return receipt requested, first class postage and registration fees prepaid, and
addressed to the principle office of Employer and the most recent address of
Executive shown in the Employer's records, respectively, or such other addresses
as is most recently designated for the respective parties by notice given as
aforesaid.
<PAGE>
XIV. BINDING PROVISIONS AND PERFORMANCE
This Agreement shall inure to the benefit of and be binding upon the
parties hereto, and all such parties agree to be bound by the provisions
contained herein.
XX. AMENDMENT
No amendment or variation of the terms of this Employment Agreement
shall be valid made in writing and signed by the parties hereto.
XXI. ENTIRE EMPLOYMENT AGREEMENT
This Employment Agreement represents the entire agreement between the
parties hereto with respect to the subject matter hereof.
XXII. WAIVER OF VIOLATION NOT CONTINUING
The waiver by either party of a breach or violation of any provision of
this Agreement shall not operate as or be construed to be a waiver of any
subsequent breach.
XXIII. ASSIGNMENT
This Agreement is personal to each of the parties hereto. Employer may
not assign its rights and obligations hereunder without the prior written
consent of Executive.
XIV. HEADINGS AND GENDER
The paragraph headings used in this Agreement are included solely for
convenience and shall not affect, or be used in connection with, the
interpretation of this Agreement. All references to him or her shall be deemed
reference to the Executive regardless of gender.
XXV. COUNTERPARTS
This Employment Agreement may be executed in multiple counterparts,
each of which shall be an original, but all of which shall be deemed to
constitute one instrument.
In WITNESS WHEREOF, the undersigned have hereunto set their hands and
seals on the day and year first above written.
ABATIX ENVIRONMENTAL CORP.
By:/s/ Terry W. Shaver
Authorized Signatory
By:/s/ Gary L. Cox
Gary L. Cox
EXHIBIT 11
ABATIX ENVIRONMENTAL CORP. AND SUBSIDIARY
Computation Re Per Share Earnings
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Average shares outstanding:
Primary:
Common shares outstanding, beginning of period 2,159,214 2,293,248 2,275,918
Weighted average number of shares issued 11,243 22,932 36,995
Weighted average number of shares acquired (94,216) (108,724) (1,829)
Dilutive stock options and warrants, based on the treasury
stock method using average market prices 34,341 30,856 18,990
------------ ------------ ------------
Total 2,110,582 2,238,312 2,330,074
============ ============ ============
Fully Diluted:
Common shares outstanding, beginning of period 2,159,214 2,293,248 2,275,918
Weighted average number of shares issued 11,243 22,932 36,995
Weighted average number of shares acquired (94,216) (108,724) (1,829)
Dilutive stock options and warrants, based on the treasury
stock method using the market price at the end of the period
if higher than the average market prices 34,341 30,856 18,990
------------ ------------ ------------
Total 2,110,582 2,238,312 2,330,074
============ ============ ============
Earnings:
Earnings from continuing operations $ 734,403 $ 813,377 $ 580,209
Earnings (loss) from discontinued operations 21,545 - (363,233)
------------ ------------ ------------
Net earnings $ 755,948 $ 813,377 $ 216,976
============ ============ ============
Primary earnings per common and common equivalent share:
Earnings from continuing operations $ .35 $ .36 $ .25
Earnings (loss) from discontinued operations .01 - (.16)
------------ ------------ ------------
Net earnings $ .36 $ .36 $ .09
============ ============ ============
Fully diluted earnings per common and common equivalent share:
Earnings from continuing operations $ .35 $ .36 $ .25
Earnings (loss) from discontinued operations .01 - (.16)
------------ ------------ ------------
Net earnings $ .36 $ .36 $ .09
============ ============ ============
</TABLE>
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Abatix Environmental Corp.:
We consent to incorporation by reference in the registration statements (No.
33-63265) on Form S-8 of Abatix Environmental Corp. of our report dated March 6,
1997, relating to the consolidated balance sheets of Abatix Environmental Corp.
and subsidiary as of December 31, 1996 and 1995, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 1996, and the related
schedule, which report appears in the December 31, 1996, annual report on Form
10-K of Abatix Environmental Corp.
/s/KPMG Peat Marwick LLP
Dallas, Texas
March 20, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1996, AND THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 310,288
<SECURITIES> 0
<RECEIVABLES> 5,671,966
<ALLOWANCES> (376,117)
<INVENTORY> 3,440,557
<CURRENT-ASSETS> 9,721,992<F1>
<PP&E> 1,971,853
<DEPRECIATION> 1,208,210
<TOTAL-ASSETS> 10,677,972
<CURRENT-LIABILITIES> 6,219,449
<BONDS> 0
0
0
<COMMON> 2,381
<OTHER-SE> 4,456,142<F2>
<TOTAL-LIABILITY-AND-EQUITY> 10,677,972
<SALES> 33,066,831
<TOTAL-REVENUES> 33,066,831
<CGS> 23,864,836
<TOTAL-COSTS> 23,864,836
<OTHER-EXPENSES> 7,650,835<F3>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 355,816<F4>
<INCOME-PRETAX> 1,195,344
<INCOME-TAX> 460,941
<INCOME-CONTINUING> 734,403
<DISCONTINUED> 21,545<F5>
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 755,948
<EPS-PRIMARY> .36
<EPS-DILUTED> .36
<FN>
<F1> AMOUNT REPRESENTS TOTAL CURRENT ASSETS.
<F2> INCLUDES THE COST OF 392,750 OF COMMON SHARES IN TREASURY OF $1,195,247.
<F3> INCLUDES A SPECIAL CREDIT OF $56,711 FROM THE REVERSAL OF PREVIOUSLY
RECORDED CHANGES (SEE NOTE 2 TO THE CONSOLIDATED FINANCIAL STATEMENTS).
<F4> INCLUDES INTEREST EXPENSE OF $359,712, INTEREST INCOME OF $19,840 AND
OTHER EXPENSE OF $15,944.
<F5> AMOUNT REPRESENTS THE REVERSAL OF PREVIOUSLY RECORDED CHARGES (SEE
FOOTNOTE 2 TO THE CONSOLIDATED FINANCIAL STATEMENTS).
</FN>
</TABLE>
