<PAGE> 1
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: March 31, 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 Identification No.)
incorporation or organization)
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.
[X] Yes [ ] No
The number of shares of the registrant's only class of common stock outstanding
at May 5, 1995 was 11,402,166.
<PAGE> 2
NATIONAL TECHTEAM, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I - FINANCIAL INFORMATION
- - ------------------------------
ITEM 1.
Consolidated Statements of Operations
Three Months Ended
March 31, 1995 and 1994 3
Consolidated Statements of Financial Position
March 31, 1995 and December 31, 1994 4-5
Consolidated Statements of Cash Flows
Three Months Ended
March 31, 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 8-9
PART II - OTHER INFORMATION
- - ---------------------------
ITEM 6.
Exhibits and Reports on Form 8-K 10
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
Three Months Ended March 31
1995 1994
------------- ---------------
<S> <C> <C>
REVENUES
Corporate support services $ 3,498,080 $ 3,080,420
Computer product support 2,329,766 1,500,688
Training programs 1,005,347 1,138,625
Systems integration and other 1,627,668 1,107,566
------------- -------------
8,460,861 6,827,299
COSTS AND EXPENSES
Corporate support services 2,489,786 2,262,087
Computer product support 1,384,356 1,088,707
Training programs 857,656 1,046,714
Systems integration and other 1,544,691 1,261,921
Selling, general and administrative 1,274,101 692,972
Interest 1,609 12,433
------------- -------------
7,552,199 6,364,834
------------- -------------
INCOME BEFORE TAX PROVISIONS 908,662 462,465
TAX PROVISIONS 369,435 188,866
------------- -------------
NET INCOME $ 539,227 $ 273,599
============= =============
PRIMARY AND FULLY DILUTED
EARNINGS PER SHARE $ 0.05 $ 0.03
============= =============
</TABLE>
See accompanying notes.
3
<PAGE> 4
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
UNAUDITED
<TABLE>
<CAPTION>
March 31 December 31
ASSETS 1995 1994
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 400,559 $ 412,559
Temporary investments 2,600,000 3,500,000
Accounts receivable 9,398,296 7,751,801
Inventories 526,605 499,748
Refundable income tax 384,258 384,258
Other 572,211 341,331
----------- -----------
Total current assets 13,881,929 12,889,697
----------- -----------
PROPERTY AND EQUIPMENT
Classroom furniture and training equipment 1,291,781 1,288,633
Office furniture and equipment 3,094,744 2,729,008
Transportation equipment 138,572 138,572
Leasehold improvements 348,521 345,701
----------- -----------
4,873,618 4,501,914
Less - Accumulated depreciation
and amortization 2,107,351 1,861,876
----------- -----------
2,766,267 2,640,038
----------- -----------
OTHER ASSETS
Goodwill (less accumulated amortization of
$233,608 at March 31, 1995 and $193,306
at December 31, 1994) 1,373,489 1,413,791
Other 270,797 205,156
----------- -----------
1,644,286 1,618,947
----------- -----------
TOTAL ASSETS $18,292,482 $17,148,682
=========== ===========
</TABLE>
See accompanying notes.
4
<PAGE> 5
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
UNAUDITED
<TABLE>
<CAPTION>
March 31 December 31
LIABILITIES AND SHAREHOLDERS' EQUITY 1995 1994
----------- ------------
<S> <C> <C>
CURRENT LIABILITIES
Current portion of long-term debt $ 64,900 $ 140,100
Accounts payable 346,401 287,403
Accrued payroll 673,488 494,181
Deferred income tax 65,850 65,850
Federal income tax payable 279,434 -
Deferred revenue 305,389 47,540
Other 273,771 138,122
----------- -----------
Total current liabilities 2,009,233 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:
11,281,166 shares at March 31, 1995 112,812
10,989,166 shares at December 31, 1994 109,892
Additional paid-in capital 12,207,408 12,035,229
Retained earnings 4,223,132 3,683,905
----------- -----------
Total 16,543,352 15,829,026
Less - Treasury stock (87,500 shares
at March 31, 1995) 406,563 -
----------- -----------
Total shareholders' equity 16,136,789 15,829,026
----------- -----------
TOTAL LIABILITES AND SHAREHOLDERS' EQUITY $18,292,482 $17,148,682
=========== ===========
</TABLE>
See accompanying notes.
5
<PAGE> 6
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
Three Months Ended March 31
1995 1994
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES $ 539,227 $ 273,599
Net income
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 295,728 289,657
Provision for uncollectible accounts receivable 13,143 -
Gain on sale of equipment and other - (823)
Changes in current assets and liabilities:
Accounts receivable (1,646,495) (772,221)
Inventories (26,857) (99,280)
Other current assets (230,880) (204,738)
Accounts payable 58,998 (88,265)
Accrued payroll 179,307 (18,891)
Federal income tax payable 203,357 (352,385)
Deferred revenue 257,849 219,411
Other current liabilities 135,649 (62,602)
---------- ---------
Net cash used in
operating activities (220,974) (816,538)
---------- ---------
INVESTING ACTIVITIES
Purchases of property and equipment (371,704) (256,133)
Purchases of Company common stock (406,563) -
Development of training manuals (12,659) (51,852)
Purchase of temporary investments (300,000)
Proceeds from sale of temporary investments 1,200,000
Purchases of other assets - (4,458)
Proceeds from sale of property and equipment
and other assets - 4,520
---------- ---------
Net cash provided by/(used in)
investing activities 109,074 (307,923)
---------- ---------
FINANCING ACTIVITIES
Proceeds from short-term borrowings - 1,000,000
Proceeds from issuance of common stock 175,100 216,244
Payments on long-term borrowings
and capital lease obligations (75,200) (110,199)
---------- ---------
Net cash provided by
financing activities 99,900 1,106,045
---------- ---------
Decrease in cash
and cash equivalents (12,000) (18,416)
CASH AND CASH EQUIVALENTS AT BEGINNING OF QUARTER 412,559 574,637
---------- ---------
CASH AND CASH EQUIVALENTS AT END OF QUARTER $ 400,559 $ 556,221
========== =========
</TABLE>
See accompanying notes.
6
<PAGE> 7
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 March 31
---------------------------
1995 1994
---- ----
<S> <C> <C>
Primary 11,208,008 10,399,679
Fully diluted 11,605,517 10,405,369
</TABLE>
NOTE B -- REVENUES FROM MAJOR CUSTOMERS
Revenues from major customers were as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
Amount Percent of Total Amount Percent of Total
------ ---------------- ------ ----------------
Three Months Ended
March 31
<S> <C> <C> <C> <C>
Ford Motor Company $3,762,929 44.8 % $3,430,877 42.6 %
Corel Corporation 810,085 9.6 1,045,682 13.0
Chrysler Corporation 915,258 10.8 702,053 8.7
Novell, Inc. 144,626 1.7 570,999 7.1
</TABLE>
7
<PAGE> 8
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 March 31
1995 1994
---- ----
<S> <C> <C>
REVENUES
Corporate support services 41.3 % 45.1 %
Computer product support 27.5 22.0
Training programs 11.9 16.7
Systems integration and other 19.3 16.2
----- -----
TOTAL REVENUES 100.0 % 100.0 %
====== ======
GROSS MARGIN (Revenues less directly related expenses):
Corporate support services 28.8 % 26.6 %
Computer product support 40.6 27.5
Training programs 14.7 8.1
Systems integration and other 5.1 (13.9)
----- ------
TOTAL GROSS MARGIN 25.8 17.1
SELLING, GENERAL AND ADMINISTRATIVE AND INTEREST (15.1) (10.3)
------ ------
NET MARGIN (INCOME BEFORE TAX PROVISIONS) 10.7 % 6.8 %
====== ======
</TABLE>
COMPARATIVE PERFORMANCE FIRST QUARTER 1995 VERSUS FIRST QUARTER 1994
TechTeam earned net income of $539,227, or $0.05 per share, for the first
quarter 1995 as compared to a net income of $273,599, or $0.03 per share, for
the first quarter 1994. TechTeam's total revenues increased by $1,633,562 in
1995 to $8,460,861, a 23.9% increase over 1994 revenues.
Corporate support services - There was a $417,660 (13.6%) 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 $829,078 (55.2%) increase in revenues
generated from providing computer product support. The Company had twelve
contracts in place at March 31, 1995 compared to the four contracts at March
31, 1994. The margin on this line of service increased between 1994 and 1995
as the product offering matured and start-up costs were reduced. Additionally,
$430,000 of revenues related to contracts under negotiation were recognized.
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> 9
COMPARATIVE PERFORMANCE 1995 VERSUS 1994 -- CONTINUED
Training programs - Revenues for 1995 decreased $133,278 (11.7%) as compared to
1994, due to decreased consumption of TechTeam training programs by corporate
customers whose technology platforms became more static and a reduced scope of
training services for a major customer. The margins 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, OS/2, and UNIX and mainframe operating
systems.
Systems integration and other - There was a $520,102 (47.0%) 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 costs were not
incurred in 1995, resulting in a significant improvement in gross margin.
Selling, general and administrative and interest - These expenses, as a percent
of revenues were 15.1% in 1995 compared with 10.3% in 1994. In 1995, 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 (3.3% of revenue) in the first
quarter 1995; the 1994 corresponding amounts are not readily determinable.
Tax provisions - TechTeam recognized $279,435 of Federal income tax in 1995,
resulting in an effective tax rate of 34.1% for 1995 compared to 30.6% for
1994. In the first quarter 1994, TechTeam eliminated $30,000 of Federal income
tax cushion, reducing its effective tax rate 3.6%. The Michigan Single
Business Tax in 1995 was $90,000, with an effective tax rate of 9.9% compared
to 14.7% for 1994.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1995, TechTeam had working capital of $11,872,696. This is an
increase in working capital of $156,195 since December 31, 1994, due primarily
to an increase in receivable balances which were due to increased revenues for
the first three 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 March 31, 1995 or at any time during the first quarter 1995. The
Company expects to borrow under this arrangement to finance anticipated
increases in accounts receivable balances.
9
<PAGE> 10
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:
February 27, 1995 - Common stock buy-back program
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: May 12, 1995 By: /s/William F. Coyro, Jr.
---------------------------------
William F. Coyro, Jr.
Chairman of the Board and
Chief Executive Officer
Date: May 12, 1995 By: /s/Lawrence A. Mills
---------------------------------
Lawrence A. Mills
Chief Operating Officer,
Chief Financial Officer and Treasurer
10
<PAGE> 11
Exhibit Index
<TABLE>
<CAPTION>
Exhibit Number Description
- - -------------- -----------
<S> <C>
11 Computation of Earnings per Share
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 11 -- STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended March 31
1995 1994
----------- -----------
<S> <C> <C>
Primary
- - -------
Average shares outstanding 11,208,008 9,703,073
Net effect of dilutive stock options and warrants -
based on the treasury stock
method using average market price 332,488 696,606
----------- -----------
Total 11,540,496 10,399,679
----------- -----------
Net income $ 539,227 $ 273,599
=========== ===========
Per share amount $ 0.05 $ 0.03
=========== ===========
Fully Diluted
- - -------------
Average shares outstanding 11,208,008 9,703,073
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 397,509 702,296
----------- -----------
Total 11,605,517 10,405,369
----------- -----------
Net income $ 539,227 $ 273,599
=========== ===========
Per share amount $ 0.05 $ 0.03
=========== ===========
</TABLE>
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 400,559
<SECURITIES> 0
<RECEIVABLES> 9,398,296
<ALLOWANCES> 0
<INVENTORY> 526,605
<CURRENT-ASSETS> 13,881,929
<PP&E> 4,873,618
<DEPRECIATION> 2,107,351
<TOTAL-ASSETS> 18,292,482
<CURRENT-LIABILITIES> 2,009,233
<BONDS> 0
<COMMON> 112,812
0
0
<OTHER-SE> (406,563)
<TOTAL-LIABILITY-AND-EQUITY> 16,136,789
<SALES> 0
<TOTAL-REVENUES> 8,460,861
<CGS> 0
<TOTAL-COSTS> 6,276,489
<OTHER-EXPENSES> 1,274,101
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,609
<INCOME-PRETAX> 908,662
<INCOME-TAX> 362,435
<INCOME-CONTINUING> 539,227
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 539,227
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
