SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-20986
ENVIRONMENTAL TECHNOLOGIES CORP.
(Exact name of small business issuer as specified in its charter)
Delaware 22-3005943
(State or other jurisdiction (I.R.S. Employer Identification
of incorporation Number)
or organization)
550 James Street
Lakewood, New Jersey 08701
(Address of principal (Zip Code)
executive offices)
Issuer's telephone number, include area code (908) 370-3400
N/A
Former name, former address and fiscal year, if changed since last
report.
Check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12
months (or 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
The number of shares outstanding of the registrant's common stock
is 5,150,411 (as of August 7, 1996).
Page 1 of 12 pages.
There are no exhibits.<PAGE>
ENVIRONMENTAL TECHNOLOGIES CORP. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
ENVIRONMENTAL TECHNOLOGIES CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS (UNAUDITED)
June 30, September 30,
1996 1995
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 939,177 $ 4,027,349
Accounts receivable, net 8,450,415 4,939,418
Inventories 19,225,738 9,946,713
Other current assets 257,556 773,086
Total current assets 28,872,886 19,686,566
Property and equipment, net 2,264,895 1,629,553
Goodwill, net 671,520 714,905
Other assets 564,458 133,357
Total assets $32,373,759 $22,164,381
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 8,525,518 $ 500,000
Current portion of long-term debt 0 399,996
Accounts payable 3,137,512 2,516,416
Accrued liabilities 1,764,012 781,022
Total current liabilities 13,427,042 4,197,434
Long-term debt 0 336,673
Stockholders' Equity
Common stock 51,504 51,504
Paid-in-capital 12,731,081 12,823,634
Retained earnings 6,164,132 4,725,136
Total stockholders' equity 18,946,717 17,600,274
Total liabilities and
stockholders' equity $32,373,759 $22,164,381
</TABLE>
See Accompanying Selected Notes to
Consolidated Financial Statements.
<PAGE> ENVIRONMENTAL TECHNOLOGIES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED JUNE 30, ENDED JUNE 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net sales $ 14,788,259 $ 10,734,000 $ 28,238,023 $ 25,665,213
Cost of sales 10,696,700 8,166,901 20,289,435 18,497,639
Gross profit 4,091,559 2,567,099 7,948,588 7,167,574
Selling, general and
administrative expenses 1,880,853 1,610,131 5,039,756 4,388,461
Operating income 2,210,706 956,968 2,908,832 2,779,113
Interest expense 125,962 120,789 244,529 256,777
Other income,net 5,273 21,594 50,733 40,600
Income before income tax
expense 2,090,017 857,773 2,715,036 2,562,936
Income tax expense 837,000 343,109 1,086,000 1,021,330
Net income $ 1,253,017 $ 514,664 $ 1,629,036 $ 1,541,606
Net income per common and common
equivalent shares:
Primary $ .24 $ .11 $ .32 $ .33
Fully diluted $ .24 $ .11 $ .32 $ .32
Weighted Average Number
of Shares:
Primary 5,150,411 4,780,169 5,150,411 4,738,074
Fully diluted 5,150,411 4,839,602 5,150,411 4,757,585
</TABLE>
See Accompanying Selected Notes to
Consolidated Financial Statements.
<PAGE>
<TABLE>
ENVIRONMENTAL TECHNOLOGIES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<CAPTION>
FOR THE NINE MONTHS
ENDED JUNE 30,
1996 1995
<S> <C> <C>
Cash Flows From Operating
Activities
Net Income $ 1,629,036 $1,541,606
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation and amortization 425,209 273,734
(Increase) decrease in assets:
Accounts receivable (3,510,997) (2,265,571)
Inventory (9,279,025) (3,722,629)
Other current assets 515,530 92,483
Other assets (523,654) 0
Increase (Decrease) in liabilities:
Accounts payable and accrued
liabilities 1,722,073 2,000,970
Net cash used in
operating activities (9,021,828) (2,079,407)
Cash Flows From Investing Activities
Capital expenditures (1,017,166) (1,201,167)
Cash Flows From Financing Activities
Proceeds from short-term debt, net
of repayments 7,507,535 (1,268,003)
Proceeds (Repayments)
from long-term debt (366,673) 1,616,672
Purchase of goodwill - (661,930)
Distributions to FulCircle Stockholders (190,040) (451,566)
Proceeds from paid-in capital, net - 4,736,717
Net cash provided by
financing activities 6,950,822 3,971,890
Net Increase (Decrease) In Cash and
Cash Equivalents (3,088,172) 691,316
Cash and Cash Equivalents - Beginning 4,027,349 499,578
of period
Cash and Cash Equivalents - End of
period $ 939,177 $1,190,894
</TABLE>
See Accompanying Selected Notes to
Consolidated Financial Statements.
<PAGE>
ENVIRONMENTAL TECHNOLOGIES CORP. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Business Environmental Technologies Corp. and subsidiaries (the
"Company") is primarily engaged in the marketing and sale of
refrigerants, refrigerant recovery and reclaiming services, the
manufacture and distribution of refrigerant recycling and recovery
equipment for automotive and commercial use and the recycling of
PCB ballasts and fluorescent tubes from light fixtures. The
Company's line of refrigerant includes dichlorofluoromethane (R-12)
and tetrafluoroethane (R-134a).
Consolidation The consolidated financial statements include the
financial statements of Environmental Technologies Corp. and its
wholly-owned subsidiaries. All significant intercompany balances
and transactions have been eliminated in consolidation.
Interim Results The financial information furnished herein has not
been audited by independent accountants; however in the opinion of
management, all adjustments (consisting solely of normal recurring
adjustments) necessary for a fair presentation of the financial
position, results of operations and cash flows of the Company for
the three and nine month periods ended June 30, 1996 and June 30,
1995, respectively, have been made. Because of the effects of
seasonality the results of operations for the three and nine month
periods ended June 30, 1996 are not necessarily indicative of the
results to be expected for the full year.
NOTE 2 - BUSINESS COMBINATION
On February 22, 1995, the Company acquired the assets of Global
Refrigerant Management, Inc ("Global"). The Company exchanged
cash, notes and common stock totaling approximately $3,175,000.
Global provided refrigerant reclaiming services. The operations
of Global have been included since the acquisition date.
The acquisition was accounted for under the purchase method of
accounting.
On December 30, 1995, the Company executed and consummated an
agreement under which it agreed to issue 1,150,000 shares of the
Company's voting common stock to the shareholders of FulCircle
Recyclers, Inc. ("FulCircle") in exchange for all of the issued and
outstanding common stock of FulCircle. In addition to the
execution of the agreement, on December 30, 1995 shareholders
holding over 50% of the Company's outstanding voting common stock
also signed irrevocable proxies approving the transaction. The
shares were issued in July 1996 following the Company's
shareholders' meeting. The acquisition was accounted for as a
pooling of interests and accordingly, the accompanying consolidated
financial statements have been restated to include the results of
this transaction for all periods presented.
<TABLE>
<CAPTION>
Environmental FulCircle
Technologies Recyclers
Corp. Inc. Combined
<S> <C> <C> <C>
Three Months ended June 30, 1996
Net Sales $13,364,220 $ 1,424,039 $14,788,259
Net Income 1,172,254 80,763 1,253,017
Three months ended June 30, 1995
Net Sales $ 9,273,802 $ 1,460,198 $10,734,000
Net Income 527,902 (13,238) 514,664
Year ended September 30, 1995
Net Sales $28,665,227 $ 6,012,744 $34,677,971
Net Income 1,776,187 206,467 1,982,654
</TABLE>
NOTE 3 - EARNINGS PER SHARE
Net income per share for the first nine months and for the third
quarter of fiscal 1996 is computed on the basis of the weighted
average number of common shares outstanding in the period
(5,150,411), after giving effect to the 1,150,000 shares of common
stock issued to the former stockholders of FulCircle (See Note 2).
The effect of dilutive options and warrants is immaterial.
Net income per share for the first nine months and the third
quarter of fiscal 1995 is computed on the basis of the weighted
average number of common shares and common equivalent shares
outstanding during the period (4,738,074 for primary and 4,757,585
fully diluted in the first nine months of fiscal 1995, 4,780,169
for primary and 4,839,602 for fully diluted for the third quarter
of 1995) in accordance with the modified treasury stock method as
outstanding options and warrants exceeded 20% of the Company's
outstanding common stock. Under such approach interest expense has
been reduced and investment income has been increased by an
aggregate of approximately $105,701, net of tax ($90,260 for
purposes of the fully diluted calculation) in the first nine months
of fiscal 1995 and $13,681, net of tax ($7,577 for the purpose of
the fully diluted calculation) for the third fiscal quarter in
1995. Additionally, the calculation gives effect to the 1,150,000
shares of common stock issued to the former stockholders of
FulCircle.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
General
The Company is primarily engaged in the marketing and sale of
refrigerants, refrigerant reclaiming services, the manufacture of
refrigerant recovery and recycling equipment and the recycling of
hazardous waste materials from fluorescent light ballasts. The
Company's line of refrigerants include dichlorofluoromethane ("R-
12") and tetrafluoroethane ("R-134a"), marketed under the Company's
"Arctic Air" label to distributors of automotive supplies for use
by mechanics and technicians in servicing automotive air
conditioning systems. The Company markets R-134a in aerosol spray
cans under its customers' private labels for use in dusting
moisture-sensitive equipment, including personal computer screens,
cabinets, peripherals and photographic equipment. Through its
wholly-owned subsidiary Refrigerant Reclaim Services, Inc. (d/b/a
Full Cycle), the Company markets refrigerant reclaiming services as
well as R-12, R-134a and a variety of other refrigerants primarily
to large users of air conditioning and refrigeration chemicals.
Through its wholly-owned subsidiary Envirogroup Technologies, Inc.
(d/b/a Envirotech Systems) the Company has developed and
commercialized a line of equipment designed to recycle and recover
refrigerants contained in air conditioning and refrigeration
systems. Through its wholly-owned subsidiary FulCircle Recyclers,
Inc. ("FulCircle") (d/b/a Fulcircle Ballast Recyclers) the Company
is in the business of extracting hazardous waste materials from
fluorescent light ballasts and arranging environmentally accepted
means of treatment and disposal. The Company contracts for these
disposals with regulated PCB Disposal outlets. The Company
provides services to public utilities, governmental agencies and
commercial industrial organizations throughout the United States.
FulCircle is subject to the rules and standards of several
governmental regulatory agencies.
The Company's fiscal year-end is September 30.
The following discussion of results of operations for the three-
month and nine month periods ended June 30, 1996 and 1995 should be
read in conjunction with the unaudited condensed financial
statements, including notes thereto, included elsewhere in this
Report. All of the Company's historical financial statements
presented herein include the effects of acquiring FulCircle
Recyclers, Inc. in a pooling of interests and the purchase of the
assets of Global Refrigerant Management, Inc.
Three months ended June 30, 1996 as compared to the three months
ended June 30, 1995
Revenues for the three-month period ended June 30, 1996 were
approximately $14.8 million, as compared to revenues of
approximately $10.7 million for the three-month period ended June
30, 1995, an increase of approximately $4.1, or 37.8%. The
increase in revenues was attributable to a an increase in the sales
of packaged and reclaimed refrigerants. The primary reason for the
increase in packaged refrigerant sales is attributed to the
increase in prices for various CFC refrigerants sold by the
Company.
Sales of refrigerant R-12, of which production has ceased as of
December 31, 1995 by law, continues to provide a significant,
portion of the Company's revenues. As a result, the Company has
begun to shift its mix of revenues to the sale of reclaimed
refrigerants and to R-134a, the replacement for R-12. The Company
believes that it will become increasingly more dependent on the
sale of reclaimed refrigerants and R-134a. In addition, the
Company also expects that its sales of refrigerant recycling
equipment and PCB ballast recycling services to increase as
important sources of future revenues.
The costs of sales for the three month period ended June 30, 1996
were approximately $10.7 million, as compared to $8.2 million for
the three month period ended June 30, 1995, an increase of
approximately $2.5 million, or 31.0%. This relative decrease in
1996 costs was attributable to the higher margins experienced in
the refrigerant repackaging and reclaiming operations during the
period; a period which experienced shortages of CFC refrigerants.
The shortages are a result of the U.S. Government mandated December
31, 1995 phase-out of CFC production in the U.S. As a result the
cost of R-12 and other refrigerants has increased significantly.
Although there can be no assurance, the Company believes that it
will be able to continue to offset increases in the cost of its R-
12 and other CFCs on hand by increasing sales prices.
Selling and administrative expenses increased to $1,880,853 for the
three-month period ended June 30, 1996 from $1,610,131 for the
three-month period ended June 30, 1995, or 16.8%. This increase is
related primarily to the organization costs associated with the
Company's acquisition of FulCircle, expansion in reclaiming
activity and an increase in the amount of Federal Excise tax
payments made on certain of the Company's CFC refrigerants held in
inventory at December 31, 1996.
Net income for the three month period ended June 30, 1996 was
$1,253,017, as compared to net income of $514,664 for the three-
month period ended June 30, 1995, an increase of $738,353 or
143.5%.
Due to the Company's varied product mix and seasonality of
refrigerant revenues, the Company's results of operations for the
three-month period ended June 30, 1996 may not necessarily be
indicative of the Company's future operating results.
Nine months ended June 30, 1996 as compared to the nine months
ended June 30, 1995
Revenues for the nine month period ended June 30, 1996 were
approximately $28.2 million, as compared to revenues of
approximately $25.7 for the nine month period ended June 30, 1995,
an increase of approximately $2.6 million, or 10.0%. The increase
in revenues was primarily attributable to an increase in
refrigerant repackaging and reclaiming revenues. Since the
cessation of production of CFC chemicals at December 31, 1995, the
Company sought to allocate its sales of such chemicals to the
warmer seasons when demand and prices were expected to be
significantly higher. As a result, sales for the nine month period
reflect a shift of revenues into the Company's fiscal third
quarter.
The costs of sales for the nine month period ended June 30, 1996
were approximately $20.3 million, as compared to approximately
$18.5 million for the nine month period ended June 30, 1995, an
increase of approximately $1.8 million, or 9.7%. The increase is
primarily attributable to increased sales of CFC refrigerants
during the period.
Selling and administrative expenses increased to $5,039,756 for the
nine month period ended June 30, 1996 from $4,388,461 for the nine
month period ended June 30, 1995, a 14.8% increase. The increase
was attributable primarily to the organization costs and expenses
associated with the expansion of the Company's reclaiming
operations, a higher excise floor tax payment on certain
refrigerants and expenses associated with its acquisition of
FulCircle during the period.
The Company generated net income during the nine month period ended
June 30, 1996 of $1,629,036 as compared to net income of $1,541,606
during the nine month period ended June 30, 1995, an increase of
$87,4302.
Due to the Company's varied product mix and the seasonality of
refrigerant revenues, the Company's results of operations for the
nine month period ended June 30, 1996 may not necessarily be
indicative of the Company's future operating results.
Liquidity and Capital Resources
The Company had working capital of approximately $15.4 million at
June 30, 1996, as compared to working capital of approximately
$15.5 million at September 30, 1995. The Company has financed its
working capital requirements primarily through operating cash flow,
and a $10 million working capital revolving line of credit obtained
from a bank (the "Credit Facility").
Net cash used by operating activities for the nine month periods
ended June 30, 1996 and 1995 was $9,021,828 and $2,079,407,
respectively. The net cash used in 1996 is primarily attributable
to the increased level of the Company's inventories, which are
primarily associated with the purchase of CFC refrigerants. Net
cash provided by financing activities was approximately $6.95
million for the nine month period ended June 30, 1996, primarily
reflecting Credit Facility borrowings during the period. At June
30, 1996 approximately $8.4 million of the Credit Facility had been
drawn upon.
The Company had cash and cash equivalents of $1,017,000 and
$4,027,349 at June 30, 1996 and September 30, 1995, respectively.
The Company anticipates, based on currently proposed plans and
assumptions relating to its operations, that cash-flow from
operations, and its Credit Facility, that sources of cash are
sufficient to satisfy its contemplated cash requirements for at
least 12 months. These assumptions give full effect to the
Company's current and desired levels of refrigerant inventory,
recycling and recovery equipment, and capital expenditures. In the
event that the Company's plans change, its assumptions change or
prove to be inaccurate to fund operations (due to unanticipated
expenses, technical problems or difficulties otherwise), the
Company could be required to seek additional financing.
The Company's current Credit Facility provides for advances bearing
interest per annum at 90% of the bank's index rate (currently at
8.25%) or at the London Interbank Borrowing rate plus 1.75% for all
working capital advances and is secured by a pledge of
substantially all the Company's assets. The Credit Facility
expires on March 31, 1997.
As of the date of this Report, other than as set forth in this
Report, the Company has no material commitments for capital
expenditures, including in connection with research and
development, acquisition of plant and equipment, additional
employees or increases to inventory.
The Company maintains inventories of various refrigerants,
including R-12, R-22 and R-134a, in packaged and bulk form. In as
much as these refrigerants are classified as hazardous substances,
prescribed handling, storage and transportation regulations are
required. The Company believes that it is in substantial
compliance with all material federal, state and local laws and
regulations governing its operations and has obtained all material
licenses and permits required for the operation of its
business.
<PAGE> PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security
Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - None.
(b) Reports on Form 8-K - None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
ENVIRONMENTAL TECHNOLOGIES CORP.
Date: August 8, 1996 By: /S/ RICHARD G. SCHMELING
_____________________________
Richard G. Schmeling
Vice President and Chief
Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 939,177
<SECURITIES> 0
<RECEIVABLES> 8,450,415
<ALLOWANCES> 0
<INVENTORY> 19,225,738
<CURRENT-ASSETS> 28,872,886
<PP&E> 2,264,895
<DEPRECIATION> 425,209
<TOTAL-ASSETS> 32,373,759
<CURRENT-LIABILITIES> 13,427,042
<BONDS> 0
0
0
<COMMON> 51,504
<OTHER-SE> 18,895,213
<TOTAL-LIABILITY-AND-EQUITY> 32,373,759
<SALES> 14,788,259
<TOTAL-REVENUES> 14,788,259
<CGS> 10,696,700
<TOTAL-COSTS> 10,696,700
<OTHER-EXPENSES> 1,880,853
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 125,962
<INCOME-PRETAX> 2,090,017
<INCOME-TAX> 837,000
<INCOME-CONTINUING> 1,253,017
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,253,017
<EPS-PRIMARY> 0.24
<EPS-DILUTED> 0.24
</TABLE>
