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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1996
NATIONAL TECHTEAM, INC.
(Exact name of registrant as specified in its charter)
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Delaware 0-16284 38-2774613
(State or other jurisdiction of (Commission File Number) (I.R.S. Employer Identification No.)
incorporation)
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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
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value
(Title of Class)
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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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [X}
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 10, 1997 was approximately $311,330,000.
The number of shares outstanding of the issuer's common stock as of March 10,
1997 was 14,859,867.
DOCUMENTS INCORPORATED BY REFERENCE
National TechTeam, Inc.'s definitive Proxy Statement filed on April 4, 1997 is
incorporated by reference into Part III.
This Annual 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 annual
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.
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AMENDED FILING OF FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
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-K/A do not include the accounts of
Compuflex System, Inc. Concurrent with this filing, the Company is filing an
8-K which presents the Company's financial statements for each of the items
addressed above.
General information in the original Form 10-K 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.
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PART I
ITEM 1. BUSINESS
General
National TechTeam, Inc. ("National TechTeam," "TechTeam" or "Company") 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
1992 and 1996, revenues increased from $10.9 million to $66.9 million and net
income increased from $766,000 to $2.9 million. This represents compounded
annual growth rates of 57.4% and 40.0% in revenues and net income,
respectively.
The Company has restated the previously issued 1996 financial statements.
The restatement relates to: (1) Certain license fee revenue related to
contemporaneous purchase/sale transactions between the Company and the
licensees of its software products occurring in the fourth quarter of 1996.
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) Certain compensation related adjustments.
The restatement decreased net income from $4,773,632 as reported to $2,940,390
as restated. (For further information regarding the restatement, see Note M to
the Consolidated Financial Statements which also reflects the impact on pretax
earnings).
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 part 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 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 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:
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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 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 also provides
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 technology vendor:
PRE SALES
Product Information
Features
Fulfillment
NEW PRODUCT SALES
Launch Support Internet
Direct Marketing Credit Card
Channel Management CyberCash
IVR
CUSTOMER
INFORMATION
UP SELL ENTITLEMENT
Client Information Clock Purchsae Date
Future Purchasing Product Registraiton
Firmographics Warraanty Upsell
Demographics
POST SALES
SUPPORT
Updates
Technical Support
TechTeam's four domestic call centers, located in the metropolitan areas
of Detroit (2), Chicago, and Dallas, and its Pan-European center in Brussels,
Belgium, provide live agent and interactive voice response services. Currently,
TechTeam has over 792 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 currently staffed by 815 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.
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 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.
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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.
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 Sylvan Prometric Testing Center in order 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 six training facilities located in Michigan (3), Massachusetts,
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. National TechTeam 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 TechTeam, often requiring the Company 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 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 the
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 1,294 in December 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.
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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. National 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
National 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, National
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, the Company
continually trains its employees and clients in the latest product and service
innovations. In addition, National TechTeam has built four new call centers in
the last 18 months, 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.
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. National 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.
National TechTeam 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 four 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. National 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.
National 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 National TechTeam, each of which improve
employee productivity and reduce
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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 four new call centers and two new training facilities
in the period between January 1, 1995 and December 31, 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. National 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 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 opportunities with its clients. National 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. National TechTeam
continually monitors the marketplace for appropriate opportunities and intends
to maintain flexibility in finding ways to increase TechTeam'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.
National 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. National TechTeam has received ISO 9001
certification and 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, National TechTeam relies upon technology to
offer its clients efficient, high quality call center services. TechTeam has
invested in high performance, scaleable, manageable telecommunications and data
networks and infrastructure. TechTeam's call centers are equipped with Aspect
ACD's, Dialogic IVR's, and other leading call processing technologies including
all of the latest enhancements to allow the most innovative and cost effective
advanced call center and call processing capabilities in the industry.
TechTeam's call center agents are equipped with state-of-the-industry PC's from
leading manufacturers, and its world wide data communication network allows the
Company to manage its networks in the most cost effective manner, and with the
highest availability, possible. National TechTeam's call centers are equipped
with fault tolerant fiber-based telecommunication equipment and networks from
leading carriers allowing TechTeam to assure its clients the most reliable call
center services available. All of these investments allow the Company to lower
start up cost for its clients and to offer one of the lowest total cost
structures in the industry without sacrificing quality of service.
National TechTeam has also built a "Foundation Platform" using technology
developed by WebCentric Communications, Inc. The Foundation Platform is a set
of industry standard technologies and systems combined into a unique and
powerful vehicle to
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enable TechTeam to connect its clients and its clients' customers with an
expert in nearly any language and in virtually any location. This technology
platform will enable TechTeam to maximize utilization of its human resources
dedicated to Call Center Services.
National TechTeam's strategy is to use technology to create competitive
advantage. TechTeam will continue to pursue this strategy by creating
innovative applications that allow its clients and its clients' customers to
improve their own operational efficiencies. All of the features of the
Foundation Platform can be deployed within the Company's corporate accounts as
well as its OEM and ISV customers. By leveraging this platform, National
TechTeam expects its cost of service to be reduced through the use of "Virtual
Agents". Virtual Agents are agents which can be deployed through the Foundation
Platform anywhere in the world where agents have access to a Netscape browser
and a simple telephone and analog line. This innovative application allows
TechTeam to lower infrastructure costs, maintain operational controls and
address the challenge of recruiting qualified professional support agents.
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, National TechTeam currently employs 33 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 (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: National TechTeam's call centers, help desks located on client
facilities, and in-progress training sessions.
TechTeam'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 National TechTeam's five
largest clients in 1996 accounted for 70.0% of total revenues. In 1996, the
combined revenues from Ford Motor Company and Chrysler Corporation totaled
32.6% 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 1996. The
percentage of total revenues derived from Ford declined to 24.4% in 1996 from
37.4% in 1995 and from 47.1% in 1994 even while revenues from Ford increased
14.9% during that same period. Total revenues from non-Ford clients increased
at a 78.0% compound annual growth rate from 1994 to 1996. Although TechTeam's
management recognizes, and has acted upon, the need to diversify its client
base, National TechTeam 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. The Company 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
TechTeam'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:
Automobile Club of Michigan Meijers
Blue Cross/Blue Shield of Michigan Micrografx
Chrysler Corporation Novell
Comdisco Inc. Owens-Corning
Concentric Network Corporation Rockwell International
First Chicago NBD Sun Microsystems
Ford Motor Company United Parcel Service
Hewlett-Packard Wayne County Government
Intelliquest
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Intellectual Property Rights
National TechTeam's success is dependent upon certain methodologies it
utilizes in designing and delivering Corporate Computer Services and Call
Center Services. TechTeam'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.
National TechTeam 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 TechTeam 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
National TechTeam in this regard will be adequate to deter misappropriation of
proprietary information or that TechTeam 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, National TechTeam
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) and Support Central(R) are servicemarks that are 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
National TechTeam faces intense competition in the markets served by both
its Call Center and Corporate Computer Services divisions. In the call center
market, TechTeam 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 National TechTeam. TechTeam 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. National 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 December 31, 1996, TechTeam had a total of 1,294 employees of which 132
were part-time. The functional responsibilities of these employees are as
follows: 751 client support agents and related employees in Call Center
Services; 247 professionals in technical staffing; 113 professionals in systems
integration; 86 instructors and related employees in training; 34 employees in
sales and marketing; and 63 employees in management and administration.
National TechTeam believes its relationship with its employees is excellent.
9
<PAGE> 10
ITEM 2. PROPERTIES
The following table sets forth the primary real properties which TechTeam
leases and occupies:
<TABLE>
<CAPTION>
LEASE TERM BEGINNING
LOCATION FUNCTION AND EXPIRING SQUARE FOOTAGE
- ----------------- ------------------------ ------------------- --------------
<S> <C> <C> <C>
Dearborn, MI..... World Headquarters and 01/01/97 - 12/31/05 54,859
North American Training
Center Headquarters
Southfield, MI... World Call Center 11/01/93 - 12/31/00 57,403
Headquarters and
Training Center
Dallas, TX....... Regional Office and 10/01/95 - 09/30/00 34,061
Call Center
Harper Woods, MI. Call Center 06/15/96 - 06/14/97 17,775
Chicago, IL...... Regional Office, Call 3/1/94 - 2/28/00 13,195
Center and Training
Center
Boston, MA....... Training Center 9/5/96 - 9/30/97 5,214
Troy, MI......... Training Center 01/01/96 - 12/31/98 2,345
Omaha, NE........ WebCentric Operations 1/1/97 - 12/31/02 2,174
Indianapolis, IN. Training Center 01/01/96 - 12/31/00 1,881
Brussels, Belgium Call Center * 1,356
</TABLE>
- ----------------
* As part of its joint-venture with Paratel N.V., TechTeam has the right to
occupy space which is cancelable 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
22 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.
ITEM 3. LEGAL PROCEEDINGS
The Company and two of its officers have been named as defendants in
several putative shareholder class action lawsuits filed in the United States
District Court for the Eastern District of Michigan. The complaints are similar
in asserting claims under sections 10 (b) and 20 (a) of the Securities Exchange
Act of 1934 arising out of alleged misrepresentations and omissions by the
Company in connection with certain of its announcements and filings relating
primarily to the Company's earnings in the first quarter of 1997. Management
believes these claims are without merit and intends to defend these actions
vigorously. No estimate of the outcome of this litigation can currently be
made, and no provision for any such liability or the costs of defense, has been
made in the accompanying financial statements. The Company believes that these
costs will be covered, at least in part, by insurance.
In addition, the Company received notice of the commencement of an
investigation by the Securities and Exchange Commission which appears to relate
to, among other matters the Company's recognition of certain revenues arising
from contemporaneous purchase/sale transactions between the Company and
licensees of its software products in the fourth quarter 1996 and first quarter
1997.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1996.
10
<PAGE> 11
PART II
ITEM 5. MARKET FOR REGISTRANT'S SECURITIES AND RELATED STOCKHOLDER MATTERS
The following table sets forth the reported high and low sales prices of
the Company's common stock for the quarters indicated as reported on the Nasdaq
National Market. The Company's common stock trades on the Nasdaq National
Market tier of the Nasdaq Stock Market under the symbol "TEAM."
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
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................................... $27.500 $ 7.500
Fourth Quarter.................................. $30.125 $19.875
</TABLE>
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.
TechTeam had 757 shareholders of record as of March 10, 1997.
11
<PAGE> 12
ITEM 6. 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 in Item 8 in this Form 10-K/A Report. The
Statement of Financial Position Data as of December 31, 1992, 1993, 1994,
1995, and 1996, and the Statement of Operations Data for each of the five
years in the period ended December 31, 1996 have been derived from the
Company's consolidated financial statements for such years, which have been
audited by Ernst & Young LLP, independent auditors.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
(In Thousands, Except Per Share Data)
(Restated - Note M)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues
Call Center Services.................. $31,434 $15,123 $ 7,173 $ 2,326 $ --
------- ------- ------- ------- -------
Corporate Computer Services
Technical staffing.............. 15,608 14,732 12,837 10,085 6,052
Systems integration............. 12,819 7,840 5,530 2,647 1,079
Training programs............... 7,027 4,018 4,613 5,386 3,771
------- ------- ------- ------- -------
Total Corporate Computer Services..... 35,454 26,590 22,980 18,118 10,902
------- ------- ------- ------- -------
Total revenues.............................. 66,887 41,713 30,153 20,444 10,902
Cost of services delivered.................. 52,997 32,337 23,099 15,821 8,459
------- ------- ------- ------- -------
Gross profit................................ 13,890 9,376 7,054 4,623 2,443
------- ------- ------- ------- -------
Other expenses/(income)
Selling, general and administrative... 9,341 5,349 3,872 1,787 1,359
Interest expense...................... 128 24 34 67 53
Interest income....................... (937) (74) (71) -- --
Gain on sale of investment............ -- -- (152) -- --
------- ------- ------- ------- -------
8,532 5,299 3,683 1,854 1,412
------- ------- ------- ------- -------
Income before tax provisions................ 5,358 4,077 3,371 2,769 1,031
Tax provisions.............................. 2,418 1,678 1,400 1,097 265
Net income.................................. $ 2,940 $ 2,399 $ 1,971 $ 1,672 $ 766
======= ======= ======= ======= =======
Primary and fully diluted earnings per share $ 0.23 $ 0.21 $ 0.18 $ 0.18 $ 0.09
======= ======= ======= ======= =======
Weighted average number of common shares and
common share equivalents outstanding
Primary............................... 12,520 11,361 10,891 9,306 8,422
Fully diluted......................... 12,544 11,361 11,079 9,523 8,733
</TABLE>
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
(In thousands)
(Restated - Note M)
<S> <C> <C> <C> <C> <C>
Statement of Financial Position Data:
Current assets.............................. $99,394 $16,191 $12,890 $ 6,173 $ 3,085
Current liabilities......................... 9,090 3,839 1,173 2,006 2,037
Total assets................................ 113,153 22,286 17,149 10,300 4,130
Long-term liabilities....................... 2,212 555 146 214 104
Total shareholders' equity.................. 101,851 17,892 15,829 8,080 1,989
</TABLE>
12
<PAGE> 13
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 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 in 1996; $1,655,700 in 1995;
and $19,600 in 1994. National TechTeam 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. 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.
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>
Year Ended December 31,
-----------------------------
1996 1995 1994
----- ----- -----
(Restated
- Note M)
<S> <C> <C> <C>
Revenues
Call Center Services..................... 47.0% 36.3% 23.8%
------ ------ ------
Corporate Computer Services
Technical staffing................. 23.3 35.3 42.6
Systems integration................ 19.2 18.8 18.3
Training programs.................. 10.5 9.6 15.3
------ ------ ------
Total Corporate Computer Services........ 53.0 63.7 76.2
------ ------ ------
Total revenues................................. 100.0 100.0 100.0
Cost of services delivered..................... 79.2 77.5 76.6
------ ------ ------
Gross profit................................... 20.8 22.5 23.4
------ ------ ------
Other expenses/(income)
Selling, general and administrative...... 14.0 12.8 12.8
Interest expense......................... 0.2 0.1 0.1
Interest income.......................... (1.4) (0.2) (0.2)
Gain on sale of investment............... -- -- (0.5)
------ ------ ------
12.8 12.7 12.2
------ ------ ------
Income before tax provisions................... 8.0 9.8 11.2
Tax provisions................................. 3.6 4.0 4.7
------ ------ ------
Net income..................................... 4.4% 5.8% 6.5%
====== ====== ======
</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.
National TechTeam'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 -- 1996 versus 1995
National TechTeam earned net income of $2,940,390, or $0.23 per share, for
1996 as compared to a net income of $2,399,067 or $0.21 per share, for 1995.
Revenues -- National TechTeam's total revenues increased by $25,173,524 in
1996 to $66,887,156, a 60.3% increase over revenues in 1995. Changes in
revenues resulted from the following:
Call Center Services -- Revenues from Call Center Services increased
by $16,310,310 in 1996. This was a 107.8% increase over Call Center
Services revenues in 1995. The increase was due to an increase to 36
contracts in place at December 31, 1996 compared to the 18 contracts at
December 31, 1995 and increased business with existing customers,
primarily Hewlett-Packard.
14
<PAGE> 15
Technical staffing -- Revenues from technical staffing increased by
$876,187 in 1996. This was a 5.9% increase over technical staffing
revenues in 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 $4,977,961 in 1996. This was a 63.5% increase over systems integration
revenues in 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
$3,009,066 in 1996. This was a 74.9% increase over training revenues in
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
$20,660,404 in 1996. This was a 63.9% increase over the cost of services
delivered in 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 79.2% and 77.5% of revenues in 1996 and 1995,
respectively.
Selling, general and administrative -- Selling, general and administrative
expenses increased by $3,991,834 in 1996. This was a 74.6% increase over
selling, general and administrative expenses in 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 14.0% of revenues in
1996 compared with 12.8% of revenues in 1995. This increase was due primarily
to expansion of National TechTeam's sales and internal management information
systems staffs 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 twelve months ended December 31, 1996, interest
income was $937,234 compared to pre-tax income of $5,357,889.
Tax provisions -- TechTeam recognized $1,708,499 of Federal income tax in
1996, resulting in an effective tax rate of 36.8% compared to an effective tax
rate of 34.6% for 1995. The increase in the effective Federal income tax rate
is due to increased foreign operations. The Michigan Single Business Tax in
1996 was $709,000, with an effective tax rate of 13.2% compared to an effective
tax rate of 10.1% in 1995. The increase is due to the taxes on the deferred
revenue which is currently taxable for Michigan Single Business Tax purposes.
Comparative Performance -- 1995 versus 1994
National TechTeam earned net income of $2,399,067, or $0.21 per share, for
1995 as compared to a net income of $1,971,049, or $0.18 per share, for 1994.
Revenues -- The Company's total revenues increased by $11,560,661 in 1995
to $41,713,632, 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 $2,310,827 in 1995. This was a 41.8% 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 77.5% 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 -- National 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.
Impact of Business with Major Clients
Historically, National 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 1996. However, the Company continues to seek additional business from its
largest clients and those clients will continue to constitute a high percentage
of National 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. National 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 $50,575,387 in 1996,
$26,128,668 in 1995, and $15,957,118 in 1994, a compound annual growth rate of
78.0%.
16
<PAGE> 17
Impact of Business with Major Clients -- continued
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------
1996 1995 1994
----- ----- ----
<S> <C> <C> <C>
Hewlett-Packard Company
Revenues for the period....................................... $19,266,318 $ 7,269,445 $ --
Percentage increase from prior period......................... 165.0 % -- * -- %
Percentage of total revenues.................................. 28.8 % 17.4 % -- %
Ford Motor Company
Revenues for the period....................................... $16,311,769 $15,584,964 $14,195,853
Percentage increase from prior period......................... 4.7 % 9.8 % 3.6 %
Percentage of total revenues.................................. 24.4 % 37.4 % 47.1 %
Chrysler Corporation
Revenues for the period....................................... $ 5,485,038 $ 4,162,419 $ 3,294,788
Percentage increase from prior period......................... 31.8 % 26.3 % 160.2 %
Percentage of total revenues.................................. 8.2 % 10.0 % 10.9 %
Corel Corporation
Revenues for the period....................................... $ 268,459 $ 2,737,601 $ 3,687,298
Percentage increase/(decrease) from prior period.............. (90.2)% (25.8)% 789.4 %
Percentage of total revenues.................................. 0.4 % 6.6 % 12.2 %
Novell, Inc.
Revenues for the period....................................... $ -- $ 522,973 $ 2,260,203
Percentage increase/(decrease) from prior period.............. (100.0)% (76.7)% 31.6 %
Percentage of total revenues.................................. -- % 1.3 % 7.5 %
</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.
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.
17
<PAGE> 18
LIQUIDITY AND CAPITAL RESOURCES
Over the three year period commencing January 1, 1994, the Company's
business has been financed by cash provided by operations and the issuance of
common stock, primarily $5,020,834 of private placements in 1994, shares issued
throughout the period under stock option plans and $77,851,500 from a public
offering in 1996. Indicators of the Company's financial strength are summarized
below:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------
1996 1995 1994
------------ ------------ -----------
<S> <C> <C> <C>
Working capital............................. $ 90,304,919 $12,352,915 $11,716,501
Current ratio............................... 10.9 4.2 11.0
Debt as a percentage of total capitalization 0.0% 2.4% 0.0%
Shareholders' equity........................ $101,851,099 $17,891,966 $15,829,026
</TABLE>
The Company's working capital was $90,304,919 at December 31, 1996, an
increase of 631.0% from December 31, 1995. This increase was due primarily to
funds provided by the public stock offering in 1996 and 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-term 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 December 31, 1996.
In 1995, National 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, future operations, and the
Company's existing bank credit arrangement.
18
<PAGE> 19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of National TechTeam, Inc.
and Subsidiaries are included in Item 8:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........................ 21
Consolidated Statements of Operations -- Years Ended December 31, 1996,
1995 and 1994............................................................ 22
Consolidated Statements of Financial Position -- December 31, 1996
and December 31, 1995.................................................... 24
Consolidated Statements of Shareholders' Equity -- Years Ended December
31, 1996, 1995 and 1994.................................................. 25
Consolidated Statements of Cash Flows -- Years Ended December 31, 1996,
1995 and 1994............................................................ 26
Notes to the Consolidated Financial Statements........................... 27-36
</TABLE>
The following financial statement schedules of National TechTeam, Inc. and
Subsidiaries are included pursuant to the requirements of Item 14(d): None.
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions or are not applicable and, therefore, have been
omitted.
19
<PAGE> 20
This Page Intentionally Left Blank
20
<PAGE> 21
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, 1996
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, 1996. 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 misstatement. 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.
As discussed in Note M to the consolidated financial statements, the
Company has restated its previously issued financial statements for the year
ended December 31, 1996, to revise its revenue recognition pertaining to
certain license fee revenues related to contemporaneous purchase/sale
transactions and to reflect certain other adjustments.
As discussed in Note N to the consolidated financial statements, on July
30, 1997, the Company combined with Compuflex Systems, Inc. in a transaction
accounted for as a pooling of interests. 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. Accordingly, the accompanying financial statements (pre pooling) are no
longer considered to be prepared in conformity with generally accepted
accounting principles. Concurrent with the filing of the Form 10-K/A, which
includes this report, the Company is filing a Form 8-K to present the Company's
audited financial statements for each of the three years in the period ended
December 31, 1996, as restated for the matter discussed in the preceding
paragraph and the pooling, and our report thereon.
In our opinion, the accompanying financial statements (pre pooling)
present fairly, in all material respects, the consolidated financial position
of National TechTeam, Inc. and subsidiaries at December 31, 1996 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, 1996, in conformity with
generally accepted accounting principles that were applicable before the
issuance of post pooling financial statements for the combination as described
in the preceding paragraph.
ERNST & YOUNG LLP
Detroit, Michigan
February 26, 1997, except for Notes M and N
which are dated December 12, 1997
21
<PAGE> 22
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1996 1995 1994
---- ---- ----
(Restated -
Note M)
<S> <C> <C> <C>
Revenues -- Note B
Call Center Services.................................... $ 31,433,604 $ 15,123,294 $ 7,172,997
------------ ------------ ------------
Corporate Computer Services
Technical staffing................................ 15,608,237 14,732,050 12,836,952
Systems integration............................... 12,818,545 7,840,584 5,529,757
Training programs................................. 7,026,770 4,017,704 4,613,265
------------ ------------ ------------
Total Corporate Computer Services....................... 35,453,552 26,590,338 22,979,974
------------ ------------ ------------
Total Revenues................................................ 66,887,156 41,713,632 30,152,971
Cost of Services Delivered.................................... 52,997,420 32,337,016 23,098,915
------------ ------------ ------------
Gross Profit.................................................. 13,889,736 9,376,616 7,054,056
------------ ------------ ------------
Other Expenses/(income)
Selling, general and administrative..................... 9,340,868 5,349,034 3,872,159
Interest expense........................................ 128,213 24,109 33,911
Interest income......................................... (937,234) (73,830) (71,467)
Gain on sale of investment.............................. -- -- (152,471)
------------ ------------ ------------
8,531,847 5,299,313 3,682,132
------------ ------------ ------------
Income before tax provisions.................................. 5,357,889 4,077,303 3,371,924
Tax provisions -- Note F...................................... 2,417,499 1,678,236 1,400,875
------------ ------------ ------------
Net income.................................................... $ 2,940,390 $ 2,399,067 $ 1,971,049
============ ============ ============
Primary and fully diluted earnings per share.................. $ 0.23 $ 0.21 $ 0.18
============ ============ ============
Weighted average number of common shares
and common share equivalents outstanding
Primary................................................. 12,520,424 11,360,768 10,981,183
Fully diluted........................................... 12,543,878 11,360,768 11,079,136
</TABLE>
See accompanying notes.
22
<PAGE> 23
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
December 31,
--------------------------
ASSETS 1996 1995
---- ----
(Restated
- Note M)
<S> <C> <C>
Current assets
Cash and cash equivalents.............................................. $ 46,771,797 $ 1,717,543
Securities available-for-sale.......................................... 27,169,703 --
Accounts receivable -- Note B.......................................... 22,269,087 13,269,272
Note receivable -- current portion..................................... -- 53,333
Refundable income tax.................................................. 1,413,461 --
Inventories............................................................ 647,565 769,545
Advances to vendors.................................................... 500,000 --
Other.................................................................. 622,865 381,751
------------ -----------
99,394,478 16,191,444
------------ -----------
Property, equipment and purchased software
Office furniture and equipment......................................... 12,214,673 6,622,953
Purchased software..................................................... 1,742,007 --
Leasehold improvements................................................. 1,380,140 681,223
Transportation equipment............................................... 192,907 154,395
------------ -----------
15,529,727 7,458,571
Less -- Accumulated depreciation and amortization...................... 5,101,211 2,898,257
------------ -----------
10,428,516 4,560,314
------------ -----------
Other assets
Goodwill (less accumulated amortization of $551,081 at
December 31, 1996 and $345,512 at December 31, 1995)............. 1,509,437 1,252,585
Investment in WebCentric -- Note H..................................... 804,516 --
Deferred income tax.................................................... 912,400 --
Note receivable -- long term........................................... -- 102,222
Other.................................................................. 103,771 178,958
------------ -----------
3,330,124 1,533,765
------------ -----------
Total assets................................................................. $113,153,118 $22,285,523
============ ===========
</TABLE>
See accompanying notes.
23
<PAGE> 24
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
December 31,
--------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY 1996 1995
---- ----
(Restated
- Note M)
<S> <C> <C>
Current Liabilities
Current portion of long-term debt........................................ $ -- $ 96,884
Accounts payable......................................................... 4,074,363 893,965
Accrued payroll, related taxes and withholdings.......................... 3,554,512 2,037,446
Deferred income tax -- Note F............................................ 189,343 89,839
Federal income tax payable............................................... -- 160,116
Deferred revenues and unapplied receipts................................. 255,940 431,967
Accrued expenses and taxes............................................... 874,329 106,042
Other.................................................................... 141,072 22,270
------------ -----------
9,089,559 3,838,529
------------ -----------
Long-term liabilities
Deferred Foundation Platform license fees................................ 2,050,000 --
Deferred income tax -- Note F............................................ 87,813 116,066
Long-term debt, less current portion -- Note D.......................... -- 438,962
Minority interest........................................................ 74,647 --
------------ -----------
2,212,460 555,028
------------ -----------
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:
15,008,291 shares at December 31, 1996...................... 150,083
11,407,666 shares at December 31, 1995...................... 114,077
Additional paid-in capital............................................... 93,415,402 12,601,925
Retained earnings........................................................ 9,023,362 6,082,972
------------ -----------
Total.................................................................... 102,588,847 18,798,974
Less -- Treasury stock (161,983 shares at December 31, 1996
and 200,000 shares at December 31, 1995)................................ 737,748 907,008
------------ -----------
Total shareholders' equity............................................... 101,851,099 17,891,966
------------ -----------
Total liabilities and shareholders' equity..................................... $113,153,118 $22,285,523
============ ===========
</TABLE>
See accompanying notes.
24
<PAGE> 25
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, 1994....................................... $ 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 3,225,000 shares of
common stock -- Note G................................... 32,250 77,819,250 -- --
Proceeds from issuance of 289,100 shares under
stock option plans -- Note J............................. 2,891 778,469 -- --
Shares issued to acquire Coup, Inc......................... 800 259,200 -- --
Shares issued to acquire U.S.A. Computer Training
Centers, Inc............................................. 65 76,277 -- --
Tax benefit from exercise of employee stock options
and other................................................ -- 1,654,579 -- --
Contributions to 401(k) plan and other..................... -- 225,702 -- 169,260
Net income for 1996 (Restated - Note M).................... -- -- 2,940,390 --
-------- ----------- ---------- --------
Balance at December 31, 1996 (Restated - Note M)........... $150,083 $93,415,402 $9,023,362 $ (737,748)
======== =========== ========== ==========
</TABLE>
See accompanying notes.
25
<PAGE> 26
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1996 1995 1994
----------- ---------- -----------
(Restated - Note M)
<S> <C> <C> <C>
Operating Activities
Net income............................................................ $ 2,940,390 $2,399,067 $ 1,971,049
Adjustments to reconcile net income to net cash provided by/
(used in) operating activities:
Depreciation and amortization................................... 2,645,544 1,594,250 1,037,279
Provision for uncollectible accounts receivable................. 25,000 123,143 30,308
Treasury stock contributed to 401(k) plan....................... 169,260 -- --
Provision for deferred income tax............................... (681,224) (89,631) 138,310
Deferred Foundation Platform license fees....................... 2,050,000 -- --
(Gain) on sale of investment.................................... -- -- (152,471)
(Gain)/loss on sales of equipment and other..................... (17,860) 55,209 (3,878)
Changes in current assets and liabilities:
Accounts receivable....................................... (9,024,815) (5,640,614) (2,725,807)
Inventories............................................... 121,980 (269,797) (130,574)
Advances to vendors....................................... (500,000) -- --
Other current assets...................................... (241,114) (40,420) (168,268)
Accounts payable.......................................... 3,180,398 606,562 (173,373)
Accrued payroll, related taxes and withholdings........... 1,517,066 1,543,265 128,159
Federal income tax........................................ (1,573,577) 544,374 (892,231)
Deferred revenues and unapplied receipts.................. (176,027) 384,427 (99,091)
Accrued expenses and taxes................................ 768,287 106,042 --
Other current liabilities................................. 118,802 (115,852) (182,233)
----------- ---------- -----------
Net cash provided by/(used in) operating activities............. 1,322,110 1,200,025 (1,222,821)
----------- ---------- -----------
Investing Activities
Purchases of property, equipment and software......................... (8,156,819) (3,187,027) (864,798)
Development of training manuals....................................... (211,027) (117,970) (116,722)
Purchases of securities available-for-sale............................ (27,169,703) (100,000) (12,388,000)
Proceeds from sale of temporary investments........................... -- 3,600,000 8,888,000
Proceeds from sale of investment...................................... -- -- 160,000
Investment in WebCentric.............................................. (804,516) -- --
Collection/(issuance) of note receivable.............................. 155,555 (160,000) --
Proceeds from sales of property and equipment and other assets........ 11,000 22,630 23,227
Other assets -- net................................................... (69,641) (12,293) 13,082
----------- ---------- -----------
Net cash provided by/(used in) investing activities............. (36,245,151) 45,340 (4,285,211)
----------- ---------- -----------
Financing Activities
Proceeds from short-term borrowings................................... 8,116,575 -- --
Proceeds from long-term borrowings.................................... 480,212 565,998 --
Proceeds from issuance of common stock................................ 78,858,562 260,660 5,598,044
Tax benefit from exercise of employee stock options................... 1,654,579 310,221 180,381
Purchase of Company common stock...................................... -- (907,008) --
Payments on short-term borrowings..................................... (8,213,459) -- --
Payments on long-term borrowings...................................... (919,174) (170,252) (432,471)
----------- ---------- -----------
Net cash provided by financing activities....................... 79,977,295 59,619 5,345,954
----------- ---------- -----------
Increase/(decrease) in cash and cash equivalents................ 45,054,254 1,304,984 (162,078)
Cash and cash equivalents at beginning of year.............................. 1,717,543 412,559 574,637
----------- ---------- -----------
Cash and cash equivalents at end of year.................................... $46,771,797 $1,717,543 $ 412,559
=========== ========== ===========
</TABLE>
See accompanying notes.
26
<PAGE> 27
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31,1996 (As Restated)
NOTE A -- Summary of Significant Accounting Policies
Basis of presentation: The consolidated financial statements include the
accounts of National TechTeam, Inc., its wholly-owned subsidiaries TechTeam
Europe, Ltd. and National TechTeam of Illinois, Inc., formerly Micro Systems
Group, Inc. ("MSG") and the Company's 75% interest in National TechTeam Europe,
N.V., a joint venture. Collectively, these companies are referred to as the
"Company" or "TechTeam." Intercompany accounts and transactions have been
eliminated as appropriate. Certain reclassifications have been made to the 1995
and 1994 financial statements in order to conform to the 1996 financial
statement presentation.
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.
Securities available-for-sale: The Company's management determines the
appropriate classification of securities at the time of purchase and
re-evaluates such designation as of each balance sheet date. The December 31,
1996 securities available-for-sale are stated at market value which
approximates cost. Securities available-for-sale are invested primarily in
obligations of states and other political subdivisions.
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, equipment and purchased software: Property, equipment and
purchased software 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.
Purchased software is amortized over 3 years.
Goodwill: Represents the excess cost over the fair value of net assets
acquired in the acquisition of MSG, Coup, Inc., U.S.A. Computer Training
Centers, 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 $618,100 in
1996; $1,655,700 in 1995; and $19,600 in 1994. All such amounts were
recognized as revenues when billed. 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. No revenues related to Foundation
Platform licenses were recognized in 1996.
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. See "Revenue recognition" regarding
deferred Foundation Platform license fees.
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.
27
<PAGE> 28
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
NOTE A -- Summary of Significant Accounting Policies -- Continued
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.
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,
-----------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Hewlett-Packard Company
Revenues for the period.......................... $19,266,318 $ 7,269,445 $ --
Accounts receivable at end of period............. 3,104,422 2,923,934 --
Ford Motor Company
Revenues for the period.......................... 16,311,769 15,584,964 14,195,853
Accounts receivable at end of period............. 5,052,263 4,863,948 2,487,263
Chrysler Corporation
Revenues for the period.......................... 5,485,038 4,162,419 3,294,788
Accounts receivable at end of period............. 1,843,888 1,221,121 1,457,237
Corel Corporation
Revenues for the period.......................... 268,459 2,737,601 3,687,298
Accounts receivable at end of period............. -- 268,550 537,972
Novell, Inc.
Revenues for the period.......................... -- 522,973 2,260,203
Accounts receivable at end of period............. 11,220 193,682 508,736
</TABLE>
Allowances for potentially uncollectible accounts receivable were as
follows: December 31, 1996 -- $225,000; December 31, 1995 -- $200,000. The
Company generally does not require collateral from its clients. Credit losses
experienced have been consistent with the Company's management's expectations.
28
<PAGE> 29
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE C -- Leases
The Company leases its call center facilities, corporate and other offices
and certain office equipment under noncancelable operating leases. These leases
are renewable with various options and terms. Total rental expense was
$1,939,611 in 1996, $1,344,574 in 1995, and $1,000,992 in 1994.
Minimum future payments under noncancelable operating leases with initial
terms of one year or more were:
<TABLE>
<CAPTION>
December 31,
Year 1996
-------------------------------------- -----------
<S> <C>
1997 ............................... $2,260,775
1998 ............................... 2,358,089
1999 ............................... 2,350,547
2000 ............................... 2,090,168
2001 ............................... 887,671
</TABLE>
Note D - Financing Arrangements and Long-Term Debt
TechTeam has an agreement with NBD Bank which provides for short-term
borrowings up to $6,000,000; The credit is unsecured. Borrowings are at the
prime rate. There were no borrowings under the agreement at December 31, 1996.
The following amounts relate to short-term borrowings:
<TABLE>
<CAPTION>
Maximum Amount Average Daily Amount Average Cost of
Period Borrowed Borrowed Borrowings
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Year Ended December 31,
1996.......................... $6,000,000 $535,792 8.25%
1995.......................... -- -- --
1994.......................... 1,220,000 114,767 5.30
</TABLE>
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
--------------------
1996 1995
---- ----
<S> <C> <C>
Total amounts due under term notes.......... $ -- $535,846
Less -- current portion..................... -- 96,884
------ --------
$ -- $438,962
====== ========
</TABLE>
Interest paid was $128,213 in 1996, $24,109 in 1995, and $33,911 in 1994.
29
<PAGE> 30
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 $350,425 in 1996, $247,181 in 1995, and $163,087 in 1994.
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>
Year Ended December 31,
----------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
(Restated
- Note M)
Federal income tax:
Currently payable............. $2,389,723 $1,357,867 $ 956,690
Deferred (credit)............. (681,224) (89,631) 138,310
---------- ---------- ----------
Total......................... 1,708,499 1,268,236 1,095,000
Michigan single business tax........ 709,000 410,000 305,875
---------- ---------- ----------
$2,417,499 $1,678,236 $1,400,875
========== ========== ==========
Tax payments........................ $2,310,000 $ 905,000 $2,022,000
========== ========== ==========
</TABLE>
A reconciliation of the Federal income tax provision and the amount
computed by applying the Federal statutory income tax rate to income before
Federal income tax follows:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------
1996 1995 1994
---------- ---------- ----------
<C> <C> <C> <C>
(Restated
- Note M)
Income tax at Federal statutory rate of 34%............... $1,657,313 $1,246,883 $1,042,457
Goodwill, intangibles and other permanent differences..... 75,376 46,353 52,543
Tax reserve reversed...................................... (24,190) (25,000) --
---------- ---------- ----------
$1,708,499 $1,268,236 $1,095,000
========== ========== ==========
</TABLE>
30
<PAGE> 31
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Note F -- Tax Provisions -- continued
The principal components of deferred Federal income tax balances, and the
classification thereof in the Consolidated Statements of Financial Position,
are as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------------------------
1996 1995
----------------------- --------------------
(Restated - Note M)
Assets Liabilities Assets Liabilities
---------- ----------- ------- -----------
<S> <C> <C> <C> <C>
Allowance for uncollectible accounts
receivable..................................... $ 76,500 $ -- $68,000 $ --
Other................................................ 138,900 76,700 15,226 --
Deferred Foundation Platform
license fees......................................... 697,000 -- -- --
Prepaid expenses..................................... -- 112,643 -- 89,839
Accelerated tax depreciation......................... -- 87,813 -- 116,066
-------- -------- ------- --------
$912,400 $277,156 $83,226 $205,905
======== ======== ======= ========
</TABLE>
31
<PAGE> 32
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, 1996 is as follows:
<TABLE>
<CAPTION>
Shares Proceeds
1994 --------- -----------
<S> <C> <C>
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
Public offering of shares @ $24.14, net of underwriters
discount............................................. 3,225,000 $77,851,500
========= ===========
</TABLE>
Note H -- Acquisition and Subsequent Event
TechTeam acquired 15% of the shares of WebCentric Communications, Inc.
("WebCentric") in September 1996 and the remaining 85% of the shares in January
1997. The transaction was structured as a cash and stock-for-stock exchange.
Cash totaling $2,330,449 and 270,848 shares (valued at $3,995,183) of
TechTeam's unrestricted and restricted common stock were issued. The purchase
method of accounting was used to record the acquisition and $6,408,081 was
recorded as goodwill.
Note I -- Related Party Transactions
TechTeam was involved in the following related party transactions:
a) Paid legal fees of $306,641 in 1996, $119,876 in 1995, and $73,591 in
1994 to law firms whose members included directors, officers or
shareholders of TechTeam.
b) Paid $480,488 in 1996, $39,587 in 1995, and $42,444 in 1994 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.
e) Loaned $160,000 to an Executive Officer in 1995 which was repaid in 1996.
f) Paid $59,626 in 1996 for rental expense for an office building leased
from an Executive Officer.
g) Guaranteed a loan of $375,000 to an Executive Officer in 1996.
32
<PAGE> 33
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Note J -- Stock Options
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting for Stock-Based Compensation," requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of the Company's
employee stock options equals or exceeds the market price of the underlying
stock on the date of grant, no compensation expense is recognized.
The Company's 1990 Nonqualified Stock Option Plan has authorized the grant
of options to management personnel and others for up to 3,800,000 shares of the
Company's common stock. Generally, options granted have 6 year terms and vest
and become exercisable ratably over the first five years of their term.
Pro forma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for 1995 and 1996: a range of risk-free interest rates of 5.38% to
7.08% based on the expected life of the options; a volatility factor of the
expected market price of the Company's common stock of .786; and a
weighted-average expected life of the option of 3 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value estimate,
in management's opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Pro forma net income............... $2,227,460 $2,237,901
Pro forma primary and fully diluted
earnings per share............. $0.18 $0.20
</TABLE>
33
<PAGE> 34
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Note J -- Stock Options -- Continued
A summary of the Company's stock option activity, and related information,
follows:
<TABLE>
<CAPTION>
Employees Directors Others
Total --------------------------- ------------------------- --------------------------
Shares Shares Price Shares Price Shares Price
-------- -------- ---------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Outstanding
January 1, 1994.. 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
Canceled......... (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 -- --
Canceled......... (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.......... 657,000 522,000 5.00-25.75 135,000 5.00-25.75 -- --
Exercised........ (289,100) (259,100) 1.20-7.00 (30,000) 4.82-7.00 -- --
Canceled......... (117,500) (57,500) 4.50-25.75 (60,000) 5.00 -- --
-------- -------- -------- --------
Outstanding
December 31, 1996 919,525 (2) 724,525 2.00-25.75 195,000 4.82-25.75 -- --
======== ======== ======== ========
</TABLE>
- --------------
(1) In February 1995, the Company canceled 183,000 options at prices ranging
from $5.00 to $6.38 and regranted them at $4.50.
(2) Of the 919,525 options outstanding at December 31, 1996
a) 59,625 are currently exercisable through the fourth quarter 1998;
b) 115,000 are currently exercisable through the fourth quarter 1999;
c) 232,900 are currently exercisable through the fourth quarter 2006; and
d) 512,000 will be exercisable in the first quarter 1997 through the
third quarter 2002.
34
<PAGE> 35
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,
---------- ----------- ------------- -------------
(1996 Restated
- Note M)
<S> <C> <C> <C> <C>
1994
Revenues...................................... $6,826,655 $7,630,114 $ 8,027,097 $ 7,669,105
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...................................... $8,427,595 $9,588,283 $10,555,833 $13,141,921
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 $18,390,472 $18,257,846
Income before tax provisions.................. 1,491,731 1,772,156 1,666,692 427,310
Net income.................................... 865,731 1,044,156 962,692 67,811
Earnings per share............................ 0.08 0.09 0.08 0.0
</TABLE>
Quarterly earnings per share may not add to annual earnings per share
because of rounding and new shares issued during the year.
35
<PAGE> 36
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
Note M -- Restatement
The Company has restated the previously issued 1996 financial statements.
The restatement relates to: (1) Certain license fee revenue related to
contemporaneous purchase / sale transactions between the Company and the
licensees of its software products occurring in the fourth quarter of 1996.
Those revenues have now been deferred and will be recognized as income in the
future periods when the expenses of the related contemporaneous purchase / sale
transactions are recognized. (2) Certain other adjustments. The following
summarizes the net effect of these adjustments for the year ended December 31,
1996:
<TABLE>
<S> <C>
Revenues:
As previously reported $69,150,996
As restated 66,887,156
Earnings before income taxes:
As previously reported $8,019,331
As restated 5,357,889
Net earnings:
As previously reported $4,773,632
As restated 2,940,390
Earnings per common share
shareholder:
As previously reported $0.38
As restated 0.23
Retained earnings at December 31:
As previously reported $10,856,604
As restated 9,023,362
</TABLE>
Note N -- Acquisition of Compuflex
On July 20, 1997, the Company acquired Compuflex Systems, Inc.
("Compuflex"). The Company acquired 98% of the issued and outstanding shares
of Compuflex's common stock, in exchange for 509,034 shares of common stock of
the Company at the ratio of 1 Company share for each 7.01 shares of Compuflex.
The remaining 2% of the issued and outstanding shares of Compuflex were
acquired for cash. The market value of the common stock and cash used in the
acquisition approximated $8.5 million. Outstanding Compuflex stock options
were converted into options to purchase 170,470 shares of the Company's common
stock.
Compuflex provides technical staffing services. This acquisition was
accounted for as a pooling of interests. Concurrent with the filing of the
Form 10-K/A, which includes these financial statements, the Company is filing
a Form 8-K to present the Company's audited financial statements for each of
the three years in the period ended December 31, 1996, as restated for the
matter discussed in Note M and this pooling.
36
<PAGE> 37
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NATIONAL TECHTEAM, INC.
<TABLE>
<S> <C>
Date: December 19, 1997 By: /s/Lawrence A. Mills Lawrence A. Mills
----------------- --------------------- Senior Vice President,
Chief Financial Officer,
Treasurer and Secretary
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities indicated on
March 17, 1997.
/s/William F. Coyro Jr. Director, Chairman of the Board,
- ------------------------------------------- Chief Executive Officer
William F. Coyro Jr.
/s/Kim A. Cooper Director
- -------------------------------------------
Kim A. Cooper
/s/Wallace D. Riley Director
- -------------------------------------------
Wallace D. Riley
/s/Richard G. Somerlott Director
- -------------------------------------------
Richard G. Somerlott
/s/LeRoy H. Wulfmeier III Director
- -------------------------------------------
LeRoy H. Wulfmeier III
/s/Karen J. Matheny Controller
- -------------------------------------------
Karen J. Matheny (Chief Accounting Officer)
37
<PAGE> 38
INDEX OF EXHIBITS
All exhibits listed below that include a * indicate exhibits that are
incorporated by reference. See the footnotes following the list of exhibits to
locate those exhibits. All other exhibits are filed as part of this Form 10-K/A
Report.
<TABLE>
<CAPTION>
Exhibit Page
Number Exhibit Number
- ------- ------- ------
<S> <C> <C>
10.1 Purchase Order dated August 4, 1988 by and between the Company *1
as Vendor and Ford Motor Company as Vendee for End User
Computer Training Classes and User Assistance Services
10.2 Purchase Order dated January 1, 1992 by and between the *3
Company as Vendor and Ford Motor Company as Vendee for Agency
Programmer Services
10.3 Lease Agreement for office space in Southfield, Michigan known *4
as Suite 171, 17197 N. Laurel Park Drive between the Company
and Eleven Inkster Associates dated September 29, 1993
10.4 Lease Amendment for office space in Southfield, Michigan known *4
as Suite 171, 17197 N. Laurel Park Drive between the Company
and Eleven Inkster Associates dated December 7, 1993
10.5 Purchase Order dated November 6, 1986 by and between the *5
Company as Vendor and Ford Motor Company as Vendee for Support
Services, together with currently effective Amendment dated
August 23, 1993.
10.6 Lease Amendment for office space in Southfield, Michigan known *5
as Suite 171, 17197 N. Laurel Park Drive between the Company
and Eleven Inkster Associates dated January 23, 1995
10.7 Supplier Contract dated July 1, 1994 by and between the *5
Company as Vendor and Geometric Results Incorporated (doing
business as "PeopleNet") as Vendee for Personnel Services,
together with currently effective Amendment dated February 6,
1995
10.8 Purchase Order dated March 23, 1995 by and between the Company *6
as Vendor and Ford Motor Company as Vendee for Support for
Ford 2000, together with currently effective amendment dated
February 23, 1996
10.9 Agreement dated June 21, 1995 between the Company and *6
Hewlett-Packard Company for Technical Support Assistance
10.10 Lease for office space in Dallas, Texas known as Lyndon Plaza *6
between the Company and Dallas Lyndon Corporation dated August
17, 1995
10.11 Agreement dated September 15, 1995 between the Company and NBD *6
Bank for End User Computer Training
10.12 Lease for office space in Troy, Michigan known as Troy *6
Officenter B between the Company and WRC Properties, Inc.
dated November 16, 1995
10.13 Office Space Lease for office space in Indianapolis, Indiana *6
known as Market Square Center Building between the Company and
MET Life International Real Estate Partners Limited
Partnership dated November 27, 1995
</TABLE>
38
<PAGE> 39
<TABLE>
<CAPTION>
Exhibit Page
Number Exhibit Number
- ------- ------- -------
<S> <C> <C>
10.14 Currently effective Purchase Order Amendment dated January 6, *6
1996 by and between the Company as Vendor and Ford Motor
Company as Vendee for End User Computer Training Classes and
User Assistance Services
10.15 Currently effective Purchase Order Amendment dated February *6
21, 1996 by and between the Company as Vendor and Ford Motor
Company as Vendee for Programming Services
10.16 1990 Nonqualified Stock Option Plan *2
10.17 Form of Stock Option Agreement used for grant of options to *3
employees under the 1990 Nonqualified Stock Option Plan
10.18 1996 Nonemployee Directors Stock Plan *7
10.19 Third Amendment Lease Agreement dated March 29,1996 for *7
office space in Southfield, Michigan between Eleven Inkster
Associates and the Company
10.20 Agreement dated May 30, 1996 between the Company and *7
Hewlett-Packard Company for technical phone support for H-P
Advantage Center
10.21 Purchase Order dated April 4, 1996 from Chrysler Corporation *7
to the Company for dealer support in France, Germany and
Italy
10.22 Agreement dated May 9, 1996 between United Parcel Service and *7
the Company for technical help desk support
10.23 Agreement dated December 15, 1995 between Owens-Corning *7
Fiberglass Corporation and the Company for technical support
10.24 Agreement dated March 5, 1996 between Price Waterhouse LLP *7
and the Company for help desk support
10.25 Joint Venture Agreement dated July 26, 1996 between Paratel *7
N.V. and the Company
10.26 Master Demand Business Loan Note in the principal amount of *7
$6,000,000 between the Company and NBD Bank dated June 17,
1996
10.27 Lease for office space in Dearborn, Michigan between the *9
Company and Dearborn Atrium Associates Limited Partnership
dated November 18, 1996
10.28 Agreement and Plan of Merger dated December 23, 1996 between *8
National TechTeam, Inc., TechTeam Training Inc., WebCentric
Communications, Inc. and Daniel L. Kemp
10.29 Master Purchase Agreement between Capricorn Capital Group, 41 - 44
Inc. and the Company dated March 28, 1997.
11. Statement re: Computation of per share earnings 45
27. Financial Data Schedule
</TABLE>
<TABLE>
<S> <C>
*1 Incorporated by reference to the Company's Registration Statement on Form S-4 (Registration No. 33-26689).
*2 Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1990.
</TABLE>
39
<PAGE> 40
<TABLE>
<S> <C>
*3 Incorporated by reference to the Company's Registration Statement on Form S-2 (Registration No. 33-67904).
*4 Incorporated by reference to the Company's Annual Report on Form 10-KSB for the year ended December 31, 1993.
*5 Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1994.
*6 Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1995.
*7 Incorporated by reference to the Company's Registration Statement on Form S-3 (Registration No. 333-10687).
*8 Incorporated by reference to the Company's Form 8-K Report dated January 3, 1997.
*9 Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1996.
</TABLE>
40
<PAGE> 1
EXHIBIT 10.29
MASTER PURCHASE AGREEMENT
This Master Purchase Agreement (the "Agreement") is entered into this 28 day of
March, 1997 by and between Capricorn Capital Group, Inc., 32255 Northwestern
Highway, Farmington Hills, Mi 48334 ("Seller") and National TechTeam, Inc., 835
Mason, Dearborn, Mi 48124 ("Buyer").
Whereas, Seller is in the business of buying, selling, and reselling various
computer and telecommunications hardware and other kinds of equipment, and is in
the business of performing on a direct and/or subcontract basis various kinds of
services including but not limited to computer and telecommunications
maintenance, training, facilities management, and network cabling management;
Whereas, Buyer has determined that during the three years following the date of
this Master Purchase Agreement that Buyer will have a need to acquire various
goods and services and in order to receive the best available pricing Buyer
desires to acquire said goods and services from one source;
Now, in consideration of the mutual covenants herein contained, the receipt and
adequacy of which are hereby acknowledged, Seller and Buyer agree as follows:
1. The term of this Master Purchase Agreement shall be three (3) years from the
date first above written unless otherwise extended pursuant to Section 8
herein.
2. During the term of this Agreement Buyer appoints Seller as Buyer's sole
source for all goods and services normally offered by Seller which are
acquired by Buyer.
3. Buyer will acquire goods and services from Seller on a cost plus basis. On
each good or service acquired from Seller by Buyer, Buyer will pay to Seller
a price equal to Seller's cost plus a profit of fifteen (15%) percent
("Seller Profit"). Seller's cost shall be equal to its invoice cost from a
subcontractor less any refunds, rebates, price reductions or the like, no
matter how received, or its own internal cost to produce goods and services
provided directly from Seller to Buyer.
4. Each year of the Agreement shall be designated as a buying segment (the
"Buying Segment") and shall be designated as Buying Segment One, Buying
Segment Two, and Buying Segment Three.
41
<PAGE> 2
5. During the individual buying segments, Buyer will be obligated to buy from
Seller specific amounts of goods and services (the "Obligated Purchase Level")
as specified as follows:
a. Buying Segment One $12,000,000.00
b. Buying Segment Two $ 8,000,000.00
c. Buying Segment Three $ 8,000,000.00
6. During each of the buying segments Seller Profit will be based upon Buyer's
obligated Purchase Level and will be as follows:
a. Buying Segment One $1,800,000.00
b. Buying Segment Two $1,200,000.00
c. Buying Segment Three $1,200,000.00
7. On the first day of each Buying Segment, Buyer will make a cash payment to
Seller in the amount of the Seller Profit, as set forth in 6. above, for that
individual Buying Segment. This cash payment will be a deposit against the
Seller Profit for that particular Buying Segment. During the Buying Segment
Seller will then submit invoices to Buyer for the goods and services purchased
by Buyer. These invoices will be net of Seller Profit and will equal Seller's
cost of the goods and services. Buyer agrees to pay all invoices within thirty
(30) days of receipt. On a quarterly basis during each Buying Segment, Seller
will submit to Buyer a written report showing the amount of goods and services
purchased for that particular Buying Segment and the amount of the Seller Profit
that has been applied from the deposit made at the beginning of the Buying
Segment.
8. In the event that the total of the goods and services purchased by Buyer
from Seller during any individual Buying Segment shall be less than the
Obligated Purchase Level, Buyer shall not be entitled to a refund of any unused
Seller Profit. However, Buyer shall be allowed to carry forward any unused
Obligated Purchase Level for a particular Buying Segment to future Buying
Segments. However, Seller's obligation with respect to any unused Obligated
Purchase Level will terminate seven (7) years from the date of this Agreement.
9. In the event that Buyer's actual purchase of goods and services during any
Buying Segment shall exceed the Obligated Purchase Level ("Excess Purchase
Amount") then when Seller submits an invoice for the purchase of goods and
services, the invoice will include the Seller Profit for the Excess Purchase
Amount.
42
<PAGE> 3
10. Buyer shall order goods and services form Seller by submitting a written
purchase order to Seller setting forth the good and services to be acquired.
Within five (5) business days, Seller shall submit a written quotation to Buyer
setting forth the cost of said goods and services ("Seller's Quote"). If Buyer
shall dispute the cost set forth by Seller then Buyer shall have five (5)
business days to inform Seller in writing or such dispute. If a mutually
acceptable cost cannot be agreed upon by Buyer and Seller within five (5)
business days after Buyer notifies Seller of the dispute, then Buyer can
purchase the goods and services from the contractor or subcontractor of its
choice ("Disputed Goods and Services"). If Buyer purchases goods and services
from a contractor or subcontractor other than Seller, a credit shall be given
to Buyer against the Obligated Purchase Amount for that particular Buying
Segment. If (1) the actual cost to Buyer of the Disputed Goods and Services is
greater than ten (10%) less than Sellers's Quote and (2) the Disputed Goods and
Services are totally comprised of personal computers, computer servers, and
their respective printers ("Seller Core Products") than Buyer shall receive a
credit against Seller Profit for the next following Buying Segment. For Buyer
to receive a credit against the Seller Profit in the next following Buying
Segment both (1) and (2) above must be satisfied, and Buyer must notify Seller
in writing of the proposed credit within five (5) business after the delivery of
the Disputed Goods and Services, and Buyer must submit a valid invoice received
from the alternative contractor.
11. If Buyer shall submit a written purchase order for goods and services that
are not Seller Core Products and Seller cannot supply the goods or perform the
services or is unable to secure a subcontractor to supply the goods or perform
the services, then Buyer shall have the option to find an alternative suppler
of the goods and services. If this event occurs, a credit will be given to
Buyer in terms of its Obligated Purchase Amount but no credit will be given
for the Seller Profit for that particular Buying Segment.
12. This Agreement may not be terminated by either party during its original
term as set forth in 1. above. However, if Buyer defaults in the payment of any
amounts due hereunder, then Seller shall have the right to terminate this
Agreement and shall have the further right to offset any amounts still due and
owing to Seller by Buyer under the Agreement against any amounts owing to Buyer
by Seller either under the Agreement or otherwise. If Seller shall elect to
terminate this Agreement for the reason set forth above, then Seller shall
give written notice to Buyer of said termination and its election to offset any
amounts still owing by Buyer to Seller and which amounts are being offset and
to which obligation of Seller to Buyer said amounts are being applied. This
Agreement shall terminate one (1) business day after written notice of
termination is received by Buyer at the address set forth above.
43
<PAGE> 4
13. Buyer or its Agent shall have the right to review the books and records of
Seller that relate specially to the transactions contemplated herein. Any review
shall take place during normal business hours at Seller's main place of
business or wherever the appropriate records are kept, and Buyer agrees to give
Seller five (5) business days written notice of its intent to review said
records.
14. This Agreement shall be governed by the laws of the State of Michigan.
15. The obligations of Buyer and Seller under this Agreement shall survive the
expiration of this Agreement but only to the extent that such obligations remain
unperformed as of the expiration or termination of the Agreement.
16. If any part of this Agreement is determined to be unenforceable in a court
of law, the unenforceability of any part shall in no way effect the remainder
of the Agreement.
In witness hereof, the parties have entered into this Master Purchase Agreement
as of the date first set forth above and agree to be bound by the terms and
conditions herein contained.
Capricorn Capital Group, Inc. National TechTeam, Inc.
By: [SIG] By: [SIG]
------------------------------- -------------------------------
Title: President Title: Senior Vice President
---------------------------- -------------------------
44
<PAGE> 1
EXHIBIT 11 - STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------
1996 1995 1994
---- ---- ----
(Restated
- Note M)
<S> <C> <C> <C>
Primary
Average shares outstanding........................................................... 12,193,689 11,204,971 10,339,072
Net effect of dilutive stock options and warrants - based on the treasury stock
method using average market price.................................................... 326,735 155,797 642,111
----------- ----------- -----------
Total................................................................................ 12,520,424 11,360,768 10,981,183
----------- ----------- -----------
Net income...........................................................................$ 2,940,309 $ 2,399,067 $ 1,971,049
=========== =========== ===========
Per share amount.....................................................................$ 0.23 $ 0.21 $ 0.18
=========== =========== ===========
Fully Diluted
Average shares outstanding........................................................... 12,193,689 11,204,971 10,339,072
Net effect of dilutive stock options and warrants - based on the treasury stock
method using the quarter-end market price, if higher than average market
price........................................................................ 350,189 155,797 740,064
----------- ----------- -----------
Total................................................................................ 12,543,878 11,360,768 11,079,136
=========== =========== ===========
Net income...........................................................................$ 2,940,904 $ 2,399,067 $ 1,971,049
=========== =========== ===========
Per share amount.....................................................................$ 0.23 $ 0.21 $ 0.18
=========== =========== ===========
</TABLE>
45
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 46,771,797
<SECURITIES> 27,169,703
<RECEIVABLES> 22,494,087
<ALLOWANCES> 225,000
<INVENTORY> 647,565
<CURRENT-ASSETS> 99,394,478
<PP&E> 15,529,727
<DEPRECIATION> 5,101,211
<TOTAL-ASSETS> 113,153,118
<CURRENT-LIABILITIES> 9,089,559
<BONDS> 0
0
0
<COMMON> 150,083
<OTHER-SE> 101,701,016
<TOTAL-LIABILITY-AND-EQUITY> 113,153,118
<SALES> 3,401,393
<TOTAL-REVENUES> 66,887,156
<CGS> 3,129,282
<TOTAL-COSTS> 52,997,420
<OTHER-EXPENSES> 9,340,868
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 128,213
<INCOME-PRETAX> 5,357,889
<INCOME-TAX> 2,417,499
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,940,390
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0.23
</TABLE>
