<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 March 31, 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 Incorporation (IRS Employer Identification No.)
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 May 8, 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 TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
NUMBER PAGE(S)
- ------ -------
<S> <C>
PART I - FINANCIAL INFORMATION
------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2000 AND DECEMBER 31, 1999 1
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED
MARCH 31, 2000 AND 1999 2
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED
MARCH 31, 2000 AND 1999 3
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 4 - 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 8 - 11
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 12
PART II - OTHER INFORMATION
---------------------------
ITEM 1. LEGAL PROCEEDINGS 12
ITEM 6. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K 12
</TABLE>
i
<PAGE>
JUDGE.COM, INC. AND SUBSIDIARIES
(FORMERLY THE JUDGE GROUP, INC.)
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 2000 AND DECEMBER 31, 1999
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
- ------------------------------------------------------------------------------------------------------ --------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 4,571 $ 4,571
Accounts receivable, net 18,124,333 18,584,708
Prepaid income taxes and deferred taxes 2,964,258 2,801,245
Other 998,268 947,823
------------ -------------
TOTAL CURRENT ASSETS 22,091,430 22,338,347
------------ -------------
PROPERTY AND EQUIPMENT
Property and Equipment 5,421,310 5,083,530
Less: accumulated depreciation and amortization 2,333,371 2,083,785
------------ -------------
NET PROPERTY AND EQUIPMENT 3,087,939 2,999,745
------------ -------------
OTHER ASSETS
Deposits and other 1,006,578 988,981
Covenant not to compete, net of accumulated amortization of $89,976, 2000 and
$82,478, 1999 --- 7,498
Goodwill, net of accumulated amortization of $1,696,204, 2000 and $1,595,313, 1999 8,650,058 8,750,950
------------ -------------
TOTAL OTHER ASSETS 9,656,636 9,747,429
------------ -------------
TOTAL ASSETS $ 34,836,005 $ 35,085,521
============ =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 776,281 $ 902,118
Accounts payable and accrued expenses 7,247,051 6,358,970
Payroll and sales taxes 677,728 422,017
Deferred revenue 557,512 474,067
------------ -------------
TOTAL CURRENT LIABILITIES 9,258,572 8,157,172
------------ -------------
LONG-TERM LIABILITIES
Note payable, Bank 7,562,054 9,688,925
Deferred rent obligation 388,096 399,537
Debt obligations, net of current portion 701,800 833,558
------------ -------------
TOTAL LONG-TERM LIABILITIES 8,651,950 10,922,020
------------ -------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, $.01 par value, 50,000,000 shares authorized; at March 31, 2000
and 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 (6,899,417) (7,818,571)
------------ -------------
17,145,483 16,226,329
Less treasury stock, 40,000 shares; at cost 220,000 220,000
------------ -------------
TOTAL SHAREHOLDERS' EQUITY 16,925,483 16,006,329
------------ -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 34,836,005 $ 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
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
NET REVENUES $ 27,320,518 $ 28,572,312
------------ ------------
COSTS AND EXPENSES
Cost of sales (exclusive of items shown separately below) 17,893,603 19,214,077
Selling and operating 4,809,968 5,281,715
General and administrative 3,408,563 3,110,864
------------ ------------
TOTAL COSTS AND EXPENSES 26,112,134 27,606,656
------------ ------------
INCOME FROM OPERATIONS 1,208,384 965,656
Other income (expense), net (232,505) (101,065)
------------ ------------
Income before income tax expense 975,879 864,591
Income tax expense 56,725 363,851
------------ ------------
Income from continuing operations 919,154 500,740
Discontinued operations:
Loss from discontinued operations (net of income tax benefit of $556,688, 1999) --- (1,080,631)
------------ ------------
NET INCOME (LOSS) $ 919,154 ($ 579,891)
============ ============
NET INCOME (LOSS) PER SHARE: (1)
BASIC
Weighted Average Shares Outstanding 13,944,373 13,944,373
============ ============
Income per share from continuing operations $ 0.07 $ 0.04
====== ======
Loss per share from discontinued operations $ 0.00 ($ 0.08)
====== ========
Income (loss) per share $ 0.07 ($ 0.04)
====== ========
DILUTED
Weighted Average Shares Outstanding 14,573,835 13,944,373
============ ============
Income per share from continuing operations $ 0.06 $ 0.04
====== ======
Loss per share from discontinued operations $ 0.00 ($ 0.08)
====== ========
Income (loss) per share $ 0.06 ($ 0.04)
====== ========
</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 CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) for the period $ 919,154 ($ 579,891)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation 277,432 338,622
Amortization 108,390 208,617
Deferred rent (11,441) 110,418
Provision for losses on accounts receivable 140,210 157,134
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable 320,165 (2,442,745)
Inventories --- 141,500
Deposits and other (17,597) 42,529
Prepaid income taxes and deferred taxes (163,013) (197,446)
Other current assets (330,637) (316,721)
Increase (decrease) in:
Accounts payable and accrued expenses 967,969 247,401
Payroll and sales taxes 255,711 888,854
Deferred revenue 83,445 (163,959)
----------- -----------
Net cash provided by (used in) operating activities 2,549,788 (1,565,687)
----------- -----------
INVESTING ACTIVITIES
Net cash used in investing activities, Purchases of property and
equipment (85,434) (264,644)
----------- -----------
FINANCING ACTIVITIES
Proceeds (repayments) of notes payable, bank, net (2,126,871) 2,629,868
Proceeds (repayments) of bank overdrafts (79,888) 716,114
Principal payments on long-term debt (257,595) (183,353)
Contingent amounts paid - acquisitions --- (1,339,300)
----------- -----------
Net cash provided by (used in) financing activities (2,464,354) 1,823,329
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 0 (7,002)
CASH AND CASH EQUIVALENTS, BEGINNING 4,571 43,568
----------- -----------
CASH AND CASH EQUIVALENTS, ENDING $ 4,571 $ 36,566
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for Interest $ 292,000 $ 170,000
=========== ===========
Cash paid during the year for Income taxes $ 220,000 $ 187,000
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
JUDGE.COM, INC. AND SUBSIDIARIES
(FORMERLY THE JUDGE GROUP, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 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 March 31,
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 March 31, 2000 and for the three months ended
March 31, 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 March 31, 2000
and 1999 was approximately $101,000 in each period, and is included in general
and administrative expense in the condensed consolidated statements of
operations.
4
<PAGE>
JUDGE.COM, INC. AND SUBSIDIARIES
(FORMERLY THE JUDGE GROUP, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 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").
Reclassifications
Certain items in the 1999 financial statements have been reclassified to conform
to the 2000 presentation.
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, increased
in 1999 by contingently issuable shares based on some acquired companies
achieving certain pre-tax income targets, and reduced by treasury shares held by
the Company. The number of shares used in the computation for the three months
ended March 31, 2000 and 1999 were approximately 13,944,000 in each period.
Diluted earnings (loss) per share amounts for the three months ended March 31,
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
three months ended March 31, 2000 and 1999 were approximately 14,574,000 and
13,944,000, respectively. Outstanding options to purchase 908,250 common shares
in 2000 and 1,423,050 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.
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 $4,357,673
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 consist
primarily of accounts payable, accrued expenses, and equipment leases payable.
5
<PAGE>
JUDGE.COM, INC. AND SUBSIDIARIES
(FORMERLY THE JUDGE GROUP, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
NOTE 3. DISCONTINUED OPERATIONS (continued)
Operating results of the IMS business for the three months ended March 31, 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 ended March 31, 1999 were
$3,005,309. This amount is not included in net revenues in the accompanying
condensed consolidated income statements for the three months ended March 31,
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
(9.0% at March 31, 2000). Maximum permitted borrowings thereunder are the lesser
of $25,000,000 or 85% of qualified accounts receivable, as defined in the line
of credit agreement. The line of credit is collateralized by substantially all
of the Company's assets, expires May 31, 2003 and is subject to certain
covenants which from time to time have been reset by the Bank, including
financial covenants requiring certain levels of net worth, 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 $1,791,000
and $1,871,000 of bank overdrafts at March 31, 2000 and December 31, 1999,
respectively.
NOTE 5. LONG-TERM DEBT
At March 31, 2000 long-term debt consisted of the following:
<TABLE>
<CAPTION>
March 31, 2000
--------------
<S> <C>
Note Payable; payable in 8 quarterly payments of $102,333 including interest at
8%, through December 2000
$ 295,116
Note Payable; payable in 36 monthly installments of $6,944 plus interest at 8%, through October 2001 125,000
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
1,057,965
1,478,081
Less: Current portion (776,281)
----------
Long-term portion $ 701,800
==========
</TABLE>
6
<PAGE>
JUDGE.COM, INC. AND SUBSIDIARIES
(FORMERLY THE JUDGE GROUP, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
NOTE 5. LONG-TERM DEBT (continued)
Interest expense charged to operations was approximately $249,000 and $103,000
for the three months ended March 31, 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.
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 state tax provisions and certain expenses that
were not deductible for tax purposes.
NOTE 7. COMMITMENTS AND CONTINGENCIES
The Company experienced no significant adverse effects from the rollover of the
two-digit year value to 00 on January 1, 2000. The Company's computer systems
continue to operate normally after the "Year 2000" transition. The Company is
unaware of any significant problems in the computer systems of third parties for
whom the Company implemented "Year 2000" solutions on their computer systems.
Total incremental spending on "Year 2000" issues was not material and was
charged to operations as incurred.
NOTE 8. 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 three months ended March 31, 2000, the Company granted options to
purchase 730,000 common shares at a weighted average exercise price of $1.46 per
common share. No options were exercised during the period ended March 31, 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 9. STATEMENT OF CASH FLOWS
Supplemental disclosure of non-cash investing and financing transactions:
During the three month period ended March 31, 2000, the Company placed into
service approximately $280,000 of property and equipment previously classified
as "other current assets".
During the three month period ended March 31, 1999, the Company did not enter
into any non-cash transactions.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THE THREE
MONTHS ENDED MARCH 31, 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
In January 1999 the Company reorganized its operations into two business
segments to enable financial analysis that more closely tracks its lines of
business. The Company's Contract Placement, Permanent Placement and IT Training
business was consolidated within the IT Staffing segment. The Information
Management Solutions ("IMS") business was the other segment, which the Company
adopted a plan to dispose of in June 1999. Through sales occurring in 1999, the
Company divested substantially all of the assets of the IMS business. Operating
results of the IMS business for the three months ended March 31, 1999 are shown
separately in the accompanying condensed consolidated statements of operations.
Net revenues of the IMS business for the three months ended March 31, 1999 were
approximately $3.0 million. The IMS business incurred a loss from operations in
the three months ended March 31, 1999 of approximately $1.1 million.
The Company's continuing operations experienced a decrease in revenue of
approximately $1.3 million, or 4.4%, for the three months ended March 31, 2000
compared to the prior year period. This revenue decline was primarily
attributable to three 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 $.4 million, or 83.6%, in the three months ended March
31, 2000 compared to the prior year period. Such increase was primarily
attributable to 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, as well as to reduced selling, general
and administrative expenses as discussed below.
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:
THREE MONTHS
ENDED MARCH 31,
2000 1999
---- ----
Net Revenues 100.0% 100.0%
------ ------
Cost of Sales (exclusive of items shown
separately below) 65.5 67.2
Selling and Operating 17.6 18.5
General and Administrative 12.5 10.9
---- ----
Total Costs and Expenses 95.6 96.6
---- ----
Income From Continuing Operations 4.4 3.4
Interest Income (Expense) and Other, Net (0.8) (0.4)
----- -----
Income From Continuing Operations Before
Income Taxes 3.6% 3.0%
==== ====
8
<PAGE>
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
Net Revenues. Consolidated net revenues decreased by 4.4%, or approximately $1.3
million, to approximately $27.3 million for the three months ended March 31,
2000 compared to the prior year period. This decrease was primarily due to a
decrease in the Company's contract placement revenues of approximately $1.8
million, or 7.2%, for the three months ended March 31, 2000 compared to the
prior year period. This decrease was primarily attributable to three 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 three months ended March 31, 2000 the Company billed approximately 382,000
IT consultant hours, compared to 424,000 IT consultant hours in the comparable
period of 1999. The Company's average hourly billing rate for IT consultants
increased to $56.02 in the quarter ended March 31, 2000 compared to $54.39 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 $.7
million, or 25.1%, in the Company's permanent placement revenues in the period
ended March 31, 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 March 31, 2000 to 261 from 231
in the prior year period. The Company's IT training revenues decreased
approximately $.2 million, or 15.8%, in the period ended March 31, 2000 compared
to the prior year period, which was also attributable to the more severe winter
weather that forced class cancellations.
Cost of Sales. Consolidated cost of sales decreased by 6.9%, or approximately
$1.3 million, to approximately $17.9 million for the three months ended March
31, 2000 compared to the prior year period. Cost of sales as a percentage of
consolidated net revenues decreased to 65.5% from 67.2% in the respective
comparable periods. Cost of sales related to contract placements decreased to
75.8% of contract placement revenues as of March 31, 2000 compared to 76.4% 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 $3.5 million
for the three months ended March 31, 2000 compared to approximately $2.8 million
in the prior year period. Cost of sales related to IT training revenues
increased approximately $16,000, or 3.8%, in the period ended March 31, 2000
compared to the prior year period, primarily due to increases in licensing fees
for software utilized in training classes.
Selling and Operating. Consolidated selling and operating expenses decreased by
8.9%, or approximately $.5 million, to approximately $4.8 million for the three
months ended March 31, 2000 compared to the prior year period. Selling and
operating expenses as a percentage of consolidated net revenues decreased to
17.6% from 18.5% for the three months ended March 31, 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 management's
continuing efforts to control costs in such areas as office supplies and travel
and entertainment.
General and Administrative. Consolidated general and administrative expenses
increased 9.6%, or approximately $.3 million, to approximately $3.4 million for
the three months ended March 31, 2000 compared to the prior year period. General
and administrative expenses as a percentage of consolidated net revenues
increased to 12.5% from 10.9% for the three months ended March 31, 2000 compared
9
<PAGE>
to the prior year period. Contributing to this increase was an increase of $.1
million, or 5.8%, in salary expense for the period ended March 31, 2000 compared
to the prior year period. This increase primarily reflects usual and customary
salary increases to existing staff. In the quarter ended March 31, 1999 the
Company had allocated approximately $78,000 of its corporate overhead expenses
to the discontinued IMS business. In the quarter ended March 31, 2000 those
expenses are being allocated amongst the continuing operations, effectively
increasing general and administrative expenses on a continuing operations
comparative basis.
Other. Other expense represents primarily interest expense net of other income.
Interest expense was approximately $249,000 and $103,000 for the three months
ended March 31, 2000 and 1999, respectively. In the quarter ended March 31, 1999
the Company had allocated approximately $102,000 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 $16,000 and $2,000 for the three months ended
March 31, 2000 and 1999, respectively. This increase in interest expense
reflects the Company's increased usage of its bank borrowings to fund the
expansion of the business, as well as additional 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 March 31, 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 book
expenses not deductible for tax purposes.
LIQUIDITY AND CAPITAL RESOURCES
The Company's need for working capital has increased as its revenues have grown
and it has used borrowings under its credit facility to fund working capital.
The Company typically maintains minimal cash balances, as reflected in the
balance of approximately $5,000 as of March 31, 2000.
The Company provided cash from operations of approximately $2.5 million in the
three months ended March 31, 2000 compared to funds used in operations of
approximately $1.6 million for the three months ended March 31, 1999. This
result is partially attributable to the Company's improved earnings of
approximately $.9 million in the quarter ended March 31, 2000 compared to a net
loss of approximately $.6 million in the prior year period. Additionally, the
Company's accounts receivable decreased due to lower sales and improved
collection procedures during the quarter ended March 31, 2000 which, in
conjunction with an increase in accounts payable and accrued expenses provided
approximately $1.3 million of cash from operations in 2000. In the comparable
period of 1999 the Company's accounts receivable increased by approximately $2.4
million, the primary use of funds from operations in that period.
Cash purchases of fixed assets for the three months ended March 31, 2000 were
approximately $85,000 compared to purchases of approximately $265,000 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 $2.2 million of its line of credit and
overdraft proceeds facilities in the three months ended March 31, 2000, compared
to borrowings from those facilities of approximately $3.3 million in the three
months ended March 31, 1999. In the three months ended March 31, 1999 the
Company paid approximately $1.3 million related to its guarantee that common
shares issued in connection with one of 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. The Company also repaid
approximately $257,000 of its long term obligations in the quarter ended March
31, 2000 compared to repayments of approximately $183,000 in the prior year
period.
10
<PAGE>
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 March 31, 2000 the Company had approximately $7.6 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 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.
COMMITMENTS AND CONTINGENCIES
The Company implemented a "Year 2000" compliance program to prepare for the
rollover of the two-digit year value to 00 in its computer systems on January 1,
2000. The compliance program required the Company to develop and validate
contingency plans in the event a critical system failed, and to form a rapid
response team to address any operational problems during the "Year 2000" date
change period.
The Company experienced no significant "Year 2000" system related problems and
it has continued to operate normally after January 1, 2000. The Company is
unaware of any significant problems in the computer systems of third parties for
whom the Company implemented "Year 2000" solutions on their computer systems.
Total incremental spending on "Year 2000" issues was not material and was
charged to operations as incurred.
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, 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.
11
<PAGE>
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.
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 March 31, 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: May 12, 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
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS CONTAINED IN JUDGE.COM, INC. QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 4,571
<SECURITIES> 0
<RECEIVABLES> 19,200,445
<ALLOWANCES> 1,076,112
<INVENTORY> 0
<CURRENT-ASSETS> 22,091,430
<PP&E> 5,421,310
<DEPRECIATION> 2,333,371
<TOTAL-ASSETS> 34,836,005
<CURRENT-LIABILITIES> 9,258,572
<BONDS> 0
0
0
<COMMON> 139,843
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 34,836,005
<SALES> 0
<TOTAL-REVENUES> 27,320,518
<CGS> 17,893,603
<TOTAL-COSTS> 26,112,134
<OTHER-EXPENSES> 232,505
<LOSS-PROVISION> 140,210
<INTEREST-EXPENSE> 248,947
<INCOME-PRETAX> 975,879
<INCOME-TAX> 56,725
<INCOME-CONTINUING> 919,154
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 919,154
<EPS-BASIC> $0.07
<EPS-DILUTED> $0.06
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