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, 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 August 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 9
Item 2. Management's Discussion and Analysis of
Results of Operations and
Financial Condition . . . . . . . . . . . . . 10
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K
Financial Data Schedule . . . . . . . . . . . . . . 12
<PAGE>
Forensic Technologies International Corporation and Subsidiary
Consolidated Balance Sheets (Unaudited)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
--------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,893,897 $ 5,324,053
Accounts receivable, less allowance of $250,877 in 1996 and
$262,998 in 1997 6,296,599 6,724,594
Unbilled receivables, less allowance of $125,439 in 1996 and
$149,441 in 1997 3,006,953 3,821,051
Inventory 332,828 332,828
Income taxes receivable 111,471 -
Deferred income taxes 185,926 185,926
Prepaid expenses 418,654 673,068
--------------------------------------
Total current assets 16,246,328 17,061,520
Property and equipment:
Buildings 411,241 411,241
Furniture and equipment 8,455,373 9,481,890
Leasehold improvements 863,821 1,248,989
--------------------------------------
9,730,435 11,142,120
Accumulated depreciation and amortization (5,624,060) (6,307,404)
--------------------------------------
4,106,375 4,834,716
Other assets 515,722 581,263
======================================
Total assets $ 20,868,425 $ 22,477,499
======================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
--------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,502,076 $ 1,318,629
Accrued compensation expense 783,108 776,015
Income taxes payable - 368,922
Current portion of capital lease obligations 52,804 130,642
Advances from clients 585,562 526,390
Other current liabilities 11,063 -
--------------------------------------
Total current liabilities 2,934,613 3,120,598
Long-term debt and capital lease obligations, less current portion
201,296 250,964
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 and not subject to repurchase -
4,516,912 in 1996, 4,526,912 in 1997 45,169 45,269
Additional paid-in capital 14,429,703 14,453,402
Retained earnings 3,153,706 4,503,328
--------------------------------------
Total stockholders' equity 17,628,578 19,001,999
--------------------------------------
Total liabilities and stockholders' equity $ 20,868,425 $ 22,477,499
======================================
</TABLE>
See accompanying notes.
<PAGE>
Forensic Technologies International Corporation and Subsidiary
Consolidated Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30
1996 1997
-----------------------------------------
<S> <C> <C>
(Restated - Note 1)
Revenues $ 8,008,204 $ 9,471,409
Direct cost of revenues 4,414,802 5,231,786
Selling, general and administrative expenses 2,467,289 3,110,629
-----------------------------------------
Total costs and expenses 6,882,091 8,342,415
-----------------------------------------
1,126,113 1,128,994
Other income (expenses):
Interest and other income 50,546 96,583
Interest expense (60,953) (22,124)
-----------------------------------------
(10,407) 74,459
-----------------------------------------
Income before income taxes 1,115,706 1,203,453
Income taxes 464,709 493,416
-----------------------------------------
Net income $ 650,997 $ 710,037
=========================================
Earnings Per Share Data:
Per common and common equivalent share: $0.19 $0.15
=========================================
Per common share, assuming full dilution: $0.17 $0.15
=========================================
</TABLE>
See accompanying notes.
<PAGE>
Forensic Technologies International Corporation and Subsidiary
Consolidated Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30
1996 1997
-----------------------------------------
<S> <C> <C>
(Restated - Note 1)
Revenues $ 14,973,858 $ 19,010,958
Direct cost of revenues 8,165,772 10,393,458
Selling, general and administrative expenses 5,094,192 6,460,173
-----------------------------------------
Total costs and expenses 13,259,964 16,853,631
-----------------------------------------
1,713,894 2,157,327
Other income (expenses):
Interest and other income 82,836 172,263
Interest expense (141,386) (42,095)
-----------------------------------------
(58,550) 130,168
-----------------------------------------
Income before income taxes 1,655,344 2,287,495
Income taxes 700,011 937,873
-----------------------------------------
Net income $ 955,333 $ 1,349,622
=========================================
Earnings Per Share Data:
Per common and common equivalent share: $0.33 $0.29
=========================================
Per common share, assuming full dilution: $0.27 $0.29
=========================================
</TABLE>
See accompanying notes.
<PAGE>
FORENSIC TECHNOLOGIES INTERNATIONAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30
1996 1997
-----------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 955,333 $ 1,349,622
Adjustment to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 333,398 616,712
Amortization 55,428 77,023
Non-cash compensation 21,682 -
Provision for doubtful accounts 45,489 36,123
Deferred income taxes 17,189 -
Loss on disposal of assets 2,056 3,234
Accrued loss on disposal of discontinued division (478,828) -
Changes in operating assets and liabilities:
Accounts receivable (407,124) (439,069)
Unbilled receivables (1,032,611) (839,147)
Prepaid expenses (101,736) (254,414)
Accounts payable 272,412 (183,447)
Accrued compensation expense (203,989) (7,093)
Income taxes payable 140,146 480,393
Deferred revenue (138,889) -
Advances from client 133,196 (59,172)
Other current liabilities 79,664 (11,063)
Accounting adjustment due to pooling 71,913 -
-----------------------------------------
Net cash provided by (used in) operating activities (235,271) 769,702
INVESTING ACTIVITIES
Purchase of property and equipment (787,118) (1,202,225)
Proceeds from sale of property and equipment 3,000 -
Change in other assets 3,753 (68,049)
-----------------------------------------
Net cash used in investing activities (780,365) (1,270,274)
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 (310,930) -
repurchase
Repurchase of Class B Common Stock (300) -
Exercise of stock options - 23,799
Net borrowings (repayments) under line of credit (1,493,808) -
Payments of capital lease obligations (40,013) (93,071)
Dividends paid (62,396) -
-----------------------------------------
Net cash provided by (used in) financing activities 9,193,156 (69,272)
-----------------------------------------
Net increase in cash and cash equivalents 8,177,520 (569,844)
Cash and cash equivalents at beginning of period 244,925 5,893,897
-----------------------------------------
Cash and cash equivalents at end of period $ 8,422,445 $ 5,324,053
=========================================
See accompanying notes.
</TABLE>
<PAGE>
FORENSIC TECHNOLOGIES INTERNATIONAL CORPORATION AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 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 six month period ended June 30, 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 and six month periods ending June 30, 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.
In addition, options to purchase 4,200 shares of Class A Common Stock were
issued on May 21, 1997 to each of the non employee directors of the Company
under the Formula Option of the 1997 Stock Option Plan. An aggregate of 16,800
options were granted at an exercise price of $7.63 per share.
<PAGE>
FORENSIC TECHNOLOGIES INTERNATIONAL CORPORATION AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1997
3. EARNINGS PER SHARE
The following table summarizes the computations of earnings per share for the
three month and six month periods ended June 30, 1996 and 1997. This table
should be read in conjunction with Note 2 to the 1996 audited financial
statements.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
1996 1997 1996 1997
-------------------------------- ----------------------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Primary:
Weighted average number of shares of common stock
outstanding during the period 3,291,416 4,526,912 2,653,426 4,523,210
Dilutive effect of other options and warrants -
based on treasury stock method using average
market price 223,950 168,325 216,346 160,653
-------------------------------- ----------------------------------
Total common and common equivalent shares of stock
considered outstanding during the year 3,515,366 4,695,237 2,869,772 4,683,863
================================ ==================================
Net income $ 650,997 $ 710,037 $ 955,333 $ 1,349,622
================================ ==================================
Per share amount $ 0.19 $ 0.15 $ 0.33 $ 0.29
================================ ==================================
Fully diluted:
Weighted average number of shares of common stock
outstanding during the period 3,291,416 4,526,912 2,653,426 4,523,210
Dilutive effect of other options and warrants -
based on treasury stock method using market
price at the end of the period 226,693 191,350 223,458 191,350
Assumed conversion of Series A Redeemable
Convertible Preferred Stock 309,600 - 482,400 -
Assumed conversion of 8% Convertible Subordinated
Debentures 178,615 - 278,308 -
-------------------------------- ----------------------------------
Total fully diluted securities considered outstanding
during the year 4,006,324 4,718,262 3,637,592 4,714,560
================================ ==================================
Net income $ 650,997 $ 710,037 $ 955,333 $ 1,349,622
Add 8% Convertible Subordinated Debenture interest,
net of income taxes 10,077 - 31,402 -
-------------------------------- ----------------------------------
$ 661,074 $ 710,037 $ 986,735 $ 1,349,622
================================ ==================================
Per share amount $ 0.17 $ 0.15 $ 0.27 $ 0.29
================================ ==================================
</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.
<PAGE>
FORENSIC TECHNOLOGIES INTERNATIONAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Revenues for the second quarter and six months ended June 30, 1997, increased
18.3%, to $9.5 million and 27.0% to $19.0 million over the same periods in 1996,
respectively. These increases are primarily the result of revenues from visual
communication services growing 36.4% to $4.6 million and 61.0% to $9.3 million
during the quarter and six months, respectively, attributable to higher levels
of active trials during the periods and the success of an integrated approach to
the marketing of the Company's services. Trial consulting decreased 15.2% during
the quarter and 4.9% during the six months, due to loss of certain revenue
generating personnel during the periods. Engineering revenues grew 17.5% and
11.6% during the quarter and six months, respectively, attributable to increased
sales by last year's acquisitions of Teklicon and Anamet Laboratories.
Direct costs, as a percentage of revenue, were approximately the same during the
second quarter and six months 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 increased as a percent of
revenue during the quarter as the growth in fixed and semi-variable costs
exceeded the increase in revenues. Interest expense decreased in the quarter and
six months 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 six months, 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
$5.3 million, will be used for working capital and other general corporate
purposes, including possible acquisitions.
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders was held on May 21, 1997. The following
matters, solicited pursuant to Regulation 14A under the Exchange Act, were
considered and voted upon at the Annual Meeting:
(i) The election of two Class I Directors, each for a three-year term;
(ii) Adoption of the Employee Stock Purchase Plan of the Company by a vote
of 2,718,798 For, 278,840 Against and 9,090 Abstaining;
(iii) Adoption of the 1997 Stock Option Plan of the Company by a vote of
2,415,259 For, 550,140 Against and 15,640 Abstaining;
(iv) Ratification of Ernst & Young LLP as the Company's independent
auditors for the fiscal year ending 1997 by a vote of 3,899,429 For,
3,500 Against and 1,268 Abstaining.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> US DOLLAR
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 5,324,053
<SECURITIES> 0
<RECEIVABLES> 10,958,084
<ALLOWANCES> 412,439
<INVENTORY> 332,828
<CURRENT-ASSETS> 17,061,520
<PP&E> 11,142,120
<DEPRECIATION> 6,307,404
<TOTAL-ASSETS> 22,477,499
<CURRENT-LIABILITIES> 3,120,598
<BONDS> 0
0
0
<COMMON> 45,269
<OTHER-SE> 18,956,730
<TOTAL-LIABILITY-AND-EQUITY> 22,477,499
<SALES> 19,010,958
<TOTAL-REVENUES> 19,010,958
<CGS> 10,393,458
<TOTAL-COSTS> 16,853,631
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42,095
<INCOME-PRETAX> 2,287,495
<INCOME-TAX> 937,873
<INCOME-CONTINUING> 1,349,622
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,349,622
<EPS-PRIMARY> 0.29
<EPS-DILUTED> 0.29
</TABLE>
