-----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, KcRCYtXYmBmfav/GTH26V3qMlVAUYay06EJJtscsXb9FlqKvePxObp6sQyaDUAnE IZycldvnV+d1sTWMqqbbJg== 0001015402-01-501266.txt : 20010516 0001015402-01-501266.hdr.sgml : 20010516 ACCESSION NUMBER: 0001015402-01-501266 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DA CONSULTING GROUP INC CENTRAL INDEX KEY: 0001051209 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [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: 1640589 BUSINESS ADDRESS: STREET 1: ONE EXETER PLAZA, FOURTH FLOOR CITY: BOSTON STATE: MA ZIP: 02116 BUSINESS PHONE: 6173752800 MAIL ADDRESS: STREET 1: ONE EXETER PLAZA STREET 2: FOURTH FLOOR CITY: BOSTON STATE: MA ZIP: 02116 10-Q 1 doc1.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 MARCH 31, 2001. 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 IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) ONE EXETER PLAZA, 4TH FLOOR BOSTON, MASSACHUSETTS 02116 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (617) 375-2800 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 May 14, 2001 - - 8,418,604 ================================================================================ 1
DA CONSULTING GROUP, INC. INDEX PART I FINANCIAL INFORMATION PAGE NO. -------- Item 1. Financial Statements Condensed Consolidated Balance Sheets at March 31, 2001 and December 31, 2000 3 Condensed Consolidated Statements of Operations for the Three Months ended March 31, 2001 and 2000 4 Condensed Consolidated Statement of Cash Flows for the Three Months ended March 31, 2001 and 2000 5 Notes to Unaudited Condensed Consolidated Financial Statements 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 11 PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 11 Signatures
2
PART I-FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS DA CONSULTING GROUP, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share amounts) MARCH 31, DECEMBER 31, 2001 2000 ------------------- -------------- ASSETS (Unaudited) ------ Current Assets: Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . $ 488 $ 949 Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . 3,744 5,226 Unbilled revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . 421 206 Deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . 653 708 Prepaid expenses and other current assets. . . . . . . . . . . . . . . 615 440 ------------------- -------------- Total current assets . . . . . . . . . . . . . . . . . . . . . . . 5,921 7,529 ------------------- -------------- Property and equipment, net. . . . . . . . . . . . . . . . . . . . . . 7,471 8,130 Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 260 254 Deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . 9,043 8,647 Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . 375 380 ------------------- -------------- Total assets .. . . . . . . . . . . . . . . . . . . . . . . . $ 23,070 $ 24,940 =================== ============== LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Current Liabilities: Revolving line of credit . . . . . . . . . . . . . . . . . . . . . . . $ 463 $ 154 Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,842 1,840 Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,753 6,655 ------------------- -------------- Total current liabilities. . . . . . . . . . . . . . . . . . . . . 8,058 8,649 ------------------- -------------- 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; 8,571,777 shares issued; 8,418,604 shares outstanding at March 31, 2001 and December 31, 2000. . . . . . . . . . . . . . . . . . . . . . . . . . 85 85 Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . 34,039 34,039 Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . . . . . (16,030) (15,082) Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . (1,560) (1,229) Treasury stock, at cost: 153,173 shares at March 31, 2001 and December 31, 2000. . . . . . . . . . . . . . . . . . . . . . . . . . (1,522) (1,522) ------------------- -------------- Total shareholders' equity . . . . . . . . . . . . . . . . . . . . 15,012 16,291 ------------------- -------------- Total liabilities and shareholders' equity. . . . . . . . . . $ 23,070 $ 24,940 =================== ==============
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 MARCH 31, 2001 2000 -------- --------- Revenue . . . . . . . . . . . . . . $ 8,536 $ 6,369 Cost of revenue . . . . . . . . . . 4,993 5,928 -------- --------- Gross profit. . . . . . . . . . . 3,543 441 Selling and marketing expense . . . 1,058 1,418 Development expense . . . . . . . . 458 469 General and administrative expense. 3,523 6,118 Restructuring charge. . . . . . . . - 3,354 -------- --------- Operating loss. . . . . . . . . . (1,496) (10,918) -------- --------- Interest (expense) income, net. . . (6) 26 Other income, net . . . . . . . . . 6 - -------- --------- Total other income, net . . . . . - 26 -------- --------- Loss before taxes . . . . . . . . (1,496) (10,892) Benefit for income taxes. . . . . . (548) (3,423) -------- --------- Net loss . . . . . . . . . . $ (948) $ (7,469) ======== ========= Basic loss per share. . . . . . . . $ (0.11) $ (1.16) Weighted average shares outstanding 8,419 6,418 Diluted loss per share. . . . . . . $ (0.11) $ (1.16) Weighted average shares outstanding 8,419 6,418
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) THREE MONTHS ENDED MARCH 31, 2001 2000 ------- -------- Cash flows from operating activities: Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (948) $(7,469) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . . 623 852 Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . (341) (3,371) Writedown of fixed assets and reserve for leasehold abandonment. . . . . . . - 1,935 Changes in operating assets and liabilities: Accounts receivable and unbilled revenue . . . . . . . . . . . . . . . . . 1,267 3,431 Income tax receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . - 837 Prepaid expenses and other current assets. . . . . . . . . . . . . . . . . (175) (138) Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6) (151) Accounts payable and accrued expenses. . . . . . . . . . . . . . . . . . . (824) 1,072 Deferred income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - (45) ------- -------- Total adjustments. . . . . . . . . . . . . . . . . . . . . . . . . . . . 544 4,422 ------- -------- Net cash used in operating activities. . . . . . . . . . . . . . . (404) (3,047) ------- -------- Cash flows from investing activities: Sales of short-term investments. . . . . . . . . . . . . . . . . . . . . . . . - 2,389 Purchases of property and equipment. . . . . . . . . . . . . . . . . . . . . . (35) (61) ------- -------- Net cash (used in) provided by investing activities. . . . . . . . . . . . (35) 2,328 ------- -------- Cash flows from financing activities: Proceeds from revolving line of credit . . . . . . . . . . . . . . . . . . . . 309 489 ------- -------- Net cash provided by financing activities. . . . . . . . . . . . . . . . . 309 489 ------- -------- Effect of changes in foreign currency exchange rate on cash and cash equivalents (331) (164) ------- -------- Decrease in cash and cash equivalents. . . . . . . . . . . . . . . . . . . (461) (394) Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . 949 3,406 ------- -------- Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . $ 488 $ 3,012 ======= ========
5 DA CONSULTING GROUP, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (1) ORGANIZATION AND BUSINESS DA Consulting Group, Inc. ("DACG") together with its subsidiaries, (the "Company") is a leading international provider of employee education and software solutions to companies investing in business information technology. Through its offices in seven countries, DACG delivers customized services for documentation and training necessary for implementation of extended enterprise software applications; technical and non-technical employee education and continuous learning programs; e-Learning applications such as computer-based-training and learning management systems; and consulting on human resource management, change management and change communications. The consolidated financial statements include the accounts of DA Consulting Group, Inc. and all majority-owned subsidiaries. Intercompany balances and transactions have been eliminated in consolidation. (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 of America 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 for the year ended December 31, 2000, 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. (3) LIQUIDITY The Company believes its current cash balances, receivable-based financing, revolving line of credit and cash provided by future operations will be sufficient to meet the Company's working capital and cash needs for at least the next 12-month period. However, there can be no assurance that such sources of funds will be sufficient to meet these needs. The Company may seek additional financing through public or private placement of equity. The Company's need for additional financing will be principally dependent on the degree of market demand for the Company's services. There can be no assurance that the Company would be able to obtain additional financing on acceptable terms, if at all. (4) INCOME TAXES At March 31, 2001, the Company had $9.7 million of deferred tax assets primarily consisting of net operating loss carryforwards. The benefit from utilization of net operating loss carryforwards could be subject to limitations if significant ownership changes occur in the Company. The Company's ability to realize the entire benefit of its deferred tax asset requires that the Company achieve certain future earnings levels prior to the expiration of its net operating loss carryforwards. To realize the full value of the tax assets in the future, the Company would need to earn approximately $27.0 million before the expiration of the net operating loss carryforwards. The Company could be required to record a valuation allowance for a portion or all of its deferred tax assets if market conditions deteriorate and future earnings are below, or projected to be below, its current estimates. The Company continues to believe it will generate sufficient taxable income to ensure realization of existing and available tax benefits, accordingly, no valuation allowance has been provided. 6 (5) DEBT Revolving Line of Credit In March 2000, the Company signed a credit facility agreement with an available line of approximately $750,000, based on eligible foreign accounts receivable. At March 31, 2001, the Company had drawn down $463,000 of this line. The interest rate on this line of credit was 7.75% at March 31, 2001. Accounts Receivable Financing In March 2000, the Company signed 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 the agreement is $5 million. At March 31, 2001, the Company had sold $558,000 in accounts receivable pursuant to this agreement. (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 of 2000. The Company reserved approximately $1.5 million expense attributable to involuntary employee termination benefits during the first quarter 2000, of which approximately $1.4 million has been paid through March 31, 2001. In addition, the Company 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 in the first quarter of 2000. During the fourth quarter of 2000, due to weakening in the real estate market, the Company recorded an additional $1.3 million reserve for lease abandonment resulting in a total annual charge of $2.2 million. Of the $2.2 million reserved for lease abandonment, approximately $1.1 million has been paid against the reserve. At March 31, 2001, the Company believes that the remaining provision is adequate to cover the future costs attributable to this plan. At March 31, 2001, an accrual of approximately $0.1 million for severance pay remained related to severance contracts being paid over a 5-month period. In addition, approximately $1.1 million remained accrued for future lease payments related to abandoned leases. (7) COMPREHENSIVE INCOME Comprehensive income is comprised of two components: net loss and other comprehensive income. Other comprehensive income refers to revenue, expenses, gains and losses that under generally accepted accounting principles are recorded as an element of shareholders' equity and are excluded from net loss. Other comprehensive income is comprised of foreign currency translation adjustments from international subsidiaries. The components of comprehensive income are listed below (in thousands): THREE MONTHS ENDED MARCH 31, 2001 2000 -------- -------- Net loss . . . . . . . . $ (948) $(7,469) Other comprehensive loss (331) (164) -------- -------- Comprehensive loss . . . $(1,279) $(7,633) ======== ======== 7 (8) 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 quarter ended March 31, 2001 and 2000 (in thousands, except per share amounts):
THREE MONTHS ENDED MARCH 31, 2001 2000 ------- -------- Basic loss per share . . . . . . . . . . . . . . . . . . $(0.11) $ (1.16) ======= ======== Net loss . . . . . . . . . . . . . . . . . . . . . . . . $ (948) $(7,469) ======= ======== Weighted average shares outstanding. . . . . . . . . . . 8,419 6,418 Computation of diluted earnings per share: Common shares issuable under outstanding stock options - - Less shares assumed repurchased with proceeds from exercise of stock options . . . . . . . . . . . . - - ------- -------- Adjusted weighted average shares outstanding . . . . . 8,419 6,418 ======= ======== Diluted loss per share . . . . . . . . . . . . . . . . . $(0.11) $ (1.16) ======= ========
Approximately 1,329,000 antidilutive options and 3,000,000 antidilutive warrants were excluded from the calculation of diluted earnings per share for the three months ended March 31, 2001. Approximately 963,000 antidilutive options were excluded from the calculation of diluted earnings per share for the three months ended March 31, 2000. (9) GEOGRAPHIC FINANCIAL DATA Revenue from the Company's operations are presented below by operating division (in thousands):
EUROPE, MIDDLE EAST AMERICAS & AFRICA ASIA PACIFIC TOTAL ---------- ------------- -------------- --------- THREE MONTHS ENDED MARCH 31, 2001 Revenue . . . . . . . . . . $ 2,410 $ 4,673 $ 1,453 $ 8,536 Operating income (loss) . . (1,384) 38 (150) (1,496) THREE MONTHS ENDED MARCH 31, 2000 Revenue . . . . . . . . . . 1,993 3,229 1,147 6,369 Operating loss. . . . . . . (8,174) (1,600) (1,144) (10,918)
DA CONSULTING GROUP, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW DA Consulting Group, Inc. ("DACG") together with its subsidiaries, (the "Company") is a leading international provider of employee education and software solutions to companies investing in business information technology. Through its offices in seven countries, DACG delivers customized services for documentation and training necessary for implementation of extended enterprise software applications; technical and non-technical employee education and continuous learning programs; e-Learning applications such as computer-based-training and learning management systems; and consulting on human resource management, change management and change communications. 8 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; the EMEA Division, which includes Europe; and the Asia Pacific Division, which includes its Australia and Asia operations. RESULTS OF OPERATIONS. THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THREE MONTHS ENDED MARCH 31, 2000 Revenue. Revenue increased by $2.1 million, or 34.0%, from $6.4 million in the first quarter of 2000 to $8.5 million in the first quarter of 2001, reflecting increases in product sales, volume of professional services and bill rates. Revenue from the Americas Division increased by 20.9% from $2.0 million to $2.4 million; revenue from the EMEA Division increased by 44.7% from $3.2 million to $4.7 million; and revenue from the Asia Pacific Division increased by 26.7% from $1.1 million to $1.5 million. The Company ended the first quarter with 337 total employees, down from 402 employees at the end of the same period of the prior year. Billable headcount has increased 24% over the fourth quarter 2000 and decreased 11% compared to the first quarter of 2000. Revenue for the first quarter of 2001 was 1% more than revenue in the fourth quarter of 2000 due to the continued improvement in the market for complex computer software and the Company expects continued improvement in the upcoming quarters. Gross profit. Gross profit increased by $3.1 million, or 700%, from $0.4 million in the first quarter of 2000 to $3.5 million in the first quarter of 2001 and increased as a percent of revenue from 6.9% in the first quarter of 2000 to 41.5% in the first quarter of 2001. The increase in the gross profit margin percentage is primarily attributable to increased product sales and increased bill rates. Selling and marketing expense. Selling and marketing expense decreased $0.3 million or 25.4%, from $1.4 million in the first quarter of 2000 to $1.1 million in the first quarter of 2001. The decrease is the result of cost reduction measures taken in the first quarter of 2000 and moving to a localized marketing and telesales effort in support of a team of account managers in 2001. Development expense. Development expense decreased $11,000, or 2.3%, from $469,000 in the first quarter of 2000 to $458,000 in the first quarter of 2001. Primary expenditures for development in the first quarter of 2000 were for preparation of tools for the Version 4.6 SAP upgrade and development of the Company's proprietary web-based learning management system, Dynamic IQ. Primary expenditures in the first quarter of 2001 were for Dynamic IQ and a CD Based testing product named Mind Museum. General and administrative expense. General and administrative expense decreased by $2.6 million, or 42.4%, from $6.1 million in the first quarter of 2000 to $3.5 million in the first quarter of 2001. 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. General and administrative personnel total 40 at the end of the first quarter of 2001 compared to 69 at the end of the first quarter of 2000. 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 of 2000. The Company recognized approximately $1.5 million expense attributable to involuntary employee termination benefits during the first quarter 2000, of which approximately $1.4 million has been paid through March 31, 2001. In addition, the Company 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 in the first quarter of 2000. During the fourth quarter of 2000, due to weakening in the real estate market, the Company recorded an additional $1.3 million reserve for lease abandonment resulting in a total annual charge of $2.2 million. Of the $2.2 million reserved for lease abandonment, approximately $1.1 million has been paid against the reserve. At March 31, 2001, the Company believes that the remaining provision is adequate to cover the future costs attributable to this plan. At March 31, 2001, an accrual of approximately $0.1 million for severance pay remained related to severance contracts being paid over a 5-month period. In addition, approximately $1.1 million remained accrued for future lease payments related to abandoned leases. 9 Operating loss. Operating loss decreased from $10.9 million in the first quarter of 2000 to an operating loss of $1.5 million in the first quarter of 2001. This decrease resulted from increases in revenue and resulting improved gross margins, coupled with lower operating expenses as compared to the first quarter of 2000. Benefit for income taxes. The Company's effective tax rate was 36.6% in the first quarter of 2001 compared to 31.4% in the first quarter of 2000. The lower effective rate for the first quarter of 2000 is the result of nondeductible operating losses in various countries. At March 31, 2001, the Company had $9.7 million of deferred tax assets primarily consisting of net operating loss carryforwards. The benefit from utilization of net operating loss carryforwards could be subject to limitations if significant ownership changes occur in the Company. The Company's ability to realize the entire benefit of its deferred tax asset requires that the Company achieve certain future earnings levels prior to the expiration of its net operating loss carryforwards. To realize the full value of the tax assets in the future, the Company would need to earn approximately $27.0 million before the expiration of the net operating loss carryforwards. The Company could be required to record a valuation allowance for a portion or all of its deferred tax assets if market conditions deteriorate and future earnings are below, or projected to be below, its current estimates. The Company continues to believe it will generate sufficient taxable income to ensure realization of existing and available tax benefits, accordingly, no valuation allowance has been provided. Net loss. The Company's net loss decreased by $6.6 million from $7.5 million in the first quarter of 2000 to a net loss of $0.9 million in the first quarter of 2001 for reasons discussed above. Loss per share decreased from $1.16 in the first quarter of 2000 to a loss per share of $0.11 in the first quarter of 2001. LIQUIDITY AND CAPITAL RESOURCES Since its inception, the Company has historically financed its operations and growth with cash flows from operations, short-term borrowings under revolving line of credit arrangements and receivables-based financing. The Company's cash and cash equivalents were $0.5 million at March 31, 2001, compared to $0.9 million at December 31, 2000. The Company's working capital deficit was $2.1 million at March 31, 2001 and $1.1 million at December 31, 2000. The Company's operating activities required cash of $0.4 million for the three months ended March 31, 2001, compared to $3.0 million for the same period in 2000. The decrease in cash used in operations resulted primarily from reduced operating losses incurred in the first quarter of 2001. Investing activities required cash of $35,000 in the three months ended March 31, 2001, compared to cash provided of $2.3 million for the same period in 2000. During the same period of 2000, the Company had net sales of short-term investments of $2.4 million. Financing activities provided cash of $309,000 for the three months ended March 31, 2001 as a result of drawdowns on a short-term line of credit during the quarter compared to $489,000 during the three months ended March 31, 2000. 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 $5.0 million. At March 31, 2001, the Company had sold $558,000 of receivables pursuant to this agreement. In March 2000, the Company obtained a credit facility from a bank with a maximum line of credit of approximately $750,000, based on eligible foreign accounts receivable. At March 31, 2001, the Company had borrowed $463,000 against this line. 10 Capital expenditures for 2001 are not expected to be significant. The Company believes its current cash balances, receivable-based financing, revolving line of credit and cash provided by future operations will be sufficient to meet the Company's working capital and cash needs for at least the next 12-month period. However, there can be no assurance that such sources of funds will be sufficient to meet these needs. The Company may seek additional financing through public or private placement of equity. The Company's need for additional financing will be principally dependent on the degree of market demand for the Company's services. There can be no assurance that the Company would be able to obtain additional financing on acceptable terms, if at all. 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 March 31, 2001, the Company did not hold any short-term investments. Currency exchange rate fluctuations between the U.S. dollar and the Euro, British pound, Canadian dollar, Singapore dollar, and the Australian dollar have an impact on revenue and expenses of the Company's international operations. Dramatic fluctuations could have a negative effect upon the Company's financial condition. DA CONSULTING GROUP, INC. PART II-OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended March 31, 2001. 11 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: May 15, 2001 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) -----END PRIVACY-ENHANCED MESSAGE-----