<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 JUNE 30, 2000
[_] 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 340
AUSTIN, TX 78731
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(512) 531-6000
(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 X No ___.
The number of shares of the Registrant's Common Stock outstanding as of
June 30, 2000 was 6,071,038.
<PAGE>
PERFICIENT, INC.
INDEX
FOR QUARTERLY PERIOD ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
Page No.
-------
<S> <C>
Part I. Consolidated Financial Information
Item 1. Consolidated Balance Sheets as of June 30, 2000 (unaudited)
and December 31, 1999 3
Consolidated Statements of Operations for the three and six
months ended June 30, 2000 and 1999 (unaudited) 4
Consolidated Statements of Cash Flows for the six
months ended June 30, 2000 and 1999 (unaudited) 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Risk Factors 14
Item 3. Qualitative and Quantitative Disclosure About Market Risk 20
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 22
Item 6. Exhibits and Reports on Form 8-K 22
Signature 22
Exhibit Index 23
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PERFICIENT, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, 1999 June 30, 2000
---------------------------------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 5,818,918 $ 2,907,811
Accounts receivable, net of allowance for doubtful
accounts of $68,058 as of December 31, 1999 and $286,058
as of June 30, 2000 560,149 5,841,773
Other receivable 3,185 0
Income tax receivable 10,916 10,916
Other current assets 68,479 55,856
---------------------------------------
Total current assets 6,461,647 8,816,356
Property and equipment, net 80,827 644,257
Goodwill, net 0 53,331,369
Other noncurrent assets 73,943 276,437
=======================================
Total assets $ 6,616,417 $ 63,068,419
=======================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Current liabilities:
Accounts payable $ 165,176 $ 330,863
Note payable to Compete shareholders 0 2,455,106
Line of credit 0 200,000
Current portion of capital lease obligation 0 92,699
Other current liabilities 199,150 2,238,414
---------------------------------------
Total current liabilities 364,326 5,317,082
Capital lease obligation, less current portion 0 95,677
---------------------------------------
Total liabilities 364,326 5,412,759
Stockholders' equity:
Common Stock, $.001 par value; 20,000,000 shares
authorized; 3,503,333 and 6,071,038 issued and
outstanding at December 31, 1999 and June 30, 2000,
respectively 3,503 6,071
Additional paid-In capital 7,777,392 63,471,025
Unearned stock compensation (152,000) (114,000)
Accumulated other comprehensive loss 0 (3,005)
Retained deficit (1,376,804) (5,704,431)
---------------------------------------
Total stockholders' equity 6,252,091 57,655,660
---------------------------------------
Total liabilities and stockholders' equity $ 6,616,417 $ 63,068,419
=======================================
</TABLE>
See accompanying notes to interim consolidated financial statements.
3
<PAGE>
PERFICIENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
------------ ------------ ------------ ------------
1999 2000 1999 2000
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Consulting revenues $ 505,082 $ 4,677,303 $ 771,357 $ 6,497,992
Cost of consulting revenues 201,129 2,342,094 354,211 3,279,923
------------ ------------ ------------ ------------
Gross margin 303,953 2,335,209 417,146 3,218,069
Selling, general and administrative 295,830 2,899,703 433,690 4,258,401
Stock compensation 19,000 19,000 918,000 38,000
Intangibles amortization 0 3,215,361 0 3,409,723
Loss from operations (10,877) (3,798,855) (934,544) (4,488,055)
Interest income, net 0 50,078 0 160,429
------------ ------------ ------------ ------------
Loss before income taxes (10,877) (3,748,777) (934,544) (4,327,626)
Benefit for income taxes 0 0 (4,335) 0
------------ ------------ ------------ ------------
Net loss $ (10,877) $ (3,748,777) $ (930,209) $ (4,327,626)
============ ============ ============ ============
Net loss per share:
Basic and diluted $ (0.00) $ (0.81) $ (0.38) $ (1.03)
============ ============ ============ ============
</TABLE>
See accompanying notes to interim consolidated financial statements.
4
<PAGE>
PERFICIENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six months ended June 30,
------------ ------------
1999 2000
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (930,209) $ (4,327,626)
Adjustments to reconcile net loss
to net cash used in operations:
Depreciation 9,737 69,441
Intangibles amortization 0 3,409,723
Non-cash compensation 918,000 38,000
Non-cash interest expense 0 35,416
Loss from disposal of fixed assets 0 502
Changes in operating assets and liabilities (net of
the effect of acquisitions)
Accounts receivable (324,926) (2,925,936)
Other receivable 0 3,185
Other current assets (5,300) 19,957
Other noncurrent assets 0 (180,733)
Accounts payable 142,967 136,443
Other liabilities 47,572 1,098,902
------------ ------------
Net cash used in operating activities (142,159) (2,622,726)
INVESTING ACTIVITIES
Purchase of property and equipment (15,267) (325,237)
Purchase of businesses, net of cash acquired 0 (4,772,391)
Proceeds from disposal of fixed assets 0 4,977
------------ ------------
Net cash used in investing activities (15,267) (5,092,651)
FINANCING ACTIVITIES
Proceeds from shareholder receivable 100,000 0
Proceeds from short-term borrowings 452,418 43,531
Payments on short-term borrowings (452,418) (633,385)
Proceeds from stock issuances, net 67,124 5,391,226
------------ ------------
Net cash provided by financing activities 167,124 4,801,372
------------ ------------
Effect of exchange rate on cash and cash equivalent 0 2,898
Increase (decrease) in cash and cash equivalents 9,698 (2,911,107)
Cash and cash equivalents at beginning of period 22,996 5,818,918
------------ ------------
Cash and cash equivalents at end of period $ 32,694 $ 2,907,811
============ ============
</TABLE>
See accompanying notes to interim consolidated financial statements.
5
<PAGE>
PERFICIENT, INC.
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited financial statements of Perficient, Inc. (the
"Company"), have been prepared in accordance with generally accepted
accounting principles for interim financial information. Accordingly, they do
not include all of the information and notes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three and six months ended June 30, 2000 many not be
indicative of the result for the full fiscal year ending December 31, 2000.
These unaudited financial statements should be read in conjunction with the
Company's financial statements filed with the United States Securities and
Exchange Commission in the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1999.
Certain amounts in the three and six months ended June 30, 1999 have been
reclassified to conform to the presentation for the three and six months ended
June 30, 2000.
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. Segment Information
The Company follows the provisions of the Financial Accounting Standards
Board Statement No. 131, "Disclosures about Segments of an Enterprise and
Related Information." Statement No. 131 requires a business enterprise, based
upon a management approach, to disclose financial and descriptive information
about its operating segments. Operating segments are components of an
enterprise about which separate financial information is available and
regularly evaluated by the chief operating decision maker(s) of an enterprise.
Under this definition, the Company operates as a single segment for all
periods presented.
4. Net Earnings (Loss) Per Share
The Company computes net earnings (loss) per share in accordance with the
Financial Accounting Standards Board Statement No. 128, "Earnings per Share,"
and SEC Staff Accounting Bulletin No. 98 ("SAB 98"). Under the provisions of
Statement 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, shares of Common Stock issuable upon the exercise of stock
options and warrants, and shares subject to a contingency that were issued in
connection with certain purchase business combinations.
6
<PAGE>
The following table sets forth the computation of basic net loss per share for
the periods:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
------------ ------------ ------------ ------------
1999 2000 1999 2000
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Basic:
Loss from continuing
operations-numerator for basic
earnings per share $ (10,877) $ (3,748,777) $ (930,209) $ (4,327,626)
Weighted-average shares of common
stock outstanding 2,500,000 5,401,708 2,500,000 4,665,711
Less common stock subject to
contingency -- (797,664) -- (463,687)
------------ ------------ ------------ ------------
Shares used in computing basic net
loss per share 2,500,000 4,604,043 2,500,000 4,202,024
============ ============ ============ ============
Basic and diluted net loss per share: $ (0.00) $ (0.81) $ (0.38) $ (1.03)
============ ============ ============ ============
</TABLE>
Diluted net loss per share has not been presented as the effect of
the assumed exercise of stock options, warrants and contingently issued shares
is antidilutive due to the Company's net loss. The Company had weighted
average options and warrants outstanding of approximately 1,087,661 and
1,194,104 for the six and three months ended June 30, 2000, respectively.
5. Recent Accounting Pronouncements
In December 1999, the Securities and Exchange Commission staff released
Staff Accounting Bulletin No. 101, "Revenue Recognition" (SAB 101), which
provides guidance on the recognition, presentation and disclosure of revenue
in financial statements. SAB 101 is to effective beginning in the Company's
fourth quarter of fiscal year 2000. Management has not yet completed its
determination of the impact, if any, the new standard will have on the
consolidated results of operations or financial position.
6. Balance Sheet Components
<TABLE>
<CAPTION>
December 31, 1999 June 30, 2000
------------------ ------------------
(unaudited)
<S> <C> <C>
Accounts receivable:
Accounts receivable $ 544,646 $ 4,346,235
Unbilled contract revenue 83,561 1,781,596
Allowance for doubtful accounts (68,058) (286,058)
------------------ ------------------
$ 560,149 5,841,773
================== ==================
Other current liabilities:
Accrued expenses $ 135,169 $ 891,399
Payroll liability 63,981 884,449
Accrued broker fee - Compete acquisition 0 462,566
------------------ ------------------
$ 199,150 $ 2,238,414
================== ==================
</TABLE>
7
<PAGE>
7. Comprehensive Loss
The Company's comprehensive loss is comprised of net loss and foreign
currency translation adjustments. Total comprehensive loss was $4.3 million
and $930,000 for the six month periods ended June 30, 2000 and 1999,
respectively.
8. Business Combinations
On January 3, 2000, the Company acquired LoreData, Inc., a
Connecticut corporation. The Company acquired LoreData for an aggregate
purchase price of approximately $2.4 million, subject to certain post-closing
adjustments. The purchase price of $2.4 million (i) $385,000 in cash that was
paid at closing, (ii) 30,005 shares of our common stock, par value $0.001 per
share, also paid at closing, and (iii) 131,709 shares of common stock that are
being held in escrow for disposition by the escrow agent in accordance with an
Escrow Agreement dated as of January 3, 2000. The acquisition was accounted
for as a purchase business combination. The excess of purchase price over fair
value of the net assets was recorded as goodwill ($2.3 million), and is being
amortized using the straight-line method over the estimated useful life of
three years. As of June 30, 2000, accumulated amortization of goodwill related
to the LoreData acquisition was approximately $390,000.
On May 1, 2000, the Company acquired all the outstanding shares and
assumed all outstanding options of Compete, Inc. ("Compete"). The aggregate
purchase price of Compete consisted of (i) $3,425,000 in cash, (ii) $2,527,500
in non interest bearing promissory notes to be repaid within six months
following the closing, (iii) 2,003,866 shares of common stock, of which
1,001,933 shares are subject to adjustment or forfeiture and which are being
held in escrow for disposition by the escrow agent in accordance with an
Escrow Agreement dated as of May 1, 2000, and (iv) the assumption of Compete,
Inc.'s outstanding employee options. Of the 2,200,000 shares of common stock
constituting the consideration under the merger, 196,106 of such shares are
subject to options to purchase shares of common stock. Options to purchase
46,669 of such shares are exercisable at $0.02 per share, while the remaining
options are exercisable at $3.36 per share. The total cost of the acquisition,
including the assumption of outstanding options and transaction costs, is as
follows (in thousands):
<TABLE>
<S> <C>
Cash $ 3,425
Note (less imputed interest of $107.5) 2,420
Common stock 40,077
Assumption of existing stock option plan 8,278
Transaction broker fees 694
Transaction costs 325
------------
Total purchase price $ 55,219
</TABLE>
The acquisition was accounted for as a purchase business combination.
Accordingly, the results of operations of Compete have been included with
those of the Company for periods subsequent to the date of acquisition. The
excess of purchase price over fair value of the net assets was recorded as
goodwill ($54.4 million), and is being amortized using the straight-line
method over the estimated useful life of three years. As of June 30, 2000,
accumulated amortization of goodwill related to the Compete acquisition was
approximately $3.02 million.
The unaudited pro forma combined results of operations of Perficient
and Compete for the six months ended June 30, 2000 and 1999 after giving
effect to certain pro forma adjustments as if the transaction had occurred at
the beginning of each of the six month periods are as follows:
<TABLE>
<CAPTION>
Six months ended June 30,
------------ ------------
2000 1999
------------ ------------
<S> <C> <C>
Revenues $ 9,644,811 $ 3,423,894
Operating loss $ (9,923,305) $ (9,894,928)
Net loss $(10,048,268) $ (9,890,593)
Basic net loss per share $ (1.67) $ (2.82)
</TABLE>
8
<PAGE>
Total pro forma intangibles amortization includes approximately $9.1
million during the six months ended June 30, 1999 and 2000 as a result of the
Compete acquisition. The unaudited pro forma results are not necessarily
indicative of the actual results of operations that would have occurred had
the acquisition of Compete occurred on January 1, 1999 or of future results.
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 "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. We refer to the Internet companies
with which we work as our "partners." To date, our 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
generally perform services on a time-and-materials basis and are reimbursed
for expenses. We recognize revenue for fees as services are performed.
We established our first partner relationship with Vignette
Corporation, an Internet relationship management software company, in February
1998. During 1999 and 2000, we have established partner relationships with
several additional Internet software companies. Revenues from Vignette and IBM
comprised approximately 33% and 20%, respectively, of pro forma revenues for
the quarter ended June 30, 2000 (after giving effect to the acquisition of
Compete). Vignette accounted for 51% and 97% of actual revenues for the six
months ended June 30, 2000 and 1999 respectively. Our revenues and operating
results are subject to substantial variations based on our partners' sales and
the frequency with which we are chosen to perform services for their end-user
customers. Generally, our partner agreements may be terminated at any time by
our partners or by us. These agreements do not obligate our partners to use
our services for any minimum amount or at all, and they may use the services
of our competitors. Under our agreement with Vignette, we are restricted, for
as long as the agreement is in place, from performing services for competitors
of Vignette.
9
<PAGE>
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 during
2000. 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 8 at December 31, 1998 to
43 at December 31, 1999 and to over 150 at June 30, 2000. We expect our number
of information technology professionals to continue to grow significantly. 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.
On May 1, 2000, we acquired all the outstanding shares and assumed
all outstanding options of Compete, Inc. ("Compete"). The aggregate purchase
price of Compete consisted of (i) $3,425,000 in cash, (ii) $2,527,500 in non
interest bearing promissory notes to be repaid within six months following the
closing, (iii) 2,003,866 shares of common stock, of which 1,001,933 shares are
subject to adjustment and (iv) the assumption of Compete, Inc.'s outstanding
employee options. The total cost of the acquisition, including the assumption
of outstanding options and transaction costs, was approximately $55.2 million.
The acquisition was accounted for as a purchase business combination.
Accordingly, the acquired net assets were recorded at their estimated fair
values at the effective date of the acquisition and the results of operations
of Compete will be included with those of the Company for the periods
subsequent to the acquisition date.
10
<PAGE>
The unaudited pro forma results of operations data and pro forma
supplemental data for the three months ended June 30, 2000, assuming the
acquisition of Compete occurred on April 1, 2000, is as follows:
PERFICIENT, INC.
STATEMENTS OF OPERATIONS, INCLUDING PRO FORMA EFFECT OF ACQUISITION OF
COMPETE, INC.
<TABLE>
<CAPTION>
Three Months Ended
June 30, 2000
--------------------
Pro Forma
<S> <C>
Consulting revenues $ 5,601,059
Cost of consulting revenues 2,756,556
--------------------
Gross margin 2,844,503
Selling, general and administrative 3,201,618
Stock compensation 19,000
Intangibles amortization 4,724,661
Loss from operations (5,100,776)
Acquisition related expenses (19,364)
Interest income, net 26,620
--------------------
Net loss $ (5,093,520)
====================
Supplemental Data:
Pro forma net loss per share:
Basic and diluted $ (1.03)
====================
Shares used in computing pro forma net
loss per share 4,956,055
====================
Supplemental Data:
Net loss as reported $ (5,093,520)
Non-cash and acquisition related charges 4,843,988
--------------------
Supplemental net loss before
non-cash and acquisition related charges $ (249,532)
====================
Supplemental net loss before
non-cash and acquisition related charges
per share - basic and diluted $ (0.05)
====================
</TABLE>
The unaudited pro forma results are not necessarily indicative of the
actual results of operations that would have occurred had the acquisition of
Compete occurred on April 1, 2000 or of future results. The supplemental
operations data and supplemental net loss and supplemental net loss per share
information is presented because management believes it is a commonly used
financial indicator of a company's operating performance. We believe that
neither supplemental net loss nor supplemental net loss per share is intended
to be a performance measure that should be regarded as an alternative to, or
more meaningful than, either operating income (loss) or net income (loss) as
prepared in accordance with generally accepted accounting principles, and may
not be comparable to similarly titled measures presented by other companies.
Non-cash charges include stock compensation, amortization of intangible
assets, including goodwill, and depreciation expense.
11
<PAGE>
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999 AND JUNE 30, 2000
Consulting Revenues. Revenues increased from $771,000 for the six months
ended June 30, 1999 to $6,498,000 for the six months ended June 30, 1999. The
increase in revenues reflected the increase in the number of partners,
projects performed and in the number of information technology professionals
employed. The acquisition of Compete on May 1, 2000 also attributed to the
increase in revenues for the six months ended June 30, 2000. During the six
month period ended June 30, 2000, 51% of our revenues was derived from
Vignette and 14% of our revenues was derived from projects completed for IBM.
Cost of Consulting Revenues. Cost of revenues, consisting of direct costs,
primarily salaries and benefits for information technology professionals
assigned to projects and of project related expenses, increased from $354,000
for the six months ended June 30, 1999 to $3,280,000 for the six months ended
June 30, 2000. The number of our information technology professionals who have
agreed to perform services for the Company increased from 14 at June 30, 1999
to over 150 at June 30, 2000.
Gross Margin. Gross margin increased from $417,000 for the six months
ended June 30, 1999 to $3,218,000 for the six months ended June 30, 2000.
Gross margin as a percentage of consulting revenues was 49.5% for the six
months ended June 30, 2000 and 54% for the six months ended June 30, 1999.
The decrease in gross margin is primarily due to increased costs incurred in
expanding the number of our consultants during the period.
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 $434,000 for the six months
ended June 30, 1999 to $4,258,000 for the six months ended June 30, 2000. 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. 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 $38,000 in
non-cash compensation expense during the six month period ended June 30, 2000
relating to the vesting of these options.
Intangibles amortization. Intangibles amortization expense consists of
amortization of purchased Goodwill created in our acquisitions of LoreData,
Inc. in January 2000 and Compete, Inc. in May 2000. We are amortizing the
Goodwill associated with these acquisitions over a 3 year period. Total
Intangibles amortization expense for the six months ending June 30, 2000 was
$3,410,000.
Interest Income (Expense). Interest income (expense) consists of interest
income of $200,000 on cash and investments and interest expense of $40,000 on
notes payable. The increase in interest income in 2000 was due to interest
income from cash and investment balances on hand as a result of our initial
public offering and private placement. The increase in interest expense is due
to the $2.5 million note payable related to the Compete acquisition.
THREE MONTHS ENDED JUNE 30, 1999 AND JUNE 30, 2000
Consulting Revenues. Consulting revenues increased from $505,000 for the
three months ended June 30, 1999 to $4,677,000 for the three months ended June
30, 2000. The increase in revenues reflected the increase in the number of
projects performed and in the number of information technology professionals
employed. The acquisition of Compete on May 1, 2000 also attributed to the
increase in revenues for the three months ended June 30, 2000. During the
three month period ended June 30, 2000, 40% of our revenues was derived from
Vignette (33% of total pro forma revenues for the three months ended June 30,
2000 after giving effect to the acquisition of Compete) and 19% of our
revenues was derived from projects completed for IBM.
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 $201,000 for
the three months ended
12
<PAGE>
June 30, 1999 to $2,342,000 for the three months ended June 30, 2000. The
number of our information technology professionals increased from 14 at June
30, 1999 to 150 at June 30, 2000.
Gross Margin. Gross margin increased from $304,000 for the three months
ended June 30, 1999 to $2,335,000 for the three months ended June 30, 2000.
Gross margin as a percentage of consulting revenues was 50% for the three
months ended June 30, 2000 and 60% for the three months ended June 30, 1999.
The decrease in gross margin is primarily due to costs incurred in
expanding the number of our consultants during the period.
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 $296,000 for the three
months ended June 30, 1999 to $2,900,000 for the three months ended June 30,
2000. 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 June 30, 1999
relating to the vesting of options.
Intangibles amortization. Intangibles amortization expense consists of
amortization of purchased Goodwill created in our acquisitions of LoreData,
Inc. in January 2000 and Compete, Inc. in May 2000. We are amortizing the
Goodwill associated with these acquisitions over a 3 year period. Total
Intangibles amortization expense for the three months ending June 30, 2000 was
$3,215,000.
Interest Income (Expense). Interest income (expense) consists of interest
income of $90,000 on cash and investments and interest expense of $40,000 on
notes payable. The increase in interest income in 2000 was due to interest
income from cash and investment balances on hand as a result of our initial
public offering and private placement. The increase in interest expense is due
to the $2.5 million note payable related to the Compete acquisition.
LIQUIDITY AND CAPITAL RESOURCES
We received 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
financed our operations primarily through equity financing and bank
borrowings. Through June 30, 1999, we had raised $400,000 from private sales
of our common stock.
We have a line of credit facility with Silicon Valley Bank, which
provides for us to borrow up to $4,000,000, subject to certain borrowing base
calculations as defined. Borrowings under this agreement, which expires June
29, 2001, bear interest at the bank's prime rate plus 0.85%. As of June 30,
2000, there were no borrowings under this loan agreement. Prior to that, we
had an agreement with the same bank, which allowed us to borrow up to
$1,000,000 against our qualifying accounts receivables. In connection with
this bank agreement, we issued warrants to the Bank to acquire up to 3,750
shares of our common stock at $8 per share. As of June 30, 2000, there were no
borrowings under this loan agreement
On August 3, 1999, we completed our initial public offering and our
cash increased by approximately $6.3 million. 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.
On February 7, 2000, we sold 400,000 shares of Perficient common
stock at $14 per share in a private placement. We used the proceeds of
approximately $5,500,000 from the private placement to fund the cash portion
of the purchase price of the
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merger with Compete, for our operations and general corporate purposes, and
intend to use the remainder to pay the promissory note payable six months from
the Compete closing.
In connection with the acquisition of Compete, which was effective on
May 1, 2000, we paid to the shareholders and vested option holders of Compete
approximately $3,425,000 in cash and we have agreed to pay $2,527,500 six
months from the date of the closing of the merger. We used the proceeds of the
private placement to fund the initial cash payment and expect that we will
fund the repayment of the notes from working capital including the remaining
funds from the private placement. Compete had a line of credit agreement with
a bank in which $200,000 was outstanding as of June 30, 2000. This line of
credit was paid in full and terminated in July 2000.
Cash used in operations for the six months ended June 30, 2000 was
$2,800,000. As of June 30, 2000, we had $2,900,000 in cash and working
capital of $3,500,000, and up to $4,000,000, subject to certain borrowing
base calculations available under our line of credit facility discussed
above. The Company will be required to repay approximately $2.5 million to
the shareholders of Compete on November 1, 2000.
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 December 1999, the Securities and Exchange Commission staff
released Staff Accounting Bulletin No. 101, "Revenue Recognition" (SAB 101),
which provides guidance on the recognition, presentation and disclosure of
revenue in financial statements. SAB 101 is to effective beginning in the
Company's fourth quarter of fiscal year 2000. Management has not yet completed
its determination of the impact, if any, the new standard will have on the
consolidated results of operations or financial position.
OTHER FACTORS AFFECTING OPERATING RESULTS
RISK FACTORS
RISKS PARTICULAR TO OUR BUSINESS
WE HAVE LOST MONEY DURING MOST OF THE QUARTERS DURING WHICH WE HAVE BEEN IN
BUSINESS AND WE EXPECT TO LOSE MONEY IN THE FUTURE.
We have incurred operating losses in most of the quarters during which we
have been in business and as a result, we have a retained deficit of $5.7
million as of June 30, 2000. As a result of the acquisitions that we recently
completed, we recorded a substantial amount of goodwill. We will be required
to amortize the goodwill in the future, which will result in the recognition
of significant non-cash expenses over the next three years. We cannot assure
you of any operating results and we will likely experience large variations in
quarterly operating results. We will be required to amortize in excess of
$4,500,000 in goodwill per quarter over the next three years. 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;
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- 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.
We expect to incur net losses at least through the end of 2000 and
perhaps thereafter. We plan to increase our expenditure on sales and
marketing, infrastructure development, personnel and general and
administrative items 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 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.
OUR LIMITED OPERATING HISTORY MAKES EVALUATING OUR BUSINESS DIFFICULT.
We began our business in September 1997. We only began providing
services on any significant basis in mid-1998 and primarily to only 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 MAY NOT GROW, OR WE MAY BE UNABLE TO MANAGE OUR GROWTH.
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. 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. If we do not experience substantial growth, this would
place us at a disadvantage to our competitors. However, 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.
THE LOSS OF SALES TO VIGNETTE CORPORATION AND IBM WOULD SERIOUSLY HARM OUR
BUSINESS.
Vignette Corporation accounted for 96% of our revenue during 1999 and
51% of our revenue during the six months ended June 30, 2000. IBM accounted
for 14% of our revenue during the six months ended June 30, 2000. Any
termination of our relationship with Vignette and IBM 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 performs 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 OURSELF 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.
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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 generally agreed with 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.
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, our Vice President and Senior Managing Director of
Business Development, hired in May 1999, and our Chief Operating Officer hired
in May 2000 in connection with our acquisition of Compete. 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, key technical personnel 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 currently maintain key-man life
insurance on the life of Mr. McDonald.
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;
- Our ability to manage costs; and
- Costs related to acquisitions of other businesses.
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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 in 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.
RISKS RELATING TO OUR INDUSTRY
WE FOCUS SOLELY ON COMPANIES IN THE MARKET FOR INTERNET SOFTWARE AND COULD BE
HARMED BY ANY DOWNTURN IN THIS INDUSTRY.
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;
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- 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.
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, AND WILL CONTINUE TO BE, CONTROLLED BY OUR OFFICERS AND DIRECTORS,
WHICH COULD RESULT IN US TAKING ACTIONS THAT OTHER STOCKHOLDERS DO NOT APPROVE.
Our executive officers, directors and existing 5% and greater
stockholders beneficially own or control approximately 65.8% of the voting
power of our common stock. These persons, if they were to act together, are in
a position to elect and remove directors and control the outcome of most
matters submitted to stockholders for a vote. Additionally, these persons are
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 acquirer 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 initial public offering
completed in August 1999 and the additional funds received in February 2000
will be sufficient to fund our operations and capital requirements for at
least 6 months from the date of this filing, assuming our operations continue
to expand as they have to date. Nevertheless, 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;
- hire, train and retain employees;
- respond to competitive pressures or unanticipated requirements; or
- pursue acquisition opportunities.
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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 shares are 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.
FUTURE SALES OF OUR COMMON STOCK IN THE PUBLIC MARKET COULD LOWER OUR STOCK
PRICE AND IMPAIR OUR ABILITY TO RAISE FUNDS IN NEW STOCK OFFERING.
Our Registration Statement filed on Form SB-2 with the Securities and
Exchange Commission (the "Commission") covering the resale by certain
stockholders of 580,000 shares of Common Stock was declared effective by the
Commission on July 6, 2000. These shares were originally issued to the
stockholders in our private placement completed in February 2000. On July 31,
2000 we filed a Registration Statement on Form S-3 covering the resale of
161,901 shares of Common Stock originally issued in connection with our
acquisitions of Compete, Inc. and Lore Data, Inc. Included in the 161,901
shares of common stock covered by this registration statement are 125,000
shares issuable upon exercise of five-year common stock purchase warrants
issued to the underwriter of our initial public offering. On July 31, 2000, we
filed a Registration Statement on Form S-8 covering an aggregate of 2,226,042
shares of common stock issuable upon the exercise of stock options granted
under the 1999 Perficient, Inc. Stock Option/Stock Issuance Plan (the "Plan")
as well as shares of Common Stock issuable upon the exercise of stock options
granted outside the Plan. Finally, we are obligated to file a registration
statement by no later than May 1, 2001 covering additional shares issued in
connection with our acquisition of Compete, Inc. Sales of a substantial number
of shares of Common Stock in the public market and the issuance of shares of
Common Stock upon the exercise of stock options could adversely affect the
market place of our common stock and could impair our ability to raise capital
through the sale of additional equity securities.
RISKS PARTICULAR TO THE RECENT ACQUISITION OF COMPETE
COMPETE IS DEPENDENT UPON A CONTINUING RELATIONSHIP WITH IBM AND A LIMITED
NUMBER OF CLIENTS.
Compete has developed an important relationship with IBM.
Substantially all of its consulting projects involve IBM-based systems and
technologies. IBM accounted for 33% of Compete's revenue during 1998 and 12%
of its revenue during 1999. Any termination of the relationship with IBM would
have a material adverse effect on our operating results and financial
condition. IBM only retains the services offered by Compete on a case-by-case
basis and may choose at any time to use any other firm or to provide the
services that Compete performs for itself. Therefore, any downturn in IBM's
business or any shift in its decisions to continue to use the services offered
by Compete could also result in substantially reduced sales by us. During
1999, approximately 59% of Compete's sales were derived from services provided
to three customers (including IBM). Although Compete generally provides
services on a project-to-project basis, any losses of the relationships with
any of these three service providers would have a material adverse effect on
Compete's results of operations.
WE MAY HAVE DIFFICULTY INTEGRATING THE BUSINESS OF COMPETE INTO OUR EXISTING
OPERATIONS.
The acquisition of Compete involved the integration of two companies
that have previously operated independently, with focuses on different
geographical markets and software products utilizing different personnel. We
cannot assure you that we will be able to integrate the operations of Compete
without encountering difficulties or experiencing the loss of key Compete
employees, customers or suppliers, or that the benefits expected from such
integration will be realized. In addition, we cannot assure you that the
management teams of Perficient and Compete will be able to satisfactorily work
with one another.
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FORMER COMPETE STOCKHOLDERS MAY BE ABLE TO SIGNIFICANTLY INFLUENCE US
FOLLOWING THE MERGER.
The substantial ownership of our common stock by Compete's
stockholders after the Merger (as defined in Part II, Item 4) provides them
with the ability to exercise substantial influence in the election of
directors and other matters submitted for approval by Perficient's
stockholders. As a result of the Merger, the beneficial ownership of our
common stock by the nine Compete stockholders and holders of options to
purchase shares of Compete common stock that have vested ("Vested Option
Holders"), including those who will become directors and/or executive
officers of Perficient represents approximately 35.1% of the outstanding
shares of Perficient. This concentration of ownership of our common stock may
make it difficult for other Perficient stockholders to successfully approve
or defeat matters which may be submitted for action by our stockholders. It
may also have the effect of delaying, deterring or preventing a change in
control of our Company without the vote of the Compete stockholders. In
addition, sales of our common stock by the Compete stockholders to a third
party may result in a change of control of our Company.
WE MAY LOSE RIGHTS UNDER CONTRACT WITH CUSTOMERS AND OTHER THIRD PARTIES AS A
RESULT OF THE MERGER.
Perficient and Compete each have contracts with suppliers, customers,
licensors, licensees and other business partners. Many of these contracts are
for a short term or can be terminated following a short notice period. A loss
of any of these contracts would reduce our revenues and may, in the case of
some contracts, affect rights that are important to the operation of our
business.
WE WILL FACE ADVERSE ACCOUNTING CONSEQUENCES BECAUSE OF THE MERGER.
The Merger is being accounted for under the purchase method of
accounting. Compete's assets are recognized at their fair value and any excess
of the purchase price over such fair value, other than amounts charged to
in-process research and development costs, if any, are recognized as goodwill
on our balance sheet. The goodwill will be amortized as an expense over its
anticipated useful life. Since the amount of goodwill is substantial, the
application of purchase accounting treatment could materially adversely affect
the combined company's financial results throughout the amortization period.
Item 3. Qualitative and Quantitative Disclosures about Market Risk
At June 30, 2000, all 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.
The majority of our operations are based in the U.S. and,
accordingly, the majority of our transactions are denominated in U.S. Dollars.
However, we do have foreign-based operations where transactions are
denominated in foreign currencies and are subject to market risk with respect
to fluctuations in the relative value of currencies. Currently, we have
operations in England and conduct transactions in the local currency of that
location. The impact of fluctuations in the relative value of other currencies
was not material for the six months ended June 30, 2000.
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 Incorporated.
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-
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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
six months ended June 30, 2000, we used 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, general corporate purposes,
including working capital and in acquiring other businesses. A portion of the
proceeds in the future may also be used for the acquisition of businesses that
our complimentary to ours, including the payment of a portion of the notes
relating to our recent merger with Compete. Pending such uses, we have
invested the net proceeds of the offering in investment grade,
interest-bearing securities. These shares were issued in reliance upon
exemptions from registration under Section 4(2) of the Securities Act of 1933,
as amended, as a transaction not involving a public offering.
On May 1, 2000, we consummated the acquisition by way of merger of
Compete Inc., an Illinois corporation, with and into our wholly-owned
subsidiary, Perficient Compete, Inc., a Delaware corporation. As part of the
merger consideration we issued an aggregate of 1,001,933 shares of common
stock, par value $.001 per share to the shareholders of Compete Inc. at
closing. Additionally, we issued 1,001,933 shares of our common stock that are
being held in escrow for disposition by the escrow agent in accordance with
the Escrow Agreement dated as of May 1, 2000. We granted certain registration
rights to the former shareholders of Compete to whom shares of Perficient
common stock were issued. These shares were issued in reliance upon exemptions
from registration under Section 4(2) of the Securities Act of 1933, as
amended, as a transaction not involving a public offering.
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The following matters were voted upon at a Special Meeting of
Stockholders held on May 1, 2000, and received the votes set forth below:
1. A proposal to approve the issuance of up to 2,200,00 shares of our
Common Stock in connection with the acquisition of Compete Inc. ("Compete")
through a merger (the "Merger") of Compete with and into Perficient Compete,
Inc., a subsidiary of our Company (the "Merger Sub"), under an Agreement and
Plan of Merger by and among our Company, the Merger Sub, Compete and the
Shareholders of Compete dated as of February 16, 2000 received 2,615,833 votes
FOR and 2,000 votes AGAINST, with 400 abstentions.
2. A proposal to approve an amendment to the 1999 Stock Option/Stock
Issuance Plan (the "Employee Plan") to increase the number of shares of our
Common Stock underlying the Employee Plan to 1,850,000 shares received
2,505,077 votes FOR and 113,156 votes AGAINST, with no abstentions.
(b) The following matters were voted upon at the Annual Meeting of
Stockholders held on June 29, 2000, and received the votes set forth below:
1. All of the following persons nominated were elected to serve as
directors and received the number of votes set opposite their respective names:
<TABLE>
<CAPTION>
FOR WITHHELD
--- --------
<S> <C> <C>
John T. McDonald 3,176,968 0
Steven G. Papermaster 3,176,968 0
Sam J. Fatigato 3,176,968 0
David S. Lundeen 3,176,968 0
W. Frank King, Ph.D. 3,176,968 0
Philip J. Rosenbaum 3,176,968 0
</TABLE>
2. A proposal to ratify the appointment of Ernst & Young LLP as the our
independent auditors for the fiscal year ending December 31, 2000 received
3,176968 votes FOR and 0 votes AGAINST with 2,893,570 shares not voted.
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.
- On May 16, 2000, we reported that on May 1, 2000, we consummated the
acquisition by way of merger of Compete Inc., an Illinois corporation
("Compete"), with and into our wholly-owned subsidiary, Perficient Compete,
Inc., a Delaware corporation. Perficient Compete, Inc. is the surviving
corporation to the merger and continues its existence under that name. We
acquired Compete for an aggregate purchase price of (i) 3,500,000 in cash,
(ii) $2,527,500 in promissory notes to be repaid within six months
following the closing, and (iii) approximately 2,200,000 shares of common
stock, of which 1,100,000 shares are subject to adjustment or forfeiture
and which will be held in escrow for disposition by the escrow agent in
accordance with an escrow agreement executed at closing. Of the 2,200,000
shares of Perficient Common Stock constituting the consideration under the
merger, 196,106 of such shares are subject to options to purchase shares of
common stock. Options to purchase 46,669 of such shares are exercisable at
$.02 per share, while the remaining options are exercisable at $3.36 per
share.
- On June 23, 2000, we filed Amendment No. 1 to the Form 8-K dated May 1,
2000 filed with the Securities and Exchange Commission on May 16, 2000
relating to the acquisition by Perficient of Compete. This Amendment No. 1
contained the financial information referred to in Item 7 of the Form 8-K.
- On July 21, 2000, we filed Amendment No. 2 to the Form 8-K dated May 1,
2000 filed with the Securities and Exchange Commission on May 16, 2000
relating to the acquisition by Perficient of Compete. This Amendment No. 2
amended certain of the financial information referred to in Item 7 of the
Form 8-K and previously reported in Amendment No. 1 to the Form 8-K dated
May 1, 2000.
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: August 11, 2000 /s/ John T. McDonald
-----------------------------
John T. McDonald, Chief Executive
Officer (Principal Executive Officer)
Dated: August 11, 2000 /s/ John A. Hinners
-----------------------------
John A. Hinners, Chief Financial Officer
(Principal Financial and Accounting Officer)
22
<PAGE>
Exhibit Index
<TABLE>
<CAPTION>
NO. DESCRIPTION
--- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
23
