-----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, JeW9ahBCM1cPUZ0AhWjp/nbTxHgjCvLJZZpe5nXSSE07C3BOQ2RPhYzY+K4z75fH M55IWsWgvcv9fpD8sseoSw== 0000912057-01-515120.txt : 20010515 0000912057-01-515120.hdr.sgml : 20010515 ACCESSION NUMBER: 0000912057-01-515120 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PERFICIENT INC CENTRAL INDEX KEY: 0001085869 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING SERVICES [7371] IRS NUMBER: 742853258 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 001-15169 FILM NUMBER: 1631853 BUSINESS ADDRESS: STREET 1: 7600-B NORTH CAPITAL OF TEXAS HGWY, STREET 2: SUITE 220 CITY: AUSTIN STATE: TX ZIP: 78731 BUSINESS PHONE: 5125316000 MAIL ADDRESS: STREET 1: 7600-B NORTH CAPITAL OF TEXAS OF HGWY STREET 2: SUITE 220 CITY: AUSTIN STATE: TX ZIP: 78731 10QSB 1 a2048970z10qsb.txt FORM 10QSB U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-QSB [x] Quarterly report under section 13 or 15(d) of the Securities Exchange act of 1934 for the quarterly period ended March 31, 2001 [_] Transition report under section 13 or 15(d) of the Exchange Act Commission file number 001-15169 Perficient, Inc. (exact name of small business issuer as specified in its charter) Delaware 74-2853258 (state or other jurisdiction (I.R.S. employer of incorporation or organization) identification no.) 7600B North Capital of Texas Highway, Suite 340 Austin, TX 78731 (address of principal executive offices) (512) 531-6000 (Issuer's telephone number, including area code) None (former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the issuer (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 [X] No [ ] The number of shares of the Issuer's Common Stock outstanding as of March 31, 2001 was 6,252,233. PERFICIENT, INC. INDEX FOR QUARTERLY PERIOD ENDED MARCH 31, 2001
Page No. Part I. Consolidated Financial Information Item 1. Consolidated Balance Sheets as of December 31, 2000 and March 31, 2001 (unaudited) 3 Consolidated Statements of Operations for the three months ended March 31, 2000 and 2001 (unaudited) 4 Consolidated Statements of Cash Flows for the three months ended March 31, 2000 and 2001 (unaudited) 5 Notes to Unaudited Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Risk Factors 15 Part II. Other Information Item 1. Legal Proceedings 22 Item 2. Changes in Securities and Use of Proceeds 22 Item 4. Submission of Matters to a Vote of Security Holders 22 Item 6. Exhibits and Reports on Form 8-K 22 Signature 23
2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements PERFICIENT, INC. CONSOLIDATED BALANCE SHEETS
DECEMBER 31, MARCH 31, 2000 2001 ------------ ------------ (unaudited) ASSETS Current assets: Cash $ 842,481 $ 802,468 Accounts receivable, net 7,038,794 6,344,182 Income tax receivable 10,916 -- Other current assets 42,400 18,296 ------------ ------------ Total current assets 7,934,591 7,164,946 Property and equipment, net 804,406 810,952 Goodwill, net 45,558,173 40,864,275 Other noncurrent assets 317,772 339,968 ------------ ------------ Total assets $ 54,614,942 $ 49,180,141 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Current liabilities: Accounts payable $ 358,779 $ 144,009 Note payable to related party 224,969 162,215 Line of credit 1,500,000 2,400,000 Current portion of note payable 3,338 3,173 Current portion of capital lease obligation 81,415 73,244 Other current liabilities 2,392,568 1,378,857 ------------ ------------ Total current liabilities 4,561,069 4,161,498 Note payable, less current portion 7,232 6,082 Capital lease obligation, less current portion 72,694 24,783 Deferred income tax -- 192,514 ------------ ------------ Total liabilities 4,640,995 4,384,877 Stockholders' equity: Common stock 6,252 6,252 Additional paid-in capital 65,049,514 65,038,719 Unearned stock compensation (76,000) (35,000) Accumulated other comprehensive loss (1,665) (62,530) Retained deficit (15,004,154) (20,152,177) ------------ ------------ Total stockholders' equity 49,973,947 44,795,264 ------------ ------------ Total liabilities and stockholders' equity $ 54,614,942 $ 49,180,141 ============ ============
SEE ACCOMPANYING NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS. 3 PERFICIENT, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, ---------------------------- 2000 2001 ----------- ----------- (unaudited) Consulting revenues $ 1,820,689 $ 6,401,276 Cost of consulting revenues 937,829 3,546,236 ----------- ----------- Gross margin 882,860 2,855,040 Selling, general and administrative 1,358,440 2,637,359 Stock compensation 19,000 30,205 Intangibles amortization 194,362 4,880,522 Restructuring -- 288,860 Postponed offering costs -- 123,354 ----------- ----------- Loss from operations (688,942) (5,105,260) Interest income (expense), net 110,093 (42,763) ----------- ----------- Loss before income taxes (578,849) (5,148,023) Provision for income taxes -- -- ----------- ----------- Net loss $ (578,849) $(5,148,023) =========== =========== Basic and diluted net loss per share $ (0.15) $ (0.99) =========== ===========
SEE ACCOMPANYING NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS. 4 PERFICIENT, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, -------------------------- 2000 2001 ----------- ----------- (unaudited) OPERATING ACTIVITIES Net loss $ (578,849) $(5,148,023) Adjustments to reconcile net loss to cash used in operations: Depreciation 20,554 119,172 Intangibles amortization 194,362 4,880,522 Non-cash stock compensation 19,000 30,205 Loss from disposal of fixed assets 502 -- Changes in operating assets and liabilities (net of the effect of acquisitions) Accounts receivable (882,385) 652,465 Other assets (266,872) 10,881 Accounts payable 126,991 (213,651) Accrued liabilities 372,675 (972,775) ----------- ----------- Net cash used in operating activities (994,022) (641,204) INVESTING ACTIVITIES Purchase of property and equipment (213,786) (130,331) Purchase of businesses, net of cash acquired (385,000) (85,257) Proceeds from disposal of fixed assets 4,977 -- ----------- ----------- Net cash used in investing activities (593,809) (215,588) FINANCING ACTIVITIES Payments on capital lease obligation -- (55,802) Proceeds from short-term borrowings 43,531 2,650,000 Payments on short-term borrowings (39,854) (1,750,819) Proceeds from stock issuances, net 5,380,348 -- ----------- ----------- Net cash provided by financing activities 5,384,025 843,379 ----------- ----------- Effect of exchange rate on cash and cash equivalents -- (26,600) Increase (decrease) in cash and cash equivalents 3,796,194 (40,013) Cash and cash equivalents at beginning of period 5,818,918 842,481 ----------- ----------- Cash and cash equivalents at end of period $ 9,615,112 $ 802,468 =========== ===========
SEE ACCOMPANYING NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS. 5 PERFICIENT, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The accompanying unaudited financial statements of Perficient, Inc. (the "Company"), have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and notes 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 months ended March 31, 2001 may not be indicative of the results for the full fiscal year ending December 31, 2001. These unaudited financial statements should be read in conjunction with the Company's financial statements filed with the United States Securities and Exchange Commission in the Company's Annual Report on Form 10-KSB for the year ended December 31, 2000. 2. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. 3. SEGMENT INFORMATION The Company follows the provisions of Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information." Statement No. 131 requires a business enterprise, based upon a management approach, to disclose financial and descriptive information about its operating segments. Operating segments are components of an enterprise about which separate financial information is available and regularly evaluated by the chief operating decision maker(s) of an enterprise. Under this definition, the Company operates as a single segment for all periods presented. 6 4. NET EARNINGS (LOSS) PER SHARE The Company follows the provisions of Statement of Financial Accounting Standards No. 128, "Earnings Per Share." Basic earnings per share is computed by dividing net income (loss) available to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per share includes the weighted average number of common shares outstanding and the number of equivalent shares which would be issued related to stock options, warrants, and contingently issuable common shares using the treasury method, unless such additional equivalent shares are anti-dilutive. The computations of net loss per share are as follows:
THREE MONTHS ENDED MARCH 31, -------------------------- 2000 2001 ----------- ----------- Net loss $ (578,849) $(5,148,023) Weighted-average shares of common stock outstanding 3,931,714 6,252,233 Less common stock subject to contingency (129,709) (1,055,696) ----------- ----------- Shares used in computing basic net loss per share 3,802,005 5,196,537 =========== =========== ----------- ----------- Basic and diluted net loss per share $ (0.15) $ (0.99) =========== ===========
Diluted net loss per share is the same as basic net loss per share, as the effect of the assumed exercise of stock options and warrants and the issuance of contingently issuable shares issued in business combinations, are antidilutive due to the Company's net loss for all periods presented. Diluted net loss per share excludes common stock equivalents of 569,236 and 1,607,895 for 2000 and 2001, respectively. 5. RECENT ACCOUNTING PRONOUNCEMENTS The Financial Accounting Standards Board ("FASB") has tentatively decided to adopt a non-amortization, impairment-only approach for purchased goodwill. The FASB is expected to complete its deliberations and issue a final statement by June 30, 2001. The new statement is expected to provide a revised method for measuring goodwill impairment and eliminate the amortization of goodwill. Based on management's review of the FASB's preliminary deliberations, the final issuance of this statement is expected to have a material impact on the Company's results of operations and financial position, and may result in an impairment charge depending on the final rules regarding the measurement of goodwill impairment. 7 6. BALANCE SHEET COMPONENTS
DECEMBER 31, MARCH 31, 2000 2001 ----------- ----------- (unaudited) Accounts receivable: Accounts receivable $ 5,936,186 $ 5,026,665 Unbilled revenue 1,665,965 1,954,405 Allowance for doubtful accounts (563,357) (636,888) ----------- ----------- $ 7,038,794 $ 6,344,182 =========== =========== Other current liabilities: Accrued bonus $ 723,072 $ 325,094 Accrued vacation 336,602 160,783 Other payroll liabilities 326,022 81,094 Foreign sales and use taxes 64,961 51,900 Other accrued expenses 730,505 496,808 Accrued medical claims -- 51,772 Accrued broker fee - Compete acquisition 211,406 211,406 ----------- ----------- $ 2,392,568 $ 1,378,857 =========== ===========
7. COMPREHENSIVE LOSS The components of comprehensive loss are as follows:
THREE MONTHS ENDED MARCH 31, -------------------------- 2000 2001 --------- ----------- Net loss $(578,849) $(5,148,023) Foreign currency translation adjustments -- (60,865) --------- ----------- Total comprehensive net loss $(578,849) $(5,208,888) ========= ===========
8. BUSINESS COMBINATIONS On May 1, 2000, the Company acquired all the outstanding shares and assumed all outstanding options of Compete, Inc. ("Compete"). The acquisition was accounted for as a purchase business combination. Accordingly, the results of operations of Compete have been included with those of the Company for periods subsequent to the date of acquisition. 8 9. RESTRUCTURING During the first quarter of 2001, the Company initiated certain cost reduction initiatives and work force reductions resulting in a charge of approximately $289,000 during this period consisting mostly of severance costs to former employees. As part of this restructuring, the Company reduced its workforce by 27 technology professionals and 10 administrative personnel, or a total of 37 employees. Accrued restructuring costs as of March 31, 2001 totaled approximately $63,000. 9 SPECIAL CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This filing contains many forward-looking statements that involve substantial risks and uncertainties. You can identify these statements by forward-looking words such as "may," "will," "expect," "anticipate," "believe," "estimate" and "continue" or similar words. You should read statements that contain these words carefully because they discuss our future expectations, contain projections of our future operating results or of our financial condition or state other "forward-looking" information. We believe that it is important to communicate our future expectations to our investors. However, we may be unable to accurately predict or control events in the future. The factors listed in the sections captioned "Risk Factors" as well as any other cautionary language in this filing, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. Before you invest in our common stock, you should be aware that the occurrence of certain of the events described in the "Risk Factors" section could seriously harm our business. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and notes thereto and the other financial information included elsewhere in this Report on Form 10-QSB. In addition to historical information, this management's discussion and analysis of financial condition and results of operations and other parts of this filing contain forward-looking information that involves risks and uncertainties. Our actual results could differ materially from those indicated in such forward-looking information as a result of certain factors, including but not limited to, those set forth under "Risk Factors" and elsewhere in this filing. Please see the "Special Cautionary Note Regarding Forward Looking Statements" elsewhere in this Report on Form 10-QSB. We were incorporated in September 1997 and began generating revenue in February 1998. We generate revenues from professional services performed primarily for our software company partners and their end-user customers. To date, our partners have consisted of Internet software companies and we expect that Internet software companies will be important partners for the foreseeable future. The majority of our revenue is derived from our partners rather than from our end-user customers. We established our first partner relationship with Vignette Corporation, an Internet relationship management software company, in February 1998. During 1999 and 2000, we have established partner relationships with several additional Internet software companies. In October 2000 we entered into a new services agreement with IBM under which we provide deployment, integration and training services to IBM's WebSphere(TM) customers. The agreement provides for us to render services over a three-year period from October 2000 for potential total revenue to us not to exceed $73.5 million in total value. Revenues from IBM, Vignette and Plumtree Software were approximately 37%, 3% and 15% of total revenues, respectively, for the three months ended March 31, 2001. Accordingly, any deterioration in our relationship with IBM, Vignette or Plumtree could have a material adverse affect on our consulting revenue. Generally, our partner agreements may be terminated at any time by our partners or by us. Our agreement with IBM, however, provides generally that we receive four month's notice of any termination. These agreements generally do not obligate our partners to use our services for any minimum amount or at all, and our partners may use the services of our competitors. Under our agreement with Vignette, we are restricted, for as long as the agreement is in place, from performing services for their competitors. We derive our revenues from professional services that are provided primarily on a time and materials basis. Revenues are recognized and billed monthly by multiplying the number of hours expended by our professionals in the performance of the contract by the established billing rates. We are reimbursed for direct expenses allocated to a project such as airfare, lodging and meals. Consequently, these direct 10 reimbursements are excluded from revenues. Our revenues and operating results are subject to substantial variations based on our partners' sales and expenditures and the frequency with which we are chosen to perform services for their end-user customers. Revenues from any given customer will vary from period to period. We expect, however, that significant customer concentration will continue for the foreseeable future. To the extent that any significant customer uses less of our services or terminates its relationship with us, our revenues could decline substantially. Our gross margins are affected by trends in the utilization rate of our professionals, defined as the percentage of our professionals' time billed to customers, divided by the total available hours in a period. If a project ends earlier than scheduled, or, as has been the case, we retain professionals in advance of receiving project assignments, our utilization rate will decline and adversely affect our gross margins. On May 1, 2000, we acquired all the outstanding shares and assumed all outstanding options of Compete, Inc. The acquisition was accounted for as a purchase business combination. Accordingly, the acquired net assets were recorded at their estimated fair values at the effective date of the acquisition and the results of operations of Compete have been included with ours for the periods subsequent to the acquisition date. During the first quarter of 2001, we implemented certain cost reduction initiatives resulting in a charge of approximately $289,000 during this period related to severance costs associated with workforce reductions. As part of this restructuring, we reduced our workforce by a total of 37 employees, of which 27 were technology professionals and 10 were involved in selling, general administration and marketing. As of March 31, 2001, $63,000 of restructuring costs are included in other current liabilities. We also expensed $123,000 of costs associated with a proposed offering of shares of our common stock that was contemplated during 2000 but was postponed. RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 2001 CONSULTING REVENUES. Revenues increased from $1,821,000 for the three months ended March 31, 2000 to $6,401,000 for the three months ended March 31, 2001. The increase in revenues reflected the increase in the number of partners, projects performed and in the number of technology professionals performing services. The acquisition of Compete on May 1, 2000 also contributed substantially to the increase in revenues for the three months ended March 31, 2001. On a pro forma basis, including the results of the acquisition of Compete, revenues increased from $4,044,000 for the three months ended March 31, 2000 to $6,401,000 for the three months ended March 31, 2001. During the three month period ended March 31, 2001, 37% of our revenues was derived from IBM. COST OF CONSULTING REVENUES. Cost of revenues, consisting of direct costs, primarily salaries and benefits for technology professionals assigned to projects, and of project related expenses, increased from $938,000 for the three months ended March 31, 2000 to $3,546,000 for the three months ended March 31, 2001. The increase in cost of consulting revenue is directly attributable to the increase in the number of technology professionals who have agreed to perform services for the Company. On a pro forma basis, including the results of the acquisition of Compete, cost of consulting revenue increased from $2,014,000 for the three months ended March 31, 2000 to $3,546,000 for the three months ended March 31, 2001. The number of consultants who had agreed to perform services for the Company increased from 65 at March 31, 2000 to over 145 at March 31, 2001. GROSS MARGIN. Gross margin increased from $883,000 for the three months ended March 31, 2000 to $2,855,000 for the three months ended March 31, 2001. Gross margin as a percentage of consulting revenues was 48% for the three months ended March 31, 2000 and 45% for the three months ended March 31, 2001. The decrease in gross margin as a percentage of consulting revenues is primarily due to the lower effective utilization rates during the period caused by the reduced demand for our services during the three months ended March 31, 2001 as a result of the reduced activity generally in the Internet software industry. 11 SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative expenses consist primarily of marketing activities to solicit partners, salaries and benefits and non-reimbursable travel costs and expenses. Selling, general and administrative expenses increased from $1,358,000 for the three months ended March 31, 2000 to $2,637,000 for the three months ended March 31, 2001. Selling, general and administrative expenses as a percentage of consulting revenues was 75% for the three months ended March 31, 2000 and 41% for the three months ended March 31, 2001. The increase in selling, general and administrative expenses was related to our increased overhead, including recruiting, administrative activities and marketing to support the development of existing or new partnerships and the resulting growth in our workforce. STOCK COMPENSATION. Stock compensation expense consists of non-cash compensation arising from certain option grants to employees in 1999 and of option grants made to outside consultants during 2001. We expect to amortize approximately $11,700 a quarter through December 2001 related to the 1999 options grants. The stock compensation expense associated with existing or new 2001 option grants to consultants is expected to fluctuate with our stock price as these options will be revalued on quarterly basis through the end of the related performance period. Stock compensation expense is also expected to increase by approximately $410,000 over the remainder of the year 2001 as a result of certain employee option grants made during April 2001. INTANGIBLES AMORTIZATION. Intangibles amortization expense consists of amortization of goodwill arising from our acquisitions of LoreData, Inc. in January 2000, Compete, Inc. in May 2000 and Core Objective, Inc. in November 2000. We are amortizing the goodwill associated with these acquisitions over a three-year period. INTEREST INCOME (EXPENSE). Interest income for the three months ended March 31, 2000 was $110,000 compared to interest income of $9,000 for the three months ended March 31, 2001. Interest income during 2000 was higher than 2001 due to the higher cash balance in 2000 resulting from our July 1999 initial public offering and our February 2000 private placement. Interest expense was $52,000 during the three months ended March 31, 2001. The increase in interest expense is due to our borrowings on our line of credit facility during 2001. LIQUIDITY AND CAPITAL RESOURCES We have a line of credit facility with Silicon Valley Bank, which provides for us to borrow up to $6,000,000, subject to certain borrowing base calculations as defined. Borrowings under this agreement, which expires June 29, 2001, bear interest at the bank's prime rate plus 0.85%. As of March 31, 2001, there was $2,400,000 borrowed under this loan agreement. Prior to that, we had an agreement with the same bank, which allowed us to borrow up to $1,000,000 against our qualifying accounts receivables. In connection with this bank agreement, we issued warrants to the Bank to acquire up to 3,750 shares of our common stock at $8 per share. In connection with the acquisition of Core Objective, Inc. in November 2000, we issued a $162,000 promissory note payable in May 2001. Additionally, we assumed $63,000 of notes payable to shareholders, which were paid in February 2001. Cash used in operations for the three months ended March 31, 2001 was $641,000. As of March 31, 2001, we had $802,000 in cash and working capital of $3,003,000. We expect to fund our operations during 2001 from cash generated from operations and short-term borrowings as necessary from our line of credit facility. If our capital is insufficient to fund our activities in either the short or long term, we may need to raise additional funds. If we raise additional funds through the issuance of equity securities, our existing stockholders' percentage ownership will be diluted. These equity securities may also have rights superior to our common stock. Additional debt or equity financing may not be available when needed or on satisfactory terms. If adequate funds are not available on acceptable terms, we may be unable to expand our services, respond to competition, pursue acquisition opportunities or continue our operations. 12 We have achieved a significant portion of our growth during the last year through the completion of acquisitions of other companies. As the markets have changed and our stock price has declined, we may find it more difficult to identify and complete acquisitions in the future. RECENT ACCOUNTING PRONOUNCEMENTS The Financial Accounting Standards Board ("FASB") has tentatively decided to adopt a non-amortization, impairment-only approach for purchased goodwill. The FASB is expected to complete its deliberations and issue a final statement by June 30, 2001. The new statement is expected to provide a revised method for measuring goodwill impairment and eliminate the amortization of goodwill. Based on management's review of the FASB's preliminary deliberations, the final issuance of this statement is expected to have a material impact on our results of operations and financial position, and may result in an impairment charge depending on the final rules regarding the measurement of goodwill impairment. 13 SUMMARY UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS (INCLUDING THE EFFECT OF MATERIAL ACQUISITIONS) The following unaudited pro forma statements of operations (including the effect of material acquisitions) give effect to the acquisition of Compete, Inc. as if this transaction had been consummated as of January 1, 2000. The unaudited pro forma statements of operations exclude the impact of goodwill amortization, stock compensation, depreciation, acquisition related and other one time charges. One time charges during the first quarter of 2001 include the restructuring charge for severance associated with cost reduction initiatives taken, and the expenses of a postponed offering of our common stock. The unaudited pro forma statements of operations do not purport to be indicative of the results of operations that would have been obtained had the acquisition of Compete been completed as of the assumed date and for the periods presented or of future results. You should read this information together with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our unaudited interim consolidated financial statements and the notes relating to those statements included elsewhere in this Report on Form 10-QSB. These pro forma statements of operations are presented because management believes pro forma net income is a widely accepted indicator of a company's operating performance. Pro forma net income measures presented may not be comparable to similarly titled measures presented by other companies. Pro forma net income is not intended to be a performance measure that should be regarded as an alternative to, or more meaningful than, either operating income (loss) or net income (loss) as an indicator of operating performance or to the statement of cash flows as a measure of liquidity. Cash used in operations, excluding pro forma adjustments and prepared in accordance with generally accepted accounting principles, was approximately $994,000 and $641,000 during the three months ended March 31, 2000 and 2001, respectively.
THREE MONTHS ENDED MARCH 31, -------------------------- 2000 2001 ----------- ----------- (unaudited) CONSULTING REVENUES $ 4,043,752 $ 6,401,276 COST OF CONSULTING REVENUES 2,013,673 3,546,236 ----------- ----------- GROSS MARGIN 2,030,079 2,855,040 Selling, general and administrative 2,049,693 2,518,187 ----------- ----------- Total pro forma operating income (loss) (A) (19,614) 336,853 Interest income (expense), net 96,694 (42,763) ----------- ----------- Pretax pro forma net income (A) 77,080 294,090 Pro forma provision for income taxes (B) 28,520 108,813 ----------- ----------- Pro forma net income (A) $ 48,560 $ 185,277 =========== =========== Pro forma net income per share (A): Basic $ 0.01 $ 0.04 =========== =========== Diluted $ 0.01 $ 0.03 =========== =========== Shares used in computing basic pro forma net income per share 3,802,005 5,196,537 =========== =========== Shares used in computing diluted pro forma net income per share 6,932,225 6,804,432 =========== ===========
(A) Pro forma operating income (loss), pretax pro forma net income, pro forma net income and pro forma net income per share exclude the impact of goodwill amortization, depreciation, stock compensation, acquisition related and other one time charges. One-time charges during the first quarter of 2001 include the restructuring charge of $288,860 for severance associated with cost reduction initiatives taken, and the expenses of a postponed stock offering totaling $123,354. Depreciation expense was $119,172 during 2001. (B) Pro forma net income and pro forma net income per share include a tax provision at an assumed effective rate of 37%. 14 RISK FACTORS An investment in our common stock involves a high degree of risk. Additional risks and uncertainties, including those generally affecting the market in which we operate or that we currently deem immaterial, may also significantly impair our business. RISKS SPECIFIC TO OUR BUSINESS WE HAVE INCURRED LOSSES DURING MOST OF THE QUARTERS DURING WHICH WE HAVE BEEN IN BUSINESS AND WE EXPECT TO INCUR LOSSES IN THE FUTURE. We have incurred operating losses in most of the quarters during which we have been in business and as a result, we have a retained deficit of $20,152,000 as of March 31, 2001. As a result of the acquisitions that we recently completed, we recorded a substantial amount of goodwill. We will be required to amortize in excess of $4,800,000 in goodwill per quarter over the next three years. We cannot assure you of any operating results. In future quarters, our operating results may not meet public market analysts' and investors' expectations. If that happens, the price of our common stock will likely fall. In addition to the recent cost reduction initiatives taken during the three months ended March 31, 2001, we will also need to generate significant revenues to achieve profitability. Even if we achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis in the future. Although our revenues have grown in recent quarters, you should not view our historical growth rates as indicative of our future revenues. WE HAVE A LIMITED NUMBER OF PARTNERS. THE LOSS OF SALES TO IBM, VIGNETTE OR PLUMTREE WOULD MATERIALLY HARM OUR BUSINESS. We have arrangements with a limited number of partners. IBM, Vignette and Plumtree accounted for 37%, 3% and 15%, respectively, of our revenue during the three months ended March 31, 2001. Any termination of our relationship with, or significant reduction or modification of the services we perform for, IBM, Vignette or Plumtree would have a material adverse effect on our business, operating results and financial condition. Each partner retains our services only on a case-by-case basis and may choose at any time to use any other firm or to provide themselves the services that we perform for them. Therefore, any downturn in the business of one or more of our partners or any shift in their decisions to continue to use our services could also substantially reduce our revenues. IBM MAY TERMINATE ITS AGREEMENT WITH US OR REDUCE SUBSTANTIALLY ITS OBLIGATIONS TO USE OUR SERVICES. IBM has the right to reduce by up to one-third the minimum amount of our services contemplated by our agreement over any 60-day period. In addition, IBM may terminate the agreement on four month's notice. Any termination of our agreement with IBM or a reduction of the services performed pursuant to this agreement would have an adverse effect on our business, operating results and financial condition. OUR PARTNERS MAY NOT BE OBLIGATED TO USE OUR SERVICES. Our contracts with some of our partners do not obligate them to use our services. A partner may choose at any time to use another consulting firm or to perform the services we provide through an internal services organization. Termination of a relationship with certain partners, or such partner's decision to employ other consulting firms or perform services in-house, could materially harm our business. OUR QUARTERLY OPERATING RESULTS WILL BE VOLATILE AND MAY CAUSE OUR STOCK PRICE TO FLUCTUATE. A high percentage of our operating expenses, particularly personnel and rent, are fixed in advance of any particular quarter. As a result, if we experience unanticipated changes in the number or nature of our projects or in our employee utilization rates, we could experience large variations in quarterly operating 15 results and losses in any particular quarter. Due to these factors, we believe you should not compare our quarter-to-quarter operating results to predict our future performance. Our quarterly revenue, expenses and operating results have varied significantly in the past and are likely to vary significantly in the future. These quarterly fluctuations have been and will continue to be affected by a number of factors, including: o The loss of a significant partner or project; o The number and types of projects that we undertake; o Our ability to attract, train and retain skilled management and technology professionals; o Seasonal variations in spending patterns; o Our employee utilization rates, including our ability to transition our technology professionals from one project to another; o Changes in our pricing policies; o Our ability to manage costs; and o Costs related to acquisitions of other businesses. In addition, many factors affecting our operating results are outside of our control, such as: o Demand for Internet software; o End-user customer budget cycles; o Changes in end-user customers' desire for our partners' products and our services; o Pricing changes in our industry; o Government regulation and legal developments regarding the use of the Internet; and o General economic conditions. Although we have limited historical financial data, we expect that we will experience seasonal fluctuations in revenues. We expect that revenues in the quarter ending December 31 will typically be lower than in other quarters because there are fewer billable days in this quarter as a result of vacations and holidays. This seasonal trend may materially affect our quarter-to-quarter operating results. WE MAY NOT BE ABLE TO ATTRACT AND RETAIN TECHNOLOGY PROFESSIONALS, WHICH COULD AFFECT OUR ABILITY TO COMPETE EFFECTIVELY. Our business is labor intensive. Accordingly, our success depends in large part upon our ability to attract, train, retain, motivate, manage and utilize highly skilled technology professionals. Because of the recent rapid growth of the Internet and shortage of qualified Internet professional services personnel, competition for individuals who can perform the services we offer is intense and such individuals are likely to remain an expensive limited resource for the foreseeable future. Furthermore, there is a high rate of attrition among such personnel. This high turnover rate results in additional training expense, which in turn decreases our profitability. Additionally, our technology professionals are at-will employees with no restrictions on their ability to work for our competitors. Any inability to attract, train and retain highly skilled technology professionals would impair our ability to adequately manage, staff and utilize our existing projects and to bid for or obtain new projects, which in turn would adversely affect our operating 16 results. WE MAY ALIGN OURSELVES WITH PARTNERS THAT FAIL. In selecting our partners, we seek to identify leading Internet software companies or companies that we believe will develop into leaders in their respective markets. However, our partners compete in new and rapidly changing markets. In certain of these markets, only a few companies will survive. If we align ourselves with companies that fail to become market leaders or whose products become obsolete, our business may suffer because our partners will not have significant demand for our services. We invest substantial resources to train our technology professionals regarding the use and features of our partners' software, and we will lose this investment if our partners fail. WE HAVE AGREED NOT TO PERFORM SERVICES FOR COMPETITORS OF OUR PARTNERS, WHICH LIMITS OUR POTENTIAL MARKET PENETRATION. We have agreed with certain of our partners not to perform services for their competitors. These non-compete agreements substantially reduce the number of our prospective partners. In addition, these agreements increase the importance of our partner selection process, because many of our partners compete in markets where only a limited number of companies gain significant market share. If we agree not to perform services for a particular partner's competitors and our partner fails to gain meaningful market share, our potential revenues in that particular market will be limited. OUR LIMITED OPERATING HISTORY MAKES EVALUATING OUR BUSINESS DIFFICULT. We began our business in September 1997. We only began providing services on any significant basis in mid-1998. As a result, we have a limited operating history upon which you may evaluate our business and prospects. Companies in an early stage of development frequently encounter greater risks and unexpected expenses and difficulties. These risks are further amplified because we are operating in the new and rapidly evolving Internet services market. These risks and uncertainties include the following: o our business model and strategy have evolved and are continually being renewed; o we may not be able to successfully implement our business model and strategy; and o our management has not worked together for very long. OUR GROSS MARGINS ARE SUBJECT TO FLUCTUATIONS AS A RESULT OF VARIANCES IN UTILIZATION RATES. Our gross margins are affected by trends in the utilization rate of our professionals, defined as the percentage of: our professionals' time billed to customers divided by the total available hours in a period. Our operating expenses, including employee salaries, rent and administrative expenses are relatively fixed and cannot be reduced on short notice to compensate for unanticipated variations in the number or size of projects in process. If a project ends earlier than scheduled, or, as has been the case, we retain professionals in advance of receiving project assignments; we may need to redeploy our project personnel. Any resulting non-billable time may adversely affect our gross margins. The absence of long-term contracts and the need for new partners and business create an uncertain revenue stream, which could negatively affect our financial condition. OUR SUCCESS WILL DEPEND ON RETAINING OUR SENIOR MANAGEMENT TEAM AND KEY TECHNICAL PERSONNEL. We believe that our success will depend on retaining our senior management team, key technical personnel and our Chief Executive Officer, John T. McDonald. This dependence is particularly important in our business, because personal relationships are a critical element of obtaining and maintaining our partners. If any of these people stop working for us, our level of management, technical, marketing and 17 sales expertise could significantly diminish. These people would be difficult to replace, and losing them could seriously harm our business. We may not be able to prevent key personnel, who may leave our employ in the future, from disclosing or using our technical knowledge, practices or procedures. One or more of our key personnel may resign and join a competitor or form a competing company. As a result, we might lose existing or potential clients. WE MAY NOT GROW, OR WE MAY BE UNABLE TO MANAGE OUR GROWTH. Our success will depend on our ability to increase the number of our partners and our teams of technology professionals. However, we may not grow as planned or at all. Many of our competitors have longer operating histories, more established reputations and potential partner relationships and greater financial, technical and marketing resources than we do. If we continue to grow, our growth will place significant strains on our management, personnel and other resources. For example, it will be difficult to manage technology professionals who will be widely dispersed around the country. Additionally, our success may depend on the effective integration of acquired businesses. This integration, even if successful, may be expensive and time-consuming and could strain our resources. If we are unable to manage our growth effectively, this inability will adversely affect the quality of our services and our ability to retain key personnel, and could materially harm our business. OUR OPERATIONS IN EUROPE EXPOSE US TO CERTAIN RISKS RELATED TO INTERNATIONAL OPERATIONS. In 1999, we opened an office in London. During the year ended December 31, 2000, on a pro forma basis, our revenues relating to our London operations have accounted for 7% of our revenues and during the three months ended March 31, 2001 accounted for 5% of our revenues. Risks inherent in our international business activities include the fluctuation of currency exchange rates, recessions in foreign economies, political and economic instability, reductions in business activity during the summer months in Europe, various and changing regulatory requirements, increased sales and marketing expenses, difficulty in staffing and managing foreign operations, potentially adverse taxes, complex foreign laws and treaties and the possibility of difficulty in accounts receivable collections. Further, we have only minimal experience in managing international offices and only limited experience in marketing services to international clients. Revenues from our international offices may prove inadequate to cover the expenses of such offices and marketing to international clients. There can be no assurance that any of these factors will not have a material adverse effect on our business, financial condition and results of operations. WE FACE RISKS ASSOCIATED WITH FINDING AND INTEGRATING ACQUISITIONS. We have made three acquisitions during 2000 and we may continue to expand our technological expertise and geographical presence through selective acquisitions. Any acquisitions or investments we make in the future will involve risks. We may not be able to make acquisitions or investments on commercially acceptable terms. If we do buy a company, we could have difficulty retaining and assimilating that company's personnel. In addition, we could have difficulty assimilating acquired products, services or technologies into our operations and retaining the customers of that company. Our operating results may be adversely affected from increased goodwill amortization, stock compensation expense and increased compensation expense attributable to newly hired employees. Furthermore, our management's attention may be diverted from other aspects of our business and our reputation may be harmed if an acquired company performs poorly. These difficulties could disrupt our ongoing business, distract our management and employees, increase our expenses and materially and adversely affect our results of operations. Furthermore, we may incur debt or issue equity securities to pay for any future acquisitions. If we issue equity securities, your ownership share of our common stock could be reduced. RISKS RELATING TO OUR INDUSTRY WE FOCUS SOLELY ON COMPANIES IN THE MARKET FOR INTERNET SOFTWARE AND COULD BE HARMED BY ANY DOWNTURN IN THIS INDUSTRY. 18 Our business is dependent upon continued growth in the use of the Internet to fuel demand for the Internet software applications sold by our partners and prospective partners. If use of the Internet does not continue to grow, or grows more slowly than expected, our growth would decline and our business would be seriously harmed. Any downturn in the market for Internet software would harm our business, financial condition and operating results. The Internet market has recently been subject to declines in demand that have resulted in reduced demand for our services. Further, the market for Internet services is relatively new and is evolving rapidly. Our future growth is dependent upon our ability to provide strategic Internet services that are accepted by our existing and future partners and end-user customers as an integral part of their business model. Demand and market acceptance for recently introduced services are subject to a high level of uncertainty. The level of demand and acceptance of strategic Internet services is dependent upon a number of factors, including: o the growth in consumer access to and acceptance of new interactive technologies such as the Internet; o companies adopting Internet-based business models; and o the development of technologies that facilitate two-way communication between companies and targeted audiences. Significant issues concerning the commercial use of these technologies include security, reliability, cost, ease of use and quality of service. These issues remain unresolved and may inhibit the growth of Internet business solutions that utilize these technologies. OUR BUSINESS WILL SUFFER IF WE DO NOT KEEP UP WITH RAPID TECHNOLOGICAL CHANGE, EVOLVING INDUSTRY STANDARDS OR CHANGING PARTNER REQUIREMENTS. Rapidly changing technology, evolving industry standards and changing partner needs are common in the Internet professional services market. Accordingly, our success will depend, in part, on our ability to: o continue to develop our technology expertise; o enhance our current services; o develop new services that meet changing partner and end-user customer needs; o advertise and market our services; and o influence and respond to emerging industry standards and other technological changes. We must accomplish all of these tasks in a timely and cost-effective manner. We might not succeed in effectively doing any of these tasks, and our failure to succeed could have a material and adverse effect on our business, financial condition or results of operations. We may also incur substantial costs to keep up with changes surrounding the Internet. Unresolved critical issues concerning the commercial use and government regulation of the Internet include the following: o security; o cost and ease of Internet access; o intellectual property ownership; o privacy; 19 o taxation; and o liability issues. Any costs we incur because of these factors could materially and adversely affect our business, financial condition and results of operations. OUR MARKET IS HIGHLY COMPETITIVE AND HAS LOW BARRIERS TO ENTRY. The market for services to Internet software companies is relatively new, intensely competitive, rapidly evolving and subject to rapid technological change. In addition, there are relatively low barriers to entry into this market. Because of the rapid changes to, and volatility in, the Internet software and service industry, many well-capitalized companies that may have chosen sectors of the industry that are not competitive with our business including our partners, may refocus their activities and resources. As a result, they could deploy their resources and enter a business that is competitive with ours. In addition, with consolidation in the Internet software and service industry, many software developers that may have become our partners could acquire or develop the capabilities of performing our services for themselves or merge with our competitors. Our current competitors include: o In-house information technology and professional services and support departments of software companies; o Systems integrators, such as Cambridge Technology Partners, Cysive Inc., Proxicom, Inc., Sapient Corporation, Scient Corporation, CBridge, Viant Corporation; o Large consulting firms, such as Accenture and the consulting arms of the large accounting firms; and o Information technology staffing firms, such as Keane, Inc. and Renaissance Worldwide. Many of our current and potential competitors have longer operating histories, more established reputations and potential partner relationships and greater financial, technical, industry and marketing resources than we do. This may place us at a disadvantage to our competitors. RISKS RELATING TO OWNERSHIP OF OUR STOCK WE ARE, AND WILL CONTINUE TO BE, CONTROLLED BY OUR OFFICERS AND DIRECTORS, WHICH COULD RESULT IN US TAKING ACTIONS THAT OTHER STOCKHOLDERS DO NOT APPROVE. Our executive officers, directors and existing 5% and greater stockholders beneficially own or control greater than 40% of the voting power of our common stock. This concentration of ownership of our common stock may make it difficult for other Perficient stockholders to successfully approve or defeat matters which may be submitted for action by our stockholders. It may also have the effect of delaying, deterring or preventing a change in control of our company. In addition, sales of our common stock by the former Compete, Inc. stockholders to a third party may result in a change of control of our company. IT MAY BE DIFFICULT FOR ANOTHER COMPANY TO ACQUIRE US, AND THIS COULD DEPRESS OUR STOCK PRICE. Provisions of our certificate of incorporation, by-laws and Delaware law could make it difficult for a third party to acquire us, even if doing so would be beneficial to our stockholders. In addition, under our agreement with IBM, we have granted IBM a right of first refusal with respect to any transaction with a company that has a substantial portion of its business in the web application server product and services market, other than a systems integrator or professional services firm. As a result, a potential acquirer may be discouraged from making an offer to buy us. 20 WE MAY NEED ADDITIONAL CAPITAL IN THE FUTURE, WHICH MAY NOT BE AVAILABLE TO US. THE RAISING OF ANY ADDITIONAL CAPITAL MAY DILUTE YOUR OWNERSHIP IN US. We may need to raise additional funds through public or private debt or equity financing in order to: o take advantage of opportunities, including more rapid expansion or acquisitions of, or investments in, businesses or technologies; o develop new services; or o respond to competitive pressures. Any additional capital raised through the sale of equity may dilute your ownership percentage in our stock. Furthermore, we cannot assure you that any additional financing we may need will be available on terms favorable to us, or at all. In such case, our business results would suffer. 21 PART II. OTHER INFORMATION Item 1. Legal Proceedings. We are currently not a party to any material legal proceedings. We received a demand letter from a company claiming that our Web Site induces patent infringement by others and requesting that we enter into a license agreement with the company that could require us to pay up to $150,000. We believe the claim is without merit and intend to vigorously defend such claim. Item 2. Changes in Securities and Use of Proceeds. Not applicable. Item 4. Submission of Matters to a Vote of Security Holders. Not applicable. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. Not applicable. (b) Reports on Form 8-K. Not applicable. 22 SIGNATURES In accordance with the requirements of the Securities Exchange Act of 1934, as amended, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PERFICIENT, INC. Dated: May 10, 2001 /s/ John T. McDonald -------------------------------------------- John T. McDonald, Chief Executive Officer (Principal Executive Officer) Dated: May 10, 2001 /s/ John A. Hinners -------------------------------------------- John A. Hinners, Chief Financial Officer (Principal Financial and Accounting Officer) 23 -----END PRIVACY-ENHANCED MESSAGE-----