<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
/ / Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of
1934
For the quarterly period ended May 31,1997
/ / 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: 7,026,144 as of July 15,
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
Nine Months Ended May 31,1997 and 1996 . . . . . . . . . 4
Consolidated statements of cash flows
Nine Months Ended May 31, 1997 and 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
MAY 31, 1997
(unaudited)
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 10,179,074
Investment in marketable securities 275,816
Accounts receivable, net of allowance for
doubtful accounts of $154,000 6,109,863
Inventories 1,179,717
Notes receivable 100,000
Deferred income taxes 523,900
Prepaid expenses and other current assets 143,715
------------
Total current assets 18,512,085
PROPERTY AND EQUIPMENT, net of
accumulated depreciation of $2,327,003 1,408,746
INVESTMENT IN X-CEED MOTIVATION ATLANTA, INC 640,088
DUE FROM OFFICER 1,222,483
DEFERRED INCOME TAXES 327,070
OTHER ASSETS 387,740
------------
$ 22,498,212
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 4,488,614
Current portion of long-term debt 39,200
Income taxes payable, current 1,051,038
Customer billings in excess of program costs 3,154,863
Due to X-Ceed Motivation Atlanta, Inc. 1,025,027
Other current liabilities 2,431
------------
TOTAL CURRENT LIABILITIES 9,761,173
------------
LONG-TERM DEBT 61,300
------------
ACCRUED LEASE OBLIGATIONS 794,000
------------
STOCKHOLDERS' EQUITY:
Common stock, $.08 par value, authorized 12,500,000
shares; 7,021,145 issued and outstanding 561,696
Preferred stock, $.08 par value; authorized 125,000
shares; -0- issued and outstanding
Unrealized loss on investments reported at fair value (138,965)
Additional paid-in capital 9,674,498
Retained earnings 1,840,140
------------
11,937,369
Treasury stock, 10,000 shares (55,630)
------------
11,881,739
$ 22,498,212
============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
WATER-JEL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
MAY 31, MAY 31,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES, net $ 45,406,465 $ 43,101,834 $ 13,651,194 $ 16,873,368
------------ ------------ ------------ ------------
COST AND EXPENSES:
Cost of revenues 28,431,178 27,653,148 8,241,899 10,684,069
Selling, General and administraive 13,904,256 14,464,841 4,779,392 5,378,838
------------ ------------ ------------ ------------
42,335,434 42,117,989 13,021,291 16,062,907
------------ ------------ ------------ ------------
OPERATING INCOME 3,071,031 983,845 629,903 810,461
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest and divident income 277,438 235,593 112,114 90,160
Interest expense (11,463) (78,727) (3,367) (23,595)
Gain (loss) on sale of investment 11,948 423,589 (301) --
Equity loss on investment 16,897 (27,128) (14,651) (27,128)
Other, net -- 57,380 -- 18,667
------------ ------------ ------------ ------------
294,820 610,708 93,795 58,105
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES
AND MINORITY INTEREST 3,365,851 1,594,553 723,698 868,566
PROVISION INCOME TAXES 1,741,000 771,979 333,000 500,979
------------ ------------ ------------ ------------
INCOME BEFORE MINORITY INTEREST 1,624,851 822,574 390,698 367,587
MINORITY INTEREST -- 118,000 -- 60,853
NET INCOME $ 1,624,851 $ 704,574 $ 390,698 $ 306,734
============ ============ ============ ============
NET INCOME PER COMMON SHARE
Primary $ 0.23 $ 0.10 $ 0.06 $ 0.04
============ ============ ============ ============
Assuming full dilution $ 0.23 $ 0.10 $ 0.06 $ 0.04
============ ============ ============ ============
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>
Nine Months Ended
May 31,
1997 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,624,851 $ 704,574
Adjustment to reconcile net income to net cash
provided by (used in) operating activities:
Gain on sale of marketable securities (11,948) (598,589)
Depreciation and amortization 362,427 404,664
Deferred income tax provision 57,609 (83,098)
Gain on sale of property and equipment -- (3,500)
Loss on impairment of notes receivable -- 175,000
Minority interest in income -- 118,000
Contributed services -- 45,000
Equity gain (loss) on investment (16,897) 27,128
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable (2,463,739) (4,146,666)
Inventories (76,976) 136,575
Prepaid expenses and other current assets 137,902 (24,535)
Other assests (59,966) 114,397
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 1,217,554 1,382,722
Income taxes payable 830,850 664,585
Customer billings in excess of program costs 1,967,077 2,705,557
Accrued lease obligations -- (126,000)
Other Current liabilitites (12,511) (34,448)
------------ ------------
Total adjustments 1,931,382 756,792
------------ ------------
Net cash provided by operating activities 3,556,233 1,461,366
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in marketable securities (23,296) (70,940)
Divestiture of consolidated affiliate -- (3,128,182)
Proceeds from sale of marketable securities 21,999 749,340
(Increase) in notes receivable (100,000) --
Repayments to shareholders -- 75,000
Proceeds from sale of property and equipment -- 15,000
Acquisition of property and equipment (183,617) (208,434)
------------ ------------
Net cash (used in) investing activities (284,914) (2,568,216)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of long-term debt (29,400) 542,940
Repayment of notes payable (1,065,000) --
Advances from affiliate 665,987 (6,275)
Proceeds from excercise of warrants and options 3,000 --
------------ ------------
Net cash (used in) provided by financing activities (425,413) 536,665
------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS 2,845,906 (570,185)
CASH AND CASH EQUIVALENTS - beginning of period 7,333,168 7,476,619
------------ ------------
CASH AND CASH EQUIVALENTS - end of period $ 10,179,074 $ 6,906,434
============ ============
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
WATER-JEL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
May 31,1997
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 May 31, 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 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
fiscal year ended August 31, 1996 and quarter ended May 31, 1997.
6
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3. INVENTORIES CONSISTED OF THE FOLLOWING:
May 31, 1997 August 31, 1996
------------ ---------------
(unaudited)
Raw Materials $ 815,032 $ 804,123
Finished goods 364,685 298,618
---------- ----------
$1,179,717 $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, originally
payable within 180 days of the date of loan or earlier if additional
funding was raised. In May 1997, the Company extended the maturity
date of the loan until September 30, 1997. In consideration for the
loan, the Company received warrants to purchase a minimum of 200,000
shares of common stock of the borrower. In July 1997, the Company
through a limited offer converted its 200,000 warrants into 150,000
shares of common stock. All other terms and condition of the
promissory note remain unchanged.
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.
5. SUPPLEMENTARY INFORMATION - STATEMENTS OF CASH FLOW:
The Company paid interest of $11,463 and $78,727 for the nine months
ended May 31, 1997 and 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 nine months ended May 31, 1997 and 1996,
respectively were approximately $45,406,000 and $43,102,000 representing a 5%.
Net revenues for the three months ended May 31, 1997 and 1996, respectively,
were approximately $13,651,000 and $16,874,000 representing a 19% decrease in
net sales. The difference between the three month periods is due to the
inclusion in the three months ended May 31, 1996 of two short term
merchandising programs in the X-Ceed performance improvement division which
were concluded prior to the current fiscal quarter.
Additionally, during the three months ended May 31, 1996, the Company
reported approximately $465,000 in net revenues from X-Ceed Motivation Atlanta,
Inc. During the quarter ended May 31, 1997, the Company recognized an equity
loss of approximately $15,000 on this investment. In April 1996, the Company
relinquished 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.
Cost of revenues for the nine months ended May 31, 1997 and 1996 were
$28,431,000 as compared to $27,653,000, representing 63% and 64% of net
revenues, respectively. Cost of revenues for the three months ended May 31,
1997 and 1996 were $8,242,000 as compared to approximately $10,684,000,
representing 60% and 63% of net revenues, respectively. The reduction in the
cost of revenues as a percentage is directly attributable to higher margin
programs in the X-Ceed performance division. Selling, administrative and
general expenses for the nine months ended May 31, 1997 and 1996 were
$13,904,000 and $14,465,000, representing 31% and 34% of net revenues,
respectively. Selling, administrative and general expenses for the three months
ended May 31, 1997 and 1996 were $4,779,000 and $5,379,000, representing 35%
and 32% of net revenues, respectively.
Net income for the nine months ended May 31,1997 was $1,625,000 as
compared to $705,000 for the corresponding prior period. Net income for the
three months ended May 31,1997 was $391,000 as compared to $306,000 for the
corresponding prior period. Income from operations was $3,071,000 for the nine
months ended May 31, 1997 as compared to $985,000 for the corresponding prior
period. The primary factors for the increase in income for the nine months
ended May 31, 1997 as compared to the corresponding prior period is due in part
to higher margin programs within the X-Ceed performance division and
reductions in overall overhead
8
<PAGE>
expenses. During the nine months ended May 31, 1997 earnings from operations
combined with other income of approximately $295,000 resulted in the Company
reporting pretax income income of approximately $3,366,000. During the nine
months ended May 31, 1996 earnings from operations combined with other income
of $611,000 resulted in the Company reporting an pretax income of $1,595,000.
LIQUIDITY AND CAPITAL RESOURCES:
At May 31, 1997 the Company had working capital of approximately
$8,751,000 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 July 15, 1997 the Company had approximately
$9,965,000 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 publicly
traded redeemable 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 period ended May 31,
1997 reflects net cash provided by operating activities of $3,556,000. This
resulted from net income of $1,625,000, increase in accounts payable and
accrued expense of ($1,218,000), income tax payable of ($830,000),customer
billings in excess of program costs of 1,967,000 less an increase in accounts
receivable of 2,464,000. Cash used in investing activities was $285,000,
consisting principally of an increase in notes receivable of $100,000 and
acquisitions of property and equipment of $184,000. Cash used in financing
activities approximated $425,000 consisting principally of a repayment of note
of $1,065,000 and offset by advances from affiliate of $666,000.
9
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - Legal Proceedings
- ------ -----------------
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. 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. In June 1997, the Company and Mr. Daniels entered into a
settlement agreement on terms that were not material to the Company.
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: July 17, 1997
-------------
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> MAY-31-1997
<CASH> 10,179,074
<SECURITIES> 0
<RECEIVABLES> 6,109,863
<ALLOWANCES> 154,000
<INVENTORY> 1,179,717
<CURRENT-ASSETS> 18,512,085
<PP&E> 3,735,749
<DEPRECIATION> 2,327,003
<TOTAL-ASSETS> 11,881,739
<CURRENT-LIABILITIES> 9,761,173
<BONDS> 0
0
0
<COMMON> 561,696
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 11,714,638
<SALES> 45,406,465
<TOTAL-REVENUES> 45,701,285
<CGS> 28,431,178
<TOTAL-COSTS> 28,431,178
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,463
<INCOME-PRETAX> 3,365,851
<INCOME-TAX> 1,741,000
<INCOME-CONTINUING> 1,624,851
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,624,851
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0.23
</TABLE>
