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 March 31, 1997; 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, former 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 May 14, 1997
Common Stock, par value 4,526,912 shares
$.01 per share
<PAGE>
FORENSIC TECHNOLOGIES INTERNATIONAL CORPORATION
INDEX
Page
PART I FINANCIAL INFORMATION
Item 1. Financial Statements . . . . . . . . . . . . .. . 3 to 8
Item 2. Management's Discussion and Analysis of
Results of Operations and
Financial Condition . . . . . . . . . . . . .. . 9
2
<PAGE>
Forensic Technologies International Corporation and Subsidiary
Consolidated Balance Sheets (Unaudited)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1997
--------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,893,897 $ 5,713,454
Accounts receivable, less allowance of $250,877 in 1996 and
$243,790 in 1997 6,296,599 6,708,425
Unbilled receivables, less allowance of $125,439 in 1996 and
$162,526 in 1997 3,006,953 3,462,336
Inventory 332,828 332,828
Income taxes receivable 111,471 -
Deferred income taxes 185,926 185,926
Prepaid expenses 418,654 487,601
--------------------------------------
Total current assets 16,246,328 16,890,570
Property and equipment:
Buildings 411,241 411,241
Furniture and equipment 8,455,373 9,150,921
Leasehold improvements 863,821 1,127,302
--------------------------------------
9,730,435 10,689,464
Accumulated depreciation and amortization (5,624,060) (5,926,078)
--------------------------------------
4,106,375 4,763,386
Other assets 515,722 522,469
--------------------------------------
Total assets $ 20,868,425 $ 22,176,425
======================================
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1997
--------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable and accrued expenses $ 1,502,076 $ 1,465,536
Accrued compensation expense 783,108 1,038,498
Income taxes payable - 314,306
Current portion of capital lease obligations 52,804 159,783
Advances from clients 585,562 543,265
Other current liabilities 11,063 -
--------------------------------------
Total current liabilities 2,934,613 3,521,388
Long-term debt and capital lease obligations, less current portion 201,296 259,137
Deferred income taxes 103,938 103,938
Commitments and contingent liabilities - -
Stockholders' equity:
Preferred stock, $.01 par value; 4,000,000 shares authorized, none
outstanding - -
Common stock, $.01 par value:
Authorized shares - 16,000,000 shares issued and outstanding -
4,516,912 in 1996, and 4,526,912 in 1997 45,169 45,269
Additional paid-in capital 14,429,703 14,453,402
Retained earnings 3,153,706 3,793,291
--------------------------------------
Total stockholders' equity 17,628,578 18,291,962
--------------------------------------
======================================
Total liabilities and stockholders' equity $ 20,868,425 $ 22,176,425
======================================
See Accompanying Notes.
</TABLE>
4
<PAGE>
Forensic Technologies International Corporation and Subsidiary
Consolidated Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
1996 1997
-----------------------------------------------
(Restated Note 1)
<S> <C> <C>
Revenues $ 6,965,654 $ 9,539,549
Direct cost of revenues 3,750,970 5,161,672
Selling, general and administrative expenses 2,626,903 3,349,544
-----------------------------------------------
Total costs and expenses 6,377,873 8,511,216
-----------------------------------------------
Income from operations 587,781 1,028,333
Other income (expenses):
Interest and other income 32,290 75,680
Interest expense (80,433) (19,971)
-----------------------------------------------
(48,143) 55,709
-----------------------------------------------
Income before income taxes 539,638 1,084,042
Income taxes 235,212 444,457
===============================================
Net income $ 304,426 $ 639,585
===============================================
Earnings Per Share Data:
Net income per common and common
equivalent share: $0.14 $0.14
===============================================
Net income per common share, assuming full dilution: $0.10 $0.14
===============================================
</TABLE>
See Accompanying Notes.
5
<PAGE>
Forensic Technologies International Corporation and Subsidiary
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
1996 1997
-----------------------------------------
(Restated Note 1)
OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 304,426 $ 639,585
Adjustment to reconcile net income to net cash provided by (used
in) operating activities:
provided by (used in) operating activities:
Depreciation 165,850 278,317
Amortization 15,394 32,838
Non-cash compensation 10,841 -
Provision for doubtful accounts 45,489 30,000
Loss on disposal of discontinued Annapplix
division (471,869) -
Changes in operating assets and liabilities:
Accounts receivable (12,058) (404,739)
Unbilled receivables (764,866) (492,470)
Prepaid expenses (9,638) (68,947)
Accounts payable 113,842 (36,540)
Accrued compensation expense 328,328 255,390
Income taxes payable 202,888 425,777
Deferred revenue (83,333) -
Advances from clients - (42,297)
Other current liabilities 122,715 (11,063)
-----------------------------------------
Net cash provided by (used in) operating activities (31,991) 605,851
INVESTING ACTIVITIES
Purchase of property and equipment (364,482) (751,404)
Change in other assets (4,057) (8,001)
-----------------------------------------
Net cash used in investing activities (368,539) (759,405)
FINANCING ACTIVITIES
Issuance of Class A Common Stock (300) -
Repurchase of Class A Common Stock (25,000) -
Repurchase of Class A Common Stock subject to
repurchase (138,180) -
Exercise of stock options - 23,799
Net borrowings under line of credit 406,837 -
Payments of capital lease obligations (26,667) (50,688)
-----------------------------------------
Net cash provided by (used in) financing activities 216,690 (26,889)
-----------------------------------------
Net decrease in cash and cash equivalents (183,840) (180,443)
Cash and cash equivalents at beginning of period 420,072 5,893,897
-----------------------------------------
Cash and cash equivalents at end of period $ 236,232 $ 5,713,454
=========================================
</TABLE>
See Accompanying Notes.
6
<PAGE>
FORENSIC TECHNOLOGIES INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1997
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. For further information, refer to the
consolidated financial statements and notes thereto included in the Company's
annual report on Form 10-KSB for the year ended December 31, 1996.
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 period ended March 31, 1997 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1997.
On September 30, 1996 the Company acquired all of the outstanding common stock
of Teklicon, Inc. ("Teklicon") in exchange for 415,000 shares of common stock.
The acquisition was accounted for as a pooling of interests and, accordingly,
the Company's financial statements have been restated for all periods prior to
the merger to include the financial position, results of operations, and cash
flows of Teklicon. The accompanying consolidated statements of operations, and
cash flows for the three month period ending March 31, 1996 have been restated
to reflect the acquisition of Teklicon.
2. OPTION GRANTS
On March 25, 1997, the Board of Directors approved the issuance of options to
purchase 300,000 shares of Class A Common Stock to key employees. The exercise
prices of the shares granted range from $6.00 to $9.50 per share, at or above
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.
7
<PAGE>
FORENSIC TECHNOLOGIES INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1997 (CONTINUED)
3. EARNINGS PER SHARE
The following table summarizes the computations of earnings per share for the
three month period ended March 31, 1997. This table should be read in
conjunction with Note 2 to the 1996 audited financial statements.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
1996 1997
--------------------------------
(UNAUDITED)
<S> <C> <C>
Primary:
Weighted average number of shares of common stock
outstanding during the period 2,011,131 4,519,478
Dilutive effect of other options and warrants -
based on treasury stock method using average
market price 199,4l7 139,442
--------------------------------
Total common and common equivalent shares of stock
considered outstanding during the period 2,210,548 4,658,920
================================
Net income $ 304,426 $ 639,585
================================
Per share amount $ 0.14 $ 0.14
================================
Fully diluted:
Weighted average number of shares of common stock
outstanding during the period 2,011,131 4,519,478
Dilutive effect of other options and warrants -
based on treasury stock method using market
price at the end of the period 199,417 139,442
Assumed conversion of Series A Redeemable
Convertible Preferred Stock 655,200 -
Assumed conversion of 8% Convertible Subordinated
Debentures 378,000 -
================================
Total fully diluted securities considered outstanding
during the period 3,243,748 4,658,920
================================
Net income $ 304,426 $ 639,585
Add 8% Convertible Subordinated Debenture interest,
net of income taxes 21,420 -
================================
$ 325,846 $ 639,585
================================
Per share amount $ 0.10 $ 0.14
================================
</TABLE>
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings Per Share", which is required to be adopted on December 31, 1997.
At that time, the Company will be required to change the method currently used
to compute earnings per share and to restate all prior periods. The impact of
Statement 128 on the calculation of earnings per share is not expected to be
material.
8
<PAGE>
FORENSIC TECHNOLOGIES INTERNATIONAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Revenues for the first quarter ended March 31, 1997, increased 37.0%, to $9.5
million compared to the same period in 1996. This increase is primarily the
result of revenues from visual communication services growing 96.6% to $4.7
million during the quarter, attributable to three factors: a resumption of
casework following the December 1996, holiday hiatus; a historically high level
of active trials during the period; and, the particular success of an integrated
approach to the marketing of the Company's services. Trial consulting increased
5.1% during the quarter, due to continued demand for these services during the
period; engineering revenues grew 5.6%, attributable to increased sales by
Teklicon, while other engineering services were generally flat compared to 1996.
Direct costs, as a percentage of revenue, were approximately the same during the
first quarter of 1997 and 1996, as a result of managing the mix of internal and
external resources to meet the demands for the Company's services. Selling,
general and administrative expenses decreased as a percent of revenue as the
fixed and semi-variable costs continued to benefit from larger increases in
revenues. Interest expense decreased in the quarter due to no usage on the line
of credit during 1997; borrowings under the line of credit during 1996 were
repaid from funds received from the sale of Common Stock in May, 1996. Unused
funds from such sale have been invested to increase interest income subsequent
to May, 1996.
Cash flow provided by operations during the quarter, were offset by additional
investments in office facilities and computer equipment. These investments
assist the Company in providing enhanced services to its clients. The net
decrease in cash was funded by the remaining balance of the net proceeds from
the sale of the Company's stock in May, 1996. Such balance, approximately $5.7
million, will be used for working capital and other general corporate purposes,
including possible acquisitions.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 5,713,454
<SECURITIES> 0
<RECEIVABLES> 10,577,077
<ALLOWANCES> 406,316
<INVENTORY> 332,828
<CURRENT-ASSETS> 16,890,570
<PP&E> 10,689,464
<DEPRECIATION> 5,926,078
<TOTAL-ASSETS> 22,176,425
<CURRENT-LIABILITIES> 3,521,388
<BONDS> 0
0
0
<COMMON> 45,269
<OTHER-SE> 18,246,693
<TOTAL-LIABILITY-AND-EQUITY> 22,176,425
<SALES> 9,539,549
<TOTAL-REVENUES> 9,539,549
<CGS> 5,161,672
<TOTAL-COSTS> 8,511,216
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,971
<INCOME-PRETAX> 1,084,042
<INCOME-TAX> 444,457
<INCOME-CONTINUING> 639,585
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 639,585
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0.14
</TABLE>
