================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended December 31, 1997
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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 (IRS Employer Identification No.)
of Incorporation or Organization)
TWO BALA PLAZA, SUITE 800
BALA CYNWYD, PENNSYLVANIA 19004
------------------------------------------------------------
(Address of principal executive offices, including zip code)
(610) 667-7700
----------------------------------------------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of each exchange on which registered
------------------- -----------------------------------------
None
Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, $0.01 Par Value NASDAQ Stock Market
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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of March 23, 1998, the approximate aggregate market value of the
voting stock held by non-affiliates of the Registrant was $67,221,210 based on
the closing sales price of $5.00 of the Registrant's Common Stock on the NASDAQ
Stock Market.
As of March 23, 1998, 13,444,242 shares of the Registrant's Common
Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the annual meeting of the
Registrant to be held during 1998 are incorporated by reference in Part III.
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<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington. D.C. 20549
PART I
IN ADDITION TO HISTORICAL INFORMATION, THIS ANNUAL REPORT ON FORM 10-K
CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES THAT
COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY. FACTORS THAT MIGHT CAUSE OR
CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED
IN THE SECTION ENTITLED "MANAGEMENT'S DISCUSSION AND ANALYSIS -- FORWARD LOOKING
INFORMATION." READERS SHOULD CAREFULLY REVIEW THE RISKS DESCRIBED IN THIS AND
OTHER DOCUMENTS THAT THE COMPANY FILES FROM TIME TO TIME WITH THE SECURITIES AND
EXCHANGE COMMISSION, INCLUDING THE QUARTERLY REPORTS ON FORM 10-Q TO BE FILED BY
THE COMPANY IN 1998. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THE
FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY TO THE DATE OF THIS ANNUAL REPORT
ON FORM 10-K. THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY RELEASE ANY
REVISIONS TO THE FORWARD-LOOKING STATEMENTS OR REFLECT EVENTS OR CIRCUMSTANCES
AFTER THE DATE OF THIS DOCUMENT.
ITEM 1. BUSINESS.
INTRODUCTION
The Judge Group, Inc. (the "Company") was incorporated in June 1970.
The Company completed its initial public offering (the "Offering") on February
20, 1997. Pursuant to the Offering, the Company sold to the public 3,000,000
previously unissued shares of Common Stock, $0.01 par value, of the Company
("Common Shares") and certain shareholders of the Company sold to the public
650,000 Common Shares then owned by them.
In contemplation of the Offering, among other things the Company: (i)
executed certain reorganizational events, including a 52.6 for 1.0 stock split
and the issuance of 526,000 Common Shares upon the conversion of $500,000
principal amount of the Company's 10% Convertible Senior Subordinated Notes (the
"Convertible Notes), (ii) entered into an Agreement and Plan of Merger with
Judge Imaging Systems, Inc., ("JIS") and Judge Acquisition, Inc. whereby JIS
would be merged into Judge Acquisition, Inc. contemporaneously with the Offering
and Judge Acquisition, Inc. changed its name to Judge Imaging Systems, Inc., and
(iii) acquired The Berkeley Associates Corp. ("Berkeley") and Systems
Automation, Inc. ("Systems Automation"). The following discussion should be read
in conjunction with the consolidated financial statements of the Company and the
notes thereto appearing elsewhere in this Report on Form 10-K (the "Report"),
which are hereby incorporated by reference.
<PAGE>
GENERAL
The Company services the Information Technologies ("IT") and
engineering needs of its clients through the following four complementary
operating units:
o Contract Placement Provides IT and engineering personnel ("technical
consultants") on a contract basis;
o Permanent Placement Provides IT and engineering personnel on a
permanent basis;
o Information Provides document management,
Management Services document conversion, computer
networking, imaging, workflow and related
consulting services; and
o IT Training Provides standard and customized IT
training on established and emerging software
applications.
The Company's Contract Placement business provides technical
consultants skilled in a variety of fields, such as applications programming and
development, client/server technology, legacy systems conversion, software
architecture and design, data communications, systems engineering,
Internet/Web-Site design, project consulting, project management, and Help Desk
management. The Company provides technical consultants in the MidAtlantic and
New England regions of the United States through five branch offices, and on a
nationwide basis through its National Division. The Company maintains a database
of over 125,000 technical consultants, and in 1997 provided over 1,500 technical
consultants to approximately 480 clients.
The Company's Permanent Placement business provides medium to
high-level IT and engineering professionals on a permanent basis to clients
nationwide. The Company maintains a database of over 90,000 IT and engineering
professionals, and in 1997 placed 679 candidates with more than 385 clients.
The Company's Information Management Services business offers advanced
technical solutions to increase the efficiency of business processes, such as
business process analysis and redesign, work automation, document management
systems design, integration, implementation, maintenance, Internet development
and training, project management, and advanced applications development. The
Company is a value-added reseller and service facility for PC and network
hardware, software and related peripherals manufactured by Compaq Computer
Corp., ACER America Corp., International Business Machines, Apple Computer,
Inc., Hewlett Packard Co. and others. The Company is a value-added reseller of
Optika, Filenet, PCDOCS, Saros(C), Greenbar, Watermark, Keyfile, OTG and Lotus
Notes, and integrates its imaging solutions on a variety of operating systems,
including Banyan(R), Unix and Windows NT.
The Company's IT Training business, acquired in September 1996,
provides training on a range of software and network applications to corporate,
governmental and individual clients. The IT Training business currently offers
four licensed diploma courses, ten certificate courses, and over 130
open-enrollment courses, either in its own computer labs or at client locations.
Besides expanding the Company's range of technical service offerings, the IT
Training business will assist the Company in identifying emerging technologies
and integrating such technologies into its organization through the training of
its technical consultants and in-house personnel.
The Company serves its clients through offices located in Bala Cynwyd,
Pennsylvania; Edison and Moorestown, New Jersey; New York, New York; Hartford,
Connecticut; Foxborough and Wakefield, Massachusetts; Tampa, Florida;
Alexandria, Virginia; and Walled Lake, Michigan. The Company's client base
includes various Fortune 500 companies and governmental agencies, including
Merck & Company, Inc., Texas Instruments, Inc., Compaq Computer Corp., Intel
Corp. and the City of Philadelphia.
2
<PAGE>
SERVICES
CONTRACT PLACEMENT
The Company provides IT, engineering and professional consultants on a
contract basis to organizations with complex technology and staffing needs
regionally through its offices in Bala Cynwyd, Pennsylvania; Foxborough,
Massachusetts; Edison, New Jersey; New York, New York and Alexandria, Virginia,
and nationally through its National Division in Foxborough. The Company expects
its Foxborough regional office to move to Needham, Massachusetts in April 1998
in order to better service businesses in the Route 128 corridor in Metropolitan
Boston. The Company maintains a database of over 125,000 technical consultants,
and in 1997 placed over 1,500 consultants with approximately 480 clients.
Typical engagements range in duration from six to twelve months, though some of
the Company's technical consultants have been performing services for its
clients for a period of more than five years. The Company's technical
consultants and independent contractors often work jointly with clients'
in-house IT personnel. The Company's Contract Placement business, founded in
1986, generated revenue of $50.8 million, $61.7 million and $70.4 million in
fiscal 1995, 1996 and 1997 which represented 80.3%, 75.0%, and 71.4% of the
Company's consolidated net revenues in those periods, respectively. The Company
periodically experiences diminished revenue growth in the fourth quarter due to
the effect of the Thanksgiving and Christmas holidays. Further, revenues can be
depressed in the first quarter due to the effect of winter weather which can
prevent contractors from billing hours and profitability is usually depressed
during this period due to the payment by the Company of employment taxes.
The majority of the Company's Contract Placement business is derived
from providing technical consultants skilled in IT and software engineering. In
addition to staff augmentation, the Company has recently begun to provide
project consulting services, which can include project management, workflow
analysis, database design, custom applications and systems integration. In a
project management engagement, which is usually priced on a fixed fee basis, the
Company will typically oversee an entire IT project from inception to
completion, utilizing technical consultants with specialty skills in the
relevant technologies.
The Company seeks to develop new service offerings. Since many IT
systems currently are incapable of recognizing dates subsequent to 1999, the
Company has designed several approaches to assist clients in re-engineering
their IT systems and databases to accommodate the year 2000 and beyond. The
Company also utilizes the Consulting Services Division group of the Information
Management Services business to assist their clients in achieving their business
goals through optimization of technology. In addition, the Company has expanded
the type of skilled personnel its Contract Placement business is capable of
providing to such diverse areas as finance, life sciences, desktop publishing,
PC support and help desk, and human resources. In 1997, the Company also focused
its efforts on attracting and placing contractors with more specialized skills
thereby enabling the Company to achieve higher margin placements. Furthermore,
as it has done in the past, the Company will continue to leverage its Contract
Placement capabilities by providing technical consultants to assist in the
implementation and operation of systems installed by its Information Management
Services business.
The Company established its National Division in Foxborough,
Massachusetts in 1991 to provide engineering personnel on a contract basis
nationwide. The Company has expanded its national efforts to include placement
of IT as well as engineering professionals. Revenue attributable to the National
Division was $8.9 million, $10.8 million, and $11.3 million in 1995, 1996 and
1997, respectively.
3
<PAGE>
PERMANENT PLACEMENT
The Company's Permanent Placement business provides medium to
high-level IT and engineering professionals nationwide through its regional
offices in Bala Cynwyd, Pennsylvania; Edison, New Jersey; and Tampa, Florida. A
significant portion of the Company's engineering placements are in food related
industries and, to a lesser extent, the pharmaceutical industry. The Company
maintains a database of over 90,000 engineering and IT applicants, and in 1997
it placed 679 professionals with more than 385 clients. As compensation for its
service, the Company receives a fee based on a percentage of each placed
professional's first year salary, subject to forfeitures if the placed
professional leaves such position during a standard guarantee period of thirty
days. The Permanent Placement business, founded in 1970, generated revenues of
$4.3 million, $5.9 million and $8.6 million in 1995, 1996 and 1997, representing
6.7%, 7.1% and 8.7% of total Company revenues for those periods, respectively.
INFORMATION MANAGEMENT SERVICES
The Company provides various document management, document conversion,
networking, imaging, workflow and related consulting services through regional
offices in Bala Cynwyd, Pennsylvania; Moorestown and Edison, New Jersey; New
York, New York; Hartford, Connecticut; Tampa, Florida; and Wakefield,
Massachusetts. The Information Management Services business, which began
operations in 1988, generated revenue of $8.2 million, $14.2 million and $16.4
million in fiscal 1995, 1996 and 1997, respectively, which represented 13.0%,
17.2% and 16.7% of the Company's consolidated net revenues. In 1997, sales of
tangible products by this business accounted for 7.8% of total consolidated
revenues.
The Company is a value-added reseller and service facility for PC and
network hardware, software and related peripherals for a variety of
manufacturers and provides a full range of installation, training, maintenance,
repair and network integration services. In addition, the Company assembles,
sells and services its own private-label PC products.
The Company sells and installs high-end, mid-range and low-end imaging
systems, complementary software and database products and the technical
engineering services necessary to deliver a "turn key" imaging system. The
Company offers its customers hardware and software maintenance, support and
training. The Company implements Optika Imaging Systems, Inc. software in
Banyan(R), and Windows NT environments and is currently a value-added reseller
of a variety of other imaging software systems. In addition, certain Company
personnel have been certified by the Document Imaging Association, the only
certification available in the document management industry. The Company
integrates its imaging software solutions on hardware manufactured by
International Business Machines, Compaq Computer Corp., Hewlett-Packard Co. and
SunMicrosystems, Inc. operating under Windows NT and Unix operating systems.
Through the Company's Consulting Services Division, it seeks to provide
its clients with due diligence, analysis planning and design services for IT
projects through process analysis, redesign and enabling technology
implementation. The Company believes that a thorough understanding of a clients'
existing IT system and work processes is necessary to the design of an optimal
network and/or document management system. In 1996, the Company introduced its
MENTOR Consulting Program, a Methodology for Evaluating New Technology and
Organizational Redesign ("MENTOR(TM)"), to provide clients with a framework for
selecting such a system. Under the MENTOR(TM) program the Company assigns senior
level, multiple disciplinary study teams to evaluate the client's operations
from technology, financial and overall business perspectives. This analysis
includes a review of the architecture, security and limitations of the client's
current IT system as well as the client's personnel and culture. Upon completion
of this analysis, the Company presents the client with a detailed set of
technological and work process recommendations.
The Company assists clients in designing a technology infrastructure
that will support the client's interrelated strategic business objectives and IT
needs. Design services include selection of viable systems components, creation
of migration plans from the existing to the proposed system and integration of
systems, networks, applications and databases. In those instances where the
network or imaging software solution selected by the client does not completely
meet its application requirements, the Company's Advanced Development Group
provides custom application development.
The Company is capable of providing all of the necessary technical
personnel to implement each networking or document management solution, often
drawing on the technical consultant resources of its Contract Placement
business. The Company's internal staff of network engineers is certified by
Novell, Banyan(R) and Microsoft to perform installation, maintenance and
training in their network operating system platforms. The Company also can
provide backfile conversion of paper, microfilm and microfiche as part of the
integrated new document management system or as a stand alone service.
4
<PAGE>
TRAINING
The Company's IT Training business, acquired in September 1996,
provides training to client companies and trainees in a variety of software and
network applications and generated revenue of $608,000 in the fourth quarter of
fiscal 1996 and $3.2 million in fiscal 1997, which represented 0.7% and 3.2% of
the Company's consolidated net revenues during such periods. The IT Training
business provides these services at its facilities in Bala Cynwyd, Pennsylvania
and Alexandria, Virginia, and at various off-site locations. The Company is an
authorized training center for many major software manufacturers, including
Microsoft, Adobe Systems Incorporated, Quark, Inc., Corel Corporation, and
Claris Corporation, and is also an approved Apple Training Alliance Center,
Microsoft Solutions Provider and Microsoft Advanced Technical Education Center.
The Company's diploma programs in Desktop Publishing, Business Software,
Multimedia and Internet are licensed and accredited by the Pennsylvania Board of
Private Licensed Schools and are approved for veteran's education by the U.S.
Veteran's Administration. The Company also offers six certificate programs,
often geared toward retraining mid-career workers in new technology
applications, and 130 open-enrollment courses. The Company maintains fourteen
computer labs in its Bala Cynwyd, Pennsylvania facility and four computer labs
in its Alexandria, Virginia facility. In addition, the Company frequently
conducts its courses at the in-house facilities of its corporate clients and has
the ability to provide the necessary computer equipment at conference centers,
hotels and other off-site locations as requested by its clients.
5
<PAGE>
INTELLECTUAL PROPERTY
While the Company does not own any patents, or registered copyrights or
trademarks, it routinely enters into non-disclosure and confidentiality
agreements with employees, contractors, consultants and customers. Licenses for
a number of software products have been granted to the Company for its own use
or for remarketing to its customers. In the aggregate, these licenses are
material to the business of the Company, but the Company believes that the loss
of any one of these licenses would not materially affect the Company's results
of operations or financial position.
CUSTOMERS
The primary industries served by the Company include financial
services, manufacturing, software/computers, government, and pharmaceutical. In
1997, no customer accounted for more than 10% of the Company's consolidated
revenues.
COMPETITION
The IT professional services industry is highly competitive and
fragmented on the local, regional and national levels. The Company believes that
some of its competitors are beginning to offer the full range of technical
staffing, imaging, document management, consulting and training services that
the Company currently provides. In addition, many companies offer one or two of
the Company's services in all of the geographical markets in which the Company
currently operates. Many of the Company's competitors have significantly greater
name recognition and financial, technical and other resources and generate
greater revenues and profits than the Company.
Contract and Permanent Placement. Within any given geographical or
technical specialty market, the Company competes for clients with other IT,
engineering and professional service providers, outsourcing and consulting
companies, systems integrators and, to a lesser extent, temporary personnel
agencies. The majority of the competition is made up of smaller local and
regional firms with a strong presence in their local markets and occasionally
with a nationally franchised firm. The principal competitive factors for
obtaining and retaining clients include: the ability to match technical
consultant skills and personality with the client's requirements and culture;
expertise of its technical consultants; price; client satisfaction; and overall
responsiveness to client needs. The Company competes for technical consultants
with other professional services providers, outsourcing and consulting
companies, systems integrators, temporary personnel agencies and client
companies. The principal competitive factors for recruiting and retaining
technical consultants include compensation, availability and quality of
benefits, consistent flow of high quality, varied assignments and an
understanding of consultant skills and work preferences.
Information Management Services. The information management services
market is intensely competitive and subject to rapid technological change. In
order to compete effectively, the Company needs to continually enhance its
current product and service offerings and expand its professional services
capabilities. The Company currently competes principally on the basis of its
reputation, the breadth of its product line and services, including the ability
to sell document management solutions responsive to each client's applications
needs and budgetary constraints, provide consulting and conversion services, and
the quality, ease of use, reliability and performance of the systems it offers.
As there are relatively low barriers to entering the imaging marketplace, the
Company expects additional competition from emerging companies as the market
expands. In addition, the market includes participants in a variety of market
segments, including systems consulting and integration firms such as F.Y.I. Inc.
and Lanier Worldwide Inc., professional services companies, applications
software firms, temporary employment agencies, the professional service groups
of companies such as International Business Machines and Digital Equipment
Corporation, facilities management and MIS outsourcing companies, certain
multi-national accounting firms, and general management consulting firms.
IT Training. Within the IT training industry, there is competition
among the available training methods, such as instructor-led training versus
computer-based training. Within the instructor-led training segments, some of
the major software and equipment manufacturers maintain their own training
programs for both internal training and public training. The Company believes
its established library of courses and proprietary course materials that can be
updated (or customized for a particular customer) provide it with a competitive
advantage. Moreover, the Company believes that the diversity of its course
offerings, the quality of its personnel, its multiple training locations, its
flexibility in the locations at which it provides its services and its ability
to recognize emerging technologies and develop the requisite courses responsive
thereto, permit it to remain competitive with others in the marketplace. The
Company competes in the IT training business on the basis of its pricing,
perceived quality and breadth of course offerings.
6
<PAGE>
REGULATION
The Company's operations, as currently conducted, are subject to
governmental regulation in the State of New Jersey, where the Company's
Permanent Placement business is a licensed employment agency, and its Contract
Placement business has registered with the Temporary Help Service Section of the
Bureau of Employment and Personnel Services, a component of the Division of
Consumer Affairs of the Department of Law and Public Safety and in Massachusetts
where its Contract Placement business is registered as a service firm with the
Department of Labor and Workforce Development. Compliance with such New Jersey
and Massachusetts regulations has not and is not expected to have a material
effect on the Company's business. The Company is unaware of any other
jurisdictions in which its operations are subject to material governmental
regulation.
All the jurisdictions in which the Company operates its training
centers regulate and license certain kinds of vocational, trade, technical or
other post-secondary education. The Company believes that employer-funded or
reimbursed IT training is exempt from such requirements in many of these states.
The Company is licensed in each jurisdiction in which it operates training
centers.
If the Company were found to be in violation of a state's licensing or
other regulatory requirements, it could be subject to civil or criminal
sanctions, including monetary penalties. No state educational or regulatory
authority has cited the Company or commenced any proceeding against it for the
violation of any licensing or other vocational educational requirement.
EMPLOYEES
As of December 31, 1997, the Company had 309 full time employees. On
that date, there were also approximately 810 IT consultants working on full-time
assignments for the Company's clients, of which approximately 88% were treated
as employees of the Company and 12% were treated as independent contractors for
federal and state tax purposes. The Company is not a party to any collective
bargaining agreements and considers its relationships with its employees to be
good.
7
<PAGE>
RECENT TRANSACTIONS
In 1997, the Company completed its Offering and its merger of JIS into
the Company, and in 1998 acquired an IT staffing company in Detroit, Michigan.
JIS Merger. As a condition to the completion of the Offering, the
Company acquired JIS in a merger (the "Merger") in which JIS merged into a newly
organized, wholly-owned subsidiary of the Company ("Judge Acquisition"). Judge
Acquisition was the surviving corporation in the Merger and changed its name to
"Judge Imaging Systems, Inc." effective February 20, 1997. This subsidiary is
now doing business as "Judge Information Management Solutions." As a result of
the Merger, JIS has become a wholly-owned subsidiary of the Company. The Merger
was approved by the shareholders of JIS at a Special Meeting held on January 17,
1997. As consideration, each share of JIS common stock or Series A preferred
stock, other than shares owned by the Company, outstanding at the time of the
Merger were converted into .333 Common Shares of the Company, which
consideration is equal to $2.50 divided by the initial public offering price.
All JIS shares owned by the Company were canceled.
At December 31, 1996, JIS had approximately 3,991,841 and 822,628
shares of common stock and Series A preferred stock outstanding, respectively.
The Company issued approximately 1,194,230 Common Shares in the Merger,
representing approximately 8.9% of the total number Common Shares outstanding
after the Offering. Prior to the Merger, the Company owned approximately 25.6%
of JIS's fully-diluted outstanding common stock (calculated after giving effect
to the conversion of the outstanding Series A preferred stock of JIS into its
common stock). Mr. Judge, the Company's Chief Executive Officer and Chairman,
beneficially owned an additional 34.1%, and other officers and directors of the
Company beneficially owned an additional 3.7% of JIS's fully-diluted outstanding
common stock. See "Certain Transactions."
In accordance with Accounting Principles Board Opinion No. 16 and
related literature, the exchange of the majority of the shares of JIS, which
were owned by the Company, Martin E. Judge, Jr. or other owners of Company
securities, was accounted for as a corporate reorganization of entities under
common control at historical cost, similar to pooling accounting. However, the
exchange of the remaining JIS shares (the "minority interest") was accounted for
in accordance with "purchase accounting" whereby the pro rata portion of JIS's
assets and liabilities as of February 20, 1997 were recorded at their fair
values. The excess of the value of the Company's Common Shares issued in
exchange for the "minority interest" shares over the fair value of the net
assets attributable to the minority interest was recorded as goodwill.
Information Solutions, Inc. On March 5, 1998, the Contract Staffing
business purchased substantially all of the assets of Information Solutions,
Inc. ("ISI") and ISI Systems, Inc. ("ISI Systems") pursuant to an Asset Purchase
Agreement dated as of March 5, 1998 among JTS, ISI, ISI Systems and John Runyon,
the sole stockholder of both ISI and ISI Systems. ISI and ISI Systems were
engaged in the permanent and contract placement businesses. The purchased assets
consisted, among other things, of customer and supplier contracts, accounts
receivable, tangible personal property and goodwill. The purchase price paid by
JTS to ISI and ISI Systems was (i) $3,932,400 cash which was derived from the
remaining proceeds of the registrant's initial public offering in February 1997
and from working capital, (ii) 100,000 shares of the unregistered common stock
of the registrant (plus possible additional cash consideration to the extent
that the market value of such common stock on March 5, 1999 is less than $15 per
share), (iii) subordinated promissory notes in the principal amount of $640,000
and (iv) an earnout of a minimum of $250,000 and a maximum of $750,000 to be
paid pursuant to a subordinated promissory note. The registrant guaranteed JTS'
obligations to pay the purchase price to ISI and ISI Systems. There was no
material relationship between registrant and any of the principals of ISI or ISI
Systems.
8
<PAGE>
ITEM 2. PROPERTIES
The Company does not own any real property. The Company has leased
offices in the following locations:
<TABLE>
<CAPTION>
SERVICES OFFERED AS OF
OFFICE SQUARE FEET LEASE EXPIRATION DECEMBER 31, 1997
------ ----------- ---------------- -----------------
<S> <C> <C> <C>
Bala Cynwyd, Pennsylvania 36,200 October 31, 2002 Contract Placement; Information
Management Services; Permanent
Placement; IT Training
Foxborough, Massachusetts 7,100 April 30, 2000 Contract Placement
Moorestown, New Jersey 12,800 October 31, 2000 Information Management Services
Edison, New Jersey 4,700 March 1, 2000 Subleased to third party
11,800 February 28, 2006 Contract Placement; Permanent
Placement; Information Management
Services
Alexandria, Virginia 3,900 December 31, 2000 Contract Placement, IT Training
Wakefield, Massachusetts 3,500 Month to Month Information Management Services
Hartford, Connecticut 3,200 June 15, 2000 Information Management Services
Tampa, Florida 6,500 June 30, 2003 Permanent Placement*
Needham, Massachusetts 7,800 May 31, 2005 Contract Placement, Permanent
Placement**
New York, New York 13,050 April 30, 2008 Contract Placement, Information
Management Services***
Walled Lake, Michigan 4,000 August 31, 1998 Contract Placement****
</TABLE>
* Lease renewed; Contract Placement expected to expand to this office in
1998.
** Lease commences on or about April 15, 1998.
*** Lease commences May 1, 1998.
**** Acquired on March 5, 1998.
9
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in legal proceedings from time to time in the
ordinary course of business. As of the date of this Report, there are no legal
proceedings pending against the Company which management believes will have a
material adverse effect on the Company's financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders of the Company,
through the solicitation of proxies or otherwise, during the fourth quarter of
the fiscal year ended December 31, 1997.
For the purposes of calculating the aggregate market value of the
shares of common stock of the Company held by nonaffiliates, as shown on the
cover page of this Report, it has been assumed that all the outstanding shares
were held by nonaffiliates except for the shares beneficially owned by directors
and executive officers of the Company. However, this should not be deemed to
constitute an admission that all directors and executive officers of the Company
are, in fact, affiliates of the Company, or that there are not other persons who
may be deemed to be affiliates of the Company. Further information concerning
shareholdings of officers, directors and principal shareholders is included in
the Company's definitive proxy statement filed or to be filed with the
Securities and Exchange Commission.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Martin E. Judge, Jr. 53 Chief Executive Officer
Richard T. Furlano 48 President; President, Judge Technical Services, Inc.
Michael A. Dunn 49 Executive Vice President; President, Judge, Inc.
Jeffrey J. Andrews 46 Chief Financial Officer and Treasurer
Katharine A. Wiercinski 37 Vice President and Secretary
</TABLE>
All of the above-mentioned officers, with the exception of Mr. Andrews,
have been employed by the Company in various capacities during the past five
years. Mr. Andrews was elected to his current position with the Company in May
1996. Previously, Mr. Andrews was an independent financial advisory consultant
from September 1995 until May 1996, and served as Controller for Godwin Pumps of
America (a manufacturer of industrial pumps) from September 1994 to August 1995.
From April 1993 to August 1994, Mr. Andrews was a Manager for Ernst & Young,
LLP, and prior to that time, was the President and sole shareholder of Andrews
Associates, an investment banking firm.
10
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.
The Company's Common Shares are traded on the The Nasdaq National Stock
Market under the symbol JUDG. The Company's Common Shares began trading on
February 14, 1997. Prior to that date, there was no market for the Company's
Common Shares. The closing quotation for the Company's Common Shares on February
14, 1997 was $7.625 and on March 23, 1998 was $5.00. At March 23, 1998, there
were 172 shareholders of record of the Company's Common Shares. Because many of
such shares are held by brokers and other institutions on behalf of
shareholders, the Company is unable to estimate the total number of shareholders
represented by these record holders. The following table sets for the high and
low sales price per share of the Company's Common Shares for the periods
indicated:
Price Range
-----------
Fiscal 1997 High Low
---- ---
First Quarter (since February 14) $ 7.625 $ 3.25
Second Quarter $ 5.75 $ 3.00
Third Quarter $ 7.125 $ 5.00
Fourth Quarter $ 7.25 $ 4.75
The Company has never paid any cash dividends on its Common Shares and
does not anticipate paying cash dividends on its Common Shares in the
foreseeable future and is restricted from doing so under the terms of its
primary credit facility. The Company is a holding company, and the operations of
the Company are conducted through its subsidiaries. Accordingly, the ability of
the Company to pay dividends on its Common Shares is dependent on the earnings
and cash flow of its subsidiaries and the availability of such cash flow to the
Company.
11
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated operating
statement and balance sheet data for the periods indicated. The selected
consolidated operating statement and balance sheet data at and for each of the
five fiscal years presented below are derived from the Company's Consolidated
Financial Statements, of which the years ended December 31, 1997, 1996, 1995,
1994 and 1993 have been audited by Rudolph, Palitz LLP, independent accountants.
This data should be read in conjunction with management's discussion and
analysis of financial condition and results of operations and the Company's
Consolidated Financial Statements included herein.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
STATEMENT OF OPERATIONS 1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
(In Thousands, except per share data)
Net revenues $ 98,526 $ 82,371 $ 63,299 $ 45,253 $ 35,069
Cost of sales (Exclusive of items shown
separately below) 70,300 60,121 47,550 34,146 26,070
Selling and operating 15,396 14.344 9,798 6,509 5,853
General and administrative 8,299 6,047 4,187 3,155 2,525
-------- -------- -------- -------- --------
Total costs and expenses 93,995 80,512 61,535 43,810 34,448
-------- -------- -------- -------- --------
Income from operations 4,531 1,859 1,764 1,443 621
Interest income (expense), net 72 (876) (670) (427) (338)
Other income (expense) 29 4 (27) 7 4
-------- -------- -------- -------- --------
Income before income taxes 4,632 987 1,067 1,023 287
Income tax expense 1,920 968 588 680 228
Minority interest (income) 0 (888) (7) 0 0
Cumulative effect change 0 0 0 0 42
-------- -------- -------- -------- --------
Net income $ 2,712 $ 907 $ 486 $ 343 $ 101
======== ======== ======== ======== ========
Diluted net income per Common Share(1)(2)
Income before cumulative effect adjustment $ 0.21 $ 0.10 $ 0.06 $ 0.04 $ 0.01
Cumulative effect adjustment 0.00 0.00 0.00 0.00 0.00
------ ------ ------ ------ ------
$ 0.21 $ 0.10 $ 0.06 $ 0.04 $ 0.01
====== ====== ====== ====== ======
Diluted weighted average shares(1)(2) 12,826 9,114 9,114 8,851 8,500
====== ===== ===== ===== =====
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------
BALANCE SHEET DATA: 1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
(Dollars in thousands)
Working capital (deficiency) $ 18,525 $ 8,253 $ 5,567 $ 329 $ (608)
Total assets 31,934 21,969 11,632 8,017 5,687
Notes payable, including current portion(3) 0 10,161 5,368 2,749 2,499
Other long-term obligations, including
current portion 355 3,105 1,755 2,030 961
Shareholders' equity (deficit) 26,274 1,122 391 (95) (438)
</TABLE>
(1) All per share and share amounts reflect a 52.6 for 1.0 stock split which
occurred in September 1996.
(2) Fully-diluted shares include common stock equivalents and 526,000 Common
Shares issuable upon conversion of the Company's Convertible Notes.
(3) Includes line of credit and term loan.
13
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements of the Company and related notes thereto
appearing elsewhere in this Report.
IN ADDITION TO HISTORICAL INFORMATION, THIS ANNUAL REPORT ON FORM 10-K
CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES THAT
COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY. FACTORS THAT MIGHT CAUSE OR
CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED
IN THE SECTION ENTITLED "MANAGEMENT'S DISCUSSION AND ANALYSIS -- FORWARD LOOKING
INFORMATION." READERS SHOULD CAREFULLY REVIEW THE RISKS DESCRIBED IN THIS AND
OTHER DOCUMENTS THAT THE COMPANY FILES FROM TIME TO TIME WITH THE SECURITIES AND
EXCHANGE COMMISSION, INCLUDING THE QUARTERLY REPORTS ON FORM 10-Q TO BE FILED BY
THE COMPANY IN 1998. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THE
FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY TO THE DATE OF THIS ANNUAL REPORT
ON FORM 10-K. THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY RELEASE ANY
REVISIONS TO THE FORWARD-LOOKING STATEMENTS OR REFLECT EVENTS OR CIRCUMSTANCES
AFTER THE DATE OF THIS DOCUMENT.
OVERVIEW
The Company derives its revenues from the provision of contract and
permanent IT, engineering and professional personnel, document management,
document conversion, networking, imaging, and workflow services and IT training.
Components of cost of sales differ depending on the type of service or product
supplied, and may include salaries, as well as hardware and software costs, but
do not include depreciation and amortization expenses. Selling and operating
expenses consist primarily of salaries and fringe benefits for selling
representatives, and also include marketing expenditures and bad debt charges.
General and administrative expenses consist of management and administrative
salaries and related fringe benefits, as well as other overhead, such as rent
and depreciation. In the Information Management Services business, general and
administrative expenses also included $46,631 of payroll costs for advanced
development programmers in fiscal year 1995. During fiscal 1996, the Company
included $400,658 of payroll costs related to consultants and advanced
development programmers in this business' general and administrative expenses.
In 1997, the Information and Management Services business incurred $500,440 of
these costs which were charged to costs of sales.
Revenue in the Company's Contract Placement business is derived from
professional service activities, primarily the placement of skilled IT,
engineering and professional personnel whose work is billed at an hourly rate.
Engagements of the Company's technical consultants typically last from six to
twelve months and the Company bills clients and recognizes revenue on a weekly
basis. Revenues are directly related to the total number of hours billed to
clients and the associated hourly billing rates. Hourly billing rates are
established for each technical consultant based on the technical consultant's
skills, experience and the type of work performed. Revenues in the Company's
Contract Placement increased from $27.5 million in 1993 to $70.4 million in
1997, or approximately 26.4% per year on average. Revenues for the year ended
December 31, 1997 were $70.4 million, compared to $61.7 million for the prior
year period, an increase of 14.0%. Revenue growth has been primarily due to
increases in average billing rates. This growth rate was below the Company's
expectations due to a focus of sales efforts on higher margin placements and
higher than expected turnover of its sales and recruiting staff in the second
half of 1997. Management expects the trend of higher margin placements to
continue. Management also believes it has addressed its internal staffing
issues. The Company believes that the increase in the average billing rates for
its technical consultants has resulted from an increased demand for skilled and
experienced technical consultants and to its intentional focus on making higher
level IT placements. For the year ended December 31, 1997, total hours billed
were 1,500,469, with an average billing rate of $47.13, compared to total hours
billed of 1,540,032 with an average billing rate of $40.09 for the prior year
period. The decrease in total hours billed in 1997 compared with 1996 was due to
a focus of sales efforts on higher margin placements and to a decrease in the
annual billed hours by the Company's National and Regional offices located in
Foxborough, Massachusetts, which decrease was related to unexpected turnover of
sales and recruiting personnel in those offices in the second half of 1997. Cost
of sales in the Contract Placement business consists primarily of the
compensation expenses related to the consultants, such as salaries, fringe
benefits and payroll taxes.
Revenue in the Company's Permanent Placement business is generated from
one time fees received upon successful placements of engineering and IT
professionals with clients. The standard fee arrangement is 1% of each thousand
dollars of salary, up to a maximum of 33% of the professional's first year
salary. Revenue is recognized upon commencement of the employment, subject to
reversal if employment terminates during a 30 to 90 day guarantee period. The
Permanent Placement business placed 679 professionals with an average placement
fee of $12,450 in 1997, compared to 534 professionals placed with an average
placement fee of $10,804 for the prior year period. No cost of sales is recorded
in the Permanent Placement business.
14
<PAGE>
Revenue in the Company's Information Management Services business is
derived from the provision of document management, imaging, networking, workflow
and consulting services and related sales of hardware and software. Revenues are
recorded in the period in which services are rendered and merchandise is
shipped; however, when installation is significant to the completion of the
contract, revenue is recognized on a percentage of completion basis. Cost of
sales consists of computer hardware, software and related licensing fees,
salaries and fringe benefits for design, installation and maintenance personnel,
and overhead expenditures allocated to Information Management Services
activities.
The Information Management Services business currently has two primary
divisions: the NT Client Server and Network Services division and the Document
Management and Imaging Services division, the latter of which contains the
Consulting Services Division. The business was originally formed in 1984 to
provide networking services to educational markets, network design, installation
and maintenance utilizing the Company's private-label PC products. Its NT Client
Server and Network Services division was later expanded to include additional
platforms and peripherals. Like other resellers, this division generates
relatively low operating margins on hardware and software sales which have
accounted for a substantial portion of networking revenues. As such, this
division historically has generated operating losses. Beginning in 1988, the
Company anticipated the emergence of a market incorporating imaging and document
management technology. It entered this market first as a reseller of Optika
Imaging Systems, Inc. software, and later expanded its product line to include
both high production, high-end systems such as Filenet and low-end workflow
imaging systems such as Watermark, Keyfile and Lotus Notes. More recently, the
Company has devoted substantial resources to expand the infrastructure of its
Document Management and Imaging Services division to support sales growth,
including the hiring of numerous consulting, engineering, sales and
administrative personnel since the beginning of 1994. Revenue attributable to
Document Management and Imaging Services division has grown from $5.9 million in
1996 to $8.7 million at December 31, 1997, representing approximately 42.0% and
53.0% of the Information Management Services business total revenue in those
periods, respectively. However, the Company's document management and imaging
activities have generated operating losses to date due to slower than expected
market expansion combined with the substantial investment in infrastructure
development. In addition, this business is subject to long sales cycles which
frequently cause sales to cross into future quarters. In light of this, and the
trend of smaller margins from the NT Client Server and Network Services
division, there can be no guarantee that Information Management Services
business will be profitable in any quarter. Specifically, while revenues
attributable to the Document Management and Imaging Division increased by 46.5%
or $2.8 million in fiscal 1997 compared to fiscal 1996, the Division generated
operating losses of $835,000 and $1,399,000 for December 31, 1996 and 1997,
respectively, representing 81.8% and 86.2% of the total operating losses
experienced by the Information Management Services business as a whole.
The Company currently is focusing on achieving profitability in its
Information Management Services business and expanding it through internal
growth, acquisitions of profitable service companies and new service offerings
such as its MENTOR(TM) Consulting Program and a help desk practice. The Company
made investments in personnel and offices in 1997 such that selling and
operating costs only decreased slightly and general and administration expenses
increased in 1997 compared to 1996. The Company believes that its investment in
infrastructure and personnel could generate further increases in revenues in
this business in the future. While the Company believes that the Information
Management Services business will ultimately achieve profitability, it cannot
predict the timing of such profitability, should it occur at all, and expects to
continue to incur operating losses in this business at least through the second
fiscal quarter of 1998.
If the Company is able achieve its internal operating plan, which
relies upon certain assumptions including, but not limited to, its ability
during the first half 1998, to increase sales and recruiting staffs in the
Contract Placement and Permanent Placement businesses by at least 30%, to
successfully integrate ISI and to consummate additional staffing acquisitions
that are accretive to earnings per share, to achieve profitability in the
Information Management Services business through internal growth and
acquisition(s) of profitable document management and services companies, and to
maintain of cost controls in all of its business, the Company believes it can
increase annual revenues by at least 20% in fiscal 1998 compared to fiscal 1997
and expects its earnings per share to double in fiscal 1998 compared to fiscal
1997. Failure to achieve the aforementioned assumptions as well as other factors
could prevent the Company from achieving these goals in 1998. See "Forward
Looking Information" herein for additional factors which could materially alter
the Company's ability to meet its operational goals in 1998.
15
<PAGE>
The following table presents the net revenue (net of intercompany
eliminations) as a percentage of consolidated net revenues and the income (loss)
from operations attributable to each of the Company's businesses as a percentage
of each business' respective revenues and in dollars for the periods indicated.
(UNAUDITED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
(Dollars in Thousands) 1997 1996 1995
---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net Revenues:
Permanent Placement $ 8,576 8.7% $ 5,871 7.1% $ 4,275 6.7%
Contract Placement 70,357 71.4% 61,735 75.0% 50,804 80.3%
Information Management Services 16,442 16.7% 14,157 17.2% 8,220 13.0%
IT Training 3,151 3.2% 608 0.7% N/A N/A
-------- ------ ------- ----- -------- -----
Consolidated Net Revenues $ 98,526 100.0% $ 82,371 100.0% $ 63,299 100.0%
======== ====== ======== ===== ======== =====
Income (loss) From Operations:
Permanent Placement $ 1,576 18.4% $779 13.3% $ 287 6.7%
===== ====== =====
Contract Placement 6,760 9.6% 4,051 6.6% 2,939 5.8%
==== ===== ====
Information Management Services (1,623) (9.9%) (1,394) (9.8)% (526) (6.4%)
===== ====== ======
IT Training 141 4.5% (25) (4.1)% N/A N/A
==== ====== ===
Corporate Overhead Expense (2,323) N/A (1,552) N/A (936) N/A
------- ==== -------- ====== ---- ===
Consolidated Income (loss) From Operations $ 4,531 4.6% $ 1,859 2.3% $ 1,764 2.8%
======= ==== ======== ====== ======= ======
</TABLE>
In 1995, the Company began to implement a strategy to accelerate its
growth through the addition of new services, geographic expansion and strategic
acquisitions. As part of this strategy in 1997, the Company added sales,
marketing, engineering and operational personnel in its existing seven offices
and opened Contract Placement branch offices in New York, New York and
Alexandria, Virginia. More recently, the Company acquired the assets of ISI in
March 1998.
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:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net Revenues 100.0% 100.0% 100.0%
------ ------ ------
Cost of Sales (Exclusive of items shown separately below) 71.4% 73.0% 75.1%
Selling and Operating 15.6% 17.4% 15.5%
General and Administrative 8.4% 7.3% 6.6%
---- ---- ----
Total Costs and Expenses 95.4% 97.7% 97.2%
---- ---- -----
Income From Operations 4.6% 2.3% 2.8%
Other income (expense), net 0.1% (1.1%) (1.1%)
---- ----- -----
Income Before Income Taxes 4.7% 1.2% 1.7%
==== ===== =====
</TABLE>
16
<PAGE>
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Net Revenues. Consolidated net revenues increased by 19.6%, or $16.2
million, for the year ended December 31, 1997 compared to the prior year period.
Revenue for the Contract Placement business increased by 14.0%, or $8.6 million,
for the year ended December 31, 1997 compared to the prior year period. The Bala
Cynwyd, Pennsylvania and Edison, New Jersey offices contributed $4.5 million and
$2.8 million, respectively, or 85%, of this revenue increase. The Company
attributes revenue growth in its Contract Placement business to a combination of
higher average bill rates and its focus on making higher level IT placements.
Revenue for the Permanent Placement business increased by 46.1%, or $2.7
million, for the year ended December 31, 1997 compared to the prior year period.
Contributing to this increase was revenue of $1.1 million attributable to the
Bala Cynwyd, Pennsylvania office, $800,000 attributable to the Edison, New
Jersey office and $700,000 attributable to the Tampa, Florida office. The
Company attributes this revenue growth to the strong market demand for IT and
engineering professionals, the quality of its candidates, a 33% increase in the
number of recruiters in 1997 compared with 1996 and greater placement
productivity per recruiter. Revenue for the Information Management Services
business increased by 16.1%, or $2.3 million, for the year ended December 31,
1997 compared to the prior year period. Of this increase, $2.8 million was
attributable to the Document Management and Imaging Systems Division offset by a
decrease in revenue of $500,000 from the NT Client Server and Network Services
division. The IT Training business, acquired in September 1996, generated net
revenue of $3.2 million in fiscal 1997, an increase of $2.5 million compared to
$608,000 in the fourth quarter of fiscal 1996.
Cost of Sales. Consolidated cost of sales increased by 16.9%, or $10.2
million, for the year ended December 31, 1997 compared to the prior year period.
Cost of sales as a percentage of consolidated net revenues decreased to 71.4%
from 73.0%. In the Company's Contract Placement business, cost of sales as a
percentage of revenue decreased to 78.1% from 79.4%. This decrease was primarily
a result of the Contract Placement business focusing its sales efforts on higher
margin services. The decline in cost of sales as a percentage of consolidated
net revenues was also attributable to a significant increase in revenue for the
Permanent Placement business which has no cost of sales. Offsetting this
favorable result was an increase in the cost of sales as a percentage of
revenues to 77.1% as of December 31, 1997 from 75.1% as of December 31, 1996 for
the Company's Information Management Services business. This result was
primarily the result of the two contracts received in the second quarter of 1997
which contributed a 1.2 percentage point increase in costs of sales for fiscal
1997 compared to fiscal 1996. The balance of the increase in costs of sales as a
percentage of revenue for this business unit was due to an increase in costs
related to network services sales, which sales were composed largely of high
cost/low margin hardware and software. The IT Training business contributed an
additional $2.6 million of expenses, compared to $520,000 in 1996 when only its
operations during the fourth quarter were consolidated by the Company in 1996.
Selling and Operating. Consolidated selling and operating expenses
increased by 7.3%, or $1.1 million, for the year ended December 31, 1997
compared to the prior year period. Selling and operating expenses as a
percentage of consolidated net revenues for the year ended December 31, 1997
decreased to 15.6% from 17.4% in the prior year period. Selling and operating
expenses as a percentage of revenues for the Contract Placement business
decreased to 8.6% from 10.5% for fiscal 1997 compared to the prior year period.
This decrease was attributable to a lower number of sales and recruiting
personnel in 1997 compared to 1996. It was also attributable to a decrease of
approximately $930,000 in the bad debt expense for the business in fiscal 1997
compared to the prior year period, which was due to the increased efforts of a
credit and collections manager. Selling and operating expenses as a percentage
of revenues for the Permanent Placement business decreased to 70.2% from 74.6%
for fiscal 1997 compared to the prior year period. This decrease occurred even
though the number of sales recruiters increased to 48 at the end of 1997
compared to 36 at the end of 1996. This favorable result reflects management's
efforts to increase sales while controlling overhead costs. Selling and
operating expense as a percentage of revenue in the Information Management
Services business decreased to 19.5% from 23.0% for fiscal 1997 compared to the
prior year period. This result was primarily due to a reduction of sales
personnel in the first quarter of 1997.
General and Administrative. Consolidated general and administrative
expenses increased 37.2%, or $2.3 million, for the period ending December 31,
1997 compared to the prior year period. General and administrative expenses as a
percentage of consolidated net revenues, increased to 8.4% from 7.3% for the
period ending December 31, 1997 compared to the prior year period. Contributing
to this increase was $651,000 of personnel and related administrative expenses
in the Information Management Services business, primarily due to the
acquisition of the imaging and document management company in 1996 and cost
related to opening an office in New York City in August 1997. Expansion of the
Company's corporate staff, specifically management information systems,
accounting, legal and human resources personnel hired in 1997, increased
corporate overhead by $404,000 for the period ending December 31, 1997 compared
to prior year period. In addition, the amortization of goodwill related to the
<PAGE>
two acquisitions in September 1996 and the JIS merger in February 1997 increased
corporate overhead costs by $280,000 in the year ended December 31, 1997
compared to the prior year period. As a result of the acquisitions and increased
office space in the Edison, New Jersey office, rent and utilities expense
increased by approximately $565,000 for the period ending December 31, 1997
compared to the prior year period. In the IT Training business, which was
acquired in September of 1996, incurred general and administrative expenses for
fiscal 1997 of approximately $474,000, or 14.8% of that business' revenues.
17
<PAGE>
Interest. Interest expense was $212,000 and $876,000 for the year ended
December 31, 1997 and 1996, respectively. Interest income was $313,000 and $0
for the year ended December 31, 1997 and 1996, respectively. This decrease in
interest expense and increase in interest income is attributable to the
Company's repayment of its debt following the Offering and the interest earned
on the unused portion of the Offering proceeds. The Company expects to use its
the remaining proceeds from the Offering in 1998 and therefore does not expect
this trend to continue throughout 1998.
INCOME TAXES
The Company adopted the Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes," as of January 1, 1993. The effective tax
rate was 41.4%, 98.1% and 55.1% for fiscal years 1997, 1996 and 1995,
respectively. The effective tax rates for 1997, 1996 and 1995 are higher than
the applicable statutory tax rate of 34%, primarily due to the Company's state
tax liabilities and the net operating losses incurred in the Information
Management Services business, which business is consolidated for financial but
not for tax reporting purposes in 1995 and 1996 and for the period January 1,
1997 through February 20, 1997. However, since the Company's merger with JIS
(which includes the Information Management Services business) on February 20,
1997, this business unit is now consolidated for tax purposes and any future
losses generated by the Information Management Services business will also be
used in the calculation of the Company's income tax expense or benefit. If the
Information Management Services business is able to achieve profitability, it
will be able to utilize approximately $4.2 million in federal operating loss
carryforwards, which will expire between 2002 and 2012.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Net Revenues. Consolidated net revenues increased by 30.1%, or $19.1
million, for the year ended December 31, 1996 compared to the prior year period.
Revenue for the Contract Placement business increased by 21.5%, or $11.0
million, for the year ended December 31, 1996 compared to the prior year period.
Contributing to this increase was an increase in revenue of $2.7 million
attributable to the Edison, New Jersey office, which opened in April 1995, and
an increase in revenue of $1.9 million attributable to the Company's National
Division in Foxborough, Massachusetts. Revenue for the Bala Cynwyd, Pennsylvania
office increased by $6.4 million primarily due to increased marketing efforts.
Revenue for the Permanent Placement business increased by 37.3%, or $1.6
million, for the year ended December 31, 1996 compared to the prior year period.
Contributing to this increase was revenue of $1.1 million attributable to the
Bala Cynwyd, Pennsylvania office and revenue of $474,000 attributable to the
Edison, New Jersey office. The Florida office experienced a decrease in revenues
of $21,000. Revenue for the Information Management Services business increased
by 72.2%, or $5.9 million, for the year ended December 31, 1996 compared to the
prior year period. Of this increase, $2.3 million was attributable to networking
systems and services and $3.6 million was attributable to imaging and document
management systems and services. Contributing to this increase was revenue of
$643,000 from a business acquired in February of 1996, revenue of $598,000
attributable to the Edison, New Jersey office and $564,000 from a business
acquired in September of 1996. The IT Training business, acquired in September
1996, generated net revenues of $608,000.
Cost of Sales. Consolidated cost of sales increased by 26.4%, or $12.6
million, for the year ended December 31, 1996 compared to the prior year period.
Cost of sales as a percentage of consolidated net revenues decreased to 73.0%
from 75.1%. In the Company's Information Management Services business, cost of
sales as a percentage of revenue decreased to 73.7% from 81.7%, primarily as a
result of an increased focus on providing services that yield higher margins
than traditional hardware and software sales and the realization of economies of
scale. In the Company's Contract Placement business, cost of sales as a
percentage of revenue decreased to 79.6% from 80.4%. This decrease was primarily
a result of the Contract Placement business focusing its sales efforts on higher
margin services. 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, for which expenses are included in other expense categories
and which has no cost of sales. The IT Training business contributed an
additional $520,000 of expenses included in cost of sales.
18
<PAGE>
Selling and Operating. Consolidated selling and operating expenses
increased by 46.4%, or $4.5 million, for the year ended December 31, 1996
compared to the prior year period. Contributing to this increase was an increase
in selling and operating expenses of 106.4%, or $1.7 million, in the Information
Management Services business due primarily to the expansion of its sales force,
$223,000 of which is attributable to the business acquired in September 1996.
Selling and operating expenses as a percentage of consolidated net revenues for
the year ended December 31, 1996 increased to 17.4% from 15.5% in the prior year
period, due primarily to a 43.3% increase in payroll costs associated with the
Company's hiring of sales and marketing personnel in all of its businesses, the
acquisition/business combination of two Information Management Services
businesses and a $481,000 increase in bad debt charges resulting from an
increase in sales volume and the bankruptcy of one of the Company's Contract
Placement customers.
General and Administrative. Consolidated general and administrative
expenses increased 44.4%, or $1.9 million, for the period ending December 31,
1996 compared to the prior year period. General and administrative expenses as a
percentage of consolidated net revenues increased to 7.3% for the year ended
December 31, 1996 compared to 6.6% for the prior year period. Contributing to
this increase was an increase of 222.8% or $1.1 million, in the Information
Management Services business, primarily consisting of a $510,000 increase in
payroll costs associated with the hiring of consulting and engineering personnel
and a $190,000 increase in rent expense due to the opening of new offices.
Expansion of the Company's corporate staff, specifically the hiring of
additional management information systems personnel, human resources personnel
and a financial analyst increased payroll costs by $115,000. In addition, rent
expense, exclusive of Information Management Services business, increased by
$160,000 due to a full year of operations at the Company's Edison, New Jersey
office which opened in April 1995, the expansion of the Bala Cynwyd,
Pennsylvania office, the inclusion of rent expense for the two companies that
the Company acquired in 1996 and the inclusion of the rent associated with the
IT Training business which was also acquired in 1996.
Interest. Interest expense increased by $207,000, at December 31, 1996
compared to the prior year period. This increase was primarily due to increased
borrowing under the Company's line of credit.
SEASONALITY AND QUARTERLY RESULTS OF OPERATIONS
The following table presents certain unaudited quarterly statements of
operations data for each of the Company's last eight fiscal quarters. In the
opinion of the Company's management, this quarterly information has been
prepared on the same basis as the audited financial statements appearing
elsewhere in this Report and includes all adjustments (consisting only of normal
recurring adjustments) necessary to present fairly the unaudited quarterly
results set forth herein. The Company's quarterly results have in the past been
subject to fluctuations, and thus, the operating results for any quarter are not
necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
Mar. 31, Jun.30, Sept.30, Dec. 31, Mar.31, Jun.30, Sept.30, Dec. 31,
(Dollars in thousands) 1996 1996 1996 1996 1997 1997 1997 1997
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Revenues $ 16,435 $ 20,892 $ 21,588 $ 23,456 $ 23,478 $ 26,062 $ 25,319 $ 23,667
Cost of Sales (exclusive
of items shown
separately below) 12,528 15,060 15,645 16,887 17,385 18,736 17,759 16,392
Selling and Operating 2,654 3,710 3,659 4,321 4,230 3,901 3,627 3,638
General and Administrative 1,398 1,450 1,462 1,737 1,982 1,938 2,038 2,368
-------- -------- -------- -------- -------- -------- -------- --------
Total Costs and Expenses 16,580 20,220 20,766 22,945 23,597 24,575 23,424 22,398
Income (Loss) From
Operations (145) 672 822 511 (119) 1,487 1,895 1,269
Interest Income (Expense)
and Other, Net (181) (191) (228) (273) (128) 75 62 91
-------- -------- -------- -------- -------- -------- -------- --------
Income (Loss) Before
Income Taxes ($ 326) $ 481 $ 594 $ 238 ($ 247) $ 1,562 $ 1,957 $ 1,360
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
19
<PAGE>
Because the Company only derives revenue in its Contract Placement
business when its consultants are actually working, its revenues and operating
results are adversely affected when its clients' facilities close due to
holidays or inclement weather. The Company also incurs additional expenses in
its first fiscal quarter, in part as a result of higher employment and related
payroll taxes. During the quarters ended December 31, 1996 and 1997, the number
of holidays and vacation days marginally affected revenues in the Contract
Placement business. In addition, the Company's Contract Placement business
experienced higher than expected turnover of recruiting and sales personnel in
the third and fourth quarters of 1997. The effect of this turnover, as well as
lower than expected revenues in the Information Management Services business,
was the primary cause of the decrease in revenues on a quarter-to-quarter basis
in the second half of 1997.
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 February 1997, however, the funds available for working
capital purposes increased substantially as a result of the receipt of the
proceeds from the Offering. The Company continues to use the net proceeds from
the Offering as well as its cash flow from operations to fund its working
capital and acquisition needs. While the Company has historically maintained
minimal cash balances, the proceeds from the Offering have increased it's cash
and cash equivalents as of December 31, 1997 to $1.7 million from approximately
$105,000 at December 31, 1996 and $35,000 at December 31, 1995. In addition, the
Company has invested in short-term, investment grade securities which amounted
to $5,500,000 at December 31, 1997. Subsequent to December 31, 1997 the Company
used a significant portion of its cash and cash equivalents and short-term
investments, approximately $4.3 million, to purchase the assets of ISI. The
Company expects to use the remaining proceeds from the Offering in 1998.
The Company used cash in operations of $2.4 million, $4.0 million and
$2.3 million in 1997, 1996 and 1995, respectively. This result is attributable
to several factors, including an increase in net income of $1.8 million in 1997
compared to 1996 and an increase in cash from operations offset by the purchase
of short-term investments in 1997. Specifically, the Company reduced the rate of
growth in accounts receivable while increasing revenues, due primarily to
increased controls on credit and collections since December 31, 1996. The
increased controls have resulted in a decrease in accounts receivable days
outstanding from approximately 59 days at December 31, 1996 to approximately 56
days at December 31, 1997. While the Company will continue to strive to improve
the credit and collection process, there can be no assurances that the Company
will be able to maintain or improve its current credit and collection practices.
Cash purchases of fixed assets for the fiscal years ended December 31,
1997, 1996, and 1995 were $1.6 million, $600,000, and $400,000, respectively.
These purchases were related primarily to the purchases of computers, software,
and imaging equipment to upgrade the Company's technology infrastructure, as
well as the furnishing of new office facilities. In the first quarter of 1997
the Company received repayment of its loans to officers and related parties in
the aggregate amount of $577,000.
During the first quarter of 1997, the Company completed the Offering.
From the proceeds of $20,906,000 (net of underwriting discounts and commissions)
the Company paid approximately $1,694,000 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
as well as an additional $1.9 million in advances, and repaid other long term
debt of $2.3 million, which included payments related to the notes payable for
the acquisitions of Berkeley and Systems Automation. Subsequent to December 31,
1997 the Company repaid the remaining $238,000 balance outstanding on the notes
payable related to the Berkeley acquisition, and repurchased as treasury stock
40,000 common shares, at a price of $5.50 per share, which had been issued to
the stockholders of Berkeley in lieu of $300,000 of notes payable at the
completion of the initial public offering.
The Company has available an $11.0 million revolving advance facility
(the "Line of Credit") with PNC Bank, N.A. (successor to Midlantic Bank, N.A.).
The Line of Credit expires on May 31, 1998 and carries interest at the bank's
prime rate. This facility allows the Company to borrow the lesser of 80% of
eligible accounts receivable or $11.0 million. As of December 31, 1997 the
Company had 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 incurring of additional debt and the payment of
dividends on the Company's common shares. The Company is currently engaged in
discussions with the bank to extend the Line of Credit to May 31, 2003, increase
the maximum borrowings to $25.0 million or 85% of eligible accounts receivable,
whichever is less, and offer the Company the option of borrowing funds at either
the bank's prime rate or 200 basis points over the London Inter-bank Offering
Rate. However, there can be no assurance given that the Company will be able to
negotiate an extension of the Line of Credit on such terms pending completion
and execution of loan documentation.
20
<PAGE>
The Company anticipates that its primary uses of capital in future
periods will finance additional acquisitions, fund increases in accounts
receivable and allow internal growth through new office locations. 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.
INFLATION
The Company does not believe that the rates of inflation prevailing in
the United States in recent years have had a significant effect on its
operations.
"YEAR 2000" ISSUES
The Company is aware of the issues associated with the programming code
in existing computer systems as the year 2000 approaches. The "Year 2000"
problem is pervasive and complex, as many computer systems will be affected in
some way by the rollover of the two-digit year value to 00. Systems that do not
properly recognize such information could generate erroneous data or cause a
system to fail. The "Year 2000" issue creates risk for the Company from
unforeseen problems in its own computer systems and from third parties for whom
the Company implements "Year 2000" solutions on their computer systems.
The Company believes its recently implemented financial information
system is "Year 2000" compliant. Further, the Company is currently in the
process of replacing its two candidate and client databases utilized in its
Contract Placement and Permanent Placement business with software systems that
are represented by the vendors thereof to be "Year 2000" compliant. The Company
is analyzing its remaining computer systems to identify any potential "Year
2000" issues and will take appropriate corrective action based on the results of
such analysis. Management has not yet determined the cost related to achieving
"Year 2000" compliance. Management believes, based on its available information
that it will be able to manage its total "Year 2000" transition without any
material adverse effects on its business operations or financial condition.
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, and in oral statements by the
Company 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 shareholders, customers, suppliers,
business partners, competitors, and legislative, 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.
21
<PAGE>
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; (iv) difficulties related
to the integration of the acquired business; and (v) dilution of existing
shareholders. 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, sales, recruiting, financial and other
resources. Specifically, such growth will require the Company to: (i) hire,
integrate and retain qualified managers, recruiters and sales personnel in
existing markets as well as markets in which the Company has no prior operating
experience; (ii) increase the sales and recruiting staffs in the first half of
1998 in its Contract Placement and Permanent Placement businesses by 30%; (iii)
develop and maintain relationships with an increasingly large number of highly
qualified technical consultants; (iv) maintain cost controls in all of the
Company's businesses; and (v) 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 Information Management Services Business
The Company's Information Management Services business has had net operating
losses since its commencement in 1988, experienced a loss from operations of
approximately $1.6 million for the year ended December 31, 1997, and at December
31, 1997 had an accumulated deficit of $5.3 million. The losses have resulted
from high marketing and general and administrative costs associated with
building the business' infrastructure and technical service capabilities,
combined with historically low profit margins related to the hardware component
of the NT Client Server and Network Services division and a slower emergence of
the document management, document conversion and imaging market than anticipated
by the Company. Specifically, the costs associated with building this division's
Document Management and Imaging division's service capabilities have included
the hiring of sales and technical personnel, the opening of a new office in New
York City, 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 Information Management Services business by
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 Information Management
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 Information Management
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, including the
potential impairment of recorded goodwill associated with the Company's
Information Management Services business. In addition, if the Information
Management Services business is unable to achieve profitability, it will not
realize the federal tax benefit of its $4.2 million operating loss carryforward
which will expire between 2002 and 2012.
Dependence on Contract Placement Business The Company's Contract
Placement business was responsible for 80.3%, 75.0% and 71.4% of total Company
revenues for the years ended December 31, 1995, 1996 and 1997, respectively. In
addition, for the years ended 1996 and 1997, one customer of the Contract
Placement business, Merck & Company, Inc., accounted for approximately 10.0% and
9.8% of total Contract Placement revenues, respectively, and 7.5% and 7.0% 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 subject to various factors, including its ability to attract and retain
qualified technical consultants, to hire, integrate and retain qualified
managers, recruiters and sales personnel in existing and new markets, to apply
its management practices to a significantly larger organization and to
consummate acquisitions of and to successfully integrate profitable staffing
companies. The inability of the Company to successfully manage these factors
would have a material adverse effect on the revenues of the Contract Placement
business. 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.
22
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
THE JUDGE GROUP, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS
<TABLE>
<CAPTION>
Page(s)
-------
<S> <C>
INDEPENDENT AUDITORS' REPORT AS OF DECEMBER 31, 1997 AND 1996 AND FOR EACH OF THE THREE YEARS
IN THE PERIOD ENDED DECEMBER 31, 1997 24
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1997 AND 1996 25
CONSOLIDATED STATEMENTS OF OPERATIONS FOR YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 26
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR YEARS ENDED DECEMBER 31, 1997, 1996 AND
1995 27
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 29-46
</TABLE>
23
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
The Judge Group, Inc.
Bala Cynwyd, Pennsylvania
We have audited the accompanying consolidated balance sheets of The Judge Group,
Inc. and Subsidiaries as of December 31, 1997 and December 31, 1996, and the
related consolidated statements of operations, shareholders' equity, and of cash
flows for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of The Judge Group,
Inc. and Subsidiaries as of December 31, 1997 and December 31, 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
March 20, 1998
Plymouth Meeting, PA
24
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,684,482 $ 105,069
Short-term investments 5,500,000 --
Accounts receivable, net 14,415,926 13,396,495
Inventories 1,468,902 910,321
Prepaid income taxes and deferred taxes 286,000 340,603
Notes receivable, officers, employees and related party -- 577,287
Other 712,416 1,419,758
------------ -----------
TOTAL CURRENT ASSETS 24,067,726 16,749,533
------------ -----------
PROPERTY AND EQUIPMENT
Furniture, office and computer equipment 4,840,592 3,606,124
Automotive equipment 37,936 37,936
Leasehold improvements 128,888 45,566
------------ -----------
5,007,416 3,689,626
Less: accumulated depreciation and amortization 2,121,034 1,766,215
------------ -----------
NET PROPERTY AND EQUIPMENT 2,886,382 1,923,411
------------ -----------
OTHER ASSETS
Deposits and other 275,608 99,844
Goodwill, net of accumulated amortization of $405,944, 1997 and $62,982, 1996 4,703,855 3,196,220
------------ -----------
TOTAL OTHER ASSETS 4,979,463 3,296,064
------------ -----------
TOTAL ASSETS $ 31,933,571 $ 21,969,008
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 237,721 $ 915,253
Convertible notes --- 500,000
Accounts payable and accrued expenses 3,647,048 4,768,269
Payroll and sales taxes 437,788 727,118
Income taxes payable 291,515 126,538
Other notes payable --- 195,477
Deferred revenue 928,324 1,168,334
Advances from shareholders 95,862
---
------------ -----------
TOTAL CURRENT LIABILITIES 5,542,396 8,496,851
------------ -----------
LONG-TERM LIABILITIES
Note payable, bank --- 9,210,795
Deferred rent obligation 116,879 130,402
Debt obligations, net of current portion --- 3,008,846
------------ -----------
TOTAL LONG-TERM LIABILITIES 116,879 12,350,043
------------ -----------
MINORITY INTEREST --- ---
------------ -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, $.01 par value, 50,000,000 shares authorized; at December 31,
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, at December 31, 1997 and 1996, $.01 par value, 10,000,000
shares authorized --- ---
Additional paid-in capital 22,758,517 365,877
Retained earnings 3,382,300 670,360
------------ -----------
TOTAL SHAREHOLDERS' EQUITY 26,274,296 1,122,114
------------ -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 31,933,571 $ 21,969,008
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
25
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
NET REVENUES $98,526,467 $82,371,065 $63,299,353
----------- ----------- -----------
COSTS AND EXPENSES
Cost of sales (exclusive of items shown separately below) 70,300,119 60,121,123 47,550,114
Selling and operating 15,396,530 14,343,682 9,797,875
General and administrative 8,298,646 6,046,841 4,187,485
----------- ----------- -----------
Total costs and expenses 93,995,295 80,511,646 61,535,474
----------- ----------- -----------
INCOME FROM OPERATIONS 4,531,172 1,859,419 1,763,879
OTHER INCOME (EXPENSE), NET, PRINCIPALLY NET INTEREST 100,586 (872,578) (697,339)
----------- ----------- -----------
INCOME BEFORE INCOME TAX EXPENSE AND MINORITY INTEREST IN NET
LOSS OF CONSOLIDATED SUBSIDIARY 4,631,758 986,841 1,066,540
INCOME TAX EXPENSE 1,919,818 967,898 587,957
----------- ----------- -----------
INCOME BEFORE MINORITY INTEREST IN NET LOSS OF CONSOLIDATED
SUBSIDIARY 2,711,940 18,943 478,583
MINORITY INTEREST IN NET LOSS OF CONSOLIDATED SUBSIDIARY --- 888,000 7,057
----------- ----------- -----------
NET INCOME $ 2,711,940 $ 906,943 $ 485,640
=========== =========== ===========
NET INCOME PER SHARE:
BASIC $ 0.21 $ 0.10 $ 0.06
====== ====== ======
DILUTED $ 0.21 $ 0.10 $ 0.06
====== ====== ======
SHARES USED IN NET INCOME PER SHARE CALCULATIONS:
BASIC 12,761,000 8,473,000 8,416,000
========== ========= =========
DILUTED 12,826,000 9,114,000 9,114,000
========== ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
26
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
Common Stock
------------
Additional Retained Earnings
Shares Amount Paid In Capital (Deficit) Total
------ ------ --------------- --------- -----
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1995 160,000 $ 800 $ 626,848 ($ 722,223) ($ 94,575)
Net Income --- --- --- 485,640 485,640
---------- -------- ----------- ---------- -----------
Balance, December 31, 1995 160,000 800 626,848 (236,583) 391,065
Merger transactions --- --- (175,910) --- (175,910)
Stock split, 52.6 for 1.0 8,256,000 83,360 (83,360) --- ---
Exercise of Warrants 171,739 1,717 (1,701) --- 16
Net Income --- --- --- 906,943 906,943
---------- -------- ----------- ---------- -----------
Balance, December 31, 1996 8,587,739 85,877 365,877 670,360 1,122,114
Merger Transactions 1,194,230 11,942 2,416,498 --- 2,428,440
Initial Public Offering 3,000,000 30,000 19,181,802 --- 19,211,802
Conversion of Debentures 526,000 5,260 494,740 --- 500,000
Conversion of Notes Payable 40,000 400 299,600 --- 300,000
Net Income --- --- --- 2,711,940 2,711,940
---------- -------- ----------- ---------- -----------
Balance, December 31, 1997 13,347,969 $133,479 $22,758,517 $3,382,300 $26,274,296
========== ======== =========== ========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
27
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 2,711,940 $ 906,943 $ 485,640
Adjustments to reconcile net income to net cash (used in)
operating activities:
Depreciation and amortization 996,240 608,248 421,613
Deferred taxes 11,000 (67,000) (103,000)
Deferred rent (13,523) (26,541) 39,041
Provision for losses (recoveries) on accounts receivable (35,521) 781,327 300,033
Stock compensation 29,250 --- 6,000
Minority interest in net loss of consolidated subsidiary --- (888,000) (7,057)
Changes in operating assets and liabilities:
(Increase) decrease in:
Short-term investments (5,500,000) --- ---
Accounts receivable (983,910) (4,592,756) (2,762,395)
Inventories (558,581) (276,746) (282,394)
Deposits and other (175,764) (123,826) (48,565)
Prepaid income taxes 43,603 122,060 (117,352)
Other current assets 707,342 (947,122) (404,643)
Increase (decrease) in:
Accounts payable and accrued expenses 736,779 365,321 512,251
Payroll and sales taxes (289,330) (29,776) (297,648)
Deferred revenue (240,010) 21,738 215,211
Income taxes payable 164,977 119,570 (245,759)
----------- ----------- -----------
Net cash (used in) operating activities (2,395,508) (4,026,560) (2,289,024)
----------- ----------- -----------
INVESTING ACTIVITIES
Purchases of property and equipment (1,616,249) (638,503) (373,051)
Purchase/acquisition of companies --- (554,448) ---
Proceeds from disposals of property and equipment --- 3,750 24,461
(Increase) decrease in notes receivable, officers
and employees, net 577,287 (202,527) (52,826)
----------- ----------- -----------
Net cash used in investing activities (1,038,962) (1,391,728) (401,416)
----------- ----------- -----------
FINANCING ACTIVITIES
Cash acquired in business combination --- 150,701 ---
Proceeds from (repayments of) notes payable, bank, net (9,960,795) 4,843,279 2,618,850
Proceeds (repayments) of bank overdrafts (1,858,000) 520,000 421,000
Proceeds from long-term debt --- --- 38,000
Principal payments on long-term debt (2,283,262) (869,672) (386,524)
Proceeds from issuance of stock and exercise of warrants 19,211,802 16 1,057
Repayments from shareholders (95,862) (44,045) (49,793)
Issuance of Series A Preferred Shares, net of costs --- 888,000 ---
----------- ----------- -----------
Net cash provided by financing activities 5,013,883 5,488,279 2,642,590
----------- ----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,579,413 69,991 (47,850)
CASH AND CASH EQUIVALENTS, BEGINNING 105,069 35,078 82,928
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, ENDING $ 1,684,482 $ 105,069 $ 35,078
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 306,000 $ 842,000 $ 657,000
----------- ---------- -----------
Income taxes $ 1,784,000 $ 819,000 $ 1,056,000
=========== ========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
28
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE 1. DESCRIPTION OF BUSINESS
The Judge Group, Inc. (the "Company") (formerly Judge Inc.), 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 December 31, 1997, the
Company had offices in Bala Cynwyd, Pennsylvania; Hartford, Connecticut;
Foxborough, Massachusetts; Wakefield, Massachusetts; Tampa, Florida; Moorestown
and Edison, New Jersey; Alexandria, Virginia; and New York, New York. A
substantial portion of the Company's revenues are derived from customers located
in the Mid-Atlantic corridor of the United States.
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 three of the
Company's wholly-owned subsidiaries, Judge, Inc., 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 1997. 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.
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 12 and 15. 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.
29
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE 1. DESCRIPTION OF BUSINESS -- (Continued)
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
(Note 7). 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
(Note 3). In connection with the initial public offering, the Company incurred
approximately $1,694.000 of accounting, legal, printing and other costs as of
December 31, 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 which were incurred in 1996 were
included in other current assets in the accompanying consolidated balance
sheets.
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 accompanying consolidated financial statements include the accounts of the
Company, JIS and the Company's wholly-owned subsidiaries, which include Judge,
JTS, JPS, JTNJ, JESF, Berkeley (as of and from the effective date of the
acquisition -- see Note 3) and JINJ. JCC (prior to the JCC/DI merger) and JIS
(subsequent to the JCC/DI merger) have been consolidated due to certain elements
of common ownership and control being present. Effective February 20, 1997, JIS
became a wholly owned subsidiary of the Company. All significant intercompany
accounts and transactions have been eliminated.
Risks and Uncertainties
The preparation of the consolidated 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.
Revenue Recognition in Contract Placement and Permanent Placement Businesses
The Company recognizes permanent placement revenues at the date employment of
the placed professional commences, subject to reversal and adjustments if such
employment is terminated during a guarantee period. Revenues related to
temporary placement services are recognized on a weekly basis as the services
are performed.
Revenue Recognition in Imaging and Network Services Business
Revenues from the sales of network, imaging and document management systems is
recognized at the date of shipment of the system, provided that any work to
complete installation of the system is routine in nature and related costs,
which are accrued at the time revenue is recognized, are not significant.
However, in instances in which installation and development costs are
significant to the completion of the contract, revenue is recognized on a
percentage-of-completion basis. Revenues recorded on a percentage-of-completion
basis are based upon management's estimates for which it is reasonably possible
that such estimates may change in the near term. Revenues billed in advance for
computer sales, warranties and maintenance contracts are deferred and recorded
as income in the period in which the merchandise is shipped or the services are
rendered. Deferred revenues in the accompanying consolidated balance sheets as
of December 31, 1997 and 1996 includes approximately $184,000 and $20,000,
respectively, of billings in excess of costs and estimated earnings on
contracts-in-progress.
30
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
Revenue Recognition in IT Training Business
Tuition and fee revenues are recognized generally when the classes are held.
Payments received prior to the class commencing are recorded as deferred
revenues.
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.
The Company maintains cash balances at financial institutions. These balances
are insured by the Federal Deposit Insurance Corporation up to $100,000 at each
institution.
Short-Term Investments
The Company records short-term (trading) investments at fair market value which
generally equals the cost of such investments. These securities represent
investments in municipal mutual funds ($1 par value) and/or investments in
municipal bonds with floating interest rates and which allow the Company to
redeem its investment on a weekly basis at its original cost plus accrued
interest. There were no realized gains or losses on these investments in 1997.
Inventories
Inventories of computer and related supplies and equipment held for resale are
valued at the lower of cost (first-in, first-out) or market. Inventories at
December 31, 1997 and 1996 include approximately $619,000 and $131,000,
respectively, of costs and estimated earnings in excess of billings on
contracts-in-progress.
Accounts Receivable and Accounts Payable
Accounts receivable at December 31, 1997, 1996, and 1995 were net of allowances
for doubtful accounts of $465,000, $661,000, and $174,000, respectively.
Included in accounts receivable was unbilled work-in-process of approximately
$584,000, $524,000 and $655,000 at December 31, 1997, 1996 and 1995,
respectively. Included in accounts payable and accrued expenses was
approximately $442,000, $283,000 and $510,000 of accrued employee and contractor
payroll principally relating to unbilled work-in-process at December 31, 1997,
1996 and 1995, respectively.
The allowance for doubtful accounts is established through charges to earnings
in the form of a charge to bad debt expense. Accounts which are determined to be
uncollectible are charged against the allowance account. Management makes
periodic assessments of the adequacy of the allowance which requires the Company
to recognize additions or reductions to the allowance. It is reasonably possible
that factors may change significantly and, therefore, affect management's
determination of the allowance for doubtful accounts in the near term. An
analysis of the allowance for doubtful accounts follows:
<TABLE>
<CAPTION>
Additions (Reversals)
Year Ended Balance At Charged (Credited) To Balance At
December 31, Beginning Of Period Bad Debt Expense (Charge Offs) End Of Period
------------ ------------------- ---------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
1997 $ 661,000 ($ 36,000) ($ 160,000) $ 465,000
========= ========== =========== =========
1996 $ 174,000 $ 781,000 ($ 294,000) $ 661,000
========= ========= =========== =========
1995 $ 157,000 $ 300,000 ($ 283,000) $ 174,000
========= ========= =========== =========
</TABLE>
31
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
Property and Equipment and Depreciation and Amortization
Property and equipment are stated at cost. Depreciation and amortization is
computed on the straight-line and accelerated methods over the estimated useful
lives of the related assets, principally five to ten years for furniture, office
and computer equipment and five years for automotive equipment.
Leasehold improvements are amortized using the straight-line method over the
shorter of the lease term or estimated useful lives of the improvements,
principally five to ten years.
Depreciation and amortization related to property and equipment amounted to
$653,278 in 1997, $451,322 in 1996, and $271,099 in 1995.
Property Under Capital Leases and Amortization
Property under capital leases is stated at the lower of fair market value or net
present value of the minimum lease payments at inception of the leases. Property
under capital leases consists of furniture and office equipment and is included
in "property and equipment" in the accompanying consolidated balance sheets.
Amortization is provided over the shorter of the related lease terms or the
estimated useful lives of the related assets.
Income Taxes
Deferred taxes are accounted for in accordance with Statement of Financial
Accounting Standards ("Statement") No. 109, "Accounting for Income Taxes." The
Statement requires the use of the liability method to account for income taxes.
Deferred income taxes are provided for the difference between the tax basis of
an asset or liability and its reported amount in the financial statements and at
the tax rates that are expected to be in effect when the taxes are actually paid
or recovered.
Deferred income taxes arise principally from differences between financial and
income tax reporting, including amounts recorded for workers' compensation
funding, amounts recorded for the allowance for doubtful accounts, the
availability of net operating loss carryforwards and certain other temporary
differences.
Deferred income tax assets are reduced by a valuation allowance when, based on
the weight of evidence available, it is more likely than not that some portion
or all of the deferred tax assets will not be realized. The determination of the
requirement for a valuation allowance is an estimate which is reasonably
possible to change in the near term.
Intangible Assets
The Restrictive Covenant (covenant-not-to-compete) was being amortized on a
straight-line method over the life of the covenant (forty-eight months, through
August 1996). Amortization expense related to the covenant was approximately
$94,000 for 1996 and approximately $150,000 for 1995. See Note 13.
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 Berkeley and JIS. The Berkeley and Systems Automation acquisitions
were effective September 30, 1996 while the JIS acquisition was effective
February 20, 1997 (See Note 3). Amortization of goodwill is based upon
management's estimates for which it is reasonably possible that such estimates
may change in the near term. Amortization of goodwill for the period ended
December 31, 1997 and 1996 was approximately $343,000 and $63,000, respectively,
and is included in general and administrative expense in the consolidated
statements of operations.
32
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
Deferred Rent Obligation
The Company is party to operating lease agreements for certain of its office
facilities, which contain provisions for free rent for a certain period, with
subsequent rent increases. In accordance with generally accepted accounting
principles, the Company records monthly rent expense equal to the total of the
payments due over the lease terms, divided by the number of months of the lease
terms. The difference between rent expense recorded and the amount paid is
credited or charged to deferred rent obligation in the accompanying consolidated
balance sheets.
Advertising Costs
The Company participates in various advertising programs. All costs related to
advertising are expensed in the period incurred. Advertising expense amounted to
approximately $696,000, $532,000, and $464,000 in 1997, 1996 and 1995,
respectively.
Recently Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
No. 130, "Reporting Comprehensive Income." This Statement establishes standards
for reporting and displaying comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general-purpose financial
statements. Such items may include foreign currency translation adjustments,
unrealized gains/losses from investing activities, and other transactions. This
Statement requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. This Statement is required to be adopted for fiscal years
beginning after December 15, 1997. The adoption of this Statement is not
expected to have a material effect on the Company.
In June 1997, the FASB issued Statement No. 131, "Disclosures about Segments of
an Enterprise and Related Information." This Statement establishes standards for
the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
This Statement is required to be adopted for fiscal years beginning after
December 15, 1997. The Company has not yet determined the effect that this
Statement is expected to have on the Company.
Earnings Per Share
The Company adopted Statement of Financial Accounting Standards No. 128 ("FAS
128"), Earnings Per Share, beginning in the fourth quarter of 1997. All prior
period earnings per common share were recomputed to conform to the provisions of
FAS 128. The recomputations did not result in any restatements in earnings per
share previously reported.
The number of shares used in the earnings per share calculation and convertible
note share conversion (see Note 7) has been adjusted for the 52.6 for 1.0 stock
split which occurred in September 1996.
Basic earnings per share amounts are computed based on net income, reduced by
dividends earned on preferred stock outstanding on JIS through February 1997
($6,700 and $45,000 for 1997 and 1996, respectively), and divided by the
weighted average number of shares actually outstanding. The number of shares
used in the computation were approximately 12,761,000 in 1997, 8,473,000 in 1996
and 8,416,000 in 1995.
Diluted earnings per share amounts for calendar years 1997, 1996 and 1995 are
based on the weighted average number of shares calculated for basic earnings per
share purposes increased by the number of shares that would be outstanding
assuming conversion of outstanding convertible notes (see Note 7) and exercise
of outstanding stock warrants (Note 11). The number of shares used in the
computation were approximately 12,826,000 in calendar year 1997, and 9,114,000
in calendar years 1996 and 1995. Options to purchase common stock issued in 1997
were not included in the computation of diluted earnings per share because the
option exercise price was greater than the average market price of common stock.
33
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
Fair Value of Financial Instruments
The estimated fair values of substantially all of the Company's financial
instruments are approximately equal to their carrying values at all periods
presented.
NOTE 3. BUSINESS COMBINATIONS AND PRO-FORMA RESULTS OF OPERATIONS
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
original acquisition cost was $2,232,200 payable principally in cash and notes.
In February 1997, upon the successful completion of the initial public offering,
the Company converted $300,000 of the note payable into 40,000 common shares;
paid cash of $635,000, and converted the remaining balance of the note payable,
$300,000, into a term note payable. A portion of the purchase price was
contingent on Berkeley attaining certain pre-tax income amounts in 1996 and/or
1997. Based on Berkeley's 1996 and 1997 pre-tax income, no portion of the
contingent amount was earned; therefore no payment was made in that regard and
the related goodwill and note payable were accordingly reversed in December
1997. The acquisition was accounted for as a purchase and results of operations
of Berkeley are only included since the purchase date. The excess of acquisition
cost over the fair value of net assets, assumed to equal their carrying value,
was approximately $1,664,000, after adjustment for the contingent portion that
was not earned, which is being amortized over fifteen years, beginning in
October 1996. Operating results for the Company for the year ended December 31,
1996, on a pro forma basis as though Berkeley had been acquired as of January 1,
1996, is 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 payable in
cash and notes. Upon completion by the Company of the initial public offering,
the remainder of the notes became due and payable in cash within 15 days of the
consummation of such initial public offering. In February 1997, upon the
successful completion of the initial public offering, the Company paid the
balance owing. The acquisition was accounted for as a purchase and results of
operations of Systems Automation are included since the purchase date. 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 year ended December 31, 1996, on a pro forma basis as though Systems
Automation had been acquired as of January 1, 1996, is shown below.
The following sets forth the combined results for the Company, DataImage (see
Note 15), Berkeley and Systems Automation for the year ended December 31, 1996,
as if the business combinations occurred at January 1, 1996 and for the Company
and JIS as if the business combination occurred at January 1, 1997.
Year Ended Year Ended
December 31, 1997 December 31, 1996
----------------- -----------------
Net revenues $98,526,467 $85,404,815
=========== ===========
Income from operations $ 4,504,514 $ 1,626,937
=========== ===========
Net Income $ 2,699,695 $ 726,031
=========== ===========
34
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE 3. BUSINESS COMBINATIONS AND PRO-FORMA RESULTS OF OPERATIONS -- (Continued)
Pro-forma adjustments include adjustments to interest expense, amortization
expense (goodwill) and income tax expense/benefit.
Basic and diluted net income per share of common stock is calculated as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
Net income per share attributable to common
shareholders $ 2,699,695 $ 672,278
=========== =========
Weighted average number of shares 13,347,969 12,153,739
========== ==========
Net income per share attributable to common
shareholders $ 0.20 $ 0.06
====== ======
</TABLE>
Weighted average number of shares for 1996 includes actual shares outstanding
increased by the number of shares issued in respect to the conversion of Company
convertible notes, the number of shares issued assuming the completion of the
Company's initial public offering of stock, and the number of shares issued in
conjunction with the Berkeley acquisition, and for 1997 includes the actual
number of shares outstanding increased by the number of shares issued in the JIS
merger.
NOTE 4. NOTE PAYABLE, BANK
Note payable, Bank, consists of advances to the Company, JTS and JIS under a
$11,000,000 credit facility at December 31, 1997. At December 31, 1997, this
line of credit bore interest at the bank's prime rate (8.5% at December 31,
1997) and maximum permitted borrowings thereunder was the lesser of $11,000,000
or 80% of qualified accounts receivable, as defined in the line of credit
agreement. The line of credit is collateralized by substantially all of the
Company's assets, and is subject to certain financial covenants. In addition,
the Company and all of its subsidiaries are jointly and severally responsible
for all of the debt outstanding under the line. In February 1997, upon
completion of the initial public offering, 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.
Included in accounts payable and accrued expenses at December 31, 1996 were
approximately $1,858,000 of bank overdrafts.
35
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE 5. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
---- ----
<S> <C> <C>
Capital lease obligations; payable in monthly installments aggregating $6,319,
including interest at various rates, through March 2000; repaid in 1997; the
leases transfer ownership of certain office equipment to the Company at the end
of the respective lease terms --- $ 162,626
Capital lease obligations; payable in monthly installments aggregating $7,369,
including interest at various rates, through December 1999; repaid in 1997; the
leases transfer ownership of certain office equipment to the Company at the end
of the respective lease terms --- 136,225
Equipment note payable; payable in monthly installments of $1,247, including
interest at 8.85%, through December 1999; repaid in 1997; collateralized by --- 38,452
certain equipment
Equipment note payable; payable in monthly installments of $5,868, including
interest at 8.5%, through March 2001; repaid in 1997; collateralized by certain
equipment and personally guaranteed by the Company's majority shareholder --- 250,571
Note payable, bank; payable in sixty monthly installments of $16,667, including
interest at prime plus 1.5% through October 2001; repaid in 1997; collateralized
by substantially all the Company's assets (see Note 4) --- 950,000
Note payable, purchase of Berkeley; payable in various monthly installments plus
interest at 8%, through August 2000; upon the Company's initial public offering,
$300,000 was converted to an equivalent amount of common stock, $735,000 was
paid, and $300,000 is payable over forty-four months (Note 3); in December 1997
approximately $572,000 relating to a contingent purchase price was reversed
against goodwill due to not being earned; subsequent to December 31, 1997, the $ 237,721 1,907,200
remaining balance was repaid (Note 17)
Note payable, purchase of certain assets and assumption of certain liabilities
of Systems Automation; payable $100,000 plus accrued interest at 8% on January
2, 1997, plus thirty-six monthly payments of $11,665, including interest at 8%
commencing February 1, 1997; upon completion of the Company's initial public
offering, all remaining amounts were paid (Note 3) --- 472,252
Capital lease obligations; payable in various monthly installments including
interest at various rates through July 1997; the leases transfer ownership of
certain computer equipment at the end of the respective lease terms
--- 6,773
--- -----
237,721 3,924,099
Less: current portion (237,721) (915,253)
---------- ----------
Long-term portion $ -- $3,008,846
========== ==========
</TABLE>
Interest expense charged to operations was approximately $212,000, $876,000, and
$670,000 for the years ended December 31, 1997, 1996, and 1995, respectively.
NOTE 6. ADVANCES FROM SHAREHOLDERS
JIS/JCC had advances from shareholders of $95,862 at December 31, 1996, all of
which was repaid in February 1997 with a portion of the proceeds from the
Company's initial public offering. Interest expense related to these advances
was approximately $15,000 in 1996 and $18,000 in 1995.
36
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
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. Since the Company effected a successful initial public offering before
July 31, 1997, in accordance with the Note Purchase Agreement, 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. In prior years, JTS and JCC/JIS were not included in
the Company's consolidated Federal income tax return, as the Company owned less
than 80% of each such Company's outstanding common shares. Under Internal
Revenue regulations, JTS and JCC/JIS were not part of the consolidated group for
tax purposes and filed their own Federal income tax returns. Effective January
1, 1997, JTS began filing as part of the consolidated group and effective
February 20, 1997, JIS began filing as part of the consolidated group. State
income taxes are determined on the basis of filing separate returns for each
company as required by the applicable state regulations.
The net deferred tax asset at December 31, 1997 and 1996 included the following:
1997 1996
---- ----
Deferred tax asset $ 1,897,000 $ 1,621,000
Valuation allowance for deferred tax asset (1,611,000) (1,324,000)
----------- -----------
Net deferred tax asset after valuation
allowance. $ 286,000 $ 297,000
============ ===========
At December 31, 1997 and 1996, the net deferred tax assets of $286,000 and
$297,000, respectively, were included in "prepaid income taxes and deferred
taxes' in the accompanying consolidated balance sheets.
The tax effect of major temporary differences that gave rise to the Company's
net deferred tax asset are as follows:
1997 1996
---- ----
Net operating loss carryforwards $ 1,569,000 $ 1,333,000
Allowance for uncollectible accounts 187,000 251,000
Accrued expenses 50,000 --
Other 91,000 37,000
----------- -----------
$ 1,897,000 $ 1,621,000
=========== ===========
Income tax expense for the years ended December 31, 1997, 1996 and 1995
consisted of the following:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Current tax expense:
Federal $ 1,392,085 $ 863,313 $ 531,000
State 516,733 171,585 159,957
Deferred tax (benefit) 11,000 (67,000) (103,000)
----------- ----------- -----------
Provision for income taxes $ 1,919,818 $ 967,898 $ 587,957
=========== =========== ===========
</TABLE>
37
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE 8. INCOME TAXES -- (Continued)
The effective tax rate for all periods presented was higher than the applicable
statutory tax rate, due to certain expenses that were not deductible for tax
purposes, Federal and state provisions at the maximum rates for JTS and net
operating losses for JCC/JIS, which is consolidated for financial reporting but
not tax reporting purposes (prior to the merger of the Company and JIS in
February 1997). A reconciliation of the Company's effective income tax rate with
the statutory federal rate follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Tax at statutory rate (34%) $1,575,000 $336,000 $363,000
Effect of losses of subsidiary not consolidated for tax 85,000 529,000 92,000
purposes
Permanent differences including non-deductible goodwill
amortization, net 5,000 29,000 90,000
Other (78,000) (63,000) (31,000)
State income taxes, net of Federal tax benefit 333,000 137,000 105,000
Federal income tax rate differentials due to surtax exemptions -- -- (31,000)
----------- -------- ------------
$ 1,920,000 $968,000 $ 588,000
=========== ======== ============
</TABLE>
As a result of operating losses, no provision for income taxes was required for
all periods prior to February 20, 1997 for JCC/JIS. JIS operating losses
subsequent to February 20, 1997 have been used in the consolidated tax accrual.
For income tax reporting purposes, as of December 31, 1997, JIS had an unused
operating loss carryforward of approximately $4,200,000, which may be applied
against future taxable income of JIS, subject to certain Federal income tax
limitations. These carryforwards expire between 2002 and 2012.
NOTE 9. COMMITMENTS AND CONTINGENCIES
The Company and its subsidiaries lease office facilities under operating lease
agreements that expire at various times through the year 2006. Certain of these
leases contain optional provisions for additional periods of time. Rent expense
was approximately $1,437,000, $897,000, and $557,000, for the years ended
December 31, 1997, 1996 and 1995, respectively. Minimum annual future rental
commitments, at December 31, 1997, exclusive of common area maintenance costs
and utilities, are as follows:
Year Ending December 31, Amount
------------------------ ------
1998 $ 1,391,000
1999 1,292,000
2000 1,215,000
2001 1,029,000
2002 896,000
Thereafter 695,000
-----------
$ 6,518,000
===========
Effective January 1994, the Company became self-insured for workers'
compensation purposes and is liable for aggregate claims up to approximately
$164,000 for 1997, $185,000 for 1996, and $78,000 for 1995. In addition, the
Company is responsible for certain fixed costs including underwriting,
brokerage, reinsurance and administration costs.
The Company is partially self-insured for health care claims for eligible active
employees. The Company is currently liable for aggregate claims up to
approximately $500,000 annually. Self-insurance costs are accrued based upon the
aggregate of the liability for reported claims and an estimated liability for
claims incurred but not reported.
38
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE 9. COMMITMENTS AND CONTINGENCIES -- (Continued)
The Company is aware of the issues associated with the programming code in
existing computer systems as the year 2000 approaches. The "Year 2000" problem
is pervasive and complex, as many computer systems will be affected in some way
by the rollover of the two-digit year value to 00. Systems that do not properly
recognize such information could generate erroneous data or cause a system to
fail. The "Year 2000" issue creates risk for the Company from unforeseen
problems in its own computer systems and from third parties for whom the Company
implements "Year 2000" solutions on their computer systems.
The Company believes its recently implemented financial information system is
"Year 2000" compliant. Further, the Company is currently in the process of
replacing its candidate and client databases utilized in its Contract Placement
and Permanent Placement business with software systems that are represented to
be "Year 2000" compliant. The Company is analyzing its remaining computer
systems to identify any potential "Year 2000" issues and will take appropriate
corrective action based on the results of such analysis. Management has not yet
determined the cost related to achieving "Year 2000" compliance. Management
believes, based on its available information, that it will be able to manage its
total "Year 2000" transition without any material adverse effects on its
business operations or financial condition.
NOTE 10. RETIREMENT PLANS
The Company had various 401(k) retirement plans (the "Plans") covering
substantially all employees through June 30, 1996. Employees were able to
contribute a percentage of their pre-tax salary to the Plans. Company
contributions to the Plans were at the discretion of the Board of Directors.
There were no Company contributions charged to operations related to the Plans
in 1996 and 1995. Effective July 1, 1996, all the Plans were merged into one
Plan. The new Plan has no Company contribution provision, although employees may
continue to contribute a percentage of their pre-tax salary to the Plan.
NOTE 11. SHAREHOLDERS' EQUITY AND EARNINGS PER SHARE
Dividends
In accordance with the provisions of its line of credit, the Company is not
permitted to declare or pay any cash dividends on its common stock (see Note 4).
Additional Paid-In Capital
During 1996, additional paid-in capital decreased due to the JCC/DI merger which
was accounted for as a reverse acquisition (Notes 12 and 15).
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.
Common Shares -- Warrants
During 1993, the Company issued to a financial advisor warrants to purchase
171,739 (split-adjusted) common shares of the Company. During September 1996,
such warrants were exercised.
39
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE 11. SHAREHOLDERS' EQUITY AND EARNINGS PER SHARE - (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. The options granted are
subject to a four year vesting schedule in equal increments annually, and are
exercisable any time after vesting up to 10 years from grant date.
During 1997, the Company granted two non-employee directors options to purchase
10,000 common shares each at an exercise price of $3.25 under the Non-Qualified
Stock Option Plan.
A summary of the Company's Incentive Stock Option Plan activity for common
shares for the year ended December 31, 1997 (there were no options granted in
1996) follows:
<TABLE>
<CAPTION>
Number of Shares Weighted Average Exercise Price
---------------- -------------------------------
<S> <C> <C>
Outstanding 1/1/97 -0- N/A
Granted 675,500 $ 7.21
Exercised -0- N/A
Terminated 91,500 $ 7.43
-------
Outstanding 12/31/97 584,000 $ 7.18
=======
</TABLE>
The Company accounts for its Incentive Plan in accordance with Accounting
Principles Board Opinion No. 25 and related interpretations. Accordingly, no
compensation expense has been recognized for the Incentive Plan. Had
compensation cost been determined in accordance with the fair value method of
Statement of Financial Standards No. 123, Accounting for Stock-Based
Compensation (SFAS 123), the Company's pro forma net income and net income per
share for the year ended December 31, 1997 would be as follows:
Net Income:
As reported $ 2,711,940
Pro forma $ 2,117,278
Basic earnings per share:
As reported $ 0.21
Pro forma $ 0.17
The resulting pro forma compensation cost may not be representative of that to
be expected in future years.
The fair value of each stock option granted is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted average
assumptions used for grants in 1997: risk-free interest rate of 5.92%, expected
dividend yields of 0%, expected life of five years from date of grant, and
expected price volatility of 57%. Since the Company had no history of volatility
at the time the options were granted, a weighted average historical volatility
of similar companies following a comparable period in their lives was used. The
weighted average fair value of the options granted in 1997 was $3.99.
NOTE 12. CAPITAL STRUCTURE OF JIS
Common Stock
In 1993, JCC issued to a financial advisor warrants to purchase common shares of
JCC equal to 2% of its outstanding common shares at a purchase price of $.005
per share. JCC issued 211,327 common shares to the financial adviser in 1995
upon the exercise of these warrants.
40
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE 12. CAPITAL STRUCTURE OF JIS -- (Continued)
Preferred Shares
During 1991, the capital structure of JCC was modified to authorize 10,000,000
$.10 par value preferred shares. During 1991, $100,000 of debentures and
$266,577 of investor loans payable were converted to 1,000,000 and 2,665,770
preferred shares, respectively. Accrued interest of approximately $97,000
relating to these payables was contributed to capital.
The JCC preferred shares bore cumulative dividends at an annual rate of $.005
per share. Cumulative dividends in arrears at December 31, 1995 were
approximately $74,000. No dividends were declared or paid in 1996, 1995, or
1994. 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.
At December 31, 1995, these preferred shares were eliminated in consolidation
and were presented at no value in minority interest, due to the extent of JCC's
shareholders' deficit at December 31, 1995.
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 $888,000 ($1,097,000 net of $209,000
in 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. The JCC
Series A Preferred shares were convertible into JCC common shares at the
holder's option, and conversion was mandatory at the time of a subsequent public
offering of common shares by JCC in excess of $5 million. The JCC Series A
Preferred shares carried a cumulative dividend of 7% per year (aggregating
approximately $45,000 at December 31, 1996), and holders had a liquidation
preference prior to the common shareholders and all other existing classes. 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")
with essentially the same rights and privileges. At December 31, 1996, the JIS
Series A Preferred stock is presented at $-0- as "minority interest" in the
accompanying consolidated balance sheet. Approximately $888,000 of JIS losses
were allocated to this minority interest in the accompanying consolidated
statement of operations for the year ended December 31, 1996.
In February 1996, and at the effective time of the JCC/DI Merger, advances from
the Company to JCC in the aggregate of $1,520,000 were converted into 1,500
Series B preferred shares of JCC, which were immediately converted into the same
number of shares of Series B preferred stock of JIS. The JIS Series B preferred
stock carried a cumulative annual dividend of 10%, was not convertible, did not
have a liquidation preference and was subject to mandatory redemption. These
shares were eliminated in consolidation.
Subsequent to December 31, 1996 and concurrent with the successful completion of
the initial public offering, the series A Preferred stock was converted into JIS
common stock, then into the Company's common stock, in accordance with the
merger agreement. The series B Preferred stock was canceled.
NOTE 13. STOCK REDEMPTION (JTS)
An employee of JTS (the "Minority Shareholder") acquired an aggregate of 400
common shares of JTS over a period of time ending in 1990. The aggregate
purchase price for these shares was paid by the Minority Shareholder in the form
of unsecured promissory notes. On August 12, 1992, JTS redeemed the Minority
Shareholder's shares for $266,000. In addition, in connection with this
redemption, JTS agreed to pay the Minority Shareholder $13,527 per month for six
years ($950,000 in the aggregate). The restrictive covenant set forth in the
agreement and the related liability were recorded at the net present value of
the payments, at an assumed interest rate of 8% (or $752,539). During August
1996, JTS reached a settlement agreement with the minority shareholder.
Accordingly, two outstanding notes were settled for $322,000, which was less
than the aggregate face value, which resulted in a gain of approximately
$27,000.
41
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE 14. STATEMENT OF CASH FLOWS
Supplemental disclosure of non-cash investing and financing transactions:
During 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;
o reversed $572,200 of goodwill and long-term debt due to a contingent
payment which was not required to be made, relating to the Berkeley
acquisition.
During 1996, the Company entered into the following non-cash transactions:
o incurred long-term debt ($2,379,452) for certain business combinations
(see Notes 3 and 5); and
o restructured $1,000,000 of the existing line of credit facility debt
into long-term debt (see Notes 4 and 5).
During the years ended December 31, 1996 and 1995, the Company entered into
certain financing arrangements for the purchase of property and equipment in the
amounts of approximately $432,000 and $264,000, respectively.
Effective February 29, 1996, JCC and DI effected a Business Combination (see
Note 15) and effective September 1996, the Company, and Berkeley and Systems
Automation effected business combinations (see Note 3):
Acquisition of Businesses:
<TABLE>
<CAPTION>
Systems
DI Berkeley Automation
-- -------- ----------
<S> <C> <C> <C>
Inventories $ 39,101 $ -- $ 79,375
Accounts receivable 104,127 455,124 144,756
Property and equipment, net 150,034 167,876 56,706
Other assets 10,780 51,110 34,314
----------- ------ ------
304,042 674,110 315,151
----------- ------- -------
Accounts payable and accrued expenses (82,087) (254,685) (307,398)
Debt obligations -- (206,005) (196,193)
Due to the Company (100,000) -- --
Deferred revenue and customer deposits. (362,037) (172,079) (315,118)
----------- --------- ---------
(544,124) (632,769) (818,709)
----------- --------- ---------
Net assets acquired (liabilities assumed) in business
combination ($ 240,082) $ 41,341 ($ 503,558)
=========== ========= ===========
</TABLE>
42
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE 15. BUSINESS COMBINATION (THE JCC/DI MERGER)
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. In connection
with the merger, the Certificate of Incorporation of JIS was amended to increase
its authorized capital by 1,125,000 shares of $.01 value JIS Series A Preferred
stock, 1,500 shares of $1,000 stated value Series B preferred stock (the "JIS
Series B Preferred") and 3,873,500 shares of "blank check" preferred stock (for
an aggregate of 5,000,000 shares of new preferred stock). The JIS Series A
Preferred and JIS Series B Preferred stock have essentially the same rights and
privileges as the JCC Series A Preferred shares and JCC Series B Preferred
shares existing immediately prior to the merger.
In the JCC/DI Merger, each stockholder of DI received one share of JIS common
stock for every 31.96 shares of DI common stock held thereby immediately prior
to the merger, and each shareholder of JCC received one share of JIS common
stock for every 2.83 common shares of JCC held thereby immediately prior to the
merger. In addition, the JCC Series A Preferred shares and the JCC Series B
Preferred shares outstanding prior to the JCC/DI Merger were converted into the
same numbers of JIS Series A Preferred and JIS Series B Preferred shares,
respectively.
The conversion ratios were calculated so that, after giving effect to certain
reserved shares for issuance to employees following the merger and assuming the
sale of the maximum of 1,125,000 JCC Series A Preferred shares offered in JCC's
1995 private offering (822,628 were actually sold) and the conversion of such
maximum number of JCC Series A Preferred shares into JCC common shares, there
would be approximately 5,000,000 shares of common stock of JIS outstanding
immediately following the merger, of which holders of DI common stock
immediately prior to the merger were to receive in the aggregate approximately
5% (approximately 250,000 shares) and the holders of JCC common shares and JCC
Series A Preferred shares immediately prior to the merger were to receive in the
aggregate approximately 95% (approximately 4,750,000 shares). The JCC Series B
Preferred stock was not included in the foregoing percentage calculations.
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.
43
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE 16. SEGMENT INFORMATION
The Company's operations cover three industry segments, the Contract and
Permanent Placement segment (consisting of the Company's Contract Placement
business and Permanent Placement business), the Imaging and Network Services
segment, and the Information Technology Training segment. The information
technology training segment was purchased effective September 30, 1996. The
following represents financial information for each of the Company's reportable
industry segments:
<TABLE>
<CAPTION>
Year Ended December 31, 1997
----------------------------
Contract And Imaging And Information
Permanent Network Technology
Placement Services Training Eliminations Total
--------- -------- -------- ------------ -----
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated customers $78,933,050 $ 16,443,294 $ 3,150,123 $ --- $98,526,467
Intersegment sales
358,517 --- 65,418 423,935 ---
----------- ------------ ----------- ----------- -----------
Total revenues $79,291,567 $ 16,443,294 $ 3,215,541 $ 423,935 $98,526,467
=========== ============ =========== =========== ===========
Income (loss) from operations $ 6,082,994 ($1,572,980) $ 21,158 --- $ 4,531,172
=========== ============ =========== =========== ===========
Net income (loss) $ 3,874,971 ($1,189,665) $ 26,634 --- $ 2,711,940
=========== ============ =========== =========== ===========
Depreciation and amortization $ 661,029 $ 227,281 $ 107,930 --- $ 996,240
=========== ============ =========== =========== ===========
Identifiable assets $33,310,679 $ 5,942,808 $ 1,157,929 $ 8,477,845 $31,933,571
=========== ============ =========== =========== ===========
Capital expenditures $ 519,000 $ 676,000 $ 421,000 $ -- $ 1,616,000
=========== ============ =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1996
----------------------------
Contract And Imaging And Information
Permanent Network Technology
Placement Services Training Eliminations Total
--------- -------- -------- ------------ -----
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated customers $ 67,605,373 $ 14,157,565 $ 608,127 $ --- $ 82,371,065
Intersegment sales 289,198 56,692 --- 345,890 ---
------------ ------------ --------- ----------- ------------
Total revenues $ 67,894,571 $ 14,214,257 $ 608,127 $ 345,890 $ 82,371,065
============ ============ ========= =========== ============
Income (loss) from operations $ ,234,305 $ 1,349,495) ($ 25,391) $ --- $ 1,859,419
============ ============= ========= =========== ============
Net income (loss) $ 1,647,601 $ 1,608,861) ($ 19,797) ($ 888,000) $ 906,248
============ ============= ========= =========== ============
Depreciation and amortization $ 461,937 $ 125,522 $ 20,789 $ --- $ 608,248
============ ============= ========= =========== ============
Identifiable assets $ 19,386,384 $ 5,638,839 $ 612,188 $ 3,668,403 $ 21,969,008
============ ============= ========= =========== ============
Capital expenditures $ 665,000 $ 362,000 $ 44,000 $ --- $ 1,071,000
============ ============= ========= =========== ============
</TABLE>
44
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE 16. SEGMENT INFORMATION -- (Continued)
<TABLE>
<CAPTION>
Year Ended December 31, 1995
----------------------------
Contract And
Permanent Imaging And
Placement Network Services Eliminations Total
--------- ---------------- ------------ -----
<S> <C> <C> <C> <C>
Sales to unaffiliated customers $ 55,079,572 $ 8,219,781 $ --- $ 63,299,353
Intersegment sales --- 480,000 480,000 ---
------------ ----------- ----------- ------------
Total revenues $ 55,079,572 $ 8,699,781 $ 480,000 $ 63,299,353
============ =========== =========== ============
Income (loss) from operations $ 1,810,035 ($ 46,156) $ --- $ 1,763,879
============ =========== =========== ============
Net income (loss) $ 751,041 ($ 272,458) ($ 7,057) $ 485,640
============ =========== =========== ============
Depreciation and amortization $ 384,419 $ 37,194 $ --- $ 421,613
============ =========== =========== ============
Identifiable assets $ 10,900,309 $ 2,530,930 $ 1,799,375 $ 11,631,864
============ =========== =========== ============
Capital expenditures $ 474,100 $ 163,207 $ --- $ 637,307
============ =========== =========== ============
</TABLE>
See Note 2 for summary of significant accounting policies.
NOTE 17. SUBSEQUENT EVENTS
Subsequent to December 31, 1997 the following occurred:
1. The Company satisfied the Note Payable - Berkeley in the amount of
approximately $237,721; and repurchased 40,000 common shares at a price of
$5.50, which shares will be considered treasury stock.
2. The Company purchased all of the assets of Information Solutions, Inc.
("ISI"), a provider of IT staffing services, for approximately $6,072,000
payable in cash, notes and stock, plus an additional $750,000 contingent
upon ISI attaining certain net income targets in 1998.
3. The Company extended an existing office lease through May 2003 and entered
into a new lease for office space through March 2005. The aggregate rental
commitment of these two leases amounts to approximately $2,400,000 (Note 9).
45
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
INCORPORATION BY REFERENCE
The information called for by Item 10 "Directors of the Registrant",
Item 11 "Executive Compensation," Item 12 "Security Ownership of Certain
Beneficial Owners and Management," and Item 13 "Certain Relationships and
Related Transactions" is incorporated herein by reference to the Company's
definitive proxy statement for its 1998 Annual Meeting of Shareholders which
definitive proxy statement is expected to be filed with the Commission no later
than 120 days after the end of the fiscal year to which this Report relates.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Annual Report on Form
10-K.
1. Consolidated Financial Statements:
Report of Independent Auditors 24
Consolidated Balance Sheets 25
Consolidated Statements of Operations 26
Consolidated Statements of Shareholders' Equity 27
Consolidated Statements of Cash Flows 28
Notes to Consolidated Financial Statements 29-46
2. Consolidated Financial Statement Schedules:
Included in Part IV of this report:
All such information is included in the Notes to the
Consolidated Financial Statements.
Other Schedules are omitted because of the absence of
conditions under which they are required.
46
<PAGE>
3. Exhibits
Exhibit
No. Description of Document
--- -----------------------
1.1 Form of Underwriting Agreement. Incorporated by
reference to Exhibit 1.1 to the Registrant's Form S-1
(File No. 333-13109) originally filed on October 1,
1996, as amended (the "Form S-1").
2.1 Agreement and Plan of Merger, among the Company, Judge
Acquisition, Inc. and Judge Imaging Systems, Inc.
Incorporated 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 Form
S-1.
3.2 Bylaws. Incorporated by reference to Exhibit 3.2 of
the Form S-1.
4.1 10% Convertible Senior Subordinated Note Purchase
Agreement. Incorporated by reference to Exhibit 4.1 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.
10.1 Lease of Two Bala Plaza, Bala Cynwyd, Pennsylvania,
dated January 21, 1994, between The Prudential
Insurance Company of America, as landlord, and Judge,
Inc., as tenant. Incorporated by reference to Exhibit
10.1 of the Form S-1.
10.1(a) Amendment to lease of Two Bala Plaza, Pennsylvania,
dated July 21, 1997, by and between Bala Plaza, Inc.
as landlord, and The Judge Group, Inc., as tenant.
10.2 Stock Purchase Agreement by and among the Company, The
Berkeley Associates Corporation, Sandy Mayer and
Gregory McCarthy, as amended. Incorporated by
reference to Exhibit 10.2 of the Form S-1.
10.3 Asset Purchase Agreement by and among the Company,
Systems Automation, Inc. and Edward Haskell.
Incorporated by reference to Exhibit 10.3 of the Form
S-1.
10.4 1996 Incentive Stock Option and Non-Qualified Stock
Option Plan for Key Employees and Non-Employee
Directors. Incorporated by reference to Exhibit 10.4
of the Form S-1.
10.5 Professional Services Agreement between Merck &
Company, Inc. and Judge Technical Services, Inc.
Incorporated by reference to Exhibit 10.5 of the Form
S-1.
10.6 Split-Dollar Agreement by and between Judge, Inc. and
Dennis F. Judge, Trustee of Irrevocable Agreement of
Trust of Martin E. Judge, Jr., Settlor, Dated December
28, 1995. Incorporated by reference to Exhibit 10.6 of
the Form S-1.
10.7 Split-Dollar Agreement by and between Judge, Inc. and
Kathleen Dunn, Trustee of the Irrevocable Agreement of
Trust of Michael Dunn, Settlor, date June 19, 1996.
Incorporated by reference to Exhibit 10.7 of the Form
S-1.
10.8 Split-Dollar Agreement by and between Judge, Inc. and
Ann L. Judge, Trustee of the Irrevocable Agreement of
Trust of Martin E. Judge, Jr., Settlor, dated December
20, 1995. Incorporated by reference to Exhibit 10.8 of
the Form S-1.
<PAGE>
10.9 Split-Dollar Agreement by and between Judge, Inc. and
D. Michael Carmody, Trustee of the Irrevocable
Agreement of Trust of Michael Dunn, Settlor, dated
June 19, 1996. Incorporated by reference to Exhibit
10.9 of the Form S-1.
10.10 Employment Agreement, by and between Judge Imaging
Systems, Inc. and Jeff Andrews. Incorporated by
reference to Exhibit 10.10 of the Form S-1.
10.11 Stock Option Agreement between the Company and James
A. Hahn.
10.12 Stock Option Agreement between the Company and
Randolph J. Angermann.
10.13 Asset Purchase Agreement dated as of March 5, 1998
among Judge Technical Services, Inc., Information
Solutions, Inc., ISI Systems, Inc. and John Runyon.
Incorporated by reference to Exhibit 2 to Form 8-K
filed on March 20, 1998.
11.1 Computation of Earnings Per Share.
21.1 Subsidiaries of the Registrant. Incorporated by
reference to Exhibit 21.1 of the Form S-1.
47
<PAGE>
Exhibit
No. Description of Document
--- -----------------------
27 Financial Data Schedule.
No reports were filed by the Registrant on Form 8-K during the quarter
ended December 31, 1997.
48
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned,
Dated: March 26, 1998 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
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ Martin E. Judge, Jr. Chairman of the Board, March 26, 1998
- ----------------------------- Director and Chief Executive
Martin E. Judge, Jr. Officer
(Principal Executive Officer
/s/ Richard T. Furlano Director and President March 26, 1998
- -----------------------------
Richard T. Furlano
/s/ Michael A. Dunn Director and Executive March 26, 1998
- ----------------------------- Vice President
Michael A. Dunn
/s/ Randolph J. Angermann Director March 26, 1998
- -----------------------------
Randolph J. Angermann
/s/ James C. Hahn Director March 26, 1998
- -----------------------------
James C. Hahn
</TABLE>
49
Exhibit 10.1(a)
SIXTH AMENDMENT TO LEASE
THIS SIXTH AMENDMENT TO LEASE ("Amendment") is made on this day of 21st day of
July, 1997, by and between BALA PLAZA, INC., a Delaware corporation ("Landlord")
and THE JUDGE GROUP, INC., a Pennsylvania corporation formerly known as Judge,
Inc. ("Tenant").
BACKGROUND
A. The Prudential Insurance Company of America ("Prudential") and Tenant entered
into a certain Lease, dated January 21, 1994 (the "Original Lease"), pursuant to
which Prudential leased to Tenant approximately 12,493 rentable square feet of
space on the eighth floor (the "Premises") of the building known as Two Bala
Plaza ("Building") and upon lands located in Bala Cynwyd, Lower Merion Township,
Montgomery County, Pennsylvania (the "Property"). The Premises are more fully
described in the Lease. Capitalized terms used but not defined herein shall have
the respective meanings ascribed to such terms in the Lease.
B. Prudential and Judge entered into a certain First Amendment of Lease, dated
as of September 7, 1994 ("First Amendment") pursuant to which Prudential and
Judge amended the Original Lease to, among other things, (i) add to the Premises
approximately 765 rentable square feet of space on the eighth floor of the
Building, as such space is more fully described in the First Amendment ("First
Amendment Additional Space"), and (ii) adjust the Base Rent and additional rent
payable by Tenant.
C. Prudential and Judge entered into a certain Second Amendment of Lease, dated
as of November 7, 1994 ("Second Amendment") pursuant to which Prudential and
Judge further amended the Original Lease to, among other things, confirm the
commencement and expiration dates of the term of the Original Lease as being
July 1, 1994 and June 30, 2000, respectively.
D. Prudential and Judge entered into a certain Third Amendment of Lease, dated
as of May 2, 1995 ("Third Amendment") pursuant to which Prudential and Judge
further amended the Original Lease to, among other things, confirm March 27,
1995 as being the date that the First Amendment Additional Space was added to
the Premises.
E. Prudential and Judge entered into a certain Fourth Amendment of Lease, dated
as of July 31, 1995 ("Fourth Amendment") pursuant to which Prudential and Judge
further amended the Original Lease to, among other things, (i) add to the
Premises approximately 9,635 rentable square feet of space on the fourth floor
of the Building, as such space is more fully described in the Fourth Amendment,
(ii) adjust the Base Rent and additional rent payable by Tenant, and (iii)
provide Tenant with a right of first offer to lease approximately 1,708 rentable
square feet of space on the fourth floor of the Building, as such space is more
fully described in the Fourth Amendment (the "Fourth Amendment First Offer
Space").
F. Prudential and Judge entered into a certain Fifth Amendment of Lease, dated
as of March 4, 1996 ("Fifth Amendment") pursuant to which Prudential and Judge
further amended the Original Lease to, among other things, (i) add to the
Premises the Fourth Amendment First Offer Space, and (ii) adjust the Base Rent
and additional rent payable by Tenant.
G. The Original Lease, as amended by the First Amendment, the Second Amendment,
the Third Amendment, the Fourth Amendment and the Fifth Amendment, is referred
to herein as the "Lease".
H. Landlord heretofore succeeded to the night, title and interest of Prudential
in and to the Building and the Property, and all of Prudential's right, title
and interest as the "Landlord" under the Lease was assigned to Landlord.
<PAGE>
I. Subject to the conditions set forth in this Amendment, Landlord and Tenant
desire to further amend the Lease to, among other things, (i) extend the term of
the Lease through and including October 31, 2002, (ii) expand the Premises by
adding thereto approximately 7,744 rentable square feet of space located on the
fourth floor of the Building, shown outlined and hatched in black on the floor
plan attached hereto as Exhibit A (the "Additional Space"), (iii) provide for
the performance by Landlord of certain improvements to the Additional Space,
(iv) adjust the annual Base Rent and additional rent payable by Tenant, and (v)
modify Tenant's option to renew the term of the Lease.
NOW, THEREFORE, in consideration of the mutual covenants and conditions herein
set forth and for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. Extension of Term. The term of the Lease is hereby extended by a
period of two years and four months, commencing on July 1, 2000 and expiring on
October 31, 2002. All provisions of the Lease, as amended hereby and except as
otherwise expressly set forth herein, shall apply to such extended term. Except
for the improvements to be made by Landlord to the Additional Space pursuant to
Section 4 of this Amendment, Tenant accepts the Premises (including the
Additional Space) for such extended term in their "AS IS" condition as of the
date of this Amendment. Tenant acknowledges that neither Landlord, nor
Landlord's agents, representatives, employees, servants or attorneys have made
any representations or promises, whether express or implied, concerning the
condition of the Premises (including the Additional Space), and agrees that,
except for the improvements to be made by Landlord to the Additional Space
pursuant to Section 4 of this Amendment, Landlord shall have no obligation to
make any alterations or improvements to the Premises (including the Additional
Space) for or during such extended term.
2. Demise of Additional Space. Landlord hereby leases, demises and
lets unto Tenant the Additional Space, and Tenant hereby takes and hires the
Additional Space from Landlord, for the period commencing on the later date
("Additional Space Commencement Date") to occur of (a) November 1, 1997 or (b)
the date that the improvements to the Additional Space to be made by Landlord
pursuant to Section 4 of this Amendment are Substantially Completed (defined
below), and terminating on October 31, 2002, being the scheduled expiration date
of the term of the Lease. As used herein, the term "Substantially Completed"
shall mean that state of completion which will enable Tenant to reasonably
utilize the Additional Space for the conduct of its ordinary business, even
though certain work remains to be completed by Landlord, without unreasonable
interruption or disruption of Tenant's business. The date that improvements to
the Additional Space to be made by Landlord pursuant to Section 4 of this
Amendment are Substantially Completed shall be certified in writing to Tenant
and Landlord by Landlord's architect.
Landlord and Tenant agree to execute a confirmation of the Additional
Space Commencement Date, substantially in the form of Exhibit B hereto, within
thirty (30) days after the occurrence of such date.
Landlord and Tenant agree that effective on the Additional Space
Commencement Date, the Additional Space shall be (i) added to the Premises,
which shall comprise an aggregate of approximately 32,345 rentable square feet,
and (ii) governed by all of the provisions of the Lease, as amended hereby.
3. Adjustment of Annual Base Rent, Additional Rent and Security
Deposit.
(a) Effective on the Additional Space Commencement Date and
continuing through the expiration date of the term of the Lease, Tenant shall
pay Landlord annual Base Rent and monthly installments thereof for the
Additional Space as follows:
<TABLE>
<CAPTION>
Annual Monthly Base Rent
Period Base Rent Base Rent Per RSF
------ --------- --------- -------
<S> <C> <C> <C>
Additional Space
Commencement Date
to 10/31/99 $193,600.00 $16,133.33 $25.00
11/01/99 to 10/31/02 $201,344.00 $16,778.67 $26.00
</TABLE>
2
<PAGE>
Accordingly, effective on the Additional Space Commencement
Date and continuing through the expiration date of the term of the Lease, Tenant
shall pay Landlord annual Base Rent and monthly installments thereof for the
entire Premises (including the Additional Space) as follows:
Annual Monthly
Period Base Rent Base Rent
------ --------- ---------
Additional Space
Commencement Date
to 06/30/98 $738,238.00 $61,519.83
07/01/98 to 10/31/99 $739,946.00 $61,622.17
11/01/99 to 06/30/00 $747,690.00 $62,307.50
07/01/00 to 10/31/02 $816,369.00 $68,030.75
(b) Effective on the Additional Space Commencement Date and
continuing through the expiration date of the term of the Lease, Tenant shall
pay to Landlord additional rent with respect to the Additional Space, including
without limitation additional rent under Article 5 of the Lease. For the
purpose, (i) effective on the Additional Space Commencement Date and continuing
through the expiration date of the term of the Lease, the Base Year under
paragraph 5(c)(i) of the Lease, with respect to the Additional Space only, shall
be 1997 (the Base Year under paragraph 5(c)(i) of the Lease with respect to the
balance of the Premises shall remain the 1994 calendar year through the
expiration date of the term of the Lease), and (ii) Tenant's Percentage under
paragraph 5(c)(iii) shall be increased from 9.5298% to 12.5296% effective on the
Additional Space Commencement Date and continuing through the expiration date of
the term of the Lease. Effective on the Additional Space Commencement Date, with
respect to the Additional Space only, clause (2) of paragraph 5(c) of the Lease
is hereby amended and restated as follows: "(2) Any increase in Operation and
Maintenance Costs for each Comparison Year over the Operation and Maintenance
Costs for the Base Year, excluding any non-recurring Operation and Maintenance
Costs for the Base Year."
(c) On or before the Additional Space Commencement Date,
Tenant shall pay to Landlord $16,778.67 to be held as collateral security in
accordance with the provisions of paragraph 4(d) of the Lease. Upon Landlord's
receipt of such payment, Landlord will be holding an aggregate of $75,779.92 as
collateral security under paragraph 4(d) of the Lease (as of the date of this
Amendment Landlord is holding $59,001.25 as collateral security under paragraph
4(d) of the Lease).
Notwithstanding any provisions of this Amendment to the
contrary, if the improvements to the Additional Space to be made by Landlord
pursuant to Section 4 of this Amendment are not Substantially Completed by
November 1, 1997 because of any action by Tenant including, but not limited to,
the failure by Tenant to deliver Tenant's Drawings (defined in Section 4 hereof)
to Landlord on or before August 15, 1997, Tenant's obligation to pay annual Base
Rent and additional rent (including, without limitation, additional rent under
Article 5 of the Lease) with respect to the Additional Space (as detailed in
this Section 3) shall begin to accrue on November 1, 1997 as if the delay had
not occurred.
4. Improvement of Additional Space. At Landlord's expense, up to a
maximum of $154,880.00 ("Landlord's Additional Space Improvement Allowance"),
Landlord shall construct and improve the Additional Space in Landlord's Building
standard manner and materials, in accordance with (i) Tenant's interior design
drawings ("Tenant's Drawings"), (ii) final plans and specifications for such
construction and improvement, to be prepared by Space Design, Inc. (the "Plans
and Specifications"), and (iii) mechanical and engineering drawings to be
prepared based upon the Plans and Specifications, and at Landlord's expense (as
part of Landlord's Additional Space Improvement Allowance) and shall be
submitted to Landlord on or before August 15, 1997, time being of the essence.
Landlord's Additional Space Improvement Allowance shall cover all design and
construction costs and fees, including a 1.25% construction management fee and
the costs of Tenant's Drawings, the Plans and Specifications and the
3
<PAGE>
mechanical and engineering drawings, labor and materials, construction permits
and reasonable overhead (collectively "Improvement Costs").
If the Improvement Costs of the design and construction of the
Additional Space exceeds Landlord's Additional Space Improvement Allowance, then
Tenant shall pay Landlord the entire amount of the excess, in lump sum, within
ten (10) days after Landlord's billing therefor, together with an itemization of
the Improvement Costs.
If the Improvement Costs of the design and construction of the
Additional Space are less than Landlord's Additional Space Improvement
Allowance, then Tenant shall receive a credit in the amount of the difference to
be applied solely toward the cost and expense of future improvements to the
Premises, including the Additional Space, completed prior to October 31, 2002.
Any such improvements shall be performed by Landlord in Landlord's Building
standard manner and materials and in accordance with Tenant's interior design
drawings, final plans and specifications for such construction and improvement,
to be prepared by Landlord's architect, and mechanical and engineering drawings
to be prepared based upon such interior design drawings and final plans and
specifications. Tenant's credit under this paragraph shall be applied toward the
payment of all design and construction costs and fees, including a 1.25%
construction management fee and the costs of such interior design drawings,
final plans and specifications and mechanical and engineering drawings, labor
and materials, construction pernits and reasonable overhead. If the total of
such costs, fees and expenses exceeds Tenant's credit under this paragraph, then
Tenant shall pay Landlord the entire amount of the excess, in lump sum, within
ten (10) days after Landlord's billing therefor, together with an itemization of
such costs, fees and expenses. If by October 31, 2002 Tenant's credit under this
paragraph (if any) has not been fully applied, then such credit shall expire
automatically on that date, even if the term of the Lease is extended pursuant
to Article 47 of the Lease or otherwise, and Tenant shall not be entitled to
receive any cash or other consideration from Landlord on account of the
unapplied credit.
Except for the improvements to the Additional Space to be made by
Landlord pursuant to this Section 4, Tenant accepts the Additional Space in
their "AS IS" condition as of the date of this Amendment. Tenant acknowledges
that neither Landlord, nor Landlord's agents, representatives, employees,
servants or attorneys have made any representations or promises, whether express
or implied, concerning the condition of the Additional Space, and agrees that,
except for the improvements to be made by Landlord pursuant to this Section 4,
Landlord shall have no obligation to make any alterations or improvements to the
Additional Space for or during the remainder of the term of the Lease.
5. Conditions to Effectiveness. The Additional Space is currently
leased by
4
<PAGE>
Landlord to Courtland Health Care, Inc. and Health Data, Inc. (Collectively, the
"Current Tenant") under a lease (the "Current Tenant Lease") that is scheduled
to expire on November 30, 1999. Landlord is currently negotiating a termination
agreement with the Current Tenant pursuant to which, among other things, the
term of the Current Tenant Lease would be terminated as soon as possible.
Landlord and Tenant agree that notwithstanding any provision of this Amendment
to the contrary, all rights and obligations of each of Tenant and Landlord under
this Amendment are subject to the fulfillment or satisfaction of each of the
following conditions: (a) the execution and delivery by Landlord and Current
Tenant of a mutually acceptable agreement pursuant to which the term of the
Current Tenant Lease is terminated, and (b) the Current Tenant and all persons
claiming any rights by or through the Current Tenant shall have vacated and
surrendered the Additional Space to Landlord. Landlord shall give Tenant written
notice of the fulfillment or satisfaction of such conditions within five (5)
days after such fulfillment or satisfaction. The respective dates set forth in
Sections 2, 3 and 4 of this Amendment were set based upon the assumption that
the conditions set forth in this Section 5 would be fulfilled or satisfied by
July 15, 1997; and if such conditions are not fulfilled or satisfied by that
date, the respective dates set forth in Sections 2, 3 and 4 of this Amendment
will have to be adjusted accordingly.
6. Restatement of Certain Remedies. Paragraph 25(i) of the Lease is
hereby amended and restated in their entirety as follows:
"(i) CONFESSION OF JUDGMENT FOR MONETARY AMOUNTS.
(a) TENANT HEREBY EXPRESSLY AUTHORIZES THE PROTHONOTARY, CLERK OR ANY
ATTORNEY OF ANY COURT OF RECORD TO ACCEPT SERVICE OF PROCESS FOR, TO
APPEAR FOR, AND TO CONFESS JUDGMENT AGAINST TENANT AND ALL PERSONS
CLAIMING UNDER TENANT IN ANY AND ALL ACTIONS BROUGHT HEREUNDER BY
LANDLORD AGAINST TENANT TO ENFORCE PAYMENT OF ANY SUMS OWING HEREUNDER
BY TENANT TO LANDLORD (AS RENT, ACCELERATED RENT OR OTHERWISE), WITH
FIVE PERCENT (5%) ADDED THERETO AS ATTORNEY'S COLLECTION FEE, WITHOUT
ANY LIABILITY ON THE PART OF SAID ATTORNEY, FOR WHICH THIS LEASE SHALL
BE SUFFICIENT WARRANT, AND TENANT AGREES THAT UPON THE ENTRY OF SUCH
JUDGMENT FOR POSSESSION A WRIT OF EXECUTION OR OTHER APPROPRIATE
PROCESS MAY ISSUE FORTHWITH (WITHOUT ANY PRIOR WRIT OR PROCEEDING
WHATSOEVER).
IN ANY SUCH ACTION, LANDLORD SHALL FIRST CAUSE TO BE FILED IN
SUCH ACTION AN AFFIDAVIT MADE BY LANDLORD OR SOMEONE ACTING FOR IT
SETTING FORTH FACTS NECESSARY TO AUTHORIZE THE ENTRY OF JUDGMENT, OF
WHICH FACTS SUCH AFFIDAVIT SHALL BE CONCLUSIVE EVIDENCE, AND IF A TRUE
COPY OF THIS LEASE BE FILED IN SUCH ACTION (AND OF THE TRUTH OF THE
COPY SUCH AFFIDAVIT SHALL BE SUFFICIENT EVIDENCE), IT SHALL NOT BE
NECESSARY TO FILE THE ORIGINAL AS A WARRANT OF ATTORNEY, ANY RULE OF
COURT, CUSTOM OR PRACTICE TO THE CONTRARY NOTWITHSTANDING. TENANT AND
ALL PERSONS CLAIMING UNDER TENANT HEREBY RELEASE LANDLORD FROM ANY
CLAIMS ARISING FROM ANY ERRORS OR DEFECTS WHATSOEVER IN ENTERING SUCH
ACTION OR JUDGMENT, IN CAUSING SUCH WRIT OF EXECUTION OR OTHER PROCESS
TO BE ISSUED OR IN ANY PROCEEDING THEREON OR CONCERNING THE SAME, AND
HEREBY AGREE THAT NO WRIT OF ERROR OR OBJECTION SHALL BE MADE OR TAKEN
THERETO.
THIS WARRANT OF ATTORNEY SHALL NOT BE EXHAUSTED BY ONE
EXERCISE THEREOF, BUT JUDGMENT MAY BE CONFESSED FROM TIME TO TIME AS
OFTEN AS OCCASION THEREFORE SHALL EXIST. SUCH POWERS MAY BE EXERCISED
DURING AS WELL AS AFTER THE EXPIRATION OR TERMINATION OF
5
<PAGE>
THE TERM AND DURING AND AT ANY TIME AFTER ANY EXTENSION OR RENEWAL OF
THE TERM OF THIS LEASE.
(b) CONFESSION OF JUDGMENT FOR POSSESSION. TENANT HEREBY EXPRESSLY
AUTHORIZES THE PROTHONOTARY, CLERK OR ANY ATTORNEY OF ANY COURT OF
RECORD TO ACCEPT SERVICE OF PROCESS FOR, TO APPEAR FOR, AND TO CONFESS
JUDGMENT AGAINST TENANT AND ALL PERSONS CLAIMING UNDER TENANT IN ANY
AND ALL ACTIONS BROUGHT HEREUNDER BY LANDLORD AGAINST TENANT TO
RECOVER POSSESSION OF THE PREMISES (IN EJECTMENT OR OTHERWISE),
WITHOUT ANY LIABILITY ON THE PART OF SAID ATTORNEY, FOR WHICH THIS
LEASE SHALL BE SUFFICIENT WARRANT, AND TENANT AGREES THAT UPON THE
ENTRY OF SUCH JUDGMENT FOR POSSESSION A WRIT OF POSSESSION OR OTHER
APPROPRIATE PROCESS MAY ISSUE FORTHWITH (WITHOUT ANY PRIOR WRIT OR
PROCEEDING WHATSOEVER).
IN ANY SUCH ACTION, LANDLORD SHALL FIRST CAUSE TO BE FILED IN
SUCH ACTION AN AFFIDAVIT MADE BY LANDLORD OR SOMEONE ACTING FOR IT
SETTING FORTH FACTS NECESSARY TO AUTHORIZE THE ENTRY OF JUDGMENT, OF
WHICH FACTS SUCH AFFIDAVIT SHALL BE CONCLUSIVE EVIDENCE, AND IF A TRUE
COPY OF THIS LEASE BE FILED IN SUCH ACTION (AND OF THE TRUTH OF THE
COPY SUCH AFFIDAVIT SHALL BE SUFFICIENT EVIDENCE), IT SHALL NOT BE
NECESSARY TO FILE THE ORIGINAL AS A WARRANT OF ATTORNEY, ANY RULE OF
COURT, CUSTOM OR PRACTICE TO THE CONTRARY NOTWITHSTANDING. TENANT AND
ALL PERSONS CLAIMING UNDER TENANT HEREBY RELEASE LANDLORD FROM ANY
CLAIMS ARISING FROM ANY ERRORS OR DEFECTS WHATSOEVER IN ENTERING SUCH
ACTION OR JUDGMENT, IN CAUSING SUCH WRIT OF POSSESSION OR OTHER
PROCESS TO BE ISSUED OR IN ANY PROCEEDING THEREON OR CONCERNING THE
SAME, AND HEREBY AGREE THAT NO WRIT OF ERROR OR OBJECTION SHALL BE
MADE OR TAKEN THERETO.
THIS WARRANT OF ATTORNEY SHALL NOT BE EXHAUSTED BY ONE
EXERCISE THEREOF, BUT JUDGMENT MAY BE CONFESSED FROM TIME TO TIME AS
OFTEN AS OCCASION THEREFORE SHALL EXIST. SUCH POWERS MAY BE EXERCISED
DURING AS WELL AS AFTER THE EXPIRATION OR TERMINATION OF THE TERM AND
DURING AND AT ANY TIME AFTER ANY EXTENSION OR RENEWAL OF THE TERM OF
THIS LEASE.
(c) THIS PARAGRAPH 25(i) SETS FORTH WARRANTS OF ATTORNEY FOR AN
ATTORNEY TO CONFESS JUDGMENT AGAINST TENANT. IN GRANTING THESE
WARRANTS OF ATTORNEY TO CONFESS JUDGMENT AGAINST TENANT, TENANT,
FOLLOWING CONSULTATION WITH (OR DECISION NOT TO CONSULT WITH) SEPARATE
COUNSEL FOR TENANT AND WITH KNOWLEDGE OF THE LEGAL EFFECT HEREOF,
HEREBY KNOWINGLY, INTELLIGENTLY AND VOLUNTARILY WAIVES UNCONDITIONALLY
ANY AND ALL RIGHTS TENANT HAS OR MAY HAVE TO PRE-JUDGMENT AND
PRE-EXECUTION NOTICE AND AN OPPORTUNITY FOR HEARING UNDER THE
RESPECTIVE CONSTITUTIONS AND LAWS OF THE UNITED STATES OF AMERICA, THE
COMMONWEALTH OF PENNSYLVANIA, OR ELSEWHERE.
TENANT SPECIFICALLY ACKNOWLEDGES THAT LANDLORD HAS RELIED ON
THE WARRANTS OF ATTORNEY SET FORTH IN THIS PARAGRAPH 25(i) IN ENTERING
INTO THIS LEASE WITH TENANT AND THAT THE LANDLORD-TENANT RELATIONSHIP
CREATED HEREBY IS COMMERCIAL IN NATURE.
6
<PAGE>
(d) SO LONG AS JUDGE, INC. IS TENANT UNDER THIS LEASE, LANDLORD AGREES
NOT TO EXERCISE THE REMEDY UNDER THIS PARAGRAPH 25(i)."
7. Restatement of Option to Renew. Article 47 of the Lease is hereby
amended and restated in its entirety as follows:
"47. Option to Extend Term. Tenant shall have the right and option,
exercisable by giving Landlord prior written notice thereof on or
before January 31, 2002, to extend the term of the Lease for one (1)
extension term of five (5) years, commencing on November 1, 2002 and
expiring on October 31, 2007, at an annual Base Rent (expressed as an
annual amount per square foot of the total rentable square feet of the
Premises as of the commencement date of the extension term) equal to
the greater of (i) the current Fair Market Rent (defined below) as of
the commencement date of the extension term, or (ii) the annual Base
Rent (expressed as an annual amount per square foot of the total
rentable square feet of the Premises) payable by Tenant to Landlord
under the Lease during the 12 month period ending on October 31, 2002
, but otherwise upon the same terms, conditions and provisions
contained in the Lease including, without limitation, the obligation
of Tenant to pay additional rent under Article 5 of the Lease (except
that there shall be no further right and option to extend), provided
and upon the condition that at the time Tenant exercises its right and
option to extend the term and immediately prior to the commencement
date of the extension term, the Lease shall be in full force and
effect and no event of default by Tenant of the type described in any
of paragraphs 24(a) through (e) of the Lease shall have occurred and
be continuing. The "Fair Market Rent" shall mean the annual base rent,
per square foot (with a tenant to pay additional rent of the same
types described in Article 5 of the Lease), for a lease term
equivalent to the extension term, at which landlords are leasing
comparable office space in buildings that are comparable to the
Building and located in the Bala Cynwyd and Conshohocken markets (with
appropriate adjustments to take account of variations in location,
size and tenant fit-up costs undertaken by such landlords.)"
8. Confirmation of Termination of Right of First Offer. Landlord and
Tenant confirm that Tenant's right of first offer under Article 48 of the Lease
was previously terminated and that Article 48 of the Lease has no further force
or effect and is deleted from the Lease.
9. Americans with Disabilities Act. In each case where the Lease
requires Tenant to comply with all laws, statutes, ordinances, regulations,
orders and requirements of all governmental authorities having jurisdiction over
the Premises (or imposes a similar requirement), such requirement shall be
deemed to include, without limitation, the Americans with Disabilities Act, 42
U.S.C. Section 1201 et seq., as amended, and any rules, regulations requirements
and directives thereunder (collectively, the "ADA"). In particular, Tenant shall
perform any alterations, additions or improvements pursuant to the Lease in
compliance with the ADA.
10. Restatement of Address for Notices to Landlord. The address for
notices to Landlord under the Lease, as set forth in Article 31 of the Lease, is
hereby amended and restated in its entirety as follows:
"To Landlord: Bala Plaza, Inc.
c/o GSIC Realty Corporation
255 Shoreline Drive, Suite 600
Redwood City, CA 94065
Attention: Bala Plaza Asset Manager
with a copy to: Premisys Real Estate Services, Inc.
One Bala Plaza, Suite 501
Bala Cynwyd, PA 19004
Attention: Property Manager
7
<PAGE>
and a copy to: Tower Realty Management Corporation
120 Gibraltar Road - Suite 210
Horsham, PA 19044
Attention: General Manager"
11. Brokers. Tenant represents and warrants that Tenant has not dealt
with any broker, agent, finder or other person in connection with the
negotiation for or the obtaining of this Amendment, and that no broker, agent,
finder or other person brought about the transaction contemplated by this Lease,
other than Premisys Real Estate Services, Inc. Tenant shall indemnify, defend
and hold Landlord harmless from and against any and all claims, lawsuits,
liabilities, damages and costs, including attorneys' fees, incurred by Landlord
by reason of any breach of the foregoing warranty. Landlord shall pay Premisys
Real Estate Services, Inc. its commission earned in connection with this
Amendment pursuant to a separate agreement. Landlord shall indemnify, defend and
hold Tenant harmless from any claim of any other broker, agent, finder or other
person with whom Landlord may have dealt in connection with this Amendment.
12. Ratification of Lease. Except as specifically modified by this
Amendment, all of the provisions of the Lease are hereby ratified and confirmed
to be in full force and effect, and shall remain in full force and effect,
including, without limitation, all remedies reserved to Landlord, with which
remedies Tenant hereby acknowledges complete familiarity, and which remedies are
incorporated herein by reference as though set forth in their entirety.
13. Binding Effect. This Amendment shall be binding upon, and shall
inure to the benefit of Landlord and Tenant and their respective permitted
successors and assigns.
14. Governing Law. This Amendment shall be governed by and construed
in accordance with the laws of the Commonwealth of Pennsylvania.
IN WITNESS WHEREOF, this CONFIRMATION OF ADDITIONAL SPACE COMMENCEMENT DATE has
been executed as of the day and year first above written.
BALA PLAZA, INC.
By: /s/ Joe Gold
------------------------------
Name: Joe Gold
Its: Authorized Signatory
(Corporate Seal) Attest: /s/ Guy Tcheau
------------------------------
Name: Guy Tcheau
Its: Authorized Signatory
JUDGE, INC.
By: /s/ Martin E. Judge, Jr.
------------------------------
Name: Martin E. Judge, Jr.
Title:
(Corporate Seal) Attest: M. Chatschaturjian
------------------------------
Name:
Title:
8
<PAGE>
EXHIBIT B
CONFIRMATION OF ADDITIONAL SPACE COMMENCEMENT DATE
THIS CONFIRMATION OF ADDITIONAL SPACE COMMENCEMENT DATE is made as of
the _____ day of _________, 1997, between BALA PLAZA, INC., a Delaware
corporation ("Landlord") and THE JUDGE GROUP, INC. ("Tenant").
WITNESSETH
WHEREAS, Landlord and Tenant entered into a Sixth Amendment to Lease,
dated as of _______________, 1997 ("Sixth Amendment") (capitalized terms used
but not defined herein shall have the meanings assigned to them in the Sixth
Amendment);
WHEREAS, the Sixth Amendment provides that Landlord and Tenant shall
execute a confirmation of the actual Additional Space Commencement Date when
such date has been determined in accordance with the provisions of the Sixth
Amendment;
NOW THEREFORE, the parties hereto, intending to be legally bound
hereby, agree that the Additional Space Commencement Date occurred on
______________________, 1997.
Tenant acknowledges that: (i) it is in possession of the Premises,
including the Additional Space; (ii) the Lease (as amended by through and
including the Sixth Amendment) is in full force and effect; (iii) Landlord is
not in default under the Lease; and (iv) the Additional Space is accepted by
Tenant as having been completed in accordance with the provisions of the Sixth
Amendment.
IN WITNESS WHEREOF, Landlord and Tenant have caused this Amendment to
be executed by their respective duly authorized officers as of the day and year
first above written.
BALA PLAZA, INC.
By:_______________________________
Name:
Its: Authorized Signatory
(Corporate Seal) Attest:___________________________
Name:
Its: Authorized Signatory
JUDGE, INC.
By:_______________________________
Name:
Title:
(Corporate Seal) Attest:___________________________
Name:
Title:
9
Exhibit 10.11
THE JUDGE GROUP, INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
This NON-QUALIFIED STOCK OPTION AGREEMENT is made as of the 17th day
of April, 1997 (the "Grant Date"), between The Judge Group, Inc., a Pennsylvania
corporation (the "Company"), and James C. Hahn, a non-employee director of the
Company (the "Non-Employee Director").
WHEREAS, the Company desires to afford the Non-Employee Director an
opportunity to purchase shares of common stock of the Company ("Common Shares")
as hereinafter provided;
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth and for other good and valuable consideration the legal sufficiency of
which is hereby acknowledged, the parties hereto, intending to be legally bound
hereunder, agree as follows:
1. Grant of Option. The Company hereby grants to the Non-Employee
Director the right and option (the "Option") to purchase all or any part of an
aggregate of 10,000 Common Shares. The Option is in all respects limited and
conditioned as hereinafter provided. The Option granted hereunder is a
non-qualified stock option.
2. Purchase Price. The purchase price per share of the Common Shares
covered by the Option shall be $3.25. It is the determination of the Company's
Stock Option Committee (the "Committee") that the Option price was equal to the
greater of one hundred percent (100%) of the fair market value of the Common
Shares, or the par value thereof, on the Grant Date.
3. Term. Unless earlier terminated pursuant to any provision of this
Option Agreement, this Option shall expire on April 17, 2007 (the "Expiration
Date"), which date is ten (10) years from the Grant Date. This Option shall not
be exercisable on or after the Expiration Date.
4. Exercise of Option. This Option may be exercised in four equal
annual installments commencing with the first anniversary of the Grant Date but
only if the Non-Employee Director has attended at least seventy-five (75)
percent of the Board of Director meetings during the twelve (12) month period
immediately preceding the date the annual installment first becomes exercisable.
In the event the Non-Employee Director fails to attend at least seventy-five
(75) percent of the Board of Director meetings during the twelve (12) month
period immediately preceding the date the annual installment first becomes
exercisable, the Options otherwise exercisable in that installment shall not be
exercisable but shall be cancelled. Options
<PAGE>
that become exercisable in accordance with the foregoing shall remain
exercisable, subject to the provisions contained in this Option Agreement, until
the expiration of the term of this Option as set forth in Paragraph 3 or until
other termination of the Option.
5. Method of Exercising Option. Subject to the terms and conditions of
this Option Agreement, the Option may be exercised upon written notice to the
Company, at its principal office, which is located at 2 Bala Plaza, Suite 405,
Bala Cynwyd, Pennsylvania 19004. Such notice (a suggested form of which is
attached) shall state the election to exercise the Option and the number of
shares with respect to which it is being exercised; shall be signed by the
person or persons so exercising the Option; shall, if the Company so requests,
be accompanied by the investment certificate referred to in Paragraph 6 hereof
and shall be accompanied by payment of the full Option price of such shares.
The Option price shall be paid to the Company (i) in cash, or in its
equivalent, or (ii) unless in the opinion of counsel to the Company to do so may
result in a possible violation of law and subject to advance approval by the
Committee (or, if the Committee does not consist solely of two or more
non-employee directors within the meaning of Rule 16b-3(b)(3)(i) under section
16(b) of the Securities Exchange Act of 1934, as amended, or any successor
thereto, by the full Board of Directors of the Company), in whole or in part
through the transfer of Common Shares previously acquired by the Non-Employee
Director, provided the Common Shares so transferred have been held by the
Non-Employee Director for more than 12 months on the date of exercise.
In the event the Option price is paid, in whole or in part, with
Common Shares, the portion of the exercise price so paid shall equal the fair
market value of such Common Shares on the date of exercise as determined by the
Committee. If there is a market for Common Shares on a registered securities
exchange or in an over-the-counter market, "fair market value" shall equal the
quoted closing price of Common Shares on the date of exercise.
Upon receipt of such notice and payment, the Company, as promptly as
practicable, shall deliver or cause to be delivered a certificate or
certificates representing the shares with respect to which the Option is so
exercised. The certificate or certificates for the shares as to which the Option
shall have been so exercised shall be registered in the name of the person or
persons so exercising the Option (or, if the Option shall be exercised by the
Non-Employee Director and if the Non-Employee Director shall so request in the
notice exercising the Option, shall be registered in the name of the
Non-Employee Director and the Non-Employee Director's spouse, jointly, with
right of survivorship) and shall be delivered as provided above to or upon the
written order of the person or persons exercising the Option. In the event the
Option shall be exercised by any person or persons after the legal disability or
death of the Non-Employee Director, such notice shall be
2
<PAGE>
accompanied by appropriate proof of the right of such person or persons to
exercise the Option. All shares that shall be purchased upon the exercise of the
Option as provided herein shall be fully paid and non-assessable by the Company.
6. Shares to be Purchased for Investment. Unless the Company has
theretofore notified the Non-Employee Director that a registration statement
covering the shares to be acquired upon the exercise of the Option has become
effective under the Securities Act of 1933 and the Company has not thereafter
notified the Non-Employee Director that such registration is no longer
effective, it shall be a condition to any exercise of this Option that the
shares acquired upon such exercise be acquired for investment and not with a
view to distribution, and the person effecting such exercise shall submit to the
Company a certificate of such investment intent, together with such other
evidence supporting the same as the Company may request. The Company shall be
entitled to restrict the transferability of the shares issued upon any such
exercise to the extent necessary to avoid a risk of violation of the Securities
Act of 1933 (or of any rules or regulations promulgated thereunder) or of any
state laws or regulations. Such restrictions may, at the option of the Company,
be noted or set forth in full on the share certificates.
7. Non-Transferability of Option. This Option is not assignable or
transferable, in whole or in part, by the Non-Employee Director otherwise than
by the laws of descent and distribution, and during the lifetime of the
Non-Employee Director the Option shall be exercisable only by the Non-Employee
Director or by his or her guardian or legal representative.
8. Termination of Service as a Director. If the Non-Employee
Director's service as a director with the Company is terminated for any reason
other than death or disability prior to the Expiration Date of this Option as
set forth in Paragraph 3, this Option may be exercised, to the extent of the
number of shares with respect to which the Non-Employee Director could have
exercised it on the date of such termination of service as a director by the
Non-Employee Director at any time prior to the earlier of:
(a) The Expiration Date specified in Paragraph 3; or
(b) Three (3) months after the date of such termination of service as
a director.
9. Disability. If the Non-Employee Director becomes disabled (within
the meaning of section 22(e)(3) of the Internal Revenue Code of 1986, as amended
(the "Code")), during the period in which he or she is a director with the
Company and, prior to the Expiration Date of this Option as set forth in
Paragraph 3, the Non-Employee Director's position as a director with the Company
is terminated as a consequence of such disability, this Option may be exercised,
to the extent of the number of shares with respect to which the Non-Employee
Director could have
3
<PAGE>
exercised it on the date he or she ceased to be a director, by the Non-Employee
Director, or in the event of the Non-Employee Director's legal disability, by
the Non-Employee Director's legal representative, at any time prior to the
earlier of:
(a) The Expiration Date specified in Paragraph 3; or
(b) One (1) year after the date of the Non-Employee Director's ceasing
to be a director by reason of disability.
10. Death. If the Non-Employee Director ceases to be a director of the
Company by reason of his or her death and prior to the Expiration Date of this
Option as set forth in Paragraph 3, or if a Non-Employee Director who ceases to
be a director for any reason (as described in Paragraphs 8 or 9 above) and the
Non-Employee Director dies following his or her ceasing to be a director but
prior to the earlier of the Expiration Date of this Option as set forth in
Paragraph 3 above, or the expiration of the period determined under Paragraph 8
or 9 above, this Option may be exercised, to the extent of the number of shares
with respect to which the Non-Employee Director could have exercised it on the
date of his or her death by the Non-Employee Director's estate, personal
representative or beneficiary who acquired the right to exercise this Option by
bequest or inheritance or by reason of the Non-Employee Director's death, at any
time prior to the earlier of:
(a) The Expiration Date specified in Paragraph 3; or
(b) One (1) year after the date of the Non-Employee Director's death.
11. Endorsement on Share Certificates. At the option of the Company,
each certificate representing the Common Shares covered by this Option may,
where appropriate, bear a legend restricting the transferability of such Common
Shares.
12. Capital Adjustments. The number of shares issuable upon exercise
of this Option, and the exercise price per share, shall, in accordance with the
provisions of section 424(a) of the Code, be adjusted to reflect any stock
dividend, stock split, share combination, or similar change in the
capitalization of the Company. In the event of a corporate transaction (as that
term is described in section 424(a) of the Code and the Treasury Regulations
issued thereunder), this Option shall be assumed by the surviving or successor
corporation. Notwithstanding the foregoing, in the event of a corporate
transaction (as described above) in which holders of Common Shares are to
receive cash, securities or other property, and provision is not made for the
continuance and assumption of this Option, this Option shall terminate as of the
last business day immediately preceding the closing date of such corporate
transaction and the Company shall pay to the Non-Employee Director an amount in
cash with respect to each share to which the terminated Option pertains equal to
the difference between the Option exercise price and the value of the
consideration to be
4
<PAGE>
received by the holders of Common Shares in connection with such transaction.
13. Rights as Shareholder. The Option shall not entitle the
Non-Employee Director to any rights as a shareholder of the Company prior to the
exercise of the Option and the issuance of the shares pursuant hereto.
14. No Obligation to Exercise Option. The granting of this Option
shall impose no obligation upon the Non-Employee Director to exercise such
Option.
15. Governing Law. This Option Agreement shall be governed by
applicable Federal law and otherwise by the laws of the Commonwealth of
Pennsylvania.
IN WITNESS WHEREOF, the Company has caused this Non-Qualified Stock
Option Agreement to be duly executed by its officer thereunto duly authorized,
and the Non-Employee Director has hereunto set his or her hand and seal, all on
the day and year first above written.
ATTEST:
[SEAL] THE JUDGE GROUP, INC.
/s/ Katharine A. Wiercinski By:/s/ Martin E. Judge, Jr.
- ----------------------------- --------------------------
Secretary Martin E. Judge, Jr.
NON-EMPLOYEE DIRECTOR
/s/ Karen M. Keating /s/ James C. Hahn
- ----------------------------- --------------------------
Witness
5
<PAGE>
THE JUDGE GROUP, INC.
Notice of Exercise of Non-Qualified Stock Option
Subject to the terms of the Non-Qualified Stock Option Agreement under
which the non-qualified stock option herein referenced was granted to me on
April 17, 1997 by The Judge Group, Inc., I hereby exercise such non-qualified
stock option with respect to the following number of shares of The Judge Group,
Inc. common stock, par value $.01 per share ("Shares"):
Number of Shares to be purchased ____________
Option price per Share $____________
Total option price $____________
[Check one of the following to indicate method of payment:]
[____] Enclosed is cash or its equivalent, in the amount of $ in full
payment for such Shares.
[[____] Enclosed is/are Common Shares with a total Fair Market Value of $
in full payment for such Shares.
[____] Enclosed are cash or its equivalent, in the amount of $ and Common
Shares with a total Fair Market Value of $ in full payment for such
Shares.]
Please have the certificate or certificates representing the purchased
Shares registered in the following name or names1 _____________________________
and sent to ___________________________________ .
DATED:________________________, 19_____. NON-EMPLOYEE DIRECTOR
______________________
Signature
________
1 Certificates may be registered in the name of the Non-Employee Director
alone or in the names of the Non-Employee Director and his or her spouse,
jointly, with right of survivorship.
A-1
Exhibit 10.12
THE JUDGE GROUP, INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
This NON-QUALIFIED STOCK OPTION AGREEMENT is made as of the 17th day
of April, 1997 (the "Grant Date"), between The Judge Group, Inc., a Pennsylvania
corporation (the "Company"), and Randolph J. Angermann, a non-employee director
of the Company (the "Non-Employee Director").
WHEREAS, the Company desires to afford the Non-Employee Director an
opportunity to purchase shares of common stock of the Company ("Common Shares")
as hereinafter provided;
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth and for other good and valuable consideration the legal sufficiency of
which is hereby acknowledged, the parties hereto, intending to be legally bound
hereunder, agree as follows:
1. Grant of Option. The Company hereby grants to the Non-Employee
Director the right and option (the "Option") to purchase all or any part of an
aggregate of 10,000 Common Shares. The Option is in all respects limited and
conditioned as hereinafter provided. The Option granted hereunder is a
non-qualified stock option.
2. Purchase Price. The purchase price per share of the Common Shares
covered by the Option shall be $3.25. It is the determination of the Company's
Stock Option Committee (the "Committee") that the Option price was equal to the
greater of one hundred percent (100%) of the fair market value of the Common
Shares, or the par value thereof, on the Grant Date.
3. Term. Unless earlier terminated pursuant to any provision of this
Option Agreement, this Option shall expire on April 17, 2007 (the "Expiration
Date"), which date is ten (10) years from the Grant Date. This Option shall not
be exercisable on or after the Expiration Date.
4. Exercise of Option. This Option may be exercised in four equal
annual installments commencing with the first anniversary of the Grant Date but
only if the Non-Employee Director has attended at least seventy-five (75)
percent of the Board of Director meetings during the twelve (12) month period
immediately preceding the date the annual installment first becomes exercisable.
In the event the Non-Employee Director fails to attend at least seventy-five
(75) percent of the Board of Director meetings during the twelve (12) month
period immediately preceding the date the annual installment first becomes
exercisable, the Options otherwise exercisable in that installment shall not be
exercisable but shall be cancelled. Options
<PAGE>
that become exercisable in accordance with the foregoing shall remain
exercisable, subject to the provisions contained in this Option Agreement, until
the expiration of the term of this Option as set forth in Paragraph 3 or until
other termination of the Option.
5. Method of Exercising Option. Subject to the terms and conditions of
this Option Agreement, the Option may be exercised upon written notice to the
Company, at its principal office, which is located at 2 Bala Plaza, Suite 405,
Bala Cynwyd, Pennsylvania 19004. Such notice (a suggested form of which is
attached) shall state the election to exercise the Option and the number of
shares with respect to which it is being exercised; shall be signed by the
person or persons so exercising the Option; shall, if the Company so requests,
be accompanied by the investment certificate referred to in Paragraph 6 hereof
and shall be accompanied by payment of the full Option price of such shares.
The Option price shall be paid to the Company (i) in cash, or in its
equivalent, or (ii) unless in the opinion of counsel to the Company to do so may
result in a possible violation of law and subject to advance approval by the
Committee (or, if the Committee does not consist solely of two or more
non-employee directors within the meaning of Rule 16b-3(b)(3)(i) under section
16(b) of the Securities Exchange Act of 1934, as amended, or any successor
thereto, by the full Board of Directors of the Company), in whole or in part
through the transfer of Common Shares previously acquired by the Non-Employee
Director, provided the Common Shares so transferred have been held by the
Non-Employee Director for more than 12 months on the date of exercise.
In the event the Option price is paid, in whole or in part, with
Common Shares, the portion of the exercise price so paid shall equal the fair
market value of such Common Shares on the date of exercise as determined by the
Committee. If there is a market for Common Shares on a registered securities
exchange or in an over-the-counter market, "fair market value" shall equal the
quoted closing price of Common Shares on the date of exercise.
Upon receipt of such notice and payment, the Company, as promptly as
practicable, shall deliver or cause to be delivered a certificate or
certificates representing the shares with respect to which the Option is so
exercised. The certificate or certificates for the shares as to which the Option
shall have been so exercised shall be registered in the name of the person or
persons so exercising the Option (or, if the Option shall be exercised by the
Non-Employee Director and if the Non-Employee Director shall so request in the
notice exercising the Option, shall be registered in the name of the
Non-Employee Director and the Non-Employee Director's spouse, jointly, with
right of survivorship) and shall be delivered as provided above to or upon the
written order of the person or persons exercising the Option. In the event the
Option shall be exercised by any person or persons after the legal disability or
death of the Non-Employee Director, such notice shall be
2
<PAGE>
accompanied by appropriate proof of the right of such person or persons to
exercise the Option. All shares that shall be purchased upon the exercise of the
Option as provided herein shall be fully paid and non-assessable by the Company.
6. Shares to be Purchased for Investment. Unless the Company has
theretofore notified the Non-Employee Director that a registration statement
covering the shares to be acquired upon the exercise of the Option has become
effective under the Securities Act of 1933 and the Company has not thereafter
notified the Non-Employee Director that such registration is no longer
effective, it shall be a condition to any exercise of this Option that the
shares acquired upon such exercise be acquired for investment and not with a
view to distribution, and the person effecting such exercise shall submit to the
Company a certificate of such investment intent, together with such other
evidence supporting the same as the Company may request. The Company shall be
entitled to restrict the transferability of the shares issued upon any such
exercise to the extent necessary to avoid a risk of violation of the Securities
Act of 1933 (or of any rules or regulations promulgated thereunder) or of any
state laws or regulations. Such restrictions may, at the option of the Company,
be noted or set forth in full on the share certificates.
7. Non-Transferability of Option. This Option is not assignable or
transferable, in whole or in part, by the Non-Employee Director otherwise than
by the laws of descent and distribution, and during the lifetime of the
Non-Employee Director the Option shall be exercisable only by the Non-Employee
Director or by his or her guardian or legal representative.
8. Termination of Service as a Director. If the Non-Employee
Director's service as a director with the Company is terminated for any reason
other than death or disability prior to the Expiration Date of this Option as
set forth in Paragraph 3, this Option may be exercised, to the extent of the
number of shares with respect to which the Non-Employee Director could have
exercised it on the date of such termination of service as a director by the
Non-Employee Director at any time prior to the earlier of:
(a) The Expiration Date specified in Paragraph 3; or
(b) Three (3) months after the date of such termination of service as
a director.
9. Disability. If the Non-Employee Director becomes disabled (within
the meaning of section 22(e)(3) of the Internal Revenue Code of 1986, as amended
(the "Code")), during the period in which he or she is a director with the
Company and, prior to the Expiration Date of this Option as set forth in
Paragraph 3, the Non-Employee Director's position as a director with the Company
is terminated as a consequence of such disability, this Option may be exercised,
to the extent of the number of shares with respect to which the Non-Employee
Director could have
3
<PAGE>
exercised it on the date he or she ceased to be a director, by the Non-Employee
Director, or in the event of the Non-Employee Director's legal disability, by
the Non-Employee Director's legal representative, at any time prior to the
earlier of:
(a) The Expiration Date specified in Paragraph 3; or
(b) One (1) year after the date of the Non-Employee Director's ceasing
to be a director by reason of disability.
10. Death. If the Non-Employee Director ceases to be a director of the
Company by reason of his or her death and prior to the Expiration Date of this
Option as set forth in Paragraph 3, or if a Non-Employee Director who ceases to
be a director for any reason (as described in Paragraphs 8 or 9 above) and the
Non-Employee Director dies following his or her ceasing to be a director but
prior to the earlier of the Expiration Date of this Option as set forth in
Paragraph 3 above, or the expiration of the period determined under Paragraph 8
or 9 above, this Option may be exercised, to the extent of the number of shares
with respect to which the Non-Employee Director could have exercised it on the
date of his or her death by the Non-Employee Director's estate, personal
representative or beneficiary who acquired the right to exercise this Option by
bequest or inheritance or by reason of the Non-Employee Director's death, at any
time prior to the earlier of:
(a) The Expiration Date specified in Paragraph 3; or
(b) One (1) year after the date of the Non-Employee
Director's death.
11. Endorsement on Share Certificates. At the option of the Company,
each certificate representing the Common Shares covered by this Option may,
where appropriate, bear a legend restricting the transferability of such Common
Shares.
12. Capital Adjustments. The number of shares issuable upon exercise
of this Option, and the exercise price per share, shall, in accordance with the
provisions of section 424(a) of the Code, be adjusted to reflect any stock
dividend, stock split, share combination, or similar change in the
capitalization of the Company. In the event of a corporate transaction (as that
term is described in section 424(a) of the Code and the Treasury Regulations
issued thereunder), this Option shall be assumed by the surviving or successor
corporation. Notwithstanding the foregoing, in the event of a corporate
transaction (as described above) in which holders of Common Shares are to
receive cash, securities or other property, and provision is not made for the
continuance and assumption of this Option, this Option shall terminate as of the
last business day immediately preceding the closing date of such corporate
transaction and the Company shall pay to the Non-Employee Director an amount in
cash with respect to each share to which the terminated Option pertains equal to
the difference between the Option exercise price and the value of the
consideration to be
4
<PAGE>
received by the holders of Common Shares in connection with such transaction.
13. Rights as Shareholder. The Option shall not entitle the
Non-Employee Director to any rights as a shareholder of the Company prior to the
exercise of the Option and the issuance of the shares pursuant hereto.
14. No Obligation to Exercise Option. The granting of this Option
shall impose no obligation upon the Non-Employee Director to exercise such
Option.
15. Governing Law. This Option Agreement shall be governed by
applicable Federal law and otherwise by the laws of the Commonwealth of
Pennsylvania.
IN WITNESS WHEREOF, the Company has caused this Non-Qualified Stock
Option Agreement to be duly executed by its officer thereunto duly authorized,
and the Non-Employee Director has hereunto set his or her hand and seal, all on
the day and year first above written.
ATTEST:
[SEAL] THE JUDGE GROUP, INC.
/s/ Katharine A. Wiercinski By: /s/ Martin E. Judge, Jr.
- ---------------------------- ----------------------------
Secretary Martin E. Judge, Jr.
NON-EMPLOYEE DIRECTOR
/s/ Karen M. Keating /s/ James C. Hahn
- ---------------------------- ---------------------------
Witness
5
<PAGE>
THE JUDGE GROUP, INC.
Notice of Exercise of Non-Qualified Stock Option
Subject to the terms of the Non-Qualified Stock Option Agreement under
which the non-qualified stock option herein referenced was granted to me on
April 17, 1997 by The Judge Group, Inc., I hereby exercise such non-qualified
stock option with respect to the following number of shares of The Judge Group,
Inc. common stock, par value $.01 per share ("Shares"):
Number of Shares to be purchased _________
Option price per Share $_________
Total option price $_________
[Check one of the following to indicate method of payment:]
[____] Enclosed is cash or its equivalent, in the amount of $ in full
payment for such Shares.
[[____] Enclosed is/are Common Shares with a total Fair Market Value of $
in full payment for such Shares.
[____] Enclosed are cash or its equivalent, in the amount of $ and Common
Shares with a total Fair Market Value of $ in full payment for such
Shares.]
Please have the certificate or certificates representing the purchased
Shares registered in the following name or names1 _____________________________
and sent to _____________________________.
DATED: _______________________ , 19___. NON-EMPLOYEE DIRECTOR
_______________________
Signature
________
1 Certificates may be registered in the name of the Non-Employee Director
alone or in the names of the Non-Employee Director and his or her spouse,
jointly, with right of survivorship.
A-1
Exhibit 11
COMPUTATION OF EARNINGS PER SHARE (1)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1996
---- ----
<S> <C> <C>
Basic
Weighted average common shares outstanding 12,761,000 8,473,000
========== =========
Net Income $ 2,711,940 $ 906,943
=========== =========
Net income after adjustment for preferred dividends earned on JIS
preferred stock $ 2,705,221 $ 861,943
=========== =========
Basic net income per common share $ 0.21 $ 0.10
====== ======
Diluted:
Weighted average common shares outstanding (2) (3) 12,826,000 9,114,000
========== =========
Net Income $ 2,711,940 $ 906,943
=========== =========
Net income after adjustment for interest expense on convertible debentures and
preferred dividends earned on JIS preferred stock
$ 2,708,971 $ 891,943
=========== =========
Fully diluted net income per common share $ 0.21 $ 0.10
====== ======
</TABLE>
(1) All per share and share amounts reflect a 52.6 for 1.0 stock split which
occurred on September 23, 1996.
(2) Diluted shares includes common stock equivalents and 526,000 common shares
issuable upon conversion of the Company's 10% Convertible Senior
Subordinated Notes.
(3) Options on 584,000 shares of common stock were not included in computing
diluted earnings per share because its effects are anti-dilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS CONTAINED IN THE JUDGE GROUP, INC. ANNUAL REPORT ON FORM
10-K FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<CIK> 0001022893
<NAME> THE JUDGE GROUP, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 12-Mos
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-31-1997
<PERIOD-END> Dec-31-1997
<EXCHANGE-RATE> 1
<CASH> 1,684,482
<SECURITIES> 0
<RECEIVABLES> 14,880,926
<ALLOWANCES> 465,000
<INVENTORY> 1,468,902
<CURRENT-ASSETS> 24,067,726
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0
0
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</TABLE>
