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 March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
Commission File Number 0-5633
ENVIRONMENT ONE CORPORATION
(Name of small business issuer in its charter)
New York 14-1505298
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(State or other jurisdiction of (IRS Employer
incorporation of organization) Identification No.)
2773 Balltown Road, Niskayuna, NY 12309-1090
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(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 March 31, 1997:
4,219,054
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [ X ]
<PAGE>
Environment One Corporation
FORM 10-QSB
INDEX
Page
----
Part I. Financial Information-
Item 1. - Financial Statements
Consolidated Balance Sheets March 31, 1997 and
December 31, 1996 3-4
Consolidated Statements of Operations for the Three Months
Ended March 31, 1997 and 1996 5
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1997 and 1996 6
Notes to Consolidated Financial Statements 7
Item 2.
Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-11
Part II. Other Information 12
Signatures 12
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<TABLE>
<CAPTION>
Part I - Financial Information
Item 1. Financial Statements
Environment One Corporation
Consolidated Balance Sheets
March 31, 1997 and December 31, 1996
Assets 3/31/97 12/31/96
------------ ------------
<S> <C> <C>
Current Assets
Cash and Cash Equivalents ......... $ 69,967 62,637
Accounts Receivable, Net .......... 4,506,278 4,931,421
Inventories
Raw Materials .................. 1,766,978 1,439,020
Work in Process ................ 224,062 469,001
Finished Goods ................. 480,609 364,079
------------ ------------
2,471,649 2,272,100
Other Current Assets ........................ 466,603 347,577
------------ ------------
Total Current Assets ................... 7,514,497 7,613,735
------------ ------------
Property, Plant and Equipment
Land ................................... 334,491 334,491
Buildings .............................. 2,271,832 2,271,832
Machinery and Equipment ................ 5,067,877 5,024,175
Construction in Progress ............... 129,886 50,689
Less: Accumulated Depreciation ......... (4,445,173) (4,310,173)
------------ ------------
Net Property, Plant and Equipment ...... 3,358,913 3,371,014
Other Assets ................................ 254,631 269,792
------------ ------------
Total Assets ................................ 11,128,041 11,254,541
============ ============
Liabilities and Shareholders' Equity
Current Liabilities
Book Overdraft ......................... 87,904 0
Current Installments - Long Term Debt .. 338,100 338,100
Notes Payable - Bank ................... 454,000 75,000
Accounts Payable ....................... 1,480,206 1,918,866
Accrued Expenses ....................... 1,062,102 1,296,170
------------ ------------
Total Current Liabilities ......... 3,422,312 3,628,136
Deferred Compensation ....................... 369,461 369,461
Minority Interest ........................... 54,871 43,068
Long Term Debt .............................. 1,415,970 1,500,494
------------ ------------
Total Liabilities ..................... 5,262,614 5,541,159
------------ ------------
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<CAPTION>
Environment One Corporation
Consolidated Balance Sheets
March 31, 1997 and December 31, 1996
3/31/97 12/31/96
------------ ------------
<S> <C> <C>
Shareholders' Equity
Common Stock at Par Value .............. 423,855 416,997
Additional Paid in Capital ............. 7,816,493 7,446,789
Accumulated Deficit .................... (1,931,220) (2,076,164)
------------ ------------
6,309,128 5,787,622
Less: Treasury Stock at Cost ........... (443,701) (74,240)
------------ ------------
Total Shareholders' Equity ........... 5,865,427 5,713,382
------------ ------------
Total Liabilities and Shareholders' Equity .. $ 11,128,041 11,254,541
============ ============
(See Accompanying Notes to Consolidated Financial Statements)
</TABLE>
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<TABLE>
<CAPTION>
Environment One Corporation
Consolidated Statements of Operations
For the Three Months Ended March 31, 1997 and 1996
Three Months Ended March 31,
-------------------------------
1997 1996
----------- ------------
<S> <C> <C>
Revenue .................................. $ 4,547,725 3,945,236
----------- -----------
Costs and Expenses
Cost of Sales .................. 2,934,433 2,866,375
Selling and Marketing .......... 601,876 529,357
General and Administrative ..... 738,377 362,202
Interest Expense ............... 41,984 62,723
Other Expense (Income) .......... (2,489) (177,964)
----------- -----------
Total Expenses, Net ...................... 4,314,181 3,642,693
----------- -----------
Net Earnings Before Taxes ................ 233,544 302,543
Income Tax Expense ....................... 88,600 113,700
----------- -----------
Net Earnings ............................. 144,944 188,843
=========== ===========
Per Share Amounts:
Primary Earnings per Common Share ........ $ 0.03 $ ---
Fully Diluted Earnings per Common Share .. 0.03 ---
Weighted Average Earnings per Common Share $ --- $ 0.05
=========== ===========
(See Accompanying Notes to Consolidated Financial Statements)
</TABLE>
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<TABLE>
<CAPTION>
Environment One Corporation
Consolidated Statements of Cash Flows
For the Three Months Ended March 31,1997 and 1996
Three Months Ended March 31,
----------------------------
1997 1996
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<S> <C> <C>
Cash Flows-Operating Activities:
Net Earnings ............................................... $ 144,944 188,843
Adjustments to Reconcile Net Earnings
to Net Cash Provided (Used) by Operating Activities:
Depreciation and Amortization .............................. 144,117 162,908
Decrease (Increase) - Accounts Receivable, Net ............. 425,143 (625,032)
Decrease (Increase) - Inventories .......................... (199,549) (187,520)
Decrease (Increase) - Prepaid Expenses ..................... (119,026) (30,572)
Decrease (Increase) - Other L/T Assets ..................... 6,044 605
Increase (Decrease) - Accounts Payable ..................... (438,660) 384,164
Increase (Decrease) - Accrued Expenses and Other Liabilities (234,068) 38,239
Increase (Decrease) - Minority Interest .................... 11,803 (6,398)
--------- ---------
Net Cash Provided (Used) by Operating Activities ........... (259,252) (74,763)
--------- ---------
Cash Flows Used in Investing Activities:
Capital Expenditures ....................................... (122,899) (132,249)
--------- ---------
Cash Flows From Financing Activities:
Increase (Decrease) - Book Overdraft ....................... 87,904 0
Increase (Decrease) - Note Payable to Bank ................. 379,000 350,000
Increase (Decrease) - Long Term Debt ....................... (84,524) (84,611)
Issuance of Common Stock ................................... 7,101 1,875
Purchase of Treasury Stock ................................. 0 (16,609)
--------- ---------
Net Cash Provided (Used) by Financing Activities ........... 389,481 250,655
--------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents ....... 7,330 43,643
Cash and Cash Equivalents at Beginning of Period ........... 62,637 91,115
--------- ---------
Cash and Cash Equivalents at End of Period ................. $ 69,967 134,758
========= =========
Supplemental disclosure of non-cash financing activity:
Issuance of 65,681 shares of common stock held in trust and
recorded as treasury stock as part of the Company's
deferred compensation plan for certain executive officers $ 369,461 --
========= =========
(See Accompanying Notes to Consolidated Financial Statements)
</TABLE>
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Environment One Corporation
Notes to Consolidated Financial Statements
For the Three Months Ended March 31, 1997 and 1996
(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 March 31, 1997 and December 31, 1996 as
well as the results of operations and cash flows for the three months ended
March 31, 1997 and 1996. 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 period ending March
31, 1997 and the weighted average number of shares of Common Stock outstanding
for the period ending March 31, 1996. (March 31, 1997; 4,388,467 and 4,404,171
shares, March 31, 1996; 4,114,657 shares).
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" (Statement 128),
which establishes standards for computing and presenting earnings per share
(EPS). This Statement simplifies the standards for computing EPS making them
comparable to international EPS standards and supersedes Accounting Principals
Board Opinion No. 15, "Earnings per Share" and related interpretations.
Statement 128 replaces the presentation of primary EPS with the presentation of
basic EPS. It also requires dual presentation of basic and diluted EPS on the
face of the income statement for all entities with complex capital structures
and requires a reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS computation.
Basic EPS excludes dilution (such as the effect of the Company's outstanding
stock options) and is computed by dividing income available to common
stockholders by the weighted-average number of common shares outstanding for the
period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the entity (such as the Company's stock options). This
Statement is effective for financial statements issued for periods ending after
December 15, 1997, including interim periods. Earlier application is not
permitted. This Statement requires restatement of all prior-period EPS data
presented.
The Company will present its EPS information in accordance with Statement 128 as
of December 31, 1997. Manaagement anticipates that the effect of the adoption of
this Statement will not have a material effect on the Company's consolidated
financial statements.
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 that
was concluded in 1996. The pre-tax impact of the sale, net of certain expenses,
was a gain of $176,000 and is recorded as other income in the statement of
operations for the quarter ended March 31, 1996.
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<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, 1996.
Three Months Ended March 31, 1997 and 1996
(all figures rounded to the nearest 000's)
Revenue for the period increased $602,000, or 15.3% over the same period last
year. Increases over results from the quarter ended March 31, 1996 were recorded
in both Sewer Systems and Detection Systems businesses.
Revenue's from the Company's Sewer Systems business continue to show improvement
over prior periods. Management is of the opinion that the addition of a more
powerful distribution network, increases in the number and size of municipal
projects, continued growth in the overall market and realignment of its sales
territories accounts for this growth and bodes well for future growth.
As part of the Detection Systems business revenue increase, sales of the
Company's Hydrogen Control Cabinet showed significant improvement as the Company
did not ship any units in the first quarter of 1996 due to customer delays in
placing orders. Generator Condition Monitor sales remained virtually flat over
the same period last year. The Company continued to manufacture and supply
Cirrus IFD units to PROTEC during the first quarter and is expecting to finish
its commitment with PROTEC in the second quarter of 1997.
Cost of Sales increased $68,000 when compared to the same period last year.
Expressed in percent of sales, cost of sales decreased from 72.6% in the first
three months of 1996 to 64.5% in the three months ended March 31, 1997. The
resulting improvement in gross margin is mainly attributable to reduced direct
material costs expressed as a percent of sales resulting from changes in product
mix on a comparative quarter basis. Indirect costs remained virtually flat on a
quarter to quarter basis.
Selling and Marketing costs increased $73,000 compared to the first quarter of
1996. The majority of this increase resulted from increases in expenditures in
advertising, promotion and sales literature as the Company continues its effort
to support the Sewer Systems business distribution network. During the first
quarter of 1997, the Company closed its Sewer System sales offices in Georgia
and Texas. During 1996, the Company added new and more powerful distributors in
both areas along with opening a new sales office in New Mexico allowing for a
smooth transition in territory realignment despite closing of the two offices.
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<PAGE>
Three Months Ended March 31, 1997 and 1996, continued
(all figures rounded to the nearest 000's)
General and Administrative costs, including research and development, increased
$376,000 over the same period last year. Research and development costs
increased $23,000 while other general and administrative costs increased
$353,000.
The major portion of the increase in other general and administrative costs is
attributable to an increased growth performance sharing expense accrual. In the
first quarter of 1996, the Company implemented a new growth performance sharing
plan to take the place of its profit sharing plan. Targets for growth in sales
and operational earnings along with return on assets were established and are
reviewed on an annual basis. Quarterly expense accruals are made based on the
performance of the Company.
Interest expense decreased $21,000 over the first three months of 1996. Average
monthly debt during the first quarter of 1997 was $655,000 less than the same
period in 1996. The reduced debt level along with a reduction in interest rates
due to a lower bank prime rate account for the lower interest cost.
Other income decreased $175,000 over last year as a result of the sale of the
Cirrus IFD product line to PROTEC in the first quarter of 1996.
Financial Position and Liquidity
(all figures rounded to the nearest 000's)
Cash needs for the first three months of 1997 were met primarily by short term
borrowing on the Company's line of credit of $379,000, most of which occurred
during the month of March. Capital expenditures remained flat at $123,000 along
with a reduction in long term debt of $85,000. Borrowing on the line of credit
was primarily due to an increase in inventory of $200,000 and a decrease in
accounts payable of $439,000. During the same period last year, the Company was
able to reduce short term borrowing by $350,000 along with reducing long term
debt by $85,000.
During the first quarter of 1997, the Company improved its method of banking by
initiating a "target balance" program with Fleet Bank. This program allows the
maximum use of outstanding checks and provides for overnight interest bearing
use of available funds. As a result, a new account, "book overdraft", now
appears on the consolidated balance sheet and consolidated statement of cash
flows.
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.
The line of credit, which expired in April of 1997, has been approved for
renewal by the Company's primary lender. At the same time, a pricing
modification to the Company's term loan has been offered to allow the Company to
purchase a fixed rate swap. In consideration for the renewal and pricing
modification, the lender has modified certain loan covenants. Management is
currently reviewing these proposals and is confident that a successful outcome
will be reached.
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CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR"
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Private Securities Litigation Reform Act of 1995 (the "Act") provides a
"safe harbor" for forward-looking statements to encourage companies to provide
prospective information about themselves while limiting unwarranted litigation,
provided that the statements are identified as forward-looking and are
accompanied by meaningful cautionary statements regarding important factors that
could cause actual results to differ materially from those projected in the
statement. The Company desires to take advantage of the "safe harbor" provisions
of the Act, and is including the information set forth below in this Form 10-QSB
to point out the inherent difficulties in predicting the impact of certain
factors.
While the Company believes that its assumptions underlying any forward-looking
statements are reasonable, the following information includes important factors
which could cause the Company's actual results to differ materially from any
result which might be projected, forecasted, estimated, or budgeted by the
Company in its forward-looking statements, whether contained in this Form 10-QSB
or otherwise.
1. Heightened competition, including the intensification of price competition,
the entry of new competitors, and the introduction of new products by new and
existing competitors.
2. Failure to obtain new customers or retain existing customers.
3. Adverse publicity and news coverage impacting the Company's reputation and
sales potential.
4. Inability to carry out marketing and sales plans due to unforeseen factors.
5. Significant economic downturns in the geographic market areas serviced by the
Company.
6. Higher service, administrative, or general expenses occasioned by the need
for additional advertising, marketing, administrative, or management information
systems expenditures.
7. A lack of availability of raw materials, necessary manufacturing equipment,
or contract manufacturers to meet the Company's needs.
8. Underutilization of the Company's manufacturing resources, resulting in
production inefficiencies and higher costs.
9. Start-up expenses, inefficiencies, delays, and increased depreciation costs
in connection with the start of production in new facilities and expansions of
existing facilities.
10. The acquisition of fixed and other assets, including inventory and
receivables, and the making or incurring of any expenditures and expenses,
including but not limited to depreciation and research and development expenses.
11. Any revaluation of assets or related expenses and the amount of, and any
changes to, tax rates.
12. Loss or retirement of key executives.
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<PAGE>
13. Any activities of parties with which the Company has agreements or
understandings, including matters affecting any investment or joint venture in
which the Company has an investment.
14. The amount, type, and cost of the financing available to the Company, and
any changes to that financing.
15. Adverse results in significant litigation or regulatory proceedings.
16. Adverse changes in laws, regulations, interpretations, and enforcement
policies affecting the Company and its business operations.
17. Natural disasters, work stoppages, and other events beyond the control of
the Company.
The foregoing list of factors should not be construed as exhaustive, or as any
admission regarding the adequacy of disclosures made by the Company prior to the
filing of this Form 10-QSB.
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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: May 9, 1997 By:/s/Stephen V. Ardia
-------------------
Stephen V. Ardia
Chairman, President and CEO
Date: May 9, 1997 By:/s/ Philip W. Welsh
-------------------
Philip W. Welsh
Director of Finance
Treasurer
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 96,967
<SECURITIES> 0
<RECEIVABLES> 4,598,178
<ALLOWANCES> 91,900
<INVENTORY> 2,471,649
<CURRENT-ASSETS> 7,514,497
<PP&E> 7,804,086
<DEPRECIATION> 4,475,173
<TOTAL-ASSETS> 11,128,041
<CURRENT-LIABILITIES> 3,422,312
<BONDS> 1,415,970
0
0
<COMMON> 423,855
<OTHER-SE> 5,441,572
<TOTAL-LIABILITY-AND-EQUITY> 11,128,041
<SALES> 4,547,725
<TOTAL-REVENUES> 4,547,725
<CGS> 2,934,433
<TOTAL-COSTS> 2,934,433
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 41,984
<INCOME-PRETAX> 233,544
<INCOME-TAX> 88,600
<INCOME-CONTINUING> 144,944
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 144,944
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
