SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
-------- THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 1996
-----------------
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
- --------- OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from _________ to __________
Commission File No. 0-19350
-------
ViroGroup, Inc.
(Exact name of registrant as specified in its charter)
Florida 59-1671036
- ------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
428 Pine Island Road SW
Cape Coral, Florida 33991
- --------------------------------------- ----------
(Address of principle executive office) (zip code)
Registrant's telephone number including area code: (941) 574-1919
--------------
Indicated by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 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 outstanding of the registrant's common stock, $.01 Par
Value, as of January 12, 1996 was 6,361,708.
page 1 of 13
<PAGE>
VIROGROUP, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
QUARTER ENDED NOVEMBER 30, 1996
Page
----
Part I- Financial Information
Consolidated Balance Sheets
November 30, 1996 and August 31, 1996 3
Consolidated Statements of Operations
Three Months Ended November 30, 1996 and
November 30, 1995 4
Consolidated Statements of Cash Flows
Three Months Ended November 30, 1996 and
November 30, 1995 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Part II - Other Information 12
Signature Page 13
page 2 of 13
<PAGE>
VIROGROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
NOVEMBER 30 AND AUGUST 31, 1996
<TABLE>
<CAPTION>
November 30, August 31,
1996 1996
----------- ----------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................................... $ 40,076 $ 191,001
Accounts receivable, net of allowance for doubtful
accounts of $492,136, and $502,551, respectively........... 2,478,059 3,384,426
Unbilled accounts receivable................................. 501,049 717,946
Prepaid income taxes......................................... 21,685 26,840
Prepaid expenses and other................................... 236,709 204,313
----------- ----------
Total current assets................................... 3,277,578 4,524,526
AMOUNTS DUE FROM STATE AGENCY, net............................... 2,693,132 2,812,737
PROPERTY AND EQUIPMENT, net...................................... 500,215 543,746
OTHER ASSETS..................................................... 33,433 35,261
----------- ----------
$ 6,504,358 $ 7,916,270
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................................. $ 805,757 $ 1,160,354
Accrued liabilities.......................................... 1,155,529 1,197,026
Current maturities of long-term debt......................... 6,151 9,447
Notes payable................................................ 1,810,054 2,491,429
----------- ----------
Total current liabilities.............................. 3,777,491 4,858,256
----------- ----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value, 50,000,000 shares
authorized, 0 shares outstanding........................... --- ---
Common stock, $.01 par value, 50,000,000 shares
authorized, 6,361,708 issued and outstanding............... 63,618 63,618
Additional paid-in capital................................... 18,277,867 18,277,867
Accumulated deficit.......................................... (15,614,618) (15,283,471)
----------- ----------
Total shareholders' equity............................. 2,726,867 3,058,014
----------- ----------
$ 6,504,358 $ 7,916,270
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
page 3 of 13
<PAGE>
VIROGROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended November 30, 1996 and 1995
(Unaudited)
1996 1995
----------- -----------
GROSS REVENUES..................................... $ 2,694,509 $ 4,165,650
COST OF GROSS REVENUES ............................ 1,910,298 2,900,593
----------- -----------
Gross profit................................... 784,211 1,265,057
SELLING, GENERAL & ADMINISTRATIVE EXPENSES,
including rentals to related party of
$46,500 in 1995................................ 1,106,060 1,410,717
----------- -----------
Loss from operations........................... (321,849) (145,660)
OTHER INCOME (EXPENSE):
Net interest expense........................... (42,574) (46,986)
Other, net..................................... 33,275 3,526
----------- -----------
Loss before income taxes ...................... (331,148) (189,120)
PROVISION FOR INCOME TAXES......................... --- ---
----------- -----------
Net loss....................................... $ (331,148) $ (189,120)
=========== ===========
LOSS PER SHARE:
Net loss per common share...................... $ (.05) $ (.03)
=========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING......... 6,361,708 6,361,708
=========== ===========
The accompanying notes to consolidated financial
statements are an integral part of these statements.
page 4 of 13
<PAGE>
VIROGROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended November 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss..................................................... $ (331,148) $ (189,120)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities
Depreciation and amortization............................. 85,418 103,184
Provision for recovery of bad debts....................... 27,851 (52,292)
Gain on disposition of property and equipment............. (2,321) (157)
Changes in assets and liabilities:
Decrease (increase) in-
Accounts receivable and amounts due from state agency. 999,951 (591,087)
Unbilled accounts receivable.......................... 216,897 506,301
Prepaid income taxes.................................. 5,155 800
Prepaid expenses and other assets..................... (32,396) 55,221
Increase (decrease) in-
Accounts payable...................................... (354,597) (389,483)
Accrued liabilities,.................................. (41,497) (297,264)
----------- -----------
Total adjustments..................................... 904,461 (664,777)
----------- -----------
Net cash provided by (used in) operating activities..... 573,313 (853,897)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment.......................... (42,597) (10,049)
Proceeds from sale of property and equipment................. 3,030 23,668
----------- -----------
Net cash (used in) provided by investing activities........ (39,567) 13,619
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable.................................. 1,879,018 3,257,360
Repayment of notes payable................................... (2,560,393) (2,426,934)
Repayment of long-term debt.................................. (3,296) (6,721)
Repayment of capitalized lease obligations................... --- (9,816)
----------- -----------
Net cash (used in) provided by financing activities........ (684,671) 813,889
----------- -----------
DECREASE IN CASH AND CASH EQUIVALENTS............................ $ (150,925) $ (26,388)
CASH AND CASH EQUIVALENTS, beginning of period................... 191,001 104,793
----------- -----------
CASH AND CASH EQUIVALENTS, end of period......................... $ 40,076 $ 78,404
=========== ===========
SUPPLEMENTAL DISCLOSURES:
Interest paid................................................ $ 43,904 $ 18,253
=========== ===========
</TABLE>
The accompanying notes to consolidated financial
statements are an integral part of these statements.
page 5 of 13
<PAGE>
VIROGROUP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1996
(UNAUDITED)
(1) Basis of Presentation
The consolidated balance sheet as of August 31, 1996, which has been derived
from audited statements, and the unaudited interim consolidated financial
statements included herein, have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
note disclosures normally included in annual financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to those rules and regulations, although the Company believes
that the disclosures made are adequate to make the information presented not
misleading.
In the opinion of the Company, the accompanying unaudited consolidated financial
statements contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position of the Company as
of November 30, 1996, and the results of operations and cash flows for the
three-month periods ended November 30, 1996 and 1995.
The accounting policies followed for quarterly financial reporting purposes are
the same as those disclosed in the Company's audited financial statements
contained in its Annual Report on Form 10-K for the year ended August 31, 1996,
as filed with the Securities and Exchange Commission.
(2) Loss Per Share
Loss per share is calculated by dividing net loss attributed to common
shareholders by the weighted average number of common shares and common share
equivalents outstanding during the periods. Common share equivalents are not
considered for periods in which there is a loss, as their impact would be
antidilutive. Primary and fully diluted loss per share are the same for all
periods presented.
(3) Amounts Due From State Agency
During fiscal 1994, the Company aggressively expanded its participation in the
State of Florida financed programs to provide environmental services to
evaluate, assess and remediate contaminated underground petroleum storage tank
sites. Through its Inland Protection Trust Fund, the State of Florida reimburses
certain costs to clean up eligible contaminated sites. Primarily due to an
estimated unfunded $450 million backlog and annual tax revenues of only $100
page 6 of 13
<PAGE>
million, in March 1995 new legislation directed the Florida Department of
Environmental Protection to cease processing, with certain limited exceptions,
applications for reimbursement of costs to clean up UST sites eligible for state
funds.
In May, 1996 a new law (The 1996 Act) was passed which implemented significant
changes to the reimbursement program and addressed the estimated $450 million
backlog of unpaid claims. This 1996 Act provides for the elimination of the
reimbursement program effective August 1, 1996 and requires all reimbursement
applications to be submitted by December 31, 1996. Also, The 1996 Act creates a
non-profit public benefit corporation, which is expected to be operational by
the Spring of 1997, to finance the unpaid backlog. This non-profit corporation
is charged with financing the estimated unpaid $450 million backlog with
certificates of indebtedness. Payment of claims will be on a first-come,
first-served methodology based on application filing date and an assumed annual
funding rate of $100 million. Claims paid will be subject to a 3.5% annual
discount in consideration for the anticipated accelerated payment as compared to
the previously expected period of 4 to 5 years. The Company estimates the State
will not make significant payments under the program until the fourth quarter of
fiscal 1997 to the second quarter of fiscal 1998.
Due to the State's cancellation of the 1995 law and other prior law relating to
the program, and the provisions of the 1996 Act, the Company in prior fiscal
years recorded valuation allowances on the amounts due to reflect the state
mandated discount and potential denied costs. At August 31, 1996 these
allowances totaled $931,665 with $889,937 applied as a valuation allowance to
the amounts due resulting in a net amount of $2,812,737 shown as the Amounts Due
from State Agency, net, in the accompanying consolidated balance sheet at August
31, 1996 and $41,728 which is included as an accrued liability in this
consolidated balance sheet at August 31, 1996 to reflect the Company's liability
to pay discounts and denied costs on receivables financed by third- parties.
At November 30, 1996 these allowances totaled $913,918 with $825,974 applied as
an valuation allowance to the amounts due resulting in a net of $2,693,132 shown
as the Amounts Due From State Agency, net, in the accompanying consolidated
balance sheet at November 30, 1996 and $87,944 which is included as an accrued
liability in the consolidated balance sheet at November 30, 1996 to reflect the
Company's liability to pay discounts and denied costs on receivable financed by
third-parties.
Of the approximately $3.1 million in unfiled reimbursement applications at
August 31, 1996, the Company during the three months ended November 30, 1996
financed approximately $220,000 with third-party financing entities and filed
approximately $43,500 directly with the State. The Company uses third-party
financing because the Company will receive the cash from the financing entity
upon application filing thus not waiting the estimated 13 months to be paid by
the State, and the cost of borrowing from these third parties is less than the
cost of borrowing through the Company's revolving credit line.
page 7 of 13
<PAGE>
Specifically, the Company has entered into several arrangements to finance
substantially all the claims to be filed with the State for reimbursement.
Generally, these arrangements require the Company to pay a 3 - 4% prepaid
interest fee at the time the financing entity pays the Company. This is a
non-refundable fee to cover administrative costs and interest costs for up to
the first nine months. If the State has not paid the financing entity within the
first nine months, the interest costs are .6875% per month for each month,
thereafter. In addition, the Company must place 13% of the amounts financed in
an interest bearing escrow account to provide for potential state denied costs
and state mandated interest discount. The interest earned on the escrowed
amounts accrues to the Company's benefit and will be recorded as interest income
in the period earned. The Company estimates it could have as much as a $232,000
liability to the financing entity in excess of the amounts escrowed. The Company
expects to have sufficient funds to pay this potential unfunded liability.
At November 30, 1996 the Company had financed approximately $419,000 of the
amounts due from the state agency and had recorded in prepaid expenses and other
assets in the accompanying consolidated balance sheet escrowed amounts of
$89,100. The interest portion of these amounts will be amortized to interest
expense over a period of the next nine months.
Subsequent to November 30, 1996 the Company filed or financed all of its amounts
due from the State prior to the state mandated filing deadline of December 31,
1996. Of the total $3.9 million in amounts due from the state agency during the
term of the program, the Company financed approximately $3.2 million with
third-parties and filed $.7 million directly with the State.
(4) Notes Payable
Notes payable at November 30 and August 31, 1996, consisted of advances against
a $3.0 million line of credit. Under this line of credit, the Company may borrow
up to $3.0 million at an interest rate of prime (8.25% at November 30, 1996)
less .25%. Laidlaw, Inc. in lieu of its commitment to provide up to $3.0 million
in debt financing to the Company pursuant to the terms of the preferred stock
conversion agreement of June 26, 1995, caused a letter of credit to be issued to
collateralize the $3.0 million note. Substantially all of the Company's assets
secure this obligation to Laidlaw in the event of a draw upon the letter of
credit. The line of credit expires January 20, 1997 and the letter of credit
expires February 20, 1997. At the letter's expiration, Laidlaw has stated it
will comply with the terms of the preferred stock conversion agreement whereby
an affiliate will make available to the Company for a three-year period from
June 26, 1995 up to $3.0 million in financing with advances thereunder carrying
an interest rate equal to that available to Company from alternative sources
with the principal and interest to be paid in equal quarterly installments over
a three-year period commencing with the line of credit expiration, or in lieu
thereof, cause to be issued under similar terms as the present letter, a new
letter of credit of up to $3.0 million to secure the Company's borrowings.
page 8 of 13
<PAGE>
(5) Restructuring Charge
Primarily due to the May, 1996 law enacted relating to the Florida UST Program
and a continued decline in forecasted landfill design work, as well as general
market conditions, the Company in fiscal 1996 implemented the third phase of its
restructuring program. This action resulted in a one-time restructing charge to
Operating Expenses in fiscal 1996 totaling $326,428. The restructuring costs
remaining to be paid at August 31, 1996 were $174,072 and is included in accrued
liabilities in the August 31, 1996 consolidated balance sheet. For the three
month period ending November 30, 1996, $29,892 was charged against this accrual
primarily for employee severance pay and lease expenses on closed offices. The
Company believes the balance of the accrued restructuring charge of $144,180
which is included in accrued liabilities in the accompanying consolidated
balance sheet at November 30, 1996 is adequate to absorb the remaining estimated
restructuring charges.
(6) Significant Customer Disclosure
The Company operates in one industry segment, as contemplated by Financial
Accounting Standards Board Statement No. 14. During the three months ended
November 30, 1996, Laidlaw Environmental Services, Inc. and its affiliates
accounted for approximately 10% and Intercity Products, State of Tennessee and
Southern Wood Piedmont accounted for 18%, 13% and 10%, of consolidated gross
revenues, respectively. At November 30, 1996, amounts due from these customers
aggregated $649,699, and are included in "accounts receivable, net" in the
accompanying consolidated balance sheet.
page 9 of 13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Comparison of three months ended November 30, 1996 and 1995. Gross revenues
decreased by 35% to $2,694,509 for the three months ended November 30, 1996
compared to $4,165,650 for the same period of fiscal year 1996. This 35%
decrease in gross revenues results from changes in gross revenues at each of the
Company's two divisions, Environmental (Enviro) and Hydrogeological (Hydro), as
follows:
Gross Revenues For the
Three Months Ended
November 30
------------------
% Increase
Division 1996 1995 (Decrease)
-------- ---- ---- ----------
Enviro Florida $ 607,695 $1,177,597 (48)
Enviro South Carolina 779,522 1,429,668 (45)
Enviro Tenn 1,056,735 913,557 16
---------- ----------
TOTAL ENVIRO DIVISION 2,443,952 3,520,822 (31)
HYDRO DIVISION 250,557 644,828 (61)
---------- ----------
TOTAL VIROGROUP, INC. $2,694,509 $4,165,650 (35)%
========== ==========
Florida operations had a decrease in gross revenues of $569,902 from the prior
year. Of this decrease, approximately $135,000 is due from office closures while
the balance was mainly due to the curtailment of the Florida UST program. Of the
$650,146 decrease in gross revenues from the South Carolina operations,
approximately $220,000 is due from the closure of the California operation while
the remainder of the balance mainly due to a decrease in landfill design work in
South Carolina. The increase in Tennessee operations gross revenues is primarily
due to two large remediation projects which should continue into the second
quarter of fiscal 1997. This increase was net of an approximately $88,000
decrease in gross revenues caused by the closure of the New Orleans office in
fiscal 1996.
Cost of gross revenues is approximately 71% compared to approximately 70% for
the prior year. This slight increase is mainly due to a large percentage of
gross revenues being generated by subcontractors which generally carries a lower
profit margin than fee revenues directly generated by the Company's professional
staff.
page 10 of 13
<PAGE>
Selling, general and administrative expenses decreased by $304,657 or by 22%.
This decrease was mainly accomplished through the reduction of staff personnel,
office closures and management cost controls.
Net interest expense decreased by $4,412 or by 9% primarily due to lower average
amounts borrowed due to the collection of accounts receivable and amounts due
from the state agency. Other income increased by $29,749 mainly due to insurance
recoveries on damaged equipment.
The Company has not provided a provision for income taxes due to the current
year's net loss and has not recorded any tax benefit. It has provided a 100%
valuation allowance of the deferred tax asset that results from federal and
state net operating loss carry forwards due to the lack of availability of
federal and state taxable income within the carryback period, available under
the federal and state tax laws as well as the inability to determine the
likelihood that future federal and state taxable income will be sufficient to
utilize the deferred tax asset.
The net loss for the three months ended November 30, 1996 increased by $142,028
when compared to the prior year. This net loss is primarily attributable to the
decline in gross revenues.
Liquidity and Capital Resources as of November 30, 1996
- -------------------------------------------------------
The Company's operating activities provided net cash of $573,313 for the three
months ended November 30, 1996. This cash was primarily provided by liquidation
of accounts and unbilled receivables as well as amounts due from the state
agency. This cash was used to pay down the bank revolving credit line, accounts
payable and accrued liabilities as well as to purchase equipment.
Working capital, including Amounts Due from State Agency decreased by $285,788.
Accounts receivable, and unbilled receivables at November 30, 1996 decreased by
a combined amount of $1,123,264 when compared to these balances at August 31,
1996. This decrease is primarily the result of the decrease in gross revenues as
well as increased collections on accounts receivable. Accounts payable and
accrued liabilities at November 30, 1996 decreased by a combined amount of
$396,094 primarily due to the decrease in gross revenues and the payment of
suppliers upon filing reimbursement applications with the State of Florida. The
increase in amounts paid for interest are mainly due to prepaid interest on
amounts due from the state agency which have been financed by third parties.
Inflation has not significantly affected the Company's financial position or
operations. Borrowings under the $3,000,000 line of credit bear interest at
prime less .25%. The prime rate at November 30, 1996 was 8.25%. No assurance can
be given that inflation or the prime rate will not significantly fluctuate,
either of which could adversely affect the Company's results of operations.
page 11 of 13
<PAGE>
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS OF FORM 8-K
Exhibit 27 - Financial Data Schedule (Electronic filing only)
Reports on Form 8-K
None
page 12 of 13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VIROGROUP, INC.
Date: January 12, 1996 By: /s/ Sylvester O. Ogden
----------------------------------------
Sylvester O. Ogden, President, and
Chief Executive Officer, and Chairman
Date: January 12, 1996 By: /s/ Larry Ackerly
----------------------------------------
Larry Ackerly, Chief Financial Officer
page 13 of 13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF VIROGROUP, INC. FOR THE THREE MONTHS ENDED NOVEMBER 30,
1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> NOV-30-1996
<CASH> 40
<SECURITIES> 0
<RECEIVABLES> 3,471
<ALLOWANCES> 492
<INVENTORY> 0
<CURRENT-ASSETS> 3,278
<PP&E> 2,591
<DEPRECIATION> 2,091
<TOTAL-ASSETS> 6,504
<CURRENT-LIABILITIES> 3,777
<BONDS> 0
0
0
<COMMON> 64
<OTHER-SE> 18,278
<TOTAL-LIABILITY-AND-EQUITY> 6,504
<SALES> 2,695
<TOTAL-REVENUES> 2,695
<CGS> 1,910
<TOTAL-COSTS> 1,910
<OTHER-EXPENSES> 1,106
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 43
<INCOME-PRETAX> (331)
<INCOME-TAX> 0
<INCOME-CONTINUING> (331)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (331)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
