SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
X Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 1999 or
Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from -------------to --------------
Commission file number 0-22136
MENLO ACQUISITION CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 77-0332937
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
100 Misty Lane
Parsippany, NJ 07054
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (973) 560-1400
Indicate by check mark whether the registrant (1) has filed all reports required
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 No X
At August 3, 1999 the registrant had issued and outstanding an aggregate of
5,263,348 shares of its common stock.
<PAGE>
INDEX
MENLO ACQUISITION CORPORATION
AND SUBSIDIARIES
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
June 30, 1999 (Unaudited) and
December 31, 1998........................................ F-3
Condensed Consolidated Statements of Income -
Six and Three Months Ended June 30, 1999 and
June 30, 1998 (Unaudited)...........................F-4 - F-5
Condensed Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1999 and
June 30, 1998 (Unaudited)................................ F-6
Notes to Condensed Consolidated Financial Statements
June 30, 1999 (Unaudited)...........................F-7 - F-11
Item 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations
PART II. OTHER INFORMATION
Item 1. Not Applicable
Item 2. Not Applicable
Item 3. Not Applicable
Item 4. Not Applicable
Item 5. Not Applicable
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
MENLO ACQUISITION CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1999 AND DECEMBER 31, 1998
June December
30, 1999 31, 1998
-------- --------
(Unaudited) (See Note 1)
ASSETS (In thousands of dollars)
Current assets:
Cash $ 1,257 $ 25
Marketable securities, at market 181 -
Accounts receivable:
Trade, net of allowance for doubtful
accounts of $626 and $566 3,837 4,833
Unbilled receivables 175 107
Affiliates 292 285
Prepaid expenses and other current assets 70 82
Due from affiliate - 27
----------- ---------
Total current assets 5,812 5,359
Equipment and furnishings, net of accumulated
depreciation of $732 and $550 1,144 1,020
Other assets 17 38
--------- ---------
Totals $6,973 $6,417
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable - bank $ - $ 400
Current portion of long-term debt 106 106
Accounts payable 818 610
Customer deposits 436 523
Accrued expenses and other liabilities 553 243
Income taxes payable 254 -
Due stockholder - 55
--------- ---------
Total current liabilities 2,167 1,937
Long-term debt, net of current portion 221 275
-------- --------
Total liabilities 2,388 2,212
------- -------
Stockholders' equity:
Common stock, $.0001 par value; 40,000,000
shares authorized; 5,263,348 issued and
outstanding 1 1
Additional paid-in capital 4,204 4,204
Retained earnings 380 -
-------- ---------
Total stockholders' equity 4,585 4,205
------- -------
Totals $6,973 $6,417
====== ======
See Notes to Condensed Consolidated Financial Statements.
F-3
<PAGE>
MENLO ACQUISITION CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(Unaudited)
1999 1998
------ ------
(In thousands of dollars,
except share data)
Gross revenue $6,521 $4,703
Direct project costs and other costs of
operations 2,562 1,962
------- -------
Net revenue 3,959 2,741
------- -------
Expenses:
Labor and related expenses 981 901
Selling, general and administrative 2,372 2,115
Interest 21 42
------- -------
Totals 3,374 3,058
------- -------
Income(loss)from operations 585 (317)
Other income 49 49
------- -------
Income(loss) before income taxes 634 (268)
Provision (credit) for income taxes 254 (107)
(See Note 5) ------ -------
Net income (loss) $ 380 $ (161)
======= =======
Basic net income (loss) per share $.07 $(.03)
==== =====
Basic weighted average common shares
outstanding 5,263,348 5,263,348
========= =========
See Notes to Condensed Consolidated Financial Statements.
F-4
<PAGE>
MENLO ACQUISITION CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED JUNE 30, 1999 AND 1998
(Unaudited)
1999 1998
------ ------
(In thousands of dollars,
except share data)
Gross revenue $3,274 $2,395
Direct project costs and other costs of
operations 1,259 1,124
------- -------
Net revenue 2,015 1,271
------- -------
Expenses:
Labor and related expenses 483 469
Selling, general and administrative 1,228 1,175
Interest 7 18
------- -------
Totals 1,718 1,662
------- -------
Income(loss)from operations 297 (391)
Other income 37 23
------- -------
Income(loss) before income taxes 334 (368)
Provision (credit) for income taxes 254 (147)
(See Note 5) ------ -------
Net income (loss) $ 80 $ (221)
======= =======
Basic net income (loss) per share $.01 $(.05)
==== =====
Basic weighted average common shares
outstanding 5,263,348 5,263,348
========= =========
See Notes to Condensed Consolidated Financial Statements.
F-5
<PAGE>
MENLO ACQUISITION CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(Unaudited)
1999 1998
---- ----
(In thousands of dollars)
Operating activities:
Net income (loss) $380 $(161)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation 182 158
Provision for bad debts 100 60
Changes in operating assets and liabilities:
Accounts receivable - trade 896 36
Unbilled receivables (68) (139)
Accounts receivable - affiliates (7) (199)
Prepaid expenses and other current assets 12 40
Due from affiliate 27 122
Other assets 21 (288)
Accounts payable 208 478
Customer deposits (87) 144
Accrued expenses and other liabilities 310 195
Taxes payable 254 -
------ ------
Net cash provided by operating activities 2,228 446
------ ------
Investing activities:
Purchase of equipment (306) (340)
Purchase of marketable securities (181) -
------ ------
Net cash used in investing activities (487) (340)
------ ------
Financing activities:
Repayment of notes payable - bank (400) (366)
Repayment of long-term debt - bank (54) (50)
Advances from (repayment to) stockholder (55) 689
------ -----
Net cash (used in) provided by
financing activities (509) 273
----- ------
Net increase in cash 1,232 379
Cash, beginning of period 25 4
------ ------
Cash, end of period $1,257 $ 383
====== ======
Supplemental disclosure of cash flow data:
Interest paid $ 21 $ 42
===== =====
Income taxes paid $ 1 $ 61
===== =====
See Notes to Condensed Consolidated Financial Statements.
F-6
<PAGE>
MENLO ACQUISTION CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
June 30, 1999
NOTE 1: ORGANIZATION AND BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been prepared
without audit by Menlo Acquisition Corporation, ( "Menlo") in accordance with
generally accepted accounting principles for interim financial statements and
pursuant to the rules of the Securities and Exchange Commission (the "SEC") for
Form 10-QSB. As used herein, "Company" refers to Menlo and its operating
subsidiaries. Certain information and footnotes required by generally accepted
accounting principles for complete financial statements have been omitted. It is
the opinion of management that all adjustments considered necessary for a fair
presentation have been included, and that all such adjustments are of a normal
and recurring nature. Further information can be obtained by referring to the
Company's Form 8-K filed with the SEC on March 10, 1999 and to the audited
financial statements and footnotes included in the Company's Form 8-K/A filed
May 10, 1999.
Certain amounts in the 1998 Financial Statements have been reclassified to
conform with the current presentation.
The consolidated results of operations for the six months ended June 30, 1999
are not necessarily indicative of the results to be expected for the full year.
The Company has two operating subsidiaries. One provides environmental
consulting, remedial and disposal services with offices in Parsippany and West
Windsor, New Jersey (Consulting). The other conducts testing of soil and water
for environmental hazards with an office in Randolph, New Jersey (Lab). The
subsidiaries operate primarily throughout New Jersey, New York, Connecticut and
eastern Pennsylvania.
NOTE 2: EARNINGS PER SHARE
Effective January 1, 1999, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 128, Earnings per Share ("FAS 128") which
requires the presentation of "basic" and, if appropriate, "diluted" earnings
(loss) per common share. The calculation of the basic net income (loss) per
share and the basic weighted average common shares outstanding shown in the
accompanying unaudited Condensed Consolidated Statements of Income for the six
and three months ended June 30, 1998 have been computed as if the shares
outstanding as of June 30, 1999 had been effectively outstanding at January 1,
1998.
For the six and three months ended June 30, 1999 and 1998, the Company had no
common stock equivalents and, accordingly, diluted earnings per share amounts
have not been presented in the accompanying unaudited Condensed Consolidated
Statements of Income.
NOTE 3: COMMITMENTS AND CONTINGENCIES
The Company is currently subject to certain claims and lawsuits arising in the
ordinary course of its business. In the opinion of management, adequate
provision has been made for all known liabilities that are currently expected to
result from these claims and lawsuits, and in the aggregate such claims are not
expected to have a material effect on the financial position of the Company. The
estimates used in establishing these provisions could differ from actual
results. Should these provisions change significantly, the effect on operations
for any quarterly or annual reporting period could be material.
F-7
<PAGE>
The Company has a $750,000 revolving line-of-credit facility utilized by its
consulting segment. Outstanding borrowings are secured by substantially all of
the Company's assets. The line of credit contains certain covenants, the most
restrictive of which includes the maintenance of a maximum capital funds ratio,
as defined. As of June 30, 1999, the Company was in compliance with all
covenants and there were no amounts outstanding under the line of credit.
NOTE 4: BUSINESS SEGMENTS
The Company adopted Statement of Financial Accounting Standards No. 131 ("SFAS
131"), "Disclosures about Segments of an Enterprise and Related Information," at
the beginning of 1998. Following the provision of SFAS 131, the Company is
reporting segment revenue and income from operations in the same format reviewed
by the Company's management (the "management approach"). The Company has two
reportable segments as described in Note 1 above.
Revenue, income from operations and other related segment information for
the six months ended June 30, 1999 and 1998 follows:
1999 1998
----- -----
(In Thousands of Dollars)
Gross revenue:
Consulting $ 4,646 $3,195
Lab 2,320 1,745
Inter-segment (445) (237)
-------- -------
Totals $ 6,521 $4,703
======== =======
Direct project costs and other costs
of operations:
Consulting $ 1,871 $1,277
Lab 1,136 922
Inter-segment (445) (237)
-------- -------
Totals $ 2,562 $1,962
======== =======
Other operating expenses:
Consulting $ 2,608 $2,389
Lab 1,020 731
Inter-segment (254) (62)
-------- -------
Totals $ 3,374 $3,058
======== =======
Income (loss) from operations:
Consulting $ 167 $ (471)
Lab 164 92
Inter-segment 254 62
-------- -------
Totals $ 585 $ (317)
======== =======
Other income (expense):
Consulting $ 283 $ 110
Lab 20 1
Inter-segment (254) (62)
-------- -------
Totals $ 49 $ 49
======== =======
F-8
<PAGE>
NOTE 4: BUSINESS SEGMENTS (CONTINUED):
Income (loss) before taxes:
Consulting $ 450 $ (361)
Lab 184 93
-------- --------
Totals $ 634 $ (268)
======== ========
Provision (credit) for income taxes:
Consulting $ 181 $ (144)
Lab 73 37
-------- --------
Totals $ 254 $ (107)
======== ========
Net Income (loss):
Consulting $ 269 $ (217)
Lab 111 56
-------- --------
Totals $ 380 $ (161)
======== ========
Revenue, income from operations and other related segment information for
the three months ended June 30, 1999 and 1998 follows:
1999 1998
----- -----
(In Thousands of Dollars)
Gross revenue:
Consulting $ 2,233 $ 1,564
Lab 1,235 945
Inter-segment (194) (114)
-------- --------
Totals $ 3,274 $ 2,395
======== ========
Direct project costs and other
costs of operations:
Consulting $ 847 $ 731
Lab 606 507
Inter-segment (194) (114)
-------- --------
Totals $ 1,259 $ 1,124
======== =======
Other operating expenses:
Consulting $ 1,305 $ 1,274
Lab 546 420
Inter-segment (133) (32)
-------- -------
Totals $ 1,718 $ 1,662
======== =======
Income (loss) from operations:
Consulting $ 81 $ (441)
Lab 83 18
Inter-segment 133 32
------- -------
Totals $ 297 $ (391)
======== =======
F-9
<PAGE>
NOTE 4: BUSINESS SEGMENTS (CONTINUED):
Other income (expense):
Consulting $ 151 $ 55
Lab 19 -
Inter-segment (133) (32)
-------- -------
Totals $ 37 $ 23
======== =======
Income (loss) before taxes:
Consulting $ 232 $ (386)
Lab 102 18
-------- -------
Totals $ 334 $ (368)
======== =======
Provision (credit) for income taxes:
Consulting $ 181 $ (154)
Lab 73 7
-------- -------
Totals $ 254 $ (147)
======== ========
Net Income (loss):
Consulting $ 51 $ (232)
Lab 29 11
-------- -------
Totals $ 80 $ (221)
======== =======
Assets by segment as of June 30, 1999
and 1998 follow:
1999 1998
----- ----
(In Thousands of Dollars)
Cash and marketable securities,
at market:
Consulting $ 1,246 $ 285
Lab 192 98
-------- -------
Totals $ 1,438 $ 383
======== =======
Accounts receivable, net:
Consulting $ 3,346 $ 4,024
Lab 1,153 1,681
Inter-segment (195) (624)
-------- -------
Totals $ 4,304 $ 5,081
======== =======
Equipment and furnishings, net:
Consulting $ 443 $ 491
Lab 701 603
-------- -------
Totals $ 1,144 $ 1,094
======== =======
F-10
<PAGE>
NOTE 4: BUSINESS SEGMENTS (CONTINUED):
Other assets:
Consulting $ 72 $ 714
Lab 15 72
-------- -------
Totals $ 87 $ 786
======== =======
Total assets $ 6,973 $ 7,344
======== ========
NOTE 5: INCOME TAXES:
Prior to the acquisition of the two operating subsidiaries by the Company (Refer
to the Form 8-K/A), the subsidiaries were Limited Liability Companies and, as
such, were treated as partnerships for Federal and State income tax purposes. A
partnership is not a tax paying entity for Federal or State income tax purposes.
Income or loss of a limited liability company is reported in the individual
member's income tax returns and accordingly, no provision for income tax had
been recorded in the historical condensed consolidated financial statements
attributable to these limited liability companies included with the Form 8-K/A.
The unaudited basic net income (loss) per share data as shown on the Condensed
Consolidated Statements of Income for the six and three months ended June 30,
1998 is computed as if the Company acquired the subsidiaries effective January
1, 1998 and was subject to Corporate Income Tax.
NOTE 6: MARKETABLE SECURITES:
The Company purchased marketable securities on June 28, 1999. As of June 30,
1999, the cost of these securities approximated market and, as such, no
comprehensive income has been recorded.
F-11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Cautionary Statement Regarding Forward Looking Statements
The statements in this report that are forward-looking are based on current
expectations, and actual results may differ materially. The forward-looking
statements include those regarding the level of future purchases of fixed
assets, the possible impact of current and future claims against the Company
based upon negligence and other theories of liability, the possibility of the
Company making acquisitions during the next 12 to 18 months and the impact of
becoming Year 2000 compliant. Forward-looking statements involve numerous risks
and uncertainties that could cause actual results to differ materially,
including, but not limited to, the possibilities that the demand for the
Company's services may decline as a result of possible changes in general and
industry specific economic conditions and the effects of competitive services
and pricing; one or more current or future claims made against the Company may
result in substantial liabilities; and such other risks and uncertainties as are
described in reports and other documents filed by the Company from time to time
with the Securities and Exchange Commission.
Results of Operations
(In thousands of dollars, except share data)
The following tables set forth, for the periods indicated: i) the percentage
that certain items in the condensed consolidated statements of income of the
Company bear to gross revenues, and ii) the percentage increase (decrease) in
dollar amounts of such items from year to year.
Six Month Comparison for Years 1999 and 1998
Percentage
Increase
(Decrease)
Six
Months
Percentage Ended
of Gross Revenue 6/30/99
Six Months Ended vs.
---------------- --
6/30/99 6/30/98 6/30/98
------ ------- -------
Gross revenue 100.0% 100.0% 38.7%
Direct project costs and other costs
of operations 39.3 41.7 30.6%
------ ------ -----
Net revenue 60.7 58.3 44.4%
------ ------ -----
Expenses:
Labor and related expenses 15.0 19.2 8.9%
Selling, general and
administrative 36.4 45.0 12.2%
Interest 0.3 0.9 (50.0)%
------ ------ ------
Totals 51.7 65.1 10.3%
------ ------ ------
Income (loss) from operations 9.0 -6.8 284.5%
Other income 0.7 1.1 0.0%
------ ------ ------
Income (loss) before income taxes 9.7 -5.7 336.6%
====== ====== ======
<PAGE>
Gross revenues for the six months ended June 30, 1999 were $6,521
versus $4,703 for the first six months of 1998, an increase of 38.7%.
Significant increases occurred in both the Consulting and Lab segments. Lab
revenues increased $367 (net of inter-segment billing) and Consulting increased
$1,451. Consulting revenue increased due to continued strength in the real
estate sector, increased hours billed from the professional staff and
improvement in the accounting systems ability to capture job related expenses in
a timely manner. In 1998, the initial attempt to implement a new computer system
in the billing (Consulting) and accounting areas caused job related costs to be
expensed without these expenditures being assigned to specific jobs and thus,
not being recorded as revenue in a timely manner. This problem was rectified in
the third quarter 1998. Lab revenue increases were a result of direct sales
efforts from a larger sales force and higher utilization of equipment used in
performing Lab services.
Income from operations was $585 in the first six months of 1999 as
opposed to a loss of $317 for the same period in 1998. This represents an
increase of 284.5%. Operating margins rose to 9.0% for the current period from a
negative 6.8% for the first six months of 1998. The increase in operating income
and margin was due to the higher gross revenue mentioned above offset by slight
increases in operating expenses. The loss and margin shown for the prior period
were a result of the computer system implementation problem that was discussed
above.
Labor and related expenses increased 8.9% compared to the corresponding
period in the prior year due to increases in the size of the Consulting
segments' technical staff and increases in compensation rates.
Selling, general and administrative expenses increased 12.2% compared
to the corresponding period in the prior year primarily due to the increase in
the Lab segment direct sales force and their associated direct selling expenses.
Interest expense decreased 50.0% in the first six months of 1999 as
compared to the first six months of 1998. This decrease was due to the reduction
in the amount outstanding on the revolving line-of-credit from $500 at June 30,
1998 to $0 at June 30, 1999.
Income before taxes for the period was $634 compared with a loss of
$268 in the six months of 1998, an increase of 336.6%. Tax provisions (credits)
were recorded at an effective rate of 40% for both 1999 and 1998 (see Note 5 in
the Notes to Condensed Consolidated Financial Statements). Basic net income per
share was $.07 in 1999 versus a loss of $(.03) in 1998. The Company had
5,263,348 shares outstanding at June 30, 1999 and the June 30, 1998 per share
amount was calculated assuming the same number of shares were also effectively
outstanding at that date. The Company had no common stock equivalents at June
30, 1999 or June 30, 1998, therefore no dilutive earnings per share were
calculated.
Second Quarter Comparison for Years 1999 and 1998
Percentage
Increase
(Decrease)
Three
Months
Percentage Ended
of Gross Revenue 6/30/99
Three Months Ended vs.
------------------ --
6/30/99 6/30/98 6/30/98
------- ------- -------
Gross revenue 100.0% 100.0% 36.7%
Direct project costs and other costs
of operations 38.5 46.9 12.0%
------ ------ -----
Net revenue 61.5 53.1 58.5%
------ ------ -----
<PAGE>
Expenses:
Labor and related expenses 14.8 19.6 3.0%
Selling, general and
administrative 37.5 49.1 4.4%
Interest 0.2 0.7 (58.8)%
------ ------ ------
Totals 52.5 69.4 3.4%
------ ------ ------
Income (loss) from operations 9.0 -16.3 176.0%
------
Other income 1.2 0.9 60.9%
------ ------ ------
Income (loss) before income taxes 10.2 -15.4 190.8%
====== ====== ======
Gross revenue for the quarter ended June 30, 1999 totaled $3,274, an
increase of 36.7% from gross revenue of $2,395 for the second quarter of 1998.
There were revenue increases in both the Consulting and Lab segments. Net of the
rise in inter-segment billing, Lab revenues increased $210 and Consulting
increased $669. The increases were primarily attributable to the items
previously discussed in the six-month comparison.
Income from operations was $297 in the second quarter of 1999, compared
with a loss of $391 for the same period in 1998. The operating margin rose to
9.0% in the current quarter from a negative 16.3% in the second quarter 1998.
The computer system implementation, which was completed in the fourth quarter
1998, caused the most severe problems in the second quarter 1998. Therefore, the
majority of the unassigned expenses were included in the expenses of the second
quarter 1998 causing the unusually poor operating margin. These expenses were
subsequently reviewed and assigned to specific jobs and included in the revenue
of the third quarter 1998.
Labor and related expenses and selling, general and administrative
expenses were not substantially different in comparing the results of the two
quarters.
Interest expense decreased 58.8% in the second quarter 1999 as compared
to the second quarter 1998. This decrease was due to the fact that the Company
had no amounts outstanding on the revolving line-of-credit during the entire
second quarter of 1999, while outstanding amounts in the second quarter of 1998
averaged approximately $550.
Income before taxes for the current quarter was $334 compared with a
loss of $368 in the second quarter of 1998. Tax provisions (credits) were
recorded at an effective rate of 40% for both 1999 and 1998 (see Note 5 in the
Notes to Condensed Consolidated Financial Statements). Basic net income per
share was $.01 in 1999 versus a loss of $(.05) in 1998 and was calculated as
described previously. Again, the Company had no common stock equivalents at June
30, 1999 or June 30, 1998, therefore no dilutive earnings per share were
calculated.
Liquidity and Capital Resources
Net cash provided by operations for the six months ended June 30, 1999
was $2,228 as compared to $446 for the first six months of the prior year. The
increase in cash provided by operations was primarily due to a decrease in days
sales outstanding in the Company's receivables in the current year period
compared to the prior year period. The decrease in days sales outstanding was
due to the full implementation of a new project accounting software system in
the Consulting segment, enabling more timely billing of the Company's services
and resulting in improved monitoring of accounts receivable and quicker
conversion to cash. Additionally, net income increased substantially from the
prior year and more stringent cash management policies have been implemented.
The Company made net capital expenditures of $306 in the first six
months of 1999 compared to net capital expenditures of $340 in the first six
<PAGE>
months of the prior year. The Company anticipates that its capital expenditures,
excluding acquisitions, for the current year will be approximately the same as
those incurred in the prior year.
The Company, in the normal course of business, encounters potential
liability, including claims for errors and omissions, resulting from the
performance of its services. The Company is party to lawsuits and is aware of
potential exposure related to certain claims. In the opinion of management,
adequate provision has been made for all known liabilities that are currently
expected to result from these matters, and in the aggregate, such claims are not
expected to have a material impact on the financial position and liquidity of
the Company. Currently, the Company is provided a $5 million per occurrence, $10
million aggregate professional services insurance policy through an unrelated,
rated carrier. The Company also maintains a general liability insurance policy
with an unrelated, rated carrier.
At June 30, 1999, the Company had cash on hand of $1,257. The Company
has a $750 revolving credit line agreement that expired on July 31, 1999.
Management is in the process of renewing this agreement and forsees no
difficulties in the renewal. The lender has informed management that the current
agreement will be extended and remain in effect until such time as the renewal
agreement is finalized. At June 30, 1999, borrowings under the line were $0
leaving $750 available to the Company compared to $500 outstanding at June 30,
1998. Borrowings were available to the Company at an interest rate of 8.75% at
both June 30, 1999 and June 30, 1998. The Company is in compliance with all
covenants pertaining to the credit line agreement.
The Company believes that its available cash, as well as cash generated
from operations and its available credit line, will be sufficient to meet the
Company's cash requirements for the balance of the fiscal year. The Company
intends to actively search for acquisitions to expand its geographical
representation and enhance its technical capabilities. The Company expects to
utilize a portion of its liquidity over the next 12 to 18 months for capital
expenditures, including acquisitions and investments in aligned businesses.
There are no present agreements, understandings or other arrangements with
respect to any acquisition or investment.
Year 2000 Compliance
Overview
Computer systems and software have historically been coded to accept only two
digit entries for the year. Consequently, on January 1, 2000, as well as on
other significant dates, errors may occur. If computers cannot properly
distinguish between the years 1900 and 2000, computers may shutdown or perform
incorrect calculations.
Scope & Status
The Company has taken seriously the potential risks of the Year 2000 issue and
has devoted resources to address the issue. The Company has established a Year
2000 oversight committee. The committee was assigned to address the following
key components related to the Year 2000 issue:
- Information applications, including the Company's project management and
accounting systems
- Computer hardware, software, operating systems and
network infrastructure including telecommunications systems
- Facility and administrative systems
- Major suppliers and customers' systems
During the fourth quarter of 1998, the Company implemented a new information
technology system (a project management and accounting system). This system is
warranted as Year 2000 compliant. The Company has performed specific Year 2000
compliance testing of this system as well as others in use during the first six
months of 1999.
<PAGE>
The Company has also conducted an inventory and assessment of its hardware and
software for Year 2000 compliance. Any non-compliant components identified
(hardware or software) have been made compliant or replaced with compliant
versions. Facility and administrative systems that support the Company (such as
telephone, security systems, etc.) have also been assessed for Year 2000
compliance and required upgrades to such hardware and software have been
completed.
The Company has undertaken an analysis of its vendors and suppliers to determine
potential areas of risk with regard to their failure to achieve Year 2000
compliance. Contingency plans will be developed as appropriate to address any
potential problems that may be identified.
Costs
The costs associated with Year 2000 compliance have not been material and
generally fall within normally anticipated operating and capital spending. The
costs of becoming Year 2000 compliant have not been material to the financial
position of the Company. Although the Company has not currently found the costs
of Year 2000 compliance to be material, it cannot ensure Year 2000 compliance by
third parties.
Risks
The conversion of the Company's project management and accounting systems to a
Year 2000 compliant system mitigates the risk that the Company would be unable
to maintain accurate client records and billings.
The Company cannot predict with accuracy the extent to which its vendors and
clients will become compliant. The resulting effects on the Company's financial
position could be adversely affected if major vendors or clients do not operate
into and beyond the change in the millennium. The Company believes that the
completion of its Year 2000 Project significantly reduces the possibility of
major interruptions to its normal business operations; however, no assurances
can be given.
<PAGE>
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
The following exhibits are furnished along with this Form 10-QSB
Quarterly Report for the period ended June 30, 1999:
Exhibit No. 27 - Financial Data Schedule
b. Reports on Form 8-K
During the quarter ended June 30, 1999, the Company filed a Current
Report on Form 8-K/A, dated May 10, 1999 providing historical and
pro-forma financial information of the entities acquired on March 10,
1999 (Environmental Waste Management Associates, L.L.C., Environmental
Waste Management Associates, Inc., Integrated Analytical Laboratories,
L.L.C., and Integrated Analytical Laboratories, Inc.).
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.
MENLO ACQUISITION CORPORATION
Date: August 3, 1999 /ss/Frank Russomanno
--------------------------
Frank Russomanno
Chief Financial Officer
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