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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 3, 1998
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 0-24343
ANSWERTHINK CONSULTING GROUP, INC.
(Exact Name Of Company as specified in its charter)
FLORIDA 65-0750100
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
1001 BRICKELL BAY DRIVE, SUITE 3000
MIAMI, FLORIDA 33131
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(305) 375-8005
(COMPANY'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section13 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 requirement 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:
As of July 3, 1998, there were 33,971,692 shares of common stock
outstanding.
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ANSWERTHINK CONSULTING GROUP, INC.
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of July 3, 1998 and January 2, 1998 3
Consolidated Statements of Operations for the Quarter and Six Months ended
July 3, 1998 and for April 23, 1997 (inception) to June 30, 1997 4
Consolidated Statements of Cash Flows for the Six months ended July 3, 1998
and April 23, 1997 (inception) to June 30, 1997 5
Notes to Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 9
PART II OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 14
SIGNATURES 15
EXHIBIT INDEX 16
2
ANSWERTHINK CONSULTING GROUP, INC.
CONSOLIDATED BALANCE SHEETS
JULY 3, JANUARY 2,
1998 1998
--------------- ---------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 18,806,414 $ 3,173,262
Short-term investments 5,850,000 --
Accounts receivable and unbilled revenue, net 20,868,651 10,157,720
Prepaid expenses and other current assets 598,464 412,388
--------------- ---------------
Total current assets 46,123,529 13,743,370
Property and equipment, net 2,816,844 2,495,295
Other assets 1,938,889 467,370
Goodwill, net 20,497,561 11,943,610
--------------- ---------------
Total assets $ 71,376,823 $ 28,649,645
=============== ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,163,168 $ 1,437,292
Accrued expenses and other liabilities 6,933,440 4,126,254
Notes payable to shareholders, current portion 2,239,000 --
--------------- ---------------
Total current liabilities 11,335,608 5,563,546
--------------- ---------------
Obligations under capital leases 266,782 --
Borrowings under revolving credit facility -- 8,150,000
Notes payable to shareholders 1,896,000 4,050,000
--------------- ---------------
Total long-term liabilities 2,162,782 12,200,000
--------------- ---------------
Total liabilities 13,498,390 17,763,546
--------------- ---------------
Commitments and contingencies
Convertible preferred stock -- 10,040,196
--------------- ---------------
Shareholders' equity
Preferred stock, $.001 par value, 1,250,000 authorized, none issued and
outstanding -- --
Common stock, $.001 par value, authorized 125,000,000 shares; issued and
outstanding: 33,971,692 shares at July 3, 1998; 23,378,592 shares at
January 2, 1998 33,972 23,379
Additional paid-in capital 108,601,603 13,569,279
Unearned compensation-restricted stock (1,516,668) (656,303)
Accumulated deficit (49,240,474) (12,090,452)
--------------- ---------------
Total shareholders' equity 57,878,433 845,903
--------------- ---------------
Total liabilities and shareholders' equity $ 71,376,823 $ 28,649,645
=============== ================
The accompanying notes are an integral part of the consolidated financial
statements.
3
ANSWERTHINK CONSULTING GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
---------------- --------------- ----------------
QUARTER ENDED SIX MONTHS APRIL 23, 1997
JULY 3, ENDED (INCEPTION)
1998 JULY 3, TO JUNE 30,
1998 1997
---------------- ---------------- ----------------
Net revenues $ 23,043,386 $ 41,575,156 $ 62,090
Costs and expenses:
Project personnel and expenses 13,834,359 25,028,165 1,616,402
Selling, general and administrative 6,730,220 12,384,238 1,289,457
Compensation related to vesting of restricted shares -- 40,843,400 --
Settlement costs -- -- 1,755,541
---------------- ---------------- ----------------
Total costs and operating expenses 20,564,579 78,255,803 4,661,400
---------------- ---------------- ----------------
Income (loss) from operations 2,478,807 (36,680,647) (4,599,310)
Other income (expense):
Interest income 103,250 131,297 251,016
Interest expense (278,907) (600,672) --
---------------- ---------------- ----------------
Net income (loss) $ 2,303,150 $ (37,150,022) $ (4,348,294)
================ ================ ================
Basic net income (loss) per common share $ 0.13 $ (2.69) $ --
---------------- ---------------- ----------------
Weighted average common shares outstanding 17,386,528 13,806,429 --
---------------- ---------------- ----------------
Diluted net income (loss) per common share $ 0.07 $ (2.69) $ --
---------------- ---------------- ----------------
Weighted average common and common equivalent shares
outstanding 32,195,324 13,806,429 --
---------------- ---------------- ----------------
The accompanying notes are an integral part of the consolidated financial
statements.
4
ANSWERTHINK CONSULTING GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS APRIL 23, 1997
ENDED (INCEPTION)
JULY 3, TO JUNE 30,
1998 1997
---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (37,150,022) $ (4,348,294)
Adjustments to reconcile net loss to net cash used in operating
activities:
Compensation related to vesting of restricted shares 40,843,400 --
Depreciation and amortization 1,419,052 15,450
Changes in assets and liabilities, net of effects from acquisitions:
Increase in accounts receivable and unbilled revenue (9,735,222) (63,000)
Increase in prepaid expenses and other current and non-current assets (346,616) (141,141)
Increase in accounts payable 174,182 1,422,915
Increase in accrued expenses and other liabilities 1,353,904 1,011,177
---------------- ----------------
Net cash used in operating activities (3,441,322) (2,102,893)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,133,519) (500,793)
Sale of property and equipment under sale/leaseback arrangement 456,041 --
Purchase of short-term investments (5,850,000) --
Other, net (142,919) --
---------------- ----------------
Net cash used in investing activities (6,670,397) (500,793)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 38,711,790 57,917
Repurchase of common stock (1,160) --
Proceeds from issuance of convertible preferred stock 1,099,639 20,400,000
Proceeds from revolving credit facility 3,000,000 --
Repayment of revolving credit facility (11,150,000) --
Repayment of shareholders notes (6,340,035) --
Proceeds from capital lease obligation 507,015 --
Repayment of obligation under capital lease (82,378) --
---------------- ----------------
Net cash provided by financing activities 25,744,871 20,457,917
---------------- ----------------
Net increase in cash and cash equivalents 15,633,152 17,854,231
Cash and cash equivalents at beginning of period 3,173,262 --
---------------- ----------------
Cash and cash equivalents at end of period $ 18,806,414 $ 17,854,231
================ ================
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash paid for interest $ 738,142 $ --
Cash paid for income taxes $ -- $ --
The accompanying notes are an integral part of the consolidated financial
statements.
5
ANSWERTHINK CONSULTING GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements of AnswerThink Consulting
Group, Inc. (the "Company") include the accounts of the Company and all of its
wholly owned subsidiaries. All material intercompany transactions and balances
have been eliminated in consolidation. In the opinion of management, the
consolidated financial statements reflect all normal and recurring adjustments,
which are necessary for a fair presentation of the Company's financial position,
results of operations, and cash flows as of the dates and for the periods
presented. The consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information. Consequently, these statements do not include all the disclosures
normally required by generally accepted accounting principles for annual
financial statements. Accordingly, these financial statements should be read in
conjunction with the Company's audited financial statements and notes thereto
for the period ended January 2, 1998, included in the Form S-1 filed by the
Company with the Securities and Exchange Commission. The condensed balance sheet
data as of January 2, 1998 was derived from audited financial statements but
does not include all disclosures required by generally accepted accounting
principles. The consolidated results of operations for the quarter and six
months ended July 3, 1998, are not necessarily indicative of results for the
full year.
2. SHORT TERM INVESTMENTS
Short-term investments, consisting of interest bearing, investment-grade
securities, are available-for-sale securities which are recorded at fair market
value. Any unrealized holding gains or losses on available-for-sale securities
are reported as a separate component of shareholders' equity. The difference
between fair market value and cost was not material at July 3, 1998. There were
no realized gains or losses from sales of available-for-sale securities for any
period presented.
3. NET INCOME (LOSS) PER COMMON SHARE
Basic net income (loss) per common share is computed by dividing net income
(loss) by the weighted average number of common shares outstanding during the
period. The calculation includes only the vested portion of common shares issued
to employees under employment agreements and does not include shares that have
not yet vested. Accordingly, common shares outstanding for the basic net income
(loss) per share computation, is significantly lower than actual shares issued
and outstanding. During the period from April 23, 1997 (inception) to June 30,
1997, the only common shares outstanding were unvested shares issued pursuant to
employment agreements. Therefore, for the basic net loss per common share
calculation, there were no common shares outstanding during that period.
Diluted net income per share is computed using the weighted average number of
common shares outstanding plus the dilutive effect of common stock equivalents
(using the treasury stock method). Potentially dilutive shares as of July 3,
1998, which have not been included in the diluted per share calculation for the
six months ended July 3, 1998, include 14,198,448 unvested shares issued
pursuant to employment agreements. These shares were excluded from the
calculation because their effects would be anti-dilutive due to the loss
incurred by the Company for the six months ended July 3, 1998. Accordingly, for
the six months ended July 3, 1998, diluted net loss per common share is the same
as basic net loss per common share.
6
ANSWERTHINK CONSULTING GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
3. NET INCOME (LOSS) PER COMMON SHARE (CONTINUED)
The following table presents the calculation of earnings per share:
FOR THE FOR THE SIX
QUARTER ENDED MONTHS ENDED
JULY 3, 1998 JULY 3, 1998
--------------- ---------------
Net income (loss) $ 2,303,150 $ (37,150,022)
=============== ===============
Basic:
Weighted average common shares outstanding 17,386,528 13,806,429
=============== ===============
Net income (loss) per share $ 0.13 $ (2.69)
=============== ===============
Diluted:
Weighted average common shares outstanding 17,386,528 --
Dilutive effects of unvested shares and stock options 14,808,796 --
--------------- ---------------
Weighted average common and common equivalent shares outstanding 32,195,324 --
=============== ===============
Net income (loss) per share $ 0.07 $ (2.69)
--------------- ---------------
4. NEW ACCOUNTING PRONOUNCEMENTS
In July 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION ("SFAS 131"), which specifies revised
guidelines for determining an entity's operating segments and the type and level
of financial information to be disclosed. This statement is effective for fiscal
years beginning after December 15, 1997. Interim reporting disclosures are not
required in the first year of adoption. The Company will adopt SFAS 131 in the
fourth quarter of 1998 and is currently determining the impact of such adoption
on its reporting as currently presented.
5. ACQUISITION AND NON-CASH ACTIVITIES
On May 20, 1998, the Company acquired all the outstanding shares of Legacy
Technology, Inc. ("Legacy") for $2.6 million in promissory notes, which were
paid during June 1998, plus 248,461 shares of the Company's common stock valued
at $3.0 million. The sellers are also entitled to contingent consideration of
approximately $1.3 million, payable in cash and the Company's common stock, if
certain performance targets are met over the 12-month period ending April 30,
1999. Legacy is a Massachusetts-based provider of decision support and data
warehouse solutions to Fortune 1000 companies.
The Company's acquisition of Legacy has been accounted for using the purchase
method of accounting. Accordingly, the results of operations of the acquired
company are included in the Company's consolidated results of operations from
the date of acquisition. Contingent consideration, to the extent earned, will be
recorded as additional goodwill.
7
ANSWERTHINK CONSULTING GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
5. ACQUISITION AND NON-CASH ACTIVITIES (CONTINUED)
The consideration for the Company's acquisition of Legacy has been allocated to
the assets and liabilities acquired based upon their respective fair values. The
components of the purchase price allocation, including fees and expenses, are as
follows:
Fair value of net liabilities assumed (including transaction costs) $ (194,011)
Goodwill 5,758,043
Common stock issued (2,981,532)
Note payable issued to Legacy shareholders (2,582,500)
----------------
Cash used in acquisition of Legacy $ --
----------------
The following information presents the unaudited pro forma condensed results of
operations for the period January 3, 1998 through July 3, 1998 as if the
Company's acquisition of Legacy had occurred on January 3, 1998. The pro forma
adjustments include additional amortization and interest expense in the amount
of approximately $128,000 and $72,000, respectively. The pro forma results are
presented for informational purposes only and are not necessarily indicative of
the future results of operations of the Company or the results of operations of
the Company had the acquisition occurred on January 3, 1998.
PRO FORMA
RESULTS OF
OPERATIONS
----------------
Net revenues $ 43,604,293
Net loss $ (37,320,367)
Net loss per common share--basic and diluted $ (2.70)
On March 12, 1998, the Company amended the purchase agreement pursuant to which
it acquired The Hackett Group, Inc. ("Hackett") to waive the earn-out provisions
of the note payable and restricted shares that were issued at the time of the
Hackett acquisition. In connection with such amendment, the Company recorded
additional goodwill amounting to approximately $3.1 million, notes payable to
shareholders totaling $1.4 million, accrued expenses and other liabilities of
$338,000 and shareholders' equity of $1.3 million.
In May 1998, 1,790,026 shares of the Company's convertible preferred stock
totaling $11.1 million were converted on a four-for-one basis into 7,160,104
shares of common stock.
6. INITIAL PUBLIC OFFERING
In May 1998, the Company completed its initial public offering whereby the
Company sold 3,324,500 shares of common stock. Net proceeds to the Company,
after expenses, aggregated $38.5 million. The Company used $15.3 million of the
proceeds from the offering to repay outstanding indebtedness, including $9
million for borrowings under the working capital line of credit and $6.3 million
for notes payable to shareholders. The Company has invested the remainder of the
net proceeds in short-term, interest bearing, investment-grade securities.
8
ANSWERTHINK CONSULTING GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
AnswerThink Consulting Group, Inc. ("AnswerThink" or the "Company") is
a rapidly growing provider of knowledge-based consulting and IT services to
Fortune 1000 companies and other sophisticated buyers. The Company addresses its
clients' strategic business needs by offering a wide range of integrated
services or solutions, including benchmarking, process transformation, software
package implementation, electronic commerce, decision support technology,
technology architecture and integration and Year 2000 solutions. These solutions
target a client's specific business functions (finance and administration, human
resources, IT, sales and customer support, and supply chain management) and
allow a business to reach beyond the enterprise and link the people, processes
and technologies of the extended organization or "Interprise." AnswerThink
markets its services to senior executives in organizations where business
transformation and technology-enabled change can have a significant competitive
impact.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the
Company's results of operations and the percentage relationship to net revenues
of such results.
APRIL 23, 1997
(INCEPTION) QUARTER ENDED
-----------------------------------------
TO JUNE 30, 1997 APRIL 3, 1998 JULY 3, 1998
------------------ ------------------ -------------------
(IN THOUSANDS, EXCEPT PERCENTAGE DATA)
Net revenues $ 62 100.0% $ 18,532 100.0% $ 23,043 100.0%
Costs and expenses:
Project personnel and expenses 1,616 nm 11,194 60.4% 13,834 60.0%
Selling, general and administrative 1,290 nm 5,654 30.5% 6,730 29.2%
Compensation related to vesting
of restricted shares -- -- 40,843 220.4% -- --
Settlement costs 1,756 nm -- -- -- --
--------- -------- ---------- -------- ---------- --------
Total costs and operating
expenses 4,662 nm 57,691 311.3% 20,564 89.2%
--------- -------- ---------- -------- ---------- --------
Income (loss) from operations (4,600) nm (39,159) 211.3% 2,479 10.8%
Other income (expense):
Interest income (expense), net 252 406.5% (294) 1.6% (176) nm
--------- -------- ---------- -------- ---------- --------
Net income (loss) $(4,348) nm $(39,453) 212.9% $ 2,303 10.0%
--------- -------- ---------- -------- ---------- --------
QUARTER AND SIX MONTHS ENDED JULY 3, 1998 COMPARED TO INCEPTION PERIOD
(APRIL 23, 1997 TO JUNE 30, 1997)
Net revenues for the second quarter and six months ended July 3, 1998
were $23.0 million and $41.6 million, respectively. Net revenues totaled $62,000
during the period from April 23, 1997 to June 30, 1997 (the "Inception Period").
The Company reported net income for the second quarter of 1998 of $2.3 million
and net loss for the first six months of 1998 of $37.2 million. The net loss in
the six-month period was attributable to a one-time $40.8 million charge for
compensation related to the vesting of restricted shares issued to the key
executives at the Company's inception. Excluding the effect of the compensation
charge the Company had net income of $3.7 million for the first six months of
1998. The net loss during the Inception Period totaled $4.3 million. The
Company's primary activities during its initial stages of 1997 consisted of
recruiting consultants and developing and building a service delivery model and
the underlying information systems to support the future growth of the business.
The Company also incurred settlement costs of $1.8 million during the Inception
Period. These expenses related to the settlement of litigation initiated against
the Company by an international accounting firm in connection with the
resignation of certain of the Company's executive and management employees and
the formation of the Company. The settlement costs consisted primarily of (i)
payments to certain employees of the Company relating to obligations assumed by
the Company for compensation earned during the period from December 1, 1996 to
the date of the Company's inception by such employees, and (ii) legal fees
incurred in connection with the litigation.
9
In light of the Company's incorporation on April 23, 1997 and the
absence of significant operations during the Inception Period, the following
discussion presents a comparison of results for the second quarter of 1998
versus the first quarter of 1998 as management believes that this comparison
provides a more meaningful presentation and helps to address the continuation of
recent trends.
QUARTER ENDED JULY 3, 1998 COMPARED TO QUARTER ENDED APRIL 3, 1998
NET REVENUES. Net revenues for the second quarter of 1998 increased by
$4.5 million or 24.3% over the prior quarter as the Company continued to
increase the number of clients served. In addition to the new clients, the
Company also sold additional work to existing clients. The comparison of
revenues to the prior quarter was also positively impacted by the Company's
acquisition of Legacy Technology, Inc. ("Legacy") which was completed in May
1998. Legacy is a Massachusetts-based provider of decision support and data
warehouse solutions.
PROJECT PERSONNEL AND EXPENSES. Project personnel and expenses for the
second quarter of 1998 increased by $2.6 million or 23.6% over the first quarter
of 1998. The increase in project personnel and expenses over the prior quarter
was primarily the result of the additional consultants hired during the quarter
as well as the acquisition of Legacy. Project personnel and expenses as a
percentage of net revenues decreased slightly in the second quarter of 1998 to
60.0%, compared to 60.4% during the first quarter. The number of consultants
employed by the Company increased by 105 during the second quarter to 448 from
343 at the end of the first quarter.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses for the second quarter of 1998 increased by $1.1 million
or 19.0% over the first quarter of 1998, but decreased as a percentage of
revenues to 29.2% from 30.5%. The increase in selling, general and
administrative expenses is primarily attributable to an increase in the number
of functional support personnel employed combined with the acquisition of
Legacy. The primary increases in support personnel were made in the finance,
service delivery and sales and marketing areas.
COMPENSATION RELATED TO VESTING OF RESTRICTED SHARES. The Company
recorded a charge in the first quarter of 1998 of approximately $40.8 million
relating to the vesting of restricted shares held by five of the Company's
senior managers, one director and two managing directors of business units that
were subject to certain performance vesting criteria. There are no additional
restricted shares outstanding that are subject to performance criteria for
vesting.
INTEREST EXPENSE, NET. Net interest expense totaled $176,000 in the
second quarter of 1998 compared to $294,000 in the first quarter of the year.
Net interest expense decreased by $118,000 from the first quarter of 1998
primarily as a result of the repayment of a significant portion of the Company's
debt during the quarter and an increase in interest earned on the Company's
investments. The Company paid debt and increased investments using the proceeds
of its initial public, which was completed during the second quarter.
AVAILABILITY OF NET OPERATING LOSSES
The Company did not record any tax provision in the first six months of 1998 as
a result of the utilization of net operating loss carryforwards. In light of the
recent organization of the Company and the loss experienced in fiscal 1997, a
valuation allowance has been established for the entire deferred tax asset
attributed to the remaining net operating loss carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
At July 3, 1998, the Company had $18.8 million of cash and cash equivalents
compared to $3.2 million at January 2, 1998. Prior to its initial public
offering in May 1998, the Company's primary source of liquidity had been its
initial capitalization, operating cash flows and borrowings under the Company's
revolving credit facility. The Company has a revolving credit facility with
BankBoston for up to $20 million. The credit facility is secured by
substantially all of the Company's assets and contains certain restrictive
covenants. There were no borrowings under this agreement as of July 3, 1998.
Net cash used in operating activities was $3.4 million for the six months ended
July 3, 1998 compared to $2.1 million used during the Inception Period. During
the Inception Period, net cash used in operating activities was
10
primarily attributable to the operating loss of $4.3 million. During the first
six months of 1998, the increase in cash used in operations related primarily to
an increase in accounts receivable and unbilled revenue.
Net cash used in investing activities was $6.7 million for the first six months
of 1998 compared to $501,000 during the Inception Period. The primary use of
cash in 1998 was to purchase short-term investments amounting to $5.9 million.
In May 1998, the Company acquired Legacy Technology, Inc. The purchase price
included the issuance of $2.6 million in promissory notes (which were paid
during June 1998) and $3.0 million (248,461 shares) of the Company's common
stock.
Net cash provided by financing activities was $25.7 million in the first six
months of 1998 compared to $20.5 million during the Inception Period. During the
Inception Period, the primary source of cash was $20.4 million raised through
the issuance of Series A Convertible Preferred Stock. In the first six months of
1998, $38.7 million of cash was provided from the issuance of common stock
primarily from the Company's initial public offering, $3.0 million represented
proceeds under the revolving credit facility and $1.1 million was provided from
the issuance of convertible preferred stock. The Company used the proceeds from
its initial public offering to repay $6.3 million in notes payable to
shareholders and to repay all outstanding amounts under the revolving credit
facility.
Based on the Company's current financial position and funds available under its
credit facility or that may be generated from operations, the Company believes
that it will be able to meet all of its currently anticipated short-term and
long-term financial requirements.
Certain statements in this Form 10-Q are "forward looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995 and involve
known and unknown risks, uncertainties and other factors that may cause the
Company's actual results, performance or achievements to be materially different
from the results, performance or achievements expressed or implied by the
forward looking statements. Factors that impact such forward looking statements
include, among others, the ability of the Company to attract additional
business, changes in expectations regarding the information technology industry,
the ability of the Company to attract skilled employees, possible changes in
collections of accounts receivable, risks of competition, price and margin
trends, changes in general economic conditions and interest rates.
YEAR 2000 ISSUE
Many existing computer programs were designed and developed without considering
the impact of the upcoming change in the century and consequently use only two
digits to identify a year in the date field. If not corrected, many computer
applications could fail or create erroneous results by or at the Year 2000 (the
"Year 2000 Issue"). All of the Company's systems have been recently implemented
and are Year 2000 compliant. The Company believes the Year 2000 Issue will not
have a material adverse impact on the Company's financial condition or results
of operations.
11
ANSWERTHINK CONSULTING GROUP, INC.
PART II--OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) During the period covered by this report, the Registrant effected the
following sales of securities, which were not registered under the Securities
Act of 1933. These transactions were effected without an underwriter.
On May 5, 1998, the Registrant declared a one-for-two reverse stock
split of all of its capital stock. As a result of this stock split, all shares
of the Registrant's Common Stock, par value $.001 per share ("Common Stock"),
Class A Convertible Preferred Stock, par value $.001 per share ("Class A
Preferred") and Class B Convertible Preferred Stock, par value $.001 per share
("Class B Preferred" and collectively with the Class A Preferred, the
"Preferred") were exchanged for one-half the number of such shares outstanding
of each respective class prior to the stock split, excluding fractional shares
resulting from such stock split, which were redeemed by the Registrant for cash.
These shares were issued without registration under the Securities Act in
reliance on an exemption contained in Section 3(a)(9).
On May 20, 1998, the Registrant issued 269,166 shares of Common Stock
to the former stockholders of Legacy Technology, Inc. ("Legacy") in connection
with the Registrant's acquisition of Legacy. Pursuant to the terms of the
Purchase Agreement, the former stockholders of Legacy subsequently returned
20,705 shares to the Registrant. These shares were issued without registration
under the Securities Act in reliance upon an exemption from registration under
Section 4(2).
(d) On May 27, 1998, the Registrant's Registration Statement on Form S-1 (No.
333-48123), registering the initial public offering of 3,850,000 shares of the
Registrant's Common Stock (including 1,000,000 shares held by selling
shareholders), plus an additional 577,500 shares (including 103,000 shares held
by selling shareholders) to be sold in the event that the underwriters exercised
the over-allotment option granted to them, became effective. The aggregate
offering price of the 3,850,000 shares registered and sold pursuant to the
Registration Statement was $50.1 million, of which $37.1 million represented the
aggregate offering price of securities sold by the Registrant, and of which $13
million represented the aggregate offering price of securities sold by selling
shareholders. The closing of the sale of all 3,850,000 shares occurred on June
2, 1998. On June 3, 1998, the underwriters exercised their over-allotment option
with respect to all 577,500 shares of Common Stock covered by such option. All
577,500 shares covered by the over-allotment option were sold by the
underwriters for an aggregate offering price of $7.5 million, of which $6.2
million represented the aggregate offering price of securities sold by the
Registrant, and of which $1.3 million represented the aggregate offering price
of securities sold by selling shareholders. The Registrant's initial public
offering terminated upon the closing of the over-allotment option on June 9,
1998. Morgan Stanley Dean Witter, Donaldson, Lufkin & Jenrette, NationsBanc
Montgomery Securities LLC and The Robinson-Humphrey Company acted as managing
underwriters for the Registrant's initial public offering.
Total underwriting discounts and commissions for the shares sold in the
initial public offering, including the over-allotment option, totaled $4.0
million of which $3.0 million represented underwriting discounts and commissions
for shares sold by the Registrant, and of which $1.0 million represented
underwriting discounts and commissions for shares sold by the selling
shareholders. In addition, in connection with the initial public offering the
Registrant will reimburse the underwriters approximately $150,000 of expenses
and incurred an estimated $1.6 million in additional expenses, resulting in
total estimated expenses to the Registrant of approximately $4.6 million. None
of the Registrant's expenses in connection with the offering were paid directly
or indirectly to directors or officers of the Registrant or their associates, or
to persons owning 10% or more of the Registrant's Common Stock or other
affiliates of the Registrant. After deducting expenses, the Registrant received
approximately $38.5 million in proceeds from the initial public offering.
Of the $38.5 million in estimated net proceeds to the Registrant, $15.3
million was used to repay outstanding indebtedness, including $9 million for
borrowings under the working capital line of credit and $6.3 million for notes
payable to shareholders. The Company has invested the remainder of the net
proceeds in short-term, interest bearing, investment-grade securities. The use
of the proceeds from the offering does not represent a material change in the
use of the proceeds described in the Registration Statement.
12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
As of April 23, 1998, shareholders holding (i) at least 70% of the
Registrant's Common Stock then outstanding; (ii) 70% of the Registrant's Class A
Preferred Stock then outstanding; and (iii) 100% of the Registrant's Class B
Preferred then outstanding had consented in writing to the actions set forth
below.
1. The shareholders elected Fernando Montero to serve as a director to
fill the vacancy resulting from the expansion of the Registrant's Board of
Directors (the "Board"). After Mr. Montero's election to the Board, the
directors continuing in office included, in addition to Mr. Montero: Ted A.
Fernandez, Allan R. Frank, William C. Kessinger, Ulysses S. Knotts, III, Edmund
R. Miller and Bruce V. Rauner.
2. The shareholders consented to the amendment of the Registrant's
Amended and Restated Articles of Incorporation to (a) extend the period of time
which the Registrant has to deliver certificates representing shares of the
Registrant's stock that have not been redeemed by the Registrant in the event
the Registrant effects a redemption of its Preferred; (b) extend the period of
time which the Registrant has to deliver certificates representing shares of the
Registrant's Common Stock that are to be delivered to holders of Preferred in
the event the Preferred is converted into Common Stock; (c) add a provision
providing for the automatic conversion of Preferred in the event the Registrant
executes an underwriting agreement to conduct an initial public offering; and
(d) extend the period of time the Registrant has to notify holders of Preferred
that a holder of Preferred has demanded that the Registrant redeem his shares;
and
3. The shareholders approved of the Registrant's reincorporation merger
with and into a wholly-owned subsidiary of the Registrant, which merger was
subsequently abandoned by the Registrant's Board.
As of May 5, 1998, shareholders holding (i) at least 70% of the
Registrant's Common Stock then outstanding; (ii) 70% of the Class A Preferred
per share then outstanding; and (iii) 100% of the Class B Preferred then
outstanding; then outstanding had consented in writing to the actions set forth
below.
1. The shareholders approved of a one-for-two reverse stock split of
all of the Registrant's outstanding capital stock.
2. The shareholders approved the adoption of the Registrant's Second
Amended and Restated Articles of Incorporation, which amended the Registrant's
Amended and Restated Articles of Incorporation to (a) increase the Registrant's
authorized capital stock; (b) provide that amendments to the Registrant's bylaws
by shareholders require the affirmative vote of at least two-thirds of the
voting power of the outstanding shares of the Registrant's capital stock; (c)
increase the number of shareholders required to call a special meeting to 80% of
the voting power of all shares of each class of the Registrant's capital stock
entitled to vote on action to be taken at such a special meeting, or the minimum
number of votes of each class or series that would be necessary at such a
meeting to take such action; (d) expand the Registrant's indemnification of
directors, officers and agents of the Registrant to the fullest extent permitted
by law; (e) elect that the Registrant not be subject to the "affiliated
transaction" provision of the Florida Business Corporation Act, which prohibits
corporate transactions with "interested insiders"; (f) establish the number of
directors serving on the Board at a number from five to fifteen; (g) provide
that the Board be divided into three classes, each serving a staggered, three
year term; (h) provide that vacancies created by the expansion of the Board can
be filled only by an affirmative vote of a majority of the directors then in
office; and (i) provide that directors can only be removed from the Board for
cause by the affirmative vote of two-thirds of the entire voting power of all
then-outstanding shares of the Registrant voting as a class.
3. The shareholders approved the Registrant's 1998 Stock Option and
Incentive Plan.
4. The shareholders approved the Registrant's Employee Stock Purchase
Plan.
13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
NUMBER EXHIBIT
------ -------
*3.1 Second Amended and Restated Articles of Incorporation
3.2 Amended and Restated Bylaws
**4.1 Specimen Common Stock Certificate
10.1 Form of Employment Agreement dated as of May 26, 1998 between
the Registrant and each of Ted A. Fernandez, Allan R. Frank
and Ulysses S. Knotts, III
10.2 Employment Agreement dated as of May 26, 1998 between the
Registrant and Luis E. San Miguel
*10.3 Registrant's 1998 Stock Option and Incentive Plan
*10.4 Agreement and Plan of Merger among the Registrant, ACG-Florida
Acquisition Sub, Legacy and the Shareholders of Legacy
11.1 Statement of Computation of Per Share Earnings
27.1 Financial Data Schedule
- -----------------------------
* Incorporated by reference to the Registrant's Registration Statement on
Form S-1, No. 333-48123, which was declared effective by the Securities
and Exchange Commission on May 27, 1998.
** Incorporated by reference to the Registrant's Registration Statement on
Form 8-A, No. 000-24343, which was filed with Securities and Exchange
Commission on May 23, 1998.
(B) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended July 3,
1998.
14
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.
ANSWERTHINK CONSULTING GROUP, INC.
Date: August 14, 1998 By: /s/ Luis E. San Miguel
--------------------------------
Luis E. San Miguel
Executive Vice President,
Finance and Chief Executive
Officer
15
EXHIBIT INDEX
-------------
NUMBER EXHIBIT
------ -------
*3.1 Second Amended and Restated Articles of Incorporation
3.2 Amended and Restated Bylaws
**4.1 Specimen Common Stock Certificate
10.1 Form of Employment Agreement dated as of May 26, 1998 between
the Registrant and each of Ted A. Fernandez, Allan R. Frank
and Ulysses S. Knotts, III
10.2 Employment Agreement dated as of May 26, 1998 between the
Registrant and Luis E. San Miguel
*10.3 Registrant's 1998 Stock Option and Incentive Plan
*10.4 Agreement and Plan of Merger among the Registrant, ACG-Florida
Acquisition Sub, Legacy and the Shareholders of Legacy
11.1 Statement of Computation of Per Share Earnings
27.1 Financial Data Schedule
- ---------------------------------
* Incorporated by reference to the Registrant's Registration Statement on
Form S-1, No. 333-48123, which was declared effective by the Securities
and Exchange Commission on May 27, 1998.
** Incorporated by reference to the Registrant's Registration Statement on
Form 8-A, No. 000-24343, which was filed with Securities and Exchange
Commission on May 23, 1998.
16