UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended AUGUST 31, 1996 Commission File No.00019678
ETS INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Virginia 54-1414643
State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1401 Municipal Road, NW, Roanoke, Virginia 24012
(Address) (Zip Code)
Registrant's telephone number, including area code (540) 265-0004
Not Applicable
(Former name, former address and former fiscal year if changed since
last report)
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 subject to the filing
requirements for at least the past 90 days.
Yes x No
Indicate the number of shares outstanding of each of the issuer's
classes
of stock, as of the close of the period covered by this report.
Class Number of Shares Outstanding
Common Stock 12,588,233
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ETS INTERNATIONAL,INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AUGUST 31, 1996 MAY 31, 1996
ASSETS (unaudited) (audited)
Current assets:
Cash and cash equivalents $ 83,460 $ 121,713
Accounts receivable:
Trade (net of allowance of $89,031
in 1997 and $95,100 in 1996 4,364,119 3,749,040
U.S. Government agencies 65,647 48,299
Other 148,319 116,222
Costs and estimated earnings in excess of
billings on uncompleted contracts 953,827 878,348
Notes receivable from officers 53,105 65,222
Inventory 614,321 550,728
Prepaid expenses 251,529 225,943
Total current assets 6,534,327 5,755,515
Property, plant and equipment:
Furniture and fixtures 955,620 943,685
Laboratory equipment 2,791,607 2,651,970
Machinery, tools and equipment 2,813,527 2,773,615
Vehicles 1,551,094 1,539,868
Leasehold improvements 758,729 757,555
Total Property, plant & Equipment 8,870,577 8,666,693
Less accumulated depreciation 5,942,209 5,753,152
Property, plant and
equipment, net 2,928,368 2,913,541
Other assets:
Goodwill (net of accumulated amortization
of $15,302 in 1997 and $11,048 in 1966) 239,944 244,198
Notes receivable from officers 292,919 292,919
Prepublication costs (net of accumulated
amortization of $302,668 in 1997 and
$296,008 in 1996) 122,955 129,615
Patents granted (net of accumulated
amortization of $27,919 in 1997 and
$26,319 in 1996) 73,934 74,107
Patents pending 22,741 21,870
Cash value of life insurance 121,432 116,283
Other assets 272,086 286,968
1,146,011 1,165,960
Total assets $10,608,706 $ 9,835,016
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
AUGUST 31, 1996 MAY 31, 1996
(unaudited) (audited)
Current liabilities:
Bank overdraft $ -- $ 8,746
Notes payable to bank 1,371,605 1,071,427
Notes Payable to affiliates 456,567 348,625
Current portion of long-term debt 437,422 378,779
Accounts payable 3,239,689 2,837,386
Accrued expenses and other current
liabilities 600,441 626,894
Total Current liabilities 6,105,724 5,271,857
Long-term debt 568,912 660,133
Notes payable to stockholder 600,000 600,000
Deferred gain on sale/leaseback 963,643 1,039,720
Common stock subject to repurchase
agreement, 539,130 shares 775,000 775,000
Stockholders' equity:
Common stock, no par value; authorized
20,000,000 shares; issued and outstanding
12,588,233 and 12,580,733 at August 31,
1996 and May 31, 1996, respectively 3,482,235 3,476,235
Retained earnings (accumulated deficit)( 1,886,808) (1,987,929)
Total stockholders' equity 1,595,427 1,488,306
Total liabilities and
stockholders' equity $10,608,706 $ 9,835,016
<PAGE>
ETS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
AUGUST 31,1996 AUGUST 31,1995
(unaudited) (unaudited)
Contract revenues:
U.S. Government agencies $ 151,009 $ 170,744
Commercial 6,088,979 4,866,948
Total Revenues 6,239,988 5,037,692
Cost of goods and services 5,052,117 4,348,779
Gross profits 1,187,871 668,913
Selling, general and
administrative expenses 1,007,817 804,577
Net operating income 180,054 ( 115,664)
Miscellaneous income 9,033 12,613
Interest expense ( 87,966) ( 100,195)
Net income (loss) $ 101,121 ($ 203,246)
Net Income (loss) per common share:
Primary .01 (.02)
Fully diluted .01 (.02)
Average shares of common stock used
for the above calculation
Primary 12,613,472 12,850,951
Fully diluted 12,613,472 12,850,951
<PAGE>
ETS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
QUARTER ENDED AUGUST 31, 1996
Retained
Earnings
Common Stock Accumulated
Shares Amount (Deficit)
(unaudited) (unaudited) (unaudited)
Balances at May 31, 1996 12,580,733 $ 3,476,235 ($ 1,987,929)
Issuance of common stock 7,500 6,000
for services
Net Income 101,121
Balance at August 31, 1996 12,588,233 $ 3,482,235 ($ 1,886,808)
<PAGE>
ETS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
THREE MONTHS ENDED
AUGUST 31,1996 AUGUST 31,1995
(unaudited) (unaudited)
Cash flows from operating activities:
Net income (loss) $ 101,121 ($ 203,246)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 212,803 218,261
Amortization of deferred gain on
sale/leaseback ( 76,077)
Increase or decrease in operating assets
and liabilities:
Accounts receivable ( 670,593) 62,267
Costs and estimated earnings in excess of
billings on uncompleted contracts ( 75,479) ( 97,766)
Inventories ( 63,593) ( 128,452)
Prepaid expenses ( 19,586) ( 8,821)
Accounts payable 402,303 225,237
Accrued expenses and other liabilities ( 26,453) ( 72,634)
Cash surrender value-insurance,net ( 5,149) ( 5,240)
Other Assets 9,719 14,087
Net cash provided by (used in)
operating activities ( 210,984) 3,693
Cash flows from investing activities:
Purchase of property, plant and equipment ( 203,884) ( 108,202)
Patent Cost Incurred ( 2,298) ( 4,362)
Net cash used in investing activities ( 206,182) ( 112,564)
Cash flows from financing activities:
Bank overdraft ( 8,746) ( 57,266)
Notes receivable from officers
(increase) decrease 12,117 5,022
Notes payable increase (decrease) 300,178 48,419
Proceeds from long-term debt 53,000 70,047
Principal payments on long-term debt ( 85,578) ( 98,816)
Proceeds from issuance of common stock 42,062
Notes payable to affiliates increase 107,942 65,000
Net cash provided by financing activities 378,913 74,468
Decrease in cash and cash equivalents ( 38,253) ( 34,403)
Cash and cash equivalents at beginning of year 121,713 65,175
Cash and cash equivalents at end of period $ 83,460 $ 30,772
Supplemental disclosures of cash flow information and noncash
investing activities: Interest paid on notes payable and long-term
debt was $87,966 and $100,195 for the three months ended August 31,
1996 and 1995 respect- ively. Capital lease obligations of $ 0 and
$53,547 were incurred during the first quarter of fiscal 1997 and 1996
respectively for vehicles, furniture and fixtures and laboratory
equipment.
<PAGE>
ETS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information as set forth in Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all necessary
adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating
results for the three months ended August 31, 1996 are not necessarily
indicative of the results that may be expected for the year ending May
31, 1997.
NOTE B PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of ETS
International, Inc. and its wholly-owned subsidiaries, ETS, Inc., ETS
Analytical Services, Inc. and ETS Water And Waste Management, Inc.
Significant intercompany accounts and transactions have been eliminated
in consolidation.
NOTE C EARNINGS PER SHARE
Earnings per share have been computed on the basis of the weighted
average number of shares outstanding, after giving appropriate effect
for common stock issued. Stock options and warrants have been included
as common stock equivalents when they result in dilution of earnings
per share.
NOTE D BUSINESS COMBINATION
(None)
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of operations
Introduction
A few relatively large contracts in any one business segment in
any fiscal year can make any segment generate relatively large revenues
in that year. Because disproportionate generation of income has
occurred periodically throughout the existence of ETSI, the Company's
strategy has been to offer a variety of services and maintain a
flexible staff capable of
executing different tasks. Services are tied to different markets,
such as new pollution control equipment expenditures by industry,
government funding or legislative enforcement. In addition, ETSI
continually markets its services through brochures, seminars and
attendance at trade shows and conferences and by telemarketing. ETSI
attempts to increase its business in the aggregate. As the United
States experiences economic and legislative cycles, the demand for each
of the Company's services fluctuates accordingly.
ETSI has divided its revenues into four meaningful categories; (a)
services - encompassing field and analytical testing, regulatory
assistance and monitoring; (b) consulting /engineering - encompassing
consulting and engineering services and educational areas; (c)
products; and (d) construction.
First Quarter Fiscal 1997 Compared to First quarter Fiscal 1996
Revenues for the first quarter of 1997 were $6,239,988 compared to
$5,037,692 for the first quarter of fiscal 1996 for a 24% increase.
Total testing service revenues were $1,402,653 for the current
quarter for a 14% decrease from the revenues reported for the first
quarter of fiscal 1996 of $1,635,975. Field testing revenues were
$523,695 compared to $583,329 for the preceding first quarter. Six
customers accounted for 54% of the field testing which included two
utility power plants, three waste incinerator plants and an oil
refinery. Field testing revenues were lower for the quarter mainly due
to a deeper than normal seasonal dip that commonly occurs during early
summer as customers vacations and maintenance shut-downs begin.
Revenues for the analytical laboratory for the first quarter of
fiscal 1997 were $787,284 compared to $818,671 for the same quarter of
fiscal 1996 for a 4% decrease. This decrease occurred in the
commercial sales and is primary attributable to delays in remediation
site plan approvals by the EPA regions. Another factor is price
erosion that has occurred on a national basis in the environmental
contract laboratory markets. The laboratory anticipates that sales will
improve in the second quarter of fiscal 1997 as a result of a Army
Corps remediation project and a full schedule of sample shipments
through the EPA Office of Water.
<PAGE>
Regulatory assistance revenues were down sharply to $71,874 from
$184,604 revenues for the first quarter of fiscal 1996. This decrease
included 29% decrease in the number of customers and with lower dollar
value of the contracts completed. The major customer for the quarter
was electronic testing equipment manufacturer for 34% of the regulatory
assistance revenues. Revenues for monitoring were $19,800 compared to
$$49,371 for the previous first quarter as its only customer was a
chemical plant.
Revenues for the first quarter of fiscal 1997 for consulting and
engineering services were $83,935 compared to $164,565 for the first
quarter of fiscal 1996 for a 49% decrease. Consulting service revenues
were $3,282 compared to $83,206 for the first quarter of fiscal 1996
for a 96% decrease which was the result of completion of a contract
with a government contractor consultant and the lack of a backlog of
new contracts. Engineering services had revenues of $75,813 compared to
$69,892 for the first quarter of fiscal 1996 for an 8% increase. An
iron foundry contributed 81% of the engineering revenues. Revenues for
sales of books for the current quarter were $4,175 compared to $10,776
the first quarter of fiscal 1996 and revenues for seminars for $665
compared to $691 for the first quarter of fiscal 1996.
Product revenues for the first quarter were $6,239 which included
BPM hardware sales to a filter media manufacturer compared to revenues
for the first quarter of fiscal 1996 of $1,000.
Total construction service revenues for the first quarter of
fiscal 1997 were $4,747,161 compared to $3,236,152 for the first
quarter of fiscal 1996 for a 47% increase. The increase was attributed
to increases in the utility construction of 5% and the service
department of 7%. Commercial work was also secured in both of these
areas which added to the sales. ETS Liner, Inc., a subsidiary of ETSW
had revenues of $923,209 or 19% of the total construction revenues.
Gross profit for ETSI for the first quarter of fiscal 1997 was
$1,187,871 for 19% of the revenues compared to $668,,913 or 13% of
revenues for the fiscal 1996 first quarter. This increase in gross
profit was the result of decreased cost as part of the Company's effort
to reduce overhead.
Selling, general and administrative expenses were $1,007,817 for
the current quarter compared to $804,577 for the first quarter of
fiscal 1996. The increased general and administrative cost includes the
additions of the Florida office and Fairfax, Virginia office.
Miscellaneous income for the first quarter of fiscal 1997 was
$9,033 compared to $12,613 for the first quarter of fiscal 1996.
Miscellaneous income for the quarter included earned interest from
savings on deposit, rental of equipment and sale of scrap. Interest
expense for the quarter was $87,966 compared to $100,915 for the first
quarter of fiscal l996. Interest expense represents interest incurred
for utilization of the credit line and interest paid in financing of
capital equipment.
The first quarter of fiscal 1997 produced a net income of
$101,121 compared to a net loss of $203,246 for the first quarter of
fiscal 1996.
<PAGE>
Liquidity And Capital Resources As Of The End Of The First Quarter of
Fiscal Year 1997
Although revenues for some of the business segments were
below the projections for the quarter, the testing service appears to
be strong and steady for the second quarter. ETS has embarked upon a
strong marketing effort to penetrate "compliance assistance" service to
industrial clients. This is believed to be the new direction in which
regulatory assistance activities are moving. The analytical laboratory
anticipates sales will improve in the second quarter due to several
factors, including the start-up of an Army Corps remediation project
and a full schedule of sample shipments through the EPA Office of
Water. ETSW has also received significant orders for two Ultraliner
projects totaling in excess of $500,000.
Working capital for ETSI include a credit line servicing ETS,
ETSAS-Roanoke office and ETSW in Richmond, VA for an aggregate amount
of $1,500,000 of which $1,371,605 was being utilized at August 31, 1996.
Major components of cash flow used in operating activities
included increase in accounts receivable of $670,593 which was offset
by the net income, depreciation and an increase in accounts payable
resulting in net cash used of $210,984. The net cash used in investing
activities included the purchase of property, plant and equipment of
$203,884 and patent cost of $2,298 for a total of $206,182. Net cash
provided by financing activities for the quarter was $378,913. Major
components included proceeds from the credit line of $300,178 and
increase in notes payable to affiliates of $107,942 offset by principal
payments on long-term debt of $85,578. Net cash and cash equivalents
at the end of the first quarter of fiscal 1997 were $83,460.
Backlog at August 31, 1996 was $5,609,988 compared to $5,045,918
at August 31, 1995. ETSI held open task orders from various clients,
principally government agencies. If all the work under these open
orders is authorized, the Company estimates that its backlog would
increase by $1,727,201 to a total of $7,337,189. At the end of the
first quarter of fiscal 1996, the Company held open orders of
$4,229,369 for a total of $9,275,287. This decrease in total backlog
reflects decreases mainly in government activity for testing services.
New orders for the three months ending August 31, 1996 were $4,966,475
compared to the first quarter of fiscal 1996 of 5,571,075.
Most of ETSI's contracts are of short-term duration and are completed
within a few months of the order or award. Certain contracts such as
those from utilities are annual and are completed in stages against
task orders. Government agencies often issue open orders for which
subsequent task orders are issued. There are no conditions precedent
to the issuance of task orders and they are issued pursuant to the
specific orders of the client for the service. Experience shows that
substantially all open orders ultimately result in task orders and at
times have exceeded the amount of the open order. There can be no
assurance that existing contracts or future orders containing open
orders will result in task orders covering the entire contractual
amounts. ETSI is not aware of any significant unrecognized cost to
complete any open contract.
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
None
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
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this registrations statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
ETS INTERNATIONAL, INC.
Registrant
DATE: October 15, 1996 BY: s/John D. Mckenna
John D. McKenna
President
