SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission file number 0-23173
OAO TECHNOLOGY SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
Delaware 52-1973990
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7500 Greenway Center Drive
Greenbelt, Maryland 20770
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (301) 486-0400
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 August 12, 1998, the registrant had outstanding 16,427,567 shares of
its Common Stock, par value $0.01 per share.
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OAO TECHNOLOGY SOLUTIONS, INC.
Quarterly Report on Form 10-Q for the Quarterly Period Ended June 30, 1998
INDEX
<TABLE>
<CAPTION>
Page Reference
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PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
<S> <C>
Consolidated Balance Sheets as of June 30, 1998 (unaudited) and
December 31, 1997.....................................................................3
Consolidated Statements of Operations (unaudited) for the Three Months and
Six Months Ended June 30, 1998 and 1997...............................................4
Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended
June 30, 1998 and 1997................................................................5
Notes to Consolidated Financial Statements (unaudited)................................6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS ........................................................................9
PART II - OTHER INFORMATION................................................................. 13
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Default Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES...................................................................................14
</TABLE>
2
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
OAO TECHNOLOGY SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
June 30, 1998 December 31,
(Unaudited) 1997
----------- -----------
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 17,589 $ 22,221
Accounts receivable:
Billed, net of allowance for uncollectible accounts
of $933 and $50, respectively 11,598 12,146
Unbilled, net of allowance for uncollectible accounts
of $2,127 and $239, respectively 4,040 9,400
Other current assets 3,132 875
------- -------
Total current assets 36,359 44,642
Property and equipment, net 6,130 4,611
Deposits and other assets 395 753
Goodwill 1,852 336
------- -------
Total assets $ 44,736 $ 50,342
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 640 $ 3,773
Accrued expenses 6,635 5,720
Notes payable -- 378
Other current liabilities 242 970
Current maturities of capital lease obligations 323 552
------- -------
Total current liabilities 7,840 11,393
Capital lease obligations, net of current portion 791 883
Commitments and Contingencies
Stockholders' Equity:
Common Stock, par value $0.01 per share,
authorized, 25,000,000; 16,404,150 and 16,285,050
issued and outstanding at June 30, 1998 and
December 31, 1997, respectively 164 163
Additional paid-in capital 34,741 34,454
Deferred compensation (195) (76)
Stockholders' receivable (4) (133)
Retained earnings 1,624 3,658
Unrealized (loss) on foreign currency translation (225) --
------- -------
Total stockholders' equity 36,105 38,066
------- -------
Total liabilities and stockholders' equity $ 44,736 $ 50,342
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
3
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OAO TECHNOLOGY SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- -------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 20,340 $ 20,177 $ 43,346 $ 39,338
Direct Costs 18,009 15,953 36,733 30,773
-------- -------- -------- --------
Gross Profit 2,331 4,224 6,613 8,565
Selling, General and Administrative 6,705 2,996 10,108 6,315
-------- -------- -------- --------
(Loss) Income from Operations (4,374) 1,228 (3,495) 2,250
Interest and Other (Income) Expense, net (195) 82 (381) 87
-------- -------- -------- --------
(Loss) Income Before Income Taxes (4,179) 1,146 (3,114) 2,163
Income Tax (Benefit) Provision (1,507) 498 (1,080) 931
-------- -------- -------- --------
Net (Loss) Income $ (2,672) $ 648 $ (2,034) $ 1,232
========= ======== ======== ========
Net (Loss) Income Per Common Share:
Diluted $ (0.16) $ 0.06 $ (0.12) $ 0.12
========= ======= ======== =======
Basic $ (0.16) $ 0.06 $ (0.12) $ 0.12
========= ======= ======== =======
Weighted Average Number of Common
Shares Outstanding:
Diluted 16,392 10,187 16,346 10,133
======= ====== ====== ======
Basic 16,392 10,000 16,346 10,000
======= ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
4
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OAO TECHNOLOGY SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net (Loss) Income $ (2,034) $ 1,232
Adjustments to reconcile net (loss) income to net cash used in operating
activities:
Depreciation and amortization 435 210
Increase in the allowance for uncollectible accounts 2,771 --
Changes in assets and liabilities, net of effects of acquisition:
Accounts receivable 3,299 (6,297)
Other current assets (2,254) (257)
Deposits and other assets 328 (107)
Accounts payable (4,046) 322
Accrued expenses 915 1,260
Other current liabilities (728) 388
------ ------
Net cash used in operating activities (1,314) (3,249)
------ ------
Cash flows from investing activities:
Acquisition of DHR Technologies, net of cash acquired (938) --
Purchases of property and equipment (1,745) (1,412)
------ ------
Net cash used in investing activities (2,683) (1,412)
------ ------
Cash flows from financing activities:
Borrowings under revolving credit agreement -- 4,175
Proceeds from the exercise of stock options 160 --
Payments on stockholders' receivable 129 --
Payments on capital lease obligations (321) --
Payments on notes payable (378) --
------ ------
Net cash (used in) provided by financing activities (410) 4,175
------ ------
Effect of exchange rate changes on cash (225) --
Net decrease in cash and cash equivalents (4,632) (486)
Cash and cash equivalents, beginning of period 22,221 876
------ ------
Cash and cash equivalents, end of period $ 17,589 $ 390
======== ========
Supplemental Disclosures of Cash Flow Information
Cash payments for income taxes $ 645 $ 535
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
5
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OAO TECHNOLOGY SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
OAO Technology Solutions, Inc. (the "Company") along with its wholly owned
subsidiaries, provides a wide range of information technology ("IT") solutions
and professional services, including systems and software engineering; the
operation of large-scale megaplexes and networks; distributed systems
management; applications development and maintenance; staffing augmentation
services; enterprise resource planning, integration, implementation and training
services; as well as state-of-the-art software systems for the managed care
marketplace.
The condensed consolidated financial statements included herein have been
prepared by the Company without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission ("SEC") and include, in the opinion of
management, all adjustments, consisting of normal, recurring adjustments,
necessary for a fair presentation of interim period results. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. The Company believes that its
disclosures are adequate to make the information presented not misleading. These
condensed financial statements should be read in conjunction with the financial
statements and notes thereto included in the Company's Annual Report on Form
10-K. The results of operations for the three and six month periods ended June
30, 1998, are not necessarily indicative of the results to be expected for the
full year.
2. CREDIT AGREEMENTS
The Company currently has a $10.0 million revolving credit agreement (the
"Agreement") with a commercial bank. Advances under the Agreement are limited to
80% of certain eligible accounts receivable of the Company. The Company also has
a $750,000 line of credit (the "Line") with the same bank which has the same
terms as the Agreement. There currently are no outstanding borrowings under
either the Agreement or the Line. The Company is required to maintain certain
financial and other covenants under these facilities. The Company was not in
compliance with certain covenants as of June 30, 1998, and is in the process of
obtaining waivers from the bank for those covenants until the terms of the
existing Agreement can be renegotiated.
3. EARNINGS PER SHARE
Basic earnings per share has been calculated as net earnings divided by
weighted-average common shares outstanding, while diluted earnings per share has
been computed as net earnings divided by weighted average common and diluted
shares outstanding. For the three and six months ended June 30, 1998, common
equivalents of 781,000 and 857,000, respectively, were anti-dilutive and
therefore not included in the calculation of diluted earnings per share. For the
three and six months ended June 30, 1997, the Company's diluted shares
outstanding were 187,000 and 133,000, respectively, to arrive at total common
and dilutive shares outstanding of 10,187,000 and 10,133,000, respectively.
Shares outstanding are computed using the weighted-average number of shares of
common and common equivalent shares, which consist of stock options, for each
period.
4. COMPREHENSIVE (LOSS) INCOME
In 1998, the Company adopted Statement of Financial Accounting Standard
("SFAS") No. 130, "Reporting Comprehensive Income" which was effective for
fiscal years beginning after December 15, 1997. Comprehensive income is the
change in equity of a business enterprise during a period from transactions and
other events and circumstances from non-owner sources. The Company's source of
other comprehensive income other than net
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income, is from foreign currency translation adjustments which are disclosed
separately in the Stockholders' Equity section of the Consolidated Balance
Sheets. There were no adjustments to net income to arrive at comprehensive
income for the three or six months ended June 30, 1997. Comprehensive loss was
$(2.9) million and $(2.3) million for the three and six months ended June 30,
1998.
5. ACQUISITIONS
On April 2, 1998, the Company acquired certain assets and liabilities of
DHR Technologies, Inc. ("DHR") for approximately $1.1 million in cash. DHR, a
Maryland-based information technology services company and software developer,
provides technical services in a variety of disciplines, including
object-oriented software engineering; World Wide Web/multimedia applications;
training and consulting; and maintenance engineering. The acquisition has been
accounted for under the purchase method of accounting, thus the results of
operations of the acquired company have been included in the consolidated
financial statements from the date of acquisition. The purchase price was
allocated based on the fair values of the assets acquired, including among other
assets approximately $162,000 of cash, and the liabilities assumed at the date
of acquisition. The purchase resulted in an excess of purchase price over net
assets acquired of approximately $1.5 million, which is being amortized on a
straight-line basis over 7 years. Pro forma information related to this
acquisition is not included herein as the acquisition was not material.
6. SUBSEQUENT EVENT -- ACQUISITION
On July 24, 1998, the Company entered into a Stock Purchase Agreement (the
"Agreement") with the shareholders of OAO Services, Inc. ("Services") for the
purchase of all of the outstanding shares of capital stock of Services in a cash
transaction. The Company and Services, a subsidiary of OAO Corporation ("OAO"),
are related parties as a common group of shareholders hold a substantial
ownership interest in both companies. Services, a nationwide provider of IT
staffing augmentation services, supplies technically skilled personnel on a
contract basis, and had revenues of approximately $28.6 million for the six
months ended June 30, 1998. Substantially all of Services revenues have been
derived from IBM Global Services. The acquisition will be accounted for under
the purchase method of accounting, thus the results of operations of the
acquired company will be included in the consolidated financial statements from
the date of acquisition. The purchase price of approximately $2.3 million in
cash is subject to adjustment based on a balance sheet audit of Services, and
will be allocated based on the fair values of the assets acquired and the
liabilities assumed as of the date of acquisition. In addition, the Company
retired approximately $4.6 million of Service's working capital financing in
connection with the acquisition. Furthermore, the Agreement provides for an
earn-out provision payable in installments at the end of each of the fiscal
years ending December 31, 1999, 2000 and 2001. This earn-out provision, which
may not exceed $5.0 million, will be determined using an agreed upon formula
based upon pretax results of the Company during the earn-out period. The
financial statements for Services and pro forma financial information for the
Company and Services will be filed subsequent to completion of the Services'
balance sheet audit.
During the three and six months ended June 30, 1998 and 1997, the Company
served as a subcontractor on several contracts with Services. Total revenues
recorded under these contracts amounted to $221,000 and $600,000, respectively,
for the three and six months ended June 30, 1998, and $884,000 and $1.8 million
for the same prior year periods. At June 30, 1998 and 1997, the Company has
$831,000 and $727,000 of billed receivables and $0 and $230,000 of unbilled
receivables, respectively, which are due from Services.
At the date of its investment in the Company, April 8, 1996, Safeguard
Scientifics, Inc. ("Safeguard") paid $5.0 million to Services, in return for a
grant by Services to the Company of an option to purchase at anytime through
April 8, 2000, all of the shares of common stock of Services at an exercise
price based on revenues and earnings levels of Services for the 12 months prior
to the date of exercise. Pursuant to the terms of an agreement dated July 11,
1997, the Services' option was canceled in consideration of the right granted to
the Company and
7
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Safeguard to receive certain future payments in the event of any sale of OAO and
Services or any public offering by OAO which occurs prior to April 8, 2000. In
each instance, the minimum amount to be received by the Company would be
$500,000, with the potential for a higher amount based on the value of the
transaction. In connection with the acquisition of Services by the Company, the
right granted through the agreement dated July 11, 1997 to the Company and
Safeguard was waived.
8
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Item 2.
OAO TECHNOLOGY SOLUTIONS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following should be read in conjunction with the Consolidated Financial
Statements of the Company and Notes thereto included elsewhere in this quarterly
report. This report contains certain forward-looking statements that involve
risks and uncertainties. Future events and the Company's actual results could
differ materially from the results reflected in these forward-looking
statements. Factors that might cause such a difference include, but are not
limited to, dependence on key strategic customers, limited ability to establish
new strategic partner relationships, risks associated with fixed-price
contracts, ability to sustain and manage growth, variability of quarterly
operating results, dependence on key personnel, competition, and risks
associated with international sales.
Overview
The Company provides a wide range of outsourced IT solutions and
professional services, including the operation of large-scale data center
complexes and networks ("Megacenter Operations"), distributed systems management
("DSM"), staffing services and other IT services. The Company provides these
services to strategic clients ("Strategic Clients") as part of an IT outsourcing
team serving engagement clients ("Engagement Clients"), who are the ultimate
end-users of the services. Engagement Clients include, among many others, Sears,
Blue Cross/Blue Shield and Boeing. In addition, the Company provides consulting
services and software to managed care organizations through its Healthcare
division ("Healthcare"). During the first half of 1998, the Company has invested
approximately $887,000 in the development of a new line of business,
Applications Development and Maintenance ("ADM"), by opening centers in Ontario
and New Brunswick, Canada devoted solely to the provision of these services (the
"Northshore Solution"). Additionally, on July 24, 1998, the Company completed
its acquisition of OAO Services, Inc. ("Services"), a nationwide provider of
staffing augmentation services.
Results of Operations
Revenues
The Company's revenue increased approximately 0.5% and 10.2%, respectively,
to $20.3 million and $43.3 million for the three and six months ended June 30,
1998 compared to $20.2 million and $39.3 million for the same prior year
periods. Revenue from Healthcare increased 30.0% and 133.3% to $1.3 million and
$4.2 million, respectively, for the three and six months ended June 30, 1998
from approximately $1.0 million and $1.8 million for the same prior year
periods. The increase in revenue from Healthcare is attributable to
approximately $980,000 and $3.2 million of revenue during the three and six
months ended June 30, 1998 from the Company's subsidiary, OAO HealthCare
Solutions, which sells the MC400 software package and was acquired by the
Company in November 1997. Revenues and earnings from the Company's Healthcare
division declined from the first quarter of 1998 to the second quarter due to
sales and delivery resource constraints which have been addressed by the Company
in order to position the division for growth and to meet demand for the MC400
product.
Revenue from one of the Company's strategic clients increased 65.0% and
90.5%, respectively, to $6.6 million and $14.1 million for the three and six
months ended June 30, 1998, compared to approximately $4.0 million and $7.4
million for the same prior year periods. Due to the second quarter expiration of
certain projects, third and fourth quarter 1998 revenues are expected to
decrease compared to the first two quarters of the current year.
The increases in revenue from Healthcare and one of the Company's strategic
clients were offset by the decrease in revenue from one of the Company's other
strategic clients. For the three and six months ended June 30, 1998, the other
strategic client's revenue decreased 20.8% and 21.3%, respectively, to $11.4
million and $22.9 million for the three and six months ended June 30, 1998
compared to $14.4 million and $29.1
9
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million for the same prior year periods. This decrease is due to a
combination of pricing pressures resulting in revenue reductions on three
continuing contracts; the elimination of approximately $2.5 million in revenue
from a non-recurring project which occurred during the first half of 1997; and
the expiration of approximately five projects during the current year. In March
1998, the Company announced a new initiative to provide certain ADM services to
the client. This new line of business has provided approximately $408,000 and
$530,000 in revenue for the three and six months ended June 30, 1998. While the
Company is continuing to participate in proposal efforts with the client, and
will continue to pursue the expansion of the NorthShore Solution both with the
client and other customers, it expects the pricing pressures and certain
contract expirations to continue. Accordingly, revenue from the client could
potentially continue to decrease.
On July 24, 1998, the Company entered into a Stock Purchase Agreement (the
"Agreement") with the shareholders of OAO Services, Inc. ("Services") for the
purchase of all of the outstanding shares of capital stock of Services in a cash
transaction. Services, a nationwide provider of IT staffing augmentation
services, supplies technically skilled personnel on a contract basis, and had
revenues of approximately $28.6 million for the six months ended June 30, 1998.
Substantially all of Services revenues have been derived from one customer. The
acquisition will be accounted for under the purchase method of accounting, thus
the results of operations of the acquired company will be included in the
consolidated financial statements from the date of acquisition. The purchase
price of approximately $2.3 million in cash is subject to adjustment based on a
balance sheet audit of Services, and will be allocated based on the fair values
of the assets acquired and the liabilities assumed as of the date of
acquisition. In addition, the Company retired approximately $4.6 million of
Service's working capital financing in connection with the acquisition.
Furthermore, the Agreement provides for an earn-out provision payable in
installments at the end of each of the fiscal years ending December 31, 1999,
2000 and 2001. This earn-out provision, which may not exceed $5.0 million, will
be determined using an agreed upon formula based upon pretax results of the
Company during the earn-out period.
Direct Costs
The Company's direct costs increased 12.5% and 19.2%, respectively, to
$18.0 million and $36.7 million for the three and six months ended June 30,
1998, compared to $16.0 million and $30.8 million for the same prior year
periods. Direct costs consist primarily of direct labor cost and related fringe
benefit costs. As a percentage of revenue, direct costs increased to 88.5% and
84.7% for the three and six months ended June 30, 1998, compared to 79.1% and
78.2% for the comparable periods in 1997.
Gross margin for the Healthcare division was $(465,000) and $1.3 million or
(35.8)% and 31.0% of the related revenues for the three and six months ended
June 30, 1998, compared to $317,000 and $736,000 or 31.7% and 40.9% of the
related revenues for the same prior year periods. Healthcare margins for the six
months ended June 30,1998, increased from the prior year period due to the
acquisition of MC400 in November 1997. Healthcare margins decreased from the
first to second quarter of 1998 primarily due to fewer high margin software
sales which resulted from the lack of delivery resources for the product.
Additionally, the Company incurred costs to build the sales, marketing and
development infrastructure to alleviate the delivery constraints in order to
meet the demand for MC400 and position the division for growth.
Gross margins for the Company's business with its two primary strategic
clients was $3.1 million and $5.3 million or 17.2% and 14.3% of the related
revenues for the three and six months ended June 30, 1998, respectively,
compared to $3.7 million and $7.7 million or 20.1% and 21.1% of the related
revenues for the same prior year periods. Margins related to the Company's
business with the clients decreased as a result of pricing pressures on
continuing projects which accelerated during the first quarter of 1998, and due
to the expiration of several projects during the current year. In addition,
margins were adversely impacted by approximately $887,000 of start-up costs
incurred year to date related to the Northshore Solution project. These costs
are expected to continue at a declining rate for the remainder of 1998.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 123.3% and 60.3% for
the three and six months ended June 30, 1998 to $6.7 million and $10.1 million,
respectively, compared to $3.0 million and $6.3 million for the same prior year
periods. As a percentage of revenues, these costs increased to 33.0% and 23.3%,
respectively, for the three and six months ended June 30, 1998, compared to
14.8% and 16.1% for the same prior year periods.
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The increases are due to provisions for uncollectible accounts receivable of
approximately $3.1 million, and accruals for severance costs which were recorded
during the second quarter of 1998. During this period, the Company executed
certain aggressive cost reduction initiatives. The Company expects to continue
to pursue additional such initiatives in the third quarter which could result in
initial one-time costs.
Interest Income, Expense and Tax Benefit, Provision
Interest and other income primarily represents income earned on the
proceeds from the Company's Initial Public Offering completed on December 4,
1997. The Company's effective tax rate for the three and six months ended June
30, 1998 of 36.1% and 34.7%, respectively, decreased from 43.5% and 43.0% for
the same prior year periods due to a change in the distribution of income among
various tax jurisdictions and certain nondeductible charges.
Liquidity and Capital Resources
Cash and cash equivalents were $17.6 million at June 30, 1998, and $22.2
million at December 31, 1997. Cash flows used in operations were $1.3 million
for the six months ended June 30, 1998 and $3.2 million for the six months ended
June 30, 1997. The Company primarily funded its uses of cash in 1998 from
operations and the proceeds received from the Offering, and in 1997 from
borrowings under the Company's credit facility prior to the completion of the
Offering. The use of cash in operations for the six months ended June 30, 1998,
was primarily the result of the loss incurred reduced by non-cash charges, net
of the related tax benefits.
The Company's business is not capital intensive, and expenditures in any
given year are ordinarily not significant. Capital expenditures in the first six
months of 1998 included expenditures associated with the development of a new
operational, administrative and financial information system. The Company
expects to incur additional capitalized costs associated with the development
and implementation of the new management information systems through the fourth
quarter of 1998.
The Company currently has a $10.0 million revolving credit agreement (the
"Agreement") with a commercial bank. Advances under the Agreement are limited to
80% of certain eligible accounts receivable of the Company. The Company also has
a $750,000 line of credit (the "Line") with the same bank which has the same
terms as the Agreement. There currently are no outstanding borrowings under
either the Agreement or the Line. The Company is required to maintain certain
financial and other covenants under these facilities. The Company was not in
compliance with certain covenants as of June 30, 1998, and is in the process of
obtaining waivers from the bank for those covenants until the terms of the
existing Agreement can be renegotiated.
The Company currently anticipates that its existing cash balances as well
as cash generated from operations will be sufficient to satisfy its operating
cash needs for the foreseeable future. The Company believes that additional bank
credit would be available to fund such operating and capital requirements if the
Company's cash needs expand more rapidly than expected. In addition, the Company
could consider seeking additional public or private debt or equity financing to
fund future growth opportunities. No assurance can be given, however, that such
bank credit or debt or equity financing will be available to the Company on
terms and conditions acceptable to the Company, if at all.
Recent Authoritative Pronouncements
Effective January 1, 1998, the Company adopted Statement of Position
("SOP") 97-2, "Software Revenue Recognition" which is effective for all software
transactions the Company enters into subsequent to December 15, 1997. The
adoption of this statement did not have a material effect on the Company's
financial position.
In 1997 and 1998, the Financial Accounting Standards Board ("FASB") issued
pronouncements relating to the presentation and disclosure of information
related to segment data and the disclosure of information about pensions and
other postretirement benefits, respectively. The Company is required to adopt
the provisions of these
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pronouncements, if applicable, for the year ending December 31, 1998. The
adoption of these pronouncements will not have an impact on the Company's
financial position and results of operations, but may change the presentation of
certain of the Company's Notes to the Consolidated Financial Statements.
In March, 1998, the American Institute of Certified Public Accountants
("AICPA") issued SOP 98-5, "Reporting on the Costs of Start-Up Activities,"
which requires costs of start-up activities and organization costs to be
expensed as incurred. This SOP is effective for financial statements for fiscal
years beginning after December 15, 1998. The Company is currently assessing the
impact of early application of the SOP.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings - Not Applicable
Item 2. Changes in Securities and Use of Proceeds - Not Applicable
Item 3. Default Upon Senior Securities - Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
The information required by this Item is incorporated by reference to the
Registrant's definitive Proxy Statement for the Annual Meeting of Stockholders
held on May 21, 1998 filed with the Commission April 20, 1998.
Item 5. Other Information.
Stockholders intending to present proposals at the next Annual Meeting of
Stockholders to be held in 1999 must notify the Company of the proposal no later
than December 21, 1998 if they wish to include the proposal on the Company's
proxy card and, along with any supporting statement, in the Company's proxy
statement. As to any proposal presented by a stockholder at the Annual Meeting
of Stockholders that has not been included in the Proxy Statement, the
management proxies will be allowed to use their discretionary voting authority
unless notice of such proposal is received by the Company no later than March 6,
1999.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Page
No. Description No.
- ---------- ---------------------------------------------------------- ---------
10.5 Employment agreement between Gregory Pratt and the 15 - 26
Company, dated as of June 25, 1998
11.1 Statement Regarding Computation of Earnings Per Share. (1) 27
27.1 Financial Data Schedule. (1) 28
- ----------
(1) Filed herewith.
(b) Reports on Form 8-K
1. The Company filed a Form 8-K with the Commission on June 29, 1998 to
report its announcement of the appointment of a new Chief Executive
Officer, the signing of letters of intent to acquire two companies,
and the expected loss for the second quarter of 1998. No financial
statements were filed with this report.
2. The Company filed a Form 8-K with the Commission on August 7, 1998 to
report its acquisition of all of the outstanding capital stock of OAO
Services, Inc., a District of Columbia corporation (see Footnote 6 in
the Notes to Consolidated Financial Statements), pursuant to the Stock
Purchase Agreement dated as of July 24, 1998 among the Company, OAO
Corporation and William R. Hill.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OAO Technology Solutions, Inc.
(Registrant)
Date: 8/14/98 By: /s/ Gregory A. Pratt
----------------------------------
Gregory A. Pratt
Chief Executive Officer and President
Date: 8/14/98 By: /s/ Samuel D. Horgan
----------------------------------
Samuel D. Horgan
Chief Financial Officer
14
EMPLOYMENT AGREEMENT
(Gregory Pratt)
AGREEMENT, made as of this 25th day of June, 1998, by and between OAO
Technology Solutions, Inc., a Delaware corporation (the "Corporation"), and
Gregory Pratt ("Employee").
W I T N E S S E T H :
WHEREAS, the Corporation is engaged in the business of providing a full
range of outsourcing, systems reengineering and systems integration services;
WHEREAS, the Corporation desires to employ Employee as President and Chief
Executive Officer of the Corporation in connection with the conduct of the
business of the Corporation, and Employee desires to accept such employment on
the terms and conditions herein set forth;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements hereinafter set forth, the parties hereto, intending
legally to be bound, hereby agree as follows:
1. Employment. The Corporation hereby employs Employee as its President and
Chief Executive Officer, and Employee hereby accepts such employment, upon the
terms and conditions hereinafter set forth.
2. Term. The employment of Employee under this Agreement shall be on an "at
will" basis.
3. Office and Duties.
(a) During the term hereof, Employee shall serve as President and Chief
Executive Officer of the Corporation. Subject to the Bylaws of the Corporation
and the direction of the Board of Directors of the Corporation, Employee shall
perform such duties as are customary for a President and Chief Executive Officer
of businesses in the United States similar in kind and size to the Corporation,
and such other duties as may from time to time be assigned to him by the
Directors of the Corporation.
(b) During the term hereof, Employee shall use his best efforts to carry
out his duties and responsibilities hereunder and devote his entire working time
to the business and affairs of the Corporation and shall not, in any advisory or
other capacity, work for any other individual, firm or company without first
having obtained the written consent of the Corporation; provided, however, that
Employee may engage in investment activities so long as they do not materially
interfere with the performance of his duties hereunder.
15
<PAGE>
(c) During the term hereof, the principal place of employment of Employee
shall be the Corporation's headquarters in Greenbelt, Maryland, or such other
locations as may be selected for the Corporation's facilities, although it is
understood that in connection with his duties under this agreement, Employee
will be required to travel to and perform services at other locations.
(d) Employee represents and warrants to the Corporation that he is not
subject or a party to any employment agreement, non-competition covenant,
non-disclosure agreement or other agreement, covenant, understanding or
restriction which would prohibit Employee from executing this Agreement and
performing fully his duties and responsibilities hereunder, or which would in
any manner, directly or indirectly, limit or affect the duties and
responsibilities which may now or in the future be assigned to Employee by the
Corporation.
(e) Employee agrees to cooperate at the request of the Corporation in any
efforts to obtain "key-man" life insurance on Employee's life.
4. Compensation. As compensation for the services to be rendered hereunder
by Employee, the Corporation agrees to pay or provide to Employee:
(a) Salary. A basic salary for such services at the annual rate of
$250,000, payable in semi-monthly installments in accordance with the normal
payroll policies of the Corporation. This rate of compensation shall be reviewed
by the Board of Directors at least once per fiscal year.
(b) Bonus. Employee shall be eligible to earn an incentive bonus of up to
100% of the base salary, subject to the achievement of certain company and
individual milestones determined annually by the Compensation Committee of the
board of Directors.
(c) Restricted Stock. Upon commencement of employment, Employee shall
purchase and the Corporation shall sell 750,000 shares of common stock of the
Corporation at a per share price equal to then current market price of the
common stock. The Corporation will have the right to repurchase 100% of the
shares at the lesser of the exercise price and the then current fair market
value upon any termination of employment on or before June 30, 1999, and
reducing by 25% on each July 1 thereafter, provided, that if the Corporation
terminates the Employee without cause, the repurchase right shall be further
reduced by the pro rata portion of the next scheduled reduction. This repurchase
right will expire in the event the stock closing price is $25 or more for 20
consecutive trading days. The Corporation will provide Employee with a
full-recourse five-year loan with interest at the Federal statutory rate to
cover the purchase price of the shares. The loan will be secured by a pledge of
the shares, and will be payable in full upon a termination of Employee's
employment. The restricted stock will be subject to the terms and conditions of
the Plan.
16
<PAGE>
(d) Benefits. For the term hereof, and thereafter to the extent provided in
Exhibit A, the Corporation shall provide Employee with the benefits (the
"Benefits") specified or referred to in Exhibit A.
5. Termination of Employment.
(a) The Corporation may terminate this Agreement with cause immediately
upon written notice to Employee. "Termination for cause" shall mean discharge by
the Corporation on the following grounds:
(i) Employee's conviction in a court of law of any crime or offense,
which conviction makes him unfit for continuing employment, prevents him
from effective management of the Corporation or materially adversely
affects the reputation or business activities of the Corporation.
(ii) Dishonesty or willful misconduct which materially, adversely
affects the reputation or business activities of the Corporation and which
continues after written notice thereof to Employee.
(iii) Substance abuse, including abuse of alcohol or use of illegal
narcotics, and other drugs or substances, for which Employee fails to
undertake and maintain treatment after 15 days after requested by the
Corporation, or misappropriation of funds.
(iv) Employee's continuing material failure or refusal to perform his
duties in accordance with the terms of this Agreement or to carry out in
all material respects the lawful directives of the Board of Directors;
provided that discharge pursuant to this subparagraph (iii) shall
constitute discharge for cause only if Employee has first received written
notice from the Board of Directors of the Corporation stating with
specificity the nature of such failure or refusal and, if requested by
Employee within 10 days thereafter, Employee is afforded a reasonable
opportunity to be heard before the Board.
Upon such termination for cause, Employee shall lose all right, title and
interest in and to all payments required to be made in accordance with the
provisions of this Agreement, and the Corporation shall have no further
obligation to Employee hereunder, except for compensation pursuant to Paragraphs
4(a) and 4(d) to which Employee is entitled through the date of termination,
bonus compensation to which Employee is entitled for and in respect of the
preceding fiscal year if not theretofore paid, and any benefits referred to in
Exhibit A hereof to which Employee has a vested right under the terms and
conditions of the plan or program pursuant to which such benefits were granted.
17
<PAGE>
(b) The Corporation may terminate the Employee without cause at any time.
In the event of termination of Employee without cause, the Corporation shall pay
or provide to Employee (in addition to the salary, bonus and other compensation
to which Employee shall be entitled or shall have earned pursuant to Paragraph 4
hereof through the date of such termination and any benefits referred to in
Exhibit A hereof in which Employee has a vested right under the terms and
conditions of the plan or program pursuant to which such benefits were granted),
(i) the basic salary pursuant to the provisions of Paragraph 4(a) hereof for a
period of 12 months from the effective date of such termination, payable ratably
over such 12 month period, and (ii) the benefits referred to in Exhibit A hereof
(excluding the 401K plan and country club dues) for a period of 12 months from
the effective date of such termination.
(c) Employee may terminate this Agreement by resignation and giving the
Corporation three (3) months' notice. The Corporation can waive this notice and
agree with Employee to an earlier termination date. Upon termination by
Employee, all obligations of the Corporation and Employee under this Agreement
will cease as of the date of final termination, except as provided in Section 8
below.
6. Restrictive Covenants and Confidentiality; Injunctive Relief.
(a) Employee agrees, as a condition to the Corporation agreeing to employ
Employee and to the performance by the Corporation of its obligations hereunder,
particularly its obligations under Paragraph 4 hereof, that during the term of
Employee's employment with the Corporation and for a period of one (1) year
thereafter, or such lesser term, but not less than 6 months, as the Board of
Directors may determine within 60 days of any such termination, Employee shall
not, without prior written approval of the Board of Directors of the
Corporation, directly or indirectly through any other person, firm or company,
whether individually or in conjunction with any other person, or as an employee,
agent, consultant, representative, partner or holder of any interest in any
other person, firm, company or other association: (i) solicit, entice or induce
any Customer (as defined below) to become a client, customer, OEM, distributor
or reseller of any other person, firm or company with respect to products and/or
services then sold or under development by the Corporation or to cease doing
business with the Corporation, and Employee shall not approach any such person,
firm or company for such purpose or authorize or knowingly approve the taking of
such actions by any other person; or (ii) solicit, entice or induce any person
who presently is or at any time during the term hereof shall be an employee of
the Corporation to become employed by any other person, firm or company or to
leave their employment with the Corporation, and Employee shall not approach any
such employee for such purpose or authorize or knowingly approve the taking of
such actions by any other person. For purposes of this Paragraph 5, a Customer
means any person or entity which at the time of determination shall be, or shall
have been within two years prior to such time, a client, customer, OEM,
distributor or reseller of the Corporation.
18
<PAGE>
Nothing in the foregoing shall prohibit Employee from investing in the
securities of any company having securities listed on a national securities
exchange, provided that such investment does not exceed 5% of any class of
securities of any company engaged in business in competition with the
Corporation, and provided that such ownership represents a passive investment
and that neither Employee nor any group of persons including him, in any way,
either directly or indirectly, manages or exercises control of any such company,
guarantees any of its financial obligations, otherwise takes any part in its
business, other than exercising his rights as a shareholder, or seeks to do any
of the foregoing.
(b) Employee acknowledges that during the term of his employment, he will
have access to confidential information of the Corporation, including
information about "Developments" (as defined in Paragraph 7 below), business
plans, costs, customers, profits, markets, sales, products, key personnel,
pricing policies, operational methods and other business affairs and methods and
other information not available to the public or in the public domain
(hereinafter referred to as "Confidential Information"). In recognition of the
foregoing, Employee covenants and agrees that, except as required by his duties
to the Corporation, Employee will keep secret all Confidential Information of
the Corporation and will not, directly or indirectly, either during the term of
his employment hereunder or at any time thereafter while such Confidential
Information remains confidential, disclose or disseminate to anyone or make use
of, for any purpose whatsoever except for the benefit of the Corporation in the
course of his employment, any Confidential Information, and upon termination of
his employment, Employee will promptly deliver to the Corporation all tangible
materials and objects containing Confidential Information (including all copies
thereof, whether prepared by Employee or others) which he may possess or have
under his control. The term "Confidential Information" shall not include any
information which can be demonstrated (i) to be generally known in the industry
or to the public other than through breach of Employee's obligations hereunder,
(ii) to have been in Employee's possession prior to his employment with the
Corporation and not assigned to the Corporation, or (iii) to have been disclosed
to Employee by an independent third party not under any obligation of
confidentiality.
19
<PAGE>
(c) Employee represents (i) that his experience and capabilities are such
that the restrictions contained herein will not prevent him from obtaining
employment or otherwise earning a living at the same general economic benefit as
reasonably required by him and (ii) that he has, prior to the execution of this
Agreement, reviewed this Agreement thoroughly with his legal counsel.
(d) Employee acknowledges that the restrictions contained in this Paragraph
6 are reasonable and necessary to protect the legitimate business interests of
the Corporation and that the Corporation would not have entered into this
Agreement in the absence of such restrictions. By reason of the foregoing,
Employee agrees that if he violates any of the provisions of this Paragraph 6,
the Corporation would sustain irreparable harm and, therefore, irrevocably and
unconditionally (i) agrees that in addition to any other remedies which the
Corporation may have under this Agreement or otherwise, all of which remedies
shall be cumulative, the Corporation shall be entitled to apply to any court of
competent jurisdiction for preliminary and permanent injunctive relief and other
equitable relief, (ii) that such relief and any other claim by the Corporation
pursuant hereto may be brought in the United States District Court for the
District of Delaware, or if such court does not have subject matter jurisdiction
or will not accept jurisdiction, in any court of general jurisdiction in
Delaware; (iii) consents to the non-exclusive jurisdiction of any such court in
any such suit, action or proceeding, and (iv) waives any objection which
Employee may have to the laying of venue of any such suit, action or proceeding
in any such court. Employee also irrevocably and unconditionally consents to the
service of any process, pleadings, notices or other papers in a manner permitted
by the notice provisions hereof. In the event that any of the provisions of this
Paragraph 6 hereof should ever be adjudicated to exceed the time, geographic,
product or service, or other limitations permitted by applicable law in any
jurisdiction, then such provisions shall be deemed reformed in such jurisdiction
to the maximum time, geographic, product or service, or other limitations
permitted by applicable law.
(e) Employee agrees that the Corporation may provide a copy of this
Paragraph 6 to any business or enterprise (i) which the Employee may directly or
indirectly own, manage, operate, finance, join, control or participate in the
ownership, management, operation, financing, or control of, or (ii) with which
he may be connected with as an officer, director, employee, partner, principal,
agent, representative, consultant or otherwise, or in connection with which he
may use or permit his name to be used; provided, however, that this provision
shall not apply as to subparagraph (a) or (b) after expiration of the time
periods set forth therein or with respect to any activities, entities or persons
excluded by the terms hereof. Employee will provide the names and addresses of
any of such persons or entities as the Corporation may from time to time
reasonably request.
20
<PAGE>
(f) In the event of any breach or violation of the restriction contained in
subparagraph (a) above, the period therein specified shall abate during the time
of any violation thereof and that portion remaining at the time of commencement
of any violation shall not begin to run until such violation has been fully and
finally cured.
7. Ownership of Inventions and Ideas. Employee acknowledges that the
Corporation shall be the sole owner of all the results and proceeds of
Employee's service hereunder, including but not limited to, all patents, patent
applications, patent rights, formulas, copyrights, inventions, developments,
discoveries, other improvements, data, documentation, drawings, charts, and
other written, audio and/or visual materials relating to equipment, methods,
products, processes, or programs in connection with or useful to the
Corporation's business (collectively, the "Developments") which Employee, by
himself or in conjunction with any other person, may conceive, make, acquire,
acquire knowledge of, develop or create during the term of Employee's employment
hereunder, free and clear of any claims by Employee (or any successor or
assignee of him) of any kind or character whatsoever other than Employee's right
to compensation hereunder. Employee acknowledges that all copyrightable
Developments shall be considered works made for hire under the Federal Copyright
Act. Employee hereby assigns and transfers his right, title and interest in and
to all such Developments, and agrees that he shall, at the request of the
Corporation, execute or cooperate with the Corporation in any patent
applications, execute such assignments, certificates or other instruments, and
do any and all other acts, as the Board of Directors of the Corporation from
time to time reasonably deems necessary or desirable to evidence, establish,
maintain, perfect, protect, enforce or defend the Corporation's right, title and
interest in or to any such Developments.
8. Survival. The provisions of Paragraphs 6, 7 and 9 shall survive the
termination of this Agreement for any reason whatsoever.
21
<PAGE>
9. Dispute Resolution.
(a) Good-Faith Negotiations. If any dispute arises under this Agreement
that is not settled promptly in the ordinary course of business, the parties
shall seek to resolve any such dispute between them, first, by negotiating
promptly with each other in good faith in face-to-face negotiations. If the
parties are unable to resolve the dispute between them within 20 business days
(or such period as the parties shall otherwise agree) through these face-to-face
negotiations, then the controversy or claim shall be settled by arbitration
conducted on a confidential basis, under the U.S. Arbitration Act, if
applicable, and the then current Commercial Arbitration Rules of the American
Arbitration Association (the "Association") strictly in accordance with the
terms of this Agreement and the substantive law of the State of Delaware. The
arbitration shall be conducted at the Association's regional office located
closest to Corporation's principal place of business by one arbitrator
experienced in employment matters. Judgment upon the arbitrator's award may be
entered and enforced in any court of competent jurisdiction. Neither party shall
institute a proceeding hereunder unless at least 10 days prior thereto such
party shall have given written notice to the other party of its intent to do so.
22
<PAGE>
(b) Notwithstanding the foregoing, the Corporation shall not be precluded
hereby from securing equitable remedies in courts of any jurisdiction,
including, but not limited to, temporary restraining orders and preliminary
injunctions to protect its rights and interests but shall not be sought as a
means to avoid or stay arbitration.
10. Miscellaneous.
(a) Any notice authorized or required to be given or made by or pursuant to
this Agreement shall be made in writing and either personally delivered or
mailed by overnight express mail to the respective address of the party to
receive such notice, which address is the one designated below the name of such
party on the signature page hereof, or to such other address as a party may
specify by notice to the other parties hereto.
(b) This Agreement cancels and supersedes any and all prior agreements and
understandings between or among any or all of the parties hereto with respect to
the employment by or obligations of Employee to any thereof. This Agreement
constitutes the entire agreement among the parties with respect to the matters
herein provided, and no modification or waiver of any provision hereof shall be
effective unless in writing and signed by the parties hereto.
(c) All of the terms and provisions of this Agreement shall be binding upon
and inure to the benefit of and be enforceable by the respective heirs,
executors, administrators, legal representatives, successors and assigns of the
parties hereto, except that the duties and responsibilities of Employee
hereunder are of a personal nature and shall not be assignable or delegable in
whole or in part by Employee.
(d) Employee agrees that the obligations of the Corporation hereunder shall
be limited to the Corporation only, and Employee agrees that he shall not bring
any claim or suit against any director or shareholder of the Corporation or any
other person other than the Corporation for any breach or default by the
Corporation of its obligations hereunder.
23
<PAGE>
(e) If any provision of this Agreement or application thereof to anyone or
under any circumstances is adjudicated to be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect any other
provision or application of this Agreement which can be given effect without the
invalid or unenforceable provision or application and shall not invalidate or
render unenforceable such provision or application in any other jurisdiction.
(f) No remedy conferred upon any party by this Agreement is intended to be
exclusive of any other remedy, and each and every such remedy shall be
cumulative and shall be in addition to any other remedy given hereunder or now
or hereafter existing at law or in equity. No delay or omission by any party in
exercising any right, remedy or power hereunder or existing at law or in equity
shall be construed as a waiver thereof, and any such right, remedy or power may
be exercised by the party possessing the same from time to time and as often as
may be deemed expedient or necessary by such party in its sole discretion.
(g) This Agreement may be executed in several counterparts, each of which
is an original. It shall not be necessary in making proof of this Agreement or
any counterpart hereof to produce or account for any of the other counterparts.
(h) In the event of a lawsuit or arbitration by either party to enforce any
provisions of this Agreement, the prevailing party shall be entitled to recover
reasonable costs, expenses and attorney's fees from the other party.
24
<PAGE>
11. Controlling Law. The validity, interpretation, construction,
performance and enforcement of this Agreement shall be governed by the laws of
the State of Delaware.
IN WITNESS WHEREOF, Employee has hereunto set his hand and the Corporation
has caused this instrument to be duly executed as of the day and year first
above written.
Witness: Employee:
- ------------------------- -------------------------
Gregory A. Pratt
1125 Kaolin Rd.
Kennett Square, PA 19348
OAO Technology Solutions, Inc.
- ------------------------- By:
------------------------------
Secretary Title:
7500 Greenway Center, 16th Floor
Greenbelt, MD 20770-3522
Attention: Chairman of the Board
25
<PAGE>
Exhibit A
Benefits
1. Group Insurance. The Corporation shall provide to Employee and his family the
group life, health, dental and disability insurance coverage that the
Corporation makes available to its most senior executives from time to time. For
purposes of this Exhibit A, the term "family" shall mean the spouse of the
Employee and his dependent children who may be insured from time to time as
dependents under such policies of the Corporation.
2. Automobile. The Corporation will provide Employee with a company car or a car
allowance, not to exceed $800 per month. Employee shall be responsible for the
payment of all insurance, maintenance, repairs, gasoline and other reasonable
and necessary costs incident to the operation of such automobile.
3. Expenses. It is contemplated that, in connection with his employment
hereunder, Employee may be required to incur reasonable business, entertainment
and travel expenses. The Corporation agrees to reimburse Employee in full for
all such reasonable and necessary business, entertainment and travel expenses
incurred or expended by him in connection with the performance of his duties
hereunder; provided Employee submits to the Corporation vouchers or expense
statements satisfactorily evidencing such expenses as may be reasonably required
by the Corporation and such expenses are in accordance with any corporate policy
with respect thereto.
4. Vacation. Employee shall be entitled to a paid vacation (taken consecutively
or in segments) of 4 weeks during each fiscal year, adjusted pro rata for any
partial fiscal year during the term hereof. Such vacation may be taken at such
times as is reasonably consistent with proper performance by Employee of his
duties and responsibilities hereunder.
5. 401K Plan. Employee will be eligible to participate in the Corporation's 401K
plan immediately through voluntary contributions, which the Corporation will
match $.20 for each $1.00 contributed by Employee up to the limits contained in
the Corporation's plan.
6. Other Benefits. The Corporation will pay for one reasonable annual country
club membership fee for Employee. Nothing contained herein shall be deemed to
limit or affect the right of Employee to receive additional bonuses or other
forms of additional compensation or to participate in any retirement,
disability, profit sharing, stock option, cash or stock bonus or other plan or
arrangement, or in any other benefits now or hereafter provided by the
Corporation for its employees or executives at the sole discretion of the Board
of Directors of the Corporation.
26
11.1 STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
Basic earnings per share has been calculated as net earnings divided by
weighted-average common shares outstanding, while diluted earnings per share has
been computed as net earnings divided by weighted average common and diluted
shares outstanding. For the three and six months ended June 30, 1998, all common
equivalents of 781,000 and 857,000, respectively, were anti-dilutive and
therefore not included in the calculation of diluted earnings per share. For the
three and six months ended June 30, 1997, the Company's diluted shares
outstanding were 187,000 and 133,000, respectively, to arrive at total common
and dilutive shares outstanding of 10,187,000 and 10,133,000, respectively.
Shares outstanding are computed using the weighted-average number of shares of
common and common equivalent shares, which consist of stock options, for each
period.
27
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFOMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 17,589
<SECURITIES> 0
<RECEIVABLES> 18,698<F1>
<ALLOWANCES> (3,060)
<INVENTORY> 0
<CURRENT-ASSETS> 3,132
<PP&E> 6,130<F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 44,736
<CURRENT-LIABILITIES> 7,840
<BONDS> 791<F3>
0
0
<COMMON> 164
<OTHER-SE> 35,941
<TOTAL-LIABILITY-AND-EQUITY> 44,736
<SALES> 0
<TOTAL-REVENUES> 43,346
<CGS> 0
<TOTAL-COSTS> 36,733
<OTHER-EXPENSES> 10,108
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 381<F4>
<INCOME-PRETAX> (3,114)
<INCOME-TAX> (1,080)
<INCOME-CONTINUING> (2,034)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,034)
<EPS-PRIMARY> (0.12)
<EPS-DILUTED> (0.12)
<FN>
<F1> Shown net of allownace for uncollectible accounts on face of Consolidated
Balance Sheet.
<F2> Shown in this Financial Data Schedule net of related accumulated
depreciation for consistency with Consolidated Balance Sheet.
<F3> Represents the long-term portion of capital lease obligations.
<F4> Represents interest income of the Company.
</FN>
</TABLE>
