U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(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, 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.)
488 MADISON AVENUE, NEW YORK, NEW YORK 10022
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(Address of Principal Executive Offices)
(212) 753-5511
- - -----------------------------------------------------------------------------
(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: 7,044,051 as of
January 13, 1998
<PAGE>
WATER-JEL TECHNOLOGIES, INC.AND SUBSIDIARIES
INDEX
PART I
ITEM 1. Financial Information Page No.
Consolidated balance sheets
November 30, 1997 and August 31, 1997. . . . . . . . . . . 3
Consolidated statements of operations
Three Months Ended November 30, 1997 and 1996 . . . . . . 4
Consolidated statements of cash flows
Three Months Ended November 30, 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
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<TABLE>
WATER-JEL TECHNOLOGIES, INC. AND SUBSIDIARIES SHEETS
CONSOLIDATED BALANCE SHEETS
<CAPTION>
ASSETS NOVEMBER 30, AUGUST 31,
1997 1997
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $10,730,048 $7,230,314
Investment in marketable securities 33,792 758,373
Accounts receivable, net of allowance for doubtful accounts of $154,000 4,014,489 3,713,709
Program costs and earnings in excess of customer billings 2,108,903 2,039,682
Inventories 1,310,363 1,364,510
Prepaid expenses and other current assets 254,580 334,589
TOTAL CURRENT ASSETS 18,452,175 15,441,177
Property and equipment, net 1,507,873 1,354,070
Investment in X-Ceed Motivations Atlanta Inc. 604,454 355,394
Due from officer 1,222,483 1,222,483
Deferred income taxes 453,028 231,000
Other assets 227,249 195,956
$22,467,262 $18,800,080
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $5,207,023 $4,041,907
Current portion of long-term debt 39,200 39,200
Income taxes payable, current 548,028 358,933
Customer billings in excess of program costs 3,051,475 914,561
Deferred income tax liability - 44,500
TOTAL CURRENT LIABILITIES 8,845,726 5,399,101
LONG-TERM DEBT 41,700 51,500
ACCRUED LEASE OBLIGATIONS 816,000 816,000
STOCKHOLDERS' EQUITY:
Common stock, $.08 par value, authorized 12,500,000
shares; 7,044,051 and 7,043,180 Corporate shares
issued and outstanding, respectively 563,529 563,456
Preferred stock, $.08 par value; authorized 125,000
shares; -0- issued and outstanding - -
Net unrealized (loss) gain on marketable securities (1,461) 216,175
Additional paid-in capital 9,720,240 9,717,568
Retained earnings 2,537,158 2,091,910
12,819,466 12,589,109
Treasury stock, 10,000 shares (55,630) (55,630)
12,763,836 12,533,479
$22,467,262 $18,800,080
See notes to consolidated financial statements.
</TABLE>
3
<PAGE>
<TABLE>
WATER-JEL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<CAPTION>
THREE MONTHS ENDED
NOVEMBER 30,
1997 1996
<S> <C> <C> <C> <C> <C> <C>
REVENUES, net $10,282,228 $9,807,332
COST AND EXPENSES:
Cost of revenues 5,188,931 4,201,433
Selling, general and administraTive 4,320,497 4,506,491
Research and development 204,902 -
9,714,330 8,707,924
OPERATING INCOME 567,898 1,099,408
OTHER INCOME (EXPENSE):
Interest and dividend income 120,922 90,006
Interest expense (2,428) (2,892)
Gain on sale of investment in marketable securities 346,662 12,249
Equity loss on investment (43,806) (58,454)
421,350 40,909
INCOME BEFORE INCOME TAXES 989,248 1,140,317
PROVISION FOR INCOME TAXES 544,000 598,000
NET INCOME $445,248 $542,317
NET INCOME PER COMMON SHARE
Primary $0.06 $0.08
Assuming full dilution $0.06 $0.08
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING:
Primary 7,695,655 7,011,180
Assuming full dilution 7,695,655 7,011,180
See notes to consolidated financial statements.
</TABLE>
4
<PAGE>
<TABLE>
WATER-JEL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<CAPTION>
Three Months Ended
November 30,
1997 1996
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $445,248 $542,317
Adjustment to reconcile net income to net
cash provided by operating activities:
Gain on sale of marketable securities (346,662) (12,249)
Depreciation and amortization 65,597 90,040
Equity loss on investment 43,806 58,454
Deferred Income Taxes (154,109) -
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable (300,780) (441,159)
Inventories 54,147 (152,281)
Program costs and earnings in excess of billings (69,221) -
Prepaid expenses and other current assets 80,009 16,441
Other assets (31,293) 11,317
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 1,165,116 563,335
Income taxes payable 189,095 397,214
Customer billings in excess of program costs 2,136,914 (448,766)
Other Current liabilities - (4,484)
Total adjustments 2,832,619 77,862
Net cash provided by operating activities 3,277,867 620,179
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in marketable securities - (23,296)
Proceeds from sale of marketable securities 741,188 21,999
(Increase) in notes receivable - (100,000)
Acquisition of property and equipment (219,400) (38,417)
Net cash provided by (used in) investing activities 521,788 (139,714)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of long-term debt (9,800) (9,800)
Repayment of notes payable - (1,065,000)
Advances to affiliate (292,866) (244,925)
Proceeds from excercise of warrants and options 2,745 3,000
Net cash (used in) financing activities (299,921) (1,316,725)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,499,734 (836,260)
CASH AND CASH EQUIVALENTS - beginning of period 7,230,314 7,333,168
CASH AND CASH EQUIVALENTS - end of period $10,730,048 $6,496,908
See notes to consolidated financial statements.
</TABLE>
5
<PAGE>
WATER-JEL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
November 30, 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 November 30, 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, 1997.
2. PRINCIPLE OF CONSOLIDATATION:
The accompanying consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiaries. Upon consolidation,
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.
The Company has a 50% equity interest in X-Ceed Atlanta which organizes
and operates group incentive programs for major corporations in the
Atlanta, Georgia area.
6
<PAGE>
3. INVENTORIES CONSISTED OF THE FOLLOWING:
November 30, 1997 August 31, 1997
-------- --- ---- ------ --- ----
(unaudited)
Raw Materials $ 840,196 $ 962,976
Finished goods 470,167 401,534
------- -------
$1,310,363 $1,364,510
========= =========
4. SUPPLEMENTARY INFORMATION - STATEMENTS OF CASH FLOW:
Quarter Ended
November 30,
1997 1996
Interest paid.................. $ 2,428 $ 2,892
======== =======
Income taxes paid.............. $464,856 $61,000
======== =======
5. EARNINGS PER SHARE:
Earnings per common share has been computed using the weighted average
number of common shares outstanding during each period presented.
6. 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 OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
Net revenues for the three months ended November 30, 1997 and 1996,
respectively, were $10,282,000 and $9,807,000, representing a 5% increase.
Cost of revenues for the period ending November 30, 1997 was $5,189,000
as compared to $4,201,000 for the period ended November 30, 1996, representing
50% and 43% of net sales, respectively. During the three months ended November
30, 1997 the Company operated fewer merchandising programs, which traditionally
generate higher profit margins than other programs. Selling, general and
administrative expenses for the period ended November 30, 1997 were $4,320,000
as compared to $4,506,000 for the period ended November 30, 1996, representing
42% and 46% of net sales, respectively. The decrease in selling, general and
administrative expenses in the current period reflects the Company's emphasis on
controlling costs. Research and development expense during the three months
ended November 30, 1997 was $205,000 incurred in connection with the continuing
development of X-Ceed's Maestro software. Maestro is a proprietary productivity
enhancing software utilized for managing training, sales tracking and reporting,
awards and recognition programs, and product information for sales forces.
Other income for the three months ended November 30, 1997 was $421,000
as compared to $41,000 for the corresponding prior period. The increase during
the current period reflects a gain on sales of investments of $347,000 as
compared to $12,000 for the corresponding prior period.
Net income for the quarter ended November 30, 1997 was $445,000 as
compared to $542,000 for the corresponding prior period.
LIQUIDITY AND CAPITAL RESOURCES:
At November 30, 1997 the Company had working capital of $9,607,000 as
compared to $10,042,000 at August 31, 1997. During the three months ended
November 30, 1997, the Company received net proceeds of $741,000 from the sale
of marketable securities. In November 1997, the Company amended its credit
facility with its
8
<PAGE>
lead bank. The amended facility provides for a $600,000 term loan bearing
interest at 1/2% over the bank's prime and a line of credit facility of
$2,500,000 bearing interest at the bank's prime rate. In addition, the credit
facility also provides for a foreign exchange line in the amount of $2,000,000
which may be used to hedge against fluctuations in foreign currency. The new
facility expires in December 1998 and supersedes any prior credit facility.
The consolidated statement of cash flows for the period ended November
30, 1997 reflects net cash provided by operating activities of $3,278,000
resulting from net income of $445,000, an increase in accounts payable and
accrued expenses of $1,165,000 and an increase in customer billings in excess of
programs costs of $2,137,000. Cash provided by investing activities was
$522,000, consisting principally of proceeds from sale of marketable securities
of $741,000. Cash used in financing activities approximated $300,000 which
included advances to an affiliate of $293,000.
The Company believes that it has adequate working capital for at least
the next twelve months of operations at current levels. As of January 13, 1998
the Company had approximately $9,330,000 in cash and cash equivalents.
9
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - Legal Proceedings
- - ------ -----------------
There is no material litigation currently pending against the Company,
its officers or employees.
ITEM 2 - Changes in Securities
- - ------ ---------------------
None
ITEM 3 - Defaults on Senior Securities
- - ------ -----------------------------
None
ITEM 4 - Submission to a Vote of Security Holders
- - ------ ----------------------------------------
There were no matters submitted to a vote during the quarterly period;
However, on January 9, 1998 a notice of annual shareholders meeting and
related proxy material were transmitted to the Company's shareholders
in connection with the upcoming annual meeting scheduled for February
20, 1998. The matters submitted for vote are: (1) re-election of the
Company's directors, (2) to approve the creation of a new 1998 Stock
Option Plan, (3) to approve the merger into a Delaware subsidiary of
the Company in order to effect the change of the Company's state of
incorporation from New York to Delaware, (4) to approve the change of
the Company's name to X-Ceed Inc., (5) to approve the amendment of the
certificate of incorporation to increase the authorized Common Stock to
30,000,000 shares, par value $.01 per share and the authorized
Preferred to 1,000,000 shares, par value $.05 per share and (6) to
ratify the appointment of independent public accountants for the
current fiscal year.
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 15, 1998
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> SEP-01-1997
<PERIOD-END> NOV-30-1997
<CASH> 10,730,048
<SECURITIES> 33,792
<RECEIVABLES> 4,168,489
<ALLOWANCES> 154,000
<INVENTORY> 1,310,363
<CURRENT-ASSETS> 18,452,175
<PP&E> 3,986,084
<DEPRECIATION> 2,478,211
<TOTAL-ASSETS> 22,467,262
<CURRENT-LIABILITIES> 8,845,726
<BONDS> 41,700
563,529
0
<COMMON> 0
<OTHER-SE> 12,200,307
<TOTAL-LIABILITY-AND-EQUITY> 22,467,262
<SALES> 10,282,228
<TOTAL-REVENUES> 10,282,228
<CGS> 5,189,931
<TOTAL-COSTS> 5,189,931
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,428
<INCOME-PRETAX> 989,248
<INCOME-TAX> 544,000
<INCOME-CONTINUING> 445,248
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 445,248
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.06
</TABLE>
