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 December 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 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 NO X
The number of shares outstanding of the registrant's common stock
is 5,153,411 (as of February 6, 1997).
Page 1 of 12 pages.
There are no exhibits.
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ENVIRONMENTAL TECHNOLOGIES CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
December 31, September 30,
1995 1996
Current Assets:
Cash and cash equivalents $ 493,321 $ 942,709
Accounts receivable, net 9,697,671 4,498,318
Inventories 23,960,777 22,605,245
Other current assets 348,155 334,336
Total current assets 34,499,924 28,380,608
Property and equipment 2,217,578 2,153,150
Goodwill, net 646,952 659,236
Other Assets 737,931 713,336
Total assets $38,102,385 $31,906,727
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable $14,259,330 $9,497,519
Accounts payable 3,084,906 2,128,602
Accrued liabilities 1,404,008 1,216,684
Total current liabilities 18,748,244 12,842,805
Stockholders' Equity
Common stock 51,504 51,504
Paid-in-capital 12,749,083 12,749,083
Retained earnings 6,553,554 6,263,335
Total liabilities and
stockholders' equity $38,102,385 $31,906,727
See Accompanying Notes to
Consolidated Financial Statements.
<PAGE>
ENVIRONMENTAL TECHNOLOGIES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS
ENDED DECEMBER 31,
1996 1995
Net sales $ 11,366,114 $ 5,379,414
Cost of sales 9,001,225 4,075,996
Gross profit 2,364,889 1,303,418
Selling, general and administrative
expenses 1,685,063 1,509,782
Operating (loss) income 679,826 (206,364)
Interest expense 211,386 34,008
Other income, net 14,779 34,762
Income (Loss) before income
tax expense 483,219 (205,610)
Income tax expense 193,000 (82,000)
Net (loss) income $ 290,219 $ (123,610)
Net (loss) income per common and common
equivalent shares:
Primary $ 0.06 $ (0.02)
Fully Diluted $ 0.06 $ (0.02)
See Accompanying Notes to
Consolidated Financial Statements.
<PAGE>
ENVIRONMENTAL TECHNOLOGIES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED DECEMBER 31,
1996 1995
Cash Flows From Operating
Activities
Net (loss) income $ 290,219 $ (123,610)
Adjustments to reconcile net
(loss) income to net cash
(used in) provided by operating
activities:
Depreciation and amortization 183,865 137,472
(Increase) decrease in assets:
Accounts receivable (5,199,353) 633,852
Inventory (1,355,532) (5,968,922)
Other current assets (13,819) 647,933
Other assets (28,176) (148,850)
Increase (Decrease) in liabilities:
Accounts payable and accrued
liabilities 1,143,628 691,523
Net cash used in
operating activities (4,979,168) (4,130,602)
Cash Flows From Investing Activities
Capital Expenditures (232,031) (247,568)
Cash Flows From Financing Activities
Proceeds from short-term debt, net
of repayments 4,761,811 994,837
Repayments of long-term debt - (100,000)
Distributions to FulCircle Stockholders - (190,040)
Net cash provided by
financing activities 4,761,811 704,797
Net (decrease) in cash and
cash equivalents (449,388) (3,673,373)
Cash and cash equivalents - Beginning 942,709 4,065,753
of period
Cash and cash equivalents - End of
period $ 493,321 $ 932,380
See Accompanying 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
Environmental Technologies Corp. and subsidiaries (the "Company")
is primarily engaged in the marketing and sale of refrigerants
(including dichlorofluoromethane (R-12) and tetrafluoroethane
(R-134a)), refrigerant reclaiming services; the manufacture and
distribution of refrigerant recycling and recovery equipment for
automotive and commercial use; and the recycling of fluorescent
light fixture ballasts and lamps.
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 month period ended December 31, 1996 and December 31,
1995, respectively, have been made. The results of operations
for the three month period ended December 31, 1996 are not
necessarily indicative of the results to be expected for the full
year.
NOTE 2 - BUSINESS COMBINATIONS
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 issued 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. 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.
On January 24, 1997, the Company announced that it had signed a
letter of intent to purchase the assets of American Thermaflo
Corporation("Thermaflo") of Springfield, Massachusetts. The
terms for such purchase have not been disclosed and the
completion of the transaction is subject to standard due
diligence and regulatory approvals.
Thermaflo, a privately held company, is the market leader in the
manufacture and sale of portable refrigerant recovery and
recycling equipment which competes with the Company's Envirotech
Systems subsidiary.
NOTE 3 - EARNINGS PER SHARE
Net income per share in the first 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 in the first 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.
<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. Through its wholly-owned
subsidiary Refrigerant Reclaim Services, Inc. (d/b/a Full Circle,
Inc.), the Company offers refrigerant reclaiming services and
markets R-12, R-22, R-134a and a variety of other refrigerants
primarily to large users of air conditioning and refrigeration
chemicals. Through its wholly-owned subsidiary Envirogroup
Services, 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 period ended December 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 December 31, 1996 as compared to the
three months ended December 31, 1995
Revenues for the three-month period ended December 31, 1996
were approximately $11.366 million, as compared to revenues of
approximately $ 5.379 million for the three-month period ended
December 31, 1995, an increase of approximately $5.997 million,
or 111.3%. The increase in revenues was primarily attributable
to an increase in packaged and reclaimed refrigerant sales.
Prices for many of the Company's refrigerant products was
significantly higher than in the previous comparable period. As
of January 1, 1996 all of the CFC refrigerant products sold by
the Company are no longer produced.
Sales of refrigerant R-12 continue to provide the majority
of the Company's revenues although its relative percentage is
declining. R-12 sales are declining as a result of the Company's
increasing emphasis on refrigerant reclaiming, the manufacture of
refrigerant recovery and recycling equipment, the addition of
ballast recycling services and the increasing use of R-134a, the
replacement for R-12. The Company's ability to maintain its
current level of R-12 sales for the foreseeable future will be
dependent, to a large extent, upon the availability of adequate
sources of supply. The Company is not dependent on any one
source of refrigerant for its supply of R-12 refrigerant and
historically has purchased from a number of manufacturers and
suppliers. The Company also expects that because of the phase
out of R-12 and CFC refrigerant production, that its reclaiming
activities will serve as a an important source of R-12 as well as
other refrigerants.
The costs of sales for the three month period ended December
31, 1996 were approximately $9.0 million, as compared to $4.1
million for the three-month period ended December 31, 1995, an
increase of approximately $4.9 million, or 120.8%. This increase
is the result of increase refrigerant sales activity and a change
in product mix for the period. The cost of R-12 has increased
significantly since the 1990 amendment to the Clean Air Act. The
Company anticipates that the cost of R-12 will continue to
increase as the production of R-12 ceased at year-end 1995 and
additional scheduled excise taxes (currently $6.25 per pound) are
imposed. The Company believes, although there can be no
assurance, that it will be able to continue to offset increases
in the cost of R-12 by increasing sales prices. In anticipation
of increasing costs of R-12, the Company will seek to obtain and
maintain an inventory of R-12 at a commercially prudent level.
In addition, the Company has enhanced its access to R-12 through
reclaiming activities.
Selling and administrative expenses increased to $1.685
million for the three-month period ended December 31, 1996 from
$1.510 million for the three-month period ended December 31,
1995, or 11.61%. This increase is related to an increase in
operating activity for the current period.
Due to the Company's changeable product mix and seasonality
of revenues, the Company's results of operations for the
three-month period ended December 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 $14.9
million at December 31, 1996, 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 revolving
line of credit obtained from a bank (the "Credit Facility").
Net cash used by operating activities for the three month
periods ended December 31, 1996 and 1995 was $4,979,168 and
$4,130,602, respectively. The net cash used in 1996 was
primarily attributable to increases in accounts receivable and
the usage in 1995 was primarily attributable to the increased
level of the Company's inventories, which are primarily
associated with the purchase of refrigerants. Net cash provided
by financing activities was $4,761,811 and $704,797 for the three
month periods ended December 31, 1996 and 1995, respectively,
primarily reflecting increased short-term borrowings under the
Company's credit facilities. At December 31, 1996 the Company
had $14.3 million of short-term borrowings under the Credit
Facility, which reflects a temporary increase over the formal
Credit Facility amount of $13.5 million.
The Company had cash and cash equivalents of $399,367 and
$942,709 at December 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 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 Credit Facility provides for advances bearing interest
per annum based upon a percentage 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 expires on March 31, 1997. The Company
expects to renew the Credit Facility with the Bank during
February 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.
Inasmuch 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 SecurityHolders
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: February 6, 1997 By: /s/ Richard G. Schmeling
__________________________________
Richard G. Schmeling
Vice President and Chief
Financial Officer
