<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, 1997 Commission File Number 000-17577
------------- ---------
CORE TECHNOLOGIES (PENNSYLVANIA), INC.
- ----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 22-2537194
- ------------------------------------------------------------------------------
(state or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
110 Summit Drive , Exton, PA 19341-2838
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (610) 524-7000
--------------
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
---------- ----------
Number of shares outstanding as of August 1, 1997
Common Stock 8,887,326
<PAGE>
CORE TECHNOLOGIES (PENNSYLVANIA), INC.
QUARTERLY REPORT FORM 10-Q
INDEX
PART I - FINANCIAL INFORMATION
Page
Item 1 - Financial Statements:
Consolidated Balance Sheets -
June 30, 1997 (unaudited) and December 31, 1996.................. 3
Consolidated Statements of Operations -
Three and six Months Ended June 30, 1997 and 1996 (unaudited).... 4
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1997 and 1996 (unaudited).............. 5
Note to Consolidated Financial Statements........................ 6
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations.................. 7
Item 4 - Submission of Matters to a Vote of Security Holders.............. 9
PART II - OTHER INFORMATION
Item 6 - Exhibits......................................................... 9
Signatures................................................................ 10
2
<PAGE>
PART I
CORE TECHNOLOGIES (PENNSYLVANIA), INC.
- ------------------------------------------------------------------------------
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------ ------------
(Unaudited)
Assets
<S> <C> <C>
Current assets
Cash $ 189,100 $ 124,200
Receivables, less allowances ($83,100 --1997; $180,000 --1996) 3,166,600 4,171,500
Costs and estimated earnings in excess of billings on uncompleted contracts 931,200 511,000
Inventories 940,200 647,100
Notes receivable 280,300 280,300
Other current assets 482,300 360,900
------------ ------------
Total current assets 5,989,700 6,095,000
Plant and equipment
Leasehold improvements 170,200 167,100
Machinery and equipment 1,118,600 1,076,800
------------ ------------
1,288,800 1,243,900
Less accumulated depreciation and amortization (961,000) (839,800)
------------ ------------
Net plant and equipment 327,800 404,100
Other assets
Excess of cost over fair value of net assets of businesses acquired, net 511,900 535,800
Notes receivable 1,381,800 1,682,000
Other 22,700 18,400
------------ ------------
Total other assets 1,916,400 2,236,200
------------ ------------
$ 8,233,900 $ 8,735,300
============ ============
Liabilities and Stockholders' Deficit
Current liabilities
Accounts payable $ 3,454,700 $ 3,172,500
Accrued expenses 706,100 1,142,500
Billings in excess of costs and estimated earnings on uncompleted contracts 639,200 469,800
Current debt 120,000 120,000
------------ ------------
Total current liabilities 4,920,000 4,904,800
Long-term debt 5,203,100 5,143,000
Long-term debt - related party 887,000 887,000
Other liabilities 981,200 981,200
Reedeemable convertible preferred stock issued to related party 1,500,000 1,500,000
Stockholder's deficit
Common stock, $.01 par value; Authorized -- 20,000,000 shares;
Issued - (9,217,326 shares--1997 and1996) 92,200 92,200
Additional paid-in capital 7,983,900 7,983,900
Accumulated deficit (12,913,000) (12,336,300)
Treasury stock at cost - 330,000 shares (420,500) (420,500)
------------ ------------
Total stockholders' deficit (5,257,400) (4,680,700)
------------ ------------
$ 8,233,900 $ 8,735,300
============ ============
</TABLE>
3
<PAGE>
CORE TECHNOLOGIES (PENNSYLVANIA), INC.
- -------------------------------------------------------------------------------
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Net sales $ 4,011,100 $ 5,191,500 $ 7,414,100 $ 9,809,700
Cost of goods sold 3,110,600 3,919,100 5,751,300 7,381,900
----------- ----------- ----------- -----------
Gross profit 900,500 1,272,400 1,662,800 2,427,800
Expenses
Sales and marketing 471,300 450,900 929,600 844,900
General and administrative 557,000 615,800 1,068,800 1,090,600
Interest 140,600 141,900 241,100 281,900
----------- ----------- ----------- -----------
1,168,900 1,208,600 2,239,500 2,217,400
----------- ----------- ----------- -----------
Income (loss) before provision for income taxes (268,400) 63,800 (576,700) 210,400
Provision for (benefit of) income taxes 0 0 0 0
----------- ----------- ----------- -----------
Net earnings (loss) $ (268,400) $ 63,800 $ (576,700) $ 210,400
=========== =========== =========== ===========
Net earnings (loss) per share: - Primary $ (.03) $ .01 $ (.06) $ .02
=========== =========== =========== ===========
Net earnings (loss) per share: - Assuming full dilution $ (.03) $ .01 $ (.06) $ .02
=========== =========== =========== ===========
Weighted average common and common
equivalent shares outstanding:
Primary 8,887,000 8,887,000 8,887,000 8,887,000
Assuming full dilution 8,887,000 10,387,000 8,887,000 10,387,000
</TABLE>
See notes to consolidated financial statements
4
<PAGE>
CORE TECHNOLOGIES (PENNSYLVANIA), INC.
- --------------------------------------------------------------------------------
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1997 1996
------------ ------------
<S> <C> <C>
Operations
Net earnings (loss) $ (576,700) $ 210,400
Adjustments to reconcile net earnings (loss) to cash from operations
Depreciation and amortization 145,100 171,300
Cash provided by discontinued operations 376,600 453,900
Cash provided by (used in) changes in working capital items
Receivables 1,004,900 (1,447,500)
Inventories (293,100) 15,600
Contracts in progress (250,800) (713,600)
Other current assets (147,900) (29,600)
Accounts payable 282,200 1,296,800
Accrued expenses (435,800) (609,500)
Taxes on income (54,800) 0
----------- -----------
Cash provided (used) by operations 49,700 (652,200)
Financing activities
Net borrowings of debt 60,100 737,800
----------- -----------
Cash provided by financing activities 60,100 737,800
Investing activities
Expenditures for plant and equipment (44,900) (106,400)
----------- -----------
Cash used by investing activities (44,900) (106,400)
----------- -----------
Increase (decrease) in cash 64,900 (20,800)
Cash beginning of period 124,200 106,500
----------- -----------
Cash end of period $ 189,100 $ 85,700
=========== ===========
</TABLE>
See notes to consolidated financial statements
5
<PAGE>
CORE TECHNOLOGIES (PENNSYLVANIA) , INC.
Note to Consolidated Financial Statements
June 30, 1997
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
Company's 1996 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.
2. In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 128, Earnings Per Share (Statement
128). Statement 128 supersedes APB Opinion No. 15, Earnings Per Share, and
specifies the computation, presentation, and disclosure requirements for
earnings per share (EPS) for entities with publicly held common stock or
potential common stock. Statement 128 replaces the presentation of primary
EPS and fully diluted EPS with a presentation of basic EPS and diluted EPS.
Statement 128 is effective for financial statements for both interim and
annual periods ending after December 15, 1997. The adoption of Statement
128 will not have a material impact on the Company's reported EPS.
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, 1997 were $4.0 million
compared to $5.2 million for the comparable period in 1996. The Company reported
a net loss of $268,400, or $.03 per share, compared to net earnings of $63,800,
or $.01 per share in the same period in 1996. Gross margin, as a percentage of
sales, was 22.5% in 1997 and 24.5% for the same period in 1996. The decrease in
gross margin in 1997, reflects some pricing pressure at Airo Clean offset by
improved project margins at Maris.
For the six months ended June 30, 1997, net sales were $7.4 million
compared to $9.8 million for the comparable period in 1996. The Company reported
a net loss of $576,700, or $.06 per share, compared to net earnings of $210,400,
or $.02 per share in the same period in 1996. Gross margin, as a percentage of
sales, was 22.4% in 1997 and 24.8% for the same period in 1996. The significant
change in net earnings can be attributed to a decrease in both Airo Clean and
Maris sales.
Second quarter 1997 Maris sales were $2.9 million compared to $3.4
million in 1996. Maris sales for the six month period ending June 30, 1997 were
$5.0 million compared to $6.4 million for the same period in 1996. Maris gross
margins, as a percentage of sales, increased to 22.1% in the second quarter of
1997 from 15.9% in the same period in 1996. For six months ending June 30, 1997,
Maris' gross margin was 22.1% compared to 19.4% in 1996. Maris' increased
margins can be attributed to improved margins on new projects started in the
Northeast market.
Second quarter 1997 Airo Clean sales were $1.1 million compared to $1.8
million in 1996. Airo Clean sales for the six month period ending June 30, 1997
were $2.4 million compared to $3.4 million for the same period in 1996. Airo
Clean's gross margin as a percentage of sales decreased to 23.4% in the second
quarter of 1997 from 40.4% in the same period in 1996. For six months ending
June 30, 1997, Airo Clean's gross margin was 23.1% compared to 34.8% in 1996.
Sales in the second quarter of 1996 and the six months ending June 30, 1996 were
higher because of the shipment of a very large cleanroom project. Airo Clean's
decreased margins in 1997 can be attributed to increased competitive pricing
pressures and higher customizing costs to meet specific customer needs.
Sales and marketing expenses increased in the second quarter 1997 by
$20,400, compared to 1996, due to increased Maris and Airo Clean sales efforts.
For the six month period ending June 30, 1997, sales and marketing expenses
increased $84,700 when compared to the same period in 1996. These costs, as a
percentage of sales, were 11.8% in the second quarter of 1997, compared to 8.7%
in same period in 1996 and were 12.5% in the six month period ending June 30,
1997, compared to 8.6% in the same period in 1996, primarily as a result of the
lower sales levels. Sales efforts at Maris are being concentrated in expanding
the electronic security systems business to take advantage of the Company's
expertise and the higher profit potential. 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 a variety of industries which require particle-free,
ultra-clean working environments, such as semiconductor chip manufacturing, as
well as patient isolation devices for hospital and health care applications.
General and administrative expenses decreased in the second quarter of
1997 by $58,800 compared to 1996, due to cost reduction programs implemented at
Maris and Airo Clean. For the six month period ending June 30, 1997, general and
administrative expenses decreased $21,800 when compared to the same period in
1996. These costs, as percentage of sales, were 13.9% in the second quarter of
1997 compared to 11.9% in the same period in 1996 and were 14.4% in the six
month period ending June 30, 1997 compared to 11.1% in the same period in 1996.
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 1997 was $140,600 compared to
$141,900 in the same period in 1996. For the six month period ending June 30,
1997, interest expense was $241,100 compared to $281,900 in the same period in
1996. The decrease in 1997 reflects the lower average debt level compared to the
same period in 1996.
The Company plans to utilize its net operating loss carryforwards to
offset any future taxable income. The Company has net operating loss
carryforwards of approximately $7.7 million that may be used in future years to
offset taxable income until the year 2011.
Liquidity and Capital Resources
The results of the Company in 1996 and 1997 continue to reflect the
negative impact of Maris contracts obtained prior to 1995 which have been
substantially completed in the second quarter of 1997. Projects obtained in
1995, 1996 and the first six months of 1997 were secured at reasonable margins,
but for the last two years the Company's resources have been allocated toward
finalizing old Maris contracts with minimal or no margin contribution. The
Company believes that the old Maris contracts will have a minimal impact on the
Company's future operations, and the Company is successfully building backlog
with reasonable margins.
At June 30, 1997, the Company's principle source of liquidity included
cash of $189,100, as compared to $124,200 at December 31, 1996, and amounts
available under the Company's credit facility. Cash provided by operations was
$49,700 for the six months ended June 30, 1997, as compared to cash used by
operations of $652,200 in the comparable prior year period. The change is
primarily the result of a decrease in accounts receivable as a result of
collections and lower net sales, which is offset by an increase in contracts in
progress. Cash provided by financing activities of $60,100 for the six months
ended June 30, 1997, which compared to cash provided by financing activities of
$737,800 in the comparable prior year period is primarily the result of
increased borrowings under the Company's credit facility. Cash used by investing
activities of $44,900 for the six months ended June 30, 1997, and $106,400 in
the comparable prior year period reflects the Company's capital expenditures.
Capital expenditures for 1997 are projected at approximately $100,000 with no
formal commitments as of June 30, 1997.
In March 1997, the Company terminated its credit facility with its
previous lender and successfully negotiated a new three year, $6 million credit
agreement maturing on March 14, 2000. Borrowings under the Company's previous
credit facility were repaid with proceeds from the new facility. This credit
facility is secured by guarantees of $4.5 million in the form of a letter of
credit from Safeguard Scientifics, Inc. through September 30, 2000, as well as
substantially all of the assets of the Company. Borrowings bear interest at
prime plus 1% and the Company pays a monthly commitment fee of 1/2% on the
unused portion of the credit facility. The Company believes that the combination
of Safeguard's letter of credit and the working capital assets of the Company's
ongoing business will be sufficient to satisfy or support the debt. As of August
1, 1997 outstanding borrowings under the credit facility were $5.4 million.
The Company believes that with its new credit facility, which provides
the Company with more favorable terms than the previous credit facility, and
cash provided by operations and its ability to secure reasonable terms from
vendors, it will be able to continue to operate in a downsized mode. The Company
will continue to focus on management of working capital and controlling expenses
to minimize the need to utilize availability under the new credit facility.
8
<PAGE>
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 2, 1997.
(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 9,697,339 shares with 0
voting against and 15,600 withheld votes. The
four nominees constitutes the Company's entire
Board of Directors.
(c) In addition to the election of directors, at the
Meeting, the stockholders approved a proposal to
amend the Company's 1993 Stock Option Plan to
increase the number of shares of Common Stock
which may be issued upon exercise of options
granted from 1,200,000 to 1,700,000. This
proposal was approved by 7,826,762 affirmative
votes, with 139,681 votes against the proposal
and 7,219 abstentions.
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,
1997.
9
<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.
CORE TECHNOLOGIES (PENNSYLVANIA), INC.
(Registrant)
Date: August 14, 1997 /S/ George E. Mitchell
------------------ -----------------------
George E. Mitchell,
President and Chief Executive Officer
Date: August 14, 1997 /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
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1997 AND THE CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE SIX MONTHS ENDED June 30, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1997
<CASH> 189,100
<SECURITIES> 0
<RECEIVABLES> 3,249,700
<ALLOWANCES> 83,100
<INVENTORY> 940,200
<CURRENT-ASSETS> 5,989,700
<PP&E> 1,288,800
<DEPRECIATION> 961,000
<TOTAL-ASSETS> 8,233,900
<CURRENT-LIABILITIES> 4,920,000
<BONDS> 0
1,500,000
0
<COMMON> 92,200
<OTHER-SE> (5,257,400)
<TOTAL-LIABILITY-AND-EQUITY> 8,233,900
<SALES> 7,414,100
<TOTAL-REVENUES> 7,414,100
<CGS> 5,751,300
<TOTAL-COSTS> 5,751,300
<OTHER-EXPENSES> 1,998,400
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 241,100
<INCOME-PRETAX> (576,700)
<INCOME-TAX> 0
<INCOME-CONTINUING> (576,700)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (576,700)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
