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: September 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.
- ------------------------------------------------------------------------------
(Name of issuer in its charter)
DELAWARE 38-2774613
- ------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
22000 Garrison Avenue, Dearborn, MI 48124
- ------------------------------------------------------------------------------
(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.
Yes __X__ No _____
The number of shares of the registrant's only class of common stock outstanding
at November 3, 1995 was 11,205,666.
<PAGE>
NATIONAL TECHTEAM, INC.
FORM 10-Q
INDEX
PART I - FINANCIAL INFORMATION PAGE
ITEM 1.
Consolidated Statements of Operations
Three and Nine Months Ended
September 30, 1995 and 1994 3
Consolidated Statements of Financial Position
September 30, 1995 and December 31, 1994 4-5
Consolidated Statements of Cash Flows
Nine Months Ended
September 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 Nine Months Ended
September 30 September 30
-------------------------- --------------------------
1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues
Corporate support services $ 3,785,904 $ 3,320,334 $11,203,939 $ 9,715,885
Computer product support 3,849,690 2,041,712 9,077,172 5,274,676
Training programs 897,215 1,152,094 2,961,595 3,537,859
Systems integration and other 2,029,393 1,536,021 5,390,619 3,989,267
----------- ----------- ----------- -----------
10,562,202 8,050,161 28,633,325 22,517,687
----------- ----------- ----------- -----------
Costs and expenses
Corporate support services 2,604,515 2,364,352 7,602,203 6,904,123
Computer product support 2,817,406 1,399,665 6,413,706 3,660,661
Training programs 1,034,810 898,118 2,682,878 2,860,235
Systems integration and other 2,244,958 1,310,195 5,449,330 3,807,796
Selling, general and administrative 1,177,375 973,244 3,625,260 2,645,346
Interest 6,462 5,284 9,712 30,457
----------- ----------- ----------- -----------
9,885,526 6,950,858 25,783,089 19,908,618
----------- ----------- ----------- -----------
Revenues less costs and expenses 676,676 1,099,303 2,850,236 2,609,069
Gain on sales of investment -- -- -- 152,471
----------- ----------- ----------- -----------
Income before tax provisions 676,676 1,099,303 2,850,236 2,761,540
Tax provisions 330,135 477,765 1,189,355 1,145,797
----------- ----------- ----------- -----------
Net income $ 346,541 $ 621,538 $ 1,660,881 $ 1,615,743
=========== =========== =========== ===========
Primary and fully diluted
earnings per share $ 0.03 $ 0.06 $ 0.15 $ 0.15
=========== =========== =========== ===========
<FN>
See accompanying notes.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
UNAUDITED
September 30 December 31
Assets 1995 1994
----------- -----------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 525,877 $ 412,559
Temporary investments -- 3,500,000
Accounts receivable (less allowances 12,587,489 7,751,801
of $90,000 at September 30, 1995 and $76,857
at December 31, 1994)
Advances to officers and employees 143,257 --
Inventories 532,343 499,748
Refundable income tax -- 384,258
Other 454,567 341,331
----------- -----------
Total current assests 14,243,533 12,889,697
----------- -----------
Property and equipment
Classroom furniture and training equipment 1,205,000 1,288,633
Office furniture and equipment 4,265,638 2,729,008
Transportation equipment 158,062 138,572
Leasehold improvements 285,107 345,701
----------- -----------
5,913,807 4,501,914
Less - Accumulated depreciation and amortization 2,554,191 1,861,876
----------- -----------
3,359,616 2,640,038
----------- -----------
Other assets
Goodwill (less accumulated amortization of
$314,211 at September 30,1995 and $193,306 at
December 31, 1994) 1,292,886 1,413,791
Other 274,995 205,156
----------- -----------
1,567,881 1,618,947
----------- -----------
Total assets $19,171,030 $17,148,682
=========== ===========
<FN>
See accompanying notes.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
UNAUDITED
September 30 December 31
Liabilities and Shareholders' Equity 1995 1994
----------- -----------
<S> <C> <C>
Current liabilities
Current portion of long-term debt $ 113,200 $ 140,100
Accounts payable 117,456 287,403
Accrued payroll 897,760 494,181
Deferred income tax 65,850 65,850
Federal income tax payable 125,923 --
Deferred revenue 147,998 47,540
Other 273,175 138,122
----------- -----------
Total current liabilities 1,741,362 1,173,196
----------- -----------
Long-term liabilities
Deferred income tax 146,460 146,460
Long-term debt, less current portion 445,414 --
----------- -----------
591,874 146,460
----------- -----------
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:
11,405,666 shares at September 30, 1995 114,057
10,989,166 shares at December 31, 1994 109,892
Additional paid-in capital 12,285,964 12,035,229
Retained earnings 5,344,781 3,683,905
----------- -----------
Total 17,744,802 15,829,026
Less - Treasury stock (200,000 shares
at September 30, 1995) 907,008 --
----------- -----------
Total shareholders' equity 16,837,794 15,829,026
----------- -----------
Total liabilities and shareholders' equity $19,171,030 $17,148,682
=========== ===========
<FN>
See accompanying notes.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
Nine Months Ended September 30
1995 1994
----------- -----------
<S> <C> <C>
Operating activities
Net income $ 1,660,881 $ 1,615,743
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 820,486 806,706
Provision for uncollectible accounts receivable 13,143 --
Gain on sale of equipment and other -- (4,056)
Changes in current assets and liabilities:
Accounts receivable (4,835,688) (3,009,482)
Inventories (32,595) (45,948)
Advances to officers and employees (143,257) --
Other current assets 271,022 (328,257)
Accounts payable (169,947) (306,612)
Accrued payroll 403,579 109,094
Federal income tax payable 125,923 (295,343)
Deferred revenue 24,380 (72,183)
Other current liabilities 135,053 26,365
----------- -----------
Net cash used in
operating activities (1,727,020) (1,503,973)
----------- -----------
Investing activities
Purchases of property and equipment (1,411,893) (705,662)
Purchases of Company common stock (907,008) --
Development of training manuals (9,175) (60,007)
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 -- 1,382
----------- -----------
Net cash provided by/(used in)
investing activities 1,171,924 (771,921)
----------- -----------
Financing activities
Proceeds from issuance of common stock 249,900 5,547,885
Proceeds from issuance of long-term debt 565,998 --
Payments on long-term borrowings
and capital lease obligations (147,484) (330,597)
----------- -----------
Net cash provided by
financing activities 668,414 5,217,288
----------- -----------
Increase in cash
and cash equivalents 113,318 2,941,394
Cash and cash equivalents at beginning of year 412,559 574,637
----------- -----------
Cash and cash equivalents at September 30 $ 525,877 $ 3,516,031
=========== ===========
<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 September 30 Nine Months Ended September 30
---------------------------- ----------------------------
1995 1994 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Primary 11,395,066 11,231,710 11,344,863 10,751,764
Fully diluted 11,395,066 11,237,528 11,344,863 10,751,764
</TABLE>
NOTE B -- REVENUES FROM MAJOR CUSTOMERS
Revenues from major customers were as follows:
<TABLE>
<CAPTION>
1995 1994
----------------------- ----------------------
Percent Percent
Amount of Total Amount of Total
----------- -------- ----------- --------
<S> <C> <C> <C> <C>
Three Months Ended
September 30
Ford Motor Company $ 4,015,244 38.0% $ 3,430,877 42.6%
Hewlett-Packard Company 1,709,297 16.2 -- --
Chrysler Corporation 875,220 8.3 702,053 8.7
Corel Corporation 675,065 6.4 1,045,682 13.0
Novell, Inc. 144,570 1.4 570,999 7.1
Nine Months Ended
September 30
Ford Motor Company $11,892,321 41.5% $10,862,905 48.2%
Hewlett-Packard Company 3,318,672 11.6 -- --
Chrysler Corporation 2,906,981 10.2 1,708,986 7.6
Corel Corporation 2,275,512 8.0 2,836,140 12.6
Novell, Inc. 429,926 1.5 1,754,984 7.8
</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 Nine Months Ended
September 30 September 30
---------------- ----------------
1995 1994 1995 1994
----- ----- ----- -----
<S> <C> <C> <C> <C>
Revenues
Corporate support services 35.8% 41.2% 39.1% 43.1%
Computer product support 36.5 25.4 31.7 23.4
Training programs 8.5 14.3 10.3 15.7
Systems integration and other 19.2 19.1 18.9 17.8
----- ----- ----- -----
Total revenues 100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
Gross margin (Revenues less directly
related expenses):
Corporate support services 31.2% 28.8% 32.1% 28.9%
Computer product support 26.8 31.4 29.3 30.6
Training programs (15.3) 22.0 9.4 19.2
Systems integration and other (10.6) 14.7 (1.1) 4.6
----- ----- ----- -----
Total gross margin 17.6 25.8 22.7 23.5
Selling, general and administrative
and interest (11.2) (12.2) (12.7) (11.9)
Gain on sales of investment -- -- -- 0.7
----- ----- ----- -----
Net margin (Income before tax provisions) 6.4% 13.6% 10.0% 12.3%
===== ===== ===== =====
</TABLE>
Comparative Performance Third Quarter 1995 versus Third Quarter 1994
TechTeam earned net income of $346,541, or $.03 per share, for the third
quarter 1995 as compared to a net income of $621,538, or $.06 per share, for
the third quarter 1994. TechTeam's total revenues increased by $2,512,041 in
1995 to $10,562,202, a 31.2% increase over 1994 revenues.
Corporate support services - There was a $465,570 (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.
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 $1,807,978 (88.6%) increase in revenues
generated from providing computer product support. The Company had 15
contracts in place at September 30, 1995 compared to the 6 contracts at
September 30, 1994. The margin on this line of service decreased between 1994
and 1995 as start-up costs related to new contracts were incurred. This
service line consists of international 800 and 900 telephone support for
computer hardware, software and service 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 $254,879 (22.1%) as compared
to 1994, due to a reduced scope of training services for a major customer. The
Company's experience is that enrollments are somewhat cyclical in nature. The
margin on this line of service decreased between 1994 and 1995 as the Company
incurred substantial start-up costs for a major new contract and wrote off all
remaining assets of its U.K. operations which has been temporarily suspended.
Training programs consist of instructor led training for word processing,
spreadsheets, graphics, data bases, desktop publishing, operating systems, and
systems administration for DOS, Windows, OS/2, NT, and UNIX and mainframe
operating systems.
Systems integration and other - There was a $493,372 (32.1%) increase in
revenues in this service line between 1994 and 1995. The increased revenues
reflect increased demand for TechTeam's systems integration, networking
services, database design, and programming services. The margin on this line
of service was negative in the third quarter 1995 as the Company incurred
losses in excess of $100,000 related to the settlement of a lawsuit and
experienced substantial margin pressure in its sales of computer products.
Selling, general and administrative and interest - These expenses, as a
percentage of revenues, were 11.2% in 1995 compared with 12.2% in 1994. The
decline between the years is attributable primarily to the substantial growth
in revenues without a corresponding increase in costs.
Tax provisions - TechTeam recognized $216,135 of Federal income tax in 1995,
resulting in an effective tax rate of 38.4% for 1995 compared to 38.5% for
1994. The Michigan Single Business Tax in 1995 was $114,000, with an effective
tax rate of 16.9% compared to 8.1% for 1994.
Comparative Performance First Three Quarters 1995 versus First Three
Quarters 1994 (See Third Quarter Comparison for General Information
on Each Service Line)
TechTeam earned net income of $1,660,881, or $.15 per share, for the first
three quarters of 1995 as compared to a net income of $1,615,743, or $.15 per
share, for the first three quarters of 1994. TechTeam's total revenues
increased by $6,115,638 in 1995 to $28,633,325, a 27.2% increase over 1994
revenues.
Corporate support services - There was a $1,488,054 (15.3%) 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.
Computer product support - There was a $3,802,496 (72.1%) increase in revenues
generated from providing computer product support. The Company had 15
contracts in place at September 30, 1995 compared to the 6 contracts at
September 30, 1994. The margin on this line of service decreased between 1994
and 1995 as start-up costs related to new contracts were incurred.
Training programs - Revenues for 1995 decreased $576,264 (16.3%) as compared
to 1994, due to a reduced scope of training services for a major customer. The
Company's experience is that enrollments are somewhat cyclical in nature. The
margin on this line of service decreased between 1994 and 1995 as the Company
incurred substantial start-up costs for a major new contract and wrote off all
remaining assets of its U.K. operations which has been temporarily suspended.
Systems integration and other - There was a $1,401,352 (35.1%) 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. The margin on this line of service
decreased between 1994 and 1995 as the company incurred losses in excess of
$100,000 related to the settlement of a lawsuit and experienced substantial
margin pressure in its sales of computer products.
9
<PAGE>
Comparative Performance First Three Quarters 1995 versus First Three
Quarters 1994 - Continued
Selling, general and administrative and interest - These expenses, as a
percent of revenues, were 12.7% in 1995 compared with 11.9% 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 $882,355 of Federal income tax in 1995,
resulting in an effective tax rate of 34.7% for 1995 compared to 36.3% for
1994. The Michigan Single Business Tax in 1995 was $307,000, with an effective
tax rate of 10.8% compared to 8.1% for 1994.
Liquidity and Capital Resources
As of September 30, 1995, TechTeam had working capital of $12,502,171. This is
an increase in working capital of $785,670 since December 31, 1994, due
primarily to an increase in receivable balances which were due to increased
revenues for the first nine months of 1995.
TechTeam has a line-of-credit agreement with NBD Bank 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 September 30, 1995 or at any time during the first three quarters
of 1995. The Company expects to borrow under this arrangement to finance
anticipated increases in accounts receivable balances. TechTeam did borrow
$565,998 in the third quarter under a five year term loan at 9.1% to finance
acquisition of software and equipment required to support the growth in its
product support line of service. This loan is to be repaid monthly over the
five years.
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 September 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: November 13, 1995 By: /s/William F. Coyro Jr.
-------------------------
William F. Coyro Jr.
Chairman of the Board and
Chief Executive Officer
Date: November 13, 1995 By: /s/Lawrence A. Mills
-------------------------
Lawrence A. Mills
Chief Operating Officer,
Chief Financial Officer and Treasurer
11
EXHIBIT 11 -- STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Primary
Average shares outstanding 11,204,241 10,546,756 11,204,553 10,123,098
Net effect of dilutive stock options and warrants --
based on the treasury stock
method using average market price 190,825 684,954 140,310 628,666
----------- ----------- ----------- -----------
Total 11,395,066 11,231,710 11,344,863 10,751,764
----------- ----------- ----------- -----------
Net income $ 346,541 $ 621,538 $ 1,660,881 $ 1,615,743
=========== =========== =========== ===========
Per share amount $ 0.03 $ 0.06 $ 0.15 $ 0.15
=========== =========== =========== ===========
Fully Diluted
Average shares outstanding 11,204,241 10,546,756 11,204,553 10,123,098
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 190,825 690,772 140,310 628,666
----------- ----------- ----------- -----------
Total 11,395,066 11,237,528 11,344,863 10,751,764
----------- ----------- ----------- -----------
Net income $ 346,541 $ 621,538 $ 1,660,881 $ 1,615,743
=========== =========== =========== ===========
Per share amount $ 0.03 $ 0.06 $ 0.15 $ 0.15
=========== =========== =========== ===========
</TABLE>
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> $ 525,877
<SECURITIES> 0
<RECEIVABLES> 12,677,489
<ALLOWANCES> 90,000
<INVENTORY> 532,343
<CURRENT-ASSETS> 14,243,533
<PP&E> 5,913,807
<DEPRECIATION> 2,554,191
<TOTAL-ASSETS> 19,171,030
<CURRENT-LIABILITIES> 1,741,362
<BONDS> 0
<COMMON> 114,057
0
0
<OTHER-SE> (907,008)
<TOTAL-LIABILITY-AND-EQUITY> 19,171,030
<SALES> 28,633,325
<TOTAL-REVENUES> 28,633,325
<CGS> 0
<TOTAL-COSTS> 22,148,117
<OTHER-EXPENSES> 3,625,260
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,712
<INCOME-PRETAX> 2,850,236
<INCOME-TAX> 1,189,355
<INCOME-CONTINUING> 1,660,881
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,660,881
<EPS-PRIMARY> 0.15
<EPS-DILUTED> 0.15
</TABLE>
