UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2004
| ¨ | 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.
| A California Corporation | I.R.S. Employer No. 91-1788300 |
350 The Embarcadero
San Francisco, California 94105
415-541-2500
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 Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes x No ¨
As of September 30, 2004, the Company had outstanding 22,560,603 shares of common stock, $0.001 par value per share (including 46,989 shares of Class A Non-Voting preference shares of our Nova Scotia subsidiary Critical Path Messaging Co. which can be exchanged at any time for our common stock upon the election of the holder).
INDEX
(i)
Item 1. Condensed Consolidated Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
| December 31, 2003 |
September 30, 2004 |
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| (In thousands, except share and per share amounts; unaudited) |
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| ASSETS | ||||||||
| Current assets |
||||||||
| Cash and cash equivalents |
$ | 18,984 | $ | 20,152 | ||||
| Accounts receivable, net |
16,880 | 15,730 | ||||||
| Prepaid and other current assets |
4,664 | 5,919 | ||||||
| Total current assets |
40,528 | 41,801 | ||||||
| Property and equipment, net |
14,821 | 10,085 | ||||||
| Goodwill |
6,613 | 6,613 | ||||||
| Restricted cash |
— | 2,702 | ||||||
| Other assets |
5,763 | 3,599 | ||||||
| Total assets |
$ | 67,725 | $ | 64,800 | ||||
| LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS’ DEFICIT | ||||||||
| Current liabilities |
||||||||
| Accounts payable |
$ | 5,022 | $ | 4,877 | ||||
| Accrued liabilities |
20,755 | 22,676 | ||||||
| Deferred revenue |
8,856 | 9,925 | ||||||
| Line of credit facility |
2,298 | — | ||||||
| Capital lease and other obligations, current |
1,721 | 1,310 | ||||||
| Convertible notes payable, current |
— | 5,565 | ||||||
| Total current liabilities |
38,652 | 44,353 | ||||||
| Deferred revenue |
1,343 | 1,249 | ||||||
| Convertible notes payable |
48,376 | — | ||||||
| Embedded derivative liability |
24,890 | 2,092 | ||||||
| Capital lease and other obligations, long-term |
1,295 | 64 | ||||||
| Total liabilities |
114,556 | 47,758 | ||||||
| Commitments and contingencies (Note 10) |
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| Mandatorily redeemable preferred stock, par value $0.001 |
||||||||
| 30,411 | 118,621 | |||||||
| Shareholders’ deficit |
||||||||
| Common stock and paid-in-capital, par value $0.001 |
||||||||
| Shares authorized: 200,000,000 |
||||||||
| Shares issued and outstanding: 21,078 and 22,561 |
2,154,295 | 2,177,914 | ||||||
| Common stock warrants |
5,947 | 5,947 | ||||||
| Notes receivable from shareholders |
(870 | ) | — | |||||
| Unearned compensation |
— | (1,352 | ) | |||||
| Accumulated deficit |
(2,238,728 | ) | (2,283,947 | ) | ||||
| Accumulated other comprehensive income (loss) |
2,114 | (141 | ) | |||||
| Total shareholders’ deficit |
(77,242 | ) | (101,579 | ) | ||||
| Total liabilities, mandatorily redeemable preferred stock and shareholders’ deficit |
$ | 67,725 | $ | 64,800 | ||||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
1
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
| Three months ended September 30, |
Nine months ended September 30, |
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| 2003 |
2004 |
2003 |
2004 |
|||||||||||||
| (In thousands, except per share amounts; unaudited) |
||||||||||||||||
| Net revenues |
||||||||||||||||
| Software license |
$ | 4,264 | $ | 4,744 | $ | 14,903 | $ | 14,403 | ||||||||
| Hosted messaging |
4,583 | 4,621 | 14,825 | 12,675 | ||||||||||||
| Professional services |
2,574 | 3,092 | 8,949 | 8,687 | ||||||||||||
| Maintenance and support |
4,744 | 5,038 | 13,658 | 15,825 | ||||||||||||
| Total net revenues |
16,165 | 17,495 | 52,335 | 51,590 | ||||||||||||
| Cost of net revenues |
||||||||||||||||
| Software license |
541 | 1,322 | 3,060 | 3,941 | ||||||||||||
| Hosted messaging |
6,196 | 5,995 | 19,562 | 18,946 | ||||||||||||
| Professional services |
2,734 | 2,667 | 9,094 | 8,796 | ||||||||||||
| Maintenance and support |
1,263 | 1,422 | 4,579 | 4,193 | ||||||||||||
| Stock-based expense — Hosted messaging |
— | — | 8 | 5 | ||||||||||||
| Stock-based expense — Professional services |
— | — | 3 | — | ||||||||||||
| Stock-based expense — Maintenance and support |
— | — | 6 | — | ||||||||||||
| Restructuring and other expenses |
— | — | — | 175 | ||||||||||||
| Total cost of net revenues |
10,734 | 11,406 | 36,312 | 36,056 | ||||||||||||
| Gross profit |
5,431 | 6,089 | 16,023 | 15,534 | ||||||||||||
| Operating expenses |
||||||||||||||||
| Sales and marketing |
7,150 | 5,242 | 24,390 | 18,216 | ||||||||||||
| Research and development |
4,608 | 5,260 | 14,044 | 16,383 | ||||||||||||
| General and administrative |
3,228 | 2,854 | 9,774 | 9,746 | ||||||||||||
| Stock-based expense — Sales and marketing |
— | — | 18 | 45 | ||||||||||||
| Stock-based expense — Research and development |
— | — | 15 | 18 | ||||||||||||
| Stock-based expense — General and administrative |
— | 308 | 9 | 1,498 | ||||||||||||
| Restructuring and other expenses |
953 | 2,590 | 5,034 | 4,799 | ||||||||||||
| Total operating expenses |
15,939 | 16,254 | 53,284 | 50,705 | ||||||||||||
| Loss from operations |
(10,508 | ) | (10,165 | ) | (37,261 | ) | (35,171 | ) | ||||||||
| Other income (expense), net |
(4,049 | ) | (2,781 | ) | (7,151 | ) | 7,448 | |||||||||
| Interest income |
105 | 125 | 306 | 297 | ||||||||||||
| Interest expense |
(852 | ) | (467 | ) | (2,404 | ) | (4,112 | ) | ||||||||
| Loss on extinguishment of debt |
— | (12,783 | ) | — | (12,783 | ) | ||||||||||
| Gain on investments, net |
— | — | 349 | — | ||||||||||||
| Loss before income taxes |
(15,304 | ) | (26,071 | ) | (46,161 | ) | (44,321 | ) | ||||||||
| Provision for income taxes |
(273 | ) | (88 | ) | (754 | ) | (900 | ) | ||||||||
| Net loss |
(15,577 | ) | (26,159 | ) | (46,915 | ) | (45,221 | ) | ||||||||
| Accretion on mandatorily redeemable preferred stock |
(3,025 | ) | (4,193 | ) | (9,529 | ) | (10,689 | ) | ||||||||
| Net loss attributable to common shareholders |
$ | (18,602 | ) | $ | (30,352 | ) | $ | (56,444 | ) | $ | (55,910 | ) | ||||
| Net loss per share attributable to common shareholders — basic and diluted |
$ | (0.92 | ) | $ | (1.43 | ) | $ | (2.84 | ) | $ | (2.65 | ) | ||||
| Weighted average shares — basic and diluted |
20,126 | 21,171 | 19,889 | 21,075 | ||||||||||||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
2
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| Nine months ended September 30, |
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| 2003 |
2004 |
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| (in thousands; unaudited) |
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| Cash flow from operating activities: |
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| Net loss |
$ | (46,915 | ) | $ | ||||