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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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<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 JUNE 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
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@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 [ ] NO [X]
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 JULY 31, 1999
--------------------- ----------------------------
<S> <C>
Voting common stock, no par value 10,948,600 shares
</TABLE>
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@plan.inc
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
Part I - Financial Information
Item 1. Financial Statements
Balance Sheets as of December 31, 1998 (audited) and 2
June 30, 1999 (unaudited)
Statements of Operations for the three and six months ended
June 30, 1998 and 1999 (unaudited) 3
Statements of Cash Flows for the six months ended
June 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>
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@plan.inc
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1998 1999
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 3,682,576 $ 35,093,379
Accounts receivable, net of allowance
of $80,000, and $175,000, respectively:
Billed 1,440,693 1,771,740
Unbilled 245,310 212,529
Prepaid expenses and other 101,208 851,251
----------- ------------
Total current assets 5,469,787 37,928,899
Property and equipment, net 117,641 140,061
Software development costs, net 375,278 410,855
Other assets 63,775 70,435
----------- ------------
Total assets $ 6,026,481 $ 38,550,250
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable $ 254,223 $ 1,017,066
Accrued liabilities 375,411 274,220
Deferred revenue 1,124,082 1,782,071
----------- ------------
Total current liabilities 1,753,716 3,073,357
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 10,948,600 shares
issued and outstanding, respectively 8,001 41,260,526
Additional paid-in capital 27,418 1,855,511
Accumulated deficit (5,345,456) (7,639,144)
----------- ------------
Total shareholders' equity (deficit) (5,310,037) 35,476,893
----------- ------------
Total liabilities and
shareholders' equity (deficit) $ 6,026,481 $ 38,550,250
=========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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@plan.inc
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------- --------
1998 1999 1998 1999
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Revenues $ 633,281 $ 1,623,996 $ 1,102,449 $ 2,961,118
Costs and expenses:
Product costs 671,153 805,286 1,078,802 1,545,766
Selling and marketing 420,265 699,416 715,076 1,238,576
General and administrative 189,675 418,029 371,590 820,779
Non-cash compensation expense -- 475,038 -- 505,098
----------- ----------- ----------- -----------
Total costs and expenses 1,281,093 2,397,769 2,165,468 4,110,219
----------- ----------- ----------- -----------
Loss from operations (647,812) (773,773) (1,063,019) (1,149,101)
Interest income 45,709 185,978 98,419 222,708
----------- ----------- ----------- -----------
Net loss before income taxes (602,103) (587,795) (964,600) (926,393)
Income tax provision -- 41,000 4,921 44,300
----------- ----------- ----------- -----------
Net loss $ (602,103) $ (628,795) $ (969,521) $ (970,693)
=========== =========== =========== ===========
Basic and diluted
loss per share $ (0.67) $ (0.36) $ (1.08) $ (0.77)
=========== =========== =========== ===========
Weighted average shares
outstanding 900,000 5,431,350 900,000 2,978,530
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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@plan.inc
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------
1998 1999
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(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (969,521) $ (970,693)
Adjustments to reconcile
net loss to net cash (used in)
provided by operating activities:
Depreciation and amortization 55,381 281,434
Provision for doubtful accounts -- 95,000
Non cash charges -- 505,098
Changes in operating assets
and liabilities:
Increase in accounts receivable (350,363) (393,266)
Increase in prepaid expenses
and other (18,754) (750,043)
Increase in other assets (4,020) (6,660)
Increase in accounts payable 92,946 762,843
Increase (decrease) in
accrued liabilities 79,019 (101,191)
Increase in deferred revenue 20,548 657,989
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Net cash (used in) provided by
operating activities (1,094,764) 80,511
Cash flows from investing activities:
Purchases of equipment (52,005) (64,146)
Software development costs (159,540) (275,285)
----------- ------------
Net cash used in
investing activities (211,545) (339,431)
Cash flows from financing activities:
Proceeds from issuance
of common stock, net -- 31,669,723
Proceeds from issuance of
preferred stock, net 3,668,189 --
----------- ------------
Net cash provided by
financing activities 3,668,189 31,669,723
----------- ------------
Net change in cash and cash equivalents 2,361,880 31,410,803
Cash and cash equivalents
at beginning of period 832,338 3,682,576
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Cash and cash equivalents
at end of period $ 3,194,218 $ 35,093,379
=========== ============
Supplemental information:
Cash paid for income taxes $ 4,921 $ 44,300
Warrants issued to preferred
shareholders -- $ 1,322,995
</TABLE>
The accompanying notes are an integral part of these financial statements.
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@plan.inc
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
The financial information as of June 30, 1999 and for the three and six
months ended June 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 June 30, 1999, and our
operations and cash flows for the three and six months ended June 30, 1998 and
1999. Operating results for the three and six months ended June 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 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. Our syndicated Internet consumer research data is
collected, on an exclusive basis, by The Gallup Organization, Inc. from a
statistically representative group of approximately 40,000 active adult Web
users.
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.
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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 June 30, 1999, software development costs are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1998 1999
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(UNAUDITED)
<S> <C> <C>
Software development costs $ 529,081 $ 804,366
Less: Accumulated depreciation (153,803) (393,511)
--------- ---------
$ 375,278 $ 410,855
========= =========
</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 June 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.
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.
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<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 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 2,223,720 -- 2,223,720 --
Stock options 1,596,600 1,932,140 1,596,600 1,932,140
--------- --------- --------- ---------
Total 8,255,520 1,932,140 8,255,520 1,932,140
========= ========= ========= =========
</TABLE>
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.
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. 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, warrants to
purchase 25,000 shares of common stock were granted to each the director and
officer.
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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%.
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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 filing 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 Gallup 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 or 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, advertising agencies and Web publishers and, to a
lesser extent, online retailers and
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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
June 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 $2.9 million at June 30, 1998 and $7.3 million at June 30, 1999. As of June
30, 1999, we have recognized $3.3 million of revenues of the $7.3 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 June 30, 1999, we
had approximately $411,000 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 June 30,
1999, we had an accumulated deficit of $7.6 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 preferred stock upon the consummation of our
initial public offering. We believe that our success
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will depend largely on our ability to extend our leadership position as a source
for market research systems for the Internet. Accordingly, we intend to invest
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 JUNE 30, 1998 AND JUNE 30, 1999
Revenues. Total revenues increased from approximately $633,000 for the
three months ended June 30, 1998 to $1.6 million for the three months ended June
30, 1999. The increase in revenues resulted principally from an increase of
approximately $773,000 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 growth of approximately
$218,000 in our 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 $671,000
for the three months ended June 30, 1998 to approximately $805,000 for the three
months ended June 30, 1999. This increase was due primarily to an increase of
approximately $30,000 in additional data collection costs and an increase of
approximately $104,000 in software development costs associated with the
introduction of the @plan Kepler E-Business System. Our strategy includes the
development and introduction of new products. We are currently developing more
detailed market research systems for specific client groups. As a result, we
anticipate incurring 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 $420,000 for the three months
ended June 30, 1998 to approximately $699,000 for the three months ended June
30, 1999. This increase was due largely to the expansion of our sales force and
client service team and commissions associated with increased sales. 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 $189,000
for the three months ended June 30, 1998 as compared to approximately $418,000
for the three months ended June 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.
Non-cash compensation expense. 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 in the three months ended June 30, 1999,
approximately $475,000 of the remaining total expense of $505,000. See Note 3 of
Notes to Financial Statements.
Interest income. Interest income consists of interest on our cash and
cash equivalents. Interest income was approximately $46,000 for the three months
ended June 30, 1998 as compared to $186,000 for the three months ended June 30,
1999. The increase in interest income was primarily attributable to the higher
cash balances
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during the three months ended June 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 three
months ended June 30, 1999, is a $1.3 million dividend associated with initial
public offering warrants issued to preferred shareholders. See Note 4 of Notes
to Financial Statements. Excluding the effect of this charge, the loss per share
for the three months ended June 30, 1999 was $.12.
SIX MONTHS ENDED JUNE 30, 1998 AND JUNE 30, 1999
Revenues. Total revenues increased from $1.1 million for the six months
ended June 30, 1998 to $3.0 million for the six months ended June 30, 1999. The
increase in revenues resulted principally from an increase of approximately $1.3
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 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 $1.1 million for the six
months ended June 30, 1998 to $1.5 million for the six months ended June 30,
1999. This increase was due primarily to an increase of approximately $246,000
in additional data collection costs and an increase of approximately $221,000 in
software development costs associated with the introduction of the @plan Kepler
E-Business system.
Selling and Marketing. Selling and marketing costs increased from
approximately $715,000 for the six months ended June 30, 1998 to $1.2 million
for the six months ended June 30, 1999. This increase was due largely to the
expansion of our sales force and client service team and commissions associated
with increased sales.
General and Administrative. General and administrative expenses were
approximately $372,000 for the six months ended June 30, 1998 as compared to
approximately $821,000 for the six months ended June 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 of 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 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 $98,000 for the six
months ended June 30, 1998 as compared to $223,000 for the six months ended June
30, 1999. The increase in interest income was primarily attributable to the
higher cash balances during the six months ended June 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 six
months ended June 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 six months ended June 30, 1999 was
$.33.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1999, we had $35.1 million in cash and cash equivalents
as compared to $3.7 million as of June 30, 1998. In May 1999, we consummated our
initial public offering by selling 2,500,000 shares of Common Stock at a price
of
12
<PAGE> 14
$14.00 per share. Net proceeds from the IPO, net of underwriting discounts and
offering costs, were approximately $31.7 million. Prior to May, we have financed
our operations primarily through the private placement of preferred stock. Net
proceeds from the sale of convertible preferred stock from inception to June 30,
1999 have totaled $9.6 million.
Net cash provided by operating activities was approximately $81,000 for
the six months ended June 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 six months ended
June 30, 1998, net cash used in operating activities was $1.1 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 $1.8 million at June 30, 1999 as compared to $1.1
million at June 30, 1998. Deferred revenue represents amounts invoiced under
contract prior to our rendering of services to the client. Unbilled accounts
receivable was approximately $213,000 at June 30, 1999 and approximately
$245,000 at June 30, 1998. Unbilled accounts receivable represents the value of
services provided prior to invoicing.
Net cash used in investing activities was approximately $339,000 for
the six months ended June 30, 1999 and approximately $212,000 for the six months
ended June 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 $31.7 million for the six
months ended June 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 six months ended June 30, 1998, net cash provided by financing
activities was $3.7 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. Our strategy includes the development and introduction of new
products. We are currently developing more detailed market research systems for
specific client groups. As a result, 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.
13
<PAGE> 15
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 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 the third quarter of 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 plan to further focus on 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 plan
to conduct a Year 2000 simulation test by the end of the third quarter of 1999
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 are finalizing their Year 2000 compliance review of their systems
and are implementing any necessary hardware and software upgrades. In August of
1999, we plan to request another letter from Gallup regarding its Year 2000
efforts to enable us to reassess Gallup's compliance progress and develop any
necessary testing plans. We plan to establish a contingency plan in the fourth
quarter of 1999 after our simulation tests are complete.
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.
14
<PAGE> 16
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.
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 June 30, 1999, in connection with the issurance
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 June 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 (Second 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: August 16, 1999 BY: /s/ Mark K. Wright
------------------------------
Mark K. Wright,
Chairman and Chief Executive
Officer (principal executive
officer)
DATE: August 16, 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
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 35,093,379
<SECURITIES> 0
<RECEIVABLES> 2,159,269
<ALLOWANCES> (175,000)
<INVENTORY> 0
<CURRENT-ASSETS> 37,928,899
<PP&E> 292,831
<DEPRECIATION> 152,770
<TOTAL-ASSETS> 38,550,250
<CURRENT-LIABILITIES> 3,073,357
<BONDS> 0
0
0
<COMMON> 41,260,526
<OTHER-SE> (5,783,633)
<TOTAL-LIABILITY-AND-EQUITY> 38,550,250
<SALES> 2,961,118
<TOTAL-REVENUES> 2,961,118
<CGS> 1,545,766
<TOTAL-COSTS> 4,110,219
<OTHER-EXPENSES> 2,564,453
<LOSS-PROVISION> 95,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (926,393)
<INCOME-TAX> 44,300
<INCOME-CONTINUING> (970,693)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (970,693)
<EPS-BASIC> (.77)
<EPS-DILUTED> (.77)
</TABLE>
