<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 November 30, 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: 7,021,180 as of
January 17, 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
Three Months Ended November 30, 1996 and 1995. . . . . . 4
Consolidated statements of cash flows
Three Months Ended November 30, 1996 and 1995. . . . . . 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
NOVEMBER 30, 1996
(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 6,496,908
Investment in marketable securities 514,841
Accounts receivable, net of allowance for
doubtful accounts of $154,000 4,087,283
Inventories (Note 3) 1,255,022
Notes receivable 100,000
Deferred income taxes 507,152
Prepaid expenses and other current assets 265,176
------------
Total current assets 13,226,382
PROPERTY AND EQUIPMENT, net of
accumulated depreciation of $2,139,742 1,528,567
INVESTMENT IN X-CEED MOTIVATION ATLANTA, INC 450,621
DUE FROM OFFICER 1,222,483
DEFERRED INCOME TAXES 265,402
OTHER ASSETS 323,825
------------
$ 17,017,280
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 3,834,395
Current portion of long-term debt 39,200
Income taxes payable, current 617,402
Customer billings in excess of program costs 739,020
Other current liabilities 10,458
------------
TOTAL CURRENT LIABILITIES 5,240,475
------------
LONG-TERM DEBT 80,900
------------
ACCRUED LEASE OBLIGATIONS 794,000
------------
STOCKHOLDERS' EQUITY:
Common stock, $.08 par value, authorized 12,500,000 561,696
shares; 7,021,180 issued and outstanding
Preferred stock, $.08 par value; authorized 125,000
shares; -0- issued and outstanding
Unrealized loss on investments reported at fair value (36,266)
Additional paid-in capital 9,674,498
Retained earnings 757,607
------------
10,957,535
Treasury stock, 10,000 shares (55,630)
------------
10,901,905
$ 17,017,280
============
See notes to consolidated financial statements.
3
<PAGE>
WATER-JEL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
THREE MONTHS ENDED
NOVEMBER 30,
1996 1995
----------- -----------
REVENUES, net $ 9,807,332 $ 6,416,445
----------- -----------
COST AND EXPENSES:
Cost of revenues 4,201,433 2,621,534
Selling, General and administraive 4,506,491 4,086,392
----------- -----------
8,707,924 6,707,926
----------- -----------
OPERATING INCOME (LOSS) 1,099,408 (291,481)
----------- -----------
OTHER INCOME (EXPENSE):
Interest and dividend income 90,006 49,297
Interest expense (2,892) (6,544)
Gain on sale of investment 12,249 100,433
Equity loss on investment (58,454) --
----------- -----------
40,909 143,186
----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES
AND MINORITY INTEREST 1,140,317 (148,295)
PROVISION (BENEFIT) FOR INCOME TAXES 598,000 (80,000)
----------- -----------
INCOME (LOSS) BEFORE MINORITY INTEREST 542,317 (68,295)
MINORITY INTEREST -- 28,574
----------- -----------
NET INCOME (LOSS) $ 542,317 ($ 96,869)
=========== ===========
NET INCOME (LOSS) PER COMMON SHARE
Primary $ 0.08 ($ 0.01)
=========== ===========
Assuming full dilution $ 0.08 ($ 0.01)
=========== ===========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING:
Primary 7,011,180 6,989,180
=========== ===========
Assuming full dilution 7,011,180 6,989,180
=========== ===========
See notes to consolidated financial statements.
4
<PAGE>
WATER-JEL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
November 30,
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 542,317 ($ 96,869)
Adjustment to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Gain on sale of marketable securities (12,249) (100,433)
Minority interest in net earnings -- 28,574
Contributed services
Depreciation and amortization 90,040 56,835
Gain on sale of property and equipment -- (3,500)
Equity loss on investment 58,454 --
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable (441,159) (648,397)
Inventories (152,281) (3,473)
Prepaid expenses and other current assets 16,441 (21,371)
Other assests 11,317 46,013
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 563,335 136,276
Income taxes payable 397,214 (262,912)
Customer billings in excess of program costs (448,766) 505,205
Other Current liabilitites (4,484) (34,448)
----------- -----------
Total adjustments 77,862 (301,631)
----------- -----------
Net cash provided by (used in) operating activities 620,179 (398,500)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in marketable securities (23,296) (50,087)
Proceeds from sale of marketable securities 21,999 107,933
(Increase) decrease in notes receivable (100,000) --
Advances to shareholders -- (40,000)
Proceeds from sale of property and equipment -- 15,000
Acquisition of property and equipment (38,417) (2,126)
----------- -----------
Net cash provided by (used in) investing activities (139,714) 30,720
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of long-term debt (9,800) (9,800)
Proceeds from issuance of debt -- 40,769
Repayment of notes payable (1,065,000) --
Advances to affiliate (244,925) --
Proceeds from excercise of warrants and options 3,000 --
----------- -----------
Net cash (used in) provided by financing activities (1,316,725) 30,969
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (836,260) (336,811)
CASH AND CASH EQUIVALENTS - beginning of period 7,333,168 7,476,619
----------- -----------
CASH AND CASH EQUIVALENTS - end of period $ 6,496,908 $ 7,139,808
=========== ===========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
WATER-JEL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
November 30, 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 November 30, 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, 1996.
2. PRINCIPLE OF CONSOLIDATATION:
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 the 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 representing 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 November 30, 1996.
3. INVENTORIES CONSISTED OF THE FOLLOWING:
November 30, 1996 August 31, 1996
----------------- ---------------
(unaudited)
Raw Materials $ 794,603 $ 804,123
Finished goods 460,419 298,618
---------- ----------
$1,255,022 $1,102,741
========== ==========
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. In
consideration for the loan, the Company received warrants to purchase
a minimum of 200,000 shares of common stock of the borrower.
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
risk involved. It expects to provide additional such financing in
the immediate future.
5. SUPPLEMENTARY INFORMATION - STATEMENTS OF CASH FLOW:
The Company paid interest of $1,593 and $3,925 for the three months
ended November 30, 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. 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 sales for the three months ended November 30, 1996 and 1995,
respectively, were approximately $9,807,000 and $6,416,000, representing a 53%
increase in net sales. The increase in net sales was directly attributable to
the continued growth within the X-Ceed performance improvement and theracom
seminar services divisions.
Net income for the quarter ended November 30, 1996 was approximately
$542,000 as compared to a loss of approximately $97,000 for the corresponding
prior period. Income from operations approximated $1,099,000 for the quarter
ended November 30, 1996 as compared to a loss of approximately $291,000 for the
corresponding prior period. Earnings from operations combined with other income
of approximately $41,000 resulted in the Company reporting an income of
approximately $1,140,000 for the quarter ended November 30, 1996 as compare to a
loss of approximately $148,000 for the corresponding prior period.
Cost of revenues for the period ending November 30, 1996 was
approximately $4,201,000 as compared to approximately $2,622,000 for the period
ended November 30, 1995, representing 43% and 41% of net sales, respectively.
Selling, administrative and general expenses for the period ended November 30,
1996 was approximately $4,506,000 as compared to approximately $4,086,000 for
the period ended November 30, 1995, representing 46% and 64% of net sales,
respectively.
In April 1996, the Company relinguished its majority ownership of
X-Ceed Motivation Atlanta, Inc. as a result of a stock award to an officer of
X-ceed Motivation Atlanta, Inc. In conjunction with this change, the Company
ceased to consolidate the revenues, assets and liabilities of the Atlanta based
company. However, the Company will continue to recognize earnings and losses on
its equity investment of X-Ceed Atlanta. During the quarter ended November 30,
1996 the Company recognized an equity loss of approximately $58,000 on this
investment.
8
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES:
At November 30, 1996 the Company had working capital of approximately
$7,986,000 as compared to $7,964,000 at August 31, 1996.
The consolidated statement of cash flows for the period ended November
30, 1996 reflects net cash provided by operating activities of $620,179
resulting from net income of approximately $542,000 for the period. Cash used
in investing activities was $139,714, consisting principally of an increase in
notes receivable of $100,000. Cash used in financing activities approximated
$1,317,000 which included repayment of notes of $1,065,000 and advances to an
affiliate of $245,000.
The Company believes that it has adequate working capital for at least
the next twelve months of operations at current levels. As of January 17, 1997
the Company had approximately $7,070,000 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.
9
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - Legal Proceedings
In fiscal 1995, a lawsuit was commenced against the Company by
Nortrade International, Inc. in the United States District Court
of Utah. In November 1996 Nortrade and the Company entered into
a settlement agreement. See Item 3. - Legal Proceedings in the
Company's Form 10-KSB for fiscal year ended August 31, 1996 for
further information.
In fiscal 1996, a lawsuit was commenced against the Company,
Yitz Grossman and Werner Haase by Robert Daniels in the Supreme
Court of the State of New York. 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
None
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: January 21, 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> NOV-30-1996
<CASH> 6,496,908
<SECURITIES> 0
<RECEIVABLES> 4,087,283
<ALLOWANCES> 154,000
<INVENTORY> 1,255,022
<CURRENT-ASSETS> 13,226,382
<PP&E> 3,668,309
<DEPRECIATION> 2,139,742
<TOTAL-ASSETS> 10,901,905
<CURRENT-LIABILITIES> 5,240,475
<BONDS> 0
0
0
<COMMON> 561,696
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 10,432,105
<SALES> 9,807,332
<TOTAL-REVENUES> 9,848,241
<CGS> 4,201,433
<TOTAL-COSTS> 4,201,433
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,892
<INCOME-PRETAX> 1,140,317
<INCOME-TAX> 598,000
<INCOME-CONTINUING> 542,317
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 542,317
<EPS-PRIMARY> 0.08
<EPS-DILUTED> 0.08
</TABLE>
