1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JULY 31,
1995
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-23144
PERSONNEL MANAGEMENT, INC.
(Exact name of small business issuer as specified in its charter)
INDIANA 35-1671569
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1499 Windhorst Way, Suite 100
Greenwood, Indiana 46143
(Address of principal executive offices) (Zip Code)
(317) 888-4400
(Issuer's telephone number, including area code)
N/A
(Former address at last report)
Check whether the issuer (1) filed all reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act during the
past 12 months (or for such shorter period that the issuer was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: Yes (X) No ( )
The number of shares outstanding of the issuer's Common Stock,
without par value, at September 8, 1995 was 1,991,087 shares.
Transitional Small Business Disclosure Format: Yes ( ) No (X)
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PERSONNEL MANAGEMENT, INC.
INDEX
PART I - FINANCIAL INFORMATION
Item 1 - Consolidated Financial Statements
(Unaudited)
Condensed Consolidated Balance Sheets
at July 31, 1995 and October 31, 1994 3
Condensed Consolidated Statements of
Income for the three months ended
July 31, 1995 and 1994 4
Condensed Consolidated Statements of
Income for the nine months ended
July 31, 1995 and 1994 5
Condensed Consolidated Statements of
Cash Flows for the nine months ended
July 31, 1995 and 1994 6
Notes to Condensed Consolidated
Financial Statements 7
Item 2 - Management's Discussion and Analysis
of Financial Condition and Results
of Operations 9
PART II - OTHER INFORMATION
Item 5 - Other Information 13
Item 6 - Exhibits and Reports on Form 8-K 13
SIGNATURE 14
EXHIBIT INDEX 15
3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
PERSONNEL MANAGEMENT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
July 31, 1995 October 31, 1994
(restated)
(unaudited) (audited)
ASSETS
CURRENT ASSETS
Cash $ 8,050 $ 238,399
Accounts receivable, net 5,644,550 6,445,653
Prepaid expenses and other current
assets 496,789 327,753
Deferred tax asset 333,452 221,452
Total Current Assets 6,482,841 7,233,257
Property and equipment, net 1,322,286 1,126,721
Notes receivable, shareholder 462,812 447,053
Goodwill, net 5,473,328 5,211,899
Other 168,515 27,050
Total Assets $13,909,782 $14,045,980
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Cash overdraft $ 106,293 $ 105,380
Bank line of credit 135,000 -
Accounts payable 372,943 536,132
Accrued compensation and benefits 1,238,642 1,508,897
Accrued workers' compensation claims 767,925 516,446
Income taxes payable 5,173 136,997
Other current liabilities 23,190 -
Current portion of notes payable 814,337 780,304
Total Current Liabilities 3,463,503 3,584,156
Notes payable 2,462,503 3,071,922
Deferred tax liability 69,541 69,541
SHAREHOLDERS' EQUITY
Common stock 7,683,156 4,564,071
Retained earnings 230,759 2,756,290
Total Shareholders' Equity 7,913,915 7,320,361
Total Liabilities and Shareholders'
Equity $13,909,782 $14,045,980
See accompanying notes.
/TABLE
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PERSONNEL MANAGEMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
THREE MONTHS ENDED JULY 31,
1995
(restated) 1994
Revenues $14,775,088 $10,033,114
Expenses
Cost of services 11,767,743 8,036,903
General and administrative 2,443,791 1,386,312
Selling 114,895 46,810
Amortization of goodwill 68,928 -
14,395,357 9,470,025
Income from operations 379,731 563,089
Other income (expense) (73,777) 18,560
Income before income taxes 305,954 581,649
Income taxes 146,966 208,274
Net income $ 158,988 $ 373,375
Net income per share $ 0.08 $ 0.19
See accompanying notes.
/TABLE
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PERSONNEL MANAGEMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
NINE MONTHS ENDED JULY 31,
1995
(restated) 1994
Revenues $45,452,443 $25,316,023
Expenses
Cost of services 36,536,933 20,387,745
General and administrative 7,308,326 3,598,915
Selling 319,786 147,285
Amortization of goodwill 206,783 -
44,371,828 24,133,945
Income from operations 1,080,615 1,182,078
Other income (expense) (231,718) 18,813
Income before income taxes 848,897 1,200,891
Income taxes 407,771 464,274
Net income $ 441,126 736,617
Pro forma adjustment for income
tax provision 56,700
Pro forma net income $ 679,917
Net income per share $ 0.22 $ 0.42
Pro forma adjustment for income
tax provision 0.04
Pro forma net income per share $ 0.38
See accompanying notes.
/TABLE
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PERSONNEL MANAGEMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
NINE MONTHS ENDED JULY 31,
1995
(restated) 1994
OPERATING ACTIVITIES
Net income $ 441,126 $ 736,617
Adjustments to reconcile net income
to net cash provided by operating
activities:
Amortization and depreciation 415,806 59,932
Compensation expense from stock
transactions - 53,656
Interest earned on shareholder loans (15,759) (14,463)
Deferred income taxes (112,000) -
Changes in operating assets and
liabilities:
Accounts receivable 801,103 (1,380,814)
Prepaid expenses and other assets (310,502) (900)
Accounts payable (163,189) 171,493
Accrued liabilities and other payables (127,410) 405,896
NET CASH PROVIDED BY OPERATING
ACTIVITIES 929,175 31,417
INVESTING ACTIVITIES
Purchases of businesses and additions to
goodwill (468,212) (401,101)
Purchases of property and equipment (404,588) (204,746)
Purchases of investments - (2,439,832)
Sale of investments - 496,139
NET CASH USED BY INVESTING ACTIVITIES (872,800) (2,439,832)
FINANCING ACTIVITIES
Cash dividends (71) (328,956)
Tax benefit resulting from exercise
of stock options 152,500 -
Net proceeds from sale of common stock - 4,403,917
Retirement of common stock - (294,083)
Net payments on notes payable (575,066) (1,866)
Net borrows (payments) on line of credit 135,000 (240,500)
Payments on notes payable, employees - (195,330)
NET CASH PROVIDED (USED) BY FINANCING
ACTIVITIES (287,637) 3,343,182
Increase (decrease) in cash (231,262) 934,767
Cash (overdraft)at beginning of year 133,019 (486,057)
CASH (OVERDRAFT)AT END OF PERIOD $ (98,243) $ 448,710
See accompanying notes.
/TABLE
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PERSONNEL MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1995
(unaudited)
1. Basis of Presentation
The accompanying financial statements have been prepared by the Company,
pursuant to the rules and regulations of the Securities and Exchange
Commission (SEC). This Report on Form 10-QSB/A should be read in
conjunction with the Company's financial statements and notes thereto for
the year ended October 31, 1994 included in the Company's 1994 Annual
Report to Shareholders. Certain information and footnote disclosures
which are normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or
omitted pursuant to SEC rules and regulations. The information reflects
all normal and recurring adjustments which, in the opinion of management,
are necessary for a fair presentation of the financial position of the
Company and its results of operations for the interim periods set forth
herein. Especially because of the seasonality of the Company's business,
the results for the three and nine months ended July 31, 1995 are not
necessarily indicative of the results to be expected for the full year.
The financial statements include the combined financial position,
operations and cash flows for Personnel Management, Inc. and its wholly-
owned subsidiaries, hereafter referred as "the Company".
2. Per Share Disclosures
Per share amounts are based on the weighted average number of shares of
common stock outstanding during the period (retroactively adjusted to give
effect to subsequent stock dividends), including the dilutive effect of
warrants, stock options and shares issued to employees at prices below
fair market value. For the aforementioned items, the effect on the
weighted average number of shares outstanding was computed using the
treasury stock method assuming issuance at the beginning of the earliest
period presented.
3. Income Taxes
From November 1, 1992 to January 31, 1994, the shareholders of the Company
elected, under Subchapter S of the Internal Revenue Code, to include the
Company's income in their own income for income tax purposes. Therefore,
the Company made no provision for federal or state income taxes during
that period. The pro forma income tax provisions included in the
condensed combined statements of income give effect to the termination of
the S corporation election as if it occurred on November 1, 1993 and was
calculated using an estimated effective income tax rate of 37.5%.
Effective February 1, 1994, the Company terminated its S Corporation
status in connection with its initial public offering.
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4. Stock Dividend
On March 16, 1995 the Board of Directors declared a ten percent stock
dividend payable on April 24, 1995 to the holders of record of Common
Shares of the Company. No fractional shares were created, and the Company
paid to each holder of record who otherwise would have been entitled to
receive a fractional share the value of the fractional interests. An
aggregate of 179,797 whole Common Shares were issued by the Company
pursuant to the stock dividend. The number of shares outstanding and all
per share disclosures for periods prior to April 24, 1995 have been
retroactively adjusted to give effect to the stock dividend.
5. The financial statements for the three and nine months ended July 31, 1995
have been restated to reflect adjustments discovered during the Company's
year-end audit.
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Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" included in the Company's 1994 Annual Report to
Shareholders and the comparable discussion and analysis included in
the Company's two previously restated quarterly reports on Form 10-
QSB/A for the first and second quarters of the 1995 fiscal year.
OVERVIEW
For the three months ended July 31, 1995, the Company's revenues
increased by $4,742,000 or 47%, compared to the comparable 1994
period. However, the Company's net income declined by $214,000 or
57% and net income per share declined from $.19 to $.08 or 58%. The
central Indiana offices of PMI that were open during both quarters
experienced a 26% decline in revenues for the third quarter of 1995
compared to 1994. The increase in revenues during the 1995 third
quarter is therefore attributable to the addition during the last
four months of the Company's fiscal year ended October 31, 1994 ("FY
1994"), of temporary help businesses serving areas of northern and
southern Indiana, northern Kentucky and southwestern Florida, and
the opening of new offices by the Company since July 31, 1994.
Management believes that same-office revenues will not experience
substantial growth in the fourth quarter of 1995 compared to the
third quarter 1995, and does not expect a significant growth in
usage of temporary employees by its industrial clients for the
remainder of the 1995 calendar year. Management expects net income
and net income per share for the fourth quarter of 1995 to be less
than that of the fourth quarter of 1994.
Management attributes the decline in net income for the third
quarter, and the anticipated decline in net income for the fourth
quarter of 1995, to the following two factors:
1. Lower than anticipated revenues, primarily as a result
of a slowdown in manufacturing activity in Indiana.
2. Higher expenses associated with:
a. the Company's ongoing acquisition program
b. the Company's obligations as a public company
c. the opening of new branch offices
d. the integration of prior acquisitions into the
PMI\fsystem
e. increased interest expense and goodwill resulting
from completed acquisitions
f. staffing of branches and administration in
anticipation of substantial revenue growth that
infact did not materialize
10
The following discussion will first address the revenue and expense
factors identified above, then will comment on other aspects of
Results of Operations for the comparable three and nine month
periods presented by the Condensed Consolidated Statements of Income
included in Item 1 of this report, and finally will address certain
factors bearing upon the Company's financial condition, liquidity
and capital resources.
REVENUES
PMI's primary focus is on industrial staffing, and the majority of
its offices are located in the state of Indiana. As previously
announced in early June 1995, PMI believes, based on publicly
available statistics and its discussions with its industrial
customers, that manufacturing activity in the state of Indiana
(particularly in automotive related industries, which represent a
significant segment of PMI's Indiana industrial clientele) has not
experienced significant growth in the six months ended July 31, 1995
compared to 1994. During July 1995 several of PMI's major
manufacturing clients idled their plants for several days. Unlike
in prior years in which PMI generally recorded its greatest revenue
in its fiscal fourth quarter, PMI does not anticipate significant
growth in usage of temporary employees by its industrial clients
during the remainder of the 1995 calendar year.
In addition, the temporary help businesses serving northern Indiana
that PMI acquired in September 1994 have not achieved the revenues
that those businesses had recorded during the year preceding their
acquisition by PMI. The low sales in the northern Indiana region of
PMI have resulted primarily from the loss of three significant
customers that had accounted for about $3,500,000 of annual revenue
(approximately 37% of the pre-acquisition revenues of that region)
and an under performing sales team. To improve sales in this region,
PMI has replaced key managers and tripled the sales force.
Offsetting to some extent the loss of business suffered by the
northern Indiana region has been better-than-expected revenue
generated by the Florida temporary help businesses acquired by PMI
in June 1994 and the steady revenue from the southern Indiana region
acquired in September 1994.
EXPENSES
PMI's gross profit (revenues less cost of services) increased during
the third quarter of 1995 by 51% compared to the third quarter of
1994, exceeding the 47% increase in revenues between those two
quarters. However, net income declined in the third quarter as the
result of substantial increases in general and administrative
expenses and interest expense, which together increased by
$1,151,000 or 84%, compared to the third quarter of 1994. Of this
amount, approximately $250,000 related to the opening of five new
branch offices, and approximately $300,000 consisted of increased
costs relating to past acquisitions (including interest expense on
acquisition debt and goodwill amortization), increased professional
fees and other expenses incurred by the Company in connection with
potential acquisitions, and increased costs of compliance imposed
upon public companies. The balance (representing approximately
$601,000 or 52% of the increase) reflected normal increases in G&A
expenses as the result of the 47% increase in sales.
11
The lack of the expected sales growth resulted in overstaffing in
the branches and in general administration. To reduce expenses, PMI
has consolidated four non-profitable branches and reduced staffing
at both the administrative and branch levels. PMI has also
restructured assignments in its branch offices to keep staff as
close to clients as possible and to keep all staff members
responsible for the profitability of their offices. In addition,
the executive officers of the Company have agreed to a reduction of
their bonus entitlements for fiscal year 1995.
SELECTED INCOME STATEMENT COMPARISONS
REVENUES. The increased revenue of the Company for the three
months ended July 31, 1995 is addressed above. For the nine months
ended July 31, 1995, revenues increased by 80% or $20,136,000
compared to the 1994 period, to $45,452,000. All of this increase
is attributable to offices acquired during the last four months of
fiscal 1994 and the opening since July 31,1994 of new branch
offices, as stated above. Same-office revenues declined 4% for the
nine months ended July 31, 1995.
COST OF SERVICES. Costs of services for the three months ended July
31, 1995 increased 46% or $3,730,000 compared to the 1994 period, to
$11,767,000. Costs of services for the nine months ended July 31,
1995 increased 79% or $16,149,000 compared to the 1994 period, to
$36,537,000. Increased costs of services in these 1995 periods were
primarily due to the increased volume of services provided to
clients. Costs of services as a percentage of revenues remained
relatively stable at approximately 80% for the nine months in 1995
and 1994.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased 76% or $1,058,000 for the three months ended July
31, 1995 compared to the 1994 period, to $2,444,000. For the
comparative nine month periods, G&A increased 103% or $3,709,000 to
$7,308,000 in 1995. The increase in G&A expenses for both the three
and nine month periods was discussed above in the Overview section.
As a percentage of revenues, G&A expenses increased from 14% for the
nine months in 1994 to 16% for the comparable nine months in 1995.
SELLING EXPENSES. Selling expenses for the three and nine month
periods in 1995 increased 145% and 118%, respectively, compared to
1994, as a result of the Company's growth in revenues and increased
selling efforts, particularly in the Northern Indiana region.
AMORTIZATION OF GOODWILL. Goodwill represents the unamortized cost
in excess of fair value of net assets acquired and is being
amortized on a straight-line basis over 20 years. Goodwill
amortization for the three and six month periods of 1995 was $69,000
and $207,000, respectively. No amortization was incurred in the
corresponding prior year periods.
OTHER INCOME (EXPENSE). Other expense, primarily interest expense
(net of interest income), increased to $74,000 and $231,000 for the
three and nine month periods in 1995, respectively, compared to net
interest income of $19,000 for both the comparable periods of 1994.
This increase in interest expense was a result of an October 1994
borrowing to fund an acquisition.
12
INCOME TAXES. The Company became subject to federal income and
state gross income taxation effective February 1, 1994 following
termination of its S Corporation status. Prior to February 1994 pro
forma income taxes were calculated using an effective income tax
rate of 37.5% in 1994.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Goodwill increased $261,000 or 5%, net of 1995 amortization, from
October 31, 1994 to July 31, 1995 primarily as the result of the
payments of additional purchase price for the first nine months of
1995 to the prior owners of businesses acquired during 1994 under
the earnout provisions of the acquisition agreements.
Net cash provided by operating activities for the nine months ended
July 31, 1995 was $929,000 due primarily to the collection of
accounts receivable. These funds were used by the Company to make
payments on outstanding indebtedness, purchase property and
equipment for use in the business, and for earnout payments to prior
owners of businesses acquired by the Company.
The Company has available to it a $2,000,000 line of credit with its
bank lender that may be used only for general working capital
purposes. The bank has orally extended this line of credit through
February 28, 1996. Management believes that cash provided by
operations, augmented by borrowings for working capital purposes
under this line of credit, will be adequate to satisfy the Company's
operating cash requirements during the remainder of 1995 and the
first fiscal quarter of 1996.
On September 1, 1995, the Company announced that its Board of
Directors had authorized the Company to repurchase up to $700,000 of
its Common Shares. A copy of this announcement is filed as Exhibit
99 to this report and is incorporated herein by reference. The
Company's bank lender has committed to make available to the Company
a $700,000 overline credit facility for the purpose of funding the
acquisitions of stock under this program pursuant to a commitment
letter dated September 1, 1995. A copy of this commitment letter is
filed as Exhibit 10.4 to this report and incorporated herein by
reference. At September 8, 1995, the Company had not acquired
shares under this program.
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PART II - OTHER INFORMATION
Item 5. Other Information
On September 1, 1995, the Company announced that its Board of
Directors had authorized a $700,000 stock repurchase program.
A copy of the September 1, 1995 News Release is filed as
Exhibit 99 to this report and is incorporated herein by
reference.
On August 28, 1995, Max DeJonge was appointed to the Board of
Directors for a term expiring at the annual meeting of
shareholders in 1996. Mr. DeJonge is the President of O'Neal
Steel, Inc.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The exhibits listed in the Exhibit Index on page 15 (which
Exhibit Index is incorporated herein by reference) are filed
as part of this report.
(b) Reports on Form 8-K
There were no current reports on Form 8-K filed by the Company
during the three months ended July 31, 1995.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
PERSONNEL MANAGEMENT, INC.
Dated: June 24, 1996, By: /s/ Robert R. Millard
as of September 13, 1995
Robert R. Millard, Vice
President of Finance and
Administration (Principal
Financial Officer and
Authorized Signatory)
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EXHIBIT INDEX
Exhibit No. Description of Exhibit
10.1 Stock Option Agreement between
the Company and James E.
Burnette, dated July 1, 1995
(Replacement Options)*
10.2 Amended Schedule of Options
Granted under 1994 Director
Stock Option Plan*
10.3 Second Amended and Restated
Master Promissory Note, made
by the Company to Society
National Bank, Indiana dated
June 9, 1995*
10.4 Commitment letter for $700,000
overline credit facility from
Society National Bank, Indiana
to the Company dated
September 1, 1995*
11.1 Statement Re: Computation
of Earnings Per Share for the three
months ended July 31, 1995 and 1996
11.2 Statement Re: Computation
of Earnings Per Share for the nine
months ended July 31, 1995 and 1996
27 Financial Data Schedule
99 News Release issued by the
Company dated September 1, 1995
(announcing stock repurchase
program)*
* Filed with original quarterly report on Form 10-QSB for the
quarterly period ended July 31, 1995.