<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: June 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
--- ---
Commission file number 0-16284
NATIONAL TECHTEAM, INC.
------------------------------
(Name of issuer in its charter)
DELAWARE 38-2774613
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
835 Mason Street, Suite 200, Dearborn, MI 48124
----------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (313) 277-2277
--------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[X] Yes [ ] No
The number of shares of the registrant's only class of common stock outstanding
at August 8, 1997 was 15,853,942.
<PAGE> 2
FORWARD LOOKING STATEMENTS
This Report contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended.
Actual results could differ from those projected in the
forward-looking statements as a result of certain factors described
herein and in other documents. Readers should pay particular
attention to the portion of this report describing the amendment of
the report to address the restatement of the Company's financial
statements and should also carefully review the risk factors that are
described in the documents the Company has filed and files, from time
to time, with the Securities and Exchange Commission.
AMENDED FILING OF FORM 10-Q FOR THE THREE-MONTH PERIOD ENDED JUNE 30, 1997
RESTATEMENT OF FINANCIAL STATEMENTS AND CHANGES TO CERTAIN INFORMATION
On November 14, 1997 and on November 21, 1997, the Company announced
that it was restating its results of operations for the fourth quarter 1996
and for the first two quarters of 1997 to (1) defer certain revenue previously
recorded in those periods and to recognize that revenue as income in future
periods when the expenses of certain related contemporaneous purchase/sale
transactions are recognized; (2) address the impact of those restatements on
subsequent quarters; (3) address certain compensation-related and other
adjustments dealing with the accrual of payroll expenses and revenues; and (4)
to include the accounts of Compuflex Systems, Inc., a company that was acquired
by the Company in July, 1997 in a pooling-of-interests transaction. The
financial statements included in this Form 10-Q/A do not include the accounts
of Compuflex System, Inc.
General information in the original Form 10-Q was presented as of the
original filing date, or earlier, as indicated. Unless otherwise stated, such
information has not been updated in this amended filing.
Financial statement and related disclosures contained in this amended
filing reflect, where appropriate, changes to conform to the restatement.
<PAGE> 3
NATIONAL TECHTEAM, INC.
FORM 10-Q/A
INDEX
PART I - FINANCIAL INFORMATION PAGE
- ------------------------------
ITEM 1.
Consolidated Statements of Operations (Unaudited)
Three and Six Months Ended
June 30, 1997 and 1996 3
Consolidated Statements of Financial Position (Unaudited)
June 30, 1997 and December 31, 1996 4-5
Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended
June 30, 1997 and 1996 6
Notes to the Consolidated Financial Statements
(Unaudited) - June 30, 1997 7-8
ITEM 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-13
PART II - OTHER INFORMATION
- ---------------------------
ITEM 1.
Legal Proceedings 13
ITEM 6.
Exhibits and Reports on Form 8-K 13
SIGNATURES 13
2
<PAGE> 4
PART 1-- FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- -------------------
1997 1996 1997 1996
----- ----- ---- ----
<S> <C> <C> <C> <C>
Revenues (Restated - (Restated -
Note C) Note C)
Call Center Services $ 8,779,620 7,558,569 $17,854,042 $14,386,919
----------- ---------- ----------- -----------
Corporate Computer Services
Technical staffing 5,070,343 3,845,441 9,409,629 7,702,021
Systems integration 2,852,210 2,511,436 5,224,998 5,003,288
Training programs 1,860,837 1,915,781 3,304,033 3,140,557
----------- ---------- ----------- -----------
Total Corporate Computer Services 9,783,390 8,272,658 17,938,660 15,845,866
----------- ---------- ----------- -----------
Total revenues 18,563,010 15,831,227 35,792,702 30,232,785
Cost of services delivered 15,417,826 11,990,965 30,526,110 23,237,849
----------- ---------- ----------- -----------
Gross profit 3,145,184 3,840,262 5,266,592 6,994,936
----------- ---------- ----------- -----------
Other expenses/(income)
Selling, general and administrative 3,550,080 2,052,490 6,747,349 3,700,374
Interest expense -- 21,271 -- 45,661
Interest income (712,995) (5,655) (1,436,593) (14,986)
----------- ---------- ----------- -----------
2,837,085 2,068,106 5,310,756 3,731,049
----------- ---------- ----------- -----------
Income/(loss) before tax provisions 308,099 1,722,156 (44,164) 3,263,887
Tax provisions 193,000 728,000 210,200 1,354,000
----------- ---------- ----------- -----------
Net income/(loss) $ 115,099 $1,044,156 $ (254,364) $ 1,909,887
============ ========== =========== ===========
Primary and fully diluted earnings per share $ 0.01 $ 0.09 $ (0.02) $ 0.17
============ ========== =========== ===========
Weighted average number of common shares
and common share equivalents outstanding
Primary 15,482,926 11,722,525 15,478,963 11,531,069
Fully diluted 15,490,766 11,754,737 15,478,963 11,541,861
</TABLE>
See accompanying notes.
3
<PAGE> 5
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
UNAUDITED
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1997 1996
-------- ------------
<S> <C> <C>
Current assets (Restated - Note C)
Cash and cash equivalents $ 43,326,359 $ 46,771,797
Securities available-for-sale 24,045,155 27,169,703
Accounts receivable (less allowances
of $373,368 at June 30, 1997 and
$225,000 at December 31, 1996) 22,575,381 22,269,087
Refundable income tax 1,295,848 1,413,461
Inventories 644,094 647,565
Advances to vendors 2,300,000 500,000
Other 449,534 622,865
------------ ------------
94,636,371 99,394,478
------------ ------------
Property, equipment and purchased software
Office furniture and equipment 15,523,783 12,214,673
Purchased software 2,248,617 1,742,007
Leasehold improvements 1,625,331 1,380,140
Transportation equipment 240,767 192,907
------------ ------------
19,638,498 15,529,727
Less -- Accumulated depreciation and amortization 7,033,318 5,101,211
------------ ------------
12,605,180 10,428,516
------------ ------------
Other assets
Goodwill (less accumulated amortization of
$1,217,642 at June 30, 1997 and
$551,081 at December 31, 1996) 6,616,831 1,509,437
Investment in WebCentric -- 804,516
Deferred income taxes 1,756,287 609,187
Accounts receivable -- long term 2,019,788 --
Other 455,536 319,171
------------ ------------
10,848,442 3,242,311
------------ ------------
Total assets $118,089,993 $113,065,305
============ ============
</TABLE>
See accompanying notes.
4
<PAGE> 6
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
UNAUDITED
<TABLE>
<CAPTION>
June 30, December 31,
LIABILITIES AND SHAREHOLDERS' EQUITY 1997 1996
--------- ------------
<S> <C> <C>
Current liabilities (Restated - Note C)
Accounts payable $ 1,520,646 $ 4,074,363
Accrued payroll, related taxes and withholdings 3,217,712 3,554,512
Deferred income tax 189,343 189,343
Deferred revenues and unapplied receipts 617,359 255,940
Accrued expenses and taxes 554,680 874,329
Other -- 141,072
------------ ------------
6,099,740 9,089,559
------------ ------------
Long-term liabilities
Deferred Foundation Platform license fees 5,423,805 2,050,000
Minority interest 29,844 74,647
------------ ------------
5,453,649 2,124,647
------------ ------------
Shareholders' equity
Preferred stock, par value $.01
Authorized -- 5,000,000 shares
None issued
Common stock, par value $.01
Authorized -- 45,000,000 shares
Issued:
15,401,799 shares at June 30, 1997 154,018
15,008,291 shares at December 31, 1996 150,083
Additional paid-in capital 98,290,880 93,415,402
Retained earnings 8,768,998 9,023,362
------------ ------------
Total 107,213,896 102,588,847
Less -- Treasury stock (148,392 shares
at June 30, 1997 and 161,983 shares
at December 31, 1996) 677,292 737,748
------------ ------------
Total shareholders' equity 106,536,604 101,851,099
------------ ------------
Total liabilities and shareholders' equity $118,089,993 $113,065,305
============ ============
</TABLE>
See accompanying notes.
5
<PAGE> 7
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------------
1997 1996
---- ----
<S> <C> <C>
Operating activities (Restated - Note C)
Net income / (loss) $ (254,364) $1,909,887
Adjustments to reconcile net income to net cash provided
by/(used in) operating activities:
Depreciation and amortization 2,827,455 1,111,358
Provision for uncollectible accounts receivable 148,368 79,569
Deferred Foundation Platform license fees 3,373,805 --
Long-term accounts receivable from customer (2,019,788) --
Treasury stock contributed to 401(k) plan 60,456 101,614
Provision for deferred income tax (1,147,100) --
Minority interest in net loss of subsidiary (44,803) --
Changes in current assets and liabilities:
Accounts receivable (450,197) (2,400,919)
Inventories 3,471 75,400
Advances to vendors (1,800,000) --
Other current assets 197,709 (86,443)
Accounts payable (2,615,427) 653,780
Accrued payroll, related taxes and withholdings (363,898) 291,138
Federal income tax 117,613 (109,000)
Deferred revenues and unapplied receipts 361,419 260,338
Accrued expenses and taxes (319,649) --
Other current liabilities (141,072) 98,286
----------- -----------
Net cash provided by/(used in) operating activities (2,066,002) 1,985,008
----------- -----------
Investing activities
Purchases of property, equipment and software (3,309,675) (2,552,167)
Development of training manuals (284,767) (49,001)
Proceeds from sale of securities available-for-sale 3,124,548 --
Cash paid in conjunction with acquisitions, net of cash acquired (1,645,086) --
Loss from sales of property and equipment and other assets (29,024) --
Other assets -- net (69,659) (63,211)
----------- -----------
Net cash (used in) investing activities (2,213,663) (2,664,379)
----------- -----------
Financing activities
Proceeds from long-term borrowings -- 480,212
Proceeds from issuance of common stock 834,227 222,619
Payments on long-term borrowings -- (79,542)
----------- -----------
Net cash provided by financing activities 834,227 623,289
- ----------- -----------
(Decrease) in cash and cash equivalents (3,445,438) (56,082)
Cash and cash equivalents at beginning of period 46,771,797 1,717,543
- ----------- -----------
Cash and cash equivalents at end of period $ 43,326,359 $ 1,661,461
= =========== ===========
See accompanying notes.
</TABLE>
6
<PAGE> 8
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The financial statements included herein have been restated to reflect the
correction of previously issued financial statements discussed in Note C. The
financial statements included herein do not reflect the acquisition of
Compuflex Systems, Inc. which was acquired on July 30, 1997 in a transaction
accounted for as a pooling of interests. Accordingly, the accompanying
financial statements (pre pooling) are no longer considered to be prepared in
conformity with generally accepted accounting principles. The Company's
September 30, 1997 Form 10-Q included unaudited financial statements (post
pooling) of the combined entity for the three-month and nine-month periods
ended September 30, 1997 and 1996. The financial statements for the year ended
December 31, 1996 (pre-pooling) included in this Annual Report of this Company
on Form 10-K/A and the financial statements for the year ended December 31,
1996 (post pooling) included in Form 8-K filed December 19, 1997, contain
additional information and should be read in conjunction with this report.
The consolidated financial statements included herein have been prepared by
National TechTeam, Inc. ("TechTeam" or "Company") without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in the financial
statements prepared in accordance with generally accepted accounting principles
have been omitted pursuant to such rules and regulations.
The information provided in this report reflects all adjustments consisting of
normal recurring accruals which are, in the opinion of management, necessary to
present fairly the results of operations for these periods. The results of
operations for these periods are not necessarily indicative of the results
expected for the full year.
NOTE A -- EARNINGS PER SHARE
Earnings per share is computed using the weighted average number of common
shares and common share equivalents outstanding. Common share equivalents
consists of stock options and are calculated using the treasury stock method.
NOTE B -- REVENUES FROM MAJOR CLIENTS
Revenues from major clients were as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
Amount Percent of Total Amount Percent of Total
------ ---------------- ------ ----------------
<S> <C> <C> <C> <C>
Three Months Ended June 30,
- ---------------------------
Hewlett-Packard Company $ 4,871,420 26.2% $5,214,133 32.9%
Ford Motor Company 3,877,079 20.9 4,039,155 25.5
Chrysler Corporation 2,321,759 12.5 1,483,806 9.4
United Parcel Service 1,466,799 7.9 13,000 0.1
<CAPTION>
1997 1996
---- ----
Amount Percent of Total Amount Percent of Total
------ ---------------- ------ ----------------
<S> <C> <C> <C> <C>
Six Months Ended June 30,
- -------------------------
Hewlett-Packard Company $9,967,456 27.8% $9,672,846 32.0%
Ford Motor Company 7,637,839 21.3 8,573,511 28.4
Chrysler Corporation 4,458,603 12.5 2,624,788 8.7
United Parcel Service 2,803,116 7.8 13,000 0.0
</TABLE>
7
<PAGE> 9
NOTE C -- RESTATEMENTS
Correction of Previously Issued Financial Statements
The Company has restated the previously issued fourth quarter 1996 and first
and second quarter 1997 financial statements. The restatements relate to: (1)
Certain license fee revenues related to contemporaneous purchase/sale
transactions between the Company and the licensees of its software products
occurring in the fourth quarter 1996 and first quarter 1997. Those revenues
have now been deferred and will be recognized as income in future periods when
the expenses of the related contemporaneous purchase/sale transactions are
recognized. (2) The impact of the restatements described in (1) on subsequent
quarters. (3) Certain other adjustments. The following summarizes the net
effect of these adjustments on the three and six-month periods ended June 30,
1997:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 1997 June 30, 1997
<S> <C> <C>
Revenues:
As previously reported $18,450,825 $39,166,507
As restated 18,563,010 35,792,702
Net income/(loss):
As previously reported $ 79,766 $ 1,897,593
As restated 115,099 (254,364)
Net income/(loss) per share:
As previously reported $ 0.01 $ 0.12
As restated 0.01 (0.02)
</TABLE>
NOTE D -- RECENT PRONOUNCEMENT OF THE FINANCIAL ACCOUNTING STANDARDS BOARD
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per Share, which is required to be adopted on December 31, 1997.
At that time, the Company will be required to change the method currently used
to compute earnings per share and to restate all prior periods. Under the new
requirements for calculating primary earnings per share, the dilutive effect of
stock options will be excluded. The impact of Statement 128 on the calculation
of earnings per share for the three and six month periods ended June 30, 1997
and 1996 is not expected to be material.
8
<PAGE> 10
Op
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
Overview
The Company originally commenced operations as a value added reseller of
computer hardware and software that also provided training for its computer
products. 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 (contract services and Foundation Platform
licenses) 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, software products and services. 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 $618,100 for the three and six month periods ended June
30, 1996. The Company has recognized these amounts as revenues when they are
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. The Company has also licensed customers to use its Foundation
Platform, a software product developed by the Company's wholly-owned
subsidiary, WebCentric Communications, Inc. Revenues from these licenses are
recognized either; (1) On a usage basis, when the licenses are granted in
connection with on-going services; or (2) In those instances where the license
was granted in connection with a contemporaneous purchase, as the expenses of
the transaction are recognized.
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 personnel compensation, statutory and other benefits
associated with such personnel, facility and equipment costs and other indirect
costs associated with the sales, marketing and administrative functions of the
Company.
9
<PAGE> 11
The following table sets forth the percentage relationship to revenues of
certain items in the Company's Consolidated Statements of Operations:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- --------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues (Restated - (Restated -
Note C) Note C)
Call Center Services 47.3% 47.7% 49.9% 47.6%
------- ------- ------ ------
Corporate Computer Services
Technical staffing 27.3 24.3 26.3 25.5
Systems integration 15.4 15.9 14.6 16.5
Training programs 10.0 12.1 9.2 10.4
------- ------- ------ ------
Total Corporate Computer Services 52.7 52.3 50.1 52.4
------- ------- ------ ------
Total revenues 100.0 100.0 100.0 100.0
Cost of services delivered 83.1 75.7 85.3 76.9
------- ------- ------ ------
Gross profit 16.9 24.3 14.7 23.1
------- ------- ------ ------
Other expenses/(income)
Selling, general and administrative 19.1 13.0 18.8 12.2
Interest expense -- 0.1 -- 0.1
Interest income (3.8) -- (4.0) --
------- ------- ------ ------
15.3 13.1 14.8 12.3
------- ------- ------ ------
Income before tax provisions 1.6 11.2 (0.1) 10.8
Tax provisions 1.0 4.6 0.6 4.5
------- ------- ------ ------
Net income/(loss) 0.6% 6.6% (0.7)% 6.3%
======= ======= ====== ======
</TABLE>
Between 1994 and 1996, TechTeam's revenues increased at a compound annual rate
of 48.9%. The Company believes that its growth has benefited from the trend
among large corporations to outsource much of their information technology
needs and TechTeam'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. TechTeam
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. TechTeam's training programs have encountered cyclical enrollment
trends, influenced by the timing and extent to which clients are upgrading desk
top software.
Comparative Performance -- Second Quarter 1997 versus Second Quarter 1996
National TechTeam earned net income of $115,099, or $0.01 per share, for the
second quarter 1997 as compared to a net income of $1,044,156 or $0.09 per
share, for the second quarter 1996.
Revenues -- National TechTeam's total revenues increased by $2,731,783 in the
second quarter 1997 to $18,563,010, a 17.3% increase over revenues in the
second quarter 1996. Changes in revenues resulted from the following:
Call Center Services -- Revenues from Call Center Services
increased by $1,221,051 in the second quarter 1997. This was a 16.2%
increase over Call Center Services revenues in the second quarter 1996.
The increase was due to an increase to 45 contracts in place at June
30, 1997 compared to the 20 contracts at June 30, 1996.
10
<PAGE> 12
Technical staffing -- Revenues from technical staffing increased
by $1,224,902 in the second quarter 1997. This was a 31.8% increase
over technical staffing revenues in the second quarter 1996. The
increase was due to continued client demand for TechTeam's help desk
and computer services personnel at major accounts.
Systems integration -- Revenues from systems integration
increased by $340,774 in the second quarter 1997. This was a 13.6%
increase over systems integration revenues in the second quarter 1996.
The increase was due principally to a growing demand by existing
clients from TechTeam's networking services.
Training programs -- Revenues from training programs decreased
by $54,944 in the second quarter 1997. This was a 2.9% decrease over
training revenues in the second quarter 1996. The decrease was due to
non-reoccurrence of the sale of computer-based training materials which
accounted for $350,000 in revenue during the second quarter of 1996.
Cost of services delivered -- The cost of services delivered increased
by $3,426,861 in the second quarter 1997. This was a 28.6% increase over the
cost of services delivered in the second quarter 1996. 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 83.1% and 75.7% of
revenues in 1997 and 1996, respectively. The increase in these rates is
attributable to costs incurred in the development of the Company's Foundation
Platform and those related to the start-up of new projects that have not yet
commenced.
Selling, general and administrative -- Selling, general and
administrative expenses increased by $1,497,590 in the second quarter 1997. This
was a 73% increase over selling, general and administrative expenses in the
second quarter 1996. 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
19.1% of revenues in 1997 compared with 13.0% of revenues in 1996. This increase
was due primarily to expansion of National TechTeam's administrative
infrastructure to support the growth of the Company.
Interest income -- Commencing in October 1996, National TechTeam began
earning significant amounts of interest income on cash generated by the 1996
public stock offering. For the three months ended June 30, 1997 interest income
was $712,995 which increased pre-tax earnings to $308,099.
Tax provisions -- TechTeam recognized $33,400 of Federal income tax in
the second quarter 1997, resulting in an effective tax rate of 7.1% compared to
an effective tax rate of 35.5% for 1996. The Federal effective tax rate is lower
in 1997 due to investments in tax exempt securities. The state income and
business taxes in the second quarter 1997 was $159,600, with an effective tax
rate of 51.8% compared to an effective tax rate of 9.3% in the second quarter
1996. These taxes are tied more closely to revenues than net income. This
inflates the effective tax rate when income is lower.
Comparative Performance -- First Six Months 1997 versus First Six Months
1996
National TechTeam earned a net loss of $254,364, or $0.02 loss per
share, for the first six months 1997 as compared to a net income of $1,909,887
or $0.17 per share, for the first six months 1996.
Revenues -- National TechTeam's total revenues increased by $5,559,917
in the first six months 1997 to $35,792,702, a 18.4% increase over revenues in
the first six months 1996. Changes in revenues resulted from the following:
Call Center Services -- Revenues from Call Center Services
increased by $3,467,123 in the first six months 1997. This was a 24.1%
increase over Call Center Services revenues in the first six months
1996. The increase was due to an increase to 45 contracts in place at
June 30, 1997 compared to the 20 contracts at June 30, 1996.
11
<PAGE> 13
Technical staffing -- Revenues from technical staffing increased
by $1,707,608 in the first six months 1997. This was a 22.2% increase
over technical staffing revenues in the first six months 1996. The
increase was due to continued client demand for TechTeam's help desk
and computer services personnel at major accounts.
Systems integration -- Revenues from systems integration
increased by $221,710 in the first six months 1997. This was a 4.4%
increase over systems integration revenues in the first six months
1996. 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 $163,476 in the first six months 1997. This was a 5.2% increase over
training revenues in the first six months 1996. The increase was due to
increased enrollments in the Company's training programs.
Cost of services delivered -- The cost of services delivered increased
by $7,288,261 in the first six months 1997. This was a 31.4% increase over the
cost of services delivered in the first six months 1996. 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 85.3% and 76.8% of
revenues in 1997 and 1996, respectively. The increase in these rates is
attributable to costs incurred in the development of the Company's Foundation
Platform and those related to the start-up of new projects that have not yet
commenced.
Selling, general and administrative -- Selling, general and
administrative expenses increased by $3,046,975 in the first six months 1997.
This was a 81.3% increase over selling, general and administrative expenses in
the first six months 1996. 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 18.8% of revenues in 1997 compared with 12.3% of revenues in 1996.
This increase was due primarily to expansion of National TechTeam's
administrative infrastructure to support the growth of the Company.
Interest income -- Commencing in October 1996, National TechTeam began
earning significant amounts of interest income on cash generated by the 1996
public stock offering. For the first six months of 1997, interest income was
$1,436,593 compared to a pre-tax loss of $44,164.
Tax provisions -- TechTeam recognized a Federal income tax credit of
$97,400 in the first six months 1997, resulting in an effective tax rate of
27.7% compared to an effective tax rate of 35.1% for 1996. The Federal effective
tax rate is lower in 1997 due to investments in tax exempt securities. The state
income and business taxes in the first six months 1997 was $307,600, with an
effective tax rate of 696.5% compared to an effective tax rate of 9.9% in the
first six months 1996. These taxes are tied more closely to revenues than net
income. This inflates the effective tax rate when income is lower.
Liquidity and Capital Resources
Indicators of the Company's financial strength are summarized below:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
--------- ------------
<S> <C> <C>
Working capital $ 88,536,631 $ 90,304,919
Current ratio 15.5 10.9
Debt as a percentage of total capitalization 0.0% 0.0%
Shareholders' equity $106,536,604 $101,851,099
</TABLE>
TechTeam has a line-of-credit agreement with NBD Bank which provides for
short-term borrowings of up to $25,000,000; the credit is unsecured. Borrowings
in excess of $10,000,000 are limited to 75% of eligible accounts receivable and
100% of cash and cash equivalents. The line of credit is at the prime rate or
more favorable rates, depending on the term of any loans. There were no
borrowings under the credit agreement at June 30, 1997.
12
<PAGE> 14
In the first quarter 1997, National TechTeam signed an agreement with
Capricorn Capital Group, Inc., a major distributor to supply to TechTeam $28
million of computer hardware and related services under a long-term contract.
The key provisions of the contract are: (1) TechTeam may acquire the computer
hardware and services at the vendor's cost plus 15%. The margin is payable
annually at the beginning of each of the three contract years. (2) Purchase
obligations not met in any of the first three years may be carried over to
subsequent years up to a total of seven years. Management believes that this
arrangement will permit the Company to obtain favorable pricing under a
long-term arrangement for hardware and related services, which will further the
Company's goal of offering its customers a life cycle management program which
will include the providing of hardware, software, training and upgrades for a
flat monthly fee.
PART II
ITEM 1 - Legal Proceedings
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits -
11. Computation of Earnings Per Share
27. Financial Data Schedule
(b) Reports on Form 8-K: None
The financial statements for the year ended December 31, 1996 (pre-pooling)
included in this Annual Report of this Company on Form 10-K/A and the financial
statements for the year ended December 31, 1996 (post pooling) included in Form
8-K filed December 19, 1997, contain additional information and should be read
in conjunction with this report.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
National TechTeam, Inc.
-----------------------
(Registrant)
Date: December 19, 1997 By: /s/ William F. Coyro Jr.
-----------------------
William F. Coyro Jr.
Chairman of the Board and
Chief Executive Office
Date: December 19, 1997 By: /s/Lawrence A. Mills
-----------------------
Lawrence A. Mills
Senior Vice President,
Chief Financial Officer, Treasurer
and Secretary
13
<PAGE> 15
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ------- --- -----------
11 COMPUTATION OF EARNINGS PER SHARE
27 FINANCIAL DATA SCHEDULE
<PAGE> 1
EXHIBIT 11 - STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ---------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Primary
Average shares outstanding 15,204,233 11,346,306 15,164,907 11,295,692
Net effect of dilutive stock options --
based on the treasury stock method
using average market price 278,693 376,219 314,056 235,377
----------- ----------- ----------- -----------
Total 15,428,926 11,722,525 15,478,963 11,531,069
----------- ----------- ----------- -----------
Net income $ 115,099 $ 1,044,156 $ (254,364) $ 1,909,887
=========== =========== =========== ==========
Per share amount $ 0.01 $ 0.09 $ (0.02) $ 0.17
=========== =========== =========== ==========
Fully Diluted
Average shares outstanding 15,204,233 11,346,306 15,164,907 11,295,692
Net effect of dilutive stock options --
based on the treasury stock method
using the quarter-end market price if
higher than average market price 286,533 408,431 314,056 246,169
------------ ----------- ----------- -----------
Total 15,490,766 11,754,737 15,478,963 11,541,861
------------ ----------- ----------- -----------
Net income $ 115,099 $ 1,044,156 $ (254,364) $ 1,909,887
============ =========== =========== ===========
Per share amount $ 0.01 $ 0.09 $ (0.02) $ 0.17
============ =========== =========== ===========
</TABLE>
14
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 43,326,359
<SECURITIES> 24,045,155
<RECEIVABLES> 22,948,749
<ALLOWANCES> 373,368
<INVENTORY> 644,094
<CURRENT-ASSETS> 94,636,371
<PP&E> 19,638,498
<DEPRECIATION> 7,033,318
<TOTAL-ASSETS> 118,089,993
<CURRENT-LIABILITIES> 6,099,740
<BONDS> 0
0
0
<COMMON> 154,018
<OTHER-SE> 106,382,586
<TOTAL-LIABILITY-AND-EQUITY> 118,089,993
<SALES> 2,398,600
<TOTAL-REVENUES> 18,563,010
<CGS> 2,254,684
<TOTAL-COSTS> 15,417,826
<OTHER-EXPENSES> 2,837,085
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 308,099
<INCOME-TAX> 193,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 115,099
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
