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 May 31, 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 May 31, 1997 was 795,011.
VIROGROUP, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
QUARTER ENDED MAY 31, 1997
Page
----
Part I- Financial Information
Consolidated Balance Sheets
May 31, 1997 and August 31, 1996 3
Consolidated Statements of Operations
Three Months Ended May 31, 1997 and
May 31, 1996 4
Consolidated Statements of Operations
Nine Months Ended May 31, 1997 and
May 31, 1996 5
Consolidated Statements of Cash Flows
Nine Months Ended May 31, 1997 and
May 31, 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
VIROGROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MAY 31, 1997 AND AUGUST 31, 1996
May 31 August 31,
1997 1996
----------- -----------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................................... $ 81,479 $ 191,001
Accounts receivable, net of allowance for doubtful
accounts of $448,801, and $502,551, respectively........... 1,608,991 3,384,426
Unbilled accounts receivable................................. 553,577 717,946
Prepaid income taxes......................................... 18,371 26,840
Prepaid expenses and other................................... 719,791 204,313
----------- -----------
Total current assets................................... 2,982,209 4,524,526
AMOUNTS DUE FROM STATE AGENCY, net............................... 534,427 2,812,737
PROPERTY AND EQUIPMENT, net...................................... 394,599 543,746
OTHER ASSETS..................................................... 34,534 35,261
----------- -----------
Total assets........................................... $ 3,945,769 $ 7,916,270
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................................. $ 341,933 $ 1,160,354
Accrued liabilities.......................................... 1,748,409 1,197,026
Current maturities of long-term debt......................... 493 9,447
Notes payable................................................ 542,768 2,491,429
----------- -----------
Total current liabilities.............................. 2,633,603 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 May 31, 1997............................................ 7,950 7,950
Additional paid-in capital................................... 18,333,536 18,333,536
Accumulated deficit.......................................... (17,029,320) (15,283,472)
----------- -----------
Total shareholders' equity............................. 1,312,166 3,058,014
----------- -----------
$ 3,945,769 $ 7,916,270
=========== ===========
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
Page 3 of 18
VIROGROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS Three Months
Ended May 31, 1997 and May 31, 1996
(Unaudited)
1997 1996
----------- -----------
GROSS REVENUES ................................. $ 1,512,789 $ 3,461,519
COST OF GROSS REVENUES ......................... 1,066,891 2,366,963
----------- -----------
Gross profit ............................... 445,898 1,094,556
SELLING, GENERAL & ADMINISTRATIVE EXPENSES,
including rentals to related party of
$46,500 in 1997 and 1996 ................... 1,045,136 1,638,065
----------- -----------
Loss from operations ....................... (599,238) (593,509)
OTHER INCOME (EXPENSE):
Net interest expense ....................... (42,971) (44,319)
Other, net ................................. 15,948 (884)
----------- -----------
Loss before income taxes ................... (626,261) (638,712)
PROVISION FOR INCOME TAXES ..................... (793) (86,062)
----------- -----------
Net loss ................................... $ (627,054) $ (724,774)
=========== ===========
NET LOSS PER SHARE COMMON SHARE ................ $ (.79) $ (.91)
=========== ===========
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
VIROGROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months Ended May 31, 1997 and May 31, 1996
(Unaudited)
1997 1996
------------ ------------
GROSS REVENUES ................................. $ 5,683,545 $ 11,022,003
COST OF GROSS REVENUES ......................... 4,105,204 7,481,766
------------ ------------
Gross profit ............................... 1,578,341 3,540,237
SELLING, GENERAL & ADMINISTRATIVE EXPENSES,
including rentals to related party of
$93,000 in 1997 and 1996 ................... 3,246,780 4,630,292
------------ ------------
Loss from operations ....................... (1,668,439) (1,090,055)
OTHER INCOME (EXPENSE):
Net interest expense ....................... (153,257) (136,929)
Other, net ................................. 76,648 7,123
------------ ------------
Loss before income taxes ................... (1,745,048) (1,219,861)
PROVISION FOR INCOME TAXES ..................... (802) (3,578)
------------ ------------
Net loss ................................... $ (1,745,850) $ (1,223,439)
============ ============
NET LOSS PER SHARE COMMON SHARE ................ $ (2.20) $ (1.53)
============ ============
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
VIROGROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended May 31, 1997 and May 31, 1996
(Unaudited)
1997 1996
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss .............................................. $(1,745,850) $(1,223,439)
----------- -----------
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities
Depreciation and amortization ...................... 237,780 299,755
Provision for bad debts ............................ 56,420 29,864
(Gain) loss on disposition of property and equipment (22,415) 6,152
Restructuring charge ............................... (92,837) 17,093
Relocation charge .................................. 42,000 0
Changes in assets and liabilities:
Decrease (increase) in-
Accounts receivable ............................ 1,719,015 206,363
Unbilled accounts receivable ................... 164,368 522,104
Prepaid income taxes ........................... 8,469 128,960
Prepaid expenses and other assets .............. 1,721,830 104,729
Increase (decrease) in-
Accounts payable ............................... (818,419) (673,618)
Accrued liabilities ............................ 643,949 (225,965)
----------- -----------
Total adjustments .............................. 3,660,160 415,436
----------- -----------
Net cash provided by (used in) operating activities . 1,914,310 (808,002)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment ................... (98,603) (32,874)
Proceeds from sale of property and equipment .......... 32,385 28,992
----------- -----------
Net cash provided by (used in) investing activities . (66,218) (3,882)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable ........................... 4,591,790 7,286,493
Repayment of notes payable ............................ (6,540,449) (6,376,961)
Repayment of long-term debt ........................... 0 (109,365)
Repayment of capitalized lease obligations ............ (8,955) (22,061)
----------- -----------
Net cash provided by (used in) financing activities . (1,957,614) 778,105
----------- -----------
DECREASE IN CASH AND CASH EQUIVALENTS ..................... (109,522) (33,779)
CASH AND CASH EQUIVALENTS, beginning of period ............ 191,001 104,793
----------- -----------
CASH AND CASH EQUIVALENTS, end of period .................. $ 81,479 $ 71,014
=========== ===========
SUPPLEMENTAL DISCLOSURES:
Interest paid ......................................... $ 153,257 $ 136,929
=========== ===========
Income taxes paid ..................................... $ 8 $ 24,246
=========== ===========
The accompanying notes to consolidated financial
statements are an integral part of these statements.
Page 6 of 18
VIROGROUP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 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 May 31, 1997 and the results of operations and cash flows for the three-month
and nine-month periods ended May 31, 1997 and May 31, 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
the Company's 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
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
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 May 31, 1997 these allowances totaled $913,918 with $166,623 applied as a
valuation allowance to the amounts due, resulting in a net of $534,427 shown as
the Amounts Due From State Agency, net, in the consolidated balance sheet at May
31, 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 sold to third party financing entities at May 31,
1997. The Company has no recourse on these transactions. The Company used
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. In addition the Company
filed approximately $703,050 directly with the State.
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 has placed 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 accrue
to the Company's benefit and is 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 May 31, 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
Page 9 of 18
up to $3.0 million at an interest rate of prime (8.50% at May 31, 1997) less
.25%. Laidlaw, Inc. in lieu of its commitment to provide up to $3.0 million in
debt financing to the Company pursuant to the terms of the preferred stock
conversion agreement of June 26, 1995, caused a letter of credit to be issued to
collateralize the $3.0 million note. Substantially all of the Company's assets
secure this obligation to Laidlaw in the event of a draw upon the letter of
credit. The line of credit 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 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 nine month period ending May 31, 1997,
$92,837 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 $81,235 which is included in accrued liabilities
in the accompanying consolidated balance sheet at May 31, 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
fourth quarter of fiscal 1997. The Company accrued a relocation charge of
$42,000 which represents employee severances. This relocation charge is included
in accrued liabilities in the accompanying consolidated balance sheet, at May
31, 1997.
(7) Significant Customer Disclosure
The Company operates in one industry segment, as contemplated by Financial
Accounting Standards Board Statement No. 14. During the nine months ended May
31, 1997, Inter-City Corp. "USA" accounted for approximately 10% of total
Company revenues. Laidlaw Environmental Services, Inc. and its affiliates,
Southern Wood Products, and the State of Tennessee accounted for 8%, 7% and 6%
of consolidated gross revenues, respectively. At May 31, 1997, amounts due from
these customers aggregated $319,463, and are included in "accounts receivable,
net" in the accompanying consolidated balance sheet.
Page 10 of 18
(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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
COMPARISON OF THREE MONTHS ENDED MAY 31, 1997 AND MAY 31, 1996. Gross revenues
decreased by 56% to $1,512,789 for the three months ended May 31, 1997, compared
to $3,461,519 for the same period of fiscal year 1996. This 56% 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 May 31, 1997 May 31, 1996 (Decrease)
-------- ------------------------------- ----------
Enviro Florida $ 398,003 $ 942,009 (58)
Enviro South Carolina 445,765 1,104,056 (60)
Enviro Tenn 468,097 994,335 (53)
---------- ----------
TOTAL ENVIRO DIVISION $1,311,865 $3,040,400 (57)
HYDRO DIVISION 200,924 421,119 (53)
---------- ----------
TOTAL VIROGROUP, INC. $1,512,789 $3,461,519 (56)
========== ==========
Florida operations had a decrease in gross revenues of $544,006 (58%) 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 $658,291 (60%) was
due to a reduction in work assignment by the office's major client. The
Tennessee gross revenues decrease of $526,238 (53%) was primarily the result of
completing a single large remediation project during the third 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 $220,195
(53%) is mainly the result of a large injection well project which was completed
during the third Quarter of fiscal 1996, and there was no large project in the
third quarter of fiscal 1997 to replace that job.
Page 11 of 18
Contracted backlog at May 31, 1997 is $3.4 million. The backlog is no assurance
as to future gross revenue levels.
Cost of gross revenues is 70.5% of revenues for the three months ended May 31,
1997, compared to 68.4% for the three months ended May 31, 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.
Selling, general and administrative expenses for the three months ended May 31,
1997 decreased by approximately $592,929 (36%) to $1,045,136 compared to
$1,638,065 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 remained the same due to a flat demand in amounts borrowed.
The net loss for the three months ended May 31, 1997 was $627,054, or 41.4% of
gross revenues, compared to a net loss of $724,774, or 20.9% 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 NINE MONTHS ENDED MAY 31, 1997 AND MAY 31, 1996. Gross
revenues decreased by 48% to $5,683,545 for the nine months ended May 31, 1997,
compared to $11,022,003 for the same period of fiscal year 1996. This 48%
decrease in gross revenues results from changes in gross revenues in each of the
Company's divisions as follows:
Gross Revenues For the
Nine Months Ended % Increase
Division May 31, 1997 May 31, 1996 (Decrease)
-------- ------------------------------- ----------
Enviro Florida $1,407,895 $3,758,561 (62)
Enviro South Carolina 1,629,676 3,310,961 (50)
Enviro Tenn 2,039,543 2,412,148 (15)
---------- ----------
TOTAL ENVIRO DIVISION $5,077,114 $9,481,670 (46)
HYDRO DIVISION 606,431 1,540,333 (60)
---------- ----------
TOTAL VIROGROUP, INC. $5,683,545 $11,022,003 (48)
========== ===========
Florida operations had a decrease in gross revenues of $2,350,666 (62%) 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 $1,681,285 (50%) was
due to a general decline in repeat business as that office's major clients
decrease in their spending on environmental projects. The Tennessee gross
Page 12 of 18
revenues were substantially the same for the nine month period. The Hydro
Division gross revenues decrease of $933,902 (60%) is mainly the result of a
large injection well project which finished in the third quarter of fiscal 1996.
Cost of gross revenues is 72.2% for the nine months ended May 31, 1997, compared
to 67.9% for the same period of the prior year. This increase in cost is the
result of a larger percentage of gross revenue being generated by subcontractors
than in prior years. Revenues from subcontractors carry a smaller gross profit
than revenues from professional fees.
Selling, general and administrative expenses for the nine months ended May 31,
1997 decreased by $1,383,512 or 29.9% to $3,246,780 compared to $4,630,292 for
the same period of fiscal 1996. The majority of the decrease is due to staff
downsizing and reductions in fixed expenses.
The Company has not provided a provision for Federal 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 timing
of the future federal and state taxable income which will be sufficient to
utilize the deferred tax asset.
The net loss for the nine months ended May 31, 1997 was $1,745,850, or 30.7% of
gross revenues compared to a net loss of $1,223,439 or 11.1% 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 $1,914,310. The cash was
generated by the collection of accounts receivable and the third party funding
of the Florida UST program amounts. The payment of accounts payable and other
accrued liabilities totalling approximately $820,000 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 the
Company's line of credit. As of May 31, 1997 the Company's line of credit
balance was $542,768.
Page 13 of 18
Working capital on May 31, 1997 increased by $682,336 as compared to August 31,
1996. Accounts receivable, net, and unbilled accounts receivable decreased by a
combined amount of $1,939,804 as a result of the completion of work in progress
at August 31, 1996, as well as the result of a decline in gross revenues.
Accounts payable and accrued liabilities at May 31, 1997 decreased by a total of
$267,038, for the same period. 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 May 31,
1997 was 8.50%. 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
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
------------- ------------- --------------
Subsequent to the vote of the security holders at the annual meeting on January
23, 1997, Ivan R. Cairns resigned from the Board and has been replaced by James
J. Hattler. James L. Wareham has also resigned as of June 24, 1997 and has not
yet been replaced.
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
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.
27 Financial Data Schedule (Electronic filing only).
Reports on Form 8-K
None
Page 16 of 18
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: July 10, 1997 By: /s/ Charles S. Higgins, Jr.
-----------------------------------
Charles S. Higgins, Jr., President
and Chief Executive Officer
Date: July 10, 1997 By: /s/ DeWayne Baskette
-----------------------------------
DeWayne Baskette
Chief Financial Officer
Page 17 of 18
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: July 10, 1997 By:
-----------------------------------
Charles S. Higgins, Jr., President
and Chief Executive Officer
Date: July 10, 1997 By: -----------------------------------
DeWayne Baskette
Chief Financial Officer
Page 18 of 18