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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM 10-Q
_______________
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR
THE QUARTERLY PERIOD ENDED APRIL 1, 2001
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
________________________
COMMISSION FILE NUMBER 0-22869
HALL, KINION & ASSOCIATES, INC.
(Exact name of registrant as specified in its charter)
Delaware 77-0337705
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
185 Berry Street, Suite 180 94107
China Basin Landing (zip code)
San Francisco, California
(Address of principal executive offices)
Registrant's telephone number, including area code: (415) 974-1300
______________________
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) had been subject to such
filing requirements for the past 90 days. Yes X No [_]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of May 7, 2001:
13,198,518 shares of common stock.
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HALL, KINION & ASSOCIATES, INC.
FORM 10-Q
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION..................................................................................... 3
Item 1. Financial Statements...................................................................................... 3
Condensed Consolidated Balance Sheets at April 1, 2001 and December 31, 2000.............................. 3
Condensed Consolidated Statements of Income for the three months ended April 1, 2001 and March 26,
2000..................................................................................................... 4
Condensed Consolidated Statements of Cash Flows for the three months ended April 1, 2001 and March 26,
2000..................................................................................................... 5
Notes to Condensed Consolidated Financial Statements...................................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..................... 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings......................................................................................... 11
Item 6. Exhibits and Reports on Form 8-K.......................................................................... 11
SIGNATURES................................................................................................................. 14
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
HALL, KINION & ASSOCIATES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
(Unaudited)
April 1, December 31,
ASSETS 2001 20001/1/
-------------------------------------------
Current Assets:
Cash and equivalents........................................................... $ 32,629 $ 42,692
Accounts receivable, net of allowance for doubtful accounts of
$6,007 at April 1, 2001 and $3,455 at December 31, 2000..................... 33,104 43,143
Prepaid expenses and other current assets...................................... 3,334 2,653
Deferred income taxes.......................................................... 7,498 3,675
--------- ---------
Total current assets...................................................... 76,565 92,163
Property and equipment, net...................................................... 10,971 11,783
Goodwill, net.................................................................... 15,927 35,096
Other assets..................................................................... 967 779
Deferred income taxes............................................................ 4,779 -
--------- ---------
Total assets................................................................ $ 109,209 $ 139,821
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.............................................................. $ 4,233 $ 7,314
Accrued salaries, commissions, and related payroll taxes...................... 10,426 11,428
Accrued liabilities........................................................... 5,057 5,584
Income taxes payable.......................................................... 1,200 3,018
Reserve for restructuring costs............................................... 2,572 -
--------- ---------
Total current liabilities................................................... 23,488 27,344
Long-term debt and other obligations............................................. 233 209
Deferred income taxes............................................................ - 1,506
--------- ---------
Total liabilities........................................................... 23,721 29,059
--------- ---------
Stockholders' Equity:
Common stock; $0.001 par value; 100,000 shares
authorized; issued and outstanding: 13,199 shares at April 1,
2001 and 13,179 shares at December 31, 2000................................... 87,270 87,207
Stockholders' note receivable.................................................... (1,200) (2,267)
Accumulated translation adjustment............................................... (75) (72)
Retained earnings (deficit)...................................................... (507) 25,894
--------- ---------
Total stockholders' equity.................................................. 85,488 110,762
--------- ---------
Total liabilities and stockholders' equity.................................. $ 109,209 $ 139,821
========= =========
See notes to condensed consolidated financial statements.
1. December 31, 2000 Balance Sheet has been derived from audited financial
statements at that date.
3
HALL, KINION & ASSOCIATES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
Three months ended
April 1, 2001 March 26, 2000
------------- --------------
Net revenues:
Contract services............................................ $ 49,127 $ 48,086
Permanent placement.......................................... 11,784 13,494
--------- ---------
Total net revenues............................................ 60,911 61,580
Cost of contract services..................................... 32,669 32,017
--------- ---------
Gross profit.................................................. 28,242 29,563
Operating expenses........................................... 34,308 24,825
Impairment of long lived assets.............................. 26,736 -
Restructuring costs.......................................... 4,610 -
--------- ---------
Total operating expenses...................................... 65,654 24,825
--------- ---------
Income (loss) from operations................................. (37,412) 4,738
Other income (expense), net................................... 635 (201)
--------- ---------
Income (loss) before income taxes............................. (36,777) 4,537
Income tax benefit (expense).................................. 10,377 (1,883)
--------- ---------
Net income (loss)............................................. $ (26,400) $ 2,654
========= =========
Net income (loss) per share:
Basic....................................................... $ (2.00) $ 0.25
Diluted..................................................... $ (2.00) $ 0.23
Shares used in per share computation:
Basic....................................................... 13,190 10,480
Diluted..................................................... 13,190 10,579
See notes to condensed consolidated financial statements.
4
HALL, KINION & ASSOCIATES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Three months ended
April 1, March 26,
2001 2000
-------------------------------
Cash flows from operating activities:
Net income (loss)............................................................ $ (26,400) $ 2,654
Adjustments to reconcile net income (loss) to net cash used for
operating activities:
Depreciation and amortization............................................ 1,329 1,038
Deferred income taxes.................................................... (10,108) (811)
Interest on stockholder notes receivable................................. - (86)
Impairment of long-lived assets.......................................... 26,736 -
Restructuring costs...................................................... 1,891 -
Stockholders' note receivable forgiveness................................ 1,067 -
Changes in assets and liabilities:
Accounts receivable.................................................. 10,039 (8,396)
Prepaid expenses and other assets.................................... (995) (245)
Accounts payable and accrued expenses................................ (3,990) 4,255
Income taxes payable................................................. (1,888) 1,268
--------- ---------
Net cash used for operating activities............................. (2,319) (323)
--------- ---------
Cash flows from investing activities:
Purchase of property and equipment........................................... (1,970) (714)
Loss on sale of property and equipment....................................... 8 -
Cash paid for business acquisitions.......................................... (3,032) -
Earnout payments relating to business acquisitions........................... (2,883) (2,201)
--------- ---------
Net cash used for investing activities............................. (7,877) (2,915)
--------- ---------
Cash flows from financing activities:
Borrowing on debt............................................................ - 13,200
Notes payable repayments..................................................... - (11,498)
Proceeds from exercise of options............................................ 133 345
--------- ---------
Net cash provided by financing activities.......................... 133 2,047
--------- ---------
Net decrease in cash and equivalents............................................ (10,063) (1,191)
Cash and equivalents, beginning of period....................................... 42,692 1,191
--------- ---------
Cash and equivalents, end of period............................................. $ 32,629 $ -
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for-
Income taxes............................................................. $ 1,618 $ 223
Interest................................................................. $ 10 $ 1,195
Noncash investing and financing activities-
Tax benefit related to stock options..................................... $ 70 $ 5,341
See notes to condensed consolidated financial statements.
5
HALL, KINION & ASSOCIATES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation. The Condensed Consolidated Financial Statements have
been prepared by Hall, Kinion & Associates, Inc. ("the Company") pursuant to the
rules and regulations of the Securities and Exchange Commission ("SEC"). Certain
information and note disclosures normally included in annual financial
statements prepared in accordance with accounting principles generally accepted
in the United States ("GAAP") have been condensed or omitted pursuant to SEC
rules or regulations; however, the Company believes that the disclosures made
are adequate to make the information presented not misleading. You should review
these financial statements in conjunction with the financial statements and
notes thereto included in the Company's 10-K for the fiscal year ending December
31, 2000.
The unaudited interim financial information as of April 1, 2001 and for the
three months ended April 1, 2001 and March 26, 2000, have been prepared in
conformity with GAAP and included in the Company's Annual Report on Form 10-K
for the year. In the opinion of management, such unaudited information includes
all adjustments (consisting only of normal recurring accruals plus certain
adjustments disclosed in notes 4 and 5) necessary for a fair presentation of
this information. Operating results for the three months ended April 1, 2001,
are not necessarily indicative of the results that may be expected for the year
ending December 30, 2001.
2. Comprehensive Income. Statement of Financial Accounting Standards ("SFAS")
No.130, "Reporting Comprehensive Income," requires reporting by major components
and as a single total, the change in the Company's net assets during the period
from nonowner sources. For the three months ended April 1, 2001 and March 26,
2000, the change in net assets from nonowner sources was ($3,000) and $0,
respectively, for the change in the accumulated translation adjustment, and
comprehensive income was ($26,403,000) and $2,654,000, respectively.
3. Stockholder's Equity. In January 1999, the Company loaned Brenda C. Rhodes,
Chief Executive Officer, $2,000,000, which bears interest at the Company's
incremental rate of borrowing plus 1/8% per annum. An amended agreement was
executed as of January 1, 2001, such that the loan and accrued interest to date
of approximately $2,273,000 will be forgiven. The balance of the loan is being
amortized through December 2001.
4. Restructuring Costs. During the first quarter ended April 1, 2001, the
Company recorded $4,610,000 for items associated with the Company's decision to
restructure operations. The Company reviewed a number of factors including
profitability, declining economic conditions and expected future cash flows.
Based on the results of its review, the Company decided to close several offices
and to reduce its current workforce. The Company has laid off approximately 60
people representing unproductive sales, sales support and administrative
personnel as of April 1, 2001 . Accrued restructuring costs represent
approximately $1,137,000 for severance, $1,707,000 for lease terminations and
other costs, and $1,766,000 for disposition of assets. As of April 1, 2001, the
Company has disbursed approximately $233,000 relating to severance and
approximately $638,000 for disposition of assets. The remaining accrued
restructuring costs are anticipated to be settled throughout the fiscal year
2001. Based on expected communications of the restructuring plan, an additional
$800,000 expense relating to severance is expected to be recorded in the second
quarter of fiscal 2001.
5. Goodwill and Other Intangible Asset Impairment. As of April 1, 2001, the
Company recorded an impairment charge of approximately $26.7 million to write-
down goodwill and other intangible asset associated with a number of
acquisitions. The acquisitions that were written off were; TKI Acquisition
Corporation, IC Planet Acquisition Corporation, Huntington Acquisition
Corporation, TKO Personnel Inc., and Group-IPEX, Inc. Economic and legislative
conditions have caused these companies to experience a significant decrease in
the demand for their services causing a decrease in revenues, cash flows, and
expected future growth. In addition management has decided to focus their
efforts on our primary business. In analyzing these significant changes,
management performed an evaluation of the recoverability of the goodwill and
other long-lived assets related to these acquisitions in accordance with the
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets to be Disposed
Of." Because the estimated future cash flows of these acquisitions was less than
the carrying value of the related long-lived assets as of April 1, 2001, an
impairment charge was recorded. The impairment charge that the Company recorded
was the remaining unamortized goodwill and other intangibles of all of these
subsidiaries.
6. Business Segment Reporting. Under SFAS 131, the Company's operations are
divided into two industry segments, Contracts Services and Permanent Placement
Services. Operations in the Contract Services segment provides supplemental IT
professionals on a contract basis. In a typical contract in the Contract
Services Group, IT professionals are contracted to a high technology client,
usually in connection with a specific application or project. The Permanent
Placement segment provides professionals for permanent placement with the
Company's corporate clients.
6
HALL, KINION & ASSOCIATES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
Management evaluates segment performance based primarily on segment revenues,
cost of revenue, and gross profit. The Company currently does not segregate the
operations of its business segments by assets.
Continuing operations by business segments are as follows:
Three Months Ended
April 1, 2001 March 26, 2000
------------- --------------
(in thousands)
Contract Services:
Net revenues................................ $49,127 $48,086
Cost of revenues............................ 32,669 32,017
------- -------
Total ................................ 16,458 16,069
======= =======
Permanent Placement:
Net revenues................................ 11,784 13,494
Cost of revenues............................ - -
------- -------
Total ................................ $11,784 $13,494
======= =======
Net revenues to unaffiliated customers by geographic areas are as follows:
Three Months Ended
April 1, 2001 March 26, 2000
------------- --------------
(in thousands)
United States................................. $60,150 $61,176
Europe........................................ 761 404
------- -------
Total ................................. $60,911 $61,580
======= =======
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Some of the statements under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" elsewhere in this report
constitute forward-looking statements that involve substantial uncertainties.
These statements include, among others, statements concerning the following:
. our business and growth strategies;
. the markets we serve;
. liquidity; and
. our efforts to increase brand awareness.
We have based these forward-looking statements on our current expectations
and projections about future events. In some cases, you can identify forward-
looking statements by terms such as "may," "hope," "will," "should," "expect,"
"plan," "anticipate," "intend," "believe," "estimate," "predict," "potential" or
"continue," the negative of these terms or other comparable terminology. The
forward-looking statements contained in this report involve known and unknown
risks, uncertainties and other factors that may cause industry trends or our
actual results, performance or achievements to be materially different from any
future trends, results, performance or achievements expressed or implied by
these statements. These factors include, among others, the rate of hiring and
productivity of sales and sales support personnel, the availability of qualified
IT professionals, changes in the relative mix between contract services and
permanent placement services, changes in the pricing of our services, the timing
and rate of entrance and exit into new geographic markets and the addition and
closing of offices, the structure and timing of acquisitions, changes in demand
for IT professionals, general economic factors, and others listed under "Risk
Factors" in our other Securities and Exchange Commission filings.
We cannot guarantee future results, performance or achievements. We do not
intend to update this report to conform any forward-looking statements to actual
results. You should not place undue reliance on these forward-looking
statements, which apply only as of the date of this report.
OVERVIEW
We source and deliver the most critical component of the Internet economy--
human capital. As a leading talent source for the growing Internet economy, we
provide specialized IT professionals on a short-term contract and permanent
basis primarily to vendors of Internet technologies and, to a lesser extent, to
users of intranets and extranets. We have 38 offices located in 24 geographic
markets.
Our Contract Services group provides specialized IT professionals on a
short-term contract basis and accounted for 80.7% of our net revenues for the
three months ended April 1, 2001, and 78.1% for the three months ended March 26,
2000. Our Permanent Placement Services group provides specialized IT
professionals on a permanent basis and accounted for 19.3% of our net revenues
for the three months ended April 1, 2001, and 21.9% for the three months ended
March 26, 2000. Our net revenues are derived principally from the hourly
billings of our IT professionals on contract assignments and from fees received
for permanent placements. Contract services assignments typically last four to
six months, and revenues are recognized as services are provided. We derive
contract services revenues when our consultants are working, and therefore our
operating results may be adversely affected when client facilities are closed
due to holidays or inclement weather. As a result, we typically experience
relatively lower net revenues in our first fiscal quarter compared to our other
fiscal quarters. We derive permanent placement revenues upon permanent placement
of each IT professional candidate. The fee is typically structured as a
percentage of the placed IT professional's first-year annual compensation.
Permanent placement revenues are recognized when an IT professional commences
employment or, in the case of retained searches, upon completion of our
contractual obligations.
Net revenues decreased to $60.9 million for the three months ended April 1,
2001, from $61.6 million for the three months ending March 26, 2000,
representing a 1.1% decrease. Over this same period, we increased our number of
sales, sales support and administrative employees to 897 individuals in 24
geographic markets from 719 individuals in 23 geographic markets in the
corresponding quarter in 2000, representing a 24.8% increase in headcount. The
number of revenue producing sales and sales support employees included in the
overall headcount increased to 684 as of April 1, 2001 from 567 as March 26,
2000, a 20.6% increase.
8
For the first quarter ended April 1, 2001, we reported a decrease in revenue,
gross profit, and income. This decrease was primarily due to the current
economic slow down. While no one customer represents greater than 10% of our
total revenue, we do have a number of larger customers and some dot-com
customers, many of whom have issued earnings warnings and put a number of their
projects on hold or have gone out of business entirely. In response to these
conditions, we announced our preliminary results on March 13, 2001 which caused
a decrease in our common stock price.
Additionally, in the first quarter of 2001, we recorded an impairment
charge of approximately $26.7 million to recognize the impairment of the
goodwill and other intangibles associated with a number of acquisitions. We
recognized an impairment of the goodwill associated with TKI Acquisition
Corporation, Huntington Acquisition Corporation, IC Planet Acquisition
Corporation, TKO Personnel, Inc, and Group - IPEX, Inc and other intangibles
associated with IC Planet Acquisition Corporation. All of these acquisitions
were completed in prior years, excluding IC Planet Acquisition Corporation, a
software development company, acquired in February 2001. Economic and
legislative changes have caused these acquired companies to experience a
significant decrease in demand for their services and as a result, revenues,
cash flows, and expected future growth rates have decreased. Due to these
changes and our refocus on the core business of permanent and contract services,
management performed an evaluation of the recoverability of the goodwill and
other long-lived assets related to these acquisitions in accordance with the
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of." Estimated future cash flows of these operations were less than the carrying
value of the related goodwill and other intangibles, requiring an impairment
charge to be recorded. As a result, we wrote off the remaining unamortized
goodwill and other intangibles associated with these acquired companies.
In the first quarter of fiscal 2001, we also took a charge against earnings of
$4.6 million associated with our restructuring plan, which incorporates a series
of severance packages associated with layoffs, office closures, and disposition
of assets. We reorganized the sales organization to better function in the
current environment and position ourselves for future success. Part of this
includes merging our sales operations from our Contract Services and Permanent
Services groups into a less hierarchical structure. This will enable our company
to better identify new areas of growth and reduce the overlap of management.
Accrued restructure costs represent approximately $1.1 million for severance,
$1.7 million for lease terminations and other costs, and $1.8 million for
disposition of assets. As of April 1, 2001, the Company has disbursed
approximately $871,000 relating to severance and disposition of assets, and
closed offices located in Tampa and Orlando, Florida, Iselin, New Jersey, and
Schaumburg, Illinois. In these closed locations fixed assets were determined to
have minimal salvage value and were disposed. We are planning on recording an
additional $800,000 of restructuring costs in the second quarter for severances
relating to the restructuring plan. We are continuing to execute the plan and
expect the plan to be completed by the end of the fiscal year 2001.
Given the current down turn in the economy, a number of our customers
experienced serious cash flow constraints, causing us concern regarding the
collectability of our accounts receivable. Bankruptcies, company closures, and
delinquencies have prompted a direct accounts receivable write off of $3.7
million. In addition, we also increased our bad debt reserve by $2.6 million to
address accounts receivable balances over 60 days old. While we feel that the
remaining current balances are collectible, economic conditions are still a
cause for concern and we will continue to analyze the collectability of our
accounts receivable.
Results of Operations for the Three Months Ended April 1, 2001 and March 26,
2000
Net Revenues. Net revenues decreased 1.1% to $60.9 million for the three
months ended April 1, 2001 from $61.6 million for the three months ended March
26, 2000. Net revenues from our Contract Services group increased 2.2% to $49.1
million for the three months ended April 1, 2001, from $48.1 million for the
three months ended March 26, 2000. Net revenues from our Permanent Placement
Services group were $11.8 million for the three months ended April 1, 2001 and
$13.5 million for the three months ended March 26, 2000, representing a decrease
of 12.7%. The decrease in net revenues was due primarily to the economic
slowdown which resulted in a decrease in the number of new assignments. Our
revenue producing sales and sales support employee headcount increased
throughout the year reaching 684 as of April 1, 2001 from 567 as of March 26,
2000, a 20.6% increase. Our IT professional headcount decreased to 1,326 at
April 1, 2001 from 1,698 at March 26, 2000, a decrease of 21.9%.
Gross Profit
Gross Profit. Gross profit for our Contract Services group represents
revenues less direct costs of services, which consist of direct payroll, payroll
taxes, and insurance and benefit costs for IT professionals. Gross profit for
our Permanent Placement Services group is essentially equal to revenues, as
there are no direct costs associated with such revenues. Gross profit decreased
by 4.5% to $28.2 million for the three months ended April 1, 2001, from $29.6
million for the three months ended
9
March 26, 2000. This decrease was primarily attributable to a decrease in the
number of assignments in the Contract Services group, and a decrease in demand
for services from our Permanent Placement Services group.
Operating Expenses
Operating Expenses. Operating expenses consist primarily of impairment
charges relating to goodwill and other intangibles, employee costs, bad debt
expense and restructure costs. Operating expenses increased by 164.5% to $65.7
million for the three months ended April 1, 2001, compared to $24.8 million for
the three months ended March 26, 2000 Operating expenses as a percentage of net
revenues increased to 107.8% for the three months ended April 1, 2001, from
40.3% for the three months ended March 26, 2000. The increases resulted
primarily from expenses associated impairment charges relating to goodwill and
other intangibles, employee costs, bad debt expense and restructure costs
relating to declining economic conditions.
Other Income (Expense), Net
Other Income (Expense). Interest income increased to $598,000 for the three
months ended April 1, 2001, from $93,000 for the three months ended March 26,
2000. The increase in interest income resulted from interest earned from the
proceeds from our secondary common stock offering in April 2000 and, to a lesser
extent, loans made to certain executive officers. Interest expense decreased to
$10,000 for the three months ended April 1, 2001, compared to $312,000 for the
three months ended March 26, 2000. The decrease in interest expense for the
three months ended April 1, 2001, was due to paying off our debt with proceeds
from the secondary stock offering. Also included is a nominal amount relating
to rental income and expenses and various nonrecurring charges which amount to
income of $47,000 for the three months ended April 1, 2001 and $18,000 for the
three months ended March 26, 2000.
Income Taxes
Income Taxes. Our effective tax rate was 41.8% for the three months ended
April 1, 2001, compared to 41.5% for the three months ended March 26, 2000. Our
income tax rate varies from period to period due primarily to changes in
nondeductible expenses.
Net Income (Loss)
Net Income (Loss). Net income decreased to a loss of $26.4 million for the
three months ended April 1, 2001, compared to income of $2.7 million for the
three months ended March 26, 2000. We experienced a net loss this quarter
primarily due to the impairment charge, increase in bad debt, and restructuring
charges.
LIQUIDITY AND CAPITAL RESOURCES
We generally fund our operations and working capital needs through cash
generated from operations, periodically supplemented by borrowings under our
revolving line of credit with a commercial bank. Our operating activities used
$2.3 million from operations for the three months ended April 1, 2001, compared
to $323,000 for the three months ended March 26, 2000. The decrease in operating
cash flow is primarily due to fluctuations in net income and the components of
working capital, primarily in accounts payable and accrued salaries.
The principal uses of cash for investing activities for the three months
ended April 1, 2001, were for purchase of an acquisition and earnout payments
relating to prior acquisitions.
Currently we have a $30 million credit facility comprised of a $20 million
revolving credit facility and a $10 million term loan facility. There were no
borrowings under the credit facility. The interest rate on both facilities is
the lower of the lender's prime rate or LIBOR. Both facilities terminate in July
2002. Borrowings under both facilities are secured by substantially all of our
assets. The facilities contain covenants requiring us to maintain minimum levels
of profitability and net worth and specific ratios of working capital and debt
to operating cash flow. We are in compliance with all of these covenants as of
April 1, 2001.
Net cash provided by financing activities for the three months ended April
1, 2001, was $133,000, due to exercise of stock options.
We believe that our cash flows from operations and amounts available under
our credit facility will be sufficient to meet our cash requirements for at
least twelve months.
10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In June 1999, we and certain of our directors and officers were named as
defendants in three putative class actions filed in the United States District
Court for the Northern District of California, alleging violations of Section
10(b) of the Securities and Exchange Act of 1934. Pursuant to court order,
those cases have been consolidated, and a consolidated amended complaint was
filed on January 24, 2000. The action arises out of our announcement of a
shortfall in earnings for the quarter ending June 1998, and purports to be
brought on behalf of all purchasers of our common stock between August 5, 1997,
the date of our initial public offering,and June 18, 1998, when we pre-announced
the earnings shortfall. The complaint generally alleges that we misstated our
future prospects in various press releases and communications with analysts, and
failed to disclose alleged internal problems with the integration of certain
acquired businesses, while allegedly selling material amounts of stock held by
insiders.
We successfully moved to dismiss all claims in the action, and the court
entered an order on April 25, 2000 dismissing the case with leave to amend. A
first amended complaint was filed on June 16, 2000. On October 27, 2000, the
court dismissed the lawsuit and entered judgment in our favor. Plaintiffs have
filed an appeal with the Ninth Circuit Court of appeals, and a decision is not
expected until sometime in 2002. While we believe that the claims are without
merit, and that our directors and officers liability insurance will adequately
cover the pending claims, an unfavorable judgment in the matter could have a
material negative impact on our operating results and financial condition.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
2.1 (1) Agreement and Plan Merger dated July 9, 1997, for the Merger
of Hall, Kinion & Associates, Inc., a California
corporation, into Hall, Kinion & Associates, Inc., a
Delaware corporation ( the "Registrant").
2.2 (1) Asset Purchase Agreement dated November 26, 1996, among the
Registrant and the other parties named therein.
2.3 (1) Stock Purchase Agreement dated December 20, 1997 by and
among the Registrant, Group-Ipex, Inc., Lalit M. Kapoor and
Satindra Kapoor.
2.4 (3) Huntington Asset Purchase Agreement between Hall, Kinion &
Associates, Inc., Huntington Acquisition Corporation,
Alexander Bohemer and Tomasco, LLC, Raymond Tomasco and
Karen Vacheron Alexander, dated November 18, 1998.
2.5 (3) ITC Asset Purchase Agreement between Hall, Kinion &
Associates, Inc., Interactive Acquisition Corporation,
Interactive Technology Consultants, LLC, Raymond Tomasco,
Karen Vacheron Alexander, and Gary Malbin, dated November
18, 1998.
3.1 (1) Amended and Restated Certificate of Incorporation of the
Registrant filed August 8, 1997.
4.1 Reference is made to Exhibit 3.1.
4.2 (1) Investors' Rights Agreement, dated January 26, 1996, among
the Registrant, certain stockholders and investors named
therein.
4.3 (1) Specimen Common Stock certificate.
10.1 (1) Form of Indemnification Agreement entered into between the
Registrant and each of its directors and certain officers.
10.2 (1) The Registrant's 1997 Stock Option Plan.
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10.3 (1) The Registrant's Employee Stock Purchase Plan.
10.4 (1) Employment Agreement, dated October 18, 1996, among the
Registrant, Brenda C. Hall (a.k.a. Brenda C. Rhodes) as
amended.
10.5 (1) Settlement Agreement and General Release, dated October 29,
1996 among the Registrant, Brenda C. Hall (a.k.a. Brenda C.
Rhodes), as Voting Trustee of the Voting Trust, and Todd
Kinion.
10.6 (1) Loan and Security Agreement (Accounts and Inventory), dated
April 26, 1995, between the Registrant and Comerica Bank-
California (the "Loan & Security Agreement"); Addendum to
Loan & Security Agreement; Second Addendum to Loan &
Security Agreement; Modification to Loan & Security
Agreement, dated December 20, 1995; Second Modification to
Loan & Security Agreement, dated October 21, 1996;
Borrower's Authorization dated October 16, 1996, Borrowers
Authorization dated October 21, 1996; and Guaranty, dated
April 26, 1995.
10.7 (1) Assumption and Assignment to Sublease, dated December 2,
1996, between the Registrant and TeamAlliance Technology
Partners, L.P.
10.8 (1) Standard Sublease, dated March 1, 1997, between the
Registrant and Seagate Technology, Inc.
10.9 (1) Employment Agreement, dated May 23, 1997, between the
Registrant and Brenda C. Hall (aka Brenda C. Rhodes).
10.10 (1) Agreement to Tender Shares dated May 23, 1997 between the
Registrant and Brenda C. Hall (aka Brenda C. Rhodes).
10.12 (1) Agreement to Tender Shares dated, May 23, 1997, between the
Registrant and Todd. J. Kinion.
10.13 (1) Promissory Note Secured by Deed of Trust, dated August 5,
1996, made by Rita S. Hazell and Quentin D. Hazell in favor
of the Registrant.
10.14 (1) Settlement Agreement with Mutual Release, dated May, 1997,
between Richard Swanson and the Registrant, Brenda C. Hall
(aka Brenda C. Rhodes) and Todd J. Kinion.
10.15 (1) The Registrant's IT Professional Stock Plan.
10.16 (1) Reference is made to Exhibit 2.3.
10.17 (2) The Registrant's 2000 Stock Option Plan.
10.18 (2) Form of Stock Option Agreement under the 2000 Stock Option
Plan.
10.19 The Registrant's E2 Equity Edge Cash Equity Plan.
(Incorporated by reference to exhibit 10.19 in the Company's
form 10-K, filed on March 27, 2001)
21.1 Subsidiaries of Registrant.
23.1 Independent Auditors' Consent.
____________
(1) Incorporated by reference to the Registrant's Registration Statement on
Form S-1, as amended, declared effective by the Securities and Exchange
Commission on August 4, 1997(File No. 333-28365).
(2) Incorporated by Reference to the Registrant's Current Report on Form 8-K,
filed June 9, 2001 (File No. 333-39026).
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(3) Incorporated by Reference to the Registrant's Current Report on Form 8-K,
filed December 2, 1998 (File No. 000-22869).
(b) Reports on Form 8-K -
On March 13, 2001, we filed an 8-K announcing preliminary first
quarter results for the quarter ended March 31, 2001.
On May 1, 2001 we filed an 8-K for the first quarter financial results
for the quarter ending March 31, 2001, including certain one-time
charges and plans for a stock repurchase program.
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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.
HALL, KINION & ASSOCIATES, INC.
Date: May 15, 2001
By: /s/ Martin A. Kropelnicki
-------------------------------------
Martin A. Kropelnicki
Vice President, Corporate Services and
Chief Financial Officer
(Duly Authorized Officer and Principal
Financial Officer)
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