<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 December 31, 1995
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Commission file number 0-16011
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WATSON GENERAL CORPORATION
(Exact name of registrant as specified in its charter)
California
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(State or other jurisdiction of
incorporation or organization)
95-2873757
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(I.R.S. Employer Identification No.)
32-B Mauchly
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Irvine, California
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(Address of principal executive offices)
92718
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(Zip Code)
(714) 727-4020
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(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 December 31, 1995 was
9,846,591 Shares.
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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 December 31, 1995
have been included.
ITEM 1. FINANCIAL STATEMENTS
WATSON GENERAL CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheet
<TABLE>
<CAPTION>
December September
31, 1995 30, 1995
(unaudited) (unaudited)
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and equivalents $ 1,510,000 $ 466,000
Accounts receivable 524,000 723,000
Prepaid expenses and other current assets 177,000 129,000
----------- -----------
2,211,000 1,318,000
PROPERTY AND EQUIPMENT 601,000 612,000
DEPOSITS AND OTHER ASSETS 49,000 5,000
INTANGIBLES AND GOODWILL 379,000 386,000
----------- -----------
3,240,000 2,321,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable, accrued expenses 583,000 521,000
and other liabilities
Current portion of long-term debt 22,000 66,000
----------- -----------
605,000 587,000
LONG-TERM DEBT & OTHER LIABILITIES 347,000 359,000
DEFERRED EMPLOYEE BENEFITS 435,000 435,000
SHAREHOLDERS' EQUITY
Common stock 8,009,000 6,737,000
Additional paid-in capital 153,000 153,000
(Accumulated deficit) (6,309,000) (5,950,000)
----------- -----------
1,853,000 940,000
3,240,000 2,321,000
=========== ===========
</TABLE>
2
<PAGE> 3
WATSON GENERAL CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations
Three Months Ended December 31, 1995 and 1994
<TABLE>
1995 1994
(unaudited) (unaudited)
----------- -----------
<S> <C> <C>
Sales $ 548,000 $ 391,000
Cost of sales (426,000) (274,000)
---------- ----------
Gross profit (loss) 122,000 117,000
Corporate, general and
administrative expenses (464,000) (642,000)
Interest and dividend income,
net of interest expense (13,000) (10,000)
--------- ---------
Loss from operations
before benefit for income taxes (355,000) (535,000)
Benefit for income taxes (5,000) (5,000)
--------- ---------
Net (loss) (360,000) (540,000)
========= =========
Net (loss), per share (.04) (.07)
========= =========
</TABLE>
3
<PAGE> 4
WATSON GENERAL CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Three Months Ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
(unaudited) (unaudited)
----------- -----------
<S> <C> <C>
Cash flows (used in) operating
activities:
Net (loss) $ (360,000) $ (540,000)
Adjustments to reconcile net (loss)
to net cash used for operating
activities:
Depreciation and amortization 35,000 29,000
(Increase) decrease in:
Accounts receivable 99,000 (12,000)
Other current assets 52,000 11,000
Increase (decrease) in:
Accounts payable and
accrued expenses 12,000 223,000
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(162,000) (289,000)
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Cash flows (used in) investing activities:
Increase in deposits (43,000) (28,000)
Purchase of property and equipment (19,000) -
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(62,000) (28,000)
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Cash flows (used in) provided by
financing activities:
Proceeds from issuance of common stock 1,273,000 3,000
Borrowings, net of repayments (5,000) -
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1,268,000 3,000
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Increase (Decrease) in cash 1,044,000 (314,000)
Cash, beginning 466,000 448,000
---------- ----------
Cash, ending 1,510,000 134,000
========== ==========
</TABLE>
4
<PAGE> 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations:
In the first quarter of fiscal 1995 the Company reported a net loss of $360,000
or $0.04 per share as compared to a net loss of $540,000 or $0.07 per share in
the prior year and a net loss of $185,000 for the prior quarter. The major
cause of the increased loss over the prior quarter was reduced sales in the
Company's Toxguard Systems Inc. subsidiary.
During the quarter the Company continued to focus its efforts on monitoring
software sales and niche environmental service markets. While a loss was
incurred for the quarter, progress was made in solidifying the foundation for
the Company's long term. During the quarter the Company signed a letter of
intent to purchase all of the outstanding common stock of EnviroQuest
Technologies, Ltd., a national provider of statistical inventory reconciliation
services, headquartered in Kansas City, Missouri.
The acquisition for a combination of stock and cash was closed at the end of
January 1996. The combined sales of the two companies would have been over
five million dollars for the twelve months ended September 30, 1995. Together
the two company's software will monitor over 20,000 underground storage tanks.
The Company views the products of the Company's EnvirAlert, Inc. subsidiary and
the newly acquired EnviroQuest Technologies, Ltd. as synergistic. Joint
marketing endeavors between the two subsidiaries have already begun. This
combining will result in a broader offering of compliance alternatives and
inventory management to both companies customers.
Financial Condition and Liquidity:
During the quarter the Company completed three private placements, selling
768,572 shares of its common stock for $1,245,000 in net proceeds. After the
end of the quarter the Company also completed one additional private placement
selling 100,000 shares of its common stock for $175,000 in net proceeds. In
addition to these placements the Company intends to sell up to another 300,000
shares in the quarter ending March 31, 1996. The capital infusions resulting
from these transactions and the current cash and equivalents are adequate to
finance operations and expansion plans during fiscal 1996.
5
<PAGE> 6
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
(a) Exhibits
27 Financial Data Schedule
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: February 7, 1996 By: /s/ Ronald G. Crane
-----------------------------
Ronald G. Crane
President and CEO
Date: February 7, 1996 By: /s/ Joseph L. Christoffel
-----------------------------
Joseph L. Christoffel
Chief Financial Officer
6
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 1,510,000
<SECURITIES> 0
<RECEIVABLES> 524,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,211,000
<PP&E> 1,125,000
<DEPRECIATION> 524,000
<TOTAL-ASSETS> 3,240,000
<CURRENT-LIABILITIES> 605,000
<BONDS> 0
<COMMON> 8,009,000
0
0
<OTHER-SE> (6,156,000)
<TOTAL-LIABILITY-AND-EQUITY> 3,240,000
<SALES> 548,000
<TOTAL-REVENUES> 548,000
<CGS> 426,000
<TOTAL-COSTS> 426,000
<OTHER-EXPENSES> 464,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,000
<INCOME-PRETAX> (355,000)
<INCOME-TAX> 5,000
<INCOME-CONTINUING> (360,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (360,000)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> 0
</TABLE>
