-----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, Bzl7EWI98yilE5xN6vBT8Y1oA03oDhNn6uDMpRqLC6cxTdzpa61FXXN2Pf3kuHJV J/FGtn+RoA2xpVkcKT+4/g== 0000903594-97-000002.txt : 19970114 0000903594-97-000002.hdr.sgml : 19970114 ACCESSION NUMBER: 0000903594-97-000002 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961129 FILED AS OF DATE: 19970113 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: ENVIRONMENTAL TECTONICS CORP CENTRAL INDEX KEY: 0000033113 STANDARD INDUSTRIAL CLASSIFICATION: ORTHOPEDIC, PROSTHETIC & SURGICAL APPLIANCES & SUPPLIES [3842] IRS NUMBER: 231714256 STATE OF INCORPORATION: PA FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 001-10655 FILM NUMBER: 97504663 BUSINESS ADDRESS: STREET 1: COUNTY LINE INDUSTRIAL PARK CITY: SOUTHAMPTON STATE: PA ZIP: 18966 BUSINESS PHONE: 2153559100 MAIL ADDRESS: STREET 1: COUNTYLINE INDUSTRIAL PARK CITY: SOUTHAMPTON STATE: PA ZIP: 18966 FORMER COMPANY: FORMER CONFORMED NAME: ENVIRONMENTAL TECHNOLOGY CORP DATE OF NAME CHANGE: 19730208 10QSB 1 FORM 10-QSB SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (Mark One) [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended November 29, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to ____________ Commission File No. 1-10655 ENVIRONMENTAL TECTONICS CORPORATION (Exact name of registrant as specified in its charter) PENNSYLVANIA 23-1714256 (State or other jurisdiction (IRS Employer Identification of incorporation or organization) No.) COUNTY LINE INDUSTRIAL PARK SOUTHAMPTON, PENNSYLVANIA 18966 (Address of principal executive offices) (Zip Code) (215) 355-9100 (Registrant's telephone number, including area code) 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 at least the past 90 days. Yes x No _____ The number of shares outstanding of the registrant's common stock as of November 29, 1996 is: 2,941,344 PART I - Financial Information Item 1. Financial Statements:
ENVIRONMENTAL TECTONICS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS 9 Months Ended ($000's, except per share data, Unaudited) November 29, 1996 November 24, 1995 Net Sales $ 14,974 $ 11,358 Cost of goods sold 10,223 7,411 Gross profit 4,751 3,947 Operating expenses: Selling and administrative 2,924 2,764 Research and development 104 106 3,028 2,870 Operating income 1,723 1,077 Other expenses: Interest expense 666 674 Letter of credit fees 21 16 Other, net 185 44 872 734 Income before income taxes 851 343 Provision for income taxes 272 121 Net income $ 579 $ 222 ========= ========= Earnings per common share (primary and fully diluted) $ .19 $ .08 ========= ========= See notes to consolidated financial statements.
ENVIRONMENTAL TECTONICS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS 3 Months Ended ($000's, except per share data, Unaudited) November 29, 1996 November 24, 1995 Net Sales $ 5,568 $ 4,087 Cost of goods sold 3,794 2,817 Gross profit 1,774 1,270 Operating expenses: Selling and administrative 1,041 800 Research and development 30 23 1,071 823 Operating income 703 447 Other expenses: Interest expense 151 242 Letter of credit fees 10 4 Other, net 121 36 282 282 Income before income taxes 421 165 Provision for income taxes 134 58 Net income $ 287 $ 107 ========= ========= Earnings per common share (primary and fully diluted) $ .09 $ .04 ========= ========= See notes to consolidated financial statements.
ENVIRONMENTAL TECTONICS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ($000's, Unaudited) ASSETS November 29, 1996 February 23, 1996 Current assets: Cash and cash equivalents $ 247 $ 31 Cash equivalents restricted for letters of credit 355 859 Accounts receivable, net 10,244 7,710 Costs and estimated earnings in excess of billings on uncompleted long-term contracts 2,746 4,024 Inventories 3,997 3,611 Prepaid expenses and other current assets 464 574 Total current assets 18,053 16,809 Property, plant, and equipment, at cost, net 2,402 2,498 Software development costs, net of accumulated amortization of $2,119 at November 29 and $1,991 at February 23 1,531 1,617 Other assets 2 2 Total assets $21,988 $20,926 ======= ======= See notes to consolidated financial statements.
ENVIRONMENTAL TECTONICS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ($000's, Unaudited) LIABILITIES November 29, 1996 February 23, 1996 Current Liabilities: Current portion of long-term debt $ 7,092 $ 2,441 Accounts payable - trade 2,180 1,586 Billings in excess of costs and estimated earnings on uncompleted long-term contracts 3,006 3,355 Customer deposits 666 104 Accrued income taxes 304 188 Net arbitration award 145 445 Accrued liabilities 1,008 812 Total current liabilities 14,401 8,931 Long-term debt, less current portion credit facility payable to banks due March 31, 1997 - 5,214 Other 326 300 326 5,514 Deferred income taxes 370 370 Total liabilities 15,097 14,815 STOCKHOLDERS' EQUITY Common stock - authorized 10,000,000 shares $.10 par value; 2,941,344 shares issued and outstanding at 294 293 Capital contributed in excess of par value of common stock 1,892 1,692 Retained earnings 4,705 4,126 Total stockholders' equity 6,891 6,111 Total liabilities and stockholders' equity $21,988 $20,926 ======= ======= See notes to consolidated financial statements.
ENVIRONMENTAL TECTONICS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS 9 Months Ended ($000's, Unaudited) November 29, 1996 November 24, 1995 Increase (decrease) in cash: Reconciliation of net income to net cash provided by (used in) operating activities: Net income $ 579 $ 222 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 953 696 (Increase) decrease in assets: Accounts receivable (2,534) 79 Costs and estimated earnings in excess of billings 1,278 (642) Inventories (386) (299) Prepaid expenses and other current assets 110 (127) (Decrease) increase in liabilities: Accounts payable 594 (265) Billings in excess of costs and estimated earnings (349) 2,066 Customer deposits 562 206 Payments under settlement agreements (400) -- Accrued liabilities and income taxes 312 (267) Net cash provided by operating activities 719 1,669 Cash flows from investing activities: Acquisition of equipment (197) (142) Increase in software development costs (422) (474) Decrease in other assets -- 45 Net cash used in investing activities (619) (571) Cash flows from financing activities: Borrowings under credit facility 525 (increase) decrease in cash equivalents restricted for letters of credit 504 (102) Payments under credit facility (475) (1,350) Increases in capital leases 68 -- Principal payments of capital leases and other long-term debt (30) (75) Proceeds from issuance of common stock 49 74 Net cash provided by (used in) financing activities 116 (928) Net increase in cash 216 170 Cash at beginning of period 31 66 Cash at end of period $ 247 $ 236 ======= ====== Supplemental schedule of cash flow information: Interest paid $ 516 $ 567 Income taxes paid 0 -- See notes to consolidated financial statements.
ENVIRONMENTAL TECTONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($000's) 1. The information in this report reflects all adjustments which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. There has been no significant change in the Company's effective tax rate since February 23, 1996. 2. Under the Company's 1988 Incentive Stock Option Plan, 500,000 Shares of the Company's common stock are currently reserved for issuance in connection with the exercise of options, and options to acquire 116,450 shares are currently outstanding. 3. Earnings per common share are based on net income divided by the number of common and common stock equivalent shares (shares issuable upon the exercise of stock options and warrants) outstanding. Weighted average number of common shares and equivalents outstanding were approximately 2,970,000 (primary and fully diluted) in 1996 and 2,930,000 (primary) in 1995. 4. Inventories consist of the following:
November 29, 1996 February 23, 1996 Raw Materials $ 784 $ 696 Work in Process 3,213 2,915 Finished Goods - - $ 3,997 $ 3,611 ========= ==========
5. The components of accounts receivable are as follows:
November 29, 1996 February 23, 1996* U.S. Government receivables billed and unbilled contract costs subject to negotiation $ 5,397 $ 3,848 U.S. receivables billed 620 746 International: Receivables billed 4,351 3,240 10,368 7,834 Less allowance for doubtful accounts (124) (124) $ 10,244 $ 7,710 ========= =========
* Restated to conform to current classifications. U.S. Government receivables billed and unbilled contract costs subject to negotiation: Unbilled contract costs subject to negotiation represent claims made or to be made against the U.S. Government. In fiscal 1995, the Company recorded approximately $1.4 million of claims revenue related to two certain aircrew training systems contracts. No claims revenue was recorded in fiscal 1996 or 1997. The Company has recorded claims to the extent of contract costs incurred. These costs have been incurred in connection with U.S. Government-caused delays, errors in specifications and designs, and other unanticipated causes and may not be received in full during fiscal 1997. In accordance with generally accepted accounting principles, revenue recorded by the Company from a claim does not exceed the incurred contract costs related to the claim. The Company estimates that the total net claims filed and to be filed approximate $7.3 million, a portion of which has been included in U.S. Government receivables billed and unbilled contract costs subject to negotiation. Such claims are subject to negotiation and audit by the U.S. Government. 6. Contingencies: Certain claims, suits and complaints arising in the ordinary course of business have been filed or are pending against the Company. In the opinion of management, after consultation with legal counsel, all such matters are reserved for or adequately covered by insurance or, if not so covered, are without merit or are of such kind, or involve such amounts, as would not have a significant effect on the financial position or results of operations of the Company if disposed of unfavorably. Item 2. Management's Discussion and Analysis: ENVIRONMENTAL TECTONICS CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION November 29, 1996 Material Changes in Financial Condition Cash provided from operations, although positive, decreased from $1,669,000 in the prior year period to $719,000 in the current nine months ended November 29, 1996. The decrease primarily reflected increased receivables partially offset by increased accounts payable, net income and depreciation/amortization reflecting the higher sales activity in the current period. The Company has a revolving credit agreement with two banks, which provides financing of up to $7.2 million. The facility expires by its terms on March 31, 1997. The credit facility permits both direct borrowing for working capital and other corporate purposes and the issuance of letters of credit for the Company. At November 29, 1996, there were outstanding letters of credit of approximately $190,000 and the Company had borrowed approximately $7.0 million under the credit facility. As of November 29, 1996, the Company was in technical default of the Credit Agreement. Specifically, the Company had failed to make a principal payment due the last business day of November 1996 (such payment was made on December 3, 1996), the Company had failed to supply certain financial information and the Company had failed to file a registration statement for certain warrants issued in connection with the revolving credit agreement. As of the date of this filing, the Company was in the process of completing all requirements to cure the defaults. The Company's sales backlog at November 29, 1996 and February 23, 1996 for work to be performed, training and maintenance contracts, and prospective revenue to be recognized after that date under written agreements was approximately $30,500,000 and $23,000,000, respectively. Material Changes in Results of Operations Net sales of approximately $15.0 million for the nine months and approximately $5.6 million for the three months ended November 29, 1996 increased by 32% and 36% in comparison to the respective prior year periods. Increases were evidenced across all product lines with the most significant occurring in Sterilizers (up 63%), Aircrew Training Systems (up 45%) and Simulation (up 25%). Gross profit increased by $804,000 for the nine months and $504,000 for the three months ended November 29, 1996 as compared to the prior year respective periods. The increases reflected the aforementioned sales increases partially offset by a sales mix shift to lower-margin sterilizer sales in the current periods. Operating expenses were up $158,000 and $248,000 for the nine months and three months ended November 29, 1996, respectively, versus the prior year. The increase in the current periods primarily reflected higher commission expense on the increased sales levels. However, as a percent of net sales, operating expenses for the nine months ended November 29, 1996, decreased to 20.2% versus 25.3% in the prior year's period. Interest expense decreased in both respective current periods reflecting lower average loan balances. The increase in other expenses for both current periods resulted from amortization of a non-cash deferred finance charge ($152,000 fiscal year to date) associated with warrants issued in conjunction with the Company's credit facility which expires in March 1997. A non-cash deferred finance charge of approximately $264,000 associated with contingent warrants issued in conjunction with the Company's credit facility has not been booked to the profit and loss statement because it is management's opinion that the warrants will not be required to be issued. PART II - Other Information Item 1. Legal proceedings: See Note 6 in Part I. Item 6. Exhibits and Reports on Form 8-K: a. Exhibits Exhibit 27 - Financial Data Schedule b. Reports on Form 8-K No reports on Form 8-K were filed during the three months ended November 29, 1996. 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. ENVIRONMENTAL TECTONICS CORPORATION (Registrant) By: /S/ Duane Deaner Duane Deaner, Chief Financial Officer (authorized officer and principal financial officer) Date: January 13, 1997 EX-27 2
5 9-MOS FEB-28-1997 NOV-29-1996 602,000 0 10,368,000 124,000 3,997,000 18,053,000 8,417,000 6,015,000 21,988,000 7,309,000 7,418,000 0 0 294,000 6,597,000 21,988,000 14,974,000 14,974,000 10,223,000 10,223,000 3,028,000 0 666,000 851,000 272,000 579,000 0 0 0 579,000 .19 .19
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