CONFORMED
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, 1995
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
incorporation or organization) Identification number)
8311 EASTPOINT DRIVE, SUITE 400
DALLAS, TEXAS 75227
(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 July 26, 1995 was 2,211,814 shares.
ABATIX ENVIRONMENTAL CORP. AND SUBSIDIARY
Consolidated Balance Sheets
(Unaudited)
June 30, December 31,
1995 1994
----------- -----------
ASSETS
Current assets:
Cash $ 236,447 $ 150,727
Trade accounts receivable net of
allowance for doubtful accounts
of $244,715 in 1995 and $163,233
in 1994 5,527,945 4,428,853
Inventories 2,847,673 2,398,252
Prepaid expenses and other current assets 158,745 210,585
Deferred income taxes 128,805 146,205
Net asset of discontinued operations - 91,249
----------- -----------
Total current assets 8,899,615 7,425,871
Receivables from officers and employees 73,782 58,685
Property and equipment, net 593,794 677,431
Other assets 21,622 21,936
----------- -----------
$ 9,588,813 $ 8,183,923
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable to bank $ 3,503,100 $ 2,919,718
Accounts payable 1,158,596 792,663
Net liability of discontinued operations 82,726 -
Other accrued expenses and current
liabilities 678,671 496,701
----------- -----------
Total current liabilities 5,423,093 4,209,082
Deferred income taxes 25,390 74,005
----------- -----------
Total liabilities 5,448,483 4,283,087
----------- -----------
Stockholders' equity:
Preferred stock - $1 par value, 2,000,000
shares authorized; none issued - -
Common stock - $.001 par value,
20,000,000 shares authorized; issued
2,341,314 shares in 1995 and 2,319,748
shares in 1994 2,341 2,320
Additional paid in capital 2,305,143 2,279,653
Retained earnings 2,150,823 1,674,461
Less cost of 129,500 common shares in
treasury in 1995 and 26,500 common
shares in treasury in 1994 (317,977) (55,598)
----------- -----------
Total stockholders' equity 4,140,330 3,900,836
Commitments - -
----------- -----------
$ 9,588,813 $ 8,183,923
=========== ===========
See accompanying notes to consolidated financial statements.
2
ABATIX ENVIRONMENTAL CORP. AND SUBSIDIARY
Consolidated Statements of Operations
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
----------- ----------- ----------- -----------
Net sales $ 7,712,571 $ 6,963,680 $13,702,005 $12,929,560
Cost of sales 5,418,488 5,107,197 9,705,439 9,383,821
----------- ----------- ----------- -----------
Gross profit 2,294,083 1,856,483 3,996,566 3,545,739
Selling, general and
administrative expenses 1,610,342 1,536,058 3,041,569 3,019,573
----------- ----------- ----------- -----------
Earnings from operations 683,741 320,425 954,997 526,166
Other income (expense):
Interest expense (64,521) (69,340) (129,726) (117,740)
Interest income
and other, net 6,118 7,500 10,436 7,490
----------- ----------- ----------- -----------
Earnings from continuing
operations before
income taxes 625,338 258,585 835,707 415,916
Income tax expense 263,850 103,434 359,345 166,366
----------- ----------- ----------- -----------
Earnings from continuing
operations 361,488 155,151 476,362 249,550
Discontinued operations:
Loss from discontinued
operations, net of tax
benefit of $32,295 and
$46,922 for the three
and six months ended
June 30, 1994,
respectively - (62,895) - (93,414)
----------- ----------- ----------- -----------
Net earnings $ 361,488 $ 92,256 $ 476,362 $ 156,136
=========== =========== =========== ===========
Earnings per common and
common equivalent share:
Earnings from continuing
operations $ .16 $ .07 $ .21 $ .11
Loss from discontinued
operations - (.03) - (.04)
----------- ----------- ----------- -----------
Net earnings $ .16 $ .04 $ .21 $ .07
=========== =========== =========== ===========
Weighted average common
and common equivalent
shares outstanding 2,241,886 2,336,427 2,261,941 2,330,149
=========== =========== =========== ===========
See accompanying notes to consolidated financial statements.
3
ABATIX ENVIRONMENTAL CORP. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
June 30,
---------------------------
1995 1994
----------- -----------
Cash flows from operating activities:
Net earnings $ 476,362 $ 156,136
Adjustments to reconcile net earnings to
net cash used in operating activities:
Depreciation and amortization 167,234 141,262
Deferred income taxes, net (31,215) (13,882)
Gain on disposal of assets (6,528) (2,875)
Changes in assets and liabilities:
Receivables (1,099,092) (2,334,509)
Inventories (449,421) (602,134)
Refundable income taxes - 117,690
Prepaid expenses and other 51,840 (31,895)
Net liability of discontinued operations 173,975 (31,186)
Accounts payable 365,933 1,018,024
Other accrued expenses
and current liabilities 186,689 201,661
----------- -----------
Net cash used in operating activities (164,223) (1,381,708)
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (114,169) (271,591)
Proceeds from sale of property and equipment 37,100 11,047
Advances to officers and employees (28,545) (3,538)
Collection of advances to officers and employees 13,448 3,704
Other net assets 314 -
----------- -----------
Net cash used in investing activities (91,852) (260,378)
----------- -----------
Cash flows from financing activities:
Exercise of stock options and warrants 25,511 117,505
Purchase of treasury stock (262,379) -
Net borrowings on notes payable to bank 583,382 1,467,086
Principal payments on capital lease obligations (4,719) (209)
----------- -----------
Net cash provided by financing activities 341,795 1,584,382
----------- -----------
Net increase (decrease) in cash 85,720 (57,704)
Cash at beginning of period 150,727 172,186
----------- -----------
Cash at end of period $ 236,447 $ 114,482
=========== ===========
Supplemental disclosure information:
Cash paid during the period for:
Interest $ 130,891 $ 107,862
Income taxes $ 255,000 $ 12,200
See accompanying notes to consolidated financial statements.
4
ABATIX ENVIRONMENTAL CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
(1) BASIS OF PRESENTATION, GENERAL AND BUSINESS
Abatix Environmental Corp. ("Abatix") and its wholly owned subsidiary,
International Enviroguard Systems, Inc. ("IESI"), collectively the "Company",
market and distribute personal protection and safety equipment and durable
and nondurable supplies to the asbestos and lead abatement, industrial
safety, hazardous materials, and construction tool industries. The Company,
through IESI, imports certain products sold primarily through the Company's
distribution system. The sorbent manufacturing business of IESI was
discontinued in December 1994 (see note 2).
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. Certain amounts have been
reclassified for consitency in presentation. The results of operations for
such interim periods are not necessarily indicative of results of operations
for a full year.
(2) DISCONTINUED OPERATIONS
In December 1994, the Company announced the discontinuance of the sorbent
manufacturing business of IESI, which was substantially complete at June 30,
1995. Certain assets have been sold for approximately $30,000 in cash since
December 15, 1994, the measurement date. The remaining assets primarily
consist of accounts receivable and the remaining liabilities consist of the
reserve related to the discontinuance. The balance of this reserve exists
primarily to cover the remaining costs associated with the facility lease.
This lease expires in September 1999. Actual costs through June 30, 1995
approximated management's December 1994 estimates. Sales of sorbents were
$34,000 and $89,000 for the three months ended June 30, 1995 and 1994,
respectively, and $108,000 and $207,000 for the six months ended June 30,
1995 and 1994, respectively.
(3) STOCKHOLDERS' EQUITY
In February 1995, the Board of Directors of the Company approved a repurchase
of up to 110,000 shares of the Company's common stock. In May and July 1995,
the Company repurchased 13,000 and 50,000 shares of common stock,
respectively. Since November 1994, the Company has purchased 179,500 shares
for treasury stock.
5
ABATIX ENVIRONMENTAL CORP. AND SUBSIDIARY
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED JUNE 30, 1995 COMPARED TO THREE MONTH PERIOD ENDED
JUNE 30, 1994.
RESULTS OF CONTINUING OPERATIONS
Net sales of $7,713,000 for the three months ended June 30, 1995, increased
11% or $749,000 over the same period in 1994. This increase is primarily due
to increased market share in several locations, partially offset by decreased
sales of construction tools caused by weather delays.
Gross profit of 30% of sales for the three month period ended June 30, 1995,
increased from 27% for the same period in 1994. This increase is
attributable to improved sales pricing as a result of enhanced customer
service, as well as, expanded purchasing power.
Selling, general and administrative expenses of $1,610,000 for the three
month period ended June 30, 1995, increased 5% or $74,000 over the same
period in 1994. Increased administrative costs associated with higher
revenues, partially offset by efficiencies gained through the implementation
of information technology, resulted in the slight increase. Selling, general
and administrative expenses for 1995 were 21% of sales compared to 22% of
sales for 1994.
Interest expense of $65,000 decreased 7% from 1994 expense of $69,000. This
decrease is primarily due to a decrease in borrowings, partially offset by an
increase in the interest rate. The Company's credit facilities are variable
rate notes tied to the Company's lending institution's prime rate. Increases
in the prime rate could negatively affect the Company's earnings.
DISCONTINUED OPERATIONS
See Note 2 to the consolidated financial statements.
NET RESULTS
Net earnings for the three months ended June 30, 1995 of $361,000 or $.16 per
share increased $269,000 from net earnings of $92,000 or $.04 per share for
the same period in 1994. The 292% increase in net earnings is primarily due
to higher sales and profit margins, and the absence of the negative impact of
discontinued operations on 1994 results, partially offset by higher income
taxes.
6
SIX MONTH PERIOD ENDED JUNE 30, 1995 COMPARED TO SIX MONTH PERIOD ENDED
JUNE 30, 1994.
RESULTS OF CONTINUING OPERATIONS
Net sales from continuing operations for the six months ended June 30, 1995
increased 6% to $13,702,000 from $12,930,000 in 1994. The increase is
primarily a result of increased market share in several markets. The
increase is partially offset by decreased sales in Southern California caused
by poor weather conditions delaying construction projects, as well as,
increased competition in specific asbestos abatement products in certain
geographic markets.
The Company intends to continue serving the asbestos abatement market and to
continue diversifying revenues in all markets with hazardous material
remediation, industrial product and construction tool sales. Efforts to
further expand and diversify revenues without sacrificing product margins
should provide the foundation for continuing profitability in 1995.
Gross profit for the six month period ended June 30, 1995 increased from 27%
to 29% over 1994. This increase is attributable to improved sales pricing as
a result of enhanced customer service, as well as, expanded purchasing power.
Selling, general and administrative expenses of $3,042,000 for the six month
period ended June 30, 1995, increased 1% or $22,000 over the same period in
1994. The increase was attributable to increased operating expenses from
increased sales, partially offset by improved cost management. Selling,
general and administrative expenses for 1995 were 22% of sales compared to
23% of sales for 1994. Unless a new location is opened, these expenses are
expected to remain in their current range for 1995.
Interest expense of $130,000 increased 10% over 1994 expense of $118,000.
This increase is primarily due to an increase in the interest rate, partially
offset by a decrease in borrowings. Increases in the prime rate could
negatively affect the Company's earnings.
DISCONTINUED OPERATIONS
See Note 2 to the consolidated financial statements.
NET RESULTS
Net earnings for the six months ended June 30, 1995 of $476,000 or $.21 per
share increased $320,000 from net earnings of $156,000 or $.07 per share for
the same period in 1994. The 205% increase in net earnings is primarily due
to increased sales, increased profit margins and the elimination of the
negative impact of the discontinued operations on 1994 results, partially
offset by higher income taxes.
7
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operations during the six months ended June 30, 1995 of
$164,000 resulted principally from the seasonal increase in receivables and
inventories, partially offset by the increase in net earnings, payables, and
accrued expenses.
The Company's historical seasonal patterns result in higher sales in the
second and third quarters of each year and lower sales in the first and
fourth quarters. Considering these sales patterns, the Company generally
requires external cash resources in the latter half of the first quarter
through the middle of the third quarter to fund and sustain the growth in
revenues. The latter part of the third quarter through the first part of the
first quarter typically represents the collection cycle. Several factors are
expected to result in less demand on cash flow from operations in 1995. The
rate of revenue growth in 1995 is expected to be lower than 1994 resulting
in less cash demand; the Company increased the credit department personnel in
January 1995 which has improved the collection cycle; and the Company will not
have to fund the operating losses at IESI in 1995. In addition, unless a new
location is opened, 1995 capital expenditures are anticipated to be lower than
1994 since purchases for the opening of the Seattle location and the
introduction of the new computer system were finalized and funded in 1994.
The Company maintains a $4,100,000 working capital line of credit at a
commercial lending institution that allows the Company to borrow up to 80% of
the book value of eligible trade receivables plus the lessor of 25% of
eligible inventory or $500,000. As of June 30, 1995 and July 26,1995, the
Company had borrowed $3,301,000 and $2,972,000, respectively, on this credit
facility and had the capacity to borrow an additional $799,000 and $1,128,000,
respectively. The Company also maintains a $350,000 capital equipment credit
facility providing for borrowings at 80% of cost on purchases. There are
advances outstanding under this credit facility of $202,000 at June 30, 1995.
Both credit facilities are payable on demand.
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.
8
ABATIX ENVIRONMENTAL CORP. AND SUBSIDIARY
PART II
Other Information
Item 1. LEGAL PROCEEDINGS -- None
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 11 Computation Re Per Share Earnings for the three and six month
periods ended June 30, 1995 and 1994.
Exhibit 27 Financial Data Schedule for the three months ended June 30, 1995.
(b) Reports on Form 8-K --
There were no reports on Form 8-K filed for the three months ended
June 30, 1995.
9
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 chief financial
officer by the Registrant.
ABATIX ENVIRONMENTAL CORP.
(Registrant)
Date: August 11, 1995 By: /S/ FRANK J. CINATL, IV
---------------- -------------------------------
Frank J. Cinatl, IV
Vice President and Chief
Financial Officer of Registrant