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 QUARTERLY PERIOD ENDED MARCH 31, 2004 | 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 x No ¨
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 6, 2004 there were 23,771,438 shares of the Registrant’s Common Stock outstanding.
Primus Knowledge Solutions, Inc.
Form 10-Q
March 31, 2004
INDEX
Page 2 of 42
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
| March 31, 2004 |
December 31, 2003 |
|||||||
| ASSETS |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 11,819 | $ | 12,154 | ||||
| Accounts receivable, net of allowance for doubtful accounts of $174 at March 31, 2004 and December 31, 2003 |
4,044 | 5,475 | ||||||
| Prepaid expenses and other current assets |
911 | 1,001 | ||||||
| Total current assets |
16,774 | 18,630 | ||||||
| Property and equipment, net of accumulated depreciation and amortization of $7,981 and $7,743 at March 31, 2004 and December 31, 2003, respectively |
1,258 | 1,415 | ||||||
| Goodwill |
11,971 | 11,785 | ||||||
| Other intangible assets, net of accumulated amortization of $282 and $68 at March 31, 2004 and December 31, 2003, respectively |
3,494 | 3,608 | ||||||
| Other assets |
223 | 225 | ||||||
| Total assets |
$ | 33,720 | $ | 35,663 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 2,322 | $ | 2,555 | ||||
| Accrued and other liabilities |
2,359 | 2,170 | ||||||
| Compensation-related accruals |
1,325 | 1,733 | ||||||
| Obligations due under credit facility |
380 | 395 | ||||||
| Deferred revenue, including related party amounts of $86 and $94 at March 31, 2004 and December 31, 2003, respectively |
9,095 | 8,797 | ||||||
| Total current liabilities |
15,481 | 15,650 | ||||||
| Commitments and contingencies |
||||||||
| Shareholders’ equity: |
||||||||
| Common stock, $.025 par value, authorized 50,000,000 shares, issued and outstanding 23,698,614 and 23,257,082 shares at March 31, 2004 and December 31, 2003, respectively |
592 | 581 | ||||||
| Additional paid-in-capital |
122,910 | 122,051 | ||||||
| Accumulated other comprehensive income |
508 | 188 | ||||||
| Accumulated deficit |
(105,771 | ) | (102,807 | ) | ||||
| Total shareholders’ equity |
18,239 | 20,013 | ||||||
| Total liabilities and shareholders’ equity |
$ | 33,720 | $ | 35,663 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
Page 3 of 42
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
(Unaudited)
| Quarter Ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| Revenue: |
||||||||
| License: |
||||||||
| Third party |
$ | 1,514 | $ | 2,086 | ||||
| Related party–Primus KK |
139 | 289 | ||||||
| 1,653 | 2,375 | |||||||
| Service: |
||||||||
| Third party |
4,371 | 2,982 | ||||||
| Related party–Primus KK |
50 | 131 | ||||||
| 4,421 | 3,113 | |||||||
| Total revenue |
6,074 | 5,488 | ||||||
| Cost of revenue: |
||||||||
| License |
232 | 97 | ||||||
| Service |
1,515 | 1,139 | ||||||
| Amortization of purchased intangibles |
213 | — | ||||||
| Total cost of revenue |
1,960 | 1,236 | ||||||
| Gross profit |
4,114 | 4,252 | ||||||
| Operating expenses: |
||||||||
| Sales and marketing |
2,900 | 2,598 | ||||||
| Research and development |
2,352 | 1,816 | ||||||
| General and administrative |
1,297 | 973 | ||||||
| Restructuring charges |
461 | — | ||||||
| Total operating expenses |
7,010 | 5,387 | ||||||
| Loss from operations |
(2,896 | ) | (1,135 | ) | ||||
| Other income (expense), net |
(26 | ) | 55 | |||||
| Loss before income taxes |
(2,922 | ) | (1,080 | ) | ||||
| Income tax expense |
(42 | ) | (50 | ) | ||||
| Net loss |
$ | (2,964 | ) | $ | (1,130 | ) | ||
| Basic and diluted net loss per share amounts |
$ | (0.13 | ) | $ | (0.06 | ) | ||
| Weighted average shares used in computing basic and diluted net loss per share amounts |
23,454,322 | 19,053,821 | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
Page 4 of 42
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY AND COMPREHENSIVE LOSS
(In thousands, except share amounts)
(Unaudited)
| Common stock |
Additional paid-in capital |
Accumulated other comprehensive income |
Accumulated deficit |
Total shareholders’ equity |
|||||||||||||||
| Shares |
Par value |
||||||||||||||||||
| Balance at December 31, 2003 |
23,257,082 | $ | 581 | $ | 122,051 | $ | 188 | $ | (102,807 | ) | $ | 20,013 | |||||||
| Exercise of stock options |
406,532 | 10 | 683 | — | — | 693 | |||||||||||||
| Stock issued in exchange for services |
35,000 | 1 | 176 | — | — | 177 | |||||||||||||
| Comprehensive income: |
|||||||||||||||||||
| Foreign currency translation gain |
— | — | — | 320 | — | — | |||||||||||||
| Net loss |
— | — | — | — | (2,964 | ) | — | ||||||||||||
| Total comprehensive loss |
— | — | — | 320 | (2,964 | ) | (2,644 | ) | |||||||||||
| Balance at March 31, 2004 |
23,698,614 | $ | 592 | $ | 122,910 | $ | 508 | $ | (105,771 | ) | $ | 18,239 | |||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
Page 5 of 42
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Quarter Ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
| Net loss |
$ | (2,964 | ) | $ | (1,130 | ) | ||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
||||||||
| Depreciation and amortization |
441 | 481 | ||||||
| Changes in assets and liabilities: |
||||||||
| Accounts receivable |
1,440 | 349 | ||||||
| Prepaid expenses and other current assets |
94 | (112 | ) | |||||
| Other assets |
— | 44 | ||||||
| Accounts payable and accrued liabilities |
78 | 306 | ||||||
| Compensation-related accruals |
(412 | ) | 156 | |||||
| Deferred revenue |
233 | 130 | ||||||
| Net cash provided by (used in) operating activities |
(1,090 | ) | 224 | |||||
| CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
| Purchases of short-term investments |
— | (394 | ) | |||||
| Proceeds from maturities of short-term investments |
— | 1,000 | ||||||
| Purchases of property and equipment |
(67 | ) | (29 | ) | ||||
| Net cash provided by (used in) investing activities |
(67 | ) | 577 | |||||
| CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
| Repayment of obligations under credit facility |
(27 | ) | — | |||||
| Proceeds from the exercise of stock options and purchases of common stock under the employee stock purchase plan |
693 | — | ||||||
| Net cash provided by financing activities |
666 | — | ||||||
| Effect of exchange rate changes on cash |
156 | (52 | ) | |||||
| Net increase (decrease) in cash and cash equivalents |
(335 | ) | 749 | |||||
| Cash and cash equivalents at beginning of period |
12,154 | 11,948 | ||||||
| Cash and cash equivalents at end of period |
$ | 11,819 | $ | 12,697 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
Page 6 of 42
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2004
(In thousands, except share and per share data)
(Unaudited)
Note 1. Description of the Business and Basis of Presentation
Description of the Business and Basis of Presentation
We provide software solutions that enable companies to deliver a superior customer experience via contact centers, information technology (IT) help desks, Web (Intranet and Internet) self-service, and electronic communication channels. Our technology powers every interaction with knowledge to increase customer satisfaction and reduce operational costs. We provide application software that enables companies to find, capture and communicate enterprise knowledge to deliver answers to questions and solutions to problems. We also offer electronic communication solutions, such as web self-service, email management, chat, and wireless communications. Our software products can be implemented as a suite or as individual modules as part of a comprehensive eService solution, customer service delivered through web based applications. Our solutions can be used in combination with leading CRM (Customer Relationship Management) and IT helpdesk applications, including those from Amdocs/Clarify, Kana, Onyx, Oracle CRM, PeopleSoft, Remedy, Siebel, SAP, and others. In addition to software applications, we offer professional services to assist customers with software implementation, integration, hosting, training and support.
Acquisitions
Acquisition of Broad Daylight, Inc.
On August 12, 2003, we signed a definitive merger agreement and announced our intent to acquire 100% of the voting interest in Broad Daylight, Inc. (“Broad Daylight”) an e-service software developer specializing in solutions for customer and employee self-service. The merger of Broad Daylight with a subsidiary of ours