<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY
PERIOD ENDED SEPTEMBER 30,
1999
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
COMMISSION FILE NUMBER 001-15169
PERFICIENT, INC.
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
DELAWARE 74-2853258
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
7600B NORTH CAPITAL OF TEXAS HIGHWAY, SUITE 220
AUSTIN, TX 78731
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(512) 306-7337
(ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NONE
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED
SINCE LAST REPORT)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports)
Yes X No ___, and (2) has been subject to such filing requirements for the
past 90 days. Yes ___ No X.
The number of shares of the Registrant's Common Stock outstanding as of
September 30, 1999 was 3,500,000.
<PAGE>
PERFICIENT, INC.
INDEX
FOR QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Page No.
-------
<S> <C>
Part I. Financial Information
Item 1. Balance Sheets as of September 30, 1999 (unaudited)
and December 31, 1998 3
Statements of Operations for the three and nine
months ended September 30, 1999 and 1998 (unaudited) 4
Statements of Cash Flows for the three and nine
months ended September 30, 1999 and 1998 (unaudited) 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3. Qualitative and Quantitative Disclosure About Market Risk 19
Part II. Other Information
Item 1. Legal Proceedings 20
Item 2. Changes in Securities and Use of Proceeds 20
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 6. Exhibits and Reports on Form 8-K 22
Signature 23
Exhibit Index 24
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PERFICIENT, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
--------------------------------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 5,800,101 $ 22,996
Accounts receivable, net of allowance for doubtful accounts of
$46,974 as of September 30, 1999 and $0 as of December 31, 1998 1,005,756 164,961
Other current assets 43,846 0
--------------------------------------
Total current assets 6,849,703 187,957
Property and equipment, net 49,024 42,050
Other noncurrent assets 80,615 0
--------------------------------------
Total assets $ 6,979,342 $ 230,007
--------------------------------------
--------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Current liabilities:
Accounts payable $ 236,042 $ 18,640
Other current liabilities 183,757 31,858
--------------------------------------
Total current liabilities 419,799 50,498
Deferred income tax 1,350 1,350
--------------------------------------
Total liabilities 421,149 51,848
Stockholders' equity:
Common Stock, $.001 par value; 20,000,000 shares authorized;
3,500,000 and 2,000,000 issued and outstanding at September 30,
1999 and December 31, 1998, respectively 3,500 2,000
Additional paid-In capital 7,779,071 148,000
Unearned stock compensation (171,000) 0
Retained earnings (deficit) (1,053,378) 28,159
--------------------------------------
Total stockholders' equity 6,558,193 178,159
--------------------------------------
Total liabilities and stockholders' equity $ 6,979,342 $ 230,007
--------------------------------------
--------------------------------------
</TABLE>
See accompanying notes to interim financial statements.
3
<PAGE>
PERFICIENT, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-----------------------------------------------------------------------------
SEP 30, 1999 SEP 30, 1998 SEP 30, 1999 SEP 30, 1998
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Consulting revenues
Consulting fees $ 825,216 $ 312,500 $ 1,596,573 $ 448,200
Reimbursable expenses 167,356 56,092 319,556 92,734
----------------- ------------------- ------------------- ----------------
Consulting revenues 992,572 368,592 1,916,129 540,934
Cost of consulting revenues
Direct costs 264,217 84,114 617,168 150,932
Reimbursable expenses 171,377 57,074 324,838 93,716
----------------- ------------------- ------------------- ----------------
Cost of consulting revenues 435,594 141,188 942,006 244,648
----------------- ------------------- ------------------- ----------------
Gross margin 556,978 227,404 974,123 296,286
Selling, general and administrative 689,306 84,372 1,122,994 177,687
Stock compensation 19,000 0 937,000 0
----------------- ------------------- ------------------- ----------------
Income (loss) before income taxes $ (151,328) $ 143,032 $(1,085,871) $ 118,599
Provision (benefit) for income taxes 0 59,884 (4,335) 50,844
----------------- ------------------- ------------------- ----------------
Net Income (loss) $ (151,328) $ 83,148 $(1,081,536) $ 67,755
----------------- ------------------- ------------------- ----------------
----------------- ------------------- ------------------- ----------------
Net income (loss) per share $ (0.04) $ 0.04 $ (0.38) $ 0.04
----------------- ------------------- ------------------- ----------------
----------------- ------------------- ------------------- ----------------
</TABLE>
See accompanying notes to interim financial statements.
4
<PAGE>
PERFICIENT, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Nine Months Ended
---------------------------------------------------------------------
Sep 30, 1999 Sep 30, 1998 Sep 30, 1999 Sep 30, 1998
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (151,328) $ 83,148 $(1,081,536) $ 67,755
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operations:
Depreciation 5,955 3,806 15,693 7,477
Non-cash compensation 19,000 0 937,000 0
Changes in operating assets and liabilities
Accounts receivable (515,869) (116,750) (840,795) (194,292)
Other current assets (43,546) 0 (43,846) 911
Other noncurrent assets (75,615) 16,052 (80,615) 7,012
Offering Expenditures 182,876 0 0 0
Accounts payable 74,434 0 217,402 0
Other liabilities 104,329 48,415 151,898 65,923
----------------------------------- --------------------------------
Net cash provided by (used in) by operating (399,764) 34,671 (724,799) (45,214)
activities
INVESTING ACTIVITIES
Purchase of property and equipment (7,400) (16,124) (22,667) (34,979)
----------------------------------- --------------------------------
Net cash used in investing activities (7,400) (16,124) (22,667) (34,979)
FINANCING ACTIVITIES
Proceeds from shareholder loan 0 0 100,400 44,297
Payments on shareholder loan (100,000) (350) (100,400) (350)
Proceeds from short-term borrowings 249,855 0 702,273 0
Payments on short-term borrowings (249,855) 0 (702,273) 0
Proceeds from stock issuances, net 6,274,571 33,000 6,524,571 100,000
---------------------------------------------------------------------
Net cash provided by financing activities 6,174,571 32,650 6,524,571 143,947
---------------------------------------------------------------------
Increase in Cash 5,767,407 51,197 5,777,105 63,754
Cash at beginning of period 32,694 33,081 22,996 20,524
---------------------------------------------------------------------
Cash at end of period $ 5,800,101 $ 84,278 $ 5,800,101 $ 84,278
---------------------------------------------------------------------
---------------------------------------------------------------------
</TABLE>
See accompanying notes to interim financial statements.
5
<PAGE>
PERFICIENT, INC.
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying financial statements for the three and nine months
ended September 30, 1999 and 1998 are unaudited and reflect all normal
recurring adjustments which are, in the opinion of management, necessary for
their fair presentation. These financial statements should be read in
conjunction with the Company's financial statements and notes thereto
included in the Company's Registration Statement on Form SB-2 (File No.
333-78337) for the fiscal year ended December 31, 1998. The results of
operations for the interim period ended September 30, 1999 are not
necessarily indicative of results to be expected for the full year or any
other period.
2. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
3. Net Earnings (Loss) Per Share
The Company computes net earnings (loss) per share in accordance with
SFAS No. 128, "Earnings per Share," and SEC Staff Accounting Bulletin No. 98
("SAB 98"). Under the provisions of SFAS No. 128 and SAB 98, basic and
diluted net earnings (loss) per share is computed by dividing the earnings
(loss) available to common stockholders for the period by the weighted
average number of shares of Common Stock outstanding during the period. The
calculation of diluted earnings (loss) per share excludes shares that are
subject to issuance if the effect is antidilutive. Shares subject to issuance
include Common Stock subject to repurchase rights and shares of Common Stock
issuable upon the exercise of stock options and warrants.
The following table sets forth the computation of basic and diluted earnings
(loss) per share for the periods:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------------------------------------------------
Sep 30, 1999 Sep 30, 1998 Sep 30, 1999 Sep 30, 1998
---------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Numerator:
Income (loss) from continuing
operations-numerator for basic
earnings per share ($ 151,328) $ 83,148 ($1,081,536) $ 67,755
Denominator:
Denominator for basic earnings per
share-weighted average shares 3,500,000 2,000,000 2,833,333 1,666,667
Effect of dilutive securities: stock
options -- 130,000 -- 77,777
--------------- ----------------- ---------------- ---------------
Denominator for diluted earnings per
share-weighted average shares 3,500,000 2,130,000 2,833,333 1,744,444
--------------- ----------------- ---------------- ---------------
--------------- ----------------- ---------------- ---------------
Basic earnings (loss) per share: ($ 0.04) $ 0.04 ($ 0.38) $ 0.04
--------------- ----------------- ---------------- ---------------
--------------- ----------------- ---------------- ---------------
Diluted earnings per share: -- $ 0.04 -- $ 0.04
--------------- ----------------- ---------------- ---------------
--------------- ----------------- ---------------- ---------------
</TABLE>
6
<PAGE>
4. Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") 130, Reporting
Comprehensive Income. The Company adopted SFAS 130 during the year ended
December 31, 1998. There was no impact to the reported results of operations
of the Company as a result of the adoption of SFAS 130, as there was no
difference between net income (loss) and comprehensive income (loss).
Effective January 1, 1998, the Company adopted the FASB's SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information. The
adoption of SFAS 131 did not have a significant effect on the disclosure of
segment information as the Company continues to consider its business
activities as a single segment.
In June 1998 and 1999, the FASB issued SFAS No. 133, "Accounting for
Derivatives and Hedging Activities" and SFAS No. 137, "Accounting for
Derivatives and Hedging Activities - Deferral of the Effective Date of SFAS
No. 133" ("SFAS 133"), respectively. SFAS 133 is effective for all fiscal
quarters beginning with the quarter ending June 30, 2000. SFAS 133
establishes accounting and reporting standards of derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. The Company will adopt SFAS 133 in its quarter ending
June 30, 2000 and does not expect such adoption to have an impact on the
Company's reported results of operations, financial position or cash flows.
5. Balance Sheet Components
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
----------------------------
(unaudited)
<S> <C> <C>
Other current assets:
Other receivables $ 41,011 $ 0
Employee advances 2,835 0
------------- -------------
$ 43,846 $ 0
------------- -------------
------------- -------------
Other noncurrent assets:
Notes receivable $ 5,000 $ 0
Prepaid expenses 75,615 0
------------- -------------
$ 80,615 $ 0
------------- -------------
------------- -------------
Other current liabilities:
Accrued expenses $117,872 $ 12,639
Income tax payable 3,081 19,219
Payroll liability 62,804 0
------------- -------------
$183,757 $ 31,858
------------- -------------
------------- -------------
</TABLE>
6. Related Party Transaction
In June 1999, the Company borrowed $100,000 from a shareholder. This
loan was repaid in July 1999 including accrued interest at 8%.
7. Initial Public Offering
In July 1999, the Company completed its initial public offering of
1,000,000 shares of Common Stock and realized proceeds, net of underwriting
discounts, commissions and other costs of the offering, of approximately $6.3
million.
7
<PAGE>
Item 2.
SPECIAL CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This filing contains many forward-looking statements that involve
substantial risks and uncertainties. You can identify these statements by
forward-looking words such as "may," "will," "expect," "anticipate,"
"believe," "estimate" and "continue" or similar words. You should read
statements that contain these words carefully because they discuss our future
expectations, contain projections of our future operating results or of our
financial condition or state other "forward-looking" information.
We believe that it is important to communicate our future expectations to
our investors. However, we may be unable to accurately predict or control
events in the future. The factors listed in the sections captioned "Risk
Factors" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations," as well as any other cautionary language, provide
examples of risks, uncertainties and events that may cause our actual results
to differ materially from the expectations we describe in our forward-looking
statements. Before you invest in our common stock, you should be aware that
the occurrence of certain of the events described in the "Risk Factors"
section and the "Management's Discussion and Analysis of Financial Condition
and Results of Operations" section could seriously harm our business.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with our financial
statements and notes thereto and the other financial information included
elsewhere in this filing. In addition to historical information, this
management's discussion and analysis of financial condition and results of
operations and other parts of this filing contain forward-looking information
that involve risks and uncertainties. Our actual results could differ
materially from those anticipated by such forward-looking information as a
result of certain factors, including but not limited to, those set forth
under "risk factors" and elsewhere in this filing.
We were incorporated in September 1997 and began generating revenue in
February 1998. We generate revenues from professional services performed for
end-user customers of our partners and associated reimbursable out-of-pocket
expenses. We refer to the Internet companies with which we work as our
"partners." To date, our limited number of partners have consisted of
Internet software companies and we expect that Internet software companies
will comprise our partners for the foreseeable future. Our contractual
relationships are with our partners rather than their end-user customers. We
perform services on a time-and-materials basis and are reimbursed for
expenses. We recognize revenue for fees as services are performed and
reimbursable expenses as incurred.
We established our first partner relationship with Vignette Corporation,
an Internet relationship management software company, in February 1998.
During the first four months of 1999, we established partner relationships
with three additional Internet software companies. Most of our revenues for
the near future are expected to be derived from Vignette with much smaller
portions derived from these newer partner relationships. In May 1999 we began
generating revenue from our partnership with Interwoven, Inc., with total
approximate revenues in the quarter ending September 30 of approximately
$74,000. We have had no revenues from our other partners. As a result, our
revenues and operating results are subject to substantial variations based on
Vignette's sales and the frequency with which we are chosen to perform
services for Vignette's end-user customers. Our agreement with Vignette may
be terminated at any time by Vignette or by us. The agreement does not
obligate Vignette to use our services for any minimum amount or at all,
8
<PAGE>
and Vignette may use the services of our competitors. Nevertheless, we are
restricted, for as long as the agreement is in place, from performing
services for Vignette's competitors.
Our plan is to establish additional partner relationships with Internet
software companies and increase our number of information technology
professionals. In connection with our planned expansion, we expect to incur
substantial expenses in anticipation of identifying and being retained by new
partners. Therefore, we expect that we will continue to incur losses through
at least the remainder of 1999. We plan to spend significant amounts on:
- Recruiting, training and equipping information technology
professionals;
- Expanding our management and technology infrastructure;
- Expanding our physical facilities;
- Sales and marketing expenses; and
- Working capital and general corporate purposes, including potential
acquisitions.
The number of information technology professionals who have agreed to
perform services for the Company has increased from zero at December 31, 1997
to eight at December 31, 1998 and to 25 at September 30, 1999. We expect our
number of information technology professionals to grow significantly during
the next 12 months. Mr. John T. McDonald, our Chief Executive Officer, began
receiving a salary on August 1, 1999. Our personnel costs represent a high
percentage of our operating expenses and are relatively fixed in advance of
each quarter. Accordingly, if revenues do not increase at a rate equal to
expenses, we will incur continuing losses and our business, financial
condition, operating results and liquidity will be materially and adversely
affected.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1999
Consulting Revenues. Revenues increased from $541,000 for the nine months
ended September 30, 1998 to $1,916,000 for the nine months ended September
30, 1999. The increase in revenues reflected the increase in the number of
projects performed and in the number of information technology professionals
employed. We commenced revenue generating activities during the first nine
months of 1998, and therefore, revenues were limited during such period. Our
revenues for the nine months ended September 30, 1999 consisted of $1,597,000
in fees generated by our information technology professionals and $320,000 of
reimbursable expenses. During the nine month period ended September 30, 1999,
94% of our revenues came from Vignette.
Cost of Consulting Revenues. Cost of revenues, consisting of direct
costs, primarily salaries and benefits for information technology
professionals assigned to projects and of reimbursable expenses, increased
from $245,000 for the nine months ended September 30, 1998 to $942,000 for
the nine months ended September 30, 1999. The number of information
technology professionals who have agreed to perform services for the Company
increased from six for the nine months ended September 30, 1998 to 25 for the
nine months ended September 30, 1999.
Gross Margin. Gross margin increased from $296,000 for the nine months
ended September 30, 1998 to $974,000 for the nine months ended September 30,
1999. Gross margin as a percentage of consulting revenues was 51% for the
nine months ended September 30, 1999 and the margin of consulting fees over
direct costs of consulting fees, without respect to reimbursable expenses,
was 61%.
Selling, general and administrative. Selling, general and administrative
expenses consist primarily of marketing activities to solicit partners,
salaries and benefits, travel costs and non-reimbursable expenses. Selling,
general and administrative expenses increased from $178,000 for the nine
months ended September 30, 1998 to $1,123,000 for the nine months ended
September 30, 1999. The increase in selling, general and administrative
expenses was related to our increased marketing activities to solicit
additional partners and to increases in overhead costs necessary to support
the growth in our workforce. We expect these expenses to increase in absolute
dollar amounts in connection with our planned expansion.
9
<PAGE>
Stock Compensation. Stock compensation expense consists of non-cash
compensation arising from certain sales of stock and option grants to
officers, directors or other affiliated persons. We have recognized $880,000
in non-cash compensation in connection with the sale of stock that occurred
in January 1999. In addition, we have recorded in stockholders' equity on our
balance sheet aggregate deferred stock compensation totaling $228,000 in
connection with stock options that were granted in January 1999. Stock option
expense will be recognized to the extent of approximately $19,000 per quarter
over a three year period ending January 2002, which is the end of the vesting
period for the related options. We have recognized approximately $57,000 in
non-cash compensation expense during the nine month period ended September
30, 1999 relating to the vesting of these options. Total non-cash
compensation expense for the nine month period ended September 30, 1999 was
$937,000.
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1999
Consulting Revenues. Consulting revenues increased from $369,000 for the
three months ended September 30, 1998 to $993,000 for the three months ended
September 30, 1999. The increase in revenues reflected the increase in the
number of projects performed and in the number of information technology
professionals employed. Our revenues for the three months ended September 30,
1999 consisted of $825,000 in fees generated by our information technology
professionals and $167,000 of reimbursable expenses. During the three month
period ended September 30, 1999, 93% of our revenues came from Vignette.
Cost of Consulting Revenues. Cost of revenues, consisting of direct
costs, primarily salaries and benefits for information technology
professionals assigned to projects and of reimbursable expenses, increased
from $141,000 for the three months ended September 30, 1998 to $436,000 for
the three months ended September 30, 1999. The number of information
technology professionals who have agreed to perform services for the Company
increased from 14 for the three months ended June 30, 1999 to 25 for the
three months ended September 30, 1999.
Gross Margin. Gross margin increased from $227,000 for the nine months
ended September 30, 1998 to $557,000 for the nine months ended September 30,
1999. Gross margin as a percentage of consulting revenues was 56% for the
nine months ended September 30, 1999 and the margin of consulting fees over
direct costs of consulting fees, without respect to reimbursable expenses,
was 68%.
Selling, general and administrative. Selling, general and administrative
expenses consist primarily of marketing activities to solicit partners,
salaries and benefits, travel costs and non-reimbursable expenses. Selling,
general and administrative expenses increased from $84,000 for the three
months ended September 30, 1998 to $689,000 for the three months ended
September 30, 1999. The increase in selling, general and administrative
expenses was related to our increased marketing activities to solicit
additional partners and to increases in overhead costs necessary to support
the growth in our workforce. We expect these expenses to increase in absolute
dollar amounts in connection with our planned expansion.
Stock Compensation. Stock compensation expense consists of non-cash
compensation arising from certain sales of stock and option grants to
officers, directors or other affiliated persons. Stock option expense will be
recognized to the extent of approximately $19,000 per quarter over a three
year period ending January 2002, which is the end of the vesting period for
the related options. We have recognized approximately $19,000 in non-cash
compensation expense during the three month period ended September 30, 1999
relating to the vesting of options.
10
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
We raised approximately $6.3 million in July 1999 from an initial public
offering of 1,000,000 shares of our common stock, net of underwriting
discounts, commissions and expenses. The primary purposes of the initial
public offering were to obtain additional equity capital, create a public
market for our common stock and facilitate future access to public markets.
Pending the use of proceeds, we have invested the net proceeds of the
offering in investment grade, interest-bearing securities. Prior to the
offering, we have financed our operations primarily through equity financings
and bank borrowings. Through June 30, 1999, we raised $400,000 from private
sales of our common stock.
We have a factoring agreement with Silicon Valley Bank, which allows us
to borrow up to $1,000,000 against our qualifying accounts receivables.
Borrowings under this agreement, which expires July 1, 2000, bear interest at
the bank's prime rate. In connection with this bank agreement, we issued
warrants to acquire up to 3,750 of our common stock at $8 per share. As of
September 30, 1999, there were no borrowings under this loan agreement. As of
June 30, 1999 we were loaned $100,000 by a shareholder, which was repaid in
July 1999 including accrued interest at 8%, prior to the public offering.
Cash provided by operations for the quarter ended September 30, 1998 was
$48,000 and cash used by operations for the quarter ended September 30, 1999
was $583,000. As of September 30, 1999, we had $5,800,000 in cash and working
capital of $6,430,000. On August 3, 1999, our initial public offering was
completed and our cash increased by approximately $6.3 million. We anticipate
that the net proceeds of our initial public offering will be sufficient to
fund our operations and capital requirements for at least 12 months following
the offering. However, because of our expansion and growth plans and the
increased spending that will accompany any growth, we expect to experience
operating losses and negative cash flow from operations during 1999. The
timing and amount of our capital requirements will depend on a number of
factors, including demand for our services, the need to develop new partner
relationships, competitive pressures and the availability of complementary
businesses that we may wish to acquire.
If our capital is insufficient to fund our activities in either the
short or long term, we may need to raise additional funds. If we raise
additional funds through the issuance of equity securities, our existing
stockholders' percentage ownership will be diluted. These equity securities
may also have rights superior to our common stock. Additional debt or equity
financing may not be available when needed or on satisfactory terms. If
adequate funds are not available on acceptable terms, we may be unable to
expand our services, respond to competition, pursue acquisition opportunities
or continue our operations.
Recent Accounting Pronouncements
In June 1998 and 1999, the FASB issued SFAS No. 133, "Accounting for
Derivatives and Hedging Activities" and SFAS No. 137, "Accounting for
Derivatives and Hedging Activities - Deferral of the Effective Date of SFAS
No. 133" ("SFAS 133"), respectively. SFAS 133 is effective for all fiscal
quarters beginning with the quarter ending June 30, 2000. SFAS 133
establishes accounting and reporting standards of derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. We will adopt SFAS 133 in our quarter ending June 30,
2000 and do not expect such adoption to have an impact on our reported
results of operations, financial position or cash flows.
11
<PAGE>
YEAR 2000 READINESS
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 the year 2000 from the year 1900. As a result, computer systems
and software used by many companies and governmental agencies may need to be
upgraded to comply with such Year 2000 requirements to avoid system failures
or miscalculations causing disruptions of normal business activities.
State of Readiness
We have made a preliminary assessment of the Year 2000 readiness of our
operating, financial and administrative systems. The assessment plan consists
of:
- determining our material hardware and software;
- assessing repair or replacement requirements;
- repairing or replacing non-compliant hardware and software; and
- creating contingency plans in the event of Year 2000 failures.
Since third parties developed the operating, financial and
administrative systems that we use, steps will be taken to ensure that these
third-party systems are Year 2000 compliant. We plan to confirm this
compliance through a combination of representations by these third parties of
their products' Year 2000 compliance and specific testing of these systems.
We plan to complete this process during the 4th quarter of 1999. Until such
testing is completed, we will not be able to completely evaluate whether our
systems will need to be revised or replaced.
We have contacted our partners to determine the extent to which they are
vulnerable to Year 2000 risks. We have not made a full assessment of the
extent to which our partners might be vulnerable to Year 2000 risks.
Costs
To date, we have incurred immaterial costs on Year 2000 compliance
issues. Most of our expenses are related to, and are expected to continue to
be related to, the operating costs associated with time spent by employees in
the evaluation process and Year 2000 compliance matters generally. Such
expenses, if higher than anticipated, could have a material adverse effect on
our business, results of operations and financial condition.
Year 2000 Risks
We are not currently aware of any Year 2000 problems relating to our
operating, financial and administrative systems that would have a material
adverse effect on our business, results of operations or financial condition.
However, we may discover Year 2000 problems in the future or Year 2000
problems may go undetected. Our failure to fix or replace these services on a
timely basis could result in lost revenues, increased operating costs or the
loss of customers and other business interruptions.
12
<PAGE>
If we fail to provide Year 2000 compliant solutions to the end-user
customers of our partners, we may incur reputational harm and legal
liability. Furthermore, if our partners fail to fix or replace any Year 2000
non-compliant software products or their internal systems on a timely basis,
it could result in an indirect adverse effect on our business, financial
condition and results of operation.
In addition, there can be no assurance that governmental agencies,
utility 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 systematic failure beyond our control such
as a transportation systems, telecommunications or electrical failure, which
could also prevent us from delivering our services to our partners' end-user
customers.
OTHER FACTORS AFFECTING OPERATING RESULTS
RISK FACTORS
Risks Relating To Our Business
We have lost money during most of the quarters during which we have been in
business and expect to lose money in the future.
We have incurred operating losses in most of the quarters during which
we have been in business. In future quarters, our operating results may not
meet public market analysts' and investors' expectations. If that happens,
the price of our common stock may fall. Many factors can cause these
fluctuations, including:
- the number, size, timing and scope of our projects;
- customer concentration;
- long and unpredictable sales cycles;
- contract terms of projects;
- degrees of completion of projects;
- project delays or cancellations;
- competition for and utilization of employees;
- how well we estimate the resources we need to complete projects;
- the integration of acquired businesses;
- pricing changes in the industry; and
- economic conditions specific to the Internet and information
technology consulting.
13
<PAGE>
We began our business in September 1997. We only began providing
services on any significant basis in mid-1998 and primarily to one partner.
As a result, we have a limited operating history upon which you may evaluate
our business and prospects. Companies in an early stage of development
frequently encounter greater risks and unexpected expenses and difficulties.
As a result, we cannot assure you of any operating results and we will likely
experience large variations in quarterly operating results.
We expect to incur operating losses at least through the end of 1999 and
perhaps thereafter. We plan to increase our expenditure on sales and
marketing, infrastructure development, personnel and general and
administrative expenses in connection with our efforts to expand our
business. As a result, we will need to generate significant revenues to
achieve profitability. Even if we do achieve profitability, we may not be
able to sustain or increase profitability on a quarterly or annual basis in
the future. Although our revenues have grown in recent quarters, you should
not view our historical growth rates as indicative of our future revenues.
The loss of sales to Vignette Corporation would seriously harm our business.
Vignette Corporation accounted for 91% of our revenue during 1998 and
94% of our revenue during the nine months ended September 30, 1999. Any
termination of our relationship with Vignette would have a material adverse
effect on our operating results and financial condition. Vignette only
retains our services on a case-by-case basis and may choose at any time to
use any other firm or to provide the services that we perform for itself.
Therefore, any downturn in Vignette's business or any shift in its decisions
to continue to use our services could also result in substantially reduced
sales by us.
Our partners are not obligated to use our services.
Our contracts with our partners do not obligate them to use our
services. A partner may choose at any time to use another consulting firm or
to perform the services we provide through an internal services organization.
Any termination of a relationship with a partner, or a partner's decision to
employ other consulting firms or perform services in-house, could seriously
harm our business.
We may align ourselves with partners that fail.
In selecting our partners, we seek to identify Internet software
companies that we believe will develop into market leaders. However, our
partners compete in new and rapidly changing markets. In certain of these
markets, only a few companies will survive. If we align ourselves with
companies that fail to become market leaders, our business may suffer because
our partners will not have significant demand for our services. We invest
substantial resources to train our information technology professionals
regarding the use and features of our partners' software, and we will lose
this investment if our partners fail.
We have agreed not to perform services for competitors of our partners, which
limits our potential market.
We have agreed with each of our partners not to perform services for
their competitors. These non-compete agreements substantially reduce the
number of our prospective partners. In addition, these agreements increase
the importance of our partner selection process, because many of our partners
compete in markets where only a limited number of companies gain significant
market share. If we agree not to perform services for a particular partner's
competitors and our partner fails to gain meaningful market share, we are
unlikely to receive future material revenues in that particular market.
We may not grow, or we may be unable to manage our growth.
14
<PAGE>
Our success will depend on our ability to rapidly expand the number of
partners and teams of information technology professionals. However, we may
not grow as planned or at all. If we do grow, our growth will place
significant strains on our management personnel and other resources. For
example, it will be difficult to manage information technology professionals
who will be widely dispersed around the country. If we are unable to manage
our growth effectively, this inability will adversely affect the quality of
our services and our ability to retain key personnel, and could harm our
business.
Our management team may not be able to work together effectively to implement
our business plan.
We have recently hired many of our current executive officers to
establish a team to manage our operations. These newly hired officers include
our Chief Executive Officer, hired in April 1999, our Chief Financial
Officer, hired in April 1999, and our Chief Technology Officer, hired in May
1999. These individuals have not worked together previously and are in the
process of integrating as a management team. Their failure to work together
effectively would seriously harm our ability to carry out our business plan.
We may not be able to attract and retain information technology
professionals, which could affect our ability to compete effectively.
Our business is labor intensive. Accordingly, our success depends in
large part upon our ability to attract, train, retain, motivate and manage
highly skilled information technology professionals. Because of the recent
rapid growth of the Internet, individuals who can perform the services we
offer are scarce and are likely to remain a limited resource for the
foreseeable future. Furthermore, there is a high rate of attrition among such
personnel. Any inability to attract, train and retain highly skilled
information technology professionals would impair our ability to adequately
manage and staff our existing projects and to bid for or obtain new projects,
which in turn would adversely affect our operating results.
Our success will depend on retaining our senior management team and key
technical personnel.
We believe that our success will depend on retaining our senior
management team and key technical personnel, including our President, Bryan
Menell, and our Chief Executive Officer, John T. McDonald. This dependence is
particularly important in our business, because personal relationships are a
critical element of obtaining and maintaining our partners. If any of these
people stop working for us, our level of management, technical, marketing and
sales expertise could significantly diminish. These people would be difficult
to replace, and losing them could seriously harm our business. We do not
currently maintain key-man insurance for these people.
Our quarterly operating results will be volatile and may cause our stock
price to fluctuate.
Our quarterly revenue, expenses and operating results have varied
significantly in the past and are likely to vary significantly in the future.
These quarterly fluctuations have been and will continue to be based on a
number of factors, including:
- The number and types of projects that we undertake;
- Our ability to attract, train and retain skilled management and
information technology professionals;
- Our employee utilization rates, including our ability to transition
our information technology professionals from one project to another;
- Changes in our pricing policies;
15
<PAGE>
- Our ability to manage costs; and
- Costs related to acquisitions of other businesses.
In addition, many factors affecting our operating results are outside of
our control, such as:
- Demand for Internet software;
- End-user customer budget cycles;
- Changes in end-user customers' desire for our partners' products and
our services;
- Pricing changes in our industry;
- Government regulation and legal developments regarding the use of the
Internet; and
- General economic conditions.
Although we have limited historical financial data, we expect that we
will experience seasonal fluctuations in revenues. We expect that revenues in
the quarter ending December 31 will typically be lower than our other
quarters because there are fewer billable days in this quarter due to
vacations and holidays. This seasonal trend may materially affect our
quarter-to-quarter operating results.
We face risks associated with finding and integrating acquisitions.
Our success will depend in part on our ability to identify suitable
acquisition candidates, acquire those companies on acceptable terms and
integrate their operations successfully. Acquisitions would involve a number
of potential additional risks, including:
- Adverse effects on operating results from increased goodwill
amortization, acquired in-process research and development, stock
compensation expense and increased compensation expense attributable
to newly hired employees;
- Diversion of management attention from other aspects of our business;
- Failure to retain acquired personnel;
- Harm to our reputation if an acquired company performs poorly; and
- Assumption of liabilities of acquired companies, including potentially
hidden liabilities.
Year 2000 risks may harm our business.
In less than three months, computer systems and software used by many
companies will need upgrading to operate properly in the Year 2000 and
beyond. Our and our partners' efforts to comply with the Year 2000
requirements may be unsuccessful, and Year 2000 compliance by our partners'
end-user customers may reduce our partners' revenues and need for our
services.
16
<PAGE>
We are in the last stages of conducting a survey of our partners as to
the Year 2000 compliance of their software. If we implement our partners'
software that is not Year 2000 compliant, we may have liability to their
end-user customers. Any such litigation, regardless of merit, could result in
substantial costs and a diversion of our management's attention away from the
operation of our business.
We believe that our internal systems are currently Year 2000 compliant.
However, the failure of our internal systems to operate without Year 2000
complications could harm our business and require us to incur significant
unanticipated expenses to remedy any problems. In addition, we are subject to
external forces that might generally affect industry and commerce, such as
utility company Year 2000 compliance failures and related service
interruptions.
Many current or potential end-user customers of our partners and
potential partners are expending significant resources to make their current
systems Year 2000 compliant. Such expenditures may reduce the funds available
to purchase our partners' software and pay for our implementation services in
connection with such software.
Any of the above factors could harm our business and adversely affect
our operating results.
Risks Relating to Our Industry
We focus solely on companies in the market for Internet software.
Our business is dependent upon continued growth in the use of the
Internet to fuel the growth in the amount of Internet software sold by our
partners and prospective partners and used by their end-user customers. If
use of the Internet does not continue to grow, or grows more slowly than
expected, our growth would decline and our business would be seriously
harmed. Any downturn in the market for Internet software would harm our
business, financial condition and operating results.
Our business will suffer if we do not keep up with rapid technological
change, evolving industry standards or changing partner requirements.
Rapidly changing technology, evolving industry standards and changing
partner needs are common in the Internet professional services market.
Accordingly, our future success will depend, in part, on our ability to:
- effectively use leading technologies;
- continue to develop our strategic and technical expertise;
- enhance our current services;
- develop new services that meet changing partner and end-user customer
needs;
- advertise and market our services; and
- influence and respond to emerging industry standards and other
technological changes.
17
<PAGE>
We must accomplish all of these tasks in a timely and cost-effective
manner. We might not succeed in effectively doing any of these tasks, and our
failure to succeed could have a material and adverse effect on our business,
financial condition or results of operations.
Our market is highly competitive and has low barriers to entry.
The market for services to Internet software companies is relatively
new, intensely competitive, rapidly evolving and subject to rapid
technological change. In addition, there are relatively low barriers to entry
into this market. Many of our current and potential competitors have longer
operating histories, more established reputations and potential partner
relationships and greater financial, technical, industry and marketing
resources than we do. This may place us at a disadvantage to our competitors.
Risks Relating to Ownership of Our Stock
We are controlled by our officers and directors, which could result in our
taking actions that other stockholders do not approve.
Our executive officers, directors and 5% and greater stockholders
beneficially own or control approximately 68% of the voting power of our
company. These persons, if they were to act together, would be in a position
to elect and remove directors and control the outcome of most matters
submitted to stockholders for a vote. Additionally, these persons would be
able to significantly influence any proposed amendment to our charter, a
merger proposal, a proposed sale of assets or other major corporate
transaction or a non-negotiated takeover attempt. This concentration of
ownership may discourage a potential acquiror from making an offer to buy us,
which, in turn, could adversely affect the market price of our common stock.
It may be difficult for another company to acquire us, and this could depress
our stock price.
Provisions of our certificate of incorporation, bylaws and Delaware law
could make it difficult for a third party to acquire us, even if doing so
would be beneficial to our stockholders.
We may need to raise additional capital that may not be available on
satisfactory terms.
We anticipate that the net proceeds of our recent initial public
offering will be sufficient to fund our operations and capital requirements
for at least 12 months following the offering. After that, we may need to
raise additional funds. If we need additional capital and cannot raise it on
acceptable terms, we may not be able to:
- open new offices;
18
<PAGE>
- hire, train and retain employees;
- respond to competitive pressures or unanticipated requirements; or
- pursue acquisition opportunities.
Our common stock could be delisted from the Nasdaq SmallCap market and the
Boston Stock Exchange, which would make trading in our stock more difficult.
Our common stock is listed on the Nasdaq SmallCap Market and the Boston
Stock Exchange. However, our shares could be subsequently delisted, which
would force us to list our shares on the OTC Bulletin Board or some other
quotation medium, such as "pink sheets," depending upon our ability to meet
the specific listing requirements of those quotation systems. As a result, an
investor would find it more difficult to dispose of, or to obtain accurate
quotations for, the price of our shares. Delisting may also reduce the
visibility, liquidity and price of our common stock.
If our common stock is delisted from the Nasdaq SmallCap Market and does
not trade on another national securities exchange, we may become subject to
"penny stock" regulations that impose additional sales practice disclosure
and market making requirements on broker-dealers who sell or make a market in
our stock. In such instance, the rules of the Securities and Exchange
Commission would generally define "penny stock" to be common stock that has a
market price of less than $5.00 per share. If our stock becomes subject to
penny stock regulations, it would adversely affect the ability and
willingness of broker-dealers who sell or make a market in our common stock
and of investors to sell our stock in the secondary market.
Item 3. Qualitative and Quantitative Disclosures about Market Risk
At September 30, 1999, approximately $5.8 million of our cash, cash
equivalents and investment portfolio carried maturities of less than one
year. We have the ability to hold the portfolio to maturity, if deemed
necessary. The effect of changes in interest rates of plus or minus 10% over
a six-month horizon would not have a material effect on the fair market value
of the portfolio.
19
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
We are currently not a party to any material legal proceedings. We
received a demand letter from a company claiming that our Web Site induces
patent infringement by others and requesting that we enter into a license
agreement with the company that could require us to pay up to $150,000. We
believe the claim is without merit and intend to vigorously defend such claim.
Item 2. Changes in Securities and Use of Proceeds.
The effective date of the registration statement for our initial public
offering, filed on Form SB-2 under the Securities Act of 1933, as amended
(File No. 333-78337), was July 28, 1999. The class of securities offered and
sold pursuant to the registration statement was common stock. The offering
commenced on July 29, 1999 and the proceeds therefrom were received August 3,
1999. The managing underwriter for the offering was Gilford Securities.
In the offering, we sold 1,000,000 shares of our common stock for an
aggregate offering price of $8.0 million. We incurred expenses of
approximately $1.7 million, of which approximately $1.0 million represented
underwriting discount and a non-accountable expense allowance payable to the
underwriter and approximately $.7 million represented other expenses related
to the offering. The net offering proceeds to us after total expenses was
approximately $6.3 million.
During the quarter ended September 30, 1999, we used approximately
$500,000 of the proceeds for recruiting, training and equipping information
professionals, expanding our technology infrastructure, sales and marketing
expenses, expanding our physical facilities, repayment of accounts payable,
and general corporate purposes, including working capital. A portion of the
proceeds in the future may also be used for the acquisition of businesses
that are complimentary to ours. Pending such uses, we have invested the net
proceeds of this offering in investment grade, interest-bearing securities.
20
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders.
In the quarter ended September 30, 1999, the following matters were
submitted to our security holders:
In July 1999, prior to our initial public offering, we solicited and
obtained the approval of our stockholders, through a Written Consent of
Stockholders, to amend our 1999 Stock Option/Stock Issuance Plan to authorize
the issuance of up to 700,000 options, inclusive of all options issued prior
to the inception of the plan. The effect of the amendment was to enable us to
grant any options that had previously been granted and were subsequently
forfeited as newly issued options under the plan.
21
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit
No. Description
- ------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K.
During the quarter ended September 30, 1999, we did not file any Current
Report on Form 8-K.
22
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
as amended, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PERFICIENT, INC.
Dated: November 1, 1999 /s/ John T. McDonald
------------------------------------------
John T. McDonald, Chief Executive
Officer (Principal Executive Officer)
Dated: November 1, 1999 /s/ John A. Hinners
------------------------------------------
John A. Hinners, Chief Financial Officer
(Principal Financial and Accounting Officer)
23
<PAGE>
Exhibit Index
<TABLE>
<CAPTION>
No. Description
- --- ------------
<S> <C>
27 Financial Data Schedule
</TABLE>
24
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 5,800,101
<SECURITIES> 0
<RECEIVABLES> 1,005,756
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,849,703
<PP&E> 75,580
<DEPRECIATION> (26,556)
<TOTAL-ASSETS> 6,979,342
<CURRENT-LIABILITIES> 419,799
<BONDS> 0
0
0
<COMMON> 3,500
<OTHER-SE> 6,554,693
<TOTAL-LIABILITY-AND-EQUITY> 6,979,342
<SALES> 1,916,129
<TOTAL-REVENUES> 1,916,129
<CGS> 0
<TOTAL-COSTS> 942,006
<OTHER-EXPENSES> 2,059,994
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,085,871)
<INCOME-TAX> (4,335)
<INCOME-CONTINUING> (1,081,536)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,081,536)
<EPS-BASIC> (0.38)
<EPS-DILUTED> (0.38)
</TABLE>
