UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Form 10-Q
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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 | |
| For the quarterly period ended September 30, 2003 | ||
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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 | |
| For the transition period from to . | ||
Commission File Number: 000-25331
Critical Path, Inc.
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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
Indicate by check mark whether Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes þ No o
As of October 31, 2003, the Company had outstanding 20,570,284 shares of common stock, $0.001 par value per share.
CRITICAL PATH, INC.
INDEX
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| PART I | ||||||
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Item 1.
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Condensed Consolidated Financial Statements (Unaudited) | 2 | ||||
| Condensed Consolidated Balance Sheets | 2 | |||||
| Condensed Consolidated Statements of Operations | 3 | |||||
| Condensed Consolidated Statements of Cash Flows | 4 | |||||
| Notes to Condensed Consolidated Financial Statements | 5 | |||||
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Item 2.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 16 | ||||
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Item 3.
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Quantitative and Qualitative Disclosures About Market Risk | 42 | ||||
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Item 4.
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Controls and Procedures | 42 | ||||
| PART II | ||||||
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Item 1.
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Legal Proceedings | 44 | ||||
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Item 6.
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Exhibits and Reports on Form 8-K | 46 | ||||
1
PART I
Item 1. Condensed Consolidated Financial Statements (Unaudited)
CRITICAL PATH, INC.
| December 31, | September 30, | |||||||||
| 2002 | 2003 | |||||||||
| (Unaudited) | ||||||||||
| (In thousands, except per | ||||||||||
| share amounts) | ||||||||||
| ASSETS | ||||||||||
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Current assets
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Cash and cash equivalents
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$ | 33,498 | $ | 18,247 | ||||||
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Short-term marketable securities
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5,583 | — | ||||||||
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Accounts receivable, net
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22,818 | 16,382 | ||||||||
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Other current assets
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4,030 | 5,744 | ||||||||
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Total current assets
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65,929 | 40,373 | ||||||||
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Long-term marketable securities
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3,990 | — | ||||||||
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Equity investments
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357 | — | ||||||||
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Property and equipment, net
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18,142 | 16,080 | ||||||||
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Goodwill
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6,613 | 6,613 | ||||||||
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Restricted cash
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2,729 | — | ||||||||
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Other assets
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6,246 | 5,450 | ||||||||
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Total assets
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$ | 104,006 | $ | 68,516 | ||||||
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LIABILITIES, MANDATORILY REDEEMABLE PREFERRED
STOCK AND SHAREHOLDERS’ DEFICIT |
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Current liabilities
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Accounts payable
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$ | 28,093 | $ | 23,955 | ||||||
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Accrued liabilities
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3,764 | 3,174 | ||||||||
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Deferred revenue
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10,788 | 8,147 | ||||||||
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Line of credit facility
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— | 4,900 | ||||||||
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Capital lease and other obligations, current
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3,323 | 2,823 | ||||||||
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Total current liabilities
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45,968 | 42,999 | ||||||||
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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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1,332 | 433 | ||||||||
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Total liabilities
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85,660 | 81,792 | ||||||||
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Commitments and contingencies
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Mandatorily redeemable preferred stock
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Shares authorized: 5,000
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Shares issued and outstanding: 4,000
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Liquidation value at September 30, 2003:
$63,217
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26,900 | 47,909 | ||||||||
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Shareholders’ deficit
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Common stock and paid-in-capital, $0.001 par value
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Shares authorized: 125,000
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Shares issued and outstanding: 20,032 and 20,570
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2,165,917 | 2,158,277 | ||||||||
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Common stock warrants
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5,947 | 5,947 | ||||||||
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Notes receivable from shareholders
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— | (725 | ) | |||||||
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Unearned compensation
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(59 | ) | — | |||||||
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Accumulated deficit
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(2,179,316 | ) | (2,226,232 | ) | ||||||
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Accumulated other comprehensive income (loss)
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(1,043 | ) | 1,548 | |||||||
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Total shareholders’ deficit
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(8,554 | ) | (61,185 | ) | ||||||
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Total liabilities, mandatorily redeemable
preferred stock and shareholders’ deficit
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$ | 104,006 | $ | 68,516 | ||||||
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, | |||||||||||||||
| 2002 | 2003 | 2002 | 2003 | |||||||||||||||
| (Unaudited) | ||||||||||||||||||
| (In thousands, except per share amounts) | ||||||||||||||||||
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Net revenues
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Software license
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$ | 5,929 | $ | 4,264 | $ | 27,740 | $ | 14,903 | ||||||||||
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Hosted messaging
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6,461 | 4,583 | 19,007 | 14,825 | ||||||||||||||
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Professional services
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3,053 | 2,574 | 7,635 | 8,949 | ||||||||||||||
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Maintenance and support
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3,725 | 4,744 | 10,917 | 13,658 | ||||||||||||||
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Total net revenues
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19,168 | 16,165 | 65,299 | 52,335 | ||||||||||||||
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Cost of net revenues
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Software license
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563 | 541 | 1,436 | 3,060 | ||||||||||||||
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Hosted messaging
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7,448 | 6,196 | 22,835 | 19,562 | ||||||||||||||
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Professional services
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2,393 | 2,734 | 7,002 | 9,094 | ||||||||||||||
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Maintenance and support
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2,222 | 1,263 | 6,549 | 4,579 | ||||||||||||||
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Amortization of purchased technology
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4,631 | — | 13,892 | — | ||||||||||||||
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Stock-based expense — Hosted messaging
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113 | — | 530 | 8 | ||||||||||||||
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Stock-based expense — Professional
services
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50 | — | 196 | 3 | ||||||||||||||
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Stock-based expense — Maintenance and
support
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92 | — | 364 | 6 | ||||||||||||||
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Total cost of net revenues
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17,512 | 10,734 | 52,804 | 36,312 | ||||||||||||||
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Gross profit
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1,656 | 5,431 | 12,495 | 16,023 | ||||||||||||||
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Operating expenses
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Sales and marketing
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10,945 | 7,150 | 33,262 | 24,390 | ||||||||||||||
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Research and development
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5,154 | 4,608 | 15,329 | 14,044 | ||||||||||||||
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General and administrative
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5,362 | 3,228 | 18,336 | 9,774 | ||||||||||||||
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Amortization of intangible assets
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6,209 | — | 18,578 | — | ||||||||||||||
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Stock-based expense — Sales and
marketing
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452 | — | 3,637 | 18 | ||||||||||||||
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Stock-based expense — Research and
development
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287 | — | 1,062 | 15 | ||||||||||||||
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Stock-based expense — General and
administrative
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212 | — | 3,620 | 9 | ||||||||||||||
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Restructuring and other expenses
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— | 953 | 1,539 | 5,034 | ||||||||||||||
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Total operating expenses
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28,621 | 15,939 | 95,363 | 53,284 | ||||||||||||||
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Loss from operations
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(26,965 | ) | (10,508 | ) | (82,868 | ) | (37,261 | ) | ||||||||||
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Interest and other income (expense), net
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1,927 | (3,944 | ) | (803 | ) | (6,845 | ) | |||||||||||
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Interest expense
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(740 | ) | (852 | ) | (2,256 | ) | (2,404 | ) | ||||||||||
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Gain on investments, net
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— | — | — | 349 | ||||||||||||||
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Equity in net loss of joint venture
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— | — | (1,408 | ) | — | |||||||||||||
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Loss before provision for income taxes
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(25,778 | ) | (15,304 | ) | (87,335 | ) | (46,161 | ) | ||||||||||
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Provision for income taxes
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(234 | ) | (273 | ) | (255 | ) | (754 | ) | ||||||||||
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Net loss
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(26,012 | ) | (15,577 | ) | (87,590 | ) | (46,915 | ) | ||||||||||
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Accretion on mandatorily redeemable preferred
stock
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(3,600 | ) | (3,025 | ) | (10,067 | ) | (9,529 | ) | ||||||||||
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Net loss attributable to common shares
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$ | (29,612 | ) | $ | (18,602 | ) | $ | (97,657 | ) | $ | (56,444 | ) | ||||||
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Net loss per share attributable to common
shares — basic and diluted
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$ | (1.51 | ) | $ | (0.92 | ) | $ | (5.04 | ) | $ | (2.84 | ) | ||||||
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Weighted average shares — basic and
diluted
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19,566 | 20,126 | 19,381 | 19,889 | ||||||||||||||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
3
CRITICAL PATH, INC.
| Nine Months Ended | |||||||||||
| September 30, | September 30, | ||||||||||
| 2002 | 2003 | ||||||||||
| (Unaudited) | |||||||||||
| (In thousands) | |||||||||||
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Cash flows from operating activities:
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Net loss
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$ | (87,590 | ) | $ | (46,915 | ) | |||||
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Provision for (recovery of) doubtful accounts
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829 | (136 | ) | ||||||||
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Depreciation and amortization
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22,365 | 13,045 | |||||||||
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Amortization of intangible assets
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32,459 | — | |||||||||
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Amortization of stock-based costs and expenses
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9,409 | 59 | |||||||||
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Equity in net loss of joint venture
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1,408 | — | |||||||||
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Change in fair value of preferred stock instrument
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2,160 | 11,480 | |||||||||
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Gain on the sale of investments, net
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— | (349 | ) | ||||||||
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Gain on release of funds held in escrow
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— | (3,750 | ) | ||||||||
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Restructuring charges
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1,022 | 530 | |||||||||
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Changes in assets and liabilities:
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Accounts receivable
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4,009 | 8,055 | |||||||||
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Other assets
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409 | (1,466 | ) | ||||||||
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Accounts payable
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(142 | ) | (5,297 | ) | |||||||
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Accrued liabilities
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(1,584 | ) | (1,336 | ) | |||||||
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Deferred revenue
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(1,144 | ) | (3,134 | ) | |||||||
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Net cash used in operating activities
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(16,390 | ) | (29,214 | ) | |||||||
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Cash flows from investing activities:
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Repayment of notes receivable from officers
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371 | 132 | |||||||||
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Property and equipment purchases
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(4,942 | ) | (10,549 | ) | |||||||
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Payments for acquisitions, net of cash acquired
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4,512 | — | |||||||||
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Proceeds from sale of investments
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— | 2,173 | |||||||||
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Proceeds from release of funds held in escrow
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— | 3,750 | |||||||||
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Proceeds from sale of marketable securities
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— | 9,573 | |||||||||
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Purchase of marketable securities
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(4,071 | ) | — | ||||||||
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Changes in restricted cash
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(3,041 | ) | 2,729 | ||||||||
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Net cash provided by (used in) investing
activities
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(7,171 | ) | 7,808 | ||||||||
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Cash flows from financing activities:
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Proceeds from issuance of common stock, net
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1,529 | 985 | |||||||||
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Proceeds from repayments of shareholder notes
receivable
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1,222 | — | |||||||||
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Proceeds from line of credit facility
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— | ||||||||||