<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(Mark one)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000.
[ ] 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 00024865
NEWGEN RESULTS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 33-0604378
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
12680 HIGH BLUFF DRIVE, SUITE 300
SAN DIEGO, CALIFORNIA 92130
(Address of principal executive offices)
(858) 481-7545
(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 August 8, 2000, there were 10,528,704 shares of the Registrant's Common
Stock outstanding.
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<PAGE>
NEWGEN RESULTS CORPORATION
FORM 10-Q INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements......................................... 3
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................. 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk................ 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings......................................................... 17
Item 2. Changes in Securities and Use of Proceeds................................. 17
Item 4. Submission of Matters to a Vote of Security Holders....................... 17
Item 6. Exhibits and Reports on Form 8-K.......................................... 18
</TABLE>
2.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
NEWGEN RESULTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .................................... $ 19,031,904 $ 5,849,906
Short-term investments, available-for-sale ................... 1,495,350 17,417,971
Accounts receivable, net of allowance for doubtful accounts of
$375,000 and $347,000 respectively ...................... 13,025,519 9,471,175
Prepaid expenses and other current assets .................... 2,819,425 972,301
------------ ------------
Total current assets .................................... 36,372,198 33,711,353
PROPERTY AND EQUIPMENT, net ................................... 7,730,076 5,719,542
GOODWILL, net ................................................. 11,213,036 11,444,279
OTHER ASSETS .................................................. 2,255,739 219,337
------------ ------------
Total assets ............................................ $ 57,571,049 $ 51,094,511
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ............................................. $ 4,989,208 $ 4,395,736
Accrued and other current liabilities ........................ 2,718,368 2,059,773
Current portion of capital lease obligations ................. 918,823 976,429
Current portion of equipment loan payable .................... 199,902 --
------------ ------------
Total current liabilities ................................ 8,826,301 7,431,938
LONG-TERM LIABILITIES:
Long-term portion of capital lease obligations ............... 775,298 1,225,032
Long-term portion of equipment loan payable .................. 349,829 --
Deferred rent ................................................ 64,950 90,930
------------ ------------
Total liabilities ....................................... 10,016,378 8,747,900
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value, 28,000,000 shares authorized;
10,206,399 and 10,032,866 shares issued and outstanding
respectively ............................................... 10,206 10,033
Additional paid-in capital ................................... 52,534,977 52,282,503
Deferred compensation ........................................ (762,967) (1,104,228)
Notes receivable from stockholders ........................... (140,346) (56,250)
Accumulated other comprehensive income (loss) ................ (8,420) 3,885
Retained deficit ............................................. (4,078,779) (8,789,332)
------------ ------------
Total stockholders' equity ................................ 47,554,671 42,346,611
------------ ------------
Total liabilities and stockholders' equity ................ $ 57,571,049 $ 51,094,511
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3.
<PAGE>
NEWGEN RESULTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------- -----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES:
Database marketing services ...................... $ 19,386,457 $ 11,963,306 $ 38,698,834 $ 22,534,821
Consulting services .............................. 639,726 1,628,612 1,147,895 3,160,748
------------ ------------ ------------ ------------
Total revenues ................................ 20,026,183 13,591,918 39,846,729 25,695,569
------------ ------------ ------------ ------------
COST OF REVENUES:
Cost of database marketing services .............. 9,503,838 6,344,527 20,905,896 12,560,056
Cost of consulting services ...................... 841,327 1,373,634 1,469,838 2,713,604
Installation costs ............................... 398,003 385,959 875,553 749,957
------------ ------------ ------------ ------------
Total cost of revenues ........................ 10,743,168 8,104,120 23,251,287 16,023,617
------------ ------------ ------------ ------------
Gross profit .................................. 9,283,015 5,487,798 16,595,442 9,671,952
------------ ------------ ------------ ------------
OPERATING COSTS:
Selling, general and administrative .............. 5,051,490 3,400,653 9,862,173 6,327,509
Technology and product development ............... 1,145,455 1,025,609 2,202,614 1,652,922
Amortization of goodwill and acquisition - related
costs ........................................ 587,985 -- 1,068,518 --
------------ ------------ ------------ ------------
Total operating costs ......................... 6,784,930 4,426,262 13,133,305 7,980,431
------------ ------------ ------------ ------------
Income from operations ........................ 2,498,085 1,061,536 3,462,137 1,691,521
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest, investment and other income ........... 1,249,240 171,861 1,547,217 174,379
Interest expense ................................ (63,517) (96,422) (120,481) (204,762)
------------ ------------ ------------ ------------
Other income (expense), net ................... 1,185,723 75,439 1,426,736 (30,383)
------------ ------------ ------------ ------------
Income before taxes ........................... 3,683,808 1,136,975 4,888,873 1,661,138
PROVISION FOR INCOME TAXES ......................... 105,050 -- 178,250 --
------------ ------------ ------------ ------------
Net income .................................... 3,578,758 1,136,975 4,710,623 1,661,138
ADJUSTMENT FOR ACCRETION OF REDEEMABLE
CONVERTIBLE PREFERRED STOCK ..................... -- (121,702) -- (486,807)
------------ ------------ ------------ ------------
Income applicable to common stockholders ...... $ 3,578,758 $ 1,015,273 $ 4,710,623 $ 1,174,331
============ ============ ============ ============
Basic income per share ............................. $ 0.35 $ 0.15 $ 0.46 $ 0.23
============ ============ ============ ============
Diluted income per share ........................... $ 0.32 $ 0.12 $ 0.42 $ 0.19
============ ============ ============ ============
Shares used in basic per share calculation ......... 10,191,984 6,568,199 10,161,864 5,199,097
============ ============ ============ ============
Shares used in diluted per share calculation ....... 11,187,355 9,384,239 11,147,066 8,606,391
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4.
<PAGE>
NEWGEN RESULTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------
2000 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................................. $ 4,710,623 $ 1,661,138
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ........................................ 2,080,186 846,699
Deferred rent ........................................................ (25,980) (17,574)
Deferred compensation ................................................ 204,339 201,025
Changes in assets and liabilities:
Accounts receivable ................................................ (3,554,344) 821,532
Prepaid expenses and other current assets .......................... (1,823,824) (464,448)
Accounts payable ................................................... 593,472 1,016,697
Accrued and other current liabilities .............................. 658,595 952,824
------------ ------------
Net cash provided by operating activities ........................ 2,843,067 5,017,893
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments .................................. (2,081,260) (31,898,470)
Proceeds from matured short-term investments ......................... 18,000,000 23,500,000
Purchases of property and equipment .................................. (3,604,883) (1,740,037)
Proceeds from sale of property and equipment ......................... 22,605 --
Other assets ......................................................... (2,313,601) 271,938
------------ ------------
Net cash provided by (used in) investing activities .............. 10,022,861 (9,866,569)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stock transactions ..................................... 144,094 32,109,807
Proceeds from stock options and warrant exercises .................... 129,585 --
Payments on capital lease obligations ................................ (507,340) (607,832)
Payments of related party loans ...................................... -- (800,000)
Proceeds from equipment loan ......................................... 599,706 --
Payments on equipment loan ........................................... (49,975) --
Net proceeds from lines of credit .................................... -- 199,643
------------ ------------
Net cash provided by financing activities ........................ 316,070 30,901,618
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS ................................. 13,181,998 26,052,942
CASH AND CASH EQUIVALENTS, beginning of period ............................ 5,849,906 816,753
------------ ------------
CASH AND CASH EQUIVALENTS, end of period .................................. $ 19,031,904 $ 26,869,695
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest ............................................... $ 120,481 $ 214,762
============ ============
Cash paid for taxes .................................................. $ 178,250 $ --
============ ============
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Capital lease obligations entered into for equipment ................. $ -- $ 1,467,746
============ ============
Accretion of redeemable preferred stock .............................. $ -- $ 486,807
============ ============
Conversion of preferred stock ........................................ $ -- $ 16,536,586
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5.
<PAGE>
NEWGEN RESULTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated interim financial statements included herein have been
prepared by Newgen Results Corporation and subsidiaries (the "Company")
pursuant to the rules and regulations of the Securities and Exchange
Commission (the "Commission") for interim financial information.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such
rules and regulations, although the Company believes that the
disclosures are adequate to make the information presented not
misleading. The results of operations for the three and six month
periods ended June 30, 2000, are not necessarily indicative of the
results to be expected for the full year. For further information,
refer to the consolidated financial statements and footnotes thereto
included in the Company's annual report on Form 10-K for the year ended
December 31, 1999. In the opinion of management, these interim
consolidated financial statements contain all adjustments (consisting
of normal recurring entries) which are necessary for a fair and
accurate presentation of financial position at June 30, 2000, and the
results of operations and cash flows for the three and six month
periods ended June 30, 2000 and 1999. Certain reclassification have
been made to prior consolidated financial statements to conform with
current presentations.
The preparation of 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 revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
2. INVESTMENTS
Investments are accounted for in accordance with Statement of Financial
Accounting Standards (SFAS) No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS
IN DEBT AND EQUITY SECURITIES, which requires that the Company
determine the appropriate classification of investments at the time of
purchase and reevaluate such designation as of each balance sheet date.
At June 30, 2000, the Company considered all investments as available
for use in its current operations, and therefore classified them
short-term, available-for-sale investments. Available-for-sale
investments are stated at fair value, with unrealized gains and losses,
if any, net of tax, reported as a separate component of stockholders'
equity. The cost of securities sold is based on the specific
identification method. There were no realized gains or losses for the
three and six months ended June 30, 2000.
6.
<PAGE>
At June 30, 2000, cash, cash equivalents and short-term investments
available-for-sale consisted of the following (unaudited):
<TABLE>
<CAPTION>
ESTIMATED
UNREALIZED FAIR
COST LOSSES VALUES
------------ ------------ ------------
<S> <C> <C> <C>
Cash $ 4,871,905 $ -- $ 4,871,905
Cash equivalents 14,160,619 (620) 14,159,999
------------ ------------ ------------
Total cash and cash equivalents 19,032,524 (620) 19,031,904
------------ ------------ ------------
Short-term investments:
Government securities 1,495,400 (50) 1,495,350
------------ ------------ ------------
Total cash, cash equivalents and
short-term investments $ 20,527,924 $ (670) $ 20,527,254
============ ============ ============
</TABLE>
Investments in government securities as of June 30, 2000, in the amount
of $1,495,350 are scheduled to mature within one year.
3. COMPUTATION OF BASIC AND DILUTED NET INCOME PER SHARE
Net income per share has been calculated under Statement of Financial
Accounting Standards (SFAS) No. 128, EARNINGS PER SHARE. This statement
requires companies to compute earnings per share under two different
methods (basic and diluted). Basic earnings per share are based on the
weighted average number of shares of common stock outstanding during
the period. Diluted earnings per share are based on the weighted
average number of shares of common stock and potentially dilutive
securities (options and warrants) outstanding during the period,
computed using the treasury stock method.
The following table sets forth the computation of basic and diluted
earnings per share for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NET INCOME PER SHARE - BASIC
Income applicable to common
stockholders $ 3,578,758 $ 1,015,273 $ 4,710,623 $ 1,174,331
============ ============ ============ ============
Weighted average number of common shares 10,191,984 6,568,199 10,161,864 5,199,097
============ ============ ============ ============
Net income per share - basic $ 0.35 $ 0.15 $ 0.46 $ 0.23
============ ============ ============ ============
NET INCOME PER SHARE - DILUTED
Net income $ 3,578,758 $ 1,136,975 $ 4,710,623 $ 1,661,138
============ ============ ============ ============
Weighted average number of common shares 10,191,984 6,568,199 10,161,864 5,199,097
Potentially dilutive securities:
Preferred stock -- 1,893,745 -- 2,499,469
Stock options 924,708 823,348 910,866 809,889
Warrants 70,663 98,947 74,336 97,936
------------ ------------ ------------ ------------
Total 11,187,355 9,384,239 11,147,066 8,606,391
============ ============ ============ ============
Net income per share - diluted $ 0.32 $ 0.12 $ 0.42 $ 0.19
============ ============ ============ ============
</TABLE>
7.
<PAGE>
4. SEGMENT INFORMATION
The Company's revenues are substantially derived from two service
segments: database marketing and consulting operations. The database
marketing segment provides outsourced database management, direct
marketing and related customer retention services for the service
department of automobile dealerships and manufacturers. The consulting
segment develops and implements new techniques and programs that enable
automobile dealerships to grow their business, streamline inefficient
processes and more effectively market their services, and includes the
services offered by Newgen Management Services, Inc., a wholly-owned
subsidiary of the Company.
The following tables summarize segment information for the three and
six months ended June 30, 2000 and 1999.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
-----------------------------------------------------------------------------------
2000 1999
----------------------------------------- ----------------------------------------
(Unaudited) (Unaudited)
DATABASE DATABASE
MARKETING CONSULTING CONSOLIDATED MARKETING CONSULTING CONSOLIDATED
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Segment revenues $ 19,386,457 $ 639,726 $ 20,026,183 $ 11,963,306 $ 1,628,612 $ 13,591,918
Segment cost of revenues 9,901,841 841,327 10,743,168 6,730,486 1,373,634 8,104,120
------------ ------------ ------------ ------------ ------------ ------------
Segment gross profit (loss) $ 9,484,616 $ (201,601) $ 9,283,015 $ 5,232,820 $ 254,978 $ 5,487,798
============ ============ ============ ============ ============ ============
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-----------------------------------------------------------------------------------
2000 1999
----------------------------------------- ----------------------------------------
(Unaudited) (Unaudited)
DATABASE DATABASE
MARKETING CONSULTING CONSOLIDATED MARKETING CONSULTING CONSOLIDATED
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Segment revenues $ 38,698,834 $ 1,147,895 $ 39,846,729 $ 22,534,821 $ 3,160,748 $ 25,695,569
Segment cost of revenues 21,781,449 1,469,838 23,251,287 13,310,013 2,713,604 16,023,617
------------ ------------ ------------ ------------ ------------ ------------
Segment gross profit (loss) $ 16,917,385 $ (321,943) $ 16,595,442 $ 9,224,808 $ 447,144 $ 9,671,952
============ ============ ============ ============ ============ ============
</TABLE>
The following table reconciles the Company's reportable segments' gross profit
to consolidated net income for the periods presented:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- --------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Gross profit from reportable segments $ 9,283,015 $ 5,487,798 $ 16,595,442 $ 9,671,952
Operating costs 6,784,930 4,426,262 13,133,305 7,980,431
------------ ------------ ------------ ------------
Income from operations 2,498,085 1,061,536 3,462,137 1,691,521
Other income (expense), net 1,185,723 75,439 1,426,736 (30,383)
Provision for income taxes 105,050 -- 178,250 --
------------ ------------ ------------ ------------
Net income $ 3,578,758 $ 1,136,975 $ 4,710,623 $ 1,661,138
============ ============ ============ ============
</TABLE>
8.
<PAGE>
5. COMPREHENSIVE INCOME
Comprehensive income for the three and six months ended June 30, 2000
and 1999 consisted of:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30 SIX MONTHS ENDED JUNE 30
--------------------------- ---------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income $ 3,578,758 $ 1,136,975 $ 4,710,623 $ 1,661,138
Other comprehensive income:
Unrealized gain (loss) 1,416 -- (670) --
Foreign currency translation (4,880) -- (7,750) --
------------ ------------ ------------ ------------
Comprehensive income $ 3,575,294 $ 1,136,975 $ 4,702,203 $ 1,661,138
============ ============ ============ ============
</TABLE>
6. SOFTWARE DEVELOPMENT COSTS
In accordance with the adoption of the American Institute of
Certified Public Accountants' ("AICPA") Statement of Position 98-1, ACCOUNTING
FOR THE COST OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE, the
Company capitalized $1,088,000 and $2,094,000 for the three and six months ended
June 30, 2000, respectively, and is included in Other Assets in the accompanying
consolidated balance sheets.
7. RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the Commission issued Staff Accounting Bulletin
("SAB") No. 101, REVENUE RECOGNITION IN FINANCIAL STATEMENTS. This SAB
summarizes the Commission's view in applying generally accepted accounting
principles to revenue recognition in financial statements. This SAB was
amended by SAB 101B, which defers the effective date for all registrants with
fiscal years that begin after December 15, 1999 to allow for the option of
implementing no later than the fourth quarter of fiscal 2000. Management is
currently determining the impact of SAB No. 101 and does not believe that its
adoption will have a material impact on the Company's consolidated financial
statements.
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities", which
establishes accounting and reporting standards for derivative instruments and
hedging activities. SFAS 133 requires that an entity recognize all derivatives
as either assets or liabilities in the statement of financial position and
measure those instruments at fair value. This Statement was amended by SFAS No.
137 which defers the effective date to all fiscal quarters of fiscal years
beginning after June 15, 2000. The adoption of SFAS 133 is not expected to have
a material effect on the Company's financial position or results of operations.
8. NOTES RECEIVABLE FROM STOCKHOLDERS
The Company received notes from two executive officers in the aggregate
amount of $140,000 as payment for stock options exercised. The following
table describes the terms of these notes:
<TABLE>
<CAPTION>
EXECUTIVE DATE OF NOTE AMOUNT OF NOTE INTEREST RATE TERM
------------------- ---------------- -------------------- ------------------ --------------
<S> <C> <C> <C> <C>
Gerald Benowitz 1/29/99 $44,950.00 4.64% 4 years
Gerald Benowitz 1/31/00 $44,950.00 6.21% 4 years
</TABLE>
9.
<PAGE>
<TABLE>
<CAPTION>
EXECUTIVE DATE OF NOTE AMOUNT OF NOTE INTEREST RATE TERM
------------------- ---------------- -------------------- ------------------ --------------
<S> <C> <C> <C> <C>
Gerald Benowitz 1/31/00 $27,839.81 6.21% 4 years
Samuel Simkin 1/29/99 $11,237.50 4.64% 4 years
Samuel Simkin 1/31/00 $11,237.50 6.21% 4 years
</TABLE>
In August 2000, the Company received additional notes from Gerald
Benowitz in the aggregate amount of approximately $2,728,000 for payment of
stock options exercised.
9. OTHER INCOME
In June 2000, the Company recorded a gain of $1,000,000 related to the
settlement of a vendor dispute in Other Income.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of the financial condition and results of
operations of Newgen Results Corporation and subsidiaries (the "Company") should
be read in conjunction with the consolidated unaudited financial statements and
the related notes thereto included elsewhere in this Form 10-Q and the audited
consolidated financial statements and notes thereto and Management's Discussion
and Analysis of Financial Condition and Results of Operations for the year ended
December 31, 1999 included in the Company's Form 10-K.
Certain statements set forth below constitute "forward-looking
statements". Such forward-looking statements involve known and unknown risks,
uncertainties, and other factors including, but not limited to, those discussed
herein and in the Form 10-K for the year ended December 31, 1999, that may cause
the actual results, performance or achievements of the Company, or industry
results to be materially different from any future results, performance, or
achievements expressed or implied by such forward-looking statements. Given
these uncertainties, investors and prospective investors are cautioned not to
place undue reliance on such forward-looking statements. The Company disclaims
any obligation to update information contained in any forward-looking statement.
OVERVIEW
The Company provides customized, outsourced database management, direct
marketing and related services for service departments of automobile dealerships
and for automobile manufacturers. The Company has expertise both in database
marketing and customer retention services, as well as an in-depth knowledge of
automobile service department operations.
The Company generates revenue from database marketing services and
consulting services. Revenues from database marketing services are derived
primarily from customer retention services, including the RESULTS program.
Database marketing services comprised 97% and 88% of total revenues for the
three and six months ended June 30, 2000 and 1999, respectively. Revenues from
consulting services were derived from consulting services provided to Ford Motor
Company and its dealerships and services provided to automobile dealerships'
service and parts departments by Newgen Management Services, Inc., a
wholly-owned subsidiary of the Company. Consulting services comprised 3% and 12%
of total revenues for the three and six months ended June 30, 2000 and 1999,
respectively.
Database marketing services revenues consist of revenues from the
RESULTS program as well as ancillary products and services. Revenues for the
RESULTS program are based on the
10.
<PAGE>
number of active names in a dealership's database, typically a fixed number
determined by the dealership. For customers acquired in connection with the
acquisition of Computer Care in November 1999, who are not on the RESULTS
program, revenues are based on the number of service reminder letters and
follow-up phone calls performed on behalf of the dealer. For services
provided under the RESULTS program, the Company invoices each of the dealers
on a monthly basis in advance. For services provided under the former
Computer Care program, dealers are invoiced at the end of the month.
Consulting revenues from Newgen Management Services, Inc. are based on
installation fees, fixed monthly fees and profit sharing. All other
consulting revenues are based principally on a per diem rate for the services
provided. The Company is also reimbursed for travel expenses and associated
costs it incurs in providing consulting services, which are included as
revenues. The Company recognizes all of its revenues in the month during
which it performs the related database marketing or consulting services.
The Company derives a significant portion of its revenues from Ford
and Ford dealerships. Although each Ford dealership utilizing the Company's
database marketing services enters into a separate contract with the Company,
collection of receivables from Ford dealerships is primarily centralized
through Ford's accounting department. The Company's current consulting
engagement with Ford relating to the implementation of the Around The Wheel
program for certain Ford dealers has been completed. Ford has extended
certain maintenance aspects of the project through the end of August 2000.
The Company is currently negotiating an extension through December 2000.
Consulting revenue is expected to decrease as a result of the completion of
the Around The Wheel contract. The Company is not currently seeking a
commitment from Ford for new consulting engagements beyond the completion of
the Around The Wheel project, except for services provided by Newgen
Management Services, Inc. A significant amount of the Company's database
marketing services are attributable to Ford dealerships. Sales of RESULTS
program to Ford dealerships represented 39% and 54% of total revenues for the
three months ended June 30, 2000 and 1999, respectively, and 39% and 55% for
the six months ended June 30, 2000 and 1999, respectively. The Company also
continues to provide data mining services to Ford Motor Company. Services
provided under this agreement have begun to diminish as the project nears
completion, which is expected in fourth quarter of 2000. One hundred percent
of consulting services were provided to Ford during the three and six months
ended June 30, 2000.
Cost of revenues consist of database marketing services costs,
consulting costs and installation costs. Costs of database marketing services
include the printing and mailing of letters, as well as the costs of the
teleservice contacts of dealership customers. The costs of database marketing
services also include all costs of managing and purifying the dealership
databases, as well as the costs associated with maintaining the Company's
customer service department. Costs of consulting include the direct costs of
consulting personnel, as well as the cost of any independent consultants
subcontracted by the Company. Costs of consulting also include costs of
travel and associated costs incurred by the Company's Consulting Division.
Installation costs include the direct costs (excluding sales commissions) of
implementing the Company's program at dealerships and the costs of the
initial download, setup and purification of the dealership's customer
database. These costs are expensed as incurred and represent a one-time
charge for each new dealership added to the Company's customer base. As a
result, these costs are expected to decrease as a percentage of total
revenues as database marketing services revenues increase, unless the Company
installs a greater number of dealerships than in the past. Installation costs
are presented as a separate line item to illustrate investment in
implementing new dealerships. For the purposes of calculating the gross
profit associated with database marketing services in Management's Discussion
and Analysis of Financial Condition and Results of Operations, installation
costs are added to cost of database marketing services.
11.
<PAGE>
Operating costs consist of fixed costs, such as selling, general and
administrative and technology and product development costs. The Company
anticipates that operating costs will increase as it develops and introduces
new services, such as Carabunga.com, and increases its customer base.
Historically, the Company has been able to leverage operating costs over a
growing revenue base, and to the extent that the business continues to grow,
the Company expects that operating costs as a percentage of total revenues
will continue to decline even though they are expected to increase in
absolute dollars. However, because the Company is generally unable to
significantly reduce costs in the short term to compensate for any unexpected
revenue shortfall, any such shortfall would have an immediate adverse effect
on the business, results of operations and financial condition. Selling costs
include costs of internal sales department, as well as commissions earned and
certain expenses incurred by sales representatives. Likewise, any short-term
increase in expenses would likely have an immediate adverse effect on the
business, results of operations and financial condition of the Company,
unless the Company was able to also increase revenues in the short term.
General and administrative costs include accounting, payroll and human
resources functions. General and administrative costs also include other
non-allocated costs, such as professional fees and general corporate
services. Technology and product development costs include the cost of
personnel who maintain the Company's information systems and conduct research
and product development activities.
As of December 31, 1999, the Company had net operating loss
carryforwards for federal reporting purposes of approximately $2.5 million.
These net operating loss carryforwards expire in various years beginning in
2009, unless previously utilized. The net deferred tax asset recorded on the
balance sheet at June 30, 2000 was $747,000 and is expected to be fully
utilized during 2000. Utilization of the Company's net operating loss
carryforwards may be limited as a result of certain changes in the Company's
ownership.
On November 30, 1999, the Company acquired Computer Care, a division
of the Dealer Services Group of Automatic Data Processing, Inc. ("ADP").
Under the terms of the agreement, the Company paid approximately $11.0
million in cash at closing, and may pay up to an additional $9.0 million in
cash dependent on certain earn-out criteria, which would be payable in the
first quarter of 2001 and reflected as an increase in goodwill. The Company
acquired a business that services over 2,000 dealerships. These include
approximately 1,100 manufacturer accounts and 1,100 individual dealerships to
whom the Company will be providing database marketing services. The
acquisition was accounted for using the purchase method of accounting. The
operations of Computer Care are included in the Company's results of
operations and financial position subsequent to the date of acquisition.
Acquisition goodwill of $12.0 million is being amortized on a straight-line
basis over nine years.
In February 2000, the Company incorporated a wholly-owned subsidiary
called Carabunga.com, Inc. Carabunga.com utilizes the Internet as a marketing
tool for dealerships. It is intended to be a dealership portal for one-to-one
marketing programs for the automotive industry. Live operations on the
Internet site began on June 26, 2000. The Internet site showcases the
following three value-added products for dealers and manufacturers:
- E-PROMOTIONS will identify service customers who are ready to
purchase another vehicle and create an on-line program of
specialty letters and telephone follow-up calls.
- E-COUPONS will provide an electronic format for the delivery of
coupons that offer discounted services.
12.
<PAGE>
- ROAD will provide an electronic format that will enable
dealerships and manufacturers to analyze their customer database
to better understand potential opportunities, perform data
visualization and mapping techniques, and consequently generate
lists of customers who are ready to buy another vehicle.
THREE MONTHS ENDED JUNE 30, 2000 AND 1999
REVENUES. Revenues from database marketing services increased by $7.4
million, or 62%, to $19.4 million in the quarter ended June 30, 2000 from $12.0
million in the quarter ended June 30, 1999. The increase in database marketing
services revenues was due primarily to a net increase of approximately 1,260
RESULTS program customers and the new customers associated with the acquisition
of Computer Care in November 1999, and reductions in certain customer discounts
and credits. Revenues from consulting services decreased by $989,000, or 61%, to
$640,000 in the quarter ended June 30, 2000 from $1.6 million in the quarter
ended June 30, 1999. The decrease in consulting services revenues was due
primarily to the completion of the implementation of the Around The Wheel
consulting project in almost all of the target dealerships.
GROSS PROFIT. Gross profit from database marketing services increased
by $4.3 million, or 81%, to $9.5 million in the quarter ended June 30, 2000 from
$5.2 million in the quarter ended June 30, 1999. As a percentage of database
marketing services revenues, database marketing services gross profit was
approximately 49% in the quarter ended June 30, 2000 and 44% in the quarter
ended June 30, 1999. The increase reflects the reorganization and
rationalization of the Company's field customer satisfaction department,
previously recorded in cost of revenues. The former field customer satisfaction
representative's main purpose was to service existing accounts. Modifying the
Company's sales methodology allowed the sales representatives the ability to
service accounts while selling new products to existing dealers, in addition to
selling new accounts. Contributing to the increase in gross profit was the
recognition of $395,000 of revenue previously deferred relating to data mining
services. Some cost efficiency was also obtained through upgrading the Company's
technical infrastructure. Gross profit from consulting services decreased by
$457,000, or 179%, to a gross loss of $202,000 for the quarter ended June 30,
2000 from a gross profit of $255,000 for the quarter ended June 30, 1999. This
decrease was due primarily to the completion of the Around The Wheel consulting
project and due to lower utilization of consulting personnel.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative costs increased by $1.7 million, or 49%, to $5.1 million for the
quarter ended June 30, 2000 from $3.4 million for the quarter ended June 30,
1999. The dollar increase was due primarily to continued growth of the marketing
department, the addition of administrative personnel and the reorganization of
the sales department. As a percentage of revenues, selling, general and
administrative costs were 25% for the quarters ended June 30, 2000 and 1999.
TECHNOLOGY AND PRODUCT DEVELOPMENT. Technology and product
development costs increased by $120,000, or 12%, to $1.1 million for the
quarter ended June 30, 2000 from $1.0 million for the quarter ended June 30,
1999. The increase was due primarily to the Company's decision to invest
heavily in new service development and the difficulty of attracting qualified
full-time employees. As a result, the Company was required to pay higher
salaries and utilize higher cost contractors. As a percentage of total
revenues, technology and product development costs decreased to 6% for the
quarter ended June 30, 2000 from 8% for the quarter ended June 30, 1999.
During the quarter ended June 30, 2000, the Company capitalized $1,088,000 of
costs associated with software developed for internal use in accordance with
the American Institute of Certified Public Accountants Statement of Position
98-1, ACCOUNTING FOR THE COST OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR
INTERNAL USE.
13.
<PAGE>
AMORTIZATION OF GOODWILL AND ACQUISITION-RELATED COSTS. As a result of
the Company's acquisition of Computer Care in November 1999, for the quarter
ended June 30, 2000, the Company recognized $588,000 of amortization of goodwill
and various acquisition-related costs.
OTHER INCOME (EXPENSE), NET. Net other income increased by $1.1 million
to $1.2 million for the quarter ended June 30, 2000 from net other income of
$75,000 for the quarter ended June 30, 1999. This increase was due primarily to
a gain of $1.0 million related to the settlement of a vendor dispute.
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
REVENUES. Revenues from database marketing services increased by $16.2
million, or 72%, to $38.7 million in the six months ended June 30, 2000 from
$22.5 million in the six months ended June 30, 1999. The increase in database
marketing services revenues was due primarily to a net increase of approximately
1,260 RESULTS program customers including the new customers associated with the
acquisition of Computer Care in November 1999, and reductions in certain
customer discounts and credits. Revenues from consulting services decreased by
$2.0 million, or 64%, to $1.1 million in the six months ended June 30, 2000 from
$3.2 million in the six months ended June 30, 1999. The decrease in consulting
services revenues was due primarily to the fact that the Company has completed
its implementation of the Around The Wheel consulting project in almost all of
the Company's target dealerships.
GROSS PROFIT. Gross profit from database marketing services increased
by $7.7 million, or 83%, to $16.9 million in the six months ended June 30, 2000
from $9.2 million in the six months ended June 30, 1999. As a percentage of
database marketing services revenues, database marketing services gross profit
increased to 44% in the six months ended June 30, 2000 from 41% for the six
months ended June 30, 1999. The increase reflects the reorganization and
rationalization of the Company's field customer satisfaction department,
previously recorded in cost of revenues. The former field customer satisfaction
representative's main purpose was to service existing accounts. Modifying the
Company's sales methodology allowed the sales representatives the ability to
service accounts while selling new products to existing dealers, in addition to
selling new accounts. Some cost efficiency was also obtained through upgrading
the Company's technical infrastructure. Gross profit from consulting services
decreased by $769,000, or 172%, to a gross loss of $322,000 in the six months
ended June 30, 2000 from a gross profit of $447,000 in the six months ended June
30, 1999. This decrease was due primarily to the fact that the Around The Wheel
project was in its concluding stages, resulting in less than full utilization of
the Company's consultants.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative costs increased by $3.5 million, or 56%, to $9.9 million for the
six months ended June 30, 2000 from $6.3 million in the six months ended June
30, 1999. The increase was due primarily to higher commissions associated with
the selling of longer-term contracts for new dealerships. To a lesser extent,
the increase was due to continued growth of the marketing department, the
addition of administrative personnel and the reorganization of the sales
department. As a percentage of total revenues, selling, general and
administrative costs were 25% for the six months ended June 30, 2000 and 1999.
TECHNOLOGY AND PRODUCT DEVELOPMENT. Technology and product development
costs increased by $550,000, or 33%, to $2.2 million in the six months ended
June 30, 2000 from $1.7 million in the six months ended June 30, 1999. The
increase was due primarily to the Company's decision to invest heavily in new
service development and the difficulty of attracting qualified full-time
employees. As a result, the Company was required to pay higher salaries and
utilize higher cost contractors. As a percentage of total revenues, technology
and product
14.
<PAGE>
development costs were 6% for the six months ended June 30, 2000 and 1999.
For the six months ended June 30, 2000, the Company capitalized $2,094,000 of
the cost associated with software developed for internal use in accordance
with Statement of Position 98-1.
AMORTIZATION OF GOODWILL AND ACQUISITION-RELATED COSTS. As a result of
the Company's acquisition of Computer Care in November 1999, for the six months
ended June 30, 2000, the Company recognized $1,069,000 of amortization of
goodwill and various acquisition-related costs.
OTHER INCOME (EXPENSE), NET. Net other income increased by $1.5 million
to $1.4 million in the six months ended June 30, 2000 from net other expense of
$30,000 for the six months ended June 30, 1999. This increase was due primarily
to a gain of $1.0 million related to the settlement of a vendor dispute, which
was recorded in Other Income during the second quarter 2000.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities was $2,843,000 and $5,018,000 for
the six months ended June 30, 2000 and 1999, respectively. The decrease in cash
provided by operating activities was primarily due to the timing of the
collection of accounts receivable in the six months ended June 30, 2000 compared
to the same period in 1999.
Cash provided by (used in) investing activities was $10,023,000 and
$(9,867,000) in the six months ended June 30, 2000 and 1999, respectively. The
increase in cash provided by investing activities was primarily due to the
maturity of short-term investments.
Cash provided by financing activities was $316,000 and $30,902,000 in
the six months ended June 30, 2000 and 1999, respectively. The decrease in cash
provided by financing activities is due to the Company's completion of its
initial public offering in May 1999, which resulted in net proceeds of
approximately $32,100,000.
The Company has a working capital line of credit with Silicon Valley
Bank ("SVB") that is secured by substantially all of its assets. The total
available amount of the line of credit is $7.0 million, including a $3.3
million sub-limit for securing letters of credit. Borrowings under this
credit facility bear interest at SVB prime rate (9.5% at June 30, 2000), plus
0.5% with a maturity date of May 9, 2001. As of June 30, 2000, there are no
borrowings outstanding under this line of credit. The Company has a
$2,790,000 letter of credit, which expires on March 31, 2001, to secure the
facility lease obligation for the Company's future facility. In addition, an
amount of $113,000 has been reserved to cover facility lease obligations for
the existing facility, which is expected to expire in April 2001, pending
final lease termination negotiations. These letters of credit reduce the
amount available under the line of credit. The line of credit contains
certain covenants and restrictions, including a limitation on indebtedness
requiring the Company, as of the last day of each quarter, to maintain a
ratio of quick assets to current liabilities of at least 2.0 to 1.0. The
Company also has a $2.0 million equipment line of credit with SVB that bears
an interest rate of SVB prime rate plus 0.5% with a draw period up to June
30, 2000. As of June 30, 2000, the Company had outstanding borrowings of
$550,000 under the equipment line of credit.
The Company has signed a $52-million, 15-year lease to build an
approximately 103,000-square foot corporate headquarters, with a projected
building completion and occupancy date of April 2001.
As of June 30, 2000, the Company has approximately $20.5 million of
cash, cash equivalents, and short-term investments. From time to time, the
Company may utilize the credit facility with SVB to meet short-term needs.
The Company believes that its existing capital resources together with cash
generated from operations and amounts available under the line of credit will
be sufficient to meet requirements for at least the next twelve months and
its potential earn-out obligation related to its Computer Care acquisition.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company invests its excess cash in short-term, interest-bearing
investment-grade securities that are held for the duration of the term of the
respective instrument. The Company does not utilize derivative financial
instruments, derivative commodity instruments or other market risk sensitive
instruments, positions or transactions in any material fashion. Accordingly,
management believes that, while the investment-grade securities the Company
holds are subject to changes in the financial standing of the issuer of such
securities, it is not subject to any material risks arising from changes in
interest rates, foreign currency exchange rates, commodity prices, equity prices
or other market changes that affect market risk sensitive instruments.
15.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In June 2000, the Company was notified by four individuals asserting
claims for unspecified equity interests in the Company. The Company believes
that the claims of these individuals are without merit and the Company
intends to vigorously defend any lawsuit asserting the claims of these
individuals. However, should any litigation be decided adversely to the
Company, the Company might be required to pay damages or issue shares of the
Company's common stock to these individuals.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(d) The effective date or the Company's registration statement on
Form S-1 (No. 333-62703) relating to the Company's initial
public offering was May 20, 1999. A total of 2,724,370 shares
of common stock in the aggregate were sold by the Company at a
price of $13.00 per share to an underwriting syndicate led by
Hambrecht & Quist LLC, BancBoston Robertson Stephens Inc. and
Dain Rauscher Wessels. The offering commenced on May 21, 1999
and ended on May 25, 1999. The initial public offering
resulted in gross proceeds of approximately $35.4 million, of
which $2.5 million was applied toward the underwriting
discount. Expenses related to the offering totaled
approximately $800,000. Net proceeds to the Company were $32.1
million. From the time of receipt through June 30, 2000, the
net proceeds were used in the acquisition of Computer Care
($11.6 million), for purchases of property and equipment
related to operations ($6.0 million) and development of
software for internal use ($2.1 million). The remaining $12.4
million was applied to net purchases of cash equivalents and
short-term investments in government securities.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's annual meeting of stockholders was held on June 8, 2000.
The following nominees were elected as directors, each to hold office until
the 2003 Annual Meeting of Stockholders or his successor is elected and
qualified, by the vote set forth below:
<TABLE>
<CAPTION>
NOMINEE VOTES FOR VOTES AGAINST
------- ------------------- ------------------------
<S> <C> <C>
Gerald L. Benowitz 9,333,356 4,825
Jess R. Marzak 9,333,356 4,825
John Moragne 9,333,356 4,825
</TABLE>
The following directors' term of office continued after the annual
meeting: Gary Simkin, Bert Winemiller, Bob Dorf, Abraham L. Simkin, Bernard
C. Simkin, Eugene J. Fischer.
The proposal to approve an amendment to the Company's Amended and
Restated 1998 Equity Incentive Plan to increase the aggregate number of
shares of the Company's common stock authorized for issuance under the plan
by 750,000 was approved.
There were 7,469,717 votes for the proposal, 554,165 votes against the
proposal, and 100 votes abstaining from the proposal.
The selection of Arthur Andersen LLP as independent auditors of the
Company for the fiscal year ending December 31, 2000 was ratified by the vote
of the stockholders. There were 8,023,607 votes for the proposal, 240 votes
against the proposal, and 135 votes abstaining from the proposal.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
The following exhibits are included as part of this Report:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<S> <C>
10.6 Amended and Restated 1998 Equity Incentive
Plan
10.30 Statement of Work Number 4 dated April 10,
2000 between the Registrant and iXL Inc.
10.31 Statement of Work dated June 5, 2000 between
the Registrant and infogain Corporation
10.32 Software License Agreement dated June 21,
2000 between the Registrant and Clarify Inc.
10.33 Purchase Agreement dated July 1, 2000
between the Registrant and Geomel
Enterprises, Inc.
10.34 Marketing Agreement dated July 5, 2000
between the Registrant
16.
<PAGE>
and 4imprint, Inc.
10.35 Employment Agreement dated January 1, 2000
by and between the Registrant and Gerald
Benowitz.
10.36 Employment Agreement dated January 1, 2000
by and between the Registrant and Samuel
Simkin.
10.37 Employment Agreement dated January 1, 2000
by and between the Registrant and Leslie
Silver.
10.38 Employment Agreement dated January 1, 2000
by and between the Registrant and James
Roche.
27.1 Financial Data Schedule for the six months
ended June 30, 2000.
</TABLE>
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.
NEWGEN RESULTS CORPORATION
(Registrant)
Date: August 16, 2000 /s/Gerald L. Benowitz
---------------------------------
Gerald L. Benowitz
President and
Chief Executive Officer
(Principal Executive Officer)
Date: August 16, 2000 /s/ Samuel Simkin
---------------------------------
Samuel Simkin
Chief Financial Officer
(Principal Financial Officer)
17.
