1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 1996
/ / 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 0-16284
NATIONAL TECHTEAM, INC.
-------------------------------
(Name of issuer in its charter)
DELAWARE 38-2774613
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
22000 Garrison Avenue, Dearborn, MI 48124
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (313) 277-2277
----------------
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 / /
The number of shares of the registrant's only class of common stock outstanding
at May 8, 1996 was 11,344,102.
2
NATIONAL TECHTEAM, INC.
FORM 10-Q
INDEX
PART I - FINANCIAL INFORMATION PAGE
ITEM 1.
Consolidated Statements of Operations
Three Months Ended
March 31, 1996 and 1995 3
Consolidated Statements of Financial Position
March 31, 1996 and December 31, 1995 4-5
Consolidated Statements of Cash Flows
Three Months Ended
March 31, 1996 and 1995 6
Notes to the Unaudited Consolidated Financial Statements 7
ITEM 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-9
PART II - OTHER INFORMATION
ITEM 6.
Exhibits and Reports on Form 8-K 10
SIGNATURES 10
2
3
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
Three Months Ended March 31
1996 1995
----------- ------------
REVENUES
Call center services $ 6,828,350 $ 2,329,766
Corporate support services 3,856,580 3,498,080
Systems integration 2,497,905 1,627,668
Training programs 1,224,776 1,005,347
----------- -----------
14,407,611 8,460,861
----------- -----------
COSTS AND EXPENSES
Call center services 5,019,280 1,384,356
Corporate support services 2,788,954 2,489,786
Systems integration 2,268,952 1,544,691
Training programs 1,169,698 857,656
Selling, general and administrative 1,647,884 1,274,101
Interest 21,112 1,609
----------- -----------
12,915,880 7,552,199
----------- -----------
INCOME BEFORE TAX PROVISIONS 1,491,731 908,662
TAX PROVISIONS 626,000 369,435
----------- -----------
NET INCOME $ 865,731 $ 539,227
=========== ===========
PRIMARY AND FULLY DILUTED
EARNINGS PER SHARE $ 0.08 $ 0.05
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES AND COMMON SHARE
EQUIVALENTS OUTSTANDING
Primary 11,339,612 11,540,496
Fully diluted 11,339,612 11,605,517
See accompanying notes.
3
4
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
UNAUDITED
ASSETS March 31 December 31
1996 1995
----------- -----------
CURRENT ASSETS
Cash and cash equivalents $ 638,901 $ 1,717,543
Accounts receivable (less allowances of
$248,165 at March 31, 1996 and
$200,000 at December 31, 1995) 15,712,032 13,269,272
Note receivable - current portion 53,333 53,333
Inventories 428,334 769,545
Other 428,324 381,751
----------- -----------
Total current assets 17,260,924 16,191,444
----------- -----------
PROPERTY AND EQUIPMENT
Office furniture and equipment 7,728,210 6,622,953
Leasehold improvements 720,201 681,223
Transportation equipment 154,395 154,395
----------- -----------
8,602,806 7,458,571
Less - Accumulated depreciation and amortization 3,347,799 2,898,257
----------- -----------
5,255,007 4,560,314
----------- -----------
OTHER ASSETS
Goodwill (less accumulated amortization of $397,086 at
March 31, 1996 and $354,512 at December 31, 1995) 1,482,692 1,252,585
Note receivable - long-term 93,334 102,222
Other 233,690 178,958
----------- -----------
1,809,716 1,533,765
----------- -----------
TOTAL ASSETS $24,325,647 $22,285,523
=========== ===========
See accompanying notes.
4
5
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
UNAUDITED
March 31 December 31
LIABILITIES AND SHAREHOLDERS' EQUITY 1996 1995
----------- -----------
CURRENT LIABILITIES
Current portion of long-term debt $ 181,104 $ 96,884
Accounts payable 827,278 893,965
Accrued payroll, related taxes and withholdings 1,399,668 2,037,446
Deferred income tax 89,839 89,839
Federal income tax payable 468,116 160,116
Deferred revenue and unapplied receipts 1,188,541 431,967
Other 160,069 128,312
----------- -----------
Total current liabilities 4,314,615 3,838,529
----------- -----------
LONG-TERM LIABILITIES
Deferred income tax 116,066 116,066
Long-term debt, less current portion 798,690 438,962
----------- -----------
914,756 555,028
----------- -----------
Shareholders' equity
Preferred stock, par value $.01
Authorized -- 5,000,000 shares
None issued
Common stock, par value $.01
Authorized -- 45,000,000 shares
Issued:
11,495,166 shares at March 31, 1996 114,952
11,407,666 shares at December 31, 1995 114,077
Additional paid-in capital 12,876,050 12,601,925
Retained earnings 6,948,703 6,082,972
----------- -----------
Total 19,939,705 18,798,974
Less - Treasury stock (185,591 shares at
March 31, 1996 and 200,000 shares at
December 31, 1995) 843,429 907,008
----------- -----------
Total shareholders' equity 19,096,276 17,891,966
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $24,325,647 $22,285,523
=========== ===========
See accompanying notes.
5
6
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
Three Months Ended March 31
1996 1995
----------- -----------
OPERATING ACTIVITIES
Net income $ 865,731 $ 539,227
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 577,001 295,728
Provision for uncollectible accounts receivable 48,165 13,143
Other 63,579 -
Changes in current assets and liabilities:
Accounts receivable (2,490,925) (1,646,495)
Inventories 341,211 (26,857)
Other current assets (46,573) (230,880)
Accounts payable (66,687) 58,998
Accrued payroll, related taxes and withholdings (637,778) 179,307
Federal income tax 308,000 203,357
Deferred revenue and unapplied receipts 756,574 257,849
Other current liabilities 31,757 135,649
----------- -----------
Net cash used in operating activities (249,945) (220,974)
----------- -----------
INVESTING ACTIVITIES
Purchases of property and equipment (1,144,235) (371,704)
Development of training manuals (68,074) (12,659)
Purchases of temporary investments - (300,000)
Proceeds from sales of temporary investments - 1,200,000
Purchase of Coup, Inc. (272,681) -
Other-net (62,655) -
----------- -----------
Net cash provided by (used in) investing activities (1,547,645) 515,637
----------- -----------
FINANCING ACTIVITIES
Proceeds from long-term borrowings 480,212 -
Proceeds from issuance of common stock 275,000 175,100
Purchase of Company common stock - (406,563)
Payments on long-term borrowings (36,264) (75,200)
----------- -----------
Net cash provided by (used in) financing activities 718,948 (306,663)
----------- -----------
Decrease in cash and cash equivalents (1,078,642) (12,000)
CASH AND CASH EQUIVALENTS AT BEGINNING OF QUARTER 1,717,543 412,559
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF QUARTER $ 638,901 $ 400,559
=========== ===========
See accompanying notes.
6
7
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements included herein have been prepared by
National TechTeam, Inc. ("TechTeam" or "Company") without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in the financial
statements prepared in accordance with generally accepted accounting principles
have been omitted pursuant to such rules and regulations.
The information provided in this report reflects all adjustments consisting of
normal recurring accruals which are, in the opinion of management, necessary to
present fairly the results of operations for these periods. The results of
operations for these periods are not necessarily indicative of the results
expected for the full year.
NOTE A -- EARNINGS PER SHARE
Earnings per share is computed using the weighted average number of common
shares and common share equivalents outstanding. Common share equivalents
consists of stock options and are calculated using the treasury stock method.
NOTE B -- REVENUES FROM MAJOR CUSTOMERS
Revenues from major customers were as follows:
1996 1995
---- ----
Amount Percent of Total Amount Percent of Total
------ ---------------- ------ ----------------
Three Month Ended March 31
- --------------------------
Ford Motor Company $4,534,356 31.5% $3,762,929 44.5%
Hewlett-Packard
Company 4,458,713 30.9 222,287 2.6
Chrysler Corporation 1,190,982 8.3 915,258 10.8
Corel Corporation 244,330 1.7 810,085 9.6
7
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship to revenues of
certain items in the Company's Consolidated Statements of Operations:
Three Months Ended March 31
---------------------------
1996 1995
---- ----
REVENUES
Call center services 47.4% 27.5%
Corporate support services 26.8 41.3
Systems integration 17.3 19.3
Training programs 8.5 11.9
------ ------
TOTAL REVENUES 100.0% 100.0%
====== ======
GROSS MARGIN (Revenues less directly related
expenses)
Call center services 26.5% 40.6%
Corporate support services 27.7 28.8
Systems integration 9.2 5.1
Training programs 4.5 14.7
------ ------
TOTAL GROSS MARGIN 21.9 25.8
SELLING, GENERAL AND ADMINISTRATIVE AND INTEREST (11.5) (15.1)
------ ------
NET MARGIN (INCOME BEFORE TAX PROVISIONS) 10.4% 10.7%
====== ======
COMPARATIVE PERFORMANCE FIRST QUARTER 1996 VERSUS FIRST QUARTER 1995
TechTeam earned net income of $865,731, or $0.08 per share, for the first
quarter 1996 as compared to a net income of $539,227, or $0.05 per share, for
the first quarter 1995. TechTeam's total revenues increased by $5,946,750 in
1996 to $14,407,611, a 70.3% increase over 1995 revenues.
Call center services - There was a $4,498,584 (193.1%) increase in revenues
generated from providing call center services. The Company had 18 contracts in
place at March 31, 1996 compared to the 12 contracts at March 31, 1995. The
margin on this line of service decreased between 1995 and 1996 as in 1995
$430,000 of revenues related to contracts under negotiation were recognized; no
similar revenues were recognized in 1996. This service line consists of
international 800 and 900 telephone support for computer hardware, computer
software and other products and services.
Corporate support services - There was a $358,500 (10.2%) increase in revenues
generated from providing computer support and contract staffing services. The
increase in corporate support services revenue resulted from continued customer
demand for TechTeam's computer programmers and other personnel at Ford and
other major accounts. The margin on this line of service decreased between
1995 and 1996 because of reduced margins negotiated by a major customer.
Corporate support services includes a variety of technical services, including
consulting, programming services, and the placement of computer personnel at
customer sites to support end-user applications via on-site help desks and
telephone hotline services. Contracts for these services are generally
negotiated on an hourly rate basis or are priced on a project basis.
Systems integration - There was a $870,237 (53.5%) increase in revenues in this
service line between 1995 and 1996. The increased revenues reflect increased
demand for TechTeam's systems integration, database design, network, and
applications development services. The margins increased because of increased
utilization of staff resources.
8
9
COMPARATIVE PERFORMANCE 1996 VERSUS 1995 - CONTINUED
Training programs - Revenues for 1996 increased $219,429 (21.8%) as compared to
1995, due to new business with new customers. The margin on this line of
service decreased between 1995 and 1996 because of start up costs related to
the new business referred to above. Training programs consist of instructor led
training for word processing, spreadsheets, graphics, data bases, desktop
publishing, operating systems, and systems administration for DOS, Windows,
Novell, OS/2, and UNIX and mainframe operating systems.
Selling, general and administrative and interest - These expenses, as a percent
of revenues were 11.5% in 1996 compared with 15.1% in 1995. This decline was
due to TechTeam's ability to significantly increase revenues without a
corresponding increase in administrative expenses.
Tax provisions - TechTeam recognized $468,000 of Federal income tax in 1996,
resulting in an effective tax rate of 35.1% for 1996 compared to 34.1% for
1995. The Michigan Single Business Tax in 1996 was $158,000, with an effective
tax rate of 10.5% compared to 9.0% for 1995.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1996, TechTeam had working capital of $12,946,309. This is an
increase in working capital of $593,394 since December 31, 1995, due primarily
to an increase in receivable balances which were due to increased revenues for
the first three months of 1996.
TechTeam has a line-of-credit agreement with NBD Bank which provides for
short-term borrowings of up to $3,500,000; the credit is unsecured. The
line-of-credit is at the prime rate. There were no borrowings under the credit
agreement at March 31, 1996 or at any time during the first quarter of 1996.
The Company expects to borrow under this arrangement to finance anticipated
increases in accounts receivable balances.
9
10
PART II
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits -
11. Computation of Earnings Per Share
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Company during the quarter
ended March 31, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
National TechTeam, Inc.
-----------------------
(Registrant)
Date: May 13, 1996 By:/s/William F. Coyro Jr.
----------------------------------------
William F. Coyro Jr.
Chairman of the Board and
Chief Executive Officer
Date: May 13, 1996 By:/s/Lawrence A. Mills
----------------------------------------
Lawrence A. Mills
Senior Vice President,
Chief Financial Officer and Treasurer
10