<PAGE>
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 September 30, 1999
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) (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 [ ]
As of October 28, 1999, 13,940,647 shares of the Registrant's Common
Stock, $0.01 par value, were outstanding.
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington. D.C. 20549
THE JUDGE GROUP, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
NUMBER PAGE(S)
- ------ -------
PART I - FINANCIAL INFORMATION
------------------------------
<S> <C>
CONDENSED CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 1999 AND DECEMBER 31, 1998 1
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998 2
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998 3
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1999 AND 1998 4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998 5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 6-10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 11-16
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 16
PART II - OTHER INFORMATION
---------------------------
ITEM 1. LEGAL PROCEEDINGS 17
ITEM 6. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K 17
</TABLE>
i
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 53,346 $ 43,568
Accounts receivable, net 20,291,299 21,767,995
Inventories 125,483 1,185,302
Prepaid income taxes and deferred taxes 4,161,965 1,909,919
Other 1,079,556 977,295
------------ ------------
TOTAL CURRENT ASSETS 25,711,649 25,884,079
------------ ------------
PROPERTY AND EQUIPMENT
Property and Equipment 4,943,766 8,166,048
Less: accumulated depreciation and amortization 1,852,917 3,220,212
------------ ------------
NET PROPERTY AND EQUIPMENT 3,090,849 4,945,836
------------ ------------
OTHER ASSETS
Deposits and other 962,893 716,634
Covenant not to compete, net of accumulated amortization of $71,231, 1999 and
$37,490, 1998 18,745 52,486
Goodwill, net of accumulated amortization of $5,191,673, 1999 and
$4,731,788, 1998 8,840,170 16,286,392
------------ ------------
TOTAL OTHER ASSETS 9,821,808 17,055,512
------------ ------------
TOTAL ASSETS $ 38,624,306 $ 47,885,427
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 965,018 $ 743,677
Accounts payable and accrued expenses 7,206,096 8,679,519
Payroll and sales taxes 895,086 576,562
Other liabilities 130,000 2,634,954
Deferred revenue 549,897 1,035,558
------------ ------------
TOTAL CURRENT LIABILITIES 9,746,097 13,670,270
------------ ------------
LONG-TERM LIABILITIES
Note payable, Bank 11,893,578 9,881,595
Deferred rent obligation 505,847 666,879
Debt obligations, net of current portion 1,048,677 585,490
------------ ------------
TOTAL LONG-TERM LIABILITIES 13,448,102 11,133,964
------------ ------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, $.01 par value, 50,000,000 shares authorized; at September 30,
1999, 13,984,373 issued and 13,944,373 outstanding; at December 31, 1998,
13,541,302 shares issued and 13,501,302 outstanding 139,843 135,412
Preferred stock, $.01 par value, 10,000,000 shares authorized -- --
Additional paid-in capital 23,905,057 24,900,474
Deficit (8,394,793) (1,734,693)
------------ ------------
15,650,107 23,301,193
Less treasury stock, 40,000 shares; at cost 220,000 220,000
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 15,430,107 23,081,193
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 38,624,306 $ 47,885,427
============ ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
1
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
NET REVENUES $ 86,712,996 $ 68,546,499
------------ ------------
<S> <C> <C>
COSTS AND EXPENSES
Cost of sales (exclusive of items shown separately below) 57,730,677 46,224,805
Selling and operating 15,883,611 13,057,604
General and administrative 9,555,258 7,301,746
------------ ------------
TOTAL COSTS AND EXPENSES 83,169,546 66,584,155
------------ ------------
INCOME FROM OPERATIONS 3.543,450 1,962,344
Other income (expense), net (547,306) 14,849
------------ ------------
Income before income tax expense 2,996,144 1,977,193
Income tax expense 1,241,186 791,149
------------ ------------
Income from continuing operations 1,754,958 1,186,044
Discontinued operations:
Loss from discontinued operations (net of income tax benefit of
$1,102,426, 1999 and $783,681, 1998) (2,140,002) (1,174,841)
Loss on disposal of discontinued operations, including provision
of $188,000 for operating losses during phase-out period (net of
income tax benefit of $1,994,830) (6,275,056) 0
------------ ------------
NET INCOME (LOSS) ($ 6,660,100) $ 11,203
============ ============
NET INCOME (LOSS) PER SHARE:(1)
BASIC
Weighted Average Shares Outstanding 13,699,304 13,536,116
============ ============
Basic income per share from continuing operations $ 0.13 $ 0.09
Basic loss per share from discontinued operations ($0.16) ($0.09)
Basic loss per share from disposal of discontinued operations ($0.46) $ 0.00
------------ ------------
Basic loss per share ($0.49) $ 0.00
============ ============
DILUTED
Weighted Average Shares Outstanding 13,715,220 13,552,783
============ ============
Diluted income per share from continuing operations $ 0.13 $ 0.09
Diluted loss per share from discontinued operations ($0.16) ($0.09)
Diluted loss per share from disposal of discontinued operations ($0.46) $ 0.00
------------ ------------
Diluted loss per share ($0.49) $ 0.00
============ ============
</TABLE>
(1) Earnings (Loss) per share amounts are rounded
See Notes to Condensed Consolidated Financial Statements.
2
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
NET REVENUES $28,383,802 $23,971,214
----------- -----------
<S> <C> <C>
COSTS AND EXPENSES
Cost of sales (exclusive of items shown separately below) 18,752,613 16,327,651
Selling and operating 5,030,775 5,110,726
General and administrative 3,074,192 2,876,550
----------- -----------
TOTAL COSTS AND EXPENSES 26,857,580 24,314,927
----------- -----------
INCOME (LOSS) FROM OPERATIONS 1,526,222 (343,713)
Other income (expense), net (291,474) (42,927)
----------- -----------
Income (loss) before income tax expense (benefit) 1,234,748 (386,640)
Income tax expense (benefit) 503,253 (180,407)
----------- -----------
Income (loss) from continuing operations 731,495 (206,233)
Discontinued operations:
Loss from discontinued operations (net of income tax benefit of $113,314, 1999 and
$436,810, 1998) (219,962) (655,213)
Gain on disposal of discontinued operations, including provision of $0 for operating
losses during phase-out period (net of income tax expense of $4,078) 7,916 0
----------- -----------
NET INCOME (LOSS) $ 519,449 ($861,446)
=========== ===========
NET INCOME (LOSS) PER SHARE: (1)
BASIC
Weighted Average Shares Outstanding 13,944,373 13,491,302
=========== ===========
Basic income (loss) per share from continuing operations $ 0.05 ($0.02)
Basic loss per share from discontinued operations ($0.01) ($0.04)
Basic loss per share from disposal of discontinued operations $ 0.00 $ 0.00
----------- -----------
Basic income (loss) per share $ 0.04 ($0.06)
=========== ===========
DILUTED
Weighted Average Shares Outstanding 13,948,257 13,491,302
=========== ===========
Diluted income (loss) per share from continuing operations $ 0.05 ($0.02)
Diluted loss per share from discontinued operations ($0.01) (0.04)
Diluted loss per share from disposal of discontinued operations $ 0.00 $ 0.00
----------- -----------
Diluted income (loss) per share $ 0.04 ($0.06)
=========== ===========
</TABLE>
(1) Earnings (Loss) per share amounts are rounded
See Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1999
<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, 1998 13,541,302 $ 135,412 $24,900,474 ($1,734,693) ($220,000) $23,081,193
Acquisition transactions 443,071 4,431 (4,431) -- -- --
Contingent Stock Price Payable -- -- (461,875) -- -- (461,875)
Forfeited Earnout Stock
Payable -- -- (529,111) -- -- (529,111)
Net loss -- -- -- (6,660,100) -- (6,660,100)
----------- ----------- ----------- ------------ --------- -----------
Balance, September 30, 1999 13,984,373 $ 139,843 $23,905,057 ($8,394,793) ($220,000) $15,430,107
=========== =========== =========== ============ ========= ===========
</TABLE>
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 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 183,333 1,833 865,874 -- -- 867,707
Purchase treasury stock -- -- -- -- (220,000) (220,000)
Net income -- -- -- 11,203 -- 11,203
---------- -------- ----------- ---------- ---------- -----------
Balance, September 30, 1998 13,531,302 $135,312 $23,624,391 $3,393,503 ($220,000) $26,933,206
========== ======== =========== ========== ========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) for the period ($6,660,100) $ 11,203
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation 922,013 736,621
Amortization 492,207 518,269
Loss on disposal of discontinued operations 6,275,056 --
Deferred rent (236,032) 118,785
Provision for losses on accounts receivable 659,417 120,761
Loss on disposal of equipment 204,393 --
Changes in operating assets and liabilities:
(Increase) decrease in:
Short term investments -- 5,500,000
Accounts receivable (2,964,162) (5,851,641)
Inventories (270,336) 510,717
Deposits and other (121,920) (385,151)
Prepaid income taxes and deferred taxes (253,138) (532,003)
Other current assets (278,269) (777,040)
Increase (decrease) in:
Accounts payable and accrued expenses (777,519) 2,995,556
Payroll and sales taxes 318,524 (33,510)
Deferred revenue 184,207 259,450
Income taxes payable -- (285,882)
----------- -----------
Net cash provided by (used in ) operating activities (2,505,659) 2,906,135
----------- -----------
INVESTING ACTIVITIES
Purchases of property and equipment (802,916) (2,458,108)
Purchase of companies -- (6,998,953)
Proceeds from disposition of businesses 2,788,000 --
Covenant not to compete -- (89,976)
----------- -----------
Net cash provided by (used in) investing activities 1,985,084 (9,547,037)
----------- -----------
FINANCING ACTIVITIES
Cash acquired in business combination -- 159,068
Proceeds from notes payable, bank, net 2,056,983 6,400,000
Repayments of bank overdrafts (173,974) --
Proceeds from lease payable, bank 1,425,000 --
Principal payments on long-term debt (762,656) (769,450)
Repayment of bank note payable related to company acquired -- (175,000)
Advances receivable related to company acquired -- (319,620)
Purchase of Treasury Stock -- (220,000)
Contingent stock payable (2,015,000) --
----------- -----------
Net cash provided by financing activities 530,353 5,074,998
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 9,778 (1,565,904)
CASH AND CASH EQUIVALENTS, BEGINNING 43,568 1,684,482
----------- -----------
CASH AND CASH EQUIVALENTS, ENDING $ 53,346 $ 118,578
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for Interest $ 766,000 $ 144,000
=========== ===========
Cash paid during the year for Income taxes $ 578,000 $ 977,000
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
5
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
NOTE 1. DESCRIPTION OF BUSINESS
The Judge Group, Inc. (the "Company") a Pennsylvania corporation founded in
1970, provides 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) as
well as IT training (through its "IT Training" business) on a range of software
and network applications to corporate, governmental and individual clients. The
Company also formerly provided computer network and document management system
integration, implementation, maintenance and training (through its "Information
Management Solutions" business ("IMS")). On June 15, 1999 the Company adopted a
plan to dispose of the IMS business through the sale of substantially all of the
assets of that business (See Note 3). At September 30, 1999, the Company's
continuing operations, headquartered in Bala Cynwyd, Pennsylvania, operated 14
regional offices in twelve states in the United States. A substantial portion of
the Company's revenues are derived from customers located in the Mid-Atlantic
corridor of the United States.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The accompanying condensed 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 September 30, 1999 and for the three months and
nine months ended September 30, 1999 and 1998 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, 1998 and the notes
thereto.
Risks, Uncertainties and Management Estimates
The results of operations for the interim periods are not necessarily indicative
of the results that might be expected for future interim periods or for the full
year ending December 31, 1999.
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
Goodwill represents the excess of the cost of businesses acquired by the Company
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, and it is reasonably possible that such estimates may change in the
near term. Amortization of goodwill for the three months ended September 30,
1999 and 1998 was approximately $101,000 and $216,000, respectively, and for the
nine months ended September 30, 1999 and 1998 was approximately $458,000 and
$492,000, respectively, and is included in general and administrative expense in
the condensed consolidated statements of operations. An additional $7,063,000 of
goodwill was written off as part of the disposal of the IMS business, and is
included in the loss on disposal of IMS in the accompanying condensed
consolidated statements of operations during the nine months ended September 30,
1999.
6
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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 Financial Accounting Standards Board issued Statement No. 131,
"Disclosures about Segments of an Enterprise and Related Information." This
Statement established 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
established standards for related disclosures about products and services,
geographic areas and major customers. The Company adopted this statement in
1998. Effective June 1999 with the disposal of the IMS segment, the Company's
continuing operations consist of only one segment, IT Staffing, comprised of the
Contract Placement business, Permanent Placement business, and IT Training
business.
Earnings Per Share
Basic earnings (loss) per share amounts are computed based on net income (loss)
divided by the weighted average number of shares actually outstanding during the
applicable period, and reduced by treasury shares held by the Company. The
number of shares used in the computation for the nine months ended September 30,
1999 and 1998 were approximately 13,699,000, and 13,536,000, respectively. The
number of shares used in the computation for the three months ended September
30, 1999 and 1998 were approximately 13,944,000 and 13,491,000, respectively.
Diluted earnings (loss) per share amounts for the three months and nine months
ended September 30, 1999 and 1998 are based on the weighted average number of
shares calculated for basic earnings (loss) per share purposes increased by the
number of shares that would be outstanding assuming the exercise of all
outstanding stock options issued by the Company. The number of shares used in
the computation for the nine months ended September 30, 1999 and 1998 were
approximately 13,715,000 and 13,553,000, respectively. The number of shares used
in the computation for the three months ended September 30, 1999 and 1998 were
approximately 13,948,000 and 13,491,000, respectively. Outstanding options to
purchase 1,447,550 common shares in 1999 and 1,483,050 common shares in 1998
were not included in the computation of diluted earnings (loss) per share
because the option exercise price was greater than the average market price of
the Company's common shares.
On February 26, 1998 the Company repurchased 40,000 common shares at a price of
$5.50 per share, which shares are considered treasury stock.
NOTE 3. DISCONTINUED OPERATIONS
On June 15, 1999 the Company adopted a formal plan to dispose of the Information
Management Solutions ("IMS") business. Effective September 30, 1999
substantially all of the net assets of the IMS business were disposed of for
total consideration of $4,357,673 consisting of cash, note receivable, and
forgiveness of amounts payable to the buyer. The December 31, 1998 balance sheet
has not been restated. Assets sold consisted primarily of accounts receivable,
inventory, and property and equipment. Liabilities assumed by the respective
purchasers consist primarily of accounts payable, accrued expenses, and
equipment leases payable.
The loss on disposal of the IMS business of $6,275,056 represents the actual and
estimated loss on the disposal of the assets and a provision of $188,000 for
expected operating losses during the phase-out period.
7
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
NOTE 3. DISCONTINUED OPERATIONS (continued)
Operating results of the IMS business for the three and nine months ended
September 30, 1999 are shown separately in the accompanying condensed
consolidated income statements. The condensed consolidated income statements for
the respective periods in 1998 have been restated to present separately the
operating results of the IMS business.
Net revenues of the IMS business for the three and nine months ended September
30, 1999 were $206,418 and $7,026,611, respectively. Net revenues for the
corresponding periods in 1998 were $6,388,314 and $14,679,024, respectively.
These amounts are not included in net revenues in the accompanying condensed
consolidated income statements for the respective periods.
NOTE 4. NOTE PAYABLE, BANK
Note payable, Bank, consists of advances to the Company under a $25,000,000 line
of credit facility. The line of credit bears interest at the bank's prime rate
(8.25% at September 30, 1999) or, at the option of the Company, a portion of the
outstanding balance bears interest at 200 basis points over the London
Inter-Bank Offering Rate. Maximum permitted borrowings thereunder are the lesser
of $25,000,000 or 85% 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, expires May 31, 2003 and is subject to certain
covenants which from time to time have been reset by the Bank, including
financial covenants requiring certain levels of net worth, debt service ratios,
fixed charge coverage and limiting capital expenditures. In addition, the
Company and all of its subsidiaries are jointly and severally responsible for
all of the debt outstanding under the line.
Included in accounts payable and accrued expenses were approximately $1,411,000
and $1,585,000 of bank overdrafts at September 30, 1999 and December 31, 1998,
respectively.
NOTE 5. LONG-TERM DEBT
At September 30, 1999 long-term debt consisted of the following:
<TABLE>
<CAPTION>
September 30, 1999
------------------
<S> <C>
Note Payable; payable in various monthly installments plus interest at 8%, through March 2000 $ 62,500
Note Payable; payable in 24 monthly installments of $12,500 plus interest at 8%, through March 2000 62,500
Note Payable; payable in 8 quarterly payments of $102,333 including interest at 8%, through December 2000 482,341
Note Payable; payable in 36 monthly installments of $6,944 plus interest at 8%, through October 2001 166,667
Capital lease obligation; payable in monthly installments of $41,987, including interest and taxes,
through March 2002; and a final payment of $213,750 in April 2002; the lease transfers ownership of
certain office equipment to the Company at the end of the lease term 1,239,687
----------
2,013,695
Less: Current portion (965,018)
----------
Long-term portion $1,048,677
==========
</TABLE>
8
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
NOTE 5. LONG-TERM DEBT (continued)
Interest expense charged to operations was approximately $291,000 and $45,000
for the three months ended September 30, 1999 and 1998, respectively, and
approximately $552,000 and $70,000 for the nine months ended September 30, 1999
and 1998, respectively.
NOTE 6. INCOME TAXES
The Company files a consolidated Federal income tax return with its wholly-owned
subsidiaries. State income taxes are determined on the basis of filing separate
returns for each subsidiary as required by applicable state regulations.
In accordance with Accounting Principles Board Opinion No. 28 (Interim Financial
Reporting), income taxes (benefit) are calculated at the estimated effective
annual (federal and state) tax rates.
The effective tax (benefit) rate for 1999 and 1998 is higher (lower) than the
applicable federal statutory tax rate of 34% due to the Company's state tax
liabilities (benefit) and certain expenses that were not deductible for tax
purposes.
NOTE 7. COMMITMENTS AND CONTINGENCIES
The Company is aware of the issues associated with the programming code in many
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 those of its suppliers as well as
third parties for whom the Company implements "Year 2000" solutions on their
computer systems.
The Company implemented a "Year 2000" compliance program that requires all
business units and locations to inventory systems, assess any risk, take
required corrective actions, test, and certify compliance with the program. To
date all internal systems have been inventoried, risk assessments have been
completed, remediation of critical systems has been substantially completed and
remediation of non-critical systems is continuing. Testing and validation of all
critical systems has been substantially completed. "Year 2000" compliant systems
are being implemented in field operations. Management does not expect that total
incremental spending by the Company to deal with the "Year 2000" problem will be
material. 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. The compliance
program requires that contingency plans be developed and validated in the event
a critical system fails, and such plans are currently in place. In addition the
Company formed a rapid response team to address any operational problems during
the "Year 2000" date change period. There can be no assurance whether factors
outside the control of the Company, such as systemic electrical failure, might
cause its systems to fail.
9
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
NOTE 8. SHAREHOLDERS' EQUITY AND EARNINGS (LOSS) 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 3,500,000 of the Company's common shares, subject to
certain adjustments and restrictions. The price of each option is the fair
market value of the Company's common 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 the grant date. The 204,300 options previously granted to employees in the
discontinued IMS segment vested 100% on August 2, 1999 pursuant to the Incentive
Plan and the various asset purchase agreements. The former IMS employees, all of
whom were terminated by the Company, have until November 1, 1999 to exercise
their options before they expire.
During the nine months ended September 30, 1999, the Company granted options to
purchase 898,444 common shares at a weighted average exercise price of $1.57 per
common share. No options were exercised during the period ended September 30,
1999.
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 9. STATEMENT OF CASH FLOWS
Supplemental disclosure of non-cash investing and financing transactions:
During the nine months ended September 30, 1999, the Company entered into the
following non-cash transactions.
o entered into certain capital lease arrangements to fund the purchase of
equipment in the amount of approximately $345,700
o recorded the following with respect to the disposition of the IMS segment:
o reduced contingent stock price payables which were forgiven in the
amount of approximately $952,000
o reduced earnouts payable which were forgiven in the amount of
approximately $718,000
o wrote off approximately $7,063,000 of goodwill
During the nine months ended September 30, 1998, the Company entered into the
following non-cash transactions:
o incurred long-term debt ($890,000) for certain business combinations;
o recorded goodwill of $4,848,000 in various business combinations.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999
COMPARED TO THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998
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 and in the Company's
Annual Report on Form 10-K for the year ended December 31, 1998, and the
Company's Reports on Form 10-Q for the quarters ended March 31, 1999, and June
30, 1999.
OVERVIEW
In January 1999 the Company reorganized its four operating units into two
business segments to enable financial analysis that more closely tracks its
lines of business. The Company's Contract Placement, Permanent Placement and IT
Training operating units were consolidated within the IT Staffing segment. The
Information Management Solutions ("IMS") business was the other segment, which
the Company adopted a plan to dispose of on June 15, 1999. Through sales
occurring in June through August 1999, the Company divested substantially all of
the assets of the IMS business. As of September 30, 1999 those assets had been
sold for total consideration of approximately $4,358,000 consisting of cash,
note receivable, and forgiveness of amounts payable to the buyer. Assets sold
consisted primarily of accounts receivable, inventory, and property and
equipment. Liabilities assumed by the buyer consisted primarily of trade
accounts payable, accrued expenses, and equipment leases payable. The Company
incurred a loss on disposal of the IMS business of $6,275,056 (net of tax effect
of $1,994,830). Included in such loss was the write off of approximately
$7,063,000 of goodwill representing the unamortized balance of goodwill recorded
in 1998 when the Company purchased all or substantially all of the business of
three IMS companies. Also included in such loss is an estimated loss for
operations during the phase out period of approximately $188,000 for the
remaining business, which was sold in August 1999.
Operating results of the IMS business for the three and nine months ended
September 30, 1999 and 1998 (restated) are shown separately in the accompanying
condensed consolidated statements of operations. Net revenues of the IMS
business for the three months ended September 30, 1999 and 1998 were
approximately $206,000 and $6,388,000 respectively. The IMS business incurred
losses from operations in the three months ended September 30, 1999 and 1998 of
$219,962 and $655,213, respectively. For the nine months ended September 30,
1999 and 1998 net revenues of the IMS business were approximately $7,027,000 and
$14,679,000 respectively. The IMS business incurred losses from operations in
the nine months ended September 30, 1999 and 1998 of $2,140,002 and $1,174,841
respectively.
The Company's IT Staffing segment achieved revenue growth of 26.5% for the nine
months ended September 30, 1999 compared to the prior year period. This revenue
growth was primarily due to increased revenues in offices open over one year,
which represented 82% of the increase, as well as to acquisitions and revenues
from offices open less than one year. For the three months ended September 30,
1999, the IT Staffing segment achieved revenue growth of 18.4% compared to the
prior year period, of which 91% was attributable to offices open over one year
and the remainder represented revenues from acquisitions and offices open less
than one year. During the first quarter of 1999 the IT Staffing segment
relocated its staff from Foxborough, Massachusetts to Providence, Rhode Island
to better serve the Providence area. The Company anticipates that the relocation
will assist it in continuing to attract and retain experienced staff and enable
it to better service its clients.
The following discussion of continuing operations reflects the operations of the
IT Segment only.
11
<PAGE>
RESULTS OF CONTINUING OPERATIONS
The following table sets forth certain statement of continuing operations data
as a percentage of consolidated net revenues for each of the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------- -------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Revenues 100.0% 100.0% 100.0% 100.0%
----- ----- ----- -----
Cost of Sales (exclusive of items shown separately
below) 66.1 68.1 66.6 67.4
Selling and Operating 17.7 21.3 18.3 19.0
General and Administrative 10.8 12.0 11.0 10.7
---- ---- ---- ----
Total Costs and Expenses 94.6 101.4 95.9 97.1
---- ----- ---- ----
Income (Loss) From Continuing Operations 5.4 (1.4) 4.1 2.9
Interest Income (Expense) and Other, Net (1.0) (0.2) (0.6) 0.0
----- ----- ---- ---
Income (Loss) From Continuing Operations Before
Income Taxes (Benefit) 4.4% (1.6%) 3.5% 2.9%
==== ===== ==== ====
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1998
Net Revenues. Consolidated net revenues increased by 18.4% or approximately $4.4
million to approximately $28.3 million, for the three months ended September 30,
1999 compared to the prior year period. Of such increase approximately $4.0
million, or 91% of the increased revenues, was attributable to offices open over
one year. The rate of increase in revenues in offices open over one year was
17.5%. In particular the Company's offices in Bala Cynwyd, Pennsylvania, Edison,
New Jersey, Providence, Rhode Island and Raleigh, North Carolina contributed the
greatest increases in revenues. Also contributing to the revenue increase was
approximately $0.4 million in revenue from businesses acquired during 1998 and
from offices opened less than one year. The increased revenue in offices open
over one year was due primarily to increased marketing efforts in those markets.
In addition the Company's Contract Placement business increased its average
hourly billing rate to $56.34 in the quarter ended September 30, 1999 compared
to $52.89 for the prior year period, an increase of 6.5%.
Cost of Sales. Consolidated cost of sales increased by 14.9%, or approximately
$2.4 million to approximately $18.8 million, for the three months ended
September 30, 1999 compared to the prior year period. Cost of sales as a
percentage of consolidated net revenues decreased to 66.1% from 68.1% in the
respective comparable periods. In the Contract Placement business cost of sales
as a percentage of revenues decreased to 74.3% as of September 30, 1999 compared
to 78.1% the prior year period. This decrease was attributable to increased
marketing efforts focusing on higher margin services. Also contributing to the
decline in cost of sales as a percentage of revenues was an increase in revenue
for the Permanent Placement business that has no cost of sales, to approximately
$3.1 million for the three months ended September 30, 1999 compared to
approximately $3.0 million in the prior year period.
Selling and Operating. Consolidated selling and operating expenses decreased by
1.6%, or approximately $80,000 to approximately $5.0 million, for the three
months ended September 30, 1999 compared to the prior year period. Selling and
operating expenses as a percentage of consolidated net revenues decreased to
17.7% from 21.3% for the three months ended September 30, 1999 compared to the
prior year period. The decrease in selling and operating expenses as a
percentage of consolidated net revenues was primarily due to management's
efforts to control costs, particularly in areas of "discretionary" spending such
as advertising, office supplies, and travel and entertainment expenses. An
12
<PAGE>
unanticipated refund of approximately $108,000 of prior period workman's
compensation insurance premiums based on final payroll audits also lowered
selling and operating expense in the quarter ended September 30, 1999.
Management does not anticipate refunds of this magnitude in future periods.
General and Administrative. Consolidated general and administrative expenses
increased 6.9%, or approximately $200,000 to approximately $3.1 million, for the
three months ended September 30, 1999 compared to the prior year period.
Contributing to this increase was the expansion of the Company's corporate staff
and administrative personnel to better service the increased business. However,
general and administrative expenses as a percentage of consolidated net revenues
decreased to 10.8% from 12.0% for the three months ended September 30, 1999
compared to the prior year period. This decrease reflects management's efforts
to maintain cost increases at lower rates than revenue increases. Additionally,
in the quarter ended September 30, 1998 the Company incurred certain start up
costs for new offices, which costs were not repeated in the quarter ended
September 30, 1999. The Company believes that the budgetary process and controls
implemented for 1999 will assist in reducing future increases in general and
administrative expenses.
Other. Other expense represents primarily interest expense net of interest
income. Interest expense was approximately $291,000 and $45,000 for the three
months ended September 30, 1999 and 1998, respectively. Interest income was
approximately $0 and $2,000 for the three months ended September 30, 1999 and
1998, respectively. This increase in interest expense and decrease in interest
income was attributable to the Company's use of its short-term investments and
its bank borrowings to fund the expansion of the business through both
acquisitions and opening of offices in 1998.
Income Taxes. The effective tax rates for the three months ended September 30,
1999 and 1998 are 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.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1998
Net Revenues. Consolidated net revenues increased by 26.5%, or approximately
$18.2 million to approximately $86.7 million, for the nine months ended
September 30, 1999 compared to the prior year period. Of such increase
approximately $14.9 million, or 82% of the increased revenues, was attributable
to offices open over one year. The rate of increase in revenues in offices open
over one year was 22.3%. Also contributing to the increased revenues was
approximately $3.3 million in revenue from businesses acquired in 1998 and
offices open less than one year. Of the offices open over one year, the
Company's offices in Bala Cynwyd, Pennsylvania, Edison, New Jersey, and the
National division located in Providence, Rhode Island contributed the greatest
increases in revenues. Such increases were attributable to increased marketing
efforts in those markets. In addition, the Company's Contract Placement business
increased its average hourly billing rate to $55.32 in the nine months ended
September 30, 1999 compared to $50.72 in the prior year period, an increase of
9.1%.
Cost of Sales. Consolidated cost of sales increased by 24.9%, or approximately
$11.5 million to approximately $57.7 million, for the nine months ended
September 30, 1999 compared to the prior year period. Cost of sales as a
percentage of consolidated net revenues decreased to 66.6% from 67.4% in the
respective comparable periods. In the Company's Contract Placement business,
cost of sales as a percentage of its revenue decreased to 75.5% from 77.6%
primarily as 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, which has no cost of sales.
Selling and Operating. Consolidated selling and operating expenses increased by
21.6%, or approximately $2.8 million to approximately $15.9 million, for the
nine months ended September 30, 1999 compared to the prior year period. Of the
13
<PAGE>
approximately $2.8 million increase in consolidated selling and operating
expense, approximately $1.7 million, or 60.0%, was due to businesses acquired in
1998 and to offices open less than one year. Selling and operating expenses as a
percentage of consolidated net revenues decreased to 18.3% from 19.0% for the
nine months ended September 30, 1999 compared to the prior year period. The
increase in the amount of selling and operating expenses was primarily due to
increased salary and commissions paid on the increased revenues as well as
higher costs associated with businesses acquired in 1998 and offices open less
than one year. The Company also incurred losses of approximately $209,000 on
accounts receivable deemed uncollectible in the period ended September 30, 1999,
which increased its bad debt expense.
General and Administrative. Consolidated general and administrative expenses
increased 30.9%, or approximately $2.3 million to approximately $9.6 million,
for the nine months ended September 30, 1999 compared to the prior year period.
Of the approximately $2.3 million increase, approximately $835,000 relates to
businesses acquired and offices open less than one year. General and
administrative expenses as a percentage of consolidated net revenues increased
to 11.0% from 10.7% for the nine months ended September 30, 1999 compared to the
prior year period. Contributing to this increase was the expansion of the
Company's corporate staff and additional administrative personnel to better
service the expanded business. In addition, the amortization of goodwill
increased by $61,000 in the nine months ended September 30, 1999 compared to the
prior year period due to a full nine months of amortization of goodwill from the
acquisitions completed at the end of the first quarter of 1998. Rent expense
increased by approximately $505,000 for the nine months ended September 30, 1999
compared to the prior year period, due primarily to expanded space in Needham,
Massachusetts, Providence, Rhode Island, and Bala Cynwyd, Pennsylvania offices
as well as a full nine months rent expense for the businesses acquired in early
1998. The Company incurred losses of approximately $181,000 in connection with
the disposal and upgrading of computer equipment that was replaced by new
equipment the Company is installing to improve its database information system
utilized by salespeople and recruiters. The Company believes that the budgetary
process and controls implemented for 1999 will assist in reducing future
increases in general and administrative expenses.
Other. Other expense represents primarily interest expense, net of interest
income. Interest expense was approximately $552,000 and $70,000 for the nine
months ended September 30, 1999 and 1998, respectively. Interest income was
approximately $4,000 and $84,000 for the nine months ended September 30, 1999
and 1998, respectively. This increase in interest expense and decrease in
interest income reflects the Company's use of its short term investments in 1998
and its bank borrowings in 1999 to fund the expansion of the business through
both acquisitions and opening of offices in 1998.
Income Taxes. The effective tax rates for the nine months ended September 30,
1999 and 1998 are 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.
LIQUIDITY AND CAPITAL RESOURCES
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 its working capital
requirements as well as to fund the cost of its acquisitions, and as of
September 30, 1999 approximately $11.9 million was owed on the line. The Company
typically maintains minimal cash balances, as reflected in the balance of
approximately $53,000 as of September 30, 1999. The Company redeemed its
short-term investments of approximately $5.5 million during the first quarter of
1998 and used the proceeds for acquisitions.
The Company used approximately $2.5 million cash in operations in the nine
months ended September 30, 1999 compared to cash generated from operations of
$2.9 million for the nine months ended September 30, 1998. This result is
primarily attributable to an increase in accounts receivable due to increased
revenues, and the redemption of the short term investments mentioned above.
Additionally, the Company incurred a net loss, excluding the loss on disposal of
the IMS segment, of approximately $385,000 in the nine months ended September
30, 1999 as compared to a profit of approximately $11,000 in the prior year
period.
14
<PAGE>
Cash purchases of fixed assets for the nine months ended September 30, 1999 were
approximately $803,000 compared to purchases of approximately $2.5 million in
the comparable period in the prior year. This decrease reflects management's
implementation of stricter capital expenditures budgeting. These purchases were
related primarily to the purchases of computers, software, and imaging equipment
to upgrade the Company's technology infrastructure, and the furnishing of new
office facilities. In the nine months ended September 30, 1999 the Company
received approximately $2.8 million in cash proceeds from the disposition of the
IMS business. In the nine months ended September 30, 1998 the Company used $6.9
million to complete all of its acquisitions and an additional $477,000 to repay
the bank debts assumed in two of its acquisitions.
The Company borrowed approximately $1.9million through its line of credit and
overdraft proceeds facilities in the nine months ended September 30, 1999,
compared to borrowings of approximately $6.4 million in the nine months ended
September 30, 1998. In the nine months ended September 30, 1999 the Company paid
approximately $2.0 million related to its guarantee that common shares issued in
connection with two of its acquisitions would equal or exceed a specified price
at the anniversary date of the issuance. Additional amounts may be payable in
the future to meet similar guaranties that have been reflected in "Other
Liabilities" on the September 30, 1999 accompanying condensed consolidated
balance sheet. However, there can be no assurance that the Company may not be
required to make payments in excess of the amount accrued. The Company also
completed a sale/lease back of certain of its fixed assets with PNC Leasing
Corp., an affiliate of PNC Bank, N.A. in the nine months ended September 30,
1999. The lease obligation is approximately $1.4 million repayable in 36 equal
monthly rental payments. In the nine months ended September 30, 1998 the Company
repaid the remaining $238,000 balance outstanding on the notes payable related
to the acquisition of the IT Training business, and repurchased 40,000 common
shares (accounted for as treasury stock), at a price of $5.50 per share from the
sellers of the IT Training business.
Since April 24, 1998, the Company has had 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. This facility allows the Company to borrow
the lesser of 85% of eligible accounts receivable or $25.0 million. As of
September 30, 1999 the Company had approximately $11.9 million outstanding
against the Line of Credit. The Line of Credit is secured by substantially all
of the Company's assets and contains customary restrictive covenants which from
time to time have been reset by the Bank, including limitations on loans the
Company may extend to officers and employees, the incurrence of additional debt
and the payment of dividends on the Company's common shares. The Line of Credit
bears interest, at the Company's option, at either the bank's prime rate or 200
basis points over the London Inter-Bank Offered Rate ("LIBOR"). At September 30,
1999 the Company was in violation of certain of its covenants including Tangible
Net Worth and Ratio of Cash Flow Coverage, which the Bank has waived.
The Company anticipates that its primary uses of capital in future periods will
be to fund increases in accounts receivable, to support internal growth by
financing new offices, and to finance additional acquisitions. The Company
believes that its 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.
COMMITMENTS AND CONTINGENCIES
The Company is aware of the issues associated with the programming code in many
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 those of its suppliers as well as
third parties for whom the Company implements "Year 2000" solutions on their
computer systems.
15
<PAGE>
The Company implemented a "Year 2000" compliance program that requires all
business units and locations to inventory systems, assess any risk, take
required corrective actions, test, and certify compliance with the program. To
date all internal systems have been inventoried, risk assessments have been
completed, remediation of critical systems has been substantially completed and
remediation of non-critical systems is continuing. Testing and validation of all
critical systems has been substantially completed. "Year 2000" compliant systems
are being implemented in field operations. Management does not expect that total
incremental spending by the Company to deal with the "Year 2000" problem will be
material. 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. The compliance
program requires that contingency plans be developed and validated in the event
a critical system fails, and such plans are currently in place. In addition the
Company formed a rapid response team to address any operational problems during
the "Year 2000" date change period. There can be no assurance whether factors
outside the control of the Company, such as systemic electrical failure, might
cause its systems to fail.
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. 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. A non-exclusive list of factors that
may affect future performance can be found in the Company's Report on Form 10-K
for the year ended December 31, 1998 and in the Company's Reports on Form 10-Q
for the periods ended March 31, 1999 and June 30, 1999.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
16
<PAGE>
PART II
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in routine litigation incidental to the conduct
of its business, but does not believe that any of the litigation to which it is
currently a party will have a material adverse effect on its business or
financial condition.
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
11.1 Statement re Computation of Earnings Per Share.
27.1 Financial Data Schedule.
(b) One report was filed pursuant to Item 2 thereof by the Registrant
on Form 8-K during the quarter ended September 30, 1999 on August 16, 1999
related to the Disposition by Judge Imaging Systems, Inc. of substantially all
of its assets, subject to certain liabilities effective June 30, 1999.
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: November 12, 1999
THE JUDGE GROUP, INC. THE JUDGE GROUP, INC.
/s/Robert G. Alessandrini /s/Martin E. Judge, Jr.
------------------------- ------------------------
Chief Financial Officer Chairman of the Board and
Chief Executive Officer
17
<PAGE>
EXHIBIT 11.1
COMPUTATION OF EARNINGS PER SHARE
THREE MONTHS ENDED SEPTEMBER 30
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Income (loss) from continuing operations $ 731,495 ($206,233)
Loss from operations of discontinued JIMS (219,962) (655,213)
Gain on disposal of JIMS 7,916 0
----------- ----------
Net Income (Loss) $ 519,449 ($861,446)
=========== ===========
Basic:*
Weighted Average Shares Outstanding 13,944,373 13,491,302
=========== ===========
Basic income (loss) per share from continuing operations $ 0.05 ($0.02)
Basic loss per share from discontinued operations ($0.01) ($0.04)
Basic loss per share from disposal of JIMS $ 0.00 $0.00
----------- ----------
Basic income (loss) per share $ 0.04 ($0.06)
=========== ==========
Diluted:*
Weighted Average Shares Outstanding 13,948,257 13,491,302
========== ===========
Diluted income (loss) per share from continuing operations $ 0.05 ($0.02)
Diluted loss per share from discontinued operations ($0.01) ($0.04)
Diluted loss per share from disposal of JIMS $ 0.00 $ 0.00
----------- -----------
Diluted income (loss) per share $ 0.04 ($0.06)
=========== ===========
</TABLE>
(1) Options on 1,447,550 shares and 1,483,050 shares in 1999 and 1998,
respectively, not included in computing diluted earnings per share because
their effects are anti-dilutive.
(2) In 1998 weighted average diluted effect of options to purchase 7,800 shares
are not included in weighted average shares outstanding because the loss
from continuing operations would cause this to be anti-dilutive.
(2) In 1999 weighted average diluted effect of options to purchase 3,884 shares
is included in diluted weighted average shares outstanding.
(3) Excludes 40,000 shares of Treasury Stock from its date of purchase on
February 28, 1998. * Earnings per share amounts are rounded.
COMPUTATION OF EARNINGS PER SHARE
NINE MONTHS ENDED SEPTEMBER 30
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Income from continuing operations $ 1,754,958 $ 1,186,044
Loss from operations of discontinued JIMS (2,140,002) (1,174,841)
Loss on disposal of JIMS (6,275,056) 0
----------- -----------
Net Income (Loss) ($6,660,100) $ 11,203
=========== ===========
Basic: *
Weighted Average Shares Outstanding 13,699,304 13,536,116
=========== ===========
Basic income per share from continuing operations $ 0.13 $ 0.09
Basic loss per share from discontinued operations ($0.16) ($0.09)
Basic loss per share from disposal of JIMS ($0.46) $ 0.00
----------- -----------
Basic income (loss) per share ($0.49) $ 0.00
=========== ===========
Diluted: *
Weighted Average Shares Outstanding 13,715,220 13,552,783
=========== ===========
Diluted income per share from continuing operations $ 0.13 $ 0.09
Diluted loss per share from discontinued operations ($0.16) ($0.09)
Diluted loss per share from disposal of JIMS ($0.46) $ 0.00
----------- -----------
Diluted income (loss) per share ($0.49) $ 0.00
=========== ===========
</TABLE>
(1) Options on 1,447,550 shares and 1,483,050 shares in 1999 and 1998,
respectively, not included in computing diluted earnings per share because
their effects are anti-dilutive.
(2) In 1998 basic and diluted weighted average shares outstanding includes
92,518 contingently issuable shares based on earnout agreements.
(3) In 1999 and 1998 weighted average diluted effect of options to purchase
15,916 shares and 16,667 shares, respectively, are included in diluted
weighted average shares outstanding.
(4) Excludes 40,000 shares of Treasury Stock from its date of purchase on
February 28, 1998. * Earnings per share amounts are rounded.
18
<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 NINE MONTHS ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 53,346
<SECURITIES> 0
<RECEIVABLES> 21,253,494
<ALLOWANCES> 962,195
<INVENTORY> 125,483
<CURRENT-ASSETS> 25,711,649
<PP&E> 4,943,766
<DEPRECIATION> 1,852,917
<TOTAL-ASSETS> 38,624,306
<CURRENT-LIABILITIES> 9,746,097
<BONDS> 0
0
0
<COMMON> 139,843
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<CGS> 57,730,677
<TOTAL-COSTS> 83,169,546
<OTHER-EXPENSES> 547,306
<LOSS-PROVISION> 659,417
<INTEREST-EXPENSE> 551,509
<INCOME-PRETAX> 2,996,144
<INCOME-TAX> 1,241,186
<INCOME-CONTINUING> 1,754,958
<DISCONTINUED> (8,415,058)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,660,100)
<EPS-BASIC> (0.49)
<EPS-DILUTED> (0.49)
</TABLE>
