<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended June 30, 2000
Commission File Number 0-30881
CLICK COMMERCE, INC.
(Exact name of registrant as specified in its charter)
Delaware 36-4088644
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
200 East Randolph Drive, Suite 4900
Chicago, Illinois 60601
(Address of principal executive offices)
(312) 482-9006
(Registrant's telephone number, including area code)
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.
(1) Yes X No
--- ---
(2) Yes No X
--- ---
On August 11, 2000, 38,230,450 shares of the registrant's common stock were
issued and outstanding.
<PAGE>
Click Commerce, Inc.
Index
<TABLE>
<CAPTION>
PAGE NO.
<S> <C> <C>
PART I. FINANCIAL INFORMATION ....................................... 3
Item 1. Financial Statements ........................................ 3
Condensed Balance Sheets at June 30, 2000 and
December 31, 1999 ......................................... 3
Condensed Statements of Operations for the three and six
months ended June 30, 2000 and 1999 ....................... 4
Condensed Statements of Cash Flows for the six months
ended June 30, 2000 and 1999 .............................. 5
Notes to the Condensed Financial Statements ................. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ....................... 8
Item 3. Qualitative and Quantitative Disclosures About Market Risk .. 14
PART II. OTHER INFORMATION ........................................... 15
Item 2. Changes in Securities and Use of Proceeds ................... 15
Item 4. Submission of Matters to a Vote of Security Holders ......... 15
Item 6. Exhibits and Reports on Form 8-K ............................ 15
Signatures ............................................................ 15
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CLICK COMMERCE, INC.
CONDENSED BALANCE SHEETS
($ in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
----------- ------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 49,683 $ 3,336
Short-term investments 57 2,968
Trade accounts receivable, net 2,775 1,540
Revenue earned on contracts in progress in excess of billings 2,146 894
Other current assets 803 130
Deferred income taxes 243 242
-------- -------
Total current assets 55,707 9,110
Property and equipment, net 1,352 700
Other assets 186 124
-------- -------
Total assets $ 57,245 $ 9,934
======== =======
Liabilities and Shareholders' Equity (Deficit)
Current liabilities:
Accounts payable $ 1,355 $ 644
Billings in excess of revenues earned on contracts in progress 1,903 2,026
Deferred revenue 157 390
Accrued compensation 1,319 712
Accrued expenses and other current liabilities 1,413 234
Income taxes payable - 39
Current portion of capital lease obligations 77 46
-------- -------
Total current liabilities 6,224 4,091
Capital lease obligations, less current portion 386 84
Other liabilities 38 -
Deferred income taxes 34 33
-------- -------
Total liabilities 6,682 4,208
Series A Convertible Participating Preferred Stock - 7,906
Series B Convertible Participating Preferred Stock - 6,406
Shareholders' equity (deficit):
Preferred stock - -
Common stock 37 22
Additional paid-in capital 75,979 -
Deferred compensation (8,472) (1,260)
Accumulated deficit (16,981) (7,348)
-------- -------
Total shareholders' equity (deficit) 50,563 (8,586)
-------- -------
Total liabilities and shareholders' equity (deficit) $ 57,245 $ 9,934
======== =======
</TABLE>
See accompanying notes to financial statements.
<PAGE>
CLICK COMMERCE, INC.
CONDENSED STATEMENTS OF OPERATIONS
($ in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months ended Six Months ended
June 30, June 30,
----------------------- -----------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue $ 7,054 $ 1,608 $ 12,178 $ 3,142
Cost of revenue (exclusive of $20 for the three months ended
June 30, 2000 and $24 and $1 for the six months ended
June 30, 2000 and 1999, respectively, reported below as
amortization of stock-based compensation) 2,235 489 3,790 766
---------- ---------- ---------- ----------
Gross profit 4,819 1,119 8,388 2,376
Operating expenses:
Sales and marketing (exclusive of $647 for the
three months ended June 30, 2000 and $748 and
$29 for the six months ended June 30, 2000 and 1999,
respectively, reported below as amortization of stock-based
compensation) 2,945 397 4,593 612
Research and development (exclusive of $1 and $294 for
the three months ended June 30, 2000 and 1999, respectively, and
$24 and $329 for the six months ended June 30, 2000 and
1999, respectively, reported below as amortization of stock-
based compensation) 1,241 147 2,137 222
General and administrative (exclusive of $106 for
the three months ended June 30, 2000 and $249 and $27 for
the six months ended June 30, 2000 and 1999, respectively,
reported below as amortization of stock-based
compensation) 1,498 529 2,744 812
Amortization of stock-based compensation 774 294 1,045 386
---------- ---------- ---------- ----------
Total operating expenses 6,458 1,367 10,519 2,032
---------- ---------- ---------- ----------
Operating income (loss) (1,639) (248) (2,131) 344
---------- ---------- ---------- ----------
Interest income 32 1 52 2
Interest expense (9) - (12) -
---------- ---------- ---------- ----------
Other income, net 23 1 40 2
---------- ---------- ---------- ----------
Income (loss) before income taxes (1,616) (247) (2,091) 346
Income tax expense (benefit) (410) (20) (552) 260
---------- ---------- ---------- ----------
Net income (loss) (1,206) (227) (1,539) 86
Accretion related to redeemable preferred stock (3,979) (117) (8,093) (117)
---------- ---------- ---------- ----------
Net loss available to common shareholders $ (5,185) $ (344) $ (9,632) $ (31)
========== ========== ========== ==========
Basic and diluted loss per share $ (0.22) $ (0.01) $ (0.42) $ (0.00)
========== ========== ========== ==========
Weighted average shares outstanding
Basic and diluted 23,337,037 26,400,000 22,884,505 26,400,000
</TABLE>
See accompanying notes to financial statements.
<PAGE>
CLICK COMMERCE, INC.
CONDENSED STATEMENTS OF CASH FLOWS
($ in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months ended
June 30
-------------------
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (1,539) $ 86
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Amortization of stock-based compensation 1,045 386
Depreciation and amortization 183 33
Provision for doubtful accounts 72 -
Loss (gain) on disposal of property and equipment (13) 6
Changes in operating assets and liabilities:
Trade accounts receivable (1,235) (810)
Revenue earned on contracts in progress in excess
of billings (1,252) 48
Other current assets (673) 15
Accounts payable 507 12
Billings in excess of revenues earned on contracts
in progress (123) 1,467
Deferred revenue (233) (11)
Accrued compensation 606 (62)
Accrued expense and other current liabilities 807 (14)
Income taxes payable (39) (6)
Other (196) (3)
-------- --------
Net cash provided by (used in) operating activities (2,083) 1,147
Cash flows from investing activities:
Purchases of property and equipment (693) (97)
Proceeds from sale of property and equipment 259 2
Net (purchases) maturity of short-term investments 2,911 (4,935)
-------- --------
Net cash provided by (used in) investing activities 2,477 (5,030)
Cash flows from financing activities:
Proceeds from issuance of preferred stock, net - 5,000
Proceeds from initial public offering, net 45,974 -
Proceeds from exercise of stock options 33 -
Principal payments under capital lease obligations (54) (9)
-------- --------
Net cash provided by financing activities 45,953 4,991
Net change in cash and cash equivalents 46,347 1,108
Cash and cash equivalents at beginning of period 3,336 67
-------- --------
Cash and cash equivalents at end of period $ 49,683 $ 1,175
======== ========
Supplemental disclosures:
Property and equipment acquired under capital leases $ 271 $ 67
Interest paid $ 12 $ 2
Income taxes paid $ 53 $ 266
</TABLE>
See accompanying notes to financial statements.
<PAGE>
CLICK COMMERCE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. BASIS OF PRESENTATION
The unaudited condensed financial statements have been prepared by Click
Commerce, Inc. (the "Company") and reflect all adjustments (all of which are
normal and recurring in nature) that, in the opinion of management, are
necessary for a fair presentation of the interim periods presented. The results
of operations for the interim periods presented are not necessarily indicative
of the results to be expected for any subsequent quarter or for the entire
fiscal year ending December 31, 2000. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted in
accordance with the Securities and Exchange Commission's rules and regulations.
The unaudited condensed financial statements and notes included herein should be
read in conjunction with the Company's audited financial statements and notes
for the year ended December 31, 1999, included in the Company's registration
statement on Form S-1, file No. 333-30564, which is on file with the Securities
and Exchange Commission.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Revenue from fixed-price contracts is recognized using the percentage-of-
completion method as services are performed or output milestones are reached, as
the Company delivers, customizes and installs the software. The percentage
completed is measured either by the percentage of labor hours incurred to date
in relation to estimated total labor hours or in consideration of achievement of
certain output milestones, depending on the specific nature of each contract.
NOTE 3. EARNINGS (LOSS) PER SHARE
Pro forma earnings (loss) per share for the three and six months ended June
30, 2000 and 1999 are presented for informational purposes only and are not
prepared in accordance with generally accepted accounting principles. Pro forma
weighted average common shares outstanding assume completion of the Company's
initial public offering at January 1, 1999, and the conversion of the
convertible preferred stock as of its original issue date.
Pro forma net income (loss) presents the operating results of the Company,
excluding charges related to stock-based compensation and accretion on
convertible preferred stock for the three and six months ended June 30, 2000 and
1999.
<TABLE>
<CAPTION>
Three Months ended Six Months ended
June 30, June 30,
--------------------------- ---------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
($ in thousands, except per share data)
<S> <C> <C> <C> <C>
Net loss available to common
shareholders, as reported $ (5,185) $ (344) $ (9,632) $ (31)
Pro forma basic and diluted net
loss per share $ (0.14) $ (0.01) $ (0.26) $ (0.00)
Pro forma net income (loss), excluding
stock-based compensation and accretion
of convertible preferred stock $ (431) $ 66 $ (495) $ 472
Pro forma basic and diluted earnings (loss)
per share excluding stock-based
compensation and accretion of
convertible preferred stock $ (0.01) $ 0.00 $ (0.01) $ 0.01
Pro forma weighted average shares
outstanding:
Basic 37,262,027 32,021,118 37,129,621 31,712,275
Diluted 37,262,027 35,489,226 37,129,621 35,391,244
</TABLE>
At June 30, 2000, 5,823,982 stock options and a warrant for 818,226 shares
of common stock were excluded from the loss per share calculations presented on
the statements of operations because their effect was antidilutive.
<PAGE>
CLICK COMMERCE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)
(Unaudited)
NOTE 4. CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY
On June 30, 2000, the Company completed an initial public offering of
common stock that resulted in the issuance of 5,000,000 shares of common stock
with an initial public offering price of $10.00 per share. At the closing of the
initial public offering, all of the convertible preferred stock automatically
converted on a 1:1 basis into 9,565,220 shares of common stock. Proceeds to the
Company from the initial public offering amounted to $45.3 million, net of
discounts, commissions and other costs of the offering. The proceeds were
received by the Company on June 30, 2000.
In connection with the initial public offering, the Company offered the
underwriters the option to purchase an additional 750,000 shares of common stock
("underwriter's over-allotment") at the offering price of $10.00 per share. This
option was exercised on July 7, 2000. Proceeds to the Company from the exercise
of this option amounted to approximately $6.8 million, net of discounts,
commissions and other costs.
NOTE 5. CONCENTRATIONS OF CREDIT RISK
During the three months ended June 30, 2000, three customers accounted for
an aggregate of 53% of the Company's total revenue; one for approximately 21%,
another for approximately 18% and a third for approximately 14%. During the six
months ended June 30, 2000, three customers accounted for 39% of the Company's
total revenue; one for approximately 16%, another for approximately 12% and a
third for approximately 11%.
As of June 30, 2000, two customers accounted for 56% of the Company's gross
trade accounts receivable; one for approximately 32% and another for
approximately 24%.
NOTE 6. STOCK-BASED COMPENSATION
The Company granted stock options at exercise prices less than fair value,
accordingly, the Company recorded deferred compensation of $3.3 million and $1.3
million in the six months ended June 30, 2000 and 1999, respectively. Such
deferred compensation is amortized on a straight-line basis over the vesting
period of each individual award, resulting in $568,000 and $294,000 of expense
for the three months ended June 30, 2000 and 1999, respectively, and $839,000
and $386,000 for the six months ended June 30, 2000 and 1999, respectively.
In April 2000, the Company issued a warrant to Andersen Consulting, LLP to
purchase up to 818,226 shares of common stock at $12.22 per share. The warrant
vests contingently upon the achievement of certain milestones, primarily the
generation of license revenue for the Company, and expires on April 20, 2004.
The warrant contains a significant cash penalty for Andersen Consulting's
failure to meet the agreed revenue target by the expiration date, and,
accordingly, the fair value of the warrant was measured at the date of grant in
accordance with Emerging Issues Task Force Issue No. 96-18, resulting in a fair
value of approximately $5.0 million. The fair value of the warrant was
determined using the Black-Scholes pricing model, assuming a risk-free interest
rate of 6.0%, a volatility factor of 1.00 and an estimated fair value at the
time of grant of $9.00 per common share. This amount is being amortized to
expense on a straight-line basis over the vesting period of the warrant. The
Company recognized amortization expense of $206,000 during the three month
period ending June 30, 2000 and expects to recognize $618,000 in July through
December, 2000; $1,236,000 in 2001; $1,236,000 in 2002; $1,236,000 in 2003 and
$412,000 in 2004.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
The Company provides business-to-business electronic commerce Enterprise
Channel Management products and integration services for global 2000
enterprises. Our software products and services automate all forms of
communication and business processes across the distribution channel, allowing
global 2000 enterprises to leverage the power of the Internet to provide their
channel partners real-time access to products, services and information.
We commenced operations on August 20, 1996. During the period from our
inception until early 1998, we were primarily engaged in developing our software
for the Relationship Manager (formerly referred to as the Extranet Manager). In
1996 and 1997, we were also engaged in developing Internet Web sites and
providing related consulting services. We implemented the first Click Commerce
Relationship Manager in the second quarter of 1997. Through June 30, 2000, we
have licensed Relationship Managers for 32 customers.
Our revenue is derived from sales of licenses of our Click Commerce software,
comprised of the Relationship Manager and over 80 applications, needs analyses
and maintenance and support. We generally license our software on a perpetual
basis. Revenue from the sale of software licenses is recognized on a percentage
completion basis as services are performed or output milestones are reached as
we deliver, customize and install the software under fixed price contracts. We
are beginning to sell our software products separately from our integration
services, and we expect to recognize software license revenue on those sales
upon shipment of our software, provided that the fee is fixed and determinable,
persuasive evidence of an arrangement exists and collection of the resulting
receivable is considered probable. We will continue to recognize revenue on our
service contacts on a percentage completion basis. License fees are billed as
various milestones are reached during the contract, typically upon signing, upon
achievement of contractual milestones, and upon completion of the installation.
Maintenance service, which includes the right to receive product upgrades on a
when-and-if available basis, is sold separately under contacts that are
renewable annually.
We anticipate that we will sell maintenance service to most, but not all of
our customers. We recognize maintenance service revenue ratably over the
contract period, typically one year. Maintenance fees are generally billed
annually in advance. As part of the sales process we perform a needs analysis
for the potential customer on a fixed fee basis. We recognize revenue from needs
analyses as the work is performed.
We record cash receipts from customers and billed amounts due from customers
in excess of recognized revenue as billings in excess of revenues earned on
contracts in progress. The timing and amount of cash receipts from customers can
vary significantly depending on specific contract terms and can therefore have a
significant impact on the amount of billings in excess of revenues earned on
contracts in progress at the end of any given period.
Cost of revenue includes salaries and related expenses for our project
management and technical support personnel who provide customization and
installation services to our customers, as well as an allocation of business
consulting personnel salaries, data processing and overhead costs and costs of
licensing third party software incorporated into our products.
Our operating expenses are classified into four general categories: sales and
marketing, research and development, general and administrative and amortization
of stock-based compensation. Sales and marketing expenses consist primarily of
salaries and other related costs for sales and marketing personnel, sales
commissions, travel, public relations and marketing materials. Research and
development expenses consist primarily of personnel costs to support product
development. General and administrative expenses consist primarily of salaries
and other related costs for executive management, operations, finance and
administrative employees, legal and accounting services and facilities-related
expenses. Amortization of stock-based compensation represents the amortization
over the related service period of the difference between the exercise price of
options granted and the estimated fair market value of the underlying common
stock on the date of grant, as well as amortization of the warrant issued in
connection with a joint marketing agreement with Andersen Consulting, LLP.
<PAGE>
In April 2000, the Company issued a warrant to Andersen Consulting to
purchase up to 818,226 shares of common stock at $12.22 per share. The warrant
vests contingently upon the achievement of certain milestones, primarily the
generation of license revenue for the Company, and expires on April 20, 2004.
The warrant contains a significant cash penalty for Andersen Consulting's
failure to meet the agreed revenue target by the expiration date, and,
accordingly, the fair value of the warrant was determined on the date of grant
in accordance with Emerging Issues Task Force Issue No. 96-18, to be
approximately $5.0 million. This determination used the Black-Scholes pricing
model, assuming a risk-free interest rate of 6.0%, a volatility factor of 1.00
and an estimated fair value at the time of grant of $9.00 per common share. This
amount will be included in additional paid-in capital and will be amortized to
expense over the vesting period of the warrants. We have recognized amortization
expense of $206,000 during the three months ending June 30, 2000. We expect to
recognize future amortization expense of $618,000 in July through December,
2000; $1,236,000 in 2001; $1,236,000 in 2002; $1,236,000 in 2003 and $412,000 in
2004.
We had 25 full-time employees as of December 31, 1998 and 156 full-time
employees as of June 30, 2000. We intend to hire an additional 50-75 employees
in fiscal 2000, and intend to focus our recruiting efforts in the area of sales
and marketing and project management. We will also hire a number of business
consultants who perform needs analyses. This expansion will continue to place
significant demands on our management and operational resources. To manage this
rapid growth and increased demand, we must invest in and implement scalable
operational systems, procedures and controls. We must also be able to recruit
qualified candidates to manage our expanding operations. We expect future
expansion to continue to challenge our ability to hire, train, manage and retain
our employees.
On June 30, 2000, the Company completed an initial public offering of
5,000,000 shares of its common stock at an offering price of $10.00 per share,
resulting in proceeds of $45.3 million net of commissions, discounts and
offering expenses of $4.7 million. The proceeds were received by the Company on
June 30, 2000. In connection with this offering, on July 7, 2000, the
underwriters exercised their over-allotment option to purchase an additional
750,000 shares of the Company's common stock at $10.00 per share, resulting in
additional net proceeds of approximately $6.8 million. The net proceeds will be
used for working capital and general corporate purposes, including expansion in
sales and marketing both domestically and in Europe, broadening of business
development efforts, and continued investment in product technology.
Our limited operating history makes the prediction of future operating results
very difficult. We sold and implemented the first Click Commerce Relationship
Manager in the second quarter of 1997. We believe that period-to-period
comparisons of operating results should not be relied upon as predictive of
future performance because the substantial increase in revenues in recent
periods may not be sustainable. Our prospects must be considered in light of the
risks, expenses and difficulties encountered by companies at an early stage of
development, particularly companies in new rapidly evolving markets. We may not
be successful in addressing such risks and difficulties. Although we have
experienced significant percentage growth in revenues in recent periods, we
believe that prior growth rates may not be sustainable or indicative of future
operating results.
<PAGE>
Results of Operations
The following table sets forth selected financial data for the periods indicated
in dollars and as a percentage of total revenue.
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
---------------------------------------- ----------------------------------------
2000 1999 2000 1999
------------------- ------------------- ------------------- -------------------
% of % of % of % of
in (000's) Revenue in (000's) Revenue in (000's) Revenue in (000's) Revenue
---------- ------- ---------- ------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $ 7,054 100.0% $ 1,608 100.0% $ 12,178 100.0% $ 3,142 100.0%
Cost of revenue (exclusive of amortization
of stock-based compensation
reported below) 2,235 31.7 489 30.4 3,790 31.1 766 24.4
---------- ---------- ---------- ----------
Gross profit 4,819 68.3 1,119 69.6 8,388 68.9 2,376 75.6
Operating expenses:
Sales and marketing (exclusive of
amortization of stock-based
compensation reported below) 2,945 41.7 397 24.7 4,593 37.7 612 19.5
Research and development (exclusive of
amortization of stock-based
compensation reported below) 1,241 17.6 147 9.1 2,137 17.6 222 7.1
General and administrative (exclusive
of amortization of stock-based
compensation reported below) 1,498 21.2 529 32.9 2,744 22.5 812 25.8
Amortization of stock-based compensation 774 11.0 294 18.3 1,045 8.6 386 12.3
---------- ---------- ---------- ----------
Total operating expenses 6,458 91.5 1,367 85.0 10,519 86.4 2,032 64.7
---------- ---------- ---------- ----------
Operating income (loss) (1,639) (23.2) (248) (15.4) (2,131) (17.5) 344 10.9
Other income, net 23 0.3 1 - 40 0.3 2 0.1
---------- ---------- ---------- ----------
Income (loss) before income taxes (1,616) 22.9 (247) (15.4) (2,091) (17.2) 346 11.0
Income tax expense (benefit) (410) (5.8) (20) (1.3) (552) (4.6) 260 8.3
---------- ---------- ---------- ----------
Net income (loss) $ (1,206) (17.1) $ (227) (14.1) $ (1,539) (12.6) $ 86 2.7
========== ========== ========== ==========
</TABLE>
Comparison of the three months ended June 30, 2000 to the three months ended
June 30, 1999
Revenue
Total revenue increased to $7.1 million for the three months ended June 30,
2000 from $1.6 million for the three months ended June 30, 1999. This increase
of $5.5 million, or 339%, was primarily attributable to an increase in license
fees of $5.1 million and an increase in consulting, needs analyses and
maintenance services. The increase in license fees resulted from an increase in
the number of new customers from three to seven and an increase in average
contract size from new licenses and follow on orders from existing customers.
Cost of Revenue
Cost of revenue increased approximately $1.7 million, or 361%, to $2.2 million
for the three months ended June 30, 2000 from $489,000 for the three months
ended June 30, 1999. This increase was primarily attributable to an increase in
the number of project management personnel from sixteen at June 30, 1999 to
sixty-nine at June 30, 2000, resulting in an increase of approximately $533,000
in compensation and related expenses. The cost of revenue increase also reflects
increases of $682,000 and $480,000 in third party contractor costs and royalty
fees for licensed third party software, respectively.
<PAGE>
Operating Expenses
Sales and Marketing. Sales and marketing expenses increased by approximately
$2.5 million, or 642%, to $2.9 million for the three months ended June 30, 2000
from $397,000 for the three months ended June 30, 1999. The increase in sales
and marketing expenses is primarily attributable to an increase in the number of
sales and marketing employees from eight at June 30, 1999 to fifty-nine at June
30, 2000, resulting in an increase of approximately $2.0 million in compensation
and related expenses. In addition to the increase in compensation-related
expenses, the Company incurred approximately $397,000 in marketing material and
event expenses during the three months ended June 30, 2000. We expect these
expenses to significantly increase as we expand our sales and marketing efforts
in the United States and Europe.
Research and Development. Research and development expenses increased $1.1
million, or 744%, to $1.2 million for the three month period ended June 30,
2000, compared to the prior year three month period. This increase is primarily
attributable to an increase in third party contractor costs of $524,000 and in
the number of product development personnel from eight at June 30, 1999 to
twelve at June 30, 2000, resulting in $483,000 of additional compensation, fees
and related expenses. These efforts were primarily related to an upgrade of the
Relationship Manager and an increase in product offerings. We believe that
continued investment in research and development is critical to attain our
objectives, and, as a result, we expect research and development expenses to
increase significantly in future periods. To date, all software development
costs have been expensed as incurred.
General and Administrative. General and administrative expenses increased by
approximately $969,000, or 183%, to $1.5 million for the three months ended
June 30, 2000 from $529,000 for the three months ended June 30, 1999. This
increase is primarily attributable to an increase in our operations, management
and administrative personnel from six at June 30, 1999 to sixteen at June 30,
2000. The addition of ten employees resulted in additional costs of
approximately $757,000 in compensation and related expenses. We also incurred
additional expenses of $139,000 in professional and consulting fees during the
2000 period. We believe general and administrative expenses will increase in
future periods, as we expect to add personnel to support our expanding
operations and incur additional costs related to the growth of our business.
Amortization of stock-based compensation. We have recorded deferred
compensation for stock options with exercise prices less than the deemed fair
value of our common stock at the time of those grants. Stock-based compensation
is being amortized over the vesting periods of the applicable options, resulting
in expense of $294,000 and $568,000 during the three months ended June 30, 1999
and 2000, respectively.
Additionally, the $5 million fair value of the warrant issued in connection
with a joint marketing agreement entered into during April 2000, is being
amortized over the vesting period of the related warrant. Accordingly, $206,000
of amortization expense was recognized during the three months ended June 30,
2000.
<PAGE>
Comparison of six months ended June 30, 2000 to six months ended June 30, 1999
Revenue
Total revenue increased $9.1 million, or 288%, to $12.2 million for the six
months ended June 30, 2000 from $3.1 million for the six months ended June 30,
1999. The increase was primarily attributable to an increase in license fees of
$8.4 million and an increase in consulting services, needs analyses and
maintenance services. The increase in fees resulted from an increase in the
number of new customers from six to eleven and in the average contract size from
new licenses and follow on orders from existing customers.
Cost of Revenue
Cost of revenue increased approximately $3.0 million, or 395%, to $3.8 million
for the six months ended June 30, 2000 from $766,000 for the six months ended
June 30, 1999. This increase was primarily attributable to an increase in the
number of project management personnel from sixteen at June 30, 1999 to
sixty-nine at June 30, 2000, resulting in an increase of approximately $1.7
million in compensation and related expenses. The cost of revenue increase also
reflects increases of $958,000 and $480,000 in third party contractor costs and
royalty fees for licensed third party software, respectively.
Operating Expenses
Sales and Marketing. Sales and marketing expenses increased by approximately
$4.0 million, or 650%, to $4.6 million for the six months ended June 30, 2000
from $612,000 for the six months ended June 30, 1999. The increase in sales and
marketing expenses is primarily attributable to an increase in the number of
sales and marketing employees from eight at June 30, 1999 to fifty-nine at June
30, 2000, resulting in an increase of approximately $3.2 million in compensation
and related expenses. In addition to the increase in sales and marketing
compensation and related expenses, the company incurred $497,000 of marketing
material and event expenses during the six months ended June 30, 2000. We expect
these expenses to significantly increase as we expand our sales and marketing
efforts in the United States and Europe.
Research and Development. Research and development expenses increased $1.9
million, or 863%, to $2.1 million for the six months ended June 30, 2000
compared with the prior year six-month period. This increase is primarily
attributable to a $941,000 increase in third party contractor costs and an
increase in the number of product development personnel from eight at June 30,
1999 to twelve at June 30, 2000, resulting in $842,000 of additional
compensation, fees and related expenses. These increases are related to an
upgrade of the Relationship Manager and an increase in product offerings. We
believe that continued investment in research and development is critical to
obtain our objectives, and, as a result, we expect research and development
expenses to increase significantly in future periods. To date, all software
development costs have been expensed as incurred.
General and Administrative. General and administrative expenses increased by
approximately $1.9 million, or 238%, to $2.7 million for the six months ended
June 30, 2000 from $812,000 for the six months ended June 30, 1999. This
increase is primarily attributable to an increase in our operations, management
and administrative personnel from six at June 30, 1999 to sixteen at June 30,
2000. The addition of ten employees resulted in additional costs of
approximately $1.3 million in compensation and related expenses. We also
incurred additional expenses of $256,000 related to professional and consulting
fees. We believe our expenses will increase in future periods, as we expect to
add personnel to support our expanding operations and incur additional costs
related to the growth of our business.
Amortization of stock-based compensation. We have recorded stock-based
compensation for stock options with exercise prices less than the deemed fair
value of our common stock at the time of those grants. Stock-based compensation
is being amortized over the vesting periods of the applicable options, resulting
in expense for the options of $386,000 and $839,000 during the six months ended
June 30, 1999 and 2000, respectively.
Additionally, the $5 million fair value of the warrant issued in connection
with a joint marketing agreement entered into during April 2000, is being
amortized over the vesting period of the related warrant. Accordingly, $206,000
of amortization expense was recognized during the six months ended June 30,
2000.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2000, the Company had $49.7 million of cash and cash
equivalents and short-term investments, consisting primarily of proceeds from
our initial public offering. Net cash used by operating activities was $2.1
million for the six months ended June 30, 2000 and cash provided by operating
activities was $1.1 million for the six months ended June 30, 1999. The $2.1
million of cash used by operating activities in the current six month period
reflects the significant growth in our business and its infrastructure and
consists primarily of a $311,000 net loss adjusted for non-cash amortization and
depreciation, a $1.2 million increase in trade accounts receivable, a $1.3
million increase in revenues earned on contracts in progress in excess of
billings, and a $673,000 increase in other current assets. These uses were
partially offset by a $1.9 million increase in accounts payable, accrued
expenses and compensation.
Net cash provided by investing activities was $2.5 million for the six
months ended June 30, 2000, reflecting the maturity of a $2.9 million short-term
investment during the period, partially offset by net purchases and sales of
property and equipment of $434,000. During the six months ended June 30, 1999,
the Company used $5.0 million for purchasing short-term investments and property
and equipment. Our capital expenditures consisted of purchases of operating
resources to manage our operations, including computer hardware and software,
office furniture and equipment and leasehold improvements. We expect that our
capital expenditures will continue to increase in the future. In connection with
the expansion of our headquarters, we are planning to incur approximately
$500,000 in leasehold improvements and furniture and equipment purchases during
the six months ended December 31, 2000.
Net cash provided by financing activities was approximately $46.0 million
and $5.0 million for the six month periods ended June 30, 2000 and 1999,
respectively. The cash provided during the current year period reflects net
proceeds of $46.0 million received by the Company on June 30, 2000, from our
completed initial public offering, after discounts, commissions and related
expenses. The cash provided during the prior year six month period reflects the
sale of $5.0 million of convertible preferred stock during June, 1999.
Upon the successful completion of the Company's initial public offering,
certain amounts related to expenses incurred in connection with the offering
were reclassified from operating activities to financing activities in the
condensed statements of cash flows for the six months ended June 30, 2000.
In March 2000, the Company renewed and increased borrowing amounts under
its revolving credit facility. In January 2000, we obtained a letter of credit
under this facility totaling $500,000 to secure a new office lease. This letter
of credit is renewable annually and declines by $100,000 on the second, third
and fourth anniversaries of the lease and then declines to $38,130 on the fifth
anniversary until the lease expires in August 2005.
We expect significant growth in our operating expenses, particularly
research and development and sales and marketing expenses, for the foreseeable
future in order to execute our business plan. In addition, we may use cash
resources to fund investments in complementary businesses or technologies. We
believe that the net proceeds from the sale of our common stock in our initial
public offering completed on June 30, 2000, together with our existing working
capital will be sufficient to meet our working capital and operating expenditure
requirements for at least the next twelve months. We have no current plans to
raise additional equity during the next twelve months, although such plans are
subject to business and market conditions. Thereafter, we may find it necessary
to obtain additional equity or debt financing, although we do not currently
foresee a need for additional cash resources for long-term needs. In the event
additional financing is required, we may not be able to raise it on acceptable
terms or at all.
<PAGE>
Impact of Recently Issued Standards
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended by SFAS No. 137, Accounting for
Derivative Instruments and Hedging Activities---Deferral of the Effective Date
of FASB Statement No. 133, which is effective for all fiscal quarters of all
fiscal years beginning after June 15, 2000. SFAS No. 133 establishes a
comprehensive standard for the recognition and measurement of derivative
instruments and hedging activities. This pronouncement will require us to
recognize derivatives on our balance sheet as fair value. Changes in the fair
values of derivatives that qualify as cash flow hedges will be recognized in
other comprehensive income until the hedged item is recognized in earnings.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements
that was amended by SAB No. 101B, which is effective no later than the fourth
quarter of fiscal 2000.
We do not expect the adoption of these recently issued accounting
pronouncements to have a significant impact on our results of operations,
financial position or cash flows.
Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995 within the meaning of Section 21E of the Securities Exchange Act of 1934,
as amended:
Statements in this Form 10-Q that are not historical facts and refer to the
Company's future prospects are "forward-looking statements" under the Private
Securities Litigation Reform Act of 1995. These forward-looking statements are
generally identified by words such as "expect," "anticipate," "intend,"
"believe," "hope," "assume," "estimate" and other similar words and expressions.
The statements are subject to risks and uncertainties and actual results may
differ materially from those indicated by these forward-looking statements as a
result of various factors, including but not limited to, the ability of the
Company to execute on its plan to enter into strategic alliances with system
integrators and business consultants, the extent of customer acceptance and
utilization of the Company's Enterprise Channel Management solutions, the impact
of competitive products and services, the Company's ability to manage growth and
to develop new and enhanced versions of its products and services, the effect of
economic and business conditions, the Company's ability to expand overseas,
changes in technology, deployment delays or errors associated with the Company's
products and the Company's ability to protect its intellectual property rights.
For a discussion of these and other risk factors that could affect the Company's
business, see "Risk Factors" in the Company's recent Registration Statement on
Form S-1, file No. 333-30564, which is on file with the Securities and Exchange
Commission.
Item 3. Qualitative and Quantitative Disclosures About Market Risk
We develop products in the United States and market our products and
services in the United States; however, we have begun marketing and selling our
products and services in Europe. As a result, our financial results could be
affected by factors such as changes in foreign currency exchange rates or weak
economic conditions in foreign markets. Substantially all of our sales and
expenses incurred abroad are currently made in U.S. dollars; a strengthening of
the dollar could make our products and services less competitive in foreign
markets. Our interest income is sensitive to changes in the general level of
U.S. interest rates, particularly since the majority of our investments are in
short-term instruments. Due to the short-term nature of our investments, we
believe that there is no material risk exposure. Therefore, no quantitative
tabular disclosures are required.
<PAGE>
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
(c) Recent Sales of Unregistered Securities.
In April 2000, the Company issued to Andersen Consulting, LLP a warrant to
purchase up to 818,226 shares of common stock at an exercise price of $12.22 per
share. The warrant was issued in connection with the Company entering into a
joint marketing arrangement with Andersen Consulting, and vests contingently
upon the achievement of certain milestones, primarily the generation of license
revenue for the Company. The issuance was exempt from the registration
requirements of the Securities Act of 1933, as amended, by virtue of Section
4(2) thereof.
(d) Use of Proceeds.
On June 26, 2000, the Securities and Exchange Commission declared effective
the Company's Registration Statement on Form S-1, File no. 333-30564, relating
to the initial public offering of the Company's common stock, par value $.001
per share. The Registration Statement covered the sale of 5,000,000 shares plus
an over-allotment option of 750,000 shares. The offering commenced on June 26,
2000 and all shares covered by the Registration Statement were sold. The lead
manager was Morgan Stanley & Co. Incorporated. The proceeds to the Company, net
of underwriting discounts and costs of approximately $5.4 million, were
approximately $52.1 million, including net proceeds from exercise of the
over-allotment option. As of June 30, 2000, the Company had not spent any
proceeds, and has invested all of such proceeds in investment grade, interest-
bearing securities. None of the proceeds of the initial public offering were
used to pay, directly or indirectly, directors, officers, persons owning ten
percent or more of the Company's equity securities, or affiliates of the
Company.
Item 4. Submission of Matters to a Vote of Security Holders
On June 5, 2000, the shareholders of the Company took the following actions by
written consent: 1) the Amended and Restated Click Commerce, Inc. Stock Option
and Stock Award Plan was amended to increase the number of shares that may be
issued under the plan by 2,850,000 to a maximum of 7,780,842 shares, and 2) the
Click Commerce, Inc. Directors' Stock Option and Stock Award Plan was amended to
increase the annual compensation payable under the plan to the chairs of the
various committees of the Board of Directors. For each item, there were
20,391,664 shares of common stock voted in favor, and no votes against or
abstentions. Each item also received the approval of all 5,217,392 shares of
Preferred A stock and all 4,347,828 shares of Preferred B stock.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
Number Description
------ -----------
<S> <C>
3.1* Amended and Restated Certificate of Incorporation
3.2* Amended and Restated Bylaws
4.1* Specimen Common Stock certificate
4.2* Amended and Restated Stockholders Rights Agreement
10.1* Strategic Alliance Agreement with Andersen Consulting, LLP
10.2* Warrant dated April 20, 2000 issued to Andersen Consulting, LLP
10.3* Consulting Agreement with Leslie D. Shroyer
10.4* Option Agreement with Leslie D. Shroyer
27.1 Financial Data Schedule
</TABLE>
* Incorporated by reference to the Company's Registration Statement on Form
S-1, file number 333-30564.
(b) Reports on Form 8-K
None
Signatures
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Click Commerce, Inc.
Date: August 14, 2000 By: /s/ Rebecca S. Maskey
------------------------------
Rebecca S. Maskey
Executive Vice President,
Chief Financial Officer and
Treasurer (Principal Financial
and Accounting Officer)
