-----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, Ek8RiN5veh7E9gX6POXT9OToqa0u8JWUAqHhsHdfMK1gvwqEv0oorTRUwmxYUxA9 VWdYXlDn/0DVaoSGkBfw9g== /in/edgar/work/0001015402-00-003014/0001015402-00-003014.txt : 20001114 0001015402-00-003014.hdr.sgml : 20001114 ACCESSION NUMBER: 0001015402-00-003014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001113 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: 758394 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 SEPTEMBER 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 November 10, 2000 - 8,418,604 ================================================================================
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 September 30, 2000 (unaudited). . .. . . . . . . . . . . . . . . . . 3 Condensed Consolidated Statements of Operations for the Three Months ended September 30, 1999 and 2000 (unaudited. . . . . . . . . . . . . . . . . 4 Condensed Consolidated Statements of Operations for the Nine Months ended September 30, 1999 and 2000 (unaudited) . . . . . . . . . . . . . . . . 4 Condensed Consolidated Statements of Cash Flows for the Nine Months ended September 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. . . . . . . .. . . . . . . . . . . . . . . . . . . 9 Item 3. Quantitative and Qualitative Disclosures About Market Risk. . . . . . . . 12 PART II OTHER INFORMATION Item 2. Changes in Securities and Use of Proceeds . . . . . . . . . . . . . . . . 13 Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . 13 Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . 13 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
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PART I-FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS DA CONSULTING GROUP, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share amounts) DECEMBER 31, SEPTEMBER 30, 1999 2000 ------------ ------------ ASSETS (Unaudited) ----- Current Assets: Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . $ 3,406 $ 326 Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . 2,389 -- Accounts receivable - net. . . . . . . . . . . . . . . . . . . . . . . 8,578 3,759 Unbilled revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . 434 1,203 Income taxes receivable. . . . . . . . . . . . . . . . . . . . . . . . 2,979 1,080 Deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . 445 1,590 Prepaid expenses and other current assets. . . . . . . . . . . . . . . 456 413 ------------ ------------ Total current assets . . . . . . . . . . . . . . . . . . . . . . . 18,687 8,371 ------------ ------------ Property and equipment, net. . . . . . . . . . . . . . . . . . . . . . 12,368 8,779 Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 133 Deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . 1,464 6,041 Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . 399 385 ------------ ------------ Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . $ 32,918 $ 23,709 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Current Liabilities: Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,955 $ 1,961 Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,613 5,368 Notes payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 3,016 Deferred income. . . . . . . . . . . . . . . . . . . . . . . . . . . . 112 47 ------------ ------------ Total current liabilities. . . . . . . . . . . . . . . . . . . . . 7,680 10,392 ------------ ------------ Shareholder's 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 September 30, 2000. . . . . . . . . . . . . . . . . . . . . . . . . . 65 65 Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . 29,355 29,355 Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . . . . . (1,865) (13,291) Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . (795) (1,290) Treasury stock, at cost: 153,173 shares at December 31, 1999 and September 30, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . (1,522) (1,522) ------------ ------------ Total shareholders' equity . . . . . . . . . . . . . . . . . . . . 25,238 13,317 ------------ ------------ Total liabilities and shareholders' equity . . . . . . . . . . . $ 32,918 $ 23,709 ============ ============ The accompanying notes are an integral part of the condensed consolidated financial statements.
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DA CONSULTING GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, 1999 2000 1999 2000 -------- -------- -------- --------- Revenue . . . . . . . . . . . . . . $15,804 $ 8,148 $61,980 $ 22,536 Cost of revenue . . . . . . . . . . 8,426 4,224 31,316 15,413 -------- -------- -------- --------- Gross profit. . . . . . . . . . . 7,378 3,924 30,664 7,123 Selling and marketing expense . . . 1,621 1,154 5,748 3,877 Development expense . . . . . . . . 350 923 1,815 3,124 General and administrative expense. 9,012 3,739 24,238 14,262 Restructuring charge. . . . . . . . -- -- -- 3,354 -------- -------- -------- --------- Operating loss. . . . . . . . . . (3,605) (1,892) (1,137) (17,494) Interest income, net. . . . . . . . 92 15 309 50 Other income (expense), net . . . . (2) 43 (90) 4 -------- -------- -------- --------- Total other income, net . . . . . 90 58 219 54 -------- -------- -------- --------- Loss before taxes . . . . . . . . (3,515) (1,834) (918) (17,440) Benefit for income taxes. . . . . . (1,318) (950) (326) (6,014) -------- -------- -------- --------- Net loss. . . . . . . . . . . $(2,197) $ (884) $ (592) $(11,426) ======== ======== ======== ========= Basic net loss per share. . . . . . $ (0.34) $ (0.14) $ (0.09) $ (1.78) Weighted average shares outstanding 6,419 6,419 6,452 6,419 Diluted net loss per share. . . . . $ (0.34) $ (0.14) $ (0.09) $ (1.78) Weighted average shares outstanding 6,419 6,419 6,452 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) Nine Months Ended September 30, 1999 2000 -------- --------- Cash flows from operating activities: Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (592) $(11,426) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . . 1,758 2,413 Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . 206 (5,722) Loss on sale of property and equipment . . . . . . . . . . . . . . . . . . . 41 -- Writedown of property and equipment and reserve for leasehold abandonment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 1,935 Changes in operating assets and liabilities: Accounts receivable and unbilled revenue . . . . . . . . . . . . . . . . . (502) 4,050 Income taxes receivable. . . . . . . . . . . . . . . . . . . . . . . . . . 270 1,899 Prepaid expenses and other current assets. . . . . . . . . . . . . . . . . (1,028) 43 Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120 (133) Accounts payable and accrued expenses. . . . . . . . . . . . . . . . . . . (2,632) (1,174) Deferred income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (639) (65) Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . (592) -- -------- --------- Total adjustments. . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,998) 3,246 -------- --------- Net cash used in operating activities. . . . . . . . . . . . . . . . . . (3,590) (8,180) -------- --------- Cash flows from investing activities: Proceeds from sale of property and equipment . . . . . . . . . . . . . . . . . 15 260 Sales of short-term investments. . . . . . . . . . . . . . . . . . . . . . . . 7,723 2,389 Purchases of short-term investments. . . . . . . . . . . . . . . . . . . . . . (5) -- Purchases of property and equipment. . . . . . . . . . . . . . . . . . . . . . (5,649) (70) -------- --------- Net cash provided by investing activities. . . . . . . . . . . . . . . . 2,084 2,579 -------- --------- Cash flows from financing activities: Stock repurchases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,943) -- Proceeds from stock option exercises . . . . . . . . . . . . . . . . . . . . . 537 -- Proceeds from bridge loan. . . . . . . . . . . . . . . . . . . . . . . . . . . -- 2,000 Net proceeds from revolving line of credit . . . . . . . . . . . . . . . . . . -- 1,016 -------- --------- Net cash provided by (used in) financing activities . . . . . . . . . . (1,406) 3,016 -------- --------- Effect of changes in foreign currency exchange rate on cash and cash equivalents 72 (495) -------- --------- Decrease in cash and cash equivalents. . . . . . . . . . . . . . . . . . (2,840) (3,080) Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . 9,971 3,406 -------- --------- Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . $ 7,131 $ 326 ======== ========= 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 North America 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 generally accepted accounting principles 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 equity financing received on October 16, 2000, 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. (4) INCOME TAXES At September 30, 2000, the Company had $7.6 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) NOTES PAYABLE 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 September 30, 2000, the Company had sold $0.7 million 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 $1.0 million, based on eligible foreign accounts receivable. At September 30, 2000, the Company had drawn down $1.0 million 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. In connection with the agreement, the investor loaned the Company $2.0 million. This loan was unsecured and was credited towards the purchase price of shares of common stock purchased by the investor at the closing of the transaction, which was October 16, 2000. (6) RESTRUCTURING CHARGE During the three month period ended March 31, 2000, the Company implemented a plan to address the 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 property and equipment 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 $1.2 million has been paid at September 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 lease abandonment, approximately $0.6 has been paid against the reserve. At September 30, 2000, the Company believes the remaining provision is adequate to cover the future costs attributable to this plan. At September 30, 2000 an accrual of approximately $305,000 for severance pay remained related to severance contracts being paid over a 12-month period. In addition, approximately $273,000 remained accrued for future lease payments related to abandoned leases. (7) COMPREHENSIVE INCOME Comprehensive income is comprised of two components: net income and other comprehensive income. Other comprehensive income refers to revenues, expenses, gains and losses that under generally accepted accounting principles are recorded as an element of stockholder's equity and are excluded from net income. Other comprehensive income (loss) comprises foreign currency translation adjustments from international subsidiaries. The components of comprehensive income (loss) are listed below: Three Months Ended Nine Months Ended September 30, September 30, (in thousands) 1999 2000 1999 2000 -------- -------- ------ --------- Net loss. . . . . . . . . . . . . $(2,197) $ (884) $(592) $(11,426) Other comprehensive income (loss) 92 (241) 72 (495) -------- -------- ------ --------- Comprehensive loss. . . . . . . . (2,105) $(1,125) $(520) $(11,921) ======== ======== ====== ========= 7 (8) EARNINGS PER SHARE Basic net 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. As a result of net losses for the applicable periods, common stock equivalents were antidilutive and, accordingly, dilutive net earnings per share is the same as basic net earnings per share for such periods. Antidilutive stock options excluded from the diluted earnings per share calculation were 1,015,920 for the three months and nine months ended September 30, 1999 and 1,353,970 for the three months and nine months ended September 30, 2000. (9) GEOGRAPHIC FINANCIAL DATA Revenue and operating income (loss) from the Company's operations are presented below by operating division:
EUROPE, MIDDLE EAST AMERICAS & AFRICA ASIA PACIFIC TOTAL (In thousands) ------------- ---------- -------------- --------- THREE MONTHS ENDED SEPTEMBER 30, 1999 Revenue . . . . . . . . . . . . . $ 8,827 $ 4,076 $ 2,901 $ 15,804 Operating income (loss) . . . . . . (2,811) (872) 78 (3,605) THREE MONTHS ENDED SEPTEMBER 30, 2000 Revenue . . . . . . . . . . . . . $ 3,915 $ 2,549 $ 1,684 $ 8,148 Operating income (loss) . . . . . . (1,770) 31 (153) (1,892) NINE MONTHS ENDED SEPTEMBER 30, 1999 Revenue . . . . . . . . . . . . . $ 38,267 $ 16,984 $ 6,729 $ 61,980 Operating income (loss) . . . . . . (482) 38 (693) (1,137) Total assets. . . . . . . . . . . . 32,105 7,714 3,498 43,317 NINE MONTHS ENDED SEPTEMBER 30, 2000 Revenue . . . . . . . . . . . . . $ 8,508 $ 8,711 $ 5,317 $ 22,536 Operating income (loss) . . . . . . (13,956) (2,421) (1,117) (17,494) Total assets. . . . . . . . . . . . 17,054 4,360 2,295 23,709
(10) SUBSEQUENT EVENT On October 16, 2000, the Company consummated the sale to Purse Holding Limited ("Purse"), a British Virgin Islands limited company, 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. The sale was effected pursuant to a Securities Purchase Agreement ("the Agreement") dated August 2, 2000, between the Company and Purse. The Agreement was approved by the Company's shareholders at a special meeting held on October 12, 2000. The Company credited its $2 million loan, received from Purse on August 3, 2000, toward the $4.8 million purchase price of the two million shares of its common stock. In accordance with the terms of the Agreement, the Company issued two million shares of common stock at a price of $2.40 per share and warrants to purchase (a) two million shares of common stock, exercisable until October 16, 2003, at the greater of $3.00 per share or 85% of the market price per share of common stock at the time of exercise, and (b) one million shares of common stock, exercisable for the period of time after January 1, 2002, and until October 16, 2003, at $3.00 per share. 8 DA CONSULTING GROUP, INC. ITEM 2. MANAGEMENT'S DISCUSSION 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. RESULTS OF OPERATIONS. THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2000 Revenue. Revenue decreased by $7.7 million, or 48.4%, from $15.8 million in the third quarter of 1999 to $8.1 million in the third quarter of 2000, reflecting decreases in volume of services and a decrease in average bill rates. Revenue from the Americas Division decreased by 55.5% from $8.8 million to $3.9 million; revenue from the EMEA Division decreased by 37.4% from $4.1 million to $2.5 million; and revenues from the Asia Pacific Division decreased by 42.0% from $2.9 million to $1.7 million. The Company ended the third quarter with 306 total employees, down from 727 employees at the end of the same period of the prior year. Revenue for the third quarter of 2000 increased by 1.6% compared to revenue of $8.0 million in the second quarter of 2000 due to strong growth in the Americas division offset by loss of revenue in the EMEA and Asia Pacific divisions. Gross profit. Gross profit decreased by $3.5 million, or 46.8%, from $7.4 million in the third quarter of 1999 to $3.9 million in the third quarter of 2000 and increased as a percent of revenue from 46.7% in the third quarter of 1999 to 48.2% in the third quarter of 2000. The increase in the gross profit margin percentage is primarily attributable to increased staff utilization. Gross profit for the third quarter of 2000 increased by $1.1 million or 42.2% compared to the second quarter of 2000 due to increased staff utilization and a higher average bill rate. Selling and marketing expense. Selling and marketing expense decreased $0.5 million or 28.8%, from $1.6 million in the third quarter of 1999 to $1.2 million in the third quarter of 2000. The decrease is the result of cost reduction measures implemented during the first quarter of 2000 and reduced commissions expense related to the reduced level of sales in the third quarter of 2000 as compared to the same period of 1999. Development expense. Development expense increased $0.6 million or 163.7%, from $0.4 million in the third quarter of 1999 to $0.9 million in the third quarter of 2000. The increase in costs during the third quarter of 2000 is due to professional fees incurred for the development of the Company's web-enabled learning management system, which will be officially launched in November. General and administrative expense. General and administrative expense decreased by $5.3 million, or 58.5%, from $9.0 million in the third quarter of 1999 to $3.7 million in the third 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 loss. Operating loss decreased from a loss of $3.6 million in the third quarter of 1999 to an operating loss of $1.9 million in the third quarter of 2000. This decrease in loss is related to cost reduction measures taken during the first half of 2000, primarily in general and administrative expense, which offset the decrease in revenue for the third quarter of 2000 as compared to the same period of 1999. 9 Other income (expense), net. Other income (expense), net changed from income of $90,000 in the third quarter of 1999 to income of $58,000 in the third quarter of 2000. Interest income, net decreased from $92,000 in the third quarter of 1999 to $15,000 in the third quarter of 2000. The decrease in interest income is due to lower cash balances available for investment. Benefit for income taxes. The Company's effective tax rate was 37.5% in the third quarter of 1999 compared to 51.8% in the third quarter of 2000. The increase in the effective tax rate is due to a year-to-date adjustment to the deferred tax asset in the Asia Pacific Division. Net loss. The Company's net loss decreased by $1.3 million from $2.2 million in the third quarter of 1999 to $0.9 million in the third quarter of 2000 for the reasons discussed above. Basic and diluted net loss per share decreased from $0.34 in the third quarter of 1999 to $0.14 in the third quarter of 2000. NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2000 Revenue. Revenue decreased by $39.4 million, or 63.6%, from $62.0 million for the nine months ended September 30, 1999 to $22.5 million for the nine months ended September 30, 2000, reflecting decreases in volume of services and a decrease in average bill rates. Revenue from the Americas Division decreased by 77.8% from $38.3 million to $8.5 million; revenue from the EMEA Division decreased by 48.7% from $17.0 million to $8.7 million; and revenue from the Asia Pacific Division decreased by 21.0% from $6.7 million to $5.3 million. While the market for enterprise resource planning software began recovering in the fourth quarter of 1999, the Company began seeing recovery in the second quarter of 2000, as the Company's revenue generally lag the software sale from three to nine months. Gross profit. Gross profit decreased by $23.5 million, or 76.8%, from $30.7 million for the nine months ended September 30, 1999 to $7.1 million for the nine months ended September 30, 2000 and decreased as a percent of revenue from 49.5% in 1999 to 31.6% 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 $1.9 million or 32.6%, from $5.7 million for the nine months ended September 30,1999 to $3.9 million for the same period of 2000. The decrease is the result of cost reduction measures implemented during the first quarter of 2000 and reduced commissions expense related to the reduced level of sales for the nine months ended September 30, 2000 as compared to the same period of 1999. Development expense. Development expense increased $1.3 million or 72.1%, from $1.8 million for the nine months ended September 30, 1999 to $3.1 million for the nine months ended September 30, 2000. The increase in costs during the nine months ended September 30, 2000 is due to professional fees incurred for the development of the Company's web-enabled learning management system, which will be officially launched in November. 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 $10.0 million, or 41.1%, from $24.2 million for the nine months ended September 30, 1999 to $14.3 million for the nine months ended September 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 $1.7 million by consolidating locations during the nine months ended September 30, 2000. 10 Restructuring Charge. During the three month period ended March 31, 2000, the Company implemented a plan to address the 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 property and equipment 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 $1.2 million has been paid at September 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 lease abandonment, approximately $0.6 has been paid against the reserve. At September 30, 2000, the Company believes that the remaining provision is adequate to cover the future costs attributable to this plan. At September 30, 2000 an accrual of approximately $305,000 for severance pay remained related to severance contracts being paid over a 12-month period. In addition, approximately $273,000 remained accrued for future lease payments related to abandoned leases. Operating loss. Operating loss increased from $1.1 million for the nine months ended September 30, 1999 to $17.5 million for the same period of 2000. The increase resulted from rapid decreases in revenue beginning in the third quarter of 1999, resulting in lower expense coverage during nine months ended September 30, 2000 as compared to the revenues in the same period of 1999. Other income (expense) net. Other income (expense), net changed from $219,000 for the nine months ended September 30, 1999 to $54,000 for the same period of 2000. Interest income, net decreased from $309,000 for the nine months ended September 30, 1999 to $50,000 for the same period of 2000. The decrease in interest income is due to lower cash balances available for investment. Benefit for income taxes. The Company's effective tax rate was 35.5% for the nine months ended September 30, 1999 compared to 34.5% for the nine months ended September 30, 2000. The decrease in the effective rate is the result of certain nondeductible foreign operating losses. Net loss. The Company's net loss increased by $10.8 million from $0.6 million for the nine months ended September 30, 1999 to $11.4 million for the nine months ended September 30, 2000 for reasons discussed above. Basic and diluted net loss per share increased from $0.09 for the nine months ended September 30, 1999 to $1.78 for the same period of 2000. LIQUIDITY AND CAPITAL RESOURCES Since its inception, the Company has historically financed its operations with cash flow from operations, supplemented by the issuance of common stock and short-term borrowings under revolving line of credit arrangements. The Company's cash and cash equivalents were $0.3 million at September 30, 2000, compared to $3.4 million at December 31, 1999. The Company's working capital deficit was $2.0 million at September 30, 2000 compared to working capital surplus of $11.0 million at December 31, 1999. The Company's operating activities required cash of $8.2 million for the nine months ended September 30, 2000, compared to $3.6 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 nine months ended September 30, 2000 and increase in deferred income taxes offset by a reduction in accounts receivable and income taxes receivable. Investing activities provided cash of $2.6 million in the nine months ended September 30, 2000, compared to cash provided of $2.1 million for the same period in 1999. During the nine months ended September 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, offset by $5.6 million of purchases of property and equipment. 11 Financing activities provided cash of $3.0 million for the nine months ended September 30, 2000 as a result of a bridge loan of $2 million provided by Purse Holdings, Limited. In addition, the Company borrowed $1.0 million 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 by $0.5 million in 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 September 30, 2000, the Company had sold $0.7 million 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 $1.0 million, based on eligible foreign accounts receivable. At September 30, 2000, the Company had drawn down $1.0 million of this line. On October 16, 2000, the Company consummated the sale to Purse Holding Limited ("Purse"), a British Virgin Islands limited company, 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. The sale was effected pursuant to a Securities Purchase Agreement ("the Agreement") dated August 2, 2000, between the Company and Purse. The Agreement was approved by the Company's shareholders at a special meeting held on October 12, 2000. The Company credited its $2 million loan, received from Purse on August 3, 2000, toward the $4.8 million purchase price of the two million shares of its common stock. Capital expenditures for the 2000 have been scaled back significantly due to a temporary decline in the market for the Company's services. The Company believes its current cash balances, the proceeds of the equity financing received on October 16, 2000, receivable-based financings and cash provided by future operations will be sufficient to meet the Company's working capital and cash needs through 2001. However, there can be no assurance that such sources of funds will be sufficient to meet these future expenses. The Company's need for additional financing will be principally dependent on the degree of future market demand for the Company's services. 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, 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 September 30, 2000, the Company did not hold any short-term investments. 12 DA CONSULTING GROUP, INC. PART II-OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS On October 16, 2000, the Company consummated the sale to Purse Holding Limited ("Purse"), a British Virgin Islands limited company, 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. The sale was effected pursuant to a Securities Purchase Agreement ("the Agreement") dated August 2, 2000, between the Company and Purse. The Agreement was approved by the Company's shareholders at a special meeting held on October 12, 2000. The Company credited its $2 million loan, received from Purse on August 3, 2000, toward the $4.8 million purchase price of the two million shares of its common stock. In accordance with the terms of the Agreement, the Company issued two million shares of common stock at a price of $2.40 per share and warrants to purchase (a) two million shares of common stock, exercisable until October 16, 2003, at the greater of $3.00 per share or 85% of the market price per share of common stock at the time of exercise, and (b) one million shares of common stock, exercisable for the period of time after January 1, 2002, and until October 16, 2003, at $3.00 per share. These issues did not involve an underwriter. The Company considers these securities to have been offered and sold in transactions not involving a public offering and, therefore, to be exempted from the registration under Section 4(2) of the Securities Act of 1933, as amended. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the Company's Special Meeting of Shareholders held on October 12, 2000, the shareholders of the Company voted on the following matter: Approval of the Securities Purchase Agreement ("the Agreement") between the Company and Purse Holding Limited ("Purse"), a British Virgin Islands limited company, dated August 2, 2000 and in connection with to approve, (i) the issuance to Purse of two million shares of common stock, (ii) the issuance to Purse of warrants to purchase up to three million shares of common stock and the exercisability thereof, and (iii) approve the Board of Directors representation rights granted to Purse, all as set forth in the Agreement. The voting results were as follows: VOTES VOTES VOTES FOR AGAINST ABSTAINED --------- ------- --------- 3,517,036 486,245 74,900 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit 27 - Financial Data Schedule 13 (b) Reports on Form 8-K On August 4, 2000, the Company reported that it had signed a definitive agreement relating to the purchase by a private investor 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. On October 27, 2000, the Company reported that it had consummated the sale to Purse Holding Limited, 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. 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: November 13, 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) 14 EX-27 2 0002.txt
5 1,000 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 326 0 4,609 (850) 0 8,371 14,548 (5,769) 23,709 10,392 0 0 0 65 0 23,709 22,536 22,536 15,413 15,413 24,617 0 0 (17,440) (6,014) (11,426) 0 0 0 (11,426) (1.780) (1.780)
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