UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended May 31, 1998
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
From the transition period to
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Commission File Number 0-15587
EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC.
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(Exact Name of Registrant as Specified in its Charter)
Delaware 52-0991911
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) ID Number)
11019 McCormick Road, Hunt Valley, Maryland 21031
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (410) 584-7000
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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 such
filing requirements for the past 90 days Yes [X] NO [_]
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares of the Registrant's Common Stock, $.01 par value,
outstanding on July 8, 1998 was 6,276,399.
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<CAPTION>
EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC. & SUBSIDIARIES
INDEX
Page
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PART I FINANCIAL INFORMATION.................................................................3
ITEM 1 Financial Statements..................................................................3
Consolidated Balance Sheets - Assets...............................................4
Consolidated Balance Sheets - Liabilities and Stockholders' Equity.................5
Consolidated Statements of Income..................................................6
Consolidated Statements of Cash Flows..............................................7
Notes to Consolidated Financial Statements.........................................8
ITEM 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations..........................................................13
PART II OTHER INFORMATION.....................................................................17
ITEM 6 Exhibits and Reports on Form 8-K......................................................17
(a) Exhibits....................................................................17
11 Schedule of Weighted Shares Outstanding....................................17
27 Financial Data Schedule....................................................17
(b) Reports on Form 8-K.........................................................17
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EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC. & SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
The consolidated financial statements included herein for EA Engineering,
Science, and Technology, Inc. and Subsidiaries (the "Company") have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. In management's opinion, the interim
financial data presented include all adjustments necessary for a fair
representation. Certain information and footnote disclosures, normally included
in the consolidated financial statements prepared in accordance with generally
accepted accounting principles, have been condensed or omitted pursuant to such
rules and regulations. The Company believes, however, that the disclosures are
adequate to understand the information presented. These consolidated financial
statements should be read in conjunction with the Company's August 31, 1997
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-K dated November 17, 1997.
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<TABLE>
<CAPTION>
EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC. SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
May 31, August 31,
1998 1997
(As Restated)
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<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ...................... $ 1,774,800 $ 2,333,300
Accounts receivable, net ....................... 8,182,100 9,498,800
Costs and estimated earnings in excess of
billings on uncompleted contracts ........... 6,641,800 5,653,800
Refundable income taxes ........................ 15,600 1,883,900
Prepaid expenses and other ..................... 1,966,300 1,865,500
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Total Current Assets ........................... 18,580,600 21,235,300
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PROPERTY AND EQUIPMENT, at cost:
Furniture, fixtures and equipment .............. 13,058,900 12,599,200
Leasehold improvements ......................... 3,675,900 3,664,800
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16,734,800 16,264,000
Less-accumulated depreciation and amortization . (14,727,300) (13,867,200)
------------
Net Property and Equipment ..................... 2,007,500 2,396,800
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OTHER ASSETS ..................................... 2,738,800 2,708,800
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Total Assets ..................................... $ 23,326,900 $ 26,340,900
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
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<TABLE>
<CAPTION>
EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
May 31, August 31,
1998 1997
(As Restated)
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<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable ................................. $ 3,764,200 $ 4,306,900
Accrued expenses ................................. 599,200 2,553,600
Accrued salaries, wages and benefits ............. 2,494,400 2,891,200
Current portion of long-term debt ................ 495,700 648,300
Billings in excess of costs and estimated
earnings on uncompleted contracts ............. 125,700 512,200
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Total Current Liabilities ..................... 7,479,200 10,912,200
LONG-TERM DEBT, net of current portion ............. 2,217,100 2,331,700
------------ ------------
Total Liabilities ............................. 9,696,300 13,243,900
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STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 10,000,000 shares
authorized; 6,275,700 and 6,227,300 shares
issued and outstanding ........................ 62,800 62,300
Preferred stock, $.01 par value; 8,000,000
shares authorized; none issued ................ -- --
Capital in excess of par value ................... 11,030,000 10,902,300
Notes receivable from stockholders ............... (160,000) (160,000)
Retained earnings ................................ 2,697,800 2,292,400
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Total Stockholders' Equity .................... 13,630,600 13,097,000
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Total Liabilities and Stockholders' Equity . $ 23,326,900 $ 26,340,900
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
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<TABLE>
<CAPTION>
EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC. 6: SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Nine Months Ended
-------------------------------- --------------------------------
May 31, May 31, May 31, May 31,
1998 1997 1998 1997
(As Restated) (As Restated)
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<S> <C> <C> <C> <C>
Total revenue ........................... $ 14,171,900 $ 16,660,600 $ 44,410,800 $ 56,376,500
Less - Subcontractor costs .............. (2,180,600) (4,176,000) (8,266,500) (17,377,900)
Less - Other direct project costs ....... (1,662,200) (3,531,700) (4,846,500) (8,981,700)
---------- ---------- ---------- ----------
Net revenue .................... 10,329,100 8,952,900 31,297,800 30,016,900
Operating expenses:
Direct salaries and other operating .. 7,736,100 8,809,700 23,636,700 29,423,500
Sales, general and administrative .... 2,439,300 2,147,500 7,115,800 6,204,100
Gain on "key employee" life
insurance .......................... (261,100) -- (261,100) --
Restructuring ........................... -- 3,000,100 -- 3,000,100
---------- ---------- ---------- ----------
Total operating expenses ................ 9,914,300 13,957,300 30,491,400 38,627,700
---------- ---------- ---------- ----------
Income (loss) from operations ........... 414,800 (5,004,400) 806,400 (8,610,800)
Interest expense, net ................... (26,400) (76,500) (114,500) (297,900)
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Income (loss) before income taxes ....... 388,400 (5,080,900) 691,900 (8,908,700)
Provision (benefit) for
income taxes ......................... 160,000 (1,624,200) 286,500 (3,155,400)
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Net income (loss) . . . . . . . . . . . $ 228,400 $ (3,456,700) $ 405,400 $ (5,753,300)
============
Basic earnings (loss) per share ......... $ 0.04 $ (0.56) $ 0.06 $ (0.93)
Diluted earnings (loss) per share ....... $ 0.04 $ (0.56) $ 0.06 $ (0.93)
Weighted avg. shares outstanding ........ 6,264,800 6,200,300 6,246,600 6,195,200
Effect of dilutive stock options ........ 252,500 -- 105,700 --
Diluted weighted avg. shares outstanding 6,517,300 6,200,300 6,352,300 6,195,200
</TABLE>
The accompanying notes are an integral part of these statements.
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<CAPTION>
EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
---------------------------------
May 31, May 31,
1998 1997
(As Restated)
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CASH FLOWS FROM (USED FOR) OPERATING ACTIVITIES:
Net income (loss) ..................................................... $ 405,400 $(5,753,300)
Noncash expenses included in net income (loss) -
Depreciation and amortization ....................................... 888,100 1,126,300
Provision for restructuring ......................................... -- 3,000,100
Current benefit from income taxes ................................... -- (3,155,400)
Changes in operating assets and liabilities -
Decrease in accounts receivable, net ................................ 1,316,700 3,939,200
(Increase) decrease in costs and estimated earnings in excess of
billings on uncompleted contracts ................................ (988,000) 6,126,800
(Increase) decrease in prepaid expenses and other assets ............ (130,800) 196,900
Decrease in accounts payable and accrued ............................ (2,893,900) (3,876,200)
expenses ..........................................................
Refundable income taxes ............................................. 1,868,300 338,100
Decrease in billings in excess of costs and
estimated earnings on uncompleted contracts ....................... (386,500) (801,200)
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Net cash flows from operating activities .......................... 79,300 1,141,300
CASH FLOWS USED FOR INVESTING ACTIVITIES:
Purchase of equipment, net ........................................... (498,800) (395,600)
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Net cash flows used for investing activities ...................... (498,800) (395,600)
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CASH FLOWS FROM (USED FOR) FINANCING ACTIVITIES:
Net borrowings from revolving line of credit ......................... 216,400 929,900
Proceeds from issuance of common stock ............................... 128,200 7,000
Reduction of long-term debt and short-term borrowings ................ (483,600) (1,358,700)
----------- -----------
Net cash flows used for financing activities ...................... (139,000) (421,800)
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................... (558,500) 323,900
CASH AND CASH EQUIVALENTS, beginning of period ......................... 2,333,300 1,308,600
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CASH AND CASH EQUIVALENTS, end of period ............................... $ 1,774,800 $ 1,632,500
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements
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EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MAY 31, 1998 AND 1997
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation-
The accompanying consolidated financial statements present the accounts of EA
Engineering, Science, and Technology, Inc. (EA) and its wholly-owned
subsidiaries, EA International, Inc. and EA Financial, Inc. (EA Financial), and
the wholly-owned subsidiaries of EA Financial, EA Global, Inc. and EA de Mexico,
S.A. de C.V. The entities are collectively referred to herein as the "Company."
All significant intercompany transactions have been eliminated in consolidation.
Accounting Irregularities-
On February 4, 2000, the Company reported that management had discovered
accounting irregularities related to unbilled revenue which will cause the
Company to restate earnings for the prior years. Upon discovering the
irregularities, the Company, through the Audit Committee of the Board of
Directors, began an intensive investigation and notified the appropriate
authorities.
On April 10, 2000, the Company further reported that the previously disclosed
investigation, conducted in association with the Company's current auditors,
PricewaterhouseCoopers LLP, isolated the restatements to fiscal years 1999 and
1998. As previously disclosed, the cumulative effect of the restatements would
reduce pre-tax earnings $1.4 million.
On April 7, 2000, Arthur Anderson LLP, who served as the Company's auditors
through August 31, 1999, notified the Company by letter that its previously
issued reports on the financial statements of the Company for the years ended
August 31, 1999 and 1998 should no longer be relied upon.
The Audit Committee's investigation has been completed and, as a result of its
findings, the Company has restated its previously reported financial results for
fiscal years 1999 and 1998. The fiscal year 1998 financial information set forth
herein incorporates all relevant information obtained from the investigation. As
a result of the accounting irregularities, the Company will file audited
restated financial statements and financial data schedule for the fiscal years
ended August 31, 1999 and August 31, 1998 on an amended Form 10-K/A for the
fiscal year ended August 31, 1999 and will file unaudited restated quarterly
financial statements and financial data schedule for the three months ended
November 30, 1999, 1998, and 1997; the six months ended February 29, 2000 and
February 28, 1999 and 1998; and the nine months ended May 31, 1999 and 1998 on
amended Forms 10-Q/A. The Company has provided a condensed reconciliation of the
financial statement amounts, which were reported in prior filings, to the
restated amounts, which are included in the financial statements presented in
this Form 10-Q/A (see Note 2).
In the opinion of the Company's management, all adjustments considered necessary
for a fair presentation have been included.
Revenue Recognition-
The Company is primarily a management consulting firm providing services in
energy, health and safety, and the environment. These services are generally
performed under time
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and material, fixed price, and cost plus fixed fee
contracts which vary in length from one month to five years.
The Company's Management Consulting Services segment accounts for contract
revenues and costs under fixed-price contracts using the
percentage-of-completion method. The percentage of completion is determined
using the "cost-to-cost" method for each contract cost component. Under this
method, direct labor and other contract costs incurred to date are compared to
periodically revised estimates of the total of each contract cost component at
contract completion to determine the percentage of revenues to be recognized.
Revenues from time-and-material contracts are recognized currently as the work
is performed. Revenue on cost-plus-fixed fee contracts are recognized to the
extent of costs incurred plus a proportionate amount of the contracted fee.
Certain cost-plus-fixed fee contracts also include provisions for earning
performance based incentive fees. Provision for estimated losses on uncompleted
contracts, to the full extent of the loss, is made during the period in which
the Company first becomes aware that a loss on a contract is probable.
Contract costs and estimated earnings recognized in excess of amounts billed are
classified as current assets under "costs and estimated earnings in excess of
billings on uncompleted contracts." Billings in excess of contract costs and
estimated earnings are classified as current liabilities under "billings in
excess of costs and estimated earnings on uncompleted contracts."
Generally, contracts provide for the billing of costs incurred and estimated
fees on a monthly basis. Amounts included in "costs and estimated earnings in
excess of billings on uncompleted contracts" in the accompanying financial
statements will be billed within twelve months of the balance sheet date.
Major Clients-
Various agencies of the federal government accounted for approximately 52% and
46% of the Company's net revenue for the nine months ended May 31, 1998 and
1997, respectively. Additionally, various agencies of the federal government
accounted for approximately 50% of the Company's accounts receivable and costs
and estimated earnings in excess of billings on uncompleted contracts as of May
31, 1998. Approximately 55% of the Company's current net contract backlog is
with the federal government. Net contract backlog amounts as of May 31, 1998 and
August 31, 1997 were $21.8 million and $22.6 million, respectively.
Cash and Cash Equivalents-
Cash equivalents consist of money market instruments with a purchased original
maturity of three months or less, stated at cost, which approximates market.
Property and Equipment-
Property and equipment are depreciated using the straight-line method over their
estimated useful lives ranging from 3 to 10 years. Leasehold improvements are
amortized over the shorter of the estimated useful life or the term of the
lease.
Segment Information-
The Company operates largely within one industry segment, providing a wide range
of management consulting services primarily in the areas of energy, health and
safety, and the environment. In addition, the Company provides analytical
services.
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Reclassifications-
For historical comparisons, net revenue in past periods has been adjusted to
include other direct project costs in addition to subcontract costs. In previous
years, only subcontract costs were deducted from total revenue to arrive at net
revenue. Additionally, operating costs in past years have been adjusted to
include sales and marketing costs in the category of sales, general and
administrative costs. In previous periods, these costs were included in direct
salaries and other operating expenses.
Risks and Uncertainties-
Reliance on major government contracts subjects the Company to risks associated
with public budgetary restrictions and uncertainties, discrepancies between
awarded contract amounts and actual revenues, and cancellation at the option of
the government. The Company attempts to mitigate these risks by staffing only to
meet reasonably anticipated average workloads, by using subcontractors to handle
peak workloads, and by obtaining termination benefit contract provisions.
Cancellation of any of the Company's major government contracts, however, could
have a material adverse effect on the Company.
Use of Estimates-
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets, liabilities, revenues and expenses in the
financial statements and in the disclosures of contingent assets and
liabilities. While actual results could differ from these estimates, management
believes that actual results will not be materially different from amounts
provided in the accompanying consolidated financial statements.
Supplemental Disclosures of Cash Flow Information-
Cash paid for interest during the nine months ended May 31, 1998 and 1997 was
$171,000 and $281,800, respectively. Retirements of property and equipment for
the same periods were $28,000 and $895,000, respectively.
Accounting for Income Taxes-
The Company uses the asset and liability method of accounting for income taxes.
Under the asset and liability method, deferred income taxes are recognized for
the tax consequences of differences between the financial statement carrying
amounts and the tax bases of existing assets and liabilities by applying
currently enacted statutory rates applicable to future years. Valuation
allowances are established when deferred tax assets are not currently assured of
realization.
Note 2. RESTATEMENT
On April 10, 2000, the Company reported that the Audit Committee's investigation
into the accounting irregularities was complete. The accompanying restated
financial statements incorporate all relevant information obtained in the
investigation. The Company has identified and recorded all corrections arising
from the findings of the investigation and the process of restating the
Company's consolidated financial statements. The corrections are the result of
the accounting irregularities. Provided below is a summary of the impact of such
corrections and a reconciliation of the financial results from amounts
previously reported to the restated financial statement amounts, as presented in
this quarterly report on Form 10-Q/A. A more detailed explanation of the
adjustments and a detailed reconciliation of the effects that such adjustments
had on the annual financial
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statements from 1998 through 1999, will be provided
in the Company's restated audited financial statements on amended Forms 10-K/A
for the fiscal year ended August 31, 1999.
<TABLE>
<CAPTION>
Balance Sheet at May 31, 1998
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As Previously Accounting As
Reported* Irregularities Restated
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Total Assets 23,639,600 (312,700) 23,326,900
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Total Liabilities 9,696,300 -- 9,696,300
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Shareholders' Equity 13,943,300 (312,700) 13,630,600
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</TABLE>
* Certain previously reported balances primarily related to notes receivable
from stockholders have been reclassed as of May 31, 1998 to conform to
current quarterly presentation.
<TABLE>
<CAPTION>
Nine Months ending May 31, 1998
---------------------------------------------------
As Previously Accounting As
Reported* Irregularities Restated
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<S> <C> <C> <C>
Net Revenue ............... 31,807,300 (509,500) 31,297,800
Total Expenses ............ 30,491,400 -- 30,491,400
---------- ---------- ----------
Income from Operations .... 1,315,900 (509,500) 806,400
Interest expense, net ..... (114,500) -- (114,500)
Provision for Income Taxes 483,300 (196,800) 286,500
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Net Income (loss) ......... 718,100 (312,700) 405,400
======= ======== =======
Earnings per Share, Basic . 0.11 (0.05) 0.06
Earnings per Share, Diluted 0.11 (0.05) 0.06
</TABLE>
Note 3. STOCK OPTION AND EMPLOYEE STOCK PURCHASE PLANS:
The Company maintains an Amended and Restated Stock Option Plan ("The Plan"),
which provides for the grant of nonqualified stock options and incentive stock
options to certain key employees and officers of the Company. The exercise price
of an option granted under the Plan may not be less than the fair market value
of the underlying shares of common stock on the date of the grant. A total of
797,300 options was issued and outstanding as of May 31, 1998 having an average
exercise price of $2.41. There were 122,900 options available for issuance as of
May 31, 1998. Of the outstanding options, 400,000 are held by the President and
CEO. The exercise price of the 400,000 shares ranges between $2.25 and $3.67,
which was equal to the market value on the grant date.
The Company maintains an Employee Stock Purchase Plan to provide eligible
employees with the opportunity to purchase shares of the Company's Common Stock
through voluntary payroll deductions. Under the Plan, eligible employees may
purchase shares through monthly payroll deductions at 95% of current market
value at the time of purchase. The Company pays all administrative expenses
related to employee purchases. A total of 129,800 shares remained authorized for
distribution under the Plan as of May 31, 1998.
The Company maintains two Non-Employee Director Stock Option Plans (1993 and
1995) which provide for the grant of nonqualified stock options to its four
non-employee directors. The exercise price of the 17,000 options which were
outstanding as of May 31, 1998 ranged between $2.03 and $6.13, which equaled the
fair market value of the underlying common stock at the dates of grant. A total
of 33,500 shares of common stock options remained available for the grant of
options under the Director Stock Option Plans as of May 31, 1998.
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Note 4. RESTRUCTURING:
On March 25, 1997, the Company announced a major organizational realignment to
reposition itself in the marketplace. In connection with the restructuring, the
Company incurred charges of $3,000,100 during its fiscal 1997 third quarter
related to severance, planned reductions in office space, the suspension of the
implementation of a new project/financial system, and other related costs.
This restructuring included a staff reduction of approximately 125 employees.
As of May 31, 1998 and August 31, 1997, the Company had accrued expenses of
$168,100 and $880,100, respectively, in the accompanying consolidated balance
sheets for costs to be incurred in future periods related to this restructuring.
Note 5 "KEY EMPLOYEE"LIFE INSURANCE:
In April 1998, adjustments were made to the actual cash value of two "key
employee" life insurance policies for Loren D. Jensen, Chairman of the Board, of
which the Company is the named beneficiary. Prior to April 1998, the policies
had a cash surrender value of $515,500, which was included in Other Assets on
the Company's balance sheet. In fiscal 1994, the asset value of the policies was
originally adjusted downward due to bankruptcy proceedings involving the
original insurance company. In April 1998, Phoenix Home Life Mutual Insurance
Co., the successor underwriter of the policies, confirmed that the cash
surrender value of the policies was $776,600. Therefore, Other Assets was
increased by $261,100, and a one-time gain was recognized during the period.
12
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EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC. & SUBSIDIARIES
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
The Company's results of operations are significantly affected by the timing of
the award of contracts, the timing of performance on contracts, and the extent
to which the Company's employees are performing billable tasks as opposed to
engaging in preparing bid proposals and other required non-billable activities.
Due to these factors, the results of operations for interim periods are not
necessarily indicative of the results of operations for longer periods and
interim period comparisons may not be as meaningful as comparisons over longer
periods. The Company's results of operations are also affected by significant
competition in the industry, including a very competitive requirement for
successful bidding and solicitation of contracts.
For historical comparisons, net revenue in past periods has been adjusted to
include other direct project costs in addition to subcontract costs. In previous
years, only subcontract costs were deducted from total revenue to arrive at net
revenue. Additionally, operating costs in past years have been adjusted to
include sales and marketing costs in the category of sales, general and
administrative costs. In previous periods, these costs were included in direct
salaries and other operating expenses.
On February 4, 2000, as a result of the discovery of accounting irregularities,
related to unbilled revenue, the Audit Committee of the Company's Board of
Directors ("Audit Committee") initiated an investigation into such matters. The
Audit Committee recently completed the investigation into such matters. In June
2000, the Company has restated its financial results for fiscal years 1999 and
1998 and the interim quarterly periods during 1998 through February 2000. The
financial information contained herein has been restated to incorporate all
relevant information obtained from the aforementioned investigation.
Three Months Ended May 31, 1998
Net revenue for the three months ended May 31, 1998 was $10,329,100, an increase
of 15.4% from $8,952,900 for the same period in fiscal 1997. The increase in net
revenue is due to the recognition of contract losses made in the fiscal 1997
third quarter lowering net revenue by $1,400,000. Without the effect of the
contract losses, net revenue growth was essentially flat across all client
sectors for the three months ended May 31, 1998 compared to the same period in
fiscal 1997. The flat growth is principally attributable to an implemented
management policy requiring greater selectivity in the pursuit of opportunities,
as well as lower than anticipated sales in the industrial client sector.
However, the Company continues to market its services strongly.
Direct salaries and other operating costs decreased to $7,736,100 from
$8,809,700, representing 74.9% and 98.4% of net revenue for the three months
ended May 31, 1998 and 1997, respectively. The decreases were attributable to
increased staff utilization and lower overall operating costs from quarter to
quarter, as well as reduction in staff numbers as a result of the March 1997
restructuring.
Sales, general and administrative costs increased slightly to $2,439,300 from
$2,147,500, representing 23.6% and 24.0% of net revenue for the third quarter
period 1998 and 1997, respectively. The increase in costs were primarily related
to additional investment in sales and marketing capabilities.
In the third quarter of fiscal 1997, the Company announced a major
organizational realignment to reposition itself in the marketplace. In
connection with the restructuring,
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the Company incurred charges of $3,000,100
related to severance, planned reduction in office space, the suspension of the
implementation of a new project/financial system, and other related costs.
In the third quarter of fiscal 1998, the Company recorded a gain of $261,100,
reducing its operating expenses. The gain was related to the increase in the
cash surrender value of "key employee"life insurance policies included on the
Company's balance sheet.
As a result of the above factors, income from operations for the three months
ended May 31, 1998 was $414,800, or 4.0% of net revenue compared to the previous
year's loss from operations of $5,004,400, or 55.9% of net revenue for the three
months ended May 31, 1997. Interest expense, net, decreased $50,100 for the
three months ended May 31, 1998, compared to the prior year. This decrease is
primarily attributable to lower interest payments made in connection with the
Company's line of credit as a result of improved cash management, additionally
aided by the reduction of certain long-term debt principal balances.
The provision for income taxes was $160,000 for the three-month period ended May
31, 1998 compared to a benefit from income taxes of $1,624,200 for the three
month period ended May 31, 1997, representing effective tax rates of 41% and
32%, respectively.
Net income for the three months ended May 31, 1998 was $228,400, or 2.2% of net
revenue, compared to a net loss of $3,456,700, or 38.6% of net revenue, for the
three months ended May 31, 1997.
Nine Months Ended May 31, 1998
Net revenue for the nine months ended May 31, 1998 was $31,297,800, an increase
of 4.3% from $30,016,900 for the same period in 1997. This increase is due in
part to the provision for estimated losses on certain uncompleted landfill
closure projects made in the prior fiscal period ended May 31, 1997. The loss
provision for these contracts recognized anticipated future project expenses
which lowered fiscal 1997 second quarter net revenue by $1,997,000. Removing the
effects of the fiscal 1997 contract loss, the Company had a slight change in
overall contract volume in the current nine-month period, which had lower net
revenue of approximately $721,100, or a decrease of 2.0%. This slight decrease
is mainly attributable to an implemented management policy requiring greater
selectivity in the pursuit of opportunities, as well as lower than anticipated
sales in the industrial client sector. Additionally, price competition remains
intense within the energy and environmental services industry, further impacting
net revenue levels compared to the prior year's third quarter.
Direct salaries and other operating costs decreased to $23,636,700 from
$29,423,500, representing 75.5% and 98.0% of net revenue for the nine months
ended May 31, 1998 and 1997, respectively. The 19.7% decrease in operating costs
is due to increased staff utilization and lower overall operating costs, as well
as staff reductions in connection with the March 1997 restructuring.
Sales, general and administrative costs increased to $7,115,800 or 22.7% of net
revenue for the nine-month period ended May 31, 1998 compared to $6,204,100 or
20.7% of net revenue for the same period in 1997. This increase is primarily due
to additional investment in sales and marketing efforts.
In the third quarter of fiscal 1997, the Company announced a major
organizational realignment to reposition itself in the marketplace. In
connection with the restructuring, the Company incurred charges of $3,000,100
related to severance, planned reduction in office space, the suspension of the
implementation of a new project/financial system, and other related costs.
14
<PAGE>
In the third quarter of fiscal 1998, the Company recorded a gain of $261,100,
reducing its operating expenses. The gain was related to the increase in the
cash surrender value of "key employee" life insurance policies on the Company's
balance sheet.
As a result of the above factors, income from operations for the nine months
ended May 31, 1998 was $806,400, or 2.6% of net revenue, compared to the
previous year's loss from operations of $8,610,800, or 28.7% of net revenue for
the nine months ended May 31, 1997. Interest expense, net, decreased $183,400
for the nine months ended May 31, 1997, compared to the previous year. This
decrease is primarily attributable to an interest payment in connection with a
Maryland tax settlement in the prior year, aided by lower interest on its line
of credit and the reduction of certain long-term debt principal balances.
The provision for income taxes was $286,500 for the nine months ended May 31,
1998, compared to a benefit from income taxes of $3,155,400 for the same period
in 1997, representing effective tax rates of 41% and 35%, respectively. Net
income for the nine months ended May 31, 1998 was $405,400, or 1.3% of net
revenue, compared to a net loss of $5,753,300, or 19.2% of net revenue, for the
nine months ended May 31, 1997.
Liquidity and Capital Resources
Cash and cash equivalents decreased by $558,500 for the nine months ended May
31, 1998. The decrease principally resulted from the pay out of cash related to
the fiscal 1997 restructuring expenses, and payments made to reduce long-term
debt offset partially by collected income tax refunds.
The Company's capital expenditures, consisting primarily of purchases of
equipment and leasehold improvements, were approximately $498,800 and $395,600
for the nine months ended May 31, 1998 and 1997, respectively.
At May 31, 1998, the Company had outstanding long-term debt, including the
current portion, of $2,712,800. This represents a net decrease of $267,200 from
the $2,980,000 balance at August 31, 1997. The decrease is the result of a
$216,400 increase in its revolving line of credit balance, offset by net
repayments of $259,600 for equipment loans and $224,000 for computer equipment.
The Company's existing funds, cash from operations, and the available portion of
its $8,500,000 revolving line and $1,500,000 equipment line of credit
arrangements are expected to be sufficient to meet the Company's present and
immediately foreseeable cash needs.* The company also has access to certain
capital equipment financing arrangements through various equipment suppliers.
While the Company believes that there is sufficient market demand to absorb the
additional contracting capacity resulting from its expansion, there can be no
assurance that this demand will, in fact, materialize.* Although the Company has
the ability to reduce its professional staff in periods of reduced demand, it
may choose not to make full reductions in such periods, with resulting adverse
effects on operations.
Year 2000 Issue
The Company has initiated a review of its current computer systems to ensure the
software will function properly in the year 2000. The Company's primary computer
system, BST, its project accounting and financial management system, is year
2000 compliant. The Company does not currently anticipate incurring any material
expenditures in order to make its own systems year 2000 compatible. However, no
assurance can be given that the Company's customers or vendors will be year 2000
compatible, and any failure of such customer or vendor to be year 2000
compatible could potentially have a material adverse effect on the Company.
15
<PAGE>
Forward-Looking Statements
The foregoing contains "forward-looking information" within the meaning of The
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements may be identified by an asterisk (*) or by such forward-looking
terminology as "may," "will," "believe," "anticipate," "expect," or similar
words or variations thereof. Such forward-looking statements involve significant
risks and uncertainties, including, among other things, risks associated with
(1) substantial reliance on government contracts, public budgetary restrictions
and uncertainties, discrepancies between awarded contract amounts and actual
revenues, and cancellation of contracts at the option of the government, (2)
timing and award of contracts, (3) timing and performance of contracts, and (4)
successful bidding of government and non-government contracts in a very
competitive environment. IN EACH CASE, ACTUAL RESULTS MAY DIFFER MATERIALLY FROM
SUCH FORWARD-LOOKING STATEMENTS.
Important assumptions and other important factors that could cause actual
results to differ materially from those in the forward-looking statements
include, but are not limited to the accounting irregularities discussed in the
explanatory Note 2 and their further impact, if any, on the Company's operations
and/or the Company's future profitability. Other important factors that the
Company believes may cause actual results to differ materially from such
forward-looking statements are discussed throughout this Report and in the
Company's other filings with the Securities and Exchange Commission. The Company
does not undertake to publicly update or revise its forward-looking statements
even if experience or future changes indicate that any such results or events
(expressed or implied) will not be realized.
16
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EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC. & SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11. Schedule of Weighted Average Shares Outstanding (see page 19)
27. Financial Data Schedule (see page 20)
(b) Reports on Form 8-K
- On February 4, 2000, the Company filed a Form 8-K relative to
a press release of the same date announcing that management
had discovered accounting irregularities related to unbilled
revenue which will cause the Company to restate earnings for
prior years.
- The Company filed a report on Form 8-K dated April 10, 2000
reporting in Item 5 that the Company's investigation into the
accounting irregularities had been concluded; that Arthur
Anderson LLP, the Company's auditors through the end of the
Company's 1999 Fiscal Year, advised that their reports for
the affected fiscal years 1998 and 1999 could not be relied
upon; and that the Company would be restating earnings for
fiscal years 1998 and 1999.
- The Company filed a report on Form 8-K dated June 8, 2000
reporting that the Company's common stock would continue to
trade on Nasdaq Smallcap Market under the symbol EACEC to
signify that continued trading is under exception to Nasdaq
listing requirements and is subject to satisfying certain
conditions, specifically filing by June 16, 2000 the
Company's amended financial statements for 1998 and 1999 and
satisfying Nasdaq's $1.00 minimum bid price requirement by
September 16, 2000.
17
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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.
EA Engineering, Science, and
Technology, Inc. & Subsidiaries
------------------------------
(Registrant)
June 16, 2000 By: /s/ Loren D. Jensen
----------------- ----------------------------------
(Signature)
Loren D. Jensen
----------------------------------
Chairman of the Board, President,
and CEO
----------------------------------
(Title)
June 16, 2000 By: /s/ Barbara L. Posner
----------------- ----------------------------------
(Signature)
Barbara L. Posner
----------------------------------
Chief Operating Officer and
Chief Financial Officer
----------------------------------
(Title)
18
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<TABLE>
<CAPTION>
EXHIBIT 11
EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC.
SCHEDULE OF WEIGHTED AVERAGE SHARES OUTSTANDING
Three Months Ended Nine Months Ended
--------------------------- ---------------------------
May 31 May 31 May 31 May 31
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Weighted average shares of common stock ........... 6,264,800 6,200,300 6,246,600 6,195,200
Impact of dilutive stock options as of May 31, 1998
and May 31, 1997, respectively (1) .............. 252,500 -- 105,700 --
--------- --------- --------- ---------
Diluted weighted average shares of common stock ... 6,517,300 6,200,300 6,352,300 6,195,200
========= ========= ========= =========
</TABLE>
(1)Dilutive stock options, which, if added, would have an antidilutive
effect on losses per share were 12,300 for the three months ended May 31,
1997 and 15,900 for the nine months ended May 31, 1997.
19
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