<PAGE>
As filed with the Securities and Exchange Commission on June 23, 2000
Registration No. 333-35948
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
----------------------------
AMENDMENT NO. 1 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------------
PERFICIENT, INC.
(Name of small business issuer in its charter)
Delaware 7371 74-2853258
------------------------------- ---------------------------- ----------------
(State of other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification
Number)
7600-B NORTH CAPITAL OF TEXAS HIGHWAY, SUITE 340
AUSTIN, TEXAS 78731
(512) 531-6000
(Address and telephone number of principal executive offices and principal
place of business)
JOHN T. MCDONALD
CHIEF EXECUTIVE OFFICER
PERFICIENT, INC.
7600-B NORTH CAPITAL OF TEXAS HIGHWAY, SUITE 340
AUSTIN, TEXAS 78731
(512) 531-6000
(Name, address and telephone number of agent for service)
-----------------------------
COPIES OF COMMUNICATIONS TO:
Jeffrey A. Baumel, Esq.
Gibbons, Del Deo, Dolan, Griffinger & Vecchione
One Riverfront Plaza
Newark, New Jersey 07102
(201) 596-4500
----------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE
SECURITIES TO THE PUBLIC: As soon as practicable after the
effective date of this Registration Statement.
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. /X/
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
<PAGE>
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
----------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE>
PRELIMINARY PROSPECTUS
SUBJECT TO COMPLETION
DATED JUNE 23, 2000
PERFICIENT, INC.
580,000 SHARES OF COMMON STOCK
Certain of our stockholders (the "Selling Stockholders") wish to sell
shares of our common stock, $.001 par value, under this prospectus. See "Selling
Stockholders and Plan of Distribution." Our common stock is listed on the Nasdaq
SmallCap Market System under the symbol "PRFT" and on the Boston Stock Exchange
under the symbol "PRF". On June 22, 2000, the last reported sale price of our
common stock on the Nasdaq SmallCap Market was $14.50 per share.
Our common stock being offered through this prospectus may be offered
from time to time by the Selling Stockholders through ordinary brokerage
transactions in the over-the-counter markets, in negotiated transactions or
otherwise, at market prices prevailing at the time of sale or at negotiated
prices. We will not receive any of the proceeds from the sale of our common
stock by the selling stockholders. See "Selling Stockholders and Plan of
Distribution."
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. PLEASE READ THE "RISK
FACTORS" SECTION BEGINNING ON PAGE 5 TO READ ABOUT CERTAIN RISKS THAT YOU
SHOULD CONSIDER BEFORE BUYING SHARES OF OUR COMMON STOCK.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
THE DATE OF THIS PROSPECTUS IS JUNE , 2000
<PAGE>
SUMMARY
YOU SHOULD READ THIS SUMMARY TOGETHER WITH THE MORE DETAILED
INFORMATION, INCLUDING OUR FINANCIAL STATEMENTS AND RELATED NOTES, APPEARING
ELSEWHERE IN THIS PROSPECTUS. IN THIS PROSPECTUS, "WE", "US", AND "OUR" REFER TO
PERFICIENT, INC. AND ITS SUBSIDIARIES UNLESS THE CONTEXT REQUIRES OTHERWISE.
PERFICIENT
We provide virtual professional services organizations to Internet
software companies.
RECENT DEVELOPMENTS
ACQUISITION OF LOREDATA, INC. On January 3, 2000, we consummated the
acquisition by way of merger of LoreData, Inc., a Connecticut corporation, with
and into our wholly-owned subsidiary, Perficient Acquisition Corp., a Delaware
corporation. Perficient Acquisition Corp. was the surviving corporation to the
merger and continues its existence under the name, "Perficient LoreData, Inc."
LoreData, Inc. was a 17 person Internet professional services firm based in New
London, Connecticut. We acquired LoreData for an aggregate purchase price of (i)
$385,000 in cash that was paid at closing, (ii) 30,005 shares of our common
stock, par value $.001 per share, also paid at closing, and (iii) 131,709 shares
of Perficient 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.
We utilized proceeds from our initial public offering of common stock to fund
the cash portion of the purchase price of LoreData.
PRIVATE PLACEMENT. On February 7, 2000, we completed an $8.1 million
private placement of common stock. We intend to use the proceeds from the
private placement to further accelerate our previously announced acquisition
program including the cash portion of the purchase price for Compete, Inc. and
for other corporate purposes. A total of 400,000 shares of common stock were
issued and sold by us, resulting in gross proceeds to us of $5.6 million. John
T. McDonald, an officer and director of our company, Bryan R. Menell, an
officer of our company, and David S. Lundeen, a director of our company, sold
the remaining 180,000 shares of common stock in the private placement. The
private placement was priced at $14 per share. Gilford Securities Incorporated
acted as placement agent in connection with the private placement. In
addition, we entered into Registration Right Agreements with each of the
purchasers pursuant to which we agreed to file a registration statement with
the Securities and Exchange Commission covering the shares of common stock
sold in the private placement.
ACQUISITION OF COMPETE INC. On May 1, 2000, we consummated the
acquisition by way of merger of Compete Inc. ("Compete"), an Illinois
corporation, 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. Compete
is an internet consulting firm that employs over fifty professionals from four
locations in the United States and abroad.
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) 2,200,000 shares of common stock,
<PAGE>
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. In addition, options to purchase up
to 439,915 shares of Compete common stock were converted into options to
purchase up to 393,670 shares of common stock of Perficient.
THE OFFERING
<TABLE>
<S> <C>
Shares of common stock offered 580,000
Use of Proceeds We will not be receiving any
proceeds from this offering.
Certain selling stockholders may
wish to offer to sell shares of
our common stock that they acquired
from our company and certain
stockholders in a private
placement of shares of our common
stock.
Nasdaq SmallCap Market Symbol "PRFT"
Boston Stock Exchange Symbol "PRF"
</TABLE>
2
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following table summarizes the financial data for our business:
<TABLE>
<CAPTION>
Year Ended December 31, Three Months Ended March 31,
----------------------------- --------------------------------
1998 1999 1999 2000
---------- ----------- ----------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Consulting revenues $ 825,800 $3,154,936 $ 266,275 $1,820,689
Cost of consulting revenues 400,977 1,541,389 153,082 937,829
---------- ----------- ----------- ----------
Gross Margin 424,823 1,613,547 113,193 882,860
Selling, general and administrative 356,863 2,070,042 137,860 1,358,569
Stock compensation 0 956,000 899,000 19,000
Intangibles amortization 0 0 0 194,362
Interest expense (income) 151 13,380 0 (110,222)
---------- ----------- ----------- ----------
Income (loss) from operations 67,809 (1,425,875) (923,667) (578,849)
---------- ----------- ----------- ----------
Net income (loss) $ 40,228 ($1,404,963) ($919,332) ($578,849)
========== =========== =========== ==========
Net loss per share
Basic and diluted (1) $0.02 ($0.47) ($0.37) ($0.15)
========== =========== =========== ==========
Shares used in computing basic
and diluted net income (loss) per share 1,750,000 3,000,556 2,500,000 3,931,714
========== =========== =========== ==========
</TABLE>
The following table summarizes our balance sheet at December 31, 1999
and March 31, 2000:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31
------------ --------
1999 2000
---- ----
<S> <C> <C>
BALANCE SHEET DATA:
Working capital.................................................... $6,097,321 $10,397,097
Total assets....................................................... 6,616,417 13,887,729
Total liabilities.................................................. 364,326 867,669
Total stockholders' equity......................................... 6,252,091 $13,020,060
</TABLE>
-----------
(1) See Note 3 of Notes to Financial Statements for the determination of
shares used in computing basic net income (loss) per share.
OUR OFFICES
Our principal executive offices are located at 7600-B North Capital of
Texas Highway, Suite 340, Austin, Texas 78731, and our telephone number is
(512) 531-6000. Our Internet address is www.perficient.com. THE INFORMATION
ON OUR WEB SITE IS NOT INCORPORATED BY REFERENCE INTO, AND DOES NOT CONSTITUTE
PART OF, THIS PROSPECTUS.
3
<PAGE>
TRADEMARKS
The name "Perficient" and the Perficient logo are our trademarks. All
other trademarks, trade names or service marks appearing in this prospectus
belong to other companies.
4
<PAGE>
RISK FACTORS
An investment in shares of our common stock involves a high degree
of risk and should not be made by persons who cannot afford the loss of their
entire investment. Prospective investors, prior to making an investment
decision, should consider carefully, in addition to the other information
contained in this Prospectus and the documents and filings incorporated by
reference into this Prospectus (including the financial statements and notes
thereto), the following factors. This Prospectus contains, in addition to
historical information, forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially. Factors that could
cause or contribute to such differences include, but are not limited to,
those discussed below, as well as those discussed elsewhere in this
Prospectus.
In addition to considering risks that our inherent to our business,
prospective investors should also consider carefully additional risks that are
associated with our acquisition by way of merger of Compete Inc. ("Compete"),
an Illinois corporation (the "Merger") that was completed on May 1, 2000.
Compete was merger with and into Perficient Compete, Inc., which is the
surviving corporation to the merger. Compete is an internet consulting firm
that employs over fifty professionals from four locations in the United States
and abroad.
5
<PAGE>
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
$1,955,653 as of March 31, 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. The
pro forma financial information provided in this prospectus indicates that we
will amortize in excess of $4,000,000 in goodwill per quarter over the next
three years. We cannot assure you of any operating results and we will likely
experience large variations in quarterly operating results. 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
We expect to incur net losses at least through the end of 2000. We
plan to increase our expenditure on sales and marketing, infrastructure
development, personnel and general and administrative 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.
6
<PAGE>
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 WOULD SERIOUSLY HARM OUR BUSINESS.
Vignette Corporation accounted for 96% of our revenue during 1999 and
79% of our revenue during the three months ended March 31, 2000. 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 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.
7
<PAGE>
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. 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, 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, key technical personnel and our Chief Executive Officer,
John T. McDonald. This dependence is particularly
8
<PAGE>
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.
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.
9
<PAGE>
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;
- continue to develop our strategic and technical expertise;
- enhance our current services;
- develop new services that meet changing partner and end-user
customer needs;
10
<PAGE>
- 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 65.7% 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.
You should read "Management," "Principal Stockholders" and "Description of
Perficient Capital Stock" for more information on control of our business.
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 for 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 12 months from the date of this prospectus. After that, we may need to
raise
11
<PAGE>
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.
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.
RISKS PARTICULAR TO THE RECENT ACQUISITION OF COMPETE
12
<PAGE>
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.
13
<PAGE>
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.
FORMER COMPETE STOCKHOLDERS MAY BE ABLE TO SIGNIFICANTLY INFLUENCE US FOLLOWING
THE MERGER.
The substantial ownership of our common stock by Compete's current
stockholders after the Merger 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
14
<PAGE>
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 THIS MERGER.
The Merger will be accounted for under the purchase method of
accounting. Compete's assets will be 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, will be recognized as
goodwill on Perficient's balance sheet. The goodwill will be amortized as an
expense over its anticipated useful life. Since the amount of goodwill will
be substantial, the application of purchase accounting treatment could
materially adversely affect the combined company's financial results
throughout the amortization period.
SPECIAL CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus 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 in this Prospectus, 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
15
<PAGE>
our common stock, you should be aware that the occurrence of the events
described in the "Risk Factors" section, the "Management's Discussion and
Analysis of Financial Condition and Results of Operations" section and
elsewhere in this prospectus could seriously harm our business.
16
<PAGE>
USE OF PROCEEDS
We will not receive any proceeds from the sale of common stock by
the Selling Stockholders. The principal reason for this offering is to allow
for the resale of the shares currently held by the Selling Stockholders that
were acquired from our company and certain stockholders in a private
placement of shares of our common stock.
CAPITALIZATION
The following table sets forth our actual capitalization as of
December 31, 1999 and March 31, 2000.
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------ ---------
1999 2000
---- ----
<S> <C> <C>
Stockholders' equity:
Preferred Stock, $0.001 par value, 5,000,000 shares authorized; none
outstanding................................................................................ - -
Common Stock, $0.001 par value, 20,000,000 shares authorized; 3,503,333
and 4,065,047 shares issued and outstanding at December 31, 1999 and
March 31, 2000, respectively............................................................... $ 3,503 $ 4,065
Additional paid-in capital................................................................... 7,777,392 15,104,648
Unearned stock compensation.................................................................. (152,000) (133,000)
Retained deficit............................................................................. (1,376,804) (1,955,653)
Total stockholders' equity.............................................................. 6,252,091 13,020,060
Total capitalization............................................................... $6,252,091 13,020,060
</TABLE>
Our outstanding number of shares of common stock does not include
128,750 shares of common stock reserved for issuance upon exercise of
warrants, and 938,000 shares of common stock issuable upon exercise of options
outstanding as of June 1, 2000 at a weighted average exercise price of $8.20
per share, or 393,670 shares of common stock issuable upon the exercise of
options issued to former Compete employees in conjunction with the acquisition
of Compete.
17
<PAGE>
WE DO NOT INTEND TO PAY DIVIDENDS
We have not declared or paid any cash dividends on our common stock
and do not intend to pay any cash dividends on the common stock in the
foreseeable future. We currently intend to retain future earnings, if any, to
fund the development and growth of our business. Future dividends, if any,
will be determined by our board of directors.
18
<PAGE>
MARKET PRICE AND DIVIDEND INFORMATION
Market Information: Shares of Perficient common stock are listed on the
Nasdaq SmallCap Market under the symbol "PRFT" and on the Boston Stock
Exchange under the symbol "PRF". On June 22, 2000 the closing price of our
common stock on the Nasdaq SmallCap Market was $14.50.
The table below sets forth, for the calendar quarters indicated, the
reported high and low closing prices of Perficient common stock as reported
on the Nasdaq SmallCap Market.
<TABLE>
<CAPTION>
1999 MARKET PRICE
HIGH LOW
<S> <C> <C>
Third Quarter 12.00 6.25
Fourth Quarter 17.88 6.50
2000
First Quarter 26.50 12.00
</TABLE>
Holders: As of June 22, 2000, we believe there are in excess of 400
beneficial owners of our common stock.
Dividends: We have not declared any dividends on our common stock
during any period covered by the table and we do not intend to pay dividends
in the foreseeable future. We intend to retain future earnings, if any, to
fund the development and growth of our business. Future dividends, if any,
will be determined by our Board of Directors.
19
<PAGE>
PRO FORMA SELECTED FINANCIAL DATA
The following unaudited pro forma data gives effect to the merger
with Compete as if all such transactions had been consummated on March 31,
2000 in the case of balance sheet data and January 1, 2000 with respect to
statement of operations data. The pro forma information gives effect to the
merger under the purchase method of accounting using the assumptions and
adjustments described in the accompanying notes to the pro forma combined
condensed financial statements.
The pro forma combined condensed financial statements are based on the
historical financial statements of Perficient and Compete and their
related notes thereto included elsewhere herein or otherwise incorporated by
reference herein. These pro forma statements are presented for informational
purposes only and may not necessarily be indicative of the results that
actually would have occurred had the merger been consummated at the dates
indicated, nor are they necessarily indicative of future operating results or
financial position.
20
<PAGE>
<TABLE>
<CAPTION>
PERFICIENT INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
As of March 31, 2000
Perficient Compete Adjustments Pro Forma
------------ ----------- --------------- -----------
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash $ 9,615,112 $ 109,287 $(3,500,000)(a) $ 5,690,762
(333,638)(b)
(200,000)(c)
Accounts receivable, net 1,454,992 1,683,457 --- 3,138,449
Other assets 26,321 22,803 --- 49,124
-----------------------------------------------------------
Total current assets 11,096,425 1,815,547 (4,033,638) 8,878,335
Property and equipment 322,448 572,550 (331,629)(d) 563,369
Accumulated depreciation (53,869) (331,629) 331,629 (e) (53,869)
Goodwill 2,332,471 90,000 51,289,398 (f) 53,669,369
--- (90,000)(g)
--- 47,500 (h)
Accumulated amortization (194,362) (42,500) 42,500 (i) (194,362)
Notes receivable - officer --- ---
Federal/State Income Tax Receivable 10,916 --- --- 10,916
Other assets 373,700 18,669 --- 392,369
-----------------------------------------------------------
Total Assets $13,887,729 $ 2,122,637 $47,255,761 $63,266,127
===========================================================
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
PERFICIENT INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
As of March 31, 2000
Perficient Compete Adjustments Pro Forma
------------ ----------- --------------- -----------
<S> <C> <C> <C> <C>
Liabilities and stockholders' equity
Liabilities
Current liabilities:
Accounts payable $ 292,167 $ 563,388 $ --- $ 855,555
Short term borrowings 606,920 2,419,690 (j) 3,134,420
107,810 (k)
Other current liabilities 575,503 35,590 --- 611,093
-----------------------------------------------------------
Total current liabilities 867,670 1,205,898 2,527,500 4,601,068
Capital lease obligation 101,267 --- 101,267
Deferred income tax --- ---
-----------------------------------------------------------
Total liabilities 867,670 1,307,165 2,527,500 4,702,335
Stockholders' equity:
Common Stock 4,065 20,495 2,200 (l) 6,283
--- (20,495)(m)
--- 18 (n)
Treasury Stock (243,696) 243,696 (o)
Additional paid-in capital 15,104,648 4,595,413 45,541,514 (p) 60,646,162
--- (4,595,413)(q)
Note receivable from stockholder ---
Unearned stock compensation (133,000) (4,250,925) 4,250,925 (r) (133,000)
Retained earnings (deficit) (1,955,653) 694,185 (694,185)(s) (1,955,653)
-----------------------------------------------------------
Total stockholders' equity 13,020,060 815,472 44,728,261 58,563,792
-----------------------------------------------------------
Total liabilities and stockholders' equity $13,887,729 $ 2,122,637 $47,255,761 $63,266,127
===========================================================
</TABLE>
See notes to unaudited pro forma condensed consolidated balance sheet.
22
<PAGE>
PERFICIENT, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
The following pro forma adjustments to the unaudited condensed consolidated
balance sheet assume the merger had been consummated on March 31, 2000.
The Complete Inc. acquisition will be accounted for using the purchase
method. The cost of the acquisition will be allocated to the fair value
of the assets acquired as of the Effective Date May 1, 2000 based upon
valuations which are not yet complete. Accordingly, the allocations of the
purchase price may change upon final analysis of the valuation.
Following are the pro forma adjustments referenced in the unaudited condensed
consolidated balance sheet:
<TABLE>
<CAPTION>
Compete *
---------------
The estimated acquisition purchase price and preliminary allocations are as
follows:
<S> <C>
Purchase price of acquisition $52,104,870
Net equity of the acquisition at March 31, 2000
(book value of net assets):
Common Stock 20,495 (m)
Additional paid in capital 4,595,413 (q)
Note receivable from stockholder ---
Unearned stock compensation (4,250,925)(r)
Treasury stock (243,696)(o)
Retained earnings 694,185 (s)
---------------
815,472
Eliminate intangible assets previously recorded by:
Goodwill (90,000)(g)
Accumulated amortization 42,500 (i)
Adjustments to record assets at fair value:
Fixed assets (331,629)(d)
Accumulated depreciation 331,629 (e)
Goodwill 51,289,398 (f)
47,500 (h)
---------------
$52,104,870
===============
Record cash note payable and stock for acquisitions:
Cash $ 3,500,000 (a)
Cash (Broker fee) 333,638 (b)
Cash (estimated transaction costs) 200,000 (c)
Short term borrowings 2,419,690 (j)
Imputed interest payable** 107,810 (k)
Additional paid in capital 45,541,514 (p)
Common Stock issued to shareholders of acquisitions 2,200 (l)
Common Stock issued to brokers 18 (n)
---------------
$52,104,870
===============
</TABLE>
* The references in this column correspond to the references on the Unaudited
Condensed Consolidated Balance Sheet
** The note payable to Compete shareholders is non-interest bearing, interest is
imputed using the Company's cost of capital (8.75% as of March 31, 2000.)
23
<PAGE>
PERFICIENT INC.
UNAUDITED PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
As of March 31, 2000
<TABLE>
<CAPTION>
Perficient Compete, Inc. Adjustments Pro Forma
----------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Statement of Operations Data:
Consulting revenues $1,820,689 $2,223,063 $--- $4,043,752
Cost of consulting revenues 937,829 1,075,844 --- 2,013,673
----------- ---------- ----------- -----------
Gross margin 882,860 1,147,219 0 2,030,079
Selling, general and administrative 1,358,440 747,356 2,105,796
Stock compensation 19,000 342,488 (342,488)(a) 19,000
Intangibles amortization 194,362 7,500 4,269,091 (b)
(7,500)(c) 4,463,453
----------- ---------- ----------- -----------
Income (loss) from operations (688,942) 49,875 (3,919,102) (4,558,170)
Acquisition related expenses 0 (228,913) (228,913)
Interest income (expense) 110,093 (13,399) 96,694
Income (loss) before income taxes (578,849) (192,437) (3,919,102) (4,690,389)
Provision (benefit) for income taxes 0 0 --- 0
----------- ---------- ----------- -----------
Net income (loss) ($578,849) ($192,437) ($3,919,102) ($4,690,389)
=========== ========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Perficient Compete Adjustments Pro Forma
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Supplemental Data:
Net income (loss) per share:
Basic and diluted (1) ($0.15) $(0.07) na ($0.79)
=========== ========== =========== ===========
Shares used in computing net
income (loss) per share (2) 3,931,714 2,634,668 na 5,953,617
=========== ========== =========== ===========
Diluted supplemental weighted average
shares outstanding --- na na 6,925,779
=========== ========== =========== ===========
Supplemental Data:
Net Income (Loss) as reported ($578,849) ($192,437) ($3,919,102) ($4,690,389)
Non-cash and acquisition
related charges (3) 233,916 614,459 3,919,102 4,767,478
Provision (benefit) for income
taxes (4) 0 0 0 28,523
----------- ---------- ----------- -----------
Supplemental net income before
non-cash charges ($344,933) $ 422,022 $ 0 $ 48,566
=========== ========== =========== ===========
Supplemental net income before non-cash
charges per share - basic ($0.09) $ 0.16 na $ 0.01
=========== ========== =========== ===========
See notes to unaudited pro forma consolidated statement of operations.
24
<PAGE>
Supplemental net income before non-cash
charges per share - diluted $ --- na na $ 0.01
=========== ========== =========== ===========
</TABLE>
(1) The computation of net loss and diluted supplemental net loss per share
excludes Perficient Common Stock issuable upon exercise of certain employee
stock options, as their effect is antidilutive.
(2) Pro Forma diluted supplemental shares outstanding include estimate of
1,100,000 shares for contingent consideration issuable to certain selling
shareholders under the terms of the merger agreements.
(3) Non-cash charges include stock compensation, amortization of intangible
assets, including goodwill, depreciation expense and acquisition related
expenses.
(4) Supplemental net income and supplemental income per share data include a tax
provision at an assumed effective rate of 37% for all periods presented.
This information is not necessarily indicative of the results we would have
obtained had we owned and operated these businesses as of the beginning of the
period discussed. We have based these supplemental adjustments on estimates and
available information we deem appropriate.
25
<PAGE>
PERFICIENT, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the three months ended March 31, 2000
The accompanying Unaudited Pro Forma Condensed Consolidated Statements of
Operations for the three months ended March 31, 2000 reflect the pro forma
adjustments described below as if the acquisition occurred on January 1, 2000.
The Unaudited Pro Forma Condensed Consolidated Statements of Operations
combine the historical results of operations of Perficient with those of
Compete. The statements reflect the following adjustments:
<TABLE>
<S> <C>
(a) Represents elimination of Stock compensation expense due to elimination
of Unearned stock compensation ($342,488)
(b) Represents Goodwill amortization associated with the Compete
acquisition using an assumed amortization period of 3 years and using the
$18.50/share price of Perficient stock on April 28, 2000, the last trading
day prior to the May 1, 2000 Effective Date. The calculation of Goodwill is
as follows:
Component of purchase price for Compete, Inc.
Cash $ 3,500,000
Note 2,527,500
Stock (2,200,000 shares) 40,700,000
Assumption of Existing Stock Option Plan * 4,510,095
Transaction Broker Fees 667,275
Estimated acquisition costs (Legal, accounting, etc.) 200,000
-----------
Total purchase price 52,104,870
26
<PAGE>
Less: Net assets of Compete, Inc. (767,972)
Less: Imputed interest on Note payable to Compete shareholders (107,810)
-----------
Total Goodwill 51,229,088
-----------
Goodwill amortization (using 3 year amortization period) $ 4,269,091
===========
* Includes the assumption of current outstanding options of Compete.
The cost is measured by the difference in the aggregate exercise
price of all unvested options and using the $18.50/share price of
Perficient stock on April 28, 2000 the last trading day prior to
May 1, 2000 Effective Date of the merger.
(c) Represents reversal of Goodwill amortization expense by Compete,
Inc. related to Goodwill elimination by Perficient in conjunction with
the acquisition.
Reversal of Goodwill amortization expense ($7,500)
===========
</TABLE>
27
<PAGE>
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 Prospectus.
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 1999, we established partner relationships with four additional
internet software companies. Most of our revenues for the near future are
expected to be derived from Vignette with smaller portions derived from these
newer partner relationships. In December 1999, we began providing services to
Plumtree, Inc. Total revenue during 1999 from partners other than Vignette was
approximately $102,000. 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, 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 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;
28
<PAGE>
- 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 eight at December 31, 1998
to 43 at December 31, 1999 and to 65 at March 31, 2000. We expect our number of
information technology professionals to grow significantly during the next 12
months. 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 of Perficient
FISCAL YEAR ENDED DECEMBER 31, 1998 COMPARED TO DECEMBER 31, 1999
Consulting Revenues. Revenues increased from $826,000 for the twelve
months ended December 31, 1998 to $3,155,000 for the twelve months ended
December 31, 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 twelve months ended December 31, 1998 and
December 31, 1999 consisted of $694,000 and $2,648,000, respectively, in fees
generated by our information technology professionals and $132,000 and $507,000,
respectively, of reimbursable expenses. During the twelve month period ended
December 31, 1999, 96% 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 $401,000 for
the twelve months ended December 31, 1998 to $1,541,000 for the twelve months
ended December 31, 1999. The number of information technology professionals who
have agreed to perform services for the Company increased from 8 for the twelve
months ended December 31, 1998 to 43 for the twelve months ended December 31,
1999. This amount would be 94 on a pro forma basis giving effect to the Merger
with Compete.
Gross Margin. Gross margin increased from $425,000 for the twelve
months ended December 31, 1998 to $1,614,000 for the twelve months ended
December 31, 1999. Gross margin as a percentage of consulting revenues was 51%
and the gross margin of consulting fees over direct costs of consulting fees,
without respect to reimbursable expenses, was 61% for the twelve months ended
December 31, 1998 and 1999.
Selling, general and administrative expenses. 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 $357,000 for the
twelve months ended December 31, 1998 to $2,197,560 for the twelve months ended
December 31, 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
29
<PAGE>
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 $76,000 in non-cash
compensation expense during the twelve month period ended December 31, 1999
relating to the vesting of these options. Total non-cash compensation expense
for the twelve month period ended December 31, 1999 was $956,000.
THREE MONTHS ENDED MARCH 31, 1999 AND MARCH 31, 2000
Consulting Revenues. Revenues increased from $266,000 for the three
months ended March 31, 1999 to $1,821,000 for the three months ended March 31,
2000. The increase in revenues reflected the increase in the number of
partners, projects performed and in the number of information technology
professionals employed. During the three month period ended March 31, 2000,
79% of our revenues was derived from services performed for 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 project-related expenses, increased
from $153,000 for the three months ended March 31, 1999 to $938,000 for the
three months ended March 31, 2000. The number of information technology
professionals who have agreed to perform services for the Company increased
from 10 for the three months ended March 31, 1999 to 65 for the three months
ended March 31, 2000.
Gross Margin. Gross margin increased from $113,000 for the three
months ended March 31, 1999 to $883,000 for the three months ended March 31,
2000. Gross margin as a percentage of consulting revenues was 48% for the
three months ended March 31, 2000.
Selling, general and administrative expenses. 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 $134,000 for the
three months ended March 31, 1999 to $1,358,000 for the three months ended
March 31, 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 recognized $19,000 in non-cash compensation
expense during the three month period ended March 31, 2000 relating to the
vesting of these options.
Intangibles amortization. Intangibles amortization expense consists
of amortization of purchased goodwill created in our acquisition of LoreData,
Inc. in January, 2000. We are amortizing the goodwill associated with this
acquisition over a 3 year period. Total intangibles amortization expense for
the three months ending March 31, 2000 was $194,000. The Merger of Compete will
result in the recognition of substantial goodwill on our balance sheet. As a
result, we expect that amortization expense will increase dramatically
commencing in the quarter ending June 30, 2000.
Results Of Operations of Compete
FISCAL YEAR ENDED DECEMBER 31, 1998 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1999
Consulting Revenues. Revenues increased from $4,181,458 for the twelve
months ended December 31, 1998 to $6,643,577 for the twelve months ended
December 31, 1999. The increases in revenues reflected the increase in the
number of projects performed and in the number of information technology
professionals employed, which increased from 25 at year end 1998 to 45 at year
end 1999. Compete's revenues for the twelve months ended December 31, 1998 and
ended December 31, 1999 consisted of $3,763,218 and $6,043,022, respectively, in
fees generated by its information technology professionals and $418,240 and
$600,555 respectively, of reimbursable expenses. During the twelve month period
ended December 31, 1999, 77% of Compete's revenues came from its five largest
customers.
Cost of Consulting Revenues. Cost of revenues, which consists
primarily of salaries and benefits for information technology professionals and
of project related expenses, which for the most part are reimbursable,
increased from $2,626,430 for the twelve months ended December 31, 1998 to
$4,087,063 for the twelve months ended December 31, 1999.
Gross Margin. Gross margin increased from $1,555,028 for the twelve
months ended December 31, 1998 to $2,566,514 for the twelve months ended
December 31, 1999. Gross margin as a percentage of consulting revenues was 38%
for the twelve months ended December 31, 1999 and the margin of consulting fees
over direct costs of consulting fees, without respect to reimbursable and
project related expenses, was 44%.
Selling, general and administrative expenses. Selling, general and
administrative expenses consist primarily of recruiting and training costs,
salaries and benefits of management and administrative staff, office expense,
travel costs and non-reimbursable expenses. Selling, general and administrative
expenses increased from $973,525 for the twelve months ended December 31, 1998
to $2,149,642 for the twelve months ended December 31, 1999. The increase in
selling, general and administrative expenses was primarily related to increases
in overhead costs necessary to support the growth in Compete's workforce.
Compete expects these expenses to increase in absolute dollar amounts in
connection with its planned expansion.
30
<PAGE>
Operating income. Operating income decreased from $581,503 for the
twelve months ended December 31, 1998 to $406,872 for the twelve months ended
December 31, 1999. The decrease in operating income primarily reflects
additional management costs added in 1999 to support the growth in Compete's
workforce as well as a calculated investment to ramp up Compete's Websphere
capability.
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. During the
fiscal year ended December 31, 1999, we used approximately $725,000 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 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 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 the Bank to acquire up to 3,750 shares of our common stock at $8
per share. As of March 31, 2000, there were no borrowings under this loan
agreement.
Cash used in operations for the twelve months ended December 31, 1998
was approximately $55,000 and cash used in operations for the twelve months
ended December 31, 1999 was $665,000. Cash used in operations for the three
months ended March 31, 1999 was approximately $100,000. Cash used in
operations for the three months ended March 31, 2000 was approximately
$994,000. As of March 31, 2000, we had approximately $9,615,000 in cash and
working capital of $10,397,000. On August 3, 1999, our initial public offering
was completed, which increased cash 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 intend to use the proceeds of
approximately $5,500,000 from the private placement to fund the cash portion of
the purchase price of Compete, for our operations and general corporate purposes
and to satisfy the promissory notes we will issue in connection with the Compete
Merger described below.
In connection with the acquisition of Compete, which became effective
May 1, 2000, we paid to the shareholders and Vested Option Holders of Compete
$3,500,000 in cash and we 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 proceeds from the
private placement.
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
31
<PAGE>
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.
32
<PAGE>
BUSINESS
YOU SHOULD READ THE FOLLOWING DESCRIPTION OF OUR BUSINESS IN
CONJUNCTION WITH THE INFORMATION INCLUDED ELSEWHERE IN THIS PROSPECTUS. THIS
DESCRIPTION CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER SIGNIFICANTLY FROM THE RESULTS
DISCUSSED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN OF THE
FACTORS SET FORTH IN "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
We provide virtual professional services organizations to Internet
software companies. A virtual professional services organization is a dedicated
team of information technology professionals that plans, manages and executes
the installation, or implementation, of complex software products. This allows
the Internet software companies we work with to focus on their core business of
improving and selling their software by outsourcing services delivery to expert,
highly scalable Perficient teams that function as an extension of their
organization. We believe this enables our partners to bring products to market
faster and respond more quickly to their end-user customer needs, which helps
them achieve success in the marketplace.
We refer to the Internet software companies with which we work as
"partners." Our partners license their Internet software products to their
end-user customers. We then deploy a team that implements the licensed software
products by
- analyzing end-user customer goals and requirements,
- defining the scope of the implementation project,
- designing a project plan, and
- installing, configuring, implementing and integrating our
partner's Internet software products.
We established our first partner relationship with Vignette
Corporation, an Internet relationship management software company, in February
1998. In addition to Vignette, we have established partner relationships with
Motive Communications, Inc., a support chain automation software company and
Plumtree Software, the founder and leader of the corporate portal market.
INDUSTRY BACKGROUND AND LIMITATIONS OF TRADITIONAL APPROACHES
Increasing numbers of individuals and businesses now use the Internet
to search for information, communicate with others, conduct business and seek
entertainment. With the recent explosion of Internet activity, an industry of
Internet software companies has emerged. These companies develop software to
perform or support Web-enabled interaction, whether between businesses or
between businesses and
33
<PAGE>
consumers. We focus on the Internet software market because we believe that
Internet software exhibits the high-growth, intense competition and short
product lifecycles that create a demand for our services.
Internet software includes software designed to facilitate, among
others, the following tasks:
- CUSTOMER RELATIONSHIP MANAGEMENT-manages the relationship that a
consumer has with a business over the Internet.
- ELECTRONIC COMMERCE-allows people to purchase goods and services
over the Internet.
- SITE VALUE ANALYSIS-collects and analyzes customer interactions
with the Internet in order to customize the behavior of the
Web-site the next time the customer visits.
- MARKETING AUTOMATION-enables marketing campaigns over the
Internet (or through e-mail) to attract or retain potential
customers to a Web site.
- PROCESS KNOWLEDGE MANAGEMENT-manages and presents business
knowledge to Internet users.
- CUSTOMER SUPPORT-allows Internet users to support themselves and
resolve their own issues by presenting knowledge and information
to them in text, video and audio.
- E-MAIL MANAGEMENT-manages high volume e-mail traffic.
- ELECTRONIC BILLING MANAGEMENT-presents bills to customers through
the Internet, thereby decreasing billing costs and improving cash
management.
Internet software requires substantial configuration in order for the
user to realize its full benefits because each business user has its own unique
requirements, infrastructure and business processes. Emerging Internet software
companies which are focused on product innovation may not be inclined or able to
devote resources to integrate and implement their software with a customer's
existing computer systems and software. To address the need to have their
products properly implemented, software companies have tried several
alternatives:
- hire and maintain an in-house professional services organization;
- employ various individual independent contractors; and
- engage large consulting firms.
These alternatives present a variety of problems. Hiring and
maintaining an in-house staff of information technology professionals requires a
significant investment of time and money. It also increases a company's fixed
personnel costs so that any downturn in the software company's business will
result in greater losses because these costs cannot be reduced to match revenues
in the short term. Managing a group of independent contractors also requires a
significant amount of time and results may be unpredictable. Large consulting
firms may be expensive and it is our belief that these firms may only find
34
<PAGE>
it attractive to provide services when technology has become widely used.
Furthermore, we believe that large consulting firms may work with several
competing software companies, raising concerns over loyalty and confidentiality.
OUR SOLUTION
We believe that the growing markets for Internet software combined with
the limitations of these alternatives combine to create a significant market
opportunity. Our virtual professional services organizations provide the
following advantages to our partners:
- REDUCED COSTS. Each of our partners may save money by
minimizing the size of its in-house professional services
organization. We expect to be able to manage fluctuations in
services demand associated with any one partner if we can
develop a portfolio of Internet software partners. We can
reallocate its information technology professionals as our
partners' needs change.
- ALIGNED INCENTIVES. We intend to invest a significant amount
of time in each of our partners and, by virtue of our
assignments being likely to increase if their business grows,
we will have a vested interest in their success. We have
agreed in the past and may agree in the future to not work for
our partners' competitors.
- DEDICATED INFORMATION TECHNOLOGY PROFESSIONALS. We intend to
dedicate a team of information technology professionals to
master each particular partner's software products, enabling
them to provide higher quality of service to our partners and
their end-user customers. If we can provide services across a
spectrum of software customers, we can harvest best practices
knowledge, build development frameworks to increase
productivity, generate a project delivery methodology and
create a learning organization in a way that a group of
unaffiliated independent contractors cannot.
- FOCUS ON CORE BUSINESS. Our partners can remain focused on
their core business of developing and selling high-quality
software, while leveraging a small, focused internal services
organization across more customers with better success than
building and maintaining a large internal full-time staff.
OUR STRATEGY
Our objective is to become the leading provider of virtual professional
service organizations to rapidly growing Internet software companies. To achieve
this objective, our strategy is to:
FOCUS ON HIGH-GROWTH, SERVICE-INTENSIVE SEGMENTS OF THE INTERNET SOFTWARE MARKET
We view Internet software as the most attractive sector of the software
industry. Within the Internet software market, we will try to identify segments
that we believe will grow rapidly and will require significant services. We
focus on Internet software so that we can more readily acquire leading-edge
specialized skills that are in high demand in the marketplace. We intend to
leverage our accumulated
35
<PAGE>
technical talent and stay current on the best methodology for solving problems
that are consistently encountered in the Internet software arena.
ESTABLISH PARTNER RELATIONSHIPS WITH EMERGING LEADERS IN IDENTIFIED HIGH-GROWTH
SEGMENTS
Once we identify an attractive segment of the Internet software market,
we will focus on establishing a partner relationship with an emerging leader in
that segment. We will initially identify potential partners before their
products are accepted as mainstream. If any partner's products meet with
widespread success, we will have the benefit of a pre-existing dedicated team,
established working relationship and strong track record of success. We believe
these factors will allow us to compete effectively with larger consulting firms.
BUILD A NATIONAL INFRASTRUCTURE TO LEVERAGE ECONOMIES OF SCALE
Each virtual professional services organization will utilize the
services of the centralized corporate support structure. This will allow our
information technology professionals to remain focused on generating revenue.
These economies of scale include centrally-provided services such as business
development programs, partner support assistance, human resources, financial
reporting and budgeting, performance appraisals and a standardized program to
design, build and share institutional knowledge regarding the best practices for
various applications.
BUILD AND ACQUIRE A PORTFOLIO OF HIGH-GROWTH, LOW OVERHEAD DEDICATED BOUTIQUE
VIRTUAL PROFESSIONAL SERVICES ORGANIZATIONS
Our strategy is to build, through both internal growth and
acquisitions, a portfolio of boutique virtual professional services
organizations, each dedicated to deploying the products of a particular Internet
software partner. We believe that we may improve the performance of any acquired
companies by relieving them of many of the administrative burdens of running
their business, such as human resources, financial reporting and budgeting,
performance appraisals and knowledge sharing.
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 to us, 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.
SERVICES AND SUPPORT
Our partners license their Internet software products to their end-user
customers. We then deploy a team that analyzes the end-user customer goals and
requirements, defines the scope of the implementation project, designs a project
plan and installs, configures, implements and integrates our partner's Internet
software products. In connection with providing our services, we may perform the
following activities:
36
<PAGE>
- PROJECT SCOPING-define end-user customer's broad goals for the
software.
- PROJECT DEFINITION-document in detail the specific business
requirements.
- GAP ANALYSIS-determine the gap between what the partner's
software product does when installed and the end-user customer's
specific business requirements.
- PROJECT PLANNING-create a detailed work plan that defines
specific tasks, timelines, human resources, costs and
contingencies.
- IMPLEMENTATION-configure the partner's software and write new
software programs to adapt its partner's software to the end-user
customer's needs.
- COMPONENT TESTING-test the installed software at the individual
component level.
- INTEGRATION-write new software programs to allow the partner's
software to communicate with the end-user customer's existing
information system.
- SYSTEM TESTING-test the installed software on a system-wide
level.
- TRAINING-teach the end-user customer's personnel how to operate
the partner's software.
- MONITORING-monitor the performance of the software over the
initial period following deployment.
In addition to implementation and integration services, we also provide
formal feedback to our partners. This enables them to improve their products so
they may be deployed more rapidly and with higher quality.
OUR PARTNERS
We established our first partner relationship with Vignette in April
1998. Vignette is a leading provider of Internet relationship management
software designed to enable businesses to create interactive Web sites. When
retained by Vignette, we adapt Vignette's software to its end-user customer's
needs. Vignette works with a variety of partners worldwide in the areas of
systems integration, consulting, reselling and technology integration.
Vignette accounted for 96% of our revenue during 1999 and 79% of our revenue
during the three months ended March 31, 2000.
Our arrangement with Vignette allows Vignette to issue assignment
orders to us, but they are not committed to use our services. We are paid for
time and materials and are reimbursed for expenses. The agreement may be
terminated by Vignette or us at any time upon minimal notice. Upon termination,
we remain obligated to complete any unfinished assignments. The agreement also
provides that we will not work for Vignette's competitors and neither party may
hire the other party's employees. Our Chairman of the Board, Steven G.
Papermaster, sits on the Board of Directors of Vignette.
In addition to Vignette, we have active relationships with Motive
Software, a provider of support chain automation; Ventix, a provider of
knowledge support software, and Plumtree Software, a founder
37
<PAGE>
and leader of the corporate portal market. Total 1999 revenues from partners
other than Vignette totaled approximately $102,000. Our contracts with each of
these companies are similar to our contract with Vignette, and none of these
companies are obligated to use our services.
Many of our potential partners that are in the early stages of
development may be unable to retain our services because of financial
constraints. In addition, our existing partners can generally reduce the scope
of or cancel their use of our services without penalty and with little or no
notice. If a partner defers, modifies or cancels an engagement or chooses not to
retain us for additional projects, we must be able to rapidly redeploy our
employees to other engagements in order to minimize under-utilization of
employees and the resulting harm to our operating results.
Our long-term success will depend on our ability to achieve
satisfactory results for our partners and their end-user customers and to form
long-term relationships with our partners. We have not been in operation long
enough to judge whether our partners will perceive our work as benefiting their
businesses or desire to form any long-term business relationships. Accordingly,
we cannot assure our stockholders that our partners will call upon us again in
the future. Because of our limited operating history, it is difficult to
evaluate whether we will succeed in forming long-term relationships with our
partners.
Our operating expenses are relatively fixed and cannot be reduced on
short notice to compensate for unanticipated variations in the number or size of
engagements in progress. These factors make it difficult for us to predict our
revenues and operating results. Therefore, any sudden losses of customers could
result in unusually severe harm to our business.
SALES AND MARKETING
Since our partners sell their software and our services to their
end-user customers, our sales and marketing consists of soliciting new partners
and expanding our relationships with existing partners. Our senior management
identifies attractive segments of the Internet software market and evaluates the
emerging companies competing in that segment. Once we have identified a company
that we believe will become a market leader within that segment, our senior
management attempts to establish a partner relationship. Once a partner
relationship is established, we assign a Relationship Director to interact with
that partner. A Relationship Director is responsible for coordinating projects
on behalf of a partner and convincing a partner to use our services more often.
We typically encounter sales cycles ranging from two to six months from
our initial meeting with a prospective partner. We also market our services by
establishing informal relationships with venture capital firms, accounting
firms, law firms and other service providers that work with emerging Internet
software companies. These relationships help us identify and form partner
relationships with emerging companies.
BUSINESS OF COMPETE
Compete, currently operating as our wholly-owned subsidiary, provides
Internet consulting services including systems development, implementation
and education services to companies in a wide array of industries, including
financial services, insurance, government, automotive and health care.
Compete's services are utilized by customers that desire to build and educate
businesses or to leverage their existing operations by incorporating into
them
38
<PAGE>
elements of eBusinesses. "eBusinesses" are businesses that combine the reach
and efficiency of the Internet with both emerging and existing technologies to
enable companies to strengthen relationships with customers and business
partners, create new revenue opportunities, reduce costs, improve operating
efficiencies, optimize supply chains, shorten cycle times and improve
communications.
Compete has established a "partner" relationship with International
Business Machines Corp. ("IBM"). As part of its partner relationship, Compete
utilizes and implements IBM's Websphere-TM-, VisualAge Generator-TM-, Java-TM-
and Smalltalk-TM- programs to enhance their customers' eBusiness strategy.
Compete is a Premier level IBM Business Partner and has deployed and assisted
in developing hundreds of references for IBM software products. Accordingly,
Compete has developed an important strategic relationship with the IBM Software
Group, including executive management, product development and field sales.
Compete has agreements with many of its end-user customers that are
typically in effect for short durations and enable the customers to modify or
terminate Compete's services on minimal prior notice. If a customer defers,
modifies or cancels an engagement or chooses not to retain Compete for future
projects, Compete must be able to rapidly redeploy its employees to other
engagements in order to minimize under-utilization of employees and the
resulting harm to its operating results.
Compete has nearly doubled its staff of technical professionals in
each of the last three years. As of April 30, 2000, Compete employed 74
full-time persons, 66 as billable consultants and 8 in management and
administration. Compete has performed services across the United States and
selectively around the world, with principal locations in Chicago, San
Francisco, Raleigh and Auckland, New Zealand.
Because of its experience in enterprise applications, Compete intends
to continue to develop business to business partner relationships. Compete's
targeted businesses are those that combine the reach and accessibility of the
Internet with existing core systems and data assets.
Competition in the eBusiness services market is intense and we
expect the competition in this market to intensify for the foreseeable future.
Compete faces competition from companies selling eBusiness software and
services, and from the in-house development efforts of companies seeking to
engage in eBusiness. Like us, Compete's faces competition from systems
integrators, large consulting and accounting firms, outsourcing firms,
information technology staffing firms, internet service firms, and internal
information technology departments of current and potential partners of
Compete. Because relatively low barriers to entry characterize Compete's
market, Compete also expects other companies to enter its market.
Most of Compete's competitors have longer operating histories, larger
client bases, greater name recognition and possess significantly greater
financial, technical and marketing resources than Compete does. As a result,
its competitors may be able to better attract companies to which Compete
markets its services and adapt more quickly to new technologies or evolving
customer requirements. Many competitive factors are outside of Compete's
control, such as the ability of its competitors to hire, retain and motivate
qualified information technology professionals.
39
<PAGE>
Compete's most important assets are its information technology
professionals that provide Internet and software education, consulting and
systems development and implementation services to its end-user customers.
Compete's business is labor intensive. The Internet and software industries
are rapidly growing with many new companies entering the market. In addition,
there are limited persons with the experience, technological background and
know-how who are able to provide the services necessary to Compete's end-user
customers. Accordingly, our future success depends in large part upon our
ability to attract, train, retain, motivate and manage highly skilled
information technology professionals. 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 Compete's existing projects and to bid for or
obtain new projects, which in turn would adversely affect its operating
results.
COMPETITION
We compete in the Internet professional services market which is
relatively new and intensely competitive. We expect competition to intensify as
the market further develops and evolves. The principal competitive factors in
our market include quality of service, speed of implementation, price and
reputation. We believe that our competitors fall into several categories,
including:
- Systems integrators, such as Cambridge Technology Partners,
Sapient Corporation, Scient Corporation and Viant Corporation;
- Large consulting firms, such as Andersen Consulting and the
consulting arms of the large accounting firms;
- Outsourcing firms, such as Computer Sciences Corporation,
Electronic Data Systems and Perot Systems;
- Information technology staffing firms, such as Keane, Inc. and
Renaissance Worldwide;
- Internet service firms, such as Proxicom, Inc. and USWeb
Corporation; and
- In-house information technology and professional services and
support departments of current and potential Perficient partners.
In addition, there are relatively low barriers to entry into this
market and we expect to face additional competition from new entrants.
Most of our competitors have longer operating histories, larger client
bases, greater name recognition and possess significantly greater financial,
technical and marketing resources than we do. As a result, our competitors may
be able to better attract Internet software companies to which we market our
services and adapt more quickly to new technologies or evolving customer
requirements. Many competitive factors are outside of our control, such as the
ability of our competitors to hire, retain and motivate qualified information
technology professionals.
40
<PAGE>
EMPLOYEES
Our most important assets are our information technology professionals
that perform services for our partners' end-customers. We are dedicated to
hiring, developing and retaining these individuals. Because our partners tend to
be emerging leaders, our information technology professionals have an
opportunity to work with the latest in cutting-edge information technology. We
believe that this helps us recruit superior professionals, who actively seek
these types of assignments. We foster professional development by training our
information technology professionals in the skills critical to successful
consulting engagements such as implementation methodology and project
management. We hire information technology professionals based upon their skills
and abilities, as opposed to proximity to end-user customers. We only require
that our professionals live close to major metropolitan airports. This allows us
to hire talented people from smaller markets and gives them project
opportunities that their home city may not provide.
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, we have found that individuals who can perform the
services we offer are scarce and we believe they 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.
As of February 29, 2000, we had 58 full-time employees. Of our total
employees, 43 were information technology professionals and 15 were involved in
sales, general administration and marketing. Our employees are not represented
by any collective bargaining unit, and we have never experienced a work
stoppage. We believe our employee relations are good.
PROPERTIES
In March 2000, we entered into a lease commencing on April 8, 2000 for
approximately 5,900 square feet of office space in Austin, Texas from HUB
Properties Trust . The initial term of the lease is three (3) years, but we
have the right to extend the lease for two additional periods of three years
each. Annual fixed rent is $10,314 per month in the first year of the initial
term, $10,560 per month in the second year of the initial term, and $10,805 in
the third year. We are also obligated to pay 5.77% of our landlord's taxes and
operating costs associated with the building as additional rent, resulting in a
total monthly rental payment of approximately $15,000.
We had previously been subleasing approximately 2,700 square feet of
office space in Austin, Texas from Powershift Ventures, LLC, under a month to
month lease. The rent was $4,500 per month. Our Chairman of the Board, Steven
G. Papermaster, is the president and a beneficial owner of Powershift Ventures,
LLC. Mr. Papermaster also controls Powershift Ventures, L.P., one of our
principal stockholders. In addition, we lease approximately 800 square feet of
office space in New London, Connecticut under a lease with Thamesview West,
Inc. which terminates on December 14, 2000. The rent is currently $795 per
month. Please read "Certain Transactions" and "Principal Stockholders" for more
information.
41
<PAGE>
Compete leases approximately 4,320 square feet of office space in
Lisle, Illinois from Chicago Title and Trust Company under a lease expiring on
September 14, 2001. Compete also leases approximately 1,457 square feet of
office space in San Francisco, California from BRE/CBL, LLC under a lease
expiring on April 14, 2002.
LEGAL PROCEEDINGS
We are not currently 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 the claim.
42
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS, AND DIRECTORS
Our executive officers and directors, and their ages as of the date of
this Prospectus are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH PERFICIENT
---- --- -------------------------
<S> <C> <C>
John T. McDonald............................................. 36 Chief Executive Officer and Director
Steven G. Papermaster........................................ 41 Chairman of the Board
Sam Fatigato................................................. 38 Chief Operating Officer and Director
David S. Lundeen............................................. 38 Director
Dr. W. Frank King(1)......................................... 60 Director
Philip J. Rosenbaum(1)....................................... 50 Director
John A. Hinners.............................................. 43 Chief Financial Officer and Vice President
</TABLE>
-----------
(1) Indicates that the individual is a member of the compensation and audit
committees.
EXECUTIVE OFFICERS AND DIRECTORS
JOHN T. MCDONALD joined Perficient in April 1999 as our Chief
Executive Officer. Since October 1998, Mr. McDonald has been the president of
Beekman Ventures, Inc., a New York-based firm specializing in private equity
investments in technology companies. From April 1996 to October 1998, Mr.
McDonald was president of VideoSite, Inc., ("VideoSite") a multimedia software
company that is currently a subsidiary of GTECH Corporation ("GTECH"). GTECH
acquired VideoSite in October 1997, 18 months after Mr. McDonald became
VideoSite's president. From May 1995 to April 1996, Mr. McDonald was a
Principal with Zilkha & Co., a New York-based merchant banking firm. From June
1993 to April 1996, Mr. McDonald served in various positions at Blockbuster
Entertainment Group, including Director of Corporate Development and Vice
President, Strategic Planning and Corporate Development of NewLeaf
Entertainment Corporation, a joint venture between Blockbuster and
International Business Machines Corporation ("IBM"). From 1987 to 1993, Mr.
McDonald was an attorney with Skadden, Arps, Slate, Meagher & Flom in New York
focusing on mergers and acquisitions and corporate finance. Mr. McDonald
received a B.A. in Economics from Fordham University in 1984 and a J.D. from
Fordham Law School in 1987.
43
<PAGE>
STEVEN G. PAPERMASTER joined Perficient in April 1998 as a director
and became Chairman in May 1999. He is also the Chairman of Powershift Group,
an Austin-based technology venture development firm, and the general partner
of Powershift Ventures, L.P., one of our principal stockholders. Mr.
Papermaster is also a co-founder and the Chief Executive Officer of
Agillion.com, Inc., an Internet business service provider. He currently serves
as a member of the Board of Directors of Vignette Corporation ("Vignette") and
various privately-held companies. From 1987 to December 1997, Mr. Papermaster
was the founder, chairman and Chief Executive Officer of BSG Corporation
("BSG"). Mr. Papermaster received a B.A. in Finance from the University of
Texas at Austin in 1981 and began his career as a consultant with Arthur
Andersen & Co. in the Management Information Consulting Division.
SAM J. FATIGATO was appointed to our Board of Directors and was named
our Chief Operating Officer on May 1, 2000 upon the acquisition by way of
merger of Compete, Inc. From 1996 until May 2000, Mr. Fatigato served as Chief
Executive Officer of Compete, Inc. Prior to co-founding Compete, Mr. Fatigato
was employed by IBM for 12 years, where he held various technical, sales and
operational management positions. Mr. Fatigato received a B.A. from
Northwestern University in 1983.
DAVID S. LUNDEEN joined Perficient in April 1998 as a director. Since
March 1999, Mr. Lundeen has been a partner with Watershed Capital, a venture
capital firm in Mountain View, California. From June 1997 to February 1999, Mr.
Lundeen was self-employed, managed his personal investments and acted as a
consultant and advisor to various businesses including Powershift Group. From
June 1995 to June 1997, he served as the chief financial officer and chief
operating officer of BSG. Prior to that period, Mr. Lundeen served as president
of Blockbuster Technology and as vice president of finance of Blockbuster Video.
Mr. Lundeen received a B.S. in Engineering from the University of Michigan in
1984 and an M.B.A. from the University of Chicago in 1988.
DR. W. FRANK KING became a member of our Board of Directors in June 1999.
He has served as a Director of PSW Technologies, Inc. ("PSW"), a
publicly-traded consulting services company, since October 1996. From 1992 to
August 1998, Dr. King served as President and Chief Executive Officer of PSW.
From 1988 to 1992, Dr. King was Senior Vice President of the Software Business
group of Lotus, a software publishing company. Prior to joining Lotus, Dr.
King was with IBM, a technology company, for 19 years, where his last position
was Vice President of Development for the Personal Computing Division. Dr.
King currently serves on the boards of directors of Auspex Systems, Inc., Eon
Communications, Inc., Excalibur Technologies Corporation and Natural
Microsystems Corporation. Dr. King earned a Ph.D. in electrical engineering
from Princeton University, an M.S. in electrical engineering from Stanford
University, and a B.S. in electrical engineering from the University of
Florida.
PHILIP J. ROSENBAUM became a member of our Board of Directors in June 1999.
Since May 1995, Mr. Rosenbaum has been a self-employed developer of new
businesses, investor and consultant. From
44
<PAGE>
February 1993 to May 1995, Mr. Rosenbaum was Vice President of International
Operations of Unify Corporation, a software development tool supplier. Mr.
Rosenbaum also serves on the board of directors of a privately held software
company. Mr. Rosenbaum received a B.S. from Rutgers in 1972.
JOHN A. HINNERS joined Perficient in April 1999 as Chief Financial
Officer and Vice President. From March 1998 until joining Perficient, Mr.
Hinners independently provided financial consulting services primarily to
start-up software companies. From October 1994 to February 1998, he was
Managing Director-Finance and Administration of BSG Alliance/IT, Inc., a
subsidiary of BSG. During this period, Mr. Hinners was responsible for
operational and financial management of international subsidiaries and joint
ventures, as well as financial review and management of acquisitions and
significant transactions. From August 1988 through September 1994, he served
as Chief Financial Officer of such subsidiary. Mr. Hinners received a B.B.A.
in Finance in 1979 and an M.B.A. in Accounting in 1981 from the University of
Texas at Austin.
We have hired during the last year, 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.
BOARD COMPOSITION AND COMMITTEES
We currently have six directors, each serving a term until the next
Annual Meeting of stockholders, which is scheduled for June 29, 2000.
45
<PAGE>
At each Annual Meeting of stockholders, six directors will be elected by the
holders of the common stock, with the six nominees receiving the greatest
number of votes serving as directors. In connection with our acquisition by
way of merger of Compete Inc., Bryan R. Menell resigned his position as
Director effective May 1, 2000. Sam Fatigato, former Chief Executive Officer
of Compete Inc. was appointed by the Board of Directors to fill the seat
vacated by Mr. Menell and to serve the remainder of Mr. Menell's term. As a
condition to our acquisition of Compete, we agreed to nominate and recommend
Mr. Fatigato as one of our directors, so long as he and the other shareholders
and accelerated option holders of Compete and their affiliates own more than
ten percent (10%) of the shares of Perficient common stock issued to them in
the acquisition transaction. If Mr. Fatigato, however, is not elected to the
Board of Directors, he will continue to have a right to attend and observe all
meetings of the Board of Directors.
Gilford Securities Incorporated ("Gilford"), the underwriter of our
initial public offering and placement agent in our private placement, may also
designate one person for election to our Board of Directors for the next three
years. To date, Gilford has not designated any persons to the Board of
Directors. In the event Gilford does not elect to designate a nominee to the
Board of Directors, then Gilford may designate one person to attend meetings
of our Board of Directors as an observer during such three year period.
Dr. King and Mr. Rosenbaum serve as the only members of the
compensation committee and the audit committee of the Board of Directors. The
compensation committee makes recommendations to the Board concerning salaries
and incentive compensation for our officers and employees and administers our
Employee Plan. The audit committee makes recommendations to the Board of
Directors regarding the selection of independent auditors, reviews the results
and scope of audits and other accounting-related services and reviews and
evaluates our internal control functions.
DIRECTOR COMPENSATION
Dr. King and Mr. Rosenbaum receive an annual retainer of $15,000 to
serve on our board of directors. Other directors receive no cash remuneration
for serving on the board of directors. Non-employee directors, however, are
granted options to purchase 20,000 shares of our common stock in their first
year of service and are granted additional options to purchase 5,000 shares of
our common stock in each subsequent year of service. All directors are
reimbursed for reasonable expenses incurred by them in attending board and
committee meetings.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Our bylaws provide for mandatory indemnification of directors and
officers to the fullest extent permitted by Delaware law. Prior to consummation
of this offering, we intend to obtain additional directors' and officers'
liability insurance and expect to enter into indemnity agreements with all of
our directors and executive officers. In addition, our certificate of
incorporation limits the liability of our directors to us or to our
stockholders for breaches of the directors' fiduciary duties to the fullest
extent permitted by Delaware law. Insofar as indemnification for liabilities
arising under the Securities Act of 1933 may be permitted to our directors,
officers and controlling persons pursuant to the foregoing provisions, or
otherwise, we have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable.
46
<PAGE>
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information concerning the annual and
long-term compensation earned by the individuals who served as our Chief
Executive Officer and certain other executive officers (collectively, "Named
Executive Officers") during fiscal years 1998 and 1999 for services rendered
in all capacities during those years. Bryan R. Menell served as Perficient's
Chief Executive Officer from Perficient's inception until April 1999 and
served as Perficient's President from inception until May 2000. In connection
with our acquisition by way of merger with Compete, Inc., however, Mr. Menell
has resigned from his position as President and has become a Managing Director
of one of our practices. John T. McDonald joined Perficient in April 1999 and
assumed the duties of Chief Executive Officer. Barry Demak joined Perficient
in 1999 and serves as a Vice President of Perficient. No other individual
employed by Perficient received a salary and bonus in excess of $100,000
during 1999.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
NAME AND PRINCIPAL ------------------- ----------------------
POSITION YEAR SALARY($) BONUS($) SECURITIES UNDERLYING OPTIONS(#)
-------------------- ---- ---------- --------- --------------------------------
<S> <C> <C> <C> <C>
John T. McDonald, Chief 1999 50,000 -- --
Executive Officer and 1998 -- -- --
Director
Bryan R. Menell, 1999 96,667 -- --
President 1998 80,000 -- --
Barry Demak, 1999 110,400 22,000 --
Vice President 1998 45,000 -- 150,000
</TABLE>
EMPLOYMENT ARRANGEMENTS
Mr. McDonald and Mr. Menell have employment agreements that each
extend for a one - year term. Mr. McDonald's employment agreement provides for
a monthly salary of $11,250 and three months' severance pay if we terminate him
without cause following a change in control. Mr. Menell's employment agreement
provides for a monthly salary of $10,000 and three months' severance pay if we
terminate him without cause following a change in control. Additionally, Mr.
McDonald and Mr. Menell have agreed to refrain from competing with us for a
period of two years following the termination of their employment.
We have a letter agreement with John A. Hinners, Chief Financial
Officer and Vice President, concerning his employment. Under this agreement,
following a change in control of Perficient, if Mr. Hinners is terminated or
his job responsibilities are significantly reduced or if he is required to
relocate or if our then current chief executive officer is terminated or not
offered the chief executive officer position in the surviving company, Mr.
Hinners' stock options to purchase 60,000 shares of Perficient common stock at
an exercise price of $0.50 per share, 25,000 of which have vested and the
remainder of which vest at a rate of 5,000 shares at the end of each three
month period following April 1, 2000 will become fully vested within six
months after the change-in-control event. Mr. Hinners will receive six months'
severance pay for any termination without cause.
47
<PAGE>
401(k) PROFIT SHARING PLAN
We have adopted a 401(k) Profit Sharing Plan. Our 401(k) plan is
available to all employees who have attained age 21. An employee may
contribute, on a pre-tax basis, up to 20% of his or her wages, subject to
limitations specified under the Internal Revenue Code. Under the terms of our
401(k) plan, we may make a discretionary matching contribution equal to a
percentage of the employee's contribution to our 401(k) plan and a
discretionary amount determined annually by us and divided among eligible
participants based upon an employee's annual compensation in relation to the
aggregate annual compensation of all eligible participants. Contributions are
allocated to each employee's individual account and are, at the employee's
election, invested in one, all or some combination of the investment funds
available under our 401(k) plan. Employee contributions are fully vested and
non-forfeitable. Any matching or discretionary contributions vest 25% for each
year of service. To date, we have not made any matching contributions under our
401(k) plan.
1999 STOCK OPTION/STOCK ISSUANCE PLAN
Our 1999 Stock Option/Stock Issuance Plan was adopted by the board of
directors and approved by our stockholders on May 3, 1999. The plan became
effective upon its adoption by the board.
We have reserved 700,000 shares of our common stock for issuance
under our 1999 stock option plan and the options granted prior to adoption of
the 1999 stock option plan. However, at the Special Meeting held on May 1,
2000, the stockholders of our Company approved an amendment to the 1999 Stock
Option/Stock Issuance Plan which increased the number of shares authorized
under the plan to 1,850,000. Under the plan, in no event may any one
participant in our 1999 stock option plan receive option grants or direct
stock issuances for more than 75,000 shares in the aggregate per calendar
year.
Our 1999 stock option plan has three separate programs: (i) the
discretionary option grant program under which eligible individuals in our
employ or service, including officers, non-employee board members and
consultants, may be granted options to purchase shares of our common stock,
(ii) the stock issuance program under which such individuals may be issued
shares of common stock directly, through the purchase of such shares or as a
bonus tied to the performance of services and (iii) the automatic option grant
program under which option grants will automatically be made at periodic
intervals to eligible non-employee board members.
The discretionary option grant and stock issuance programs will be
administered by the compensation committee of our board of directors. This
committee will determine which eligible individuals are to receive option grants
or stock issuances, the time or times when such option grants or stock issuances
are to be made, the number of shares subject to each such grant or issuance, the
exercise or purchase price for each such grant or issuance, the status of any
granted option as either an incentive stock option or a non-statutory stock
option under the federal tax laws, the vesting schedule to be in effect for the
option grant or stock issuance and the maximum term for which any granted option
is to remain outstanding. Neither the compensation committee nor the board will
exercise any administrative discretion
48
<PAGE>
with respect to option grants made under the automatic option grant program for
the non-employee board members.
The exercise price for the options may be paid in cash or in shares of
our common stock valued at fair market value on the exercise date. The option
may also be exercised through a same-day sale program without any cash outlay by
the optionee. In addition, the compensation committee may allow a participant to
pay the option exercise price or direct issue price, and any associated
withholding taxes incurred in connection with the acquisition of shares, with a
full-recourse, interest-bearing promissory note.
In the event that we are acquired, whether by merger or asset sale or
board-approved sale by the stockholders of more than 50% of our voting stock,
each outstanding option under the discretionary option grant program which is
not to be assumed by the successor corporation or otherwise continued will
automatically accelerate in full, and all unvested shares under the
discretionary option grant and stock issuance programs will immediately vest,
except to the extent our repurchase rights with respect to those shares are to
be assigned to the successor corporation or otherwise continued in effect. The
compensation committee may grant options under the discretionary option grant
program which will accelerate in the acquisition even if the options are assumed
or which will accelerate if the optionee's service is subsequently terminated.
The compensation committee may grant options and issue shares which accelerate
in connection with a hostile change in control effected through a successful
tender offer for more than 50% of our outstanding voting stock or by proxy
contest for the election of board members or the options and shares may
accelerate upon a subsequent termination of the individual's service.
Stock appreciation rights may be issued under the discretionary option
grant program which will provide the holders with the election to surrender
their outstanding options for an appreciation distribution from us equal to the
fair market value of the vested shares subject to the surrendered option less
the aggregate exercise price payable for such shares. Such appreciation
distribution may be made in cash or in shares of our common stock.
The compensation committee has the authority to cancel outstanding
options under the discretionary option grant in return for the grant of new
options for the same or different number of option shares with an exercise price
per share based upon the fair market value of the common stock on the new grant
date.
Under the automatic option grant program, each individual who first
joins our board of directors after the effective date of this offering as a
non-employee board member will automatically be granted an option for 20,000
shares of our common stock at the time of his or her commencement of board
service. In addition, on the date of each annual stockholders meeting, beginning
with the 2000 meeting, each individual who is to continue to serve as a
non-employee board member and was not a member of our board prior to this
offering will receive an option grant to purchase 5,000 shares of our common
stock, provided he or she has served on the board at least six months. Each of
these options will be fully-vested upon grant.
Limited stock appreciation rights will automatically be included as
part of each grant made under the automatic option grant program and may be
granted to one or more officers as part of their option grants under the
discretionary option grant program. Options with such a limited stock
appreciation right may be surrendered to us upon the successful completion of a
hostile tender offer for more than 50% of
49
<PAGE>
our outstanding voting stock. In return for the surrendered option, the
optionee will be entitled to a cash distribution from us in an amount per
surrendered option share equal to the highest price per share of common stock
paid in connection with the tender offer less the exercise price payable for
such share.
The board may amend or modify our 1999 stock option plan at any time,
subject to any required stockholder approval. The 1999 stock option plan will
terminate no later than May 2, 2009.
OPTION GRANTS IN LAST FISCAL YEAR TO NAMED EXECUTIVE OFFICERS
None of the named executive officers were granted stock options during
fiscal year ended December 31, 1999. However, John T. McDonald was granted
options to purchase 50,000 shares of Perficient Common Stock at $14.688 per
share in January 2000.
OPTION EXERCISES AND FISCAL YEAR END VALUES
None of the named executive officers exercised stock options during
the fiscal year ended December 31, 1999.
50
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
SALES OF SECURITIES
Within the last two years, we have made the following sales of our
common stock in transactions that were not registered under the Securities Act
of 1933:
- On April 15, 1998, we sold 221,000 shares to Powershift Ventures,
LLC for an aggregate purchase price of $22,100 and 119,000 shares
to Mr. Lundeen, a director, for an aggregate purchase price of
$11,900. Mr. Papermaster, our Chairman of the Board, is the
president of Powershift Ventures, LLC and a general partner of
Powershift Ventures, L.P. Mr. Papermaster became a director and
Powershift Ventures, LLC became a 5% stockholder in connection with
this April 1998 stock purchase. Mr. Lundeen became a director and
5% stockholder in connection with his April 1998 stock purchase.
- On June 10, 1998, we sold 214,500 shares to Powershift Ventures,
LLC for an aggregate purchase price of $21,450 and 115,500 shares
to Mr. Lundeen for an aggregate purchase price of $11,550.
- On July 15, 1998, we sold 214,500 shares to Powershift Ventures,
LLC for an aggregate purchase price of $21,450 and 115,500 shares
to Mr. Lundeen for an aggregate purchase price of $11,550.
- On January 12, 1999, we sold 350,000 shares to Beekman Ventures,
Inc., a 5% stockholder, for an aggregate purchase price of
$175,000, 50,000 shares to Mr. Hinners, now our Chief Financial
Officer, for an aggregate purchase price of $25,000 and 40,000
shares to Mr. Lundeen for an aggregate purchase price of $20,000.
Mr. McDonald, our Chief Executive Officer and a director, is the
president and sole stockholder of Beekman Ventures. However, Mr.
McDonald did not become an officer and director until April 1999.
Mr. Hinners did not become our Chief Financial Officer until April
1999.
- On February 7, 2000, we completed an $8.1 million private placement
of our common stock. We issued and sold a total of 400,000 shares
of common stock resulting in gross proceeds of $5.6 million. John
T. McDonald and Bryan R. Menell, each an officer and a director of
our company, and David S. Lundeen, a director of our company, sold
the remaining 180,000 shares of common stock in the private
placement. The private placement was priced at $14.00 per share.
Gilford Securities Incorporated acted as placement agent in
connection with the private placement. We granted certain
registration rights to the purchasers of all of the shares.
51
<PAGE>
- 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, of which
324,550 shares were issued to Sam Fatigato, Compete's Chief
Executive Officer. In connection with the Compete transaction, Mr.
Fatigato was appointed to our Board of Directors and named our Chief
Operating Officer. 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, of which 324,550 shares are issued in the name of Mr. Fatigato.
We granted certain registration rights to the former shareholders of
Compete to whom shares of Perficient common stock were issued.
These sales were conducted in reliance upon exemptions from
registration under Section 4(2) of the Securities Act of 1933, as transactions
not involving a public offering.
POWERSHIFT SUBLEASE
From April 1998 until March 2000, we subleased office space on a
month-to-month basis from Powershift Ventures, LLC, of which Mr. Papermaster is
president and a beneficial owner. Since August 1999, we had been paying rent of
$4,500 a month, which we believe was consistent with prevailing market rates.
The monthly rental amounts were arrived at by arms' length negotiations. We have
terminated this sublease, however, and as of April 8, 2000, we now lease
approximately 5,900 square feet of office space at a total monthly rent of
approximately $15,000 from HUB Properties Trust.
VIGNETTE RELATIONSHIP
Mr. Papermaster, the Chairman of our Board, has served on the board of
directors of Vignette Corporation, our largest partner, since September 1998.
During 1999, Vignette accounted for 96% of our revenue.
BEEKMAN VENTURE LOAN
In June 1999, Beekman Ventures loaned us $100,000 to cover certain
working capital requirements. This loan was subsequently repaid at a market rate
of interest.
FUTURE TRANSACTIONS
All future transactions, including loans, if any, between the Company
and its officers, directors, principal stockholders and their affiliates, are
required by the board to be approved by a majority of the board, including a
majority of the independent and disinterested outside directors on the board,
and will be on terms no less favorable to us than could be obtained from
unaffiliated third parties.
52
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of Perficient common stock as of June 1, 2000 for (i)
each person or entity who is known by us to own beneficially more than five
percent (5%) of our common stock; (ii) each named executive officer listed in
the Summary Compensation table below; (iii) each director of Perficient; and
(iv) all directors and executive officers as a group.
<TABLE>
<CAPTION>
Name and Address of Beneficial Owner(1) Amount Percent of Class(2)
--------------------------------------- ----------------- -------------------
of Shares
---------
Beneficially Owned
------------------
<S> <C> <C>
Powershift Ventures, L.P. 640,750 10.55%
7600-B North Capital of Texas Highway
Austin, TX 78731
Beekman Ventures, Inc. 512,892 8.45
2716 Barton Creek Boulevard
Austin, TX 78735-1670
Bryan R. Menell(3) 496,550 8.18
John T. McDonald(4) 678,992 10.91
Sam J. Fatigato 649,100 10.69
Eric Simone 649,100 10.69
Robert Anderson 373,584 6.15
John A. Hinners(5)(6) 80,000 1.31
Steven G. Papermaster(7) 835,750 13.77
David S. Lundeen 328,050 5.40
Dr. W. Frank King(8) 25,000 *
Philip J. Rosenbaum(8) 25,000 *
Directors and executive officers as a group (8 persons)...... 3,118,392 49.49%
</TABLE>
-----------
* Indicates less than 1% of the outstanding shares of Perficient common
stock.
(1) Unless otherwise indicated, the address of each person or entity is 7600-B
N. Capital of Texas Highway, Austin, Texas 78731.
(2) Beneficial ownership is determined in accordance with the rules and
regulations of the Securities and Exchange Commission. In computing the
number of shares beneficially owned by a person and the percentage
ownership of that person, shares of common stock subject to options held by
53
<PAGE>
that person that are currently exercisable or exercisable within 60 days of
June 1, 2000 are deemed outstanding. Such shares, however, are not deemed
outstanding for the purposes of computing the percentage ownership of any
other person. Except as indicated in the footnotes to this table and
pursuant to applicable community property laws, each stockholder named in
the table has sole voting and investment power with respect to the shares
set forth opposite such stockholder's name.
(3) Includes an aggregate of 200,000 shares of Perficient common stock that are
subject to options granted by Mr. Menell to certain employees and officers
of Perficient.
(4) Includes 512,892 shares owned by Beekman Ventures, Inc., of which Mr.
McDonald is president and sole stockholder. Mr. McDonald is deemed to be
the beneficial owner of such shares. Also includes 150,000 shares of
Perficient common stock that may be acquired from Mr. Menell upon the
exercise of a stock option granted to Mr. McDonald by Mr. Menell. Does not
include options to purchase 50,000 shares of Perficient common stock that
are not exercisable within 60 days of June 1, 2000.
(5) Includes 5,000 shares held in the name of the Aubry Smith Hinners Section
2503(c) Trust.
(6) Includes options to purchase 30,000 shares of Perficient common stock
exercisable within 60 days of June 1, 2000. Does not include options to
purchase 80,000 shares of Perficient common stock that are not exercisable
within 60 days of June 1, 2000 or 20,000 shares of Perficient common
stock that may be acquired from Mr. Menell upon the exercise of a stock
option granted to Mr. Hinners by Mr. Menell but that is not exercisable
within 60 days of June 1, 2000.
(7) Includes 640,750 shares owned by Powershift Ventures, L.P., of which Mr.
Papermaster is the sole general partner. Mr. Papermaster is deemed to be
the beneficial owner of such shares. Does not include 16,250 shares held in
various family trusts over which Mr. Papermaster has neither voting nor
dispositive power.
(8) Includes options for 25,000 shares exercisable within 60 days of June 1,
2000.
54
<PAGE>
DESCRIPTION OF PERFICIENT CAPITAL STOCK
We are authorized to issue 20,000,000 shares of common stock, par
value $.001 per share, and 5,000,000 shares of preferred stock, par value
$.001 per share. As of June 1, 2000, there are outstanding 6,071,038 shares
of common stock owned by approximately 51 holders of record. In July 1999, we
completed an initial public offering in which we sold 1,000,000 shares of our
common stock for an aggregate offering price of $8 million. In February 2000,
we completed an $8.1 million private placement of our common stock for $14
per share in which a total of 400,000 shares were newly issued by us. As part
of the Merger with Compete, we issued 2,003,866 shares of Perficient common
stock to the stockholders of Compete.
COMMON STOCK
The holders of Perficient common stock are entitled to one vote for
each share held of record in the election of directors and in all other matters
to be voted on by the stockholders. There is no cumulative voting with respect
to the election of directors. As a result, the holders of more than 50 percent
of the shares voting for the election of directors can elect all of the
directors. Holders of common stock are entitled:
- to receive any dividends as may be declared by the board of
directors out of funds legally available for such purpose; and
- in the event of our liquidation, dissolution, or winding up, to
share ratably in all assets remaining after payment of
liabilities and after provision has been made for each class of
stock, if any, having preference over the common stock.
All of the outstanding shares of common stock are validly issued, fully
paid and nonassessable. Holders of Perficient common stock have no preemptive
right to subscribe for or purchase additional shares of any class of Perficient
capital stock.
PREFERRED STOCK
Our Board of Directors has the authority, within the limitations stated
in the certificate of incorporation, to provide by resolution for the issuance
of shares of preferred stock, in one or more classes or series, and to fix the
rights, preferences, privileges and restrictions thereof, including dividend
rights, conversion rights, voting rights, terms of redemption, liquidation
preferences and the number of shares constituting any series or the designation
of such series. The issuance of preferred stock could have the effect of
decreasing the market price of Perficient common stock and could adversely
affect the voting and other rights of the holders of Perficient common stock.
55
<PAGE>
WARRANTS
In July 1999, we issued warrants to purchase up to 100,000 shares of
Perficient common stock at an exercise price of $12.00 per share in connection
with our underwriting agreement with Gilford Securities Incorporated
("Gilford"). The exercise price and number of shares of common stock that may be
issued under the warrants is subject to adjustment upon the occurrence of stock
splits, stock dividends, reclassifications, reorganizations, consolidations or
mergers.
In July 1999, we issued warrants to purchase up to 3,750 shares of
Perficient common stock at an exercise price of $8.00 per share in connection
with our credit facility provided by Silicon Valley Bank.
In February 2000, we issued 3-year warrants to purchase up to 25,000
shares of Common Stock for $21.00 per share to Gilford in partial consideration
of their services in connection with our private placement of Common Stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for Perficient common stock is
Continental Stock Transfer and Trust Company, 2 Broadway, New York, New York
10004.
REPORTS TO STOCKHOLDERS
As part of our initial public offering, we registered our common stock
under the provisions of Section 12(b) of the Securities Exchange Act of 1934 and
we will use our best efforts to maintain registration. Such registration
requires us to comply with periodic reporting, proxy solicitation and certain
other requirements of the Securities Exchange Act of 1934.
SHARES ELIGIBLE FOR FUTURE SALE
Pursuant to our initial public offering, our private placement, and
our merger with Compete, and assuming no exercise of outstanding options and
warrants, we have 6,070,538 shares of common stock outstanding. However, only
the 1,000,000 shares offered pursuant to the initial public offering are
freely tradable without restriction or further registration under the
Securities Act, except for any shares purchased by an "affiliate," which will
be subject to the resale limitations of Rule 144 promulgated under the
Securities Act.
All of the remaining 5,070,538 shares of common stock currently
outstanding are "restricted securities" or owned by "affiliates," as those
terms are defined in Rule 144, and may not be sold publicly unless they are
registered under the Securities Act or are sold pursuant to Rule 144 or
another exemption from registration. The 5,070,538 restricted securities are
not eligible for sale without registration under Rule 144. As of June 1, 2000,
there were outstanding options to purchase 1,331,670 shares of Perficient
common stock and warrants to purchase 128,750 shares of common stock. We
intend to file a registration statement on Form S-8 under the Securities Act
to register the shares of Perficient common stock subject to outstanding stock
options and shares that may be issued under our Employee Plan, which will
permit the resale of these shares in the public market without restriction
after the lock-up period expires.
56
<PAGE>
LOCK-UP AGREEMENT
Holders of 2,500,000 outstanding shares of Perficient common stock and
certain option holders have agreed that until July 29, 2000 that, without the
prior written consent of Gilford, they shall not sell or otherwise dispose of
any shares of common stock in any public market transaction including pursuant
to Rule 144. In addition, the holder of 161,714 shares of common stock has
agreed with us that until August 3, 2000, he shall not sell or otherwise dispose
of any shares of common stock in any public market transaction including
pursuant to Rule 144.
RULE 144
Generally, under Rule 144 as currently in effect, subject to the
satisfaction of certain other conditions, a person, including an affiliate of
Perficient or persons whose shares are aggregated with an affiliate, who has
owned restricted shares of common stock beneficially for at least one year, is
entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of:
- 1% of our then outstanding shares of common stock; or
- the average weekly trading volume of shares of our common
stock during the four calendar weeks preceding such sale.
A person who is not an affiliate, has not been an affiliate within
three months prior to sale, and has beneficially owned the restricted shares for
at least two years, is entitled to sell such shares under Rule 144(k) without
regard to any of the limitations described above.
MARKET FOR PERFICIENT COMMON STOCK
Shares of Perficient common stock are listed on the Nasdaq SmallCap
market under the symbol "PRFT" and on the Boston Stock Exchange under the symbol
"PRF".
CHARTER AND BYLAWS PROVISIONS AND DELAWARE ANTI-TAKEOVER STATUTE
We are subject to Section 203 of the Delaware General Corporation Law
regulating corporate takeovers. This section prevents Delaware corporations from
engaging under certain circumstances, in a "business combination," which
includes a merger or sale of more than 10% of the corporation's assets, with any
"interested stockholder," or a stockholder who owns 15% or more of the
corporation's outstanding voting stock, as well as affiliates and associates of
any such persons, for three years following the date such stockholder became an
"interested stockholder," unless:
57
<PAGE>
- the transaction in which such stockholder became an
"interested stockholder" is approved by the board of
directors prior to the date the "interested
stockholder" attained such status;
- upon consummation of the transaction that resulted in
the stockholder becoming an interested stockholder,
the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the
time the transaction commenced, excluding those
shares owned by persons who are directors and also
officers; or
- on or after the date the business combination is
approved by the board of directors and authorized at
an annual or Special Meeting of stockholders by the
affirmative vote of at least two-thirds of the
outstanding voting stock that is not owned by the
interested stockholder.
Our certificate of incorporation eliminates the right of stockholders
to act by written consent without a meeting, and our bylaws eliminate the right
of stockholders to call Special Meetings of stockholders. Our certificate of
incorporation and bylaws do not provide for cumulative voting in the election of
directors. The authorization of undesignated preferred stock makes it possible
for the Board of Directors to issue preferred stock with voting or other rights
or preferences that could impede the success of any attempt to effect a change
in our control. These and other provisions may have the effect of deferring
hostile takeovers or delaying changes in the control or management of Perficient
even if doing so would be beneficial to our stockholders.
58
<PAGE>
SELLING STOCKHOLDERS AND PLAN OF DISTRIBUTION
An aggregate of up to 580,000 shares of our common stock may be
offered and sold pursuant to this Prospectus by the Selling Stockholders. The
Selling Stockholders acquired these shares of common stock from us and from
certain stockholders in a private placement of shares of our common stock
completed in February 2000. In this private placement, we issued and sold a
total of 400,000 shares of our common stock at a price of $14.00 per share,
resulting in gross proceeds to our company of $5.6 million. John T. McDonald,
an officer and a director of our Company, Bryan R. Menell, an officer of our
company, and David S. Lundeen, a director of our company, (collectively the
"Director Stockholders"), sold the remaining 180,000 shares of our common
stock in the private placement. We used the proceeds of the sale of the
shares of common stock issued by us to satisfy the cash purchase price related
to the Merger with Compete and for other working capital purposes, including
general and administrative expenses. We will not receive any of the proceeds
resulting from the sale of the shares of common stock held by the Selling
Stockholders.
Our company and the Director Stockholders entered into a Placement
Agent Agreement dated as of January 27, 2000 (the "Placement Agent Agreement")
with Gilford Securities Incorporated ("Gilford") pursuant to which Gilford
agreed to act as placement agent to our company and the Director Stockholders in
connection with the private placement. Under the Placement Agent Agreement,
Gilford was obligated to offer the shares of common stock on a "best efforts"
basis. Pursuant to the Placement Agent Agreement, Perficient and the Director
Stockholders paid Gilford a commission in the amount of 5% of the gross proceeds
from the sale of the shares of common stock offered in the private placement.
Additionally, we granted Gilford a warrant to purchase 25,000 shares of our
common stock at an exercise price of $21.00 per share. The Placement Agent
Agreement provides that we will indemnify and hold Gilford harmless from and
against certain liabilities, including certain liabilities under the Securities
Act, the Exchange Act or any rules or regulations promulgated thereunder.
In connection with the private placement, we also entered into a
Registration Rights Agreement with each of the purchasers of shares of our
common stock pursuant to which we agreed to file a registration statement with
the Securities and Exchange Commission covering all of the shares of common
stock sold in the private placement, including those sold by the Director
Stockholders.
The following table sets forth certain information as of June 22,
2000 regarding the sale by the Selling Stockholders of 580,000 shares of common
stock in this offering.
None of the Selling Stockholders has held any position or office or
had a material relationship with us within the past three years other than as
a result of the ownership of our common stock and other securities. Each
person named below has an address in care of our principal executive offices.
<TABLE>
<CAPTION>
Beneficial Shares
Ownership of Beneficially
Shares of Common Owned
Stock Prior Shares to be Sold After the
Selling Stockholder To Sale(1) in the Offering Offering(2)
------------------- ---------- --------------- -----------
<S> <C> <C> <C>
William W. Bryant 3,000 3,000 0
Wilmington Trust 15,000 15,000 0
c/o Philip F. du Pont Trust # 1028-7
Argyle Capital 17,000 17,000 0
59
<PAGE>
Richard L. & F. Annette Scott 125,000 125,000 0
Family Partnership, Ltd.
F. Annette Scott Revocable Trust 125,000 125,000 0
E. Brian Harvey 5,000 5,000 0
Petros Fund L.P. 50,000 50,000 0
Nicolas Kahla 30,000 30,000 0
Andrew P. Hilliard 12,500 5,000 7,500
Daniel J. Hilliard 18,900 3,000 15,900
Hilliard Family Foundation Inc. 14,500 5,000 9,500
Julie A. Maccoux & 24,000 5,000 19,000
Neal J. Maccoux JT Ten
Flint Trust amended 6/19/98 148,000 25,000 123,000
UA DTD 12/20/97
Hilliard Limited Partnership 8,900 2,000 6,900
Wallace J. Hilliard Irrevocable Trust 5,946 5,000 946
UA DTD 10/26/99
F. Stephen Allen 20,000 20,000 0
Valor Capital Management, L.P. 15,000 15,000 0
Europa International Management, Inc. 15,000 15,000 0
A. Ray Barbour 5,000 5,000 0
Jerry Wesslen 5,000 5,000 0
Harvard Management Company, Inc. 245,000 100,000 145,000
</TABLE>
(1) Beneficial ownership is determined in accordance with the rules and
regulations of the Securities and Exchange Commission. In computing the number
of shares beneficially owned by a person, shares of common stock subject to
options held by that person that are currently exercisable or exercisable within
60 days of the date of this Prospectus are deemed outstanding. Except as
indicated in the footnotes to this table and pursuant to applicable community
property laws, each stockholder named in the table has sole voting and
investment power with respect the shares beneficially owned by them.
(2) Assumes all of the shares of common stock offered hereby are sold by the
Selling Stockholders.
None of the Selling Stockholders has any relationship to our company
other than as a securityholder.
60
<PAGE>
The common stock held by the selling stockholders may be offered and
sold from time to time as market conditions permit in the over-the-counter
market, or otherwise, at prices and terms then prevailing or at prices related
to the then-current market price, or in negotiated transactions. The selling
stockholders will act independently of our company in making decisions with
respect to the timing, manner and size of each sale. The shares offered hereby
may be sold by one or more of the following methods, without limitation: (a) a
block trade in which a broker or dealer so engaged will attempt to sell the
shares as agent but may position and resell a portion of the block as principal
to facilitate the transaction; (b) purchases by a broker or dealer as principal
and resale by such broker or dealer for its account pursuant to this prospectus;
(c) ordinary brokerage transactions and transactions in which the broker
solicits purchasers; and (d) face-to-face transactions between sellers and
purchasers without a broker-dealer. In effecting sales, brokers or dealers
engaged by the selling stockholders may arrange for other brokers or dealers to
participate. Such brokers or dealers may receive commissions or discounts from
the selling stockholders in amounts to be negotiated. Such brokers and dealers
and any other participating brokers or dealers may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933, as amended, in
connection with such sales.
The selling stockholders may also pledge shares of common stock as
collateral for margin accounts and such shares could be resold pursuant to the
terms of such accounts. We have been advised by the selling stockholders that
they have not made any arrangements relating to the distribution of the shares
covered by this prospectus.
The Registration Rights Agreement provides that we will indemnify
the Selling Stockholders against certain liabilities, including certain
liabilities under the Securities Act, the Exchange Act, or any rules or
regulations promulgated thereunder. Additionally, we will pay the expenses,
estimated to be approximately $40,000, in connection with this offering,
other than transfer taxes, discounts, commissions, fees or expenses of
underwriters, selling brokers, dealer managers or similar securities industry
professionals relating to the distribution of the common stock, or legal
expenses of any person other than our company and the Selling Stockholders.
In addition, any shares covered by this prospectus which qualify for
sale pursuant to Rule 144 may be sold under Rule 144 rather than pursuant to
this prospectus.
LEGAL MATTERS
The validity of the common stock offered by this Prospectus will be
passed upon by Gibbons, Del Deo, Dolan, Griffinger & Vecchione, P.C.
EXPERTS
Ernst & Young LLP, independent auditors, have audited the financial
statements of Perficient, Inc., LoreData, Inc., and Compete Inc. at December
31, 1998 and 1999 and for the years ended December 31, 1998 and 1999, as set
forth in their reports. We've included our financial statements in the
prospectus and elsewhere in this registration statement in reliance on Ernst &
Young LLP's report, given on their authority as experts in accounting and
auditing.
61
<PAGE>
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission, Washington,
D.C. 20549, a Registration Statement on Form SB-2 under the Securities Act with
respect to the common stock offered by this prospectus. This prospectus does not
contain all of the information set forth in the registration statement and the
exhibits and schedules to the registration statement. For further information,
with respect to us and the common stock offered by this Prospectus, reference is
made to the registration statement and the exhibits and schedules filed as a
part of the registration statement. Additionally, we file annual, quarterly and
current reports, proxy statements and other documents with the Securities and
Exchange Commission. You may read and copy any document we file at the Public
Reference Section of the Securities and Exchange Commission, 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549, and the Securities and Exchange
Commission's Regional Offices located at 500 West Madison Street, Suite 1400,
Chicago, IL 60661, and 7 World Trade Center, 13th Floor, New York, NY 10048. You
may obtain information on the operation of the Public Reference Room by calling
the Securities and Exchange Commission at 1-800-SEC-0330. The Securities and
Exchange Commission also maintains a World Wide Web site that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Securities and Exchange Commission. The
address of the Securities and Exchange Commission's Web site is
http://www.sec.gov.
62
<PAGE>
You should rely only on the information contained in this prospectus.
Perficient, Inc. has not authorized anyone to provide prospective investors with
any different or additional information. This prospectus is not an offer to sell
nor is it seeking an offer to buy these securities in any jurisdiction where the
offer or sale is not permitted. The information contained in this prospectus is
correct only as of the date hereof, regardless of the time of the delivery of
this prospectus or any sale of these securities.
63
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Contents
<TABLE>
<S> <C>
FINANCIAL STATEMENTS FOR PERFICIENT, INC.
Report of Independent Auditors...............................................F-1
Balance Sheets...............................................................F-2
Statements of Operations.....................................................F-3
Statements of Stockholders' Equity...........................................F-4
Statements of Cash Flows.....................................................F-5
Notes to Financial Statements................................................F-6
FINANCIAL STATEMENTS FOR LOREDATA, INC.
Report of Independent Auditors..............................................F-17
Balance Sheets..............................................................F-18
Statements of Operations....................................................F-19
Statements of Stockholders' Equity..........................................F-20
Statements of Cash Flows....................................................F-21
Notes to Financial Statements...............................................F-22
FINANCIAL STATEMENTS FOR COMPETE, INC.
Report of Independent Auditors..............................................F-27
Balance Sheets..............................................................F-28
Statements of Operations....................................................F-30
Statements of Stockholders' Equity..........................................F-31
Statements of Cash Flows....................................................F-32
Notes to Financial Statements...............................................F-33
UNAUDITED INTERIM FINANCIAL STATEMENTS FOR PERFICIENT, INC.
Consolidated Balance Sheets.................................................F-42
Consolidated Statements of Operations.......................................F-43
Consolidated Statements of Cash Flows.......................................F-44
Notes to Financial Statements...............................................F-46
UNAUDITED INTERIM FINANCIAL STATEMENTS FOR COMPETE, INC.
Balance Sheets..............................................................F-50
Statements of Operations....................................................F-51
Statements of Cash Flows....................................................F-52
Notes to Financial Statements...............................................F-53
</TABLE>
F-i
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Perficient, Inc.
We have audited the accompanying balance sheets of Perficient, Inc. (the
"Company"), as of December 31, 1998 and 1999, and the related statements of
operations, stockholders' equity and cash flows for the years then ended.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Perficient, Inc. at December
31, 1998 and 1999, and the results of its operations and its cash flows for
the years then ended, in conformity with accounting principles generally
accepted in the United States.
Austin, Texas
February 21, 2000
Ernst & Young, LLP
F-1
<PAGE>
PERFICIENT, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1999
------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 22,996 $ 5,818,918
Accounts receivable 164,961 563,334
Other assets - 142,422
Income tax receivable - 10,916
------------------------------------
Total current assets 187,957 6,535,590
Computer equipment:
Hardware 46,442 69,442
Software 6,471 41,783
Furniture and fixtures - 3,415
------------------------------------
52,913 114,640
Accumulated depreciation (10,863) (33,813)
------------------------------------
Net property and equipment 42,050 80,827
------------------------------------
Total assets $ 230,007 $ 6,616,417
====================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 18,640 $ 165,176
Income tax payable 19,219 -
Accrued liabilities 12,639 199,150
------------------------------------
Total current liabilities 50,498 364,326
Deferred income tax 1,350 -
------------------------------------
Total liabilities 51,848 364,326
Commitments and contingencies
Stockholders' equity:
Common Stock, $0.001 par value; 20,000,000 shares
authorized; 2,000,000 and 3,503,333 shares issued
and outstanding at December 31, 1998 and 1999, respectively 2,000 3,503
Additional paid-in capital 148,000 7,777,392
Unearned stock compensation, net of $76,000 in amortization for
the year ended December 31, 1999 - (152,000)
Retained earnings (deficit) 28,159 (1,376,804)
------------------------------------
Total stockholders' equity 178,159 6,252,091
------------------------------------
Total liabilities and stockholders' equity $ 230,007 $ 6,616,417
====================================
</TABLE>
SEE ACCOMPANYING NOTES.
F-2
<PAGE>
PERFICIENT, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1999
------------------------------------------
<S> <C> <C>
Consulting revenue $ 825,800 $ 3,154,936
Cost of consulting revenue 400,977 1,541,389
------------------------------------------
Gross margin 424,823 1,613,547
Selling, general and administrative 357,014 2,197,560
Stock compensation - 956,000
Interest expense - 13,380
Interest income - (127,518)
------------------------------------------
Income (loss) before income tax 67,809 (1,425,875)
Income tax benefit (expense) (27,581) 20,912
------------------------------------------
Net income (loss) $ 40,228 $ (1,404,963)
==========================================
------------------------------------------
Net income (loss) per share - basic and diluted $ 0.02 $ (0.47)
==========================================
</TABLE>
SEE ACCOMPANYING NOTES.
F-3
<PAGE>
Perficient, Inc.
Statements of Stockholders' Equity
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL UNEARNED RETAINED TOTAL
---------------------- PAID-IN STOCK EARNINGS STOCKHOLDERS'
SHARES AMOUNT CAPITAL COMPENSATION (DEFICIT) EQUITY
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock at inception 1,000,000 $1,000 $ 49,000 $ - $ - $ 50,000
Net loss - - - - (12,069) (12,069)
------------------------------------------------------------------------------------
Balance at December 31, 1997 1,000,000 1,000 49,000 - (12,069) 37,931
Issuance of common stock 1,000,000 1,000 99,000 - - 100,000
Net income - - - - 40,228 40,228
------------------------------------------------------------------------------------
Balance at December 31, 1998 2,000,000 2,000 148,000 - 28,159 178,159
Issuance of common stock 1,503,333 1,503 7,401,392 - - 7,402,895
Unearned compensation - - 228,000 (228,000) - -
Amortization of unearned compensation - - - 76,000 - 76,000
Net loss - - - - (1,404,963) (1,404,963)
------------------------------------------------------------------------------------
Balance at December 31, 1999 3,503,333 $3,503 $7,777,392 $(152,000) $(1,376,804) $ 6,252,091
====================================================================================
</TABLE>
SEE ACCOMPANYING NOTES.
F-4
<PAGE>
Perficient, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1999
---------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 40,228 $ (1,404,963)
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Depreciation 10,530 22,950
Non-cash stock compensation - 956,000
Gain from disposal of fixed assets (822) -
Deferred income taxes 8,362 (1,350)
Changes in operating assets and liabilities:
Accounts receivable (164,961) (398,373)
Other assets 911 (142,422)
Income tax receivable - (10,916)
Accounts payable 18,640 146,536
Income tax payable 19,219 (19,219)
Accrued liabilities 12,639 186,511
---------------------------------
Net cash used in operating activities (55,254) (665,246)
INVESTING ACTIVITIES
Purchase of property and equipment (47,870) (61,727)
Proceeds from disposal of fixed assets 5,596 -
---------------------------------
Net cash used in investing activities (42,274) (61,727)
FINANCING ACTIVITIES
Proceeds from line of credit 35,000 802,673
Payments on line of credit (35,000) (802,673)
Proceeds from stock issuances 100,000 6,522,895
---------------------------------
Net cash provided by financing activities 100,000 6,522,895
---------------------------------
Increase in cash 2,472 5,795,922
Cash at beginning of year 20,524 22,996
---------------------------------
Cash at end of year $ 22,996 $ 5,818,918
=================================
Supplemental noncash financing activities:
January 12, 1999 issuance of 500,000 common shares in exchange
for shareholder receivable $ - $ 250,000
=================================
</TABLE>
SEE ACCOMPANYING NOTES.
F-5
<PAGE>
Perficient, Inc.
Notes to Financial Statements
December 31, 1999
(Information subsequent to December 31, 1999 is unaudited)
1. BUSINESS OVERVIEW
Perficient, Inc. (the "Company") works with Internet software companies by
providing them a professional services organization to implement and
integrate the software products. The Company effectively operates as an
internal services organization. The Company was incorporated on September 17,
1997 in Texas. The Company began operations in 1997 and is structured as a
"C" corporation. On May 3, 1999 the Company reincorporated in Delaware.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
REVENUE RECOGNITION
Consulting revenues are comprised of revenue from consulting fees recognized
on a time and material basis as performed.
ADVERTISING EXPENSE
The cost of advertising is expensed as incurred. Advertising cost for the
years ended December 31, 1998 and December 31, 1999 were immaterial to the
financial statements.
F-6
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation on property and
equipment is computed using the straight-line method over the estimated
useful lives, which is three years.
SEGMENTS
The Company considers its business activities as a single segment.
STOCK BASED COMPENSATION
Financial Accounting Standards Board Statement No. 123, ACCOUNTING FOR STOCK
BASED COMPENSATION (FAS 123), prescribed accounting and reporting standards
for all stock-based compensation plans, including employee stock options. As
allowed by FAS 123, the Company has elected to account for its employee
stock-based compensation in accordance with Accounting Principles Board
Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, (APB 25).
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the FASB issued FAS 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS
AND HEDGING ACTIVITIES, as amended by FAS 137 which is effective for fiscal
years beginning after June 15, 2000. This statement requires companies to
record derivatives on the balance sheet as assets or liabilities measured at
fair value. Gains or losses resulting from changes in the values of those
derivatives would be accounted for depending on the use of the derivative and
whether it qualifies for hedge accounting. FAS 133 will be effective for the
Company's year ended December 31, 2001. Management believes that this
statement will not have a material impact on the Company's financial position
or results of operations.
F-7
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In December 1999, the Securities and Exchange Commission staff released Staff
Accounting Bulletin No. 101, REVENUE RECOGNITION IN FINANCIAL STATEMENTS (SAB
101), which provides guidance on the recognition, presentation and disclosure
of revenue in financial statements. The application of SAB 101 did not have a
material impact on the financial statements of the Company.
In March 1999, the FASB issued an exposure draft entitled "Accounting for
Certain Transactions involving Stock Compensation," which is a proposed
interpretation of APB 25. However, the exposure draft has not been finalized.
Once finalized and issued, the current accounting practices for transactions
involving stock compensation may need to change and such changes could affect
the Company's future operating results.
3. NET INCOME (LOSS) PER SHARE
The Company follows the provisions of SFAS No. 128, EARNINGS PER SHARE. Basic
net income (loss) per share is computed by dividing net income (loss)
available to common stockholders by the weighted-average number of common
shares outstanding during the period. Net income per share, assuming
dilution, includes the effect of dilutive potential common stock issuable
upon exercise of stock options using the treasury stock method.
Diluted net loss per share has not been presented for the year ended December
31, 1999, as the effect of the assumed exercise of stock options and warrants
is antidilutive due to the Company's net loss. Total common stock equivalents
not included in diluted net loss per share amounted to 251,750 common stock
equivalents.
F-8
<PAGE>
3. NET INCOME (LOSS) PER SHARE (CONTINUED)
Computations of the net income (loss) per share for the year ended December
31, 1999 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1999
------------------------------------
<S> <C> <C>
Numerator:
Income (loss) from continuing operations - numerator for basic
earnings per share $ 40,228 $ (1,404,963)
Denominator:
Denominator for basic earnings per share - weighted-average shares 1,750,000 3,000,556
Effect of dilutive securities:
Stock options 124,000 -
------------------------------------
Denominator for diluted earnings per share - adjusted
weighted-average shares and assumed conversions 1,874,000 3,000,556
====================================
Basic earnings per share $ 0.02 $ (0.47)
====================================
Diluted earnings per share $ 0.02 $ (0.47)
====================================
</TABLE>
4. CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
Cash and accounts receivable potentially expose the Company to concentrations
of credit risk. Excess cash is placed with highly rated financial
institutions. The Company provides credit, in the normal course of business,
to its customers. The Company performs ongoing credit evaluations of its
customers and maintains allowances for potential credit losses. The Company
generally requires certain up-front payments from customers, and customers
can be denied access to services in the event of non-payment. One customer
accounted for approximately 100% and 97% of accounts receivable and 91% and
96% of revenues at December 31, 1998 and 1999, and for the years then ended,
respectively.
F-9
<PAGE>
5. EMPLOYEE BENEFIT PLAN
The Company has a qualified 401(k) profit sharing plan available to full-time
employees who meet the plan's eligibility requirements. This defined
contribution plan permits employees to make contributions up to maximum
limits allowed by Internal Revenue Code. The Company, at its discretion,
matches a portion of the employee's contribution under a predetermined
formula based on the level of contribution and years of vesting services. No
contributions were made to the plan in 1998 or 1999. The Company's related
costs for the plan during 1998 and 1999 were $1,750 and $1,564, respectively.
6. STOCK OPTIONS
Pro forma information regarding net income is required by SFAS 123,
ACCOUNTING FOR STOCK BASED COMPENSATION, which also requires that the
information be determined as if the Company had accounted for its employee
stock options granted under the fair value method prescribed by SFAS 123. The
fair value for these options was estimated at the date of grant using the
Black-Scholes pricing model with the following weighted-average assumptions:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31 1998 1999
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Risk-free interest rate 6.00% 6.00%
Dividend yield 0.00% 0.00%
Weighted-average expected life of options 5 years 5 years
Expected volatility .65 .622
</TABLE>
The Company has granted stock options to various employees under the terms of
the respective employee agreements. The stock options generally vest over
three years. The term of each option is ten years from the date of grant.
At December 31, 1998 the Company did not reserve common stock for future
issuance and no options were designated as being available for future grants.
At December 31, 1999, 2,150,000 shares of common stock were reserved for
future issuance and 1,651,666 options were available for future grants.
F-10
<PAGE>
6. STOCK OPTIONS (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma compensation expense and net income (loss) is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1999
---------------------------------------
<S> <C> <C>
Pro forma compensation expense $ 7,266 $ 63,748
Pro forma net income (loss) $ 32,962 $ (1,468,711)
Pro forma earnings per share - basic
and diluted $ 0.02 $ (0.49)
</TABLE>
A summary of changes in common stock options during 1998 and 1999 is as follows:
<TABLE>
<CAPTION>
RANGE OF WEIGHTED-AVERAGE
SHARES EXERCISE PRICES EXERCISE PRICE
------------------------------------------------------
<S> <C> <C> <C>
------------------------------------------------------
Options outstanding at December 31, 1997 80,000 $0.05 - 0.60 $ 0.53
======================================================
Options vested, December 31, 1997 556 0.05 - 0.60 0.53
======================================================
Options granted 249,000 0.05 - 0.50 0.40
Options exercised - - -
Options canceled (56,667) 0.60 0.40
------------------------------------------------------
Options outstanding at December 31, 1998 272,334 0.05 - 0.60 0.40
======================================================
Options vested, December 31, 1998 50,222 0.05 - 0.60 0.38
======================================================
Options granted 272,000 0.05 - 8.12 4.25
Options exercised (3,333) 0.20 0.20
Options canceled (42,667) 0.20 - 8.12 3.74
------------------------------------------------------
Options outstanding at December 31, 1999 498,334 0.05 - 8.12 2.22
======================================================
Options vested, December 31, 1999 197,667 $0.05 - 8.12 1.95
======================================================
</TABLE>
F-11
<PAGE>
6. STOCK OPTIONS (CONTINUED)
The following summarizes information related to stock options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------- --------------------------------
WEIGHTED
AVERAGE
WEIGHTED REMAINING WEIGHTED
RANGE OF AVERAGE CONTRACTUAL AVERAGE
EXERCISE PRICES OPTIONS EXERCISE PRICE LIFE OPTIONS EXERCISE PRICE
--------------------------------------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C>
$0.05 - $0.60 372,334 $0.44 8.69 Years 157,667 $0.42
3.50 16,000 3.50 9.25 Years - -
7.50 - 8.12 110,000 8.06 9.68 Years 40,000 8.00
----------------------------------------------- --------------------------------
$0.05 - $8.125 498,334 $2.22 8.92 Years 197,667 $1.95
================================ ================================
</TABLE>
At December 31, 1998 and 1999, the weighted-average remaining contractual
life of outstanding options was 9.54 years and 8.92 years, respectively.
The weighted-average grant-date fair value of options granted is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1999
---------------------------------------
<S> <C> <C>
Granted at market prices $ 0.40 $ 1.60
Granted at below market prices $ - $ 5.40
</TABLE>
F-12
<PAGE>
7. LINE OF CREDIT
On July 1, 1999, the Company entered into an agreement with a bank to borrow
up to $1,000,000 against qualified accounts receivables with full recourse.
Under the contract, the bank shall purchase the accounts receivable under the
following terms: 80% of the balance is remitted at the sale date, the rest is
remitted upon receipt of the balance due from the customer less finance and
administrative fees charged by the bank. The agreement has a one-year term
and borrowings under the agreement bear interest at the banks' prime rate. In
connection with this agreement, the Company issued warrants to the bank to
purchase 3,750 shares at the initial public offering price of $8 per share.
As the effect of the warrants are not material to the financial statements,
the Company has not discounted the line of credit to separately account for
the warrants.
8. INCOME TAXES
As of December 31, 1999, the Company had tax net operating loss carryforwards
of approximately $274,000 that will begin to expire in 2019 if not utilized.
Utilization of net operating losses may be subject to an annual limitation
due to the "change in ownership" provisions of the Internal Revenue Code of
1986. The annual limitation may result in the expiration of net operating
losses before utilization.
Significant components of the provision for income taxes attributable to
continuing operations are as follows:
<TABLE>
<CAPTION>
1998 1999
------------------------------------
<S> <C> <C>
Current:
Federal $17,661 $(17,661)
State 1,558 (1,558)
------------------------------------
Total current 19,219 (19,219)
------------------------------------
Deferred:
Federal 7,684 (1,583)
State 678 (110)
------------------------------------
Total deferred 8,362 (1,693)
------------------------------------
$27,581 $(20,912)
====================================
</TABLE>
F-13
<PAGE>
8. INCOME TAXES (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred taxes as of December 31, 1998 and 1999
are as follows:
<TABLE>
<CAPTION>
1998 1999
------------------------------------
<S> <C> <C>
Deferred tax liabilities:
Depreciable assets $(6,292) $ (9,985)
------------------------------------
Total deferred tax liabilities (6,292) (9,985)
------------------------------------
Deferred tax assets:
Tax carryforwards - 101,265
Bad debt - 25,181
Stock Compensation - 28,121
Accrued liabilities and other 4,942 17,364
------------------------------------
Total deferred tax assets 4,942 171,931
Valuation allowance for deferred tax assets - (161,946)
------------------------------------
Net deferred tax assets 4,942 9,985
------------------------------------
Net deferred taxes $(1,350) $ -
====================================
</TABLE>
The Company has established a valuation allowance equal to the net deferred
tax assets due to uncertainties regarding the realization of deferred tax
assets based on the Company's lack of earnings history. The valuation
allowance increased by approximately $162,000 during 1999.
F-14
<PAGE>
8. INCOME TAXES (CONTINUED)
The Company's provision for income taxes differs from the expected tax
expense (benefit) amount computed by applying the statutory federal income
tax rate of 34% to income before income taxes as a result of the following:
<TABLE>
<CAPTION>
1998 1999
------------------------------------
<S> <C> <C>
Tax at statutory rate of 34% $23,057 $(472,897)
State taxes, net of federal benefit 1,653 (14,798)
Stock based compensation - 299,200
Permanent items 2,288 5,638
Change in valuation allowance - 161,945
Other 583 -
------------------------------------
$27,581 $ (20,912)
====================================
</TABLE>
9. COMMITMENTS AND CONTINGENCIES
The Company leases equipment under an operating lease that expires in 2000.
Future lease commitments are as follows:
<TABLE>
<S> <C>
2000 $ 84,606
2001 116,208
2002 70,878
-------------------
Total $ 271,692
===================
</TABLE>
In addition, the Company has entered into a sublease with a related party for
office rent. The agreement is month-to-month. For the years ended December
31, 1998 and 1999, the Company recorded rent expense of $16,707 and $88,666,
respectively.
10. SUBSEQUENT EVENTS
On January 3, 2000, the Company acquired LoreData, Inc., a Connecticut
corporation, and merged LoreData, Inc. into a wholly-owned subsidiary,
Perficient Acquisition Corp., a Delaware corporation. Perficient Acquisition
Corp. is the surviving corporation to the merger and will continue under the
name, "Perficient LoreData, Inc." LoreData, Inc. was a 17 person internet
professional services firm based in New London, CT. The Company acquired
LoreData for an aggregate purchase price of (i) $385,000 in cash that was
paid at closing, (ii) 30,005 shares of common stock, 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.
On January 14, 2000 the Board of Directors authorized an additional 1,100,000
shares of Common Stock to be available under the Company's Stock Option/Stock
Issuance Plan. An additional 50,000 shares of Common Stock were authorized
and added to the Plan on February 14, 2000.
F-15
<PAGE>
10. SUBSEQUENT EVENTS (CONTINUED)
On February 7, 2000, the Company completed an $8.1 million private placement
of common stock. The Company intends to use the proceeds from the private
placement to further accelerate its previously announced acquisition program
and for other corporate purposes. A total of 400,000 shares of common stock
were issued and sold by the Company, resulting in gross proceeds to the
Company of $5.6 million. The private placement was priced at $14 per share.
Gilford Securities Incorporated acted as placement agent in connection with
the private placement.
On February 16, 2000, the Company entered into an Agreement and Plan of
Merger with Compete Inc. ("Compete"), Perficient Compete, Inc., and the
shareholders of Compete. The aggregate purchase price of Compete consists of
(i) $3,500,000 in cash, (ii) $2,527,500 in promissory notes to be repaid
within six months following the closing, (iii) 2,200,000 shares of common
stock, of which 1,100,000 shares are subject to adjustment and (iv) the
assumption of Compete, Inc.'s outstanding employee options. The closing of
the acquisition of Compete is conditioned upon, among other things, obtaining
the consent of Perficient's stockholders. Accordingly, there can be no
assurance that the acquisition will be completed.
F-16
<PAGE>
Report of Independent Auditors
The Board of Directors
LoreData, Inc.
We have audited the accompanying balance sheets of LoreData, Inc. (the
"Company"), as of December 31, 1998 and 1999, and the related statements of
operations, stockholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of LoreData, Inc. at December 31,
1998 and 1999, and the results of its operations and its cash flows for the
years then ended, in conformity with accounting principles generally accepted in
the United States.
Austin, Texas
February 17, 2000
Ernst & Young, LLP
F-17
<PAGE>
LoreData, Inc.
Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1999
------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 17,204 $ -
Accounts receivable 158,012 128,148
------------------------------------
Total current assets 175,216 128,148
Property and equipment
Computer equipment 31,410 91,534
Software 7,807 18,439
Furniture and fixtures 2,919 4,819
------------------------------------
42,136 114,792
Accumulated depreciation (6,761) (35,535)
------------------------------------
Net property and equipment 35,375 79,257
Other assets 1,455 2,729
------------------------------------
Total assets $ 212,046 $ 210,134
====================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 29,229 $ 33,279
Accrued liabilities 50,103 34,015
Note payable to related party, current portion - 3,922
Obligation under line of credit 30,000 39,854
------------------------------------
Total current liabilities 109,332 111,070
Note payable to related party, less current portion - 48,968
------------------------------------
Total liabilities 109,332 160,038
Commitments and contingencies
Stockholders' equity:
Common stock, no par value; 20,000 shares authorized;
100 shares issued and outstanding at December 31,
1998 and 1999, respectively 1,000 1,000
Additional paid-in capital 12,668 12,668
Note receivable from stockholder - (53,828)
Retained earnings 89,046 90,256
------------------------------------
Total stockholders' equity 102,714 50,096
------------------------------------
Total liabilities and stockholders' equity $ 212,046 $ 210,134
====================================
</TABLE>
SEE ACCOMPANYING NOTES.
F-18
<PAGE>
LoreData, Inc.
Statements of Operations
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1999
------------------------------------------
<S> <C> <C>
Total revenue $ 290,409 $ 1,348,480
Cost of consulting revenue 151,527 968,584
------------------------------------------
Gross margin 138,882 379,896
Selling, general and administrative 49,586 371,421
Interest expense - 7,265
------------------------------------------
Net income $ 89,296 $ 1,210
==========================================
</TABLE>
SEE ACCOMPANYING NOTES.
F-19
<PAGE>
LoreData, Inc.
Statements of Stockholders' Equity
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL NOTE RECEIVABLE RETAINED TOTAL
--------------------------- SUBSCRIPTION PAID-IN FROM EARNINGS STOCKHOLDERS'
SHARES AMOUNT RECEIVABLE CAPITAL STOCKHOLDER (DEFICIT) EQUITY
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 - $ 1,000 $ (1,000) $ - $ - $ (250) $ (250)
Issuance of common stock 100 - 1,000 - - - 1,000
Capital contribution - - - 12,668 - - 12,668
Net income - - - - - 89,296 89,296
--------------------------------------------------------------------------------------------------
Balance at December 31, 1998 100 1,000 - 12,668 - 89,046 102,714
Issuance of stockholder note - - - - (53,828) - (53,828)
Net income - - - - - 1,210 1,210
------------------------------------------------------------------------------------------------
Balance at December 31, 1999 100 $ 1,000 $ - $ 12,668 $ (53,828) $ 90,256 $ 50,096
================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES.
F-20
<PAGE>
LoreData, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1999
---------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 89,296 $ 1,210
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 6,761 28,774
Legal fees paid as consideration for capital 2,668 -
Changes in operating assets and liabilities:
Accounts receivable (158,012) 29,864
Other assets (1,455) (1,274)
Accounts payable 28,979 4,050
Accrued liabilities 50,103 (16,088)
---------------------------------
Net cash provided by operating activities 18,340 46,536
INVESTING ACTIVITIES
Purchase of property and equipment (42,136) (72,656)
---------------------------------
Net cash used in investing activities (42,136) (72,656)
FINANCING ACTIVITIES
Proceeds from line of credit 30,000 20,000
Payments on line of credit - (10,146)
Payments on related party note payable - (938)
Proceeds from contributed capital 10,000 -
Proceeds from stock issuance 1,000 -
---------------------------------
Net cash provided by financing activities 41,000 8,916
---------------------------------
Change in cash 17,204 (17,204)
Cash at beginning of year - 17,204
---------------------------------
Cash at end of year $ 17,204 $ -
=================================
Supplemental noncash financing activities:
Issuance of note receivable to stockholder $ - $ 53,828
=================================
Issuance of note payable to related party $ - $ 53,828
=================================
</TABLE>
SEE ACCOMPANYING NOTES.
F-21
<PAGE>
LoreData, Inc.
Notes to Financial Statements
December 31, 1999
1. BUSINESS OVERVIEW
LoreData, Inc. (the "Company") offers Internet systems development, architecture
and implementation services, to companies in a wide array of industries. The
Company was incorporated on December 17, 1997 in Connecticut, at which time it
began operations, and is structured as an "S" corporation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States 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.
REVENUE RECOGNITION
Consulting revenues are comprised of revenue from consulting fees recognized on
a time and material basis as performed.
ADVERTISING EXPENSE
The cost of advertising is expensed as incurred. Advertising cost for the years
ended December 31, 1998 and December 31, 1999 were $13,562 and $14,819,
respectively.
COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standard ("SFAS") 130, REPORTING COMPREHENSIVE INCOME,
which requires that an enterprise report, by major components and as a single
total, the change in its net assets during the period from nonowner sources. The
Company adopted SFAS 130 during the year ended December 31, 1998. There was no
accumulated other comprehensive gain or loss during 1998 or 1999.
F-22
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation on property and
equipment is computed using the straight-line method over the estimated useful
lives, which is three to seven years.
INCOME TAXES
The Company has elected to be treated as a Subchapter S corporation under the
Internal Revenue Code of 1986, as amended, whereby federal income taxes are the
responsibility of the individual shareholders. The Company is subject to state
income taxes. Accordingly, the Company provides for state income taxes based on
statutory rates.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the FASB issued Financial Accounting Standards ("FAS") 133,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, as amended by FAS
137 which is effective for fiscal years beginning after June 15, 2000. This
statement requires companies to record derivatives on the balance sheet as
assets or liabilities measured at fair value. Gains or losses resulting from
changes in the values of those derivatives would be accounted for depending on
the use of the derivative and whether it qualifies for hedge accounting. FAS 133
will be effective for the Company's year ended December 31, 2001. Management
believes that this statement will not have a material impact on the Company's
financial position or results of operations.
In December 1999, the Securities and Exchange Commission staff released Staff
Accounting Bulletin No. 101, REVENUE RECOGNITION IN FINANCIAL STATEMENTS ("SAB
101"), which provides guidance on the recognition, presentation and disclosure
of revenue in financial statements. The application of SAB 101 did not have a
material impact on the financial statements of the Company.
F-23
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In March 1999, the FASB issued an exposure draft entitled "Accounting for
Certain Transactions involving Stock Compensation," which is a proposed
interpretation of APB 25. However, the exposure draft has not been finalized.
Once finalized and issued, the current accounting practices for transactions
involving stock compensation may need to change and such changes could affect
the Company's future operating results.
3. CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
Cash and accounts receivable potentially expose the Company to concentrations of
credit risk. Excess cash is placed with highly rated financial institutions. The
Company provides credit, in the normal course of business, to its customers. The
Company performs ongoing credit evaluations of its customers and maintains
allowances for potential credit losses. One customer accounted for approximately
29% and 44% of accounts receivable and 60% and 53% of revenues at December 31,
1998 and 1999, and for the years then ended, respectively.
4. EMPLOYEE BENEFIT PLAN
On January 1, 1999, the Company adopted a qualified simple profit sharing plan
for all full time employees who received a specified amount in any given year.
Eligible employees may elect to contribute to the plan based up to certain
amounts specified in the plan. The Company, at its discretion, matches 3% of
employee contributions up to $6,000 per year. Employer contributions to the plan
in 1999 were $14,182. No administrative costs were incurred in conjunction with
the plan in 1999.
5. LINE OF CREDIT
The Company has a revolving line of credit with a financial institution that
provides maximum borrowings of $50,000 with interest payable at prime plus 1.5%
(9.25% and 10.00% at December 31, 1998 and 1999, respectively). The line matures
on October 31, 2000 and is guaranteed by the primary stockholder. At December
31, 1998 and 1999, the Company had borrowings against the line of $30,000 and
$39,854, respectively.
F-24
<PAGE>
6. COMMITMENTS AND CONTINGENCIES
The Company leases equipment and facilities under operating leases that expire
ratably through 2002. Future lease commitments are as follows:
<TABLE>
<S> <C>
2000 $ 16,226
2001 7,084
2002 1,181
-------------------
Total $ 24,491
===================
</TABLE>
For the years ended December 31, 1998 and 1999, the Company recorded lease
expense of $2,478 and $27,363, respectively. During 1999, approximately $5,000
in lease expense was paid on an operating lease for an automobile used by a
shareholder and officer of the Company.
7. RELATED PARTY TRANSACTIONS
During 1998, the Company paid approximately $141,000 in subcontracted labor fees
to a related-party company which shares common ownership with the Company.
During 1999, the shareholders of the related-party company discontinued
operations and the Company hired certain employees of the related-party.
On September 1, 1999 the Company's shareholders entered into an agreement
whereby one of the shareholders sold 100% of his common stock to the remaining
shareholder for $150,000 in consideration. Consideration consists of a note
payable and guaranteed retainer fees.
In conjunction with this agreement, the Company obligated itself to pay the note
to the former shareholder. The note bears interest of 7% and specifies for
monthly payments of $625 through September 2009. At December 31, 1999 the
remaining note balance was $52,896. Future minimum commitments under this
agreement are as follows:
<TABLE>
<S> <C>
2000 $ 3,922
2001 4,206
2002 4,509
2003 4,836
2004 5,126
</TABLE>
F-25
<PAGE>
7. RELATED PARTY TRANSACTIONS (CONTINUED)
In conjunction with the agreement, the Company also issued a note receivable to
the existing shareholder. The note bears 7% interest and is to be paid by the
existing shareholder in monthly installments of $625 through September 2009. At
December 31, 1999 the remaining note balance was $53,828.
During 1999, the Company paid approximately $55,000 to a former shareholder for
consulting services performed on behalf of the Company.
8. SUBSEQUENT EVENTS
On January 3, 2000, the Company was acquired by way of merger with Perficient
Acquisition Corp., a Delaware corporation. Perficient Acquisition Corp. is the
surviving corporation to the merger and will continue under the name,
"Perficient LoreData, Inc." Perficient acquired LoreData for an aggregate
purchase price of (i) $385,000 in cash that was paid at closing, (ii) 30,005
shares of Perficient common stock, par value $0.001 per share, also paid at
closing, and (iii) 131,709 shares of Perficient 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.
F-26
<PAGE>
Report of Independent Auditors
The Board of Directors
Compete, Inc.
We have audited the accompanying balance sheets of Compete, Inc. (the
"Company"), as of December 31, 1998 and 1999, and the related statements of
operations, stockholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Compete, Inc. at December 31,
1998 and 1999, and the results of its operations and its cash flows for the
years then ended, in conformity with accounting principles generally accepted in
the United States.
Austin, Texas
February 19, 2000
Ernst & Young, LLP
F-27
<PAGE>
Compete, Inc.
Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1999
------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 84,194 $ 43,172
Accounts receivable, net of allowance for doubtful accounts of
$10,000 and $19,616 in 1998 and 1999 1,035,368 1,149,214
------------------------------------
Total current assets 1,119,562 1,192,386
Property and equipment:
Computer equipment 279,607 360,991
Software 14,183 87,364
Office equipment 58,995 93,248
------------------------------------
352,785 541,603
Accumulated depreciation (167,333) (296,070)
------------------------------------
Net property and equipment 185,452 245,533
Goodwill, net of accumulated amortization of $5,000 and $35,000 at
December 31, 1998 and 1999 85,000 55,000
Other assets 5,391 8,724
------------------------------------
Total assets $ 1,395,405 $ 1,501,643
====================================
</TABLE>
F-28
<PAGE>
Compete, Inc.
Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1999
------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued liabilities $ 251,299 $ 128,968
Accrued payroll 110,794 50,892
Income tax payable 2,175 855
Deferred income tax 9,920 14,375
Deferred revenue 11,950 20,360
Short-term borrowings 315,100 400,000
Note payable to shareholder 54,133 -
Current portion of lease obligation 47,080 99,757
------------------------------------
Total current liabilities 802,451 715,207
Lease obligation, net of current portion 79,948 119,515
------------------------------------
Total liabilities 882,399 834,722
Stockholders' equity:
Common stock, no par value; 3,000,000 and 3,600,000
shares authorized; 2,700,000 and 2,634,668 shares
issued and outstanding at December 31, 1998 and
1999, respectively 21,300 20,495
Less cost of common stock held in treasury, 300,000
shares in 1998 and 365,332 shares in 1999 (200,300) (243,696)
Additional paid-in capital 2,000 4,595,413
Unearned stock compensation - (4,593,413)
Retained earnings 690,006 888,122
------------------------------------
Total stockholders' equity 513,006 666,921
------------------------------------
Total liabilities and stockholders' equity $ 1,395,405 $ 1,501,643
====================================
</TABLE>
SEE ACCOMPANYING NOTES.
F-29
<PAGE>
Compete, Inc.
Statements of Operations
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1999
------------------------------------
<S> <C> <C>
Revenue $ 4,181,458 $ 6,643,577
Cost of consulting revenue 2,626,430 4,087,063
------------------------------------
Gross margin 1,555,028 2,556,514
Selling, general and administrative 973,525 2,149,642
Interest and other 13,711 53,694
------------------------------------
Income before income tax 567,792 353,178
Income tax expense (8,710) (3,135)
------------------------------------
Net income $ 559,082 $ 350,043
====================================
</TABLE>
SEE ACCOMPANYING NOTES.
F-30
<PAGE>
Compete, Inc.
Statements of Stockholders' Equity
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL UNEARNED TOTAL
------------------------- PAID-IN STOCK TREASURY RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL COMPENSATION STOCK EARNINGS EQUITY
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997
(Unaudited) 3,000,000 $ 24,000 $ 2,000 $ - $ - $ 203,374 $ 229,374
Purchase of treasury stock (300,000) (2,700) - - (200,300) - (203,000)
Stockholder distribution - - - - - (72,450) (72,450)
Net income - - - - - 559,082 559,082
-------------------------------------------------------------------------------------------------
Balance at December 31, 1998 2,700,000 21,300 2,000 - (200,300) 690,006 513,006
Purchase of treasury stock (215,332) (805) - - (144,896) - (145,701)
Net income - - - - - 350,043 350,043
Issuance stock dividend 150,000 - - - 101,500 (101,500) -
Deferred stock compensation - - 4,593,413 (4,593,413) - - -
Stockholder distribution - - - - - (50,427) (50,427)
-------------------------------------------------------------------------------------------------
Balance at December 31, 1999 2,634,668 $ 20,495 $ 4,595,413 $ (4,593,413) $(243,696) $ 888,122 $ 666,921
=================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES.
F-31
<PAGE>
Compete, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1999
------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 559,082 $ 350,043
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 86,878 158,737
Deferred income tax 6,535 4,455
Changes in operating assets and liabilities:
Accounts receivable (676,736) (113,846)
Other assets (986) (3,333)
Accrued liabilities 174,863 (122,331)
Accrued payroll 54,260 (59,902)
Income tax payable 2,175 (1,320)
Deferred revenue 11,950 8,410
------------------------------------
Net cash provided by operating activities 218,021 220,913
INVESTING ACTIVITIES
Purchase of property and equipment (21,014) (24,085)
Acquisition (100,000) -
------------------------------------
Net cash used in investing activities (121,014) (24,085)
FINANCING ACTIVITIES
Proceeds from issuance of debt 1,258,100 1,733,000
Payments on debt (1,033,000) (1,648,100)
Principle payments under capital lease obligations (32,516) (72,489)
Payments of shareholder distribution (72,450) (50,427)
Purchase of treasury stock (148,867) (199,834)
------------------------------------
Net cash provided by financing activities (28,733) (237,850)
------------------------------------
Increase in cash 68,274 (41,022)
Cash at beginning of year 15,920 84,194
------------------------------------
Cash at end of year $ 84,194 $ 43,172
====================================
Supplemental noncash activities:
Purchase of treasury stock with note payable to
shareholder $ 54,133 $ -
====================================
Property and equipment acquired under capital lease
obligations $ 110,952 $ 164,733
====================================
</TABLE>
SEE ACCOMPANYING NOTES.
F-32
<PAGE>
Compete, Inc.
Notes to Financial Statements
December 31, 1999
(Information subsequent to December 31, 1999 is unaudited)
1. BUSINESS OVERVIEW
Compete, Inc. ("the Company") offers Internet systems development and
architecture services, implementation services, and education to companies in a
wide array of industries throughout the United States and New Zealand. The
Company was incorporated on October 7, 1994 in Illinois, at which time it began
operations, and is structured as an "S" Corporation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
REVENUE RECOGNITION
Consulting revenues are comprised of revenue from consulting fees and are
recognized on a time and material basis as performed.
ADVERTISING EXPENSE
The cost of advertising is expensed as incurred. Advertising cost for years
ended December 31, 1998 and December 31, 1999 was $14,375 and $13,321,
respectively.
COMPREHENSIVE INCOME
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 Company as a result of the adoption of SFAS 130, as there was
no difference between net loss and comprehensive loss.
F-33
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
GOODWILL
Goodwill is carried at the lower of unamortized cost or fair value. Management
reviews the valuation and amortization of goodwill on a periodic basis, taking
into consideration any events or circumstances which may result in diminished
fair value. Goodwill is amortized using the straight line method over their
estimated life which has been determined to be three years. During 1998 and
1999, the Company incurred approximately $5,000 and $30,000 in amortization
expense, respectively.
INCOME TAXES
The Company has elected to be treated as a Subchapter S corporation under the
Internal Revenue Code of 1986, as amended, whereby federal income taxes are the
responsibility of the individual shareholders. The Company is subject to state
income taxes. Accordingly, the Company provides for state income taxes based on
statutory rates.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation on property and
equipment is computed using the straight-line method over the estimated useful
lives, which is three years.
SEGMENTS
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.
F-34
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK BASED COMPENSATION
Financial Accounting Standards Board Statement No. 123, ACCOUNTING FOR STOCK
BASED COMPENSATION ("FAS 123"), prescribed accounting and reporting standards
for all stock-based compensation plans, including employee stock options. As
allowed by FAS 123, the Company has elected to account for its employee
stock-based compensation in accordance with Accounting Principles Board Opinion
No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES ("APB 25").
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the FASB issued FAS 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND
HEDGING ACTIVITIES, as amended by FAS 137, which is effective for fiscal years
beginning after June 15, 2000. This statement requires companies to record
derivatives on the balance sheet as assets or liabilities measured at fair
value. Gains or losses resulting from changes in the values of those derivatives
would be accounted for depending on the use of the derivative and whether it
qualifies for hedge accounting. FAS 133 will be effective for the Company's year
ended December 31, 2001. Management believes that this statement will not have a
material impact on the Company's financial position or results of operations.
In December 1999, the Securities and Exchange Commission staff released Staff
Accounting Bulletin No. 101, REVENUE RECOGNITION IN FINANCIAL STATEMENTS ("SAB
101"), which provides guidance on the recognition, presentation and disclosure
of revenue in financial statements. The application of SAB 101 did not have a
material impact on the financial statements of the Company.
In March 1999, the FASB issued an exposure draft entitled "Accounting for
Certain Transactions involving Stock Compensation," which is a proposed
interpretation of APB 25. However, the exposure draft has not been finalized.
Once finalized and issued, the current accounting practices for transactions
involving stock compensation may need to change and such changes could affect
the Company's future operating results.
F-35
<PAGE>
3. CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
Cash and accounts receivable potentially expose the Company to concentrations of
credit risk, as defined by SFAS 105, DISCLOSURE OF INFORMATION ABOUT FINANCIAL
INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND FINANCIAL INSTRUMENTS WITH
CONCENTRATIONS OF CREDIT RISK. Excess cash is placed with highly rated financial
institutions. The Company provides credit, in the normal course of business, to
its customers. The Company performs ongoing credit evaluations of its customers
and maintains allowances for potential credit losses. At December 31, 1998 and
1999, three customers accounted for approximately 60% of revenues and 24% of
accounts receivable, and 57% of revenue and 54% of accounts receivable,
respectively.
4. EMPLOYEE BENEFIT PLAN
During 1998, the Company created a qualified 401(k) profit sharing plan
available to full-time employees who meet the plan's eligibility requirements.
This defined contribution plan permits employees to make contributions up to
maximum limits allowed by Internal Revenue Code. The Company, at its discretion,
matches a portion of the employee's contribution under a predetermined formula
based on the level of contribution and years of vesting service. During 1998 and
1999, the Company made contributions to the plan totaling $9,500 and $26,700,
respectively.
5. STOCK OPTIONS
Pro forma information regarding net income is required by SFAS 123, ACCOUNTING
FOR STOCK BASED COMPENSATION, which also requires that the information be
determined as if the Company had accounted for its employee stock options
granted under the fair value method prescribed by SFAS 123. The fair value for
these options was estimated at the date of grant using the Black-Scholes pricing
model with the following weighted-average assumptions:
<TABLE>
<S> <C>
Risk-free interest rate 7.00%
Dividend yield 0.00%
Weighted-average expected life of options 2.5 years
Expected volatility .65
</TABLE>
F-36
<PAGE>
5. STOCK OPTIONS (CONTINUED)
The Company has granted stock options to various employees under the terms of
the respective employee agreements. The stock options generally vest over
two-to-four years. The term of each option is ten years from the date of grant.
At December 31, 1998, the Company did not reserve common stock for future
issuance and no options were designated as being available for future grants. At
December 31, 1999, 750,000 shares of common stock were reserved for future
issuance and 184,652 options were available for future grants.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma compensation expense and net income is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1999
<S> <C> <C>
Pro forma compensation expense $ 156 $ 210,153
Pro forma net income $ 558,926 $ 139,890
</TABLE>
A summary of changes in common stock options during 1998 and 1999 is as follows:
<TABLE>
<CAPTION>
WEIGHTED-
RANGE OF AVERAGE
EXERCISE EXERCISE
SHARES PRICES PRICE
------------------------------------------------------
<S> <C> <C> <C>
Options outstanding December 31, 1997 - $ - $ -
------------------------------------------------------
Options granted 60,000 - 0.02
Options exercised - - -
Options canceled - - -
------------------------------------------------------
Options outstanding, December 31, 1998 60,000 $ 0.02 $ 0.02
Options granted 505,348 $3.01 - $3.31 3.03
Options exercised - - -
Options canceled - - -
------------------------------------------------------
Options outstanding, December 31, 1999 565,348 $0.02 - $3.31 $ 2.71
======================================================
</TABLE>
5. STOCK OPTIONS (CONTINUED)
At December 31, 1998 and 1999, the weighted-average remaining contractual life
of outstanding options was 9.03 years and 9.79 years, respectively. The
weighted-average grant-date fair value of options granted during 1998 and 1999
was approximately $0.02 and $12.12 per share, respectively. No options were
vested as of December 31, 1998 or 1999.
F-37
<PAGE>
6. LINE OF CREDIT
During 1998 and 1999, the Company continued to borrow funds under an existing
line of credit agreement with a financial institution. The agreement allowed for
borrowings up to $500,000 and $750,000 at December 31, 1998 and 1999
respectively, which are secured by all assets of the Company. The line of credit
bears interest at the financial institution's prime rate plus one percent, which
was 8.75% at December 1998 and 1999. Interest is due monthly until the line
matures on June 30, 2000. At December 1998 and 1999, the Company had outstanding
balances under the line of credit approximating $315,000 and $400,000
respectively.
7. COMMITMENTS AND CONTINGENCIES
The Company leases its principle office under a noncancelable operating lease
agreement that expires in September 2001. Rental expense for all operating
leases was approximately $61,362 and $125,000 for the years ended December 31,
1998 and 1999, respectively.
F-38
<PAGE>
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
As of December 31, 1999, minimum lease payments under all noncancelable lease
agreements were as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------------------------------------
<S> <C> <C>
2000 $ 128,978 $ 147,321
2001 95,846 121,048
2002 29,721 29,764
2003 4,730 8,169
2004 - 6,127
------------------------------------
Total minimum lease payments $ 259,275 $ 312,429
==================
Less amount representing interest 40,003
-------------------
Present value of minimum lease payments 219,272
Less current portion 99,757
-------------------
Long-term capital lease obligation $ 119,515
===================
</TABLE>
In December 1999, the Company entered into capital lease agreements for
equipment that was received subsequent to year end. The present value of the
future minimum lease commitment related to these capital leases are
approximately $45,000. The leases will expire in January 2002.
As of December 31, 1998 and 1999, the Company held approximately $129,000 (net
of $41,000 in accumulated depreciation) and $212,000 (net of $122,000 in
accumulated depreciation) in fixed asset acquired under capital leases.
8. ACQUISITION
On November 13, 1998, the Company acquired Visual Software Integrations, Inc.
("VSI") for $100,000. The consideration was allocated between computer equipment
and goodwill. As a condition of the acquisition, the Company entered into
employment agreements with the former owners of VSI which specified bonus
payments contingent
F-39
<PAGE>
8. ACQUISITION (CONTINUED)
upon the successful retention of certain former VSI employees. During 1999, the
Company recognized expense of $100,000 relating to these agreements. Should
future retention goals be met, the Company could potentially be liable for an
additional $100,000.
9. INCOME TAXES
The stockholders elected to have the Company treated as a S Corporation under
the Internal Revenue Code. Accordingly, the Company does not pay federal
corporate tax on its income. The Company's stockholders include their pro rata
share of the Company's taxable income in their individual income tax returns. It
is the intent of the Company to provide distribution to its stockholders in
amounts that are at least sufficient to cover the tax effect that results from
the Company's taxable income being included in the stockholders' individual
income tax returns.
The Company is subject to state income taxes in certain states which do not
recognize S Corporation status. The Company accounts for such state income taxes
using the liability method in accordance with Statement of Financial Accounting
Standards No. 109, ACCOUNTING FOR INCOME TAXES. Under this method, deferred tax
assets and liabilities are determined based upon differences between financial
reporting and tax basis of assets and liabilities. At December 31, 1999 and
1998, deferred taxes resulted primarily from differences between the book basis
and tax basis of accounts receivable, accounts payable, and other accrued
liabilities.
F-40
<PAGE>
10. SUBSEQUENT EVENTS
ACQUISITION OF COMPETE, INC.
On February 16, 2000, the shareholders of the Company entered into an Agreement
and Plan of Merger with Perficient, Inc. ("Perficient"). The aggregate purchase
price to be paid by Perficient consists of (i) $3,500,000 in cash, (ii)
$2,527,500 in promissory notes to be received within six months following the
closing, (iii) 2,200,000 shares of Perficient common stock, of which 1,100,000
shares are subject to adjustment and iv) the assumption of the Company's
outstanding employee options. The closing of the acquisition of the Company is
conditioned upon, among other things, obtaining the consent of Perficient's
stockholders. Accordingly, there can be no assurance that the acquisition will
be completed.
F-41
<PAGE>
PERFICIENT, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, 1999 March 31, 2000
------------------------------------------
(unaudited)
<S> <C> <C>
Current assets:
Cash $5,818,918 $9,615,112
Accounts receivable, net of allowance for doubtful accounts of
$68,058 as of December 31, 1999 and $121,058 as of March 31, 2000 560,149 1,442,534
Other receivable 3,185 31,336
Income tax receivable 10,916 10,916
Other current assets 68,479 164,868
------------------------------------------
Total current assets 6,461,647 11,264,766
Property and equipment, net 80,827 268,579
Goodwill, net 0 2,138,109
Other noncurrent assets 73,943 216,275
------------------------------------------
$6,616,417 $13,887,729
==========================================
Liabilities
Current liabilities:
Accounts payable $165,176 $292,167
Loans 0 3,677
Other current liabilities 199,150 571,825
------------------------------------------
Total current liabilities 364,326 867,669
------------------------------------------
Total liabilities 364,326 867,669
Stockholders' equity:
Common Stock, $.001 par value; 20,000,000 shares authorized;
3,503,333 and 4,065,047 issued and outstanding at December 31,
1999 and March 31, 2000, respectively 3,503 4,065
Additional paid-In capital 7,777,392 15,104,648
Unearned stock compensation (152,000) (133,000)
Retained deficit (1,376,804) (1,955,653)
------------------------------------------
Total stockholders' equity 6,252,091 13,020,060
------------------------------------------
$6,616,417 $13,887,729
==========================================
</TABLE>
See accompanying notes to interim consolidated financial statements.
F-42
<PAGE>
PERFICIENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------------------
1999 2000
------------------ -------------------
(unaudited) (unaudited)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Consulting revenues $266,275 $1,820,689
Cost of consulting revenues 153,082 937,829
------------------ -------------------
Gross margin 113,193 882,860
Selling, general and administrative 137,860 1,248,347
Stock compensation 899,000 19,000
Intangibles amortization 0 194,362
------------------ -------------------
Loss before income taxes (923,667) (578,849)
Benefit for income taxes (4,335) 0
------------------ -------------------
Net loss ($919,332) ($578,849)
================== ===================
Net loss per share:
Basic and diluted ($0.37) ($0.15)
================== ===================
Shares used in computing net
loss per share 2,500,000 3,931,714
================== ===================
</TABLE>
See accompanying notes to interim consolidated financial statements.
F-43
<PAGE>
PERFICIENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------------
1999 2000
---------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss ($919,332) ($578,849)
Adjustments to reconcile net loss
to net cash used in operations:
Depreciation 4,515 20,554
Intangibles amortization 0 194,362
Non-cash compensation 899,000 19,000
Loss from disposal of fixed assets 0 502
Changes in operating assets and liabilities
Accounts receivable (78,035) (882,385)
Other receivable 0 (28,151)
Other current assets (300) (96,389)
Other noncurrent assets 0 (142,332)
Accounts payable (5,653) 126,991
Income tax payable (12,138) (931)
Other liabilities 12,214 373,606
---------------- --------------
Net cash used in operating activities (99,729) (994,022)
INVESTING ACTIVITIES
Purchase of property and equipment 0 (213,786)
Cash paid for acquired businesses 0 (385,000)
Proceeds from disposal of fixed assets 0 4,977
---------------- --------------
Net cash used in investing activities 0 (593,809)
FINANCING ACTIVITIES
Proceeds from shareholder loan 400 0
Payments on shareholder loan (400) 0
Proceeds from short-term borrowings 410,271 43,531
Payments on short-term borrowings (236,784) (39,854)
Proceeds from stock issuances, net 0 5,380,348
---------------- --------------
Net cash provided by financing activities 173,487 5,384,025
---------------- --------------
Increase in Cash 73,758 3,796,194
Cash at beginning of period 22,996 5,818,918
---------------- --------------
Cash at end of period $96,754 $9,615,112
================ ==============
Supplemental noncash financing activities:
Goodwill associated with acquisition $0 ($2,332,471)
Issuance of 161,714 shares of common stock related
to acquisition $0 $1,940,568
F-44
<PAGE>
Issuance of 500,000 shares of
common stock in exchange for shareholder
receivable $250,000 $----
</TABLE>
See accompanying notes to interim consolidated financial statements.
F-45
<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 months ended March 31, 2000 many not be indicative of
the result for the full fiscal year ending December 31, 2000.
Certain amounts in the three months ended March 31, 1999 have been
reclassified to conform to the presentation for the three months ended March
31, 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
During 1998, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS No. 131"). SFAS 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 operated 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
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.
F-46
<PAGE>
The following table sets forth the computation of basic and diluted loss per
share for the periods:
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------
Mar 31, 1999 Mar 31, 2000
-------------- -------------
<S> <C> <C>
Numerator:
Loss from continuing operations-numerator for ($919,332) ($578,849)
basic earnings per share
Denominator:
Denominator for basic earnings per share- 2,500,000 3,931,714
weighted average shares
Effect of dilutive securities: stock options --- ---
-------------- -------------
Denominator for diluted earnings per share- 2,500,000 3,931,714
weighted average shares
============== =============
Basic and diluted loss per share: ($0.37) ($0.15)
============== =============
</TABLE>
5. 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. 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.
F-47
<PAGE>
6. Balance Sheet Components
<TABLE>
<CAPTION>
December 31, 1999 March 31, 2000
----------------- --------------
(unaudited)
<S> <C> <C>
Other current assets:
I/C -subsidiary $0 $(357)
Employee advances 3,185 18,878
----------------- --------------
$3,185 $18,521
================= ==============
Other noncurrent assets:
Notes receivable $5,000 $5,933
Leasehold improvements $0 $19,087
Capitalized acquisition costs 68,479 164,868
Deposits 0 128,984
Prepaid expenses 68,943 62,271
----------------- --------------
$142,422 $381,143
================= ==============
Other current liabilities:
Accrued expenses $135,169 $363,074
Income tax payable 0 0
Payroll liability 63,981 208,384
Sales tax payable 0 367
----------------- --------------
$199,150 $571,825
================= ==============
</TABLE>
7. Recent Developments
On January 3, 2000, the Company consummated the acquisition by way of
merger of LoreData, Inc., a Connecticut corporation, with and into the
Company's wholly-owned subsidiary, Perficient Acquisition Corp., a Delaware
corporation. Perficient Acquisition Corp. was the surviving corporation to the
merger and is continuing under the name, "Perficient LoreData, Inc." The
Company acquired LoreData for an aggregate purchase price of $2,460,000,
subject to certain post-closing adjustments. The purchase price of $2,460,000
consisted of (i) $385,000 in cash that was paid at closing, (ii) 30,005 shares
of the Company's 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 shares of common stock issued in
connection with the merger had a value of $12.83 per share, which was the
average closing price of the common stock for the ten consecutive trading days
prior to the public announcement of the transaction on December 13, 1999.
On February 7, 2000, the Company completed an $8.1 million private
placement of common stock. A total of 6 institutions participated in the
private placement. A total of 400,000 shares of common stock were issued and
sold by the Company, resulting in gross proceeds to the Company of $5.6
million. John T. McDonald and Bryan R. Menell, each an officer and a director
of the Company, and David S. Lundeen, a director of the Company, sold the
remaining
F-48
<PAGE>
180,000 shares of common stock in the private placement. The private placement
was priced at $14 per share.
On February 16, 2000, the Company entered into an Agreement and Plan
of Merger with Compete Inc. ("Compete"), Perficient Compete, Inc., and the
shareholders of Compete. The aggregate purchase price of Compete consisted of
(i) $3,500,000 in cash, (ii) $2,527,500 in promissory notes to be repaid
within six months following the closing, (iii) 2,200,000 shares of common
stock, of which 1,100,000 shares are subject to adjustment and (iv) the
assumption of Compete, Inc.'s outstanding employee options. The Merger became
effective on May 1, 2000.
Our unaudited pro forma Statement of Operations data for the three
months ended March 31, 2000, including the pro forma effect of the acquisition
of Compete, is as follows:
<TABLE>
<S> <C>
Pro forma revenues $4,043,752
Net loss from continuing operations ($5,194,468)
Net loss ($5,326,687)
Net loss per share ($0.89)
</TABLE>
F-49
<PAGE>
COMPETE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, 1999 March 31, 2000
--------------------------------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash $43,173 $109,287
Accounts receivable, net of allowance for doubtful accounts of $19,616 as of 1,149,213 1,683,457
December 31, 1999 and $39,616 as of March 31, 2000
Other current assets 0 22,803
--------------------------------------
Total current assets 1,192,386 1,815,547
Property and equipment, net 245,533 240,921
Goodwill, net 55,000 47,500
Other noncurrent assets 8,724 18,669
--------------------------------------
Total assets $1,501,643 $2,122,637
======================================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Liabilities
Current liabilities:
Accrued liabilities $72,166 $361,198
Accrued payroll 107,694 202,190
Deferred income tax 15,230 15,230
Deferred revenue 20,360 20,360
Short-term borrowings 400,000 512,000
Current portion of lease obligation 99,757 94,920
--------------------------------------
Total current liabilities 715,207 1,205,898
Lease obligation, net of current portion 119,515 101,267
--------------------------------------
Total liabilities 834,722 1,307,165
Stockholders' equity:
Common Stock, no par value; 3,600,000 shares authorized; 2,634,668 issued 20,495 20,495
and outstanding at December 31, 1999 and March 31, 2000, respectively
Less cost of 365,442 shares of common stock held in treasury (243,696) (243,696)
Additional paid-In capital 4,595,413 4,595,413
Unearned stock compensation (4,593,413) (4,250,925)
Retained deficit 888,122 694,185
--------------------------------------
Total stockholders' equity 666,921 815,472
--------------------------------------
Total liabilities and stockholders' equity $1,501,643 $2,122,637
======================================
</TABLE>
F-50
<PAGE>
COMPETE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------------
1999 2000
----------- -----------
(unaudited) (unaudited)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Consulting revenues $1,188,069 $2,223,063
Cost of consulting revenues 752,152 1,075,844
----------- -----------
Gross margin 435,917 1,147,219
Selling, general and administrative 442,685 747,356
Stock compensation 0 342,488
Intangibles amortization 7,500 7,500
----------- -----------
Net income (loss) from operations (14,268) 49,875
Acquisition related expenses 0 228,913
Interest expense 7,649 13,399
----------- -----------
Loss before income taxes (21,917) (192,437)
Provision (benefit) for income taxes 0 0
----------- -----------
Net loss ($21,917) ($192,437)
=========== ===========
Net loss per share:
Basic and diluted ($0.01) ($0.07)
=========== ===========
Shares used in computing net
loss per share 2,700,000 2,634,668
=========== ===========
</TABLE>
F-51
<PAGE>
COMPETE, INC.
STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
Three months ended March 31,
1999 2000
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss ($21,917) ($192,437)
Adjustments to reconcile net loss
to net cash provided by operations:
Depreciation 28,026 35,558
Intangibles amortization 7,500 7,500
Non-cash compensation 0 342,488
Changes in operating assets and liabilities
Accounts receivable (10,533) (534,244)
Other current assets (4,688) (22,803)
Other noncurrent assets 0 (9,945)
Accrued liabilities (108,742) 289,032
Accrued payroll 123,986 94,496
Deferred revenue (1,950) 0
---------- ----------
Net cash provided by operating activities 11,682 9,645
INVESTING ACTIVITIES
Purchase of property and equipment (9,932) (30,946)
---------- ----------
Net cash used in investing activities (9,932) (30,946)
FINANCING ACTIVITIES
Proceeds from issuance of debt 464,396 1,002,000
Payments on debt (453,100) (890,000)
Principle payments under capital lease obligation (13,457) (23,085)
Payments of shareholder distribution 0 (1,500)
Purchase of treasury stock (54,133) 0
---------- ----------
Net cash provided by (used in) financing activities (56,294) 87,415
---------- ----------
Increase (decrease) in cash (54,544) 66,114
Cash at beginning of period 84,194 43,173
---------- ----------
Cash at end of period $29,650 $109,287
========== ==========
</TABLE>
F-52
<PAGE>
COMPETE, INC.
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited financial statements of Compete, 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 months ended March 31, 2000 may not be indicative of the
result for the full fiscal year ending December 31, 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
During 1998, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS No. 131"). SFAS 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 operated 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
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.
F-53
<PAGE>
The following table sets forth the computation of basic and diluted loss per
share for the periods:
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------
March 31, 1999 March 31, 2000
-----------------------------------
<S> <C> <C>
Numerator:
Loss from continuing ($21,917) ($192,437)
operations-numerator for basic
earnings per share
Denominator:
Denominator for basic earnings per 2,700,000 2,634,668
share-weighted average shares
Effect of dilutive securities: stock -- --
options --------- ---------
Denominator for diluted earnings per 2,700,000 2,634,668
share-weighted average shares
========= =========
Basic and diluted loss per share: ($0.01) ($0.07)
========= =========
</TABLE>
5. 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. 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.
6. Balance Sheet Components
December 31, 1999 March 31, 2000
-----------------------------------
(unaudited)
Other current assets:
Undeposited funds $0 $22,803
------------- -------------
$0 $22,803
============= =============
Other noncurrent assets:
Employee Advances $0 $5,600
Deposits 8,724 13,069
------------- -------------
$8,724 $18,669
============= =============
F-54
<PAGE>
7. Recent Developments
On February 16, 2000, the Company entered into an Agreement and Plan
of Merger with Perficient Inc. ("Perficient"), Perficient Compete, Inc., and
the shareholders of Perficient. The aggregate purchase price of Compete
consisted of (i) $3,500,000 in cash, (ii) $2,527,500 in promissory notes to be
repaid within six months following the closing, (iii) 2,200,000 shares of
common stock, of which 1,100,000 shares are subject to adjustment and (iv) the
assumption of Compete, Inc.'s outstanding employee options. The Merger became
effective on May 1, 2000.
F-55
<PAGE>
===============================================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY OUR COMPANY, THE SELLING
STOCKHOLDERS OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR THE SOLICITATION OF AN OFFER TO BUY AND SECURITY OTHER THAN THE COMMON
STOCK OFFERED BY THIS PROSPECTUS, OR AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITY BY ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER
OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, IMPLY THAT THE
INFORMATION IN THIS PROSPECTUS IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
OF THIS PROSPECTUS.
-------------------------------------------------------------------------------
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
<S> <C>
SUMMARY 1
RISK FACTORS 5
USE OF PROCEEDS 17
CAPITALIZATION 17
MARKET PRICE AND DIVIDEND INFORMATION 19
PRO FORMA SELECTED FINANCIAL DATA 20
MANAGEMENT DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 28
BUSINESS 33
MANAGEMENT 43
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS 47
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 51
PRINCIPAL STOCKHOLDERS 53
DESCRIPTION OF PERFICIENT CAPITAL STOCK 55
SELLING STOCKHOLDERS AND PLAN OF DISTRIBUTION 59
LEGAL MATTERS 61
EXPERTS 61
WHERE YOU CAN FIND MORE INFORMATION 62
FINANCIAL STATEMENTS F-i
</TABLE>
===============================================================================
<PAGE>
===============================================================================
580,000 SHARES OF
COMMON STOCK
-------------------------------------------------------------------------------
PERFICIENT, INC.
-------------------------------------------------------------------------------
PROSPECTUS
-------------------------------------------------------------------------------
JUNE __, 2000
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware Corporation Law provides, in effect, that we
may, and in certain cases must, indemnify any person made a party to any
action by reason of the fact that he is or was one of our directors,
officers, employees, or agents against, in the case of a non-derivative
action, judgments, fines, amounts paid in settlement and reasonable expenses
(including attorneys' fees) incurred by him as a result of such action, and
in the case of a derivative action, against expenses (including attorney's
fees), if in either type of action he acted in good faith and in a manner he
reasonably believed to be in or not opposed to our best interests. This
indemnification does not apply, in a derivative action, to matters as to
which it is adjudged that the director, officer, employee or agent is liable
to us, unless upon court order it is determined that, despite such
adjudication of liability, but in view of all the circumstances of the case,
he is fairly and reasonably entitled to indemnity for expenses, and, in a
non-derivative action, to any criminal proceeding in which such person had
reasonable cause to believe his conduct was unlawful.
Article VI of our certificate of incorporation provides that no director
shall be liable to us or our stockholders for monetary damages for breach of
fiduciary duty as a director to the fullest extent permitted by Delaware law.
Article XI of our bylaws provide that we shall indemnify, to the fullest
extent permitted by Delaware law, any and all of our directors and officers,
or former directors and officers, or any person who may have served at our
request as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise.
We have entered into Indemnity Agreements with each of our directors and
officers, a form of which was filed as Exhibit 10.6 to our previous
Registration Statement on Form SB-2 (File No. 333-78337) declared effective
by the Securities and Exchange Commission on July 28, 1999. Under these
agreements, we will be obligated, to the extent permitted by Delaware Law, to
indemnify such directors and officers against all expenses, judgments, fines
and penalties incurred in connection with the defense or settlement of any
actions brought against them by reason of the fact that they served as
directors or officers or assumed certain responsibilities at our direction.
We have purchased directors and officers liability insurance in order to
limit our exposure to liability for indemnification of directors and officers.
II-1
<PAGE>
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be permitted to directors, officers or persons
controlling our company pursuant to the foregoing provisions, we have been
informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act
and is therefore unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid by a
director, officer, or controlling person of the registrant in the successful
defense of any action, suit, or proceeding) is asserted by such director,
officer, or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Expenses payable in connection with the issuance and distribution of the
securities being registered (estimated except in the case of the registration
fee) are as follows:
<TABLE>
<CAPTION>
Amount
------
<S> <C>
Registration Fee $ 2,737
Printing 5,000
Legal Fees and Expenses 20,000
Accounting Fees and Expenses 10,000
Transfer Agents and Registrars Fees 2,500
Miscellaneous
------
TOTAL $ 40,237
======
</TABLE>
The above fees will be paid by our company and not by the Selling
Stockholders.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Within the last two years, we have made the following sales of our
common stock in transactions that were not registered under the Securities
Act of 1933:
- On April 15, 1998, we sold 221,000 shares to Powershift Ventures,
LLC for an aggregate purchase price of $22,100 and 119,000 shares
to Mr. Lundeen, a director, for an aggregate purchase price of
$11,900. Mr. Papermaster, our Chairman of the Board, is the
president of Powershift Ventures, LLC and a general partner of
Powershift Ventures, L.P. Mr. Papermaster became a director and
Powershift Ventures, LLC became a 5% stockholder in connection
with this April 1998 stock
II-2
<PAGE>
purchase. Mr. Lundeen became a director and 5% stockholder in
connection with his April 1998 stock purchase.
- On June 10, 1998, we sold 214,500 shares to Powershift Ventures,
LLC for an aggregate purchase price of $21,450 and 115,500 shares
to Mr. Lundeen for an aggregate purchase price of $11,550.
- On July 15, 1998, we sold 214,500 shares to Powershift Ventures,
LLC for an aggregate purchase price of $21,450 and 115,500 shares
to Mr. Lundeen for an aggregate purchase price of $11,550.
- On January 12, 1999, we sold 350,000 shares to Beekman Ventures,
Inc., a 5% stockholder, for an aggregate purchase price of
$175,000, 50,000 shares to Mr. Hinners, now our Chief Financial
Officer, for an aggregate purchase price of $25,000 and 40,000
shares to Mr. Lundeen for an aggregate purchase price of $20,000.
Mr. McDonald, our Chief Executive Officer and a director, is the
president and sole stockholder of Beekman Ventures. However, Mr.
McDonald did not become an officer and director until April 1999.
Mr. Hinners did not become our Chief Financial Officer until April
1999.
- On January 3, 2000, we consummated the acquisition by way of
merger of LoreData, Inc. a Connecticut corporation, with and into
our wholly-owned subsidiary, Perficient Acquisition Corp., a
Delaware corporation. As part of the merger consideration, we
issued 30,005 shares of common stock, par value $.001 per share,
to the shareholders of LoreData, Inc. at closing. Additionally, we
issued 131,709 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 January 3, 2000.
- On February 7, 2000, we completed an $8.1 million private
placement of our common stock. We issued and sold a total of
400,000 shares of common stock resulting in gross proceeds of
$5.6 million. John T. McDonald, an officer and a director of
Perficient, Bryan R. Menell, an officer of Perficient, and David
S. Lundeen, a director of Perficient, sold the remaining 180,000
shares of common stock in the private placement. The private
placement was priced at $14.00 per share. Gilford Securities
Incorporated acted as placement agent in connection with the
private placement. We granted certain registration rights to the
purchasers of all of the shares.
- 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, of
which 324,550 shares were issued to Sam Fatigato, Compete's
Chief Executive Officer. In connection with the Compete
transaction, Mr. Fatigato was appointed to our Board of
Directors and named our Chief Operating Officer. Additionally,
we issued 1,001,933 shares of our common stock that are being
held in escrow for dispostion by the escrow agent in accordance
with the Escrow Agreement dated as of May 1, 2000, of which
324,550 shares are issued in the name of Mr. Fatigato. We
granted certain registration rights to the former shareholders
of Compete to whom shares of Perficient common stock were issued.
These sales were conducted in reliance upon exemptions from
registration under Section 4(2) of the Securities Act of 1933, as
transactions not involving a public offering.
II-3
<PAGE>
ITEM 27. EXHIBITS
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
1.1 + Form of Underwriting Agreement
3.1 + Certificate of Incorporation of Registrant.
3.2 + Bylaws of Registrant.
4.1 + Specimen Certificate for shares of common stock.
4.2 + Representative's Warrant.
5.1 ++ Opinion of Gibbons, Del Deo, Dolan, Griffinger & Vecchione, P.C.
10.1 + Sublease Agreement, dated April 1, 1999, between Registrant, as Lessee, and Powershift
Venture, LLC, as Lessor.
10.2 + 1999 Stock Option/Stock Issuance Plan.
10.3 + Employment Agreement between Registrant and John T. McDonald.
10.4 + Employment Agreement between Registrant and Bryan R. Menell.
10.5 + Employment Agreement between Registrant and John A. Hinners.
10.6 + Form of Indemnity Agreement between Registrant and its directors and
officers
10.7 + Contractor Service Agreement, dated December 31, 1998, between
Registrant and Vignette Corporation.
10.8 + Accounts Receivable Purchase Agreement, dated January 12, 1999, between the Registrant
and Silicon Valley Financial Services.
10.9 + Accounts Receivable Purchase Modification Agreement, dated July 12, 1999 between
Registrant and Silicon Valley Bank.
10.10 + Motive Communications, Inc. Consulting Services Subcontract Agreement dated February
27, 1999.
10.11 + Subcontract Agreement, dated March 15, 1999, between Registrant and Ventix Systems,
Inc.
10.12 + Agreement for Subcontracting Services, dated April 23, 1999, between Registrant and
Interwoven, Inc.
10.13 * Agreement and Plan of Merger, dated as of December 10, 1999, by and among the
Registrant, Perficient Acquisition Corp., LoreData, Inc. and John Gillespie.
10.14 * Amendment to Agreement and Plan of Merger dated as of January 3, 2000 by and among the
Registrant, Perficient Acquisition Corp, LoreData, Inc. and John Gillespie.
10.15 ** Agreement and Plan of Merger, dated as of February 16, 2000 by and among the
Registrant, Perficient Compete, Inc., Compete Inc., and the Shareholders of Compete,
Inc.
10.16 *** Registration Rights Agreement, dated as of January 3, 2000 between the Registrant and
John Gillespie.
10.17 *** Form of Registration Rights Agreement between the Registrant and certain purchasers of
common stock.
II-4
<PAGE>
10.18 *** Subcontract Agreement, dated as of November 4, 1999 between the Registrant and
Plumtree, Inc.
10.19 ++ Lease by and between HUB Properties Trust and the Registrant.
21 *** Subsidiaries.
23.1 Consent of Ernst & Young, LLP
23.2 ++ Consent of Gibbons, Del Deo, Dolan, Griffinger & Vecchione, P.C. - is made to Exhibit 5.1
24.1 ++ Power of Atttorney.
27.1 *** Financial Data Schedule for the year ended December 31, 2000.
</TABLE>
------------
+ Previously filed with the Securities and Exchange Commission as an
Exhibit to the Company's Registration Statement on Form SB-2 (File No.
333-78337) declared effective on June 28, 1999 by the Securities and Exchange
Commission and incorporated herein by reference.
++ previously filed with this Registration Statement.
* Previously filed with the Securities and Exchange Commission as an
Exhibit to the Company's Current Report on Form 8-K filed on January 14, 2000
and incorporated herein by reference.
** Previously filed with the Securities and Exchange Commission as
an Exhibit to the Company's Preliminary Proxy Statement filed on March 16,
2000 and incorporated herein by reference.
*** Previously filed with the Securities and Exchange Commission as
an Exhibit to the Company's Annual Report on Form 10-KSB filed on March 30,
2000 and incorporated herein by reference.
ITEM 28. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than 20 percent change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement; and
II-5
<PAGE>
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the registration
statement or any material change to such information in the registration
statement.
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply
if the registration statement is on Form S-3, Form S-8 or Form F-3, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time to be the initial BONA FIDE
offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities which remain unsold at the termination of the
offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial BONA FIDE offering
thereof.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers, and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer, or controlling person of the registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
II-6
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933,
the registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form SB-2 and authorized this
amendment no. 1 to the registration statement to be signed on its behalf by
the undersigned, in the City of Austin, State of Texas, on June 23, 2000.
PERFICIENT, INC.
By: /s/ John T. McDonald
-------------------------
John T. McDonald
Chief Executive Officer
IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933,
THIS AMENDMENT TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES STATED.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
*
--------------------------------- Chairman of the Board June 23, 2000
Steven G. Papermaster
/s/ John T. McDonald
--------------------------------- Chief Executive Officer and June 23, 2000
John T. McDonald and Director
(principal executive officer)
II-7
<PAGE>
/s/ John A. Hinners
--------------------------------- Chief Financial Officer and June 23, 2000
John A. Hinners Secretary
(principal financial and
accounting officer)
--------------------------------- Chief Operating Officer and June , 2000
Sam J. Fatigato Director
*
--------------------------------- Director June 23, 2000
David S. Lundeen
--------------------------------- Director June , 2000
Dr. W. Frank King
*
--------------------------------- Director June 23, 2000
Philip J. Rosenbaum
* /s/ John T. McDonald
--------------------------------- June 23, 2000
John T. McDonald,
attorney-in-fact
</TABLE>
II-8
