-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, V64lFSMVoTdxj1ItB7vvV2mZy9gNh5FLOBmbml26t94ZzrMPWjrKL3YK9Uy86O8B vRrccCohqtXrtOTOlMFcag== 0000949459-97-000400.txt : 19970815 0000949459-97-000400.hdr.sgml : 19970815 ACCESSION NUMBER: 0000949459-97-000400 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: AQUAGENIX INC/DE CENTRAL INDEX KEY: 0000923604 STANDARD INDUSTRIAL CLASSIFICATION: SANITARY SERVICES [4950] IRS NUMBER: 650419263 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 001-12061 FILM NUMBER: 97663752 BUSINESS ADDRESS: STREET 1: 6500 NW 15TH AVE CITY: FORT LAUDERDALE STATE: FL ZIP: 33309 BUSINESS PHONE: 9549757771 MAIL ADDRESS: STREET 1: 6500 NORTHWEST 15 AVE CITY: FORT LAUDERDALE STATE: FL ZIP: 33309 FORMER COMPANY: FORMER CONFORMED NAME: AQUATERRA INC DATE OF NAME CHANGE: 19940523 10QSB 1 AQUAGENIX, INC. 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 JUNE 30, 1997. | | TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________ TO ________ . Commission File No. 0-24490 ------- AQUAGENIX, INC. --------------- (Exact name of small business issuer as specified in its charter) Delaware 65-0419263 -------- ---------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 6500 Northwest 15th Avenue, Fort Lauderdale, Florida 33309 ---------------------------------------------------------- (Address of principal executive offices) (305) 975-7771 -------------- (Issuer's telephone number) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 issuer's Common Stock, $.01 Par Value, as of July 31, 1997 was 4,463,624. Transitional Small Business Disclosure Format: Yes | | No |X| Page 1 of 15 Pages AQUAGENIX, INC. FORM 10-QSB INDEX PART I. FINANCIAL INFORMATION PAGE --------------------- ---- Item 1: Financial Statements Consolidated Balance Sheets as of June 30, 1997 and December 31, 1996 (unaudited) 3 Consolidated Statements of Operations for the three months and six months ended June 30, 1997 and June 30, 1996 (unaudited) 4 Consolidated Statements of Cash Flows for the three months and six months ended June 30, 1997 and June 30, 1996 (unaudited) 5 Notes to Consolidated Financial Statements 6-7 Item 2: Management's Discussion and Analysis or Plan of Operation 8-13 PART II. OTHER INFORMATION 14 ----------------- SIGNATURES 15 - 2 - AQUAGENIX, INC. & SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
June 30, December 31, ASSETS 1997 1996 ------------ ------------ (Unaudited) Current assets: Cash and cash equivalents $ 1,338,511 $ 890,731 Marketable securities 0 158,492 Accounts receivable, net of allowance for doubtful accounts of $116,438 and $88,541, respectively 1,367,742 1,064,151 Inventories 793,610 339,114 Prepaid expenses and other 589,133 490,740 ------------ ------------ Total current assets 4,088,996 2,943,228 Accounts receivable, non-current 1,269,909 1,269,909 Property and equipment, net 2,686,757 2,450,154 Intangible assets, net 4,881,901 4,946,027 Deferred financing costs, net 164,511 154,276 Other assets 306,019 267,233 ------------ ------------ Total assets $ 13,398,093 $ 12,030,827 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short term borrowings - acquisitions $ 0 $ 200,000 Borrowings under credit agreement 0 404,415 Current maturities of long-term debt 329,463 166,168 Accounts payable 1,512,473 709,870 Net liabilities of discontinued operations 201,870 350,076 Other current liabilities 224,875 322,582 ------------ ------------ Total current liabilities 2,268,681 2,153,111 Long-term debt, net of current maturities 5,891,668 5,326,769 ------------ ------------ Total liabilities 8,160,349 7,479,880 ------------ ------------ Stockholders' equity: Preferred stock, par value $.01, 1,000,000 shares authorized, no shares issued and outstanding 0 0 Common stock, par value $.01, 10,000,000 shares authorized, 4,463,624 and 4,163,391 shares issued and outstanding, respectively 44,636 41,634 Additional paid-in capital 14,183,224 12,671,620 Accumulated deficit (8,801,263) (7,938,330) Unearned compensation (188,853) (230,058) Unrealized gain on securities 0 6,081 ------------ ------------ Total stockholders' equity 5,237,744 4,550,947 ------------ ------------ Total liabilities and stockholders' equity $ 13,398,093 $ 12,030,827 ============ ============ The accompanying notes are an integral part of the Consolidated Financial Statements
- 3 - AQUAGENIX, INC. & SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, 1997 1996 1997 1996 ----------- ----------- ----------- ----------- Revenues - Continuing operations $ 3,603,809 $ 2,840,138 $ 6,497,328 $ 5,242,730 ----------- ----------- ----------- ----------- Costs and expenses: Costs of services 2,138,851 1,521,741 3,758,597 2,748,992 Selling, general and administrative 1,514,934 799,349 2,761,722 1,503,193 Depreciation and amortization 234,497 164,042 461,039 306,306 ----------- ----------- ----------- ----------- Total costs and expenses 3,888,282 2,485,132 6,981,358 4,558,491 ----------- ----------- ----------- ----------- Operating (loss) income (284,473) 355,006 (484,030) 684,239 Interest income 13,552 1,982 18,982 43,293 Interest expense (194,274) (167,040) (397,885) (330,903) ----------- ----------- ----------- ----------- (Loss) income from continuing operations before income taxes (465,195) 189,948 (862,933) 396,629 Provision for income taxes 0 0 0 0 ----------- ----------- ----------- ----------- (Loss) income from continuing operations (465,195) 189,948 (862,933) 396,629 Discontinued operations: Change in allowance for estimated phase-out losses from environmental remediation segment 0 (404,818) 0 464,689 ----------- ----------- ----------- ----------- Net (loss) income $ (465,195) $ (214,870) $ (862,933) $ 861,318 =========== =========== =========== =========== (Loss) income per weighted average common share: Continuing operations $ (0.11) $ 0.06 $ (0.20) $ 0.12 Discontinued operations 0.00 (0.12) 0.00 0.14 =========== =========== =========== =========== Net (loss) income (0.11) (0.06) $ (0.20) $ 0.26 =========== =========== =========== =========== Weighted average common shares outstanding 4,352,880 3,417,299 4,270,144 3,363,087 =========== =========== =========== =========== The accompanying notes are an integral part of the Consolidated Financial Statements
- 4 - AQUAGENIX, INC. & SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended June 30, 1997 1996 ----------- ----------- Cash flows from operating activities: Net (loss) income $ (862,933) $ 861,318 Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: Depreciation and amortization 461,039 306,306 Loss (gain) on sale of property and equipment 46,308 (9,312) (Gain) on sale of securities (9,785) 0 Provision for doubtful accounts 57,502 50,942 Consulting fees 0 88,930 Discontinued operations (148,206) 129,173 Net change in operating assets and liabilities (247,872) (26,552) ----------- ----------- Net cash (used in) provided by operating activities (703,947) 1,400,805 ----------- ----------- Cash flows from investing activities: Proceeds from sale of marketable securities 162,196 624,187 Proceeds from sale of property and equipment 81,377 273,596 Proceeds from sale of assets of discontinued operations 0 2,667,973 Cash paid for acquisitions, net of cash acquired (69,664) (51,221) Purchase of property and equipment (548,541) (590,326) ----------- ----------- Net cash (used in) provided by investing activities (374,632) 2,924,209 ----------- ----------- Cash flows from financing activities: Proceeds under credit agreements 869,302 0 Proceeds from other borrowings 756,090 309,211 Payment of credit agreements (1,273,717) (127,902) Payment of notes payable and long-term debt (315,768) (631,835) Payment of debt obligations of discontinued operations 0 (3,590,384) Payment of financing costs (36,364) 0 Distribution to stockholder 0 (9,638) Issuance of common stock 1,526,816 1,500,000 ----------- ----------- Net cash provided by (used in) financing activities 1,526,359 (2,550,548) ----------- ----------- Cash and cash equivalents: Increase 447,780 1,774,466 Beginning balance 890,731 720,888 ----------- ----------- Ending balance $ 1,338,511 $ 2,495,354 =========== =========== Supplemental disclosures of cash flow information: Interest paid $ 290,767 $ 223,451 =========== =========== Income taxes paid (refunded) $ 0 $ (605,951) =========== =========== The accompanying notes are an integral part of the Consolidated Financial Statements
- 5 - AQUAGENIX, INC. & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. Basis of Presentation --------------------- The accompanying unaudited consolidated financial statements, which are for interim periods, do not include all disclosures provided in the audited annual consolidated financial statements. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and the footnotes thereto, together with management's discussion and analysis of financial condition and results of operations, contained in the Company's Annual Report on Form 10-KSB for the year ended December 31, 1996 of Aquagenix, Inc. (the "Company"), as filed with the Securities and Exchange Commission. The December 31, 1996 financial statements were derived from audited consolidated financial statements, but do not include all disclosures required by generally accepted accounting principles. The accompanying financial statements have been restated for the comparative period to include the accounts of Green Pastures, Inc. which was acquired on December 31, 1996 and accounted for as a pooling of interests. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (which are of a normal recurring nature) necessary for a fair presentation of the financial position and results of operations. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. 2. Earnings Per Share ------------------ Earnings (loss) per common shares were computed by dividing net income (loss) by the weighted average number of shares outstanding. Common share equivalents resulting from options and warrants have not been included for the loss per share computation for three months and six months ended June 30, 1997 since their effect would be anti-dilutive. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"), which establishes new standards for computing and presenting earnings per share ("EPS"). The statement replaces the current presentation of primary EPS and will require dual presentation of basic and diluted EPS on the face of the statement of operations. SFAS 128 requires restatement of all prior period EPS data presented and is effective in the fourth quarter of 1997 for the Company. The Company does not expect adoption of SFAS 128 to have a significant impact on the Company's financial statements. 3. Loan Agreements --------------- In April 1997, the Company entered into loan agreements with Capital Bank which provided for borrowings under a revolving line of credit of up to an aggregate of $750,000 and a three-year term loan of $250,000 which is collaterized by a long-term receivable. Advances under the line of credit are based on certain borrowing formula relating to eligible accounts receivable. Interest accrues at the rates of 1- 1/4% above prime for the line of credit and 9.5% for the three-year term loan. Substantially all of the Company's assets are pledged to Capital Bank as collateral. This new line of credit replaced the line with SunTrust and the amount outstanding under the SunTrust's revolving line of credit was fully repaid in April 1997. - 6 - In June 1997, the Company entered into a four-year loan agreement, for a principal amount of $500,000, with a commercial equipment financing company to refinance certain capital expenditures relating to application equipment and vehicles. 4. Issuance of Common Stock ------------------------ On May 2, 1997, the Company issued 100,000 shares of common stock to a financial consultant resulting from the exercise of stock options granted to them in 1996 as consideration for financial consulting services rendered. The Company received an aggregate purchase price of $500,000. On May 19, 1997, the Company issued 47,500 shares of common stock to one of the directors of Aquagenix, Inc. (the "Company"), namely Mr. Fred S. Katz, upon the exercise of options granted to him under the Company's Directors Stock Option Plan. The aggregate purchase price was $200,200, all of which has been received in cash by the Company. On the same day, the Company completed an equity private placement of 83,333 shares (the "Shares") at $6.00 per share to Tarragona Fund, Inc. ("Tarragona") pursuant to the terms of a Subscription Agreement, dated as of May 19, 1997, between the Company and Tarragona. The aggregate purchase price was $500,000, all of which has been received in cash by the Company. Since December 31, 1996, the Company has issued a total of 300,233 shares of common stock resulting from the exercise of stock options by its employees, directors, a financial consultant and two private placements, thereby increasing its total stockholders' equity by $1,526,816, all of which were cash proceeds. - 7 - ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION GENERAL Aquagenix, Inc. (the "Company"), through its wholly-owned subsidiaries, provides aquatic and industrial vegetation management services to both governmental and commercial customers in Florida, Georgia, North and South Carolina, Arizona, Alabama and Tennessee. The Company's continued emphasis on quality service, internal growth and the selective acquisition of privately held waterway and vegetation management companies in the Sunbelt region of the United States has resulted in the Company becoming the largest provider of aquatic and industrial vegetation management services in the United States with annual revenues of approximately $11,500,000 for 1996. The Company's services consist primarily of the control of aquatic weeds, algae and exotic plants, brush and noxious tree control, wetland planting and restoration, installation of floating fountains and aeration systems and the stocking of fish for game, plant and insect control. In April 1997, the Company established a new branch office in Birmingham, Alabama as the Company has started to provide industrial vegetation management services in that region. The expansion of its network of branches into Alabama should help further develop alliances with the utility companies in that area and increase the Company's ability to capitalize on the beginning of large-scale outsourcing of non-core utility services by utility companies throughout the country. RESULTS OF OPERATIONS Three Months Ended June 30, 1997 Compared to Three Months Ended June 30, 1996 - ------------ ------------------- -------------------------------------------- REVENUES. The Company's revenues increased by $763,671, or 26.9%, from $2,840,138 during the three months ended June 30, 1996 to $3,603,809 during the three months ended June 30, 1997. The increase in revenues was primarily attributable to an increase in both aquatic and industrial vegetation management contracts as a result of the acquisitions of Aquatic Dynamics, Inc. (the "ADI Acquisition") in December 1996 and Aquatic and Right of Way Control, Inc. (the "ARC Acquisition") in June 1996, the establishment of two new branch offices in Georgia and Alabama and the intensive marketing efforts targeted at electric and power utilities and governmental agencies. COST OF SERVICES. Cost of services increased by $617,110, or 40.6%, from $1,521,741 during the three months ended June 30, 1996 to $2,138,851 during the three months ended June 30, 1997. The increase in cost of services was mainly attributable to increased chemical, labor, subcontracting and vehicle maintenance costs which was directly a result of the Company's expanding operations. As a percentage of revenues, cost of services have increased from 53.6% in the second quarter of 1996 to 59.3% in the second quarter of 1997. The reduced gross margin was mainly attributable to higher chemical and - 8 - subcontracting costs as a result of a higher mix of industrial vegetation management contracts in the second quarter of 1997 as compared to the corresponding quarter of 1996. For the three months ended June 30, 1997 and 1996, industrial vegetation management services accounted for approximately 27.8% and 17.9%, respectively, of the Company's total revenues. Gross margins from industrial vegetation management contracts are generally lower than the aquatic vegetation management contracts as they involve a higher usage of chemicals and in some cases, subcontractors have to be used when aerial chemical application using helicopters is required. SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative expense increased by $715,585, or 89.5%, from $799,349 during the three months ended June 30, 1996 to $1,514,934 during the three months ended June 30, 1997. The increase in selling, general and administrative expenses was due mainly to the expansion of the Company's sales and marketing arm directed at penetrating the utility, governmental and wetland development markets, assimilation of the operations of the three businesses acquired in 1996, increased payroll and recruitment costs, higher travel, business promotion expenses and increased corporate expenses associated with the sourcing of potential financing arrangements and private placements which included travel expenses, legal and professional fees. Payroll costs have increased substantially mainly due to the building of a larger managerial team which included the recruitment of a President for the Company's largest subsidiary, a chief compliance officer for training of technical staff and monitoring of compliance with environmental regulations, a regional manager for utility and industrial sales, a management information systems manager and a controller. The operating expenses of the three new offices in Georgia, Arizona and Alabama accounted for approximately $344,000 of the increase in selling, general and administrative expenses. As a percentage of revenues, such expenses have increased from 28.1% for the three months ended June 30, 1996 to 42.0% for the corresponding period in 1997. This was mainly attributable to the increased level of infrastructure spending. DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense increased from $164,042 in the second quarter of 1996 to $234,497 in the second quarter of 1997. Such expense as a percentage of revenues increased from 5.8% for the quarter ended June 30, 1996 to 6.5% for the corresponding quarter in 1997. This increase reflected the additional depreciation of application equipment purchased during the three months ended June 30, 1997. In addition, amortization expenses have also increased due to the additional intangibles acquired from the ADI and ARC acquisitions. INTEREST INCOME. Interest income increased by $11,570 from $1,982 for the second quarter of 1996 to $13,552 for the corresponding quarter of 1997. The increase in interest income was due to higher cash balances held during the second quarter of 1997 resulting from the proceeds of the issuance of common stock during the second quarter of 1997. INTEREST EXPENSE. Interest expense increased by $27,234 from $167,040 during the three months ended June 30, 1996 to $194,274 during the three months ended June 30, 1997 primarily as a result of increased bank borrowings. - 9 - QUARTERLY RESULTS. The net loss of $465,195 incurred by the Company for the three months ended June 30, 1997 was mainly attributable to additions to senior management and the expansion of both the production and sales and marketing teams so as to establish the necessary personnel infrastructure to manage and grow the Company's operations. Additional corporate expenses were also incurred to evaluate and seek potential financing arrangements and private placements which were required to finance the expansion of the Company's operations. Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996 - ------------------------------------------------------------------------- REVENUES. The Company's revenues increased by $1,254,598, or 23.9%, from $5,242,730 during the six months ended June 30, 1996 to $6,497,328 during the six months ended June 30, 1997. The increase in revenues was primarily attributable to an increase in both aquatic and industrial vegetation management contracts as a result of the acquisitions of Aquatic Dynamics, Inc. (the "ADI Acquisition") in December 1996 and Aquatic and Right of Way Control, Inc. (the "ARC Acquisition") in June 1996, the establishment of two new branch offices in Georgia and Alabama and the intensive marketing efforts targeted at electric and power utilities and governmental agencies. COST OF SERVICES. Cost of services increased by $1,009,605, or 36.7%, from $2,748,992 during the six months ended June 30, 1996 to $3,758,597 during the six months ended June 30, 1997. The increase in cost of services was mainly attributable to increased chemical, labor, fuel, subcontracting, vehicle leasing and maintenance costs which was directly a result of the Company's expanding operations. As a percentage of revenues, cost of services have increased from 52.4% for the six months ended June 30, 1996 to 57.8% for the six months ended June 30 ,1997. The reduced gross margin was mainly attributable to higher chemical and subcontracting costs as a result of a higher mix of industrial vegetation management contracts for the six months ended June 30 ,1997 as compared to the corresponding period of 1996. For the six months ended June 30, 1997 and 1996, industrial vegetation management services accounted for approximately 19.1% and 13.4%, respectively, of the Company's total revenues. Gross margins from industrial vegetation management contracts are generally lower than the aquatic vegetation management contracts as they involve a higher usage of chemicals and in some cases, subcontractors have to be used when aerial chemical application using helicopters is required. SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative expense increased by $1,258,529, or 83.7%, from $1,503,193 during the six months ended June 30, 1996 to $2,761,722 during the six months ended June 30, 1997. The increase in selling, general and administrative expenses was due mainly to the expanded sales force and business development costs, the assimilation of the operations of the three businesses acquired in 1996, increased payroll and recruitment costs, higher travel and increased corporate expenses associated with the sourcing of potential financing arrangements and private placements which included travel expenses, legal and professional fees. Payroll costs have increased substantially mainly due to the building of a larger managerial team which included the recruitment of a President for the Company's largest - 10 - subsidiary, a chief compliance officer for training of technical staff and monitoring of compliance with environmental regulations, a regional manager for utility and industrial sales, a management information systems manager and a controller. The operating expenses of the three new offices in Georgia, Arizona and Alabama accounted for approximately $527,000 of the total increase in selling, general and administrative expenses. As a percentage of revenues, such expenses have increased from 28.7% for the six months ended June 30, 1996 to 42.5% for the corresponding period in 1997. This was mainly attributable to the increased level of infrastructure spending and the costs associated with the sourcing of financing arrangements and private placements. DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense increased from $306,306 for the six months ended June 30, 1996 to $461,039 for the corresponding period in 1997. Such expense as a percentage of revenues increased from 5.8% for the six months ended June 30, 1996 to 7.1% for the six months ended June 30, 1997. This increase reflected the additional depreciation of application equipment and computer equipment purchased during the six months ended June 30, 1997. In addition, there was an increase in amortization relating to intangibles acquired from the ADI and ARC acquisitions. INTEREST INCOME. Interest income decreased by $24,311 from $43,293 for the six months ended June 30, 1996 to $18,982 for the corresponding period of 1997. The decrease in interest income was consistent with the lower average cash balances in 1997 as compared to 1996. INTEREST EXPENSE. Interest expense increased by $66,982 from $330,903 during the six months ended June 30, 1996 to $397,885 during the six months ended June 30, 1997 primarily as a result of increased bank borrowings. LIQUIDITY AND CAPITAL RESOURCES WORKING CAPITAL. Working capital (excluding net liabilities of discontinued operations), which consists principally of cash and accounts receivable , was $1,140,193 at December 31, 1996, compared to $2,022,185 at June 30, 1997. The increase in working capital was mainly attributable to the cash proceeds from the issuance of common stock and the reduction in borrowings under the credit agreement with Capital Bank. Of the Company's accounts receivable outstanding at December 31, 1996 and June 30, 1997, approximately $336,000 (31.6%) and $414,000 (30.3%) were due from five customers, respectively. The increase was primarily due to more industrial vegetation contracts undertaken during the second quarter of 1997 which are typically larger in value. At June 30, 1997, the Company's allowance for doubtful debts was $116,438 which the Company believes is currently adequate to cover anticipated losses. The average collection period for accounts receivable was approximately 34 days as of June 30, 1997 as compared to 32 days at December 31, 1996. - 11 - Inventories have increased from $339,114 as of December 31, 1996 to $793,610 as of June 30, 1997 primarily as a result of bulk purchases of chemicals to take advantage of quantity discounts and extended payment terms which also resulted in an increase in accounts payable for the same comparative periods. At June 30, 1997, the Company has loan agreements with Capital Bank which provide for borrowings under a revolving line of credit of up to an aggregate of $750,000 and a three-year term loan of $250,000 which is collaterized by a long-term receivable. Advances under the line of credit are based on a certain borrowing formula relating to eligible accounts receivable. Interest accrues at the rates of 1-1/4% above prime for the line of credit and 9.5% for the three-year term loan. Substantially all of the Company's assets are pledged to Capital Bank as collateral. As of June 30, 1997, $242,742 was outstanding under the three-year term loan and there was none outstanding under the line of credit. Availability under the line of credit at June 30, 1997 amounted to $750,000. CAPITAL COMMITMENTS. As of June 30, 1997, the Company has capital commitments to purchase 30 specialized application equipment known as "Spra-Buggies" over the next 16 months at a purchase price of approximately $27,000 per equipment. CASH FLOWS FROM OPERATING ACTIVITIES. For the six months ended June 30, 1997, the Company's cash flows used in operations was $703,947 as compared to cash generated from operations of $1,400,805 for the six months ended June 30, 1996. Of the net cash used in operating activities for the six months ended June 30, 1997, $555,741 were used in continuing operations as compared to net cash generated from operations of $806,943 for the six months ended June 30, 1996. The decrease in cash flows generated from continuing operations was primarily attributable to the net loss incurred for the six months ended June 30, 1997. CASH FLOWS FROM INVESTING ACTIVITIES. For the six months ended June 30, 1997, purchases of application and computer equipment amounted to $548,541. This was partly offset by some proceeds from the sale of marketable securities and equipment, resulting in net cash used in investing activities of $374,632. Net cash provided by investing activities for the six months ended June 30, 1996 of $2,924,209 was derived mainly from the sale of marketable securities and certain assets of discontinued operations. CASH FLOWS FROM FINANCING ACTIVITIES. Net cash provided by financing activities for the six months ended June 30, 1997 of $1,526,359 was derived primarily from the issuance of common stock resulting from an equity private placement of 83,333 shares at $6.00 per share and the exercise of stock options by employees, directors and a financial consultant. The Company also had additional borrowings of $756,090 during six months ended June 30, 1997 which included the three-year term loan of $250,000 from Capital Bank and an equipment loan of $500,000 from a commercial equipment financing company. The Company repaid a net total of $720,183 of its debts which included the installment note of $200,000 relating to the ADI Acquisition and a net payment of $404,415 under its credit agreements. - 12 - DISCONTINUED OPERATIONS. Net liabilities of discontinued operations decreased from $350,076 as of December 31, 1996 to $201,870 as of June 30, 1997. This decrease was mainly due to the settlement of certain accounts payable and the utilization of the provision for phase-out losses relating to legal fees incurred for the collection of accounts receivable of the discontinued operations and amounts paid to an ex-employee under a settlement agreement entered into in 1996. - 13 - PART II - OTHER INFORMATION Item 1. Legal Proceedings ----------------- Not applicable. Item 2. Changes in Securities --------------------- Not applicable. Item 3. Defaults Upon Senior Securities ------------------------------- Not applicable. Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- Not applicable. Item 5. Other Information ----------------- Not applicable. Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits: Exhibit Description ------- ----------- 27.1 Financial Data Schedule (b) Reports on Form 8-K During the quarter ended June 30, 1997, the registrant filed the following reports on Form 8-K: (i) Current Report on Form 8-K dated May 20, 1997 (filed on May 20, 1997) which reported the Company's completion of an equity private placement with Tarragona Fund, Inc. and the net increase in the Company's total stockholders' equity. - 14 - SIGNATURES ---------- In accordance with the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AQUAGENIX, INC. Date: August 14, 1997 By: /s/ Andrew P. Chesler ---------------------- Andrew P. Chesler, Chairman of the Board, Chief Executive Officer, President and Treasurer (Principal Executive Officer) Date: August 14 , 1997 By: /s/ Helen Chia -------------- Helen Chia, Chief Financial Officer (Principal Financial and Accounting Officer) - 15 - EX-27 2
5 THE SCEHDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE UNAUDITED FINANCIAL STATEMENTS AS OF JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS DEC-31-1997 JUN-30-1997 1,338,511 0 1,484,180 116,438 793,610 4,088,996 4,083,306 1,396,549 13,398,093 2,268,681 0 0 0 44,636 5,193,108 13,398,093 0 6,497,328 0 3,758,597 3,165,259 57,502 378,903 (862,933) 0 (862,933) 0 0 0 (862,933) (.20) (.20)
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