UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from __________ to __________
COMMISSION FILE NO. 0-21963
THE JUDGE GROUP, INC.
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-1726661
(State or other jurisdiction of (IRS Employer Identification No.)
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)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark if registrant has filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Securities Exchange act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court. Yes____ No_____
As of May 6, 1998, 13,494,242 shares of the Registrant's Common Stock,
$0.01 par value, were outstanding.
1
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington. D.C. 20549
THE JUDGE GROUP, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
NUMBER PAGE(S)
- ------ -------
PART I - FINANCIAL INFORMATION
------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 1998
AND DECEMBER 31, 1997 3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE
MONTHS ENDED MARCH 31, 1998 AND 1997 4
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY FOR
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE
MONTHS ENDED MARCH 31,1998 AND 1997 6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 7-10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 11-15
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 15
PART II - OTHER INFORMATION
---------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 16-18
2
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,759,229 $ 1,684,482
Short-term investments -- 5,500,000
Accounts receivable, net 18,050,360 14,415,926
Inventories 1,430,836 1,468,902
Prepaid income taxes and deferred taxes 363,956 286,000
Other 1,388,199 712,416
----------- -----------
TOTAL CURRENT ASSETS 22,992,580 24,067,726
----------- -----------
PROPERTY AND EQUIPMENT
Property and Equipment 5,677,876 5,007,416
Less: accumulated depreciation and amortization 2,321,974 2,121,034
----------- -----------
NET PROPERTY AND EQUIPMENT 3,355,902 2,886,382
----------- -----------
OTHER ASSETS
Deposits and other 592,269 275,608
Goodwill, net of accumulated amortization of $518,549,
1998 and $405,944, 1997 11,537,680 4,703,855
----------- -----------
TOTAL OTHER ASSETS 12,129,949 4,979,463
----------- -----------
TOTAL ASSETS $38,478,431 $31,933,571
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 315,000 $ 237,721
Accounts payable and accrued expenses 6,391,395 3,647,048
Payroll and sales taxes 1,419,455 437,788
Other liabilities 1,553,125 --
Income taxes payable -- 291,515
Deferred revenue 1,020,020 928,324
----------- -----------
TOTAL CURRENT LIABILITIES 10,698,995 5,542,396
----------- -----------
LONG-TERM LIABILITIES
Deferred rent obligation 115,127 116,879
Debt obligations, net of current portion 550,000 --
----------- -----------
TOTAL LONG-TERM LIABILITIES 665,127 116,879
----------- -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, $.01 par value, 50,000,000 shares authorized;
at March 31, 1998, 13,497,969 shares issued and outstanding;
at December 31, 1997, 13,347,969 shares issued and outstanding 134,979 133,479
Preferred stock, $.01 par value, 10,000,000 shares authorized -- --
Additional paid-in capital 23,453,892 22,758,517
Retained earnings 3,745,438 3,382,300
----------- -----------
27,334,309 26,274,296
Less treasury stock, 40,000 shares at March 31, 1998; at cost 220,000 --
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 27,114,309 26,274,296
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $38,478,431 $31,933,571
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
NET REVENUES $ 25,089,818 $ 23,478,403
------------ ------------
COSTS AND EXPENSES
Cost of sales (exclusive of items shown separately below) 17,419,944 17,139,385
Selling and operating 4,477,452 4,438,638
General and administrative 2,598,078 2,019,381
------------ ------------
Total costs and expenses 24,495,474 23,597,404
------------ ------------
INCOME (LOSS) FROM OPERATIONS 594,344 (119,001)
OTHER INCOME (EXPENSES), NET
61,457 (127,901)
------------ ------------
INCOME (LOSS) BEFORE INCOME TAX EXPENSE 655,801 (246,902)
INCOME TAX EXPENSE 292,663 19,551
------------ ------------
NET INCOME (LOSS) $ 363,138 ($ 266,453)
============ ============
NET INCOME (LOSS) PER SHARE:
BASIC $ 0.03 ($ 0.02)
============ ============
Weighted Average Shares Outstanding 13,369,191 10,967,854
============ ============
DILUTED $ 0.03 ($ 0.02)
============ ============
Weighted Average Shares Outstanding 13,380,607 11,230,854
============ ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
Common Stock Additional Retained Treasury
Shares Amount Paid-In Capital Earnings Stock Total
------ ------ --------------- -------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 13,347,969 $133,479 $22,758,517 $3,382,300 $ -- $26,274,296
Acquisition transactions 150,000 1,500 695,375 -- -- 696,875
Purchase treasury stock -- -- -- -- (220,000) (220,000)
Net Income
-- -- -- 363,138 -- 363,138
---------- -------- ----------- ---------- ---------- -----------
Balance, March 31, 1998 13,497,969 $134,979 $23,453,892 $3,745,438 ($ 220,000) $27,114,309
========== ======== =========== ========== ========== ===========
</TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
Common Stock Additional Retained
Shares Amount Paid-In Capital Earnings Total
------ ------ --------------- -------- -----
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 8,587,739 $ 85,877 $ 365,877 $ 670,360 $ 1,122,114
Merger transactions 1,194,230 11,942 2,416,498 -- 2,428,440
Initial Public Offering 3,000,000 30,000 19,397,635 -- 19,427,635
Conversion of debentures 526,000 5,260 494,740 -- 500,000
Conversion of note payable 40,000 400 299,600 -- 300,000
Net loss -- -- -- (266,453) (266,453)
---------- -------- ----------- --------- -----------
Balance, March 31, 1997 13,347,969 $133,479 $22,974,350 $ 403,907 $23,511,736
========== ======== =========== ========= ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
5
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) for the period $ 363,138 ($ 266,453)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation 200,940 154,897
Amortization 116,354 79,643
Deferred rent (1,752) (6,636)
Provision for losses on accounts receivable 37,042 77,421
Stock compensation -- 29,250
Changes in operating assets and liabilities:
(Increase) decrease in:
Short term investments 5,500,000 --
Accounts receivable (2,277,387) (1,026,077)
Inventories 38,066 39,379
Deposits and other (229,834) (21,542)
Prepaid income taxes (77,956) 12,052
Other current assets (665,783) 611,267
Increase (decrease) in:
Accounts payable and accrued expenses 2,454,269 605,391
Payroll and sales taxes 981,667 422,823
Deferred revenue 91,696 390,574
Income taxes payable (291,515) (305,282)
----------- ------------
Net cash provided by operating activities 6,238,945 796,707
----------- ------------
INVESTING ACTIVITIES
Purchases of property and equipment (593,350) (219,656)
(Increase) decrease in notes receivable, officers and employees, net -- 542,075
Purchase/acquisition of companies (4,679,392) --
Covenant not to compete (89,976) --
----------- ------------
Net cash provided by (used in) investing activities (5,362,718) 322,419
----------- ------------
FINANCING ACTIVITIES
Cash acquired in business combination 100,000 --
Proceeds from (repayments of) notes payable, bank, net -- (9,960,795)
Principal payments on long-term debt (262,721) (2,077,301)
Repayment of bank note payable related to ISI purchase (418,759) --
Purchase of Treasury Stock (220,000) --
Proceeds from issuance of stock and exercise of warrants, net -- 19,427,635
Repayments from shareholders -- (95,862)
----------- ------------
Net cash provided by (used in) financing activities (801,480) 7,293,677
----------- ------------
INCREASE IN CASH AND CASH EQUIVALENTS 74,747 8,412,803
CASH AND CASH EQUIVALENTS, BEGINNING 1,684,482 105,069
----------- ------------
CASH AND CASH EQUIVALENTS, ENDING $ 1,759,229 $ 8,517,872
=========== ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for Interest $ 9,000 $ 178,000
=========== ============
Cash paid during the year for Income taxes $ 644,000 $ 294,000
=========== ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
6
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
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
"Information Management Services" business) and (iii) IT training (through its
"IT Training" business) on a range of software and network applications to
corporate, governmental and individual clients. At March 31, 1998, the Company
had offices in Bala Cynwyd, Pennsylvania; Hartford, Connecticut; Foxborough and
Needham, Massachusetts; Wakefield, Massachusetts; Tampa, Florida; Moorestown and
Edison, New Jersey; Alexandria, Virginia; New York, New York; Walled Lake,
Michigan; Atlanta, Georgia; Chicago, Illinois; Glastonbury, Connecticut; and
Dallas, Texas. 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 two of the
Company's wholly-owned subsidiaries, Judge Technical Services, Inc. ("JTS"), 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").
The Information Management Services business includes the operations of
Judge Imaging Systems, Inc. ("JIS") which became a wholly owned subsidiary of
the Company at the closing of its initial public offering in 1997. Prior to that
JIS was a public company, a majority of whose shares was owned by the Company
and certain officers and directors of the Company, and which was consolidated
for financial reporting purposes.
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, as amended. The Company
successfully completed its initial public offering of common shares on February
20, 1997. The Company sold 3,000,000 common shares at a price of $7.50 per
share, realizing approximately $20,906,000 in proceeds net of underwriting
discounts and commissions. Immediately prior to the initial public offering, the
holders of $500,000 of convertible notes exchanged them for 526,000 Company
common shares. The Company issued 40,000 common shares in lieu of $300,000 of
notes payable to Berkeley, in accordance with the purchase agreement with
Berkeley. In connection with the initial public offering, the Company incurred
approximately $1,694.000 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.
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, and the Company's wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
The financial statements as of March 31, 1998 and for the three months
ended March 31, 1998 and 1997 are unaudited; however, in the opinion of
management, such statements include all adjustments, consisting solely of normal
recurring adjustments, necessary for a fair presentation of the results for the
periods presented.
The interim financial statements should be read in conjunction with the
financial statements for the fiscal year ended December 31, 1997 and notes
thereto.
The results of operations for the interim periods are not necessarily
indicative of the results that might be expected for the future interim periods
or for the full year ended December 31, 1998.
7
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
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.
Intangible Assets
Goodwill represents the excess of the cost of companies acquired over the
fair value of their net assets at the date of acquisition and is being amortized
on the straight-line method over terms ranging from ten years to twenty five
years. 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 March 31, 1998 and 1997 was
approximately $112,600 and $80,000, respectively, and is included in general and
administrative expense in the consolidated statements of operations.
Interim Financial Reporting
For interim financial reporting purposes, costs and expenses are accounted
for in accordance with Accounting Principles Board Opinion No. 28 ("APB 28").
Recently Issued Accounting Standards
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. However, this Statement need not be
applied to interim financial statements in the initial year of its application,
but comparative information for interim periods in the initial year of
application is to be reported in financial statements for interim periods in the
second year of application. 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. Prior
period earnings per common share were recomputed to conform to the provisions of
FAS 128. The recomputations did not result in any restatement in earnings per
share previously reported.
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 divided by the weighted average number of shares actually
outstanding reduced by Treasury Shares. The number of shares used in the
computation were approximately 13,369,000 in 1998, and 10,968,000 in 1997.
Diluted earnings per share amounts for the three months ended March 31,
1998 and 1997 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 exercise of outstanding stock options. The number of
shares used in the computation were approximately 13,381,000 in 1998 and
11,231,000 in 1997. Options to purchase 521,500 common shares in 1998 and
593,000 common shares in 1997, all of which were 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.
8
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
Earnings Per Share -- (Continued)
On February 26, 1998 the Company repurchased 40,000 shares of its common
stock at a price of $5.50 per share, which shares are considered treasury stock.
Reclassifications
Certain items in the consolidated statement of operations for the three
months ended March 31, 1997 have been reclassified to conform to the 1998
presentation.
NOTE 3. BUSINESS COMBINATIONS
Effective March 5, 1998 JTS purchased substantially all of the assets of
Information Systems, Inc. and ISI Systems, Inc. (together "ISI"). ISI is engaged
in the IT placement business in the Detroit, Michigan area. The total original
acquisition cost was $6,290,000 payable in cash, notes and Company stock. An
additional amount of up to $500,000 is contingent on ISI attaining certain
pre-tax income amounts in calendar year 1998. The acquisition was accounted for
as a purchase and the results of operations of ISI 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 $5,615,000 which is
being amortized over twenty five years beginning in March 1998. A portion of the
acquisition cost, $1,063,000, is included in other liabilities on the
accompanying condensed consolidated financial statements, the payment terms of
which are dependent on the Company's common stock price on February 28, 1999.
Effective March 31, 1998, Judge Inc. purchased substantially all of the
assets of Cella Associates of Atlanta, Inc. ("Cella"). Cella is engaged in the
placement of professional and executive personnel to certain segments of the
food industry through offices located in Connecticut, Georgia, Texas and
Illinois. The total acquisition cost was $1,529,000 payable in cash and Company
stock. The acquisition was accounted for as a purchase and the results of
operations of Cella will only be 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 $1,331,000 which is being amortized over
twenty five years beginning April 1998. A portion of the acquisition cost,
$491,000, is included in other liabilities on the accompanying condensed
consolidated financial statements, the payment terms of which are dependent on
the Company's common stock price on March 31, 1999.
NOTE 4. INCOME TAXES
The Company files a consolidated Federal income tax return with its
wholly-owned subsidiaries. In prior years, JIS was not included in the Company's
consolidated Federal income tax return, as the Company owned less than 80% of
such Company's outstanding common shares. Under Internal Revenue regulations,
JIS was not part of the consolidated group for tax purposes and filed their own
Federal income tax return. 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.
In accordance with APB 28 (Interim Financial Reporting), income taxes are
calculated at the estimated effective annual (federal and state) tax rate.
The effective tax rate for 1998 and 1997 is higher than the applicable
federal statutory tax rate of 34% due to the Company's state tax liabilities,
certain expenses that were not deductible for tax purposes, and net operating
losses for JIS, which is consolidated for financial reporting but not tax
reporting purposes (prior to the merger of the Company and JIS in February
1997).
As a result of operating losses, no provision for income taxes was required
for the period prior to February 20, 1997 for 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.
9
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
NOTE 5. COMMITMENTS AND CONTINGENCIES
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 6. SHAREHOLDERS' EQUITY AND EARNINGS PER SHARE
Stock Option Plan
On September 4, 1996 the Company adopted the 1996 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
generally 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 the quarter ended March 31, 1998, the Company granted options to
purchase 125,000 shares at a weighted average exercise price of $4.65. No
options were exercised during the period ended March 31, 1998.
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.
NOTE 7. STATEMENT OF CASH FLOWS
Supplemental disclosure of non-cash investing and financing transactions:
During the three months ended March 31, 1998, the Company entered into the
following non-cash transactions:
o incurred long-term debt ($890,000) for certain business combinations
(see Note 3);
o incurred goodwill of $2,390,000 in the business combination with ISI
(see Note 3); and
o incurred goodwill of $750,000 in the business combination with Cella
(see Note 3).
During the three months ended March 31, 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;
NOTE 8. SUBSEQUENT EVENTS
Subsequent to March 31, 1998 the following occurred:
o The Company modified its line of credit with PNC Bank to increase the
maximum borrowings to the lesser of 85% of eligible receivables or $25
million, and extend its maturity to May 31, 2003.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO
THE THREE MONTHS ENDED MARCH 31, 1997
The following discussion should be read in conjunction with the condensed
consolidated financial statements of The Judge Group, Inc. (the "Company") and
related notes thereto appearing elsewhere in this Report.
OVERVIEW
The Company achieved overall revenue growth rates of 6.9% for the three
months ended March 31, 1998, compared to the prior year period, with all four of
the Company's businesses experiencing revenue growth. In the Company's Contract
Placement business, revenues increased by 1.1% in the three months ended March
31, 1998 compared to the prior year period. This growth rate was slightly below
Company expectations due to the effect of sales and recruiting personnel
turnover experienced in the second half of 1997. To date, the Company has
increased its sales and marketing staffs to its 1997 levels and it has addressed
its turnover problem. In addition, the Company intends to increase the sales and
recruiting staff in its Contract Placement business by approximately 35%
throughout the remaining fiscal quarters of 1998. The Company notes, however,
that new hires historically have taken approximately two quarters to become
productive. Operating income in the Contract Placement business increased by
16.8% in the three months ended March 31, 1998 compared to the prior year
period, due to the emphasis on higher margin placements. Management expects this
trend of higher margin placements to continue in the Contract Placement
business, however, operating income may be reduced as a result of opening
additional new offices. During the three months ended March 31, 1998, the
Contract Placement business relocated part of the staff from the Foxborough
location to Needham, Massachusetts to better serve the Metropolitan Boston area
and incurred certain expenses related to this office opening. The Company
anticipates that this will help them continue to attract and retain experienced
staff and to better service their clients.
On March 5, 1998 the Company's Contract Placement business purchased
substantially all of the assets of Information Solutions, Inc. and ISI Systems,
Inc. (together "ISI"), a company engaged in the IT placement business in the
Detroit, Michigan area. Revenues for ISI for the one month ended March 31, 1998
are included in the accompanying condensed consolidated financial statements.
The Company's Permanent Placement business acquired, effective March 31, 1998,
substantially all of the assets of Cella Associates of Atlanta, Inc. ("Cella") a
company engaged in the placement of professional and executive personnel to
certain segments of the food industry. Revenues generated from Cella will be
included in the Company's consolidated financial statements in future periods.
During the first quarter of 1998, the Company's Information Management
Services business incurred an operating loss of $368,000 compared to a loss of
$951,000 in the prior year period. This decrease in operating loss was
attributable to reduced overhead costs including the reduction of
administrative, production and sales personnel. The revenue growth of 30.3%
experienced by the Company's Information Management Services business in the
three months ended March 31, 1998 was attributed to the sales efforts of the
retained sales and production support personnel. The Company will continue to
adjust its pricing and cost structure in its Information Management Services
business to achieve sustained profitability. While the Company believes that the
Information Management Services business will ultimately achieve sustained
profitability, it cannot predict the timing of such profitability.
The following table presents the net revenue (net of intercompany
eliminations) and the income (loss) from operations attributable to each of the
Company's businesses, in dollars and as a percentage of net revenues, for the
periods indicated:
<TABLE>
<CAPTION>
Three Months Ended March 31,
1998 1997
---- ----
(Unaudited) (Audited)
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Net Revenues:
Permanent Placement $ 2,235 8.9% $ 1,930 8.2%
Contract Placement 18,035 71.9% 17,836 76.0%
Information Management Services 4,045 16.1% 3,104 13.2%
IT Training 775 3.1% 608 2.6%
-------- ----- -------- -----
Consolidated Net Revenues $ 25,090 100.0% $ 23,478 100.0%
======== ===== ======== =====
Income (loss) from Operations:
Permanent Placement $ 345 15.4% $ 298 15.4%
Contract Placement 1,354 7.5% 1,159 6.5%
Information Management Services (368) -9.1% (951) -30.6%
IT Training (166) -21.4% (141) -23.2%
Corporate Overhead Expense (571) N/A (484) N/A
-------- --------
Consolidated Income from Operations $ 594 2.4% ($ 119) -0.5%
======== ===== ======== =====
</TABLE>
Included in corporate overhead expense are salaries, benefits and related
costs for the Company's founder and chief executive officer, Martin E. Judge,
Jr., and for corporate level financial, legal, human resources, management
information systems and marketing personnel.
11
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain statement of operations data as a
percentage of consolidated net revenues for each of the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1998 1997
---- ----
<S> <C> <C>
Net Revenues 100.0% 100.0%
Cost of Sales (exclusive of items shown separately below) 69.4 73.0
Selling and Operating 17.9 18.9
General and Administrative 10.3 8.6
----- ------
Total Costs and Expenses 97.6 100.5
Income (Loss) From Operations 2.4 (0.5)
Interest Income (Expense) and Other, Net 0.2 (0.5)
----- ------
Income (Loss) Before Income Taxes 2.6% (1.0%)
===== ======
</TABLE>
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
Net Revenues. Consolidated net revenues increased by 6.9%, or $1.6 million,
for the three months ended March 31, 1998 compared to the prior year period.
Revenue for the Contract Placement business increased by 1.1%, or $199,000, for
the three months ended March 31, 1998 compared to the prior year period. Revenue
growth was relatively flat in the Contract Placement business primarily due to
turnover of its sales and recruiting personnel experienced in the second half of
1997. Contributing to the slight increase in revenues for the Contract Placement
business was an increase in revenue for the Bala Cynwyd, Pennsylvania and
Edison, New Jersey offices of 9.5% and 34.8% respectively. Also contributing to
the revenue increase was revenue from the three new offices in Alexandria,
Virginia, New York City and Michigan (acquired in March of 1998). These revenue
increases were offset by a decrease in revenues from the New England and
National offices of 19.1% and 21.4% respectively. This decrease was a direct
result of sales and recruiting staffing turnover and to a reduction in the lower
margin engineering business. The Company continues to emphasize higher margin IT
placement business to supplant the shortfall. The Contract Placement business
has increased its sales and recruiting staffs to its 1997 level and believes it
has addressed this issue. Turnover for the first quarter of 1998 has been
reduced substantially, returning to the levels normally experienced prior to
1997. Revenue for the Permanent Placement business increased by 15.8%, or
approximately $305,000, for the three months ended March 31, 1998 compared to
the prior year period due primarily to an increase in the number of sales
recruiters. Revenue for the Information Management Services business increased
by 30.3%, or $941,000 for the three months ended March 31, 1998 compared to the
prior year period. This increase in revenues was primarily attributable to
orders that were booked late in the fourth quarter of 1997 and were shipped
during the first quarter of 1998. The IT Training business generated net
revenues of $775,000 for the three months ended March 31, 1998, an increase of
$167,000, or 27.5%, over the prior year period.
Cost of Sales. Consolidated cost of sales increased by 1.6%, or $280,000,
for the three months ended March 31, 1998 compared to the prior year period.
Cost of sales as a percentage of consolidated net revenues decreased to 69.4%
from 73.0%. In the Company's Contract Placement business, cost of sales as a
percentage of its revenue decreased to 77.7% from 80.0% primarily as a result of
the Contract Placement business focusing its sales efforts on higher margin
services as evidenced by the higher average bill rates, and increased average
gross profit margins obtained by the Boston and National offices during the
three months ended March 31, 1998 compared to the prior year period. The decline
in cost of sales as a percentage of consolidated net revenues was also
attributable to an increase in revenue for the Permanent Placement business,
which has no cost of sales. In the Company's Information Management Services
business cost of sales as a percentage of its revenue decreased to 72.7% from
81.2% in the prior year period. The IT Training business also contributed an
additional $472,000 in cost of sales, representing 60.6% of that business'
revenues in the period ended March 31, 1998 compared to $320,000, or 52% of
revenues, in the comparable period in 1997. This increase was due primarily to
an increase in IT training labs from eight in the first quarter of 1997 to
eleven in the first quarter of 1998, as well as to increased salary costs for
existing trainers and additional trainers to staff the new labs.
Selling and Operating. Consolidated selling and operating expenses
increased by 0.9%, or $39,000, for the three months ended March 31, 1998
compared to the prior year period. Selling and operating expenses as a
percentage of consolidated net revenues decreased to 17.9% from 18.9% for the
three months ended March 31, 1998 compared to the prior year period. Selling and
operating expenses as a percentage of revenues for the Contract Placement
business decreased to 9.9% from 10.5% % for the three months ended March 31,
1998 compared to the prior year period. This decrease was attributable to
decreased bad debt expense during the three months ended March 31, 1998
12
<PAGE>
compared to the three months ended March 31, 1997 and to lower overall
sales and recruiting staffing levels. Selling and operating expenses as a
percentage of revenues for the Permanent Placement business decreased to 69.5%
from 74.0% for the three months ended March 31, 1998 compared to the prior year
period, which was attributed to management's efforts to control selling costs.
Selling and operating expenses as a percentage of revenues for the Information
Management Services business decreased to 21.3% from 29.8% for the three months
ended March 31, 1998 compared to the prior year period, primarily due to
management's previously discussed reduction in overhead costs. In the IT
Training business selling and operating expenses decreased $17,000, or 7.9%, in
the three months ended March 31, 1998 compared to the prior year period.
General and Administrative. Consolidated general and administrative expenses
increased 28.7%, or $579,000, for the three months ended March 31, 1998
compared to the prior year period. General and administrative expenses as a
percentage of consolidated net revenues, increased to 10.3% from 8.6% for the
three months ended March 31, 1998 compared to the prior year period.
Contributing to this increase was the expansion of the Company's corporate
staff, specifically management information systems, legal and human resources
personnel hired beginning in the second fiscal quarter of 1997 through early
1998 which added to corporate overhead for the three months ended March 31, 1998
compared to the prior year period. In addition, the amortization of goodwill
increased by $33,000 in the three months ended March 31, 1998 compared to the
prior year period due to a full quarter of amortization of goodwill from the JIS
merger in 1998 which was consummated half way through 1997's first quarter, and
to one months amortization of goodwill related to the ISI acquisition. As a
result of a new office in New York, the acquisition of ISI, and additional
office space in the Bala and Edison, New Jersey offices, rent expense increased
by approximately $100,000 for the three months ended March 31, 1998 compared to
the prior year period. The IT Training business incurred general and
administrative expenses for the three months ended March 31, 1998 of
approximately $280,000, or 36.0% of its revenues, compared to $189,000, or 30.8%
of its revenues in the comparable period in 1997 due to higher administrative
salaries during the management transition period in the first quarter of 1998 as
well as to increased rent and depreciation expenses related to existence of
additional training labs.
Interest. Interest expense was $9,000 and $178,000 for the three months
ended March 31, 1998 and 1997, respectively. Interest income was $71,000 and
$50,000 for the three months ended March 31, 1998 and 1997, respectively. This
decrease in interest expense and increase in interest income was attributable to
the Company's repayment of its debt following the Offering and the interest
earned on the unused portion of the Offering proceeds.
Income Taxes. The effective tax rate for the three months ended March 31,
1998 is higher than the applicable federal statutory tax rate of 34%, primarily
due to the Company's state tax liabilities and certain expenses not deductible
for tax purposes. For the three months ended March 31, 1997 the effective tax
rate was higher than the federal statutory tax rate due to the net operating
losses for the Information Management Services business, which was consolidated
for financial but not for tax reporting purposes in the period January 1, 1997
through February 20, 1997, as well as the Company's state tax liabilities.
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 losses generated by the Information
Management Services business are 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
(as of December 31, 1997) in federal tax operating loss carryforwards, which
will expire between 2002 and 2012.
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 its initial public 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 needs. The Company typically maintains minimal cash balances,
however the unused portion of the proceeds from the Company's Offering has
resulted in cash and cash equivalents of $1.8 million as of March 31, 1998. The
Company redeemed its short term investments of approximately $5.5 million at
December 31, 1997 and used the proceeds to acquire substantially all of the
assets of ISI and Cella.
The Company generated cash from operations of $6.2 million for the three
months ended March 31, 1998, as compared to cash provided by operations of
$797,000 in the prior year period. This result is attributable to several
factors, including an increase in net income of $630,000 in the three months
ended March 31, 1998 compared to the same period in 1997, and the redemption of
the short term investments mentioned above.
Cash purchases of fixed assets for the three months ended March 31, 1998 were
$593,000 compared to purchases of $220,000 in the comparable period in the
prior year. 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. The Company
used $4.7 million to complete the acquisition of the assets of ISI and Cella and
an additional $419,000 to repay the bank debt assumed in the ISI
13
<PAGE>
acquisition. 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.
In the quarter ended March 31, 1998 the Company repaid the remaining
$238,000 balance outstanding on the notes payable related to the Berkeley
acquisition, and repurchased 40,000 common shares (accounted for now as Treasury
Stock), at a price of $5.50 per share from the Sellers of Berkeley.
Effective April 24, 1998, the Company has availability under a $25.0
million revolving advance facility (the "Line of Credit") with PNC Bank, N.A.
The Line of Credit expires on May 31, 2003. The Line of Credit allows the
Company to borrow the lesser of 85% of eligible accounts receivable or $25.0
million. As of March 31, 1998, 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
Line of Credit bears interest, at the Company's option, of either the bank's
prime rate or 200 basis points over the London Inter-bank Offering Rate
("LIBOR").
The Company anticipates that its primary uses of capital in future periods
will finance additional acquisitions, fund increases in accounts receivable and
support internal growth by financing new offices. The Company believes that
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. The Company has retained PNC
Capital Markets, Inc., a subsidiary of PNC Bank Corp., to assist the Company in
a potential private placement of senior secured and unsecured debt that would
supersede the Line of Credit. However, no assurance can be given that such an
offering will occur on terms more favorable to the Company.
FORWARD LOOKING INFORMATION
This report and other reports and statements filed by the Company from time
to time with the Securities and Exchange Commission (collectively, "SEC
Filings") contain or may contain certain forward-looking statements and
information that are based on beliefs of, and information currently available
to, the Company's management as well as estimates and assumptions made by the
Company's management. When used in SEC Filings, the words "anticipate,"
"believe," "estimate," "expect," "future," "intend," "plan" and similar
expressions as they relate to the Company or the Company's management, identify
forward-looking statements. Such statements reflect the current views of the
Company with respect to future events and are subject to certain risks,
uncertainties and assumptions relating to the Company's operations and results
of operations, competitive factors and pricing pressures, shifts in market
demand, the performance and needs of the industries served by the Company, and
other risks and uncertainties, including, in addition to any uncertainties
specifically identified in the text surrounding such statements and those
identified below, uncertainties with respect to changes or developments in
social, economic, business, industry, market, legal and regulatory circumstances
and conditions and actions taken or omitted to be taken by third parties,
including the Company's stockholders, customers, suppliers, business partners,
competitors, and legislative, 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.
Ability to Manage Growth Sustained or significant growth, if achieved, will
subject the Company to risks by placing a substantial strain on the Company's
available managerial, financial and other resources. Specifically, such growth
will require the Company to: (i) hire, integrate and retain qualified managers,
sales personnel and recruiters in existing markets as well as markets in which
the Company has no prior operating experience; (ii) develop and maintain
relationships with an increasingly large number of highly qualified technical
consultants; and (iii) apply its management practices to a significantly larger
organization. Expansion beyond the geographic areas where the Company's offices
are presently located will further increase demands on the Company's management.
The Company's ability to manage its staff and facilities growth effectively will
require it to continue to expand its operational, financial and other internal
systems. There can be no assurance that the Company's systems, procedures and
controls will be successfully implemented or adequate to support
14
<PAGE>
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.
Acquisition Risks A principal component of the Company's growth strategy is
the acquisition of companies that will complement and expand the Company's
existing businesses, principally in new geographic markets. The successful
implementation of this strategy is dependent on the Company's ability to
identify suitable acquisition candidates, acquire such companies on suitable
terms and integrate their operations with those of the Company. There can be no
assurance that the Company will be able to identify suitable acquisition
candidates or that, if identified, the Company will be able to acquire such
companies on suitable terms. The specialty staffing industry is relatively
mature. Acquisitions in this industry are therefore likely to be at higher
relative prices than for other industries due to competition from other staffing
companies for acquisition candidates. Acquisitions also involve a number of
special risks, including: (i) adverse effects on the Company's reported
operating results, including increased goodwill amortization and interest
expense; (ii) diversion of management attention; (iii) risks associated with
unanticipated problems, liabilities or contingencies; and (iv) difficulties
related to the integration of the acquired business. The occurrence of some or
all of the events described in these risks could have a material adverse effect
on the Company's business, financial condition and results of operations.
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 $368,000 for the three month period ended March 31, 1998, and at
March 31, 1998 had an accumulated deficit of $5.5 million. The losses have
resulted from high marketing and general and administrative costs associated
with building the company's imaging and document management infrastructure and
capabilities, combined with historically low profit margins related to the
hardware component of the networking business and a slower emergence of the
imaging and document management market than anticipated by the Company.
Specifically, the costs associated with building this division's imaging and
document management capabilities have included the hiring of sales and technical
personnel, and the costs associated with the acquisition and integration of one
imaging and document management company. The Company is currently focusing on
achieving profitability in its Information Management Services business and
expanding it through internal growth, new service offerings and acquisitions,
but cannot provide any assurances as to when it will achieve sustained
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 sustained 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. In addition, if the Information Management Services
business is unable to achieve sustained profitability, it will not realize the
federal tax benefit of its $4.2 million operating loss carryforward at December
31, 1997 which will expire between 2002 and 2011.
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, 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 and to apply its management
practices to a significantly larger organization. There can be no assurance that
the Company will be able to sustain or increase its Contract Placement revenues.
Furthermore, a decline in the level of Contract Placement revenues would have a
material adverse effect on the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
15
<PAGE>
PART II
ITEM 6. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following exhibits are filed as a part of this Quarterly Report on Form
10-Q.
Exhibit No. Description of Document
- ----------- -----------------------
2.1 Agreement and Plan of Merger, among the Company, Judge
Acquisition, Inc. and Judge Imaging Systems, Inc. Incorporate by
reference to Exhibit 2.1 to the Registrant's Form S-4 (File No.
333-13753) originally filed on October 9, 1996, as amended.
3.1 Amended and Restated Articles of Incorporation. Incorporated by
reference to Exhibit 3.1 of the Registrant's Form S-1 (File No.
333-13109) originally filed on September 30, 1996, as amended.
3.2 Bylaws. Incorporated by reference to Exhibit 3.2 of the Form S-1.
4.2 Form of common stock certificate for Company Common Shares.
Incorporated by reference to Exhibit 4.2 of the Form S-1.
4.3 First Modification to Fourth Amended and Restated Loan and
Security Agreement, dated April 24, 1998, between the Company and
PNC Bank.
11.1 Statement re Computation of Earnings Per Share.
27.1 Financial Data Schedule.
One report was filed by the Registrant on Form 8-K during the quarter ended
March 31, 1998 on March 20, 1998 related to the acquisition by JTS of
significantly all the assets of Information Solutions, Inc. and ISI Systems,
Inc. effective March 5, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned,
Dated: May 13, 1998
THE JUDGE GROUP, INC. THE JUDGE GROUP, INC.
By: /s/Jeffrey J. Andrews By: /s/Martin E. Judge, Jr.
-------------------------- -----------------------------
Jeffrey J. Andrews Martin E. Judge, Jr.
Chief Financial Officer Chairman of the Board and
Chief Executive Officer
16
Exhibit 4.3
FIRST MODIFICATION TO FOURTH AMENDED AND RESTATED LOAN AGREEMENT
This First Modification to Fourth Amended and Restated Loan Agreement
("Amendment") is made this 24th day of April, 1998 by and among THE JUDGE
GROUP, INC., JUDGE, INC., JUDGE TECHNICAL SERVICES, INC., JUDGE PROFESSIONAL
SERVICES, INC., THE BERKELEY ASSOCIATES CORP., JUDGE IMAGING SYSTEMS, INC. d/b/a
Judge Information Management Solutions, JUDGE ELECTRONICS SERVICES OF FLORIDA,
INC., JUDGE INC. OF NEW JERSEY, JUDGE TECHNICAL SERVICES OF N.J., INC. (jointly
and severally, "Borrowers" and singly, each is a "Borrower") and PNC BANK,
NATIONAL ASSOCIATION ("Lender").
BACKGROUND
A. On December 10, 1996, Borrowers, Sureties and Lender entered into a
certain Fourth Amended and Restated Loan and Security Agreement ("Loan
Agreement"), and related agreements and documents to evidence: (i) a certain
$11,000,000 line of credit (the "Revolving Loan") pursuant to a certain
$11,000,000 Amended and Restated Committed Line of Credit Note from Borrowers to
Lender dated December 10, 1996 (the "Committed Line of Credit Note") and (ii) a
certain $1,000,000 term loan (the "Term Loan") pursuant to a certain $1,000,000
term note from Borrowers to Lender dated September 3, 1996 (the "Term Note"),
and to otherwise reflect certain loan arrangements between the parties. For the
purposes hereof, the Revolving Loan and the Term Loan are hereinafter
collectively referred to as the "Loans" and the Committed Line of Credit Note
and the Term Note are hereinafter collectively referred to as the "Notes". The
Term Loan has been paid and satisfied in full.
B. The Loans and all other obligations of Borrowers to Lender are secured
by a first lien on and security interest in all of each Borrower's now existing
and hereafter acquired and arising property, including without limitation,
accounts, chattel paper, documents, instruments, general intangibles, goods,
inventory, equipment and fixtures, and all cash and non-cash proceeds (including
without limitation, insurance proceeds) of all of the foregoing property and all
additions and accessions thereto, substitutions therefor and replacements
thereof (the "Collateral").
C. Pursuant to the terms of certain Guaranty and Suretyship Agreements
(collectively, the "Surety Agreements") all dated December 10, 1996 from Martin
E. Judge, Jr., Michael A. Dunn and Kathleen A. Dunn, husband and wife
(collectively, "Sureties") to Lender, Sureties
<PAGE>
had unconditionally guaranteed, as surety, the existing and future
liabilities of Borrowers to Lender. The obligations of Sureties under the Surety
Agreements have been released and the Surety Agreements have been terminated.
D. On or about January, 1997, Judge Imaging registered the fictitious name
"Judge Information Management Solutions" in the various jurisdictions in which
it does business. For the purposes of collecting receivables, Judge Imaging is
using the name "Judge Information Management Solutions".
E. For the purposes hereof, the Loan Agreement, the Notes, and all other
agreements, instruments and documents executed pursuant thereto are sometimes
hereinafter collectively called the "Existing Financing Agreements." All terms
not otherwise defined herein shall have the respective meanings ascribed thereto
in the Existing Financing Agreements.
F. The parties have agreed, subject to the terms and conditions of the
Existing Financing Agreements, as modified by this Amendment, to modify certain
terms of the Revolving Loan and certain covenants existing in the Loan
Agreement.
NOW, THEREFORE, with the foregoing Background deemed incorporated by
reference herein and made a part hereof, the parties hereto, intending to be
legally bound, hereby promise and agree as follows:
1. AMENDMENTS TO REVOLVING LOAN.
(a) The Revolving Loan is amended, effective on the date hereof, as
follows:
I. Section 2A.1(b) of the Loan Agreement is hereby deleted in its
entirety and is hereby replaced with the following new Section 2A.1(b):
(b) Definition of Revolving Loan Limit. Borrower's Revolving Loan
Limit shall, subject to Sections 2A.1(d) and 2D hereinbelow, be the lesser
of:
(i) Twenty-Five Million Dollars ($25,000,000) less the outstanding
principal balance due by the Borrowers on the Letters of Credit described
in Section 2A.1(d); or
2
<PAGE>
(ii) The value of the following Collateral determined as follows:
Eighty-five (85%) percent of the Qualified Accounts (less
reserves determined by Lender for advertising allowances, warranty claims
and other contingencies) of Judge Group, New Judge, Inc., Judge Technical,
Berkeley Associates, Judge Imaging, Judge Professional, Judge of Florida,
Judge of New Jersey, Judge Technical of NJ and Judge Imaging.
Anything to contrary contained hereinbelow notwithstanding, the Lender
may increase or decrease the stated advance rates with respect to Qualified
Accounts of the Borrowers as Lender in its sole and absolute discretion may
determine.
Notwithstanding anything herein to the contrary, Borrowers acknowledge
that the Revolving Loan matures on May 31, 2003 and that during the time
the Revolving Loan is outstanding, the aforementioned advance rate of
eighty-five (85%) percent may be reduced by the Lender at its sole
discretion and that the Lender may establish reserves or reduce advance
rates with respect to Qualified Accounts or limit advances in the nature of
letters of credit, at its sole and absolute discretion; provided, however,
the Lender agrees to notify the Borrowers in writing at least fifteen (15)
days in advance of any decrease in the advance rate.
Lender, upon fifteen (15) days prior written notice to the Borrowers,
shall have the right to increase or decrease the Revolving Loan Limit from
time to time.
II. Section 2A.1(c) of the Loan Agreement is hereby amended to add
the following new subsection (J):
(J) (i) The Account shall be eligible only to the extent that it is
not subject to any defense, claim of reduction, counterclaim, set-off,
recoupment, or any dispute or claim for credits (including without
limitation, vendor rebates), allowances or adjustments by the Account
Debtor because of returned, inferior, damaged goods or unsatisfactory
services, or for any other reason;
3
<PAGE>
(ii) The goods the sale of which gave rise to the Account were shipped
or delivered or provided to the Account Debtor on an absolute sale basis
and not on a bill and hold sale basis, a consignment sale basis, a
guaranteed sale basis, a sale or return basis, or on the basis of any other
similar terms making the Account Debtor's payment obligations conditional;
(iii) The Account shall be ineligible if fifty percent (50%) or more
of the accounts of the related Account debtor and its affiliates are more
than ninety (90) days past due from the date of original invoice therefor;
(iv) The Borrower has not received any note, trade acceptance, draft,
chattel paper or other instrument with respect to, or in payment of, the
Account, unless, if any such instrument has been received, the Borrower
immediately notifies the Bank and, at the Bank's request, endorses or
assigns and delivers such instrument to the Bank;
(v) The Account shall be ineligible if the Account debtor is domiciled
in any country other than the United States of America or the Province of
Ontario, Canada, unless such Account is supported by a documentary letter
of credit, duly assigned to and in the possession of the Bank, from a
financial institution acceptable to the Bank and the terms and conditions
of which are acceptable to the Bank.
III. Section 2A.2 of the Loan Agreement is hereby deleted in its
entirety and is hereby replaced by the following new Section 2A.2:
2A.2 Interest Rate. Except in the event of the occurrence of
an Event of Default as provided in the Committed Line of Credit Note and
subject to Section 2B.2(b)(iii) below, the Revolving Loan shall bear
interest at the rate(s) of interest set forth in the Committed Line of
Credit Note; provided, however, upon the occurrence of an Event of Default,
the Revolving Loan shall bear interest at the default rate of interest set
forth in the Committed Line of Credit Note.
IV. Section 2A.9 of the Loan Agreement is hereby deleted in its
entirety and is hereby replaced with the following new Section 2A.9:
4
<PAGE>
2A.9 Revolving Loan Facility Fee. The Borrower shall pay to
the Lender a fee equal to one-eighth (1/8%)percent of the unused portion of
the Revolving Loan, which fee shall be due and payable quarterly and in
arrears five (5) business days after the end of each calendar quarter
(three (3) months) commencing with the quarter ended June 30, 1998 and on
the fifth (5th) business day after the end of each December, March, June
and September of each calendar year while the Revolving Loan is
outstanding.
V. Section 2A.10 of the Loan Agreement is hereby deleted in its
entirety and is hereby replaced with the following new Section 2A.10:
2A.10. Prepayment. The Revolving Loan may be prepaid in full
and the Revolving Loan terminated by Borrowers at any time (collectively,
such events constitute a "Termination"); provided, however, upon
Termination of the Revolving Loan by the Borrower during the period(s) set
forth below, Borrower shall unconditionally pay to Lender, the following:
(a) Three (3%) percent of the total Revolving Loan credit
facility if Termination occurs in the twelve (12) months after May 31, 1998
("Year 1");
(b) Two (2%) percent of the total Revolving Loan credit
facility if Termination occurs in the twelve (12) months after May 31, 1999
("Year 2"); and
(c) One (1%) percent of the maximum principal amount of the
Revolving Loan Credit facility if Termination occurs in the twelve (12)
months after May 31, 2000.
(b) Contemporaneously herewith, Borrowers shall execute and deliver to
Lender a Replacement Committed Line of Credit Note ("Replacement Note") to
evidence their joint and several unconditional obligation to repay the Revolving
Loan as modified hereby, which Replacement Note shall replace and supersede (but
not extinguish Borrowers' unconditional obligation to repay the indebtedness
evidenced by) the Committed Line of Credit Note.
5
<PAGE>
2. AMENDMENTS TO COVENANTS. All of the following shall be effective as of
the date of this Amendment:
(a) Section 5.15 of the Loan Agreement is hereby deleted in its entirety
and is replaced by the following new Section 5.15:
Affirmative Financial Covenants. The Borrowers shall comply with the
following financial covenants, (the "Affirmative Financial Covenants") at
all times during the term of the Loans. The Affirmative Financial Covenants
shall be tested by the Lender on a calendar quarter basis, i.e. September
30, December 31, March 31 and June 30 of each calendar year during the
terms of the Loans. The Borrowers shall deliver to the Lender within
forty-five (45) days after the end of each calendar quarter, schedules
setting forth in such detail as may reasonably by required by the Lender, a
computation of the Financial Covenants and certified by the Chief Executive
Officer of the Chief Financial Officer of Borrowers to be true and correct.
The Affirmative Financial Covenants are as follows:
(a) Tangible Net Worth. "Tangible Net Worth" shall mean the
Borrowers' net worth plus subordinated debt plus Series A Preferred Stock
plus subordinated advances from shareholders less officers'/employees'
receivables less amounts due on covenants not to compete, all of the
foregoing as set forth on the Borrowers' consolidated financial statements
prepared in accordance with GAAP. Borrowers' Tangible Net Worth shall not
be less than the following amounts at the dates set forth below:
As of Tangible Net Worth
----- ------------------
March 31, 1998 $20,000,000
June 30, 1998 $20,000,000
September 30, 1998 $21,000,000
December 31, 1998 $22,000,000
March 31, 1999 $23,000,000
June 30, 1999 $24,000,000
September 30, 1999 $25,000,000
December 31, 1999 and
at each calendar quarter
and thereafter $28,000,000
6
<PAGE>
(b) Ratio of Liabilities to Tangible Net Worth. The ratio of
Borrowers' consolidated Liabilities to Borrowers' Tangible Net Worth shall
not exceed the following ratios at the dates indicated below.
As of Ratio Not to Exceed
----- -------------------
March 31, 1998 3.0 to 1
June 30, 1998 3.0 to 1
September 30, 1998 3.0 to 1
December 31, 1998 3.0 to 1
March 31, 1999 3.0 to 1
June 30, 1999 3.0 to 1
September 30, 1999 3.0 to 1
December 31, 1999 and
at each calendar quarter
and thereafter 3.0 to 1
(c) Fixed Charge Coverage Ratio. During the term of the Loans, the
Borrowers' Fixed Charge Coverage Ratio shall be at least 1.5 to 1 at the
end of each calendar quarter (aggregated for the four preceding calendar
quarters), beginning on March 31, 1998. For the purposes hereof, the "Fixed
Charge Coverage Ratio" shall be calculated as the ratio of: (i) The
Borrowers' aggregate net income plus depreciation, amortization, interest
expense and all other non-cash charges plus net cash proceeds received from
any new capital contribution or subordinated debt minus unfunded Capital
Expenditures to (ii) the sum of current maturities of long term debt plus
interest expense for all indebtedness for borrowed monies (including
capitalized lease obligations), all as such terms would appear on a
consolidated statement of income for Borrowers, prepared in accordance with
GAAP, consistently applied.
(b) Section 6.1 of the Loan Agreement is hereby deleted in its entirety
and is hereby replaced by the following new Section 6.1:
6.1 No Consolidation, Merger, Acquisition, Liquidation. Except as
provided on Schedule 6.1, enter into any merger, consolidation,
reorganization or recapitalization; take
7
<PAGE>
any steps in contemplation of dissolution or liquidation; conduct any part
of Borrower's business through any corporate subsidiary, unincorporated
association or other entity not disclosed on Schedule 4 to this Agreement;
or acquire the stock or assets of any person, firm, joint venture,
partnership, corporation or other entity, whether by merger, consolidation
purchase of stock or otherwise, provided however that any Borrower may
acquire the assets or stock of any independent entity without Lender's
prior written consent so long as: (i) no Event of Default is outstanding
hereunder at the time of such acquisition; (ii) such acquisition shall have
a purchase price (paid in cash, by note or other consideration) of not more
than $10,000,000 in the aggregate, and (iii) at the time of such
acquisition, any purchased entity joins in and becomes obligated to repay
the obligations evidenced hereby.
(c) Section 6.7 of the Loan Agreement is hereby deleted in its entirety
and is hereby replaced by the following new Section 6.7:
6.7 Dividends and Other Distributions. Declare or pay any cash
dividend or make any distribution on, or redeem, retire or otherwise
acquire directly or indirectly, any share of its stock (except for
purchases of up to $10,000,000 in the aggregate, from Borrowers' stock
purchase plan), or make any distribution of assets to its stockholders.
(d) Section 6.19 of the Loan Agreement is hereby deleted in its entirety
and is replaced by the following new Section 6.19:
Capital Expenditures. During any rolling four quarter period ending
on the dates set forth below, enter into any agreement to purchase or pay
for, or become obligated to pay for, capital expenditures, long term
leases, capital leases or sale lease backs (collectively "Capital
Expenditures"), in an amount aggregated in excess of the following amounts:
For The Prior Four
Calendar Quarters
Ending on: Not to Exceed
---------- -------------
March 31, 1998 $1,700,000
June 30, 1998 $2,600,000
8
<PAGE>
September 30, 1998 $2,500,000
December 31, 1998 $2,000,000
March 31, 1999 $2,120,000
June 30, 1999 $2,180,000
September 30, 1999 $2,220,000
December 31, 1999 and
at each calendar quarter
and thereafter $2,250,000
Lender shall not unreasonably withhold its consent in the event of the
Borrowers request Lender's consent to permit increases in the Capital
Expenditures limits if necessary to accommodate acquisitions and
corresponding asset upgrades.
(e) Lender confirms that Borrower need not comply with that portion of
Section 8.7 of the Loan Agreement which requires Martin E. Judge, Jr. to retain
more than 40% ownership of the stock of The Judge Group, Inc. and that the
failure to so retain such stock shall not constitute an Event of Default under
the Loan Agreement.
3. INCORPORATION OF EXISTING FINANCING DOCUMENTS. The parties acknowledge
and agree that this Amendment is incorporated into and made part of the Existing
Financing Agreements, the terms and provisions of which, unless expressly
modified herein, or unless no longer applicable by their terms, continue
unchanged and in full force and effect. To the extent that any term or provision
of this Amendment is or may be deemed expressly inconsistent with any term or
provision in the Existing Financing Agreements, the terms and provisions hereof
shall control.
4. WAIVER OF EXISTING DEFAULTS. Lender and Borrowers acknowledge that an
Event of Default from Borrowers' violation of the following section of the Loan
Agreement was outstanding as of December 31, 1997:
(a) Section 6.19 (Capital Expenditures).
Lender hereby waives the above-referenced default. Each Borrower agrees
that it will hereafter comply fully with these and all other provisions of the
Loan Agreement. Each Borrower further acknowledges and agrees that Lender's
waiver herein is expressly limited to the
9
<PAGE>
defaults during the period specified above and does not and shall not be
deemed to constitute a waiver of any other defaults or Events of Default, nor
shall it obligate Lender, or be construed to require Lender, to waive any other
defaults, whether now existing or which may occur after the date of this
Agreement, nor shall it limit Lender's rights to exercise all of its rights and
remedies under the Loan Agreement, the Replacement Note, the Surety Agreements
or the other loan documents executed in connection therewith, all of which
rights Lender expressly reserves.
5. LOAN DOCUMENTS. Except where the context clearly requires otherwise, all
references to the Committed Line of Credit Note in the Loan Agreement or in any
other document delivered to Lender in connection therewith shall hereafter be to
the Replacement Note.
6. BORROWER RATIFICATIONS. Each Borrower agrees that it has no defenses or
set-offs against the Lender, its officers, directors, employees, agents or
attorneys with respect to the Note or the Loan Agreement, all of which are in
full force and effect and shall remain in full force and effect unless and until
modified or amended in writing in accordance with their terms. Each Borrower
hereby ratifies and confirms its obligations under the Committed Line of Credit
Note and the Loan Agreement and agrees that the execution and the delivery of
this Agreement does not in any way diminish or invalidate any of its obligations
thereunder.
7. REPRESENTATIONS AND WARRANTIES. Each Borrower hereby certifies that:
(a) except as otherwise disclosed to Lender on Exhibit 7(a) attached
hereto and made a part hereof, the representations and warranties made in the
Replacement Note and the Loan Agreement are true and correct as of the date
hereof;
(b) no Event of Default under the Replacement Note or the Loan Agreement
and no event which with the passage of time or the giving of notice or both
could become an Event of Default, exists on the date hereof; and
(c) this Agreement has been duly authorized, executed and delivered so
as to constitute the legal, valid and binding obligation of each Borrower,
enforceable in accordance with its terms.
All of the above representations and warranties shall survive the
10
<PAGE>
making of this Agreement.
8. NO WAIVER. Except as expressly provided herein, this Agreement does not
and shall not be deemed to constitute a waiver by Lender of any Event of Default
under the Committed Line of Credit Note, Loan Agreement or of any event which
with the passage of time or the giving of notice or both would constitute an
Event of Default, nor does it obligate Lender to agree to any further extension
of the maturity date of the Replacement Note or constitute a waiver of any of
Lender's other rights or remedies.
9. COLLATERAL. Each Borrower hereby confirms that the Loan Agreement, as
amended, any other collateral or security agreements of each Borrower, and all
Collateral, liens, security interests, mortgages, and pledges created by each
Borrower, continue unimpaired and in full force and effect and shall cover and
secure all of Borrowers' existing and future liabilities to Lender, including
without limitation, Borrowers' liabilities on the Loans, as amended hereby.
10. RELEASE. In consideration for Lender's agreement to consent to the
modifications set forth herein, Borrowers hereby waive and release and forever
discharge Lender and its officers, directors, attorneys, agents, and employees
from any liability, damage, claim, loss or expense of any kind that they may
have now or hereafter against Lender or any of them arising out of or relating
to the Loans. Borrowers hereby further agree to indemnify and hold Lender and
its officers, directors, attorneys, agents and employees harmless from any loss,
damage, judgment, liability or expense (including counsel fees) suffered by or
rendered against Lender or any of them on account of any claims arising out of
or relating to the Loans. Borrowers further state that they have carefully read
the foregoing release, know the contents thereof and grant the same as their own
free act and deed.
11. CONDITIONS TO CLOSING. Borrowers shall deliver the following to Lender
prior to the execution hereof (the "Closing Date") (all documents to be in form
and substance satisfactory to Lender):
(a) This fully executed Amendment, the Replacement Note with Disclosure
of Confession of Judgment form and each other document required by any
provision hereof;
(b) Certified copies of a resolution of each corporate Borrower's Board
of Directors and each partnership Borrower's general
11
<PAGE>
partners authorizing the execution of this Amendment, and all agreements
and documents referred to herein; and
(c) Unconditional payment to Lender of an amendment fee equal to
$14,000.
12. MISCELLANEOUS.
(a) Headings. The headings of any paragraph of this Amendment are for
convenience only and shall not be used to interpret any provision hereof.
(b) Other Instruments. Each Borrower agrees to execute any other
documents, instruments and writings, in form satisfactory to Lender, as Lender
may reasonably request, as further evidence of Borrower's obligations hereunder
and otherwise to carry out the intentions of parties hereunder.
(c) Modifications. No modification hereof or any agreement referred to
herein shall be binding or enforceable unless in writing and signed on behalf of
the party against whom enforcement is sought.
(d) Third Parties. No rights are intended to be created hereunder for
the benefit of any third party donee, creditor or incidental beneficiary.
(e) Payment of Costs and Expenses. Each Borrower unconditionally agrees
to reimburse Lender for any of its out-of-pocket costs and expenses (including
without limitation attorneys' fees) arising in connection with the preparation,
negotiation, closing and administration of this Amendment and the enforcement of
Lender's rights under the Existing Financing Agreements, as modified hereby.
(f) Consent to Jurisdiction. Borrowers irrevocably consent to the
jurisdiction of the Courts of Common Pleas of Philadelphia, Commonwealth of
Pennsylvania or the United States District Court for the Eastern District of
Pennsylvania in any and all actions and proceedings whether arising hereunder or
under any other agreement or undertaking and irrevocably agree to service of
process by certified mail, return receipt requested to the address of Borrowers
set forth in the Loan Agreement.
12
<PAGE>
(g) Waiver of Jury Trial. Borrowers hereby irrevocably waive any and all
rights any of them may have to a jury trial in connection with any litigation
commenced by or against Lender with respect to rights and obligations of the
parti
es hereto or otherwise.
DATED the date and year first above written.
THE JUDGE GROUP, INC.
JUDGE, INC.
JUDGE TECHNICAL SERVICES, INC.
JUDGE PROFESSIONAL SERVICES, INC.
THE BERKELEY ASSOCIATES CORP.
JUDGE IMAGING SYSTEMS, INC.
d/b/a Judge Information Management Solutions
JUDGE ELECTRONICS SERVICES OF FLORIDA, INC.
JUDGE INC. OF NEW JERSEY
JUDGE TECHNICAL SERVICES OF N.J., INC.
By: /s/ Martin E. Judge, Jr.
---------------------------------------
Martin E. Judge, Jr., on behalf of
all of the above companies
Attest: /s/ Katherine A. Wiercinski
-----------------------------------
Katharine A. Wiercinski, on
behalf of all of the above
companies
PNC BANK, NATIONAL ASSOCIATION
By:
---------------------------
Title:
------------------------
13
EXHIBIT 11.1
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
---- ----
<S> <C> <C>
Basic
Weighted average common shares outstanding (3) 13,369,191 10,967,854
Net income (loss) after adjustment for preferred
dividends earned on JIS stock $ 363.138 ($ 273,172)
=========== ===========
Basic net income (loss) per common share $0.03 ($0.02)
===== ======
Diluted
Weighted average common shares outstanding (1) (2) (3) 13,380,607 11,230,854
Net income (loss) after adjustment for preferred dividends
earned on JIS stock and interest saved on conversion of debt $ 363,138 ($ 269,422)
=========== ===========
Diluted net income (loss) per common share $0.03 ($0.02)
===== ======
</TABLE>
(1) Options on 521,500 shares and 593,000 shares in 1998 and 1997,
respectively, not included in computing diluted earnings per share because
their effects are anti-dilutive.
(2) In 1998 options to purchase 82,500 shares, less 71,084 shares to be
purchased under the Treasury Stock method, are included in weighted average
shares outstanding.
(3) Excludes 40,000 shares of Treasury Stock from its date of purchase on
February 28, 1998.
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS CONTAINED IN THE JUDGE GROUP, INC. QUARTERLY REPORT ON FORM
10-Q FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS
Appendix A to Item 601(c) of Regulation S-B
(Article 5 of Regulation S-X
Commercial and Industrial Companies)
</LEGEND>
<CIK> 0001022893
<NAME> THE JUDGE GROUP, INC.
<CURRENCY> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 1,759,229
<SECURITIES> 0
<RECEIVABLES> 18,516,594
<ALLOWANCES> 466,234
<INVENTORY> 1,430,836
<CURRENT-ASSETS> 22,992,580
<PP&E> 5,677,876
<DEPRECIATION> 2,321,974
<TOTAL-ASSETS> 38,478,431
<CURRENT-LIABILITIES> 10,698,995
<BONDS> 0
0
0
<COMMON> 134,979
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 38,478,431
<SALES> 0
<TOTAL-REVENUES> 25,089,818
<CGS> 17,419,944
<TOTAL-COSTS> 24,495,474
<OTHER-EXPENSES> 9,381
<LOSS-PROVISION> 37,042
<INTEREST-EXPENSE> 9,381
<INCOME-PRETAX> 655,801
<INCOME-TAX> 292,663
<INCOME-CONTINUING> 363,138
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 363,138
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
