-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ILMkc0PqNwBSIZWheGUBK2r2Bc++fneg+zCUtdaNOc1sIIkxtQIDHIl+qJZ8VlYk MULxqCBB4yYC769n2ReueQ== 0000950146-99-000053.txt : 19990121 0000950146-99-000053.hdr.sgml : 19990121 ACCESSION NUMBER: 0000950146-99-000053 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19990120 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PEGASYSTEMS INC CENTRAL INDEX KEY: 0001013857 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROCESSING & DATA PREPARATION [7374] IRS NUMBER: 042787865 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: SEC FILE NUMBER: 001-11859 FILM NUMBER: 99508831 BUSINESS ADDRESS: STREET 1: 101 MAIN ST CITY: CAMBRIDGE STATE: MA ZIP: 02142-1590 BUSINESS PHONE: 6173749600 MAIL ADDRESS: STREET 1: 101 MAIN ST CITY: CAMBRIDGE STATE: MA ZIP: 02142-1590 10-Q/A 1 PEGASYSTEMS INC. FORM NT 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q/A-4 (Mark One) [X] Quarterly Report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 1997 or [ ] Transition Report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the transition period from ___ to ___ Commission File Number: 1-11859 PEGASYSTEMS INC. (Exact name of Registrant as specified in its charter) Massachusetts 04-2787865 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 101 Main Street Cambridge, MA 02142-1590 (Address of principal executive offices) (zip code) (617) 374-9600 (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. Yes [X] No [ ] -------------- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. There were 28,487,600 shares of the Registrant's common stock, $.01 par value per share, outstanding on June 30, 1997. PEGASYSTEMS INC. AND SUBSIDIARY Index to Form 10-Q/A-4 Part I - Financial Information Item 1. Financial Statements
Page Consolidated Balance Sheets at December 31, 1996 3 and June 30, 1997 Consolidated Statements of Operations for the three 4 and six months ended: June 30, 1996 and June 30, 1997 Consolidated Statements of Cash Flows for the six 5 months ended: June 30, 1996 and June 30, 1997 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial 9 Condition and Results of Operations Part II - Other Information Item 1. Legal Proceedings 13 Item 2. Changes in Securities 13 Item 3. Defaults upon Senior Securities 13 Item 4. Submission of Matters to a Vote of Security Holders 13 Item 5. Other Information 13 Item 6. Exhibits and Reports on Form 8-K 13 SIGNATURES 14
Form 10-Q/A-4 Page 3 of 14 PEGASYSTEMS INC. Consolidated Balance Sheets (in thousands, except share-related amounts)
December 31, June 30, 1996 1997 ---- ---- Assets (As Restated) Current assets: Cash and cash equivalents $24,201 $72,511 Trade and installment accounts receivable, net of Allowance for doubtful accounts of $939 at December 31, 1996 and $1,871 at June 30, 1997 14,582 16,267 Prepaid expenses and other current assets 1,235 1,620 ------- ------ Total current assets 40,018 90,398 Long-term license installments, net 23,802 25,005 Equipment and improvements, net 3,035 3,832 Purchased software and other, net -- 12,871 ------- ------ Total assets $66,855 $132,106 ======= ======== Liabilities and Stockholders' Equity Current liabilities: Accounts payable and accrued expenses $2,697 $13,661 Deferred revenue 53 2,077 Deferred income taxes 2,904 1,865 ------- ------ Total current liabilities 5,654 17,603 ------- ------ Deferred income taxes 8,816 8,729 ------- ------ Stockholders' Equity: Preferred stock, $.01 par value, 1,000,000 shares authorized; no shares issued and outstanding -- -- Common stock, $.01 par value, 45,000,000 shares authorized; 26,392,200 shares and 28,487,600 shares issued and outstanding at December 31, 1996 and June 30, 1997, respectively 264 285 Additional paid-in capital 30,206 82,586 Deferred compensation (73) (63) Stock warrant -- 2,897 Retained earnings 22,022 20,184 Cumulative foreign currency translation adjustment (34) (115) ------- ------ Total stockholders' equity 52,385 105,774 ------- ------ Total liabilities and stockholders' equity $66,855 $132,106 ======= ========
The accompanying notes are an integral part of these consolidated financial statements. Form 10-Q/A-4 Page 4 of 14 PEGASYSTEMS INC. Consolidated Statements of Operations (in thousands, except per share amounts)
Three Months Ended Six Months Ended June 30, June 30, 1996 1997 1996 1997 ---- ---- ---- ---- (As Restated) (As Previously Revenue: Restated) Software license $3,874 $2,220 $6,394 $7,511 Services 2,575 3,052 4,996 5,719 ------ ------ ------ ------ Total revenue 6,449 5,272 11,390 13,230 ------ ------ ------ ------ Cost of revenue: Cost of software license 118 10 236 20 Cost of services 1,584 2,386 2,989 4,536 ------ ------ ------ ------ Total cost of revenue 1,702 2,396 3,225 4,556 ------ ------ ------ ------ Gross Profit 4,747 2,876 8,165 8,674 Operating expenses: Research and development 1,918 3,253 3,522 5,839 Selling and marketing 1,282 4,403 2,256 7,096 General and administrative 399 641 788 1,246 ------ ------ ------ ------ Total operating expenses 3,599 8,297 6,566 14,181 ------ ------ ------ ------ Income (loss) from operations 1,148 (5,421) 1,599 (5,507) License interest income 378 421 746 795 Other interest income 11 998 23 1,748 Interest expense (30) -- (69) -- ------ ------ ------ ------ Income (loss) before provision for income taxes 1,507 (4,002) 2,299 (2,964) Provision (benefit) for income taxes 588 (1,520) 899 (1,126) ------ ------ ------ ------ Net income (loss) $919 $(2,482) $1,400 $(1,838) ===== ======= ====== ======= Earnings (loss) per share: Basic $0.04 $(0.09) $0.06 $(0.07) ===== ======= ===== ======= Diluted $0.04 $(0.09) $0.06 $(0.07) ===== ======= ===== ======= Weighted average number of common shares outstanding: Basic 23,491 28,452 23,491 28,134 ====== ====== ====== ====== Diluted 25,283 28,452 25,258 28,134 ====== ====== ====== ======
The accompanying notes are an integral part of these consolidated financial statements. Form 10-Q/A-4 Page 5 of 14 PEGASYSTEMS INC. Consolidated Statements of Cash Flows (in thousands)
Six Months Ended June 30, 1996 1997 ---- ---- (As Previously Cash flows from operating activities: Restated) Net income (loss) $1,400 $(1,838) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Provision (benefit) for deferred income taxes 686 (1,126) Depreciation and amortization 756 804 Provision for doubtful accounts -- 815 Changes in operating assets and liabilities: Trade and installment accounts receivable (2,248) (3,668) Prepaid expenses and other current assets 2 (385) Accounts payable and accrued expenses (24) 963 Deferred revenue 409 2,024 ------ ------- Net cash provided by (used in) operating activities 981 (2,411) Cash flows from investing activities: Purchase of equipment and improvements (529) (1,565) ------ ------- Net cash used in investing activities (529) (1,565) Cash flows from financing activities: Repayments of long-term debt (391) -- Issuance of common stock, net -- 51,943 Exercise of stock options 1 424 ------ ------- Net cash provided by (used in) financing activities (390) 52,367 ------ ------- Effect of exchange rate on cash and cash equivalents (16) (81) ------ ------- Net increase in cash and cash equivalents 46 48,310 ------ ------- Cash and cash equivalents, at beginning of period 511 24,201 ------ ------- Cash and cash equivalents, at end of period $557 $72,511 ==== =======
The accompanying notes are an integral part of these consolidated financial statements. Form 10-Q/A-4 Page 6 of 14 PEGASYSTEMS INC. Notes to Consolidated Interim Financial Statements June 30, 1997 Note A - Basis of Presentation The accompanying unaudited consolidated financial statements of Pegasystems Inc. (the "Company") presented herein, as restated, have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six-month periods ended June 30, 1997 are not necessarily indicative of the results that may be expected for the year ended December 31, 1997. The Company suggests that these interim condensed consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 1996, included in the Company's Annual Report to Stockholders filed with the Securities and Exchange Commission. Note B - Subsequent Events On April 15, 1998, the Company restated its consolidated financial statements for the unaudited three-month period ended March 31, 1997 and three and six-month periods ended June 30, 1997. The restatements reflected changes in the timing of revenue recognition and expense on certain contracts and increased reserves for revenue and doubtful accounts. On October 29, 1998, the Company publicly announced its preliminary, unaudited results of operations for the three and nine-month periods ended September 30, 1998. Subsequently, based on information that had not previously come to the attention of the Company or its independent auditors, the Company determined that it may not have accounted properly for certain revenue transactions. As a result, the Company, with the assistance of its independent auditors, conducted a comprehensive review of those transactions and others relating to the three months ended September 30, 1998 and other periods in 1998 and 1997. Based on such review, the Company concluded that it was necessary to revise its previously disclosed preliminary, unaudited results of operations for the three and nine-month periods ended September 30, 1998 and to restate its consolidated financial statements for the first and second quarters of each of 1998 and 1997. The revision and restatements primarily reflect changes in the timing of revenue recognition. The revenue changes are principally reversals of revenue arising from the inability to reasonably estimate the fair market value of undelivered elements in connection with software licenses, issues surrounding the timing of delivery or acceptance of licensed software, certain project milestones not being completed and billing errors or delays. The revenue changes also reflect an increase in revenue reserves. In the opinion of management, all material adjustments necessary to correct the consolidated financial statements have been recorded. A summary of the impact of such restatements on the consolidated financial statements for the unaudited three-month period ended and six-month period ended June 30, 1997 is as follows:
Unaudited Three Months Ended June 30, 1997 As Previously Restated As Restated ---------------------- ----------- Software license revenue $1,696 $2,220 Services revenue 3,052 3,052 Total revenue 4,748 5,272 Loss from operations (5,945) (5,421) Net loss (2,806) (2,482) Earnings per share: Basic $(0.10) $(0.09) Earnings per share: Diluted $(0.10) $(0.09) Total Assets $132,106 $132,106
Form 10-Q/A-4 Page 7 of 14 Note B - Subsequent Events
Unaudited Six Months Ended June 30, 1997 As Previously Reported As Previously Restated ---------------------- ---------------------- Software license revenue $10,462 $7,511 Services revenue 6,004 5,719 Total revenue 16,466 13,230 Loss from operations (1,093) (5,507) Net income (loss) 899 (1,838) Earnings per share: Basic $0.03 $(0.07) Earnings per share: Diluted $0.03 $(0.07) Total Assets $123,311 132,106
Note C - Net Income Per Share The Company has adopted Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share." SFAS No. 128 establishes standards for computing and presenting earnings per share and applies to entities with publicly held common stock or potential common stock. In accordance with the Securities and Exchange Commission's Staff Accounting Bulletin (SAB) No. 98, the Company has determined that there were no nominal issuances of common stock or potential common stock in the period prior to the Company's initial public offering (IPO). The Company has applied the provisions of SFAS No. 128 and SAB No. 98 retroactively to all periods presented. The net income (loss) amounts for the three and six month periods ended June 30, 1997 reflect all restatement adjustments discussed in Note B. Calculations of basic and diluted net income per share and potential common share are as follows:
Three Months Ended Six Months Ended June 30, June 30, 1996 1997 1996 1997 ---- ---- ---- ---- (in thousands, except per share data) (As Restated) (As Previously Restated) Basic Net income (loss) $919 $(2,482) $1,400 $(1,838) ==== ======== ====== ======== Weighted average common shares outstanding 23,491 28,452 23,491 28,134 ====== ====== ====== ====== Basic earnings (loss) per share $0.04 $(0.09) $0.06 $(0.07) ===== ======= ===== ======= Diluted Net income (loss) $919 $(2,482) $1,400 $(1,838) ==== ======== ====== ======== Weighted average common shares outstanding: 23,491 28,452 23,491 28,134 Effect of: Assumed exercise of stock options 1,792 -- 1,767 -- ----- ------- ----- ------- Weighted average common shares outstanding, assuming dilution 25,283 28,452 25,258 28,134 ====== ====== ====== ====== Diluted earnings (loss) per share $0.04 $(0.09) $0.06 $(0.07) ===== ======= ===== =======
Form 10-Q/A-4 Page 8 of 14 Note D - Software License and Support and Warrant Agreements On June 27, 1997, the Company entered into Software License and Support and Warrant Agreements with First Data Resources, Inc. (FDR). The provisions of the Software License and Support Agreement give FDR the right to use the Company's software in connection with new products and also the exclusive right to market, distribute and sublicense the Company's software and new products to FDR customers and prospects. In addition to the granting of a license to use its software, the Company will also provide services to FDR in connection with the new products. For the right to the license and the services, FDR is expected to pay the Company a base fee of $49.25 million. FDR will pay $5.0 million in 1997 and remaining fees are expected to be paid on a monthly basis over the term of the agreement. The initial term of this agreement commences on June 27, 1997 and runs through December 31, 2002. In accordance with the Software License and Support Agreement, the Company was granted a license for access to and use of the designs, specifications and code of FDR's ESP Product. As consideration for this right, the Company will pay FDR $10.0 million. This amount was recorded as purchased software on the accompanying consolidated balance sheet. In connection with the Software License and Support Agreement on June 27, 1997, the Company committed to provide a warrant to FDR. Pursuant to the Warrant Agreement, the Company gave FDR the right to purchase 284,876 shares of the Company's Common Stock at a purchase price of $28.25 per share which represented the fair market value of the common stock on the date of the agreement. The warrant will become exercisable on June 27, 1998 and will expire on June 27, 2002. The warrant was valued at $2.9 million and the corresponding deferred asset was capitalized and included in "purchased software and other" on the accompanying consolidated balance sheet. The Company will recognize the base fee revenue and also amortize the value of the purchased software and the warrant on a pro rata basis over the initial 5-1/2 year term of the agreement. Form 10-Q/A-4 Page 9 of 14 PEGASYSTEMS INC. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Three and Six Months Ended June 30, 1997 Compared to Three and Six Months Ended June 30, 1996 On April 15, 1998 the Company restated its consolidated financial statements for the unaudited three-month and six-month periods ended June 30, 1997. The restatements reflected changes in the timing of revenue recognition and expense on certain contracts and increased reserves for revenue and doubtful accounts. On October 29, 1998, the Company publicly announced its preliminary, unaudited results of operations for the three and nine-month periods ended September 30, 1998. Subsequently, based on information that had not previously come to the attention of the Company or its independent auditors, the Company determined that it may not have accounted properly for certain revenue transactions. As a result, the Company, with the assistance of its independent auditors, conducted a comprehensive review of those transactions and others relating to the three months ended September 30, 1998 and other periods in 1998 and 1997. Based on such review, the Company concluded that it was necessary to revise its previously disclosed preliminary, unaudited results of operations for the three and nine-month periods ended September 30, 1998 and to restate its consolidated financial statements for the first and second quarters of each of 1998 and 1997. The revision and restatements primarily reflect changes in the timing of revenue recognition. The revenue changes are principally reversals of revenue arising from the inability to reasonably estimate the fair market value of undelivered elements in connection with software licenses, issues surrounding the timing of delivery or acceptance of licensed software, certain project milestones not being completed and billing errors or delays. The revenue changes also reflect an increase in revenue reserves. In the opinion of management, all material adjustments necessary to correct the consolidated financial statements have been recorded. Revenue Total revenue for the three months ended June 30, 1997 (the "1997 Three Month Period") decreased 18.3% to $5.3 million from $6.4 million for the three months ended June 30, 1996 (the "1996 Three Month Period"). This decrease was primarily due to a decrease in software license revenue. Total revenue for the six months ended June 30, 1997 (the "1997 Six Month Period") increased 16.2% to $13.2 million from $11.4 million for the six months ended June 30, 1996 (the "1996 Six Month Period"). This increase was primarily due to an increase in software license revenue. Software license revenue for the 1997 Three Month Period decreased 42.7% to $2.2 million from $3.9 million for the 1996 Three Month Period. The decrease in software license revenue was primarily attributable to fewer software license acceptances by new customers during the 1997 Three Month Period. Software license revenue for the 1997 Six Month Period increased 17.5% to $7.5 million from $6.4 million for the 1996 Six Month Period. The increase in software license revenue was primarily attributable to software license acceptances by new customers, software license agreement renewals, and extended software usage by existing customers. Services revenue for the 1997 Three Month Period increased 18.5% to $3.1 million from $2.6 million for the 1996 Three Month Period. Services revenue for the 1997 Six Month Period increased 14.5% to $5.7 million from $5.0 million for the 1996 Six Month Period. The increase in services revenue was primarily attributable to increased implementation services for new customers, additional consulting services provided to existing customers, and to a lesser extent, increased maintenance revenue from a larger installed product base. Cost of Revenue Cost of software license for the 1997 Three Month Period decreased 91.5% to $0.01 million from $0.1 million for the 1996 Three Month Period, and decreased as a percentage of total revenue from 1.8% for the 1996 Three Month Period to 0.2% for the 1997 Three Month Period. Cost of software license for the 1997 Six Month Period decreased 91.5% to $0.02 million from $0.24 million for the 1996 Six Month Period, and decreased as a percentage of total revenue from 2.1% for the 1996 Six Month Period to 0.2% for the 1997 Six Month Period. As a percentage of software license revenue, cost of software license decreased from 3.0% for the 1996 Three Month Period to 0.5% for the 1997 Three Month Period. As a percentage of software license revenue, cost of software license decreased from 3.7% for the 1996 Six Month Period to 0.3% for the 1997 Six Month Period. Software development costs were fully amortized during 1996 and no software development costs were capitalized during the 1997 Three or Six Month Period. Form 10-Q/A-4 Page 10 of 14 Cost of services for the 1997 Three Month Period increased 50.6% to $2.4 million from $1.6 million for the 1996 Three Month Period. Cost of services for the 1997 Six Month Period increased 51.8% to $4.5 million from $3.0 million for the 1996 Six Month Period. Cost of services as a percentage of total revenue increased from 24.6% for the 1996 Three Month Period to 45.3% for the 1997 Three Month Period. This increase was due to a slowdown in the growth of the Company's total revenue. Cost of services as a percentage of total revenue increased from 26.2% for the 1996 Six Month Period to 34.3% for the 1997 Six Month Period. Cost of services as a percentage of services revenue increased from 61.5% for the 1996 Three Month Period to 78.2% for the 1997 Three Month Period. Cost of services as a percentage of services revenue increased from 59.8% for the 1996 Six Month Period to 79.3% for the 1997 Six Month Period. These increases were both primarily due to the buildup of new staff, primarily in the Company's regional offices, and use of the Company's service personnel to build templates which can be reused in other customer applications. Operating Expenses Research and development expenses for the 1997 Three Month Period increased 69.6% to $3.3 million from $1.9 million for the 1996 Three Month Period. Research and development expenses for the 1997 Six Month Period increased 65.8% to $5.8 million from $3.5 million for the 1996 Six Month Period. As a percentage of total revenue, research and development expenses increased from 29.7% for the 1996 Three Month Period to 61.7% for the 1997 Three Month Period. As a percentage of total revenue, research and development expenses increased from 30.9% for the 1996 Six Month Period to 44.1% for the 1997 Six Month Period. Both of these increases were due to a slowdown in the growth of the Company's total revenue. In addition, during the 1997 Three Month Period, the Company received from FDR a license to the requirements, designs, specifications, and code of FDR's ESP product for which the Company will pay $10.0 million, and which will be used to support the development of the Company's software products. The Company capitalized this software in the 1997 Three Month Period. The Company commenced the amortization of these software amortization costs in the 1997 Three Month Period, and expects to continue to amortize these software amortization costs until December 31, 2002. Selling and marketing expenses for the 1997 Three Month Period increased 243.4% to $4.4 million from $1.3 million for the 1996 Three Month Period. Selling and marketing expenses for the 1997 Six Month Period increased 214.5% to $7.1 million from $2.3 million for the 1996 Six Month Period. As a percentage of total revenue, selling and marketing expenses increased from 19.9% for the 1996 Three Month Period to 83.5% for the 1997 Three Month Period. As a percentage of total revenue, selling and marketing expenses increased from 19.9% for the 1996 Six Month Period to 53.6% for the 1997 Six Month Period. These increases were primarily attributable to the hiring of additional direct sales and marketing personnel, commission payments on new sales, increased investment in marketing support activities and materials, additional trade show activities, preparations for the Company's User Meetings, and the opening of additional regional offices. General and administrative expenses for the 1997 Three Month Period increased 60.7% to $0.6 million from $0.4 million for the 1996 Three Month Period. General and administrative expenses for the 1997 Six Month Period increased 58.1% to $1.2 million from $0.8 million for the 1996 Six Month Period. These increases were due to increased investment in the infrastructure needed to support the Company's accelerated growth. General and administrative expenses increased as a percentage of total revenue from 6.2% for the 1996 Three Month Period to 12.2% for the 1997 Three Month Period and from 6.9% for the 1996 Six Month Period to 9.4% for the 1997 Six Month Period due to a slowdown in the growth of the Company's total revenue. Form 10-Q/A-4 Page 11 of 14 License Interest Income License interest income which is the portion of all license fees due under software license agreements which was not recognized upon product acceptance or license renewal increased 11.4% from $0.38 million for the 1996 Three Month Period to $0.42 million for the 1997 Three Month Period. License interest income increased 6.6% from $0.75 million for the 1996 Six Month Period to $0.80 million for the 1997 Six Month Period due to the increase in the Company's installed customer base. Provision (Benefit) for Income Taxes The provision for federal, state and foreign taxes was $0.6 million for the 1996 Three Month Period. The tax benefit for the 1997 Three Month Period was $1.5 million. The provision for federal, state and foreign taxes was $0.9 million for the 1996 Six Month Period. The tax benefit for the 1997 Six Month Period was $1.1 million. The effective tax rate decreased from 39.0% and 39.1% for 1996 Three and Six Month Periods, respectively to 38.0% for the 1997 Three and Six Month Periods, respectively. These decreases were due to the re-instatement by the Internal Revenue Service of the research and development tax credit in May 1996. Liquidity and Capital Resources Since its inception, the Company had funded its operations primarily through cash flow from operations and bank borrowings. In July 1996, the Company issued and sold 2.7 million shares of Common Stock in connection with its initial public offering. Net proceeds to the Company from such offering were approximately $29.4 million. In January 1997, the Company issued and sold 1.8 million shares of Common Stock in connection with a second public offering. Net proceeds to the Company from such offering were approximately $51.9 million. At June 30, 1997, the Company had cash and cash equivalents of approximately $72.5 million and working capital of approximately $72.8 million. The Company's approach of charging license fees payable in installments over the term of its licenses has historically deferred the receipt of cash and, prior to its initial public offering, had limited the availability of working capital. Net cash used in operating activities for the 1997 Six Month period was $2.4 million, primarily due to an increase in accounts receivable and prepaid expenses and other current assets. Net cash used in investing activities was $1.6 million during the 1997 Six Month Period due to the purchase of property and equipment consisting mainly of computer hardware and software and furniture and fixtures to support the Company's growing employee base. Net cash provided by financing activities was $52.4 million during the 1997 Six Month Period mainly due to the completion of the Company's second public offering. The Company's capital commitments consist primarily of operating leases for office space and equipment. At June 30, 1997, the Company's commitments under non-cancelable operating leases for office space with terms in excess of one year totaled $0.7 million, $1.4 million and $0.6 million for 1997, 1998 and 1999, respectively. The Company's total payments under such leases was $0.7 million for the 1997 Six Month Period. The Company's $5.0 million revolving credit line, which was set to expire on June 30, 1997, was renewed with the same bank and currently has a maturity date of June 30, 1999. At June 30, 1997, the Company had no borrowings under its revolving credit line. The Company's credit agreement prohibits the payment of dividends, has profitability requirements and requires maintenance of specified levels of tangible net worth and certain financial ratios. Form 10-Q/A-4 Page 12 of 14 The Company recorded bad debt expense of $0.8 million in the 1997 Six Month Period as a result of indications that certain receivables relating primarily to consulting and installation services rendered by the Company may not be collected in full. The Company believes that the net proceeds from its two recent public offerings together with cash generated by operations and availability under its bank credit facility will be sufficient to fund the Company's operations for at least the next year. However, there can be no assurance that additional capital beyond the amounts currently forecasted by the Company will not be required or that any such required additional capital will be available on reasonable terms, if at all, at such time as required by the Company. Inflation Inflation has not had a significant impact on the Company's operating results to date, nor does the Company expect it to have a significant impact in the future due to the fact that the Company's license and maintenance fees are typically subject to annual increases based on recognized inflation indexes. Forward-Looking Statements Certain statements contained in this Form 10-Q/A are "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. These statements involve various risks and uncertainties which could cause the Company's actual results to differ from those expressed in such forward-looking statements. These risks and uncertainties include the seasonal variation of the Company's operations and fluctuations in the Company's quarterly results, rapid technological change involving the Company's products, delays in product development and implementation, the technological compatibility of the Company's products with its customers' systems, the Company's dependence on customers in the financial services market, intense competition in the markets for the Company's products, risk of non-renewal by current customers, management of the Company's growth, and other risks and uncertainties. Words such as "expects," "anticipates," "intends," "plans," "believes," "estimates," and "should" and similar words and expressions are intended to identify the forward-looking statements contained in this Form 10-Q/A. These statements are based on estimates, projections, beliefs, and assumptions of the Company and its management and are not guarantees of future performance. Further information regarding those factors which could cause the Company's actual results to differ materially from any forward-looking statements contained herein is included in the Company's filings with the Securities and Exchange Commission. Form 10-Q/A-4 Page 13 of 14 PEGASYSTEMS INC. Part II - Other Information: Item 1. Legal Proceedings None Item 2. Changes in Securities None Item 3. Defaults upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders The Annual Meeting of Stockholders was held on May 13, 1997. The following matters were voted upon: (1) Thomas E. Swithenbank and Alan Trefler were both re-elected to serve as Directors of the Company to hold office until the 2000 annual meeting of stockholders and until their successors are duly elected and qualified. The following Directors' respective terms of office continued after the Annual Meeting: Edward A. Maybury, Leonard A. Schlesinger, Edward B. Roberts and Ira Vishner. Both Mr. Swithenbank and Mr. Trefler were elected with 26,847,332 votes for, 78,510 votes against and 0 broker non-votes. (2) The stockholders ratified the appointment by the Board of Directors of Ernst & Young LLP, independent auditors, to audit the financial statements of the Company for the fiscal year ending December 31, 1997, with 26,925,237 votes for, 605 votes against and 0 broker non-votes. Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 27.1 Financial Data Schedule. (b) Reports on Form 8-K: None Form 10-Q/A-4 Page 14 of 14 PEGASYSTEMS INC. 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. Pegasystems Inc. Date: January 20, 1999 /s/ Richard B. Goldman -------------------------------- Richard B. Goldman Chief Financial Officer (principal financial officer and chief accounting officer) EX-27.1 2 FINANCIAL DATA SCHEDULE
5 1,000 U.S. DOLLARS 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 1 72,511 0 18,138 1,871 0 90,398 7,053 (3,221) 132,106 17,602 0 0 0 285 82,856 132,106 13,230 13,230 4,556 4,556 14,181 0 0 (2,964) (1,126) (1,838) 0 0 0 (1,838) (0.07) (0.07)
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