<PAGE>
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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
For the Quarterly Period Ended: September 30, 2000
Commission File Number: 00-28785
Lante Corporation
(Exact name of registrant as specified in its charter)
Delaware 36-3322393
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
161 North Clark Street, Suite 4900, Chicago, Illinois 60601
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (312) 696-5000
-----------------------------
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
The number of shares of the registrant's Common Stock outstanding as of
October 31, 2000 was 39,797,475.
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LANTE CORPORATION
QUARTER ENDED SEPTEMBER 30, 2000
INDEX
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
PART I - FINANCIAL INFORMATION......................................................... 3
Item 1. Financial Statements...................................................... 3
Condensed Consolidated Statement of Operations for the Three and Nine
Months Ended September 30, 1999 and 2000................................. 3
Condensed Consolidated Balance Sheet as of December 31, 1999
and September 30, 2000................................................... 4
Condensed Consolidated Statement of Cash Flows for the Nine Months Ended
September 30, 1999 and 2000.............................................. 5
Notes to Condensed Consolidated Financial Statements...................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk................ 12
PART II - OTHER INFORMATION............................................................ 13
Item 1. Legal Proceedings......................................................... 13
Item 2. Changes in Securities and Use of Proceeds................................. 13
Item 5. Other Information......................................................... 13
Item 6. Exhibits and Reports on Form 8-K.......................................... 13
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
LANTE CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- ---------------------
1999 2000 1999 2000
------- ------- ------- --------
<S> <C> <C> <C> <C>
(unaudited) (unaudited)
Revenues........................................................ $ 5,446 $20,322 $13,364 $ 61,085
Related party revenues - ZixIt Corporation...................... 3,865 -- 7,979 --
------- ------- ------- --------
Total revenues........................................... 9,311 20,322 21,343 61,085
------- ------- ------- --------
Operating expenses:
Professional services....................................... 4,983 12,032 11,263 33,143
Selling, general and administrative......................... 4,934 16,384 10,711 39,838
Amortization of deferred compensation....................... 481 614 631 1,948
------- ------- ------- --------
Total operating expenses................................. 10,398 29,030 22,605 74,929
------- ------- ------- --------
Loss from operations............................................ (1,087) (8,708) (1,262) (13,844)
Interest income, net............................................ 295 1,462 353 3,830
------- ------- ------- --------
Loss before income taxes........................................ (792) (7,246) (909) (10,014)
Income tax benefit (expense).................................... (412) 2,102 602 2,718
------- ------- ------- --------
Net loss........................................................ (1,204) (5,144) (307) (7,296)
Dividends and accretion on mandatorily redeemable preferred
stock.......................................................... (456) -- (521) (234)
------- ------- ------- --------
Net loss available to common stockholders....................... $(1,660) $(5,144) $ (828) $ (7,530)
======= ======= ======= ========
Net loss per common share, basic and diluted.................... $ (0.07) $ (0.14) $ (0.04) $ (0.21)
Pro forma basic and diluted net loss per common share
(unaudited).................................................... $ (0.04) $ (0.14) $ (0.05) $ (0.21)
Weighted average common shares outstanding,
basic and diluted.............................................. 23,787 37,374 22,113 36,073
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
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LANTE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands, except per share data)
<TABLE>
<CAPTION>
December 31, September 30,
1999 2000
------------ -------------
(unaudited)
ASSETS
------
<S> <C> <C>
Current assets:
Cash and cash equivalents.............................. $ 13,692 $ 48,836
Short-term investments................................. -- 40,538
Accounts receivable (net of allowance of $896 and
$2,576 at December 31, 1999 and September 30, 2000,
respectively)........................................ 10,171 18,207
Accounts receivable - related party.................... 178 --
Other current assets................................... 1,094 2,617
--------- ---------
Total current assets................................ 25,135 110,198
Property and equipment, net.............................. 6,380 13,956
Other assets............................................. 9,971 10,110
--------- ---------
Total assets........................................ $ 41,486 $ 134,264
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable and accrued liabilities............... $ 8,868 $ 9,305
Deferred revenue....................................... 2,155 5,614
Other current liabilities.............................. 1,379 1,651
--------- ---------
Total current liabilities........................... 12,402 16,570
Other liabilities........................................ 2,121 2,196
--------- ---------
Total liabilities................................... 14,523 18,766
--------- ---------
Commitments and contingencies
Mandatorily redeemable preferred stock:
Series A convertible preferred stock, $0.01 par value;
4,243 shares allocated and 3,536 shares issued and
outstanding as of December 31, 1999.................. 25,728 --
--------- ---------
Stockholders' equity:
Preferred stock, $0.01 par value; 10,000 shares
authorized, no shares issued and outstanding as of
December 31, 1999 and September 30, 2000............. -- --
Common stock, $0.01 par value; 50,000 authorized,
26,069 shares issued and outstanding as of December 31,
1999 and 150,000 authorized, 39,731 shares issued and
outstanding as of September 30, 2000................. 260 397
Additional paid-in capital............................. 18,509 138,915
Retained deficit....................................... (9,606) (16,902)
Accumulated other comprehensive loss................... -- (24)
Deferred compensation.................................. (4,613) (3,443)
Note receivable - stockholder.......................... (3,315) (3,445)
--------- ---------
Total stockholders' equity.......................... 1,235 115,498
--------- ---------
Total liabilities and stockholders' equity.......... $ 41,486 $ 134,264
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
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LANTE CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------
1999 2000
------- -----------
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss............................................................................ $ (307) $(7,296)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization.................................................. 329 2,043
Deferred income taxes.......................................................... (679) (2,816)
Amortization of deferred compensation and warrant expense...................... 631 1,947
Other, net..................................................................... 57 --
Increase (decrease) in cash attributable to changes in assets and liabilities:
Accounts receivable....................................................... (3,405) (7,840)
Accounts payable and accrued liabilities.................................. 2,928 636
Deferred revenue.......................................................... 1,542 3,459
Other, net................................................................ (3,085) 545
------- -------
Net cash used in operating activities................................ (1,989) (9,322)
------- -------
Cash flows from investing activities:
Capital expenditures................................................................ (1,804) (9,180)
Acquisition, net of cash acquired................................................... (426) --
Purchase of short-term investments.................................................. -- (40,538)
Equity investment................................................................... -- (250)
------- -------
Net cash used in investing activities................................ (2,230) (49,968)
------- -------
Cash flows from financing activities:
Proceeds from initial public offering, net.......................................... -- 83,379
Proceeds from issuance of mandatorily redeemable preferred stock, net............... 24,814 --
Proceeds from private issuance of common stock...................................... 3,577 11,000
Redemption of common stock.......................................................... (6,521) --
Loan to executive officer........................................................... (3,228) --
Dividends paid...................................................................... (4,570) --
Other, net.......................................................................... (24) 55
------- -------
Net cash provided by financing activities............................ 14,048 94,434
------- -------
Increase in cash and cash equivalents.................................................... 9,829 35,144
Cash and cash equivalents, beginning of period........................................... 3,377 13,692
------- -------
Cash and cash equivalents, end of period................................................. $13,206 $48,836
======= =======
Supplemental disclosure of cash flow information:
Cash paid for interest.............................................................. $ 15 $ 74
Cash paid for taxes................................................................. $ 408 $ 100
Supplemental disclosure of non-cash transactions:
Conversion of Series A convertible preferred stock to common stock.................. $ -- $25,962
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
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LANTE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
(Unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared by Lante Corporation (the "Company") pursuant to the rules and
regulations of the Securities and Exchange Commission regarding interim
financial reporting. The statements of operations and cash flows for the nine
months ended September 30, 1999 and the balance sheet as of December 31, 1999
have been derived from audited financial statements, but do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. These statements should be read in
conjunction with the audited consolidated financial statements and related notes
thereto included in the Company's Registration Statement on Form S-1 dated
February 10, 2000 and Annual Report on Form 10-K for the year ended December 31,
1999 as filed with the Securities and Exchange Commission. The accompanying
unaudited condensed consolidated financial statements reflect all adjustments
(consisting solely of normal, recurring adjustments), which are, in the opinion
of management, necessary for a fair presentation of results for the interim
periods presented. The results of operations for the three-month and nine-month
periods ended September 30, 2000 are not necessarily indicative of the results
to be expected for any future period or the full fiscal year.
2. Capital Stock
The effects of stock splits and recapitalizations have been retroactively
reflected in the condensed consolidated financial statements for all periods
presented.
In January 2000, the Company completed the sale of 1,000 shares of common
stock to Dell USA, L.P., a wholly owned subsidiary of Dell Computer Corporation,
at $11.00 per share.
On February 16, 2000, the Company completed an initial public offering of
common stock which resulted in the issuance of 4,600 shares of common stock.
Proceeds to the Company, net of underwriting discounts and costs of the
offering, were approximately $83,400. Concurrent with the initial public
offering, 3,536 shares of the Company's Series A convertible preferred stock
were converted to 7,072 shares of the Company's common stock. Dividends and
accretion related to the Company's Series A convertible preferred stock reduced
income available to common stockholders up through the date of conversion.
3. Investments
In accordance with the Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," the Company
has categorized its marketable securities as "held-to-maturity." These
investments consist of deposits in money markets, US Treasury instruments,
commercial paper, and corporate bonds. At September 30, 2000, amortized cost
approximated fair value and unrealized gains and losses were not material.
4. Net Loss Per Share
The Company computes net loss per share in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings Per Share." Basic net loss per
share is computed using the weighted average number of common shares outstanding
during the period. Diluted net loss per share is based upon the weighted average
number of shares outstanding, including common stock equivalents, if dilutive.
The Company terminated its S-Corporation election for federal and state
purposes on June 17, 1999. Accordingly, all income that was earned in the
subsequent C-Corporation period was taxable at the statutory federal and state
tax rates. In order to present amounts in a comparable format, the statement of
operations includes pro forma earnings per share that contemplates additional
taxes that would have been recorded if the Company had been a C-Corporation for
all periods presented, based upon the tax laws in effect during those periods.
6
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LANTE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except per share data)
(Unaudited)
5. Amortization of Deferred Compensation Expense
Deferred compensation expense relates to certain options that were deemed
granted in-the-money, a loan made to the Company's chief executive officer that
is being recorded as compensation expense, the sale of restricted shares to the
chief executive officer at a price that was deemed less than the fair value of
the Company's common stock, and deferred compensation related to one of the
Company's acquisitions.
7
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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, 2000 to the corresponding periods ended
September 30, 1999 for the Company. You should read the following discussion and
analysis along with our condensed consolidated financial statements and the
related notes included in this quarterly report. The following discussion
contains forward-looking statements that are subject to risks, uncertainties and
assumptions. Our actual results, performance and achievements in 2000 and beyond
may differ materially from those expressed in, or implied by, these forward-
looking statements. See "Cautionary Note Regarding Forward-Looking Statements."
Overview
We are an Internet services company that develops sophisticated technology-
based solutions that are secure, reliable and scalable and integrated with
multiple back-end systems. Our solutions focus on helping our clients build
e-markets and helping market participants and service providers integrate
e-markets into their operations. Our strategists, user experience experts and
technologists work as a multi-disciplinary team to build these solutions. We
integrate our competencies through an iterative development process with the
client that is overseen by our delivery management specialists.
Since our inception in 1984, we have been innovators in applying emerging
technologies to businesses, evolving from personal computer networks to database
applications to distributed client-server architectures to the Internet. We
began focusing on e-markets in late 1996 and virtually all of our revenues are
now derived from related Internet services. We expect revenues from Internet
services to continue to represent virtually all of our revenues for the
foreseeable future.
Our client base ranges from smaller start-up ventures to larger,
established companies. Our current client mix is weighted toward smaller start-
up ventures, however, we are continuing efforts to shift our client base toward
established companies and industry-sponsored e-market consortia. Targeting such
larger enterprises has led to a more competitive bidding process and a longer
sales cycle, which could continue to negatively impact our results of
operations.
Revenues from a few large clients have historically constituted a
significant portion of our total revenues in a particular quarter or period.
Revenues from our five largest clients decreased from 69% to 31% of our revenues
from the nine months ended September 30, 1999 to 2000, respectively, and from
68% to 40% from the three months ended September 30, 1999 to 2000, respectively.
During the three months ended September 30, 2000, one client represented 10% of
our revenues, while no one client individually represented more than 10% of our
revenues for the nine months ended September 30, 2000. During the three months
ended September 30, 1999, one client represented 42% of our revenues and another
client represented 13% of our revenues. During the nine months ended September
30, 1999, one client represented 37% of our revenues and another client
represented 16% of our revenues. Despite the declining concentration of revenue
represented by our top five clients from 1999 to 2000, we continue to rely
heavily on a limited number of clients to generate a majority of our revenues,
which magnifies collection risks.
To the extent that any significant client uses less of our services or
terminates its relationship with us, our revenues could decline substantially
and our operating results could be adversely affected to the extent we are
unable to quickly redeploy our billable professionals to other client
engagements. Our efforts to shift our client base toward established companies
and industry-sponsored consortia could lead to an increase in our client
concentration.
Costs of professional services consist of salaries, bonuses and benefits
for our billable professionals, the cost of subcontractors and other engagement
costs that are not reimbursed directly by the client. We expect that salaries
for our billable professionals will increase over time due to the intense
competition in our industry for qualified individuals. We use the term
''professional services margin'' to mean revenues less costs of professional
services, stated as a percentage of revenues. Professional services margins are
affected by our ability to utilize our billable professionals, to incorporate
any wage increases of our professionals into our billing rates and to price and
execute effectively our fixed-fee engagements. Professional services margins may
be reduced in any given period to the extent that we use subcontractors, utilize
our billable professionals at lower than expected levels or defer revenue due to
uncertainty of collection. We expect that our professional services margins will
vary from quarter to quarter.
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Our number of employees increased from 345 on January 1, 2000, of which 242
were billable professionals, to 615 as of September 30, 2000, of which 417 were
billable professionals. We do not anticipate a significant increase in our total
number of employees over the next two quarters, as we will focus primarily on
filling critical skill requirements. The total number of employees could
decrease as we focus on balancing capacity with demand.
Selling, general and administrative expenses consist primarily of salaries,
bonuses and benefits for non-project personnel, facility costs, staff recruiting
and training costs, depreciation and amortization, general operating expenses
and selling and marketing expenses. We largely develop new business through our
regional managing directors and principals.
Results of Operations
The following table presents for the periods indicated, our selected
condensed consolidated statement of operations data as a percentage of our
revenues. We have derived these percentages from our condensed consolidated
financial statements for all periods presented.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
<S> <C> <C> <C> <C>
1999 2000 1999 2000
---- ---- ---- ---
Revenues............................................ 100% 100% 100% 100%
Operating expenses:
Professional services......................... 54 59 53 55
Selling, general and administrative........... 53 81 50 65
Amortization of deferred compensation......... 5 3 3 3
--- --- --- ---
Total operating expenses............................ 112 143 106 123
--- --- --- ---
Loss from operations................................ (12) (43) (6) (23)
Interest income, net................................ 3 7 2 6
Income tax benefit (expense)........................ (4) 11 3 5
--- --- --- ---
Net loss............................................ (13)% (25)% (1)% (12)%
=== === === ===
</TABLE>
Comparison of Three and Nine Months Ended September 30, 2000 and 1999
Revenues
Revenues increased $11.0 million, or 118.3%, to $20.3 million in the three
months ended September 30, 2000 from $9.3 million in the three months ended
September 30, 1999. For the nine months ended September 30, 2000, revenues
increased $39.7 million, or 186.2%, to $61.1 million from $ 21.3 million for the
comparable period of the prior year. These increases resulted from an increase
in the average number and size of client engagements and an increase in average
realized billing rates. We generated revenue from one or more projects for 77
clients in the nine months ended September 30, 2000 as compared to revenue from
one or more projects for 42 clients in the nine months ended September 30, 1999.
The revenue increases in 2000 were limited by revenue not recognized on certain
clients where their ability to pay was uncertain.
Operating Expenses
Professional services
Costs of professional services increased $7.0 million, or 141.4%, to $12.0
million in the three months ended September 30, 2000 from $5.0 million in the
three months ended September 30, 1999. For the nine months ended September 30,
2000, costs of professional services increased $21.9 million, or 194.0%, to
$33.1 million from $11.3 million for the comparable period of the prior year.
These increases were primarily due to an increase in the number of billable
professionals from 198 at September 30, 1999 to 417 at September 30, 2000 and a
$4.7 million increase in project-related expenses. Professional services margin
decreased to 40.8% and 45.7% in the three and nine months ended September 30,
2000, respectively from 46.5% and 47.2% in the three and nine months ended
September 30, 1999, respectively, primarily due to decreased utilization as well
as revenue not recognized on certain clients where
9
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their ability to pay was uncertain. Utilization in the three and nine months
ended September 30, 2000 was 45% and 61%, respectively, as compared to 65% and
64% in the three and nine months ended September 30, 1999, respectively.
Selling, general and administrative
Selling, general and administrative expenses increased $11.5 million, or
232.1%, to $16.4 million in the three months ended September 30, 2000 from $4.9
million in the three months ended September 30, 1999. For the nine months ended
September 30, 2000, selling, general and administrative expenses increased $29.1
million, or 271.9%, to $39.8 million from $10.7 million for the comparable
period of the prior year. These increases were primarily the result of efforts
to significantly expand our business and prepare for rapid growth. We increased
our bad debt allowance by $1.7 million in the three months ended September 30,
2000 due to increased collection risks associated with certain clients
experiencing financing challenges. During the first nine months of 2000, we
increased personnel in the field, internal systems, marketing, finance and
recruiting, commenced marketing initiatives and enhanced internal systems and
communications infrastructure necessary for growth. We opened offices in
Singapore and Delhi, India during 2000, which are still in the start-up phase
and have not yet generated revenue. These operations have been slower to ramp up
than expected.
Amortization of deferred compensation expense
Amortization of deferred compensation was $0.6 million and $1.9 million in
the three and nine months ended September 30, 2000, respectively. Amortization
of deferred compensation of $0.5 million and $0.6 million was recorded in the
three and nine months ended September 30, 1999, respectively. Deferred
compensation was recorded in 1999 related to certain options that were deemed
granted in-the-money, a loan made to our chief executive officer that is being
recorded as compensation expense, the sale of restricted shares to our chief
executive officer at a price that was deemed less than our common stock's fair
value, and deferred compensation related to one of our acquisitions.
Net Loss
Net loss for the three months ended September 30, 2000 was $5.1 million
compared to net loss of $1.2 million in the three months ended September 30,
1999. Net loss for the nine months ended September 30, 2000 was $7.3 million
compared to net loss of $0.3 million in the nine months ended September 30,
1999. The increase in net loss in the three and nine month periods resulted from
increases in expenses that were not commensurate with the increases in revenue,
offset by an increase in interest income to $3.8 million in the nine months
ended September 30, 2000 from $0.4 million in the nine months ended September
30, 1999.
Liquidity and Capital Resources
During 1999, we financed our operations, investments in property and
equipment and two small acquisitions primarily through debt and equity
financing.
Cash and cash equivalents and short-term investments increased to $89.4
million at September 30, 2000 from $13.7 million at December 31, 1999. This
increase is primarily the result of net proceeds of $83.4 million from our
initial public offering on February 16, 2000. In addition, we received proceeds
of $11.0 million in January 2000 from the sale of one million shares of common
stock to Dell USA, L.P., a wholly owned subsidiary of Dell Computer Corporation.
These proceeds were offset primarily by cash used for operating activities of
approximately $9.3 million and capital expenditures of $9.2 million. Cash used
for operating activities was principally made up of $7.3 million in net loss for
the nine months ended September 30, 2000, and a $7.8 million increase in
accounts receivable primarily due to increased revenues. These were offset by a
$3.5 million increase in deferred revenues and a $0.6 million increase in
accounts payable and accrued liabilities caused by timing of payments.
We anticipate that we will expend capital on the infrastructure needed to
continue to support our operations. We believe that the cash provided from
operations, and cash on hand will be sufficient to meet our anticipated working
capital and capital expenditure requirements for at least the next twelve
months. However, during this period, we may seek additional capital in the
private or public equity or debt markets to support growth and potential
acquisitions, as opportunities arise. We currently do not have any agreements,
commitments or understandings with respect to any material acquisitions. If we
receive additional funds through the issuance of equity securities, our existing
stockholders may experience significant dilution.
10
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Outlook
Our revenue outlook for the three months ending December 31, 2000 is
uncertain and could be below the level achieved in the third quarter of this
year. In addition, while we anticipate a reduction in bad debt expense during
the fourth quarter of December 31, 2000, we expect to report an operating loss
for the quarter and year ending December 31, 2000. Overall, we believe that our
costs of professional services in the three months ending December 31, 2000 will
be relatively consistent, or could decrease, as compared to third quarter
levels. This is because we intend to continue reducing our use of higher cost
subcontractors and expect normal attrition to reduce our billable headcount in
the fourth quarter of 2000, but believe that such reductions will be partially
offset by selective hiring to fill certain critical skill requirements. Although
we expect to increase spending on sales and marketing in an effort to improve
demand for our services in light of a more competitive market, overall we
believe that our selling, general and administrative expenses in the three
months ending December 31, 2000 should decrease in comparison to the three
months ended September 30, 2000. In addition, we intend to generally decrease
our non-billable hiring during the fourth quarter of 2000 while closely managing
our other costs as well. As we continue to review the market environment, we may
have to take more aggressive cost cutting measures that could materially and
adversely affect our results of operations.
Cautionary Note Regarding Forward-Looking Statements
This quarterly report includes forward-looking statements that reflect our
current expectations and projections about our future results, performance,
prospects and opportunities. We have tried to identify these forward-looking
statements by using words including "may," "will," "expect," "anticipate,"
"believe," "intend", "could", "should" and "estimate" and similar expressions.
These forward-looking statements are based on information currently available to
us and are subject to a number of risks, uncertainties and other factors that
could cause our actual results, performance, prospects or opportunities in 2000
and beyond to differ materially from those expressed in, or implied by, these
forward-looking statements. These risks, uncertainties and other factors
include, but are not limited to:
. our ability to predict and generate revenues from project-based client
engagements;
. our ability to accurately estimate the cost, scope and duration of our
engagements and to collect on amounts billed for such engagements;
. our concentrated client base;
. our ability to effectively reduce our reliance on smaller start up
ventures;
. credit exposure associated with the percentage of our clients that are
developmental stage ventures that will require significant additional
capital;
. our ability to maintain and improve upon our billing rates and
professional services margins;
. our ability to manage our growth and meet client expectations;
. our ability to attract, train and retain executive management,
regional managing directors and other qualified personnel;
. our ability to retain professionals due to a significant number of
stock options with exercise prices higher than our common stock's
current market price;
. our ability to generate revenue and a market presence in international
venues;
. intense competition within the Internet professional services market;
. the rate of acceptance and the use of the Internet and e-markets as a
cost-effective means for commerce;
. our ability to keep pace with technological changes and future
regulations affecting our business; and
. the implementation of e-markets or the Internet generally.
For further information about these and other risks, uncertainties and
factors, please review the disclosure under "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Factors that Could
Affect Our Operations" in our annual report on Form 10-K for the year ended
December 31, 1999, as filed with the Securities and Exchange Commission.
You should not place undue reliance on any forward-looking statements.
Except as otherwise required by federal securities laws, we undertake no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events, changed circumstances or any
other reason after the date of this quarterly report.
11
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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our primary financial instruments are cash in banks and commercial paper.
We do not believe that these instruments are subject to material potential near-
term losses in future earnings from reasonably possible near-term changes in
market rates or prices. We do not purchase derivative financial instruments for
speculative or trading purposes.
We have an investment of a fully vested option in ZixIt Corporation to
purchase up to approximately 167,000 shares of common shares at $7.625 per share
in a cashless exercise. We expect to receive approximately 143,000 common shares
for our option in the fourth quarter of 2000 or the first quarter of 2001. At
that time, we may need to adjust the carrying value of the instrument to reflect
the then current market price, which will result in an unrealized gain or loss
and will be reported as a separate component of stockholders' equity. The
current carrying value of the investment is approximately $4.9 million. While
the market for ZixIt Corporation's common stock has been volatile, exercise of
the option as of this filing would result in an unrealized loss of approximately
$2.0 million. Upon ultimate disposal of the common shares, we expect to receive
net cash proceeds based on the then fair market value and there may be a
realized gain or loss if the then fair market value is not equal to our carrying
value, which would then be reflected in our statement of operations.
12
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Pantelis Georgiadis, our former chief operating officer, filed a complaint
against us on October 21, 1999 in the Circuit Court of Cook County, Illinois.
Mr. Georgiadis previously owned 2.0 million shares of our common stock with
respect to which we exercised our contractual right to repurchase upon the
termination of his employment. Pursuant to this contractual right, we tendered
to Mr. Georgiadis $4.0 million, or approximately $2.00 per share, payable in the
form of cash and a promissory note. Mr. Georgiadis contends that we breached our
contractual obligations by improperly valuing these shares in connection with
the repurchase. Mr. Georgiadis' complaint asserts that the repurchase price of
his shares should have been as high as $8.10 per share. We deny Mr. Georgiadis'
allegations, believe they are without merit and are defending this lawsuit
vigorously.
From time to time, we may be involved in litigation incidental to the
conduct of our business. Except as described above, however, we are not
currently party to any material legal proceedings.
Item 2. Changes in Securities and Use of Proceeds
On February 10, 2000 our registration statement on Form S-1 (File No.
333-92373) relating to the initial public offering of our common stock was
declared effective by the SEC. After payment of underwriting discounts and
expenses of $8.6 million, we received net proceeds of approximately $83.4
million from the offering. We have invested the net proceeds, pending its use
for working capital and general corporate purposes, in short-term, investment
grade, interest-bearing securities. During the nine months ended September 30,
2000, we used approximately $9.3 million of the proceeds of the initial public
offering for working capital and we used approximately $9.2 million for
purchases of leasehold improvements and equipment.
Item 5. Other Information
Our corporate secretary must receive proposals of stockholders to be
considered for inclusion in our proxy statement and proxy for the 2001 annual
meeting of stockholders on or before January 14, 2001. Our corporate secretary
must receive proposals of stockholders intended to be considered at the 2001
annual meeting of stockholders on or before February 23, 2001.
Item 6. Exhibits and Reports on Form 8-K.
a) We have filed the following exhibits with this quarterly report.
Exhibit Number Exhibit
-------------- -------------------------------------------------
10 Employment Agreement by and between Lante
Corporation and Thaddeus J. Malik dated
April 26, 2000
27 Financial Data Schedule
b) Reports on Form 8-K.
We did not file any Current Reports on Form 8-K during the third
quarter of 2000.
13
<PAGE>
SIGNATURES
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.
LANTE CORPORATION
Date: November 10, 2000 By: /s/ C. RUDY PURYEAR
---------------------------------------------
C. Rudy Puryear
Chief Executive Officer, President and
Director (Principal Executive Officer)
Date: November 10, 2000 By: /s/ BRIAN C. HENRY
---------------------------------------------
Brian Henry
Executive Vice President, Chief Financial
Officer (Principal Financial Officer)
Date: November 10, 2000 By: /s/ WILLIAM J. DAVIS
---------------------------------------------
William J. Davis
Controller (Principal Accounting Officer)
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit Number Exhibit
-------------- ------------------------------------------------------------
<S> <C>
10 Employment Agreement by and between Lante Corporation and
Thaddeus J. Malik dated April 26, 2000
27 Financial Data Schedule
</TABLE>
