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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 1999 COMMISSION FILE NO.
0-27607
CYSIVE, INC.
(Exact name of registrant as specified in its charter).
Delaware 54-1698017
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(State of Incorporation) (I.R.S. Employer
Identification Number)
11480 SUNSET HILLS RD.
SUITE 200E
RESTON, VIRGINIA 22190
(703) 742-0865
(Address of principal executive offices).
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes No X
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As of November 12, 1999, 11,393,250 shares of common stock were outstanding.
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CYSIVE, INC.
FORM 10-Q
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
<S> <C>
Item 1. Financial Statements (Unaudited)
Balance Sheets as of December 31, 1998 and September 30, 1999 ...................... 2
Statements of Operations for the three months ended September 30, 1998 and
1999 and for the nine months ended
September 30, 1998 and 1999.................................................... 3
Statements of Cash Flows for the nine months ended
September 30, 1998 and 1999 ................................................... 4
Notes to Financial Statements ...................................................... 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................................... 6
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds....................................... 11
Item 4. Submission of Matters to a Vote of Security Holders ............................ 12
Item 6. Exhibits and Reports on Form 8-K................................................ 12
</TABLE>
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PART I.
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CYSIVE, INC.
BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
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ASSETS (Unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 612 $ 1,117
Accounts receivable, less allowance of $160 and $750 at
December 31, 1998 and September 30, 1999, respectively 2,070 5,464
Prepaid expenses and other assets 112 512
----------------- ----------------------
Total current assets 2,794 7,093
Furniture, fixtures and equipment, net 339 530
Other assets 30 202
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TOTAL ASSETS $ 3,163 $ 7,825
================= ======================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 27 $ 482
Accrued bonus 141 1,482
Accrued liabilities 476 1,194
----------------- ----------------------
Total current liabilities 644 3,158
Commitments - -
Stockholders' equity:
Preferred stock, $0.01 par value; 10,000,000
shares authorized; no shares issued or
outstanding - -
Common stock, $0.01 par value; 75,000,000
shares authorized; 6,777,000 and 8,127,000 issued and
outstanding at December 31, 1998 and September 30,
1999, respectively 68 81
Additional paid-in capital 177 29,767
Deferred stock compensation (106) (15,312)
Retained earnings (deficit) 2,380 (9,869)
----------------- ----------------------
Total stockholders' equity 2,519 4,667
----------------- ----------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $3,163 $ 7,825
================== ======================
</TABLE>
The accompanying notes are an integral part of the financial statements.
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CYSIVE, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
(dollars in thousands, except share and per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------------- -------------------------------
1998 1999 1998 1999
--------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
REVENUES $ 2,585 $ 7,282 $ 5,778 $ 16,706
Direct costs 968 2,544 2,777 6,015
--------------- --------------- -------------- --------------
Gross profit 1,617 4,738 3,001 10,691
COSTS AND EXPENSES:
General and administrative 729 2,201 1,738 4,619
Sales and marketing 486 1,647 1,158 3,370
Stock compensation 28 28 28 13,312
--------------- --------------- -------------- --------------
Total operating expenses 1,243 3,876 2,924 21,301
--------------- --------------- -------------- --------------
OPERATING INCOME (LOSS) 374 862 77 (10,610)
Other income, net 7 11 23 36
--------------- --------------- -------------- --------------
NET INCOME (LOSS) $ 381 $ 873 $ 100 $ (10,574)
Basic earnings (loss) per share $0.06 $0.11 $0.01 ($1.30)
=============== =============== ============== ==============
Weighted average shares outstanding 6,777,000 8,127,000 6,777,000 8,127,000
=============== =============== ============== ==============
Diluted earnings (loss) per share $0.05 $0.06 $0.01 ($1.30)
=============== =============== ============== ==============
Weighted average shares and common equivalent
shares outstanding 8,030,528 13,618,277 7,996,407 8,127,000
=============== =============== ============== ==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
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CYSIVE, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
1998 1999
----------------- -----------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) 100 (10,574)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation 123 136
Amortization 1 16
Stock option compensation expense 28 13,312
Loss on sale of furniture, fixtures and equipment - 3
Provision for doubtful accounts - 590
Changes in assets and liabilities:
Accounts receivable (865) (3,984)
Prepaid expenses and other assets (34) (572)
Accounts payable 26 455
Accrued liabilities 522 2,045
----------------- -----------------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (99) 1,427
Cash flows from investing activities:
Capital expenditures (144) (347)
----------------- -----------------
NET CASH USED IN INVESTING ACTIVITIES (144) (347)
Cash flows from financing activities:
Stockholder distributions (525) (575)
Advances under line of credit 78 -
Repayments of line of credit advances - -
----------------- -----------------
NET CASH USED IN FINANCING ACTIVITIES (447) (575)
(Decrease) increase in cash and cash equivalents (690) 505
Cash and cash equivalents at beginning of period 690 612
----------------- -----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD - 1,117
================= =================
</TABLE>
The accompanying notes are an integral part of the financial statements.
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CYSIVE, INC.
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying financial statements of Cysive, Inc. ("Cysive" or the
"Company") are unaudited and in the opinion of management, reflect all normal
and recurring adjustments, which are necessary for a fair presentation as of the
dates and for the periods presented. The financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information. Consequently, these statements do not include all the
disclosures normally required by generally accepted accounting principles for
annual financial statements. Accordingly, these financial statements should be
read in conjunction with the Company's audited financial statements and notes
thereto for the period ended December 31, 1998, included in the Registration
Statement on Form S-1 filed by the Company with the Securities and Exchange
Commission on October 15, 1999. The results of operations for the three month
and nine month periods ended September 30, 1999 are not necessarily indicative
of results for the full year.
On September 24, 1999, the Company declared a 2.25-for-one stock split. All
share and per-share amounts, including stock option information, have been
restated in these notes and the accompanying financial statements to reflect
this stock split.
2. INITIAL PUBLIC OFFERING
On October 15, 1999, the Company completed its initial public offering ("IPO")
and issued 3,000,000 shares of common stock at $17.00 per share. An additional
350,000 shares were sold by an existing stockholder at $17.00 per share. In
connection with the IPO, Cysive offered the underwriters of the offering an
option to purchase an additional 502,500 shares of common stock (252,500 sold by
the Company and 250,000 sold by an existing stockholder) at the $17.00 per share
offering price. This option was exercised on October 22, 1999. Total proceeds to
the Company from its IPO, net of underwriting discounts and costs of the
offering, were approximately $50.7 million.
3. EARNINGS (LOSS) PER SHARE
According to Statement of Financial Accounting Standards No. 128, "Earnings Per
Share," the Company presents both basic net income per share and diluted net
income per share. Basic net income per share is based on the weighted average
number of shares outstanding during the period. Diluted net income per share
reflects the per share effect of dilutive common stock equivalents. Potentially
dilutive shares as of September 30, 1999, have not been included in the diluted
per share calculation for the nine-month period ended September 30, 1999 because
their effects would be anti-dilutive due to the loss incurred by the Company
during this period.
4. COMPENSATION EXPENSE
Stock compensation expense consists of grants of options to purchase 3,003,750
shares of common stock at an exercise price below the fair market value of the
common stock on the date of grant. A total of 1,346,360 of these options vested
at the time of issuance and as a result, the Company recorded $13.3 million in
stock compensation expense in April 1999. The remaining $15.1 million has been
deferred and will be amortized over the next four years as the option vest.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis compares the three month and nine month
periods ended September 30, 1999 to the corresponding periods ended September
30, 1998 for Cysive, Inc. ("Cysive," the "Company," "we," "us" and "our") and
should be read in conjunction with the Company's financial statements and notes
thereto appearing elsewhere in this Form 10-Q and in conjunction with the
Company's October 15, 1999 Registration Statement on Form S-1, as amended. The
matters discussed herein and elsewhere in this 10-Q may include forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. Forward-looking statements include, without limitation, any statement that
may predict, forecast, indicate or imply future results, performance or
achievements and may contain the words "believe," "anticipate," "expect,"
"estimate," "project," "will be," "will continue," "will likely result" or
similar words or phrases. The matters discussed herein involve risks and
uncertainties which could result in operating performance that is materially
different from that implied in the forward- looking statements. Risks that could
cause actual results to differ materially from those in the forward-looking
statements include, but are not limited to, our ability to manage growth and
attract and retain highly trained and experienced employees; the loss of or a
significant reduction in the work performed for any of our largest customers;
changes in the demand for professional Internet services; increased competition
in the Internet and electronic business industry; year 2000 issues; and our
ability to respond to new technological advances in the internet and e-business
industry. Additional information concerning these and other risks and
uncertainties is contained from time to time in the Company's filings with the
Securities and Exchange Commission. Given these risks and uncertainties,
investors should not place undue reliance on forward- looking statements as a
prediction of actual results.
OVERVIEW
Cysive is a leading software engineering firm that designs and builds complex,
highly customized systems supporting large scale e-businesses. E-businesses are
companies that conduct a significant portion of their business through
electronic commerce channels which are integrated with existing internal
systems, such as accounting, billing, manufacturing and inventory control. Since
commencing operations in 1994, we have used advanced Internet technologies to
build our customers' e-business capabilities. We design software systems which
can handle high volumes of customer transactions, operate reliably 24 hours per
day, seven days per week and expand to meet the growth requirements of large
scale e-businesses.
We derive our revenues from software engineering services which are provided
primarily on a time and materials basis. Revenues are recognized and billed
monthly by multiplying the number of hours expended by our software engineers in
the performance of the contract by the established billing rates. Our customers
reimburse us for direct expenses allocated to a project such as airfare, lodging
and meals. Consequently, these direct reimbursements are excluded from revenues.
Our financial results may fluctuate from quarter-to-quarter based on factors
such as the number of projects, the amount and timing of our customers'
expenditures, employee utilization rates, hourly billing rates and general
economic conditions. Revenues from a few large customers may constitute a
significant portion of our total revenues in a particular quarter or year. For
the nine-month periods ended September 30, 1998 and 1999, our five largest
customers represented 68.7% and 69.3% of our revenues, respectively.
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RESULTS OF OPERATIONS
The following table presents, for the periods indicated, the relative
composition of revenue and selected statements of operations data as a
percentage of revenue:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------------- -------------------------------
1998 1999 1998 1999
--------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
REVENUES 100.0% 100.0% 100.0% 100.0%
Direct costs 37.4% 34.9% 48.1% 36.0%
--------------- --------------- -------------- --------------
Gross profit 62.6% 65.1% 51.9% 64.0%
COSTS AND EXPENSES:
General and administrative 28.2% 30.2% 30.1% 27.6%
Sales and marketing 18.8% 22.6% 20.0% 20.2%
Stock compensation 1.1% 0.4% 0.5% 79.7%
--------------- --------------- -------------- --------------
Total operating expenses 48.1% 53.2% 50.6% 127.5%
--------------- --------------- -------------- --------------
OPERATING INCOME (LOSS) 14.5% 11.9% 1.3% (63.5%)
Other income, net 0.2% 0.1% 0.4% 0.2%
--------------- --------------- -------------- --------------
NET INCOME (LOSS) 14.7% 12.0% 1.7% (63.3%)
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1998
Revenues. Revenues increased $4.7 million, or 181.7%, to $7.3 million for the
three months ended September 30, 1999 from $2.6 million for the same period in
1998. This increase in revenues primarily reflects the more mature direct sales
model established in mid-1998, the benefits of which were not fully realized
until early 1999. As a result of our direct sales efforts, our number of
customers increased to 16 for the three months ended September 30, 1999 from 13
for the same period in 1998 and our average billings per customer increased
128.9%.
Direct Costs. Direct costs increased $1.6 million, or 162.9%, to $2.6 million
for the three months ended September 30, 1999 from $1 million for the same
period in 1998. Employee headcount increased 155% compared to 1998. As a
percentage of revenues, direct costs decreased to 34.9% for the three months
ended September 30, 1999 from 37.4% for the same period in 1998. This decrease
as a percentage of revenues was primarily attributable to our lower utilization
rates in 1998. The average utilization rate increased to 96% for the three
months ended September 30, 1999 from 86% for the same period in 1998.
Gross Profit. Gross profit increased $3.1 million, or 193.0%, to $4.7 million
for the three months ended September 30, 1999 from $1.6 million for the same
period in 1998. Because our revenue growth exceeded the rate that direct costs
increased, the gross margin increased to 65.1% for the three months ended
September 30, 1999 from 62.6% for the same period in 1998.
General and Administrative. General and administrative expenses increased $1.5
million, or 201.7%, to $2.2 million for the three months ended September 30,
1999 from $729,000 for the same period in 1998. As a percentage of revenues,
general and administrative expenses increased to 30.2% for the three months
ended September 30, 1999 from 28.2% for the same period in 1998. This increase
was due primarily to our expansion of our recruiting and corporate
administrative staffs as well as an increase in costs to support the increased
headcount.
Sales and Marketing. Sales and marketing expenses increased $1.2 million, or
239.1%, to $1.6 million for the three months ended September 30, 1999 from
$486,000 for the same period in 1998. As a percentage of revenues, sales and
marketing expenses increased to 22.6% for the three months ended September 30,
1999 from 18.8% for the same period in 1998. This increase was primarily due to
the additional expansion of our direct sales force to 14 for
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the three months ended September 30, 1998 from 8 for the same period in 1998.
In addition, the Company incurred additional expenses by increasing its
marketing and brand building programs in the three month period ended September
1999.
Operating Income. Operating income increased $488,000 million, or 130.5% to
$862,000 million for the three months ended September 30, 1999 from $374,000 for
the same period in 1998. The operating margin decreased to 11.8% for the three
months ended September 30, 1999 from 14.5% for the same period in 1998.
Other Income, Net. Other income, net increased $4,000, or 52.5%, to $11,000
for the three months ended September 30, 1999 from $7,000 for the same period in
1998 primarily due to increased interest income in 1999 versus interest expense
in the same period in 1998.
Net Income. Net income increased $492,000, or 129.1% to $873,000 million for the
three months ended September 30, 1999 from $381,000 for the same period in 1998.
As a result of the above factors, the net margin decreased to 12.0% for the
three months ended September 30, 1999 from 14.7% in the same period in 1998.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1998
Revenues. Revenues increased $10.9 million, or 189.1%, to $16.7 million for the
nine months ended September 30, 1999 from $5.8 million for the same period in
1998. This increase in revenues primarily reflects the more mature direct sales
model established in mid-1998, the benefits of which were not fully realized
until early 1999. As a result of our direct sales efforts, our number of
customers increased to 25 for the nine months ended September 30, 1999 from 19
for the same period in 1998 and increased customer size of 119.7%. In addition,
as we completed several large distributed systems and migrated to e-business
applications, our average billing rates increased.
Direct Costs. Direct costs increased $3.2 million, or 116.7%, to $6.0 million
for the nine months ended September 30, 1999 from $2.8 million for the same
period in 1998. As a percentage of revenues, direct costs decreased to 36.0% for
the nine months ended September 30, 1999 from 48.1% for the same period in 1998.
This significant decrease as a percentage of revenues was primarily attributable
to our low utilization rates in 1998, which resulted from the completion of two
of our largest distributed systems and the extensive training of all of our
software engineers during the first half of 1998. The average utilization rate
increased to 89% for the nine months ended September 30, 1999 from 65% for the
same period in 1998.
Gross Profit. Gross profit increased $7.7 million, or 256.1%, to $10.7 million
for the nine months ended September 30, 1999 from $3.0 million for the same
period in 1998. Because our revenue growth exceeded the rate that direct costs
increased, the gross margin increased to 64.0% for the nine months ended
September 30, 1999 from 51.9% for the same period in 1998.
General and Administrative. General and administrative expenses increased $2.9
million, or 165.7%, to $4.6 million for the nine months ended September 30, 1999
from $1.7 million for the same period in 1998. This increase was due primarily
to our expansion of our recruiting and corporate administrative staffs as well
as an increase in costs to support the increased headcount. As a percentage of
revenues, general and administrative expenses decreased to 27.6% for the nine
months ended September 30, 1999 from 30.1% for the same period in 1998. This
decrease was due primarily to our ability to spread our costs over a greater
revenue base, particularly with respect to depreciation and amortization.
Sales and Marketing. Sales and marketing expenses increased $2.2 million, or
191.1%, to $3.4 million for the nine months ended September 30, 1999 from $1.2
million for the same period in 1998. As a percentage of revenues, sales and
marketing expenses increased to 20.2% for the nine months ended September 30,
1999 from 20.0% for the same period in 1998. This increase was primarily due to
the significant expansion of our direct sales force in the first half of 1998
without the benefit of revenues generated by those hires. This increase was
partially offset by additional hires in the marketing group and the execution of
our marketing and brand building programs in 1999.
Stock Compensation. We recorded $13.3 million in stock compensation expense in
the nine-month period ended September 30, 1999. This expense represents the
difference between the deemed fair market value of the underlying options and
their exercise price.
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Operating Income (Loss). Operating loss increased $10.7 million to $10.6 million
for the nine months ended September 30, 1999 from an operating income of $77,000
for the same period in 1998. The operating loss margin increased to 63.5% for
the nine months ended September 30, 1999. Excluding the impact of the stock
compensation expense for the nine months ended September 30, 1999, operating
income increased $2.6 million to $2.7 million for the nine months ended
September 30, 1999 from $77,000 for the same period in 1998. Excluding the
impact of the stock compensation expense, the operating margin increased to
15.9% for the nine months ended September 30, 1999 from 1.3% for the same period
in 1998.
Other Income, Net. Other income, net increased $14,000, or 60.0%, to $36,000 for
the nine months ended September 30, 1999 from $22,000 for the same period in
1998 primarily due to gains on the sale of fixed assets, interest income and the
timing of matching charitable contributions made on behalf of our employees.
Net Income (Loss). Net loss increased $10.7 million to $10.6 million for the
nine months ended September 30, 1999 from net income of $100,000 for the same
period in 1998 due to the stock compensation expense recorded in the nine-month
period ended September 30, 1999. As a result of the above factors, the net loss
margin increased to 63.3% for the nine months ended September 30, 1999 from 1.7%
for the same period in 1998.
LIQUIDITY AND CAPITAL RESOURCES
On October 15, 1999, Cysive completed its initial public offering of securities.
After deducting expenses, the Company received approximately $46.7 million in
proceeds from this transaction. In connection with the initial public offering,
the Company offered the underwriters of the offering an option to purchase an
additional 252,500 shares of common stock at the $17.00 per share offering
price. The Company received approximately $4.0 million in net proceeds from this
option, which was exercised on October 22, 1999.
In September 1999, we renewed our line of credit with Merrill Lynch Business
Financial Services Inc. under which we are entitled to draw up to $2.5 million
in borrowings. We intend to use any borrowings under the line of credit for
working capital purposes. The interest rate on amounts borrowed under the line
of credit is calculated using the 30-day dealer commercial paper rate as quoted
in The Wall Street Journal, plus 2.65% per annum. The credit facility expires in
September 2000. Any borrowings under the line of credit will be secured by all
of our assets. The line of credit requires our financial ratios to be in
compliance with the debt covenants. At September 30, 1999, we had no outstanding
borrowings under the line of credit.
Cash and cash equivalents were $1,117,000 at September 30, 1999 and $612,000 at
December 31, 1998. Net cash (used in) provided by operating activities was
$99,000 and $1.4 million for the periods ended September 30, 1998 and 1999,
respectively. Capital expenditures of $144,000 and $347,000 for the nine months
ended September 30, 1998 and 1999, respectively, were used primarily for
computer equipment, office equipment and leasehold improvements related to our
growth.
Through September 30, 1999, the Company has operated as an S-corporation under
the Internal Revenue Code. Under the provisions of the tax code, the Company's
stockholders include their pro rata share of the Company's income in their
personal income tax returns. Accordingly, the Company was not subject to federal
and most state income taxes during the historical periods presented.
Stockholders elected to rescind the S-corporation election effective on October
1, 1999. The Company anticipates to fund the S-corporation distribution through
operating income.
We anticipate that the net proceeds from the initial public offering, together
with existing sources of liquidity and funds generated from operations, should
be adequate to fund our currently anticipated cash needs through at least the
next 18 months. To the extent we are unable to fund our operations from cash
flows, we may need to obtain financing from external sources in the form of
either additional equity or indebtedness. There can be no assurance that
additional financing will be available at all, or that, if available, the
financing will be obtainable on favorable terms.
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YEAR 2000 READINESS DISCLOSURE
Many currently installed computer systems and software products are coded to
accept only two-digit year entries in the date code field. Consequently, on
January 1, 2000, many of these systems could fail or malfunction because they
may be unable to distinguish 21st century dates from 20th century dates. As a
result, computer systems and software used by many companies, including us, our
customers and our potential customers, may need upgrades to comply with year
2000 requirements.
To become ready for year 2000, in 1999 we upgraded our network and operating
systems and purchased year 2000 compliant servers, workstations, software
packages and peripheral devices. We have also purchased year 2000 compliance
testing software which we have used to test our systems. These tests resulted in
no material failures. As a result of our upgrades, new purchases and our year
2000 testing, we believe that our principal internal systems are year 2000
compliant. However, we will continue to assess and test our internal systems to
ensure that all additions and/or modifications to our systems meet our
specifications for year 2000 compliance. Because we and our customers depend, to
a very substantial degree, upon the proper functioning of our computer systems,
a failure of our systems to correctly recognize dates beyond December 31, 1999
could materially disrupt our operations and adversely affect our business,
financial condition and results of operations.
The year 2000 problem may also affect third-party software products that are
incorporated into the business systems that we create for our customers. Our
customers license software directly from third party suppliers, but at our
customers' request, we will discuss year 2000 issues with these suppliers and
will perform internal testing on their products. We do not guarantee that the
software licensed by these suppliers is year 2000 compliant. Any failure on our
part to provide year 2000 compliant e-business systems to our customers could
result in financial loss, harm to our reputation and liability to others.
We do not currently have any information concerning the year 2000 compliance
status of our customers nor do we intend to examine our customers for year 2000
compliance. Our current or potential customers may incur significant expenses to
achieve year 2000 compliance. If our customers are not year 2000 compliant, they
may experience material costs to remedy problems or may face litigation costs.
In either case, year 2000 issues could reduce or eliminate the budgets that
current or potential customers could have for purchases of our services. In
addition, we anticipate that some of our customers will put restrictions on new
software being placed into operation within their systems environment in the
final four to six weeks of 1999. As a result, our business, financial condition
and results of operations could be adversely affected.
We have funded the costs to become year 2000 compliant from operating cash flows
and have not separately accounted for these costs in the past. To date, these
costs have not been material. We will incur additional costs related to year
2000 compliance for administrative personnel to manage the process of remaining
year 2000 compliant. The possibility exists that we may experience problems and
costs with year 2000 compliance, which could divert management's time from
ordinary business activities and have a material adverse effect on our business,
financial condition and operating results. The worst case scenario for year 2000
problems for us would be the need to cease normal operations for an indefinite
period of time while we attempt to respond to our own year 2000 problems.
Our year 2000 contingency plan is now completed. The cost of maintaining our
plan is not expected to be material.
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PART II.
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On September 24, 1999, Cysive reincorporated from Virginia to Delaware and, in
connection therewith, it adopted a new certificate of incorporation and bylaws,
duly approved and adopted by Cysive's stockholders. These documents generally
define the rights of holders of Cysive's common stock, par value $0.01 per
share. The effect of this change was to: (i) increase the number of shares of
preferred stock authorized to be issued to 10,000,000, par value $0.01, (ii)
remove cumulative voting rights, and (iii) unless otherwise noted in Cysive's
certificate of incorporation, avail itself of the rights and benefits under
Delaware General Corporation Law.
Between July 1, 1999 and September 30, 1999, Cysive granted options to purchase
a total of 594,438 shares of common stock under the 1994 Amended Stock Option
Plan to certain of its employees and directors.
On October 14, 1999, Cysive's registration statement on Form S-1, as amended,
registering 3,350,000 of its common stock, par value $.01, became effective. Of
these 3,350,000 shares, 3,000,000 were offered for sale by Cysive and 350,000
were offered for sale by a selling stockholder, at a price of $17.00 per share.
The gross proceeds received by Cysive and the selling stockholder was
approximately $50.7 million and $6.0 million, respectively. Thomas Weisel
Partners LLC, First Union Securities, Inc. and Friedman, Billings & Ramsey &
Co., Inc. acted as managing underwriters for the initial public offering.
Underwriting discounts and commissions for the shares Cysive and the selling
stockholder sold in the initial public offering totaled $3.6 million and
$417,000, respectively. In addition, in connection with its initial public
offering, Cysive anticipates paying an estimated $750,000 in expenses.
None of Cysive's expenses in connection with the offering were paid directly or
indirectly to directors or officers of Cysive or their associates, or to persons
owning 10% or more of Cysive's Common Stock or other affiliates of the Company.
After deducting underwriting discounts and commissions and other expenses,
Cysive and the selling stockholder received approximately $46.7 million and $5.5
million, respectively, in proceeds from the initial public offering.
In connection with the initial public offering, the Company registered and
offered the underwriters of the offering an option to purchase an additional
252,500 shares of common stock from the Company and 250,000 shares of common
stock from the selling stockholder at the $17.00 offering price. The
underwriters exercised this option on October 22, 1999. The Company and the
selling stockholder, after deducting underwriting discounts and commissions,
received approximately $4.0 million and $4.0 million, respectively, in net
proceeds from the exercise of this option.
The primary purposes of the initial public offering were to obtain additional
capital for working capital and general corporate purposes (including increases
in capital expenditures, sales and marketing activities and geographic
expansion) and to create a public market for Cysive's common stock.
11
<PAGE> 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On September 24, 1999, by unanimous consent, the stockholders approved the
Company's reincorporation from Virginia to Delaware, effective September 24,
1999, and approved a change in the Company's S-corporation tax election. The
Company's change from an S-corporation to a C-corporation was effective as of
October 1, 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits:
27.1 Financial Data Schedule
b. Reports on Form 8-K:
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Form 10-Q to be signed on its behalf by the
undersigned thereunto duly authorized.
CYSIVE, INC.
<TABLE>
<S> <C>
Date: November 15, 1999 /s/ John R. Lund
--------------------------------------
John R. Lund
Chief Financial Officer, Treasurer and Secretary
(Chief Financial and Accounting Officer)
</TABLE>
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS FOR THE THREE MONTHS AND NINE MONTHS ENDED
9/30/99 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-START> JUL-01-1999 JAN-01-1999
<PERIOD-END> SEP-30-1999 SEP-30-1999
<CASH> 1,117 1,117
<SECURITIES> 0 0
<RECEIVABLES> 6,214 6,214
<ALLOWANCES> 750 750
<INVENTORY> 0 0
<CURRENT-ASSETS> 7,093 7,093
<PP&E> 1,023 1,023
<DEPRECIATION> 493 493
<TOTAL-ASSETS> 7,825 7,825
<CURRENT-LIABILITIES> 3,158 3,158
<BONDS> 0 0
0 0
0 0
<COMMON> 81 81
<OTHER-SE> 4,586 4,586
<TOTAL-LIABILITY-AND-EQUITY> 7,825 7,825
<SALES> 7,282 16,706
<TOTAL-REVENUES> 7,282 16,706
<CGS> 2,544 6,015
<TOTAL-COSTS> 2,544 6,015
<OTHER-EXPENSES> 3,876 21,301
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 873 (10,574)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 873 (10,574)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 873 (10,574)
<EPS-BASIC> 0.11 (1.30)
<EPS-DILUTED> 0.06 (1.30)
</TABLE>
