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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 JUNE 25, 2000
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.)
185 Berry Street, Suite 180 94107
China Basin Landing (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 August 3, 2000:
13,012,852 shares of common stock.
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HALL, KINION & ASSOCIATES, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION....................................................................................... 3
Item 1. Financial Statements........................................................................................ 3
Condensed Consolidated Balance Sheets at June 25, 2000 and December 26, 1999................................ 3
Condensed Consolidated Statements of Income for the three months and six months ended June 25, 2000 and
June 27, 1999............................................................................................... 4
Condensed Consolidated Statements of Cash Flows for the six months ended June 25, 2000 and June 27, 1999.... 5
Notes to Condensed Consolidated Financial Statements........................................................ 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................................................................... 12
Item 6. Exhibits and Reports on Form 8-K............................................................................ 12
SIGNATURES............................................................................................................ 13
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
HALL, KINION & ASSOCIATES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
June 25, December 26,
2000 1999
----------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and equivalents................................................. $ 35,044 $ 1,191
Accounts receivable, net of allowance for doubtful accounts of
$2,200 at June 25, 2000 and $1,500 at December 26,1999......... 44,543 27,987
Prepaid expenses and other current assets............................ 2,480 1,437
Deferred income taxes................................................ 3,793 1,814
-------- -------
Total current assets........................................ 85,860 32,429
Property and equipment, net............................................ 9,727 9,789
Goodwill, net.......................................................... 35,581 33,917
Other assets........................................................... 672 419
-------- -------
Total assets..................................................... $131,840 $76,554
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.................................................... $ 7,396 $ 5,145
Accrued salaries, commissions, and related payroll taxes............ 13,496 7,322
Accrued liabilities................................................. 6,129 1,714
Income taxes payable................................................ 4,453 2,688
-------- -------
Total current liabilities........................................ 31,474 16,869
Long-term debt and other obligations................................... 133 14,161
Deferred income taxes.................................................. 1,266 1,555
-------- -------
Total liabilities............................................... 32,873 32,585
-------- -------
Stockholders' Equity:
Common stock; $0.001 par value; 100,000,000 shares
authorized; issued and outstanding: 12,965,000 shares at June 25,
2000 and 10,466,000 shares at December 26, 1999.................... 83,438 38,183
Stockholders' note receivable.......................................... (2,192) (5,499)
Accumulated translation adjustment..................................... (8) 1
Retained earnings...................................................... 17,729 11,284
-------- -------
Total stockholders' equity........................................ 98,967 43,969
-------- -------
Total liabilities and stockholders' equity........................ $131,840 $76,554
======== =======
</TABLE>
See notes to condensed consolidated financial statements.
1. December 26, 1999 Balance Sheet has been derived from audited financial
statements at that date.
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 Six Months Ended
June 25, 2000 June 27, 1999 June 25, 2000 June 27, 1999
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Net revenues:
Contract services................................ $ 57,553 $ 34,566 $ 105,638 $ 64,833
Permanent placement.............................. 20,091 8,318 33,585 13,911
----------- ----------- ----------- -----------
Total net revenues................................. 77,644 42,884 139,223 78,744
Cost of contract services.......................... 37,740 22,755 69,757 43,222
----------- ----------- ----------- -----------
Gross profit....................................... 39,904 20,129 69,466 35,522
Operating expenses................................. 33,846 17,185 58,670 30,247
----------- ----------- ----------- -----------
Income from operations............................. 6,058 2,944 10,796 5,275
Other income/(expense), net........................ 435 (29) 233 (128)
----------- ----------- ----------- -----------
Income before income taxes......................... 6,493 2,915 11,029 5,147
Income taxes....................................... 2,702 1,195 4,584 2,110
----------- ----------- ----------- -----------
Net income......................................... $ 3,791 $ 1,720 $ 6,445 $ 3,037
=========== =========== =========== ===========
Net income per share:
Basic............................................ $0.30 $0.17 $0.56 $0.31
Diluted.......................................... $0.28 $0.16 $0.51 $0.29
Shares used in per share computation:
Basic............................................ 12,624,000 10,219,000 11,552,000 9,894,000
Diluted.......................................... 13,517,000 10,562,000 12,541,000 10,352,000
</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>
Six months ended
June 25, June 27,
2000 1999
-----------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income............................................................. $ 6,445 $ 3,037
Adjustments to reconcile net income to net cash used for
operating activities:
Depreciation and amortization........................................ 2,120 1,186
Deferred income taxes................................................ (2,268) (180)
Interest on stockholder notes receivable............................. (141) -
Changes in assets and liabilities:
Accounts receivable............................................... (16,556) (10,497)
Prepaid expenses and other assets................................. (1,311) (172)
Accounts payable and accrued expenses............................. 12,805 2,440
Income taxes payable.............................................. 4,798 1,329
-------- --------
Net cash provided by/(used for) operating activities............ 5,892 (2,857)
-------- --------
Cash flows from investing activities:
Purchase of property and equipment..................................... (1,520) (1,840)
Investments............................................................ 14 (1)
Earnout payments relating to business acquisitions..................... (2,201) (700)
-------- --------
Net cash used for investing activities.......................... (3,707) (2,541)
-------- --------
Cash flows from financing activities:
Borrowing on debt...................................................... 15,548 9,416
Notes payable repayments............................................... (29,548) (2,128)
Proceeds from exercise of options...................................... 3,112 84
Proceeds from sale of common stock, net of issuance costs.............. 39,110 -
Stockholders notes receivable.......................................... 3,446 (5,056)
-------- --------
Net cash provided financing activities.......................... 31,668 2,316
-------- --------
Net increase/(decrease) in cash and equivalents............................ 33,853 (3,082)
Cash and equivalents, beginning of period.................................. 1,191 3,082
-------- --------
Cash and equivalents, end of period........................................ $ 35,044 $ -
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for -
Income taxes........................................................ $ 1,979 $ 874
Interest............................................................ $ 352 $ 223
</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"). Certain information and note disclosures normally
included in annual 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. It is suggested
that these financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's 10-K/A for the fiscal
year ending December 26, 1999.
The unaudited interim financial information as of June 25, 2000 and for the
three and six months ended June 25, 2000 and June 27, 1999, have been prepared
on the same basis as the audited 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 six months ended June 25, 2000,
are not necessarily indicative of the results that may be expected for the year
ending January 2, 2001.
2. Comprehensive Income. Statement of Financial Accounting Standards 130,
Reporting Comprehensive Income, requires reporting by major components and as a
single total, the change in its net assets during the period from nonowner
sources. For the six months ended June 25, 2000 and June 27, 1999, the change in
net assets from nonowner sources was ($9,000) and $0, respectively, for the
change in the accumulated translation adjustment, and comprehensive income was
$6,437,000 and $3,037,000, respectively.
3. Stockholder's Equity. On April 15, 1999, Paul Barlett, then President,
exercised 750,000 options at $4.00 per share for $3,000,000. The Company made
two loans to Mr. Barlett for the aggregate amount of $3,274,000 for the exercise
price of the options and the payroll taxes associated with the transaction. In
April 2000, Mr. Bartlett paid $1,611,000 to the Company against the outstanding
balance of his loans. In June 2000, Mr. Bartlett paid the remaining balance of
his loans of $1,835,000 to the Company.
4. Common Stock Offering. In April 2000, the Company completed a secondary
offering of 4,033,000 shares of its Common Stock at a price of $21.00 per share.
This offering consisted of 1,988,000 shares of newly issued Common Stock and
2,045,000 shares sold by selling shareholders. After underwriting discounts,
commissions, and other issuance costs of $535,000, net proceeds to the Company
from this offering were approximately $45.6 million.
5. Revenue Recognition. In December 1999, SEC issued Staff Accounting Bulletin
No. 101 "Revenue Recognition in Financial Statements" (SAB). SAB 101 summarizes
certain of the SEC's views in applying generally accepted accounting principles
(GAAP) to revenue recognition in financial statements. The Company is required
to adopt SAB 101 in the fourth quarter of 2000. Although the Company believes
its revenue recognition policies are in accordance with GAAP, the Company is
currently reviewing SAB 101 and has not yet determined its impact, if any, on
the Company's financials.
6. Business Segment Reporting. Under SFAS 131, the Company's operations were
divided into two industry segments, Contracts Services and Permanent Placement
Services. Operations in the Contract Services segment provides supplemental IT
professionals on a contract basis. In a typical R&D contract, IT professionals
are contracted to a high technology client, usually in connection with a
specific application or project. The Permanent Placement segment provides
professionals for permanent placement with its corporate clients.
6
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HALL, KINION & ASSOCIATES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Management evaluates segment performance based primarily on segment revenues,
cost of revenue, and gross profit. Continuing operations by business segments
are as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 25, 2000 June 27, 1999 June 25, 2000 June 27, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Contract Services:
Net revenues................................. $57,553 $34,566 $105,638 $64,833
Cost of revenues............................ 37,740 22,755 69,757 43,222
------- ------- -------- -------
Total .................................... 19,813 11,811 35,881 21,611
======= ======= ======== =======
Permanent Placement:
Net revenues................................. 20,091 8,318 33,585 13,911
Cost of revenues............................ --- --- --- ---
------- ------- -------- -------
Total .................................... 20,091 8,318 33,585 13,911
======= ======= ======== =======
</TABLE>
Net revenues to unaffiliated customers by geographic areas are as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------------
June 25, 2000 June 27, 1999 June 25, 2000 June 27, 1999
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
United States................................. 76,783 42,317 137,959 77,683
Europe.............................................. 861 567 1,264 1,061
------ ------ ------- ------
Total .................................... 77,644 42,884 139,223 78,744
====== ====== ======= ======
</TABLE>
The Company currently does not segregate the operations of its business segments
by assets.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Some of the statements under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" elsewhere in this report
constitute forward-looking statements that involve substantial uncertainties.
These statements include, among others, statements concerning the following:
. our business and growth strategies;
. the markets we serve;
. liquidity; and
. our efforts to increase brand awareness.
We have based these forward-looking statements on our current expectations
and projections about future events. In some cases, you can identify forward-
looking statements by terms such as "may," "hope," "will," "should," "expect,"
"plan," "anticipate," "intend," "believe," "estimate," "predict," "potential" or
"continue," the negative of these terms or other comparable terminology. The
forward-looking statements contained in this report involve known and unknown
risks, uncertainties and other factors that may cause industry trends or our
actual results, performance or achievements to be materially different from any
future trends, results, performance or achievements expressed or implied by
these statements. These factors include, among others, the rate of hiring and
productivity of sales and sales support personnel, the availability of qualified
IT professionals, changes in the relative mix between contract services and
permanent placement services, changes in the pricing of our services, the timing
and rate of entrance into new geographic markets and the addition of offices,
the structure and timing of acquisitions, changes in demand for IT
professionals, general economic factors, and others listed under "Risk Factors,"
elsewhere in this report, and in our other Securities and Exchange Commission
filings.
We cannot guarantee future results, performance or achievements. We do not
intend to update this report to conform any forward-looking statements to actual
results. You should not place undue reliance on these forward-looking
statements, which apply only as of the date of this report.
OVERVIEW
We source and deliver the most critical component of the Internet economy--
human capital. As a leading talent source for the growing Internet economy, we
provide specialized IT professionals on a short-term contract and permanent
basis primarily to vendors of Internet technologies and, to a lesser extent, to
users of intranets and extranets. We have 41 offices located in 25 geographic
markets. Our Contract Services group provides specialized IT professionals on a
short-term contract basis and accounted for 74.1% of our net revenues for the
three months ended June 25, 2000, and 80.6% for the three months ended June 27,
1999. Our Permanent Placement Services group provides specialized IT
professionals on a permanent basis and accounted for 25.9% of our net revenues
for the three months ended June 25, 2000, and 19.4% for the three months ended
June 27, 1999. Our Contract Services group accounted for 75.9% of our net
revenues for the six months ended June 25, 2000 and 82.3% for the six months
ended June 27, 1999. Our Permanent Placement Services group accounted for 24.1%
of our net revenues for the six months ended June 25, 2000 and 17.7% for the six
months ended June 27, 1999.
Our net revenues are derived principally from the hourly billings of our IT
professionals on contract assignments and from fees received for permanent
placements. Contract services assignments typically last four to six months, and
revenues are recognized as services are provided. We derive contract services
revenues when our consultants are working, and therefore our operating results
may be adversely affected when client facilities are closed due to holidays or
inclement weather. As a result, we typically experience relatively lower net
revenues in our first fiscal quarter compared to our other fiscal quarters. We
derive permanent placement revenues upon permanent placement of each IT
professional candidate. The fee is typically structured as a percentage of the
placed IT professional's first-year annual compensation. Permanent placement
revenues are recognized when an IT professional commences employment or, in the
case of retained searches, upon completion of our contractual obligations.
8
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We have experienced growth by:
. expanding our pool of IT professionals;
. entering new geographic markets;
. adding sales and recruiting employees;
. opening new offices in existing geographic markets; and
. acquiring complementary businesses.
Net revenues increased to $77.6 million for the three months ended June 25,
2000, from $42.9 million for the three months ending June 27, 1999, representing
a 81.1% increase. Net revenues increased to $139.2 million for the six months
ended June 25, 2000, from $78.7 million for the six months ended June 27, 1999,
representing a 76.8% increase. Over this same period, we increased our number of
sales, sales support and administrative employees to 821 individuals in 25
geographic markets from 565 individuals in 18 geographic markets in the
corresponding quarter in 1999, representing a 45.3% increase in headcount. The
number of revenue producing sales and sales support employees included in the
overall headcount increased to 641 as of June 25, 2000 from 469 as of June 27,
1999, a 36.7% increase. The additions of new offices and the entry into new
geographic markets have resulted in substantial increases in our operating
expenses, primarily due to increased headcount. These expenses are incurred in
advance of expected revenues because there is typically a delay before our sales
and sales support personnel reach full productivity. As a result, in periods
when we significantly increase our number of offices or acquisitions, our gross
profit and net income may be negatively impacted.
Results of Operations for the Three Months and Six Ended June 25, 2000 and June
27, 1999
Net Revenues. Net revenues increased 81.1% to $77.6 million for the three
months ended June 25, 2000 from $42.9 million for the three months ended June
27, 1999. Net revenues from our Contract Services group increased 66.5% to $57.6
million for the three months ended June 25, 2000, from $34.6 million for the
three months ended June 27, 1999. Net revenues from our Permanent Placement
Services group were $20.1 million for the three months ended June 25, 2000 and
$8.3 million for the three months ended June 27, 1999, representing an increase
of 141.5%. Net revenues increase 76.8% to $139.2 million for the six months
ended June 25, 2000, from $78.7 million for the six months ended June 27, 1999.
Net revenues from our Contract Services group increased 62.9% to $105.6 million
for the six months ended June 25, 2000, from $64.8 million for the six months
ended June 27, 1999. Net revenues from our Permanent Placement Services group
were $33.6 million for the six months ended June 25, 2000, from $13.9 million
for the six months ended June 27, 1999. The increase in net revenues was due
primarily to growth in existing offices and addition of new offices. Our revenue
producing sales and sales support employee headcount increased throughout the
year reaching 641 as of June 25, 2000 from 469 as of June 27, 1999, a 36.7%
increase. Our IT professional headcount increased to 1,681 at June 25, 2000 from
1,362 at June 27, 1999, an increase of 23.4%.
Gross Profit
Gross Profit. Gross profit for our Contract Services group represents
revenues less direct costs of services, which consist of direct payroll, payroll
taxes, and insurance and benefit costs for IT professionals. Gross profit for
our Permanent Placement Services group is essentially equal to revenues, as
there are no direct costs associated with such revenues. Gross profit increased
by 98.2% to $39.9 million for the three months ended June 25, 2000, from $20.1
million for the three months ended June 27, 1999. Gross profit increased by
95.6% to $69.5 million for the six months ended June 25, 2000, from $35.5
million for the six months ended June 27, 1999. This increase was primarily
attributable to an increase in the number of assignments, an increase in average
billing rates, and an increase in demand for services from our Permanent
Placement Services group. The increase in average billing rates was primarily
attributable to an increase in higher rate leading edge technology contract
services assignments. Gross profit as a percentage of net revenues increased to
51.4% for the three months ended June 25, 2000, from 46.9% for the three months
ended June 27, 1999. Gross profit as a percentage of net revenues increased to
49.9% for the six months ended June 25, 2000, from 45.1% for the six months
ended June 27, 1999. This increase was due primarily to an increase in the
percentage of revenues from our Permanent Placement Services group. Gross profit
as a percentage of net
9
<PAGE>
revenues from the Contract Services group increased to 34.4% for the three
months ended June 25, 2000, from 34.2% for the three months ended June 27, 1999.
Gross profit as percentage of net revenues from the Contract Services group
increased 34.0% for the six months ended June 25, 2000, from 33.3% for the six
months ended June 27, 1999. This increase was primarily attributable to an
increase in the number of assignments and an increase in average billing rates.
Operating Expenses
Operating Expenses. Operating expenses consist primarily of employee costs,
recruiting expenses, marketing expenses and amortization of intangible assets
related to acquisitions. Operating expenses increased by 97.0% to $33.8 million
for the three months ended June 25, 2000, compared to $17.2 million for the
three months ended June 27, 1999. Operating expenses increased by 94.0% to
$58.7 million for the six months ended June 25, 2000, compared to $30.2 million
for the six months ended June 27, 1999. Operating expenses as a percentage of
net revenues increased to 43.6% for the three months ended June 25, 2000, from
40.1% for the three months ended June 27, 1999. Operating expenses as a
percentage of net revenues increased to 42.1% for the six months ended June 25,
2000, from to 38.4% for the six months ended June 27, 1999. The increases
resulted primarily from expenses associated with increased sales, sales support
and administrative employee costs, facility costs, amortization and depreciation
expense, which are associated with the opening of new offices and expanding of
current offices.
Other Income (Expense), Net
Other Expense. Interest income increased to $430,000 for the three months ended
June 25, 2000, from $72,000 for the three months ended June 27, 1999. Interest
income increased to $523,000 for the six months ended June 25, 2000, from
$76,000 for the six months ended June 27, 1999. The increase in interest income
resulted from interest related to proceeds from common stock offering and, to a
lesser extent, loans made to some executive officers. Interest expense decreased
to $31,000 for the three months ended June 25, 2000, compared to $132,000 for
the three months ended June 27, 1999. The decrease in interest expense for the
three months ended June 25, 2000, was due to paying off our debt with proceeds
from the secondary offering consummated in April 2000. Interest expense
increased to $343,000 for the six months ended June 25, 2000, from $224,000 for
the six months ended June 27, 1999. The increase in interest expense for the six
months ended June 25, 2000, primarily reflected debt incurred in connection with
acquisitions and an overall increase in interest rates. Also included is a
nominal amount relating to rental income and expenses and various nonrecurring
charges which amount to income of $36,000 and $54,000 for the three and six
months ended June 25, 2000 and $31,000 and $20,000 for the three and six months
ended June 27, 1999.
Income Taxes
Income Taxes. Our effective tax rate was 41.6% for the three and six months
ended June 25, 2000, compared to 41.0% for the three and six months ended June
27, 1999. Our income tax rate varies from period to period due primarily to
changes in nondeductible expenses.
Net Income
Net Income. Net income increased 120.4% to $3.8 million for the three
months ended June 25, 2000, compared to $1.7 million for the three months ended
June 27, 1999. Net income increased 112.2% to $6.4 million for the six months
ended June 25, 2000, compared to $3.0 million for the six months ended June 27,
1999. Net income as a percentage of revenue was 4.9% for the three months ended
June 25, 2000, compared to 4.0% for the three months ended June 27, 1999. Net
income as a percentage of revenue was 4.6% for the six months ended June 25,
2000, compared to 3.9% for the six months ended June 27, 1999.
LIQUIDITY AND CAPITAL RESOURCES
We generally fund our operations and working capital needs through cash
generated from operations, periodically supplemented by borrowings under our
revolving line of credit with a commercial bank. Our operating activities
provided $5.7 million from operations for the six months ended June 25, 2000,
compared to using $2.9 million for the six months ended June 27, 1999.
The principal uses of cash for investing activities for the six months
ended June 25, 2000, were for earnout payments relating to business acquisitions
and the purchase of property and equipment. Purchases of property and equipment
included upgrading our network and other technology systems.
10
<PAGE>
In November 1999, we refinanced our $20 million revolving credit facility
with a new $30 million credit facility. The new $30 million credit facility is
comprised of a $20 million revolving credit facility and a $10 million term loan
facility. There were no borrowings under the term loan facility. The interest
rate on both facilities is the lower of the lender's prime rate or LIBOR. Both
facilities terminate in July 2002. Borrowings under both facilities are secured
by substantially all of our assets. The facilities contain covenants requiring
us to maintain minimum levels of profitability and net worth and specific ratios
of working capital and debt to operating cash flow. We are in compliance with
all of these covenants as of June 25, 2000.
Net cash provided by financing activities for the six months ended June 25,
2000, was $31.8 million, due primarily to proceeds from sale of common stock
associated with the secondary offering in April 2000 and partially offset by
repayment of debt.
We believe that our cash flows from operations and amounts available under
our credit facility will be sufficient to meet our cash requirements for at
least twelve months.
11
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In June 1999, the Company and certain of its directors and oficers were
named as defendants in three putative class actions filed in the United States
District Court for the Northern District of California, alleging violations of
Section (10)b of the Securities and Exchange Act of 1934. Pursuant to court
order, those cases have been consolidated, and a consolidated amended complaint
was filed on January 24, 2000. The action arises out of the Company's
announcement of a shortfall in earnings for the quarter ending June 1998, and
purports to be brought on behalf of all purchasers of the Company's common stock
between August 5, 1997, the date of the Company's initial public offering, and
June 18, 1998, when the Company pre-announced the earnings shortfall. The
complaint generally alleges that the Company misstated its future prospects in
various press releases and communications with analysts, and failed to disclose
alleged internal problems with the integration of certain acquired businesses,
while allegedly selling material amounts of stock held by insiders. The Company
successfully moved to dismiss all claims in the action, and the court entered an
order on April 25, 2000 dismissing the case with leave to amend. A First Amended
Complaint was filed on June 16, 2000. The Company filed a further Motion to
Dismiss the First Amended Complaint on July 20, 2000. A decision on such motion
is not expected before October, 2000. While the Company believes that the claims
are meritless, and that its Directors & Officers liability insurance will
adequately cover the pending claims, no assurance can be given that an adverse
judgement in the matter would not have a material adverse impact on the
Company's business and financial condition.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 27.1 - Financial Data Schedule
(b) Reports on Form 8-K - None
12
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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: August 9, 2000
By: /s/ Martin A. Kropelnicki
---------------------------------
Martin A. Kropelnicki
Vice President, Finance and
Chief Financial Officer
(Duly Authorized Officer and Principal
Financial Officer)
13
