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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
/x/ Annual Report under Section 13 or 15 (d) of the Securities Exchange
Act of 1934 (Fee required)
For the fiscal year ended August 31, 1995
/ / Transition report under Section 13 or 15 (d) of the Securities
Exchange Act of 1934 (No fee required)
For the transition period from __________ to __________
Commission file number 0-13049
WATER-JEL TECHNOLOGIES, INC.
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(Name of Small Business Issuer in its Charter)
New York 13-3006788
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(State of Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
243 Veterans Boulevard, Carlstadt, New Jersey 07072
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(Address of Principal Executive Offices) (Zip Code)
(201) 507-8300
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(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12 (g) of the Exchange Act:
Common Stock
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(Title of Class)
A Warrant
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(Title of Class)
B Warrant
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(Title of Class)
Check whether the issuer: (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 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 past 90
days.
Yes X No_______
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure
will be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of
this Form 10-KSB or any amendment to this Form 10-KSB. / /
State issuer's revenues for its most recent fiscal year. $5,195,276
State the aggregate market value of the voting stock held by non-
affiliates computed by reference to the price at which the stock was sold,
or the average bid and asked prices of such stock, as of a specified date
within the past 60 days. $3,685,456 as of December 11, 1995.
Documents Incorporated by Reference: See Footnotes to Exhibits
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Item 1. Business
Introduction
Water-Jel Technologies, Inc., (the "Company") is a New York
corporation established in September 1979. Since its inception
the Company has focused its efforts on the development, manufacture
and marketing of products using its Water-Jel gel as emergency first
aid for burn injuries. Recently, the Company expanded its manufacturing
operations to include a line of generic creams and ointments.
Products
The Company currently markets three product lines. The
Water-Jel First Aid Product Line for Burns, generic creams and
ointments, and single use containers of Visine.
Water-Jel First Aid Product Line For Burns
The Water-Jel First Aid Product Line consists of Fire
Blankets, Burn dressings, Burn-Jel, UnBurn and Cool-Jel. The
Fire Blankets provide emergency first aid to burn victims at the
scene of a fire and during transportation to the hospital. They
also can be used to prevent small fires from spreading, to
extinguish fires by wetting and cooling, to handle hot materials,
and to protect trapped individuals as they escape a fire. The
Fire Blankets are marketed by the Company in four sizes: the
Water-Jel Heat Shield ("Heat Shield"), which is 8 feet by 6 feet;
the Water-Jel Fire Blanket-Plus ("Fire Blanket-Plus") which is 6
feet by 5 feet; and the Water-Jel Burn Wrap/Extinguisher ("Burn
Wrap/Extinguisher"), which is 3 feet by 2-1/2 feet. The Fire
Blanket Plus and the Burn Wrap/Extinguisher fire blankets are
packaged in sealed plastic containers or in laminated polyester
foil pouches in high-strength nylon bags with quick-release
Velcro closures. The Heat Shield is available only in the sealed
plastic container.
Water-Jel Sterile Burn Dressings provide emergency first aid
for victims who have small area body burns. By packaging the Burn
Dressings in a laminated polyester foil packet, the Water-Jel
Burn Dressing is easily transported and stored. The Burn
Dressings are manufactured in sizes ranging from 2" X 2" dressing
up to a 12" X 16" dressing designed for facial burns.
Water-Jel Burn Jel is a topical gel designed for minor burns
which combines the active ingredient Lidocaine, allowing fast
relief of pain, with the Company's Water-Jel gel, which cools and
soothes the burn site. The resulting topical provides the same
benefits found in other Water Jel products. It works quickly,
and is water soluble. The Burn Jel topical cream is packaged in
a 4 oz bottle or a single dose 1/8 oz. foil packet.
Water-Jel UnBurn is a topical gel designed for minor
sunburns which combines the active ingredient Lidocaine, allowing
fast relief of pain by cooling and soothing the sunburned area.
The resulting topical cream provides the same benefits found in
other Water Jel products. It works quickly, and is water soluble.
UnBurn is packaged in a 4 oz. bottle, 2 oz. bottle and a single
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dose 1/5 oz. foil packet.
Water-Jel Cool-Jel is a moisturizing topical cooling gel
which can be used for relief of minor burns, cuts and scrapes by
cooling the affected area and forming a protective barrier. The
Cool-Jel topical is packaged in a 4 oz. bottle and a single dose
1/8 oz. foil packet.
Generic Cream and Ointment Line
The Company has formulated a new line of generic creams and
ointments. The line consist of a First Aid Cream with moisturizing
Aloe, Hydrocortisone Cream 1%, and Triple Antibiotic ointment. The
line is packaged in 1/32 oz. unit dose packets.
Visine Single Line
Pursuant to an arrangement with Pfizer Inc, the Company
began distributing Visine Singles unit dose eye drops to the
industrial marketplace in the second quarter of fiscal 1995.
Visine Singles provide individuals fast relief from dry irritated
eyes by moisturizing and soothing. The product is packaged in
.014 fl oz. single dose container.
Sales and Marketing
Sales for the fiscal year ended August 31, 1995 were $5,029,217.
During the fiscal year the Company had sales of approximately
$1,287,000 or 26% of net sales to one customer. In fiscal 1995, sales
to foreign customers accounted for 18% of net sales as compared to 15%
of net sales for fiscal 1994. During fiscal 1995, the Company began
marketing Visine Singles unit dose eye drops to the industrial
marketplace. During fiscal 1995, the Company introduced Cool-Jel, a
moisturizing topical used for minor burns, cuts and scrapes and a line
of generic creams and ointments. The generic cream and ointment line
consists of First Aid Cream with Aloe, Hydrocortisone Cream 1%, and
Triple Antibiotic Ointment.
The Company continues its marketing efforts emphasizing
advertising in trade journals, a direct mail campaign to industry
groups, trade shows and conventions.
Government Regulation
The Company's products and manufacturing practices are
subject to regulation by the Food and Drug Administration ("FDA")
as well as by similar foreign authorities. FDA requirements
include adherence to good manufacturing practices, proper
labeling, and either premarket notification or premarket approval
(depending on the category of product) prior to commercial
marketing in the United States.
The Water-Jel Fire Blanket is a medical device subject to
regulation by the FDA. In March 1980, the Company's filing of a
premarket notification for the Water-Jel Fire Blanket under
Section 510(k) of the Medical Device Amendments to the Federal
Food, Drug, and Cosmetic Act to market the Fire Blanket was
declared effective. In January 1988, the Section 510(k)
notification for the Burn
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Dressings became effective, permitting the Company to market the Burn
Dressings as a sterile dressing. In February 1990, the Company secured
a Section 510(k) notification for a change to the use of medical grade
non-woven polyester fabric in the Burn Dressing line instead of woolen
fabric.
The Company's generic creams and ointment, Burn Jel and Unburn
line are classified as over the counter ("OTC") drug. The Company has
the necessary good manufacturing practice and quality controls to
manufacture such over the counter drugs in its facility.
The Company is also subject to periodic inspections by the
FDA relating to good manufacturing practices. The FDA has the
authority to require a suspension of manufacturing operations if
it finds serious deficiencies. Additional regulation may, in the
future, be imposed by Federal, state or local authorities,
particularly the FDA. Any new products will also be subject to
review of various regulatory authorities in virtually every
foreign country in which such products are offered for sale. To
the extent that any new products which the Company may develop
are deemed to be new pharmaceutical or new medical devices, such
products will require FDA and other regulatory clearance and/or
approvals prior to marketing. Such governmental regulation may
prevent or -substantially delay the marketing of any products
developed by the Company, cause the Company to undertake costly
procedures, and furnish a competitive advantage to the more
substantially capitalized companies which compete with the
Company. There can be no assurance that the Company will have the
requisite financial resources to complete the regulatory approval
process with respect to any new products which it may develop.
Manufacturing
The Company operates its manufacturing and warehousing from
its 17,700 square foot facility located in Carlstadt, New Jersey.
The Company has an additional 7,300 square feet of warehouse
space available near its main facility. The Carlstadt facility
employs automation extensively in the manufacture of the Water-
Jel Burn Dressing line, Water-Jel Burn Jel line, Water-Jel Unburn
Line, Water-Jel Cool-Jel Line and of their key component the gels.
The Company maintains an inventory of raw materials required
to formulate and produce the Company's product lines. The raw
materials are available from domestic or foreign sources.
Generally, the Company believes that it maintains sufficient
inventory to meet its projected production requirements. The
Company generally processes and ships orders within two weeks.
Orders are generally subject to cancellation without penalty.
There have been no significant order cancellations. The Company
has no material backlog of unfulfilled orders.
Research and Development
The Company has been working on the development of generic
creams and ointments as well as other complimentary products
which would be initially marketed to industry. The Company is
also exploring the development or acquisition of other products
compatible with its business.
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Patents
As a result of research and development efforts in modifying
and improving the Water-Jel gel, in April 1991 the Company was
granted a patent for a therapeutic, non-toxic, bacteriostatic
water-soluble and bio-degradable gel which may be utilized in the
Company's products. In January 1995, the Company was granted a
patent for a synthetic fabric containing a therapeutic, non-
toxic, water-soluble and bio-degradable gel used in the Company's
Burn Dressing product line.
The Company has obtained United States and foreign registrations
for several trademarks for use on the Company's products. These marks
and logos are used on the packaging of the Company's products.
Competition
The market in which the Company currently operates is
characterized by competition and rapid technological change.
Other firms, including Spenco Medical Corporation, C.R. Bard,
Inc. and Johnson & Johnson Products, Inc. manufacture and market
fire blankets, burn dressings and related fire safety products
and have been in business for a longer period of time, are better
established, have financial resources substantially greater, and
have more extensive facilities than those which now, or in the
foreseeable future, may be available to the Company. While some
segments of the market are dominated by large manufacturers,
other segments of the market are characterized by intense
competition among independent product manufacturers.
In the opinion of the Company's management, the Company's
Fire Blanket line of products is superior to the dry "fire"
blankets of its competitors. While dry "fire" blankets extinguish
a fire by oxygen deprivation or smothering, the Company's
Water-Jel Fire Blankets also remove excess heat from the victim's
body and clothing by wetting and cooling, thereby reducing the
possibility of re-combustion. Water-Jel Fire Blankets are also
superior to dry "fire" blankets because the wetting and cooling
properties of Water-Jel Fire Blankets soften burned-on clothing
to aid its removal from the victim's body. Water-Jel Fire
Blankets also allow its users to cover themselves and walk
through and escape a fire.
There are three competing methods of treating the small
burns on which the Company's Burn Dressing line would be used.
They are antiseptic sprays, combinations of salve covered with
sterile gauze and sterile pre-wetted dressings. These products
are produced by many different manufacturers. The Company
believes that its Burn Dressings offer advantages over these
methods in that, like the Fire Blankets, they cool the wound by
removing excess heat and loosen burned-on clothing. Also,
Water-Jel Burn Dressings come in a single unit and maintain their
moistness longer than dressings pre-wetted only with water.
In fiscal 1995 Nortrade International, Inc. ("Nortrade")
introduced a product which attempts to duplicate the Company's
First Aid Product Line for Burns. The Company believes that it
will be able to compete with Nortrade based upon the Company's
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established customer base, superior customer service and its
ability to offer a more diverse range of products.
Insurance
To date, there have been no material claims or threatened
claims against the Company by users of its products based on a
failure to perform as specified. In the event that any claims for
substantial amounts were to be successfully asserted against the
Company, they could have a materially adverse effect on the
Company's financial condition and its ability to distribute its
products. The Company maintains $11,000,000 of general product
liability insurance. There is no assurance that this amount will
be sufficient to cover potential claims or that the present
amount of insurance can be maintained at the present level of cost.
Employees
The Company currently employs 26 persons full time,
including two executive officers, 17 manufacturing personnel and
7 administrative employees. The Company is not a party to any
collective bargaining agreements and considers its relations with
its employees to be good.
Item 2. Properties
The Company's executive offices and plant, located at 243
Veterans Boulevard, Carlstadt, New Jersey, consist of
approximately 17,700 square feet and are occupied under a lease
which expires November 30, 1998 and provided for a base annual
rental of $119,603. The Company leases approximately 7,300
square feet of additional warehouse space near its main facility
pursuant to a lease which expires May 30, 1996 with a base annual
rental of $36,540.
Item 3. Legal Proceedings
In June 1995, a lawsuit was commenced against the Company by
Nortrade International, Inc. ("Nortrade") in the United States
District Court of Utah (Case No. 2:95CV-565s). Nortrade also
manufactures burn care products. The lawsuit alleges that the
Company engaged in various fraudulent and unfair activities
injurious to Nortrade's business, and seeks monetary damages and
injunctions prohibiting the Company from engaging in these
activities, including communicating with Nortrade's customers and
the Federal Food and Drug Administration regarding Nortrade's
products. The lawsuit also seeks a declaratory judgement that
Nortrade's trademark does not infringe on the Company's
trademarks. The Company intends to vigorously defend against the
lawsuit. The Company believes Nortrade is infringing upon the
Company's trademarks, and intends to file counterclaims against
Nortrade regarding trademark infringement and possibly other matters.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to shareholder vote in the fiscal
quarter ended August 31, 1995.
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Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
The following table sets forth the high and low bid prices
for the Company's Common Stock, Class A Warrants and Class B
Warrants for the periods indicated (the Class B Warrants were
delisted on March 23, 1995). Information for all periods is as
reported by NASDAQ. The figures shown represent interdealer
prices, without retail mark-up, markdown or commission, and may
not necessarily represent actual transactions. The following
table gives retroactive effect to a one-for-eight reverse stock
split effected in November 1994.
High Bid Low Bid
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Common Stock
Fiscal Year Ended August 31, 1995
1st Quarter...................... 2 3/4 1 -
2nd Quarter...................... 2 1/2 1 3/8
3rd Quarter...................... 1 15/16 1 1/4
4th Quarter...................... 1 1/8 1 3/16
Fiscal Year Ended August 31, 1994
1st Quarter ..................... 2 3/4 1 3/4
2nd Quarter...................... 3 - 2 -
3rd Quarter...................... 2 1/4 1 1/4
4th Quarter...................... 1 3/4 1 1/4
Class A Warrants
Fiscal Year Ended August 31, 1995
1st Quarter ..................... 1 1/2 1/4
2nd Quarter...................... 1 - 1/2
3rd Quarter...................... 11/16 11/32
4th Quarter...................... 7/16 3/8
Fiscal Year Ended August 31, 1994
1st Quarter ..................... 1 - 1/2
2nd Quarter...................... 1 1/4 3/4
3rd Quarter...................... 1 1/4 1/4
4th Quarter...................... 1/2 1/4
Class B Warrants
Fiscal Year Ended August 31, 1995
1st Quarter...................... 3/8 3/8
2nd Quarter...................... - -
3rd Quarter...................... - -
4th Quarter...................... - -
Fiscal Year Ended August 31, 1994
1st Quarter...................... 1/4 1/4
2nd Quarter...................... 1/2 1/4
3rd Quarter...................... 1/4 1/4
4th Quarter...................... 1/4 1/4
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As of December 11, 1995 the approximate number of beneficial
holders of the Common Stock of the Company was 6,000, based on
information received from the transfer agent and those brokerage
firms who hold the Company's securities in street name.
The Company has not paid any cash dividends since its
inception. By reason of its present financial status and
contemplated financial requirements, the Company does not
anticipate paying any cash dividends in the foreseeable future.
It is anticipated that any earnings will be used to finance the
Company's growth.
Item 6. Selected Financial Data
The selected financial data presented below for the
Company's statement of operations for each of the years in the
three-year period ended August 31, 1995 and the Company's balance
sheets at August 31, 1995 and 1994 are derived from the audited
financial statements which have been examined by Holtz Rubenstein
& Co., LLP, independent public accountants and which appear
elsewhere in this report. The selected balance sheet data at
August 31, 1993, 1992, and 1991 and statement of operations data
for the years ended August 31, 1992 and 1991 are also derived
from audited financial statements. The selected financial data
should be read in conjunction with the financial statements of
the Company and the related notes thereto included elsewhere herein.
Statement of Operations Data
<TABLE>
<CAPTION>
Year Ended August 31,
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1991 1992 1993 1994 1995
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<S> <C> <C> <C> <C> <C>
Net Sales................................ $3,889,885 $3,785,847 $4,071,140 $4,887,591 $5,029,217
Net Income (Loss)........................ (259,935) 522,873 210,112 1,240,847 787,376
Net Income (Loss) per share (1).......... ($ .08) $.15 $.06 $.35 $.22
Weighted average number of common shares
outstanding assuming full dilution (1). 3,388,385 3,456,290 3,497,469 3,498,857 3,623,005
(1) Gives effect to a one-for-eight reverse stock split effected in November 1994.
Balance Sheet Data
<CAPTION>
August 31,
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1991 1992 1993 1994 1995
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<S> <C> <C> <C> <C> <C>
Current Assets............................ $2,873,045 $3,189,214 $3,651,868 $5,291,933 $5,267,123
Current liabilities....................... 442,774 448,516 448,125 540,472 519,022
Working capital .......................... 2,430,271 2,740,698 3,203,743 4,751,461 4,748,101
Total assets.............................. 4,674,112 5,449,076 5,653,194 6,978,338 8,307,179
Stockholders'equity ...................... 4,227,171 4,961,290 5,177,025 6,420,122 7,658,257
</TABLE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Fiscal Year 1995 compared to Fiscal Year 1994
Net sales for the fiscal year ended August 31, 1995 ("fiscal
1995") and August 31, 1994 ("fiscal 1994"), respectively were
approximately $5,029,000 and $4,888,000, representing a 3%
increase in net sales. Sales generated revenues from operations of
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approximately $149,000 in fiscal 1995 as compared to approximately
$415,000 in fiscal 1994. Earnings from operations combined with other
income of $166,059 and an income tax benefit of $471,875, resulted in
the Company reporting $787,376 in net income for fiscal 1995 as
compared to $1,240,847 for fiscal 1994. During fiscal 1994, the
Company realized a gain of approximately $638,000 from a sale of a
marketable security.
Cost of goods sold during fiscal 1995 was approximately
$1,985,000 as compared to $1,743,000 during fiscal 1994,
representing 39% and 36% of net sales, respectively. Selling,
administrative and general expenses for fiscal 1995 were
approximately $2,879,000 (57% of net sales) as compared to
$2,726,000 (56% of net sales) in fiscal 1994. The increase in
selling, administrative and general expenses was principally
attributed to consumer related television, radio and print
advertising which accounted for approximately $372,000 in fiscal
1995 from approximately $165,000 in fiscal 1994.
Fiscal Year 1994 compared to Fiscal Year 1993
Net sales for the fiscal year ended August 31, 1994 ("fiscal
1994") and August 31, 1993 ("fiscal 1993"), respectively, were
approximately $4,888,000 and $4,071,000, representing a 20%
increase in net sales. The sales generated earnings from
operations in fiscal 1994 of approximately $415,000, a turnaround
of approximately $700,000 from the operating loss reported in
fiscal 1993. Earnings from operations combined with other income
that included a gain of $638,000 from the sale of a marketable
security, resulted in the Company reporting approximately
$1,200,000 in net income for fiscal 1994. During fiscal 1993,
the Company reported net income of approximately $210,000.
Cost of goods sold was approximately $1,743,000 during
fiscal 1994 as compared to $1,636,00 during fiscal 1993,
representing 36% and 40% of net sales, respectively. The Company
continued to benefit from its production efficiencies in its cost
of goods sold. Selling, administrative and general expenses for
fiscal 1994 were approximately $2,726,000 (56% of net sales) as
compared to $2,701,000 (66% of net sales) in fiscal 1993. During
fiscal 1994, the Company incurred approximately $165,000 in consumer
related advertising such as television, radio and printed advertising.
Liquidity and Capital Resources
At August 31, 1995, the Company had working capital of
approximately $4,748,000 as compared to $4,751,000 at August 31,
1994. During fiscal 1995, the Company sold 10,000 shares of
common stock of Mark Solutions, Inc. The Company received net
proceeds from the sale of this security of approximately $50,000.
In October 1994, the Company purchased an additional 195,000
shares of common stock in Mark Solutions, Inc. for an additional
investment of approximately $394,000. The Company also made a
bridge loan of $150,000 to Pen Interconnect, Inc., a corporation
with which one of the Company's director/shareholders has a
consulting agreement. This note was fully repaid in November
1995 with interest. In consideration for the bridge loan the
Company received 140,000
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warrants. In November 1995, Pen Interconnect, Inc. completed an
initial public offering of securities. Concurrently with that
offering Pen Interconnect, Inc. registered the Company's warrants
for public resale. The Company has agreed not to sell its
warrants until February 1996.
During fiscal 1995, the Company's bank extended for a period
of one year until January 1996 its line of credit. The line of
credit bears interest at 3/4% over the bank's prime rate and has
a maximum borrowing limit of $750,000. The line is secured by
the accounts receivable and inventory of the Company. At August
31, 1995 there were no balances outstanding in the line of
credit. Additionally, the Company was extended for a period of
one year until January 1996 a $250,000 term loan facility which
bears interest at 1 1/4% over the bank's prime rate. In October
1994, the Company borrowed $166,000 from its term loan facility
to assist in its equipment acquisitions related to its product
line expansion. At August 31, 1995 the total balance due on the
term loan facility is approximately $141,000.
The Company continues to fund its consumer product launch
with relatively modest expenditures. Some methods of consumer
marketing, such as national media advertising, would require
significant expenditures in excess of the Company's current
capital resources. In the event that additional funding may be
required the Company might seek to encourage the exercise of its
redeemable publicly traded Warrants or make a private placement
of its securities. The Company has at present no plans or
arrangements to raise additional capital by either method.
The consolidated statement of cash flows for the year ended
August 31, 1995 reflects net cash provided by operating
activities of $553,000. This results principally from the
Company's net income of $787,000. Cash provided by investing
activities was $182,000, consisting of proceeds from the sale of
a marketable securities of $987,500 less investment in marketable
securities of $394,000, acquisition of property and equipment of
$275,000 and notes receivable of $150,000.
The Company believes that it has adequate working capital
for at least the next twelve months of operations. As of
December 11, 1995 the Company had approximately $3,000,000 in cash.
Inflation
The Company has not been materially affected by the impact
of inflation.
Item 8. Financial Statements and Supplementary Data
The financial statements are included herein commencing on
Page F-1. The financial statement schedules are included as
Exhibit 28(c) to this report.
Item 9. Changes in and Disagreements with Accountants on Accounting
Not Applicable.
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Item 10. Directors and Executive Officers of the Registrant
The executive officers and directors of the Company are as follows:
Name Age Position
- -------------------- ------ --------------------------------
Peter D. Cohen...... 39 President, Chief Executive
Officer, Treasurer and Director
Yitz Grossman....... 40 Secretary and Chairman
Werner Haase........ 58 Director
Directors are elected to serve until the next annual meeting
of shareholders of the Company or until their successors are
elected and qualified. The Board of Directors held two meetings
in the fiscal year ended August 31, 1995 at which all of the
directors were in attendance. The Board also acted by written
consents and met informally during the year. Officers serve at the
discretion of the Board of Directors subject to any contracts of employment.
Peter D. Cohen has served as President and Chief Executive
Officer since May 1988. From May 1985 until August 1985 he served
as the Company's Vice President of Finance, and from August 1985
until May 1988, Mr. Cohen served as Treasurer of the Company.
From July 1979 to May 1985, Mr. Cohen, a certified public
accountant, was employed by Holtz Rubenstein & Co. LLP, independent
public accountants. In September 1992, Mr. Cohen became a director
of the American Tea Tree Association (ATTA) and in September 1994
was elected as treasurer. ATTA is a non-profit trade organization
involved in the education and promotion of tea tree oil products.
Yitz Grossman has been a Director of the Company since
September 1987 and has served as Secretary since May 1988. He was
elected Chairman of the Board in March 1989. In July 1984, Mr.
Grossman formed Target Capital Corporation, a New York privately-
held corporation engaged in financial consulting, and has been
the Chairman and President of that corporation since that time.
Mr. Grossman is also director of the following publicly held
companies: Mark Solutions, Inc., which produces prefabricated
prison facilities and Datatrend Services, Inc., a company which
is engaged in the wholesale and retail distribution of new, used
and refurbished computer hardware and components.
Werner Haase has served as a Director of the Company since
September 1987. For more than the past five years, Mr. Haase has
been President and a Director and, since December 1986, has been
Chief Executive Officer of Journeycraft, Inc., a privately-held
New York corporation involved in travel and sales promotion. Mr
Haase is also a director of Pure Tech International, Inc., a
company which manufactures specialty plastic products and is
engaged in the recycling of post consumer plastics and plastic
injection molding and Multi-Media Tutorial Services, Inc., a
company engaged in the production and marketing of educational videos.
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Item 11. Executive Compensation
The information set forth under "Election of Directors --
Executive Compensation, Employment Agreements, Non-Qualified
Stock Option Plan and 1990 Stock Option Plan" in the Company's
proxy statement with respect to its forthcoming annual shareholders
meeting is incorporated herein by reference and made a part hereof
in response to the information requested by this item.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information set forth under "Election of Directors --
Principal Shareholders and Share Ownership of Officers and
Directors" in the Company's proxy statement with respect to its
forthcoming annual shareholders meeting in response to the
information requested by this item.
Item 13. Certain Relationships and Related Transactions
The information set forth under "Election of Directors --
Certain Relationships and Related Transactions" in the Company's
proxy statement with respect to its forthcoming annual shareholders
meeting is incorporated herein by reference and made a part hereof
in response to the information requested by this item.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial Statements and Schedules
The financial statements and schedules
appearing beginning on the following page are
filed as part of this annual report.
2. Exhibits
The exhibits listed on the Index to Exhibits
following the Signature Page herein are filed
as part of this annual report by incorporation
by reference from the filings indicated in the
footnotes to the Index.
(b) Not Applicable.
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WATER-JEL TECHNOLOGIES, INC.
INDEX TO FINANCIAL STATEMENTS
CONTENTS
Page
----
Independent auditors' report F-1
Balance sheets F-2
Statements of operations F-3
Statement of stockholders' equity F-4
Statements of cash flows F-5 - F-6
Notes to financial statements F-7 - F-15
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[Letterhead of Holtz Rubenstein & Co., LLP]
Independent Auditors' Report
Board of Directors and Stockholders
Water-Jel Technologies, Inc.
Carlstadt, New Jersey
We have audited the accompanying balance sheets of Water-Jel Technologies,
Inc. as of August 31, 1995 and 1994 and the related statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended August 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Water-Jel Technologies, Inc.
as of August 31, 1995 and 1994, and the results of their operations and their
cash flows for each of the three years in the period ended August 31, 1995, in
conformity with generally accepted accounting principles.
As discussed in Note 1 to the financial statements, the Company changed its
method of accounting for certain investments in equity securities.
/s/ Holtz Rubenstein & Co., LLP
HOLTZ RUBENSTEIN & CO., LLP
Melville, New York
December 1, 1995
F-1
<PAGE>
HOLTZ RUBENSTEIN & CO., LLP
WATER-JEL TECHNOLOGIES, INC.
BALANCE SHEETS
August 31,
----------------------
ASSETS 1995 1994
------ ---- ----
CURRENT ASSETS:
Cash and cash equivalents $ 2,924,322 $ 2,077,893
Accounts receivable, net of allowance for
doubtful accounts of $25,000 at August 31,
1995 and 1994 (Note 9) 631,829 823,098
Inventories (Note 2) 1,113,369 854,437
Notes receivable (Note 4) 325,000 300,000
Due from sale of marketable securities -- 937,500
Deferred income taxes (Note 8) 136,000 133,000
Prepaid expenses and other current assets 136,603 166,005
------------ ------------
Total current assets 5,267,123 5,291,933
PROPERTY AND EQUIPMENT (Note 5) 1,062,224 989,312
OTHER ASSETS:
Patents and trademarks, net of accumulated
amortization of $78,888 and $75,753 at
August 31, 1995 and 1994, respectively 136,044 160,487
Marketable securities -- at lower of cost or market -- 150,000
Marketable securities available for sale --
at fair value (Note 3) 1,255,931 --
Deferred income taxes (Note 8) 218,728 --
Other assets (Note 6) 367,129 386,606
------------ ------------
$ 8,307,179 $ 6,978,338
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 479,822 $ 530,172
Current portion of long-term debt (Note 7) 39,200 10,300
------------ ------------
Total current liabilities 519,022 540,472
------------ ------------
LONG-TERM DEBT (Note 7) 129,900 17,744
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 12)
STOCKHOLDERS' EQUITY: (Notes 3 and 10)
Common stock, $.08 par value; authorized
12,500,000 shares; 3,499,180 issued and
outstanding 279,934 279,934
Preferred stock, $.08 par value; authorized
125,000 shares; -0- issued and outstanding -- --
Unrealized gain on investments reported
at fair value 450,759 --
Additional paid-in capital 9,633,335 9,633,335
Deficit (2,705,771) (3,493,147)
------------ ------------
7,658,257 6,420,122
------------ ------------
$ 8,307,179 $ 6,978,338
============ ============
See notes to financial statements
F-2
<PAGE>
HOLTZ RUBENSTEIN & CO., LLP
WATER-JEL TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
Years Ended
August 31,
--------------------------------
1995 1994 1993
---- ---- ----
REVENUES: (Note 9)
Sales, net $5,029,217 $4,887,591 $4,071,140
Other income 35,002 637,902 425,413
Interest income 131,057 72,339 54,404
----------- ---------- ----------
5,195,276 5,597,832 4,550,957
----------- ---------- ----------
COSTS AND EXPENSES: (Note 12)
Cost of goods sold 1,985,220 1,742,541 1,636,036
Selling, general and
administrative 2,879,092 2,726,358 2,701,310
Interest expense 15,463 3,086 3,499
----------- ---------- ----------
4,879,775 4,471,985 4,340,845
----------- ---------- ----------
INCOME BEFORE INCOME TAXES 315,501 1,125,847 210,112
INCOME TAX BENEFIT (Note 8) 471,875 115,000 --
NET INCOME $ 787,376 $1,240,847 $ 210,112
=========== ========== ==========
NET INCOME PER COMMON SHARE:
(Note 11)
Primary $.22 $.35 $.06
=========== ========== ==========
Assuming full dilution $.22 $.35 $.06
=========== ========== ==========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING:
Primary 3,547,716 3,498,857 3,497,469
=========== ========== ==========
Assuming full dilution 3,623,005 3,498,857 3,497,469
=========== ========== ==========
See notes to financial statements
F-3
<PAGE>
HOLTZ RUBENSTEIN & CO., LLP
WATER-JEL TECHNOLOGIES, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Preferred Stock
12,500,000 Shares 125,000 Shares
$.08 Par Value $.08 Par Value
------------------ ---------------- Additional
Par Par Paid-in Unrealized
Shares Value Shares Value Capital Gain (Deficit) Total
------ ----- ------ ----- ------- ---- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE -- AUGUST 31, 1992 3,496,555 $279,724 -- $ -- $9,625,672 $ -- $(4,944,106) $4,961,290
EXERCISE OF WARRANTS 1,875 150 -- -- 5,473 -- -- 5,623
NET INCOME FOR THE YEAR
ENDED AUGUST 31, 1993 -- -- -- -- -- -- 210,112 210,112
----------- --------- ------ ------ ---------- --------- ----------- -----------
BALANCE -- AUGUST 31, 1993 3,498,430 279,874 -- -- 9,631,145 -- (4,733,994) 5,177,025
EXERCISE OF WARRANTS 750 60 -- -- 2,190 -- -- 2,250
NET INCOME FOR THE YEAR
ENDED AUGUST 31, 1994 -- -- -- -- -- -- 1,240,847 1,240,847
----------- --------- ------ ------ ---------- --------- ----------- -----------
BALANCE -- AUGUST 31, 1994 3,499,180 279,934 -- -- 9,633,335 -- (3,493,147) 6,420,122
UNREALIZED GAIN ON
INVESTMENTS -- -- -- -- -- 450,759 -- 450,759
NET INCOME FOR THE YEAR
ENDED AUGUST 31, 1995 -- -- -- -- -- -- 787,376 787,376
----------- --------- ------ ------ ---------- --------- ----------- -----------
BALANCE -- AUGUST 31, 1995 3,499,180 $279,934 -- $ -- $9,633,335 $450,759 $(2,705,771) $7,658,257
=========== ========= ====== ====== ========== ========= =========== ===========
</TABLE>
See notes to financial statements
F-4
<PAGE>
HOLTZ RUBENSTEIN & CO., LLP
WATER-JEL TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
Years Ended
August 31,
------------------------------
1995 1994 1993
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 787,376 $1,240,847 $ 210,112
---------- ---------- ----------
Adjustments to reconcile net
income to net cash provided
by operating activities:
Gain on sale of marketable securities (35,000) (637,500) (425,413)
Bad debt allowance 151,370 15,000 --
Depreciation and amortization 246,012 288,026 282,316
Deferred income tax benefit (498,000) (133,000) --
Changes in operating assets and
liabilities:
(Increase) decrease in assets:
Accounts receivable 191,269 97,966 12,966
Inventories (258,932) (178,412) 122,057
Prepaid expenses and other
current assets 3,032 (55,765) 52,634
Other assets 16,492 135,512 23,255
Increase (decrease) in liabilities:
Accounts payable and accrued
expenses (50,349) 92,347 (1,317)
---------- ---------- ----------
Total adjustments (234,106) (375,826) 66,498
---------- ---------- ----------
Net cash provided by operating
activities 553,270 865,021 276,610
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in marketable securities (393,900) -- (337,500)
Proceeds from sale of marketable
securities 987,500 -- 737,913
Acquisition of property and equipment (275,113) (89,469) (171,213)
Proceeds from sale of property and
equipment 13,616 -- --
Notes receivable (150,000) (300,000) --
Acquisition of patents and trademarks -- (19,148) (25,822)
---------- ---------- ----------
Net cash provided by (used in)
investing activities 182,103 (408,617) 203,378
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings 166,000 -- --
Principal payments of long-term debt (54,944) (10,300) (10,300)
Proceeds from the exercise of warrants
and options -- 2,250 5,623
---------- ---------- ----------
Net cash provided by (used in)
financing activities 111,056 (8,050) (4,677)
---------- ---------- ----------
(Continued on next page)
F-5
<PAGE>
HOLTZ RUBENSTEIN & CO., LLP
WATER-JEL TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
(Continued)
Years Ended
August 31,
------------------------------
1995 1994 1993
---- ---- ----
Net increase in cash and cash equivalents 846,429 448,354 475,311
Cash and cash equivalents at beginning
of year 2,077,893 1,629,539 1,154,228
---------- ---------- ----------
Cash and cash equivalents at end of year $2,924,322 $2,077,893 $1,629,539
========== ========== ==========
Supplemental disclosure of cash flow information:
Interest payments approximated $15,500, $3,100 and $3,500 for the years ended
August 31, 1995, 1994, and 1993, respectively.
Income taxes paid approximate $3,946, $2,400 and $4,700 for the years ended
August 31, 1995, 1994 and 1993, respectively.
Installment obligations of $30,000 were incurred during the year ended
August 31, 1995 for the purchase of transportation equipment.
See notes to financial statements
F-6
<PAGE>
HOLTZ RUBENSTEIN & CO., LLP
WATER-JEL TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
THREE YEARS ENDED AUGUST 31, 1995
1. Summary of Significant Accounting Policies:
a. Description of business
Water-Jel Technologies, Inc. (the "Company") manufactures a line of
medical products for the first aid treatment of burns. Its products include
fire blankets, sterile burn dressings and topical creams and ointments.
b. Inventories
Inventories are stated at the lower of cost (first-in, first-out
method) or market.
c. Investments in marketable securities
The Company adopted Financial Accounting Standards Board ("FASB")
Statement No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" ("FASB No. 115"). FASB No. 115 requires that equity securities
having readily determinable fair values and all investments in debt securities
be classified and accounted for in three categories. Debt securities that
management has the positive intent and ability to hold to maturity are
classified as "held-to-maturity securities" and reported at amortized cost.
Debt and equity securities that are bought and principally held for the purpose
of selling them in the near term are classified as "trading securities" and
reported at fair value, with unrealized gains and losses included in operating
results. Debt and equity securities not classified as either held-to-maturity
securities or trading securities are classified as "available-for-sale
securities" and reported at fair value, with the unrealized gains and losses
excluded from operating results and reported as a separate component of
stockholders' equity.
Gains and losses on the sale of securities available-for-sale are
computed on the basis of specific identification of the adjusted cost of each
security.
d. Depreciation and amortization
Depreciation of equipment is computed principally by the straight-line
method over the estimated useful lives of the related assets. Leasehold
improvements are amortized over the remaining lease term.
F-7
<PAGE>
HOLTZ RUBENSTEIN & CO., LLP
1. Summary of Significant Accounting Policies: (Cont'd)
e. Patents and trademarks
Patents, stated at cost less accumulated amortization, are amortized
using the straight-line method over lives ranging between 11 and 12 years.
Trademarks, stated at cost less accumulated amortization, are amortized over 60
months.
f. Statement of cash flows
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents.
g. Concentration of Risk
The Company invests its excess cash in deposits and money market
accounts with major financial institutions and in commercial paper of companies
with strong credit ratings. Generally, the investments mature within ninety
days and therefore, are subject to little risk. The Company has not experienced
losses related to these investments.
The concentration of credit risk in the Company's accounts receivable
is substantially mitigated by the Company's credit evaluation process,
reasonably short collection terms and the geographical dispersion of revenue.
Although the Company generally does not require collateral, reserves for
potential credit losses are maintained and such losses have been within
management's expectations.
h. Income taxes
Deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities, and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
2. Inventories
Inventories consist of the following:
August 31,
-----------------
1995 1994
---- ----
Raw materials $ 733,481 $529,526
Finished goods 379,888 324,911
---------- --------
$1,113,369 $854,437
========== ========
3. Investment in Marketable Securities:
In the fourth quarter of 1995, the Company adopted SFAS 115 "Accounting for
Certain Investments in Debt and Equity Securities".
F-8
<PAGE>
HOLTZ RUBENSTEIN & CO., LLP
3. Investment in Marketable Securities: (Cont'd)
At August 31, 1995, marketable equity securities, which are classified as
available for sale securities, are valued at the fair value of the securities
and the unrealized gain on the securities, net of income taxes, are reflected in
stockholders' equity. During the year ended August 31, 1995, unrealized gain
(net of income taxes) on available for sale securities amounted to $291,884.
Furthermore, cash flows from purchases and sales of available for sale
securities, if any, would be classified as investing activities in the statement
of cash flows.
Below is a summary of the unrealized gain net of income taxes from available
for sale securities:
Balance at September 1, 1994 $ --
Cumulative effect of change in
accounting principle to reflect
marketable equity securities
available for sale at their
fair value as of August 31, 1994 158,875
Unrealized gain in fair value
of available for sale securities
for the year ended August 31, 1995 291,884
----------
Balance at August 31, 1995 $450,759
==========
4. Notes Receivable:
During 1995, the Company loaned $150,000 to a corporation with which one of
the Company's directors/shareholders has a consulting agreement. This note
bears interest at 8% per annum and was repaid subsequent to year end from the
proceeds of a public offering. Additionally, as consideration for the loan, the
Company received 140,000 warrants which were registered as part of the offering.
Also included in notes receivable at August 31, 1995 is $175,000 due from a
non-affiliated company. This loan was evidenced by a note bearing interest at
8% per annum and was originally payable on August 31, 1994. As of November,
1995 this loan remains unpaid and the Company is negotiating collection of it.
5. Property and Equipment:
Property and equipment, at cost, consists of the following:
August 31,
------------------------
1995 1994
---- ----
Machinery and equipment $1,390,438 $1,149,906
Furniture and fixtures 325,548 316,498
Transportation equipment 90,752 92,621
Leasehold improvements 478,293 474,297
----------- -----------
2,285,031 2,033,322
Less accumulated depreciation
and amortization 1,222,807 1,044,010
----------- -----------
$1,062,224 $ 989,312
=========== ===========
F-9
<PAGE>
HOLTZ RUBENSTEIN & CO., LLP
5. Property and Equipment: (Cont'd)
Machinery and equipment having a net book value of $156,000 serves as
collateral to the term loan discussed in Note 7.
6. Other Assets:
Other assets at August 31, 1995 and 1994 include approximately $176,000 and
$159,000, respectively, of cash surrender value on life insurance policies.
7. Long-Term Debt:
August 31,
-------------------
1995 1994
---- ----
Long-term debt consists of the following:
Term loan payable in monthly install-
ments of $2,767 plus interest at
1-1/4% over the bank's prime rate
through October 2000. (a) $141,100 $ --
Term loans payable in monthly install-
ments of $500 plus interest at 9.50%
through April 2000 28,000 28,044
--------- --------
169,100 28,044
Less current portion 39,200 10,300
--------- --------
$129,900 $ 17,744
========= ========
(a) The Company has available a $250,000 term loan facility of which
$109,000 remains unused at August 31, 1995. Borrowings bear interest at 1-1/4%
over the bank's prime rate (8.75% at August 31, 1995).
In addition, the Company maintains a line of credit with a bank expiring in
January 1996. The line of credit bears interest at 3/4% over the bank's prime
rate and has a maximum borrowing limit of $750,000. The line is secured by
accounts receivable and inventory of the Company. At August 31, 1995, there was
no balance outstanding.
Annual maturities of long-term debt are as follows:
Year Ending
August 31,
----------
1996 $ 39,200
1997 39,200
1998 39,200
1999 39,200
2000 12,300
---------
$169,100
=========
F-10
<PAGE>
HOLTZ RUBENSTEIN & CO., LLP
8. Income Taxes:
The provision (benefit) for income taxes is comprised of the following:
Years Ended August 31,
-----------------------------
1995 1994 1993
---- ---- ----
Current:
Federal $ 3,251 $ 16,000 $ --
States 22,874 2,000 --
--------- --------- ---------
26,125 18,000 --
--------- --------- ---------
Deferred:
Federal (498,000) (133,000) --
States -- -- --
--------- --------- ---------
(498,000) (133,000) --
--------- --------- ---------
$(471,875) $(115,000) $ --
========= ========= =========
The Company has net operating loss carryforwards of approximately
$2,340,000 which can be utilized to reduce future taxable income through 2006.
The current provision is the result of the Alternative Minimum tax calculations.
The net deferred tax amounts included in the financial statements consist
of the following:
August 31,
------------------
1995 1994
---- ----
Deferred tax assets
Tax loss carryforwards $ 795,655 $ 960,480
AMT credit carryforwards 22,918 4,611
Contributions carryover 46,730 --
General business credit
carryforwards 36,127 36,127
---------- ----------
901,430 1,001,218
Deferred tax liabilities
Unrealized gain on marketable
securities (276,272) --
Valuation allowance for
deferred tax assets (270,430) (868,218)
---------- ----------
Net deferred income taxes $ 354,728 $ 133,000
========== ==========
The Company's effective tax rate for the years ended 1995 and 1994 on
earnings differs from the Federal Statutory regular tax rate as follows:
Years Ended
August 31,
---------------
1995 1994
---- ----
Federal tax expense at statutory
rate 34.0% 34.0%
State income tax expense 4.5 4.5
Deferred taxes:
Benefit (107.8) (90.0)
Valuation allowance -- 79.6
Recognized net operating loss
carryforwards (32.8) (38.3)
------- ------
(102.1)% (10.2)%
======= ======
F-11
<PAGE>
HOLTZ RUBENSTEIN & CO., LLP
9. Foreign Sales and Major Customer Information:
Sales to foreign customers, located principally in Asia, Europe, Latin
America and Canada, accounted for approximately 18%, 15% and 21%, respectively,
of net sales for the years ended 1995, 1994 and 1993. Accounts receivable from
foreign customers approximated 17% and 7%, respectively, of accounts receivable
at August 31, 1995 and 1994.
Sales to one major customer approximated 26% of net sales for the year ended
August 31, 1995. Sales to one customer approximated 20% of net sales for the
year ended August 31, 1994.
10. Stockholders' Equity:
a. Stock split
On November 28, 1994, the Company effected a 1 for 8 reverse stock
split. All references to number of shares and per share data in the financial
statements and accompanying notes for all periods presented have been restated
to reflect the reverse stock split.
b. Stock options/warrants
(i) The Company adopted a Non-Qualified Stock Option Plan which provides
for the granting of options to purchase not more than 187,500 shares of common
stock to employees of the Company, including directors. Pursuant to the Plan,
and at the Board's discretion, the options expire up to ten years from the date
of grant, and the exercise price will be determined by the Board of Directors.
Options granted under the Plan expire three years from the date of grant. The
Plan terminated on April 6, 1994.
The following table summarizes the status of stock options outstanding
under the Company's option plan:
Number of Shares Option Prices
---------------- -------------
Outstanding, August 31, 1992 140,625 $2.32-$2.75
Granted 128,125 $1.52
Canceled and expired (128,125) $2.32-$2.75
----------
Outstanding, August 31, 1993 140,625 $1.52-$2.32
Granted 12,500 $2.00
Canceled and expired (12,500) $2.32
----------
Outstanding, August 31, 1994 140,625 $1.52-$2.32
Granted -- --
Canceled and expired -- --
----------
Outstanding, August 31, 1995 140,625 $1.52-$2.32
==========
F-12
<PAGE>
HOLTZ RUBENSTEIN & CO., LLP
10. Stockholders' Equity: (Cont'd)
b. Stock options/warrants (Cont'd)
(ii) During 1990, the Company adopted an incentive stock option plan
(the "1990 Plan") which provides for the granting of options to employees,
officers, directors, and others who render services to the Company. Under the
terms of the Plan, options to purchase not more than 187,500 shares of common
stock may be granted, at a price which may not be less than the fair market
value per share in the case of incentive stock options or 85% of fair market
value for non-qualified options. The options expire up to ten years from the
date of grant.
The following table summarizes the status of stock options outstanding
under the Company's 1990 plan:
Number of Shares Option Prices
---------------- -------------
Outstanding, August 31, 1992 120,000 $2.32-$2.56
Granted 176,250 $1.52
Canceled (120,000) $2.32-$2.56
---------
Outstanding, August 31, 1993 176,250 $1.52
Granted 11,250 $1.52
---------
Outstanding, August 31, 1994 187,500 $1.52
Granted -- --
Canceled -- --
---------
Outstanding, August 31, 1995 187,500 $1.52
=========
(iii) During 1995, the Company adopted an incentive stock option plan
(the "1995 Plan") which provides for the granting of option to employees,
officers, directors, and others who render services to the Company. Under the
terms of the plan, options to purchase not more than 500,000 shares of common
stock may be granted, at a price which may not be less than the fair market
value per share in the case of incentive stock options or 85% of fair market
value for non-qualified options. Any options granted under the plan expires ten
years from the date of grant. The plan expires March 1, 2005. As of November,
1995 no options have been granted under the plan.
(iv) In connection with a second public offering of its securities in
November, 1988, the Company issued Class A warrants. Each Class A warrant
entitles the holder to purchase one share of common stock and one Class B
warrant at an exercise price of $3.00 per share. Each Class B warrant entitles
the holder to purchase one share of common stock for an exercise price of $6.00
per share. Class A and B warrants are exercisable through October 1996.
In addition, the underwriter for the second offering received an
option to acquire 106 units for an exercise price of $6,500 per unit. Each unit
consists of 1,666.625 shares of common stock and an equivalent number of Class A
warrants. The terms of the Class A and B warrants are identical to the warrants
issued in the public offering. The option expires in October, 1996.
F-13
<PAGE>
HOLTZ RUBENSTEIN & CO., LLP
10. Stockholders' Equity: (Cont'd)
b. Stock options (Cont'd)
(v) In October 1994, the Company issued options to acquire 420,000 shares
of common stock to its officers, directors and certain legal counsel. These
options have been issued outside of any of the existing plans and require
restrictive legend. The exercise price of these options are $1.52 and expire in
October, 2004.
The above transactions did not result in any compensation cost, as the
exercise prices either equal or exceed the fair market value of the stock at the
date of issuance.
c. Common shares reserved at August 31, 1995
Incentive stock option plans 687,500
Non-qualified stock option plan 140,625
Class A Warrants 1,560,858
Class B Warrants 1,766,623
Underwriters' units 529,984
Key employees' units 420,000
---------
5,105,590
=========
11. Income Per Share:
Net income per share has been computed by dividing net income by the
weighted average number of common stock and common stock equivalents outstanding
during each period. Common stock equivalents represent the dilutive effect of
the assumed exercise of certain outstanding stock options and warrants.
12. Commitments and Contingencies:
a. Leases
The Company leases manufacturing and office facilities under
non-cancellable leases which expire between May 1996 and November 1999 The
leases require minimum future rental payments as follows:
Years Ending
August 31,
----------
1996 $147,000
1997 120,000
1998 120,000
1999 30,000
In addition, the Company is obligated to pay real estate taxes.
Rent expense for the years ended 1995, 1994 and 1993 approximated
$168,000, $184,000 and $193,000, respectively.
F-14
<PAGE>
HOLTZ RUBENSTEIN & CO., LLP
12. Commitments and Contingencies: (Cont'd)
b. Employment agreements
The Company has entered into employment agreements with two of its
officers which provides for annual salaries aggregating $250,000. These
agreements provide for aggregate annual bonuses of .5% of total revenues to each
of the officers and also provide for a one-time compensation payment of three
times the current annual compensation in the event of a change in corporate
control, as defined.
F-15
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, Registrant has duly caused this
report to be signed on its behalf by the undersigned thereunto
duly authorized.
WATER-JEL TECHNOLOGIES, INC.
By /s/ Peter D. Cohen
--------------------------
Peter D. Cohen,
President and
Chief Executive Officer
Dated: December 13, 1995
Pursuant to the requirements of the Securities Exchange Act
of 1934, this Report has been signed below on December 12, 1994
by the following persons on behalf of Registrant and in the
capacities indicated.
/s/ Peter D. Cohen
-----------------------------------
Peter D. Cohen,
President, Chief Executive Officer,
Chief Financial Officer, Principal
Accounting Officer and Director
/s/ Yitz Grossman
-----------------------------------
Yitz Grossman,
Secretary and Chairman
/s/ Werner Haase
-----------------------------------
Werner Haase, Director
13
<PAGE>
Exhibits
(3) (a) Articles of Incorporation (1), previous Amendments
(3) (7) (8)
(3) (b) By-laws of the Registrant(1)
(4) (a) Form of Common Stock(1)
(4) (b) Form of Class A Warrant(2)
(4) (c) Form of Warrant Agreement(2)
(10) (a) Employment Agreement with Peter Cohen(6)
(10) (b) Assignments of Patent Rights(3)
(10) (c) Agreement dated July 13, 1988 between Trilling
Medical Technologies, Inc., Yitz Grossman, Emanuel
Trilling and Cary Trilling(4)
(10) (d) Lease with Lawrence Russo, Jr.(5)
(10) (e) Employment Agreement with Yitz Grossman(6)
(10) (f) Lease with MPL&M Associates(6)
(24) Consent of Holtz Rubenstein & Co., LLP*
(28) (a) Copy of Non-Qualified Stock Option Plan(1)
(28) (b) Copy of 1990 Stock Option Plan(6)
_____________________________
* Filed herewith
(1) Incorporated by reference from the Company's Registration
Statement on Form S-18, File No. 2-90512-NY, initially
filed with the Commission on April 12, 1984.
(2) Incorporated by reference from the Company's Registration
Statement on Form S-1, File No. 33-23910, initially filed
with the Commission on August 23, 1988.
(3) Incorporated by reference from the Company's Annual Report
on Form 10-K for the fiscal year ended August 31, 1987.
(4) Incorporated by reference from the Company's Current
Report on Form 8-K filed with the Commission on July 22,
1988.
(5) Incorporated by reference from the Company's Annual Report
on Form 10-K for the fiscal year ended August 31, 1988.
(6) Incorporated by reference from the Company's Annual Report
on Form 10-K for the fiscal year ended August 31, 1990.
(7) Incorporated by reference from the Company's Annual Report
on Form 10-K for the fiscal year ended August 31, 1991.
(8) Incorporated by reference from the Company's Annual Report
on Form 10-KSB for the fiscal year ended August 31, 1994.
14
<PAGE>
[Letterhead of Holtz Rubenstein & Co., LLP]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in Registration Statement
No. 33-29744 on Form S-3 and Registration No. 33-35816 on Form S-8 of our report
dated December 1, 1995 appearing in the Water-Jel Technologies, Inc.'s annual
report on Form 10-KSB for the fiscal year ended August 31, 1995.
/s/ Holtz Rubenstein & Co., LLP
HOLTZ RUBENSTEIN & CO., LLP
Melville, New York
December 12, 1995
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