<PAGE> 1
UNITED STATES
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 period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITITES
EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File Number 0-23315
PRT GROUP INC.
(Exact name of registrant as specified in its charter)
Delaware No. 13-3914972
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification Number)
80 Lamberton Road
Windsor, Connecticut 06095
(860) 687-2200
(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
--- ---
Indicate the number of share outstanding of each of the issuer's classes of
common stock: Common Stock, par value $.001 per share, outstanding as of May 11,
2000 are 18,355,538 shares.
<PAGE> 2
PRT GROUP INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ITEM 1. Financial Statements: Page
----
<S> <C>
Consolidated Balance Sheets as of March 31, 2000
and December 31, 1999 1
Consolidated Statements of Operations
for the three months ended March 31, 2000 and 1999 2
Consolidated Statements of Cash Flows
for the three months ended March 31, 2000 and 1999 3
Notes to Consolidated Financial Statements 4
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 5-7
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 8
ITEM 2. Change in Securities 8
ITEM 3. Defaults upon senior securities Not Applicable
ITEM 4. Submission of matters to a vote of security holders 9
ITEM 5. Other Information 9
ITEM 6. Exhibits and reports on Form 8-K 10
Signatures
</TABLE>
<PAGE> 3
PRT Group Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands, except number of shares)
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
1999 2000
--------------------- ------------------------
(UNAUDITED)
ASSETS
Current assets:
<S> <C> <C>
Cash and equivalents $ 5,052 $ 3,505
Marketable securities 1,810 275
Accounts receivable, net of allowance of $529 in 1999 and $240 in 2000 8,712 8,170
Prepaid expenses and other current assets 1,203 1,075
--------------------- ------------------------
Total current assets 16,777 13,025
Fixed assets, net 6,507 5,965
Goodwill, net 16,863 16,627
Other assets 388 1,031
--------------------- ------------------------
Total assets $ 40,535 $ 36,648
===================== ========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued compensation $ 2,350 $ 1,517
Accounts payable and other accrued expenses 4,534 4,850
Current portion of capital lease obligations 227 156
Deferred revenue 632 278
--------------------- ------------------------
Total current liabilities 7,743 6,801
Note payable 1,000 1,000
Capital lease obligations, net of current portion 135 46
Deferred rent 386 365
--------------------- ------------------------
Total liabilities 9,264 8,212
Commitments - -
Series A redeemable preferred stock, $0.01 par value; authorized - 5,000,000
shares; none issued and outstanding in 1999 and 2000 - -
Common stockholders' equity:
Common stock, $.001 par value; authorized--50,000,000 shares; issued
and outstanding--18,283,642 in 1999 and 18,351,311 shares at March
31, 2000 18 18
Additional paid-in capital 86,361 86,568
Accumulated deficit (55,108) (58,150)
--------------------- ------------------------
Total common stockholders' equity 31,271 28,436
--------------------- ------------------------
Total liabilities and stockholders' equity $ 40,535 $ 36,648
===================== ========================
</TABLE>
See accompanying notes.
<PAGE> 4
PRT Group Inc. and Subsidiaries
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
1999 2000
---------------------- ----------------------
<S> <C> <C>
Revenues $ 18,541 $ 12,057
Cost of revenues 14,902 8,713
---------------------- ----------------------
Gross profit 3,639 3,344
Selling, general and administrative expenses 10,513 6,456
---------------------- ----------------------
Loss from operations (6,874) (3,112)
Other income (expense):
Interest expense (65) (41)
Interest income 90 111
---------------------- ----------------------
Net loss $ (6,849) $ (3,042)
====================== ======================
Basic and diluted net loss per share $ (.38) $ (.17)
====================== ======================
</TABLE>
See accompanying notes.
2
<PAGE> 5
PRT Group Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
1999 2000
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net loss $ (6,849) $ (3,042)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 1,235 1,011
Provision for doubtful accounts 101 10
Loss on disposal of fixed assets 28 47
Deferred rent 130 (21)
Changes in operating assets and liabilities:
Accounts receivable (325) 532
Prepaid expenses and other current assets 29 128
Other assets (17) (643)
Accrued compensation (680) (833)
Accounts payable and other accrued expenses 143 316
Deferred revenue 17 (354)
---------------------- -----------------------
Net cash used in operating activities (6,188) (2,849)
---------------------- -----------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Sale of marketable securities 48 1,535
Purchases of fixed assets (925) (292)
Proceeds from sale of fixed assets - 12
---------------------- -----------------------
Net cash (used in) provided by investing activities (877) 1,255
---------------------- -----------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Exercise of stock options - 207
Principal payments under capital lease obligations (143) (160)
---------------------- -----------------------
Net cash (used in) provided by financing activities (143) 47
---------------------- -----------------------
Net decrease in cash and equivalents (7,208) (1,547)
Cash and equivalents at beginning of period 14,772 5,052
---------------------- -----------------------
Cash and equivalents at end of period $ 7,564 $ 3,505
====================== =======================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ 45 $ 36
====================== =======================
Income taxes paid $ 81 $ 3
====================== =======================
</TABLE>
See accompanying notes.
3
<PAGE> 6
PRT GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation
The unaudited consolidated financial statements presented herein have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
the accompanying consolidated financial statements include all adjustments
(consisting only of normal recurring accruals) considered necessary for a
fair presentation of the financial condition and results of operations for
the periods presented. The results of operations for the three month period
ended March 31, 2000 are not necessarily indicative of the results that may
be expected for the year ending December 31, 2000. The statements should be
read in conjunction with the audited consolidated financial statements and
notes thereto included in the PRT Group Inc. (the "Company") Annual Report
on form 10-K for the year ended December 31, 1999.
2. Principles of Consolidation
The accompanying financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany balances
and transactions have been eliminated in consolidation.
3. Subsequent Event
On April 13, 2000, the Company issued 8,000,000 shares of its Series A
Senior Participating Convertible Preferred Stock ("Preferred Stock") for
$8,000,000. The Company also issued a warrant to the Preferred Stock
investors to purchase 4,000,000 shares of the Company's common stock at an
initial exercise price of $1.00 per share subject to adjustment, as
defined. The Preferred Stock is convertible, subject to adjustment, as
defined, into common stock on a one for one basis at any time and is
redeemable after April 14, 2005 at the option of the holder at its
liquidation value plus accrued and unpaid dividends. Each warrant is
convertible into one share of common stock prior to April 14, 2005 at the
option of the holder. The guaranteed discount on the conversion of the
Preferred Stock and the value of the warrants, aggregating approximately
$5,700,000, was deemed to be a dividend for purpose of calculating earnings
(loss) per share. Accordingly, such deemed dividend will be recorded as a
reduction to amounts available to common shareholders during the quarter
ending June 30, 2000.
4
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Revenue. Revenues decreased $6.5 million during the three month period ended
March 31, 2000 to $12.1 million compared to the comparable period in 1999 of
$18.5 million. The number of IT professionals (including subcontractors) in the
first quarter ended March 31, 2000 was 345 in comparison to 639 in the first
quarter ended March 31, 1999 and 376 on December 31, 1999. The decrease in
revenue was a result of the non-renewal of certain client assignments coupled
with the slower than expected resumption of programs after the change in the
millennium and the elimination of the Institute for Software Process Improvement
("ISPI"). The decrease in billable consultants was due to the decrease in
revenue, coupled with the reduction in workforce due to low utilization.
Cost of Revenues. Cost of revenues decreased to $8.7 million for the three month
period ended March 31, 2000 from $14.9 million in the comparable period in 1999.
As a percentage of revenues, cost of revenues decreased to approximately 72% in
the three month period ended March 31, 2000 from approximately 80% in the
comparable period in 1999. The decrease in cost of revenues was attributable to
the overall decrease in revenues, together with a reduction in professionals and
the elimination of the direct costs associated with the ISPI revenues.
Gross Profit. For the reasons set forth above, gross profit increased as a
percentage of revenues to approximately 28% in the three month period ended
March 31, 2000 from 20% for the comparable period in 1999.
Selling, General & Administrative Expenses. SG&A expenses decreased
approximately 39% to $6.5 million in the three month period ended March 31, 2000
from $10.5 million for the comparable period in 1999. As a percentage of
revenues, SG&A expenses decreased to approximately 54% in the three months ended
March 31, 2000 from approximately 57% for the comparable period in 1999. The
decrease in SG&A expenses resulted from cost cutting measures undertaken offset
by increased marketing expenditures. Personnel costs were reduced through the
introduction of a new commission structure, discontinuation of employee
relocation programs, the elimination of search and recruiting fees and the
elimination of the ISPI operations, offset by severance costs associated with
the 33% reduction in the administrative workforce.
5
<PAGE> 8
Loss from Operations: For the reasons set forth above, loss from operations for
the first quarter ended March 31, 2000 was $3.1 million as compared to a loss
from operations of $6.9 million in the comparable period in 1999. As a
percentage of revenues, the loss from operations for the first quarter ended
March 31, 2000 decreased to (26%) compared to approximately (37%) in the
comparable period in 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital decreased to approximately $6.2 million at March
31, 2000 from $9.0 million at December 31, 1999. Cash and equivalents and
marketable debt securities were $3.8 million at March 31, 2000 compared to $6.9
million at December 31, 1999. The primary use of cash during the three months
ended March 31, 2000 was to fund a net loss of $3.0 million. The Company's
accounts receivable were $8.7 million at December 31, 1999 and $8.2 million at
March 31, 2000. Billed days sales outstanding were 63 days at December 31, 1999
and 60 days at March 31, 2000.
In August 1999 PRT entered into a loan and security agreement with Bank of
America the proceeds of which are to be used for general working capital. The
initial maturity date of the loan is August 4, 2001, however, PRT may terminate
prior to that date on 30 days written notice to Bank of America, plus an early
termination fee of 1% of the Maximum Facility Amount. The maximum loan facility
is based on the amount of eligible accounts receivable of the Company. This loan
is secured by a security interest in all of PRT's tangible and intangible
personal property, and a first and only security interest in and lien on all of
PRTs fixed assets; and a first and only security interest in and pledge of all
of PRTs stock of its foreign subsidiaries. The maximum loan amount is
$13,500,000; however; the actual amount the Company may borrow is substantially
less due to restrictions on its eligible accounts receivable, as defined. In
addition, the PRT cumulative net loss before interest, taxes, depreciation and
amortization for the period from July 1, 1999 through August 4, 2001 cannot
exceed $4,500,000. As of March 31, 2000 the current availability ranges from
$500,000 to $1,200,000. As of March 31, 2000, there was nothing outstanding
under this credit facility.
6
<PAGE> 9
On April 13, 2000, the Company issued 8,000,000 shares of its Series A Senior
Participating Convertible Preferred Stock ("Preferred Stock") for $8,000,000.
The Company also issued a warrant to the Preferred Stock investors to purchase
4,000,000 shares of the Company's common stock at an initial exercise price of
$1.00 per share subject to adjustment, as defined. The Preferred Stock is
convertible, subject to adjustment, as defined, into common stock on a one for
one basis at any time and is redeemable after April 14, 2005 at the option of
the holder at its liquidation value plus accrued and unpaid dividends. Each
warrant is convertible into one share of common stock prior to April 14, 2005 at
the option of the holder. The guaranteed discount on the conversion of the
Preferred Stock and the value of the warrants, aggregating approximately
$5,700,000, was deemed to be a dividend for purpose of calculating earnings
(loss) per share. Accordingly, such deemed dividend will be recorded as a
reduction to amounts available to common shareholders during the quarter ending
June 30, 2000.
The Company anticipates that its primary uses of working capital in the near
term will be the expansion of its lines of business, primarily e-business and
outsourcing, and to continue to fund the Company's operations. Management
believes that the cash and equivalents, marketable securities and the proceeds
from the sale of the Preferred Stock is sufficient to fund operations for the
next twelve months. If cash generated from operations is insufficient to satisfy
the Company's liquidity requirements, the Company may in the future be required
to seek additional sources of financing, including borrowing and/or sale of
equity securities resulting in further dilution to shareholders. No assurance
can be given that any such additional sources of financing will be available on
acceptable terms.
7
<PAGE> 10
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.
The Company, certain of its officers and directors and certain allegedly
controlling shareholders of the Company have been named as defendants in a
purported securities class action lawsuit filed on September 16, 1998 in the
United States District Court for the Southern District of New York (the
"Court"). The complaint purports to be brought on behalf of all shareholders who
purchased the Company's common stock from November 21, 1997 through March 5,
1998. The complaint asserts that defendants violated certain sections of the
Securities Act of 1933 by purportedly misrepresenting and/or omitting material
information concerning PRT's business and operations in the registration
statement and prospectus issued in connection with PRT's initial public offering
on or about November 21, 1997. The lawsuit seeks unquantified compensatory
damages, pre-and post-judgment interest, attorneys' fees, expert witness fees
and other costs, rescission, equitable relief and such other and further relief
as the Court may find proper. On April 14, 1999 PRT filed a motion to dismiss
the case. On March 28, 2000, the Company's motion to dismiss the class action
lawsuit was granted by the Court. The plaintiffs' request for leave to amend the
amended complaint was also denied.
ITEM 2. Change in Securities.
On April 13, 2000, the Company issued 8,000,000 shares of its Series A Senior
Participating Convertible Preferred Stock ("Preferred Stock") for $8,000,000.
The Company also issued a warrant to the Preferred Stock investors to purchase
4,000,000 shares of the Company's common stock at an initial exercise price of
$1.00 per share subject to adjustment, as defined. The Preferred Stock is
convertible, subject to adjustment, as defined, into common stock on a one for
one basis at any time and is redeemable after April 14, 2005 at the option of
the holder at its liquidation value plus accrued and unpaid dividends. Each
warrant is convertible into one share of common stock prior to April 14, 2005 at
the option of the holder. The guaranteed discount on the conversion of the
Preferred Stock and the value of the warrants, aggregating approximately
$5,700,000, was deemed to be a dividend for purpose of calculating earnings
(loss) per share. Accordingly, such deemed dividend will be recorded as a
reduction to amounts available to common shareholders during the quarter ending
June 30, 2000.
ITEM 3. Defaults Upon Senior Securities.
None.
8
<PAGE> 11
PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders.
(a) The Company's annual stockholder's meeting was held on May 11, 2000.
Proxies were solicited for the election of directors pursuant to
Regulation 14 under the Securities Exchange Act of 1934 and director's
nominees were elected without opposing proxy solicitation.
1. Robert D. Forlenza was elected a Class II Director with
15,829,662 affirmative votes, 324,658 negative votes and 60,300
abstentions. Irwin Sitkin was elected a Class II Director with
15,829,262 affirmative votes, 325,058 negative votes and 60,700
abstentions. Dan S. Woodward was elected a Class II Director with
15,889,962 affirmative votes, 264,358 negative votes and 0
abstentions.
2. The appointment of Ernst & Young LLP as the Company's Independent
Accountants for the year ending December 31, 2000 was approved
with 16,138,970 affirmative votes, 13,150 negative votes and
2,200 abstentions.
ITEM 5. Other Information.
The Company has learned that Prudential Insurance Company of
America ("Prudential") will not renew the Company's status as a
preferred vendor. Prudential has not terminated any engagements
or its Consulting Services Agreement with the Company. The
Company believes that loss of preferred vendor status may mean no
new engagements for PRT.
Prudential was the Company's top customer in 1999 producing $12.2
million in revenue. For the three months ended March 31, 2000,
revenue from the Prudential relationship was $1.78 million
representing 14.8% of revenue for the quarter. The Company has
reason to believe that its business at Prudential may gradually
decline over time.
9
<PAGE> 12
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Form S - 3 filed May 5, 2000
10
<PAGE> 13
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 thereunto duly authorized.
PRT GROUP INC.
DATE May 15, 2000 BY /s/ Dan S. Woodward
------------- ----------------------------------------
Dan S. Woodward
President and Chief Executive Officer
DATE May 15, 2000 BY /s/ Rocco Mitarotonda
------------- ----------------------------------------
Rocco Mitarotonda
Chief Financial Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 3,505,000
<SECURITIES> 275,000
<RECEIVABLES> 8,410,000
<ALLOWANCES> 240,000
<INVENTORY> 0
<CURRENT-ASSETS> 13,025,000
<PP&E> 15,947,000
<DEPRECIATION> 9,982,000
<TOTAL-ASSETS> 36,648,000
<CURRENT-LIABILITIES> 6,801,000
<BONDS> 0
0
0
<COMMON> 18,000
<OTHER-SE> 28,418,000
<TOTAL-LIABILITY-AND-EQUITY> 36,648,000
<SALES> 0
<TOTAL-REVENUES> 12,057,000
<CGS> 8,713,000
<TOTAL-COSTS> 8,713,000
<OTHER-EXPENSES> 6,456,000
<LOSS-PROVISION> 10,000
<INTEREST-EXPENSE> 41,000
<INCOME-PRETAX> (3,042,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,042,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,042,000)
<EPS-BASIC> (.17)
<EPS-DILUTED> (.17)
</TABLE>
