FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
( X ) QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1995
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-17840
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HANDEX CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 22-2941704
- - ---------------------------- -------------------------------
(State or other jurisdiction (I.R.S. Employer Identification
of incorporation or organization) No.)
500 Campus Drive, Morganville, New Jersey 07751
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(Address of principal executive offices)
(Zip Code)
(908) 536-8500
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(Registrant's telephone number, including area code)
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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.
Yes X No
---- ------
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Number of shares of common stock outstanding at September 30, 1995 6,865,212
------------
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
HANDEX CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
September 30, 1995 and December 31, 1994
September 30, December 31,
1995 1994
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(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 1,508,658 2,895,478
Marketable securities 2,750,000 3,940,000
Accounts receivable, net 28,708,228 26,854,906
Inventories 254,651 298,326
Refundable income tax 827,702 388,682
Deferred income tax assets 586,307 609,668
Prepaid expenses and other 1,091,887 609,146
current assets ------------ ------------
Total current assets 35,727,433 35,596,206
Property, plant and equipment, net 9,764,036 8,736,608
Other non-current assets 1,243,085 1,665,793
Intangible assets 15,876,949 15,921,530
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$62,611,503 61,920,137
============= =============
See accompanying notes to condensed consolidated financial statements.
HANDEX CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
September 30, 1995 and December 31, 1994
September 30, December 31,
1995 1994
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(unaudited)
Liabilities and Stockholders'
Equity
Current liabilities:
Current installments of long-term
obligations $ 399,337 579,991
Accounts payable 3,985,155 4,523,848
Accrued expenses 7,089,388 5,826,066
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Total current liabilities 11,473,880 10,929,905
Long-term obligations, excluding
current installments 636,007 464,357
Deferred income tax liability 877,559 888,516
Stockholders' equity:
Preferred stock, without par
value, 2,000,000 shares
authorized, no shares issued -- --
Common stock, $.01 par value,
15,000,000 shares authorized;
issued 7,050,212 shares in 1995
and 1994 70,502 70,502
Additional paid-in capital 24,351,277 24,365,566
Retained earnings 26,500,403 26,499,416
Treasury stock at cost - 185,000
shares in 1995 and 1994 (1,298,125) (1,298,125)
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Total stockholders' equity 49,624,057 49,637,359
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$62,611,503 61,920,137
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See accompanying notes to condensed consolidated financial statements.
<TABLE>
HANDEX CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Income
Nine and Three Months ended September 30, 1995 and October 1, 1994
(Unaudited)
<CAPTION>
Nine Months Ended Three Months Ended
September 30, October 1, September 30, October 1,
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Total operating revenues $62,684,822 44,636,067 21,668,844 17,595,589
Subcontractor costs 10,852,995 8,615,826 3,911,849 3,257,522
------------ ---------- ----------- ----------
Net operating revenues 51,831,827 36,020,241 17,756,995 14,338,067
Cost of net operating revenues 32,662,674 22,759,560 11,329,332 8,810,595
------------ ---------- ---------- ----------
Gross profit 19,169,153 13,260,681 6,427,663 5,527,472
Selling, general and
administrative expenses 17,822,137 11,023,273 6,179,055 4,121,724
Provision for investment loss
in a joint venture, asset
write-off and termination
expenses (Note 3) 1,113,167 -- 1,113,167 --
----------- ---------- ---------- ----------
Operating income (loss) 233,849 2,237,408 (864,559) 1,405,748
Other income (expense):
Interest expense (71,415) (11,155) (22,015) (11,064)
Interest income 490,934 627,887 143,866 172,955
Other (503,053) (221,950) (190,047) (130,758)
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(83,534) 394,782 (68,196) 31,133
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Income (loss) before income taxes 150,315 2,632,190 (932,755) 1,436,881
Provision for income taxes 149,327 1,037,177 (325,033) 579,113
------------- ------------ ------------- -----------
Net income (loss) $ 988 1,595,013 (607,722) 857,768
============= ============= ============= ===========
Net income per share $ -- .23 .09 .12
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Weighted average number
of shares outstanding 6,865,212 6,862,355 6,865,212 6,865,212
<FN>
See accompanying notes to condensed consolidated financial statements.
</TABLE>
HANDEX CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
For the Nine Months ended September 30, 1995 and October 1, 1994
(Unaudited)
1995 1994
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 988 1,595,013
Adjustments to reconcile net income to
net cash provided operating activities:
Depreciation and amortization 2,891,814 1,833,561
Loss (gain) on sale of equipment/
software write off 167,841 (43,162)
Deferred income taxes 12,404 (86,795)
Cash provided (used) from the
change in:
Accounts receivable (1,853,322) (9,693,215)
Inventories 43,675 (139,100)
Prepaid expenses and other (482,741) 232,347
current assets
Refundable income tax (439,020) 131,998
Other assets 415,878 (355,064)
Income taxes payable -- 277,831
Accounts payable (538,693) 1,930,385
Accrued expenses 1,263,322 2,733,356
-------------- --------------
Net cash provided by (used in)
operating activities 1,482,146 (1,582,845)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities (4,000,000) (16,080,000)
Redemption of marketable securities 5,190,000 33,885,000
Additions to property, plant and (3,769,315) (3,683,362)
equipment
Other (266,358) (13,734,777)
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Net cash (used in) provided by
investing activities (2,845,673) 386,861
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock -- 65,000
Proceeds from debt obligations 585,659 661,714
Principal payments on debt obligations (594,663) (19,340)
Other (14,289) --
-------------- -------------
Net cash (used in) provided by (23,293) 707,374
financing activities ------------- -------------
Net decrease in cash and cash equivalents (1,386,820) (488,610)
Cash and cash equivalents at beginning of 2,895,478 882,823
period ------------- -------------
Cash and cash equivalents at end of period 1,508,658 394,213
============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
- - --------------------------------------------
Cash was paid for:
Interest $ 71,415 11,155
============= ============
Income taxes $ 548,461 1,054,514
============= ============
See accompanying notes to condensed consolidated financial statements.
HANDEX CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Nine and Three Months Ended September 30, 1995 and October 1, 1994
Note 1 In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments which are
normal and recurring in nature and certain charges discussed in Note 3,
necessary to present fairly the financial position of the Company at
September 30, 1995 and the results of operations for the nine and the
three month periods ended September 30, 1995 and October 1, 1994. The
statements should be read in conjunction with the financial statements
and notes thereto included in the Company's annual report for the year
ended December 31, 1994.
Note 2 Certain items on the 1994 financial statements have been reclassified to
conform to the 1995 presentation.
Note 3. In February 1995, one of the Company's education subsidiaries
acquired a minority interest in a Joint Venture by contributing the
assets of its Cleveland operations and cash. In the third quarter of
1995, the Joint Venture's majority member filed for bankruptcy and the
Company has assumed the management of these operations pending
settlement of the bankruptcy issues. The Company estimates and has
provided for the estimated loss on this investment in the amount of
$650,000.
In addition, one of the Company's education subsidiaries wrote-off the
unamortized developmental costs of a software program which had been in
development prior to its acquisition by the Company in August 1994. The
write-off amounted to $161,748.
In the environmental segment, the Company reduced its work force in
response to softness in its environmental business and recorded a charge
in the amount of $301,419 for related termination costs.
These charges combined, totaled $1,113,167 before tax and on an after-tax
basis, had a $0.10 impact on net income per share.
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
- - --------
On August 15, 1994, a newly organized subsidiary of Handex Corporation
("Company"), New Horizons Education Corporation, acquired all of the issued and
outstanding shares of New Horizons Franchising, Inc. Simultaneously, a newly
organized subsidiary of New Horizons Education Corporation, acquired
substantially all of the assets of New Horizons Computer Learning Center, Inc.
As a result of these acquisitions, the Company conducts two distinct lines of
business and reports its results in two segments, environmental and educational.
The discussion that follows, highlights the business conditions and certain
financial information specific to each of the two business segments.
ENVIRONMENTAL BUSINESS SEGMENT
- - -------------------------------
Net operating revenues include fees for services provided directly by
subsidiaries of Handex Environmental, Inc. ("Handex Environmental") and fees for
arranging for subcontractors' services, as well as proceeds from the rental and
sale of equipment. Handex Environmental, in the course of providing its
services, routinely subcontracts for outside services such as soil cartage,
laboratory testing and other specialized services. These costs are generally
passed through to clients and, in accordance with industry practice, are
included in total operating revenues. Because subcontractor services can change
significantly from project to project, changes in total operating revenues may
not be truly indicative of business trends. Accordingly, Handex Environmental
views net operating revenues, which is total operating revenues less the cost of
subcontractor services, as its primary measure of revenue growth.
Cost of net operating revenues includes professional salaries, other direct
labor, material purchases and certain direct and indirect overhead costs.
Selling, general and administrative expenses include management salaries, sales
and marketing salaries and expenses, and clerical and administrative overhead.
During 1994 and the first nine months of 1995, several trends continued to
develop which Handex Environmental believes will have a direct impact on its
future results of operations. Handex Environmental believes that expenses for
administration, computerization, marketing and engineering will continue to
increase as a result of the increasing desire of Handex Environmental's
customers for more detailed information concerning the status of their
environmental projects. Handex Environmental's marketing costs will continue to
increase due to the effects of increased competition in the environmental
industry and Handex Environmental's strategy to diversify its client base.
Handex Environmental's customers have become increasingly cost conscious
during recent periods in part due to their own financial constraints. To date,
this cost consciousness on the part of customers has manifested itself primarily
in three areas: (i) the manner in which Handex Environmental obtains its
business and charges for its services; (ii) the use of other contractors to
provide certain services traditionally provided by Handex Environmental; and
(iii) an increasing preference to purchase, rather than lease, remediation
equipment.
Over the last three years, Handex Environmental has experienced a
significant increase in customer demand for competitive bidding and/or fixed
price contracts. During 1994 and the first nine months of 1995, a majority of
Handex Environmental's work was performed under fixed price contracts and unit
pricing arrangements. However, management believes that, over the long term, the
quality and cost effectiveness of its services will continue to be an important
competitive advantage. Accordingly, in responding to price competition, Handex
Environmental will attempt to maintain a high level of technical quality in its
services.
A majority of Handex Environmental's major customers now purchase directly
from other contractors equipment and certain services, such as laboratory
analyses, which were formerly provided by or through Handex Environmental as
part of its full service approach. Management believes that this trend will
continue.
Handex Environmental's quarterly results may fluctuate from period to
period. Among the principal factors influencing quarterly variations are
weather, which may limit the amount of time Handex Environmental's professional
and technical personnel have in the field; the addition of new professionals who
require training and initially bill a lower percentage of their time; the timing
of receipt of discharge and other permits necessary to install dewatering and
recovery systems, and the opening of new offices, which initially have higher
expenses relative to revenues than established offices.
In recent years and through the first quarter of 1995, Handex
Environmental's business has been partially driven by the cost reimbursement
program maintained by the State of Florida through the Florida Inland Protection
Trust Fund ("Fund"). The Fund has recently been revised by the Florida
legislature to require site prioritization and prior approval of costs by the
Florida Department of Environmental Protection for reimbursement of cleanup
expenditures. These revisions have effectively reduced the number of projects
qualifying for reimbursement under the Fund rules, and as had been expected,
have adversely affected the results of the Company's environmental operations in
Florida in particular and the overall results of its environmental operations
beginning with the second quarter of 1995. The Company's Florida operations
accounted for over 22%, 22%, and 20% of total environmental revenues in fiscal
years 1994 and 1993 and in the first nine months of 1995, respectively. In the
light of the size of the Company's environmental operations in Florida, the
Company expects such revisions to continue to adversely affect its operating
results in future periods.
The Company has taken steps to mitigate revenues lost resulting from these
changes in Florida's reimbursement program. The Company, through its Florida
subsidiary, has entered into an agreement to acquire certain assets of a local
environmental company along with servicing approximately 800 remediation sites.
The completion of this transaction has taken longer than the Company originally
anticipated and is currently expected to be completed in the fourth quarter of
1995. With this acquisition, the Company expects to replace a portion of
revenues lost from the regulatory changes. In addition, the Company continues
its efforts to diversify its client base and the services it offers. However,
the longer lead times and additional proposal and estimating costs associated
with these efforts adversely impacted earnings during the third quarter and will
likely have a continuing effect on margins in the future.
EDUCATIONAL BUSINESS SEGMENT
- - ----------------------------
The educational segment of the Company's business is operated through its
New Horizons Education Corporation ("New Horizons") subsidiary.
The education segment is comprised of two distinct businesses, one, which
operates wholly-owned training centers, and the other which supplies systems of
instruction and sales and management concepts concerning computer training to
independent franchisees.
Revenues for the training centers which are wholly-owned by subsidiaries of
New Horizons consist primarily of training fees and fees derived from sales of
courseware materials. Cost of sales consists primarily of instructors' salaries
and benefits, facilities costs such as rent, utilities and classroom equipment,
courseware, and computer hardware, software and peripherals. Selling, general
and administrative expenses consist primarily of costs associated with technical
support personnel, facilities support personnel, scheduling personnel, training
personnel, accounting and finance support and sales executives.
Revenues for the franchising operation consist primarily of initial
franchise fees associated with the sale of a franchise, royalty and advertising
fees based on a percentage of franchisee gross training revenues, and percentage
royalties received on the gross sales of courseware. Cost of sales consists
primarily of costs associated with franchise support personnel who provide
system guidelines and advice on daily operating issues including sales,
marketing, instructor training and general business problems. Selling, general
and administrative expenses consist primarily of technical support, courseware
development, accounting and finance support, national account sales support, and
advertising expenses.
The Company-owned computer training schools in certain major metropolitan areas
have developed slower than was originally anticipated and have adversely
affected the overall results of operations for the educational segment of the
business during the first nine months of 1995. The Company expects operating
results for the balance of 1995 and the first half of 1996 to be similarly
impacted.
RESULTS OF OPERATIONS
- - ----------------------
The 1994 operating results for New horizons used in the discussions that follow
are limited to the one and one-half month period beginning with its acquisition
on August 15, 1994 through October 1, 1994. Accordingly, there is no explanation
offered for the dollar and percent to net operating revenue changes between
1995 and 1994 , which are presented in the following sections for informational
purposes only.
NET OPERATING REVENUES
- - ----------------------
Consolidated net operating revenues increased $3,419,000 or 23.8% for the third
quarter of 1995 and increased $15,812,000 or 43.9% for the first nine months of
1995 compared to the same periods in 1994. New Horizons' net operating revenues
of $6,006,000 for the third quarter and $16,754,000 the first nine months of
1995 reflect an increase of $4,248,000 or 241.3% and $14,994,000 or 852.0%,
respectively, over similar periods in 1994. The third quarter of 1995 marks the
fourth consecutive quarter of growth in net operating revenues for the education
segment , beginning with the fourth quarter of 1994, the first full quarter
after its acquisition in August 1994. New Horizons net operating revenues
accounted for 33.8% and 32.3% respectively of the Company's consolidated net
operating revenues for the third quarter and first nine months of 1995. Handex
Environmental's net operating revenues of $11,750,000 for the third quarter of
1995 and $35,077,000 for the first nine months of 1995 declined 6.6% and
increased 2.4% respectively, compared to the same periods in 1994. The
combination of the changes in the state-funded site rehabilitation program in
Florida, which reduced the number of sites qualifying for reimbursement under
the program, intense competition in all other regions where the Company
operates, the introduction of risk-based programs in certain markets and
clients' deferral of environmental projects continue to negatively influence the
results of the Company's environmental operations.. Handex Environmental
subsidiaries which were in operation prior to 1994, experienced an aggregate
decline of 10.6% and 3.3% for the third quarter and first nine months of 1995,
respectively, compared to the same periods in 1994.
COST OF NET OPERATING REVENUES
- - -------------------------------
Consolidated cost of net operating revenues increased $2,519,000 or 28.6% for
the third quarter of 1995, and increased $9,903,000 or 43.5% for the first nine
months of 1995 compared to the same periods in 1994. As a percentage of net
operating revenues, consolidated cost of net operating revenues increased to
63.8% in the third quarter of 1995 and declined to 63.0% in the first nine
months of 1995, from 61.4% and 63.2% respectively, in the same periods in 1994.
New Horizons' cost of operating revenues, increased $2,405,000 or 252.2% for the
third quarter of 1995 and for the first nine months of 1995, increased
$8,269,000 or 867.2%. As a percentage of its net operating revenues, New
Horizons' cost of net operating revenues increased to 55.9% in the third quarter
of 1995 and to 55.0% in the first nine months of 1995, from 54.2% in the same
periods in 1994. Handex Environmental's cost of net operating revenues increased
$114,000 or 1.5% for the third quarter of 1995 and for the first nine months of
1995, increased $1,634,000 or 7.5%. As a percentage of its net operating
revenues, Handex Environmental's cost of net operating revenues increased to
67.8% in the third quarter of 1995 and to 66.8% in the first nine months of
1995, from 62.5% and 63.6% respectively, in the same periods in 1994. The
increase in Handex Environmental's cost of net operating revenues, both in
absolute dollars and as a percentage of net operating revenues, was due
principally to a combination of lower than expected net operating revenues and a
higher number of employees.
GROSS PROFIT
- - -------------
Consolidated gross profit for the third quarter of 1995 increased $900,000 or
16.3%, and for the first nine months of 1995, increased $5,908,000 or 44.6%,
compared to the same periods in 1994. As a percentage of net operating revenues,
consolidated gross profit declined to 36.2% in the third quarter of 1995 and
increased to 37.0% in the first nine months of 1995 from 38.6% and 36.8%
respectively in the 1994 periods. New Horizons' gross profit for the third
quarter of 1995 increased $1,843,000 or 228.3% and for the first nine months of
1995, increased $6,725,000 or 834.1% compared to the 1994 periods. As a percent
of its net operating revenues, New Horizons' gross profit declined to 44.1% in
the 1995 quarter and to 45.0% in the first nine months of 1995, from 45.8% in
the 1994 periods. Handex Environmental's gross profit for the third quarter of
1995 decreased $943,000 or 20.0%, and for the first nine months of 1995,
decreased $816,000 or 6.6%. As a percentage of its net operating revenues,
Handex Environmental's gross profit decreased to 32.2% in the third quarter of
1995 and to 33.2% in the first nine months of 1995 from 37.5% and 36.4%
respectively, in the 1994 comparable periods. The decrease in Handex
Environmental's gross profit both in absolute dollars and as a percentage of its
net operating revenues was primarily due to a combination of lower than
expected net operating revenues, lower margins on certain major projects and a
higher number of employees.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
- - --------------------------------------------
Consolidated selling, general and administrative expenses increased $2,057,000
or 49.9% in the third quarter of 1995 and in the first nine months of 1995,
increased $6,799,000 or 61.7% compared with the 1994 periods. As a percentage of
net operating revenues, consolidated selling general and administrative expenses
rose to 34.8% in the 1995 quarter and to 34,4% in the first nine months of 1995
from 28.7% and 30.6% respectively in the 1994 periods. New Horizons' selling,
general and administrative expenses increased $1,906,000 or 321.7% in the 1995
quarter and increased $6,086,000 or 1,027.1% in the first nine months of 1995
compared to the 1995 periods. As a percentage of its net operating revenues, New
Horizon's selling, general and administrative expenses rose to 41.6% in the 1995
quarter and to 39.9% in the first nine months of 1995 from 33.7% in the 1994
periods. Handex Environmental's selling, general and administrative expenses
increased $151,000 or 4.3% in the 1995 quarter and increased $713,000 or 6.8%
compared with the 1994 periods. As a percentage of its net operating revenues,
Handex Environmental's selling, general and administrative expenses rose to
31.3% in the 1995 quarter and to 31.8% in the first nine months of 1995, from
28.1% and 30.4% respectively in the 1994 periods. The increase in Handex
Environmental's selling, general and administrative expenses, as a percentage of
net operating revenues was due mainly to the combination of lower than expected
net operating revenues and increased costs related to its sales and marketing
function, the new offices opened in 1995 and 1994 and the hiring of Health and
Safety personnel.
PROVISION FOR LOSS IN A JOINT VENTURE, ASSET WRITE-OFF AND TERMINATION EXPENSES
- - -------------------------------------------------------------------------------
The Company , through one of its educational subsidiaries, has a minority
interest in a Joint Venture that was formed to operate the New Horizons'
training center in Cleveland, Ohio. In accordance with the Joint Venture
agreement, the Company, in addition to its asset and capital contributions, is
obligated to provide financing for certain working capital requirements of the
Joint Venture. During the 1995 quarter, the majority member in the Joint Venture
filed for bankruptcy. The Company recorded a charge in the amount of $650,000
representing its estimated loss in the Joint Venture and is actively seeking
another partner to continue the Cleveland operations. The Company also recorded
a loss in the amount of $161,748, representing the unamortized portion of the
developmental costs incurred for a management information system software which
was abandoned in the quarter. In the environmental segment, the Company,
responded to the softness in the business by reducing the size of the work force
and accordingly recorded a charge in the amount of $301,419, representing
payments to employees who have been released as a result of the reduction in
force. These charges aggregated $1,113,167 which, as a percent of consolidated
net operating revenues, amounted to 6.3% in the 1995 quarter and to 2.1% in the
first nine months of 1995.
OTHER INCOME/EXPENSE
- - ---------------------
Interest expense increased to $22,000 in the 1995 quarter and to $$71,000 in the
first nine months of 1995 from $11,000 in the same periods in 1994. The increase
in both periods was primarily due to interest expense on New Horizons' capital
lease obligations. As a percentage of net operating revenues, interest expense
remained at 0.1% in both periods in 1995 from 0.1% in the 1994 quarter and from
0.0% in the first nine months of 1994.
Interest income for the 1995 quarter declined to $144,000 and for the first nine
months of 1995, declined to $491,000 from $173,000 and $628,000 respectively in
the corresponding 1994 periods. As a percentage of net operating revenues,
interest income declined to 0.8% in the 1995 quarter and declined to 0.9% in
the first nine months of 1995, from 1.2% and 1.7% respectively in the
corresponding periods of 1994. The decline in interest income in absolute
dollars and as a percentage of net operating revenues was principally due to the
lower tax-free interest income earned as a result of using cash reserves to
acquire New Horizons In August 1994.
Other expenses increased to $190,000 in the 1995 quarter and increased to
$503,000 in the first nine months of 1995 from $131,000 and $222,000
respectively in the corresponding 1994 periods . As a percentage of net
operating revenues, other expenses increased to 1.1% in the 1995 quarter and to
1.0% in the first nine months of 1995, from 0.9% and 0.6% respectively in the
1994 periods. The increase in other expenses in the 1995 reporting periods
compared to 1994 was due primarily to the amortization of certain expenses
incurred with the acquisition of New Horizons.
INCOME TAXES
- - ------------
The provision for income tax benefit as a percentage of income before taxes was
34.8% in the 1995 quarter compared to a provision for income taxes of 40.3% in
the 1994 quarter. For the first nine months of 1995, the provision for income
taxes as a percentage of income before taxes rose to 99.3% from 39.4% for the
same period last year. The was primarily due to a combination of lower income
before income taxes, the reduction in the Company's tax-free interest income,
the level of non-deductible expenses relative to the income before income taxes
and net worth taxes which are relatively stable from year to year and do not
change significantly with the change in the income level.
NET INCOME
- - -----------
The Company incurred a consolidated net loss of $608,000 in the 1995 quarter
compared to a consolidated income of $858,000 for the 1994 quarter. For the
first nine months of 1995, the Company broke even, with a consolidated net
income of $1,000 compared to a consolidated net income of $1,595,000 for the
first nine months of 1994. These results were due primarily from the provision
for investment loss in a Joint Venture, software costs wite-off and termination
expenses recorded in both segments of the business discussed earlier, the slower
than expected development of Company-owned operations in New York and Chicago
and continuing softness in the environmental segment.
LIQUIDITY AND CAPITAL RESOURCES
- - --------------------------------
As of September 30, 1995, the Company's working capital was $24,254,000, and its
cash, cash equivalents and short-term investments totaled $2,750,000. Working
capital as of September 30, 1995 reflected a decrease of $412,000 from
$24,666,000 as of December 31, 1994. The Company's cash flow from operating
activities reflected a significant improvement over last year's primarily due to
the slowed increase in accounts receivable balance and higher non-cash
depreciation and amortization expenses. The Company also has available a
$5,500,000 unsecured facility with a commercial bank. This facility bears
interest at either the bank's prime rate (8.75% as of September 30, 1995), or
the bank's short-term money market rate, whichever the Company elects. The
Company has not used this facility since June 1991.
The Company's full service approach to its environmental business in certain
markets and its continuing geographic expansion require Handex Environmental to
make capital expenditures for machinery and equipment and to incur costs
associated with the establishment of new office locations. During the first nine
months of 1995, Handex Environmental spent approximately $1,204,000 on capital
equipment and anticipates spending up to $1,700,000 during 1995.
The nature of New Horizons' business and continued expansion require it to make
capital expenditures for computer equipment, software and facilities. During the
first nine months of 1995, New Horizons spent approximately $2,605,000 on
capital equipment and anticipates spending up to $3,000,000 during 1995.
As discussed earlier, the Company recorded one-time charges in the 1995 quarter
in the aggregate of $1,113,167. The cash portion of these charges amounts to
approximately $795,000, of which $472,000 has been disbursed through September
30, 1995; the balance is expected to be disbursed in the fourth quarter of 1995.
Management believes that current cash and cash equivalents, together with cash
generated by operations and funds available under its revolving credit facility,
will provide the liquidity necessary to support its current and anticipated
capital expenditures through the end of 1996.
SIGNATURE
-----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
HANDEX CORPORATION
(Registrant)
Date: November 14, 1995 By: /s/ John T. St. James
------------------- ----------------------------
John T. St. James
(Duly authorized officer and
Principal Financial Officer)
FORM 10Q - PART II: OTHER INFORMATION
--------------------------------------------
Item 6. Exhibits and other reports on Form 8-K
- - ------- ----------------------------------------
(a) Exhibit Index
Exhibit
Number Description of Documents
------- -------------------------
4.1 Specimen Certificate for Shares of Common Stock, $.01 par value,
of the Registrant(1)
4.2 Unsecured Revolving Loan Agreement(4)
4.3 First Amendment to Unsecured Revolving Loan Agreement(7)
10.1 Key Employees Stock Option Plan of the Registrant(1)
10.2 Amendment No. 1 to Key Employees Stock Option Plan of the
Registrant(7)
10.3 Form of Stock Option Agreement executed by recipients of options
under Key Employees Stock Option Plan(6)
10.4 Stock Option Agreement dated August 6, 1992, between the
Registrant and Thomas J. Bresnan(7)
10.5 Outside Directors Stock Option Plan of the Registrant(1)
10.6 Amendment No. 1 to the Outside Directors Stock Option Plan of the
Registrant(7)
10.7 Form of Stock Option Agreement executed by recipients of options
under the Outside Directors Stock Option Plan(7)
10.8 Amended and Restated 401(k) Profit Sharing Trust and Plan of the
Registrant(1)
10.9 Amendment No. 1 to the Registrant's Amended and Restated 401(k)
Profit Sharing Trust Plan(2)
10.10 Amendment No. 2 to the Registrant's Amended and Restated 401(K)
Profit Sharing Trust and Plan(3)
10.11 Amendment No. 3 to the Registrant's Amended and Restated 401(k)
Profit Sharing Trust and Plan(6)
10.12 Form of Indemnity Agreement with Directors and Officers of the
Registrant(6)
10.13 Employment Agreement dated August 3, 1992, between the Registrant
and Thomas J. Bresnan(7)
10.14 Lease Agreement dated April 26, 1988, between Jocama Construction
Inc. and the Registrant(1)
EXHIBIT INDEX (CONTINUED)
10.15 Addenda to the Lease Agreement dated April 6, 1988 between Jocama
Construction and the Registrant(8)
10.16 Indenture of Lease dated June 17, 1987, between Xednah
Investments and Handex of Florida, as amended(1)
10.17 Lease Agreement dated March 25,1991, between Handex of New
England, Inc. and Metro Park Marlboro Realty Trust, as amended(6)
10.18 Lease Agreement dated January 20, 1992, between Handex of
Maryland, Inc. and Winmeyer Commons II Limited Partnership(6)
10.19 Lease Agreement dated March 1, 1995 between New Horizons Learning
Center of Metropolitan New York, Inc. and Mid-City Associates,
guaranteed by Registrant(11)
10.20 Lease Agreement dated February 24, 1995, between New Horizons
Learning Centers of Cleveland, Ltd., and Realty One Property
Management, guaranteed by the Registrant(11)
10.21 Consulting Agreement between the Registrant and The Nassau Group,
Inc. dated December 17, 1993(9)
10.22 Warrants for the purchase of 25,000 shares of Common Stock $.01
par value per share of the Registrant issued to The Nassau Group,
Inc. on December 17, 1993(9)
10.23 Warrants for the purchase of 40,000 shares of common stock $.01
par value per share of the Registrant issued to The Nassau Group,
Inc. on August 15, 1994(11)
10.24 Asset Purchase Agreement dated as of August 15, 1994 by and among
New Horizons Computer Learning Centers, Inc. a Delaware
Corporation, New Horizons Learning Center, Inc., a California
Corporation and Michael A. Brinda(10)
10.25 Stock Purchase Agreement dated as of August 15, 1994 by and among
New Horizons Education Corporation, a Delaware Corporation and
Michael A. Brinda(10)
10.26 Lease Agreement dated April 5, 1995 between New Horizons Computer
Learning Center of Chicago, Inc. and The Equitable Life Assurance
Society of the United States(12)
15.0 Letter from Independent Certified Public Accountants*
99.1 Certificate of Amendment to Certificate of Incorporation(12)
- - ---------------------------------------------------------
(1) Incorporated herein by reference to the appropriate exhibits to the
Registrant's Registration Statement on
Form S-1 (File No. 33-28798).
(2) Incorporated herein by reference to the appropriate exhibit to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1989.
(3) Incorporated herein by reference to the appropriate exhibit to the
Registrant's Quarterly Report on Form 10-Q for the period ended March 31,
1990.
(4) Incorporated herein by reference to the appropriate exhibit to the
Registrant's Quarterly Report or Form 10-Q for the period ended June 30,
1990.
EXHIBIT INDEX (CONTINUED)
(5) Incorporated herein by reference to the appropriate exhibit to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1990.
(6) Incorporated herein by reference to the appropriate exhibit to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1991.
(7) Incorporated herein by reference to the appropriate exhibit to the
Registrant's Annual Report on Form 10-K for the year ended December
31,1992.
(8) Incorporated herein by reference to the appropriate exhibit to the
Registrant's Quarterly Report on Form 10-Q for the period ended July 3,
1993.
(9) Incorporated herein by reference to the appropriate exhibit to the
Registrant's Annual Report on Form 10-K for the year ended January 1, 1994.
(10) Incorporated herein by reference to the appropriate exhibit to the
Registrant's Form 8-K dated August 15, 1994.
(11) Incorporated herein by reference to the appropriate exhibit to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1994.
(12) Incorporated by reference to the appropriate exhibit to the Registrant's
Quarterly Report on Form 10-Q for the period ended April 1, 1995.
* Filed herewith.
(b) Reports on Form 8-K
None.
EXHIBIT 15.0
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-30-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 1,508,658
<SECURITIES> 2,750,000
<RECEIVABLES> 29,536,689
<ALLOWANCES> (828,461)
<INVENTORY> 254,651
<CURRENT-ASSETS> 35,727,433
<PP&E> 26,053,517
<DEPRECIATION> (16,289,481)
<TOTAL-ASSETS> 62,611,503
<CURRENT-LIABILITIES> 11,473,880
<BONDS> 0
<COMMON> 70,502
0
0
<OTHER-SE> 49,553,555
<TOTAL-LIABILITY-AND-EQUITY> 62,611,503
<SALES> 51,831,827
<TOTAL-REVENUES> 51,831,827
<CGS> 32,662,674
<TOTAL-COSTS> 51,597,978
<OTHER-EXPENSES> 12,119
<LOSS-PROVISION> 139,400
<INTEREST-EXPENSE> 71,415
<INCOME-PRETAX> 150,315
<INCOME-TAX> 149,327
<INCOME-CONTINUING> 988
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 988
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
FORM 10-Q, PART II
ITEM 6
EXHIBIT 15.0
INDEPENDENT AUDITORS' REVIEW REPORT
-----------------------------------
The Board of Directors
Handex Corporation
and Subsidiaries
We have reviewed the condensed consolidated balance sheet of Handex Corporation
and subsidiaries as of September 30, 1995, and the related condensed
consolidated statements of income for the three-month and nine-month periods
ended September 30, 1995 and October 1, 1994, and cash flows for the nine-month
periods ended September 30, 1995 and October 1, 1994. These condensed
consolidated financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the condensed consolidated financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Handex Corporation and subsidiaries
as of December 31, 1994, and the related consolidated statements of income,
stockholders' equity, and cash flows for the year then ended (not presented
herein); and in our report dated February 17, 1995, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated balance sheet
as of December 31, 1994, is fairly presented, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
KPMG Peat Marwick, LLP
Cleveland, Ohio
October 27, 1995
