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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 24, 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 October 30, 2000:
13,164,997 shares of common stock.
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HALL, KINION & ASSOCIATES, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION..................................................................................... 3
Item 1. Financial Statements...................................................................................... 3
Condensed Consolidated Balance Sheets at September 24, 2000 and December 26, 1999......................... 3
Condensed Consolidated Statements of Income for the three months and nine months ended September
24, 2000 and September 26, 1999........................................................................... 4
Condensed Consolidated Statements of Cash Flows for the nine months ended September 24, 2000 and
September 26, 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 per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
September 24, December 26,
ASSETS 2000 1999/1/
------------------------------------------
<S> <C> <C>
Current Assets:
Cash and equivalents................................................. $ 34,622 $ 1,191
Accounts receivable, net of allowance for doubtful accounts of
$2,797 at September 24, 2000 and $1,500 at December 26,1999..... 49,067 27,987
Prepaid expenses and other current assets............................ 3,387 1,437
Deferred income taxes................................................ 4,096 1,814
----- -----
Total current assets........................................ 91,172 32,429
Property and equipment, net............................................ 10,419 9,789
Goodwill, net.......................................................... 35,367 33,917
Other assets........................................................... 673 419
--- ------
Total assets..................................................... $137,631 $76,554
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.................................................... $ 7,291 $ 5,145
Accrued salaries, commissions, and related payroll taxes............ 11,834 7,322
Accrued liabilities................................................. 7,528 1,714
Income taxes payable................................................ 2,735 2,688
----- -----
Total current liabilities........................................ 29,388 16,869
Long-term debt and other obligations................................... 154 14,161
Deferred income taxes.................................................. 1,102 1,555
----- -----
Total liabilities............................................... 30,644 32,585
------ ------
Stockholders' Equity:
Common stock; $0.001 par value; 100,000 shares
Authorized; issued and outstanding: 13,163 shares at September 24,
2000 and 10,466 shares at December 26, 1999........................ 87,231 38,183
Stockholders' note receivable.......................................... (2,230) (5,499)
Accumulated translation adjustment..................................... (14) 1
Retained earnings...................................................... 22,000 11,284
------ ------
Total stockholders' equity........................................ 106,987 43,969
------- ------
Total liabilities and stockholders' equity........................ $137,631 $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 amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 24, September 26, September 24, September 26,
------------- ------------- ------------- -------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenues:
Contract services..................................... $59,891 $39,066 $165,529 $103,899
Permanent placement................................... 19,372 10,258 52,957 24,169
------- ------- -------- --------
Total net revenues...................................... 79,263 49,324 218,486 128,068
Cost of contract services............................... 38,794 25,677 108,550 68,899
------- ------- -------- --------
Gross profit............................................ 40,469 23,647 109,936 59,169
Operating expenses...................................... 33,673 19,922 92,343 50,170
------- ------- -------- --------
Income from operations.................................. 6,796 3,725 17,593 8,999
Other income/(expense), net............................. 543 (96) 776 (223)
------- ------- -------- --------
Income before income taxes.............................. 7,339 3,629 18,369 8,776
Income taxes............................................ 3,068 1,506 7,652 3,616
------- ------- -------- --------
Net income.............................................. $ 4,271 $ 2,123 $ 10,717 $ 5,160
======= ======= ======== ========
Net income per share:
Basic................................................. $ 0.33 $ 0.20 $ 0.89 $ 0.51
Diluted............................................... $ 0.30 $ 0.20 $ 0.82 $ 0.49
Shares used in per share computation:
Basic................................................. 13,088 10,385 12,071 10,057
Diluted............................................... 14,222 10,772 13,096 10,490
</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 24, September 26,
2000 1999
-----------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income............................................................... $ 10,717 $ 5,160
Adjustments to reconcile net income to net cash used for
operating activities:
Depreciation and amortization...................................... 3,275 1,979
Deferred income taxes.............................................. (2,735) (572)
Interest on stockholder notes receivable........................... (178) -
Loss on sale of fixed assets....................................... 151 -
Changes in assets and liabilities:
Accounts receivable............................................. (21,081) (12,181)
Prepaid expenses and other assets............................... (2,218) (265)
Accounts payable and accrued expenses........................... 12,451 3,290
Income taxes payable............................................ 5,388 2,764
-------- --------
Net cash provided by operating activities.................... 5,770 175
-------- --------
Cash flows from investing activities:
Purchase of property and equipment....................................... (3,247) (3,760)
Investments.............................................................. 14 -
Earnout payments relating to business acquisitions....................... (2,259) (7,943)
-------- --------
Net cash used for investing activities.......................... (5,492) (11,703)
-------- --------
Cash flows from financing activities:
Line of credit, net...................................................... - (1,000)
Borrowing on debt........................................................ 15,548 14,600
Notes payable repayments................................................. (29,548) (1,775)
Proceeds from exercise of options........................................ 4,597 3,162
Proceeds from sale of common stock, net of issuance costs................ 39,110 -
Stockholders notes receivable............................................ 3,446 (5,414)
-------- --------
Net cash provided financing activities.......................... 33,153 9,573
-------- --------
Net increase/(decrease) in cash and equivalents............................ 33,431 (1,955)
Cash and equivalents, beginning of period.................................. 1,191 3,082
-------- --------
Cash and equivalents, end of period........................................ $ 34,622 $ 1,127
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for -
Income taxes........................................................... $ 4,905 $ 1,278
Interest............................................................... $ 350 $ 397
Noncash investing and financing activities -
Income tax benefit from employee stock transactions.................... $ 5,341 $ 299
</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 September 24, 2000 and for
the three and nine months ended September 24, 2000 and September 26, 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 nine months ended
September 24, 2000, are not necessarily indicative of the results that may be
expected for the year ending December 31, 2000.
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 nine months ended September 24, 2000 and September 26, 1999,
the change in net assets from nonowner sources was ($15,000) and $0,
respectively, for the change in the accumulated translation adjustment, and
comprehensive income was $10,702,000 and $5,160,000, 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 stockholders. After underwriting discounts,
commissions, and other issuance costs of $553,000, 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 believes that adoption of SAB 101
will not have in impact 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 Nine Months Ended
September 24, September 26, September 24, September 26,
------------ ------------ ------------ -------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Contract Services:
Net revenues..................... $59,891 $39,066 $165,529 $103,899
Cost of revenues................. 38,794 25,677 108,551 68,899
------- ------- -------- --------
Gross Profit............... 21,097 13,389 56,978 35,000
======= ======= ======== ========
Permanent Placement:
Net revenues..................... 19,372 10,258 52,957 24,169
Cost of revenues................. --- --- --- ---
------- ------- -------- --------
Gross Profit............... 19,372 10,258 52,957 24,169
======= ======= ======== ========
</TABLE>
Net revenues to unaffiliated customers by geographic areas are as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 24, September 26, September 24, September 26,
------------- ------------- ------------- -------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
United States........................ 78,132 48,814 216,090 126,497
Europe............................... 1,131 510 2,396 1,571
------ ------ ------- -------
Total ........................ 79,263 49,324 218,486 128,068
====== ====== ======= =======
</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 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 75.6% of our net revenues for the
three months ended September 24, 2000, and 79.2% for the three months ended
September 26, 1999. Our Permanent Placement Services group provides specialized
IT professionals on a permanent basis and accounted for 24.4% of our net
revenues for the three months ended September 24, 2000, and 20.8% for the three
months ended September 26, 1999. Our Contract Services group accounted for 75.8%
of our net revenues for the nine months ended September 24, 2000 and 81.1% for
the nine months ended September 26, 1999. Our Permanent Placement Services group
accounted for 24.2% of our net revenues for the nine months ended September 24,
2000 and 18.9% for the nine months ended September 26, 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
<PAGE>
We have experienced growth by:
. expanding our pool of IT professional
. adding sales and recruiting employees;
. acquiring complementary businesses.
Net revenues increased to $79.3 million for the three months ended
September 24, 2000, from $49.3 million for the three months ending September 26,
1999, representing a 60.7% increase. Net revenues increased to $218.5 million
for the nine months ended September 24, 2000, from $128.1 million for the nine
months ended September 26, 1999, representing a 70.6% increase. Over this same
period, we increased our number of sales, sales support and administrative
employees to 883 individuals in 25 geographic markets from 623 individuals in 18
geographic markets in the corresponding quarter in 1999, representing a 41.7%
increase in headcount. The number of revenue producing sales and sales support
employees included in the overall headcount increased to 687 as of September 24,
2000 from 503 as of September 26, 1999, a 36.6% 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 Nine Months Ended September 24,
2000 and September 26, 1999
Net Revenues. Net revenues increased 60.7% to $79.3 million for the three
months ended September 24, 2000 from $49.3 million for the three months ended
September 26, 1999. Net revenues from our Contract Services group increased
53.3% to $59.9 million for the three months ended September 24, 2000, from $39.1
million for the three months ended September 26, 1999. Net revenues from our
Permanent Placement Services group were $19.4 million for the three months ended
September 24, 2000 and $10.3 million for the three months ended September 26,
1999, representing an increase of 88.8%. Net revenues increased 70.6% to $218.5
million for the nine months ended September 24, 2000, from $128.1 million for
the nine months ended September 26, 1999. Net revenues from our Contract
Services group increased 59.3% to $165.5 million for the nine months ended
September 24, 2000, from $103.9 million for the nine months ended September 26,
1999. Net revenues from our Permanent Placement Services group were $53.0
million for the nine months ended September 24, 2000, as compared to $24.2
million for the nine months ended September 26, 1999. The increase in net
revenues was due primarily to growth in existing offices. Our revenue producing
sales and sales support employee headcount increased throughout the year
reaching 687 as of September 24, 2000 from 503 as of September 26, 1999, a 36.6%
increase. Our IT professional headcount increased to 1,698 at September 24, 2000
from 1,457 at September 26, 1999, an increase of 16.5%.
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 71.1% to $40.5 million for the three months ended September 24, 2000, from
$23.6 million for the three months ended September 26, 1999. Gross profit
increased by 85.8% to $109.9 million for the nine months ended September 24,
2000, from $59.2 million for the nine months ended September 26, 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 51.1% for the three months ended September 24, 2000, from
47.9% for the three months ended September 26, 1999. Gross profit as a
percentage of net revenues increased to 50.3% for the nine months ended
September 24, 2000, from 46.2% for the nine months ended September 26, 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
revenues from the Contract Services group increased to 35.2% for the three
months ended September 24, 2000, from 34.3% for the three months ended September
26, 1999. Gross profit as a percentage of net revenues from the Contract
Services group increased to 34.4% for the nine months ended September 24, 2000,
from 33.7% for the nine months ended September 26, 1999. This increase was
primarily attributable to an increase in the number of assignments and an
increase in average billing rates.
9
<PAGE>
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 69.0% to $33.7 million
for the three months ended September 24, 2000, compared to $19.9 million for the
three months ended September 26, 1999. Operating expenses increased by 84.1% to
$92.3 million for the nine months ended September 24, 2000, compared to $50.2
million for the nine months ended September 26, 1999. Operating expenses as a
percentage of net revenues increased to 42.5% for the three months ended
September 24, 2000, from 40.4% for the three months ended September 26, 1999.
Operating expenses as a percentage of net revenues increased to 42.3% for the
nine months ended September 24, 2000, from to 39.2% for the nine months ended
September 26, 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 $693,000 for the three months ended
September 24, 2000, from $83,000 for the three months ended September 26, 1999.
Interest income increased to $1,215,000 for the nine months ended September 24,
2000, from $159,000 for the nine months ended September 26, 1999. The increase
in interest income resulted from interest related to proceeds from the common
stock offering consummated in April 2000 and, to a lesser extent, loans made to
some executive officers. Interest expense decreased to $8,000 for the three
months ended September 24, 2000, compared to $180,000 for the three months ended
September 26, 1999. Interest expense decreased to $351,000 for the nine months
ended September 24, 2000, from $404,000 for the nine months ended September 26,
1999. The decrease in interest expense for the three and nine months ended
September 24, 2000, was due to paying off our debt with proceeds from the common
stock offering consummated in April 2000. Also included is a nominal amount
relating to rental income and expenses and various nonrecurring charges which
amount to income of $9,000 and $63,000 for the three and nine months ended
September 24, 2000 and $1,000 and $22,000 for the three and nine months ended
September 26, 1999.
Income Taxes
Income Taxes. Our effective tax rate was 41.8% for the three and nine
months ended September 24, 2000, compared to 41.7% for the three and nine months
ended September 26, 1999. Our income tax rate varies from period to period due
primarily to changes in nondeductible expenses.
Net Income
Net Income. Net income increased 101.2% to $4.3 million for the three
months ended September 24, 2000, compared to $2.1 million for the three months
ended September 26, 1999. Net income increased 107.7% to $10.7 million for the
nine months ended September 24, 2000, compared to $5.2 million for the nine
months ended September 26, 1999. Net income as a percentage of revenue was 5.4%
for the three months ended September 24, 2000, compared to 4.3% for the three
months ended September 26, 1999. Net income as a percentage of revenue was 4.9%
for the nine months ended September 24, 2000, compared to 4.0% for the nine
months ended September 26, 1999.
LIQUIDITY AND CAPITAL RESOURCES
We generally fund our operations and working capital needs through cash
generated from operations, proceeds from offering of our common stock and by
borrowings under our revolving line of credit with a commercial bank. Our
operating activities provided $5.8 million from operations for the nine months
ended September 24, 2000, compared to using $175,000 for the nine months ended
September 26, 1999.
The principal uses of cash for investing activities for the nine months
ended September 24, 2000, were for the purchase of property and equipment and
earnout payments relating to business acquisitions. Purchases of property and
equipment included upgrading our network and other technology systems.
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.
10
<PAGE>
Net cash provided by financing activities for the nine months ended
September 24, 2000, was $33.2 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 officers 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 November, 2000.] While the Company believes that the
claims are meritless, and that its Directors & Officers liability insurance will
adequately cover the pending claims, an adverse judgement in the matter may have
a material adverse impact on the Company's business and financial condition.
Item 6. Exhibits and Reports on Form 8-K
a (a) Exhibits:
b
Exhibit 27.1 - Financial Data Schedule
(b) Reports on Form 8-K - None
12
<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 6, 2000
By: /s/ Martin A. Kropelnicki
----------------------------------
Martin A. Kropelnicki
Vice President,
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
13
