UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

 

KMG CHEMICALS, INC.

(Exact name of registrant as specified in its charter)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ý        No o

 

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

 

Indicate by check mark whether the registrant filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

Yes o        No o

 

APPLICABLE ONLY TO CORPORATE ISSUERS:

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 7,512,981 shares of common stock.

 

 

PART I — FINANCIAL INFORMATION

 

ITEM 1.                                     FINANCIAL STATEMENTS.

 

KMG CHEMICALS, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

 

		April 30, 2003			July 31, 2002
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	1,737,694		$	1,234,581
Marketable securities		147,847			197,628
Accounts receivable:
Trade		6,097,170			7,286,118
Other		396,464			422,462
Notes receivable - current portion		99,538			35,938
Inventories		6,444,236			5,192,018
Prepaid expenses and other current assets		355,580			363,213
Total current assets		15,278,529			14,731,958
PROPERTY, PLANT AND EQUIPMENT
Net of accumulated depreciation		5,670,005			6,106,043
NOTES RECEIVABLE, Less current portion		85,384			48,422
DEFERRED TAX ASSET		540,191			369,275
INTANGIBLE ASSETS		10,510,536			7,043,121
OTHER ASSETS		895,880			617,123
TOTAL		$	32,980,525		$	28,915,942
LIABILITIES & STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable		$	3,551,997		$	2,956,696
Accrued liabilities		815,181			1,608,866
Current portion of long-term debt		504,996			1,059,529
Total current liabilities		4,872,174			5,625,091
LONG-TERM DEBT		5,812,672			1,716,003
DEFERRED INCOME TAXES		6,913			54,198
OTHER LONG TERM LIABILITIES		72,511			0
Total liabilities		10,764,270			7,395,292
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, 10,000,000 shares authorized, none issued
Common stock, $.01 par value, 40,000,000 shares authorized, 7,692,981 shares issued and 7,512,981 shares outstanding at April 30, 2003 and at July 31, 2002.		76,930			76,930
Additional paid-in capital		3,365,976			3,365,976
Treasury stock		(900,000		)	(900,000		)
Other comprehensive income		13,422			88,429
Retained earnings		19,659,927			18,889,315
Total stockholders’ equity		22,216,255			21,520,650
TOTAL		$	32,980,525		$	28,915,942

 

See notes to condensed consolidated financial statements.

 

2

 

KMG CHEMICALS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)

 

		Three Months Ended April 30						Nine Months Ended April 30
		2003			2002			2003			2002
NET SALES		$	8,979,786		$	8,783,236		$	23,320,714		$	24,451,896
COST OF SALES		6,164,918			5,457,180			15,732,113			15,937,106
Gross Profit		2,814,868			3,326,056			7,588,601			8,514,790
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES		1,969,328			2,030,681			5,756,113			5,859,577
Operating Income		845,540			1,295,375			1,832,488			2,655,213
OTHER INCOME (EXPENSE):
Interest & Dividend Income		20,612			20,856			42,132			64,095
Interest Expense		(57,294		)	(17,164		)	(95,041		)	(103,070		)
Other		(6,008		)	(10,474		)	(14,363		)	(22,665		)
Total Other Income (Expense)		(42,690		)	(6,782		)	(67,272		)	(61,640		)
INCOME BEFORE INCOME TAX		802,850			1,288,593			1,765,216			2,593,573
Provision For Income Tax		(272,971		)	(489,612		)	(600,175		)	(985,504		)
NET INCOME		$	529,879		$	798,981		$	1,165,041		$	1,608,069
EARNINGS PER SHARE:
Basic		$	0.07		$	0.11		$	0.16		$	0.21
Diluted		$	0.07		$	0.11		$	0.15		$	0.21
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic		7,512,981			7,512,981			7,512,981			7,512,036
Diluted		7,547,362			7,550,254			7,549,829			7,547,622

 

See notes to condensed consolidated financial statements.

 

3

 

KMG CHEMICALS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(UNAUDITED)

 

								ADDITIONAL PAID-IN CAPITAL			TREASURY STOCK			ACCUMULATED OTHER COMPREHENSIVE INCOME			RETAINED EARNINGS			TOTAL STOCKHOLDERS’ EQUITY
		COMMON STOCK
		SHARES ISSUED		PAR VALUE
BALANCE AT JULY 31, 2002		7,692,981		$		76,930		$	3,365,976		$	(900,000	)	$	88,429		$	18,889,315		$	21,520,650
Cash dividends																		(394,429	)	(394,429		)
Net income																	1,165,041			1,165,041
Change in unrealized gain on available for sale securities (net of taxes of $3,477)														(27,150		)				(27,150		)
Unrealized loss on interest rate swap (net of taxes of $24,654)														(47,857		)				(47,857		)
BALANCE AT APRIL 30, 2003		7,692,981		$		76,930		$	3,365,976		$	(900,000	)	$	13,422		$	19,659,927		$	22,216,255

 

See notes to condensed consolidated financial statements.

 

4

 

KMG CHEMICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

 

		Nine Months Ended April 30
		2003			2002
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	1,165,041		$	1,608,069
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		1,055,554			1,022,942
Gain on sale of equipment		(18,500		)
Forgiveness of notes receivable from related parties		25,635			25,635
Deferred income taxes		(170,915		)	138,668
Unrealized gain on securities held for sale					56,626
Changes in operating assets and liabilities:
Accounts receivable - trade		1,057,612			(14,495		)
Accounts receivable - other		25,997			(80,413		)
Inventories		(1,252,218		)	(760,206		)
Prepaid expenses and other assets		7,632			269,741
Accounts payable		595,302			(46,197		)
Accrued liabilities		(793,685		)	(528,857		)
Net cash provided by operating activities		1,697,455			1,691,513
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment		(204,121		)	(1,320,505		)
Proceeds from sale of equipment		18,500
Rabon product line purchase		(3,855,572		)
Collections of notes receivable		5,138
Additions to other assets		(305,994		)	(116,806		)
Net cash used in investing activities		(4,342,049		)	(1,437,311		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal borrowings		5,256,000			152,002
Principal payments on borrowings		(1,713,864		)	(721,794		)
Proceeds from exercise of stock options					2,134
Payment of dividends		(394,429		)	(319,082		)
Net cash provided by (used in) financing activities		3,147,707			(886,740		)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		503,113			(632,538		)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		1,234,581			3,126,781
CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	1,737,694		$	2,494,243
SUPPLEMENTAL DISCLOSURES FOR CASH FLOW INFORMATION:
Cash paid during the period for interest		$	88,496		$	103,070
Cash paid during the period for income taxes		$	910,411		$	1,042,024

 

See notes to condensed consolidated financial statements.

 

5

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

 

(1)                                  Basis of Presentation - The unaudited condensed consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and in the opinion of management reflect all adjustments, including those of a normal recurring nature, that are necessary for a fair presentation of financial position and results of operations for the interim periods presented. These financial statements include the accounts of KMG Chemicals, Inc. and its subsidiaries (the “Company”). All significant intercompany balances and transactions have been eliminated in consolidation.  The condensed consolidated financial statements have been prepared pursuant to the requirements of the SEC for interim reporting.  As permitted under those requirements, certain footnotes or other financial information that are normally required by GAAP (accounting principles generally accepted in the United States of America) have been condensed or omitted.  The financial statements included herein should be read in conjunction with the financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended July 31, 2002.

 

(2)                                  Acquisition and Related Financing - On December 30, 2002 the Company purchased an insecticide product line sold under the Rabon trade name.  The product line is used by domestic livestock and poultry growers to protect animals from flies and other pests.  The product line includes oral larvicides, insecticidal powders and liquid sprays all containing the active ingredient tetrachlorvinphos.  Rabon oral larvicide is the leading fly control oral larvicide product in the United States and the Company expects that the acquisition will add approximately $4 million in annualized revenue.  The acquisition included the purchase of pesticide registrations, the trade name and manufacturing equipment necessary to make oral larvicide.  The Company also entered into a contract manufacturing agreement with the Seller to formulate and package the oral larvicide product for the Company.

 

The Company’s purchase of the Rabon product line was financed with a senior credit facility from SouthTrust Bank (“SouthTrust”) that also refinanced the Company’s existing term loan facility with that bank  As refinanced, the principal balance outstanding on April 30, 2003 under the Company’s term loan with SouthTrust was $4.9 million.  The principal amount of the loan is to be amortized monthly over ten years but the maturity date is December 20, 2007.  The loan carries interest at a varying rate equal to LIBOR plus 1.8% but in February 2003, the Company entered into an interest rate swap transaction with SouthTrust which effectively fixed the interest rate at 5.0% for the remainder of the term.  As of April 30, 2003, the Company had $1.4 million in borrowings under its revolving loan with SouthTrust and its borrowing base availability under that loan was $2.1 million.

 

(3)                                  Earnings Per Share - Basic earnings per share has been computed by dividing net income by the weighted average shares outstanding.  Diluted earnings per share has been computed by dividing net income by the weighted average shares outstanding plus dilutive potential common shares.

 

6

 

The following table presents information necessary to calculate basic and diluted earnings per share for periods indicated:

 

		Three Months Ended April 30						Nine Months Ended April 30
		2003			2002			2003			2002
BASIC EARNINGS PER SHARE
Net Income		$	529,879		$	798,981		$	1,165,041		$	1,608,069
Weighted Average Shares Outstanding		7,512,981			7,512,981			7,512,981			7,512,036
Basic Earnings Per Share		$	0.07		$	0.11		$	0.16		$	0.21
DILUTED EARNINGS PER SHARE
Net Income		$	529,879		$	798,981		$	1,165,041		$	1,608,069
Weighted Average Shares Outstanding		7,512,981			7,512,981			7,512,981			7,512,036
Shares Issuable from Assumed Conversion of Common Share Options		34,381			37,273			36,848			35,586
Weighted Average Shares Outstanding, as Adjusted		7,547,362			7,550,254			7,549,829			7,547,622
Diluted Earnings Per Share		$	0.07		$	0.11		$	0.15		$	0.21

 

(4)                                  New Accounting Rules - Effective August 1, 2002, the Company adopted the statement promulgated by the Financial Accounting Standards Board, Statement of Financial Accounting Standards (“SFAS”) No. 142  “Goodwill and Other Intangible Assets.”  In adopting SFAS No.142, the Company has identified certain intangible assets that are not amortizable under this statement.  Those intangible assets were acquired from Allied Signal Inc. (“Allied”) on June 30, 1998 for $4.5 million and pertain to the sale and distribution of creosote.  Virtually all of the value acquired in that transaction with Allied pertains to the creosote product registrations included in the acquisition.  In the opinion of management, these creosote product registrations currently have an indeterminable life.  As a result, amortization expense decreased by approximately $25,000 per month.

 

7

 

ITEM 2.                                     MANAGEMENT’S DISCUSSION AND ANALYSIS OF OPERATIONS.

 

Results of Operations

 

The Company manufactures and sells specialty chemicals in carefully focused markets.  The Company sells three wood preserving chemicals, pentachlorophenol (“penta”), creosote and sodium pentachlorophenate (“sodium penta”), and an herbicide product consisting of monosodium and disodium methanearsonic acids (“MSMA”).  The wood treating chemicals are sold to industrial customers who use these preservatives to extend the useful life of wood products, principally in the railroad, utility and construction industries.  MSMA is sold by the Company in the United States as Bueno® 6 to protect cotton crops from weed growth and as Ansar® 6.6 for highway weed control.  It also has application elsewhere in the world to protect cotton and sugar cane.  In December 2002 the Company purchased the Rabon product line, a pesticide line used by domestic livestock and poultry growers to protect animals from flies and other pests.

 

The following table sets forth the Company’s net sales and certain other financial data, including the amount of the change between the three month and nine month periods ended April 30, 2003 and 2002:

 

		Three Months Ended April 30						Increase/ (Decrease)			Nine Months Ended April 30						Increase/ (Decrease)
		2003			2002						2003			2002
Net sales		$	8,979,786		$	8,783,236		$	196,550		$	23,320,714		$	24,451,896		$	(1,131,182	)
Gross profit		$	2,814,868		$	3,326,056		$	(511,188	)	$	7,588,601		$	8,514,790		$	(926,189	)
Gross profit as a percent of net sales		31.3		%	37.9		%	(6.6		)%	32.5		%	34.8		%	(2.3		)%
Net income		$	529,879		$	798,981		$	(269,102	)	$	1,165,041		$	1,608,069		$	(443,028	)
Earnings per share		$	0.07		$	0.11		$	(0.04	)	$	0.16		$	0.21		$	(0.05	)
Weighted average shares outstanding		7,512,981			7,512,981						7,512,981			7,512,036			945

 

Sales Revenue and Gross Profit

 

Net sales revenue for the third quarter of fiscal 2003 was up 2.2% as compared with the third quarter of fiscal 2002.  Poor creosote sales in the second and third quarters adversely affected results for the first nine months of fiscal 2003 and, therefore, net sales revenue was down for the period 4.6% as compared to the prior year.  That the Company had an increase in total sales for the third quarter was attributable to sales from the Company’s newly acquired Rabon product line beginning to have an impact on the Company’s results.  The Company continues to believe that Rabon sales will add approximately $4 million in annualized revenue.  Results for the third quarter and for the nine months were held down by depressed creosote sales, the Company’s wood treating product primarily used to treat railroad crossties.  A creosote supply shortfall in the northeast United States hampered sales and sales also suffered because certain railroads, as a cost containment measure, specified petroleum and creosote blends for crosstie treatment rather than specifying creosote alone.  The Company believes that creosote sales will improve as calendar 2003 continues since several major railroads have indicated that their demand for treated crossties will be greater this year than in 2002.

 

8

 

Gross profit for the third quarter of fiscal 2003 was 15.4% less than in the same quarter of the prior fiscal year and for the first nine months was 10.9% less than the prior fiscal year.  In the third quarter and in the first nine months of the fiscal year, the Company experienced higher raw material costs and lowered production volume on which to allocate fixed production costs.  The Company expects that increased costs and depressed volume will affect gross margins adversely over the balance of the fiscal year.

 

Selling, General and Administrative Expenses

 

Selling, general and administrative expenses for the third quarter of fiscal 2003 and for the first nine months were approximately the same as in the same periods of the prior fiscal year except that the Company’s amortization expense decreased by approximately $25,000 per month under new accounting  rules.  See Note 3 to the “Notes to Condensed Consolidated Financial Statements.”

 

Liquidity and Capital Resources

 

The Company’s purchase of the Rabon product line was financed with a senior credit facility from SouthTrust Bank (“SouthTrust”) that also refinanced the Company’s existing term loan facility with that bank.  As refinanced, the principal balance outstanding on April 30, 2003 under the Company’s term loan with SouthTrust was $4.9 million.  The principal amount of the loan is to be amortized monthly over ten years but the maturity date is December 20, 2007.  The loan carries interest at a varying rate equal to LIBOR plus 1.8% but in February 2003, the Company entered into an interest rate swap transaction with SouthTrust which effectively fixed the interest rate at 5.0% for the remainder of the term.  As of April 30, 2003, the Company had $1.4 million in borrowings under its revolving loan with SouthTrust and its borrowing base availability under that loan was $2.1 million.

 

Disclosure Regarding Forward Looking Statements

 

Certain information included or incorporated by reference in this report is forward-looking, including statements contained in “Management’s Discussion and Analysis of Operations.”  It includes statements regarding the intent, belief and current expectations of the Company and its directors and officers.  Forward-looking information involves important risks and uncertainties that could materially alter results in the future from those expressed in these statements.  These risks and uncertainties include, but are not limited to, the ability of the Company to maintain existing relationships with long-standing customers, the ability of the Company to successfully implement productivity improvements, cost reduction initiatives, facilities expansion and the ability of the Company to develop, market and sell new products and to continue to comply with environmental laws, rules and regulations.  Other risks and uncertainties include uncertainties relating to economic conditions, acquisitions and divestitures, government and regulatory policies, technological developments and changes in the competitive environment in which the Company operates.  Persons reading this report are cautioned that such statements are only predictions and that actual events or results may differ materially.  In evaluating such statements, readers should specifically consider the various factors that could cause actual events or results to differ materially from those indicated by the forward-looking statements.

 

9

 

New Accounting Rules

 

Effective August 1, 2002, the Company adopted the statement promulgated by the Financial Accounting Standards Board, Statement of Financial Accounting Standards (“SFAS”) No. 142  As a result, amortization expense decreased by approximately $25,000 per month.  See Note 3 to the “Notes to Condensed Consolidated Financial Statements.”

 

Critical Accounting Policies

 

The Company’s consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America.  The preparation of these financial statements requires the use of estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented.  The significant accounting principles that we believe are the most important to aid in fully understanding our financial results are the following:

 

Revenue Recognition - The Company essentially has only one revenue recognition transaction in which the Company’s chemical products sold in the open market are recognized as revenue as risk of loss and title to the products transfer to customers, which usually occurs at the time a shipment is made.

 

Allowance for Doubtful Accounts - The Company provides an allowance for accounts receivable it believes it may not collect in full.  A provision for bad debt expense recorded to selling, general and administrative expenses increases the allowance.  Accounts receivable that are written off the Company’s books decrease the allowance.  The amount of bad debt expense recorded each period and the resulting adequacy of the allowance at the end of each period are determined using a combination of the Company’s historical loss experience, customer-by-customer analyses of the Company’s accounts receivable balances each period and subjective assessments of the Company’s future bad debt exposure.

 

Inventories - Inventories consist primarily of raw materials and finished goods that the Company holds for sale in the ordinary course of business.  It uses the first-in, first-out method to value inventories at the lower of cost or market.   Management believes the Company has not incurred impairments in the carrying value of its inventories.

 

Impairment of Long-lived Assets - The Company periodically reviews the carrying value of its long-lived assets held and used and assets to be disposed of, including supply contracts and other intangible assets, at least annually or when events and circumstances warrant such a review.  The carrying value of long-lived assets are evaluated for potential impairment on an individual asset basis.

 

ITEM 3.                                     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

The Company is exposed to certain market risks arising from transactions that are entered into in the ordinary course of business, primarily from changes in foreign exchange rates.  The Company generally does not utilize derivative financial instruments or hedging transactions to manage that risk.  However, the Company did enter into an interest rate swap transaction that effectively fixed the interest rate on its term loan at 5.0% for the remainder of the loan’s term.

 

10

 

ITEM 4.                                     CONTROLS AND PROCEDURES.

 

Within 90 days prior to the filing of this report, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), an evaluation of the effectiveness of the Company’s disclosure controls and procedures was performed.  Based on this evaluation, the CEO and CFO have concluded that the Company’s disclosure controls and procedures are effective to ensure that material information is recorded, processed, summarized and reported by management of the Company on a timely basis in order to comply with the Company’s disclosure obligations under the Securities Exchange Act of 1934 and the rules of the SEC.

 

PART II — OTHER INFORMATION

 

ITEM 1.                                     LEGAL PROCEEDINGS

 

The Company is not a party to any legal actions or proceedings, other than ordinary routine matters incidental to the business, and it does not believe any such actions or proceedings will have a material adverse effect on its business, results of operations or financial position.

 

ITEM 6.                                     EXHIBITS AND REPORTS ON FORM 8-K.

 

(a)                                  Exhibits:

 

The following documents were previously filed by the Company and are incorporated by this reference:

 

2.1 (i)		First Amended Joint Plan of Reorganization dated September 1, 1995, as modified and clarified to date.
2.1 (ii)		Asset Purchase and Sale Agreement dated June 26, 1998 with AlliedSignal, Inc.
2.1 (iii)		Asset Sale Agreement dated October 3, 2000 between the Company and GB Biosciences Corporation
2.1 (iv)		Asset Purchase Agreement dated December 30, 2002 between Boehringer Ingelheim Vetmedica, Inc. and KMG-Bernuth, Inc.
2.2		Stock Exchange Agreement dated September 13, 1996 by and between W.P. Acquisition Corp., Halter Financial Group, Inc., KMG-Bernuth, Inc. and certain shareholders of KMG-Bernuth, Inc.
3 (i)		Amended and Restated Articles of Incorporation.
3 (ii)		Bylaws.
3 (iii)		Articles of Amendment to Restated and Amended Articles of Incorporation, filed December 11, 1997.
4.1		Form of Common Stock Certificate.
10.1		Agency Agreement dated January 1, 1987 by and between Bernuth, Lembcke Co. Inc. and VfT AG.
10.2		Revolving Loan Agreement dated August 1, 1996 by and between KMG-Bernuth, Inc. and SouthTrust Bank of Alabama, National Association.
10.3		$2,500,000 Revolving Note dated August 1, 1996 payable by KMG-Bernuth, Inc. to SouthTrust Bank of Alabama, National Association.
10.4		1996 Stock Option Plan.
10.5		Stock Option Agreement dated October 17, 1996 by and between KMG-B, Inc. and Thomas H. Mitchell.

 

11

 

10.6		Consulting Agreement dated October 15, 1996 by and between the Company and Gilman Financial Corporation.
10.7		Split Dollar Insurance Agreement dated November 8, 1991 between KMG-Bernuth, Inc. and David L. Hatcher.
10.8		Split Dollar Insurance Agreement dated December 13, 1991 between KMG-Bernuth, Inc. and Bobby D. Godfrey.
10.9		Second Amendment to Revolving Loan Agreement.
10.10		$2,500,000 Amended and Restated Revolving Note.
10.11		Third Amendment to Revolving Loan Agreement.
10.12		$2,500,000 Amended and Restated Revolving Note dated December 31, 1997.
10.13		Employment Agreement dated February 1, 1998 with Bobby D. Godfrey.
10.14		Creosote Supply Agreement dated as of June 30, 1998 between AlliedSignal Inc. and the Company.
10.15		Performance Guaranty dated June 30, 1998 by the Company.
10.16		Term Loan Agreement between SouthTrust Bank, National Association and KMG-Bernuth, Inc.
10.17		$6,000,000 Term Note.
10.18		Guaranty of Payment by the Company.
10.19		Fourth Amendment to Revolving Loan Agreement.
10.20		Creosote Supply Agreement dated November 1, 1998 between Rütgers VFT and the Company
10.21		Option to Purchase 40,000 Shares of Common Stock dated as of September 16, 1998 between the Company and Halter Financial Group, Inc.
10.22		Warrant for the Purchase of 25,000 Shares of Common Stock dated as of March 17, 1999 between the Company and JP Turner & Company, L.L.C.
10.23		Manufacturing and Formulation Agreement dated October 3, 2000 between the Company and GB Biosciences Corporation.
10.24		Warrant for the Purchase of 25,000 Shares of Common Stock dated as of March 6, 2000 between the Company and JGIS, Ltd., an assignee of Gilman Financial Corporation.
10.25		Employment Agreement with Thomas H. Mitchell dated July 11, 2001.
10.26		Employment Agreement with John V. Sobchak dated June 26, 2001.
10.27		Supplemental Executive Retirement Plan dated effective August 1, 2001.
10.28		Sales Agreement dated January 1, 2002 between Reilly Industries, Inc. and the Company.
10.29		Contract Manufacturing Agreement dated December 30, 2002 between Boehringer Ingelheim Vetmedica, Inc. and KMG-Bernuth, Inc.
10.30		Amended and Restated Promissory Note dated December 30, 2002 made payable by KMG-Bernuth, Inc. to SouthTrust Bank.
21.1		Subsidiaries of the Company.
99.1		Direct Stock Purchase Plan.
99.2		Certificate under Section 906 of the Sarbanes-Oxley Act of 2002 of David L. Hatcher
99.3		Certificate under Section 906 of the Sarbanes-Oxley Act of 2002 of John V. Sobchak

 

12

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

KMG Chemicals, Inc.
By:	/s/ David L. Hatcher		Date:  June 13, 2003
	David L. Hatcher, President
By:	/s/ John V. Sobchak		Date:  June 13, 2003
	John V. Sobchak,
	Chief Financial Officer

 

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CERTIFICATE

 

I, David L. Hatcher, certify that:

 

1.  I have reviewed this quarterly report on Form 10-Q of KMG Chemicals, Inc.;

 

2.  Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

 

3.  Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects and financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

 

4.  The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

 

a)  designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

 

b)  evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

 

c)  presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

 

5.  The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

 

a)  all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

 

b)  any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

 

6.  The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

 

 

	Date:  June 13, 2003		/s/ David L. Hatcher
			David L. Hatcher
			President

 

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CERTIFICATE

 

I, John V. Sobchak, certify that:

 

1.  I have reviewed this quarterly report on Form 10-Q of KMG Chemicals, Inc.;

 

2.  Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

 

3.  Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects and financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

 

4.  The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

 

a)  designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

 

b)  evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

 

c)  presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

 

5.  The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

 

a)  all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

 

b)  any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

 

6.  The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

 

 

	Date:  June 13, 2003		/s/ John V. Sobchak
			John V. Sobchak
			Vice President & Chief Financial Officer

 

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