<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934: FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
Commission File Number 1-13012
H.E.R.C. PRODUCTS INCORPORATED
State of Incorporation: Delaware IRS Employer Identification Number: 86-0570800
3622 North 34th Avenue
Phoenix, Arizona 85017
(602) 233-2212
Indicate 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
------------- -----------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding at
Class May 7, 1996
----- ---------------
Common stock, $.01 par value 6,253,277
<PAGE>
H.E.R.C. PRODUCTS INCORPORATED AND SUBSIDIARY
Index To Consolidated Financial Statements
PART I. FINANCIAL INFORMATION Page No.
Consolidated Financial Statements:
Consolidated Balance Sheets
March 31, 1996 and December 31, 1995 3
Consolidated Statements of Operations
Three Months Ended March 31, 1996 and 1995 4
Consolidated Statement of Stockholders' Equity
Three Months Ended March 31, 1996 5
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1996 and 1995 6
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II. OTHER INFORMATION 13
<PAGE>
H.E.R.C. PRODUCTS INCORPORATED AND SUBSIDIARY
Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
--------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 168,217 $ 331,601
Trade accounts receivable, net of an
allowance for doubtful
accounts of $7,637 318,163 251,201
Inventories 625,614 577,836
Other receivables 14,613 22,422
Prepaid expenses 17,136 16,351
---------- ----------
Total Current Assets 1,143,743 1,199,411
---------- ----------
PROPERTY AND EQUIPMENT
Property and equipment 330,412 352,638
Less accumulated depreciation 110,408 109,863
---------- ----------
Net Property and Equipment 220,004 242,775
---------- ----------
OTHER ASSETS
Patents, net of accumulated amortization
of $45,754 and $39,801, respectively 207,283 205,757
Patents pending 97,513 78,083
Deferred private offering costs 101,462 -
Goodwill, net of accumulated amortization
of $78,587 and $57,154 respectively 1,636,026 1,649,377
Certificates of deposit, pledged - 75,628
Refundable deposits 6,192 5,817
Other 13,270 14,304
---------- ----------
Total Other Assets 2,061,746 2,028,966
---------- ----------
$3,425,493 $3,471,152
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable, including current
portion of long-term debt $ 241,034 $ 245,131
Accounts payable 336,742 203,739
Accrued wages 16,797 18,198
Other accrued expenses 42,427 44,630
---------- ----------
Total Current Liabilities 636,999 511,698
---------- ----------
LONG-TERM LIABILITIES
Long-term debt, net of current portion 791,161 537,599
Deferred rent 5,126 5,126
---------- ----------
Total Long-Term Liabilities 796,287 542,725
---------- ----------
Total Liabilities 1,433,286 1,054,423
---------- ----------
STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value;
authorized 1,000,000 shares,
none issued - -
Common stock, $0.01 par value;
authorized 10,000,000 shares; issued
and outstanding 2,928,441 shares 29,284 29,284
Additional paid-in capital 7,812,619 7,812,619
Accumulated deficit (5,849,696) (5,425,174)
---------- ----------
Total Stockholders' Equity 1,992,207 2,416,729
---------- ----------
$3,425,493 $3,471,152
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
Page 3
<PAGE>
H.E.R.C. PRODUCTS INCORPORATED AND SUBSIDIARY
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1996 1995
----------- ------------
<S> <C> <C>
Sales $ 473,549 $ 215,062
Cost of Sales 310,197 256,400
---------- ----------
Gross profit (loss) 163,352 (41,338)
---------- ----------
Selling Expenses 200,725 109,115
---------- ----------
General and Administrative Expenses 401,478 338,909
---------- ----------
Operating loss (438,852) (489,362)
---------- ----------
Other Income (Expenses)
Other income (expense) 17,893 19,720
Interest expense (3,564) (1,401)
---------- ----------
Total other income (expenses) 14,329 18,319
---------- ----------
Loss before (benefit) taxes on income (424,522) (471,043)
(Benefit) Taxes on Income - -
---------- ----------
Net Loss $ (424,522) $ (471,043)
---------- ----------
---------- ----------
Loss Per Share $ (.14) $ (.21)
---------- ----------
---------- ----------
Weighted Average Common Shares and Share
Equivalents Outstanding 2,928,441 2,250,000
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
Page 4
<PAGE>
H.E.R.C. PRODUCTS INCORPORATED AND SUBSIDIARY
Statement of Stockholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Additional
--------------------- Paid-in Accumulated
Shares Amount Capital Deficit Total
------ ------ ------- ------- -----
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1996 2,928,441 $29,284 $7,812,619 $(5,425,174) $2,416,729
Net loss - - - (424,522) (424,522)
--------- ------- ---------- ------------ -----------
Balance, March 31, 1996 2,928,441 $29,284 $7,812,619 $(5,849,696) $1,992,207
--------- ------- ---------- ------------ -----------
--------- ------- ---------- ------------ -----------
</TABLE>
See accompanying notes to consolidated financial statements.
Page 5
<PAGE>
H.E.R.C. PRODUCTS INCORPORATED AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1996 1995
----------- -----------
<S> <C> <C>
Cash Flows From Operating Activities
Net loss $ (424,522) $ (471,043)
---------- -----------
Adjustments to reconcile net loss
to net cash used in operating activities
Depreciation and amortization 42,690 11,190
Cost of equipment sold in the
ordinary course of business 17,446 160,971
(Increase) decrease in assets
Trade accounts receivable (75,324) 27,599
Inventories (47,778) (65,968)
Other receivables 12,151 16,128
Prepaid expenses (4,565) 4,302
Other assets 74,978 11,250
Refundable deposits - (431)
Increase (decrease) in liabilities
Accounts payable 133,003 17,377
Accrued wages (1,401) (40,986)
Other accrued expenses (6,300) (38,788)
Customer deposits - (75,000)
---------- -----------
Total adjustments 144,900 27,644
---------- -----------
Net cash used in operating
activities (279,622) (443,399)
---------- -----------
Cash flows From Investing Activities
Capital expenditures (8,956) (17,363)
Expenditures related to patents and
patents pending (26,908) (6,330)
---------- -----------
Net cash used in investing
activities (35,864) (23,693)
---------- -----------
Cash Flows From Financing Activities
Proceeds from issuance of notes payable
and long-term debt 275,000 -
Principal payments under long-term debt
obligations (21,438) (6,478)
Deferred private offering costs (101,482) -
---------- -----------
Net cash provided by (used in)
financing activities 152,102 (6,478)
---------- -----------
Net Decrease in Cash and Cash Equivalents (163,384) (473,570)
Cash and Cash Equivalents, at beginning of
quarter 331,601 2,016,241
---------- -----------
Cash and Cash Equivalents, at end of quarter $ 168,217 $ 1,542,671
---------- -----------
---------- -----------
Supplemental Disclosures of Cash Flow Information
Cash paid during the quarter for interest $ 3,564 $ 1,401
---------- -----------
---------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
Page 6
<PAGE>
H.E.R.C. PRODUCTS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - Basis of Presentation
The unaudited consolidated financial statements are presented in accordance
with the requirements of Form 10-QSB and consequently do not include all of
the disclosures normally made in an annual Form 10-KSB filing. Accordingly,
these consolidated financial statements included herein should be reviewed in
conjunction with the consolidated financial statements and the footnotes
therein included within the Company's Form 10-KSB for the year ended December
31, 1995.
The consolidated financial statements have been prepared in accordance with
the Company's customary accounting practices and have not been audited. In
the opinion of management, the consolidated financial statements reflect all
adjustments necessary to report fairly the Company's financial position and
results of operations for the interim period. All such adjustments are
normal and recurring in nature. The interim consolidated results of
operations are not necessarily indicative of results to be expected for the
year ending December 31, 1996.
NOTE 2 - Inventories
Inventories are summarized as follows:
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
-------------- -----------------
<S> <C> <C>
Raw Materials $ 55,418 $ 40,064
Work in Progress 2,966 46,889
Finished Goods 567,230 490,883
--------- ---------
Total $ 625,614 $ 577,836
--------- ---------
--------- ---------
</TABLE>
NOTE 3 - Agreement of Merger
On May 1, 1995, the Company acquired all of the outstanding capital stock of
CCT Corporation ("CCT") in a merger transaction by which CCT has become a
wholly-owned subsidiary of the Company. CCT, based in Carlsbad, California,
manufactures and distributes environmentally friendly proprietary agriculture
products. Shelby A. Carl, Chairman Emeritus of the Board of the Company, was
(through the Shelby A. Carl trust) the majority stockholder of CCT, and his
son, S. Steven Carl, was the minority stockholder. The merger transaction has
been accounted for as a purchase with the results of operations of CCT
included in the Company's consolidated financial statements from the date of
the acquisition. As a result of this transaction, goodwill of $1,706,531 was
recorded.
The terms of the Agreement of Merger provide that the former stockholders of
CCT will receive an aggregate number of shares of the Company's common stock
equal to the sum of the "First Payment Shares" and the "Second Payment
Shares." The "First Payment Shares" is that number of shares of the
Company's Common Stock equal to (i) ten multiplied by (ii) CCT's earnings for
its fiscal year ended April 30, 1995 ("CCT's 1995 Earnings") (such product
being referred to as the "1995 Multiple") and divided by (iii) $3.00, (on
March 16, 1995, the date of the Letter of Intent between H.E.R.C. and CCT,
the last sale price of the H.E.R.C. common stock, as quoted on NASDAQ, was
$2.00); provided that the number of First Payment Shares shall not exceed
533,333. The "Second Payment Shares" is that number of shares of the
Company's common stock equal to the lesser of (i) eight multiplied by the
difference between (A) CCT's earnings for the year ending December 31, 1996
("CCT's 1996 Earnings") and (B) CCT's 1995 Earnings and (ii) $1,600,000
divided by the average of the closing prices of the Company's common stock
for the last ten trading days of 1996, as reported by NASDAQ; provided that
(i) the number of Second Payment Shares shall be zero if CCT's 1996 Earnings
are less than 1.9375 times
Page 7
<PAGE>
H.E.R.C. PRODUCTS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
CCT's 1995 Earnings and (ii) for purposes of calculating the number of Second
Payment Shares and for purposes of the preceding clause (i) of this
provision, CCT's 1995 Earnings shall be deemed not to exceed $160,000.
Pursuant to the Agreement of Merger, the number of first Payment shares
issued to the Messrs. Carl was reduced by the sum of payments made by CCT in
satisfaction of debt owed by CCT the Messrs. Carl to Good-Miles Partnership
divided by $3.00 per share ("Good-Miles Payment Shares"). At May 1, 1995,
the amount of such debt ("Good-Miles Debt") was $358,973, of which $100,000
has been paid by CCT since that date.
Based upon the audited financial statements of CCT for the year ended April
30, 1995, CCT's 1995 Earnings were $190,017. Accordingly, the Company issued
to the Messrs. Carl an aggregate of 533,333 First payment Shares, reduced by
33,333 shares as a result of the repayment by CCT of $100,000 of the
Good-Miles Debt. Pursuant to the Agreement of Merger, 90,309 of the First
Payment Shares were placed in escrow with the Company's general counsel
("Escrow Shares"), representing the number of shares, valued at $3.00 per
share, equal to the remaining amount of Good-Miles Debt, including interest
to maturity. By agreement dated January 10, 1996, Messrs. S. Steven Carl and
Shelby A. Carl agreed that the Good-Miles debt would be satisfied solely by
the shares in escrow and, if necessary, any additional shares owned by the
Messrs. Carl. The agreement dated January 10, 1996 is being further
negotiated to determine the number of shares required to satisfy the debt.
The following pro forma results for the quarter ended March 31, 1995 are
unaudited and were prepared as if the aforementioned acquisition had occurred
at the beginning of the period presented:
<TABLE>
<CAPTION>
Quarter Ended March 31, 1995
----------------------------
<S> <C>
Sales $ 805,355
---------
Net loss $(438,942)
---------
Net loss per share $ (0.17)
---------
</TABLE>
NOTE 4 - Investment in Joint Venture
In November 1993 and January 1994, the Company entered into an operating
agreement and supply/service agreement with Conair Corporation ("Conair") to
form a limited liability company (the "LLC"), H.E.R.C. Consumer Products
Company, under the Illinois Limited Liability Company Act effective January
1, 1994. The Company and Conair are the members of the LLC. The LLC is
licensed by the Company to utilize certain of its trade names and trademarks
in the production and marketing of the consumer products business of the
Company. Conair is solely responsible for funding the operations of the LLC.
The Company sold all of its consumer products inventory on hand at its cost
at the effective date of the agreement to Conair. The Company accounts for
its investment in the LLC by use of the equity method of accounting.
Accordingly, sales of the LLC are not reported as sales of the Company.
Since the Company's investment in the joint venture is zero, its
proportionate share of cumulative losses, ($35,750) as of March 31, 1996, has
not been recognized to date.
The Company will continue to develop consumer products to be sold by the LLC.
The Company will be reimbursed by the LLC in an amount equal to 3% of the
LLC's net sales for the three-year period beginning on the effective date of
the agreement. After such three-year period, the Company will be reimbursed
for its research and development costs directly attributable to products sold
by the LLC in an amount not to exceed 3% of the net sales for products sold
by the LLC. At March 31, 1996, the Company was owed $165,129 by the LLC for
the above mentioned reimbursement of 3% of net sales plus all other
additional charges.
Page 8
<PAGE>
H.E.R.C. PRODUCTS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Company received a $200,000 advance from Conair as an advance against
expected profits of HCPC which, including $20,000 of accrued interest
expense, has been included in Notes Payable in the Company's consolidated
financial statements. The Company is negotiating with Conair regarding an
agreement pursuant to which this debt will be reduced by certain amounts owed
or to become owed by Conair to the Company, repaid only from cash
distributions of HCPC and/or repayment installments in the future. There can
be no assurance that the Company will be successful in its negotiations.
The Company is entitled to 50% of the profit or loss of the LLC through
December 31, 1996. After that date, the agreement provides for profit or
loss sharing based on the cumulative sales performance of the LLC for the
three-year period ending December 31, 1996 ("Initial Period"). For
cumulative sales during the Initial Period from $7.5 million to $16 million,
the Company's profit sharing percentage ranges from 100% to 50%. For
cumulative sales during the Initial Period from $16 million to $39 million,
the Company's profit sharing percentage is 50%. For cumulative sales during
the Initial Period from $39 million to $60 million, the Company's profit
sharing percentage ranges from 45% to 35%. The Company is entitled to
receive noncumulative distributions of the profits of the LLC, to the extent
available, equal to $360,000 for each of the first two years and $280,000 for
the third year of the agreement. No such distribution was made during 1996
or 1995. Upon dissolution of the LLC, it's net assets will be distributed to
its members based upon the terms of various agreements.
Conair will act as the sole managing member and thereby direct the operations
of the LLC during the three-year period ending December 31, 1996.
Thereafter, management of the LLC shall be determined based on cumulative
sales performance during that same three-year period. For cumulative sales
from $7.5 million to $12 million, the Company will be sole managing member.
For cumulative sales from $12 million to $16 million, the Company and Conair
will share management control. If cumulative sales exceed $16 million, then
Conair shall be the sole managing member.
As managing member, Conair has agreed that when it determines that the
operations of the LLC have generated cash in excess of Conair's reasonable
determination of what is required for the future successful operation of the
LLC then Conair shall, after consulting with the Company, make a distribution
of profits to the members.
Under the terms of the supply/service agreement, the Company and the LLC will
purchase all of their consumer products requirements, as defined, from Conair
during the term of the agreement. The LLC will purchase the products at a
price which results in a gross profit of 18% to Conair. All agreements with
Conair will terminate only upon agreement of the members or the failure of
the LLC to achieve cumulative sales of $7.5 million for the three-year period
ending December 31, 1996.
A summary of the results of the operations of the LLC for the quarters ended
March 31, 1996, and 1995 are as follows (unaudited):
<TABLE>
<CAPTION>
March 31, 1996 March 31, 1995
--------------- --------------
<S> <C> <C>
Net Sales $400,000 $404,000
Cost of Sales 234,000 229,000
-------- --------
Gross Profit 166,000 175,000
Selling Expenses 113,000 96,000
General & Administrative Expenses 39,000 72,000
-------- --------
Net Income $ 14,000 $ 7,000
-------- --------
-------- --------
</TABLE>
Page 9
<PAGE>
H.E.R.C. PRODUCTS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 5 - Non Cash Investing Activities
For purposes of the Statements of Cash Flows, for the quarter ended March 31,
1995, equipment with a cost of $292,324 was reclassified as inventory held
for sale. Of that total, $160,971 was sold during the quarter ended March
31, 1995.
Note 6 - Subsequent Events
In April 1996, the Company completed the private placement of 3,214,902
units. Each unit consisted of one common share and one warrant. The Company
received proceeds of approximately $2,331,000, net of $402,000 in expenses
directly related to the offering. Each warrant entitles the holder to
purchase, within three years from the closing date, one share of common stock
at a price of $2.00 per share, subject to adjustment. The shares sold and
the shares underlying the warrants sold in this private placement have
registration rights and are subject to a one-year lock up provision. The
placement agent in this offering received a unit purchase option entitling it
to purchase 321,490 units, within five years from the closing date, at a
price of $.935 per unit.
During 1996, the Company's Chief Executive Officer and Chairman Emeritus
advanced an aggregate of $325,000 to the Company. Concurrent with the
aforementioned private placement, the Company satisfied its repayment
obligation through the issuance of 382,353 units. The units issued to these
individuals are included in the amounts noted above.
Fees, costs and expenses incurred prior to the private offering are
capitalized and will be charged against the proceeds therefrom.
Page 10
<PAGE>
H.E.R.C. PRODUCTS INCORPORATED AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Sales during the first quarter of 1996 totaled $473,549, reflecting an
increase of 120% from first quarter sales in 1995 of $215,062. The increase
was due primarily to sales of agricultural products which contributed
$439,246 in revenues for the three months ended March 31, 1996. Industrial
water treatment product revenues for the quarter ended March 31, 1996
decreased 84% to $34,303 from $215,062 for the three months ended March 31,
1995. The decrease is due primarily to the sale of two Mobile Recirculation
Units ("MRUs") in 1995 for approximately $150,000. An MRU unit is a mobile
unit with pumping machinery used to deliver the chemical products of the
Company into the water system being treated.
The gross profit margin as a percentage of sales increased to 34% for the
first quarter of 1996 compared to a negative gross margin of 19% for the
first quarter of 1995. The increase is due to the sale of agricultural
chemicals. The negative gross margin for the three months ended March 31,
1995 can be attributed to the Company's marketing efforts for its PIPE KLEAN
product. Fixed operating costs of maintaining the physical production plant,
such as rent, utilities, repairs and maintenance, insurance and indirect
labor have increased, while the sales volume of industrial products was not
sufficient to absorb them. Management expects, but can make no assurance that
the gross margin will continue to fluctuate based on the seasonality of its
agricultural product sales, but in general will continue to increase in the
foreseeable future.
The Company incurred $200,725 of selling expenses and $401,478 of general and
administrative expenses in the first quarter of 1996 compared to $109,115 and
$338,909, respectively, in the first quarter of 1995, representing an
increase of $91,610 in selling expenses and an increase of $62,569 in general
and administrative expenses. The increase in selling expenses is due
primarily to the expanded services and associated costs of CCT Corporation
and its staff. Approximately $70,000 of the increase in selling expenses and
all of the increase in general and administrative expenses were attributable
to the expanded services and associated costs of CCT Corporation. The
Company believes it will be necessary to further expand the selling
infrastructure in order to successfully focus on marketing its various
products.
The Company incurred a loss of $424,522 for the quarter ended March 31, 1996,
compared to a loss of $471,043 for the quarter ended March 31, 1995. The
Smaller loss was due primarily to an increase in sales volume and a
proportionally smaller cost of goods sold but was largely offset by higher
general and administrative expenses.
The Company has, and anticipates that it will continue to have, increased
selling and administrative expenses in connection with its shift in focus
from consumer products to industrial and agriculture products. These
expenses will be incurred in the marketing of the Company's industrial
products, through attendance at trade shows and industry conferences,
advertising, on site demonstrations of the Company's technology and the use
of marketing consultants outside the Company.
The Company's other income decreased from $18,319 for the quarter ended March
31, 1995 to $14,329 for the quarter ended Marrch 31, 1996. This decrease in
other income was largely attributable to an increase in interest expense from
$1,401 to $3,564 for the quarters ended March 31, 1995 and 1996 respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company's net cash used in operating activities for the first quarter of
1996 was $279,622 compared to net cash used in operating activities for the
first quarter of 1995 of $443,399. This decrease in net cash used in
operating activities is due primarily to an increase in accounts payable. On
May 1, 1995, the Company acquired all of the outstanding stock of CCT in a
merger transaction by which CCT became
Page 11
<PAGE>
a wholly owned subsidiary of the
Company. At March 31, 1996, the Company had cash and cash equivalents of
$168,217 and working capital of $506,744 compared with cash and cash
equivalents of $1,542,671 and working capital of $1,683,396 at March 31,
1995. The decrease in both cash and cash equivalents and working capital is
due principally to the expenditure of cash for the normal operations of the
Company.
On April 3, 1996, the Company sold 3,214,902 units in a private placement,
raising gross proceeds of $2,732,668 and net proceeds of approximately
$2,331,000. Each unit consisted of one share of the Common Stock of the
Company par value $.01 per share ("Common Stock"), and one Common Stock
Purchase Warrant ("Warrant"). Each Warrant entitles the holder thereof to
purchase one share of Common Stock for $2.00 until April 3, 1999. The
Company may call the Warrants for redemption at a price of $.01 per Warrant,
on not less than 30 days prior written notice, if the last sales price of the
Common Stock has been at least $5.00 per share on all 20 of the trading days
ending on the third day prior to the date on which notice of redemption is
given, if the Company has an effective registration statement under the
Securities Act of 1933 covering the resale of the shares issuable upon
exercise of the Warrants. The Company is obligated to register the Common
Stock issued in the offering and underlying the Warrants for resale by the
holders.
The Company plans to use the proceeds from the Private Placement and cash
flow in the marketing of its water system treatment products, developing,
licensing and purchasing of the rights of new biorational agricultural
products and for working capital for general corporate purposes. The
Company's capital requirements have been and will continue to be significant.
The Company is not currently generating sufficient cash flow to fund its
operations, and there can be no assurance that the Company will be able to
generate cash flows in the future which will be sufficient to fund its
operations. Assuming no change in the level of the business of the Company,
it is anticipated that the proceeds from the private placement consummated
April 3, 1996, together with existing cash resources, will be sufficient to
meet its anticipated working capital requirements for approximately 12
months. If additional financing is needed, the Company will be required to
borrow, sell additional securities or seek other new sources of financing or
may be required to curtail or reduce its activities. The Company has no
current arrangements with any sources with respect to additional financing.
There can be no assurance that any sources of additional financing will be
available to the Company on acceptable terms, or at all. To the extent that
any future financing involves the sale of the Company's equity securities,
the interest of the Company's then-stockholders could be substantially
diluted.
Page 12
<PAGE>
H.E.R.C. PRODUCTS INCORPORATED AND SUBSIDIARY
PART II: OTHER INFORMATION
REPORTS ON FORM 8-K
On February 6, 1996 the company filed a report on Form 8-K to file a copy of
the press release dated February 5, 1996 announcing the private placement of
securities which was consummated on April 3, 1996.
EXHIBITS
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Quarterly Report to be signed on its behalf
by the undersigned, thereunto duly authorized.
H.E.R.C. PRODUCTS INCORPORATED
------------------------------------
(Registrant)
Date: May 15, 1996 By /s/ S. STEVEN CARL
----------------------------------
S. Steven Carl
Chief Executive Officer
By /s/ GARY S. GLATTER
----------------------------------
Gary S. Glatter
Chief Financial Officer
Page 13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 168217
<SECURITIES> 0
<RECEIVABLES> 340413
<ALLOWANCES> 7637
<INVENTORY> 625614
<CURRENT-ASSETS> 1143743
<PP&E> 330412
<DEPRECIATION> 110408
<TOTAL-ASSETS> 3425493
<CURRENT-LIABILITIES> 636999
<BONDS> 0
0
0
<COMMON> 29284
<OTHER-SE> 7812619
<TOTAL-LIABILITY-AND-EQUITY> 3425493
<SALES> 473549
<TOTAL-REVENUES> 473549
<CGS> 310197
<TOTAL-COSTS> 602203
<OTHER-EXPENSES> (17893)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3564
<INCOME-PRETAX> (424522)
<INCOME-TAX> 0
<INCOME-CONTINUING> (424522)
<DISCONTINUED> 0
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<EPS-PRIMARY> (.14)
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</TABLE>
