<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended June 30, 1996 Commission File Number 000-17577
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CORE TECHNOLOGIES (PENNSYLVANIA), INC.
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(Exact name of registrant as specified in its charter)
Delaware 22-2537194
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(state or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
110 Summit Drive , Exton, PA 19341-2838
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (610) 524-7000
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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 and
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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Number of shares outstanding as of July 31, 1996
Common Stock 8,887,326
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CORE TECHNOLOGIES (PENNSYLVANIA), INC.
QUARTERLY REPORT FORM 10-Q
INDEX
PART I - FINANCIAL INFORMATION
Page
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Item 1 - Financial Statements:
Consolidated Balance Sheets -
June 30, 1996 (unaudited) and December 31, 1995.................... 3
Consolidated Statements of Operations -
Three and Six Months Ended June 30, 1996 and 1995 (unaudited)...... 4
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1996 and 1995 (unaudited)................ 5
Note to Consolidated Financial Statements.......................... 6
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations.................... 7
PART II - OTHER INFORMATION
Item 6 - Exhibits........................................................... 9
Signatures.................................................................. 10
2
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PART I
CORE TECHNOLOGIES (PENNSYLVANIA), INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------ ------------
Assets (Unaudited)
<S> <C> <C>
Current assets
Cash $ 85,700 $ 106,500
Receivables, less allowances ($212,600 --1996; $338,220 --1995) 5,157,200 3,709,700
Costs and estimated earnings in excess of billings on uncompleted contracts 1,099,500 401,300
Inventories 663,900 679,500
Notes receivable 988,400 848,200
Other current assets 444,300 871,500
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Total current assets 8,439,000 6,616,700
Plant and equipment
Leasehold improvements 168,200 168,200
Machinery and equipment 1,093,400 987,000
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1,261,600 1,155,200
Less accumulated depreciation and amortization (800,200) (652,900)
-------------- -------------
Net plant and equipment 461,400 502,300
Other assets
Excess of cost over fair value of net assets of businesses acquired 170,200 177,500
Notes receivable 1,822,100 1,962,300
Other 408,100 421,900
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Total other assets 2,400,400 2,561,700
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$ 11,300,800 $ 9,680,700
============== =============
Liabilities and Stockholders' Deficit
Current liabilities
Accounts payable $ 3,616,100 $ 2,319,300
Accrued expenses 1,937,700 2,547,200
Billings in excess of costs and estimated earnings on uncompleted contracts 665,700 681,100
Current debt 133,500 136,600
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Total current liabilities 6,353,000 5,684,200
Long-term debt 6,485,100 5,744,200
Other liabilities 981,200 981,200
Redeemable convertible preferred stock issued to Safeguard Scientifics, Inc. 1,500,000 1,500,000
Stockholders' deficit
Common stock, $.01 par value; Authorized -- 20,000,000 shares;
Issued - (9,217,326 shares--1996; 9,217,326 shares--1995) 92,200 92,200
Additional paid-in capital 7,983,900 7,983,900
Accumulated deficit (11,674,100) (11,884,500)
Treasury stock at cost - 330,000 shares (420,500) (420,500)
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Total stockholders' deficit (4,018,500) (4,228,900)
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$ 11,300,800 $ 9,680,700
============== =============
See notes to consolidated financial statements
</TABLE>
3
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CORE TECHNOLOGIES (PENNSYLVANIA), INC.
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 5,191,500 $ 5,755,600 $ 9,809,700 $ 9,943,400
Cost of goods sold 3,919,100 4,384,300 7,381,900 7,706,800
------------ ----------- ----------- -----------
Gross profit 1,272,400 1,371,300 2,427,800 2,236,600
Expenses
Sales and marketing 450,900 415,100 844,900 933,400
General and administrative 615,800 633,600 1,090,600 1,213,000
Interest 141,900 206,700 281,900 378,200
------------ ----------- ----------- -----------
1,208,600 1,255,400 2,217,400 2,524,600
------------ ----------- ----------- -----------
Income (loss) before provision for income taxes $ 63,800 $ 115,900 $ 210,400 $ (288,000)
Provision for income taxes 0 0 0 0
------------ ----------- ----------- -----------
Net earnings (loss) $ 63,800 $ 115,900 $ 210,400 $ (288,000)
============ =========== =========== ===========
Net earnings (loss) per share:
Primary $.01 $.01 $.02 $(.03)
============ =========== =========== ===========
Fully diluted $.01 $.01 $.02 $(.03)
============ =========== =========== ===========
Weighted average common and common equivalent
shares outstanding:
Primary 8,887,000 10,437,000 8,887,000 10,437,000
Fully diluted 10,387,000 10,437,000 10,387,000 10,437,000
See notes to consolidated financial statements
</TABLE>
4
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CORE TECHNOLOGIES (PENNSYLVANIA), INC.
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1996 1995
--------------- ----------------
<S> <C> <C>
Operations
Net earnings (loss) $ 210,400 $ (288,000)
Adjustments to reconcile net earnings (loss) to cash from operations
Depreciation and amortization 171,300 163,300
Cash provided by discontinued operations 453,900 773,500
Cash provided by (used in) changes in working capital items
Receivables (1,447,500) (1,140,300)
Inventories 15,600 (121,200)
Contracts in progress (713,600) (211,600)
Other current assets (29,600) (130,900)
Accounts payable 1,296,800 673,600
Accrued expenses (609,500) 1,111,800
Taxes on income 0 1,357,900
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Cash provided (used) by operations (652,200) 2,188,100
Financing activities
Borrowings of debt 737,800 (2,472,800)
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Cash provided (used) by financing activities 737,800 (2,472,800)
Investing activities
Expenditures for plant and equipment (106,400) (60,600)
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Cash used by investing activities (106,400) (60,600)
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Decrease in cash (20,800) (345,300)
Cash beginning of period 106,500 583,600
--------------- ----------------
Cash end of period $ 85,700 $ 238,300
=============== ================
See notes to consolidated financial statements
</TABLE>
5
<PAGE>
CORE TECHNOLOGIES (PENNSYLVANIA) , INC.
Note to Consolidated Financial Statements
June 30, 1996
1. The accompanying unaudited interim consolidated financial statements
were prepared in accordance with generally accepted accounting
principles for interim financial information. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. The
Summary of Accounting Policies and Notes to Consolidated Financial
Statements included in the 1995 Annual Report should be read in
conjunction with the accompanying statements. These statements include
all adjustments (consisting only of normal recurring adjustments)
which the Company believes are necessary for a fair presentation of
the statements. The interim operating results are not necessarily
indicative of the results for a full year.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Review of operations
Net sales for the quarter ended June 30, 1996 were $5.2 million
compared to $5.8 million for the comparable period in 1995. The Company reported
net earnings of $63,800, or $0.01 per share, compared to net earnings of
$115,900, or $0.01 per share in the same period in 1995. Gross margin, as a
percentage of sales, was 24.5% in 1996 and 23.8% for the same period in 1995.
The increase in gross margin in 1996 reflects the continuing improvement in Airo
Clean products and projects margins.
For the six months ended June 30, 1996 net sales were $9.8 million
compared to $9.9 million for the comparable period in 1995. The Company reported
net earnings of $210,400, or $0.02 per share, compared to a net loss of
$288,000, or $0.03 per share in the same period in 1995. Gross margin, as a
percentage of sales, was 24.8% in 1996 and 22.5% for the same period in 1995.
Second quarter 1996 Maris sales were $3.4 million compared to $4.4
million in 1995. Maris' gross margin, as a percentage of sales, decreased to
15.9% in the second quarter of 1996 from 20.6% in the same period in 1995.
Maris' reduced margin can be attributed to losses incurred on several California
highway monitoring projects. The company has filed a claim for recovery on some
of these costs and the outcome is unknown at this time.
Second quarter 1996 Airo Clean sales were $1.8 million compared to $1.4
million in 1995. The sales increase can be attributed to the $2.8 million clean
room project which was started in the first quarter of 1996, and is anticipated
to be completed in the third quarter 1996. Airo Clean's gross margin as a
percentage of sales increased to 40.4% in 1996 from 33.9% in the same period in
1995. Airo Clean's improved gross margin can be attributed to increased sales
volume and improved margins on its products and projects sales.
Sales and marketing expenses increased in the second quarter 1996 by
$35,800, compared to 1995, due to increased sales and distribution efforts
implemented at Maris and Airo Clean. These costs, as a percentage of sales, were
8.7% in the second quarter of 1996, compared to 7.2% in same period in 1995. For
the first half of 1996, sales and marketing expenses decreased by $88,500
compared to 1995. These costs, as a percentage of sales , were 8.6% in the first
half of 1996, compared to 9.4% in the same period of 1995. Sales efforts at
Maris are being concentrated in expanding the electronic security systems
business to take advantage of the Company's expertise in this area. The Company
has opened an office in New York city to support its existing customer base in
this market area. The sales effort at Airo Clean continues to focus on promoting
the BioShield, Ultraguard and laminar air flow products. These are air scrubbing
devices for controlling airborne contaminants and are targeted for the health
care and hospital industries.
General and administrative expenses decreased in the second quarter of
1996 by $17,800 compared to 1995, due to staff reductions and salary freezes
implemented at Maris. These costs, as percentage of sales, were 11.9% in the
second quarter of 1996 compared to 11.0% in the same period in 1995. For the
first half of 1996, general and administrative expenses decreased by $122,400
compared to 1995. These costs, as percentage of sales, were 11.1% in the first
half of 1996 compared to 12.2% in the same period of 1995. The Company continues
to closely monitor and control costs and believes that additional sales can be
achieved without a proportional increase in the business infrastructure.
7
<PAGE>
Interest expense in the second quarter of 1996 was $141,900 compared to
$206,700 in the same period in 1995. For the first half of 1996, interest was
$281,900 compared to $378,200 in the same period in 1995. The reduced interest
costs in 1996 reflects the lower average debt level compared to the same period
in 1995.
The Company plans to utilize its net operating loss carryforwards to
offset taxable income. The Company has net operating loss carryforwards of
approximately $7.3 million that may be used in future years to offset taxable
income until the year 2010.
Liquidity and Capital Resources
In August 1995, the Company successfully negotiated an amendment to its
existing bank credit agreement which provides a $6.0 million credit line
facility through March 31, 1997. Under this facility, Safeguard Scientifics
(Delaware), Inc. has provided guarantees of $4.5 million in the form of letters
of credit through June 30, 1997. Borrowings bear interest at prime plus 1 1/4%.
The Company believes that the combination of the bank credit agreement,
supported by Safeguard's letters of credit, and the working capital assets of
the Company will be sufficient to satisfy the Company's operating cash
requirements during 1996. As of July 31, 1996 outstanding borrowings under the
credit facility were $5.3 million.
8
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PART II OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Change in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company's Annual Meeting of Stockholders
(the "Meeting) was held on May 3, 1996.
(b) At the Meeting, each of the four nominees for
director, George E. , Mitchell, Anthony A.
Nichols, Richard P. Richter and W. Wayne
Dunlop were elected to the Board of Directors
by the affirmative vote of 9,201,905 shares,
with 0 voting against and 3,900 withheld
votes. The four nominees constitutes the
Company's entire Board of Directors.
Item 5. Other Information
Not applicable.
Item 6. Exhibits
(a) Exhibits
Number Description
27 Financial Data Schedule (electronic
filing only)
(b) No reports on Form 8-K have been filed by
the registrant during the quarter ended
June 30, 1996.
9
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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.
CORE TECHNOLOGIES (PENNSYLVANIA), INC.
(Registrant)
Date: August 9, 1996 /S/ George E. Mitchell
----------------------------------------
George E. Mitchell,
President and Chief Executive Officer
Date: August 9, 1996 /S/ Frederick B. Franks, III
----------------------------------------
Frederick B. Franks, III
Vice President Finance and Treasurer
(Principal Financial and
Principal Accounting Officer)
10
<TABLE> <S> <C>
<ARTICLE> 5
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 85,700
<SECURITIES> 0
<RECEIVABLES> 5,369,800
<ALLOWANCES> 212,600
<INVENTORY> 663,900
<CURRENT-ASSETS> 8,439,000
<PP&E> 1,261,000
<DEPRECIATION> 800,200
<TOTAL-ASSETS> 11,300,800
<CURRENT-LIABILITIES> 6,353,000
<BONDS> 0
1,500,000
0
<COMMON> 92,200
<OTHER-SE> (4,110,700)
<TOTAL-LIABILITY-AND-EQUITY> 11,300,800
<SALES> 5,191,500
<TOTAL-REVENUES> 5,191,500
<CGS> 3,919,100
<TOTAL-COSTS> 4,985,800
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 141,900
<INCOME-PRETAX> 63,800
<INCOME-TAX> 0
<INCOME-CONTINUING> 63,800
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 63,800
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
