SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 2000
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 X No
At November 10, 2000 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 -
September 30, 2000 (Unaudited) and
December 31, 1999...................................F-3
Condensed Consolidated Statements of Income and
Comprehensive Income - Nine and Three Months Ended
September 30, 2000
and 1999 (Unaudited)................................F-4 - F-5
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 2000 and
1999 (Unaudited)....................................F-6
Notes to Condensed Consolidated Financial Statements
September 30, 2000 (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
F-2
<PAGE>
MENLO ACQUISITION CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
September December
30, 2000 31, 1999
-------- --------
(Unaudited)
(In thousands of dollars)
ASSETS
------
Current assets:
Cash and cash equivalents $ 1,774 $ 1,182
Investments in marketable securities 223 722
Accounts receivable:
Trade, net of allowance for doubtful
accounts of $568 and $614 3,779 3,880
Unbilled receivables 56 65
Affiliates - 110
Prepaid expenses and other current
assets 89 100
Deferred tax assets 35 34
------ ------
Total current assets 5,956 6,093
Property and equipment,
net of accumulated depreciation of
$1,296 and $965 3,316 1,088
Other assets, net of accumulated amorti-
zation of $8 and $0 66 67
------ ------
Totals $9,338 $7,248
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current portion of long-term debt $ 24 $ 106
Accounts payable 1,205 942
Customer deposits 401 445
Accrued expenses and other
liabilities 479 444
Income taxes payable 75 -
----- -----
Total current liabilities 2,184 1,937
Long-term debt, net of current
portion 1,172 168
----- -----
Total liabilities 3,356 2,105
----- -----
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.0001 par value;
2,000,000 shares authorized;
none issued. - -
Common stock, $.0001 par value;
40,000,000 shares authorized;
5,263,348 issued and outstanding 1 1
Additional paid-in capital 4,313 4,313
Retained earnings 1,643 803
Accumulated other comprehensive income
Unrealized holding gains on
marketable securities 25 26
------ ------
Total stockholders' equity 5,982 5,143
------ ------
Totals $9,338 $7,248
====== ======
See Notes to Condensed Consolidated Financial Statements.
F-3
<PAGE>
MENLO ACQUISITION CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(Unaudited)
Income
------
2000 1999
---- ----
(In thousands of dollars,
except share data)
Gross revenue $11,276 $9,959
Direct project costs and other costs
of operations 4,245 3,959
------- -------
Net revenue 7,031 6,000
------- -------
Expenses:
Labor and related expenses 1,665 1,368
Selling, general and administrative 4,128 3,724
------ ------
Totals 5,793 5,092
------ ------
Income from operations 1,238 908
Other income 162 60
------ ------
Income before income taxes 1,400 968
Provision for income taxes (See Note 5) 560 388
------ ------
Net income $840 $580
====== ======
Basic net income per share
(See Notes 2 and 5) $.16 $.11
====== ======
Basic weighted average common shares
outstanding 5,263,348 5,263,348
========= =========
Comprehensive Income
--------------------
Net income $840 $580
Other comprehensive (loss) income, net of taxes
Unrealized holding (losses) gains on marketable
securities arising during the period: (1) 22
----- ----
Comprehensive income $839 $602
===== ====
See Notes to Condensed Consolidated Financial Statements.
F-4
<PAGE>
MENLO ACQUISITION CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(Unaudited)
Income
------
2000 1999
---- ----
(In thousands of dollars,
except share data)
Gross revenue $4,058 $3,438
Direct project costs and other costs of
operations 1,725 1,397
------ ------
Net revenue 2,333 2,041
------- -------
Expenses:
Labor and related expenses 540 387
Selling, general and administrative 1,409 1,352
----- -----
Totals 1,949 1,739
----- ------
Income from operations 384 302
Other income 67 32
----- -----
Income before income taxes 451 334
Provision for income taxes (See Note 5) 180 134
----- -----
Net income $271 $ 200
===== =====
Basic net income per share
(See Notes 2 and 5) $ .05 $.04
===== =====
Basic weighted average common shares
outstanding 5,263,348 5,263,348
========= =========
Comprehensive Income
--------------------
Net income $271 $ 200
Other comprehensive income, net of taxes
Unrealized holding gains on marketable
securities arising during the period: - 22
----- ----
Comprehensive income $271 $ 222
===== =====
See Notes to Condensed Consolidated Financial Statements.
F-5
<PAGE>
MENLO ACQUISITION CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(Unaudited)
2000 1999
---- ----
(In thousands of dollars)
Operating activities:
Net income $840 $580
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 339 287
Provision for bad debts 35 100
Amortization 8 -
Deferred income taxes (1) -
Loss on sale of fixed asset 1 -
Changes in operating assets and liabilities:
Accounts receivable - trade 66 945
Unbilled receivables 9 (88)
Accounts receivable - affiliates 110 (98)
Prepaid expenses and other current
assets 11 7
Due from affiliate - 27
Other assets (7) 24
Accounts payable 263 25
Customer deposits (44) (30)
Accrued expenses and other liabilities 35 305
Income taxes payable 75 66
-- -----
Net cash provided by operating
activities 1,740 2,150
----- -----
Investing activities:
Purchase of fixed assets (1,369) (351)
Proceeds from sale of fixed assets 1 -
Redemption (purchase) of marketable
securities, net 499 (181)
--- -----
Net cash used in investing
activities (869) (532)
------ -----
Financing activities:
Repayment of notes payable - bank - (400)
Repayment of long-term debt - bank (279) (80)
Repayment of advances from stockholder - (55)
------ -----
Net cash used in
financing activities (279) (535)
----- -----
Net increase in cash and cash equivalents 592 1,083
Cash and cash equivalents, beginning of period 1,182 25
----- ------
Cash and cash equivalents, end of period 1,774 $ 1,108
===== =======
Supplemental disclosure of cash flow data:
Interest paid $ 8 $ 28
==== =====
Income taxes paid $537 $ 322
==== ====
Supplemental schedule of noncash investing and financial activities:
During the nine months ended September 30, 2000, the Company completed an
acquisition of a building for $1,850, in part, with the proceeds of a
$1,200 mortgage.
See Notes to Condensed Consolidated Financial Statements.
F-6
<PAGE>
MENLO ACQUISTION CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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. Accordingly, certain information and footnotes required by
generally accepted accounting principles for complete financial statements have
been omitted. As used herein, "Company" refers to Menlo and its operating
subsidiaries. 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.
Certain amounts in the 1999 Financial Statements have been reclassified to
conform with the current presentation.
The consolidated results of operations for the nine and three month periods
ended September 30, 2000 are not necessarily indicative of the results to be
expected for the full year. The unaudited condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements and related notes included in the Company's Annual Report on Form
10-KSB for the year ended December 31, 1999.
The Company has two operating subsidiaries. One provides environmental
consulting, remedial and disposal services with offices in Parsippany and West
Windsor, New Jersey and in Englewood, Colorado (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, Pennsylvania and Colorado.
NOTE 2: EARNINGS PER SHARE
The Company presents "basic" and, if appropriate, "diluted" earnings (loss) per
common share pursuant to the provisions of Statement of Financial Accounting
Standards No. 128, Earnings per Share ("FAS 128").
Basic earnings (loss) per common share is calculated by dividing net income or
loss by the weighted average number of common shares outstanding during the
period. The calculation of diluted earnings (loss) per common share is similar
to that of basic earnings (loss) per common share, except that the denominator
is increased to include the number of additional common shares that would have
been outstanding if all potentially dilutive common shares, principally those
issuable upon the exercise of stock options, were issued during the period.
Diluted earnings per share have not been presented for the nine and three months
ended September 30, 2000 because the difference to basic earnings per share was
not material. For the nine and three months ended September 30, 1999, the
Company had no potentially dilutive common shares.
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 had a $750,000 revolving line-of-credit facility utilized by its
Consulting segment that expired on April 30, 2000. Outstanding borrowings were
collateralized by substantially all of the Company's assets. At the expiration
date, there were no amounts outstanding under that line of credit.
The Company has replaced the expired line-of-credit with one from another
financial institution. The new agreement includes a $1,000,000 revolving
line-of-credit available to its operating segments and a $750,000 line to be
utilized by the Company's Lab segment for either the purchase or re-finance of
equipment. Outstanding borrowings are collateralized by substantially all of the
Company's assets. At September 30, 2000, there were no amounts outstanding under
the new agreement.
In addition, the Company, through its Lab segment, has purchased the facility in
which the Lab operates from an unaffiliated third party. The purchase price of
the building was $1,850,000. The Company financed this purchase, in part, with a
mortgage from a financial institution in the amount of $1,200,000. The balance
of the purchase was financed with operating capital of the Company. The mortgage
is payable in monthly installments of $10,605 (based on a twenty year
amortization) including interest at 8.75% until July 1, 2005 at which time the
outstanding balance is due. Subject to certain conditions, the mortgage may be
extended for an additional five years at an interest rate of 250 basis points
above the Current Index Rate, as defined. For each of the five years subsequent
to September 30, 2000, principal repayments are, respectively, $23,508, $25,649,
$27,986, $30,535 and $1,088,598. The principal payment for year five is
necessary only if the mortgage is not extended as described above. The mortgage
is subject to certain financial covenants, as defined, with which the Company is
in compliance at September 30, 2000. It is anticipated that this facility will
support future growth of the Lab segment for at least the next five years.
NOTE 4: BUSINESS SEGMENTS
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 previously in Note 1.
Additionally, revenue and expenses (primarily legal, accounting and
administrative) related directly to Menlo Acquisition Corporation are reported
under the heading of "Holding"
Revenue, income from operations and other related segment information for the
nine months ended September 30, 2000 and 1999 follows:
2000 1999
---- ----
(In Thousands of Dollars)
Gross revenue:
Consulting - Third Party $ 7,299 $6,861
Lab - Third Party 3,977 3,098
Lab - Inter-segment 671 598
Holding - Inter-segment 1,473 968
Inter-segment (2,144) (1,566)
-------- ------
Totals $11,276 $9,959
======= ======
Direct project costs and other costs of operations:
Consulting $ 2,874 $2,790
Lab 2,042 1,767
Inter-segment (671) (598)
-------- ------
Totals $ 4,245 $3,959
======== ======
Other operating expenses:
Consulting $ 4,348 $3,864
Lab 1,838 1,627
Holding 105 -
Inter-segment (498) (399)
-------- -------
Totals $ 5,793 $5,092
======== ======
F-8
<PAGE>
NOTE 4: BUSINESS SEGMENTS (CONTINUED):
Income from operations:
Consulting $77 $ 207
Lab 768 302
Holding 1,368 968
Inter-segment (975) (569)
--------- --------
Totals $ 1,238 $ 908
======== =====
Other income (expense):
Consulting $ 602 $ 445
Lab 26 14
Holding 32 -
Inter-segment (498) (399)
-------- --------
Totals $ 162 $ 60
======= =====
Income before taxes:
Consulting $ 679 $ 652
Lab 794 316
Holding 1,400 968
Inter-segment (1,473) (968)
-------- -----
Totals $ 1,400 $ 968
======== =======
Provision for income taxes:
Consulting $ - $ -
Lab - -
Holding 560 388
--- ---
Totals $ 560 $ 388
======== =====
Net Income:
Consulting $ 679 $ 652
Lab 794 316
Holding 840 580
Inter-segment (1,473) (968)
-------- -----
Totals $ 840 $ 580
======== ========
Revenue, income from operations and other related segment
information for the the three months ended September 30, 2000 and 1999 follows:
2000 1999
---- ----
(In Thousands of Dollars)
Gross revenue:
Consulting - Third Party $ 2,620 $2,215
Lab - Third Party 1,438 1,223
Lab - Inter-segment 187 153
Holding - Inter-segment 460 334
Inter-segment (647) (487)
-------- -----
Totals $4,058 $3,438
====== ======
Direct project costs and other costs of operations:
Consulting $1,245 $920
Lab 667 630
Inter-segment (187) (153)
-------- --------
Totals $ 1,725 $1,397
======== ======
F-9
<PAGE>
NOTE 4: BUSINESS SEGMENTS (CONTINUED):
Other operating expenses:
Consulting $ 1,456 $1,263
Lab 639 621
Holding 25 -
Inter-segment (171) (145)
-------- -------
Totals $ 1,949 $1,739
======== ======
Income (loss) from operations:
Consulting $ (81) $ 32
Lab 319 125
Holding 435 334
Inter-segment (289) (189)
--------- -------
Totals $ 384 $ 302
======== ======
Other income (expense):
Consulting $ 192 $ 169
Lab 30 8
Holding 16 -
Inter-segment (171) (145)
-------- --------
Totals $ 67 $ 32
======= =====
Income before taxes:
Consulting $ 111 $ 201
Lab 349 133
Holding 451 334
Inter-segment (460) (334)
-------- -----
Totals 451 $ 334
======== =======
Provision for income taxes:
Consulting $ - $ -
Lab - -
Holding 180 134
--- ---
Totals $ 180 $ 134
======== =====
Net Income:
Consulting $ 111 $ 201
Lab 349 133
Holding 271 200
Inter-segment (460) (334)
-------- -----
Totals $ 271 $ 200
======== ======
Assets by segment as of September 30, 2000 and 1999 follow:
2000 1999
----- ----
(In Thousands of Dollars)
Cash and investments in marketable securities:
Consulting $ 517 $ 876
Lab 222 450
Holding 1,258 -
----- ---
Totals $ 1,997 $ 1,326
======== ========
F-10
<PAGE>
NOTE 4: BUSINESS SEGMENTS (CONCLUDED):
Accounts receivable, net:
Consulting $ 2,739 $ 3,210
Lab 1,096 1,156
Holding - -
Inter-segment - -
-------- -----
Totals $ 3,835 $ 4,366
======= =========
Equipment and furnishings, net:
Consulting $ 418 $ 418
Lab 2,898 666
-------- ----
Totals $ 3,316 $ 1,084
======== ========
Other assets:
Consulting $ 90 $ 72
Lab 9 17
Holding 91 -
-- ---
Totals $ 190 $ 89
======= ======
Total assets $ 9,338 $ 6,865
======= =======
NOTE 5: INCOME TAXES:
Prior to the acquisition of the two operating subsidiaries by the Company on
March 10, 1999, 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 accompanying condensed consolidated statements of income
and comprehensive income attributable to these limited liability companies for
the quarter ended March 31, 1999. However, provision for income tax was
subsequently recorded for all income attributable to these limited liability
companies for the first nine months of 1999. Therefore, the net income and basic
net income per share data shown in the accompanying condensed consolidated
statements of income and comprehensive income is computed as if the Company
acquired the subsidiaries effective January 1, 1999 and was subject to Corporate
Income Tax.
NOTE 6: PROPERTY AND EQUIPMENT:
Property and equipment consist of the following (In thousands of dollars):
Range of
Estimated September December
Useful Lives 30, 2000 31, 1999
------------ -------- --------
Land - $ 158 $ -
Building 39 Years 1,730 -
Equipment 3-7 Years 2,198 1,603
Furniture and fixtures 7 Years 164 164
Vehicles 5 Years 207 131
Leasehold improvements 7 Years 155 155
------ ------
4,612 2,053
Less accumulated depreciation 1,296 965
------ ------
Totals $3,316 $1,088
====== ======
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 and the possibility of the
Company making acquisitions during the next 12 to 18 months. 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 table sets forth, for the periods indicated: i) the percentage
that certain items in the condensed consolidated statements of income and
comprehensive income of the Company bear to gross revenues, and ii) the
percentage increase (decrease) in dollar amounts of such items from period to
period.
Nine Month Comparison for Years 2000 and 1999
Percentage
Increase
(Decrease)
Nine
Months
Percentage Ended
of Gross Revenue 9/30/00
Nine Months Ended vs.
---------------- ---
9/30/00 9/30/99 9/30/99
------- ------- -------
Gross revenue 100.0% 100.0% 13.2%
Direct project costs and other costs
of operations 37.6 39.8 7.2%
------ ------ ------
Net revenue 62.4 60.2 17.2%
------ ------ ------
Expenses:
Labor and related expenses 14.8 13.7 21.7%
Selling, general and
administrative 36.6 37.4 10.8%
---- ---- -----
Totals 51.4 51.1 13.8%
------ ------ -------
Income from operations 11.0 9.1 36.3%
Other income 1.4 0.6 170.0%
------ ----- ------
Income before income taxes 12.4 9.7 44.6%
==== ==== ======
<PAGE>
Gross revenues for the nine months ended September 30, 2000 were $11,276 versus
$9,959 for the first nine months of 1999, an increase of 13.2%. The increase
occurred in both operating segments. Lab revenues increased $879 (not including
inter-segment billing) while Consulting revenues increased by $438. The
significant increase in the revenue of the Lab segment was a continuing result
of effective direct sales efforts, strong demand for analytical services from
the environmental sector, higher utilization of equipment used in performing Lab
services and increased sales from the broadening of the customer base into the
pharmaceutical industry. Consulting revenue is composed of both hours billed by
the professional staff and pass-through billing of sub-contractor costs
associated with client projects. The Consulting segment hours billed component
increased by $427 due to an increase in the number of professional staff.
Additionally, there was a slight increase of $11 in the amount of pass-through
billing as compared to the prior nine month period.
Income from operations was $1,238 in the first nine months of 2000 as opposed to
$908 for the same period in 1999. This represents an increase of 36.3%.
Operating margins rose to 11.0% for the current period from 9.1% for the first
nine months of 1999. The increase in operating income and margin was due to the
significant increase in the Lab segment profitability. This was due to the
increased sales volume, which resulted in a higher profit percentage due to the
relatively low marginal costs associated with additional analytical testing as
equipment usage approaches capacity. Related Lab segment operating expenses
remained relatively constant. The higher income from the Lab segment was
partially offset by reduced operating income from the Consulting segment due to
higher operating expenses in that segment.
Labor and related expenses increased 21.7% compared to the corresponding period
in the prior year primarily due to increases in the number of professional staff
in the Consulting segment and increases in compensation rates in order to retain
and attract qualified personnel.
Selling, general and administrative expenses increased 10.8% compared to the
corresponding period in the prior year primarily due to costs associated with
the Colorado office of the Consulting segment, which was opened in January 2000,
and increased administrative staffing costs in the Lab segment needed to handle
the volume growth.
Other income increased 170.0% in the first nine months of 2000 as compared to
the first nine months of 1999. This was due to increased interest income from
invested cash and dividend income from investments in securities. Also, there
was a corresponding decrease in interest expense due to having little or no
debt.
Income before taxes for the period was $1,400 compared with $968 in the first
nine months of 1999, an increase of 44.6%. This increase was due to the factors
discussed above. Tax provisions were recorded at an effective rate of 40% for
the first nine months of 2000 and the Basic net income per share was $.16. In
the corresponding period of 1999, the tax provision was also calculated using an
effective rate of 40% and the Basic net income per share was $.11. The Company
had 5,263,348 shares outstanding at September 30, 2000 and diluted earnings per
share would also be $.16 for the period then ended as noted in Note 2 in the
Notes to Condensed Consolidated Financial Statements. For the nine months ended
September 30, 1999, the Company had no potentially dilutive common shares.
<PAGE>
Third Quarter Comparison for Years 2000 and 1999
Percentage
Increase
(Decrease)
Three
Months
Percentage Ended
of Gross Revenue 9/30/00
Three Months Ended vs.
------------------ ---
9/30/00 9/30/99 9/30/99
------- ------- -------
Gross revenue 100.0% 100.0% 18.0%
Direct project costs and other costs
of operations 42.5 40.6 23.5%
------ ------ ------
Net revenue 57.5 59.4 14.3%
------ ------ ------
Expenses:
Labor and related expenses 13.3 11.3 39.5%
Selling, general and administrative 34.7 39.3 4.2%
---- ---- -----
Totals 48.0 50.6 12.1%
------ ------ ------
Income from operations 9.5 8.8 27.2%
Other income 1.7 0.9 109.4%
------ ---- -----
Income before income taxes 11.2 9.7 35.0%
==== ==== ======
Gross revenues for the three months ended September 30, 2000 were $4,058 versus
$3,438 for the same period in 1999, an increase of 18.0%. Again, the increase
occurred in both operating segments. Lab revenues grew $215 (net of
inter-segment billing) while Consulting revenues increased by $405. Lab revenues
continue to grow significantly over prior periods due to the reasons outlined in
the discussion above. Consulting professional staff billing increased by $114
while there was a large increase of $291 in the pass-through component of
consulting revenue as compared to the prior year third quarter. This increase
occurred as there were several large client projects which required the
significant use of sub-contractor services (primarily in the transportation and
disposal areas).
Income from operations was $384 in the third quarter of 2000 as opposed to $302
for the same period in 1999. This represents an increase of 27.2%. Operating
margins rose to 9.5% for the current period from 8.8% for the third quarter
1999. The change in operating income and margin was solely due to the increase
in the Lab segment profitability. Reasons for this increase are discussed in the
nine-month comparison above. This was partially offset by a third quarter
operating loss from the consulting segment as compared to a slight profit in the
prior year third quarter.
Labor and related expenses increased 39.5% compared to the corresponding period
in the prior year for reasons similar to those explained in the nine-month
comparison.
Selling, general and administrative expenses were not significantly different
from those in the corresponding period of the prior year. The overall increase
was 4.2%.
<PAGE>
Other income increased 109.4% in the third quarter of 2000 as compared to the
third quarter of 1999. Again, this was due to increased income from invested
cash and a corresponding reduction in interest expense.
Income before taxes for the period was $451 compared with $334 in the third
quarter of 1999, an increase of 35.0%. This increase in income was due to the
factors previously discussed above. Tax provisions were recorded at an effective
rate of 40% for the third quarter 2000 and the Basic net income per share was
$.05. In the third quarter of 1999, the tax provision was also calculated using
an effective rate of 40% and the Basic net income per share was $.04. The
Company had 5,263,348 shares outstanding at September 30, 2000 and diluted
earnings per share would also be $.05 for the quarter then ended. The Company
had no potentially dilutive common shares for the quarter ended September 30,
1999.
Liquidity and Capital Resources
Net cash provided by operations for the nine months ended September 30, 2000 was
$1,740 as compared to $2,150 for the first nine months of the prior year. The
cash provided in the current period is primarily a result of an increase in net
income in comparison to the prior year, collection of receivables from
affiliated entities, and an increase in the amount of accounts payable at
quarter-end due to the receipt of large sub-contractor invoices for services
performed as discussed above. Cash provided by operations in the prior period
was due primarily to faster collection of accounts receivable as the effects of
a newly implemented billing system were being realized. Additionally, a
concentrated effort was successfully made to improve the turnover of accounts
receivable and reduce their overall level.
The Company made capital expenditures for fixed assets of $1,369 in the first
nine months of 2000 compared to capital expenditures of $351 in the first nine
months of the prior year. The most significant expenditure was the purchase of
the Lab segment's operating facility for approximately $1,850. This purchase was
financed with a $1,200 mortgage loan and approximately $650 of Company working
capital. Additionally, expenditures were made to maintain and enhance the
technology within the Lab segment. The Company anticipates that its total
capital expenditures, excluding possible acquisitions and the building purchase,
for the current year will be higher by approximately $300 as compared to those
of the prior year. The Company redeemed a net of $499 of marketable securities
in the first nine months of 2000 whereas net purchases of $181 were made in the
first nine months of 1999.
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 September 30, 2000, the Company had cash and cash equivalents on hand of
$1,774 and working capital of $3,772. The Company has a $1,000 revolving
line-of-credit facility available to its operating segments. Additionally, the
Company has a $750 line that can be utilized for purchase or re-finance of
equipment used by its Lab segment. Any portion of the $750 equipment line, if
utilized, will convert into a term loan with a maximum five-year amortization.
These credit lines replaced a previous $750 revolving credit line agreement that
expired on April 30, 2000. In conjunction with that expiration, the Company paid
off, in full, its long-term debt in the amount of $248, the outstanding balance
on April 30, 2000. This transaction left the Company with no remaining bank
debt, exclusive of the $1,200 mortgage discussed above. At September 30, 2000,
there were no other borrowings outstanding leaving the full amounts of both the
revolving line-of-credit and the equipment line available to the Company. At
September 30, 1999, there were no amounts outstanding on the credit line then
available. The Company is in compliance with all covenants pertaining to the
credit line agreements.
<PAGE>
The Company believes that its available cash, as well as cash generated from
operations and its credit lines, will be sufficient to meet the Company's cash
requirements for at least the next twelve months. Additionally, the Company
intends to continue 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. Other than previously disclosed, there is no present agreement,
understanding or other arrangement with respect to any acquisition or
investment. However, future agreements concerning acquisitions may require the
Company to obtain additional financing.
Inflation has not had a material effect on the revenues or the income from
operations of the Company for the past two years. Inflation is not expected to
have a material future effect.
<PAGE>
PART II
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 September 30, 2000:
Exhibit No. 27 - Financial Data Schedule
b. Reports on Form 8-K
During the quarter ended September 30, 2000, the Company did not file
any Current Reports on Form 8-K.
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
/ss/Frank Russomanno
Date: November 10, 2000 ---------------------------------
Frank Russomanno
Chief Financial Officer
