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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarter ended June 30, 1996
-------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from
Commission File Number 0-21274
Liberty Technologies, Inc.
--------------------------
(Exact name of registrant as specified in its Charter)
Pennsylvania 23-2295708
------------ ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
--------------------------
Lee Park
555 North Lane
Conshohocken, PA 19428
215-834-0330
------------
(Address, including zip code, and
telephone number (including area code) of
registrant's principal executive office)
--------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the last 90 days. YES _X_ NO ___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the last practicable date.
Class Shares Outstanding at August 13, 1996
------------------ ------------------------------------------
Common Stock 4,985,165
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<PAGE>
LIBERTY TECHNOLOGIES, INC.
INDEX
PART 1. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements: Page No.
--------
Consolidated Statements of Income (unaudited)
Three months and six months ended
June 30, 1996 and 1995............................... 3
Consolidated Balance Sheets
June 30, 1996 (unaudited) and
December 31, 1995 ................................... 4
Consolidated Statements of Cash Flows (unaudited)
Six months ended June 30, 1996 and 1995.............. 5
Notes to Consolidated Financial Statements............. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 7
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders..... 10
Item 6. Exhibits and Reports on Form 8-K........................ 10
Signatures.............................................. 11
Exhibit Index........................................... 12
Exhibit - Earnings Per Share Calculation................. 13
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Liberty Technologies, Inc.
Consolidated Statements of Income
(In thousands, except per share information)
<TABLE>
<CAPTION>
Unaudited Unaudited
--------- ---------
For the three months For the six months
ended June 30, ended June 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
Product $ 2,850 $ 2,672 $ 5,944 $ 6,190
Service 7,211 8,703 12,408 15,004
-------- -------- -------- --------
10,061 11,375 18,352 21,194
Cost of revenues
Product 1,086 1,057 2,027 2,330
Service 4,498 5,623 7,750 9,734
-------- -------- -------- --------
5,584 6,680 9,777 12,064
Gross profit 4,477 4,695 8,575 9,130
Operating expenses 4,327 3,638 8,462 7,771
-------- -------- -------- --------
Operating income 150 1,057 114 1,359
Net interest income (expense) (21) (71)
Other income (expense) 25 (17) 25 (10)
-------- -------- -------- --------
Income before income taxes 154 1,040 68 1,349
Income taxes 64 385 23 500
-------- -------- -------- --------
Income after taxes and before minority interest 90 655 45 849
Minority interest in earnings (loss) of Joint Venture (12) -- 67 --
-------- -------- -------- --------
Net income (loss) $ 102 $ 655 $ (22) $ 849
======== ======== ======== ========
Earnings per share $ 0.02 $ 0.13 $ 0.00 $ 0.16
======== ======== ======== ========
Shares used in computing earnings per share 5,310 5,235 4,964 5,222
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
LIBERTY TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
ASSETS June 30, December 31,
------ 1996 1995
---- ----
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents ........................... $ 180 $ 356
Accounts receivable, net ............................ 9,782 9,050
Inventories ......................................... 2,597 2,075
Deferred income taxes................................ 730 730
Prepaid income taxes ................................ 298 319
Prepaid expenses and other .......................... 327 377
------- -------
Total current assets ...................... 13,914 12,907
Property and equipment, net ............................. 4,055 3,890
Goodwill, net ........................................... 5,112 5,325
Other assets ............................................ 2,029 1,681
------- -------
$25,110 $23,803
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit ...................................... $ 4,000 $ 2,200
Current maturities of long-term debt ................ 36 92
Accounts payable .................................... 2,591 2,277
Accrued compensation and benefits ................... 1,159 1,361
Unearned revenue .................................... 32 340
Other accrued expenses
479 864
------- -------
Total current liabilities ................. 8,297 7,134
------- -------
Long-term debt .......................................... 256 259
------- -------
Minority interest ....................................... 90 --
------- -------
Shareholders' equity:
Common stock, $.01 par value, 10,000,000 shares
authorized, 5,018,987 and 5,003,362 shares issued,
and 4,980,980 and 4,957,151 outstanding .......... 50 50
Additional paid-in capital .......................... 17,253 17,195
Accumulated deficit ................................ (627) (606)
Treasury stock at cost
(195) (237)
Cumulative translation adjustment ................... (14) 8
------- -------
Total shareholders' equity ................ 16,467 16,410
------- -------
$25,110 $23,803
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
PART I - FINANCIAL INFORMATION
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Unaudited
--------------------------
For the six months ended
June 30,
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (22) $ 849
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities -
Depreciation and amortization 1,018 1,050
Minority interest in income of Joint Venture 67 --
Change in assets and liabilities
Increase in accounts receivable (732) (1,763)
(Increase) decrease in inventories (522) 96
Decrease in prepaid expense and other current assets 71 139
Increase in other assets (165) (83)
Increase in accounts payable 315 497
Increase (decrease) in accrued income taxes (64) 471
Increase (decrease) in other accrued expenses (529) 32
Decrease in unearned revenue (308) (23)
------- -------
Net cash provided by (used in) operating activities (871) 1,265
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (892) (1,083)
Purchases of licenses (100) --
Patent costs (177) --
Sale of assets -- 100
Capitalization of software development costs -- (925)
Payment for purchase business -- (500)
Other 21 --
------- -------
Net cash used in investing activities (1,148) (2,408)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on line of credit 1,800 750
Payments of long-term debt (58) (155)
Proceeds from employee stock purchase plan 33 35
Exercise of options and warrants 67 28
Investment from minority shareholder in joint venture 23 --
------- -------
Net cash provided by financing activities 1,865 658
------- -------
Effect of foreign exchange rate changes on cash (22) --
------- -------
Net decrease in cash and cash equivalents (176) (485)
Cash and cash equivalents, beginning of period 356 1,083
------- -------
Cash and cash equivalents, end of period $ 180 $ 598
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
Item 1 -- Financial Statements -- Cont'd.
LIBERTY TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The consolidated financial statements as of June 30, 1996 and for the six
month periods ended June 30, 1996 and 1995 are unaudited and reflect all
adjustments (consisting only of normal recurring adjustments) which are,
in the opinion of management, necessary for a fair presentation of the
financial position and operating results for the interim periods. The
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto, together with
management's discussion and analysis of financial condition and results
of operations, contained in the Company's Annual Report on Form 10-K for
the year ended December 31, 1995.
2. Inventories are summarized as follows:
June 30, 1996 December 31, 1995
------------- -----------------
Raw materials $2,027,000 $1,687,000
Finished goods 570,000 388,000
---------- ----------
$2,597,000 $2,075,000
========== ==========
3. Cash payment of income taxes for the six months ended June 30, 1996 and
1995 were approximately $83,000 and $28,000, respectively. Interest paid in
the six months ended June 30, 1996 and 1995 was $95,000 and $17,000,
respectively.
4. Liberty M.P., S.A.S. (LMP) commenced operations in January 1996. This
joint venture, of which the Company has a 51% ownership interest, was
formed with Electricite de France for the sale of products and services
within the European Union. LMP had revenues of $534,000 and $1,555,000 for
the three and six months ended June 30, 1996.
5. In the second quarter of 1996 the Company changed its accounting policy
regarding patent costs. The Company previously expensed all patent costs as
incurred and is now capitalizing these costs. For the three and six month
periods ended June 30, 1996, this change had the effect of increasing net
income by $112,000 ($0.02 per share).
6. Net income (loss) per share is calculated by dividing net income (loss) by
the weighted average number of common shares outstanding for the respective
periods adjusted for the dilutive effect of common stock equivalents, if
any, which consist of stock options. Net income (loss) per share assuming
full dilution is based upon an increased number of shares that would be
outstanding assuming the exercise of stock options when the Company's stock
price at the end of the period is higher than the average within the
respective period.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Three and Six Months Ended June 30, 1996 Compared to Three and Six Months Ended
June 30, 1995:
Total Revenues. For both the three and six month comparative periods ended June
30, 1995 and 1996, total revenues decreased from $11,375,000 to $10,061,000, and
from $21,194,000 to $18,352,000, respectively.
Service revenues decreased from $15,004,000 to $12,408,000, or 17%, for the six
months ended June 30, 1995 and 1996, respectively, principally as a result of
lower U.S. nuclear service sales as customers continued to reduce their
maintenance outages. This decrease was partially offset by improved industrial
service sales.
Product revenues decreased during the comparative six month periods from
$6,190,000 to $5,944,000, or 4%, as a result of lower U.S. nuclear product sales
and delays in domestic orders for industrial products. This was partially offset
by stronger international revenues and initial sales of RADView(TM).
Cost of Revenues. For the three and six month comparative periods, cost of
revenues decreased from $6,680,000 to $5,584,000, and $12,064,000 to $9,777,000,
respectively, as a result of lower sales volume. As a percentage of total
revenues, cost of revenues decreased from 59% to 56% and from 57% to 53%,
respectively.
Gross Profit. Gross profit decreased from $4,695,000 to $4,477,000 and
$9,130,000 to $8,575,000 for the three and six month periods ended June 30, 1995
and 1996, respectively.
As a percentage of total revenues, gross profit increased from 41% to 45% and
from 43% to 47% for the comparable three and six month periods, respectively.
Gross profit margin will vary from quarter to quarter as a result of volume and
mix of service versus product revenues and the mix of product sales.
In accordance with SFAS No. 86, the Company capitalized software development
costs through 1995. Amortization related to these costs was $155,000 and
$196,000 for the three and six month periods ended June 30, 1995, respectively.
The Company wrote-off the balance of capitalized software development costs at
the end of 1995 and has no such amortization in 1996.
Excluding the impact of the amortization of software development costs for the
three and six month periods ended June 30, 1995, as a percentage of total
revenues, gross profit increased from 43% to 45% and from 44% to 47% for the
comparable three and six month periods, respectively.
7
<PAGE>
Operating Expenses. Operating expenses increased 19%, from $3,638,000 to
$4,327,000 and 9%, from $7,771,000 to $8,462,000, respectively, for the three
and six month periods ended June 30, 1995 and 1996. As a percentage of total
revenues, operating expenses increased from 37% to 43% and from 41% to 46%,
respectively, for the comparable three and six month periods.
Excluding the impact of software development costs capitalized for the three and
six month periods ended June 30, 1995, operating expenses increased 4%, from
$4,164,000 to $4,327,000, for the three months ended June 30, 1995 compared to
1996 due to increasing indirect expenses related to RADView and sales and
marketing. For the six month comparative period operating expenses decreased 3%,
from $8,733,000 to $8,462,000, as a result of decreasing general and
administrative expenses and improved controls on engineering expenses.
As mentioned above in the discussion of Gross Profit, capitalized software
development costs were written off at the end of 1995 and the Company has not
capitalized any additional software development costs in 1996. For the three and
six month periods ending June 30, 1995 the Company capitalized software
development costs of $526,000 and $962,000, respectively.
Income Taxes. The Company's effective income tax rate decreased from 37% for the
six months ended June 30, 1995 to 33% for the six months ended June 30, 1996
primarily as a result of the lower tax rates on the income of the foreign joint
venture, which represented a significant portion of the Company's pretax income.
Net Income. Net income decreased from $655,000 ($.13 per share) to $102,000
($.02 per share) and from income of $849,000 ($.16 per share) to a loss of
$22,000 ($.00 per share) for the three and six months ended June 30, 1995 and
1996, respectively.
The number of shares used in calculating earnings per share increased from
5,235,040 to 5,309,963 in the three month comparative period, and decreased from
5,222,115 to 4,964,318 in the six month comparative period. The increase in
shares in the three month period resulted primarily from the dilutive effect of
additional options and the change in share price. The decrease in shares in the
six month period resulted from excluding the anti-dilutive effect of options on
net loss per share.
Liquidity and Capital Resources
The Company has financed its working capital requirements and capital
expenditures through cash flows generated from operations, bank debt, sale of
common stock and equipment leases.
At June 30, 1996, the Company had cash and cash equivalents aggregating $180,000
compared to $356,000 at December 31, 1995, reflecting the cash used in operating
and investing activities offset partially by cash provided by financing
activities.
8
<PAGE>
Net cash used in operations during the first half of 1996 was $871,000 compared
to $1,265,000 of cash provided for the six months ended June 30, 1995. The
change was principally attributable to lower net income, lower accrued income
taxes, accrued expenses and unearned revenue, and higher inventory in
anticipation of pending shipments, partially offset by a lower increase in
accounts receivable.
Net cash used in investing activities decreased from $2,408,000 and $1,148,000
for the six months ended June 30, 1995 and 1996, respectively. Usage of cash in
1996 decreased primarily as a result of there being no capitalization of
software development costs and no acquisition related earn-out payments in 1996.
Net cash provided by financing activities increased from $658,000 to $1,865,000
for the six months ended June 30, 1995 and 1996, respectively. The amounts
reflect additional borrowings of $750,000 and $1,800,000 against the revolving
credit facility in the respective periods.
At June 30, 1996, the Company had a multi-year unsecured $5,000,000 revolving
credit facility with a commercial bank (expires May 1, 1997) under which
$750,000 and $4,000,000 was outstanding at June 30, 1995 and 1996, respectively.
The credit facility may be used for working capital or acquisitions. Borrowings
under this facility bear interest at a rate equal to the lower of the bank's
prime rate less 0.5% or the Eurodollar rate plus 1.25%.
The Company believes that its current cash and short-term investment resources,
cash generated from operations and the availability under its line of credit
will be sufficient to fund the Company's operations and expected capital
expenditures for the current year, except to the extent that additional
financing may be required for the Company to consummate any material business
acquisitions.
9
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders of the Company was held on June 11,
1996 at which the following matters were brought before and voted upon by the
shareholders.
1. The election of the following individuals to the Board of Directors
of the Company to hold office until the next annual meeting of shareholders and
until their successors are elected and have been qualified:
For Abstain
--- -------
R. Nim Evatt 3,245,914 230,799
Robert L. Leon 3,463,674 13,039
Richard J. Defieux 3,463,674 13,039
John A. Hinds 3,463,674 13,039
James D. Rosener 3,253,845 222,868
2. To ratify the selection of Arthur Andersen LLP as the Company's
independent auditors for the fiscal year ended December 31, 1996:
For Against Abstain
--- ------- -------
3,460,610 9,450 6,653
Item 6. Exhibits and Reports on Form 8-K
1. Exhibit 11 - Earnings Per Share Calculation
2. No reports on Form 8-K were filed during the quarter ended
June 30, 1996.
10
<PAGE>
SIGNATURES:
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: August 13, 1996
LIBERTY TECHNOLOGIES, INC.
(Registrant)
/s/ R. Nim Evatt
--------------------------------------
R. Nim Evatt, President and
Chief Executive Officer
/s/ Daniel G. Clare
--------------------------------------
Daniel G. Clare, V.P. Finance and
Chief Financial Officer (principal
financial and accounting officer)
11
<PAGE>
EXHIBIT INDEX
Sequentially
Exhibit Numbered Page
Number Number
- ------ ------
11 Earnings Per Share Calculation 13
12
<PAGE>
Exhibit 11
Liberty Technologies, Inc.
Earnings Per Share Calculation
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) $ 102,000 $ 655,000 $ (22,000) $ 849,000
Weighted average shares outstanding 4,973,925 4,939,948 4,964,318 4,936,892
Dilutive effect of outstanding
options and warrants, net of
tax benefit 336,038 295,092 -- 285,223
---------- ----------- ----------- -----------
Shares used in computing earnings
per share 5,309,963 5,235,040 4,964,318 5,222,115
========== =========== =========== ===========
Earnings per share (primary and
fully diluted) $0.02 $0.13 $0.00 $0.16
========== =========== =========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
the Condensed Consolidated Statement of Financial Condition at June 30, 1996
(Unaudited) and the Condensed Consolidated Statement of Income for the Six
Months Ended June 30, 1996 (Unaudited) and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 180
<SECURITIES> 0
<RECEIVABLES> 9,881
<ALLOWANCES> 99
<INVENTORY> 2,597
<CURRENT-ASSETS> 13,914
<PP&E> 8,168
<DEPRECIATION> 4,113
<TOTAL-ASSETS> 25,110
<CURRENT-LIABILITIES> 8,297
<BONDS> 0
0
0
<COMMON> 50
<OTHER-SE> 16,417
<TOTAL-LIABILITY-AND-EQUITY> 25,110
<SALES> 18,352
<TOTAL-REVENUES> 18,352
<CGS> 9,777
<TOTAL-COSTS> 9,777
<OTHER-EXPENSES> 8,617
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 71
<INCOME-PRETAX> 68
<INCOME-TAX> 23
<INCOME-CONTINUING> (22)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (22)
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
