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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM 10-Q
_______________
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 26, 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 0-22869
HALL, KINION & ASSOCIATES, INC.
(Exact name of registrant as specified in its charter)
Delaware 77-0337705
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
China Basin Landing - 185 Berry Street 94107
Suite 6440 (zip code)
San Francisco, California
(Address of principal executive offices)
Registrant's telephone number, including area code: (415) 974-1300
______________________
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) had been subject to such
filing requirements for the past 90 days. Yes [X] No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of November 1, 1999:
10,443,788 shares of common stock.
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HALL, KINION & ASSOCIATES, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
PART I. FINANCIAL INFORMATION..................................................................................... 3
Item 1. Financial Statements...................................................................................... 3
Condensed Consolidated Balance Sheets at September 26, 1999 and December 27,
1998...................................................................................................... 3
Condensed Consolidated Statements of Income for the three and nine months ended September 26, 1999 and
September 27, 1998........................................................................................ 4
Condensed Consolidated Statements of Cash Flows for the nine months ended September 26, 1999 and September
27, 1998.................................................................................................. 5
Notes to Condensed Consolidated Financial Statements...................................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..................... 8
Item 3. Quantitative and Qualificative Disclosures about Market Risks............................................. 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings......................................................................................... 16
Item 4. Submission of Matters to a Vote of Security Holders....................................................... 16
Item 5. Stockholder Proposals..................................................................................... 16
SIGNATURES .......................................................................................................... 17
</TABLE>
2
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
HALL, KINION & ASSOCIATES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
ASSETS
September 26, December 27,
1999 1998
----------------------------------------------
Current Assets: (Unaudited)
<S> <C> <C>
Cash and equivalents................................................. $ 1,127 $ 3,082
Investments.......................................................... 16 15
Accounts receivable, net of allowance for doubtful accounts of
$1,424 at September 26, 1999 and $1,083 at December 27, 1998..... 30,743 18,158
Prepaid expenses and other current assets............................ 1,164 613
Deferred income taxes................................................ 2,618 1,726
---------------- -----------------
Total current assets............................................. 35,668 23,594
---------------- -----------------
Property and equipment, net............................................ 8,614 5,909
Goodwill, net.......................................................... 34,173 25,982
Other assets........................................................... 489 491
---------------- -----------------
Total assets..................................................... $ 78,944 $ 55,976
================ =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Line of credit...................................................... $ - $ 1,000
Accounts payable.................................................... 3,523 3,547
Accrued salaries, commissions, and related payroll taxes............ 6,424 4,935
Accrued liabilities................................................. 5,464 2,662
Income taxes payable................................................ 2,979 514
Current portion of long-term debt................................... - 3,128
---------------- -----------------
Total current liabilities........................................ 18,390 15,786
Long-term obligations.................................................. 17,739 1,083
Deferred income taxes.................................................. 1,705 1,205
---------------- -----------------
Total liabilities................................................ 37,834 18,074
---------------- -----------------
Stockholders' Equity:
Common stock, (par value $0.001 per share; 100,000,000 shares
authorized; outstanding: 10,414,000 shares at September 26, 1999 and
9,536,000 shares at December 27, 1998).............................. 37,730 34,269
Stockholder note receivable............................................ (5,414) -
Accumulated translation adjustment..................................... 5 5
Retained earnings...................................................... 8,789 3,628
---------------- -----------------
Total stockholders' equity....................................... 41,110 37,902
---------------- -----------------
Total liabilities and stockholders' equity....................... $ 78,944 $ 55,976
================ =================
</TABLE>
See notes to condensed consolidated financial statements.
3
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HALL, KINION & ASSOCIATES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share and share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
September 26, September 27, September 26, September 27,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net Revenues:
Contract services........................... $ 39,066 $ 29,573 $ 103,899 $ 76,575
Permanent placement......................... 10,258 4,492 24,169 12,874
------------- ------------- ------------- -------------
Total net revenues............................. 49,324 34,065 128,068 89,449
Cost of contract services...................... 25,677 19,343 68,899 49,799
------------- ------------- ------------- -------------
Gross profit................................... 23,647 14,722 59,169 39,650
Operating expenses............................. 19,922 12,632 50,170 34,252
------------- ------------- ------------- -------------
Income from operations......................... 3,725 2,090 8,999 5,398
Other expense, net............................. 96 9 223 24
------------- ------------- ------------- -------------
Income before income taxes..................... 3,629 2,081 8,776 5,374
Income taxes................................... 1,506 895 3,616 2,311
------------- ------------- ------------- -------------
Net income..................................... $ 2,123 $ 1,186 $ 5,160 $ 3,063
============= ============= ============= =============
Net income per share:
Basic....................................... $ 0.20 $ 0.13 $ 0.51 $ 0.33
Diluted..................................... $ 0.20 $ 0.12 $ 0.49 $ 0.29
Shares used in per share computation:
Basic....................................... 10,385,000 9,481,000 10,057,000 9,411,000
Diluted..................................... 10,772,000 10,057,000 10,490,000 10,399,000
</TABLE>
See notes to condensed consolidated financial statements.
4
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HALL, KINION & ASSOCIATES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 26, September 27,
1999 1998
--------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................................ $ 5,160 $ 3,063
Adjustments to reconcile net income to net cash provided by (used for)
operating activities:
Depreciation and amortization......................................... 1,979 1,421
Deferred income taxes................................................. (572) (571)
Other................................................................. - 17
Changes in assets and liabilities:
Accounts receivable................................................ (12,181) (3,378)
Prepaid expenses and other assets.................................. (265) (42)
Prepaid income taxes............................................... - 407
Accounts payable and accrued expenses.............................. 3,290 1,364
Income taxes payable............................................... 2,764 1,477
------------- -------------
Net cash provided by operating activities........................ 175 3,758
------------- -------------
Cash flows from investing activities:
Purchase of property and equipment......................................... (3,760) (696)
Investments................................................................ - 6,861
Acquisition of IPEX........................................................ (700) (6,160)
Acquisition of TKO......................................................... (53) (228)
Acquisition of TKI Consulting.............................................. (7,190) -
------------- -------------
Net cash used for investing activities............................ (11,703) (223)
------------- -------------
Cash flows from financing activities:
Line of credit, net........................................................ (1,000) (1,451)
Borrowing on debt.......................................................... 14,600 -
Notes payable repayments................................................... (1,775) (2,744)
Proceeds from exercise of options.......................................... 3,162 477
Proceeds from repayment of stockholder note receivable..................... - 6
Stockholders notes receivable.............................................. (5,414) -
------------- -------------
Net cash provided by (used for) financing activities.............. 9,573 (3,712)
------------- -------------
Net decrease in cash and equivalents.......................................... (1,955) (177)
Cash and equivalents, beginning of period..................................... 3,082 4,310
------------- -------------
Cash and equivalents, end of period........................................... $ 1,127 $ 4,133
============= =============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income taxes........................................................... $ 1,278 $ 1,125
Interest............................................................... $ 397 $ 187
Noncash investing and financing activities-
Issuance of stock for acquisition of IPEX.................................. - $ 914
Income tax benefit from employee stock transactions........................ $ 299 $ 384
</TABLE>
See notes to condensed consolidated financial statements.
5
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HALL, KINION & ASSOCIATES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation. The Condensed Consolidated Financial Statements
have been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission ("SEC") and, in management's opinion, include all
adjustments necessary for a fair statement of results for such interim periods.
Certain information and note disclosures normally included in annual
consolidated financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to SEC rules or
regulations; however, the Company believes that the disclosures made are
adequate to make the information presented not misleading.
The interim results for the three and nine months ended September 26, 1999
are not necessarily indicative of results for the full year. It is suggested
that these consolidated financial statements be read in conjunction with the
financial statements and notes thereto included in the Company's 10-K for the
fiscal year ended December 27, 1998.
The unaudited interim financial information as of September 26, 1999 and
for the three and nine months ended September 26, 1999 and September 27, 1998,
have been prepared on the same basis as the audited consolidated financial
statements. In the opinion of management, such unaudited information includes
all adjustments (consisting only of normal recurring accruals) necessary for a
fair presentation of this information. Operating results for the three and nine
months ended September 26, 1999, are not necessarily indicative of the results
that may be expected for the year ending December 26, 1999.
2. Comprehensive Income. In January 1998, the Company adopted Statement of
Financial Accounting Standards 130, Reporting Comprehensive Income, which
requires reporting by major components and as a single total, the change
in its net assets during the period from nonowner sources. For the nine
months ended September 26, 1999 and September 27, 1998, the change in net
assets from nonowner sources was $0 and $3,000, respectively, for the
change in the accumulated translation adjustment, and comprehensive
income was $5,160,000 and $3,066,000 respectively.
3. Stockholders' Equity. On April 15, 1999, Paul Bartlett, President,
exercised 750,000 options at $4.00 per share for $3,000,000. The company
made two loans to Mr. Bartlett for the aggregate amount of $3,274,000 for
the exercise price of the options and the payroll taxes associated with the
transaction. The first loan has a principal amount of $1,782,000, which is
secured by 750,000 shares of the Company's Common Stock, and the second
loan has a principal amount of $1,492,000, which is secured by Mr.
Bartlett's personal assets, including a second deed of trust on his
principal residence. Both loans bear interest at the rate of the
Company's cost of borrowing plus 1/8% per annum, compounded monthly. The
principal balance of this note, together with interest accrued is due and
payable June 26, 2002.
In January 1999, the Company loaned Brenda C. Rhodes, Chief Executive
Officer, $2,000,000, which loan bears interest at the rate of the Company's
cost to borrowing plus 1/8% per annum, compounded monthly. This loan is
secured by 1,000,000 shares of the Company's Common Stock held by Brenda
Rhodes, The principal balance of this note, together with interest
accrued is due and payable January 25, 2002. The outstanding principal
balance of the loan as of March 22, 1999 is $2,000,000.
6
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4. Claims, Lawsuits, and Other Contingencies. In June 1999, three class
action lawsuits were filed against the Company and various of its officers,
underwriters and venture capital investors, alleging violation of Section
10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated
thereunder. The lawsuits were filed by Milberg, Weiss, Bershad, Hynes &
Lerach, LLP on June 16, 1999 for Parnes complainant, on June 17, 1999, for
Mulanax complainant, and Finkelstein & Krinsk, on June 29, 1999, Gabos
complainant, both of San Diego, California. The allegations of the
complaints focus on two general areas. First, the complaints allege that
the Company and certain of the individual defendants made false and
misleading statements regarding forecasted revenue and earnings per share
and the Company's projected growth rate. Second, the complaints allege
that the Company and certain of the defendants sold stock at inflated
prices while in possession of adverse non-public information regarding the
revenue and earning forecasts and projected growth rate for the Company.
The class period in all three actions is from early August 1997 to mid-June
1998, the date when the Company publicly disclosed that earnings per share
growth would be lower than previously forecast. The actions are pending
in the United States District Court for the Northern District of
California. It is expected that all actions will be consolidated into a
single action, and an amended complaint filed. By stipulations of the
parties, the defendants are not required to respond to the complaints in
any of the actions until a consolidated amended complaint is filed. The
Company believes these actions are without merit and intends vigorously
to defend them.
7
<PAGE>
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The statements contained in this Form 10-Q that are not purely historical
are forward looking statements within the meaning of Section 21E of the
Securities Exchange Act of 1934, including statements regarding the Company's
expectations, beliefs, hopes, intentions or strategies regarding the future. All
forward looking statements in this Form 10-Q are based upon information
available to the Company as of the date hereof, and the Company assumes no
obligation to update any such forward looking statements. Actual results could
differ materially from the Company's current expectations. Factors that could
cause or contribute to such differences include, but are not limited to, the
ability of the Company to obtain additional financing, regulatory changes,
uncertainty relating to the performance of the United States economy,
competition, demand for the Company's services, litigation or other claims
against the Company, the hiring, training and retention of key employees and
other factors and risks discussed in "Risk Factors" as well as those discussed
elsewhere in this Form 10-Q and the risks discussed in the Company's filings
with the Securities and Exchange Commission.
OVERVIEW
Hall, Kinion & Associates, Inc. (the "Company"), the talent source for the
Internet economy, provides specialized technology professionals on a contract
and permanent basis to Internet companies, software and hardware vendors,
Fortune 1000 companies with strong intranet and extranet initiatives and e-
commerce/Web-design firms. The company specializes in filling cutting-edge
technology positions at R&D departments of technology leaders and innovative
start-ups. With 31 offices in 20 major technology centers in the United States,
England and recruiting sources in Asia through subsidiaries including TKO and
IPEX, Hall Kinion serves the Silicon Valleys of the world. The Company is
organized into two divisions: Contract Services and Permanent Placement. The
Contract Services division ("Contract Services") provides supplemental IT
professionals to Internet/e-commerce companies, research and development ("R&D")
departments of high technology companies, and Information Systems ("IS")
departments of corporate clients. The Permanent Placement division ("Permanent
Placement") places IT professionals in permanent positions with high technology
companies and other corporate clients. The Company's customers include an
extensive group of global high technology companies, including Yahoo!, Netscape,
Microsoft, Cisco Systems, Adobe, MCI Worldcom, Charles Schwab, Network
Associates, The Gap, Amazon.com, Beyond.com, Priceline.com, and Juno.
The internet and e-commerce industry continues to experience substantial
growth and rapid rates of innovation. These trends, combined with intense
competition, have placed pressure on internet and e-commerce companies to
shorten product life cycles and the time-to-market of new products. The
development of next generation products, however, often requires significant and
highly specialized technical talent, which may not be available internally.
Furthermore, as new technologies and systems are introduced, businesses, which
rely on them for mission-critical functions, must implement these systems within
their already complex computing environments. Consequently, internet and e-
commerce companies and IS departments are faced with the challenge of finding
qualified IT professionals to design, develop, deploy and maintain their systems
and products. To address these demands for contract and permanent IT
professionals, both the R&D departments of internet and e-commerce companies and
the IS departments of large corporations are turning to IT professional service
companies to augment their existing operations.
The Company's objective is to provide efficient and high quality contract
and permanent IT professionals to R&D departments of internet and e-commerce
clients and IS departments of corporate clients to become the "agent of choice"
for IT professionals. To achieve this objective, the Company: (i) focuses on
technology driven clients that typically require IT professionals with more
highly specialized skill sets than traditional supplemental IT personnel; (ii)
provides specialized IT services through distinct Practice Groups that are
focused on specific technologies and that operate relatively autonomously with
their own sales and recruiting personnel; (iii) pursues cross-selling
opportunities between permanent placement and contract services; (iv) seeks to
attract and retain qualified IT professionals; and (v) provides strong corporate
support to its 20 domestic markets and in London, England.
For the three months ended September 26, 1999 and September 27, 1998, the
Contract Services Division represented 79.2% and 86.8% of the Company's net
revenues, respectively. For the same periods, the Permanent Placement Division
represented 20.8% and 13.2% of the Company's net revenues, respectively. For
the nine months ended September 26, 1999 the Contract Services Division
represented 81.1% and 85.6% of the Company's net revenues, respectively. For
the same period the Permanent Placement Division represented 18.9% and 14.4% of
the Company's net revenues respectively.
8
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The Company's net revenues are derived from hourly billings of IT
professionals performing contract assignments and from fees received for
permanent placements. For contract services, assignments generally last from
three to nine months and revenues are recognized as services are provided.
Because the Company only derives revenues when its consultants are actually
working, its operating results may be adversely affected when client facilities
are closed due to holidays or inclement weather. In particular, the Company
experiences a certain amount of seasonality in its first fiscal quarter. For
its Permanent Placement of IT professionals, the Company receives a fee upon
placement of the candidate. The fee is typically structured as a percentage of
the placed IT professional's first-year annual compensation. Permanent
Placement revenues from fees are recognized when the IT professional commences
employment.
The Company has experienced growth by the addition of sales and recruiting
employees, the development of new Practice Groups, the acquisition of
complementary businesses and the entrance into new regional markets. As of
September 26, 1999, the Company had 503 revenue producing employees in 20
domestic markets and in London, England. As of September 27, 1998, the Company
had 351 revenue producing employees in 13 domestic markets and London, England.
For the nine months ended September 27, 1998 compared to September 26, 1999, net
revenues increased from $89.4 million to $128.1 million or 43.2%. Overall
headcount for the comparable period increased by 65.5%. The Company attributes
this to increased productivity of current employees and the addition of
employees as a result of acquisitions of complementary businesses.
Results of Operations for the Three and Nine Months Ended September 26, 1999 and
September 27, 1998
Contract Services revenues were $39.1 million and $29.6 million for the
three months ended September 26, 1999 and September 27, 1998, respectively,
increasing by 32.1% during the three months ended September 26, 1999 compared to
the same period in 1998. Contract Services revenues were $103.9 million and
$76.6 million for the nine months ended September 26, 1999 and September 27,
1998, respectively, increasing by 35.7% during the nine months ended September
26, 1999 compared to the same period in 1998. Permanent placement revenues were
$10.3 million and $4.5 million for the three months ended September 26, 1999 and
September 27, 1998, respectively, increasing by 128.4% during the three months
ended September 26, 1999 compared to the same period in 1998. Permanent
placement revenues were $24.2 million and $12.9 million for the nine months
ended September 26, 1999 and September 27, 1998, respectively, increasing by
87.7% during the nine months ended September 26, 1999 compared to the same
period in 1998. Overall revenue increases were due primarily to the addition of
new offices that have begun to generate revenue and to a lesser extent increased
billing rates. During the first nine months of 1999 revenue producing headcount
increased. The increase in revenues was partially offset due to the delay of new
employees reaching full productivity.
Gross Profit
Gross profit dollars from the Company's Contract Services represent
revenues less direct costs of services, which consists of payroll, payroll taxes
and insurance costs for contract employees. Gross profit dollars from permanent
placement services are equal to revenues, as there are no direct costs
associated with such revenues. Gross profit dollars for the Company's Contract
Services were $13.4 million and $35.0 million for the three and nine months
ended September 26, 1999, respectively, compared to $10.2 million and $26.8
million for the comparable periods in 1998, increasing by 30.9% and 30.7% for
the three and nine months ended September 26, 1999, respectively. The Company
believes this increase was due to the increased demand for the Company's
services and to a lesser extent increased billing rates. Gross profit for the
Company's Permanent Placement Division was $10.3 million and $24.2 million for
the three and nine months ended September 26, 1999, respectively, compared to
$4.5 million and $12.9 million for the comparable periods in 1998, increasing
128.4% and 87.7% for the three and nine months ended September 26, 1999,
respectively. This increase was primarily due to an increase in demand for the
Company's Permanent Placement services.
Operating Expenses
Operating expenses were $19.9 million and $50.2 million for the three and
nine months ended September 26, 1999, respectively compared to $12.6 million and
$34.3 million for the three and nine months ended September 27, 1998,
respectively. Operating expenses as a percentage of revenues were 40.4% and
39.2% for the three and nine months ended September 26, 1999, respectively
compared to 37.1% and 38.3% for the same periods in 1998. Operating expenses
consist primarily of staff compensation, training, occupancy, telephone,
advertising and public company costs, most of which generally follow changes in
revenue. Overall, the increase in operating expenses was primarily due to
increased headcount and training costs for existing and new offices. As a
percentage of revenue, operating expenses remained consistent due to
9
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stable productivity of revenue generating headcount.
Other Expense, Net
Interest income for the three months ended September 26, 1999 and September
27, 1998 was $83,000 and $35,000 respectively, while interest expense for the
three months ended September 26, 1999 and September 27, 1998 was $180,000 and
$29,000 respectively. Interest income for the nine months ended September 26,
1999 and September 27, 1998 was $159,000 and $197,000 respectively, while
interest expense for the nine months ended September 26, 1999 and September 27,
1998 was $404,000 and $222,000 respectively. The changes reflect a decrease in
cash and cash equivalents and an increase in outstanding indebtedness. Also
included is a nominal amount relating to rental income and expenses and various
nonrecurring charges which amount to income of $1,000 and $22,000 for the three
and nine months ended September 26, 1999 and expenses of $15,000 and income of
$1,000 for the same periods in 1998.
LIQUIDITY AND CAPITAL RESOURCES
The change in the Company's liquidity during the nine months ended
September 26, 1999 is the net effect of funds generated by operations and the
funds used for the personnel services acquisitions, capital expenditures and
principal payments on outstanding liabilities. For the nine months ended
September 26, 1999, the Company generated $175,000 from operations, used $11.7
million for investing activities and generated $9.6 million from financing
activities.
The Company has a revolving line of credit facility enabling the Company to
borrow a stated percentage of eligible accounts receivable up to a maximum of
$20.0 million of long-term debt. As of September 26, 1999, the Company has
drawn down $17.7 million. While there can be no assurances in this regard, the
Company expects that internally generated cash plus the bank revolving line of
credit will be sufficient to support the working capital needs of the Company,
the fixed payments and other obligations for the next year. As of September 26,
1999, the Company had no material capital commitments.
In August 1999, the Company acquired the assets of TKI Consulting, Inc.
("TKI") for an aggregate of $8.1 million consisting of a cash payment of $7.2
million and assumed net liabilities of $900,000. TKI is an IT consulting and
training firm, specializing in client/server and internet-based business
applications.
In November 1998, the Company acquired the assets of Alexander, Bohemer, &
Tomasco, LLC, doing business as Huntington Group ("HG") and Interactive
Technologies Consultants ("ITC"), for an aggregate of $8.9 million consisting of
a cash payment of $8.1 million and assumed net liabilities of $800,000. The
Huntington Group is a retainer-based executive research firm while ITC is a
provider of IT professionals on a contract basis. Both companies are located in
Trumbull, Connecticut.
In August 1998, the Company acquired substantially all of the assets of TKO
Personnel, Inc. for $913,000 consisting of a cash payment of $228,000 and
assumed net liabilities of $685,000. TKO Personnel, Inc. based in San Jose,
California, is an international permanent placement recruiting organization for
IT research and development professionals focusing recruiting primarily in
Japan, but also from China and Korea. During the third quarter of 1999, the
Company made an earnout payment of $53,000.
In January 1998, the Company acquired Group-IPEX for $7.3 million
consisting of a cash payment of $6.2 million, the issuance of 46,000 shares of
Company common stock valued at $914,000 and $300,000 of costs related to the
acquisition. Group-IPEX, based in Lafayette, California, is an international
recruiting organization for IT research and development professionals focusing
on recruiting primarily from India, but also from Russia and China. During the
second quarter of 1999, the Company made an earnout payment of $700,000.
Year 2000 Issues
The Company is continuing its assessments of its computer information
systems and is continuing to take the necessary steps to determine the nature
and extent of the work required to make its systems Year 2000 compliant, where
necessary. These steps will require the Company to modify, upgrade or replace
some of its internal financial and operational systems. The Company continues to
evaluate the estimated costs of bringing all internal systems, equipment and
operations into Year 2000 compliance, but has not finished determining the total
cost of these compliance efforts. While these efforts may involve additional
costs, the Company believes, based upon currently available information, that
these costs will not have a material adverse effect on the business, financial
condition or results of operations of the Company. However, if these efforts are
not completed on time, or if the cost of updating or replacing the Company's
information systems, if necessary, exceeds the
10
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current estimates, the Year 2000 issue could have a material effect on the
Company's business, financial condition or result of operations of the Company.
The Company is still in the process of implementing a new ERP suite that is
Year 2000 compliant. In addition, the Company has identified a non-financial
system used by the Company for management of contract resumes that might not be
Year 2000 compliant. The Company is reviewing the impact, if any, that such
non-compliance could have on its business, and intends to bring such system into
compliance, or implement a new Year 2000 compliant system as soon as possible.
The Company's failure to fix its current system, or to implement a new system,
is likely to result in the implementation of a manual process of tracking
resumes which could cause management to spend time and resources implementing
such a system, which in turn, could have an adverse effect on the Company's
business, financial condition or results of operations.
The Company also intends to determine the extent to which it may be
vulnerable to any failures by its major partners and service providers to remedy
their own Year 2000 issues, and is in the process of initiating formal
communications with these parties. At this time the Company is unable to
estimate the nature or extent of any potential adverse impact resulting from the
failure of third parties to achieve year 2000 compliance; however, there can be
no assurance that these third parties will not experience Year 2000 problems or
that any problems would not have a material effect on the Company's business
financial condition or results of operations. To date, the Company has contacted
all major suppliers and obtained confirmation that they have addressed the Year
2000 problem.
RISK FACTORS
Ability to Attract and Retain Qualified IT Professionals
The Company's success depends on its ability to attract and retain
qualified IT professionals with the technical skills and experience necessary to
meet its clients' requirements for technical personnel. Competition for
individuals with proven technical skills, particularly in Windows, Unix, CAD and
other technology environments for which the Company provides services, is
intense, and the Company expects that competition for IT professionals will
increase in the future. Furthermore, IT professionals typically provide services
on an assignment-by-assignment basis and can terminate an assignment with the
Company at any time. The Company competes for such individuals with other
providers of technical staffing services, system integrators, providers of
outsourcing services, computer consultants and temporary personnel agencies.
Many of the IT professionals who work for the Company also work with the
Company's competitors, and there can be no assurance that IT professionals
currently working on projects for the Company will not choose to work for
competitors in future assignments. There also can be no assurance that the
Company will be able to attract and retain qualified IT professionals in
sufficient numbers in the future. The Company's net revenues in any period are
related, among other factors, to the number of IT professionals it has on staff
and engaged on assignments. If the Company were unable to hire or retain such
personnel, the Company's business, operating results and financial condition
would be materially adversely affected.
Risks Inherent in Addition of Practice Groups and Expansion Into New Markets
The Company's growth depends on its ability to successfully expand existing
Practice Groups, add additional Practice Groups within its existing regional
markets and enter new regional markets. This expansion is dependent on a number
of factors, including the Company's ability to: attract, hire, integrate and
retain qualified revenue generating employees; develop, recruit and maintain a
base of qualified IT professionals within a regional market; accurately assess
the demand of a new market; and initiate, develop and sustain corporate client
relationships in each new regional market. There can be no assurance that the
addition of Practice Groups and entrance into new regional markets will occur on
a timely basis or achieve anticipated financial results. For example, in April
1998 the Company consolidated its Orlando and Tampa offices because revenue in
these offices was lower than management's expectations. The addition of new
Practice Groups and entrance into new regional markets typically results in
increases in operating expenses, primarily due to increased headcount. Expenses
are incurred in advance of forecasted revenue, and there is typically a delay
before the Company's new recruiting personnel and sales employees reach full
productivity. If the Company is unable to add Practice Groups or enter new
regional markets in a cost-effective manner or if those Practice Groups and
regional markets do not achieve anticipated financial results, the Company's
business, operating results and financial condition could be materially
adversely affected.
Fluctuations in Quarterly Results, Seasonality; Volatility of Stock Price.
The Company's quarterly operating results have in the past and may in the
future fluctuate significantly depending on a number of factors, including but
not limited to: the rate of hiring and the productivity of revenue-generating
personnel; the availability of qualified IT professionals; changes in the
relative mix between the Company's contract services and permanent placement
services; changes in the pricing of the Company's services; the timing and rate
of entrance into new regional
11
<PAGE>
markets and the addition of Practice Groups; departures or temporary absences
of key revenue-generating personnel; the structure and timing of acquisitions;
changes in the demand for IT professionals; and general economic factors.
Because the Company provides services on an assignment -by-assignment basis,
which clients can terminate at any time, there can be no assurance that existing
clients will continue to use the Company's services at historical levels.
Accordingly, although the Company has experienced substantial revenue growth in
recent years, there can be no assurance that, in the future, the Company will
sustain revenue growth or profitability on a quarterly or annual basis at
historical levels. In addition, although the impact of seasonal factors will
vary, the Company experiences a certain amount of seasonality in its first
quarter due primarily to the number of holidays and the number of internal
training and incentive programs in the first quarter, which may reduce the
number of days worked by IT professionals and revenue-generating employees
during such quarter. For these reasons, the Company believes that period-to-
period comparisons of its results of operations are not necessarily meaningful
and should not be relied upon as any indication of future performance. In the
event the Company's operating results fall below the expectations of public
market analysts and investors, the price of the Company's Common Stock would
likely be materially adversely affected.
The market price of the shares of Common Stock may be volatile and could be
subject to wide fluctuations. The stock markets, and in particular the Nasdaq
National Market, have experienced extreme price and volume fluctuations that
often are unrelated or disproportionate to the operating performance of the
companies whose shares are traded in such market. Accordingly, broad market
factors may adversely affect the market price of the Company's Common Stock.
These market fluctuations, as well as general economic, political and market
conditions such as recessions, interest rates or international currency
fluctuations, may adversely affect the market price of the Common Stock. In the
past, following periods of volatility in the market price of a company's
securities class action litigation has often been instituted against such
company. Such litigation if instituted, could result in substantial costs and a
diversion of management's attention and resources, which would have a material
adverse effect on the Company's business, results of operations and financial
condition.
Risk of Concentration of Market
The Company's future business and operating results depend on the growth of
the internet and e-commerce industry. The majority of the Company's revenues
are derived from internet and e-commerce companies. The markets in which these
companies compete are characterized by rapidly changing technology, evolving
industry standards, frequent new service and product announcements,
introductions and enhancements and changing consumer demands. As a result, Hall
Kinion's success depends on the internet and e-commerce companies it does
business with to effectively adapt to these or any other technological
developments.
Dependence on Key Personnel
The Company's future business and operating results depend in significant
part upon the continued contributions of its key employees and senior management
personnel, many of whom would be difficult to replace. The loss or temporary
absence of any of the company's senior management, significant revenue
generating employees, other key personnel and, in particular, Brenda C. Rhodes,
its Chief Executive Officer and Paul H. Bartlett, its President, or the
inability to attract and retain key employees or management personnel in the
future, could have a material adverse effect of the Company's business,
operating results and financial condition.
Management of Growth
The Company has recently experienced a period of rapid growth that has
placed and will continue to place significant demands upon its management and
other resources. The Company's ability to effectively manage future growth will
require the Company to expand its operational, financial and other internal
systems. Implementing a new or expanded financial and management information
system can be time-consuming and expensive and require significant management
resources. There can be no assurance that the Company's current personnel,
systems, procedures and controls will be adequate to support the Company's
future operations or that any new system can be implemented effectively. Any
failure to manage its growth effectively could have a material adverse effect on
the Company's business, operating results and financial condition. In addition,
the Company believes that its future success will depend upon its ability to
identify, attract, hire, train, motivate and retain other revenue-generating
personnel. Competition for such personnel is intense. There can be no assurance
that the Company will be successful in attracting, assimilating or retaining the
necessary personnel, and the failure to do so could have a material adverse
effect on the company's business, results of operations and financial condition.
Risks of Acquisition
A component of the Company's growth strategy is the acquisition of
complementary businesses. The successful
12
<PAGE>
implementation of this strategy is dependent upon the Company's ability to
identify suitable acquisition candidates, obtain requisite financing, acquire
such companies on suitable terms and integrate their operations successfully
with those of the Company. There can be no assurance that the Company will be
able to identify suitable acquisition candidates or that the Company will be
able to acquire such candidates on favorable terms.
Moreover, other providers of IT professional services are also competing
for acquisition candidates, which could result in an increase in the price of
acquisition targets and a diminished pool of companies available for
acquisition. Acquisitions also involve a number of other risks, including
adverse effects of the Company's reported operating results from increases in
goodwill amortization and interest expense, the diversion of management
attention and the subsequent integration of the acquired business.
To the extent the Company seeks to acquire complementary businesses for
cash, the Company may be required to obtain additional financing and there can
be no assurance such financing will be available on favorable terms, if at all.
Due to all of the foregoing, acquisitions may have a material adverse effect on
the Company's business operating results and financial condition. In addition,
if the Company issues stock to complete any future acquisitions, existing
stockholders will experience ownership dilution.
For example, in 1998 the Company acquired four companies: Group-IPEX, TKO,
Huntington and ITC, each of which is located and conducts business in multiple
states. All of these companies are operating as independent subsidiaries. The
integration of these companies, their clients, IT professionals, and employees
has required a significant amount of management's time and attention, and has
resulted in significant integration-related expenses, including expenses
associated with training their employees and contractors.
Industry and Geographic Concentration
The Company's business is dependent on the trends prevalent in, and the
continued growth and rate of change of, the high technology industry. In 1999
and 1998, substantially all of the Company's net revenues were derived by
providing services to clients in the high technology industry. In addition,
approximately 43% and 47% of the Company's net revenues in 1998 and 1997
respectively, were derived from services provided to clients in Silicon Valley.
Substantial deterioration in general economic conditions in Silicon Valley or in
the high technology industry as a whole would materially and adversely affect
the Company's business, financial condition and operating results.
Highly Competitive Market
The IT staffing industry is highly competitive and fragmented and has low
barriers to entry. The Company competes for potential clients with providers of
outsourcing services, system integrators, and computer systems consultants,
other providers of IT services and temporary personnel agencies. Many of the
Company's current and potential competitors have longer operating histories,
significantly greater financial and marketing resources, greater name
recognition and a larger installed base of IT professionals and clients than the
Company. In addition, many of these competitors, including numerous smaller
privately held companies, may be able to respond more quickly to customer
requirements and to devote greater resources to the marketing of services than
the Company. Because there are relatively low barriers to entry, the Company
expects that competition will increase in the future. Increased competition
could result in price reductions, reduced margins or loss of market share, any
of which could materially and adversely affect the Company's business, operating
results and financial condition. Further, there can be no assurance that the
Company will be able to compete successfully against current and future
competitors or that competitive pressures faced by the Company will not have a
material adverse effect on its business, operating results and financial
condition.
Governmental Regulation of Immigration
Certain of the Company's IT professionals are foreign nationals working in
the United States under H-1B permits. Accordingly, both the Company and these
foreign nationals must comply with the United States immigration laws. The
inability of the Company to obtain H-1B permits for certain of its employees in
sufficient quantities or at a sufficient rate could have a material adverse
effect on the Company's business, operating results and financial condition.
Furthermore, Congress and administrative agencies with jurisdiction over
immigration matters have periodically expressed concerns over the levels of
legal and illegal immigration into the U.S. These concerns have often resulted
in proposed legislation, rules and regulations aimed at reducing the number of
work permits that may be issued. For example, in 1997 the maximum number of
permitted H-1B permits available for 1997 were issued during the third quarter
of 1997, resulting in an inability of applicants to obtain additional permits
for the balance of the year. Any changes in such laws making it more
13
<PAGE>
difficult to hire foreign nationals or limiting the ability of the company to
obtain foreign employees could require the Company to incur additional
unexpected labor costs and expense. Further, any such restrictions or
limitations on hiring practices could have a material adverse effect on
business, operating results and financial condition.
Concentration of Ownership by Principal Stockholders
The company's principal stockholders, Brenda C. Rhodes and Todd Kinion,
beneficially owned approximately 29% of the Company's outstanding shares of
Common Stock at September 26, 1999. As a result, these stockholders as a group
will be able to exercise control over almost all matters requiring a stockholder
approval, including the election of directors and approval of significant
corporate transactions. This concentration of ownership could have the effect
of making it difficult for a third party to acquire control of the Company and
may discourage third parties from attempting to do so.
Liability Risks
The Company is exposed to liability with respect to actions taken by its IT
professionals while on assignment, such as damages caused by errors of IT
professionals, misuse of client proprietary information or theft of client
property. The Company often indemnifies its clients from the foregoing.
Although the Company maintains insurance coverage, due to the nature of the
Company's assignments, and in particular the access of IT professionals to
client information systems and confidential information, and the potential
liability with respect thereto, there can be no assurance that such insurance
coverage will continue to be available on reasonable terms or that it will be
adequate to cover any such liability. The Company may be exposed to
discrimination and harassment claims or other similar claims as a result of
inappropriate actions allegedly taken against IT professionals by corporate
clients. As an employer, the Company is also exposed to possible claims of
wrongful discharge and violations of immigration laws. Employment related
claims might result in negative publicity, litigation and liability for monetary
damages and fines.
Effect of Certain Charter provisions; Anti-Takeover Effects or Certificate of
Incorporation, Bylaws, Delaware Law
The Company's Amended and Restated Certificate of Incorporation (the
"Certificate") and Bylaws and Delaware law contain provisions that could have
the effect of delaying, deferring or preventing an unsolicited change in control
of the Company, which may adversely affect the market price of the Common Stock
or the ability of stockholders to participate in a transaction in which they
might otherwise receive a premium for their shares over the then current market
price. Such provisions also may have the effect of preventing changes in the
management of the Company. These provisions provide that all stockholder action
must be taken at an annual or special meeting of stockholders, that only the
Board of Directors may call special meetings of the stockholders and that the
Board of Directors be divided into three classes to serve for staggered three-
year terms. In addition, the Certificate authorizes the Board of Directors to
issue up to 10,000,000 shares of preferred stock ("Preferred Stock") without
stockholder approval and on such terms as the Board of Directors may determine.
Although no shares of Preferred Stock are outstanding as of September 26, 1999,
and the Company has no plans to issue any shares of Preferred Stock, the holders
of Common Stock will be subject to, and may be adversely affected by, the right
of any Preferred Stock that may be issued in the future. In addition, the
Company is subject to the anti-takeover provisions of Section 203 of the
Delaware General Corporation law, which could have the effect of delaying or
preventing a change of control of the Company.
Risks of Litigation.
In June 1999, three class action lawsuits were filed against the Company
and various of its officers, underwriters and venture capital investors,
alleging violation of Section 10(b) of the Securities Exchange Act of 1934 and
Rule 10b-5 promulgated thereunder. The lawsuits were filed by Milberg, Weiss,
Bershad, Hynes & Lerach, LLP on June 16, 1999 for Parnes complainant, on June
17, 1999 for Mulanax complainant and Finkelstein & Krinsk, on June 29, 1999, for
Gabos complainant, both of San Diego, California. The allegations of the
complaints focus on two general areas. First, the complaints allege that the
Company and certain of the individual defendants made false and misleading
statements regarding forecasted revenue earnings per share and the Company's
projected growth rate. Second, the complaints allege that the Company and
certain of the defendants sold stock at inflated prices while in possession of
adverse non-public information regarding the revenue and earning forecasts and
projected growth rate for the Company. The class period in all three actions is
from early August 1997 to mid-June 1998, the date when the Company publicly
disclosed that earnings per share growth would be lower than previously
forecast. The actions are pending in the United States District Court for the
Northern District of Northern California. It is expected that all actions will
be consolidated into a single action, and an amended complaint filed. By
stipulation of the parties, the defendants are not required to respond to the
complaints in any of the actions until a consolidated amended complaint is
filed. While the Company believes these actions are without merit and intends
vigorously to defend them, and believes that the insurance policies will
adequately cover the pending litigation, and adverse judgement could be reached
that might materially adversely affect the financial statements.
14
<PAGE>
Impact of Year 2000 Issue
The Year 2000 issue results from computer programs written using two digits
rather than four to define the applicable year. Any of the Company's computer
programs that have date-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a system failure
or miscalculations causing disruptions of operations, among other things, a
temporary inability to process transactions, send invoices, or engage in similar
normal business activities.
The Company is continuing to conduct its assessments of its computer
information systems and is continuing to take the necessary steps to determine
the nature and extent of the work required to make its systems Year 2000
compliant, where necessary. These steps will require the Company to modify,
upgrade or replace some of its internal financial and operational systems,
equipment and operational systems. The Company continues to evaluate the
estimated cost of bringing all internal systems, equipment and operations into
Year 2000 compliance, but has not finished determining the total cost of these
compliance efforts. While these efforts may involve additional costs, the
Company believes, based upon currently available information, that these costs
will not have a material adverse effect on the business, financial condition, or
results of operations of the Company. However, if these efforts are not
completed on time, or if the cost of updating or replacing the Company's
information systems, if necessary, exceeds current estimates, the Year 2000
issue could have a material adverse impact on the business, financial condition
or results of operations of the Company.
The Company is still in the process of implementing a new financial ERP
suite that is Year 2000 compliant. In addition, the Company has identified a
non-financial system used by the Company for management of contractor resumes
that might not be Year 2000 compliant. The Company is reviewing the impact, if
any, that such non compliance could have on its business, and intends to bring
such system into compliance, or implement a new, Year 2000 compliant system as
soon as possible. The Company's failure to fix its current system, or to
implement a new system, is likely to result in implementation of a manual
process of tracking resumes which could, in turn, have an adverse effect o the
Company's business, financial condition or results of operations.
The Company also intends to determine the extent to which it may be
vulnerable to any failures by its major partners and service providers to remedy
their own Year 2000 issues, and is in the process of initiating formal
communications with these parties. At this time the Company is unable to
estimate the nature or extent of any potential adverse impact resulting from the
failure of third parties to achieve Year 2000 compliance; however, there can be
no assurance that these third parties will not experience Year 2000 problems or
that any problems would not have a material effect on the Company's business,
financial condition or results of operations. To date the Company has contacted
all major suppliers and obtained confirmation that they have addressed the Year
2000 problems.
Item 3. Quantitative and Qualificative Disclosures about Market Risk
The following discussion about the Company's market risk disclosures
involves forward-looking statements. Actual results could differ materially from
those projected in the forward-looking statements. The Company is exposed to
market risk related to changes in interest rates and foreign exchange rates. The
Company does not use derivative financial instruments for speculative purposes.
Short term investments. The Company maintains a short-term investment
portfolio consisting mainly of debt securities with an average maturity of less
than one year. These available for sale securities are subject to interest rate
risk and will rise or fall in value if market interest rates change. The
Company has the ability to hold its fixed income investment until maturity, and
therefore the Company would not expect its operating results or cash flows to be
affected to any significant degree by the effect of a sudden change in market
interest rates on its investment portfolio.
As of December 27, 1998, the Company had fixed rate long-term debt of
approximately $1.08 million and floating rate short term debt of $3.13 million
outstanding under a $15 million revolving line of credit. If short-term
interest rates were to increase 10 percent, the increased interest expense
associated with these arrangements would not have a material impact on the
Company's net income or cash flows. The Company does not hedge any interest
rate exposures.
Foreign Currency Exchange Rate. The United Kingdom pound is the financial
currency in the Company's subsidiary in the United Kingdom. The Company does
not currently enter into foreign exchange forward looking contracts to hedge
certain balance sheet exposures and intercompany balances against future
movements in foreign exchange rates. However, the Company does maintain cash
balances denominated in the United Kingdom pound. If foreign exchange rates
were to weaken against the U.S. dollar immediately and uniformly by 10 percent
from the exchange rate at December 27, 1998, the fair value
15
<PAGE>
of these foreign amounts would decline by an immaterial amount.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
In June 1999, three class action lawsuits were filed against the Company
and various of its officers, underwriters and venture capital investors,
alleging violation of Section 10(b) of the Securities Exchange Act of 1934 and
Rule 10b-5 promulgated thereunder. The lawsuits were filed by Milberg, Weiss,
Bershad, Hynes & Lerach, LLP on June 16, 1999 for Parnes complainant, on June
17, 1999 for Mulanax complainant and Finkelstein & Krinsk, on June 29, 1999, for
Gabos complainant, both of San Diego, California. The allegations of the
complaints focus on two general areas. First, the complaints allege that the
Company and certain of the individual defendants made false and misleading
statements regarding forecasted revenue earnings per share and the Company's
projected growth rate. Second, the complaints allege that the Company and
certain of the defendants sold stock at inflated prices while in possession of
adverse non-public information regarding the revenue and earning forecasts and
projected growth rate for the Company. The class period in all three actions is
from early August 1997 to mid-June 1998, the date when the Company publicly
disclosed that earnings per share growth would be lower than previously
forecast. The actions are pending in the United States District Court for the
Northern District of Northern California. It is expected that all actions will
be consolidated into a single action, and an amended complaint filed. By
stipulation of the parties, the defendants are not required to respond to the
complaints in any of the actions until a consolidated amended complaint is
filed. The Company believes these actions are without merit and intends
vigorously to defend them.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Stockholder Proposals
Proposals of stockholders intended to be presented at the Company's 2000
annual meeting of stockholders must be received at the Company's principal
executive offices no later than December 15, 1999 in order to be included in the
Company's Proxy Statement and form of proxy relating to the 2000 annual meeting.
Pursuant to new amendments to Rule 14a-4(c) of the Securities and exchange Act
of 1934, as amended, if a stockholder who intends to present a proposal at the
2000 annual meeting of stockholders does not notify the Company of such proposal
on or prior to March 9, 2000, then management proxies would be allowed to use
their discretionary voting authority to vote discussion of the proposal if
raised at the annual meeting, even though there is no discussion of the proposal
in the 2000 Proxy Statement. The Company believes that the 2000 annual meeting
of stockholders will be held in May of 2000.
16
<PAGE>
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.
HALL, KINION & ASSOCIATES, INC.
Date: November 9, 1999
By: /s/ Martin A. Kropelnicki
-----------------------------------------
Martin A. Kropelnicki
Vice President, and
Chief Financial Officer
(Duly Authorized Officer and Principal
Financial Officer)
17
<PAGE>
Exhibit Index
<TABLE>
<S> <C>
27.1 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 12-MOS
<FISCAL-YEAR-END> DEC-26-1999 DEC-27-1998
<PERIOD-START> DEC-28-1998 DEC-29-1997
<PERIOD-END> SEP-26-1999 DEC-27-1998
<CASH> 1,127 3,082
<SECURITIES> 16 15
<RECEIVABLES> 32,167 19,241
<ALLOWANCES> (1,424) (1,083)
<INVENTORY> 0 0
<CURRENT-ASSETS> 35,668 23,594
<PP&E> 13,405 9,143
<DEPRECIATION> (4,791) (3,234)
<TOTAL-ASSETS> 78,944 55,976
<CURRENT-LIABILITIES> 18,390 15,786
<BONDS> 0 0
0 0
0 0
<COMMON> 37,730 34,269
<OTHER-SE> 3,380 3,633
<TOTAL-LIABILITY-AND-EQUITY> 78,944 55,976
<SALES> 49,324 124,132
<TOTAL-REVENUES> 49,324 124,132
<CGS> 25,677 69,066
<TOTAL-COSTS> 25,677 69,066
<OTHER-EXPENSES> 19,922 47,284
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 96 255
<INCOME-PRETAX> 3,629 7,731
<INCOME-TAX> 1,506 3,325
<INCOME-CONTINUING> 2,123 4,406
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,123 4,406
<EPS-BASIC> 0.20 0.47
<EPS-DILUTED> 0.20 0.43
</TABLE>
