SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 June 30, 1998
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________________
Commission File Number: 0-29292
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HAGLER BAILLY, INC.
(Exact name of registrant as specified in its charter)
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Delaware
(State or other jurisdiction of incorporation or organization)
54-1759180
I.R.S. Employer Identification Number
1530 Wilson Boulevard, Suite 400, Arlington, VA 22209
(Address of principal executive offices) (Zip Code)
703-351-0300
(Registrant's telephone number, including area code)
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 such shorter period that the registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days. [X] Yes [ ] No
As of July 31, 1998, the Registrant had 9,647,616 shares of its common stock
outstanding.
TABLE OF CONTENTS
PART I
ITEM 1. FINANCIAL STATEMENTS..................................................1
CONSOLIDATED BALANCE SHEETS.................................................1
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)...........................2
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)...........................3
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS..................................4
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K......................................10
SIGNATURES....................................................................14
PART I
Item 1. Financial Statements
Hagler Bailly, Inc.
Consolidated Balance Sheets
June 30, December 31,
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1998 1997
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(unaudited) (restated)
ASSETS
Current assets:
Cash & cash equivalents $ 5,506,845 $ 3,967,527
Investments 7,327,614 6,775,331
Accounts receivable, net 39,683,625 33,334,926
Note receivable 1,000,000 1,000,000
Prepaid expenses 3,765,808 731,067
Other current assets 696,240 1,867,444
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Total current assets 57,980,132 47,676,295
Property and equipment, net 3,466,431 2,916,873
Software development costs, net 2,474,319 2,463,174
Intangible assets, net 9,245,391 6,925,960
Other assets 1,143,151 1,289,349
Deferred income taxes 24,355 601,002
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Total assets $74,333,779 $61,872,653
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank line of credit $ 239,790 $ -
Accounts payable and accrued expenses 6,175,979 5,543,664
Accrued compensation and benefits 4,158,829 5,096,818
Billings in excess of cost 1,061,812 1,757,208
Notes payable-financial institution - 180,000
Notes payable-related party 14,877 620,417
Current portion of long-term debt 208,488 -
Deferred income taxes 887,210 1,383,689
Income taxes payable 83,868 1,951,897
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Total current liabilities 12,830,853 16,533,693
Long-term debt, net of current portion - 21,014
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Total liabilities $12,830,853 $16,554,707
Stockholders' equity:
Preferred stock, $0.01 par value, 5,000,000 shares authorized,
none issued and outstanding - -
Common stock, $0.01 par value, 20,000,000 shares authorized; 9,606,579
and 9,051,345 issued and outstanding in 1998 and 1997 96,066 90,513
Additional capital 54,889,128 41,436,216
Retained earnings 6,713,696 3,791,217
Foreign currency translation (195,964) -
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Total stockholders' equity 61,502,926 45,317,946
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Total liabilities and stockholders' equity $74,333,779 $61,872,653
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See accompanying notes.
Hagler Bailly, Inc.
Consolidated Statements of Operations
(Unaudited)
Three months ended Six months ended
June 30, June 30,
1998 1997 1998 1997
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Revenues:
Consulting revenues $27,716,194 $24,356,488 $50,043,272 $45,459,241
Other revenues 1,139,095 542,710 2,454,237 785,521
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Total revenues 28,855,289 24,899,198 52,497,509 46,244,762
Cost of services 21,402,167 18,613,188 40,156,548 35,015,935
---------- ---------- ---------- ----------
Gross profit 7,453,122 6,286,010 12,340,961 11,228,827
Merger related costs 995,672 - 1,362,930 -
Selling, general and administrative expenses 3,822,835 2,976,792 5,758,265 5,490,660
Stock and stock option compensation - - - 64,869
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Income from operations 2,634,615 3,309,218 5,219,766 5,673,298
Other income (expense) 83,059 (152,486) 117,348 (446,804)
---------- ---------- ---------- ----------
Income before income tax expense 2,717,674 3,156,732 5,337,114 5,226,494
Income tax expense 1,059,893 1,506,524 2,081,319 2,310,560
---------- ---------- ---------- ----------
Net income before extraordinary gain 1,657,781 1,650,208 3,255,795 2,915,934
Extraordinary gain, net of income tax expense
of $55,906 tax for the three months ended
June 30, 1997 - 737,709 - 737,709
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Net income $1,657,781 $2,387,917 $3,255,795 $3,653,643
========== ========== =========== ==========
Net income per share:
Basic:
Net income before extraordinary gain $0.18 $0.25 $0.36 $0.46
Extraordinary gain, net of income tax expense $ - $0.11 $ - $0.12
Net income $0.18 $0.36 $0.36 $0.58
Diluted:
Net income before extraordinary gain $0.17 $0.23 $0.33 $0.41
Extraordinary gain, net of income tax expense $ - $0.10 $ - $0.10
Net income $0.17 $0.33 $0.33 $0.51
Weighted average shares outstanding:
Basic 9,188,013 6,550,873 9,028,838 6,342,627
========== ========== ========== ==========
Diluted 10,029,667 7,236,602 9,844,817 7,138,113
========== ========== ========== ==========
Comprehensive income:
Net Income $ 1,657,781 $ 2,387,917 $ 3,255,795 $ 3,653,643
Foreign currency translation adjustment, net
Of $20,849 and $76,426 tax, for the three
Months and six months ended June 30, 1998 (32,610) - (119,538) -
---------- ---------- ---------- ----------
Comprehensive income $1,625,171 $2,387,917 $3,136,257 $3,653,643
=========== = =========== = =========== = ==========
See accompanying notes.
Hagler Bailly, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
Six months ended June 30,
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1998 1997
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OPERATING ACTIVITIES
Net income $3,255,795 $3,653,643
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization 1,682,032 1,150,070
Extraordinary gain - (737,709)
Provision for deferred income taxes 80,168 1,625,341
Provision for possible losses 82,418 164,177
Amortization of deferred stock compensation - 64,869
Changes in operating assets and liabilities:
Accounts receivable (6,431,114) (4,460,520)
Prepaid expenses (3,034,741) (70,967)
Other current assets 1,171,204 (2,189,313)
Other assets 146,198 (798,142)
Accounts payable and accrued expenses 632,315 1,087,593
Accrued compensation and benefits (937,989) 1,587,497
Billings in excess of cost (695,396) (971,364)
Income taxes payable (1,868,029) 207,178
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Net cash provided by (used in) operating activities (5,917,139) 312,353
INVESTING ACTIVITIES
Acquisition of property and equipment (1,362,469) (637,491)
Purchase of investments (552,283) (78,022)
Purchase of 100% interest in Estudio "Q" and PT Indonesia (1,099,765) -
Investment in software development (500,000) -
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Net cash used in investing activities (3,514,517) (715,513)
FINANCING ACTIVITIES
Issuance of common stock, net of offering costs 11,858,529 116,969
Repurchase of common stock - (45,857)
Dividends paid by Izsak Grapin (333,315) (233,333)
Net borrowings from bank line of credit 239,790 3,625,000
Principal payments on debt (598,066) (849,031)
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Net cash provided by financing activities 11,166,938 2,613,748
Net increase in cash and cash equivalents 1,735,282 2,210,588
Foreign currency gain (loss) (195,964) -
Cash and cash equivalents, beginning of period 3,967,527 2,043,567
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Cash and cash equivalents, end of period $5,506,845 $4,254,155
============ ============
See accompanying notes.
HAGLER BAILLY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The accompanying unaudited interim consolidated financial statements of
Hagler Bailly, Inc. (the "Company") have been prepared pursuant to the rules of
the Securities and Exchange Commission ("SEC") for quarterly reports on Form
10-Q and do not include all of the information and note disclosures required by
generally accepted accounting principles. The information furnished herein
reflects all adjustments, of a normal recurring nature, which are, in the
opinion of management, necessary for a fair presentation of results for these
interim periods.
The interim results of operations are not necessarily indicative of the
results to be expected for the entire fiscal year ending December 31, 1998.
As a result of a business combination completed in the second quarter which
was accounted for as a pooling of interest as described in Note 3 below, all
consolidated financial statements presented for the three-month and six-month
periods ended June 30, 1998 and 1997 and as of December 31, 1997 have been
restated to include the results of operations and financial position of Izsak,
Grapin et Associes, S.A.R.L. ("Izsak Grapin"). These financial statements should
be read in conjunction with the Company's audited consolidated financial
statements and notes thereto for the year ended December 31, 1997, included in
the Form 10-K and restated in the Form 8-K filed on June 12, 1998.
Note 2. Earnings per Share
Basic earnings per share is computed based on the weighted average number
of shares of common stock outstanding during the respective periods. Diluted
earnings per share is inclusive of the dilutive effect of unexercised stock
options using the treasury stock method.
Note 3. Pooling of Interests
On June 30, 1998, the Company acquired all of the stock of Izsak Grapin in
exchange for 183,550 shares of the Company's common stock. The transaction was
accounted for as a pooling of interests. Accordingly, the Company's financial
statements have been restated to include the results of Izsak Grapin for all
periods presented.
Note 4. Cash Dividend
Retained earnings for 1998 were reduced by a cash dividend of $333,316 paid
by Izsak Grapin, the pooling of interest transaction detailed in Note 3 above,
prior to its acquisition by the Company. The dividends per share for the Izsak
Grapin stock were $1.82.
PART II
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
No. Description
2 Sale Agreement between RCG International, Inc., and Hagler Bailly Consulting, Inc. (1)
2.1 Agreement and Plan of Merger by and among Hagler Bailly, Inc., Hagler Bailly Acquisition
Corp. 1997-1 and Apogee Research, Inc., dated as of November 18, 1997. (3)
2.2 Agreement and Plan of Merger by and among Hagler Bailly, Inc., PHB Acquisition Corp. and
Putnam, Hayes and Bartlett, Inc., dated as of June 11, 1998. (5)
3.1 Amended and Restated Certificate of Incorporation of the Company (1)
3.2 By-Laws of the Company, as amended
4 Specimen Stock Certificates (1)
4.1 Escrow Agreement dated December 1, 1997 by and among Hagler Bailly, Inc., Hagler Bailly
Acquisition Corp. 1997-1, Richard R. Mudge as Stockholders' Representative and State Street
Bank and Trust Company, as Escrow Agent. (3)
4.2 Registration Rights Agreement dated November 18, 1997 by and between Hagler Bailly, Inc. and
Richard R. Mudge, acting as Stockholders' Representation. (3)
10.1 Hagler Bailly, Inc. Amended and Restated 1996 Employee Incentive and Non-Qualified Stock
Option and Restricted Stock Plan (including forms of option agreements). (1)
10.2 Form of Non-Compete, Confidentiality and Registration Rights Agreement between the Company
and each stockholder. (1)
10.3 Form of Amended and Restated Employment Agreement between the Company and Henri-Claude A.
Bailly. (1)
10.4 Lease by and between Wilson Boulevard Venture and RCG/Hagler Bailly, Inc. dated October 25,
1991. (1)
10.5 First Amendment to Lease by and between Wilson Boulevard Venture and RCG/Hagler Bailly,
Inc., dated February 26, 1993. (1)
10.6 Second Amendment to Lease by and between Wilson Boulevard Venture and RCG/Hagler Bailly,
Inc., dated December 12, 1994. (1)
10.7 Lease by and between Bresta Futura V.B.V. and Hagler Bailly Consulting, Inc. dated May 8,
1996. (1)
10.8 Lease by and between L.C. Fulenwider, Inc., and RCG/Hagler Bailly, Inc. dated December 14,
1994. (1)
10.9 Lease by and between University of Research Park Facilities Corp. and RCG/Hagler Bailly,
Inc., dated April 1, 1995. (1)
10.10 Credit Agreement by and between Hagler Bailly Consulting, Inc. and State Street Bank and
Trust Company, dated May 17, 1995. (1)
10.11 Amendment to Credit Agreement by and between Hagler Bailly Consulting, Inc. and State Street
Bank and Trust Company, dated as of June 20, 1996. (1)
10.12 Extension Agreement by and between Hagler Bailly Consulting, Inc. and State Street Bank and
Trust Company, dated as of August 1, 1996. (1)
10.13 Amendment to Credit Agreement by and between Hagler Bailly Consulting, Inc. and State Street
Bank and Trust Company, dated as of November 12, 1996. (1)
10.14 Term Note by and between Hagler Bailly Consulting, Inc., and State Street Bank and Trust
Company, dated May 26, 1995. (1)
10.15 Revolving Credit Note by and between Hagler Bailly Consulting, Inc. and State Street Bank
and Trust Company dated May 26, 1995. (1)
10.16 Amendment to Credit Agreement by and between Hagler Bailly Consulting, Inc., and State
Street Bank and Trust Company, dated as of June 12, 1997. (1)
10.17 Credit Agreement by and among Hagler Bailly Consulting, Inc., Hagler Bailly Services, Inc.
and State Street Bank and Trust Company, dated as of September 30, 1997. (2)
10.18 Promissory Note by Hagler Bailly Consulting, Inc. and Hagler Bailly Services, Inc. to State
Street Bank and Trust Company, dated September 30, 1997. (2)
10.19 Security Agreement by and between Hagler Bailly Consulting, Inc. and State Street Bank and
Trust Company, dated as of September 30, 1997. (2)
10.20 Security Agreement by and between Hagler Bailly Services, Inc. and State Street Bank and
Trust Company, dated as of September 30, 1997. (2)
10.21 Guaranties by Hagler Bailly, Inc. to State Street Bank and Trust Company, dated September
30, 1997. (2)
10.22 Guaranties by HB Capital, Inc. to State Street Bank and Trust Company, dated September 30,
1997. (2)
10.23 Subordination Agreement and Negative Pledge/Sale Agreement by and between Hagler Bailly,
Inc. and State Street Bank and Trust Company for Hagler Bailly Consulting, Inc., dated
September 30, 1997. (2)
10.24 Subordination Agreement and Negative Pledge/Sale Agreement by and between Hagler Bailly,
Inc. and State Street Bank and Trust Company for Hagler Bailly Services, Inc., dated
September 30, 1997. (2)
10.25 Guaranty of Monetary Obligations to Bresta Futura V.B.V. by Hagler Bailly, Inc., dated July
23, 1997. (2)
10.26 Amendment to Credit Agreement by and between Hagler Bailly Consulting, Inc. and State Street
Bank and Trust Company dated May 18, 1998.
10.27 Sublease Agreement by and between Coopers and Lybrand L.L.P. and Hagler Bailly, Inc. dated
December 5, 1997.
21 Subsidiaries (4)
24 Powers of Attorney (included on Signature Pages) (1)
27.1 Financial Data Schedule - June 30, 1998
27.2 Restated Financial Data Schedule - March 31, 1998
27.3 Restated Financial Data Schedule - December 31, 1997
27.4 Restated Financial Data Schedule - September 30, 1997
27.5 Restated Financial Data Schedule - June 30, 1997
27.6 Restated Financial Data Schedule - March 31, 1997
27.7 Restated Financial Data Schedule - December 31, 1996
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(1) Included in the Company's Registration Statement on Form S-1 (No. 333-22207)
(2) Included in the Company's Quarterly Report on Form 10-Q for the quarter ended September 30,
1997.
(3) Included in the Company's Current Report on Form 8-K filed on December 16, 1998.
(4) Included in the Company's Annual Report on Form 10-K for the year ended December 31, 1997.
(5) Included in the Company's Proxy Statement for Special Meeting of Stockholders dated July 27,
1998 on Form DEF 14A.
(b) Reports on Form 8-K
On June 12, 1998 the Company filed a current report on Form 8-K, which
restated the Hagler Bailly's 1997 audited financial statements to reflect the
merger of one of the Company's wholly owned subsidiaries with and into TB&A
Group, Inc. which took place after December 31, 1997.
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.
/s/ Henri-Claude Bailly
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Date: August 21, 1998 Henri-Claude Bailly
President, Chief Executive Officer and
Chairman of the Board
/s/ Daniel M. Rouse
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Date: August 21, 1998 Daniel M. Rouse
Vice President, Chief Financial Officer and
Treasurer