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 24, 1995
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 January 15, 1996 is: 2,927,332
<PAGE>
ENVIRONMENTAL TECTONICS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($000's, Unaudited)
<TABLE>
<CAPTION>
ASSETS November 24, 1995February 24, 1995
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 236 $ 66
Cash equivalents restricted for
letters of credit 694 592
Accounts receivable, net 9,552 9,631
Costs and estimated earnings
in excess of billings on un-
completed long-term contracts 3,793 3,151
Inventories 3,443 3,144
Prepaid expenses and other current
assets 263 136
Total current assets 17,981 16,720
Property, plant, and equipment,
at cost, net 2,399 2,547
Software development costs, net
of accumulated amortization of
$2,397 at November 24 and
$1,991 at February 24 1,556 1,488
Other assets 3 48
Total assets $ 21,939 $ 20,803
</TABLE>
See notes to consolidated financial statements.
<PAGE>
ENVIRONMENTAL TECTONICS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($000's, Unaudited)
<TABLE>
<CAPTION>
LIABILITIES November 24, 1995February 24, 1995
<S> <C> <C>
Current liabilities:
Current portion of long-term debt $ 8,222 $ 2,278
Accounts payable - trade 1,382 1,647
Billings in excess of costs and
estimated earnings on
uncompleted long-term contracts 3,409 1,343
Customer deposits 753 547
Accrued income taxes 343 205
Net arbitration award 617 746
Accrued liabilities 640 916
Total current liabilities 15,366 7,682
Long-term debt, less current portion
Credit facility payable to banks
due February 28, 1996 - 6,739
Other 289 394
289 7,133
Deferred income taxes 252 252
Total liabilities 15,907 15,067
Commitments and Contingencies (Note 6) - -
STOCKHOLDERS' EQUITY
Common stock - authorized 10,000,000
shares $.10 par value; 2,928,369
shares issued and outstanding at
November 24 and 2,906,980 shares issued
and outstanding at February 24 293 291
Capital contributed in excess of par
value of common stock 1,690 1,618
Retained earnings 4,049 3,827
Total stockholders' equity 6,032 5,736
Total liabilities and
stockholders' equity $ 21,939 $ 20,803
</TABLE>
See notes to consolidated financial statements.
<PAGE>
ENVIRONMENTAL TECTONICS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
9 Months Ended
($000's, except per share data, Unaudited)
November 24, 1995 November 25, 1994
<S> <C> <C>
Net Sales $ 11,358 $ 11,319
Cost of goods sold 7,411 8,553
Gross profit 3,947 2,766
Operating expenses:
Selling and administrative 2,764 2,989
Research and development 106 292
2,870 3,281
Operating income (loss) 1,077 (515)
Other expenses:
Interest expense 674 587
Letter of credit fees 16 24
Other, net 44 58
734 669
Income (loss) before income taxes 343 (1,184)
Provision (benefit) for income taxes 121 (450)
Net income (loss) $ 222 $ (734)
Earnings (loss) per common share
(primary and fully diluted) $ .08 $ (.26)
See notes to consolidated financial statements.
</TABLE>
<PAGE>
ENVIRONMENTAL TECTONICS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
3 Months Ended
($000's, except per share data, Unaudited)
November 24, 1995 November 25, 1994
<S> <C> <C>
Net Sales $ 4,087 $ 3,237
Cost of goods sold 2,817 1,958
Gross profit 1,270 1,279
Operating expenses:
Selling and administrative 800 898
Research and development 23 51
823 949
Operating income (loss) 447 330
Other expenses:
Interest expense 242 215
Letter of credit fees 4 5
Other, net 36 10
282 230
Income (loss) before income taxes 165 100
Provision (benefit) for income taxes 58 38
Net income (loss) $ 107 $ 62
Earnings (loss) per common share
(primary and fully diluted) $ .04 $ .02
See notes to consolidated financial statements.
</TABLE>
<PAGE>
ENVIRONMENTAL TECTONICS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
9 Months Ended
($000's, Unaudited)
November 24, 1995November 25, 1994
<S> <C> <C>
Increase (decrease) in cash:
Reconciliation of net income (loss) to net cash
provided by (used in) operating
activities:
Net income (loss) $ 222 $ (734)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization 696 689
(Increase) decrease in working capital:
Accounts receivable 79 (1,461)
Costs and estimated earnings
in excess of billings (642) (143)
Inventories (299) (477)
Prepaid expenses
and other current assets (127) 127
Accounts payable (265) (479)
Billings in excess
of costs and estimated earnings 2,066 902
Customer deposits 206 375
Accrued liabilities and income taxes (267) (573)
Decrease in deferred income taxes - -
Net cash provided by (used in)
operating activities 1,669 (1,774)
Cash flows from investing activities:
Increase in cash equivalents restricted
for letters of credit (102) (936)
Acquisition of equipment (142) (75)
Increase in software development costs (474) (561)
Decrease in other assets 45 -
Net cash used in investing activities (673) (1,572)
Cash flows from financing activities:
Borrowings under credit facility 525 3,878
Payments under credit facility (1,350) (843)
Principal payments of capital leases
and other long-term debt (75) (37)
Proceeds from issuance of common stock 74 88
Net cash provided by (used in)
financing activities (826) 3,086
Net increase (decrease) in cash 170 (260)
Cash at beginning of period 66 260
Cash at end of period $ 236 $ -
Supplemental schedule of cash flow information:
Interest paid $ 567 $ 524
Income taxes paid - 275
See notes to consolidated financial statements.
</TABLE>
<PAGE>
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 24, 1995.
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 83,150 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
2,930,000 (primary) in 1995 and 2,897,000 (primary) in 1994.
4. Inventories consist of the following:
November 24, 1995 February 24, 1995
Raw Materials $ 692 $ 676
Work in Process 2,751 2,468
Finished Goods - -
$ 3,443 $ 3,144
5. The components of accounts receivable are as follows:
<TABLE>
<CAPTION>
November 24, 1995February 24, 1995
<S> <C> <C>
U. S. Government receivables
billed and unbilled
contract costs
subject to negotiation $ 3,841 $ 3,947
U.S. receivables billed 693 1,724
International:
Receivables billed 3,739 2,681
Unbilled contract costs
subject to negotiation 1,374 1,374
9,647 9,726
Less allowance for doubtful
accounts (95) (95)
$ 9,552 $ 9,631
</TABLE>
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. 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 1996. 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
$7,300, 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 a certain foreign
government (see Note 6). 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 1996. The total net claim filed includes these
amounts, as discussed in Note 6. Such claims are subject to
arbitration and negotiation with the foreign government.
6. Contingencies:
Claims and Litigation:
A suit was commenced against the Company in March 1988 in
the Court of Common Pleas of Bucks County, Pennsylvania by
an employee of a customer for an unspecified amount alleging
negligence and strict products liability in the design,
manufacture, distribution, and servicing of a sterilizer
manufactured by the Company which resulted in an injury
sustained by the plaintiff in 1986. On June 20, 1995, the
parties entered into a settlement agreement and judgment by
consent. The agreement and judgment, in which the Company
expressly disclaims liability with respect to the underlying
claims of the plaintiffs in the action, and which expressly
declares that the rights of the Company's lenders under
existing credit agreements or extensions thereof are
superior to those of the plaintiffs, calls for the
plaintiffs to receive a total sum of no more than $1,200, in
the following manner: (1) funds previously deposited by the
Company's products liability carrier with the U.S. District
Court, together with accrued interest thereon, in a total
amount of slightly more than $550, have been released to
plaintiffs; (2) the Company paid approximately $50 on July
20, 1995; (3) the Company will pay an additional sum of
$100 by April 20, 1996; (4) beginning on July 31, 1996, and
each year thereafter, the Company will pay a total of $495
at the rate of $55 per year over nine years, unless in any
given year the Company cannot make such a payment because
(a) it is or, as a result of such payment, would be in
default of any of its obligations under its credit
agreements with its lenders, and (b) the lenders object to
such payment. In the event that plaintiffs consider any
such objection to payment to be unreasonable, they would
have the right to petition the Bucks County Court of Common
Pleas for a determination. A greater payment, up to a
maximum of $165, will be made in any year if and to the
extent the Company can do so without being in violation of
any of its obligations to its lenders under its credit
agreements. The Company's installment payment obligations
will be discharged when the Company has paid a total of
$495. No interest accrues on this judgment. At February
24, 1995, the Company recognized this obligation as a note
payable in the face amount of $648 (the $1,195 judgment less
the $547 escrowed funds), less a discount of $228 based on
an imputed interest rate of 11%. Under the payment terms of
the note payable, the Company does not anticipate that the
settlement will have a material adverse effect on the
Company's liquidity.
In fiscal 1991, the Company entered into a contract with a
subcontractor for the design and development of software to
operate and control a certain large aircrew training system
for the U.S. Government. The contract between the Company
and the subcontractor called for arbitration of all matters
pertaining to the contract which were in dispute between the
parties and could not be resolved. In August 1993, the
Company terminated the subcontractor for default by reason
of its refusal to deliver its software. The subcontractor
refused to deliver the software due to claims for cost
overruns under the contract. Hearings were conducted before
the American Arbitration Association (AAA) during the period
of January through April, 1995. In June 1995, the AAA
rendered a net award to the subcontractor in the amount of
$746. In August 1995, the Court entered judgment on the
award. In October 1995, a settlement agreement for the
payment of the judgment was reached between the Company and
the subcontractor in the following manner: (1) the Company
paid $100 in October 1995; (2) the Company paid $50 on
November 20, 1995, and will thereafter make monthly payments
in the amount of $50 on or before the 20th of each
succeeding month. These payments will be made on a monthly
basis until the entire amount of the judgment, including all
accrued interest, has been paid. Interest accrues at the
rate of 6% per year, beginning on June 6, 1995, on the
outstanding principal balance of the judgment. In the event
that the Company fails to make any payment, the
subcontractor may pursue whatever rights it may have to
collect the unpaid balance and accrued interest. Under the
payment terms of the settlement, the Company does not
anticipate a material adverse effect on the Company's
liquidity.
In October 1993, the Company was notified by the Royal Thai
Air Force (RTAF) that the RTAF was terminating a certain
$4,600 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 $1,100
of advance payment letters of credit (see Note 2). 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 $1,100 advance payment
letters of credit. The Company has commenced arbitration
with the RTAF. In the arbitration, the Company is 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, as well as to have the advance payment
and performance bond money returned to it. The Company is
also asserting entitlement to set off against the RTAF's
claims for liquidated damages the Company's costs incurred
on the bond and letters of credit called, as well as costs
incurred in connection with RTAF-directed changes in the
work and RTAF-caused delays and damage to the Company's
work. 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.
<PAGE>
ENVIRONMENTAL TECTONICS CORPORATION
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
November 24, 1995
Material Changes in Financial Condition
Working capital decreased for the nine months ended November 24,
1995, from approximately $9.0 million at February 24, 1995 to
approximately $2.6 million at November 24, 1995 primarily due to
the reclassifying of the Company's credit facility (expiring
February 28, 1996) from a long-term to a short-term liability on
its balance sheet. The change in working capital was also caused
by an increase in cash and cash equivalents restricted for
letters of credit; a $1.4 million net decrease in costs/billings
in excess primarily due to additional billings on a certain
international aircrew training systems contract during fiscal
1996; an increase in prepaid expenses due to the prepayment of
certain insurance premiums; a decrease in accounts payable; an
increase in customer deposits due to additional deposits received
on a certain international training and maintenance contract;
and a decrease in accrued liabilities due to payment of certain
sales and use taxes accrued and payments against the net
arbitration award (see Note 6).
The Company has a revolving credit agreement with two banks,
which provides financing of up to $8.2 million. The facility
expires by its terms on February 28, 1996. 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 24, 1995, there were outstanding letters of
credit of approximately $900,000 (of which approximately $700,000
were cash collateralized pursuant to a separate letter of credit
facility at November 24, 1995) and the Company had borrowed
approximately $8.1 million (inclusive of outstanding letters of
credit of approximately $900,000) under the credit facility. On
October 31, 1995, the credit facility was amended to defer
certain principal and interest payments from October 1995 to
November 30, 1995. The Company was in compliance with the terms
of this amendment on November 30, 1995. The Company currently
has no availability under the credit facility. Such borrowings
were used to cover the difference between cash received from the
Company's customers and the Company's cash expenses - primarily
payments to suppliers and employees, acquisition of equipment,
and software development. As and when the credit facility is
repaid from time to time, the Company expects to continue to use
this credit facility to support its working capital needs.
In July 1995, the Company negotiated an amendment to the credit
facility, pursuant to which the maturity date of the facility was
extended to February 28, 1996, certain financial covenants were
modified, and the parties agreed to reduce, in stages, the
availability under the credit facility to $7.5 million during the
term. The grant of the extension of the facility was based on
the Company's ability to meet its fiscal 1996 operating plan.
This plan includes continuing its rate of collections on
outstanding accounts receivable, continued implementation of
operating cost controls, successfully procuring new contract
awards and completing performance on contracts in its backlog.
Management believes it is probable that the Company will meet
these covenants and borrowing base requirements based on its
operating plan for fiscal 1996 and through the credit agreement
expiration date of February 28, 1996. If the Company fails to
meet its covenant requirements it will have to obtain additional
waivers from its lenders.
The Company's sales backlog at November 24, 1995 and February 24,
1995 for work to be performed and prospective revenue to be
recognized after that date under written agreements was
approximately $19,900,000 and $12,200,000, respectively. In
addition, the Company's backlog for training and maintenance
contracts at November 24, 1995 and February 24, 1995 for work to
be performed and prospective revenue to be recognized after that
date under written agreements was approximately $2,400,000 and
$3,500,000, respectively.
<PAGE>
Material Changes in Results of Operations
Net sales of approximately $4.1 million for the three months
ended November 24, 1995 increased in comparison to net sales of
approximately $3.2 million for the three months ended November
25, 1994. This is primarily a result of increased revenue
recognition in the aircrew training systems segment in fiscal
1996 compared to fiscal 1995, due to increased backlog in this
segment. There was no material change in net sales for the nine
months ended November 24, 1995 in comparison to net sales for the
nine months ended November 25, 1994.
Gross profit increased by approximately $1.2 million for the nine
months ended November 24, 1995, compared with the nine months
ended November 25, 1994, primarily due to an increase in aircrew
training system sales, which are generally sold at higher margins
than other Company products. Though gross profit increased for
the nine months ended November 24, 1995, compared with the nine
months ended November 25, 1994, there was no material change in
gross profit for the three months ended November 24, 1995 in
comparison to gross profit for the three months ended November
25, 1994. This is due to receipt of a contract modification of
approximately $400,000 in the third quarter of fiscal 1995 for
costs previously incurred on a certain sterilizer contract, for
which there was no corresponding gross profit recognized in the
third quarter of fiscal 1996.
Gross profit as a percentage of sales increased to 35% for the
nine months ended November 24, 1995, from 24% for the nine months
ended November 25, 1994 due to an increase in aircrew training
systems sales recognized in fiscal 1996, which generally are sold
at higher margins, as previously discussed. Gross profit as a
percentage of sales decreased to 31% for the three months ended
November 24, 1995, compared to 40% for the three months ended
November 25, 1994, due to the receipt of a sterilizer contract
modification, as previously discussed.
Operating expenses decreased due to the implementation of
stringent cost controls in fiscal 1995, the benefits of which did
not begin to be realized until fiscal 1996.
Interest expense increased primarily due to an increase in the
interest rate charged the Company on direct borrowings, partially
offset by decreased utilization of the credit facility.
The increase in gross profit from certain products in the aircrew
training systems segment combined with the decrease in operating
expenses resulted in net income for the three-month and nine-
month periods ended November 24, 1995. <PAGE>
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 10 - Fifth Amendment, dated as of
October 31, 1995, to Credit Agreement, dated as of
November 20, 1990, among Environmental Tectonics
Corporation, The Chase Manhattan Bank, N.A., and
Chemical Bank.
Exhibit 11 - Schedule of Computation
of Earnings per Share.
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 24, 1995.
<PAGE>
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/ William F. Mitchell
William F. Mitchell
President, Acting Chief Financial
Officer and Principal Accounting
Officer
Date: January 16, 1996
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
10 Fifth Amendment, dated as of October 31,
1995, to Credit Agreement, dated as of
November 20, 1990, among Environmental
Tectonics Corporation, The Chase
Manhattan Bank, N.A., and Chemical Bank.
11 Schedule of Computation of Earnings per
Share.
27 Financial Data Schedule.
EXHIBIT 10
FIFTH AMENDMENT
TO
CREDIT AGREEMENT
DATED AS OF NOVEMBER 20, 1990
FIFTH AMENDMENT dated as of October 31, 1995 (this
"Amendment") to the CREDIT AGREEMENT dated as of November 20,
1990, as amended from time to time (as so amended, the "Credit
Agreement") among ENVIRONMENTAL TECTONICS CORPORATION (the
"Borrower"), THE CHASE MANHATTAN BANK, N.A. ("Chase"), CHEMICAL
BANK, AS AGENT FOR CHEMICAL BANKING CORPORATION, SUCCESSOR IN
INTEREST TO CHEMICAL BANK NEW JERSEY, N.A. ("Chemical," and
together with Chase, the "Banks") and THE CHASE MANHATTAN BANK,
N.A., as Agent for the Banks (the "Agent").
WHEREAS, an Event of Default exists under the Credit
Agreement as a result of the Borrower's failure to make (a) the
payment of principal in the amount of $100,000.00 which was due
on the last business day of October, 1995 and (b) the payment of
interest due on the first day of November, 1995 pursuant to
Section 2.11 of the Credit Agreement;
WHEREAS, the Borrower has requested that the Agent and the
Banks agree to forebear from exercising their rights and remedies
under the Credit Agreement and the other Facility Documents as a
result of such Event of Default until November 30, 1995;
WHEREAS, the Borrower has also requested that the Banks
increase the Commitment by a total amount of $150,000, to enable
the Borrower to fund its immediate payroll needs and trade
obligations incurred in the ordinary course of business;
WHEREAS, the Agent and the Banks are prepared to agree to
forebear from exercising their rights and remedies under the
Credit Agreement and the other Facility Documents as a result of
such Event of Default, subject to the terms and conditions of
this Agreement;
WHEREAS, the Banks are prepared to increase the Commitments,
subject to the terms and conditions of this Agreement;
NOW, THEREFORE, in consideration of the premises, and for
other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Agent, the
Banks and the Borrower hereby agrees as follows:
Section 1. Definitions. Except as otherwise provided
herein, the capitalized terms used in this Amendment shall have
the respective meanings assigned to such terms in the Credit
Agreement.
Section 2. Amendments. The Credit Agreement is hereby
amended as follows:
A. Section 2.01(e) of the Credit Agreement is
hereby amended by adding the following to the current
end of such Section:
"Notwithstanding anything to the contrary,
the Commitment shall be increased as of the
last business day of October, 1995 in the
amount of $150,000.00, and shall be reduced
on the last business day of November, 1995 in
the amount of $250,000.00. Thereafter, the
Commitment shall be reduced in the amounts
and on the dates set forth in this Section
2.08(e)."
B. Section 2.05 of the Credit Agreement is hereby
amended by amending the first parenthetical contained
therein, as follows: "(including, without limitation,
Sections 2.05 and 2.06 hereof)."
C. Section 2.05 of the Credit Agreement is hereby
amended by inserting the following sentence at the end
thereof:
"Notwithstanding anything to the contrary,
including the provisions of this
Section 2.05, the Borrower shall be permitted
to borrow up to the Commitment during the
period from the date hereof until November 3,
1995, solely for the purpose of funding its
payroll needs and trade debt incurred in the
ordinary course of its business."
D. Section 2.06 of the Credit Agreement is hereby
amended by inserting the following additional paragraph (d)
thereto:
"(d) Notwithstanding anything to the
contrary, the Borrower shall prepay the Loans
in the amount of $250,000.00 on or before
November 30, 1995, and the Commitment shall
be automatically and irrevocably reduced by
such amount on such date. Any amount prepaid
Pursuant to this Section 2.06(d) shall not be
reborrowed by the Borrower."
E. Section 2.08(a) of the Credit Agreement is hereby
amended by inserting the following sentence at the immediate
beginning of the first sentence thereof: "Subject to the
provisions of Section 2.06(d),".
Section 3. Forbearance, Etc.
(a) The Agent and the Banks hereby agree to forebear
from exercising their rights and remedies under the Credit
Agreement and the other Facility Documents as a result of the
Event of Default that exists as a result of the Borrower's
failure to make the payment of the Borrower's failure to make the
payment of principal in the amount of $100,000.00 which was due
on the last business day of October, 1995 and the Borrower's
failure to make the payment of interest due on the first day of
November, 1995 pursuant to Section 2.11 of the Credit Agreement,
subject to the following:
(i) On or before November 30, 1995, the Borrower shall
remit to the Agent, for the benefit of the Banks, the amount
of principal which was due on the last business day of
October, 1995 (as well as the payment of additional
principal which is due on the last business day of November,
1995 pursuant to Section 2.08(e)) and of interest payment
that was due on the first day of November, 1995, plus
interest on such amount from the due date until such payment
is made at the Default Rate; and
(ii) No other Event of Default shall have occurred
after the date hereof.
In the event that any other Event of Default shall occur
after the date hereof or the Bank shall fail to make the
payment required by clause (ii) above, then the Agent's and
the Banks' forbearance shall automatically terminate on the
date of such occurrence and/or failure, and the Agent and
the Banks shall be immediately be permitted to exercise all
of their rights and remedies under the Credit Agreement and
the Facility Documents.
(b) Except as expressly provided in Section 3(a), the
Loans shall continue to bear interest at the non-Default Rate.
(c) Notwithstanding anything to the contrary, the
forbearance contained herein is applicable to the Event of
Default specifically referenced herein and shall be effective
only in the specific instance, and for the specific provisions
and period for which given. Except as specifically provided
herein, nothing contained herein shall constitute a waiver or
modification of any the Agent's and the Banks' rights and
remedies under the Credit Agreement and the other Facility
Documents, which rights and remedies the Agent and the Banks
expressly reserve. No failure on the part of the Agent or any
Bank to exercise, and no delay in exercising, any rights under
the Facility Documents shall operate as a waiver thereof or
preclude any other or further exercise thereof or the exercise of
any other power or right.
Section 4. Borrower Representations. The Borrower
represents and warrants that (i) the execution and delivery of
this Amendment by the Borrower and the representations,
warranties and undertakings by Borrower now contemplated hereby:
(a) are within the corporate powers of the Borrower and have been
duly authorized by all necessary corporate action, (b) have been
discussed by the Borrower with the Borrower's own independent
counsel regarding the meaning and legal significance of this
Amendment and the provisions hereof, and (c) are valid and
legally binding obligations of the Borrower and are enforceable
in accordance with the respective terms thereof, except as may be
limited by general principles of equity and by bankruptcy,
insolvency, reorganization, moratorium, or similar law relating
to or affecting generally the enforcement of creditors' rights;
(ii) the representations and warranties contained in Article 5 of
the Credit Agreement and Article 2 of the Security Agreement are
true and correct on the date hereof, Borrower understanding and
acknowledging hereby that such representations and warranties are
being relied upon by each of the Agent and the Banks in entering
into this Fifth Amendment; and (iii) except as expressly provided
in this Amendment and as set forth in Borrower's transmittal of
its borrowing base material as of the end of August 1995, no
other Default or Event of Default exists as of the date hereof.
Section 5. Miscellaneous.
(a) Except as specifically provided in this Amendment,
all other terms and provisions of the Credit Agreement shall
remain unchanged and continue in full force and affect.
(b) This Amendment shall be governed by, and construed
in accordance with, the laws of the State of New York.
(c) This Amendment may be executed in one or more
counterparts and shall become effective when counterparts hereof
have been executed by each Bank and the Agent.
(d) The Borrower agrees to reimburse the Agent and
each Bank on demand for all reasonable costs, expenses, and
charges (including, without limitation, reasonable fees and
charges of external legal counsel for the Agent and the Banks and
costs and charges allocated by its internal legal department)
incurred by the Agent and each Bank in connection with the
preparation, performance or enforcement of this Amendment and the
Credit Agreement and the other Facility Documents as amended
hereby.
IN WITNESS WHEREOF, each of the Agent, the Banks and the
Borrower have executed this Amendment by their duly authorized
officers as of the date first above written.
THE CHASE MANHATTAN BANK, N.A., as
Agent and a Bank
By/s/ Charles L. Davis
Name: Charles L. Davis
Title: Vice President
CHEMICAL BANK, AS AGENT FOR
CHEMICAL BANKING CORPORATION,
SUCCESSOR IN INTEREST TO CHEMICAL
BANK NEW JERSEY, N.A.
By/s/ Agnes Levy
Name: Agnes Levy
Title: Vice President
ENVIRONMENTAL TECTONICS CORPORATION
By/s/ William F. Mitchell
Name: William F. Mitchell
Title: President
EXHIBIT 11
Statement re Computation of Per Share Earnings (Loss)
<TABLE>
<CAPTION>
9 Months Ended
(000's, except per share data, Unaudited)
November 24, 1995 November 25, 1994
<S> <C> <C>
Income (loss) for primary & fully
diluted earnings per share $ 222 $ (734)
Equivalent shares for primary
computation:
Weighted average shares outstanding 2,922 2,874
Common stock equivalents (shares issuable
for employee stock purchase plan and
upon exercise of stock options and
stock warrants outstanding) based on
average market price 8 0
Total equivalent shares for
primary and fully diluted
computation 2,930 2,874
Per share amounts:
Primary:
Net income (loss) $ .08 $ (.26)
Fully diluted:
Net income (loss) $ .08 $ (.26)
<CAPTION>
<PAGE>
Statement re Computation of Per Share Earnings (Loss)
3 Months Ended
(000's, except per share data, Unaudited)
November 24, 1995 November 25, 1994
<S> <C> <C>
Income (loss) for primary & fully
diluted earnings per share $ 107 $ 62
Equivalent shares for primary
computation:
Weighted average shares outstanding 2,922 2,874
Common stock equivalents (shares issuable
for employee stock purchase plan and
upon exercise of stock options and
stock warrants outstanding) based on
average market price 8 23
Total equivalent shares for
primary and fully diluted
computation 2,930 2,897
Per share amounts:
Primary:
Net income (loss) $ .04 $ .02
Fully diluted:
Net income (loss) $ .04 $ .02
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-23-1996
<PERIOD-END> NOV-24-1995
<CASH> 930,000
<SECURITIES> 0
<RECEIVABLES> 9,647,000
<ALLOWANCES> 95,000
<INVENTORY> 3,443,000
<CURRENT-ASSETS> 17,981,000
<PP&E> 8,047,000
<DEPRECIATION> 5,648,000
<TOTAL-ASSETS> 21,939,000
<CURRENT-LIABILITIES> 7,144,000
<BONDS> 8,511,000
0
0
<COMMON> 293,000
<OTHER-SE> 5,739,000
<TOTAL-LIABILITY-AND-EQUITY> 21,939,000
<SALES> 11,358,000
<TOTAL-REVENUES> 11,358,000
<CGS> 7,411,000
<TOTAL-COSTS> 7,411,000
<OTHER-EXPENSES> 2,930,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 674,000
<INCOME-PRETAX> 343,000
<INCOME-TAX> 121,000
<INCOME-CONTINUING> 222,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 222,000
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
</TABLE>
