<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED December 31, 1998 COMMISSION FILE NUMBER 0-14229
---------------------- -----------
CROWN ANDERSEN INC.
- - --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 58-1653577
- - --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
306 Dividend Drive, Peachtree City, Georgia 30269
- - --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (770) 486-2000
------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to filing such
requirements for the past 90 days. Yes X No ___
---
================================================================================
Class Outstanding at December 31, 1998
---------------------------------- --------------------------------
Common Stock, $0.10 Par Value 1,815,571 shares
Page 1 of 12
<PAGE>
CROWN ANDERSEN INC.
-------------------
INDEX
-----
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Part I. FINANCIAL INFORMATION:
Consolidated Balance Sheets--
December 31, 1998 and September 30, 1998 3
Consolidated Statements of Income--
Three Months Ended December 31, 1998 and 1997 4
Consolidated Statements of Cash Flows--
Three Months Ended December 31, 1998 and 1997 5
Notes to Consolidated Financial Information 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 12
</TABLE>
2
<PAGE>
CROWN ANDERSEN INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1998 1998
------------- --------------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
CURRENT:
Cash and cash equivalents $ 949,639 $ 1,171,097
Receivables:
Trade, less allowance of $131,447 and $99,324 for
possible losses 4,080,103 2,432,605
Other 97,919 63,285
Income taxes 1,034,627 1,354,594
Costs and estimated earnings in excess of billings on
uncompleted contracts 4,258,093 4,686,555
Inventories 2,356,387 2,341,955
Prepaid expenses 128,477 82,819
Current maturities of long-term note receivable 490,000 490,000
Deferred income taxes 184,730 148,730
----------- -----------
TOTAL CURRENT ASSETS 13,579,975 12,771,640
RESTRICTED CASH 1,036,000 1,036,000
EQUIPMENT HELD FOR RESALE 490,000 490,000
PROPERTY AND EQUIPMENT, less accumulated depreciation 2,966,431 1,573,913
DEFERRED INCOME TAXES 601,513 601,513
PROPERTY HELD FOR RESALE 1,500,000 1,500,000
OTHER ASSETS 989,247 111,051
----------- -----------
$21,163,166 $18,084,117
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 2,138,171 $ 670,000
Accounts payable 2,314,677 2,025,031
Accruals:
Compensation 356,174 254,704
Warranty 235,000 333,000
Miscellaneous 572,385 603,872
Billings on uncompleted contracts in excess of cost and
estimated earnings - 6,113
Current maturities of long-term debt 855,311 775,000
Deferred income taxes 531,262 531,164
----------- -----------
TOTAL CURRENT LIABILITIES 7,002,980 5,198,884
LONG-TERM DEBT, less current maturities 92,591 -
DEFERRED INCOME TAXES 282,790 21,790
----------- -----------
TOTAL LIABILITIES 7,378,361 5,220,674
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common Stock, $.10 par; shares authorized 5,000,000; issued
1,861,635; outstanding 1,815,571 and 1,515,571 186,164 156,164
Additional paid-in capital 3,775,801 2,905,801
Treasury stock; 46,064, at cost (295,733) (295,733)
Retained earnings 9,924,723 9,904,257
Foreign currency translation adjustment 193,850 192,954
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 13,784,805 12,863,443
----------- -----------
$21,163,166 $18,084,117
=========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
3
<PAGE>
CROWN ANDERSEN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED DECEMBER 31,
-----------------------
1998 1997
-----------------------
<S> <C> <C>
REVENUES:
Contracts $3,568,113 $4,396,241
Sales 535,679 358,205
Other 27,138 16,478
---------- ----------
4,130,930 4,770,924
---------- ----------
COSTS AND EXPENSES:
Cost of contracts and sales 3,373,594 3,774,698
Selling, general and administrative 720,808 843,299
Interest and other 3,562 (50,054)
---------- ----------
4,097,964 4,567,943
---------- ----------
Income from operations before
taxes on income 32,966 202,981
TAXES ON INCOME 12,500 64,100
---------- ----------
NET INCOME $ 20,466 $ 138,881
========== ==========
AVERAGE SHARES AND EQUIVALENT SHARES
OUTSTANDING 1,590,571 1,512,198
---------- ----------
BASIC AND DILUTED EARNINGS PER SHARE $ 0.01 $ 0.09
---------- ----------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
4
<PAGE>
CROWN ANDERSEN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended December 31,
---------------------------------
1998 1997
---------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from operations $ 20,466 $ 138,881
Items in income from operations not affecting cash:
Depreciation and amortization 63,394 56,616
Provision for valuation of soil processor unit - 45,000
Deferred income taxes - -
Cash provided by (used for)
Trade and other receivables (958,411) (47,517)
Refundable income taxes 53,590 -
Costs and estimated earnings in excess of billings on
uncompleted contracts 428,462 (2,325,387)
Inventories 457,433 (40,089)
Prepaid expenses (6,563) (6,445)
Accounts payable (24,773) 509,938
Accrued expenses 77,973 89,937
Billings on uncompleted contracts in excess of costs and
estimated earnings (6,113) (98,507)
Other 60,038 (8,680)
----------- -----------
Cash provided by (used for) operating activities 165,496 (1,686,253)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in Griffin Environmental Company Inc. (2,292,820) -
Capital expenditures (5,648) (22,692)
----------- -----------
Cash used for investing activities (2,298,468) (22,692)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Reduction in long-term debt (33,747) (419,736)
Increase in notes payable 1,044,829 -
Sale of common stock 900,000 -
----------- -----------
Cash provided by (used for) financing activities 1,911,082 (419,736)
----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 432 (3,428)
----------- -----------
CASH AND CASH EQUIVALENTS:
Net decrease during the year (221,458) (2,132,109)
Balance at beginning of year 1,171,097 4,894,371
----------- -----------
BALANCE AT END OF PERIOD $ 949,639 $ 2,762,262
=========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
5
<PAGE>
CROWN ANDERSEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL INFORMATION
-------------------------------------------
1. Condensed footnotes:
-------------------
As contemplated by the Securities and Exchange Commission instructions to
Form 10-Q, the following footnotes have been condensed and therefore do not
contain all disclosures required in connection with annual financial statements.
Reference should be made to the notes to Crown Andersen Inc.'s annual financial
statements set forth in its Form 10-K for the year ended September 30, 1998.
2. Earnings per share:
------------------
Earnings per share is computed based on the weighted average of common
shares, common stock options (using the treasury stock method) in accordance
with FAS 128 "Earnings Per Share." The stock options outstanding during 1998
and 1997 were antidilutive and thus did not affect earnings per share.
3. Stock options:
-------------
As of December 31, 1998, options to purchase 144,000 shares at an average
price of $4.36 were outstanding under the Company's stock option plan.
The Company also has outstanding warrants to purchase 110,000 shares of
common stock under the Directors Stock Warrant Plan at $4.36 per share.
4. Revenue recognition:
-------------------
Revenues from contracts are reported on the percentage-of-completion
method. Under this method, the percentage of contract revenue to be recognized
currently is based on the ratio of costs incurred to date to total estimated
contract costs, after giving effect to the most recent estimate of costs to
complete. Revenues other than contracts are recorded when the product is
shipped or the service is rendered to the customers.
5. Inventories:
-----------
Inventories were $2,356,387 and $2,341,955 as of December 31, 1998 and
September 30, 1998. Included in inventories is approximately $1,120,000 related
to incineration equipment purchased from a former competitor.
6. Restricted cash:
---------------
As of December 31, 1998, $1,036,000 of the Company's short-term investments
were held by banks as collateral for an outstanding letter of credit. The
letter of credit expires in December 1999.
7. Equipment held for resale:
-------------------------
On September 30, 1992, the Company sold a soil processor unit under a
financing-type lease arrangement. As a result of the customer's default, the
Company, during 1994, terminated the lease and repossessed the equipment. On
September 30, 1994, the Company reclassified this asset as equipment held for
resale and reduced its carrying value from approximately $2.1 million to $1.8
million. The Company employs an outside appraiser and reviews the carrying
value of this unit on a periodic basis. Through December 31, 1998, the carrying
value of this unit has been reduced to $490,000. The adjustments to carrying
value have been charged to operations in each respective year.
6
<PAGE>
8. Commitments and contingencies:
------------------------------
There are no significant changes to the information discussed in the
Company's annual report on Form 10K for the year ended September 30, 1998 (Note
12 to the Consolidated Financial Statements), except as noted below:
9. Litigation settlement:
---------------------
During fiscal 1998, the Company settled the litigation over principal and
interest for certain Kansas property formerly occupied by Struthers Thermo-Flood
Corporation, a former Crown Andersen subsidiary. Under terms of the settlement,
the Company paid $1,630,000 in cash and issued a one year, non-interest bearing
promissory note and the amount of $670,000. In exchange, the Company received
the rights (without further obligation) to transfer title of this proper to a
purchaser or to the Company. The Company is in the process of negotiations with
potential purchasers. The estimated value of these assets is presently
$1,500,000. This transaction was recorded as of June 30, 1998 and the Company
recognized a net loss of approximately $900,000. The Company's December 31,
1998 balance sheet includes these assets as "property held for sale" and the
note payable of $670,000.
10. Acquisition of business:
-----------------------
On December 16, 1998 the Company purchased all the outstanding shares of
stock of Griffin Environmental Company Inc. ("Griffin"). Griffin is a
manufacturer of fabric filter and cartridge dust collector pollution control
equipment. Griffin sells its pollution control equipment to a wide variety of
industries, including concrete, steel, other metals, clays, paper, glass, and
other industries.
The Company purchased Griffin for $2.6 million. This was comprised of cash
of $2.3 million and a one-year promissory note of $271,000 secured by a second
mortgage on the real estate. The note bears interest at 4.33% payable monthly
and the principal is due on December 16, 1999.
The acquisition includes the purchase of assets comprised primarily of
inventories, accounts receivable, and property, plant, and equipment.
Liabilities assumed in the acquisition consist primarily of trade accounts
payable, customer deposits, long term debt , and other accrued liabilities. The
transaction was accounted for under the purchase method of accounting whereby
all assets and liabilities will be valued at their current fair market value at
December 16, 1998.
* * *
The financial information included in this report has not been certified
and should not be relied upon to the same extent as certified financial
statements. The financial information included in this report reflects all
adjustments which are, in the opinion of management, necessary for a fair
presentation of the results for the interim period. Nevertheless, the results
shown are for interim periods and are not necessarily indicative of results to
be expected for the year.
7
<PAGE>
CROWN ANDERSEN INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
Introduction:
- - ------------
Crown Andersen Inc. (Crown Andersen or the Company) is a publicly-traded
holding company for Andersen 2000 Inc. (Andersen) and, through Andersen, owns
all of the outstanding stock of Montair Andersen bv (Montair). The Company is
engaged exclusively in the pollution control and waste processing businesses.
Liquidity and Capital Resources:
- - -------------------------------
Cash and cash equivalents at December 31, 1998 decreased $221,458 to
$949,639 from the September 30, 1998 balance of $1,171,097. The decrease
resulted from an increase in receivables and the expenditure of cash to acquire
Griffin Environmental Company Inc. Cash provided by operating activities
amounted to $165,496.
Cash used for investing activities totaled $2,298,468. This amount
includes $2,292,820 for the acquisition of Griffin and capital expenditures of
$5,648.
Cash provided by financing activities totaled $1,911,082. This includes
short term debt incurred for the acquisition of Griffin ($1,044,829) and
$900,000 in proceeds from a sale of common stock in a private placement.
Montair realized a positive operating cash flow as a result of profitable
operations. At Andersen, an increase in receivables contributed to a negative
cash flow.
As disclosed in Note 7 to the Consolidated Financial Statements, during
1994 the Company repossessed certain equipment sold under a lease arrangement.
The Company has reduced the carrying value of this asset to $490,000 as of
December 31, 1998 and it is reflected as equipment held for resale in the
accompanying consolidated balance sheet. The Company is attempting to market
this equipment for sale and has a number of active negotiations underway for its
sale.
As of December 31, 1998, the Company had borrowed $1.5 million against its
$5.0 million line of credit and the $0.4 million credit facility available to
Montair. The amount of $2.3 million remained available for borrowing under
these credit facilities as $1.2 million in letters of credit are outstanding
against the U.S. line of credit. The Company expects to utilize its existing
credit facility to fund anticipated cash needs resulting from a temporary
slowdown of its business.
Under the current loan agreement, the Company is required to obtain the
bank's consent to pay cash dividends, purchase treasury stock, or to sell assets
which constitute collateral. The Company obtained permission to purchase up to
$400,000 of treasury stock. A total of $295,733 of net treasury stock purchases
is reflected in the Company's balance sheet as of December 31, 1998.
The year 2000 issue relates to computer programs and systems that recognize
dates using two digit year data rather than four digit year data. As a result,
such programs and systems may fail or provide incorrect information for dates
after December 31, 1999. If the year 2000 issue were to cause disruption to the
Company's internal information technology systems or to the information
technology systems of entities with whom the Company has commercial
relationships, material adverse effects to the Company's operations could
result.
8
<PAGE>
The Company's internal computer programs and systems consist of programs
and systems relating to virtually all segments of the Company's business,
including customer database management, marketing, order processing, production
budgeting, financing reporting, customer service, investor relations, proposal
generation, cash management and other key information systems. These systems
include personal computers, phones, ancillary sources and third-party software
programs.
The Company has not yet completed its review of these programs and systems.
The Company does not expect that any required changes to such programs and
systems will cause the Company to incur material costs or present challenges
that cannot be addressed prior to the end of calendar 1999. The Company expects
to complete its reviews of these programs and systems during fiscal 1999.
The computer programs and operating systems used by entities with whom the
Company has commercial relationships also pose potential problems relating to
the year 2000 issue, which may affect the Company's operations in a variety of
ways. These risks are more difficult to assess than those posed by internal
programs and systems and the Company has not yet completed a plan for assessing
them.
The Company expects to complete its plan for assessing these programs and
systems and to complete the review by the end of fiscal 1999. Once such
assessment and identification has been completed, the Company intends to resolve
any material risks and uncertainties that are identified by: 1) communicating
further with the relevant vendors and service providers, 2) working internally
to identify alternative sourcing, and 3) formulating contingency plans to deal
with such material risks and uncertainties. The Company expects the resolution
of any such material risks and uncertainties to be an ongoing process until all
year 2000 problems are satisfactorily resolved.
Results of Operations:
- - ---------------------
Revenues.
- - ---------
Revenues for the first quarter of fiscal 1999 were $4,130,930 compared with
$4,770,924 for the comparable period in 1998 and $2,758,091 for the last quarter
of fiscal 1998. Foreign sales (including export sales by Andersen and sales by
Montair) were $1.4 million and $3.6 million for the first quarter of fiscal 1999
and 1998, respectively, and accounted for 33.4 % and 74.6% of revenues,
respectively. All changes in revenues are related to the quantity of products
sold, not to pricing changes. Revenues at Andersen declined 19% while revenues
at Montair declined 9%. These decreases were partially offset by one month sales
by the newly acquired subsidiary, Griffin Environmental Company Inc.
The Company continues to rely on the international market for some of its
revenues. Demand for the Company's products in the domestic market has remained
low over the last five years because of uncertainty in changes in United States
regulations. However, the Company experienced an increase in domestic business
in late 1998 and expects this to continue to increase in 1999. There has been a
substantial slowdown in the Asian markets which the Company has served in the
last five years, and the slowdown is just now being offset by other markets.
The Company expects more uncertainties for the next 2-3 years in the Asian
markets because of currency problems in countries where the Company has been
doing business.
First quarter 1999 revenues increased $1,372,839 from the preceding quarter
revenues. The revenue increase was primarily attributed to Andersen.
9
<PAGE>
Cost of Sales.
- - --------------
For the first quarter of fiscal 1999, cost of sales totaled $3,373,594
compared with $3,774,698 in the comparable period of fiscal 1998 and $2,580,912
in the fourth quarter of 1998.
Cost of sales decreased $401,104 (10.6%) from the first quarter of fiscal
1998 as a result of lower revenues and a 2.5% decline in gross margin. Fiscal
1999 cost of sales reflect one month operations of Griffin (the recently
acquired subsidiary).
First quarter 1999 cost of sales were $792,682 (30.7%) higher than in the
fourth quarter of 1998, primarily as a result of higher revenues.
Selling, General and Administrative Costs.
- - ------------------------------------------
Selling, general and administrative costs for the first three months of
fiscal 1999 were $720,808 compared with $843,299 for the first fiscal quarter of
1998 and $646,734 in the fourth quarter of fiscal 1998. The decrease of
$122,491 (14.5%) from the comparable quarter in 1998 is primarily attributable
to Andersen's operation and reflects decreases in commissions and salaries,
offset by one month costs incurred by Griffin in the 1999 quarter. As a
percentage of revenues, selling, general and administrative expenses were 17.4%,
17.7% and 23.4% for the fiscal quarters of 1999 and 1998 and the fourth quarter
of 1998. Expenses for the current 1999 quarter increased $74,074 (11.4%) from
the preceding fiscal quarter. This increase is primarily attributable to the
costs recorded by Griffin, the newly acquired subsidiary.
Interest and Other (Income) Expenses.
- - -------------------------------------
Interest and other (income) expenses for the first three months of fiscal
1999 totaled $3,562 compared with a credit of $50,054 for the first quarter of
1998 and a credit of $27,654 for the fourth quarter of 1998. The increase in
costs of $53,616 from the comparable quarter in 1998 reflects a substantial
reduction in interest income as cash available for investment was used to fund
operating losses and settlement litigation in fiscal 1998. The increase in
costs of $31,216 from the preceding fiscal quarter was also due to a decrease in
interest income.
Taxes on Income.
- - ----------------
The effective tax rate for the first quarter of fiscal 1999 was 37.9%
compared to 31.6% for the first quarter of fiscal 1998 and 37.1% (benefit) for
the fourth quarter of fiscal 1998.
Net Income.
- - -----------
Net income for the first quarter of fiscal 1999 was $20,466 or $0.01 per
share, compared with $138,881 or $0.09 per share for the first quarter of fiscal
1998 and a loss of $278,101 or $0.18 per share for the fourth quarter of 1998.
The decrease in earnings of $118,415 was the result of lower revenues and
lower operating margins of 2.5%. The earnings decline was attributable to the
U.S. operations. The Griffin operation reported a net loss of $14,274. Net
income at Montair remained on target with prior period levels.
Net earnings increased $298,567 from the preceding fiscal quarter (from a
loss of $278,101 to net income of $20,466), primarily as a result of higher
revenues.
10
<PAGE>
Shares Outstanding.
- - -------------------
The average shares and equivalent shares outstanding were 1,590,571,
1,512,198 and 1,515,571 for the first fiscal quarter of 1999, the first fiscal
quarter of 1998 and the fourth fiscal quarter of 1998.
Forward-Looking Statements.
- - ---------------------------
Certain forward-looking statements are made in this Management's Discussion
and Analysis. The Company's results may differ materially from those in the
forward-looking statements. Forward-looking statements are based on
management's current views and assumptions, and involve risks and uncertainties
that significantly affect expected results. For example, operating results may
be affected by external factors. Such factors include, but are not limited to,
changes in the regulatory environment, general conditions in the environmental
industry, the Company's competitive position, and economic conditions in
international markets.
11
<PAGE>
CROWN ANDERSEN INC. AND SUBSIDIARIES
------------------------------------
PART II
OTHER INFORMATION
------------------------------------
ITEM 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibit 27. Financial Data Schedules
(b) A report was filed on Form 8K during the quarter ended December
31, 1998 (on November 5, 1998).
SIGNATURES
==========
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CROWN ANDERSEN INC.
Dated: February 9, 1999 By: /s/ Jack D. Brady
----------------- ----------------------------
Jack D. Brady
Chairman of the Board
(Duly Authorized Officer)
Dated: February 9, 1999 By: /s/ Milton Emmanuelli
----------------- ----------------------------
Milton Emmanuelli
Secretary and Treasurer
(Principal Financial Officer)
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> DEC-31-1998
<CASH> 949,639
<SECURITIES> 0
<RECEIVABLES> 4,215,550
<ALLOWANCES> 131,447
<INVENTORY> 2,356,387
<CURRENT-ASSETS> 13,579,975
<PP&E> 2,966,431
<DEPRECIATION> 0
<TOTAL-ASSETS> 21,163,166
<CURRENT-LIABILITIES> 7,002,980
<BONDS> 92,591
0
0
<COMMON> 186,164
<OTHER-SE> 13,598,641
<TOTAL-LIABILITY-AND-EQUITY> 21,163,166
<SALES> 4,103,792
<TOTAL-REVENUES> 4,130,930
<CGS> 3,373,594
<TOTAL-COSTS> 4,097,964
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,562
<INCOME-PRETAX> 32,966
<INCOME-TAX> 12,500
<INCOME-CONTINUING> 20,466
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,466
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
