UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 1996
Commission file Number 1-10310
SETECH, INC.
(Exact name of registrant as specified in its charter.)
Delaware 11-2809189
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
905 Industrial Drive, Murfreesboro, Tennessee 37129
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(615) 890-1700
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 the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practical
date:
Common Stock, $.01 Par Value - 5,202,991 shares as of
September 30, 1996.
Indicate Transitional Small Business Disclosure Format
YES [ ] NO [X]
<PAGE>
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements.
SETECH, Inc. and Subsidiaries:
Consolidated Balance Sheets as of September 30, 1996
and June 30, 1996
Consolidated Statements of Income for the Three Months
Ended September 30, 1996 and 1995
Consolidated Statements of Stockholders' Equity for
the Three Months Ended September 30, 1996
Consolidated Statements of Cash Flows for the Three
Months Ended September 30, 1996 and 1995
Notes to Consolidated Financial Statements
<PAGE>
<TABLE>
SETECH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
September 30, June 30,
1996 1996
(Unaudited)
__________________ _________________
<S> <C> <C>
ASSETS
Currents Assets
Cash and Cash Equivalents $ 2,066,528 $ 1,704,654
Accounts Receivable 6,056,353 6,063,128
Inventory 9,341,814 9,523,621
Prepaid expenses 24,857 40,158
Stock subscriptions receivable 661,500
And Other Current Assets 33,241 37,266
Deferred Tax 500,000 306,000
Benefit _____________ ____________
Total Current Assets 18,022,793 18,336,327
Property and Equipment,net 1,082,084 1,128,007
Cost in Excess of net 1,958,270 2,024,628
Assets Acquired, net of
Accumulated Amortization
of $1,186,431 and $1,120,073
Respectively, and Allowance
for Future Realization of
$240,000
Deferred Income Tax Benefit 321,894 629,680
Other Assets 23,143 24,372
____________ ___________
Total Assets 21,408,184 22,143,014
</TABLE>
<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
<S> <C> <C>
Current Liabilities
Current Portion of Long-term $ 623,922 $ 625,132
Debt
Notes Payable-Bank 7,286,580 7,969,044
Accounts Payable 3,423,254 3,453,987
Accrued Expenses 1,978,694 2,163,707
____________ ____________
Total Current Liabilities $13,312,450 $14,211,870
Long Term Debt 1,223,305 1,331,906
Stockholders Equity
Common Stock, $.01 par 54,139 54,139
Value, 400,000,000 Shares
Authorized, 5,413,901
Issued
Additional Paid-in 11,527,038 11,512,038
Capital
Accumulated Deficit (4,443,891) (4,612,082)
Less 210,910 treasury shares 264,857 354,857
_____________ ____________
Total Stockholders Equity $ 6,872,429 $ 6,599,238
TOTAL LIABILITIES AND $21,408,184 $22,143,014
STOCKHOLDERS EQUITY
<FN>
The Accompanying Notes to Condensed Consolidated Financial
Statements are an integral part of these statements
</TABLE>
<PAGE>
<TABLE>
SETECH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
For the three months ended
September 30 September 30
1996 1995
------------ ------------
<S> <C> <C>
REVENUES $6,533,685 $5,280,117
COST OF SALES
Industrial Support Group 2,786,225 2,740,878
Government Services Group 2,496,337 1,550,387
---------- ---------
Gross Profit 1,251,123 988,852
Selling, General & Administrative 752,204 683,430
Expenses __________ _________
Operating Income 498,919 305,422
OTHER INCOME (EXPENSE)
Interest Income 19,414 34,986
Interest Expense (209,016) (143,632)
__________ __________
Total Other (189,602) (108,646)
__________ __________
Net Income (Loss) 309,317 196,776
before Income Taxes
Income Tax (Benefit) Provision:
Current 27,340 (130,880)
Deferred 113,786 (43,189)
__________ _________
Total Income Tax Benefits 141,126 (174,069)
Net Income (Loss) $168,191 $370,845
__________ __________
__________ __________
INCOME (LOSS) PER COMMON SHARE:
Primary 0.0324 0.0034
Fully Diluted 0.0282 0.0031
</TABLE>
[FN]
The Accompanying Notes to Condensed Consolidated Financial
Statements are an Integral Part of these Statements.
<PAGE>
<TABLE>
SETECH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES
IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996.
(UNAUDITED)
<CAPTION>
Common Stock
Treasury $.01 Par
Stock Value Additional Accumulated
_________ _________ Paid-in (Deficit)
Shares Amount Shares Amount Capital
_______ ___________ ___________ ____________ __________ __________
<S> <C> <C> <C> <C> <C> <C>
Balances 285,910 $354,857 5,413,901 $54,139 $11,512,038 ($4,612,082)
June 30,
1996
Reissuance
of shares (75,000) ($90,000) 15,000
Net Income
for the
3 Months
Ended
September $168,191
30,1996 _________ ________ ____________ _______ ____________ _____________
Balances at210,910 $264,857 5,413,901 $54,139 $11,527,038 ($4,443,891)
September
30,1996
<FN>
The Accompanying Notes to Condensed Consolidated Financial
Statements are an Integral Part of these Statements.
</TABLE>
<PAGE>
<TABLE>
SETECH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
For the three months ended
September 30 September 30
1996 1995
________ ________
<S> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Income (Loss) $168,191 $370,845
Adjustments to
reconcile net income
to net cash used in
continuing operations:
Depreciation and 136,607 147,060
amortization
Gain on sale of (4,028)
fixed assets
Changes in operating assets
and liabilities:
(Increase) decrease in 6,775 (627,480)
accounts receivable
(Increase) decrease in 863,862 644,837
other assets
(Increase) decrease in 113,786 (43,189)
deferred tax benefit
(Decrease) increase in 0 0
accrued income taxes
(Decrease) increase in (30,733) 374,938
accounts payable
(Decrease) increase in (185,013) (517,516)
accrued expense __________ _________
Net cash provided (used) in 1,073,475 345,467
operations
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of equipment (24,326) (253,496)
Proceeds from sale of 4,028
fixed assets __________ _________
Net cash used in investing (24,326) (249,468)
activities
CASH FLOWS FROM FINANCING
ACTIVITES:
Payments on short-term (682,464) (340,664)
debt
Payments on long-term (109,811) (82,112)
debt
Proceeds from long-term 200,000
debt
Proceeds from issuance of
stock 105,000
__________ _________
Net cash provided by (687,275) (222,776)
financing activities
Increase (Decrease) in cash 361,874 (126,777)
and cash equivalents
Cash and cash equivalents 1,704,654 1,951,004
at beginning of period ___________ ___________
Cash and cash equivalents $2,066,528 $1,824,227
at end of period
</TABLE>
[FN]
The Accompanying Notes to Condensed Consolidated Financial
Statements are an Integral Part of these Statements.
<PAGE>
SETECH, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANACIAL STATEMENTS
(Unaudited)
September 30, 1996
1. BASIS OF PRESENTATION:
The financial information included herein is unaudited;
however, such information reflects all adjustments (consisting
solely of normal recurring adjustments) which are, in the opinion
of management, necessary for a fair statement of results for the
interim period. This report should be read in conjunction with the
Company's annual financial report on Form 10-KSB for the fiscal
year ended June 30, 1996. The results of operations for the three
months ended September 30, 1996 are not necessarily indicative of
the results to be expected for the full year. The Company is
currently negotiating the possible sale of its government
services operations.
2. CAPITAL TRANSACTIONS:
In July, 1996, a director acquired 75,000 shares of the
treasury stock for $105,000.
3. LOSS CONTINGENCIES:
On May 15, 1995, an employee of BARTON ATC, Inc. filed a
complaint alleging violation of Title VII of the Civil Rights
Act of 1964, by reason of gender based discrimination.
Management believes this charge to be entirely without merit
and has so responded to the Equal Employment Opportunity
Commission. Management therefore believes, but can give no
assurance, that these charges will have no adverse impact upon
the BARTON subsidiary.
4. INCOME TAXES:
The Company's income tax benefit is summarized as follows:
09/30/96 09/30/95
Current Federal & State Benefit $27,340 $(130,880)
Deferred Income Taxes:
Current timing differences 120,493 237,311
Adjustment to beginning
valuation allowance (6,707) (280,500)
________ ________
113,786 (43,189)
Total Income Tax (Benefit)Provision $141,126 $174,069
An adjustment was made to the valuation allowance
for realization of net operating loss deductions based upon the
Company's improved results of operations.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION.
Results of Operations
The Company realized a net income before tax for the three months
ended September 30, 1996 of $309,317 compared to a net income of
$196,776 for the three months ended September 30, 1995. The level of net
income was attributable to continued contribution of all the
subsidiaries, in particular the increase in business activity of
BARTON ATC International, Inc.
SETECH, Inc., a Delaware corporation (the "Company") was formed in
1987. The Company is engaged in the business of providing
"integrated supply"/inventory management services, job shop machining,
engineering products and services, and aviation equipment and services
to a variety of industries including automotive, aviation, and medical
through its four subsidiary corporations:
Titan Services, Inc. ("Titan")
Southeastern Technology, Inc. ("Southeastern")
BARTON ATC International, Inc. (BARTON Intn'l")
BARTON ATC, Inc. ("BARTON")
In August, 1996, the Company changed its name from "Aviation
Education Systems, Inc." to "SETECH, INC." to better reflect its
diversified business operations.
The Company, for certain organizational purposes, regards its four
subsidiaries as being divided into two groups: (1) an Industrial Support
Group comprised of Titan and Southeastern and (2) a Government Services
Group comprised of BARTON and BARTON Intn'l.
Titan's Operations
Titan Services, Inc., a Tennessee corporation, is an emerging
business segment offering "integrated supply"services to the manufacturing
industry. Presently, Titan delivers its services primarily to the
automotive industry through facilities located in Tennessee and Michigan.
Titan provides procurement, engineering and maintenance/repair services
for machined spare parts, original equipment manufacturer ("OEM")
spare parts and inventory management services. These types of
service are increasingly being utilized by major manufacturers
to supplement and enhance in-house capabilities and control costs.
Titan operates in a relatively new segment of industry known as.
"integrated supply." Titan has encountered competing firms, but none of
these competitors apparently presently offers the range of services
offered by Titan.
Titan operates under two contracts as a source supplier of purchasing
and inventory control functions for a major automobile manufacturer at
two automotive plants, one in Tennessee and one in Michigan. Titan is
negotiating to provide similar services to the same customer at a third
location. Titan has received several major awards in recognition of its
high level of performance from the customer. Contracts with this single
customer account for virtually all of Titan's revenues.
Southeastern's Operations
Southeastern Technology, Inc., a Tennessee corporation,
is a job shop machining and engineering organization, serving
a variety of industries including aerospace, automotive, and
medical. Southeastern continues its expansion in the manufacturing and
sale of medical and surgical devices for major medical manufacturers,
to their specifications. Management believes, based upon recent growth
in this area, that the medical field will continue to become a
more significant source of machine work in the future.
BARTON's Operations
BARTON ATC, Inc., a Delaware corporation, is engaged in the
manufacture of both fixed and mobile airport traffic control
towers and in the operation of private and government-owned air
traffic control towers and meteorological observatories located
throughout the United States. BARTON also provides weather
station consultation, electronics maintenance, airport lighting systems.
BARTON currently operates five (5) Airport Traffic Control
Towers. While the operation of airport traffic control towers and
meteorological facilities has always been the core of BARTON's
business, significant increases have been made in the sale and
installation of control tower communications equipment.
The Company is currently negotiating the possible sale of its
government services operations.
BARTON ATC International's Operations
BARTON ATC International, Inc., a Tennessee corporation, is
engaged in the provision of Air Traffic Control and Weather
Reporting Services at numerous airports, in primarily the Western
United States, under contract to the U.S. Federal Aviation
Administration. BARTON Intn'l presently operates 31 control towers
under the FAA's FCT Program, nine of which began operations during
this quarter.
The Company is currently negotiating the possible sale of its
government services operations.
Liquidity and Capital Resources
At June 30, 1996, the Company's current assets exceeded its
current liabilities by approximately $4,124,457. Working capital
increased to $4,869,526 at September 30, 1996.
Titan, Southeastern and BARTON Intn'l each maintains a secured
revolving line of credit with a banking institution with the following
maximum amounts:
Titan $8,000,000
Southeastern 600,000
BARTON Intn'l 300,000
This debt structure results in sufficient capital to support the
Company's existing operations. The Company may seek to increase its
bank revolving lines of credit to finance any expansion of its
existing lines of business.
Loss Contingencies
On May 15, 1995, an employee of BARTON ATC, Inc. filed a
complaint alleging violation of Title VII of the Civil Rights Act
of 1964, by reason of gender based discrimination. Management
believes this charge to be entirely without merit and has so
responded to the Equal Employment Opportunity Commission. Management
therefore believes, but can give no assurance, that these charges
will have no adverse impact upon the BARTON subsidiary.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Subsequent to the end of the quarter, the company has tentatively
settled its case out of court against the former attorneys of the Company
for $45,000.00. There are, however, no signed settlement agreements
at this time.
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
(a) Exhibits. None.
(b) Reports on Form 8-K. None
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SETECH, INC.
Date: November 13, 1996 By_/s/ Thomas N. Eisenman______________
Thomas N. Eisenman President
Date: November 13, 1996 By_/s/ Cindy L. Rollins__________________
Cindy L. Rollins, Secretary-Treasurer
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Jun-30-1997
<PERIOD-START> Jul-01-1996
<PERIOD-END> Sep-30-1996
<CASH> 2,066,528
<SECURITIES> 0
<RECEIVABLES> 6,056,353
<ALLOWANCES> 0
<INVENTORY> 9,341,814
<CURRENT-ASSETS> 18,022,793
<PP&E> 3,890,062
<DEPRECIATION> 2,807,978
<TOTAL-ASSETS> 21,408,184
<CURRENT-LIABILITIES> 13,312,450
<BONDS> 0
<COMMON> 54,139
0
0
<OTHER-SE> 6,818,290
<TOTAL-LIABILITY-AND-EQUITY> 21,408,184
<SALES> 6,533,685
<TOTAL-REVENUES> 6,533,685
<CGS> 5,282,562
<TOTAL-COSTS> 5,282,562
<OTHER-EXPENSES> 752,204
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 209,106
<INCOME-PRETAX> 309,317
<INCOME-TAX> 141,126
<INCOME-CONTINUING> 168,191
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 168,191
<EPS-PRIMARY> .0324
<EPS-DILUTED> .0282
</TABLE>
