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ETC Announces Fiscal 2021 Second Quarter Results

SOUTHAMPTON, Pa., Jan. 26, 2021 (GLOBE NEWSWIRE) — Environmental Tectonics Corporation (OTC Pink: ETCC) (“ETC” or the “Company”) today reported its financial results for the thirteen week period ended August 28, 2020 (the “2021 second quarter”) and the twenty-six week period ended August 28, 2020 (the “2021 first half”). Robert L. Laurent, Jr., ETC’s Chief Executive Officer and President stated, “The challenges of fiscal 2020 continued into the 2021 first half as the COVID-19 global pandemic related lock downs continued, further delaying orders and our ability to deliver. We are beginning to see a positive change as we work our way through the second half of fiscal 2021.” Fiscal 2021 Second Quarter Results of Operations Net (Loss) Income Attributable to ETC Net loss attributable to ETC was $1.7 million, or $0.12 diluted loss per share, in the 2021 second quarter, compared to net income attributable to ETC of $0.4 million during the 2020 second quarter, equating to $0.02 diluted earnings per share. The $2.1 million variance is due to the combined effect of a $2.6 million decrease in gross profit, offset, in part, by a $0.4 million decrease in operating expenses and a $0.1 million decrease in other expense, net. Net Sales Net sales in the 2021 second quarter were $4.4 million, a decrease of $7.6 million, or 63.8%, compared to 2020 second quarter net sales of $12.0 million. The decrease reflects lower International sales, especially within Aeromedical Training Solutions and ETSS, lower overall Sterilizers sales, and lower monoplace chambers sales as a result of the asset sale on November 27, 2019, offset, in part, by an increase in U.S. Government sales within Aeromedical Training Solutions in conjunction with the U.S. Air Force’s final acceptance of the RAC Contract. Gross Profit Gross profit for the 2021 second quarter was $0.8 million compared to $3.4 million in the 2020 second quarter, a decrease of $2.6 million, or 77.5%. The decrease in gross profit was due to lower net sales not being able to support fixed overhead expenses. Lower net sales were generated due to the combination of a lower backlog entering fiscal 2021 compounded with the effects of the COVID-19 global pandemic, which greatly impacted the Company’s ability to generate bookings, especially internationally. Gross profit margin as a percentage of net sales decreased to 17.8% for the 2021 second quarter compared to 28.7% for the 2020 second quarter. Operating Expenses Operating expenses, including sales and marketing, general and administrative, and research and development, for the 2021 second quarter were $2.3 million, a decrease of $0.4 million, or 14.4%, compared to $2.7 million for the 2020 second quarter. The decrease in operating expenses was due primarily to lower selling and marketing expenses, which included a decrease in commission expense based on a lower concentration of International sales related to ATS products, a reduction in headcount, and a decrease in travel caused by the COVID-19 global pandemic. Other Expense, Net Other expense, net for the 2021 second quarter was $5 thousand compared to $110 thousand for the 2020 second quarter, a decrease of $0.1 million due primarily to lower letter of credit fees and realized exchange gains on foreign currency. Fiscal 2021 First Half Results of Operations Net Loss Attributable to ETC Net loss attributable to ETC was $3.3 million, or $0.23 diluted loss per share, in the 2021 first half, compared to $0.1 million during the 2020 first half, equating to $0.02 diluted loss per share. The $3.2 million variance is due to the combined effect of a $4.6 million decrease in gross profit, offset, in part, by a $1.0 million decrease in operating expenses, a $0.3 million decrease in other expense, net, and a $0.1 million increase in loss attributable to non-controlling interest. Net Sales Net sales in the 2021 first half were $9.3 million, a decrease of $13.5 million, or 59.4%, compared to 2020 first half net sales of $22.8 million. The decrease reflects lower International sales, especially within Aeromedical Training Solutions and ETSS, lower Domestic sales, especially within Simulation, lower overall Sterilizers sales, and lower monoplace chambers sales as a result of the asset sale on November 27, 2019, offset, in part, by an increase in U.S. Government sales within Aeromedical Training Solutions in conjunction with the U.S. Air Force’s final acceptance of the RAC Contract. Gross Profit Gross profit for the 2021 first half was $1.3 million compared to $5.9 million in the 2020 first half, a decrease of $4.6 million, or 78.2%. The decrease in gross profit was due to lower net sales not being able to support fixed overhead expenses. Lower net sales were generated due to the combination of a lower backlog entering fiscal 2021 compounded with the effects of the COVID-19 global pandemic, which not only impacted the Company’s ability to generate bookings, especially internationally, but also forced the closure of our corporate headquarters and main production plant for about one-third of the 2021 first quarter in accordance with Pennsylvania state mandates. Gross profit margin as a percentage of net sales decreased to 14.0% for the 2021 first half compared to 26.0% for the 2020 first half. Operating Expenses Operating expenses, including sales and marketing, general and administrative, and research and development, for the 2021 first half were $4.3 million, a decrease of $1.0 million, or 18.5%, compared to $5.3 million for the 2020 first half. The decrease in operating expenses was due primarily to lower selling and marketing expenses, which included a decrease in commission expense based on a lower concentration of International sales related to ATS products, a reduction in headcount, and a decrease in travel caused by the COVID-19 global pandemic. Other (Income) Expense, Net Other income, net for the 2021 first half was $12 thousand compared to other expense, net of $260 thousand for the 2020 first half, a variance of $0.3 million due primarily to lower letter of credit fees and realized exchange gains on foreign currency. Cash Flows from Operating, Investing, and Financing Activities During the 2021 first half, due primarily from the net loss incurred, the increase in contract assets, and the decrease in accounts payable, offset, in part by the decrease in accounts receivable, the Company used $4.7 million of cash for operating activities compared to $9.1 million during the 2020 first half. Under Accounting Standards Codification (“ASC”) 606, these accounts represent the timing differences of spending on production activities versus the billing and collecting of customer payments. Cash used for investing activities primarily relates to funds used for capital expenditures of equipment and software development. The Company’s investing activities used $43 thousand during the 2021 first half compared to $0.2 million during the 2020 first half. The Company’s financing activities provided $4.0 million of cash during the 2021 first half with proceeds from the Payroll Protection Program loan and borrowings under the Company’s credit facility compared to $6.4 million during the 2020 first half exclusively from borrowings under the Company’s credit facility. About ETC ETC was incorporated in 1969 in Pennsylvania. For over five decades, we have provided our customers with products, services, and support. Innovation, continuous technological improvement and enhancement, and product quality are core values that are critical to our success. We are a significant supplier and innovator in the following areas: (i) software driven products and services used to create and monitor the physiological effects of flight, including high performance jet tactical flight simulation, fixed and rotary wing upset prevention and recovery and spatial disorientation, and both suborbital and orbital commercial human spaceflight, collectively, Aircrew Training Systems (“ATS”); (ii) altitude (hypobaric) chambers; (iii) hyperbaric chambers for multiple persons (multiplace chambers); (iv) Advanced Disaster Management Simulators (“ADMS”); (v) steam and gas (ethylene oxide) sterilizers; (vi) environmental testing and simulation systems (“ETSS”); and (vii) hyperbaric (100% oxygen) chambers for one person (monoplace chambers). On November 27, 2019, the Company entered into an asset purchase agreement to sell substantially all of its rights, title, and interest in and to the assets related to monoplace chambers. We operate in two primary business segments, Aerospace Solutions (“Aerospace”) and Commercial/ Industrial Systems (“CIS”). Aerospace encompasses the design, manufacture, and sale of: (i) ATS products; (ii) altitude (hypobaric) chambers; (iii) hyperbaric chambers for multiple persons (multiplace chambers); and (iv) ADMS, as well as integrated logistics support (“ILS”) for customers who purchase these products or similar products manufactured by other parties. These products and services provide customers with an offering of comprehensive solutions for improved readiness and reduced operational costs. Sales of our Aerospace products are made principally to U.S. and foreign government agencies and to civil aviation organizations. CIS encompasses the design, manufacture, and sale of: (i) steam and gas (ethylene oxide) sterilizers; (ii) ETSS; and (iii) hyperbaric (100% oxygen) chambers for one person (monoplace chambers), as well as parts and service support for customers who purchase these products or similar products manufactured by other parties. Sales of our CIS products are made principally to the healthcare, pharmaceutical, and automotive industries. ETC-PZL Aerospace Industries Sp. z o.o. (“ETC-PZL”), our 95%-owned subsidiary in Warsaw, Poland, is currently our only operating subsidiary. ETC-PZL manufactures certain simulators and provides software to support products manufactured domestically within our Aerospace segment. The majority of our net sales are generated from long-term contracts with U.S. and foreign government agencies (including foreign military sales (“FMS”) contracted through the U.S. Government) for the research, design, development, manufacture, integration, and sustainment of ATS products, including altitude (hypobaric) and multiplace chambers (“Chambers”), and the simulators manufactured and sold through ETC-PZL, collectively, Aeromedical Training Solutions. The Company also enters into long-term contracts with domestic customers for the sale of sterilizers and ETSS. Net sales of ADMS and monoplace chambers are generally much shorter term in nature and vary between domestic and international customers. We generally provide our products and services under fixed-price contracts. ETC’s unique ability to offer complete systems, designed and produced to high technical standards, sets it apart from its competition. ETC is headquartered in Southampton, PA. For more information about ETC, visit http://www.etcusa.com/. Forward-looking Statements This news release contains forward-looking statements, which are based on management’s expectations and are subject to uncertainties and changes in circumstances. Words and expressions reflecting something other than historical fact are intended to identify forward-looking statements, and these statements may include words such as “may”, “will”, “should”, “expect”, “plan”, “anticipate”, “believe”, “estimate”, “future”, “predict”, “potential”, “intend”, or “continue”, and similar expressions. We base our forward-looking statements on our current expectations and projections about future events or future financial performance. Our forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about ETC and its subsidiaries that may cause actual results to be materially different from any future results implied by these forward-looking statements. We caution you not to place undue reliance on these forward-looking statements. Contact: Mark Prudenti, CFOPhone: (215) 355-9100 x1531E-mail: [email protected] – Financial Tables Follow – Table A ENVIRONMENTAL TECTONICS CORPORATIONSUMMARY TABLE OF RESULTS(in thousands, except per share information) Thirteen weeks ended Variance 28-Aug-20 30-Aug-19 $ %Net sales$ 4,354 $ 12,012 $ (7,658) -63.8Cost of goods sold 3,580 8,565 (4,985) -58.2Gross profit 774 3,447 (2,673) -77.5 Gross profit margin % 17.8% 28.7% -10.9% -38.0% Operating expenses 2,321 2,710 (389) -14.4Operating (loss) income (1,547) 737 (2,284) Operating margin % -35.5% 6.1% -41.6% Interest expense, net 181 185 (4) -2.2Other expense, net 5 110 (105) -95.5(Loss) income before income taxes (1,733) 442 (2,175) Pre-tax margin % -39.8% 3.7% -43.5% Income tax provision 20 20 – 0.0Net (loss) income (1,753) 422 (2,175) Loss (income) attributable to non-controlling interest 35 (19) 54 Net (loss) income attributable to ETC (1,718) 403 (2,121) Preferred Stock dividends (121) (121) – 0.0(Loss) income attributable to common and participating shareholders$ (1,839) $ 282 $ (2,121) Per share information: Basic earnings (loss) per common and participating share: Distributed earnings per share: Common$- $- $- Preferred$0.02 $0.02 $- 0.0Undistributed (loss) earnings per share: Common$(0.12) $0.02 $(0.14) Preferred$(0.12) $0.02 $(0.14) Diluted (loss) earnings per share$ (0.12) $ 0.02 $ (0.14) Total basic weighted average common and participating shares 15,569 15,569 Total diluted weighted average shares 15,569 15,571 Table B ENVIRONMENTAL TECTONICS CORPORATIONSUMMARY TABLE OF RESULTS(in thousands, except per share information) Twenty-six weeks ended Twenty-sevenweeks ended Variance 28-Aug-20 30-Aug-19 $ %Net sales$ 9,268 $ 22,828 $ (13,560) -59.4Cost of goods sold 7,973 16,901 (8,928) -52.8Gross profit 1,295 5,927 (4,632) -78.2 Gross profit margin % 14.0% 26.0% -12.0% -46.2% Operating expenses 4,314 5,296 (982) -18.5Operating (loss) income (3,019) 631 (3,650) Operating margin % -32.6% 2.8% -35.4% Interest expense, net 337 363 (26) -7.2Other (income) expense, net (12) 260 (272) (Loss) income before income taxes (3,344) 8 (3,352) Pre-tax margin % -36.1% 0.0% -36.1% Income tax provision 40 40 – 0.0Net loss (3,384) (32) (3,352) 10475.0Loss (income) attributable to non-controlling interest 37 (45) 82 Net loss attributable to ETC (3,347) (77) (3,270) 4246.8Preferred Stock dividends (242) (251) 9 -3.6Loss attributable to common and participating shareholders$ (3,589) $ (328) $ (3,261) 994.2 Per share information: Basic earnings (loss) per common and participating share: Distributed earnings per share: Common$- $- $- Preferred$0.04 $0.04 $- 0.0Undistributed loss per share: Common$(0.23) $(0.02) $(0.21) 1050.0Preferred$(0.23) $(0.02) $(0.21) 1050.0 Diluted loss per share$ (0.23) $ (0.02) $ (0.21) 1050.0 Total basic weighted average common and participating shares 15,569 15,569 Total diluted weighted average shares 15,569 15,571 Table C ENVIRONMENTAL TECTONICS CORPORATIONOTHER SELECTED FINANCIAL HIGHLIGHTS(amounts in thousands) Thirteen weeks ended Twenty-six weeks ended Twenty-sevenweeks ended 28-Aug-20 30-Aug-19 28-Aug-20 30-Aug-19EBITDA *$(1,254) $915 $(2,402) $954 As of 28-Aug-20 28-Feb-20 Working capital$(2,633) $17,979 Total shareholders’ equity$4,493 $8,023 * In addition to disclosing financial results that are determined in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), we also disclose Earnings Before Income Taxes, Depreciation, and Amortization (“EBITDA”). The presentation of a non-U.S. GAAP financial measure such as EBITDA is intended to enhance the usefulness of financial information by providing a measure that management uses internally to evaluate our expenses and operating performance and factors into several of our financial covenant calculations. A reader may find this item important in evaluating our performance. Management compensates for the limitations of using non-U.S. GAAP financial measures by using them only to supplement our U.S. GAAP results to provide a more complete understanding of the factors and trends affecting our business.

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