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SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D.C. 20459
FORM 10-QSB
[X] Quarterly report pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 1996
[ ] Transition report pursuant to Section 13 of 15 (d) of the
Securities Exchange Act of 1934
For the transition period from to
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Commission File No. 0-15241
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NYTEST ENVIRONMENTAL INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 11-2725582
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(State of other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification Number)
60 Seaview Boulevard, Port Washington, New York 11050
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(Address of principal executive offices) (Zip Code)
(516) 625-5500
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(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 of 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
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As of March 31, 1996, the Issuer had 6,705,230 shares outstanding of its $ .01
par value common stock.
Page 1 of 13 pages.
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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NYTEST ENVIRONMENTAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
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ASSETS (Unaudited) (Audited)
<S> <C> <C>
Current Assets:
Cash $ 59,582 $ 426,631
Accounts receivable, less allowance for doubtful
accounts of $115,474 - 1996 and $52,941 - 1995 4,182,624 2,249,044
Inventories - Laboratory supplies, at cost 62,895 63,468
Prepaid expenses and other current assets 514,616 420,746
Deferred taxes 22,000 22,000
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Total Current Assets 4,841,717 3,181,889
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Fixed Assets:
Plant and Equipment, at cost 8,478,975 8,413,002
Less: Accumulated depreciation 4,083,254 3,135,405
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Net Fixed Assets 4,395,721 5,277,597
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Other assets 521,189 314,837
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Total Assets $ 9,758,627 $8,774,323
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<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities:
Loans Payable $ 2,148,844 $1,704,000
Notes payable - current maturity 32,933 38,824
Obligations under capital leases - current maturity 159,628 231,039
Accounts payable 2,218,127 1,290,890
Accrued liabilities 1,249,306 766,741
Accrued estimated laboratory closing costs (note 5) 296,257 0
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Total Current Liabilities 6,105,095 4,031,494
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Long Term Liabilities:
Loans Payable 1,410,754 0
Notes payable 17,808 32,521
Obligations under capital lease 140,683 200,228
Subordinated convertible debt 1,095,000 1,095,000
Deferred income taxes payable 45,000 45,000
Accrued estimated laboratory closing costs (note 5) 503,743 0
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Total Long Term Liabilities 3,212,988 1,372,749
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Total Liabilities 9,318,083 5,404,243
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STOCKHOLDERS' EQUITY
Common stock $.01 par; authorized 10,000,000 shares,
issued and outstanding 6,705,230 shares 67,052 67,052
Additional paid-in capital 3,068,255 3,068,255
Retained earnings (2,694,763) 234,773
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Total Stockholders' Equity 440,544 3,370,080
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Total Liabilities and Stockholders' Equity $ 9,758,627 $8,774,323
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</TABLE>
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NYTEST ENVIRONMENTAL INC. AND SUBSIDIARIES
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Six Months Ended
June 30
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1996 1995
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(Unaudited) (Unaudited)
<S> <C> <C>
Revenues $ 8,027,931 $3,098,548
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Cost and expenses:
Cost of operations 7,504,298 2,156,405
Selling, general and administrative expenses 2,470,610 813,880
Estimated Laboratory Closing Costs (note 5) 800,000 0
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Total costs and expenses 10,774,908 2,970,285
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Operating (loss) income (2,746,977) 128,263
Interest expense 182,559 63,647
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(Loss) income before taxes (2,929,536) 64,616
Income tax provision (note 6) 0 20,500
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Net (loss) income (2,929,536) 44,116
Retained Earnings-January 1 234,773 567,139
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Retained Earnings-June 30 $(2,694,763) $ 611,255
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(Loss) earnings per share: $ (0.44) $ 0.01
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Average number of shares outstanding 6,705,230 6,705,230
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</TABLE>
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NYTEST ENVIRONMENTAL INC. AND SUBSIDIARIES
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Three Months Ended
June 30
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1996 1995
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(Unaudited) (Unaudited)
<S> <C> <C>
Revenues $ 4,469,301 $1,493,811
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Cost and expenses:
Cost of operations 3,698,685 1,043,498
Selling, general and administrative expenses 1,256,846 389,460
Estimated Laboratory Closing Costs (note 5) 800,000 0
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Total costs and expenses 5,755,531 1,432,958
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Operating (loss) income (1,286,230) 60,853
Interest expense 92,947 32,432
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(Loss) income before taxes (1,379,177) 28,421
Income tax provision (note 6) 0 9,000
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Net (loss) income (1,379,177) 19,421
Retained Earnings-March 31 (1,315,586) 591,834
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Retained Earnings-June 30 $(2,694,763) $ 611,255
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(Loss) earnings per share : $ (0.21) $ 0.00
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Average number of shares outstanding 6,705,230 6,705,230
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</TABLE>
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<PAGE> 6
NYTEST ENVIRONMENTAL INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Six Months Ended
June 30
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1996 1995
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(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $(2,929,536) $ 44,116
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Adjustments to reconcile net (loss)income to
net cash provided (used) by operating activities:
Depreciation and amortization 947,849 235,981
Deferred income taxes 0 (4,000)
Net changes in assets and liabilities:
Accounts receivable - net (1,933,580) 288,609
Laboratory supplies 573 (4,778)
Prepaid expenses and other current assets (93,870) (75,206)
Other assets (206,352) (13,966)
Accounts payable 927,237 108,667
Accrued liablilities 482,565 58,092
Accrued estimated laboratory closing costs 800,000 0
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Total adjustments 924,422 593,399
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Net cash (used) provided by operating activities (2,005,114) 637,515
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Cash flows (used) for investing activities:
Acquisition of equipment (65,973) (27,253)
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Cash flows provided (used) by financing activities:
Proceeds of bank borrowings 6,862,704 0
Repayments of bank borrowings (5,007,106) (200,000)
Repayments of notes payable (20,604) (25,311)
Repayments of capitalized lease obligations (130,956) (19,641)
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Net cash provided (used) by financing activities 1,704,038 (244,952)
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Net (decrease) increase in cash (367,049) 365,310
Cash at beginning of period 426,631 561,323
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Cash at end of period $ 59,582 $ 926,633
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Supplemental Disclosure of Cash Flow Information:
Interest payments $ 139,261 $ 51,647
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Supplemental Disclosure of Non-Cash Financing Activities:
Assets acquired under capital leases $ 0 $ 163,000
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</TABLE>
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NYTEST ENVIRONMENTAL INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1995 (UNAUDITED)
AND DECEMBER 31, 1995 (AUDITED)
NOTE 1. COMPANY'S OPINION ON UNAUDITED FINANCIAL STATEMENTS
In the opinion of the Company, the accompanying unaudited financial statements
contain all ordinary and necessary adjustments to present fairly the balance
sheet as of June 30, 1996, and the related statements of operations and cash
flows for each of the six month periods ended June 30, 1996 and June 30, 1995,
and the related statements of operations for each of the three month periods
ended June 30, 1996 and June 30, 1995. The balance sheet as of December 31,
1995, is audited.
The statements of operations for the periods ended June 30, 1996 and June 30,
1995 are not necessarily indicative of the results for the entire year.
NOTE 2. BASIS OF PRESENTATION
The accompanying consolidated financial statements at June 30, 1996, include the
effects of the Company's wholly owned subsidiaries, NEI of Pennsylvania, Inc.
and NEI/GTEL Environmental Laboratories, Inc., since August 5, 1995 and December
31, 1995, respectively. The statement of operations for the three and six month
periods ended June 30, 1995, does not reflect the results of operations of these
acquisitions discussed in Note 3 below, as they were acquired subsequent to June
30, 1995.
NOTE 3. ACQUISITIONS
On July 17, 1995, the Company organized NEI of Pennsylvania, Inc., a Delaware
corporation ("NEIPA"), as a wholly owned subsidiary to acquire and operate a
testing laboratory in Norristown, Pennsylvania. Effective August 5, 1995, NEIPA
acquired from BCM Engineers, Inc., a wholly owned subsidiary of Smith
Environmental Technologies Corporation ("Smith"), certain assets comprising an
environmental testing laboratory in Norristown, Pennsylvania. The Company is
planning to cease the operations in Norristown, Pennsylvania on September 1,
1996 (Note 5).
Effective December 31, 1995, the Company organized NEI/GTEL Environmental
Laboratories, Inc., a Delaware corporation ("NEI/GTEL"), as a wholly owned
subsidiary of the Company, to acquire the business and substantially all of the
assets of GTEL Environmental Laboratories, Inc. ("GTEL"), a subsidiary of
Groundwater Technologies, Inc. In exchange for the assets acquired plus closing
costs, NEI/GTEL paid $ 3,200,000 in a combination of cash, assumption of
liabilities and the issuance of a secured convertible note in the amount of
$1,095,000. NEI/GTEL, as part of the transaction, hired all of the active
employees of GTEL. NEI/GTEL also entered into a long term lease for the use of
the GTEL Wichita, Kansas facility and assignment and assumption agreements for
the leases of GTEL facilities in Tampa, Florida and Milford, New Hampshire.
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<PAGE> 8
NYTEST ENVIRONMENTAL INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1995 (UNAUDITED)
AND DECEMBER 31, 1995 (AUDITED)
NOTE 4. LINE OF CREDIT
On April 23, 1996, the Company executed a loan and security agreement with a
finance company, which replaced the Company's July 1995, $ 2,000,000 line of
credit agreement with a different financial institution. The new agreement is
for a three year term with $ 7,000,000 maximum borrowing which includes a
$2,606,000 sublimit for equipment financing. Additional advances under agreement
are limited to no more than 80 % of eligible accounts receivable, as defined.
The initial advance for equipment was $ 1,840,120. The agreement provides for an
additional $ 766,000 for equipment purchases during the term of the agreement.
All advances for equipment are being amortized in sixty consecutive monthly
installments until the expiration of the agreement when all unpaid amounts will
become payable.
Interest is payable at 1 3/4 % to 2 % above the prime rate. If the agreement is
canceled by the Company, it will be required to pay a termination fee of 3% of
the line during the first year, and 2 % thereafter. The advances are
collateralized by substantially all the assets of the Company.
NOTE 5. CLOSING OF NORRISTOWN, PENNSYLVANIA LABORATORY
During June 1996, the Company began formulating plans on the closing of its
laboratory in Norristown, Pennsylvania. On August 6, 1996, the Company's Board
of Directors approved the closing, and it was decided that the Norristown,
Pennsylvania laboratory would cease operations on September 1, 1996. This
decision was predicated on the continued losses sustained at that laboratory due
to the substantial slowdown in revenue and testing requirements from the
facilities principal customer, Smith Environmental Technologies Corporation, and
the continued infusion of management's time and resources.
As a result of this decision, the June 30, 1996 financial statements reflects an
accrual for estimated laboratory closing costs totaling $ 800,000. These
estimated closing costs are comprised primarily of rent and related occupancy
costs to the end of the lease obligation dated February, 2000.
NOTE 6. INCOME TAXES
The Company does not have any net operating loss carryback for income tax
purposes. As a result of its loss incurred during the six months ended June 30,
1996, the Company has net operating loss carryforwards for income tax purposes
which will be used to reduce future taxable income. The benefits of the net
operating loss carryforwards have not been recognized as the Company has
recorded a valuation on allowance equal to such benefit.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Consolidated revenues for the six months ended June 30, 1996 totaled $ 8,027,931
which were $ 4,929,383 higher than the $ 3,098,548 for the corresponding period
last year. The Company's newly acquired subsidiaries accounted for $ 5,830,377
of this increase which was partially reduced by lower revenues from the
Company's existing operations. During the three months ended June 30, 1996, the
Company's revenue totaled $ 4,469,301, of which the Company's newly acquired
subsidiaries accounted for $ 2,993,982, while the revenues of the existing
operations approximated prior year levels. Overall, the current market
conditions are still being characterized as having excess capacity and very
aggressive price competition. Management believes that the Company processed
more sample volumes at its facilities during the 1996 periods than during the
comparable periods last year, although the results were lower revenue.
Consolidated revenues for the three months ended June 30, 1996, increased by
$910,671, or 26%, from the three months ended March 31, 1996. The newly acquired
subsidiaries accounted for $ 157,587 of this increase, while the Company's
existing operations increased by $ 753,084. This revenue increase of the
Company's existing operations was primarily due to the resolution of the federal
budget impasse and related U.S. government shutdowns. The Company's backlog of
orders to be processed at July 31, 1996 was $ 1,051,000, an increase of $
538,000 as compared to July 31, 1995. The Company has entered into contracts to
provide, upon request of several clients, laboratory services having a
potential value of up to $ 6,500,000 at fixed prices which are to be completed
during 1996. The actual dollar amount of laboratory services to be performed
pursuant to these contracts cannot be accurately predicted at the present time,
and accordingly, has not been included in the backlog computation.
Cost of operations for the six months ended June 30, 1996 totaled $ 7,504,298 or
93 % of revenues. This was an increase in cost of operations of $ 5,347,893 from
the comparable period last year, of which the newly acquired subsidiaries
accounted for $ 5,425,337. The Company's cost of operations for operations which
existed in June, 1995, was $ 77,444 lower than the comparable period last year,
but was 95% of revenues as compared to 70% of revenues for the comparable period
last year, principally as a result of lower revenues. Management has
implemented plans to reduce its costs of operations, however the increase in
the costs as a percentage of revenues was due to limited ability to adequately
reduce costs for personnel required to perform analytical tests while
maintaining and retaining necessary federal and state certifications for its
services. However, the Company will close it's Norristown, Pennsylvania
laboratory which will substantially reduce it's ongoing losses, particularly if
it can dispose of the facility located in Norristown, Pennsylvania. For the
three months ended June 30, 1996 cost of operations totaled $ 3,698,685 or 83%
of revenues. This was an increase of $2,655,187, of which the newly acquired
subsidiaries accounted for $ 2,659,597. The Company's cost of operations for
the three months ended June 30, 1996, for operations which existed in June,
1995, totaled $ 1,039,088, or 70% of revenues, as compared to 143% of revenues
for the period ended March 31, 1996. This favorable variance in the three month
period was due to the continued efforts of management to reduce labor and
convert fixed expenses to variable.
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<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (CONTINUED)
Consolidated selling, general and administrative expenses for the six months
ended June 30, 1996, totaled $ 2,470,610, which was $ 1,656,730 higher than the
comparable period last year. The Company's newly acquired subsidiaries accounted
for $ 1,394,291 of this increase. Consolidated selling, general and
administrative expenses for the three months ended June 30, 1996, totaled
$1,256,846, which was $ 867,386 higher than the comparable period last year. The
Company's newly acquired subsidiaries accounted for $ 710,987 of this increase.
The increase in selling, general and administrative expenses of $ 262,439 for
the six month period ended June 30, 1996, and $ 156,399 for the three month
period ended June 30, 1996, for the Company's existing operations was primarily
due to higher bad debt expense coupled with administrative expenses incurred as
a result of the newly acquired NEI/GTEL subsidiaries.
The consolidated pre-tax loss for the six months ended June 30, 1996 totaled
$2,929,536, of which $ 800,000 represents the estimated laboratory closing costs
accrual. The newly acquired subsidiaries incurred a loss of $ 1,800,087, of
which $ 800,000 represents the estimated laboratory closing costs accrual. The
Company's existing operations incurred a loss of $ 1,129,449. The consolidated
pre-tax loss for the three months ended June 30, 1996, was $ 1,407,598 lower
than the pre-tax profit of $ 28,421 for the comparable period last year. The
newly acquired subsidiaries accounted for $ 987,635 of this variance, of which
$800,000 represents the estimated laboratory closing costs accrual, while the
Company's existing operations accounted for $ 419,963.
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES
The Company's operations for the six months ended June 30, 1996 used net cash of
$ 2,005,114 as compared to net cash provided by operations of $ 637,515 in the
corresponding period one year ago. The increase in cash used of $ 2,642,629 was
primarily due to the net loss incurred during the six months ended June 30,
1996, and the substantial increase in accounts receivable, partially offset by
the increase in accounts payable. The increase in accounts receivable resulted
principally from the NEI/GTEL operations.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES
The net cash provided by financing activities of $ 1,704,038 was $ 1,948,990
higher during the six months ended June 30, 1996 than during the comparable
period in 1995. This increase in financing resulted from increased bank
borrowings principally related to the NEI/GTEL acquisition.
As a result of the financing agreement signed on April 23, 1996 with a finance
company, the Company has the capacity to borrow approximately $ 3,800,000 as of
August 13, 1996. As of August 13, 1996, the Company has borrowed approximately
$3,550,000. The Company believes its financing agreement will be sufficient to
satisfy its cash requirements; however, the Company will also review additional
potential external sources of financing.
MATERIAL COMMITMENTS
The Company had no material commitments for capital expenditures.
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<PAGE> 12
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
No change from the previous filing.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
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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.
NYTEST ENVIRONMENTAL INC.
By: /s/ John Gaspari
-------------------------------------
John Gaspari
President and Chief Executive Officer
By: /s/ Elliot J. Laitman
-------------------------------------
Elliot J. Laitman
Chief Financial Officer and Treasurer
Dated: August 14, 1996
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet and Consolidated Statement of Operations filed as
part of the quarterly report on Form 10-QSB and is qualified in its entirety by
reference to such quarterly report on Form 10-QSB.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 60
<SECURITIES> 0
<RECEIVABLES> 4,298
<ALLOWANCES> (115)
<INVENTORY> 63
<CURRENT-ASSETS> 4,842
<PP&E> 8,479
<DEPRECIATION> 4,083
<TOTAL-ASSETS> 9,759
<CURRENT-LIABILITIES> 6,105
<BONDS> 0
0
0
<COMMON> 67
<OTHER-SE> 373
<TOTAL-LIABILITY-AND-EQUITY> 9,759
<SALES> 8,028
<TOTAL-REVENUES> 8,028
<CGS> 7,504
<TOTAL-COSTS> 7,504
<OTHER-EXPENSES> 3,271
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 183
<INCOME-PRETAX> (2,930)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,930)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,930)
<EPS-PRIMARY> (0.44)
<EPS-DILUTED> (0.44)
</TABLE>
