Back to GetFilings.com
UNITED STATES
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 September 30, 2002
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 NO. 0-21963
THE JUDGE GROUP, INC.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-1726661
- ------------------------------- ------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
TWO BALA PLAZA, SUITE 800
BALA CYNWYD, PENNSYLVANIA 19004
---------------------------------------- ---------
(Address of principal executive offices) (zip code)
(610) 667-7700
----------------------------------------------------
(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 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 [ ]
As of November 12, 2002, 14,097,652 shares of the registrant's Common
Stock, $0.01 par value per share, were outstanding.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
THE JUDGE GROUP, INC. AND SUBSIDIARIES
INDEX
NUMBER PAGE(S)
- ------ -------
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2002 AND DECEMBER 31, 2001 1
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 2
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 3
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5- 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8 - 12
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 12
ITEM 4. CONTROLS AND PROCEDURES 13
PART II - OTHER INFORMATION
---------------------------
ITEM 1. LEGAL PROCEEDINGS 13
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 13
- --------------------------------------------------------------------------------
FORWARD LOOKING INFORMATION
This Report on Form 10-Q includes forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. These statements and information
are based on beliefs of, and information currently available to, our management
as well as estimates and assumptions made by our management. The words
"anticipate," "believe," "estimate," "expect," "future," "intend," "plan" and
similar expressions as they relate to us or our management, identify
forward-looking statements. Such statements reflect our current views with
respect to future events and are subject to certain risks, uncertainties and
assumptions relating to our operations and results of operations, competitive
factors and pricing pressures, shifts in market demand, the performance and
needs of the industries served by us, and other risks and uncertainties,
including, in addition to any uncertainties specifically identified in the text
accompanying such statements and those identified below, uncertainties with
respect to changes or developments in social, economic, business, industry,
market, legal and regulatory circumstances and conditions and actions taken or
omitted to be taken by third parties, including our stockholders, customers,
suppliers, business partners, competitors, and legislative, regulatory, judicial
and other governmental authorities and officials. Should one or more of these
risks or uncertainties materialize, or should the underlying assumptions prove
incorrect, actual results may vary significantly from those anticipated,
believed, estimated, expected, intended or planned. A non-exclusive list of
factors that may affect future performance can be found in our Report on Form
10-K for the year ended December 31, 2001.
i
THE JUDGE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2002 AND DECEMBER 31, 2001
September 30, 2002 December 31, 2001
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash $ --- $ ---
Accounts receivable, net 11,649,807 12,663,173
Prepaid income taxes and deferred taxes 1,952,654 2,161,847
Other 1,069,783 1,171,422
------------ ------------
TOTAL CURRENT ASSETS 14,672,244 15,996,442
------------ ------------
PROPERTY AND EQUIPMENT, NET 2,309,230 3,161,441
------------ ------------
OTHER ASSETS
Deposits and other 372,792 378,251
Deferred taxes 1,433,000 1,433,000
Other receivables, officers and employees 695,461 669,552
Goodwill 6,423,781 6,423,781
Identifiable intangible, client list, net of accumulated amortization of $7,351,2002 169,069 ---
------------ ------------
TOTAL OTHER ASSETS 9,094,103 8,904,584
------------ ------------
TOTAL ASSETS $ 26,075,577 $ 28,062,467
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 238,623 $ 569,117
Accounts payable and accrued expenses 5,142,509 3,837,079
Payroll and sales taxes 207,135 285,329
Deferred revenue 138,553 132,016
------------ ------------
TOTAL CURRENT LIABILITIES 5,726,820 4,823,541
------------ ------------
LONG-TERM LIABILITIES
Note payable, Bank 1,713,667 4,436,541
Deferred rent obligation 396,099 541,267
Debt obligations, net of current portion 226,713 397,748
------------ ------------
TOTAL LONG-TERM LIABILITIES 2,336,479 5,375,556
------------ ------------
SHAREHOLDERS' EQUITY
Common stock, $.01 par value, 50,000,000 shares authorized; at September 30,
2002 and December 31, 2001, 14,141,373 shares issued and 13,504,228 shares
outstanding 141,413 141,413
Preferred stock, $.01 par value, 10,000,000 shares authorized; at September 30,
2002 and December 31, 2001, no shares issued and outstanding --- ---
Additional paid-in capital 24,193,815 24,176,111
Accumulated deficit (4,955,297) (5,086,501)
------------ ------------
19,379,931 19,231,023
Less treasury stock, 637,145 shares; at cost 1,367,653 1,367,653
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 18,012,278 17,863,370
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 26,075,577 $ 28,062,467
============ ============
See Notes to Consolidated Financial Statements.
1
THE JUDGE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(UNAUDITED)
2002 2001
---- ----
NET REVENUES $ 60,291,739 $ 81,962,405
------------ ------------
COSTS AND EXPENSES
Cost of sales 39,680,187 52,862,950
Selling and operating 12,168,109 17,017,190
General and administrative 8,034,700 10,744,527
Special charges (Note 3) --- 990,418
------------ ------------
TOTAL COSTS AND EXPENSES 59,882,996 81,615,085
------------ ------------
OPERATING INCOME 408,743 347,320
Other income (expense), net (149,374) (500,198)
----------- ------------
INCOME (LOSS) BEFORE INCOME TAX EXPENSE (BENEFIT) 259,369 (152,878)
Income tax expense (benefit) 128,153 (1,200)
----------- -----------
NET INCOME (LOSS) $ 131,216 ($ 151,678)
========= ===========
NET INCOME (LOSS) PER SHARE:
BASIC
Weighted Average Shares Outstanding 13,511,188 13,501,895
========== ==========
Income (loss) per share $ 0.01 ($ 0.01)
====== ========
DILUTED
Weighted Average Shares Outstanding 13,563,993 13,501,895
========== ==========
Income (loss) per share $ 0.01 ($ 0.01)
====== ========
See Notes to Consolidated Financial Statements.
2
THE JUDGE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(UNAUDITED)
2002 2001
---- ----
NET REVENUES $ 20,054,696 $ 23,248,398
------------ ------------
COSTS AND EXPENSES
Cost of sales 13,206,376 15,427,750
Selling and operating 3,836,750 5,403,734
General and administrative 2,788,301 3,860,891
Special charges (Note 3) --- 990,418
------------ -----------
TOTAL COSTS AND EXPENSES 19,831,427 25,682,793
------------ -----------
OPERATING INCOME (LOSS) 223,269 (2,434,395)
Other income (expense), net (33,574) (118,311)
------------ -----------
INCOME (LOSS) BEFORE INCOME TAX EXPENSE (BENEFIT) 189,695 (2,552,706)
Income tax expense (benefit) 96,731 (1,009,127)
------------ -------------
NET INCOME (LOSS) $ 92,964 ($ 1,543,579)
======== =============
NET INCOME (LOSS) PER SHARE:
BASIC
Weighted Average Shares Outstanding 13,524,880 13,504,228
========== ==========
Income (loss) per share $ 0.01 ($ 0.11)
====== ========
DILUTED
Weighted Average Shares Outstanding 13,568,968 13,504,228
========== ==========
Income (loss) per share $ 0.01 ($ 0.11)
====== ========
See Notes to Consolidated Financial Statements.
3
THE JUDGE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(UNAUDITED)
2002 2001
---- ----
OPERATING ACTIVITIES
Net income (loss) for the period $ 131,216 ($ 151,678)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation 925,717 935,914
Amortization 7,351 1,293,094
Stock or warrants issued for services 17,704 113,874
Deferred rent (145,168) 212,170
Provision for losses on accounts receivable 329,852 369,578
Loss on disposal of equipment 54,956 40,015
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable 683,514 4,877,760
Prepaid income taxes and deferred taxes 209,193 (137,927)
Prepaid expenses and other current assets 101,639 (334,136)
Deposits and other (20,450) (134,771)
Increase (decrease) in:
Accounts payable and accrued expenses 1,129,010 (1,408,205)
Payroll and sales taxes (78,194) (235,367)
Deferred revenue 6,537 (367,405)
---------- -----------
Net cash provided by operating activities 3,352,877 5,072,916
---------- -----------
INVESTING ACTIVITIES
Net cash used in investing activities, purchases of property and
equipment (104,725) (906,011)
---------- -----------
FINANCING ACTIVITIES
Repayments of notes payable, bank, net (2,722,874) (3,712,442)
Principal payments on long-term debt (525,278) (463,213)
Exercise of stock options --- 8,750
---------- -----------
Net cash used in financing activities (3,248,152) (4,166,905)
---------- -----------
INCREASE (DECREASE) IN CASH --- ---
CASH, BEGINNING --- ---
---------- -----------
CASH, ENDING $ --- $ ---
========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for Interest $ 187,000 $ 648,000
========== ===========
Cash paid during the period for Income taxes $ 3,000 $ 381,000
========== ===========
See Notes to Consolidated Financial Statements.
4
THE JUDGE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
NOTE 1. DESCRIPTION OF BUSINESS
The Judge Group, Inc. (the "Company"), a Pennsylvania corporation founded in
1970, provides information technology ("IT") and engineering professionals to
its clients on both a temporary basis ("Contract Placement") and a permanent
basis ("Permanent Placement") as well as IT training on a range of software and
network applications to corporate, governmental and individual clients. At
September 30, 2002, the Company, headquartered in Bala Cynwyd, Pennsylvania,
operated regional offices in eleven states throughout the United States. A
substantial portion of the Company's revenue is derived from customers located
in the Mid-Atlantic corridor of the United States.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the
Company and the Company's wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
The financial statements as of September 30, 2002 and for the three months and
nine months ended September 30, 2002 and 2001 are unaudited; however, in the
opinion of management, such statements include all adjustments, consisting
solely of normal recurring adjustments, necessary for a fair presentation of the
results for the periods presented.
The interim financial statements should be read in conjunction with the
financial statements for the fiscal year ended December 31, 2001 and the notes
thereto, included in the Company's report on Form 10-K for the year ended
December 31, 2001.
Risks, Uncertainties and Management Estimates
The results of operations for the interim periods are not necessarily indicative
of the results that might be expected for future interim periods or for the full
year ending December 31, 2002.
The preparation of the Company's consolidated financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Interim Financial Reporting
For interim financial reporting purposes, costs and expenses are accounted for
in accordance with Accounting Principles Board Opinion No. 28 ("APB 28").
Earnings Per Share
Basic earnings per share amounts are computed based on net income (loss) divided
by the weighted average number of shares actually issued, reduced by treasury
shares.
Diluted earnings per share amounts for the three months and nine months ended
September 30, 2002 and 2001 are based on the weighted average number of shares
calculated for basic earnings per share purposes increased by (when dilutive)
the number of shares that would be outstanding assuming the exercise of certain
outstanding stock options or warrants. Outstanding options and warrants to
purchase 2,333,331 and 2,622,820 common shares in 2002 and 2001, respectively,
were not included in the computation of diluted earnings per share because their
per share exercise price was greater than the average per share market price of
the Company's common shares.
5
THE JUDGE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (continued)
Recent Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
142, "Goodwill and Other Intangible Assets". The Company adopted Statement 142
effective January 1, 2002. Statement 142 requires that goodwill and intangible
assets with indefinite useful lives no longer be amortized, but instead tested
at least annually for impairment. The Company tested goodwill for impairment
using the two-step process prescribed in Statement 142 as of January 1, 2002.
The first step was a screen for potential impairment, while the second step
measured the amount of the impairment, if any. Results of the first step,
performed by an independent business valuation company, reflected no potential
impairment in the Company's goodwill. There was no impairment charge resulting
from these transitional impairment tests in 2002. In the nine months and the
three months ended September 30, 2001, the Company amortized approximately
$182,000 and $61,000, respectively, of goodwill, net of tax effect. In the three
months ended September 30, 2001, the Company also wrote off an additional
$594,000 of goodwill, net of tax effect, that had been impaired (Note 3). Had
Statement 142 been in effect in those periods the impairment charge would have
remained the same. However, without the amortization charge the reported net
loss would have been net income of approximately $30,000, with a change to
reported net income per share, both basic and diluted, to $0.00 per share for
the nine months ended September 30, 2001. Similarly, the net loss would have
been reduced to approximately $1,483,000, with no decrease to reported net loss
per share, either basic or diluted, for the three months ended September 30,
2001.
In January 2002, the Company adopted Statement 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets", which superseded Statement 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of". Adoption of Statement 144 did not have a material effect on the
Company's results of operations or its financial condition.
Other Receivables, Officers and Employees
In April 2002, a portion of the Other Receivables, Officers and Employees was
converted to a note receivable from one of the Company's officers. The note
bears interest at 4.9% annually, is secured by a pledge of Company stock, and is
payable in April 2012.
NOTE 3. SPECIAL CHARGES
In the three months ended September 30, 2001, the Company recorded pretax
special charges of $990,418 related to the impairment of purchased goodwill. The
impairment of goodwill was a non-cash charge determined in accordance with
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", due to continuing losses in the Nashville, Tennessee market. The goodwill
was originally acquired in 1998 when the Company purchased all of the assets of
an IT placement firm with offices in Nashville, Tennessee. The Company closed
the Nashville, Tennessee office in December 2001.
The effect of these special charges, net of tax effect, was ($0.04) per common
share in 2001.
NOTE 4. INCOME TAXES
The Company files a consolidated Federal income tax return with its wholly owned
subsidiaries. State income taxes are determined on the basis of filing separate
returns for each subsidiary to the extent required by applicable state
regulations.
In accordance with Accounting Principles Board Opinion No. 28 (Interim Financial
Reporting), income taxes are calculated at the estimated effective annual
(federal and state) tax rates.
6
THE JUDGE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
NOTE 5. SHAREHOLDERS' EQUITY
Tender Offer
In February 2002, the Company commenced a voluntary stock option exchange
program for its employees. Under the program, employees holding options to
purchase the Company's Common Stock were given an opportunity to exchange
certain of their existing options, with exercise prices equal to or greater than
$2.10 per share, for new options. The period during which employees could tender
their options expired on March 14, 2002. Employees received one new option for
every three eligible options surrendered. An aggregate 528,750 eligible options
were surrendered. The Company granted 166,242 new options on September 17, 2002.
The new options vest in equal increments annually over four years. The per share
exercise price of certain of the new options was $0.80, the last reported per
share trading price of the Company's Common Stock on the date on which they were
granted, and of the remaining new options was $0.88, which was 10% higher than
the last reported per share trading price.
Warrants
On September 1, 2002, the Company re-priced outstanding warrants to purchase
100,000 shares of Common Stock to reflect an exercise price of $0.80 per share.
The warrants were originally issued in February 2001 at an exercise price of
$2.25 per share and are exercisable any time prior to February 2006. As a result
of the re-pricing an additional consulting expense of approximately $17,700 was
recognized, based upon the difference in the fair value of the original warrants
and the re-priced warrants as determined by the Black-Scholes option pricing
model.
NOTE 6. STATEMENT OF CASH FLOWS
Supplemental disclosure of non-cash investing and financing transactions:
During the nine month period ended September 30, 2002, the Company entered into
the following non-cash transactions:
Entered into certain lease agreements for the purchase of equipment in an
aggregate amount of approximately $23,700.
Re-priced warrants to purchase 100,000 shares of Common Stock at an
additional cost of approximately $17,700.
Entered into an asset purchase agreement for the purchase of a client list in
an aggregate amount of approximately $176,400.
During the nine month period ended September 30, 2001, the Company entered into
the following non-cash transactions:
Entered into certain lease agreements for the purchase of equipment in an
aggregate amount of approximately $403,000.
Issued warrants to purchase 100,000 shares of Common Stock at a value of
approximately $114,000.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO
THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001
The following discussion should be read in conjunction with the consolidated
financial statements of The Judge Group, Inc. and related notes thereto
appearing elsewhere in this Report and in our Annual Report on Form 10-K for the
year ended December 31, 2001.
OVERVIEW
Our operations experienced a decrease in net revenue of approximately $21.7
million, or 26.4%, for the nine months ended September 30, 2002 compared to the
prior year period. This revenue decrease was primarily attributable to a
decrease in revenue in all areas of our business caused by a continuing general
downturn in the United States economy, which negatively affected our clients'
use of IT and engineering staffing and training services. Despite the decrease
in revenues noted above, our operating income increased by approximately $0.1
million for the nine months ended September 30, 2002 compared to the prior year
period due primarily to special charges of approximately $1.0 million in 2001
not repeated in the comparable period of 2002. Our net income was $0.1 million
for the nine months ended September 30, 2002 compared to a loss of approximately
$0.2 million in the prior year period. This favorable result was primarily due
to the special charges in 2001 not repeated in the comparable period of 2002
noted above and to reduced interest expense.
RESULTS OF OPERATIONS
The following table sets forth certain statement of operations data as a
percentage of consolidated net revenues for each of the periods indicated:
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
---------------------- ----------------------
2002 2001 2002 2001
---- ---- ---- ----
Net revenues 100.0% 100.0% 100.0% 100.0%
------ ------ ------ ------
Cost of sales 65.9 66.4 65.8 64.5
Selling and operating expenses 19.1 23.2 20.2 20.8
General and administrative expenses, including
Special charges 13.9 20.9 13.3 14.3
---- ---- ---- ----
Total costs and expenses 98.9 110.5 99.3 99.6
---- ----- ---- ----
Operating income (loss) 1.1 (10.5) 0.7 0.4
Interest expense and other, net (0.2) (0.5) (0.3) (0.6)
----- ----- ----- -----
Income (loss) before income taxes 0.9% (11.0%) 0.4% (0.2%)
==== ======= ==== ======
THREE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 2001
Net Revenues. Consolidated net revenues decreased by 13.7%, or approximately
$3.2 million, to approximately $20.1 million for the three months ended
September 30, 2002 compared to the prior year period. This decrease was due to a
decrease in revenues in all areas of our business, primarily attributable to a
continuing general downturn in the United States economy, which negatively
affected our clients and caused them to reduce their use of IT and engineering
staffing and training services. In our contract placement business, revenues
decreased approximately $3.1 million, or 16.1%, to approximately $16.4 million
for the three months ended September 30, 2002 compared to the prior year period.
For the three months ended September 30, 2002 we billed approximately 271,000 IT
consultant hours compared to approximately 330,000 IT consultant hours in the
comparable period of 2001. Our permanent placement revenues decreased
approximately $0.2 million, or 7.1%, to approximately $2.8 million for the three
months ended September 30, 2002 compared to the prior year period.
8
This decrease in permanent placement revenues was primarily attributable to a
decrease in the number of candidates placed in the three months ended September
30, 2002 to 192 from 227 in the prior year period. Our IT training revenues
increased approximately $0.1 million, or 14.6%, to approximately $0.9 million
for the three months ended September 30, 2002 compared to the prior year period.
Cost of Sales. Consolidated cost of sales decreased by 14.4%, or approximately
$2.2 million, to approximately $13.2 million for the three months ended
September 30, 2002 compared to the prior year period. Cost of sales as a
percentage of consolidated net revenues decreased to 65.9% from 66.4% in the
respective comparable periods. Cost of sales related to contract placements
increased nominally to 76.7% of contract placement revenues for the three months
ended September 30, 2002 compared to 76.5% in the prior year period. This
increase was attributable to a decrease in the number of IT consultants working
on higher billable rate services, such as client server and web development
services. Contributing to the decrease in cost of sales as a percentage of
consolidated net revenues was an increase in the relative percentage of
permanent placement revenues, which have no corresponding cost of sales
associated with them, to total consolidated revenues. In the three months ended
September 30, 2002, revenue from permanent placements represented
approximately 13.8% of consolidated revenues, while in the comparable period of
2001 it represented approximately 12.8% of consolidated revenues. Cost of sales
related to IT training revenues increased approximately $0.2 million, or 32.5%,
to 69.5% of IT training revenues for the three months ended September 30, 2002
compared to 60.1% in the prior year period.
Selling and Operating. Consolidated selling and operating expenses decreased by
29.0%, or approximately $1.6 million, to approximately $3.8 million for the
three months ended September 30, 2002 compared to the prior year period. Selling
and operating expenses as a percentage of consolidated net revenues decreased to
19.1% from 23.2% for the three months ended September 30, 2002 compared to the
prior year period. This decrease was due primarily to lower commissions paid on
the reduced level of revenues, lower salaries following staff reductions, and
management's attempts to control costs in such areas as advertising, office
supplies, telephone, and travel and entertainment expense.
General and Administrative (including Special Charges). Consolidated general and
administrative expenses decreased 42.5%, or approximately $2.1 million, to
approximately $2.8 million for the three months ended September 30, 2002
compared to the prior year period. General and administrative expenses as a
percentage of consolidated net revenues decreased to 13.9% from 20.9% for the
three months ended September 30, 2002 compared to the prior year period. The
decrease in general and administrative expenses was due primarily to special
charges of approximately $1.0 million incurred in 2001 and not repeated in the
comparable quarter of 2002, as well as lower salaries and related expenses
following staff reductions to reflect our lower volume of business. Also
contributing to the decrease in general and administrative expenses was the
discontinuation of amortization of goodwill in accordance with Statement of
Financial Accounting Standards 142. In the comparable three months of 2001,
goodwill amortization was approximately $0.1 million.
Other. Other expense primarily represents interest expense net of other income.
Interest expense was approximately $39,000 and $150,000 for the three months
ended September 30, 2002 and 2001, respectively. Other income was approximately
$5,000 and $32,000 for the three months ended September 30, 2002 and 2001,
respectively. This decrease in total interest expense reflects our decreased
usage of our bank line of credit during the three months ended September 30,
2002, as well as a reduced interest rate on such borrowings from a prime rate of
6.0% at September 30, 2001 to 4.75% at September 30, 2002.
Income Taxes. The effective tax rate of approximately 51.0% for the three months
ended September 30, 2002 is higher than the federal statutory tax rate of 34%
due to state tax provisions and certain book expenses not deductible for tax
purposes. In the comparable period of 2001, the effective tax rate benefit of
approximately 39.5% was higher than the applicable federal statutory tax rate
primarily for the same reasons.
9
NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 2001
Net Revenues. Consolidated net revenues decreased by 26.4%, or approximately
$21.7 million, to approximately $60.3 million for the nine months ended
September 30, 2002 compared to the prior year period. This decrease was due to a
decrease in revenues in all areas of our business, primarily attributable to a
continued general downturn in the United States economy, which negatively
affected our clients and caused them to reduce their use of IT and engineering
staffing and training services. Contract placement revenues decreased
approximately $18.2 million, or 26.8%, to approximately $49.6 million for the
nine months ended September 30, 2002 compared to the prior year period. In the
nine months ended September 30, 2002 we billed approximately 820,000 IT
consultant hours compared to approximately 1,109,000 IT consultant hours in the
comparable period of 2001. Our permanent placement revenues decreased
approximately $3.1 million, or 28.1%, to approximately $8.0 million in the nine
months ended September 30, 2002 compared to the prior year period. This decrease
in permanent placement revenues was primarily attributable to a decrease in the
number of placements in the nine months ended September 30, 2002 compared to the
prior year period. We placed 571 candidates in the nine months ended September
30, 2002 compared to 785 candidates in the prior year period. Revenues in our IT
training operations decreased 12.9%, or approximately $0.4 million, to
approximately $2.8 million in the nine months ended September 30, 2002 compared
to the prior year period. This decrease in IT training revenues was primarily
attributable to a decrease in client companies' IT training needs in view of the
continuing downturn in the general economy.
Cost of Sales. Consolidated cost of sales decreased by 24.9%, or approximately
$13.2 million, to approximately $39.7 million for the nine months ended
September 30, 2002 compared to the prior year period. Cost of sales as a
percentage of consolidated net revenues increased to 65.8% from 64.5% in the
respective comparable periods. Cost of sales related to contract placements
increased to 76.2% of contract placement revenues for the nine months ended
September 30, 2002 compared to 75.2% in the prior year period. This increase was
attributable to a marked decrease in the number of IT consultants working on
higher billable rate services. Contributing to the increase in cost of sales as
a percentage of consolidated net revenues was the decrease in permanent
placement revenues, which have no corresponding cost of sales associated with
them. Cost of sales related to IT training revenues remained relatively
unchanged at approximately $1.9 million, or 68.0% of IT training revenues in the
nine months ended September 30, 2002 compared to the prior year period.
Selling and Operating. Consolidated selling and operating expenses decreased by
28.5%, or approximately $4.8 million, to approximately $12.2 million for the
nine months ended September 30, 2002 compared to the prior year period. Selling
and operating expenses as a percentage of consolidated net revenues decreased to
20.2% from 20.8% for the nine months ended September 30, 2002 compared to the
prior year period. The decrease in selling and operating expenses was due
primarily to lower commissions paid on the lower revenues, lower salaries
following staff reductions, and management's attempts to control costs in such
areas as advertising, office supplies, telephone and travel and entertainment
expense.
General and Administrative (including Special Charges). Consolidated general and
administrative expenses decreased 31.5%, or approximately $3.7 million, to
approximately $8.0 million for the nine months ended September 30, 2002 compared
to the prior year period. General and administrative expenses as a percentage of
consolidated net revenues decreased to 13.3% from 14.3% for the nine months
ended September 30, 2002 compared to the prior year period. This decrease in
general and administrative expenses was due primarily to lower salaries and
related expenses by approximately $2.3 million following staff reductions to
reflect our lower volume of business as well as to special charges of
approximately $1.0 million incurred in 2001 and not repeated in the comparable
period of 2002. Also contributing to the decrease in general and administrative
expenses was the discontinuation of amortization of goodwill in accordance with
Statement of Financial Accounting Standards 142. In the comparable nine months
of 2001, goodwill amortization was approximately $0.3 million.
Other. Other expense primarily represents interest expense net of other income.
Interest expense was approximately $202,000 and $565,000 for the nine months
ended September 30, 2002 and 2001, respectively. Other income was approximately
$52,000 and $65,000 for the nine months ended September 30, 2002 and 2001,
10
respectively. This decrease in total interest expense reflects our decreased
usage of our bank line of credit during the nine months ended September 30,
2002, as well as a reduced interest rate on such borrowings from a prime rate of
6.0% at September 30, 2001 to 4.75% at September 30, 2002.
Income Taxes. The effective tax rate of approximately 49.4% for the nine months
ended September 30, 2002 is higher than the federal statutory tax rate of 34%
due to state tax provisions and certain book expenses not deductible for tax
purposes. In the comparable period of 2001 the effective tax benefit rate of
approximately 0.8% was lower than the applicable federal statutory tax rate due
primarily to the same reasons.
LIQUIDITY AND CAPITAL RESOURCES
We have borrowed under our credit facility to fund our working capital needs. We
utilize a cash management program to minimize non-earning cash assets, including
a zero balance disbursement account, as reflected in the cash balance of $0 as
of September 30, 2002.
We provided cash from operations of approximately $3.4 million in the nine
months ended September 30, 2002 compared to approximately $5.1 million for the
comparable period of 2001. This result is primarily attributable to a
significantly smaller decrease in accounts receivable in the nine months ended
September 30, 2002 than in the comparable period of the prior year, providing
cash of $0.7 million in the 2002 period versus $4.9 million in the 2001 period.
The change in accounts receivable was partially offset by an increase in
accounts payable in the nine months ended September 30, 2002 which provided cash
of $1.1 million compared to a decrease in accounts payable of $1.4 million in
the comparable period of 2001.
Cash purchases of fixed assets for the nine months ended September 30, 2002 were
approximately $0.1 million compared to purchases of approximately $0.9 million
in the comparable period in the prior year. These purchases were related
primarily to the purchase of computers, related accessories and software to
upgrade our technology infrastructure.
We repaid approximately $2.7 million of our line of credit in the nine months
ended September 30, 2002, compared to repayment of approximately $3.7 million in
the nine months ended September 30, 2001. We also repaid approximately $0.5
million of our long-term obligations in the nine months ended September 30, 2002
compared to approximately the same amount in the comparable period of 2001.
We have availability under a $15.0 million revolving advance facility, the Line
of Credit, with PNC Bank, N.A., the Bank. The Line of Credit expires on April
30, 2003. This facility allows us to borrow the lesser of 85% of eligible
accounts receivable or $15.0 million. As of September 30, 2002 we had
approximately $1.7 million outstanding against the Line of Credit. The Line of
Credit is secured by substantially all of our assets and contains customary
restrictive covenants. The covenants include limitations on loans we may extend
to officers and employees, the incurrence of additional debt and a prohibition
of the payment of dividends on our common shares. The Line of Credit bears
interest, at our option, at either the Bank's prime rate, which was 4.75% at
September 30, 2002, or 200 basis points over the London Inter-bank Offering
Rate.
A continued lower level of business activity in the United States economy at
large could potentially lead to further decreases in our revenue in future
periods. While no one customer represents greater than 10% of our total revenue,
a continuing lower level of general economic activity in the United States could
adversely impact our clients and cause them to further curtail the use of
staffing services. Our management continues to monitor general economic
conditions and has made, and expects to continue to make, adjustments to our
operations as needed.
We anticipate that our primary uses of capital in future periods will be to fund
increases in accounts receivable, to support internal growth by financing new
offices, and to finance additional acquisitions. We believe that our Line of
Credit, or other credit facilities that may be available to us in the future,
will be sufficient to meet our capital needs for at least the next twelve
months.
During the quarter ended September 30, 2002 there was no material change in our
contractual cash obligations payable in future periods.
Information regarding our critical accounting policies which affect our more
significant judgments and estimates used in the preparation of our consolidated
financial statements is included in our Annual Report on Form 10-K for the year
ended December 31, 2001.
11
LISTING OF COMMON STOCK
On or about July 23, 2002, we received notification from The Nasdaq Stock
Market, Inc. that our Common Stock would be delisted from the Nasdaq National
Market unless the bid price of the stock closed at or above one dollar per share
for at least ten consecutive days by October 21, 2002. On October 22, 2002, we
received notification from The Nasdaq Stock Market, Inc. that the bid price of
our Common Stock failed to close at or above one dollar per share for at least
ten consecutive days prior to October 21, 2002. On October 28, 2002, we applied
to transfer the listing of our Common Stock to the Nasdaq SmallCap Market. There
can be no assurance that our listing on the Nasdaq SmallCap Market will be
accepted. If our application for listing on the Nasdaq SmallCap Market is not
accepted, the price and liquidity of our Common Stock may be adversely affected.
If we are accepted for listing on the Nasdaq SmallCap Market, the move to the
Nasdaq SmallCap Market could be perceived negatively and the trading market for
our Common Stock could be affected, which could depress our stock price and
adversely affect the liquidity of our Common Stock. Companies listed on the
Nasdaq SmallCap Market are required to maintain a minimum bid price of $1.00 per
share. While we are not currently in compliance with this requirement, moving to
the Nasdaq SmallCap Market will provide an immediate grace period of 180 days
during which we can come back into compliance. An additional 180-day grace
period may be granted if we remain in compliance with all the other listing
criteria of the Nasdaq SmallCap Market. However, there can be no assurance that
we will achieve compliance with the $1.00 per share minimum bid price or that we
will continue to satisfy all of the listing requirements of the Nasdaq SmallCap
Market or the Nasdaq National Market. In the event that we do not qualify for
listing on either the Nasdaq National Market or the Nasdaq SmallCap Market,
sales of our Common Stock would likely be conducted only in the over-the-counter
market. This may have a negative impact on the price and liquidity of our Common
Stock and investors may find it more difficult to purchase or dispose of, or to
obtain accurate quotations as to the market value of, our Common Stock.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.
We are exposed to market risk due to the variable interest rates on our Line of
Credit discussed above. The interest rates vary primarily due to changes in
short term interest rates promulgated by the Federal Reserve Bank in its efforts
to control general economic conditions. During 2001, the Federal Reserve Bank
caused such interest rates to decline, and those rates have remained at their
reduced levels during 2002. Assuming we are indebted on our Line of Credit
approximately $1.7 million and continue to have approximately 13,500,000 common
shares outstanding, a 1% decrease in our interest rate would increase our annual
earnings per share by less than 1 cent. Correspondingly a 1% increase in our
interest rate would decrease our annual earnings per share by less than 1 cent.
We have not entered into derivative financial or commodity instrument
transactions. We do not believe that our exposure to market risk from other
types of financial instruments, such as accounts receivable and accounts
payable, is material.
12
ITEM 4. CONTROLS AND PROCEDURES.
For the period ending September 30, 2002 (the "Evaluation Date"), we carried out
an evaluation, under the supervision and with the participation of our
management, including our Chairman of the Board and Chief Executive Officer and
our Chief Financial Officer (the principal finance and accounting officer), of
the effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Rules 13a-14 and 15d-14 under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). Based upon this evaluation, our
Chairman of the Board and Chief Executive Officer and our Chief Financial
Officer concluded that, as of September 30, 2002, our disclosure controls and
procedures were adequate to ensure that information required to be disclosed by
us in the reports filed or submitted by us under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
rules and forms of the Securities and Exchange Commission.
Additionally, our Chairman of the Board and Chief Executive Officer and Chief
Financial Officer determined, as of September 30, 2002, that there were no
significant changes in our internal controls or in other factors that could
significantly affect our internal controls subsequent to the date of their
evaluation.
PART II
-------
ITEM 1. LEGAL PROCEEDINGS
We are involved in routine litigation incidental to the conduct of our business,
but do not believe that any of the litigation to which we are currently a party
will have a material adverse effect on our results of operations or on our
financial condition.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
As of September 1, 2002, we re-priced outstanding warrants to purchase 100,000
shares of our Common Stock to reflect an exercise price of $0.80 per share. The
warrants were originally issued in February 2001 at an exercise price of $2.25
per share. The warrants are exercisable at any time prior to February 2006.
In February 2002, we commenced a voluntary stock option exchange program for our
employees. Under the program, employees holding options to purchase our Common
Stock were given an opportunity to exchange certain of their existing options,
with exercise prices equal to or greater than $2.10 per share, for new options.
Employees received one new option for every three eligible options surrendered.
An aggregate 528,750 eligible options were surrendered. We granted 166,242 new
options on September 17, 2002. The new options vest in equal annual increments
over four years. The per share exercise price of certain of the new options was
$0.80, the last reported per share trading price of our Common Stock on the day
on which they were granted, and of the remaining new options was $0.88, which
was 10% greater than the last reported per share trading price.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) No exhibits are filed as a part of this Quarterly Report on Form
10-Q.
(b) A report on Form 8-K was filed pursuant to Item 9 thereof by the
Registrant during the quarter ended September 30, 2002, on August 13, 2002,
related to the certifications of the Company's Chief Executive Officer and Chief
Financial Officer required by 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
A report on Form 8-K was filed pursuant to Item 5 thereof by the
Registrant during the quarter ended September 30, 2002, on September 11, 2002,
related to the Registrant's purchase of the client list and hiring of the
employees of Beacon Information Technologies, Inc.
13
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.
Dated: November 12, 2002
THE JUDGE GROUP, INC. THE JUDGE GROUP, INC.
/s/ Robert G. Alessandrini /s/ Martin E. Judge, Jr.
---------------------- --------------------
Robert G. Alessandrini Martin E. Judge, Jr.
Chief Financial Officer Chairman of the Board and
Chief Executive Officer
14
CERTIFICATIONS
I, Martin E. Judge, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of The Judge Group, Inc.
("Registrant");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Registrant as of, and for, the periods presented in this quarterly report;
4. The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the Registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the Registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The Registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the Registrant's auditors and the audit committee of
Registrant's board of directors:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to record,
process, summarize and report financial data and have identified for the
Registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal controls;
and
6. The Registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 12, 2002
/s/ Martin E. Judge, Jr.
----------------------
Martin E. Judge, Jr.
Chairman of the Board and
Chief Executive Officer
15
CERTIFICATIONS (cont'd.)
I, Robert G. Alessandrini, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The Judge Group, Inc.
("Registrant");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Registrant as of, and for, the periods presented in this quarterly report;
4. The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the Registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the Registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The Registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the Registrant's auditors and the audit committee of
Registrant's board of directors:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
Registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal controls;
and
6. The Registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 12, 2002
/s/ Robert G. Alessandrini
-----------------------
Robert G. Alessandrini
Chief Financial Officer
16
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES OXLEY ACT OF 2002
In connection with the Quarterly Report of The Judge Group, Inc. (the
"Company") on Form 10-Q for the period ending September 30, 2002 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
Martin E. Judge, Jr., Chief Executive Officer of the Company, certify, pursuant
to 18 U.S.C. ss.1350, as adopted pursuant to ss.906 of the Sarbanes-Oxley Act of
2002, that:
(1) The Report fully complies with the requirements of Section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial position and results of
operations of the Company.
/s/ Martin E. Judge, Jr.
---------------------
Martin E. Judge, Jr.
Chief Executive Officer
November 12, 2002
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of The Judge Group, Inc. (the
"Company") on Form 10-Q for the period ending September 30, 2002 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
Robert G. Alessandrini, Chief Financial Officer of the Company, certify,
pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial position and results of
operations of the Company.
/s/ Robert G. Alessandrini
-----------------------
Robert G. Alessandrini
Chief Financial Officer
November 12, 2002
17