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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
/ / 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 0-27204
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TECHFORCE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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GEORGIA 58-2082077
(STATE OF INCORPORATION) (I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
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5741 RIO VISTA DRIVE, CLEARWATER, FLORIDA 33760
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(813) 533-3600
(REGISTRANT'S TELEPHONE, INCLUDING AREA CODE)
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Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01
par value
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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 ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. _X_
The aggregate market value of the Registrant's outstanding Common Stock held
by non-affiliates of the Registrant on MARCH 19, 1998 was $77,737,626. There
were 8,129,426 shares of Common Stock outstanding as of MARCH 19, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the Annual Meeting of
Shareholders to be held on May 20,1998 are incorporated by reference in Part III
hereof.
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TECHFORCE CORPORATION
ANNUAL REPORT ON FORM 10K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
TABLE OF CONTENTS
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ITEM PAGE
NUMBER NUMBER
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PART I
1. Business...................................................................................... 1-9
2. Properties.................................................................................... 9
3. Legal Proceedings............................................................................. 10
4. Submission of Matters to a Vote of Security Holders........................................... 10
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters......................... 10
6. Selected Financial Data....................................................................... 11
7. Management's Discussion and Analysis of Financial Condition and Results of Operations......... 12-21
8. Financial Statements and Supplementary Data................................................... 21
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.......... 21
PART III
10. Directors and Executive Officers of the Registrant............................................ 21
11. Executive Compensation........................................................................ 21
12. Security Ownership of Certain Beneficial Owners and Management................................ 22
13. Certain Relationships and Related Transactions................................................ 22
PART IV
14. Exhibits, Financial Statements, Schedules, and Reports on Form 8-K............................ 22
SIGNATURES.................................................................................... 27
INDEX OF FINANCIAL STATEMENTS................................................................. 28
INDEX OF EXHIBITS............................................................................. E-1
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THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. ACTUAL EVENTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN
THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS. SEE ITEM 7,
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS' -- SAFE HARBOR STATEMENT."
PART I
ITEM 1. BUSINESS
GENERAL
TechForce Corporation ("TechForce" or the "Company") provides multi-vendor
network life cycle support services to corporate clients and manufacturers, and
customer PC support services to carriers, service providers, integrators and
manufacturers of personal computers and peripherals, networking on a selective
basis. The Company supports complex multi-vendor enterprise-wide networks, by
combining IBM internetworking, LAN/WAN internetworking, and PC support
capabilities. The Company's services range from consulting, network management,
integration, and maintenance for corporate clients and manufacturers, to custom
PC support services to retailers, service providers, integrators, and
manufacturers of personal computers and peripherals, and networking equipment on
a selective outsourcing basis. The Company also sells data networking equipment
as a part of its integrated support solutions, which serves as a base for
additional long-term support agreements. In 1997, the Company introduced
additional strategic offerings, complementary to its existing network management
offering. The offerings, now branded under the TechCare-SM- name, encompass
complete life cycle support solutions, including consulting, proactive network
management, integration (installation, staging, and project management), and
maintenance.
The Company provides enterprise networking, IBM internetworking, and custom
PC support services from its Customer Support Centers in Clearwater, Florida and
Atlanta, Georgia. For problems that cannot be resolved remotely, the Company
dispatches its own customer support representatives, as well as non-employee
contract personnel located in the United States, Canada, and the United Kingdom.
The Company manages its support service business to deliver high-quality, timely
and reliable service by centralizing service management and logistics functions
and deploying remote resources to meet end-user customer needs. Through its
logistics management and repair facility in Memphis, Tennessee, the Company
ships and repairs equipment for customers nationwide. TechForce also supports
customers in Canada from its facilities in Toronto and Quebec, and customers in
the European marketplace from its facility in the United Kingdom.
TechForce was organized in 1991 as a Georgia general partnership. In March
1994, all of the partnership's assets were contributed to, and all of its
liabilities were assumed by, the Company. In December 1995, the Company
completed a public offering of 3,100,000 shares of its Common Stock and the
Common Stock began trading on the Nasdaq National Market System.
MARKET OPPORTUNITY
The expansion of the traditional network boundaries of corporate America has
created tremendous support and logistics burdens. Communication in today's
business environment requires an elaborate collection of technologies and
services supplied by numerous vendors. Driven by significant technological
advances, continuous changes in customer requirements are creating numerous
market opportunities in the enterprise networking arena.
TechForce views its main market opportunities as (i) corporate end users --
enterprise networking customers and those integrating mainframe and open system
architectures -- that are outsourcing or outtasking multivendor network support
and management to third parties, such as systems/network
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integrators, and (ii) PC manufacturers, retailers, and extended warranty
providers requiring custom PC support services.
SELECTIVE OUTSOURCING OF ENTERPRISE NETWORK SUPPORT. According to an April
1997 report by International Data Corporation, network support contract spending
is estimated to grow to approximately $5.99 billion by the year 2001. As
networks become more complex and a greater level of expertise is needed to
optimize network performance and resolve problems, companies are finding a
greater need to outsource support. The IBM SNA networking environment continues
to be a sizable opportunity. Many customers who have invested in applications
built on SNA are looking to migrate these applications to client/server IP
networks, providing access to the mainframe from any workstation anywhere in the
world. International Data Corporation concluded in its April 1997 report that
end users are looking to resellers, VARs, and systems and network integrators to
not only provide products but also the services that enable the customer to use
and maintain the network.
CUSTOM PC SUPPORT SERVICES. Computer retailers are increasingly focusing on
the sale of in-home extended warranty agreements. Additionally, the expansion of
the corporate network into the small office/ home office (SOHO) arena is
creating opportunities for custom service providers to offer flexible support
solutions to meet customers' growing needs.
TECHFORCE'S STRATEGY
TechForce understands the need for companies to keep their networks
operating at peak performance; so as the market continues to expand, TechForce
is positioning itself to take advantage of these emerging opportunities.
LEVERAGE LAN/WAN INTERNETWORKING AND SNA IBM NETWORKING EXPERTISE. With its
diverse knowledge and expertise, TechForce has complemented its existing
portfolio of network management services with professional consulting services
for LAN/WAN and SNA network design and simulation. Now, under the brand name
TechCare-SM-, TechForce provides complete end-to-end services to support the
needs of customers at every point in the life cycle of their network. With
expertise in both mission-critical LAN/ WAN internetworking and SNA
environments, TechForce facilitates migration of SNA applications to
client/server IP networks. This niche expertise gives TechForce additional
opportunities to offer other life cycle support services and expand its customer
base. TechForce meets the needs of its customers by delivering end-to-end
network solutions -- services and products for LAN/WAN internetworking, IBM
internetworking, and custom PC support services. Through its distribution
channels of resellers, VARs, and systems/network integrators, TechForce provides
a complete portfolio of network support services. TechForce also offers
attractive leasing programs.
CUSTOM PC SUPPORT SERVICES. TechForce is continuing to establish service
partnerships with retailers, PC manufacturers, and extended warranty providers.
The Company's efforts to secure new business are supported by leveraging its
variable cost delivery infrastructure.
OTHER. In 1997, TechForce announced its decision to exit the Federal
Express (FedEx) repair business. FedEx, the Company's only depot repair
customer, introduced improved technology that resulted in significantly reduced
levels of repair activity required from TechForce. The remaining repair service
business was not deemed critical to the Company's core business strategy of
providing enterprise networking and workstation support services.
In April 1997, TechForce acquired SCANmanager, the network management
business unit previously a part of U.B. Networks, Inc. (Newbridge) to establish
an additional Customer Support Center in Atlanta, Georgia, strengthening its
ability to remotely monitor customer networks and to provide network management
backup capabilities.
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CERTAIN RISK FACTORS. Continued growth of the Company's customer base and
its services can be expected to continue to place a significant strain on its
administrative, operational, and financial resources. The Company's future
performance and profitability will depend in part on its ability to continue to
increase the number and productivity of its channels to market, to successfully
implement enhancements to its business management systems and to adapt those
systems as necessary to respond to changes in its business. Furthermore,
although the Company has experienced rapid growth in total revenues and has
previously been profitable, its limited operating history makes the prediction
of future operating results difficult. There can be no assurance that the
Company's revenue growth will continue in the future or that profitable
operating results can be sustained. These factors are not intended to represent
a complete list of all risks and uncertainties inherent in the Company's
business, and should be read in conjunction with the other cautionary statements
included elsewhere herein.
THE TECHFORCE SOLUTION
TechForce, with in-depth experience in both IBM internetworks and LAN/WAN
internetworks, is equipped to help organizations meet their networking and
information technology management challenges. TechForce's strategic focus on
enterprise networking has produced a broad portfolio of multivendor support
services which were branded in 1997 under the mark "TechCare-SM-." The brand
name enables the Company to market its package of services to become
increasingly recognizable in the industry. The Company provides its networking
services from its Customer Support Centers, in Clearwater, Florida, and Atlanta,
Georgia, to customers throughout the US, Canada, and the United Kingdom.
TechForce network life cycle support services include:
- TechCare-SM- Consulting
-- Network Design
-- Network Simulation
- TechCare-SM- Network Management
-- Fault Management
-- Configuration Management
-- Performance Management
- TechCare-SM- Integration
-- Project Management
-- Staging
-- Installation
- TechCare-SM- Maintenance
-- 7x24 Remote Diagnosis and Technical Support
-- Onsite Maintenance
-- Depot (Advanced Replacement)
On-site services are delivered by a network of authorized field support
providers which are strategically located across the US, Canada, and the United
Kingdom. This network of field support providers enables the Company to dispatch
customer support representatives with skills to match customers' support
requirements.
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The Company supports, markets, and sells a variety of new and used
networking technologies from a number of leading manufacturers including:
- Internetworking Technologies:
-- Routers
-- Hubs
-- Switches
-- Frame Relay Access Devices
- Network Access:
-- DSU's, CSU's, Modems, ISDN Terminal Adapters
-- Multiplexers, Inverse Multiplexers, Bandwidth Controllers
- Channel Networking Controllers
-- Pixnet-XL Channel Extenders
-- OEM Channel Extension Systems
-- Channel Interface Processors (CIP)
TechForce continues to form strategic support and resale relationships with
best-in-class manufacturers to provide the best available support and products
to its corporate customers. Some of these manufacturers include Cisco Systems,
Inc., Paradyne, Computerm Corporation, Ascend, Sync Research, Adtran, Micom,
TxPort, Premisys, Tellabs, Larscom, LanOptics, AT&T, Magnalink, and IBM. These
relationships provide TechForce access to the manufacturer's technical and
engineering resources thereby allowing the Company to better support its
customers.
Leveraging its Cisco Channel Interface Processor (CIP) certification and SNA
IBM expertise, TechForce continues to sell and support the Cisco's CIP. In 1997,
TechForce became a Cisco Gold Certified Support Partner in the United States.
These distinctions place TechForce in an elite class of support providers for
Cisco products. In 1997, TechForce acquired the SCANmanager business from U.B.
Networks, Inc. to provide the Company with complementary skills, a TechCare-SM-
Customer Support Center back-up site, and additional resources to provide
proactive network management services.
The Company leverages its centralized shipping to deliver equipment, parts,
or complete units almost anywhere in the US.
SERVICES
The Company provides a wide-variety of network life cycle support services
branded under the TechCare-SM- name, including consulting services (network
design and simulation), network management (fault, configuration, and
performance management), integration (project management, staging, and
installation), and maintenance (remote, on-site, and depot). The Company also
sells and leases equipment to its customers as part of its integrated services
solution. These services are further described below.
TECHCARE-SM- CONSULTING (NETWORK DESIGN & SIMULATION)
NETWORK DESIGN. TechForce works with corporate clients in designing
integrated networks comprised of multi-protocol routers, access devices such as
digital server units ("DSUs"), channel service units ("CSUs"), modems and
frame-relay access devices, multiplexers, switches and network hubs. Design
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services facilitate the Company's sale and ongoing support of networking
products and assist customers in implementing complex networks.
TECHCARE-SM- NETWORK SIMULATION. The Company simulates customers' existing
networks, by using sophisticated simulation tools to test the effects of adding
new sites to existing network infrastructure before buying equipment and
deploying personnel to implement the change. TechForce consultants can pinpoint
response time bottlenecks in the client, server, and network environment, as
well as predict the effects of application performance and response time for
end-users on the network.
TECHCARE-SM- NETWORK MANAGEMENT. Companies looking beyond the realm of
network maintenance to proactive network management are turning to third parties
like TechForce for expert, highly reliable, affordable network diagnostic,
monitoring and fault management services. By serving as a single point of
contact for customer's multivendor network, TechForce's team of network
engineers can help customers increase availability and improve performance.
FAULT MANAGEMENT. The Company offers proactive fault detection and problem
resolution. If a TechForce TechCare-SM- engineer detects an on-site hardware
failure, TechForce will dispatch its own field engineer, or will work on the
customer's behalf with their telecommunications or other service provider to
ensure that any problems are quickly resolved.
CONFIGURATION MANAGEMENT. TechForce's configuration management service
captures customer network configurations electronically, on a daily basis. This
service is performed by an experienced TechCare-SM- engineer using sophisticated
tools and customized network management platforms. The TechCare-SM- engineer
also proactively verifies the integrity of the configuration, and should a
discrepancy occur, creates a resolution process and archives the corrected
configurations. If the customer experiences downtime and a loss of their current
configuration, TechCare-SM- engineers will quickly download their most recent
configuration.
PERFORMANCE MANAGEMENT. TechForce's performance management service is
proactive protection through continual and proactive performance analysis of a
customer's network by TechForce's team of network engineers. TechForce engineers
baseline the customer's current network and deliver on-going analysis trends and
causes. By observing activity and reporting trends, TechForce's engineers are
able to resolve potential problems before they occur. TechForce also provides
customers with written recommendations for enhancing their current network
performance levels to keep it in top shape.
TECHCARE-SM- INTEGRATION (PROJECT MANAGEMENT, STAGING AND INSTALLATION).
PROJECT MANAGEMENT. TechForce's project management services are designed to
assist customers in the deployment of large complex networks across multiple
sites. A TechForce project manager serves as a single point of contact with the
customer and other vendors in all aspects of the project to ensure a successful
implementation.
STAGING. To ensure timely and complete on-site installation, TechForce
provides optional staging services to complement the installation process. The
Company assembles various hardware components, including chassis, network cards,
cables and software, representing multiple discrete products. Complete hardware
and software configurations are integrated and tested prior to repackaging and
shipment to the customer's location for installation.
INSTALLATION. The Company provides on-site installation for products it
sells and supports, ranging from a single stand-alone unit or DSU to complex
nationwide networks involving multiple products at each site. When customers
contract with TechForce for installation serves, a service technician will
travel to the customer's site to set up the customer's equipment. The on-site
technician also works in concert with a technician at TechForce's Customer
Support Center, who dials into customer's devices to assure end-to-end
connectivity.
TECHCARE-SM- MAINTENANCE. TechForce's TechCare-SM- multivendor maintenance
services deliver a complete range of options to meet customer's specific
requirements and budget constraints.
REMOTE, ON-LINE DIAGNOSTIC AND NETWORKING SUPPORT. The Company provides
remote telephone support for end-users of networking equipment and PCs who
require sophisticated and timely maintenance and support services. The Company
offers such support on a seven days a week, 24 hours a day ("7 x 24"), toll-free
basis from its Customer Support Centers in Clearwater, Florida and Atlanta,
Georgia.
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TechForce utilizes on-line problem resolution tools and emphasizes rapid service
restoration. The Company's ability to access its customers' systems from a
centralized location and resolve most problems while on-line reduces the
Company's costs and saves the customer the delay of an on-site visit. The
Company's technical support personnel use a variety of proprietary and
standards-based tools to troubleshoot and resolve customer problems on a remote
basis.
ON-SITE MAINTENANCE. TechForce supports a wide-variety of networking
products and PCs at customer locations nationwide. For customers requiring rapid
repair of critical networking hardware, the Company offers two-hour and
four-hour on-site service response time on a 7 x 24 basis. Certain complex,
mission-critical products such as routers, multiplexers and channel extenders
require this level of service. Next-day service is provided for cases in which
an outage will not severely impact the customer's operations. Certain networking
products such as modems used for remote diagnostics can also often be serviced
on a next-day basis.
NEXT DAY REPLACEMENT. The Company offers next day replacement with or
without an on-site field engineer as a more cost effective way to effect
equipment repairs. As part of the offering, TechForce provides 7 x 24 remote
telephone support and advanced parts shipped to arrive the next business day.
Customers can also contact on-site support. The Company's depot repair
capabilities, coupled with its centralized parts and logistics management,
allows it to offer end-users and manufacturers next-day replacement service
coupled with cost effective repair.
EQUIPMENT SALES AND LEASING. To facilitate the sale of networking support
agreements, the Company offers a variety of new and refurbished products to its
customers on a purchase, lease or short-term rental basis. This capability also
enables the Company to provide a total, integrated customer solution including
support and products and permits it to establish strategic reseller
relationships with product manufacturers that enhance the Company's overall
support capabilities. In addition, the Company's leasing capability often allows
it to establish a relationship with a customer that facilitates continued
support and equipment revenues over a longer term than a typical purchase
transaction.
PRODUCTS OFFERED
The Company sells a variety of products to provide a total integrated
network solution from the mainframe channel to the desktop. The Company's
proprietary channel extension technology, Pixnet-XL, allows mainframe users to
place peripherals, such as high-speed printers, check sorters and tape drives
that would normally be limited to distances within 400 feet of the mainframe,
virtually anywhere in the world. The Pixnet-XL channel extender accomplishes
this over a variety of communications facilities ranging from satellites to
standard telephone lines.
For mainframe SNA users migrating to multi-protocol, open-systems networks,
the Company features Cisco routers with a channel interface processor that
provides high-speed mainframe access for end-users. In addition to Cisco routers
and other internetworking products, the Company sells traditional data
communications products including multiplexers, inverse multiplexers and a
variety of network access devices including DSUs, CSUs, modems, frame relay
access devices and ISDN inverse multiplexers. The Company also offers
intelligent hubs and switches for local area networks.
The Company also sells refurbished products, particularly in the data
communications products area. Refurbished products coupled with integrated
services often provide attractive, low-cost solutions for end-users.
OPERATIONS
CUSTOMER SUPPORT CENTERS. The Company's Customer Support Centers, located
in Clearwater, Florida and Atlanta, Georgia, provide customers with toll-free
access to 7 x 24 technical support. The Company dispatches customer support
technicians and other on-site service providers from the Customer Support
Centers. The Centers, coupled with field network consultants, also provide the
traditional remote and on-
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site maintenance and installation services, staging services and a portfolio of
professional services including consulting, proactive network management,
project management, and customer education and training.
LOGISTICS MANAGEMENT AND REPAIR CENTER. TechForce provides logistics
management, manufacturing, component and sub-assembly system repair and advance
replacement/disaster recovery services for mission-critical equipment, including
networking products, computer devices and peripherals at its Logistics
Management and Repair Center in Memphis, Tennessee. Upon request, the Company
ships replacement parts to its customers as soon as a diagnosis by customer
support engineers or customer personnel determines a replacement part is
necessary.
CUSTOM PC SUPPORT SERVICES. The Company's PC support business delivers
high-quality, timely and reliable service by centralizing service management and
logistics functions and deploying remote resources to meet the needs of
manufacturers' and retailers' warranty and extended warranty repair needs.
Centrally located TechForce operators review trouble notices sent to the Company
from these vendors. TechForce's operators then contact the vendor's customer to
coordinate the two elements of the service call: parts and field service. Once a
service appointment has been scheduled, a pre-configured parts package specific
to the apparent problem is sent directly to the appropriate field technicians.
At the same time, the Company's dispatchers schedule a technician to make the
repairs. After making the repairs, the technican ships the defective parts and
any good parts not used back to the Company. Repairs are thus performed quickly,
and with minimal service interruption for the end-user. The Company centrally
manages PC parts inventories. Parts required for next-day service can be shipped
until approximately 11:00 p.m. Central Time.
Management believes these innovations enable TechForce to deliver
high-quality services while maintaining an efficient infrastructure. Field
technician services are often outsourced on a per call basis, minimizing the
risk of the build-up of fixed costs. Inventory levels are minimized and more
controllable at the central site. Overnight delivery and central dispatching
minimize technician downtime and confusion over the correct parts for a given
problem. The Company is therefore able to offer customers premium, cost
effective services at affordable prices.
CUSTOMERS
The Company has over 1,000 customers in the United States, Canada and the
United Kingdom. The Company's customers include corporate clients, PC retailers
and warranty service providers and networking equipment manufacturers,
telecommunications carriers and integrators. Corporate clients require
integrated support solutions and networking products and services for local area
networks, wide-area networks and channel extenders; workstation and networking
equipment manufacturers require rapid cost effective parts movement, remote
diagnostics and support, quick turnaround repair and replacement and on-site
field service; and telecommunications carriers and integrators require both
integrated and specialized support solutions. The Company's two largest
customers were Packard Bell, which accounted for approximately $17.5 million
(35.5% of total revenues) for 1995, $12.5 million (19.7% of total revenues) for
1996, and $10.8 million (16.6% of total revenues) for 1997; and FedEx, which
accounted for approximately $5.7 million (11.5% of total revenues) for 1995,
$6.9 million (10.9% of total revenues) for 1996, and $3.1 million (4.8% of total
revenues) for 1997.
STRATEGIC RELATIONSHIPS
The Company has formed relationships with a variety of companies, including
Packard Bell, Paradyne, Cisco, Choice Logistics and various third party field
service providers, that benefit the Company.
PACKARD BELL. Since 1992, the Company has provided to Packard Bell in-home
warranty maintenance, including technical support, on-site and depot repair and
on-site call management, for Packard Bell PC users. Service is dispatched
centrally from the Company's Technology Support Center and parts are shipped
from the Company's Logistics Management and Repair Center in Memphis, Tennessee.
The
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Company's contract with Packard Bell renews for an additional one-year period on
November 1, unless earlier terminated by either party upon a 90 day written
notice. Although there can be no assurance, management believes that the
agreement will be renewed. The Company typically receives payment from Packard
Bell approximately 60 days after the billing date. Management believes that
these payment practices will continue for the foreseeable future. In light of
the amount of the Company's total revenues that are attributable to Packard
Bell, failure to receive payment in accordance with past practice under the
Packard Bell contract could have a material adverse effect on the Company's cash
flow.
PARADYNE CORPORATION (FORMERLY AT&T PARADYNE). Since July 1, 1994,
TechForce has resold Paradyne Corporation access products, including DSUs,
modems and multiplexers, on an individual basis or as part of an integrated
network solution. TechForce also supports these products, although support is
outside the scope of its agreement with Paradyne. The agreement with Paradyne
Corporation expires on March 31, 1998 and automatically renews for successive
one year periods. Either party may terminate the agreement without cause on 60
days' prior written notice.
CISCO SYSTEMS, INC. In June 1995, the Company entered into a reseller
agreement with Cisco to resell and provide support for Cisco's entire line of
products throughout North America. TechForce features Cisco internetworking
products as part of its integrated network solution and supports Cisco's Channel
Interface Processor, which provides high-speed network access to the IBM and IBM
compatible mainframe channel. The current agreement expires on February 1, 1999
and it may be terminated by either party upon 30 days' prior written notice.
Although there can be no assurance, management believes that the agreement will
be renewed for a subsequent one your term.
FIELD SERVICE RELATIONSHIPS. Since January 1, 1995, the Company has
subcontracted a substantial portion of its field service for its channel
extension products to IBM, with IBM dispatching its employees to perform the
required field service. Since 1992 and prior to 1996 the Company had also
subcontracted a large portion of its Packard Bell field service to FedEx. Under
this contract, the Company referred its Packard Bell field service calls to
FedEx, with FedEx dispatching its employees to perform the required field
service. These relationships enabled the Company to meet demand fluctuations
while giving IBM and FedEx the opportunity to increase revenue from their
existing field service organizations. Early in the third quarter of 1995, the
Company implemented a program to establish a network of local authorized service
providers ("ASPs") with whom it contracted for PC field repair services. The
Company currently has contracts with approximately 100 ASPs to provide custom PC
field services. ASPs range in size from small businesses covering a limited
geographic area to larger regional companies covering several cities. In 1997,
the Company initiated a program to certify a number of ASPs to provide
enterprise networking support. Subsequently, the Company has eliminated its
reliance on FedEx for Packard Bell field calls and currently provides for all PC
repair field calls via its network of ASPs. The Company has also substantially
reduced its reliance on IBM for Enterprise calls.
CHOICE LOGISTICS (FORMERLY LOGISTECHS). The Company contracts with Choice
Logistics, which focuses on rapid local delivery and logistics support, to
provide repair parts warehousing and delivery services. This enables the Company
to meet its customers' mission-critical response requirements on a
cost-effective basis. The Company's contract renews for an additional one-year
period every December 31, unless earlier terminated by either party upon 90 days
written. Management believes that the agreement will be renewed.
SALES AND MARKETING
As of December 31, 1997 the Company's sales organization consisted of 51
direct sales and sales support personnel located in the United States, Canada
and the United Kingdom. The Company's sales force has an average of over 15
years of experience in the sale of networking products and support services. The
Company operates in four primary sales channels: (i) direct "end-user" sales,
which provide integrated support and equipment solutions to large corporate
accounts; (ii) sales to manufacturers and integrators that provide support
solutions; (iii) indirect sales, which provide channel networking and other
networking
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support equipment and equipment solutions to "end users"; and (iv) international
sales, which provide channel networking and other networking support and
equipment solutions to corporate clients and distributor partners. The Company
relies primarily on direct sales, but uses other channels, including, in
addition to those listed above, agents with particular customer or geographic
specialties and subcontractor relationships with systems integrators and prime
contractors.
COMPETITION
While many companies provide support services to users and manufacturers of
electronic data communication equipment, management believes no one company is
dominant. Management believes competition is based primarily on service quality,
reliability, responsiveness and convenience and to a lesser extent on price.
Management believes the Company competes with three types of service providers:
(i) equipment vendors and manufacturers; (ii) VARs and distributors with repair
capabilities; and (iii) third party service providers. Many of these
competitors, particularly vendors and manufacturers, have longer operating
histories; greater financial, technical, sales, marketing and other resources;
greater name recognition; more extensive distribution and sales networks; and a
larger, more established customer base than the Company.
EMPLOYEES
As of December 31, 1997, the Company had 361 employees, of whom 301 were
full-time employees, 42 were full-time contract employees and 18 were temporary
or part-time employees. The Company also uses a significant number of contract
personnel in its field service operations. None of the Company's employees is
represented by a labor union. The Company has not experienced any work stoppages
and considers its employee relations to be good.
ITEM 2. PROPERTIES
The Company conducts its operations in the United States principally out of
its facilities in Clearwater, Florida; Memphis, Tennessee; Atlanta, Georgia, and
Chicago, Illinois; and in Europe out of its facilities in Reading, England. The
Company occupies approximately 40,000 square feet at its Clearwater, Florida
facility, its administrative headquarters and home to the Company's technical
support services; approximately 52,000 square feet at its Memphis, Tennessee
facility, which includes approximately 18,000 square feet of office space and
approximately 34,000 square feet of warehouse space that houses the Company's
staging and logistics operations; approximately 4,245 square feet of office
space in its Chicago, Illinois facility which is used for sales and marketing
operations; and approximately 2,140 square feet of office space in its Atlanta,
Georgia facility which is used for network support operations. The Company's
facilities in the United Kingdom consist of approximately 7,000 square feet of
office and warehouse space that is used to support the Company's European
operations. The Company also maintains a number of smaller remote sales offices
in the United States and Canada. As of March 11, 1997, the Company executed a
lease for the new 40,000 square foot corporate office facility, which the
Company took occupancy of in February 1998. The Company anticipates that its
current facilities will adequately support its operations in the near future.
All of the Company's facilities are subject to leases with the following
expiration dates: Clearwater, Florida--January 31, 2003; Memphis,
Tennessee--August 1, 2000; Chicago, Illinois--June 30, 1998; Reading,
England--September 29, 1999; Atlanta, Georgia--May 31, 1998.
9
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company is involved in routine litigation and
proceedings in the ordinary course of its business. Management believes that
such litigation and proceedings would not, if decided adversely to the Company,
have a material adverse effect on the Company's financial condition or results
of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the Nasdaq National Market System
under the symbol "TFRC" The Company has never declared or paid any cash
dividends on its Common Stock. The Company anticipates that all of its earnings
will be retained for the operation and expansion of the Company's business and
does not anticipate paying any cash dividends in the foreseeable future. The
Company's credit facility contains certain restrictive covenants which, among
other things, require the Company to maintain certain financial ratios and
restricts the Company's ability to pay dividends. The chart below sets forth the
high and low stock prices for the last two fiscal years:
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
1996
First Quarter............................................................... 11.75 8.00
Second Quarter.............................................................. 13.25 5.75
Third Quarter............................................................... 8.00 4.00
Fourth Quarter.............................................................. 8.63 5.00
1997
First Quarter............................................................... 8.75 5.94
Second Quarter.............................................................. 7.88 5.25
Third Quarter............................................................... 11.25 7.25
Fourth Quarter.............................................................. 9.00 6.00
</TABLE>
At March 19, 1998, there were approximately 59 shareholders of record.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data is derived from the consolidated
financial statements of the Company. The data should be read in conjunction with
consolidated financial statements, related notes and other financial information
herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ---------
<CAPTION>
(IN THOUSANDS, EXCEPT SHARE DATA AND PERCENTAGES)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Services (Note1)............................... $ 37,168 $ 35,191 $ 35,466 $ 20,882 $ 8,899
Hardware....................................... 27,747 28,082 13,766 9,856 --
------------ ------------ ------------ ------------ ---------
Total revenues................................. 64,915 63,273 49,232 30,738 8,899
------------ ------------ ------------ ------------ ---------
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ---------
(IN THOUSANDS, EXCEPT SHARE DATA AND PERCENTAGES)
<S> <C> <C> <C> <C> <C>
Direct costs:
Services....................................... 25,946 23,250 24,391 16,559 5,604
Hardware....................................... 18,545 19,504 9,173 4,242 --
------------ ------------ ------------ ------------ ---------
Total direct costs............................. 44,491 42,754 33,564 20,801 5,604
------------ ------------ ------------ ------------ ---------
Gross margin:
Service........................................ 11,222 11,941 11,075 4,323 3,295
Hardware....................................... 9,202 8,578 4,593 5,614 --
------------ ------------ ------------ ------------ ---------
Total gross margin............................. 20,424 20,519 15,668 9,937 3,295
------------ ------------ ------------ ------------ ---------
Operating costs:
Selling and marketing.......................... 9,954 10,330 7,754 4,278 354
Research and development....................... 1,226 1,718 1,147 585 --
General and administrative..................... 5,079 4,490 3,379 2,843 917
Nonrecurring charges........................... -- 243 600 -- --
------------ ------------ ------------ ------------ ---------
Total operating costs.......................... 16,259 16,781 12,880 7,706 1,271
------------ ------------ ------------ ------------ ---------
Operating income............................... 4,165 3,738 2,788 2,231 2,024
Interest expense, net.......................... 41 103 1,106 834 11
Income before income taxes and minority
interest..................................... 4,124 3,635 1,682 1,397 2,013
------------ ------------ ------------ ------------ ---------
Income tax provision (benefit)................. 1,460 1,312 671 (259) --
Minority interest.............................. -- -- -- 66 --
------------ ------------ ------------ ------------ ---------
Net income..................................... $ 2,664 $ 2,323 $ 1,011 $ 1,590 $ 2,013
------------ ------------ ------------ ------------ ---------
------------ ------------ ------------ ------------ ---------
Pro forma net income (Note 2).................. $ -- $ -- $ -- $ 771 $ 1,020
Basic Earnings Per
Common Share................................... $ 0.33 $ 0.29 $ 0.18 -- --
------------ ------------ ------------ ------------ ---------
Diluted Earnings Per
Common Share................................. $ 0.32 $ 0.28 $ 0.16 -- --
------------ ------------ ------------ ------------ ---------
Weighted Average Number
of Common and
Common Equivalent
Shares Outstanding........................... 8,405,234 8,335,058 6,266,267 -- --
------------ ------------ ------------ ------------ ---------
Weighted Average Number
of Common Shares
Outstanding.................................. 8,067,646 7,931,554 5,790,033 -- --
------------ ------------ ------------ ------------ ---------
Proforma Basic and
Diluted Earnings
Per Common Share............................. $ -- $ -- $ -- $ 0.13 $ --
------------ ------------ ------------ ------------ ---------
Proforma Weighted Average
Number of Common Shares
Outstanding.................................. -- -- -- 5,913,609 --
------------ ------------ ------------ ------------ ---------
Proforma Weighted Average
Number of Common and
Common Equivalent Shares
Outstanding.................................. -- -- -- 5,913,609 --
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ---------
(IN THOUSANDS, EXCEPT SHARE DATA AND PERCENTAGES)
<S> <C> <C> <C> <C> <C>
OTHER DATA:
Gross margin %
Service........................................ 30.2% 33.9% 31.2% 20.7% 37.0%
Hardware....................................... 33.2% 30.5% 33.4% 57.0% 0.0%
Gross margin................................... 31.5% 32.4% 31.8% 32.3% 37.0%
BALANCE SHEET DATA:
Working Capital................................ $ 14,019 $ 14,746 $ 19,420 $ 3,666 $ 1.926
Total assets................................... $ 50,673 $ 46,483 $ 38,307 $ 25,017 $ 2,954
Long-term obligations.......................... $ 7,867 $ 6,180 $ 2,735 $ 9,231 $ --
Redeemable convertible
Preferred stock................................ -- -- -- 4,259,350 --
Partner's capital/shareholders' (deficit)
equity....................................... $ 31,494 $ 28,494 $ 26,107 ($ 802) $ 2,010
</TABLE>
- ------------------------
Note 1: Change from 1995 to 1996 included 28.6% decrease in PC Support Revenues
offset by 26.6% increase in Enterprise Support Revenues
Note 2:Pro forma net income reflects the C Corporation tax rate of 40% (versus
no provision for the general partnership). The tax provision for 1994
includes a non-recurring deferred income tax benefit of $788,000.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Established in 1991, the Company provides multi-vendor network life cycle
support services focusing on mission critical technologies such as LAN/WAN
internetworking, data networking, mainframe channel networking, IBM
internetworking and custom PC support services from its Customer Support Centers
in Clearwater, Florida and Atlanta, Georgia. The Company's services range from
consulting, network management, integration, and maintenance for corporate
clients, manufacturers and integrators, to custom PC support services to
retailers, service providers, integrators, and manufacturers of personal
computers and peripherals. The Company also sells and leases data networking
equipment as part of its integrated support solutions, which serves as a base
for additional long-term support agreements. For on-site repair and parts
replacement services, the Company dispatches its own customer support
representatives, as well as TechForce certified non-employee contract personnel
located in the United States, Canada, and the United Kingdom.
The Company generates revenues from services provided under maintenance
contracts with terms ranging from one to five years and through the sale and
lease of its channel extension hardware and various data network hardware
supplied by other manufacturers. Revenues from service and maintenance contracts
are recognized ratably over the contract period or on a per call basis, as is
the case under PC support agreements. Revenues from product sales are recognized
at the time of delivery. When appropriate, revenues from leasing are accounted
for as sales-type leases where the present value of all payments are recorded
currently as revenues and the related costs of the equipment less the present
value of any appropriate unguaranteed residual value are recorded as cost of
sales. The associated interest income is recognized over the term of the lease.
Revenues derived from sales-type leases in 1995, 1996 and 1997 were
approximately $0.2 million, $13.0 million and $7.4 million respectively. There
was no interest income on
12
<PAGE>
sales-type leases in 1995. Interest income on sales-type leases totaled $0.6
million and $0.7 million for 1996 and 1997, respectively.
The Company's total revenues have grown from $1.8 million in 1991 to $64.9
million in 1997. The Company completed the initial public offering of 3,100,000
shares of its common stock, including 880,000 shares sold by selling
shareholders, in December 1995. The Company has expanded from providing
specialized services to providing a combination of maintenance and repair
services and increasingly sophisticated networking and other value-added service
offerings. Services provided to manufacturers such as Packard Bell and end-users
such as FedEx have constituted an important part of the Company's overall
support solution and have helped provide the Company with the infrastructure
necessary to offer increasingly complex, value-added networking services,
including remote network management, to end-users while continuing to provide
customized support to manufacturers and integrators. However, in 1997 TechForce
exited its FedEx repair service due to the gradual reduction in that business to
the point where it was no longer critical to TechForce's operations and business
in general.
During 1997, the Company entered into contracts with certain national retail
PC sales companies who also sell extended PC warranties. Under these contracts,
the Company provides PC repair services similar to that historically provided to
Packard Bell. In certain cases, the Company also procures parts to meet
individual service call requirements and charges the Company's customer for
those parts. This marketplace is dominated by a relatively small number of large
retailers who sell PCs and extended warranties on PCs. Although there can be no
assurance of growth in revenues from this segment, the Company anticipates
growth in call volume from signed customers as well as increases in the number
of warranty customers. Accounts Receivable from this customer base may average
slightly higher day's sales outstanding than the overall Company average due to
the claims processing cycle of certain of these customers.
Revenues from FedEx decreased during 1997 due to lower repair volumes
resulting from the introduction of upgraded technology by FedEx which
experienced a lower failure rate than the replaced technology. The Company had
previously experienced above-average margins from the repair of the units which
FedEx replaced. Consequently, margins from the remaining repair business from
FedEx decreased significantly as a result of the lower volume of higher margin
repair services. During the latter part of 1997, the Company discontinued its
repair business for FedEx. Revenues and operating income from this repair
business for 1997 were $1.6 million and $0.3 million, respectively as compared
to revenues and operating income for 1996 of $4.9 million and $2.4 million,
respectively. The discontinuation of this business, however, has had no adverse
impact on the Company's use of FedEx's package shipping services for which the
Company relies to ship parts to its field service personnel and customers.
The Company's cost structure consists of direct costs, which include cost of
services and cost of hardware, and operating costs, which include selling and
marketing, research and development and general and administrative expenses.
Cost of service includes all program costs associated with service delivery as
well as depreciation on spares inventories held for customer repair
requirements, while cost of hardware consists of amounts paid by the Company for
the hardware products it sells and related costs. The Company's general and
administrative expenses consist primarily of corporate overhead, including
salary expense of administrative personnel, office rental expense and legal and
accounting fees.
The Company operates in two geographic areas--North America and Europe.
Revenues from North American operations were $47.1 million, $61.6 million and
$60.6 million for 1995, 1996, and 1997, respectively while revenues from
European operations were $2.1 million, $1.7 million and $4.3 million for the
respective periods. Management has no immediate plans regarding further
expansion into foreign markets. (See Note 7 of Notes to Consolidated Financial
Statements.)
Management anticipates that revenues from channel extension products and
services will gradually decrease over the next several years at a rate of
approximately 10% to 20% per year primarily as a result of a steady trend toward
open-systems environments. Management does not believe that this gradual decline
in revenues will have a material adverse effect on the Company's results of
operations and financial
13
<PAGE>
condition. Revenues attributable to Packard Bell grew from $1.9 million in 1992
to $17.5 million in 1995 and then declined to $12.5 million in 1996 and $10.8
million in 1997 representing a 38.3% decrease from 1995 to 1997. Revenues from
Packard Bell represented 9.4% of total Company revenues for the three months
ended December 31, 1997 as compared to 16.6% for the full year 1997 and 19.8%
for the full year 1996. Call volumes decreased during 1997 as a result of
changes made by Packard Bell in its end user product warranty. The call volume
level for the three months ended December 31, 1997 may not be indicative of
future call volumes. The market for the Company's services continues to be
extremely competitive. Furthermore, the Company's reliance on authorized service
providers ("ASPs") could have a material adverse effect on the Company's
competitive position, and as a result, on its results of operations and
financial condition, if such ASPs were unable to fulfill their field service
obligations in a timely or satisfactory manner.
Continued growth of the Company's customer base and its services can be
expected to continue to place a significant strain on its administrative,
operational and financial resources. The Company's future performance and
profitability will depend in part on its ability to successfully implement
enhancements to its business management systems and to adapt those systems as
necessary to respond to changes in its business. Furthermore, although the
Company has experienced rapid growth in total revenues and has been profitable,
its limited operating history makes the prediction of future operating results
difficult. There can be no assurance that the Company's revenue growth will
continue in the future or that recent operating results can be sustained.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS 131). SFAS 131 requires that a public
business enterprise report financial and descriptive information about its
reportable operating segments and related information. SFAS 131 is effective for
financial statements relating to periods beginning after December 15, 1997. The
effects of SFAS 131 on the Company have not been considered at this time.
In February 1998, the Financial Accounting Standards Board issued Financial
Accounting Standards No. 132, "Employers Disclosures about Pensions and Other
Postretirement Benefits" (SFAS 132) which standardizes the disclosure
requirements for defined contribution plans and defined benefit plans. The
statement is effective for financial statements relating to periods beginning
after December 15, 1997. Management has determined that the adoption of SFAS 132
will not have a material effect on the accompanying consolidated financial
statements.
Other issued but not yet required FASB standards are not currently
applicable or material to the Company's operations.
RESULTS OF OPERATIONS
For the periods indicated, the following table sets forth the percentage of
total revenues represented by certain items in the Company's consolidated
statements of operations:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1995 1996 1997
--------- --------- ---------
Revenues:
Services............................................................................... 72.0% 55.6% 57.3%
Hardware............................................................................... 28.0 44.4 42.7
--------- --------- ---------
Total revenues....................................................................... 100.0 100.0 100.0
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Direct costs:
Services............................................................................... 49.6 36.7 39.9
Hardware............................................................................... 18.6 30.8 28.6
--------- --------- ---------
Total direct costs................................................................... 68.2 67.6 68.5
--------- --------- ---------
Gross margin............................................................................. 31.8 32.4 31.5
--------- --------- ---------
Operating costs:
Selling and marketing.................................................................. 15.7 16.3 15.3
Research and development............................................................... 2.3 2.7 1.9
General and administrative............................................................. 6.9 7.1 7.8
Nonrecurring charges................................................................... 1.2 .4 0.0
--------- --------- ---------
Total operating costs................................................................ 26.1 26.5 25.0
--------- --------- ---------
Operating income......................................................................... 5.7 5.9 6.4
Interest expense, net.................................................................... 2.2 .2 0.0
--------- --------- ---------
Income before income taxes............................................................... 3.5 5.7 6.4
Income tax provision (benefit)........................................................... 1.4 2.1 2.2
Net income............................................................................... 2.1% 3.7% 4.1
--------- --------- ---------
--------- --------- ---------
</TABLE>
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996.
TOTAL REVENUES. Total revenues increased 2.6% from $63.3 million for 1996
to $64.9 million for 1997.
SERVICE REVENUES. Revenues from services increased 5.6% from $35.2 million
(55.6% of total revenues) for 1996 to $37.2 million (57.3% of total revenues)
for 1997. This increase was attributable to increases in revenues from
internetworking services of 160.3% and increases in PC support revenues of 16.1%
partially offset by decreases in revenues from channel networking support of
15.7% and decreases in revenues from FedEx of 54.9%. Revenues from FedEx
decreased during 1997 due to lower repair volumes resulting from the
introduction of upgraded technology by FedEx which experienced a lower failure
rate than the replaced technology. During the latter part of 1997, the Company
exited its repair business for FedEx. Revenue growth from new retail extended
warranty PC support customers more than offset a 13.6% decrease in revenues from
Packard Bell, previously the Company's only PC support customer.
HARDWARE REVENUES. Revenues from hardware products decreased 1.2% from
$28.1 million (44.4% of total revenues) for 1996 to $27.7 million (42.7% of
total revenues) for 1997 due to a decrease in revenues from channel extension
product sales.
COST OF SERVICE. Cost of service increased 11.6% from $23.3 million (66.1%
of service revenues) for 1996 to $25.9 million (69.8% of service revenues) for
1997. This increase was primarily caused by increases in enterprise service
support costs related to 160.3% growth in internetworking services revenues. The
overall cost of service increase was also unfavorably affected by service costs
related to the addition of new PC support customers.
COST OF HARDWARE. Cost of hardware decreased 4.9% from $19.5 million (69.5%
of hardware revenues) for 1996 to $18.5 million (66.8% of hardware revenues) for
1997. This decrease resulted from lower costs associated with sales of used
equipment which yielded higher than average hardware margins.
GROSS MARGIN. Overall gross margin decreased 0.5% from $20.5 million (32.4%
of total revenues) for 1996 to $20.4 million ( 31.5% of total revenues) for
1997. Gross margin on services decreased 6.0% from
15
<PAGE>
$11.9 million in 1996 to $11.2 million in 1997. This change was affected by
increases in enterprise service support costs related to growth in
internetworking services revenues. The Company did not realize corresponding
cost savings related to decreases in channel networking revenues. The overall
cost of service increase was also unfavorably affected by service costs related
to the addition of new PC support customers. Service gross margins were further
affected by the reduction in and ultimate discontinuation of FedEx repair
business volumes during the third quarter of 1997. The Company had previously
experienced above-average margins from the repair of the units which FedEx
replaced. Gross margin on hardware revenues increased 6.8% from $8.6 million in
1996 to $9.2 million in 1997. This change resulted from lower than average costs
associated with the sales of used equipment which yielded higher margins on both
channel extension product and the resale of other manufacturers' equipment.
Service margins as a percentage of service revenues decreased from 33.9% in 1996
to 30.2% in 1997 primarily due to factors affecting service cost increases
discussed above. Hardware margins as a percentage of hardware revenues increased
from 30.5% for 1996 to 33.2% for 1997 due to lower costs of resale hardware.
SELLING AND MARKETING EXPENSES. Selling and marketing expenses decreased
3.6% from $10.3 million (16.3% of total revenues) for 1996 to $10.0 million
(15.3% of total revenues) for 1997 resulting, in part, from changes made by the
Company to its sales compensation plan for 1997.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
decreased 28.6% from $1.7 million (2.7% of total revenues) for 1996 to $1.2
million (1.9% of total revenues) for 1997. This decrease was primarily due to
elimination of the Vice President of Engineering function together with a
reduction in network management service offering development expenses after the
implementation of network management services in early 1997.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 13.1% from $4.5 million (7.1% of total revenues) for 1996 to $5.1
million ( 7.8% of total revenues) for 1997. This increase included increased
business systems development and support expenses due to the Company's expanded
internal systems requirements.
NON RECURRING CHARGES. The Company incurred non recurring charges of $0.2
million in 1996 related to a second quarter restructuring of its work force in
response to reductions in business volumes, revenues and operating income
related to its disagreement with Packard Bell over payment of accounts
receivable. The disagreement was subsequently resolved. The Company incurred no
non recurring charges in 1997.
OPERATING INCOME. Operating income increased 11.4% from $3.7 million (5.9%
of total revenues) for 1996 to $4.1 million (6.4% of total revenues) for 1997 as
a result of the factors listed above.
INTEREST EXPENSE, NET. Net interest expense decreased 60.2% from $103,000
(0.2% of total revenues) for 1996 to $41,000 (0.1% of total revenues) for 1997.
The final monthly payment on the Company's note payable to Paradyne is due May
24, 1998.
INCOME TAXES. Income tax expense increased 15.4% from $1.3 million (2.1% of
total revenues) in 1996 to $1.5 million (2.2% of total revenues) in 1997. The
Company's effective income tax rate was 36.1% for 1996 and 35.4% for 1997.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995.
TOTAL REVENUES. Total revenues increased 28.7% from $49.2 million for 1995
to $63.3 million for 1996. Substantially increased hardware revenues represented
all of the increase. Increased enterprise support revenues were offset by
decreased revenues from PC support resulting in no overall increase in service
revenues.
16
<PAGE>
SERVICE REVENUES. Revenues from services decreased 0.8% from $35.5 million
(72.2% of total revenues) in 1995 to $35.2 million (55.6% total revenues) in
1996. This decrease was caused by a significant decrease in PC support revenues
related to the Company's second quarter Packard Bell issues. This decrease was
substantially offset by equally significant increases in enterprise support
revenues. PC support revenues decreased by 28.6% from $17.5 million for 1995 to
$12.5 million for 1996.
HARDWARE REVENUES. Revenues from hardware products increased 103.6% from
$13.8 million (28.0% of total revenues) in 1995 to $28.1 million (44.4% of total
revenues) in 1996. The increase in hardware revenues was attributable primarily
to the increased resale of other manufacturers' hardware and included revenues
from the Company's hardware leasing activities.
COST OF SERVICE. Cost of service decreased 4.5% from $24.4 million (68.7%
of service revenues) for 1995 to $23.3 million (66.2% of service revenues) for
1996. The decrease was caused by decreased PC support business volumes offset by
an increased volume of enterprise service business.
COST OF HARDWARE. Cost of hardware increased 112.0% from $9.2 million
(66.7% of hardware revenue) in 1995 to $19.5 million (69.4% of hardware revenue)
in 1996 primarily due to the increased volume of hardware revenues.
GROSS MARGIN. Overall gross margin increased 30.6% from $15.7 million for
1995 to $20.5 million for 1996, and increased as a percent of revenues from
31.8% in 1995 to 32.4% in 1996. Gross margin for services increased 7.2% from
$11.1 million in 1995 to $11.9 million in 1996. This increase was caused by
increased higher margin enterprise service revenues offset by reduced lower
margin PC support revenues. Gross margin for hardware increased 86.7% from $4.6
million for 1995 to $8.6 million for 1996 primarily due to increased hardware
volumes. Hardware gross margin as a percent of hardware revenue decreased
slightly due to the increased mix of revenues from the resale of other
manufacturers' hardware.
SELLING AND MARKETING EXPENSES. Selling and marketing expenses increased
32.1% from $7.8 million (15.7% of total revenues in 1995) to $10.3 million
(16.3% of total revenues in 1996). The increase in selling costs was primarily
due to increased selling activity in both enterprise support service contracts
and hardware.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased 54.5% from $1.1 million (2.3% of total revenues) in 1995 to $1.7
million (2.7% of total revenues) in 1996 as a result of expanded service and
systems development activities.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 32.4% from $3.4 million (6.9% of total revenues) in 1995 to $4.5
million (7.1% of total revenues) in 1996. This increase was due to an increased
volume of business and increases in staff and related expenses associated with
the continuing development and expansion of the Company's business support
infrastructure programs to handle the growing volume of business.
NON-RECURRING CHARGES. The Company incurred non-recurring charges of $0.2
million in 1996 related to a second quarter restructuring of its work force in
response to reductions in business volumes, revenues and operating income
related to its disagreement with Packard Bell over payment of accounts
receivable. The disagreement was subsequently resolved. The Company incurred non
recurring charges of $0.6 million in 1995 related to the Company's move of its
headquarters from Atlanta, Georgia to Clearwater, Florida.
OPERATING INCOME. Operating income increased 32.1% from $2.8 million (5.7%
of total revenues) in 1995 to $3.7 million (5.9% of total revenues) in 1996 as a
result of the factors listed above.
INTEREST EXPENSE, NET. Interest expense decreased 90.6% from $1.1 million
(2.2% of total revenues) in 1995 to $103,000 (0.2% of total revenues) in 1996.
This decrease in net interest expense resulted from
17
<PAGE>
decreased interest bearing long-term borrowings, decreases in the Company's
average working capital loan balance and increased interest income on invested
funds.
INCOME TAXES. Income tax expense increased 93.7% from $671,000 (1.4% of
total revenues) in 1995 to $1.3 million (2.1% of total revenues) in 1996. The
Company's effective income tax rate was 39.9% for 1995 and 36.1% for 1996.
QUARTERLY RESULTS
The following table presents certain unaudited quarterly financial
information for each of the eight preceding quarters through December 31, 1997.
In the opinion of management, this information has been prepared on the same
basis as the audited financial statements appearing elsewhere herein and all
necessary adjustments (consisting only of normal recurring adjustments) have
been included in the amounts stated below to present fairly the unaudited
quarterly results when read in conjunction with the audited financial statements
of the Company and notes thereto. The Company's quarterly results have in the
past been subject to fluctuations, and thus the operating results for any
quarter are not necessarily indicative of results for any future periods. All
amounts shown (except per share amounts) are expressed in thousands.
SUMMARY OF QUARTERLY RESULTS
(UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
1996 1996 1996 1996 1997 1997 1997 1997
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net Sales............................ $ 17,227 $ 13,341 $ 14,892 $ 17,813 $ 17,661 $ 15,144 $ 14,419 $ 17,691
Gross Margin......................... 5,184 3,531 5,087 6,717 5,311 5,466 4,388 5,259
Operating Income..................... 1,398 (796) 1,417 1,719 1,550 1,481 504 630
Net Income (loss).................... 907 (508) 864 1,060 960 933 332 439
Basic Earnings (loss) Per Common
Share.............................. $ 0.12 $ (0.06) $ 0.11 $ 0.13 $ 0.12 $ 0.12 $ 0.04 $ 0.05
Diluted Earnings (loss) Per Common
Share.............................. $ 0.11 $ (0.06) $ 0.10 $ 0.13 $ 0.12 $ 0.11 $ 0.04 $ 0.05
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities provided cash of $2.7 million, $6.3
million and $7.7 million in 1995, 1996 and 1997, respectively. Cash provided by
the Company's operating activities in 1995 was primarily generated from earnings
before depreciation. The Company generated cash from operating activities in
1996 primarily as a result of earnings before depreciation and increases in
deferred income taxes, current liabilities and deferred revenue offset by
increases in accounts receivable and inventory. The Company generated cash from
operating activities in 1997 primarily as a result of earnings before
depreciation and increases in deferred income taxes and decreases in inventory
offset by increases in prepaid expenses and other current assets and decreases
in deferred revenue.
The Company's investing activities used cash of $14.8 million, $6.7 million
and $13.4 million in 1995, 1996 and 1997, respectively. Cash used in the
Company's investing activities for 1995 related to the purchase of property,
plant and equipment and the investment in marketable securities by the Company
of a portion of the proceeds from its initial public offering. Cash used in the
Company's investing activities for 1996 related to the purchase of property,
plant and equipment and investment in capitalized leases related to hardware
leased to customers offset by proceeds from the liquidation of investments. Cash
used in the Company's investing activities for 1997 related to the purchase of
property, plant and equipment and
18
<PAGE>
investment in capitalized leases related to hardware leased to customers. (See
Note 1 of Notes to Consolidated Financial Statements.)
Financing activities provided cash of $12.2 million, $3.8 million and $2.5
million in 1995,1996 and 1997, respectively. The Company's financing activities
generated cash in 1995 as a result of its initial public offering with net
proceeds of $21.6 million. These activities were offset by repayment of the
Company's Subordinated Notes and net repayments of borrowings under its credit
facility. Cash generated from the Company's financing activity in 1996 and 1997
resulted from the Company's lease discounting activity which included the
issuance of certain non-recourse notes payable to banks. Per Statement of
Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishment of Liabilities", such non-recourse debt,
when related to sold financial assets (the related lease revenues receivable)
must be reported as debt and amortized together with the related lease
receivable rather than deducted from the related lease receivable balance at the
time of the discounting transaction. First Union National Bank, in the
calculation of the Company's debt to earnings covenants does not consider such
non-recourse notes in the determination of the Company's debt.
The Company's cash requirements have been financed with cash flow from
operations and borrowings under its revolving credit facility with First Union
National Bank of Florida (the "Bank") since October 1996. Prior to October 1996,
the Company's credit facility was with SouthTrust Bank of Georgia, N.A. The
credit facility with the Bank provides for borrowings of up to $15.0 million
based on the value and aging of the Company's eligible accounts receivable and
eligible leases. Borrowings under the line of credit bear interest at the Bank's
quoted variable base rate, which has ranged from 6.88% to 7.47% and was 7.22% as
of December 31, 1997. As of December 31, 1997, the Company had no outstanding
balance under the line of credit and approximately $9.1 million was available
for borrowing thereunder based upon the Company's qualifying accounts receivable
balance. The Company intends to use its borrowing capacity under the line of
credit on a limited basis primarily for working capital requirements. The credit
facility expires in September, 1998. Although there can be no assurances that
the Bank will do so, the Company believes that the Bank will agree to renew the
facility.
Prior to March 1994, the Company was organized as a Georgia general
partnership. In March 1994, all of the assets of the partnership were
contributed to, and all of its liabilities were assumed by, the Company. In
connection with this transaction, the partners of the general partnership,
including certain officers and directors of the Company, received, in exchange
for their interests in such partnership, an aggregate of 2,679,268 shares of
Common Stock of the Company and the common stock dividend. In addition, the
Company issued 4,225,000 shares of Convertible Redeemable Preferred Stock for an
aggregate purchase price of $4.2 million and $5.0 million in principal amount of
Subordinated Notes. The Subordinated Notes were redeemed with a portion of the
net proceeds of the Company's initial public offering completed in December,
1995.
Simultaneously with the issuance of the Common Stock, Convertible Redeemable
Preferred Stock and Subordinated Notes in March 1994, the Company purchased
inventory, replacement parts and engineering and technical support equipment in
connection with a private placement financing from AT&T Paradyne (subsequently
sold by AT&T and now known as Paradyne Corporation, "Paradyne") that formed the
basis for the Company's channel extension product line. The aggregate purchase
price for these assets was $11.0 million, constituting a cash payment of $3.1
million, a note payable to Paradyne (the "Paradyne Note") in the principal
amount of $6.6 million and the assumption of liabilities of approximately $1.3
million. The Paradyne Note bears interest at a rate of 8% and is payable in
equal monthly installments over a 48-month period. The monthly payments made by
the Company on the Paradyne Note are approximately $151,000. (See Note 5 of
Notes to Consolidated Financial Statements.)
In March 1994, the Company provided start-up financing in the form of equity
in an aggregate amount of approximately $59,000 for TechNet, a hardware
integrator. TechNet was founded to sell channel extension hardware and
maintenance contracts on behalf of the Company and to resell third party
19
<PAGE>
manufacturers' hardware. Upon the incorporation of TechNet in September 1994,
the Company received a 51% ownership interest in that company. In November 1994,
the Company acquired the remaining 49% of TechNet in exchange for 134,783 shares
of Common Stock valued at approximately $101,000, bringing the Company's total
investment in TechNet to approximately $160,000. TechNet merged with and into
the Company immediately following this transaction.
In November 1994, the Company issued 34,350 shares of Convertible Redeemable
Preferred Stock for an aggregate purchase price of approximately $34,000 and a
Subordinated Note in the principal amount of approximately $41,000 to one of its
directors. The Subordinated Note was redeemed with proceeds from the Company's
initial public offering.
As of December 31, 1997, the Company's investment in capital leases included
$8.2 million of leases which had been discounted via non-recourse notes payable
to banks. Additionally, investment in capital leases included $6.0 million of
undiscounted leases, a substantial portion of which management anticipates
discounting in 1998. The Company intends to discount leases to banks and expects
to reduce its working capital committed to this activity. From time to time this
leasing activity places demands on the company's working capital based on the
timing and availability of discounting activities with financial institutions.
Management believes that its cash balances together with cash from
operations and borrowings available under its revolving credit facility will be
sufficient to finance its working capital needs and capital expenditure
requirements for at least the next 12 months. Although no assurance can be
given, management believes that cash from operations together with available
sources of financing, including additional bank debt, will be sufficient to fund
the Company's capital requirements for the foreseeable future beyond such 12
month period. The Company does not currently have any material commitments for
capital expenditures.
Many companies use existing computer programs which identify a particular
year using only two digits. These programs were not developed to consider the
impact of the upcoming change in the century. Many computer software
applications could therefore fail or create erroneous results at or beyond the
year 2000 if not corrected or replaced by software applications designed to
properly recognize and process dates during and beyond the year 2000 ("Year 2000
compliant software"). During 1997, the Company upgraded its financial and
business communications systems with Year 2000 compliant software. Furthermore,
beginning in 1998, the Company plans to replace or upgrade certain other systems
to meet its evolving business requirements. The replacement or upgraded systems
will be evaluated or developed to ensure Year 2000 compliance. The expected
costs for 1998 systems work are included within the Company's capital budget for
1998. Furthermore, the Company has initiated a project to test remaining
internal systems and critical external interfaces in 1998 in order to identify
areas where the Year 2000 issue might materially impact the Company's business.
During 1998, management expects to identify any remaining concerns related to
Year 2000 readiness and initiate required actions to ensure Year 2000 readiness.
The Company believes that it will be Year 2000 ready with no material impact on
the Company's business and that the costs of any corrective action will not
materially affect the Company's operating results or financial condition.
SAFE HARBOR STATEMENT
The following "Safe Harbor Statement" is made pursuant to the Private
Securities Litigation Reform Act of 1995. Certain of the statement contained in
the body of this Report are forward-looking statements (rather than historical
facts) that are subject to risks and uncertainties that could cause actual
results to differ materially from those described in the forward-looking
statements. With respect to such forward-looking statements, the company seeks
the protections afforded by the Private Securities Litigation Reform Act of
1995. These risks include, without limitation, (1) that the Company will not
retain or grow its customer base, (2) that the Company will fail to be
competitive with existing and new competitors, (3) that the Company will not be
able to sustain its current growth, (4) that the Company will not
20
<PAGE>
adequately respond to technological developments impacting the computer
industry, and (5) that needed financing will not be available to the Company if
and as needed. This list is intended to identify certain of the principal factor
that could cause actual results to differ materially from those described in the
forward-looking statements included elsewhere herein. These factors are not
intended to represent a complete list of all risks and uncertainties inherent in
the Company's business, and should be read in conjunction with the more detailed
cautionary statements included elsewhere herein.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item appears in a subsequent section of
this Report (See Items 14 (a) (1) and (2)).
ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information relating to management's nominees for director of the Company
will be set forth under the captions "Proposal 1--Election of
Directors--Nominees" and "Proposal 1--Election of Directors-- Information
Regarding Nominees for Director" in the Company's Proxy Statement for its Annual
Meeting of Shareholders to be held on May 20, 1998. Information relating to the
executive officers of the Company will be set forth under the caption "Executive
Officers" in the above-referenced Proxy Statement. Such information is
incorporated herein by reference. Information regarding compliance by directors
and executive officers of the Company and owners of more than ten percent of the
Company's Common Stock with the reporting requirements of Section 16(a) of the
Securities Exchange Act of 1934, as amended, is set forth under the caption
"Compliance with Section 16(a) of the Securities Exchange Act of 1934" in the
above-referenced Proxy Statement. Such information is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
Information relating to management compensation is set forth under the
captions "Proposal 1-- Election of Directors--Director Compensation" and
"Executive Compensation" in the Company's Proxy Statement referred to in Item 10
above. Such information is incorporated herein by reference, except for the
information set forth under the captions "Executive Compensation--Audit and
Compensation Committee Report on Executive Compensation" and "Stock Performance
Graph," which specifically is not so incorporated by reference.
21
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding ownership of the Company's $0.01 par value Common
Stock by certain persons is set forth under the captions "Voting--Principal
Shareholders" and "Proposal 1--Election of Directors-- Information Regarding
Nominees for Director" in the Company's Proxy statement referred to in Item 10
above. Such information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and transactions between the
Company and certain of its affiliates is set forth under the captions "Proposal
1--Election of Directors--Director Compensation" and "Certain Relationships and
Certain Transactions" in the Company's Proxy Statement referred to in Item 10
above. Such information is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of this Report.
1. CONSOLIDATED FINANCIAL STATEMENTS
The following consolidated financial statements of the Company and the
related reports of the Company's independent public accountants thereon are set
forth immediately following the Index of Financial Statements which appears on
page F-1 of this Report:
Report of Independent Public Accountants--Arthur Andersen LLP
Report of Independent Public Accountants--Pridie Brewster
Consolidated Balance Sheets at December 31, 1996 and 1997
Consolidated Statements of Income for each of the three years in the period
ended December 31, 1997
Consolidated Statements of Stockholders' Equity for each of the three years
in the period ended December 31, 1997
Consolidated Statements of Cash Flows for each of the three years in the
period ended December 31, 1997
Notes to Consolidated Financial Statements
2. FINANCIAL STATEMENT SCHEDULE
Schedule II--Valuation and Qualifying Accounts
3. EXHIBITS
<TABLE>
<C> <C> <S>
3.1 -- Amended and Restated Articles of Incorporation (Exhibit 3.1 to the Company's
Registration Statement on Form S-1, No. 33-98716).
3.2 -- Articles of Amendment to Amended and Restated Articles of Incorporation (Exhibit
3.2 to the Company's Registration Statement on Form S-1, No. 33-98716).
3.3 -- Form of Second Amended and Restated Articles of Incorporation (Exhibit 3.3 to
the Company's Registration Statement on Form S-1, No. 33-98716).
</TABLE>
22
<PAGE>
<TABLE>
<C> <C> <S>
3.4 -- Bylaws of the Company (Exhibit 3.4 to the Company's Registration Statement on
Form S-1, No. 33-98716).
3.5 -- Amendment to Bylaws of the Company (Exhibit 3.5 to the Company's Registration
Statement on Form S-1, No. 33-98716).
4.1 -- Specimen Common Stock Certificate (Exhibit 4.1 to the Company's Registration
Statement on Form S-1, No. 33-98716).
4.2 -- See Exhibits 3.1 through 3.5 for the provisions of the Company's Amended and
Restated Articles of Incorporation and Bylaws governing the rights of holders of
securities of the Company.
10.1 -- Equipment Service Agreement dated November 1, 1994, between the Company and
FedEx Corporation (Exhibit 10.1 to the Company's Registration Statement on Form
S-1, No. 33-98716).
10.2 -- Equipment Service Agreement dated March 13, 1995 between the Company and Packard
Bell, Inc. (Exhibit 10.2 to the Company's Registration Statement on Form S-1,
No. 33-98716).
10.3 -- General Services Agreement dated June 19, 1992 between the Company and Federal
Express Corporation (Exhibit 10.5 to the Company's Registration Statement on
Form S-1, No. 33-98716).
10.4 -- Change Order Extending General Services Agreement dated August 1, 1994 between
the Company and Federal Express Corporation (Exhibit 10.6 to the Company's
Registration Statement on Form S-1, No. 33-98716).
10.5 -- Systems Integrator Agreement dated June 1, 1995 between the Company and Cisco
Systems Inc. (Exhibit 10.7 to the Company's Registration Statement on Form S-1,
No. 33-98716).
10.6 -- Non-Competition and Right-of-First-Refusal Agreement dated March 25, 1994
between the Company and AT &T Paradyne Corporation (Exhibit 10.17 to the
Company's Registration Statement on Form S-1, No. 33-98716).
10.7 -- Contracted Service Agreement for Field Service between the Company and IBM dated
February 23, 1995 (Exhibit 10.19 to the Company's Registration Statement on Form
S-1, No. 33-98716).
10.8 -- Global Roam Rental Agreement dated July 17, 1995 between the Company and GTE
Mobile Communication Service Corporation (Exhibit 10.21 to the Company's
Registration Statement on Form S-1, No. 33-98716).
10.9 -- Equipment Service Agreement dated August 18, 1995 between the Company and
TxPort, Inc. (Exhibit 10.22 to the Company's Registration Statement on Form S-1,
No. 33-98716).
10.10 -- Loan and Security Agreement dated November 29, 1994 between the Company and
SouthTrust Bank of Georgia, N.A. (Exhibit 10.23 to the Company's Registration
Statement on Form S-1, No. 33-98716).
10.11 -- Installment Note dated March 25, 1994 issued by the Company payable to AT&T
Paradyne Corporation (Exhibit 10.24 to the Company's Registration Statement on
Form S-1, No. 33-98716).
10.12 -- Security Agreement dated March 25, 1994 between. the Company and AT &T Paradyne
Corporation (Exhibit 10.25 to the Company's Registration Statement on Form S-1,
No. 33-98716).
</TABLE>
23
<PAGE>
<TABLE>
<C> <C> <S>
10.13 -- Agreement Revising Installment Note dated March 25, 1995 between the Company and
AT &T Paradyne dated March 25, 1995 (Exhibit 10.27 to the Company's Registration
Statement on Form S-1, No. 33-98716).
10.14 -- 401 (k) Plan of the Company (Exhibit 10.28 to the Company's Registration
Statement on Form S-1, No. 33-98716).
10.15 -- Stock Option Plan of the Company, as amended (Exhibit 10.29 to the Company's
Registration Statement on Form S-1, No. 33-98716).
10.16 -- Form of Non-Competition and Non-Disclosure Agreement dated March 25, 1994,
between the Company and each of John A. Koehler, Anthony M. Ramunno, Jr., Derek
S. Beveridge and Michael R. Jones (Exhibit 10.30 to the Company's Registration
Statement on Form S-1, No. 33-98716).
10.17 -- Employment Agreement dated December 7, 1994, between the Company and L. James
Bradshaw (Exhibit 10.32 to the Company's Registration Statement on Form S-1, No.
33-98716).
10.18 -- Employment Agreement dated December 7, 1994, between the Company and Peter
Reagan (Exhibit 10.33 to the Company's Registration Statement on Form S-1, No.
33-98716).
10.19 -- Form of Indemnification Agreement dated May 9, 1995, between the Company and
each of its directors and executive officers (Exhibit 10.34 to the Company's
Registration Statement on Form S-1, No. 33-98716).
10.20 -- Letter Agreement dated July 19, 1994 between the Company and Bertil D. Nordin
(Exhibit 10.37 to the Company's Registration Statement on Form S-1, No.
33-98716).
10.21 -- Lease Agreement dated March 4, 1994, between 3901 Roswell Road Associates, T.C.
and the Company for premises located at 3901 Roswell Road, N.E., Suite 310,
Marietta, Georgia (Exhibit 10.38 to the Company's Registration Statement on Form
S-1, No. 33-98716).
10.22 -- Lease Agreement dated March 31, 1994, between the Company and PNC Realty Holding
Corp., of Florida for premises located at 15950 Bay Vista Drive, Suite 340,
Clearwater, Florida (Exhibit 10.39 to the Company's Registration Statement on
Form S-1, No. 33-98716).
10.23 -- Lease Agreement dated June 20, 1994, between the Company and Holiday Inns, Inc.
for premises located at Commerce Center, HOB Building, 3781 3797 Lamar Avenue,
Memphis, Tennessee (Exhibit 10.40 to the Company's Registration Statement on
Form S-1, No. 33-98716).
10.24 -- Lease Renewal/Expansion Proposal dated October 18, 1994, for 747 Church Road,
Suite C-1, Elmhurst, Illinois issued by Morgan Realty Partners to TechNet, Inc.
(Exhibit 10.41 to the Company's Registration Statement on Form S-1, No.
33-98716).
10.25 -- Lease Amendment Agreement dated December 9, 1994, between Banyan/Morgan
Milwaukee Limited Partnership and TechForce/TechNet for premises located at
Suite C-1, Elmhurst Metro Court, Elmhurst, Illinois (Exhibit 10.42 to the
Company's Registration Statement on Form S-1, No. 33-98716).
10.26 -- Addendum to Lease Agreement dated 1995, between the Company and PNC Realty
Holding Corp. of Florida for premises located at 15950 Bay Vista Drive, Suite
340, Clearwater, Florida (Exhibit 10.43 to the Company's Registration Statement
on Form S-1, No. 33-98716).
10.27 -- Form of Option Agreement between the Company and optionees under the Company's
Stock Option Plan (Exhibit 10.44 to the Company's Registration Statement on Form
S-1, No. 33-98716).
</TABLE>
24
<PAGE>
<TABLE>
<C> <C> <S>
10.28 -- Investment and Stockholders' Agreement dated March 25, 1994 between the Company
and Investors listed in Exhibit A thereto Corporation (Exhibit 10.49 to the
Company's Registration Statement on Form S-1, No. 33-98716).
10.29 -- Management Stockholder Participation Agreement dated November 1994 between the
Company and Messrs. Bradshaw, Siders and Reagan (Exhibit 10.50 to the Company's
Registration Statement on Form S-1, No. 33-98716).
10.30 -- Investment Agreement dated November 4, 1994 between the Company and Bertil D.
Nordin (Exhibit 10.51 to the Company's Registration Statement on Form S-1, No.
33-98716).
10.31 -- 1995 Stock Incentive Plan (Exhibit 10.52 to the Company's Registration Statement
on Form S-1, No. 33-98716).
10.32 -- Directors' Stock Option Plan (Exhibit 10.53 to the Company's Registration
Statement on Form S-1, No. 33-98716).
10.33 -- Employee Stock Purchase Plan (Exhibit 10.54 to the Company's Registration
Statement on Form S-1, No. 33-98716).
10.34 -- Value Added Distributor Agreement between Paradyne Corporation and the Company
executed November 10, 1995--(Exhibit 10.55 to the Company's annual report on
Form 10-K for the period ended December 31, 1995),
10.35 -- Second Lease Amendment Agreement dated October 25, 1995 between Banyan/Morgan
Milwaukee Limited Partnership and the Company (Exhibit 10.56 to the Company's
annual report on Form 10-K for the period ended December 31, 1995).
10.36 -- Commencement Notice dated November 3, 1995 between Banyan/Morgan Milwaukee
Limited Partnership and the Company -. (Exhibit 10.57 to the Company's annual
report on Form 10-K for the period ended December 31, 1995).
10.37 -- Sublease between Witness Systems, Inc. and the Company dated January 3, 1996
(Exhibit 10.58 to the Company's annual report on Form 10-K for the period ended
December 31, 1995).
10.38 -- Lease Agreement between 3901 Roswell Road Associates, T.C. and the Company dated
January 24, 1996--(Exhibit 10.59 to the Company's annual report on Form 10-K for
the period ended December 31, 1995).
10.39 -- Services Level Agreement for Installation and Support Services between the
Company and National Medical Care, Inc., dated March 1, 1996 (Exhibit 10.0 to
the Company's Report on Form 10-Q for the period ended March 31, 1996).
10.40 -- General Services Agreement between the Company and Federal Express, dated June
19, 1996 (Exhibit 10.1 to the Company's Report on Form 10-Q for the period ended
September 30, 1996).
10.41(a) -- Loan Agreement between the Company and First Union National Bank, dated
September 23, 1996 (Exhibit 10.2(a) to the Company's Report on Form 10-Q for the
period ended September 30, 1996).
10.41(b) -- Security Agreement between the Company and First Union National Bank, dated
September 23, 1996 (Exhibit 10.2(b) to the Company's Report on Form 10-Q for the
period ended September 30, 1996).
</TABLE>
25
<PAGE>
<TABLE>
<C> <C> <S>
10.41(c) -- Promissory Note between the Company and First Union National Bank, dated
September 23, 1996 (Exhibit 10.2(c) to the Company's Report on Form 10-Q for the
period ended September 30, 1996).
10.42 -- Transfer of Federal Express Services Agreement, dates as of September 26, 1997,
by and between TechForce Corporation and ATS Telephone & Data Systems, Inc.
(Exhibit 10.1 to the Company's quarterly report on Form 10-Q for the period
ended September 30, 1997).
10.43 -- Premise Lease, dated March 12, 1997, with addendum dated September 30, 1997, by
and between TechForce Corporation and Pinellas Bay Vista Partners, Ltd. -
(Exhibit 10.2 to the Company's quarterly report on Form 10-Q for the period
ended September 30, 1997).
10.44 -- Equipment Service Agreement dated August 5, 1997 between the Company and Sears,
Roebuck, and Company (filed herewith).
21.1 -- List of Subsidiaries of the Registrant (filed herewith).
23.1 -- Consent of Arthur Andersen LLP (filed herewith).
23.2 -- Consent of Pridie Brewster (filed herewith).
27 -- Summary Financial Data.
</TABLE>
(b) Reports on Form 8-K.
None.
26
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
<TABLE>
<S> <C> <C>
TECHFORCE CORPORATION
/s/ JOHN A. KOEHLER
---------------------------------------------
John A. Koehler,
PRESIDENT & CEO
Date: March 28 ,1998
</TABLE>
Each person whose signature appears below hereby constitutes and appoints
John A. Koehler and Jerrel W. Kee the true and lawful attorneys-in-fact and
agents of the undersigned, with full power of substitution and re-substitution,
for and in the name, place and stead of the undersigned, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Report, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Commission, and hereby grants to
such attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the , on behalf of the Registrant and in the capacities and on
the dates indicated.
Date: March 30, 1998 /s/ JOHN A. KOEHLER
------------------------------------------
John A. Koehler, President, Chief
Executive Officer and Director
Date: March 30, 1998 /s/ JERREL W. KEE
------------------------------------------
Jerrel W. Kee, Senior Vice
President--Finance
and Chief Financial Officer
Date: March 30, 1998 /s/ PAUL J. FERRI
------------------------------------------
Paul J. Ferri, Director
Date: March 30, 1998 /s/ RICHARD D. TADLER
------------------------------------------
Richard D. Tadler, Director
Date: March 30, 1998 /s/ BERTIL D. NORDIN
------------------------------------------
Bertil D. Nordin, Director
Date: March 30, 1998 /s/ WILLIAM E. BASSETT
------------------------------------------
William E. Bassett, Director
27
<PAGE>
TECHFORCE CORPORATION
INDEX OF FINANCIAL STATEMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
PAGE NO.
---------
<S> <C>
Report of Independent Public Accountants--Arthur Andersen LLP........................................... F-1
Report of Independent Public Accountants--Pridie Brewster............................................... F-2
FINANCIAL STATEMENTS
Consolidated Balance Sheets............................................................................. F-3
Consolidated Statements of Income....................................................................... F-4
Consolidated Statements of Stockholders' Equity......................................................... F-5
Consolidated Statements of Cash Flows................................................................... F-6
Notes to Consolidated Financial Statements.............................................................. F-7
Valuation and Qualifying Accounts (Schedule II)......................................................... F-20
</TABLE>
28
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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders of
TechForce Corporation:
We have audited the accompanying consolidated balance sheets of TechForce
Corporation (a Georgia corporation) and subsidiaries as of December 31, 1997 and
1996, and the related consolidated statements of income, stockholders' equity
and cash flows for each of the three years in the period ended December 31,
1997. These financial statements and the schedule referred to below are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits. We did
not audit the financial statements of TechForce UK Limited for the year ended
December 31, 1997, which statements reflect total assets and total revenues of
5.4 percent and 6.6 percent, respectively, of the consolidated totals. Those
statements were audited by other auditors whose report has been furnished to us,
and our opinion, insofar as it relates to the amounts included for that entity,
is based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of TechForce Corporation and subsidiaries as of December
31, 1997 and 1996, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule (Schedule II -- Valuation
and Qualifying Accounts) listed in the index to the financial statements is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audits of
the basic financial statements and, in our opinion, fairly states, in all
material respects, the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
Tampa, Florida,
February 20, 1998
F-1
<PAGE>
TECHFORCE UK LIMITED
REPORT OF THE AUDITORS TO THE SHAREHOLDERS OF
TECHFORCE UK LIMITED
We have audited the financial statements on pages five to seventeen which
have been prepared under the historical cost convention and the accounting
policies set out on pages ten and eleven.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
As described on page three the Company's directors are responsible for the
preparation of financial statements. It is our responsibility to form an
independent opinion, based on our audit, on those statements and to report our
opinion to you.
BASIS OF OPINION
We conducted our audit in accordance with Auditing standards issued by the
Auditing Practices Board. An audit includes examination, on test basis, of
evidence relevant to the amounts and disclosures in the financial statements. It
also includes an assessment of the significant estimates and judgments made by
the directors in the preparation of the financial statements, and of whether the
accounting policies are appropriate to the company's circumstances, consistently
applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
OPINION
In our opinion the financial statements give a true and fair view of the
state of the Company's affairs as at 31 December 1997 and of its profit for the
period then ended and have been properly prepared in accordance with the
Companies Act 1985.
/s/ Pridie Brewster
Pridie Brewster
Chartered Accountants
Registered Auditor
Anstey Park House
Anstey Road
Alto, Hants
GU34 2RL Dated: 24 March 1998
- ------------------------
* Pages referenced to above refer to the 1997 report.
F-2
<PAGE>
TECHFORCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS--DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
ASSETS
- -----------------------------------------------------------------------------------------------------------------
CURRENT ASSETS:
Cash and cash equivalents............................................................. $ 736,222 $3,943,096
Investments........................................................................... 3,174,734 2,298,758
Receivables, net of allowance of approximately $343,000 and $845,000 for doubtful
accounts in 1997 and 1996, respectively............................................. 12,828,921 12,687,227
Inventories........................................................................... 3,461,435 4,445,812
Prepaid expenses and other current assets............................................. 1,030,845 601,178
Net investment in sales-type leases, current portion.................................. 4,099,559 2,438,045
Deferred taxes........................................................................ -- 140,000
----------- ----------
Total current assets............................................................ 25,331,716 26,554,116
----------- ----------
PROPERTY AND EQUIPMENT:
Leasehold improvements................................................................ 764,231 582,088
Furniture, fixtures and equipment..................................................... 7,499,089 4,884,625
Equipment held for rental............................................................. 592,189 1,037,412
Replacement parts..................................................................... 17,076,590 11,542,142
----------- ----------
25,932,099 18,046,267
Less-Accumulated depreciation......................................................... (10,968,498) (6,736,182)
----------- ----------
Property and equipment, net..................................................... 14,963,601 11,310,085
NET INVESTMENT IN SALES-TYPE LEASES, less current portion............................... 10,105,223 8,545,363
OTHER ASSETS............................................................................ 272,947 73,170
----------- ----------
Total assets.................................................................... $50,673,487 $46,482,734
----------- ----------
----------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
- -----------------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES:
Accounts payable...................................................................... $ 3,905,249 $2,582,641
Accrued expenses...................................................................... 1,936,473 3,259,378
Accrued contract labor................................................................ 551,110 599,797
Current maturities of obligations under capital leases, long-term debt and
non-recourse notes payable.......................................................... 2,770,166 2,644,038
Deferred revenue...................................................................... 2,068,847 2,722,461
Deferred taxes........................................................................ 81,000 --
----------- ----------
Total current liabilities....................................................... 11,312,845 11,808,315
OBLIGATIONS UNDER CAPITAL LEASES,net of current maturities.............................. 167,588 221,095
LONG-TERM DEBT, net of current maturities............................................... -- 740,018
NON-RECOURSE NOTES PAYABLE, net of current maturities................................... 6,031,619 4,455,444
DEFERRED REVENUE........................................................................ 85,845 46,583
DEFERRED TAXES.......................................................................... 1,582,000 717,000
----------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 9,400,234 shares authorized, 8,116,530 and 7,970,277
issued and outstanding at December 31, 1997 and 1996, respectively.................. 81,166 79,702
Additional paid-in capital............................................................ 28,031,331 27,697,641
Retained earnings..................................................................... 3,381,093 716,936
----------- ----------
Total stockholders' equity...................................................... 31,493,590 28,494,279
----------- ----------
Total liabilities and stockholders' equity...................................... $50,673,487 $46,482,734
----------- ----------
----------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE>
TECHFORCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
REVENUES:
Services.......................................................... $ 37,167,936 $ 35,191,848 $ 35,465,558
Hardware.......................................................... 27,746,861 28,081,581 13,766,299
------------- ------------- -------------
Total revenues.............................................. 64,914,797 63,273,429 49,231,857
------------- ------------- -------------
DIRECT COSTS:
Services.......................................................... 25,946,324 23,250,079 24,390,583
Hardware.......................................................... 18,545,038 19,504,406 9,172,987
------------- ------------- -------------
Total direct costs.......................................... 44,491,362 42,754,485 33,563,570
------------- ------------- -------------
Gross profit................................................ 20,423,435 20,518,944 15,668,287
------------- ------------- -------------
OPERATING COSTS:
Selling and marketing............................................. 9,954,636 10,329,889 7,753,868
Research and development.......................................... 1,225,557 1,717,864 1,147,030
General and administrative........................................ 5,078,459 4,489,926 3,379,252
Non-recurring charges............................................. -- 243,493 600,000
------------- ------------- -------------
Total operating costs....................................... 16,258,652 16,781,172 12,880,150
------------- ------------- -------------
Operating income............................................ 4,164,783 3,737,772 2,788,137
INTEREST EXPENSE, net............................................... (40,626) (102,672) (1,106,447)
------------- ------------- -------------
INCOME BEFORE PROVISION FOR INCOME TAXES............................ 4,124,157 3,635,100 1,681,690
PROVISION FOR INCOME TAXES.......................................... (1,460,000) (1,312,000) (671,000)
------------- ------------- -------------
NET INCOME.......................................................... $ 2,664,157 $ 2,323,100 $ 1,010,690
------------- ------------- -------------
------------- ------------- -------------
Basic Earnings per Common Share (Note 1)............................ $ 0.33 $ 0.29 $ 0.18
------------- ------------- -------------
------------- ------------- -------------
DILUTED EARNINGS PER COMMON SHARE (Note 1).......................... $ 0.32 $ 0.28 $ 0.16
------------- ------------- -------------
------------- ------------- -------------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (Note 1)....... 8,067,646 7,931,554 5,790,033
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES (Note
1)................................................................ 8,405,234 8,335,058 6,266,267
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE>
TECHFORCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED
--------------------- PAID-IN EARNINGS
SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
---------- --------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1994.................. 2,845,934 $ 28,459 $ 1,786,269 $ (2,616,854) $ (802,126)
Conversion of redeemable convertible
preferred stock to common stock......... 2,839,566 28,396 4,230,954 -- 4,259,350
Issuance of common stock through public
offering................................ 2,220,000 22,200 21,617,110 -- 21,639,310
Net income................................ -- -- -- 1,010,690 1,010,690
---------- --------- ------------- ------------- -------------
BALANCE, December 31, 1995.................. 7,905,500 79,055 27,634,333 (1,606,164) 26,107,224
Issuance of common stock through exercises
of common stock options................. 64,777 647 63,308 -- 63,955
Net income................................ -- -- -- 2,323,100 2,323,100
---------- --------- ------------- ------------- -------------
BALANCE, December 31, 1996.................. 7,970,277 79,702 27,697,641 716,936 28,494,279
Issuance of common stock through exercises
of common stock options................. 93,073 932 71,367 -- 72,299
Issuance of common stock under the
Employee Plan........................... 53,180 532 262,323 -- 262,855
Net income................................ -- -- -- 2,664,157 2,664,157
---------- --------- ------------- ------------- -------------
BALANCE, December 31, 1997.................. 8,116,530 $ 81,166 $ 28,031,331 $ 3,381,093 $ 31,493,590
---------- --------- ------------- ------------- -------------
---------- --------- ------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
TECHFORCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................................. $ 2,664,157 $ 2,323,100 $ 1,010,690
Adjustments to reconcile net income to net cash provided by operating
activities-
Depreciation......................................................... 4,232,316 3,179,313 2,104,241
Amortization......................................................... 45,944 33,770 33,972
Deferred income taxes................................................ 1,086,000 1,484,000 107,000
Changes in assets and liabilities-
Accounts receivable................................................ (141,694) (550,175) (55,623)
Inventories........................................................ 984,377 (1,125,197) (363,311)
Prepaid expenses and other current assets.......................... (429,667) (350,208) (190,094)
Other assets....................................................... (114,849) -- --
Accounts payable................................................... 1,322,608 995,844 (2,272,699)
Accrued expenses................................................... (1,322,905) 514,640 1,518,106
Accrued contract labor............................................. (48,687) (1,023,756) 495,765
Deferred revenue................................................... (614,352) 822,406 335,667
----------- ----------- -----------
Net cash provided by operating activities........................ 7,663,248 6,303,737 2,723,714
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment..................................... (7,885,832) (6,041,682) (2,267,224)
(Purchase) sale of investments......................................... (875,976) 10,125,072 (12,423,830)
Increase in sales-type leases.......................................... (8,052,492) (13,565,728) (147,016)
Payments received for sales-type leases................................ 2,377,214 1,612,051 --
Proceeds from sale of sales-type leases................................ 1,212,498 1,117,285 --
Purchase of other assets............................................... (130,872) -- --
----------- ----------- -----------
Net cash used in investing activities............................ (13,355,460) (6,753,002) (14,838,070)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stock options exercised.................................. 72,299 63,955 --
Proceeds from issuance of common stock under Employee Plan............. 262,855 -- --
Repayments of capital lease obligations................................ (51,546) (53,962) --
Proceeds from issuance of common stock through public offering......... -- -- 21,639,310
Repayments under revolving credit facilities........................... (20,012,000) (11,629,955) (31,191,516)
Borrowings under revolving credit facilities........................... 20,012,000 11,629,955 28,312,497
Repayments of long-term note payable................................... (1,678,883) (1,550,217) (1,499,766)
Borrowings of non-recourse notes payable, secured by sales-type
leases............................................................... 3,999,982 5,367,208 --
Repayments of non-recourse notes payable............................... (119,369) -- --
Repayments on subordinated debt........................................ -- -- (5,040,650)
----------- ----------- -----------
Net cash provided by financing activities........................ 2,485,338 3,826,984 12,219,875
----------- ----------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS.................................. (3,206,874) 3,377,719 105,519
CASH AND CASH EQUIVALENTS, beginning of year............................. 3,943,096 565,377 459,858
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of year................................... $ 736,222 $ 3,943,096 $ 565,377
----------- ----------- -----------
----------- ----------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for-
Interest............................................................. $ 178,656 $ 407,124 $ 1,175,798
Income taxes, net.................................................... $ 455,000 $ 391,000 $ 47,000
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Amortization of non-recourse notes payable and net investment in
sales-type leases.................................................... $ 1,241,406 $ -- $ --
Lease obligation capitalized........................................... $ -- $ -- $ 328,448
Conversion of Class A preferred stock to common stock.................. $ -- $ -- $ 28,396
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
TECHFORCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
TechForce Corporation (a Georgia corporation) and subsidiaries (the Company)
are engaged in the sale, design, on-site installation and maintenance, depot
repair and support of computer and data communications networking equipment.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany accounts and transactions
have been eliminated.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a purchased
original maturity of three months or less to be cash equivalents.
INVESTMENTS
Investments consist of preferred shares in a mutual fund which invests in
municipal obligations. Investments are readily convertible to cash and are
stated at fair value which approximates cost.
INVENTORIES
Inventories are recorded at the lower of cost or market. Cost is determined
by the first-in, first-out method. Market is defined as replacement cost or net
realizable value. Inventories are evaluated periodically by Company personnel to
identify and reserve for obsolete, slow moving or non-salable inventory.
Inventories at December 31, 1997 and 1996, consisted primarily of finished
goods.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization
have been computed using the straight-line method over the assets' estimated
useful lives as follows:
<TABLE>
<CAPTION>
DESCRIPTION YEARS
- --------------------------------------------------------------------------------------- -----
<S> <C>
Leasehold improvements................................................................. 1-5
Furniture, fixtures and equipment...................................................... 3-10
Equipment held for rental.............................................................. 3
Replacement parts...................................................................... 5-6
</TABLE>
As the lessor, the Company leases certain of its equipment under
non-cancelable operating lease contracts. Future minimum rentals on these leases
are approximately $214,000 and $67,000 in the years ending December 31, 1998 and
1999, respectively. The net book value of the leased equipment was approximately
$162,000 as of December 31, 1997.
SALES-TYPE LEASES
Revenues from certain qualifying non-cancelable equipment lease contracts
are accounted for as sales-type leases wherein the present values of all
payments, net of executory costs, are recorded currently as revenues and the
related costs of the equipment, less the present value of the unguaranteed
residual values, are recorded as cost of sales. The associated interest, using
the effective interest method, is credited over the term of the lease agreement.
Total revenues from sales-type leases for the years ended December 31, 1997,
1996 and 1995, were approximately $8,052,000, $13,566,000 and $147,000,
respectively, and are included in hardware revenues in the consolidated
statements of income. Cost of sales from sales-type
F-7
<PAGE>
TECHFORCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(CONTINUED)
leases for the years ended December 31, 1997, 1996 and 1995, were approximately
$3,412,000, $8,186,000 and $94,000, respectively, and are included in hardware
direct costs in the consolidated statements of income.
Future minimum lease payments to be received by the Company, as lessor,
pursuant to its sales-type leases at December 31, 1997, are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
- ------------------------------------------------------------------------------- -------------
<S> <C>
1998........................................................................... $ 5,402,267
1999........................................................................... 4,887,542
2000........................................................................... 4,048,323
2001........................................................................... 2,266,345
2002........................................................................... 48,170
-------------
$ 16,652,647
-------------
-------------
</TABLE>
The net investment in sales-type leases at December 31, 1997 and 1996,
consisted of the following:
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Future minimum lease payments.................................. $ 16,652,647 $ 13,269,027
Less--Unearned Income.......................................... (2,447,865) (2,285,619)
------------- -------------
Net investment in sales-type leases.......................... $ 14,204,782 $ 10,983,408
------------- -------------
------------- -------------
</TABLE>
The balance of net investment in sales-type leases as of December 31, 1997,
includes sales-type leases of $8,182,591, which secure non-recourse notes
payable of $8,006,415 (see Note 5).
As of July 1, 1997, the Company prospectively revised the unguaranteed
residual value in the equipment underlying the sales-type leases. This change
increased net income, basic earnings per common share and diluted earnings per
common share for the year ended December 31, 1997, by approximately $246,000,
$0.03 and $0.03, respectively.
REVENUE RECOGNITION
Revenues from hardware sales are recognized at time of delivery. Revenues
from network design and on-site installation of hardware products are recognized
as the services are performed. Revenues from services, including depot repair,
network support and on-site maintenance, are recognized as the services are
performed or ratably over the non-cancelable service contract period. Deferred
revenue represents payments received in advance under non-cancelable service
contracts.
EARNINGS PER SHARE
In 1997, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 128, "Earnings per Share" (SFAS 128). Basic earnings per share is
based upon the weighted average number of common shares and the diluted earnings
per share is based upon the weighted average number of common shares plus the
dilutive common equivalent shares outstanding during the period. The following
is a
F-8
<PAGE>
TECHFORCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(CONTINUED)
reconciliation of the denominators of the basic and diluted earnings per share
computations shown on the face of the accompanying consolidated statements of
income:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Basic weighted average number of common shares......... 8,067,646 7,931,554 5,790,333
Dilutive effect of options outstanding................. 337,588 403,504 475,934
Diluted weighted average number of common and common
equivalent shares outstanding........................ 8,405,234 8,335,058 6,266,267
</TABLE>
The following options were outstanding at December 31, but were not included
in the computation of diluted earnings per share because the options' exercise
prices were greater than the average market price of the common shares:
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Number of options.............................................. 279,582 212,533
Range of exercise prices....................................... $ 8.38 - 9.63 $ 9.00 - 9.63
Range of expiration dates...................................... 2005 - 2007 2005 - 2006
</TABLE>
All options outstanding at December 31, 1995, were included in the
computation of diluted earnings per share.
As a result of adopting SFAS 128, the Company's earnings per share for 1996
and 1995 have been restated. The effects of this accounting change on previously
reported primary earnings per share data are as follows:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Primary earnings per share as previously reported............................ $ 0.28 $ 0.16
Effect of SFAS 128........................................................... $ 0.01 $ 0.02
--------- ---------
Basic earnings per share as restated......................................... $ 0.29 $ 0.18
--------- ---------
--------- ---------
</TABLE>
The previously reported fully diluted earnings per share did not differ from
the diluted earnings per share calculated under SFAS 128.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of net investment in sales-type leases, long-term debt,
and non-recourse notes payable approximate fair value due to market rates of
interest and related maturities.
ACCOUNTING STANDARDS TO BE ADOPTED
In June 1997, the Financial Accounting Standards Board issued Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" (SFAS 131). SFAS 131 requires that a public business
enterprise report financial and descriptive information about its reportable
operating segments and related information. SFAS 131 is effective for financial
statements relating to periods beginning after December 15, 1997. The effects of
SFAS 131 on the Company have not been considered at this time.
In February 1998, the Financial Accounting Standards Board issued Financial
Accounting Standards No. 132, "Employers Disclosures about Pensions and Other
Postretirement Benefits" (SFAS 132) which standardizes the disclosure
requirements for defined contribution plans and defined benefit plans. The
F-9
<PAGE>
TECHFORCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(CONTINUED)
statement is effective for financial statements relating to periods beginning
after December 15, 1997. Management has determined that the adoption of SFAS 132
will not have a material effect on the accompanying consolidated financial
statements.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain amounts included in the 1996 and 1995 consolidated financial
statements have been reclassified to conform with the 1997 presentation.
2. STOCKHOLDERS' EQUITY:
STOCK SPLIT
In November 1995, the Company's Board of Directors (the Board) approved a
two-for-three reverse stock split of common stock.
INITIAL PUBLIC STOCK OFFERING
In December 1995, the Company offered 3,100,000 shares of common stock in an
initial public stock offering. Of the shares offered, 880,000 were those of
selling stockholders. Offering proceeds to the Company, net of underwriting fees
and other expenses, totaled approximately $21,639,000. The Company used the
proceeds to repay amounts due under its line of credit and subordinated notes
payable and accumulate working capital.
3. ACQUISITION OF BUSINESS UNIT:
On April 30, 1997, the Company purchased certain equipment and other rights
related to the SCANmanager remote LAN monitoring operations of Ungermann-Bass
Networks, Inc. for $375,000 in cash. No liabilities were assumed in this
transaction. The Company has accounted for this transaction under the purchase
accounting method. The operating results of the SCANmanager operation are
included in the accompanying consolidated statements of income since the date of
acquisition.
F-10
<PAGE>
TECHFORCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
4. LINE OF CREDIT:
The Company has a line of credit facility at December 31, 1997 and 1996,
with the following features:
<TABLE>
<CAPTION>
DESCRIPTION
----------------------------------------------
<S> <C>
Maximum borrowings: $15,000,000
Base of borrowings: Eligible accounts receivable and eligible
leases, as defined
Amount outstanding: None
Interest rate: One-month LIBOR rate plus 150 basis points
(7.22% and 7.03% at December 31, 1997 and
1996, respectively)
Payment of interest: Monthly
Security of borrowings: Accounts receivable and all other assets not
otherwise encumbered
Available borrowings: Calculated monthly
Expiration date: September 1998
</TABLE>
F-11
<PAGE>
TECHFORCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
4. LINE OF CREDIT: (CONTINUED)
The line of credit facility includes certain restrictive covenants related
to mergers and acquisitions, investments, incurrence of additional indebtedness
and maintenance of certain financial ratios, as defined. The Company was in
compliance with these covenants as of December 31, 1997.
5. LONG-TERM DEBT AND NON-RECOURSE NOTES PAYABLE:
At December 31, 1997 and 1996, the Company's long-term debt and non-recourse
notes payable consisted of the following:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Note payable to AT&T Paradyne, interest at 8%, payable in equal
monthly installments of $150,977, including interest, through
May 1998, secured by certain inventory, property and equipment
and personal guarantees of certain stockholders totaling
$1,500,000...................................................... $ 740,018 $ 2,418,901
Non-recourse notes payable to financial institutions, interest
ranging from 7.5% to 8.5%, payable in monthly installments
ranging from $109,017 to$223,316, including interest, through
December 2001, secured by net investment in sales-type leases
and the related equipment thereunder............................ 8,006,415 5,367,208
------------ ------------
8,746,433 7,786,109
Less--Current maturities of long-term debt........................ 740,018 1,678,883
Less--Current maturities of non-recourse notes payable............ 1,974,796 911,764
------------ ------------
$ 6,031,619 $ 5,195,462
------------ ------------
------------ ------------
</TABLE>
During 1997 and 1996, the Company assigned and granted security interests in
its sales-type leases to certain financial institutions in return for the
non-recourse notes payable. According to the terms of the notes payable and
related security agreements, the financial institutions' only recourse in the
event of default by the lessee is the underlying leased equipment.
Interest expense for long-term debt was $132,839, $261,506 and $383,268 for
the years ended December 31, 1997, 1996 and 1995, respectively. Interest expense
for non-recourse notes payable was $519,243 for the year ended December 31,
1997. Interest expense for non-recourse notes payable for the year ended
December 31, 1996 was insignificant to the 1996 consolidated financial
statements. There was no interest expense for non-recourse notes payable for the
year ended December 31, 1995.
The note payable to AT&T Paradyne includes certain restrictive covenants
related to mergers and acquisitions, investments, incurrence of additional
indebtedness, and maintenance of certain financial ratios, as defined. The
Company was in compliance with these covenants as of December 31, 1997.
F-12
<PAGE>
TECHFORCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
5. LONG-TERM DEBT AND NON-RECOURSE NOTES PAYABLE: (CONTINUED)
Maturities of long-term debt and non-recourse notes payable as of December
31, 1997, are as follows:
<TABLE>
<CAPTION>
YEAR ENDING LONG-TERM NON-RECOURSE
DECEMBER 31, DEBT NOTES PAYABLE TOTAL
- ----------------------------------------------------- ---------- ------------- ------------
<S> <C> <C> <C>
1998................................................. $ 740,018 $ 1,974,796 $ 2,714,814
1999................................................. -- 2,230,030 2,230,030
2000................................................. -- 2,080,945 2,080,945
2001................................................. -- 1,720,644 1,720,644
---------- ------------- ------------
$ 740,018 $ 8,006,415 $ 8,746,433
---------- ------------- ------------
</TABLE>
6. BENEFIT PLANS:
STOCK PLANS
During 1994, the Company's board of directors (the Board) approved an
incentive stock option plan (the Plan) for certain key employees and the Board.
Under the terms of the Plan, up to 613,204 shares of common stock can be issued
at exercise prices of not less than fair value at the grant date, as determined
by the Board. Options granted under the Plan may be either non-qualified or
incentive stock options and vest ratably over a five-year period unless
otherwise stated. Options may be exercised for 10 years from the date of grant.
The Company has granted, net of forfeitures, 436,386 shares under the Plan
through December 31, 1997.
On November 21, 1995, the Board approved the adoption of the 1995 Stock
Incentive Plan (the Incentive Plan), the Stock Option Plan for the Board (the
Option Plan) and the Employee Stock Purchase Plan (the Employee Plan). The
Incentive Plan provides for the grant of restricted stock, incentive or non-
qualified stock options, stock appreciation rights and other similar awards on
an annual basis subject to certain maximums, as defined. The grants are at the
fair market value of the shares on the date of grant. Total awards issued under
the Incentive Plan are limited to a percentage of outstanding common shares, as
defined, which vest ratably over the incentive period to be determined by the
Company upon grant. Options may be exercised for 10 years from the date of the
grant if the participant does not own greater than 10 percent of the Company.
Options may be exercised for five years from the grant date if the participant
owns greater than 10 percent of the Company. The Company has granted, net of
forfeitures, 793,500 shares under the Incentive Plan through December 31, 1997.
Under the terms of the Option Plan, non-qualified stock options to purchase
up to 100,000 shares of common stock may be granted to Board members who are not
also employees of the Company at the fair market value of the shares on the date
of grant. Under the Option Plan, eligible Board members receive options to
purchase 5,000 common shares upon appointment to the Board and options to
purchase 1,000 shares upon completion of each year of service on the Board. The
options become vested upon the first anniversary of the date of the grant. The
Company has granted 28,000 shares under the Option Plan through December 31,
1997.
All stock options issued under the above-mentioned plans have been incentive
or non-qualified stock options.
The Employee Plan permits eligible employees to purchase, through payroll
deductions of up to 10 percent of their annual earnings, common stock at 85
percent of the fair market value of the common stock. The fair market value is
determined at the lesser of the market value of such shares at the beginning
F-13
<PAGE>
TECHFORCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
6. BENEFIT PLANS: (CONTINUED)
or end of the semi-annual subscription period. Up to 800,000 shares of common
stock can be purchased under the Employee Plan. Purchases of 53,180 shares under
the Employee Plan were made in 1997. No purchases under the Employee Plan were
made in 1996 and 1995.
The Company accounts for its stock-based compensation plans under Accounting
Principles Board Opinion No. 25 (APB 25), under which no compensation expense
has been recognized. In October 1995, the Financial Accounting Standards Board
issued SFAS No. 123, "Accounting for Stock-Based Compensation" (SFAS 123), which
was effective for fiscal years beginning after December 15, 1995. SFAS 123
allows companies to continue following the accounting guidance of APB 25, but
requires pro forma disclosure net income and earnings per share for the effects
on compensation expense had the accounting guidance of SFAS 123 been adopted.
The pro forma disclosures are required only for options granted subsequent to
December 31, 1994, and for employee stock purchase plans.
The Company adopted SFAS 123 for disclosure purposes in 1996. For SFAS 123
purposes, the fair value of each option granted has been estimated as of the
grant date using the Black-Scholes option pricing model with the following
weighted average assumptions for grants in 1997, 1996 and 1995: risk-free
interest rate of 6.2 percent for 1997, 1996 and 1995, expected life of four
years for 1997, and five years for 1996 and 1995, no expected dividends for
1997, 1996 and 1995, and expected volatility of 65 percent, 50 percent and 50
percent for 1997, 1996 and 1995, respectively. Using these assumptions, the fair
value of the stock options granted in 1997, 1996 and 1995 was $1,889,667,
$1,357,826 and $251,820, respectively, which would be amortized as compensation
expense over the vesting period of the options.
For SFAS 123 purposes, the fair value of the employees' purchase rights has
been estimated using the Black-Scholes option pricing model with the following
weighted average assumptions for purchases in 1997: risk-free interest rate of
6.3 percent, expected life of 6 months, no expected dividends, and expected
volatility of 65%. Using these assumptions, the fair value of the employees'
purchase rights in 1997 was $101,554 which would be recognized as compensation
expense in 1997. Compensation expense for the Employee Plan in 1996 and 1995 was
insignificant to the Company's financial statements.
Had compensation expense been determined consistent with SFAS 123, utilizing
the assumptions detailed above, the Company's net income and earnings per share
would have been changed to the following pro forma amounts:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Net income:
As reported....................................... $ 2,664,157 $ 2,323,100 $ 1,010,690
Pro forma......................................... 2,180,523 2,164,434 998,562
Earnings per share:
Basic earnings per share-
As reported..................................... $ 0.33 $ 0.29 $ 0.18
Pro forma....................................... 0.26 0.26 0.16
Diluted earnings per share
As reported..................................... $ 0.32 $ 0.28 $ 0.16
Pro forma....................................... 0.25 0.25 0.15
</TABLE>
Because the SFAS 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years.
F-14
<PAGE>
TECHFORCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
6. BENEFIT PLANS: (CONTINUED)
The following table summarizes stock option activity for the years ended
December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
---------------------- ---------------------- ------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
NUMBER OF EXERCISE NUMBER EXERCISE NUMBER EXERCISE
SHARES PRICE OF SHARES PRICE OF SHARES PRICE
--------- ----------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of
year.................... 742,207 $ 4.16 607,309 $ 1.29 348,550 $ 0.47
Granted................... 552,333 7.29 389,007 7.94 267,426 2.25
Exercised................. (93,073) 0.79 (64,777) 0.79 -- --
Forfeited................. (101,431) 6.70 (189,332) 4.35 (8,667) 1.01
--------- ----- --------- ----- ----------- -----
Outstanding, end of
year.................... 1,100,036 $ 5.80 742,207 $ 4.16 607,309 $ 1.29
--------- ----- --------- ----- ----------- -----
--------- ----- --------- ----- ----------- -----
Options vested at
year-end................ 246,196 $ 3.81 170,662 $ 1.00 99,000 $ 0.45
Weighted-average fair
value of options granted
during the year......... $ 4.35 -- $ 4.05 -- $ 1.35 --
</TABLE>
The following table summarizes information about stock options at December
31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------- -----------------------
WEIGHTED-
AVERAGE
REMAINING WEIGHTED- WEIGHTED-
CONTRACTUAL AVERAGE AVERAGE
RANGES OF NUMBER LIFE EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING (YEARS) PRICE EXERCISABLE PRICE
- ------------------------------------------------------------ ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$0.375 - $0.75 254,094 6.92 $0.59 134,250 $0.60
$2.25 23,043 7.67 2.25 11,123 2.25
$5.00 - $7.19 543,317 9.02 6.68 31,890 5.41
$8.38 - $9.625 279,582 8.78 9.19 68,993 9.58
----------- --- --------- ----------- ---------
1,100,036 8.44 $5.82 246,196 $3.81
----------- --- --------- ----------- ---------
</TABLE>
The weighted-average fair value of the purchase rights granted under the
Employee Plan in 1997 was $1.91.
EMPLOYEE SAVINGS PLAN
The Company has a 401(k) savings plan which covers substantially all of its
eligible employees. Employees may contribute up to 15 percent of their annual
compensation, subject to certain limits. Employee contributions are matched by
the Company at 25 percent of up to 4 percent of the employees' contributions.
Employees are eligible to participate after attaining the age of 21. Company
contributions vest ratably over a five-year period. Company contributions to the
plan totaled $114,821, $82,599, and $41,600 during 1997, 1996 and 1995,
respectively.
F-15
<PAGE>
TECHFORCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
7. MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISKS:
The net investment in sales-type leases includes approximately $6,545,000
and $7,057,000 at December 31, 1997 and 1996, respectively, attributable to
Fresenius Medical Care North America (FMC). The non-recourse notes payable
includes approximately $6,050,000 and $5,367,000 of December 31, 1997 and 1996,
attributable to FMC.
During the years ended December 31, 1997, 1996 and 1995, the following
customers individually accounted for more than 10 percent of the Company's
revenue:
<TABLE>
<CAPTION>
1997 1996 1995
---------------- ---------------- ----------------
AMOUNT % AMOUNT % AMOUNT %
----------- --- ----------- --- ----------- ---
<S> <C> <C> <C> <C> <C> <C>
Packard Bell Electronics, Inc. (Packard Bell).............................. $10,753,000 17% $12,473,000 20% $17,497,000 36%
Federal Express Company (Fed Ex)........................................... 3,117,000 5% 6,906,000 11% 5,672,000 12%
FMC........................................................................ 1,202,000 2% 8,601,000 14% -- --
</TABLE>
The loss of Packard Bell could have a significant impact on the results of
operations of the Company in the near term. The Company has experienced a
decline in revenues from Packard Bell as a result of changes made by Packard
Bell in its end user product warranty. For the three months ended December 31,
1997, revenues from Packard Bell represented 9.4% of total Company revenues.
Revenues from FedEx declined due to a discontinuation of the repair business
during the third quarter of 1997. Revenues from both Packard Bell and FedEx are
included in service revenues in the accompanying consolidated statements of
income. During 1996, revenues from FMC included a significant sales-type lease
transaction, and are included in hardware revenues in the accompanying
consolidated statements of income.
The Company operates in two geographic areas: North America and Europe.
Revenues, operating income and income before provision for income taxes for the
year ended December 31, 1995, for each geographic area, are as follows:
<TABLE>
<CAPTION>
INCOME BEFORE
OPERATING PROVISION FOR
REVENUES INCOME INCOME TAXES
------------- ------------ -------------
<S> <C> <C> <C>
Year ended December 31, 1995:
North America.................................. $ 47,130,106 $ 2,247,280 $ 1,139,722
Europe......................................... 2,101,751 540,857 541,968
------------- ------------ -------------
$ 49,231,857 $ 2,788,137 $ 1,681,690
------------- ------------ -------------
------------- ------------ -------------
</TABLE>
As of December 31, 1995, the Company had total assets of approximately
$1,596,000 denominated in Canadian dollars and British pound sterling. Revenues,
operating income, income before provision for income taxes and total assets for
the European operations for the years ended December 31, 1997 and 1996, were
less than 10% of the respective consolidated totals.
8. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
The Company leases certain offices, production facilities and equipment
under non-cancelable operating lease agreements expiring at various dates
through the year 2003. Rent expense for the years
F-16
<PAGE>
TECHFORCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
8. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
ended December 31, 1997, 1996 and 1995, totaled approximately $1,357,000,
$1,040,000 and $963,000, respectively.
Future minimum operating lease payments as of December 31, 1997, were as
follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
- -------------------------------------------------------------------------------- ------------
<S> <C>
1998............................................................................ $ 948,897
1999............................................................................ 847,309
2000............................................................................ 706,158
2001............................................................................ 618,239
2002............................................................................ 615,461
Thereafter...................................................................... 51,211
------------
$ 3,787,275
------------
------------
</TABLE>
OBLIGATIONS UNDER CAPITAL LEASES
The Company leases certain equipment under capital leases.
Future minimum lease payments under capital leases at December 31, 1997,
together with the present value of the minimum lease payments, are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
- ---------------------------------------------------------------------------------- ----------
<S> <C>
1998.............................................................................. $ 78,285
1999.............................................................................. 78,285
2000.............................................................................. 77,331
2001.............................................................................. 13,888
----------
Total minimum lease payments...................................................... 247,789
Less--Amount representing interest................................................ (24,849)
----------
Present value of minimum lease payments........................................... 222,940
Less--Current maturities.......................................................... (55,352)
----------
Obligations under capital leases.................................................. $ 167,588
----------
----------
</TABLE>
Interest expense for obligations under capital leases was $21,848 and
$24,326 for the years ended December 31, 1997 and 1996, respectively. The
Company had immaterial interest expense for the obligations under capital leases
for the year ended December 31, 1995.
Assets recorded under capital leases are included in property and equipment
at December 31, 1997 and 1996, as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Furniture, fixtures and equipment..................................... $ 328,448 $ 328,448
Less--Accumulated depreciation........................................ (131,380) (65,690)
---------- ----------
$ 197,068 $ 262,758
---------- ----------
</TABLE>
F-17
<PAGE>
TECHFORCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
8. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
Subsequent to December 31, 1997, the Company entered into a new capital
lease that cancelled the existing capital leases and provided for new equipment.
The capital lease obligation and assets under the new capital leases will
increase by approximately $395,000.
LEGAL MATTERS
The Company is involved in certain litigation and claims arising in the
ordinary course of business. In the opinion of management, the ultimate
resolution of these matters will not have a material adverse effect on the
Company's financial position or results of operations.
9. INCOME TAXES:
The Company accounts for income taxes under provisions of SFAS No. 109,
"Accounting for Income Taxes," which requires the use of the liability method of
accounting for deferred income taxes.
The provision for income taxes for the years ended December 31, 1997, 1996
and 1995 consisted of the following:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ----------
<S> <C> <C> <C>
Current:
Federal............................................. $ 235,000 $ (162,000) $ 395,000
State............................................... 44,000 (30,000) 74,000
Foreign............................................. 95,000 20,000 95,000
------------ ------------ ----------
374,000 (172,000) 564,000
------------ ------------ ----------
Deferred:
Federal............................................. 915,000 1,250,000 90,000
State............................................... 171,000 234,000 17,000
Foreign............................................. -- -- --
------------ ------------ ----------
1,086,000 1,484,000 107,000
------------ ------------ ----------
$ 1,460,000 $ 1,312,000 $ 671,000
------------ ------------ ----------
------------ ------------ ----------
</TABLE>
The principal differences between the federal statutory tax rate and the
effective tax rate are as follows for the years ended December 31, 1997, 1996
and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Federal statutory rate.......................................................... 34.0% 34.0% 34.0%
State taxes, net of federal benefit............................................. 4.0 4.0 4.0
Non-taxable income from investments............................................. (1.0) (1.9) --
Other........................................................................... (1.6) -- 1.9
---- ---- ----
35.4% 36.1% 39.9%
---- ---- ----
---- ---- ----
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the corresponding amounts used for
F-18
<PAGE>
TECHFORCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
9. INCOME TAXES: (CONTINUED)
income tax reporting purposes. Significant components of the Company's deferred
income tax assets and liabilities as of December 31 are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
------------- -----------
<S> <C> <C>
Deferred income tax assets:
Goodwill....................................................... $ 854,000 $ 930,000
Deferred income recognition.................................... 60,000 91,000
Allowance for doubtful accounts................................ 130,000 321,000
Net operating loss............................................. 837,000 693,000
Alternative minimum tax........................................ 264,000 62,000
Other.......................................................... 83,000 34,000
------------- -----------
2,228,000 2,131,000
------------- -----------
Deferred income tax liabilities:
Depreciation and amortization.................................. (2,805,000) (1,374,000)
Sales-type leases.............................................. (1,031,000) (1,321,000)
Other.......................................................... (55,000) (13,000)
------------- -----------
(3,891,000) (2,708,000)
------------- -----------
$ (1,663,000) $ (577,000)
------------- -----------
------------- -----------
</TABLE>
At December 31, 1997 and 1996, there was no valuation allowance for deferred
taxes.
10. NON-RECURRING CHARGES:
During fiscal year 1996, the Company adopted a plan to restructure certain
of its operations in Memphis, Tennessee. Restructuring costs of $243,493,
primarily related to employee termination benefits, were incurred and are
reflected in the accompanying consolidated statements of income. All costs
related to the restructuring were paid as of December 31, 1996.
During fiscal year 1995, the Company adopted a plan to consolidate the
Company's administrative office in Atlanta, Georgia, with the facilities located
in Clearwater, Florida. In connection with the consolidation, the Company
recognized certain costs estimated by management at $600,000 relating to
relocation of certain employees, the termination of the Altanta office lease,
and termination benefits due seven identified employees not being relocated. All
costs related to the relocation of certain employees (approximately $440,000),
lease termination (approximately $62,000), and employee termination benefits
(approximately $98,000) were either paid or obligated for payment as of December
31, 1995.
F-19
<PAGE>
SCHEDULE II
TECHFORCE CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
ADDITIONS
BALANCE CHARGED TO BALANCE
BEGINNING COSTS AND END OF
OF PERIOD EXPENSES DEDUCTIONS PERIOD
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Year ended December 31, 1997: Allowance for doubtful
accounts...................................................... $ 845,000 $ (318,572) $ (120,530) $ 342,898
Year ended December 31, 1996: Allowance for doubtful
accounts...................................................... 200,000 694,217 (49,217) 845,000
Year ended December 31, 1995: Allowance for doubtful
accounts...................................................... 30,000 170,000 -- 200,000
</TABLE>
F-20
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ----------- ---------------------------------------------------------------------------------------- -----------------
<S> <C> <C> <C>
3.1 -- Amended and Restated Articles of Incorporation (Exhibit 3.1 to the Company's
Registration Statement on Form S-1, No. 33-98716).
3.2 -- Articles of Amendment to Amended and Restated Articles of Incorporation (Exhibit 3.2 to
the Company's Registration Statement on Form S-1, No. 33-98716).
3.3 -- Form of Second Amended and Restated Articles of Incorporation (Exhibit 3.3 to the
Company's Registration Statement on Form S-1, No. 33-98716).
3.4 -- Bylaws of the Company (Exhibit 3.4 to the Company's Registration Statement on Form S-1,
No. 33-98716).
3.5 -- Amendment to Bylaws of the Company (Exhibit 3.5 to the Company's Registration Statement
on Form S-1, No. 33-98716).
4.1 -- Specimen Common Stock Certificate (Exhibit 4.1 to the Company's Registration Statement
on Form S-1, No. 33-98716).
4.2 -- See Exhibits 3.1 through 3.5 for the provisions of the Company's Amended and Restated
Articles of Incorporation and Bylaws governing the rights of holders of securities of
the Company.
10.1 -- Equipment Service Agreement dated November 1, 1994, between the Company and FedEx
Corporation (Exhibit 10.1 to the Company's Registration Statement on Form S-1, No.
33-98716).
10.2 -- Equipment Service Agreement dated March 13, 1995 between the Company and Packard Bell,
Inc. (Exhibit 10.2 to the Company's Registration Statement on Form S-1, No. 33-98716).
10.3 -- General Services Agreement dated June 19, 1992 between the Company and Federal Express
Corporation (Exhibit 10.5 to the Company's Registration Statement on Form S-1, No.
33-98716).
10.4 -- Change Order Extending General Services Agreement dated August 1, 1994 between the
Company and Federal Express Corporation (Exhibit 10.6 to the Company's Registration
Statement on Form S-1, No. 33-98716).
10.5 -- Systems Integrator Agreement dated June 1, 1995 between the Company and Cisco Systems
Inc. (Exhibit 10.7 to the Company's Registration Statement on Form S- 1, No. 33-98716).
10.6 -- Non-Competition and Right-of-First-Refusal Agreement dated March 25, 1994 between the
Company and AT &T Paradyne Corporation (Exhibit 10.17 to the Company's Registration
Statement on Form S-1, No. 33- 98716).
10.7 -- Contracted Service Agreement for Field Service between the Company and IBM dated
February 23, 1995 (Exhibit 10.19 to the Company's Registration Statement on Form S-1,
No. 33-98716).
10.8 -- Global Roam Rental Agreement dated July 17, 1995 between the Company and GTE Mobile
Communication Service Corporation (Exhibit 10.21 to the Company's Registration Statement
on Form S-1, No. 33-98716).
</TABLE>
E-1
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ----------- ---------------------------------------------------------------------------------------- -----------------
<S> <C> <C> <C>
10.9 -- Equipment Service Agreement dated August 18, 1995 between the Company and TxPort, Inc.
(Exhibit 10.22 to the Company's Registration Statement on Form S-1, No. 33-98716).
10.10 -- Loan and Security Agreement dated November 29, 1994 between the Company and SouthTrust
Bank of Georgia, N.A. (Exhibit 10.23 to the Company's Registration Statement on Form
S-1, No. 33-98716).
10.11 -- Installment Note dated March 25, 1994 issued by the Company payable to AT&T Paradyne
Corporation (Exhibit 10.24 to the Company's Registration Statement on Form S-1, No. 33-
98716).
10.12 -- Security Agreement dated March 25, 1994 between. the Company and AT &T Paradyne
Corporation (Exhibit 10.25 to the Company's Registration Statement on Form S-1, No.
33-98716).
10.13 -- Agreement Revising Installment Note dated March 25, 1995 between the Company and AT &T
Paradyne dated March 25, 1995 (Exhibit 10.27 to the Company's Registration Statement on
Form S-1, No. 33-98716).
10.14 -- 401 (k) Plan of the Company (Exhibit 10.28 to the Company's Registration Statement on
Form S-1, No. 33- 98716).
10.15 -- Stock Option Plan of the Company, as amended (Exhibit 10.29 to the Company's
Registration Statement on Form S-1, No. 33-98716).
10.16 -- Form of Non-Competition and Non-Disclosure Agreement dated March 25, 1994, between the
Company and each of John A. Koehler, Anthony M. Ramunno, Jr., Derek S. Beveridge and
Michael R. Jones (Exhibit 10.30 to the Company's Registration Statement on Form S-1, No.
33-98716).
10.17 -- Employment Agreement dated December 7, 1994, between the Company and L. James Bradshaw
(Exhibit 10.32 to the Company's Registration Statement on Form S-1, No. 33-98716).
10.18 -- Employment Agreement dated December 7, 1994, between the Company and Peter Reagan
(Exhibit 10.33 to the Company's Registration Statement on Form S-1, No. 33-98716).
10.19 -- Form of Indemnification Agreement dated May 9, 1995, between the Company and each of its
directors and executive officers (Exhibit 10.34 to the Company's Registration Statement
on Form S-1, No. 33- 98716).
10.20 -- Letter Agreement dated July 19, 1994 between the Company and Bertil D. Nordin (Exhibit
10.37 to the Company's Registration Statement on Form S-1, No. 33- 98716).
10.21 -- Lease Agreement dated March 4, 1994, between 3901 Roswell Road Associates, T.C. and the
Company for premises located at 3901 Roswell Road, N.E., Suite 310, Marietta, Georgia
(Exhibit 10.38 to the Company's Registration Statement on Form S-1, No. 33- 98716).
</TABLE>
E-2
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ----------- ---------------------------------------------------------------------------------------- -----------------
<S> <C> <C> <C>
10.22 -- Lease Agreement dated March 31, 1994, between the Company and PNC Realty Holding Corp.,
of Florida for premises located at 15950 Bay Vista Drive, Suite 340, Clearwater, Florida
(Exhibit 10.39 to the Company's Registration Statement on Form S-1, No. 33-98716).
10.23 -- Lease Agreement dated June 20, 1994, between the Company and Holiday Inns, Inc. for
premises located at Commerce Center, HOB Building, 3781 3797 Lamar Avenue, Memphis,
Tennessee (Exhibit 10.40 to the Company's Registration Statement on Form S-1, No. 33-
98716).
10.24 -- Lease Renewal/Expansion Proposal dated October 18, 1994, for 747 Church Road, Suite C-1,
Elmhurst, Illinois issued by Morgan Realty Partners to TechNet, Inc. (Exhibit 10.41 to
the Company's Registration Statement on Form S-1, No. 33-98716).
10.25 -- Lease Amendment Agreement dated December 9, 1994, between Banyan/ Morgan Milwaukee
Limited Partnership and TechForce/TechNet for premises located at Suite C- 1, Elmhurst
Metro Court, Elmhurst, Illinois (Exhibit 10.42 to the Company's Registration Statement
on Form S-1, No. 33-98716).
10.26 -- Addendum to Lease Agreement dated 1995, between the Company and PNC Realty Holding Corp.
of Florida for premises located at 15950 Bay Vista Drive, Suite 340, Clearwater, Florida
(Exhibit 10.43 to the Company's Registration Statement on Form S-1, No. 33- 98716).
10.27 -- Form of Option Agreement between the Company and optionees under the Company's Stock
Option Plan (Exhibit 10.44 to the Company's Registration Statement on Form S-1, No.
33-98716).
10.28 -- Investment and Stockholders' Agreement dated March 25, 1994 between the Company and
Investors listed in Exhibit A thereto Corporation (Exhibit 10.49 to the Company's
Registration Statement on Form S-1, No. 33- 98716).
10.29 -- Management Stockholder Participation Agreement dated November 1994 between the Company
and Messrs. Bradshaw, Siders and Reagan (Exhibit 10.50 to the Company's Registration
Statement on Form S-1, No. 33- 98716).
10.30 -- Investment Agreement dated November 4, 1994 between the Company and Bertil D. Nordin
(Exhibit 10.51 to the Company's Registration Statement on Form S-1, No. 33-98716).
10.31 -- 1995 Stock Incentive Plan (Exhibit 10.52 to the Company's Registration Statement on Form
S-1, No. 33- 98716).
10.32 -- Directors' Stock Option Plan (Exhibit 10.53 to the Company's Registration Statement on
Form S-1, No. 33- 98716).
10.33 -- Employee Stock Purchase Plan (Exhibit 10.54 to the Company's Registration Statement on
Form S-1, No. 33- 98716).
10.34 -- Value Added Distributor Agreement between Paradyne Corporation and the Company executed
November 10, 1995--(Exhibit 10.55 to the Company's annual report on Form 10-K for the
period ended December 31, 1995),
</TABLE>
E-3
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<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
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<S> <C> <C> <C>
10.35 -- Second Lease Amendment Agreement dated October 25, 1995 between Banyan/ Morgan Milwaukee
Limited Partnership and the Company (Exhibit 10.56 to the Company's annual report on
Form 10-K for the period ended December 31, 1995).
10.36 -- Commencement Notice dated November 3, 1995 between Banyan/Morgan Milwaukee Limited
Partnership and the Company -. (Exhibit 10.57 to the Company's annual report on Form
10-K for the period ended December 31, 1995).
10.37 -- Sublease between Witness Systems, Inc. and the Company dated January 3, 1996 (Exhibit
10.58 to the Company's annual report on Form 10-K for the period ended December 31,
1995).
10.38 -- Lease Agreement between 3901 Roswell Road Associates, T.C. and the Company dated January
24, 1996--(Exhibit 10.59 to the Company's annual report on Form 10-K for the period
ended December 31, 1995).
10.39 -- Services Level Agreement for Installation and Support Services between the Company and
National Medical Care, Inc., dated March 1, 1996 (Exhibit 10.0 to the Company's Report
on Form 10-Q for the period ended March 31, 1996).
10.40 -- General Services Agreement between the Company and Federal Express, dated June 19, 1996
(Exhibit 10.1 to the Company's Report on Form 10-Q for the period ended September 30,
1996).
10.41(a) -- Loan Agreement between the Company and First Union National Bank, dated September 23,
1996 (Exhibit 10.2(a) to the Company's Report on Form 10-Q for the period ended
September 30, 1996).
10.41(b) -- Security Agreement between the Company and First Union National Bank, dated September
23, 1996 (Exhibit 10.2(b) to the Company's Report on Form 10-Q for the period ended
September 30, 1996).
10.41(c) -- Promissory Note between the Company and First Union National Bank, dated September 23,
1996 (Exhibit 10.2(c) to the Company's Report on Form 10-Q for the period ended
September 30, 1996).
10.42 -- Transfer of Federal Express Services Agreement, dates as of September 26, 1997, by and
between TechForce Corporation and ATS Telephone & Data Systems, Inc. (Exhibit 10.1 to
the Company's quarterly report on Form 10-Q for the period ended September 30, 1997).
10.43 -- Premise Lease, dated March 12, 1997, with addendum dated September 30, 1997, by and
between TechForce Corporation and Pinellas Bay Vista Partners, Ltd. - (Exhibit 10.2 to
the Company's quarterly report on Form 10-Q for the period ended September 30, 1997).
10.44 -- Equipment Service Agreement dated August 5, 1997 between the Company and Sears, Roebuck,
and Company (filed herewith).
21.1 -- List of Subsidiaries of the Registrant (filed herewith).
23.1 -- Consent of Arthur Andersen LLP (filed herewith).
23.2 -- Consent of Pridie Brewster (filed herewith).
27 -- Summary Financial Data.
</TABLE>
E-4
<PAGE>
Exhibit 10.44
TECHFORCE CORPORATION SERVICE AGREEMENT
This equipment Service agreement (the "Agreement"), made as of the date signed
below, by and between TECHFORCE CORPORATION, a Florida corporation ("TechForce")
and Sears, Roebuck and Co., a New York corporation ("Customer").
RECITALS
1. The Customer desires to engage TechForce to perform the services
described in this Agreement.
2. TechForce is experienced, willing and able to perform the services for
the Customer in accordance with the terms of this Agreement.
3. Whereas, under the terms and scope of this agreement, TechForce,
operating as an on-site service provider will supply to the Customer,
in support of Personal Computers and Personal Computer peripheral
devices, on-site service and parts return from the Authorized Service
provider (ASP).
FOR AND IN CONSIDERATION of the mutual covenants contained in this Agreement,
TechForce and Customer (the "parties") agree as follows:
Section 1. Scope of Work.
(a) In consideration of Customer's payments under this Agreement, TechForce
shall perform, in accordance with the terms of this Agreement, the
services described in Section 4 below (the "Work") on all personal
computer and personal computer peripherals sold by Customer (the
"Equipment") to its end users ("End Users").
Section 2. Term.
(a) The term of this Agreement (the "Term") shall commence on the date of
execution of this Agreement and shall remain in effect for a period of
twelve (12) months, unless terminated earlier by TechForce or Customer
in accordance with the terms of this Agreement. At the expiration of
the twelve-month term, this Agreement shall continue on a month to
month basis until terminated by either party in accordance with
subsection 2(b) below.
(b) Either party shall have the unlimited right to terminate this Agreement
at any time upon providing thirty (30) days prior written notice to the
other party.
Section 3. Fee
In consideration of TechForce's performance or the Work in accordance with this
Agreement, customer shall pay TechForce a fee ("Fee") equal to one hundred
dollars ($100) per repair call, subject to the following incentives: (a) in the
event that TechForce arrives at the End User premises at the Service Time, as
defined in Section 4 below, at least ninety percent (90%) of the time but less
than ninety-five percent (95%) of the time in a given calendar month, Customer
agrees to pay TechForce an additional five dollars ($5) per call for every
repair call completed by TechForce during the applicable month; and (b) in the
even that TechForce arrives at the End User premises at the Service Time, as
defined in Section 4 below, at least ninety-five percent (95%) of the time in a
given calendar month, Customer agrees to pay TechForce an additional ten dollars
($10) per call for every repair call completed by TechForce during the
applicable month. TechForce shall provide Customer with a monthly report
identifying TechForce's per call arrival rate along with an invoice if
applicable. All repair calls, which are initiated by Customer, but
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canceled prior to TechForce dispatching a technician, will be billed o customer
at the rate of thirty-five dollars ($35) per canceled repair call. A repair call
that is rescheduled shall not be considered a canceled call.
Section 4. Service Responsibilities
(a) Customer shall perform telephone diagnostics, isolate to the best of
its ability the failing component of the Equipment and dispatch to
TechForce the appropriate required spare apart from Customer's
inventory. Customer shall obtain scheduling information and shall
contact TechForce with such information (the "End User Information").
Customer shall arrange a time (the "Service Time") for the Work to be
performed at the location of the End User. End User Information will be
transmitted to TechForce on the same day it is obtained from the End
User. The service Time shall be (I) any day except Sunday, (II) no less
than three (3) between the hours of 8:00 a.m. and 7:00 p.m. local time
at End User's location (for example, calls received on Monday have a
Service Time schedules for Thursday, Friday or Saturday). TechForce
shall (I) open, administer and close all calls with respect to the End
User Information and resulting Work; (II) confirm the Service Time with
the End User; (III) dispatch the trained TechForce technician to the
End User location; and (IV) perform Work required to service, install
or repair the Equipment. The Work will be considered complete when the
Equipment is operating in accordance with the Manufacturer's published
specifications and/or has successfully executed industry-standard
software diagnostic testing commonly utilized in connection with such
Equipment. TechForce shall not be responsible for failure to timely
repair Equipment if such failure results from (a) Sears Parts, as
defined below, which are functioning improperly, (b) Customer's failure
to correctly diagnose the time. Customer shall remain liable to
TechForce for the full Fee, as defined in Section 3 above, for repair
calls which TechForce dispatches a technician, but fails to repair the
Equipment as a result of any of the conditions described in the
preceding sentence.
(b) Customer shall provide to TechForce all parts necessary for TechForce
to complete the work (the "Sears Parts") at least one day prior to the
Service Time. Customer will include all shipping documentation
necessary for TechForce to return defective or unused spare Sears Parts
to Customer at no cost to TechForce. Customer will invoice TechForce
for outstanding, defective or unused Sears parts which have not been
TechForce shall pay all such invoices within 30 days of receipt from
Customer. TechForce shall have the right (including Customer's
distribution cost) to return defective and unused Sears Parts for a
period of 120 days after the Service Time for full credit against any
amount paid by TechForce to Customer concerning such part.
(c) It is expressly understood and agreed that Customer reserves title to
all Sears Parts until such time as they are used in completing the Work
and hat TechForce shall have no right to, nor title or interests in any
such Sears Parts. TechForce, at its sole expense, shall be responsible
for and shall bear all risk of loss for the safekeeping transportation
to and from End User's premises) and until used or installed in
completion of Work or until such Sears Parts are delivered to carrier
for shipment to Customer or another party as Customer directs. This
paragraph shall survive termination of this Agreement.
Section 5. Exclusive Warranty and Remedy.
The TechForce exclusive warranty to the Customer is as follows: (1) the Work
will be performed in a competent and workmanlike manner which follows approved,
industry standard procedures such as ESD (electrostatic discharge) protection,
proper packaging and handling, and (2) Work shall conform to manufacturer's
specifications, conform to applicable law, and shall be free of
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defects in TechForce's workmanship for a period of ninety (90) days from
completion of the work. In the event TechForce breaches this warranty,
TechForce" sole obligation and Customer's exclusive remedy shall be to have
TechForce correct the Work which was non-conforming, at TechForce's Expense. In
the event that TechForce fails to promptly correct non-conforming Work, Customer
shall have ht e option to cause such Work to be performed by another party upon
commercially reasonable terms, and TechForce shall reimburse Customer for the
cost of the same. There are no other expressed or reasonable terms, and
TechForce shall reimburse Customer for the cost of the same. There are no other
expressed implied warranties concerning the Work. TechForce does not guarantee
that the operation of the Equipment will be uninterrupted or error-free.
Section 6. Limitation on Liability and Indemnification
(a) IN NO EVEN SHALL TECHFORCE OR CUSTOMER BE LIABLE TO THE OTHER FOR ANY
INCIDENTAL, CONSEQQUENTIAL, SPECIAL OR INDIERECT DAMAGES INCURRED BY
IT, INCLUDING, WITHOUT LIMITATION, LOSS OF BUSINESS PROFIT, LOSS OF
DATA, OR OTHER DOWN TIME COSTS ARISING OUT OF OR RELATED TO THIS
ASGREEMENT OR SERVICES HEREUNDER. Nothing contained in this Section
6(a) is intended to limit TechForce's indemnity, defense of claims or
contribution obligations set forth below.
(b) DEFENSE OF CLAIMS. TechForce shall, at its own cost and expense, defend
Customer, its subsidiaries, and the officers directors, employees
licensees, agents, distributors and independent contractors of Customer
and its subsidiaries (each an "Indemnified Party") from and against all
allegations (even though such allegations may be false, fraudulent or
groundless) asserted in any claim, action, lawsuit or proceeding
between nay Indemnified Party and any third party arising out of any of
the following (collectively, the "Claims"), whether actual or alleged
and whether or not TechForce's Indemnity and Contribution Obligations
(as defined below) shall apply: (a) infringement or misappropriation of
any patent, trademark, trade name, trade dress, copyright, trade
secret, right, trade secret, right of publicity or other proprietary
right in connection with Work, or any unfair competition involving
Work; (b) death of or injury o any person, damage to any property, or
any other damage or loss, by whomsoever suffered, resulting or claimed
to result in whole or in part from any actual or alleged defective
Work, whether latent or patent, including actual or alleged improper
installation or repair, or actual failure of Work to comply with any
specifications or with any express or implied warranties of TechForce,
or any claim of strict liability in tort relating to any Work; (c)
violation by TechForce of any federal, state or local laws,
regulations, ordinances or administrative orders or rules of the United
States, its territories or any other country in which Work is produced
or delivered; (d) defect involving the labeling or installation of
Service. TechForce shall use counsel reasonably satisfactory to Sears
in the defense of such Claims. In the event that any claim has a
significant possibility that TechForce will not be able to satisfy the
same or that customer has or will suffer damage to its goodwill and
reputation in Customer's reasonable judgment, Customer may, at its
election, take control of the defense and investigation of the Claims,
and may employ and engage attorneys of its own choice to manage and
defend such Claims, at TechForce's cost, risk and expense, provided
that Sears and its counsel shall proceed with diligence and good faith
with respect thereto. The obligations of TechForce under this Section
8(a) (collectively, "Defense Obligations") shall survive the
cancellation or termination of this Agreement.
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(c) INDEMNIFICATION AND CONTRIBUTION. TechForce shall hold harmless and
indemnify the Indemnified Parties from and against any and all claims,
demands, actions, lawsuits, proceedings, liabilities, losses, costs and
expenses (including reasonable attorneys' fees and disbursements and
costs of investigation) incurred by any of the Indemnified Parties in
any claim, demand, action, lawsuit, or proceeding between any
Indemnified Party and any third party arising from the negligent acts
or omissions of TechForce, TechForce's willful misconduct or otherwise
arising out of any Claims, including but not limited to claims of
negligent acts or omissions by any Indemnified Party. In any case to
which TechForce's indemnity obligation set forth in the preceding
sentence is not enforceable under applicable law and in which either
(a) any Indemnified Party or (b) TechForce is found to be liable to a
third party with respect to Work, then Customer and TechForce shall
each contribute to the payment of any judgment awarded in favor of such
third party in proportion to the comparative degree of culpability of
the Indemnified Parties and TechForce. The obligations of TechForce and
Customer under this Section 8(b) (collectively, "Indemnity and
Contribution Obligations") shall survive the cancellation or
termination of this Agreement.
Section 7. TechForce Representations and Warranties.
TechForce hereby represents and warrants as follows:
(1) TechForce will not leave any of its own marketing materials or
information with any End User, including, but not limited to, TechForce
stickers on Equipment serviced pursuant to this Agreement.
(2) TechForce, at its own expense, has already obtained or shall obtain all
permits and licenses which may be required under any applicable
federal, state or local law, ordinance, rule or regulation by virtue of
any act performed by TechForce or its employees as a result of this
Agreement.
(3) TechForce shall comply fully with all applicable federal, state or
local laws, rules, ordinances or regulations.
(4) TechForce, at its own expense, has trained its personnel to repair the
Equipment in accordance with the manufacturer's service guidelines.
(5) TechForce will provide only competent, trained, PC qualified field
engineers to perform the Work.
(6) TechForce will not use any Sears Authorized Service or Repair
designation in telephone directory listings, any other advertisements,
or any other materials.
Section 8 Insurance.
A. TechForce agrees and covenants that it shall, at its sole
expense, obtain and maintain during the term of this agreement
at least the insurance listed below. Insurance companies shall
have a rating of A-/VII or better in the current best's
Insurance Reports published by A.M. best Company.
1. Workers' Compensation insurance, including coverage
for all costs, benefits, and liabilities under
Workers' Compensation and similar laws which may
accrue in favor of any person employed by TechForce,
for all states in which TechForce operates, and
Employers' Liability Insurance
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with limits of liability of at least $100,000 per
accident or disease and $500,000 aggregate by
disease. Such insurance shall contain a waiver of
subrogation in favor of Customer.
2. Commercial General Liability insurance with coverage
including, but not limited to, premises/operations,
contractual, personal and advertising injury, and
products/completed operations liabilities, with
limits of at least $1,000,000 per occurrence for
bodily injury and property damage combined.
3. Bailee's insurance for Merchandise in the care,
custody, and control of TechForce, in an amount equal
to the maximum value, at any one time, of such
property.
4. Automobile Liability insurance for owned, non-owned
and hired vehicles, with limits of at least
$1,000,000 per occurrence for bodily injury and
property damage combined.
5. Cargo insurance for Merchandise in the care, custody
or control of TechForce, and endorsed to insure
Merchandise while at TechForce's terminal, in an
amount equal to the maximum value, at any one time,
of such Merchandise.
B. Before TechForce performs any Work under this Agreement, and
before each policy expiration thereafter during the term of
this Agreement, TechForce shall forward to Customer duly
executed copies of certificates of insurance or, at Customer
request, copies of the actual policies and endorsements
evidencing that the required insurance is in force.
C. The policies required hereunder shall be prepared in such form that:
1. Customer shall not be liable for the premiums
therefor,
2. No policy or policies shall be canceled unless thirty
(30) days written notice first given to Customer by
the insurance company of its intention to cancel, and
the reason(s) therefor; and
3. Customer shall be additional insureds under each
policy (other than the Workers' Compensation policy).
Section 9 Default.
Default by Customer. The occurrence of any of the following will constitute an
event of default ("Event of Default") by Customer:
(a) Failure by Customer t pay any monthly or other charge or payment within
sixty (60) days of invoice date; or
(b) Any breach or failure
Default by TechForce. The occurrence of any of the following will constitute an
event of default ("Event of Default") by TechForce:
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(a) Any breach or failure by TechForce to observe or perform any of TechForce's
material obligations under this Agreement for a period of ten(10) days
after notice of such breach of failure is given to TechForce; or
(b) Any representation or warranty made by TechForce herein or if any statement
or certificate furnished by or is generally unable to pay its debts as such
debts become due; or
(c) Proceedings are instituted by TechForce under the Federal Bankruptcy Code
or any similar federal or state law for the relief of debtors, or are
instituted against TechForce; or
(d) Any order, judgment or decree is entered in any proceeding by any court of
competent jurisdiction appointing, without the consent of TechForce, a
receiver, trustee or liquidator of TechForce or of any substantial part of
any of its property, or sequestering any substantial part of the property
of TechForce.
Section 10. Remedies.
Upon the occurrence of any Event of Default by a party and if the Event of
Default is not resolved within thirty (30) days of notice, the other party may,
at is sole option:
By notice in writing to the defaulting party, terminate this agreement
effective immediately.
Section 11. Intellectual Property and Confidentiality
A.
(1) TechForce shall not used the name of Sears, or any Sears
trademarks, service marks of trade names ("Sears
Mark(s)"), in any printed or electronic matter, including,
but not limited to, use of any letterhead, checks,
business cards, or contracts.
(2) TechForce shall not question, contest or challenge, either
during or after the term of this Agreement, Sears
ownership of the Sears Marks, or Sears ownership in nay
mailing lists, credit files or other factual information
compiled by Sears or TechForce with respect to the End
Users (The "Sears Information"). TechForce shall claim no
right, title or interest in any Sears Mark or Sears
Information.
(3) TechForce recognizes and acknowledges that the use of any
Sears Mark or Sears Information shall not confer upon
TechForce any proprietary rights to any Sears Mark or
Sears Information. Upon expiration or termination of this
Agreement, TechForce shall immediately stop using all
Sears Marks and Sears Information, and shall execute all
documents Sears requests in order to conform Sears
ownership, or to transfer to Sears any rights TechForce
may have acquired from Sears in any Sears Mark or Sears
Information.
(4) Nothing in this Agreement shall be construed to bar Sears,
after expiration or termination of this Agreement, from
protecting its right to the exclusive ownership of Sears
Information or Sears Marks against infringement or
appropriation by any party or parties, including
TechForce.
(5) TechForce acknowledges that Sears Marks and Sears
Information possess a special, unique and extraordinary
character which makes it difficult to assess the monetary
damage Sears would sustain in the event of unauthorized
use. Irreparable injury would be caused to Sears by such
unauthorized use, and TechForce agrees that in the event
of breach of this Section 11.A by
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TechForce there would be no adequate remedy at law and
preliminary or permanent injunctive relief would be
appropriate.
B.
(1) The Sears Information and any customer list developed by
TechForce, its employees or agents from the operation of,
or from records generated as a result of the Work
(collectively, the "Customer Information"), are deemed
exclusively owned by Sears. TechForce shall not use,
permit use, disclose or permit disclosure of such Customer
Information for any purpose except the performance of this
Agreement. TechForce shall not reproduce, release or in
any way make available or furnish, either directly or
indirectly, to any person, firm, corporation, association
or organization at any time, any such Customer Information
which will or may be used to solicit sales or business
from such customers, including but not limited to the type
of sales or business covered by this agreement. Upon
written request by Sears during the term and on expiration
or termination of this Agreement for any reason, TechForce
shall immediately deliver all copies of lists of customers
and copies of all other such Customer Information to
Sears; and TechForce, its officers, employees, successors
and assigns, shall not use any such Customer Information
to solicit such customers. TechForce shall protect all
such Customer Information from destruction, loss or theft
during the term of this Agreement, and until all copies of
customer lists and copies of all other Customer
Information are turned over to Sears. TechForce
acknowledges that there is no adequate remedy at law for
violation by TechForce of this Section 12B. and, in the
event of breach of this Section, preliminary or permanent
injunctive relief would be appropriate.
(2) Customer acknowledges that certain computer software and
associated documentation ("TechForce Software") provided
by TechForce in the course of performing Work represents a
unique competitive advantage to TechForce. Customer agrees
not to use the TechForce Software at any time without the
prior written consent of TechForce. Upon termination of
this Agreement, Customer shall promptly return all
TechForce Software to TechForce. Customer acknowledges
that there is no adequate remedy at law for violation by
Customer of this Section 12B. and, in the event of breach
of this Section, preliminary or permanent injunctive
relief would be appropriate. Nothing shall be considered
TechForce Software unless specifically acknowledged in
writing by Customer.
12. Independent Contractors.
(1) TechForce and Customer shall at all times remain independent contractors.
No partnership, joint venture or similar arrangement is intended by this
Agreement. TechForce shall employ all management and other personnel
necessary for the efficient provision of the Work. TechForce shall remain
primarily liable to Customer for all Work and other obligations
subcontracted by TechForce to a third party.
(2) TechForce has no authority to employ persons on behalf of Customer and no
employees of TechForce shall be deemed to be employees or agents of
Customer. TechForce has sole and exclusive control over its labor and
employee relation's policies, and its policies relating to wages, hours,
working conditions, or conditions of its employees. TechForce has the sole
and exclusive right to hire, transfer, suspend, lay off, recall, promote,
assign, discipline,
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adjust grievances an discharge its employees, provided, however, that
Customer may request at any time that TechForce Transfer and preclude from
doing Work pursuant to this agreement any employee who is objectionable to
Customer because of risk of hard to the health, safety and/or security of
End Users, employees or merchandise and/or whose manner impairs Customer's
customer relations. If Customer objects to any of TechForce's employees and
TechForce determines not to remove such employee, Customer may terminate
any affected location by giving thirty (30) days notice to TechForce.
(3) TechForce shall pay in a timely manner and is solely responsible for so
paying, for all salaries and other compensation of its employees and shall
make all necessary salary deductions and withholdings from its employees'
salaries and other compensation. TechForce shall pay in a timely manner,
and is solely responsible for so paying any and all contributions, taxes
and assessments and all other requirements of the Federal Social Security,
Federal and state unemployment compensation and Federal, state and local
withholding in income tax laws on all salary and other compensation of its
employees.
(4) TechForce shall comply with any other contract and all Federal, state and
local laws, ordinances, rules and regulations regarding its employees,
including, but not limited to, Federal or state laws or regulations
regarding minimum compensation, overtime and equal opportunities for
employment. Without limiting the foregoing, TechForce shall comply with the
terms of the Federal Civil Rights Acts, Age Discrimination in Employment
Act, Occupational Safety and Health Act, the Federal Fair Labor Standards
Act, and the Americans with Disabilities Act, whether or not TechForce may
otherwise be exempt from such acts because of its size or the nature of its
business or for any other reason whatsoever.
Section 13. Miscellaneous.
(a) Assignment. This Agreement shall inure to the benefit of and be binding
upon each of the parties and their respective successors and assigns. Bet,
neither the rights nor the duties of TechForce under this Agreement may be
voluntarily assigned or delegated without the prior written consent of the
Customer.
(b) Section Headings. All section headings and captions used in this Agreement
are purely for convenience and shall not affect the interpretation of this
Agreement.
(c) Applicable Law. This Agreement shall be governed by and interpreted in
accordance with the laws of Illinois. (d) Modification. This Agreement
shall not be modified except by written agreement signed on behalf of
TechForce and the Customer by their respective authorized officers.
(e) Exclusive Agreement. This Agreement supersedes all prior understandings,
representations, negotiations and correspondence between the parties,
constitutes the entire Agreement between them with respect to the matters
described, and shall not be modified or affected by any course of dealing,
course of performance, or usage of trade.
(f) Severability. If any provision of this Agreement is held to be invalid,
illegal or unenforceable, the validity, legality, and enforceability of the
remaining provisions shall in no way be affected or impaired.
(g) Waiver. The Failure of ether party at any time to require performance by
the other of any provision of this Agreement shall in no way affect that
party's right to enforce such provision, nor shall the waiver by either
party of any breach of any provision of this Agreement be taken or held to
be a waiver of any further breached of the same provision or any other
provision.
(h) Survival. The right and obligations of the parties shall survive expiration
of the Term or earlier termination of this Agreement.
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(i) Counterparts. This Agreement may be executed in any number of counterparts
and each fully executed counterpart shall be deemed an original.
(j) Excusable Delay. Either party shall not be responsible to the other for any
excusable delay in the performance of its duties under this Agreement. Each
party shall promptly notify the other when an excusable delay has occurred
or is likely to occur, and in each specify to the extent practicable, the
estimated duration of such excusable delay. Excusable delay shall mean Acts
of God, strikes, lock outs, riots, acts of war, epidemics, fire,
communication line failures, power failures, earthquakes or other
disasters.
(k) Invoice Procedures and Payment Terms. TechForce shall submit invoices at
least monthly to Customer for Fees as set forth in Exhibit B. Payment of
Feeds due for any invoice is due no later than thirty (30) days following
the date of invoice. Any Fee or any other sum to be paid by the Customer to
TechForce not received by TechForce within Sixty (60) days from the invoice
date, shall accrue interest, in addition to any amount due, at the rate of
one and one half (1-1/2%) percent of the amount due per month from the date
due including previous accrued interest. Notwithstanding the foregoing,
TechForce will invoice Customer on a weekly basis, providing both a summary
invoice and detailed invoice. AT least seven business days prior to sending
the monthly invoice for Fees, TechForce will provide a "pre-bill" invoice
for reconciliation purposes. All such invoices shall be in form and
substance as requested by Customer.
(l) Notices. All notices, approvals, requests, consents, and other
communications given pursuant to this Agreement shall be in writing and
shall be effective when received, or, if earlier, five (5) days after it is
sent, and shall be hand-delivered, set by telex, sent by Federal Express
service or sent by United States certified or registered mail, addressed as
follows:
If to Customer: Sears Roebuck and Co.
Attn: Category Support Manager
3333 Beverly Road
Hoffman Estates, IL 60179
If to TechForce: TechForce Corporation
Attn: Jerrel Kee, Chief Financial Officer
Bay Vista Drive, Suite 340
Clearwater, FL 33760-3117
(m) Arbitration. Any controversy or claim related to or arising from this
Agreement and/or the services to be provided by TechForce shall be subject
to binding arbitration before the American Arbitration Association in
Chicago, Illinois, and shall be conducted on a confidential basis pursuant
to the US Arbitration Act and the then current commercial Arbitration Rules
of the American Arbitration Association. Arbitration shall be conducted by
three arbitrators, at least one of whom shall be knowledgeable of the
repair of electronics equipment. The arbitrators shall have no authority to
award punitive damages or any other form of non-compensatory damages. The
prevailing party shall, however, be entitled, as part of the award such
arbitrators may award, to its expenses of arbitration, including reasonable
attorneys' fees. Judgment upon the arbitrators' award may be entered and
enforced in any court of competent jurisdiction. Neither party shall be
precluded from seeking injunctive relief in a court of competent
jurisdiction for the purpose of maintaining the status quo pending binding
arbitration provided, however, such court proceedings shall not preclude or
stay binding arbitration.
Section 14. Validity of Agreement.
-9-
<PAGE>
This Agreement shall not be valid nor binding upon either party unless it shall
have been executed by an officer of each party.
IN WITNESS WHEREOF, the parties have signed this Agreement on the date written
below.
Sears, Roebuck and Co. TECHFORCE CORPORATON
By: By:
Title: VP/GM Product Services Title: President / CEO
--------------------------- ---------------
Date: August 5, 1997 Date: July 31, 1997
----------------------------------- -------------
-10-
<PAGE>
Exhibit 21.1
<TABLE>
<CAPTION>
<S> <C>
LISTS OF SUBSIDIARIES
TechForce U.K. Limited Registered under the Companies Act of England, 1985.
TechForce of Nevada, Inc. Incorporated under the laws of the State of Nevada.
</TABLE>
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation of our report dated February 20, 1998, included in this Form
10-K into TechForce Corporation's previously filed Registration Statement
(File Nos. 333-1936, 333-1938, 333-1940 and 333-1942).
/s/ ARTHUR ANDERSEN
ARTHUR ANDERSEN LLP
Tampa, Florida
March 30, 1998
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC AUDITORS
As independent public accountants, we hereby consent to the incorporation of
our report dated 24 March 1998 on the Financial Statements for the year
ended 31 December 1997 included in this Form 10-K into TechForce
Corporation's previously filed Registration Statements (File Nos. 333-1936,
333-1938, 333-1940 and 333-1942).
/s/ Pridie Brewster
London
30 March 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TECHFORCE
CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1997
(IN THOUSANDS) AND TECHFORCE CORPORATION AND SUBSIDIARIES CONSOLIDATED
STATEMENTS OF INCOME FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997 (IN
THOUSANDS, EXCEPT PER SHARE DATA) AND IS QUALIFIED IN ITS ENTIRETY BY
</LEGEND>
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 736
<SECURITIES> 3,175
<RECEIVABLES> 13,172
<ALLOWANCES> 343
<INVENTORY> 3,461
<CURRENT-ASSETS> 25,332
<PP&E> 25,932
<DEPRECIATION> 10,968
<TOTAL-ASSETS> 50,673
<CURRENT-LIABILITIES> 11,313
<BONDS> 7,868
0
0
<COMMON> 81
<OTHER-SE> 31,412
<TOTAL-LIABILITY-AND-EQUITY> 50,673
<SALES> 27,747
<TOTAL-REVENUES> 64,915
<CGS> 18,545
<TOTAL-COSTS> 44,491
<OTHER-EXPENSES> 16,258
<LOSS-PROVISION> (382)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,165
<INCOME-TAX> 1,460
<INCOME-CONTINUING> 2,664
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,664
<EPS-PRIMARY> 0.33
<EPS-DILUTED> 0.32
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<PAGE>
<ARTICLE> 5
<RESTATED>
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-END> DEC-31-1996 JUN-30-1996 SEP-30-1996
<CASH> 3,943 1,758 1,794
<SECURITIES> 2,298 3,228 3,272
<RECEIVABLES> 13,532 13,734 12,118
<ALLOWANCES> 845 895 861
<INVENTORY> 4,445 5,035 5,100
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<PP&E> 18,046 14,181 16,168
<DEPRECIATION> 6,736 4,744 5,745
<TOTAL-ASSETS> 46,482 39,707 40,934
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<BONDS> 3,384 1,977 4,108
0 0 0
0 0 0
<COMMON> 79 79 79
<OTHER-SE> 28,414 26,432 27,316
<TOTAL-LIABILITY-AND-EQUITY> 46,482 39,707 40,934
<SALES> 28,081 6,081 6,444
<TOTAL-REVENUES> 63,273 13,341 14,934
<CGS> 19,504 4,142 4,669
<TOTAL-COSTS> 42,754 9,810 9,805
<OTHER-EXPENSES> 16,781 3,682 3,670
<LOSS-PROVISION> 845 645 861
<INTEREST-EXPENSE> 102 67 29
<INCOME-PRETAX> 3,635 (863) 1,388
<INCOME-TAX> (1,312) 355 (524)
<INCOME-CONTINUING> 2,323 (508) 864
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 2,323 (508) 864
<EPS-PRIMARY> .30 (.06) .11
<EPS-DILUTED> .28 (.06) .10
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<PAGE>
<ARTICLE> 5
<RESTATED>
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-END> MAR-31-1997 JUN-30-1997 SEP-30-1997
<CASH> 702 1,175 2,619
<SECURITIES> 5,336 5,386 4,134
<RECEIVABLES> 14,231 12,324 12,322
<ALLOWANCES> 676 425 313
<INVENTORY> 4,129 2,715 3,480
<CURRENT-ASSETS> 27,224 25,183 26,144
<PP&E> 19,423 22,426 24,363
<DEPRECIATION> 7,482 8,461 9,603
<TOTAL-ASSETS> 48,024 49,920 52,031
<CURRENT-LIABILITIES> 12,879 13,000 13,875
<BONDS> 3,213 6,422 6,194
0 0 0
0 0 0
<COMMON> 80 80 81
<OTHER-SE> 29,344 30,418 30,754
<TOTAL-LIABILITY-AND-EQUITY> 48,024 49,920 52,031
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<TOTAL-REVENUES> 17,661 32,805 47,224
<CGS> 5,488 9,414 12,745
<TOTAL-COSTS> 12,350 22,028 32,059
<OTHER-EXPENSES> 3,761 7,746 11,630
<LOSS-PROVISION> 676 31 (21)
<INTEREST-EXPENSE> 0 0 0
<INCOME-PRETAX> 1,509 2,974 3,486
<INCOME-TAX> 549 1,081 1,261
<INCOME-CONTINUING> 1,550 1,893 2,225
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<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 960 1,893 2,225
<EPS-PRIMARY> .12 .12 .04
<EPS-DILUTED> .12 .11 .04
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