<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-Q
---------------------
<TABLE>
<C> <S>
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE TRANSITION PERIOD FROM __________TO __________
COMMISSION FILE NUMBER 0-25575
---------------------
@plan.inc
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
TENNESSEE 62-1643381
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
3 LANDMARK SQUARE, SUITE 400 06901
STAMFORD, CT (Zip Code)
(Address of principal executive offices)
</TABLE>
(203) 961-0340
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last
report)
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, 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 of the latest practical date.
<TABLE>
<CAPTION>
CLASS OF COMMON STOCK OUTSTANDING AT OCTOBER 31, 1999
--------------------- -------------------------------
<S> <C>
Voting common stock, no par value 11,065,600 shares
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
@PLAN.INC
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Part I - Financial Information
Item 1. Financial Statements
Balance Sheets as of December 31, 1998 (audited) and 2
September 30, 1999 (unaudited)
Statements of Operations for the three and nine months ended
September 30, 1998 and 1999 (unaudited) 3
Statements of Cash Flows for the nine months ended
September 30, 1998 and 1999 (unaudited) 4
Notes to Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
Part II - Other Information
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use of Proceeds 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
</TABLE>
<PAGE> 3
@PLAN.INC
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 3,682,576 $ 34,682,017
Accounts receivable, net of allowance
of $80,000, and $200,000, respectively:
Billed 1,440,693 2,249,073
Unbilled 245,310 94,205
Prepaid expenses and other 101,208 624,581
----------- ------------
Total current assets 5,469,787 37,649,876
Property and equipment, net 117,641 157,406
Software development costs, net 375,278 536,253
Other assets 63,775 497,925
----------- ------------
Total assets $ 6,026,481 $ 38,841,460
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable $ 254,223 $ 710,318
Accrued liabilities 375,411 651,981
Deferred revenue 1,124,082 2,191,021
----------- ------------
Total current liabilities 1,753,716 3,553,320
Mandatory redeemable convertible
preferred stock:
Series A, no par value, 500,000
shares authorized: 448,000 and no
shares issued and outstanding, respectively 431,876 --
Series B, no par value, 2,250,000
shares authorized: 2,016,000 and no
shares issued and outstanding, respectively 4,011,935 --
Series C, no par value, 1,725,667
shares authorized: 1,725,667 and
no shares issued and outstanding,
respectively 5,138,991 --
----------- ------------
Total mandatory redeemable convertible
preferred stock 9,582,802 --
Shareholders' equity (deficit):
Preferred stock, no par value,
5,524,333 and 10,000,000 shares
authorized; no shares issued
and outstanding, respectively -- --
Common stock, no par value,
50,000,000 shares authorized;
907,200 and 11,033,200 shares
issued and outstanding, respectively 8,001 41,358,562
Additional paid-in capital 27,418 1,855,511
Accumulated deficit (5,345,456) (7,925,933)
----------- ------------
Total shareholders' equity (deficit) (5,310,037) 35,288,140
----------- ------------
Total liabilities and
shareholders' equity (deficit) $ 6,026,481 $ 38,841,460
=========== ============
</TABLE>
The accompanying notes are an integral part of these
financial statements.
2
<PAGE> 4
@PLAN.INC
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- -------------------------
1998 1999 1998 1999
----------- ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues $ 899,026 $ 2,009,841 $ 2,001,475 $ 4,970,959
Costs and expenses:
Product costs 572,010 1,264,809 1,650,812 2,810,575
Selling and marketing 483,496 898,849 1,198,572 2,137,425
General and administrative 345,345 558,312 716,935 1,379,091
Non-cash compensation expense -- -- -- 505,098
----------- ------------ ----------- -----------
Total costs and expenses 1,400,851 2,721,970 3,566,319 6,832,189
----------- ------------ ----------- -----------
Loss from operations (501,825) (712,129) (1,564,844) (1,861,230)
Interest income 47,198 435,340 145,617 658,048
----------- ------------ ----------- -----------
Net loss before income taxes (454,627) (276,789) (1,419,227) (1,203,182)
Income tax provision -- 10,000 4,921 54,300
----------- ------------ ----------- -----------
Net loss $ (454,627) $ (286,789) $(1,424,148) $(1,257,482)
=========== ============ =========== ===========
Basic and diluted
loss per share $ (0.50) $ (0.03) $ (1.58) $ (0.44)
=========== ============ =========== ===========
Weighted average shares
outstanding 900,704 10,976,540 900,237 5,808,580
=========== ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
3
<PAGE> 5
@PLAN.INC
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1998 1999
----------- ------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,424,148) $ (1,257,482)
Adjustments to reconcile
net loss to net cash used in
operating activities:
Depreciation and amortization 117,844 420,509
Provision for doubtful accounts 60,000 120,000
Non cash charges -- 505,098
Changes in operating assets and liabilities:
Increase in accounts receivable (920,214) (777,275)
Increase in prepaid expenses
and other (39,338) (523,373)
Increase in other assets (4,019) (434,150)
Increase in accounts payable 132,381 456,095
Increase in accrued liabilities 151,635 276,570
Increase in deferred revenue 382,206 1,066,939
----------- ------------
Net cash used in operating activities (1,543,653) (147,069)
Cash flows from investing activities:
Purchases of equipment (70,215) (107,262)
Software development costs (309,690) (513,987)
----------- ------------
Net cash used in investing activities (379,905) (621,249)
Cash flows from financing activities:
Proceeds from issuance
of common stock, net -- 31,767,759
Proceeds from issuance of
preferred stock, net 5,138,991 --
----------- ------------
Net cash provided by
financing activities 5,138,991 31,767,759
----------- ------------
Net change in cash and cash equivalents 3,215,433 30,999,441
Cash and cash equivalents
at beginning of period 832,338 3,682,576
----------- ------------
Cash and cash equivalents
at end of period $ 4,047,771 $ 34,682,017
=========== ============
Supplemental information:
Cash paid for income taxes $ 4,921 $ 54,300
Warrants issued to preferred
shareholders -- $ 1,322,995
</TABLE>
The accompanying notes are an integral part of these
financial statements.
4
<PAGE> 6
@PLAN.INC
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
The financial information as of September 30, 1999 and for the three
and nine months ended September 30, 1998 and 1999 is unaudited, but includes all
adjustments, consisting only of normal recurring adjustments, that we consider
necessary for a fair presentation of our financial position at September 30,
1999, and our operations and cash flows for the three and nine months ended
September 30, 1998 and 1999. Operating results for the three and nine months
ended September 30, 1999 are not necessarily indicative of results that may be
expected for the entire year. The financial statements included herein have been
prepared in accordance with generally accepted accounting principles and the
instructions of Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. These financial statements should be read in conjunction
with our audited financial statements for the year ended December 31, 1998,
which were included as part of our Registration Statement on Form S-1 (File No.
333-74507).
2. GENERAL:
@plan.inc was incorporated in the State of Tennessee in May 1996. We
provide Internet market research systems for Internet advertisers, advertising
agencies, Web publishers, online retailers and consumer brand marketers. Our
internally developed systems, which our clients access through our Web site,
combine our databases of consumer lifestyle, product preference and demographic
data with technology that enables our clients to perform queries and searches to
plan campaigns and strategies.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
REVENUE RECOGNITION
We provide Internet market research systems to our clients on a
renewable subscription basis. We recognize revenue ratably over the contract
period, which is generally twelve months. We bill our clients for our services
based on terms of the contracts, which may not coincide with criteria required
for revenue recognition.
On the accompanying balance sheets, deferred revenue represents amounts
invoiced prior to rendering our services while unbilled receivables represents
the value of services rendered prior to being invoiced. Substantially all of the
deferred and unbilled revenue will be earned and billed, respectively, within
twelve months of the respective period ends.
Upon signing a contract, our sales representatives become eligible for
a commission. These commissions are paid at the time of the contract signing.
For financial reporting purposes, we capitalize these commissions as a component
of prepaid expenses and amortize these amounts over the lives of the related
contracts.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand and all investments in
highly liquid instruments purchased with original maturities of three months or
less. Funds in excess of operating cash needs are maintained in a money market
fund, which may exceed the amount insured by the Federal Deposit Insurance
Corporation.
5
<PAGE> 7
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost less accumulated depreciation
and amortization. Depreciation and amortization are calculated using the
straight-line method over the estimated useful lives of the assets, ranging from
three to five years.
SOFTWARE DEVELOPMENT COSTS
We capitalize direct costs relating to our computer software
development upon the establishment of technological feasibility. Until our
products reach technological feasibility, all costs related to development
efforts are expensed as a component of product costs. Software development
costs, subsequent to technological feasibility and prior to general release,
have been capitalized and are reported at the lower of unamortized cost or net
realizable value. We amortize capitalized software development costs on a
straight-line basis for periods ranging from one to three years. As of December
31, 1998 and September 30, 1999, software development costs are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
--------- -----------
(UNAUDITED)
<S> <C> <C>
Software development costs $ 529,081 $ 1,043,068
Less: Accumulated depreciation (153,803) (506,815)
--------- -----------
$ 375,278 $ 536,253
========= ===========
</TABLE>
We periodically review our software development costs and property and
equipment for any potential impairments. We consider undiscounted cash flows,
future operating results, trends or other relevant information in assessing
whether the carrying value of our assets is recoverable. At September 30, 1999,
we do not believe that any of our assets are impaired.
INCOME TAXES
We recognize deferred tax assets and liabilities for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized.
STOCK-BASED COMPENSATION
We account for our stock-based compensation to our employees by
recognizing compensation expense for the difference between the estimated fair
value of our stock at the date of grant and the exercise price of the granted
stock. Stock-based grants issued to non-employees are recorded at either the
fair value of the services provided at the fair value of the stock issued, as
determined using the Black-Scholes model.
During the first quarter of 1999, we issued 47,340 options to our
employees. These options had an exercise price that was $10.67 less per share
than the fair market value of our common stock on the date of grant. Since these
options fully vested on the date of the initial public offering, we recognized
the remaining $475,000 of the total $505,000 of expense during the second
quarter of 1999.
6
<PAGE> 8
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires us to make estimates and assumptions.
These estimates and assumptions affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements. These assumptions also affect the reported amounts of
revenue and expenses during the reporting periods. Actual results could differ
from those estimates and assumptions.
STOCK-SPLIT
The accompanying financial statements give retroactive effect to a 1.8
for 1 stock-split that was approved by our Board of Directors on March 10, 1999.
4. BASIC AND DILUTED NET LOSS PER SHARE
Basic loss per share amounts are computed by dividing the net loss by
the weighted average number of shares of common stock outstanding during the
period. Diluted loss per share is computed by dividing the net loss by the
weighted average number of shares of common stock outstanding during the period
plus the effects of any potentially dilutive securities. In the accompanying
statements of operations, diluted loss per share does not include the effects of
potentially dilutive securities for all periods presented as they would have
been anti-dilutive in years in which a loss is reported.
The following summarizes the securities outstanding which are excluded
from the loss per share calculation as amounts would have an anti-dilutive
effect. Preferred Stock is reflected on an "if-converted" basis. See note 4.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- --------------------------
1998 1999 1998 1999
----------- ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Series A preferred stock 806,400 -- 806,400 --
Series B preferred stock 3,628,800 -- 3,628,800 --
Series C preferred stock 3,106,200 -- 3,106,200 --
Stock options 1,654,200 1,891,040 1,654,200 1,891,040
----------- ------------ ----------- -----------
Total 9,195,600 1,891,040 9,195,600 1,891,040
=========== ============ =========== ===========
</TABLE>
The following tables summarize the calculation of basic and dilutive earnings
per share for the three and nine month periods ended September 30, 1998 and
1999:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- --------------------------
1998 1999 1998 1999
----------- ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net loss $ (454,627) $ (286,789) $(1,424,148) $(1,257,482)
Less: Preferred stock dividends -- -- -- (1,322,995)
----------- ------------ ----------- -----------
Loss available to
common shareholders (454,627) (286,789) (1,424,148) (2,580,477)
=========== ============ =========== ===========
Weighted average shares outstanding 900,704 10,976,540 900,237 5,808,580
Basic and dilutive loss per
common share available to
common shareholders $ (.50) $ (0.03) $ (1.58) $ (0.44)
</TABLE>
7
<PAGE> 9
5. EQUITY TRANSACTIONS:
In May 1999, we completed an initial public offering of our common
stock. We sold 2,500,000 shares of our common stock at an initial offering price
of $14.00 per share resulting in proceeds of $31.7 million, net of underwriting
discounts and offering expenses.
In 1996 and 1997, we issued a total of 448,000 shares of Series A
preferred stock and 2,016,000 shares of Series B preferred stock at a purchase
price of $1.00 and $2.00 per share, respectively. In 1998, we issued 1,725,667
shares of Series C preferred stock at a purchase price of $3.00 per share. Upon
the closing of the initial public offering, all outstanding shares of Series A,
B and C Preferred Stock were converted into 806,400 shares, 3,628,800 shares and
3,106,200 shares of common stock, respectively.
Simultaneous with the closing of our initial public offering, a
director and an officer and all of the preferred shareholders received warrants
to purchase 200,000 shares of common stock. Of these warrants, a direction and
an officer each were granted warrants to purchase 25,000 shares of common stock.
The preferred shareholders, including the director and officer, received a pro
rata portion of the remaining 150,000 warrants. These warrants are exercisable
for seven years.
We accounted for these warrants at the time of issuance as follows:
- For warrants issued to the officer and director, we applied
the provisions of Accounting Principles Boards Opinion No. 25,
"Accounting for Stock Issued to Employees," and record
compensation expense for the difference between the fair value
of our common stock at the time of grant, based on our initial
public offering price, and the exercise price of the warrant.
As these amounts were equivalent on the date of grant, we did
not record any compensation expense for these warrants.
- For warrants issued to the holders of our preferred stock, we
recorded the value of these warrants as a dividend to these
shareholders on the date of grant. This dividend increased our
accumulated deficit but had no effect on reported net income
(loss). The value of this dividend was $1.3 million
(unaudited) which was determined by using the Black-Scholes
model with the following assumptions:
- risk free interest rate of 5.3%,
- expected dividend yield of 0%,
- expected life of 5.0 years and
- expected volatility of 75%.
8
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and
Results of Operations and other sections of this Quarterly Report contain
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements include, but are
not limited to, statements about our plans, objectives, expectations and
intentions and other statements contained in this prospectus that are not
historical facts. When used, the words "expect,""anticipate," "intent,""plan,"
"believe," "estimate" and similar expressions are generally intended to identify
forward-looking statements. These forward-looking statements involve risks and
uncertainties that could cause actual results to differ materially from those
expressed or implied by these forward-looking statements, including:
- market acceptance of the Internet as an advertising medium;
- the continued development of the electronic commerce market;
- market acceptance of our products and services;
- our limited operating history;
- our history of losses and expectation of continued losses;
- our dependence on our relationship with The Gallup
Organization for the collection of data;
- our ability to manage our rapid growth;
- intense competition in our market;
- our ability to attract, retain and train qualified sales,
client service and other personnel;
- our ability to timely collect, process, store and deliver
accurate data;
- our ability to develop and introduce new products;
- the unpredictability of our financial results and expected
fluctuations in our quarterly results;
- variations in product or client mix;
- possible technical difficulties or service interruptions;
- the magnitude and timing of strategic pricing changes,
marketing decisions, product development costs and possible
acquisitions;
- our ability and relevant third parties' ability to achieve
year 2000 readiness; and
- other risk factors described in the "Risk Factors" section of
the Company's Registration Statement on Form S-1 (File no.
333-74507), which was filed with the Securities and Exchange
Commission on May 17, 1999.
OVERVIEW
We were founded in May 1996. During the period from May 1996 to
December 31, 1996, our inception period, we had no revenues and were primarily
engaged in the development and planning of our software and survey research
infrastructures. In June 1997, we introduced our first product system, the @plan
Gutenberg Advertising System. Since 1997, subscribers to this system have
included Internet advertisers,
9
<PAGE> 11
advertising agencies and Web publishers and, to a lesser extent, online
retailers and consumer brand marketers. During 1997, we continued to build our
sales and operations staff and during 1998, our first full year of sales, we
continued to grow our client subscriber base, develop new products, and opened a
satellite office in San Francisco, California to service our existing West Coast
clients and to expand our client base in this market. In December 1998, we
introduced the @plan Kepler E-Business System specifically designed for online
retailers and consumer brand marketers.
We derive all of our revenues from the sale of subscriptions to our
systems. The subscription contracts are generally non-cancelable for a period of
one year and most automatically renew unless we receive notice of termination
from the client prior to the anniversary date. Clients typically pay contract
fees on an annual, quarterly or monthly basis which are recorded as deferred
revenue until the revenue is recognized. Revenue is recognized on a straight
line basis beginning over the non-cancelable contract period, generally 12
months. Upon renewal, many of the subscription rates increase automatically in
accordance with contract provisions. These automatic increases are generally
higher in the first two renewal years than in subsequent renewal years where the
rate adjustment is based on increases in the Consumer Price Index, or CPI. We
have experienced a contract renewal rate in excess of 90% from inception through
September 30, 1999. The renewal rate is not necessarily indicative of the rate
of future retention of our revenue base.
One measure of the volume of our business is "contract value" which
represents the annualized value of all contracts in effect at a given point in
time, without regard to the duration of contracts then outstanding and without
deducting revenue already recognized under these contracts. Our contract value
was $4.1 million at September 30, 1998 and $8.8 million at September 30, 1999.
As of September 30, 1999, we have recognized $4.0 million of revenues of the
$8.8 million in contract value.
Our revenues and operating margins will fluctuate due, in part, to
product and customer mix. Annual subscriptions to the @plan Kepler E-Business
System are typically priced higher than annual subscriptions to the @plan
Gutenberg Advertising System. Moreover, annual subscription pricing and renewal
pricing are often negotiated and may vary based on the volume of subscriptions
being sold to the client. Variations in product or client mix could cause our
revenue and operating results to fluctuate on a quarterly or annual basis.
Product costs consist primarily of amounts paid to The Gallup
Organization for quarterly collection of data used in our market research
systems. From time to time we will engage Gallup on a case-by-case basis to
collect additional data. In the past, these additional engagements have caused
our data collection costs to fluctuate from quarter to quarter, and we expect
quarterly data collection costs to continue to fluctuate as we plan to continue
to use Gallup for additional data collection. Product costs will also increase
during the remainder of 1999 and in future periods as we are currently
developing more detailed market research systems for specific client groups.
Also included in product costs are software development costs which
consist primarily of the amortization of capitalized software development costs
and, to a lesser extent, other non-capitalized technology expenses such as Web
site maintenance. Software development costs represent direct expenses incurred
to improve or enhance our systems, including increasing access speeds, designing
new user interfaces and developing new system modules. As of September 30, 1999,
we had approximately $536,000 in capitalized software development costs which
will be amortized and expensed as product costs over the next one to three
years. See note 3 of the notes to our financial statements for an explanation of
the accounting for our software development costs.
We have incurred significant losses since inception and as of September
30, 1999, we had an accumulated deficit of $7.9 million. Our net losses and
accumulated deficit resulted from our lack of substantial revenues and the
significant costs incurred in the development of our systems and in the
establishment of our operations infrastructure. Additionally, our accumulated
deficit was affected by a $1.3 million dividend in connection with warrants
issued to the holders of our
10
<PAGE> 12
preferred stock upon the consummation of our initial public offering. We intend
to continue to make significant investments in the development of new products,
the enhancement of our current systems and in the expansion of our sales force.
As a result, we expect to incur additional losses at least through December 31,
2000.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1999
Revenues. Total revenues increased from approximately $899,000 for the
three months ended September 30, 1998 to $2.0 million for the three months ended
September 30, 1999. The increase in revenues resulted principally from an
increase of approximately $716,000 in recurring revenues from the retention of
existing clients. These renewals reflect higher subscription rates than those in
place during the initial term of these contracts, in accordance with contract
provisions. Additionally, we experienced increased revenues of approximately
$395,000 from subscription sales to new clients, including revenues from our
@plan Kepler E-Business System launched in December 1998.
Product Costs. Product costs consist primarily of amounts paid to
Gallup for quarterly collection of data used in our market research systems and
software development costs. Product costs increased from approximately $572,000
for the three months ended September 30, 1998 to approximately $1.3 million for
the three months ended September 30, 1999. This increase was due primarily to an
increase of approximately $573,000 in additional data collection costs and an
increase of approximately $119,000 in software development costs associated with
the introduction of the @plan Kepler E-Business System and the development of
additional products. Consistent with our strategy, we are currently developing
more detailed market research systems for specific client groups. As a result,
we anticipate continue to incur increased data collection and software costs
during the remainder of 1999 and in future periods.
Selling and Marketing. Selling and marketing costs consist primarily of
the personnel expenses associated with the sale and service of our systems,
including commissions, public relations costs and marketing expenses. Selling
and marketing costs increased from approximately $483,000 for the three months
ended September 30, 1998 to approximately $899,000 for the three months ended
September 30, 1999. This increase was due largely to the expansion of our sales
force and client service team, commissions associated with increased sales, and
to a lesser extent, company branding initiatives. Selling and marketing costs
will increase as we continue to expand our sales force and introduce new
products.
General and Administrative. General and administrative expenses consist
primarily of salaries and related costs for our administrative, financial and
information technology personnel, professional fees, occupancy costs and general
office expenses. General and administrative expenses were approximately $345,000
for the three months ended September 30, 1998 as compared to approximately
$558,000 for the three months ended September 30, 1999. This increase was
primarily due to the increase in personnel needed to support our expanding
operations and related costs as well as costs related to being a public company
including directors' and officers' liability insurance. We anticipate hiring
additional personnel and continuing to incur additional costs related to being a
public company, including investor relations programs and professional services
fees. Accordingly, general and administrative expenses will increase in future
periods.
Interest income. Interest income consists of interest on our cash and
cash equivalents. Interest income was approximately $47,000 for the three months
ended September 30, 1998 as compared to $435,000 for the three months ended
September 30, 1999. The increase in interest income was primarily attributable
to the higher cash balances during the three months ended September 30, 1999 as
a result of net proceeds from our sale of common stock in May 1999.
Loss per share. The loss per share amounts for the three months ended
September 30, 1999 was $.03. See Note 4 of Notes to Financial Statements.
11
<PAGE> 13
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1999
Revenues. Total revenues increased from $2.0 million for the nine
months ended September 30, 1998 to $5.0 million for the nine months ended
September 30, 1999. The increase in revenues resulted principally from an
increase of approximately $2.0 million in recurring revenues from the retention
of existing clients. These renewals reflect higher subscription rates than those
in place during the initial term of these contracts, in accordance with contract
provisions. Additionally, we experienced increased growth of approximately
$980,000 in our subscription sales to new clients, including revenues from our
Kepler E-Business System launched in December 1998.
Product Costs. Product costs increased from $1.7 million for the nine
months ended September 30, 1998 to $2.8 million for the nine months ended
September 30, 1999. This increase was due primarily to an increase of
approximately $820,000 in additional data collection costs and an increase of
approximately $340,000 in software development costs associated with the
introduction of the @plan Kepler E-Business system and development of additional
products.
Selling and Marketing. Selling and marketing costs increased from
approximately $1.2 million for the nine months ended September 30, 1998 to $2.1
million for the nine months ended September 30, 1999. This increase was due
largely to the expansion of our sales force and client service teams and
commissions associated with increased sales.
General and Administrative. General and administrative expenses were
approximately $717,000 for the nine months ended September 30, 1998 as compared
to approximately $1.4 million for the nine months ended September 30, 1999. This
increase was primarily due to the increase in personnel needed to support our
expanding operations and related costs as well as costs related to being a
public company including directors' and officers' liability insurance.
Non-cash compensation Expense. During the first quarter of 1999, we
issued 47,340 options to our employees. For financial accounting purposes, these
options had an exercise price that was $10.67 less per share than the fair
market value of our common stock on the date of grant. Since these options fully
vested on the date of the initial public offering, we recognized the total
$505,000 expense. Approximately $30,000 of the expense was taken during the
first quarter of 1999 and the approximate remaining $475,000 was taken during
the second quarter of 1999.
Interest income. Interest income was approximately $146,000 for the
nine months ended September 30, 1998 as compared to $658,000 for the nine months
ended September 30, 1999. The increase in interest income was primarily
attributable to the higher cash balances during the nine months ended September
30, 1999 as a result of net proceeds from our sale of common stock in May 1999.
Loss per share. Included in the loss per share amounts for the nine
months ended September 30, 1999, is a $1.3 million dividend associated with
initial public offering warrants issued to preferred shareholders. Excluding the
effect of this charge, the loss per share for the nine months ended September
30, 1999 was $.22.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1999, we had $34.7 million in cash and cash
equivalents as compared to $4.0 million as of September 30, 1998. In May 1999,
we consummated our initial public offering by selling 2,500,000 shares of Common
Stock at a price of $14.00 per share. Net proceeds from the IPO, net of
underwriting discounts and offering costs, were approximately $31.7 million.
Prior to May 1999, we financed our operations primarily through the private
placement of preferred stock. Net proceeds from the sale of convertible
preferred stock from inception to September 30, 1999 have totaled $9.6 million.
12
<PAGE> 14
Net cash used in operating activities was approximately $147,000 for
the nine months ended September 30, 1999. Cash provided by operating activities
was primarily attributable to net losses and increases in accounts receivable
offset by increases in deferred revenue and accrued expenses. For the nine
months ended September 30, 1998, net cash used in operating activities was $1.5
million which was primarily attributable to net operating losses and increases
in accounts receivable offset partially by increases in deferred revenue and
accrued expenses.
Deferred revenue was $2.2 million at September 30, 1999 as compared to
$749,000 at September 30, 1998. Deferred revenue represents amounts invoiced
under contract prior to our rendering of services to the client. Unbilled
accounts receivable was approximately $94,000 at September 30, 1999 and
approximately $203,000 at September 30, 1998. Unbilled accounts receivable
represents the value of services provided prior to invoicing.
Net cash used in investing activities was approximately $621,000 for
the nine months ended September 30, 1999 and approximately $380,000 for the nine
months ended September 30, 1998. Cash used in investing activities in each
period was attributed to software development costs and purchases of property
and equipment.
Net cash provided by financing activities was $31.8 million for the
nine months ended September 30, 1999. Cash provided by financing activities was
primarily attributable to the proceeds from the sale of common stock, net of
issuance costs. For the nine months ended September 30, 1998, net cash provided
by financing activities was $5.1 million which was primarily attributable to the
proceeds from the sale of preferred stock, net of issuance costs.
We believe that our existing cash and cash equivalents will be
sufficient to meet our working capital and capital expenditure requirements for
at least the next 18 months. Thereafter, we may be required to raise additional
funds. If additional funds are raised through the issuance of equity securities,
our shareholders may experience significant dilution. There can be no assurance
that additional funding, if needed, will be available on attractive terms, or at
all. If financing is not available when required or is not available on
acceptable terms, we may be unable to develop or enhance our products or
services. The failure to raise capital when needed could harm our business,
operating results and financial condition.
COMMITMENTS AND CONTINGENCIES
We have no material commitments other than our lease for our corporate
headquarters and obligations under our agreement with Gallup. Our agreement with
Gallup provides us with initial baseline data and quarterly tracking data
collection. The agreement has a one-year term with nine successive one-year
renewals and is cancelable by us upon 90-days' written notice prior to an
anniversary date. The annual renewal provides for CPI increases to the
associated fees. During the third quarter, we entered into an additional
agreement with Gallup to provide us with initial baseline data and quarterly
tracking data collection for our market research systems for specific client
groups. This agreement extends through August 2009 and is cancelable by us upon
90-days' written notice prior to each anniversary date. Consistent with our
growth strategy, we anticipate incurring increased data collection and software
costs during the remainder of 1999 and in future periods as we continue to
develop additional products.
YEAR 2000 COMPLIANCE
Overview. Many currently installed computer systems and software
products are coded to accept or recognize only two digit entries in the date
code field. These systems and software products will need to accept four digit
entries to distinguish 21st century dates from 20th century dates. As a result,
computer systems and software may need to be upgraded to comply with Year 2000
requirements or risk system failure or miscalculations causing disruptions of
normal business activities.
State of Readiness. We have made a preliminary assessment of the Year
2000 readiness of all of our information technology systems, including the
computer hardware and software that support our systems and our financial and
administrative
13
<PAGE> 15
systems as well as our non-information technology systems such as our office
facilities. Our plan for addressing Year 2000 has three phases:
- identification and evaluation of Year 2000 issues;
- development of plans for addressing the issues and
prioritization of those issues; and
- implementation of plans and verification of the effectiveness
of those plans.
We do not have any contracts with external contractors to complete our
Year 2000 compliance projects. In relation to our information technology
systems, we have reviewed the software obtained from third parties that is
incorporated into our products, and are seeking assurances from our vendors that
licensed software is Year 2000 compliant. In particular, we have received
assurances from our relational database provider, our operating system vendor
and accounting systems vendor that the programs are Year 2000 compliant.
Further, we are in the process of reviewing our internally developed software
and are working with our third party software developer to seek their assurance
that their development and backup systems are compliant. Additionally, we are in
the process of reviewing our Internet connectivity with UUNet as it relates to
the delivery of our products to our clients. We plan to have completed a full
review of our information technology systems and plan to complete all testing by
the end of November 1999. We have not reassigned or hired any employees to
exclusively work on our Year 2000 review.
Our non-information technology systems are currently being evaluated.
Preliminary responses from our lessor have indicated that our Stamford,
Connecticut facilities are compliant with respect to electrical and climate
control systems. In the third quarter of 1999, we upgraded our
telecommunications equipment and voicemail systems. We have identified other
vendors whose Year 2000 compliance may have an impact on our business, such as
our payroll processing company. We are sending letters to our other vendors
requesting Year 2000 certification to ensure their Year 2000 compliance. We had
planned to conduct a Year 2000 simulation test by the end of the third quarter
of 1999 which is scheduled for the end of November in order to complete our
verification and testing of all non-information technology systems and to assure
the reliability of our risk and cost estimates for our Year 2000 compliance. If
any of these vendors cannot become Year 2000 compliant, we could have systems
failures, telecommunications problems or electrical failures.
We rely on Gallup for our data collection efforts. Gallup has advised
us that they have completed their Year 2000 compliance review and their systems
are compliant.
Costs. To date, we have not incurred any incremental costs in
connection with identifying, evaluating or addressing Year 2000 compliance
issues. Most of our expenses have related to, and are expected to continue to
relate to, the operating costs associated with time spent by employees in the
evaluation process and Year 2000 compliance matters generally. At this time, we
do not possess the information necessary to estimate the potential costs of
either revisions to our systems, should revisions be required, or replacement of
third-party software, hardware or services that are determined not to be Year
2000 compliant. Although we do not anticipate that such expenses will be
material, these expenses, if higher than anticipated, could harm our financial
performance.
Worst-Case Scenario. We believe that our most reasonably possible worst
case scenario would exist if Gallup's systems were subject to unexpected Year
2000 complications. This could potentially affect our ability to release timely
data in the first quarter or second quarter of 2000 depending on the nature of
the affected systems. If we determine that Gallup is unable to meet data
delivery requirements on a timely basis, we would ask Gallup to accelerate data
collection and data processing which may cause us to incur additional costs.
However, there can be no assurance that Gallup could collect and process data
under an accelerated schedule. We will continue to monitor this and any other
potential areas of exposure and develop contingency plans accordingly.
14
<PAGE> 16
Risks. We are not currently aware of any Year 2000 compliance problems
relating to our systems that would harm our business, results of operations and
financial condition, other than those previously discussed. We cannot assure you
that we will not discover Year 2000 compliance issues in our systems that will
require substantial revision. In addition, we can not assure you that
third-party software, hardware or services incorporated into our systems will
not need to be revised or replaced, all of which could be time consuming and
expensive.
Our failure to fix or replace our internally developed systems or
third-party software, hardware or services on a timely basis could result in
lost revenues, increased operating costs, the loss of clients, or other business
interruptions, any of which could harm our business, results of operations and
financial condition. Moreover, the failure to adequately address Year 2000
compliance issues in our internally developed systems could result in claims of
mismanagement, misrepresentation or breach of contract and related litigation,
which could be costly and time-consuming to defend.
In addition, there can be no assurance that governmental agencies,
utility companies, Internet access companies, third-party service providers and
others outside of our control will be Year 2000 compliant. The failure by such
entities to be Year 2000 compliant could result in a systemic failure beyond our
control, such as prolonged Internet, telecommunications or electrical failure.
This could prevent our users from accessing our system, which could harm our
business, results of operations and financial condition. Our contingency plan in
this event would be to provide data to our clients on a manual basis until our
Year 2000 issues could be corrected.
15
<PAGE> 17
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
We are not involved in any legal proceedings that are material to our
business or financial condition.
Item 2. Changes in Securities and Use of Proceeds
On May 20, 1999, our Registration Statement on Form S-1 (File
No.333-74507) was declared effective by the SEC. Pursuant to the Registration
Statement we registered and sold 2,500,000 shares of Common Stock at a price of
$14.00 per share. The managing underwriters were Hambrecht and Quist. The
aggregate price of the amount offered and sold was $35,000,000.
The following sets forth the Company's reasonable estimates of the
total expenses incurred by the Company, from the effective date of the
Registration Statement through September 30, 1999, in connection with the
issuance and distribution of the securities registered.
<TABLE>
<S> <C>
(i) underwriting discounts and commissions $2,450,000
(ii) other expenses 880,000
----------
Total $3,330,000
</TABLE>
The net offering proceeds to the Company after deducting the total
expenses set forth above were approximately $31,670,000.
From the effective date of the Registration Statement through September
30, 1999, we did not use the net offering proceeds to fund general operating
expenses.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibit is attached hereto.
27.1 Financial Data Schedule (Third Quarter 1999).
16
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
@plan.Inc.
DATE: November 11, 1999 BY: /s/ MARK K. WRIGHT
-----------------------------------
Mark K. Wright,
Chairman and Chief Executive
Officer (principal executive
officer)
DATE: November 11, 1999 BY: /s/ NANCY A. LAZAROS
-----------------------------------
Nancy A. Lazaros,
Senior Vice President and
Chief Financial Officer
(principal financial and
accounting officer)
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF @PLAN.INC FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 34,682,017
<SECURITIES> 0
<RECEIVABLES> 2,543,278
<ALLOWANCES> (200,000)
<INVENTORY> 0
<CURRENT-ASSETS> 37,649,876
<PP&E> 335,948
<DEPRECIATION> 178,542
<TOTAL-ASSETS> 38,841,460
<CURRENT-LIABILITIES> 3,553,320
<BONDS> 0
0
0
<COMMON> 41,358,562
<OTHER-SE> (6,070,422)
<TOTAL-LIABILITY-AND-EQUITY> 38,841,460
<SALES> 4,970,959
<TOTAL-REVENUES> 4,970,959
<CGS> 2,810,575
<TOTAL-COSTS> 6,832,189
<OTHER-EXPENSES> 4,021,614
<LOSS-PROVISION> 120,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,203,182)
<INCOME-TAX> 54,300
<INCOME-CONTINUING> (1,257,482)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,257,482)
<EPS-BASIC> (.44)
<EPS-DILUTED> (.44)
</TABLE>
