ETCC was incorporated in 1969 in Pennsylvania and last year we celebrated our 40th anniversary. Our core technologies include the design, manufacture and sale of Training Services (TSG) which includes (1) software driven products and services used to create and monitor the physiological effects of flight; (2) high performance jet tactical flight simulation, and; (3) driving and disaster simulation systems, and Control Systems (CSG) which includes: (1) steam and gas sterilization; (2) testing and simulation devices for the automotive industry, and; (3) hyperbaric and hypobaric chambers. Product categories included in TSG are Aircrew Training Systems (ATS) and flight simulators, disaster management systems and entertainment applications. CSG includes sterilizers, environmental control devices and hyperbaric chambers along with parts and service support.
Contact: Duane D. Deaner, CFO
Tel: 215-355-9100 (ext. 1203)
Fax: 215-357-4000
Environmental Tectonics Corporation
Condensed Consolidated Income Statements
(unaudited)
(in thousands, except share and per share information)
| | | | | | | | |
| | Thirteen week | |
| | periods ended | |
| | May 28, | | | May 29, | |
| | 2010 | | | 2009 | |
Net sales | | $ | 12,121 | | | $ | 9,581 | |
Cost of goods sold | | | 6,991 | | | | 5,154 | |
| | | | | | |
Gross profit | | | 5,130 | | | | 4,427 | |
| | | | | | |
| | | | | | | | |
Operating expenses: | | | | | | | | |
Selling and marketing | | | 1,102 | | | | 1,254 | |
General and administrative | | | 1,463 | | | | 1,602 | |
Research and development | | | 324 | | | | 228 | |
| | | | | | |
| | | 2,889 | | | | 3,084 | |
| | | | | | |
| | | | | | | | |
Operating income | | | 2,241 | | | | 1,343 | |
| | | | | | |
| | | | | | | | |
Other expenses: | | | | | | | | |
Interest expense | | | 228 | | | | 516 | |
Other, net | | | 72 | | | | 55 | |
| | | | | | |
| | | 300 | | | | 571 | |
| | | | | | |
| | | | | | | | |
Income before income taxes | | | 1,941 | | | | 772 | |
Provision for income taxes | | | — | | | | — | |
| | | | | | |
| | | | | | | | |
Income before noncontrolling interest | | | 1,941 | | | | 772 | |
Income attributable to noncontrolling interest | | | 5 | | | | 2 | |
| | | | | | |
| | | | | | | | |
Net income | | | 1,936 | | | | 770 | |
| | | | | | | | |
Preferred stock dividend | | | (577 | ) | | | (235 | ) |
| | | | | | |
Income applicable to common shareholders | | $ | 1,359 | | | $ | 535 | |
| | | | | | |
| | | | | | | | |
Per share information: | | | | | | | | |
| | | | | | | | |
Earnings per common share: | | | | | | | | |
Basic | | $ | 0.15 | | | $ | 0.06 | |
| | | | | | |
Diluted | | $ | 0.09 | | | $ | 0.06 | |
| | | | | | |
Weighted average common shares: | | | | | | | | |
Basic | | | 9,085,000 | | | | 9,054,000 | |
| | | | | | |
Diluted | | | 20,967,000 | | | | 9,054,000 | |
| | | | | | |
The accompanying notes are an integral part of the condensed consolidated financial statements.
3
Environmental Tectonics Corporation
Condensed Consolidated Balance Sheets (in thousands, except share information)
| | | | | | | | |
| | May 28, | | | | |
| | 2010 | | | February 26, | |
| | (unaudited) | | | 2010 | |
ASSETS | | | | | | | | |
Cash and cash equivalents | | $ | 874 | | | $ | 2,408 | |
Restricted cash | | | 5,476 | | | | 2,751 | |
Accounts receivable, net | | | 4,087 | | | | 17,356 | |
Costs and estimated earnings in excess of billings on uncompleted long-term contracts | | | 3,666 | | | | 3,576 | |
Inventories, net | | | 4,788 | | | | 5,114 | |
Deferred tax assets, current | | | 5,391 | | | | 4,983 | |
Prepaid expenses and other current assets | | | 1,602 | | | | 545 | |
| | | | | | |
Total current assets | | | 25,884 | | | | 36,733 | |
| | | | | | | | |
Property, plant and equipment, at cost, net | | | 13,606 | | | | 13,643 | |
Construction in progress | | | 440 | | | | 316 | |
Software development costs, net | | | 837 | | | | 691 | |
Other assets | | | 291 | | | | 346 | |
| | | | | | |
Total assets | | $ | 41,058 | | | $ | 51,729 | |
| | | | | | |
| | | | | | | | |
LIABILITIES | | | | | | | | |
Current portion of long-term debt | | $ | 213 | | | $ | 285 | |
Accounts payable — trade | | | 1,710 | | | | 1,783 | |
Billings in excess of costs and estimated earnings on uncompleted long-term contracts | | | 8,105 | | | | 13,944 | |
Customer deposits | | | 1,683 | | | | 1,799 | |
Accrued interest and dividends | | | 833 | | | | 782 | |
Other accrued liabilities | | | 2,400 | | | | 2,814 | |
| | | | | | |
Total current liabilities | | | 14,944 | | | | 21,407 | |
| | | | | | |
| | | | | | | | |
Long-term obligations, less current portion: | | | | | | | | |
Credit facility payable to bank | | | 4,508 | | | | 9,808 | |
Other long-term debt | | | — | | | | 12 | |
| | | | | | |
| | | 4,508 | | | | 9,820 | |
| | | | | | |
Deferred tax liabilities | | | 3,298 | | | | 3,066 | |
| | | | | | |
Unearned interest | | | 19 | | | | 22 | |
| | | | | | |
Total liabilities | | | 22,769 | | | | 34,315 | |
| | | | | | |
| | | | | | | | |
Commitments and contingencies | | | — | | | | — | |
| | | | | | | | |
STOCKHOLDERS’ EQUITY | | | | | | | | |
Cumulative convertible participating preferred stock, Series D, $.05 par value, 11,000 shares authorized; 155 shares outstanding | | | 155 | | | | 155 | |
Cumulative convertible participating preferred stock, Series E, $.05 par value, 25,000 shares authorized; 22,741 and 23,741 shares outstanding at May 28, 2010 and February 26, 2010, respectively | | | 22,741 | | | | 23,741 | |
Common stock, $.05 par value, 20,000,000 shares authorized; 9,086,999 and 9,083,573 shares issued and outstanding at May 28, 2010 and February 26, 2010, respectively | | | 454 | | | | 454 | |
Additional paid-in capital | | | 13,508 | | | | 14,050 | |
Accumulated other comprehensive income (loss) | | | 45 | | | | (431 | ) |
Accumulated deficit | | | (18,657 | ) | | | (20,593 | ) |
| | | | | | |
Total stockholders’ equity before noncontrolling interest | | | 18,246 | | | | 17,376 | |
| | | | | | |
Noncontrolling interest | | | 43 | | | | 38 | |
| | | | | | |
Total stockholders’ equity | | | 18,289 | | | | 17,414 | |
| | | | | | |
Total liabilities and stockholders’ equity | | $ | 41,058 | | | $ | 51,729 | |
| | | | | | |
The accompanying notes are an integral part of the condensed consolidated financial statements.
4
Environmental Tectonics Corporation
Condensed Consolidated Statements of Cash Flows (unaudited)
(in thousands)
| | | | | | | | |
| | Thirteen week periods | |
| | ended | |
| | May 28, | | | May 29, | |
| | 2010 | | | 2009 | |
Cash flows from operating activities: | | | | | | | | |
Net income | | $ | 1,936 | | | $ | 770 | |
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | | | | | | | | |
Depreciation and amortization | | | 346 | | | | 567 | |
Decrease in valuation allowance for deferred tax assets | | | (867 | ) | | | — | |
Accretion of debt discount | | | 55 | | | | 95 | |
Increase in allowances for accounts receivable and inventories, net | | | 110 | | | | 316 | |
Income attributable to noncontrolling interest | | | 5 | | | | 2 | |
Stock compensation expense | | | 24 | | | | — | |
Changes in operating assets and liabilities: | | | | | | | | |
Accounts receivable | | | 13,259 | | | | (791 | ) |
Costs and estimated earnings in excess of billings on uncompleted long-term contracts | | | (90 | ) | | | (319 | ) |
Inventories | | | 226 | | | | (432 | ) |
Prepaid expenses and other assets | | | (1,057 | ) | | | 214 | |
Deferred tax assets, net | | | 691 | | | | — | |
Accounts payable | | | (73 | ) | | | 320 | |
Billings in excess of costs and estimated earnings on uncompleted long-term contracts | | | (5,839 | ) | | | (1,337 | ) |
Customer deposits | | | (116 | ) | | | (966 | ) |
Accrued interest and dividends | | | 51 | | | | 329 | |
Other accrued liabilities | | | (417 | ) | | | 76 | |
| | | | | | |
Net cash provided by (used in) operating activities | | | 8,244 | | | | (1,156 | ) |
| | | | | | |
| | | | | | | | |
Cash flows from investing activities: | | | | | | | | |
Acquisition of equipment | | | (359 | ) | | | (289 | ) |
Capitalized software development costs | | | (220 | ) | | | (104 | ) |
| | | | | | |
Net cash used in investing activities | | | (579 | ) | | | (393 | ) |
| | | | | | |
| | | | | | | | |
Cash flows from financing activities: | | | | | | | | |
(Repayment) borrowings under line of credit | | | (5,300 | ) | | | 1,400 | |
(Repurchase) issuance of preferred stock | | | (1,000 | ) | | | 55 | |
Issuance of common stock | | | 10 | | | | 1 | |
Payment of preferred stock dividends | | | (576 | ) | | | — | |
Payments of other debt obligations | | | (84 | ) | | | (2 | ) |
Increase in restricted cash for performance guarantee | | | (2,725 | ) | | | (7 | ) |
| | | | | | |
Net cash (used in) provided by financing activities | | | (9,675 | ) | | | 1,447 | |
| | | | | | |
| | | | | | | | |
Effect of exchange rate changes on cash | | | 476 | | | | (131 | ) |
| | | | | | |
Net decrease in cash | | | (1,534 | ) | | | (233 | ) |
Cash at beginning of period | | | 2,408 | | | | 520 | |
| | | | | | |
Cash at end of period | | $ | 874 | | | $ | 287 | |
| | | | | | |
| | | | | | | | |
Supplemental schedule of cash flow information: | | | | | | | | |
Interest paid | | $ | 96 | | | $ | 103 | |
Income taxes paid | | | 182 | | | | — | |
| | | | | | | | |
Supplemental information on non-cash operating and investing activities: | | | | | | | | |
Accrued dividends on preferred stock | | $ | 577 | | | $ | 235 | |
The accompanying notes are an integral part of the condensed consolidated financial statements.
5
Environmental Tectonics Corporation
Notes to the Condensed Consolidated Financial Statements 1. Nature of Business:
Environmental Tectonics Corporation (“ETC” or the “Company”) is principally engaged in the design, manufacture and sale of software driven products and services used to simulate and measure certain environmental conditions and to monitor the physiological effects of motion on humans in certain environmental conditions. These products and services include aircrew training systems (aeromedical, tactical combat and general), disaster management systems, entertainment products, sterilizers (steam and gas), environmental testing products, and hyperbaric chambers and other products that involve similar manufacturing techniques and engineering technologies. ETC focuses on software enhancements, product extensions, new product development and new marketplace applications. Presently, sales of the Company’s products are made principally to U.S. and foreign government agencies. We operate in two primary business segments, the Training Services Group (“TSG”) and the Control Systems Group (“CSG”).
Training Services Group. This segment includes three primary product groups: aircrew training devices and related services, disaster management training and systems, and entertainment products.
Control Systems Group. This segment includes three primary product lines: sterilizers, environmental control systems, and hyperbaric chambers, along with parts and service support.
The Company’s fiscal year is the 52-or 53-week annual accounting period ending the last Friday in February. Certain amounts from prior consolidated financial statements have been reclassified to conform to the presentation in fiscal 2011.
Environmental Tectonics Corporation
Consolidated Balance Sheets
(amounts in thousands, except share information)
| | | | | | | | |
| | February 26, | | | February 27, | |
| | 2010 | | | 2009 | | |
ASSETS | | | | | | | | |
Cash and cash equivalents | | $ | 2,408 | | | $ | 520 | |
Restricted cash | | | 2,751 | | | | 4,454 | |
Accounts receivable, net | | | 17,356 | | | | 5,100 | |
Costs and estimated earnings in excess of billings on uncompleted long-term contracts | | | 3,576 | | | | 2,460 | |
Inventories, net | | | 5,114 | | | | 4,435 | |
Deferred tax assets, current | | | 4,983 | | | | 2,350 | |
Prepaid expenses and other current assets | | | 545 | | | | 479 | |
| | | | | | |
| | | | | | | | |
Total current assets | | | 36,733 | | | | 19,798 | |
|
Property, plant and equipment, at cost, net | | | 13,643 | | | | 15,786 | |
Construction in progress | | | 316 | | | | 275 | |
Software development costs, net | | | 691 | | | | 1,013 | |
Other assets | | | 346 | | | | 406 | |
| | | | | | |
Total assets | | $ | 51,729 | | | $ | 37,278 | |
| | | | | | |
| | | | | | | | |
LIABILITIES | | | | | | | | |
Current portion of long-term debt | | $ | 285 | | | $ | 9 | |
Accounts payable – trade | | | 1,783 | | | | 2,105 | |
Billings in excess of costs and estimated earnings on uncompleted long-term contracts | | | 13,944 | | | | 4,155 | |
Customer deposits | | | 1,799 | | | | 2,397 | |
Accrued interest and dividends | | | 782 | | | | 4,197 | |
Other accrued liabilities | | | 2,814 | | | | 2,251 | |
| | | | | | |
Total current liabilities | | | 21,407 | | | | 15,114 | |
| | | | | | |
| | | | | | | | |
Long-term obligations, less current portion: | | | | | | | | |
Credit facility payable to bank | | | 9,808 | | | | 10,510 | |
Promissory note payable | | | — | | | | 1,891 | |
Subordinated convertible debt | | | — | | | | 9,664 | |
Other long-term debt | | | 12 | | | | 7 | |
| | | | | | |
| | | 9,820 | | | | 22,072 | |
| | | | | | |
Deferred tax liabilities | | | 3,066 | | | | 2,350 | |
| | | | | | |
Unearned interest | | | 22 | | | | 152 | |
| | | | | | |
Total liabilities | | | 34,315 | | | | 39,688 | |
| | | | | | |
| | | | | | | | |
Commitments and contingencies | | | — | | | | — | |
Cumulative convertible participating preferred stock, Series B, $.05 par value, 15,000 shares authorized; 6,000 shares issued and outstanding | | | — | | | | 6,000 | |
| | | | | | |
Cumulative convertible participating preferred stock, Series C, $.05 par value, 3,300 shares authorized, issued and outstanding | | | — | | | | 3,300 | |
| | | | | | |
| | | | | | | | |
STOCKHOLDERS’ EQUITY (DEFICIENCY) | | | | | | | | |
Cumulative convertible participating preferred stock, Series D, $.05 par value, 11,000 shares authorized; 155 shares outstanding | | | 155 | | | | — | |
Cumulative convertible participating preferred stock, Series E, $.05 par value, 25,000 shares authorized; 23,741 shares outstanding | | | 23,741 | | | | — | |
Common stock, $.05 par value, 20,000,000 shares authorized; 9,083,573 and 9,049,351 shares issued and outstanding as February 26, 2010 and February 27, 2009, respectively | | | 454 | | | | 452 | |
Additional paid-in capital | | | 14,050 | | | | 15,399 | |
Accumulated other comprehensive loss | | | (431 | ) | | | (557 | ) |
Accumulated deficit | | | (20,593 | ) | | | (27,046 | ) |
| | | | | | |
Total stockholders’ equity (deficiency) before noncontrolling interest | | | 17,376 | | | | (11,752 | ) |
| | | | | | |
Noncontrolling interest | | | 38 | | | | 42 | |
| | | | | | |
Total stockholders’ equity (deficiency) | | | 17,414 | | | | (11,710 | ) |
| | | | | | |
Total liabilities and stockholders’ equity (deficiency) | | $ | 51,729 | | | $ | 37,278 | |
| | | | | | |
The accompanying notes are an integral part of the consolidated financial statements.
14
Environmental Tectonics Corporation
Consolidated Statements of Operations
(amounts in thousands, except share and per share information)
| | | | | | | | |
| | Fiscal Years ended: | |
| | February 26, 2010 | | | February 27, 2009 | |
Net sales | | $ | 42,271 | | | $ | 36,687 | |
Cost of goods sold | | | 23,447 | | | | 24,829 | |
| | | | | | |
Gross profit | | | 18,824 | | | | 11,858 | |
| | | | | | |
| | | | | | | | |
Operating expenses: | | | | | | | | |
Selling and marketing | | | 5,010 | | | | 4,670 | |
General and administrative | | | 6,405 | | | | 6,424 | |
Research and development | | | 809 | | | | 1,110 | |
| | | | | | |
| | | 12,224 | | | | 12,204 | |
| | | | | | |
| | | | | | | | |
Operating profit (loss) | | | 6,600 | | | | (346 | ) |
| | | | | | |
| | | | | | | | |
Other expenses: | | | | | | | | |
Interest expense | | | 1,308 | | | | 1,569 | |
Loss on extinguishment of debt | | | 315 | | | | — | |
Other, net | | | 347 | | | | 67 | |
| | | | | | |
| | | 1,970 | | | | 1,636 | |
| | | | | | |
| | | | | | | | |
Income (loss) before income taxes | | | 4,630 | | | | (1,982 | ) |
Income tax benefit | | | 1,819 | | | | — | |
| | | | | | |
| | | | | | | | |
Income (loss) before noncontrolling interest | | | 6,449 | | | | (1,982 | ) |
Loss attributable to noncontrolling interest | | | (4 | ) | | | (8 | ) |
| | | | | | |
| | | | | | | | |
Net income (loss) | | | 6,453 | | | | (1,974 | ) |
| | | | | | | | |
Preferred stock dividends | | | (1,885 | ) | | | (927 | ) |
| | | | | | |
| | | | | | | | |
Income (loss) applicable to common shareholders | | $ | 4,568 | | | $ | (2,901 | ) |
| | | | | | |
| | | | | | | | |
Per share information: | | | | | | | | |
Earnings (loss) per common share: | | | | | | | | |
Basic | | $ | 0.50 | | | $ | (0.32 | ) |
| | | | | | |
Diluted | | $ | 0.30 | | | $ | (0.32 | ) |
| | | | | | |
Weighted average common shares: | | | | | | | | |
Basic | | | 9,069,000 | | | | 9,037,000 | |
| | | | | | |
Diluted | | | 21,235,000 | | | | 9,037,000 | |
| | | | | | |
The accompanying notes are an integral part of the consolidated financial statements.
ETCC - Internet Home Page: http://www.etcusa.com
