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Filed Pursuant to Rule 424(b)(1)
Registration Statement No. 333-10687
PROSPECTUS
3,000,000 SHARES
TECHTEAM LOGO
NATIONAL TECHTEAM, INC.
COMMON STOCK
($.01 PAR VALUE)
Of the 3,000,000 shares of Common Stock, par value $.01 per share (the "Common
Stock"), being offered hereby, all are being sold by National TechTeam, Inc., a
Delaware corporation (the "Company" and "TechTeam").
The Common Stock is quoted on the Nasdaq National Market under the symbol
"TEAM." On September 26, 1996, the last reported sale price for the Common Stock
on the Nasdaq National Market was $26.25 per share. See "Price Range of Common
Stock."
PROSPECTIVE PURCHASERS OF SHARES SHOULD CAREFULLY CONSIDER THE MATTERS SET FORTH
ON PAGE 6 UNDER THE CAPTION, "RISK FACTORS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT COMPANY(1)
<S> <C> <C> <C>
Per Share.................................... $25.75 $1.61 $24.14
Total (2).................................... $77,250,000 $4,830,000 $72,420,000
</TABLE>
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(1) Before deducting expenses payable by the Company, estimated to be
approximately $467,000.
(2) The Company and certain stockholders of the Company (the "Selling
Stockholders") have granted to the Underwriters an option, exercisable
within 30 days of the date of this Prospectus, to purchase up to 450,000
additional shares of Common Stock at the Price to Public, less the
Underwriting Discount, solely to cover over-allotments, if any. If the
Underwriters exercise such option in full, the total Price to Public,
Underwriting Discount, Proceeds to Company and Proceeds to Selling
Stockholders will be $88,837,500, $5,554,500, $77,851,500 and $5,431,500,
respectively. See "Underwriting."
The shares of Common Stock are offered subject to receipt and acceptance by the
Underwriters, to prior sale and to the Underwriters' right to reject any order
in whole or in part and to withdraw, cancel or modify the offer without notice.
It is expected that delivery of the shares of Common Stock will be made at the
office of Salomon Brothers Inc, Seven World Trade Center, New York, New York, or
through the facilities of The Depository Trust Company, on or about October 2,
1996.
SALOMON BROTHERS INC ROBERT W. BAIRD & CO.
INCORPORATED
The date of this Prospectus is September 27, 1996.
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[PHOTOGRAPH OF THE INTERIOR OF THE COMPANY'S SOUTHFIELD, MICHIGAN CALL CENTER]
National TechTeam's Southfield, Michigan Facility
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE COMMON SHARES OF THE COMPANY ON THE NASDAQ NATIONAL
MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934.
SEE "UNDERWRITING."
2
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements (including the notes thereto) contained
elsewhere in this Prospectus. Unless otherwise indicated, all information in
this Prospectus assumes no exercise of the Underwriters' over-allotment option.
Investors should carefully consider the information set forth under the caption
"Risk Factors."
THE COMPANY
National TechTeam, Inc. (the "Company" or "TechTeam") is a leading provider
of information technology ("IT") outsourcing support services to large national
and multi-national corporations, government agencies and service organizations.
The Company offers its services through two global business units: (i) Call
Center Services, which provides its clients with inbound telephone support for
their computer product end-users and (ii) Corporate Computer Services, which
provides corporations with technical staffing (principally on-site help desk
support), systems integration and instructor-led, computer-based training.
TechTeam's client base includes Hewlett-Packard, Ford, Chrysler, First Chicago
NBD, United Parcel Service, Owens-Corning, Novell and Sun Microsystems. Many of
TechTeam's clients utilize services offered by both of TechTeam's global
business units. The Company has experienced rapid growth as the trend toward
outsourcing has increased. Between 1991 and 1995, revenues increased from $7.9
million to $41.8 million and net income increased from $57,000 to $2.4 million.
This represents compound annual growth rates of 52% and 121% in revenues and net
income, respectively.
The IT services market is large and growing rapidly due to the
proliferation of complex information technology systems, an increase in the
number of IT system end-users and an increase in the desire of companies to
outsource technical support to third-party providers. Dataquest estimates that
from 1995 to 1999 technical support services provided in-house and by third
parties, such as those provided by call centers and on-site help desks, are
expected to increase from $20.6 billion to $31.5 billion; and technical support
services outsourced to third-party vendors are expected to increase from $2.6
billion to $7.2 billion. This represents compound annual growth rates of 11% and
29%, respectively. TechTeam's objective is to maintain its position as a leading
provider of IT outsourcing support services and to continue the profitable
growth of its two global business units.
Call Center Services. As one of the largest and fastest growing operators
of call centers, TechTeam operates as an extension of its clients' customer
support function providing technical assistance to end-users of computer
hardware and software. As part of its growth strategy, the Company has recently
opened two additional call centers and doubled the capacity of its worldwide
call center headquarters. TechTeam now operates a total of five U.S.-based call
centers and one Pan-European call center in Brussels, Belgium. Call Center
Services provides TechTeam's clients with computer product post-sales support
and off-site help desk services to corporate IT users. The Company has also
recently expanded its service offerings to include other services throughout its
clients' sales cycle, such as new product launch support, pre-sales support and
order fulfillment. Call center operations began in June 1993 and have increased
from $2.3 million in revenues in 1993 to $15.1 million in revenues in 1995, a
compound annual growth rate in excess of 150%. In addition, revenues for the
first six months of 1996 increased 180% over the first six months of 1995, from
$5.1 million to $14.4 million.
Corporate Computer Services. TechTeam provides its clients with a wide
range of IT services on an outsourced basis. These services are customized to
provide cost-effective solutions for the challenges facing information services
departments that are asked to support an increasing number of IT platforms and
end-users. TechTeam is able to develop customized solutions for its clients' IT
requirements by providing one or more of the following services: (i) Technical
Staffing(1995 revenues of $14.7 million), which is comprised principally of
on-site help desks and other IT staffing services, (ii) Systems Integration
(1995 revenues of $7.9 million), which provides design, installation, and
support of computer networks, sales of new hardware and software, installation
and maintenance services, and World Wide Web development together with complete
Internet and Intranet services; and (iii) Training (1995
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revenues of $4.0 million), which provides instructor-led, computer-based
training for a wide array of office automation, application development,
operating system and proprietary client software products. Corporate Computer
Services revenues increased from $18.1 million in 1993 to $26.7 million in 1995,
a compound annual growth rate of 21%. In addition, revenues for the first six
months of 1996 increased 23% over the first six months of 1995, from $12.9
million to $15.9 million.
TechTeam possesses several key competitive strengths that it believes will
enable it to continue to expand its business by further penetrating existing
client relationships and by attracting new clients. These strengths, which have
contributed to TechTeam's rapid growth, are as follows:
- Internationally Recognized Client Base affording significant growth
potential and highly respected references. For example, TechTeam began
its relationship with Ford over ten years ago and currently provides
services to 22 Ford divisions and two finance subsidiaries worldwide;
- Multiple Service Offerings which provide expanded business opportunities
with existing clients for new services. Most of TechTeam's revenues are
derived from clients who purchase more than one of its services;
- Technically Proficient Employee Base which enables it to compete
effectively for sophisticated IT support services. The Company emphasizes
advancement opportunities for its employees by actively managing their
career paths and invests substantial time in training its employees. The
Company has increased the number of employees from 136 in January 1992 to
1,238 in June 1996;
- Recognition for Delivery of Quality Services in the form of ISO 9001
certification, an international standard for quality assurance and
operating consistency; and
- Advanced Technology Infrastructure featuring state-of-the-art call
centers enabling the Company to maintain a leading position as a provider
of IT support services. TechTeam has built five new call centers in the
past year, investing substantial capital to build a technology
infrastructure incorporating sophisticated telephony, efficient networks,
call distribution software and productivity management tools which aid in
increasing efficiency and utilization.
The Company intends to increase revenues and to continue to grow its
operations through the following growth strategy: (i) further penetrate existing
clients, attract new clients and extend service lines; (ii) leverage technology
and training for higher margins; (iii) expand globally; (iv) pursue selective
acquisitions, joint ventures and alliances; and (v) continue a strong commitment
to quality service.
National TechTeam, Inc., a Delaware corporation, was incorporated in 1987.
TechTeam's executive offices are located at 22000 Garrison Avenue, Dearborn,
Michigan 48124 and its telephone number is (313) 277-2277.
THE OFFERING
Common Stock Offered by the
Company............................. 3,000,000
Common Stock to be Outstanding after
the Offering........................ 14,432,851
Use of Proceeds..................... For general corporate purposes,
including domestic and international
call center expansion, capital
expenditures, working capital and
acquisitions. See "Use of Proceeds."
Nasdaq National Market symbol....... TEAM
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(1) Does not include (i) 1,119,025 shares of Common Stock issuable upon the
exercise of outstanding options under the Company's stock option plans and
(ii) 2,534,500 shares reserved for issuance upon exercise of options that
may be granted in the future under the Company's stock option plans as of
the date of this Prospectus. See "Management -- Executive Compensation."
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SUMMARY FINANCIAL AND OPERATING DATA
The following table sets forth certain summary consolidated financial and
operating data and is qualified by the more detailed Consolidated Financial
Statements and notes thereto included elsewhere in this Prospectus. The
Statement of Operations Data for each of the five years in the period ended
December 31, 1995 have been derived from the Company's consolidated financial
statements for such years, which have been audited by Ernst & Young LLP,
independent auditors. This data should be read in conjunction with the
Consolidated Financial Statements and notes thereto included in this Prospectus.
The financial data for the six months ended June 30, 1995 and June 30, 1996 are
unaudited but, in the opinion of the Company's management, reflect all
adjustments necessary for a fair presentation of such information. Operating
results for the six months ended June 30, 1996 are not necessarily indicative of
the results that may be expected for the year ending December 31, 1996.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------------------- -------------------
1991 1992 1993 1994 1995 1995 1996
------ ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenues
Call Center Services............ $ -- $ -- $ 2,326 $ 7,173 $15,123 $ 5,141 $14,387
------ ------- ------- ------- ------- ------- -------
Corporate Computer Services
Technical staffing............ 3,478 6,052 10,085 12,837 14,732 7,288 7,702
Systems integration........... 1,452 1,079 2,647 5,601 7,914 3,590 5,009
Training programs............. 2,975 3,771 5,386 4,613 4,018 2,052 3,141
------ ------- ------- ------- ------- ------- -------
Total Corporate Computer
Services...................... 7,905 10,902 18,118 23,051 26,664 12,930 15,852
------ ------- ------- ------- ------- ------- -------
Total revenues.................... $7,905 $10,902 $20,444 $30,224 $41,787 $18,071 $30,239
====== ======= ======= ======= ======= ======= =======
Gross profit...................... $1,489 $ 2,443 $ 4,623 $ 7,125 $ 9,450 $ 4,625 $ 7,001
Income before tax provisions...... 57 1,031 2,769 3,371 4,077 2,174 3,264
Net income........................ 57 766 1,672 1,971 2,399 1,314 1,910
Earnings per share................ $ 0.01 $ 0.09 $ 0.18 $ 0.18 $ 0.21 $ 0.11 $ 0.17
Weighted average number of fully
diluted shares outstanding...... 8,047 8,733 9,523 11,079 11,361 11,676 11,542
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
--------------------------
REPORTED AS ADJUSTED(1)
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(IN THOUSANDS)
<S> <C> <C>
STATEMENT OF FINANCIAL POSITION DATA:
Current assets............................................................. $18,481 $ 90,434
Current liabilities........................................................ 5,117 5,117
Total assets............................................................... 26,388 98,341
Long-term liabilities...................................................... 871 871
Total shareholders' equity................................................. 20,399 92,353
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
----- ----- ------- ------- --------- ------- ---------
(AT END OF PERIOD, EXCEPT CALLS ANSWERED)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Call Center Services
Call centers.................... -- -- 1 1 3 1 6
Equipped workstations........... -- -- 104 114 386 193 609
Calls answered.................. -- -- 183,585 484,861 1,226,028 461,685 1,298,546
Number of employees
Call Center Services............ -- -- 104 138 489 264 685
Corporate Computer Services
Technical staffing............ 75 126 204 211 232 213 265
Systems integration........... 5 21 46 75 129 119 130
Training programs............. 45 66 70 55 67 59 76
Sales, general and
administrative................ 11 15 17 30 63 59 82
--- --- ------- ------- --------- ------- ---------
Total employees................. 136 228 441 509 980 714 1,238
=== === ======= ======= ========= ======= =========
</TABLE>
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(1) Adjusted to reflect the sale of 3,000,000 shares of Common Stock being
offered by the Company hereby and the application of the net proceeds
therefrom. See "Use of Proceeds" and "Capitalization."
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RISK FACTORS
In addition to the other information set forth in this Prospectus,
investors should consider carefully the following factors in connection with an
investment in the shares of Common Stock offered hereby. CONCENTRATION OF
REVENUES
The Company derives a high portion of its revenue from a limited number of
clients. During 1995, 71.3% of the Company's revenues were attributable to four
clients, Ford, Hewlett-Packard, Chrysler and Corel. For the first six months of
1996, 69.1% of its revenues were from three clients, Hewlett-Packard, Ford and
Chrysler. Historically, the Company has been heavily dependent upon Ford for a
major portion of its revenues (37.3% in 1995, 47.0% in 1994 and 67.0% in 1993),
although Hewlett-Packard became the Company's largest client in the first half
of 1996 at 32.0% of total revenues. Clients can generally terminate or reduce
the level of services on short notice without penalty. For example, revenues
from Corel declined from 12.2% in 1994 to negligible in 1996 because of Corel's
decision to insource its call center services. The loss of any significant
customer could have a material adverse effect on the Company's business,
operating results and financial condition. Management has recognized the need to
diversify its client base and is continuing its efforts to that end. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Impact of Business With Major Clients" and "Business -- Marketing,
Sales and Clients."
MANAGEMENT OF GROWTH
The Company's revenues have grown from $7.9 million in 1991 to $41.8
million in 1995, a compound annual growth rate of approximately 50.0%. In
addition, the number of the Company's employees has increased from 136 in
January 1992 to a present level of 1,238. Continuing significant growth could
place a strain on the Company's managerial and other resources. The Company's
future performance and profitability will depend, in large part, on its ability
to manage this growth, particularly with respect to its decentralized workforce
which will require the Company to continue to improve its operational, financial
and other internal systems and the recruitment, training, motivation and
management of its employees. A failure to manage growth effectively or to
deliver its services at acceptable levels could adversely impact the Company's
business and results of operations.
COMPETITION
The Company faces intense competition in both the call center and corporate
computer services markets. In the call center market, the Company competes with
other call center companies, some of which have substantially greater resources
including more call center locations, greater financial resources, a larger
client base and more name recognition. In the corporate computer services
market, the Company competes with many entities including systems integration
firms, application software firms, staffing firms, "Big Six" accounting firms,
facilities management firms and computer consulting firms. Many of these firms
have more experience, resources, clients and name recognition than the Company.
The Company also faces significant competition in both markets from its own
clients and potential clients whose internal resources represent a fixed cost to
the client. Such competition may impose additional pricing pressures on the
Company. There can be no assurance that the Company will compete successfully
with its existing competitors or with any new competitors. See "Business --
Competition."
RELIANCE ON KEY EXECUTIVES
The success of the Company is highly dependent upon the efforts and
abilities of its executive officers, particularly William F. Coyro, Jr., the
Company's founder, Chairman and Chief Executive Officer. None of the Company's
key executives are subject to employment contracts, and the Company does not
maintain key-man insurance on its executives. The loss of the services of any of
these key executives for any reason could have a material adverse effect on the
Company's business, operating results and financial condition.
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ATTRACTION AND RETENTION OF EMPLOYEES
The Company's business involves the delivery of professional services and
is labor-intensive. The Company's growth and success depends in large part upon
its ability to attract, develop, motivate and retain highly skilled technical
employees. Qualified technical employees are in great demand and are likely to
remain a limited resource for the foreseeable future. There can be no assurance
that the Company will be able to attract and retain sufficient numbers of highly
skilled technical employees in the future. The loss of technical personnel could
have a material adverse effect on the Company's business, operating results and
financial condition, including its ability to secure and complete engagements.
See "Business -- Human Resources."
PROJECT RISKS
Many of the Company's engagements involve projects that are critical to the
operations of its clients' businesses and provide benefits that may be difficult
to quantify. The Company's failure or inability to meet a client's expectations
in the performance of its services could result in a material adverse change to
the client's operations and therefore could give rise to claims against the
Company or damage the Company's reputation, adversely affecting its relationship
with its client, its business, operating results and financial condition.
VARIABILITY OF QUARTERLY OPERATING RESULTS
Variations in the Company's revenues and operating results occur from time
to time as a result of a number of factors, such as the significance of client
engagements commenced and completed during a quarter, the number of business
days in a quarter and employee hiring and utilization rates. Under the terms of
certain call center contracts, clients are required to pay certain amounts at
the commencement of the contract, which payments are non-refundable and as to
which the Company has no further service obligation. The Company has recognized
these amounts as revenues when they were billed. Absent unusual circumstances,
in the future the Company expects to negotiate these contracts so that the
revenues are recognized over the life of the contract. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations." The
timing of revenues is difficult to forecast because the Company's sales cycle
can be relatively long and may depend on factors such as the size and scope of
assignments and general economic conditions. Because a high percentage of the
Company's expenses are relatively fixed, a variation in the number of clients,
assignments or the timing of the initiation or the completion of client
assignments can cause significant variations in operating results from quarter
to quarter and could result in losses to the Company. In addition, the Company's
engagements generally are terminable by the client without penalty.
CYCLICALITY
Certain of the Company's clients and potential clients are in industries,
such as the automobile (which accounts for a major portion of the Company's
revenues) and financial services industries, that experience cyclical variations
in profitability, which may in turn affect their willingness or ability to fund
systems projects such as those for which the Company may be engaged. While the
Company's experience indicates that competitive pressures in cyclical industries
often compel businesses to undertake projects even during periods of losses or
reduced profitability, the Company is unable to predict how businesses might
react in the future during such periods.
INTERRUPTION OF TELECOMMUNICATIONS SERVICES
The Company's operations are dependent on its ability to protect its call
centers against damage from fire, power loss, telecommunications failure or
similar event. The Company has taken precautions to protect itself from events
that could interrupt its operations, including off-site storage of back-up data
and back-up power generators. No assurance can be given that such precautions
will be adequate, and operations may still be interrupted, even for extended
periods. In addition, the call center services
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<PAGE> 8
provided by the Company are dependent on telecommunications services provided by
the regional Bell operating companies. Although the Company has taken certain
precautions consisting of diversified routing services and redundant fiber optic
cables, any damage to call centers or any failure of the Company's
telecommunication links that cause interruptions in the Company's operations
could have a material adverse effect on the Company's business, operating
results or financial condition. The Company's property and business interruption
insurance with current limits of $2 million may not be adequate to compensate
the Company for all losses that may occur. See "Business -- Technology."
CERTAIN ANTI-TAKEOVER EFFECTS
The Company's Bylaws and the Delaware General Corporation Law include
provisions that may be deemed to have anti-takeover effects and may delay, defer
or prevent a takeover attempt that stockholders might consider in their best
interests. These include Bylaw provisions under which only the Chairman of the
Board or the President and holders of 30% of the outstanding Common Stock may
call special meetings of stockholders and the ability of the Board of Directors
of the Company to issue up to 5,000,000 shares of preferred stock and to
determine the price, rights, preferences and privileges of such shares, without
any further stockholder action. The existence of this "blank-check" preferred
stock could render more difficult or discourage an attempt to obtain control of
the Company by means of a tender offer, merger, proxy contest or otherwise.
These provisions may have an adverse effect on the market price of the Company's
Common Stock. See "Description of Capital Stock -- Certain Delaware Law and
Bylaw Provisions; Anti-Takeover Effects."
SIGNIFICANT UNALLOCATED NET PROCEEDS
The anticipated net proceeds of this offering have been designated for
general corporate purposes, including domestic and international call center
expansion, capital expenditures, working capital and acquisitions. The Board of
Directors of the Company will have broad discretion with respect to the use of
the net proceeds of this offering. Accordingly, there has been no specific
allocation of net proceeds. See "Use of Proceeds."
GROWTH THROUGH ACQUISITIONS AND NEW PRODUCTS
The Company's business strategy includes growth through acquisitions of
businesses and technology sources complementary to the Company's business. The
Company has acquired three significantly smaller companies in the past and
believes that it has been successful in integrating the acquired assets and
businesses into the Company's operations. There can be no assurance, however,
that future acquisitions will be consummated on acceptable terms or that any
acquired assets or business will be successfully integrated into the Company's
operations. Further, acquisitions may involve special risks such as diversion of
management's attention, unanticipated events, legal liabilities and amortization
of intangibles, any of which could have an adverse effect on the Company's
operations and earnings. The Company may use Common Stock or preferred stock
(which could result in dilution to the purchasers of Common Stock in the
Offering) or may incur indebtedness or use a combination of stock and
indebtedness for all or a portion of the consideration to be paid in future
acquisitions. While the Company continuously evaluates acquisition
opportunities, it has no current commitments or agreements with respect to any
material acquisitions.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
Certain risks are inherent in the Company's business strategy which
includes plans for the global expansion of its operations. Among other things,
the Company may encounter difficulties in marketing, selling and delivering its
services due to differences in cultures, languages, labor and employment
policies and differing political and social systems. In addition, the Company
may encounter significant effects on its operations and financial condition as a
result of currency fluctuations and differing tax laws.
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RAPID TECHNOLOGY CHANGES; DEPENDENCE ON NEW SOLUTIONS
The Company's success will depend in part on its ability to develop IT
systems infrastructure that can keep pace with continuing changes in technology.
These changes in computing and communications will be rapid as new industry
standards emerge. There can be no assurance that the Company will be successful
in adequately addressing these developments on a timely basis or that, if these
developments are addressed, the Company will be successful in the marketplace.
In addition, there can be no assurance that products or technologies developed
by others will not render the Company's services uncompetitive or obsolete. The
Company's failure to address these developments could have a material adverse
effect on the Company's business, operating results and financial condition.
INTELLECTUAL PROPERTY RIGHTS
The Company's success is dependent upon certain methodologies it develops
and utilizes in designing and delivering IT corporate computer and call center
services. The Company's business includes the development of custom software in
connection with specific client engagements. Ownership of such software is
generally assigned to the client. The Company also develops certain foundation
and application software products, or software "tools," which remain the
property of the Company.
The Company relies upon a combination of nondisclosure and other
contractual arrangements and trade secret, copyright and trademark laws to
protect its proprietary rights and the proprietary rights of third parties from
whom the Company licenses intellectual property. The Company enters into
confidentiality agreements with its employees and limits distribution of
proprietary information. There can be no assurance that the steps taken by the
Company in this regard will be adequate to deter misappropriation of proprietary
information or that the Company will be able to detect unauthorized use and take
appropriate steps to enforce its intellectual property rights.
Although the Company believes that its services do not infringe on the
intellectual property rights of others and that it has all rights necessary to
utilize the intellectual property employed in its business, the Company is
subject to the risk of litigation alleging infringement of third-party
intellectual property rights. Any such claims could require the Company to spend
significant sums in litigation, pay damages, develop non-infringing intellectual
property or acquire licenses of the intellectual property which is the subject
of asserted infringement. See "Business -- Intellectual Property Rights."
CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS
OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This Prospectus contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. When used in this
document, the words "anticipate", "believe" "estimate", and "expect" and similar
expressions are generally intended to identify forward-looking statements.
Prospective investors are cautioned that any forward-looking statements,
including statements regarding the intent, belief, or current expectations of
the Company or its management, are not guarantees of future performance and
involve risks and uncertainties, and that actual results may differ materially
from those in the forward-looking statements as a result of various factors
including but not limited to (i) general economic conditions in the markets in
which the Company operates, (ii) fluctuations in worldwide or regional demands
for IT and computer related services and products, and (iii) those items
identified under "Risk Factors." Should one or more of those risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those described herein as anticipated,
believed, estimated or expected. The Company does not intend to update these
forward-looking statements.
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USE OF PROCEEDS
The net proceeds to the Company from the sale of 3,000,000 shares of Common
Stock offered hereby, after deducting the estimated underwriting discounts and
commissions and offering expenses payable by the Company, are estimated to be
approximately $72.0 million ($77.4 million if the Underwriters' over-allotment
option is exercised in full). In the event the Underwriters exercise their over-
allotment option, the Company will not receive any proceeds from the sale of
shares of Common Stock by the Selling Stockholders. See "Principal and Selling
Stockholders."
The net proceeds of this offering will be used for general corporate
purposes, including domestic and international call center expansion, capital
expenditures, working capital and acquisitions. Currently, the Company has no
arrangements or understandings with respect to any acquisitions, although it
continually monitors acquisition opportunities. Pending any such use, the
Company plans to invest the net proceeds from this offering in short-term,
investment grade securities or money market instruments.
DIVIDEND POLICY
The Company has never paid any dividends on its Common Stock and expects
for the foreseeable future to retain all of its earnings from operations for use
in expanding and developing its business. Any future decision as to payment of
dividends will be at the discretion of the Company's Board of Directors and will
depend upon the Company's earnings, financial position, capital requirements and
such other factors as the Board of Directors deems relevant.
PRICE RANGE OF COMMON STOCK
The following table sets forth the reported high and low sales prices of
the Common Stock for the quarters indicated as reported on the Nasdaq National
Market. The Common Stock is traded on the Nasdaq National Market under the
symbol "TEAM."
<TABLE>
<CAPTION>
HIGH LOW
------- ------
<S> <C> <C>
1994
First Quarter............................................ $ 9.625 $4.625
Second Quarter........................................... $ 8.250 $5.750
Third Quarter............................................ $ 7.500 $5.125
Fourth Quarter........................................... $ 7.625 $4.625
1995
First Quarter............................................ $ 5.250 $3.500
Second Quarter........................................... $ 6.875 $3.875
Third Quarter............................................ $ 7.500 $5.250
Fourth Quarter........................................... $ 6.125 $4.875
1996
First Quarter............................................ $ 6.250 $4.750
Second Quarter........................................... $17.875 $5.063
Third Quarter (through 9/26/96).......................... $26.750 $7.500
</TABLE>
On September 26, 1996, the last reported sales price of the Common Stock on
the Nasdaq National Market was $26.25 per share. As of August 19, 1996, there
were 973 holders of record of the Company's Common Stock.
10
<PAGE> 11
CAPITALIZATION
The following table sets forth, as of June 30, 1996, the actual
capitalization of the Company and the capitalization of the Company as adjusted
to reflect the application of the net proceeds from this offering. This table
should be read in conjunction with the Consolidated Financial Statements and the
related notes thereto elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1996
----------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash.................................................................. $ 1,661 $73,614
=========== ========
Current installments of long-term debt(1)............................. $ 181 $ 181
=========== ========
Long-term debt, less current installments(1).......................... $ 755 $ 755
----------- --------
Shareholders' equity:
Preferred stock, $0.01 par value, 5,000,000 shares authorized; no
shares issued and outstanding....................................
Common Stock, $0.01 par value, 45,000,000 shares authorized;
11,561,141 shares issued; 14,561,141 issued shares as
adjusted(2)...................................................... $ 116 $ 146
Additional paid-in capital.......................................... 13,096 85,019
Retained earnings................................................... 7,993 7,993
-----------
--------
Total................................................................. 21,205 93,158
Less -- Treasury stock (177,063 shares)............................... 805 805
-----------
--------
Total shareholders' equity............................................ $20,400 $92,353
-----------
--------
Total capitalization............................................. $21,155 $93,108
=========== ========
</TABLE>
- -------------------------
(1) See Note D of Notes to Consolidated Financial Statements.
(2) Excludes 680,150 shares of Common Stock issuable as of June 30, 1996 upon
the exercise of outstanding stock options under the Company's stock option
plans and 3,029,500 shares reserved as of that date for issuance upon
exercise of options that may be granted in the future under the Company's
stock option plans.
11
<PAGE> 12
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth certain selected consolidated financial data
and is qualified by the more detailed Consolidated Financial Statements and
notes thereto included elsewhere in this Prospectus. The Statement of Financial
Position Data as of December 31, 1991, 1992, 1993, 1994 and 1995, and the
Statement of Operations Data for each of the five years in the period ended
December 31, 1995 have been derived from the Company's consolidated financial
statements for such years, which have been audited by Ernst & Young LLP,
independent auditors. The financial data for the six months ended June 30, 1995
and June 30, 1996 are unaudited but, in the opinion of the Company's management,
reflect all adjustments necessary for a fair presentation of such information.
Operating results for the six months ended June 30, 1996 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1996.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------------- -----------------
1991 1992 1993 1994 1995 1995 1996
------ ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues
Call Center Services.......... $ -- $ -- $ 2,326 $ 7,173 $15,123 $ 5,141 $14,387
------ ------- ------- ------- ------- ------- -------
Corporate Computer Services
Technical staffing.......... 3,478 6,052 10,085 12,837 14,732 7,288 7,702
Systems integration......... 1,452 1,079 2,647 5,601 7,914 3,590 5,009
Training programs........... 2,975 3,771 5,386 4,613 4,018 2,052 3,141
------ ------- ------- ------- ------- ------- -------
Total Corporate Computer
Services.................... 7,905 10,902 18,118 23,051 26,664 12,930 15,852
------ ------- ------- ------- ------- ------- -------
Total revenues.................. 7,905 10,902 20,444 30,224 41,787 18,071 30,239
Cost of services delivered...... 6,416 8,459 15,821 23,099 32,337 13,446 23,238
------ ------- ------- ------- ------- ------- -------
Gross profit.................... 1,489 2,443 4,623 7,125 9,450 4,625 7,001
------ ------- ------- ------- ------- ------- -------
Other expenses/(income)
Selling, general and
administrative.............. 1,331 1,359 1,787 3,872 5,349 2,448 3,700
Interest...................... 101 53 67 34 24 3 37
Gain on sale of investment.... -- -- -- (152) -- -- --
------ ------- ------- ------- ------- ------- -------
1,432 1,412 1,854 3,754 5,373 2,451 3,737
------ ------- ------- ------- ------- ------- -------
Income before tax provisions.... 57 1,031 2,769 3,371 4,077 2,174 3,264
Tax provisions.................. -- 265 1,097 1,400 1,678 860 1,354
------ ------- ------- ------- ------- ------- -------
Net income...................... $ 57 $ 766 $ 1,672 $ 1,971 $ 2,399 $ 1,314 $ 1,910
====== ======= ======= ======= ======= ======= =======
Primary and fully diluted
earnings per share............ $0.01 $0.09 $0.18 $0.18 $0.21 $0.11 $0.17
====== ======= ======= ======= ======= ======= =======
Weighted average number of
common shares and common share
equivalents outstanding
Primary....................... 7,618 8,422 9,306 10,981 11,361 11,540 11,531
Fully diluted................. 8,047 8,733 9,523 11,079 11,361 11,676 11,542
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------- JUNE 30,
1991 1992 1993 1994 1995 1996
------ ------ ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF FINANCIAL POSITION
DATA:
Current assets.................. $2,023 $3,085 $ 6,173 $12,890 $16,191 $18,481
Current liabilities............. 1,478 2,037 2,006 1,173 3,839 5,117
Total assets.................... 2,650 4,130 10,300 17,149 22,286 26,388
Long-term liabilities........... 40 104 214 146 555 871
Total shareholders' equity...... 1,133 1,989 8,080 15,829 17,892 20,399
</TABLE>
12
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Overview
The Company originally commenced operations as a computer hardware reseller
and evolved into a provider of instructor-led, computer-based training for its
computer hardware clients. During the late 1980's the Company added IT staffing
and systems integration services as a complement to its existing training
business. In 1993, as a result of the Company's growing expertise in providing
IT staffing of on-site help desks, TechTeam entered the call center industry.
Today, the Company's IT outsourcing services cover a broad range of IT,
including planning, design, implementation and support. Although the Company's
services are complementary, TechTeam has divided its service offerings into two
divisions, Call Center Services and Corporate Computer Services (technical
staffing, systems integration and training programs). Revenues from all service
offerings are recognized as services are performed.
Call Center Services consist of international telephone support for
end-users of computer hardware and software products. Call Center Services are
billed on a fee per call, fee per time spent on calls or per agent basis, each
as negotiated with clients. Under the terms of certain Call Center Services
contracts, clients are required to pay certain amounts at the commencement of
the contract, which payments are non-refundable and as to which the Company has
no further service obligation. Amounts billed under this provision of such
contracts aggregated $19,600 in 1994; $1,655,700 in 1995; and $430,000 and
$618,100 for the six months ended June 30, 1995 and 1996, respectively. The
Company has recognized these amounts as revenues when they were billed. Absent
unusual circumstances, in the future the Company expects to negotiate these
contracts so that the revenues are recognized over the life of the contract.
Technical staffing includes a variety of technical services, including the
placement of computer personnel at client sites to support end-user applications
through on-site help desks, as well as selected programming and consulting
services. Systems integration consists of database design, computer product
sales and networking services. Contracts for technical staffing and systems
integration are generally negotiated on an hourly rate basis or are priced on a
project basis. Training programs consist of instructor-led, computer-based
training for word processing, spreadsheets, graphics, data bases, desktop
publishing, operating systems, and systems administration for NetWare, JAVA, NT,
Windows, OS/2 and UNIX and mainframe operating systems. For training programs,
clients pay a fee per student trained or a fee for classes offered, in some
cases with an advance payment for the cost of the necessary training materials.
Cost of services delivered consists of direct personnel compensation,
statutory and other benefits associated with such personnel, facility and
computer equipment costs, and other direct costs associated with providing
services to clients. Selling, general and administrative costs consist of sales,
marketing and administrative compensation, statutory and other benefits
associated with such personnel, facility and equipment costs and other indirect
costs associated with the sales and administrative functions of the Company.
13
<PAGE> 14
The following table sets forth the percentage relationship to revenues of
certain items in the Company's Consolidated Statements of Operations:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------- ---------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues
Call Center Services......................... 11.4% 23.7% 36.2% 28.4% 47.6%
----- ----- ----- ----- -----
Corporate Computer Services
Technical staffing........................ 49.3 42.5 35.3 40.3 25.5
Systems integration....................... 12.9 18.5 18.9 19.9 16.5
Training programs......................... 26.4 15.3 9.6 11.4 10.4
----- ----- ----- ----- -----
Total Corporate Computer Services............ 88.6 76.3 63.8 71.6 52.4
----- ----- ----- ----- -----
Total revenues................................. 100.0 100.0 100.0 100.0 100.0
Cost of services delivered..................... 77.4 76.4 77.4 74.4 76.8
----- ----- ----- ----- -----
Gross profit................................... 22.6 23.6 22.6 25.6 23.2
----- ----- ----- ----- -----
Other expenses/(income)
Selling, general and administrative.......... 8.7 12.8 12.8 13.6 12.3
Interest..................................... 0.4 0.1 0.1 0.0 0.1
Gain on sale of investment................... -- (0.5) -- -- --
----- ----- ----- ----- -----
9.1 12.4 12.9 13.6 12.4
----- ----- ----- ----- -----
Income before tax provisions................... 13.5 11.2 9.7 12.0 10.8
Tax provisions................................. 5.3 4.7 4.0 4.7 4.5
----- ----- ----- ----- -----
Net income..................................... 8.2% 6.5% 5.7% 7.3% 6.3%
===== ===== ===== ===== =====
</TABLE>
Between 1993 and 1995, the Company's revenues increased at a compound
annual growth rate of 43.0%. The Company believes that its growth has benefited
from the trend among large corporations to outsource much of their information
technology needs and the Company's ability to provide services that address a
broad range of those needs. The Company believes that the outsourcing trend will
continue and will provide continuing opportunities for both of its service
lines. The Company further believes that its service offerings are influenced
substantially by its clients' desires to focus on their core businesses and to
leave information technology needs to the Company for which information
technology is its core business. The Company's training programs have
encountered cyclical enrollment trends, influenced by the timing and extent to
which clients are upgrading desk top software. See "Risk Factors -- Management
of Growth" and "-- Growth Through Acquisitions and New Products."
The Company's business is based on client relationships with major
corporations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Impact of Business with Major Clients."
COMPARATIVE PERFORMANCE -- FIRST SIX MONTHS OF 1996 VERSUS FIRST SIX MONTHS OF
1995
TechTeam earned net income of $1,909,887, or $0.17 per share, for the first
six months of 1996 as compared to a net income of $1,314,340 or $0.11 per share,
for the first six months of 1995.
Revenues -- TechTeam's total revenues increased by $12,167,715 in the first
six months of 1996 to $30,238,838, a 67.3% increase over revenues in the first
six months of 1995. Changes in revenues resulted from the following:
Call Center Services -- Revenues from Call Center Services increased
by $9,246,408 in the first six months of 1996. This was a 179.9% increase
over Call Center Services revenues in the first six months of 1995. The
increase was due to an increase to 20 contracts in place at June 30, 1996
compared to the 14 contracts at June 30, 1995 and increased business with
existing customers, primarily Hewlett-Packard.
14
<PAGE> 15
Technical staffing -- Revenues from technical staffing increased by
$413,418 in the first six months of 1996. This was a 5.7% increase over
technical staffing revenues in the first six months of 1995. The increase
was due to continued client demand for TechTeam's help desk and computer
services personnel at Ford and other major accounts.
Systems integration -- Revenues from systems integration increased by
$1,419,082 in the first six months of 1996. This was a 39.5% increase over
systems integration revenues in the first six months of 1995. The increase
was due principally to a growing demand by existing clients for TechTeam's
networking services.
Training programs -- Revenues from training programs increased by
$1,088,807 in the first six months of 1996. This was a 53.1% increase over
training revenues in the first six months of 1995. The increase was due to
increased enrollments in the Company's training programs and the sale of
$350,000 of computer-based training materials to a new client.
Cost of services delivered -- The cost of services delivered increased by
$9,791,423 in the first six months of 1996. This was a 72.8% increase over the
cost of services delivered in the first six months of 1995. The increase was due
principally to compensation costs for an increased number of technical
personnel, statutory and other benefits associated with such personnel, facility
and computer equipment costs, and other direct costs associated with providing
an increased volume of services to clients. These costs were 76.8% and 74.4% of
revenues for the six months ended June 30, 1996 and 1995, respectively.
Selling, general and administrative -- Selling, general and administrative
expenses increased by $1,252,487 in the first six months of 1996. This was a
51.2% increase over selling, general and administrative expenses in the first
six months of 1995. The increase was due principally to compensation costs for
an increased number of sales and administrative personnel, statutory and other
benefits associated with such personnel, facility and equipment costs, and other
indirect costs needed to support the growth of the Company. These expenses were
12.3% of revenues in the first six months of 1996 compared with 13.6% of
revenues in the first six months of 1995. This decline was due to TechTeam's
ability to increase significantly revenues without a corresponding increase in
general and administrative expenses.
Tax provisions -- TechTeam recognized $1,031,000 of Federal income tax in
the first six months of 1996, resulting in an effective tax rate of 35.1%
compared to an effective tax rate of 33.6% for the first six months of 1995. In
1995, TechTeam reversed $25,000 of Federal income tax reserve, resulting in the
reduced effective tax rate. The Michigan Single Business Tax in the first six
months of 1996 was $323,000, with an effective tax rate of 9.9% compared to an
effective tax rate of 8.9% in the first six months of 1995.
COMPARATIVE PERFORMANCE -- 1995 VERSUS 1994
National TechTeam established new records for revenues and earnings in
1995. TechTeam earned net income of $2,399,067, or $.21 per share, for 1995 as
compared to a net income of $1,971,049, or $.18 per share, for 1994.
Revenues -- The Company's total revenues increased by $11,563,024 in 1995
to $41,787,462, a 38.3% increase over 1994 revenues. Changes in revenues
resulted from the following:
Call Center Services -- Revenues from Call Center Services increased
by $7,950,297 in 1995. This was a 110.8% increase over Call Center Services
revenues in 1994. The increase was due to an increase to 18 contracts in
place at December 31, 1995 compared to the seven contracts at December 31,
1994.
Technical staffing -- Revenues from technical staffing increased by
$1,895,098 in 1995. This was a 14.8% increase over technical staffing
revenues in 1994. The increase was due to continued client demand for
TechTeam's help desk and computer services personnel at Ford and other
major accounts.
15
<PAGE> 16
Systems integration -- Revenues from systems integration increased by
$2,313,190 in 1995. This was a 41.3% increase over systems integration
revenues in 1994. The increase was due principally to a growing demand by
existing clients for TechTeam's networking and applications development
services.
Training programs -- Revenues from training programs decreased by
$595,561 in 1995. This was a 12.9% decrease from training revenues in 1994.
The decrease was due to a reduced scope of training services for a major
client.
Cost of services delivered -- The cost of services delivered increased by
$9,238,101 in 1995. This was a 40.0% increase over the cost of services
delivered in 1994. The increase was due principally to compensation costs for an
increased number of technical personnel, statutory and other benefits associated
with such personnel, facility and computer equipment costs, and other direct
costs associated with providing an increased volume of services to clients.
These costs were 77.4% and 76.4% of revenues in 1995 and 1994, respectively.
Selling, general and administrative -- Selling, general and administrative
expenses increased by $1,476,875 in 1995. This was a 38.1% increase over
selling, general and administrative expenses in 1994. The increase was due
principally to compensation costs for an increased number of sales and
administrative personnel, statutory and other benefits associated with such
personnel, facility and equipment costs, and other indirect costs needed to
support the growth of the Company. These expenses were 12.8% of revenues in both
1995 and 1994.
Tax provisions -- TechTeam recognized $1,268,236 of Federal income tax in
1995, resulting in an effective tax rate of 34.6% for 1995 compared to an
effective tax rate of 35.7% for 1994. In 1995, TechTeam reversed $25,000 of
Federal income tax reserve, resulting in the reduced effective tax rate. The
Michigan Single Business Tax in 1995 was $410,000, with an effective tax rate of
10.1% compared to an effective tax rate of 9.1% for 1994.
COMPARATIVE PERFORMANCE -- 1994 VERSUS 1993
1994 was TechTeam's previous record year in terms of both revenues and
earnings. TechTeam earned net income of $1,971,049, or $.18 per share, for 1994
as compared to a net income of $1,672,413, or $.18 per share, for 1993.
Revenues -- TechTeam's total revenues increased by $9,780,491 in 1994 to
$30,224,438, a 47.8% increase over 1993 revenues. Changes in revenues resulted
from the following.
Call Center Services -- Revenues from Call Center Services increased
by $4,847,666 in 1994. This was a 208.5% increase over Call Center Services
revenues in 1993. The increase was due to the fact that this service line
commenced in the second quarter of 1993, and that the Company had seven
contracts in place at December 31, 1994 compared to four contracts at
December 31, 1993.
Technical staffing -- Revenues from technical staffing increased by
$2,751,788 in 1994. This was a 27.3% increase over technical staffing
revenues in 1993. The increase was due to continued client demand for
TechTeam's help desk and computer services personnel at Ford and other
major accounts.
Systems integration -- Revenues from systems integration increased by
$2,954,178 in 1994. This was a 111.6% increase over systems integration
revenues in 1993. The increase was primarily attributable to $1,710,299
additional revenue generated by National TechTeam of Illinois, Inc.
(formerly Micro Systems Group, Inc.) in 1994 versus 1993; this company was
acquired by the Company on September 30, 1993. The increased revenues also
reflect a growing demand for TechTeam's networking and applications
development services.
Training programs -- Revenues from training programs decreased by
$773,141 in 1994. This was a 14.4% decrease from training revenues in 1993.
The decrease was due to a reduced scope of training services for a major
client.
16
<PAGE> 17
Cost of services delivered -- The cost of services delivered increased by
$7,277,663 in 1994. This was a 46.0% increase over the cost of services
delivered in 1993. The increase was due principally to compensation costs for an
increased number of technical personnel, statutory and other benefits associated
with such personnel, facility and computer equipment costs, and other direct
costs associated with providing an increased volume of services to clients.
These costs were 76.4% and 77.4% of revenues in 1994 and 1993, respectively.
Selling, general and administrative -- Selling, general and administrative
expenses increased by $2,085,259 in 1994. This was a 116.7% increase over
selling, general and administrative expenses in 1993. The increase was due
principally to compensation costs for an increased number of sales and
administrative personnel, statutory and other benefits associated with such
personnel, facility and equipment costs, and other indirect costs needed to
support the growth of the Company. These expenses were 12.8% of revenues in 1994
compared with 8.7% of revenues in 1993. These costs increased in response to
increased business activity and to support the Company's expansion in Europe.
Gain on sale of investment -- In 1994 TechTeam sold a portion of its
investment in Action Trac, a privately held domestic provider of computer
support services.
Tax provisions -- TechTeam recognized $1,095,000 of Federal income tax in
1994, resulting in an effective tax rate of 35.7% for 1994 compared to an
effective tax rate of 34.7% for 1993. The Michigan Single Business Tax in 1994
was $305,875, with an effective rate of 9.1% compared to an effective tax rate
of 7.5% for 1993.
17
<PAGE> 18
IMPACT OF BUSINESS WITH MAJOR CLIENTS
Historically, TechTeam has been heavily dependent upon Ford for a major
portion of its revenues. Management recognizes the need to diversify its client
base from both a client and industry perspective. The Company has had some
success in this regard as Hewlett-Packard became TechTeam's largest client in
the first half of 1996. However, the Company continues to seek additional
business from its largest clients and those clients will continue to constitute
a high percentage of TechTeam's total revenues for the foreseeable future.
TechTeam's services are not specific to any single industry and can be
beneficial to most large corporations. TechTeam's technical staffing and
training programs cover most of the popular software applications and can be
customized to improve the productivity of microcomputer users in most companies.
Continuing efforts to increase sales outside of Ford have produced positive
results, as total revenues from non-Ford clients were $6,740,635 in 1993,
$16,028,585 in 1994, and $26,202,498 in 1995, a compound annual growth rate of
97.2%.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
----------------------------------------- -------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Hewlett-Packard Company
Revenues for the period....... $ -- $ -- $ 7,269,445 $1,609,375 $9,672,846
Percentage increase from prior
period...................... --% --% --%* --%* 501.1%
Percentage of total
revenues.................... --% --% 17.4% 8.9% 32.0%
Ford Motor Company
Revenues for the period....... $13,703,312 $14,195,853 $15,584,964 $7,877,077 $8,573,511
Percentage increase from prior
period...................... 54.0% 3.6% 9.8% 6.0% 8.8%
Percentage of total
revenues.................... 67.0% 47.0% 37.3% 43.6% 28.4%
Chrysler Corporation
Revenues for the period....... $ 1,266,320 $ 3,294,788 $ 4,162,419 $2,031,761 $2,624,788
Percentage increase from prior
period...................... 72.9% 160.2% 26.3% 101.8% 29.2%
Percentage of total
revenues.................... 6.2% 10.9% 10.0% 11.2% 8.7%
Corel Corporation
Revenues for the period....... $ 414,604 $ 3,687,298 $ 2,737,601 $1,600,447 $ 268,459
Percentage increase/(decrease)
from prior period........... --%* 789.4% (25.8)% (10.6)% (83.2)%
Percentage of total
revenues.................... 2.0% 12.2% 6.6% 8.9% 0.9%
Novell, Inc.
Revenues for the period....... $ 1,717,417 $ 2,260,203 $ 522,973 $ 285,356 $ 20,020
Percentage increase/(decrease)
from prior period........... --%* 31.6% (76.7)% (75.9)% (93.0)%
Percentage of total
revenues.................... 8.4% 7.5% 1.3% 1.6% 0.1%
</TABLE>
- -------------------------
* First year of business relationship
Services provided to Ford and Chrysler consist of contract computer
end-user support including on-site help desks and call center services,
programming services, documentation services, and classroom training programs.
TechTeam provides these services to virtually all Ford divisions and two
finance-related Ford subsidiaries. Services provided to Hewlett-Packard, Corel
and Novell consist of technical product post-sales support provided from
TechTeam call center sites.
Revenues from Hewlett-Packard first commenced in mid-1995 with the award of
the first contract for call center services. 1996 was the first full year of
services under that contract. Additional contracts have been awarded in 1996.
18
<PAGE> 19
Revenues from Corel first commenced in late 1993 and continued into early
1996 at which time Corel made a strategic decision to bring its call center
outsourcing service back in-house. The Company believes Corel's decision is
unrelated to the Company's performance.
Revenues from Novell (product support related to WordPerfect application
software) first commenced in mid-1993 and continued until late 1995 at which
time Novell discontinued outsourced telephone support for its customers. The
Company believes Novell's decision is unrelated to the Company's performance
and, shortly after discontinuation of service, the WordPerfect business unit was
sold to Corel Corporation.
LIQUIDITY AND CAPITAL RESOURCES
Over the three and one-half year period commencing January 1, 1993, the
Company's business has been financed by cash provided by operations and the
issuance of common stock, primarily $5,000,000 of private placements in 1994 and
shares issued throughout the period under stock option plans. Indicators of the
Company's financial strength are summarized below:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------ JUNE 30,
1993 1994 1995 1996
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Working capital.................... $4,167,181 $11,716,501 $12,352,915 $13,363,797
Current ratio...................... 3.1 11.0 4.2 3.6
Debt as a percentage of total
capitalization................... 1.7% 0.0% 2.4% 3.6%
Shareholders' equity............... $8,079,552 $15,829,026 $17,891,966 $20,398,767
</TABLE>
The Company's working capital was $13,363,797 at June 30, 1996, an increase
of 8.2% from December 31, 1995. This increase was due primarily to 1996
operating results (reflected primarily in higher accounts receivable balances
due to increased sales).
TechTeam has a line-of-credit agreement with NBD Bank which provides for
short-terms borrowings of up to $6,000,000; the credit is unsecured. The line of
credit is at the prime rate. There were no borrowings under the credit agreement
at June 30, 1996.
TechTeam invested $680,000 in new computer equipment for its training
classrooms in 1993, which was financed through existing working capital and
through two year bank term notes. In 1995, TechTeam invested $1,057,000 in
telecommunications hardware and software which was financed through a five year
bank term note. Management believes sufficient cash resources exist to support
its current growth strategies through currently available cash, cash provided
from the proceeds of this offering and future operations, and the Company's
existing bank credit arrangement.
RECENT PRONOUNCEMENTS OF THE FINANCIAL ACCOUNTING STANDARDS BOARD
In 1996, the Company will adopt SFAS No. 123, "Accounting for Stock-Based
Compensation." This standard establishes a fair value method for accounting for
stock-based compensation plans, either through recognition or disclosure. The
Company intends to adopt this standard by disclosing the pro forma net income
and earnings per share amounts assuming the fair value method was adopted on
January 1, 1995. The adoption of this standard will have no impact on reported
results of operations, financial position or cash flows.
19
<PAGE> 20
BUSINESS
GENERAL
TechTeam is a leading provider of information technology outsourcing
support services to large national and multi-national corporations, government
agencies and service organizations. The Company offers its services through two
global business units: (i) Call Center Services, which provides its clients with
inbound telephone support for their computer product end-users and (ii)
Corporate Computer Services, which provides corporations with technical staffing
(principally on-site help desk support), systems integration and instructor-led,
computer-based training. TechTeam's client base includes Hewlett-Packard, Ford,
Chrysler, First Chicago NBD, United Parcel Service, Owens-Corning, Novell and
Sun Microsystems. Many of TechTeam's clients utilize services offered by both of
TechTeam's business units. The Company has experienced rapid growth as the trend
toward outsourcing has increased. Between 1991 and 1995, revenues increased from
$7.9 million to $41.8 million and net income increased from $57,000 to $2.4
million. This represents compounded annual growth rates of 52% and 121% in
revenues and net income, respectively.
INDUSTRY BACKGROUND
The IT services market is large and growing rapidly as corporations
continue to focus on their core business and seek to outsource technical support
to third-party providers. In addition, the availability, complexity and number
of end-users of computer processing systems have increased, further spurring the
demand for IT support services. Dataquest estimates that from 1995 to 1999, the
overall IT services market will grow from $50.7 billion to $79.0 billion;
technical support services provided in-house and by third parties, such as those
provided by call centers and on-site help desks, are expected to increase from
$20.6 billion to $31.5 billion; and technical support services outsourced to
third-party vendors are expected to increase from $2.6 billion to $7.2 billion.
This represents compound annual growth rates of 11.7%, 11.2% and 29.0%,
respectively. In addition, the Gartner Group estimates that by 1998 over 40% of
companies will outsource corporate help desk services, a subsegment of technical
support services, compared to only 15% today.
TechTeam's growth has been driven by several major business trends
affecting the IT services market. Continued rapid technological change, more
frequent upgrade cycles, the increased need for specialized knowledge to plan
and implement IT strategies, the large capital expenditures necessary to
maintain an IT infrastructure and the desire to convert fixed employee costs to
variable costs are all factors which have led businesses to outsource an
increasing portion of their computer and IT functions. The Company anticipates
the outsourcing trend to continue as corporations reduce resources dedicated to
non-core activities.
SERVICES
The Company originally commenced operations as a computer hardware reseller
and evolved into a provider of computer-based training for its computer hardware
customers. During the late 1980's the Company added IT staffing and systems
integration services as a complement to its existing training business. In 1993,
as a result of the Company's growing expertise in providing IT staffing of
on-site help desks, TechTeam entered the call center industry. Today, the
Company's IT outsourcing services are intended to cover a broad range of IT,
including planning, design, implementation and support. Although the Company's
services are complementary, TechTeam has divided its service offerings into two
divisions (i) Call Center Services and (ii) Corporate Computer Services
(technical staffing, systems integration and training), which are described in
more detail as follows:
CALL CENTER SERVICES
The Company is currently one of the largest international suppliers of call
center services. TechTeam focuses on two types of customers: (i) manufacturers
of hardware and software products, such as
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Hewlett-Packard, contract TechTeam to resolve their customers' inbound technical
support calls regarding use of features, troubleshooting, problem diagnosis, and
operating assistance; and (ii) major corporations, such as Chrysler, have
selected TechTeam to provide off-site telephone-based support for their
employees and/or customers on a national and international basis. TechTeam has
also recently begun to provide services to support its clients throughout their
sales cycle, including such services as market research, lead generation, new
product launch support, pre-sales support, order fulfillment and entitlement.
The following chart illustrates a representative sales cycle for a typical
computer hardware or software vendor:
LOGO
TechTeam's five domestic call centers, located in the metropolitan areas of
Detroit (2), Chicago, Dallas and Seattle, and its Pan-European center in
Brussels, Belgium, provide live agent and interactive voice response services.
Currently, TechTeam has over 680 workstations available for three shifts, 24
hours a day, 7 days a week, 365 days per year and is able to provide services in
18 different languages. Call Center Services is staffed by 685 trained and
experienced technical professionals who support over 500 software applications,
hardware components, Internet sites and proprietary systems. The Company's
state-of-the-art call centers are equipped with sophisticated telephony
infrastructure, efficient networks, call distribution software, and productivity
management tools which aid in increasing efficiency and utilization.
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CORPORATE COMPUTER SERVICES
Technical Staffing. This largest component of TechTeam's Corporate Computer
Services unit consists principally of on-site help desk personnel which are
provided to clients almost exclusively on long-term assignments. For
multi-national clients such as Ford and Chrysler, TechTeam establishes full
service multi-product, multi-platform help desks that are resident on the
clients' sites and are fully integrated with their operations. Clients'
employees contact the help desks for assistance with product usage, network
administration, product acquisition, and corporate computing standards. These
productivity centers provide over-the-phone and over-the-shoulder deskside
assistance for employees at all levels. Because of TechTeam's proximity to the
client's technology and business practices, the Company is often asked to
provide peripheral staffing services for contract programming, database design,
graphics development and network management. Through its on-site help desk
services, TechTeam develops a proprietary awareness of its clients' technology
requirements and can provide creative solutions through the implementation of
customized training programs.
Systems Integration. Through systems integration services, TechTeam works
closely with its clients in the design and integration of advanced technology
systems. These systems, which are the IT foundation for many corporations today,
require significant planning to assure that the various hardware and software
components are compatible and will work together to achieve fast and reliable
communications. Key services provided by TechTeam include: LAN/WAN design,
installation, administration and support; World Wide Web development and a
complete package of Internet services; Novell, NT Server and Lotus Notes
implementation; QS 9000 and ISO 9000 software; hardware and software sales,
installation, troubleshooting and maintenance; and centralized purchasing to
avoid duplication of effort and eliminate purchases of incompatible products.
Training. Over the past several years, TechTeam has grown into a leading
provider of customized corporate computer training in North America with
training offerings ranging from general end-user modules to complex technical
courses for IT professionals. The Company is a manufacturer-authorized training
provider for many products produced by Novell, Microsoft, IBM, Lotus, SABRE and
Sun Microsystems and is a Drake Testing Center to provide clients with
certification access. Offerings include a wide array of applications within the
office automation, network and client server marketplace. Although most training
is delivered on client sites, TechTeam operates five training facilities in the
Midwest, located in Michigan (3), Indiana and Illinois. Clients are offered a
full range of delivery capabilities including course catalogs, registration,
equipment, networks, course materials, certified trainers, evaluation options,
desk-side tutorials, testing, feedback to help desks and reporting. TechTeam's
documentation department works with clients to provide professional, customized
reference materials including comprehensive systems manuals, newsletters,
training materials, translation services, quick reference cards and product
information flyers.
COMPETITIVE STRENGTHS
TechTeam possesses several key competitive strengths that it believes will
enable it to continue to expand its business by further penetrating existing
client relationships and by attracting new clients. These strengths, which have
contributed to TechTeam's rapid growth, are as follows:
Internationally Recognized Client Base. The Company provides its services
to large national and multi-national clients who have a reputation for
excellence in their market segments. These industry leaders impose high
standards of performance on the Company, often requiring it to adopt
best-in-class business practices. TechTeam has gained expertise in such
best-in-class practices as customer service, end-user productivity, client
server technology, computer integration, project management, and the formation
of Intranet and World Wide Web sites across automotive, financial,
manufacturing, computer, health care and consumer service industries. As
TechTeam has met these standards of performance, it has received additional
opportunities to expand its service offerings with clients such as Ford,
Chrysler, First Chicago NBD, Hewlett-Packard, Novell, Sun Microsystems and
others. The Company believes its
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established relationships and performance record with its demanding clients
provide TechTeam with significant credibility and referral potential with new
clients.
Multiple Service Offerings. The demand for IT outsourcing support services
is accelerating as more businesses seek outside expertise as a cost effective
alternative to managing their increasingly complex technological requirements.
TechTeam's broad array of service offerings evolved by reacting to its clients'
needs and developing outsourcing support services designed to improve their
productivity. The Company's largest clients utilize multiple elements of
TechTeam's call center, technical staffing, systems integration and training
service offerings. Rather than purchase services from a variety of vendors who
specialize in a single offering, many clients seek to reduce their purchasing
costs and create greater vendor accountability by using a select group of
business partners for a broad range of IT needs. As TechTeam penetrates each
account and becomes an integral long-term partner, it is able to reduce sales
cost per customer, and is well positioned to retain its incumbent role as
preferred IT services provider.
Technically Proficient Employee Base. As an established growth
organization, TechTeam has been successful in recruiting and retaining a
technically proficient employee base who seek both advancement opportunities and
stability through a managed career path. TechTeam has a rigorous and continuing
in-house training program that is designed to keep its professionals proficient
with respect to the latest technologies and business methods. As the Company has
grown, it has increased the number of employees from 136 in January 1992 to
1,238 in June 1996. While service-based companies are supported by technology,
they are ultimately defined by the quality of their professional staff. In order
to develop and retain high quality professionals, the Company applies
comprehensive employee care practices, which include stringent recruiting
requirements, ongoing training for improved performance and career advancement,
periodic individual expectation and goal setting, employee recognition programs
and competitive benefits and compensation.
Recognition for Delivery of Quality Services. TechTeam is firmly committed
to providing its clients with the highest quality of call center and corporate
computer services, and has tailored its quality programs to address directly
individual client requirements. TechTeam believes that consistent, high quality,
cost-effective service delivery is the product of standardized business
practices coupled with advanced technology and performance tracking. The
Company's aggressive focus since mid-1993 on quality certification is the result
of two key drivers: (i) rapid growth with strong profit margins is sustainable
only through high client satisfaction, and (ii) many major corporations are now
requiring, or will soon require, formal third-party quality certification of
their business partners. TechTeam has been recognized for its delivery of
quality services by being awarded ISO 9001 certification, an international
standard for quality assurance and operating consistency. Within its call
centers, TechTeam employs a comprehensive performance tracking system that
measures objective and subjective attributes of service delivery. These quality
criteria are customized for each project to reflect accurately the service
delivery as perceived by the caller and with respect to the broader goals of the
client. The Company believes that its delivery of high quality services results
from close supervision and management. When combined with its clients'
performance evaluations, these operational practices provide a strategic
advantage in competing for additional business. TechTeam encourages and assists
clients with direct connections to TechTeam's systems from their sites for real
time access to operational statistics and performance. This sharing of key
management information is intended to position TechTeam as a business partner
rather than a discrete third-party service provider.
Advanced Technology Infrastructure. The Company believes that its
technology enables it to maintain a leading position as a provider of IT support
services, particularly in call center services. As such, TechTeam's relationship
with some of the world's leading companies has meant that TechTeam often
receives challenging assignments requiring the use of advanced technology and
methodologies. To meet these challenges, TechTeam continually trains its
employees and clients in the latest product and service innovations. In
addition, TechTeam has built five new call centers in the last year, investing
substantial capital to build a technology infrastructure that features
state-of-the-art call centers with sophisticated telephony, efficient networks,
call distribution software and productivity management tools.
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GROWTH STRATEGY
The Company intends to increase revenues and to continue to grow its
operations through the following growth strategy:
Further Penetrate Existing Clients, Attract New Clients and Extend Service
Lines. TechTeam intends to market its call center and corporate support services
aggressively through further penetration within existing accounts, pursuing new
clients and through the addition of new service offerings. Historically, many of
TechTeam's clients initially have engaged the Company to provide a specific
service to a single division or business unit. The Company believes that the
provision of additional services to its existing client base represents a
significant growth opportunity and that the access, contacts and goodwill
provided by its existing client relationships afford it significant advantages
in marketing additional services. The Company also intends to target new clients
by continuing to leverage the credibility of its blue chip client list, its
outstanding service delivery record and broad service offerings. In addition,
TechTeam plans to extend its service line to meet its client's needs. Offerings
have recently been added throughout a client's sales cycle such as pre-launch
support, pre-sales support and order fulfillment, among others to complement the
Company's strong post-sales support service.
Leverage Technology and Training for Higher Margins. As part of the
Company's expansion program, it built five state-of-the-art call centers and
made other enhancements to its technological infrastructure. The investment for
high-capacity advanced-function PBX phone switches, interactive voice response
technology, automated call distributors, disaster recovery, back-up generators,
technician training programs and facilities are fixed costs that can be spread
across a larger revenue base. TechTeam's call centers operate 7 days a week, 24
hours a day, 365 days per year. TechTeam also attempts to improve its margins by
generating off-peak call center traffic to create a balance at each call center
to supplement peak utilization between 7 a.m. and 9 p.m. EST. The Company is
able to maintain activity at its call centers during off-peak hours by providing
its services to Internet end-users and by providing international support, such
as direct T1 access to service contracts from Australia, Europe, and the Pacific
Rim.
TechTeam's roots in corporate training have greatly impacted the
development of all of the Company's service lines and continue to play a key
role in service evolution. With a professional staff of over 50 certified
trainers and a large team of degreed instructional designers, TechTeam is
afforded a unique opportunity to make use of extensive training resources,
course materials, infrastructure, equipment, labs, and facilities across all
aspects of the business. The Company believes that these training assets provide
three distinct benefits to the Company, each of which improve employee
productivity and reduce operating costs: (i) staff retention is improved by
continuing to challenge employees and preparing them for advancement; (ii)
cross-trained employees can be moved between projects to meet client needs and
to increase utilization; and (iii) professional training is an affordable way to
keep employees current on emerging technologies and business practices.
TechTeam has added five new call centers and two new training facilities in
the 18 months between January 1, 1995 and June 30, 1996. The Company has the
capacity to nearly double both its present call volumes and training volumes
without incurring additional material facility and operating infrastructure
expenses.
Expand Globally. TechTeam's business development and expansion strategy is
based on a combination of anticipating and responding to client needs and
selective acquisitions. As major corporations redefine themselves to compete in
the global marketplace, TechTeam is responding by delivering services on a
multi-national basis to many of its largest clients. In particular, the Company
opened its 75%-owned, joint-venture operated call center in Brussels, Belgium in
May 1996 in order to provide its U.S.-based clients with Pan-European call
center services. During 1996, TechTeam has also opened facilities in Seattle,
Washington; Troy, Michigan; Harper Woods, Michigan; and Indianapolis, Indiana.
TechTeam services many of its clients' international requirements by operating
its domestic call centers on a 24-hour basis and offering its services in 18
foreign languages. The Company believes that its record of responding to its
clients' geographic demands has greatly strengthened its relationship and
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opportunities with its clients. TechTeam continually monitors and evaluates
additional expansion opportunities and is prepared to act when justified by
client demand.
Pursue Selective Acquisitions, Joint Ventures and Alliances. Many industry
analysts believe that the IT industry, which has been proliferating, is likely
to enter a consolidation phase within the next several years. The Company
continually monitors the marketplace for appropriate opportunities and intends
to maintain flexibility in finding ways to increase the Company's resources and
capabilities. The Company also seeks joint venture partners when it determines
that a partnership arrangement will be beneficial when offering a new line of
business or entering a new marketplace. In opening its Brussels call center,
TechTeam entered into a joint venture with Paratel N.V., a Pan-European provider
of call center services.
TechTeam believes that its services are enhanced by establishing mutually
beneficial partnerships with computer industry leaders, niche players, and other
key suppliers of software, hardware and services. Alliances have resulted in
contracts directly with manufacturers such as Sun Microsystems, Novell,
Palindrome, Shiva and Hewlett-Packard for product training, network
implementation and technical support.
Continue a Strong Commitment to Quality Service. TechTeam's commitment to
quality service and its continued efforts to obtain additional certification and
recognition for its quality methodologies forms the basis of the Company's
ongoing strategy. This strategy is essential to TechTeam's ability to generate
new business because many companies already require their suppliers to adopt the
QS and ISO quality systems and the Company believes many more will require
compliance in the near future. TechTeam has already received ISO 9001
certification and is in the process of applying for the Ford Q1 quality award.
As a remarketer of System 9000 software and a training provider for this
enterprise-wide quality management tool, TechTeam assists other companies in
obtaining QS and ISO certification and in implementing quality control systems.
Other elements of the Company's quality program which are key to its overall
strategy are the recruitment, training and retention of a highly qualified and
dedicated work force.
TECHNOLOGY
As an IT outsourcing company, TechTeam relies upon technology to offer its
clients efficient and high quality call center services by meeting client
mandated metrics and achieving maximum utilization of call center resources.
TechTeam maintains state-of-the-art call centers by utilizing high connectivity
switches, advanced telephony services and interactive Web pages to provide
inbound, outbound, Internet and fax back capabilities. Call center work stations
are PC-based and utilize computer telephony integration (CTI), which connects
the computer to the telephone switch allowing calls and computer data to be
transferred simultaneously with the arrival of the call. CTI enables TechTeam's
agents to more efficiently assist its clients by accessing end-user information
using significantly fewer key strokes.
TechTeam's strategy is to use technology to create a competitive advantage
through continued development of state-of-the-art and innovative applications.
In addition to extensive interactive voice response capabilities, the Company
utilizes network technology which routes incoming calls to the next available
call center agent located at any of the Company's domestic call centers. This
technology permits the Company to improve answer times and affords the
opportunity to develop virtual call centers, thus gaining improved operating
efficiencies, access to additional staffing resources and higher utilization.
MARKETING, SALES AND CLIENTS
The Company's sales and marketing strategy is to generate new business
opportunities and to develop stronger relationship with existing customers. To
implement this strategy, TechTeam currently employs 30 sales professionals, a
three-fold increase in sales professionals since 1995. In addition, the Company
has put in place an organizational structure consisting of three focused teams:
(i) Central Support Services, dedicated specifically to call center outsourcing
opportunities; (ii) Corporate Computer Services, which is divided into a major
accounts group and national accounts group and
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(iii) European Operations. The principal objective of this structure is to
assign marketing representatives with a thorough knowledge of the clients' needs
and the requisite sales experience to afford the maximum opportunity for
cross-selling TechTeam's services and leveraging the Company's experience with
major clients into new client relationships. Marketing efforts include direct
solicitations, attendance at industry and trade shows, and invitations for
clients to visit the Company's business offices and three types of delivery
venues: TechTeam's call centers, help desks located on client facilities, and
in-progress training sessions.
The Company's client base is comprised principally of large national and
multi-national corporations, service organizations and governmental units. The
automobile industry accounts for a major portion of the Company's revenues,
although the percentage of revenues represented by clients in other industries
has been steadily increasing. Combined sales to the Company's four largest
clients in fiscal 1995 accounted for 71.3% of total revenues. In fiscal 1995,
the combined revenues from Ford Motor Company and Chrysler Corporation totaled
47.3% of the Company's revenues. Although TechTeam has historically been and
continues to be dependent upon Ford for a significant portion of its total
revenues, Hewlett-Packard became the Company's largest client in the first half
of 1996. The percentage of total revenues derived from Ford declined to 37.3% in
fiscal 1995 from 47.0% in 1994 and from 67.0% in 1993 even while revenues from
Ford increased 13.7% during that same period. Total revenues from non-Ford
clients increased at a 97.2% compound annual growth rate from 1993 to 1995.
Although TechTeam's management recognizes, and has acted upon, the need to
diversify its client base, the Company continues to seek additional business
from its largest clients and those clients will continue to constitute a high
percentage of TechTeam's total revenues in the foreseeable future. TechTeam does
not have exclusive arrangements with any clients, and most contracts are
cancelable by either party on short notice. In addition, most clients may reduce
the use of the Company's services unilaterally without penalty or with the
payment of certain start up costs if canceled early. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Impact of Business With Major Clients."
The following is a selected list of TechTeam's clients:
Ameritech
Automobile Club of Michigan
Blue Cross/Blue Shield of Michigan
Chrysler
Concentric Network
First Chicago NBD
Ford
Hewlett-Packard
Meijers
Micrografx
Novell
Owens-Corning
Price Waterhouse*
Sun Microsystems
United Parcel Service*
Visio
Wall Data*
Wayne County Government*
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* In the first half of 1996, the Company obtained significant contracts from
United Parcel Service, Price Waterhouse, Wayne County and Wall Data.
INTELLECTUAL PROPERTY RIGHTS
The Company's success is dependent upon certain methodologies it utilizes
in designing and delivering Corporate Computer Services and Call Center
Services. The Company's business includes the development of custom software in
connection with specific client engagements. Ownership of such software is
generally assigned to the client. The Company also develops certain foundation
and application software products, or software "tools," which remain the
property of the Company.
The Company relies upon a combination of nondisclosure and other
contractual arrangements and trade secret, copyright and trademark laws to
protect its proprietary rights and the proprietary rights of third parties from
whom the Company licenses intellectual property. The Company enters into
confidentiality agreements with its employees and limits distribution of
proprietary information. There can be no assurance that the steps taken by the
Company in this regard will be adequate to deter misappropriation
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of proprietary information or that the Company will be able to detect
unauthorized use and take appropriate steps to enforce its intellectual property
rights.
Although the Company believes that its services do not infringe on the
intellectual property rights of others and that it has all rights necessary to
utilize the intellectual property employed in its business, the Company is
subject to the risk of litigation alleging infringement of third-party
intellectual property rights. Any such claims could require the Company to spend
significant sums in litigation, pay damages, develop non-infringing intellectual
property or acquire licenses of the intellectual property which is the subject
of asserted infringement.
TechTeam(R) is a servicemark that is registered with the United States
Patent and Trademark Office. Federal servicemark registrations may be renewed
indefinitely as long as the underlying servicemark remains in use. Aside from
the foregoing, the Company holds no other trademarks, servicemarks or patents.
COMPETITION
The Company faces intense competition in the markets served by both its
Call Center and Corporate Computer Services divisions. In the call center
market, the Company competes with other call center companies, some of which
have substantially greater resources including more call center locations,
greater financial resources, a larger client base and more name recognition. In
the corporate computer services markets, the Company competes with many entities
including systems integration firms, application software firms, staffing firms,
"Big Six" accounting firms, facilities management firms and computer consulting
firms. Many of these firms have far greater resources, clients and name
recognition than the Company. The Company also faces significant competition in
both markets from its own clients and potential clients whose internal resources
represent a fixed cost to the client. Such competition may impose additional
pricing pressures on the Company. TechTeam competes principally on the basis of
quality of customer service, being able to provide a broad range of IT services,
price, experience and reputation in the industry, technological capabilities,
quality practices, rapid response to client needs and referrals from existing
clients.
HUMAN RESOURCES
At June 30, 1996, TechTeam had a total of 1,238 employees of which 183 were
part-time. The functional responsibilities of these employees are as follows:
685 client support agents and related employees in Call Center Services; 265
professionals in technical staffing; 130 professionals in systems integration;
76 instructors and related employees in training; 30 employees in sales and
marketing; and 52 employees in management and administration. TechTeam believes
its relationship with its employees is excellent.
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PROPERTIES
The following table sets forth the primary real properties that TechTeam
leases and occupies:
<TABLE>
<CAPTION>
LEASE TERM BEGINNING APPROXIMATE
LOCATION FUNCTION AND EXPIRING SQUARE FOOTAGE
- ---------------------------- ------------------------- -------------------- --------------
<S> <C> <C> <C>
Dearborn, MI................ World Headquarters 11/16/87 - 04/01/97 15,290
North American Training
Center Headquarters 10/01/88 - 04/01/97 19,468
Southfield, MI.............. World Call Center
Headquarters and Training
Center 11/01/93 - 12/31/00 57,403
Dallas, TX.................. Regional Office and Call
Center 10/01/95 - 09/30/00 32,666
Harper Woods, MI............ Call Center 06/15/96 - 06/14/97 17,775
Chicago, IL................. Regional Office, Call
Center and Training
Center 03/01/94 - 02/28/97 13,195
Seattle, WA................. Call Center 04/01/96 - 03/31/97 3,175
Troy, MI.................... Training Center 01/01/96 - 12/31/98 2,345
Indianapolis, IN............ Training Center 01/01/96 - 12/31/00 1,881
Brussels, Belgium........... Call Center * 1,356
</TABLE>
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* As part of its joint-venture with Paratel N.V., TechTeam has the right to
occupy space which is cancellable on 180 days notice. Although the Company
does not foresee the loss of this right in the near future, the Company
believes that suitable replacement facilities are readily available.
TechTeam believes that the facilities it occupies are well maintained and
in good operating condition. These facilities include general office space and
20 well-equipped computer training classrooms. Because some TechTeam services
are performed at client sites, the cost of maintaining multiple offices is
minimized. In addition to the properties listed in the above table, TechTeam
employs personnel and performs ongoing business in California, New Jersey and
the United Kingdom. The Company expects to relocate its world headquarters to
another location in metropolitan Detroit in 1997 due to increased demand for
space.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the Company's
directors and executive officers.
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------- --- -----------------------------------------------------
<S> <C> <C>
William F. Coyro, Jr............. 52 Chairman, Chief Executive Officer and Director
Jonathan D. Ahlbrand............. 34 Senior Vice President
Lawrence A. Mills................ 51 Senior Vice President, Chief Financial Officer and
Treasurer
Thomas R. Smith.................. 53 Senior Vice President*
Louis K. Dohrmann................ 37 Vice President of Operations and Chief Technology
Officer
Kim A. Cooper.................... 37 Director
Valerie J. Niemiec............... 35 Director
Wallace D. Riley................. 68 Director
Richard G. Somerlott............. 54 Director
LeRoy H. Wulfmeier, III.......... 50 Director
</TABLE>
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* On September 5, 1996, Mr. Smith resigned as an officer and employee of the
Company on an amicable basis to pursue other business interests. The Company
is in the process of searching for a permanent replacement for Mr. Smith.
WILLIAM F. COYRO, JR. was the founder, President and Chief Executive
Officer of Computer Trade Development ("CTD"), a predecessor of the Company from
1979 until 1987. Dr. Coyro has been the Chief Executive Officer and Chairman of
the Board of the Company from the Company's inception in 1987 through the date
hereof. From 1974 to 1979, Dr. Coyro practiced full time as a dentist.
JONATHAN D. AHLBRAND joined the Company in December 1995 as its Vice
President responsible for call center sales. In March 1996, he was appointed
Senior Vice President of Call Center Services. Previously, Mr. Ahlbrand was
President of World Data Delivery Systems, a provider of electronic information
processing from 1991 through mid-1994. From mid-1994 to November 1995, he was
employed by West Interactive Corporation where he was responsible for national
account sales for interactive and live agent customer services.
LAWRENCE A. MILLS joined the Company in December 1993 as its Chief
Financial Officer. In June 1994, he was appointed Treasurer. In February 1995,
he was appointed Chief Operating Officer, a position which he held until the
appointment of Messrs. Ahlbrand and Smith to their current positions. In March
1996, he was appointed Senior Vice President. Previously, Mr. Mills was employed
by the Michigan Gas Utilities Division of Utilicorp United Inc. as its Vice
President of Administration and Strategic Development from 1989 through 1993.
LOUIS K. DOHRMANN joined TechTeam in April 1996 and is the Company's Vice
President of Operations and Chief Technology Officer. Between 1987 and 1996, Mr.
Dohrmann was employed by Inacom Corporation as a support engineer and from 1993
until early 1996, as Vice President and Chief Technology Officer.
KIM A. COOPER became a director in March 1996. Between 1984 and 1994, Mr.
Cooper was employed by WordPerfect Corporation in sales and as its Vice
President, Worldwide Customer Services. Between 1994 and 1996, he was employed
by Novell, Inc. as its Vice President, Worldwide Marketing and Business
Development. In January 1996, he founded and became the Chairman and Chief
Executive Officer of Digital Harbor, L.C., a component software company
developing Internet applications. Mr. Cooper is a member of the Board's Audit
Committee.
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VALERIE J. NIEMIEC became a director in December 1995. Between April 1993
and November 1995, Ms. Niemiec served as a Senior Vice President of the Company.
Between 1990 and 1993, Ms. Niemiec was employed by the Company as a Vice
President of Sales.
WALLACE D. RILEY is an attorney at law and since 1968 has been a partner
with the firm of Riley & Roumell. Mr. Riley previously served as a director of
the Company from 1987 to 1988 and was reelected as a director at the Company's
1993 Annual Meeting. He is the past president of the State Bar of Michigan as
well as past president of the American Bar Association. He was a member of the
Board of Governors of the American Bar Association from 1977-80, and trustee of
the Federal Bar Foundation since 1968. He has been a Special Attorney General
for the State of Michigan since 1969. Mr. Riley is a member of the Board's
Compensation Committee.
RICHARD G. SOMERLOTT is a dentist and a managing partner of Endodontics
Associates Professional Corporation. Dr. Somerlott has been a director and
shareholder of the Company since its inception. Dr. Somerlott is a member of the
Board's Audit Committee.
LEROY H. WULFMEIER, III is an attorney at law and since 1970 has been a
partner with the firm of Schureman, Frakes, Glass & Wulfmeier. Mr. Wulfmeier has
been a director and shareholder of the Company since its inception. Mr.
Wulfmeier is a member of the Board's Compensation Committee.
All directors hold office until the next annual meeting or until their
successors have been elected and qualified.
The Company's Bylaws provide that until the Board of Directors shall
otherwise determine, the number of director positions on the Board shall be
seven. The Board currently consists of six directors. The Board intends to seek
qualified persons to appoint to the Board to expand the size of the Board to
seven persons but has not yet identified any additional person to be added to
the Board.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established two standing committees, Audit and
Compensation, the current members of which are identified above. These
committees act in an advisory capacity to the full Board of Directors. All
committees report to the full Board of Directors with respect to matters
considered at each committee meeting held.
The principal functions of the Audit Committee are to review the scope of
the annual audit and the annual audit report of the independent accountants,
recommend the firm of independent accountants to perform such audits, consider
non-audit functions proposed to be performed by the independent accountants,
ascertain whether the recommendations of auditors are satisfactorily implemented
and recommend such special studies or actions which the Committee deems
desirable.
The Compensation Committee reviews the compensation practices followed,
makes all decisions involving the compensation of executive officers of the
Company and reviews management's salary recommendations for each other person at
or above the level of Vice President. In addition, the Committee reviews stock
option grant recommendations pursuant to the Company's 1990 Nonqualified
Employee Stock Option Plan.
DIRECTOR COMPENSATION
Directors who are employees of the Company receive no compensation as such
for services as members of the Board of Directors or committees thereof. Under
the Company's 1996 Non-Employee Directors Stock Plan, each nonemployee director
receives 100 shares of the Company's Common Stock for attendance at each meeting
of the Board of Directors. The plan also provides for an automatic grant to each
nonemployee director on the last business day of each February of an option to
purchase 10,000 shares of the Company's Common Stock at an exercise price of one
hundred percent (100%) of the fair market value of the Common Stock on the date
of the grant. Stock options were awarded on March 26, 1996 subject to
ratification of the Plan by shareholders and were declined by all affected
directors except Mr. Cooper.
During 1995, nonemployee directors were compensated at the rate of $500 for
attendance at each meeting of the Board of Directors.
30
<PAGE> 31
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the cash and
non-cash compensation awarded to, earned by, or paid to, the Chief Executive
Officer and the other executive officers of the Company for the year ended
December 31, 1995. In addition, the following table sets forth the current
annual salaries of the Company's executive officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS CURRENT
NAME AND ------------------- ------------ ANNUAL
PRINCIPAL POSITION SALARY BONUS OTHER(2) OPTIONS(1) SALARY
- ----------------------------------- -------- ------- -------- ------------ --------
<S> <C> <C> <C> <C> <C>
William F. Coyro, Jr. ............. $177,547 $ 6,300 $4,620(3) 25,000 $225,000
Chairman and
Chief Executive Officer
Jonathan D. Ahlbrand............... $ 4,808(4) -0- -0-(5) 25,000 $140,000
Senior Vice President
Lawrence A. Mills.................. $107,909 $ 3,600 $3,345(6) 25,000 $125,000
Senior Vice President,
Chief Financial Officer
and Treasurer
Brian G. Niemiec................... $120,336 $ 8,875 $3,155(3) 25,000 --(7)
Senior Vice President
Valerie J. Niemiec................. $112,643 $ 8,875 $3,155(3) 25,000 --(7)
Senior Vice President
Thomas R. Smith.................... $110,191 $27,500 -0- 25,000 --(8)
Senior Vice President
Louis K. Dohrmann.................. --(9) --(9) --(9) --(9) $125,000
Vice President
</TABLE>
- -------------------------
(1) Includes stock options granted under the Company's 1990 Nonqualified Stock
Option Plan.
(2) Amounts disclosed in this column consist of the Company's matching
contribution under the Company's 401(k) Retirement Savings Plan.
(3) In 1995 the Company advanced $126,800 to William F. Coyro, Jr., $70,100 to
Brian G. Niemiec, and $46,900 to Valerie J. Niemiec. The advances
represented Federal, State and Social Security taxes due by each of them on
taxable income resulting from the exercise of stock options. The amounts
were remitted to the appropriate taxing authority. The advances were repaid
to the Company prior to December 31, 1995.
(4) Mr. Ahlbrand joined the Company in December 1995 as a Vice President. He
became a Senior Vice President in March 1996.
(5) During 1995, the Company loaned $160,000 to Mr. Ahlbrand. The loan matures
in 1998 and is payable in monthly installments of principal and interest at
2% over the prime rate. The loan is evidenced by a note and is secured by an
assignment of a land contract and of rentals on a building owned by an
affiliate of Mr. Ahlbrand, a portion of which is leased by the Company. See
"Management -- Certain Transactions."
(6) The Company advanced $107,000 to an insurance company that carries an
insurance policy on the life of Mr. Mills. The advance is collateralized by
the cash value of the underlying life insurance policy. The advance is to be
repaid by Mr. Mills in future years.
(7) As of August 1, 1996, Brian J. Niemiec was no longer an employee of
TechTeam. Valerie J. Niemiec was appointed a Director of TechTeam by its
Board of Directors on December 1, 1995 when Ms. Niemiec resigned from her
position as a Senior Vice President of the Company. Brian Niemiec and
Valerie Niemiec are husband and wife.
(8) Mr. Smith resigned as an officer and employee of the Company effective as of
September 5, 1996. Pursuant to the terms of his resignation, the Company (i)
paid Mr. Smith $75,000, (ii) vested options to purchase 20,000 shares of
Common Stock and made them exercisable through January 31, 1997 and (iii)
terminated options to purchase 15,000 shares of Common Stock which the
Company awarded him in August, 1996.
(9) Mr. Dohrmann joined the Company in April 1996.
31
<PAGE> 32
The following tables set forth information with respect to options granted
in 1995, the value realized upon the exercise in 1995 of previously granted
options and the value of unexercised options.
OPTION GRANTS IN 1995(1)
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE AT
ASSUMED ANNUAL
RATES OF STOCK
PRICE APPRECIATION
PERCENT OF FOR OPTION TERM
OPTIONS TOTAL OPTIONS EXERCISE -------------------
NAME GRANTED GRANTED IN YEAR PRICE 5% 10%
- --------------------------------------- ------- --------------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
William F. Coyro, Jr................... 25,000 7.4% $ 4.50 $38,300 $ 86,800
Jonathan D. Ahlbrand................... 25,000 7.4 5.31 45,200 102,500
Lawrence A. Mills...................... 25,000 7.4 4.50 38,300 86,800
Brian G. Niemiec....................... 25,000 7.4 4.50 38,300 86,800
Valerie J. Niemiec..................... 25,000 7.4 4.50 38,300 86,800
Thomas R. Smith........................ 25,000 7.4 4.50 38,300 86,800
</TABLE>
- -------------------------
(1) All stock options were granted under the Company's 1990 Nonqualified Stock
Option Plan. Option exercise prices are at or above the market price on the
date of grant. Options have a five-year term and vest over five years. The
exercise price and Federal tax withholdings may be paid in cash or with
shares of Common Stock.
OPTION EXERCISES IN 1995 AND DECEMBER 31, 1995 VALUE TABLE
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
SHARES ACQUIRED VALUE UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
NAME ON EXERCISE REALIZED DECEMBER 31, 1995 DECEMBER 31, 1995(1)
- ------------------------ --------------- -------- ---------------------- -----------------------
<S> <C> <C> <C> <C>
William F. Coyro, Jr.... 100,000 $366,000 65,000(2) $20,115
Jonathan D. Ahlbrand.... -0- N/A 25,000(3) -0-
Lawrence A. Mills....... -0- N/A 45,000(2) 5,625
Brian G. Niemiec........ 60,000 204,600 45,000 12,065
Valerie J. Niemiec...... 40,000 136,400 45,000(2) 12,065
Thomas R. Smith......... -0- N/A 25,000(4) 5,625
</TABLE>
- -------------------------
(1) Represents the difference between the exercise price of in-the-money
exercisable options and the closing price of the Company's Common Stock on
December 29, 1995 multiplied by the number of exercisable options.
(2) Of this amount, 32,000 options are not exercisable until November 1996 or
later.
(3) These options are not exercisable until November 1996 or later.
(4) In connection with Mr. Smith's resignation from the Company in September
1996, the Company agreed that all of these options could be exercised during
the period ending January 31, 1997.
STOCK OPTION PLANS
The Company maintains two stock option plans to attract, motivate and
retain key employees and nonemployee members of the Board of Directors.
1990 Nonqualified Stock Option Plan. The Company's 1990 Nonqualified Stock
Option Plan (the "1990 Plan") permits option grants to employees, directors,
consultants and advisors of the Company in order to attract and retain persons
of ability and to provide incentives for them to exert their best efforts on
behalf of the Company. The Company has reserved 2,000,000 shares of Common Stock
for issuance upon the exercise of stock options granted under the 1990 Plan. The
1990 Plan is administered by the Board of Directors of the Company. The Board
has discretion to determine which eligible individuals are to receive option
grants, the number of shares subject to each such grant, and the vesting
schedule to be
32
<PAGE> 33
in effect for the option grant. The maximum term of options granted under the
1990 Plan is ten years, subject to earlier termination following an optionee's
cessation of service with the Company. Options granted under the 1990 Plan are
nontransferable and generally terminate upon termination of an optionee's
employment with the Company. If a holder of an option is permanently disabled or
dies during his or her service to the Company, such option generally may be
exercised up to one year following such disability or death. The Board of
Directors may amend or modify the 1990 Plan at any time. The 1990 Plan will
terminate on June 3, 2010 unless sooner terminated by the Board.
On August 20, 1996, the Company granted options for a total of 495,000
shares of Common Stock under the Company's 1990 Nonqualified Stock Option Plan
to 46 officers, directors and employees. The exercise price of these options
will be equal to the public offering price of the Common Stock offered by this
Prospectus. Except for options granted to the Company's nonemployee directors,
these options will vest in five equal annual installments beginning August 20,
1997 and will expire on August 20, 2002. The options that were granted to the
nonemployee directors will be immediately exercisable during the five-year
period that begins upon completion of the sale of the Common Stock offered by
this Prospectus. The following executive officers received options for the
following number of shares: William F. Coyro, Jr. -- 90,000; Jonathan D.
Ahlbrand -- 55,000; Louis K. Dohrmann -- 25,000; Thomas R. Smith -- 15,000; and
Lawrence A. Mills -- 25,000. The following nonemployee directors received
options for the following number of shares: Valerie J. Niemiec -- 10,000;
Wallace D. Riley -- 10,000; Richard G. Somerlott -- 10,000; and LeRoy H.
Wulfmeier, III -- 10,000. See "Principal and Selling Stockholders."
1996 Nonemployee Directors Stock Plan. The 1996 Nonemployee Directors Stock
Plan ("1996 Plan") provides that each nonemployee director (a "Participant")
will receive 100 shares of Common Stock for attendance at each meeting of the
Board of Directors. The shares will be issued as of the fifth business day
following each quarterly release of the Company's earnings. The 1996 Plan also
provides for an automatic grant to each Participant on the last business day of
each February (except for 1996 when the options were granted on March 26, 1996,
the date of the adoption of the 1996 Plan -- See "Executive Compensation") of an
option to purchase 10,000 shares of Common Stock at an exercise price of one
hundred percent (100%) of the fair market value of the Common Stock on the date
of grant. The stock options have a term of ten years and are exercisable
effective on the date of grant. The option price may be paid in cash or by
surrendering to the Company outstanding Common Stock to be valued at its fair
market on the date of exercise or a combination thereof. No certificates may be
delivered to a Participant until six months from the date of grant or the date
of issuance of the shares. If a Participant ceases to be a director while
holding unexercised stock options, such stock options shall become void as of
the date of that termination except that in the case of termination as a result
of death, disability or retirement after attainment of the age of 65, or
resignation from the Board of Directors for reasons of anti-trust laws or
conflicts of interest or continued service policies, the options will terminate
on the 90th day following termination. The Board of Directors may amend the 1996
Plan no more than once every six months. The Board may amend or terminate the
1996 Plan without approval of the stockholders; provided, however, that
stockholders' approval is required for any amendment which increases the annual
aggregate number of shares subject to the 1996 Plan or alters the persons
eligible to participate in the 1996 Plan.
CERTAIN TRANSACTIONS
The Company leases office space in a building in Harper Woods, Michigan
that is owned by an affiliate of Jonathan D. Ahlbrand, Senior Vice President of
the Company. The lease is for a one year term with the right to renew at the
Company's option for five (5) years and provides for annual rental payments of
$102,200, or $5.75 per square foot. The Company believes the terms of the lease
are no less favorable to the Company than would be obtained from an unaffiliated
third party.
During 1995, the Company loaned $160,000 to Mr. Ahlbrand. The loan matures
in 1998 and is payable in monthly installments of principal and interest at 2%
over the prime rate. The loan is evidenced
33
<PAGE> 34
by a note and is secured by an assignment of a land contract and of rentals on
the building identified in the preceding paragraph.
In 1995 the Company advanced $126,800 to William F. Coyro, Jr., the
Company's Chairman and Chief Executive Officer, $70,000 to Brian Niemiec, then a
Senior Vice President, and $46,900 to Valerie Niemiec, a Director and formerly a
Senior Vice President of the Company. The advances represented Federal, State
and Social Security taxes due by each of them on taxable income resulting from
the exercise of stock options. The amounts were remitted to the appropriate
taxing entity. The advances were repaid to the Company prior to December 31,
1995.
The Company advanced $107,000 in 1995 to an insurance company that carries
an insurance policy on the life of Lawrence A. Mills, a Senior Vice President
and Chief Financial Officer and Treasurer. The advance is collateralized by the
cash value of the underlying life insurance policy. The advance is to be repaid
by Mr. Mills in future years.
The Company utilizes the services of Riley & Roumell, a law firm of which
Wallace D. Riley, a director of the Company, is a partner. The Company paid
$88,100 to that firm in 1995 for legal services and expenses.
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of September 4, 1996 and as adjusted
to reflect the sale by the Company and the Selling Stockholders of the shares of
Common Stock being offered hereby by: (i) each person (or group or affiliated
persons) who is known by the Company to own beneficially more than 5% of the
Company's Common Stock; (ii) each of the Company's directors; (iii) the
Company's Chief Executive Officer and each of the other named executive
officers; and (iv) the Company's directors and executive officers as a group.
Except as indicated in the footnotes to this table, the persons named in the
table, based on information provided by such persons, have sole voting and sole
investment power with respect to all shares of Common Stock shown as
beneficially owned by them, subject to community property laws where applicable.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP SHARES BENEFICIAL OWNERSHIP
PRIOR TO THE OFFERING(1) SUBJECT TO AFTER THE OFFERING(1)
---------------------------- OVER ALLOTMENT ----------------------
NAME SHARES PERCENTAGE OPTION(2) SHARES PERCENTAGE
- ------------------------------- --------- ---------- -------------- --------- ----------
<S> <C> <C> <C> <C> <C>
William F. Coyro, Jr.(3)*...... 517,819(4)(5) 4.53% 75,000 442,819 3.07%
LeRoy H. Wulfmeier, III(3)*.... 272,199(6)(7) 2.38 5,000 267,199 1.85
Richard G. Somerlott(3)*....... 252,419(6) 2.21 60,000 192,419 1.33
Valerie J. Niemiec(3)*......... 125,600(8) 1.10 50,000 75,600 **
Wallace D. Riley(3)*........... 120,600(9) 1.05 30,000 90,600 **
Kim A. Cooper(3)*.............. 35,425(10) ** -0- 35,425 **
Lawrence A. Mills(3)........... 15,000(11) ** 5,000 10,000 **
Thomas R. Smith................ 26,000(12) ** -0- 26,000 **
Jonathan D. Ahlbrand(3)........ -0-(13) -- -0- -0- --
Louis K. Dohrmann(3)........... -0-(14) -- -0- -0- --
Current Directors and Executive
Officers as a Group (nine
persons)..................... 1,365,062(15) 11.94% 225,000 1,140,062 7.90%
</TABLE>
- -------------------------
* A director of the Company.
** Less than 1%.
(1) For purposes of this table, shares indicated as being owned beneficially
include shares not presently outstanding but which are subject to exercise
within 60 days through options, warrants, rights or conversion privileges.
For the purpose of computing the percentage of the outstanding
34
<PAGE> 35
shares owned by a shareholder, shares subject to such exercise are deemed
to be outstanding securities of the class owned by that stockholder but are
not deemed to be outstanding for the purpose of computing the percentage by
any other person.
(2) Represents the maximum number of shares of Common Stock that will be sold
by Selling Stockholders if the Underwriters' over-allotment is exercised in
full. See "Underwriting."
(3) A director and/or executive officer of the Company. The address of all
directors and executive officers of the Company is c/o the Company, 22000
Garrison Avenue, Dearborn, Michigan 48124.
(4) Includes 7,000 shares of Common Stock owned by certain members of the
family of William F. Coyro, Jr., the beneficial ownership of which he
disclaims.
(5) Includes options to purchase 18,000 shares of Common Stock at $4.82 per
share, 5,000 shares of Common Stock at $4.50 per share, and 10,000 shares
of Common Stock at $7.00 per share. Does not include options to purchase
12,000 shares of Common Stock at $4.82 and 20,000 shares of Common Stock at
$4.50 per share which are not exercisable until November 1996 or later and
options to purchase 90,000 shares of Common Stock at the public offering
price which are not exercisable until August 1997 or later.
(6) Includes options to purchase 10,000 shares of Common Stock at $4.82 per
share, 10,000 shares of Common Stock at $7.00 per share and 10,000 shares
of Common Stock at the public offering price.
(7) Includes 18,700 shares of Common Stock owned by LeRoy H. Wulfmeier, III, as
custodian for his minor child, the beneficial ownership of which he
disclaims.
(8) Includes options to purchase 8,000 shares of Common Stock at $4.82 per
share, 5,000 shares of Common Stock at $4.50 per share and 10,000 shares of
Common Stock at the public offering price. Does not include options to
purchase 12,000 shares of Common Stock at $4.82 per share and 20,000 shares
of Common Stock at $4.50 per share which are not exercisable until November
1996 or later.
(9) Includes options to purchase 10,000 shares of Common Stock at $4.82 per
share, 60,000 shares of Common Stock at $7.00 per share and 10,000 shares
of Common Stock at the public offering price.
(10) Includes options to purchase 35,000 shares of Common Stock at $5.00 per
share.
(11) Includes options to purchase 8,000 shares of Common Stock at $5.69 per
share and 5,000 shares of Common Stock at $4.50 per share. Does not include
options to purchase 12,000 shares of Common Stock at $5.69 per share and
20,000 shares of Common Stock at $4.50 which are not exercisable until
January 1997 or later and options to purchase 25,000 shares of Common Stock
at the public offering price which are not exercisable until August 1997 or
later.
(12) Includes options to purchase 25,000 shares of Common Stock at $4.50 per
share during the period ending January 31, 1997. As a result of his
resignation from the Company in September 1996, options to purchase a total
of 15,000 shares of Common Stock that were granted to him in August 1996
were terminated.
(13) Does not include options to purchase 25,000 shares of Common Stock at $5.31
per share which are not exercisable until November 1996 or later and
options to purchase 55,000 shares of Common Stock at the public offering
price which are not exercisable until August 1997 or later.
(14) Does not include options to purchase 25,000 shares of Common Stock at $5.00
per share which are not exercisable until March 1997 or later and options
to purchase 25,000 shares of Common Stock at the public offering price
which are not exercisable until August 1997 or later.
(15) Includes the shares and options in footnotes (4) through (14) above.
35
<PAGE> 36
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company's Articles of Incorporation authorize the issuance of
45,000,000 shares of Common Stock, par value $.01 per share and 5,000,000 shares
of preferred stock, par value $.01 per share. The Common Stock is registered
pursuant to Section 12(g) of the Securities Exchange Act of 1934. As of August
31, 1996, the Company had 11,432,851 shares of Common Stock and no shares of
preferred stock outstanding.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share on all
matters to be voted on by the stockholders and have no cumulative voting rights.
Subject to the rights of the holders of any preferred stock then outstanding,
holders of shares of Common Stock are entitled to share ratably in dividends, if
any, as may be declared from time to time by the Board of Directors at its
discretion, from funds legally available therefor. In the event of a
liquidation, dissolution or winding up of the Company, the holders of shares of
Common Stock are entitled to share pro rata all assets remaining after payment
in full of all liabilities and provisions for the liquidation of any shares of
preferred stock then outstanding. Holders of Common Stock have no preemptive or
other subscription rights, and there are no conversion rights or redemption or
sinking fund provisions with respect to the Common Stock. All outstanding shares
of Common Stock are fully paid and non-assessable.
PREFERRED STOCK
The Company's preferred stock may be issued from time to time in one or
more series, without stockholder approval. Subject to limitations prescribed by
law, the Board of Directors is authorized to determine the voting powers (if
any), designation, preferences and relative, participating, optional or other
special rights, and qualifications, limitations or restrictions thereof, for
each series of preferred stock that may be issued and to fix the number of
shares of each series. Thus, the Company's Board of Directors, without
stockholder approval, could authorize the issuance of preferred stock with
voting power and other rights that could adversely affect the voting power and
other rights of holders of Common Stock or that could make it more difficult for
another company to effect certain business combinations with the Company.
CERTAIN DELAWARE LAW AND BY-LAWS PROVISIONS; ANTI-TAKEOVER EFFECTS
Section 203 of the Delaware Law prevents an "interested stockholder"
(defined in Section 203, generally, as a person owning 15% or more of a
corporation's outstanding voting stock) from engaging in a "business
combination" (as defined in Section 203) with a publicly held Delaware
corporation for three years following the date such person became an interested
stockholder unless: (i) before such person became an interested stockholder, the
board of directors of the corporation approved the transaction in which the
interested stockholder became an interested stockholder or approved the business
combination; (ii) upon consummation of the transaction that resulted in the
interested stockholder becoming an interested stockholder, the interested
stockholder owns at least 85% of the voting stock of the corporation outstanding
at the time the transaction commenced (excluding stock held by directors who are
also officers of the corporation and by employee stock plans that do not provide
employees with the right to determine confidentiality whether shares held
subject to the plan will be tendered in a tender or exchange offer); or (iii)
following the date on which such person became an interested stockholder, the
business combination is approved by the board of directors of the corporation
and authorized at a meeting of stockholders by the affirmative vote of the
holders of 66 2/3% of the outstanding voting stock of the corporation not owned
by the interested stockholder.
Section 2 of the Company's Amended and Restated By-Laws provides that
special meetings of stockholders of the Company may be called only by the
Chairperson of the Board of Directors or by the
36
<PAGE> 37
President or at the request in writing of stockholders owning at least 30% of
the issued and outstanding shares of the Company. That provision will make it
more difficult for stockholders to take action opposed by management.
In addition, the Board of Directors is empowered to issue up to 5,000,000
shares of preferred stock and to determine the price, rights, preferences and
privileges of such shares without further stockholder action.
These statutory and By-Laws provisions together with the existence of
"blank check" preferred stock may be deemed to have an anti-takeover effect and
may delay or prevent a tender offer that a stockholder may consider to be in its
best interest, including those that might result in a premium over the market
price for the shares held by the stockholders. These provisions may have a
depressive effect on the market price of the Common Stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar of the Company is U.S. Stock Transfer
Corporation.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 14,432,851 shares of
Common Stock outstanding (assuming no exercise of the Underwriters'
over-allotment option to purchase up to an additional 450,000 shares). The
3,000,000 shares sold in this Offering (3,450,000 shares if the Underwriters'
over-allotment option is exercised in full) will be freely tradable without
restriction under the Securities Act, except for any such shares held at any
time by an "affiliate" of the Company, as such term is defined under Rule 144
promulgated under the Securities Act.
The Company has agreed with the Underwriters, subject to certain
exceptions, not to sell or otherwise dispose of any shares of Common Stock for a
period of 180 days from the date of this Prospectus without the prior written
consent of Salomon Brothers Inc. In addition, the directors and executive
officers of the Company, beneficially holding (upon completion of this Offering)
an aggregate of approximately 1,339,062 shares (1,114,062 shares if the
Underwriters' over-allotment option is exercised in full), have agreed, subject
to certain exceptions, not to sell or otherwise dispose of any such shares for a
period of 180 days from the date of this Prospectus without the prior written
consent of Salomon Brothers Inc.
The Company is unable to estimate the number of shares that may be sold in
the future by its existing stockholders or the effect, if any, that sales of
shares by such stockholders will have on the market price of the Common Stock
prevailing from time to time. Sales of substantial amounts of Common Stock by
existing stockholders could adversely affect prevailing market prices.
37
<PAGE> 38
UNDERWRITING
Subject to the terms and the conditions set forth in the Underwriting
Agreement, the Company has agreed to sell to each of the Underwriters named
below, and each of the Underwriters, for whom Salomon Brothers Inc and Robert W.
Baird & Co. Incorporated are acting as representatives (the "Representatives"),
has severally agreed to purchase from the Company the respective number of
shares of Common Stock set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------------------------------------------------------------ ---------
<S> <C>
Salomon Brothers Inc.............................................. 715,000
Robert W. Baird & Co. Incorporated................................ 715,000
Dean Witter Reynolds Inc.......................................... 185,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated................ 185,000
J.P. Morgan Securities Inc........................................ 185,000
Smith Barney Inc.................................................. 185,000
Dain Bosworth Incorporated........................................ 120,000
Everen Securities, Inc............................................ 120,000
Jefferies & Company............................................... 120,000
Roney & Co. L.L.C................................................. 120,000
First of Michigan Corporation..................................... 70,000
Hanifen, Imhoff Inc............................................... 70,000
Hoak Securities Corp.............................................. 70,000
Natcity Investments, Inc.......................................... 70,000
The Ohio Company.................................................. 70,000
---------
Total............................................................. 3,000,000
=========
</TABLE>
In the Underwriting Agreement, the several Underwriters have agreed,
subject to the terms and conditions set forth therein, to purchase all 3,000,000
shares of Common Stock offered hereby if any such shares are purchased. In the
event of a default by any Underwriter, the Underwriting Agreement provides that,
in certain circumstances, purchase commitments of the non-defaulting
Underwriters may be increased or the Underwriting Agreement may be terminated.
The Company and Selling Stockholders have been advised by the Representatives
that the several Underwriters propose to offer such stock to the public at the
public offering price set forth on the cover page of this Prospectus, and to
certain dealers at such price less a concession not in excess of $0.97 per
share. The Underwriters may allow and such dealers may reallow a concession not
in excess of $0.10 per share to other dealers. After the initial offering, the
public offering price and such concessions may be changed.
The Company and the Selling Stockholders have granted to the Underwriters
an option to purchase up to an additional 450,000 shares of Common Stock at the
initial offering price less the aggregate underwriting discounts and
commissions, solely to cover over-allotments. Up to 225,000 of the shares
covered by such option will be made available by the Company, and up to 225,000
shares in the aggregate will be made available by the Selling Stockholders as
described in "Principal and Selling Stockholders." The option may be exercised
at any time up to 30 days after the date of this Prospectus. To the extent that
the Underwriters exercise such option, each of the Underwriters will be
committed, subject to certain conditions, to purchase a number of option shares
proportionate to such Underwriter's initial commitment.
The Company, the Selling Stockholders and the Company's directors and
executive officers have agreed that they will not offer, sell, contract to sell
or otherwise dispose of any shares of Common Stock, for a period of 180 days
after the effective date of the Registration Statement of which this Prospectus
is a part, without the prior written consent of Salomon Brothers Inc, except
that the Company may issue shares pursuant to the over-allotment option or upon
the exercise of currently outstanding stock options and the Selling Stockholders
may sell shares pursuant to the over-allotment option.
38
<PAGE> 39
Certain of the Underwriters currently act as market makers for the
Company's Common Stock and may engage in "passive market making" in such
securities on the Nasdaq National Market in accordance with Rule 10b-6A under
the Securities Exchange Act of 1934 (the "Exchange Act"). Rule 10b-6A permits,
upon the satisfaction of certain conditions, underwriters participating in a
distribution that are also Nasdaq market makers in the security being
distributed to engage in limited market making transactions during the period
when Rule 10b-6A under the Exchange Act would otherwise prohibit such activity.
Rule 10b-6A prohibits underwriters engaged in passive market making generally
from entering a bid or effecting a purchase at a price that exceeds the highest
bid for those securities displayed on Nasdaq National Market by a market maker
that is not participating in the distribution. Under Rule 10b-6A each
underwriter engaged in passive market making is subject to a daily net purchase
limitation equal to 30% of such entity's average daily trading volume during the
two full consecutive calendar months immediately preceding the date of the
filing of the registration statement under the Securities Act pertaining to the
security to be distributed.
The Underwriting Agreement provides that the Company and the Selling
Stockholders will indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act, or contribute to
payments the Underwriters may be required to make in respect thereof.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company and the Selling Stockholders by Berry,
Moorman, King & Hudson, P.C., Detroit, Michigan. Robert A. Hudson, a stockholder
of Berry, Moorman, King & Hudson, P.C., is the Secretary of the Company and
beneficially owns 23,100 shares of Common Stock. Certain legal matters in
connection with the issuance of the Common Stock will be passed upon for the
Underwriters by Winston & Strawn, Chicago, Illinois.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1994 and 1995 and for each of the three years in the period ended December 31,
1995 appearing in, and incorporated by reference into, this Prospectus and
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein and
are included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the following Regional Offices of
the Commission: Seven World Trade Center, 13th Floor, New York, NY 10048; and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material may also be obtained at prescribed rates from the Public
Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Commission maintains a web site (http://www.sec.gov)
that contains reports, proxy statements and other information regarding
registrants that file electronically with the Commission.
The Company has filed with the Commission a registration statement on Form
S-3 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act with respect to the Common Stock offered
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement. For further information with respect to the Company and
the Common Stock offered hereby, reference is made to the Registration
Statement. Statements contained herein concerning
39
<PAGE> 40
any document are not necessarily complete and, in each instance, reference is
made to the copy of such document filed as an exhibit to the Registration
Statement. Each such statement is qualified in its entirety by such reference.
Copies of all or any part of the Registration Statement, including exhibits
thereto, may be obtained, upon payment of the prescribed fees, at the offices of
the Commission.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The Company hereby incorporates by reference:
1. The Company's Annual Report on Form 10-K for the year ended
December 31, 1995;
2. The Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1996 and June 30, 1996; and
3. The descriptions of the Company's Common Stock that are contained
in the Registration Statement on Form 8-A filed by TechTeam to register
such securities under Section 12 of the Exchange Act, File No. 0-16284,
including any amendment or report filed for the purpose of updating such
descriptions.
All documents filed by TechTeam pursuant to Sections 13(a), 13(c), 14 and
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering described herein shall be deemed to be
incorporated by reference in the Registration Statement and to be a part hereof
from the date of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes hereof to the extent that a statement
contained herein or any subsequently filed document which is deemed to be
incorporated by reference herein modifies or supersedes such document. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part hereof.
TechTeam will provide without charge to each person to whom a copy of this
Prospectus is delivered, upon written or oral request, a copy of any document
incorporated herein by reference (other than exhibits to such document which are
not specifically incorporated by reference in such document). Requests for such
documents should be directed to: National TechTeam, Inc., Attn: G.K. DeSantis,
22000 Garrison Avenue, Dearborn, Michigan 48124, telephone (313) 277-2277.
40
<PAGE> 41
NATIONAL TECHTEAM, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors.................................... F-2
Consolidated Statements of Operations -- Years Ended December 31, 1993, 1994 and 1995
and Six Months Ended June 30, 1995 and 1996........................................ F-3
Consolidated Statements of Financial Position -- December 31, 1994, December 31, 1995
and June 30, 1996.................................................................. F-4
Consolidated Statements of Shareholders' Equity -- Years Ended December 31, 1993,
1994 and 1995 and Six Months Ended June 30, 1996................................... F-6
Consolidated Statements of Cash Flows -- Years Ended December 31, 1993, 1994 and 1995
and Six Months Ended June 30, 1995 and 1996........................................ F-7
Notes to the Consolidated Financial Statements....................................... F-8
</TABLE>
F-1
<PAGE> 42
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
BOARD OF DIRECTORS
NATIONAL TECHTEAM, INC.
We have audited the accompanying consolidated statements of financial
position of National TechTeam, Inc. and subsidiaries as of December 31, 1994 and
1995 and the related consolidated statements of operations, shareholders'
equity, and cash flows for each of the three years in the period ended December
31, 1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on those financial
statements based on our audits.
We conducted our audits in accordance with general accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of National
TechTeam, Inc. and subsidiaries at December 31, 1994 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
February 23, 1996
Detroit, Michigan
F-2
<PAGE> 43
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
--------------------------------------- -------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES -- NOTE B
Call Center Services.......... $ 2,325,331 $ 7,172,997 $15,123,294 $ 5,140,511 $14,386,919
----------- ----------- ----------- ----------- -----------
Corporate Computer Services
Technical staffing.......... 10,085,164 12,836,952 14,732,050 7,288,603 7,702,021
Systems integration......... 2,647,046 5,601,224 7,914,414 3,590,259 5,009,341
Training programs........... 5,386,406 4,613,265 4,017,704 2,051,750 3,140,557
----------- ----------- ----------- ----------- -----------
Total Corporate Computer
Services.................... 18,118,616 23,051,441 26,664,168 12,930,612 15,851,919
----------- ----------- ----------- ----------- -----------
TOTAL REVENUES.................. 20,443,947 30,224,438 41,787,462 18,071,123 30,238,838
COST OF SERVICES DELIVERED...... 15,821,252 23,098,915 32,337,016 13,446,426 23,237,849
----------- ----------- ----------- ----------- -----------
GROSS PROFIT.................... 4,622,695 7,125,523 9,450,446 4,624,697 7,000,989
----------- ----------- ----------- ----------- -----------
OTHER EXPENSES/(INCOME)
Selling, general and
administrative.............. 1,786,900 3,872,159 5,349,034 2,447,887 3,700,374
Interest...................... 66,697 33,911 24,109 3,250 36,728
Gain on sale of investment.... -- (152,471) -- -- --
----------- ----------- ----------- ----------- -----------
1,853,597 3,753,599 5,373,143 2,451,137 3,737,102
----------- ----------- ----------- ----------- -----------
INCOME BEFORE TAX PROVISIONS.... 2,769,098 3,371,924 4,077,303 2,173,560 3,263,887
TAX PROVISIONS -- NOTE F........ 1,096,685 1,400,875 1,678,236 859,220 1,354,000
----------- ----------- ----------- ----------- -----------
NET INCOME...................... $ 1,672,413 $ 1,971,049 $ 2,399,067 $ 1,314,340 $ 1,909,887
=========== =========== =========== =========== ===========
PRIMARY AND FULLY DILUTED
EARNINGS PER SHARE............ $0.18 $0.18 $0.21 $0.11 $0.17
=========== =========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES AND COMMON SHARE
EQUIVALENTS OUTSTANDING
Primary....................... 9,306,255 10,981,183 11,360,768 11,539,650 11,531,069
Fully diluted................. 9,522,940 11,079,136 11,360,768 11,676,154 11,541,861
</TABLE>
See accompanying notes.
F-3
<PAGE> 44
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- JUNE 30,
1994 1995 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents....................... $ 412,559 $ 1,717,543 $ 1,661,461
Temporary investments........................... 3,500,000 -- --
Accounts receivable -- Note B................... 7,751,801 13,269,272 15,590,622
Note receivable -- current portion.............. -- 53,333 66,666
Inventories..................................... 499,748 769,545 694,145
Refundable income tax........................... 384,258 -- --
Other........................................... 341,331 381,751 468,194
----------- ----------- -----------
12,889,697 16,191,444 18,481,088
----------- ----------- -----------
PROPERTY AND EQUIPMENT -- NOTE D
Office furniture and equipment.................. 4,017,641 6,622,953 8,880,107
Leasehold improvements.......................... 345,701 681,223 976,242
Transportation equipment........................ 138,572 154,395 154,395
----------- ----------- -----------
4,501,914 7,458,571 10,010,744
Less -- Accumulated depreciation and
amortization................................. 1,861,876 2,898,257 3,846,974
----------- ----------- -----------
2,640,038 4,560,314 6,163,770
----------- ----------- -----------
OTHER ASSETS
Goodwill (less accumulated amortization of
$193,306 at December 31, 1994, $354,512 at
December 31, 1995, and $444,370 at June 30,
1996) --
Note H....................................... 1,413,791 1,252,585 1,440,408
Note receivable -- long-term.................... -- 102,222 75,556
Other........................................... 205,156 178,958 226,714
----------- ----------- -----------
1,618,947 1,533,765 1,742,678
----------- ----------- -----------
TOTAL ASSETS...................................... $17,148,682 $22,285,523 $26,387,536
=========== =========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 45
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- JUNE 30,
1994 1995 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt............... $ 140,100 $ 96,884 $ 181,104
Accounts payable................................ 287,403 893,965 1,547,745
Accrued payroll, related taxes and
withholdings................................. 494,181 2,037,446 2,328,584
Deferred income tax -- Note F................... 65,850 89,839 89,839
Federal income tax payable...................... -- 160,116 51,116
Deferred revenues and unapplied receipts........ 47,540 431,967 692,305
Other........................................... 138,122 128,312 226,598
----------- ----------- -----------
1,173,196 3,838,529 5,117,291
----------- ----------- -----------
LONG-TERM LIABILITIES
Deferred income tax -- Note F................... 146,460 116,066 116,066
Long-term debt, less current portion -- Note
D............................................ -- 438,962 755,412
----------- ----------- -----------
146,460 555,028 871,478
----------- ----------- -----------
SHAREHOLDERS' EQUITY -- NOTES E, G, J AND K
Preferred stock, par value $.01
Authorized -- 5,000,000 shares
None issued
Common stock, par value $.01
Authorized -- 45,000,000 shares
Issued:
10,989,166 shares at December 31, 1994..... 109,892
11,407,666 shares at December 31, 1995..... 114,077
11,561,141 shares at June 30, 1996......... 115,611
Additional paid-in capital...................... 12,035,229 12,601,925 13,095,691
Retained earnings............................... 3,683,905 6,082,972 7,992,859
----------- ----------- -----------
Total........................................... 15,829,026 18,798,974 21,204,161
Less -- Treasury stock (200,000 shares at
December 31, 1995 and 177,063 shares at June
30, 1996).................................... -- 907,008 805,394
----------- ----------- -----------
Total shareholders' equity...................... 15,829,026 17,891,966 20,398,767
----------- ----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY........ $17,148,682 $22,285,523 $26,387,536
=========== =========== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE> 46
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED TREASURY
STOCK CAPITAL EARNINGS STOCK
-------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
Balance at January 1, 1993................. $ 72,288 $ 1,876,556 $ 40,443 $ --
Proceeds from issuance of 475,150 shares
of common stock -- Note G............. 4,752 320,726 -- --
Proceeds from issuance of 1,291,750
shares under stock option plans --
Note J................................ 12,917 1,977,783 -- --
Shares issued to acquire Micro Systems
Group, Inc. -- Note H................. 6,241 2,072,025 -- --
Tax benefit from exercise of employee
stock options and other............... -- 23,408 -- --
Net income for 1993...................... -- -- 1,672,413 --
-------- ----------- ---------- ---------
Balance at December 31, 1993............... 96,198 6,270,498 1,712,856 --
Proceeds from issuance of 1,060,731
shares of common stock -- Note G...... 10,607 5,010,227 -- --
Proceeds from issuance of 308,625 shares
under stock option plans -- Note J.... 3,087 574,123 -- --
Tax benefit from exercise of employee
stock options and other............... -- 180,381 -- --
Net income for 1994...................... -- -- 1,971,049 --
-------- ----------- ---------- ---------
Balance at December 31, 1994............... 109,892 12,035,229 3,683,905 --
Proceeds from issuance of 418,500 shares
under stock option plans -- Note J.... 4,185 256,475 -- --
Tax benefit from exercise of employee
stock options and other............... -- 310,221 -- --
Purchase of common stock -- Note K....... -- -- -- (907,008)
Net income for 1995...................... -- -- 2,399,067 --
-------- ----------- ---------- ---------
Balance at December 31, 1995............... 114,077 12,601,925 6,082,972 (907,008)
Proceeds from issuance of 73,475 shares
under stock option plans -- Note J.... 734 234,566 -- --
Shares issued to acquire Coup, Inc. ..... 800 259,200 -- --
Contributions to 401(k) plan............. -- -- -- 101,614
Net income for six months ended June 30,
1996 (Unaudited)...................... -- -- 1,909,887 --
-------- ----------- ---------- ---------
Balance at June 30, 1996 (Unaudited)....... $115,611 $13,095,691 $7,992,859 $(805,394)
======== =========== ========== =========
</TABLE>
See accompanying notes.
F-6
<PAGE> 47
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------- -------------------------
1993 1994 1995 1995 1996
----------- ------------ ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income.................................... $ 1,672,413 $ 1,971,049 $ 2,399,067 $ 1,314,340 $ 1,909,887
Adjustments to reconcile net income to net
cash provided by/(used in) operating
activities:
Depreciation and amortization............... 572,927 1,037,279 1,594,250 523,548 1,111,358
Provision for uncollectible accounts
receivable................................ 15,549 30,308 123,143 13,143 79,569
Treasury stock contributed to 401(k)
plan...................................... -- -- -- -- 101,614
Provision for deferred income tax........... 128,000 138,310 (89,631) -- --
(Gain) on sale of investment................ -- (152,471) -- -- --
(Gain)/loss on sales of equipment and
other..................................... (27,180) (3,878) 55,209 -- --
Changes in current assets and liabilities:
Accounts receivable....................... (2,240,166) (2,725,807) (5,640,614) (4,122,731) (2,400,919)
Inventories............................... 14,582 (130,574) (269,797) (23,624) 75,400
Advances to officers and employees........ -- -- -- (270,081) --
Other current assets...................... (15,956) (168,268) (40,420) (137,736) (86,443)
Accounts payable.......................... 156,174 (173,373) 606,562 (26,306) 653,780
Accrued payroll, related taxes
and withholdings........................ 309,144 128,159 1,543,265 307,206 291,138
Federal income tax........................ 399,795 (892,231) 544,374 392,970 (109,000)
Deferred revenues and unapplied
receipts................................ 65,239 (99,091) 384,427 340,628 260,338
Other current liabilities................. (214,133) (182,233) (9,810) 110,075 98,286
----------- ------------ ----------- ----------- -----------
Net cash provided by/(used in) operating
activities................................ 836,388 (1,222,821) 1,200,025 (1,578,568) 1,985,008
----------- ------------ ----------- ----------- -----------
INVESTING ACTIVITIES
Purchases of property and equipment........... (2,145,003) (864,798) (3,187,027) (694,184) (2,552,167)
Development of training manuals............... (82,132) (116,722) (117,970) (17,196) (49,001)
Purchases of temporary investments............ -- (12,388,000) (100,000) (450,000) --
Proceeds from sale of temporary
investments................................. -- 8,888,000 3,600,000 3,950,000 --
Proceeds from sale of investment.............. -- 160,000 -- -- --
Issuance of note receivable................... -- -- (160,000) -- --
Proceeds from sales of property and equipment
and other assets............................ 53,256 23,227 22,630 -- --
Net cash of Micro Systems Group, Inc. at
acquisition date............................ 3,005 -- -- -- --
Other assets -- net........................... (18,902) 13,082 (12,293) -- (63,211)
----------- ------------ ----------- ----------- -----------
Net cash provided by/(used in) investing
activities................................ (2,189,776) (4,285,211) 45,340 2,788,620 (2,664,379)
----------- ------------ ----------- ----------- -----------
FINANCING ACTIVITIES
Proceeds from long-term borrowings............ 680,000 -- 565,998 -- 480,212
Proceeds from issuance of common stock........ 2,339,586 5,778,425 570,881 249,900 222,619
Purchase of Company common stock.............. -- -- (907,008) (907,008) --
Payments on short-term borrowings............. (1,126,830) -- -- -- --
Payments on long-term borrowings.............. (372,514) (432,471) (170,252) (122,700) (79,542)
----------- ------------ ----------- ----------- -----------
Net cash provided by/(used in) financing
activities................................ 1,520,242 5,345,954 59,619 (779,808) 623,289
----------- ------------ ----------- ----------- -----------
Increase/(decrease) in cash and
cash equivalents.......................... 166,854 (162,078) 1,304,984 430,244 (56,082)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD........................................ 407,783 574,637 412,559 412,559 1,717,543
----------- ------------ ----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD...... $ 574,637 $ 412,559 $ 1,717,543 $ 842,803 $ 1,661,461
=========== ============ =========== =========== ===========
</TABLE>
See accompanying notes.
F-7
<PAGE> 48
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation: The consolidated financial statements include the
accounts of National TechTeam, Inc. and its wholly-owned subsidiaries TechTeam
Europe, Ltd. and National TechTeam of Illinois, Inc., formerly Micro Systems
Group, Inc. ("MSG"). Collectively, these companies are referred to as the
"Company" or "TechTeam." Intercompany accounts and transactions have been
eliminated as appropriate. The financial statements at June 30, 1996 and for the
six months ended June 30, 1995 and 1996 are unaudited. In the opinion of the
Company's management, all adjustments considered necessary for a fair
presentation have been included. Operating results for the six months ended June
30, 1996 are not necessarily indicative of the results that may be expected for
the year ending December 31, 1996.
Cash and cash equivalents: Cash includes both interest bearing and
non-interest bearing deposits which are available on demand. Cash equivalents
include all liquid investments with a maturity of three months or less when
purchased, including money market funds held at banks.
Temporary investments: The December 31, 1994, temporary investments
consisted of tax free municipal obligations, stated at cost, which equals market
value. Repayment of the principal amount of these investments was guaranteed by
letters of credit issued by a bank. The Company classified the debt securities
held at December 31, 1994, as temporary investments as they were available for
sale.
Inventories: Inventories are stated at the lower of cost (determined by the
first-in, first-out method) or market and consist principally of computer
equipment and software.
Property and equipment: Property and equipment are stated at cost. Property
and equipment are depreciated on the straight-line method over their estimated
useful lives, ranging from 3 to 10 years. Leasehold improvements are amortized
on a straight-line basis over the lesser of the lease term or the estimated
useful lives of the improvements.
Goodwill: Represents the excess cost over the fair value of net assets
acquired in the acquisition of MSG, Coup, Inc. and others and is amortized on a
straight-line basis over 10 years. The carrying value of goodwill will be
reviewed if the facts and circumstances suggest that it may be impaired.
Revenue recognition: Revenues from Call Center Services and Corporate
Computer Services are recognized as services are performed. Revenues from
product sales are recognized when title is transferred to the client. Under the
terms of certain Call Center Services contracts, clients are required to pay
certain amounts at the commencement of the contract, which payments are
non-refundable and as to which the Company has no further service obligation.
Amounts billed under this provision of such contracts aggregated $19,600 in
1994; $1,655,700 in 1995; and $430,000 and $618,100 for the six months ended
June 30, 1995 and 1996, respectively. All such amounts were recognized as
revenues when billed.
Deferred revenue: TechTeam receives advance payments from clients under
certain lease and maintenance agreements. These payments are recognized as
revenues when earned. All deferred revenue recorded at December 31 is expected
to be earned in the subsequent year.
Deferred income taxes: Deferred tax assets and liabilities are determined
based on differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
Stock options: TechTeam accounts for employee stock options under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" and related Interpretations.
Earnings per share: Earnings per share is computed using the weighted
average number of common shares and common share equivalents outstanding during
each year presented. Common share equivalents consist of stock options and
warrants and are calculated using the treasury stock method.
F-8
<PAGE> 49
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
Use of estimates: Preparation of financial statements in conformity with
generally accepted accounting principles requires the Company's management to
make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from the
estimates and assumptions made.
NOTE B -- DESCRIPTION OF THE BUSINESS
The Company provides call center services and corporate computer services
for major companies on an international scale. Revenues and accounts receivable
from major clients are summarized as follows.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
--------------------------------------- -----------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Hewlett-Packard Company
Revenues for the
period................ $ -- $ -- $ 7,269,445 $1,609,375 $9,672,846
Accounts receivable at
end of period......... -- -- 2,923,934 514,309 3,424,116
Ford Motor Company
Revenues for the
period................ 13,703,312 14,195,853 15,584,964 7,877,077 8,573,511
Accounts receivable at
end of period......... 2,192,175 2,487,263 4,863,948 2,702,492 4,513,100
Chrysler Corporation
Revenues for the
period................ 1,266,320 3,294,788 4,162,419 2,031,761 2,624,788
Accounts receivable at
end of period......... 356,075 1,457,273 1,221,121 1,325,844 1,317,340
Corel Corporation
Revenues for the
period................ 414,604 3,687,298 2,737,601 1,600,447 268,459
Accounts receivable at
end of period......... 414,604 537,972 268,550 520,544 127,266
Novell, Inc.
Revenues for the
period................ 1,717,417 2,260,203 522,973 285,356 20,020
Accounts receivable at
end of period......... 436,385 508,736 193,682 149,708 20,020
</TABLE>
Allowances for potentially uncollectible accounts receivable were as
follows: December 31, 1994 -- $76,857; December 31, 1995 -- $200,000; June 30,
1996 -- $279,569. The Company generally does not require collateral from its
clients. Credit losses experienced have been consistent with the Company's
management's expectations.
NOTE C -- LEASES
The Company leases its call center facilities, corporate and other offices
and certain office equipment under noncancelable operating leases expiring over
the next five years. These leases are renewable with various options and terms.
Total rental expense was $595,366 in 1993, $1,000,992 in 1994, $1,344,574 in
1995, and $653,787 and $856,332 for the six months ended June 30, 1995 and 1996,
respectively.
F-9
<PAGE> 50
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE C -- LEASES -- CONTINUED
Minimum future payments under noncancelable operating leases with initial
terms of one year or more were:
<TABLE>
<CAPTION>
JUNE 30, 1996
YEAR DECEMBER 31, 1995 -------------
----------------------------------------------- ----------------- (UNAUDITED)
<S> <C> <C>
1996........................................... $ 1,556,786 $ 984,242
1997........................................... 1,042,704 1,394,813
1998........................................... 660,992 1,193,401
1999........................................... 406,446 1,189,198
2000........................................... 288,455 1,168,900
----------- -----------
Total minimum lease payments................... $ 3,955,383 $ 5,930,554
=========== ===========
</TABLE>
NOTE D -- FINANCING ARRANGEMENTS AND LONG-TERM DEBT
TechTeam has an agreement with NBD Bank which provides for short-term
borrowings of up to $6,000,000; the credit is unsecured. Borrowings are at the
prime rate. There were no borrowings under the agreement at June 30, 1996.
The following amounts relate to short-term borrowings:
<TABLE>
<CAPTION>
AVERAGE AVERAGE
MAXIMUM AMOUNT DAILY AMOUNT COST OF
PERIOD BORROWED BORROWED BORROWINGS
-------------------------------------- -------------- ------------ ----------
<S> <C> <C> <C>
Year ended December 31,
1993................................ $1,199,830 $3,287 5.80%
1994................................ 1,220,000 3,242 5.30
1995................................ -0- -0- 0.00
Six months ended June 30 (Unaudited),
1995................................ -0- -0- 0.00
1996................................ 200,000 1,099 8.25
</TABLE>
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- JUNE 30,
1994 1995 1996
-------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
Total amounts due under term notes...... $140,100 $535,846 $936,516
Less -- current portion................. 140,100 96,884 181,104
--------- --------- ---------
$ -- $438,962 $755,412
========= ========= =========
</TABLE>
Term notes at June 30, 1996 consist of notes payable with interest of 8.25%
and 8.9% held by NBD Bank with maturities as follows: 1996 -- $91,553; 1997 --
$193,135; 1998 -- $210,429; 1999 -- $229,274; 2000 -- $202,398; and 2001 --
$9,727. These notes require monthly payments of principal and interest and are
collateralized by specific telecommunications hardware and software used for
call center operations.
Interest paid was $66,697 in 1993, $33,911 in 1994, $24,109 in 1995, and
$3,250 and $45,661 for the six months ended June 30, 1995 and 1996,
respectively.
F-10
<PAGE> 51
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE E -- EMPLOYEE RETIREMENT PLAN
The Company has a 401(k) Retirement Savings Plan which covers substantially
all employees. Under the provisions of the Plan, the Company will match employee
contributions in amounts up to 3% of gross compensation; contributions were
$88,392 in 1993, $163,087 in 1994, $247,181 in 1995, and $108,938 and $101,614
for the six months ended June 30, 1995 and 1996, respectively. The Company's
policy is to fund employee contributions and the Company's matching
contributions each pay period. Contributions are deposited with the trustee, NBD
Bank, and then invested in six funds at the direction of the participants.
Effective in 1996, the Company's matching contributions are credited only to the
National TechTeam Stock Fund for the benefit of each participant.
NOTE F -- TAX PROVISIONS
Tax provisions are as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------- ----------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- -------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Federal income tax:
Currently payable....... $ 760,000 $ 956,690 $1,357,867 $666,220 $1,031,000
Deferred (credit)....... 128,000 138,310 (89,631) -- --
---------- ---------- ---------- -------- ----------
Total................... 888,000 1,095,000 1,268,236 666,220 1,031,000
Michigan single business
tax..................... 208,685 305,875 410,000 193,000 323,000
---------- ---------- ---------- -------- ----------
$1,096,685 $1,400,875 $1,678,236 $859,220 $1,354,000
========== ========== ========== ======== ==========
Tax payments.............. $ 535,500 $2,022,000 $ 905,000 $370,000 $1,340,000
========== ========== ========== ======== ==========
</TABLE>
A reconciliation of the Federal income tax provision and the amount
computed by applying the Federal statutory income tax rate to earnings before
Federal income tax follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------ ----------------------
1993 1994 1995 1995 1996
-------- ---------- ---------- -------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Income tax at Federal
statutory rate of 34%.... $870,540 $1,042,457 $1,246,883 $673,390 $ 999,902
Goodwill, intangibles and
other permanent
differences.............. 17,460 52,543 46,353 17,830 31,098
Tax reserve reversed....... -- -- (25,000) (25,000) --
-------- ---------- ---------- -------- ----------
$888,000 $1,095,000 $1,268,236 $666,220 $1,031,000
======== ========== ========== ======== ==========
</TABLE>
F-11
<PAGE> 52
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE F -- TAX PROVISIONS -- CONTINUED
The principal components of the deferred Federal income tax
provision/(credit) are as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------- ----------------
1993 1994 1995 1995 1996
-------- -------- -------- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Prepaid expenses................. $ 418 $ 80,056 $ (2,143) $ -- $ --
Accelerated tax depreciation..... 39,858 10,672 28,909 -- --
Inventory valuation.............. 33,320 -- -- -- --
Allowance for uncollectible
accounts receivable............ (5,287) (10,305) (41,868) -- --
Conversion of MSG to accrual
basis of tax accounting........ -- 76,078 (76,078) -- --
Other............................ 59,691 (18,191) 1,549 -- --
-------- -------- -------- ---- ----
$128,000 $138,310 $(89,631) $ -- $ --
======== ======== ======== ==== ====
</TABLE>
The principal components of deferred Federal income tax balances, and the
classification thereof in the Consolidated Statement of Financial Position, are
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------
1994 1995 JUNE 30, 1996
---------------------- ---------------------- ----------------------
ASSETS LIABILITIES ASSETS LIABILITIES ASSETS LIABILITIES
------- ----------- ------- ----------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Allowance for
uncollectible accounts
receivable............. $26,132 $ -- $68,000 $ -- $68,000 $ --
Sale of other assets..... 15,823 -- 15,226 -- 15,226 --
Prepaid expenses......... -- 91,982 -- 89,839 -- 89,839
Accelerated tax
depreciation........... -- 87,157 -- 116,066 -- 116,066
Conversion of MSG to
accrual basis of tax
accounting............. -- 76,078 -- -- -- --
Other.................... 952 -- -- -- -- --
------- -------- ------- -------- ------- --------
$42,907 $ 255,217 $83,226 $ 205,905 $83,226 $ 205,905
======= ======== ======= ======== ======= ========
</TABLE>
Included in income before tax provisions are losses from foreign operations
of $83,683 in 1993, $520,753 in 1994, $320,641 in 1995, $89,891 for the six
months ended June 30, 1995 and a profit of $15,635 for the six months ended June
30, 1996.
F-12
<PAGE> 53
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE G -- STOCK TRANSACTIONS
A summary of stock transactions other than those discussed in Notes H and J
for the three years ended December 31, 1995 and the six months ended June 30,
1996 is as follows:
<TABLE>
<CAPTION>
SHARES PROCEEDS
--------- ----------
<S> <C> <C>
1993
Warrants issued in 1990 and 1991 and exercised in 1993.............. 475,150 $ 325,478
========= ==========
1994
Warrants issued in 1990 and 1991 and exercised in 1994.............. 41,667 $ 45,834
Private placement of common shares at
$5.00 per share................................................... 618,000 3,090,000
$4.70 per share................................................... 401,064 1,885,000
--------- ----------
1,060,731 $5,020,834
========= ==========
1995
None................................................................
1996 (Unaudited)
None................................................................
</TABLE>
NOTE H -- ACQUISITION
TechTeam acquired all of the outstanding shares of MSG in September 1993.
The transaction was structured as a stock-for-stock exchange and 624,104 shares
(valued at $2,078,266) of TechTeam's restricted common stock were issued. The
purchase method of accounting was used to record the acquisition and $1,607,097
was recorded as goodwill. The following pro-forma financial information includes
the operations of MSG and an adjustment for amortization of goodwill.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1993
------------
<S> <C>
Revenues...................................................................... $ 22,366,778
Cost of services delivered.................................................... 19,917,557
Income before tax provisions.................................................. 2,449,221
Net income.................................................................... 1,562,813
Earnings per share............................................................ $ 0.17
</TABLE>
NOTE I -- RELATED PARTY TRANSACTIONS
TechTeam was involved in the following related party transactions:
a) Paid legal fees of $117,128 in 1993, $73,591 in 1994, $119,876 in
1995, and $48,738 and $47,998 for the six months ended June 30,
1995 and 1996, respectively, to law firms whose members included
directors, officers or shareholders of TechTeam.
b) Paid $47,275 in 1993, $42,444 in 1994, $39,587 in 1995, and $17,893
and $84,375 for the six months ended June 30, 1995 and 1996,
respectively, for employee travel expenses to a travel agency which
is 50%-owned by a TechTeam director.
c) Advanced $243,800 to Executive Officers in 1995, which was repaid
in 1995.
d) Advanced $107,000 to an insurance company in 1995 that carries an
insurance policy on the life of an Executive Officer.
F-13
<PAGE> 54
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE I -- RELATED PARTY TRANSACTIONS -- CONTINUED
e) Loaned $160,000 to an Executive Officer in 1995.
f) Paid $8,518 for the six months ended June 30, 1996 for rental
expense for an office building leased from an Executive Officer.
NOTE J -- STOCK OPTIONS
<TABLE>
<CAPTION>
EMPLOYEES DIRECTORS OTHERS
TOTAL ------------------------- --------------------- -----------------------
SHARES SHARES PRICE SHARES PRICE SHARES PRICE
---------- -------- ---------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Outstanding
January 1,
1993.......... 2,275,000 617,000 $0.59-2.32 185,000 $ 0.59 1,473,000 $0.52-3.00
Granted....... 190,000 140,000 2.88-4.82 50,000 4.82 --
Exercised..... (1,291,750) (188,750) 0.59-2.00 -- (1,103,000) 0.52-2.78
Cancelled..... (220,000) (5,000) 1.20 -- (215,000) 0.57-2.32
---------- -------- -------- ----------
Outstanding
December 31,
1993.......... 953,250 563,250 0.59-4.82 235,000 0.59-4.82 155,000 0.59-3.00
Granted....... 335,500 235,500 5.00-6.38 100,000 7.00 --
Exercised..... (308,625) (153,625) 0.59-2.88 -- (155,000) 0.59-3.00
Cancelled..... (22,500) (22,500) 3.81-6.38 -- --
---------- -------- -------- ----------
Outstanding
December 31,
1994.......... 957,625 622,625 0.59-6.38 335,000 0.59-7.00 -- --
Granted....... 338,000 338,000 (1) 4.50-5.31 -- -- -- --
Exercised..... (418,500) (233,500) 0.59-2.88 (185,000) 0.59 -- --
Cancelled..... (208,000) (208,000)(1) 4.50-6.38 -- -- -- --
---------- -------- -------- ----------
Outstanding
December 31,
1995.......... 669,125 519,125 1.20-6.38 150,000 4.82-7.00 -- --
Granted....... 162,000 67,000 5.00 95,000 5.00 -- --
Exercised..... (73,475) (73,475) 1.20-6.38 -- -- -- --
Cancelled..... (77,500) (17,500) 4.50-5.00 (60,000) 5.00 -- --
---------- -------- -------- ----------
Outstanding June
30, 1996
(Unaudited)... 680,150(2) 495,150 $1.20-6.38 185,000 $4.82-7.00 -- --
========== ======== ========
</TABLE>
- -------------------------
(1) In February 1995, the Company cancelled 183,000 options at prices ranging
from $5.00 to $6.38 and regranted them at $4.50.
(2) Of the 680,150 options outstanding at June 30, 1996
a) 132,750 are currently exercisable through the fourth quarter 1998;
b) 120,000 are currently exercisable through the fourth quarter 1999;
c) 84,000 are currently exercisable through the fourth quarter 2006; and
d) 343,400 will be exercisable in the third quarter 1996 through the fourth
quarter 2002.
Exercise prices for all options granted by TechTeam equaled or exceeded
fair market value at date of grant and, therefore, no compensation expense
related to these options was recorded.
F-14
<PAGE> 55
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE K -- STOCK BUY-BACK PROGRAM
In February, 1995, the Board of Directors of the Company authorized a stock
buy-back program. The program provided for the open market purchase of up to
$4,000,000 of the Company's common stock. The repurchase program terminated July
31, 1995 with 200,000 shares repurchased at a total cost of $907,008.
NOTE L -- SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly consolidated results of operations are summarized as follows:
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
1993
Revenues............................. $ 3,817,267 $ 4,507,827 $ 5,419,685 $ 6,699,168
Income before tax provisions......... 548,132 733,387 889,866 597,713
Net income........................... 331,157 449,387 544,498 347,371
Earnings per share................... 0.04 0.05 0.06 0.03
1994
Revenues............................. $ 6,827,299 $ 7,640,227 $ 8,050,161 $ 7,706,751
Income before tax provisions......... 462,465 1,199,772 1,099,303 610,384
Net income........................... 273,599 720,606 621,538 355,306
Earnings per share................... 0.03 0.07 0.06 0.03
1995
Revenues............................. $ 8,460,857 $ 9,610,262 $ 10,562,202 $13,154,141
Income before tax provisions......... 908,662 1,264,894 676,675 1,227,072
Net income........................... 539,227 775,109 346,540 738,191
Earnings per share................... 0.05 0.07 0.03 0.07
1996
Revenues............................. $14,407,611 $15,831,227
Income before tax provisions......... 1,491,731 1,772,156
Net income........................... 865,731 1,044,156
Earnings per share................... 0.08 0.09
</TABLE>
Quarterly earnings per share may not add to annual earnings per share
because of rounding and new shares issued during the year.
F-15
<PAGE> 56
[PHOTOGRAPH OF THE EXTERIOR OF THE COMPANY'S DALLAS, TEXAS CALL CENTER]
National TechTeam's Dallas Office
<PAGE> 57
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN DULY AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE
BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING
STOCKHOLDERS OR ANY OF THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE
IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR
TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH QUALIFIED SOLICITATION.
-------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary................... 3
Risk Factors......................... 6
Use of Proceeds...................... 10
Dividend Policy...................... 10
Price Range of Common Stock.......... 10
Capitalization....................... 11
Selected Consolidated Financial
Data............................... 12
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 13
Business............................. 20
Management........................... 29
Principal and Selling Stockholders... 34
Description of Capital Stock......... 36
Shares Eligible for Future Sale...... 37
Underwriting......................... 38
Legal Matters........................ 39
Experts.............................. 39
Available Information................ 39
Incorporation of Certain Information
by Reference....................... 40
Index to Financial Statements........ F-1
</TABLE>
3,000,000 SHARES
TECHTEAM LOGO
COMMON STOCK
($.01 PAR VALUE)
SALOMON BROTHERS INC
ROBERT W. BAIRD & CO.
INCORPORATED
PROSPECTUS
DATED SEPTEMBER 27, 1996
