Back to GetFilings.com

Table of Contents

UNITED STATES

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

December 31, 2003

ENVIRONMENTAL ELEMENTS CORPORATION

(Exact name of registrant as specified in its charter)

1-10955

(Commission File Number)

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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

YES ¨  NO x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

7,282,420 shares of common stock, $.01 par value per share, as of February 9, 2004

Table of Contents

ENVIRONMENTAL ELEMENTS CORPORATION

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED

December 31, 2003

A number of the matters and subject areas discussed in this report are not historical or current facts and deal with potential future circumstances and developments. The discussion of these matters and subject areas is qualified by the inherent risks and uncertainties surrounding future expectations generally, and these discussions may materially differ from our actual future experience involving any one or more of these matters and subject areas. These forward looking statements are also subject generally to risks and uncertainties, including but not limited to, loss of new orders, increased competition, changes in environmental regulations, operating losses, declines in markets for the Company’s products and services, insufficient capital resources, and other factors that are described in the Company’s filings with the Securities and Exchange Commission, including the report on Form 10-K for the fiscal year ended March 31, 2003.

2

Table of Contents

Environmental Elements Corporation and Subsidiaries

Consolidated Balance Sheets

As of December 31, 2003 and March 31, 2003

The accompanying notes are an integral part of these statements.

3

Table of Contents

Environmental Elements Corporation and Subsidiaries

Consolidated Statements of Operations

For the Periods Ended December 31, 2003 and 2002

(Unaudited)

The accompanying notes are an integral part of these statements.

4

Table of Contents

Environmental Elements Corporation and Subsidiaries

Consolidated Statements of Cash Flows

For the Nine Months Ended December 31, 2003 and 2002

(Unaudited)

The accompanying notes are an integral part of these statements.

5

Table of Contents

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 accounting principles generally accepted in the United States 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

Basic earnings per common share is computed by dividing net earnings by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per common share was computed assuming the terms and conditions for the common stock options were met and converted. Any difference between the basic and diluted earnings per share is due to the dilutive effect of stock options outstanding.

3. ASSET IMPAIRMENT

As a result of the Company’s increased focus on its service and maintenance business and its decision to be more selective in its pursuit of the large Systems projects, the Company anticipates that it will have less demand for the products that its Chinese subsidiary supplies. Based on the projected revenues and expenses, this operation is not expected to generate positive cash flows for the foreseeable future. Therefore, for the quarter ended December 31, 2003, the Company determined that its investment in its Chinese subsidiary was impaired and recorded a $400,000 charge to reduce the carrying value of its assets to their net realizable value. This charge was comprised of a $260,000 reduction in the carrying value of inventory (recorded in cost of sales) and a $140,000 reduction in net long term assets (recorded in selling, general and administrative expenses).

4. LONG TERM LINE OF CREDIT

The Company’s principal source of liquidity is its bank credit facility which was set to expire on April 1, 2004. That facility provided for secured borrowings of up to $15,000,000 based upon the Company’s borrowing base, consisting of unbilled contract costs and fees and certain accounts receivable reduced by outstanding letters of credit.

On December 31, 2003, the Company completed a restructuring of its outstanding bank debt. The new agreement resulted in a $5,000,000 reduction of the Company’s outstanding line of credit balance, an adjustment to the borrowing capacity under the line up to a maximum of $6,750,000 and a restructuring of the financial and other covenants within the previous borrowing agreement. In return for these accommodations, the Company assigned to the Bank its rights to a long-term master lease on its headquarters building in Baltimore, Maryland. The new agreement expires March 31, 2005 and the Company believes that it will provide sufficient liquidity to meet its operating needs for the remainder of fiscal 2004 and throughout fiscal 2005. As of December 31, 2003, the Company had outstanding borrowings of $5,370,000.

Under the terms of the new agreement, the Company’s bank did not waive any default provisions that existed under the previous agreement. However, the bank agreed to forbear from exercising its rights under the default provisions of the old agreement through the term of the new agreement, provided the Company maintains compliance with the terms of the new agreement. As disclosed in previous filings, the Company is in default with several financial covenants of the previous agreement and expects that it will work with its bank prior to March 31, 2005 to negotiate an extension of the forbearance agreement or to develop a new lending facility to replace the expiring one.

As a result of this transaction, the Company wrote off the asset “Capital lease and improvements”, eliminated the liability “Long term capital lease obligation”, reduced its “Note payable” balance by $5 million and recorded a gain on the transaction which totaled approximately $2.5 million. The total gain was comprised of a $1,939,000 gain from the assignment of the master lease and a $562,000 gain on the restructuring of the debt.

6

Table of Contents

5. COMMITMENTS AND CONTINGENCIES

Project dispute–

During the first quarter of fiscal year 2003, the Company completed its original work under a fixed price contract to provide the design, engineering and materials for the rebuild of an existing electrostatic precipitator. The construction component of the project was awarded to a third party. The precipitator initially performed at levels that met the requirements of the State emission standards, but at levels below those specified in the contract. The Company worked with its customer and together made corrections to the precipitator which brought the emissions levels well within the contract terms. The project was completed and closed out in the first quarter of fiscal 2004.

The Company was also involved in a dispute with the construction contractor over liability for certain of the contractor’s alleged cost overruns on the project and over certain costs incurred by the contractor at the Company’s request. The contractor unilaterally invoiced the Company $1.8 million for these additional costs, which amount the Company vigorously disputed. In January 2004, the Company reached an agreement in principle to settle this dispute at an amount which had been previously accrued by the Company.

Patent litigation–

The Company was the exclusive licensee in the United States of certain patented technology for a urea conversion process known as “Ammonia-on-Demand” or AOD^®. During fiscal 2002, the owner of a patent covering a competing urea conversion process filed suit against the Company alleging that the Company’s AOD^® process infringed on its patent. In September 2003, the suit was settled and as part of the settlement the Company will complete the installations of three specifically identified projects should the customer decide to utilize the AOD^® system. Other than those projects, the Company will no longer provide the AOD^® system and will end its licensing agreement for the technology.

6. SUPPLEMENTAL CASH FLOW INFORMATION

Amounts paid in cash for interest during the nine months ended December 31, 2003 and 2002 were $226,000 and $492,000, respectively. Income taxes paid through December 31 2003 and 2002 were $6,000 and $0, respectively.

7. SEGMENT INFORMATION

As a result of the Company’s increased focus on the service and maintenance components of its business, the Company has restated its business segment information. Therefore, the Engineered Products business unit has been combined with those of the Systems business unit for the current and prior periods. The Company now has two reportable operating segments as of December 31, 2003: the Systems Business Unit and the Services Business Unit. The Systems Business Unit provides custom-engineered, original equipment systems to traditionally intensive users of air pollution control (APC) systems and the Services Business Unit provides maintenance, repair, and spare parts products and services to customers with particulate abatement installed APC equipment.

The segments reported below are the segments of the Company for which separate financial information is available and for which sales and operating income amounts are evaluated by executive management in deciding how to allocate resources and assess performance. The Company does not allocate assets to the individual operating segments and there are no significant intercompany sales transactions between the operating segments.

Information about reported segment sales and operating income (loss), after the allocation of selling, general and administrative expenses and the gains described in Note 4, for the three months and nine months ended December 31, 2003 and 2002 is as follows:

7

Table of Contents

The Company attributes revenues to individual geographic areas based upon the country where services are provided or products are delivered. Sales by geographic area for the three months and nine months ended December 31, 2003 and 2002 are as follows:

8. COMPREHENSIVE INCOME (LOSS)

Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. The Company’s comprehensive loss for the nine months ended December 31, 2003 and 2002 is as follows:

As of December 31, 2003, accumulated other comprehensive income was comprised of a minimum pension liability of approximately $5,924,000 and accumulated foreign currency translation adjustments of $137,000.

9. STOCK BASED COMPENSATION

The Company maintains a stock option plan that authorizes the granting of options to purchase shares of common stock at prices not less than fair market value at the date of grant. The current plan, the 1998 Stock Option Plan (the Plan), was approved by a majority of the Company’s shareholders and authorizes the granting of options to purchase up to 650,000 shares of common stock. Under the terms of the Plan, 20% of the options granted are exercisable immediately along with 20% on each of the next four anniversaries and expire five years from the date of grant. The Company accounts for stock options granted using the intrinsic value method of expense recognition and measurement prescribed by APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations (collectively, “APB No. 25”). In accordance with FASB Statement No. 123, Accounting for Stock-Based Compensation (“SFAS No. 123”), as amended by FASB Statement No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure, the following tables illustrate the effect on net loss and basic and diluted loss per share if the Company had applied the fair value based method of expense recognition and measurement provisions of SFAS No. 123 to stock-based employee compensation.

8

Table of Contents

On December 1, 2003, the Company granted 435,000 stock options to 46 employees. The weighted average fair value of these options is $0.05 per share. No stock options were granted during the six month periods ended September 30, 2003 or the nine month period ended December 31, 2002.

Under the SFAS No. 123 pro forma disclosure provisions, the fair value of options granted subsequent to December 15, 1995, has been estimated using the Black-Scholes option valuation model. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price characteristics that are significantly different from those of traded options. Because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of the Company’s outstanding options. For purposes of pro forma disclosures, the estimated fair value of options is amortized to expense over the estimated vesting period. The provisions of SFAS No. 123 may not necessarily be indicative of future results.

9

Table of Contents

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, 2003.

GENERAL

The Company designs, supplies and services systems and equipment and provides aftermarket products that enable its customers to comply with regulations limiting particulate and gaseous emissions. The Company generally is contractually responsible for all phases of design, fabrication and, if included in the scope of the Company’s contract, field construction of its equipment and systems. The Company faces substantial competition in each of its principal markets. Many contracts for the Company’s large-scale systems design and construction projects are awarded through competitive bidding and are undertaken on a fixed-price basis. Like others in its industry, the Company relies on outside suppliers, manufacturers and fabricators to supply parts and components in accordance with the Company’s designs and specifications. When the Company’s scope of work includes installation of equipment, the Company selects and supervises subcontractors for this work. The Company’s successful completion of its contractual obligations is usually determined by performance testing of its systems. The Company’s services and maintenance work is done primarily on a time and material basis and also relies on outside subcontractors and suppliers. This type of work generally is of a shorter duration (1 to 3 months) and does not include performance testing of the service or repairs.

CRITICAL ACCOUNTING POLICIES

Long-Term Contracts

The Company records sales from long-term contracts using the percentage-of-completion method. Under this method, the Company recognizes as sales that portion of the total contract price which the cost of work completed bears to the estimated total cost of the work covered by the contract. Because contracts may extend over more than one fiscal period, revisions of cost and profit estimates are made periodically and are reflected in the accounting period in which they are determined. If the estimate of total costs on a contract indicates a loss, the total anticipated loss is recognized immediately. Revenues for spare parts are recognized when those parts are shipped to the customer.

Unbilled contract costs and fees represent revenues recognized in excess of amounts billed. All unbilled contract costs and fees are expected to be collected within the next fiscal year. Billings in excess of contract costs and fees represent billings in excess of revenues recognized. The Company provides for warranty expenses on contracts based on estimates that take into account historical experience. Warranty expenses and related accruals are included in cost of sales and in accrued and other current liabilities, respectively, in the accompanying consolidated financial statements.

Inventories

Inventories are stated at the lower of cost (first-in, first-out) or market. Inventories consist principally of purchased and fabricated parts held for use in contracts and as spare parts.

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 three and nine months ended December 31, 2003 and 2002:

10

Table of Contents

THREE MONTHS ENDED DECEMBER 31, 2003 COMPARED TO

THREE MONTHS ENDED DECEMBER 31, 2002

The continued weakness in the market for the Company’s products and services resulted in current period revenues that were significantly lower than those for the same period in the prior year. Total sales for the three months ended December 31, 2003 decreased 42.1%, or $3,924,000, to $5,405,000 from $9,329,000 for the three months ended December 31, 2002. Sales decreased 10.4% in the Services business unit while the Systems business unit’s revenues decreased 68.2% from last fiscal year. The Company’s primary customer groups, utilities and pulp and paper mills, continue to face financial challenges in the markets in which they operate. In addition, there is a lack of clarity of the direction of future Federal pollution requirements to which these industries must adhere. These factors have caused a significant, prolonged lack of expenditures for air pollution control projects, service and maintenance that has adversely affected the Company and its competitors.

The Company has responded to the changes in its market and the reduction in its revenues by streamlining its operations through a reduction in its workforce and a realignment of its resources. The Company continues to provide custom design, engineering, materials and construction services for larger Systems projects, but it has placed more focus on, and has provided greater resources to, its Services business unit. The Company believes that this segment of its business with its smaller, more easily managed projects will continue to yield higher profit margins and have lower execution risks than those in the Systems business unit. In addition, the Company has a strong performance record and wide industry acceptance that should enable this segment of its business to add market share and yield more consistent operating results.

As a percentage of sales, cost of sales increased to 112.6% in the current period as compared to 103.8% in the same period of the prior year and the Company’s gross profit percentage decreased to a negative 12.6% from a negative 3.8%. This increase in cost of sales was the result of $260,000 charge to reduce the carrying value of the inventory of the Company’s Chinese subsidiary (See Note 3), a reduction in profit margins on several Systems projects and the fact that the lowered sales volumes that the Company experienced during the quarter did not allow for the Company to sufficiently leverage the fixed component of its cost of sales.

Selling, general and administrative expenses decreased 33.9%, or $457,000 to $890,000 from $1,347,000, and as a percentage of sales to 16.5% from 14.5%. The net decrease was a result of the Company’s cost reduction efforts in response to the slowdown in its business, offset by a $140,000 write down of long lived assets of the Company’s Chinese subsidiary (See Note 3).

As described in Note 4 of the notes to the financial statements, the Company recorded a $1,939,000 gain on its assignment of its master lease and a $562,000 gain on the debt restructuring.

For the reasons set forth above, the Company earned operating income of $932,000, or 17.2% of sales for the quarter ended December 31, 2003, compared to an operating loss of $1,703,000, or 18.3% of sales, for the prior year period.

Interest and other expense, net increased 1.1%, or $2,000, to $184,000 from $182,000.

The Company incurred net income before income taxes of $748,000, or 13.8% of sales, in the current year quarter, compared to a loss before income taxes of $1,885,000 or 20.2% of sales, for the prior year period.

There was a $6,000 provision for income taxes in 2003 because the Company incurred an alternative minimum tax liability on the gain generated as a result of the debt restructuring. There was no provision for income taxes in the prior period reported because the effects of the Company’s net operating loss carryforwards from prior years substantially eliminated taxes for that period.

NINE MONTHS ENDED DECEMBER 31, 2003 COMPARED TO

NINE MONTHS ENDED DECEMBER 31, 2002

Sales for the nine months ended December 31, 2003 decreased 31.3% from the same period last year from $32,905,000 to $22,618,000. The continued spending slowdown by the Company’s primary customer groups was responsible for revenue decreases in the Systems and Services business units where sales decreased 40.0% and 20.6%, respectively, for the nine months ended December 31, 2003.

As a percentage of sales, cost of sales increased slightly to 98.1% in the current period from the prior year’s 93.4%. As a result, the Company’s gross profit decreased to 1.9% for 2003 as compared to 6.6% in the prior period. This increase in cost of sales was the result of a $260,000 charge to reduce the carrying value of the inventory of the Company’s Chinese subsidiary (See Note 3), a reduction in profit margins on several Systems projects and the fact that the lowered sales volumes that the Company experienced during the period did not allow for the Company to sufficiently leverage the fixed component of its cost of sales.

11

Table of Contents

Selling, general and administrative expenses remained constant as a percentage of sales at 12.2%. This was a result of the Company’s cost reduction efforts in response to the slowdown in its business, offset by a $140,000 write down of long lived assets of the Company’s Chinese subsidiary (See Note 3).

As described in Note 4 of the notes to the financial statements, the Company recorded a $1,939,000 gain on its assignment of its master lease and a $562,000 gain on the debt restructuring.

For the reasons set forth above, the Company recorded operating income of $180,000 for the nine months ended December 31, 2003, compared to an operating loss of $1,842,000 for the prior period.

Interest and other expense, net of interest and other income, increased 22.3%, from $390,000 in 2002, to $477,000 for the nine months ended December 31, 2003. The increase was primarily due to increased borrowings in 2003.

The Company recorded a net loss before income taxes of $297,000 for the nine months ended December 31, 2003, compared to loss before income taxes of $2,232,,000 in the prior period.

There was a $6,000 provision for income taxes in 2003 because the Company incurred an alternative minimum tax liability on the income generated under the restructuring agreement with the Company’s bank. There was no provision for income taxes in the prior period reported because the effects of the Company’s net operating loss carryforwards from prior years substantially eliminated taxes for that period.

LIQUIDITY AND CAPITAL RESOURCES

The Company seeks to arrange its contracts so as to minimize its investment in net working capital, but the amount of this investment varies with the payment terms and stage of completion of its contracts. (“Net working capital invested in contracts” consists of accounts and retainages receivable and unbilled contract costs and fees, less accounts payable and less billings in excess of contract costs and fees.) Net working capital invested in contracts was a negative $845,000 at December 31, 2003 and $4.4 million at March 31, 2003. The Company also requires capital to the extent that its net cash flows from operating activities are negative.

Cash and cash equivalents increased by $180,000 and borrowings under the Company’s line of credit decreased by $6,282,000 during the nine months ended December 31, 2003. The Company had $545,000 in cash as of December 31, 2003.

The Company’s principal source of liquidity is its bank credit facility which was set to expire on April 1, 2004. That facility provided for secured borrowings of up to $15,000,000 based upon the Company’s borrowing base, consisting of unbilled contract costs and fees and certain accounts receivable reduced by outstanding letters of credit.

On December 31, 2003, the Company completed a restructuring of its outstanding bank debt. The new agreement resulted in a $5,000,000 reduction of the Company’s outstanding line of credit balance, an adjustment to the borrowing capacity under the line up to a maximum of $6,750,000 and a restructuring of the financial and other covenants within the previous borrowing agreement. In return for these accommodations, the Company assigned to the Bank its rights to a long-term master lease on its headquarters building in Baltimore, Maryland. The new agreement expires March 31, 2005 and the Company believes that it will provide sufficient liquidity to meet its operating needs for the remainder of fiscal 2004 and throughout fiscal 2005. As of December 31, 2003, the Company had outstanding borrowings of $5,370,000.

Under the terms of the new agreement, the Company’s bank did not waive any default provisions that existed under the previous agreement. However, the bank agreed to forbear from exercising its rights under the default provisions of the old agreement through the term of the new agreement, provided the Company maintains compliance with the terms of the new agreement. As disclosed in previous filings, the Company is in default with several financial covenants of the previous agreement and expects that it will work with its bank prior to March 31, 2005 to negotiate an extension of the forbearance agreement or to develop a new lending facility to replace the expiring one.

As a result of this transaction, the Company wrote off the asset “Capital lease and improvements”, eliminated the liability “Long term capital lease obligation”, reduced its “Note payable” balance by $5 million and recorded a gain on the transaction which totaled approximately $2.5 million. The total gain was comprised of a $1,939,000 gain from the assignment of the master lease and a $562,000 gain on the restructuring of the debt.

As the Company shifts more of its resources to the Services business unit and realizes more of its revenues from that business segment, the total backlog is expected to decrease due to the fact that the Services projects are smaller in scope and shorter in duration. Thus, the Company expects that its Services backlog should approximate 90 days of Services’ revenues. The Company’s backlog of unfilled orders at December 31, 2003 decreased 63% to $6.4 million from $17.4 million at December 31, 2002. New orders received during the nine months ended December 31, 2003 increased 15% from the same period last year, to $16.1 million from $14.0 million.

12

Table of Contents

The principal executive and financial officer of the Company has evaluated the effectiveness of the disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as required by paragraph (b) of Rules 13a-15 and 15d-15 under the Exchange Act), and has concluded that the Company’s disclosure controls and procedures are effective in timely alerting him to material information which is required to be included in the periodic reports that the Company must file with the Securities and Exchange Commission.

There have been no significant changes in the Company’s internal controls over financial reporting or in other factors that could significantly affect the internal controls over financial reporting subsequent to the date the Company completed its evaluation.

13

Table of Contents

PART II. OTHER INFORMATION

Project Dispute

The Company was also involved in a dispute with the construction contractor over liability for certain of the contractor’s alleged cost overruns on the project and over certain costs incurred by the contractor at the Company’s request. The contractor unilaterally invoiced the Company $1.8 million for these additional costs, which amount the Company vigorously disputed. In January 2004, the Company reached an agreement in principle to settle this dispute at an amount which had been previously accrued by the Company.

Patent litigation–

The Company was the exclusive licensee in the United States of certain patented technology for a urea conversion process known as “Ammonia-on-Demand” or AOD^®. During fiscal 2002, the owner of a patent covering a competing urea conversion process filed suit against the Company alleging that the Company’s AOD^® process infringed on its patent. In September 2003, the suit was settled and as part of the settlement the Company will complete the installations of three specifically identified projects should the customer decide to utilize the AOD^® system. Other than those projects, the Company will no longer provide the AOD^® system and will end its licensing agreement for the technology.

During its third fiscal quarter, the Company received notification from the American Stock Exchange (the “Exchange”) that EEC no longer complies with the Exchange’s continued listing standards as specified in Section 1003 (a)(i) of the Amex Company Guide in that its stockholders’ equity is less than $2 million and it has sustained losses from continuing operations and/or net losses in two of its three most recent fiscal years; Section 1003 (a)(ii) of the Amex Company Guide in that its stockholders’ equity is less than $4 million and it has sustained losses from continuing operations and/or net losses in three of its four most recent fiscal years; Section 1003 (a)(iii) of the Amex Company Guide in that its stockholders’ equity is less than $6 million and it has sustained losses from continuing operations and/or net losses in five of its most recent fiscal years; and, Section 1003(a)(iv) of the Amex Company Guide in that the company has sustained losses which are so substantial in relation with its overall operations or its existing financial resources, or its financial condition has become so impaired that it appears questionable, in the opinion of the Exchange, as to whether such company will be able to continue operations and/or meet its obligations as they mature. The Company’s appeal of this determination was denied and its stock has since been trading in the over the counter markets.

(a) Exhibits:

(b) Reports on Form 8-K:

Form 8-K, dated December 1, 2003, reported that the Company had received a determination from the American Stock Exchange (the “Exchange”) that since it no longer complies with the Exchange’s continued listing standards that the Exchange will initiate delisting proceedings.

14

Table of Contents

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.

15