1
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 September 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
610-834-0330
---------------------------------------------
(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 November 14, 1996
------------------ --------------------------------------------
Common Stock 4,989,915
================================================================================
<PAGE>
LIBERTY TECHNOLOGIES, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements: Page No.
Consolidated Statements of Income (unaudited)
Three months and nine months ended
September 30, 1996 and 1995................................ 3
Consolidated Balance Sheets (unaudited)
September 30, 1996 and December 31, 1995................... 4
Consolidated Statements of Cash Flows (unaudited)
Nine months ended September 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 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. Consolidated 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 nine months
ended September 30, ended September 30,
1996 1995 1996 1995
----------------------- ------------------------
<S> <C> <C> <C> <C>
Revenues
Product $ 2,231 $ 2,235 $ 8,175 $ 8,454
Service 5,119 5,347 17,527 20,324
-------- -------- -------- --------
7,350 7,582 25,702 28,778
Cost of revenues
Product 1,098 1,158 3,125 3,489
Service 3,559 3,530 11,309 13,262
-------- -------- -------- --------
4,657 4,688 14,434 16,751
Gross profit 2,693 2,894 11,268 12,027
Operating expenses 5,053 3,554 13,493 11,327
-------- -------- -------- --------
Operating income (loss) (2,360) (660) (2,225) 700
Net interest expense (66) (2) (137) (12)
Other income (expense) 8 8
-------- -------- -------- --------
Income before income taxes (2,418) (662) (2,354) 688
Income tax expense (benefit) (668) (248) (645) 252
-------- -------- -------- --------
Income (loss) after taxes and before minority interest (1,750) (414) (1,709) 436
Minority interest in earnings (loss) of Joint Venture (83) -- (16) --
-------- -------- -------- --------
Net income (loss) $ (1,667) $ (414) $ (1,693) $ 436
======== ======== ======== ========
Earnings (loss) per share ($ 0.33) ($ 0.08) ($ 0.34) $ 0.08
======== ======== ======== ========
Shares used in computing earnings (loss) per share 4,978 4,951 4,969 5,214
======== ======== ======== ========
</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)
(unaudited)
<TABLE>
<CAPTION>
ASSETS September 30, December 31,
------ 1996 1995
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents ........................... $ 383 $ 356
Accounts receivable, net ............................ 7,978 9,050
Inventories ......................................... 3,540 2,075
Deferred income taxes
1,360 730
Prepaid income taxes ................................ 294 319
Prepaid expenses and other .......................... 272 377
-------- --------
Total current assets ...................... 13,827 12,907
Property and equipment, net ............................. 3,989 3,890
Goodwill, net ........................................... 5,036 5,325
Other assets ............................................ 1,933 1,681
-------- --------
$ 24,785 $ 23,803
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
-----------------------------------
Current liabilities:
Line of credit ...................................... $ 4,665 $ 2,200
Current maturities of long-term debt ................ 33 92
Accounts payable .................................... 2,846 2,277
Accrued compensation and benefits ................... 1,767 1,361
Unearned revenue .................................... 30 340
Corporate taxes payable ............................. 63 196
Other accrued expenses
233 668
-------- --------
Total current liabilities ................. 9,637 7,134
-------- --------
Long-term debt .......................................... 256 259
-------- --------
Minority interest ....................................... 69 --
-------- --------
Shareholders' equity:
Common stock, $.01 par value, 10,000,000 shares
authorized, 5,018,987 and 5,003,362 shares issued,
and 4,985,165 and 4,957,151 outstanding .......... 50 50
Additional paid-in capital .......................... 17,252 17,195
Accumulated deficit ................................. (2,298) (606)
Treasury stock at cost............................... (173) (237)
Cumulative translation adjustment ................... (8) 8
-------- --------
Total shareholders' equity ................ 14,823 16,410
-------- --------
$ 24,785 $ 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 nine months ended
September 30,
1996 1995
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(1,693) $ 436
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities -
Depreciation and amortization 1,437 1,827
Deferred income taxes (640) (32)
Minority interest in income of Joint Venture (16) --
Change in assets and liabilities
(Increase) decrease in accounts receivable 1,072 (796)
(Increase) decrease in inventories (1,465) 40
Decrease in prepaid expense and other current assets 130 465
(Increase) in other assets (5) (55)
Increase in accounts payable 570 533
(Decrease) in accrued income taxes (133) (38)
(Decrease) in other accrued expenses (19) (316)
(Decrease) in unearned revenue (310) (50)
------- -------
Net cash provided by (used in) operating activities (1,072) 2,014
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (1,196) (1,309)
Purchases of licenses (100) --
Patent costs (199) --
Sale of assets -- 100
Capitalization of software development costs -- (1,409)
Payment for purchase of business -- (500)
Other -- 48
------- -------
Net cash used in investing activities (1,495) (3,070)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on line of credit 2,465 150
Additional long-term lease agreement -- 25
Payments of long-term debt (62) (159)
Proceeds from employee stock purchase plan 53 57
Exercise of options and warrants 67 16
Investment from minority shareholder in joint venture 85 --
------- -------
Net cash provided by financing activities 2,608 89
------- -------
Effect of foreign exchange rate changes on cash (14) --
------- -------
Net increase (decrease) in cash and cash equivalents 27 (967)
Cash and cash equivalents, beginning of period 356 1,083
------- -------
Cash and cash equivalents, end of period $ 383 $ 116
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
Item 1 -- Financial Statements -- Cont'd.
LIBERTY TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. The consolidated financial statements as of September 30, 1996 and for
the three and nine month periods ended September 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:
September 30, 1996 December 31, 1995
------------------ -----------------
Raw materials $ 2,860,000 $ 1,687,000
Finished goods 680,000 388,000
--------------- ----------------
$ 3,540,000 $ 2,075,000
--------------- ----------------
--------------- ----------------
3. Cash payment of income taxes for the nine months ended September 30, 1996
and 1995 were approximately $94,000 and $40,000, respectively. Interest
paid in the nine months ended September 30, 1996 and 1995 was $81,000 and
$34,000, 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 $157,000 and $1,712,000 for the three
and nine months ended September 30, 1996, respectively.
5. 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. Certain reclassifications have been made to the 1995 financial statements
to conform to 1996 presentations.
<PAGE>
LIBERTY TECHNOLOGIES, INC.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Three and nine Months Ended September 30, 1996 Compared to Three and Nine Months
Ended September 30, 1995:
Total Revenues. For both the three and nine month comparative periods ended
September 30, 1995 and 1996, total revenues decreased from $7,582,000 to
$7,350,000, and from $28,778,000 to $25,702,000, respectively.
Service revenues decreased from $20,324,000 to $17,527,000, or 14%, for the nine
months ended September 30, 1995 and 1996, respectively, principally as a result
of continued lower U.S. nuclear service sales as customers reduced the scope and
duration of their maintenance outages. This decrease was partially offset by
improved industrial service sales.
Product revenues decreased during the comparative nine month periods from
$8,454,000 to $8,175,000, or 3%, as a result of lower condition monitoring
products into the domestic nuclear and industrial markets. This was partially
offset by stronger international revenues and first year sales of RADView(TM).
Cost of Revenues. For the three and nine month comparative periods, cost of
revenues decreased from $4,688,000 to $4,657,000, and $16,751,000 to
$14,434,000, respectively, as a result of lower sales volume. As a percentage of
total revenues, cost of revenues increased from 62% to 63% for the three month
comparative periods and decreased from 58% to 56% for the nine month comparative
periods.
Gross Profit. Gross profit decreased from $2,894,000 to $2,693,000 and
$12,027,000 to $11,268,000 for the three and nine month periods ended September
30, 1995 and 1996, respectively.
As a percentage of total revenues, gross profit decreased from 38% to 37% for
the three month comparable period and increased from 42% to 44% for the nine
month comparable period. 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 $200,000 and
$408,000 for the three and nine month periods ended September 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.
<PAGE>
Excluding the impact of the amortization of software development costs for the
three and nine month periods ended September 30, 1995, as a percentage of total
revenues, gross profit decreased from 41% to 37% for the comparable three month
periods and increased from 43% to 44% for the comparable nine month periods.
Operating Expenses. Operating expenses increased 42%, from $3,554,000 to
$5,052,000 and 19%, from $11,327,000 to $13,493,000, respectively, for the three
and nine month periods ended September 30, 1995 and 1996. As a percentage of
total revenues, operating expenses increased from 47% to 69% and from 39% to
52%, respectively, for the comparable three and nine month periods.
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
nine month periods ending September 30, 1995 the Company capitalized software
development costs of $484,000 and $1,409,000, respectively.
Excluding the impact of software development costs capitalized for the three and
nine month periods ended September 30, 1995, operating expenses increased 25%,
from $4,038,000 to $5,052,000, and 6%, from $12,736,000 to $13,493,000 for the
three and nine months ended September 30, 1995 and 1996, respectively, due to
increasing indirect expenses related to RADView and sales and marketing.
Interest Expense. Net interest expense increased from $13,000 to $66,000 for the
nine months ended September 30, 1995 and 1996, respectively, as a result of
substantially higher borrowings against the Company's line of credit facility
during 1996.
Income Taxes. The Company's effective income tax rate decreased from 37% for the
nine months ended September 30, 1995 to 27% for the nine months ended September
30, 1996.
The Company had an income tax benefit of $645,000 for 1996 compared to income
tax expense of $252,000 in 1995. The net tax benefit in 1996 was the result of
the federal income tax benefit from the consolidated losses being greater than
the state income tax expense which resulted from taxable income in certain
states of certain of the Company's subsidiaries.
Net Income. Net loss increased from $412,000 ($.08 per share) to $1,667,000
($.33 per share) for the three months ended September 30, 1995 and 1996,
respectively. Net income for the nine month period ended September 30, 1995 was
$448,000 ($.08 per share) compared to net loss of $1,693,000 ($.34 per share)
for the nine month period ended September 30, 1996.
The number of shares used in calculating earnings per share increased from
4,951,000 to 4,978,000 in the three month comparative period, and decreased from
5,214,000 to 4,969,000 in the nine month comparative period. The decrease in
shares in the nine month period resulted from excluding the anti-dilutive effect
of options on net loss per share.
<PAGE>
Liquidity and Capital Resources
The Company has historically financed its working capital requirements and
capital expenditures through cash flows generated from operations, bank debt,
sale of common stock and equipment leases.
At September 30, 1996, the Company had cash and cash equivalents aggregating
$383,000 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.
Net cash used in operations during the nine months ended September 30, 1996 was
$1,072,000 compared to $2,014,000 of cash provided for the nine months ended
September 30, 1995. The change was principally attributable a net loss instead
of a net income, a decrease in unearned revenue, and higher inventory in
anticipation of pending shipments, partially offset by a decrease in accounts
receivable.
Net cash used in investing activities decreased from $3,070,000 and $1,495,000
for the nine months ended September 30, 1995 as compared to the nine months
ended September 30, 1996. 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 $89,000 to $2,608,000
for the nine months ended September 30, 1995 as compared to the nine months
ended September 30, 1996. The amounts reflect additional borrowings of $150,000
and $2,465,000 against the revolving credit facility in the respective periods.
During the quarter ended September 30, 1996 the Company increased its maximum
availability on its revolving credit facility with a commercial bank from
$5,000,000 to $7,500,000, of which $2,500,000 expires on March 1, 1997. The
remainder expires May 1, 1997. The balance outstanding was $150,000 and
$4,665,000 at September 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. Additional financing may be required for the
Company to consummate any material business acquisitions. During 1997 the
Company expects to continue to require availability on its credit facility at
the current maximum, which will require renewal, extension, or replacement of
the current $7,500,000 facility.
<PAGE>
PART II. OTHER INFORMATION
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
September 30, 1996.
<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: November 14, 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)
<PAGE>
EXHIBIT INDEX
Sequentially
Exhibit Numbered Page
Number Number
- ------ ------
11 Earnings Per Share Calculation 13
Exhibit 11
Liberty Technologies, Inc.
Earnings Per Share Calculation
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ------------------------
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net income (loss) $(1,667,000) $ (414,000) $(1,693,000) $ 436,000
Weighted average shares outstanding 4,978,156 4,950,669 4,968,572 4,940,509
Dilutive effect of outstanding
options and warrants, net of
tax benefit (*) --- (*) --- (*) -- 273,640
--------- --------- --------- ---------
Shares used in computing earnings
(loss) per share 4,978,156 4,950,669 4,968,572 5,214,149
--------- --------- --------- ---------
--------- --------- --------- ---------
Earnings (loss) per share (primary
and fully diluted)
$ (0.33) $ (0.08) $ (0.34) $ 0.08
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
(*)The effect of including options is not
considered because the effect would be
antidilutive in periods with a loss.
<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> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> SEP-30-1996
<CASH> 383
<SECURITIES> 0
<RECEIVABLES> 7,978
<ALLOWANCES> 100
<INVENTORY> 3,540
<CURRENT-ASSETS> 13,827
<PP&E> 8,391
<DEPRECIATION> 4,403
<TOTAL-ASSETS> 24,785
<CURRENT-LIABILITIES> 9,637
<BONDS> 0
0
0
<COMMON> 50
<OTHER-SE> 14,773
<TOTAL-LIABILITY-AND-EQUITY> 24,785
<SALES> 25,702
<TOTAL-REVENUES> 25,702
<CGS> 14,434
<TOTAL-COSTS> 14,434
<OTHER-EXPENSES> 13,485
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 137
<INCOME-PRETAX> (2,354)
<INCOME-TAX> (645)
<INCOME-CONTINUING> (1,693)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,693)
<EPS-PRIMARY> (0.34)
<EPS-DILUTED> (0.34)
</TABLE>
