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 February 28, 1997
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 February 28, 1997 was 795,011.
Page 1 of 18
<PAGE>
VIROGROUP, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
QUARTER ENDED FEBRUARY 28, 1997
Page
----
Part I- Financial Information
Consolidated Balance Sheets
February 28, 1997 and August 31, 1996 3
Consolidated Statements of Operations
Three Months Ended February 28, 1997 and
February 29, 1996 4
Consolidated Statements of Operations
Six Months Ended February 28, 1997 and
February 29, 1996 5
Consolidated Statements of Cash Flows
Six Months Ended February 28, 1997 and
February 29, 1996 6
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
Part II - Other Information 15
Signature Page 17
Page 2 of 18
<PAGE>
VIROGROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
FEBRUARY 28, 1997 AND AUGUST 31, 1996
<TABLE>
<CAPTION>
February 28, August 31,
1997 1996
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................................... $ 57,500 $ 191,001
Accounts receivable, net of allowance for doubtful
accounts of $448,801, and $502,551, respectively........... 1,814,114 3,384,426
Unbilled accounts receivable................................. 439,493 717,946
Prepaid income taxes......................................... 21,684 26,840
Prepaid expenses and other................................... 820,199 204,313
----------- -----------
Total current assets................................... 3,152,990 4,524,526
AMOUNTS DUE FROM STATE AGENCY, net............................... 536,553 2,812,737
PROPERTY AND EQUIPMENT, net...................................... 454,152 543,746
OTHER ASSETS..................................................... 31,558 35,261
----------- -----------
$ 4,175,253 $ 7,916,270
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................................. $ 448,330 $ 1,160,354
Accrued liabilities.......................................... 1,784,906 1,197,026
Current maturities of long-term debt......................... 2,784 9,447
Notes payable................................................ --- 2,491,429
----------- -----------
Total current liabilities.............................. 2,236,020 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, 795,011 issued and outstanding at
August 31, 1996 and 795,011 issued and outstanding
at February 28, 1997....................................... 7,950 7,950
Additional paid-in capital................................... 18,333,536 18,333,536
Accumulated deficit.......................................... (16,402,253) (15,283,472)
----------- -----------
Total shareholders' equity............................. 1,939,233 3,058,014
----------- -----------
$ 4,175,253 $ 7,916,270
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
Page 3 of 18
<PAGE>
VIROGROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS Three Months
Ended February 28, 1997 and February 29, 1996
(Unaudited)
1997 1996
----------- -----------
GROSS REVENUES.................................. $ 1,476,247 $ 3,394,835
COST OF GROSS REVENUES ......................... 1,128,012 2,214,193
----------- -----------
Gross profit................................ 348,235 1,180,642
SELLING, GENERAL & ADMINISTRATIVE EXPENSES,
including rentals to related party of
$46,500 in 1997 and 1996.................... 1,095,584 1,534,367
----------- -----------
Loss from operations........................ (747,349) (353,725)
OTHER INCOME (EXPENSE):
Net interest expense........................ (61,837) (43,875)
Other, net.................................. 21,550 2,734
----------- -----------
Loss before income taxes ................... (787,636) (394,866)
BENEFIT FOR INCOME TAXES........................ 0 (19,825)
----------- -----------
Net loss.................................... $ (787,636) $ (375,041)
=========== ===========
NET LOSS PER SHARE COMMON SHARE................. $ (.99) $ (.47)
=========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING...... 795,011 795,011
=========== ===========
The accompanying notes to consolidated financial
statements are an integral part of these statements.
Page 4 of 18
<PAGE>
VIROGROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS Six Months
Ended February 28, 1997 and February 29, 1996
(Unaudited)
1997 1996
----------- -----------
GROSS REVENUES.................................. $ 4,170,756 $ 7,560,485
COST OF GROSS REVENUES ......................... 3,038,311 5,114,786
----------- -----------
Gross profit................................ 1,132,445 2,445,699
SELLING, GENERAL & ADMINISTRATIVE EXPENSES,
including rentals to related party of
$93,000 in 1997 and 1996.................... 2,201,645 2,942,226
----------- -----------
Loss from operations........................ (1,069,200) (496,527)
OTHER INCOME (EXPENSE):
Net interest expense........................ (104,411) (90,861)
Other, net.................................. 54,836 6,260
----------- -----------
Loss before income taxes ................... (1,118,775) (581,128)
PROVISION (BENEFIT) FOR INCOME TAXES............ 8 (16,967)
----------- -----------
Net loss.................................... $(1,118,783) $ (564,161)
=========== ===========
NET LOSS PER SHARE COMMON SHARE................. $ (1.41) $ (.71)
=========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING...... 795,011 795,011
=========== ===========
The accompanying notes to consolidated financial
statements are an integral part of these statements.
Page 5 of 18
<PAGE>
VIROGROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS Six Months
Ended February 28, 1997 and February 29, 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss..................................................... $(1,118,783) $ (564,161)
----------- -----------
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities
Depreciation and amortization............................. 167,751 201,367
Provision for bad debts................................... 42,571 (13,630)
(Gain) loss on disposition of property and equipment...... (16,958) 3,360
Changes in assets and liabilities:
Decrease (increase) in-
Accounts receivable................................... 1,527,740 127,792
Unbilled accounts receivable.......................... 278,453 529,380
Prepaid income taxes.................................. 5,156 (25,023)
Prepaid expenses and other assets..................... 1,622,272 (43,729)
Increase (decrease) in-
Accounts payable...................................... (712,021) (559,908)
Accrued liabilities................................... 629,608 (333,514)
----------- -----------
Total adjustments..................................... 3,544,572 (113,905)
----------- -----------
Net cash provided by (used in) operating activities........ 2,425,789 (678,066)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment.......................... (86,262) (14,813)
Proceeds from sale of property and equipment................. 25,062 28,097
----------- -----------
Net cash provided by (used in) investing activities........ (61,200) 13,284
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable.................................. 3,320,914 5,371,161
Repayment of notes payable................................... (5,812,342) (4,614,180)
Repayment of long-term debt.................................. 0 (108,504)
Repayment of capitalized lease obligations................... (6,662) (16,433)
----------- -----------
Net cash provided by (used in) financing activities........ (2,498,090) 605,044
----------- -----------
DECREASE IN CASH AND CASH EQUIVALENTS............................ (133,501) (59,738)
CASH AND CASH EQUIVALENTS, beginning of period................... 191,001 104,793
----------- -----------
CASH AND CASH EQUIVALENTS, end of period......................... $ 57,500 $ 45,055
=========== ===========
SUPPLEMENTAL DISCLOSURES:
Interest paid................................................ $ 110,276 $ 92,610
=========== ===========
Income taxes paid............................................ $ 8 $ 8,857
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
Page 6 of 18
<PAGE>
VIROGROUP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1997
(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 February 28, 1997 and the results of operations and cash flows for the
three-month and six-month periods ended February 28, 1997 and February 29, 1996.
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) One-for-Eight Reverse Stock Split
On January 23, 1997, the Company implemented a one-for-eight reverse stock split
of the Company's common stock. The effect of the reverse split upon holders of
common stock is that the total number of shares of the Company's common stock
held by each shareholder was automatically converted into that number of whole
shares of common stock equal to the number of shares of common stock owned
immediately prior to the reverse split divided by eight, adjusted for any
fractional shares.
The reverse split was effectuated to enable the Company to remain in compliance
with the listing criteria of the Nasdaq SmallCap Market. There can be no
assurance that the reverse split will result in the Company's continued
compliance with Nasdaq listing requirements.
Page 7 of 18
<PAGE>
The Company has an authorized capitalization of 50,000,000 shares of common
stock, par value $.01 per share. The authorized capital stock of the Company was
not reduced or otherwise affected by the reverse split. As of January 23, 1997,
the Company had 6,361,708 shares of common stock issued and outstanding. The
aggregate number of shares of common stock issued and outstanding following the
reverse split is 795,011. All common shares and per share amounts have been
adjusted to give retroactive effect of the reverse split.
(3) 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.
(4) 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 revenue allocation of
only $100 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. The 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 Summer 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
allocation rate of $100 million. Claims paid will be subject to a 3.5% annual
discount in consideration of 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 and continue through the second quarter of fiscal 1998.
Page 8 of 18
<PAGE>
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. The consolidated balance sheet at August 31, 1996
includes $41,728 as an accrued liability to reflect the Company's liability to
pay discounts and denied costs on receivables financed by third-parties.
At February 28, 1997 these allowances totaled $913,918 with $116,623 applied as
a valuation allowance to the amounts due, resulting in a net of $536,553 shown
as the Amounts Due From State Agency, net, in the consolidated balance sheet of
February 28, 1997. The balance sheet also includes $747,295 which is included as
an accrued liability to reflect the Company's liability to pay discounts and
denied costs on receivables financed by third-parties.
All of the approximately $3.1 million in unfiled reimbursement applications at
August 31, 1996, have been financed with third party financing entities at
February 28, 1997. In addition the Company had filed approximately $703,050
directly with the State. The Company uses third-party financing to obtain the
cash from the financing entity upon application filing thus avoiding the
estimated 13 months to be paid by the State. The cost of borrowing from these
third parties is less than the cost of borrowing through the Company's revolving
credit line.
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 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 filed all amounts due from the State prior to the state mandated
filing deadline of December 31, 1996.
(5) Notes Payable
Notes payable at February 28, 1997 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 February
28, 1997) less .25%. Laidlaw, Inc. in lieu of its commitment to provide up to
Page 9 of 18
<PAGE>
$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 expired January 20, 1997 and the letter
of credit expired February 20, 1997. The line of credit was renewed on January
20, 1997 for a one-year period under the same terms and conditions. On January
21, 1997, the letter of credit was renewed for a one-year period, also with the
same terms and conditions.
(6) Restructuring Charge
Primarily due to the the 1996 Act 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 restructuring 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 are included in accrued liabilities in the August 31, 1996
consolidated balance sheet. For the six month period ending February 28, 1997,
$69,115 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 $104,957 which is included in accrued
liabilities in the accompanying consolidated balance sheet at February 28, 1997
is adequate to absorb the remaining estimated restructuring charges.
On February 18, 1997, the Company announced plans to move its Corporate office
to Nashville, TN. The relocation is expected to be complete by the end of the
fiscal year.
(7) Significant Customer Disclosure
The Company operates in one industry segment, as contemplated by Financial
Accounting Standards Board Statement No. 14. During the six months ended
February 28, 1997, Laidlaw Environmental Services, Inc. and its affiliates
accounted for approximately 9% of total Company revenues. In addition, Intercity
Products, State of Tennessee and Southern Wood Piedmont accounted for 13%, 9%
and 8%, of consolidated gross revenues, respectively. At February 28, 1997,
amounts due from these customers aggregated $741,648, and are included in
"accounts receivable, net" in the accompanying consolidated balance sheet.
(8) Legal
The Company has been notified by the Environmental Protection Agency, through a
General Notice Letter that the Company is a potentially liable party at the
Florida Petroleum Reprocessors Site in Davie, Florida. However, at this time, no
estimate of the potential liability can be calculated due to the limited amount
of information available. This type of liability is an insurable risk and the
Company's insurance carrier has been notified. The insurance policy has a
deductible of $250,000. Company management is of the opinion that Company
liability, if any, will be minimal.
Page 10 of 18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Comparison of three months ended February 28, 1997 and February 29, 1996. Gross
revenues decreased by 57% to $1,476,247 for the three months ended February 28,
1997, compared to $3,394,835 for the same period of fiscal year 1996. This 57%
decrease in gross revenues results from changes in gross revenues in each of the
Company's divisions as follows:
Gross Revenues For the
Three Months Ended % Increase
Division February 28, 1997 February 29, 1996 (Decrease)
-------- ----------------------------------- ----------
Enviro Florida $ 402,195 $1,165,069 (65)
Enviro South Carolina 404,390 1,093,776 (53)
Enviro Tenn 514,713 661,604 (23)
---------- ----------
TOTAL ENVIRO DIVISION $1,321,298 $2,920,449 (55)
HYDRO DIVISION 154,949 474,386 (68)
---------- ----------
TOTAL VIROGROUP, INC. $1,476,247 $3,394,835 (57)
========== ==========
Florida operations had a decrease in gross revenues of $762,874 (65%) from the
prior year, mainly due to the curtailment of the Florida UST program. The
majority of the decrease in the South Carolina operations of $689,386 (53%) was
due to a reduction in work assignment by the office's major client. The
Tennessee gross revenues decrease of $146,891 (23%) was the result of
substantially completing a single large project which during the second Quarter
of 1996. Due to the special nature of this project, those revenues have not been
replaced in the current year. The Hydro Division gross revenues decrease of
$319,437 (68%) is mainly the result of a large injection well project which was
completed during the third Quarter of fiscal 1996.
Contracted backlog at February 28, 1997 is $1.6 million. The backlog is no
assurance as to future gross revenue levels.
Cost of gross revenues is 76.4% of revenues for the three months ended February
28, 1997, compared to 65.2% for the three months ended February 29, 1996. This
increase results primarily from a larger percentage of gross revenues being
generated through subcontractors which yields a smaller gross profit than
revenue from professional fees.
Page 11 of 18
<PAGE>
Selling, general and administrative expenses for the three months ended February
28, 1997 decreased by approximately $439,000 (29%) to $1,095,584 compared to
$1,534,367 for the same period of the prior year. The majority of the decrease
is due to staff downsizing and reductions in fixed expenses.
Net interest expense increased due to an increase in amounts borrowed.
The decrease in the benefit for income taxes results from the utilization of
additional prior year tax loss carrybacks. Taxable losses generated in fiscal
year 1996 were carried back to fiscal year 1994. A tax loss carryforward remains
to be carried forward and applied against taxable income beginning in fiscal
year 1997.
The net loss for the three months ended February 28, 1997 was $787,636, or 53.4%
of gross revenues, compared to a net loss of $375,041, or 11.1% for the same
period of the prior year. This increase is primarily the result of the decrease
in gross revenues, coupled with the decrease in the gross profit percentage.
Comparison of the six months ended February 28, 1997 and February 29, 1996.
Gross revenues decreased by 45% to $4,170,756 for the six months ended February
28, 1997, compared to $7,560,485 for the same period of fiscal year 1996. This
45% decrease in gross revenues results from changes in gross revenues in each of
the Company's divisions as follows:
Gross Revenues For the
Six Months Ended % Increase
Division February 28, 1997 February 29, 1996 (Decrease)
-------- ----------------------------------- ----------
Enviro Florida $1,009,890 $2,342,666 (57)
Enviro South Carolina 1,183,912 2,523,444 (53)
Enviro Tenn 1,571,448 1,575,161 (1)
---------- ---------
TOTAL ENVIRO DIVISION $3,765,250 $6,441,271 (42)
HYDRO DIVISION 405,506 1,119,214 (64)
---------- ----------
TOTAL VIROGROUP, INC. $4,170,756 $7,560,485 (45)
========== ==========
Florida operations had a decrease in gross revenues of $1,332,776 (57%) from the
prior year, largely due to a reduction of work in the Florida UST program. The
majority of the decrease in South Carolina operations of $1,339,532 (53%) was
due to a general decline in repeat business as the office's major clients
curtailed their spending on environmental projects. The Tennessee gross revenues
were substantially the same for the six month period. The Hydro Division gross
revenues decrease of $713,708 (64%) is mainly the result of a large injection
well project which finished in the third quarter of fiscal 1996.
Page 12 of 18
<PAGE>
Cost of gross revenues is 72.9% for the six months ended February 28, 1997,
compared to 67.7% for the same period of the prior year. This increase in cost
is the result of a larger percentage of gross revenue generated by
subcontractors than by professional fees. Revenues from subcontractors carry a
smaller gross profit than revenues from professional fees.
Selling, general and administrative expenses for the six months ended February
28, 1997 decreased by approximately $741,000 or 25% to $2,201,645 compared to
$2,942,226 for the same period of fiscal 1996. The majority of the decrease is
due to staff downsizing and reductions in fixed expenses.
Net interest expense increased due to an increase in interest rates as well as
in amounts borrowed. Other income, net, increased due to the disposition of
fixed assets and the receipt of an insurance settlement. 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 six months ended February 28, 1997 was $1,118,783, or 26.8%
of gross revenues compared to a net loss of $564,161, or 7.5% of gross revenues,
for the same period of the prior year. This increase is primarily the result of
decreases in gross revenue and increases in cost of sales, partially offset by
decreases in selling, general and administrative expenses.
Liquidity and Capital Resources
- -------------------------------
The Company's operating activities provided net cash of $2,425,789. The cash was
generated by the collection of accounts receivable and the funding of the
Florida UST program amounts. The payment of accounts payable and other accrued
liabilities totalling approximately $82,000 was necessitated by State law to
complete the Florida UST program projects in progress at year-end prior to
filing for reimbursement by the State, as well as other work in progress as
shown by the decrease in unbilled accounts receivable combined with the decrease
in accounts receivable.
The net cash provided by operating activities was mainly used to reduce
borrowing from the Company's bank line of credit to zero at February 28, 1997.
Working capital on February 28, 1997 increased by $583,239 as compared to August
31, 1996. Accounts receivable, net, and unbilled accounts receivable decreased
by a combined amount of $1,848,765, as a result of the completion of work in
progress at August 31, 1996, as well as the result of a decline in gross
Page 13 of 18
<PAGE>
revenues. Accounts payable and accrued liabilities at February 28, 1997
decreased by a total of $124,144. This decrease results from the decrease in
gross revenues, as well as the payment of vendors as projects reach completion.
Inflation has not significantly affected the Company's financial position or
operations. Borrowings under the Company's $3.0 million line of credit bear
interest at the prime rate of the lender less .25%. The prime rate at February
28, 1997 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.
Page 14 of 18
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's annual meeting held on Thursday, January 23, 1997, seven
members were elected to the Board of Directors for a one year term. The slate
for the 1997 Board of Directors contained the following names: Ivan R. Cairns,
A. Denny Ellerman, Charles S. Higgins, Jr., Rick L. McEwen, Sylvester O. Ogden,
James L. Wareham, and Kenneth W. Winger.
Proxies were solicited pursuant to Regulation 14 under the Securities Exchange
Act of 1934 and there was no solicitation in opposition to the nominees of
management as listed in the proxy and all nominees were elected.
VOTES FOR VOTES AGAINST VOTES WITHHELD
------------- ----------------- ------------------
5,482,059 230,837 648,812
------------- ----------------- ------------------
Effectuation of a one-for-eight reverse stock split.
VOTES FOR VOTES AGAINST VOTES WITHHELD
------------- ----------------- ------------------
5,113,779 589,517 658,412
------------- ----------------- ------------------
Appointment of Arthur Andersen LLP as the Company's independent accountants for
1997.
VOTES FOR VOTES AGAINST VOTES WITHHELD
------------- ----------------- ------------------
5,127,485 583,311 650,912
------------- ----------------- ------------------
Page 15 of 18
<PAGE>
ITEM 6. EXHIBITS AND REPORT ON FORM 8-K
10.0 Material Contracts
10.39 Loan Agreement, Line-of-Credit Note and Irrevocable Letter of Credit,
dated January 20, 1997. (1)
27 Financial Data Schedule (Electronic filing only)
Reports on Form 8-K
None
_________________________
(1) To be filed by amendment.
Page 16 of 18
<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: April 11, 1997 By: /s/ Charles S. Higgins, Jr.
-----------------------------------
Charles S. Higgins, Jr., President
and Chief Executive Officer
Date: April 11, 1997 By: /s/ DeWayne Baskette
-----------------------------------
DeWayne Baskette
Chief Financial Officer
Page 17 of 18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF VIROGROUP, INC. FOR THE SIX MONTHS ENDED FEBRUARY 28,
1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> FEB-28-1997
<CASH> 58
<SECURITIES> 0
<RECEIVABLES> 2,765
<ALLOWANCES> 449
<INVENTORY> 0
<CURRENT-ASSETS> 3,153
<PP&E> 2,431
<DEPRECIATION> 1,977
<TOTAL-ASSETS> 4,175
<CURRENT-LIABILITIES> 2,236
<BONDS> 0
0
0
<COMMON> 8
<OTHER-SE> 18,334
<TOTAL-LIABILITY-AND-EQUITY> 4,175
<SALES> 4,171
<TOTAL-REVENUES> 4,171
<CGS> 3,038
<TOTAL-COSTS> 3,038
<OTHER-EXPENSES> 2,201
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 104
<INCOME-PRETAX> (1,119)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,119)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,119)
<EPS-PRIMARY> (1.41)
<EPS-DILUTED> (1.41)
</TABLE>
