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, 2000.
or
[] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to __________________
Commission File Number: 000-24391
TECHNISOURCE, INC.
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
FLORIDA 59-2786227
--------------------------------- ---------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
1901 W. CYPRESS CREEK ROAD, SUITE 200, FORT LAUDERDALE, FL 33309
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(Address of principal executive offices) (Zip Code)
(954) 493-8601
----------------------------------------------------
(Registrant's telephone number, including area code)
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(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 period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
The number of shares outstanding of common stock as of July 31, 2000
was 10,331,600.
<PAGE>
TECHNISOURCE, INC. AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Page
----
Condensed Consolidated Balance Sheets as of June 30,
2000 (Unaudited) and December 31, 1999 1
Condensed Consolidated Statements of Income for the Three
and Six Months Ended June 30, 2000 (Unaudited) and 1999
(Unaudited) 2
Condensed Consolidated Statements of Cash Flows for the Three
and Six Months Ended June 30, 2000 (Unaudited) and 1999
(Unaudited) 3
Notes to Condensed Consolidated Financial Statements
(Unaudited) 4-8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9-16
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TECHNISOURCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------ ------------
(Unaudited)
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 8,892,813 $ 17,353,780
Trade accounts receivable, less allowance for doubtful
accounts of $961,466 and $639,933 as of June 30, 2000
and December 31, 1999, respectively 28,717,845 18,558,024
Due from shareholders and employees 363,533 348,606
Prepaid expenses and other current assets 599,087 613,669
Notes receivable 151,188 --
Prepaid income taxes 1,317,372 415,350
Deferred tax asset, current 453,011 453,011
------------ ------------
Total current assets 40,494,849 37,742,440
Property and equipment, net 2,554,672 2,353,570
Other assets 298,869 360,340
Intangible assets 6,336,648 --
Deferred tax asset, noncurrent 128,148 128,148
------------ ------------
Total assets $ 49,813,186 $ 40,584,498
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,147,969 $ 369,199
Accrued liabilities 6,442,841 3,609,392
Line of credit 3,750,000 --
Notes payable 1,000,000 --
------------ ------------
Total current liabilities 12,340,810 3,978,591
Shareholders' equity:
Common stock, $0.01 par value, 50,000,000 shares authorized,
10,385,000 issued as of June 30, 2000 and December 31, 1999 103,850 103,850
Additional paid-in capital 30,193,832 30,129,248
Retained earnings 7,456,838 6,522,809
Less: Treasury stock, 58,400 and 25,000 shares as of June 30, 2000
and December 31, 1999, respectively (282,144) (150,000)
------------ ------------
Total shareholders' equity 37,472,376 36,605,907
------------ ------------
Total liabilities and shareholders' equity $ 49,813,186 $ 40,584,498
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
1
<PAGE>
TECHNISOURCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
------------------------------ ------------------------------
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Revenues
IT Staffing $ 34,640,002 $ 31,614,046 $ 64,687,752 $ 61,614,331
Hardware Sales 1,882,554 3,401,920 2,557,456 $ 9,002,923
Hardware Commissions 370,275 141,989 733,435 303,768
------------ ------------ ------------ ------------
36,892,831 35,157,955 67,978,643 70,921,022
Cost of revenues
IT Staffing 24,771,743 23,250,148 47,169,012 45,994,937
Hardware 1,608,560 3,004,026 2,181,709 8,154,765
------------ ------------ ------------ ------------
26,380,303 26,254,174 49,350,721 54,149,702
Gross profit 10,512,528 8,903,781 18,627,922 16,771,320
Selling, general and
administrative expenses 9,463,561 7,749,473 17,253,335 13,460,018
------------ ------------ ------------ ------------
Operating income 1,048,967 1,154,308 1,374,587 3,311,302
Other income (expense):
Interest and other income 186,422 195,077 410,557 419,651
Interest expense (125,569) -- (174,746) --
------------ ------------ ------------ ------------
Income before taxes 1,109,820 1,349,385 1,610,398 3,730,953
Provision for income taxes 465,901 539,754 676,369 1,492,381
------------ ------------ ------------ ------------
Net income $ 643,919 $ 809,631 $ 934,029 $ 2,238,572
============ ============ ============ ============
Net income per share - basic $ 0.06 $ 0.08 $ 0.09 $ 0.22
============ ============ ============ ============
Net income per share - diluted $ 0.06 $ 0.08 $ 0.09 $ 0.21
============ ============ ============ ============
Weighted average common shares
outstanding - basic 10,342,138 10,367,917 10,350,707 10,375,833
============ ============ ============ ============
Weighted average common shares
outstanding - diluted 10,474,165 10,506,628 10,496,388 10,532,210
============ ============ ============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE>
TECHNISOURCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30,
------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 934,029 $ 2,238,572
Adjustment to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 712,262 674,832
Deferred compensation 64,584 64,584
Changes in assets and liabilities:
Increase in accounts receivable (8,564,504) (4,890,399)
Increase in note receivable (1,188) --
Increase in due from shareholders and employees (14,927) (217,363)
Decrease (increase) in prepaid expenses and other assets 153,748 (928,624)
Increase in prepaid income taxes (902,022) --
Increase in accounts payable 476,519 2,057,585
Increase in accrued liabilities 1,615,971 879,087
Decrease in income tax payable -- (478,018)
------------ ------------
Net cash used in operating activities (5,525,529) (599,744)
Cash flows from investing activities:
Purchases of property and equipment (686,398) (850,678)
Acquisitions of businesses, net of cash acquired (5,716,896) --
------------ ------------
Net cash used in investing activities (6,403,294) (850,678)
------------ ------------
Cash flows from financing activities:
Borrowings on line of credit 3,750,000 --
Distribution to shareholders -- (70,084.00)
Purchase of treasury stock (132,144) (150,000)
Issuance of note receivable (150,000) --
------------ ------------
Net cash provided by (used in) financing activities 3,467,856 (220,084)
------------ ------------
Net decrease in cash and cash equivalents (8,460,967) (1,670,506)
Cash and cash equivalents, beginning of period 17,353,780 17,545,183
------------ ------------
Cash and cash equivalents, end of period $ 8,892,813 $ 15,874,677
============ ============
Supplemental disclosure of cash flow information:
Interest paid $ 363,775 $ --
============ ============
Taxes paid $ 1,578,391 $ 1,970,399
============ ============
Supplemental disclosure of MDS Consulting acquisition:
Total purchase price $ 932,567
Less:
Property and equipment (10,786)
Other asset (3,355)
------------
Amount included in goodwill $ 918,426
============
Supplemental disclosure of Prism acquisition:
Total purchase price, net of cash acquired $ 4,584,329
Less:
Accounts receivable valuation (1,595,317)
Fixed asset valuation (36,369)
Prepaid expenses and other assets valuation (71,100)
Add:
Accounts payable 302,251
Accrued liabilities 1,217,478
------------
Amount included in goodwill $ 4,401,272
============
Supplemental disclosure of Broadreach (Phoenix) acquisition:
Total purchase price $ 1,200,000
Less:
Property and equipment (57,480)
Deposits (3,239)
Other intangibles (100,000)
------------
Amount included in goodwill $ 1,039,281
============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
TECHNISOURCE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. General
Organization and Description of Business
The accompanying condensed consolidated financial statements include
Technisource, Inc. and its wholly owned subsidiaries (the "Company"). The
subsidiaries include TSRC.net, Inc., TSRC of Florida, Inc., Technisource
Hardware, Inc., and former subsidiaries, Technisource of Florida, Inc.,
Technisource Midwest, Inc. and DFI Acquisition Corp.
The Company is primarily an information technology ("IT") staffing
services and consulting firm, providing IT, e-commerce and web development
professionals principally on a time and materials basis to organizations with
complex IT needs. As of June 30, 2000, the Company had 32 branch office
locations.
Interim Financial Data
The interim financial data as of June 30, 2000, and for the three and
six months ended June 30, 2000 and 1999 is unaudited and has been prepared in
accordance with generally accepted accounting principles for interim financial
reporting purposes and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Certain information and footnote disclosures normally included
in annual financial statements prepared in accordance with generally accepted
accounting principles have been omitted pursuant to such rules and regulations.
The information reflects all adjustments, consisting only of normal recurring
entries, that, in the opinion of management, are necessary to present fairly the
financial position, results of operation and cash flows of the Company for the
periods indicated. Results of operations and cash flows for the interim periods
are not necessarily indicative of the results of operations or cash flows for
the full fiscal year. These condensed consolidated financial statements should
be read in conjunction with the Company's Financial Statements and the notes
thereto for the year ended December 31, 1999, included in the Company's annual
report on Form 10-K.
Reclassifications
Certain reported amounts for 1999 have been reclassified to conform to
the 2000 presentation.
2. Acquisitions
Acquisition of MDS Consulting Services, Inc.
On February 18, 2000, the Company, through a wholly owned subsidiary,
completed the acquisition of the assets of MDS Consulting Services, Inc., an IT
staffing company, for approximately $800,000 in cash plus acquisition fees. Up
to an additional $975,000 cash
4
<PAGE>
TECHNISOURCE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
consideration may be paid in the form of an earn-out payable over three years
based on certain specified criteria. The transaction was accounted for under the
purchase method of accounting.
Acquisition of PRISM Group Consulting, LLC and PRISM Group, LLC
On March 1, 2000, the Company acquired substantially all of the assets
and certain liabilities of PRISM Group Consulting, LLC and PRISM Group, LLC, IT
staffing companies, for approximately $4,770,000 cash and a promissory note in
the amount of $1,000,000 which matures February 28, 2001. In connection with the
acquisition, the Company utilized $3,750,000 of the bank line of credit. (Note
5) The transaction was accounted for under the purchase method of accounting.
The proforma effect of the acquisition as if it occurred on January 1, 2000 and
January 1, 1999 is as follows:
June 30,
--------------------------------
2000 1999
-------------- --------------
Revenue $ 69,677,201 $ 75,608,101
Net Income $ 921,212 $ 2,577,626
Net Income per share - basic $ 0.09 $ 0.25
Net Income per share - diluted $ 0.09 $ 0.24
Acquisition of Broadreach Consulting, Inc.
On June 1, 2000, the Company completed the first phase of the
acquisition of the assets of Broadreach Consulting, Inc., an IT staffing,
consulting and augmentation services company, for approximately $650,000 in
cash. Up to an additional $550,000 cash consideration may be paid as a
post-closing payment, which has been accrued for as part of the purchase price
of the first phase as it appears probable it will be paid. The transaction was
accounted for under the purchase method of accounting. The second phase of the
acquisition is pending for approximately $1,050,000 in cash at the closing with
an additional post-closing cash payment of up to $1,050,000.
5
<PAGE>
TECHNISOURCE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. Summary of Significant Accounting Policies
Intangible Assets
Intangible assets represent the excess of the purchase price over the
fair value of acquired tangible nets assets for the acquisition of PRISM Group
Consulting, LLC, PRISM Group, LLC, MDS Consulting Services, Inc., and Broadreach
Consulting, Inc. Intangible assets are allocated to identifiable intangible
assets such as noncompete agreements which are amortized on a straight-line
basis over three to five years and to goodwill, which is being amortized on a
straight-line basis over fifteen years.
Revenue Recognition
The Company generally recognizes services revenue at the time services
are performed. The Company generally recognizes product and related service
revenue at the time of shipment to the customer. However, when the Company does
not take title to the product, revenue is recognized as commission revenue when
the customer receives the product.
Business Risks and Concentration
The Company's operations depend upon, among other things, the Company's
ability to attract, develop and retain a sufficient number of highly skilled
professional employees. The IT service industry is highly competitive and served
by numerous national, regional, and local firms, all of which are either
existing or potential competitors of the Company. Many of these competitors have
substantially greater financial, technical and marketing resources and greater
name recognition than the Company.
The Company provides IT professional services to customers located in
the United States and Canada. The Company's revenue is generated from a limited
number of clients in specific industries. Future operations may be affected by
the Company's ability to retain these clients and the cyclical and economic
factors that could have an impact on those industries. Financial instruments,
which potentially expose the Company to concentrations of credit risk, consist
primarily of accounts receivable. Additionally, the Company maintained
approximately $8.9 million at June 30, 2000 in one financial institution, which
is in excess of the FDIC insured limits.
4. Contingent Liability
The Company is currently undergoing a review by the Department of
Labor. Although Management believes the ultimate outcome of the review will not
have an adverse material effect on the Company's results of operations or
financial position, the outcome and effect of the review cannot yet be
determined.
6
<PAGE>
TECHNISOURCE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5. Line of Credit
On March 9, 1999, the Company established a line of credit with a bank
that provides for maximum borrowings of up to $25 million, $10 million of which
may be used for acquisitions and $15 million of which may be used for working
capital. Interest is payable monthly at a variable rate of LIBOR plus 1.4%. The
line of credit expires January 31, 2002. In connection with the acquisition of
PRISM Group, LLC and PRISM Group Consulting, LLC the Company utilized $3.75
million of the line of credit which is outstanding at June 30, 2000.
6. Earnings Per Share
Basic earnings per share is computed by dividing net income
attributable to common shares by the weighted average number of common shares
outstanding during the period. Diluted earnings per share is computed by
dividing net income attributable to common shares by the weighted average number
of common shares outstanding during the period increased to include the number
of additional common shares that would have been outstanding if the diluted
common shares had been issued. The dilutive effect of outstanding options is
reflected in diluted earnings per share by application of the treasury stock
method.
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
Basic:
Weighted average common
shares outstanding 10,342,138 10,367,917 10,350,707 10,357,833
========== ========== ========== ==========
Diluted:
Weighted average common
shares outstanding 10,342,138 10,367,917 10,350,707 10,357,833
Dilutive effect of options 132,027 138,711 145,681 156,377
---------- ---------- ---------- ----------
Total 10,474,165 10,506,628 10,496,388 10,532,210
========== ========== ========== ==========
7. Stock Repurchase Plan
On April 22, 1999, the Company's Board of Directors approved a Stock
Repurchase Plan pursuant to which the Company can repurchase up to $1 million of
the Company's common stock on the open market. As of June 30, 2000, the Company
had repurchased 53,400 shares of its common stock at an aggregate cost to the
Company of $282,144.
7
<PAGE>
TECHNISOURCE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
8. Reportable Segment
The Company operates in two business segments: IT Staffing and Computer
Hardware Sales. The segment information set forth below is based on the nature
of the services offered. The chief operating decision-makers evaluate each
segment's performance based primarily on their revenues, gross margin and
operating income. The accounting policies of the operating segments are the same
as those of the entire Company.
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
-------------------------- --------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues(1)
IT Staffing $34,640,002 $31,614,046 $64,687,752 $61,614,331
Hardware Sales and
Commissions 2,252,829 3,543,909 3,290,891 9,306,691
----------- ----------- ----------- -----------
$36,892,831 $35,157,955 $67,978,643 $70,921,022
=========== =========== =========== ===========
Income Before Taxes(2)
IT Staffing $ 997,101 $ 1,166,077 $ 1,431,473 $ 3,213,612
Hardware Sales and
Commissions 112,719 183,308 178,925 517,341
----------- ----------- ----------- -----------
$ 1,109,820 $ 1,349,385 $ 1,610,398 $ 3,730,953
=========== =========== =========== ===========
<FN>
--------
(1) Two of the Company's clients accounted for approximately 11.4% and
6.6%, respectively, of the Company's hardware sales for the period
ended June 30, 2000.
(2) Since all expenses have not been allocated to the hardware sales
segment, this basis is not necessarily a measure completed in
accordance with generally accepted accounting principles and may not be
comparable to other companies.
</FN>
</TABLE>
8
<PAGE>
TECHNISOURCE, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Certain statements contained in this Form 10-Q, principally in this
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," that are not related to historical results, including statements
relating to working capital, costs of setting up new branch offices,
profitability of branch offices, and the effect of liability, if any, imposed on
the Company by the Department of Labor are forward-looking statements. These
forward-looking statements involve a number of risks and uncertainties,
including, without limitation, the Company's ability to recruit and retain
qualified technical professionals; identify, acquire and integrate suitable
acquisition candidates; obtain sufficient working capital to support such
growth; compete successfully with existing and future competitors; the ability
of new branch offices to achieve profitability and other factors described in
this Form 10-Q and in the Form 10-K for the year ended December 31, 1999 filed
with the Securities and Exchange Commission. The actual results that the Company
achieves may differ materially from any forward-looking statements due to such
risks and uncertainties. Words such as "believes," "anticipates," "expects,"
"intends," and similar expressions are intended to identify forward-looking
statements, but are not the exclusive means of identifying such statements. The
Company undertakes no obligation to revise any forward-looking statements in
order to reflect events or circumstances that may arise after the date of this
report. Readers are urged to carefully review and consider the various
disclosures made by the Company in this report and in the Company's other
reports filed with the Securities and Exchange Commission that attempt to advise
interested parties of the risks and factors that may affect the Company's
business.
OVERVIEW
Technisource is a national provider of IT staffing services through 32
offices in the United States and Canada, utilizing over 1,250 highly trained
professionals. The Company has achieved a compound annual revenue growth rate of
56% over the past five years based on years-ended 1994 through 1999. This growth
rate has been generated internally, without the benefit of acquisitions.
The Company's revenues grew from $29.1 million in 1995 to $144.7
million in 1999. The Company's historical revenue growth during this period has
been driven primarily by increases in the number of professionals placed with
existing and new clients. The number of professionals utilized by the Company
grew from 320 as of December 31, 1995, to 1,163 as of December 31, 1999, and to
1,258 as of June 30, 2000. For each of 1999, 1998, and 1997, clients from the
previous year generated at least 70% of the Company's revenues.
Through 1999, the Company generated primarily all of its revenues from
fees for the provision of IT Staffing. For the period ended June 30, 2000, the
Company generated 95.2% of its revenues from fees for the provision of IT
professional services and 4.8% from hardware sales.
With respect to IT professional services, clients are typically billed
and professionals paid on a weekly basis. The Company recognizes revenues from
IT professional services as they are performed. With respect to hardware sales,
clients are typically billed on a weekly basis. The
9
<PAGE>
TECHNISOURCE, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Company recognizes revenues from hardware sales when the title to the computer
hardware passes to the customer.
The Company's most significant cost is its personnel expense, which
consists primarily of salaries, fees and benefits of the Company's
professionals. To date, the Company has generally been able to maintain its
gross profit margin by offsetting increases in professional salaries and fees
with increases in the hourly billing rates charged to clients. However, there
can be no assurance that the Company will continue to be able to offset
increases in the Company's cost of revenues by increasing the amounts the
Company bills to its clients. The Company attempts to control overhead and
indirect expenses, which are not directly passed through to its clients, by
controlling the rate of its branch office expansion and by maintaining
centralized operations and back-office infrastructure.
The Company increased its administrative, sales, recruiting and
training professionals from 207 employees on December 31, 1997 to 324 employees
on December 31, 1999, and to 344 at June 30, 2000.
Over the last ten years, the Company has developed and refined the
Technisource Growth Model, which is focused on facilitating rapid internal
growth through the replication of Development Triangles. Each Development
Triangle is typically comprised of one Account Manager, two or three recruiting
professionals and a group of IT professionals. The Company has grown from 9
Development Triangles as of December 31, 1995 to 62 Development Triangles as of
December 31, 1999. This number remained constant at 62 as of June 30, 2000.
Although the Company's operating margins may be adversely affected during
periods following relatively large increases in the number of the Company's
Development Triangles, the Company leverages its initial investment in
infrastructure as Development Triangles mature and the Company's sales and
recruiting personnel achieve greater levels of productivity.
The Company anticipates that each new branch office will require an
investment of approximately $100,000 to $150,000 in order to begin operations
and fund operating losses for an initial ten-to-twelve month period of
operations, which is the amount of time management believes should generally be
required for a new office to achieve profitability. The Company expenses the
costs of opening a new office as such expenses are incurred. The Company
anticipates continuing to leverage its current network of 32 branch offices, as
the start-up costs have already been expensed and additional start-up branch
office costs will constitute a smaller percentage of revenues as the Company
continues to increase its revenue base. There can be no assurance that new
Development Triangles or branch offices will be profitable within projected time
frames or at all.
The Company's computer hardware sales were approximately $2.3 million
in the three months ended June 30, 2000 compared to approximately $3.5 million
in the same period of 1999. The gross margin on the sale of computer hardware
has increased substantially as a percentage of sales, exclusive of hardware
commissions, to 14.6% in the three months ended June 30, 2000
10
<PAGE>
TECHNISOURCE, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
from 11.7% for the same period in 1999. This increase is directly attributable
to the amount of hardware sales recognized as commission revenue as opposed to
direct sales.
The following table set forth for the periods indicated, depicts the
percentage of revenues of certain items reflected in the Company's statements of
income:
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------------------- --------------------------------
2000 1999 2000 1999
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Staffing Revenues 93.9 % 89.9 % 95.2 % 86.9 %
Hardware Revenues 6.1 % 10.1 % 4.8 % 13.1 %
------------ ------------ ------------- -------------
Total Revenues 100.0 % 100.0 % 100.0 % 100.0 %
Cost of Revenues
Staffing Cost of Revenues 67.1 % 66.1 % 69.4 % 64.8 %
Hardware Costs of Revenues 4.4 % 8.6 % 3.2 % 11.5 %
------------ ------------ ------------- -------------
Gross profit 28.5 % 25.3 % 27.4 % 23.7 %
Selling, general and administrative expenses 25.7 % 22.0 % 25.4 % 19.0 %
------------ ------------ ------------- -------------
Operating income 2.8 % 3.3 % 2.0 % 4.7 %
Interest and other incomes 0.5 % 0.5 % 0.6 % 0.6 %
Interest expense (0.3) % 0.0 % (0.2) % 0.0 %
------------ ------------ ------------- -------------
Income before income taxes 3.0 % 3.8 % 2.4 % 5.3 %
Income taxes 1.3 % 1.5 % 1.0 % 2.1 %
------------ ------------ ------------- -------------
Net Income 1.7 % 2.3 % 1.4 % 3.2 %
</TABLE>
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999
Revenues
IT Professional Division. The Company's IT Professional Division
revenues increased to $34.6 million for the three months ended June 30, 2000 as
compared to $31.6 million for the same period in 1999, a 9.6% increase. Growth
in the second quarter occurred due to an increase in the amount of client
divisions and business units billed and an increase in billable IT
professionals. The total number of client divisions and business units billed
for the IT Professional Division increased to 580 in the three months ended June
30, 2000, from 372 in the three months ended June 30, 1999. The number of IT,
e-commerce and web development professionals working for the Company increased
to 1,258 as of June 30, 2000 from 1,161 as of June 30, 1999. Subsequent growth
occurred in the second quarter with the acquisition of additional staff and
facilities in Arizona and Florida.
Hardware Division. The Company's Hardware Division revenues decreased
to $2.3 million in the three months ended June 30, 2000 from $3.5 million for
the same period in 1999. During the first quarter of 2000, the Company
experienced a change in the method of delivery of its
11
<PAGE>
TECHNISOURCE, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
products. Increasingly, product is drop-shipped from the Company's vendors to
the Company's clients. Since the Company does not take title to product which is
being drop-shipped, the revenue from this type of sale is considered to be
commission revenue and as such is reported net of related expenses. The change
in the type of revenue recognized reduced gross revenue for the period reported
by $1.1 million. The total number of hardware clients increased to 169 from 130
for the three months ended June 30, 2000.
Gross Profit
IT Professional Division. Gross profit consists of revenues less cost
of revenues. The Company's IT Professional Division cost of revenues consists
primarily of salary, benefits and expenses for the Company's IT, e-commerce and
web development professionals and other direct costs associated with providing
services to clients. Gross profit increased 18.0% to $9.9 million for the three
months ended June 30, 2000 from $8.4 million for the same period in 1999. As a
percentage of staffing revenue, gross profit increased to 28.5% in the second
quarter of 2000 compared to 26.5% for the three months ended June 30, 1999. The
increase in gross profit is directly attributable to a heightened focus on
higher value placements and skill sets. The IT Professional Division's
utilization rate for the three months ended June 30, 2000 was 98.9% compared to
98.6% for the three months ended June 30, 1999.
Hardware Division. The Company's Hardware Division cost of revenues
consists primarily of direct costs associated with the products provided to the
clients. Gross profit decreased to $273,994 for the three months ended June 30,
2000 from $397,894 for the three months ended June 30, 1999. As a percentage of
hardware revenues, gross profit increased to 14.6% in the second quarter of 2000
from 11.7% for the same period in 1999. Commission revenue increased 161% to
$370,275 from $141,989.
Selling, General and Administrative Expenses
IT Professional Division. IT Professional Division selling, general and
administrative expenses consist primarily of costs associated with the IT
Professional Division's direct selling and marketing efforts, human resources
and recruiting departments, administration, training and facilities. IT
Professional Division selling, general and administrative expenses increased
22.3% to $9.0 million for the three months ended June 30, 2000 from $7.4 million
for the three months ended June 30, 1999. This increase resulted from expenses
incurred to build and enhance the infrastructure necessary to support the
Company's continued growth. As a percentage of revenues, selling, general and
administrative expenses increased to 26.1% in the second quarter of 2000
compared to 23.4% for the same period of 1999.
Hardware Division. Hardware Division selling, general and
administrative expenses consist primarily of costs associated with the Hardware
Division's direct selling and marketing efforts, human resources and sales
departments, administration and facilities. Hardware Division selling,
12
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TECHNISOURCE, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
general and administrative expenses increased to $418,699 for the quarter ended
June 30, 2000 from $356,577 for the quarter ended June 30, 1999. As a percentage
of revenues, selling, general and administrative expenses increased to 18.5% for
the first quarter of 2000 from 10.1% in the same period of 1999. This increase
resulted from the continued maturing of operations and the increased emphasis on
value added growth of the Hardware Division.
Net Interest Income
Net interest income was $60,853 for the three months ended June 30,
2000, as compared to $195,077 for the three months ended June 30, 1999. The
decrease is attributable to the interest payable on the line of credit, the
interest payable on the note payable of $1,000,000 for the acquisition of PRISM
Group Consulting, LLP and PRISM Group, LLP and the decrease in cash outstanding
due to use for acquisitions.
Income Taxes
Income taxes for the three months ended June 30, 2000 reflect a 42%
effective income tax rate compared to the tax rate of 40% for same period of
1999.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999
Revenues
IT Professional Division. Revenues increased $3.1 million or 5%, to
$64.7 million for the six months ended June 30, 2000, as compared to $61.6
million for the six months ended June 30, 1999. This increase resulted primarily
from increased sales in existing offices, and to a lesser extent, the addition
of 5 new branch offices. Included in the new branch office numbers are the
offices in Hartford, Connecticut and San Francisco, California which were the
result of two acquisitions completed in the first three months of the year.
Hardware Division. Sales of computer hardware represent approximately
5% of the total sales for the six months ended June 30, 2000. The Hardware
Division sales revenue decreased 65% to $3.3 million for the six months ended
June 30, 2000 as compared to $9.3 million for the six months ended June 30,
1999. The decrease in revenue is directly attributable to two factors. The first
factor is the one-time sale of $4.4 million of computer hardware the Hardware
Division experienced in the first three months of 1999. The second factor is
that during 2000, the Company experienced a change in the method of delivery of
its products. Increasingly, product is drop-shipped from the Company's vendors
to the Company's clients. Since the Company does not take title to product which
is being drop-shipped, the revenue from this type of sale is considered to be
commission revenue and as such is reported net of related expenses. The change
in the type of revenue recognized reduced gross revenue for the six months ended
June 30, 2000 by $2.9 million.
13
<PAGE>
TECHNISOURCE, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Gross Profit
IT Professional Division. Gross profit increased $1.9 million, or
12.2%, to $17.5 million, for the six months ended June 30, 2000, as compared to
$15.6 million for the six months ended June 30, 1999. While total gross margin
grew the percent of sales also increased to 27.1% from 25.4% for the six months
ended June 30, 1999.
Hardware Division. The Company's Hardware Division gross profit
decreased to $375,747 in the first half of 2000 from $848,158 in the same period
of 1999. As a percentage of hardware revenues, gross profit increased to 14.7%
for the six months ended June 30, 2000 from 9.4% for the same period in 1999.
The amount of commission revenue recognized increased 141% to $733,435 from
$303,768 for the first six months of 1999.
Selling, General and Administrative Expenses
IT Professional Division. Selling, general and administrative expenses
increased approximately $3.7 million or 28.7%, to $16.5 million for the six
months ended June 30, 2000, as compared to $12.8 million for six months ended
June 30, 1999. The increase primarily resulted from increases in corporate and
administrative staff, the addition of four Development Triangles and the
expenses attributed to these workforce additions.
Hardware Division. Hardware Division selling, general and
administrative expenses increased 18.7% to $758,789 for the six months ended
June 30, 2000 as compared to $639,192 for the same period in 1999. This decrease
in expense is a result of the maturing of the Hardware Division and the
increased focus on value added growth of the Hardware Division. As a percentage
of revenues, selling, general and administrative expenses increased to 23.1% for
the six months ended June 30, 2000 from 6.8% in the same period of 1999.
Net Interest Income
Net interest income was approximately $235,811 for the six months ended
June 30, 2000, as compared to net interest income of $419,651 for the six months
ended June 30, 1999. The decrease is attributable to the interest payable on the
line of credit, the interest payable on the note payable of $1,000,000 for the
acquisition of PRISM Group Consulting, LLC and PRISM Group, LLC and the decrease
in cash outstanding due to use for acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity have been cash flow from
operations and available borrowings under its line of credit. Cash and cash
equivalents and working capital approximated $8.9 million and $28.3 million,
respectively, as of June 30, 2000.
14
<PAGE>
TECHNISOURCE, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Net cash used by operating activities was approximately $5.5 million
for the period ended June 30, 2000, as compared to $599,744 during the six month
period ended June 30, 1999. The increase in cash used in operations is primarily
due to an increase in accounts receivable of approximately $8.6 million and
accrued liabilities of approximately $1.6 million
Net cash used in investing activities was approximately $6.4 million
during the six month period ended June 30, 2000 as compared to $850,678 during
the six months ended June 30, 1999. The increase in cash used in investing
activities is primarily due to the acquisitions of MDS Consulting Services, Inc.
in Hartford, Connecticut, PRISM Group, LLC and PRISM Group Consulting, LLC in
San Francisco, California, Broadreach Consulting, Inc.'s IT consulting offices
in Phoenix, Arizona, Jacksonville and Orlando, Florida.
For the six-month period ended June 30, 2000, net cash provided by
financing activities was $3.5 million as compared to $220,084 used in financing
activities for the six month period ended June 30, 1999. The change in cash
provided by financing activities is primarily related to the financing of
acquisitions and the purchase of treasury stock.
On March 9, 1999 the Company established a line of credit with a bank
which provides for maximum borrowings of up to $25 million. As of June 30, 2000,
$3.75 million has been used for acquisition purposes, leaving $6.25 million for
future acquisitions and $15 million to be used for working capital. Under the
bank line of credit, interest is payable monthly at LIBOR plus 1.4%. The line of
credit expires January 31, 2002.
On February 18, 2000, the Company acquired substantially all of the
assets of MDS Consulting, Inc. of Hartford, Connecticut, for approximately
$800,000 cash and acquisition costs. On March 1, 2000, the Company used funds
from the line of credit to acquire substantially all of the assets and certain
liabilities of PRISM Group, LLC and PRISM Group Consulting, LLC, both of San
Francisco, California. The total consideration associated with the acquisition
of the two companies was approximately $6.1 million. On June 9, 2000 the Company
acquired IT consulting professionals and a secure facility in Phoenix, Arizona
along with IT consulting professionals in Orlando and Jacksonville, Florida from
Broadreach Consulting, Inc., a privately held company. The total consideration
associated with the acquisition is approximately $1.2 million.
On April 22, 1999, the Company's Board of Directors approved a Stock
Repurchase Plan pursuant to which the Company can repurchase up to $1 million of
the Company's common stock on the open market. As of June 30, 2000, the Company
has repurchased 53,400 shares of its common stock at an aggregate cost to the
Company of $282,144.
The Company anticipates that its primary uses of working capital in
future periods will be for the internal development of new offices, investments
in its management information systems, possible acquisitions and decreases in
working capital. The Company continually reviews and evaluates acquisition
candidates to complement and expand its business. The Company's ability
15
<PAGE>
TECHNISOURCE, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
to grow through acquisitions is dependent on the availability of suitable
acquisition candidates and the terms on which such candidates may be acquired,
which may be adversely affected by competition for such acquisitions. The
Company cannot predict to what extent new offices will be added through
acquisitions as compared to internal development. The Company currently has no
commitments with respect to any potential acquisitions.
The Company believes that the existing cash and cash equivalents, cash
flow from operations and available borrowings under the Credit Facility will be
sufficient to meet the Company's presently anticipated working capital needs for
at least the next twelve months.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company owns no derivative financial instruments or derivative
commodity instruments. The Company does not derive a significant amount of
revenues from international operations and does not believe that it is exposed
to material risks related to foreign currency exchange rates.
16
<PAGE>
TECHNISOURCE, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On May 31, 2000, the Company held its 2000 Annual Meeting of
Shareholders in Fort Lauderdale, Florida. Only holders of record of Common Stock
on April 3, 2000 (the "Record Date") were entitled to vote at the Annual
Meeting. Each holder of record of Common Stock at the close of business on the
Record Date were entitled to one vote per share on each matter voted upon by the
shareholders at the Annual Meeting. As of the Record Date, there were 10,354,000
outstanding shares of Common Stock.
The following matters were submitted for a vote by security holders:
Proposal 1: To elect seven directors of the Company to serve until the
2001 Annual Meeting of Shareholders and until their successors
have been elected and qualified.
Set forth below is information regarding shares of Common Stock voted
in the election of the seven directors.
Name For Against Withheld
---- --- ------- --------
Joseph W. Collard 9,949,497 0 266,400
James F. Robertson 9,949,497 0 266,400
Thomas E. Hoshko 9,949,497 0 266,400
John A. Morton 9,949,497 0 266,400
C. Shelton James 9,949,497 0 266,400
Paul J. Kinyon 9,949,497 0 266,400
H. Scott Barrett 9,949,497 0 266,400
Proposal 2: To amend the Technisource, Inc. Long-Term Incentive Plan to
increase from 1,590,000 to 2,090,000 the number of shares of
the Company's Common Stock that may be issued thereunder.
Set forth below is information regarding shares of Common Stock voted
to amend the Technisource, Inc. Long-Term Incentive Plan.
For Against Withheld
--- ------- --------
9,517,250 690,147 2,500
Proposal 3: To ratify the appointment of KPMG LLP as the Company's
independent certified public accountants for the fiscal year
ending December 31, 2000.
Set forth below is information regarding shares of Common Stock voted
to ratify the appointment of KPMG LLP as the Company's independent certified
public accountants.
For Against Withheld
--- ------- --------
10,195,587 9,700 4,610
17
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Number Description
-------------- -----------
2.1 * Asset Purchase Agreement dated March 1, 2000, among
PRISM Group, LLC, PRISM Group Consulting, LLC, Gus
Gonzalez and Nancy E. Agatiello, Revocable
Inter-Vivos Trust, Barbara S. Berk, Nancy E.
Agatiello and TSRC.net, Inc.
3.1 ** Amended and Restated Articles of Incorporation of the
Company
3.2 ** Amended and Restated Bylaws of the Company
4.1 See Exhibits 3.1 and 3.2 for provisions of the
Articles of Incorporation and Bylaws for the Company
defining the rights of holders of Common Stock of the
Company
4.2 ** Specimen certificate for the Company's Common Stock.
27 Financial Data Schedule
(b) Current Reports on Form 8-K
The Company filed a report on Form 8-K on March 16, 2000, reporting in
Item 2 therein the acquisition of substantially all of the assets of PRISM Group
Consulting, LLC and PRISM Group, LLC.
----------
* Filed with the Company's Form 8-K filed with the Securities and
Exchange Commission on March 16, 2000, and incorporated by reference.
** Filed with the Company's Registration Statement on Form S-1 (File No.
333-50803) filed with the Securities and Exchange Commission on April
23, 1998, and incorporated herein by reference.
18
<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.
TECHNISOURCE, INC.
Dated: August 14, 2000
By: /s/ James F. Robertson
---------------------------------
James F. Robertson
Executive Vice President,
Chief Operating Officer
Dated: August 14, 2000
By: /s/ Andrew C. Hill
---------------------------------
Andrew C. Hill
(Principal Accounting Officer)
19
<PAGE>
INDEX OF EXHIBITS
Exhibit Number Description
-------------- -----------
27 Financial Data Schedule
