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Previous: INLAND REAL ESTATE GROWTH FUND II LP, 10-Q, 1997-11-13 |
Next: RETAIL EQUITY PARTNERS LIMITED PARTNERSHIP, 10-Q, 1997-11-13 |
<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 September 30, 1997
------------------
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.)
12265 W. Bayaud Ave #110
Lakewood, CO
- --------------------------------------------------------------------------------
(Address of principal executive offices)
80228
- --------------------------------------------------------------------------------
(Zip Code)
(303) 986 8011
- --------------------------------------------------------------------------------
(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.
Yes X No
----- -----
The number of shares of Common Stock outstanding on September 30, 1997 was
18,361,300 shares
<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 September 30, 1997
have been included.
ITEM 1. FINANCIAL STATEMENTS
WATSON GENERAL CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheet
<TABLE>
<CAPTION>
September 30, June 30,
1997 1997
------------- ------------
(unaudited) (unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and equivalents $ 624,000 $ 799,000
Accounts receivable 678,000 662,000
Prepaid expenses and other current assets 416,000 418,000
------------ ------------
1,718,000 1,879,000
PROPERTY AND EQUIPMENT 718,000 755,000
INTANGIBLES AND GOODWILL 8,284,000 8,546,000
------------ ------------
$ 10,720,000 $ 11,180,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable, accrued expenses
and other liabilities $ 764,000 $ 915,000
Current portion of long-term debt 1,095,000 1,083,000
------------ ------------
1,859,000 1,998,000
LONG-TERM DEBT AND OTHER LIABILITIES 6,629,000 6,423,000
DEFERRED EMPLOYEE BENEFITS 434,000 434,000
SHAREHOLDERS' EQUITY
Common stock 10,400,000 10,373,000
Additional paid-in capital 1,947,000 1,947,000
(Accumulated deficit) (10,549,000) (9,995,000)
------------ ------------
1,798,000 2,325,000
------------ ------------
$ 10,720,000 $ 11,180,000
============ ============
</TABLE>
2
<PAGE> 3
WATSON GENERAL CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations
Three Months Ended September 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---------- ----------
(unaudited) (unaudited)
<S> <C> <C>
Sales $1,560,000 $ 559,000
Cost of sales 580,000 170,000
---------- ----------
Gross profit (loss) 980,000 389,000
Selling, general and administrative expenses 1,312,000 1,006,000
Interest expense, net of interest income 222,000 35,000
---------- ---------
Loss from operations before benefit for
income taxes (554,000) (652,000)
Benefit for income taxes -- --
---------- ---------
Net (loss) $ (554,000) $(652,000)
---------- ---------
Net (loss), per share $ (0.03) $ (0.06)
========== =========
</TABLE>
3
<PAGE> 4
WATSON GENERAL CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Three Months Ended September 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---------- ----------
(unaudited) (unaudited)
<S> <C> <C>
Cash flows (used in) operating activities:
Net (loss) $(554,000) $(652,000)
Adjustments to reconcile net (loss) to net cash
used for operating activities:
Depreciation and amortization 391,000 199,000
Loss on sale and write-off of property and equipment 54,000
Net changes in operating assets and liabilities (153,000) 152,000
--------- ---------
(262,000) (301,000)
--------- ---------
Cash flows (used in) investing activities:
Net purchase of subsidiary -- (40,000)
Sale (purchase) of property and equipment (65,000) (132,000)
--------- ---------
(65,000) (172,000)
--------- ---------
Cash flows (used in) provided by financing activities:
Proceeds from issuance of common stock and options 27,000 170,000
Borrowings, net of repayments 125,000 (60,000)
--------- ---------
152,000 110,000
--------- ---------
Increase (Decrease) in cash (175,000) (363,000)
Cash, beginning 799,000 550,000
--------- ---------
Cash, ending $ 624,000 $ 187,000
========= =========
</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 1998 the Company reported a net loss of $554,000
or $0.03 per share as compared to a net loss of $652,000 or $0.06 per share in
the prior year. Sales for the quarter were $1,560,000 compared with $559,000 in
the prior year. The 179% increase in sales over the same quarter in the prior
year is due primarily to the acquisition of Ustman Industries in May 1997.
Gross margins of 63% were achieved by focusing the Company's business in the
monitoring of underground storage tanks using Statistical Inventory
Reconciliation. The Company's strategic plan calls for it to reposition itself
in pursuit of its most significant market opportunity, leak detection/monthly
monitoring of underground storage tanks and to eliminate its existing holding
company structure. As part of this strategic plan, the Company intends to divest
its Toxguard Fluid Technologies, Inc (on-site antifreeze recycling) subsidiary.
Subsequent to June 30, 1997 Toxguard Systems, Inc. ceased operations and filed a
voluntary petition for bankruptcy under Chapter 7. Toxguard Systems, Inc.'s
financial statements have not been consolidated with those of the Company and
prior quarter results have been restated.
Included in the loss of $554,000 for the quarter were costs of approximately
$312,000 for transitioning the Company's operations from Kansas City, and Irvine
to Denver. It is expected that these costs will be significantly reduced in the
second quarter of the fiscal year. Considering the elimination of these costs,
and the depreciation and amortization charges of $391,000 for the quarter, on an
ongoing basis the Company would have achieved positive cash flow during the
quarter.
The Company's sales depend in part upon its customer's decision as to when to
implement measures to meet 1998 compliance requirements. The Company believes
that the market for its services may accelerate as compliance deadlines
approach.
Financial Condition and Liquidity:
At September 30, 1997 the Company's current liabilities exceeded current assets
by $141,000 compared to $119,000 at June 30, 1997. The Company's business does
not require material ongoing capital expenditures. The Company's management
believes that it has adequate resources for the next twelve months of
operations.
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
Exhibit 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: November 12, 1997 By: /s/ DAN R. COOK
-------------------------------
Dan R. Cook
President and CEO
Date: November 12, 1997 By: /s/ JOSEPH L. CHRISTOFFEL
-------------------------------
Joseph L. Christoffel
Chief Financial Officer
6
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 624,000
<SECURITIES> 0
<RECEIVABLES> 678,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,718,000
<PP&E> 718,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 10,720,000
<CURRENT-LIABILITIES> 1,859,000
<BONDS> 0
0
0
<COMMON> 10,400,000
<OTHER-SE> (8,602,000)
<TOTAL-LIABILITY-AND-EQUITY> 10,720,000
<SALES> 1,560,000
<TOTAL-REVENUES> 1,560,000
<CGS> 580,000
<TOTAL-COSTS> 1,892,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 222,000
<INCOME-PRETAX> (554,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (554,000)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
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