-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FPsB9l1kLfEfFOdCUyI/SblwNfYJOxe0QKG1xHKWnOuRhFYk4NPqdyZP3yAbKzdm 0kf+MwviWG2w57iwo39hGg== /in/edgar/work/20000814/0001015402-00-002190/0001015402-00-002190.txt : 20000921 0001015402-00-002190.hdr.sgml : 20000921 ACCESSION NUMBER: 0001015402-00-002190 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DA CONSULTING GROUP INC CENTRAL INDEX KEY: 0001051209 STANDARD INDUSTRIAL CLASSIFICATION: [7389 ] IRS NUMBER: 760418488 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-24055 FILM NUMBER: 696609 BUSINESS ADDRESS: STREET 1: 5847 SAN FELIPE RD STE 3700 CITY: HOUSTON STATE: TX ZIP: 77057 BUSINESS PHONE: 7133613000 MAIL ADDRESS: STREET 1: 5847 SAN FELIPE RD STREET 2: STE 3700 CITY: HOUSTON STATE: TX ZIP: 77057 10-Q 1 0001.txt 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 JUNE 30, 2000. OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER: 00-24055 DA CONSULTING GROUP, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) TEXAS 76-0418488 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 5847 SAN FELIPE ROAD, SUITE 3700 HOUSTON, TEXAS 77057 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 361-3000 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 [ ] NUMBER OF SHARES OUTSTANDING OF COMMON STOCK AS OF July 31, 2000 - - 6,418,604
DA CONSULTING GROUP, INC. INDEX PART I FINANCIAL INFORMATION PAGE NO. -------- Item 1. Financial Statements Condensed Consolidated Balance Sheets as of December 31, 1999 and June 30, 2000 (unaudited) 3 Condensed Consolidated Statements of Operations for the Three Months ended June 30, 1999 and 2000 (unaudited) 4 Condensed Consolidated Statements of Operations for the Six Months ended June 30, 1999 and 2000 (unaudited) 4 Condensed Consolidated Statements of Cash Flows for the Six Months ended June 30, 1999 and 2000 (unaudited) 5 Notes to Condensed Consolidated Financial Statements (unaudited) 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Item 3. Quantitative and Qualitative Disclosures About Market Risk 12 PART I OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 12 Item 6. Exhibits and Reports on Form 8-K 13 Signatures 13
2 PART I-FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS
DA CONSULTING GROUP, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share amounts) DECEMBER 31, JUNE 30, 1999 2000 ASSETS (Unaudited) -------------- ---------- Current Assets: Cash and cash equivalents $ 3,406 $ 1,087 Short-term investments 2,389 -- Accounts receivable - trade, net 8,578 3,818 Unbilled revenue 434 285 Income taxes receivable 2,979 720 Deferred tax asset 445 514 Prepaid expenses and other current assets 456 540 -------------- ---------- Total current assets 18,687 6,964 -------------- ---------- Property and equipment, net 12,368 9,606 Other assets -- 153 Deferred tax asset 1,464 6,648 Intangible assets, net 399 389 -------------- ---------- Total assets $ 32,918 $ 23,760 ============== ========== LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------------------------------------------ Current Liabilities: Accounts payable $ 1,955 $ 2,209 Accrued expenses 5,613 6,724 Revolving line of credit -- 340 Deferred income 112 45 -------------- ---------- Total current liabilities 7,680 9,318 -------------- ---------- Commitments and contingencies Shareholders' equity: Preferred stock, $0.01 par value: 10,000,000 shares authorized -- -- Common stock, $0.01 par value: 40,000,000 shares authorized; 6,571,777 shares issued; 6,418,604 shares outstanding at December 31, 1999 and June 30, 2000 65 65 Additional paid-in capital 29,355 29,355 Accumulated deficit (1,865) (12,407) Accumulated other comprehensive losses (795) (1,049) Treasury stock, at cost: 153,173 shares at December 31, 1999 and June 30, 2000 (1,522) (1,522) -------------- ---------- Total shareholders' equity 25,238 14,442 -------------- ---------- Total liabilities and shareholders' equity $ 32,918 $ 23,760 ============== ==========
The accompanying notes are an integral part of the condensed consolidated financial statements. 3
DA CONSULTING GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) (Unaudited) THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ========= ======== 1999 2000 1999 2000 -------- -------- -------- --------- Revenue $22,047 $ 8,020 $46,176 $ 14,389 Cost of revenue 11,305 5,262 22,890 11,190 -------- -------- -------- --------- Gross profit 10,742 2,758 23,286 3,199 Selling and marketing expense 2,263 1,305 4,127 2,723 Development expense 614 1,732 1,254 2,201 General and administrative expense 7,615 4,405 15,437 10,523 Restructuring charge -- -- -- 3,354 -------- -------- -------- --------- Operating income (loss) 250 (4,684) 2,468 (15,602) Interest income, net 77 9 217 35 Other expense, net (52) (39) (88) (39) -------- -------- -------- --------- Total other income (expense), net 25 (30) 129 (4) -------- -------- -------- --------- Income (loss) before taxes 275 (4,714) 2,597 (15,606) Provision (benefit) for income taxes 138 (1,641) 992 (5,064) -------- -------- -------- --------- Net income (loss) $ 137 $(3,073) $ 1,605 $(10,542) ======== ======== ======== ========= Basic earnings (loss) per share $ 0.02 $ (0.48) $ 0.25 $ (1.64) Weighted average shares outstanding 6,388 6,419 6,466 6,419 Diluted earnings (loss) per share $ 0.02 $ (0.48) $ 0.24 $ (1.64) Weighted average shares outstanding 6,489 6,419 6,628 6,419
The accompanying notes are an integral part of the condensed consolidated financial statements. 4
DA CONSULTING GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) SIX MONTHS ENDED JUNE 30, 1999 2000 -------- --------- Cash flows from operating activities: Net income (loss) $ 1,605 $(10,542) Adjustments to reconcile net income(loss) to net cash used in operating activities: Depreciation and amortization 901 1,610 Deferred income taxes 207 (5,253) Loss on sale of fixed assets 35 -- Writedown of fixed assets and reserve for leasehold abandonment -- 1,935 Changes in operating assets and liabilities: Accounts receivable and unbilled revenue (3,118) 4,909 Income taxes receivable 1,310 2,259 Prepaid expenses and other current assets (979) (84) Other assets. 120 (153) Accounts payable and accrued liabilities (2,380) 430 Deferred income (580) (67) Income taxes payable (198) -- -------- --------- Total adjustments (4,682) 5,586 -------- --------- Net cash used in operating activities (3,077) (4,956) -------- --------- Cash flows from investing activities: Proceeds from sale of property and equipment 15 227 Sales of short-term investments 7,723 2,389 Purchases of property and equipment (5,388) (65) -------- --------- Net cash provided by investing activities 2,350 2,551 -------- --------- Cash flows from financing activities: Stock repurchases (1,943) -- Proceeds from exercise of stock options 532 -- Proceeds from revolving line of credit -- 340 -------- --------- Net cash provided by (used in) financing activities (1,411) 340 -------- --------- Effect of changes in foreign currency exchange rates on cash and cash equivalents (25) (254) -------- --------- Decrease in cash and cash equivalents (2,163) (2,319) Cash and cash equivalents at beginning of period 9,971 3,406 -------- --------- Cash and cash equivalents at end of period $ 7,808 $ 1,087 ======== =========
The accompanying notes are an integral part of the condensed consolidated financial statements. 5 DA CONSULTING GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (1) ORGANIZATION AND BUSINESS DA Consulting Group, Inc. and its subsidiaries (the ''Company'') is an international provider of education for employees of companies, which are implementing business information technology. The Company provides customized change communications, education and performance support services designed to maximize its clients' returns on their substantial investments in business information technology. Recognizing the global nature of its existing and prospective client base, the Company has built a substantial international presence. The Company is currently organized into three divisions: the Americas Division, which includes its United States and Canada operations; the EMEA Division, which includes its Europe operations; and the Asia Pacific Division, which includes its Australia and Asia operations. (2) BASIS OF PRESENTATION The unaudited condensed consolidated financial statements included herein have been prepared by the Company without an audit pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles, generally accepted in the United States, have been condensed or omitted, pursuant to such rules and regulations. The unaudited condensed consolidated financial statements should be read in conjunction with the Company's consolidated financial statements and the notes thereto as of and for the year ended December 31, 1999, included in the Company's Annual Report on Form 10-K. The unaudited condensed consolidated financial information included herein reflects all adjustments, consisting only of normal recurring adjustments, which are necessary, in the opinion of management for a fair presentation of the Company's financial position, results of operations and cash flows for the interim periods presented. Certain reclassifications have been made to prior year amounts to conform to the current year presentation. The results of operations for the interim periods presented herein are not necessarily indicative of the results to be expected for the full year. (3) LIQUIDITY The Company believes its current cash balances, the proceeds of the investor loan received on August 3, 2000, the future proceeds from the sale of common stock to investors, receivable-based financings and cash provided by future operations will be sufficient to meet the Company's working capital and cash needs through the foreseeable future. However, there can be no assurance that such sources of funds will be sufficient to meet these future expenses and our future needs. The Company's need for additional financing will be principally dependent on shareholder approval of the proposed equity placement announced August 3, 2000 and the degree of future market demand for the Company's services. There can be no assurance that the Company will be able to obtain shareholder approval for the proposed equity placement or any other additional financing. (4) INCOME TAXES At June 30, 2000, the Company had $7.2 million of deferred tax assets primarily consisting of unused net operating losses. The Company continues to believe it will generate sufficient taxable income to ensure realization of the benefit, accordingly, no valuation allowance has been provided. The benefit from the utilization of net operating loss carryforwards could be subject to limitations if significant ownership changes occur in the Company. 6 (5) RESTRUCTURING CHARGE During the first quarter of 2000, the Company implemented a plan to address the recent dramatic decline in training and documentation activity for enterprise resource planning implementations. The plan consisted of regional base consolidations and downsizing of billable and non-billable personnel. Charges included the costs of involuntary employee termination benefits, write-down of certain fixed assets and reserves for leasehold abandonment. The reduction in workforce consisted of 60 billable consultants and 44 non-billable administrative personnel. Substantially all of the employee terminations were completed during the first quarter. The Company recognized approximately $1.5 million expense attributable to involuntary employee termination benefits during the first quarter, of which approximately $1.1 million was paid during the six months ended June 30, 2000. In addition the Company has reserved approximately $0.9 million related to the abandonment of leases and approximately $1.0 million related to the writedown of leasehold improvements, furniture and equipment held by its Americas division. Of the $0.9 million reserved for leases, approximately $0.4 has been paid against the reserve as of June 30, 2000. The Company believes that the remaining provision is adequate to cover the future costs attributable to this plan. (6) COMPREHENSIVE INCOME Comprehensive income is comprised of two components: net income (loss) and other comprehensive income (loss). Other comprehensive income refers to revenues, expenses, gains and losses that are recorded as an element of stockholders' equity and are excluded from net income. Other comprehensive income is comprised of foreign currency translation adjustments from international subsidiaries. The components of comprehensive income are listed below:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, 2000 JUNE 30, 2000 --------------- ------------------ (in thousands) 1999 2000 1999 2000 ----- -------- ------- --------- Net income (loss) . . . . . . . . $ 137 $(3,073) $1,605 $(10,542) Other comprehensive income (loss) 74 (90) (25) (254) ----- -------- ------- --------- Comprehensive income (loss) . . . $ 211 $(3,163) $1,580 $(10,796) ===== ======== ======= =========
(7) EARNINGS PER SHARE Basic earnings per share has been computed based on the weighted average number of common shares outstanding during the applicable period. Diluted earnings per share includes the number of shares issuable upon exercise of stock options, less the number of shares that could have been repurchased with the exercise proceeds, using the treasury stock method. The following table summarizes the Company's computation of earnings per share for the three months and six months ended June 30, 1999 and 2000 (in thousands, except per share amounts):
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ----------------- ------------------ 1999 2000 1999 2000 ------- -------- ------- --------- Basic earnings (loss) per share $ 0.02 $ (0.48) $ 0.25 $ (1.64) ======= ======== ======= ========= Net income (loss) $ 137 $(3,073) $1,605 $(10,542) ======= ======== ======= ========= Weighted average shares outstanding 6,388 6,419 6,466 6,419 Computation of diluted earnings per share: Common shares issuable under outstanding stock options. 856 - 856 - Less shares assumed repurchased with proceeds from exercise of stock options ions (755) - (694) - ------- -------- ------- --------- Adjusted weighted average shares outstanding 6,489 6,419 6,628 6,419 ======= ======== ======= ========= Diluted earnings (loss) per share $ 0.02 $ (0.48) $ 0.24 $ (1.64) ======= ======== ======= =========
7 Approximately 1.3 million stock options were excluded from the calculation of diluted earnings per share for the three months and six months ended June 30, 2000 as their effect is antidilutive. . (8) GEOGRAPHIC FINANCIAL DATA Revenue, operating income (loss) from the Company's operations and total assets are presented below by operating division. Operating losses during the three and six months ended June 30, 2000 included restructuring charges.
EUROPE, MIDDLE EAST (In thousands) AMERICAS & AFRICA ASIA PACIFIC TOTAL ---------- ------------- -------------- --------- THREE MONTHS ENDED JUNE 30, 1999 Revenue $ 14,238 $ 5,750 $ 2,059 $ 22,047 Operating income (loss) 648 126 (524) 250 THREE MONTHS ENDED JUNE 30, 2000 Revenue $ 2,599 $ 2,934 $ 2,487 $ 8,020 Operating income (loss) (4,012) (852) 180 (4,684) SIX MONTHS ENDED JUNE 30, 1999 Revenue $ 29,441 $ 12,907 $ 3,828 $ 46,176 Operating income (loss) 2,329 910 (771) 2,468 Total assets 36,305 7,517 2,299 46,121 SIX MONTHS ENDED JUNE 30, 2000 Revenue $ 4,593 $ 6,163 $ 3,633 $ 14,389 Operating income (loss) (12,186) (2,452) (964) (15,602) Total assets 10,137 4,848 8,775 23,760
(9) SUBSEQUENT EVENT On August 3, 2000, the Company signed an agreement with a private investor for the purchase of two million shares of the Company's common stock for $4.8 million and warrants to purchase up to three million shares of the Company's common stock in future periods as specified in the agreement. The closing of the transaction is subject to shareholder approval. In connection with the agreement, the investor has loaned the Company $2.0 million. This loan is unsecured and will be credited towards the purchase price of shares of common stock to be purchased by the investor at closing. If the Company does not receive shareholder approval within 90 days, the loan is to be repaid in full not later than 90 days following the date of the shareholder meeting at which the approval is not obtained. DA CONSULTING GROUP, INC. ITEM 2. MANAGEMENT'S DISCUSSI ON AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Company is an international provider of education for employees of companies, which are implementing business information technology. The Company provides customized change communications, education and performance support services designed to maximize its clients' returns on their substantial investments in business information technology. Recognizing the global nature of its existing and prospective client base, the Company has built a substantial international presence. The Company is currently organized into three divisions: the Americas Division, which includes its United States and Canada operations; the EMEA Division, which includes its Europe operations; and the Asia Pacific Division, which includes its Australia and Asia operations. 8 RESULTS OF OPERATIONS. THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 2000 Revenue. Revenue decreased by $14.0 million, or 63.6%, from $22.0 million in the second quarter of 1999 to $8.0 million in the second quarter of 2000, reflecting decreases in volume of services and a decrease in bill rates. Revenue from the Americas Division decreased by 81.7% from $14.2 million to $2.6 million; revenue from the EMEA Division decreased by 49.0% from $5.8 million to $2.9 million; and revenue from the Asia Pacific Division increased by 20.8% from $2.1 million to $2.5 million. The Company ended the second quarter with 337 total employees, down from 804 employees at the end of the same period of the prior year. Revenue for the second quarter of 2000 increased by 25.9% compared to revenue of $6.4 million in the first quarter of 2000 due to strong growth in the AsiaPacific division and moderate gains in the Americas division. Gross profit. Gross profit decreased by $8.0 million, or 74.3%, from $10.7 million in the second quarter of 1999 to $2.8 million in the second quarter of 2000 and decreased as a percent of revenue from 48.7% in the second quarter of 1999 to 34.4% in the second quarter of 2000. The decrease in the gross profit margin percentage is primarily attributable to decreased staff utilization and lower hourly bill rates. Gross profit for the second quarter of 2000 increased by $2.3 million or 525% compared to the first quarter of 2000 due to increased staff utilization and a higher average bill rate. Selling and marketing expense. Selling and marketing expense decreased $1.0 million or 42.3%, from $2.3 million in the second quarter of 1999 to $1.3 million in the second quarter of 2000. The decrease is the result of cost reduction measures taken during the first quarter of 2000 and reduced commissions expense related to the reduced level of sales in the second quarter of 2000 as compared to the same period of 1999. Development expense. Development expense increased $1.1 million or 182.1%, from $0.6 million in the second quarter of 1999 to $1.7 million in the second quarter of 2000. The increase in costs during the second quarter of 2000 is due to fees incurred for the development of the Company's web-enabled learning management product. The Company expects development costs related to the web-enabled learning management system to be lower during the remainder of the year. General and administrative expense. General and administrative expense decreased by $3.2 million, or 42.2%, from $7.6 million in the second quarter of 1999 to $4.4 million in the second quarter of 2000. The decrease in expense is due primarily to a reduction in headcount in the areas of finance, administration and human resources as a result of the cost containment plans implemented during the latter half of 1999 and the first quarter of 2000. Operating income (loss). Operating income decreased from $0.2 million in the second quarter of 1999 to an operating loss of $4.7 million in the second quarter of 2000. This decrease resulted from rapid decreases in revenues beginning in the third quarter of 1999, resulting in lower expense coverage during the second quarter of 2000 as compared to the revenues in the second quarter of 1999. Other income (expense) net. Other income (expense), net changed from income of $25,000 in the second quarter of 1999 to expense of $30,000 in the second quarter of 2000. Interest income, net decreased from income of $77,000 in the second quarter of 1999 to income of $9,000 in the second quarter of 2000. The decrease in interest income is due to lower cash balances available for investment during the second quarter of 2000. Provision (benefit) for income taxes. The Company's effective tax rate was 50.2% in the second quarter of 1999 compared to a tax benefit rate of 34.8% in the second quarter of 2000. The effective rate for both periods is affected by nondeductible operating losses in various countries. Net income (loss). The Company's net income (loss) decreased by $3.2 million from $0.1 million in the second quarter of 1999 to a net loss of $3.1 million in the second quarter of 2000 for reasons discussed above. Diluted earnings per share decreased from $0.02 in the second quarter of 1999 to a loss per share of $0.48 in the second quarter of 2000. 9 SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 2000 Revenue. Revenue decreased by $31.8 million, or 68.8%, from $46.2 million for the six months ended June 30, 1999 to $14.4 million for the six months ended June 30, 2000, reflecting decreases in volume of services and a decrease in bill rates. Revenue from the Americas Division decreased by 84.4% from $29.4 million to $4.6 million; revenue from the EMEA Division decreased by 52.2% from $12.9 million to $6.2 million; and revenue from the Asia Pacific Division decreased by 5.1% from $3.8 million to $3.6 million. While the market for enterprise resource planning software began recovering in the fourth quarter of 1999, the Company did not begin to see evidence of recovery until the end of the second quarter of 2000, as the Company's revenue generally lag the software sale from three to six months. Gross profit. Gross profit decreased by $20.1 million, or 86.3%, from $23.3 million for the six months ended June 30,1999 to $3.2 million for the six months ended June 30, 2000 and decreased as a percent of revenue from 50.4% in 1999 to 22.2% in 2000. The decrease in the gross profit margin percentage is primarily attributable to decreased staff utilization and lower hourly bill rates. Selling and marketing expense. Selling and marketing expense decreased $1.4 million or 34.0%, from $4.1 million for the six months ended June 30, 1999 to $2.7 million for the same period of 2000. The decrease is the result of cost reduction measures taken during the first quarter of 2000 and reduced commissions expense related to the reduced level of sales for the six months ended June 30, 2000 as compared to the same period of 1999. Development expense. Development expense increased $0.9 million or 75.5%, from $1.2 million for the six months ended June 30, 1999 to $2.2 million for the six months ended June 30, 2000. The increase in costs during the six months ended June 30, 2000 is due to fees incurred for the development of the Company's web-enabled learning management product. The Company expects development costs related to the web-enabled learning management system to be lower during the remainder of the year. These costs were offset in part by reduced headcount as a result of cost containment plans implemented during the latter half of 1999 and the first quarter of 2000. General and administrative expense. General and administrative expense decreased by $4.9 million, or 31.8%, from $15.4 million for the six months ended June 30, 1999 to $10.5 million for the six months ended June 30, 2000. The decrease in expense is due primarily to a reduction in headcount in the areas of finance, administration and human resources as a result of the cost containment plans implemented during the latter half of 1999 and the first quarter of 2000. In addition facilities costs were reduced by approximately $0.6 million by consolidating locations during the six months ended June 30, 2000. Restructuring Charge. During the first quarter of 2000, the Company implemented a plan to address the recent dramatic decline in training and documentation activity for enterprise resource planning implementations. The plan consisted of regional base consolidations and downsizing of billable and non-billable personnel. Charges included the costs of involuntary employee termination benefits, write-down of certain fixed assets and reserves for leasehold abandonment. The reduction in workforce consisted of 60 billable consultants and 44 non-billable administrative personnel. Substantially all of the employee terminations were completed during the first quarter. The Company recognized approximately $1.5 million expense attributable to involuntary employee termination benefits during the first quarter, of which approximately $1.1 million was paid during the six months ended June 30, 2000. In addition the Company has reserved approximately $0.9 million related to the abandonment of leases and approximately $1.0 million related to the writedown of leasehold improvements, furniture and equipment held by its Americas division. Of the $0.9 million reserved for leases, approximately $0.4 has been paid against the reserve as of June 30, 2000. The Company believes that the remaining provision is adequate to cover the future costs attributable to this plan. Operating income(loss). Operating income decreased from $2.6 million six months ended June 30, 1999 to an operating loss of $15.6 million for the same period of 2000. The decrease resulted from rapid decreases in revenues beginning in the third quarter of 1999, resulting in lower expense coverage during six months ended June 30, 2000 as compared to the revenues in the same period of 1999. Other income (expense) net. Other income (expense), net changed from income of $129,000 for the six months ended June 30, 1999 to expense of $4,000 for the same period of 2000. Interest income, net decreased from income of $217,000 for the six months ended June 30, 1999 to income of $35,000 for the same period of 2000. The decrease in interest income is due to lower cash balances available for investment during 2000. 10 Provision (benefit) for income taxes. The Company's effective tax rate was 38.2% for the six months ended June 30, 1999 compared to a tax benefit rate of 32.4% for the six months ended June 30, 2000. The effective rate for the six months ended June 30, 2000 is affected by nondeductible operating losses in various countries. Net income (loss). The Company's net income (loss) decreased by $12.1 million from $1.6 million for the six months ended June 30, 1999 to a net loss of $10.5 million for the six months ended June 30, 2000 for reasons discussed above. Diluted earnings per share decreased from $0.24 for the six months ended June 30, 1999 to a loss per share of $1.64 for the same period of 2000. LIQUIDITY AND CAPITAL RESOURCES Since its inception, the Company has historically financed its operations and growth with cash flow from operations, supplemented by the issuance of Common Stock in connection with the Company's initial public offering and by short-term borrowings under revolving line of credit arrangements. The Company's cash and cash equivalents were $1.1 million at June 30, 2000, compared to $3.4 million at December 31, 1999. The Company's working capital was $(2.4) million at June 30, 2000 and $11.0 million at December 31, 1999. The Company's operating activities required cash of $4.7 million for the six months ended June 30, 2000, compared to $3.1 million used in operations for the same period in 1999. The increase in cash used in operations resulted primarily from operating losses incurred in the six months ended June 30, 2000 offset by a reduction in trade accounts receivable and collection of income taxes receivables. Investing activities provided cash of $2.3 million in the six months ended June 30, 2000, compared to cash provided of $2.4 million for the same period in 1999. During the six months ended June 30, 2000, $2.4 million was provided by the sale of short-term investments. During the same period of 1999 the Company had net sales of short-term investments of $7.7 million, which was offset in part by $5.4 million of purchases of property and equipment. Financing activities provided cash of $340,000 for the six months ended June 30, 2000 as a result of a drawdown on a short-term line of credit during the period. During the same period of 1999, financing activities used cash of $1.4 million as a result of the Company repurchasing 200,000 shares of common stock for $1.9 million offset in part by $0.5 million proceeds from stock option exercises. The Company has an agreement with a bank, which provides for financing of eligible U.S. accounts receivable under a purchase and sale agreement. The maximum funds available under this agreement is $5 million. As of June 30, 2000, the Company had sold $349,000 of receivables pursuant to this agreement. During March 2000, the Company obtained a credit facility from a bank with a maximum line of credit of approximately $750,000, secured by eligible foreign accounts receivable. At June 30, 2000, the Company had drawndown $340,000 of this line. On August 3, 2000, the Company signed an agreement with a private investor for the purchase of two million shares of the Company's common stock for $4.8 million and warrants to purchase up to three million shares of the Company's common stock in future periods as specified in the agreement. The closing of the transaction is subject to shareholder approval. In connection with the agreement, the investor has loaned the Company $2.0 million. This loan is unsecured and will be credited towards the purchase price of shares of common stock to be purchased by the investor at closing. If the Company does not receive shareholder approval within 90 days, the loan is to be repaid in full not later than 90 days following the date of the shareholder meeting at which the approval is not obtained. Capital expenditures for the 2000 have been scaled back significantly due to a temporary decline in the market for the Company's services. 11 The Company believes its current cash balances, the proceeds of the investor loan received on August 3, 2000, as previously discussed, the future proceeds from the sale of common stock to investors, as previously discussed, receivable-based financings and cash provided by future operations will be sufficient to meet the Company's working capital and cash needs through the foreseeable future. However, there can be no assurance that such sources of funds will be sufficient to meet these future expenses or needs. The Company's need for additional financing will be principally dependent on shareholder approval of the proposed equity placement announced August 3, 2000 and the degree of future market demand for the Company's services. There can be no assurance that the Company will be able to obtain shareholder approval for the proposed equity placement or any other additional financing. FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q contains certain statements that are not historical facts which constitute forward-looking statements within the meaning of the Private Securities Legislation Reform Act of 1995 which provides a safe harbor for forward-looking statements. These forward-looking statements are subject to substantial risks and uncertainties that could cause the Company's actual results, performance or achievements to differ materially from those expressed or implied by these forward-looking statements. When used in this Report, the words "anticipate," "believe," "expect" and similar expressions as they relate to the Company or its management are intended to identify such forward-looking statements. Actual future results and trends may differ materially from historical results as a result of certain factors, including but not limited to: dependence on SAP AG and the ERP software market, risks associated with management of a geographically dispersed organization, fluctuating quarterly results, the need to attract and retain professional employees, substantial competition, dependence on key personnel, risks associated with management of growth, rapid technological change, limited protection of proprietary expertise, methodologies and software, the ability of the Company to obtain shareholder approval for its proposed equity financing, as well as those set forth in the Risk Factors section and Management's Discussion and Analysis section in the Company's Annual Report on Form 10-K and other filings with the Securities and Exchange Commission. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company from time to time, holds short-term investments, which consist of variable rate municipal debt instruments. The Company uses a sensitivity analysis technique to evaluate the hypothetical effect that changes in market interest rates may have on the fair value of the Company's investments. At June 30, 2000, the Company did not hold any short term investments. DA CONSULTING GROUP, INC. PART II-OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the Company's Annual Meeting of Shareholders held on June 6, 2000, the shareholders of the Company elected three directors - two Class II directors and one Class III director - and the shareholders ratified the appointment of their independent accountants for the year ending December 31, 2000. The matters voted upon at the Annual Meeting and the results of the voting are set forth below:
ELECTION OF DIRECTORS: VOTES VOTES BROKER CLASS II DIRECTORS: VOTES FOR AGAINST ABSTAINED NON-VOTES --------- ------- --------- --------- Virginia L. Pierpont 4,338,128 18,325 - - Richard W. Thatcher 4,338,128 18,325 - - CLASS III DIRECTOR: John E. Mitchell 4,338,128 18,325 - - RATIFICATION OF INDEPENDENT ACCOUNTANTS 4,349,478 4,175 2,800 -
12 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit 10.1 Employment agreement by and between DA Consulting Group, Inc. and John E. Mitchell dated April 4, 2000 Exhibit 27 - Financial Data Schedule (b) Reports on Form 8-K No reports on Form 8-K were filed during the reporting period ended June 30, 2000. 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. DA CONSULTING GROUP, INC. (Registrant) Dated: August 14, 2000 By: /s/ John E. Mitchell ---------------------------------------- John E. Mitchell President and Chief Executive Officer By: /s/ Dennis C. Fairchild ---------------------------------------- Dennis C. Fairchild Chief Financial Officer, Secretary and Treasurer (Principal Financial and Accounting Officer) 13 EX-10.1 2 0002.txt EXHIBIT 10.1 ------------ EMPLOYMENT AGREEMENT -------------------- This Employment Agreement ("Agreement") is made and entered into by DA CONSULTING GROUP, INC., a Texas corporation (hereinafter the "Company") and JOHN MITCHELL (hereinafter the "Employee"). In consideration of the mutual promises set forth below and other good and valuable consideration, the receipt and sufficiency of which the parties acknowledge, the Company and Employee agree as follows: 1. EMPLOYMENT. The Company employs Employee and Employee accepts ---------- employment on the terms and conditions set forth in this Agreement. 2. NATURE OF EMPLOYMENT. Employee shall serve as President and Chief ---------------------- Executive Officer and have such responsibilities and authority consistent with such position as may from time to time be reasonably assigned by the Board of Directors of the Company (the "Board"). Employee shall report to the Board. Employee shall devote his full time and attention and best efforts to perform successfully his duties and advance the Company's interests. Employee shall abide by Company policies, procedures, and practices as they may exist and be in force from time to time. Employee agrees to execute the attached Non-Disclosure, Assignment of Developments and Non-Solicitation Agreement and the attached Separation Agreement. 3. LOCATION OF EMPLOYMENT. Employee will perform his duties primarily ----------------------- at the Company's offices in London, England; provided, however, that Employee will travel to the Company's Houston, Texas office on a regular basis, as reasonably requested by the Company. The Company will indemnify Employee in full for any additional tax cost incurred if, as a result of the Company's requirements, Employee becomes subject to United States tax on his world wide income. Such indemnification shall place Employee in the same net after-tax position that Employee would have been in if he had not been subject to applicable United States federal, state and local taxes. 4. COMPENSATION. ------------ (a) Salary. Effective April 4, 2000, compensation for Employee's ------ services under this Agreement initially shall be One Hundred Ninety Five Thousand Pounds ( 195,000) per year, payable in equal monthly installments in arrears. The Employee's salary shall be reviewed annually by the Board (or by the Committee thereof charged with establishing executive compensation) by January 1 of each year and may be increased in the Board's (or such Committee's) discretion based on Employee's performance, provided that such salary for any year shall not be reduced below the salary for the immediately preceding year. (b) Benefits. -------- (i) Employee may participate in any medical, dental, disability, life insurance, and other employee benefit plans and programs which may be made available from time to time to other Company employees at Employee's level; provided, however, that Employee's participation in such benefit plans and programs is subject to the applicable terms, conditions, and eligibility requirements of those plans and programs, some of which are within the plan administrator's discretion, as they may exist from time to time. (ii) Notwithstanding the preceding subparagraph (i), Employee shall be provided with (A) life insurance with a death benefit of four times his annual salary; and (B) a car allowance of 13,200 per year. (iii) The Company will credit each year an amount equal to five percent (5%) of Employee's annual salary to a pension fund of Employee's choice. (c) Performance Bonus. Employee shall be entitled to an annual ------------------ performance bonus up to an amount determined by the Company which shall be based on goals set by the Company and communicated to Employee by January 31 of the calendar year for which the bonus is potentially payable or, for any bonus payable in 2000, within 60 days of execution of the Agreement. The bonus opportunity for 2000 is One Hundred Seventeen Thousand Pounds ( 117,000). Unless otherwise agreed to in writing between the parties, the applicable bonus period for periods beginning after 2000 shall be the calendar year. The annual performance bonus shall be paid in a lump sum amount on or before March 31 of the calendar year following the calendar year for which the bonus was earned. (d) Reimbursement of Expenses. The Company shall reimburse --------------------------- Employee for all expenses reasonably incurred by him on behalf of the Company. In addition, the Company shall reimburse Employee for all expenses incurred by him for his membership and participation in professional associations, continuing education, and maintenance of professional licenses. 5. TERM OF EMPLOYMENT. This Agreement is effective April 4, 2000 and -------------------- may be terminated pursuant to Section 6 (Termination) below. 6. TERMINATION. ----------- (a) Termination Upon Death or Permanent Disability. In the event ----------------------------------------------- that Employee dies, this Agreement shall terminate upon the Employee's death. If the Employee becomes physically or mentally disabled and thereby unable to perform his duties hereunder for a period of more than ninety (90) consecutive days or for more than one hundred twenty (120) days, in the aggregate, during any three hundred sixty-five (365) day period, the Company may terminate this Agreement. In the event of termination upon death or disability, the Employee, or his legal representatives, shall be entitled to be paid his salary and performance bonus earned pro rata to the date of termination. --- ---- (b) Termination by the Company for Cause. The Company may ----------------------------------------- terminate Employee's employment for "Cause." For purposes of this Agreement, Cause shall mean the Employee (i) has engaged in gross negligence or willful misconduct in the performance of Employee's duties, (ii) has willfully refused without proper legal reason to perform Employee's duties and responsibilities, (iii) has materially breached any material provision of any agreement between the Company and Employee, (iv) has materially breached any material corporate policy maintained and established by the Company that is of general applicability to the Company's executive employees, (v) has willfully engaged in conduct that Employee knows or should know is materially injurious to the Company or any of its affiliates, or (vi) has engaged in illegal conduct or any act of serious dishonesty which adversely affects, or reasonably could in the future adversely affect, the value, reliability, or performance of Employee in a material manner; provided, however, that in no event shall a termination of Employee's employment constitute a termination for Cause unless such termination is approved by at least two-thirds of the members of the Board after Employee has been given written notice by the Company of the specific reason for such termination and an opportunity for Employee, together with Employee's counsel, to be heard before the Board. Members of the Board may participate in any hearing that is required pursuant to this Section 6(b) by means of conference telephone or similar communications equipment by means of which all persons participating in the hearing can hear and speak to each other; provided, however, that at least one-half of the members of the Board shall attend the hearing in person. In the event of termination for Cause, the Company's obligation to compensate Employee ceases on the termination date except as to the salary and the unpaid performance bonus, if any, for the calendar year preceding the calendar year in which the termination date occurs. (c) Termination by the Company Without Cause. This Agreement may ----------------------------------------- be terminated by the Company without Cause upon ninety (90) days' written notice thereof given to Employee. Upon the delivery of notice of such termination, the Company may, in its discretion, and notwithstanding any other provision of this Agreement to the contrary, limit Employee's continuing responsibilities and access to confidential information, provided that the effective date of termination shall be a mutually-agreed date, but not earlier than the 90th day following the Company's delivery of such notice. In the event of termination by the Company without Cause: (i) the Company shall continue to pay Employee his then effective salary hereunder for eighteen (18) months, following the effective date of termination of employment, including 100% of any bonus paid or payable to Employee with respect to the calendar year immediately preceding termination, and continue for such period to provide other benefits as provided for hereunder on the same basis as in effect before the effective date of termination of employment, to the extent permitted by the terms of the benefit plans or arrangements pursuant to which such benefits are provided; and (ii) all outstanding stock options held by Employee shall become fully vested and exercisable. (d) Voluntary Termination by Employee for Good Reason. Employee --------------------------------------------------- may at any time voluntarily terminate this Agreement for "Good Reason" upon thirty (30) days' prior written notice to the Company. For purposes of this Agreement, Good Reason shall mean the occurrence of any of the following events: (i) a change materially adverse to the Employee in the Employee's status, title, position, or responsibilities; (ii) the insolvency or the filing of a petition for bankruptcy of the Company; (iii) the failure of the Company to obtain an agreement, satisfactory to the Employee, from any successor or assign of the Company to assume and agree to perform this Agreement; or (iv) any material breach by the Company of this Agreement. In the event of voluntary termination for Good Reason the Company shall continue to pay Employee his then effective salary and all benefits hereunder for twelve (12) months, including 100% of any bonus paid or payable to Employee with respect to the calendar year immediately preceding termination, and all outstanding stock options held by Employee shall become fully vested and exercisable. (e) Voluntary Termination by Employee. ------------------------------------ (i) Termination With One Year's Notice. Employee may -------------------------------------- terminate this Agreement upon one year's prior written notice to the Company. Upon the delivery of notice of such termination, the Company may, in its discretion, and notwithstanding any other provision of this Agreement to the contrary, limit Employee's continuing responsibilities and access to confidential information, provided that the effective date of termination shall be a mutually-agreed date, but not earlier than one year following the Employee's delivery of such notice. In the event of such a termination the Company shall continue to pay Employee his then effective salary hereunder for twelve (12) months, following the effective date of termination of employment, including 100% of any bonus paid or payable to Employee with respect to the calendar year immediately preceding termination, and continue for such period to provide other benefits as provided for hereunder on the same basis as in effect before the effective date of termination of employment, to the extent permitted by the terms of the benefit plans or arrangements pursuant to which such benefits are provided. If, after written notice of termination has been given pursuant to this Section 6(e)(i) and prior to the termination date, a termination occurs pursuant to Section 6(a), or the Company becomes entitled to terminate the Agreement pursuant to Section 6(a) or (b), the provisions of Section 6(a) or (b) shall apply instead of this Section 6(e)(i). (ii) Termination Upon Less than One Year's Notice. Employee --------------------------------------------- may terminate this Agreement at any time upon delivering ninety (90) days' written notice of resignation to the Company. In the event of such voluntary termination, Employee shall be entitled only to his salary and the unpaid performance bonus, if any, for the calendar year preceding the calendar year in which the termination date occurs. 7. COVENANT NOT TO COMPETE. Employee acknowledges that by virtue of -------------------------- his employment relationship, he shall have access to and control of confidential and proprietary information concerning the Company's business and that the Company's business depends, to a considerable extent, on the individual skills, efforts, and leadership of Employee. Accordingly and in consideration of the Company's commitments to Employee under this Agreement, Employee expressly covenants and agrees that during the term of this Agreement and for eighteen (18) months following the termination of his employment (unless such termination is by the Company without Cause or by the Employee for Good Reason), Employee will not, without the prior written consent of Company: (a) on Employee's own or another's behalf, whether as an officer, director, stockholder, partner, associate, owner, employee, consultant or otherwise, directly or indirectly: (i) solicit or do business which is the same, similar to, or otherwise in competition with the business engaged in by the Company, from or with persons or entities who are clients or customers of the Company, who were clients or customers of the Company at any time during the last year of Employee's employment with the Company, or to whom the Company had made proposals for business at any time during the last year of Employee's employment with the Company; or (ii) offer employment to, or otherwise solicit for employment, any employee or other person who had been employed by the Company during the last year of Employee's employment with the Company; (b) be employed (or otherwise engaged) in a management capacity by any person or entity that directly competes with the Company. Employee further acknowledges that the covenants contained in this Section 7 are reasonably necessary to protect the legitimate business interests of the Company and are reasonable with respect to scope, time, and territory and are described with sufficient accuracy and definiteness to enable him to understand the scope of the restrictions imposed on him. The terms and conditions of this Section 7 shall survive expiration or termination of this Agreement or Employee's employment and shall not be affected by any change or modification of this Agreement unless specific reference is made to this Section 7. It is agreed that ownership, directly or indirectly, of not more than five percent (5%) of the issued and outstanding stock of a corporation, the shares of which are regularly traded on a national securities exchange or in the over-the-counter market, shall not be deemed to be in violation of this Section 7. 8. REMEDIES. Employee agrees that his breach or violation of Section 7 -------- (Covenant Not to Compete), will result in immediate and irreparable harm to the Company for which legal remedies would be inadequate. Therefore, in addition to any legal or other relief to which the Company may be entitled, the Company may seek legal and equitable relief, including but not limited to, preliminary and permanent injunctive relief. 9. EMPLOYEE REPRESENTATION. Employee represents and warrants that his ------------------------ employment and obligations under this Agreement will not breach any duty or obligation he owes to another person or entity. 10. COMPANY REPRESENTATION. Company represents and warrants that it ----------------------- has no obligation which would prohibit it from entering into this Agreement or complying with its provisions and that it has the authority to enter into this Agreement. 11. WAIVER OF BREACH. The Company's or Employee's waiver of any breach ---------------- of a provision of this Agreement shall not waive any subsequent breach by the other party. 12. ENTIRE AGREEMENT. This Agreement including any schedule, exhibit or ---------------- attachment hereto: (i) supersedes all other understandings and agreements, oral or written, between the parties with respect to the subject matter of this Agreement including any schedule, exhibit or attachment hereto; and (ii) constitutes the sole agreement between the parties with respect to this subject matter. Each party acknowledges that: (i) no representations, inducements, promises or agreements, oral or written, have been made by any party or by anyone acting on behalf of any party, which are not embodied in this Agreement including any schedule, exhibit or attachment hereto; and (ii) no agreement, statement or promise not contained in this Agreement shall be valid. No change or modification of this Agreement shall be valid or binding upon the parties unless such change or modification is in writing and is signed by the parties. 13. SEVERABILITY. If a court of competent jurisdiction holds that any ------------ provision or sub-part thereof contained in this Agreement is invalid, illegal or unenforceable, that invalidity, illegality or unenforceability shall not affect any other provision in this Agreement. Additionally, if any of the provisions, clauses or phrases in Section 7 (Covenant Not to Compete) are held unenforceable by a court of competent jurisdiction, then the parties desire that they be "blue-penciled" or rewritten by the court to the extent necessary to render them enforceable. 14. PARTIES BOUND. The terms, provisions, covenants and agreements -------------- contained in this Agreement shall apply to, be binding upon and inure to the benefit of the Company's successors and assigns; however the Company may not assign this Agreement without the Employee's prior written consent. 15. GOVERNING LAW. This Agreement and the employment relationship -------------- created by it shall be governed by Texas law. IN WITNESS WHEREOF, the parties have entered into this Agreement on the day and year written below. _________________________________ ____________ John Mitchell Date DA CONSULTING GROUP, INC. By:______________________________ ____________ EX-27.1 3 0003.txt
5 1000 6-MOS DEC-31-2000 JAN-01-2000 JUN-30-2000 1,087 0 3,670 (1,249) 0 6,964 14,680 (5,074) 23,760 9,318 0 0 0 65 0 23,760 14,389 14,389 11,190 11,190 18,801 0 0 (15,606) (5,064) (10,542) 0 0 0 (10,542) (1.640) (1.640)
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