<PAGE>
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 30, 1996
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 0-28654
-----------------
CLAREMONT TECHNOLOGY GROUP, INC.
(Exact name of registrant as specified in its charter)
Oregon 93-1004490
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1600 NW Compton Drive, Suite 210
Beaverton, Oregon 97006
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 503-690-4000
---------------------
The index to exhibits appears on page 8 of this document.
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) has 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 the latest practicable date.
Common stock without par value 7,297,190
(Class) (Outstanding at November 5, 1996)
<PAGE>
CLAREMONT TECHNOLOGY GROUP, INC.
FORM 10-Q
INDEX
PART I -- FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets -- September 30, 1996 and June 30, 1996 2
Consolidated Statements of Operations -- Three Months Ended
September 30, 1996 and 1995 3
Consolidated Statements of Cash Flows -- Three Months Ended
September 30, 1996 and 1995 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 5
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 8
Signatures 9
</TABLE>
1
<PAGE>
CLAREMONT TECHNOLOGY GROUP, INC.
AND SUBSIDIAIRES
CONSOLIDATED BALANCE SHEETS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996
---- ----
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $18,240 $526
Receivables:
Accounts receivable, net of allowances of $88
and $110 10,195 7,811
Revenue earned in excess of billings 7,017 5,653
Other 146 78
Income taxes receivable 2,878 --
Prepaid expenses 438 683
Deferred income taxes 282 266
Notes receivable 75 75
------- ------
Total Current Assets 39,271 15,092
Property and equipment, net of accumulated depreciation
of $2,619 and $2,161 4,417 4,069
Software development costs, net of accumulated amortization
of $130 and $61 3,710 2,146
Other non-current assets, net of accumulated amortization
of $294 and $197 1,694 1,658
------- -------
Total Assets $49,092 $22,965
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $1,160 $1,464
Line of credit -- 4,600
Current installments of long-term debt 959 944
Accrued payroll and related liabilities 2,919 2,602
Accrued profit sharing 867 682
Other accrued liabilities 18 70
Income taxes payable -- 619
Deferred revenue 227 661
------- -------
Total Current Liabilities 6,150 11,642
Long-term debt, excluding current installments 1,333 1,578
Deferred income taxes 1,492 775
------- -------
Total Liabilities 8,975 13,995
Commitments and Contingencies
Shareholders' Equity:
Preferred stock, no par value. Authorized 10,000
shares; no shares issued or outstanding -- --
Common stock, no par value. Authorized 25,000 shares;
7,259 and 4,832 shares issued and outstanding at
September 30 and June 30, 1996, respectively 31,404 1,331
Retained earnings 8,716 7,649
Cumulative translation adjustment (3) (10)
------- -------
Total Shareholders' Equity 40,117 8,970
------- -------
Total Liabilities and Shareholders' Equity $49,092 $22,965
======= =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
2
<PAGE>
CLAREMONT TECHNOLOGY GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------
1996 1995
---- ----
<S> <C> <C>
Revenue:
Professional fees $13,537 $8,874
Resold products and services 342 9
------- -------
Total revenue 13,879 8,883
------- -------
Costs and expenses:
Project costs and expenses 7,059 4,709
Resold products and services 310 8
Selling, general and administrative 4,797 3,230
------- -------
Total costs and expenses 12,166 7,947
------- -------
Income from operations 1,713 936
------- -------
Other income (expense):
Interest income 159 8
Interest expense (70) (16)
Other, net 8 3
------- -------
Total other income (expense) 97 (5)
------- -------
Income before income taxes 1,810 931
Income tax expense 743 393
------- -------
Net income $1,067 $538
======= =======
Net income per common share $0.12 $0.07
======= =======
Weighted average number of common and
common equivalent shares outstanding 9,280 7,680
======= =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE>
CLAREMONT TECHNOLOGY GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $1,067 $538
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 625 199
Deferred income taxes 701 --
Changes in assets and liabilities:
Receivables (3,816) (912)
Income taxes receivable, net (3,497) 315
Prepaid expenses 245 2
Accounts payable (304) (490)
Accrued payroll and related liabilities
Accrued expenses 450 (151)
Deferred revenue (434) 274
------- ------
Net cash used by operating activities (4,963) (225)
-------- ------
Cash flows from investing activities:
Purchase of property and equipment (806) (587)
Expenditures for software development costs (1,634) (198)
Other non-current assets (133) (24)
------- ------
Net cash used by investing activities (2,573) (809)
------- ------
Cash flows from financing activities:
Proceeds/(payments) on line of credit, net (4,600) 250
Payments of long-term debt (230) (39)
Payments of obligations under capital lease -- (3)
Net proceeds from common stock offering 27,024 --
Acquisition of common stock -- (150)
Proceeds from exercise of stock options 3,049 72
Payments (issuance) of notes receivable, net -- 220
-------- ------
Net cash provided by financing activities 25,243 350
-------- ------
Effect of exchange rate on cash 7 5
------- ------
Net increase (decrease) in cash and cash
equivalents 17,714 (679)
Cash and cash equivalents at beginning of year 526 340
------- -------
Cash and cash equivalents at end of year $18,240 $(339)
======= =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
<PAGE>
CLAREMONT TECHNOLOGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
NOTE 1: BASIS OF PRESENTATION
The financial information included herein for the three-months ended
September 30, 1996 and 1995 is unaudited; however, such information reflects
all adjustments consisting only of normal recurring adjustments which are, in
the opinion of management, necessary for a fair presentation of the financial
position, results of operations and cash flows for the interim periods. The
financial information as of June 30, 1996 is derived from the audited
financial statements included in Claremont Technology Group, Inc.'s (the
Company's) 1996 Annual Report on Form 10-K. The interim consolidated
financial statements should be read in conjunction with the consolidated
financial statements and the notes thereto included in the Company's 1996
Annual Report on Form 10-K.
The results of operations for the interim period presented are not
necessarily indicative of the results to be expected for the full year.
NOTE 2: SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosure of cash flow information is as follows:
Three months ended
September 30,
------------------
1996 1995
---- ----
Cash paid during the period for income taxes $550 $34
Cash paid during the period for interest 91 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
This report on Form 10-Q contains certain information and trend statements
that constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act, which involve risks and
uncertainties. Actual results may differ materially from the results
described in the forward-looking statements. When used in this document, the
words "anticipate," "believe," "estimate," "expect," "intend" and other
similar expressions, as they relate to the Company, are intended to identify
forward-looking statements. Such statements reflect the current views of the
Company with respect to future events and are subject to certain risks,
uncertainties and assumptions that include, but are not limited to, those
discussed in Item 1 of the Company's 1996 Annual Report on Form 10-K and in
the following Management's Discussion and Analysis of Financial Condition and
Results of Operations.
5
<PAGE>
RESULTS OF OPERATIONS
The following table set forth, for the periods indicated, certain financial
data as a percentage of total revenue:
THREE MONTHS ENDED
SEPTEMBER 30,
---------------------------
1996 1995
---- ----
Revenue:
Professional fees 98% 100%
Resold products and services 2 --
--- ---
Total revenue 100 100
Costs and expenses:
Project costs and expenses 51 53
Resold products and services 2 --
Selling, general and administrative 35 37
--- ---
Total costs and expenses 88 90
--- ---
Income from operations 12 10
Other income (expense), net 1 --
--- ---
Income before income taxes 13 10
Income tax expense 5 4
--- ---
Net income 8% 6%
=== ===
The Company's revenue consists primarily of professional fees (including
license fees for Claremont's reusable software modules), and to a lesser
extent resold hardware and software products and resold contract services.
The Company's professional fees increased 53 percent to $13.5 million in the
first three months of fiscal 1997 from $8.9 million in the first three months
of fiscal 1996. Professional fees increased primarily due to an increase in
the number of projects performed, both for new and existing clients. Revenue
from foreign operations increased to $1.2 million in the first three months
of fiscal 1997 compared to $308,000 in the first three months of fiscal 1996.
The increase resulted primarily from the growth of the operations at the
Company's Montreal, Canada software factory, which commenced operations
during the third quarter of fiscal 1995. The Company's top five clients
accounted for 39 percent of professional fees for the three months ended
September 30, 1996 compared to 67 percent for the three months ended
September 30, 1995.
Project costs and expenses consist primarily of salaries and employee
benefits for personnel dedicated to client projects and associated overhead
costs including equipment depreciation and amortization. Project costs and
expenses increased 50 percent to $7.1 million (52 percent of professional
fees) in the first three months of fiscal 1997 from $4.7 million (53 percent
of professional fees) in the first three months of fiscal 1996. The increase
in project costs and expenses was due primarily to the addition of project
personnel necessary to perform the larger number of client projects.
Selling, general and administrative costs and expenses consist of costs
associated with the Company's executive staff, finance, facilities and human
resources departments (collectively, "Administrative Personnel"), travel and
business development costs. Selling, general and administrative costs and
expenses increased 49 percent to $4.8 million (35 percent of professional
fees) in the first three months of fiscal 1997 from $3.2 million (36 percent
of professional fees) in the first three months of fiscal 1996. The increase
is primarily due to increases in professional development and recruiting
expenses associated with the increased professional personnel, increased
facility expenses associated
6
<PAGE>
with increased space needs resulting from increased software development
efforts performed at Company facilities rather than at client locations,
increased numbers of Administrative Personnel and increased costs associated
with being a public company.
Interest income increased to $159,000 for the three months ended September
30, 1996 from $8,000 for the three months ended September 30, 1995, due to
higher cash balances resulting from the Company's initial public offering
which occurred in July 1996.
Income tax expense represents combined federal, state and foreign taxes at an
effective rate of 41 percent, or $743,000, for the first three months of
fiscal 1997 compared to 43 percent, or $393,000 for fiscal 1996. The decrease
in the effective tax rate is due to a change in the mix of jurisdictions in
which the Company does business, as well as changes in certain federal tax
laws.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its operations and investments
in property and equipment primarily through cash generated from operations,
bank borrowings and capital lease financing. In July 1996, the Company
completed its initial public offering and in August 1996, the Company sold
the additional shares pursuant to the exercise of the underwriters'
over-allotment option. Net proceeds from the offering and over-allotment
totaled $27.0 million.
At September 30, 1996, the Company had working capital of $33.1 million,
including $18.2 million of cash and cash equivalents.
Cash increased $17.7 million during the first three months of fiscal 1997
primarily as a result of net cash provided from financing activities of $25.2
million, offset by $5.0 million used in operations, $0.8 million for the
purchase of property and equipment and $1.6 million for software development
costs.
Accounts receivable and revenue earned in excess of billings, combined,
increased $3.7 million to $17.2 million at September 30, 1996 from $13.5
million at June 30, 1996 primarily as a result of growth in revenues. Days
sales outstanding were 69 at September 30, 1996 compared to 64 at June 30,
1996.
Income taxes receivable increased to $2.9 million at September 30, 1996 from
a payable of $619,000 at June 30, 1996 primarily as a result of the income
tax benefit from stock option exercises.
In July 1996, the Company repaid all amounts outstanding under its line of
credit with a portion of the proceeds from its initial public offering, and
at September 30, 1996 there were no amounts outstanding under the line of
credit. At September 30, 1996 the Company had total debt of $2.3 million
compared to $7.1 million at June 30, 1996.
During the first three months of fiscal 1997, the Company had capital
expenditures of $0.8 million primarily related to furniture and personal
computers, and $1.6 million associated with the capitalization of software
development costs. As of September 30, 1996 the Company did not have any
material commitments for capital expenditures.
7
<PAGE>
PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The exhibits filed as part of this report are listed below:
Exhibit No. and Description
---------------------------
11 Calculations of Net Income Per Share
27 Financial Data Schedule
(b) Reports on Form 8-K:
None.
8
<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.
Date: November 7, 1996 CLAREMONT TECHNOLOGY GROUP,INC.
By:/s/ PAUL J. COSGRAVE
--------------------
Paul J. Cosgrave
Chairman of the Board, President and Chief
Executive Officer
(Principal Executive Officer)
By:/s/ DENNIS M. GOETT
-------------------
Dennis M. Goett
Chief Financial Officer and Director
(Principal Financial and Accounting Officer)
9
<PAGE>
EXHIBIT 11
CLAREMONT TECHNOLOGY GROUP, INC.
AND SUBSIDIARIES
CALCULATIONS OF NET INCOME PER SHARE
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended September 30,
-------------------------------------------------------
1996 1995
-------------------------- --------------------------
Primary Fully Diluted Primary Fully Diluted
------- ------------- ------- -------------
<S> <C> <C> <C> <C>
Weighted Average Shares
Outstanding for the Period 6,623 6,623 4,505 4,505
Dilutive Warrants Using
the Treasury Stock Method 220 285 -- --
Dilutive Common Stock
Options Using the Treasury
Stock Method 2,437 2,516 2,709 2,691
Shares added pursuant to
SAB 83 -- -- 466 466
------- ------- ------ -------
Total Shares Used for Per
Share Calculations 9,280 9,424 7,680 7,662
====== ====== ====== =======
Net Income $1,067 $1,067 $538 $538
Adjustment to Income to
Give Effect for 20% Treasury
Stock Limitation -- -- 33 32
------ ------ ------ -------
Net Income as Adjusted $1,067 $1,067 $571 $570
====== ====== ====== =======
Net Income Per Share $0.12 $0.11 $0.07 $0.07
====== ====== ====== =======
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<PERIOD-START> JUL-01-1996
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> SEP-30-1996
<CASH> 18,240
<SECURITIES> 0
<RECEIVABLES> 17,212
<ALLOWANCES> 88
<INVENTORY> 0
<CURRENT-ASSETS> 39,271
<PP&E> 4,417
<DEPRECIATION> 2,619
<TOTAL-ASSETS> 49,092
<CURRENT-LIABILITIES> 6,150
<BONDS> 2,292
0
0
<COMMON> 31,404
<OTHER-SE> 8,713
<TOTAL-LIABILITY-AND-EQUITY> 49,092
<SALES> 342
<TOTAL-REVENUES> 13,879
<CGS> 310
<TOTAL-COSTS> 12,166
<OTHER-EXPENSES> 8
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (70)
<INCOME-PRETAX> 1,810
<INCOME-TAX> 743
<INCOME-CONTINUING> 1,067
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,067
<EPS-PRIMARY> 0.12
<EPS-DILUTED> 0.11
</TABLE>
