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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 January 31, 2000.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transition period
from ______ to ______.
Commission File Number: 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
Incorporation or organization) Identification No.)
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:
CLASS OUTSTANDING AT FEBRUARY 29, 2000
----- --------------------------------
Class A Common Stock, par value $.001 4,693,826
Class B Common Stock, par value $.001 1,000
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MOMENTUM BUSINESS APPLICATIONS, INC.
(a development stage company)
TABLE OF CONTENTS
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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 9
PART II OTHER INFORMATION
ITEM 1 -- Legal Proceedings 12
ITEM 2 -- Changes in Securities and Use of Proceeds 12
ITEM 3 -- Defaults upon Senior Securities 12
ITEM 4 -- Submission of Matters to a Vote of Security Holders 12
ITEM 5 -- Other Information 12
ITEM 6 -- Exhibits and Reports on Form 8-K 12
SIGNATURES 13
</TABLE>
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PART 1 -- FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
MOMENTUM BUSINESS APPLICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
----------------
CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE AMOUNTS)
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JANUARY 31, APRIL 30,
2000 1999
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(UNAUDITED)
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ASSETS
Current assets:
Cash and cash equivalents ..................................... $ 241,174 $ 253,867
Accounts receivable ........................................... 249 --
Income taxes receivable ....................................... 224 --
Deferred income taxes ......................................... -- 35
--------- ---------
Total current assets .................................. 241,647 253,902
Non-current deferred income taxes ............................... -- 29
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$ 241,647 $ 253,931
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LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Payable to PeopleSoft ......................................... $ 10,577 $ 2,812
Accounts payable .............................................. 34 18
Accrued liabilities ........................................... 195 71
Accrued compensation and related expenses ..................... 39 34
Income taxes payable .......................................... -- 492
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Total current liabilities ............................. 10,845 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, $0.001 par value, 1,000 shares
authorized, issued and outstanding ......................... -- --
Additional paid-in capital .................................... 249,996 249,996
Retained earnings (deficit) accumulated during the
development stage .......................................... (19,199) 503
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230,802 250,504
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$ 241,647 $ 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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PERIOD FROM PERIOD FROM
THREE MONTHS NOVEMBER 9, 1998 NINE MONTHS NOVEMBER 9, 1998
ENDED (INCEPTION) TO ENDED (INCEPTION) TO
JANUARY 31, JANUARY 31, JANUARY 31, JANUARY 31,
2000 1999 2000 2000
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Revenues: ........................................ $ 249 $ -- $ 249 $ 249
Costs and expenses:
Product development ............................ 13,869 -- 28,504 31,072
General and administrative ..................... 377 116 1,067 1,475
-------- -------- -------- --------
Total costs and expenses ............... 14,246 116 29,571 32,547
-------- -------- -------- --------
Operating loss ................................... (13,997) (116) (29,322) (32,298)
Interest income .................................. 3,276 825 9,447 13,354
-------- -------- -------- --------
Income (loss) before income taxes ................ (10,721) 709 (19,875) (18,944)
Provision for (benefit from) income taxes ........ -- -- (173) 255
-------- -------- -------- --------
Net income (loss) ................................ $(10,721) $ 709 $(19,702) $(19,199)
======== ======== ======== ========
Basic and diluted income (loss) per share ........ $ (2.28) $ .43 $ (4.20) $ (4.62)
======== ======== ======== ========
Shares used in basic and diluted
income (loss) per share computation .............. 4,695 1,634 4,695 4,160
======== ======== ======== ========
</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)
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PERIOD FROM
NINE MONTHS NOVEMBER 9, 1998
ENDED (INCEPTION) TO
JANUARY 31, JANUARY 31,
2000 2000
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OPERATING ACTIVITIES
Net loss ................................................. $ (19,702) $ (19,199)
Adjustments to reconcile net loss to net cash
used by operating activities:
Provision for deferred income taxes .................... 64 --
Changes in operating assets and liabilities:
Accounts receivable ................................. (249) (249)
Payable to PeopleSoft ............................... 7,765 10,577
Accounts payable .................................... 16 34
Accrued liabilities ................................. 124 194
Accrued compensation and related expenses ........... 5 40
Income taxes receivable/payable ..................... (716) (224)
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Net cash used by operating activities .................... (12,693) (8,827)
FINANCING ACTIVITIES
Capital contribution by PeopleSoft ....................... -- 250,000
Issuance of common stock ................................. -- 1
--------- ---------
Net cash provided by financing activities ................ -- 250,001
--------- ---------
Net (decrease) increase in cash and cash
equivalents .............................................. (12,693) 241,174
Cash and cash equivalents at beginning of period ......... 253,867 --
--------- ---------
Cash and cash equivalents at end of period ............... $ 241,174 $ 241,174
========= =========
</TABLE>
See notes to condensed unaudited financial statements.
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MOMENTUM BUSINESS APPLICATIONS, INC.
NOTES TO CONDENSED UNAUDITED FINANCIAL STATEMENTS
JANUARY 31, 2000
(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 and funding of
approved development projects 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 January 31, 2000, for the three and nine months ended
January 31, 2000, and for the periods from November 9, 1998 ("inception") to
January 31, 2000 and 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 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 significant revenues from operating activities. At January
31, 2000, Momentum's revenue consisted primarily of royalty revenue derived from
PeopleSoft's initial sales and licensing of certain software products developed
under the Development and License Agreement between Momentum and PeopleSoft.
Subject to the successful completion of more product development projects,
Momentum may, in the future, derive significant 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 is recorded as
earned and reported by PeopleSoft to Momentum. 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 funds in financial
institutions with strong credit ratings. These funds typically bear minimal
risk. 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 January 31, 2000, cash
equivalents ($241.2 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 January 31,
2000 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 January 31, 2000, 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 earnings or 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. All of Momentum's
common stock equivalents were not dilutive as of January 31, 2000 and thus,
diluted earnings per share equals basic earnings per share.
The loss per share amount for the period from inception through January 31,
2000 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 thirteen
months of the period from inception to January 31, 2000. The $250 million
contributed by PeopleSoft was only invested during the last thirteen 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.
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 January 31,
2000.
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, 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
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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 are
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 January 31, 2000 amount to $31.1 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 $500,000 for such services from inception
through January 31, 2000.
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 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
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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.
3. STOCK INCENTIVE PLAN
Momentum has a stock incentive plan administered by the Compensation
Committee of the Board of Directors under which 225,000 shares of Momentum Class
A Common Stock have been reserved for issuance to employees, consultants and
directors. During 1999, options to purchase 100,000 shares were granted to
Momentum's president and chief executive officer at an exercise price of $12.00
per share. Three of the four remaining members of Momentum's Board of Directors
were each granted options to purchase 25,000 shares at an exercise price of
$12.00 per share. All outstanding options have an exercise price equal to no
less than 100% of the fair market value of Momentum's Class A Common Stock on
the date of the grant and in no event may the exercise price be less than $12.00
per share. The Compensation Committee determines the number of options included
in an award as well as the vesting and other conditions. All or any part of the
options are exercisable at any time after the date of grant, subject to a right
of repurchase, which lapses at the rate of 2.78% of the shares subject to the
option. The options expire seven years after the date of grant.
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
Revenues, consisting of royalty revenue from a single source was
approximately $0.2 million for the three months ended January 31, 2000. For the
first time since its inception in late 1998, Momentum realized royalty revenues
as a result of the initial shipment of certain software products developed under
the Development Agreement. Specifically, four analytical applications that form
a part of PeopleSoft's Enterprise Performance Management (EPM) suite were
released in December 1999.
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
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contractually determined pursuant to the Marketing and Distribution Agreement.
It is not presently determinable when, if at all, Momentum will realize
significant royalty revenues from its development efforts (1).
Momentum incurred development expenses of approximately $13.9 million and
$31.1 million for the quarter ended January 31, 2000 and for the period from
inception to January 31, 2000, respectively. These expenses were 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 2001 as development efforts
are stepped up on current projects and as development of new Momentum products
commence (1).
General and administrative expenses were approximately $0.4 million for the
quarter ended January 31, 2000 as compared with approximately $0.1 million for
the period from inception through January 31, 1999. General and administrative
expenses incurred for the period from inception through January 31, 2000 were
approximately $1.5 million. 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 using PeopleSoft's internal projections of the
incremental costs that it would incur to provide these services to Momentum.
Momentum is required to separately pay for 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 approximately
$3.3 million for the quarter ended January 31, 2000 as compared with
approximately $0.8 million for the period from inception through January 31,
1999. Interest and investment income earned on invested funds were approximately
$13.4 million for the period from Momentum's inception through January 31, 2000.
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).
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 was approximately ($10.7) million or ($2.28) per share for the quarter
ended January 31, 2000 as compared with a net income of approximately $0.7
million or $0.43 per share for the period from inception through January 31,
1999. The net loss from its inception through January 31, 2000 was approximately
($19.2) million or ($4.62) 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.
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
January 31, 2000, Momentum had cash and cash equivalents of approximately $241.2
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.
- ------------
(1) Forward-looking statement
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Momentum's development activities are primarily focused on e-business
products, analytic application products, and industry specific applications.
PeopleSoft is expected to continue to 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. During the quarter ended
January 31, 2000, Momentum earned approximately $0.2 million in royalties from
the licensing of products developed under the Development Agreement, however,
the actual payment for such royalties was not due until after the quarter end.
Such funds, upon their receipt, shall be without restriction as to their use.
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
Agreement with PeopleSoft, whereby PeopleSoft will provide development resources
and project management oversight to nine different product development projects
with an aggregate budget of over $140 million. Projects being undertaken include
a suite of analytic applications which encompass nine individual software
products, and several industry-specific applications, including three projects
targeted at the services industry which include consulting, engineering and
temporary help companies. In addition, Momentum is funding the development of
PeopleSoft's eStore, an end-to-end e-commerce application that will be
integrated with PeopleSoft's e-business backbone. During the quarter ended
January 31, 2000, Momentum and PeopleSoft did not execute further development
amendments to the Development Agreement, although the two companies are
currently evaluating approximately a dozen new projects. Momentum expects to
enter into commitments to one or more new projects before the end of its fiscal
year which is April 30, 2000. (1)
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 a significant number of
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. Weakness in demand for product
will translate into limited royalty income to Momentum, associated limited
product payment buy out proceeds, if any, and may ultimately reduce
PeopleSoft's interest in exercising its purchase option.
- ------------
(1) Forward-looking statement
11
<PAGE> 12
- - 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 purposes 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. Specifically, during the past quarter, the two companies agreed
to suspend development efforts associated with one particular industry
specific application, and as of January 31, 2000, no determination has been
made as to whether the project will be resumed or terminated.
- - 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.
- - Royalty results for the third quarter are not necessarily indicative of
results to be expected going forward. The royalties realized in the third
quarter were the result of sales efforts which spanned much more than one
quarter. Momentum's typical quarterly royalty income will be based on
PeopleSoft product licensing activity occurring within a one quarter
timeframe. Furthermore, the royalty rate applicable to the licensing
activity through the third fiscal quarter is six percent, which is the
contractual rate for products licensed to customers prior to PeopleSoft's
exercise of its license option on a product. Subsequent to any exercise of
a license option, the royalty rate for the subject product will revert to a
formula based rate, which may be substantially less than six percent, and
which in no case can exceed six percent. Therefore, the royalty results for
the past quarter should not be construed to provide any assurance that
additional products will be successfully developed, or that development
successes will result in additional royalties, or that PeopleSoft will
exercise any license options.
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, the 1999 Annual Report
to Shareholders (Form 10-K) filed July 29, 1999, the 2000 first quarter Report
to Shareholders (Form 10-Q) filed September 14, 1999, and the 2000 second
quarter Report to Shareholders (Form 10-Q) filed December 15, 1999.
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
None
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
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule -- For the quarter ending January 31,
2000.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the period from inception to
January 31, 2000.
12
<PAGE> 13
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: March 15, 2000
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)
13
<PAGE> 14
MOMENTUM BUSINESS APPLICATIONS, INC.
(a development stage company)
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT # EXHIBIT TITLE
--------- -------------
<S> <C>
27.1 Financial Data Schedule - For the quarter ending
January 31, 2000
</TABLE>
14
<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> NOV-01-1999
<PERIOD-END> JAN-31-2000
<CASH> 241,174
<SECURITIES> 0
<RECEIVABLES> 249
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 241,647
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 241,647
<CURRENT-LIABILITIES> 10,845
<BONDS> 0
0
0
<COMMON> 5
<OTHER-SE> 230,802
<TOTAL-LIABILITY-AND-EQUITY> 241,647
<SALES> 249
<TOTAL-REVENUES> 249
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 14,246
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (10,721)
<INCOME-TAX> 0
<INCOME-CONTINUING> (10,721)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,721)
<EPS-BASIC> (2.28)
<EPS-DILUTED> (2.28)
</TABLE>
