<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 March 31, 2000
[ ] 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 No X
----- -----
On May 12, 2000, 20,444,000 (as restated) shares of the Registrant's Common
Stock, $.01 par value, were outstanding.
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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 May 12, 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 March 31, 2000, including the net loss per share
basic and diluted for the three month period ended March 31, 2000.
2
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ITEM 1: FINANCIAL STATEMENTS
PRIME RESPONSE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
--------------------------
2000 1999
--------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................................................ $ 38,213 $ 3,999
Accounts receivable, net of allowance for doubtful accounts of $379 and $147, respectively ......... 8,115 9,057
Prepaid and other current assets..................................................................... 2,677 2,595
--------- --------
Total current assets............................................................................... 49,005 15,651
Property and equipment, net............................................................................ 2,705 2,602
Intangible and other assets, net....................................................................... 7,745 7,262
--------- --------
Total assets....................................................................................... $ 59,455 $ 25,515
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.................................................................................... $ 3,812 $ 3,920
Short-term debt and capital lease obligations....................................................... 165 2,289
Accrued expenses and other liabilities.............................................................. 3,676 4,472
Accrued interest income............................................................................. 176 176
Deferred revenue.................................................................................... 5,333 6,074
--------- --------
Total current liabilities......................................................................... 13,162 16,931
Long-term debt and capital lease obligations........................................................... 238 311
Long-term accrued interest income...................................................................... 1,354 1,398
Commitments and contingencies
Redeemable common stock, $0.01 par value, 0 shares issued and outstanding at March 31, 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 March 31, 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 March 31, 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 March 31, 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); 19,695,617 shares (as restated) issued and outstanding at March 31, 2000
(net of 1,249,500 shares in treasury), and 6,453,506 issued
and outstanding at December 31, 1999............................................................ 199 65
Additional paid-in capital........................................................................ 146,314 6,520
Accumulated other comprehensive income loss....................................................... (11) (12)
Accumulated deficit............................................................................... (92,437) (46,127)
Treasury stock, 1,249,500 shares at cost.......................................................... (4,273) --
Note receivable from shareholder.................................................................. (2,545) (2,545)
Deferred compensation............................................................................. (2,546) (2,397)
--------- --------
Total stockholders' equity (deficit).............................................................. 44,701 (44,496)
--------- --------
Total liabilities and stockholders' equity (deficit).............................................. $ 59,455 $ 25,515
========= ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
3
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PRIME RESPONSE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------
2000 1999
--------- -------
<S> <C> <C>
Revenues:
Software license....................................................................... $ 4,595 $ 1,080
Services and support................................................................... 2,132 1,711
Applications hosting................................................................... 808 991
--------- -------
Total revenues...................................................................... 7,535 3,782
--------- -------
Cost of revenues:
Software licenses...................................................................... -- --
Services and support................................................................... 1,966 850
Applications hosting................................................................... 866 775
Non-cash cost of revenues.............................................................. 28 --
--------- -------
Total cost of revenues.............................................................. 2,860 1,625
--------- -------
Gross profit 4,675 2,157
--------- -------
Operating expenses:
Sales and marketing.................................................................... 5,129 2,811
Non-cash sales and marketing........................................................... 632 16
Research and development............................................................... 2,523 1,950
Non-cash research and development...................................................... 31 --
General and administrative............................................................. 1,399 847
Non-cash general and administrative.................................................... 29 --
Amortization of goodwill and other intangible assets................................... -- 314
--------- -------
Total operating expenses............................................................ 9,743 5,938
--------- -------
Loss from operations...................................................................... (5,068) (3,781)
Other expense (income):
Interest income........................................................................ (199) (1)
Interest expense....................................................................... 184 33
Loss on foreign exchange............................................................... 5 19
--------- -------
Loss before income taxes.................................................................. (5,058) (3,832)
Provision for income taxes................................................................ 18 1
--------- -------
Net loss............................................................................... (5,076) (3,833)
Preferred stock dividends and participation payment....................................... (41,234) (611)
--------- -------
Net loss attributable to common stockholders.............................................. $ (46,310) $(4,444)
========= =======
Net loss per share-basic and diluted (as restated)........................................ $ (3.99) $ (0.64)
========= =======
Weighted average shares used in computing basic and diluted net loss
per share (as restated).................................................................. 11,612 7,035
========= =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
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PRIME RESPONSE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
--------------------------------
2000 1999
-------- -------
<S> <C> <C>
Cash flows used in operating activities:
Net loss................................................................................. $( 5,076) $(3,833)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization of property and equipment................................ 332 221
Amortization of goodwill and intangibles............................................... 514 314
Compensation expense related to stock options.......................................... 273 --
Changes in assets and liabilities:
Accounts receivable.................................................................. 891 29
Prepaid and other current assets..................................................... (1,021) 216
Accounts payable..................................................................... (1,090) (704)
Accrued expenses and other liabilities............................................... (677) (1,437)
Deferred revenue..................................................................... (621) 1,429
-------- -------
Net cash used in operating activities............................................... (6,475) (3,765)
-------- -------
Cash flows used in investing activities:
Purchase of property and equipment....................................................... (459) (206)
-------- -------
Net cash used in investing activities............................................... (459) (206)
-------- -------
Cash flows provided by financing activities:
Proceeds from initial public offering, net of issuance costs............................. 57,700 --
Proceeds from issuance of preferred stock (Series A, B and C) and warrants, net of
issuance costs......................................................................... -- 5,001
Proceeds from credit facility............................................................ -- 1,015
Repayment of debt........................................................................ (2,000) --
Payment of participation payment......................................................... (9,517) --
Purchase of treasury stock............................................................... (4,273) --
Repayment of capital leases.............................................................. (186) --
Increase in line of credit............................................................... -- (164)
Dividends paid........................................................................... (934) --
Proceeds from exercise of stock options.................................................. 353 --
-------- -------
Net cash provided by financing activities........................................... 41,143 5,852
-------- -------
Effect of exchange rate on cash........................................................... 5 45
-------- -------
Net increase in cash and cash equivalents................................................. 34,214 1,926
Cash and cash equivalents, beginning of period............................................ 3,999 530
-------- -------
Cash and cash equivalents, end of period.................................................. $ 38,213 $ 2,456
======== =======
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
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PRIME RESPONSE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION
The Company
Prime Response, Inc. ("PRI") together with its consolidated subsidiaries
("Prime Response") 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 March 31, 2000, and the
statement of operations for the three months ended March 31, 2000 and 1999, and
cash flows for the three months ended March 31, 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 May 12, 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 March 31, 2000, including the net loss per share basic
and diluted for the three month period ended March 31, 2000.
<TABLE>
<CAPTION>
As Reported As Restated
----------- -----------
(in thousands, except per share data)
<S> <C> <C>
Shares of common stock outstanding on May 12, 2000..... 20,649 20,444
Shares of common stock outstanding on March 31, 2000... 19,900 19,696
Weighted average shares outstanding for the three
months ended March 31, 2000.......................... 11,680 11,612
Net loss per share - basic and diluted................. $(3.96) $(3.99)
====== ======
</TABLE>
3. INITIAL PUBLIC OFFERING
On March 3, 2000, Prime Response completed an initial public offering of its
common stock. All 3,500,000 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 $57.0 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
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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 months ended March 31, 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 $0.5
million and $0.6 million for the three months ended March 31, 2000 and 1999,
respectively, as well as participation payments in cash and stock totalling
$39.4 million for the three months ended March 31, 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 months ended
March 31, 2000 exclude the potential common shares from stock options because to
include such shares would have been antidilutive. As of March 31, 2000, 1.6
million potential shares were outstanding.
Accounting Pronouncements
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133 "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). SFAS 133 establishes a new model for accounting for derivatives and
hedging activities and supersedes and amends a number of existing standards.
SFAS 133 is effective for fiscal years beginning after June 15, 1999, but
earlier application is permitted as of the beginning of any fiscal quarter
subsequent to June 19, 1998. Upon initial application, all derivatives are
required to be recognized in the statement of financial position as either
assets or liabilities and measured at fair value. In addition, all hedging
relationships must be reassessed and documented pursuant to the provisions of
SFAS 133. Prime Response does not anticipate that this pronouncement will have
a material effect on its reported results or financial position.
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) will be required in the
Company's second 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 will pay $1.0 million as an initial non-refundable prepayment of
these royalties. In addition, Prime Response received 40,000 warrants with an
exercise price of $9.73 and a five-year term. Prime Response has calculated the
fair value of the warrants using the Black Scholes model with the following
assumptions: 5 year life (life of warrant), 6.35% risk-free rate of return, zero
dividends and 85.19% volatility. Based on this calculation, the fair value of
the warrants is approximately $276,000. The $1.0 million to be paid has been
recorded as a long term asset on the balance sheet at March 31, 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 against outstanding receivable balances up to $3.0
million. During March 2000, Prime Response repaid the $2.0 million term loan.
As of March 31, 2000, no amounts had been borrowed against the receivable
portion of this agreement.
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 Split
In November 1999, Prime Response's board of directors approved a 0.75-for-1
reverse split of common stock. The stock split took place on February 2, 2000.
All share and per share amounts in the accompanying consolidated financial
statements have been adjusted retroactively.
Stock Options
In connection with the grant of certain stock options to employees during the
three months ended March 31, 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 $14,000 in relation to these options. In addition, Prime Response
recorded compensation expense of approximately $0.3 million during the three
months ended March 31, 2000 relating to the amortization of deferred
compensation recorded during 1999 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
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Underwriters Over-Allotment
On April 3, 2000, the underwriters of the initial public offering exercised
the over-allotment option to purchase 525,000 shares. After deducting
underwriting commissions and expenses, net proceeds to the Company were
approximately $8.8 million.
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 at March 31, 2000. In addition,
during the quarter ended March 31, 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.
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>
March 31, 2000 March 31, 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...... $ 2,110 $2,050 $ 435 $ 4,595 $ 54 $ 688 $338 $ 1,080
Services and support... 713 1,194 225 2,132 498 1,057 156 1,711
Applications hosting... -- 808 -- 808 -- 991 -- 991
------- ------ ------ ------- ------ ------ ---- -------
Total revenues....... 2,823 4,052 660 7,535 552 2,736 494 3,782
======= ====== ====== ======= ====== ====== ==== =======
Gross profit:
Software licenses...... 2,110 2,050 435 4,595 54 688 338 1,080
Services and support... (397) 454 82 138 123 657 81 861
Applications hosting... -- (58) -- (58) -- 216 -- 216
------- ------ ------ ------- ------ ------ ---- -------
Total gross profit... 1,713 2,446 517 4,675 177 1,561 419 2,157
======= ====== ====== ======= ====== ====== ==== =======
Total assets......... $50,583 $7,285 $1,587 $59,455 $4,658 $5,978 $683 $11,319
======= ====== ====== ======= ====== ====== ==== =======
</TABLE>
10. RELATED PARTY TRANSACTIONS
During the quarter ended March 31, 2000, Prime Response recorded revenue
totaling $13,000 from a company which is partly owned by a significant
shareholder of Prime Response. None of this amount was outstanding at March
31, 2000.
During the quarter ended March 31, 2000, Prime Response recorded revenue
totaling $128,000 from a company which is partly owned by a significant
shareholder and which two of our Directors hold management and directorship
positions, respectively. At March 31, 2000, this entire amount remained
outstanding from this related party.
9
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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)
10
