<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[ X ] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended June 30, 1996; or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ____________ to
_____________.
Commission File Number:
-------------
FORENSIC TECHNOLOGIES INTERNATIONAL CORPORATION
(Exact Name of Registrant as Specified in its Charter)
MARYLAND 52-1261113
-------- ----------
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2021 Research Drive, Annapolis, Maryland 21401
----------------------------------------------
(Address of Principal Executive Offices)
(Zip Code)
(410) 224-8770
--------------
(Registrant's Telephone Number, Including Area Code)
--------------------------------------
(Former name, foremer address and former fiscal year,
if changed since last report)
--------------------------------------
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of 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
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
Class Outstanding at August 14, 1996
----------------------- -----------------------------
Common Stock, par value 4,087,712 shares
$.01 per share
<PAGE>
FORENSIC TECHNOLOGIES INTERNATIONAL CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
Page
----
Item 1. Financial Statements........................ 3 to 10
Item 2. Management's Discussion and Analysis of
Results of Operations and
Financial Condition ...................... 11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ............ 13
<PAGE>
Forensic Technologies International Corporation
Balance Sheets
<TABLE>
<CAPTION>
December 31 June 30
1995 1996
--------------------------------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 9,610 $ 8,202,042
Accounts receivable, less allowance of $212,262 in 1995
and $245,581 in 1996 4,063,432 4,221,274
Unbilled receivables, less allowance of $164,935 in
1995 and $177,105 in 1996 2,230,674 3,244,527
Deferred income taxes 499,141 499,141
Prepaid expenses 133,052 247,541
--------------------------------------
Total current assets 6,935,909 16,414,525
Property and equipment:
Buildings 411,241 411,241
Furniture and equipment 6,335,898 7,068,168
Leasehold improvements 677,348 725,197
--------------------------------------
7,424,487 8,204,606
Accumulated depreciation and amortization (4,594,318) (4,961,974)
--------------------------------------
2,830,169 3,242,632
Deferred income taxes 4,090 4,090
Other assets 123,665 92,791
======================================
Total assets $9,893,833 $ 19,754,038
======================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
December 31 June 30
1995 1996
-------------------------------------
(Unaudited)
<S> <C> <C>
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 916,742 $ 1,022,093
Borrowings under line of credit 2,110,391 616,583
Accrued compensation expense 820,746 704,532
Incomes tax payable 208,296 323,491
Current portion of deferred revenue 138,889 -
Current portion of capital lease obligations 63,463 52,218
Accrued loss on disposal of discontinued operations 478,828 -
Other current liabilities 198,054 408,414
-------------------------------------
Total current liabilities 4,935,409 3,127,331
Long-term debt and capital lease obligations, less current
portion 206,747 177,979
8% Convertible Subordinated Debentures, due to
stockholders 1,800,000 -
Series A Redeemable Convertible Preferred Stock, $.01 par
value, stated at redemption value 1,560,000 -
Common Stock Subject to Repurchase 310,930 -
Commitments and contingent liabilities - -
Stockholders' equity:
Common stock, $.01 par value:
Class A:
Authorized shares - 9,800,000 in 1995 and 16,000,000
in 1996
Shares issued and outstanding and not subject to
repurchase - 1,574,059 in 1995 4,087,712 in 1996 15,741 40,878
Class B:
Authorized shares - 6,300,000 in 1995 and 0 in 1996
Issued and outstanding shares - 1,524,600 in 1995 and 0
in 1996 15,246 -
Additional paid-in capital - 14,475,523
Retained earnings 1,078,670 1,939,555
Less: Unearned compensation recorded upon issuance of
common stock (28,910) (7,228)
-------------------------------------
Total stockholders' equity 1,080,747 16,448,728
-------------------------------------
Total liabilities and stockholders' equity $ 9,893,833 $ 19,754,038
=====================================
</TABLE>
See accompanying notes.
<PAGE>
Forensic Technologies International Corporation
Statements of Income (Unaudited)
<TABLE>
<CAPTION>
Three months ended June 30
1995 1996
-----------------------------------------
<S> <C> <C>
Revenues $ 5,127,495 $ 7,119,790
Direct cost of revenues 2,311,097 3,901,537
Selling, general and administrative expenses 2,110,409 2,216,001
-----------------------------------------
Total costs and expenses 4,421,506 6,117,538
-----------------------------------------
705,989 1,002,252
Other income (expenses):
Interest and other income 4,874 50,457
Interest expense (67,624) (60,953)
-----------------------------------------
(62,750) (10,496)
-----------------------------------------
Income from continuing operations before income taxes 643,239 991,756
Income taxes 261,540 406,631
-----------------------------------------
Income from continuing operations 381,699 585,125
-----------------------------------------
Discontinued operations:
Income from operations of discontinued Annapplix division (less
applicable income taxes of $13,100) 18,900 -
-----------------------------------------
Net income $ 400,599 $ 585,125
=========================================
Earnings Per Share Data:
Per common and common equivalent share:
Income from continuing operations $0.20 $0.19
=========================================
Net income $0.21 $0.19
=========================================
Per common share, assuming full dilution:
Income from continuing operations $0.14 $0.17
=========================================
Net income $0.14 $0.17
=========================================
</TABLE>
See accompanying notes.
<PAGE>
Forensic Technologies International Corporation
Statements of Income (Unaudited)
<TABLE>
<CAPTION>
Six months ended June 30
1995 1996
-----------------------------------------
<S> <C> <C>
Revenues $ 9,833,247 $ 13,360,768
Direct cost of revenues 4,681,263 7,206,786
Selling, general and administrative expenses 4,005,353 4,471,458
-----------------------------------------
Total costs and expenses 8,686,616 11,678,244
-----------------------------------------
1,146,631 1,682,434
Other income (expenses):
Interest and other income 11,572 61,239
Interest expense (130,715) (141,386)
-----------------------------------------
(119,143) (80,147)
-----------------------------------------
Income from continuing operations before income taxes 1,027,488 1,602,287
Income taxes 417,160 653,895
-----------------------------------------
Income from continuing operations 610,328 948,392
-----------------------------------------
Discontinued operations:
Income from operations of discontinued Annapplix division (less
applicable income taxes of $47,300) 68,400 -
-----------------------------------------
Net income $ 678,728 $ 948,392
=========================================
Earnings Per Share Data:
Per common and common equivalent share:
Income from continuing operations $0.32 $0.39
=========================================
Net income $0.36 $0.39
=========================================
Per common share, assuming full dilution:
Income from continuing operations $0.22 $0.30
=========================================
Net income $0.25 $0.30
=========================================
</TABLE>
See accompanying notes.
<PAGE>
Item 1
Forensic Technologies International Corporation
Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Six months ended June 30
1995 1996
-----------------------------------------
<S> <C> <C>
Operating activities
Net income $ 678,728 $ 948,392
Adjustment to reconcile net income to net cash
Depreciation 306,880 330,649
Amortization 9,615 55,428
Non-cash compensation 33,395 21,682
Provision for doubtful accounts 69,575 45,489
Accrued loss on disposal of discontinued Annapplix
division - (478,828)
Changes in operating assets and liabilities:
Accounts receivable (673,561) (184,573)
Unbilled receivables (582,451) (1,032,611)
Prepaid expenses (234,875) (114,489)
Accounts payable 105,593 105,351
Accrued compensation expense 283,724 (116,214)
Income taxes payable 199,120 115,195
Deferred revenue (166,666) (138,889)
Other current liabilities 156,606 210,360
-----------------------------------------
Net cash provided by (used in) operating activities 185,683 (233,058)
Investing activities
Purchase of property and equipment (862,467) (780,119)
Acquisition of Applix Software Computer Service (200,000) -
Change in other assets (146,756) 210,360
-----------------------------------------
Net cash used in investing activities (1,209,223) (767,666)
Financing activities
Issuance of Class A Common Stock - 11,230,863
Repurchase of Class A Common Stock - (130,260)
Repurchase of Class A Common Stock subject to repurchase (103,635) (310,930)
Repurchase of Class B Common Stock (3,600) (300)
Net borrowings (repayments) under line of credit 1,362,906 (1,493,808)
Payments of capital lease obligations (154,430) (40,013)
Dividends paid (62,399) (62,396)
-----------------------------------------
Net cash provided by financing activities 1,038,842 9,193,156
-----------------------------------------
Net increase in cash and cash equivalents 15,302 8,192,432
Cash and cash equivalents at beginning of period 600 9,610
-----------------------------------------
Cash and cash equivalents at end of period $ 15,902 $ 8,202,042
=========================================
</TABLE>
See accompanying notes.
<PAGE>
Forensic Technologies International Corporation
Notes to Financial Statements (Unaudited)
June 30, 1996
1. Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and Item 310(b) of Regulation S-B. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three month and six
month periods ended June 30, 1996 are not necessarily indicative of the results
that may be expected for the year ended December 31, 1996. For further
information, refer to the financial statements and footnotes thereto included in
the Registration Statement on Form SB-2.
2. Discontinued Operations
As described in the notes to the 1995 audited financial statements, in March
1996 the Company agreed to sell the Annapplix division to a group including the
former owner, who during 1995 managed the division as an officer of the Company,
and certain other officers and stockholders of the Company. The Company,
effective March 31, 1996, sold the furniture, equipment, and intangible assets
of the division in exchange for cash of $150,000, and retained ownership of
billed and unbilled accounts receivable, buildings and accounts payable.
The Company recorded the results of operations and estimated loss on the sale of
Annapplix as a discontinued operation in the 1995 annual financial statements.
At December 31, 1995, the Company recorded an accrual of $478,828 for the
estimated loss on the sale of the division, which included $285,000 for the
estimated operating losses, net of the related income tax benefit, for the
period from January 1, 1996 through March 31, 1996, the effective date of
disposal. The actual loss did not differ materially from the Company's estimate.
3. Common Stock Subject To Repurchase
The Company has entered into an agreement with a former employee to repurchase
or cause another to purchase 29,018 shares of Class A Common Stock at $4.76187
per share in January 1996 and 29,022 shares of Class A Common Stock at $5.95238
per share in January 1997. The former employee retains ownership rights in the
Class A Common Stock until repurchase. In January 1996, the Company paid the
former employee the installment due of $138,180 and retired the Common Stock
repurchased. In May 1996, the Company paid the former employee $172,250 to
retire the remaining obligation. This commitment is classified as Common Stock
subject to repurchase in the accompanying balance sheets.
<PAGE>
Forensic Technologies International Corporation
Notes to Financial Statements (Unaudited)
June 30, 1996 (continued)
4. Stockholder's Equity
On January 12, 1996, the Board of Directors approved the issuance of options to
purchase 184,800 shares of Class A Common Stock to key employees. The exercise
price of the granted shares is $6.38 per share, or the estimated fair market
value of a share of Class A Common Stock at the date of grant, and the options
vest ratably over a three year period.
On January 26, 1996, the Board of Directors approved a 4.2-for-1 stock split of
the Company's Class A Common Stock. The application of anti-dilution provisions
effectively resulted in a 4.2-for-1 split of the Class B Common Stock and Series
A Redeemable Preferred Stock. The stated par values of the common and preferred
stocks were not changed. All share and per share amounts have been restated to
retroactively reflect the split of the Class A Common Stock and effective split
of the Class B Common Stock and Series A Redeemable Preferred Stock.
The Board of Directors on January 26, 1996 also amended the Company's articles
of incorporation to change the authorized number of shares of preferred stock of
all classes to 4,000,000 shares upon the closing of the initial public offering.
Upon the closing of the initial public offering in May 1996, the Company's
outstanding 8% Convertible Subordinated Debentures and all shares of Series A
Redeemable Convertible Preferred Stock converted into shares of Common Stock.
<PAGE>
Forensic Technologies International Corporation
Notes to Financial Statements (Unaudited)
June 30, 1996 (continued)
5. Earnings Per Share
The following table summarizes the computations of earnings per share for the
three month and six month periods ended June 30, 1995 and 1996. This table
should be read in conjunction with Note 2 to the 1995 audited financial
statements.
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30 June 30
1995 1996 1995 1996
-------------------------------- ----------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Primary:
Weighted average number of shares of common
stock outstanding during the period 1,803,668 2,883,580 1,807,818 2,249,596
Options to purchase common stock issued within one
year of registration statement - based on treasury
stock method using estimated offering price 61,900 - 61,900 30,950
Dilutive effect of other options and warrants - based
on treasury stock method using average market
price 41,686 216,785 41,686 174,226
-------------------------------- ----------------------------------
Total common and common equivalent shares of stock
considered outstanding during the year 1,907,254 3,100,365 1,911,404 2,454,772
================================ ==================================
Net income $ 400,599 $ 585,125 $ 679,028 $ 948,392
================================ ==================================
Per share amount $ 0.21 $ 0.19 $ 0.36 $ 0.39
================================ ==================================
Fully diluted:
Weighted average number of shares of common
stock outstanding during the period 1,803,668 2,883,580 1,807,818 2,249,596
Options to purchase common stock issued within
one year of registration statement - based on
treasury stock method using estimated offering
price 61,900 - 61,900 30,950
Dilutive effect of other options and warrants - based
on treasury stock method using market price at
the end of the period 41,686 219,528 41,686 181,338
Assumed conversion of Series A Redeemable
Convertible Preferred Stock 655,200 309,600 655,200 482,400
Assumed conversion of 8% Convertible
Subordinated Debentures 378,000 178,615 378,000 278,308
-------------------------------- ----------------------------------
Total fully diluted securities considered outstanding
during the year 2,940,454 3,591,323 2,944,604 3,222,592
================================ ==================================
Net income $ 400,599 $ 585,125 $ 678,728 $ 948,392
Add 8% Convertible Subordinated Debenture interest,
net of income taxes 21,348 10,077 42,768 31,402
================================ ==================================
$ 421,947 $ 595,202 $ 721,497 $ 979,794
================================ ==================================
Per share amount $ 0.14 $ 0.17 $ 0.25 $ 0.30
================================ ==================================
</TABLE>
<PAGE>
Item 2
Forensic Technologies International Corporation
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Results of Operations
Revenues for the second quarter and six months ended June 30, 1996, increased
38.8%, to $7.1 million and 36% to $13.4 million over the same periods in 1995,
respectively. These increases are primarily the result of revenues from trial
consulting, growing 130% to $1.5 million in the quarter and 162% to $3.2 million
for the six months, and visual communication services increasing 66% to $3.5
million during the quarter and 40% to $5.9 million for the six months. Such
increases were primarily attributable to the seasoning of the Chicago and Los
Angeles offices. Engineering revenues for the quarter and six months declined
18% to $1.8 million and 9% to $3.7, respectively, due primarily to the lack of
activity in any major cases during these periods.
Direct costs, as a percentage of revenue, increased during the quarter and six
months, resulting primarily from the redirection of efforts by certain key
personnel from selling, general and administrative activities to revenue
generating activities. Additionally, the increase was due to the increased
percentage of revenue from trial consulting which carries slightly higher direct
costs. Interest expense increased in both the quarter and six months due to a
significantly higher average outstanding balance on the line of credit.
Income from continuing operations grew 53% to $585,100 during the second quarter
and 55% to $948,400 for the six months. This growth is principally the result of
the increase in both trial consulting and visual communication services revenues
while costs remained approximately constant as a percentage of revenue. Income
from discontinued operations, the company's division providing general data
processing consulting services and network administration services sold during
the first quarter of 1996, amounted to $18,900 and $68,400 for the quarter and
six months ended June 30, 1995.
Liquidity and Sources of Capital
Cash flow during the quarter increased as a result of the proceeds from the
recent sale of the company's stock, providing approximately $11.4 to be used to
repay the company's borrowings under a revolving line of credit, purchase
additional video and animation equipment and develop new technology. The balance
of the net proceeds, approximately $7.1 million, will be used for general
corporate purposes, including possible acquisitions.
<PAGE>
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
The Company did not file any reports on Form 8-K during the three
months ended June 30, 1996.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> $8,202,042
<SECURITIES> $0
<RECEIVABLES> $7,888,487
<ALLOWANCES> $422,686
<INVENTORY> $0
<CURRENT-ASSETS> $746,682
<PP&E> $8,204,606
<DEPRECIATION> $4,961,974
<TOTAL-ASSETS> $19,754,038
<CURRENT-LIABILITIES> $3,127,331
<BONDS> $0
$0
$0
<COMMON> $40,878
<OTHER-SE> $16,407,850
<TOTAL-LIABILITY-AND-EQUITY> $19,754,038
<SALES> $13,360,768
<TOTAL-REVENUES> $13,360,768
<CGS> $7,206,786
<TOTAL-COSTS> $11,678,244
<OTHER-EXPENSES> (61,239)
<LOSS-PROVISION> $0
<INTEREST-EXPENSE> $141,386
<INCOME-PRETAX> $1,602,287
<INCOME-TAX> $653,895
<INCOME-CONTINUING> $948,392
<DISCONTINUED> $0
<EXTRAORDINARY> $0
<CHANGES> $0
<NET-INCOME> $948,392
<EPS-PRIMARY> $0.39
<EPS-DILUTED> $0.30
</TABLE>
