UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(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, 2000
[_] 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 (I.R.S. Employer
of 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
-----------------
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 11, 2000 was 6,163,298.
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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.................................................11
PART II OTHER INFORMATION.............................................................14
ITEM 6 Exhibits and Reports on Form 8-K..............................................14
(a) Exhibits............................................................ 14
27 Financial Data Schedule........................................14
(b) Reports on Form 8-K .................................................14
</TABLE>
2
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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 its 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 considered necessary for a fair
presentation. 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. Operating results and cash flows for the interim period
are not necessarily indicative of the results that may be expected for the full
fiscal year. Accordingly, these consolidated financial statements should be read
in conjunction with the Company's August 31, 1999 consolidated financial
statements and notes thereto included in the Company's 1999 Annual Report on
Form 10-K/A filed June 16, 2000.
3
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<TABLE>
<CAPTION>
EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
May 31, August 31,
2000 1999
(As Restated)
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<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ..................... $ 1,628,700 $ 1,963,000
Accounts receivable, net ...................... 11,082,700 8,679,600
Costs and estimated earnings in excess of
billings on uncompleted contracts ........ 7,476,800 5,176,000
Prepaid expenses and other .................... 842,300 636,700
Deferred income taxes ......................... 599,200 597,800
------------ ------------
Total Current Assets ..................... 21,629,700 17,053,100
------------ ------------
PROPERTY AND EQUIPMENT, at cost:
Furniture, fixtures and equipment ............. 9,436,200 8,920,600
Leasehold improvements ........................ 1,031,700 1,031,700
------------ ------------
Total property and equipment, at cost ......... 10,467,900 9,952,300
Less--Accumulated depreciation and amortization (9,401,600) (9,102,900)
------------ ------------
Net Property and Equipment .................. 1,066,300 849,400
------------ ------------
OTHER ASSETS:
Deferred income taxes ......................... 3,233,500 3,451,000
Other assets .................................. 1,283,200 1,310,500
------------ ------------
Total Other Assets: ...................... 4,516,700 4,761,500
------------ ------------
Total Assets ................................. $ 27,212,700 $ 22,664,000
============ ============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
4
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<TABLE>
<CAPTION>
EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
May 31, August 31,
2000 1999
(As restated)
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<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable ............................. $ 4,623,000 $ 3,555,300
Accrued expenses ............................. 873,800 1,443,200
Accrued salaries, wages and benefits ......... 2,665,800 2,228,400
Current portion of long-term debt ............ -- 87,500
Billings in excess of costs and estimated
earnings on uncompleted contracts .......... 2,797,500 407,800
------------ ------------
Total Current Liabilities .................. 10,960,100 7,722,200
------------ ------------
LONG-TERM DEBT, net of current portion ....... 4,579,700 3,326,200
------------ ------------
Total Liabilities ............................ 15,539,800 11,048,400
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; voting;
10,000,000 shares authorized; 6,335,000
and 6,285,000 shares issued and outstanding 63,700 63,400
Preferred stock, $.01 par value; 8,000,000
shares authorized; none issued ............. -- --
Treasury stock, net cost; 267,600 and 0 shares (298,700) --
Capital in excess of par value ............... 11,140,300 11,108,300
Notes receivable from stockholders ........... (78,000) (78,000)
Retained earnings ............................ 845,600 521,900
------------ ------------
Total Stockholders' Equity ................... 11,672,900 11,615,600
------------ ------------
Total Liabilities and Stockholders' Equity $ 27,212,700 $ 22,664,000
============ ============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
5
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<TABLE>
<CAPTION>
EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Nine Months Ended
May 31, May 31,
2000 1999 2000 1999
(As Restated) (As Restated)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Total revenue .............................................. $ 14,349,700 $ 12,307,000 $ 42,988,500 $ 34,931,400
Less - Subcontractor costs ................................. (3,817,900) (2,043,300) (12,199,700) (6,051,700)
Less - Other direct project costs .......................... (1,493,100) (1,118,300) (4,269,100) (4,038,500)
------------ ------------ ------------ ------------
Net revenue ................................................ 9,038,700 9,145,400 26,519,700 24,841,200
Operating expenses:
Direct salaries and other operating ...................... 7,122,800 6,746,400 20,575,600 19,307,900
Sales, general and administrative ........................ 1,786,400 1,941,900 5,237,400 6,136,300
Restructuring ............................................ -- -- -- 2,132,600
------------ ------------ ------------ ------------
Total operating expenses ................................... 8,909,200 8,688,300 25,813,000 27,576,800
Income from operations ..................................... 129,500 457,100 706,700 (2,735,600)
Interest expense, net ...................................... (66,600) (64,400) (167,000) (139,600)
Income (loss) from continuing operations before income taxes 62,900 392,700 539,700 (2,875,200)
Provision for (benefit from) income taxes .................. 25,000 165,000 216,000 (1,150,100)
------------ ------------ ------------ ------------
Net income (loss) from continuing operations ............... 37,900 227,700 323,700 (1,725,100)
Discontinued operations
Income (loss) from operations of discontinued segment
(net of tax) ............................................. -- -- -- (119,000)
Gain on disposal of discontinued segment,including
operating losses during phase-out period (net of tax) ... -- 35,300 -- 35,300
------------ ------------ ------------ ------------
Net income (loss) from discontinued operations: ............ -- 35,300 -- (83,700)
Net income (loss) .......................................... $ 37,900 $ 263,000 $ 323,700 $ (1,808,800)
============ ============ ============ ============
Earnings per share - basic
Continuing operations .................................... 0.01 0.04 0.05 (0.27)
Discontinued operations .................................. -- -- -- (0.02)
Gain on disposal of segment .............................. -- -- -- --
------------ ------------ ------------ ------------
Net income ................................................. 0.01 0.04 0.05 (0.29)
Earnings per share - diluted
Continuing operations .................................... 0.01 0.04 0.05 (0.27)
Discontinued operations .................................. -- -- -- (0.02)
Gain on disposal of segment .............................. -- -- -- --
------------ ------------ ------------ ------------
Net income ................................................. 0.01 0.04 0.05 (0.29)
Weighted average shares outstanding ........................ 6,093,431 6,319,000 6,192,543 6,305,900
Effect of dilutive stock options ........................... 180 600 1,660 700
------------ ------------ ------------ ------------
Diluted weighted average shares outstanding ................ 6,093,611 6,319,600 6,194,203 6,306,600
</TABLE>
The accompanying notes are an integral part of these statements.
6
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<TABLE>
<CAPTION>
EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended May 31,
2000 1999
(As Restated)
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<S> <C> <C>
CASH FLOWS FROM (USED FOR) OPERATING ACTIVITIES
Net income (loss) ............................................ $ 323,700 $(1,808,800)
Noncash expenses included in net income -
Provision for restructuring ................................. -- 2,132,600
Gain on disposal of discontinued segment .................... -- (35,300)
Loss from discontinued operations ........................... -- 119,000
Provision for doubtful accounts ............................. 145,800 198,000
Gain on sale of assets ...................................... (7,300) --
Deferred income tax ......................................... 216,100 --
Depreciation and amortization ............................... 324,400 298,000
Changes in operating assets and liabilities -
Increase in accounts receivable ............................. (2,548,900) (684,500)
Increase in costs and estimated earnings in
excess of billings on uncompleted contracts ............... (2,300,800) (1,703,400)
Increase in billings in excess of costs
and estimated earnings on uncompleted contracts ........... 2,389,700 117,300
Increase in prepaid expenses and other assets ............... (178,300) (1,293,800)
Increase (decrease) in accounts payable and accrued expenses 935,700 (1,515,800)
Decrease in refundable income taxes ......................... -- 327,600
----------- -----------
Net cash flows used in operating activities ............... (699,900) (3,849,100)
----------- -----------
CASH FLOWS FROM (USED FOR) INVESTING ACTIVITIES
Proceeds from sale of discontinued segment .................. -- 1,908,500
Proceeds from sale of equipment ............................. 7,300 --
Purchase of equipment, net .................................. (541,300) (348,200)
----------- -----------
Net cash flows (used in) provided from investing activities (534,000) 1,560,300
----------- -----------
CASH FLOWS FROM (USED FOR) FINANCING ACTIVITIES
Net borrowings from revolving line of credit ................ 1,253,500 2,195,500
Proceeds from issuance of common stock ...................... 32,300 46,600
Reduction in long-term debt and short-term borrowings ....... (87,500) (245,400)
Purchase of treasury stock .................................. (298,700) --
----------- -----------
Net cash flows provided from financing activities ......... 899,600 1,996,700
----------- -----------
CASH PROVIDED BY DISCONTINUED OPERATIONS ..................... -- 372,400
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ......... (334,300) 80,300
----------- -----------
CASH AND CASH EQUIVALENTS, beginning of period ............... 1,963,000 1,850,200
----------- -----------
CASH AND CASH EQUIVALENTS, ending of period .................. $ 1,628,700 $ 1,930,500
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
7
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EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MAY 31, 2000 AND MAY 31, 1999
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); 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.
Reclassifications -
Certain prior year balances have been reclassified to conform to current year
presentation.
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 by $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, on June 16, 2000 the Company restated its previously reported
financial results for fiscal years 1999 and 1998. The fiscal year 1999 financial
information set forth herein incorporates all relevant information obtained from
the investigation. As a result of the accounting irregularities, on June 16,
2000, the Company filed audited restated financial statements and financial data
schedules for the fiscal years ended August 31, 1999 and August 31, 1998 on
amended Form 10-K/A for the fiscal year ended August 31, 1999, and filed
unaudited restated quarterly financial statements and related financial data
schedules on amended forms 10Q/A 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. 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 (see Note 2).
In the opinion of the Company's management, all adjustments considered necessary
for a fair presentation have been included.
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 more detailed explanation of the
adjustments and a detailed reconciliation of the effects that such adjustments
had on the annual financial statements from 1998 through 1999, is provided in
the Company's restated audited financial statements on amended Form 10-K/A for
the fiscal year ended August 31, 1999, filed on June 16, 2000.
8
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Balance Sheet at August 31, 1999
<TABLE>
<CAPTION>
Balance Sheet at August 31, 1999
--------------------------------------------------
As Previously Accounting As
Reported* Irregularities Restated
------------ -------------- -----------
<S> <C> <C> <C>
Total Assets 23,565,700 (901,700) 22,664,000
---------- -------- ----------
Total Liabilities 11,048,400 -- 11,048,400
---------- -------- ----------
Shareholder' Equity 12,517,300 (901,700) 11,615,600
---------- -------- ----------
</TABLE>
* Certain previously reported balances primarily related to notes receivable
from stockholders have been reclassed as of August 31, 1999 and February 29,
2000 to conform to current quarterly presentation.
Balance Sheet at May 31, 2000
- The cumulative effect of accounting irregularities for the balance
sheet at May 31, 2000 was to decrease total assets and stockholders'
equity by $901,700.
Nine Months ended May 31, 1999
<TABLE>
<CAPTION>
Nine Months ended May 31, 1999
-----------------------------------------------------
As Previously Accounting As
Reported Irregularities Restated
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<S> <C> <C> <C>
Net revenue ......................... 24,873,500 (32,300) 24,841,200
Total expenses ...................... 27,576,800 -- 27,576,800
---------- ------- ----------
Income from operations .............. (2,703,300) (32,300) (2,735,600)
Interest expense, net ............... (139,600) -- (139,600)
Benefit for income taxes ............ (1,137,600) (12,500) (1,150,100)
---------- ------- ----------
Net loss from continuing operations . (1,705,300) (19,800) (1,725,100)
Loss from discontinued
segment .......................... (119,000) -- (119,000)
Gain on sale of discontinued Segment,
net of taxes ..................... 35,300 -- 35,300
---------- ------- ----------
Net Income (loss) ................... (1,789,000) (19,800) (1,808,800)
Loss per Share, Basic
Continuing Operations ............ (0.27) -- (0.27)
Discontinued Operations .......... (0.02) -- (0.02)
---------- ------- ----------
Net income ....................... (0.29) -- (0.29)
Loss per Share, Diluted
Continuing Operations ............ (0.27) -- (0.27)
Discontinued Operations .......... (0.02) -- (0.02)
---------- ------- ----------
Net income ....................... (0.29) -- (0.29)
</TABLE>
Nine Months Ended May 31, 2000
No Restatements
Note 3. DISPOSAL OF ANALYTICAL SERVICES SEGMENT
On April 30, 1999, the Company completed the cash sale of the EA Laboratories
division to Severn Trent Laboratories, Inc. The assets of the Analytical
Sampling Services segment sold consisted primarily of an inventory of supplies,
the balance of costs and estimated earnings in excess of billings on uncompleted
contracts as of the transaction date, and property, plant and equipment. The
cash transaction resulted in a net pretax gain of $58,800.
Since the Analytical Services segment was discontinued on April 30, 1999, there
are no comparative results to discuss. However, operating results of the
Analytical Services segment for the three and nine months ended May 31, 1999
have been restated and are shown separately in the accompanying income
statements under operations of discontinued segment.
Gross revenues of the Analytical Services segment for the three and nine months
ended May 31, 1999 were $931,700 and $4,298,900, respectively. These amounts are
not included in the accompanying income statement's total revenue from
continuing operations, but are reflected within operations of discontinued
segment.
9
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Note 4. EMPLOYEE STOCK PURCHASE PLAN
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 90% of current market
value at the time of purchase. The Company pays all administrative expenses
related to employee purchases. During the quarter and nine months ended May 31,
2000, 9,479 and 32,871 shares, respectively, were purchased under this Plan. A
total of 37,465 shares remain authorized for distribution under the Purchase
Plan as of May 31, 2000.
Note 5. STOCK PURCHASE
On November 2, 1999, the Company announced that its Board of Directors
authorized management to purchase up to 500,000 shares of its common stock.
During the nine months ended May 31, 2000, the Company purchased 267,600 shares
of common stock under this plan. The Company suspended the repurchase program on
February 4, 2000, when it was reported that management had discovered accounting
irregularities (see Note 2). The Company purchased these shares, at cost, which
are presented as Treasury Stock in the consolidated balance sheet. There is no
assurance as to the actual number of shares that will be purchased under the
program should it be reactivated.
10
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EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC. & SUBSIDIARIES
ITEM 2. MANGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
The Company's results of operations are significantly affected by the timing of
the award of contracts, the timing of performance of contracts, and the extent
to which the Company's employees are performing billable tasks as opposed to
engaging in preparing contract proposals and other required non-billable
activities. Results of operations may also be affected to the extent that the
Company chooses not to reduce its professional staff during a period of reduced
demand for its services. Due to these factors, quarterly results of operations
are not necessarily indicative of the results of operations for longer periods.
The Company, in the course of providing its services, routinely subcontracts
such services as drilling, certain laboratory analyses, and other specialized
services. In addition, the use of teaming partners for the performance of
services similar to those of the Company, is included in subcontracts. In
accordance with industry practice and contract terms that generally provide for
the recovery of overhead costs, these costs are passed directly through to
clients and are included in total revenue. Because subcontractor costs and
direct charges can change significantly from project to project, the change in
total revenue is not necessarily a true indication of business trends.
Accordingly, the Company considers net revenue, which is total revenue less
subcontractor and other direct project costs, as its primary measure of revenue.
Recent Developments
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. On June
16, 2000, the Company 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.
RESULTS OF OPERATIONS
Three Months Ended May 31, 2000 Versus Three Months Ended May 31, 1999
Net revenue for the three months ended May 31, 2000 was $9,038,700, compared to
$9,145,400 for the same period in the prior fiscal year. This slight decrease of
1.2% in net revenue is due to higher subcontractor and other direct project
costs.
Direct salaries and other operating costs for the three months ended May 31,
2000 increased 5.6% to $7,122,800 or 78.8% of net revenue from $6,746,400 or
73.8% for the three-month period ended May 31, 1999. This increase is primarily
due to the sales and marketing efforts of the regional operations. The
decentralization of sales and marketing efforts has led to increased bid and
proposal and overhead costs associated with greater effort in securing new
awards in our regional operations.
Sales, general and administrative costs for the three months ended May 31, 2000
decreased by 8.0% to $1,786,400 or 19.8% of net revenue, from $1,941,900 or
21.2% of net revenue, for the three-month period ended May 31, 1999. The
decrease is due to lower corporate sales and marketing related costs from
quarter to quarter. This reduction is a direct result of the fiscal 1999 second
quarter restructuring which included a reduction in corporate sales and
marketing personnel and cost savings resulting from the decentralization of EA's
marketing and business development program.
The provision for income taxes was $25,000 for the three months ended May 31,
2000 compared to $165,000 in the third quarter of fiscal 1999. This represents
an effective tax rate of 40% and 42%, respectively.
The Company recorded a net loss from operations of its now discontinued
Analytical Services segment of $147,000 in the second quarter of fiscal 1999.
The segment was sold in the third quarter of fiscal 1999.
As a result of the above factors, the Company incurred net income of $37,900, or
0.4% of net revenue, for the third quarter ended May 31, 2000 compared to net
income of $263,000, or 2.9%, in the third quarter of fiscal 1999.
Nine Months Ended May 31, 2000 Versus Nine Months Ended May 31, 1999
(Consolidated)
Net revenue for the nine months ended May 31, 2000 was $26,519,700, an increase
of 6.8% compared to $24,841,200 for the same period in the prior fiscal year.
This increase in net revenue, primarily in the federal sector, is attributable
to several new contracts
11
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underway in the Company's Mid-Atlantic, Northeast and South Central branches.
Additionally, an increase of 5.0% in the technical headcount has also
contributed to the growth in net revenue.
Direct salaries and other operating costs increased 6.6% to $20,575,600 or 77.6%
of net revenue from $19,307,900, or 77.7% of net revenue for the nine-month
periods ended May 31, 2000 and May 31, 1999, respectively. This increase is
primarily due to the sales and marketing efforts of the regional operations.
This has led to increased bid and proposal and overhead costs associated with
the increase in year-to-date contract awards of $4.6 million in our regional
operations. Operating costs increased by approximately $100,000. These
additional costs are related to the restatement of the Company's financial
results for fiscal years 1999 and 1998 and the interim quarterly periods during
1998 through February 2000. The Company anticipates* the remaining cost related
to the restatements to be approximately $150,000 - $200,000.
Sales, general and administrative costs decreased by 14.6% to $5,237,400, or
19.7% of net revenue, from $6,136,300 or 24.7% of net revenue, for the
nine-month periods ended May 31, 2000 and May 31, 1999, respectively. This
decrease is primarily due to lower corporate sales and marketing related costs
in the current period. This reduction is a direct result of the fiscal 1999
second quarter restructuring which included a reduction in corporate sales and
marketing personnel and cost savings resulting from the decentralization of EA's
marketing and business development program. The decrease also included a
non-recurring forfeiture recapture associated with the Company's 401K plan of
approximately $240,000.
The provision for income taxes was $216,000 and the benefit from income taxes
was $1,150,100 for the nine months ended May 31, 2000 and May 31, 1999,
respectively. This represents an effective tax rate of 40% in both periods.
As a result of the above factors, the Company incurred net income of $323,700
and a net loss of $1,808,800, or 1.2% and 7.3% of net revenue, for the nine
months ended May 31, 2000 and May 31, 1999, respectively.
Liquidity and Capital Resources
Cash and cash equivalents decreased by $334,300 for the nine months ended May
31, 2000. The decrease was primarily due to the purchase of treasury stock of
$298,700, offset by cash provided by financing activities of $899,600.
The Company's capital expenditures, consisting primarily of purchases of
equipment, were approximately $541,300 for the nine months ended May 31, 2000.
The Company anticipates the level of capital expenditures for the remainder of
fiscal year 2000 to remain fairly consistent with the level in the first nine
months ended May 31, 2000 and to be financed by cash generated from operations.
At May 31, 2000, the Company had outstanding long-term debt of $4,579,700. This
represents a net increase of $1,253,500 from the $3,326,200 balance at August
31, 1999. The net increase was due to the timing of receipts, totaling
$1,032,399 on June 1, 2000.
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 various indefinite
delivery/indefinite quantity contracts, 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
EA recognized the seriousness of the challenge businesses worldwide faced as a
result of the Year 2000 problem. EA put in place a formal Year 2000 project in
early 1998. As a result of these efforts, the Company transitioned into the new
millennium without incident. EA does not foresee any additional risks associated
with Year 2000 issues.*
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,
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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.
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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
27. Financial Data Schedule (see page 16)
(b) Reports on Form 8-K
- 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 6, 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 listing requirement by
September 16, 2000.
- The Company filed a report on Form 8-K dated June 16, 2000 reporting
that the Company restated its previously reported financial results
for fiscal years ended August 31, 1999 and August 31, 1998 and the
quarterly results for fiscal years 1999 and 1998 and the first two
quarters of fiscal year 2000.
- The Company filed a report on Form 8-K dated June 30, 2000 reporting
that effective June 29, 2000, the Company's common stock will continue
to trade on the Nasdaq SmallCap Market under the symbol EACOC. This
change in symbol signifies Nasdaq's decision that the Company has now
complied with the exception related to the filing of financial
statements.
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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)
July 13, 2000 By: /s/ Loren D. Jensen
------------- -----------------------------------
(Signature)
Loren D. Jensen
-----------------------------------
Chairman of the Board, President
and CEO
-----------------------------------
(Title)
July 13, 2000 By: /s/ Barbara L. Posner
------------- -----------------------------------
(Signature)
Barbara L. Posner
-----------------------------------
Chief Operating Officer and
Chief Financial Officer
-----------------------------------
(Title)
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