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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 30, 1995 OR
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( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from Not Applicable to
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Commission file number 0-17840
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HANDEX CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 22-2941704
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(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
500 Campus Drive, Morganville, New Jersey 07751
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (908) 536-8500
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Securities registered pursuant to Section 12(b) of the Act:
Title of each Class Name of each exchange on which
Not Applicable registered
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value
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Title of Class
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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
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The aggregate market value of the Common Stock held by non-affiliates of the
Registrant as of March 1, 1996 was approximately $17,740,541, computed on the
basis of the last reported sales price per share ($5.125) of such stock on the
NASDAQ National Market System.
The number of shares of the Registrant's Common Stock outstanding as of March 1,
1996 was 6,865,212.
DOCUMENTS OR PARTS THEREOF INCORPORATED BY REFERENCE
Part of Form 10-K Documents Incorporated
- - ---------------------------------- by Reference
Part III (Items 10, 11, 12 and 13) --------------------------------
Portions of the Registrant's definitive
Proxy Statement to be used in connection
with its Annual Meeting of Stockholders
to be held on
May 7, 1996
HANDEX CORPORATION
INDEX TO ANNUAL REPORT
ON FORM 10K
PART I
Item 1. Business
General 1
Environmental
Services 2
Customers and Marketing 3
Competition 4
Environmental Legislation 4
Permits, Licenses and Regulatory Approval 5
Insurance 5
Employees 5
Educational
Wholly-owned centers and franchising 6
Services 6
Customers 6
Marketing 6
Competition 7
Item 2. Properties 7
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of
Security Holders 7
PART II
Item 5. Market for Registrant's Common Equity
and Related Shareholder Matters 8
Item 6. Selected Consolidated Financial Data 8
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Item 8. Financial Statements and Supplementary Data 16
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 16
PART III
Item 10. Directors and Executive Officers
of the Registrant 17
Item 11. Executive Compensation 18
Item 12. Security Ownership of Certain Beneficial Owners
and Management 18
Item 13. Certain Relationships and Related Transactions 18
PART IV
+Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8K 18
SIGNATURES 19
PART I
ITEM 1. BUSINESS
GENERAL
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Handex Corporation ("Company") conducts two distinct lines of business; its
environmental segment, which has been its core business, and the educational
segment, which the Company started in August 1994 with its acquisition, through
its subsidiary, New Horizons Education Corporation ("New Horizons"), of all the
issued and outstanding shares of New Horizons Franchising, Inc. and all of the
assets of New Horizons Learning Center, Inc.
The discussion that follows and note 10 to the consolidated financial
statements (see Item 8) highlight the business conditions and certain financial
information specific to each of the two business segments.
ENVIRONMENTAL BUSINESS SEGMENT
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The Company, through subsidiaries of its environmental holding subsidiary,
Handex Environmental, Inc., (collectively "Handex Environmental") provides a
comprehensive solution to hydrocarbon contamination of groundwater and soil at
CERCLA, RCRA and UST sites. Handex Environmental's full service approach
addresses the entire remediation process, from detection and delineation to
recovery and treatment. Specific services include detailed site assessments,
analysis of groundwater and soil contamination, development and installation of
on-site recovery systems, permitting services, maintenance and monitoring of
recovery systems and complete documentation of all services and systems. Handex
Environmental also provides environmental dewatering services to petroleum
producers and suppliers. In late 1988 Handex Environmental introduced
environmental site assessment services at industrial sites, primarily in the
State of New Jersey, and subsequently increased its capability to perform other
types of remediation projects through the acquisition of sludge dewatering
equipment.
Handex Environmental's primary clients continue to be the major petroleum
companies which store petroleum products in underground storage tanks. While
the bulk of Handex Environmental's underground storage tank and related services
remained concentrated at retail gasoline stations during the fiscal year ended
December 30, 1995 ("1995"), Handex Environmental continued to pursue and
obtained additional work at bulk petroleum storage terminals, refineries and
industrial sites. During 1995, Handex Environmental won and executed a series
of significant contracts throughout the country. Most of the work on these
projects involved disciplines and services new to Handex Environmental. The
projects included two superfund sites - one in Florida and one in North
Carolina, a series of landfill jobs in Texas, Maryland, Delaware and New
Hampshire, and a variety of jobs involving large scale industrial cleanups.
These projects generated over $10,000,000 in gross operating revenues in 1995.
Handex Environmental also built a backlog for this type of work, starting 1996
with a backlog of over $12,000,000. Handex Environmental intends to continue to
pursue this market to supplement its core retail gasoline station business.
Through 1991, Handex Environmental operated primarily in New Jersey,
Florida, Massachusetts, Maryland and surrounding states. In 1990, Handex
Environmental opened area offices in eastern Pennsylvania. In 1991, Handex
Environmental continued its expansion by opening area offices in: Western
Pennsylvania; Long Island, New York; Jacksonville, Florida; Chicago, Illinois;
and Charlotte, North Carolina. Handex Environmental also acquired, through a
merger, a small groundwater remediation business in Palm Springs, Florida. In
1993, Handex Environmental opened area offices in: Cincinnati, Ohio; and
Atlanta, Georgia. In 1994, Handex Environmental opened area offices in: Golden,
Colorado; Wixom, Michigan; Mobile, Alabama; and Kansas City, Missouri. In 1995,
Handex Environmental opened an office in Tampa, Florida and acquired the assets
of a local environmental concern. In 1996, Handex Environmental opened an office
in Indianapolis, Indiana. The area offices differ from Handex Environmental's
other locations in that they do not have their own remediation capability. When
such services are needed, they are provided by Handex Environmental's larger
offices or by subcontractors.
In 1995, the environmental remediation market was characterized by intense
price-based competition. Handex Environmental believes this condition will
continue to be the single, dominant factor in the market in the future. In
recent years, Handex Environmental's business has been helped considerably by
the cost reimbursement program maintained by the State of Florida through the
Florida Inland Protection Trust Fund. Toward the end of the first quarter of
1995, significant regulatory changes in Handex Environmental's Florida market
adversely affected revenues from its Florida operations. These changes
effectively narrowed the number and types of environmental clean-up expenditures
which would be reimbursable from the Fund.
Handex Environmental believes that the quality and comprehensive nature of
its services, its focus on well defined markets, both geographically and in
terms of services offered, and the response of governmental authorities to
public concern with groundwater contamination are material to the success of its
business. Handex Environmental intends to continue its strategy of focusing on
its primary service market -- hydrocarbon contamination of groundwater and soil
due to leaking underground storage tanks and related contamination sources --
and to grow by entering new geographic markets where there is active enforcement
of environmental protection statutes and significant petroleum industry
presence, by expanding its focus to include bulk petroleum storage terminals,
CERCLA and RCRA sites; by offering its services to a broader range of customers
and by continuing to improve operating efficiencies while maintaining a high
level of technical quality. In addition, Handex Environmental is expanding its
expertise and operations beyond the hydrocarbon remediation contamination
services market.
Handex Environmental currently conducts its groundwater remediation
business through nine wholly-owned subsidiaries, Handex of New Jersey, Inc.,
Handex of Maryland, Inc., Handex of Florida, Inc., Handex of New England, Inc.,
Handex of the Carolinas, Inc., Handex of Illinois, Inc., Handex of Ohio, Inc.,
Handex of Colorado, Inc. and Handex of Pennsylvania, LLC. In addition, Handex
Environmental performs other remediation services, such as sludge dewatering and
facility decontamination, through its wholly owned subsidiary, Handex
Environmental Management, Inc.
SERVICES
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Handex Environmental provides its clients with comprehensive groundwater
and soil assessment, and remediation services directed at contamination
resulting from leaking underground storage tanks, petroleum distribution systems
and related contamination sources. A Handex Environmental project team includes
hydrogeologists, engineers, and risk management specialists working with its
operations department, which includes environmental technicians, data collection
specialists and remedial system installers and operators.
A Handex Environmental project begins with the investigation of a confirmed
or suspected petroleum release. The case hydrogeologist develops a data
collection and analysis program for the site. Handex Environmental
professionals collect and evaluate information pertaining to site geology,
hydrogeology, the nature and distribution of contaminants, potential exposure
pathways and receptors. This is accomplished by employing rapid assessment
techniques such as core penetrometer surveys, on-site chemical screening and
analysis of soil and groundwater and traditional monitoring well installation.
Through the analysis of field data and the results of the analysis of soil and
groundwater samples, the hydrogeologist determines the extent of the
contamination, soil characteristic and contaminant migration pathways. This
information forms the basis for corrective action decisions.
Based on the information collected during the site characterization
process, Handex Environmental, in concert with its customer, determines the risk
posed by the site. If the risk exposure is unacceptable, Handex Environmental
may propose a soil and/or groundwater remediation program to reduce the level of
contamination to within acceptable guidelines, or, it may instead focus on its
modeling capability and regulatory knowledge to develop an argument that no
further action is required.
Handex Environmental has extensive experience designing and installing soil
and groundwater remediation systems. A typical Handex Environmental remediation
system can include groundwater extraction, soil vapor extraction, air sparging
or some combination of the three. Groundwater and air treatment systems are
designed to address site specific contaminant, concentrations and loading rates.
Remediation equipment is often modified by Handex Environmental to enhance its
performance and to provide an integrated system. The installation of the
remediation system is performed by Handex Environmental's trained installation
technicians. Handex Environmental's regulatory department specialists ensure
compliance with Federal, state and local laws pertaining to the installation and
operation of remediation systems.
Once a remediation system is installed, Handex Environmental technicians
monitor the performance of the system, collect water and soil samples and
perform routine inspection, adjustment and maintenance to ensure proper
operations. Handex Environmental monitors the progress of the remedial action
until the clean-up goals have been achieved. Handex has over 600 projects
currently being monitored. It provides groundwater data and analysis of such
data to its customers and in some cases to various regulatory bodies to comply
with certain individual state and local regulations.
Emergency Response Capabilities. As a result of Handex Environmental's
ability to provide comprehensive groundwater remediation services and the
equipment necessary to perform such services, Handex Environmental is often
called upon to respond to emergency spills or leaks by its customers or by state
or local governmental bodies or agencies. Emergency situations involve the
application of the various techniques used by Handex Environmental in providing
groundwater remediation services in non-emergency situations. However, due to
the need for prompt action as a result of the higher level of contamination
which may be present and publicity concerning the problem, Handex
Environmental's emergency response services typically involve a substantially
greater initial commitment of personnel and equipment than routine projects.
Environmental Dewatering Services. Handex Environmental provides
environmental dewatering services to petroleum producers and suppliers who
desire to replace underground storage tanks or petroleum distribution systems in
areas where groundwater is located near the surface. Dewatering consists of
pumping groundwater in order to reduce the water table elevation in a given area
to a level sufficient to permit installation of new underground storage tanks or
systems. Water generated during the dewatering process is generally
contaminated with soluble components of gasoline and is treated through the use
of mobile water treatment units employing separation and carbon adsorption prior
to its discharge back into the environment.
General Site Assessment and Remediation Services. Handex Environmental
provides environmental site assessment services to its customers. The areas of
environmental concern that need to be investigated in connection with a site
assessment include underground storage tanks, groundwater and soil quality,
areas of known hazardous spills, drum storage areas, lagoons and loading and
unloading areas. In addition, the interiors of buildings on the site must also
be examined. As areas of contamination are discovered, a cleanup plan is
designed, approved by the appropriate regulatory authorities and implemented.
Customers for environmental site assessment services have included
potential buyers, owners and operators of various industrial and commercial
facilities. In addition, banks and other financial institutions that provide
financing to such owners and operators, as well as potential acquirers of such
facilities, have requested environmental site assessments.
CUSTOMERS AND MARKETING
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Handex Environmental's principal customers are major petroleum companies,
which accounted for approximately 84.0%, 80.2% and 78.9% of Handex
Environmental's net operating revenues in 1993, 1994 and 1995, respectively.
Handex Environmental's three largest petroleum company customers, Amoco Oil
Company, Exxon Company, U.S.A. and Shell Oil Company accounted for 15.9%,
12.5%, and 11.4%, respectively, of Handex Environmental's net operating revenues
in 1995. Handex Environmental's level of business with those customers declined
from its 1994 level, reflecting adverse economic conditions, regulatory
changes, the introduction of Risk Based Corrective Action ("RBCA") in certain
states and reduced funding for environmental services. The loss of business
from any of its major customers or adverse changes in current regulations
could have a material adverse effect on Handex Environmental.
Handex Environmental currently performs approximately 80% of its work for
petroleum companies at retail gasoline stations, although it does perform and
continues to pursue, work at bulk petroleum terminals, pipelines, refineries and
industrial sites from time to time. Handex Environmental's non-petroleum
customers are primarily industrial clients and/or state and local governmental
bodies or agencies which engage Handex Environmental to provide emergency
response services. Most of Handex Environmental's jobs for petroleum companies
are performed pursuant to purchase orders or non-exclusive contracts, neither of
which provide for any minimum purchase requirements. Most customers now require
Handex Environmental to bid on certain phases of recovery projects, and Handex
Environmental believes that this trend will continue in the future. In
addition, many customers of Handex Environmental now purchase certain services
and equipment historically provided by or through Handex Environmental as part
of its full service approach from other contractors. Handex Environmental
believes the unbundling of services, such as laboratory testing and analysis, is
an indication of the increasing focus by its customers on containing costs
associated with environmental remediation projects.
Handex Environmental historically charged its customers for the services of
its employees on an hourly basis with few budgetary limitations, as well as for
the cost of materials and equipment used in connection with its services.
Starting in 1993, a majority of Handex Environmental's work has been performed
under fixed price contracts and unit prices, and it is expected that this trend
will continue.
Handex Environmental historically marketed its services through its senior
professional staff and executives who have focused primarily on existing
customers. Since competition in the groundwater remediation services industry
has increased substantially the past few years and is likely to continue to
increase further, Handex Environmental has established a sales and marketing
function with experienced professionals in this field. Since 1993, Handex
Environmental has committed significant resources for sales and marketing
activities.
COMPETITION
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While many companies are engaged in various aspects of the soil and
groundwater remediation services industry, only a few provide the full service
approach to groundwater remediation provided by Handex Environmental in its
principal geographic markets. There are, however, a large number of firms which
provide consulting and assessment services with respect to hydrocarbon recovery
and soil/groundwater remediation. In addition, a large number of firms perform
remediation services, but these firms concentrate their operations on major
spills, Superfund site cleanups, and the removal of substances such as
polychlorinated biphenols ("PCBs") and asbestos. There are also numerous small
independent pump and tank contractors which remove contaminants and transport
them to hazardous waste sites or other storage facilities. These contractors
collectively have a significant share of the market for such services.
The increasing focus on lower remediation costs by major consumers of
environmental services has heightened competition in the soil/groundwater
remediation services industry and this trend will likely continue as the
industry matures, as other companies enter the market and expand the range of
services which they offer and as Handex Environmental and its competitors move
into new geographic markets. For example, major engineering and consulting
companies are becoming increasingly involved in the engineering related aspects
and subsequent remediation of hazardous waste sites. It is also likely that
some of the major consulting firms will expand their groundwater remediation
services and compete directly with Handex Environmental. Competition from these
larger companies could have a material adverse effect on Handex Environmental's
business. Further, competition from small firms which offer a more limited
range of services but which can compete effectively on price has and may
continue to adversely affect Handex Environmental's profitability by reducing
its margins.
Handex Environmental historically responded to competition on the basis of
its ability to provide a comprehensive response to the problems of
soil/groundwater contamination and the quality of its services, rather than on
the price of its services. However, Handex Environmental believes that price
has now become of primary importance to its customers, and believes that it must
compete on this basis. Handex Environmental also believes that, over the long
term, the quality of its services will continue to be an important competitive
advantage. Accordingly, in attempting to respond to price competition, Handex
Environmental will attempt to maintain a high level of technical quality in its
services.
ENVIRONMENTAL LEGISLATION
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The current demand for Handex Environmental's soil/groundwater remediation
services is a result of a number of overlapping Federal, state and local laws
concerned with the protection of human health and the environment, as well as
regulations promulgated by administrative agencies thereunder. The principal
Federal statutes affecting groundwater include the Safe Drinking Water Act of
1974, the Resource Conservation and Recovery Act of 1976 ("RCRA") and the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA"). One of the more important Federal regulatory developments relating
to Handex Environmental's business occurred in September 1988 when the EPA
issued comprehensive regulations under RCRA governing underground storage tanks
containing hazardous substances or petroleum. Such regulations require the
owners of underground storage tanks to upgrade or close existing tanks within 10
years, and to install release detection equipment on existing tanks over a five-
year period. Such regulations also require all new tanks which are installed
to have protection against spills, overflows and corrosion. In addition,
such regulations also prescribe the procedures by which tank owners and
operators should investigate and report confirmed or suspected releases from
tanks, and if applicable, proceed with corrective actions.
Many of the foregoing Federal statutes encourage significant state
involvement in their administration and enforcement, and various states have
been authorized by the Environmental Protection Agency to implement their own
underground storage tank programs. Various states have also enacted their own
statutes designed to protect and restore environmental quality and to deal
directly with the problem of soil and groundwater contamination. The state
statutes and regulations are in some cases, different or more stringent than the
other Federal statutes, and Handex Environmental believes that statutes and
regulations enacted at the state level have had a greater impact on the demand
for its services than those enacted at the Federal level. Some examples of such
state statutes include New Jersey's Spill Compensation and Control Act,
Environmental Clean Up Responsibility Act and its Underground Storage of
Hazardous Substances Act, Maryland's Hazardous Substance Spill Response Law,
Florida's Water Quality Assurance Act and the Florida Inland Protection Trust
Fund. The Florida Inland Protection Trust Fund, which had helped considerably
Handex Environmental' s business in Florida up through 1994, was revised by the
Florida legislature in early 1995 and now requires site prioritization and prior
approval of costs by the Florida Department of Environmental Protection for
reimbursement of cleanup expenditures. These revisions, which were intended to
assure the Fund's economic integrity, have adversely affected in a significant
manner, the operating results of Handex Environmental's operations in Florida,
and will continue to have an adverse effect on the Company given the size of
Handex Environmental's operations in that state.
PERMITS, LICENSES AND REGULATORY APPROVALS
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The installation and operation of remediation systems are subject to
various licensing, permitting, approval and reporting requirements imposed by
Federal, state and local laws. For example, National Pollutant Discharge
Elimination System ("NPDES") permits, air pollution permits and other regulatory
program permits are typically required in connection with the installation of an
active remediation system, and the terms of these permits often require ongoing
reporting to governmental agencies concerning the operation of the remediation
system. Passive remediation programs also require institutional and engineering
controls. Approvals of corrective action plans by the appropriate regulatory
agency is increasingly being required before a recovery system can be installed
to address contaminated soil and/or groundwater due to a release from an
underground storage tank.
Various state and local laws require the monitoring wells and wells used in
the recovery process to be installed by licensed well drillers, and installation
of the recovery system may also require compliance with applicable provisions of
construction and zoning laws. Some of the states in which Handex Environmental
operates require that groundwater recovery systems installed at a facility be
operated by licensed wastewater treatment plant operators. Some states have
also adopted testing and licensing programs to regulate professionals who
typically conduct subsurface investigations and propose remedial action
workplans.
In order to provide a full service approach to subsurface remediation,
Handex Environmental employs licensed well drillers, and many of its
environmental technicians are licensed wastewater treatment plant operators. In
addition, Handex Environmental employs individuals who specialize in obtaining
the required Federal, state and local environmental and operational permits
necessary for Handex Environmental and its customers to install and operate
remediation systems, facility permits, including Title V air permits and
compliance audits. Handex Environmental also provides the documentation of the
recovery process necessary to assist its customers in satisfying applicable
reporting requirements.
INSURANCE
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In 1992, the Company purchased an interest in a trade association captive
insurance group through which it obtains comprehensive general liability
insurance, with coverage limits of $5,000,000, including losses for sudden and
accidental pollution damage. While Handex Environmental believes that it
operates its business safely and prudently, there can be no assurance that
liabilities incurred from a claim for professional liability or some other risk
will be covered by insurance or, if covered, that the dollar amount of such
liabilities will not exceed coverage limits.
EMPLOYEES
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As of December 30, 1995, the number of employees at Handex Environmental,
including the corporate staff at Handex Corporation, was 576 employees. Of
these, 318 are skilled professionals (hydrogeologists, geologists, environmental
scientists and field technicians), 121 are non-professional technical support
personnel, and 137 are administrative and executive personnel.
Handex Environmental believes that a key factor in its success will be its
ability to continue to attract and retain highly skilled professionals. Handex
Environmental attempts to meet its need for these professionals both by training
hydrogeologists and geologists in the field of hydrocarbon recovery and
groundwater cleanup and by recruiting qualified candidates from other companies,
governmental agencies and colleges and universities.
None of Handex Environmental's employees are represented by a labor
organization. Handex Environmental considers relations with its employees to be
satisfactory.
EDUCATIONAL BUSINESS SEGMENT
- - ----------------------------
The Company operates its educational segment through subsidiaries of its
education holding company subsidiary, New Horizons Education Corporation
(collectively, "New Horizons") . There are two distinct businesses to the
education segment; one operates computer training centers, while the other
supplies a system of instructions, sales and management concepts concerning
computer training to independent franchisees.
New Horizons Training Centers. New Horizons operates computer training
facilities in Santa Ana, California; Chicago, Illinois; and New York, New York.
In addition, New Horizons holds a minority interest in a joint venture which
operates a facility in Cleveland, Ohio. Prior to the acquisition of New
Horizons by the Company, New Horizons operated a single training center in Santa
Ana. The other centers were acquired from franchisees, subsequent to the
acquisition, as part of New Horizons' strategic plan to operate company-owned
training centers in selected major United States markets.
Through its computer training centers, New Horizons offers comprehensive
instruction in the use of personal computers and computer software, including
instructor-led courses in software applications, networking and work stations.
Each training center is equipped with computer hardware, software, and
peripherals in order to provide students with hands-on training. Students are
provided with internally developed coursewares and other training materials
purchased by New Horizons from leading software manufacturers under license
agreements. Revenues from the computer training centers are derived from
training fees paid by clients and proceeds from the sale of training materials
related to the computer courses.
The Company believes there is a nationwide trend toward out-sourcing of
computer training. Typical students in a New Horizons' classroom consist of
individuals from private employers or various government agencies, which
contract with New Horizons to provide training in personal computer and software
applications to their personnel. Most of the classes are held at New Horizons'
facilities. However, in response to the needs of its customers, New Horizons
also provides instruction at client offices. All training is instructor-led,
with approximately 70% being conducted at the training centers and 30% at client
locations.
Franchising Operations. New Horizons began offering franchise territories
in 1992, and as of March 1, 1996, there were 121 training centers world-wide in
addition to Company-owned locations in New York, Chicago and Santa Ana,
California. During the first quarter of 1996, the Company completed the sale of
ten franchises in Japan. New Horizons sells only one franchise within a defined
geographic area. Franchisees pay an initial franchise fee and royalty and
advertising fees based on both gross training revenues and gross sales of
courseware.
A new franchise owner undergoes an intensive training program, receiving
in-depth instruction in sales, marketing, computer training and the management
of a computer training facility. New Horizons also provides franchisees with
sales, management, advertising and technical support.
Customers. Customers for the training provided at New Horizons' operated
and franchised training centers are predominantly employer-sponsored individuals
from a wide range of corporations, professional service organizations,
government agencies and municipalities. No single customer accounted for more
than 10% of New Horizons revenues during 1995.
Marketing. According to a survey conducted by International Data
Corporation, worldwide revenues for the information training industry approached
$15 billion in 1993 and are expected to grow to almost $27 billion by 2,000.
Although very fragmented, the industry is expected to produce annual growth
rates of 13%. The majority of all company-sponsored computer education and
training is currently supplied through the use of in-house training staffs. The
Company believes that there is a trend in the United States toward out-sourcing
non-core operations, such as computer training, as a means of increasing
corporate efficiency and competitiveness.
New Horizons markets its services primarily through account executives who
utilize telemarketing to target and contact potential customers. New Horizons
has also recently established a national account program designed to market
computer training services to large companies which have facilities throughout
the United States.
Competition The information technology training and education industry is
highly fragmented. Computer education and training is supplied primarily by in-
house training departments, regional personal computer application specialists,
such as ExecuTrain, Catapult and Productivity Point International, small local
independents, computer dealers and superstores and computer resellers. Except
for ExecuTrain, an Atlanta, Georgia based company, none of the Company's
competitors currently have a national presence.
The instructor-led computer training markets are locally oriented.
Although national marketing efforts are conducted, a training center's success
depends upon execution at the local level. Although competitive pricing is
important, New Horizons believes that it is currently a less important
competitive factor than the quality of training, flexibility and convenience of
service.
Training Authorization. New Horizon is authorized to provide training by
more than 30 software publishers, including Microsoft, Novell, Apple and Sun
Microsystems. The authorization agreements are typically annual in length and
are renewable at the option of the publishers. While New Horizons believes that
its relationship with software publishers are good, the loss of any one of these
agreements could have a material adverse impact on its business.
Employees. As of December 30, 1995, New Horizons employed 328 individuals,
consisting of 100 computer instructors, 80 account executives and 148 in the
administration and executive areas. None of these employees are represented by
a labor organization. New Horizons considers relations with its employees to be
satisfactory.
ITEM 2. PROPERTIES
The Company's corporate headquarters occupy a portion of a 33,000 square
foot facility in Morganville, New Jersey, which it shares with two wholly owned
subsidiaries, pursuant to a lease which expires in 2003. The lease gives the
Company an option to extend its tenancy for the entire facility for an
additional five-year period.
As of December 30, 1995, Handex Environmental conducted business at
nineteen facilities located in the states of New Jersey, New York, Pennsylvania,
Maryland, North Carolina, Ohio, Florida, Georgia, Illinois, Massachusetts,
Colorado, Michigan, Alabama, and Missouri. Handex Environmental owns facilities
in New Jersey, Maryland and Florida, while leasing facilities in all other
locations. In January 1996, Handex purchased its facility in Mt. Dora, Florida
from a general partnership whose partners are certain executive officers and
Directors of the Company.
New Horizons' headquarters and primary training centers are located in
Santa Ana and Irvine, California, pursuant to leases which expire in 1997 and
2001, respectively.
As of December 30, 1995, New Horizons conducted business at four leased
facilities located in California, Illinois and New York.
The Company believes that its properties are well maintained and are
adequate to meet current requirements and that suitable additional or substitute
space will be available as needed to accommodate any expansion of operations and
for additional offices if necessary.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in several lawsuits incidental to the ordinary
conduct of its business. The Company does not believe that the outcome of any
or all these claims will have a material adverse effect upon its business or
financial condition or result of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Common stock is traded on the NASDAQ National Market System under the
symbol HAND. The following table sets forth the range of high and low bid
quotations per share of Common stock from January 2, 1994 through December 30,
1995, as reported by the NASDAQ system.
1995 HIGH LOW
- - ---- ----- ----
1st Quarter (January 1 - April 1) 9 7
2nd Quarter (April 2 - July 1) 8-1/4 4-1/2
3rd Quarter (July 2 - September 30) 8-1/8 6-1/4
4th Quarter (October 1 - December 30) 7-3/8 4-5/8
1994 HIGH LOW
- - ---- ----- ----
1st Quarter (January 2 - April 2) 8-1/2 6-1/4
2nd Quarter (April 3 - July 2) 7-1/2 6
3rd Quarter (July 3 - October 1) 9-3/8 7
4th Quarter (October 2 - December 31) 8-5/8 6-1/4
As of March 1, 1996, the Company's Common stock was held by 264 holders of
record. The Company has never paid cash dividends on its Common stock and has
no present intention to pay cash dividends in the foreseeable future. The
Company currently intends to retain any future earnings to finance the growth of
the Company.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
Summary Consolidated Financial Data (in thousands, except per share)
SELECTED CONSOLIDATED 1995(2) 1994(2) 1993 1992 1991
------- ------- ----- ---- -----
STATEMENTS OF INCOME DATA:(1)
Total operating revenues $85,272 $64,773 $48,194 $52,098 $62,245
Subcontractor costs 15,018 12,202 9,481 9,657 12,522
------- -------- -------- -------- --------
Net operating revenues 70,254 52,571 38,713 42,441 49,723
Cost of net operating revenues 45,066 32,866 24,745 27,437 26,079
------- -------- ------- ------- -------
Gross profit 25,188 19,705 13,968 15,004 23,644
Selling, general and
administrative expenses 24,008 16,182 12,197 12,263 11,778
Provision for loss in a
joint venture, asset write-
off and termination expenses 1,113 -- -- -- --
Other income (expense), net (191) 343 424 417 134
------- ------- ------- ------- -------
Income (loss) before income (124) 3,866 2,195 3,158 12,000
taxes
Provision for income taxes 69 1,535 821 1,225 4,685
------- -------- ------ ------- -------
Net income (loss) $(193) $2,331 $1,374 $1,933 $7,315
======= ======== ======= ======= =======
Net income (loss) per share
of Common stock(3) $(.03) $ .34 $ .20 $ .28 $ 1.06
======= ======= ======= ====== =======
SELECTED CONSOLIDATED BALANCE SHEET DATA
DECEMBER DECEMBER JANUARY DECEMBER 31
30, 31, 1, ------------------
SELECTED CONSOLIDATED 1995 1994 1994 1992 1991
BALANCE SHEET DATA: ----- ----- ----- ----- ----
Working capital $23,198 $24,666 $38,194 $36,129 $34,524
Total assets 67,089 61,920 52,393 50,629 50,839
Long-term obligations,
excluding current
installments 650 464 -- -- 17
Total stockholders'
equity 49,428 49,637 47,060 46,253 45,040
(1) Certain reclassifications were made in 1994, 1993, 1992, and 1991 to
conform with the presentation in 1995.
(2) The operating results of New Horizons are included in 1995 for the entire
year and for the period from August 15, 1994 through December 31, 1994 for
1994.
(3) Net income per share of Common stock is computed based on the weighted
average number of common shares outstanding during the year as adjusted for
the five-for-four stock split in March 1991 and stock repurchase described
in Note 1 of Notes to Consolidated Financial Statements. Inclusion of the
incremental shares applicable to outstanding stock options in the
computation would have no material effect.
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements and related notes and "SELECTED FINANCIAL
DATA" included elsewhere in this report.
The following table presents, for the periods indicated (i) the
percentage relationship which certain items in the Company's Consolidated
Statements of Income bear to net operating revenues and (ii) the percentage
change in the dollar amount of such items. All references to 1993 in the
financial statements refer to the fiscal year ended January 1, 1994.
PERCENTAGE RELATIONSHIP PERIOD TO PERIOD
TO NET OPERATING REVENUES CHANGE
1995 1994 1993
VS. VS. VS.
1995 1994 1993 1994 1993 1992
------ ----- ----- ----- ----- -----
Net operating revenues 100.0% 100.0% 100.0% 33.6% 35.8% (8.8)%
Cost of net operating revenues 64.1 62.5 63.9 37.1 32.8 (9.8)
Gross profit 35.9 37.5 36.1 27.8 41.1 (6.9)
Selling, general and
administrative expenses 34.2 30.8 31.5 48.4 32.7 (.5)
Provision for loss in a
joint venture, asset write-off
and termination expenses 1.6 -- -- 100.0 -- --
Interest income .9 1.5 2.0 (23.0) (0.5) 32.0
Income (loss) before income
taxes (.2) 7.4 5.7 N.A. 76.1 (30.4)
Provision for Income taxes .1 2.9 2.1 (95.5) 87.0 (33.0)
Net income (loss) (.3) 4.4 3.5 N.A. 69.7 (28.9)
GENERAL
- - --------
Handex Corporation ("Company") conducts two distinct lines of business; its
environmental segment which has been its core business and the educational
segment, which the Company started in August 1994 with its acquisition of all
the issued and outstanding shares of New Horizons Franchising, Inc. and all of
the assets of New Horizons Learning Center, Inc.
The discussion that follows and note 10 to the consolidated financial
statements (see Item 8) highlight the business conditions and certain financial
information specific to each of the two business segments.
ENVIRONMENTAL BUSINESS SEGMENT
- - -------------------------------
The Company conducts the environmental segment of its business through a
subsidiary, Handex Environmental, Inc., and its subsidiaries (collectively
"Handex Environmental").
Net operating revenues include fees for services provided directly by
Handex Environmental, and fees for arranging for subcontractors' services, as
well as proceeds from the rental and sale of equipment. Handex Environmental,
in the course of providing its services, routinely subcontracts for outside
services such as soil cartage, laboratory testing and other specialized
services. These costs are generally passed through to clients and, in
accordance with industry practice, are included in total operating revenues.
Because subcontractor services can change significantly from project to project,
changes in total operating revenues may not be truly indicative of business
trends. Accordingly, Handex Environmental views net operating revenues, which
is total operating revenues less the cost of subcontractor services, as its
primary measure of revenue growth.
Cost of net operating revenues includes professional salaries, other direct
labor, material purchases and certain direct and indirect overhead costs.
Selling, general and administrative expenses include management salaries, sales
and marketing salaries and expenses, and clerical and administrative overhead.
During 1995 and 1994, several trends continued to develop which Handex
Environmental believes will have a direct impact on its future results of
operations. Handex Environmental believes that expenses for administration,
computerization, marketing and engineering will continue to increase.
Administrative costs have increased and will continue to increase as a result of
the increasing desire of Handex Environmental's customers for more detailed
information concerning the status of their environmental projects. Handex
Environmental's marketing costs will continue to increase due to the effects of
increased competition in the environmental industry and Handex Environmental's
strategy to diversify its client base.
Handex Environmental's customers have become increasingly cost conscious
during recent periods in part due to their own financial constraints. To date,
this cost consciousness on the part of customers has manifested itself primarily
in three areas: (i) the manner in which Handex Environmental obtains its
business and charges for its services; (ii) the use of other contractors to
provide certain services traditionally provided by Handex Environmental; and
(iii) an increasing preference to purchase, rather than lease, remediation
equipment.
Over the last four years, Handex Environmental has experienced a
significant increase in customer demand for competitive bidding and/or fixed
price contracts. During 1995 and 1994, a majority of Handex Environmental's
work was performed under fixed price contracts and unit prices. Price has become
the primary factor in the environmental remediation services market. However,
management believes that, over the long term, the quality and cost effectiveness
of its services will continue to be an important competitive advantage.
Accordingly, in responding to price competition, Handex Environmental will
attempt to maintain a high level of technical quality in its services.
A majority of Handex Environmental's major customers now purchase from
other contractors equipment and certain services, such as laboratory analyses,
which were formerly provided by or through Handex Environmental as part of its
full service approach. Management believes that this trend will continue.
Handex Environmental's quarterly results may fluctuate from period to
period. Among the principal factors influencing quarterly variations are
weather, which may limit the amount of time Handex Environmental's professional
and technical personnel have in the field; the addition of new professionals who
require training and initially bill a lower percentage of their time; the timing
of receipt of discharge and other permits necessary to install dewatering and
recovery systems, and the opening of new offices, which initially have higher
expenses relative to revenues than established offices.
In recent years, Handex Environmental's business has been helped
considerably by the cost reimbursement program maintained by the State of
Florida through the Florida Inland Protection Trust Fund. During the first
quarter of 1995, the Florida Inland Protection Trust Fund was revised by the
Florida legislature and now requires site prioritization and prior approval of
costs by the Florida Department of Environmental Protection for reimbursement of
cleanup expenditures. These revisions which were intended to assure its
economic integrity, have significantly limited the number and types of
environmental cleanup expenditures which would be reimbursable from the Fund and
have therefore, adversely affected Handex Environmental's operating results in
Florida and its overall operating results in 1995. Management believes that
these revisions will continue to have an adverse effect on Handex
Environmental's operations in Florida and the Company's environmental segment
results as a whole. During 1995, Handex Environmental acquired the assets of a
small environmental concern in Florida in a strategic move to partially offset
the revenue loss resulting from revisions to the Fund reimbursement program.
EDUCATIONAL BUSINESS SEGMENT
- - -----------------------------
The Company operates the educational segment of its business through its
subsidiary, New Horizons Education Corporation, and its subsidiaries ("New
Horizons") (collectively "New Horizons).
There are two distinct businesses in the educational segment; one operates
wholly-owned training centers, and the second, supplies systems of instruction,
sales and management concepts concerning computer training to independent
franchisees.
Revenues for the training centers operated by New Horizons consist
primarily of training fees and fees derived from sales of courseware materials.
Cost of sales consists primarily of instructors' salaries and benefits,
facilities costs such as rent, utilities and classroom equipment, courseware,
and computer hardware, software and peripherals. Selling, general and
administrative expenses consist primarily of costs associated with technical
support personnel, facilities support personnel, scheduling personnel, training
personnel, accounting and finance support and sales executives.
Revenues for the franchising operation consist primarily of initial
franchise fees associated with the sale of a franchise, royalty and advertising
fees based on a percentage of franchisee gross training revenues, and percentage
royalties received on the gross sales of courseware. Cost of sales consists
primarily of costs associated with franchise support personnel who provide
system guidelines and advice on daily operating issues including sales,
marketing, instructor training and general business problems. Selling, general
and administrative expenses consist primarily of technical support, courseware
development, accounting and finance support, national account sales support, and
advertising expenses.
RESULTS OF OPERATIONS
- - ----------------------
1995 VERSUS 1994
NET OPERATING REVENUES
- - -----------------------
Consolidated net operating revenues increased $17,683,0000 or 33.6% in 1995
compared to 1994. Consolidated net operating revenues of $70,254,000 in 1995
consisted of Handex Environmental's net operating revenues of $46,521,000 (66.2%
of consolidated net operating revenues) and New Horizons' net operating
revenues of $23,733,000 (33.8% of the consolidated net operating revenues).
Handex Environmental's net operating revenues decreased $61,000 or 0.1% in
1995 compared to 1994. Excluding operating locations which were opened in 1995
and 1994, Handex Environmental's net operating revenues declined $2,348,000 or
5.2% in 1995 compared to 1994. The decline in revenues came from Handex
Environmental's operating subsidiaries in New Jersey, Maryland, Illinois and
Florida, with the Florida subsidiary accounting for over 65% of the decline in
revenues. Handex Environmental's operating results in its Florida operations and
as a whole, were adversely impacted by the revisions in early 1995 to the
Florida Inland Protection Trust Fund which effectively limited the types of
environmental cleanup expenditures which would be reimbursable under the Fund.
Management believes these revisions will continue to have a significant adverse
impact on Handex Environmental's future operating results. Handex
Environmental's net operating revenues from its New Jersey, Maryland and
Illinois markets were adversely impacted by intense price-competition. The
operations of Handex Environmental's subsidiaries in Massachusetts, Ohio and
Colorado registered revenue growth ranging from 13% in New England to 109% in
Colorado.
New Horizons' net operating revenues increased $17,744,000 or 296.3% in
1995 compared to 1994 (1994 net operating revenues were for the period August
15, 1994 through December 31, 1994). In February 1995, New Horizons bought back
and converted the New York franchise to a company-owned operation. The New York
operations contributed $2,238,000 in net operating revenues for the year.
COST OF NET OPERATING REVENUES
- - -------------------------------
Consolidated cost of net operating revenues increased $12,200,000 or 37.1%
in 1995 compared to 1994. As a percentage of consolidated net operating
revenues, the consolidated cost of net operating revenues increased to 64.1% in
1995, from 62.5% in 1994. Consolidated cost of net operating revenues of
$45,066,000 in 1995 consisted of Handex Environmental's $31,902,000 (70.8% of
consolidated cost of net operating revenues) and New Horizons' $13,164,000
(29.2% of consolidated net operating revenues).
Handex Environmental's cost of net operating revenues increased $2,306,000
or 7.8% in 1995 compared to 1994. As a percentage of its net operating revenues,
Handex Environmental's cost of net operating revenues increased to 68.6% in 1995
from 63.5% in 1994. The increase in cost of net operating revenues, both in
terms of absolute dollars and as a percentage of net operating revenues, was due
primarily to a combination of lower than expected net operating revenues and
higher employee related expenses.
New Horizons' cost of net operating revenues increased $9,894,000 or 302.6%
in 1995 compared to 1994 which was for the period August 15, 1994 through
December 31, 1994. As a percentage of its net operating revenues, New Horizons'
cost of net operating revenues increased to 55.5% in 1995 from 54.6% in 1994.
The increase in cost of net operating revenue dollars was due primarily to the
1994 period consisting only of four and one-half months compared to a full year
for 1995. The increase in cost of net operating revenues as a percentage of net
operating revenues was due primarily to higher personnel and facilities costs
and higher operating costs relative to revenues associated with New Horizons'
start-up operations in Chicago and New York.
GROSS PROFIT
- - -------------
Consolidated gross profit increased $5,483,000 or 27.8% in 1995 compared to
1994. Consolidated gross profit of $25,188,000 consisted of Handex
Environmental's contribution of $14,619,000 (58.0% of consolidated gross profit)
and New Horizons' contribution of $10,569,000 (49.0% of consolidated gross
profit). As a percentage of consolidated net operating revenues, consolidated
gross profit declined to 35.9% in 1995 from 37.5% in 1994.
Handex Environmental's gross profit decreased $2,367,000 or 13.9% in 1995
compared to 1994. As a percentage of its net operating revenues, Handex
Environmental's gross profit declined to 31.4% in 1995, from 36.5% in 1994. The
decrease in gross profit, both in terms of absolute dollars and as a percentage
of net operating revenues, was due primarily to a combination of lower than
expected net operating revenues and higher employee related expenses and lower
margins on industrial jobs.
New Horizons' gross profit increased $7,850,000 or 288.6% in 1995 compared
to 1994 (four and one half month period). As a percentage of its net operating
revenues, New Horizons' gross profit declined to 44.5% in 1995 from 45.4% in
1994. The increase in gross profit dollars in 1995 compared to 1994 was due
principally to the 1994 period being significantly shorter than 1995. The
decline in gross profit as a percentage of net operating revenues was due
principally to higher facilities and employee related expenses and the expected
lower gross profit relative to revenues associated with New Horizons' start-up
operations in Chicago and New York.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
- - ---------------------------------------------
Consolidated selling, general and administrative expenses increased
$7,825,000 or 48.4% in 1995 compared to 1994. Of the consolidated selling,
general and administrative expenses of $24,008,000, Handex Environmental
incurred $14,751,000 (61.4% of consolidated selling, general and administrative
expenses) and New Horizons incurred $9,257,000 (38.6% of consolidated selling,
general and administrative expenses).
Handex Environmental's selling, general and administrative expenses
increased $802,000 or 5.7% in 1995 compared to 1994. As a percentage of its net
operating revenues, Handex Environmental's selling, general and administrative
expenses increased to 31.7% in 1995 from 29.9% in 1994. The increase in selling,
general and administrative expenses both in terms of absolute dollars and as a
percentage of its net operating revenues was due primarily to lower than
expected net operating revenues combined with increased costs related to its
sales and marketing function and the new offices opened in 1995 and 1994.
New Horizons' selling, general and administrative expenses increased
$7,024,000 or 314.6% in 1995 compared to 1994 (four and one half month
period).As a percentage of its net operating revenues, New Horizons' selling,
general and administrative expenses increased to 39.0% in 1995, from 37.3% in
1994. The increase in New Horizons' in selling, general and administrative
expense dollars was primarily due to the 1994 period being significantly shorter
than 1995 and increased sales and marketing expenses. As a percentage of its net
operating revenues, New Horizons' selling, general and administrative expenses
increased primarily due to the lower revenues associated with its start-up
operations in Chicago and New York.
PROVISION FOR LOSS IN A JOINT VENTURE, ASSET WRITE-OFF AND TERMINATION EXPENSES
- - --------------------------------------------------------------------------------
In the third quarter of 1995, the Company recognized pre-tax charges
totaling $1,113,000 or 1.6% of consolidated net operating revenues. Of this
amount, $301,000 related to Handex Environmental and $812,000 pertained to New
Horizons.
In response to the softness in the environmental services market, Handex
Environmental undertook a reduction in its work force and accordingly recorded a
charge totaling $301,000, representing payments to employees who were released.
The Company, through one of its educational subsidiaries, has a minority
interest in a limited liability company that was formed to operate a New
Horizons' training center in Cleveland, Ohio. In accordance with the limited
liability company agreement, the Company, in addition to its asset and capital
contributions, is obligated to and provided financing for certain working
capital requirements of the limited liability company. During the third quarter
of 1995, an affiliate of the majority member in the limited liability company
filed for bankruptcy. The Company recorded a charge in the amount of $650,000,
representing the funds it had loaned to the limited liability company. The
Company has been managing this operation pending the resolution of the
bankruptcy issues pertaining to the venture's majority member. The Company also
recorded a charge in the amount of $162,000, representing the unamortized
portion of the developmental costs incurred for a management information system
which was abandoned by New Horizons in the third quarter.
OTHER INCOME/EXPENSE
- - ---------------------
Interest expense for 1995 increased to $101,000 from $37,000 in 1994. The
increase was primarily due to interest expense on New Horizons capital lease
obligations resulting from fixed asset additions. As a percentage of
consolidated net operating revenues, interest expense remained at .1% in 1995
and 1994. The Company has a credit facility with a commercial bank which has not
been used since June 1991.
Interest income decreased to $608,000 in 1995 from $789,000 in 1994. As a
percentage of consolidated net operating revenues, interest income decreased to
.9% in 1995 from 1.5% in 1994. The Company's interest income generated by its
investment in tax-free notes and bonds declined significantly in 1995 compared
to 1994 primarily due to the use of investment funds in the acquisition of New
Horizons. The decline in interest income as a percentage of net operating
revenues in 1995 was due to a combination of higher net operating revenues and
lower interest income resulting from the reduced funds available for placement
in tax-free investments.
Other expenses in 1995 increased to $698,000 from $409,000 in 1994.
Included in other expenses was goodwill amortization expense from the
acquisition of New Horizons which amounted to $366,000 in 1995 and $132,000 in
1994. (a partial year). In addition, other expenses in 1995 included a higher
provision for litigation expenses compared to 1994.
INCOME TAXES
- - --------------
The provision for income taxes for 1995 was due primarily to foreign taxes,
state income and franchise taxes of certain operating subsidiaries and certain
non-deductible items for income tax purposes.
NET INCOME (LOSS)
- - -----------------
Consolidated net loss for 1995 amounted to $193,000 compared to a
consolidated net income of $2,331,000 for 1994. As a percentage of consolidated
net operating revenues, consolidated net loss was .3% compared to a consolidated
net income of 4.4%.
Handex Environmental's 1995 operations resulted in a net loss of $146,000
compared to a net income of $2,153,000 in 1994. This was due primarily to a
combination of lower than expected revenues and higher employee related
expenses.
New Horizons operations for 1995 resulted in a net loss of $47,000 compared
to a net income of $174,000 for the four and one half month period in 1994. This
was due primarily to the one time charges totaling $812,000, discussed earlier
and the less than anticipated results from the start-up operations in Chicago
and New York.
RESULTS OF OPERATIONS
- - ----------------------
1994 VERSUS 1993
NET OPERATING REVENUES
- - -----------------------
The Company's net operating revenues increased $13,858,000 or 35.8% in 1994
compared to 1993. Net operating revenues of $52,571,000 in 1994 included New
Horizons net operating revenues of $5,989,000 for the period August 15, 1994
through December 31, 1994. These revenues represented 11.4% of the Company's
total net operating revenues for 1994. Handex Environmental's net operating
revenues of $46,582,000 reflect the improved market for environmental services
during 1994, the impact of Handex Environmental's focused marketing initiatives,
disciplined
geographical expansion program and comprehensive personnel training programs
which enhanced its competitiveness. Handex Environmental's net operating
revenues increased $7,869,000 or 20.3% in 1994 compared to 1993. Each of Handex
Environmental's subsidiaries which were in operation prior to 1993 reported
revenue growth which totaled 13.5% in 1994 compared to 1993.
New Horizons combined with Handex Environmental's subsidiaries which began
operations in 1994 and 1993, contributed over 17% of the Company's net operating
revenues for 1994.
COST OF NET OPERATING REVENUES
- - ------------------------------
The Company's cost of net operating revenues for 1994 increased $8,120,000
or 32.8% compared to 1993. As a percentage of net operating revenues, the
Company's cost of net operating revenues declined to 62.5% in 1994, from 63.9%
in 1993. Cost of net operating revenues for New Horizons for 1994 amounted to
$3,269,000 (54.6% of New Horizons' revenues) and accounted for 13.2% of the
increase over last year. Handex Environmental's cost of net operating revenues,
as a percentage of net operating revenues decreased to 63.5% from 63.9% in 1993.
The increase in Handex Environmental's cost of net operating revenues in
absolute dollars was primarily due to the hiring of additional employees,
increases in materials and supplies purchased, other expenses related to the
increase in the level of business and new offices opened in 1993 and 1994. As a
percentage of net operating revenues, Handex Environmental's cost of net
operating revenues declined mainly due to the growth in net operating revenues
and improved utilization of staff resulting from its comprehensive training
programs.
GROSS PROFIT
- - -------------
The Company's gross profit for 1994 increased $5,738,000 or 41.1% compared
to 1993. As a percentage of net operating revenues, the Company's gross profit
increased to 37.5% in 1994, from 36.1% in 1993. Gross profit from New Horizons
included in 1994 amounted to $2,720,000 (45.4% of New Horizons' revenues) and
accounted for 19.5 % of the increase over last year. Handex Environmental's
gross profit, as a percentage of net operating revenues, grew to 36.5%, from
36.1% in 1993. The improvement in Handex Environmental's gross profit, both in
absolute dollars and as a percentage of its net operating revenues was due
mainly to the growth in net operating revenues.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
- - --------------------------------------------
The Company's selling, general and administrative expenses for 1994
increased $3,986,000 or 32.7% compared to the same period last year. As a
percentage of net operating revenues, the Company's selling, general and
administrative expenses decreased to 30.8% in 1994, from 31.5% in 1993. New
Horizons' operations incurred $2,233,000 in selling, general and administrative
expenses (37.3% of New Horizons' revenues) and accounted for 18.3% of the
increase over last year. Handex Environmental's selling, general and
administrative expenses, as a percentage of environmental net operating revenues
declined to 29.9% in 1994 from 31.5% in 1993. The increase in Handex
Environmental's selling, general and administrative expenses in absolute dollars
was due mainly to the increase in its marketing expenses, legal and professional
fees, fees associated with the hiring of professional staff and expenses related
to new offices opened in 1993 and 1994. The decrease in Handex Environmental's
selling, general and administrative expenses as a percentage of net operating
revenues was due largely to the growth in net operating revenues.
OTHER INCOME/EXPENSE
- - ---------------------
Interest expense for 1994 increased to $37,000 from $9,000 in 1993. The
increase was primarily due to interest expense on New Horizons loan obligations.
As a percentage of net operating revenues, interest expense increased to .1% in
1994 from 0% in 1993 primarily due to New Horizons' loan obligations. The
Company did not use its credit facility with a commercial bank.
Interest income of $789,000 in 1994 decreased slightly from $793,000 in
1993. As a percentage of net operating revenues, interest income decreased to
1.5% in 1994 from 2.0% in 1993. The Company's interest income generated by its
investment in tax-free notes and bonds declined significantly in 1994 compared
to 1993 primarily due to the use of investment funds in the acquisition of New
Horizons. This was offset largely by the increase in interest income generated
under a financing agreement between Handex Environmental and one of its
customers. The decline in interest income as a percentage of net operating
revenues in 1994 was due to a combination of higher net operating revenues and
lower interest income from the Company's tax-free investments.
Other expenses in 1994 increased to $409,000 from $360,000 in 1993.
Included in other expenses for 1994 was goodwill amortization expense of
$132,000 arising from the acquisition of New Horizons. Other expenses in 1994
also included a charge in the amount of $240,000 representing advances to a bio-
remediation contractor whose operations ceased during the year. This was offset
by the reversal to income of excess accrual for litigation expenses. As a
percentage of Handex Environmental's net operating revenues, Handex
Environmental's other expenses declined from .9% in 1993 to .6% in 1994, mainly
due to the higher level of net operating revenues and lower provision for
litigation expenses.
INCOME TAXES
- - ------------
The provision for income taxes as a percentage of income before income
taxes increased to 39.7% in 1994 from 37.4% in the year ago period. The increase
in the provision for income taxes was due primarily to the reduction in the
Company's tax-free interest income.
NET INCOME
- - ----------
Net income for 1994 increased $957,000 or 69.6% from the same period last
year. Included in net income for 1994 was New Horizons' contribution which
amounted to $174,000 (2.9% of New Horizons' revenues) and which represented
12.7% of the percentage increase over last year. Excluding the revenue and net
income contributions of New Horizons, net income for Handex Environmental as a
percentage of net operating revenues, increased to 4.6% in 1994 from 3.5% for
the same period last year.
LIQUIDITY AND CAPITAL RESOURCES
- - -------------------------------
As of December 30, 1995, the Company's working capital was $23,198,000, and
its cash and cash equivalents and short-term investment totaled $6,596,000.
Working capital as of December 30, 1995 reflected a decrease of $1,468,000 from
$24,666,000, as of December 31, 1994. The Company's cash flow from operating
activities improved to $4,782,000 in 1995 from $399,000 in 1994 primarily due to
cash provided by increased depreciation and amortization expenses, lower growth
in accounts receivable balance, and increases in accounts payable and accrued
expenses. As of March 12, 1996, the Company has renegotiated an extension to
June 30, 1998 of its unsecured $5,500,000 credit facility with a commercial bank
under substantially the same terms and conditions prior to the extension. This
facility, which the Company has not used since June 1991, bears interest at
either the bank's prime rate, or the bank's short-term money market rate,
whichever the Company elects.
The Company's full service approach to its environmental services business
in certain markets and its continuing geographic expansion require capital
expenditures for machinery and equipment and expenditures related with the
establishment of new office locations. During 1995, the Company's environmental
segment spent approximately $1,300,000 on capital equipment and anticipates
spending up to $2,300,000 in 1996.
The nature of the Company's educational business segment also requires
significant cash commitments for the acquisition of computer equipment, software
and facilities. During 1995, the Company's educational segment spent
approximately $2,700,000 for capital equipment and leasehold improvements and
anticipates spending up to $3,200,000 in 1996.
Management believes that current cash and cash equivalents, together with
cash generated by operations, and its funds available under its revolving credit
facility will provide the liquidity necessary to support its current and
anticipated capital expenditures through the end of 1996.
IMPACTS OF ACCOUNTING PRONOUNCEMENTS
- - -------------------------------------
The Company's management is not aware of any current recommendations by
regulatory authorities which, if they were implemented, would have a material
effect on the liquidity, capital resources or operations of the Company.
However, the potential impact of Statement of Accounting Financial Standards
("SFAS 123") warrants further discussion.
SFAS 123, which will be effective in 1996, provides elective accounting
for stock-based employee compensation arrangements using a fair value model.
Companies currently accounting for such arrangement under APB Opinion 25
"Accounting for Stock Issued to Employees," may continue to do so; however, SFAS
123 supersedes the disclosure requirements of Opinion 25. The Company does not
believe that adoption of SFAS 123 will have a significant impact on net income
but will increase disclosure requirements for stock-based compensation.
All other applicable Statements of Financial Accounting Standards that
have been issued and have effective dates impacting 1995 and prior years'
financial statements have been adopted by the Company. The Company believes
there are no Statements of Financial Accounting Standards which have been issued
and have implementation dates in the future which will materially impact the
financial statements of future years.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following pages contain the Financial Statements and supplementary data
specified for Item 8 of Part II of Form 10-K.
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
HANDEX CORPORATION INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 30, 1995
Page
REPORT OF INDEPENDENT AUDITORS F-2
FINANCIAL STATEMENTS
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Stockholders' Equity F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7 - F-15
SCHEDULES
Schedule II - Valuation and Qualifying
Accounts and Reserves 20
All other schedules have been omitted because the material is not applicable or
is not required as permitted by the rules and regulations of the Commission, or
the required information is included in Notes to Consolidated Financial
Statements.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Handex Corporation:
We have audited the consolidated financial statements of Handex Corporation and
subsidiaries as listed in the accompanying index. In connection with our audits
of the consolidated financial statements, we also have audited the financial
statement schedule as listed in the accompanying index. These consolidated
financial statements and the financial statement schedule are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements and the financial statement schedule
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Handex Corporation
and subsidiaries as of December 30, 1995 and December 31, 1994, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 30, 1995 in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
/s/ KPMG Peat Markwick LLP
Cleveland, Ohio
February 16, 1996
CONSOLIDATED BALANCE SHEETS
HANDEX CORPORATION AND SUBSIDIARIES
DECEMBER 30, 1995 AND DECEMBER 31, 1994
1995 1994
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 3,821,474 $ 2,895,478
Marketable securities 2,775,000 3,940,000
Accounts receivable, less allowance for
doubtful accounts of $981,745 in 1995
and $934,560 in 1994 (note 3) 30,001,497 26,854,906
Inventories 539,491 298,326
Prepaid expenses 606,005 214,198
Refundable income tax 666,060 388,682
Deferred income tax assets (notes 1 and 4) 705,453 609,668
Other current assets 321,846 394,948
----------- -----------
Total current assets 39,436,826 35,596,206
----------- -----------
Property, Plant and equipment, at cost:
(note 2)
Land 517,053 518,478
Buildings and improvements 2,711,807 2,347,918
Machinery and equipment 15,431,033 12,479,364
Furniture and fixtures 2,955,294 2,284,281
Motor vehicles 5,249,370 5,087,435
----------- -----------
26,864,557 22,717,476
Less accumulated depreciation and
amortization (17,221,433) (13,980,868)
------------ -----------
Net property, plant and equipment 9,643,124 8,736,608
Excess of cost over net assets of acquired
companies, net of accumulated amortization
of $842,095 in 1995 and $421,357 in 1994 16,121,258 15,921,530
Cash surrender value of life insurance 909,839 1,054,426
Other assets (notes 5 and 13) 978,335 611,367
----------- -----------
$ 67,089,382 $ 61,920,137
=========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term
obligations (note 2) $ 447,227 $ 579,991
Accounts payable 7,896,838 4,523,848
Other liabilities (note 6) 7,894,616 5,826,066
----------- -----------
Total current liabilities 16,238,681 10,929,905
Long-term obligations, excluding current 649,941 464,357
installments (note 2)
Deferred income tax liability (notes 1 and 4) 772,466 888,516
Stockholders' equity:
Preferred stock without par value,
2,000,000 shares authorized, no
shares issued -- --
Common stock, $.01 par value, 15,000,000
shares authorized; issued, 7,050,212
shares in 1995 and 1994 70,502 70,502
Additional paid in capital 24,349,542 24,365,566
Retained Earnings 26,306,375 26,499,416
Treasury stock at cost - 185,000 shares in
1995 and 1994 (note 1) (1,298,125) (1,298,125)
----------- -----------
Total stockholders' equity 49,428,294 49,637,359
Commitments and contingencies (notes 9, 13
and 15) -- --
----------- -----------
$ 67,089,382 $ 61,920,137
=========== ===========
See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF OPERATIONS
HANDEX CORPORATION AND SUBSIDIARIES
YEARS ENDED DECEMBER 30, 1995, DECEMBER 31, 1994 AND JANUARY 1, 1994
1995 1994 1993
---- ---- ----
Total operating revenues $85,271,557 $64,772,555 $48,194,334
Subcontractor costs 15,017,661 12,201,809 9,481,455
----------- ----------- -----------
Net operating revenues (note 3) 70,253,896 52,570,746 38,712,879
Cost of net operating revenues 45,065,597 32,865,469 24,745,121
----------- ----------- -----------
Gross profit 25,188,299 19,705,277 13,967,758
Selling, general and
administrative expenses 24,007,696 16,182,303 12,196,284
Provision for loss in a joint
venture, asset write-off and
termination expenses (note 12) 1,113,167 -- --
Other income (expense):
Interest expense (100,891) (37,042) (8,601)
Interest income 607,728 789,097 792,743
Other (697,805) (409,190) (360,260)
------------ ----------- -----------
(190,968) 342,865 423,882
------------ ----------- -----------
(Loss) income before income taxes (123,532) 3,865,839 2,195,356
Provision for income taxes (note 4) 69,509 1,534,797 821,144
----------- ----------- ------------
Net (loss) income $ (193,041) 2,331,042 1,374,212
=========== =========== ============
Net (loss) income per share of
Common stock $ (0.03) $ 0.34 $ 0.20
=========== =========== ===========
See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
HANDEX CORPORATION AND SUBSIDIARIES
YEARS ENDED DECEMBER 30, 1995, DECEMBER 31, 1994 AND JANUARY 1, 1994
ADDITIONAL
COMMON STOCK PAID-IN RETAINED TREASURY STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS STOCK EQUITY
------- -------- --------- ---------- ------- -------
BALANCE AT DECEMBER 31, 1992 6,940,212 $ 70,402 $24,119,669 $22,794,162 $(731,250) $46,252,983
Repurchase of Treasury stock (85,000) -- -- -- (566,875) (566,875)
Net income, year ended
January 1, 1994 -- -- -- 1,374,212 -- 1,374,212
---------- --------- ----------- ----------- ----------- ----------
BALANCE AT JANUARY 1, 1994 6,855,212 70,402 24,119,669 24,168,374 (1,298,125) 47,060,320
Issuance of Common stock
for stock options 10,000 100 64,900 -- -- 65,000
Income tax benefit from the
exercise of stock options -- -- 1,997 -- -- 1,997
Issuance of warrants on
Common stock -- -- 179,000 -- -- 179,000
Net income, year ended
December 31, 1994 -- -- -- 2,331,042 -- 2,331,042
---------- --------- ---------- ---------- ---------- ----------
BALANCE AT DECEMBER 31, 1994 6,865,212 70,502 24,365,566 26,499,416 (1,298,125) 49,637,359
Registration expense for
warrants issued in 1994 -- -- (16,024) -- -- (16,024)
Net loss, year ended
December 30, 1995 -- -- -- (193,041) -- (193,041)
---------- --------- ----------- ---------- ---------- ----------
BALANCE AT DECEMBER 30, 1995 6,865,212 $ 70,502 $24,349,542 $26,306,375 ($1,298,125) $49,428,294
========== ========= =========== =========== =========== ===========
See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF CASH FLOWS
HANDEX CORPORATION AND SUBSIDIARIES
YEARS ENDED DECEMBER 30, 1995, DECEMBER 31, 1994 AND JANUARY 1, 1994
1995 1994 1993
----- ----- -----
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net (loss) income $(193,041) $2,331,042 $1,374,212
ADJUSTMENTS TO RECONCILE NET
INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Depreciation and amortization 3,951,496 2,664,871 2,685,448
Gain on disposal of equipment (6,284) (42,711) (33,325)
Deferred taxes (211,835) 29,706 (327,102)
Cash provided (used) from the
change in:
Accounts receivable (3,146,591) (8,646,814) (1,384,659)
Inventories (241,165) (40,020) 41,143
Prepaid expenses (391,807) 211,879 (270,838)
Other current assets 73,102 368,872 (246,712)
Other assets and cash
surrender value of life
insurance (216,213) (177,392) (714,131)
Accounts payable 3,372,990 2,511,641 417,745
Other liabilities and
income taxes payable/
refundable 1,791,172 1,187,471 1,047,595
---------- ----------- -----------
Net cash provided by
operating activities 4,781,784 398,545 2,589,376
----------- ------------ -----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of marketable
securities, (5,775,000) (17,855,000) (40,570,000)
Redemption of marketable
securities 6.940,000 37,010,000 39,865,000
Additions to property, plant
and equipment (4,189,036) (3,476,238) (541,096)
Cash paid for acquired
companies, net of cash
acquired. (868,589) (14,531,722) --
------------- ------------ ----------
Net cash provided (used) in
investing activities (3,892,625) 1,147,040 (1,246,096)
-------------- ------------ -----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of
common stock -- 65,000 --
Registration expenses on
warrants issued (16,024) -- --
Proceeds from debt obligations 766,992 556,030 --
Repurchase of treasury stock -- -- (566,875)
Principal payments on debt
obligations (714,171) (153,960) --
------------- ------------- ----------
Net cash provided (used) in
financing activities 36,797 467,070 (566,875)
-------------- ------------- ----------
Net increase in cash and cash
equivalents 925,996 2,012,655 776,405
Cash and cash equivalents at
beginning of period 2,895,478 882,823 106,418
------------ ----------- ----------
Cash and cash equivalents at end
of period $ 3,821,474 $2,895,478 $ 882,823
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Cash was paid for:
Interest $ 104,460 $ 37,042 $ 8,601
=========== =========== =========
Income taxes $ 568,650 $2,144,135 $ 872,390
=========== =========== ==========
Investing and financing activities
- - ----------------------------------
In 1995, the Company acquired certain assets of New Horizons' New York franchise
and a Florida based environmental concern for an aggregate cash price and
related expenses of approximately $830,000. There were no liabilities assumed in
either acquisition.
In August 1994, the Company acquired certain assets and liabilities of a
computer training school and all the issued and outstanding shares of stock of a
computer training franchising company in August, 1994 at an aggregate cash price
of $14,000,000 and related cash expenses of approximately $600,000 and non-cash
expense of $179,000. The non-cash expense represents the excess of the fair
market value over the issue price on warrants on 40,000 shares of Handex's
Common stock. Liabilities assumed totaled $2,446,000.
See accompanying notes to consolidated financial statements
HANDEX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 30, 1995, December 31, 1994 and January 1, 1994
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
-----------------------------------------------------------
(a) Nature of Operations
---------------------
The Company conducts two distinct lines of business; an Environmental
segment which provides environmental consulting and remediation
services, and has been the Company's core business since it was
acquired in 1986, and; an Educational segment, which was acquired in
1994 and provides a variety of computer training services to employer-
sponsored enrollees.
(b) Basis of Accounting and Principles of Consolidation
---------------------------------------------------
The consolidated financial statements include the accounts of Handex
Corporation, and its subsidiaries, all of which are wholly owned.
All significant intercompany balances and transactions have been
eliminated in consolidation.
In August 1992, the Company's Board of Directors authorized the
purchase of up to 500,000 shares of Handex's Common stock in the open
market or in private transactions. The repurchase program lasted
through June 30, 1993, and was limited to an aggregate expenditure of
$4,500,000. The Company had repurchased 185,000 shares of the Common
stock under this program at an aggregate cost of $1,298,125.
(c) Revenue Recognition
---------------------
Revenue is recognized at the time work is performed and services are
rendered.
(d) Marketable Securities
----------------------
Funds retained for future use in the business are temporarily invested
in tax-exempt bonds and municipal funds.
Effective January 2, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115 "Accounting for Certain Investments in
debt and Securities" ("SFAS 115"). SFAS 115 requires the accounting
for certain investments in debt and equity securities based on
certain specific guidelines.
The Company's investments are presented at their aggregate face value.
Amounts paid over face value are amortized through maturity.
Unamortized premiums amounted to $3,775 and are included in other
current assets. As of December 30, 1995 and December 31, 1994, the
Company's security portfolio had aggregate fair market values of
$2,775,000 and $3,945,350, respectively. There were no unrealized
gains or losses as of December 30, 1995. There were also no gains or
losses realized from the redemption of securities during the year.
(e) Inventories
------------
Inventories are stated at the lower of cost or market. Inventory
costs are determined using the first-in, first-out (FIFO) method.
(f) Property, Plant and Equipment
------------------------------
Property, plant and equipment are stated at cost.
Depreciation is provided over the estimated useful lives of the
respective assets, using the straight line method as follows:
Buildings and improvement 25 years or term of the lease whichever
is shorter
Machinery and equipment 3 to 5 years
Furniture and fixtures 5 to 10 years
Motor vehicles 5 years
(g) Income Taxes
-------------
The Company accounts for income taxes under the asset and liability
method. Under this method, deferred tax assets and liabilities are
recognized for the estimated future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases, and
operating loss and tax credit carry forwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years when those temporary differences are
expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
(h) Excess of Cost Over Net Assets Acquired
---------------------------------------
The excess of cost over net assets acquired is being amortized on a
straight-line basis principally over 40 years.
(i) Asset Impairments
-----------------
The Company periodically reviews the carrying value of certain of its
assets in relation to historical results, current business conditions
and trends to identify potential situations in which the carrying
value of assets may not be recoverable. Such assets would include,
cost in excess of fair market value of net assets of acquired
businesses and other identifiable intangible assets. If such reviews
indicate that the carrying value of such assets may not be
recoverable, the Company would estimate the undiscounted sum of the
expected future cash flows to determine if they are less than the
carrying value of such assets to ascertain if a permanent impairment
has occurred. The carrying value of any impaired assets will be
reduced to fair market value.
(j) Cash and Cash Equivalents
-------------------------
For purposes of the statements of cash flows, the Company considers
all highly liquid debt instruments with purchased maturities of three
months or less to be cash equivalents.
(k) Net Income Per Share
---------------------
The computation of net income per share of Common stock is based on
the average number of shares outstanding during each year. Inclusion
of the incremental shares applicable to outstanding stock options in
the computation using the treasury stock method would have no material
dilutive effect. Dilutive options are not considered in the
calculation of net loss per share.
The average number of shares outstanding used in determining net
income per share was 6,865,212 in 1995, 6,863,069 in 1994, and
6,881,267 in 1993.
(l) Use of Estimates
-----------------
The preparation of financial statements in conformity with generally
accepted accounting principles required 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 the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
(m) Reclassification
------------------
Certain items on the 1994 and 1993 consolidated statements of income
have been reclassified to conform to the 1995 presentation.
2. LONG-TERM OBLIGATIONS
------------------------
The Company's debt and capital lease obligations represent indebtedness of
New Horizons as follows:
1995 1994
---- ------
Notes payable to bank with interest rates $ -- $304,776
adjusted to prime (8.5% at December 30, 1995),
plus up to 2.5%, paid in full in February 1995,
secured by certain assets of New Horizons
Note payable to bank at 9.99% interest rate, 170,421 253,349
payable in monthly installments of $9,306,
secured by certain assets of New Horizons
Note payable to a former franchisee, non- -- 35,000
interest bearing, unsecured, paid in full in
January 1995
Amounts due under non-cancelable leases 1,101,655 520,838
accounted for as capital leases. These leases
have effective interest rates ranging from 8.5%
to 12.3% per annum
Amount of capital leases representing interest (174,908) (69,615)
--------- --------
Present value of minimum lease payments 926,747 451,223
Less: current portion of notes payable and lease
obligations 447,227 579,991
--------- --------
$ 649,941 $ 464,357
========= ---------
The following is a summary of future payments required under the above
obligations:
DEBT LEASE
----- ------
1996 $ 99,889 $ 432,049
1997 70,532 345,130
1998 -- 218,211
1999 -- 102,605
2000 -- 3,660
2001 and after -- --
Included in the Company's plant, property and equipment is New Horizons'
equipment under capital leases amounting to $1,272,860, net of accumulated
amortization of $410,540.
The Company has received a firm commitment from a commercial bank for an
unsecured credit facility which provides a maximum credit of $5,500,000
through June 30, 1998. This credit facility bears interest at the
Company's preference of either the prime rate or LIBOR. The Company is
required to pay a fee of 1/4 of 1% of the unused balance of the facility.
3. BUSINESS AND CREDIT CONCENTRATION
----------------------------------
Handex Environmental's primary customers are major petroleum companies who
store petroleum products in underground storage tanks. New Horizons'
customers are predominantly employer-sponsored individuals from
corporations, professional service organizations, government agencies and
municipalities.
Handex Environmental has certain customers which, in one or more of the
last three years, accounted for 10% or more of both its total and net
operating revenues. The approximate total and net operating revenues for
these customers are as follows:
1995 1994 1993
----- ----- ------
Total operating revenues:
Customer 1 $ 9,267,000 $10,567,000 $9,049,000
Customer 2 6,890,000 8,592,000 7,391,000
Customer 3 6,283,000 7,306,000 7,241,000
Customer 4 4,895,000 6,138,000 5,359,000
----------- ------------ -----------
Total $27,335,000 $32,603,000 $29,040,000
=========== =========== ============
Net operating revenues:
Customer 1 $ 7,387,000 $ 8,544,000 $ 7,294,000
Customer 2 5,833,000 7,542,000 6,489,000
Customer 3 5,291,000 6,131,000 6,415,000
Customer 4 3,890,000 4,812,000 4,244,000
------------ ----------- ------------
Total $22,401,000 $27,029,000 $24,442,000
=========== =========== ===========
As of December 30, 1995 Handex Environmental's receivables from such
customers amounted to approximately $9,700,000.
New Horizons has no individual customer which accounts for 10% or more of
its operating revenues for 1995 and 1994.
4. INCOME TAXES
--------------
Income tax expense for the periods below differs from the amounts computed
by applying the U.S. federal income tax rate of 34 percent to the pretax
income as a result of the following:
1995 1994 1993
------ ------ ------
Computed "expected" tax
expense (benefit) $ (42,001) $1,314,385 $ 746,421
Amortization of excess of
cost over net assets
acquired 31,600 22,450 16,950
State and local tax
expense, net of Federal
income tax effect 62,300 287,200 232,100
Foreign income tax 36,740 6,351 --
Interest income from tax-
free investments (64,200) (149,800) (205,200)
Meals and entertainment 40,464 49,124 19,657
Other 4,606 5,087 11,216
--------- ---------- -----------
Income tax expense $ 69,509 $ 1,534,797 $ 821,144
========== =========== ============
Effective rates N/A 39.7% 37.4%
========== ========== ===========
Income tax expense
consists of:
1995 1994 1993
----- ----- -----
Federal
Current $ 150,285 $ 1,131,620 $ 760,000
Deferred (211,835) (2,281) (242,509)
State and local 94,319 399,107 303,653
Foreign 36,740 6,351 --
------------ ----------- ----------
$ 69,509 $ 1,534,797 $ 821,144
============ ============ ===========
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 30, 1995 and
December 31, 1994, are presented below:
DECEMBER 30, DECEMBER 31,
1995 1994
----- -----
Deferred tax assets:
Accounts receivable, principally due
to allowance for doubtful accounts $ 392,698 $ 373,824
Reserve for uninsured losses and
litigation 232,064 188,250
Loss on joint venture 260,000 --
Other 80,691 47,594
------------ -----------
Total gross deferred tax assets 965,453 609,668
Less valuation allowance -- --
----------- -----------
Net deferred tax assets 965,453 609,668
----------- -----------
Deferred tax liability:
Property, plant and equipment,
principally due to differences in
depreciation (724,164) (805,920)
Excess of cost over net assets of
acquired company (308,302) (82,596)
------------ -----------
Deferred tax liability (1,032,466) (888,516)
------------- -----------
Net deferred tax liability $ (67,013) $(278,848)
============== ============
There is no valuation allowance required at December 30, 1995 and December
31, 1994.
5. NOTES RECEIVABLE FROM OFFICERS
-------------------------------
Included in other assets are notes receivable from certain officers of the
Company in the aggregate amount of $468,610. One of the notes is payable
on or before September 30, 1997 and is fully secured by a mortgage on real
estate to which the loan proceeds were applied; the others are demand notes
secured by the proceeds from certain life insurance policies.
6. OTHER LIABILITIES
-----------------
Other liabilities consist of:
1995 1994
----- -----
Sales taxes payable $ 620,347 $ 713,617
Salaries, wages and bonuses payable 1,795,787 1,264,405
Amounts received on behalf of a
customer 1,205,424 1,542,451
Deferred revenues 1,564,096 994,167
Allowance for uninsured claims 250,161 270,624
Allowance for litigation expenses 330,000 200,000
Other 2,128,801 840,802
----------- ------------
$ 7,894,616 $ 5,826,066
=========== ============
7. EMPLOYEE SAVINGS PLAN
---------------------
The Company has a 401(k) Profit Sharing Trust and Plan in which all
employees in its environmental business segment not currently covered by a
collective bargaining agreement are eligible to participate. None of the
Company's employees are covered by any collective bargaining agreement.
The Company, at its option, matches each participant's contribution to the
Plan at the rate of 50% of up to 6% of each participant's compensation, up
to the maximum allowable under the Internal Revenue Code. Employer
contributions for the years ended December 30, 1995, December 31, 1994, and
January 1, 1994 totaled $360,551, $269,068 and $235,384 respectively.
Employees vest in the Company contributions at a rate of 20% per year based
upon years of service. A similar, but non-contributory plan is in place
for New Horizons' employees.
8. STOCK OPTION PLAN
------------------
The Company maintains a key employee stock option plan which provides for
the issuance of non-qualified options, incentive stock options and stock
appreciation rights. The plan currently provides for the granting of
options to purchase up to 1,200,000 shares of common stock. Incentive
stock options are exercisable for up to ten years, at an option price of
not less than the market price on the date the option is granted or at a
price of not less than 110% of the market price in the case of an option
granted to an individual who, at the time of grant, owns more than 10% of
the Company's Common stock. Non-qualified stock options may be issued at
such exercise price and on such other terms and conditions as the
Compensation Committee of the Board of Directors may determine. Optionees
may also be granted stock appreciation rights under which they may, in lieu
of exercising an option, elect to receive cash or Common stock, or a
combination thereof, equal to the excess of the market price of the Common
stock over the option price. All options were granted at fair market value
at dates of grant.
The stock option plan for directors who are not employees of the Company
provides for the issuance of up to 75,000 shares of Common stock and may be
issued at such price per share and on such other terms and conditions as
the Compensation Committee may determine. All options were granted at fair
market value at dates of grant.
The following table summarizes all transactions during 1995 and 1994 under
the Stock Option Plans.
1995 1994
----- -----
Options outstanding at beginning of
year (number of shares):
Key employees 723,900 506,500
Outside directors 24,750 24,750
Options granted (number of shares):
Key employees 30,739 253,000
Outside directors -- --
Average grant price:
Key employees $ 6.00 $ 7.96
Outside directors -- --
Options exercised (number of shares):
Key employees -- 10,000
Outside directors -- --
Average exercise price:
Key employees $ -- $ 6.50
Outside directors --
Options canceled (number of shares):
Key employees 40,900 25,600
Outside directors -- --
Options outstanding at end of year
(number of shares):
Key employees 713,739 723,900
Outside directors 24,750 24,750
Option price range:
Key employees $5.80 - $ 9.00 $5.80 - $ 9.00
Outside directors $6.50 - $11.20 $6.50 - $11.20
Options exercisable (number of
shares):
Key employees 399,500 279,700
Outside directors 24,750 24,750
Aggregate price of exercisable options
Key employees $ 2,891,810 $ 2,011,345
Outside directors 230,200 230,200
Options available for future grants
(number of shares):
Key employees 270,761 260,600
Outside directors 46,250 46,250
9. LEASES
------
The Company, is obligated under operating leases primarily for office space
and training facilities, with rental arrangements for various periods of
time ending through 2003. These leases provide for minimum fixed rents for
the following fiscal years as follows: 1996, $2,174,074; 1997, $1,854,220;
1998, $1,501,317; 1999, $1,329,248; 2000, $1,166,686; and 2001 and after,
$3,250,527 excluding the related-party lease described below. Rent expense
was $2,302,068, $1,370,365, and $1,287,231, during the years ended December
30, 1995, December 31, 1994, and January 1, 1994, respectively.
A subsidiary of the Company leased a building from a partnership comprised
of related parties. Rent under this lease, which commenced in June 1987
and was scheduled to expire in June 1999, was $36,000 for each of the years
ended December 30, 1995, December 31, 1994, and January 1, 1994. On
January 15, 1996, the Company purchased this property.
10. SEGMENT INFORMATION AND REPORTING
----------------------------------
In 1995, the Company acquired the assets of New Horizons' franchise in New
York and a Florida based environmental concern for an aggregate cash price
and related expenses of $830,000. These acquisitions have been accounted as
purchases, and accordingly the purchase prices have been allocated to
assets based upon the Company's estimate of their fair market values. The
aggregate purchase price and related expenses exceeded the fair values of
the assets by $597,000 and are included in Goodwill. .
On August 15, 1994, the Company, through New Horizons, acquired
substantially all of the assets of New Horizons Computer Learning Center,
Inc. and all of the issued and outstanding shares of stock of New Horizons
Franchising, Inc. for an aggregate cash price of $14,000,000. During 1994,
New Horizons also acquired certain assets of franchises covering the
Chicago and Cleveland markets. In February 1995, New Horizons contributed
the Cleveland assets to a newly formed joint venture in exchange for a
minority interest. The joint venture operates the Cleveland franchise.
Also in February 1995, New Horizons acquired certain assets of the
franchise covering the metropolitan New York market. New Horizons
specializes in providing instructor-led training in the use of computers
and computer software, offering courses in PC software applications,
networking, and work stations. Training is provided at New Horizons' owned
training centers located in Santa Ana, California, Chicago, Illinois, and
New York, New York. Franchising is engaged in the business of offering
systems of instructions, sales and management concepts for training in the
use of computers and computer system through the sale of franchises
throughout the United States and internationally.
These acquisitions have been accounted for as purchases, and accordingly
the purchase prices have been allocated to assets and liabilities based
upon New Horizon's estimate of their fair market values. The aggregate
purchase price and related expenses exceeded the fair values of assets and
liabilities by $14,393,077 and are included in Goodwill.
Prior to August 15, 1994, the Company's business operations were
concentrated in the environmental services industry. With the acquisition
of New Horizons, the Company extended its operations into the computer
training industry.
Information about the Company's segment operating data for 1995 follows:
NEW
ENVIRONMENTAL HORIZONS CORPORATE CONSOLIDATED
------------- ---------- ----------- ------------
Net operating
revenues $46,520,688 $23,733,208 $ -- $70,253,896
Gross Profit 14,619,091 10,569,208 -- 25,188,299
Identifiable 34,455,894 23,613,435 9,020,053 67,089,382
assets (a)
Capital 1,302,116(b) 2,730,467(b) 156,453 4,189,036
expenditures
Depreciation and 2,056,811 1,724,073(c) 170,612 3,951,496
amortization
(a) Identifiable assets are those used in the operation of each
segment. Corporate assets consist primarily of cash and
short-term marketable securities.
(b) Excludes assets of $232,675 from acquired companies.
(c) Includes write-off of the unamortized cost of management
software in the amount of $161,749.
New Horizons has no assets outside the United States and derives revenues
from the sale of franchises and royalties based on certain revenues of
licensed franchises. During 1995 revenues derived from the sale of
franchises and royalties derived from franchised operations outside the
United States amounted to approximately $681,000.
11. QUARTERLY FINANCIAL DATA (UNAUDITED)
------------------------------------
Summarized quarterly financial data for 1995 and 1994 are as follows (in
thousands, except per share data):
INCOME
(LOSS)
NET BEFORE NET EARNINGS
OPERATING GROSS INCOME INCOME (LOSS)
YEAR QUARTER REVENUES PROFIT TAXES (LOSS) PER SHARE
---- ------- --------- ------- ------- ------- --------
1995 First $ 17,001 $ 6,221 $ 453 $ 274 $ .04
Second 17,074 6,520 612 335 .05
Third 17,757 6,428 (942) (608) (.09)
Fourth 18,422 6,019 (247) (194) (.03)
1994 First $ 9,806 $ 3,188 $ 74 $ 60 $ .01
Second 11,876 4,545 1,103 677 .10
Third 14,338 5,527 1,428 858 .12
Fourth 16,551 6,445 1,261 736 .11
The fourth quarter of 1994 reflects adjustments aggregating to
approximately $200,000 for excess provision for vacation, holiday, major
medical and dental expenses. The quarter also reflects the write-off to
expense of advances to a bio-remediation contractor amounting to $240,000
which was partially offset by the reversal to income of excess provision
for litigation expenses.
12. PROVISION FOR LOSS IN A JOINT VENTURE, ASSET WRITE-OFF AND TERMINATION
EXPENSES
-----------------------------------------------------------------------
In February 1995, one of the Company's education subsidiaries acquired a
minority interest in a limited liability company by contributing the
assets of its Cleveland operations and cash. In the third quarter of 1995,
an affiliate of the venture's majority member filed for bankruptcy and the
Company has assumed the management of these operations pending settlement
of the bankruptcy issues. The Company estimates and has provided for the
estimated loss on the joint venture in the amount of $650,000.
In addition, one of the Company's education subsidiaries wrote-off the
unamortized developmental costs of a software program which had been in
development prior to its acquisition by the Company in August 1994. The
write-off amounted to $161,748.
In the environmental segment, the Company reduced its work force in
response to softness in its environmental business and recorded a charge in
the amount of $301,419 for related termination costs.
These charges combined, all of which were recorded in the third quarter of
1995, totaled $1,113,167 before tax and on an after-tax basis, had a $0.10
impact on net income per share.
13. CAPTIVE INSURANCE COMPANY
--------------------------
In February 1992, the Company purchased stock in a holding company which
owns a captive insurance company through which the Company obtains its
general liability insurance coverage. The stock purchase price of $476,250
was paid by $158,750 in cash, which is reflected in other non-current
assets in the accompanying financial statements, and the balance is secured
by an irrevocable letter of credit. As of December 30, 1995, there has not
been any draw against the letter of credit. The Company has no obligations
to the holding company/captive insurance group other than the amount
represented by the letter of credit and as a shareholder and director of
the holding company. The Company owns 1 share (3.3%) of the 30 shares of
common stock, and 466.25 shares (23.3%) of 1,996.79 shares of Preferred
stock, Series A, issued and outstanding as of December 30, 1995.
14. FINANCIAL INSTRUMENTS
----------------------
The carrying value of cash and cash equivalents, accounts receivable,
accounts payable, and accrued liabilities is considered to approximate
their fair value due to the short maturity of these instruments.
Marketable securities are shown at fair value. Debt instruments are not
significant.
15. COMMITMENTS AND CONTINGENCIES
------------------------------
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial position or results of operations.
16. CHANGE IN FISCAL YEAR
-----------------------
On December 18, 1992, the Board of Directors approved a change in the
Company's fiscal year from one ending on December 31st of each year to a
52-53 week fiscal year ending on the Saturday nearest the last day of
December. Fiscal 1995 ended on December 30, 1995. Fiscal 1994 ended on
December 31, 1994. Fiscal 1993, the first fiscal year under this change,
ended on January 1, 1994. All references to 1993 in the financial
statements refer to the fiscal year ended January 1, 1994. The Company
filed a Form 8-K report on December 31, 1992.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
---------
The information required by this Item 10 as to the Directors of the
Company is incorporated herein by reference to the information set forth under
the caption "Election of Directors" in the Company's definitive Proxy Statement
for the Annual Meeting of Stockholders to be held on May 7, 1996, since such
Proxy Statement will be filed with the Securities and Exchange Commission not
later than 120 days after the end of the Company's fiscal year pursuant to
Regulation 14A. Information required by this Item 10 as to the executive
officers of the Company is included in Part I of this Annual Report on Form
10-K.
EXECUTIVE OFFICERS OF THE REGISTRANT*
-------------------------------------
The following is a list of the executive officers of the Company. The
executive officers are elected each year and serve at the pleasure of the Board
of Directors.
NAME AGE POSITION
- - ---- --- ---------
Curtis Lee Smith, Jr. 68 Chairman of the Board and
Chief Executive Officer
Thomas J. Bresnan 43 President and Chief Operating Officer
P. Craig Modesitt 39 Vice President, Sales and Marketing
Stuart O. Smith 63 Vice Chairman of the Board,
Chief Development Officer and Secretary
John T. St. James 49 Vice President, Treasurer and
Chief Financial Officer
*The description of executive officers called for in this Item is included
pursuant to Instruction 3 to Section (b) of Item 401 of Regulation S-K.
Set forth below is a brief description of the background of those executive
officers of the Company who are not Directors of the Company. Information with
respect to the background of those executive officers who are also Directors of
the Company is incorporated herein by reference as set forth in Part III, Item
10, of the Company's Annual Report on Form 10-K.
JOHN T. ST. JAMES joined the Company in December 1988 and was elected its
Treasurer in January 1989, Chief Financial Officer in February 1989 and Vice
President in February 1991. Prior to joining the Company, Mr. St. James served
as Vice President and Chief Financial Officer for B.A.T.U.S., Inc., an operator
of retail concerns, from 1984 to 1987, as Vice President and Chief Financial
Officer for the Henri Bendel division of The Limited, Inc., and operator of
retail clothing stores, from 1987 to 1988; and as Vice President - Financial
Operations/Control for Brooks Fashions, Inc., an operator of retail clothing
stores, for a brief period during 1988.
P. CRAIG MODESITT joined the Company in August 1993 and was elected Vice
President, Sales and Marketing. From 1979 until that time, he was with Ejector
Systems, Inc., as both a founder and Vice President of Sales and Marketing.
Ejector Systems, Inc. is a privately-held manufacturer of groundwater
remediation equipment.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is incorporated by reference to
the information set forth under the caption "Compensation of Directors and
Executive Officers" in the Company's definitive Proxy Statement for the Annual
Meeting of Stockholders to be held on May 7, 1996, since such Proxy Statement
will be filed with the Securities and Exchange Commission not later than 120
days after the end of the Company's fiscal year pursuant to Regulation 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 is incorporated by reference to
the information set forth under the caption "Share Ownership of Principal
Holders and Management" in the Company's definitive Proxy Statement for the
Annual Meeting of Stockholders to be held on May 7, 1996, since such Proxy
Statement will be filed with the Securities and Exchange Commission not later
than 120 days after the end of the Company's fiscal year pursuant to Regulation
14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 is incorporated by reference to
the information set forth under the caption "Certain Transactions" in the
Company's definitive Proxy Statement for the Annual Meeting of Stockholders to
be held on May 7, 1996, since such Proxy Statement will be filed with the
Securities and Exchange Commission not later than 120 days after the end of the
Company's fiscal year pursuant to Regulation 14A.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) (1) FINANCIAL STATEMENTS
The following Consolidated Financial Statements of the Registrant and
its subsidiaries are included in Part II, Item 8:
Page
-----
Report of Independent Auditors F-2
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Stockholders' Equity F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7 to F-15
(A) (2) FINANCIAL STATEMENTS SCHEDULES
The following Consolidated Financial Statement Schedules of the
Registrant and its subsidiaries are included in Item 14 hereof:
Page
-----
Report of Independent Auditors as to Schedules F-2
Schedule II Valuation and Qualifying Accounts
and Reserves 20
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
(A) (3) EXHIBITS
Reference is made to the Exhibit Index at sequential page 21 hereof.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized at Morganville, New Jersey
this 28th day of March, 1996.
HANDEX CORPORATION
By: /s/Curtis Lee Smith, Jr.
----------------------------
Curtis Lee Smith, Jr., Chairman
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
/s/Curtis Lee Smith, Jr. Chairman, and )
- - ------------------------- Chief Executive Officer )
Curtis Lee Smith, Jr. (Principal Executive )
Officer) )
)
/s/John T. St. James Vice President, )
- - ------------------------ Treasurer and )
John T. St. James Chief Financial Officer )
(Principal Financial )
and Accounting Officer) )
)
/s/Stuart O. Smith Director )
- - ----------------------- )
Stuart O. Smith ) March 28, 1996
)
/s/Thomas J. Bresnan Director )
- - ----------------------- )
Thomas J. Bresnan )
)
/s/Gregory J. Reuter Director )
- - ----------------------- )
Gregory J. Reuter )
)
/s/David A. Goldfinger Director )
- - ----------------------- )
David A. Goldfinger )
)
/s/Richard L. Osborne Director )
- - ----------------------- )
Richard L. Osborne )
)
/s/Scott R. Wilson Director )
- - ----------------------- )
Scott R. Wilson )
)
/s/William H. Heller Director )
- - ----------------------- )
William H. Heller )
)
SCHEDULE II
-----------
HANDEX CORPORATION INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts and Reserves
Years ended December 30, 1995, December 31, 1994, and January 1, 1994
Allowance
for
Doubtful
Accounts
Balance at December 31, 1992 $ 891,834
Additions - Charged to costs and expenses 192,943
Deductions (A) (244,686)
Balance at January 1, 1994 840,091
Additions - Charged to costs and expenses 195,552
Deductions (A) (101,083)
Balance at December 31, 1994 934,560
Additions - Charged to costs and expenses 400,375
Deductions (A) (353,190)
Balance at December 30, 1995 $ 981,745
(A) - Accounts charged off, less recoveries
EXHIBIT INDEX
PAGINATION
BY
SEQUENTIAL
EXHIBIT EXHIBIT NUMBERING
NUMBER DESCRIPTION SYSTEM
- - ----- ----------- -------
3.1 Amended Certificate of Incorporation of the Registrant (1)
3.2 By-Laws of the Registrant(1)
3.3 Amendment to Certificate of Incorporation of the Registrant
4.1 Specimen Certificate for Share of Common Stock, $.01 par value,
of the Registrant(1)
4.2 Unsecured Revolving Loan Agreement(4)
4.3 First Amendment to Unsecured Revolving Loan Agreement (7)
4.4 Working Capital Line of Credit Note (7)
10.1 Key Employees Stock Option Plan of the Registrant(1)*
10.2 Amendment No. 1 to Key Employees Stock Option Plan of the
Registrant(7)*
10.3 Form of Stock Option Agreement executed by recipients of
options under Key Employees Stock Option Plan(6)
10.4 Stock Option Agreement dated August 6, 1992, between the
Registrant and Thomas J. Bresnan (7)*
10.5 Outside Directors Stock Option Plan of the Registrant(1)*
10.6 Amendment No. 1 to the Outside Directors Stock Option Plan
of the Registrant (7)*
10.7 Form of Stock Option Agreement executed by recipients of
options under the Outside Directors Stock Option Plan(7)
10.8 Amended and Restated 401(k) Profit sharing Trust and Plan
of the Registrant(1)*
10.9 Amendment No. 1 to the Registrant's Amended and Restated
401(k) Profit Sharing Trust and Plan(2)*
10.10 Amendment No. 2 to the Registrant's Amended and Restated
401(k) Profit Sharing Trust and Plan(3)*
10.11 Amendment No. 3 to the Registrant's Amended and Restated
401(k) Profit Sharing Trust and Plan(6)*
10.12 Form of Indemnity Agreement with Directors and Officers of
the Registrant(6)
10.13 Employment Agreement dated August 3, 1992, between the
Registrant and Thomas J. Bresnan(7)*
10.14 Lease Agreement dated April 26, 1988, between Jocama
Construction Inc. and the Registrant(1)
EXHIBIT INDEX
PAGINATION
BY
SEQUENTIAL
EXHIBIT EXHIBIT NUMBERING
NUMBER DESCRIPTION SYSTEM
- - ------ ----------- -------
10.15 Addenda to the Lease Agreement dated April 6, 1988 between
Jocama Construction and the Registrant (8)
10.16 Indenture of Lease dated June 17, 1987, between Xednah
Investments and Handex of Florida, as amended (1)
10.17 Lease Agreement dated March 25, 1991, between Handex of
New England, Inc. and Metro Park Marlboro Realty Trust,
as amended (6)
10.18 Lease Agreement dated January 20, 1992, between Handex of
Maryland, Inc. and Winmeyer Commons II Limited Partnership (6)
10.19 Lease Agreement dated March 1, 1995, between New Horizons
Learning Center of Metropolitan New York, Inc. and Mid City
Associates, guaranteed by the Registrant (10)
10.20 Lease Agreement dated February 24, 1995, between New Horizons
Computer Learning Center of Cleveland LTD., LLC, and Realty
One Property Management, guaranteed by the Registrant (10)
10.21 Consulting Agreement between the Registrant and The Nassau
Group, Inc. dated December 17, 1993 (9)
10.22 Warrants for the purchase of 25,000 shares of Common Stock
$.01 par value per share of the Registrant issued to
The Nassau Group, Inc. on December 17, 1993 (9)
10.23 Warrants for the purchase of 40,000 shares of Common Stock
$.01 par value per share of the Registrant issued to
The Nassau Group, Inc. on August 15, 1994. (10)
10.24 Asset Purchase Agreement, dated as of August 15, 1994, by and
among New Horizons Computer Learning Centers, Inc. a Delaware
Corporation, New Horizons Learning Center, Inc., a California
Corporation and Michael A. Brinda (11)
10.25 Stock Purchase Agreement dated as of August 15, 1994, by
and among New Horizons Education Corporation, a Delaware
Corporation and Michael A. Brinda (11)
10.26 Lease Agreement dated April 5, 1995, between New Horizons Computer
Learning Center of Chicago, Inc., and the Equitable Life Assurance
Society of the United States (12)
10.27 Lease Agreement dated March 7, 1996, between New Horizons Computer
Learning Centers, Inc. and Mani Brothers, LLC
10.28 Contract for the sale of real estate dated January 15, 1996, between
Handex of Florida, Inc. and Xednah Investments
10.29 New Horizons Education Corporation 401(k) Profit Sharing Trust
and Plan*
10.30 Amendment No. 4 to the Registrant's Amended and Restated 401(k)
Profit Sharing Trust and Plan*
21.1 Subsidiaries of the Registrant
23.1 Consent of KPMG Peat Marwick LLP
27 Financial Data Schedule
99.1 Directors and Officers and Company Indemnity Policy(5)
- - --------------------------------------------------
(1) Incorporated herein by reference to the appropriate exhibits to the
Registrant's Registration Statement on Form S-1 (File No. 33-28798).
(2) Incorporated herein by reference to the appropriate exhibit to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1989.
(3) Incorporated herein by reference to the appropriate exhibit to the
Registrant's Quarterly Report on Form 10-Q for the period ended March 31,
1990.
(4) Incorporated herein by reference to the appropriate exhibit to the
Registrant's Quarterly Report or Form 10-Q for the period ended June 30,
1990.
(5) Incorporated herein by reference to the appropriate exhibit to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1990.
(6) Incorporated herein by reference to the appropriate exhibit to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1991.
(7) Incorporated herein by reference to the appropriate exhibit to the
Registrant's Annual Report on Form 10-K for the year ended December
31,1992.
(8) Incorporated herein by reference to the appropriate exhibit to the
Registrant's Quarterly Report on Form 10-Q for the period ended July 3,
1993.
(9) Incorporated herein by reference to the appropriate exhibit to the
Registrant's Annual Report on Form 10-K for the year ended January 1, 1994.
(10) Incorporated herein by reference to the appropriate exhibit to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1994.
(11) Incorporated herein by reference to the appropriate exhibit to the
Registrant's Form 8-K dated August 15, 1994.
(12) Incorporated herein by reference to the appropriate exhibit to the
Registrant's Quarterly Report on Form 10-Q for the period ended April 1,
1995.
* Represents a management contract or compensatory plan or arrangement
required to be filed as an exhibit pursuant to Item 14 of Form 10-K.