-----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, SHAw1nq4Uqm8f/NEUoCR86zL2r39KcqQUSFNmmGkRqWTRb8YP6YdrA1ZvGj6fsyc DMFEP67PPPPnZP0WQQ5tOg== 0001047469-99-021024.txt : 19990518 0001047469-99-021024.hdr.sgml : 19990518 ACCESSION NUMBER: 0001047469-99-021024 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ZAMBA CORP CENTRAL INDEX KEY: 0000883741 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER COMMUNICATIONS EQUIPMENT [3576] IRS NUMBER: 411636021 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-22718 FILM NUMBER: 99626464 BUSINESS ADDRESS: STREET 1: 7301 OHMS LANE STE 200 CITY: MINNEAPOLIS STATE: MN ZIP: 55439 BUSINESS PHONE: 6128329800 MAIL ADDRESS: STREET 1: 7301 OHMS LANE STREET 2: STE 200 CITY: MINNEAPOLIS STATE: MN ZIP: 55439 FORMER COMPANY: FORMER CONFORMED NAME: RACOTEK INC DATE OF NAME CHANGE: 19931025 10-Q 1 10-Q - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ 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, 1999 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 0-22718 ------- ZAMBA CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE #41-1636021 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 7301 OHMS LANE, SUITE 200, MINNEAPOLIS, MINNESOTA 58439 (Address of principal executive offices, including zip code) (612) 832-9800 (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. OUTSTANDING AT CLASS MARCH 31, 1999 ----- -------------- Common Stock, $0.01 par value 29,505,828 - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ THIS REPORT CONSISTS OF 15 SEQUENTIALLY NUMBERED PAGES. ZAMBA CORPORATION INDEX PART I -- FINANCIAL INFORMATION
PAGE NO. -------- Item 1. Financial Statements (Unaudited) Consolidated Statements of Operations for the Three Months Ended March 31, 1999, and 1998 3 Consolidated Balance Sheets as of March 31, 1999, and December 31, 1998 4 Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1999, and 1998 5 Consolidated Notes to Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Item 3. Not Applicable PART II -- OTHER INFORMATION Items 1-5. Not applicable 12 Item 6. Exhibits and Reports on Form 8-K 12 Signatures 13
2 PART I. FINANCIAL INFORMATION ITEM 1: FINANCIAL STATEMENTS ZAMBA CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA) THREE MONTHS ENDED MARCH 31, ------------------ 1999 1998 -------- -------- Net revenues: Services $4,773 $1,334 Products 50 70 -------- -------- 4,823 1,404 Costs and expenses: Project costs 2,785 500 Other costs 594 163 Research and development - 384 Sales and marketing 523 478 General and administrative 1,024 451 Amortization of intangibles 936 - -------- -------- Loss from operations (1,039) (572) Other Income (expense): Interest income 23 76 Interest expense (24) - -------- -------- (1) 76 Net loss ($1,040) ($496) -------- -------- -------- -------- Net loss per share- basic and diluted ($0.04) ($0.02) -------- -------- -------- -------- Weighted average shares outstanding 29,061 25,001 -------- -------- -------- --------
The accompanying notes are an integral part of the consolidated financial statements. 3 ZAMBA CORPORATION CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
ASSETS MARCH 31, DECEMBER 31, 1999 1998 ------------ -------------- Current assets: Cash and cash equivalents $3,295 $2,962 Accounts receivable, net 3,859 2,150 Unbilled receivables 71 284 Prepaid expenses and other current assets 244 299 ------------ -------------- Total current assets 7,469 5,695 Property and equipment, net 1,163 1,175 Restricted cash 200 200 Indentifiable intangible assets, net 5,838 6,768 Goodwill, net 95 38 Other assets 65 65 ------------ -------------- Total assets $14,830 $13,941 ------------ -------------- ------------ -------------- LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Current installments of long-term debt $265 $285 Accounts payable 962 195 Accrued expenses 1,075 765 Deferred revenue 1,183 334 ------------ -------------- Total current liabilities 3,485 1,579 ------------ -------------- Long-term debt, less current liabilities 1,121 1,240 ------------ -------------- Commitments Total liabilities 4,606 2,819 ------------ -------------- Stockholders' equity: Common stock, $0.01 par value, 55,000 shares authorized, 29,506 and 29,014 issued and outstanding at March 31, 1999 and December 31, 1998, respectively 295 290 Additional paid-in capital 78,804 78,667 Accumulated deficit (68,875) (67,835) ------------ -------------- Total stockholders' equity 10,224 11,122 ------------ -------------- Total liabilities and stockholders' equity $14,830 $13,941 ------------ -------------- ------------ --------------
The accompanying notes are an integral part of the consolidated financial statements. 4 ZAMBA CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS) THREE MONTHS ENDED MARCH 31, -------------------------- 1999 1998 -------- -------- Cash flows from operating activities: Net loss ($1,040) ($496) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 1,104 118 Provision for bad debts 25 - Amortization of discounts on investments - 2 Changes in operating assets and liabilities: Accounts receivable (1,734) 39 Unbilled receivables 214 - Prepaid expenses and other current assets 52 (2) Accounts payable 766 142 Accrued expenses 311 (171) Deferred revenue 849 (85) -------- -------- Net cash provided by (used in) operating activities 547 (453) Cash flows from investing activities: Purchase of investments - (1,927) Proceeds from maturity of investments - 1,600 Purchase of equipment (153) (8) Payment on debt (35) - Other (60) - -------- -------- Net cash used in investing activities (248) (335) Cash flows from financing activities: Proceeds from exercises of stock options and warrants 34 28 -------- -------- Net cash provided by financing activities 34 28 -------- -------- Net change in cash and cash equivalents 333 (760) Cash and cash equivalents, beginning of period 2,962 3,103 -------- -------- Cash and cash equivalents, end of period $3,295 $2,343 -------- -------- -------- --------
The accompanying notes are an integral part of the consolidated financial statements. 5 ZAMBA CORPORATION NOTES TO FINANCIAL STATEMENTS Note A. Basis of Presentation: The unaudited consolidated financial statements of Zamba Corporation ("Zamba" or the "Company") as of March 31, 1999, and for the three month periods ended March 31, 1999, and 1998, reflect, in the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to fairly state our financial position as of March 31, 1999, and our results of operations and cash flows for the reported period. The results of operations for any interim period are not necessarily indicative of the results to be expected for any other interim period or for the full year. The year-end balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. These financial statements should be read in conjunction with our audited consolidated financial statements and related notes for the year ended December 31, 1998, which were included in our 1998 Annual Report on Form 10-K. Note B. Net Loss per Share: We incurred net losses for the three month periods ended March 31, 1999 and 1998, and excluded assumed conversion shares from the diluted loss per share computation, because their effect is anti-dilutive. At March 31, 1999, we had 8,059,759 stock options outstanding, which may be dilutive in future periods. Note C. Selected Balance Sheet Information:
(in thousands) March 31, 1999 December 31, 1998 -------------- ----------------- (Unaudited) Accounts receivable, net: Accounts receivable $ 4,109 $ 2,377 Less allowance for doubtful accounts (250) (227) -------- -------- $ 3,859 $ 2,150 -------- -------- -------- -------- Property and equipment, net: Computer equipment $ 2,548 $ 2,462 Furniture and equipment 575 507 Leasehold improvements 186 186 -------- -------- 3,309 3,155 Less accumulated depreciation and amortization (2,146) (1,980) -------- -------- $ 1,163 $ 1,175 -------- -------- -------- --------
6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Zamba is a national customer care consulting company. Our services are designed to assist clients in building lasting relationships with customers, increase the effectiveness of customer service and sales operations, and improve overall communication with customers. We deliver our services using a unique combination of accumulated expertise in the customer care field, existing technology, and client knowledge. Typically, we perform our services on a fixed-bid, fixed-timetable basis. Rapid development and significant client involvement are key aspects to our methodologies. We offer our clients end-to-end assistance with their implementations, including business case evaluation, system planning and design, software implementation, modification and development, training, installation, change management, network management, and on-going support. Our services include the design, implementation and integration of several enterprise level applications to facilitate sales automation, call center management, marketing automation and automated field service and sales. The Company currently derives most of its revenue from systems integration services including business case evaluation, system planning and design, software package implementation, custom software development, training, installation and change management. The Company also derives recurring revenue from providing post implementation support. The Company's revenues and earnings may fluctuate from quarter to quarter based on the number, size and scope of projects in which the Company is engaged, the contractual terms and degree of completion of such projects, any delays incurred in connection with a project, employee utilization rates, the adequacy of provisions for losses, the accuracy of estimates of resources required to complete ongoing projects, and general economic conditions and other factors. In addition, revenues from a large client may constitute a significant portion of the Company's total revenue in a particular quarter. RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1999, COMPARED TO THE THREE MONTHS ENDED MARCH 31, 1998 Revenues increased 243% to $4.82 million in 1999 compared to $1.40 million in 1998. The increase in revenues is due to Zamba's acquisition of The QuickSilver Group ("QuickSilver") in September 1998 and growth in the combined business since the acquisition. 1999 revenues include $4.77 million of service revenue and $50,000 of product revenue, as compared to $1.33 million of service revenue and $70,000 of product revenue in 1998. The increase in service revenue is primarily due the Company's transition to the sale of system integration services, the QuickSilver acquisition, and increased market acceptance of the Company's services. The decrease in product revenue is due to the Company's transition away from selling stand-alone software products. The Company expects services revenues to increase throughout 1999 while product revenues should continue to decline. 7 Project costs consist primarily of salaries and employee benefits for personnel dedicated to client projects and direct expenses incurred to complete projects that were not reimbursed by the client. These costs represent the most significant expense Zamba incurs in providing its services. Project costs were $2.79 million or 58% of net revenues in 1999 compared to $500,000 or 36% in 1998. The increase was primarily due to the increase in project personnel. Project personnel increased as a result of the acquisition of QuickSilver, the Company's change in focus from software to services, and the increased number and size of the Company's engagements. The Company expects project personnel costs to increase on a dollar basis throughout 1999 in order to deliver revenue growth from customer care services. Other costs consist of non-billable project personnel costs and other business costs, including training and recruiting costs. Other costs were $594,000 or 12% of net revenues in 1999 compared to $163,000 or 12% of net revenues in 1998. The increase in other costs relates primarily to the increase in headcount for both training and recruiting personnel which are necessary to develop the Company's infrastructure to support the Company's anticipated growth. No research and development expenses were incurred in the first quarter of 1999 compared to $384,000 in 1998. The 1998 expenses represent costs we incurred to develop NextNet before completing the outside financing for NextNet on September 21, 1998, as discussed in our Form 10-K for the year ended December 31, 1998. We do not expect to incur any research and development costs in 1999. Sales and marketing expenses were $523,000 or 11% of net revenues in 1999 compared to $478,000 or 34% of net revenues in 1998. The increase in dollar terms is due to the hiring of additional direct sales personnel. The decrease in percentage terms is due to the Company's increased revenue and its success in the marketplace. The Company expects the amount spent for sales and marketing costs to increase slightly throughout 1999 as we grow our staff and pay commissions for the expected increase in sales. General and administrative expenses were $1.02 million or 21% of net revenues in 1999 compared to $451,000 or 32% of net revenues in 1998. The increase in dollar terms is primarily due to Zamba's acquisition of QuickSilver and the related increase in staff headcount as well as increased facilities and depreciation expenses. The decrease in percentage terms mostly reflects the Company's increased revenues. The Company anticipates general and administrative costs to increase on a dollar basis over the next several quarters as the Company continues to expand geographically and invest in developing a technology infrastructure to support its anticipated revenue and headcount growth. Intangible asset amortization expense was $936,000 in 1999 compared to $0 in 1998. This increase is due to the acquisition of QuickSilver. The acquisition was accounted for using the purchase method of accounting and the purchase price was allocated to tangible and identifiable intangible assets. The fair value of identifiable intangible assets was $7.70 million and was allocated to the following categories: people and experiences, client references, client lists, and intellectual property and delivery methodology. These amounts are being amortized over economic useful lives of between two and four years. 8 Interest income was $23,000 in 1999 compared to $76,000 in 1998. The decrease is due to decreases in Zamba's cash and investment balances, which were used to fund operating activities. Interest expense was $24,000 in 1999 compared to $0 in 1998. The increase is due to interest charges paid on debt acquired as result of the acquisition of QuickSilver and interest charges accrued for future payments of the notes payable issued in connection with the acquisition of QuickSilver. LIQUIDITY AND CAPITAL RESOURCES As of March 31, 1999, the Company had no significant capital spending or purchase commitments and had cash and cash equivalents totaling $3.29 million and working capital of $3.98 million. In the first quarter of 1999, $547,000 was provided from operating activities compared to the $453,000 used in operating activities in the same period in 1998. The increase in cash provided from operating activities is due to a more focused effort on cash management. During the first quarter of 1999 the company used $248,000 in investing activities. The Company believes its existing capital resources will be sufficient to meet its capital requirements into 2000. YEAR 2000 Year 2000 computer issues create risks for the Company. The full extent and scope of such risks have not yet been fully assessed. In the event that internal products and systems, or those products and systems provided or utilized by third parties do not correctly recognize and process date information beyond the year 1999, material adverse effects on the Company's business, operating results, and financial condition could result. To address Year 2000 issues, the Company has initiated a program designed to address the most critical Year 2000 items that would affect the Company's products and the operations of the following functions: operations, finance, sales and human resources. The Company has not commenced work on contingency plans to address potential problems with its internal systems or the systems of its supplier and customers or other third parties. In December 1998, the Company commenced a program to inventory, assess, remediate, and test the Year 2000 capability of the Zamba software products. All Zamba Year 2000 activities concerning the Company's current products are expected to be completed by October 1999. Other Year 2000 issues primarily consist of assessing the Year 2000 impact for outside vendors, customers, and facilities. Project plans are being developed and will include the process of identifying and prioritizing critical suppliers and customers at the direct interface level, and communicating with them about their plans and progress in addressing Year 2000 issues. Detailed evaluations of the most critical third parties have been initiated. It is expected that all Year 2000 project plans, 1999 budgets and the remaining inventories will be completed by the end of the second quarter of 1999. This effort will be followed by each business function conducting a focused level of ranking and functional assessment of its inventory to establish the methods and actions required to resolve any Year 2000 issues discovered. The assessment efforts 9 are estimated to be completed by the end of the second quarter of 1999. The remediation (modification or replacement of existing software or systems) and the testing phases of the project plans are expected to take place throughout most of 1999 and are estimated to be completed, for all business critical items, by the fourth quarter of 1999. All remaining issues (which are considered low priority or low risk to the business) are planned to be addressed as time permits and could continue through the first half of 2000. The Company has spent nominal amounts to date and doesn't expect the total cost associated with required modifications to become Year 2000 ready to be significant or to have a material adverse effect on the Company's business, operating results and financial condition. The Company's current estimates of the amount of time and costs necessary to implement and test its systems are based on the facts and circumstances existing at this time. New developments may occur that could affect the Company's estimates for the required modifications to become Year 2000 ready. These developments include, but are not limited to: (a) the availability and cost of personnel trained in this area, (b) the ability to locate and correct all relevant computer code and equipment, and (c) the planning and modifications success needed to achieve full implementation. Readers are cautioned that the foregoing discussion regarding Year 2000 computer issues contains forward-looking statements based on current expectations that involve risks and uncertainties and should be considered in conjunction with the following. The failure to correct a material Year 2000 problem could result in an interruption in, or a failure of, certain normal business activities or operations of the Company. Such failures could materially and adversely affect the Company's business, operating results, and financial condition. Due in large part to the uncertainty of the Year 2000 readiness of third-party suppliers and customers, as well as the lack of a final Year 2000 project plan for the remaining internal business systems that are not yet assessed as Year 2000 ready, the Company is currently unable to determine whether the consequences of Year 2000 issues will have a material impact on the Company's business, operating results or financial condition. The Company's programs addressing Year 2000 computer issues are expected to reduce the Company's level of uncertainty regarding Year 2000 issues and, in particular, about the Year 2000 readiness of its material internal operations, suppliers, customers, and other third-parties. In addition, the company believes that the current Year 2000 activities surrounding the Company's software products and internal systems have reduced the risk of any disruption caused by any Year 2000 issues in these areas. NEW ACCOUNTING STANDARDS Statement of Financial Accounting Standard No. 133 "Accounting for Derivative Instruments and Hedging Activities" (SFAS No. 133), effective in 2000, establishes new standards for recognizing all derivatives as either assets or liabilities, and measuring those instruments at fair value. The Company has no derivative financial instruments. At the present time, the Company does not anticipate that SFAS No. 133 will have a material impact on the financial position or results of operations. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company has debt at a fixed interest rate of 7%, as described in Item 7A in the 1998 Annual Report to Shareholders on Form 10-K. There has been no material change to this information. 10 FACTORS THAT MAY AFFECT FUTURE RESULTS There can be no assurance that the Company's business will grow as anticipated or that the Company will achieve or sustain profitability on a quarterly or annual basis in the future. The Company derives a substantial part of its revenues from a small number of clients whom, after evaluating the Company's capabilities, decide whether to engage the Company to create business case evaluations, consult on change management practices and, in some cases, to design, implement and deploy their customer care systems. A decision by any one of these clients to delay a customer care project may have a material adverse effect on the Company's business and results of operations. In order for the Company's revenues from consulting and integration services to grow, the Company must continue to add more clients and larger projects to plan, design and implement customer care systems. The Company's inability to obtain clients for large-scale consulting and integration services could materially and adversely affect the growth of its business. In addition to the factors listed above, actual results could vary materially from the foregoing forward-looking statements due to the Company's inability to hire and retain qualified personnel, the risk that the Company may need to enhance products and services beyond what is currently planned, the levels of promotion and marketing required to promote the Company's products and services so as to attain a competitive position in the marketplace, or other risks and uncertainties identified in this Quarterly Report and the Company's other filings with the SEC. 11 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None ITEM 2. CHANGES IN SECURITIES. None ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS OF FORM 8-K (a) Exhibits (b) Reports on Form 8-K - None 12 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ZAMBA CORPORATION By: /s/ Paul Edelhertz ------------------ Paul Edelhertz President and Chief Executive Officer By: /s/ Michael H. Carrel --------------------- Michael H. Carrel Chief Financial Officer Dated: May 17, 1999 13 EXHIBIT INDEX
- ------------------------------------------------------------------------------------ SEQUENTIALLY NUMBERED EXHIBIT NUMBER TITLE PAGE - ------------------------------------------------------------------------------------ 10.01** Letter agreement by and between Registrant and Peter Marton dated March 9th, 1999. 15 - ------------------------------------------------------------------------------------
** Management contract or compensation plan 14 EX-10.01 2 EXHIBIT 10.01 Exhibit 10.01 March 9, 1999 Peter Marton HAND-DELIVERED - -------------- Dear Peter, In consideration of your service for Zamba, if your employment is terminated other than for cause, Zamba agrees to provide you with salary continuation for up to six (6) months at your then-prevailing salary, unless you obtain new employment before the end of such 6-month period, at which point the salary continuation shall cease. "Cause" means either of the following: (i) an intentional or grossly negligent act by you causing material harm to Zamba; or (ii) your conviction of, or plea of "guilty" or "no contest" to, a felony. This agreement shall not apply if your separation from employment is voluntary. You may not assign your rights under this agreement, but Zamba may assign this agreement to any third party without your consent, provided that the third party agrees to be bound by its terms. This agreement shall be binding on you and Zamba, its successors and assigns. Please sign below to indicate your receipt and acknowledgement of this document. Very truly yours, /s/ Paul Edelhertz Paul Edelhertz President & C.E.O. ACCEPTED THIS 9th DAY OF MARCH, 1999: /s/ Peter Marton Peter Marton 15 EX-27 3 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 1ST QTR. 10Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 3,295 0 4,109 (250) 0 7,469 3,309 (2,146) 14,830 3,485 0 0 0 79,099 0 14,830 50 4,823 0 3,379 2,474 9 24 (1,040) 0 (1,040) 0 0 0 (1,040) (0.04) (0.04)
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