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, 1997
Commission File Number 1-10955
ENVIRONMENTAL ELEMENTS CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
DELAWARE 52-1303748
<S><C>
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
</TABLE>
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:
6,974,480 shares of common stock, $.01 par value per share, as of July 28, 1997.
<PAGE>
ENVIRONMENTAL ELEMENTS CORPORATION
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED
JUNE 30, 1997
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of
June 30, 1997 and March 31, 1997 ........................3
Consolidated Statements of Income for
the Periods Ended June 30, 1997 and 1996 ................4
Consolidated Statements of Cash Flows for
the Three Months Ended June 30, 1997 and 1996 ...........5
Notes to Consolidated Financial Statements .................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............8
PART II: OTHER INFORMATION
Item 6. ..............................................................10
-----------------------------------
Certain of the statements included in this Form 10-Q are forward-looking
statements. These statements involve risks and uncertainties that could cause
the actual results to differ from those expressed or implied by such statements.
These factors include loss of new orders, increased competition, changes in
environmental regulations, and other factors, including but not limited to,
continued operating losses, further declines in markets for the Company's
products and services, and insufficient capital resources. Information on
factors that could affect the Company's financial results are set forth in the
Company's filings with the Securities and Exchange Commission including the
report on Form 10-K for the Company's fiscal year ended March 31, 1997.
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item I. Financial Statements
Environmental Elements Corporation and Subsidiaries
Consolidated Balance Sheets
As of June 30, 1997 and March 31, 1997
<TABLE>
<CAPTION>
June 30, March 31,
1997 1997
- ---------------------------------------------------------------------------------------------------
(Unaudited)
<S><C>
ASSETS
Current assets:
Cash and cash equivalents ...................................... $ 1,218,000 $ 1,684,000
Accounts and retainages receivable, net of allowance for doubtful
accounts of $139,000 and $113,000, respectively............... 7,309,000 6,317,000
Unbilled contract costs and fees................................ 10,080,000 6,248,000
Inventories..................................................... 1,137,000 967,000
Prepaid expenses and other current assets....................... 1,685,000 1,990,000
Assets held for sale............................................ -- 864,000
------------ ------------
Total Current Assets........................................ 21,429,000 18,070,000
------------ ------------
Property and equipment:
Capital lease, building and improvements........................ 7,056,000 6,960,000
Machinery, equipment, furniture and fixtures.................... 2,895,000 2,809,000
------------ ------------
9,951,000 9,769,000
Less - Accumulated depreciation and amortization................ 3,522,000 3,326,000
------------ ------------
Property and Equipment, Net................................. 6,429,000 6,443,000
------------ ------------
Other assets........................................................ 871,000 894,000
------------ ------------
Total Assets................................................ $ 28,729,000 $ 25,407,000
============ ============
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current liabilities:
Borrowings under line of credit................................. $ 3,100,000 $ 2,585,000
Accounts payable................................................ 13,740,000 9,724,000
Billings in excess of contract costs and fees................... 605,000 1,660,000
Accrued payroll and related expenses ........................... 485,000 618,000
Accrued and other current liabilities........................... 1,682,000 1,824,000
Deferred taxes.................................................. 100,000 100,000
------------ ------------
Total Current Liabilities................................... 19,712,000 16,511,000
Long-term capital lease obligation.................................. 2,449,000 2,449,000
Deferred taxes...................................................... 100,000 100,000
Other non-current liabilities....................................... 319,000 240,000
Net long-term liabilities of discontinued operations................ 63,000 69,000
------------ ------------
Total Liabilities........................................... 22,643,000 19,369,000
------------ ------------
Commitments and contingencies
Shareholders' investment:
Common stock.................................................... 70,000 70,000
Paid-in capital................................................. 27,874,000 27,864,000
Cumulative translation adjustment............................... (58,000) (82,000)
Retained deficit................................................ (21,800,000) (21,814,000)
------------ ------------
Total Shareholders' Investment.............................. 6,086,000 6,038,000
------------ ------------
Total Liabilities and Shareholders' Investment.............. $ 28,729,000 $ 25,407,000
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
Environmental Elements Corporation and Subsidiaries
Consolidated Statements of Income
For the Periods Ended June 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
- -------------------------------------------------------------------------------------
1997 1996
- -------------------------------------------------------------------------------------
<S><C>
Sales........................................... $13,924,000 $13,973,000
Cost of sales................................... 12,167,000 11,735,000
----------- -----------
Gross Profit............................. 1,757,000 2,238,000
----------- -----------
Selling, general and administrative expenses.... 1,578,000 2,040,000
----------- -----------
Operating Income......................... 179,000 198,000
Interest and other expense, net of income....... (165,000) (153,000)
----------- -----------
Income before Income Taxes............... 14,000 45,000
Provision for income taxes...................... -- --
----------- -----------
Net Income............................... $ 14,000 $ 45,000
=========== ===========
Net Income per share of common stock and
common stock equivalents................. $ 0.00 $ 0.01
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
Environmental Elements Corporation and Subsidiaries
Consolidated Statements of Cash Flows
For the Three Months Ended June 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
1997 1996
- -------------------------------------------------------------------------------------------------
<S><C>
Cash flows from operating activities:
Net income..................................................... $ 14,000 $ 45,000
Non-cash items:
Depreciation and amortization.............................. 219,000 236,000
Stock contribution to savings plan......................... -- 10,000
Increase in accounts and retainages receivable, net............ (992,000) (2,524,000)
Increase in unbilled contract costs and fees................... (3,832,000) (2,548,000)
(Increase) decrease in inventories............................. (170,000) 301,000
Decrease in prepaid expenses and other current assets.......... 305,000 210,000
Decrease in assets held for sale............................... 864,000 --
Increase (decrease) in accounts payable........................ 4,016,000 (7,000)
Decrease in billings in excess of contract costs and fees...... (1,055,000) (303,000)
Decrease in accrued payroll and related expenses............... (133,000) (206,000)
Increase (decrease) in accrued and other current liabilities... (142,000) 39,000
Decrease in net liabilities of discontinued operations......... (6,000) (2,000)
Increase in other non-current liabilities...................... 79,000 1,000
----------- -----------
Net Cash Flows Used in Operating Activities (833,000) (4,748,000)
----------- -----------
Cash flows from investing activities:
Additions to property and equipment............................ (182,000) (44,000)
Increase in other assets....................................... -- (39,000)
----------- -----------
Net Cash Flows Used in Investing Activities (182,000) (83,000)
----------- -----------
Cash flows from financing activities:
Increase in borrowings under line of credit.................... 515,000 4,523,000
Change in cumulative translation adjustment.................... 24,000 31,000
Issuance of common stock....................................... 10,000 --
----------- -----------
Net Cash Flows Provided by Financing Activities 549,000 4,554,000
----------- -----------
Net Decrease in Cash and Cash Equivalents (466,000) (277,000)
Cash and cash equivalents, beginning of period..................... 1,684,000 2,124,000
----------- -----------
Cash and cash equivalents, end of period........................... $ 1,218,000 $ 1,847,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
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 per share data for the quarters ended June 30, 1997 and 1996
totaled 6,971,000 and 6,907,000, 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 three months ended June 30,
1997, the Company issued 4,055 shares of its common stock as matching
contributions under its 401k savings plan. There were no issuances of shares
in the quarter ended June 30, 1996.
Amounts paid in cash for interest during the three months ended June 30,
1997 and 1996 were $80,000 and $89,000, respectively. Amounts paid for
income taxes in three months ended June 30, 1997 and 1996 were $7,000 and
$4,000, respectively.
5. RECLASSIFICATIONS:
Certain reclassifications have been made to the prior year consolidated
financial statements to conform to the current year presentation.
6
<PAGE>
6. NEW ACCOUNTING STANDARDS:
Statement of Financial Accounting Standards No. 128, "Earnings Per
Share", changes the reporting requirements for earnings per share (EPS) for
publicly traded companies by replacing primary EPS with basic EPS and changing
the disclosures associated with this change. The Company intends to adopt this
standard for its March 31, 1998 year-end as required.
7
<PAGE>
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, 1997.
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,
1997 1996
---- ----
Sales............................................ 100.0% 100.0%
Cost of Sales.................................... 87.4% 84.0
----- -----
Gross Profit................................. 12.6 16.0
Selling, general and administrative expenses..... 11.3 14.6
----- -----
Operating Income............................. 1.3 1.4
----- -----
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO
THREE MONTHS ENDED JUNE 30, 1996
Sales decreased 0.4% or $49,000 to $13,924,000 from $13,973,000. This
essentially equal level of sales versus the prior year quarter reflects
increases in sales to the Company's Power business, decreases in sales to
its Industrial business, and level sales of Aftermarket products and
services.
Cost of sales increased 3.7%, or $432,000, to $12,167,000 from $11,735,000.
Cost of sales increased as a percentage of sales to 87.4% in the three
months ended June 30, 1997, from 84.0% in the prior year period. The change
in both dollars and percentage of sales was due primarily to a favorable
close out of one contract during the prior year quarter.
Selling, general and administrative expenses decreased 22.6% or $462,000 to
$1,578,000 from $2,040,000, primarily as a result of the Company's
restructuring efforts during prior years, and the resultant reductions in
business costs for the current year quarter. Selling, general and
administrative expenses as a percentage of sales decreased to 11.3% from
14.6%
Interest and other expense, net of income, increased $12,000 to $165,000
from $153,000. The net increase was primarily the result of an increase in
interest expense, due to increased borrowings on the Company's line of
credit.
8
<PAGE>
There was no provision for income taxes in either quarter reported.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents declined by $466,000 and borrowings under the
Company's line of credit increased by $515,000 million during the three
months ended June 30, 1997. This was caused principally by a $1.8 million
increase in the Company's net working capital investment in contracts in
process; offset by proceeds of $864,000 from disposal of assets held for
sale.
Historically the Company has required minimal investment in net working
capital in contracts, but it does experience fluctuations in these amounts
depending upon the stage of completion of its various contracts and upon the
payment terms negotiated as a part of the overall original contract terms
and conditions. ("Net working capital invested in contracts" consists of
accounts and retainages receivable plus unbilled contract costs and fees,
minus accounts payable and minus billings in excess of contract costs and
fees. These net amounts were $3.0 million and $1.2 million at June 30, 1997
and March 31, 1997, respectively.) The Company seeks to manage project cash
flows in its payment terms negotiations with customers and suppliers, and in
adherence to project budgets and schedules.
The Company believes it has liquidity and capital resources sufficient to
maintain its business for the foreseeable future, because no significant
capital expenditures are required, historically the Company has required
little investment in operating working capital, and its banking
arrangements, i.e. those currently available and those which could be
obtained, would be adequate to maintain its ongoing business during the next
year.
9
<PAGE>
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, 1997.
10
<PAGE>
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/ James B. Sinclair
---------------------
James B. Sinclair
Vice President and
Chief Financial Officer
Date: July 31, 1997
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> JUN-30-1997
<CASH> 1,218,000
<SECURITIES> 0
<RECEIVABLES> 17,389,000
<ALLOWANCES> 139,000
<INVENTORY> 1,137,000
<CURRENT-ASSETS> 21,429,000
<PP&E> 9,951,000
<DEPRECIATION> 3,522,000
<TOTAL-ASSETS> 28,729,000
<CURRENT-LIABILITIES> 19,712,000
<BONDS> 0
0
0
<COMMON> 70,000
<OTHER-SE> 6,016,000
<TOTAL-LIABILITY-AND-EQUITY> 28,729,000
<SALES> 13,924,000
<TOTAL-REVENUES> 13,924,000
<CGS> 12,167,000
<TOTAL-COSTS> 1,578,000
<OTHER-EXPENSES> 165,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 14,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 14,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,000
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
