<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
/x/ Quarterly report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended February 29, 1996
/ / Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from __________ to __________
Commission file number 0-13049
WATER-JEL TECHNOLOGIES, INC.
_______________________________________________________________________
(Exact Name of Small Business Issuer as Specified in its charter)
NEW YORK 13-3006788
___________________________________ ______________________
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
243 VETERANS BOULEVARD, CARLSTADT, NEW JERSEY 07072
______________________________________________________________________
(Address of Principal Executive Offices)
(201) 507-8300
______________________________________________________________________
(Issuer's Telephone Number, Including Area Code)
______________________________________________________________________
(Former Name, Former Address and Former Fiscal Year, if Changed Since
Last Report)
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 the past 90 days.
Yes X No ____
APPLICABLE ONLY TO ISSUERS INVOLVED IN
BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Exchange Act
after the distribution of securities under a plan confirmed by a court.
Yes ____ No ____
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 3,499,180 as of
April 16, 1996.
1
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WATER-JEL TECHNOLOGIES, INC.
INDEX
PART I
ITEM 1. Financial Information Page No.
Balance Sheet
February 29, 1996 and August 31, 1995 . . . . . . . . . . 3
Statement of Operations
Six and Three Months Ended
February 29, 1996 and February 28, 1995 . . . . . . . . . 4
Statements of Cash Flow
Six Months Ended February 29, 1996 and
February 28, 1995 . . . . . . . . . . . . . . . . . . 5
Notes to Financial Statements . . . . . . . . . . . . . . 6-8
ITEM 2. Management's Discussion and Analysis of
the Financial Condition and
Results of Operations . . . . . . . . . . . . . 9-10
PART II
Other Information . . . . . . . . . . . . . . . . . . . . . 11-12
Signatures . . . . . . . . . . . . . . . . . . . . . . . . 13
2
<PAGE>
WATER-JEL TECHNOLOGIES, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
FEBRUARY 29, AUGUST 31,
1996 1995
---- ----
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,319,029 $ 2,924,322
Accounts receivable, net of allowance for
doubtful accounts of $25,000 for Febraury 29,
1996 and August 31, 1995, respectively 522,840 631,829
Inventories (Note 2) 1,135,030 1,113,369
Notes receivable (Note 4) 500,000 325,000
Deferred income taxes 136,000 136,000
Prepaid expenses and other current assets 202,288 136,603
---------- -----------
TOTAL CURRENT ASSETS 5,815,187 5,267,123
PROPERTY AND EQUIPMENT, net of
accumulated depreciation of
$1,300,005 at February 29, 1996
$1,222,807 at August 31, 1995 957,120 1,062,224
OTHER ASSETS:
Patents and trademarks, net of accumulated
amortization of $89,364 at Febraury 29, 1996
and $78,888 at August 31, 1995 125,568 136,044
Marketable securities available for sale at
fair value (Note 3) 947,494 1,255,931
Deferred income taxes (Note 7) 225,983 218,728
Other assets 231,320 367,129
---------- -----------
TOTAL ASSETS $8,302,672 $ 8,307,179
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 331,529 $ 479,822
Current portion of long-term debt 39,200 39,200
----------- ------------
TOTAL CURRENT LIABILITIES 370,729 519,022
----------- ------------
LONG-TERM DEBT 110,300 129,900
----------- ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.08 par value, authorized 12,500,000 shares; 3,499,180
issued and outstanding at Febraury 29, 1996 and
August 31, 1995, respectively 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 324,628 450,759
Additional paid-in capital 9,633,335 9,633,335
Deficit (2,416,254) (2,705,771)
----------- ------------
7,821,643 7,658,257
----------- ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 8,302,672 $ 8,307,179
=========== ============
</TABLE>
See notes to financial statements.
3
<PAGE>
WATER-JEL TECHNOLOGIES, INC.
STATEMENT OF EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
FEBRUARY 29, FEBRUARY 28, FEBURARY 29, FEBRUARY 28,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
Sales, net $1,930,367 $2,377,445 $ 905,666 $1,119,747
Interest income 55,321 71,948 34,897 36,686
Other income 298,995 -- 269,750 --
---------- ---------- ---------- ----------
2,284,683 2,449,393 1,210,313 1,156,433
---------- ---------- ---------- ----------
COST AND EXPENSES:
Cost of goods sold 834,695 926,450 412,552 493,079
Selling, administrative
and general 1,082,871 1,316,330 516,308 591,118
Interest expense 7,600 6,071 3,674 3,446
---------- ---------- ---------- ----------
1,925,165 2,248,851 932,534 1,087,643
---------- ---------- ---------- ----------
INCOME BEFORE
INCOME TAXES 359,517 200,542 277,779 68,790
INCOME TAX PROVISION 70,000 -- 70,000 --
---------- ---------- ---------- ----------
NET INCOME $ 289,517 $ 200,542 $ 207,779 $ 68,790
========== ========== ========== ==========
NET INCOME PER
COMMON SHARE
PRIMARY $ 0.08 $ 0.06 $ 0.06 $ 0.02
========== ========== ========== ==========
ASSUMING FULL
DILUTION $ 0.08 $ 0.06 $ 0.06 $ 0.02
========== ========== ========== ==========
WEIGHTED AVERAGE
NUMBER OF SHARES
OUTSTANDING
PRIMARY 3,547,716 3,499,199 3,547,716 3,499,199
========== ========== ========== ==========
ASSUMING FULL
DILUTION 3,623,005 3,499,199 3,623,005 3,499,199
========== ========== ========== ==========
</TABLE>
See notes to financial statements.
4
<PAGE>
WATER-JEL TECHNOLOGIES, INC.
STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
February 29, February 28,
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 289,517 $ 200,542
---------- ----------
Adjustment to reconcile net income to net
cash provided by operating activities:
Gain on sale of marketable securities (474,000) --
Bad debt expense 175,000 --
Depreciation and amortization 110,726 108,524
Deferred income taxes 70,000 --
Gain on sale of property and equipment (3,500)
Changes in operating assets and
liabilities:
(Increase) decrease in assets:
Accounts receivable 108,989 185,043
Inventories (21,661) (50,548)
Prepaid expenses and other current assets (65,685) (14,942)
Other assests 135,809 (56,275)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses (148,293) (15,166)
---------- ----------
Total adjustments (112,615) 156,636
---------- ----------
Net cash provided by operating
activities 176,902 357,178
---------- ----------
Cash flows from investing activities:
Investment in marketable securities -- (393,900)
Proceeds from sale of marketable securities 579,000 937,500
Acquisition of property and equipment (6,595) (171,285)
Proceeds from sale of property and equipment 15,000 --
Notes receivable (350,000) --
---------- ----------
Net cash provided by investing activities 237,405 372,315
---------- ----------
Cash flows from financing activities:
Proceeds from issuance of debt -- 167,923
Principal payment of long-term debt (19,600) (15,373)
---------- ----------
Net cash provided by (used in)
financing activities (19,600) 152,550
---------- ----------
Net increase in cash and cash equivalents 394,707 882,043
in cash and cash equivalents -
beginning of period 2,924,322 2,077,893
---------- ----------
Cash and cash equivalents -
end of period $3,319,029 $2,959,936
========== ==========
</TABLE>
See notes to financial statements.
5
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WATER-JEL TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
February 29, 1996
1. BASIS OF QUARTERLY PRESENTATION:
The accompanying quarterly financial statements have been prepared
in conformity with generally accepted accounting principles.
The financial statements of the Registrant included herein have
been prepared by the Registrant pursuant to the rules and
regulations of the Securities and Exchange Commission and, in the
opinion of management, reflect all adjustments which are necessary
to present fairly the results for the period ended February 29,
1996.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to
such rules and regulations; however, management believes that the
disclosures are adequate to make the information presented not
misleading. This report should be read in conjunction with the
financial statements and footnotes therein included in the audited
annual report on Form 10-KSB as of August 31, 1995.
2. INVENTORIES CONSISTED OF:
February 29, 1996 August 31, 1995
(unaudited)
Raw Materials $ 780,813 $ 733,481
Finished goods 354,217 379,888
---------- ----------
$1,135,030 $1,113,369
========== ==========
6
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WATER-JEL TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
3. INVESTMENT IN MARKETABLE SECURITIES
During the quarter ended November 30, 1995, the Company sold 5,000
shares of common stock of a corporation which is affiliated
with one of the Company's directors/shareholders. During the
quarter ended February 29, 1996 an additional 65,000 shares of
common stock was sold and the Company received net proceeds of
approximately $481,000. As of April 16, 1996, the Company still
owns 215,000 shares of common stock with a market price of $7.00
per share.
In January 1996, the Company sold 140,000 warrants which it had
received in consideration for a loan to a corporation with which
one of the Company's directors/shareholders has a consulting
agreement. The Company received net proceeds from the sale of
approximately $98,000.
4. NOTES RECEIVABLE
In January 1994, the Company loaned $250,000 to a non-affiliated
corporation. This loan was evidenced by a note bearing interest at
8% per annum, and was payable by August 31, 1994. During fiscal
1995, the Company began pursuing collection of the loan, and
reserved an allowance for bad debt of $75,000. During the quarter
ended February 29, 1996, the Company reserved the remainder of the
note. The Company is continuing its collection efforts.
In February 1996, the Company loaned $500,000 to an individual.
This loan is evidenced by a note bearing interest at 8% per annum
and a $10,000 origination fee payable by April 30, 1996. The
loan is secured and collateralized by 250,000 shares of common
stock of a publicly listed corporation with a present market value
of approximately $600,000. In further consideration for the loan
the Company received 50,000 warrants to purchase common stock of
another publicly listed corporation.
The Company has from time to time provided financing to emerging
companies. The Company believes that such investments may be an
area of significant opportunity notwithstanding the significant
risks involved.
5. SUPPLEMENTARY INFORMATION - STATEMENTS OF CASH FLOWS:
The Company paid interest of $7,600 and $6,071 for the six months
ended February 29, 1996 and February 28, 1995, respectively.
7
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6. EARNINGS PER SHARE:
Earnings per common share has been computed using the weighted
average number of common shares outstanding during each period
presented.
7. INCOME TAXES:
The Company has adopted the Financial Accounting Standards new
standard on accounting for income taxes, Statement No. 109. Under
this method, 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.
8
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
For the six months ended February 29, 1996 and February 28, 1995,
the Company recorded net sales of approximately $1,930,000 and
$2,377,000, representing a 19% decrease in sales. For the three months
ended February 29, 1996 and February 28, 1995, the Company recorded net
sales of approximately $905,000 and $1,120,000, also representing a 19%
decrease in sales. This decrease is partially attributable to reduced
sales in the government and consumer markets. In addition, effective
September 1995, the Company lowered its pricing on certain items from
its First Aid Product Line for Burns. This price change is designed to
increase market share and consequently increase sales. These factors
attributed to the decrease in sales for the current period.
Cost of goods sold approximated $835,000 and $926,000 for the six
months ended February 29, 1996 and February 28, 1995, representing 43%
and 39% of net sales. Cost of goods sold for the three months ended
February 29, 1996 and February 28, 1995 approximated $413,000 and
$493,000, representing 46% and 44% of net sales, respectively.
Selling, administrative and general expenses decreased approximately
$233,000 and $75,000 for the six and three months ended February 29,
1996, respectively. During the six months ended February 28, 1995, the
Company incurred approximately $176,000 of selling expenses related to
consumer marketing which was not present in the current period.
LIQUIDITY AND CAPITAL RESOURCES:
At February 29, 1996, the Company had working capital of
approximately $5,444,000 as compared to $4,748,000 at August 31, 1995.
During the six months ended February 29, 1996, the Company sold 70,000
shares of common stock of Mark Solutions, Inc., a corporation with which
one of the Company's directors/shareholders is affiliated. The Company
received net proceeds from the sale of this security of approximately
$481,000. In January 1996, the Company sold 140,000 warrants of Pen
Interconnect Inc., a corporation with which one of the Company's
directors/shareholders has a consulting agreement. The Company received
net proceeds from the sale of the warrants of approximately $98,000. In
February 1996, the Company loaned $500,000 to Segismundo Brodchandel.
This loan is evidenced by a note bearing interest at 8% per annum and a
$10,000 origination fee payable by April 30, 1996. The loan is secured
and collateralized by 250,000 shares of common stock of a publicly
listed corporation with a present market value of approximately
$600,000. In further consideration for the loan the Company received
50,000 warrants to purchase common stock of another publicly listed
corporation.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In January 1994, the Company loaned $250,000 to Cabaret Royale, a
non-affiliated corporation. This loan was evidenced by a note bearing
interest at 8% per annum and was payable by August 31, 1994. During
fiscal 1995, the Company began pursuing collection of the note and
reserved an allowance for bad debt of $75,000. During the quarter ended
February 29, 1996, the Company reserved the remainder of the note. The
Company is continuing collection of the note.
In January 1996, the Company's bank extended for a period of one
year until January 1997 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. As of February 29, 1996 there were no
balances outstanding in the line of credit. Additionally, the Company
was extended for a period of one year until January 1997 a $250,000 term
loan facility to assist in its equipment acquisitions. During fiscal
1995, the Company borrowed $166,000 from its term loan facility to
assist in equipment acquisitions related to its new product line. As of
February 29, 1996, the balance due on the term loan facility is
approximately $125,000.
The statement of cash flows for the period ended February 29, 1996
reflects net cash provided by operating activities of $176,902. Cash
provided by investing activities was $237,405, consisting of proceeds
from the sale of a marketable security of $579,000, payment of a notes
receivable of $150,000, less issuance of a notes receivable of $500,000,
proceeds from the sale of property and equipment of $15,000 less
acquisition of property and equipment of $6,595.
The Company believes that it has adequate working capital for at
least the next twelve months of operations at current levels. As of
April 16, 1996, the Company had approximately $3,000,000 in cash.
10
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - Legal Proceedings
On April 12, 1996, Robert Daniels filed a complaint on the Supreme
Court of the State of New York, New York (96601909) against the
Company, and Yitz Grossman and Werner Haase who are directors of
the Company. Mr. Daniels served as Executive Vice President of the
Company until his termination in June 1995. On March 22, 1996 Mr.
Daniels pleaded guilty in U.S. District Court for the district of
New Jersey (Case No. ADL/9500370) to one count of conspiracy to
commit wire fraud. In the complaint Mr. Daniels alleges that his
employment was suspended, but not terminated, because he had
provided information to the United States Attorney regarding
alleged violations of law by defendants and that this suspension
breached an employment agreement and violated the New Jersey
whistle blower statute. He seeks approximately $100,000 in base
salary, as well as benefits, perquisites and bonuses, costs,
punitive damages, recovery of alleged losses relating to 128,125
stock options, and an injunction to reinstate his employment and
against retaliatory actions by the Company. The Company disagrees
with the allegations contained in the complaint which has not yet
been served, and will respond to the suit in due course should it
be served. On April 16, 1996, the Company sued Mr. Daniels and
others in the Superior Court of New Jersey Chancery Division,
Bergen County on claims relating to actions by Mr. Daniels
following the termination of his employment.
ITEM 2 - Changes In Securities
None
ITEM 3 - Defaults on Senior Securities
None
ITEM 4 - Submission to a Vote of Security Holders
None
ITEM 5 - Other Information
In February 1996, the Company announced it had started discussions
of a possible acquisition with Journeycraft, Inc. and its
subsidiaries. This corporation is majority-owned and controlled by
Mr. Werner Haase and Mrs. Nurit Kahane who is his wife. Mr. Haase
has also served as a director of Water-Jel since 1987 and
beneficially owns approximately 8% of the Company's common stock,
after giving effect to the exercise of options. Negotiations for
this transaction are continuing, but no understanding have been
reached and no letter of intent has been signed.
11
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ITEM 6 - Exhibits and Reports on Form 8-K
(a) None
(b) None
12
<PAGE>
WATER-JEL TECHNOLOGIES, INC.
243 VETERANS BOULEVARD
CARLSTADT, N.J. 07072
________________________
FILE # 0-13049
________________________
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BY: /s/ Peter D. Cohen
PETER D. COHEN,
PRESIDENT
BY: /s/ Alex M. Alaminos
ALEX M. ALAMINOS,
CONTROLLER
DATE: April 18, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
consolidated financial statements and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> FEB-29-1996
<CASH> 3,319,029
<SECURITIES> 0
<RECEIVABLES> 547,840
<ALLOWANCES> 25,000
<INVENTORY> 1,135,030
<CURRENT-ASSETS> 5,815,187
<PP&E> 2,257,125
<DEPRECIATION> 1,300,005
<TOTAL-ASSETS> 7,821,643
<CURRENT-LIABILITIES> 370,729
<BONDS> 129,900
0
0
<COMMON> 279,934
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 7,217,081
<SALES> 1,930,367
<TOTAL-REVENUES> 2,284,683
<CGS> 834,695
<TOTAL-COSTS> 834,675
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,600
<INCOME-PRETAX> 359,517
<INCOME-TAX> 70,000
<INCOME-CONTINUING> 289,517
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 289,517
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
</TABLE>
