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Delaware 62-1265486
(State of Incorporation) (I.R.S. Employer Identification No.)
Registrant's telephone number, including area code: (803) 652-2718
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, $.01 par value None
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 No X
Indicated by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-B is not contained herein, and will not be contained, to the best of the Company's knowledge in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. ( )
Registrant's revenues for the year ended September 30, 1999 its most recent fiscal year were $639,547.
The aggregate market value of the registrant's common stock held by non-affiliates as of November 30, 1999 was approximately $113,000. The number of shares of the registrant's common stock outstanding as of November 30, 1999 was 3,810,183.
Documents Incorporated by Reference: Definitive Proxy Statement for 1999 Annual Meeting of Shareholders Incorporated into Part II and Part III of Form 10-KSB and See Exhibit Index.
Page
Item 1. Business 3
Item 2. Properties 7
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of Security Holders 8
Item 5. Market for Common Equity & Related Stockholder Matters 8
Item 6. Management's Discussion & Analysis or Plan of Operation 9
Item 7. Financial Statements 13
Item 8. Changes in & Disagreements with Accountants on Accounting & Financial Disclosure 24
Item 9. Directors & Executives Officers, Promoters and Control Persons; Compliance With Section 16(a)of the Exchange Act 24
Item 10. Executive Compensation 24
Item 11. Security Ownership of Certain Beneficial Owners and Management 24
Item 12. Certain Relationships & Related Transactions 25
Item 13. Exhibits and Reports on Form 8-K 25
Item 1. Business
Introduction
Environmental Monitoring & Testing Corporation (the "Company") is a diversified drilling company specializing in environmental drilling, industrial water wells, recovery wells as related to environmental requirements, construction drilling and core drilling.
The Company is classified as a special trade contractor within the construction industry. However, the Company is most often a subcontractor rather than a prime or general contractor.
The Company presently operates one division located in New Ellenton, South Carolina. See Item 2. "Properties".
The Company maintains its corporate offices at 825 Main Street South, New Ellenton, SC 29809 and its telephone number is (803) 652-2718.
Environmental Drilling
Environmental drilling involves drilling for soil and water samples, drilling and installation of ground water monitoring wells, drilling and installation of recovery wells, primarily hydrocarbon wells, and drilling and installation of water supply or production wells. The Company uses drilling rigs which are drilling platforms attached to a truck, all terrain vehicle or other stable platform to perform these services. See Item 2. "Properties".
The majority of the drilling services provided by the Company are to facilitate the testing of ground water and related soil conditions. A contract generally involves drilling a predetermined number of wells at various points around a job site as identified by the customer. A job site is usually under the control of a hydrologic or geologic engineering department of the customer requiring such work. Wells drilled for the purpose of testing ground water are typically relatively shallow, averaging approximately 50 to 500 feet in depth. The time spent at a job site is more a reflection of the decontamination procedures and sampling requirements, rather than the depth of the wells. Since most jobs must be completed within a specific time period, the Company must provide as many drilling rigs as necessary to drill the required number of wells within that time. Also, conditions may require having two types of drilling rigs on a project: an auger drilling rig to drill through the softer overburden and a rotary or hammer drilling rig for rock. As a result, the Company is limited in the number of jobs which it can perform simultaneously. The Company believes however, that it possesses an advantage over the smaller competitors because of the number of rigs it owns.
The Company does not store or haul hazardous wastes. If containment, collection and removal of development water, drilling mud, drill cuttings and other hazardous waste is required, the Company places that waste in drums which Company employees move to on-site storage areas. Thereafter, the supervising engineer of the customer or other responsible party arranges for hauling and disposal by an appropriate waste disposal and transportation firm.
Seasonal Effect
Although the Company's operations are not seasonal, the Company does experience some loss of operational time due to occasional inclement weather and less favorable ground conditions.
Working Capital
Since the Company is generally a subcontractor, it is usually not paid upon completion of its work, but only after the prime or general contractor is paid. This means that the Company must maintain adequate cash to support its operations for a period of approximately two to three months. See Item 6. "Management's Discussion and Analysis".
Customers
Westinghouse Savannah River Company (WSRC) is a significant customer of the Company. The Savannah River Site (Site) is a Department of Energy material processing facility and because of the nature of its operations, it requires constant environmental assessment of ground water contamination. One of the methods of performing this assessment is through the installation of environmental monitoring wells. The WSRC Site is located approximately one mile from the Company's home office in New Ellenton, South Carolina.
The Company derived approximately 94 percent and 82 percent of its revenue in the fiscal years ended September 30, 1999 and 1998, respectively, from WSRC pursuant to its contracts for drilling services at the Site. On August 27, l998 the Company entered into a new contract with WSRC, which allocates $1.1 million to be used for environmental drilling on the Site. The period of performance is October 1, 1998 to October 1, 2000. The unit price paid for labor under this contract is fixed and the unit price for materials can be renegotiated by the Company, at the end of one year. This contract with WSRC gives the Company the right to perform environmental drilling at the Site on an as needed basis; however the dollar amount of this contract is not binding or enforceable by the Company but is a framework for releases of job orders. There can be no assurances that the work to be performed by the Company will be equal to the $1.1 million contract.
The minority of the Company's revenues are generated from other engineering and/or consulting firms responsible for evaluating the environmental concerns of their clients. The Company is engaged by such engineering or consulting firms because of their familiarity with the Company and its reputation and prior performance record. Services are generally performed through contracts obtained through competitive bidding. The Company is aggressively pursuing contracts other than those with WSRC.
The Company has reduced its scope of operations but is striving to diversify and market to customers other than WSRC. The Company is licensed to perform drilling services in three states. The Company would like to perform drilling services in other states as opportunities arise and on a very selective basis, though there can be no assurances that such diversification and expansion will be achieved.
Backlog
As of November 30, 1999 the backlog of signed and verbal contracts totaled approximately $35,000, of which none is attributable to the Site. Generally the backlog of signed and verbal contracts are not canceled, though there can be no assurances that such cancellations will not occur. This work is in progress or scheduled to be substantially completed by the end of January 2000. Since most of the Company's work (except for the WSRC contract) is of short to medium duration and awarded with little advance notice, the backlog of signed contracts at any given time is generally not representative of how well the Company is doing or will do over any particular time period.
Competition
The Company provides its services pursuant to contracts which are generally obtained through competitive bidding. As noted above, with the exception of the Company's contract with WSRC for the Site, such contracts are usually small, the majority of which have a term of less than 30 days and are limited to the drilling and installation of specific wells. Typically, there are several bidders for such contracts and, as a result, varying levels of price sensitivity. The Company's competitors in the bidding process generally have been small local drilling companies with less drilling equipment and more limited resources than the Company. Although the Company competes, to some extent, with larger companies which have greater financial resources, the Company believes that it owns comparable drilling machinery and related equipment. Management expects to remain competitive because of its drilling experience, performance record, continued safety training and equipment availability and reliability.
Governmental Regulation
Drilling is a licensed occupation. All of the states in which the Company operates require that the Company and/or its drilling supervisors obtain licenses to drill and install wells. Such licenses are generally subject to annual renewal. Neither the Company nor any of its drilling supervisors have been unable to obtain renewal of their licenses. Although no assurances can be given, the Company believes that it is in compliance with all current licensing requirements for the states where it conducts business. The expansion of division offices and/or operations into additional states may require further licensing.
At present, the Company's business is not directly regulated, except for the drilling licenses discussed above, however since the Company performs work on governmental projects it falls under the regulation of the United States Department of Energy, the Environmental Protection Agency and various state environmental agencies. Any violations of such regulations could prevent the Company from working on governmental projects.
Since the majority of its work relates to drilling and installing wells for environmental monitoring and testing, the Company benefits from environmental, health, safety and hazardous waste regulations. Governmental regulation at both the Federal and State levels has increased and is becoming more restrictive. It is not possible to predict whether the Company's activities will become directly regulated as a result of the increase in governmental regulation.
Management believes that the increased governmental regulation of industrial wastes and pollution will create a greater demand for services offered by the Company, though no assurances can be had that the Company will benefit from this demand.
Employees
As of November 30, 1999 the Company employed a total of 8 employees. See Item 1. "Business-Introduction".
Bonding
Bonding is required on occasion and the Company has been able to obtain bonding on a per job basis. The bonding company has not established a bonding limit on a per job basis or in the aggregate, and increased bonding limits, subject to the financial strength of the Company, can generally be obtained by rendering a letter of credit or a cash deposit equal to five per cent of the face value of the bonding amount. The Company anticipates a continuing improvement in bonding capacity in accordance with a continuing improvement in the financial strength of the Company; however, no assurances can be given of any long term surety commitment.
Insurance
The Company carries a $1 Million general liability insurance policy which has minimal coverage for environmental damage caused by negligence. In addition, the Company has a $2 Million "umbrella" policy for a total of $3 Million of general liability insurance. The liability insurance maintained by the Company covers bodily injury and property damage. These policies are subject to dollar limitations and other numerous exceptions and conditions. The Company has workers' compensation insurance which covers employees exposed to contaminant and toxic waste. The Company does not purchase additional insurance for pollution liability or environmental impairment since virtually all of the Company's drilling is performed on a subcontractor basis at the direction of or under the supervision of various engineers or environmental consultants retained by the customer, therefore the exposure for this type of claim appears remote. Although the Company believes that its insurance coverage is adequate, there can be no assurance that such insurance coverage will be sufficient for all or any particular claim for which the Company may be found liable. Moreover, there can be no assurance that the insurance currently maintained by the Company will be available in the future or that the cost of such insurance will not be prohibitive. A partially or completely uninsured claim of sufficient magnitude could have a material adverse effect on the business and financial condition the Company.
Year 2000
The Company has reviewed its existing computer system and its associated software to ensure that these systems are able to address the issues expected to arise in the year 2000 and thereafter. It is the opinion of management that the Company will not suffer any adverse affects relating to the Y2K issue or incur any significant expense related to the replacement of hardware or software.
The Company has not fully determined the extent to which the Company's systems may be impacted by third parties' systems, which may not be Y2K compliant. While the Company has begun efforts to seek reassurance from its suppliers, there can be no assurance that the systems of other companies, which the Company deals with, will be Y2K compliant. Third parties' non-compliance could have an adverse effect on the Company. At this time the Company is unable to estimate the cost of Y2K non-compliance by third parties.
Item 2. Properties
The Company presently operates business from one location: its headquarters and division office in South Carolina.
The Company headquarters and division office is located in New Ellenton, South Carolina. The Company owns the facility, consisting of four buildings on 4.83 acres fronting on South Carolina Highway 19. The four steel frame and metal buildings consist of: a 3,600 square foot office building; 3,200 square feet of maintenance shops; 4,800 square feet of warehouse; and approximately 4,200 square feet of other shops and storage. The balance of the property is used to park vehicles and equipment when not being used on a job site and while awaiting repair.
During 1998, the Company sold a drill rig and tooling. As equipment is sold the proceeds have been used enhance working capital. The Company did not consider this equipment to be materially important to its operation since suitable equipment is available. See Item 6. "Management's Discussion & Analysis" and Item 7. "Financial Statements".
The Company uses approximately five drilling rigs, including two auger rig and three rotary rigs. The Company also owns one pump pulling or service rig. Additionally, the Company owns adequate support equipment such as water trucks, steam cleaners, compressors, trailers and safety equipment. The Company operates a vehicle service facility, a welding shop, a paint shop and a machine shop on the New Ellenton property, which enable the Company to modify, rebuild and maintain its vehicles, drilling rigs and related equipment. From time to time the Company may sell equipment if it believes the equipment is not required.
Item 3. Legal Proceedings
During 1995 the Company signed a letter of intent to merge with Jansko, Inc. Jansko, Inc. was engaged in designing, manufacturing and marketing office furniture including seating products, desks, tables, and credenzas. Since the signing of the letter of intent the Company advanced $385,841 to Jansko, Inc. in conjunction with the proposed merger of the two Companies.
The Company did not merge with Jansko, Inc., and on May 1, 1996 Mr. George J. Georges, the Company's President and CEO, filed a petition in the Federal District Court of Fort Lauderdale, Florida to move Jansko, Inc., into Chapter 7--Liquidation of the Bankruptcy Act and it Amendments. On May 23, 1996 an Order For Relief was entered by the United States Bankruptcy Court, Southern District of Florida in Fort Lauderdale, Florida. As a result of these events and uncertainty of any recovery, the Company recorded a loss during the quarter ended March 31, 1996 on all advances and loans to Jansko, Inc.
A majority shareholder of the Company filed various lawsuits against certain officers and directors of Jansko, Inc. and related parties on behalf of the Company and other parties seeking restitution of funds advanced. The Company and other parties assigned their rights to the majority shareholder and will share in any awards less legal and other expenses, on a pro rata basis. In September 1998 the Company was advised that a settlement was reached with a related party and that the Company would receive $115,086. This amount was deposited into the Company's bank account on October 13, 1998.
On November 12, 1999 the Company was named as a defendant in a breach of contract suit filed in the South Carolina Court of Common Pleas in Aiken County by a former officer and employee. The suit seeks actual, consequential, and incidental damages. The Company is aggressively defending this action and alleges that this action is without merit.
Item 4. Submission of Matters to a Vote of Security Holders
None during the quarter ended September 30, 1999.
Item 5. Market for the Common Equity and Related Stockholder Matters
There has been an established public market for the Company's securities since February 23, 1989. The Company's securities are traded in the "Over the Counter" (OTC) market and were listed in the National Association of Securities Dealers Automated Quotation (NASDAQ) System until August 26, 1992. On August 27, 1992 the Company's securities were delisted from the NASD Small Cap Market for failure to meet the minimum bid price requirement as forth in Section 1(c)(4) of Part II of Schedule D of the NASD By-Laws. On August 27, 1992 the Company's securities were listed in the Over the Counter Bulletin Board. The securities were listed under the trading symbol EMON but are now listed under the trading symbol EVMT.
Shares of the Company's Common Stock $.01 par value.
The high and low bid quotations for the Company's securities as reported by the Over the Counter Bulletin Board are set forth below. The prices set forth below are not necessarily indicative of the depth of the trading market in each of the Company's Securities.
Bid Prices (1)
Common Stock High Low
First Quarter Ending 12/31/98 $0.12 $0.05
Second Quarter Ending 3/31/99 $0.36 $0.14
Third Quarter Ending 6/30/99 $0.32 $0.22
Fourth Quarter Ending 9/30/99 $0.20 $0.14
Bid Prices (1)
Common Stock High Low
First Quarter Ending 12/31/97 $0.06 $0.02
Second Quarter Ending 3/31/98 $0.06 $0.02
Third Quarter Ending 6/30/98 $0.09 $0.06
Fourth Quarter Ending 9/30/98 $0.09 $0.02
(1) Such over-the-counter market quotations reflect in-dealer prices, without retail mark-up, mark-down or commission, and may not necessarily represent actual transactions.
As of September 30, 1999 there were approximately 125 shareholders of record of the Company's common stock. The Company believes that there are in excess of 250 beneficial owners of the common stocks.
The Company has never paid any dividends on its Common Stock and it is not anticipated that any dividends will be paid in the foreseeable future. The Board of Directors intends to follow a policy of retaining earnings, if any, to finance the growth of the Company. The declaration and payment of dividends in the future will be determined by the Board of Directors in the light of conditions then existing, including the Company's earnings, financial condition, capital requirements and other factors.
Item 6. Management's Discussion and Analysis or Plan of Operation
Results of Operations
During the first quarter of fiscal year 1999, the Company experienced a significant increase in the demand for services provided by the Company. This condition did not continue during the remainder of the year, as there was a significant decrease in the demand for drilling services provided by the Company during the second, third and fourth quarters. Increased marketing efforts have been implemented to reduce the reliance on the Savannah River Plant.
Though no assurances can be made, the Company anticipates that these efforts and energies will improve the utilization of drilling equipment and related assets. Management is committed to monitoring the operating results and to make decisions based upon those monitored results to maximize the return on investment of the assets deployed by its operations.
Comparison of Fiscal Years 1999 and 1998
Contract revenue decreased approximately $332,000 or 34% in 1999 as compared to 1998. The decrease in the revenue was the result of a decrease in the requirement of drilling services at the Savannah River Site, which was not offset by increased revenue from independent engineering consultants.
Direct contract costs decreased $73,535 but increased 11.7% of revenues in 1999 as compared to 1998. Of this, $151,000 represents a decrease in volume while $77,000 represents an increase in other costs and a rise in labor costs resulting from a decline in operating efficiencies.
Indirect contract costs were relatively flat and increased 7.4% as a percent of revenues in 1999 as compared to 1998. The percentage increase was a result of an overall decrease in revenues during the period as measured against costs which are relatively fixed.
Selling, general and administrative expenses decreased $35,802 but increased 6.8% as a percent of revenue in 1999 as compared to 1998. The percentage increase is a result of fixed administrative expenses being compared to decreased revenues in 1999.
Depreciation expense decreased $8,691 because of the sale of a drill rig in 1998 and as a direct result of the age of certain equipment. These factors offset the depreciation impact for the drill rig purchased in late fiscal 1998. See Item 7. "Financial Statements".
During 1998 a drill rig was sold with a cost basis of $62,352 resulting in a gain of $11,550. The amount of the gain is recorded as a gain on the sale of machinery and equipment. Miscellaneous equipment and supplies were sold during 1999 and 1998, these items were both recorded as other income during 1999 and 1998.
Interest income is a result of the investment of cash in short term treasury instruments.
The income tax benefit (expense) is a result of the statutory rates of federal income taxes and alternative minimum tax. The Company has taken a very conservative approach and has not recorded any deferred tax benefits associated with the net operating loss carry forwards. There currently are net operating carry overs for federal income tax purposes of approximately $1,404,000 and $1,404,000 for state income tax purposes . See Item 7. "Financial Statements".
Management has recognized that the Company can not solely concentrate on environmental drilling work and seeks to increase its marketing effort to increase construction drilling and to solicit drilling of production or supply wells. Management intends to continue these efforts and to be selective in market areas and types of work contracted. Management continues to search for companies that fit into related business segments, that can contribute to the growth of the Company, benefit from the Company's expertise and provide diversification in general and a more stable revenue flow, though no assurances can be had that such acquisitions or ventures will be undertaken. The Company is also seeking to diversify by evaluating other sources of income including, investment opportunities and joint ventures.
Although inflation has slowed in recent years, it is still a factor in bidding for long term contracts and the Company continues to seek ways to cope with its impact. Since most of the Company's contracts are short term, the Company is able to pass on any increased costs to the extent permitted by competition. For the longer term and multi-year contracts which normally do not allow price adjustments, the Company makes its best estimate of a competitive inflation factor and absorbs any difference in cost.
Liquidity and Capital Resources
During 1999, the Company generated its working capital and capital expenditure requirements through cash reserves generated during 1998. In 1998, working capital and capital expenditure requirements were generated from profitable operating results. The Company's capital expenditures are generally needed for the replacement of equipment and the Company believes that its liquidity is sufficient to handle such replacement. At September 30, 1999, the Company had working capital of $243,663 and a current ratio of 7.4 to 1. At September 30, 1999, the total indebtedness aggregated $38,180 and shareholders' equity was $593,144. At September 30, 1999 the debt to equity ratio was .06 to 1.
On October 1, 1998 the Board of Directors authorized the Company to purchase common stock of the Company for Treasury shares in the open market at a price not to exceed the net book value of the shares of common stock. During fiscal 1999, the Company repurchased 205,200 shares of common stock or approximately 5% of the outstanding shares at a total purchase price of $19,336.
During 1995 the Company signed a letter of intent to merge with Jansko, Inc. Jansko, Inc. was engaged in designing, manufacturing and marketing office furniture including seating products, desks, tables, and credenzas. Since the signing of the letter of intent the Company advanced $385,841 to Jansko, Inc. in conjunction with the proposed merger of the two Companies.
The Company did not merge with Jansko, Inc., and on May 1, 1996 Mr. George J. Georges, the Company's President and CEO, filed a petition in the Federal District Court of Fort Lauderdale, Florida to move Jansko, Inc., into Chapter 7--Liquidation of the Bankruptcy Act and it Amendments. On May 23, 1996 an Order For Relief was entered by the United State Bankruptcy Court, Southern District of Florida in Fort Lauderdale, Florida. As a result of these events and uncertainty of any recovery, the Company recorded a loss during the quarter ended March 31, 1996 on all advances and loans to Jansko, Inc.
A majority shareholder of the Company filed various lawsuits against certain officers and directors of Jansko, Inc. and related parties on behalf of the Company and other parties seeking restitution of funds advanced. In September 1998 the Company was advised that a settlement was reached with a related party and that the Company would receive $115,086. This amount was deposited into the Company's bank account on October 13, 1998. See Part 1, Item 3 "Legal Proceedings" and Part II, Item 7 "Financial Statements".
The Company also has ongoing programs to generate greater revenue, reduce operating costs and to increase accounts receivable turnover to consistently generate positive cash flow. Although no assurances can be given, the Company believes that these actions will result in adequate liquidity for the next fiscal year.
Minimal capital expenditures were incurred during 1999, however, a drill rig was acquired during 1998. At present, the Company has adequate levels of property and equipment to operate its business and is continuing to evaluate equipment requirements. See Item 7. "Financial Statements".
On November 3, 1999 the majority shareholder of the Company sold a portion of his controlling interest in the Company to an unrelated third party along with transferring substantially all of his voting rights. The above sale may ultimately limit the Company's utilization of its net operating loss carryforward.
In conjunction with this transaction the Company borrowed $175,000 from a bank, which it secured by a certificate of deposit in the amount of $175,000. The proceeds of this loan were advanced to the acquiring shareholder and used to purchase the stock from the former majority shareholder.
This transaction resulted in a reduction of the working capital of the Company. The acquiring shareholder is a partnership and the general partners have, and will, from time to time make advances to the Company on behalf of the partnership to reduce the loan from the Company to the partnership. However, no assurances can be given that these advances will continue to meet the working capital needs of the Company.
Item 7. Financial Statements
Page
Report of Margolies, Fink and Wichrowski, Independent Public Accountants 14
Balance Sheet as of September 30, 1999 15
Statement of Operations for Years Ended September 30, 1999 and 1998 16
Statement of Changes in Stockholders' Equity for Years Ended
September 30, 1999 and 1998 17
Statement of Cash Flows for Years Ended September 30, 1999 and 1998 18
Notes to Financial Statements 19
All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions, are inapplicable or have been omitted.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Board of Directors
Environmental Monitoring &
Testing Corporation
New Ellenton, South Carolina
We have audited the accompanying balance sheet of Environmental Monitoring & Testing Corporation as of September 30, 1999, and the related statements of operations, stockholders' equity and cash flow for the two years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to report on these financial statements based on the results of our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Environmental Monitoring & Testing Corporation as of September 30, 1999 and its results of operations and its cash flows for the two years then ended in conformity with generally accepted accounting principles.
/s/ Margolies, Fink and Wichrowski
Pompano Beach, Florida
November 1, 1999
| ASSETS | |||
| Current assets: | |||
| Cash and cash equivalents | $ | 193,788 | |
| Accounts receivable-trade | 65,279 | ||
| Inventories | 5,400 | ||
| Other current assets | 10,876 | ||
| Receivable from officer and director | 6,500 | ||
| Total current assets | 281,843 | ||
| Property, plant and equipment, net | 349,481 | ||
| $ | 631,324 | ||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||
| Current liabilities: | |||
| Accounts payable | $ | 7,583 | |
| Accrued expenses | 30,597 | ||
| Total current liabilities | 38,180 | ||
| Stockholders' equity: | |||
| Preferred stock, $.01 par value, 1,000,000 shares | |||
| authorized and none issued | |||
| Common stock, $.01 par value, 30,000,000 shares | |||
| authorized and 6,184,000 shares issued | 61,840 | ||
| Capital-in-excess of par | 1,978,483 | ||
| Accumulated deficit | (1,230,916) | ||
| 809,407 | |||
| Less: Cost of treasury stock, 2,373,817 | |||
| shares held at September 30, 1999 | (216,263) | ||
| Total stockholders' equity | 593,144 | ||
| $ | 631,324 |
The accompanying notes are an integral part of these financial statements.
| 1999 | 1998 | |||
| Contract revenue | $ | 639,547 | $ | 970,761 |
| Contract costs and expenses: | ||||
| Direct contract cost | 360,532 | 434,067 | ||
| Indirect contract cost | 154,244 | 161,533 | ||
| Selling, general and administrative expenses | 196,728 | 232,530 | ||
| Depreciation | 25,133 | 33,824 | ||
| (Gain) on sale of machinery and equipment | (250) | (11,550) | ||
| Total contract costs and expenses | 736,387 | 850,404 | ||
| Income (loss) from operations | (96,840) | 120,357 | ||
| Other income (expenses): | ||||
| Interest income | 11,938 | 3,670 | ||
| Interest expense | -- | (500) | ||
| Settlement of litigation | -- | 115,086 | ||
| Other, net | 294 | 2,300 | ||
| Total other income | 12,232 | 120,556 | ||
| Net income (loss) | $ | (84,608) | $ | 240,913 |
| Net income (loss) per share information: (Note 1) | ||||
| Basic: | ||||
| Net income (loss) per share | $ | (.02) | $ | .06 |
| Weighted average number of common shares | 3,816,860 | 3,975,383 | ||
| Diluted: | ||||
| Net income (loss) per share | $ | (.02) | $ | .06 |
| Weighted average number of common shares | 3,816,860 | 3,975,383 |
The accompanying notes are an integral part of these financial statements.
| Capital |
| Common | Treasury | in excess | Retained |
| Shares | Amount | Shares | Amount | of par | (Deficit) | Total | |
| Balance, September 30, | |||||||
| 1997 | 6,144,000 | $ 61,440 | (2,168,617) | $ (196,927) | $ 1,972,883 | $(1,387,221) | $ 450,175 |
| Net income | 240,913 | 240,913 | |||||
| Balance September 30, | |||||||
| 1998 | 6,144,000 | $ 61,440 | (2,168,617) | $ (196,927) | $ 1,972,883 | $(1,146,308) | $ 691,088 |
| Purchase of common stock | (205,200) | (19,336) | (19,336) | ||||
| Issuance of common stock | |||||||
| to a director and employees | 40,000 | 400 | 5,600 | 6,000 | |||
| Net (loss) | (84,608) | (84,608) | |||||
| Balance September 30, | |||||||
| 1999 | 6,184,000 | $ 61,840 | (2,373,817) | $ (216,263) | $ 1,978,483 | $ (1,230,916) | $ 593,144 |
The accompanying notes are an integral part of these financial statements.
| 1999 | 1998 | |||
| Cash flows from operating activities: | ||||
| Net income (loss) | $ | (84,608) | $ | 240,913 |
| Adjustments to reconcile net income to net cash | ||||
| provided by operating activities: | ||||
| Depreciation | 25,133 | 33,824 | ||
| (Gain) on sale of machinery and equipment | (250) | (11,550) | ||
| Issuance of common stock for services | 6,000 | --- | ||
| Changes in certain assets and liabilities: | ||||
| Inventories | 8,600 | (11,500) | ||
| Accounts receivable | 290,019 | (266,291) | ||
| Receivable from officer and director | (6,500) | --- | ||
| Other current assets | (5,174) | (3,002) | ||
| Accounts payable | (73,346) | 58,890 | ||
| Other current liabilities | (11,725) | 25,529 | ||
| Net cash used in operating activities | 148,149 | 66,813 | ||
| Cash flows from investing activities: | ||||
| Sale of machinery and equipment | 250 | 18,800 | ||
| Purchase of machinery and equipment | (4,094) | (59,550) | ||
| Net cash used in investing activities | (3,844) | (40,750) | ||
| Cash flows from financing activities: | ||||
| Common stock purchases | (19,336) | -- | ||
| Proceeds from borrowing | -- | 55,000 | ||
| Principal payments for borrowings | -- | (55,000) | ||
| Net cash provided by (used in) financing activities | (19,336) | -- | ||
| Net increase in cash and cash equivalents | 124,969 | 26,063 | ||
| Cash and cash equivalents, beginning of period | 68,819 | 42,756 | ||
| Cash and cash equivalents, end of period | $ | 193,788 | $ | 68,819 |
| Supplemental disclosure: | ||||
| Issuance of common stock for services | $ | 6,000 | $ | -- |
| Sale of assets through accounts receivable | 1,500 | |||
| Cash paid for interest | 500 | |||
| Total supplemental disclosure | $ | 6,000 | $ | 2,000 |
The accompanying notes are an integral part of these financial statements.
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Environmental Monitoring & Testing Corporation (the "Company") is a Delaware corporation, incorporated on May 10, 1988. The Company is engaged in the business of drilling wells, primarily for the purpose of environmental monitoring and testing, principally in South Carolina and Georgia.
Cash equivalents
For purposes of the Statements of Cash Flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.
Accounts receivable
Accounts receivable are reported at their net realizable value. An allowance for doubtful accounts is recognized when the Company does not expect to collect the full amount of its accounts receivable. The Company considers accounts receivable to be fully collectible at September 30, 1999.
Inventories
Inventories are recorded at the lower of cost (measured on a first-in, first-out basis) or market. Inventories consist solely of supplies, such as pipe, sand, cement, bentonite, pumps, etc., which are used in the construction of various types of wells.
Property, plant and equipment
Property, plant and equipment are recorded at cost, less accumulated depreciation. For financial reporting purposes, depreciation is computed on the straight-line method over the useful lives of the assets. Accelerated methods of depreciation are used for income tax purposes. Expenditures for renewals and betterments, which increase the estimated useful life or capacity of assets, are capitalized. Expenditures for repairs and maintenance are charged to expense as incurred.
Accounting estimates
Management of the Company occasionally uses accounting estimates in determining certain revenues and expenses. Estimates are based on subjective as well as objective factors and, as a result, judgment is required to estimate certain amounts at the date of the financial statements.
Recoverability of long-lived assets
The Company has adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." The Statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. The Company is not aware of any events or circumstances which indicate the existence of an impairment which would be material to the Company's financial statements.
Contract revenue and costs
The Company recognizes revenues on contracts based upon direct labor hours worked and services completed and accepted by the customer. Contract costs and expenses are recorded as incurred.
Income taxes
Deferred income taxes in the accompanying financial statements reflect temporary differences in reporting results of operations for income tax and financial accounting purposes. The principal timing differences in recognition of income taxes result from using the cash basis of accounting for income tax purposes and the accrual basis for financial reporting purposes, and the difference in book and tax basis of property, plant and equipment.
Net income (loss) per share
In 1998, the Company adopted SFAS No. 128, ("Earnings Per Share"), which requires the reporting of both basic and diluted earnings per share. Basic net loss per share is determined by dividing loss available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted loss per share reflects the potential dilution that could occur if options or other contracts to issue common stock were exercised or converted into common stock, as long as the effect of their inclusion is not anti-dilutive.
2. LOSS ON ADVANCES TO JANSKO, INC.
During 1995 the Company signed a letter of intent to merge with Jansko, Inc. Jansko, Inc. was engaged in designing, manufacturing and marketing office furniture including seating products,
desks, tables, and credenzas. Since the signing of the letter of intent the Company advanced $385,841 to Jansko, Inc. in conjunction with the proposed merger of the two Companies.
The Company did not merge with Jansko, Inc., and on May 1, 1996 Mr. George J. Georges, the Company's President and CEO, filed a petition in the Federal District Court of Fort Lauderdale,
Florida to move Jansko, Inc., into Chapter 7--Liquidation of the Bankruptcy Act and its Amendments. On May 23, 1996 an Order For Relief was entered by the United State Bankruptcy Court, Southern District of Florida in Fort Lauderdale, Florida. As a result of these events and uncertainty of any recovery, the Company recorded a loss during the quarter ended March 31, 1996 on all advances and loans to Jansko, Inc.
A majority shareholder of the Company filed various lawsuits against certain officers and directors of Jansko, Inc. and related parties on behalf of the Company and other parties seeking restitution of funds advanced. In September 1998 the Company was advised that a settlement was reached with a related party and that the Company would receive $115,086. This amount was deposited into the Company's bank account on October 13, 1998.
3. PROPERTY, PLANT AND EQUIPMENT
At September 30, 1999, property, plant and equipment consisted of the following:
| Useful Lives | Accumulated | Net Book | ||
| (Years) | Value | |||
| Land | $ 109,617 | $ - | $ 109,617 | |
| Buildings and improvements | 30 | 304,958 | 111,551 | 193,407 |
| Drilling equipment and vehicles | 2 - 7 | 405,042 | 358,584 | 46,458 |
| Furniture and fixtures | 3 - 5 | 9,459 | 9,459 | - |
| Total property, plant, and equipment | $ 829,076 | $ 479,594 | $ 349,482 | |
The Company rents equipment on an as needed basis for terms of one day to several months. Rent expense for the years ended September 30, 1999 and 1998, was approximately $16,306 and $3,190 resp
5. STOCK OPTION PLANS
In November, 1992 the Company's Board of Directors adopted the 1992 Stock Option Plan (the "Plan") which was approved by the Shareholders at the 1992 Annual Meeting on January 8, 1993. The purpose of the Plan is to encourage and enable employees, directors and other persons upon
whose judgment, initiative and efforts the Company largely depends to acquire a proprietary interest in the Company. Under the Plan, the Board of Directors, or a Stock Option Committee appointed by the Board of Directors, may grant stock purchase options ("Options") relating to a maximum of 1,000,000 shares of Common Stock (subject to adjustment due to certain
recapitalizations, reorganizations or other corporate events). The Board of Directors or the Company's Stock Option Committee shall have discretion to determine which of this amount may
be granted as incentive stock options ("ISO's") and non-statutory options. If any Option expires, terminates or is canceled without having been exercised, the shares subject to that option will again be available for issuance under the Plan.
As of September 30, 1999, there were no options issued under the plan.
6. INCOME TAXES
The Company accounts for income taxes according to Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes".
The net deferred tax asset (liability) in the accompanying balance sheet as of September 30, 1999 includes deferred tax assets and liabilities attributable to the following items:
| Deferred tax assets (liability): | |
| Accrual to cash basis of accounting | $ (12,255) |
| Depreciation | (3,413) |
| Investment credit carry forwards | 6,933 |
| Net operating loss carry forwards | 444,686 |
| Net deferred tax asset (liability) | 435,951 |
| Valuation allowance for deferred tax assets | (435,951) |
| Net deferred asset tax (liability) | $ 0 |
As of September 30, 1999, the Company had available a cumulative federal net operating loss carry forward of approximately $1,411,000 which expires as follows: $46,000 in 2007, $406,000 in 2008, $394,000 in 2010, $540,000 in 2012, $25,000 in 2013, and a capital loss carryover of
approximately $24,000 which expires in 2000. In addition, the Company has available an investment tax credit carry forward of $6,933 which expires in 2002. See Subsequent Events, Note 10.
7. STOCKHOLDERS' EQUITY
On October 1, 1998 the Board of Directors authorized the Company to purchase common stock of the Company for Treasury shares in the open market at a price not to exceed the net book
value of the shares of common stock. During fiscal 1999, the Company repurchased 205,200 shares of common stock at a total purchase price of $19,336.
In January 1999 stock awards for 40,000 shares of restricted common stock of the Company were authorized by the Board of Directors and awarded to two employees and a director of the Company. The restricted common shares issued resulted in a $6,000 charge against fiscal 1999 income.
8. OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF CREDIT
The Company's financial instruments subject to credit risk are primarily trade accounts receivable. Generally, the Company does not require collateral or other security to support customer receivables. The Company derived approximately 94 percent and 82 percent of its revenue in the years ended September 30, 1999 and 1998, respectively, from a single customer, the Westinghouse Savannah River Company, a material processing facility owned by the United States Department of Energy. A disruption of this relationship or a material reduction in the volume of business with the Westinghouse Savannah River Company could have a material adverse affect on the Company.
9. COMMITMENTS AND CONTINGENCIES
On November 12, 1999 the Company was named as a defendant in a breach of contract suit filed in the South Carolina Court of Common Pleas in Aiken County by a former officer and employee. The suit seeks actual, consequential, and incidental damages. The Company is aggressively defending this action and alleges that this action is without merit.
10. SUBSEQUENT EVENTS
On November 3, 1999 the majority shareholder of the Company sold a portion of his controlling interest in the Company to an unrelated third party along with transferring substantially all of his voting rights. The above sale may ultimately limit the Company's utilization of its net operating loss carryforward.
In conjunction with this transaction the Company borrowed $175,000 from a bank, which it secured by a certificate of deposit in the amount of $175,000. The proceeds of this loan were advanced to the acquiring shareholder and used to purchase the stock from the former majority shareholder.
Item 8. Changes in and Disagreements with Accountant on Accounting and Financial Disclosure
The information requested by this item is hereby incorporated by reference from the Company's definitive proxy statement to be filed pursuant to Regulation 14C no later than 120 days after the Company's fiscal year end.
Item 9. Directors, Executive Officers, Promoters and Control Persons, Compliance With Section 16(a) of the Exchange Act
Directors, Executive Officers, Promoters and Control Persons
The information requested by this item is hereby incorporated by reference from the Company's definitive proxy statement to be filed pursuant to Regulation 14C no later than 120 days after the Company's fiscal year end.
Compliance With Section 16(a) of the Exchange Act
To the Company's knowledge, based solely on review of the copies of such reports furnished to the Company and written representations from reporting persons that no reports were required for those persons, during the fiscal year ended September 30, 1999.
Item 10. Executive Compensation
The information requested by this item is hereby incorporated by reference from the Company's definitive proxy statement to be filed pursuant to Regulation 14C no later than 120 days after the Company's fiscal year end.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The information requested by this item is hereby incorporated by reference from the Company's definitive proxy statement to be filed pursuant to Regulation 14C no later than 120 days after the Company's fiscal year end.
Item 12. Certain Relationships and Related Transactions
Compensation and Employee Agreements
The information requested by this item is hereby incorporated by reference from the Company's definitive proxy statement to be filed pursuant to Regulation 14C no later than 120 days after the Company's fiscal year end.
Related Party Transactions
The information requested by this item is hereby incorporated by reference from the Company's definitive proxy statement and supplement thereto to be filed pursuant to Regulation 14C no later than 120 days after the Company's fiscal year end.
Options
The information requested by this item is hereby incorporated by reference from the Company's definitive proxy statement to be filed pursuant to Regulation 14C no later than 120 days after the Company's fiscal year end.
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits Incorporated by Reference
The following exhibits which are on file with the Securities and Exchange Commission are incorporated herein by reference as exhibits hereto.
Exhibit No. Description
3.I Articles of Incorporation of the Company**
3.ii By-laws of the Company**
4 Specimen Share Certificate*
22 Published report regarding matters submitted to vote - Definitive Proxy
* Incorporated by reference to registrant's Amendment No. 2 to Registration Statement on Form S-18 as filed on January 25, 1989
** Incorporated by reference to the registrant's Registration Statement on Form S-18 as filed November 16, 1989.
(b) Reports on Form 8-K in the Fourth quarter of fiscal year 1999: None
Note: Copies of Exhibits to Form 10-KSB will be furnished upon the written request of any shareholder of the Company at a charge of $.25 per page plus postage or shipping.
SIGNATURES
In accordance with Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by undersigned, there unto duly authorized.
Environmental Monitoring & Testing Corporation
Date: December 28, 1999 By /s/ Vincent Ferri
Vincent Ferri, President and CEO
In accordance with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
Signature Capacity Date
/s/ Vincent Ferri President, Chief Executive Officer December 28, 1999
Vincent Ferri and Director
/s/ Martin Jacoby Director December 28, 1999
Martin Jacoby
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