<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 10-QSB/A, No. 1
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
Amending Notes to Consolidated Financial Statements and Item 2
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 0-13324
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JUDICATE, INC.
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(Exact name of small business registrant
as specified in its charter)
Delaware 23-2257354
-------------------------------- ------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1500 Walnut Street, Suite 1300, Philadelphia, PA 19102
- ---------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(215) 546-6200
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(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No ____
As of May 10, 1995, the Registrant had 12,445,749 shares of Common
Stock, $.0001 par value, outstanding.
<PAGE>
JUDICATE, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C> <C>
PART I. Financial Information
Item 1. Financial Statements (unaudited)
Notes to Consolidated Financial Statements 5 - 7
Item 2. Management's Discussion and Analysis 8 - 9
or Plan of Operation
Signature Page 11
</TABLE>
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JUDICATE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1995 AND 1994
Note 1. Basis of presentation.
The accompanying unaudited consolidated financial statements include the
accounts of the Company and its subsidiaries. The consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and in accordance with the
instructions for Form 10-QSB. 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 adjustments) considered necessary for a fair presentation have been
included. Operating results for the three months ended March 31, 1995 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1995. The accompanying consolidated balance sheet as of December
31, 1994 is unaudited; however, it has been derived from the audited financial
statements at that date. For further information, refer to the financial
statements and footnotes thereto included in the Company's annual report on Form
10-KSB for the year ended December 31, 1994.
Note 2. Acquisition of electronic hardware distribution business.
On March 31, 1995, the Company acquired Quest Electronic Hardware, Inc.
("Quest"), a specialized distributor of fasteners and electronic hardware sold
to electronic equipment manufacturers, in exchange for 3,872,000 shares of the
Company's common stock. Simultaneously, the Company contributed to Quest cash of
$2,850,000 as additional paid-in capital and Quest purchased the fasteners
distribution business from Arrow Electronics, Inc. ("Arrow") for net cash
consideration of $5,229,847. In connection with these transactions, the Company
recorded $6,477,005 of cost in excess of net assets of business acquired. The
Company does not expect that Statement of Financial Accounting Standards No.
121, Accounting for the Impairment of Long-Lived Assets, will have any impact on
the Company's Consolidated Financial Statements.
Note 3. Long-term debt.
In connection with the acquisition by Quest of the fasteners distribution
business from Arrow, Quest entered into a loan agreement with a bank which
provided for a $2,200,000 term loan to finance a portion of the purchase price.
In addition, the loan agreement provides for a revolving credit facility of
$800,000, which was fully available to Quest at March 31, 1995. The term loan,
which bears interest at the rate of 2.0% above the Prime Rate, is payable in
equal quarterly installments over a four year period. The revolving credit
facility bears interest at the rate of 1.5% above the Prime Rate.
5
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Note 4. Provision for restructuring.
As a result of declining revenues of the Company's ADR business, stemming
in part from increased competition, and the resultant historical losses, the
Company undertook a plan of action to downsize and restructure its ADR business
in order to establish a more acceptable relationship of expenses of that
business to its revenues. The Company's operating results for the three month
period ended March 31, 1995 include a provision for restructuring of $125,000.
More than $60,000 of such provision is attributable to the write-off of fixed
assets and idle equipment associated with the downsizing of the ADR business.
The balance of the provision is associated with lease termination costs, the
relocation of the ADR business to more suitable office space, forfeiture of
security deposits, and other costs associated with the downsizing and
restructuring of the ADR business. During August 1995, the Company will relocate
the office of the ADR business to more suitable space. The Company is evaluating
its alternatives with respect to the future operation of its ADR business,
including the possible sale, disposition or discontinuance of the business.
Note 5. Pro forma financial information.
The following pro forma financial information gives effect to the
acquisition described in Note 2 as if such acquisition had been made as of
January 1, 1995:
Pro Forma Combined Statement of Operations
For the three months ended March 31, 1995
(In thousands, except per share data)
<TABLE>
<CAPTION>
Fasteners Pro Forma Pro Forma
Judicate Quest Business Adjustments Combined
-------- ----- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
Sales $ 107 $ - $ 2,180 $ 2,287
Cost of Sales 41 - 1,281 1,322
----- --- ------ ------
Gross Profit 66 - 899 965
Selling, General and
Administrative Expenses 331 - 500 $ 2 (A) 895
41 (B)
21 (E)
----- --- ------ ------ ------
Operating Income (Loss) (265) - 399 (64) 70
Interest Expense (Income) (15) - - 55 (C) 47
7 (D)
----- --- ------ ------ ------
Income (Loss) Before Taxes (250) - 399 (126) 23
Income Taxes - - 154 (154)(F) -
----- --- ------ ------ ------
Net Income (Loss) $ (250) $ - $ 245 $ 28 $ 23
====== === ====== ===== ======
Income (Loss) Per
Common Share $ (.04) $ -
====== ======
</TABLE>
6
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The following are the explanations of the above pro forma adjustments:
<TABLE>
<CAPTION>
Quarterly
(In Thousands)
<S> <C>
(A) To reflect additional charges for depreciation $ 2
(B) To reflect additional charges for amortization of goodwill $ 41
(C) To record interest on acquisition debt:
The term loan acquisition debt is to be paid off in
quarterly installments of $137.50 $ 55
The average interest rate expected to be incurred on the
acquisition debt is 10.5%.
(D) To record interest on short-term financing $ 7
The average interest rate expected to be incurred on the
short-term financing is 9%.
(E) To record net additional G & A charges:
Estimated additional general and administrative charges
related to the Fasteners Business $ 21
The statement of operations for the three months ended March
31, 1995 of the Fasteners Business does not include charges
for general and administrative services that were provided
by Arrow, but does include charges for certain costs that
are not expected to be incurred in the future. If the
Fasteners Business had been a stand alone entity as of the
beginning of the period presented, it is estimated that the
net amount of such costs would have resulted in additional
charges of approximately $ 21.
(F) To reflect utilization of net operating loss carryforward $154
</TABLE>
7
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Results of Operations
The results of operations through March 31, 1995 include only the results
of the Company's alternative dispute resolution ("ADR") business and do not
reflect any operating results of the electronic hardware distribution business
acquired by the Company on March 31, 1995 (see Note 2 of Notes to Consolidated
Financial Statements). The following discussion and analysis, accordingly,
only relates to the Company's ADR business.
The Company's fee income was $107,092 for the three month period ended
March 31, 1995 compared with $282,315 for the three month period ended March
31, 1994. This reflects a decrease of 62% compared with the comparable period
in the prior year. As of March 31, 1995, the Company employed two (2) ADR
Consultants compared with nine (9) ADR Consultants for the period ended March
31, 1994. The emergence and acceptance of ADR services has engendered
competition in the Company's marketing areas. This has caused a continual
restructuring and downsizing of the Company's ADR business to establish
appropriate relationships of the Company's expenses to the current level of
sales. Such restructuring has led to a reduction of selling and general and
administrative expenses from a monthly average of $103,600 during the first
quarter of 1994 to a monthly average of $68,670 during the first quarter of
1995.
The Company's loss from operations for the quarter ended March 31, 1995
was $264,598 compared with a loss of $107,363 for the comparable period of the
prior year. The loss for the quarter ended March 31, 1995 includes a provision
of $125,000 for potential losses associated with the further restructuring and
downsizing of the Company's ADR business (see Note 4 of Notes to Consolidated
Financial Statements). Such provision is attributable to the write-off of
fixed assets and idle equipment associated with the downsizing of the ADR
business, as well as lease termination costs, the relocation to more suitable
office space, forfeiture of security deposits and other costs associated with
the downsizing and restructuring of the ADR business.
The following table sets forth operating costs and expenses as a
percentage of fee income for the three month period ending March 31, 1995 and
1994, respectively:
Three Months Ended
March 31,
------------------
1995 1994
Cost of service 38% 28%
Sales and marketing 28% 47%
General and administrative 165% 63%
Provision for restructuring 116% --
Cost of services as a percentage of sales increased over the comparable
period of the prior year to 38% from 28%. This increase resulted from the
Company's contractual agreements with certain judges which provided for
minimum monthly guarantees. Such contractual agreements are no longer in
existence. In addition, some judges
8
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received hourly fees in excess of the amount billable to the client.
Sales and marketing expense decreased as a percentage of sales since the
Company maintained only one location during the current quarter ended March
31, 1995, from which all nationwide marketing efforts originated.
The increase in general and administrative expense as a percentage of
sales is attributable to the decline in revenue. The period ended March 31,
1995 includes non-cash charges for depreciation of $11,000 and provisions for
loss on accounts receivable for $4,500.
The Company had non-operating income of $14,832 for the period ended
March 31, 1995.
Liquidity and Capital Resources
As of March 31, 1995, the Company had $455,891 in cash and short-term
investments, compared to $1,520,730 as of December 31, 1994. As of March 31,
1995 the Company had working capital of $1,488,106, compared with working
capital of $1,439,105 as of December 31, 1994. The Company's decrease in cash
and short-term investments at March 31, 1995 compared to December 31, 1994 is
principally due to the Company's March 31, 1995 acquisition of Quest
Electronic Hardware, Inc. (see Note 2 of Notes to Consolidated Financial
Statements). The net cash consideration paid for the acquired business
amounted to $5,229,847, which was funded by $2,500,000 in borrowings
(including $2,200,000 of long-term bank borrowings), $1,501,961 in net
proceeds derived from the private placement of the Company's common stock, and
available cash.
Historically, the ADR business incurred substantial operating losses.
During the quarter ended March 31, 1995, the net cash provided by the
operating activities of the Company's ADR business amounted to $63,047. As
previously discussed, the Company is evaluating its alternatives with respect
to the future operations of the ADR business and there can be no assurance
that the Company will continue its ADR operations.
In conjunction with the acquisition of the electronic hardware
distribution business, Quest obtained an $800,000 working capital line of
credit, of which $100,000 was borrowed and outstanding at March 31, 1995 and
$700,000 is fully available for future working capital needs. The Company
intends to identify and evaluate potential merger and acquisition candidates
engaged in lines of business complementary to the distribution of fasteners
and electronic hardware business conducted by Quest. While certain of such
potential acquisition opportunities are at various stages of consideration and
evaluation, none are at any definitive stage at this time. Management believes
that its working capital, funds available under its credit agreement, and
funds generated from operations will be sufficient to meet its obligations
through 1996, exclusive of any cash requirements which may come about as a
result of other business acquisitions.
9
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
JUDICATE, INC.
Dated: August 25, 1995 By: STEPHEN J. DRESCHER
---------------------------
Stephen J. Drescher,
Chairman, Chief Executive
Officer
(Principal Executive Officer)
Dated: August 25, 1995 By: MILTON M. ADLER
---------------------------
Milton M. Adler,
Treasurer
(Principal Financial and
Accounting Officer)
11
