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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 March 31, 1997
---------------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from
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Commission File Number 0-21274
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Liberty Technologies, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its Charter)
Pennsylvania 23-2295708
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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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)
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 of 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 May 13, 1997
- ------------------ -----------------------------------------
Common Stock 5,004,615
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<PAGE>
LIBERTY TECHNOLOGIES, INC.
INDEX
PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
(unaudited): Page No.
--------
Consolidated Statements of Operations
Three months ended March 31, 1997 and 1996............... 3
Consolidated Balance Sheets
March 31, 1997 and December 31, 1996..................... 4
Consolidated Statements of Cash Flows
Three months ended March 31, 1997 and 1996............... 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 - Calculation of Earnings Per Share................ 13
2
<PAGE>
PART I. Financial Information
Item 1. Consolidated Financial Statements
LIBERTY TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
For the three months ended March 31,
(Unaudited)
1997 1996
------- -------
<S> <C> <C>
Revenues:
Product .......................................... $ 4,091 $ 3,094
Service .......................................... 5,665 5,197
------- -------
9,756 8,291
------- -------
Cost of revenues:
Product .......................................... 1,521 941
Service .......................................... 3,859 3,341
------- -------
5,380 4,282
------- -------
Gross profit .............................. 4,376 4,009
------- -------
Operating expenses:
Engineering and product development .............. 1,107 1,000
Selling, general and administrative .............. 3,470 3,045
------- -------
4,577 4,045
------- -------
Operating loss ............................ (201) (36)
Interest expense, net ............................... (84) (50)
------- -------
Loss before taxes and minority interest ... (285) (86)
Income tax benefit .................................. -- (41)
------- -------
Loss before minority interest ......... (285) (45)
Minority interest ................................... (72) (78)
------- -------
Net loss ............................................ $ (213) $ (123)
------- -------
Net loss per share .................................. $ (0.04) $ (0.02)
======= =======
Shares used in computing net loss per share ......... 4,995 4,961
======= =======
</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 March 31, December 31,
----- 1997 1996
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents .............................. $ 865 $ 324
Accounts receivable, net ............................... 9,123 8,499
Inventories ............................................ 3,659 3,742
Deferred income taxes .................................. 329 385
Prepaid income taxes ................................... 246 230
Prepaid expenses and other ............................. 788 414
-------- --------
Total current assets ......................... 15,010 13,594
Property and equipment, net ................................ 4,445 4,612
Goodwill, net .............................................. 4,881 4,961
Deferred income taxes, net ................................ 367 367
Other assets ............................................... 1,396 1,483
-------- --------
$ 26,099 $ 25,017
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Line of credit ......................................... $ 7,175 $ 5,725
Current maturities of long-term debt ................... 45 66
Book overdraft ......................................... 148 472
Accounts payable ....................................... 2,677 2,728
Accrued compensation and benefits ...................... 1,793 1,250
Unearned revenue ....................................... 25 12
Income taxes payable ................................... 49 137
Other accrued expenses ................................. 228 376
-------- --------
Total current liabilities .................... 12,140 10,766
-------- --------
Long-term debt ............................................. 212 217
-------- --------
Due to minority shareholder ................................ (15) 61
-------- --------
Shareholders' equity:
Series A Preferred stock, $.001 par value, 10,000 shares
authorized, none issued ............................. -- --
Common stock, $.01 par value, 10,000,000 shares
authorized, 5,018,987 and 5,018,987 shares issued,
and 4,995,116 and 4,989,915 outstanding ............. 50 50
Additional paid-in capital ............................. 17,227 17,242
Accumulated deficit (3,391) (3,178)
Treasury stock at cost ................................. (134) (149)
Cumulative translation adjustment ...................... 10 8
-------- --------
Total shareholders' equity ................... 13,762 13,973
-------- --------
$ 26,099 $ 25,017
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
LIBERTY TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
For the three months ended March 31,
(Unaudited)
1997 1996
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net loss ...................................................... $ (213) $ (123)
Adjustments to reconcile net loss to net cash provided by (used
in) operating activities:
Depreciation and amortization ............................. 530 462
Deferred income taxes ..................................... 56 --
Minority interest in income (loss) of joint venture ....... (72) 78
Change in assets and liabilities
(Increase) decrease in:
Accounts receivable ........................... (624) 892
Inventories ................................... (83) 31
Prepaid expenses and other .................... (223) 11
Other assets .................................. (53) (67)
Increase (decrease) in:
Accounts payable .............................. (51) (18)
Accounts expenses ............................. 395 (268)
Income taxes payable .......................... (88) (194)
Unearned revenue............................... 13 (304)
------- -------
Net cash provided by (used in) operating activities... (413) 500
------- -------
Cash flows from investing activities:
Purchases of property and equipment ........................... (79) (570)
Other ......................................................... (84) 11
------- -------
Net cash used in investing activities ................ (163) (559)
------- -------
Cash flows from financing activities:
Payments of long-term debt .................................... (26) (141)
Net borrowings under line of credit ........................... 1,450 (75)
Decrease in book overdraft .................................... (324) --
Proceeds from Employee Stock Purchase Plan .................... 15 24
Investment in minority shareholder in joint venture ........... -- 38
------- -------
Net cash provided by (used in) financing activities .. 1,115 (154)
------- -------
Effect of foreign exchange rate changes on cash .................. 2 55
------- -------
Net increase (decrease) in cash and cash equivalents ............. 541 (158)
Cash and cash equivalents, beginning of year ..................... 324 356
------- -------
Cash and cash equivalents, end of period ......................... $ 865 $ 198
======= =======
</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 March 31, 1997 and for the
three month periods ended March 31, 1997 and 1996 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, 1996. The results of the Company's operations for
any interim period are not necessarily indicative of results of the
Company's operations for any other interim period or for the full year.
Certain reclassifications have been made to the 1996 financial statements
to conform to 1997 presentations.
2. Inventories are summarized as follows:
March 31, 1997 December 31, 1996
-------------- -----------------
Raw materials $3,109,000 $3,171,000
Finished goods 550,000 571,000
---------- ----------
$3,659,000 $3,742,000
========== ==========
3. Cash payment of income taxes for the three months ended March 31, 1997 and
1996 were approximately $17,000 and $39,000, respectively, all of which
pertained to payment of prior year taxes. Interest paid for the three
months ended March 31, 1997 and 1996 was $124,000 and $52,000,
respectively.
4. Statement of Financial Accounting Standards No. 128 (SFAS 128), "Earnings
per Share," which supersedes ABP Opinion No. 15, "Earnings per Share," was
issued in February, 1997. SFAS 128 requires dual presentation of basic and
diluted earnings per share (EPS) for complex capital structures on the face
of the statement of operations. Basic EPS is computed by dividing income or
loss by the weighted-average number of common shares outstanding for the
period. Diluted EPS reflects the potential dilution from the exercise or
conversion of securities into common stock, such as stock options. SFAS 128
is required to be adopted for year-end 1997; earlier application is not
permitted. Management does not expect the basic or diluted EPS measured
under SFAS 128 to be materially different than the Company's primary or
fully-diluted EPS measured under APB No. 15. The Company will present both
EPS measures on the face of the statement of operations.
6
<PAGE>
LIBERTY TECHNOLOGIES, INC.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Three Months Ended March 31, 1997 Compared to Three Months Ended March 31, 1996:
Total Revenues. Total revenues increased from $8,291,000 to $9,756,000, or
18%, from the first quarter of 1996 to the first quarter of 1997.
Service revenues increased from $5,197,000 to $5,665,000, or 9%, principally as
a result of stronger nuclear service revenues. This increase was partially
offset by lower industrial service revenues.
Product revenues increased from $3,094,000 to $4,091,000, or 32%, on higher
sales of both condition monitoring products and RADView(TM). Condition
monitoring sales increased from $2,912,000 to $3,517,000, or 21%, as a result of
the release of a second-generation reciprocating engine/compressor product, the
RECIP-TRAP(R) 9240. Sales of RADView increased from $182,000 to $574,000, or
215%, .
Cost of Revenues. Cost of revenues increased from $4,282,000 to $5,380,000, or
26%, from the first quarter 1996 to the first quarter 1997. As a percentage of
total revenues, overall cost of revenues increased from 52% to 55% on higher
sales of lower margin products and services.
Cost of service revenues increased as a percentage of service revenues from 64%
in 1996 to 68% in 1997 due to the increased mix of lower margin nuclear services
relative to industrial testing services.
Cost of product revenues increased as a percentage of product sales from 30% in
1996 to 37% in 1997. This higher cost of sales percentage was a result of
increased sales in lower margin product lines.
Gross Profit. Gross profit increased from $4,009,000 to $4,376,000 from the
first quarter of 1996 to the first quarter of 1997. As a percentage of total
revenues, gross profit decreased from 48% to 45%. The Company expects that gross
profit margin will vary from quarter to quarter depending on the mix and volume
of products and services sold.
Operating Expenses. Operating expenses increased 13%, from $4,045,000 to
$4,577,000 from the first quarter of 1996 to the first quarter of 1997.
Operating expenses for Liberty Maintenance Predictive (LMP), which was not fully
operational in 1996, increased from $11,000 to $262,000. Additionally, there
were $203,000 of favorable restructuring reserve adjustments in 1996, with no
such corresponding adjustments in 1997.
7
<PAGE>
Income taxes. The Company's effective income tax rate was 37% in the first
quarter of 1996. Consistent with the valuation allowance recorded against the
Company's deferred tax asset in 1996, no tax benefit was recorded against the
loss in the first quarter of 1997. This tax benefit would be recoverable through
sufficient future earnings.
Net loss. Net loss increased from $123,000, or $0.02 per share, in the first
quarter of 1996 to $213,000, or $0.04 per share, in the first quarter of 1997,
primarily as a result of increased operating expenses and not recording a tax
benefit on the loss in the first quarter of 1997.
The number of shares used in calculating loss per share increased from 4,961,000
in 1996 to $4,995,000 in 1997. The increase in shares resulted from the exercise
of stock options during 1996 under the Company's 1988 and 1992 Stock Option
Plans and the sale of stock through the Company's Employee Stock Purchase Plan
during 1996 and 1997.
Liquidity and Capital Resources
The Company has financed its working capital requirements and capital
expenditures primarily through borrowings against the revolving credit facility.
At March 31, 1997, the Company had cash and investments aggregating $865,000
compared to $324,000 at December 31, 1996, reflecting the cash provided by
financing activities.
Net cash provided by operations during the first quarter of 1996 was $500,000
compared to cash used by operations of $413,000 during the first quarter of
1997. The change was principally attributable to an increase in accounts
receivable on higher sales and in an increase in prepaid and other assets,
offset by an increase in accrued expenses.
Net cash used in investing activities decreased from $559,000 in the first
quarter 1996 to $163,000 in the first quarter 1997. This decrease resulted from
lower capital additions.
Net cash used by financing activities in the first quarter 1996 was $154,000
compared to cash provided of $1,115,000 in the first quarter of 1997. The 1996
amount reflects net repayments of $75,000 against the revolving credit facility,
while the 1997 amount reflects net borrowings of $1,450,000 against that
facility, offset by a decrease of $324,000 in the book overdraft.
During 1996 the Company increased its maximum availability on its revolving
credit facility with a commercial bank from $5,000,000 to $7,500,000. The
balance outstanding was $7,175,000 and $2,125,000 at March 31, 1997 and 1996,
respectively, and the balance of the facility was available.
The line is collateralized by substantially all of the Company's accounts
receivable and inventory. 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%.
8
<PAGE>
The Company has amended the credit facility effective April 3, 1997. The amended
facility provides availability of $9,000,000 through June 30, 1997; $7,500,000
through September 30, 1997; $6,500,000 through December 31, 1997; and $5,500,000
through March 31, 1998. After June 30, 1997, borrowings under the line are
limited to 85% of eligible receivables and 25% of eligible inventory, as
defined. Beginning after October 1, 1997, the borrowing base will be limited
solely to 85% of eligible receivables, as defined. The interest rate on the
facility varies from the Eurodollar rate plus 1.50% to the bank's prime rate
plus 1.00% and is payable at the maturity of each draw against the facility.
The line of credit expires on March 31, 1998.
The Company believes that its current cash and short-term investment
resources, cash generated from operations, the availability under its line of
credit, alternative financing and other options 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.
9
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
1. No reports on Form 8-K were filed during the quarter ended
March 31, 1997.
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: May 13, 1997
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
Exhibit Sequentially
Page Numbered
Number Number
- ------ ------
11 Calculation of Earnings Per Share 13
12
Exhibit 11
Liberty Technologies, Inc.
Earnings Per Share Calculation
Three Months Ended
March 31,
---------
1997 1996
---- ----
Net loss $ (213,000) $ (123,000)
Weighted average shares outstanding 4,995,116 4,961,264
Dilutive effect of outstanding options and
warrants, net of tax benefits -- --
--------- ---------
Shares used in computing loss per share 4,995,116 4,961,264
========= =========
Loss per share (primary and fully diluted) $(0.04) $(0.02)
========= =========
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information
extracted from the Consolidated Balance Sheets at March 31, 1997 and the
Consolidated Statement of Operations for the three months ended March 31, 1997
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> MAR-31-1997
<CASH> 865
<SECURITIES> 0
<RECEIVABLES> 9,123
<ALLOWANCES> 182
<INVENTORY> 3,659
<CURRENT-ASSETS> 15,010
<PP&E> 4,445
<DEPRECIATION> 4,864
<TOTAL-ASSETS> 26,099
<CURRENT-LIABILITIES> 12,140
<BONDS> 0
0
0
<COMMON> 50
<OTHER-SE> 13,712
<TOTAL-LIABILITY-AND-EQUITY> 26,099
<SALES> 9,756
<TOTAL-REVENUES> 9,756
<CGS> 5,380
<TOTAL-COSTS> 5,380
<OTHER-EXPENSES> 4,577
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 84
<INCOME-PRETAX> (213)
<INCOME-TAX> 0
<INCOME-CONTINUING> (213)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (213)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
