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 000-27163
KANA Software, Inc.
(Exact Name of Registrant as Specified in its Charter)
| Delaware | 77-0435679 | |
| (State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) |
181 Constitution Drive
Menlo Park, California 94025
(Address of Principal Executive Offices)
Registrant’s Telephone Number, Including Area Code: (650) 614-8300
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 Exchange Act). YES ¨ NO x
On October 29, 2004, approximately 29,299,263 shares of the Registrant’s Common Stock, $0.001 par value per share, were outstanding.
KANA Software, Inc.
Form 10-Q
Quarter Ended September 30, 2004
| Part I: Financial Information |
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| Item 1: Financial Statements - Unaudited |
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| Condensed Consolidated Balance Sheets at September 30, 2004 and December 31, 2003 |
3 | |
| 4 | ||
| 5 | ||
| Notes to the Unaudited Condensed Consolidated Financial Statements |
6 | |
| Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations |
13 | |
| Item 3: Quantitative and Qualitative Disclosures About Market Risk |
34 | |
| 34 | ||
| Part II: Other Information |
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| 34 | ||
| Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
35 | |
| 35 | ||
| 35 | ||
| 35 | ||
| 35 | ||
| 36 | ||
Part I: Financial Information
| Item 1: | Financial Statements |
KANA SOFTWARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
| September 30, 2004 |
December 31, 2003 |
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| (unaudited) | ||||||||
| ASSETS |
||||||||
| Current assets: |
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| Cash and cash equivalents |
$ | 19,898 | $ | 25,632 | ||||
| Short-term investments |
4,293 | 7,324 | ||||||
| Accounts receivable, less allowance for doubtful accounts of $662 in 2004 and $1,187 in 2003 |
2,528 | 7,908 | ||||||
| Prepaid expenses and other current assets |
2,976 | 3,527 | ||||||
| Total current assets |
29,695 | 44,391 | ||||||
| Restricted cash |
202 | 461 | ||||||
| Property and equipment, net |
12,258 | 15,435 | ||||||
| Goodwill |
8,623 | 7,448 | ||||||
| Intangible assets, net |
315 | — | ||||||
| Other assets |
2,111 | 2,143 | ||||||
| Total assets |
$ | 53,204 | $ | 69,878 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| Current liabilities: |
||||||||
| Notes payable |
$ | 3,427 | $ | 3,427 | ||||
| Accounts payable |
2,605 | 2,238 | ||||||
| Accrued liabilities |
9,356 | 10,678 | ||||||
| Accrued restructuring |
2,701 | 3,336 | ||||||
| Deferred revenue |
18,252 | 20,544 | ||||||
| Total current liabilities |
36,341 | 40,223 | ||||||
| Deferred revenue, less current portion |
1,087 | 1,265 | ||||||
| Accrued restructuring, less current portion |
5,207 | 6,858 | ||||||
| Total liabilities |
42,635 | 48,346 | ||||||
| Stockholders’ equity: |
||||||||
| Common stock |
201 | 201 | ||||||
| Additional paid-in capital |
4,287,771 | 4,286,508 | ||||||
| Deferred stock-based compensation |
(104 | ) | (1,541 | ) | ||||
| Accumulated other comprehensive income (loss) |
253 | 38 | ||||||
| Accumulated deficit |
(4,277,552 | ) | (4,263,674 | ) | ||||
| Total stockholders’ equity |
10,569 | 21,532 | ||||||
| Total liabilities and stockholders’ equity |
$ | 53,204 | $ | 69,878 | ||||
See accompanying notes to unaudited condensed consolidated financial statements.
3
KANA SOFTWARE, INC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2004 |
2003 |
2004 |
2003 |
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| (unaudited) | ||||||||||||||||
| Revenues: |
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| License |
$ | 3,827 | $ | 5,083 | $ | 9,459 | $ | 17,617 | ||||||||
| Service |
8,583 | 8,750 | 25,818 | 26,380 | ||||||||||||
| Total revenues |
12,410 | 13,833 | 35,277 | 43,997 | ||||||||||||
| Cost of revenues: |
||||||||||||||||
| License |
191 | 578 | 1,229 | 2,003 | ||||||||||||
| Service (excluding stock-based compensation of $14, $98, $53, and $325 respectively) |
2,239 | 2,381 | 7,120 | 7,451 | ||||||||||||
| Total cost of revenues |
2,430 | 2,959 | 8,349 | 9,454 | ||||||||||||
| Gross profit |
9,980 | 10,874 | 26,928 | 34,543 | ||||||||||||
| Operating expenses: |
||||||||||||||||
| Sales and marketing (excluding stock-based compensation of $152, $522, $662 and $1,736 respectively) |
6,523 | 6,854 | 18,873 | 22,178 | ||||||||||||
| Research and development (excluding stock-based compensation of $12, $488, $46 and $1,622 respectively) |
4,844 | 4,718 | 14,906 | 16,741 | ||||||||||||
| General and administrative (excluding stock-based compensation of $130, $272, $451 and $762 respectively) |
1,588 | 1,946 | 5,785 | 7,522 | ||||||||||||
| Amortization of stock-based compensation |
308 | 1,380 | 1,212 | 4,445 | ||||||||||||
| Amortization of identifiable intangibles |
12 | — | 31 | 1,453 | ||||||||||||
| Total operating expenses |
13,275 | 14,898 | 40,807 | 52,339 | ||||||||||||
| Operating loss |
(3,295 | ) | (4,024 | ) | (13,879 | ) | (17,796 | ) | ||||||||
| Other income, net |
(4 | ) | 5 | 154 | 112 | |||||||||||
| Income tax expense |
(78 | ) | (35 | ) | (153 | ) | (129 | ) | ||||||||
| Net loss |
$ | (3,377 | ) | $ | (4,054 | ) | $ | (13,878 | ) | $ | (17,813 | ) | ||||
| Basic and diluted net loss per share |
$ | (0.12 | ) | $ | (0.17 | ) | $ | (0.48 | ) | $ | (0.77 | ) | ||||
| Shares used in computing basic and diluted net loss per share |
29,031 | 23,396 | 28,871 | 23,220 | ||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
4
KANA SOFTWARE, INC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| Nine Months Ended September 30, |
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| 2004 |
2003 |
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| (unaudited) | ||||||||
| Cash flows from operating activities: |
||||||||
| Net loss |
$ | (13,878 | ) | $ | (17,813 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities, net of acquisition: |
||||||||
| Depreciation |
4,281 | 6,402 | ||||||
| Amortization of stock-based compensation |
1,212 | 4,445 | ||||||
| Amortization of identifiable intangibles |
85 | 1,453 | ||||||
| Change in allowance for doubtful accounts |
(525 | ) | (2,992 | ) | ||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable |
5,968 | 7,094 | ||||||
| Prepaid expenses and other current assets |
577 | 982 | ||||||
| Other assets |
98 | 385 | ||||||
| Accounts payable and accrued liabilities |
(742 | ) | (3,274 | ) | ||||
| Accrued restructuring |
(2,651 | ) | (1,856 | ) | ||||
| Deferred revenue |
(2,777 | ) | (5,322 | ) | ||||
| Net cash used in operating activities |
(8,352 | ) | (10,496 | ) | ||||
| Cash flows from investing activities: |
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| Purchases of short-term investments |
(1,039 | ) | (1,267 | ) | ||||
| Sales/maturities of short-term investments |
4,086 | 11,803 | ||||||
| Property and equipment purchases |
(740 | ) | (893 | ) | ||||
| Cash paid for acquisition, net of cash acquired |
(421 | ) | — | |||||
| Decrease (increase) in restricted cash |
259 | (9 | ) | |||||
| Net cash provided by investing activities |
2,145 | 9,634 | ||||||
| Cash flows from financing activities: |
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| Payments on capital lease obligations |
— | (27 | ) | |||||
| Net proceeds from issuance of common stock |
560 | 824 | ||||||
| Net cash provided by financing activities |
560 | 797 | ||||||
| Effect of exchange rate changes on cash and cash equivalents |
(87 | ) | 370 | |||||
| Net increase (decrease) in cash and cash equivalents |
(5,734 | ) | 306 | |||||
| Cash and cash equivalents at beginning of period |
25,632 | 21,962 | ||||||
| Cash and cash equivalents at end of period |
$ | 19,898 | $ | 22,268 | ||||
| Supplemental disclosure of cash flow information: |
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| Cash paid during the period for interest |
$ | 72 | $ | 135 | ||||
| Cash paid during the period for income taxes |
$ | 375 | < | |||||