SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended September 30, 1997; or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from ____________ to ______________.
Commission File Number: _ _ _ _ _ _ _ _ _ _ _ _ _
FORENSIC TECHNOLOGIES INTERNATIONAL CORPORATION
(Exact Name of Registrant as Specified in its Charter)
MARYLAND 52-1261113
-------- ----------
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2021 Research Drive, Annapolis, Maryland 21401
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(Address of Principal Executive Offices)
(Zip Code)
(410) 224-8770
--------------
(Registrant's Telephone Number, Including Area Code)
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
------------------------------------------
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of 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.
[X] Yes [ ] No
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
Class Outstanding at November14, 1997
- --------------------------- -------------------------------
Common Stock, par value 4,546,912 shares
$.01 per share
FORENSIC TECHNOLOGIES INTERNATIONAL CORPORATION
INDEX
Page
PART I FINANCIAL INFORMATION
Item 1. Financial Statements .................................... 3 to 11
Item 2. Management's Discussion and Analysis of
Results of Operations and
Financial Condition ................................... 12
Forensic Technologies International Corporation
Balance Sheets
(in thousands of dollars)
DECEMBER 31, SEPTEMBER 30,
1996 1997
----------------------------------
(audited) (unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 5,894 $ 2,929
Accounts receivable, less allowance of $251 in 1996 and $349 in,
1997 6,296 6,629
Unbilled receivables, less allowance of $125 in 1996 and $473 in
1997 3,007 5,970
Inventory 333 333
Income taxes receivable 111 135
Deferred income taxes 186 203
Prepaid expenses 419 672
----------------------------
Total current assets 16,246 16,871
Property and equipment:
Buildings 411 411
Furniture and equipment 8,455 11,133
Leasehold improvements 864 1,355
----------------------------
9,730 12,899
Accumulated depreciation and amortization (5,624) (7,114)
----------------------------
4,106 5,785
Goodwill, less amortization of $23 in 1997 -- 4,984
Other assets 516 542
============================
Total assets $ 20,868 $ 28,182
============================
DECEMBER 31, SEPTEMBER 30,
1996 1997
----------------------------------
(audited) (unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,502 $ 1,439
Accrued compensation expense 783 1,632
Income taxes payable - 475
Current portion of capital lease obligations 53 103
Current portion of long term debt - 2,210
Advances from clients 586 385
Other current liabilities 11 554
----------------------------------
Total current liabilities 2,935 6,798
----------------------------------
Long-term debt and capital lease obligations, less current
portion 201 886
Deferred income taxes 104 524
Stockholders' equity:
Preferred stock, $.01 par value; 4,000,000 shares authorized,
none outstanding
Common stock, $.01 par value:
Authorized shares - 16,000,000
Shares issued and outstanding and not subject to repurchase -
4,516,912 in 1996, 4,526,912 in 1997 45 45
Additional paid-in capital 14,429 14,453
Retained earnings 3,154 5,476
----------------------------------
Total stockholders' equity 17,628 19,974
==================================
Total liabilities and stockholders' equity $ 20,868 $ 28,182
==================================
See accompanying notes.
Forensic Technologies International Corporation
Statements of Income
(in thousands of dollars, except per share data)
THREE MONTHS ENDED SEPTEMBER 30
1996 1997
-------------------------------------------
(audited) (unaudited)
Revenues $ 7,573 $ 10,675
Direct cost of revenues 4,172 5,338
Selling, general and administrative expenses 2,659 3,684
-------------------------------------
Total costs and expenses 6,831 9,022
-------------------------------------
742 1,653
Other income (expenses):
Interest and other income 111 89
Interest expense (14) (76)
-------------------------------------
97 13
-------------------------------------
Income before income taxes 839 1,666
Income taxes 352 693
-------------------------------------
Net income $ 487 $ 973
=====================================
Earnings Per Share Data:
Per common and common equivalent share: $0.10 $0.21
=====================================
Per common share, assuming full dilution: $0.10 $0.20
=====================================
See accompanying notes.
Forensic Technologies International Corporation
Statements of Income
(in thousands of dollars, except per share data)
NINE MONTHS ENDED
SEPTEMBER 30
1996 1997
--------------------------------------
(audited) (unaudited)
Revenues $ 22,547 $ 29,686
Direct cost of revenues 12,338 15,753
Selling, general and administrative expenses 7,758 10,122
------------------------------------
Total costs and expenses 20,096 25,875
------------------------------------
2,451 3,811
Other income (expenses):
Interest and other income 193 261
Interest expense (155) (119)
------------------------------------
38 142
------------------------------------
Income before income taxes 2,489 3,953
Income taxes 1,047 1,631
------------------------------------
Net income $ 1,442 $ 2,322
====================================
Earnings Per Share Data:
Per common and common equivalent share: $0.41 $0.50
====================================
Per common share, assuming full dilution: $0.37 $0.49
====================================
See accompanying notes.
Forensic Technologies International Corporation
Statements of Cash Flows
(in thousands of dollars)
NINE MONTHS ENDED SEPT. 30
1996 1997
-----------------------------------------
(audited) (unaudited)
OPERATING ACTIVITIES
Net income $ 1,442 $ 2,322
Adjustment to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 526 978
Amortization 78 146
Non-cash compensation 29 -
Provision for doubtful accounts 45 335
Accrued loss on disposal of discontinued Annapplix division (479) -
Changes in operating assets and liabilities:
Accounts receivable (2,238) 534
Unbilled receivables (678) (2,372)
Prepaid expenses (524) (144)
Accounts payable 190 (556)
Accrued compensation expense (89) 651
Income taxes payable 334 452
Deferred revenue (139) -
Advances from client - (200)
Other current liabilities 267 428
Accounting adjustment due to pooling 72 -
-------------------------------------
Net cash provided by (used in) operating activities (1,164) 2,574
INVESTING ACTIVITIES
Purchase of property and equipment (1,306) (1,839)
Cash paid upon acquisitions (1) - (3665)
Change in other assets (46) (76)
-------------------------------------
Net cash used in investing activities (1,352) (5,580)
FINANCING ACTIVITIES
Issuance of Class A Common Stock 11,125 -
Repurchase of Class A Common Stock (130) -
Repurchase of Class A Common Stock subject to
repurchase (311) -
Exercise of stock options 15 24
Net borrowings (repayments) under line of credit (1,397) -
Payments of capital lease obligations (32) (140)
Borrowings on notes payable - 157
Dividends paid (62) -
-------------------------------------
Net cash provided by financing activities 9,208 41
-------------------------------------
Net increase in cash and cash equivalents 6,692 (2,965)
Cash and cash equivalents at beginning of period 245 5,894
--------------------------------------
Cash and cash equivalents at end of period $ 6,937 $ 2,929
======================================
See accompanying notes
(1) including direct cost of acquisition, net of cash acquired
FORENSIC TECHNOLOGIES INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1997
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and Item 310(b) of Regulation S-B. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. For further information, refer to the
consolidated financial statements and notes thereto included in the Company's
annual report on Form 10-KSB for the year ended December 31, 1996.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the nine month period ended September 30, 1997 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1997.
2. OPTION GRANTS
On March 25, 1997, the Board of Directors approved the issuance of options to
purchase 300,000 shares of Class A Common Stock to key employees. The exercise
prices of the shares granted range from $6.00 to $9.50 per share, at or above
the estimated fair market value of a share of Class A Common Stock at the date
of grant, and the options vest ratably over a three year period.
In addition, options to purchase 4,200 shares of Class A Common Stock were
issued on May 21, 1997 to each of the non employee directors of the Company
under the Formula Option of the 1997 Stock Option Plan. An aggregate of 16,800
options were granted at an exercise price of $7.63 per share.
FORENSIC TECHNOLOGIES INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1997 (CONTINUED)
(dollars in thousands)
3. ACQUISITIONS
Effective September 1, 1997 the Company acquired all of the outstanding common
stock of LWG, Inc. and subsidiary (LWG). LWG, based in Northbrook, IL, provides
claims management consulting and restoration services to the insurance industry.
The purchase price was an initial cash payment of $1,800 plus fifty percent of
the pre-tax profits of LWG for the four years ended September 30, 2001 (the
earn-out).
Additionally, effective September 1, 1997, the Company acquired certain assets
of Bodaken & Associates, a trial research and consulting firm serving law firms
and corporations throughout the US. The purchase price of $3,550 provided for an
initial cash payment of $1,700 and additional payments of $1,200 and $650 on the
first and second anniversaries of the closing , respectively. The portions of
the purchase price represented by the installment payments have been recorded as
current and long-term debt at September 30, 1997. Interest of 7% per annum will
be paid on the unpaid balance.
These acquisitions were accounted for using the purchase method of accounting
and accordingly, the accompanying 1997 consolidated financial statements include
the financial position, results of operations and cash flows of the acquired
businesses beginning September 1, 1997. The excess of the cost of the
acquisition over the fair value of the assets acquired of $1,333 and $3,565, for
LWG and Bodaken, respectively, was recorded as goodwill. Future payments under
the LWG earn-out will increase the amount of goodwill when such amounts are
determinable. The goodwill is being amortized over twenty years as to LWG
and twenty five years as to Bodaken.
FORENSIC TECHNOLOGIES INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1997 (CONTINUED)
(Dollars in thousands except per share amounts)
4. EARNINGS PER SHARE
The following table summarizes the computations of earnings per share for the
three month and nine month periods ended September 30, 1996 and 1997. This table
should be read in conjunction with Note 2 to the 1996 audited financial
statements.
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1996 1997 1996 1997
------------------------------- --------------------------------
(UNAUDITED) (UNAUDITED)
Primary: (Shares in thousands)
Weighted average number of shares of common stock
outstanding during the period 4,505 4,527 3,282 4,525
Options to purchase common stock issued within one
year of registration statement - based on
treasury stock method using estimated offering - - 21 -
price
Dilutive effect of other options and warrants - based
on treasury stock method using average market
price 217 174 186 166
-------------------------- ------------------------------
Total common and common equivalent shares of stock
considered outstanding during the year 4,722 4,701 3,489 4,691
========================== ==============================
Net income $ 487 $ 973 $ 1,442 $ 2,322
========================== ==============================
Per share amount $ 0.10 $ 0.21 $ 0.41 $ 0.50
========================== ==============================
Fully diluted:
Weighted average number of shares of common stock
outstanding during the period 4,505 4,527 3,282 4,525
Options to purchase common stock issued within one
year of registration statement - based on
treasury stock method using estimated offering
price - - 21 -
Dilutive effect of other options and warrants -
based on treasury stock method using market
price at the end of the period 246 243 214 243
Assumed conversion of Series A Redeemable
Convertible Preferred Stock - - 320 -
Assumed conversion of 8% Convertible Subordinated
Debentures - - 185 -
------------------------- -------------------------------
Total fully diluted securities considered outstanding
during the year 4,751 4,770 4,022 4,768
========================= ==============================
Net income $ 487 $ 973 $ 1,442 $ 2,322
Add 8% Convertible Subordinated Debenture interest,
net of income taxes 10 31 -
========================= ==============================
$ 497 $ 973 $ 1,474 $ 2,322
========================= ==============================
Per share amount $ 0.10 $ 0.20 $ 0.37 $ 0.49
========================= ==============================
FORENSIC TECHNOLOGIES INTERNATIONAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Revenues for the third quarter and nine months ended September 30, 1997,
increased 41.0% to $10.7 million and 31.7% to $29.7 million over the same
periods in 1996, respectively. These increases are the result of revenues from
visual communication services growing 22.0% to $4.3 million and 38.7% to $13.6
million during the quarter and nine months, respectively, attributable to higher
levels of active trials during the periods and the success of an integrated
approach to the marketing of the Company's services. Additionally, acquisitions,
as described in Note 3 to the Financial Statements, added approximately $1.7
million during the quarter; the increase in revenues before acquisition was 20%.
Engineering and insurance services revenues grew 41.7% and 35.0% during the
quarter and nine months, respectively, attributable to the inclusion of LWG and
increased sales by last year's acquisitions of Teklicon and Anamet Laboratories.
Direct costs, as a percentage of revenue, decreased to 50% and 53% during the
third quarter and nine months of 1997, as a result of improved management of
costs passed on directly to clients; additionally, this percentage benefited
from a large transaction in the LWG operation which accounted for approximately
$.02 per share. Selling, general and administrative expenses were approximately
the same during the quarter and nine months of 1997 and 1996. Interest expense
decreased in the quarter and nine months due to no usage on the line of credit
during 1997; borrowings under the line of credit during 1996 were repaid from
funds received from the sale of Common Stock in May, 1996. Unused funds from
such sale have been invested to increase interest income subsequent to May,
1996.
Cash flow provided by operations during the nine months, were offset by
additional investments in office facilities and computer equipment. These
investments assist the Company in providing enhanced services to its clients.
The net decrease in cash was funded by the remaining balance of the net proceeds
from the sale of the Company's stock in May, 1996. Such balance, approximately
$5.3 million, will be used for working capital and other general corporate
purposes, including the acquisitions completed in September, 1997.
5
1
US DOLLAR
9-MOS
DEC-31-1997
JAN-01-1997
SEP-30-1997
1.000
6,429
0
13,421
822
333
20,371
12,899
7,114
31,682
10,298
0
0
0
45
19,929
31,682
29,686
29,686
15,753
25,875
0
0
119
3,953
1,631
2,322
0
0
0
2,322
0.50
0.49
