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
<PAGE>
PART I - Financial Information
Item 1. Financial Statements:
<TABLE>
<CAPTION>
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
<S> <C> <C>
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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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
<S> <C> <C>
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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ENVIRONMENTAL TECTONICS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($000's, Unaudited)
ASSETS November 29, 1996 February 23, 1996
<S> <C> <C>
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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ENVIRONMENTAL TECTONICS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($000's, Unaudited)
LIABILITIES November 29, 1996 February 23, 1996
<S> <C> <C>
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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ENVIRONMENTAL TECTONICS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
9 Months Ended
($000's, Unaudited)
November 29, 1996 November 24, 1995
<S> <C> <C>
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.
</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 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:
<TABLE>
<CAPTION>
November 29, 1996 February 23, 1996
<S> <C> <C>
Raw Materials $ 784 $ 696
Work in Process 3,213 2,915
Finished Goods - -
$ 3,997 $ 3,611
========= ==========
</TABLE>
5. The components of accounts receivable are as follows:
<TABLE>
<CAPTION>
November 29, 1996 February 23, 1996*
<S> <C> <C>
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
========= =========
</TABLE>
* 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.
<PAGE>
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.
<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 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.
<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/ Duane Deaner
Duane Deaner,
Chief Financial Officer (authorized
officer and principal financial
officer)
Date: January 13, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-END> NOV-29-1996
<CASH> 602,000
<SECURITIES> 0
<RECEIVABLES> 10,368,000
<ALLOWANCES> 124,000
<INVENTORY> 3,997,000
<CURRENT-ASSETS> 18,053,000
<PP&E> 8,417,000
<DEPRECIATION> 6,015,000
<TOTAL-ASSETS> 21,988,000
<CURRENT-LIABILITIES> 7,309,000
<BONDS> 7,418,000
0
0
<COMMON> 294,000
<OTHER-SE> 6,597,000
<TOTAL-LIABILITY-AND-EQUITY> 21,988,000
<SALES> 14,974,000
<TOTAL-REVENUES> 14,974,000
<CGS> 10,223,000
<TOTAL-COSTS> 10,223,000
<OTHER-EXPENSES> 3,028,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 666,000
<INCOME-PRETAX> 851,000
<INCOME-TAX> 272,000
<INCOME-CONTINUING> 579,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 579,000
<EPS-PRIMARY> .19
<EPS-DILUTED> .19
</TABLE>
