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Previous: BWIP INC, 10-Q, 1996-05-15 |
Next: CNL INCOME FUND III LTD, 10-Q, 1996-05-15 |
<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1996
--------------
Commission file number 0-16011
-------
WATSON GENERAL CORPORATION
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
California
- -------------------------------------------------------------------------------
(State or other jurisdiction of incorporation or organization)
95-2873757
- -------------------------------------------------------------------------------
(I.R.S. Employer Identification No.)
32-B Mauchly
Irvine, California
- -------------------------------------------------------------------------------
(Address of principal executive offices)
92718
- -------------------------------------------------------------------------------
(Zip Code)
(714) 727-4020
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 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.
X Yes No
----- -----
The number of shares of Common Stock outstanding on March 31, 1996 was
10,626,051 Shares.
1
<PAGE> 2
PART I -- FINANCIAL INFORMATION
The financial information furnished herein has not been audited by independent
accountants; however, in the opinion of management, all adjustments (only
consisting of normal recurring accruals) necessary for a fair presentation of
the results of operations for the three month period ending March 31, 1996 have
been included.
ITEM 1. FINANCIAL STATEMENTS
WATSON GENERAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheet
<TABLE>
<CAPTION>
March 31, September 30,
1996 1995
----------- ------------
(unaudited) (unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and equivalents $1,104,000 $ 466,000
Accounts receivable 561,000 723,000
Prepaid expenses and other current assets 205,000 129,000
Refundable income taxes 36,000 -
Deferred income taxes 17,000
---------- -----------
1,923,000 1,318,000
PROPERTY AND EQUIPMENT 849,000 612,000
DEPOSITS AND OTHER ASSETS 18,000 5,000
INTANGIBLES AND GOODWILL 2,870,000 386,000
---------- -----------
5,660,000 2,321,000
========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable, accrued expenses 844,000 521,000
and other liabilities
Deferred revenue on service sales 141,000 -
Current portion of long-term debt 159,000 66,000
---------- -----------
1,144,000 587,000
LONG-TERM DEBT & OTHER LIABILITIES 955,000 359,000
DEFERRED INCOME TAXES 17,000 -
DEFERRED EMPLOYEE BENEFITS 435,000 435,000
SHAREHOLDERS' EQUITY
Common stock 9,394,000 6,737,000
Additional paid-in capital 520,000 153,000
(Accumulated deficit) (6,805,000) (5,950,000)
----------- -----------
3,109,000 940,000
5,660,000 2,321,000
=========== ===========
</TABLE>
2
<PAGE> 3
WATSON GENERAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Three Months Ended March 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
(unaudited) (unaudited)
<S> <C> <C>
Sales $ 864,000 $ 707,000
Cost of sales (473,000) (393,000)
---------- ---------
Gross profit (loss) 391,000 314,000
Corporate, general and administrative expenses (790,000) (547,000)
Research and development (77,000) -
Interest and dividend income, net of interest expense (20,000) (19,000)
---------- ---------
Loss from operations before benefit for income taxes (496,000) (252,000)
Benefit for income taxes - (6,000)
---------- ---------
Net (loss) (496,000) (258,000)
========== =========
Net (loss), per share (.05) (.03)
========== =========
</TABLE>
3
<PAGE> 4
WATSON GENERAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Six Months Ended March 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
(unaudited) (unaudited)
<S> <C> <C>
Sales $ 1,411,000 $ 1,098,000
Cost of sales (898,000) (668,000)
----------- -----------
Gross profit (loss) 513,000 430,000
Corporate, general and administrative expenses (1,254,000) (1,188,000)
Research and development (77,000) -
Interest and dividend income, net of interest expense (33,000) (29,000)
----------- -----------
Loss from operations before benefit for income taxes (851,000) (787,000)
Benefit for income taxes (5,000) (10,000)
----------- -----------
Net (loss) $ (856,000) $ (797,000)
=========== ===========
Net (loss), per share $ (.08) $ (.09)
=========== ===========
</TABLE>
4
<PAGE> 5
WATSON GENERAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Six Months Ended March 31, 1996 and 1995
<TABLE>
<CAPTION>
1995 1994
----------- -----------
(unaudited) (unaudited)
<S> <C> <C>
Cash flows (used in) operating activities:
Net (loss) $ (856,000) $ (797,000)
Adjustments to reconcile net (loss) to net cash
used for operating activities:
Depreciation and amortization 120,000 64,000
(Increase) decrease in:
Accounts receivable 64,000 (213,000)
Other current assets 37,000 10,000
Increase (decrease) in:
Accounts payable and accrued expenses 5,000 153,000
Current portion of long term debt 6,000 -
Deferred revenue on service sales (4,000) -
---------- ----------
(628,000) (783,000)
---------- ----------
Cash flows (used in) investing activities:
Increase in deposits (10,000) -
Net purchase of subsidiary (572,000) -
Purchase of property and equipment (28,000) (295,000)
---------- ----------
(610,000) (295,000)
---------- ----------
Cash flows (used in) provided by financing activities:
Proceeds from issuance of common stock 1,811,000 1,470,000
Borrowings, net of repayments 65,000 290,000
---------- ----------
1,876,000 1,760,000
---------- ----------
Increase (Decrease) in cash 638,000 682,000
Cash, beginning 466,000 448,000
----------- ----------
Cash, ending $1,104,000 $1,130,000
========== ==========
</TABLE>
5
<PAGE> 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations:
In the second quarter of fiscal 1996 the Company reported a net loss of
$496,000 or $0.05 per share as compared to a net loss of $258,000 or $0.03 per
share in the prior year. Results were negatively affected by the varied costs
associated with the acquisition of EnviroQuest Technologies, Ltd, ("ETL") and
the integration of another Company subsidiary EnvirAlert, Inc. into ETL.
Additionally, revenues from the company's Toxguard subsidiary, which
provides environmental clean-up services for underground storage tanks, were
down during the recent quarter.
The acquisition of ETL, a national provider of statistical inventory
reconciliation (SIR) services, was closed in the second fiscal quarter at the
end of January 1996. The combining of EnvirAlert and ETL will result in a
broader offering of compliance alternatives and inventory management to major
oil companies, independent marketers, and convenience store operators
nationwide.
Full integration of the two monitoring software operations under Roger Sherwood
as president is expected to be completed in the third quarter of fiscal 1996.
Mr. Sherwood joined the company in late calendar 1995 from a 30-year business
career in management at Amoco.
Recently, the Company announced two early results of its new combined marketing
program.
Alexander & Alexander, a major liability insurance broker, agreed to offer
substantial reductions in insurance premiums to owners of USTs that use the
Company's monitoring software services. The savings may range from 50% to over
80% for $1-million coverage per tank. Joint marketing efforts have begun and
both parties anticipating substantial growth in their respective businesses as
a result of this association.
The Company also announced a distribution agreement for its software and
services in Australia with a leading provider of services to owners of gasoline
storage tanks in that country, opening the door to expanded international
distribution.
Financial Condition and Liquidity:
During the quarter the Company completed two private placements, selling
285,875 shares of its common stock for $635,000 in net proceeds. The capital
infusions resulting from these transactions and the current cash and
equivalents are adequate to finance operations and expansion plans during
fiscal 1996.
6
<PAGE> 7
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable
ITEM 2. CHANGES IN SECURITIES
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
ITEM 5. OTHER INFORMATION
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
27. Financial Data Schedule.
8-K/A2 Acquisition of EnviroQuest Technologies, Ltd. Filed 4/30/96
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
WATSON GENERAL CORPORATION
(Registrant)
Date: May 14, 1996 By: /s/ RONALD G. CRANE
-----------------------------
Ronald G. Crane
President and CEO
Date: May 14, 1996 By: /s/ JOSEPH L. CHRISTOFFEL
-----------------------------
Joseph L. Christoffel
Chief Financial Officer
7
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,104,000
<SECURITIES> 0
<RECEIVABLES> 561,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,923,000
<PP&E> 849,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 5,660,000
<CURRENT-LIABILITIES> 1,144,000
<BONDS> 955,000
0
0
<COMMON> 9,394,000
<OTHER-SE> (6,285,000)
<TOTAL-LIABILITY-AND-EQUITY> 5,660,000
<SALES> 864,000
<TOTAL-REVENUES> 864,000
<CGS> 473,000
<TOTAL-COSTS> 790,000
<OTHER-EXPENSES> 77,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,000
<INCOME-PRETAX> (496,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (496,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (496,000)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
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