Back to GetFilings.com

Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

Commission File Number: 000-25781

NET PERCEPTIONS, INC.
(Exact Name of Registrant as Specified in its Charter)

7700 France Avenue South
Edina, Minnesota 55435
(Address of principal executive offices, Zip Code)

(952) 842-5000
(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 o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of July 31, 2003, there were outstanding 27,466,096 shares of the registrant’s Common Stock, $0.0001 par value.

Table of Contents

NET PERCEPTIONS, INC.
FORM 10-Q
For the Quarter Ended June 30, 2003

TABLE OF CONTENTS

2

Table of Contents

Special Note Regarding Forward-Looking Statements

     This Quarterly Report on Form 10-Q (including exhibits and information incorporated by reference herein) contains both historical and forward-looking statements that involve risks, uncertainties and assumptions. The statements contained in this report that are not purely historical are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, including statements regarding our expectations, beliefs, intentions or strategies for the future. All forward-looking statements included in this Quarterly Report on Form 10-Q (including exhibits and information incorporated by reference herein) are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements. Our actual results and actual events could differ materially from those described in our forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations under the heading “Risks That May Affect Future Results” and those described in our previous filings with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date that they were made. We undertake no obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect the occurrence of unanticipated events.

     References in this Quarterly Report on Form 10-Q to “Net Perceptions,” the “Company,” “we,” “our” and “us” refer to Net Perceptions, Inc. and, if so indicated or the context so requires, includes our wholly owned subsidiary Knowledge Discovery One, Inc. (which we refer to in this report as “KD1”).

3

Table of Contents

PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

NET PERCEPTIONS, INC.

CONSOLIDATED BALANCE SHEETS
(in thousands)

See accompanying notes to the consolidated financial statements.

4

Table of Contents

NET PERCEPTIONS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share amounts)

See accompanying notes to the consolidated financial statements.

5

Table of Contents

NET PERCEPTIONS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)

See accompanying notes to the consolidated financial statements.

6

Table of Contents

NET PERCEPTIONS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)

Note 1. Basis of Presentation

     In the opinion of management, the accompanying unaudited financial statements contain all adjustments necessary to fairly present the Company’s financial position, results of operations and cash flows for the periods presented. These adjustments consist of normal, recurring items. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts therein. Due to the inherent uncertainty involved in making estimates, actual results in future periods may differ from those estimates.

     Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These financial statements should be read in conjunction with the Company’s financial statements and notes thereto for the year ended December 31, 2002, which are contained in the Company’s Annual Report on Form 10-K (File No. 000-25781). The results of operations for the interim periods presented are not necessarily indicative of results that may be expected for any other interim period or for the full fiscal year.

     The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant inter-company accounts and transactions have been eliminated. The Company views its operations and manages its business as one segment, the developing and marketing of computer software and related services. Factors used to identify the Company’s single operating segment include the organizational structure of the Company and the financial information available for evaluation by the chief operating decision maker in making decisions about how to allocate resources and assess performance. In addition, the Company does not allocate operating expenses to any segments nor does it allocate specific assets to any segments. Therefore, segment information is identical to the consolidated balance sheet and consolidated statement of operations.

     Accumulated other comprehensive income (loss) consists entirely of unrealized gain (loss) on available-for-sale investments. Changes in unrealized gain (loss) on available-for-sale investments were $(30) and $390 for the second quarter of 2003 and 2002 and $(32) and $(314) for the six months ended June 30, 2003 and 2002, respectively. Comprehensive loss was $246 and $3,948 for the three months ended June 30, 2003 and 2002, respectively, and $2,647 and $8,124 for the six months ended June 30, 2003 and 2002.

Note 2. Stock-based compensation

     In December 2002, the FASB issued SFAS 148, “Accounting for Stock-Based compensation—Transition and Disclosure, An amendment to FASB Statement No. 123.” The Company is choosing to continue with its current practice of applying the recognition and measurement principles of APB No. 25, “Accounting for Stock Issued to Employees.” The Company has adopted the disclosure requirements of SFAS No. 148 in its discussion of stock based employee compensation but the alternative transition options made available by the standard are not being implemented.

7

Table of Contents

     The intrinsic value method is used to account for stock-based compensation plans. If compensation expense had been determined based on the fair value method, net loss and loss per share would have been adjusted to the pro forma amounts indicated below:

Note 3. Net Loss Per Share

     Net loss per share is computed under SFAS No. 128, “Earnings Per Share.” Basic net loss per share is computed using the weighted-average number of shares of common stock outstanding, excluding shares of common stock subject to repurchase. Such shares of common stock subject to repurchase aggregated 1 and 2 shares at June 30, 2003 and 2002, respectively. Diluted net loss per share does not differ from basic net loss per share since potential issuances of shares of common stock upon the exercise of stock options and potential reductions in outstanding shares of common stock subject to repurchase are anti-dilutive for all periods presented. Diluted net loss per share for the three and six months ended June 30, 2003 and 2002 excluded 2,367 and 3,073, respectively, of potential shares of common stock from the conversion of stock options as they were anti-dilutive.

Note 4. Restructuring Related Charges

     The Company recorded restructuring related charges of $1,200 in the first quarter of 2003 related primarily to the closure of operations in three satellite offices, and employee termination costs due to a reduction of workforce by 22 positions. The charge was recorded in accordance with SFAS No. 146, “Accounting for Exit or Disposal Activities.” During 2002 and 2001, the Company instituted certain restructuring plans to better align its cost structure with its business outlook and general economic conditions. Under these restructuring plans, the Company recorded restructuring related charges totaling $768 and $15,551 during 2002 and 2001, respectively.

     In conjunction with the restructuring related charges recorded, the Company made certain estimates regarding future sublease income that have a significant impact on its anticipated cash obligations and related restructuring reserves. Although the Company believes that the lease commitment estimates are appropriate in the current circumstances, future changes in real estate markets and other factors could impact the ultimate amount of cash paid to resolve these obligations. As of July 31, 2003, the Company has signed agreements to sublease approximately 106,000 square feet of its existing facilities and has terminated its lease commitment for its New York, New York facility. In the third quarter of 2003, the Company terminated its lease for the Berkshire, United Kingdom location. The Company is actively seeking to sublease or terminate the leases relating to its remaining facilities. Specifically, the Company is currently seeking to sublease the remainder of its Minneapolis, Minnesota facility while also engaging in discussions to terminate this lease. The Company is also seeking to sublease the remainder of its San Francisco, California office space and its entire Roseland, New Jersey facility and is negotiating the termination of its office space in Austin, Texas. However, the Company may not be able to find suitable sub-tenants for these properties in a timely manner, if at all. If the Company is unable to find suitable sub-tenants in a timely manner, or its existing sub-tenants fail to make sublease payments required under their respective sublease agreements, it may be more difficult to terminate or settle these leases on favorable terms, if at all, and the Company may experience greater than anticipated operating expenses or liabilities which must be satisfied. As of June 30, 2003, management estimated total future sublease income of $14,188 of which $12,408 is covered by existing sublease arrangements.

     The Company expects to record a $400,000 restructuring charge in the third quarter of 2003 relating to employee termination costs due to the August 6, 2003 reduction of its workforce by 12 positions, including a severance payment payable to Donald C. Peterson, the Company’s former President and Chief Executive Officer, under his previously disclosed employment contract, in connection with his cessation of employment on August 5, 2003. The Company is currently analyzing potential additional restructuring charges in the third quarter of 2003 related to real estate obligations; the amount of such additional restructuring changes, if any, has not yet been quantified.

8

Table of Contents

     The following table presents a summary of the restructuring related activities and accrued restructuring charges as of June 30, 2003: