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 ended: June 30, 1995
---------------
/ / 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 0-16284
NATIONAL TECHTEAM, INC.
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(Name of issuer in its charter)
DELAWARE 38-2774613
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
22000 Garrison Avenue, Dearborn, MI 48124
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (313) 277-2277
---------------------------
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 of the registrant's only class of common stock
outstanding at August 4, 1995 was 11,203,166.
<PAGE>
NATIONAL TECHTEAM, INC.
FORM 10-Q
INDEX
PART I - FINANCIAL INFORMATION PAGE
ITEM 1.
Consolidated Statements of Operations
Three and Six Months Ended
June 30, 1995 and 1994 3
Consolidated Statements of Financial Position
June 30, 1995 and December 31, 1994 4-5
Consolidated Statements of Cash Flows
Six Months Ended
June 30, 1995 and 1994 6
Notes to the Unaudited Consolidated Financial Statements 7
ITEM 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-10
PART II - OTHER INFORMATION
ITEM 6.
Exhibits and Reports on Form 8-K 11
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
Three Months Ended June 30 Six Months Ended June 30
-------------------------- ------------------------
1995 1994 1995 1994
----- ----- ----- -----
<S> <C> <C> <C> <C>
Revenues
Corporate support services $3,790,523 $ 3,315,131 $ 7,288,603 $ 6,395,551
Computer product support 2,810,745 1,732,276 5,140,511 3,232,964
Training programs 1,046,403 1,247,668 2,051,750 2,386,293
Systems integration and other 1,962,591 1,345,152 3,590,259 2,452,718
---------- ----------- ----------- -----------
9,610,262 7,640,227 18,071,123 14,467,526
---------- ----------- ----------- -----------
Costs and expenses
Corporate support services 2,440,101 2,277,684 4,929,887 4,539,771
Computer product support 2,189,908 1,172,289 3,574,264 2,260,996
Training programs 783,721 970,272 1,641,377 2,016,986
Systems integration and other 1,756,202 1,214,955 3,300,898 2,476,876
Selling, general and administrative 1,173,786 944,960 2,447,887 1,637,932
Interest 1,650 12,766 3,250 25,199
---------- ----------- ----------- -----------
8,345,368 6,592,926 15,897,563 12,957,760
---------- ----------- ----------- -----------
Revenues less costs and expenses 1,264,894 1,047,301 2,173,560 1,509,766
Gain on sales of investment -- 152,471 -- 152,471
---------- ----------- ----------- -----------
Income before tax provisions 1,264,894 1,199,772 2,173,560 1,662,237
Tax provisions 489,785 479,166 859,220 668,032
---------- ----------- ----------- -----------
Net income $ 775,109 $ 720,606 $ 1,314,340 $ 994,205
========== =========== =========== ===========
Primary and fully diluted
earnings per share $ 0.07 $ 0.07 0.11 $ 0.09
========== =========== =========== ===========
<FN>
See accompanying notes.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
UNAUDITED
June 30 December 31
1995 1994
-------- -----------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 842,803 $ 412,559
Temporary investments -- 3,500,000
Accounts receivable (less allowances 11,874,532 7,751,801
of $90,000 at June 30, 1995 and $76,857
at December 31, 1994)
Advances to officers and employees 270,081 --
Inventories 523,372 499,748
Refundable income tax 384,258 384,258
Other 479,067 341,331
------------ ------------
Total current assests 14,374,113 12,889,697
------------ ------------
Property and equipment
Classroom furniture and training equipment 1,290,389 1,288,633
Office furniture and equipment 3,419,863 2,729,008
Transportation equipment 138,572 138,572
Leasehold improvements 347,274 345,701
------------ ------------
5,196,098 4,501,914
Less - Accumulated depreciation and amortization
2,376,857 1,861,876
------------ ------------
2,819,241 2,640,038
------------ ------------
Other assets
Goodwill (less accumulated amortization of $273,906
at June 30,1995 and $193,306 at December 31, 1994) 1,333,188 1,413,791
Other 357,317 205,156
------------ ------------
1,690,505 1,618,947
------------ ------------
Total assets $ 18,883,859 $ 17,148,682
============ ============
<FN>
See accompanying notes.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
UNAUDITED
June 30 December 31
1995 1994
-------- -----------
<S> <C> <C>
Liabilities and Shareholders' Equity
Current liabilities
Current portion of long-term debt $ 17,400 $ 140,100
Accounts payable 261,097 287,403
Accrued payroll 801,387 494,181
Deferred income tax 65,850 65,850
Federal income tax payable 469,047 --
Deferred revenue 388,168 47,540
Other 248,197 138,122
------------ ------------
Total current liabilities 2,251,146 1,173,196
------------ ------------
Long-term liabilities
Deferred income tax 146,460 146,460
------------ ------------
Shareholders' equity
Preferred stock, par value $.01
Authorized -- 5,000,000 shares
None issued
Common stock, par value $.01
Authorized -- 45,000,000 shares
Issued and outstanding:
11,403,166 shares at June 30, 1995 114,032
10,989,166 shares at December 31, 1994 109,892
Additional paid-in capital 12,280,989 12,035,229
Retained earnings 4,998,240 3,683,905
------------ ------------
Total 17,393,261 15,829,026
Less - Treasury stock (200,000 shares
at June 30, 1995) 907,008 --
------------ ------------
Total shareholders' equity 16,486,253 15,829,026
------------ ------------
Total liabilities and shareholders' equity $ 18,883,859 $ 17,148,682
============ ============
<FN>
See accompanying notes.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
Six Months Ended June 30
1995 1994
-------- ---------
<S> <C> <C>
Operating activities
Net income $ 1,314,340 $ 994,206
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 523,548 526,902
Provision for uncollectible accounts receivable 13,143 --
Gain on sale of equipment and other -- (3,898)
Changes in current assets and liabilities:
Accounts receivable (4,122,731) (2,035,121)
Inventories (23,624) (56,535)
Advances to officers and employees (270,081) --
Other current assets (137,736) (263,715)
Accounts payable (26,306) (159,718)
Accrued payroll 307,206 80,239
Federal income tax payable 392,970 (234,109)
Deferred revenue 340,628 39,782
Other current liabilities 110,075 (45,810)
----------- -----------
Net cash used in
operating activities (1,578,568) (1,157,777)
----------- -----------
Investing activities
Purchases of property and equipment (694,184) (521,609)
Purchases of Company common stock (907,008) --
Development of training manuals (17,196) (54,497)
Purchase of temporary investments (450,000) --
Proceeds from sale of temporary investments 3,950,000 --
Purchases of other assets -- (7,634)
Proceeds from sale of property and equipment
and other assets -- 432
----------- -----------
Net cash provided by/(used in)
investing activities 1,881,612 (583,308)
----------- -----------
Financing activities
Proceeds from issuance of common stock 249,900 3,375,862
Payments on long-term borrowings and
capital lease obligations (122,700) (220,398)
----------- -----------
Net cash provided by
financing activities 127,200 3,155,464
----------- -----------
Increase in cash
and cash equivalents 430,244 1,414,379
Cash and cash equivalents at beginning of year 412,559 574,637
----------- -----------
Cash and cash equivalents at June 30 $ 842,803 $ 1,989,016
=========== ===========
<FN>
See accompanying notes.
</TABLE>
6
<PAGE>
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements included herein have been prepared by
National TechTeam, Inc. ("TechTeam" or "Company") without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in the financial
statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to such rules and regulations.
The information provided in this report reflects all adjustments consisting of
normal recurring accruals which are, in the opinion of management, necessary
to present fairly the results of operations for these periods. The results of
operations for these periods are not necessarily indicative of the results
expected for the full year.
NOTE A -- EARNINGS PER SHARE
Earnings per share is computed using the weighted average number of common
shares and common share equivalents outstanding. Common share equivalents
consists of stock options and warrants and are calculated using the treasury
stock method. The average number of shares used in the determination of
earnings per share were as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
-------------------------- ------------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Primary 11,656,738 10,856,767 11,539,650 10,617,801
Fully diluted 11,672,855 10,856,767 11,676,154 10,617,801
</TABLE>
NOTE B -- REVENUES FROM MAJOR CUSTOMERS
Revenues from major customers were as follows:
<TABLE>
<CAPTION>
1995 1994
-------------------- --------------------
Percent of Percent of
Amount Total Amount Total
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Three Months Ended
June 30
Ford Motor Company 4,114,148 42.8% 3,925,480 51.4%
Chrysler Corporation 1,116,503 11.6 596,664 7.8
Hewlett-Packard Company 955,229 9.9 -- --
Corel Corporation 790,363 8.2 1,000,741 13.1
Novell, Inc. 140,731 1.5 586,506 7.7
Six Months Ended
June 30
Ford Motor Company 7,877,077 43.6% 7,432,028 51.4%
Chrysler Corporation 2,031,761 11.2 1,006,933 7.0
Hewlett-Packard Company 1,609,375 8.9 -- --
Corel Corporation 1,600,447 8.9 1,790,458 12.4
Novell, Inc. 285,356 1.6 1,183,985 8.2
</TABLE>
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship to revenues of
certain items in the Company's Consolidated Statements of Operations:
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
-------------------------- ------------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES
Corporate support services 39.5% 43.4% 40.3% 44.2%
Computer product support 29.2 22.7 28.4 22.3
Training programs 10.9 16.3 11.4 16.5
Systems integration and other 20.4 17.6 19.9 17.0
----- ----- ----- -----
TOTAL REVENUES 100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
GROSS MARGIN (Revenues less
directly related expenses):
Corporate support services 35.6% 31.3% 32.4% 29.0%
Computer product support 22.1 32.3 30.5 30.1
Training programs 25.1 22.2 20.0 15.5
Systems integration and other 10.5 9.7 8.1 (1.0)
----- ----- ----- -----
TOTAL GROSS MARGIN 25.4 26.2 25.6 21.9
SELLING, GENERAL AND ADMINISTRATIVE
AND INTEREST (12.2) (12.5) (13.6) (11.5)
GAIN ON SALES OF INVESTMENT -- 2.0 -- 1.1
----- ----- ----- -----
NET MARGIN (INCOME BEFORE TAX
PROVISIONS) 13.2% 15.7% 12.0% 11.5%
===== ===== ===== =====
</TABLE>
COMPARATIVE PERFORMANCE SECOND QUARTER 1995 VERSUS SECOND QUARTER 1994
TechTeam earned net income of $775,109, or $.07 per share, for the second
quarter 1995 as compared to a net income of $720,606, or $.07 per share, for
the second quarter 1994. TechTeam's total revenues increased by $1,970,035 in
1995 to $9,610,262, a 25.8% increase over 1994 revenues.
Corporate support services - There was a $475,392 (14.3%) increase in revenues
generated from providing computer support and contract staffing services. The
margin on this line of service increased between 1994 and 1995 because of the
increased utilization of staff resources. The increase in corporate support
services revenue resulted from continued customer demand for TechTeam's
computer programmers and other personnel at Ford and other customer locations.
Corporate support services includes a variety of technical services, including
consulting, programming services, and the placement of computer personnel at
customer sites to support end-user applications via on-site help desks and
telephone hotline services. Contracts for these services are generally
negotiated on an hourly rate basis.
Computer product support - There was a $1,078,469 (62.3%) increase in revenues
generated from providing computer product support. The Company had 14
contracts in place at June 30, 1995 compared to the six contracts at June 30,
1994. The margin on this line of service decreased between 1994 and 1995 as
start-up costs related to new contracts and contracts still being negotiated
were incurred. This service line consists of international 800 and 900
telephone support for computer hardware, software and other products. The
Company expects to expand this service line in the future.
8
<PAGE>
COMPARATIVE PERFORMANCE 1995 VERSUS 1994 -- CONTINUED
Training programs - Revenues for 1995 decreased $201,265 (16.1%) as compared
to 1994, due to a reduced scope of training services for a major customer. The
margin on this line of service increased between 1994 and 1995 as TechTeam
reduced expenses to compensate for reduced enrollments experienced over the
past several quarters. The Company's experience is that enrollments are
somewhat cyclical in nature. Training programs consist of instructor led
training for word processing, spreadsheets, graphics, data bases, desktop
publishing, operating systems, and systems administration for DOS, Windows,
Novell, OS/2, and UNIX and mainframe operating systems.
Systems integration and other - There was a $617,439 (45.9%) increase in
revenues in this service line between 1994 and 1995. The increased revenues
reflect increased demand for TechTeam's systems integration, database design,
network, and applications development services.
Tax provisions - TechTeam recognized $386,785 of Federal income tax in 1995,
resulting in an effective tax rate of 33.3% for 1995 compared to 34.9% for
1994. In 1995, TechTeam reversed $25,000 of Federal income tax cushion,
resulting in the reduced effective tax rate. The Michigan Single Business Tax
in 1995 was $103,000, with an effective tax rate of 8.9% compared to 5.0% for
1994.
Gain on sales of investment - In the second quarter 1994, TechTeam sold a
portion of its investments on Action Trac, Inc.
COMPARATIVE PERFORMANCE FIRST HALF 1995 VERSUS FIRST HALF 1994 (SEE SECOND
QUARTER COMPARISON FOR GENERAL INFORMATION ON EACH SERVICE LINE)
TechTeam earned net income of $1,314,340, or $.11 per share, for the first
half 1995 as compared to a net income of $994,205, or $.09 per share, for the
first half 1994. TechTeam's total revenues increased by $3,603,597 in 1995 to
$18,071,123, a 24.9% increase over 1994 revenues.
Corporate support services - There was a $893,052 (14.0%) increase in revenues
generated from providing computer support and contract staffing services. The
margin on this line of service increased between 1994 and 1995 because of the
increased utilization of staff resources. The increase in corporate support
services revenue resulted from continued customer demand for TechTeam's
computer programmers and other personnel at Ford and other customer locations.
Computer product support - There was a $1,907,547 (59.0%) increase in revenues
generated from providing computer product support. The Company had 14
contracts in place at June 30, 1995 compared to the six contracts at June 30,
1994.
Training programs - Revenues for 1995 decreased $334,543 (14.0%) as compared
to 1994, due to a reduced scope of training services for a major customer. The
margin on this line of service increased between 1994 and 1995 as TechTeam
reduced expenses to compensate for reduced enrollments experienced over the
past several quarters. The Company's experience is that enrollments are
somewhat cyclical in nature.
Systems integration and other - There was a $1,137,541 (46.4%) increase in
revenues in this service line between 1994 and 1995. The increased revenues
reflect increased demand for TechTeam's systems integration, database design,
and applications development services. In the first quarter 1994, TechTeam
reorganized several activities into the Systems Integration service line and
incurred significant expenses in connection therewith. Such expenses were not
incurred in 1995, resulting in a significant improvement in gross margin.
Gain on sales of investment - In the second quarter 1994, TechTeam sold a
portion of its investments on Action Trac, Inc.
9
<PAGE>
COMPARATIVE PERFORMANCE FIRST HALF 1995 VERSUS FIRST HALF 1994 - CONTINUED
Selling, general and administrative and interest - These expenses, as a
percent of revenues, were 13.6% in 1995 compared with 11.5% in 1994. In the
second quarter 1994, TechTeam commenced accounting for certain administrative
functions that had previously been reported as directly related expenses of
various service lines. Costs associated with these functions totaled $282,927
(1.6% of revenues) in the first quarter 1995; the 1994 corresponding amounts
are not readily determinable.
Tax provisions - TechTeam recognized $666,220 of Federal income tax in 1995,
resulting in an effective tax rate of 33.6% for 1995 compared to 32.1% for
1994. The primary reason the effective tax rate is less than the 34% statutory
rate is that $30,000 and $25,000 of Federal income tax cushion was reversed in
the first half of 1994 and 1995, respectively. The Michigan Single Business
Tax in 1995 was $193,000, with an effective tax rate of 8.9% compared to 8.1%
for 1994.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1995, TechTeam had working capital of $12,122,967. This is an
increase in working capital of $406,466 since December 31, 1994, due primarily
to an increase in receivable balances which were due to increased revenues for
the first six months of 1995.
TechTeam has a line-of-credit agreement with NBD Bank, N.A. which provides for
short-term borrowings of up to $3,500,000; the credit is unsecured. The
line-of-credit is at the prime rate. There were no borrowings under the credit
agreement at June 30, 1995 or at any time during the first half of 1995. The
Company expects to borrow under this arrangement to finance anticipated
increases in accounts receivable balances.
10
<PAGE>
PART II
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits -
11. Computation of Earnings Per Share
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Company during the quarter
ended June 30, 1995.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
National TechTeam, Inc.
-----------------------
(Registrant)
Date: August 11, 1995 By: /s/William F. Coyro Jr.
------------------------
William F. Coyro Jr.
Chairman of the Board and
Chief Executive Officer
Date: August 11, 1995 By: /s/Lawrence A. Mills
---------------------
Lawrence A. Mills
Chief Operating Officer,
Chief Financial Officer and Treasurer
11
<TABLE>
<CAPTION>
EXHIBIT 11 -- STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
Three Months Ended March 31 Six Months Ended June 30
--------------------------- ------------------------
1995 1994 1995 1994
----- ----- ----- -----
<S> <C> <C> <C> <C>
Primary
Average shares outstanding 11,201,411 10,119,465 11,204,710 9,911,269
Net effect of dilutive stock options and warrants -
based on the treasury stock
method using average market price 455,327 737,302 334,940 706,532
----------- ----------- ----------- -----------
Total 11,656,738 10,856,767 11,539,650 10,617,801
----------- ----------- ----------- -----------
Net income $ 775,109 $ 720,606 $ 1,314,340 $ 994,205
=========== =========== =========== ===========
Per share amount $ 0.07 $ 0.07 $ 0.11 $ 0.09
=========== =========== =========== ===========
Fully Diluted
Average shares outstanding 11,201,411 10,119,465 11,204,710 9,911,269
Net effect of dilutive stock options and warrants -
based on the treasury stock
method using the quarter-end market price,
if higher than average market price 471,444 737,302 471,444 706,532
----------- ----------- ----------- -----------
Total 11,672,855 10,856,767 11,676,154 10,617,801
----------- ----------- ----------- -----------
Net income $ 775,109 $ 720,606 $ 1,314,340 $ 994,206
=========== =========== =========== ===========
Per share amount $ 0.07 $ 0.07 $ 0.11 $ 0.09
=========== =========== =========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> $ 842,803
<SECURITIES> 0
<RECEIVABLES> 11,964,532
<ALLOWANCES> 90,000
<INVENTORY> 523,372
<CURRENT-ASSETS> 14,374,113
<PP&E> 5,196,098
<DEPRECIATION> 2,376,857
<TOTAL-ASSETS> 18,883,859
<CURRENT-LIABILITIES> 2,251,146
<BONDS> 0
<COMMON> 114,032
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 18,883,859
<SALES> 9,610,262
<TOTAL-REVENUES> 9,610,262
<CGS> 7,169,932
<TOTAL-COSTS> 8,345,368
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,650
<INCOME-PRETAX> 1,264,894
<INCOME-TAX> 489,785
<INCOME-CONTINUING> 775,109
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 775,109
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.07
</TABLE>
