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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,June 30, 1998
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________________________________________________
Commission File Number 1-11729
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Liberty Technologies, Inc.
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(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
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(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__X NO ____
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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 12,August 14, 1998
-
------------------ -----------------------------------------
Common Stock 5,007,718
==============================================================================5,013,233
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LIBERTY TECHNOLOGIES, INC.
INDEX
PART I FINANCIAL INFORMATION
Page No.
Item 1. Consolidated Financial Statements (unaudited):
Consolidated Statements of Operations -
Three months ended March 31, 1998 and 1997............................ 3
Consolidated Balance Sheets -
March 31, 1998 and December 31,1997................................... 4
Consolidated Statements of Cash Flows -
Three months ended March 31, 1998 and 1997............................ 5
Notes to Consolidated Financial Statements................................ 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................. 8
PART II OTHER INFORMATION
Item 5. Other information......................................................... 12
Item 6. Exhibits and Reports on Form 8-K.......................................... 12
Signatures................................................................----------------------------
Item 1. Consolidated Financial Statements (unaudited): Page No.
--------
Consolidated Statements of Operations -
Three months and six months ended June 30, 1998 and 1997... 3
Consolidated Balance Sheets -
June 30, 1998 and December 31, 1997........................ 4
Consolidated Statements of Cash Flows -
Six months ended June, 1998 and 1997....................... 5
Notes to Consolidated Financial Statements..................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................. 8
PART II OTHER INFORMATION
-------------------------
Item 5. Other information................................................ 12
Item 6. Exhibits and Reports on Form 8-K................................. 12
Signatures....................................................... 13
Exhibit Index.................................................... 14
2
PART I. Financial Information
Item 1. Consolidated Financial Statements
LIBERTY TECHNOLOGIES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
For the three months ended March 31,
------------------------------------
(Unaudited)
1998 1997
---- ----
Revenues:
Product ................................................. $ 3,347 $ 4,091
Service ................................................. 1,030 2,435
------- -------
4,377 6,526
------- -------
Cost of revenues:
Product ................................................. 1,689 1,521
Service ................................................. 863 1,759
------- -------
2,552 3,280
------- -------
Gross profit ................................. 1,825 3,246
------- -------
Operating expenses:
Engineering and product development ..................... 879 973
Selling, general and administrative ..................... 2,194 2,321
------- -------
3,073 3,294
------- -------
Operating loss ............................... (1,248) (48)
Interest income (expense), net ............................. 58 (51)
------- -------
Loss before taxes, minority interest and
discontinued operations .................... (1,190) (99)
Income tax benefit ......................................... (465) --
------- -------
Loss before minority interest and discontinued
operations ................................. (725) (99)
Minority interest in loss of joint venture ................. 51 72
------- -------
Loss before discontinued operations .......... (674) (27)
Loss from discontinued operations, net of tax .............. -- (186)
------- -------
Net loss ................................................... $ (674) $ (213)
------- -------
Basic and diluted loss per share:
Continuing operations ................................. $ (0.13) $ (0.01)
Discontinued operations ............................... -- (0.03)
------- -------
$ (0.13) $ (0.04)For the three For the six
months ended June 30, months ended June 30,
--------------------- ---------------------
(Unaudited) (Unaudited)
1998 1997 1998 1997
------- ------ ------- -------
Revenues:
Product......................... $ 1,810 $3,473 $ 5,157 $ 7,563
Service......................... 2,244 1,954 3,274 4,390
------- ------ ------- -------
4,054 5,427 8,431 11,953
------- ------ ------- -------
Cost of revenues:
Product......................... 1,198 1,294 2,887 2,815
Service......................... 2,018 1,425 2,881 3,184
------- ------ ------- -------
3,216 2,719 5,768 5,999
------- ------ ------- -------
Gross profit................ 838 2,708 2,663 5,954
------- ------ ------- -------
Operating expenses:
Engineering and product
development................... 872 986 1,751 1,959
Selling, general and
administrative................ 2,286 2,407 4,481 4,728
------- ------ ------- -------
3,158 3,393 6,232 6,687
------- ------ ------- -------
Operating loss.............. (2,320) (685) (3,569) (733)
Interest income (expense), net..... 29 (212) 87 (263)
------- ------ ------- -------
Loss before taxes, minority
interest and
discontinued operations... (2,291) (897) (3,482) (996)
Income tax benefit ................ (893) -- (1,359) --
------- ------ ------- -------
Loss before minority
interest and discontinued
operations................ (1,398) (897) (2,123) (996)
Minority interest in loss of
joint venture.................... 70 33 121 105
------- ------ ------- -------
Loss before discontinued
operations................ (1,328) (864) (2,002) (891)
Income from discontinued
operations, net of tax........... -- 1,057 -- 871
------- ------ ------- -------
Net income (loss).................. $(1,328) $ 193 $(2,002) $ (20)
======= ====== ======= =======
Basic and diluted income (loss)
per share:
Continuing operations.......... $ (0.26) $(0.17) $ (0.40) (0.18)
Discontinued operations........ -- 0.21 -- 0.18
------- ------ ------- -------
$ (0.26) $ 0.04 $ (0.40) $ 0.00
======= ====== ======= =======
Shares used in computing net
income (loss) per share.......... 5,010 5,064 5,014 5,000
======= ====== ======= =======
Weighted average shares outstanding ........................ 5,018 4,995
======= =======
The accompanying notes are an integral part of these statements.
3
LIBERTY TECHNOLOGIES, INC. AND SUBSIDIARIES
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CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(Unaudited)
ASSETS March 31,June 30, December 31,
1998 1997
----------------- ------------
Current assets:
Cash and cash equivalents .............................. $ 1,440562 $ 2,444
Accounts receivable, net ............................... 4,8273,404 6,307
Inventories ............................................ 3,8913,606 3,568
Escrow receivable, net ................................. 1,3851,315 1,385
Refundable income taxes ................................ 607594 611
Deferred income taxes .................................. 805340 340
Prepaid expenses and other ............................. 149604 181
-------- --------
Total current assets ......................... 13,10410,425 14,836
Property and equipment, net ................................ 2,0251,960 2,154
Goodwill, net .............................................. 9792 103
Deferred income taxes ...................................... 2461,595 246
Other assets ............................................... 1,080935 1,095
-------- --------
$ 16,55215,007 $ 18,434
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt ................... $ 1523 $ 37
Accounts payable ....................................... 1,8911,852 1,938
Accrued compensation and benefits ...................... 558578 638
Other accrued expenses ................................. 481429 1,232
Unearned revenue ....................................... 300revenue........................................ 313 303
Income taxes payable ................................... 637483 872
-------- --------
Total current liabilities .................... 3,8823,678 5,020
-------- --------
Long-term debt ............................................. 240220 245
-------- --------
Due to minority shareholder ................................ -- 44
-------- --------
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, 5,027,987 and 5,027,987 shares issued,
and 5,004,1365,009,635 and 5,020,239 outstanding ............. 50 50
Additional paid-in capital ............................. 17,20117,186 17,215
Accumulated deficit .................................... (4,749)(6,077) (4,075)
Treasury stock at cost ................................. (74)(50) (40)
Cumulative translation adjustment ...................... 2-- (25)
-------- --------
Total shareholders' equity ................... 12,43011,109 13,125
-------- --------
$ 16,55215,007 $ 18,434
======== ========
The accompanying notes are an integral part of these statements.
4
LIBERTY TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the threesix months ended March 31,June 30,
---------------------------------
(Unaudited)
1998 1997
---- ----------- ------
Cash flows from operating activities:
Net loss ...................................................... $ (674) $ (213)$(2,002) $(20)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization ............................. 290 530551 1,056
Deferred income taxes ..................................... (465) 56(1,349) 58
Minority interest in loss of joint venture ................ (51) (72)(121) (105)
Change in assets and liabilities
(Increase) decrease in:
Accounts receivable ........................... 1,480 (624)2,903 (957)
Inventories ................................... (324) (83)(38) (170)
Prepaid expenses and other .................... 36 (223)17 (332)
Other assets .................................. -- (53)(301) (130)
Increase (decrease) in:
Accounts payable ............................. (47) (51)(86) 173
Accrued expenses ............................. (318) 395(391) (109)
Income taxes payable ......................... (235) (88)(391) (154)
Unearned revenue ............................. (3) 1311 38
Accrued restructuring expense ................ 178 --
------- -------------
Net cash used in operating activities .............. (311) (413)(1,019) (652)
------- -------------
Cash flows from investing activities:
Purchases of property and equipment ........................... (133) (79)(299) (269)
Payments related to sale of NDE Business ...................... (513)(581) --
Other ......................................................... -- (84)(26)
------- -------------
Net cash used in investing activities .............. (646) (163)(880) (295)
------- -------------
Cash flows from financing activities:
Payments of long-term debt .................................... (40) (28) (26)
Net borrowings under line of credit ........................... -- 1,4501,420
Decrease in book overdraft .................................... -- (324)(225)
Proceeds from Employee Stock Purchase Plan .................... 8 1516 28
Exercise of options and warrants .............................. -- 7
Investment from minority shareholder in joint venture ......... 70 (42)
Purchase of treasury shares ................................... (54) --
------- -------------
Net cash provided by (used in) financing activities (74) 1,115(8) 1,160
------- -------------
Effect of foreign exchange rate changes on cash .................. 27 225 (31)
------- -------------
Net increase (decrease) in cash and cash equivalents ............. (1,004) 541(1,882) 182
Cash and cash equivalents, beginning of year ..................... 2,444 324
------- -------------
Cash and cash equivalents, end of period ......................... $ 1,440562 $ 865506
======= =============
The accompanying notes are an integral part of these statements.
5
Item 1 -- Financial Statements -- Cont'd.
LIBERTY TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The consolidated financial statements as of March 31,June 30, 1998 and for the
three and six month periods ended March 31,June 30, 1998 and 1997 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 Company has reclassified the presentation of certain prior year
information to conform to the current year presentation format.
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, 1997. 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.
2. Inventories
Inventories are summarized as follows:
March 31, 1998June 30, 1997 December 31, 1997
--------------1996
------------- -----------------
Raw materials $ 3,322,000 $ 3,125,000$2,999,000 $3,151,000
Finished goods 569,000 443,000
--------------- ---------------
$ 3,891,000 $ 3,568,000
=============== ===============607,000 417,000
---------- ----------
$3,606,000 $3,568,000
========== ==========
3. Supplemental Cash Flow
Disclosure
Cash paid forpayment of income taxes for the threesix months ended March 31,June 30, 1998 and
1997 waswere approximately $198,000$391,000 and $17,000,$79,000, respectively, all of which
pertained to payment of prior year taxes. CashInterest paid for interest for the threesix months
ended March 31,June 30, 1998 and 1997 was $0 and $124,000,$286,000, respectively.
4. Earnings per Share
In 1997, the Company adopted SFAS No. 128, "Earnings per Share". This
statement requires that the Company report basic and diluted earnings
(loss) per share for all periods reported. Basic net income (loss) per
share is calculated by dividing net income (loss) by the weighted average
number of common shares outstanding for the period. Diluted net income
(loss) per share is computed by dividing net income (loss) by the weighted
average number of common shares outstanding for the period, adjusted for
the dilutive effect of common stock equivalents, consisting of dilutive
6
common stock options using the treasury stock method. For all period
presented,
6
common stock options are not included in the computation as
they would be anti-dilutive.
5. Sale of NDE Business
On October 30, 1997, the Company completed the sale of substantially all
of the assets of its nondestructive testing and evaluation services
business (the "NDE Business"), a division of Liberty Technical Services,
Inc., to a subsidiary of General Electric Company ("GE") for $13,500,000
and the assumption of certain associated liabilities totaling
approximately $1,340,000. For the threesix months ended March 31,June 30, 1998, the
Company made payments totaling $513,000$581,000 related to the NDE Business,
including a payment to GE of $399,000 related to a final working capital
adjustment. At March
31,June, 1998, $1,385,000$1,315,000 of the proceeds from the sale are
held in escrow to secure certain indemnification obligations of the
Company to the buyer. The escrow is due to be received in October 1998.
For the three and six months ended March 31,June 30, 1997, the results of
operations of the NDE Business are reported as discontinued operations.
For the three and six months ended March 31,June 30, 1997 the NDE Business
generated service revenues of $3,230,000.$5,502,000 and $8,732,000, respectively.
6. New Accounting Pronouncement
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS No. 130"), which requires that all components
of comprehensive income be reported in the financial statements. SFAS No.
130 become effective for fiscal years beginning after December 15, 1997,
with initial application as of the beginning of the Company's 1998 fiscal
year. SFAS No. 130 requires reclassification of prior period financial
statements to reflect application of the provisions of the new standard.
For the three and six months ended March 31,June 30, 1998 and 1997, comprehensive
income was as follows:
For the three months ended March 31,
---------For the six months ended
June 30, June30,
1998 1997 ---- ----1998 1997
----------- --------- ----------- --------
Net lossincome (loss) $(1,328,000) $ (674,000) $ (213,000)193,000 $(2,002,000) $(20,000)
Foreign currency
translation adjustments 27,000 (2,000) (29,000) 25,000 (31,000)
----------- --------------------- ----------- ---------
Comprehensive income $(1,330,000) $ (647,000) $ (215,000)
============ ============164,000 $(1,977,000) $(51,000)
=========== ========= =========== =========
As of March 31,June 30, 1998, the accumulated balance of other comprehensive income
consisted of the Company's cumulative translation adjustment and totaled
$2,000.$0.
7
LIBERTY TECHNOLOGIES, INC.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations Cautionary Statement
When used in this Quarterly Report on Form 10-Q and in other written or oral
public statements by the Company and Company officers and management, the words
"estimate," "project," "intend," "believe," "anticipate" and similar expressions
are intended to identify forward-looking statements regarding events and
financial trends which may affect the Company's future operating results and
financial position. Such statements are subject to risks and uncertainties that
could cause the Company's actual results and financial position to differ
materially. Such factors include, among others: (i) the Company's ability to
identify appropriate acquisition candidates, complete acquisitions on
satisfactory terms, or successfully integrate acquired business; (ii) the
Company's ability to obtain financing on satisfactory terms and the degree to
which the Company is leveraged, including the extent to which currently
outstanding options are exercised; (iii) the sensitivity of the Company's
business to general economic conditions; (iv) the timely development, production
and acceptance of new products; (v) continued acceptance in the marketplace,
competition and buying patterns of customers; (vi) the timing of orders from,
and shipments to, , major customers; (vii) changes in product/service revenue
mix; (viii) the absence of a significant order backlog; (ix) factors associated
with international sales such as the relative strength of the dollar when
compared to the currencies of the countries into which the Company exports
products; (x) the Company's ability to remain in compliance with the numerous
environmental, health and safety requirements to which it is subject; (xi)
changes in accounting principles, policies or guidelines; and (xii) other
economic, competitive, governmental and technological factors affecting the
Company's operations, markets, products, services and prices. Additional factors
are described in the Company's other public reports filed with the Securities
and Exchange Commission. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date made. The
Company undertakes no obligation to publicly release the result of any revisions
of these forward-looking statements to reflect events or circumstances after the
date they are made or to reflect the occurrence of unanticipated events.
Results of Operations
Three and Six Months Ended March 31,June 30, 1998 Compared to Three and Six Months Ended
March 31,June 30, 1997:
Total Revenues. TotalFor the three and six month comparative periods ended June 30,
1997 and 1998, total revenues decreased from $6,526,000$5,427,000 to $4,377,000,$4,054,000, or 33%25%,
and from the first quarter of 1997$11,953,000 to the first quarter of 1998.$8,431,000, or 29%, respectively.
Product revenues decreased from $4,091,000$3,473,000 to $3,347,000,$1,810,000, or 18%48%,. and from
$7,563,000 to $5,157,000, or 32%, for the three and six months ended June 30,
1997 and 1998, respectively, on lower sales of condition monitoring and
RADView(TM) products. Revenues for the first quarterhalf of 1997 included a large
shipment of valve diagnostic
8
equipment to the Company's joint venture partner, Electricite de France. There
was no corresponding sale in the first quarterhalf of 1998.
Service revenues increased from $1,954,000 to $2,244,000, or 15%, for the three
months ended June 30, 1997 and 1998, respectively, and decreased from $2,435,000$4,390,000
to $1,030,000,$3,274,000, or 58%25%, principally as a
8
result of lower nuclear service revenuesfor the six months ended June 30, 1997 and 1998,
respectively. The change was due primarily to the timing of scheduled
maintenance outages by utilities which were delayed into the second quarter of
1998.utilities.
Cost of Revenues. Cost of revenues increased from $2,719,000 to $3,216,000, or
18%, for the three months ended June 30, 1997 and 1998, respectively, and
decreased from $3,280,000$5,999,000 to $2,552,000,$5,768,000, or 22%4%, fromfor the first quartersix months ended June
30, 1997 to the first quarter 1998. Asand 1998, respectively, as a percentageresult of total revenues, cost of revenues increased from 50% to 58% on a mix ofan increase in lower margin
productsnuclear service revenue and services. Costa decrease in high margin product and software
sales. Overall costs of product revenues increased as a percentage of product sales from 37% in 1997 to 50% in 1998. Cost of service revenues
increased as a percentage of service revenues from 72% in 1997 to 84% in 1998.
Gross profit decreased from $3,246,000 to $1,825,000 from the first quarter of
1997 to the first quarter of 1998. As a percentage of total revenues gross
profit decreased
from 50% to 42%.79% for the three month comparative period and from 50% to 68% for
the six month comparative period. The Company expects that cost of revenues and
gross profit margin will vary from quarter to quarter depending on the mix and
volume of products and services sold.
Operating Expenses. Operating expenses decreased 7%, from $3,294,000$3,393,000 to
$3,073,000$3,158,000 and 7%, from $6,687,000 to $6,232,000, respectively, for the first quarterthree
and six month periods ended June 30, 1997 and 1998. Excluding the effect of
1997 torestructuring charges totaling $199,000, operating expenses decreased 13% and
10% for the first quarter of 1998,
primarilythree and six month comparative periods, respectively. The decrease
operating expenses was a due to a reduction in internally funded development.development as
well as decreased selling, general and administrative expenses.
Interest expense, net. Net interest expense decreased from expense of $212,000
and $263,000, respectively, for the three and six months ended June 30, 1997 to
net interest income of $29,000 and $87,000, respectively, for the three and six
months ended June 30, 1998 as a result of the Company repaying its bank line of
credit.
Income Taxes.taxes. The Company's effective income tax rate was 39% infor the first
quarter ofthree and
six month periods ended June 30, 1998. Consistent with a valuation allowance
recorded against the Company's deferred tax asset in 1996, no tax benefit was
recorded against the loss infor the first quarter ofthree and six months periods ended June 30,
1997.
Loss from Continuing Operations. LossFor the three and six month comparative periods
ended June 30, 1997 and 1998, loss from continuing operations increased from
$27,000,$864,000, or $0.01$0.17 per share, in the first quarter of 1997 to $674,000,$1,328,000, or $0.13$0.26 per share, in the first quarter of 1998,and from
$891,000, or $0.18 per share, to $2,002,000, or $0.40 per share, respectively,
primarily as a result of the reduction in revenues.
LossIncome (loss) per share. LossEarnings per share increaseddecreased from income per share of
$0.04 in the first quarter of 1997
to $0.13 in 1998. The lossand $0.00 for the first quarter ofthree and six months ended June 30, 1997, includes arespectively,
to loss per share of $0.03$0.26 and $0.40 for the three and six months ended June 30,
1998. The income per share for the comparative periods ended June 30, 1997
includes income of $0.21
9
and $0.18, respectively, from the operations of the NDE Business. The loss for
the first
quarter of 1997,these comparative periods, exclusive of the NDE Business, was $0.01 per share.$0.17 and $0.18,
respectively.
The number of shares used in calculating loss per share decreased from 5,064,000
to 5,010,000 in the three month comparative period, and increased from 4,995,0005,000,000
to 5,014,000 in 1997 to
5,018,000the six month comparative period. The decrease in 1998 due to the issuance of shares in connection withthe
three month period resulted from the elimination of the dilutive effect of
options because of the overall loss for the period. The increase in shares in
the six month period resulted from the exercise of stock options under the
Company's 1988 and 1992 Stock Option Plans and the sale of stock through the
Company's Employee Stock Purchase Plan, partially offset by a purchase of
treasury shares in the first quarter of 1998.
Liquidity and Capital Resources
During 1998, the Company has financed its working capital requirements and
capital expenditures primarily through the use of its cash reserves. During
1997, the Company financed its working capital requirements and capital
expenditures primarily through borrowings against its revolving credit facility.
At March 31,June 30, 1998, the Company had cash and cash equivalentsinvestments aggregating $1,440,000$562,000
compared to $2,444,000 at December 31, 1997, reflecting the cash used by
operating and investing activities.
9
Net cash used byin operations decreasedincreased from $413,000$652,000 during the first quarterhalf of
1997 to $311,000$1,019,000 during the first quarterhalf of 1998. The change was principally
attributable to a higher net loss, lower depreciation and amortization, and
increased tax benefit, offset by a decrease in accounts receivable, offset by an increase in
deferred taxes and a decrease in accrued expenses.receivable.
Net cash used in investing activities increaseddecreased from $163,000$295,000 in the first quarterhalf
of 1997 to $646,000$880,000 in the first quarterhalf of 1998. This increase resulted from
payments totaling $513,000$581,000 related to the sale of the NDE Business.
Net cash provided by financing activities induring the first quarterhalf of 1997 was
$1,115,000$1,160,000 compared to cash used of $74,000 in$8,000 for the first quarterhalf of 1998. The 1997
amount reflects net borrowings of $1,450,000$1,420,000 against the Company's revolving
credit facility, offset by a decrease of $324,000$225,000 in the book overdraft. There
is no such corresponding source of funds during 1998.
In MarchOn May 7, 1998, a commercial bank offered to provide the Company withsigned a two-year line of credit of up to $5.0
million. The line of credit is subject to the
Company's acceptance of the Bank's proposed commitment letter and to the
finalization of the appropriate loan documents.million with a commercial bank. Borrowing under the line would
beis limited to 80% of
qualified accounts receivable, as defined, and would beis collateralized by a pledge of
substantially all of the Company's assets. Additionally, the Company would beis required
to maintain compliance with certain financial and non-financial covenants, as defined.covenants.
Borrowings under this facility would bear interest at the bank's prime rate plus 1.5%.
The Company anticipates finalizing thisAvailability on the credit facility in the second quarter of
1998.totaled $1,781,000 at June 30, 1998 and
there was no balance outstanding.
During 1997 the Company had a $7,500,000 line of credit facility with a
10
commercial bank (the "Bank").bank. The line was fully repaid with a portion of the proceeds from
the sale of the NDE Business.
The Company believes that its current cash and cash equivalents and borrowing
availability under the proposedits line of credit will be sufficient to fund the Company's
operations, debt and lease obligations and expected capital expenditures during
1998. Additional financing may be required for the Company
to consummate any material business acquisitions, none of which are currently
contemplated.
Inflation
Inflation has not had a significant impact on the Company.
Year 2000 Compliance
The Company has been evaluating its information technology infrastructure for
year 2000 compliance. The Company has been informed by its external vendors that
the majority of its internal information systems are fully compliant and will
function properly beyond the year 1999. The Company has been communicating with
suppliers, financial institutions and others to determine the current level of
compliance and to coordinate conversion to systems which are year 2000 compliant
wherever necessary. To the extent the 10
Company's significant suppliers, financial
institutions and customers do not successfully achieve year 2000 compliance on a
timely basis, the Company's business or operations could be adversely affected.
The total cost of the software and implementation of any changes that may be
required with respect to the Company's information technology infrastructure is
estimated to be immaterial and will be expensed as incurred.
Computer software is an integral part of many of the Company's products. The
Company has evaluated each of its products and has determined that the majority
of them will function properly beyond the year 1999. Several of the Company's
products require modifications to insure their functionality in the year 2000.
TheSeveral of the projects to insure compliance are scheduled to behave been completed, at dates
starting in the second quarter of 1998, with final
completion of all projects by the end of 1998.the first quarter of 1999. The cost of
completing these projects is estimated to be less than $100,000 and will be
expensed as incurred.
11
PART II. OTHER INFORMATION
Item 5. Other information
1. Liberty Technologies, Inc. hasOn August 12, 1998, the Company announced that its Board of Directors
is
considering strategic alternativesapproved a definitive merger agreement, which was signed on August 11,
1998, with Crane Co., providing for Crane's acquisition of all of the
outstanding shares of the Company at $3.50 per share. The Company also
announced that, in connection with the merger agreement, the Company
granted Crane an option to enhance shareholder value,purchase up to 997,663 shares of newly
issued shares of stock at $2.75 per share, exercisable for one year
after the termination of the merger agreement upon the occurrence of
certain events, and that such alternatives maythe Company's Board of Directors approved
amendments to the Company's shareholder rights plan to render the plan
inapplicable to the Crane acquisition.
2. On May 21, 1998, the Securities and Exchange Commission adopted an
amendment to Rule 14a-4, promulgated under the Securities and Exchange
Act of 1934. The amendment to Rule 14a-14 governs the Company's use of
its discretionary proxy voting authority with respect to a shareholder
proposal which the shareholder has not sought to include in the
sale or restructuringCompany's proxy statement. The new amendment provides that if a
proponent of all or
parta proposal fails to notify the Company at least 45 days
in prior to the month and day of mailing of the Company.prior year's proxy
statement, then the management proxies will be allowed to use their
discretionary voting authority when the proposal is raised at the
meeting, without any discussion of the matter in the proxy statement.
With respect to the Company's 1999 Annual Meeting of Shareholders, if
the Company is not provided notice of a shareholder proposal, which
the shareholder has not previously sought to include in the Company's
proxy statement, by March 23, 1999, the management proxies will be
allowed to use their discretionary authority as outlined above.
Item 6. Exhibits and Reports on Form 8-K
1.(a) Exhibits
Exhibit
No.
- -------
2 Agreement and Plan of Merger among Crane Co.,
LTI Merger, Inc. and Liberty Technologies, Inc.
dated August 11, 1998
4.1 Stock Option Agreement between Liberty Technologies, Inc.
and Crane Co. dated August 11, 1998
4.2 First Amendment to Amended and Restated Rights
Agreement between Liberty Technologies, Inc. and
StockTrans. Inc. dated August 11, 1998
99 Liberty Technologies, Inc. Press Release dated
August 12, 1998
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended March 31,June 30, 1998.
12
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 12,August 14, 1998
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 (principals(principal
financial and accounting officer)
13
EXHIBIT INDEX
Exhibit
No.
- -------
2 Agreement and Plan of Merger among Crane Co.,
LTI Merger, Inc. and Liberty Technologies, Inc.
dated August 11, 1998
4.1 Stock Option Agreement between Liberty Technologies, Inc.
and Crane Co. dated August 11, 1998
4.2 First Amendment to Amended and Restated Rights
Agreement between Liberty Technologies, Inc. and
StockTrans. Inc. dated August 11, 1998
99 Liberty Technologies, Inc. Press Release dated
August 12, 1998
27 Financial Data Schedule