-----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, PWhC0XpgtTpkW7fE3j1PxtsA2L0T9rjK4fotos5VwMkNGTRM773tduswqU50s+UJ AgQJ6UMQw83IFjXhCYQoAQ== 0000903594-96-000045.txt : 19960716 0000903594-96-000045.hdr.sgml : 19960716 ACCESSION NUMBER: 0000903594-96-000045 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960531 FILED AS OF DATE: 19960715 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: 96594852 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 May 31, 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 (l) 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 July 15, 1996 is: 2,928,944 ENVIRONMENTAL TECTONICS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS 3 Months Ended ($000's, except per share data, Unaudited)
May 31, 1996 May 26, 1995 Net Sales $ 4,509 $ 3,712 Cost of goods sold 3,114 2,286 Gross profit 1,395 1,426 Operating expenses: Selling and administrative 904 1,056 Research and development 52 40 956 1,096 Operating income 439 330 Other expenses: Interest expense 226 213 Letter of credit fees 7 8 Other, net 31 - 264 221 Income before income taxes 175 109 Provision (benefit) for income taxes 55 39 Net income $ 120 $ 70 Earnings per common share (primary and fully diluted) $ .04 $ .02 See notes to consolidated financial statements.
ENVIRONMENTAL TECTONICS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ($000's, Unaudited)
ASSETS May 31, 1996 February 23, 1996 Current assets: Cash and cash equivalents $ 4 $ 31 Cash equivalents restricted for letters of credit 644 859 Accounts receivable, net 6,534 7,710 Costs and estimated earnings in excess of billings on un- completed long-term contracts 4,454 4,024 Inventories 4,009 3,611 Prepaid expenses and other current assets 652 574 Total current assets 16,297 16,809 Property, plant, and equipment, at cost, net 2,453 2,498 Software development costs, net of accumulated amortization of $2,119 at May 26 and $1,991 at February 24 1,604 1,617 Other assets 2 2 Total assets $ 20,356 $ 20,926 See notes to consolidated financial statements.
ENVIRONMENTAL TECTONICS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ($000's, Unaudited)
LIABILITIES May 31, 1996 February 23, 1996 Current liabilities: Current portion of long-term debt $ 7,380 $ 2,441 Accounts payable - trade 2,118 1,586 Billings in excess of costs and estimated earnings on uncompleted long-term contracts 2,577 3,355 Customer deposits 9 104 Accrued income taxes 209 188 Net arbitration award 295 445 Accrued liabilities 847 812 Total current liabilities 13,435 8,931 Long-term debt, less current portion credit facility payable to banks due March 31, 1997 - 5,214 Other 295 300 295 5,514 Deferred income taxes 370 370 Total liabilities 14,100 14,815 Commitments and Contingencies (Note 6) - - STOCKHOLDERS' EQUITY Common stock - authorized 10,000,000 shares $.10 par value; 2,928,944 shares issued and outstanding 293 293 Capital contributed in excess of par value of common stock 1,717 1,692 Retained earnings 4,246 4,126 Total stockholders' equity 6,256 6,111 Total liabilities and stockholders' equity $ 20,356 $ 20,926 See notes to consolidated financial statements.
ENVIRONMENTAL TECTONICS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS 3 Months Ended ($000's, Unaudited)
May 31, 1996 May 26, 1995 Increase (decrease) in cash: Reconciliation of net income to net cash provided by (used in) operating activities: Net income $ 120 $ 70 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 290 226 (Increase) decrease in assets: Accounts receivable 1,176 1,784 Costs and estimated earnings in excess of billings on uncompleted long-term contracts (430) (85) Inventories (398) (369) Prepaid expenses and other current assets (78) (306) (Decrease) increase in liabilities: Accounts payable 532 (422) Billings in excess of costs and estimated earnings on uncompleted long-term contracts (778) (131) Customer deposits (95) (104) Payments Under Settlement Agreements (250) - Accrued liabilities and income taxes 56 (88) Net cash provided by (used in) operating activities 145 575 Cash flows from investing activities: Acquisition of equipment (58) (41) Increase in software development costs (149) (103) Decrease in other assets - 42 Net cash used in investing activities (207) (169) Cash flows from financing activities: Borrowings under credit facility - 192 Increase (Decrease) in cash equivalents restricted for letters of credit 215 (67) Payments under credit facility (175) (500) Principal payments of capital leases and other long-term debt (5) (5) Proceeds from issuance of common stock - 68 Net cash provided by (used in) financing activities 35 (245) Net increase (decrease) in cash and cash equivalents (27) 161 Cash and cash equivalents at beginning of period 31 66 Cash and cash equivalents at end of period $ 4 $ 227 Supplemental schedule of cash flow information: Interest paid $ 128 $ 203 Income taxes paid, net 34 - See notes to consolidated financial statements.
ENVIRONMENTAL TECTONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) ($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 79,550 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 2,922,000 (primary and fully diluted) in 1996 and 2,874,000 (primary) in 1995. 4. Inventories consist of the following: May 31, 1996 February 23, 1996 Raw materials $ 708 $ 696 Work in process 3,301 2,915 Finished goods - - $ 4,009 $ 3,611 5. The components of accounts receivable are as follows:
May 31, 1996 February 23, 1996 U. S. Government receivables billed and unbilled contract costs subject to negotiation $ 3,767 $ 3,848 U.S. receivables billed 522 746 International: Receivables billed 995 1,866 Unbilled contract costs subject to negotiation 1,374 1,374 6,658 7,834 Less allowance for doubtful accounts (124) (124) $ 6,534 $ 7,710
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. 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. International unbilled contract costs subject to negotiation: Unbilled contract costs subject to negotiation represent claims made or to be made against the Royal Thai Air Force ("RTAF"). In the first quarter of fiscal 1995, the Company recorded approximately $1.1 million of claims receivable (but no claims revenue) for letters of credit drawn related to the same contract. The Company has recorded claims to the extent of the drawn letters of credit and called performance bond, which may not be recovered in full in fiscal 1997. The total net claim filed includes these amounts and are subject to arbitration and negotiation with the foreign government. 6. Contingencies: Claims and Litigation: In October 1993, the Company was notified by the RTAF that the RTAF was terminating a certain $4.6 million simulator contract with the Company. Although the Company has performed in excess of 90% of the contract, the RTAF alleged a failure to completely perform. In connection with this termination, the RTAF made a call on a $229 performance bond, as well as a draw on approximately $1.1 million of advance payment letters of credit. The RTAF has also asserted liquidated damages against the Company. In October 1993, the surety made payment on the $229 performance bond, and in the first quarter of fiscal 1995, it made payment on the approximately $1.1 million advance payment letters of credit. The Company has commenced arbitration with the RTAF. In the arbitration, the Company is asserting claims against the RTAF for reimbursement of the costs incurred on the bond and letters of credit called, as well as claims for costs incurred in connection with RTAF-directed changes in the work and RTAF-caused delays and damages to the Company's work. The Company is also claiming that the termination was wrongful and that the Company is entitled to complete the work and to be paid the balance of the contract price. The case is pending before the Thailand Arbitration Board. Management believes the Company has meritorious claims in excess of claims made by the RTAF, as well as meritorious grounds to support nonpayment of the performance bond and letters of credit. The Company has also denied the RTAF claims and believes they are without merit. Accordingly, no provision for any liability that may result has been made in the accompanying financial statements. Management and legal counsel believe that the ultimate outcome of these matters will not have a material adverse effect on the Company's financial position or results of operations. Certain other 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. ENVIRONMENTAL TECTONICS CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION May 31, 1996 (Unaudited) Material Changes in Financial Condition Cash provided from operations decreased from $575,000 in the prior year period to $145,000 in the current three months ended May 31, 1996. The decrease primarily resulted from an increase in costs and estimated earnings in excess of billings on uncompleted long-term contracts coupled with a decrease in billings in excess of costs and estimated earnings on uncompleted long-term contracts, both of which resulted in uses of cash from operations. The change in both of these accounts reflected the stage of billing/production for many of the long-term contract jobs in the current period. Many of the existing contracts have passed the initial start-up period (where billing normally exceeds cost expenditures) and are into the middle/pre-shipment phase where production costs normally exceed billing balances. Because of the anticipated receipt of revenues in the next quarter, the Company will have sufficient liquidity to fund continuing operations and to meet all obligations as they become due. The Company has a revolving credit agreement with two banks, which provides financing of up to $9.0 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 May 31, 1996, there were outstanding letters of credit of approximately $644,000 and the Company had borrowings of approximately $7.3 million under the credit facility. The Company's sales backlog at May 31, 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 $26,000,000 and $23,000,000, respectively. Material Changes in Results of Operations Net sales of approximately $4.5 million for the three months ended May 31, 1996 increased in comparison to the equivalent prior year's quarter. Increases were evidenced across all product lines except environmental which had a temporary slow- down reflecting reduced bookings at the end of last year. The most significant increase was evidenced in sterilizers with an 83% increase. Although sales increased, gross profit decreased in the current quarter to $1,395,000, 30.9% of net sales, from $1,426,000, 33.8% of net sales, in the prior year's period. This decrease was primarily attributable to the aforementioned sales mix shift to sterilizers (from a higher mix of aircrew training sales in the prior period) as sterilizers generally produce lower margins than the aircrew training systems line. Operating expenses decreased $140,000, 12.8%, reflecting continuing stringent cost controls. Interest expense increased from the prior year as a reduced balance was offset by a higher interest rate. Other expenses in the current period reflected amortization expense of $25,000 of a deferred finance charge associated with warrants issued in conjunction with the Company's credit facility which expires in March, 1997. 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 May 31, 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: July 15, 1996 EXHIBIT INDEX Exhibit No. Description 27 Financial Data Schedule. EX-27 2
5 3-MOS FEB-28-1997 MAY-31-1996 648,000 0 6,658,000 124,000 4,009,000 16,297,000 8,290,000 5,837,000 20,356,000 6,055,000 7,675,000 0 0 293,000 5,963,000 20,356,000 4,509,000 4,509,000 3,114,000 3,114,000 956,000 0 226,000 175,000 55,000 120,000 0 0 0 120,000 .04 .04
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