<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 ENDING MARCH 31, 2000
Commission file number 0-23797
COMMAND SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 06-1527672
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Pond View Corporate Center
76 Batterson Park Rd.
Farmington, CT 06032
(Address of principal executive officers) (Zip Code)
(860) 409-2000
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last
report)
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 periods 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
-
APPLICABLE ONLY CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock, $.01 Par Value -- 7,656,750 shares as of May 12, 2000
<PAGE>
COMMAND SYSTEMS, INC.
INDEX
-----
PART I Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of
March 31, 2000 and December 31, 1999........................ 1
Consolidated Statements of Operations
Three months ended March 31, 2000 and 1999.................. 2
Consolidated Statements of Cash Flows
Three months ended March 31, 2000 and 1999.................. 3
Consolidated Statements of
Stockholders' Equity........................................ 4
Notes to Unaudited Consolidated
Financial Statements........................................ 5-6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations............................................... 7-9
Item 3. Quantitative and Qualitative Disclosures
About Market Risk........................................... 9
PART II Other Information
Item 1. Legal Proceedings........................................... 9
Item 2. Changes in Securities....................................... 9
Item 3. Defaults Upon Senior Securities............................. 9
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............................ 9
Signatures.................................................. 10
<PAGE>
COMMAND SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
----------- -----------
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 2,806,742 $ 3,900,751
Marketable securities 14,366,506 14,347,828
Accounts receivable, net of allowance for doubtful accounts
of $479,520 and $500,000 in 2000 and 1999 3,743,605 3,490,764
Prepaid expenses and other current assets 464,101 197,112
Income taxes recoverable 112,298 402,528
----------- -----------
Total current assets 21,493,252 22,338,983
Equipment and improvements:
Furniture and equipment 2,978,668 2,906,685
Leasehold improvements 1,003,309 1,005,486
----------- -----------
3,981,977 3,912,171
Less accumulated depreciation and amortization (2,537,447) (2,342,874)
----------- -----------
Net equipment and improvements 1,444,530 1,569,297
Other assets:
Goodwill, net of accumulated amortization
of $1,057,577 and $931,427 in 2000 and 1999 5,931,092 6,057,241
Deposits 452,344 454,712
Other non-current assets 40,812 48,310
----------- -----------
Total assets $29,362,030 $30,468,543
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 600,797 $ 608,125
Accrued payroll and related costs 908,516 843,188
Accrued warranty 270,603 270,603
Deferred revenue 381,592 209,815
Accrued other expenses 676,080 1,181,252
----------- -----------
Total current liabilities 2,837,588 3,112,983
Stockholders' Equity:
Common stock, $.01 par value, 25,000,000 authorized,
7,656,750 issued and outstanding in 2000 and 1999 34,818 34,818
Additional paid-in-capital 33,400,480 33,400,480
Accumulated deficit (6,430,904) (5,600,105)
Accumulated other comprehensive loss (479,952) (479,633)
----------- -----------
Total stockholders' equity 26,524,442 27,355,560
----------- -----------
Total liabilities and stockholders' equity $29,362,030 $30,468,543
=========== ===========
</TABLE>
See notes to unaudited consolidated financial statements.
Note: The balance sheet at December 31, 1999 has been derived from the audited
consolidated financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
1
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COMMAND SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
----------- -----------
(unaudited)
<S> <C> <C>
Revenue $ 5,502,786 $ 6,932,411
Cost of revenue 4,046,610 5,366,725
----------- -----------
Gross profit 1,456,176 1,565,686
Selling, general and administrative expense 2,505,675 3,048,855
----------- -----------
Operating loss (1,049,499) (1,483,169)
Other income (expense):
Other income - 16,117
Interest income 241,640 256,763
Interest expense (4,690) (4,256)
----------- -----------
236,950 268,624
----------- -----------
Loss before income taxes (812,549) (1,214,545)
State income taxes (18,250) -
----------- -----------
Net loss $ (830,799) $(1,214,545)
=========== ===========
Basic and diluted loss per share $ (0.11) $ (0.16)
=========== ===========
</TABLE>
See notes to unaudited consolidated financial statements.
2
<PAGE>
COMMAND SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
---------- -----------
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (830,799) $(1,214,545)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 325,445 320,683
Bad debt expense 12,720 88,200
Loss on disposal of equipment 983 9,816
Changes in operating assets and liabilities:
Accounts receivable (277,054) (403,395)
Income taxes recoverable 289,162 -
Prepaid expenses and other current assets (254,649) (124,484)
Deposits and other non-current assets 8,595 41,424
Accounts payable and accrued other expenses (511,367) (223,710)
Accrued payroll and related costs 65,328 96,161
Deferred revenue 171,777 (43,360)
----------- -----------
Net cash used in operating activities (999,859) (1,453,210)
Cash flows from investing activities:
Purchases of equipment and improvements (77,353) (96,097)
Sales of available-for-sale securities - 1,747,455
Purchases of available-for-sale securities (12,751) (3,507,371)
----------- -----------
Net cash used in investing activities (90,104) (1,856,013)
Effect of exchange rate changes on cash (4,046) 2,077
Decrease in cash (1,094,009) (3,307,146)
Cash, beginning of period 3,900,751 16,169,749
----------- -----------
Cash, end of period $ 2,806,742 $12,862,603
=========== ===========
Cash paid for:
Income taxes $ 18,250 $ -
</TABLE>
See notes to unaudited consolidated financial statements.
3
<PAGE>
COMMAND SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated
Additional Other
Common Stock Paid in Accumulated Comprehensive
---------------------
Shares Amount Capital (Deficit) Income (Loss) Total
----------- ------- ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1999 7,656,750 $34,818 $33,400,480 $ (5,600,105) $ (479,633) $ 27,355,560
Net loss - - (830,799) - (830,799)
Other comprehensive (loss) income:
Foreign currency translation adjustment - - - - (6,245) (6,245)
Unrealized gain on marketable securities - - - - 5,926 5,926
----------- ------- ----------- ------------ ----------- ------------
Comprehensive loss (830,799) 319 (831,118)
----------- ------- ----------- ------------ ----------- ------------
Balance at March 31, 2000 7,656,750 $34,818 $33,400,480 $ (6,430,904) $ (479,952) $ 26,524,442
=========== ======= =========== ============ =========== ============
</TABLE>
See notes to unaudited consolidated financial statements.
4
<PAGE>
COMMAND SYSTEMS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
1. Business and Basis of Presentation
Command Systems, Inc. (the Company) is an information technology company which
provides a wide range of computer consulting services to large financial
services and insurance organizations, middle market companies and public sector
organizations to support their evolving business needs.
The accompanying unaudited consolidated financial statements 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, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three-month period ended March 31, 2000
are not necessarily indicative of the results that may be expected for the year-
ended December 31, 2000.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1999.
2. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per
share for the three months ended:
<TABLE>
<CAPTION>
March 31, March 31,
2000 1999
-------------------------------
<S> <C> <C>
Numerator:
Net loss $ (830,799) $(1,214,545)
Denominator:
Weighted-average shares outstanding for
basic and diluted loss per share 7,656,750 7,656,750
-------------------------------
Basic and diluted loss per share $ (0.11) $ (0.16)
===============================
</TABLE>
Options to purchase approximately 444,000 and 169,000 shares of the Company's
common stock in 2000 and 1999, respectively, were not included in the
computation of diluted earnings per share because the effect of their inclusion
would be antidilutive.
5
<PAGE>
3. Comprehensive Income
The following table sets forth comprehensive income for the three months ended:
<TABLE>
<CAPTION>
March 31, March 31,
2000 1999
--------------------------------
<S> <C> <C>
Net loss $(830,799) $(1,214,545)
Other comprehensive (loss) income:
Foreign currency translation adjustment (6,245) (4,000)
Unrealized gain on marketable securities 5,926 -
--------------------------------
Total comprehensive loss $(831,118) $(1,218,545)
================================
</TABLE>
4. Segment Reporting
The Company operates in one industry segment providing a wide range of computer
consulting services to large financial services and insurance organizations,
middle market companies and public sector organizations primarily in North
America. The Company operates in two geographic areas: the United States and
India.
<TABLE>
<CAPTION>
United
States India Elimination Consolidated
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Three months ended March 31, 2000:
Revenue $ 5,475,894 $ 127,823 $ (100,931) $ 5,502,786
Operating loss (820,394) (229,105) - (1,049,499)
Identifiable assets 26,857,492 2,504,538 - 29,362,030
Three months ended March 31, 1999:
Revenue $ 6,900,776 287,630 $ (255,995) $ 6,932,411
Operating loss (1,122,212) (360,957) - (1,483,169)
Identifiable assets 28,876,598 4,329,786 - 34,206,384
</TABLE>
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995. Statements contained in this document which are not historical fact are
forward-looking statements based upon management's current expectations that are
subject to risks and uncertainties that could cause actual results to differ
materially from those set forth in or implied by forward-looking statements.
Forward-looking statements include statements regarding the Company's expected
goals and strategies and the demand for IT services. Such statements are subject
to a number of risks including the risks associated with the failure to obtain
contracts to perform higher margin services, variability of quarterly operations
and financial results, the ability of the Company to manage growth, the
competitive market for technical personnel, reliance on significant customers,
rapid technological change, dependence on the Company's Offshore Technology
Resource Center and a variety of risks described under "Risk Factors" in the
Company's Annual Report Form on 10-K. The Company undertakes no obligation to
publicly release results of any of these forward-looking statements that may be
made to reflect events or circumstances after the date hereof or to reflect the
occurrence of unexpected results.
Three Month Period Ended March 31, 2000 Compared to Three Month Period Ended
March 31, 1999
Revenue. Revenue for the three-month period ended March 31, 2000 decreased by
20.6 % to $5,502,786 from $6,932,411 for the first quarter ended March 31, 1999.
The decrease in revenue is attributed to diminished demand for Year 2000
services, a general slowdown in the overall demand for traditional IT services
and a reduction in hardware and software sales.
Gross Profit. Gross profit for the three-month period ended March 31, 2000
decreased by 7.0% to $1,456,176 from $1,565,686 for the three-month period ended
March 31, 1999. Gross profit as a percentage of revenue increased to 26.5% for
the three-month period ended March 31, 2000 from 22.6% for the three-month
period ended March 31, 1999. The increase resulted primarily from an increase in
our higher margin service offerings offset by a smaller amount of revenue being
derived from Year 2000 solution services.
Selling, General and Administrative Expense. Selling, general and administrative
expense consists primarily of salaries and employee benefits for selling,
marketing, recruiting, human resources, finance and administrative personnel, as
well as travel, telecommunications and occupancy costs for the Company's U.S.
and India operations. These expenses are relatively fixed in advance of any
particular quarter. To the extent revenue does not increase at a rate
commensurate with these expenses, our results of operations could be materially
and adversely affected. Selling, general and administrative expense for the
quarter ended March 31, 2000 decreased 17.8% to $2,505,675 from $3,048,855 for
the quarter ended March 31, 1999. The decrease was attributable to a reduction
in support staff.
Other Income (Expense), Net. Other income (expense), net, consists primarily of
interest earned on our marketable securities from the proceeds of our initial
public offering. Other income, net, was $236,950 for the three-month period
ended March 31, 2000 compared to $268,624 for the three-month period ended March
31, 1999.
State Income Taxes. Income taxes for the three-month period ended March 31, 2000
were $18,250, which represents estimated tax payments on our capital structure.
No income taxes were recorded in the corresponding period of the prior year.
7
<PAGE>
Quarterly Results of Operations
Our revenue and operating results are subject to significant variation from
quarter to quarter depending on a number of factors, including the timing and
number of client projects commenced and completed during the quarter; the number
of working days in a quarter; employee hiring, attrition and utilization rates
and the mix of time-and-materials projects versus fixed-price projects during
the quarter. We recognize revenue on time-and-materials projects as the services
are performed, while revenue on fixed-price projects are recognized using the
percentage of completion method. Although fixed-price projects have not
contributed significantly to revenue to date, operating results may be adversely
affected in the future by cost overruns on fixed-price projects. Because a high
percentage of our expenses are relatively fixed, variations in revenue may cause
significant variations in operating results. Hiring and employment practices and
applicable law in India make it difficult for us to effect reductions in
staffing at our Bangalore, India facility. As a result, we are unable to quickly
adjust these costs in the event that our revenue is unexpectedly lower in any
quarter. Additionally, we periodically incur cost increases due to both the
hiring of new employees and strategic investments in our infrastructure in
anticipation of future opportunities for revenue growth. No assurances can be
given that our quarterly results will not fluctuate, causing a material adverse
effect on our business and financial condition.
Liquidity and Sources of Capital
Our revolving line of credit agreement for our U.S. operations, as amended
October 13, 1999, limits borrowings to a maximum of $4,000,000. The agreement
expires on October 15, 2000 and bears interest at the Bank Rate, as defined, or
the London Interbank Offered Rate plus 1.75 points. Under the terms of the
agreement, we are required, among other things, to maintain certain financial
ratios and minimum levels of net worth. In addition, Command International
Software Pvt., our wholly owned Indian subsidiary, has available borrowings
under a credit facility of approximately $176,500. At March 31, 2000, there were
no outstanding amounts under these credit facilities.
In March 1998, we issued and sold 2,200,000 shares of common stock in our
initial public offering. We received net proceeds of $24,552,000 after
underwriters' discounts and before other offering expenses of $1,341,000.
Historically, we have financed our working capital requirements through
internally generated funds, borrowings under our credit facilities and with the
proceeds from the issuance of our common stock.
At March 31, 2000 we had cash and cash equivalents and marketable securities of
$17,173,000 compared to $18,249,000 at March 31, 1999. Cash used in operating
activities for the quarter ended March 31, 2000 was $1,000,000, primarily due to
a net loss of $831,000, increases in accounts receivable and prepaid expenses
and other current assets, decreases in accounts payable and accrued expenses,
offset in part by non-cash charges of depreciation and amortization, decreases
in deposits and other non-current assets and increases in accrued payroll and
related costs and deferred revenue.
Cash used in investing activities of $90,000 for the quarter ended March 31,
2000 included $77,000 for the purchase of equipment and improvements and $13,000
of purchases of available-for-sale securities.
We believe that the net proceeds from the initial public offering, together with
other available funds, will be adequate to satisfy our current and planned
operations over the next 12 months.
Impact of the Year 2000 Issue
Previously, we discussed the nature and progress of our plans to become Year
2000 ready. In late 1999, we completed our remediation and testing of our
systems. As a result of those planning and implementation efforts, we
experienced no significant disruptions in mission critical IT and non-IT systems
and believe these systems successfully responded to the Year 2000 date change.
The costs
8
<PAGE>
incurred in connection with remediating our systems were not material. We are
not aware of any material problems resulting from Year 2000 issues, either with
our internal systems, or with products and services provided to us by third
parties. We will continue to monitor our mission critical computer applications
and those of our suppliers and vendors throughout the year 2000 to ensure that
any latent Year 2000 matters that may arise are addressed promptly.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in the information reported in our Form 10-K
for the year ended December 31, 1999 under the "Quantitative and Qualitative
Disclosures About Market Risk" section of Management's Discussion and Analysis
of Financial Condition and Results of Operations.
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in securities
None
Item 3. Defaults upon senior securities
Not applicable
Item 4. Submissions of matters to a vote of security holders
None
Item 5. Other information
None
Item 6. Exhibits and reports on Form 8-K
(a) Documents filed as part of this report
Exhibit 27. Financial Data Schedule (submitted electronically herewith)
(b) Reports on Form 8-K
No reports were filed on Form 8-K during the quarter for which this Form 10-Q
is filed.
9
<PAGE>
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.
COMMAND SYSTEMS, INC.
Date: May 12, 2000
By:
/s/ Edward G. Caputo
President, Chief Executive Officer and
Chairman of the Board (Principal Executive Officer)
/s/ Stephen L. Willcox
Executive Vice President, Chief Financial
Officer, Secretary and Director (Principal
Financial and Accounting Officer)
10
<TABLE> <S> <C>
<PAGE>
<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> 2,806,742
<SECURITIES> 14,366,506
<RECEIVABLES> 4,222,855
<ALLOWANCES> (479,520)
<INVENTORY> 0
<CURRENT-ASSETS> 21,493,252
<PP&E> 3,981,977
<DEPRECIATION> (2,537,447)
<TOTAL-ASSETS> 29,362,030
<CURRENT-LIABILITIES> 2,837,588
<BONDS> 0
0
0
<COMMON> 34,818
<OTHER-SE> 26,489,624
<TOTAL-LIABILITY-AND-EQUITY> 29,362,030
<SALES> 5,502,786
<TOTAL-REVENUES> 5,502,786
<CGS> 4,046,610
<TOTAL-COSTS> 2,505,675
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,690
<INCOME-PRETAX> (812,549)
<INCOME-TAX> (18,250)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (830,799)
<EPS-BASIC> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
