UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 2003
COMMISSION FILE NUMBER: 000-26273
PRIMUS KNOWLEDGE SOLUTIONS, INC.
(Exact name of Registrant as specified in its charter)
| WASHINGTON |
91-1350484 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
1601 Fifth Avenue, Suite 1900
Seattle, Washington 98101
(Address of principal executive offices)
(206) 834-8100
(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 ¨ No x
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes ¨ No x
As of May 9, 2003 there were 19,053,821 shares of the Registrant’s Common Stock outstanding.
Primus Knowledge Solutions, Inc.
Form 10-Q
March 31, 2003
| PART I. |
FINANCIAL INFORMATION |
PAGE | ||||
| ITEM 1. |
Condensed Consolidated Financial Statements (Unaudited) |
|||||
| • |
Condensed Consolidated Balance Sheets as of March 31, 2003 and December 31, 2002 |
3 | ||||
| • |
Condensed Consolidated Statements of Operations for the three months ended March 31, 2003 and 2002 |
4 | ||||
| • |
5 | |||||
| • |
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2003 and 2002 |
6 | ||||
| • |
7 | |||||
| ITEM 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
15 | ||||
| ITEM 3. |
38 | |||||
| ITEM 4. |
39 | |||||
| PART II. |
OTHER INFORMATION |
|||||
| ITEM 1. |
39 | |||||
| ITEM 2. |
40 | |||||
| ITEM 5. |
40 | |||||
| ITEM 6. |
40 | |||||
Page 2 of 43
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
(Unaudited)
| March 31, 2003 |
December 31, 2002 |
|||||||
| ASSETS |
||||||||
| Current assets: |
||||||||
| Cash, cash equivalents and short-term investments |
$ |
13,090 |
|
$ |
12,958 |
| ||
| Accounts receivable, net of allowance for doubtful accounts of $462 and $412 at March 31, 2003 and December 31, 2002, respectively |
|
3,844 |
|
|
4,201 |
| ||
| Prepaid expenses and other current assets |
|
933 |
|
|
847 |
| ||
| Total current assets |
|
17,867 |
|
|
18,006 |
| ||
| Property and equipment, net of accumulated depreciation and amortization of $6,533 and $6,127 at March 31, 2003 and December 31, 2002, respectively |
|
1,816 |
|
|
2,268 |
| ||
| Note receivable from related party |
|
750 |
|
|
750 |
| ||
| Other assets |
|
192 |
|
|
236 |
| ||
| Total assets |
$ |
20,625 |
|
$ |
21,260 |
| ||
| LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ |
1,092 |
|
$ |
953 |
| ||
| Accrued and other liabilities |
|
2,403 |
|
|
2,295 |
| ||
| Compensation-related accruals |
|
1,066 |
|
|
926 |
| ||
| Deferred revenue, including related party amounts of $193 and $248 at March 31, 2003 and December 31, 2002, respectively |
|
6,358 |
|
|
6,228 |
| ||
| Total current liabilities |
|
10,919 |
|
|
10,402 |
| ||
| Commitments, contingencies and subsequent event |
||||||||
| Shareholders’ equity: |
||||||||
| Common stock, $.025 par value, 50,000,000 shares authorized, issued and outstanding 19,053,821 shares at March 31, 2003 and December 31, 2002 |
|
476 |
|
|
476 |
| ||
| Additional paid-in-capital |
|
110,187 |
|
|
110,187 |
| ||
| Accumulated other comprehensive income |
|
53 |
|
|
75 |
| ||
| Accumulated deficit |
|
(101,010 |
) |
|
(99,880 |
) | ||
| Total shareholders’ equity |
|
9,706 |
|
|
10,858 |
| ||
| Total liabilities and shareholders’ equity |
$ |
20,625 |
|
$ |
21,260 |
| ||
The accompanying notes are an integral part of these condensed consolidated financial statements.
Page 3 of 43
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
(Unaudited)
| Three Months Ended March 31, |
||||||||
| 2003 |
2002 |
|||||||
| Revenue: |
||||||||
| License: |
||||||||
| Third party |
$ |
2,086 |
|
$ |
2,236 |
| ||
| Related party—Primus KK |
|
289 |
|
|
221 |
| ||
|
|
2,375 |
|
|
2,457 |
| |||
| Service: |
||||||||
| Third party |
|
2,982 |
|
|
3,345 |
| ||
| Related party—Primus KK |
|
131 |
|
|
225 |
| ||
|
|
3,113 |
|
|
3,570 |
| |||
| Total revenue |
|
5,488 |
|
|
6,027 |
| ||
| Cost of revenue: |
||||||||
| License |
|
97 |
|
|
73 |
| ||
| Service |
|
1,139 |
|
|
1,295 |
| ||
| Total cost of revenue |
|
1,236 |
|
|
1,368 |
| ||
| Gross profit |
|
4,252 |
|
|
4,659 |
| ||
| Operating expenses: |
||||||||
| Sales and marketing |
|
2,598 |
|
|
3,067 |
| ||
| Research and development |
|
1,816 |
|
|
2,385 |
| ||
| General and administrative |
|
973 |
|
|
1,353 |
| ||
| Restructuring charges |
|
— |
|
|
435 |
| ||
| Total operating expenses |
|
5,387 |
|
|
7,240 |
| ||
| Loss from operations |
|
(1,135 |
) |
|
(2,581 |
) | ||
| Other income, net |
|
55 |
|
|
110 |
| ||
| Loss before income taxes and cumulative effect of change in accounting principle |
|
(1,080 |
) |
|
(2,471 |
) | ||
| Income tax expense |
|
(50 |
) |
|
(70 |
) | ||
| Loss before cumulative effect of change in accounting principle |
|
(1,130 |
) |
|
(2,541 |
) | ||
| Cumulative effect of change in accounting principle |
|
— |
|
|
(2,281 |
) | ||
| Net loss |
$ |
(1,130 |
) |
$ |
(4,822 |
) | ||
| Basic and diluted net loss per common share: |
||||||||
| Loss before cumulative effect of change in accounting principle |
$ |
(0.06 |
) |
$ |
(0.13 |
) | ||
| Cumulative effect of change in accounting principle |
|
— |
|
|
(0.12 |
) | ||
| $ |
(0.06 |
) |
$ |
(0.25 |
) | |||
| Weighted average shares used in computing basic and diluted net loss per common share |
|
19,053,821 |
|
|
18,945,519 |
| ||
The accompanying notes are an integral part of these condensed consolidated financial statements.
Page 4 of 43
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY AND COMPREHENSIVE LOSS
(In thousands, except share data)
(Unaudited)
| Common stock |
Additional paid-in capital |
Accumulated other comprehensive (loss) income |
Accumulated deficit |
Total shareholders’ equity |
||||||||||||||||
| Shares |
Par value |
|||||||||||||||||||
| Balance at December 31, 2002 |
19,053,821 |
$ |
476 |
$ |
110,187 |
$ |
75 |
|
$ |
(99,880 |
) |
$ |
10,858 |
| ||||||
| Comprehensive loss: |
||||||||||||||||||||
| Foreign currency translation loss |
— |
|
— |
|
— |
|
(17 |
) |
|
— |
|
|
— |
| ||||||
| Unrealized loss on securities available for sale |
— |
|
— |
|
— |
|
(5 |
) |
|
— |
|
|
— |
| ||||||
| Net loss |
— |
|
— |
|
— |
|
— |
|
|
(1,130 |
) |
|
— |
| ||||||
| Total comprehensive loss |
— |
|
— |
|
— |
|
(22 |
) |
|
(1,130 |
) |
|
||||||||