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 September 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:
4,146,473.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [ X ]
<PAGE>
Environment One Corporation
FORM 10-QSB
INDEX
Page No.
Part I. Financial Information-
Item 1. - Financial Statements
Consolidated Balance Sheets September 30, 1996 and
December 31, 1995 3
Consolidated Statements of Operations for the Nine Months
Ended September 30, 1996 and 1995 5
Consolidated Statements of Operations for the Three Months
Ended September 30, 1996 and 1995 6
Consolidated Statements of Cash Flows for the Nine Months
Ended September 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
<PAGE>
Part I - Financial Information
Item 1. Financial Statements
<TABLE>
<CAPTION>
Environment One Corporation
Consolidated Balance Sheets
September 30, 1996 and December 31, 1995
Assets 9/30/96 12/31/95
- - ------------------------------------------------ ------------ ------------
<S> <C> <C>
Current Assets
Cash ...................................... $ 81,333 91,115
Accounts Receivable, Net .................. 4,455,654 2,715,795
Inventories
Raw Materials ..................... 1,385,139 1,202,527
Work in Process ................... 292,744 387,165
Finished Goods .................... 201,946 259,869
------------ ------------
1,879,829 1,849,561
Note Receivable ................................ 0 16,041
Other Current Assets ........................... 307,944 223,018
------------ ------------
Total Current Assets ...................... 6,724,760 4,895,530
------------ ------------
Property, Plant and Equipment
Land ...................................... 334,491 334,491
Buildings ................................. 2,271,832 2,271,832
Machinery and Equipment ................... 4,813,067 4,573,834
Construction in Progress .................. 265,364 109,343
Less: Accumulated Depreciation ............ (4,195,318) (3,752,410)
------------ ------------
Net Property, Plant and Equipment ......... 3,489,436 3,537,090
Note Receivable ................................ 0 125,417
Other Assets ................................... 153,355 163,878
------------ ------------
Total Assets ................................... 10,367,551 8,721,915
============ ============
</TABLE>
(See Accompanying Notes to Consolidated Financial Statements)
3
<PAGE>
<TABLE>
<CAPTION>
Environment One Corporation
Consolidated Balance Sheets - Continued
September 30, 1996 and December 31, 1995
Liabilities and Shareholders' Equity 9/30/96 12/31/95
- - ------------------------------------------------ ------------ ------------
<S> <C> <C>
Current Liabilities
Current Installments - Long Term Debt ..... 338,101 338,245
Note Payable - Bank ....................... 375,000 550,000
Accounts Payable .......................... 1,793,376 1,144,408
Accrued Expenses .......................... 850,575 407,136
Taxes Other than on Income ................ 1,259 5,067
Interest Payable ......................... 17,996 20,410
------------ ------------
Total Current Liabilities ............ 3,376,307 2,465,266
Deferred Tax Liability ......................... 21,716 21,716
Minority Interest .............................. 39,002 48,530
Long Term Debt ................................. 1,585,019 1,838,594
------------ ------------
Total Liabilities ........................ 5,022,044 4,374,106
------------ ------------
Shareholders' Equity
Common Stock at Par Value ................. 416,597 412,761
Additional Paid in Capital ................ 7,406,382 7,295,115
Accumulated Deficit ....................... (2,403,232) (3,330,851)
------------ ------------
5,419,747 4,377,025
Less: Treasury Stock at Cost .............. (74,240) (29,216)
------------ ------------
Total Shareholders' Equity .............. 5,345,507 4,347,809
------------ ------------
Total Liabilities and Shareholders' Equity ..... $ 10,367,551 8,721,915
============ ============
</TABLE>
(See Accompanying Notes to Consolidated Financial Statements)
4
<PAGE>
<TABLE>
<CAPTION>
Environment One Corporation
Consolidated Statements of Operations
For the Nine Months Ended September 30, 1996 and 1995
Nine Months Ended September 30,
-------------------------------
1996 1995
------------ ------------
<S> <C> <C>
Revenue ...................................... $ 15,307,202 12,963,253
------------ ------------
Costs and Expenses
Cost of Sales ...................... 10,446,106 8,641,059
Selling and Marketing .............. 1,726,926 1,489,451
General and Administrative ......... 1,489,956 1,525,427
Interest Expense ................... 195,478 257,673
Other Expense (Income) .............. (45,388) (6,355)
------------ ------------
Total Expenses, Net .......................... 13,813,078 11,907,255
------------ ------------
Net Earnings Before Taxes .................... 1,494,124 1,055,998
Income Tax Expense ........................... 566,505 403,633
------------ ------------
Net Earnings ................................. $ 927,619 652,365
============ ============
Per Share Amounts:
Primary Earnings per Common Share ............ $ 0.22 0.16
Fully Diluted Earnings per Common Share ...... 0.22 0.16
============ ============
</TABLE>
(See Accompanying Notes to Consolidated Financial Statements)
5
<PAGE>
Environment One Corporation
Consolidated Statements of Operations
For the Three Months Ended September 30, 1996 and 1995
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------
1996 1995
------------ ------------
<S> <C> <C>
Revenue ...................................... $ 6,033,821 4,576,170
------------ ------------
Costs and Expenses
Cost of Sales ...................... 3,876,205 2,919,108
Selling and Marketing .............. 643,684 515,859
General and Administrative ......... 720,294 565,140
Interest Expense ................... 65,650 82,164
Other Expense (Income) .............. 134,702 0
------------ ------------
Total Expenses, Net .......................... 5,440,535 4,082,271
------------ ------------
Net Earnings Before Taxes .................... 593,286 493,899
Income Tax Expense ........................... 225,705 187,400
------------ ------------
Net Earnings ................................. $ 367,581 306,499
============ ============
Per Share Amounts:
Primary Earnings per Common Share ............ $ 0.09 0.07
Fully Diluted Earnings per Common Share ...... 0.09 0.07
============ ============
</TABLE>
(See Accompanying Notes to Consolidated Financial Statements)
6
<PAGE>
<TABLE>
<CAPTION>
Environment One Corporation
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30,1996 and 1995
Nine Months Ended September 30,
-------------------------------
1996 1995
----------- -----------
<S> <C> <C>
Cash Flows-Operating Activities:
Net Earnings ............................................... $ 927,619 652,365
Adjustments to Reconcile Net Earnings
to Net Cash Provided (Used) by Operating Activities:
Depreciation and Amortization .............................. 447,003 450,000
Non-cash Compensation Expense .............................. 102,495 45,000
Decrease (Increase) - Receivables, Net ..................... (1,723,818) (931,355)
Decrease (Increase) - Inventories .......................... (30,268) (130,092)
Decrease (Increase) - Income Tax Receivable ................ 0 178,027
Decrease (Increase) - Other Current Assets ................. (84,928) (66,617)
Decrease (Increase) - Other Assets ......................... 131,847 (15,946)
Increase (Decrease) - Accounts Payable ..................... 648,968 163,766
Increase (Decrease) - Accrued Expenses and other Liabilities 437,217 234,826
Increase (Decrease) - Minority Interest .................... (9,528) 28,201
----------- -----------
Net Cash Provided by Operating Activities .................. 846,607 608,175
----------- -----------
Cash Flows (Used) in Investing Activities:
Capital Expenditures ....................................... (395,254) (217,826)
----------- -----------
Cash Flows From Financing Activities:
Increase (Decrease) - Note Payable to Bank ................. (175,000) (250,000)
Increase (Decrease) - Long Term Debt ....................... (253,719) (283,183)
Issuance of Common Stock ................................... 2,073 0
Purchase of Treasury Stock ................................. (34,489) 0
----------- -----------
Net Cash (Used) by Financing Activities .................... (461,135) (533,183)
----------- -----------
Net (Decrease) in Cash ..................................... (9,782) (142,834)
Cash at Beginning of Period ................................ 91,115 223,701
----------- -----------
Cash at End of Period ...................................... $ 81,333 80,867
=========== ===========
</TABLE>
(See Accompanying Notes to Consolidated Financial Statements)
7
<PAGE>
Environment One Corporation
Notes to Consolidated Financial Statements
For the Nine Months Ended September 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 September 30, 1996 and December 31, 1995
as well as the results of operations and cash flows for the three and nine
months ended September 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 primary and fully
diluted number of shares of Common Stock outstanding for the three and nine
months ended September 30, 1996 (three month 4,248,140 and 4,263,234; nine month
4,248,186 and 4,264,890 shares) and the weighted average number of shares for
the period September 30, 1995 (4,096,743 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 nine months ended September 30, 1996.
4. In September, 1996, the Company recognized the potential
uncollectability of a note receivable from General Testing Corporation incurring
a pre-tax write-off of $136,000. After failure to receive timely payments on the
note, the Company, through legal counsel, served notice of default on the note
to General Testing Corporation. General Testing Corporation did not cure the
payment defaults in the period required. The Company is working with counsel on
further action.
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.
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(ALL FIGURES ROUNDED TO THE NEAREST 000'S)
Revenue for the period increased $2,344,000, or 18.1% over the same period last
year. Sewer Systems revenue increased $2,263,000 along with an increase of
$99,000 in Detection Systems.
Sales in Sewer Systems improved compared to the same period last year as second
quarter 1996 sales benefited by a reversal of extreme weather conditions and
funding delays in municipal projects experienced in quarter one of 1996 while
third quarter sales improved as the market continues to respond to the emphasis
the Company has placed on sales and marketing. New distribution agreements and
new sales offices are adding up to increased growth which has resulted in record
shipments in the third quarter of 1996.
As part of the Detection Systems business revenue increase, Hydrogen Control
Cabinet Sales increased $445,000, Generator Condition Monitor increased $118,000
while Cirrus IFD sales decreased by $464,000. As sales of the Hydrogen Control
Cabinet began in the fourth quarter of 1995, all sales in the first nine months
of 1996 reflect an increase over the same period in the prior year. Sales of the
Generator Condition Monitor slowed in the third quarter as timing decisions for
capital equipment purchases negatively affected quarter to quarter sales after a
strong first half. 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 $1,805,000 when compared with the same period last year.
Expressed in percent of sales, cost of sales increased from 66.7% in the first
nine months of 1995 to 68.2% in the nine months of 1996. In percent of sales,
direct labor improved slightly while direct material increased by 2.8%. The
increase in direct material percent to sales is attributable to project start-up
costs for the GP2000 product and lower first half average selling prices on
large municipal projects in Sewer Systems. Indirect labor costs increased by
$87,000 primarily due to a shift in engineering resources to manufacturing
support. Indirect non-labor costs increased $43,000 due to increases in variable
overhead costs as a result of increased production and shipments.
9
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995, CONTINUED
(ALL FIGURES ROUNDED TO THE NEAREST 000'S)
Selling and Marketing costs increased $237,000 compared with the first nine
months of 1995. Sewer Systems marketing costs increased $464,000 while Detection
Systems marketing costs decreased $227,000. Sewer Systems marketing labor costs
increased $222,000 along with an increase of $242,000 in non-labor marketing
costs. The increase in Sewer Systems labor costs can be attributed to the
opening of new district sales offices, the hiring of a national sales manager in
the third quarter of 1996 and increased internal sales commissions. The increase
in non-labor Sewer Systems marketing costs is primarily due to increases in
advertising, promotion and literature, travel and living and marketing
consultant expenses. 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.
General and Administrative costs, including research and development, decreased
$35,000 over the same period last year. Research and development costs decreased
$124,000 while other general and administrative costs increased $89,000.
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, third quarter charges
related to profit sharing was the primary driver of the additional expense along
with increases in travel and living, legal fees, temporary help, investor
relations and training expenses. Partially offsetting the increases were
decreases in tuition reimbursement, consultant expenses, expenses for
Environment One Japan and allocated facilities charges.
Interest expense decreased $62,000 over the nine months of 1995. Average debt
during the first nine months of 1996 was $285,000 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 $39,000 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.
Offsetting this increase was the write-off of a note receivable from General
Testing Corporation in the third quarter of 1996 in the amount of $136,000,
pre-tax.
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(ALL FIGURES ROUNDED TO THE NEAREST 000'S)
Revenue for the period increased $1,458,000, or 31.9% over the same period last
year. Sewer Systems revenue increased $1,479,000 while Detection Systems revenue
decreased $21,000 when compared with the same period last year.
Sales in Sewer Systems improved as the market continues to respond to the
emphasis the Company has placed on sales and marketing following the
introduction of the GP2000 product in late 1994. New distribution agreements and
new sales offices are adding up to increased growth which has resulted in record
shipments in the quarter.
10
<PAGE>
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995, CONTINUED
(ALL FIGURES ROUNDED TO THE NEAREST 000'S)
As part of the Detection Systems business revenue decrease, Hydrogen Control
Cabinet sales increased $293,000 while Generator Condition Monitor and Incipient
Fire Detector sales decreased $204,000 and $110,000, respectively. As sales of
the Hydrogen Control Cabinet began in the fourth quarter of 1995, all sales in
the third quarter of 1996 reflect an increase over the same quarter in the prior
year. The decrease in Generator Condition Monitor sales can be attributed to
timing decisions by electric utility customers in their purchases of capital
equipment which led to a strong first half increase in sales over the same
period in 1995. 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 $957,000 when compared with the same period last year.
Expressed in percent of sales, cost of sales increased slightly from 63.8% in
the third quarter of 1995 to 64.2% in the third quarter of 1996. In percent of
sales, direct labor remained flat while direct material increased 2.4% 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.
Indirect labor costs increased $49,000 primarily due to shifting engineering
labor from research and development to manufacturing support. Indirect non-labor
costs increased $25,000 reflecting increases in variable overhead costs as a
result of increased production and shipments offset partially by a decrease in
costs for inventory obsolescence.
Selling and Marketing costs increased $128,000 compared with the third quarter
of 1995. Sewer Systems marketing costs increased $208,000 while Detection
Systems marketing costs decreased $80,000. The increase in Sewer Systems
marketing costs reflects the additional costs of one sales office and the hiring
of a national sales manager in the third quarter along with increases in
internal salesperson's commissions, travel and living, advertising, promotions,
literature and marketing consultant expenses. The decrease in Detection Systems
marketing costs is mainly attributable to the sale of the Cirrus IFD product
line.
General and Administrative costs, including research and development, increased
$155,000 over the same period last year. Research and development costs
decreased $70,000 while other general and administrative costs increased
$225,000.
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.
In regard to other general and administrative costs, third quarter 1996 costs
for profit sharing was the main driver of the increase along with increases in
legal fees, director's fees and investor relations.
Interest expense decreased $17,000 compared with the third quarter of 1995.
Average debt during the third quarter of 1996 was $65,000 more 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>
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995, CONTINUED
(ALL FIGURES ROUNDED TO THE NEAREST 000'S)
Other income decreased $135,000 over the same period last year as a result of
the write-off of a note receivable from the General Testing Corporation of
$136,000 pre-tax.
FINANCIAL POSITION AND LIQUIDITY
(ALL FIGURES ROUNDED TO THE NEAREST 000'S)
Cash needs for the first nine months of 1996 were met by an opening cash balance
of $91,000 along with cash provided by operating activities of $847,000. Capital
expenditures for the period were $395,000 along with a reduction in total bank
debt of $429,000. During the same period last year, cash provided by operating
activities was $608,000 while capital expenditures and total bank debt reduction
was $218,000 and $533,000, respectively.
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: October 29, 1996 By: /s/Stephen V. Ardia
----------------------------
Stephen V. Ardia
Chairman of the Board,
Chief Executive Officer,
President and Director
Date: October 29, 1996 By: /s/Philip W. Welsh
----------------------------
Philip W. Welsh
Director of Finance,
Treasurer
13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 81,333
<SECURITIES> 0
<RECEIVABLES> 4,485,012
<ALLOWANCES> 29,358
<INVENTORY> 1,879,829
<CURRENT-ASSETS> 6,724,760
<PP&E> 7,684,754
<DEPRECIATION> 4,195,318
<TOTAL-ASSETS> 10,367,551
<CURRENT-LIABILITIES> 3,376,307
<BONDS> 1,585,019
0
0
<COMMON> 416,597
<OTHER-SE> 4,928,910
<TOTAL-LIABILITY-AND-EQUITY> 10,367,551
<SALES> 15,307,202
<TOTAL-REVENUES> 15,307,202
<CGS> 10,446,106
<TOTAL-COSTS> 10,446,106
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 195,478
<INCOME-PRETAX> 1,494,124
<INCOME-TAX> 566,505
<INCOME-CONTINUING> 927,619
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 927,619
<EPS-PRIMARY> .22
<EPS-DILUTED> .22
</TABLE>
