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 December 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From ________ to ________.
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
of incorporation or Organization) Identification No.)
550 James Street
Lakewood, New Jersey 08701
- --------------------------------- ------------------------
(Address of Principal Executive (Zip Code)
Offices)
(732) 370-3400
--------------------------
(Issuer's Telephone Number,
Including Area Code)
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. XX Yes No
The number of shares outstanding of the registrant's common stock is
4,989,719 (as of February 12, 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
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
December 31, September 30,
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1997 1997
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<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 1,297,566 $ 2,321,071
Accounts receivable, net ................. 5,007,841 5,665,329
Inventories .............................. 25,268,650 24,430,301
Other current assets ..................... 450,358 441,237
---------- ----------
Total current assets .............. 32,024,415 32,857,938
Property and equipment ..................... 2,135,285 2,243,797
Goodwill, net .............................. 597,817 610,101
Other Assets ............................... 1,033,774 1,222,520
Total assets ...................... $35,791,291 $36,934,356
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable .............................. $13,520,280 $13,500,000
Accounts payable ........................... 3,849,381 3,690,787
Accrued liabilities ........................ 360,388 1,148,415
---------- ----------
Total current liabilities ........... 17,730,049 18,339,202
Stockholders' Equity
Common stock ............................... 49,897 49,897
Paid-in-capital ............................ 11,396,532 11,396,532
Retained earnings ............................ 6,614,813 7,148,725
---------- ----------
Total stockholders' equity .......... 18,061,242 18,595,154
---------- ----------
Total liabilities and
stockholders' equity $35,791,291 $36,934,356
---------- ----------
---------- ----------
</TABLE>
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, 1997
1997 1996
--------- ----------
Net sales ...................... $ 6,326,418 $11,366,114
Cost of sales .................. 4,957,632 9,001,225
--------- ----------
Gross profit .............. 1,368,786 2,364,889
Selling, general and
administrative expenses ..... 2,020,618 1,685,063
--------- ---------
Operating income (loss) ... (651,832) 679,826
Interest expense ............... 251,873 211,386
Other income, net .............. 14,293 14,779
--------- --------
Income (Loss) before income tax
expense ................... (889,412) 483,219
Income tax expense ............. (355,500) 193,000
---------- ---------
Net (loss) income ......... $ (533,912) $ 290,219
---------- --------
---------- --------
Net income (loss) per common
and common equivalent shares:
Primary ........................ $ (.11) $ .06
---------- --------
---------- --------
Fully Diluted .................. $ (.11) $ .06
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---------- --------
See Accompanying Notes to Consolidated Financial Statements.
<PAGE>
ENVIRONMENTAL TECHNOLOGIES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED DECEMBER 31, 1997
------------------------------------
1997 1996
---------- ----------
Cash Flows From Operating
Activities
Net (loss) income ...................... $ (533,912) $ 290,219
Adjustments to reconcile net
(loss) income to net cash
(used in) provided by operating
activities:
Depreciation and amortization ..... 208,982 183,865
(Increase) decrease in assets:
Accounts receivable ............. 657,488 (5,199,353)
Inventory ....................... (838,349) (1,355,532)
Other current assets ............ (9,121) (13,819)
Other assets .................... 188,746 (28,176)
Increase (Decrease) in liabilities:
Accounts payable and accrued
liabilities ................... (629,433) 1,143,628
------------ -----------
Net cash used in
operating activities ........ (955,599) (4,979,168)
Cash Flows From Investing Activities
Capital expenditures .................. (88,186) (232,031)
Cash Flows From Financing Activities
Proceeds from short-term debt, net
of repayments ....................... 20,280 4,761,811
Net cash provided by
financing activities ......... 20,280 4,761,811
----------- ----------
Net (decrease) in cash and
cash equivalents ...................... (1,023,505) (499,388)
Cash and cash equivalents - Beginning ... 2,321,071 942,709
of period
----------- ----------
Cash and cash equivalents - End of
period ................................ $ 1,297,566 $ 493,321
----------- ---------
----------- ---------
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 separation of mixed refrigerants; 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, 1997 and December 31,
1996, respectively, have been made. The results of operations for the three
month period ended December 31, 1997 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.
NOTE 3 - EARNINGS PER SHARE
Net income per share in the first quarter of fiscal 1998 is computed on the
basis of the weighted average number of common shares outstanding in the period
(4,989,719). The effect of dilutive options and warrants is immaterial.
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.
<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, mixed refrigerant separation, 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 a 50% owned
joint venture, Liberty Technology International, Inc. ("LTI"), the Company
separates mixed refrigerants. 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, 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 and the purchase of the assets of Global Refrigerant
Management, Inc.
Three Months Ended December 31, 1997 As Compared To The Three Months Ended
December 31, 1996
Revenues for the three-month period ended December 31, 1997 were
approximately $6.3 million, as compared to revenues of approximately $11.4
million for the three-month period ended December 31, 1996, an decrease of
approximately $5.1 million, or 45%. The decrease in revenues was primarily
attributable to the unseasonably strong demand and high price of R-12
refrigerants in the three month period ended December 31, 1996, which enabled
the Company to sell large quantities of R-12 in a period when demand and prices
are traditionally very low. The Company anticipates that pricing and demand for
R-12 and other CFC refrigerants to follow historical seasonality trends and
increase significantly during the three month period ended March 31, 1998. As of
January 1, 1996 all of the CFC refrigerant products sold by the Company are no
longer produced in the United States.
Sales of refrigerant R-12 continue to provide a significant portion of the
Company's revenues although its relative percentage is declining. The decline in
R-12 sales is primarily attributed to the significant increase in the demand for
R-134a, the replacement for R-12, and the Company's increasing emphasis on
refrigerant reclaiming and commercial refrigerant sales. 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
phaseout of R-12 and CFC refrigerant production, that its refrigerant reclaiming
and seperation activities will continue to serve as an important source of R-12
as well as other CFC refrigerants.
The costs of sales for the three month period ended December 31, 1997 were
approximately $5.0 million, as compared to $9.0 million for the three-month
period ended December 31, 1996, a decrease of approximately $9.0 million, or
44%. This decrease is the result of decrease 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 and the ceasing of
R-12 production in 1995. The Company anticipates that the cost of R-12 will
continue to increase due to scheduled annual excise tax increases of 45 cents
per pound and the limited supply of R-12. 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
low cost R-12 through reclaiming and separating activities.
Selling and administrative expenses increased to $2.0 million for the
three-month period ended December 31, 1997 from $1.7 million for the three-month
period ended December 31, 1996, or 18%. This increase is primarily related to an
increase in sales, marketing and distribution expenses related to Full Circle,
Inc. during the current period. Full Circle, Inc. significantly expanded its
sales force and distribution base and is well positioned to increase its market
share in several key markets across the United States.
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, 1997 may not necessarily be indicative of the Company's future operating
results.
Liquidity and Capital Resources
The Company had working capital of approximately $14.3 million at December
31, 1997, as compared to working capital of approximately $14.5 million at
September 30, 1997. The Company has financed its working capital requirements
primarily through operating cash flow and a $15.5 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, 1997 and 1996 was $955,599 and $4,979,168, respectively. The net
cash used in 1997 was primarily attributable to increases in inventory and the
usage in 1996 was primarily attributable to the increase in the Company's
accounts receivable and inventory balances, which are primarily associated with
the purchase of refrigerants. Net cash provided by financing activities was
$20,280 and $4,761,811 for the three month periods ended December 31, 1997 and
1996, respectively, primarily reflecting increased short-term borrowings under
the Company's credit facilities. At December 31, 1997 the Company had $13.5
million of short-term borrowings under the Credit Facility.
The Company had cash and cash equivalents of $1,297,566 and $2,321,071 at
December 31, 1997 and September 30, 1997, 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 2% 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 August 1, 1998. The Company is
currently working with the Bank to put in place a long term financing
arrangement and anticipates having such arrangement in place by August 1, 1998.
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 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: February 12, 1998 By: /s/ George Cannan, Sr.
-------------------------------
George Cannan, Sr.
Chief Executive Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,297,566
<SECURITIES> 0
<RECEIVABLES> 5,007,481
<ALLOWANCES> 0
<INVENTORY> 25,268,650
<CURRENT-ASSETS> 32,024,415
<PP&E> 2,135,285
<DEPRECIATION> 208,982
<TOTAL-ASSETS> 35,791,291
<CURRENT-LIABILITIES> 17,730,049
<BONDS> 0
0
0
<COMMON> 49,897
<OTHER-SE> 17,730,049
<TOTAL-LIABILITY-AND-EQUITY> 35,791,291
<SALES> 6,326,418
<TOTAL-REVENUES> 6,326,418
<CGS> 4,957,632
<TOTAL-COSTS> 1,368,786
<OTHER-EXPENSES> 2,020,618
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25,873
<INCOME-PRETAX> (889,412)
<INCOME-TAX> (355,500)
<INCOME-CONTINUING> (533,912)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (533,912)
<EPS-PRIMARY> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
