SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Quarterly Report Under Section 13 and 15(d)
of the Securities Exchange Act of 1934
For the quarter ended September 30, 2000
Commission file number 1-10184
ABATIX CORP.
(Exact name of registrant as specified in its charter)
Delaware 75-1908110
--------------------------------------------- --------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification number)
8201 Eastpoint Drive, Suite 500
Dallas, Texas 75227
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 381-1146
--------------
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 requirements for the past 90 days.
Yes X No
----- -----
Common stock outstanding at November 13, 2000 was 1,711,148 shares.
<PAGE>
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<CAPTION>
ABATIX CORP. AND SUBSIDIARY
Consolidated Balance Sheets
September 30,
2000 December 31, 1999
Assets (Unaudited)
------
----------------- ------------------
<S> <C> <C>
Current assets:
Cash $ 243,463 $ 106,793
Trade accounts receivable, net of allowance for doubtful accounts of
$561,364 in 2000 and $616,678 in 1999 7,990,466 7,028,271
Inventories 5,448,998 5,393,355
Prepaid expenses and other assets 411,561 368,583
Refundable income taxes 171,224 87,986
Deferred income taxes 168,235 235,505
Notes receivable 50,000 -
----------------- ------------------
Total current assets 14,483,947 13,220,493
Receivables from officers and employees 1,470 7,750
Property and equipment, net 719,913 629,796
Deferred income taxes 160,632 144,916
Goodwill, net of accumulated amortization of $209,985 in 2000
and $91,751 in 1999 1,016,740 1,134,880
Other assets 59,522 66,973
----------------- ------------------
$ 16,442,224 $ 15,204,808
================= ==================
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Notes payable to bank $ 6,561,674 $ 5,825,721
Accounts payable 2,613,060 2,604,587
Accrued compensation 321,441 198,127
Other accrued expenses 335,121 542,959
----------------- ------------------
Total current liabilities 9,831,296 9,171,394
----------------- ------------------
Stockholders' equity:
Preferred stock - $1 par value, 500,000 shares authorized; none issued - -
Common stock - $.001 par value, 5,000,000 shares authorized; issued
2,437,314 shares in 2000 and 1999, respectively 2,437 2,437
Additional paid-in capital 2,574,560 2,574,560
Retained earnings 6,291,273 5,713,759
Treasury stock at cost, 726,166 common shares in 2000
and 1999 (2,257,342) (2,257,342)
----------------- ------------------
Total stockholders' equity 6,610,928 6,033,414
Commitments and contingencies (Note 6)
----------------- ------------------
$ 16,442,224 $ 15,204,808
================= ==================
</TABLE>
See accompanying notes to consolidated financial statements.
2
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<TABLE>
<CAPTION>
ABATIX CORP. AND SUBSIDIARY
Consolidated Statements of Operations
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------------- -------------------------------------
2000 1999 2000 1999
----------------- ------------------ ------------------ -----------------
<S> <C> <C> <C> <C>
Net sales $ 12,244,133 $ 11,817,224 $ 36,618,956 $ 32,957,550
Cost of sales 9,020,697 8,581,380 26,866,588 23,910,411
----------------- ------------------ ------------------ -----------------
Gross profit 3,223,436 3,235,844 9,752,368 9,047,139
Selling, general and administrative expenses 2,705,442 2,806,949 8,353,957 7,924,724
----------------- ------------------ ------------------ -----------------
Operating profit 517,994 428,895 1,398,411 1,122,415
Other income (expense):
Interest expense (155,088) (121,702) (436,732) (272,598)
Other, net 6,527 7,301 (2,584) 23,688
----------------- ------------------ ------------------ -----------------
Earnings before income taxes 369,433 314,494 959,095 873,505
Income tax expense 146,129 120,866 381,581 354,885
----------------- ------------------ ------------------ -----------------
Net earnings $ 223,304 $ 193,628 $ 577,514 $ 518,620
================= ================== ================== =================
Basic and diluted earnings per common share $ .13 $ .11 $ .34 $ .29
================= ================== ================== =================
Basic and diluted weighted average shares
outstanding (Note 2) 1,711,148 1,762,148 1,711,148 1,798,067
================= ================== ================== =================
</TABLE>
See accompanying notes to consolidated financial statements.
3
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<TABLE>
<CAPTION>
ABATIX CORP. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
September 30,
-------------------------------------
2000 1999
------------------ -----------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 577,514 $ 518,620
Adjustments to reconcile net earnings to net cash provided by (used in)
operating activities:
Depreciation and amortization 410,593 345,240
Deferred income taxes 51,554 (135,790)
Gain on sale of assets - (19,609)
Changes in assets and liabilities, net of business acquisitions:
Receivables (962,194) (623,106)
Inventories (55,643) (918,366)
Refundable income taxes (83,238) -
Prepaid expenses and other assets (42,977) 218,840
Accounts payable 8,472 608,071
Accrued expenses (84,525) 269,592
------------------ -----------------
Net cash (used in) provided by operating activities (180,444) 263,492
------------------ -----------------
Cash flows from investing activities:
Purchase of property and equipment (392,764) (257,618)
Proceeds from sale of property and equipment 10,193 28,000
Business acquisitions, net of cash acquired (Note 5) - (2,160,575)
Advances to officers and employees (24,197) (50,012)
Collection of advances to officers and employees 30,478 35,157
Loan to third party (50,000) -
Other assets, primarily deposits 7,451 (35,014)
------------------ -----------------
Net cash used in investing activities (418,839) (2,440,062)
------------------ -----------------
Cash flows from financing activities:
Purchase of treasury stock - (442,477)
Borrowings on notes payable to bank 10,830,292 17,154,620
Repayments on notes payable to bank (10,094,339) (14,681,229)
------------------ -----------------
Net cash provided by financing activities 735,953 2,030,914
------------------ -----------------
Net increase (decrease) in cash 136,670 (145,656)
Cash at beginning of period 106,793 223,997
------------------ -----------------
Cash at end of period $ 243,463 $ 78,341
================== =================
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
ABATIX CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
(1) Basis of Presentation, General and Business
Abatix Corp. ("Abatix") and subsidiary, (collectively, the "Company") market and
distribute personal protection and safety equipment and durable and nondurable
supplies to the asbestos abatement industry, the industrial safety and hazardous
materials industries and, combined with tools and tool supplies, the
construction industry. At September 30, 2000, the Company operated seven sales
and distribution centers in five states. The Company's wholly owned subsidiary,
International Enviroguard Systems, Inc. ("IESI"), a Delaware corporation,
imports disposable protective clothing products sold through the Company's
distribution channels and through other distributors.
The accompanying consolidated financial statements are prepared in accordance
with the instructions to Form 10-Q, are unaudited and do not include all the
information and disclosures required by generally accepted accounting principles
for complete financial statements. All adjustments that, in the opinion of
management, are necessary for a fair presentation of the results of operations
for the interim periods have been made and are of a recurring nature unless
otherwise disclosed herein. The results of operations for such interim periods
are not necessarily indicative of results of operations for a full year.
(2) Earnings per Share
Basic earnings per share is calculated using the weighted average number of
common shares outstanding during each period, while diluted earnings per share
includes the effects of all dilutive securities. For the three and nine month
periods ended September 30, 2000 and 1999, there were no dilutive securities
outstanding.
(3) Supplemental Information for Statements of Cash Flows
The Company paid interest of $425,486 and $248,680 for the nine months ended
September 30, 2000 and 1999, respectively and income taxes of $448,472 and
$503,015 for the nine months ended September 30, 2000 and 1999, respectively. In
1999, the Company issued stock for a business acquisition at a value of $76,075
and received stock from an officer to repay debt in the amount of $79,681.
(4) Segment Information
Identification of operating segments is based principally upon differences in
the types and distribution channel of products. The Company's reportable
segments consist of Abatix and IESI. The Abatix operating segment includes seven
aggregated branches, principally engaged in distributing environmental, safety
and construction supplies to contractors and industrial manufacturing facilities
in the western half of the United States, and the Company's corporate
operations. The IESI operating segment, which consists of the Company's
wholly-owned subsidiary, International Enviroguard Systems, Inc., is engaged in
the wholesale distribution of disposable clothing to companies similar to, and
including, Abatix. The IESI operating segment distributes products throughout
the United States.
5
<PAGE>
The accounting policies of the operating segments are the same as those
described in Note 1 of the Notes to Consolidated Financial Statements included
in the Company's Form 10-K for the year ended December 31, 1999. The Company
evaluates the performance of its operating segments based on earnings before
income taxes and accounting changes, and after an allocation of corporate
expenses. Intersegment sales are at agreed upon pricing and intersegment profits
are eliminated in consolidation.
Summarized financial information concerning the Company's reportable segments is
shown in the following table. There are no other significant noncash items.
<TABLE>
<CAPTION>
Abatix IESI Totals
Three Months Ended ----------------- ----------------- ------------------
September 30, 2000
----------------------------------------
<S> <C> <C> <C>
Sales from external customers $ 11,122,476 $ 1,121,657 $ 12,244,133
Intersegment sales - 127,705 127,705
Interest expense 155,088 - 155,088
Depreciation and amortization 131,484 1,948 133,432
Segment profit 202,190 176,298 378,488
Segment assets 16,117,770 1,130,583 17,248,353
Capital expenditures 97,881 - 97,881
Three Months Ended
September 30, 1999
----------------------------------------
Sales from external customers $ 11,367,835 $ 449,389 $ 11,817,224
Intersegment sales - 228,215 228,215
Interest expense 121,702 - 121,702
Depreciation and amortization 117,013 1,756 118,769
Segment profit 276,925 45,088 322,013
Segment assets 15,382,630 822,978 16,205,608
Capital expenditures 61,981 2,185 64,166
</TABLE>
6
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<TABLE>
<CAPTION>
Abatix IESI Totals
Nine Months Ended ----------------- ------------------ -----------------
September 30, 2000
----------------------------------------
<S> <C> <C> <C>
Sales from external customers $ 33,807,225 $ 2,811,731 $ 36,618,956
Intersegment sales - 496,968 496,968
Interest revenue - - -
Interest expense 436,732 - 436,732
Depreciation and amortization 405,164 5,429 410,593
Segment profit 612,286 355,730 968,016
Segment assets 16,117,770 1,130,583 17,248,353
Capital expenditures 391,226 1,538 392,764
Nine Months Ended
September 30, 1999
----------------------------------------
Sales from external customers $ 31,126,981 $ 1,830,569 $ 32,957,550
Intersegment sales - 697,927 697,927
Interest revenue 574 - 574
Interest expense 272,598 - 272,598
Depreciation and amortization 339,900 5,340 345,240
Segment profit 645,024 247,330 892,354
Segment assets 15,382,630 822,978 16,205,608
Capital expenditures 253,366 4,252 257,618
</TABLE>
Below is a reconciliation of (i) total segment profit to earnings before income
taxes on the Consolidated Statements of Operations, and (ii) total segment
assets to total assets on the Consolidated Balance Sheets for all periods
presented. The sales from external customers represent the net sales on the
Consolidated Statements of Operations.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------------------- -----------------------------------------
2000 1999 2000 1999
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Profit for reportable segments $ 378,488 $ 322,013 $ 968,016 $ 892,354
Elimination of intersegment
profits (9,055) (7,519) (8,921) (18,849)
------------------ ------------------ ------------------ ------------------
Earnings before income taxes $ 369,433 $ 314,494 $ 959,095 $ 873,505
================== ================== ================== ==================
Total assets for reportable segments $ 17,248,353 $ 16,205,608
Elimination of intersegment
assets (806,129) (541,700)
------------------ ------------------
Total assets $ 16,442,224 $ 15,663,908
================== ==================
</TABLE>
7
<PAGE>
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, 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. During the nine months ended September 30, 2000 and
1999, no single customer accounted for more than 10 percent of net sales,
although sales to asbestos and lead abatement contractors were approximately 33
percent and 41 percent of consolidated net sales in those periods, respectively.
A reduction in future spending on asbestos or lead abatement projects could
significantly impact sales.
Although no vendor accounted for more than 10 percent of purchases, one product
class accounted for approximately 14 percent and 16 percent of net sales during
the nine months ended September 30, 2000 and 1999, respectively. A major
component of these products is petroleum. Further increases in oil prices or
shortages in supply could significantly impact sales and the Company's ability
to supply its customers with certain products at a reasonable price.
(5) Acquisition and Disposition of Assets
Effective January 1, 1999, the Company consummated an asset purchase agreement
with Keliher Hardware Company, a California corporation, pursuant to which the
Company assumed the operations of Keliher. Keliher, based in Los Angeles,
California, is an industrial supply distributor, primarily for the construction
and industrial markets. The estimated fair value of the assets acquired was
approximately $975,000. The aggregate purchase price was settled with the
assumption of certain liabilities (approximately $900,000), the issuance of
23,500 shares of the Company's $.001 par value common stock at a value of $3.375
per share and $35,000 in cash. This acquisition has been accounted for using the
purchase method of accounting and, accordingly, results of Keliher's operations
are included in the Company's consolidated financial statements since the
acquisition date. The excess of the purchase price over the fair value of net
assets acquired is being amortized on a straight-line basis over three years.
On April 6, 1999, the Company closed its Denver distribution and sales center.
The Denver facility had sales of $353,000 for the nine months ended September
30, 1999. Expenses related to the closing of this location were not material.
Effective June 1, 1999, the Company consummated an asset purchase agreement with
North State Supply Co. of Phoenix, an Arizona corporation, pursuant to which the
Company assumed the operations of North State, a construction supply
distributor. The estimated fair value of the identifiable assets acquired was
approximately $1,800,000. The aggregate purchase price was settled with the
assumption of certain liabilities (approximately $785,000) and approximately
$2,100,000 in cash. This acquisition has been accounted for using the purchase
method of accounting and, accordingly, the results of North State's operations
are included in the Company's consolidated financial statements since the
acquisition date. The excess of the purchase price over the fair value of net
assets acquired is being amortized on a straight-line basis over ten years.
8
<PAGE>
Unaudited pro forma results, as if the Keliher and North State acquisitions had
occurred at the beginning of 1999, are as follows:
For the Nine
Months Ended
September 30,
1999
--------------------
Net sales $ 35,468,955
====================
Net income $ 540,621
====================
Basic and diluted earnings per share $ .30
====================
(6) Commitments and Contingencies
In January and February 2000, the Company air-freighted products to two
customers, which contained chemicals classified by the Department of
Transportation as hazardous material. During transportation, some of these
chemicals leaked. On June 15, 2000, the Federal Aviation Administration ("FAA")
notified the Company of their findings for the first incident which indicated
the Company did not comply with the Department of Transportation's Hazardous
Material Regulations. In October 2000, the FAA proposed, and the Company
verbally accepted, a $25,000 civil penalty for the first incident. The
settlement amount is accrued at September 30, 2000. The Company has not received
the FAA's proposal for the second incident and cannot estimate the range of any
possible loss at this time. The Company believes the ultimate amount of the
penalty, if any, will not be material to the Company's financial position or
results of operations.
9
<PAGE>
ABATIX CORP. AND SUBSIDIARY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTH PERIOD ENDED
SEPTEMBER 30, 1999.
Consolidated net sales for the three months ended September 30, 2000, increased
4 percent to $12,244,000 from $11,817,000 in 1999. The Abatix operating segment
net sales decreased 2 percent to $11,122,000 in 2000 and the IESI operating
segment net sales increased 150 percent to $1,122,000 in 2000. The decrease in
net sales for Abatix is primarily a result of a 7 percent decline in sales to
asbestos abatement contractors. This decline in sales to asbestos abatement
contractors, which is expected to continue for the foreseeable future, was
partially offset by increased sales to industrial manufacturing facilities. The
increase in net sales for IESI is the result of a new alliance with an
international company to distribute IESI products.
Gross profit in the third quarter of 2000 of $3,223,000 is substantially the
same as the gross profit in 1999 of $3,236,000. As expected, margins varied from
location to location due to sales mix and local market conditions. The Company's
gross profit margins, expressed as a percentage of sales, were approximately 26
and 27 percent for 2000 and 1999, respectively. Although overall margins are
expected to remain at their current levels in 2000, competitive pressures could
negatively impact any and all efforts by the Company to maintain or improve
product margins.
Selling, general and administrative expenses for the third quarter of 2000 of
$2,705,000 decreased 4 percent over 1999 expenses of $2,807,000. The decrease
was attributable primarily to lower payroll and employee-related costs. The
decrease was partially offset by increased rent for larger facilities and higher
rent rates. Selling, general and administrative expenses were 22 percent and 24
percent of sales for 2000 and 1999, respectively. These expenses are expected to
be in the 23 to 24 percent range for the year ended December 31, 2000.
Interest expense of $155,000 increased approximately $33,000 from 1999 interest
expense of $122,000 primarily due to higher interest rates. The Company's credit
facilities are variable rate notes tied to the Company's lending institution's
prime rate. Additional increases in the prime rate could negatively affect the
Company's earnings.
10
<PAGE>
Net earnings for the three months ended September 30, 2000, of $223,000 or $.13
per share increased $30,000 from net earnings of $194,000 or $.11 per share for
the same period in 1999. The increase in net earnings is primarily due to the
higher sales volume and lower general and administrative costs, partially offset
by increased interest expense.
NINE MONTH PERIOD ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTH PERIOD ENDED
SEPTEMBER 30, 1999.
Consolidated net sales for the nine months ended September 30, 2000, increased
11 percent to $36,619,000 from $32,958,000 in 1999. The Abatix operating segment
net sales grew 9 percent to $33,807,000 in 2000 and the IESI operating segment
net sales increased 54 percent to $2,812,000 in 2000. The increase in
consolidated net sales resulted from efforts to further expand and diversify the
customer base, including the introduction of a new distribution channel for IESI
and the acquisition of North State, a construction supply distributor. The
acquisition provides a larger customer base and the ability to cross sell
products to both North State and Abatix customers. The increase in net sales is
also a result of the economic conditions in the geographic regions serviced by
the Company's facilities. The increase in net sales for the first nine months of
2000 was partially offset by a 4 percent decline in sales to asbestos abatement
contractors. This decline in asbestos abatement sales is expected to continue
for the foreseeable future. Further diversification of the customer base, cross
selling of products, along with the economic conditions, if maintained, should
provide the ability for the Company to internally grow its revenues for the
remainder of 2000.
On April 6, 1999, the Company closed its Denver facility and now serves the
Denver market primarily from its Phoenix location. The Denver facility had sales
of approximately $353,000 for the nine months ended September 30, 1999.
Gross profit in the first nine months of 2000 of $9,752,000 increased 8 percent
from gross profit in 1999 of $9,047,000 due to increased sales volume. As
expected, margins varied from location to location due to sales mix and local
market conditions. The Company's gross profit margins, expressed as a percentage
of sales, were approximately 27 percent for 2000 and for 1999. Although overall
margins are expected to remain at their current levels in 2000, competitive
pressures could negatively impact any and all efforts by the Company to maintain
or improve product margins.
Selling, general and administrative expenses for the first nine months of 2000
of $8,354,000 increased 5 percent over 1999 expenses of $7,925,000. The increase
was attributable primarily to the inclusion of North State costs and increased
rent due to larger facilities and higher rent rates for three distribution
centers and the corporate offices. Leases on three facilities were renegotiated
at the end of 1999. Rental rates are higher with the new leases as a result of
improved real estate conditions. Selling, general and administrative expenses
were 23 percent of sales for 2000 and 24 percent of sales for 1999. These
expenses are expected to be in the 23 to 24 percent range for the year ended
December 31, 2000.
Interest expense of $437,000 increased $164,000 from 1999 interest expense of
$273,000 primarily due to the additional borrowings used to finance the
acquisition of North State and higher interest rates. The Company's credit
11
<PAGE>
facilities are variable rate notes tied to the Company's lending institution's
prime rate. Additional increases in the prime rate could negatively affect the
Company's earnings.
Net earnings for the nine months ended September 30, 2000, of $578,000 or $.34
per share increased $59,000 from net earnings of $519,000 or $.29 per share for
the same period in 1999. The increase in net earnings is primarily due to the
higher sales volume, partially offset by the higher general and administrative
costs and the increased interest expense.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital requirements historically result from the growth
of its accounts receivable and inventories, partially offset by increased
accounts payable and accrued expenses, associated with increases in sales
volume. Net cash used in operations during the first nine months of 2000 of
$180,000 resulted principally from the normal seasonal increase in accounts
receivable and inventories.
Cash requirements for non-operating activities during the first nine months of
2000 resulted primarily from repayments of notes payable to the bank and
$393,000 for purchases of property and equipment. The working capital line of
credit borrowings, net of payments, occurred primarily as a result of increases
in accounts receivable and inventory and the purchase of fixed assets. The
equipment purchases in 2000 were primarily costs associated with building the
Company's e-commerce solution, office furniture and fixtures, warehouse
equipment, and a delivery vehicle.
Cash flow from operations for the entire year of 2000 is expected to be
positive, although at any given point, it may be negative. The development of
the Company's e-commerce solution, which is expected to begin beta testing in
December 2000, has required a significant capital outlay. This solution, which
could cost a total of $200,000 to implement, market and maintain in 2000 and
$100,000 in 2001, is expected to provide customers a more efficient method of
doing business with Abatix and could provide some cost savings in the future, as
well as expand the customer base.
In May 2000, the Company increased its working capital line of credit at a
commercial lending institution from $6,500,000 to $7,000,000 to help fund
additional capital requirements resulting from the business growth and the
development of its e-commerce site. The working capital line of credit agreement
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
$2,000,000. As of November 3, 2000, there are advances outstanding under this
credit facility of $4,951,000. Based on the borrowing formula, the Company had
the capacity to borrow an additional $2,049,000 as of November 3, 2000. 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 November 3, 2000, were $120,000. Both credit
facilities are payable on demand and bear a variable rate of interest computed
at the prime rate.
12
<PAGE>
Management believes the Company's current credit facilities, together with cash
provided by operations, will be sufficient for its capital and liquidity
requirements for the next twelve months. In the event the Company pursues
additional acquisitions and is unable to use its common stock as payment, the
Company would need to negotiate with a lender to secure additional borrowings to
be used to acquire another company's assets.
In July 2000, the Emerging Issues Task Force ("EITF") reached consensus on Issue
No. 00-10 ("EITF 00-10"), "Accounting for Shipping and Handling Fees and Costs,"
which establishes standards for how companies should account for shipping and
handling fees billed to customers and the costs incurred by companies that sell
goods. The consensus reached was that all amounts billed to a customer should be
classified as revenue. No consensus was reached on classification of costs,
rather the EITF reinforced the requirement to disclose the policy for
accumulating and classifying shipping and handling costs. This consensus must be
applied no later than the fourth quarter of the current fiscal year. The Company
does not expect adoption of this consensus to have a material effect on its
financial statements.
Except for the historical information contained herein, the matters set forth in
this Form 10-Q are forward looking and involve a number of risks and
uncertainties. 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, changes in
interest rates, inability to pass on price increases to customers,
unavailability of products and strong competition. Furthermore, increases in oil
prices or shortages in oil supply could significantly impact the Company's
petroleum based products and its ability to supply those products at a
reasonable price. In addition, lack of acceptance of our proposed e-commerce
solution or problems in implementing this solution could cause actual results to
differ materially.
13
<PAGE>
ABATIX CORP. AND SUBSIDIARY
PART II
Other Information
Item 1. Legal Proceedings -
Federal Aviation Administration Case No. 2000NM710119
In January and February 2000, the Company air-freighted products to two
customers, which contained chemicals classified by the Department of
Transportation as hazardous material. During transportation, some of
these chemicals leaked. On June 15, 2000, the Federal Aviation
Administration ("FAA") notified the Company of their findings for the
first incident which indicated the Company did not comply with the
Department of Transportation's Hazardous Material Regulations. In
October 2000, the FAA proposed, and the Company verbally accepted, a
$25,000 civil penalty for the first incident. The settlement amount is
accrued at September 30, 2000. The Company has not received the FAA's
proposal for the second incident and cannot estimate the range of any
possible loss at this time. The Company believes the ultimate amount of
the penalty, if any, will not be material to the Company's financial
position or results of operations.
Item 2. Changes in Securities -- None
Item 3. Defaults upon Senior Securities -- None
Item 4. Submission of Matters to a Vote of Security Holders -- None
Item 5. Other Information -- None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits --
Exhibit 27 - Financial Data Schedule for the nine months ended
September 30, 2000 (filed with the Company's electronic filing
only).
(b) Reports on Form 8-K -- None
.
14
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned as both a duly authorized officer and as the principal financial and
accounting officer by the Registrant.
ABATIX CORP.
(Registrant)
Date: November 13, 2000 By: /s/ Frank J. Cinatl, IV
----------------- -------------------------------
Frank J. Cinatl, IV
Vice President and Chief Financial
Officer of Registrant
(Principal Accounting Officer)
15
