UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 1997
Commission file Number 1-10310
SETECH, INC.
(Exact name of registrant as specified in its charter.)
Delaware 11-2809189
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
905 Industrial Drive, Murfreesboro, Tennessee 37129
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(615) 890-1700
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 past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practical
date:
Common Stock, $.01 Par Value - 5,250,206 shares as of
March 31, 1997.
Indicate Transitional Small Business Disclosure Format
YES [ ] NO [X]
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements.
SETECH, Inc. and Subsidiaries:
Consolidated Balance Sheets as of March 31, 1997
and June 30, 1996
Consolidated Statements of Income for the Three Months
Ended March 31, 1997 and 1996
Consolidated Statements of Income for the Nine Months
Ended March 31, 1997 and 1996
Consolidated Statement of Stockholders' Equity for
the Nine Months Ended March 31, 1997
Consolidated Statements of Cash Flows for the Nine
Months Ended March 31, 1997 and 1996
Notes to Consolidated Financial Statements
SETECH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, June 30,
1997 1996
(Unaudited)
__________________ _________________
ASSETS
Currents Assets
Cash and Cash Equivalents $ 3,567,963 $ 1,704,654
Accounts Receivable 3,954,808 6,063,128
Inventory 9,780,924 9,523,621
Prepaid Expenses 40,158
Stock subscriptions receivable 661,500
Other Current Assets 140,801 37,266
Deferred Tax 389,331 306,000
Benefit _____________ ____________
Total Current Assets 17,833,827 18,336,327
Property and Equipment,net 745,037 1,128,007
Cost in Excess of net 1,667,715 2,024,628
Assets Acquired, net of
Accumulated Amortization
of $523,440 and $1,120,073
Respectively, and Allowance
for Future Realization of
$240,000 at June 30, 1996
Deferred Income Tax Benefit 629,680
Other Assets 26,343 24,372
____________ ___________
Total Assets 20,272,922 22,143,014
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current Portion of Long-term $ 126,113 $ 625,132
Debt
Notes Payable-Bank 8,092,586 7,969,044
Accounts Payable 2,674,204 3,453,987
Accrued Expenses 1,314,026 2,163,707
____________ ____________
Total Current Liabilities $12,206,929 $14,211,870
Long Term Debt 702,884 1,331,906
Stockholders Equity
Common Stock, $.01 par 54,139 54,139
Value, 10,000,000 Shares
Authorized, 5,413,901
Issued
Additional Paid-in 11,536,481 11,512,038
Capital
Accumulated Deficit (4,019,312) (4,612,082)
Less Treasury shares of
163,695 and 285,910 respectively (208,199) (354,857)
_____________ _____________
TOTAL STOCKHOLDERS EQUITY $7,363,109 $6,599,238
TOTAL LIABILITIES AND $20,272,922 $22,143,014
STOCKHOLDERS EQUITY (DEFICIENCY)
<FN>
The Accompanying Notes to Condensed Consolidated Financial
Statements are an integral part of these statements
SETECH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the three months ended
March 31 March 31
1997 1996
------------ ------------
REVENUES $3,810,436 $2,816,902
COST OF SALES 2,698,789 2,132,003
---------- ---------
Gross Profit 1,111,647 684,899
Selling, General & Administrative 728,898 491,749
Expenses ________ ________
Operating Income 382,749 193,150
OTHER (INCOME) EXPENSE
Interest Income (27,287) (23,826)
Interest Expense 179,353 140,987
__________ __________
Total Other 152,066 117,161
__________ __________
Net Income 230,683 75,989
before Income Taxes
Income Tax Prov. (Ben): Current (9,437) 4,446
Deferred 117,238 (83,573)
__________ __________
Total Income Tax Prov.(Ben) 107,801 (79,127)
Net Income from
continuing operations 122,882 155,116
Net Income from
discontinued operations 43,046 42,205
net of income taxes of $297,521
and $27,197 respectively __________ __________
Net Income $165,928 $197,321
__________ __________
__________ __________
INCOME PER COMMON SHARE
Primary
Continuing operations 0.023 0.030
Discontinued operations 0.008 0.008
_______ _______
Total 0.031 0.038
Fully Diluted
Continuing operations 0.021 0.027
Discontinued operations 0.007 0.007
_______ _______
Total 0.028 0.034
<FN>
The Accompanying Notes to Condensed Consolidated Financial
Statements are an Integral Part of these Statements.
SETECH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the nine months ended
March 31 March 31
1997 1996
------------ ------------
REVENUES $11,259,165 $ 8,786,678
COST OF SALES 8,154,461 6,483,365
---------- ----------
Gross Profit 3,104,704 2,303,313
Selling, General & Administrative 1,780,878 1,501,156
Expenses ________ ________
Operating Income 1,323,826 802,157
OTHER (INCOME) EXPENSE
Interest Income (59,695) (83,313)
Interest Expense 568,353 397,875
__________ __________
Total Other 508,658 314,562
__________ __________
Net Income 815,168 487,595
before Income Taxes
Income Tax Prov. (Ben):
Current 68,831 (87,446)
Deferred 281,853 (166,382)
__________ __________
Total Income Tax Prov.(Ben) 350,684 (253,828)
Net Income from
continuing operations 464,484 741,423
Income from discontinued
operations, net of income 128,286 129,129
taxes of $352,019 and
$83,509 respectively __________ _________
Net Income $592,770 $870,552
__________ __________
__________ __________
INCOME PER COMMON SHARE
Primary
Continuing operations 0.086 0.14
Discontinued operations 0.024 0.02
_______ _______
Total 0.11 0.16
Fully Diluted
Continuing operations 0.08 0.13
Discontinued operations 0.02 0.02
_______ _______
Total 0.10 0.15
[FN]
The Accompanying Notes to Condensed Consolidated Financial
Statements are an Integral Part of these Statements.
SETECH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES
IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
Common Stock
$.01 Par Treasury
Value Additional Accumulated Stock
_________ Paid-in (Deficit) _________________
Shares Amount Capital Shares Amount
___________ ___________ ____________ ____________ _______ ________
Balances 5,413,901 $54,139 $11,512,038 ($4,612,082) 285,910 $354,857
June 30,
1996
Reissuance
of shares 24,443 (122,215)($146,658)
Net Income 592,770
for the
9 Months
Ended
March
31, 1997 _____________________________________________________________________
Balances 5,413,901 $54,139 $11,536,481 ($4,019,312) 163,695 $208,199
at March
31,1997
<FN>
The Accompanying Notes to Condensed Consolidated Financial
Statements are an Integral Part of these Statements.
SETECH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the nine months ended
March 31 March 31
1997 1996
________ ________
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Income $592,770 $870,552
Adjustments to
reconcile net income
to net cash used in
continuing operations:
Depreciation and 380,586 429,871
amortization
Deferred Income Tax 546,349 (94,067)
Gain on sale of (30,000) (4,028)
fixed assets
Gain on sale of subsidiary (289,819)
Changes in operating assets
and liabilities:
(Increase) decrease in 86,751 (2,225,172)
accounts receivable
(Increase) decrease in (619,269) (2,130,089)
other assets
(Decrease) increase in (469,427) 1,578,426
accounts payable
(Decrease) increase in (166,552) (174,928)
accrued expense __________ _________
Net cash provided (used) in 31,389 (1,749,435)
operations
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of equipment (318,708) (60,259)
Proceeds from sale of 30,000 4,028
fixed assets
Proceeds from sale of
subsidiary 1,992,526
__________ _________
Net cash used in investing 1,703,818 (56,231)
activities
CASH FLOWS FROM FINANCING
ACTIVITES:
Net Proceeds From (Payments on)
short-term debt 423,542 1,515,741
Payments on long-term (1,128,041) (119,772)
debt
Proceeds from long-term 1,000,000
debt
Purchase of treasury
stock (1,264,000)
Sale of treasury
stock 832,601 264,000
__________ _________
Net cash provided by 128,102 1,395,969
financing activities
Increase (Decrease) in cash 1,863,309 (409,697)
and cash equivalents
Cash and cash equivalents 1,704,654 1,951,004
at beginning of period ___________ ___________
Cash and cash equivalents $3,567,963 $1,541,307
at end of period
[FN]
The Accompanying Notes to Condensed Consolidated Financial
Statements are an Integral Part of these Statements.
SETECH, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANACIAL STATEMENTS
(Unaudited)
March 31, 1997
1. BASIS OF PRESENTATION:
The financial information included herein is unaudited;
however, such information reflects all adjustments (consisting
solely of normal recurring adjustments) which are, in the opinion
of management, necessary for a fair statement of results for the
interim period. This report should be read in conjunction with the
Company's annual financial report on Form 10-KSB for the fiscal
year ended June 30, 1996. The results of operations for the nine
months ended March 31, 1997 are not necessarily indicative of
the results to be expected for the full year.
2. CAPITAL TRANSACTIONS:
In July, 1996, a director acquired 75,000 shares of the
treasury stock for $105,000 and in November, 1996, certain members of
management acquired 47,215 shares of the treasury stock for $66,101.
3. DISPOSITION OF DIVISION:
Effective January 30, 1997, SETECH, INC. (the Company) sold
its government services division consisting of two subsidiaries, BARTON ATC,
Inc. and BARTON ATC International, Inc. for $2,150,000 in immediate cash
and $1,000,000 in proceeds contingent upon the renewal, within eighteen
months, of certain contracts with Federal Agencies. Management anticipates,
but can give no assurance, that these contracts will be renewed within the
eighteen month period. Such contingent proceeds will be recognized when
realized. The gain to be recognized currently from this transaction
approximates the related provision for income taxes.
Proforma results from operations, assuming the transaction had occurred
on June 30, 1995 are summarized as follows:
Three months ended
March 31
___________________
1997 1996
___________________
Operating revenues $3,810,436 $2,816,902
Net income 122,882 155,116
Earnings per share:
Primary .023 .030
Fully diluted .021 .027
Nine months ended
March 31
___________________
1997 1996
___________________
Operating revenues $11,259,165 $8,786,678
Net income 464,484 741,423
Earnings per share:
Primary .086 .14
Fully diluted .08 .13
4. INCOME TAXES:
The Company income tax provisions for the three months and nine months
ended March 31, 1997, are summarized as follows:
Three months Nine months
_____________ _____________
Current $137,093 $156,354
Deferred 268,229 546,349
-------- ---------
$405,322 $702,703
-------- ---------
-------- ---------
Continuing operations $107,801 $350,684
Discontinued operations 297,521 352,019
-------- ---------
$405,322 $702,703
-------- ---------
-------- ---------
Adjustments were made to the valuation allowance (as of July 1, 1995)
for realization of net operating loss deductions based upon the company's
improved results of operations. The related deferred income tax benefits
amounted to $127,500 for the three months and $535,500 for the nine months,
ended March 31, 1997.
5. SUBSEQUENT EVENTS:
Subsequent to March 31, 1997, the company has signed a non-binding
letter of intent to purchase the stock of a distribution company. The
negotiations are in progress.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION.
Results of Operations
The Company realized net income from continuing operations for the three
months ended March 31, 1997 of $230,683, compared to a net income
before taxes of $75,989 for the three months ended March 31, 1996.
Such net income represents stable operations of Southeastern Technology, Inc.
("Southeastern"), and Titan Services, Inc. ("Titan").
The Company sold its government services division as of January 31, 1997
(see note 3 to the financial statements). Government services division
operations have been reclassified as discontinued operations in the statement
of income.
The Company realized net income before taxes for the nine months
ended March 31, 1997 of $815,168 compared to a net income before
taxes of $487,595 for the nine months ended March 31, 1996. This
increase in income is attributable to continued increases in sales and net
income of Southeastern Technology, and achievements of Titan Services, Inc.
under its current contracts.
SETECH, Inc., a Delaware corporation (the "Company") was formed in
1987. The Company is engaged in the business of providing
"integrated supply"/inventory management services and job shop machining,
engineering products and related services to a variety of industries
including automotive, aviation, and medical through its two subsidiary
corporations:
Titan Services, Inc. ("Titan")
Southeastern Technology, Inc. ("Southeastern")
In August, 1996, the Company changed its name from "Aviation
Education Systems, Inc." to "SETECH, INC." to better reflect its
diversified business operations.
Subsequent to March 31, 1997, the company has signed a non-binding
letter of intent to purchase the stock of a distribution company. The
negotiations are in progress.
Titan's Operations
Titan Services, Inc., a Tennessee corporation, is an emerging
business segment offering "integrated supply"services to the manufacturing
industry. Presently, Titan delivers its services primarily to the
automotive industry through facilities located in Tennessee and Michigan.
Titan provides procurement, engineering and maintenance/repair services
for machined spare parts, original equipment manufacturer ("OEM")
spare parts and inventory management services. These types of
service are increasingly being utilized by major manufacturers
to supplement and enhance in-house capabilities and control costs.
Titan operates in a relatively new segment of industry known as.
"integrated supply." Titan has encountered competing firms, but none of
these competitors apparently presently offers the range of services
offered by Titan.
Titan operates under three contracts as a source supplier of purchasing
and inventory control functions for a major automobile manufacturer at
two automotive plants, one in Tennessee and one in Michigan.
Titan has received several major awards in recognition of its
high level of performance from the customer. Contracts with this single
customer currently account for virtually all of Titan's revenues.
Southeastern's Operations
Southeastern Technology, Inc., a Tennessee corporation,
is a job shop machining and engineering organization, serving
a variety of industries including aerospace, automotive, and
medical. Southeastern continues its expansion in the manufacturing and
sale of medical and surgical devices for major medical manufacturers,
to their specifications. Management believes, based upon recent growth
in this area, that the medical field will continue to become a
more significant source of machine work in the future.
Liquidity and Capital Resources
At June 30, 1996, the Company's current assets exceeded its
current liabilities by approximately $4,124,457. Working capital
increased to $5,626,898 at March 31, 1997.
Titan and Southeastern each maintains a secured revolving line of credit
with a banking institution with the following
maximum amounts:
Titan $9,400,000
Southeastern 600,000
This debt structure results in sufficient capital to support the
Company's existing operations. In December, 1996, the Company replaced
its Titan and Southeastern banking institution with another financial
institution with similar terms and conditions. The Titan subsidiary,
however, now has increased availability with approved contracts.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The company has tentatively settled, out of court, its case against the
former attorneys of the Company for $45,000.00. There are, however,
no signed settlement agreements at this time.
Item 2. Changes in Securities
a. None
b. None
c. None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holder
Subsequent to the end of the quarter, the Company's authorized shares
were reduced from 400,000,000 to 10,000,000 in reflection of the 1 for 20
reverse stock split. The reduction in authorized shares was approved by
consent action of a majority of the company's shareholders on April 8, 1997.
Item 5. Other Information
None
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits. None.
(b) Reports on Form 8-K. None
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SETECH, INC.
Date: May 14, 1997 By_/s/ Thomas N. Eisenman__________________
President
Date: May 14, 1997 By_/s/ Cindy L. Rollins__________________
Cindy L. Rollins, Vice President, CFO