<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, 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
Incorporation or organization) Identification No.)
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 18, 2000, 13,940,652 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 SEPTEMBER 30, 2000 AND DECEMBER 31, 1999 1
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2000 AND 1999
2
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 2000 AND 1999
3
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED
SEPTEMBER 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 6. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K 14
</TABLE>
<PAGE>
JUDGE.COM, INC. AND SUBSIDIARIES
(FORMERLY THE JUDGE GROUP, INC.)
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ --- $ 4,571
Accounts receivable, net 19,821,060 18,584,708
Prepaid income taxes and deferred taxes 2,805,296 2,801,245
Other 943,878 947,823
----------- -----------
TOTAL CURRENT ASSETS 23,570,234 22,338,347
----------- -----------
PROPERTY AND EQUIPMENT
Property and Equipment 5,869,094 5,083,530
Less: accumulated depreciation and amortization 2,860,607 2,083,785
----------- -----------
NET PROPERTY AND EQUIPMENT 3,008,487 2,999,745
----------- -----------
OTHER ASSETS
Deposits and other 519,433 588,544
Other receivables, officers and employees 501,655 400,437
Covenant not to compete, net of accumulated amortization of $89,976, 2000 and
$82,478, 1999 --- 7,498
Goodwill, net of accumulated amortization of $1,897,987, 2000 and $1,595,313, 8,448,276 8,750,950
1999 ----------- -----------
TOTAL OTHER ASSETS 9,469,364 9,747,429
----------- -----------
TOTAL ASSETS $36,048,085 $35,085,521
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 595,788 $ 902,118
Accounts payable and accrued expenses 6,842,061 6,358,970
Payroll and sales taxes 310,872 422,017
Deferred revenue 643,138 474,067
----------- -----------
TOTAL CURRENT LIABILITIES 8,391,859 8,157,172
----------- -----------
LONG-TERM LIABILITIES
Note payable, Bank 8,607,759 9,688,925
Deferred rent obligation 354,378 399,537
Debt obligations, net of current portion 466,544 833,558
----------- -----------
TOTAL LONG-TERM LIABILITIES 9,428,681 10,922,020
----------- -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, $.01 par value, 50,000,000 shares authorized; at September 30,
2000, 13,984,373 issued and 13,347,228 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 (4,449,702) (7,818,571)
----------- -----------
19,595,198 16,226,329
Less treasury stock, 637,145 shares at September 30, 2000; 40,000 shares at
December 31, 1999; at cost 1,367,653 220,000
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 18,227,545 16,006,329
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $36,048,085 $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
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
NET REVENUES $84,215,603 $86,712,996
----------- -----------
COSTS AND EXPENSES
Cost of sales (exclusive of items shown separately below) 54,719,854 57,730,677
Selling and operating 14,884,534 15,883,611
General and administrative 10,137,362 9,555,258
----------- -----------
TOTAL COSTS AND EXPENSES 79,741,750 83,169,546
----------- -----------
INCOME FROM OPERATIONS 4,473,853 3,543,450
Other income (expense), net (700,572) (547,306)
----------- -----------
Income before income tax expense 3,773,281 2,996,144
Income tax expense 404,412 1,241,186
----------- -----------
Income from continuing operations 3,368,869 1,754,958
Discontinued operations:
Loss from discontinued operations (net of tax benefit
of $1,102,426, 1999) --- (2,140,002)
Loss on disposal of discontinued operations, including provision
of $134,000 for operating losses during phase-out period
(net of tax benefit of $1,994,830, 1999) --- (6,275,056)
----------- -----------
NET INCOME (LOSS) $ 3,368,869 ($6,660,100)
=========== ===========
NET INCOME (LOSS) PER SHARE: (1)
BASIC
Weighted Average Shares Outstanding 13,819,848 13,699,304
=========== ===========
Income from continuing operations $ 0.24 $ 0.13
Loss from discontinued operations 0.00 (0.16)
Loss from disposal of discontinued operations 0.00 (0.46)
----------- -----------
Net income (loss) $ 0.24 ( $0.49)
=========== ===========
DILUTED
Weighted Average Shares Outstanding 14,112,011 13,715,220
=========== ===========
Income from continuing operations $ 0.24 $ 0.13
Loss from discontinued operations 0.00 (0.16)
Loss from disposal of discontinued operations 0.00 (0.46)
------ ------
Net income (loss) $ 0.24 ($ 0.49)
====== =======
</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 SEPTEMBER 30, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
NET REVENUES $28,827,663 $28,383,802
----------- -----------
COSTS AND EXPENSES
Cost of sales (exclusive of items shown separately below) 18,729,308 18,752,613
Selling and operating 5,287,243 5,030,775
General and administrative 3,294,844 3,074,192
----------- -----------
TOTAL COSTS AND EXPENSES 27,311,395 26,857,580
----------- -----------
INCOME FROM OPERATIONS 1,516,268 1,526,222
Other income (expense), net (224,287) (291,474)
----------- -----------
Income before income tax expense 1,291,981 1,234,748
Income tax expense 73,647 503,253
----------- -----------
Income from continuing operations 1,218,334 731,495
Discontinued operations:
Loss from discontinued operations (net of tax benefit of $113,314, 1999) (219,962)
---
Gain on disposal of discontinued operations, including provision
of $0 for operation losses during phase-out period (net of tax
expense of $4,078, 1999) --- 7,916
----------- -----------
NET INCOME $ 1,218,334 $ 519,449
=========== ===========
NET INCOME PER SHARE: (1)
BASIC
Weighted Average Shares Outstanding 13,576,777 13,944,373
=========== ===========
Income from continuing operations $ 0.09 $ 0.05
Loss from discontinued operations 0.00 (0.01)
Loss from disposal of discontinued operations 0.00 0.00
------ ------
Net income $ 0.09 $ 0.04
====== ======
DILUTED
Weighted Average Shares Outstanding 13,686,739 13,948,257
=========== ===========
Income from continuing operations $ 0.09 $ 0.05
Loss from discontinued operations 0.00 (0.01)
Loss from disposal of discontinued operations 0.00 0.00
------ ------
Net income $ 0.09 $ 0.04
====== ======
</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
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) for the period $ 3,368,869 ($6,660,100)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation 829,309 922,013
Amortization 310,173 492,207
Loss on disposal of discontinued operations --- 6,275,056
Deferred rent (45,159) (236,032)
Provision for losses on accounts receivable 364,900 659,417
Loss on disposal of equipment 13,045 204,393
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable (1,601,252) (2,964,162)
Inventories --- (270,336)
Deposits and other (32,107) (121,920)
Prepaid income taxes and deferred taxes (4,051) (253,138)
Other current assets (276,247) (278,269)
Increase (decrease) in:
Accounts payable and accrued expenses 1,145,381 (777,519)
Payroll and sales taxes (111,145) 318,524
Deferred revenue 169,071 184,207
------------ ------------
Net cash provided by (used in) operating activities 4,130,787 (2,505,659)
------------ ------------
INVESTING ACTIVITIES
Purchases of property and equipment (535,994) (802,916)
Proceeds from disposition of businesses --- 2,788,000
------------ ------------
Net cash provided by (used in) investing activities (535,994) 1,985,084
------------ ------------
FINANCING ACTIVITIES
Proceeds (repayments) of notes payable, bank, net (1,081,166) 2,056,983
Proceeds (repayments) of bank overdrafts (326,504) (173,974)
Principal payments on long-term debt (708,255) (762,656)
Proceeds from lease payable, bank --- 1,425,000
Purchase of Treasury stock (1,147,653) ---
Contingent amounts paid - acquisitions (335,786) (2,015,000)
------------ ------------
Net cash provided by (used in) financing activities (3,599,364) 530,353
------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (4,571) 9,778
CASH AND CASH EQUIVALENTS, BEGINNING 4,571 43,568
------------ ------------
CASH AND CASH EQUIVALENTS, ENDING $ 0 $ 53,346
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for Interest $ 788,000 $ 766,000
============ ============
Cash paid during the period for Income taxes $ 515,000 $ 578,000
============ ============
</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
NINE MONTHS ENDED SEPTEMBER 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 September 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 September 30, 2000 and for the three months and
nine months ended September 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 September 30,
2000 and 1999 was approximately $101,000 in each period, and for the nine months
ended September 30, 2000 and 1999 was approximately $302,000 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
NINE MONTHS ENDED SEPTEMBER 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. The
number of shares used in the computation for the three months ended September
30, 2000 and 1999 were approximately 13,577,000 and 13,944,000, respectively,
and for the nine months ended September 30, 2000 and 1999 were approximately
13,820,000 and 13,699,000, respectively.
Diluted earnings (loss) per share amounts for the three months and nine months
ended September 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 nine months ended September 30, 2000 and 1999 were
approximately 14,112,000 and 13,715,000, respectively. The number of shares used
in the computation for the three months ended September 30, 2000 and 1999 were
approximately 13,687,000 and 13,948,000, respectively. Outstanding options to
purchase 1,255,696 common shares in 2000 and 1,447,550 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 $1,200,000. As of
September 30, 2000 an additional 597,145 common shares at prices ranging from
$1.50 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.
Operating results of the IMS business for the three months and nine months ended
September 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 nine months ended
September 30, 1999 were $206,418 and $7,026,611, respectively. These amounts are
not included in net revenues in the accompanying condensed consolidated income
statements for the three and nine months ended September 30, 1999.
6
<PAGE>
JUDGE.COM, INC. AND SUBSIDIARIES
(FORMERLY THE JUDGE GROUP, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 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 September 30, 2000) 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 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 April 30, 2003 and is subject to certain covenants
which from time to time have been renegotiated by the bank and the Company,
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 $1,545,000
and $1,871,000 of bank overdrafts at September 30, 2000 and December 31, 1999,
respectively.
NOTE 5. LONG-TERM DEBT
At September 30, 2000, long-term debt consisted of the following:
<TABLE>
<CAPTION>
September 30, 2000
------------------
<S> <C>
Note Payable; payable in 8 quarterly payments of $102,333
including interest at 8%, through December 2000
$ 100,327
Note Payable; payable in 36 monthly installments of $6,944 plus
interest at 8%, through October 2001 83,333
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 865,014
Various capital leases for office equipment, such as copiers, computers,
servers, and computer peripherals; payable in various monthly payments including
interest; terms ranging from 36 to 60 months
13,658
----------
1,062,332
Less: Current portion (595,788)
----------
Long-term portion $ 466,544
==========
</TABLE>
Interest expense charged to operations was approximately $256,000 and $291,000
for the three months ended September 30, 2000 and 1999, respectively, and
approximately $746,000 and $552,000 for the nine months ended September 30, 2000
and 1999, 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 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.
7
<PAGE>
JUDGE.COM, INC. AND SUBSIDIARIES
(FORMERLY THE JUDGE GROUP, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
NOTE 6. INCOME TAXES (continued)
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, for which the Company had previously provided a valuation
allowance. 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 nine months ended September 30, 2000, the Company granted options to
purchase 1,052,000 common shares at a weighted average exercise price of $1.47
per common share. No options were exercised during the period ended September
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 nine month period ended September 30, 2000, the Company entered into
the following non-cash transactions:
o placed into service approximately $280,000 of property and equipment
previously classified as "other current assets".
o entered into certain lease arrangements for the purchase of equipment in
the amount of approximately $34,900
During the nine month period ended September 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:
reduced contingent stock price payables which were forgiven in the
amount of approximately $952,000;
reduced earnouts payable which were forgiven in the amount of
approximately $718,000;
recorded note and advances receivable of $2,223,000 related to
disposition proceeds;
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 NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO
THE THREE AND NINE MONTHS ENDED SEPTEMBER 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 nine months ended September 30, 1999 are shown separately in the
accompanying condensed consolidated statements of operations. Net revenues of
the IMS business for the three and nine months ended September 30, 1999 were
approximately $0.2 million and $7.0 million, respectively.
The Company's continuing operations experienced a decrease in revenue of
approximately $2.5 million, or 2.9%, for the nine months ended September 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
instead of contract placement business. However, the Company's income from
continuing operations increased approximately $1.6 million, or 92.0%, in the
nine months ended September 30, 2000 compared to the prior year period. Such
increase was primarily attributable to higher gross profit, 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 NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 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) 65.0 66.1 65.0 66.6
Selling and Operating 18.3 17.7 17.7 18.3
General and Administrative 11.4 10.8 12.0 11.0
----- ---- ----- -----
Total Costs and Expenses 94.7 94.6 94.7 95.9
----- ---- ----- -----
Income From Continuing Operations 5.3 5.4 5.3 4.1
Interest Income (Expense) and Other, Net (0.8) (1.0) (0.8) (0.6)
----- ----- ----- -----
Income From Continuing Operations Before Income Taxes
4.5% 4.4% 4.5% 3.5%
===== ===== ===== =====
</TABLE>
9
<PAGE>
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1999
Net Revenues. Consolidated net revenues increased by 1.6%, or approximately $0.4
million, to approximately $28.8 million for the three months ended September 30,
2000 compared to the prior year period. This increase was primarily due to an
increase in the Company's permanent placement revenues of approximately $0.5
million, or 9.3%, and an increase in the Company's IT training revenues of
approximately $0.6 million, or 116.9% for the three months ended September 30,
2000 compared to the prior year period. These increases were partially offset by
a decrease in the Company's contract placement business of approximately $0.7
million, or 3.0% for the three months ended September 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 instead of contract placement business. In the
three months ended September 30, 2000 the Company billed approximately 368,000
IT consultant hours, compared to 405,000 IT consultant hours in the comparable
period of 1999. The Company's average hourly billing rate for IT consultants
increased to $61.63 in the quarter ended September 30, 2000 compared to $56.34
in the comparable period of 1999, which helped to mitigate the decrease in
billed hours. This increase in average hourly billing rate was primarily
attributable to the Company's emphasis on higher bill rate services such as
client server and web development projects. The increase in permanent placement
revenues was primarily attributable to an increase in the number of candidates
placed in the period ended September 30, 2000 to 268 from 250 in the prior year
period. The increase in revenues in the Company's IT training business was
attributable to an increase in trainer brokerage business, in which 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 most direct costs of this
revenue. The Company's trainer brokerage program generated approximately
$451,000 in revenues in the quarter ended September 30, 2000 compared to $77,000
in revenues in the prior year period.
Cost of Sales. Consolidated cost of sales remained unchanged at approximately
$18.7 million for the three months ended September 30, 2000 compared to the
comparable period in 1999. Cost of sales as a percentage of consolidated net
revenues decreased to 65.0% from 66.1% in the respective comparable periods.
Cost of sales related to contract placements increased to 75.7% of contract
placement revenues as of September 30, 2000 compared to 74.4% the prior year
period. This increase was more than offset by an increase in revenues from
permanent placements that have no cost of sales, to approximately $3.6 million
for the three months ended September 30, 2000 compared to approximately $3.1
million in the prior year period. Cost of sales related to IT training revenues
increased approximately $190,000, or 48.9%, in the period ended September 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 increased by
5.1%, or approximately $0.3 million, to approximately $5.3 million for the three
months ended September 30, 2000 compared to the prior year period. Selling and
operating expenses as a percentage of consolidated net revenues increased to
18.3% from 17.7% for the three months ended September 30, 2000 compared to the
prior year period. The increase in selling and operating expenses as a
percentage of consolidated net revenues was primarily due to commissions paid to
salespeople and recruiters involved in permanent placements, which experienced
an increase in revenues. The increase was also attributable to a refund of
approximately $108,000 of workman's compensation insurance premiums in the
quarter ended September 30, 1999 that was not repeated in the quarter ended
September 30, 2000.
General and Administrative. Consolidated general and administrative expenses
increased 7.2%, or approximately $0.2 million, to approximately $3.3 million for
the three months ended September 30, 2000 compared to the prior year period.
General and administrative expenses as a percentage of consolidated net revenues
increased to 11.4% from 10.8% for the three months ended September 30, 2000
compared to the prior year period. Contributing to this increase was an increase
of $0.1 million, or 3.8%, in salary expense for the period ended September 30,
2000 compared to the prior year period. This increase primarily reflects usual
and
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customary salary increases to existing staff. Also contributing to the
increase was an increase of $0.1 million in depreciation expense for the period
ended September 30, 2000 compared to the prior year period. This increase was
primarily attributable to computer equipment and software installed in late 1999
and early 2000 to upgrade the Company's technology infrastructure.
Other. Other expense represents primarily interest expense net of other income.
Interest expense was approximately $256,000 and $291,000 for the three months
ended September 30, 2000 and 1999, respectively. Other income was approximately
$32,000 and $0 for the three months ended September 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 in 1999 to fund the
IMS losses, partially offset by additional interest expense related to debt
incurred in 1999 through the Company's sale/leaseback of substantially all of
its fixed assets.
Income Taxes. The effective tax rate for the three months ended September 30,
2000 is lower than the federal statutory tax rate of 34% due to the Company's
use of net operating loss carryforwards, for which the Company previously
provided a valuation allowance, 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.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1999
Net Revenues. Consolidated net revenues decreased by 2.9%, or approximately $2.5
million, to approximately $84.2 million for the nine months ended September 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 $4.8
million, or 6.4%, for the nine months ended September 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 instead of contract placement business. In the nine
months ended September 30, 2000 the Company billed approximately 1,127,000 IT
consultant hours, compared to 1,255,000 IT consultant hours in the comparable
period of 1999. The Company's average hourly billing rate for IT consultants
increased to $58.52 in the nine months ended September 30, 2000 compared to
$55.32 in the comparable period of 1999, which helped to mitigate the decrease
in billed hours. This increase in average hourly billing rate was primarily
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 $1.5 million, or 16.5%, in the Company's permanent placement
revenues in the nine months ended September 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 nine months ended
September 30, 2000 to 808 from 744 in the prior year period. Revenues in the
Company's IT training operations also increased approximately $0.7 million, or
30.0%, in the nine months ended September 30, 2000 compared to the prior year
period.
Cost of Sales. Consolidated cost of sales decreased by 5.2%, or approximately
$3.0 million, to approximately $54.7 million for the nine months ended September
30, 2000 compared to the prior year period. Cost of sales as a percentage of
consolidated net revenues decreased to 65.0% from 66.6% in the respective
comparable periods. Cost of sales related to contract placements was relatively
unchanged at 75.6% of contract placement revenues as of September 30, 2000
compared to 75.5% the prior year period. The decline in cost of sales as a
percentage of revenues was primarily due to 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 $0.4 million, or 30.0%,
in the nine months ended September 30, 2000 compared to the prior year period,
primarily due to additional trainers required for the trainer brokerage program
discussed earlier.
Selling and Operating. Consolidated selling and operating expenses decreased by
6.3%, or approximately $1.0 million, to approximately $14.9 million for the nine
months ended September 30, 2000 compared to the prior
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year period. Selling and operating expenses as a percentage of consolidated net
revenues decreased to 17.7% from 18.3% for the nine months ended September 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 6.1%, or approximately $0.6 million, to approximately $10.1 million
for the nine months ended September 30, 2000 compared to the prior year period.
General and administrative expenses as a percentage of consolidated net revenues
increased to 12.0% from 11.0% for the nine months ended September 30, 2000
compared to the prior year period. Contributing to this increase was an increase
of $0.4 million, or 6.7%, in salary expense for the period ended September 30,
2000 compared to the prior year period. This increase primarily reflects usual
and customary salary increases to existing staff. Also contributing to the
increase in general and administrative expense was an increase in depreciation
expense of $0.2 million, or 31.1%, for the nine months ended September 30, 2000
compared to the prior year period. This increase was due primarily to computer
equipment and software installed in late 1999 and early 2000 to upgrade the
Company's technology infrastructure. In the nine months ended September 30, 1999
the Company had incurred a loss on disposal of obsolete computer equipment of
approximately $0.2 million, which loss was not incurred again in the current
year period. Management believes the rate of increase in general and
administrative expense reflects its continuing efforts to control overhead
costs.
Other. Other expense represents primarily interest expense net of other income.
Interest expense was approximately $746,000 and $552,000 for the nine months
ended September 30, 2000 and 1999, respectively. In the nine months ended
September 30, 1999 the Company had allocated approximately $333,000 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 $45,000 and $4,000 for the nine
months ended September 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 in 1999 to fund the IMS losses, partially offset by
additional interest expense related to debt incurred in 1999 through the
Company's sale/leaseback of substantially all of its fixed assets.
Income Taxes. The effective tax rate for the nine months ended September 30,
2000 is lower than the federal statutory tax rate of 34% due to the Company's
use of net operating loss carryforwards, for which the Company previously
provided a valuation allowance, 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 September 30,
2000.
The Company provided cash from operations of approximately $4.1 million in the
nine months ended September 30, 2000 compared to funds used in operations of
approximately $2.5 million for the comparable period of 1999. This result is
partially attributable to the Company's improved earnings of approximately $3.4
million in the nine months ended September 30, 2000 compared to a net loss of
approximately $6.7 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 $1.1 million which
generated cash in the nine months ended September 30, 2000 compared to a
decrease of $0.8 million which used cash in the comparable period of 1999. In
the nine months ended September 30, 2000 the Company's accounts receivable
increased by
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approximately $1.6 million compared to an increase of approximately $3.0 million
in the comparable period of 1999.
Cash purchases of fixed assets for the nine months ended September 30, 2000 were
approximately $536,000 compared to purchases of approximately $803,000 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 believes that such purchases
will continue at approximately the same level for the remainder of 2000. In the
nine months ended September 30, 1999 the Company received approximately $2.8
million in proceeds from disposition of the IMS business.
The Company repaid approximately $1.4 million of its line of credit and
overdraft proceeds facilities in the nine months ended September 30, 2000,
compared to borrowings from those facilities of approximately $1.9 million in
the nine months ended September 30, 1999. In the nine months ended September 30,
2000 the Company paid approximately $0.3 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 compared to
payment of approximately $2.0 million in the prior year period. In the nine
months ended September 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 $1,200,000. As of
September 30, 2000 the Company had paid approximately $1,148,000 to repurchase
597,145 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 April 30, 2003. This facility allows the
Company to borrow the lesser of 85% of eligible accounts receivable or $25.0
million. As of September 30, 2000 the Company had approximately $8.6 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
Company's option, at either the bank's prime rate or 200 basis points over the
London Inter-bank Offering Rate ("LIBOR").
The Company anticipates that its primary uses of capital in future periods will
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
underlying assumptions prove incorrect, actual results may vary significantly
from those anticipated,
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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.
In the nine month period ended September 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 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) One report on Form 8-K was filed pursuant to Item 4 thereof by the
Registrant during the quarter ended September 30, 2000, on August 3, 2000
related to a change in the Registrant's certifying accountant due to the merger
of its former certifying accountant with and into McGladrey & Pullen LLP.
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: October 27, 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
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