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EVI > SEC Filings for EVI > Form 10-Q on 12-May-2014All Recent SEC Filings

Show all filings for ENVIROSTAR, INC.

Form 10-Q for ENVIROSTAR, INC.


12-May-2014

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Conditions and Results of Operations

Overview

Revenues for the first nine months of fiscal 2014 increased by 27.3% compared to the same period of fiscal 2013, however revenues for the third quarter were generally flat, having decreased by .5%, compared to the same period of fiscal 2013. Net earnings increased by 131.1% and 25.9% for the nine and three month periods ended March 31, 2014, when compared to the same periods in fiscal 2013. For the first nine months of fiscal 2014, equipment sales increased by 40.4% and spare parts sales increased by 9.4%, when compared to the same period of fiscal 2013. Foreign sales also increased 31.1% in the first nine months of fiscal 2014, when compared to the same period of fiscal 2013.

The Company's cash position during the first nine months of fiscal 2014 decreased to $4,933,952 mostly due to the payment of a special dividend of $.40 per share, aggregating $2,813,493 in December 2013, and an increase in inventories. Customer deposits during the first nine months of fiscal 2014 increased by $545,496 as new orders offset deductions due to shipments.

Liquidity and Capital Resources

For the nine month period ended March 31, 2014, cash decreased by $1,010,308
compared to a decrease of $295,773 during the same period of fiscal 2013. The
following summarizes the Company's Condensed Consolidated Statements of Cash
Flows:



                                     Nine months ended March 31,
                                        2014              2013
                                    (Unaudited)       (Unaudited)
Net cash provided by (used in):
Operating activities              $    1,821,182     $  3,948,006
Investing activities              $      (17,997 )   $    (23,540 )
Financing activities              $   (2,813,493 )   $ (4,220,239 )

For the nine month period ended March 31, 2014, operating activities provided cash of $1,821,182 compared to $3,948,006 of cash provided during the same period of fiscal 2013. The increase in cash provided by operating activities during the first nine months of fiscal 2014 was primarily due to the Company's net earnings of $1,217,754 and non-cash expenses for depreciation and amortization of $42,908. Cash was provided by a reduction in accounts and trade notes receivable of $935,769. Additional cash was provided by an increase in customer deposits of $545,496 to finance new orders and a decrease of $186,265 in other assets mostly for specialized equipment which was received and already prepaid. Other cash was provided by a decrease in lease and mortgages receivable of $46,754 and an increase in accounts payable and accrued expenses of $50,702. These increases in cash were offset by a decrease in accrued employee expenses of $667,945 primarily to pay fiscal 2013 year-end bonuses and sales commissions which were paid during the first quarter of fiscal 2014. Cash was also used to increase inventories by $230,991 to support the Company's backlog of orders. In addition, $294,173 was used to pay the remaining balance of the Company's fiscal 2013 tax liability and is currently over deposited on its income tax requirements. All other changes in cash were due to the ordinary fluctuations in business activities.

Index

For the nine month period ended March 31, 2013, operating activities provided cash of $3,948,006 compared to $279,379 of cash provided during the same period of fiscal 2012. The increase in cash provided by operating activities during the first nine months of fiscal 2013 was primarily due to an increase of $3,765,229 in customer deposits connected with a number of large orders received by the Company during the first quarter of fiscal 2013. In addition, cash was provided due to an increase in deferred income of $2,013,243 representing payments made to the Company from a customer whose shipments were temporarily delayed (through no fault of the Company) as a result of delays in obtaining governmental construction permits. This cash was offset by an increase in other current assets of $2,547,381 mostly due to pre-payments made by the Company to vendors for specialized equipment on order. Cash was provided by the Company's net earnings of $526,881 and non-cash expenses for depreciation and amortization of $43,677. Additional cash was provided by a decrease in accounts and trade notes receivable of $246,339 and an increase of $401,399 in accounts payable and accrued expenses due to the ordinary course of business. Inventories used cash of $507,591 to support the increased backlog, but should decrease as shipments are made in the fourth quarter. Accrued employee expenses used cash of $65,385, mostly due to fiscal 2012 year-end bonuses and sales commissions

Investing activities used cash of $17,997 and $23,540 during the nine month periods ended March 31, 2014 and 2013, respectively, for capital expenditures.

Financing activities used cash of $2,813,493 and $4,220,239 during the nine month periods ended March 31, 2014 and 2013 to pay dividends to shareholders.

Effective November 1, 2013, the Company's existing $2,250,000 revolving line of credit facility was extended to November 1, 2014. The Company's obligations under the credit facility are guaranteed by the Company's subsidiaries and collateralized by substantially all of the Company's assets. No amounts were outstanding under the facility at March 31, 2014 or June 30, 2013, nor were there any amounts outstanding at any time during fiscal 2013 or the first nine months of fiscal 2014.

The Company believes that its existing cash, cash equivalents, net cash from operations and available credit facility will be sufficient to fund its operations and anticipated capital expenditures for at least the next twelve months and to meet its long term liquidity needs.

Off-Balance Sheet Financing

The Company has no off-balance sheet financing arrangements within the meaning of Item 303(a)(4) of Regulation S-K.

Index

Results of Operations

Revenues.



The following table sets forth certain information with respect to changes in
the Company's revenues for the periods presented:



                               Nine months ended                             Three months ended
                                   March 31,                                      March 31,
                             2014             2013             %            2014            2013             %
                         (Unaudited)      (Unaudited)       Change       (Unaudited)     (Unaudited)      Change
Net sales               $ 24,554,425     $ 19,377,094          26.7 %   $ 6,489,625     $ 6,515,809           -.4 %
Development fees,
franchise and
license fees,
commissions and
other income                 323,711          162,423          99.3 %        59,868          64,885          -7.7 %
Total revenues          $ 24,878,136     $ 19,539,517          27.3 %   $ 6,549,493     $ 6,580,694           -.5 %

Net sales for the nine month period ended March 31, 2014 increased by $5,177,331 (26.7%) from the same period of fiscal 2013. This increase is mostly attributable to an increase of 40.4% in equipment sales and a 9.4% increase in spare parts sales. Foreign sales also increased by 31.1% during the first nine months of fiscal 2014 when compared to the same period of fiscal 2013. For the third quarter of fiscal 2014, sales decreased by $26,184 (.4%) compared to the third quarter of fiscal 2013, mostly due to a reduction in equipment sales of 10.0%, which offset an increase of 11.5% in spare parts sales. However, margins for the three month period ended March 31, 2014 were higher when compared to the same period of fiscal 2013 resulting in an increase in net earnings for the period.

Revenues from development fees, franchise and license fees, commissions and other income increased by $161,288 (99.3%) but decreased by $5,017 (7.7%) for the nine and three month periods ended March 31, 2014, respectively, when compared to the same periods of fiscal 2013. The increase for the nine month period ended March 31, 2014, was mostly due to commissions paid to the Company for sales made by a supplier on a direct sale to a customer in the Company's territory.

Operating Expenses.



                                                     Nine months ended               Three months ended
                                                         March 31,                       March 31,
                                                   2014            2013            2014             2013
                                                (Unaudited)     (Unaudited)     (Unaudited)      (Unaudited)
As a percentage of net sales:
Cost of sales                                        77.6 %           77.5 %         75.7 %            76.3 %
As a percentage of total revenues:
Selling, general and administrative expenses         15.5 %           18.9 %         17.3 %            18.4 %
Total expenses                                       92.2 %           95.7 %         92.3 %            93.9 %

Costs of sales, expressed as a percentage of net sales, increased to 77.6% from 77.5% in the first nine months of fiscal 2014 but decreased to 75.7% from 76.3% for the third quarter of fiscal 2014, when compared to the same periods of fiscal 2013. The variations are attributable to product mix.

Index

Selling, general and administrative expenses increased by $173,861 (4.7%) and decreased by $78,175 (6.5%) for the nine and three month periods ended March 31, 2014, respectively, from the same periods of fiscal 2013. The increase during the first nine month period of fiscal 2014 is attributable to increased commission expenses associated with increased sales, offset slightly by a decrease in travel and entertainment expenses. For the third quarter of fiscal 2014, the decrease is attributable to decreases in commission expense.

Interest income decreased by $6,656 (57.7%) and $296 (15.8%) for the nine month and three month periods ended March 31, 2014, respectively, compared to the same periods of fiscal 2013, due to lower interest rates and lower outstanding bank balances after paying out the special dividend.

The Company's effective tax rate decreased to 37.8% for the nine and three month period of fiscal 2014, from 38.1% and 37.9% for the nine and three month periods ended March 31, 2013. The variation reflects changes in permanent and temporary adjustments to taxable income.

Inflation

Inflation has not had a significant effect on the Company's operations during any of the reported periods.

Transactions with Related Parties

The Company leases warehouse and office space under an operating lease from the Sheila Steiner Revocable Trust. The trustees of this trust are Sheila Steiner, and her son, Michael S. Steiner. Michael S. Steiner is the President and a director of the Company. Michael S. Steiner, individually, is also a principal shareholder of the Company.

The lease was for an original three year term which commenced on November 1, 2005, with two three-year renewal options in favor of the Company. The Company has exercised the second renewal option, extending the lease until October 31, 2014. The lease provides for annual rent increases commencing November 1, 2006 of 3% over the rent in the prior year. The Company bears the cost of real estate taxes, utilities, maintenance, repairs and insurance. The Company believes that the terms of the lease are comparable to terms that would be obtained from an unaffiliated third party for similar property in a similar locale. Rental expense under this lease was approximately $94,800 and $92,000 in the first nine months of fiscal 2014 and 2013, respectively.

Critical Accounting Policies

The accounting policies that the Company has identified as critical to its business operations and to an understanding of the Company's results of operations remain unchanged from those described in the Management's Discussion and Analysis of Financial Condition and Results of Operations section of the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2013. The Company makes estimates and assumptions that affect the reported amount of assets and liabilities, contingent assets and liabilities, and the reported amounts of revenues and expenses during the reported period. Therefore, there can be no assurance that the actual results will not differ from those estimates.

Index

Adopted Accounting Guidance

Management believes the impact of issued standards and updates, which are not yet effective, will not have a material impact on the Company's consolidated financial position, results of operations or cash flows upon adoption.

Forward Looking Statements

Certain statements in this Report are "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. When used in this Report, words such as "may," "should," "seek," "believe," "expect," anticipate," "estimate," "project," "intend," "strategy" and similar expressions are intended to identify forward looking statements regarding events, conditions and financial trends that may affect the Company's future plans, operations, business strategies, operating results and financial position. Forward-looking statements are subject to a number of known and unknown risks and uncertainties that may cause actual results, trends, performance or achievements of the Company, or industry trends and results, to differ materially from the future results, trends, performance or achievements expressed or implied by such forward-looking statements. These risks and uncertainties include, among others:
general economic and business conditions in the United States and other countries in which the Company's customers and suppliers are located; industry conditions and trends; technology changes; competition and other factors which may affect prices which the Company may charge for its products and its profit margins; the availability and cost of the inventory purchased by the Company; the relative value of the United States dollar to currencies in the countries in which the Company's customers, suppliers and competitors are located; changes in, or the failure to comply with, government regulation, principally environmental regulations; the Company's ability to implement changes in its business strategies and development plans; and the availability, terms and deployment of debt and equity capital if needed for expansion. These and certain other factors are discussed in this Report and from time to time in other Company reports filed with the Securities and Exchange Commission. The Company does not assume an obligation to update the factors discussed in this Report or such other reports.

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