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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 2006
Commission File Number: 0-16284
TECHTEAM GLOBAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 38-2774613
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
27335 WEST 11 MILE ROAD, SOUTHFIELD, MI 48034
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (248) 357-2866
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 a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):
Large accelerated filer [ ] Accelerated filer [X] Non-accelerated filer [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
The number of shares of the registrant's common stock outstanding at May 1, 2006
was 10,112,939.
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TECHTEAM GLOBAL, INC.
FORM 10-Q
TABLE OF CONTENTS
PAGE
NUMBER
------
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements 3
Condensed Consolidated Statements of Operations --
Three Months Ended March 31, 2006 and 2005 3
Condensed Consolidated Balance Sheets --
As of March 31, 2006 and December 31, 2005 4
Condensed Consolidated Statements of Cash Flows --
Three Months Ended March 31, 2006 and 2005 6
Notes to Condensed Consolidated Financial Statements 7
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 18
Item 3 Quantitative and Qualitative Disclosures About Market Risk 26
Item 4 Controls and Procedures 26
PART II - OTHER INFORMATION
Item 1 Legal Proceedings 27
Item 1A Risk Factors 28
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds 28
Item 6 Exhibits 28
SIGNATURES 29
2
PART 1 -- FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
TECHTEAM GLOBAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except share and per share data)
THREE MONTHS
ENDED MARCH 31,
-----------------
2006 2005
------- -------
REVENUE
IT outsourcing services ......................................... $19,097 $19,099
Government technology services .................................. 11,785 14,962
IT consulting and systems integration ........................... 7,203 5,852
Technical staffing .............................................. 2,195 2,015
Learning services ............................................... 318 110
------- -------
TOTAL REVENUE ...................................................... 40,598 42,038
------- -------
COST OF REVENUE
Cost of revenue ................................................. 29,978 31,330
Asset impairment loss ........................................... 580 --
------- -------
TOTAL COST OF REVENUE .............................................. 30,558 31,330
------- -------
GROSS PROFIT ....................................................... 10,040 10,708
Selling, general, and administrative expense .................... 9,704 8,290
------- -------
OPERATING INCOME ................................................... 336 2,418
Interest income, net ............................................ 146 83
Foreign currency transaction gain (loss) ........................ 7 (24)
------- -------
INCOME BEFORE INCOME TAXES ......................................... 489 2,477
Income tax provision ............................................ 152 782
------- -------
INCOME FROM CONTINUING OPERATIONS .................................. 337 1,695
Income from discontinued operations, net of tax of $29 in 2005 .. -- 55
------- -------
NET INCOME ......................................................... $ 337 $ 1,750
======= =======
BASIC EARNINGS PER COMMON SHARE
Income from continuing operations ............................... $ 0.03 $ 0.18
Income from discontinued operations ............................. -- 0.01
------- -------
Total basic earnings per common share ........................... $ 0.03 $ 0.18
======= =======
BASIC EARNINGS PER PREFERRED SHARE
Income from continuing operations ............................... N/A $ 0.18
Income from discontinued operations ............................. N/A 0.01
------- -------
Total basic earnings per preferred share ........................ N/A $ 0.18
======= =======
DILUTED EARNINGS PER COMMON SHARE
Income from continuing operations ............................... $ 0.03 $ 0.17
Income from discontinued operations ............................. -- 0.01
------- -------
Total diluted earnings per common share ......................... $ 0.03 $ 0.18
======= =======
WEIGHTED AVERAGE NUMBER OF COMMON SHARES AND COMMON SHARE
EQUIVALENTS OUTSTANDING
Basic - common .................................................. 9,902 8,785
Basic - preferred ............................................... -- 690
Diluted - common ................................................ 10,127 9,105
See accompanying notes.
3
TECHTEAM GLOBAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
MARCH 31, DECEMBER 31,
2006 2005
----------- ------------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents ...................................... $ 27,215 $ 34,756
Accounts receivable (less allowance of $799 at March 31, 2006
and $757 at December 31, 2005) .............................. 41,892 43,696
Prepaid expenses and other ..................................... 3,039 2,467
Deferred income taxes .......................................... 142 141
Net current assets of discontinued operations .................. 92 130
-------- --------
TOTAL CURRENT ASSETS ........................................... 72,380 81,190
-------- --------
PROPERTY, EQUIPMENT, AND PURCHASED SOFTWARE
Computer equipment and office furniture ........................ 24,511 23,577
Purchased software ............................................. 12,602 12,885
Leasehold improvements ......................................... 5,205 5,047
Transportation equipment ....................................... 436 425
-------- --------
42,754 41,934
Less -- accumulated depreciation and amortization .............. (34,517) (33,871)
-------- --------
NET PROPERTY, EQUIPMENT, AND PURCHASED SOFTWARE ................ 8,237 8,063
-------- --------
OTHER ASSETS
Goodwill ....................................................... 22,100 22,104
Intangible assets, net ......................................... 10,710 11,213
Other .......................................................... 441 440
-------- --------
TOTAL OTHER ASSETS ............................................. 33,251 33,757
-------- --------
TOTAL ASSETS ...................................................... $113,868 $123,010
======== ========
See accompanying notes.
4
TECHTEAM GLOBAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
(In thousands, except share amounts)
MARCH 31, DECEMBER 31,
2006 2005
----------- ------------
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable .................................................... $ 6,951 $ 12,753
Accrued payroll and related taxes and withholdings .................. 7,886 10,020
Accrued expenses .................................................... 7,093 7,248
Accrued income taxes ................................................ -- 331
Deferred revenue .................................................... 261 303
-------- --------
TOTAL CURRENT LIABILITIES ........................................... 22,191 30,655
-------- --------
LONG-TERM LIABILITIES
Long-term debt ...................................................... 8,999 10,937
Deferred income taxes ............................................... 2,315 2,614
Other long-term liabilities ......................................... 529 564
-------- --------
TOTAL LONG-TERM LIABILITIES ......................................... 11,843 14,115
-------- --------
SHAREHOLDERS' EQUITY
Preferred stock, $0.01 par value, 4,310,344 shares authorized, none
issued and outstanding at March 31, 2006 and December 31, 2005 ... -- --
Common stock, $0.01 par value, 45,000,000 shares authorized,
10,092,937 and 9,943,262 shares issued and outstanding at
March 31, 2006 and December 31, 2005, respectively ............... 101 99
Additional paid-in capital .......................................... 69,122 69,148
Unamortized deferred compensation ................................... -- (866)
Retained earnings ................................................... 10,598 10,261
Accumulated other comprehensive income (loss) ....................... 13 (402)
-------- --------
TOTAL SHAREHOLDERS' EQUITY .......................................... 79,834 78,240
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ............................. $113,868 $123,010
======== ========
See accompanying notes.
5
TECHTEAM GLOBAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
THREE MONTHS ENDED
MARCH 31,
-------------------
2006 2005
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income .............................................................. $ 337 $ 1,750
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization ..................................... 1,219 1,470
Asset impairment loss.............................................. 580 --
Non-cash expense related to stock options, restricted stock awards,
and common stock issued to 401(k) plan and directors ........... 243 76
Other ............................................................. 39 (85)
Changes in current assets and liabilities ......................... (7,002) 2,151
Changes in long-term assets and liabilities ....................... (36) 315
Income from discontinued operations ............................... -- (55)
Net operating cash flow from discontinued operations .............. 36 35
------- --------
Net cash provided by (used in) operating activities .................. (4,584) 5,657
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, equipment, and software ........................... (1,307) (809)
Cash paid for acquisitions, net of cash acquired ........................ (468) (21,260)
------- --------
Net cash used in investing activities ................................ (1,775) (22,069)
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock .................................. 560 227
Tax benefit from exercise of stock options .............................. 96 --
Payments on long-term debt .............................................. (1,938) (1,299)
Proceeds from issuance of long-term debt ................................ -- 15,000
Net financing cash flow from discontinued operations .................... -- (11)
------- --------
Net cash provided by (used in) financing activities .................. (1,282) 13,917
------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS ............... 100 (485)
------- --------
DECREASE IN CASH AND CASH EQUIVALENTS ...................................... (7,541) (2,980)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ........................... 34,756 40,436
------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ................................. $27,215 $ 37,456
======= ========
See accompanying notes.
6
TECHTEAM GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared by TechTeam Global, Inc. ("TechTeam" or the "Company" or "we") in
accordance with United States generally accepted accounting principles for
interim financial information and the instructions to Form 10-Q and Article 10
of Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by United States generally accepted accounting principles for
complete financial statements. In the opinion of management, all adjustments
considered necessary for a fair presentation have been included, and such
adjustments are of a normal recurring nature. Operating results for the three
months ended March 31, 2006 are not necessarily indicative of the results that
may be expected for the year ending December 31, 2006. For further information,
refer to the consolidated financial statements and footnotes thereto included in
the Company's Annual Report on Form 10-K for the year ended December 31, 2005.
NOTE 2 -- COMPREHENSIVE INCOME
Comprehensive income consists of net income and foreign currency translation
adjustments. A summary of comprehensive income is as follows:
THREE MONTHS
ENDED
MARCH 31,
--------------
2006 2005
---- -------
(In thousands)
COMPREHENSIVE INCOME
Net income................................... $337 $ 1,750
Other comprehensive income (loss) --
Foreign currency translation adjustment... 415 (1,067)
---- -------
Comprehensive income......................... $752 $ 683
==== =======
NOTE 3 -- EARNINGS PER SHARE
Earnings per share is computed using the two-class method as required by
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share." The two-class method is an earnings allocation formula that determines
earnings per share separately for common stock and participating securities
according to dividends declared (or accumulated) and participation rights in
undistributed earnings. The Company's redeemable convertible preferred stock,
outstanding between April 2003 and May 2005, was a participating security under
SFAS 128. The redeemable convertible preferred stock had rights to undistributed
earnings, but was not required to participate in net losses of the Company. In
May 2005 through a series of transactions, the holder of the Company's preferred
stock converted all 689,656 shares of preferred stock into an equal number of
shares of unregistered Company common stock and sold those shares in the open
market pursuant to rules and regulations of the United States Securities and
Exchange Commission.
Earnings per share for common stock is computed using the weighted average
number of common shares and common share equivalents outstanding. Common share
equivalents consist of stock options, unvested restricted stock issued to
employees, and shares held in escrow in connection with the Company's
acquisition of TechTeam Akela SRL. Earnings per share for preferred stock is
computed using the weighted average number of preferred shares outstanding.
Earnings are allocated to each class of stock pro rata based on the weighted
average number of shares and share equivalents outstanding for each class of
stock.
7
TECHTEAM GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
NOTE 3 -- EARNINGS PER SHARE (continued)
During the three months ended March 31, 2006 and 2005, 279,000 and 64,000 stock
options, respectively, were excluded from the computation of diluted earnings
per common share because the exercise prices of the options were higher than the
average market price of the Company's common stock for the respective period.
The following table reconciles the numerators and denominators of the basic and
diluted earnings per common share computations for income from continuing
operations:
THREE MONTHS ENDED MARCH 31,
----------------------------
2006 2005
------- ------
(In thousands, except per
share data)
Income from continuing operations ................... $ 337 $1,695
Less - Income from continuing operations allocated to
preferred shareholders ........................... -- 119
------- ------
Income from continuing operations available to common
shareholders ..................................... $ 337 $1,576
======= ======
Basic weighted average common shares ................ 9,902 8,785
Common share equivalents ............................ 225 320
------- ------
Diluted weighted average common shares .............. 10,127 9,105
======= ======
Weighted average preferred shares ................... -- 690
======= ======
Earnings per share from continuing operations:
Basic earnings per common share .................. $ 0.03 $ 0.18
Basic earnings per preferred share ............... N/A $ 0.18
Diluted earnings per common share ................ $ 0.03 $ 0.17
NOTE 4 -- PROPERTY, EQUIPMENT, AND PURCHASED SOFTWARE
We continually evaluate whether events and circumstances have occurred that
indicate the remaining estimated useful lives of long-lived assets may warrant
revision or that the remaining balances may not be recoverable. When factors
indicate that such costs should be evaluated for possible impairment, we
estimate the undiscounted cash flows of the long-lived assets over their
remaining lives to evaluate whether the costs are recoverable. In the first
quarter of 2006, we determined that certain software would no longer be used.
Since we expect no future cash flows related to the software asset, we recorded
an impairment loss of $580,000 to cost of revenue in our IT outsourcing services
segment, which represented the net book value of the asset. We did not record an
impairment loss in any other period presented.
8
TECHTEAM GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
NOTE 5 -- GOODWILL AND OTHER INTANGIBLE ASSETS
Changes in the carrying amount of goodwill since December 31, 2005 consist of
the following:
IT GOVERNMENT IT CONSULTING
OUTSOURCING TECHNOLOGY AND SYSTEMS
SERVICES SERVICES INTEGRATION TOTAL
----------- ---------- ------------- -------
(In thousands)
Balance as of January 1, 2006 ....... $371 $19,670 $2,063 $22,104
Goodwill acquired (recovered) .... -- -- (14) (14)
Effect of exchange rate changes .. -- -- 10 10
---- ------- ------ -------
Balance as of March 31, 2006 ........ $371 $19,670 $2,059 $22,100
==== ======= ====== =======
Goodwill is not amortized, but instead is subject to an annual impairment test
on October 1 or whenever significant events or changes occur that might indicate
impairment of recorded costs. In connection with the Company's goodwill
impairment evaluation, the Company identifies its reporting units and determines
the carrying value of each reporting unit by assigning the assets and
liabilities, including the existing goodwill and intangible assets, to these
reporting units. The Company determines the estimated fair value of each
reporting unit and compares it to the carrying amount of the reporting unit. We
did not record an impairment loss in any period presented.
In the future, to the extent the carrying amount of a reporting unit's goodwill
exceeds the fair value of a reporting unit, an indication would exist that a
reporting unit's goodwill may be impaired, and the Company would be required to
perform the second step of the impairment test. In the second step, the Company
must compare the implied fair value of the reporting unit goodwill with the
carrying amount of the reporting unit goodwill. The implied fair value of
goodwill is determined by allocating the fair value of the reporting unit to all
of the assets (recognized and unrecognized) and liabilities of the reporting
unit in a manner similar to a purchase price allocation in an acquisition. The
residual fair value after this allocation is the implied fair value of the
reporting unit goodwill.
Other intangible assets consist of the following at March 31, 2006 and December
31, 2005:
MARCH 31, 2006 WEIGHTED DECEMBER 31, 2005 WEIGHTED
---------------------- AVERAGE ---------------------- AVERAGE
ACCUMULATED AMORTIZATION ACCUMULATED AMORTIZATION
COST AMORTIZATION PERIOD COST AMORTIZATION PERIOD
------- ------------ ------------ ------- ------------ ------------
(In thousands) (In thousands)
Customer-related assets .. $12,659 $2,865 7.8 years $12,644 $2,448 7.8 years
Noncompete agreement ..... 885 240 4.3 years 901 187 4.3 years
Trademark and name ....... 384 113 3.9 years 392 89 3.9 years
------- ------ ------- ------
$13,928 $3,218 $13,937 $2,724
======= ====== ======= ======
Intangible assets acquired in a business combination are recognized only if such
assets arise from a contractual or other legal right and are separable, that is,
capable of being sold, transferred, licensed, rented, or exchanged. Intangible
assets acquired in a business combination that do not meet these criteria are
considered a component of goodwill. The useful life of amortizable intangible
assets is determined based on the period from which we expect to realize cash
flows from these assets and considers, among other items, ability and cost to
renew contracts with similar terms and conditions and historical customer
retention rates.
9
TECHTEAM GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
NOTE 5 -- GOODWILL AND OTHER INTANGIBLE ASSETS (continued)
We re-evaluate amortizable intangible assets based on undiscounted operating
cash flows whenever significant events or changes occur that might indicate
impairment of recorded costs. If undiscounted cash flows are insufficient to
recover recorded costs, we write down the carrying value of the assets to fair
value based on discounted cash flows or market values. We did not record an
impairment loss for amortizable intangible assets in any period presented.
Our expected future amortization expense for intangible assets held at March 31,
2006 is as follows: $1,504,000 for the remainder of 2006, $1,914,000 in 2007,
$1,908,000 in 2008, $1,630,000 in 2009, and $1,483,000 in 2010.
NOTE 6 -- STOCK-BASED COMPENSATION
ADOPTION OF SFAS 123R
Effective January 1, 2006, the Company adopted the provisions of SFAS 123R,
"Share-Based Payment," which requires companies to measure and recognize
compensation expense for all share-based payment awards to employees and
directors based on estimated fair values of all awards. Compensation expense is
recognized over the period during which an employee or director is required to
provide service in exchange for the award. SFAS 123R supersedes the Company's
previous accounting methodology using the intrinsic value method under
Accounting Principles Board Opinion No. 25 ("APB 25"), "Accounting for Stock
Issued to Employees," and related interpretations. Under the intrinsic value
method, no share-based compensation expense had been recognized in the Company's
consolidated statements of operations for stock option awards with an exercise
price equal to or greater than the fair value of the underlying stock on the
date of grant.
The Company adopted SFAS 123R using the modified prospective transition method.
Under this transition method, stock-based compensation expense recognized after
the effective date includes: (1) compensation expense for all share-based awards
granted prior to, but not yet vested, as of December 31, 2005, based on the
grant-date fair value estimated in accordance with the original provisions of
SFAS 123, and (2) compensation cost for all share-based awards granted
subsequent to January 1, 2006, based on the grant-date fair value estimated in
accordance with the provisions of SFAS 123R. In accordance with the modified
prospective transition method, the Company's consolidated financial statements
from prior periods have not been restated and do not include the impact of SFAS
123R.
The company recorded pre-tax and after-tax amounts of $164,000 and $108,000,
respectively, for share-based compensation expense during the three months ended
March 31, 2006, as a result of adopting SFAS 123R. The corresponding impact on
basic and diluted earnings per share was $0.01 for the three months ended March
31, 2006.
Stock-based compensation expense recognized in each period is based on the value
of the portion of the share-based award that is ultimately expected to vest
during the period. SFAS 123R requires that forfeitures be estimated at the time
of the grant and revised, if necessary, in subsequent periods if actual
forfeitures differ from those estimates. In our pro forma disclosures required
under SFAS 123 for periods prior to 2006, we accounted for forfeitures as they
occurred.
On November 10, 2005 the Financial Accounting Standards Board ("FASB") issued
FASB Staff Position No. 123R-3, "Transition Election Related to Accounting for
Tax Effect of Share-Based Payment Awards." The Company has elected to adopt the
alternative transition method provided in the FASB Staff Position for
calculating the tax effect of share-based compensation pursuant to SFAS 123R.
The alternative transition method includes simplified methods to establish the
beginning balance of the additional paid-in capital pool ("APIC Pool") related
to the tax effect of employee share-based compensation, and to determine the
subsequent impact on the APIC Pool and consolidated statements of cash flows of
the tax effects of employee and director share-based awards that are outstanding
as of the adoption of SFAS 123R.
10
TECHTEAM GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
NOTE 6 -- STOCK-BASED COMPENSATION (continued)
STOCK OPTIONS
We have stock options outstanding under three plans -- the 2004 Incentive Stock
and Awards Plan ("2004 Plan"), the 1996 Non-Employee Directors Stock Plan ("1996
Plan"), and the 1990 Nonqualified Stock Option Plan ("1990 Plan"). As a result
of the adoption of the 2004 Plan, options may no longer be granted under the
1990 Plan. Furthermore, our ability to issue options under the 1996 Plan expired
on December 31, 2005.
Options outstanding under the 1990 Plan have expiration terms ranging from four
to six years and become exercisable ratably over periods ranging from three to
five years. Options outstanding under the 1996 Plan were granted with ten-year
terms and became exercisable immediately on the date of grant. Non-employee
directors of the Company received 100 shares of common stock for attendance at
each Board meeting and an annual award of 10,000 stock options under the 1996
Plan prior to its expiration on December 31, 2005.
Under the 2004 Plan, the Compensation Committee of the Board of Directors may
issue stock options, performance shares, and restricted stock to employees and
consultants representing up to 1,200,000 shares of our common stock. Stock
options may be granted with terms up to ten years and must have an exercise
price that is equal to or greater than the fair market value of our common stock
on the date of grant.
The company recorded $164,000 of compensation expense relating to outstanding
options during the three months ended March 31, 2006. No compensation expense
was recorded related to outstanding options during the three months ended March
31, 2005. As of March 31, 2006, total unrecognized compensation cost related to
stock options was $301,000, which we expect to recognize over a weighted-average
period of approximately 1.3 years.
The Company records compensation expense for employee stock options based on the
estimated fair value of the options on the date of grant using the Black-Scholes
option-pricing model. The Company uses historical data among other factors to
estimate the expected price volatility, the expected option term, and the
expected forfeiture rate. The risk-free rate is based on the U.S. Treasury yield
curve in effect at the date of grant for the expected term of the option. The
following assumptions were used to estimate the fair value of options granted
during the three months ended March 31, 2006 and 2005:
THREE MONTHS ENDED
MARCH 31,
---------------------
2006 2005
---------- --------
Expected dividend yield ...... 0.0% 0.0%
Weighted average volatility .. 42% 45%
Risk free interest rate ...... 4.4% - 4.7% 3.3%-3.8%
Expected term (in years) ..... 3.0 3.2
11
================================================================================
TECHTEAM GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
NOTE 6 -- STOCK-BASED COMPENSATION (continued)
The following table summarizes the Company's activities with respect to its
stock option plans as of and for the three months ended March 31, 2006:
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE REMAINING AGGREGATE
NUMBER OF PRICE PER CONTRACTUAL INTRINSIC
SHARES SHARE TERM VALUE
--------- --------- ----------- ----------
Outstanding at January 1, 2006 ............. 1,402,970 $ 9.41
Granted ................................. 135,000 $ 9.69
Exercised ............................... (82,003) $ 6.92
Canceled ................................ (31,000) $12.79
--------- ------
Outstanding at March 31, 2006 .............. 1,424,967 $ 9.50 7.3 Years $3,058,865
========= ====== ========= ==========
Vested and expected to vest in the future
at March 31, 2006 ....................... 1,409,967 $ 9.47 7.3 Years $2,972,205
========= ====== ========= ==========
Exercisable at March 31, 2006 .............. 1,296,967 $ 9.59 7.3 Years $2,739,885
========= ====== ========= ==========
The weighted average grant-date fair value of options issued during the three
months ended March 31, 2006 and 2005 was $3.21 and $3.68, respectively. The
total intrinsic value for options exercised during the three months ended March
31, 2006 and 2005, was $281,000 and $124,000, respectively, which was determined
as of the date of exercise.
Cash received from option exercises under all plans for the three months ended
March 31, 2006 and 2005 was $560,000 and $227,000, respectively. The actual tax
benefit realized related to tax deductions from option exercises under all plans
totaled approximately $39,000 and $34,000, respectively, for the three months
ended March 31, 2006 and 2005.
RESTRICTED COMMON STOCK
All restricted stock is authorized and issued under the 2004 Plan. Under the
2004 Plan, the Compensation Committee of the Board of Directors may issue stock
options, performance shares, and restricted stock to employees and consultants
representing up to 1,200,000 shares of our common stock. Performance shares and
restricted stock awards may be granted subject to such terms and conditions as
the Compensation Committee deems appropriate, including a condition that one or
more performance goals be achieved for the participant to realize all or a
portion of the award. The Company issued 26,000 shares of restricted stock under
the 2004 Plan during the three months ended March 31, 2006, which vest ratably
over a period of four years. No shares of restricted stock were granted under
the 2004 Plan during the three months ended March 31, 2005. No performance
shares were granted during any period presented.
Effective for 2004, our Board of Directors approved the Executive Long-Term
Incentive Plan ("Long-Term Incentive Plan"), under which awards may be issued
under: (1) a restricted stock program that focuses on retaining high performing
executives over a longer period of time, (2) a performance stock program that
focuses on rewarding extraordinary performing executives, and (3) a
non-qualified stock option program that focuses on the long-term retention of
key executives. Awards under these programs are administered in conjunction with
the 2004 Plan whereby shares available for issuance are funded by the shares
available for issuance under the 2004 Plan. Under the restricted stock program,
certain members of management are entitled to an award of restricted stock equal
to a percentage of the participant's salary if certain operating targets are met
on a rolling three-year basis,
12
TECHTEAM GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
NOTE 6 -- STOCK-BASED COMPENSATION (continued)
except that the first year of the plan will be based on the operating target for
only the first year, and the second year of the plan will be based on the
cumulative operating target for the first and second years. Restricted stock
awards do not vest ratably but instead become 100% vested at the end of five
years from the date of grant. During the three months ended March 31, 2006 and
2005, the Company granted 42,306 and 46,460 shares of restricted stock,
respectively, to certain employees under the Long-Term Incentive Plan.
The Company recorded approximately $66,000 and $23,000 of compensation expense
related to outstanding shares of restricted stock under all plans during the
three months ended March 31, 2006 and 2005, respectively. The weighted average
grant date fair value of restricted stock granted under all plans during the
three months ended March 31, 2006 and 2005, was $10.47 and $11.35 per share,
respectively. Under the Long-Term Incentive Plan, the fair value of restricted
stock awards is determined based on the average closing trading price of the
Company's common stock for thirty (30) trading days prior to the date of grant.
The fair value of restricted stock awards granted under the 2004 Plan was
determined based on the closing trading price of the Company's common stock on
the grant date.
At March 31, 2006 and 2005, there was approximately $1,048,000 and $866,000,
respectively, of total unrecognized compensation expense related to nonvested
shares of restricted stock granted to employees. Unrecognized compensation
expense at March 31, 2006 is expected to be recognized over a weighted-average
period of 4.2 years. Unrecognized compensation expense related to nonvested
shares of restricted stock awards was recorded as unamortized deferred
compensation within shareholders' equity at December 31, 2005. As part of the
modified prospective transition method of adoption of SFAS 123R, approximately
$866,000 of unamortized deferred compensation at December 31, 2005 has been
reclassified as a component of additional paid-in-capital.
The following table summarizes the Company's activities with respect to its
nonvested stock activity for the three months ended March 31, 2006:
WEIGHTED
AVERAGE
EXERCISE
NUMBER OF PRICE PER
SHARES SHARE
--------- ---------
Nonvested at January 1, 2006 .. 46,460 $11.35
Granted ....................... 68,306 $10.47
Vested ........................ -- $ --
Forfeited ..................... -- $ --
------- ------
Nonvested at March 31, 2006 ... 114,766 $10.83
======= ======
13
TECHTEAM GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
NOTE 6 -- STOCK-BASED COMPENSATION (continued)
PRO FORMA EMPLOYEE SHARE-BASED COMPENSATION EXPENSE
Prior to December 31, 2005, the Company accounted for its share-based
compensation arrangements in accordance with the provisions and related
interpretations of APB 25. The following pro forma table illustrates the effect
on net income and earnings per share had the share-based awards been determined
consistent with SFAS 123R:
THREE MONTHS
ENDED
MARCH 31, 2005
----------------
(In thousands,
except per share
data)
Reported net income ........................................ $1,750
Add:Total stock-based compensation expense included in
reported net income, net of tax ......................... 28
Deduct: Total stock-based compensation expense determined
under the fair value method for all awards, net of tax .. (310)
------
Pro forma net income ....................................... $1,468
======
Basic earnings per common and preferred share:
As reported ............................................. $ 0.18
Pro forma ............................................... $ 0.15
Diluted earnings per common share:
As reported ............................................. $ 0.18
Pro forma ............................................... $ 0.15
NOTE 7 -- INCOME TAXES
For the three months ended March 31, 2006, the consolidated effective tax rate
of 31.1% differs from the statutory tax rate of 34% primarily due to the tax
benefit of tax rates in certain foreign countries that are lower than 34% and
utilization of foreign tax loss carryforwards. For the three months ended March
31, 2005, the consolidated effective tax rate of 31.6% differs from the
statutory tax rate of 34% primarily due to the tax benefit of tax rates in
certain foreign countries that are lower than 34% and the tax benefit of certain
permanent deductions.
No provision has been made with respect to approximately $8,357,000 million of
undistributed earnings of foreign subsidiaries at March 31, 2006, since we
consider these earnings to be permanently reinvested.
NOTE 8 -- SEGMENT REPORTING
Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision maker, or decision-making group, in deciding how to
allocate resources and in assessing performance. Our chief operating
decision-making group is the Senior Management Committee, which is comprised of
the President and the lead executives of each of our functional divisions. The
operating segments are managed separately because each operating segment
represents a strategic business unit that offers different services.
14
TECHTEAM GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
NOTE 8 -- SEGMENT REPORTING (continued)
The accounting policies of the operating segments are the same as those
described in Note 1 to the Company's consolidated financial statements contained
in the Company's Annual Report on Form 10-K for the year ended December 31,
2005. We evaluate segment performance based on segment gross profit. We do not
allocate assets to operating segments, but we allocate certain amounts of
depreciation and amortization expense to operating segments.
Financial information for our operating segments is as follows:
THREE MONTHS
ENDED MARCH 31,
-----------------
2006 2005
------- -------
(In thousands)
REVENUE
IT outsourcing services ....................... $19,097 $19,099
Government technology services ................ 11,785 14,962
IT consulting and systems integration ......... 7,203 5,852
Technical staffing ............................ 2,195 2,015
Learning Services ............................. 318 110
------- -------
Total revenue .................................... $40,598 $42,038
======= =======
GROSS PROFIT
IT outsourcing services ....................... $ 4,842 $ 4,913
Less-- asset impairment loss .................. (580) --
------- -------
Total IT outsourcing services .............. 4,262 4,913
Government technology services ................ 3,440 4,337
IT consulting and systems integration ......... 1,846 1,038
Technical staffing ............................ 396 404
Learning Services ............................. 96 16
------- -------
Total gross profit ............................... 10,040 10,708
Selling, general, and administrative expense .. 9,704 8,290
Net interest income ........................... 146 83
Foreign currency transaction gain (loss) ...... 7 (24)
------- -------
Income before income taxes ....................... $ 489 $ 2,477
======= =======
Revenue from customers, or groups of customers under common control, that
comprise 10% or greater of our total revenue in any period presented are as
follows:
THREE MONTHS
ENDED MARCH 31,
---------------
2006 2005
---- ----
Ford Motor Company and Subsidiaries .. 26.8% 28.3%
United States Government ............. 25.5% 29.9%
---- ----
Total ............................. 52.3% 58.2%
==== ====
15
TECHTEAM GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
NOTE 8 -- SEGMENT REPORTING (continued)
We conduct business under multiple contracts with various entities within the
Ford Motor Company organization and with various agencies and departments of the
United States Government. For the three months ended March 31, 2006 and March
31, 2005, no single agency or department of the United States Government
comprised 10% or greater of the Company's total revenue.
We attribute revenue to different geographic areas on the basis of the location
providing the services to the customer. Revenue by geographic area is presented
below:
THREE MONTHS
ENDED MARCH 31,
-----------------
2006 2005
------- -------
(In thousands)
REVENUE
United States .. $27,835 $29,395
Europe:
Belgium ..... 8,807 8,905
Other ....... 3,956 3,738
------- -------
Total Europe ... 12,763 12,643
------- -------
Total revenue ..... $40,598 $42,038
======= =======
NOTE 9 -- CONTINGENCIES
EMPLOYMENT AGREEMENTS
On April 26, 2006, the Board of Directors of the Company (the "Board")
terminated the Company's employment contract with William F. Coyro, Jr. (the
"Agreement"). The Board believes such termination to be for cause, as set forth
in the Agreement. The Board's decision to terminate the Agreement was based upon
evidence that Dr. Coyro violated the terms of the Agreement, including but not
necessarily limited to the requirement that he not disclose the Company's
confidential information to third parties. Based upon communications from Dr.
Coyro's attorney, the Company expects Dr. Coyro to sue the Company for breach of
contract. Under the terms of Dr. Coyro's employment agreement, Dr. Coyro would
have been entitled to his salary and benefits through April 30, 2008, if his
employment with the Company had not been terminated with cause. No amounts have
been recorded in the accompanying financial statements for any potential
liability to Dr. Coyro as the Company does not believe, based upon current
information, that it is probable that the Company is subject to liability for
breach of contract. Dr. Coyro's annual salary was $360,000 per year.
As previously reported, the Board named William C. Brown as President and Chief
Executive Officer in February 2006, replacing Dr. Coyro who remained an employee
of the Company subject to the terms of the Agreement. Dr. Coyro remains a
director of the Company.
COSTA BRAVA PARTNERSHIP III, L.P.
On January 27, 2006, Costa Brava Partnership III, L.P. ("Costa Brava"), a
shareholder of the Company, filed a complaint in the State of Delaware Court of
Chancery seeking to inspect certain books and records of the Company. Costa
Brava subsequently filed an amended complaint seeking to inspect a broader list
of the Company's books and records. Costa Brava was not seeking monetary relief.
The Company answered the amended complaint stating in part that the request did
not state a proper purpose for inspection, as required under Delaware law.
16
TECHTEAM GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
NOTE 9 -- CONTINGENCIES (continued)
On February 24, 2006, Costa Brava nominated seven directors to replace the
Company's current Board at the Company's 2006 annual meeting in accordance with
the nomination procedures set forth in the Company's by-laws. The Company
subsequently stated its intent to contest Costa Brava's nominees and nominate
its own slate of nominees (the contest between the two slates being the "Proxy
Contest").
On May 4, 2006, the Company and Costa Brava entered into a settlement agreement
(the "Settlement"). Under the terms of the Settlement, Costa Brava agreed to
withdraw its proposal to nominate its own slate of directors for the Company and
to stay the Delaware court proceedings, pending the election of directors at the
Company's Annual Shareholders' Meeting that is scheduled to occur on June 14,
2006, at which time the complaint will be dismissed with prejudice. Further,
under the Settlement, the Company agreed to reimburse Costa Brava up to $700,000
for its documented expenses incurred in connection with Costa Brava's efforts to
replace the Company's current Board and its efforts to obtain certain books and
records of the Company. The Company anticipates recording a charge for the
estimated amount of expense reimbursement in the second quarter of 2006.
GENERAL
The Company is a party to various legal proceedings that are routine and
incidental to its business. Although the consequences of these proceedings are
not presently determinable, in the opinion of management, they will not have a
material adverse affect on our liquidity, financial condition, or results of
operations, although no assurances can be given in this regard.
NOTE 10 -- DISCONTINUED OPERATIONS
TechTeam Capital Group, LLC ("Capital Group"), a subsidiary of the Company,
previously wrote leases for computer, telecommunications, and other types of
capital equipment, with initial lease terms ranging from two to five years.
Capital Group ceased writing new leases in March 2000 and is in the final stages
of running out its lease portfolio. Our future revenue stream from contractually
committed leases is inconsequential to our results of operations. The primary
activity that remains in closing down the leasing operation is the collection of
accounts receivable, including older accounts receivable related to terminated
leases, which will continue during 2006. As a result, Capital Group has been
presented as a discontinued operation in accordance with SFAS No. 144,
"Accounting for the Disposal or Impairment of Long-Lived Assets." Under SFAS
144, the operating results of Capital Group are presented separately from
continuing operations in the accompanying financial statements for all periods
presented. Capital Group previously was reported as a separate operating segment
called Leasing Operations.
Summarized information for Capital Group is as follows:
THREE MONTHS
ENDED MARCH 31,
---------------
2006 2005
---- ----
(In thousands)
Revenue ............................ $-- $67
Income (loss) before income taxes .. $-- $84
17
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q, including "Management's Discussion and
Analysis of Financial Condition and Results of Operations" ("MD&A") in Item 2,
contains forward-looking statements that involve risks and uncertainties, as
well as assumptions that, if they never materialize or prove incorrect, could
cause the results of TechTeam Global, Inc. and its consolidated subsidiaries
("TechTeam") to differ materially from those expressed or implied by such
forward-looking statements. All statements other than statements of historical
fact are statements that could be deemed forward-looking statements, including
any projections of revenue, gross margin, expenses, earnings or losses from
operations, synergies, or other financial items; any statements of the plans,
strategies, and objectives of management for future operations; any statement
concerning developments or performance relating to or services; any statements
regarding future economic conditions or performance; any statements of
expectation or belief; and any statements of assumptions underlying any of the
foregoing. The risks, uncertainties and assumptions referred to above include
the performance of contracts by suppliers, customers, and partners; employee
management issues; the difficulty of aligning expense levels with revenue
changes; complexities of global political and economic developments; and other
risks that are described herein, including but not limited to the items
discussed in "Item 1A -- Risk Factors" of this report, and that are otherwise
described from time to time in TechTeam's reports filed with the Securities and
Exchange Commission. TechTeam assumes no obligation and does not intend to
update these forward-looking statements.
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
TechTeam is a global provider of information technology ("IT") and business
process outsourcing support services to Fortune 1000 companies, multinational
companies, product providers, small and mid-size companies, and government
entities.
Leadership Transition
For the past eight months, TechTeam has been undergoing a period of transition
in its leadership. During the first quarter of 2006 and through the date of the
filing of this Quarterly Report, the significance of this transition has become
apparent.
Most importantly, William C. Brown was hired in February 2006 as President and
Chief Executive Officer, replacing William F. Coyro, Jr., the founder of the
Company. As Mr. Brown has gained knowledge and insight about the Company's
service offerings, customers, management, and business opportunities, he has
begun to reorganize our reporting structure into three macro business units --
Europe, Middle East and Africa ("EMEA"); the Americas; and TechTeam Government
Solutions -- with the leader for each unit being responsible for the unit's
profit and loss. The Company is in the process of hiring a senior executive that
will take responsibility for the Americas business unit and is looking for a
replacement in EMEA for Robert W. Gumber, who is currently serving as Vice
President of Operations EMEA as a U.S. expatriate. Consistent with the
restructuring of TechTeam's organization along geographic units, Mr. Brown
anticipates the realignment of other executives in order to support growth and
address the continued globalization of the Company's business, including the
need to further standardize the Company's processes and service delivery, and
the expansion into new geographies such as Asia.
In November 2005, Dennis J. Kelly, Jr. was hired as President of TechTeam
Government Solutions, Inc. (formerly Digital Support Corporation ("DSC")). Mr.
Kelly completed the integration of the Company's past two acquisitions in the
United States, DSC and Sytel, Inc., in the first quarter of 2006. The
integration merged all administrative functions, joined the operational
resources into four distinct business lines -- U.S. Department of Defense;
civilian health care; civilian enterprise systems; and state, local, and
commercial services -- and enhanced the segment's sales resources and channel
partners. The administrative team has been brought into the same facility in
Chantilly, Virginia, but we do not anticipate the financial benefit of the
integration to begin to manifest until the second half of 2006.
18
Further, a significant change is anticipated in the members of Company's Board
of Directors. As a result of the Settlement Agreement entered into between the
Company and one of its largest shareholders, Costa Brava Partnership III, L.P.
("Costa Brava") on May 4, 2006, it is anticipated that the Company will be led
by a Board of Directors consisting of six new directors, effective with their
election at the Company's annual meeting scheduled for June 14, 2006. The other
two nominees for the Company's Board are Mr. Brown and Richard R. Widgren. Mr.
Brown became a director on April 26, 2006, and Mr. Widgren has been a director
since May 24, 2005. This reconstituted Board has strong industry knowledge and
leadership experience. However, it will likely take time for the new Board to
organize itself, understand the Company's business, and work with management to
further develop the Company's business strategy.
Given the breadth of the anticipated changes in the leadership of the Company,
it is reasonable to expect this transition to continue through the third quarter
of 2006, as Mr. Brown works to develop a reinvigorated management team and
go-to-market strategy, and the Board and management evaluate the Company's
business strategies.
Operations
As reported in the Company's Annual Report on Form 10-K, the renewal of the
Company's Ford Global SPOC Program contract in December 2005 resulted in a
decrease in the service levels of our delivery model that allowed Ford to
balance its need for a reduced cost of service while maintaining IT productivity
and end-user satisfaction. As a part of this contract renewal, the Company began
providing SPOC services to the Jaguar and Land Rover group in the United Kingdom
on March 17, 2006, increasing the number of end users supported through the
Global SPOC Program by over 10%. Revenue for the Global SPOC Program during the
first quarter of 2006 decreased 6.7% from the first quarter of 2005. The Company
anticipates that revenue will increase during the second quarter of 2006 by
approximately 1-2% over the first quarter of 2006 due to the effect of the
launch of additional business in the United Kingdom.
During the first quarter of 2006, gross margin was 24.7%. Excluding a $580,000
asset impairment loss recorded to cost of revenue resulting from writing off a
software asset, the Company's gross margin improved to 26.2% from 25.5% for the
first quarter of 2005. This improvement comes from improved utilization of our
facilities in Southfield, Michigan, and Bucharest, Romania, the increasing
utilization of our Romanian help desk to reduce the cost of existing business,
and improvements in the performance of our IT consulting and systems integration
segment due to the growth in business within our TechTeam Cyntergy subsidiary
and the acquisition of TechTeam Akela SRL. While we anticipate a reduction in
revenue and gross profit from our TechTeam Cyntergy subsidiary due to a
reduction in volume of project-based work, we expect our overall gross margin
percentage to remain relatively constant during 2006.
While the integration of our help desk facility in Romania has improved the
profitability and flexibility of our multi-lingual help desk, the effects of
intense competition for resources can be seen in Romania. Over the past year, a
number of companies, including outsourcing competitors, have opened call centers
in Bucharest. As a result of the increased competition for multi-lingual
resources, over the long-term, we expect our labor costs to continue to increase
at a rate greater than the Company experiences in other regions in which we
operate. In an effort to address this risk, we are evaluating other regions
within Romania to establish new operations.
During the first quarter, we improved our sales and marketing discipline to
strengthen and expand our sales pipeline. Mr. Brown has implemented a new sales
management process that assigns accountability to the person(s) responsible for
profit and loss and measures progress on pipeline development. As a result of
this discipline, the size and quality of the opportunities in our pipeline has
improved. However, our sales cycle remains lengthy and we may not see the
benefits of our efforts until the second half of 2006 or later. Furthermore, to
the extent that we are successful in obtaining large IT outsourcing customers
during the year, our experience indicates that there is a lag time between the
launch of the project and when it produces a profit, the length of which is
dependent upon the size of the customer and the project's launch schedule.
19
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2006 COMPARED TO MARCH 31, 2005
THREE MONTHS
ENDED MARCH 31,
----------------- INCREASE %
2006 2005 (DECREASE) CHANGE
------- ------- ----------- ------
(In thousands, except percentages)
REVENUE
IT outsourcing services ................ $19,097 $19,099 $ (2) --
Government technology services ......... 11,785 14,962 (3,177) (21.2)%
IT consulting and systems integration .. 7,203 5,852 1,351 23.1%
Technical staffing ..................... 2,195 2,015 180 8.9%
Learning services ...................... 318 110 208 189%
------- ------- -------
TOTAL REVENUE ............................. $40,598 $42,038 $(1,440) (3.4)%
======= ======= =======
The majority of the overall revenue decline of 3.4% to $40.6 million for the
three months ended March 31, 2006, from $42.0 million from the comparable period
in 2005, is attributable to the previously reported loss of a contract with the
United States Department of State in September 2005, which provided $1.6 million
in revenue for the first quarter of 2005. Revenue for the three months ended
March 31, 2006 was also negatively affected by the strengthening of the U.S.
dollar relative to the European euro and other international currencies in which
the Company conducts business over the comparable period in 2005. These
decreases were partially offset by revenue growth in IT consulting and systems
integration services.
IT Outsourcing Services
Revenue from our IT outsourcing services was $19.1 million for the three months
ended March 31, 2006 and 2005, remaining unchanged due to offsetting factors. We
experienced an increase of 8.6% in revenue from IT outsourcing services in the
United States, offset by a decline in revenue from Europe of 7.8%. The revenue
growth in the U.S. is primarily due to new customer contracts obtained in the
fourth quarter of 2005. The decline in Europe is primarily due to the
strengthening of the U.S. dollar relative to the European euro and other
international currencies in which the Company conducts business, which reduced
revenue by approximately $1.1 million over the comparable period in 2005.
IT outsourcing revenue generated from Ford Motor Company ("Ford") declined 8.6%
to $9.1 million for the three months ended March 31, 2006, from $9.9 million for
the comparable period in 2005. Revenue from Ford decreased primarily due to a
reduction in the number of seats supported as Ford continues to restructure its
operations and reduce its worldwide workforce, from lower prices charged for a
lower level of service provided under the Global SPOC contract renewal on
December 1, 2005, and from changes in foreign exchange rates. Excluding the
effect of changes in foreign exchange rates, revenue from Ford declined
approximately 5% from the first quarter of 2005. Please refer to our discussion
of Ford in the "Significant Customers" section of MD&A.
Government Technology Services
Revenue from government technology services decreased 21.2% to $11.8 million for
the three months ended March 31, 2006, from $15.0 million for the comparable
period in 2005, due to the loss of a contract with the United States Department
of State in September 2005, which provided $1.6 million in revenue for the first
quarter of 2005, from a decrease in resale items of $777,000, and from the
completion of certain projects.
20
IT Consulting and Systems Integration Services
Revenue from IT consulting and systems integration increased 23.1% to $7.2
million for the three months ended March 31, 2006, from $5.9 million for the
comparable period in 2005, due to revenue growth at TechTeam Cyntergy and our
acquisition of TechTeam Akela SRL ("Akela") on October 3, 2005. Excluding
revenue from Akela, revenue from IT consulting and systems integration increased
13.4% to $6.6 million for the three months ended March 31, 2006, from $5.9
million for the comparable period in 2005. While approximately 48% of the
year-over-year growth in IT consulting and systems integration is due to
TechTeam Cyntergy, revenue from TechTeam Cyntergy declined approximately 25%
from the fourth quarter of 2005 as the services provided by TechTeam Cyntergy
are project-based and the established projects that helped drive our performance
in 2005 are being concluded during the first half of 2006. We are seeking
projects with new customers to replace the decline in revenue in 2006 from 2005.
Geographic Discussion
Total revenue generated in the United States decreased 5.3% to $27.8 million for
the three months ended March 31, 2006, from $29.4 million for the comparable
period in 2005, primarily due to the previously reported loss of a contract with
the United Sates Department of State in September 2005.
Revenue generated in Europe increased 0.9% to $12.8 million for the three months
ended March 31, 2006, from $12.6 million for the comparable period in 2005,
primarily due to our acquisition of Akela. Excluding revenue contributed by
Akela, revenue generated in Europe decreased 5.4% to $12.0 million for the three
months ended March 31, 2006, from $12.6 million for the comparable period in
2005, primarily due to the effect of changes in foreign exchange rates. If
revenue in Europe for the three months ended March 31, 2006 were translated into
U.S. dollars at the average exchange rate for the comparable period in 2005,
reported revenue would have been increased by approximately $1.2 million. Since
most of the Company's international operating expenses are also incurred in the
same foreign currencies in which the associated revenue is denominated, the net
impact of exchange rate fluctuations on net income is considerably less than the
estimated impact on revenue and is not significant.
THREE MONTHS ENDED MARCH 31,
---------------------------------------
2006 2005
------------------ ------------------
GROSS GROSS INCREASE %
AMOUNT MARGIN % AMOUNT MARGIN % (DECREASE) CHANGE
------- -------- ------- -------- ---------- ------
(In thousands, except percentages)
GROSS PROFIT
IT outsourcing services .... $ 4,842 25.4% $ 4,913 25.7% $ (71) (1.4)%
Asset impairment loss ...... (580) -- -- -- (580) --
------- ------- -----
Total IT outsourcing .... 4,262 22.3% 4,913 25.7% (651) (13.3)%
Government technology
services ................ 3,440 29.2% 4,337 29.0% (897) (20.7)%
IT consulting and systems
integration ............. 1,846 25.6% 1,038 17.7% 808 77.8%
Technical staffing ......... 396 18.0% 404 20.0% (8) (2.0)%
Learning services .......... 96 30.2% 16 14.5% 80 500%
------- ------- -----
TOTAL GROSS PROFIT ............ $10,040 24.7% $10,708 25.5% $(668) (6.2)%
======= ======= =====
Consistent with revenue, the majority of the overall gross profit decline of
6.2% to $10.0 million for the three months ended March 31, 2006, from $10.7
million for the comparable period in 2005, is attributable to the loss of a
contract with the United Sates Department of State in September 2005 and a
pre-tax charge to cost of revenue for the net carrying value of assets of
$580,000 related to the Company's decision to discontinue using certain
software. These decreases were partially offset by gross profit growth in IT
consulting and systems integration services.
21
IT Outsourcing Services
Gross profit from IT outsourcing services decreased 13.3% to $4.3 million for
the three months ended March 31, 2006, from $4.9 million for the comparable
period in 2005. Gross margin (defined as gross profit divided by revenue) from
IT outsourcing services decreased to 22.3% for the three months ended March 31,
2006, from 25.7% for the comparable period in 2005. For the three months ended
March 31, 2006, gross profit includes an asset impairment loss for the net
carrying value of assets of $580,000 related to the Company's decision to
discontinue using certain software. Excluding the asset impairment loss, gross
margin decreased slightly to 25.4% for the three months ended March 31, 2006,
from 25.7% for the comparable period in 2005, primarily due to new customer
launches.
Government Technology Services
Gross profit from government technology services decreased 20.7% to $3.4 million
for the three months ended March 31, 2006, from $4.3 million for the comparable
period in 2005. Gross margin from government technology services increased to
29.2% for the three months ended March 31, 2006, from 29.0% for the comparable
period in 2005. The decrease in gross profit is primarily due to the loss of a
contract with the United States Department of State in September 2005. The
inclusion of resale items for both periods had the effect of reducing gross
margin by 10 and 100 basis points in 2006 and 2005, respectively.
IT Consulting and Systems Integration Services
Gross profit from IT consulting and systems integration services increased 77.8%
to $1.8 million for the three months ended March 31, 2006, from $1.0 million for
the comparable period in 2005. Gross margin from IT consulting and systems
integration increased to 25.6% for the three months ended March 31, 2006, from
17.7% for the comparable period in 2005. The increase in gross profit and gross
margin was primarily due to revenue growth at TechTeam Cyntergy and our
acquisition of Akela on October 3, 2005. Excluding the gross profit contributed
by Akela, gross profit increased 54.9% to $1.6 million for the three months
ended March 31, 2006, from $1.0 million for the comparable period in 2005, and
gross margin increased to 24.2% from 17.7%. As discussed, we expect revenue from
TechTeam Cyntergy to decrease during the first half 2006 as certain projects
will slow or be completed during the spring and summer, and gross profit and
gross margin are expected to decline accordingly.
THREE MONTHS ENDED MARCH 31,
---------------------------- INCREASE %
2006 2005 (DECREASE) CHANGE
------ ------ ---------- ------
(In thousands, except percentages)
OPERATING EXPENSES AND OTHER
Selling, general, and administrative expense ... $9,704 $8,290 $1,414 17.1%
Net interest income ............................ $ 147 $ 83 $ 64 77.1%
Foreign currency transaction gain (loss) ....... $ 7 $ (24) $ 31 (129)%
Income tax provision ........................... $ 152 $ 782 $ (630) (80.6)%
Selling, general, and administrative ("SG&A") expense increased 17.1% to $9.7
million, or 23.9% of total revenue, for the three months ended March 31, 2006,
from $8.3 million, or 19.7% of total revenue, for the comparable period in 2005.
The increase in SG&A expense can be primarily attributed to: (1) professional
fees associated with responding to a complaint filed by a shareholder, Costa
Brava Partnership III, L.P. ("Costa Brava"), seeking to inspect certain books
and records of the Company and matters relating to the proxy contest initiated
by Costa Brava related to the election of the Company's Board of Directors
($461,000), (2) the placement of the Company's new president and chief executive
officer ($162,000), (3) the acquisition of Akela ($268,000), (4) costs related
to the Company's compliance with Section 404 of the Sarbanes-Oxley Act of 2002
($170,000), and (5) stock-based compensation expense related to the Company's
adoption of Statement of Financial Accounting Standards ("SFAS") No. 123R,
"Share-Based Payment," primarily attributable to stock options issued in the
first quarter of 2006 ($164,000). By comparison, the Company's SG&A expense for
the three months ended March 31, 2005 included an expense related to a one-time
cash bonus of $200,000 paid to certain key employees of TechTeam Government
Solutions, Inc. (formerly Digital Support Corporation, "DSC") following the
successful renewal of a contract, in accordance with the terms of the Stock
Purchase Agreement with DSC.
22
On May 4, 2006, the Company and Costa Brava entered into a settlement agreement
(the "Settlement"). Under the terms of the Settlement, Costa Brava agreed to
withdraw its proposal to nominate its own slate of directors for the Company and
to stay court proceedings in the State of Delaware seeking to inspect certain
books and records of the Company, pending the election of directors at the
Company's Annual Shareholders' Meeting that is scheduled to occur on June 14,
2006, at which time the complaint will be dismissed with prejudice. Under the
Settlement, the Company agreed to reimburse Costa Brava up to $700,000 in
connection with Costa Brava's efforts to replace the Company's current Board and
its efforts to obtain certain books and records of the Company. The Company
anticipates recording a charge for the estimated amount of expense reimbursement
in the second quarter of 2006 in addition to recording related professional fees
incurred directly by the Company with respect to these matters.
Furthermore, we anticipate certain increases to SG&A expense as we continue to
make investments in our global sales and marketing capabilities, in additional
executive talent, in our technology infrastructure including a new
telecommunications system, and in the expansion of the technical certifications
of the Company and its employees in areas such as the Information Technology
Infrastructure Library ("ITIL").
Net interest income increased to $147,000 for the three months ended March 31,
2006, from $83,000 for the comparable period in 2005, as a result of higher
average rates of return on invested cash equivalents and less average
outstanding long-term debt.
For the three months ended March 31, 2006, the consolidated effective tax rate
of 31.1% differs from the statutory tax rate in the United States of 34%
primarily due to the tax benefit of tax rates in certain foreign countries that
are lower than 34% and utilization of foreign tax loss carryforwards. For the
three months ended March 31, 2005, the consolidated effective tax rate of 31.6%
differs from the statutory tax rate of 34% primarily due to the tax benefit of
tax rates in certain foreign countries that are lower than 34% and the tax
benefit of certain permanent deductions.
SIGNIFICANT CUSTOMERS
We conduct business under multiple contracts with various entities within the
Ford organization and with various agencies and departments of the United States
Government. For the three months ended March 31, 2006 and 2005, Ford accounted
for 26.8% and 28.3%, respectively, of the Company's total revenue, and the
United States Government accounted for 25.5% and 29.9%, respectively, of the
Company's total revenue. For the three months ended March 31, 2006 and 2005, no
single agency or department of the United States Government comprised 10% or
greater of the Company's total revenue.
Ford Motor Company
Our business with Ford consists of help desk and desk side services, technical
staffing, network management, support services provided to Volvo Car
Corporation, a subsidiary of Ford, and a specific project installing personal
computers subcontracted through Dell Inc. Revenue generated through our business
with Ford decreased to $10.9 million for the three months ended March 31, 2006
from $11.9 million for the comparable period in 2005.
At present, Ford is under significant financial pressures, which is reflected in
Ford's long-term debt rating being lowered to "below investment grade" status by
Standard & Poor's Rating Services. In order to address these financial
pressures, Ford has embarked on a major restructuring plan that will reduce
costs through a variety of methods, including the reduction of employees and
manufacturing facilities.
On December 1, 2005, we successfully renewed the Ford Global SPOC Program
contract, our largest single contract with Ford, for three years through
November 2008. Under the Global SPOC Program, we provide a set of infrastructure
support services under specific service-level metrics, and we invoice Ford based
upon the number of seats we support. Under the renewed contract, the standard
global support model has been modified in order to satisfy Ford's requirement
for a reduction in the price of the service provided and maintain the gross
margin performance of the Global SPOC Program. As a result, Ford has agreed to
reduced service levels and a restructuring of our service delivery. The initial
price reduction occurred on December 1, 2005, a second reduction took place in
February 2006, and a third reduction occurred following the launch of a
significant new project that launched in March 2006 in the United Kingdom. This
project will largely offset the revenue lost as a result of the price reductions
given to Ford under the new contract.
23
As Ford implements its restructuring plan, we expect to see a reduction in the
number of seats that we support absent further expansion into new areas of Ford.
The number of seats supported will be determined bi-annually on December 1 and
June 1 of each year. If certain contractual conditions are met, Ford and
TechTeam will have the right during each six month period to request one
out-of-cycle seat adjustment on a prospective basis. Although we are unable to
predict the pace of Ford's restructuring plan, we estimate that our total
revenue from Ford will decline approximately 3-5% in 2006 from 2005.
We anticipate that, due to Ford's financial condition, Ford will continue to
seek price concessions on services that we perform on their behalf outside of
the Global SPOC Program. However, we do not believe that Ford's financial
condition will otherwise affect our business with Ford or the collectibility of
our accounts receivable from Ford. However, any loss of (or failure to retain a
significant amount of business with) Ford or bankruptcy filing by Ford would
have a material adverse effect on the Company's operating results and liquidity.
United States Government
The U.S. Government's fiscal year ends on September 30 of each year. It is not
uncommon for government agencies to award extra tasks or complete other contract
actions in the weeks before the end of the fiscal year in order to avoid the
loss of unexpended fiscal year funds. Moreover, in years when the U.S.
Government does not complete its budget process before the end of its fiscal
year, government operations typically are funded pursuant to a "continuing
resolution" that authorizes agencies of the government to continue to operate,
but traditionally does not authorize new spending initiatives. When the
government operates pursuant to a continuing resolution, delays can occur in
procurement of products and services, and such delays can affect the Company's
revenue, profit, and cash flow during the period of delay.
NEW ACCOUNTING PRONOUNCEMENTS
Effective January 1, 2006, the Company adopted the provisions of SFAS 123R,
"Share-Based Payment," which requires companies to measure and recognize
compensation expense for all share-based payment awards to employees and
directors based on estimated fair values of all awards. SFAS 123R supersedes the
Company's previous accounting methodology using the intrinsic value method under
Accounting Principles Board Opinion No. 25 ("APB 25"), "Accounting for Stock
Issued to Employees," and related interpretations. Under the intrinsic value
method, no share-based compensation expense had been recognized in the Company's
consolidated statements of operations for stock option awards with an exercise
price equal to the fair value of the underlying stock on the date of grant.
The Company adopted SFAS 123R using the modified prospective transition method.
Under this transition method, stock-based compensation expense recognized after
the effective date includes: (1) compensation expense for all share-based awards
granted prior to, but not yet vested, as of December 31, 2005, based on the
grant-date fair value estimated in accordance with the original provisions of
SFAS 123, and (2) compensation cost for all share-based awards granted
subsequent to January 1, 2006, based on the grant-date fair value estimated in
accordance with the provisions of SFAS 123R. In accordance with the modified
prospective transition method, the Company's consolidated financial statements
from prior periods have not been restated and do not include the impact of SFAS
123R.
The company recorded pre-tax and after-tax amounts of $164,000 and $108,000,
respectively, for share-based compensation expense during the three months ended
March 31, 2006, as a result of adopting SFAS 123R. The corresponding impact on
basic and diluted earnings per share was $0.01 for the three months ended March
31, 2006. No compensation expense was recorded related to outstanding options
during the three months ended March 31, 2005.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $27.2 million at March 31, 2006, as compared to
$34.8 million at December 31, 2005. During the three months ended March 31,
2006, cash and cash equivalents decreased $7.5 million primarily due to $4.6
million in net cash used in operating activities, $1.3 million in cash used for
capital expenditures, and $1.9 million in payments on long-term debt. The
negative cash flow from operating activities of $4.6 million for the three
months ended March 31, 2006 was primarily due to a significant decrease in
current liabilities of $8.5 million, which was partially offset by income prior
to non-cash charges for depreciation and amortization.
24
Under various task order contracts with the United States Department of Homeland
Security ("DHS"), we serve as the prime contractor and Electronic Data Systems
Corporation ("EDS") serves as the subcontractor. EDS performs in excess of 95%
of the work under the contract and creates the invoices, which the Company
forwards to the DHS. Under the subcontract agreement with EDS, we do not pay
EDS' invoices until Sytel receives payment from the DHS. Furthermore, we record
revenue under this contract on a net basis whereby we only record revenue for
the portion of the work that Sytel performs under the contract along with an
administrative fee related to revenue earned by EDS. As a result, our accounts
receivable include the gross amount billed to DHS by Sytel, including EDS'
invoice, and our accounts payable include the amounts billed by EDS, but our
recorded revenue does not include the amounts billed to Sytel by EDS. This has
negatively affected our calculation of days sales outstanding.
Long-term cash requirements, other than for normal operating expenses, are
anticipated for the continued expansion in Europe, enhancements of existing
technologies, additional consideration that is payable to the selling
shareholders Akela and TechTeam A.N.E. NV/SA if specific performance conditions
and operating targets are met, possible global expansion activities, the
possible payment of Company dividends, possible repurchases of our common stock,
and the possible acquisition of businesses complementary to the Company's
existing businesses. We believe that positive cash flows from operations,
together with existing cash balances, will continue to be sufficient to meet our
ongoing requirements for the next twelve months and foreseeable future. We have
historically not paid dividends.
MATERIAL COMMITMENTS
There have been no significant changes in our material commitments disclosed in
"Item 7 -- Management's Discussion and Analysis of Financial Condition and
Results of Operations" of our Annual Report on Form 10-K for the year ended
December 31, 2005.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
There have been no changes in the selection and application of critical
accounting policies and estimates disclosed in "Item 7 -- Management's
Discussion and Analysis of Financial Condition and Results of Operations" of our
Annual Report on Form 10-K for the year ended December 31, 2005, except for the
addition of the following item:
STOCK-BASED COMPENSATION:
The Company records compensation expense for employee stock options based on the
estimated fair value of the options on the date of grant using the Black-Scholes
option-pricing model. The Company uses historical data among other factors to
estimate the expected price volatility, the expected option term, and the
expected forfeiture rate. The risk-free rate is based on the U.S. Treasury yield
curve in effect at the date of grant for the expected term of the option. The
following assumptions were used to estimate the fair value of options granted
during the three months ended March 31, 2006 and 2005, using the Black-Scholes
option-pricing model:
THREE MONTHS ENDED MARCH 31,
----------------------------
2006 2005
---------- ----------
Expected dividend yield....... 0% 0%
Weighted average volatility... 42% 45%
Risk free interest rate....... 4.4% - 4.7% 3.3% - 3.8%
Expected term (in years)...... 3.0 3.2
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options, which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including the expected stock price volatility. Because
our employee stock options have characteristics significantly different from
those of traded options, and because changes in the assumptions can materially
affect the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of the
Company's employee stock-based compensation.
25
ITEM 3 -- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in reported market risks disclosed in "Item
7A -- Quantitative and Qualitative Disclosures About Market Risk" of our Annual
Report on Form 10-K for the year ended December 31, 2005.
ITEM 4 -- CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
As of March 31, 2006, our management, with the participation of our chief
executive officer and chief accounting officer, evaluated the effectiveness of
the design and operation of our disclosure controls and procedures (as defined
in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on this
evaluation, our chief executive officer and chief accounting officer concluded
that, as of March 31, 2006, our disclosure controls and procedures were (1)
designed to ensure that material information relating to us, including our
consolidated subsidiaries, is made known to our chief executive officer and
chief accounting officer by others within those entities, particularly during
the period in which this report was being prepared and (2) effective, in that
they provide reasonable assurance that information required to be disclosed by
us in the reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the U.S.
Securities and Exchange Commission's rules and forms.
It should be noted that any system of controls, however well designed and
operated, can provide only reasonable, and not absolute, assurance that the
objectives of the system will be met. In addition, the design of any control
system is based in part upon certain assumptions about the likelihood of certain
events. Because of these and other inherent limitations of control systems,
there is only reasonable assurance that our controls will succeed in achieving
their goals under all potential future conditions.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
No changes in our internal control over financial reporting (as defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the quarter
ended March 31, 2006, that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting. However,
during the first quarter of 2006, we began a series of leadership changes within
the Company, including the naming of a new President and Chief Executive
Officer. Furthermore, the Company's Chief Financial Officer resigned on April 1,
2006. The Company's Chief Accounting Officer continues to oversee the Company's
financial functions and its internal control over financial reporting.
26
PART II -- OTHER INFORMATION
ITEM 1 -- LEGAL PROCEEDINGS
EMPLOYMENT AGREEMENTS
On April 26, 2006, the Board of Directors of the Company (the "Board")
terminated the Company's employment contract with William F. Coyro, Jr. (the
"Agreement"). The Board believes such termination to be for cause, as set forth
in the Agreement. The Board's decision to terminate the Agreement was based upon
evidence that Dr. Coyro violated the terms of the Agreement, including but not
necessarily limited to the requirement that he not disclose the Company's
confidential information to third parties. Based upon communications from Dr.
Coyro's attorney, the Company expects Dr. Coyro to sue the Company for breach of
contract. Under the terms of Dr. Coyro's employment agreement, Dr. Coyro would
have been entitled to his salary and benefits through April 30, 2008, if his
employment with the Company had not been terminated with cause. No amounts have
been recorded in the accompanying financial statements for any potential
liability to Dr. Coyro as the Company does not believe, based upon current
information, that it is probable that the Company is subject to liability for
breach of contract. Dr. Coyro's annual salary was $360,000 per year.
COSTA BRAVA PARTNERSHIP III, L.P.
On January 27, 2006, Costa Brava Partnership III, L.P. ("Costa Brava"), a
shareholder of the Company, filed a complaint in the State of Delaware Court of
Chancery seeking to inspect certain books and records of the Company. Costa
Brava subsequently filed an amended complaint seeking to inspect a broader list
of the Company's books and records. Costa Brava is not seeking monetary relief.
The Company answered the amended complaint stating in part that the request did
not state a proper purpose for inspection, as required under Delaware law.
On February 24, 2006, Costa Brava nominated seven directors to replace the
Company's current Board at the Company's 2006 annual meeting in accordance with
the nomination procedures set forth in the Company's by-laws. The Company
subsequently stated its intent to contest Costa Brava's nominees and nominate
its own slate of nominees (the contest between the two slates being the "Proxy
Contest").
On May 4, 2006, the Company and Costa Brava entered into a settlement agreement
(the "Settlement"). Under the terms of the Settlement, Costa Brava agreed to
withdraw its proposal to nominate its own slate of directors for the Company and
to stay the Delaware court proceedings, pending the election of directors at the
Company's Annual Shareholders' Meeting that is scheduled to occur on June 14,
2006, at which time the complaint will be dismissed with prejudice. Under the
Settlement, the Company agreed to reimburse Costa Brava up to $700,000 in
connection with Costa Brava's efforts to replace the Company's current Board and
its efforts to obtain certain books and records of the Company. The Company
anticipates recording a charge for the estimated amount of expense reimbursement
in the second quarter of 2006.
GENERAL
The Company is a party to various legal proceedings that are routine and
incidental to its business. Although the consequences of these proceedings are
not presently determinable, in the opinion of management, they will not have a
material adverse affect on our liquidity, financial condition, or results of
operations, although no assurances can be given in this regard.
27
ITEM 1A -- RISK FACTORS
There have been no changes in the risk factors disclosed in "Item 1A -- Risk
Factors" of our Annual Report on Form 10-K for the year ended December 31, 2005,
except that the following risk factor described as "We may become engaged in a
proxy contest relating to the election of our Board of Directors, which contest
could adversely affect our business," as disclosed in our Annual Report on Form
10-K, is no longer applicable as a result of the Company executing a settlement
agreement with a shareholder.
ITEM 2 -- UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
There were no sales of unregistered equity securities of the Company during the
three months ended March 31, 2006.
The following table sets forth the information with respect to purchases made by
the Company of shares of its common stock during the first quarter of 2006:
TOTAL NUMBER OF MAXIMUM NUMBER OF
TOTAL NUMBER AVERAGE SHARES PURCHASED AS SHARES THAT MAY YET
OF SHARES PRICE PAID PART OF PUBLICLY BE PURCHASED UNDER
PERIOD PURCHASED PER SHARE ANNOUNCED PROGRAMS THE PROGRAMS
------ ------------ ---------- ------------------- -------------------
January 1, 2006 to January 31, 2006 5,421 (a) $11.03 -- --
February 1, 2006 to February 28, 2006 6,240 (a) $10.43 -- --
March 1, 2006 to March 31, 2006 10,441 (a) $10.56 -- --
(a) All purchases of shares were made for the purpose of contributing the
purchased shares to the TechTeam Global Retirement Savings Plan (one of the
Company's 401(k) plans) for employer matching contributions. The purchases
were not made pursuant to publicly announced plans and were made in the
open market.
ITEM 6 -- EXHIBITS
The following exhibits are filed as part of this report on Form 10-Q:
31.1 Certification Pursuant to Rule 13a-14(a) of the Securities Exchange
Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
31.2 Certification Pursuant to Rule 13a-14(a) of the Securities Exchange
Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
28
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.
TechTeam Global, Inc.
(Registrant)
Date: May 10, 2006 By: /s/ William C. Brown
------------------------------------
William C. Brown
President and Chief Executive
Officer (Principal Executive
Officer)
By: /s/ Marc J. Lichtman
------------------------------------
Marc J. Lichtman
Chief Accounting Officer
(Principal Financial Officer and
Principal Accounting Officer)
29
EXHIBT INDEX
EX NO. DESCRIPTION
------ -----------
31.1 Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act
of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
31.2 Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act
of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
30