<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1999.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________.
Commission file number _________
EXCHANGE APPLICATIONS, INC.
(Exact name of registrant, as specified in its charter)
DELAWARE 04-3338916
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
89 SOUTH STREET, BOSTON, MASSACHUSETTS 02111
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 617-737-2244
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report)
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 [ ]
State the number of shares outstanding of the registrant's common stock, as of
the latest practicable date.
Number of Shares 11,721,691 Outstanding as of October 31, 1999
---------- ----------------
<PAGE> 2
Exchange Applications, Inc.
Form 10-Q for the Three Months Ended September 30, 1999
Table of Contents
PART I. FINANCIAL INFORMATION
Page Number
Item 1. Financial Statements (unaudited):
Consolidated Balance Sheets as of September 30, 1999
and December 31, 1998 3
Consolidated Statements of Operations for the three
and nine months ended September 30, 1998 and 1999 4
Consolidated Statements of Cash Flows for the nine months
ended September 30, 1998 and 1999 5
Notes to Interim Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operation 9
Item 3. Quantitative and Qualitative Disclosure about Market Risk 17
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 20
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EXCHANGE APPLICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .................................................... $ 5,247 $16,025
Marketable securities ........................................................ 15,461 18,506
Accounts receivable, net ..................................................... 7,651 11,490
Prepaid expenses and other current assets .................................... 767 1,763
------- -------
Total current assets .................................................. 29,126 47,784
Property and equipment, net .................................................... 2,574 4,275
Long-term marketable securities ................................................ 207 4,974
Other assets ................................................................... 79 87
------- -------
Total assets .......................................................... $31,986 $57,120
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................................. $ 420 $ 1,074
Accrued expenses ............................................................. 5,650 5,494
Current portion of obligations under capital leases .......................... 216 --
Deferred revenue ............................................................. 1,354 3,352
------- -------
Total current liabilities ............................................. 7,640 9,920
Obligations under capital leases, net of current portion ....................... 145 --
Stockholders' equity:
Preferred Stock; $.001 par value --
10,000,000 shares authorized, none issued and outstanding .................. -- --
Common Stock, $.001 par value --
30,000,000 shares authorized; 10,705,975 and 12,010,001
shares issued at December 31, 1998 and September 30, 1999,
respectively ............................................................... 11 12
Additional paid-in capital ................................................... 31,688 53,763
Accumulated deficit .......................................................... (6,611) (5,904)
Due from officer ............................................................. (125) (125)
Deferred compensation ........................................................ (800) (604)
Cumulative translation adjustment ............................................ 30 85
Unrealized gain (loss) on marketable securities .............................. 8 (27)
Treasury stock, at cost; 365,005 and 366,565 shares at
December 31, 1998 and September 30, 1999, respectively ..................... -- --
------- -------
Total stockholders' equity ............................................ 24,201 47,200
------- -------
Total liabilities and stockholders' equity ............................ $31,986 $57,120
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
3
<PAGE> 4
EXCHANGE APPLICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1999 1998 1999
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Revenues:
Software license fees .......................................... $ 3,958 $ 6,793 $ 9,774 $ 17,852
Services and maintenance ....................................... 3,223 4,402 8,289 12,066
---------- ----------- ---------- -----------
Total revenues .......................................... 7,181 11,195 18,063 29,918
Cost of revenues:
Software license fees .......................................... 57 68 185 232
Services and maintenance ....................................... 1,801 2,721 5,155 7,172
---------- ----------- ---------- -----------
Total cost of revenues .................................. 1,858 2,789 5,340 7,404
---------- ----------- ---------- -----------
Gross profit ..................................................... 5,323 8,406 12,723 22,514
Operating expenses:
Sales and marketing ............................................ 2,611 3,712 6,774 10,451
Research and development ....................................... 1,744 2,648 4,768 6,818
Cost of acquisition ............................................ -- 1,388 -- 1,388
General and administrative ..................................... 975 1,262 2,432 3,407
---------- ----------- ---------- -----------
Total operating expenses ................................ 5,330 9,010 13,974 22,064
---------- ----------- ---------- -----------
Income (loss) from operations .................................... (7) (604) (1,251) 450
Interest income (expense):
Interest income ................................................ 33 452 89 928
Interest expense ............................................... (12) -- (41) (11)
---------- ----------- ---------- -----------
Total interest income, net .............................. 22 452 48 917
---------- ----------- ---------- -----------
Income (loss) before provision for income taxes .................. 15 (152) (1,203) 1,367
Provision for income taxes ....................................... -- (56) -- 657
---------- ----------- ---------- -----------
Net income (loss) ................................................ 15 (96) (1,203) 710
Accretion of discount and dividends on preferred stock ........... (60) -- (180) --
---------- ----------- ---------- -----------
Net income (loss) applicable to common stockholders .............. $ (45) $ (96) $ (1,383) $ 710
========== =========== ========== ===========
Net income (loss) per share (Note 2(c)):
Basic net income (loss) per share applicable to common
stockholders ................................................... $ (0.00) $ (0.01) $ (0.15) $ 0.07
========== =========== ========== ===========
Diluted net income (loss) per share applicable to common
stockholders ................................................... $ (0.00) $ (0.01) $ (0.15) $ 0.05
========== =========== ========== ===========
Basic weighted average common shares outstanding .............. 4,277,289 11,554,846 4,191,061 10,837,424
========== =========== ========== ===========
Diluted weighted average common shares outstanding ............ 4,277,289 13,797,467 4,191,061 12,938,527
========== =========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
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<PAGE> 5
EXCHANGE APPLICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1998 1999
------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ................................................................ $(1,203) $ 710
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and other amortization .............................................. 409 1,102
Compensation expense associated with stock options ............................... 186 949
Changes in operating assets and liabilities --
Accounts receivable ............................................................ (2,744) (3,839)
Prepaid expenses and other current assets ...................................... 34 (997)
Accounts payable ............................................................... 411 654
Accrued expenses ............................................................... 954 (137)
Deferred revenue ............................................................... 232 1,999
------- --------
Net cash provided by (used in) operating activities ........................ (1,721) 441
------- --------
Cash flows from investing activities:
Purchase of marketable securities ................................................ -- (7,847)
Purchases of property and equipment .............................................. (1,374) (2,806)
Increase in other assets ......................................................... (144) (8)
------- --------
Net cash used in investing activities ...................................... (1,518) (10,661)
------- --------
Cash flows from financing activities:
Repayments under capital leases .................................................. (203) (380)
Issuance of common stock in second public offering, net of offering costs ........ -- 20,010
Issuance of common stock by eXstatic Software prior to acquisition ............... -- 850
Exercise of common stock options ................................................. 51 463
------- --------
Net cash provided by (used in) financing activities ........................ (152) 20,943
------- --------
Effect of exchange rate changes on cash and cash equivalents ....................... 66 55
------- --------
Net increase (decrease) in cash and cash equivalents ............................... (3,325) 10,778
------- --------
Cash and cash equivalents, beginning of year ....................................... 5,306 5,247
------- --------
Cash and cash equivalents, end of period ........................................... $ 1,981 $ 16,025
======= ========
Supplemental disclosure of cash flow information --
Cash paid for interest ........................................................... $ 41 $ 11
======= ========
Cash paid for income taxes ....................................................... $ -- $ 30
======= ========
Supplemental disclosure of noncash financing and investing activities:
Equipment acquired under capital leases .......................................... $ 20 $ --
======= ========
Accretion of discount and dividends on Preferred Stock ........................... $ 180 $ --
======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
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<PAGE> 6
EXCHANGE APPLICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BACKGROUND AND BASIS OF PRESENTATION
Exchange Applications, Inc. and its subsidiaries (the "Company") provide
enterprise Customer Relationship Management (eCRM) solutions that optimize
interactive relationships between customers and companies. Based on the
principals of permission-based marketing and a single view of the customer, its
eCRM software helps ensure that customer communications are relevant, timely and
coordinated across all customer channels. By bridging online and offline
customer communications, Exchange Applications facilitates higher ROI on
emarketing and ecommerce practices. The Company's solution set spans several
products and services, including: (i) VALEX for creating and executing customer
communications across all channels, (ii) neXtricity for planning and
synchronizing customer communications across all channels in real-time, (iii)
eXstatic for creating and executing Web-based customer communications, and (iv)
Response Management, for monitoring customer response across all channels and
aggregating results for use in improving the effectiveness of future
communications.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation
The accompanying consolidated financial statements are unaudited and have
been prepared in accordance with generally accepted accounting principles. These
statements include the accounts of Exchange Applications and its wholly owned
subsidiaries.
(b) Interim financial reporting
Certain information and footnote disclosures normally included in the the
Company's annual consolidated financial statements have been condensed or
omitted. The interim consolidated financial statements, in the opinion of
management, reflect all adjustments (consisting only of normal recurring
accruals) necessary for a fair statement of the results for the interim periods
ended September 30, 1998 and 1999, respectively. The results of operations for
the interim periods are not necessarily indicative of the results of operations
to be expected for the entire year. It is suggested that these interim
consolidated financial statements be read in conjunction with the audited
consolidated financial statements for the year ended December 31, 1998, which
are contained in the Company's Annual Report on Form 10-K filed with the
Securities and Exchange Commission on March 30, 1999.
(c) Net Income ( Loss) Per Share
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
128, Earnings per Share, basic and diluted net loss per common share for the
three and nine months ended September 30, 1998 is calculated by dividing the net
loss applicable to common stockholders by the weighted average number of vested
common shares outstanding.
For the three and nine months ended September 30, 1999 basic net income per
common share is calculated by dividing the net income applicable to common
stockholders by the weighted average number of vested common shares outstanding
for the three and nine month period then ended. Diluted net income per common
share for the three and nine months ended September 30, 1999 is calculated by
dividing the net income applicable to common stockholders by the weighted
average number of vested common shares outstanding and the dilutive effect of
potential common shares, consisting of outstanding stock options and unvested
common shares, as determined using the treasury stock method in accordance with
SFAS No. 128.
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<PAGE> 7
EXCHANGE APPLICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table reconciles the weighted average common shares
outstanding to the shares used in the computation of basic and diluted weighted
average common shares outstanding:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1999 1998 1999
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Weighted average common
shares outstanding ......................... 4,488,108 11,563,072 4,455,933 10,856,720
Less: Weighted average
unvested common shares
outstanding ................................ 210,819 8,226 264,872 19,296
--------- ---------- --------- ----------
Basic and diluted weighted
average common shares
outstanding ................................ 4,277,289 11,554,846 4,191,061 10,837,424
Add: Dilutive potential common
shares from stock options and
unvested common stock ...................... -- 2,242,621 -- 2,120,399
Diluted weighted average
common shares outstanding .................. 4,277,289 13,797,467 4,191,061 12,938,527
========= ========== ========= ==========
</TABLE>
Diluted weighted average shares outstanding for the nine months ended
September 30, 1998 exclude the potential common shares from stock options,
unvested common stock and convertible preferred stock, because to include such
shares would have been antidilutive. As of September 30, 1998, 6,058,697
potential common shares were outstanding.
(d) Comprehensive Income (Loss)
The Company has adopted Statement of Financial Accounting Standards No.
130, Reporting Comprehensive Income ("SFAS No. 130"). SFAS No. 130 requires that
items defined as other comprehensive income (loss), such as foreign currency
translation adjustments, be separately classified in the financial statements
and that the accumulated balance of other comprehensive income (loss) be
reported separately from retained earnings and additional paid-in capital in the
equity section of the balance sheet. The components of comprehensive income
(loss) for the three and nine months ended September 30, 1998 and 1999 are as
follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1999 1998 1999
<S> <C> <C> <C> <C>
Comprehensive income (loss):
Net income (loss) $ 15 $(152) $(1,203) $710
Other comprehensive income (loss):
Foreign currency adjustment (20) 90 28 55
Marketable securities adjustment 3 (10) 5 (35)
---- ----- ------- ----
Comprehensive income (loss) $ (2) $ (72) $(1,170) $730
==== ===== ======= ====
</TABLE>
(e) Cash Equivalents and Marketable Securities
The Company accounts for cash equivalents and marketable securities in
accordance with SFAS No. 115, Accounting for Certain Investments in Debt and
Equity Securities. Cash equivalents are short-term, highly liquid investments
with original maturity dates of three months or less. Cash equivalents are
carried at amortized cost, which approximates fair market value. The Company's
marketable securities are classified as available-for-sale and
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<PAGE> 8
are recorded at fair value with any unrealized gain or loss recorded as an
element of stockholders' equity. As of December 31, 1998 and September 30, 1999,
the Company's marketable securities consisted of investment grade corporate
bonds. As of December 31, 1998 and September 30, 1999, the Company had recorded
unrealized gains and (losses) of approximately $8,000 and ($27,000),
respectively.
(f) Acquisition of eXstatic Software, Inc.
On August 20, 1999, the Company acquired eXstatic Software, Inc. (formerly
Gino Borland, Inc.) a company that develops and markets software solutions that
enable businesses to plan, create and execute highly personalized,
permission-based email communications based on customer profiles. The Company
exchanged 607,284 shares of common stock for all the outstanding shares of
eXstatic common stock, and exchanged options to purchase 138,921 shares of
Exchange Applications common stock for all the outstanding options of eXstatic;
60,721 of the shares issued were placed into escrow as security for
indemnification obligations of eXstatic relating to representations, warranties
and tax matters. This merger has been accounted for as a pooling of interests,
and accordingly the historical results of operations have been restated to
reflect the results of eXstatic Software on a combined basis.
The following table presents a reconciliation of net sales and net earnings
previously reported by the Company to those incorporated in the accompanying
consolidated financial statements.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE SIX MONTHS
DECEMBER 31, 1997 DECEMBER 31, 1998 ENDED JUNE 30, 1999
------------------ ------------------ -------------------
<S> <C> <C> <C>
NET REVENUES
Exchange Applications 12,669 24,776 18,365
eXstatic Software 586 1,398 358
------- ------ ------
COMBINED NET REVENUES 13,255 26,174 18,723
======= ====== ======
NET EARNINGS
Exchange Applications (2,613) (975) 1,214
eXstatic Software 54 (19) (408)
------- ------ ------
COMBINED NET EARNINGS (2,559) (994) 806
======= ====== ======
</TABLE>
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
This discussion contains forward-looking statements that involve risks and
uncertainties. Exchange Applications' actual results may differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including, but not limited to, those set forth under "Risk Factors" and
elsewhere in this Form 10-Q.
OVERVIEW
Exchange Applications, Inc. and its subsidiaries (the "Company") provide
enterprise Customer Relationship Management (eCRM) solutions that optimize
interactive relationships between customers and companies. Based on the
principals of permission-based marketing and a single view of the customer, its
eCRM software helps ensure that customer communications are relevant, timely and
coordinated across all customer channels. By bridging online and offline
customer communications, Exchange Applications facilitates higher ROI on
emarketing and ecommerce practices. The Company's solution set spans several
products and services, including: (i) VALEX for creating and executing customer
communications across all channels, (ii) neXtricity for planning and
synchronizing customer communications across all channels in real-time, (iii)
eXstatic for creating and executing Web-based customer communications, and (iv)
Response Management, for monitoring customer response across all channels and
aggregating results for use in improving the effectiveness of future
communications.
The Company was incorporated in November 1996. Prior to incorporation, the
Company operated as a separate division of two entities, Grant & Partners, Inc.
("GPI") and Grant & Partners Limited Partnership ("GPLP"). The Company's
activities during its early stages of operation focused on the development of
software solutions to provide customer communications support to businesses. In
1995, the Company began providing professional services in the areas of
marketing program design and execution and data warehousing. In March 1997, the
Company ceased providing marketing program design services. The Company's
development efforts culminated in the introduction to the market in July 1996 of
VALEX, the Company's marketing automation software product. Since the
introduction of VALEX, the Company has continued to focus significant resources
on the development of additional functionality and features of the VALEX
software as well as the development and acquisition of additional products
within the Company's eCRM solution set including neXtricity, eXstatic, and
Response Management. The Company also has continued to expand its marketing
activities, build the Exchange Applications identity, develop the competencies
of the professional services group, build international sales and distribution
channels and develop its general and administrative infrastructure. The Company
has shifted its primary business focus from providing services to selling
software products. However, the Company believes that continuing to provide
superior professional services will be critical to maximizing its opportunities
for future revenues. In August 1999, the Company acquired eXstatic Software
(formerly Gino Borland, Inc.) in a transaction accounted for as a pooling of
interest. eXstatic Software develops and markets software solutions that enable
businesses to plan, create and execute highly personalized, permission-based
email communications based on customer profiles. In accordance with pooling of
interests accounting, the results of operations have been restated to reflect
the results of eXstatic on an as combined basis.
The Company generates revenue from software licenses, professional service
arrangements and software maintenance agreements. The Company recognizes
software license fee revenues upon execution of a license agreement and delivery
of the software, provided that the fee is fixed or determinable and deemed
collectible by management. If acceptance of the software by the licensee is
required, revenues are only recognized upon satisfaction of the foregoing
conditions and acceptance of the software. Revenues from professional service
arrangements are recognized on either a time and materials or
percentage-of-completion basis as the services are performed, provided that
amounts due from customers are fixed or determinable and deemed collectible by
management. Revenues related to software maintenance agreements are recognized
ratably over the term of the maintenance period. Amounts collected or billed
prior to satisfying the above revenue recognition criteria are reflected as
deferred revenue or as customer deposits.
Because the Company has only recently begun to sell its products,
period-to-period comparisons of its operating results are not meaningful.
Although the Company has experienced significant revenue growth recently, there
can be no assurance that such growth rates are sustainable and they should not
be relied upon as predictive of future
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performance. In addition, the timing of license revenues is difficult to predict
because of the length and variability of the Company's sales cycle. The
Company's prospects must be considered in light of the risks, expenses and
difficulties frequently encountered by companies in the early stage of
development, particularly in new and rapidly evolving markets. There can be no
assurance that the Company will be successful in addressing such risks and
difficulties or that it will continue to achieve profitability.
RISK FACTORS RELATING TO FORWARD-LOOKING STATEMENTS
Risk Factors Relating to Forward-Looking Statements in this report
concerning the future results of operations, financial condition and business of
the Company are "forward-looking" statements as defined in the Securities Act of
1933 and the Securities Exchange Act of 1934. Investors are cautioned that
information contained in these forward-looking statements is inherently
uncertain, and that actual performance and results may differ materially due to
numerous risk factors, including but not limited to the following: Limited
Operating History; History of Losses, Potential for Significant Fluctuations in
Quarterly Results, Product Concentration; Dependence on Emerging Market for
Customer Optimization Software and Services, Customer Concentration; Dependence
on Certain Industries, Management of Growth, Dependence Upon Key Personnel,
Absence of History as an Independent Company, Rapid Technological Change and New
Products, Competition, Increasing Reliance on Indirect Distribution Channel,
Intellectual Property Rights; Use of Licensed Technology, International
Operation, Control by Existing Stockholders, Product Liability, Year 2000
Compliance, No Prior Market for the Common Stock; Possible Volatility of Share
Price, Anti-Takeover Provisions, Shares Eligible for Future Sale; Registration
Rights. The Company's filings with the Securities and Exchange Commission,
including the Annual Report on Form 10-K for the year ended December 31, 1998,
contain additional information concerning such risk factors.
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999
Revenues
The Company's total revenues increased 66% from $18.1 million in the nine
months ended September 30, 1998 to $29.9 million for the nine months ended
September 30, 1999. This increase in total revenues can be attributed to a
number of factors, including:
- an increase in the Company's sales force from 14 direct sales
representatives at September 30, 1998 to 25 at September 30, 1999;
- an increase in international revenues from the Company's subsidiaries
in the United Kingdom and Australia; and
- an increase in services and maintenance revenues from the Company's
growing customer base
Software license fee revenues increased 83% from $9.8 million, or 54.1% of
total revenues, in the nine months ended September 30, 1998 to $17.9 million, or
59.7% of total revenues, in the nine months ended September 30, 1999. The
increase in software license fee revenues was primarily due to increased market
awareness of the VALEX product, especially in the telecommunications industry
and new emerging vertical markets such as utilities and retail, which resulted
in an incremental $5.1 million of software license fee revenues from sales to
customers in those vertical markets.
Services and maintenance revenues increased 46% from $8.3 million or 45.9%
of total revenues for the nine months ended September 30, 1998 to $12.1 million,
or 40.3% of total revenues for the nine months ended September 30, 1999. The
growth of services and maintenance revenues was directly attributable to
additional service engagements and maintenance fees from the Company's increased
base of customers. The decrease in services and maintenance revenues as a
percentage of total revenues was primarily attributable to the increased
software license fee revenues resulting from the market acceptance of VALEX. The
Company expects to continue the expansion of its services offering to include
newly identified, more profitable opportunities, as well as projects that
require unique expertise or familiarity with the Company's eCRM solution set.
In addition, as the Company grows the service business associated with the
hosted eXstatic Software product it is expected that services and maintenance
revenues will remain constant or increase slightly as a percentage of total
revenues.
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<PAGE> 11
For the nine months ended September 30, 1999, the Company's top five
customers accounted for 34.8% of total revenues as compared to 37.1% of total
revenues for the nine months ended September 30, 1998. Only one of the top five
customers during the nine months ended September 30, 1999 was a top five
customer during the nine months ended September 30, 1998. The largest customer
during the nine months ended September 30, 1999 represented 12.0% of total
revenues, while the largest customer for the nine months ended September 30,
1998 represented 17.2% of the Company's total revenues. In both years the
largest customer was a third party reseller who sub-licensed the Company's
products to multiple end users.
Revenues from customers outside North America were $9.5 million for the
nine months ended September 30, 1999, representing approximately 32% of total
revenues as compared to $4.1 million or 23% of total revenues for the comparable
period in the prior year.
Cost of Revenues
The Company's cost of revenues consists of costs associated with software
license fees and costs associated with services and maintenance. Total cost of
revenues as a percentage of total revenues declined from 29.6% in the nine
months ended September 30, 1998 to 24.7% in the nine months ended September 30,
1999.
Cost of software license fees consists primarily of royalty payments made
to third parties for licensed intellectual property included in the VALEX
product, and costs associated with software packaging and distribution. In
absolute dollars, cost of software license fees increased slightly from $185,000
for the nine months ended September 30, 1998 to $232,000 for the nine months
ended September 30, 1999. Cost of software license fees, however, decreased as a
percentage of total revenues from 1.0% to 0.8% for the nine months ended
September 30, 1998 and 1999, respectively. Cost of software license fees as a
percentage of software license fee revenues decreased from 1.9% to 1.3% for the
nine months ended September 30, 1998 and 1999, respectively. The increase in
cost of software license fees for the nine months ended September 30, 1999 over
September 30, 1998 resulted from increased shipments of VALEX software and,
therefore, the associated royalty expense payable to third parties and costs
associated with software packaging and distribution. This increase was partially
offset by the fact that the Company's primary royalty obligation in 1998, which
was payable on the first $10 million of VALEX sales, was fully satisfied by the
end of the second quarter of 1998. As the Company adds additional components to
its software products, the Company may choose to license software from third
parties. The cost of such licenses may increase the cost of software license
fees both in absolute dollars and as a percentage of revenues.
The Company's cost of services and maintenance consists primarily of
personnel, facility and system costs incurred in providing professional
consulting services, training, hosted software services for the eXstatic
software product, and customer support services. As a result of the increased
software license fee revenues, cost of services and maintenance revenues as a
percentage of total revenues decreased from 28.5% for the nine months ended
September 30, 1998 to 24.0% for the nine months ended September 30, 1999. Cost
of services and maintenance as a percentage of services and maintenance revenues
was 62.2% and 59.4% for the nine months ended September 30, 1998 and 1999,
respectively. The decrease was attributable primarily to the increased
contribution of higher margin maintenance revenues resulting from the increased
installed base of VALEX customers in the nine months ended September 30, 1999
over the same period in 1998.
As the Company sells more of its software products through re-seller and
co-marketing relationships, it is anticipated that the re-sellers will provide
certain of the consulting and maintenance services associated with these sales.
By using the services resources of the re-sellers and co-marketers, the Company
plans to allocate its own professional services resources to:
- direct-sale customers;
- projects that require unique expertise or familiarity with the
Company's eCRM solution set; and
- newly identified, more profitable opportunities.
11
<PAGE> 12
Due to these facts, and the continued increase in contribution from higher
margin maintenance revenues and service revenues from the hosted eXstatic
software product, the Company expects cost of services and maintenance to remain
the same or decrease slightly as a percentage of both total revenues and service
and maintenance revenues in the foreseeable future.
Overall gross margin increased from 70.4% for the nine months ended
September 30, 1998 to 75.3% for the nine months ended September 30, 1999 due
primarily to increased sales of VALEX.
Operating Expenses
Sales and Marketing. The Company's sales and marketing expenses consist
primarily of salaries for sales and marketing personnel, commissions, travel and
promotional expenses. For the nine months ended September 30, 1998 and 1999,
sales and marketing expenses were 37.5% and 34.9% of total revenues, or $6.8
million and $10.5 million, respectively. The increase is primarily attributable
to an increase in sales and marketing personnel from 36 at September 30, 1998 to
54 at September 30, 1999, as well as increased spending on certain promotional
activities including trade shows, seminars, and the development of collateral
materials designed to increase awareness of the Company and its eCRM solution
set. The investment in the sales and marketing personnel and activities has
contributed to increased VALEX and eXstatic revenues and expansion of the
customer installation base to over one hundred locations in 27 countries. As the
Company expands its business into new vertical markets, continues the expansion
internationally into Europe and the Asia/Pacific region, and increases the
market awareness of the eCRM solution offering the Company expects to continue
to invest resources into the sales and marketing arena. While sales and
marketing expenses are expected to continue to grow in absolute dollars, the
Company expects these expenses to remain the same or decrease slightly as a
percentage of total revenues due to economies of scale and increased
contribution from indirect sales channels.
Research and Development. The Company's research and development expenses
consist primarily of employee salary and benefits, consultant costs, and
equipment and purchased software depreciation costs associated with new product
development, enhancement of existing products and quality assurance activities.
For the nine months ended September 30, 1998 and 1999, research and development
expenses were 26.4% and 22.8% of total revenues, or $4.8 million and $6.8
million, respectively. This increase in absolute dollars was primarily a result
of the addition of 37 research and development personnel, including contractors,
in the nine months ended September 30, 1999 as compared to the same period in
1998. Over the past year, total revenues have increased at a faster pace than
research and development expenditures, resulting in a decrease in total research
and development expense as a percentage of total revenues. For the foreseeable
future the Company anticipates that research and development expenses will
continue to increase in absolute dollars and stay the same or increase slightly
as a percentage of total revenues. This is primarily due to the anticipated
investment in research and development of the neXtricity and eXstatic software
products as well as the expansion of the core eCRM product offerings including
VALEX and Response Management.
General and Administrative. General and administrative expenses consist
primarily of:
- salaries and related costs;
- outside professional fees; and
- equipment and software depreciation costs associated with our
finance, legal, human resources, information systems, and
administrative functions.
General and administrative expenses increased from $2.4 million, or 13.5% of
total revenues, for the nine months ended September 30, 1998 to $3.4 million, or
11.4% of total revenues, for the nine months ended September 30, 1999. Expenses
increased in absolute dollars as the Company added 12 employees to its finance,
information systems, and human resource departments between September 30, 1998
and September 30, 1999 and incurred approximately $250,000 in additional expense
as a result of being a publicly-held company. Expenses declined,
12
<PAGE> 13
however, as a percentage of total revenues, due primarily to economies of scale.
The Company expects general and administrative expenses to decrease as a
percentage of total revenues while continuing to grow in absolute dollars as a
result of the following factors:
- the implementation of additional management information systems;
- the continuation of the Company's international expansion; and
- the costs that the Company is incurring as a result of being a
publicly-held company.
Cost of Acquisition
On August 20, 1999, the Company acquired eXstatic Software, Inc. (formerly
Gino Borland, Inc.) a company that develops and markets software solutions that
enable businesses to plan, create and execute highly personalized,
permission-based email communications based on customer profiles. Total costs
associated with the acquisition of $1.4 million include approximately $753,000
of non-cash compensation charges associated with stock options, as well as legal
and accounting fees incurred by both organizations.
Interest Income (Expense), Net
Net interest income increased from $48,000 for the nine months ended
September 30, 1998 to $917,000 for the nine months ended September 30, 1999
primarily as a result of interest earned on proceeds from the Company's initial
public offering completed in December 1998 and its second public offering
completed in June 1999.
Provision for Income Taxes.
No provision for foreign, federal, or state income taxes was recorded for
the nine months ended September 30, 1998 because the Company incurred a net loss
during the nine month period. For the nine months ended September 30, 1999 the
Company recorded a provision for income taxes of $657,000 or 48% of income
before income taxes. Prior to its acquisition, eXstatic Software was structured
as a sub-chapter S corporation and as such the tax benefit of losses incurred
through August 20, 1999 reverted to eXstatic's principals. Because the
acquisition was structured as a non-taxable transaction for the eXstatic
shareholders, Exchange Applications does not expect to realize any tax benefit
from eXstatic losses incurred prior to the acquisition. As a result, the Company
did not reduce the provision accrued prior to the date of the acquisition. It is
our belief that 37% represents the effective income tax rate for 1999 for the
Exchange Applications results prior to the acquisition and the combined results
of Exchange and eXstatic after August 20, 1999, after taking into account
certain tax credits and the utilization of net operating loss carryforwards.
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999
Revenues
The Company's total revenues increased 56% from $7.2 million in the three
months ended September 30, 1998 to $11.2 million for the three months ended
September 30, 1999. This increase in total revenues can be attributed to a
number of factors, including:
- an increase in the Company's sales force from 14 direct sales
representatives at September 30, 1998 to 25 at September 30, 1999;
- an increase in international revenues from the Company's subsidiaries
in the United Kingdom and Australia; and
- an increase in services and maintenance revenues from the Company's
growing customer base
Software license fee revenues increased 72% from $4.0 million, or 55.1% of
total revenues, in the three months ended September 30, 1998 to $6.8 million, or
60.7% of total revenues, in the three months ended September 30,
13
<PAGE> 14
1999. The increase in software license fee revenues was primarily due to
increased market awareness of the VALEX product as well as revenue from the
Company's eXstatic software product.
Services and maintenance revenues increased 37% from $3.2 million or 44.9%
of total revenues, in the three months ended September 30, 1998 to $4.4 million,
or 39.3% of total revenues, in the three months ended September 30, 1999. The
growth of services and maintenance revenues was directly attributable to
additional service engagements and maintenance fees from the Company's increased
base of customers. The decrease in services and maintenance revenues as a
percentage of total revenues was primarily attributable to the increased
software license fee revenues resulting from the market acceptance of VALEX and
increasing sales of VALEX by re-sellers and co-marketers.
For the three months ended September 30, 1999, the Company's top five
customers accounted for 44.2% of total revenues as compared to 47.2% of total
revenues for the three months ended September 30, 1998. Only one of the top five
customers, a reseller who sublicensed the Company's products to multiple end
users, was a top-five customer during both the three months ended September 30,
1998 and September 30, 1999. The two largest customers during the three months
ended September 30, 1999 represented 20.9% and 8.8% of total revenues,
respectively, while the two largest customers for the three months ended
September 30, 1998 represented 11.1%, and 10.5%, respectively, of the Company's
total revenues.
Revenues from customers outside North America were $3.2 million for the
three months ended September 30, 1999, representing approximately 28% of total
revenues as compared to $2.5 million or approximately 35% of total revenues for
the comparable period in the prior year.
Cost of Revenues
Total cost of revenues as a percentage of total revenues declined from
25.9% in the three months ended September 30, 1998 to 24.9% in the three months
ended September 30, 1999.
Cost of software license fees consists primarily of royalty payments made
to third parties for licensed intellectual property included in the VALEX
product, and costs associated with software packaging and distribution. In
absolute dollars, cost of software license fees increased slightly from $57,000
for the three months ended September 30, 1998 to $68,000 for the three months
ended on September 30, 1999. Cost of software license fees, however, decreased
as a percentage of total revenues from 0.8% to 0.6% for the three months ended
September 30, 1998 and 1999, respectively. Cost of software license fees as a
percentage of software license fee revenues decreased from 1.4% to 1.0% for the
three months ended September 30, 1998 and 1999, respectively. The increase in
cost of software license fees for the three months ended September 30, 1999 over
September 30, 1998 resulted from increased shipments of VALEX and eXstatic
software and, therefore, the associated royalty expense payable to third parties
and costs associated with software packaging and distribution.
The Company's cost of services and maintenance consists primarily of
personnel, facility and system costs incurred in providing professional
consulting services, training, hosted software services for the eXstatic
Software product, and customer support services. As a result of the increased
software license fee revenues, cost of services and maintenance revenues as a
percentage of total revenues decreased from 25.1% for the three months ended
September 30, 1998 to 24.3% for the three months ended September 30, 1999. Cost
of services and maintenance as a percentage of services and maintenance revenues
was 55.9% and 61.8% for the three months ended September 30, 1998 and 1999,
respectively. The increase was attributable primarily to the increased
investments by the Company in the services infrastructure, including hardware
and personnel requirements associated with the hosted eXstatic software services
offering.
Overall gross margin increased from 74.1% for the three months ended
September 30, 1998 to 75.1% for the three months ended September 30, 1999 due
primarily to increased sales of VALEX.
Operating Expenses
14
<PAGE> 15
Sales and Marketing. The Company's sales and marketing expenses consist
primarily of salaries for sales and marketing personnel, commissions, travel and
promotional expenses. For the three months ended September 30, 1998 and 1999,
sales and marketing expenses were 36.4% and 33.1% of total revenues, or $2.6
million and $3.7 million, respectively. The increase is primarily attributable
to an increase in sales and marketing personnel from 36 at September 30, 1998 to
54 at September 30, 1999, as well as increased spending on certain promotional
activities including trade shows, seminars, and the development of collateral
materials designed to increase awareness of the Company and its eCRM solution
set.
Research and Development. The Company's research and development expenses
consist primarily of employee salary and benefits, consultant costs, and
equipment and purchased software depreciation costs associated with new product
development, enhancement of existing products and quality assurance activities.
For the three months ended September 30, 1998 and 1999, research and development
expenses were 24.3% and 23.7% of total revenues, or $1.7 million and $2.6
million, respectively. This increase in absolute dollars was primarily a result
of the addition of 37 research and development personnel, including contractors,
in the three months ended September 30, 1999 as compared to the same period in
1998. Total revenues increased at a faster pace than research and development
expenditures, resulting in a decrease in total research and development expense
as a percentage of total revenues.
General and Administrative. General and administrative expenses increased from
$975,000, or 13.6% of total revenues, for the three months ended September 30,
1998 to $1.3 million, or 11.3% of total revenues, for the three months ended
September 30, 1999. Expenses increased in absolute dollars as the Company added
12 employees to its finance, information systems, and human resource departments
between September 30, 1998 and September 30, 1999 and incurred additional costs
related to being a public company. Expenses declined, however, as a percentage
of total revenues, due primarily to economies of scale.
Interest Income (Expense), Net
Net interest income increased from $22,000 for the three months ended
September 30, 1998 to $452,000 for the three months ended September 30, 1999
primarily as a result of interest earned on proceeds from the Company's initial
public offering completed in December 1998 and its second public offering
completed in June 1999.
Provision for Income Taxes.
No provision for foreign, federal, or state income taxes was recorded for
the three months ended September 30, 1998 because the Company incurred a net
loss during the three month period. For the three months ended September 30,
1999 the Company recorded a reduction in the provision of $56,000, or 37% of the
loss before income taxes.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1999 the Company had $34.5 million in cash and
short-term investments and an additional $5.0 million of long-term investments.
In June 1999, the Company modified the terms of its revolving note agreement
with Fleet National Bank, increasing the credit limit from $2.0 million to $5.0
million. It is the Company's belief that its existing balance of cash, cash
equivalents and short-term investments, combined with its $5.0 million revolving
note agreement will be sufficient to meet the Company's working capital and
anticipated capital expenditure needs for at least the next 12 months.
Thereafter, the Company may require additional sources of funds to continue to
support our business. There can be no assurance that such capital, if needed,
will be available or will be available on terms the Company finds acceptable.
Cash and cash equivalents as of September 30, 1999 increased $10.8 million
from December 31, 1998. Net cash provided by operations of approximately
$441,000 resulted primarily from net income of $2.8 million before depreciation
expense and non-cash option related compensation expense, offset by an
approximate $2.3 million increase in non-cash working capital. The increase in
non-cash working capital was primarily attributable to an increase in accounts
receivable associated with increased license and services revenue in the three
months ended
15
<PAGE> 16
September 30, 1999 as compared to the three months ended December
31, 1998 which was partially offset by an increase in the balance of deferred
revenue from December 31, 1998 to September 30, 1999.
Net cash used in investing activities for the nine months ended September
30, 1999 was a result of property and equipment purchases related to the
increase in headcount, the move to new operating facilities in London and
expansion of the current facilities in Boston as well as the acquisition of
computer hardware and software for development and internal operating systems.
In addition, the Company purchased $7.8 million of investments with its
available cash. Net cash provided by financing activities of $20.9 million
consisted of net cash proceeds from the second public stock offering of $20
million, $463,000 in proceeds from the exercise of common stock options during
the nine months ended September 30, 1999, and $850,000 in proceeds from the
issuance of promissory notes to eXstatic Software investors prior to the
acquisition. The promissory notes converted to common stock as of the closing
date and are reflected in common stock and additional paid in capital in the
consolidated balance sheet as of September 30, 1999. The Company made the
decision in April 1999 to buyout its capital lease obligations in April 1999,
resulting in a use of cash of $361,000.
The Company had net operating loss carryforwards of approximately $2.2
million at September 30, 1999 to reduce future income taxes, if any. These
carryforwards expire through 2018 and are subject to review and possible
adjustment by the Internal Revenue Service. The Tax Reform Act of 1986 contains
provisions that may limit the amount of net operating loss and credit
carryforwards that the Company may utilize in any one year in the event of
certain cumulative changes in ownership over a three-year period in excess of
50% as defined. The Company believes that it experienced a change in ownership
in excess of 50%; however the Company does not believe that this change will
significantly impact its ability to utilize the net operating loss
carryforwards.
The Company currently has sales offices in the United Kingdom and
Australia, in addition to the United States. The Company's revenues from
international operations have been denominated in foreign currencies which
historically have been stable in relation to U.S. dollars. As a result, the gain
or loss from foreign currency transactions has not been material to its
operating results. As of September 30, 1999, the material assets and liabilities
denominated in foreign currencies include accounts receivable, accounts payable
and cash and cash equivalents. Due to the stability of the foreign economies
where these assets and liabilities are denominated, the Company has not adopted
a policy of hedging foreign currency risks. While it is anticipated that foreign
transactions will continue to be denominated in local currencies, the Company
expects to use hedging instruments to offset potential currency exposures
arising as its international operations expand into less stable economic
environments.
IMPACT OF YEAR 2000 ISSUE
The Year 2000 issue results from computer programs written using two digits
rather than four to define the applicable year. Any of the Company's computer
programs that have date-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a system failure
or miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices or engage
in similar normal business activities.
The Company has attempted to make an assessment, where practicable, with
regard to whether its own internal information systems are Year 2000 compliant.
Since June 1998, the Company has upgraded its accounting, telecommunications and
customer care systems, at an aggregate cost of approximately $500,000, with
systems that are warranted by the vendors to be Year 2000 compliant. To the
extent the Company purchases additional systems, the Company plans to require
that such systems are warranted by the vendors to be Year 2000 compliant. The
Company plans to seek assurances from its existing vendors whose systems are not
warranted to be Year 2000 compliant that such systems are Year 2000 compliant.
Within the last year the Company has hired a manager of management information
systems, whose responsibilities include oversight of Year 2000 compliance. The
Company does not separately track the internal costs incurred for Year 2000
projects, which are principally the related payroll costs for its information
systems personnel. Although the Company does not believe that any additional
Year 2000 compliance-related costs will be significant, there can be no
assurance that costs incurred to address unanticipated issues would not have a
material adverse effect on the Company's business, operating results and
financial conditions. Any failure of third-party equipment or software
comprising any part of the Company's systems to
16
<PAGE> 17
operate properly with regard to Year 2000 and thereafter could require the
Company to incur unanticipated expenses to address associated problems, which
could have a material adverse effect on the Company's business, operating
results and financial condition. The Company has received assurances that all
material embedded systems included in the Company's products are Year 2000
compliant.
The Company believes, based on an internal assessment, that the current
versions of its software products are Year 2000 compliant. However, the
Company's products are generally integrated with the enterprise systems and CIS
products of its customers developed by other vendors. Year 2000 problems in
these systems and products might significantly limit the ability of the
Company's customers to realize the intended benefits offered by VALEX and CCM.
The Company has no plan to ascertain whether the internal systems and products
of its customers are Year 2000 compliant. The Company may in the future be
subject to claims based on Year 2000 problems in others' products or issues
arising from the integration of multiple products within an overall system.
Although the Company has not been involved in any litigation or proceeding to
date involving its products or services related to Year 2000 issues, there can
be no assurance that the Company will not in the future be required to defend
its products or services or to negotiate resolutions of claims based on Year
2000 issues. The costs of defending and resolving Year 2000-related disputes,
and any liabilities of the Company for Year 2000-related damages, including
consequential damages, could have a material adverse effect on the Company's
business, operating results and financial condition.
The Company does not have any specific contingency plans if any Year 2000
problems develop with respect to the Company's embedded systems or systems
acquired from vendors. Contingency plans will be developed if it appears the
Company or its key vendors will not be Year 2000 compliant, and such
noncompliance is expected to have a material adverse impact on the Company's
operations. The cost of developing and implementing such plans may itself be
material.
Year 2000 issues may affect the purchasing patterns of customers and
potential customers in a variety of ways. Many companies are expending
significant resources to replace or remedy their current hardware and software
systems for Year 2000 compliance. These expenditures may result in reduced funds
available to purchase software products such as those offered by the Company.
The Company does not believe that there is any practical way to ascertain the
extent of, and has no plan to address problems associated with such a reduction
in purchasing resources of its customers. Any such reduction could, however,
result in a material adverse effect on the Company's business, operating results
and financial condition. The Year 2000 problem is pervasive and complex, as
virtually every computer operation will be affected in some way. Consequently,
no assurance can be given that Year 2000 compliance can be achieved without
significant additional costs.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The following discussion about the Company's market risk disclosures
involves forward looking statements. Actual results could differ materially from
those projected in the forward-looking statements. The Company is exposed to
market risk related to changes in interest rates and foreign currency exchange
rates. The Company does not use derivative financial instruments for speculative
or trading purposes.
Interest Rate Sensitivity. The Company maintains a short-term
investment portfolio consisting mainly of corporate debt securities and U.S.
government agency treasury bills and notes with an average maturity of less then
twelve months. These available-for-sale securities are subject to interest rate
risk and will fall in value if market interest rates increase. If market
interest rates were to increase immediately and uniformly by 10 percent from
levels at September 30, 1999, the fair value of the portfolio would decline by
an immaterial amount.
Foreign Currency Exchange Risk. With sales and services offices in the
United States, United Kingdom and Australia, and a global customer base, the
Company faces exposure to adverse movements in foreign currency exchange rates.
These exposures may change over time as business practices evolve and could have
a material adverse impact on the Company's financial results. Historically the
Company's primary exposure has been nondollar-denominated operating expenses and
sales by its United Kingdom subsidiary. The introduction of the Euro as a common
currency for members of the European Monetary Union, of which the United Kingdom
is not a member, occurred in January 1999. To date, we have not noticed any
material impact from the introduction of the
17
<PAGE> 18
Euro. We have not determined the impact of the Euro on our foreign currency
risk. In addition, as the Company expands its sales and service presence in the
Asia/Pacific region in 1999, its exposure to foreign currency exchange rate
risks from the more volatile economies of this region will increase. The Company
is prepared to hedge against fluctuations in the British Sterling, Euro, or
other foreign currency if the exposure becomes material. As of September 30 1999
the Company's material nondollar-denominated assets and liabilities primarily
consisted of cash, accounts receivable, and accounts payable denominated in
British Sterling and Australian dollars.
18
<PAGE> 19
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
27 -- Financial Data Schedule
(b) Reports on Form 8-K
As a result of the acquisition of eXstatic Software (formerly Gino Borland,
Inc.) on August 20, 1999, the Company filed a report on Form 8-K on September 1,
1999.
19
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused the report to be signed on its behalf by the
undersigned, thereunto duly authorized.
EXCHANGE APPLICATIONS, INC.
(Registrant)
Dated: November 11, 1999
By: /s/ JOHN G. O'BRIEN
-----------------------------------------
John G. O'Brien
Vice President, Chief Financial Officer,
Treasurer, Secretary
(authorized officer and principal finance
and accounting officer)
20
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