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, 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 4,966,219 (as of August 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
ENVIRONMENTAL TECHNOLOGIES CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS (UNAUDITED)
June 30, September 30,
1997 1996
Current Assets:
Cash and cash equivalents $ 1,333,331 $ 942,709
Accounts receivable, net 10,505,788 4,498,318
Inventories 26,905,643 22,605,245
Other current assets 580,680 334,336
Total current assets 39,325,442 28,380,608
Property and equipment, net 3,187,588 2,153,150
Goodwill, net 622,385 659,236
Other assets 590,851 713,733
Total assets $43,726,266 $31,906,727
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable $14,142,280 $ 9,497,519
Accounts payable 7,170,106 2,128,602
Accrued liabilities 2,246,057 1,216,684
Total current liabilities 23,558,443 12,842,805
Long-term debt 252,121 0
Minority interest 36,260 0
Stockholders' Equity
Common stock 49,054 51,504
Paid-in-capital 10,785,427 12,749,083
Retained earnings 9,044,961 6,263,335
Total stockholders' equity 19,879,442 19,063,922
Total liabilities and
stockholders' equity $43,726,266 $31,906,727
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,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net sales $ 17,248,692 $14,788,259 $ 47,319,239 $ 28,238,023
Cost of sales 12,347,491 10,696,700 36,577,119 20,289,435
Gross profit 4,901,201 4,091,559 10,742,120 7,948,588
Selling, general and
administrative expenses 1,990,082 1,880,853 5,492,117 5,039,756
Operating income 2,911,119 2,210,706 5,250,003 2,908,832
Interest expense 276,774 125,962 718,168 244,529
Investment income 30,771 0 36,260 0
Other income, net 22,010 5,273 57,531 50,733
Income before income tax
expense 2,687,126 2,090,017 4,625,626 2,715,036
Income tax expense 1,072,000 837,000 1,844,000 1,086,000
Net income $1,615,126 $1,253,017 $ 2,781,626 $1,629,036
Net income per common and common
equivalent shares:
Primary $ .33 $ .24 $ .55 $ .32
Fully diluted $ .33 $ .24 $ .55 $ .32
</TABLE>
See Accompanying Selected Notes to
Consolidated Financial Statements.
<PAGE>
ENVIRONMENTAL TECHNOLOGIES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED JUNE 30,
1997 1996
<S> <C> <C>
Cash Flows From Operating
Activities
Net Income $ 2,781,626 $1,629,036
Adjustments to reconcile
net income to net cash used
in operating activities:
Depreciation and amortization 589,045 425,209
Gain on sale of equipment (13,423) -
(Increase) decrease in assets:
Accounts receivable (6,007,470) (3,510,997)
Inventory (4,300,398) (9,279,025)
Other current assets (246,344) 515,530
Other assets 108,323 (523,654)
Increase (Decrease) in
liabilities:
Accounts payable and accrued
liabilities 6,107,137 1,722,073
Net cash used in
operating activities (981,504) (9,021,828)
Cash Flows From Investing Activities
Capital expenditures (1,586,631) (1,017,166)
Cash Flows From Financing Activities
Proceeds from short-term debt 4,644,761 7,507,535
Proceeds (Repayments) from
long-term debt 252,121 (366,673)
Distributions to FulCircle
Stockholders - (190,040)
Proceeds from exercise of warrants 174,375 -
Proceeds from exercise of options 47,500 -
Retirement of Stock (2,160,000) -
Net cash provided by
financing activities 2,958,757 6,950,822
Net (Decrease) In Cash and
Cash Equivalents 390,622 (3,088,172)
Cash and Cash Equivalents - Beginning 942,709 4,027,349
of period
Cash and Cash Equivalents - End of
period $1,333,331 $ 939,177
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. through its
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 nine month periods ended June
30, 1997 and June 30, 1996 have been made. Because of the
effects of seasonality the results of operations for the three
and nine month periods ended June 30, 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 nine months and for the third
quarter of fiscal 1997 is computed on the basis of the weighted
average number of common shares outstanding in the period
(5,064,903)and (4,887,886), respectively. The effect of dilutive
options and warrants is immaterial.
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). 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 nine
months ended June 30, 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 nine-month periods ended June 30, 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 June 30, 1997 as compared to the three months
ended June 30, 1996
Revenues for the three-month period ended June 30, 1997 were
approximately $17.2 million, as compared to revenues of
approximately $14.8 million for the three-month
period ended June 30, 1996, an increase of approximately $2.5
million, or 16.6%. The increase in revenues was primarily
attributable to significant increases in reclaimed
refrigerant sales. The primary reason for the increase in
reclaimed refrigerant sales is attributed to the Company's
success at expanding its operations with new accounts
and broader geographical distribution. Recycling and recovery
equipment sales increased by approximately 30.7% 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.
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 June 30,
1997 and June 30, 1996 were approximately $12.3 million and $10.7
million, respectively. This increase in 1997 was attributable
to the increased level in overall sales activity, especially
in the Company's refrigerant reclaiming 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 $1,990,082 for
the three-month period ended June 30, 1997 from $1,880,853 for
the three-month period ended June 30, 1996, or 5.8%. This
increase is related primarily to the organization costs
associated with the Company's expansion in refrigerant
reclaiming.
Net income for the three month period ended June 30, 1997 was
$1,615,126, as compared to net income of $1,253,017 for the
three-month period ended June 30, 1996, an increase of $362,109,
or 28.9%.
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, 1997 may not necessarily be
indicative of the Company's future operating results.
Nine months ended June 30, 1997 as compared to the nine months
ended June 30, 1996
Revenues for the nine month period ended June 30, 1997 were
approximately $47.3 million, as compared to revenues of
approximately $28.2 million for the nine month
period ended June 30, 1996, an increase of approximately $19.1
million, or 67.6%. The increase in revenues was primarily
attributable to a 67% increase in refrigerant
repackaging sales and a 153% increase in refrigerant reclaiming
revenues. The primary reason for the increase in packaged
refrigerant sales is attributed to the Company's
success in expanding its core automotive after-market business
with new accounts and broader geographical distribution. The
Company's increased revenues from its refrigerant reclaiming
activity were related to product price increases and greater
sales volume from a greatly expanded operation. 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 June
30, 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 nine month period ended June 30, 1997
were approximately $36.6 million, as compared to approximately
$20.3 million for the nine month period ended June 30, 1996, an
increase of $16.3 million, or 80.3%. The increase is
primarily attributable to increased sales of refrigerants during
the period.
Selling and administrative expenses increased to $5,492,117 for
the nine month period ended June 30, 1997 from $5,039,756 for the
nine month period ended June 30, 1996, a 9.0% 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 nine month period
ended June 30, 1997 of $2,781,626 as compared to net income of
$1,629,036 during the nine month period ended
June 30, 1996, an increase of $1,152,590, or 70.8%.
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, 1997 may not necessarily be
indicative of the Company's future operating results.
Liquidity and Capital Resources
The Company had working capital of approximately $15.8 million at
June 30, 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 and a $13.5 million working capital line of credit
obtained from a bank (the "Credit Facility").
Net cash used by operating activities for the nine month periods
ended June 30, 1997 and 1996 was $981,504 and $9,021,828,
respectively. The net cash used in 1997 is primarily
attributable to the increased level of the Company's accounts
receivables and inventories, the latter of which are primarily
associated with the purchase of CFC refrigerants. Net cash
provided by financing activities was approximately $3.0
million for the nine month period ended June 30, 1997, primarily
reflecting Credit Facility borrowings during the period. At June
30, 1997 the entire $13.5 million of the Credit Facility had been
drawn upon.
The Company had cash and cash equivalents of $1,333,331 and
$942,709 at June 30, 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 will not be sufficient to
satisfy its contemplated cash requirements over the next twelve
(12) months. As a result, the Company is exploring various
alternatives to raise capital, whether through debt or equity,
and whether through public or private sources. In the event the
Company is unable to raise additional capital, it will be unable
to pursue all of its currently proposed plans.
The Company's current Credit Facility provides for advances
bearing interest per annum at a combination of prime and/or 90%
of the bank's prime rate and is secured by a pledge of
substantially all the Company's assets. The Credit Facility was
scheduled to expire on May 31, 1997 but has been extended until
October 31, 1997. The Company anticipates that by October 31,
1997 the bank and the Company will have negotiated
a new Credit Facility on similar 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: August 19, 1997 Richard G. Schmeling
Vice President and Chief
Financial Officer
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,333,331
<SECURITIES> 0
<RECEIVABLES> 10,505,788
<ALLOWANCES> 0
<INVENTORY> 26,905,643
<CURRENT-ASSETS> 39,325,442
<PP&E> 3,187,588
<DEPRECIATION> 589,045
<TOTAL-ASSETS> 43,726,266
<CURRENT-LIABILITIES> 23,558,443
<BONDS> 0
0
0
<COMMON> 49,054
<OTHER-SE> 19,830,388
<TOTAL-LIABILITY-AND-EQUITY> 43,726,266
<SALES> 47,319,239
<TOTAL-REVENUES> 0
<CGS> 36,577,119
<TOTAL-COSTS> 36,577,119
<OTHER-EXPENSES> 5,492,117
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 718,168
<INCOME-PRETAX> 4,625,626
<INCOME-TAX> 1,844,000
<INCOME-CONTINUING> 2,781,626
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,781,626
<EPS-PRIMARY> 0.55
<EPS-DILUTED> 0.55
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