[TYPE]
[S]
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 March 31, 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 22-305943
(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 4,000,411 (as of May 14, 1996).
Page 1 of 13 pages.
There are no exhibits.
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ENVIRONMENTAL TECHNOLOGIES CORP. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
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ITEM 1. FINANCIAL STATEMENTS
ENVIRONMENTAL TECHNOLOGIES CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS (UNAUDITED)
March 31, September 30,
1996 1995
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 348,335 $ 4,027,349
Accounts receivable, net 6,587,463 4,939,418
Inventories 17,199,493 9,946,713
Other current assets 429,531 773,086
Total current assets 24,564,822 19,686,566
Property and equipment, net 2,123,576 1,629,553
Goodwill, net 684,804 714,905
Other assets 351,364 133,357
Total assets $27,724,566 $22,164,381
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 3,619,835 $ 500,000
Current portion of long-term debt 400,000 399,996
Accounts payable 4,537,108 2,516,416
Accrued liabilities 1,300,849 781,022
Total current liabilities 9,857,792 4,197,434
Long-term debt 166,673 336,673
Total Liabilities 10,024,465 4,564,107
Stockholders' Equity
Common stock 51,504 51,504
Paid-in-capital 12,390,034 12,823,634
Retained earnings 5,258,563 4,725,136
Total stockholders' equity 17,700,101 17,600,274
Total liabilities and
stockholders' equity $27,724,566 $22,164,381
</TABLE>
See Accompanying Selected Notes to
Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
ENVIRONMENTAL TECHNOLOGIES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
FOR THE SIX MONTHS FOR THE THREE MONTHS
ENDED MARCH 31, ENDED MARCH 31,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net sales $ 8,070,351 $ 8,283,438 $13,449,764 $ 14,931,212
Cost of sales 5,516,739 5,548,590 9,592,735 10,143,298
Gross profit 2,553,612 2,734,848 3,857,029 4,787,914
Selling, general and
administrative expenses 1,648,620 1,532,271 3,158,402 2,965,716
Operating income 904,992 1,202,577 698,627 1,822,198
Interest expense 84,337 76,781 118,345 134,620
Other income,net 9,975 6,197 44,737 17,553
Income before income
tax expense 830,630 1,131,993 625,019 1,705,131
Income tax expense 331,000 447,000 249,000 672,000
Net income $ 499,630 $ 684,993 $ 376,019 $ 1,033,131
Net income per common
and common
equivalent shares:
Primary $ .10 $ .15 $ .07 $ .24
Fully diluted $ .10 $ .15 $ .07 $ .24
See Accompanying Selected Notes to
Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ENVIRONMENTAL TECHNOLOGIES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
FOR THE SIX MONTHS
ENDED MARCH 31,
1996 1995
<S> <C> <C>
Cash Flows From Operating
Activities
Net Income $ 376,019 $1,033,131
Adjustments to reconcile net income
to net cash from operating activities:
Depreciation and amortization 275,155 121,710
(Increase) decrease in assets:
Accounts receivable (1,648,045) (1,095,403)
Inventory (7,252,780) (2,796,654)
Other current assets 420,855 257,933
Other assets (419,860) (29,772)
Increase (Decrease) in liabilities:
Accounts payable and accrued
liabilities 2,540,519 481,820
Net cash used in
operating activities (5,708,137) (2,027,235)
Cash Flows From Investing Activities
Purchase of equipment (739,079) (882,522)
Cash Flows From Financing Activities
Proceeds from short-term debt, net
of repayments 3,119,838 1,735,833
Proceeds (Repayments)
from long-term debt (200,000) 1,683,333
Purchase of goodwill - (661,930)
Distributions to FulCircle Stockholders (190,040) (400,395)
Proceeds from paid-in capital, net - 509,600
Net cash provided by
financing activities 2,729,798 2,866,441
Net Increase (Decrease) In Cash and
Cash Equivalents (3,717,418) (43,316)
Cash and Cash Equivalents - Beginning 4,065,753 499,578
of period
Cash and Cash Equivalents - End of
period $ 348,335 $ 456,262
See Accompanying Selected Notes to
Consolidated Financial Statements.
</TABLE>
<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
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 from fluorescent 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.
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 six month periods ended March 31, 1996 and March 31,
1995, respectively, have been made. The results of operations for
the three and six month periods ended March 31, 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. 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 are
expected to be issued in June 1996. The acquisition was accounted
for as a pooling of interests and accordingly, the accompanying
consolidated financial statements have been restated to include the
results for all periods presented.
<TABLE>
Environmental FulCircle
Technologies Recyclers
Corp. Inc. Combined
<S> <C> <C> <C>
Three Months ended
March 31, 1996
Net Sales $ 6,589,509 $ 1,480,842 $8,070,351
Net Income 393,269 106,361 499,630
Three months ended
March 31, 1995
Net Sales $ 6,857,143 $ 1,426,295 $8,283,438
Net Income 654,209 30,784 684,993
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 six months and for the
second 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 to be 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 six months and the second
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 (4,717,027 for both primary and fully
diluted in the first six months of fiscal 1995, 4,720,899 for both
primary and fully diluted for the second 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 $92,000, net of tax ($83,000 for purposes of the
fully diluted calculation) in the first six months of fiscal 1995
and $42,000, net of tax ($36,000 for the purpose of the fully
diluted calculation) for the second fiscal quarter in 1995.
Additionally, the calculation gives effect to the 1,150,000 shares
of common stock to be issued to the formers stockholders of
FulCircle.
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 six-month periods ended March 31, 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 March 31, 1996 as compared to the three months
ended March 31, 1995
Revenues for the three-month period ended March 31, 1996 were
approximately $8.1 million, as compared to revenues of
approximately $8.3 million for the three-month period ended March
31, 1995, a decrease of approximately $213,000, or 2.6%. The
decrease in revenues was primarily attributable to a decrease in
packaged refrigerant sales which was partially offset by stronger
sales of refrigerant recycling and recovery equipment for the
period. The primary reason for the decrease in packaged
refrigerant sales is attributed to the Company's efforts to
allocate its sales of increasingly more scarce CFC refrigerants to
the third fiscal quarter when it appears that demand will be at its
highest. Increased recycling and recovery equipment sales reflect
the continued contribution of the recycling equipment assets
purchased from Wynn's International, Inc. in 1995 and the effects
of the legislated requirements for all users of the Company's
recycling equipment to purchase new equipment for the processing of
R-134a in automobiles. The effects of this legislation is expected
to have a material impact on equipment sales over the next two
years.
Sales of refrigerant R-12, of which production has ceased as of
December 31, 1995, continues to provide a significant, albeit
declining, portion of the Company's revenues. As a result, the
Company has already experienced a significant shift of revenues to
the sale of R-134a, the replacement for R-12. And the Company
believes that it will become increasingly more dependent on the
sale of R-134a. The Company also expects that its refrigerant
reclaiming activities, sales of refrigerant recycling equipment and
PCB ballast recycling services will serve increasingly as growing
and important sources of future revenues.
The costs of sales for the three month periods ended March 31, 1996
and March 31, 1995 were approximately $5.5 million in both periods.
This relative increase in 1996 was attributable to the lower
margins experienced in the reclaiming operations during the period;
a period which experienced significant weather related softness.
The cost of R-12 has increased significantly since the 1990
amendment to the Clean Air Act and since the cessation of its
production at December 31, 1995. The Company believes, although
there can be no assurance, 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 $1,648,620 for the
three-month period ended March 31, 1996 from $1,532,271 for the
three-month period ended March 31, 1995, or 7.6%. This increase is
related primarily to the organization costs associated with the
Company's acquisition of FulCircle, expansion in reclaiming
activity and to expenses associated with the relocation of the
Company's equipment operation from Michigan to Texas during the
period.
Net income for the three month period ended March 31, 1996 was
$499,630, as compared to net income of $684,993 for the three-month
period ended March 31, 1995, a decrease of $185,363.
Due to the Company's changeable product mix and seasonality of
revenues, the Company's results of operations for the three-month
period ended March 31, 1996 may not necessarily be indicative of
the Company's future operating results.
Six months ended March 31, 1996 as compared to the six months ended
March 31, 1995
Revenues for the six month period ended March 31, 1996 were
approximately $13.4 million, as compared to revenues of
approximately $14.9 for the six month period ended March 31, 1995,
a decrease of approximately $1.5 million, or 9.9%. The decrease in
revenues was primarily attributable to a decrease in refrigerant
repackaging revenues. Since the cessation of production of CFC
chemicals at December 31, 1995, the Company has sought to allocate
its sales of such chemicals to the warmer seasons when demand and
prices are expected to be significantly higher. As a result, sales
for the six month period reflect a shifting of planned revenues
into the Company's fiscal third quarter.
The costs of sales for the six month period ended March 31, 1996
were approximately $9.6 million, as compared to approximately $10.1
million for the six month period ended March 31, 1995, a decrease
of $550,563 million, or 5.4%. The decrease is primarily
attributable to decreased sales of CFC refrigerants during the
period.
Selling and administrative expenses increased to $3,158,402 for the
six month period ended March 31, 1996 from $2,965,716 for the six
month period ended March 31, 1995, a 6.5% increase. The increase
was attributable primarily to the organization costs and expenses
associated with the expansion of the Company's reclaiming
operations, the relocation of its equipment operations from
Michigan to Texas and expenses associated with its acquisition of
FulCircle during the period ended March 31, 1996.
The Company generated net income during the six month period ended
March 31, 1996 of $376,019 as compared to net income of $1,033,131
during the six month period ended March 31, 1995, a decrease of
$657,112.
Due to the Company's changeable product mix and seasonality of
revenues, the Company's results of operations for the six month
period ended March 31, 1996 may not necessarily be indicative of
the Company's future operating results.
Liquidity and Capital Resources
The Company had working capital of approximately $14.7 million at
March 31, 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,
a $1.0 million term loan and $3.0 million working capital revolving
line of credit obtained from a bank (together the "Credit
Facility").
Net cash used by operating activities for the six month periods
ended March 31, 1996 and 1995 was $5,708,137 and $2,027,235,
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 $2.7
million for the six month period ended March 31, 1996, primarily
reflecting Credit Facility borrowings during the period. At March
31, 1996 approximately $3.2 million of the Credit Facility had been
drawn upon.
The Company had cash and cash equivalents of $348,335 and
$4,027,349 at March 31, 1996 and September 30, 1996, respectively.
The Company anticipates, based on currently proposed plans and
assumptions relating to its operations, that cash-flow from
operations, proceeds from its 1995 common stock warrant conversion,
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 the bank's index rate (currently at 8.25%)
plus 1.0% for working capital advances and 1.5% for term loans and
is secured by a pledge of substantially all the Company's assets
and the personal guarantee of George Cannan, Sr., the Company's
Chairman and principal stockholder. The Credit Facility expires on
May 15, 1996 and the term loan amortizes at $33,333.33 per month
with the final payment to be made on July 1, 1997. The Company is
currently in the process of replacing the Credit Facility with
another bank.
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.
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.
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: May 14, 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> MAR-31-1996
<CASH> 348,336
<SECURITIES> 0
<RECEIVABLES> 6,587,463
<ALLOWANCES> 0
<INVENTORY> 17,199,493
<CURRENT-ASSETS> 24,564,822
<PP&E> 2,123,576
<DEPRECIATION> 275,155
<TOTAL-ASSETS> 27,724,566
<CURRENT-LIABILITIES> 9,857,792
<BONDS> 0
51,504
0
<COMMON> 0
<OTHER-SE> 17,648,597
<TOTAL-LIABILITY-AND-EQUITY> 27,724,566
<SALES> 8,070,351
<TOTAL-REVENUES> 8,070,351
<CGS> 5,516,739
<TOTAL-COSTS> 5,516,739
<OTHER-EXPENSES> 1,648,620
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 84,337
<INCOME-PRETAX> 830,630
<INCOME-TAX> 331,000
<INCOME-CONTINUING> 499,630
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 499,630
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
