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 June 30, 2000
Commission file number 1-10184
ABATIX CORP.
(Exact name of registrant as specified in its charter)
Delaware 75-1908110
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(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 August 10, 2000 was 1,711,148.
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<CAPTION>
ABATIX CORP. AND SUBSIDIARY
Consolidated Balance Sheets
June 30,
2000 December 31, 1999
Assets (Unaudited)
------ ---------------- -----------------
<S> <C> <C>
Current assets:
Cash $ 193,561 $ 106,793
Trade accounts receivable, net of allowance for doubtful accounts of
$551,640 in 2000 and $616,678 in 1999 8,127,183 7,028,271
Inventories 5,993,806 5,393,355
Prepaid expenses and other assets 377,234 368,583
Refundable income taxes 85,047 87,986
Deferred income taxes 168,235 235,505
----------------- ------------------
Total current assets 14,945,066 13,220,493
Receivables from officers and employees 1,802 7,750
Property and equipment, net 716,085 629,796
Deferred income taxes 160,631 144,916
Goodwill, net of accumulated amortization of $170,511 in 2000 and $91,751 in
1999 1,056,120 1,134,880
Other assets 59,522 66,973
----------------- ------------------
$ 16,939,226 $ 15,204,808
================= ==================
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Notes payable to bank $ 6,573,400 $ 5,825,721
Accounts payable 3,259,419 2,604,587
Accrued compensation 304,785 198,127
Other accrued expenses 413,998 542,959
----------------- ------------------
Total current liabilities 10,551,602 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 2,437 2,437
Additional paid-in capital 2,574,560 2,574,560
Retained earnings 6,067,969 5,713,759
Treasury stock at cost, 726,166 common shares in 2000
and 1999 (2,257,342) (2,257,342)
----------------- ------------------
Total stockholders' equity 6,387,624 6,033,414
Commitments and contingencies (Note 6)
----------------- ------------------
$ 16,939,226 $ 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 Six Months Ended
June 30, June 30,
------------------------------------- -------------------------------------
2000 1999 2000 1999
----------------- ------------------ ------------------ -----------------
<S> <C> <C> <C> <C>
Net sales $ 13,110,321 $ 11,262,132 $ 24,374,823 $ 21,140,326
Cost of sales 9,654,001 8,185,853 17,845,891 15,329,031
----------------- ------------------ ------------------ -----------------
Gross profit 3,456,320 3,076,279 6,528,932 5,811,295
Selling, general and administrative expenses 2,808,347 2,641,993 5,648,515 5,117,775
----------------- ------------------ ------------------ -----------------
Operating profit 647,973 434,286 880,417 693,520
Other income (expense):
Interest expense (148,411) (82,854) (281,644) (150,896)
Other, net 2,189 16,882 (9,111) 16,387
----------------- ------------------ ------------------ -----------------
Earnings before income taxes 501,751 368,314 589,662 559,011
Income tax expense 199,848 158,581 235,452 234,019
----------------- ------------------ ------------------ -----------------
Net earnings $ 301,903 $ 209,733 $ 354,210 $ 324,992
================= ================== ================== =================
Basic and diluted earnings per common share $ .18 $ .12 $ .21 $ .18
================= ================== ================== =================
Basic and diluted weighted average
shares outstanding (Note 2): 1,711,148 1,762,148 1,711,148 1,816,027
================= ================== ================== =================
</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)
Six Months Ended
June 30,
-------------------------------------
2000 1999
------------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 354,210 $ 324,992
Adjustments to reconcile net earnings to net cash (used in) provided by
operating activities:
Depreciation and amortization 277,161 226,471
Deferred income taxes 51,555 (21,992)
Gain on sale of assets - (19,609)
Changes in assets and liabilities, net of business acquisitions:
Receivables (1,098,912) (889,268)
Inventories (600,451) (567,463)
Refundable income taxes 2,939 -
Prepaid expenses and other assets (8,651) 192,931
Accounts payable 654,832 567,887
Accrued expenses (22,303) 291,558
------------------ -----------------
Net cash (used in) provided by operating activities (389,620) 105,507
------------------ -----------------
Cash flows from investing activities:
Purchase of property and equipment (294,883) (193,452)
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 (21,142) (36,201)
Collection of advances to officers and employees 27,090 22,508
Other assets, primarily deposits 7,451 (6,051)
------------------ -----------------
Net cash used in investing activities (271,291) (2,345,771)
------------------ -----------------
Cash flows from financing activities:
Purchase of treasury stock - (442,477)
Borrowings on notes payable to bank 7,057,863 14,261,093
Repayments on notes payable to bank (6,310,184) (11,748,147)
------------------ -----------------
Net cash provided by financing activities 747,679 2,070,469
------------------ -----------------
Net increase (decrease) in cash 86,768 (169,795)
Cash at beginning of period 106,793 223,997
------------------ -----------------
Cash at end of period $ 193,561 $ 54,202
================== =================
</TABLE>
See accompanying notes to consolidated financial statements.
4
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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 June 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 potential common shares. For the
three-month and six-month periods ended June 30, 2000 and 1999, there were no
dilutive securities outstanding. Basic earnings per share and diluted earnings
per share amounts were equal for the three and six months ended June 30, 2000
and 1999.
(3) Supplemental Information for Statements of Cash Flows
The Company paid interest of $270,510 and $129,806 in the six months ended June
30, 2000 and 1999, respectively, and income taxes of $147,959 and $345,089 in
the six months ended June 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.
5
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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 protective clothing to companies similar to, and
including, Abatix. The IESI operating segment distributes products throughout
the United States.
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 ---------------- ----------------- -----------------
June 30, 2000
----------------------------------------
<S> <C> <C> <C>
Sales from external customers $12,070,641 $1,039,680 $13,110,321
Intersegment sales - 168,060 168,060
Interest income (27) - (27)
Interest expense 148,411 - 148,411
Depreciation and amortization 178,920 1,652 180,572
Segment profit 370,044 127,571 497,615
Segment assets 16,588,502 966,244 17,554,746
Capital expenditures 92,766 - 92,766
Three Months Ended
June 30, 1999
----------------------------------------
Sales from external customers $10,646,362 $ 615,770 $11,262,132
Intersegment sales - 233,073 233,073
Interest income - - -
Interest expense 82,854 - 82,854
Depreciation and amortization 118,334 1,760 120,094
Segment profit 273,190 96,182 369,372
Segment assets 15,312,472 846,648 16,159,120
Capital expenditures 103,953 2,066 106,019
</TABLE>
6
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<TABLE>
<CAPTION>
Abatix IESI Totals
Three Months Ended ---------------- ----------------- -----------------
June 30, 2000
----------------------------------------
<S> <C> <C> <C>
Sales from external customers $22,684,749 $1,690,074 $24,374,823
Intersegment sales - 369,263 369,263
Interest income - - -
Interest expense 281,644 - 281,644
Depreciation and amortization 273,680 3,481 277,161
Segment profit 410,096 179,432 589,528
Segment assets 16,588,502 966,244 17,554,746
Capital expenditures 293,345 1,538 294,883
Six Months Ended
June 30, 1999
----------------------------------------
Sales from external customers $19,759,146 $1,381,180 $21,140,326
Intersegment sales - 469,712 469,712
Interest income 574 - 574
Interest expense 150,896 - 150,896
Depreciation and amortization 222,887 3,584 226,471
Segment profit 368,099 202,242 570,341
Segment assets 15,319,479 846,648 16,166,127
Capital expenditures 191,386 2,066 193,452
</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 June 30, Six Months Ended June 30,
----------------------------------------- -----------------------------------------
2000 1999 2000 1999
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Profit for reportable segments $ 497,615 $ 369,372 $ 589,528 $ 570,341
Elimination of intersegment
profits 4,136 (1,058) 134 (11,330)
------------------ ------------------ ------------------ ------------------
Earnings before income taxes $ 501,751 $ 368,314 $ 589,662 $ 559,011
================== ================== ================== ==================
Total assets for reportable segments $17,554,746 $16,166,127
Elimination of intersegment
assets (615,520) (674,510)
------------------ ------------------
Total assets $16,939,226 $15,491,617
================== ==================
</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 six months ended June 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 34 percent and 42
percent of consolidated net sales in those periods, respectively. A reduction in
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 six months ended June 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 $15,000 and $353,000 for the three and six
months ended June 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 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 North State acquisition had occurred at
the beginning of 1999, are as follows:
For the six
months ended
June 30,
1999
------------------
Net sales $ 23,651,731
==================
Net income $ 346,535
==================
Basic and diluted earnings per share $ .19
==================
(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. The FAA has proposed a $59,500 civil penalty for violating
these regulations. The Company has not received the FAA's proposal for the
second incident and can not estimate the range of any possible loss at this
time. The Company has available to it several options, including a hearing. 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 JUNE 30, 2000 COMPARED TO THREE MONTH PERIOD ENDED
JUNE 30, 1999.
Consolidated net sales for the three months ended June 30, 2000, increased 16
percent to $13,110,000 from $11,262,000 in 1999. The Abatix operating segment
net sales grew 13 percent to $12,071,000 in 2000 and the IESI operating segment
net sales increased 69 percent to $1,040,000 in 2000. The increase in
consolidated net sales resulted from efforts to further expand and diversify the
customer base, including the acquisition of North State, a construction supply
distributor. This 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 stable economic conditions in the geographic
regions serviced by the Company's facilities. These 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 $15,000 and for the three months ended June 30, 1999.
Gross profit in the second quarter of 2000 of $3,456,000 increased 12 percent
from gross profit in 1999 of $3,076,000 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 26 percent for 2000 and 27 percent 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 second three months of 2000
of $2,808,000 increased 6 percent over 1999 expenses of $2,642,000. 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 21 percent and 23 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 $148,000 increased approximately $66,000 from 1999 interest
expense of $83,000 primarily due to the additional borrowings used to finance
the acquisition of North State and 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 June 30, 2000, of $302,000 or $.18 per
share increased $92,000 from net earnings of $210,000 or $.12 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.
SIX MONTH PERIOD ENDED JUNE 30, 2000 COMPARED TO SIX MONTH PERIOD ENDED
JUNE 30, 1999.
Consolidated net sales for the six months ended June 30, 2000, increased 15
percent to $24,375,000 from $21,140,000 in 1999. The Abatix operating segment
net sales grew 15 percent to $22,685,000 in 2000 and the IESI operating segment
net sales increased 22 percent to $1,690,000 in 2000. The increase in
consolidated net sales resulted from efforts to further expand and diversify the
customer base, including the acquisition of North State, a construction supply
distributor. This 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 stable economic conditions in the geographic
regions serviced by the Company's facilities. These 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 six months ended June 30, 1999.
Gross profit in the first six months of 2000 of $6,529,000 increased 12 percent
from gross profit in 1999 of $5,811,000 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 six months of 2000 of
$5,649,000 increased 10 percent over 1999 expenses of $5,118,000. 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 $282,000 increased $131,000 from 1999 interest expense of
$151,000 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 six months ended June 30, 2000, of $354,000 or $.21 per
share increased $29,000 from net earnings of $325,000 or $.18 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 six months of 2000 of
$390,000 resulted principally from the normal seasonal increase in accounts
receivable and inventories, partially offset by an increase in accounts payable.
Cash requirements for non-operating activities during the first six months of
2000 resulted primarily from repayments of notes payable to the bank and
$295,000 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 office furniture and fixtures,
warehouse equipment, a delivery vehicle and costs associated with building the
Company's e-commerce solution.
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
September 2000, will require a significant capital outlay. This solution, which
could cost a total of $250,000 to implement, market and maintain in 2000, 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 early 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 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 August 4, 2000, there
are advances outstanding under this credit facility of $6,140,000. Based on the
borrowing formula, the Company had the capacity to borrow an additional $860,000
as of August 4, 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 August 4, 2000, were
$179,000. 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.
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. The FAA has proposed a
$59,500 civil penalty for violating these regulations. The Company has not
received the FAA's proposal for the second incident and can not estimate
the range of any possible loss at this time. The Company has available to
it several options, including a hearing. 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 six months ended
June 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: August 10, 2000 By: /s/ Frank J. Cinatl, IV
------------------ -----------------------
Frank J. Cinatl, IV
Vice President and Chief Financial
Officer of Registrant
(Principal Accounting Officer)
15
