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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended July 31, 1999 or
[ ] 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: 0-25185
MOMENTUM BUSINESS APPLICATIONS, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-3313175
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4301 Hacienda Drive, Suite 410, Pleasanton, CA 94588
(Address of principal executive officers) (Zip Code)
Registrant's telephone number, including area code:
(925) 469-6621
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
<TABLE>
<CAPTION>
CLASS OUTSTANDING AT AUGUST 18, 1999
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<S> <C>
Class A Common Stock, par value $.001 4,693,826
Class B Common Stock, par value $.001 1,000
</TABLE>
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MOMENTUM BUSINESS APPLICATIONS, INC.
(a development stage company)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
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PART I FINANCIAL INFORMATION
ITEM 1 - Financial Statements (unaudited)
Condensed Balance Sheets 3
Condensed Statements of Operations 4
Condensed Statements of Cash Flows 5
Notes to Condensed Financial Statements 6
ITEM 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations 10
PART II OTHER INFORMATION
ITEM 1 - Legal Proceedings 13
ITEM 2 - Changes in Securities and Use of Proceeds 13
ITEM 3 - Defaults upon Senior Securities 13
ITEM 4 - Submission of Matters to a Vote of Security Holders 13
ITEM 5 - Other Information 13
ITEM 6 - Exhibits and Reports on Form 8 - K 13
SIGNATURES 14
</TABLE>
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PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
MOMENTUM BUSINESS APPLICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
----------------
CONDENSED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE AMOUNTS)
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<CAPTION>
JULY 31, APRIL 30,
1999 1999
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................................ $ 254,278 $ 253,867
Deferred income taxes .................................................... -- 35
--------- ---------
Total current assets ............................................. 254,278 253,902
Non-current deferred income taxes .......................................... -- 29
--------- ---------
$ 254,278 $ 253,931
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Payable to PeopleSoft .................................................... $ 5,659 $ 2,812
Accounts payable ......................................................... 55 18
Accrued liabilities ...................................................... 210 71
Accrued compensation and related expenses ................................ 27 34
Income taxes payable ..................................................... -- 492
--------- ---------
Total current liabilities ........................................ 5,951 3,427
Stockholders' equity:
Class A Common stock, $0.001 par value, 10,000,000
shares authorized, 4,693,826 issued and outstanding ................... 5 5
Class B Common stock, $0.001 par value, 1,000 shares
authorized, issued and outstanding .................................... -- --
Additional paid-in capital ............................................... 249,996 249,996
Retained earnings (deficit) accumulated during the development stage...... (1,674) 503
--------- ---------
248,327 250,504
--------- ---------
$ 254,278 $ 253,931
========= =========
</TABLE>
See notes to condensed unaudited financial statements
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MOMENTUM BUSINESS APPLICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
----------------
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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<CAPTION>
PERIOD FROM
THREE MONTHS NOVEMBER 9, 1998
ENDED (INCEPTION)
JULY 31, 1999 TO JULY 31, 1999
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<S> <C> <C>
Revenues: ........................................................ $ -- $ --
Costs and expenses:
Product development ............................................ 4,999 7,568
General and administrative ..................................... 343 751
------- -------
Total costs and expenses ............................... 5,342 8,319
------- -------
Operating loss ................................................... (5,342) (8,319)
Interest income .................................................. 2,992 6,900
------- -------
Income (loss) before income taxes ................................ (2,350) (1,419)
Provision for income taxes ....................................... (173) 255
------- -------
Net loss ......................................................... $(2,177) $(1,674)
======= =======
Basic and diluted loss per share ................................. $ (0.46) $ (0.44)
======= =======
Shares used in basic and diluted loss per share computation....... 4,695 3,791
======= =======
</TABLE>
See notes to condensed unaudited financial statements.
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MOMENTUM BUSINESS APPLICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
----------------
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
THREE MONTHS NOVEMBER 9, 1998
ENDED (INCEPTION)
JULY 31, 1999 TO JULY 31, 1999
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<S> <C> <C>
OPERATING ACTIVITIES
Net loss ............................................. $ (2,177) $ (1,674)
Adjustments to reconcile net loss to net cash provided
(used) by operating activities:
Provision for deferred income taxes ................ 64 --
Changes in operating assets and liabilities:
Payable to PeopleSoft ........................... 2,847 5,659
Accounts payable ................................ 37 55
Accrued liabilities ............................. 139 210
Accrued compensation and related expenses ....... (7) 27
Income taxes payable ............................ (492) --
--------- ---------
Net cash provided by operating activities ............ 411 4,277
FINANCING ACTIVITIES
Capital contribution by PeopleSoft ................... -- 250,000
Issuance of common stock ............................. -- 1
--------- ---------
Net cash provided by financing activities ............ -- 250,001
--------- ---------
Net increase in cash and cash equivalents ............ -- 254,278
Cash and cash equivalents at beginning of period ..... 253,867 --
--------- ---------
Cash and cash equivalents at end of period ........... $ 254,278 $ 254,278
========= =========
</TABLE>
See notes to condensed unaudited financial statements.
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MOMENTUM BUSINESS APPLICATIONS, INC.
NOTES TO CONDENSED UNAUDITED FINANCIAL STATEMENTS
JULY 31, 1999
(UNAUDITED)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Momentum Business Applications, Inc., ("Momentum") was incorporated in
Delaware on November 9, 1998 and commenced operations on January 4, 1999.
Momentum was formed for the purpose of selecting and developing software
application products and commercializing such products, most likely through
licensing to PeopleSoft, Inc., ("PeopleSoft"). Since it commenced operations,
Momentum's principal activities have consisted of recruiting a board of
directors, reviewing individual product development proposals under its
agreements with PeopleSoft, and handling administrative matters. In accordance
with generally accepted accounting principles, Momentum is considered a
development stage company.
The information at July 31, 1999 and for the quarter ended July 31,
1999 is unaudited, and includes all adjustments (consisting only of normal
recurring adjustments) that the management of Momentum believes necessary for
fair presentation of the results for the period presented. Interim results are
not necessarily indicative of results to be expected for the full year. The
financial statements should be read in conjunction with the audited financial
statements and accompanying notes for the period from November 9, 1998
("inception") to its fiscal year ended April 30, 1999 included in Momentum's
1999 Annual Report on Form 10-K.
Accounting for Revenues and Expenses
Momentum is presently a development stage company, and therefore does
not currently generate any revenues from operating activities. Subject to the
successful completion of one or more product development projects, Momentum may,
in the future, derive revenues from the sale or license of its products, most
likely through marketing, distribution and sub-licensing by third parties.
Royalty and other product revenue if any, will be recorded as earned. Momentum
expects to incur most of its expenses under its agreements with PeopleSoft.
Development costs paid to PeopleSoft under a software development agreement are
recorded as research and development expenses when incurred. Amounts paid to
PeopleSoft under a services agreement are recorded as administrative expenses
when incurred. (See Note 2 for a description of the agreements between Momentum
and PeopleSoft).
Investment Risk
Momentum invests excess cash in money markets in financial institutions
with strong credit ratings. These funds typically bear minimal risk and Momentum
has not experienced any losses on its investments due to institutional failure
or bankruptcy.
Use of estimates
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash equivalents
Momentum considers all highly liquid investments with maturities of
three months or less when purchased to be cash equivalents. At July 31, 1999,
cash equivalents ($254.3 million) consisted primarily of taxable investments in
money market funds at two financial institutions. All other cash is held in a
bank demand deposit. All of the Company's cash and cash equivalents at July 31,
1999 are restricted for use under the Development Agreement (See Note 2).
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Segment Information
Effective January 4, 1999, Momentum adopted Statement of Financial
Accounting Standards No. 131, "Disclosure about Segments of an Enterprise and
Related Information" ("SFAS 131"). SFAS 131 superseded FASB Statement No. 14,
Financial Reporting for Segments of a Business Enterprise. SFAS 131 establishes
standards for the way that public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports. SFAS 131 also establishes standards for related disclosures
about products and services, geographic areas, and major customers.
Momentum has organized its business in one operating segment, since
Momentum's only business is to engage in selecting and developing software
application products and commercializing such products under its agreements with
PeopleSoft. At July 31, 1999, all of Momentum's interest income was derived from
its investments in the United States.
Comprehensive Income (Loss)
Effective January 4, 1999, Momentum adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130")
which establishes standards for reporting comprehensive income and its
components. Total comprehensive income (loss) includes net loss plus other
comprehensive income. The adoption of SFAS 130 had no impact on Momentum's
results of operations or financial condition.
Per share information
Momentum's loss per share amounts are calculated in accordance with
Statement of Financial Accounting Standards No. 128, "Earnings Per Share". This
method requires calculation of both a basic earnings per share and a diluted
earnings per share. The basic earnings per share excludes the dilutive effect of
common stock equivalents such as stock options and warrants, while the diluted
earnings per share includes such dilutive effects. Momentum has no such dilutive
common stock equivalents and thus diluted earnings per share equals basic
earnings per share. The loss per share for the quarter ended July 31, 1999 was
($0.46).
The loss per share amount for the period from inception through July
31, 1999 has been computed using the weighted average number of common shares
outstanding for the period. Substantially all of Momentum's common stock was
issued on December 31, 1998 and thus was outstanding for only the last seven
months of the period from inception to July 31, 1999. The $250 million
contributed by PeopleSoft was only invested during the last seven months of the
same period. Had the shares been outstanding for the entire period or the cash
invested for the entire period, the resulting loss per share amounts would have
been different from the actual results achieved. Momentum has no outstanding
stock options or other dilutive instruments at July 31, 1999.
Income Taxes
Momentum accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes". This
statement provides for a liability approach under which deferred income taxes
are provided based upon enacted tax laws and rates applicable to the periods in
which the taxes become payable. Momentum expects to have a net loss for fiscal
year 2000, and thus no taxes were provided for in the period ended July 31,
1999.
Common Stock
Momentum provides for two classes of common stock, Class A Common Stock
and Class B Common Stock. In December 1998, PeopleSoft declared a stock dividend
of one share of Momentum's Class A Common Stock for every fifty shares of
PeopleSoft stock held as of December 31, 1998, resulting in 4.7 million shares
distributed. The shares of Momentum Common Stock held by PeopleSoft on the
record date were converted into 1,000 shares of Momentum Class B Common Stock.
The holder or holders of the Momentum Class B Common Stock are entitled to vote
separately as a class with respect to any merger or liquidation of Momentum, the
sale, lease, exchange, transfer or other disposition of any substantial asset of
Momentum, and any amendments to the Certificate of Incorporation of Momentum
that would alter the Purchase Option, Momentum's authorized capitalization, or
the provisions of the Certificate of Incorporation governing Momentum's Board of
Directors. Accordingly, PeopleSoft could preclude the holders of the Momentum
Class A Common Stock from taking any of the foregoing actions during such
period. Prior to the exercise of the Purchase Option, the holders of the
Momentum Common B Stock,
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voting as a separate class, are entitled to elect one director, and the holder
or holders of the Momentum Class A Common Stock are entitled to elect up to
three directors. Upon exercise of the Purchase Option, PeopleSoft, as the sole
holder of the Momentum Class B Common Stock, has the right to elect all of the
Momentum directors and to remove incumbent directors with or without cause. On
all other matters, holders of the Momentum Class A Common Stock and Momentum
Class B Common Stock entitled to vote together as a single class. Holders of
Momentum Common Stock are allowed one vote for each share of Momentum Common
Stock held by them. Subject to compliance with securities laws, the Momentum
Class B Common Stock is freely transferable.
2. ARRANGEMENTS WITH PEOPLESOFT
In late December 1998, PeopleSoft contributed $250 million in cash to
Momentum. On December 31, 1998, PeopleSoft transferred 4,693,826 shares,
representing all of the outstanding shares, of Momentum Class A Common Stock
(the "Momentum Shares"), to a custodian who distributed the shares to the
holders of PeopleSoft common stock in mid January 1999 (the "Distribution").
Momentum Shares are traded on the Nasdaq National Market under the symbol
"MMTM". PeopleSoft continues to hold all 1,000 shares of the Momentum Class B
Common Stock. In connection with PeopleSoft's contribution to Momentum and the
distribution of Momentum Shares, Momentum and PeopleSoft entered into a number
of agreements, including a Development and License Agreement (the "Development
Agreement"), Marketing and Distribution Agreement and Services Agreement, which
are discussed below.
Momentum and PeopleSoft have entered into a Development Agreement
pursuant to which PeopleSoft will conduct product development and related
activities on behalf of Momentum under work plans and cost estimates which have
been proposed by PeopleSoft and approved by Momentum. Momentum is required to
utilize the cash initially contributed to Momentum by PeopleSoft plus interest
earned thereon, less administrative expenses and reserves of up to $2 million
(the "Available Funds") to conduct activities under the Development Agreement.
It is expected that the products to be developed under the Development Agreement
will include electronic business applications ("e- commerce"), analytic
applications, and industry specific applications. PeopleSoft has granted to
Momentum a perpetual, worldwide, non-exclusive license to use certain of
PeopleSoft's proprietary technology solely for internal use in conjunction with
the Development Agreement. Development activities performed by PeopleSoft on
behalf of Momentum from inception to July 31, 1999 amount to $7.6 million.
Under the terms of the Marketing and Distribution Agreement entered
into by Momentum and PeopleSoft, Momentum has granted PeopleSoft an option to
acquire a license to each product developed under the Development Agreement. The
license option for any such Momentum product is exercisable on a world-wide,
exclusive basis at any time from the date Momentum agrees to develop the product
until the earlier of a) thirty days after the product becomes Generally
Available (as defined in the agreements); or b) the expiration of the purchase
option. The license option will expire, to the extent not previously exercised,
30 days after the expiration of PeopleSoft's option to purchase all of the
outstanding Momentum Shares as described below. If and to the extent the license
option is exercised as to any Momentum product, PeopleSoft will acquire a
perpetual, exclusive license (with the right to sublicense) to develop, make,
have made and use the licensed product, and to sell and have sold the licensed
product. Upon exercising the license option, PeopleSoft will assume
responsibility for all ongoing development and sustaining engineering expenses
for the related product. Under the License Agreement for each licensed product,
PeopleSoft will make payments to Momentum with respect to the licensed product
equal to 1% of net sales of the licensed product by PeopleSoft and its
sublicensees, distributors and marketing partners, plus an additional 0.1% of
such net sales for each full $1 million of Development Costs of the licensed
product that have been paid by Momentum, up to a maximum 6 percent royalty.
PeopleSoft has the right to buyout Momentum's right to receive payments for
licensed products in accordance with a formula set forth in the Marketing and
Distribution Agreement.
Under the terms of the Services Agreement, Momentum will pay PeopleSoft
$100,000 per quarter to provide office facilities, and to perform accounting,
finance, human resources, information systems and legal services on its behalf.
PeopleSoft has charged Momentum $300,000 for such services from inception
through July 31, 1999.
Pursuant to Momentum's Restated Certificate of Incorporation,
PeopleSoft has the right to purchase all (but not less than all) of the Momentum
Shares (the "Purchase Option"). The Purchase Option will be exercisable by
written notice to Momentum at any time until December 31, 2002, provided that
such date will be extended for successive six month periods if, as of any June
30 or December 31 beginning with June 30, 2002, Momentum has not paid (or
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accrued expenses) for all but $15 million of Available Funds as of such date. In
any event, the Purchase Option will terminate on the 60th day after Momentum
provides PeopleSoft with a statement that, as of the end of any calendar month,
there are less than $2.5 million of Available Funds remaining.
Except in instances in which Momentum's liabilities exceed its assets,
if the purchase option is exercised, the exercise price will be the greatest of:
(1) 15 times the sum of (i) the actual worldwide payments made by
or due from PeopleSoft to Momentum with respect to all
Licensed Products and Developed Technology for the four
calendar quarters immediately preceding the quarter in which
the Purchase Option is exercised (the "Base Period"); plus
(ii) such payments as would have been made during the Base
Period by, or due from, PeopleSoft to Momentum if PeopleSoft
had not previously exercised its Product Payment Buy-Out
Option with respect to any Momentum Product (for purposes of
the calculations in (i) and (ii), payments will be annualized
for any product that has not been a Licensed Product for all
of each of the four calendar quarters in the Base Period);
minus
any amounts previously paid to exercise any Product Payment
Buy-Out Option for such Momentum Product;
(2) the fair market value of six hundred thousand (600,000) shares
of PeopleSoft Common Stock, adjusted in the event of a stock
split or dividend, as of the date PeopleSoft exercises its
Purchase Option;
(3) three hundred million dollars ($300,000,000) plus any
additional funds contributed to Momentum by PeopleSoft, less
the aggregate of all amounts paid or incurred to develop the
Momentum Products or pursuant to the Services Agreement as of
the date the Purchase Option is exercised; or
(4) seventy-five million dollars ($75,000,000).
In the event Momentum's liabilities (other than liabilities under the
Development Agreement, the Marketing Agreement and the Services Agreement)
exceed Momentum's assets, the Purchase Option Exercise Price described above
will be reduced by the amount such liabilities at the time of exercise are in
excess of Momentum's cash and cash equivalents, and short term and long term
investments. If PeopleSoft exercises the Purchase Option, PeopleSoft will pay
the exercise price in cash.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Discussion and Analysis of Financial Condition and Results of
Operations contains descriptions of the Company's expectations regarding future
trends affecting its business. These forward-looking statements and other
forward-looking statements made elsewhere in this document are made in reliance
upon safe harbor provisions of the Private Securities Litigation Reform Act of
1995. The following discussion sets forth certain factors the Company believes
could cause actual results to differ materially from those contemplated by the
forward-looking statements. Forward-looking statements include, but are not
limited to, those items identified with a footnote (1) symbol. The Company
undertakes no obligation to update the information contained herein.
Results of Operations
Momentum does not expect to earn any royalty revenues prior to its
fourth quarter of fiscal year 2000 when the development of an initial suite of
products is expected to be completed (1). Upon completion of any development
activity, PeopleSoft may elect to exercise an option to license the product and
offer it to the market through its distribution channels. Momentum will earn a
royalty for each product licensed by PeopleSoft or one of its distributors,
based on a sliding royalty rate determined by the amount of development costs
incurred. These royalty rates are contractually determined pursuant to the
Marketing and Distribution Agreement. It is not presently determinable when, if
at all, Momentum will realize material royalty revenues from its development
efforts.
Momentum incurred development expenses of approximately $5.0 million
and $7.6 million for the quarter ended July 31, 1999 and the period from
inception to July 31, 1999, respectively. These expenses are incurred primarily
under the Development Agreement. As Momentum engages PeopleSoft to perform
research and development work, PeopleSoft charges Momentum 110% of its fully
burdened cost of performing such activities. Fully burdened costs include
salary, benefits and overhead allocations, but do not include certain other
costs, such as the human resources costs associated with recruiting development
personnel and other indirect costs and expenses of establishing and maintaining
a development environment. Momentum also incurs certain direct costs associated
with developing its products that may include payments to other third parties
for development, royalties, or costs associated with acquiring or investing in
complementary companies, products or technology. Development expenses are
expected to significantly increase in fiscal year 2000 as development efforts
are stepped up on current projects and as development of new Momentum products
commence.
General and administrative expenses for the quarter ended July 31, 1999
were $0.3 million and were $0.8 million for the period from inception through
July 31, 1999. Under the Services Agreement, PeopleSoft provides Momentum
certain administrative services including accounting, finance, human resources
and legal services, and maintains office facilities for Momentum. Momentum pays
PeopleSoft a fee of $100,000 per quarter for such services. The amount of this
fee was determined on PeopleSoft's internal projections of its incremental costs
it will incur to provide these services to Momentum. Momentum will also incur
direct costs such as professional services, insurance, taxes, director and
officer compensation, and regulatory fees.
Because of the restrictions on the use of Available Funds under the
Development Agreement, Momentum is not expected, for the indefinite future, to
spend any funds on sales, marketing, or distribution activities. As such, it
will not be able to effectively establish a brand, corporate image or identity
in the overall marketplace. Such anonymity may make it more difficult for
Momentum to pursue alternate exit strategies, should PeopleSoft not exercise its
purchase option in the future.
Interest and investment income earned on invested funds were $3.0
million for the quarter ended July 31, 1999 and $6.9 million for the period from
Momentum's inception through July 31, 1999. As Momentum's Available Funds are
used under the Development Agreement and the Services Agreement, lower cash
balances will be available for investment and therefore interest and investment
income is expected to decrease.
- ------------
(1) Forward-looking statement
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The results of operations of Momentum currently reflect primarily
interest and investment income earned on the funds contributed by PeopleSoft,
and development expenses related to development of Momentum products. Momentum's
net loss for the quarter ended July 31, 1999 was ($2.2) million or ($0.46) per
share. The net loss from its inception through July 31, 1999 was ($1.7) million
or ($0.44) per share. Momentum is expected to record significant net losses in
future periods, as product development expenses under its agreements with
PeopleSoft are expected to continue to exceed income.
Momentum's research and development and administrative activities are
and will be substantially performed by PeopleSoft. Momentum believes that
PeopleSoft's internal systems are Year 2000 compliant. To the extent that
Momentum purchases its own internal systems or contracts with other parties for
such services, it expects to be able to find systems and service providers which
are Year 2000 compliant. However, Momentum and PeopleSoft will be relying on a
variety of service providers, including telephone companies, utilities and
network services providers whose Year 2000 compliance is difficult to ascertain.
If any of these providers were unable to provide their services to either
PeopleSoft or Momentum, Momentum's business could be adversely affected.
Liquidity and Capital Resources
Momentum was formed on November 9, 1998. PeopleSoft contributed a total
of $250 million in cash to Momentum prior to the Distribution. PeopleSoft's
contribution (together with interest earned thereon) is expected to fund
research and development activities for approximately three to four years.
Momentum's funds are expected to be used primarily to fund activities to be
conducted under the Development Agreement with PeopleSoft. Momentum expects to
engage PeopleSoft or other third parties to perform the development activities
on Momentum's behalf. Momentum is not expected to require significant facilities
or capital equipment of its own during the term of the Development Agreement. At
July 31, 1999, Momentum had cash and cash equivalents of approximately $254.3
million consisting primarily of investments in money market funds with
maturities of three months or less. These funds are restricted for use under the
Development Agreement.
Momentum's development activities are expected to focus on e-business
products, analytic application products, and industry specific applications.
PeopleSoft has and will propose various products to Momentum from which Momentum
will select certain products to develop. Momentum believes there are numerous
possible products which could be developed in each of the three areas. Based on
PeopleSoft's experience in developing software products of comparable scope, and
the number of projects that are believed to be manageable at any given time, and
assuming availability of engineers with relevant expertise, the Available Funds
are expected to be expended in approximately three to four years.
In addition to the Available Funds, Momentum may generate additional
funds through successfully licensing its products to PeopleSoft or other
parties. Momentum may also obtain additional financing through either debt or
equity financing, as long as the terms of such financings do not alter
PeopleSoft's rights as a Class B Common Stock holder. Funds raised through
licensing of products or financings would not be considered Available Funds and
thus their use by Momentum would not be restricted by PeopleSoft.
There can be no assurances, particularly given the existence of the
Development Agreement, the Marketing Agreement and the Services Agreement, that
Momentum will be able to raise any additional capital. Such additional capital,
if raised, would most likely reduce the per share proceeds available to holders
of the Momentum Class A Common Stock if the Purchase Option were to be exercised
by PeopleSoft. (See Note 2 -- "Purchase Option").
Since its inception, Momentum executed amendments to the Development
and License Agreement with PeopleSoft, whereby PeopleSoft will provide
development resources and project management oversight to eight different
product development projects with an aggregate budget of approximately $140
million. Projects being undertaken include a suite of analytic applications
which encompass nine individual software products, and several industry-specific
applications, including a comprehensive solution for the insurance industry and
three projects targeted at the services industry which include consulting,
engineering and temporary help companies. In addition, Momentum will be funding
the development of PeopleSoft's recently announced eStore, an end-to-end
e-commerce application that will be integrated with PeopleSoft's e-business
backbone. Although virtually all of these projects have been initiated and are
presently active, no new development project commitments were entered into
between the two companies during the quarter ended July 31, 1999. PeopleSoft has
recently been engaged in a comprehensive review of its business and product
strategy, and thus, did not initiate any new development projects
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with Momentum during this quarter. However, PeopleSoft's management has
indicated that they are prepared to re-engage in additional new product proposal
activities, and Momentum expects to make additional funding commitments prior to
year end.
Risks and Uncertainties
Momentum's actual results could differ materially from those
anticipated in these forward-looking statements due to certain factors. Such
risks and uncertainties include, but are not limited to the following:
- - Momentum may not successfully select or develop products. The
development projects referenced herein are characterized by many
inherent risks, including but not limited to 1) it may be difficult to
staff such projects with qualified development personnel who have
sufficient domain expertise, 2) existing PeopleSoft technology may not
be suitable as a foundation for the application software functionality,
3) development efforts in general are complex, and such complexities
create a risk that the products may not be technologically feasible,
and 4) constantly changing and evolving customer demands for products
and product functionality may cause products to meet with limited
market acceptance. Consequently, such development efforts may not be
successful or result in a product that is accepted by the market.
- - Demand for Momentum's products may be highly sensitive to time to
market and/or first mover advantages. Any material delays in the
development project schedule may adversely affect demand for the
product, even if the development project is otherwise successfully
completed. Furthermore, competitors of PeopleSoft, and even PeopleSoft,
may offer products that compete directly with Momentum's products
- - Momentum and PeopleSoft are parties to various agreements which limit
Momentum's ability to take certain actions, establish alternate
channels of distribution for its products, and use funds for other than
designated product development and administrative activities.
Consequently, Momentum has few degrees of freedom with which to
generate revenues or otherwise commercialize developed technology or
products should PeopleSoft elect not to utilize some or all of the
developed products.
- - Momentum or PeopleSoft may cancel a development project at anytime and
for any reason or no reason at all. Accordingly, it is possible that
Momentum could incur significant expenditures toward the development of
a particular product, only to have the project cancelled in the later
stages of the schedule. There is no recourse to PeopleSoft in the event
of this occurrence.
- - If Momentum were not successful with a number of development projects,
PeopleSoft would be unlikely to exercise its option to purchase the
stock of Momentum. Even if Momentum is successful in developing certain
products, PeopleSoft may not exercise its option to purchase the Common
Stock of Momentum. For example, PeopleSoft has the right to buy out the
ownership of selected products under its product royalty buy out
rights. Consequently, it could purchase the rights to certain products,
thereby obviating any need to exercise the purchase option on the
Company's Common Stock.
Other risks which are detailed in the Company's filings with the
Securities and Exchange Commission, including, but not limited to, the December
31, 1998 Second Amendment to the Information Statement (Form 10), the 1999 third
quarter Report to Shareholders (Form 10-Q) filed March 15, 1999, and the 1999
Annual Report to Shareholders (Form 10-K) filed July 29, 1999.
12
<PAGE> 13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On February 1, 1999, Momentum was first named as an additional
defendant in a series of class action lawsuits brought against PeopleSoft, Inc.
and certain of its officers and directors, alleging securities fraud in
connection with, inter alia, PeopleSoft's spin off of Momentum to PeopleSoft
shareholders. Out of nineteen such class actions filed to date, only one names
Momentum as a defendant. The class period in all such actions is from February
1997 to January 28, 1999, the date when PeopleSoft first announced that the
Securities and Exchange Commission was reviewing PeopleSoft's accounting
treatment for certain transactions in prior periods. The actions are pending in
the United States District Court for the Northern District of California, under
the lead case name Suttovia v. Duffield, et al, No. C 99-0472 MJJ. It is
expected that all actions will be consolidated into a single action within the
next 45 days, and an amended complaint will be filed at that time. It is
uncertain whether certain of the claims and allegations in the current complaint
will be included in the amended complaint, or whether Momentum will remain a
defendant in the consolidated case. Management does not believe that the case,
if it goes forward, will cause a material adverse impact on Momentum's business
or operations. However, depending on the amount and timing, an unfavorable
resolution could materially affect the Company's financial position, results of
operations or cash flows in a particular period.
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
Momentum held it's Annual Meeting of Stockholders on September 9, 1999
at the Carr America Visitor's Center located at 4400 Rosewood Drive, Pleasanton,
California. The following matters were voted on by the stockholders of record at
the close of business on July 15, 1999:
1. Two (2) Class A Common Class I directors were elected to serve
three-year terms.
2. The 1999 Stock Incentive Plan was approved.
3. The appointment of Ernst & Young LLP as independent auditors
of the Company for the fiscal year ending April 30, 2000 was
ratified.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8 - K
(a) Exhibits
27.1 Financial Data Schedule - For the quarter ending July 31, 1999.
(b) Reports on Form 8 - K
No reports on Form 8 - K were filed during the period from inception
to July 31, 1999.
13
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: September 13, 1999
MOMENTUM BUSINESS APPLICATIONS, INC.
By: /s/ Ronald E. F. Codd
-------------------------------------
Ronald E. F. Codd
President and Chief Executive Officer
(Principal Executive, Financial and
Accounting Officer)
14
<PAGE> 15
MOMENTUM BUSINESS APPLICATIONS, INC.
(a development stage company)
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT # EXHIBIT TITLE
- --------- -------------
<S> <C>
27.1 Financial Data Schedule - July 31, 1999
</TABLE>
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS AND RELATED NOTES
CONTAINED IN THIS FILING AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL INFORMATION.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-2000
<PERIOD-START> MAY-01-1999
<PERIOD-END> JUL-31-1999
<CASH> 254,278
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 254,278
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 254,278
<CURRENT-LIABILITIES> 5,951
<BONDS> 0
0
0
<COMMON> 5
<OTHER-SE> 248,327
<TOTAL-LIABILITY-AND-EQUITY> 254,278
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,342
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,350)
<INCOME-TAX> (173)
<INCOME-CONTINUING> (2,177)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,177)
<EPS-BASIC> (.46)
<EPS-DILUTED> (.46)
</TABLE>
