UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
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 NO. 0-21963
THE JUDGE GROUP, INC.
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-1726661
(State or other jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
TWO BALA PLAZA, SUITE 405
BALA CYNWYD, PENNSYLVANIA 19004
(Address of principal executive offices, including zip code)
(610) 667-7700
(Registrant'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 [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark if registrant has filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Securities Exchange act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court. Yes____ No_____
As of August 13, 1997, approximately 13,344,239 shares of the Registrant's
Common Stock, $0.01 par value, were outstanding.
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
THE JUDGE GROUP, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
INDEX TO FINANCIAL STATEMENTS
PART I FINANCIAL INFORMATION
PAGE(s)
-------
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS AS OF 3
JUNE 30, 1997 AND DECEMBER 31, 1996
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
SIX MONTHS ENDED JUNE 30, 1997 AND 1996 4
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE 5
THREE MONTHS ENDED JUNE 30, 1997 AND 1996
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY FOR THE 6
SIX MONTHS ENDED JUNE 30, 1997
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE 7
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 8-16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 17-22
AND RESULTS OF OPERATIONS
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 22
PART II OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 22
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 22
2
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES (FORMERLY JUDGE, INC.)
CONDENSED CONSOLIDATED BALANCE SHEETS, JUNE 30, 1997 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
----------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents ................................... $ 8,044,644 $ 105,069
Accounts receivable, net .................................... 16,284,015 13,396,495
Inventories ................................................. 557,232 910,321
Prepaid income taxes and deferred taxes ..................... 329,501 340,603
Notes receivable, officers, employees and related party ..... -- 577,287
Other ....................................................... 901,562 1,419,758
----------- -----------
Total current assets ........................................ 26,116,954 16,749,533
----------- -----------
PROPERTY AND EQUIPMENT
Property and equipment ...................................... 4,390,969 3,689,626
Less: accumulated depreciation and amortization ............ 2,065,892 1,766,215
----------- -----------
Net property and equipment .................................. 2,325,077 1,923,411
----------- -----------
OTHER ASSETS
Goodwill, net of accumulated amortization of $245,594, 1997
and $62,982, 1996 ........................................... 5,412,798 3,196,220
Other ....................................................... 176,774 99,844
----------- -----------
Total other assets .......................................... 5,589,572 3,296,064
----------- -----------
Total assets ................................................ $34,031,603 $21,969,008
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt ........................... $ 115,158 $ 915,253
Convertible notes ........................................... -- 500,000
Accounts payable and accrued expenses ....................... 6,672,889 4,768,269
Payroll and sales taxes ..................................... 522,708 727,118
Income taxes payable ........................................ 36,560 126,538
Other notes payable ......................................... -- 195,477
Deferred revenue ............................................ 1,491,070 1,168,334
Advances from shareholders .................................. -- 95,862
----------- -----------
Total current liabilities ................................... 8,838,385 8,496,851
----------- -----------
LONG-TERM LIABILITIES
Note payable, bank .......................................... -- 9,210,795
Deferred rent obligation .................................... 120,385 130,402
Debt obligations, net of current portion .................... 840,874 3,008,846
----------- -----------
Total long-term liabilities ................................. 961,259 12,350,043
----------- -----------
MINORITY INTEREST ........................................... -- --
----------- -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, $.01 par value, 50,000,000 shares authorized;
at June 30, 1997, 13,347,969 shares issued and
outstanding; at December 31, 1996, 8,587,739 shares
issued and outstanding ................................... 133,479 85,877
Preferred stock, $.01 par value, 10,000,000 shares
authorized ............................................... -- --
Additional paid-in capital .................................. 22,786,706 365,877
Retained earnings ........................................... 1,311,774 670,360
----------- -----------
Total shareholders' equity .................................. 24,231,959 1,122,114
----------- -----------
Total liabilities and shareholders' equity .................. $34,031,603 $21,969,008
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
3
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
NET REVENUES ............................................ $49,540,975 $37,327,166
----------- -----------
COSTS AND EXPENSES
Cost of sales (exclusive of items shown separately below) 36,121,686 27,587,582
Selling and operating ................................... 8,130,780 6,363,990
General and administrative .............................. 3,920,368 2,848,111
----------- -----------
Total costs and expenses ................................ 48,172,834 36,799,683
----------- -----------
INCOME FROM OPERATIONS .................................. 1,368,141 527,483
OTHER EXPENSES, NET ..................................... (52,644) (371,439)
----------- -----------
INCOME BEFORE INCOME TAX EXPENSE AND MINORITY
INTEREST IN NET LOSS OF CONSOLIDATED SUBSIDIARY ......... 1,315,497 156,044
INCOME TAX EXPENSE ...................................... 674,083 203,500
----------- -----------
INCOME (LOSS) BEFORE MINORITY INTEREST IN NET LOSS OF
CONSOLIDATED SUBSIDIARY ................................. 641,414 (47,456)
MINORITY INTEREST IN NET LOSS OF CONSOLIDATED
SUBSIDIARY ............................................. -- 229,000
----------- -----------
NET INCOME .............................................. $ 641,414 $ 181,544
=========== ===========
NET INCOME PER SHARE
PRIMARY ........................................ $ 0.05 $ 0.02
=========== ===========
FULLY DILUTED .................................. $ 0.05 $ 0.02
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
NET REVENUES ....................................................... $26,062,572 $20,892,186
----------- -----------
COSTS AND EXPENSES
Cost of sales (exclusive of items shown separately below) .......... 18,736,298 15,059,535
Selling and operating .............................................. 3,900,726 3,710,074
General and administrative ......................................... 1,938,406 1,450,004
----------- -----------
Total costs and expenses ........................................... 24,575,430 20,219,613
----------- -----------
INCOME FROM OPERATIONS ............................................. 1,487,142 672,573
OTHER INCOME (EXPENSES), NET ....................................... 75,257 (190,596)
----------- -----------
INCOME BEFORE INCOME TAX EXPENSE AND MINORITY
INTEREST IN NET LOSS OF CONSOLIDATED SUBSIDIARY .................... 1,562,399 481,977
INCOME TAX EXPENSE ................................................. 654,532 187,000
----------- -----------
INCOME BEFORE MINORITY INTEREST IN NET LOSS OF
CONSOLIDATED SUBSIDIARY ............................................ 907,867 294,977
MINORITY INTEREST IN NET LOSS OF CONSOLIDATED SUBSIDIARY ........... -- 130,600
----------- -----------
NET INCOME ......................................................... $ 907,867 $ 425,577
=========== ===========
NET INCOME PER SHARE
PRIMARY ................................................... $ 0.07 $ 0.05
=========== ===========
FULLY DILUTED ............................................. $ 0.07 $ 0.05
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
5
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
Common Stock Additional
------------------------- Paid-In Retained
Shares Amount Capital Earnings Total
---------- -------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 8,587,739 $85,877 $ 365,877 $ 670,360 $ 1,122,114
Merger Transactions (See Note 1) 1,194,230 11,942 2,416,498 -- 2,428,440
Initial Public Offering
(See Note 1)...................... 3,000,000 30,000 19,209,991 -- 19,239,991
Conversion of debentures.......... 526,000 5,260 494,740 -- 500,000
Conversion of note payable
(See Note 1)...................... 40,000 400 299,600 -- 300,000
Net income........................ -- -- -- 641,414 641,414
---------- -------- ----------- ---------- -----------
Balance, June 30, 1997............ 13,347,969 $133,479 $22,786,706 $1,311,774 $24,231,959
========== ======== =========== ========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
6
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income for the period ............................................ $ 641,414 $ 181,544
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation ..................................................... 299,677 189,460
Amortization ..................................................... 182,612 72,648
Deferred rent .................................................... (10,017) (13,271)
Provision for losses on accounts receivable ...................... 204,936 215,040
Stock compensation ............................................... 29,250 --
Minority interest in net loss of consolidated subsidiary ......... -- (229,000)
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable .............................................. (3,092,456) (2,598,669)
Inventories ...................................................... 353,089 (125,166)
Deposits and other ............................................... (76,930) (2,527)
Prepaid income taxes ............................................. 11,102 (135,692)
Other current assets ............................................. 518,196 153,204
Increase (decrease) in:
Accounts payable and accrued expenses ............................ 3,762,620 740,386
Payroll and sales taxes .......................................... (204,410) 91,453
Deferred revenue ................................................. 322,736 (87,985)
Income taxes payable ............................................. (89,978) --
----------- ----------
Net cash provided by (used in) operating activities ............ 2,851,841 (1,548,575)
----------- ----------
INVESTING ACTIVITIES
Purchases of property and equipment .................................. (701,343) (308,464)
(Increase) decrease in notes receivable, officers and employees, net . 577,287 (260,022)
----------- ----------
Net cash used in investing activities .......................... (124,056) (568,486)
----------- ----------
FINANCING ACTIVITIES
Cash acquired in business combination ................................ -- 13,786
Proceeds from (repayments of) notes payable, bank, net ............... (9,960,795) 990,547
Proceeds (repayments) of bank overdrafts ............................. (1,858,000) 417,000
Principal payments on long-term debt ................................. (2,113,544) (174,734)
Proceeds from issuance of stock and exercise of warrants, net ........ 19,239,991 --
Repayments from shareholders ......................................... (95,862) (24,183)
Issuance of Series A Preferred Shares, net of costs .................. -- 888,000
----------- ----------
Net cash provided by financing activities ...................... 5,211,790 2,110,416
----------- ----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ..................... 7,939,575 (6,645)
CASH AND CASH EQUIVALENTS, BEGINNING ................................. 105,069 35,078
----------- ----------
CASH AND CASH EQUIVALENTS, ENDING .................................... $ 8,044,644 $ 28,433
=========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest ............................................................. $ 284,000 $ 371,000
=========== ==========
Income taxes ......................................................... $ 721,000 $ 298,000
=========== ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
7
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
NOTE 1. DESCRIPTION OF BUSINESS
On September 4, 1996, a special meeting of the Board of Directors was held where
Judge, Inc. changed its name to The Judge Group, Inc. (the "Company"), effected
certain changes to its capital structure and authorized a stock split. See Note
9. The Company, a Pennsylvania corporation founded in 1970, provides (i)
information technology ("IT") and engineering professionals to its clients on
both a temporary basis (through its "Contract Placement" business) and a
permanent basis (through its "Permanent Placement" business), (ii) computer
network and document management system integration, implementation, maintenance
and training (through its "Imaging and Network Services" business) and (iii)
information technology training (through its "IT Training" business) on a range
of software and network applications to corporate, governmental and individual
clients. At June 30, 1997, the Company had offices in Bala Cynwyd, Pennsylvania;
Hartford, Connecticut; Foxborough and Wakefield, Massachusetts; Tampa, Florida;
Moorestown and Edison, New Jersey and Alexandria, Virginia.
The Contract Placement business includes the operations of three of the
Company's wholly-owned subsidiaries, Judge Technical Services, Inc. ("JTS"),
Judge Professional Services, Inc. ("JPS") and Judge Technical Services of N.J.,
Inc. ("JTNJ").
The Permanent Placement business includes the operations of the Company and two
of its wholly-owned subsidiaries, Judge Electronic Services of Florida, Inc.
("JESF") and Judge Inc. of New Jersey ("JINJ").
The IT Training business is comprised of the operations of The Berkeley
Associates Corp. ("Berkeley"), a company acquired by the Company in September
1996 (see Note 3).
At December 31, 1995 the Company owned 33%, Martin E. Judge, Jr., the Company's
founder, Chairman and Chief Executive Officer owned 47%, and another officer and
director of the Company owned 5% of the outstanding voting shares, on a fully
diluted basis, of Judge Computer Corporation ("JCC"). On December 1, 1995, JCC
entered into an Agreement and Plan of Merger (the "JCC/DI Merger Agreement")
with DataImage, Inc. ("DI" or "Data Image"), a public company, the common stock
of which was traded on the over-the-counter market. Pursuant to the JCC/DI
Merger Agreement, JCC was merged into DI on February 29, 1996 (the "JCC/DI
Merger"), and DI, as the surviving corporation, changed its name to Judge
Imaging Systems, Inc. ("JIS"). As a result of the merger, the former
shareholders of JCC held, on a fully diluted basis, a majority of the
outstanding common stock of JIS, which remained a public company.
On September 4, 1996, The Boards of Directors of the Company and JIS approved
the merger of JIS into a newly-formed, wholly-owned subsidiary of the Company
(the "Merger"). The terms of the Merger called for the conversion of each share
of JIS common stock (not already owned by the Company) and Series A preferred
stock into $2.50 of value based on the public offering price of The Judge Group,
Inc. common stock. Based upon the offering price of $7.50 per share, the Company
issued 1,194,230 shares of The Judge Group, Inc. common stock to the
shareholders of JIS at the closing of its initial public offering. In accordance
with Accounting Principles Board Opinion No. 16 and related literature, the
acquisition by the Company in the Merger of the majority of the shares of JIS,
which were owned by the Company, Martin E. Judge, Jr. or other owners of the
Company securities, was accounted for as a corporate reorganization of entities
under common control, at historical cost, similar to pooling accounting.
However, the acquisition by the Company in the Merger of the remaining JIS
shares (the "Minority Shares") was accounted for in accordance with "purchase
accounting" whereby the pro rata portion of JIS's assets and liabilities were
recorded at their fair values. The excess of the value of the Company shares
issued in exchange for the Minority Shares over the fair value of the net assets
attributable to the minority interest was recorded as goodwill.
8
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
NOTE 1. DESCRIPTION OF BUSINESS--(Continued)
The Imaging and Network Services business of the Company consisted of the
operations of JCC prior to the JCC/DI Merger and JIS subsequent to the merger.
See Notes 3 and 10. In addition, the Company purchased the net assets and
liabilities of Systems Automation, Inc. ("Systems Automation") in September 1996
(see Note 3), a company that provides imaging and document management systems
and services located in Wakefield, Massachusetts.
During 1996, the Company engaged an investment banking firm to assist it in an
initial public offering of its common stock. On September 30, 1996, the Company
filed a Registration Statement on Form S-1 with the Securities and Exchange
Commission under the Securities Act of 1933. Effective February 20, 1997 the
Company successfully completed its initial public offering of common shares. The
Company sold 3,000,000 common shares at a price of $7.50 per share, realizing
approximately $20,906,000 in proceeds net of underwriting discounts and
commissions. Immediately prior to the initial public offering the holders of
$500,000 of convertible notes exchanged them for 526,000 Company common shares.
The Company issued 40,000 common shares in lieu of $300,000 of notes payable to
Berkeley, in accordance with the purchase agreement with Berkeley. In connection
with the initial public offering, the Company incurred approximately $1,666,000
of accounting, legal, printing and other costs as of June 30, 1997 and such
costs have been charged to additional paid in capital as a reduction of the
proceeds from the initial public offering. As of December 31, 1996 approximately
$1,017,000 of such costs were included in other current assets.
Unless the context indicates otherwise, references to the Company herein prior
to February 29, 1996 include reference to its wholly-owned subsidiaries and JCC
and such references subsequent to February 29, 1996 include reference to its
wholly-owned subsidiaries and JIS.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The financial statements as of June 30, 1997 and for the three months and six
months ended June 30, 1997 and for the three months ended June 30, 1996 are
unaudited; however, in the opinion of management, such statements include all
adjustments, consisting solely of normal recurring adjustments, necessary for a
fair presentation of the results for the periods presented. All significant
intercompany accounts and transactions have been eliminated.
The interim financial statements should be read in conjunction with the
financial statements for the fiscal year ended December 31, 1996 and notes
thereto.
The results of operations for the interim periods are not necessarily indicative
of the results that might be expected for the future interim periods or for the
full year ended December 31, 1997.
Risks and Uncertainties
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
9
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(Continued)
Accounts Receivable and Accounts Payable
Accounts receivable at June 30, 1997 and December 31, 1996 were net of
allowances for doubtful accounts of $850,000 and $661,000, respectively.
Included in accounts receivable was unbilled work-in-process of approximately
$1,640,000 and $524,000 at June 30, 1997 and December 31, 1996, respectively.
Included in accounts payable and accrued expenses was approximately $1,180,000
and $283,000 of accrued employee and contractor payroll principally relating to
unbilled work-in-process at June 30, 1997 and December 31, 1996, respectively.
Interim Financial Reporting
For interim financial reporting purposes, costs and expenses are accounted for
in accordance with Accounting Principles Board Opinion No. 28 ("APB 28").
Cash and Cash Equivalents
Cash and cash equivalents consist of cash in bank and other short-term
investments with original maturities of three months or less.
Intangible Assets
Goodwill represents the excess of the cost of companies acquired over the fair
value of their net assets at the date of acquisition and is being amortized on
the straight-line method over ten years for Systems Automation and over fifteen
years for JIS and Berkeley. The Systems Automation and Berkeley acquisitions
were effective September 30, 1996 and the JIS acquisition was effective February
20, 1997 (See Note 3). Amortization of goodwill for the six months ended June
30, 1997 was approximately $183,000 and is included in general and
administrative expense in the consolidated statement of operations.
Recently Issued Accounting Standards
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 128, "Earnings per Share" (the "Statement") which specifies new
computation, presentation, and disclosure requirements for earnings per share
(EPS) for entities with publicly held common stock or potential common stock.
The Statement is effective for financial statements issued for periods ending
after December 15, 1997, including interim periods. The Company has not yet
determined the effect that the Statement is expected to have on the Company's
computation and presentation of earnings per share.
Earnings Per Share
The number of shares used in the earnings per share calculation and convertible
note share conversion (see Note 1) has been adjusted for the 52.6 for 1.0 stock
split which occurred in September 1996.
Primary earnings per share amounts for the six months ended June 30, 1997 and
1996 were computed based on the weighted average number of shares actually
outstanding. The number of shares used in the computation were approximately
12,164,000 and 8,588,000 in 1997 and 1996, respectively. The number of shares
used in the computation for the three months ended June 30 1997 and 1996 were
approximately 13,348,000 and 8,588,000 respectively.
Fully diluted earnings per share amounts for the six months ending June 30, 1997
and 1996 were based on the weighted average number of shares calculated for
primary earnings per share purposes increased by the number of shares that would
be outstanding assuming conversion of outstanding convertible notes (see Note
7). The number of shares used in the computation were approximately 12,295,000
in 1997 and 9,114,000 in 1996. The number of shares used in the computation for
the three months ended June 30, 1997 and 1996 were approximately 13,348,000 and
9,114,000 respectively.
10
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
NOTE 3. BUSINESS COMBINATIONS AND PRO-FORMA RESULTS OF OPERATIONS
On September 13, 1995, JCC and DI signed a Letter of Intent relating to the
JCC/DI Merger. On December 1, 1995, JCC and DI executed the JCC/DI Merger
Agreement, which was amended effective December 20, 1995 and February 26, 1996.
The JCC/DI Merger was consummated effective February 29, 1996. In the JCC/DI
Merger, JCC was merged into DI. DI survived the merger and changed its name to
JIS. JIS continued to be a public reporting company.
The JCC/DI Merger was accounted for as a "reverse acquisition" whereby JCC, in
substance, acquired DI, allocating the fair value of JCC shares exchanged over
the relative fair value of assets and liabilities of DI (assumed to equal its
book value) prior to the merger. No value was ascribed to DI's net loss
carryforwards as a result of limitations on these carryforwards subsequent to
the change in control. Accordingly, the historical financial statements included
in the consolidation prior to the acquisition are those of the acquirer, JCC,
and are those of JIS for the period subsequent to the merger. Operating results
for the Company for the three and six months ended June 30, 1996, on a pro forma
basis as though DataImage had been acquired as of January 1, 1996, are shown
below.
Effective September 30, 1996, the Company purchased 100% of the issued and
outstanding stock of Berkeley. Berkeley, founded in 1980, is a provider of IT
training services to corporate, governmental and individual clients. The total
acquisition cost was $2,232,200. As of June 30, 1997, $848,500 of the
acquisition cost is still outstanding, of which $276,300 has been converted into
a note payable. The remaining portion of the balance of $572,200 is contingent
on Berkeley attaining certain pre-tax income amounts in 1997. The acquisition
was accounted for as a purchase and results of operations of Berkeley are
included in the statement of operations for the three and six months ended June
30, 1997. The excess of acquisition cost over the fair value of net assets,
assumed to equal their carrying value, was approximately $2,220,000, which is
being amortized over fifteen years, beginning in October 1996. Operating results
for the Company for the three and six months ended June 30, 1996, on a pro forma
basis as though Berkeley had been acquired as of January 1, 1996, are shown
below.
Also effective September 30, 1996, the Company purchased substantially all of
the tangible and intangible assets, and assumed all of the liabilities, of
Systems Automation. Systems Automation is a provider of advanced technical
solutions to increase the efficiency of business processes, such as network and
document management systems design, integration, implementation, maintenance and
training, business process redesign, project management and advanced
applications development. The total acquisition cost was $547,252. The
acquisition was accounted for as a purchase and results of operations of Systems
Automation are included in the statement of operations for the three and six
months ended June 30, 1997. The excess of acquisition cost over the fair value
of net assets, assumed to equal their carrying value, was approximately
$1,040,000, which is being amortized over ten years, beginning in October 1996.
Operating results for the Company for the three and six months ended June 30,
1996, on a pro forma basis as though Systems Automation had been acquired as of
January 1, 1996, are shown below.
As described in Note 1, upon the successful completion of the Company's initial
public offering in February 1997, JIS was merged into the Company.
11
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
NOTE 3. BUSINESS COMBINATIONS AND PRO-FORMA RESULTS OF OPERATIONS--(Continued)
The following sets forth the combined results for the Company, DataImage,
Berkeley, JIS and Systems Automation for the three and six months ended June 30,
1997 and 1996, as if the business combinations occurred at January 1, 1997 and
1996, respectively.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- -------------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenues................................. $26,062,572 $21,984,308 $49,540,975 $39,396,121
Cost of revenues
(exclusive of items shown separately below).. 18,736,298 15,737,361 36,121,686 28,797,179
----------- ----------- ----------- -----------
Gross Profit................................. 7,326,274 6,246,947 13,419,289 10,598,942
Operating Expenses:
Selling, general and administrative.......... 5,839,132 5,585,301 12,077,806 10,214,277
----------- ----------- ----------- -----------
Income from operations................... 1,487,142 661,646 1,341,483 384,665
Other income (expenses), net............. 75,257 (199,377) (52,644) (391,080)
----------- ----------- ----------- -----------
Income (loss) before income tax expense.. 1,562,399 462,269 1,288,839
(6,415)
Income tax expense....................... 654,532 179,573 663,421 149,573
----------- ----------- ----------- -----------
Net Income (loss) ....................... $907,867 $282,696 $625,418 ($155,988)
=========== =========== =========== ===========
</TABLE>
- ----------
Notes to pro-forma results of operations:
o Interest expense for the three and six months ended June 30, 1996, adjusted
due to (a) the conversion of DI stockholders notes payable to JIS common
stock by ($0) and ($3,581), respectively, (b) incurring debt/notes payable
in connection with the acquisition of Berkeley by $15,490 and $32,344,
respectively and (c) the conversion of the Company's convertible notes to
common stock by ($12,500) and ($25,000), respectively.
o Amortization expense recorded for goodwill created by the business
combinations of Berkeley of $36,994 and $73,988, respectively for the three
and six months ended June 30, 1996, Systems Automation of $25,989 and
$51,979 for the three and six months ended June 30, 1996, respectively and
JIS of $39,987 and $79,974 for the three and six months ended June 30,
1996, respectively and JIS of $26,658 for the six months ended June 30,
1997. Amortization expense for goodwill of Berkeley and Systems Automation
and JIS is included in the statement of operations for the three and six
months ended June 30, 1997.
o Federal and state income tax expense (benefit) attributable to income
(loss) of Berkeley of $59,687 and $92,784 for the three and six months
ended June 30, 1996, respectively and Systems Automation of ($25,368) and
($63,468) for the same periods as well as the amortization of goodwill of
($41,188) and ($82,376) for the same periods, and interest expense of
($1,196) and ($1,505) for the same periods recognized in (1) and (2) above,
all at an effective tax rate of 40%.
o Record the merger of JIS into a wholly-owned subsidiary of the Company as
though it occurred at the beginning of the pro forma periods presented. The
adjustment represents the elimination of the minority interest ($130,600)
and ($229,000) for the three and six months ended June 30, 1996,
respectively.
The interest expense adjustment assumed the successful completion of the
Company's initial public offering of stock as discussed in Note 1.
12
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
NOTE 3. BUSINESS COMBINATIONS AND PRO-FORMA RESULTS OF OPERATIONS -- (Continued)
Primary and fully diluted net income per share of common stock is calculated as
follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- --------------------------
1997 1996 1997 1996
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Net Income (loss) attributable to
common shareholders.......................... $907,867 $282,696 $625,418 ($155,988)
========== ========== ========== ==========
Weighted average number of shares............ 13,347,969 13,347,969 13,347,969 13,347,969
========== ========== ========== ==========
Net Income (loss) per share attributable to
common shareholders.......................... $ 0.07 $ 0.02 $ 0.05 ($ 0.01)
========== ========== ========== ==========
</TABLE>
Weighted average number of shares includes actual shares outstanding increased
by the number of shares issued in respect to the conversion of Company
convertible debentures, the number of shares issued in the Company's initial
public offering, the number of shares issued in the JIS merger, and the number
of shares issued in conjunction with the Berkeley acquisition.
NOTE 4. NOTE PAYABLE, BANK
Note payable, Bank, consists of advances to the Company, JTS and JIS under a
$11,000,000 credit facility, of which $10,000,000 represents a line of credit
and $1,000,000 represents a term loan. At December 31, 1996, the line of credit
bore interest at the prime rate plus 1% per annum. Maximum permitted borrowings
thereunder is the lesser of $10,000,000 or 80% of qualified accounts receivable,
as defined in the line of credit agreement. Upon completion of the initial
public offering, in February 1997, the Company repaid all obligations related to
its note payable, bank. In accordance with the line of credit agreement, the
Company has the full amount available for future borrowing needs. In addition,
the shareholder guarantees have been released, and future borrowings will bear
interest at the bank's prime rate.
Included in accounts payable and accrued expenses at December 31, 1996 were
approximately $1,858,000 of bank overdrafts.
Interest expense charged to operations was approximately $12,000 and $191,000
for the three months ended June 30, 1997 and 1996, respectively, and $190,000
and $371,000 for the six months ended June 30, 1997 and 1996, respectively.
NOTE 5. LONG-TERM DEBT
With a portion of the proceeds from the initial public offering, the Company
paid off a significant amount of its long-term debt.
NOTE 6. ADVANCES FROM SHAREHOLDERS
JIS/JCC had advances from shareholders of $95,862 at December 31, 1996 all of
which was repaid with a portion of the proceeds from the Company's initial
public offering. Interest expense related to these advances was approximately
$2,600 and $7,000 in the three and six months ended June 30, 1996 and $0 and
$1,800 in the same periods in 1997.
13
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
NOTE 7. CONVERTIBLE NOTES
In 1994, the Company received $500,000 from a group of investors in the form of
10% convertible senior subordinated promissory notes. The notes were exchanged
for 526,000 Company common shares, immediately prior to the Offering (see Note
1). The notes bear 10% interest per annum and were scheduled to mature in July
1997. In accordance with the note purchase agreement, since the Company effected
a successful initial public offering before July 31, 1997, the financial advisor
who arranged such financing was paid a fee equal to 1% of the proceeds of the
initial public offering (approximately $225,000) in February 1997.
NOTE 8. INCOME TAXES
The Company files a consolidated Federal income tax return with most of its
wholly-owned subsidiaries. JTS and JCC/JIS are not included in the Company's
consolidated Federal income tax return, as the Company previously owned less
than 80% of each such Company's outstanding common shares. Under Internal
Revenue regulations, JTS and JCC/JIS are not part of the consolidated group for
tax purposes and file their own Federal income tax returns. Although JTS
subsequently became a wholly-owned subsidiary of the Company, it has continued
to file its own Federal income tax returns. JTS files a consolidated tax return
with its wholly-owned subsidiaries, JPS and JTNJ. State income taxes are
determined on the basis of filing separate returns for each company as required
by the applicable state regulations.
In accordance with APB 28 (Interim Financial Reporting) income taxes are
calculated at the estimated effective annual (federal and state) rates of
approximately 40% for the six months ended June 30, 1997 and 1996.
The effective tax rate for 1997 and 1996 is higher than the applicable statutory
tax rate of 34% due primarily to net operating losses for JCC/JIS, a company
consolidated for financial reporting but not tax reporting purposes in 1996 and
in 1997 through February 20, 1997, the date of the merger of JIS with the
Company.
For income tax reporting purposes, as of December 31, 1996, JIS had an unused
operating loss carryforward of approximately $3,900,000, which may be applied
against future taxable income of JIS, subject to certain Federal income tax
limitations. These carryforwards expire between 2002 and 2011.
NOTE 9. SHAREHOLDERS' EQUITY
Deficit and Dividends
In accordance with the provisions of its line of credit (see Note 4), the
Company is not permitted to declare or pay any cash dividends on its common
stock.
Additional Paid-In Capital
During 1996, additional paid-in capital decreased $175,910 due to the JCC/DI
merger which was accounted for as a reverse acquisition (Notes 1 and 3).
Capital Structure
On September 4, 1996, the Company's Board of Directors voted to (i) modify the
Company's capital structure to increase the number of authorized common shares
to 50,000,000, (ii) adjust the par value per share from $.005 to $.01, (iii)
authorize the issuance of 10,000,000 preferred shares with a par value of $.01
per share, (iv) authorize a 52.6 for 1.0 split of the outstanding common shares
for shareholders of record on September 23, 1996, (v) authorize a change in the
Company's name from "Judge, Inc." to "The Judge Group, Inc." and (vi) authorize
the formation of a new subsidiary, Judge, Inc., and the contribution of
substantially all the assets related to the Permanent Placement business to this
new subsidiary.
14
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
NOTE 9. SHAREHOLDERS' EQUITY--(Continued)
Stock Option Plan
On September 4, 1996, the Company adopted an Incentive Stock Option and
Non-Qualified Stock Option Plan (the "Incentive Plan") for key employees and
non-employee directors. Options may be granted under the Incentive Plan to
purchase up to a maximum of 1,500,000 of the Company's common shares, subject to
certain adjustments and restrictions. The price of each option shall be the fair
market value of the shares on the date of the grant. Simultaneous with the
completion of the initial public offering, options to purchase a total of
593,000 common shares were granted at the initial public offering price of $7.50
per common share.
NOTE 10. CAPITAL STRUCTURE OF JCC/JIS
The JCC preferred shares (which eliminated in consolidation) bore cumulative
dividends at an annual rate of $.005 per share. No dividends were declared or
paid in 1996. In February 1996, the preferred shareholders waived receipt of all
dividends due them. In February 1996, the preferred shareholders converted their
preferred shares into JCC common shares on a one-to-one basis.
In February 1996, JCC's Board of Directors authorized new additional preferred
shares, consisting of 1,125,000 $.01 par value Series A convertible preferred
shares and 25,000, $1,000 stated value Series B preferred shares.
In February 1996, JCC raised approximately $1,097,000 ($888,000, net of costs)
in a private offering of 822,628 Series A convertible preferred shares ("JCC
Series A Preferred") at a purchase price per share of $1.33. At the effective
time of the JCC/DI Merger, these preferred shares were converted into the same
number of JIS Series A preferred shares ("JIS Series A Preferred"). The JIS
Series A Preferred shares carry a cumulative dividend of 7% per year
(aggregating approximately $45,000 at December 31, 1996). In conjunction with
the Company's initial public offering, these preferred shares were converted
into common shares in February 1997 (see Notes 1 and 3). At December 31, 1996,
the JIS Series A Preferred stock is presented at $-0- as "minority interest" in
the accompanying consolidated balance sheet. Approximately $229,000 of JIS
losses have been allocated to this minority interest in the accompanying
consolidated statement of operations for the six months ended June 30, 1996.
NOTE 11. STATEMENT OF CASH FLOWS
Supplemental disclosure of non-cash investing and financing transactions:
During the six months ended June 30, 1997, the Company entered into the
following non-cash transactions:
o incurred goodwill of $2,399,190 in the business combination with JIS;
o converted $300,000 of long-term debt to equity in accordance with the
Berkeley agreement;
o converted $500,000 of convertible debentures into 526,000 shares of common
stock.
During the six months ended June 30, 1996, the Company entered into certain
financing arrangements for the purchase of property and equipment in the amount
of approximately $348,000.
15
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SIX MONTHS ENDED JUNE 30, 1997, AND 1996
NOTE 11. STATEMENT OF CASH FLOWS (Continued)
Effective February 29, 1996, JCC and DI effected a Business Combination
(see Note 3):
Acquisition of Business:
Inventories........................................ $ 39,101
Accounts receivable................................ 104,127
Property and equipment, net........................ 150,034
Other assets....................................... 10,780
---------
304,042
---------
Accounts payable and accrued expenses.............. (82,087)
Due to the Company................................. (100,000)
Deferred revenue and customer deposits............. (362,037)
---------
(544,124)
---------
Net assets acquired (liabilities
assumed) in business combination................... ($240,082)
=========
16
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO THE
THREE AND SIX MONTHS ENDED JUNE 30, 1996
The following discussion should be read in conjunction with the condensed
consolidated financial statements of The Judge Group, Inc. (the "Company") and
related notes thereto appearing elsewhere in this Report.
OVERVIEW
Effective February 14, 1997 the Company successfully completed its initial
public offering of common shares (the "Offering"). The Company sold 3,000,000
common shares at a price of $7.50 per share, realizing approximately $20,906,000
in proceeds, net of underwriting discounts and commissions. Simultaneous with
the closing of the Offering, the Company acquired the remaining outstanding
shares of Judge Imaging Systems, Inc. ("JIS") not already held by the company
and merged JIS into a wholly-owned subsidiary of the Company. With a portion of
the proceeds, the Company paid off a significant amount of its debt. See
"Liquidity and Capital Resources" for further information. The remaining
proceeds are being used for working capital and general corporate purposes.
In the three months ended June 30, 1997, Contract Placement revenues
increased 16.0% compared to the prior year period, due primarily to higher bill
rates and increased sales per recruiter. This growth rate was slightly below
Company expectations due to a focus of sales efforts on higher margin
placements. This focus enabled this business to achieve higher operating
margins. The Contract Placement business expects to continue to pursue its focus
on higher margin placements. In addition, during the latter half of the second
quarter of 1997, the Contract Placement business began to establish a market
presence in Alexandria, Virginia and New York City. This business intends to
open offices in these locations during the third quarter of 1997 and therefore
expects to hire sales and recruiting personnel to staff these offices and to
incur expenses related to these office openings. The Company anticipates that
these two new offices will generate revenue during the fourth quarter of 1997.
During the first and second quarters of 1997, the Company undertook certain
changes to reduce overhead costs in its Imagining and Network Services business,
primarily the reduction of administrative, production and sales personnel and
the closing of its Tampa, Florida office. As a result of the reduction in
overhead expenses, as well as an increase in revenues, the Imagining and Network
Services division substantially reduced its operating loss of approximately
$900,000 in the first quarter of 1997 to an operating loss of approximately
$266,000 for the second quarter of 1997. The effect of these cost reductions
began to be realized in the latter half of the second quarter of 1997. The
revenue growth experienced by this business in the six months ended June 30,
1997 was attributed to the sales efforts of the retained sales and production
support personnel. Even if the increased sales continues, however, there can be
no assurance that the Imagining and Network Services business will achieve a
pricing and cost structure that will generate profits. While the Company
believes that the Imagining and Network Services business will ultimately
achieve profitability, it cannot predict the timing of such profitability,
should it occur at all.
The following table presents the net revenue (net of intercompany
eliminations) and the income (loss) from operations attributable to each of the
Company's businesses, in dollars and as a percentage of net revenues, for the
periods indicated:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------------------------------------------------------------------
(Dollars in thousands)
1997 1996 1997 1996
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Revenues:
Permanent Placement $ 4,083 8.3% $ 2,614 7.0% $ 2,153 8.3% $ 1,541 7.4%
Contract Placement 36,068 72.8 28,603 76.6 18,232 70.0 15,710 75.2
Imaging and Network Services 8,062 16.2 6,110 16.4 4,958 19.0 3,641 17.4
IT Training 1,328 2.7 -- -- 720 2.7 -- --
------- ----- ------- ----- ------- ----- ------- ------
Consolidated Net Revenues $49,541 100.0% $37,327 100.0% $26,063 100.0% $20,892 100.0%
======= ===== ======= ===== ======= ===== ======= ======
Income (loss) From Operations:
Permanent Placement $630 15.4% $200 7.7% $332 15.4% $162 10.5%
Contract Placement 3,116 8.6 1,399 4.9 1,957 10.7 988 6.3
Imaging and Network Services (1,174) (14.6) (380) (6.2) (266) (5.4) (131) (3.6)
IT Training (37) (2.8) -- -- 67 9.3 -- --
Corporate Overhead Expense (1,167) N/A (692) N/A (603) N/A (346) N/A
------- ------- ------- -------
Consolidated Income From Operations $ 1,368 2.8% $ 527 1.4% $ 1,487 5.7% $ 673 3.2%
======= ======= ======= =======
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Included in corporate overhead expense are salaries, benefits and related costs
for the Company's founder and chief executive officer, Martin E. Judge, Jr., and
for corporate level financial, legal, human resources, management information
systems and marketing personnel. Also included in corporate overhead is
amortization of goodwill related to two acquisitions completed in September 1996
and the JIS merger. There was no charge for goodwill for the six months and
quarter ending June 30, 1996.
17
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain statement of operations data as
a percentage of consolidated net revenues for each of the periods indicated:
-------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30,
-------------------------------------
1997 1996 1997 1996
- -------------------------------------------------------------------------------
Net Revenues 100.0% 100.0% 100.0% 100.0%
Cost of Sales 71.9 72.1 72.9 73.9
(exclusive of items shown separately
below)
Selling and Operating 15.0 17.8 16.4 17.1
General and Administrative 7.4 6.9 7.9 7.6
----- ----- ----- -----
Total Cost and Expenses 94.3 96.8 97.2 98.6
Income From Operations 5.7 3.2 2.8 1.4
Interest Income (Expense) and Other, Net 0.3 (0.9) (0.1) (1.0)
----- ----- ----- -----
Income Before Income Taxes 6.0% 2.3% 2.7% 0.4%
===== ===== ===== =====
- --------------------------------------------------------------------------------
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1996
Net Revenues. Consolidated net revenues increased by 24.7%, or $5.2
million, for the three months ended June 30, 1997 compared to the prior year
period. Revenue for the Contract Placement business increased by 16.0%, or $2.5
million, for the three months ended June 30, 1997, compared to the prior year
period. Revenues for Contract Placement business increased primarily due to
increased marketing efforts, 19.3% increase in average bill rates, and increased
sales-per-recruiter. Revenue for the Permanent Placement business increased by
39.7%, or approximately $612,000, for the three months ended June 30, 1997,
compared to the prior year period. The revenue increase in the Permanent
Placement business was attributable to a 14.9% increase in the average placement
fee received and a 46.6% increase in the number of recruiters in the second
quarter of 1997 compared to the prior year period. Revenue for the Imaging and
Network Services business increased by 36.2%, or $1.3 million, for the three
months ended June 30, 1997 compared to the prior year period. This increase in
revenues was primarily attributable to two contracts with the State of New
Jersey related to sales of imaging and document management systems and services
and the approximately $520,000 contributed by the imaging and document
management business acquired in September 1996. The IT Training business,
acquired in September 1996, generated net revenues of $720,000 for the three
months ended June 30, 1997.
Cost of Sales. Consolidated cost of sales increased by 24.4%, or $3.7
million, for the three months ended June 30,1997 compared to the prior year
period. Cost of sales as a percentage of consolidated net revenues decreased to
71.9% from 72.1%. In the Company's Contract Placement business, cost of sales as
a percentage of its revenue decreased to 78.3% from 79.2% primarily a result of
the Contract Placement business focusing its sales efforts on higher margin
services and increased average profit margins obtained by the metropolitan
Boston and National offices, where average profit margins increased by
approximately 2.5 and 3.0 percentage points, respectively, during the three
months ended June 30, 1997 compared to the prior year period. The decline in
cost of sales as a percentage of consolidated net revenues was also attributable
to an increase in revenue for the Permanent Placement business, which has no
cost of sales. In the Company's Imaging and Network Services business cost of
sales as a percentage of its revenue increased to 77.6% from 75.0%, primarily as
a result of technical personnel hired in the third and fourth quarter of 1996.
Two State of New Jersey contracts contributed a 1.9 percentage point increase in
cost of sales for the three months ended June 30, 1997 compared to prior year
period. The IT Training business, acquired in September 1996, also contributed
an additional $633,000 in cost of sales, representing 81.3% of that business'
revenues.
Selling and Operating. Consolidated selling and operating expenses
increased by 5.1%, or $190,600, for the three months ended June 30, 1997
compared to the prior year period. Selling and operating expenses as a
percentage of consolidated net revenues decreased to 15.0% from 17.8% for the
three months ended June 30, 1997 compared to the prior year period. Selling and
operating expenses as a percentage of revenues for the Contract Placement
business decreased to 8.1% from 11.2% for the three months ended June 30, 1997
compared to the prior year period. This decrease was mainly attributable to a
reduction in the number of sales and recruiting personnel during the three
months ended June 30 1997 as compared to an increase of sales and recruiting
personnel during the three months ended June 30, 1996. Selling and operating
expenses as a percentage of revenues for the Permanent Placement business
decreased to 73.6% from 77.4% for the three months ended June 30, 1997 compared
to the prior year period, which was attributed to management's efforts to
control selling costs. Selling and operating expenses as a percentage of
revenues for the Imaging and Network Services business decreased to 16.3% from
18.5% for the three months ended June 30, 1997 compared to the prior year
period, primarily due to the reduction in sales personnel in the first quarter
of 1997.
General and Administrative. Consolidated general and administrative
expenses increased 33.7%, or $488,000, for the three months ended June 30, 1997,
compared to the prior year period. General and administrative expenses as a
percentage of consolidated net revenues, increased to 7.4% from 6.9% for the
three months ended June 30, 1997 compared to the prior year period. Contributing
to this increase was an increase of $120,000 in
18
<PAGE>
the Imaging and Network Services business, primarily consisting of an increase
in payroll costs associated personnel hired in the second, third and fourth
quarters of 1996. Expansion of the Company's corporate staff, specifically
management information systems, accounting, legal and human resources personnel
hired in 1996 and 1997 added approximately $124,000 to corporate overhead for
the three months ended June 30, 1997, compared to the prior year period. In
addition, the amortization of goodwill related to the acquisitions increased
corporate overhead costs by $103,000 in the three months ended June 30, 1997
compared to the prior year period. As a result of the two acquisitions in
September 1996 and increased office space in the Edison, New Jersey office, rent
expense increased by approximately $100,000 for the three months ended June 30,
1997 compared to prior year period. The IT Training business, acquired in
September of 1996, incurred general and administrative expenses for the three
months ended June 30, 1997 of approximately $79,000.
Interest. Interest expense was $12,000 and $190,000 for the three months
ended June 30, 1997 and 1996, respectively. Interest income was $87,000 and $0
for the three months ended June 30, 1997 and 1996, respectively. This decrease
in interest expense and increase in interest income was attributable to the
Company's repayment of its debt following the Offering and the interest earned
on the unused portion of the Offering proceeds.
Income Taxes. The effective tax rates for the three months ended June 30,
1997 and 1996 were 41.9% and 38.8% respectively. Since the Company's merger with
JIS (which includes the Imaging and Network Services business) on February 20,
1997, this business units losses have been consolidated for tax purposes and any
future losses generated by the Imaging and Network Services business will be
used in the calculation of income tax expense or benefit.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Net Revenues. Consolidated net revenues increased by 32.7%, or $12.2
million, for the six months ended June 30, 1997 compared to the prior year
period. Revenue for the Contract Placement business increased by 26.1%, or $7.5
million, for the six months ended June 30, 1997, compared to the prior year
period. Contract Placement revenues increased primarily due to a 19.9% increase
in average bill rates and an increase in sales-per-recruiter. Revenue for the
Permanent Placement business increased by 56.2%, or $1.5 million, for the six
months ended June 30, 1997, compared to the prior year period. Contributing to
this increase was an increase in the number of placements, a 15.3% increase in
the average placement fee and a 46.6% increase in the number of recruiters in
the six months ended June 30, 1997 compared to the prior year period. Revenue
for the Imaging and Network Services business increased by 31.9%, or $2.0
million, for the six months ended June 30, 1997 compared to the prior year
period. This increase was attributable to an increase in sales of imaging and
document management systems and services, specifically from two contracts with
the State of New Jersey obtained in the second quarter of 1997 and approximately
$830,000 of the revenue contributed by the imaging and document management
business acquired in September 1996. The IT Training business, acquired in
September 1996, generated net revenues of $1.3 million for the six months ended
June 30, 1997.
Cost of Sales. Consolidated cost of sales increased by 30.9%, or $8.5
million, for the six months ended June 30,1997 compared to the prior year
period. Cost of sales as a percentage of consolidated net revenues decreased to
72.9% from 73.9%. In the Company's Contract Placement business, cost of sales as
a percentage of its revenue decreased to 79.2% from 80.4%. This decrease was
primarily a result of the Contract Placement business focusing its sales efforts
on higher margin services. Average profit margins obtained by the Contract
Placement's metropolitan Boston and National offices increased by approximately
2.2 and 2.8 percentage points, respectively, during the six months ended June
30, 1997 compared to the prior year period The decline in cost of sales as a
percentage of consolidated net revenues was also attributable to an increase in
revenue for the Permanent Placement business, which has no cost of sales. In the
Company's Imaging and Network Services business cost of sales as a percentage of
its revenue increased to 79.0% from 75.7%, primarily as a result of technical
personnel hired in the third and fourth quarter of 1996 to service the
anticipated increase in imaging and document management revenues. Two State of
New Jersey contracts received in the second quarter of 1997 contributed a one
percentage point increase in cost of sales for the six months ended June 30,
1997 compared to prior year period. The IT Training business, acquired in
September 1996, also contributed an additional $1.2 million in cost of sales,
representing 86.1% of that business' revenues.
Selling and Operating. Consolidated selling and operating expenses
increased by 27.8%, or $1.8 million, for the six months ended June 30, 1997
compared to the prior year period. Selling and operating expenses as a
percentage of consolidated net revenues decreased to 16.4% from 17.1% for the
six months ended June 30, 1997 compared to the prior year period. Selling and
operating expenses as a percentage of revenues for the Contract Placement
business decreased to 9.3% from 10.6% for the six months ended June 30, 1997
compared to the prior year period. This decrease was mainly attributable to a
reduction of in the number of sales and recruiting personnel and a decrease of
approximately $125,000 in bad debt expense for this business in the six months
ended June 30, 1997 compared to the prior year period. Selling and operating
expenses as a percentage of revenues for the Permanent Placement business
decreased to 73.8% from 78.3% for the six months ended June 30, 1997 compared to
prior year period, attributable primarily to management's efforts to control
selling cost. Selling and operating expenses as a percentage of revenues for the
Imaging and Network Services business increased to 21.5% from 14.4% for the six
months ended June 30, 1997 compared to the prior year period, due primarily to a
52.3%, or $425,000, increase in payroll and related costs associated with sales
and marketing personnel hired in the third and fourth quarters of 1996 and
additional sales personnel resulting from the 1996 acquisition of two
Imaging and Network Services businesses.
General and Administrative. Consolidated general and administrative
expenses increased 37.6%, or $1.1 million, for the six months ended June 30,
1997 compared to the prior year period. General and administrative expenses as a
percentage of consolidated net revenues, increased to 7.9% from 7.6% for the six
months ended June 30, 1997 compared to the prior year period. Contributing to
this increase was an increase of $279,000 in the Imaging and Network Services
business, primarily consisting of an increase in payroll costs associated with
the increased in personnel hired in the second, third and fourth quarters of
1996. Expansion of the Company's corporate staff, specifically management
information systems, accounting, legal and human resources personnel hired in
1996 and 1997 which accounted for approximately $330,000 of corporate overhead
for the six months ended June 30, 1997 compared to prior year period. In
addition, the amortization of goodwill related to the two acquisitions in
September 1996 increased corporate overhead costs by $183,000 in the six months
ended June 30, 1997 compared to the prior year period. As a result of the
acquisitions and increased office space in the Edison, New Jersey office, rent
expense increased by approximately $114,000 for the six months ended
19
<PAGE>
June 30, 1997 compared to the prior year period. The IT Training business,
acquired in September of 1996, general and administrative expenses for the six
months ended June 30, 1997 were approximately $231,000.
Interest. Interest expense was $191,000 and $371,000 for the six months
ended June 30, 1997 and 1996, respectively. Interest income was $138,000 and $0
for the six months ended June 30, 1997 and 1996, respectively. This decrease in
interest expense and increase in interest income was attributable to the
Company's repayment of its debt following the Offering and the interest earned
on the unused portion of the Offering proceeds.
Income Taxes. The effective tax rates for the six months ended June 30,
1997 and 1996 of 51.2% and 130.4%, respectively, are higher than the applicable
statutory tax rate of 34%, primarily due to net operating losses for the Imaging
and Network Services business, which are consolidated for financial but not for
tax reporting purposes in 1996 and also for the period of January 1, 1997
through February 20, 1997. However, since the Company's merger with JIS (which
includes the Imaging and Network Services business) on February 20, 1997, this
business unit is now consolidated for tax purposes and any future losses
generated by the Imaging and Network Services business will also be used in the
calculation of income tax expense or benefit. If the Imaging and Network
Services business is able to achieve profitability, it will be able to utilize
approximately $3.9 million in federal operating loss carryforwards, which will
expire between 2002 and 2011.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company's need for working capital has increased as its
revenues have grown and it has used borrowings under its credit facility to fund
working capital. In the six months ended June 30, 1997, however, the funds
available for working capital purposes increased substantially as a result of
the receipt of the proceeds from its initial public offering. The Company
continues to use the proceeds from the Offering and as well as its cash flow
from operations to fund its working capital needs. The Company typically
maintains minimal cash balances, however the proceeds from the Company's
Offering has currently increased it's cash and cash equivalents as of June 30,
1997 to $8.0 million from approximately $105,000 at December 31, 1996 and
$28,000 as of June 30, 1996. Most of the cash is invested in short-term,
investment grade securities.
The Company generated cash from operations of $2.9 million for the six
months ended June 30, 1997, as compared to a use of cash of $1.5 million for the
same periods last year. This result is attributable to several factors,
including an increase in net income of $460,000 for the six months ended June
30, 1997 compared to prior year period and the increase in cash from operations.
Specifically, the Company was able to reduce inventory purchases and other
current assets and increased it's deferred revenue/customer deposits and
accounts payable while still allowing for customary increases in accounts
receivable related to increases in revenues. In addition, the Company
implemented numerous controls on credit and collections in the first quarter of
1997 which have resulted in a decrease in days receivables outstanding from
approximately 59 days at December 31, 1996 to 55 days at June 30, 1997. While
the Company will continue to strive to improve the credit and collection
process, there can be no assurance that the Company will be able to do so.
The Company currently has a $11.0 million revolving advance facility (the
"Line of Credit") with PNC Bank, N.A. (successor to Midlantic Bank, NA). The
Line of Credit expires on May 31, 1998 and carries interest at the prime rate.
This facility allows the Company to borrow the lesser of 80% of eligible
receivables, or $11.0 million. As of June 30, 1997 the Company has no borrowings
against the Line of Credit. The Line of Credit is secured by substantially all
of the Company's assets and contains customary restrictive covenants, including
limitations on loans the Company may extend to officers and employees, the
incurrence of additional debt and the payment of dividends on the Company's
common shares. During the first quarter of 1997 the Company also received
repayment of its loans to officers and to related parties in the aggregate
amount of $542,000.
Cash purchases of fixed assets for the six months ended June 30, 1997 and
1996 were $701,000 and $308,000 respectively, related primarily to purchases of
computers, software, and imaging equipment to upgrade the Company's technology
infrastructure.
During the first quarter of 1997, the Company completed its Offering of
common shares. From the proceeds of $20,906,000 (net of underwriting discounts
and commission) the Company paid approximately $1,666,000 of accounting, legal,
financial advisory, printing and other costs associated with the Offering. The
Company repaid in full its note payable due to the bank in the amount of $10.0
million and repaid other long term debt of $2.1 million, which includes payments
related to the notes payable for the two acquisitions.
The Company anticipates that its primary uses of capital in future periods
will be for acquisitions, funding of increases in accounts receivable and the
development of its corporate level sales force. The Company believes that the
proceeds from the Offering and borrowings under the Line of Credit, or other
credit facilities which may be available to the Company in the future, will be
sufficient to meet the Company's capital needs for at least the next twelve
months.
FORWARD LOOKING INFORMATION
This report and other reports and statements filed by the Company from time
to time with the Securities and Exchange Commission (collectively, "SEC
Filings") contain or may contain certain forward-looking statements and
information that are based on beliefs of, and information currently available
to, the Company's management as well as estimates and assumptions made by the
Company's management. When used in SEC Filings, the words "anticipate,"
"believe," "estimate," "expect," "future," "intend," "plan" and similar
expressions as they relate to the Company or the Company's management, 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 relating to the Company's operations and results
of operations, competitive factors and pricing pressures, shifts in market
demand, the performance and needs of the industries served by the Company, and
other risks and uncertainties, including, in addition to any uncertainties
specifically identified in the text surrounding such statements and those
identified below, uncertainties with respect to changes or developments in
social, economic, business, industry, market, legal and regulatory circumstances
and conditions and actions taken or omitted to be taken by third parties,
including the Company's stockholders, customers, suppliers, business partners,
competitors, and legislative,
20
<PAGE>
regulatory, judicial and other governmental authorities and officials. Should
one or more of these risks or uncertainties materialize, or should the
underlying assumptions prove incorrect, actual results may vary significantly
from those anticipated, believed, estimated, expected, intended or planned.
Dependence on Availability of Qualified Technical Consultants The
Company is dependent upon its ability to attract and retain technical
consultants who possess the skills and experience necessary to meet the staffing
requirements of its clients. To keep pace with rapidly evolving information
technologies and changing client needs, the Company must continually evaluate
and upgrade its database of available qualified technical consultants.
Competition for individuals with proven technical skills is intense, and, as is
currently customary in the industry, the Company does not have any exclusive
contracts with its consultants. The Company competes for such individuals with
other providers of technical staffing services, systems integrators, providers
of outsourcing services, computer systems consultants, clients and temporary
personnel agencies. Factors influencing such competition include compensation,
benefits, growth opportunities and pre-existing relationships with other
companies, particularly specialty staffing companies. As the Company expands
into new geographic areas, it may experience difficulty attracting qualified
technical consultants who have a prior relationship or familiarity with more
established specialty staffing companies in such areas. There can be no
assurance that qualified technical consultants will continue to be available to
the Company in sufficient numbers to meet the Company's current and anticipated
growth requirements.
Acquisition Risks A principal component of the Company's growth strategy
is the acquisition of companies that will complement and expand the Company's
existing businesses, principally in new geographic markets. The successful
implementation of this strategy is dependent on the Company's ability to
identify suitable acquisition candidates, acquire such companies on suitable
terms and integrate their operations with those of the Company. There can be no
assurance that the Company will be able to identify suitable acquisition
candidates or that, if identified, the Company will be able to acquire such
companies on suitable terms. The specialty staffing industry is relatively
mature. Acquisitions in this industry are therefore likely to be at higher
relative prices than for other industries due to competition from other staffing
companies for acquisition candidates. Acquisitions also involve a number of
special risks, including: (i) adverse effects on the Company's reported
operating results, including increased goodwill amortization and interest
expense; (ii) diversion of management attention; (iii) risks associated with
unanticipated problems, liabilities or contingencies; and (iv) difficulties
related to the integration of the acquired business. The occurrence of some or
all of the events described in these risks could have a material adverse effect
on the Company's business, financial condition and results of operations.
Ability to Manage Growth Sustained or significant growth, if achieved,
will subject the Company to risks by placing a substantial strain on the
Company's available managerial, financial and other resources. Specifically,
such growth will require the Company to: (i) hire, integrate and retain
qualified managers in existing markets as well as markets in which the Company
has no prior operating experience; (ii) develop and maintain relationships with
an increasingly large number of highly qualified technical consultants; and
(iii) apply its management practices to a significantly larger organization.
Expansion beyond the geographic areas where the Company's offices are presently
located will further increase demands on the Company's management. The Company's
ability to manage its staff and facilities growth effectively will require it to
continue to expand its operational, financial and other internal systems. There
can be no assurance that the Company's systems, procedures and controls will be
successfully implemented or adequate to support the Company's expanded
operations. Furthermore, an element of the Company's business strategy is to
cross-sell the existing services of its four businesses to new and existing
clients. Historically, these businesses have operated independently, producing
only occasional referrals, and there can be no assurance that the Company will
successfully market such services on an integrated basis.
History of Operating Losses in Imaging and Network Services Business The
Company's Imaging and Network Services business has had net operating losses
since its commencement in 1988, experienced a loss from operations of
approximately $1.2 million for the six month period ended June 30, 1997, and at
June 30, 1997 had an accumulated deficit of $5.1 million. The losses have
resulted from high marketing and general and administrative costs associated
with building the division's imaging and document management infrastructure and
capabilities, combined with historically low profit margins related to the
hardware component of the networking business and a slower emergence of the
imaging and document management market than anticipated by the Company.
Specifically, the costs associated with building this division's imaging and
document management capabilities have included the hiring of sales and technical
personnel, the opening and closing of a new office, and the costs associated
with the acquisition and integration of two imaging and document management
companies. The Company is currently focusing on achieving profitability in its
Imaging and Network Services business and expanding it through internal growth,
new service offerings and acquisitions, but cannot provide any assurances as to
when it will achieve profitability, if at all. Typically, the decision by a
prospective customer to install a network or to implement a document management
system requires the Company to engage in a lengthy and complex sales cycle and
involves a significant commitment of resources by the customer over an extended
period of time. For these and other reasons, the sales and implementation cycles
are subject to a number of significant delays over which the Company has little
or no control. Even if it increases sales, there can be no assurance that the
Imaging and Network Services business will achieve a pricing and cost structure
that will generate profits, or that the Company will be able to identify and
acquire appropriate acquisition candidates on favorable terms. Failure of the
Imaging and Network Services business to grow through internal expansion and
favorable acquisitions or to achieve profitability would have a material adverse
effect on the Company's business, financial condition and results of operations.
In addition, if the Imaging and Network Services business is unable to achieve
profitability, it will not realize the federal tax benefit of its $3.9 million
operating loss carryforward at December 31, 1996 which will expire between 2002
and 2011.
Dependence on Contract Placement Business The Company's Contract Placement
business was responsible for 84.4%, 80.3% and 75.0% of total Company revenues
for the years ended December 31, 1994, 1995 and 1996, respectively. In addition,
for the years ended 1995 and 1996, one customer of the Contract Placement
business, Merck, accounted for approximately 8.0% and 10.0% of total Contract
Placement revenues, respectively, and 6.4% and 7.5% of total Company revenues,
respectively. There can be no assurance that the Company will be able to retain
this level of revenue from this client. The ability of the Company to sustain or
increase revenues in the Contract Placement business is
21
<PAGE>
subject to various factors, including its ability to attract and retain
qualified technical consultants, to hire, integrate and retain qualified
managers in existing and new markets and to apply its management practices to a
significantly larger organization. There can be no assurance that the Company
will be able to sustain or increase its Contract Placement revenues.
Furthermore, a decline in the level of Contract Placement revenues would have a
material adverse effect on the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
PART II
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
On June 6, 1997, the Annual Meeting of Shareholders of the Company was held
at the Company's principal place of business. The purpose of the meeting was to
elect directors and to ratify the selection of the independent public
accountants for the Company for the fiscal year ended December 31, 1997. At the
meeting, the shareholders voted as follows to elect the directors to serve until
the Company's next Annual Meeting of Shareholders:
Nominee In Favor Against Abstain
- ------- ---------- ------- -------
Randolph J. Angermann 10,150,224 0.0 12,089
Michael A. Dunn 10,149,964 0.0 12,349
James C. Hahn 10,150,224 0.9 12,089
Martin E. Judge, Jr. 10,128,464 0.0 33,849
Richard T. Furlano 10,149,954 0.0 12,359
In the vote to ratify the appointment of Rudolph, Palitz LLP as the Company's
independent public accountants, 10,124,597 shareholders voted in favor of
ratification, 26,988 shareholders voted against ratification and 718
shareholders abstained.
ITEM 6. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following exhibits are filed as a part of this Quarterly Report on Form
10-Q.
Exhibit No. Description of Document
2.1 Agreement and Plan of Merger, among the Company, Judge
Acquisition, Inc. and Judge Imaging Systems, Inc. Incorporate by
reference to Exhibit 2.1 to the Registrant's Form S-4 (File No.
333-13753) originally filed on October 9, 1996, as amended.
3.1 Amended and Restated Articles of Incorporation. Incorporated by
reference to Exhibit 3.1 of the Registrant's Form S-1 (File No.
333-13109) originally filed on September 30, 1996, as amended.
3.2 Bylaws. Incorporated by reference to Exhibit 3.2 of the Form
S-1.
4.2 Form of common stock certificate for Company Common Shares.
Incorporated by reference to Exhibit 4.2 of the Form S-1.
4.3 Fourth Amended and Restated Loan and Security Agreement, dated
December 10, 1996, between the Company and PNC Bank, N.A.
Incorporated by reference to Exhibit 4.3 to the Form S-1.
11.1 Statement re Computation of Earnings Per Share.
27.1 Financial Data Schedule.
No reports were filed by the Registrant on Form 8-K during the quarter
ended June 30, 1997.
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,
Dated: August 14, 1997
THE JUDGE GROUP, INC. THE JUDGE GROUP, INC.
By: /s/ Jeffrey J. Andrews By: /s/ Martin E. Judge, Jr.
-------------------------- ---------------------------
Jeffrey J. Andrews Martin E. Judge, Jr.
Chief Financial Officer Chairman of the Board and
Chief Executive Officer
23
<PAGE>
EXHIBIT INDEX
Exhibit No. Description of Document
11.1 Statement re Computation of Earnings Per Share.
27.1 Financial Data Schedule.
24
<PAGE>
EXHIBIT 11.1
COMPUTATION OF EARNINGS PER SHARE (1)
Three Months Ended June 30,
1997 1996
---------- ---------
Primary
Weighted average common shares outstanding 13,348,000 8,588,000
========== =========
Net income after adjustment for preferred
dividends earned on JIS stock $907,864 $412,139
========== =========
Primary net income per common share $ 0.07 $ 0.05
========== =========
Fully diluted:
Weighted average common shares outstanding 13,348,000 9,114,000
========== =========
Net income after adjustment for preferred
dividends earned on JIS stock and interest
expense on convertible debentures $907,864 $419,635
========== =========
Fully diluted net income per common share $ 0.07 $ 0.05
========== =========
(1) All per share and share amounts reflect a 52.6 for 1.0 stock split which
occurred on September 23, 1996.
<PAGE>
EXHIBIT 11.1
COMPUTATION OF EARNINGS PER SHARE (1)
Three Months Ended June 30,
1997 1996
---------- ---------
Primary
Weighted average common shares outstanding 12,164,000 8,588,000
========== =========
Net income after adjustment for preferred
dividends earned on JIS stock $641,413 $163,626
========== =========
Primary net income per common share $ 0.05 $ 0.02
========== =========
Fully diluted:
Weighted average common shares outstanding 12,295,000 9,114,000
========== =========
Net income after adjustment for preferred
dividends earned on JIS stock and interest
expense on convertible debentures $641,413 $178,626
========== =========
Fully diluted net income per common share $ 0.05 $ 0.02
========== =========
(1) All per share and share amounts reflect a 52.6 for 1.0 stock split which
occurred on September 23, 1996.
<PAGE>
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS CONTAINED IN THE JUDGE GROUP, INC. QUARTERLY REPORT
ON FORM 10-Q FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 8,044,644
<SECURITIES> 0
<RECEIVABLES> 17,134,015
<ALLOWANCES> 850,000
<INVENTORY> 557,232
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<TOTAL-COSTS> 48,172,834
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<LOSS-PROVISION> 204,936
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<INCOME-PRETAX> 1,315,497
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<INCOME-CONTINUING> 641,414
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