UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 September 30, 1997
Commission file number: 0-19343
VALLEY SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
State of incorporation: Delaware FEIN: 34-1493345
11580 Lafayette Drive NW, Canal Fulton, Ohio 44614 (216) 854-4526
(Address and telephone number of principal executive offices)
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, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No___
Number of shares outstanding at October 30, 1997:
Common Stock, $.01 par value: 7,906,617
1
<PAGE>
PART 1 -- FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Valley Systems, Inc. and Subsidiaries
Consolidated Balance Sheets
September
30, 1997 June 30,
(unaudited) 1997
------------ ------------
ASSETS
-------
Current assets:
Cash $ 132,999 $ 200,093
Accounts receivable 5,372,062 5,638,350
Prepaid supplies 469,710 469,839
Prepaid expenses 322,347 160,772
------------ ------------
Total current assets 6,297,118 6,469,054
Property and equipment 7,559,492 7,551,004
Intangible assets 513,750 548,000
------------ ------------
Total assets $ 14,370,360 $ 14,568,058
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 669,929 $ 971,611
Accrued expenses 1,200,083 1,428,834
Current portion of long-term debt 428,183 495,929
------------ ------------
Total current liabilities 2,298,195 2,896,374
Long-term debt 7,427,358 7,235,120
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.10 par value; authorized
2,000,000 shares, issued and outstanding 55,000 5,500 5,500
Common stock, $.01 par value; authorized
12,000,000 shares, issued and outstanding
8,512,073 85,121 85,121
Paid-in capital 26,786,040 26,786,040
Accumulated deficit (21,548,846) (21,757,089)
Treasury stock, at cost, 605,456 shares (683,008) (683,008)
------------ ------------
4,644,807 4,436,564
------------ ------------
Total liabilities and stockholders' equity $ 14,370,360 $ 14,568,058
============ ============
See notes to consolidated financial statements.
2
<PAGE>
Valley Systems, Inc. and Subsidiaries
Consolidated Statements of Income
(Unaudited)
Three months ended
September 30
-------------------------
1997 1996
----------- -----------
Sales $ 5,855,953 $ 6,275,404
Cost of sales 3,656,139 3,908,488
----------- -----------
Gross profit 2,199,814 2,366,916
Selling, general, and administrative expenses 1,741,102 1,955,486
Interest expense 154,219 161,086
----------- -----------
Income before income taxes 304,493 250,344
Income taxes - -
----------- -----------
Net income $ 304,493 $ 250,344
=========== ===========
Net income per common share $ .03 $ .02
=========== ===========
Weighted average shares used in computation 7,906,617 8,391,616
=========== ===========
See notes to consolidated financial statements.
3
<PAGE>
Valley Systems, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
Three months
ended September 30
---------------------
1997 1996
--------- ---------
Cash flows from operating activities:
Net income $ 304,493 $ 250,344
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation and amortization 710,698 834,535
Loss (gain) on disposition of property and equipment 4,311 (1,020)
(Increase) decrease in assets:
Accounts receivable 266,288 (388,796)
Prepaid supplies 129 (7,722)
Prepaid expenses (161,575) (80,753)
Increase (decrease) in liabilities:
Accounts payable (301,682) (89,593)
Accrued expenses (228,751) (190,700)
--------- ---------
Cash provided by operating activities 593,911 326,295
--------- ---------
Cash flows from investing activities:
Additions to property and equipment (724,984) (181,698)
Proceeds from dispositions of property and equipment 35,737 6,500
--------- ---------
Cash used by investing activities (689,247) (175,198)
--------- ---------
Cash flows from financing activities:
Net (payments) borrowings under
revolving line of credit (162,540) 162,699
Additional long-term borrowings 400,000 -
Payments of long-term debt (112,968) (199,358)
Purchase of treasury shares - (43,684)
Payment of dividends (96,250) -
--------- ---------
Cash from (used by) financing activities 28,242 (80,343)
--------- ---------
(Decrease) increase in cash (67,094) 70,754
Cash at beginning of year 200,093 86,099
--------- ---------
Cash at end of period $ 132,999 $ 156,853
========= =========
See notes to consolidated financial statements.
4
<PAGE>
Valley Systems, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. BASIS OF PRESENTATION:
Reference is made to the annual report on Form 10-K dated September 22,
1997 for the years ended June 30, 1997.
The financial statements for the periods ended September 30, 1997 and 1996
are unaudited and include all adjustments which, in the opinion of
management, are necessary for a fair statement of the results of operations
for the periods then ended. All such adjustments are of a normal recurring
nature. The results of the Company's operations for any interim period are
not necessarily indicative of the results of the Company's operations for a
full fiscal year.
2. INCOME TAXES:
The provisions for income taxes for the periods presented vary from the
customary relationship with pre-tax income due to utilization of net
operating loss carryforwards.
3. CONTINGENCIES:
The Company is involved in various litigation arising in the ordinary
course of business. Management believes that the ultimate resolution of
such litigation will not have a material effect on the Company's operations
or financial position.
4. INCOME PER COMMON SHARE:
Income per common share for the period ended September 30, 1996 has been
restated from the amount previously reported to include the effect of the
preferred stock dividend requirement.
5
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS:
Three months ended September 30, 1997 as compared to the three months ended
September 30, 1996:
Sales in the three months ended September 30, 1997 decreased by $419,000, or
6.7%, from the comparable period in 1996. The decrease was primarily
attributable to approximately $500,000 of sales in 1996 that resulted from the
effects of Hurricane Fran, which came ashore in September 1996. The percentage
of sales represented by the various service lines of the Company did not change
materially in 1997 from the prior year. UHP sales were 49% of total sales in
1997, compared to 48% in 1996. Gross profit as a percentage of sales was also
unchanged, amounting to 38% in both years.
Selling, general and administrative expenses decreased by $214,000, or 11.0%, in
1997. The majority of the savings were due to a lower headcount in the corporate
office resulting from operational efficiencies. These expenses totaled 29.7% of
sales in 1997 compared to 31.2% in the prior year. Interest expense decreased
4.3% in 1997 from 1996, and amounted to 2.6% of sales in each year.
FINANCIAL CONDITION:
The Company's financial condition has not changed significantly from June 30,
1997. Cash provided from operating activities during the quarter ended September
30, 1997 totaled $594,000, compared to $326,000 in 1996. Most of this cash was
used to increase working capital, which went up by $426,000 in the period and
totaled $4.0 million at September 30, 1997.
The Company borrowed $400,000 through a 20 year mortgage during the quarter and
purchased its corporate headquarters facility, which was previously leased.
Other additions to property and equipment totaled $316,000 in 1997, compared to
$182,000 in the prior year.
6
<PAGE>
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits: None
b) Reports on Form 8-K: None
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Valley Systems, Inc.
October 30, 1997 By: \s\ Ed Strickland
President and Chief Executive Officer
October 30, 1997 By: \s\ Dennis D. Sheets
Chief Financial Officer
7
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> SEP-30-1997
<CASH> 132,999
<SECURITIES> 0
<RECEIVABLES> 5,497,062
<ALLOWANCES> 125,000
<INVENTORY> 0
<CURRENT-ASSETS> 6,297,118
<PP&E> 18,851,641
<DEPRECIATION> 11,292,149
<TOTAL-ASSETS> 14,370,360
<CURRENT-LIABILITIES> 2,298,195
<BONDS> 0
0
5,500
<COMMON> 85,121
<OTHER-SE> 4,554,186
<TOTAL-LIABILITY-AND-EQUITY> 14,370,360
<SALES> 5,855,953
<TOTAL-REVENUES> 5,855,953
<CGS> 3,656,139
<TOTAL-COSTS> 3,656,139
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 154,219
<INCOME-PRETAX> 304,493
<INCOME-TAX> 0
<INCOME-CONTINUING> 304,493
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 304,493
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
