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 three months ended March 31, 2005
| ¨ | 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 March 31, 2005, the Company had outstanding 29,744,082 shares of common stock, $0.001 par value per share (including 43,029 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).
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CRITICAL PATH, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| December 31, 2004 |
March 31, 2005 |
|||||||
| (In thousands; unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets |
||||||||
| Cash and cash equivalents |
$ | 23,239 | $ | 27,196 | ||||
| Accounts receivable, net |
19,667 | 18,817 | ||||||
| Prepaid and other current assets |
4,567 | 3,696 | ||||||
| Total current assets |
47,473 | 49,709 | ||||||
| Property and equipment, net |
11,379 | 8,829 | ||||||
| Goodwill |
6,613 | 6,613 | ||||||
| Restricted cash |
2,702 | 2,783 | ||||||
| Other assets |
1,032 | 993 | ||||||
| Total assets |
$ | 69,199 | $ | 68,927 | ||||
| LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS’ DEFICIT | ||||||||
| Current liabilities |
||||||||
| Accounts payable |
$ | 4,973 | $ | 3,986 | ||||
| Accrued liabilities |
23,207 | 24,524 | ||||||
| Deferred revenue |
9,978 | 11,451 | ||||||
| Capital lease and other obligations, current |
1,067 | 695 | ||||||
| Notes payable, current |
5,565 | 5,565 | ||||||
| Total current liabilities |
44,790 | 46,221 | ||||||
| Deferred revenue |
173 | 136 | ||||||
| Embedded derivative liability |
5,173 | 3,660 | ||||||
| Notes payable, net of current portion |
8,875 | 15,847 | ||||||
| Total liabilities |
59,011 | 65,864 | ||||||
| Commitments and contingencies (Note 8) |
||||||||
| Mandatorily redeemable preferred stock, par value $0.001 |
122,377 | 117,569 | ||||||
| Shareholders’ deficit |
||||||||
| Common stock and paid-in-capital, par value $0.001 |
||||||||
| Shares authorized: 200,000 |
||||||||
| Shares issued and outstanding: 21,182 and 29,744 |
2,174,496 | 2,179,710 | ||||||
| Common stock warrants |
5,947 | 5,947 | ||||||
| Unearned compensation |
(1,353 | ) | (1,053 | ) | ||||
| Accumulated deficit |
(2,290,725 | ) | (2,298,094 | ) | ||||
| Accumulated other comprehensive loss |
(554 | ) | (1,016 | ) | ||||
| Total shareholders’ deficit |
(112,189 | ) | (114,506 | ) | ||||
| Total liabilities, mandatorily redeemable preferred stock and shareholders’ deficit |
$ | 69,199 | $ | 68,927 | ||||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
Page 1
CRITICAL PATH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
| Three Months Ended March 31, |
||||||||
| 2004 |
2005 |
|||||||
| (In thousands, except per share amounts; unaudited) |
||||||||
| Net revenues |
||||||||
| Software license |
$ | 4,251 | $ | 4,445 | ||||
| Hosted messaging |
4,343 | 5,211 | ||||||
| Professional services |
2,659 | 3,084 | ||||||
| Maintenance and support |
5,825 | 4,700 | ||||||
| Total net revenues |
17,078 | 17,440 | ||||||
| Cost of net revenues |
||||||||
| Software license |
911 | 1,208 | ||||||
| Hosted messaging |
6,381 | 5,124 | ||||||
| Professional services |
3,094 | 2,404 | ||||||
| Maintenance and support |
1,449 | 1,550 | ||||||
| Stock-based expense — Hosted messaging |
5 | — | ||||||
| Stock-based expense — Professional services |
— | 22 | ||||||
| Stock-based expense — Maintenance and support |
— | 42 | ||||||
| Total cost of net revenues |
11,840 | 10,350 | ||||||
| Gross profit |
5,238 | 7,090 | ||||||
| Operating expenses |
||||||||
| Sales and marketing |
6,939 | 4,647 | ||||||
| Research and development |
5,779 | 4,893 | ||||||
| General and administrative |
3,122 | 3,914 | ||||||
| Stock-based expense — Sales and marketing |
14 | 10 | ||||||
| Stock-based expense — Research and development |
18 | 18 | ||||||
| Stock-based expense — General and administrative |
9 | 216 | ||||||
| Restructuring expenses |
1,065 | 1,639 | ||||||
| Total operating expenses |
16,946 | 15,337 | ||||||
| Loss from operations |
(11,708 | ) | (8,247 | ) | ||||
| Other income (expense), net |
3,517 | 1,846 | ||||||
| Interest income (expense) |
(1,430 | ) | (660 | ) | ||||
| Loss before income taxes |
(9,621 | ) | (7,061 | ) | ||||
| Provision for income taxes |
(366 | ) | (308 | ) | ||||
| Net loss |
(9,987 | ) | (7,369 | ) | ||||
| Accretion on mandatorily redeemable preferred stock |
(3,147 | ) | (5,277 | ) | ||||
| Net loss attributable to common shares |
$ | (13,134 | ) | $ | (12,646 | ) | ||
| Net loss per share attributable to common shares — basic and diluted |
$ | (0.63 | ) | $ | (0.46 | ) | ||
| Weighted average shares — basic and diluted |
21,014 | 27,256 | ||||||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
Page 2
CRITICAL PATH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| Three months ended March 31, |
||||||||
| 2004 |
2005 |
|||||||
| (in thousands; unaudited) |
||||||||
| Cash flow from operating activities: |
||||||||
| Net loss |
$ | (9,987 | ) | $ | (7,369 | ) | ||
| Provision (credit) for allowance for doubtful accounts |
(93 | ) | 3 | |||||
| Depreciation |
2,610 | 2,903 | ||||||
| Stock-based costs and expenses |
46 | 307 | ||||||
| Change in fair value of embedded derivative liabilities |
(3,160 | ) | (1,666 | ) | ||||
| Amortization of debt discount |
60 | 164 | ||||||
| Amortization of start up costs |
48 | 330 | ||||||
| Restructuring charges — non-cash |
— | 1,453 | ||||||
| Change in assets and liabilities: |
||||||||
| Accounts receivable |
(448 | ) | (43 | ) | ||||
| Other assets |
(362 | ) | 354 | |||||
| Accounts payable |
(798 | ) | (497 | ) | ||||
| Accrued liabilities |
1,475 | 511 | ||||||
| Deferred revenue |
1,295 | 1,930 | ||||||
| Net cash used in operating activities |
(9,314 | ) | (1,620 | ) | ||||
| Cash flow from investing activities: |
||||||||
| Notes receivable from officers |
3 | — | ||||||
| Property and equipment purchases |
(1,090 | ) | (439 | ) | ||||
| Net cash used in investing activities |
(1,087 | ) | (439 | ) | ||||
| Cash flow from financing activities: |
||||||||
| Proceeds from issuance of convertible notes, net |
31,156 | 7,000 | ||||||
| Proceeds from issuance of common stock, net |
163 | — | ||||||
| Payments on line of credit facility |
(2,298 | ) | — | |||||
| Principal payments on note and lease obligations |
(287 | ) | (361 | ) | ||||
| Net cash provided by financing activities |
28,734 | 6,639 | ||||||
| Net change in cash and cash equivalents |
18,333 | 4,580 | ||||||
| Effect of exchange rates on cash and cash equivalents |
(186 | ) | (623 | ) | ||||
| Cash and cash equivalents at beginning of period |
18,984 | 23,239 | ||||||
| Cash and cash equivalents at end of period |
$ | 37,131 | $ | 27,196 | ||||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
Page 3
CRITICAL PATH, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS’ DEFICIT
| Mandatorily redeemable preferred stock |
Shareholders’ equity (deficit) |
||||||||||||||||||||||||||
| Common stock and additional |
Common stock |
Unearned |
Accumulated deficit and other comprehensive |
Total |
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| Amended Series D |
Series E |
||||||||||||||||||||||||||
| (in thousands; unaudited) | |||||||||||||||||||||||||||
| Balance at December 31, 2004 |
$ | 59,575 | $ | 62,802 | $ | 2,174,496 | $ | 5,947 | $ | (1,353 | ) | $ | (2,291,279 | ) | $ | (112,189 | ) | ||||||||||
| Accretion of dividend on mandatorily redeemable preferred stock |
856 | 1,183 | (2,039 | ) | — | — | — | (2,039 | ) | ||||||||||||||||||
| Accretion to redemption value for mandatorily redeemable preferred stock |
2,197 | 1,041 | (3,238 | ) | — | — | — | (3,238 | ) | ||||||||||||||||||
| Conversion of preferred stock to common stock |
(10,055 | ) | (30 | ) | 10,518 | — | — | — | 10,518 | ||||||||||||||||||
| Issuance of restricted stock |
— | — | 7 | — | — | — | 7 | ||||||||||||||||||||
| Payment of taxes on vested restricted stock |
— | — | (34 | ) | — | — | |||||||||||||||||||||