<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 June 30, 2000
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
JUDGE.COM, INC.
(FORMERLY 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 July 19, 2000, 13,940,651 shares of the Registrant's Common
Stock, $0.01 par value, were outstanding.
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington. D.C. 20549
JUDGE.COM, INC. (FORMERLY THE JUDGE GROUP, INC.) AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
NUMBER PAGE(S)
------ -------
<S> <C>
PART I - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2000 AND DECEMBER 31, 1999 1
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED
JUNE 30, 2000 AND 1999 2
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS
ENDED JUNE 30, 2000 AND 1999 3
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED
JUNE 30, 2000 AND 1999 4
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 5- 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 9 - 14
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 14
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS 14
ITEM 6. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K 15
</TABLE>
i
<PAGE>
JUDGE.COM, INC. AND SUBSIDIARIES
(FORMERLY THE JUDGE GROUP, INC.)
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 2000 AND DECEMBER 31, 1999
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ -- $ 4,571
Accounts receivable, net 18,933,283 18,584,708
Prepaid income taxes and deferred taxes 2,812,012 2,801,245
Other 945,049 947,823
----------- -----------
TOTAL CURRENT ASSETS 22,690,344 22,338,347
----------- -----------
PROPERTY AND EQUIPMENT
Property and Equipment 5,597,250 5,083,530
Less: accumulated depreciation and amortization 2,570,575 2,083,785
----------- -----------
NET PROPERTY AND EQUIPMENT 3,026,675 2,999,745
----------- -----------
OTHER ASSETS
Deposits and other 1,010,203 988,981
Covenant not to compete, net of accumulated amortization of $89,976, 2000 and
$82,478, 1999 -- 7,498
Goodwill, net of accumulated amortization of $1,797,096, 2000 and $1,595,313, 1999 8,549,167 8,750,950
----------- -----------
TOTAL OTHER ASSETS 9,559,370 9,747,429
----------- -----------
TOTAL ASSETS $35,276,389 $35,085,521
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 691,963 $ 902,118
Accounts payable and accrued expenses 6,726,004 6,358,970
Payroll and sales taxes 458,428 422,017
Deferred revenue 582,242 474,067
----------- -----------
TOTAL CURRENT LIABILITIES 8,458,637 8,157,172
----------- -----------
LONG-TERM LIABILITIES
Note payable, Bank 7,856,918 9,688,925
Deferred rent obligation 370,702 399,537
Debt obligations, net of current portion 573,825 833,558
----------- -----------
TOTAL LONG-TERM LIABILITIES 8,801,445 10,922,020
----------- -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, $.01 par value, 50,000,000 shares authorized; at June 30, 2000,
13,984,373 issued and 13,871,973 outstanding; at December 31, 1999,
13,984,373 issued and 13,944,373 outstanding 139,843 139,843
Preferred stock, $.01 par value, 10,000,000 shares authorized -- --
Additional paid-in capital 23,905,057 23,905,057
Deficit (5,668,035) (7,818,571)
----------- -----------
18,376,865 16,226,329
Less treasury stock, 112,400 shares at June 30, 2000; 40,000 shares at December
31, 1999; at cost 360,558 220,000
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 18,016,307 16,006,329
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $35,276,389 $35,085,521
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
1
<PAGE>
JUDGE.COM, INC. AND SUBSIDIARIES
(FORMERLY THE JUDGE GROUP, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
NET REVENUES $ 55,387,940 $ 58,329,194
------------ ------------
COSTS AND EXPENSES
Cost of sales (exclusive of items shown separately below) 35,990,546 38,978,064
Selling and operating 9,597,291 10,852,836
General and administrative 6,842,518 6,481,066
------------ ------------
TOTAL COSTS AND EXPENSES 52,430,355 56,311,966
------------ ------------
INCOME FROM OPERATIONS 2,957,585 2,017,228
Other income (expense), net (476,285) (255,832)
------------ ------------
Income before income tax expense 2,481,300 1,761,396
Income tax expense 330,764 737,933
------------ ------------
Income from continuing operations 2,150,536 1,023,463
Discontinued operations:
Loss from discontinued operations (net of tax benefit of $989,111, 1999) -- (1,920,040)
Loss on disposal of discontinued operations, including provision of $134,000 for
operating losses during phase-out period (net of tax benefit of $1,998,908, 1999) -- (6,282,972)
------------ ------------
NET INCOME (LOSS) $ 2,150,536 ($ 7,179,549)
============ ============
NET INCOME (LOSS) PER SHARE: (1)
BASIC
Weighted Average Shares Outstanding 13,942,840 13,574,739
============ ============
Income from continuing operations $ 0.15 $ 0.08
Loss from discontinued operations 0.00 (0.14)
Loss from disposal of discontinued operations 0.00 (0.47)
------------ ------------
Net income (loss) $ 0.15 ($ 0.53)
============ ============
DILUTED
Weighted Average Shares Outstanding 14,326,104 13,630,789
============ ============
Income from continuing operations $ 0.15 $ 0.08
Loss from discontinued operations 0.00 (0.14)
Loss from disposal of discontinued operations 0.00 (0.47)
------------ ------------
Net income (loss) $ 0.15 ($ 0.53)
============ ============
</TABLE>
(1) Earnings (Loss) per share amounts are rounded
See Notes to Condensed Consolidated Financial Statements.
2
<PAGE>
JUDGE.COM, INC. AND SUBSIDIARIES
(FORMERLY THE JUDGE GROUP, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
NET REVENUES $ 28,067,422 $ 29,756,882
------------ ------------
COSTS AND EXPENSES
Cost of sales (exclusive of items shown separately below) 18,096,943 19,763,987
Selling and operating 4,787,323 5,571,121
General and administrative 3,433,955 3,370,202
------------ ------------
TOTAL COSTS AND EXPENSES 26,318,221 28,705,310
------------ ------------
INCOME FROM OPERATIONS 1,749,201 1,051,572
Other income (expense), net (243,780) (154,767)
------------ ------------
Income before income tax expense 1,505,421 896,805
Income tax expense 274,039 374,081
------------ ------------
Income from continuing operations 1,231,382 522,724
Discontinued operations:
Loss from discontinued operations (net of tax benefit of $432,422, 1999) -- (839,410)
Loss on disposal of discontinued operations, including provision of
$134,000 for operating losses during phase-out period (net of tax
benefit of $1,998,908, 1999) -- (6,282,972)
------------ ------------
NET INCOME (LOSS) $ 1,231,382 ($ 6,599,658)
============ ============
NET INCOME (LOSS) PER SHARE: (1)
BASIC
Weighted Average Shares Outstanding 13,941,307 13,647,369
============ ============
Income from continuing operations $ 0.09 $ 0.04
Loss from discontinued operations 0.00 (0.06)
Loss from disposal of discontinued operations 0.00 (0.46)
------------ ------------
Net income (loss) $ 0.09 ($ 0.48)
============ ============
DILUTED
Weighted Average Shares Outstanding 14,078,372 13,703,419
============ ============
Income from continuing operations $ 0.09 $ 0.04
Loss from discontinued operations 0.00 (0.06)
Loss from disposal of discontinued operations 0.00 (0.46)
------------ ------------
Net income (loss) $ 0.09 ($ 0.48)
============ ============
</TABLE>
(1) Earnings (Loss) per share amounts are rounded
See Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
JUDGE.COM, INC. AND SUBSIDIARIES
(FORMERLY THE JUDGE GROUP, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) for the period $ 2,150,536 ($7,179,549)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation 537,193 714,604
Amortization 209,281 380,189
Loss on disposal of discontinued operations -- 6,282,972
Deferred rent (28,835) (19,784)
Provision for losses on accounts receivable 203,420 514,183
Loss on disposal of equipment 3,542 200,175
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable (551,995) (3,678,792)
Inventories -- (270,336)
Deposits and other (21,222) (66,391)
Prepaid income taxes and deferred taxes (10,767) (464,736)
Other current assets (277,418) (202,622)
Increase (decrease) in:
Accounts payable and accrued expenses 785,285 (582,214)
Payroll and sales taxes 36,411 99,643
Deferred revenue 108,175 (77,409)
----------- -----------
Net cash provided by (used in) operating activities 3,143,606 (4,350,067)
----------- -----------
INVESTING ACTIVITIES
Net cash used in investing activities, purchases of property and
equipment (287,472) (603,413)
----------- -----------
FINANCING ACTIVITIES
Proceeds (repayments) of notes payable, bank, net (1,832,007) 4,479,404
Proceeds (repayments) of bank overdrafts (418,251) 1,518,626
Principal payments on long-term debt (469,889) (487,571)
Proceeds from lease payable, bank -- 1,425,000
Purchase of Treasury stock (140,558) --
Contingent amounts paid - acquisitions -- (2,015,000)
----------- -----------
Net cash provided by (used in) financing activities (2,860,705) 4,920,459
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (4,571) (33,021)
CASH AND CASH EQUIVALENTS, BEGINNING 4,571 43,568
----------- -----------
CASH AND CASH EQUIVALENTS, ENDING $ 0 $ 10,547
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for Interest $ 532,000 $ 264,000
=========== ===========
Cash paid during the year for Income taxes $ 386,000 $ 396,000
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
JUDGE.COM, INC. AND SUBSIDIARIES
(FORMERLY THE JUDGE GROUP, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
NOTE 1. DESCRIPTION OF BUSINESS
JUDGE.com, Inc. (the "Company") (formerly The Judge Group, Inc.), a Pennsylvania
corporation founded in 1970, provides information technology ("IT") and
engineering professionals to its clients on both a temporary basis ("Contract
Placement") and a permanent basis ("Permanent Placement") as well as IT training
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")). In June 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 June 30, 2000,
the Company, headquartered in Bala Cynwyd, Pennsylvania, operated regional
offices in twelve states throughout the United States. A substantial portion of
the Company's revenue is 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 June 30, 2000 and for the three months and six
months ended June 30, 2000 and 1999 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, 1999 and the notes
thereto, included in the Company's report on Form 10-K for the year ended
December 31, 1999.
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, 2000.
The preparation of the Company's 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 June 30, 2000 and
1999 was approximately $101,000 in each period, and for the six months ended
June 30, 2000 and 1999 was approximately $202,000 in each period, and is
included in general and administrative expense in the condensed consolidated
statements of operations.
5
<PAGE>
JUDGE.COM, INC. AND SUBSIDIARIES
(FORMERLY THE JUDGE GROUP, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
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").
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, and
reduced by treasury shares held by the Company. The number of shares used in the
computation for the three months ended June 30, 2000 and 1999 were approximately
13,941,000 and 13,647,000, respectively, and for the six months ended June 30,
2000 and 1999 were approximately 13,943,000 and 13,574,000, respectively.
Diluted earnings (loss) per share amounts for the three months and six months
ended June 30, 2000 and 1999 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 certain outstanding
stock options issued by the Company. The number of shares used in the
computation for the six months ended June 30, 2000 and 1999 were approximately
14,326,000 and 13,631,000, respectively. The number of shares used in the
computation for the three months ended June 30, 2000 and 1999 were approximately
14,078,000 and 13,703,000, respectively. Outstanding options to purchase
1,153,047 common shares in 2000 and 1,981,550 common shares in 1999 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. In June 2000 the
Company's Board of Directors authorized a program to repurchase the Company's
common shares on the open market to a maximum cost of $1,000,000. As of June 30,
2000 an additional 72,400 common shares at prices ranging from $1.91 to $1.97
per share had been repurchased, which shares are considered treasury stock.
NOTE 3. DISCONTINUED OPERATIONS
In June 1999 the Company adopted a formal plan to dispose of the Information
Management Solutions ("IMS") business. Substantially all of the net assets of
the IMS business were disposed of in 1999 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
respective purchasers consisted primarily of accounts payable, accrued expenses,
and equipment leases payable.
6
<PAGE>
JUDGE.COM, INC. AND SUBSIDIARIES
(FORMERLY THE JUDGE GROUP, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
NOTE 3. DISCONTINUED OPERATIONS (continued)
Operating results of the IMS business for the three months and six months ended
June 30, 1999 are shown separately in the accompanying condensed consolidated
income statements as "loss from discontinued operations".
Net revenues of the IMS business for the three months and six months ended June
30, 1999 were $3,814,884 and $6,820,193, respectively. These amounts are not
included in net revenues in the accompanying condensed consolidated income
statements for the three and six months ended June 30, 1999.
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
(9.5% at June 30, 2000). Maximum permitted borrowings 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, cash flow coverage, and
leverage, as well as limitations on 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 $1,453,000
and $1,871,000 of bank overdrafts at June 30, 2000 and December 31, 1999,
respectively.
NOTE 5. LONG-TERM DEBT
At June 30, 2000, long-term debt consisted of the following:
<TABLE>
<CAPTION>
June 30, 2000
-------------
<S> <C>
Note Payable; payable in 8 quarterly payments of $102,333 including interest at 8%, through
December 2000 $ 198,685
Note Payable; payable in 36 monthly installments of $6,944 plus interest at 8%, through October 2001 104,167
Capital lease obligation, pursuant to a sale/leaseback transaction; payable in monthly installments
of $41,992, including interest and taxes, through March 2002; and a final payment of $213,750 in
April 2002; collateralized by substantially all of the Company's property and equipment; the
lease transfers ownership of certain office equipment to the Company at the end of the lease
term 962,936
----------
1,265,788
Less: Current portion (691,963)
----------
Long-term portion $ 573,825
==========
</TABLE>
Interest expense charged to operations was approximately $241,000 and $157,000
for the three months ended June 30, 2000 and 1999, respectively, and
approximately $490,000 and $260,000 for the six months ended June 30, 2000 and
1999, respectively.
7
<PAGE>
JUDGE.COM, INC. AND SUBSIDIARIES
(FORMERLY THE JUDGE GROUP, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
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 to the extent 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 rate for 2000 is lower than the applicable federal statutory
tax rate of 34% due to the Company's utilization of certain net operating loss
carryforwards. In 1999 the effective tax rate was higher than the applicable
federal statutory tax rate due to certain financial reporting expenses that were
not deductible for income tax purposes.
NOTE 7. SHAREHOLDERS' EQUITY AND EARNINGS (LOSS) PER SHARE
Stock Option Plan
In September 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.
During the six months ended June 30, 2000, the Company granted options to
purchase 783,000 common shares at a weighted average exercise price of $1.47 per
common share. No options were exercised during the period ended June 30, 2000.
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 in 2000.
NOTE 8. STATEMENT OF CASH FLOWS
Supplemental disclosure of non-cash investing and financing transactions:
During the six month period ended June 30, 2000, the Company placed into service
approximately $280,000 of property and equipment previously classified as "other
current assets".
During the six month period ended June 30, 1999, the Company entered into the
following non-cash transactions:
o entered into certain lease arrangements for the purchase of equipment in the
amount of approximately $345,700
o recorded the following with respect to the disposition of the IMS segment:
|X| reduced contingent stock price payables which were forgiven in the amount
of approximately $952,000;
|X| reduced earnouts payable which were forgiven in the amount of
approximately $718,000;
|X| recorded note and advances receivable of $2,223,000 related to disposition
proceeds;
|X| wrote off approximately $7,063,000 of goodwill.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO THE
THREE AND SIX MONTHS ENDED JUNE 30, 1999
The following discussion should be read in conjunction with the condensed
consolidated financial statements of JUDGE.com, Inc. (formerly 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, 1999.
OVERVIEW
The Company's operations, including its Contract Placement, Permanent Placement
and IT Training business, were consolidated within the IT Staffing segment in
January 1999 to enable financial analysis that more closely tracks its lines of
business. Formerly, the Company also operated another segment through its
Information Management Solutions ("IMS") business, which the Company adopted a
plan to dispose of in June 1999. During 1999 the Company sold substantially all
of the assets of the IMS business, and incurred a loss on disposal of
approximately $6.3 million. Operating results of the IMS business for the three
and six months ended June 30, 1999 are shown separately in the accompanying
condensed consolidated statements of operations. Net revenues of the IMS
business for the three and six months ended June 30, 1999 were approximately
$3.8 million and $6.8 million, respectively.
The Company's continuing operations experienced a decrease in revenue of
approximately $2.9 million, or 5.0%, for the six months ended June 30, 2000
compared to the prior year period. This revenue decline was primarily
attributable to several factors including more severe winter weather in the
first two months of 2000 compared to the prior year, which prevented the
Company's IT consultants from performing billable services; the completion of
"Year 2000" projects on which some of the Company's consultants were working;
and a general trend in the IT industry toward more permanent placement business
than contract placement business. However, the Company's income from continuing
operations increased approximately $1.1 million, or 110.1%, in the six months
ended June 30, 2000 compared to the prior year period. Such increase was
primarily attributable to reduced selling, general and administrative expenses,
as more fully discussed below, and the Company's use of net operating loss
carryforwards, as a result of certain corporate restructurings and the
divestiture of the IMS business, to reduce income tax expense.
The following discussion reflects continuing operations only.
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 SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Revenues 100.0% 100.0% 100.0% 100.0%
------ ------ ------ ------
Cost of Sales (exclusive of items shown separately
below) 64.5 66.4 65.0 66.8
Selling and Operating 17.1 18.7 17.3 18.6
General and Administrative 12.2 11.4 12.4 11.1
---- ---- ---- ----
Total Costs and Expenses 93.8 96.5 94.7 96.5
---- ---- ---- ----
Income From Continuing Operations 6.2 3.5 5.3 3.5
Interest Income (Expense) and Other, Net (0.9) (0.5) (0.9) (0.5)
---- ----- ---- ----
Income From Continuing Operations Before Income
Taxes 5.4% 3.0% 4.4% 3.0%
===== ====== ===== =====
</TABLE>
9
<PAGE>
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999
Net Revenues. Consolidated net revenues decreased by 5.7%, or approximately $1.7
million, to approximately $28.1 million for the three months ended June 30, 2000
compared to the prior year period. This decrease was primarily due to a decrease
in the Company's contract placement revenues of approximately $2.4 million, or
9.3%, for the three months ended June 30, 2000 compared to the prior year
period. This decrease was attributable to several factors including the
completion of "Year 2000" projects on which some of the Company's consultants
were working; and a general trend in the IT industry toward more permanent
placement business than contract placement business. In the three months ended
June 30, 2000 the Company billed approximately 378,000 IT consultant hours,
compared to 425,000 IT consultant hours in the comparable period of 1999. The
Company's average hourly billing rate for IT consultants increased to $58.02 in
the quarter ended June 30, 2000 compared to $55.59 in the comparable period of
1999, which helped to mitigate the decrease in billed hours. This increase in
average hourly billing rate was attributable to the Company's emphasis on higher
bill rate services such as client server and web development projects. The
decrease in revenues in the Company's contract placement business was partially
offset by an increase of approximately $.4 million, or 13.0%, in the Company's
permanent placement revenues in the period ended June 30, 2000 compared to the
prior year period. This increase in permanent placement revenues was primarily
attributable to an increase in the number of candidates placed in the period
ended June 30, 2000 to 286 from 263 in the prior year period. The Company's IT
training revenues also increased approximately $.2 million, or 30.1%, in the
period ended June 30, 2000 compared to the prior year period, which was
attributable to an increase in trainer brokerage business. The Company acts as a
broker to supply contract trainers to client companies at the client's own
facility at a markup over the contract trainer cost. The Company only supplies
the contract trainer, thereby eliminating all other overhead costs of this
revenue. The Company's trainer brokerage program generated approximately
$286,000 in revenues in the quarter ended June 30, 2000 compared to $137,000 in
revenues in the prior year period.
Cost of Sales. Consolidated cost of sales decreased by 8.4%, or approximately
$1.7 million, to approximately $18.1 million for the three months ended June 30,
2000 compared to the prior year period. Cost of sales as a percentage of
consolidated net revenues decreased to 64.5% from 66.4% in the respective
comparable periods. Cost of sales related to contract placements decreased to
75.4% of contract placement revenues as of June 30, 2000 compared to 75.8% the
prior year period. This decrease was attributable to the Company focusing its
marketing efforts on higher bill rate services as reflected in the increase in
average hourly billing rate discussed above. Also contributing to the decline in
cost of sales as a percentage of revenues was an increase in revenues from
permanent placements that have no cost of sales, to approximately $3.8 million
for the three months ended June 30, 2000 compared to approximately $3.4 million
in the prior year period. Cost of sales related to IT training revenues
increased approximately $149,000, or 39.1%, in the period ended June 30, 2000
compared to the prior year period, primarily due to additional trainers required
for the trainer brokerage program discussed above.
Selling and Operating. Consolidated selling and operating expenses decreased by
14.1%, or approximately $.8 million, to approximately $4.8 million for the three
months ended June 30, 2000 compared to the prior year period. Selling and
operating expenses as a percentage of consolidated net revenues decreased to
17.1% from 18.7% for the three months ended June 30, 2000 compared to the prior
year period. The decrease in selling and operating expenses as a percentage of
consolidated net revenues was primarily due to lower commissions paid to
salespeople and recruiters involved in contract placements, which experienced a
decline in revenues. The decrease was also attributable to lower provisions for
bad debts due to improved credit and collection efforts.
General and Administrative. Consolidated general and administrative expenses
increased 1.9%, or approximately $.1 million, to approximately $3.4 million for
the three months ended June 30, 2000 compared to the prior year period. General
and administrative expenses as a percentage of consolidated net revenues
increased to 12.2% from 11.4% for the three months ended June 30, 2000 compared
to the prior year period. Contributing to this increase was an increase of $.2
million, or 9.7%, in salary expense for the period ended June 30, 2000 compared
to the prior year period. This increase primarily reflects usual and customary
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salary increases to existing staff. In the quarter ended June 30, 1999 the
Company incurred a loss on disposal of computer equipment of approximately $.2
million, which loss was not incurred in the current year period. Management
believes the rate of increase in general and administrative expenses, which is
lower than the prevailing rates of inflation in the general economy, reflects
its continuing efforts to control overhead costs.
Other. Other expense represents primarily interest expense net of other income.
Interest expense was approximately $244,000 and $157,000 for the three months
ended June 30, 2000 and 1999, respectively. In the quarter ended June 30, 1999
the Company had allocated approximately $231,000 interest expense to the
discontinued IMS business, which is included in "loss from discontinued
operations" in the accompanying condensed consolidated statements of operations.
Other income was approximately $0 and $3,000 for the three months ended June 30,
2000 and 1999, respectively. This decrease in total interest expense reflects
the Company's decreased usage of its bank borrowings which had been used to fund
the IMS losses, partially offset by additional interest expense related to debt
incurred through the Company's sale/leaseback of substantially all of its fixed
assets, for which a portion of the repayment reflects interest costs.
Income Taxes. The effective tax rate for the three months ended June 30, 2000 is
lower than the federal statutory tax rate of 34% due to the Company's use of net
operating loss carryforwards to reduce income tax expense. In the comparable
period of 1999 the effective tax rate is higher than the applicable federal
statutory tax rate primarily due to state tax provisions and certain financial
reporting expenses not deductible for income tax purposes.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999
Net Revenues. Consolidated net revenues decreased by 5.0%, or approximately $2.9
million, to approximately $55.4 million for the six months ended June 30, 2000
compared to the prior year period. This decrease was primarily due to a decrease
in the Company's contract placement revenues of approximately $4.0 million, or
8.0%, for the six months ended June 30, 2000 compared to the prior year period.
This decrease was attributable to several factors including more severe winter
weather in the first two months of 2000 compared to the prior year, which
prevented the Company's IT consultants from performing billable services, the
completion of "Year 2000" projects on which some of the Company's consultants
were working; and a general trend in the IT industry toward more permanent
placement business than contract placement business. In the six months ended
June 30, 2000 the Company billed approximately 759,000 IT consultant hours,
compared to 849,000 IT consultant hours in the comparable period of 1999. The
Company's average hourly billing rate for IT consultants increased to $57.02 in
the six months ended June 30, 2000 compared to $54.84 in the comparable period
of 1999, which helped to mitigate the decrease in billed hours. This increase in
average hourly billing rate was attributable to the Company's emphasis on higher
bill rate services such as client server and web development projects. The
decrease in revenues in the Company's contract placement business was partially
offset by an increase of approximately $1 million, or 15.9%, in the Company's
permanent placement revenues in the six months ended June 30, 2000 compared to
the prior year period. This increase in permanent placement revenues was
primarily attributable to an increase in the number of candidates placed in the
six months ended June 30, 2000 to 542 from 494 in the prior year period.
Revenues in the Company's IT training operations were relatively unchanged in
the six months ended June 30, 2000 compared to the prior year period.
Cost of Sales. Consolidated cost of sales decreased by 7.7%, or approximately
$3.0 million, to approximately $36.0 million for the six months ended June 30,
2000 compared to the prior year period. Cost of sales as a percentage of
consolidated net revenues decreased to 65.0% from 66.8% in the respective
comparable periods. Cost of sales related to contract placements decreased to
75.6% of contract placement revenues as of June 30, 2000 compared to 76.1% the
prior year period. This decrease was attributable to the Company focusing its
marketing efforts on higher bill rate services that is reflected in the increase
in average hourly billing rate discussed above. Also contributing to the decline
in cost of sales as a percentage of revenues was the increase in revenues
discussed above from permanent placements that have no cost of sales. Cost of
sales related to IT training revenues increased approximately $165,000, or
20.7%, in the six months ended June 30, 2000 compared to the prior year period,
primarily due to additional trainers required for the trainer brokerage program
discussed earlier.
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Selling and Operating. Consolidated selling and operating expenses decreased by
11.6%, or approximately $1.3 million, to approximately $9.6 million for the six
months ended June 30, 2000 compared to the prior year period. Selling and
operating expenses as a percentage of consolidated net revenues decreased to
17.3% from 18.6% for the six months ended June 30, 2000 compared to the prior
year period. The decrease in selling and operating expenses as a percentage of
consolidated net revenues was primarily due to lower commissions paid to
salespeople and recruiters involved in contract placements, which experienced a
decline in revenues. The decrease was also attributable to lower provisions for
bad debts due to improved credit and collection efforts, and to management's
continuing efforts to control costs in such areas as telephone and travel and
entertainment.
General and Administrative. Consolidated general and administrative expenses
increased 5.6%, or approximately $.4 million, to approximately $6.8 million for
the six months ended June 30, 2000 compared to the prior year period. General
and administrative expenses as a percentage of consolidated net revenues
increased to 12.4% from 11.1% for the six months ended June 30, 2000 compared to
the prior year period. Contributing to this increase was an increase of $.3
million, or 9.2%, in salary expense for the period ended June 30, 2000 compared
to the prior year period. This increase primarily reflects usual and customary
salary increases to existing staff. In the six months ended June 30, 1999 the
Company had incurred a loss on disposal of computer equipment of approximately
$.2 million, which loss was not incurred again in the current year period.
Management believes the rate of increase in general and administrative expenses
reflects its continuing efforts to control overhead costs.
Other. Other expense represents primarily interest expense net of other income.
Interest expense was approximately $490,000 and $260,000 for the six months
ended June 30, 2000 and 1999, respectively. In the six months ended June 30,
1999 the Company had allocated approximately $332,000 interest expense to the
discontinued IMS business, which is included in "loss from discontinued
operations" in the accompanying condensed consolidated statements of operations.
Other income was approximately $13,000 and $4,000 for the six months ended June
30, 2000 and 1999, respectively. This decrease in total interest expense
reflects the Company's decreased usage of its bank borrowings which had been
used to fund the IMS losses, partially offset by additional interest expense
related to debt incurred through the Company's sale/leaseback of substantially
all of its fixed assets, for which a portion of the repayment reflects interest
costs.
Income Taxes. The effective tax rate for the six months ended June 30, 2000 is
lower than the federal statutory tax rate of 34% due to the Company's use of net
operating loss carryforwards to reduce income tax expense. In the comparable
period of 1999 the effective tax rate is higher than the applicable federal
statutory tax rate primarily due to state tax provisions and certain financial
reporting expenses not deductible for income tax purposes.
LIQUIDITY AND CAPITAL RESOURCES
The Company has used borrowings under its credit facility to fund its working
capital needs as its business has expanded. The Company utilizes a cash
management program to minimize non-earning cash assets, including a zero balance
disbursement account, as reflected in the balance of $0 as of June 30, 2000.
The Company provided cash from operations of approximately $3.1 million in the
six months ended June 30, 2000 compared to funds used in operations of
approximately $4.4 million for the comparable period of 1999. This result is
partially attributable to the Company's improved earnings of approximately $2.2
million in the six months ended June 30, 2000 compared to a net loss of
approximately $7.2 million in the prior year period, which loss included a $6.3
million non-cash loss on disposal of discontinued operations. The Company's
accounts payable and accrued expenses increased approximately $.8 million which
also generated cash in the six months ended June 30, 2000 compared to a decrease
of $.6 million which used cash in the comparable period of 1999. In the six
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months ended June 30, 1999 the Company's accounts receivable increased by
approximately $3.7 million, the primary use of funds from operations in that
period.
Cash purchases of fixed assets for the six months ended June 30, 2000 were
approximately $287,000 compared to purchases of approximately $603,000 in the
comparable period in the prior year. These purchases were related primarily to
the purchase of computers, related accessories, and software to upgrade the
Company's technology infrastructure.
The Company repaid approximately $2.3 million of its line of credit and
overdraft proceeds facilities in the six months ended June 30, 2000, compared to
borrowings from those facilities of approximately $6.3 million in the six months
ended June 30, 1999. In the six months ended June 30, 1999 the Company paid
approximately $2.0 million related to its guarantee that common shares issued in
connection with its 1998 acquisitions would equal or exceed a specified price at
the anniversary date of the issuance. One such guarantee remains to be
determined in August 2000, which the Company believes, based on its recent
market price per common share, it has adequately accrued for. However, there can
be no assurance that the Company may not be required to make payments in excess
of the amount accrued. In the six months ended June 30, 1999 the Company
completed a sale/leaseback of certain of its fixed assets which generated
approximately $1.4 million cash. The lease obligation is repayable in 36 monthly
rental payments. In June 2000 the Company's Board of Directors authorized a
program to repurchase the Company's common shares on the open market to a
maximum cost of $1,000,000. As of June 30, 2000 the Company had paid
approximately $141,000 to repurchase 72,400 of its common shares.
Since April 1998, the Company has had availability under a $25.0 million
revolving advance facility (the "Line of Credit") with PNC Bank, N.A. (the
"Bank"). 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 June 30, 2000 the Company had approximately $7.9 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. Such covenants
include limitations on loans the Company may extend to officers and employees,
the incurring of additional debt and a prohibition of the payment of dividends
on the Company's common shares. The Line of Credit bears interest at the Bank's
prime rate.
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.
FORWARD LOOKING INFORMATION
This report and other reports and statements made by the Company, including
those filed by the Company from time to time with the Securities and Exchange
Commission, 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
accompanying 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
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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, 1999.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
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.
Subsequent to June 30, 2000, the Company was awarded a judgment by the Court of
Common Pleas of Montgomery County, Pennsylvania in the amount of approximately
$2.3 million in a case filed in 1997 against the Alliance Consulting Group, Inc.
and three of its employees. Such judgment is subject to Pennsylvania mandated
appeals process and no assurances can be given that any of such award will
actually be received by the Company, nor when such receipt, if any, will occur.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
On June 15, 2000 the Annual Meeting of Shareholders of the Company was held at
the Company's principal place of business. The purpose of the meeting was to
elect directors and to ratify the selection of the independent public
accountants for the Company for the fiscal year ended December 31, 2000. At the
meeting, the shareholders voted as follows to elect the directors to serve until
the Company's next Annual Meeting of Shareholders:
Nominee In Favor Against Abstain
------- -------- ------- -------
Randolph J. Angermann 12,574,271 0 77,813
Michael A. Dunn 12,557,461 0 94,623
Richard T. Furlano 12,554,461 0 97,623
James C. Hahn 12,574,271 0 77,813
Martin E. Judge, Jr. 12,554,994 0 97,090
In the vote to ratify the appointment of Rudolph, Palitz LLC as the Company's
independent public accountants, 12,578,204 shareholders voted in favor of
ratification, 64,083 shareholders voted against ratification and 9,797
shareholders abstained.
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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
27.1 Financial Data Schedule.
(b) No reports were filed by the Registrant on Form 8-K during the
quarter ended June 30, 2000
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned.
Dated: August 4, 2000
JUDGE.COM, INC. JUDGE.COM, INC.
/s/ Robert G. Alessandrini /s/ Martin E. Judge, Jr.
--------------------------- --------------------------
Chief Financial Officer Chairman of the Board and
Chief Executive Officer
