<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 28, 1997
[ ] 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: 7,021,180 as of
April 9, 1997.
<PAGE>
WATER-JEL TECHNOLOGIES, INC.AND SUBSIDIARIES
INDEX
PART I
ITEM 1. Financial Information Page No.
Consolidated balance sheet. . . . . . . . . . . . . . . . . . . 3
Consolidated statements of operations
Six and Three Months Ended
February 28, 1997 and February 29, 1996. . . . . . . . . . . 4
Consolidated statements of cash flows
Six Months Ended February 28, 1997 and
February 29, 1996 . . . . . . . . . . . . . . . . . . . 5
Notes to consolidated financial statements . . . . . . . . . 6-7
ITEM 2. Management's Discussion and Analysis of
the Financial Condition and
Results of Operations . . . . . . . . . . . . . 8-9
PART II
Other Information . . . . . . . . . . . . . . . . . . . . . 10
Signatures . . . . . . . . . . . . . . . . . . . . . . . . 11
2
<PAGE>
WATER-JEL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 7,883,732
Investment in marketable securities 343,754
Accounts receivable, net of allowance of
doubtful accounts of $154,000 5,269,816
Inventories 1,262,478
Notes Receivable 100,000
Deferred income taxes 518,793
Prepaid expense and other current assets 154,193
------------
Total current assets 15,532,766
PROPERTY AND EQUIPMENT, net of
accumulated depreciation of $2,305,422 1,501,810
INVESTEMENT IN X-CEED MOTIVATION ATLANTA, INC 344,324
DUE FROM OFFICER 1,222,483
DEFERRED INCOME TAXES 330,880
OTHER ASSETS 296,526
------------
$ 19,228,789
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 4,716,889
Current portion of long-term debt 39,200
Income taxes payable, current 1,277,449
Customer billings in excess of program cost 813,081
Other current liabilities 6,288
------------
TOTAL CURRENT LIABILITIES 6,852,907
------------
LONG-TERM DEBT 71,100
------------
ACCRUED LEASE OBLIGATIONS 794,000
------------
STOCKHOLDERS' EQUITY
Common stock, $.08 par value, authorized 12,500,000
shares; 7,021,180 issued and outstanding 561,696
Preferred stock, $.08 par value; authorized 125,000
shares; -0- issued and outstanding
Unrealized loss on investment reported at fair value (119,224)
Additional paid-in-capital 9,674,498
Retained earnings 1,449,442
------------
11,566,412
Treasury stock, 10,000 shares (55,630)
------------
11,510,782
$ 19,228,789
============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
WATER-JEL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
---------------------------- ----------------------------
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 29,
------------ ------------ ------------ ------------
1997 1996 1997 1996
<S> <C> <C> <C> <C>
REVENUES, net $ 31,755,271 $ 26,228,466 $ 21,947,939 $ 19,812,021
------------ ------------ ------------ ------------
COST AND EXPENSES:
Cost of revenues 20,189,279 16,969,079 15,987,846 14,347,545
Selling, General and administrative 9,124,864 9,086,064 4,618,374 4,999,672
------------ ------------ ------------ ------------
29,314,143 26,055,143 20,606,220 19,347,217
OPERATING INCOME 2,441,129 173,323 1,341,720 464,804
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest and dividend income 165,324 184,146 75,317 134,848
Interest expense (8,096) (55,072) (5,204) (48,527)
Gain on sale of investment 12,249 423,589 -- 323,156
Equity earnings on investment 31,547 -- 90,001 --
------------ ------------ ------------ ------------
201,024 552,663 160,114 409,477
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES
AND MINORITY INTEREST 2,642,153 725,986 1,501,834 874,281
PROVISION FOR INCOME TAXES 1,408,000 271,000 810,000 351,000
------------ ------------ ------------ ------------
INCOME BEFORE MINORITY INTEREST 1,234,153 454,986 691,834 523,281
MINORITY INTEREST -- 57,147 -- 28,573
------------ ------------ ------------ ------------
NET INCOME $ 1,234,153 $ 397,839 $ 691,834 $ 494,708
============ ============ ============ ============
NET INCOME PER COMMON SHARE
Primary $ 0.18 $ 0.06 $ 0.10 $ 0.07
============ ============ ============ ============
Assuming full dilution $ 0.18 $ 0.06 $ 0.10 $ 0.07
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING:
Primary 7,011,180 6,989,180 7,011,180 6,989,180
============ ============ ============ ============
Assuming full dilution 7,011,180 6,989,180 7,011,180 6,989,180
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
WATER-JEL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Six months Ended
--------------------------
February 28, February 29,
----------- -----------
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 1,234,152 $ 397,839
Adjustment to reconcile net income to net cash
provided by (used in) operating activities:
Gain on sale of marketable securities (12,249) (598,594)
Bad debt expense -- 175,000
Depreciation and amortization 259,402 187,530
Deferred income tax provision 11,010 156,000
Gain on sale of property and equipment -- (3,500)
Minority interest in income -- 57,147
Equity earnings on investment (31,547) --
Changes in operating assets and liabilities:
(Increase) decrease in assets
Accounts receivable (1,623,692) 195,213
Inventories (159,737) (21,661)
Prepaid expense and other current assets 127,424 (66,166)
Other assets 34,932 114,345
Increase (decrease) in liabilitites:
Accounts payable and accrued expenses 1,445,829 (120,235)
Income taxes payable 1,057,261 (31,561)
Customer billings in excess of programs costs (374,705) (662,078)
Accrued lease obligations -- (142,000)
Other current liabilities (8,654) (5,649)
----------- -----------
Total adjustments 725,274 (766,209)
----------- -----------
Net cash provided by (used in) operating activities 1,959,426 (368,370)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in marketable securities (23,296) (191,669)
Proceeds from sale of marketable securities 21,999 745,594
(Increase) decrease in notes receivable (100,000) (350,000)
Advances to shareholder -- 50,000
Acquisition of property and equipment (177,338) (104,231)
Proceeds from sale of property and equipment -- 15,000
----------- -----------
Net cash (used in) investing activities (278,635) 164,694
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payment of long-term debt (19,600) (19,600)
Repayment of notes payable (1,065,000) --
Advances to affiliate (48,627) --
Proceeds from exercise of warrants and options 3,000 --
----------- -----------
Net cash (used in) financing activities (1,130,227) (19,600)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 550,564 (223,276)
CASH AND CASH EQUIVALENTS - beginning of period 7,333,168 7,476,619
----------- -----------
CASH AND CASH EQUIVALENTS - end of period $ 7,883,732 $ 7,253,343
=========== ===========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
WATER-JEL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
February 28, 1997
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 28, 1997.
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, 1996.
2. PRINCIPLE OF CONSOLIDATION:
The accompanying consolidated financial statements include the accounts
of Water-Jel Technologies, Inc. and all its wholly-owned and
majority-owned subsidiaries. Upon consideration, all significant
intercompany accounts and transactions are eliminated.
Investments in affiliates,representing 20% to 50% of the ownership of
such companies, are accounted for under the equity method. Under this
accounting, the investment is increased or decreased by the Company's
share of earnings or losses after dividends.
For periods prior to fiscal year ended August 31, 1996, X-Ceed
Motivation Atlanta, Inc. has been presented as a majority interest
(reflecting investment in excess of 50%) on a consolidated basis with
the minority interest indicated and adjusted.
On April 1, 1996, the Company's equity interest in X-Ceed Atlanta,
previously represented a 59% majority interest, was reduced to a 50%
ownership, as a result of the Company transferring shares of its common
stock in X-Ceed Atlanta to the minority shareholder. As a result of
this stock transfer the Company's ownership in X-Ceed Atlanta was
reduced to a 50% interest and therefore, the assets, liabilities and
operations of X-Ceed Atlanta after April, 1996 were not included in the
consolidated financial statements for the
6
<PAGE>
fiscal year ended August 31, 1996 and quarter ended February 28, 1997.
3. INVENTORIES CONSISTED OF:
<TABLE>
<CAPTION>
February 28, 1997 August 31, 1996
-------- --- ---- ------ --- ----
(unaudited)
<S> <C> <C>
Raw Materials $ 843,420 $ 804,123
Finished goods 419,058 298,618
------- -------
$1,262,478 $1,102,741
========= =========
</TABLE>
4. NOTES RECEIVABLE
In September 1996, the Company loaned $100,000 to a publicly traded
company affiliated to a director/shareholder of the Company. The loan
is evidenced by a note bearing interest at 8% per annum, payable within
180 days of the date of the loan or earlier if additional funding was
raised. In April 1997, the Company extended the maturity of the loan by
an additional 90 days. In consideration for the loan, the Company
received warrants to purchase a minimum of 200,000 shares of common
stock of the borrower.
5. SUPPLEMENTARY INFORMATION - STATEMENTS OF CASH FLOWS:
The Company paid interest of $8,096 and $55,072 for the six months
ended February 28, 1997 and February 29, 1996, respectively.
6. EARNINGS PER SHARE:
Earnings per common share has been computed using the weighted average
number of common shares outstanding during each period presented. The
effect on earnings per share resulting from the assumed exercise of
stock options and warrants is anti-dilutive and, therefore, is not
included in the calculation.
7. 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.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
RESULTS OF OPERATIONS:
Net revenues for the six months ended February 28, 1997 and February
29, 1996, respectively, were approximately $31,755,000 and $26,228,000
representing a 21% increase. Net revenues for the three months ended February
28, 1997 and February 29, 1996, respectively, were approximately $21,948,000 and
$19,812,000 representing an 11% increase. The increases in net revenues are a
direct result of continued growth within the Company's division's, particularly
the X-Ceed performance improvement and Theracom seminar services divisions.
Cost of revenues for the six months ended February 28, 1997 and
February 29, 1996 were $20,189,000 and $16,969,000, respectively, (representing
64% and 65% of net revenues). Cost of revenues for the three months ended
February 28, 1997 was $15,988,000 as compared to $14,348,000 for the
corresponding prior period, representing 73% and 72% of net revenues,
respectively. During the three months ended February 28, 1997 as compared to the
six months ended February 28, 1997, cost of revenues increased as a percentage
of net revenues. This increase primarily resulted from merchandising programs
from the X-Ceed performance and costs associated with medical symposiums from
Theracom seminar services divisions. Selling, administrative and general
expenses for the six months ended February 28, 1997 and February 29, 1996 was
$9,125,000 and $9,086,000, representing 29% and 35% of net revenues,
respectively. Selling, administrative and general expenses for the three months
ended February 28, 1997 and February 29, 1996 was approximately $4,618,000 and
$5,000,000, representing 21% and 25% of net revenues, respectively. Selling,
administrative and general expenses decreased as a result of higher revenues
without a corresponding increase in expenses.
Net income for the six months ended February 28, 1997 and February 29,
1996 was $1,234,000 and $398,000, respectively. Net income for the three months
ended February 28, 1997 and February 29, 1996 was $692,000 and $495,000. Income
from operations was $2,441,000 for the six months ended February 28, 1997 as
compared to $173,000 for the corresponding prior period. Earnings from
operations combined with other income of $201,000 resulted in the Company
reporting an operating income of $2,642,000 as compared to $726,000 for the
corresponding prior period.
In April 1996, the Company relinquished its majority ownership of
X-Ceed Motivations Atlanta, Inc. as a result of a stock award to an officer of
the Atlanta based company. In conjunction with this change the Company ceased to
consolidate the revenues, assets and liabilities of that company. However, the
Company will continue to recognize earnings and losses on its equity investment
of X-Ceed Atlanta. During the six months ended February 28, 1997 the Company
recognized earnings of approximately $31,500 on this investment.
8
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES:
At February 28, 1997, the Company had working capital of approximately
$8,680,000 as compared to $7,964,000 at August 31, 1996. The Company believes
that it has adequate working capital for at least the next twelve months of
operations at current levels. As of April 9,1997 the Company had approximately
$9,107,000 in cash and cash equivalents. While the Company has sufficient
capital resources to conduct its current activities, it will require additional
financing in order to expand its current operations. In order to obtain such
financing, 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. During the six months ended February 28, 1997, the Company loaned
$100,000 to a publicly traded company affiliated to a director/shareholder of
the company. The loan is evidenced by a note bearing interest at 8% per annum.
In consideration for the loan, the Company received warrants to purchase a
minimum of 200,000 shares of common stock of the borrower.
The consolidated statement of cash flows for the period ended February
28, 1997 reflects net cash provided by operating activities of $1,959,000. This
results principally from the Company's net income of $1,234,000. Net cash used
in investing activities was $279,000, consisting principally of a notes
receivables of $100,000 and acquisitions of property and equipment of $177,000.
Cash used in financing activities was $1,130,000 which included repayment of
notes of $1,065,000.
9
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - Legal Proceedings
In fiscal 1996, a lawsuit was commenced against the Company, Yitz
Grossman, Werner Haase and Peter D. Cohen by Robert Daniels in the
Supreme Court of the State of New York. Also during fiscal 1996, the
Company sued Mr. Daniels and others in the Superior Court of New Jersey
on claims relating to actions by Mr. Daniels following the termination
of his employment. The parties are currently engaged in settlement
discussions. See Item 3. - Legal Proceedings in the Company's Form
10-KSB for fiscal year ended August 31, 1996 for further information.
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
ITEM 6 - Exhibits and Reports on Form 8-K
(a) None
(b) None
10
<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/ Werner Haase
--------------------
WERNER HAASE,
CEO
DATE: April 11, 1997
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> FEB-28-1997
<CASH> 7,883,732
<SECURITIES> 0
<RECEIVABLES> 5,269,816
<ALLOWANCES> 154,000
<INVENTORY> 1,262,478
<CURRENT-ASSETS> 15,532,766
<PP&E> 3,807,223
<DEPRECIATION> 2,305,422
<TOTAL-ASSETS> 11,510,782
<CURRENT-LIABILITIES> 6,852,907
<BONDS> 0
0
0
<COMMON> 561,696
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 11,123,940
<SALES> 31,755,271
<TOTAL-REVENUES> 31,956,295
<CGS> 20,189,279
<TOTAL-COSTS> 20,189,279
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,096
<INCOME-PRETAX> 2,642,153
<INCOME-TAX> 1,408,000
<INCOME-CONTINUING> 1,234,153
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,234,153
<EPS-PRIMARY> 0.18
<EPS-DILUTED> 0.18
</TABLE>
