<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 for the Quarterly Period Ended June 30, 2000
or
[ ] Transition Report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 for the Transition Period from _________________ to
_______________
Commission File Number 0-28873
PRIME RESPONSE, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 13-3972166
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
150 CambridgePark Drive
Cambridge, MA 02140
(Address of Principal Executive Offices, Including Zip Code)
Registrant's Telephone Number, Including Area Code: (617) 876-8300
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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
On August 11, 2000, 20,466,000 (as restated) shares of the Registrant's Common
Stock, $.01 par value, were outstanding.
<PAGE>
PRIME RESPONSE, INC.
Part I
Financial Information
Prime Response, Inc. is filing this Quarterly Report on Form 10-Q/A for the
purposes of amending (i) the total shares outstanding figure as of August 11,
2000 set forth on the cover page and (ii) all computations set forth in Part I,
Item 1 -- Consolidated Financial Statements, that are derived from the total
shares outstanding figure as of June 30, 2000, including the net loss per share
basic and diluted for the three and six month periods ended June 30, 2000.
2
<PAGE>
ITEM 1: FINANCIAL STATEMENTS
PRIME RESPONSE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
--------------------------
2000 1999
--------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................................................ $ 40,091 $ 3,999
Accounts receivable, net of allowance for doubtful accounts of $225 and $147, respectively ......... 10,648 9,057
Prepaid and other current assets..................................................................... 2,328 2,595
--------- --------
Total current assets............................................................................... 53,067 15,651
Property and equipment, net............................................................................ 3,137 2,602
Intangible and other assets, net....................................................................... 7,230 7,262
--------- --------
Total assets....................................................................................... $ 63,434 $ 25,515
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.................................................................................... $ 3,326 $ 3,920
Short-term debt and capital lease obligations....................................................... 98 2,289
Accrued expenses and other liabilities.............................................................. 5,943 4,472
Accrued interest income............................................................................. 176 176
Deferred revenue.................................................................................... 5,016 6,074
--------- --------
Total current liabilities......................................................................... 14,559 16,931
Long-term debt and capital lease obligations........................................................... -- 311
Long-term accrued interest income...................................................................... 1,310 1,398
Commitments and contingencies
Redeemable common stock, $0.01 par value, 0 shares issued and outstanding at June 30, 2000, and
1,677,307 shares issued and outstanding at December 31, 1999......................................... -- 8,295
Series A redeemable convertible preferred stock, $0.01 par value, 1,155,000 shares authorized;
0 shares issued and outstanding at June 30, 2000, and 1,155,000 shares issued and outstanding at
December 31, 1999 (liquidation value: $51,546,000 at December 31, 1999).............................. -- 27,842
Series B redeemable convertible preferred stock, $0.01 par value, 1,700,000 shares authorized;
0 shares issued and outstanding at June 30, 2000, and 1,699,834 shares issued and outstanding at
December 31, 1999 (liquidation value: $21,263,000 at December 31, 1999).............................. -- 10,343
Series C redeemable convertible preferred stock, $0.01 par value, 3,000,000 shares authorized;
0 shares issued and outstanding at June 30, 2000, and 1,833,331 shares issued and
outstanding at December 31, 1999 (liquidation value: $11,000,000 at December 31, 1999)............... -- 4,891
Stockholders' equity (deficit):
Common stock, $0.01 par value: 27,750,000 shares authorized (including redeemable common
stock); 20,464,660 shares (as restated) issued and outstanding at June 30, 2000
(net of 1,249,500 shares in treasury), and 6,453,506 issued
and outstanding at December 31, 1999............................................................ 207 65
Additional paid-in capital........................................................................ 154,975 6,520
Accumulated other comprehensive income loss....................................................... 3 (12)
Accumulated deficit............................................................................... (98,439) (46,127)
Treasury stock, 1,249,500 shares at cost.......................................................... (4,273) --
Note receivable from shareholder.................................................................. (2,545) (2,545)
Deferred compensation............................................................................. (2,363) (2,397)
--------- --------
Total stockholders' equity (deficit).............................................................. 47,565 (44,496)
--------- --------
Total liabilities and stockholders' equity........................................................ $ 63,434 $ 25,515
========= ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
3
<PAGE>
PRIME RESPONSE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Software license............................................................. $ 5,746 $ 2,544 $ 10,341 $ 3,624
Services and support......................................................... 2,507 1,543 4,639 3,254
Applications hosting......................................................... 780 994 1,588 1,985
-------- ------- -------- -------
Total revenues............................................................ 9,033 5,081 16,568 8,863
Cost of revenues:
Services and support......................................................... 1,739 1,167 3,705 2,017
Applications hosting......................................................... 890 666 1,756 1,441
Non-cash cost of revenues.................................................... 29 5 57 5
-------- ------- -------- --------
Total cost of revenues.................................................... 2,658 1,838 5,518 3,463
Gross profit 6,375 3,243 11,050 5,400
Operating expenses:
Sales and marketing.......................................................... 8,140 2,728 13,269 5,539
Non-cash sales and marketing................................................. 678 3 1,310 19
Research and development..................................................... 2,786 2,130 5,309 4,080
Non-cash research and development............................................ 32 -- 63 --
General and administrative................................................... 1,457 853 2,856 1,700
Non-cash general and administrative.......................................... 30 1,678 59 1,678
Amortization of goodwill and other intangible assets......................... -- 309 -- 623
-------- ------- -------- --------
Total operating expenses.................................................. 13,123 7,701 22,866 13,639
Loss from operations............................................................
Other expense (income):
Interest income.............................................................. (703) (17) (902) (18)
Interest expense............................................................. 70 30 254 63
Loss on foreign exchange..................................................... (21) 31 (16) 50
-------- ------- -------- --------
Loss before income taxes........................................................ (6,094) (4,502) (11,152) (8,334)
Provision for income taxes...................................................... (92) 1 (74) 2
-------- ------- -------- --------
Net loss..................................................................... $ (6,002) $(4,503) $(11,078) $ (8,336)
Preferred stock dividends and participation payment............................. -- 677 41,234 1,288
-------- ------- -------- --------
Net loss attributable to common stockholders.................................... (6,002) (5,180) (52,312) (9,624)
Net loss per share--basic and diluted (as restated)............................. $ (0.30) $ (0.73) $ (3.27) $ (1.35)
======== ======= ======== ========
Weighted average outstanding-back and diluted (as restated)..................... 20,347 7,247 15,980 7,140
======== ======= ======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
4
<PAGE>
PRIME RESPONSE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
--------------------------------
2000 1999
-------- -------
<S> <C> <C>
Cash flows used in operating activities:
Net loss................................................................................. $(11,078) $(8,336)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization of property and equipment................................ 686 447
Amortization of goodwill and intangibles............................................... 895 623
Compensation expense related to stock options.......................................... 593 1,686
Changes in assets and liabilities:
Accounts receivable.................................................................. (1,972) 477
Prepaid and other current assets..................................................... (666) (51)
Accounts payable..................................................................... (505) (213)
Accrued expenses and other liabilities............................................... 2,027 (605)
Deferred revenue..................................................................... (785) 538
Other long term assets............................................................... (1,000) --
-------- -------
Net cash used in operating activities............................................... (11,805) (5,434)
-------- -------
Cash flows used in investing activities:
Purchase of property and equipment....................................................... (1,221) (326)
-------- -------
Net cash used in investing activities............................................... (1,221) (326)
-------- -------
Cash flows provided by financing activities:
Proceeds from initial public offering, net of issuance costs............................. 66,085 --
Proceeds from issuance of preferred stock (Series A, B and C) and warrants, net of
issuance costs......................................................................... -- 5,001
Proceeds from short term debt and capital leases......................................... -- 737
Repayment of credit facility............................................................. (2,000) --
Payment of participation payment......................................................... (9,517) --
Purchase of treasury stock............................................................... (4,274) --
Repayment of capital leases.............................................................. (586) --
Decrease in line of credit............................................................... -- (163)
Dividends paid........................................................................... (934) --
Proceeds from exercise of stock options and warrants..................................... 498 --
-------- -------
Net cash provided by financing activities........................................... 49,272 5,575
-------- -------
Effect of exchange rate on cash........................................................... (154) 26
-------- -------
Net increase in cash and cash equivalents................................................. 36,092 (159)
Cash and cash equivalents, beginning of period............................................ 3,999 530
-------- -------
Cash and cash equivalents, end of period.................................................. $ 40,091 $ 371
======== =======
Supplemental disclosure of non-cash transactions:
Conversion of series A, B and C preferred stock to common stock.......................... $ 39,405 $ --
======== =======
Payment of dividends in common stock..................................................... $ 4,578 $ --
======== =======
Participation payment paid in common stock............................................... $ 29,883 $ --
======== =======
Accretion of discount on preferred stock................................................. $ 1,329 $ --
======== =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
5
<PAGE>
PRIME RESPONSE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION
The Company
Prime Response, Inc. together with its consolidated subsidiaries ("Prime
Response" or "the Company") is a leading provider of integrated eMarketing
software solutions that enable businesses with large customer bases to create,
manage and execute highly targeted internet and traditional marketing campaigns
to build more loyal and profitable customer relationships. Prime Response's
customers consist primarily of Fortune 1000 businesses as well as leading e-
commerce businesses primarily based in the United States and Europe. Prime
Response sells its products through multiple distribution channels including
direct sales and resellers.
The consolidated financial statements include the accounts of PRI and its
wholly-owned domestic and foreign subsidiaries. All intercompany accounts and
transactions have been eliminated. The balance sheet at June 30, 2000, and the
statement of operations for the three and six months ended June 30, 2000 and
1999, and cash flows for the six months ended June 30, 2000, and 1999 have been
prepared without audit. In the opinion of management, these financial statements
reflect all adjustments that are necessary for a fair presentation of the result
for and as of the periods shown. The results of operations for such periods are
not necessarily indicative of the results expected for a full fiscal year or for
any future period. These financial statements should be read in conjunction with
the financial statements and related notes included in the Company's
Registration Statement on Form S-1 (file number 0-28873) filed with the
Securities and Exchange Commission.
2. AMENDED QUARTERLY FILING
Prime Response is filing this Quarterly Report on Form 10-Q/A for the
purposes of amending (i) the total shares outstanding figure as of August 11,
2000 set forth on the cover page and (ii) all computations set forth in Part I,
Item 1 -- Consolidated Financial Statements, that are derived from the total
shares outstanding figure as of June 30, 2000, including the net loss per share
basic and diluted for the three and six month periods ended June 30, 2000.
As Reported As Restated
----------- -----------
(in thousands, except per share data)
Shares of common stock outstanding
on August 11, 2000 20,671 20,466
Shares of common stock outstanding
on June 30, 2000 20,669 20,465
Weighted average shares outstanding
for the three months ended June 30, 2000 20,551 20,347
Weighted average shares outstanding
for the six months ended June 30, 2000 16,116 15,980
Net loss per share for the three months
ended June 30, 2000 - basic and diluted $(0.29) $(0.30)
Net loss per share for the six months
ended June 30, 2000 - basic and diluted $(3.25) $(3.27)
====== ======
3. INITIAL PUBLIC OFFERING
On March 3, 2000, Prime Response completed an initial public offering (the
"IPO") of 3,500,000 shares of its common stock. On April 3, 2000, the
underwriters of the initial public offering exercised the over-allotment option
to purchase an additional 525,000 shares. All 4,025,000 shares covered by Prime
Response's Registration Statement on Form S-1, were sold by Prime Response at a
price of $18.00 per share, less an underwriting commission of $1.26 per share.
Net proceeds to the Company, after deducting underwriting commissions and
offering expenses, were approximately $65.4 million. Upon the consummation of
Prime Response's initial public offering on March 3, 2000, all of the then
outstanding Series A, B and C Preferred Stock automatically converted into
common stock. (See Note 7).
6
<PAGE>
4. SIGNIFICANT ACCOUNTING POLICIES
Net Loss per Share
Basic net loss per share is computed by dividing the net loss for the period
by the weighted average number of common shares outstanding during the period.
Diluted net loss per share does not differ from basic net loss per share since
potential common shares from conversion of preferred stock and exercise of stock
options and warrants are antidilutive for all periods presented.
Net loss per share for the three and six months ended June 30, 2000 and 1999
is computed using the weighted average number of common shares outstanding. Net
loss available to common stockholders includes preferred stock dividends of $0,
$0.6 million, $0.6 million and $1.3 million for the three and six months
ended June 30, 2000 and 1999, respectively, as well as participation payments in
cash and stock totalling $39.4 million for the six months ended June 30, 2000,
in connection with the Series A, B and C preferred stock. The number of shares
to be issued for the participation payment is calculated based on $12.00 per
share.
Basic and diluted weighted average shares outstanding for the three and six
months ended June 30, 2000 exclude the potential common shares from stock
options because to include such shares would have been antidilutive. As of
June 30, 2000, 1.9 million potential common shares were outstanding.
Accounting Pronouncements
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." SAB 101 summarizes the SEC's view in applying generally accepted
accounting principles to selected revenue recognition issues. The application of
the guidance in SAB 101 (as amended by SAB 101A and SAB 101B) will be required
in the Company's fourth quarter of the fiscal year 2000. The effects of applying
this guidance, if any, will be reported as a cumulative effect adjustment
resulting from a change in accounting principle. Prime Response's evaluation of
SAB 101 is not yet complete.
5. OTHER ASSETS
During March 2000, Prime Response entered into an OEM agreement with a
provider of customer optimization technology. Prime Response will pay royalties
for all licenses sold that integrate the customer optimization technology.
Prime Response paid $1.0 million as an initial non-refundable prepayment of
these royalties. In addition, Prime Response received a warrant to purchase
40,000 shares of common stock with an exercise price of $9.73 per share and a
five-year term. Prime Response has calculated the fair value of the shares
underlying the warrant to be $276,000 using the Black Scholes model. The $1.0
million paid has been recorded as a long term asset on the balance sheet at June
30, 2000 with $276,000 being allocated to the warrants and the remainder will be
recorded as royalty expense in cost of sales as license sales are recognized.
6. LONG-TERM DEBT
On October 28, 1999, Prime Response entered into an agreement with Greyrock
Capital which provided for a term loan of $2.0 million which was received by
Prime Response upon execution of the agreement. The agreement also allowed
Prime Response to borrow up to $3.0 million against outstanding receivable
balances. During March 2000, Prime Response repaid the $2.0 million term loan.
The credit facility was terminated during June 2000.
7
<PAGE>
During January 2000, Prime Response entered into an agreement with Kite
Limited evidenced by a promissory note in the amount of $4.3 million for the
repurchase of 1,249,500 shares of redeemable common stock from a former
shareholder at $3.42 per share. Prime Response repaid the note in full during
March 2000, and recorded the shares as treasury stock.
7. REDEEMABLE CONVERTIBLE PREFERRED STOCK
Conversion
Upon the consummation of the IPO, the Series A, B and C preferred shares were
converted into a total of 6,324,000 shares of common stock. Each share of
Series A, B and C preferred stock converted into 3.1282, 0.7858 and 0.75 shares,
respectively, of common stock.
Dividends
Upon the consummation of the IPO, the holders of Series A and B preferred
stock received cumulative dividends in the amount of $3.59 and $0.51 per share,
respectively. Cumulative dividends on the Series A and B preferred stock were
$4.5 million and $1.0 million, respectively. All of the Series A dividends were
paid in 374,821 shares of common stock. Series B dividends were paid $0.9
million in cash and 6,661 in shares of common stock. The holders of Series C
preferred stock were not entitled to dividends.
Participation Payment
Upon the consummation of the IPO, the holders of Series A and C preferred
stock received, in addition to accrued dividends and the common stock conversion
feature, $20.52 and $3.00 per share, respectively, paid in 2,433,382 shares of
common stock. The holders of Series B preferred stock received, in addition to
accrued dividends and the conversion feature, $6.00 per share which was paid
with $9.5 million in cash and 56,875 in shares of common stock.
8. STOCKHOLDERS' EQUITY
Stock Options
In connection with the grant of certain stock options to employees during the
six months ended June 30, 2000, Prime Response recorded deferred stock
compensation of approximately $0.3 million, representing the difference between
the estimated fair market value of the common stock on measurement date and the
exercise price. Compensation related to options, which vest over time, was
recorded as a component of stockholders' equity and is being amortized over the
vesting periods of the related options. Prime Response recorded compensation
expense of approximately $0.3 million and $0.6 million during the three and six
months ended June 30, 2000, respectively, relating to the amortization of
deferred compensation recorded during 1999 and 2000, and the acceleration of a
former employees' options. Compensation expense is disclosed as a non-cash
expense in the consolidated Statement of Operations line items.
8
<PAGE>
Redeemable Common Stock
Andersen Consulting or its affiliate had the right to require Prime Response
to repurchase the 428,000 shares it purchased in December 1999 for $4.0 million.
The put right terminated upon the IPO and accordingly these shares were moved
from redeemable common stock to common stock upon the IPO. In addition, during
the six months ended June 30, 2000, Prime Response repurchased 1,249,500 shares
of common stock from a former shareholder that had the right to put these shares
to Prime Response prior to September 30, 2000. These shares were recorded as
redeemable common stock at December 31, 1999.
Warrants
In connection with achieving designated sales targets, Andersen Consulting
vested in 21,000 shares of the Company's common stock underlying its performance
warrants during the three months ended June 30, 2000. Prime Response calculated
the fair value of the shares underlying the warrants to be $139,000 using the
Black Scholes model. This amount is included as a non-cash sales and marketing
expense for the three months ended June 30, 2000.
9. SEGMENT ANALYSIS
Prime Response earned all of its revenue from external customers. Prime
Response is organized into three segments, software licenses, services and
support and applications hosting, to reflect the key sales lines. The
distribution of revenues and total assets by geographic location is as follows
(in thousands):
<TABLE>
<CAPTION>
Three Months Ended June 30,
2000 1999
------------------------------------------- ------------------------------------------
REST REST
NORTH OF NORTH OF
AMERICA UK WORLD TOTAL AMERICA UK WORLD TOTAL
------- ------- ------- ------- ------- ------- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Software licenses...... $ 2,652 $ 1,914 $ 1,180 $ 5,746 $ 244 $ 2,148 $ 153 $ 2,545
Services and support... 847 1,403 257 2,507 450 1,046 46 1,542
Applications hosting... -- 780 -- 780 -- 994 -- 994
------- ------- ------- ------- ------- ------- ----- -------
Total revenues....... 3,499 4,097 1,437 9,033 694 4,188 199 5,081
======= ======= ======= ======= ======= ======= ===== =======
Gross profit:
Software licenses...... 2,652 1,914 1,180 5,746 244 2,148 153 2,545
Services and support... (48) 708 79 739 17 377 (24) 370
Applications hosting... -- (110) -- (110) -- 328 -- 328
------- ------- ------- ------- ------- ------- ----- -------
Total gross profit... 2,604 2,512 1,259 6,375 261 2,853 129 3,243
======= ======= ======= ======= ======= ======= ===== =======
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 30,
2000 1999
------------------------------------------- ------------------------------------------
REST REST
NORTH OF NORTH OF
AMERICA UK WORLD TOTAL AMERICA UK WORLD TOTAL
------- ------- ------- ------- ------- ------- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Software licenses...... $ 4,762 $ 3,964 $ 1,615 $10,341 $ 298 $ 2,836 $ 491 $ 3,625
Services and support... 1,560 2,597 482 4,639 948 2,103 202 3,253
Applications hosting... -- 1,588 -- 1,588 -- 1,985 -- 1,985
------- ------- ------- ------- ------- ------- ----- -------
Total revenues....... 6,322 8,149 2,097 16,568 1,246 6,924 693 8,863
======= ======= ======= ======= ======= ======= ===== =======
Gross profit:
Software licenses...... 4,762 3,964 1,615 10,341 298 2,836 491 3,625
Services and support... (445) 1,162 160 877 140 1,034 57 1,231
Applications hosting... -- (168) -- (168) -- 544 -- 544
------- ------- ------- ------- ------- ------- ----- -------
Total gross profit... 4,317 4,958 1,775 11,050 438 4,414 548 5,400
======= ======= ======= ======= ======= ======= ===== =======
Total assets......... $53,716 $ 7,271 $ 2,447 $63,434 $13,482 $11,392 $ 643 $25,515
======= ======= ======= ======= ======= ======= ===== =======
</TABLE>
10. LEGAL PROCEEDINGS
The Company is subject to legal proceedings in the ordinary course of its
business. While the Company cannot estimate the ultimate settlements or awards
with respect to these legal proceedings, if any, the outcome could have a
material adverse effect on the Company, its liquidity, financial position or
results of operations.
11. RELATED PARTY TRANSACTIONS
During the three and six months ended June 30, 2000, Prime Response recorded
revenue totaling $13,500 and $27,000, respectively, from a company which is
partly owned by a significant shareholder of Prime Response. None of this amount
was outstanding at June 30, 2000.
During the three and six months ended June 30, 2000, Prime Response recorded
revenue totaling $62,000 and $379,000, respectively, from a company which is
partly owned by a significant shareholder and which two of our Directors hold
management and directorship positions, respectively. At June 30, 2000, $290,000
remained outstanding from this related party.
9
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
November 14, 2000 PRIME RESPONSE, INC.
By /s/ Frederick H. Phillips
----------------------------
Frederick H. Phillips
Senior Vice President and Chief Financial Officer
(Principal Accounting Officer)
24
