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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
OR
o 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 0-27412
COTELLIGENT, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-3173918
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
44 MONTGOMERY STREET, SUITE 4050
SAN FRANCISCO, CALIFORNIA 94104
(Address of principal executive offices) (Zip Code)
(415) 439-6400
(Registrant's telephone number, including area code)
101 CALIFORNIA STREET, SUITE 2050
SAN FRANCISCO, CALIFORNIA 94111
(Former name, former address and former fiscal year, if changed
since last report)
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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At May 10, 2001, there were 15,347,942 shares of common stock outstanding.
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1
COTELLIGENT, INC.
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS PAGE
----
Cotelligent, Inc.
Consolidated Balance Sheets at March 31, 2001 (Unaudited) and
December 31, 2000 3
Consolidated Statements of Operations for the Three Months Ended
March 31, 2001 and 2000 (Unaudited) 4
Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 2001 and 2000 (Unaudited) 5
Notes to Consolidated Financial Statements (Unaudited) 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 9
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 11
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 12
SIGNATURES 13
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COTELLIGENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
MARCH 31, DECEMBER 31,
2001 2000
----------------------- ---------------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents................................... $ 26,600 $ 26,500
Accounts receivable, including unbilled accounts of $3,520
and $4,043 and net of allowance for doubtful
accounts of $2,455 and $2,615, respectively....... 12,657 19,229
Deferred income taxes..................................... 1,435 1,435
Notes receivable from officers and related party............ 1,708 1,703
Prepaid expenses and other current assets................... 2,605 1,916
-------- ---------
Total current assets..................................... 45,005 50,783
Property and equipment, net................................... 6,246 6,761
Note receivable from acquirer of discontinued operation....... 4,459 4,459
Investment.................................................... 2,086 2,047
Other assets.................................................. 416 664
-------- ---------
Total assets............................................. $ 58,212 $ 64,714
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt and current maturities of long-term debt.... $ 227 $ 212
Accounts payable............................................ 1,962 2,047
Accrued compensation and related payroll liabilities........ 4,788 5,826
Income taxes payable........................................ 749 748
Obligations related to acquired/sold businesses........... 3,508 3,125
Restructuring liabilities................................. 1,031 2,136
Other accrued liabilities................................... 2,595 3,182
-------- --------
Total current liabilities................................ 14,860 17,276
Long-term debt................................................ 1,000 1,000
Deferred tax liabilities...................................... 1,435 1,435
Other liabilities............................................. 37 -
-------- --------
Total liabilities........................................ 17,332 19,711
-------- --------
Stockholders' equity:
Preferred Stock, $0.01 par value; 500,000 shares
authorized, no shares issued or outstanding................ - -
Common Stock, $0.01 par value; 100,000,000 shares
authorized, 15,347,942 and 15,349,630 shares issued and
outstanding, respectively.................................. 153 153
Additional paid-in capital.................................. 86,839 86,866
Notes receivable from stockholders.......................... (6,193) (6,368)
Retained earnings........................................... (39,919) (35,648)
-------- --------
Total stockholders' equity............................... 40,880 45,003
-------- --------
Total liabilities and stockholders' equity............... $ 58,212 $ 64,714
======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
3
COTELLIGENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share data)
(Unaudited)
THREE MONTHS ENDED MARCH 31,
-------------------------------------------
2001 2000
------------- ---------
Revenues.............................................................. $ 16,022 $ 27,300
Cost of services...................................................... 11,282 18,737
----------- -----------
Gross profit.......................................................... 4,740 8,563
Selling, general and administrative expenses.......................... 8,859 11,486
Depreciation and amortization......................................... 676 853
----------- -----------
Operating loss........................................................ (4,795) (3,776)
Other income(expense):
Interest expense.................................................... (1) (1,387)
Interest income..................................................... 485 107
Other............................................................... 46 (2)
----------- -----------
Total other income (expense).......................................... 530 (1,282)
----------- -----------
Loss from continuing operations before income Taxes.................. (4,265) (5,058)
Income tax benefit.................................................... - 1,770
----------- -----------
Loss from continuing operations....................................... (4,265) (3,288)
Operating income (loss) from discontinued operations net of income
taxes................................................................ (6) 2,244
----------- -----------
Net loss.............................................................. $ (4,271) $ (1,044)
=========== ===========
Basic and diluted earnings per share:
Loss from continuing operations..................................... $ (0.28) $ (0.22)
Income from discontinued operations................................. - 0.15
----------- -----------
Net loss.............................................................. $ (0.28) $ (0.07)
=========== ===========
Basic and diluted weighted average number of shares
outstanding......................................................... 15,349,060 15,001,429
The accompanying notes are an integral part of these
consolidated financial statements.
4
COTELLIGENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
THREE MONTHS ENDED MARCH 31,
-----------------------------------------
2001 2000
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Cash flows from operating activities:
Net loss...................................................... $(4,271) $(1,044)
Adjustments to reconcile net loss to net cash
used for operating activities:
Operating (income) loss from discontinued operations....... 6 (2,244)
Equity income from investments............................. (39) -
Depreciation and amortization.............................. 676 853
Deferred income taxes, net................................. - 8,153
Provision for doubtful accounts............................ 676 377
Changes in current assets and liabilities:
Accounts receivable, net................................. 5,896 (5,956)
Prepaid expenses and other current assets................ (446) 531
Accounts payable and accrued expenses.................... (2,778) (5,206)
Income taxes payable..................................... 1 20
Changes in other assets.................................... - (19)
--------- ----------
Cash used for operating activities............................. (279) (4,535)
Cash flows used for investing activities:
Purchases of property and equipment............................ (161) (871)
--------- ----------
Cash used for investing activities............................. (161) (871)
Cash flows provided by financing activities:
Borrowing under Credit Agreement............................... - 599
Borrowing (payments) on capital lease obligations.............. 15 (4)
Net proceeds on issuance of stock.............................. 148 460
Repurchase of common stock..................................... - (242)
--------- ----------
Cash provided by financing activities.......................... 163 813
Cash flows provided by discontinued operations:
Cash provided by discontinued operations....................... 377 7,712
--------- ----------
Net increase in cash........................................... 100 3,119
Cash at beginning of period.................................... 26,500 1,675
Cash at end of period.......................................... $ 26,600 $ 4,794
========= ==========
Supplemental disclosures of cash flow information:
Interest paid.................................................. $ 1 $ 1,157
Income taxes paid (refunded)................................... $ 20 $ (1,503)
Return of shares previously issued to acquire business......... $ - $ 2,695
Adjustment to purchase price of business acquired in prior
year........................................................... $ - $ 8,386
Fair value of Common Stock issued to employees for notes
receivable..................................................... $ - $ 852
The accompanying notes are an integral part of these consolidated financial
statements.
5
COTELLIGENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands)
(Unaudited)
NOTE 1 - BUSINESS ORGANIZATION AND BASIS OF PRESENTATION
Cotelligent, Inc. ("Cotelligent" or the "Company"), a Delaware corporation, was
formed to acquire, own and operate software consulting businesses specializing
in providing information technology ("IT") consultants on a contract basis and
consulting and outsourcing services to businesses with complex IT operations.
The Company has acquired 22 IT consulting businesses. These financial statements
include the accounts of Cotelligent, Inc. and its subsidiaries.
In July 2000, the Company changed its fiscal year end to December 31 from March
31. Consequently, the three months ended March 31, 2001 is the first quarter of
the 2001 fiscal year.
During the fiscal year ended March 31, 2000, the Company was organized in two
practice groups, Technology Solutions and Professional Services (also known as
its IT staff augmentation business), and operated across the United States along
with international consultant recruiting offices in Brazil and the Philippines.
Prior to March 31, 2000, the Company entered into a plan to divest its IT staff
augmentation business. Accordingly, the accompanying consolidated financial
statements and related footnotes have been prepared to present as discontinued
operations the Company's IT staff augmentation business for all periods
presented.
The Company has suffered significant operating losses as well as negative
operating cash flows in the last two fiscal periods as it works through its
repositioning in the market, and continues to be subject to certain risks common
to companies in this industry. These uncertainties include the availability of
financing, the retention of and dependence on key individuals, the affects of
intense competition, the ability to develop and successfully market new product
and service offerings, and the ability to streamline operations and increase
revenues. There can be no assurance the Company will be profitable in the
future.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying interim financial statements do not include all disclosures
included in the financial statements in Cotelligent's Annual Report on Form 10-K
for the year ended December 31, 2000 ("Form 10-K"), and therefore these
financial statements should be read in conjunction with the financial statements
included on Form 10-K.
In the opinion of management, the interim financial statements filed as part of
this Quarterly Report on Form 10-Q reflect all adjustments necessary for a fair
presentation of the financial position and the results of operations and of cash
flows for the interim periods presented. Certain balances of the prior year
have been reclassified to conform to the current presentation.
NOTE 3 - CHANGES IN STOCKHOLDERS' EQUITY
NOTES
COMMON STOCK ADDITIONAL RECEIVABLE TOTAL
------------------------- PAID-IN FROM RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL STOCKHOLDERS EARNINGS EQUITY
------------ ---------- --------- ------------- --------- -------------
Balance at December 31, 2000.. 15,349,630 $153 $86,866 $(6,368) $(35,648) $45,003
Issuance of Common Stock...... 48,312 1 147 - - 148
Cancellation of LSPP Note..... (50,000) (1) (174) 175 - -
Net income.................... - - - - (4,271) (4,271)
------------ ---------- --------- ------------- --------- ------------
Balance at March 31, 2001..... 15,347,942 $153 $86,839 $(6,193) $(39,919) $40,880
============ ========== ========= ============= ========= ============
6
COTELLIGENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands)
(Unaudited)
NOTE 4 - DISCONTINUED OPERATIONS
In accordance with Accounting Principles Board Opinion No. 30, the following
financial data reflects a summary of operating results for the Company's
discontinued operations for the three months ended March 31, 2001 and 2000.
SUMMARY OF OPERATING RESULTS OF DISCONTINUED OPERATIONS:
THREE MONTHS ENDED
------------------------
MARCH 31, MARCH 31,
2001 2000
---------- ----------
Revenues................................................... $1,858 $55,963
Cost of services........................................... 1,453 40,928
---------- ----------
Gross profit......................................... 405 15,035
Selling, general and administrative expenses............... 411 10,679
Depreciation and amortization of goodwill.................. - 877
---------- ----------
Operating income (loss)............................. (6) 3,479
Other expense.............................................. - (27)
---------- ----------
Operating income (loss) before provision for taxes......... (6) 3,452
Provision for income taxes................................ - 1,208
---------- ----------
Operating income (loss) from discontinued operations....... $ (6) $ 2,244
========== ==========
On June 30, 2000, the Company sold the majority of its IT staff augmentation
business and on July 14, 2000 and October 31, 2000 sold other components of the
IT staff augmentation business. During the quarter ended March 31, 2001, the
Company continued to hold one remaining component of its IT staff augmentation
business. The Company anticipates that it will dispose of this remaining
component by the end of 2001 at a loss and consequently has written down the
value of the net assets, including goodwill of this discontinued business, to
zero during the nine month fiscal year ended December 31, 2000.
NOTE 5 - EARNINGS (LOSS) PER SHARE
Earnings (loss) per share were as follows:
FOR THE THREE MONTHS ENDED MARCH 31, 2001
-----------------------------------------
PER SHARE
INCOME (LOSS) SHARES AMOUNT
------------- ---------- ---------
Basic and diluted earnings (loss) per share-
Loss from continuing operations......................... $(4,265) 15,349,060 $(0.28)
Loss from discontinued operations....................... (6) 15,349,060 -
-------- -------
Net loss available to common stockholders............... $(4,271) 15,349,060 $(0.28)
FOR THE THREE MONTHS ENDED MARCH 31, 2000
-----------------------------------------
PER SHARE
INCOME (LOSS) SHARES AMOUNT
------------- ---------- ---------
Basic and diluted earnings (loss) per share-
Loss from continuing operations......................... $(3,288) 15,001,429 $(0.22)
Income from discontinued operations..................... 2,244 15,001,429 0.15
-------- -------
Net loss available to common stockholders............... $(1,044) 15,001,429 $(0.07)
7
COTELLIGENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands)
(Unaudited)
NOTE 6 - RESTRUCTURING PROGRAMS
In June 1999, as part of the Company's reorganization into practice groups, the
Company identified opportunities to align its operating structure by closing
certain of its redundant facilities and rationalizing headcount to conform to
the Company's new operating structure. Accordingly, the Company adopted a
restructuring plan, which resulted in a pre-tax restructuring charge of $4,920.
The charge included provisions for severance of approximately 60 management and
operating staff ($3,510) as well as closure costs related to a plan of
consolidating certain operating locations ($1,410). The change was originally
recorded as an operating expense in June 1999. Upon the Company's decision to
discontinue its IT staff augmentation segment the amount was reclassified to
discontinued operations, as all charges related to severance or other activities
of the discontinued operations.
In December 2000, as part of the Company's efforts to streamline its operations
commensurate with its revenue base, the Company identified opportunities to
reduce its cost structure by reducing headcount and closing certain operating
facilities to conform to the Company's new operating structure. Accordingly, the
Company adopted a restructuring plan in accordance with Staff Accounting
Bulletin No. 100, "Restructuring and Impairment Charges", which resulted in a
pre-tax restructuring charge of $4,200 during the nine months ended December 31,
2000. The charge includes provisions for severance of approximately 90
management and operating staff ($1,100) as well as closure costs associated with
a plan to consolidate or dispose of certain locations including the write-down
of associated property and equipment ($3,100).
The following summarizes the activity and balances in each restructuring program
for the three months ended March 31, 2001:
JUNE 1999 DECEMBER 2000
RESTRUCTURING PROGRAM RESTRUCTURING PROGRAM TOTAL
---------------------- ---------------------- -----
FACILITIES FACILITIES
SEVERANCE CLOSURE SEVERANCE CLOSURE
---------- --------- --------- ----------
Balance, December 31, 2000 $ 57 $179 $ 900 $1,000 2,136
Spending and write-downs......... (57) - (584) (464) (1,105)
------- -------- -------- -------- -------
Balance, March 31, 2001.......... $ - $179 $ 316 $ 536 $ 1,031
======= ======== ======== ======== =======
NOTE 7 - INCOME TAXES
The Company did not record an income tax benefit for the three months ended
March 31, 2001 due to the uncertainty of its realization. Management will
continue to assess the adequacy of and the need for a valuation allowance and to
the extent it is determined that such allowance is no longer required, the tax
benefit will be recognized in the future.
NOTE 8 - SUBSEQUENT EVENT
On May 3, 2001, the Company announced its plan to repurchase up to 15% of its
outstanding shares of common stock. The purchases will be made in the open
market or in privately negotiated transactions, depending on market conditions
and other factors. The New York Stock Exchange requires that the Company
maintain an average closing price, calculated over a 30 consecutive trading day
period, of at least $1 per share. The primary reason the Company is undertaking
its share repurchase program is to meet this requirement. It is difficult for
the Company to predict how many shares it may decide to purchase in order to
meet this requirement.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Except for statements of historical fact contained herein, any statements
contained in this report may be deemed to be 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. For example,
words such as "may," "will," "should," "estimates," "predicts," "potential,"
"continue," "strategy," "believes," "anticipates," "plans," "expects," "intends"
and similar expressions are intended to identify forward-looking statements.
All such forward-looking statements are based upon current expectations that
involve risks and uncertainties. Cotelligent's actual results and the timing of
certain events may differ significantly from the results discussed in the
forward-looking statements. Factors that might cause or contribute to such a
discrepancy include, but are not limited to, those discussed under "Risk
Factors" in Cotelligent's Annual Report on Form 10-K for the fiscal year ended
December 31, 2000, other filings made with the Securities and Exchange
Commission and Cotelligent's press release announcing earnings for the quarter
ended March 31, 2001, which was issued on April 24, 2001. The following
discussion is qualified in its entirety by, and should be read in conjunction
with, the more detailed information set forth in our financial statements and
the notes thereto included elsewhere in this filing. All forward-looking
statements included in this report are based upon information available to
Cotelligent as of the date thereof, and Cotelligent assumes no obligation to
update any of such forward-looking statements.
OVERVIEW
Cotelligent was formed in February 1993 to acquire, own and operate IT
consulting services businesses. The Company historically operated on an April 1
to March 31 fiscal year. In July 2000, the Company changed its fiscal year end
to December 31. Consequently, the Company's most recently completed fiscal
period is a nine-month transition period ended December 31, 2000. The three
months ended March 31, 2001 is the first quarter of the 2001 fiscal year.
Prior to March 31, 2000, the Company entered into a plan to divest its IT staff
augmentation business. Accordingly, the financial statements of Cotelligent has
been restated to present as discontinued operations the Company's IT staff
augmentation business for all periods presented.
The Company derives substantially all of its revenues from IT consulting and
outsourcing service activities. The majority of these activities are provided
under time and materials billing arrangements, and revenues are recorded as work
is performed. Revenues are directly related to the total number of hours billed
to clients and the associated hourly billing rates. Hourly billing rates are
established for each service provided and are a function of the type of work
performed and the related skill level of the consultant. In addition, the
Company is designing and marketing client server-based, web-enabled mobile
management software for industries that have medium to large transient sales,
field or delivery personnel. Revenues are directly related to the total number
of users of the software and is recognized over the period in which the software
is licensed to the client.
The Company's principal costs are professional compensation directly related to
the performance of services and related expenses. Gross profits (revenues after
professional compensation and related expenses) are primarily a function of
hours billed to clients per professional employee or consultant, hourly billing
rates of those employees or consultants and employee or consultant compensation
relative to those billing rates. Gross profits can be adversely impacted if
services provided cannot be billed, if the Company is not effective in managing
its service activities, if fixed-fee engagements are not properly priced, if
consultant cost increases exceed bill rate increases or if there are high levels
of un-utilized time (work activities not chargeable to clients or unrelated to
client services) of full-time salaried service professional employees.
Operating income (gross profit less selling, general and administrative
expenses) can be adversely impacted by increased administrative staff
compensation and expenses related to streamlining or expanding the Company's
business, which may be incurred before revenues or economies of scale are
generated from such investment. Historically, a majority of the Company's
revenues were generated from IT staff augmentation activities. Following the
disposition of the IT staff augmentation business, the majority of the Company's
revenues has been generated by solutions activities, which require a higher
level of selling, general and administrative infrastructure to generate
revenues, including research and development related to mobility solutions.
As a service organization, the Company responds to service demands from its
clients. Accordingly, the Company has limited control over the timing and
circumstances under which its services are provided. Therefore, the Company can
experience volatility in its operating results from quarter to quarter. The
operating results for any quarter are not necessarily indicative of the results
for any future period.
9
CONSOLIDATED RESULTS OF OPERATIONS
(In Thousands)
THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THREE MONTHS ENDED MARCH 31, 2000
REVENUES
Revenues decreased $11,278, or 41%, to $16,022 in the three months ended March
31, 2001 from $27,300 in the three months ended March 31, 2000. The decrease
was due to a re-organization of the Company's sales force resulting in
significant turnover of sales people and, therefore, associated ramp up time
with the new evolving sales force. In addition, the Company experienced a
general reduction in demand for its services due a softening in the market,
coupled with the discontinuation of three operating locations subsequent to
March 31, 2000 and prior to January 1, 2001.
GROSS PROFIT
Gross profit decreased $3,823, or 45%, to $4,740 in the three months ended March
31, 2001 from $8,563 in the three months ended March 31, 2000. The decrease
was due to lower revenues following a re-organization of the Company's sales
force and the associated ramp up time with the new evolving sales force, as well
as a general reduction in demand for the Company's services due to a softening
in the market, coupled with the discontinuation of three operating locations.
The gross profit margin decreased to 30% from 31%, due to a drop in utilization
of salaried employees and a change in the mix of services delivered, offset by a
7% increase in the average billing rate.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses decreased $2,627, or 23%, to $8,859
in the three months ended March 31, 2001 from $11,486 in the three months ended
March 31, 2000. The decrease was primarily due to the closure of three
operating locations subsequent to March 31, 2000 and prior to January 1, 2001, a
reduction in operating staff following the divestiture of the majority of the IT
staff augmentation business, as well as the effects of a reduction-in-force
announced on December 20, 2000. These reductions were partially offset by
recruiting costs and employee wages paid to newly hired sales people.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization decreased $177, or 21%, to $676 in the three
months ended March 31, 2001 from $853 in the three months ended March 31, 2000.
The decrease was due to the elimination of amortization related to goodwill
following the complete write-off of goodwill in the quarter ended December 31,
2000, offset by increased depreciation on new technology equipment.
OTHER INCOME (EXPENSE)
Other income (expense) primarily consists of net interest income (expense). Net
interest income was $484 for the three months ended March 31, 2001 compared to
net interest expense of $1,280 for the three months ended March 31, 2000. This
change was due to the elimination of all obligations due under the Company's
Credit Agreement and an earn-out agreement resulting from the Company's sale of
the majority of the IT staff augmentation business on June 30, 2000 which
reduced interest expense. The Company also earned additional interest income on
the cash proceeds received from the sale on June 30, 2000 of the majority of its
IT staff augmentation business during the three months ended March 31, 2001.
BENEFIT FOR INCOME TAXES
The Company did not record an income tax benefit for the three months ended
March 31, 2001 due to the uncertainty of its realization. For the quarter ended
March 31, 2000, the Company recorded an income tax benefit of $1,770 because the
operating losses of that period were available for carry back against taxable
income of prior years.
INCOME (LOSS) FROM DISCONTINUED OPERATIONS
Discontinued operations is comprised of the Company's IT staff augmentation
business. The loss from discontinued operations of $6 for the three months
ended March 31, 2001, compares to income of $2,244 for the three months ended
March 31, 2000. The decrease in income from discontinued operations is the
result of the sale of the majority of the discontinued operations on June 30,
2000.
10
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed itself principally through cash flows from operations,
periodic borrowing under its credit facilities, net proceeds from its public
offerings and net proceeds from the sale of its IT staff augmentation business.
Most recently, the Company maintained a credit facility with a consortium of
banks under which it borrowed to fund working capital needs. On June 30, 2000,
the Company used a portion of the cash proceeds from the sale of its IT staff
augmentation business to pay off all obligations under the credit facility and
to pay existing earn-out obligations to sellers of an acquired business. Upon
settlement of all obligations under the credit facility, the credit facility was
terminated. During the quarter ended March 31, 2001, the Company maintained no
credit facility.
Cash used for operating activities was $279 for the three months ended March 31,
2001 and the average cash balance during the quarter was $26,500. Historically,
the Company's primary sources of liquidity have been the collection of accounts
receivable and borrowings under the credit facility. Total receivables were 71
days of quarterly revenues at March 31, 2001 and 82 days at December 31, 2000.
With the termination of its borrowing arrangements under the Credit Agreement,
the Company's primary sources of liquidity going forward will be its existing
cash balances, the collection of accounts receivable, and any cash resulting
from the sales of the components of the remaining discontinued IT staff
augmentation business. The Company believes that the remaining cash from the
consummated divestiture transactions, additional proceeds from the potential
sale of the remainder of its discontinued IT staff augmentation business and any
funds generated from operations will provide adequate cash to fund its
anticipated cash working capital needs at least through the next twelve months.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Cotelligent has invested its existing cash in highly liquid money market
accounts and does not use derivative financial instruments, derivative commodity
instruments or other market risk sensitive instruments, positions or
transactions. Accordingly, the Company believes that it is not subject to any
material risks arising from changes in interest rates, foreign currency exchange
rates, commodity prices, equity prices or other market changes that affect
market risk sensitive instruments. Cotelligent's policy is to invest its cash
in a manner that provides Cotelligent with the appropriate level of liquidity to
enable the Company to meet its current obligations, primarily accounts payable,
capital expenditures and payroll, recognizing that the Company does not
currently have outside bank funding available.
11
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
The following reports on Form 8-K were filed during the quarter ended
March 31, 2001.
Cotelligent, Inc. filed with the Securities and Exchange Commission on
January 3, 2001, Form 8-K regarding the termination of a joint venture
between Cotelligent, Inc. and bSmart.to Technologies, Inc.
12
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.
COTELLIGENT, INC.
DATE: MAY 14, 2001 /S/ CURTIS J. PARKER
------------ ---------------------
Curtis J. Parker
Executive Vice President,
Chief Financial Officer and Treasurer
13