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, 1997
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 4,880,386 (as of May 14, 1997).
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)
March 31, September 30,
___________ _____________
<S> <C> <C>
1997 1996
Current Assets:
Cash and cash equivalents $ 541,217 $ 942,709
Accounts receivable, net 7,272,453 4,498,245
Inventories 30,537,653 22,605,245
Other current assets 406,746 334,336
Total current assets 38,758,069 28,380,608
Property and equipment, net 3,026,615 2,153,150
Goodwill, net 634,668 659,236
Other assets 832,049 713,733
Total assets $43,251,401 $31,906,727
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable $13,492,280 $ 9,497,519
Accounts payable 6,854,031 2,128,602
Accrued liabilities 2,417,057 1,216,684
Total current liabilities 22,763,368 12,842,805
Long-term debt 252,121 0
Minority interest 5,489 0
Stockholders' Equity
Common stock 51,504 51,504
Paid-in-capital 12,749,083 12,749,083
Retained earnings 7,429,836 6,263,335
Total stockholders' equity 20,230,423 19,063,922
Total liabilities and
stockholders' equity $43,251,401 $31,906,727
See Accompanying Selected Notes to
Consolidated Financial Statements.
</TABLE>
<PAGE>
ENVIRONMENTAL TECHNOLOGIES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED MARCH 31, ENDED MARCH 31,
1997 1996 1997 1996
_______ _______ _______ _______
<S> <C> <C> <C> <C>
Net sales $ 18,704,433 $ 8,070,351 $ 30,070,547 $ 13,449,764
Cost of sales 15,228,403 5,516,739 24,229,628 9,592,735
____________ ___________ ____________ ____________
Gross profit 3,476,030 2,553,612 5,840,919 3,857,029
Selling, general and
administrative expenses 1,816,972 1,648,620 3,502,035 3,158,402
Operating income 1,659,058 904,992 2,338,884 698,627
Interest expense 230,008 84,337 441,394 118,345
Investment income 5,489 0 5,489 0
Other income, net 20,742 9,975 35,521 44,737
___________ ___________ __________ __________
Income before income tax
expense 1,455,281 830,630 1,938,500 625,019
Income tax expense 579,281 331,000 772,000 249,000
__________ ___________ __________ _________
Net income $ 876,000 $ 499,630 $ 1,166,500 $ 376,019
__________ ___________ __________ __________
__________ ___________ __________ __________
Net income per common and common
equivalent shares:
Primary $ .17 $ .10 $ .23 $ .07
_________ __________ ___________ ____________
_________ __________ ___________ ____________
Fully diluted $ .17 $ .10 $ .23 $ .07
_________ __________ ___________ ____________
_________ __________ ___________ ____________
</TABLE>
See Accompanying Selected Notes to
Consolidated Financial Statements.
<PAGE>
ENVIRONMENTAL TECHNOLOGIES CORP. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
FOR THE SIX MONTHS
ENDED MARCH 31,
________________________
1997 1996
____ ____
<S> <C> <C>
Cash Flows From Operating
Activities
Net Income $ 1,166,500 $ 376,019
Adjustments to reconcile
net income to net cash used
in operating activities:
Depreciation and amortization 401,462 275,155
Gain on sale of equipment (2,982) -
(Increase) decrease in assets:
Accounts receivable (2,774,208) (1,648,045)
Inventory (7,932,408) (7,252,780)
Other current assets (72,410) 420,855
Other assets (134,902) (381,456)
Increase (Decrease) in
liabilities:
Accounts payable and accrued
liabilities 5,861,953 2,540,519
__________ __________
Net cash used in
operating activities (3,486,995) (5,669,733)
Cash Flows From Investing Activities
Capital expenditures (1,240,228) (739,079)
Cash Flows From Financing Activities
Proceeds from short-term debt 4,073,610 3,119,838
Proceeds (Repayments) from
long-term debt 252,121 (200,000)
Distributions to FulCircle
Stockholders - (190,040)
_________ __________
Net cash provided by
financing activities 4,325,731 2,729,798
_________ __________
Net (Decrease) In Cash and
Cash Equivalents (401,492) (3,679,014)
Cash and Cash Equivalents - Beginning 942,709 4,027,349
of period
Cash and Cash Equivalents - End of
period $ 541,217 $ 348,335
_________ _________
_________ _________
</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 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. Through the Company's 50% interest in
Liberty Technology International, Inc., the Company operates a mixed
refrigerant gas separation facility.
Consolidation The consolidated financial statements include the
financial statements of Environmental Technologies Corp. and its
subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
The Company has a 50% interest in the Common Stock of Liberty
Technology International, Inc.("Liberty"). The acquisition is
accounted for under the equity method, and because the Company has a
substantial influence over the operations and management, Liberty's
balance sheet and results of operations have been included with the
consolidated financial statements.
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 six month periods ended March 31, 1997 and March 31,
1996, respectively, have been made. Because of the effects of
seasonality the results of operations for the three and six month
periods ended March 31, 1997 are not necessarily indicative of the
results to be expected for the full year.
NOTE 2 - BUSINESS COMBINATION
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. 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.
NOTE 3 - EARNINGS PER SHARE
Net income per share for the first six months and for the second
quarter of fiscal 1997 is computed on the basis of the weighted
average number of common shares outstanding in the period
(5,153,411). The effect of dilutive options and warrants is
immaterial.
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). The effect of dilutive options and warrants is
immaterial.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Certain factors could cause results to materially differ from those
that might be expected based upon the forward-looking statements
contained in the following discussion. Among such important factors
are an unanticipated downturn in the demand for the Company's
refrigerant products, the lack of demand for the Company's
refrigerant recycling and recovery equipment, any unforeseen
inefficiencies at the Company's new refrigerant separation facility
in Texas and such risks and uncertainties as are detailed from time
to time in the Company's SEC reports ad filings, including this Form
10-Q for the six months ended March 31, 1997.
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. Through
the Company's 50% interest in Liberty Technology International,
Inc.("Liberty"), the Company operates a chemical separation facility.
The Company markets R-134a in aerosol spray cans under its customers'
private labels. Through its wholly-owned subsidiary
Refrigerant Reclaim Services, Inc. ("RRSI")(d/b/a Full Circle, Inc.),
the Company markets refrigerant reclaiming services as well as a variety
of other refrigerants primarily to large users of air conditioning
and refrigeration chemicals. Through its wholly-owned subsidiary
Envirogroup Technologies, Inc. ("Envirotech") (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 Full Circle, Inc.)
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, 1997 and 1996
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.
Three months ended March 31, 1997 as compared to the three months
ended March 31, 1996
Revenues for the three-month period ended March 31, 1997 were
approximately $18.7 million, as compared to revenues of
approximately $8.1 million for the three-month period ended March
31, 1996, an increase of approximately $10.6 million, or 131.8%.
The increase in revenues was primarily attributable to significant
increases in packaged and reclaimed refrigerant sales. The primary
reason for the increase in packaged refrigerant sales is attributed
to the Company's success at expanding its core automotive after market
business with new accounts and broader geographical distribution.
In addition, the Company realized a 250% increase in sales by its
refrigerant reclaiming operation which were based upon product price
increases and greater sales volumes from a greatly expanded
operation. Recycling and recovery equipment sales increased by
approximately 29% for the period. 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 by law, continues to provide a significant portion
of the Company's revenues. As a result of the cessation of the
production of newly manufactured R-12, 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,
mixed refrigerant separation services and sales, sales of
refrigerant recycling and recovery 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, 1997
and March 31, 1996 were approximately $15.2 million and $5.5
million, respectively. This increase in 1997 was attributable to
the increased level in overall sales activity. The lower gross
margin percentages in the March 31, 1997 period reflects a shift
toward the sale of lower-margin R-134a sales and a relative increase in
cost of CFC refrigerants in the Company's refrigerant repackaging
operation. 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. 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 $1,816,972 for the
three-month period ended March 31, 1997 from $1,648,620 for the
three-month period ended March 31, 1996, or 10.2%. This increase is
related primarily to the organization costs associated with the
Company's expansion in reclaiming.
Net income for the three month period ended March 31, 1997 was
$876,000, as compared to net income of $499,630 for the three-month
period ended March 31, 1996, an increase of $376,370, or 75.3%.
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 March 31, 1997 may not necessarily be
indicative of the Company's future operating results.
<PAGE>
Six months ended March 31, 1997 as compared to the six months ended
March 31, 1996 Revenues for the six month period ended March 31,
1997 were approximately $30.1 million, as compared to revenues of
approximately $13.4 million for the six month period ended March 31,
1996, an increase of approximately $16.6 million, or 123.6%. The
increase in revenues was primarily attributable to an increase in
refrigerant repackaging and refrigerant reclaiming revenues. Since
the cessation of production of CFC chemicals at December 31, 1995,
the Company has sought to broaden its revenue base and to
increasingly emphasize R-134a and other non CFC refrigerants. In
addition to the Company's continued efforts in the refrigerant
recovery and recycling equipment and ballast recycling industries,
during the period ending March 31, 1997 the Company completed and
has begun operating the nation's largest mixed refrigerant
processing facility. This facility is expected to contribute
significant earnings as well as act as a source of difficult to
obtain refrigerant.
The costs of sales for the six month period ended March 31, 1997
were approximately $24.2 million, as compared to approximately $9.6
million for the six month period ended March 31, 1996, an increase
of $14.6 million, or 152.6%. The increase is primarily
attributable to increased sales of refrigerants during the period.
Selling and administrative expenses increased to $3,502,035 for the
six month period ended March 31, 1997 from $3,158,402 for the six
month period ended March 31, 1996, a 10.9% increase. The increase
was attributable primarily to the organization costs and
expenses associated with the expansion of the Company's reclaiming
operations, which were partially offset by expense reductions in
each of the Company's other operating subsidiaries. Notably, in the
previous year the Company experienced expenses related to the
relocation of its equipment operations from Michigan to Texas and
expenses associated with its acquisition of FulCircle.
The Company generated net income during the six month period ended
March 31, 1997 of $1,166,500 as compared to net income of $376,019
during the six month period ended March 31, 1996, an increase of
$790,481, or 210.2%.
Due to the Company's varied product mix and the seasonality of
refrigerant revenues, the Company's results of operations for the
six month period ended March 31, 1997 may not necessarily be
indicative of the Company's future operating results.
Liquidity and Capital Resources
The Company had working capital of approximately $16.0 million at
March 31, 1997, as compared to working capital of approximately
$15.5 million at September 30, 1996. The Company has financed its
working capital requirements primarily through operating cash
flow, a $13.5 million working capital revolving line of credit
obtained from a bank (the "Credit Facility").
Net cash used by operating activities for the six month periods
ended March 31, 1997 and 1996 was $3,486,995 and $5,669,733,
respectively. The net cash used in 1997 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 $4.3 million
for the six month period ended March 31, 1997, primarily reflecting
Credit Facility borrowings during the period. At March 31, 1997
approximately $13.5 million of the Credit Facility had been drawn
upon.
The Company had cash and cash equivalents of $541,217 and $942,709
at March 31, 1997 and September 30, 1996, 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 prime rate or at 1.75% over
the London Interbank Borrowing Rate (LIBOR) and is secured by a
pledge of substantially all the Company's assets. The Credit
Facility was scheduled to expire on March 31, 1997 but was extended
for 60 days. The Company anticipates that by May 31, 1997 the bank
will renew the Credit Facility on substantially the same terms as
the previous year's Credit Facility.
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.
By:/s/ Richard G. Schmeling
________________________
Date: May 14, 1997 Richard G. Schmeling
Vice President and Chief
Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 541,217
<SECURITIES> 0
<RECEIVABLES> 7,272,453
<ALLOWANCES> 0
<INVENTORY> 30,537,653
<CURRENT-ASSETS> 38,758,069
<PP&E> 3,026,615
<DEPRECIATION> 401,462
<TOTAL-ASSETS> 43,251,401
<CURRENT-LIABILITIES> 22,763,368
<BONDS> 0
0
0
<COMMON> 51,504
<OTHER-SE> 20,178,919
<TOTAL-LIABILITY-AND-EQUITY> 43,251,401
<SALES> 30,070,547
<TOTAL-REVENUES> 0
<CGS> 24,229,628
<TOTAL-COSTS> 24,229,628
<OTHER-EXPENSES> 3,502,035
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 441,394
<INCOME-PRETAX> 1,938,500
<INCOME-TAX> 772,000
<INCOME-CONTINUING> 1,166,500
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,166,500
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0.23
</TABLE>
