Back to GetFilings.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
COMMISSION FILE NO. 0-21963
THE JUDGE GROUP, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-1726661
- ------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
TWO BALA PLAZA, SUITE 800
BALA CYNWYD, PENNSYLVANIA 19004
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(610) 667-7700
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of May 8, 2003, 14,099,527 shares of the registrant's Common Stock,
$0.01 par value per share, were outstanding.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
THE JUDGE GROUP, INC. AND SUBSIDIARIES
INDEX
NUMBER PAGE(S)
- ------ -------
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2003 AND DECEMBER 31, 2002 1
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002 2
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002 3
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4 - 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 7 - 10
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 10
ITEM 4. CONTROLS AND PROCEDURES 10
PART II - OTHER INFORMATION
---------------------------
ITEM 1. LEGAL PROCEEDINGS 11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 11
- --------------------------------------------------------------------------------
FORWARD LOOKING INFORMATION
This Report on Form 10-Q includes forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. These statements and information
are based on beliefs of, and information currently available to, our management
as well as estimates and assumptions made by our management. The words
"anticipate," "believe," "estimate," "expect," "future," "intend," "plan" and
similar expressions as they relate to us or our management, identify
forward-looking statements. Such statements reflect our current views with
respect to future events and are subject to certain risks, uncertainties and
assumptions relating to our operations and results of operations, competitive
factors and pricing pressures, shifts in market demand, the performance and
needs of the industries served by us, and other risks and uncertainties,
including, in addition to any uncertainties specifically identified in the text
accompanying such statements and those identified below, uncertainties with
respect to changes or developments in social, economic, business, industry,
market, legal and regulatory circumstances and conditions and actions taken or
omitted to be taken by third parties, including our stockholders, customers,
suppliers, business partners, competitors, and legislative, regulatory, judicial
and other governmental authorities and officials. Should one or more of these
risks or uncertainties materialize, or should the underlying assumptions prove
incorrect, actual results may vary significantly from those anticipated,
believed, estimated, expected, intended or planned. A non-exclusive list of
factors that may affect future performance can be found in our Report on Form
10-K for the year ended December 31, 2002.
i
THE JUDGE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2003 AND DECEMBER 31, 2002
March 31, 2003 December 31, 2002
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash $ --- $ ---
Accounts receivable, net 13,265,233 11,309,575
Prepaid income taxes and deferred taxes 1,987,139 2,076,768
Prepaid expenses and other 1,237,972 1,028,096
------------ ------------
TOTAL CURRENT ASSETS 16,490,344 14,414,439
------------ ------------
PROPERTY AND EQUIPMENT, NET 1,968,817 2,063,544
------------ ------------
OTHER ASSETS
Deposits and other assets 372,792 372,792
Deferred taxes 762,000 762,000
Other receivables, officers and employees 695,962 696,429
Goodwill 6,423,781 6,423,781
Intangible asset, net 124,964 147,017
------------ ------------
TOTAL OTHER ASSETS 8,379,499 8,402,019
------------ ------------
TOTAL ASSETS $ 26,838,660 $ 24,880,002
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 277,806 $ 197,321
Note payable, Bank --- 1,678,108
Accounts payable and accrued expenses 4,757,097 4,074,687
Payroll and sales taxes 545,295 235,067
Deferred revenue 87,408 160,287
------------ ------------
TOTAL CURRENT LIABILITIES 5,667,606 6,345,470
------------ ------------
LONG-TERM LIABILITIES
Note payable, Bank 2,718,595 ---
Deferred rent obligation 233,072 341,183
Debt obligations, net of current portion 76,554 157,633
------------ ------------
TOTAL LONG-TERM LIABILITIES 3,028,221 498,816
------------ ------------
SHAREHOLDERS' EQUITY
Common stock, $.01 par value, 50,000,000 shares authorized; at March 31, 2003
and December 31, 2002, 14,141,373 shares issued and 13,504,228 shares
outstanding 141,413 141,413
Preferred stock, $.01 par value, 10,000,000 shares authorized; at March 31, 2003
and December 31, 2002, no shares issued and outstanding --- ---
Additional paid-in capital 24,193,815 24,193,815
Accumulated deficit (4,824,742) (4,931,859)
------------ ------------
19,510,486 19,403,369
Less treasury stock, 637,145 shares; at cost 1,367,653 1,367,653
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 18,142,833 18,035,716
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 26,838,660 $ 24,880,002
============ ============
See Notes to Consolidated Financial Statements.
1
THE JUDGE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(UNAUDITED)
2003 2002
---- ----
NET REVENUES $ 20,712,421 $ 20,221,400
------------ ------------
COSTS AND EXPENSES
Cost of sales 14,477,400 13,198,770
Selling and operating 3,421,259 4,351,156
General and administrative 2,631,414 2,691,489
------------ ------------
TOTAL COSTS AND EXPENSES 20,530,073 20,241,415
------------ ------------
OPERATING INCOME (LOSS) 182,348 (20,015)
Other income (expense), net 22,489 (53,035)
------------ ------------
INCOME (LOSS) BEFORE INCOME TAX EXPENSE (BENEFIT) 204,837 (73,050)
Income tax expense (benefit) 97,720 (30,681)
------------ ------------
NET INCOME (LOSS) $ 107,117 ($ 42,369)
============ ============
NET INCOME (LOSS) PER SHARE:
BASIC
Weighted Average Shares Outstanding 13,504,228 13,504,228
=========== ===========
Income (loss) per share $ 0.01 $ 0.00
====== ======
DILUTED
Weighted Average Shares Outstanding 13,514,687 13,504,228
=========== ===========
Income (loss) per share $ 0.01 $ 0.00
====== ======
See Notes to Consolidated Financial Statements.
2
THE JUDGE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(UNAUDITED)
2003 2002
---- ----
OPERATING ACTIVITIES
Net income (loss) for the period $ 107,117 ($ 42,369)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation 263,796 309,283
Amortization 22,053 ---
Deferred rent (108,111) (47,499)
Provision for losses on accounts receivable 57,563 170,127
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable (2,013,221) 578,721
Prepaid income taxes and deferred taxes 89,629 (31,666)
Prepaid expenses and other current assets (209,876) (31,136)
Deposits and other 467 (49,447)
Increase (decrease) in:
Accounts payable and accrued expenses 682,410 1,133,420
Payroll and sales taxes 310,228 165,521
Deferred revenue (72,879) 5,148
----------- ----------
Net cash provided by (used in) operating activities (870,824) 2,160,103
----------- ----------
INVESTING ACTIVITIES
Net cash used in investing activities, purchases of property and equipment (96,963) (57,810)
----------- ----------
FINANCING ACTIVITIES
Proceeds from (repayments of) notes payable, bank, net 1,040,487 (1,874,349)
Principal payments on long-term debt (72,700) (227,944)
----------- ----------
Net cash provided by (used in) financing activities 967,787 (2,102,293)
----------- ----------
INCREASE (DECREASE) IN CASH --- ---
CASH, BEGINNING --- ---
----------- ----------
CASH, ENDING $ --- $ ---
=========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for Interest $ 36,000 $ 73,000
=========== ==========
Cash paid during the period for Income taxes $ 19,000 $ ---
=========== ==========
See Notes to Consolidated Financial Statements.
3
THE JUDGE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2003 AND 2002
NOTE 1. DESCRIPTION OF BUSINESS
The Judge Group, Inc. (the "Company"), a Pennsylvania corporation founded in
1970, provides information technology ("IT") and engineering professionals to
its clients on both a temporary basis ("Contract Placement") and a permanent
basis ("Permanent Placement") as well as IT training on a range of software and
network applications to corporate, governmental and individual clients. At March
31, 2003, the Company, headquartered in Bala Cynwyd, Pennsylvania, operated
regional offices in eleven states throughout the United States. A substantial
portion of the Company's revenue is derived from customers located in the
Mid-Atlantic corridor of the United States.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the
Company and the Company's wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
The financial statements as of March 31, 2003 and for the three months ended
March 31, 2003 and 2002 are unaudited; however, in the opinion of management,
such statements include all adjustments, consisting solely of normal recurring
adjustments, necessary for a fair presentation of the results for the periods
presented.
The interim financial statements should be read in conjunction with the
financial statements for the fiscal year ended December 31, 2002 and the notes
thereto, included in the Company's report on Form 10-K for the year ended
December 31, 2002.
Risks, Uncertainties and Management Estimates
The results of operations for the interim periods are not necessarily indicative
of the results that might be expected for future interim periods or for the full
year ending December 31, 2003.
The preparation of the Company's consolidated financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Interim Financial Reporting
For interim financial reporting purposes, costs and expenses are accounted for
in accordance with Accounting Principles Board Opinion No. 28 ("APB 28").
Earnings Per Share
Basic earnings (loss) per share amounts are computed based on net income (loss)
divided by the weighted average number of shares actually issued, reduced by
treasury shares.
Diluted earnings (loss) per share amounts for the three months ended March 31,
2003 and 2002 are based on the weighted average number of shares calculated for
basic earnings (loss) per share purposes increased by (when dilutive) the number
of shares that would be outstanding assuming the exercise of certain outstanding
stock options or warrants. Outstanding options and warrants to purchase
2,895,772 common shares as of March 31, 2003 were not included in the
computation of diluted earnings per share because the option exercise price was
greater than the average market price of the Company's common shares. Shares
issuable upon the exercise of stock options or warrants were not considered in
the calculation of net loss per share in 2002, as their inclusion would be
anti-dilutive.
4
THE JUDGE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2003 AND 2002
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (continued)
Stock Option Plan
The Company has a 1996 Stock Option Plan (the "1996 Plan") for key employees and
non-employee directors. The Company accounts for the 1996 Plan under the
recognition and measurement principles of APB Opinion No. 25, "Accounting for
Stock Issued to Employees", and related Interpretations. No stock-based employee
compensation cost is reflected in net income, as all options granted under the
1996 Plan had an exercise price equal to the market value of the underlying
common stock on the date of grant. The following table illustrates the effect on
net income and earnings per share if the Company had applied the fair value
recognition provisions of FASB Statement No. 123, "Accounting for Stock-Based
Compensation", to stock-based employee compensation.
Three Months ended March 31, 2003 2002
---- ----
Net Income (loss):
As reported $ 107,117 ($ 42,369)
Less: Total stock-based employee
compensation expense determined under
fair value based method for all
awards, net of related tax effects 90,121 101,611
--------- --------
Pro forma net income (loss) $ 16,996 ($143,980)
========= ========
Basic and diluted earnings (loss) per share:
As reported $ 0.01 $ 0.00
====== ======
Pro forma $ 0.00 ($ 0.01)
====== ======
NOTE 3. INCOME TAXES
The Company files a consolidated Federal income tax return with its wholly owned
subsidiaries. State income taxes are determined on the basis of filing separate
returns for each subsidiary to the extent required by applicable state
regulations.
In accordance with Accounting Principles Board Opinion No. 28 (Interim Financial
Reporting), income taxes are calculated at the estimated effective annual
(federal and state) tax rates.
The effective tax rate of 47.7% for 2003 is higher than the applicable federal
statutory tax rate of 34% due to the Company's state tax liabilities and certain
expenses that were not deductible for tax purposes. In 2002, the effective tax
benefit rate was higher than the applicable federal statutory tax rate due to
the Company's state tax liabilities and certain expenses that were not
deductible for tax purposes.
NOTE 4. STATEMENT OF CASH FLOWS
Supplemental disclosure of non-cash investing and financing transactions:
During the three month periods ended March 31, 2003 and 2002, the Company
entered into certain capital lease agreements for the purchase of equipment
in the amounts of approximately $72,100 and $23,700, respectively.
5
THE JUDGE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2003 AND 2002
NOTE 5. TENDER OFFER
On April 10, 2003, a management-led group led by the Company's Chairman of the
Board and Chief Executive Officer and President of its contract placement
business Martin E. Judge, Jr. and its President Michael A. Dunn (owning
approximately 60% of the Company's outstanding shares) announced its intention
to make a tender offer for all shares not owned by the group. The management-led
group has expressed its intention to make the tender offer at a price of $0.95
per share. Prior to that, on March 24, 2003, the Company announced that the
management-led group made a non-binding proposal for a going-private transaction
in which it would acquire all other outstanding shares of the Company's stock at
a price of $0.82 per share. On April 2, 2003 the management-led group reaffirmed
that it had no interest or intention to sell its ownership interest in the
Company.
The Company's Board of Directors formed a special committee, consisting only of
independent directors, to review the proposed transaction. Since the March 24,
2003 announcement, the management-led group has had discussions with the special
committee regarding the structure of the proposed transaction. The special
committee has engaged an independent investment banker to assist it in
evaluating the terms of the management-led group's offer and to provide its
opinion as to the fairness of the proposed tender offer price of $0.95 per share
from a financial point-of-view to the Company's minority shareholders.
NOTE 6. SUBSEQUENT EVENT
Subsequent to March 31, 2003, the Company reached a pre-tax gross settlement of
$2.0 million with a competitor and three individual defendants whom it sued in
1997 in a case involving covenants not to compete. The Court of Common Pleas of
Montgomery County, Pennsylvania entered judgment for approximately $2.3 million
in the Company's favor against the competitor and the three individuals, who
subsequently appealed that judgement. Pursuant to the settlement, the Company
released the entire claim made against one deceased defendant and settled fully
and finally its claims against the other defendants. The proceeds of the
settlement will be used to reduce the Company's debt.
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2003 COMPARED TO THE THREE
MONTHS ENDED MARCH 31, 2002
The following discussion should be read in conjunction with the consolidated
financial statements of The Judge Group, Inc. and related notes thereto
appearing elsewhere in this Report and in our Annual Report on Form 10-K for the
year ended December 31, 2002.
OVERVIEW
Our operations experienced an increase in net revenue of approximately $0.5
million, or 2.4%, for the three months ended March 31, 2003 compared to the
prior year period. This low rate of revenue increase was primarily attributable
to a continuing general downturn in the United States economy, which negatively
affected our clients' use of IT and engineering staffing and training services.
Our operating income increased approximately $0.2 million, from an operating
loss of approximately $20,000 to operating income of approximately $182,000 for
the three months ended March 31, 2003 compared to the prior year period due
primarily to our lower selling and operating and general and administrative
expenses as more fully explained below. Our net operating results increased
approximately $0.1 million, to approximately $107,000 for the three months ended
March 31, 2003 compared to the prior year period of a loss of approximately
$42,000. This increase was due to the decrease in expenses noted above.
RESULTS OF OPERATIONS
The following table sets forth certain statement of operations data as a
percentage of consolidated net revenues for each of the periods indicated:
THREE MONTHS
ENDED MARCH 31,
2003 2002
---- ----
Net revenues 100.0% 100.0%
----- -----
Cost of sales 69.9 65.3
Selling and operating expenses 16.5 21.5
General and administrative expenses 12.7 13.3
----- -----
Total costs and expenses 99.1 100.1
----- -----
Operating income (loss) 0.9 (0.1)
Other income (expense), net 0.1 (0.3)
----- -----
Income (loss) before income tax (benefit) 1.0% (0.4%)
===== ======
THREE MONTHS ENDED MARCH 31, 2003 COMPARED TO THREE MONTHS ENDED MARCH 31, 2002
Net Revenues. Consolidated net revenues increased by 2.4%, or approximately $0.5
million, to approximately $20.7 million for the three months ended March 31,
2003 compared to the prior year period. This low rate of revenue increase was
due to an increase in revenues in our contract placement business partially
offset by decreases in our permanent placement and our IT training businesses.
In our contract placement business revenues increased approximately $2.0
million, or 11.9%, for the three months ended March 31, 2003 compared to the
prior year period. For the three months ended March 31, 2003 we billed
approximately 304,000 IT consultant hours compared to approximately 275,000 IT
consultant hours in the comparable period of 2002. Our permanent placement
revenue decreased 36.5%, or approximately $1.0 million, to approximately $1.8
million for the three months ended March 31, 2003 compared to the prior year
period. This decrease is primarily due to a lower number of placements in the
three months ended March 31, 2003 compared to the prior period. We placed 124
candidates in the three months ended March 31, 2003 compared to 205 candidates
in the prior year period. Our IT training revenues also decreased approximately
$0.4 million, or 49.1%, to approximately $0.5 million for the three months ended
March 31, 2003 compared to the prior year period. The decrease in revenues in
both the permanent placement business and the IT training business were
primarily due to a continuing general downturn in the United States economy.
7
Cost of Sales. Consolidated cost of sales increased by 9.7%, or approximately
$1.3 million, to approximately $14.5 million for the three months ended March
31, 2003 compared to the prior year period. Cost of sales as a percentage of
consolidated net revenues increased to 69.9% from 65.3% in the respective
comparable periods. This increase in cost of sales as a percentage of net
revenues is primarily due to the lower permanent placement revenues, which have
no cost of sales associated with them, related to total revenues. Cost of sales
related to contract placements increased to 76.6% of contract placement revenues
for the three months ended March 31, 2003 compared to 76.4% in the prior year
period. This increase was attributable to a decrease in the number of IT
consultants working on higher billable rate services, such as client server and
web development services. Cost of sales related to IT training revenues
decreased approximately $0.3 million, or 44.4%, to approximately $0.3 million
for the three months ended March 31, 2003 compared to the prior year period,
primarily due to fewer trainers required for the reduced number of classes held.
Selling and Operating. Consolidated selling and operating expenses decreased by
21.4%, or approximately $0.9 million, to approximately $3.4 million for the
three months ended March 31, 2003 compared to the prior year period. Selling and
operating expenses as a percentage of consolidated net revenues decreased to
16.5% from 21.5% for the three months ended March 31, 2003 compared to the prior
year period. The decrease in selling and operating expenses was due primarily to
lower commissions paid on the lower revenues in the permanent placement and IT
training businesses, lower bad debt expense, and management's continuing
attempts to control costs in such areas as office supplies, telephone, and
travel and entertainment expense.
General and Administrative. Consolidated general and administrative expenses
decreased 2.2%, or approximately $0.1 million, to approximately $2.6 million for
the three months ended March 31, 2003 compared to the prior year period. General
and administrative expenses as a percentage of consolidated net revenues
decreased to 12.7% from 13.3% for the three months ended March 31, 2003 compared
to the prior year period. The decrease in general and administrative expenses is
due primarily to lower salaries and related expenses following staff reductions
to reflect our lower volume of business in the permanent placement and IT
training businesses, partially offset by higher professional fees, primarily for
legal services.
Other. Other income represents primarily other income net of interest expense.
Interest expense was approximately $41,000 and $86,000 for the three months
ended March 31, 2003 and 2002, respectively. Other income was approximately
$64,000 for the three months ended March 31, 2003 compared to $33,000 for the
comparable period of 2002. This decrease in total interest expense reflects our
decreased usage of our bank line of credit during the three months ended March
31, 2003, as well as a reduced interest rate on such borrowings from a prime
rate of 4.75% at March 31, 2002 to 4.25% at March 31, 2003.
Income Taxes. The effective tax rate of approximately 47.7% for the three months
ended March 31, 2003 is higher than the federal statutory tax rate of 34%
primarily due to state tax benefits and certain book expenses not deductible for
tax purposes. In the comparable period of 2002 the effective tax benefit rate of
approximately 42.0% is higher than the applicable federal statutory tax rate
primarily due to state tax provisions and certain book expenses not deductible
for tax purposes.
LIQUIDITY AND CAPITAL RESOURCES
We have borrowed under our credit facility to fund our working capital needs. We
utilize a cash management program to minimize non-earning cash assets, including
a zero balance disbursement account, as reflected in the cash balance of $0 as
of March 31, 2003.
We used cash from operations of approximately $0.9 million in the three months
ended March 31, 2003 compared to providing cash of approximately $2.2 million
for the comparable period of 2002. Cash was used to generate an increase of
approximately $2.0 million in our accounts receivable in the three months ended
March 31, 2003, which was partially offset by increases in accounts payable and
accrued expenses and in payroll and sales taxes totaling approximately $1.0
million. A decrease in our accounts receivable of approximately $0.6 million
combined with an increase of approximately $1.3 million in our accounts payable
and our payroll and sales taxes payable provided most of the cash from
operations in the three months ended March 31, 2002.
8
Cash purchases of fixed assets for the three months ended March 31, 2003 were
approximately $97,000 compared to purchases of approximately $58,000 in the
comparable period in the prior year. These purchases were related primarily to
the purchase of computers, related accessories and software to replace obsolete
equipment.
We borrowed approximately $1.0 million from our line of credit in the three
months ended March 31, 2003, compared to repayment of approximately $1.9 million
in the three months ended March 31, 2002. We also repaid approximately $0.1
million of our long-term obligations in the three months ended March 31, 2003
compared to approximately $0.2 million in the comparable period of 2002.
We have availability under a $12.0 million revolving advance facility, the Line
of Credit, with PNC Bank, N.A., the Bank. The Line of Credit was amended
subsequent to March 31, 2003 to establish the $12.0 million maximum amount
available, extend its term to April 30, 2006, allow for a repurchase of our
stock in certain circumstances, and make other changes to both financial and
non-financial covenants. This facility allows us to borrow the lesser of 85% of
eligible accounts receivable or $12.0 million. As of March 31, 2003 we had
approximately $2.7 million outstanding against the Line of Credit. The Line of
Credit is secured by substantially all of our assets and contains customary
restrictive covenants. The covenants include limitations on loans we may extend
to officers and employees, the incurrence of additional debt and a prohibition
of the payment of dividends on our common shares. The Line of Credit bears
interest, at our option, at either the Bank's prime rate, which was 4.25% at
March 31, 2003, or a margin, ranging from 175 basis points to 225 basis points,
over the London Inter-bank Offering Rate, determined by our achieving certain
liquidity ratios.
A continued downturn in the United States economy at large could potentially
lead to decreases in our revenue in future periods. While no one customer
represents greater than 10% of our total revenue, a continuing general economic
downturn in the United States could adversely impact our clients and cause them
to curtail the use of staffing services. Our management continues to monitor
general economic conditions and expects to make adjustments to our operations as
needed.
We anticipate that our primary uses of capital in future periods will be to fund
increases in our accounts receivable, to support internal growth by financing
new offices, and to finance additional acquisitions. We believe that our Line of
Credit, or other credit facilities, which may be available to us in the future,
will be sufficient to meet our capital needs for at least the next twelve
months.
In the quarter ended March 31, 2003 our accounts receivable increased
approximately $2.0 million due partly to an increase in revenues sequentially
from the fourth quarter of 2002, and partly to a slowdown in payments from
clients.
During the quarter ended March 31, 2003 there was no material change in our
contractual cash obligations payable in future periods.
Information regarding our critical accounting policies which affect our more
significant judgments and estimates used in the preparation of our consolidated
financial statements is included in our Annual Report on Form 10-K for the year
ended December 31, 2002.
Tender Offer by Management-Led Group
On April 10, 2003, a management-led group led by our Chairman of the Board and
Chief Executive Officer and President of our contract placement business Martin
E. Judge, Jr. and our President Michael A. Dunn (owning approximately 60% of our
outstanding shares) announced its intention to make a tender offer for all
shares not owned by the group. The management-led group has expressed its
intention to make the tender offer at a price of $0.95 per share. Prior to that,
on March 24, 2003, we announced that the management-led group made a non-binding
proposal for a going-private transaction in which it would acquire all other
outstanding shares of our stock at a price of $0.82 per share. On April 2, 2003
the management-led group reaffirmed that it had no interest or intention to sell
its ownership interest in us.
9
Our Board of Directors formed a special committee, consisting only of
independent directors, to review the proposed transaction. Since the March 24,
2003 announcement, the management-led group has had discussions with the special
committee regarding the structure of the proposed transaction. The special
committee has engaged an independent investment banker to assist it in
evaluating the terms of the management-led group's offer and to provide its
opinion as to the fairness of the proposed tender offer price of $0.95 per share
from a financial point-of-view to our minority shareholders.
10
Listing of Our Common Stock
There are several requirements that we must satisfy in order for our Common
Shares to continue to be listed on the NASDAQ SmallCap Market. These
requirements include, but are not limited to, maintaining a minimum per share
price of our Common Shares of one dollar. The per share price of our Common
Shares does not currently satisfy requirements to remain listed on the NASDAQ
SmallCap Market. We have received notification from The NASDAQ Stock Market,
Inc. that our Common Shares will be delisted from the NASDAQ SmallCap Market
unless the stock closes at or above one dollar per share for at least ten
consecutive days by July 18, 2003. In addition, in the future we may not comply
with other listing requirements, which might result in the delisting of our
Common Shares. If our Common Shares are delisted from the NASDAQ SmallCap
Market, we may list the Common Shares for trading over-the-counter. Delisting
from the NASDAQ SmallCap Market could adversely affect the liquidity and the
price of our Common Shares and could have a long-term adverse impact on our
ability to raise future capital through a sale of our Common Shares. In
addition, delisting could make it more difficult for investors to obtain
quotations as to the market value of or trade our Common Shares.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are exposed to market risk due to the variable interest rates on our Line of
Credit discussed above. The interest rates vary primarily due to changes in
short term interest rates promulgated by the Federal Reserve Bank in its efforts
to control general economic conditions. During 2002 and to date in 2003, the
Federal Reserve Bank has caused such interest rates to remain at reduced levels.
Assuming we are indebted on our Line of Credit approximately $2.7 million and
continue to have approximately 13,500,000 common shares outstanding, a 1%
decrease in our interest rate will increase our annual earnings per share by
less than 1 cent. Correspondingly a 1% increase in our interest rate will
decrease our annual earnings per share by less than 1 cent.
We have not entered into derivative financial or commodity instrument
transactions. We do not believe that our exposure to market risk from other
types of financial instruments, such as accounts receivable and accounts
payable, is material.
ITEM 4. CONTROLS AND PROCEDURES.
For the quarterly period ending March 31, 2003, we carried out an evaluation,
under the supervision and with the participation of our management, including
our Chairman of the Board and Chief Executive Officer and our Chief Financial
Officer (the principal finance and accounting officer), of the effectiveness of
the design and operation of our disclosure controls and procedures pursuant to
Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). Based upon this evaluation, our Chairman of the Board and
Chief Executive Officer and our Chief Financial Officer concluded that, as of
March 31, 2003, our disclosure controls and procedures were adequate to ensure
that information required to be disclosed by us in the reports filed or
submitted by us under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the rules and forms of the
Securities and Exchange Commission.
Additionally, our Chairman of the Board and Chief Executive Officer and Chief
Financial Officer determined, as of March 31, 2003, that there were no
significant changes in our internal controls or in other factors that could
significantly affect our internal controls subsequent to the date of their
evaluation.
11
PART II - OTHER INFORMATION
---------------------------
ITEM 1. LEGAL PROCEEDINGS
We are involved in routine litigation incidental to the conduct of our business,
but do not believe that any of the litigation to which we are currently a party
will have a material adverse effect on our results of operations or on our
financial condition.
Subsequent to March 31, we reached a pre-tax gross settlement of $2.0 million
with a competitor and three individual defendants whom we sued in 1997 in a case
involving covenants not to compete. The Court of Common Pleas of Montgomery
County, Pennsylvania entered judgment for approximately $2.3 million in our
favor against the competitor and the three individuals, who subsequently
appealed that judgment. Pursuant to the settlement, we released the entire claim
made against one deceased defendant and settled fully and finally our claims
against the other defendants. The proceeds of the settlement will be used to
reduce our debt.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description of Document
----------- -----------------------
99.1 Certification pursuant to 18 U.S.C. Section 1350*
99.2 Certification pursuant to 18 U.S.C. Section 1350*
*Filed herewith
(b) A report on Form 8-K was filed pursuant to Item 5 thereof by the
Registrant during the quarter ended March 31, 2003, on March 24, 2003,
related to a proposal received from a management group for a
going-private transaction.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: May 9, 2002
THE JUDGE GROUP, INC. THE JUDGE GROUP, INC.
Robert G. Alessandrini Martin E. Judge, Jr.
------------------------- ----------------------------
Robert G. Alessandrini Martin E. Judge, Jr.
Chief Financial Officer Chairman of the Board and
Chief Executive Officer
12
CERTIFICATIONS
I, Martin E. Judge, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of The Judge Group, Inc.
("Registrant");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Registrant as of, and for, the periods presented in this quarterly report;
4. The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the Registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the Registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The Registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the Registrant's auditors and the audit committee of
Registrant's board of directors:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to record,
process, summarize and report financial data and have identified for the
Registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal controls;
and
6. The Registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 9, 2003
Martin E. Judge, Jr.
- ---------------------------
Martin E. Judge, Jr.
Chairman of the Board and
Chief Executive Officer
13
CERTIFICATIONS (cont'd.)
I, Robert G. Alessandrini, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The Judge Group, Inc.
("Registrant");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Registrant as of, and for, the periods presented in this quarterly report;
4. The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the Registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the Registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The Registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the Registrant's auditors and the audit committee of
Registrant's board of directors:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
Registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal controls;
and
6. The Registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 9, 2003
Robert G. Alessandrini
- --------------------------
Robert G. Alessandrini
Chief Financial Officer
14