<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
<TABLE>
<C> <S>
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
OR
<TABLE>
<C> <S>
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER 0-20789
------------------------
PRIMIX SOLUTIONS INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 04-3249618
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
ONE ARSENAL MARKETPLACE, SECOND FLOOR, 02472
WATERTOWN, MASSACHUSETTS (zip code)
(Address of principal executive
offices)
</TABLE>
(617) 923-6500
(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 ______
As of May 8, 2000, there were 15,339,164 shares of registrant's Common Stock
outstanding.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PRIMIX SOLUTIONS INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
PART I--FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets at December 31, 1999
and March 31, 2000 (unaudited)............................. 3
Condensed Consolidated Statements of Operations for the
three months ended
March 31, 1999 and 2000 (unaudited)........................ 4
Condensed Consolidated Statements of Cash Flows for the
three months ended
March 31, 1999 and 2000 (unaudited)........................ 5
Notes to Condensed Consolidated Financial Statements
(unaudited)................................................ 6
Item 2. Management's Discussion and Analysis of Financial Condition
and
Results of Operations....................................... 8
Item 3. Quantitative and Qualitative Disclosures about Market
Risk....................................................... 10
PART II--OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................ 11
Signatures........................................................... 12
</TABLE>
2
<PAGE>
PART I--FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
PRIMIX SOLUTIONS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 2000
------------ ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 5,685 $ 3,428
Marketable securities..................................... 12,855 13,209
Accounts receivable, net.................................. 3,552 4,440
Prepaid expenses and other current assets................. 501 970
Note receivable from related party........................ 150 --
------- -------
Total current assets.................................... 22,743 22,047
Property and equipment, net................................. 456 733
Goodwill, net............................................... 3,812 3,726
Notes receivable from related parties....................... 325 500
------- -------
Total assets............................................ $27,336 $27,006
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 967 $ 1,723
Accrued expenses.......................................... 1,916 2,267
------- -------
Total current liabilities............................... 2,883 3,990
Stockholders' equity:
Common stock.............................................. 15 15
Treasury stock............................................ (1,296) (512)
Additional paid-in capital................................ 60,219 59,855
Accumulated deficit....................................... (34,485) (36,342)
------- -------
Total stockholders' equity.............................. 24,453 23,016
------- -------
Total liabilities and stockholders' equity.............. $27,336 $27,006
======= =======
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
PRIMIX SOLUTIONS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
UNAUDITED
THREE MONTHS ENDED
MARCH 31,
-------------------
1999 2000
-------- --------
<S> <C> <C>
Revenue:
Professional services..................................... $ 1,940 $ 5,013
Operating expenses:
Professional services..................................... 1,435 3,053
Sales and marketing....................................... 534 1,614
General and administrative................................ 1,136 2,118
Research and development.................................. -- 223
Amortization of goodwill.................................. 55 92
------- --------
Total operating expenses................................ 3,160 7,100
------- --------
Operating loss.............................................. (1,220) (2,087)
Interest income, net........................................ 298 230
------- --------
Net loss.................................................... $ (922) $ (1,857)
======= ========
Basic and diluted net loss per common share................. $ (0.06) $ (0.12)
======= ========
Basic and diluted weighted average shares outstanding....... 14,618 14,879
======= ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
PRIMIX SOLUTIONS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
UNAUDITED
THREE MONTHS ENDED
MARCH 31 ,
-------------------
1999 2000
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $ (922) $(1,857)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 279 146
Changes in operating assets and liabilities:
Accounts receivable................................... 532 (888)
Prepaid expenses and other current assets............. 17 (468)
Accounts payable...................................... (431) 756
Other current liabilities............................. (476) 350
Deferred revenue...................................... 14 --
------- -------
Net cash used in operating activities....................... (987) (1,961)
------- -------
Cash flows from investing activities:
Sales (purchases) of marketable securities, net........... (1,517) (354)
Purchases of property and equipment....................... (65) (331)
Additional purchase price of Black Bean Studios, Inc...... -- (6)
Increase in other assets.................................. (150) (25)
------- -------
Net cash used in investing activities....................... (1,732) (716)
------- -------
Cash flows from financing activities:
Payment of note payable to related party.................. (204) --
Proceeds from the exercise of stock options............... -- 313
Proceeds from common stock purchased through employee
stock purchase plan..................................... 29 107
Payment of capital lease obligations...................... (17) --
------- -------
Net cash (used in) provided by financing activities......... (192) 420
------- -------
Net decrease in cash and cash equivalents................... (2,911) (2,257)
Cash and cash equivalents, beginning of period.............. 26,693 5,685
------- -------
Cash and cash equivalents, end of period.................... $23,782 $ 3,428
======= =======
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE>
PRIMIX SOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(UNAUDITED)
1. BASIS OF PRESENTATION
The condensed consolidated financial statements included herein are
unaudited and reflect all adjustments, consisting of normal recurring
adjustments, which are, in the opinion of management, necessary for a fair
presentation of the results for the interim periods. These financial statements
should be read in conjunction with the financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1999 as filed with the Securities and Exchange Commission.
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates and would impact future
results of operations and cash flows.
The results of operations for the reported 2000 period are not necessarily
indicative of the results to be achieved for the entire year ending
December 31, 2000.
2. ACQUISITION OF BLACK BEAN STUDIOS, INC.
On December 3, 1999, the Company acquired Black Bean Studios, Inc. ("Black
Bean"), a privately held Boston, Massachusetts based design boutique
specializing in digital media, which augmented the depth and breadth of the
Company's capabilities in developing highly effective user interfaces at the
front end of e-Business solutions.
The transaction has been accounted for as a purchase in accordance with
Accounting Principles Board Opinion No. 16, "Business Combinations".
Accordingly, the operating results of Black Bean are included in the Company's
consolidated financial statements effective December 4, 1999. The excess
purchase price over the net assets acquired of $1.9 million has been recorded as
goodwill and is being amortized over its estimated useful life of 10 years.
3. RECLASSIFICATION OF FINANCIAL STATEMENTS
Certain prior year amounts have been reclassified to conform to the current
year presentation.
4. COMPUTATION OF BASIC AND DILUTED NET LOSS PER COMMON SHARE
In accordance with the Financial Accounting Standards Board's Statement of
Financial Accounting Standards No. 128, "Earnings Per Share", basic net loss per
share is computed by dividing net loss by the weighted average common shares
outstanding, with no consideration given for any potentially dilutive
securities. Diluted net loss per share is the same as basic net loss per share
because the inclusion of common stock issuable pursuant to stock options and
warrants (number of dilutive shares were approximately 2,198,000 and 3,057,000
at March 31, 1999 and 2000, respectively) would be antidilutive.
5. OTHER ASSETS
In March 1999, the Company issued a promissory note in the amount of $75,000
to Michael Troiano, who was appointed the Company's President in December 1999.
The promissory note was due on December 31, 2001 and bore interest at a rate of
6.75% per annum. In January 2000, the $75,000 note was
6
<PAGE>
cancelled and a new promissory note totaling $250,000 was issued. The note bears
interest at a rate of 7% per annum until September 30, 2002 when the interest
rate will convert to the Prime rate plus two percentage points for the remainder
of the term. The outstanding principal balance is payable quarterly in arrears
in equal installments beginning on January 1, 2005. The note is due on
September 30, 2029.
6. COMPREHENSIVE INCOME
During 1998, the Company adopted SFAS No. 130, "Reporting of Comprehensive
Income". Comprehensive income (loss) refers to the change in an entity's equity
during a period, exclusive of investment by and distributions to owners.
Comprehensive income (loss) includes net income (loss) and other comprehensive
income (loss) items. The Company has no other comprehensive income (loss) items
as defined in SFAS No. 130 and, therefore, reported net loss is equal to
comprehensive loss for all periods presented.
7. SEGMENT DISCLOSURE AND CONCENTRATION OF CREDIT RISK/SIGNIFICANT CUSTOMERS
SFAS No. 105, "Disclosure of Information about Financial Instruments with
Off-Balance-Sheet Risk and Financial Instruments with Concentrations of Credit
Risk", requires disclosure of any significant off-balance-sheet and credit risk
concentrations. Financial instruments that potentially subject the Company to
concentrations of credit risk are accounts receivable, cash equivalents and
marketable securities. At December 31, 1999, one customer accounted for
approximately 42% of total accounts receivable. At March 31, 2000, four
customers accounted for 24%, 19%,12% and 11% of total accounts receivable. Two
customers accounted for 21% and 15% of total revenue for the three months ended
March 31, 1999. Four customers accounted for 21%, 19%, 12% and 10% of total
revenue for the three months ended March 31, 2000.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following information should be read in conjunction with the financial
statements and notes thereto contained herein and the risk factors contained in
the section entitled "Certain Factors That May Affect Future Results" on page 15
of the Company's 1999 Annual Report on Form 10-K filed with the Securities and
Exchange Commission.
This Form 10-Q contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. The Company's actual results could differ materially from
those set forth in the forward-looking statements. Factors that might cause such
a difference are discussed in the section entitled "Certain Factors That May
Affect Future Results" below.
OVERVIEW
Primix Solutions Inc. ("Primix" or the "Company") is a strategic Internet
services firm that helps clients define, develop and deploy e-business solutions
that deliver superior business results.
The Company has generally derived its professional services revenues from
engagements that have been priced on a fixed-time/fixed-price model. This model
contains inherent risks that are greater than engagements priced on a time and
materials basis. Accordingly, the Company diligently evaluates the scope of each
project and its related risk. To the extent that the Company has not adequately
assessed the risk associated with its engagements, revenues could be materially
delayed and therefore adversely affect the Company's results. As is the nature
with most consulting firms, the Company's costs are relatively fixed.
As of March 31, 2000, the Company's total headcount was 151 compared to 90
as of March 31, 1999.
RESULTS OF OPERATIONS
REVENUE
Professional services revenue increased by $3.1 million to $5.0 million for
the three months ended March 31, 2000 from $1.9 million for the comparable
quarter in 1999. This increase was the result of increases in both the size and
number of consulting engagements serviced and the increase in the number of
billable consultants. Billable headcount increased from 63 at March 31, 1999 to
102 at March 31, 2000.
PROFESSIONAL SERVICES
The cost of professional services consists primarily of compensation and
benefits for employees engaged in the delivery of professional services as well
as fees to third party consultants and non-reimbursable expenses related to
client projects. Professional services expenses increased to $3.1 million, or
61% of revenue, for the three months ended March 31, 2000 from $1.4 million, or
74% of revenue, for the comparable prior year period. The absolute dollar
increase is primarily due to increased headcount, an increased usage of third
party consultants and increased travel costs. Professional services expenses
decreased as a percentage of revenue mainly due to higher utilization rates of
the professional staff. Professional services headcount increased from 63 at
March 31, 1999 to 102 at March 31, 2000. The Company expects professional
services expenses to increase during the remainder of 2000 as the Company seeks
to hire additional professional services personnel.
SALES AND MARKETING
Sales and marketing expenses consist primarily of compensation and benefits
for sales and marketing personnel and costs for advertising and marketing. Sales
and marketing expenses increased to $1.6 million,
8
<PAGE>
or 32% of revenue, for the three months ended March 31, 2000 from $534,000, or
28% of revenue, for the comparable prior year period. The increase is primarily
due to increased headcount, increases in advertising, public relations and
direct mailing costs, and commissions as a result of higher revenue levels. The
Company expects sales and marketing expenses to increase during 2000 as the
Company seeks to hire additional sales and marketing personnel and due to
continued increases in advertising and promotional activities.
GENERAL AND ADMINISTRATIVE
General and administrative expenses consist primarily of compensation and
benefits for executive, finance, information technology, human resource,
recruiting and administrative personnel, rent expense, depreciation expense,
professional fees, recruiting fees, and system support costs. General and
administrative expenses increased to $2.1 million, or 42% of revenue, for the
three months ended March 31, 2000 from $1.1 million, or 59% of revenue, for the
comparable prior year period. The absolute dollar increase is primarily due to
increased headcount-related costs and increased recruiting and consulting fees.
General and administrative headcount increased from 16 at March 31, 1999 to 27
at March 31, 2000. The Company expects general and administrative expenses to
increase during the remainder of 2000 to support the Company's expanding
business.
RESEARCH AND DEVELOPMENT
Research and development expenses consist primarily of compensation and
benefits for research and development personnel. Research and development
expenses increased to $223,000, or 4% of revenue, for the three months ended
March 31, 2000 from $0 for the comparable prior year period. The increase is due
to the fact that there was no research and development group from January 1999
to September 1999. This group was formed in order to develop reusable code and
other proprietary assets for the use within the solutions practice.
AMORTIZATION OF GOODWILL
Amortization of goodwill of $92,000 and $55,000 for the three months ended
March 31, 2000 and March 31,1999 respectively, is attributable to the
acquisition of Advis, Inc. in December 1998 and Black Bean Studios, Inc. in
December 1999.
INTEREST INCOME, NET
Interest income, net decreased to $230,000 for the three months ended
March 31, 2000 from $298,000 for the comparable prior year period. The decrease
in interest income is primarily the result of a decline in the average combined
daily balances of the Company's cash, cash equivalents and marketable
securities.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities utilized approximately $2.0 million for
the three months ended March 31, 2000, resulting primarily from the net loss and
the growth in accounts receivable offset by the increase in accounts payable. At
March 31, 2000, cash, cash equivalents and marketable securities totalled
$16.6 million, a $1.9 million decrease from December 31, 1999.
The Company's investing activities, which primarily consisted of net
purchases of short-term marketable securities and purchases of computer
equipment, utilized approximately $716,000 for the three months ended March 31,
2000.
The Company's financing activities, which mainly consisted of proceeds from
the exercise of stock options and from the issuance of common stock for the
employee stock purchase plan, provided approximately $420,000 for the three
months ended March 31, 2000.
9
<PAGE>
In March 1999, the Company issued a promissory note in the amount of $75,000
to Michael Troiano, who was appointed as the Company's President in
December 1999. The promissory note was due on December 31, 2001 and bore
interest at a rate of 6.75% per annum. In January 2000, the $75,000 note was
cancelled and a new promissory note totaling $250,000 was issued. The note bears
interest at a rate of 7% per annum until September 30, 2002 when the interest
rate will convert to the Prime rate plus two percentage points for the remainder
of the term. The outstanding principal balance is payable quarterly in arrears
in equal installments beginning on January 1, 2005. The note is due on
September 30, 2029.
The Company currently anticipates that the existing cash, cash equivalents
and marketable securities balances will be sufficient to meet its anticipated
working capital and capital expenditure requirements for at least the next
twelve months. Thereafter, the Company may need to raise additional funds. The
Company may in the future seek to expand its business through possible
acquisitions or the opening of additional offices. The Company, however, has no
commitments or agreements with respect to any future acquisition and no
assurances can be given with respect to the likelihood or financial or business
effect of any future acquisition. Future acquisitions could be financed by
internally generated funds, bank borrowings, public offerings or private
placements of equity or debt securities, or a combination of the foregoing.
There can be no assurance that additional financing will be available when
needed on terms favorable to the Company or at all.
YEAR 2000 READINESS
To date, the Company has not experienced any problems with its computer
systems relating to the Year 2000 issue. The Company also is unaware of any
material Year 2000 problems with its clients or vendors. Accordingly, the
Company does not anticipate incurring material expenses or experiencing any
material operational disruptions as a result of any Year 2000 problems.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
Statements made or incorporated into this Form 10-Q include a number of
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward
looking statements include, without limitation, statements containing the words
"anticipates," "believes," "expects," "intends," "future," and words of similar
import which express management's beliefs, expectations or intentions regarding
the Company's future performance. The Company's actual results could differ
materially from its historical results and from those set forth in the
forward-looking statements and may fluctuate between operating periods. Factors
that might cause such differences and fluctuations include the following: the
Company's ability to efficiently consolidate the operations of Black Bean
Studios, Inc., the Company's ability to attract, train and retain qualified
strategic, creative and technical personnel, the Company's ability to retain its
sales and consulting staffs, the Company's ability to close sales, risks related
to the management of growth, development and promotional expenses related to the
introduction of new service offerings, changes in technology and industry
standards, limited operating history, changes in the market for the Company's
services, the rate of acceptance of the Company's services, dependence of the
Company's business on the Internet, increased competition, changing of pricing
policies by the Company or its competitors, the timing of receipt of orders from
major customers, development of Internet and Intranet products or enhancements
by vendors of existing client/server or legacy software systems that compete
with the Company's consulting services, dependence on key personnel, proprietary
technology and the inherent difficulties in protecting intellectual property,
dependence on third-party technology, and exposure for product and professional
services liability. The market price of the Company's Common Stock has been, and
in the future will likely be, subject to significant fluctuations in response to
variations in quarterly operating results and other factors, such as
announcements of technological innovations or new products and services by the
Company or its competitors, or other events.
10
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company owns financial instruments that are sensitive to market risks as
part of its investment portfolio. The investment portfolio is used to preserve
the Company's capital until it is required to fund operations. All of these
market-risk sensitive instruments are classified as held-to-maturity and are not
held for trading purposes. The Company does not own derivative financial
instruments in its investment portfolio. The investment portfolio contains
instruments that are subject to the risk of a decline in interest rates.
INTEREST RATE RISK. The Company's investment portfolio includes investment
grade debt instruments. These bonds are subject to interest rate risk, and could
decline in value if interest rates fluctuate. Due to the short duration and
conservative nature of these instruments, the Company does not believe that it
has a material exposure to interest rate risk.
PART II--OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
<TABLE>
<S> <C>
Dated: May 15, 2000
PRIMIX SOLUTIONS INC.
/s/ DAVID W. CHAPMAN
------------------------------------------------
David W. Chapman
Chief Financial Officer and Principal Financial
Officer
</TABLE>
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 3,428
<SECURITIES> 13,209
<RECEIVABLES> 4,490
<ALLOWANCES> 50
<INVENTORY> 0
<CURRENT-ASSETS> 22,047
<PP&E> 3,607
<DEPRECIATION> 2,874
<TOTAL-ASSETS> 27,006
<CURRENT-LIABILITIES> 3,990
<BONDS> 0
0
0
<COMMON> 15
<OTHER-SE> 23,001
<TOTAL-LIABILITY-AND-EQUITY> 27,006
<SALES> 0
<TOTAL-REVENUES> 5,013
<CGS> 0
<TOTAL-COSTS> 3,053
<OTHER-EXPENSES> 4,047
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,857)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,857)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,857)
<EPS-BASIC> (.12)
<EPS-DILUTED> (.12)
</TABLE>
