SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
Commission File No. 0-20943
Intelligroup, Inc.
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(Exact Name of Registrant as Specified in Its Charter)
New Jersey 11-2880025
- ---------------------------------- ------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
499 Thornall Street, Edison, New Jersey 08837
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(732) 590-1600
-------------------------------
(Issuer's Telephone Number,
Including Area Code)
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 Registrant's classes of
common stock, as of November 4, 1999:
Class Number of Shares
----- ----------------
Common Stock, $.01 par value 15,558,751
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INTELLIGROUP, INC. and SUBSIDIARIES
TABLE OF CONTENTS
Page
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PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements........................... 1
Consolidated Balance Sheets
as of September 30, 1999 (unaudited)
and December 31, 1998 ...................................... 2
Consolidated Statements of Operations and Comprehensive
Income (Loss) for the Three Months and Nine Months Ended
September 30, 1999 and 1998 (unaudited)..................... 3
Consolidated Statements of Cash Flows
for the Nine Months Ended
September 30, 1999 and 1998 (unaudited)..................... 4
Notes to Consolidated Financial Statements (unaudited)...... 5
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition............... 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings....................................... 19
Item 3. Defaults Upon Senior Securities......................... 19
Item 4. Submission of Matters to a Vote of Security Holders..... 20
Item 5. Other Events............................................ 21
Item 6. Exhibits and Reports on Form 8-K........................ 22
SIGNATURES............................................................... 23
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<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
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<PAGE>
INTELLIGROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 1999 and December 31, 1998
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------ -----------
(unaudited)
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents.................................... $ 8,550,000 $ 4,245,000
Accounts receivable, less allowance for doubtful accounts
of $2,322,000 at September 30, 1999 and $1,053,000
at December 31, 1998...................................... 36,922,000 33,622,000
Unbilled services............................................ 13,548,000 10,842,000
Deferred income taxes........................................ 825,000 808,000
Other current assets......................................... 3,752,000 4,197,000
----------- ----------
Total current assets.................................... 63,597,000 53,714,000
Property and equipment, net..................................... 10,501,000 9,506,000
Cost in excess of fair value of net assets acquired, net........ 6,850,000 5,629,000
Other assets.................................................... 1,290,000 716,000
----------- ----------
$ 82,238,000 $ 69,565,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable............................................. $ 3,838,000 $ 5,347,000
Accrued payroll and related taxes............................ 9,731,000 6,254,000
Accrued expenses and other liabilities....................... 7,280,000 2,999,000
Accrued restructuring costs.................................. 1,742,000 --
Accrued acquisition costs.................................... 460,000 3,302,000
Income taxes payable......................................... -- 3,160,000
Line of credit............................................... 10,575,000 --
Current portion of long-term debt and obligations under
capital leases............................................ 131,000 11,000
----------- ----------
Total current liabilities............................... 33,757,000 21,073,000
----------- ----------
Long-term debt and obligations under capital leases,
less current portion......................................... 653,000 60,000
----------- ----------
Deferred income taxes........................................... 533,000 483,000
----------- ----------
Commitments and contingencies
Shareholders' Equity:
Preferred stock, $.01 par value, 5,000,000 shares
authorized, none issued or outstanding.................... -- --
Common stock, $.01 par value, 25,000,000 shares authorized;
15,558,751 and 15,393,000 shares issued and outstanding at
September 30, 1999 and December 31, 1998, respectively.... 156,000 154,000
Additional paid-in capital................................... 37,770,000 35,263,000
Retained earnings............................................ 10,493,000 13,077,000
Currency translation adjustments............................. (1,124,000) (545,000)
----------- ----------
Total shareholders' equity ............................... 47,295,000 47,949,000
----------- ----------
$ 82,238,000 $ 69,565,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
INTELLIGROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
For the Three Months and Nine Months Ended September 30, 1999 and 1998
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue................................. $ 48,350,000 $ 43,315,000 $141,528,000 $116,639,000
Cost of sales........................... 30,630,000 27,363,000 91,562,000 73,165,000
----------- ----------- ------------ ------------
Gross Profit........................ 17,720,000 15,952,000 49,966,000 43,474,000
----------- ----------- ------------ ------------
Selling, general and administrative
expenses............................... 15,036,000 10,751,000 43,091,000 28,563,000
Acquisition expenses.................... -- -- 2,115,000 434,000
Restructuring and other special charges. -- -- 7,328,000 --
----------- ----------- ------------ ------------
Total operating expenses............ 15,036,000 10,751,000 52,534,000 28,997,000
----------- ----------- ------------ ------------
Operating income (loss)............. 2,684,000 5,201,000 (2,568,000) 14,477,000
Other income (expense), net............. 64,000 176,000 110,000 121,000
Interest income (expense), net.......... (241,000) 4,000 (508,000) 100,000
----------- ----------- ------------ ------------
Income (loss) before provision for
income taxes........................... 2,507,000 5,381,000 (2,966,000) 14,698,000
Provision (benefit) for income taxes.... 802,000 1,623,000 (552,000) 3,529,000
----------- ----------- ------------ ------------
Net income (loss)....................... $ 1,705,000 $ 3,758,000 $ (2,414,000) $ 11,169,000
=========== =========== ============ ============
Earnings per share:
Basic earnings per share:
Net income (loss) per share.... $ 0.11 $ 0.24 $ (0.16) $ 0.73
=========== =========== ============ ============
Weighted average number of
common shares - Basic............ 15,549,000 15,371,000 15,549,000 15,205,000
=========== =========== ============ ============
Diluted earnings per share:
Net income (loss) per share.... $ 0.11 $ 0.24 $ (0.16) $ 0.71
=========== =========== ============ ============
Weighted average number of
common shares - Diluted.......... 15,551,000 15,881,000 15,549,000 15,702,000
=========== =========== ============ ============
Comprehensive Income (Loss)
- ---------------------------
Net income (loss)....................... $ 1,705,000 $ 3,758,000 $ (2,414,000) $ 11,169,000
Other comprehensive income -
Currency translation adjustments... (15,000) (439,000) (578,000) (1,271,000)
----------- ----------- ------------ ------------
Comprehensive income (loss)............. $ 1,690,000 $ 3,319,000 $ 2,992,000 $ 9,898,000
=========== =========== ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
INTELLIGROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 1999 and 1998
(unaudited)
<TABLE>
<CAPTION>
September 30, September 30,
1999 1998
-------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)............................................ $ (2,414,000) $ 11,169,000
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization............................ 2,559,000 405,000
Provision for doubtful accounts.......................... 2,912,000 610,000
Deferred income taxes.................................... (278,000) (184,000)
Changes in operating assets and liabilities:
Accounts receivable...................................... (5,301,000) (10,184,000)
Unbilled services........................................ (2,706,000) (6,431,000)
Other current assets..................................... 502,000 (1,225,000)
Other assets............................................. (574,000) (590,000)
Accounts payable......................................... (1,514,000) 2,206,000
Accrued payroll and related taxes........................ 3,404,000 6,086,000
Accrued restructuring charges............................ 1,742,000 --
Accrued expenses and other liabilities................... 1,078,000 1,926,000
Income taxes payable..................................... (3,348,000) 1,151,000
----------- -----------
Net cash provided by (used in) operating activities.. (3,938,000) 4,939,000
----------- -----------
Cash flows from investing activities:
Purchase of equipment........................................ (2,528,000) (4,037,000)
Acquisition of businesses.................................... (1,682,000) (4,398,000)
----------- -----------
Net cash used in investing activities................ (4,210,000) (8,435,000)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock....................... 2,509,000 4,462,000
Proceeds from line of credit borrowings, net................. 10,695,000 --
Repayments of other loans.................................... -- (461,000)
Principal payments under capital leases...................... (3,000) (9,000)
Shareholder dividends........................................ (170,000) (627,000)
----------- -----------
Net cash provided by financing activities............ 13,031,000 3,365,000
----------- -----------
Effect of foreign currency exchange rate changes on cash..... (578,000) (1,271,000)
----------- -----------
Net decrease in cash and cash equivalents ........... 4,305,000 (1,402,000)
Cash and cash equivalents at beginning of period................ 4,245,000 8,825,000
----------- -----------
Cash and cash equivalents at end of period...................... $ 8,550,000 $ 7,423,000
=========== ============
Supplemental disclosures of cash flow information:
Cash paid for income taxes................................... $ 2,636,000 $ 2,494,000
Cash paid for interest....................................... 569,000 35,000
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
INTELLIGROUP, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(1) BASIS OF PRESENTATION
The consolidated financial statements and accompanying financial
information as of September 30, 1999 and for the three and nine months ended
September 30, 1999 and 1998 are unaudited and, in the opinion of management,
include all adjustments (consisting only of normal recurring adjustments) which
the Company considers necessary for a fair presentation of the financial
position of the Company at such dates and the operating results and cash flows
for those periods. The financial statements included herein have been prepared
in accordance with generally accepted accounting principles and the instructions
of Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted. These financial statements should be read in conjunction with the
Company's audited financial statements for the year ended December 31, 1998,
which were included as part of the Company's Form S-3 declared effective by the
Securities and Exchange Commission on June 14, 1999.
The Company's 1998 Financial Statements have been restated to include the
results of the acquisitions of each of (i) CPI Resources Limited; (ii) Azimuth
Consulting Limited, Azimuth Holdings Limited, Braithwaite Richmond Limited and
Azimuth Corporation Limited; and (iii) Empower Solutions, LLC and its affiliate
Empower, Inc. (the "Empower Companies") in accordance with pooling of interests
accounting.
Results for interim periods are not necessarily indicative of results for
the entire year.
(2) EARNINGS PER SHARE
Basic earnings per share is computed by dividing income (loss) available to
common shareholders by the weighted average number of common stock outstanding
for the period. Diluted earnings per share reflects the potential dilution that
would occur if securities or other contracts to issue common stock were
exercised or converted into common stock, unless they are antidilutive.
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<PAGE>
A reconciliation of weighted average number of common shares outstanding to
weighted average common shares outstanding assuming dilution is as follows:
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average number of
common shares 15,549,000 15,371,000 15,549,000 15,205,000
Common share equivalents of
outstanding stock options 2,000 510,000 -- 497,000
----------- ----------- ----------- -----------
Weighted average number of common
shares assuming dilution 15,551,000 15,881,000 15,549,000 15,702,000
=========== =========== =========== ===========
</TABLE>
For the nine months ended September 30, 1999, all stock options outstanding
as of September 30, 1999 were excluded from the computation of net loss per
common share, as they are antidilutive. Certain stock options outstanding at
September 30, 1998 were not included in the computations of earnings per share
assuming dilution because the options' exercise prices were greater than the
average price of the common shares.
(3) ACQUISITIONS
On January 8, 1999, the Company consummated the acquisition of all of the
shares of outstanding capital stock of Network Publishing, Inc. The acquisition
was accounted for utilizing purchase accounting. The purchase price included an
initial cash payment in the aggregate of $1,800,000 together with a cash payment
of $200,000 to be held in escrow, and resulted in costs in excess of fair value
of net assets acquired of $1.6 million. In addition, the purchase price includes
an earn-out payment of up to $2,212,650 in restricted shares of the Company's
Common Stock, payable on or before April 15, 2000 and a potential lump sum cash
payment of $354,024, payable no later than March 31, 2000. Pro-forma financial
information has not been presented as this acquisition was deemed immaterial to
the Company's operations as a whole.
On February 16, 1999, the Company, by way of merger transactions,
consummated the acquisition of the Empower Companies. Such mergers were
accounted for as a pooling of interests. The Company issued an aggregate of
1,831,091 restricted shares of the Company's Common Stock. The Company may be
required to issue additional shares of its restricted Common Stock which may be
issued in connection with the net worth adjustment as of the closing date. The
results of the Empower Companies were revenues of $24.6 million and net income
of $7.9 million for the nine months ended September 30, 1999 and revenues of
$12.1 million and net income of $4.6 million for the nine months ended September
30, 1998. In connection with this merger, acquisition expenses of $2.1 million
were expensed during 1999. These costs primarily relate to professional fees
incurred in connection with the merger.
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<PAGE>
(4) RESTRUCTURING AND OTHER SPECIAL CHARGES
In connection with the Company's plan to reduce costs and improve operating
efficiencies, the Company incurred a non-recurring charge of approximately $5.6
million related to restructuring initiatives during the nine months ended
September 30, 1999. The restructuring charge included settlement of the former
Chief Executive Officer's employment agreement and additional severance payment,
expenses associated with the termination of certain employees in the United
States and the United Kingdom, the closing of certain satellite offices in the
United States and an additional office in Belgium, and costs to exit certain
contractual obligations.
Activity in accrued costs for restructuring and other special charges
during the nine month period ended September 30, 1999 is as follows:
<TABLE>
<CAPTION>
Charges to Costs Accrued Costs
Operations Paid September 30, 1999
---------- ---- ------------------
<S> <C> <C> <C>
Severance and related costs............ $ 5,027,000 $ 3,382,000 $ 1,645,000
Other costs primarily to exit
facilities, contracts, and certain
activities............................. 601,000 504,000 97,000
----------- ----------- ------------
$ 5,628,000 $ 3,886,000 $ 1,742,000
=========== =========== ============
</TABLE>
Additionally, the Company recorded a reserve of approximately $1.7 million
against an outstanding receivable from a large account, whose parent corporation
filed for protection under Chapter 11 of the U.S. bankruptcy laws.
(5) CREDIT FACILITY
On January 29, 1999, the Company entered into an unsecured three-year $30
million Revolving Credit Loan Agreement (the "Loan Agreement") with PNC Bank,
N.A. (the "Bank"). The proceeds of the credit facility may be used by the
Company for financing acquisitions and general corporate purposes. At the
Company's option, for each loan, interest shall be computed either at the Bank's
prime rate per annum or the Adjusted Libor Rate plus the Applicable Margin, as
such terms are defined in the Loan Agreement. The Company's obligations under
the credit agreement are payable at the expiration of such facility on January
29, 2002. Approximately $10.6 million was outstanding under this credit facility
at September 30, 1999.
The credit agreement contains financial covenants which require the Company
to (i) maintain a consolidated cash flow leverage ratio equal to or less than
2.5 to 1.0 for the period of four fiscal quarters preceding the date of
determination taken together as one accounting period ("Consolidated Cash Flow
Leverage Ratio"), (ii) maintain a consolidated net worth of not less than
consolidated net worth of the prior fiscal year plus 50% of positive net income
for such fiscal year ("Consolidated Net Worth"), (iii) not enter into any
agreement to purchase and/or pay for, or become obligated to pay for capital
expenditures, long term leases, capital leases or sale lease-backs, in an amount
at any time outstanding aggregating in excess of $5,000,000 during
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<PAGE>
any fiscal year, provided, however, in a one year carry-forward basis, the
Company may incur capital expenditures not to exceed $8,000,000 during any
fiscal year, and (iv) not cause or permit the minimum fixed charge coverage
ratio, calculated on the basis of a rolling four quarters to be less than 1.4 to
1.0 as at the end of each fiscal quarter ("Minimum Fixed Charge Coverage
Ratio").
As a result of the restructuring and other special charges incurred during
the quarter ended June 30, 1999, the Company was not in compliance with the
Consolidated Cash Flow Leverage Ratio and Consolidated Net Worth financial
covenants at June 30, 1999. On August 12, 1999, the Bank notified the Company
that such non-compliance constituted an Event of Default under the Loan
Agreement. At September 30, 1999, while the Company was in compliance with the
Consolidated Net Worth financial covenant, it was not in compliance with the
Consolidated Cash Flow Leverage Ratio and Minimum Fixed Charge Coverage Ratio
financial covenants. As of the date of this filing, the Company and the Bank are
in the process of finalizing the proposed terms of a waiver and amendment to the
Loan Agreement to remedy the defaults which currently exist under the Loan
Agreement. The terms of such proposed waiver and amendment may include, among
other things, (i) a $15 million reduction in availability under the Loan
Agreement, (ii) a requirement that the loan be secured by a first priority
perfected security interest on all of the assets of the Company and its domestic
subsidiaries and (iii) certain revised financial covenants. There can be no
assurance that the Company will obtain such waiver and amendment on terms
acceptable to the Company, if at all.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
GENERAL
The Company provides a wide range of information technology services,
including management consulting, enterprise-wide business process solutions,
Internet applications services, applications outsourcing and maintenance, web
site design and customization, IT training solutions, systems integration and
custom software development based on leading technologies. The Company has grown
rapidly since 1994 when it made a strategic decision to diversify its customer
base by expanding the scope of its integration and development services and to
utilize software developed by SAP as a primary tool to implement enterprise-wide
business process solutions. In 1995, the Company achieved the status of a SAP
National Implementation Partner. In the same year, the Company also began to
utilize Oracle's ERP application products to diversify its service offerings. In
1997, the Company enhanced its partner status with SAP, by first achieving
National Logo Partner status and then AcceleratedSAP Partner Status. Also, in
1997, the Company further diversified its ERP-based service offerings, by
beginning to provide PeopleSoft and Baan implementation services. In July 1997,
the Company was awarded PeopleSoft implementation partnership status. In
September 1997, the Company was awarded Baan international consulting
partnership status. In June 1998, the Company also expanded its Oracle
applications implementation services practice and added upgrade services to meet
market demand of mid-size to large companies that are implementing or upgrading
Oracle applications.
The Company generates revenue from professional services rendered to
customers. Revenue is recognized as services are performed. The Company's
services range from providing customers with a single consultant to
multi-personnel full-scale projects. The Company provides these services to its
customers primarily on a time and materials basis and pursuant to written
contracts which can be terminated with limited advance notice, typically not
more than 30 days, and without significant penalty, generally limited to fees
earned and expenses incurred by the Company through the date of termination. The
Company provides its services directly to end-user organizations or as a member
of a consulting team assembled by another information technology consulting firm
to Fortune 1000 and other large and mid-sized companies. The Company generally
bills its customers semi-monthly for the services provided by its consultants at
contracted rates. Where contractual provisions permit, customers also are billed
for reimbursement of expenses incurred by the Company on the customers' behalf.
The Company has provided and continues to provide services on certain
projects in which it, at the request of the clients, offered a fixed price for
its services. For the year ended December 31, 1998, revenues derived from
projects under fixed-price contracts represented approximately 4% of the
Company's total revenue. No single fixed-price contract was material to the
Company's business during 1998. However, one fixed price project, which began
late in 1998 and is expected to be completed in early 2000, represented
approximately 3% of the Company's revenue during the quarter ended September 30,
1999. Fixed price contracts, in the aggregate, represented approximately 8% of
the Company's total revenue during such quarter. The Company believes that, as
it pursues its strategy of making turnkey project management a larger portion of
its business, it will continue to offer fixed price projects. The Company has
had limited prior experience in pricing and performing under fixed price
arrangements and believes
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<PAGE>
that there are certain risks related thereto and thus prices such arrangements
to reflect the associated risk. There can be no assurance that the Company will
be able to complete such projects within the fixed price timeframes. The failure
to perform within such fixed price contracts, if entered into, could have a
material adverse effect on the Company's business, financial condition and
results of operations.
The Company has derived and believes that it will continue to derive a
significant portion of its revenue from a limited number of customers and
projects. For the nine months ended September 30, 1999 and the year ended
December 31, 1998, the Company's ten largest customers accounted for in the
aggregate, approximately 26% and 38% of its revenue, respectively. For the nine
months ended September 30, 1999 and the year ended December 31, 1998, no
customer accounted for more than 10% of revenue. During the nine months ended
September 30, 1999 and the year ended December 31, 1998, 43% and 52%,
respectively, of the Company's total revenue was derived from projects in which
the Company implemented software developed by SAP. During the nine months ended
September 30, 1999 and the year ended December 31, 1998, approximately 8% and
11%, respectively, of the Company's total revenue was derived from projects in
which the Company implemented software developed by Oracle. During the nine
months ended September 30, 1999 and the year ended December 31, 1998,
approximately 26% and 19%, respectively, of the Company's total revenue was
derived from engagements in which the Company implemented software developed by
PeopleSoft.
The Company's most significant cost is project personnel expenses, which
consist of consultant salaries, benefits and payroll-related expenses. Thus, the
Company's financial performance is based primarily upon billing margin (billable
hourly rate less the cost to the Company of a consultant on an hourly basis) and
personnel utilization rates (billable hours divided by paid hours). The Company
believes that turnkey project management assignments typically carry higher
margins. The Company has been shifting to such higher-margin turnkey management
assignments and more complex projects by leveraging its reputation, existing
capabilities, proprietary implementation methodology, development tools and
offshore development capabilities with expanded sales and marketing efforts and
new service offerings to develop turnkey project sales opportunities with both
new and existing customers. The Company's inability to continue its shift to
higher-margin turnkey management assignments and more complex projects may
adversely impact the Company's future growth.
Since late 1994, the Company has made substantial investments in its
infrastructure in order to support its rapid growth. For example, in 1994, the
Company established and funded an operations facility in India, the Advanced
Development Center (the "ADC"). In addition, from 1994 to date, the Company has
incurred expenses to develop proprietary development tools and its proprietary
accelerated implementation methodology and toolset. Since 1995, the Company has
also been increasing its sales force and its marketing, finance, accounting and
administrative staff, in order to manage its growth. Most recently, in September
1999, the Company created an Internet Development Center in Hyderabad, India.
The Company currently maintains its headquarters in Edison, New Jersey, and
branch offices in Chicago, Detroit, Foster City (California), Reston (Virginia),
Dallas, Atlanta, Phoenix, and Washington, D.C. The Company also currently
maintains offices in Europe (the United Kingdom and Denmark), and Asia Pacific
(Australia, India, New Zealand, the Philippines, Japan and Singapore). The
Company leases its headquarters in Edison, New Jersey, totaling approximately
48,475 square feet. Such lease has an initial term of ten (10) years, which
commenced in September 1998.
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<PAGE>
FORWARD-LOOKING STATEMENTS
This Form 10-Q contains forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended, including,
without limitation, statements regarding the Company's intention to shift to
higher margin turnkey management assignments and more complex projects and to
utilize its proprietary implementation methodology in an increasing number of
projects. In addition, statements regarding the Company's plans to expand its
service offerings through internal growth and acquisitions are also
forward-looking statements. Such forward-looking statements include risks and
uncertainties, including, but not limited to:
o the substantial variability of the Company's quarterly operating
results caused by a variety of factors, many of which are not within
the Company's control, including (a) patterns of software and hardware
capital spending by customers, (b) information technology outsourcing
trends, (c) the timing, size and stage of projects, (d) timing and
impact of acquisitions, (e) new service introductions by the Company
or its competitors and the timing of new product introductions by the
Company's ERP partners, (f) levels of market acceptance for the
Company's services, (g) general economic conditions, (h) the hiring of
additional staff and (i) fixed price contracts;
o changes in the Company's billing and employee utilization rates;
o the Company's ability to manage its growth effectively, which will
require the Company (a) to continue developing and improving its
operational, financial and other internal systems, as well as its
business development capabilities, (b) to attract, train, retain,
motivate and manage its employees, (c) to continue to maintain high
rates of employee utilization at profitable billing rates, (d) to
successfully integrate the personnel and businesses acquired by the
Company, and (e) to maintain project quality, particularly if the size
and scope of the Company's projects increase;
o the Company's ability to maintain an effective internal control
structure;
o the Company's reliance on a continued relationship with SAP America
and the Company's present status as a SAP National Logo Partner;
o the Company's substantial reliance on key customers and large
projects;
o the highly competitive nature of the markets for the Company's
services;
o the Company's ability to successfully address the continuing changes
in information technology, evolving industry standards and changing
customer objectives and preferences;
o the Company's reliance on the continued services of its key executive
officers and leading technical personnel;
o the Company's ability to attract and retain a sufficient number of
highly skilled employees in the future;
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<PAGE>
o the Company's ability to continue to diversify its offerings,
including growth in its Oracle, Baan and PeopleSoft and Internet
services;
o uncertainties resulting from pending litigation matters and from
potential administrative and regulatory immigration and tax law
matters;
o the Company's ability to protect its intellectual property rights; and
o Year 2000 compliance of vendors' products and related issues,
including impact of the Year 2000 problem on customer buying patterns.
As a result of these factors and others, the Company's actual results may
differ materially from the results disclosed in such forward-looking statements.
Further, the Company's statements regarding the proposed waiver and
amendment to its credit facility and related statements concerning the Company's
liquidity are forward-looking statements. In the event the Company and the Bank
are unable to reach agreement and the Bank calls the outstanding loan, the
Company will be required to find a substitute source of working capital quickly
in order to meet its cash needs. There can be no assurance, in such event, that
the Company will be able to reach agreement with an alternative lender.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain financial
data as a percentage of revenue:
<TABLE>
<CAPTION>
Percentage of Revenue
----------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- -----------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue................................ 100.0% 100.0% 100.0% 100.0%
Cost of sales.......................... 63.4 63.2 64.7 62.7
------ ------ ------ ------
Gross profit....................... 36.6 36.8 35.3 37.3
Selling, general and administrative
expenses............................. 31.0 24.8 30.4 24.5
Acquisition expenses................... -- -- 1.5 0.4
Restructuring and other special
charges................................ -- -- 5.2 --
------ ------ ------ ------
Operating income (loss)............ 5.6 12.0 (1.8) 12.4
Interest and other income
(expense), net..................... (0.4) 0.4 (0.3) 0.2
------ ------ ------ ------
Income (loss) before provision for
income taxes........................ 5.2 12.4 (2.1) 12.6
Provision (benefit) for income taxes... 1.7 3.7 (0.4) 3.0
------ ------ ------ ------
Net income (loss)...................... 3.5% 8.7% (1.7)% 9.6%
====== ====== ====== ======
</TABLE>
- 12 -
<PAGE>
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1998
Revenue. Revenue increased by 11.6%, or $5.0 million, from $43.3 million
during the three months ended September 30, 1998 to $48.3 million during the
three months ended September 30, 1999. This increase was attributable primarily
to increased demand for the Company's PeopleSoft implementation services as
compared with the same period in the prior year, and, to a lesser extent, an
increase in management consulting revenues, as well as growth in internet
development services, partially related to the Company's acquisition of Network
Publishing, Inc. on January 8, 1999. Revenue for the three month period ended
September 30, 1999, included a fixed price project which accounted for
approximately 3% of revenue.
Gross profit. The Company's cost of sales includes primarily the cost of
salaries to consultants and related employee benefits and payroll taxes. The
Company's cost of sales increased by 11.9%, or $3.2 million, from $27.4 million
during the three months ended September 30, 1998 to $30.6 million during the
three months ended September 30, 1999. The increase was due to increased
personnel costs resulting from the hiring of additional consultants to support
the increase in demand for the Company's services. The Company's gross profit
increased by 11.1%, or $1.7 million, from $16.0 million during the three months
ended September 30, 1998 to $17.7 million during the three months ended
September 30, 1999. Gross profit margin decreased slightly from 36.8% of revenue
during the three months ended September 30, 1998 to 36.6% of revenue during the
three months ended September 30, 1999. While revenue from implementation
services increased from the same period in 1998, the Company continued to
experience a decline in its consultant staff utilization during the third
quarter of 1999, a result of changing ERP market dynamics. As a consequence,
gross margins were adversely affected during the current period.
Selling, general and administrative expenses. Selling, general and
administrative expenses consist primarily of administrative salaries, and
related benefits costs, occupancy costs, sales person compensation, travel and
entertainment, costs associated with the ADC and related development costs and
professional fees. Selling, general and administrative expenses increased by
39.9%, or $4.2 million, from $10.8 million during the three months ended
September 30, 1998 to $15.0 million during the three months ended September 30,
1999, and increased as a percentage of revenue from 24.8% to 31.0%,
respectively. The increases in such expenses in absolute dollars and as a
percentage of revenue were due primarily to the increase in salaries and related
benefits, reflecting headcount increases in the Company's sales force and its
marketing, finance, accounting and administrative staff through acquisitions and
in order to manage its growth. The Company's occupancy costs increased as a
result of the relocation of our corporate headquarters into approximately 48,000
square feet of office space, from our former location which consisted of
approximately 17,000 square feet. In addition, the Company experienced increases
in sales and management recruiting costs, occupancy costs as additional offices
were opened in the United States, support services and the provision for
doubtful accounts. The Company anticipates continued increases in selling,
general and administrative expenses during the fourth quarter of 1999 relative
to its Internet Services business.
Interest income (expense). Interest income has been earned on interest
bearing cash accounts and short term investments. In accordance with investment
guidelines approved by the Company's Board of Directors, cash balances in excess
of those required to fund operations have
- 13 -
<PAGE>
been invested in short-term U.S. Treasury securities and commercial paper with a
credit rating no lower than A1/P1. The Company incurred approximately $230,000
in interest expense during the three months ended September 30, 1999, primarily
related to its borrowings under its line of credit. Borrowings under the line of
credit were used to fund operating activities.
Provision (benefit) for income taxes. The Company's effective tax rate was
32% and 30% for the three months ended September 30, 1999, and September 30,
1998, respectively. In 1996, the Company elected a five year tax holiday in
India, in accordance with a local tax incentive program whereby no income tax
will be due in such period. For the three months ended September 30, 1999, the
tax holiday impacted the Company's effective tax rate by approximately 11%,
while the favorable effect in the three months ended September 30, 1998 was 6%.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1998
Revenue. Revenue increased by 21.3%, or $24.9 million, from $116.6 million
during the nine months ended September 30, 1998 to $141.5 million during the
nine months ended September 30, 1999. This increase was attributable primarily
to increased demand for the Company's PeopleSoft implementation services as
compared with the same period in the prior year, and, to a lesser extent, an
increase in management consulting revenues, as well as growth in internet
development services, partially related to the Company's acquisition of Network
Publishing, Inc. on January 8, 1999. Revenue for the nine month period ended
September 30, 1999, included a fixed price project which accounted for
approximately 4% of revenue.
Gross profit. The Company's cost of sales increased by 25.1%, or $18.4
million, from $73.2 million during the nine months ended September 30, 1998 to
$91.6 million during the nine months ended September 30, 1999. The increase was
due to increased personnel costs resulting from the hiring of additional
consultants to support the increase in demand for the Company's services. The
Company's gross profit increased by 14.9% or $6.5 million, from $43.5 million
during the nine months ended September 30, 1998 to $50.0 million during the nine
months ended September 30, 1999. Gross profit margin decreased from 37.3% of
revenue during the nine months ended September 30, 1998 to 35.3% of revenue
during the nine months ended September 30, 1999. While revenue from
implementation services increased from the same period in 1998, the Company
continued to experience a decline in its consultant staff utilization during the
nine months ended September 30, 1999, a result of the changing ERP market
dynamics. As a consequence, gross margins were adversely affected during the
nine months ended September 30, 1999.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased by 50.9% or $14.5 million, from $28.6 million
during the nine months ended September 30, 1998 to $43.1 million during the nine
months ended September 30, 1999, and increased as a percentage of revenue from
24.5% to 30.4%, respectively. The increases in such expenses in absolute dollars
and as a percentage of revenue were due primarily to the increase in salaries
and related benefits, reflecting headcount increases in the Company's sales
force and its marketing, finance, accounting and administrative staff through
acquisitions and in order to manage its growth. The Company's occupancy costs
increased as a result of the relocation of our corporate headquarters into
approximately 48,000 square feet of office space, from our former
- 14 -
<PAGE>
location which consisted of approximately 17,000 square feet. In addition, the
Company experienced increases in sales and management recruiting costs,
occupancy costs as additional offices were opened in the United States, support
services and the provision for doubtful accounts.
Acquisition expense. During the nine months ended September 30, 1999, the
Company incurred costs of $2.1 million in connection with the acquisition of the
Empower Companies.
Restructuring and other special charges. In connection with management's
plan to reduce costs and improve operating efficiencies, the Company incurred a
non-recurring charge of $5.6 million related to restructuring initiatives during
the nine months ended September 30, 1999. The restructuring charge included
settlement of the former Chief Executive Officer's employment agreement and
additional severance payment, expenses associated with the termination of
certain employees in the United States and the United Kingdom, the closing of
certain satellite offices in the United States and an additional office in
Belgium, and costs to exit certain contractual obligations. Additionally, the
Company recorded a reserve of approximately $1.7 million against an outstanding
receivable from a large ERP account, whose parent corporation filed for
protection under Chapter 11 of the U.S. bankruptcy laws.
Interest income (expense). Interest income has been earned on interest
bearing cash accounts and short term investments. In accordance with investment
guidelines approved by the Company's Board of Directors, cash balances in excess
of those required to fund operations have been invested in short-term U.S.
Treasury securities and commercial paper with a credit rating no lower than
A1/P1. The Company incurred approximately $502,000 in interest expense during
the nine months ended September 30, 1999, primarily related to its borrowings
under its line of credit. Borrowings under the line of credit were used to fund
operating activities, purchases of computer equipment and office furniture and
fixtures, as well as for acquisitions.
Provision (benefit) for income taxes. The Company's effective tax rate was
(19%) and 24% for the nine months ended September 30, 1999, and September 30,
1998, respectively. In 1996, the Company elected a five year tax holiday in
India, in accordance with a local tax incentive program whereby no income tax
will be due in such period. For the nine months ended September 30, 1999, the
tax holiday impacted the Company's effective tax rate by approximately 22%,
while the favorable effect in the nine months ended September 30, 1998 was 6%.
BACKLOG
The Company normally enters into written contracts with its customers at
the time it commences work on a project. These written contracts contain varying
terms and conditions and the Company does not generally believe it is
appropriate to characterize such written contracts as creating backlog. In
addition, because these written contracts often provide that the arrangement can
be terminated with limited advance notice and without significant penalty, the
Company does not believe that projects in process at any one time are a reliable
indicator or measure of expected future revenue. In the event that a customer
terminates a project, the customer remains obligated to pay the Company for
services performed by it through the date of termination.
- 15 -
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents of $8.6 million at September 30,
1999, and $4.2 million at December 31, 1998. The Company had working capital of
$29.8 million at September 30, 1999, and $32.6 million at December 31, 1998.
Cash used in operating activities was $3.9 million during the nine months
ended September 30, 1999, resulting primarily from the net loss, as well as
growth in accounts receivable and unbilled services. This was offset partially
by increases in accrued payroll, accrued expenses and accrued restructuring
costs. Cash provided by operating activities for the nine months ended September
30, 1998 was $4.9 million.
The Company invested $2.5 million and $4.0 million in computer equipment
and furniture during the nine months ended September 30, 1999 and 1998,
respectively. This reflects both the purchases of computer and telecommunication
equipment for consultants and administrative staff, and office furniture and
fixtures.
On January 29, 1999, the Company entered into an unsecured three-year $30
million Revolving Credit Loan Agreement (the "Loan Agreement") with PNC Bank,
N.A. (the "Bank"). The proceeds of the credit facility may be used by the
Company for financing acquisitions and general corporate purposes. At the
Company's option, for each loan, interest shall be computed either at the Bank's
prime rate per annum or the Adjusted Libor Rate plus the Applicable Margin, as
such terms are defined in the Loan Agreement. The Company's obligations under
the credit agreement are payable at the expiration of such facility on January
29, 2002. Approximately $10.6 million was outstanding under this credit facility
at September 30, 1999.
The credit agreement contains financial covenants which require the Company
to (i) maintain a consolidated cash flow leverage ratio equal to or less than
2.5 to 1.0 for the period of four fiscal quarters preceding the date of
determination taken together as one accounting period ("Consolidated Cash Flow
Leverage Ratio"), (ii) maintain a consolidated net worth of not less than
consolidated net worth of the prior fiscal year plus 50% of positive net income
for such fiscal year ("Consolidated Net Worth"), (iii) not enter into any
agreement to purchase and/or pay for, or become obligated to pay for capital
expenditures, long term leases, capital leases or sale lease-backs, in an amount
at any time outstanding aggregating in excess of $5,000,000 during any fiscal
year, provided, however, in a one year carry-forward basis, the Company may
incur capital expenditures not to exceed $8,000,000 during any fiscal year, and
(iv) not cause or permit the minimum fixed charge coverage ratio, calculated on
the basis of a rolling four quarters to be less than 1.4 to 1.0 as at the end of
each fiscal quarter ("Minimum Fixed Charge Coverage Ratio").
As a result of the restructuring and other special charges incurred during
the quarter ended June 30, 1999, at June 30, 1999, the Company was not in
compliance with the Consolidated Cash Flow Leverage Ratio and Consolidated Net
Worth financial covenants. On August 12, 1999, the Bank notified the Company
that such non-compliance constituted an Event of Default under the Loan
Agreement. At September 30, 1999, while the Company was in compliance with the
Consolidated Net Worth financial covenant, it was not in compliance with the
Consolidated Cash Flow Leverage Ratio and Minimum Fixed Charge Coverage Ratio
financial covenants. As of the date of this filing, the Company and the Bank are
in the process of
- 16 -
<PAGE>
finalizing the proposed terms of a waiver and amendment to the Loan Agreement to
remedy the defaults which currently exist under the Loan Agreement. The terms of
such proposed waiver and amendment may include, among other things, (i) a $15
million reduction in availability under the Loan Agreement, (ii) a requirement
that the loan be secured by a first priority perfected security interest on all
of the assets of the Company and its domestic subsidiaries and (iii) certain
revised financial covenants. There can be no assurance that the Company will
obtain such waiver and amendment on terms acceptable to the Company, if at all.
The Company believes that its available funds, together with the proposed
credit arrangements and the cash flows expected to be generated from operations,
will be adequate to satisfy its current and planned operations through at least
the next 12 months.
YEAR 2000 COMPLIANCE
Historically, certain computer programs have been written using two digits
rather than four to define the applicable year, which could result in the
computer recognizing a date using "00" as the year 1900 rather than 2000. This
in turn, could result in major system failures or miscalculations, and is
generally referred to as the "Year 2000 Problem". The Company believes that it
has sufficiently assessed its state of readiness with respect to its Year 2000
compliance. Based on its assessment, the Company does not believe that Year 2000
compliance will result in material investments by the Company, nor does the
Company anticipate that the Year 2000 Problem will have any adverse effects on
the business operations or financial performance of the Company. The Company
does not believe that it has any material exposure to the Year 2000 Problem with
respect to its own information systems and believes that all of its
business-critical systems correctly define the Year 2000 and subsequent years.
Based upon its assessment, the Company has established no reserve nor instituted
any contingency plans. There can be no assurance, however, that the Year 2000
problem will not adversely affect the Company's business operating results and
financial condition.
However, the purchasing patterns of customers and potential customers may
be affected by issues associated with the Year 2000 Problem. As companies expend
significant resources to correct their current data storage solutions, these
expenditures may result in reduced funds to purchase products or undertake
projects such as those offered by the Company. There can be no assurance that
the Year 2000 Problem, as it relates to customers, potential customers and other
third-parties, will not adversely affect the Company's business, operating
results and financial condition. Conversely, the Year 2000 Problem may cause
other companies to accelerate purchases, thereby causing an increase in
short-term demand and a consequent decrease in long-term demand for the
Company's products.
EUROPEAN MONETARY UNION (EMU)
The euro was introduced on January 1, 1999, at which time the eleven
participating EMU member countries established fixed conversion rates between
their existing currencies (legacy currencies) and the euro. The legacy
currencies will continue to be used as legal tender through January 1, 2002;
thereafter, the legacy currencies will be canceled and euro bills and coins will
be used for cash transactions in the participating countries. The Company's
European sales and operations offices affected by the euro conversion have
established plans to address the systems issues raised by the euro currency
conversion and are cognizant of the potential business
- 17 -
<PAGE>
implications of converting to a common currency. The Company is unable to
determine the ultimate financial impact of the conversion on its operations, if
any, given that the impact will be dependent upon the competitive situations
which exist in the various regional markets in which the Company participates
and the potential actions which may or may not be taken by the Company's
competitors and suppliers.
- 18 -
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On February 13, 1998, Russell Schultz, a former employee of the Company,
filed a complaint in the Superior Court of New Jersey, Law Division, Monmouth
County, naming the Company as a defendant. The complaint, which seeks damages,
alleges, among other things, that the Company misrepresented plaintiff's job
description in order to induce plaintiff to leave his prior employer, failed to
provide stock options to the plaintiff and violated plaintiff's written
employment contract. The Company was served with the complaint on March 16,
1998. Subsequently, on July 10, 1998, upon the Company's Motion to Compel
Arbitration, the court dismissed the plaintiff's complaint without prejudice.
Subsequently, the plaintiff's motion to reconsider the dismissal was denied. The
plaintiff filed his demand for Arbitration with the American Arbitration
Association on February 17, 1999 and the Company filed its answer on February
26, 1999. On October 12, 1999, the parties negotiated a settlement to dispose of
all claims asserted in this lawsuit. The Company is in the process of drafting
and finalizing a settlement agreement. The settlement agreement, if executed,
will dispose of the lawsuit. The Company does not believe that the outcome of
the claims will have a material effect upon the Company's business, financial
condition or results of operations.
On January 20, 1999, Tony Knight, a former employee of the Company, filed a
complaint in the Superior Court of the State of California, San Mateo County,
naming the Company, among others, as a defendant. The complaint, which seeks
damages, alleges, among other things, that the Company discriminated against
plaintiff because of his race, ancestry, religious creed and national origin and
thereafter wrongfully terminated the plaintiff's employment with the Company.
The Company, through its counsel, acknowledged receipt of the summons and
complaint on April 20, 1999. On May, 19, 1999, the Company removed the action
from the California Superior Court to the United States District Court for the
Northern District of California. A case-management conference has been scheduled
to be held on December 2, 1999. It is too early in the litigation process to
determine the impact, if any, that such litigation will have upon the Company's
business, financial condition or results of operations.
There is no other material litigation pending to which the Company is a
party or to which any of its property is subject.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
On January 29, 1999, the Company entered into an unsecured three-year $30
million Revolving Credit Loan Agreement (the "Loan Agreement") with PNC Bank,
N.A. (the "Bank"). The proceeds of the credit facility may be used by the
Company for financing acquisitions and general corporate purposes. At the
Company's option, for each loan, interest shall be computed either at the Bank's
prime rate per annum or the Adjusted Libor Rate plus the Applicable Margin, as
such terms are defined in the Loan Agreement. The Company's obligations under
the credit agreement are payable at the expiration of such facility on January
29, 2002. Approximately $10.6 million was outstanding under this credit facility
at September 30, 1999.
- 19 -
<PAGE>
The credit agreement contains financial covenants which require the Company
to (i) maintain a consolidated cash flow leverage ratio equal to or less than
2.5 to 1.0 for the period of four fiscal quarters preceding the date of
determination taken together as one accounting period ("Consolidated Cash Flow
Leverage Ratio"), (ii) maintain a consolidated net worth of not less than
consolidated net worth of the prior fiscal year plus 50% of positive net income
for such fiscal year ("Consolidated Net Worth"), (iii) not enter into any
agreement to purchase and/or pay for, or become obligated to pay for capital
expenditures, long term leases, capital leases or sale lease-backs, in an amount
at any time outstanding aggregating in excess of $5,000,000 during any fiscal
year, provided, however, in a one year carry-forward basis, the Company may
incur capital expenditures not to exceed $8,000,000 during any fiscal year, and
(iv) not cause or permit the minimum fixed charge coverage ratio, calculated on
the basis of a rolling four quarters to be less than 1.4 to 1.0 as at the end of
each fiscal quarter ("Minimum Fixed Charge Coverage Ratio").
As a result of the restructuring and other special charges incurred during
the quarter ended June 30, 1999, at June 30, 1999, the Company was not in
compliance with the Consolidated Cash Flow Leverage Ratio and Consolidated Net
Worth financial covenants. On August 12, 1999, the Bank notified the Company
that such non-compliance constituted an Event of Default under the Loan
Agreement. At September 30, 1999, while the Company was in compliance with the
Consolidated Net Worth financial covenant, it was not in compliance with the
Consolidated Cash Flow Leverage Ratio and Minimum Fixed Charge Coverage Ratio
financial covenants. As of the date of this filing, the Company and the Bank are
in the process of finalizing the proposed terms of a waiver and amendment to the
Loan Agreement to remedy the defaults which currently exist under the Loan
Agreement. The terms of such proposed waiver and amendment may include, among
other things, (i) a $15 million reduction in availability under the Loan
Agreement, (ii) a requirement that the loan be secured by a first priority
perfected security interest on all of the assets of the Company and its domestic
subsidiaries and (iii) certain revised financial covenants. There can be no
assurance that the Company will obtain such waiver and amendment on terms
acceptable to the Company, if at all.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Annual Meeting of Shareholders of the Company was held on July 19,
1999.
There were present at the meeting in person or by proxy shareholders
holding an aggregate of 10,007,596 shares of Common Stock. The results of the
vote taken at such meeting with respect to each nominee for director were as
follows:
Common Stock Nominees For Withheld
--------------------- --- --------
Ashok Pandey 9,960,525 47,044
Rajkumar Koneru 9,960,525 47,044
Nagarjun Valluripalli 9,960,525 47,044
Klaus P. Besier 9,959,525 48,044
Maxine Ballen 9,959,525 48,044
- 20 -
<PAGE>
In addition, a vote was taken on the proposal to amend the Company's 1996
Stock Plan (the "Plan") to increase the maximum number of shares of Common Stock
available for issuance under the Plan from 2,200,000 to 4,700,000 shares and to
reserve an additional 2,500,000 shares of Common Stock of the Company for
issuance upon the exercise of stock options granted or for the issuance of stock
purchase rights under the Plan. Of the shares present at the meeting in person
or by proxy, 9,769,379 shares of Common Stock were voted in favor of such
proposal, 230,957 shares of Common Stock were voted against such proposal and
7,233 shares of Common Stock abstained from voting.
Finally, a vote was taken on the proposal to ratify the appointment of
Arthur Andersen LLP as the independent auditors of the Company for the fiscal
year ending December 31, 1999. Of the shares present at the meeting in person or
by proxy, 9,998,936 shares of Common Stock were voted in favor of such proposal,
5,500 shares of Common Stock were voted against such proposal and 3,133 shares
of Common Stock abstained from voting.
ITEM 5. OTHER EVENTS.
On September 30, 1999, following the resignation of Gerard E. Dorsey, the
Company's former Executive Vice President-Finance and Administration and Chief
Financial Officer, Nicholas Visco was appointed Vice President-Finance of the
Company. Mr. Visco, 39, has served as the Company's Corporate Controller since
1998. Prior to that, he served as the Director of Financial Planning and
Corporate Controller at Xpedite Systems, Inc., a provider of enhanced messaging
services.
Subsequent to the end of the quarter, on November 4, 1999, the Company
announced its intention to spin off its Internet Solutions Group to its
shareholders, in order to address the rapidly growing eBusiness services market.
The Company further announced that it would effect a strategic shift of its core
business into the broader Application Service Provider opportunity for
customized e-commerce and enterprise applications implementation, management,
support and hosting.
- 21 -
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
27.1 Financial Data Schedule for the nine-month period ended
September 30, 1999.
27.2 Financial Data Schedule for the three-month period ended
September 30, 1999.
27.3 Financial Data Schedule for the nine-month period ended
September 30, 1998.
27.4 Financial Data Schedule for the three-month period ended
September 30, 1999.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter for which
this report on Form 10-Q is filed.
- 22 -
<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.
Intelligroup, Inc.
DATE: November 15, 1999 By: /s/ Ashok Pandey
-----------------------------------
Ashok Pandey,
Co-Chief Executive Officer
(Principal Executive Officer)
DATE: November 15, 1999 By: /s/ Nicholas Visco
-----------------------------------
Nicholas Visco,
Vice President-Finance
(Principal Financial and Accounting
Officer)
- 23 -
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<NAME> Intelligroup, Inc.
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<FN>
<F1> This amount represents Basic Earnings per Share in accordance with the
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<F2> This amount represents Diluted Earnings per Share in accordance with
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<TABLE> <S> <C>
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS WHICH ARE INCLUDED IN THE
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<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 241
<INCOME-PRETAX> 2,507
<INCOME-TAX> 802
<INCOME-CONTINUING> 1,705
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,705
<EPS-BASIC> .11 <F1>
<EPS-DILUTED> .11 <F2>
<FN>
<F1> This amount represents Basic Earnings per Share in accordance with the
requirements of Statement of Financial Accounting Standards No. 128 -
"Earnings per Share".
<F2> This amount represents Diluted Earnings per Share in accordance with
the requirements of Statement of Financial Accounting Standards No.
128 - "Earnings per Share".
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS WHICH ARE INCLUDED IN THE
REGISTRANT'S FORM 10-Q FOR THE PERIOD ENDED 9/30/99 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001016439
<NAME> Intelligroup, Inc.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 116,639
<TOTAL-REVENUES> 116,639
<CGS> 73,165
<TOTAL-COSTS> 102,162
<OTHER-EXPENSES> (121)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (100)
<INCOME-PRETAX> 14,698
<INCOME-TAX> 3,529
<INCOME-CONTINUING> 11,169
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,169
<EPS-BASIC> .73 <F1>
<EPS-DILUTED> .71 <F2>
<FN>
<F1> This amount represents Basic Earnings per Share in accordance with the
requirements of Statement of Financial Accounting Standards No. 128 -
"Earnings per Share".
<F2> This amount represents Diluted Earnings per Share in accordance with
the requirements of Statement of Financial Accounting Standards No.
128 - "Earnings per Share".
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS WHICH ARE INCLUDED IN THE
REGISTRANT'S FORM 10-Q FOR THE PERIOD ENDED 9/30/99 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001016439
<NAME> Intelligroup, Inc.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 43,315
<TOTAL-REVENUES> 43,315
<CGS> 27,363
<TOTAL-COSTS> 38,114
<OTHER-EXPENSES> (176)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (4)
<INCOME-PRETAX> 5,381
<INCOME-TAX> 1,623
<INCOME-CONTINUING> 3,758
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,758
<EPS-BASIC> .24 <F1>
<EPS-DILUTED> .24 <F2>
<FN>
<F1> This amount represents Basic Earnings per Share in accordance with the
requirements of Statement of Financial Accounting Standards No. 128 -
"Earnings per Share".
<F2> This amount represents Diluted Earnings per Share in accordance with
the requirements of Statement of Financial Accounting Standards No.
128 - "Earnings per Share".
</FN>
</TABLE>
