SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended
June 30, 1996
Commission File Number 1-10955
ENVIRONMENTAL ELEMENTS CORPORATION
(Exact name of registrant as specified in its charter)
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<S> <C>
DELAWARE 52-1303748
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
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3700 Koppers St., Baltimore, Maryland 21227
(Address of Principal Executive Offices) (Zip Code)
(410) 368-7000
Registrant's telephone number, including area code
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
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
6,904,172 shares of common stock, $.01 par value per share, as of July 31, 1996.
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FORM 10-Q
For the Quarterly Period Ended
June 30, 1996
Part I: Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of
June 30, 1996 and March 31, 1996 ................. 3
Consolidated Statements of Operations for
the Three Months Ended June 30, 1996 and 1995 .... 4
Consolidated Statements of Cash Flows for
the Three Months Ended June 30, 1996 and 1995 .... 5
Notes to Consolidated Financial Statements .......... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..... 7
Part II: Other Information
Item 6. ..................................................... 8
2
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PART I. FINANCIAL INFORMATION
Item I. Financial Statements
Environmental Elements Corporation and Subsidiaries
Consolidated Balance Sheets
As of June 30, 1996 and March 31, 1996
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<CAPTION>
June 30, March 31,
1996 1996
(Unaudited)
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ASSETS
Current assets:
Cash and cash equivalents ........................................ $ 1,847,000 $ 2,124,000
Accounts and retainages receivable, net of allowance for doubtful
accounts of $310,000 and $296,000, respectively................. 12,551,000 10,027,000
Unbilled contract costs and fees.................................. 7,373,000 4,825,000
Inventories....................................................... 1,731,000 2,032,000
Prepaid expenses and other current assets......................... 1,801,000 2,011,000
Net current assets of discontinued operations..................... 64,000 64,000
Total Current Assets.......................................... 25,367,000 21,083,000
Property and equipment:
Capital lease, building and improvements.......................... 8,292,000 8,269,000
Machinery, equipment, furniture and fixtures...................... 6,548,000 6,527,000
14,840,000 14,796,000
Less - Accumulated depreciation and amortization.................. 6,328,000 6,092,000
Property and Equipment, Net................................... 8,512,000 8,704,000
Other assets.......................................................... 431,000 392,000
Total Assets.................................................. $ 34,310,000 $ 30,179,000
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current liabilities:
Borrowings under line of credit................................... $ 4,523,000 $ 0
Accounts payable.................................................. 12,179,000 12,186,000
Billings in excess of contract costs and fees..................... 2,088,000 2,391,000
Accrued payroll and related expenses ............................. 469,000 675,000
Accrued and other current liabilities............................. 1,904,000 1,883,000
Deferred taxes.................................................... 128,000 100,000
Total Current Liabilities..................................... 21,291,000 17,235,000
Long-term capital lease obligation.................................... 2,662,000 2,662,000
Deferred taxes........................................................ 100,000 100,000
Other non-current liabilities......................................... 177,000 176,000
Net long-term liabilities of discontinued operations.................. 153,000 155,000
Commitments and contingencies.........................................
Total Liabilities............................................. 24,383,000 20,328,000
Stockholders' investment:
Common stock...................................................... 69,000 69,000
Paid-in capital................................................... 27,763,000 27,763,000
Cumulative translation adjustment................................. (115,000) (136,000)
Retained deficit.................................................. (17,709,000) (17,738,000)
Treasury stock, at cost........................................... (81,000) (107,000)
Total Stockholders' Investment................................ 9,927,000 9,851,000
Total Liabilities and Stockholders' Investment................ $ 34,310,000 $ 30,179,000
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The accompanying notes are an integral part of these statements.
3
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Environmental Elements Corporation and Subsidiaries
Consolidated Statements of Operations
For the three months ended June 30, 1996 and 1995
(Unaudited)
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<CAPTION>
1996 1995
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Sales $13,973,000 $18,695,000
Cost of sales 11,797,000 16,901,000
----------- -----------
Gross Profit 2,176,000 1,794,000
Selling, general and administrative expenses 1,978,000 2,648,000
----------- -----------
Operating Income (Loss) 198,000 (854,000)
Interest and other expense, net of income (153,000) (105,000)
----------- -----------
Income (Loss) from Continuing Operations
before Income Taxes 45,000 (959,000)
Provision for income taxes -- --
----------- -----------
Income (Loss) from Continuing Operations 45,000 (959,000)
Gain on disposal of discontinued operations, net -- 350,000
----------- -----------
Net Income (Loss) $ 45,000 $ (609,000)
=========== ===========
Per share of common stock and common stock equivalents:
Income (Loss) from continuing operations $ 0.01 $ (0.14)
Gain on disposal of discontinued operations -- 0.05
----------- -----------
Net Income (Loss) $ 0.01 $ (0.09)
=========== ===========
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The accompanying notes are an integral part of these statements.
4
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Environmental Elements Corporation and Subsidiaries
Consolidated Statements of Cash Flows
For the Three Months Ended June 30, 1996 and 1995
(Unaudited)
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<CAPTION>
1996 1995
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Cash flows from operating activities:
Net income (loss) $45,000 $(609,000)
Non-cash items:
Depreciation and amortization 236,000 351,000
Gain on disposal of discontinued operations, net -- (350,000)
Stock contribution to savings plan 10,000 15,000
(Increase) decrease in accounts and retainages receivable, net (2,524,000) 3,807,000
(Increase) decrease in unbilled contract costs and fees (2,548,000) 2,251,000
(Increase) decrease in inventories 301,000 (107,000)
Decrease in prepaid expenses and other current assets 210,000 94,000
Decrease in accounts payable (7,000) (5,363,000)
Increase (decrease) in billings in excess of contract costs and fees (303,000) 1,541,000
Decrease in accrued payroll and related expenses (206,000) (643,000)
Increase (decrease) in accrued and other current liabilities 49,000 (1,230,000)
Increase in net assets of discontinued operations (2,000) (197,000)
Increase (decrease) in other non-current liabilities 1,000 (3,000)
---------- ----------
Net Cash Flows Used in Operating Activities (4,738,000) (443,000)
---------- ----------
Cash flows from investing activities:
Increase in short-term investments -- (34,000)
Purchases of property and equipment (44,000) (325,000)
Increase in other assets (39,000) (35,000)
Proceeds from disposal of discontinued operations -- 350,000
---------- ----------
Net Cash Flows Used in Investing Activities (83,000) (44,000)
---------- ----------
Cash flows from financing activities:
Increase in borrowings under line of credit 4,523,000 640,000
Change in cumulative translation adjustment 21,000 (12,000)
---------- ----------
Net Cash Flows Provided by Financing Activities 4,544,000 628,000
---------- ----------
Net Increase (Decrease) in Cash and Cash Equivalents (277,000) 141,000
Cash and cash equivalents, beginning of period 2,124,000 3,748,000
---------- ----------
Cash and cash equivalents, end of period $1,847,000 $3,889,000
========== ==========
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The accompanying notes are an integral part of these statements
5
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Environmental Elements Corporation and Subsidiaries
Notes to Consolidated Financial Statements
1. Financial Information:
The interim consolidated financial statements included herein for
Environmental Elements Corporation 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 herein include all adjustments
(which include only normal recurring adjustments) 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. Results for interim periods are not
necessarily indicative of results to be expected for the full year.
2. Per Share Data:
Per share data has been presented on a fully diluted basis and is based upon
the combined weighted average number of shares of common stock outstanding
during each quarter. The weighted average number of shares used in the
computations of income per share for each of the quarters ended June 30,
1996 and 1995 totaled 6,907,000 and 6,865,000, respectively.
3. Inventories:
Inventories are stated at the lower of cost (first-in, first-out) or market.
Inventories consist principally of purchased parts held for use in contracts
and as spare parts.
4. Supplemental Cash Flow Information:
In non-cash financing transactions during the quarter ended June 30, 1995,
the Company issued 5,428 treasury shares of its common stock as matching
contributions under its 401k savings plan. As a result of this issuance,
retained earnings decreased $12,000 during the quarter ended June 30, 1995.
The Company's shares in treasury are intended to be used for matching shares
in the Company's 401k savings plan and for employee stock options. There
were no issuances of shares in the quarter ended June 30, 1996.
Amounts paid in cash for interest during the quarters ended June 30, 1996
and 1995 were $89,000 and $43,000, respectively. Amounts paid for income
taxes in the quarters ended June 30, 1996 and 1995 were $4,000 and $124,000,
respectively.
5. Reclassifications:
Certain reclassifications have been made to the prior year consolidated
financial statements to conform to the current year presentation.
6
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Item 2 Management's Discussion and Analysis
The following information should be read in conjunction with the unaudited
condensed consolidated financial statements and notes thereto included in
this Quarterly Report and the audited Financial Statements and Management's
Discussion and Analysis contained in the Company's Form 10-K for the fiscal
year ended March 31, 1996.
Results of Operations
The following table sets forth the percentage relationships to sales of
selected items in the Company's consolidated statements of operations
(unaudited) for the periods indicated:
Three Months Ended
June 30,
1996 1995
------ ------
Sales.............................................. 100.0% 100.0%
Cost of sales...................................... 84.4 90.4
----- -----
Gross Profit................................... 15.6 9.6
Selling, general and administrative expenses......... 14.2 14.2
----- -----
Operating Income (Loss)........................ 1.4% (4.6%)
===== =====
Three Months Ended June 30, 1996 Compared to
Three Months Ended June 30, 1995
Sales decreased 25% or $4,722,000 to $13,973,000 from $18,695,000 due
primarily to inclusion in 1995 sales of direct hire construction activities,
a business segment the Company substantially exited in late fiscal 1996.
Cost of sales decreased 30% or $5,104,000 to $11,797,000 from $16,901,000.
The decrease in cost of sales as a percentage of sales resulted primarily
from elimination of low margin direct hire construction activities and to
improved execution margins.
Selling, general and administrative expenses decreased 25% or $670,000 to
$1,978,000 from $2,648,000 primarily as a result of the Company's
restructuring in the third quarter of fiscal 1996 and the resultant
reductions in business costs. Selling, general and administrative expenses
as a percentage of sales remained constant at 14.2%, despite the 25%
decrease in sales.
There was no provision for income taxes in either quarter.
7
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The fiscal 1995 gain on disposal of discontinued operations of $350,000 was
due primarily to collection of a contingent purchase price payment related
to the prior sale of the Company's Water Treatment Privatization Project.
Liquidity and Capital Resources
Net cash flow used in operations in the current year was primarily the
result of an increase in the working capital required by contracts in
process. Historically, the Company has required minimal investment in
operating working capital (excludes cash, short-term investments and notes
payable), but it does experience fluctuations in working capital required
depending upon the stage of completion of various contracts and related
payment terms negotiated as a part of the overall original contract's terms
and conditions.
The Company believes it has liquidity and capital resources sufficient to
maintain its business for the foreseeable future because its balance sheet
continues to be liquid, no significant capital expenditures are required,
historically the Company has required a minimal investment in operating
working capital, significant bank borrowings are not regularly relied upon
in the ordinary course of business, and the Company believes it would be
able to obtain modifications to its banking arrangements should such become
necessary or desirable.
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(b) No reports on Form 8-K were filed during the quarter ended June
30, 1996.
8
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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.
ENVIRONMENTAL ELEMENTS CORPORATION
(Registrant)
/s/ F. Bradford Smith
F. Bradford Smith
Chairman of the Board
Chief Financial Officer
Date: August 14, 1996
9
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,847,000
<SECURITIES> 0
<RECEIVABLES> 12,551,000
<ALLOWANCES> 310,000
<INVENTORY> 1,731,000
<CURRENT-ASSETS> 25,367,000
<PP&E> 14,840,000
<DEPRECIATION> 6,328,000
<TOTAL-ASSETS> 34,310,000
<CURRENT-LIABILITIES> 21,291,000
<BONDS> 0
0
0
<COMMON> 69,000
<OTHER-SE> 9,858,000
<TOTAL-LIABILITY-AND-EQUITY> 34,310,000
<SALES> 13,973,000
<TOTAL-REVENUES> 13,973,000
<CGS> 11,797,000
<TOTAL-COSTS> 1,978,000
<OTHER-EXPENSES> 153,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 45,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 45,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> 45,000
<EPS-PRIMARY> .01
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