UNITED STATES SECURITIES AND EXCHANGE COMMISSION
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| For the quarterly period ended September 30, 2002 | ||
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| For the transition period from to . | ||
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A California Corporation
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I.R.S. Employer No. 91-1788300 |
350 The Embarcadero
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 þ No o
As of October 31, 2002, the company had outstanding 80,124,000 shares of common stock, $0.001 par value per share.
CRITICAL PATH, INC.
INDEX
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| PART I | ||||||
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Item 1.
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Condensed Consolidated Financial Statements (Unaudited) | |||||
| Condensed Consolidated Balance Sheets | 2 | |||||
| Condensed Consolidated Statements of Operations | 3 | |||||
| Condensed Consolidated Statements of Cash Flows | 4 | |||||
| Notes to Condensed Consolidated Financial Statements | 5 | |||||
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Item 2.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 14 | ||||
| Supplemental Alternative Measurement Financial Data (Unaudited) | 34 | |||||
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Item 3.
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Quantitative and Qualitative Disclosures About Market Risk | 36 | ||||
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Item 4.
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Controls and Procedures | 36 | ||||
| Report of Independent Accountants | 37 | |||||
| PART II | ||||||
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Item 1.
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Legal Proceedings | 38 | ||||
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Item 6.
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Exhibits and Reports on Form 8-K | 39 | ||||
| Signature | 40 | |||||
| Certifications | 41 | |||||
| Index to Exhibits | 43 | |||||
1
PART I
Item 1. Condensed Consolidated Financial Statements (Unaudited)
CRITICAL PATH, INC.
| December 31, | September 30, | ||||||||||
| 2001 | 2002 | ||||||||||
| (Unaudited) | |||||||||||
| (In thousands, except per | |||||||||||
| share amounts) | |||||||||||
| ASSETS | |||||||||||
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Current assets
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Cash and cash equivalents
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$ | 59,463 | $ | 35,439 | |||||||
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Short-term investments
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9,702 | 13,773 | |||||||||
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Accounts receivable, net
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26,692 | 22,061 | |||||||||
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Other current assets
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5,367 | 4,553 | |||||||||
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Total current assets
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101,224 | 75,826 | |||||||||
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Investments
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7,215 | 1,704 | |||||||||
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Property and equipment, net
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36,285 | 21,686 | |||||||||
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Goodwill
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5,631 | 6,613 | |||||||||
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Other intangible assets, net
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43,010 | 10,744 | |||||||||
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Restricted cash
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2,674 | 5,715 | |||||||||
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Other assets
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3,913 | 5,530 | |||||||||
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Total assets
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$ | 199,952 | $ | 127,818 | |||||||
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LIABILITIES, MANDATORILY REDEEMABLE PREFERRED
STOCK AND SHAREHOLDERS’ EQUITY |
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Current liabilities
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Accounts payable
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$ | 25,955 | $ | 29,208 | |||||||
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Accrued expenses
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6,232 | 4,708 | |||||||||
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Deferred revenue
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10,297 | 9,153 | |||||||||
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Capital lease and other obligations, current
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3,431 | 3,224 | |||||||||
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Total current liabilities
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45,915 | 46,293 | |||||||||
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Convertible subordinated notes payable
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38,360 | 38,360 | |||||||||
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Capital lease and other obligations, long-term
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1,149 | 1,599 | |||||||||
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Total liabilities
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85,424 | 86,252 | |||||||||
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Commitments and contingencies (Note 2)
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Mandatorily redeemable preferred stock
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5,373 | 17,868 | |||||||||
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Shareholders’ equity
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Common stock and paid-in-capital, $0.001 par value
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Shares authorized: 500,000
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Shares issued and outstanding: 76,581 and 79,852,
respectively
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2,176,370 | 2,169,714 | |||||||||
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Common stock warrants
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5,250 | 5,947 | |||||||||
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Notes receivable from shareholders
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(1,222 | ) | — | ||||||||
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Unearned compensation
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(7,050 | ) | (646 | ) | |||||||
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Accumulated deficit, including other
comprehensive loss
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(2,064,193 | ) | (2,151,317 | ) | |||||||
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Total shareholders’ equity
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109,155 | 23,698 | |||||||||
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Total liabilities, mandatorily redeemable
preferred stock and shareholders’ equity
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$ | 199,952 | $ | 127,818 | |||||||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
2
CRITICAL PATH, INC.
| Three Months Ended | Nine Months Ended | ||||||||||||||||||
| September 30, | September 30, | September 30, | September 30, | ||||||||||||||||
| 2001 | 2002 | 2001 | 2002 | ||||||||||||||||
| (Unaudited) | |||||||||||||||||||
| (In thousands, except per share amounts) | |||||||||||||||||||
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Net revenues
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Software license
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$ | 7,724 | $ | 5,929 | $ | 22,187 | $ | 27,740 | |||||||||||
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Hosted messaging
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10,000 | 6,461 | 35,580 | 19,007 | |||||||||||||||
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Professional services
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4,206 | 3,053 | 10,523 | 7,635 | |||||||||||||||
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Maintenance and support
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4,857 | 3,725 | 12,725 | 10,917 | |||||||||||||||
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Total net revenues
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26,787 | 19,168 | 81,015 | 65,299 | |||||||||||||||
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Cost of net revenues
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Software license
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517 | 563 | 934 | 1,436 | |||||||||||||||
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Hosted messaging
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13,982 | 7,448 | 49,360 | 22,835 | |||||||||||||||
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Professional services
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2,565 | 2,393 | 8,125 | 7,002 | |||||||||||||||
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Maintenance and support
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2,837 | 2,222 | 7,837 | 6,549 | |||||||||||||||
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Amortization of purchased technology
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4,970 | 4,631 | 16,314 | 13,892 | |||||||||||||||
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Stock-based expense — Hosted messaging
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339 | 113 | 1,165 | 530 | |||||||||||||||
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Stock-based expense — Professional
services
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161 | 50 | 1,182 | 196 | |||||||||||||||
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Stock-based expense — Maintenance and
support
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131 | 92 | 1,056 | 364 | |||||||||||||||
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Impairment of long-lived assets
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— | — | 4,207 | — | |||||||||||||||
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Total cost of net revenues
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25,502 | 17,512 | 90,180 | 52,804 | |||||||||||||||
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Gross profit (loss)
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1,285 | 1,656 | (9,165 | ) | 12,495 | ||||||||||||||
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Operating expenses
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Sales and marketing
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11,018 | 10,945 | 45,424 | 33,262 | |||||||||||||||
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Research and development
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7,322 | 5,154 | 25,589 | 15,329 | |||||||||||||||
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General and administrative
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9,447 | 5,362 | 34,485 | 18,336 | |||||||||||||||
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Amortization of intangible assets
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7,318 | 6,209 | 25,229 | 18,567 | |||||||||||||||
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Acquisition-related retention bonuses
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92 | — | 1,055 | 11 | |||||||||||||||
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Stock-based expense — Sales and
marketing
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1,008 | 452 | 4,623 | 3,637 | |||||||||||||||
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Stock-based expense — Research and
development
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531 | 287 | 2,857 | 1,062 | |||||||||||||||
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Stock-based expense — General and
administrative
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4,914 | 212 | 19,981 | 3,620 | |||||||||||||||
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Restructuring expense, net
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3,779 | — | 12,260 | 1,539 | |||||||||||||||
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Impairment of long-lived assets
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— | — | 9,991 | — | |||||||||||||||
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Total operating expenses
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45,429 | 28,621 | 181,494 | 95,363 | |||||||||||||||
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Loss from operations
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(44,144 | ) | (26,965 | ) | (190,659 | ) | (82,868 | ) | |||||||||||
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Interest and other income (expense), net
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178 | 1,927 | 4,796 | (803 | ) | ||||||||||||||
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Interest expense
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(3,829 | ) | (740 | ) | (14,211 | ) | (2,256 | ) | |||||||||||
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Equity in net loss of joint venture
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(346 | ) | — | (1,519 | ) | (1,408 | ) | ||||||||||||
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Gain on retirement of convertible subordinated
notes, net
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137,222 | — | 141,040 | — | |||||||||||||||
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Income (loss) before income taxes
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89,081 | (25,778 | ) | (60,553 | ) | (87,335 | ) | ||||||||||||
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Provision for income taxes
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(2,180 | ) | (234 | ) | (3,673 | ) | (255 | ) | |||||||||||
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Net income (loss)
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86,901 | (26,012 | ) | (64,226 | ) | (87,590 | ) | ||||||||||||
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Accretion on mandatorily redeemable convertible
preferred shares
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— | (3,600 | ) | — | (10,067 | ) | |||||||||||||
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Net income (loss) attributable to common shares
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$ | 86,901 | $ | (29,612 | ) | $ | (64,226 | ) | $ | (97,657 | ) | ||||||||
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Net income (loss) per share attributable to
common shares
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Basic
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$ | 1.17 | $ | (0.38 | ) | $ | (0.87 | ) | $ | (1.26 | ) | ||||||||
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Diluted
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$ | 1.15 | $ | (0.38 | ) | $ | $(0.87 | ) | $ | (1.26 | ) | ||||||||
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Weighted average common shares outstanding
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Basic
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74,492 | 78,265 | 73,472 | 77,523 | |||||||||||||||
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Diluted
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75,589 | 78,265 | 73,472 | 77,523 | |||||||||||||||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
3
CRITICAL PATH, INC.
| Nine Months Ended | ||||||||||
| September 30, | September 30, | |||||||||
| 2001 | 2002 | |||||||||
| (Unaudited) | ||||||||||
| (In thousands) | ||||||||||
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Operating
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Net loss
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$ | (64,226 | ) | $ | (87,590 | ) | ||||
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Provision for doubtful accounts
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4,647 | 829 | ||||||||
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Depreciation and amortization
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35,013 | 22,365 | ||||||||
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Amortization of intangible assets
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41,543 | 32,459 | ||||||||
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Amortization of stock-based expenses
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30,863 | 9,409 | ||||||||
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Equity in net loss of joint venture
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1,519 | 1,408 | ||||||||
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Impairment of long-lived assets
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14,198 | — | ||||||||
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Change in fair value of preferred stock instrument
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— | 2,160 | ||||||||
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Gain on retirement of convertible debt, net
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(141,040 | ) | — | |||||||
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Provision for restructured operations
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4,037 | 1,022 | ||||||||
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Accounts receivable
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3,271 | 4,009 | ||||||||
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Other assets
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2,808 | 409 | ||||||||
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Accounts payable
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(3,570 | ) | (142 | ) | ||||||
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Accrued expenses
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(2,820 | ) | (1,584 | ) | ||||||
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Deferred revenue
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306 | (1,144 | ) | |||||||
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Net cash used in operating activities
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(73,451 | ) | (16,390 | ) | ||||||
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Investing
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Notes receivable from officers
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(1,415 | ) | 371 | |||||||
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Property and equipment purchases
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(10,613 | ) | (4,942 | ) | ||||||
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Payments for acquisitions, net of cash acquired
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(9,898 | ) | 4,512 | |||||||
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Short-term investments
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(10,752 | ) | (4,071 | ) | ||||||
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Restricted cash
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(889 | ) | (3,041 | ) | ||||||
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Net cash used in investing activities
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(33,567 | ) | (7,171 | ) | ||||||