2
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(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, 1998; 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: 333-02002
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, 1998
- --------------------- -----------------------------
Common Stock, par value 4,750,301
$.01 per share
<PAGE>
FORENSIC TECHNOLOGIES INTERNATIONAL CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Balance Sheets - December 31, 1997 and
March 31, 1998 ........................................ 3
Statements of Income - Three months ended
March 31, 1997, three months ended March 31, 1998 ..... 5
Statements of Cash Flows - Three months ended
March 31, 1997, three months ended March 31, 1998 ..... 6
Notes to Unaudited Financial Statements - March 31, 1998 .. 7
Item 2. Management's Discussion and Analysis of
Results of Operations and
Financial Condition ................................... 9
PART II OTHER INFORMATION
Item 1. Legal Proceedings ......................................... 10
Item 2. Changes in Securities ..................................... 10
Item 3. Defaults Upon Senior Securities ........................... 10
Item 4. Submission of Matters to a Vote of Security Holders ....... 10
Item 5. Other Information ......................................... 10
Item 6. Exhibits and Reports on Form 8-K .......................... 10
SIGNATURES 11
</TABLE>
2
<PAGE>
Forensic Technologies International Corporation and Subsidiaries
Consolidated Balance Sheets
(in thousands of dollars)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
--------------------------------------
(audited) (unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,456 $ 2,663
Accounts receivable, less allowance of $487 in 1997 and
$620 in 1998 10,198 11,466
Unbilled receivables, less allowance of $415 in 1997 and
$441 in 1998 4,194 3,703
Deferred income taxes 160 160
Prepaid expenses and other current assets 681 1,165
------------------------------------
Total current assets 17,689 19,157
Property and equipment:
Buildings 411 411
Furniture and equipment 11,745 12,316
Leasehold improvements 1,591 1,526
------------------------------------
13,747 14,253
Accumulated depreciation and amortization (7,459) (7,863)
------------------------------------
6,288 6,390
Goodwill, net of accumulated amortization of $81 in 1997
and $144 in 1998 5,141 5,078
Other assets 58 60
------------------------------------
Total assets $ 29,176 $ 30,685
====================================
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
--------------------------------------
(audited) (unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 2,825 $ 1,963
Accrued compensation expense 1,995 1,674
Income taxes payable 297 689
Current portion of long-term debt 1,200 1,200
Advances from clients 519 402
Other current liabilities 219 117
--------------------------------------
Total current liabilities 7,055 6,045
Long-term debt, less current portion 730 730
Other long-term liabilities 203 224
Deferred income taxes 169 169
Commitments and contingent liabilities -- --
Stockholders' equity:
Preferred stock, $.01 par value; 4,000 shares authorized,
none outstanding -- --
Common stock, $.01 par value; 16,000 shares
authorized; 4,551 and 4,733 shares issued and
outstanding in 1997 and 1998, respectively 46 47
Additional paid-in capital 14,526 15,917
Retained earnings 6,447 7,553
------------------------------------
Total stockholders' equity 21,019 23,517
------------------------------------
Total liabilities and stockholders' equity $ 29,176 $ 30,685
====================================
</TABLE>
See accompanying notes.
4
<PAGE>
Forensic Technologies International Corporation and Subsidiaries
Consolidated Statement of Income
(in thousands of dollars except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
1997 1998
-----------------------------------------------
(unaudited)
<S> <C> <C>
Revenues $ 9,539 $ 14,109
Direct cost of revenues 5,162 7,579
Selling, general and administrative expenses 3,349 4,662
-----------------------------------------------
Total costs and expenses 8,511 12,241
-----------------------------------------------
Income from operations 1,028 1,868
Other income (expense):
Interest and other income 76 56
Interest expense (20) (59)
-----------------------------------------------
56 (3)
-----------------------------------------------
Income before income taxes 1,084 1,865
Income taxes 444 759
-----------------------------------------------
Net income $ 640 $ 1,106
===============================================
Net income per common share $0.14 $0.24
===============================================
Net income per common share - assuming dilution $0.14 $0.22
===============================================
</TABLE>
See accompanying notes.
5
<PAGE>
Forensic Technologies International Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands of dollars)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
1997 1998
-----------------------------------------
(unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 640 $ 1,106
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 278 445
Amortization 33 110
Provision for doubtful accounts 30 160
Changes in operating assets and liabilities:
Accounts receivable (405) (1,401)
Unbilled receivables (492) 465
Prepaid expenses (69) (484)
Accounts payable (37) (862)
Accrued compensation expense 255 (321)
Income taxes payable 425 448
Advances from clients (42) (117)
Other current liabilities (11) (103)
-----------------------------------------
Net cash provided by (used in) operating activities 605 (554)
INVESTING ACTIVITIES
Purchase of property and equipment (751) (621)
Proceeds from sale of property and equipment -- 70
Change in other assets (8) (2)
-----------------------------------------
Net cash used in investing activities (759) (553)
FINANCING ACTIVITIES
Exercise of stock options 24 1,337
Payments of other long-term liabilities (51) (23)
-----------------------------------------
Net cash provided by (used in) financing activities (27) 1,314
-----------------------------------------
Net increase in cash and cash equivalents (181) 207
Cash and cash equivalents at beginning of period 5,894 2,456
-----------------------------------------
Cash and cash equivalents at end of period $ 5,713 $ 2,663
=========================================
</TABLE>
See accompanying notes.
6
<PAGE>
FORENSIC TECHNOLOGIES INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1998
(dollars in thousands, except for per share data)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. 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, 1997.
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, 1998 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1998.
2. EARNINGS PER SHARE
The following table summarizes the computations of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
1997 1998
-------------- --------------
Numerator used in basic and diluted earnings per
common share:
<S> <C> <C>
Net income $640 $1,106
=============================
Denominator:
Denominator for basic earnings per common share
- - weighted average shares 4,519 4,598
Effect of dilutive securities:
Warrants - 7
Employee stock options 123 467
-----------------------------
123 474
Denominator for diluted earnings per common
share - weighted average shares and
assumed conversions 4,642 5,072
=============================
Basic earnings per common share $ .14 $ .24
=============================
Diluted earnings per common share $ .14 $ .22
=============================
</TABLE>
7
<PAGE>
FORENSIC TECHNOLOGIES INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1998 (CONTINUED)
3. STOCKHOLDERS EQUITY
The components of stockholders equity are as follow:
<TABLE>
<CAPTION>
Additional
Common Paid in Retained
Stock Capital Earnings Total
----- ------- -------- -----
<S> <C> <C> <C> <C>
Balance at January 1, 1998 $ 46 $ 14,526 $ 6,447 $ 21,019
Exercise of options to purchase 182,300
shares of Common Stock, including income
tax benefit of $55. 1 1,391 1,392
Net income for three months ended
March 31, 1998 1,106 1,106
------------------------------------------------------
Balance at March 31, 1998 $ 47 $ 15,917 $ 7,553 $ 23,517
======================================================
</TABLE>
4. INCOME TAXES
The tax provision for the three months periods ended March 31, 1998 and 1997 are
based on the estimated effective tax rates applicable for the full years. The
Company's income tax provision of $759 for the three month period ended March
31, 1998 consists of federal and state income taxes.
8
<PAGE>
FORENSIC TECHNOLOGIES INTERNATIONAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Revenues for the first quarter ended March 31, 1998, increased 47.9% to $14.1
million, compared to the same period in 1997. Excluding acquisitions during
1997, revenues during the quarter increased 27.0%. The increase is primarily the
result of a 36.4% increase in visual communication services, attributable to
high levels of active trials during the period, continued development of key
relationships with major law firms and corporations and the success of an
integrated marketing approach. Additional increases in revenue resulted from
Engineering services, which grew 27.5% with higher levels of activity in both
the engineering science consulting and Teklicon businesses.
Direct costs, as a percentage of revenue, were approximately the same during the
first quarter of 1998 and 1997, 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 also remained relatively consistent during
these periods as management focused on containing these costs while growing the
business operations.
LIQUIDITY AND SOURCES OF CAPITAL
Cash flow used in operations during the quarter was due to the increase in
accounts receivable balances and also to the payment of liabilities in a timely
manner. Cash was also used in investing activities for the purchase of property
and equipment. These outflows were funded by the exercise of stock options
during the first quarter. Approximately 182,000 options were exercised in the
first quarter of 1998 thus resulting in an overall increase in cash.
9
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Incorporated by reference from the Forensic Technologies International
Corporation Notice of 1998 Annual Meeting and Proxy Statement filed pursuant to
Regulation 14A.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
22. PUBLISHED REPORT REGARDING MATTERS SUBMITTED TO VOTE OF SECURITY HOLDERS
Incorporated by reference from the Forensic Technologies International
Corporation Notice of 1998 Annual Meeting and Proxy Statement filed pursuant to
Regulation 14A.
27. FINANCIAL DATA SCHEDULE FOR THREE MONTHS ENDED MARCH 31, 1998
(B) REPORTS ON FORM 8-K
THE COMPANY DID NOT FILE ANY REPORTS ON FORM 8-K DURING THE THREE MONTHS ENDED
MARCH 31, 1998
10
<PAGE>
SIGNATURES
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 thereunto duly authorized.
FORENSIC TECHNOLOGIES INTERNATIONAL CORPORATION
Date: May 13, 1998 By /s/Gary Sindler
------------ ------------------------------------------
Executive Vice President and Chief
Financial Officer, Secretary and Treasurer
(principal financial and accounting officer)
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-30-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1.000
<CASH> 2,663,165
<SECURITIES> 0
<RECEIVABLES> 16,230,082
<ALLOWANCES> 1,061,700
<INVENTORY> 0
<CURRENT-ASSETS> 19,156,750
<PP&E> 14,252,911
<DEPRECIATION> 7,863,293
<TOTAL-ASSETS> 30,685,090
<CURRENT-LIABILITIES> 6,045,347
<BONDS> 0
47,332
0
<COMMON> 0
<OTHER-SE> 23,469,321
<TOTAL-LIABILITY-AND-EQUITY> 30,685,090
<SALES> 14,109,375
<TOTAL-REVENUES> 14,109,375
<CGS> 7,579,505
<TOTAL-COSTS> 12,241,593
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 58,644
<INCOME-PRETAX> 1,864,719
<INCOME-TAX> 759,535
<INCOME-CONTINUING> 1,106,184
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,106,184
<EPS-PRIMARY> 0.24
<EPS-DILUTED> 0.22
</TABLE>
