<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 May 31,1996
/ / 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 CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 7,011,160 as of
July 12, 1996.
1
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WATER-JEL TECHNOLOGIES, INC.
INDEX
PART I
ITEM 1. Financial Information Page No.
Balance Sheets
May 31, 1996 and August 31, 1995 . . . . . . . . . . . 3
Statements of Operations
Nine and Three Months Ended
May 31, 1996 and 1995 . . . . . . . . . . . 4
Statements of Cash Flow
Nine Months Ended May 31, 1996
and 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
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WATER-JEL TECHNOLOGIES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
MAY 31, AUGUST 31,
1996 1995
ASSETS (Unaudited)
------ ----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 3,621,801 $ 2,924,322
Accounts receivable, net of allowance for
doubtful accounts of $25,000 for May 31,
1996 and August 31, 1995, respectively 754,022 631,829
Inventories (Note 2) 976,794 1,113,369
Notes receivable (Note 4) - 325,000
Deferred income taxes 136,000 136,000
Prepaid expenses and other current assets 177,311 136,603
----------- -----------
TOTAL CURRENT ASSETS 5,665,928 5,267,123
PROPERTY AND EQUIPMENT, net of
accumulated depreciation of
$1,350,661 at May 31, 1996
$1,222,807 at August 31, 1995 931,757 1,062,224
OTHER ASSETS:
Patents and trademarks, net of accumulated
amortization of $95,782 at May 31, 1996
and $78,888 at August 31, 1995 119,150 136,044
Marketable securities available for sale at
fair value (Note 3) 947,494 1,255,931
Deferred income taxes (Note 7) 242,983 218,728
Other assets 345,602 367,129
----------- -----------
TOTAL ASSETS $ 8,252,914 $ 8,307,179
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 341,086 $ 479,822
Current portion of long-term debt 39,200 39,200
----------- -----------
TOTAL CURRENT LIABILITIES 380,286 519,022
----------- -----------
LONG-TERM DEBT 100,500 129,900
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.08 par value, authorized
12,500,000 shares; 3,499,180 issued and
outstanding at August 31, 1995 and
3,506,662 issued and outstanding at 280,533 279,934
May 31, 1996, respectively
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 9,647,483 9,633,335
Deficit (2,480,516) (2,705,771)
----------- -----------
7,772,128 7,658,257
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 8,252,914 $ 8,307,179
=========== ===========
</TABLE>
See notes to financial statements.
3
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WATER-JEL TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
MAY 31, MAY 31,
----------------- ------------------
1996 1995 1996 1995
<S> <C> <C> <C> <C>
REVENUES:
Sales, net $3,018,945 $3,690,540 $1,088,578 $1,313,095
Interest income 94,465 98,713 39,144 26,765
Other income 298,995 - - -
---------- ---------- ---------- ----------
3,412,405 3,789,253 1,127,722 1,339,860
---------- ---------- ---------- ----------
COST AND EXPENSES:
Cost of goods sold 1,353,321 1,411,265 518,626 484,815
Selling,
administrative
and general 1,769,948 2,124,168 687,138 807,837
Interest expense 10,880 12,220 3,220 6,150
---------- ---------- ---------- ----------
3,134,150 3,547,653 1,208,984 1,298,802
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE
INCOME TAXES 278,255 241,600 (81,262) 41,058
INCOME TAX
PROVISION (BENEFIT) 53,000 - (17,000) -
---------- ---------- ---------- ----------
NET INCOME (LOSS) $ 225,255 $ 241,600 $ (64,262) $ 41,058
========== ========== ========== ==========
NET INCOME (LOSS)
PER COMMON SHARE
PRIMARY $ 0.06 $ 0.07 $ (0.02) $ 0.01
========== ========== ========== ==========
ASSUMING FULL
DILUTION $ 0.06 $ 0.07 $ (0.02) $ 0.01
========== ========== ========== ==========
WEIGHTED AVERAGE
NUMBER OF SHARES
OUTSTANDING
PRIMARY 3,531,989 3,499,199 3,500,536 3,499,199
========== ========== ========== ==========
ASSUMING FULL
DILUTION 3,582,182 3,499,199 3,500,536 3,499,199
========== ========== ========== ==========
</TABLE>
See notes to financial statements.
4
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WATER-JEL TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
May 31,
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 225,255 $ 241,600
---------- ----------
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 167,797 145,281
Deferred income taxes 53,000 -
Gain on sale of property and equipment (3,500) -
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable (122,193) 40,660
Inventories 136,575 (360,841)
Prepaid expenses and other current assets (40,708) (61,850)
Other assests 21,527 13,301
Increase (decrease) in liabilities:
Accounts payable and accrued expenses (138,736) 124,272
---------- ----------
Total adjustments (225,238) (99,177)
---------- ----------
Net cash provided by operating
activities 17 142,423
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 (31,888) (163,877)
Proceeds from sale of property and equipment 15,000 -
Notes receivable 150,000 (150,000)
---------- ----------
Net cash provided by investing activities 712,112 229,723
---------- ----------
Cash flows from financing activities:
Proceeds from issuance of debt - 167,923
Principal payment of long-term debt (29,400) (37,247)
Proceeds on issuance of common stock 14,750 -
---------- ----------
Net cash provided by (used in)
financing activities (14,650) 130,676
---------- ----------
Net increase in cash and cash equivalents 697,479 502,822
Cash and cash equivalents -
beginning of period 2,924,322 2,077,893
---------- ----------
Cash and cash equivalents -
end of period $3,621,801 $2,580,715
========== ==========
</TABLE>
See notes to financial statements.
5
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WATER-JEL TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
May 31,1996
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 May 31, 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:
May 31, 1996 August 31, 1995
------------- ---------------
(unaudited)
Raw Materials $ 616,512 $ 733,481
Finished goods 360,282 379,888
--------- ----------
$ 976,794 $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 July 12, 1996, the
Company owns 215,000 shares of common stock with a market price of $5.69
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 April 1996, the Company received payment on its loan for $500,000 which
had been given to an individual. As further consideration for the loan the
Company received warrants to purchase 50,000 shares of 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 $10,880 and $12,220 for the nine
months ended May 31, 1996 and 1995, respectively.
6. EARNINGS (LOSS) PER SHARE:
Earnings (loss) per common share has been computed using the
weighted average number of common shares outstanding during each
period presented.
7
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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 fin ancial 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. SUBSEQUENT EVENT:
On July 2, 1996, the Company acquired Journeycraft, Inc. and Theracom
Communications, Inc. The Company issued approximately 3,500,000 shares of
common stock in exchange for all of the outstanding shares of Journeycraft,
Inc. and Theracom Communications, Inc. The acquisition was effected by
merging wholly-owned subsidiaries of the Company into Journeycraft, Inc.
and Theracom Communications, Inc. The acquisition will be accounted for as
a pooling of interests.
8
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
On July 2, 1996, the Company acquired Journeycraft, Inc. and
Theracom Communications, Inc. The Company issued approximately
3,500,000 shares of common stock in exchange for all of the outstanding
shares of Journeycraft, Inc. and Theracom Communications, Inc. The
acquisition was effected by merging wholly-owned subsidiaries of the
Company into Journeycraft, Inc. and Theracom Communications, Inc. The
acquisition will be accounted for as a pooling of interests. The
financial statements presented in this report and the discussion below
do not include any financial information for Journeycraft, Inc. and
Theracom Communications, Inc.
For the nine months ended May 31, 1996 and 1995, the Company
recorded net sales of approximately $3,019,000 and $3,691,000,
representing a 18% decrease in sales. For the three months ended May
31, 1996 and 1995, the Company recorded net sales of approximately
$1,089,000 and $1,313,000, representing a 17% 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 contributed to the
decrease in sales for the current period.
Cost of goods sold approximated $1,353,000 and $1,411,000 for the
nine months ended May 31, 1996 and 1995, representing 45% and 38% of net
sales. Cost of goods sold for the three months ended May 31, 1996 and
1995 approximated $519,000 and $485,000, representing 48% and 37% of net
sales, respectively. Selling, administrative and general expenses
decreased approximately $354,000 and $121,000 for the nine and three
months ended May 31, 1996, respectively. The principal reason for this
decrease is that during the nine months ended May 31, 1995, the Company
incurred approximately $433,000 of selling expenses related to consumer
marketing which was not present in the current period.
LIQUIDITY AND CAPITAL RESOURCES:
At May 31, 1996, the Company had working capital of approximately
$5,286,000 as compared to $4,748,000 at August 31, 1995. This increase
is primarily due to sales of marketable securities. During the nine
months ended May 31, 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
9
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
directors/shareholders has a consulting agreement. The Company received
net proceeds from the sale of the warrants of approximately $98,000. In
April 1996, the Company was paid for a loan which it had given in
February 1996 for $500,000 to Segismundo Brodchandel. As further
consideration for the loan the Company received warrants to purchase
50,000 shares of common stock of another publicly listed corporation.
The statement of cash flows for the period ended May 31, 1996
reflects net cash provided by operating activities of $17. Cash
provided by investing activities was $712,112, consisting of proceeds
from the sale of a marketable security of $579,000, payment of a notes
receivable of $150,000, proceeds from the sale of property and equipment
of $15,000 less acquisition of property and equipment of $31,888.
The Company believes that it has adequate working capital for at
least the next twelve months of operations at current levels. As of
July 12, 1996, the Company had approximately $3,700,000 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. 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. 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. Mr. Daniels has
agreed to dismiss the New York action without prejudice so that the
claims can be litigated in the New Jersey action. The case is
currently in the discovery stage and no trial date has been set.
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
On July 2, 1996, the Company acquired Journeycraft, Inc. and
Theracom Communications, Inc. The Company issued approximately
3,500,000 shares of common stock in exchange for all of the
outstanding shares of Journeycraft, Inc. and Theracom
Communications, Inc. The acquisition was effected by merging
wholly-owned subsidiaries of the Company into Journeycraft, Inc.
and Theracom Communications, Inc. The acquisition will be
accounted for as a pooling of interests.
11
<PAGE>
ITEM 6 - Exhibits and Reports on Form 8-K
(a) None
(b) On July 12, 1996, The Company filed a Report of Form 8-K
reporting the acquisition of Journeycraft, Inc. and
Theracom Communications, Inc. and the change of control
of the Company to the principal stockholders of
Journeycraft, Inc and Theracom Communications, Inc.
12
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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/ Werner Haase
WERNER HAASE,
CHIEF EXECUTIVE OFFICER
BY: /s/ Alex M. Alaminos
ALEX M. ALAMINOS,
CONTROLLER
DATE: July 18, 1996
13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> MAY-31-1996
<CASH> 3,621,801
<SECURITIES> 0
<RECEIVABLES> 779,022
<ALLOWANCES> 25,000
<INVENTORY> 976,794
<CURRENT-ASSETS> 5,665,928
<PP&E> 2,282,418
<DEPRECIATION> 1,350,661
<TOTAL-ASSETS> 7,772,128
<CURRENT-LIABILITIES> 380,286
<BONDS> 100,500
0
0
<COMMON> 280,533
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 7,166,967
<SALES> 3,017,945
<TOTAL-REVENUES> 3,412,405
<CGS> 1,353,321
<TOTAL-COSTS> 1,353,321
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,880
<INCOME-PRETAX> 278,255
<INCOME-TAX> 53,000
<INCOME-CONTINUING> 225,255
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 225,255
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.06
</TABLE>
