News Release
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| ETC Announces Second Quarter Fiscal 2007 Results |
| Southampton, PA: October 11, 2006 - Southampton, PA: October 11, 2006 - Environmental Tectonics Corporation (ETC: AMEX) ("ETC" or "the Company") today announced financial results for the second quarter of fiscal 2007.
For the second quarter of fiscal 2007, which ended on August 25, 2006, the Company had a net loss of $2,148,000, or ($0.24) per share (diluted), versus a net loss of $1,620,000 or ($0.18) per share (diluted) for the second quarter of fiscal 2006. Sales for the second quarter of fiscal 2007 were $4,329,000, as compared to $6,255,000 for the second quarter of fiscal 2006, a decrease of $1,926,000 or 30.8%, reflecting sales decreases in all geographic areas. Product line performance was mixed, with Pilot Training Systems (PTS), simulation and entertainment areas up and the rest of the lines down. Significant decreases included domestic sterilizers and environmental lines, both down approximately 66% from the prior period, and sales in ETC's Polish subsidiary, ETC-PZL. The sterilizer reduction reflected fewer contracts for both steam and ETO applications. Environmental in the prior period benefited from multiple contracts for automotive applications. The decrease in ETC-PZL reflected reduced production for the L-3 simulator contract. Geographically, domestic sales for the second quarter of fiscal 2007 were $1,451,000, down $1,380,000 or 48.8% from the second quarter of fiscal 2006, primarily reflecting the aforementioned decreases in the sterilizer and environmental lines. Domestic sales represented 33.5% of the Company's total sales for the second quarter of fiscal 2007, down from 45.3% for the second quarter of fiscal 2006. U.S. Government sales for the second quarter of fiscal 2007 were $152,000 as compared to $630,000 for the second quarter of fiscal 2006. International sales for the second quarter of fiscal 2007, including those made by the Company's foreign subsidiaries, were $2,726,000, a decrease of $68,000 or 2.4% from international sales for the second quarter of fiscal 2006, and represented 63.0% of total sales for the second quarter of fiscal 2007 as compared to 44.6% for the second quarter of fiscal 2006. Gross profit for the second quarter of fiscal 2007 was $494,000 as compared to $1,253,000 in the second quarter of fiscal 2006, a decrease of $759,000 or 60.6%. This decrease reflected the decrease in sales between the two periods coupled with an 8.6 percentage point decrease in the gross profit rate as a percent of sales. Given the low sales volume, most of the product groups experienced significantly reduced gross profit rates in the current period, the primary exception being PTS which was up 4.3 percentage points on the higher sales volume. Selling and administrative expenses for the second quarter of fiscal 2007 were $2,144,000 as compared to $2,248,000 in the second quarter of fiscal 2006, a decrease of $104,000 or 4.6%, primarily reflecting a significant reduction in sales commissions, legal costs associated with our ongoing litigation and contract claims activities, and bad debt expense. Although reduced from the prior period, spending on legal matters is expected to continue to be significant for the foreseeable future. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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William F. Mitchell, ETC's President and Chairman, stated, "Although our results continue to be sub-par, there are a few positive developments which I can relay. Since fiscal 2006 year-end, our backlog has increased almost $3 million. Included therein are a research grant from NASA to investigate commercial aircraft upsets and a research contract from the FAA to develop ground-based simulation to teach pilots in-flight upset-recovery procedures. We have filled two key positions, hiring Justin Garr as Program Manager for the Aircrew Training Systems group and Ken Ginader as the Director of Authentic Fighting Systems for Tactical Aviation. We have made significant progress on constructing the National Aerospace Training and Research (NASTAR) Center and production of the equipment to support the training needs of NASTAR continues at a rapid pace. "On October 23, 2006, ETC is sponsoring the Readiness Now 2006 Summit for Disaster Management Planning at Drexel University in Philadelphia, PA. This event is designed to provide timely educational and training experiences on disaster management. Our disaster simulator, the Advanced Disaster Management Simulator (ADMS), offers a unique approach to emergency, terrorist and other similar training. "In previous press releases and our other public filings, I have reiterated what I feel are the major causes for the current state of ETC's performance. However, while identifying the causes of our problem may be enlightening, the major challenge we face is adjusting our business model to compensate. On September 19, we announced that we had retained Antiphony, a Philadelphia based strategy and management consulting firm, to assist us in a major planning process. While still in development, I expect this initiative to result in a finer focus along business lines and the implementation of new business models. One major shift will be how we deliver products, migrating from a products based approach to a services based revenue model. There are thousands of mission-critical personnel in the military and civilian markets and our mission will be to become the only virtual and physical simulation-based training services company that trains front-line, mission-critical personnel to save lives. Although I expect ETC's performance will continue to be hampered in the near term as we evolve our business models, I am confident that in the long term these changes will result in maximizing our shareholder value." | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Visit www.etcusa.com to learn more. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
This press release may include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended, and Section 21E of the Securities Exchange Act of 1934. We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about the Company that may cause our actual results, levels of activity, performance or achievements to be materially different from any other future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as "may", "will", "should", "could", "would", "expect", "plan", "anticipate", "believe", "estimate", "continue", or the negative of such terms or similar expressions. Factors that might cause or contribute to such a discrepancy include, but are not limited to, contract cancellations, failure to obtain new contracts, political unrest in customer countries, unfavorable results in litigation, general economic conditions, and those issues identified from time to time in our Securities and Exchange Commission filings and other public documents, including, without limitation, our Annual Report on Form 10-K for the fiscal year ended February 24, 2006.