SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
Commission File Number 1-7037
ENVIRONMENT ONE CORPORATION
(Name of small business issuer in its charter)
New York 14-1505298
- - --------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer
incorporation of organization) Identification No.)
2773 Balltown Road, Schenectady, NY 12309-1090
- - --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (518) 346-6161
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares of Common Stock, par value $.10 as of June 30, 1996:
4,125,719.
Transitional Small Business Disclosure Format (check one):
Yes [ X ] No [ ]
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Environment One Corporation
FORM 10-QSB
INDEX
Page No.
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Part I. Financial Information-
Item 1. - Financial Statements
Consolidated Balance Sheets June 30, 1996 and
December 31, 1995 3-4
Consolidated Statements of Operations for the Six Months
Ended June 30, 1996 and 1995 5
Consolidated Statements of Operations for the Three Months
Ended June 30, 1996 and 1995 6
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 1996 and 1995 7
Notes to Consolidated Financial Statements 8
Item 2.
Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-12
Part II. Other Information 13
Signatures 13
2
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Part I - Financial Information
Item 1. Financial Statements
Environment One Corporation
Consolidated Balance Sheets
June 30, 1996 and December 31, 1995
<TABLE>
<CAPTION>
Assets 6/30/96 12/31/95
------ ------- --------
<S> <C> <C>
Current Assets
Cash ........................................ $ 54,021 91,115
Accounts Receivable, Net .................... 4,322,091 2,715,795
Inventories
Raw Materials ....................... 1,483,912 1,202,527
Work in Process ..................... 296,518 387,165
Finished Goods ...................... 159,137 259,869
------------ ------------
1,939,567 1,849,561
Note Receivable .................................. 24,651 16,041
Other Current Assets ............................. 304,443 223,018
------------ ------------
Total Current Assets ........................ 6,644,773 4,895,530
------------ ------------
Property, Plant and Equipment
Land ........................................ 334,491 334,491
Buildings ................................... 2,271,832 2,271,832
Machinery and Equipment ..................... 4,731,171 4,573,834
Construction in Progress .................... 225,605 109,343
Less: Accumulated Depreciation .............. (4,049,068) (3,752,410)
------------ ------------
Net Property, Plant and Equipment ........... 3,514,031 3,537,090
Note Receivable .................................. 112,869 125,417
Other Assets ..................................... 160,112 163,878
------------ ------------
Total Assets ..................................... 10,431,785 8,721,915
============ ============
</TABLE>
3
<PAGE>
Environment One Corporation
Consolidated Balance Sheets
(continued)
June 30, 1996 and December 31, 1995
<TABLE>
<CAPTION>
Liabilities and Shareholders' Equity 6/30/96 12/31/95
------------------------------------ ------- --------
<S> <C> <C>
Current Liabilities
Current Installments - Long Term Debt ....... 338,101 338,245
Note Payable - Bank ......................... 1,125,000 550,000
Accounts Payable ............................ 1,777,516 1,144,408
Accrued Expenses ............................ 566,872 407,136
Taxes Other than on Income .................. 2,558 5,067
Interest Payable ............................ 20,273 20,410
------------ ------------
Total Current Liabilities .............. 3,830,320 2,465,266
Deferred Tax Liability ........................... 21,716 21,716
Minority Interest ................................ 34,774 48,530
Long Term Debt ................................... 1,669,544 1,838,594
------------ ------------
Total Liabilities .......................... 5,556,354 4,374,106
------------ ------------
Shareholders' Equity
Common Stock at Par Value ................... 414,621 412,761
Additional Paid in Capital .................. 7,309,667 7,295,115
Accumulated Deficit ......................... (2,770,813) (3,330,851)
------------ ------------
4,953,475 4,377,025
Less: Treasury Stock at Cost ................ (78,044) (29,216)
------------ ------------
Total Shareholders' Equity ................ 4,875,431 4,347,809
------------ ------------
Total Liabilities and Shareholders' Equity ....... $ 10,431,785 8,721,915
============ ============
</TABLE>
(See Accompanying Notes to Consolidated Financial Statements)
4
<PAGE>
Environment One Corporation
Consolidated Statements of Operations
For the Six Months Ended June 30, 1996 and 1995
<TABLE>
<CAPTION>
Six Months Ended June 30,
-----------------------------
1996 1995
---- ----
<S> <C> <C>
Revenue ...................................... $ 9,273,381 8,387,083
----------- -----------
Costs and Expenses
Cost of Sales ...................... 6,569,901 5,721,951
Selling and Marketing .............. 1,083,242 973,592
General and Administrative ......... 769,662 960,286
Interest Expense ................... 129,828 175,509
Other Expense (Income) ............. (180,090) (6,355)
----------- -----------
Total Expenses, Net .......................... 8,372,543 7,824,983
----------- -----------
Net Earnings Before Taxes .................... 900,838 562,100
Income Tax Expense ........................... 340,800 216,234
----------- -----------
Net Earnings ................................. 560,038 345,866
=========== ===========
Net Earnings per Common Share ................ $ 0.14 0.08
=========== ===========
</TABLE>
(See Accompanying Notes to Consolidated Financial Statements)
5
<PAGE>
Environment One Corporation
Consolidated Statements of Operations
For the Three Months Ended June 30, 1996 and 1995
<TABLE>
<CAPTION>
Three Months Ended June 30,
-----------------------------
1996 1995
---- ----
<S> <C> <C>
Revenue ...................................... $ 5,328,145 4,612,015
----------- -----------
Costs and Expenses
Cost of Sales ...................... 3,703,526 3,004,623
Selling and Marketing .............. 553,885 503,320
General and Administrative ......... 407,460 576,793
Interest Expense ................... 67,105 85,620
Other Expense (Income) ............. (2,126) (6,355)
----------- -----------
Total Expenses, Net .......................... 4,729,850 4,164,001
----------- -----------
Net Earnings Before Taxes .................... 598,295 448,014
Income Tax Expense ........................... 227,100 169,993
----------- -----------
Net Earnings ................................. 371,195 278,021
=========== ===========
Net Earnings per Common Share ................ $ 0.09 0.07
=========== ===========
</TABLE>
(See Accompanying Notes to Consolidated Financial Statements)
6
<PAGE>
(See Accompanying Notes to Consolidated Financial Statements)
Environment One Corporation
Consolidated Statements of Cash Flows
For the Six Months Ended June 30,1996 and 1995
<TABLE>
<CAPTION>
Six Months Ended June 30,
--------------------------
1996 1995
---- ----
<S> <C> <C>
Cash Flows-Operating Activities:
Net Earnings ....................................... $ 560,038 345,866
Adjustments to Reconcile Net Earnings
to Net Cash Provided (Used) by Operating Activities:
Depreciation and Amortization ...................... 296,658 300,000
Non-cash Compensation Expense ...................... 0 45,000
Decrease (Increase) - Receivables, Net ............. (1,602,358) (613,012)
Decrease (Increase) - Inventories .................. (90,006) (260,801)
Decrease (Increase) - Income Tax Receivable ........ 0 178,127
Decrease (Increase) - Prepaid Expenses ............. (81,425) (95,101)
Decrease (Increase) - Other Assets ................. 3,766 29,974
Increase (Decrease) - Accounts Payable ............. 633,108 372,317
Increase (Decrease) - Accrued Expenses and other ... 157,090 137,486
Liabilities
Increase (Decrease) - Minority Interest ............ (13,756) (2,892)
----------- -----------
Net Cash Provided (Used) by Operating Activities ... (136,885) 436,964
----------- -----------
Cash Flows Used in Investing Activities:
Capital Expenditures ............................... (273,599) (125,336)
----------- -----------
Cash Flows From Financing Activities:
Increase (Decrease) - Note Payable to Bank ......... 575,000 (250,000)
Increase (Decrease) - Long Term Debt ............... (169,194) (196,331)
Issuance of Common Stock ........................... 2,073 0
Purchase of Treasury Stock ......................... (34,489) 0
----------- -----------
Net Cash Provided (Used) by Financing Activities ... 373,390 (446,331)
----------- -----------
Net Increase (Decrease) in Cash .................... (37,094) (134,703)
Cash at Beginning of Period ........................ 91,115 223,701
----------- -----------
Cash at End of Period .............................. $ 54,021 88,998
=========== ===========
</TABLE>
7
<PAGE>
Environment One Corporation
Notes to Consolidated Financial Statements
For the Six Months Ended June 30, 1996 and 1995
(Unaudited)
1. In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments, which are only of a
normal recurring nature, necessary to fairly present Environment One
Corporation's financial position as of June 30, 1996 and December 31, 1995 as
well as the results of operations and cash flows for the three and six months
ended June 30, 1996 and 1995. Operating results for any quarter are not
necessarily indicative of results for any future periods.
2. Net earnings per share computations are based on the weighted
average number of shares of Common Stock outstanding during the periods. (June
30, 1996; 4,114,851 shares, June 30, 1995; 4,092,684 shares).
3. In January, 1996, the Company concluded an agreement with PROTEC
Fire Detection, plc of Nelson, Lancashire, England for the sale of its Cirrus
IFD product line. In a two-stage transaction with an approximate value of
$750,000, the Company transferred all Cirrus IFD assets and operations to PROTEC
and simultaneously entered into a product technology development contract to be
concluded during 1996. The pre-tax impact of the sale, net of certain expenses,
was a gain of $171,000 and is recorded as other income in the statement of
operations for the six months ended June 30, 1996.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
The following information should be read in conjunction with the consolidated
financial statements and notes thereto included in Item 1 of this Quarterly
Report, and the consolidated financial statements and notes thereto and
Management's Discussion and Analysis of Financial Condition and Results of
Operations contained in the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1995.
Six Months Ended June 30, 1996 and 1995 (all figures rounded to the
nearest 000's)
Revenue for the period increased $886,000, or 10.6% over the same period last
year. Sewer Systems revenue increased $784,000 along with an increase of
$120,000 in Detection Systems.
Sales in Sewer Systems improved compared to the same period last year as the
extreme weather conditions and funding delays in municipal projects experienced
in quarter one of 1996 subsided. Management is of the opinion that the strategic
direction planned in 1995 which included expanded emphasis on marketing and
distribution, the opening of sales offices during 1995 in Florida, Maryland and
Minnesota, emphasis on southern distribution and the continued growth of the
marketplace contributed to the sales growth.
As part of the Detection Systems business revenue increase, Generator Condition
Monitor and Hydrogen Control Cabinet sales increased $322,000 and $152,000,
respectively while Cirrus IFD sales decreased by $354,000. The increase in
Generator Condition Monitor sales reflects some market resumption in capital
equipment purchases of monitoring equipment following a period of expenditures
on air pollution control equipment. As sales of the Hydrogen Control Cabinet
began in the fourth quarter of 1995, all sales in the first half of 1996 reflect
an increase over the same period in the prior year. The decrease in Cirrus IFD
sales is attributable to the sale of the business to PROTEC, although the
Company will continue to supply units to PROTEC until completion of the
technology development contract in 1996.
Cost of Sales increased $848,000 when compared with the same period last year.
Expressed in percent of sales, cost of sales increased from 68.2% in the first
half of 1995 to 70.8% in the first half of 1996. In percent of sales, direct
labor remained flat while direct material increased by 3.2%. The increase in
direct material percent to sales is attributable to project start-up costs for
the GP2000 product and lower average selling prices on large municipal projects
in Sewer Systems. Indirect labor costs increased by $38,000 primarily due to a
shift in engineering resources to manufacturing support. Indirect non-labor
costs increased $17,000 due to increases in consumable supplies, incoming
freight and maintenance.
Selling and Marketing costs increased $110,000 compared with the first half of
1995. Sewer Systems marketing costs increased $257,000 while Detection Systems
marketing costs decreased $147,000. Sewer Systems marketing labor costs
9
<PAGE>
increased $120,000 along with an increase of $137,000 in non-labor marketing
costs. The increase in Sewer Systems labor costs can be attributed to the
opening of new district sales offices and increased internal commissions. The
increase in non-labor Sewer Systems marketing costs is primarily due to
increases in advertising, promotion and literature, travel and living expenses,
trade shows and marketing consultants. The decrease in Detection Systems is
primarily due to avoided costs as a result of the sale of the Cirrus IFD
partially offset by new marketing expenses for the Hydrogen Control Cabinet.
Marketing expenses for the Generator Condition Monitor were slightly lower than
the same period in 1995.
General and Administrative costs, including research and development, decreased
$191,000 over the same period last year. Research and development costs
decreased $55,000 while other general and administrative costs decreased
$136,000.
The decrease in Research and Development costs is attributable to the shifting
of effort to manufacturing and marketing support in Sewer Systems and Detection
Systems along with cost reductions due to the sale of the Cirrus IFD product
line.
In regard to other general and administrative costs, increases in travel and
living, legal fees, temporary help, investor relations and training expenses
were offset by decreases in profit sharing, tuition reimbursement, directors'
fees and allocated facilities charges.
Interest expense decreased $46,000 over the first six months of 1995. Average
debt during the first half of 1996 was $460,000 less than the same period in
1995. Interest rates on the line of credit and term loans were reduced as of
May 1, 1996 to prime and prime plus one half point, respectively.
Other income increased $174,000 over the same period last year. As a result of
the sale of the Cirrus IFD product line to PROTEC in quarter one of 1996, the
Company recorded, net of certain expenses, pre-tax income of $171,000.
Three Months Ended June 30, 1996 and 1995 (all figures rounded to the
nearest 000's)
Revenue for the period increased $716,000, or 15.5% over the same period last
year. Sewer Systems revenue increased $652,000 while Detection Systems revenue
increased $75,000 when compared with the same period last year.
Sales in Sewer Systems improved on a comparative and progressive quarter basis
as the extreme weather conditions and funding delays in municipal projects
experienced in quarter one of 1996 subsided.
As part of the Detection Systems business revenue increase, Generator Condition
Monitor sales increased $119,000, Hydrogen Control Cabinet sales increased
$152,000 while sales of Cirrus IFD decreased $196,000. The increase in Generator
Condition Monitor sales reflects some market resumption in capital equipment
purchases of monitoring equipment following a period of expenditures on air
pollution control equipment. As sales of the Hydrogen Control Cabinet began in
10
<PAGE>
the fourth quarter of 1995, all sales in the second quarter of 1996 reflect an
increase over the same quarter in the prior year. The decrease in Cirrus IFD
sales is attributable to the sale of the business to PROTEC, although the
Company will continue to supply units to PROTEC until completion of the
technology development contract in 1996.
Cost of Sales increased $699,000 when compared with the same period last year.
Expressed in percent of sales, cost of sales increased from 65.2% in the second
quarter of 1995 to 69.5% in the second quarter of 1996. In percent of sales,
direct labor remained flat while direct material increased 5.2% when compared
with the same period in 1995. The increase in direct material percent to sales
is attributable to project start-up costs for the GP2000 product and lower
average selling prices on large municipal projects in Sewer Systems. Indirect
labor costs increased $16,000 primarily due to shifting engineering labor from
research and development to manufacturing support. Indirect non-labor costs
decreased $13,000 reflecting a decrease in costs for inventory obsolescence.
Selling and Marketing costs increased $51,000 compared with the second quarter
of 1995. Sewer Systems marketing costs increased $145,000 while Detection
Systems marketing costs decreased $94,000. The increase in Sewer Systems
marketing costs reflects the additional costs of three sales offices along with
increases in advertising, promotions, literature and marketing consultant
expenses. The decrease in Detection Systems marketing costs is attributable to
the sale of the Cirrus IFD product line. Partially offsetting the reduction due
to the sale of the Cirrus IFD product line are marketing costs for the Hydrogen
Control Cabinet.
General and Administrative costs, including research and development, decreased
$169,000 over the same period last year. Research and development costs
decreased $36,000 while other general and administrative costs decreased
$133,000.
The decrease in Research and Development costs is attributable to the shifting
of effort to manufacturing and marketing support in Sewer Systems and Detection
Systems along with cost reductions due to the sale of the Cirrus IFD product
line.
In regard to other general and administrative costs, increases in travel and
living, temporary help and investor relations were offset by decreases in profit
sharing, legal fees, tuition reimbursement, directors' fees and allocated
facilities charges.
Interest expense decreased $19,000 compared with the second quarter of 1995.
Average debt during the second quarter of 1996 was $212,000 less than the same
period in 1995. Interest rates on the line of credit and term loans were reduced
as of May 1, 1996 to prime and prime plus one half point, respectively.
11
<PAGE>
Financial Position and Liquidity (all figures rounded to the nearest
000's)
Cash needs for the first six months of 1996 were met by an opening cash balance
of $91,000 and short term borrowing on the Company's line of credit of $575,000.
Capital expenditures for the period were $274,000 along with a reduction in long
term debt of $169,000. Borrowing on the line of credit was primarily due to an
increase in accounts receivable as shipments were stronger in the second half of
the quarter. During the same period last year, the Company was able to reduce
short term borrowing by $250,000 along with reducing long term debt by $196,000.
Continued control over inventory, operating expenses and capital expenditures
along with forecasted cash receipts and line of credit availability will enable
the Company to meet its day-to-day working capital requirements in the near
term.
12
<PAGE>
Environment One Corporation
FORM 10-QSB
Part II - Other Information
Not Applicable
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
ENVIRONMENT ONE CORPORATION
Date: July 31, 1996 By:/s/ Stephen V. Ardia
- - ------------------- -----------------------
Stephen V. Ardia
Chairman of the Board,
Director
Date: July 31, 1996 By:/s/ Angelo Dounoucos
- - ------------------- -----------------------
Angelo Dounoucos
Chief Executive Officer,
President and Director
Date: July 31, 1996 By:/s/ Philip W. Welsh
- - ------------------- ----------------------
Philip W. Welsh
Director of Finance,
Treasurer
13
