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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
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 000-27985
QUINTUS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 77-0021612
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
47212 MISSION FALLS COURT
FREMONT, CALIFORNIA 94539
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(510) 624-2800
(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 [ ]
The number of shares outstanding of the registrant's common stock as of
July 31, 2000 was 39,997,348.
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QUINTUS CORPORATION
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets as of June 30, 2000
and March 31, 2000.......................................... 1
Condensed Consolidated Statements of Operations and
Comprehensive Loss for the Three Months Ended June 30, 2000
and 1999.................................................... 2
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended June 30, 2000 and 1999................... 3
Notes to Condensed Consolidated Financial Statements........ 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 8
Item 3. Qualitative and Quantitative Disclosures About Market
Risk........................................................ 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................... 18
Item 2. Changes in Securities and Use of Proceeds................... 18
Item 3. Defaults Upon Senior Securities............................. 18
Item 4. Submission of Matters to a Vote of Securities Holders....... 18
Item 5. Other Information........................................... 18
Item 6. Exhibits and Reports on Form 8-K............................ 18
Signature............................................................ 21
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PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
QUINTUS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
ASSETS
JUNE 30, MARCH 31,
2000 2000
-------- ---------
CURRENT ASSETS:
Cash and cash equivalents................................. $ 18,888 $ 21,867
Short-term investments.................................... 38,436 37,209
Accounts receivable, less allowance for doubtful accounts
of $1,663 and $1,323................................... 30,041 22,580
Prepaid expenses and other assets......................... 1,251 2,072
-------- --------
Total current assets.............................. 88,616 83,728
Property and equipment, net................................. 6,103 5,061
Purchased technology, less accumulated amortization of
$3,725 and $3,279......................................... 3,287 1,421
Intangible assets, less accumulated amortization of $16,793
and $7,925................................................ 290,995 41,583
Other assets................................................ 6,397 327
-------- --------
Total assets...................................... $395,398 $132,120
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 4,193 $ 6,383
Accrued compensation and related benefits................. 4,393 4,011
Other accrued liabilities................................. 3,148 2,803
Deferred revenue.......................................... 9,977 7,668
Current portion of capital lease obligations.............. 189 177
Current portion of long-term debt......................... 692 730
-------- --------
Total current liabilities......................... 22,592 21,772
Capital lease obligations, less current portion............. 506 300
Long-term debt, less current portion........................ 695 934
Commitment (Note 4)
STOCKHOLDER'S EQUITY:
Convertible preferred stock, $0.001 par value; authorized
shares -- 10,000,000 in June 2000 and March 2000;
issued and outstanding shares -- none in June 2000 and
March 2000............................................. -- --
Common stock, $0.001 par value; authorized
shares -- 100,000,000 in June 2000 and March 2000;
issued and outstanding shares -- 39,802,210 in June
2000 and 33,478,191 in March 2000...................... 39 33
Additional paid-in capital................................ 440,254 161,632
Notes receivable from stockholders........................ (5,104) (223)
Deferred compensation..................................... (1,787) (2,076)
Accumulated other comprehensive loss...................... (130) (98)
Accumulated deficit....................................... (61,667) (50,154)
-------- --------
Total stockholders' equity........................ 371,605 109,114
-------- --------
Total liabilities and stockholders' equity........ $395,398 $132,120
======== ========
See accompanying notes to condensed consolidated financial statements.
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QUINTUS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED
--------------------
JUNE 30, JUNE 30,
2000 1999
-------- --------
REVENUES:
License................................................... $ 13,669 $ 6,126
Service................................................... 4,831 4,167
-------- -------
Total revenues.................................... 18,500 10,293
COST OF REVENUES:
License................................................... 26 218
Service................................................... 4,167 2,421
-------- -------
Total cost of revenues............................ 4,193 2,639
-------- -------
Gross profit................................................ 14,307 7,654
OPERATING EXPENSES:
Sales and marketing....................................... 9,142 4,314
Research and development.................................. 4,815 1,873
General and administrative................................ 2,448 998
Amortization of intangibles............................... 9,315 796
Acquired in-process technologies.......................... 606 --
Stock-based compensation.................................. 189 169
-------- -------
Total operating expenses.......................... 26,515 8,150
-------- -------
Loss from operations........................................ (12,208) (496)
OTHER INCOME (EXPENSE):
Interest expense.......................................... (288) (195)
Interest income........................................... 983 1
-------- -------
695 (194)
Net loss.................................................... (11,513) (690)
======== =======
OTHER COMPREHENSIVE LOSS:
Changes in accumulated translation adjustments............ (58) 49
Changes in unrealized gain on short-term investments...... 26 --
-------- -------
Comprehensive loss.......................................... $(11,545) $ (641)
======== =======
BASIC AND DILUTED NET LOSS PER COMMON SHARE:
Basic and diluted net loss per common share................. $ (0.32) $ (0.20)
======== =======
Shares used in computation, basic and diluted............... 35,631 3,428
======== =======
See accompanying notes to condensed consolidated financial statements.
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QUINTUS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
--------------------
JUNE 30, JUNE 30,
2000 1999
-------- --------
OPERATING ACTIVITIES:
Net loss.................................................. $(11,513) $ (690)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.......................... 9,879 1,115
Stock based compensation............................... 189 169
Noncash interest expense............................... 100 --
Acquired in-process technologies....................... 606 --
Provision for doubtful accounts........................ 200 100
Changes in operating assets and liabilities:
Accounts receivable.................................. (6,455) (2,194)
Prepaid expenses and other current assets............ 784 (722)
Accounts payable..................................... (2,183) 1,631
Accrued compensation and related benefits............ 273 (31)
Other accrued liabilities............................ (160) (92)
Deferred revenue..................................... 1,966 (109)
-------- -------
Net cash used in operating activities....................... (6,314) (823)
-------- -------
INVESTING ACTIVITIES:
Purchase of business, net of cash acquired................ 9,829 --
Purchase of property and equipment........................ (887) (295)
Purchase of short-term investments........................ (21,949) --
Maturities of short-term investments...................... 20,748 --
Increase in other assets.................................. (6,068) (2)
-------- -------
Net cash provided by (used in) investing activities......... 1,673 (297)
-------- -------
FINANCING ACTIVITIES:
Proceeds from issuance of common stock.................... 1,931 160
Repurchase of common stock................................ (9) (5)
Borrowings (repayment) under bank line of credit.......... -- (4,870)
Borrowings (repayments of) bank loan...................... (277) 4,530
Principal payments on capital lease obligations........... (39) (13)
-------- -------
Net cash provided by (used in) financing activities......... 1,606 (198)
-------- -------
Effect of exchange rate on cash and cash equivalents........ 56 --
Net decrease in cash and cash equivalents................... (2,979) (1,318)
Cash and cash equivalents at beginning of period............ 21,867 1,785
-------- -------
Cash and cash equivalents at end of period.................. $ 18,888 $ 467
======== =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW:
Cash paid for interest.................................... $ 153 $ 195
======== =======
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Issuance of common stock and assumption of options and
warrants for the acquisition of Mustang.com............ $271,825 $ --
Unrealized gain on short-term investments................. $ 26 $ --
Issuance of common stock for notes receivable............. $ 4,881 $ 165
See accompanying notes to condensed consolidated financial statements.
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QUINTUS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared by Quintus Corporation ("Quintus") and reflect all adjustments,
consisting only of normal recurring adjustments, which are, in the opinion of
management, necessary for a fair presentation of its financial position and
results of operations for the interim periods. The statements have been prepared
in accordance with the regulations of the Securities and Exchange Commission.
Accordingly, they do not include all information and footnotes required by
generally accepted accounting principles. The result of operations for the three
months ended June 30, 2000 are not necessarily indicative of the operating
results to be expected for the full fiscal year or future operating periods. The
information included in this report should be read in conjunction with the
audited consolidated financial statements and notes thereto included in Quintus'
2000 Annual Report on Form 10-K filed with the Securities and Exchange
Commission on June 2, 2000.
2. BUSINESS COMBINATIONS
On May 18, 2000, Quintus completed its acquisition of Mustang.com, Inc.
("Mustang.com"). Mustang.com develops, markets, services and supports the
Mustang Message Center, an e-mail management software solution that offers
companies and other enterprises the ability to manage their inbound e-mail and
Internet-based inquiries in a timely and accurate manner. The transaction was
accounted for using the purchase method of accounting and, accordingly, the net
assets and results of operations of Mustang.com have been included in Quintus'
consolidated financial statements since the acquisition date. Quintus issued
5,394,143 shares of common stock and assumed options and warrants to purchase
635,916 shares and 40,667 shares of common stock, respectively. The purchase
price for the acquisition was $273.9 million, based on capital stock issued, the
value of options and warrants assumed, and transaction costs incurred. Quintus
recognized a charge for in-process technologies of $606,000 in the quarter ended
June 30, 2000. The fair market value of assets acquired and liabilities assumed
in the acquisition were as follows (in thousands):
Tangible assets............................................. $ 13,921
Goodwill and other intangible assets........................ 260,593
In-process research and development......................... 606
Liabilities assumed......................................... (1,182)
--------
$273,938
========
Intangible assets consist of purchased technology and assembled workforce
of $3.3 million which are being amortized over four years, trademark and trade
name and customer related intangibles of $3.5 million which are being amortized
over two and a half years, and goodwill of $253.8 million which are being
amortized over five years. The in-process research and development of $606,000
was expensed upon acquisition.
The acquired technology provides a comprehensive framework to manage high
volumes of e-mail and Internet based customer interactions. The in-process
research and development represents technology which has not yet reached
technological feasibility and does not have alternative future uses. This amount
was charged to Quintus' operations during the quarter ended June 30, 2000. The
in-process research and development was identified and valued through extensive
interviews and discussions with Quintus and Mustang.com management and the
analysis of data provided by Mustang.com concerning developmental products,
their respective stage of development, the time and resources needed to complete
them, their expected income generating ability, target markets and associated
risks. The income forecast method, which included an analysis of the markets,
cash flows, and risks associated with achieving such cash flows, was the primary
technique utilized in valuing each in-process research and development project.
A portion of the purchase price was allocated to the developmental projects
based on the appraised fair values of such projects. The Company is in the
process of incorporating certain aspects of the acquired in-process technologies
to the Company's eContact Suite version 5.6 which is expected to be released in
November 2000.
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QUINTUS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
On November 10, 1999, Quintus completed its acquisition of Acuity
Corporation ("Acuity"), a company specializing in providing Web based customer
interaction software. The transaction was accounted for using the purchase
method of accounting and, accordingly, the net assets and results of operations
of Acuity have been included in Quintus' consolidated financial statements since
the acquisition date. Quintus issued 2,021,146 shares of common stock and
3,047,378 shares of preferred stock. The shares of preferred stock were
converted to common stock upon the completion of the initial public offering on
November 16, 1999. In addition, Quintus assumed warrants and options to purchase
328,364 shares and 422,867 shares of common stock, respectively. The purchase
price for the acquisition was $47.1 million based on capital stock issued, the
value of the options and warrants assumed, and transaction costs incurred.
Quintus recognized a charge for in-process technologies of $3.0 million in the
quarter ended December 31, 1999. The fair market value of assets acquired and
liabilities assumed in the acquisition were as follows (in thousands):
Tangible assets............................................. $ 3,616
Goodwill and other intangible assets........................ 44,609
In-process research and development......................... 3,000
Liabilities assumed......................................... (4,079)
-------
$47,146
=======
Intangible assets consist of purchased technology and assembled workforce
of $1.4 million which are being amortized over four years, trademark and trade
name, customer related intangibles and goodwill of $43.2 million which are being
amortized over five years. The in-process research and development of $3.0
million was expensed upon acquisition.
The acquired technology provides a comprehensive framework to manage
internet-based customer interactions, including Web self-service, Web chat,
browser-based collaboration and Web-call back. The in-process research and
development represents technology which has not yet reached technological
feasibility and does not have alternative future uses. The estimated value of
this in-process technology of $3.0 million was charged to Quintus' operations
during the quarter ended December 31, 1999. The in-process research and
development was identified and valued through extensive interviews and
discussions with Quintus and Acuity management and the analysis of data provided
by Acuity concerning developmental products, their respective stage of
development, the time and resources needed to complete them, their expected
income generating ability, target markets and associated risks. The income
forecast method, which included an analysis of the markets, cash flows, and
risks associated with achieving such cash flows, was the primary technique
utilized in valuing each in-process research and development project. A portion
of the purchase price was allocated to the developmental projects based on the
appraised fair values of such projects. The Company is in the process of
incorporating certain aspects of the acquired in-process technology to the
Company's eContact Suite version 5.5.1 which is expected to be released in
September 2000.
The following unaudited pro forma consolidated results of operations for
the three months ended June 30, 2000 and 1999 assume the acquisition of
Mustang.com and Acuity occurred as of the beginning of each period. The one-time
$606,000 and $3.0 million charge for purchased in-process technology from
Mustang.com and Acuity, respectively, were excluded from the pro forma results
as they were material nonrecurring charges.
THREE MONTHS ENDED
--------------------
JUNE 30, JUNE 30,
2000 1999
-------- --------
Revenues.................................................... $ 19,216 $ 12,395
Net loss from operations.................................... (18,517) (18,540)
Loss per share.............................................. $ (0.48) $ (1.71)
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QUINTUS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. COMMON STOCK AND NET LOSS PER SHARE
The following is a reconciliation of the numerators and denominators used
in computing basic and diluted net loss per share (in thousands, except per
share amounts):
THREE MONTHS ENDED
-------------------
JUNE 30, JUNE 30,
2000 1999
-------- --------
Net loss (numerator)........................................ $(11,513) $ (690)
======== ======
Shares (denominator):
Weighted average common shares outstanding................ 36,648 4,280
Weighted average common shares outstanding subject to
repurchase............................................. (1,017) (852)
-------- ------
Shares used in computation, basic and diluted............... 35,631 3,428
======== ======
Loss per share, basic and diluted........................... $ (0.32) $(0.20)
======== ======
For the above mentioned periods, the Company had securities outstanding
which could potentially dilute basic earnings per share in the future, but were
excluded in the computation of diluted net loss per share in the periods
presented, as their effect would have been antidilutive. Such outstanding
securities consist of the following:
JUNE 30,
----------------------
2000 1999
--------- ----------
Convertible preferred stock................................. -- 16,575,515
Shares of common stock subject to repurchase................ 1,053,537 817,967
Outstanding options......................................... 4,556,767 2,026,789
Outstanding warrants........................................ 758,889 1,047,645
--------- ----------
6,369,193 20,467,916
========= ==========
4. COMMITMENT
On June 23, 2000, the Company entered into a 10 year lease commitment of
approximately 103,000 square feet of office space for its new worldwide
headquarters in Dublin, California. The estimated lease commencement date is
November 22, 2000. Future rental payments approximate $3.4 million per year with
an increase of four percent each year. In conjunction with the lease, the
Company established two $3.0 million letters of credit for a total of $6.0
million with a financial institution as collateral for the lease, subject to
reduction based on the financial performance of the Company during the term of
the lease. The amount is included in other assets as of June 30, 2000.
5. NOTES RECEIVABLE FROM STOCKHOLDERS
On April 27, 2000 the Company loaned an officer $4,880,700 for the exercise
of 550,000 stock options. The Company entered into a stock pledge agreement with
the officer and became the holder of a full-recourse promissory note from the
officer in the amount of $4,880,700 bearing interest at 6.71%, compounded
annually. Principal and interest are due on April 26, 2004.
6. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting For Derivative Instruments and Hedging Activities. This statement
requires companies to record derivatives on the balance sheet as assets or
liabilities, measured at fair value. Gains or losses resulting from changes in
the values of those derivatives would be accounted for depending on the use of
the derivative and whether it
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QUINTUS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
qualifies for hedge accounting. SFAS No. 133 will be effective for Quintus'
fiscal year ending March 31, 2002. Management believes that this statement will
not have a significant impact on Quintus' financial position, results of
operations or cash flows.
In December 1999, the Securities Exchange Commissions ("SEC") issued Staff
Accounting Bulletin No. 101 ("SAB 101"), Revenue Recognition in Financial
Statements. SAB 101 summarizes certain of the SEC's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
SAB 101 will be effective for Quintus' fiscal year ending March 31, 2001. The
Company is in the process of evaluating the effects, if any, of SAB 101.
7. SIGNIFICANT CUSTOMERS
Three customers accounted for 16.2%, 11.8%, and 10.6% of total revenues in
the first quarter of fiscal 2001, respectively. One unrelated customer accounted
for 19.7% of total revenues in the first quarter of fiscal 2000.
Two customers accounted for 17.8% and 11.3% of accounts receivable at June
30, 2000, respectively. One unrelated customer accounted for 18.4% of accounts
receivable at June 30, 1999.
8. LEGAL MATTERS
Quintus may be a potential defendant in lawsuits and claims arising in the
ordinary course of business. While the outcomes of such claims, lawsuits, or
other proceedings cannot be predicted with certainty, management expects that
such liability, to the extent not provided by insurance or otherwise, will not
have a material adverse effect on Quintus' financial condition.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Except for historical information contained or incorporated by reference in
this section, the following discussion contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Act of 1934, as amended. Such statements are based
upon current expectations that involve risks and uncertainties. Quintus' actual
results and the timing of certain events may differ significantly from the
results discussed in the forward-looking statements. Factors that could cause or
contribute to these differences include, but are not limited to, those discussed
elsewhere in this report in the section entitled "Risk Factors."
OVERVIEW
Quintus provides a comprehensive e-Customer Relationship Management or eCRM
solution to manage customer interactions, such as customer orders, inquiries and
service requests, and deliver consistent customer service across multiple
communication channels, including the Internet, email and the telephone.
Quintus' eContact software suite includes applications that address the needs of
customer service representatives and agents in sales and service, consumer
relations, technical support and human resources centers and a routing engine to
manage customer interactions. These applications and Quintus' routing engine can
be sold separately or in a group. eContact enables companies to handle high
volumes of customer interactions and leverage opportunities to sell additional
products and services to their customers.
The Quintus eContact software suite allows companies to personalize, route
and manage customer interactions. Quintus' eContact suite enables consistent
customer service through the use of common rules for prioritizing, handling and
responding to customer interactions, shared customer profile information,
uniform strategies for selling additional products and services to customers,
and consolidated management and reporting functions that allow companies to
capture and analyze customer information.
Quintus sells its products to customers in North and South America, Europe,
South Africa and Asia Pacific through a direct sales force and indirectly
through resellers and distribution partners. All of Quintus' sales are
denominated in U.S. dollars. International revenues accounted for 16.6% of total
revenues in the first quarter of fiscal 2001. Quintus intends to establish
additional distribution relationships with partners outside of the United
States, and it expects international revenues to continue to increase as a
percentage of its total revenues in the future. Quintus also expects that sales
of its products to a limited number of parties will continue to account for a
large percentage of total revenues for the foreseeable future.
On May 16, 2000, Quintus entered into a worldwide reseller, marketing and
technology alliance with Siebel Systems, Inc., a supplier of eBusiness
application software. Under the terms of the alliance, Quintus will market and
sell Siebel eBusiness Applications through Quintus' worldwide sales force and
distribution channels, and Siebel will license Quintus' eContact universal
queuing technology to add multimedia queuing and intelligent routing
capabilities to future Siebel eBusiness Application releases. Quintus has also
become a Strategic Software Partner in the Siebel Alliance program, which
provides for joint marketing and sales programs between the two companies.
As a result of this alliance, Quintus anticipates that its cost of revenues
will increase by the reseller fee incurred from selling Siebel's eBusiness
Applications, thereby, decreasing the gross margin percentage. However, the
gross profit may or may not change significantly due to the level of total
license and service revenues generated.
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RESULTS OF OPERATIONS
The following sets forth Quintus' results of operations as a percentage of
total revenues. The results of operations as a percentage of total revenues for
the three months ended June 30, 1999 do not include the operations of
Mustang.com and Acuity as they were acquired in May 2000 and November 1999,
respectively.
THREE MONTHS ENDED
------------------
JUNE 30, JUNE 30,
2000 1999
-------- --------
Revenues:
License................................................... 73.9% 59.5%
Service................................................... 26.1 40.5
----- -----
Total revenues.................................... 100.0 100.0
Cost of Revenues:
License................................................... 0.2 2.1
Service................................................... 22.5 23.5
----- -----
Total cost of revenues............................ 22.7 25.6
----- -----
Gross profit................................................ 77.3 74.4
Operating Expenses:
Sales and marketing....................................... 49.4 41.9
Research and development.................................. 26.0 18.2
General and administrative................................ 13.2 9.7
Amortization of intangibles............................... 50.4 7.7
Acquired in-process technologies.......................... 3.3 --
Stock-based compensation.................................. 1.0 1.7
----- -----
Total operating expenses.......................... 143.3 79.2
----- -----
Loss from operations........................................ (66.0) (4.8)
Other income (expense), net................................. 3.8 (1.9)
----- -----
Net loss.................................................... (62.2)% (6.7)%
===== =====
REVENUES
Total Revenues. Total revenues in the first quarter of fiscal 2001
increased 79.7% to $18.5 million from $10.3 million in the first quarter of
fiscal 2000.
License. License revenues in the first quarter of fiscal 2001 increased
123.1% to $13.7 million from $6.1 million in the first quarter of fiscal 2000.
The increase in license revenues in fiscal 2001 from fiscal 2000 was primarily
due to an increase in the number of licenses sold to new and existing customers
and increased sales generated by Quintus' expanded sales force. The increase in
the number of licenses was primarily due to increased market acceptance of
Quintus' products, both in the United States and internationally.
Service. Service revenues in the first quarter of fiscal 2001 increased
15.9% to $4.8 million from $4.2 million in the first quarter of fiscal 2000. The
increase was primarily due to growth in Quintus' installed base of customers
with a maintenance contract and maintenance renewals from products licensed in
prior periods. Service revenues decreased to 26.1% as a percentage of total
revenues in the first quarter of fiscal 2001 from 40.5% in the first quarter of
fiscal 2000. Quintus expects service revenues as a percentage of total revenues
to decrease in the future due to the growth of license revenues.
COST OF REVENUES
License. Cost of licenses consists primarily of royalties, product
packaging, documentation, and production. Cost of licenses decreased 88.1% to
$26,000 in the first quarter of fiscal 2001 from $218,000 in the first quarter
of fiscal 2000. Cost of licenses as a percentage of license revenues decreased
to 0.2% in the first
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quarter of fiscal 2001 from 3.6% in the first quarter of fiscal 2000. The
decrease in fiscal 2001 was primarily due to a decrease in sales of third-party
license revenues and the resulting decrease in third-party royalty payments. The
cost of licenses may vary significantly in the future, depending on the mix of
internally developed and third-party products.
Service. Cost of services consists primarily of personnel costs and
third-party consulting fees associated with implementation, customization,
maintenance and other support services. Cost of services increased 72.1% to $4.2
million in the first quarter of fiscal 2001 from $2.4 million in the first
quarter of fiscal 2000, representing 86.3% and 58.1% of service revenues,
respectively. The dollar increase was primarily due to the number of third-party
consultants Quintus engaged to provide consulting and implementation of its
products and an increase in its installed base for its maintenance contracts.
Cost of services as a percentage of service revenues increased primarily due to
a decrease in margins for service revenues. Cost of services as a percentage of
service revenues may vary between periods due to the mix of services provided
and the resources used to provide these services.
OPERATING EXPENSES
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries, commissions, bonuses, travel, public relations, marketing materials,
and trade shows. Sales and marketing expenses increased 111.9% to $9.1 million
in the first quarter of fiscal 2001 from $4.3 million in the first quarter of
fiscal 2000, representing 49.4% and 41.9% of total revenues, respectively. The
dollar and percentage of total revenues increases were primarily due to the
expansion of Quintus' worldwide sales and marketing organization, which
increased to 141 employees in the first quarter of fiscal 2001 from 62 employees
in the first quarter of fiscal 2000, an increase in sales commissions associated
with increases in revenues and higher marketing costs due to expanded
advertising and promotional activities. Quintus intends to invest substantial
resources to expand its direct sales force and other distribution channels, to
establish additional sales offices in the United States and internationally, and
to conduct marketing programs to support its existing and new product offerings.
As a result, sales and marketing expenses in absolute dollar are expected to
increase in future periods.
Research and Development. Research and development expenses consist
primarily of personnel and related expenses associated with the development of
new products, the enhancement and localization of existing products, and quality
assurance and testing costs incurred prior to commercial production. Research
and development expenses increased 157.1% to $4.8 million in the first quarter
of fiscal 2001 from $1.9 million in the first quarter of fiscal 2000,
representing 26.0% and 18.2% of total revenues, respectively. The dollar and
percentage of total revenues increases were primarily due to increases in
personnel, which increased to 115 employees in the first quarter of fiscal 2001
from 51 employees in the first quarter of fiscal 2000. Quintus anticipates that
research and development expenses in absolute dollars will continue to increase
in future periods. To date, all research and development costs have been
expensed as incurred.
General and Administrative. General and administrative expenses consist
primarily of salaries and other related costs for finance and human resource
employees, as well as accounting, legal, other professional fees and allowance
for doubtful accounts. General and administrative expenses increased 145.3% to
$2.4 million in the first quarter of fiscal 2001 from $998,000 in the first
quarter of fiscal 2000, representing 13.2% and 9.7% of total revenues,
respectively. The dollar and percentage of total revenues increases were
primarily due to increases in personnel, which increased to 53 employees in the
first quarter of fiscal 2001 from 26 employees in the first quarter of fiscal
2000, and associated expenses necessary to manage and support Quintus' increased
scale of operations and expenses related to being a public company. Quintus
currently expects general and administrative expenses in absolute dollars to
increase in the future as it continues to expand its infrastructure.
Amortization of Intangibles. Amortization of intangibles represents costs
arising from Quintus' acquisition of Mustang.com in May 2000, its acquisition of
Acuity in November 1999, and its acquisition of Nabnasset in November 1997.
Amortization is recorded on a straight-line basis over a period of three to five
years ending May 2005. Amortization of intangibles was $9.3 million and $796,000
in the first quarter of fiscal 2001 and fiscal 2000, respectively, representing
50.4% and 7.7% of total revenues, respectively.
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Acquired In-Process Technologies. In May 2000, Quintus acquired Mustang.com
for $273.9 million based on capital stock issued, the value of options and
warrants assumed, and transaction costs incurred. This transaction was accounted
for as a purchase. In this acquisition acquired technology included both
existing technology and in-process research and development. The valuation of
acquired technology was made by applying the income forecast method, which
considers the present value of cash flows by product lines. Acquired in-process
technologies of $606,000 were charged to operations in the first quarter of
fiscal 2001, as the technologies did not have alternative future uses as of the
date of the acquisition. There were no acquired in-process technologies in the
first quarter of fiscal 2000.
Stock-Based Compensation. During the first quarter of fiscal 2001 and
fiscal 2000, Quintus recorded deferred stock-based compensation of zero and
$710,000 relating to stock options granted to employees, respectively. Such
amounts represent the difference between the exercise price and the deemed fair
market value of Quintus' common stock at the date of grant. These amounts are
being amortized over the vesting periods of the granted options. Quintus
recognized $189,000 and $169,000 of stock-based compensation in operating
expenses in the first quarter of fiscal 2001 and 2000, respectively.
Other Income (Expense), Net. Other net income of $695,000 in the first
quarter of fiscal 2001 consisted primarily of interest income from Quintus'
investments of initial public offering proceeds in short-term investments. Other
expense of $194,000 in the first quarter of fiscal 2000 was primarily due to
Quintus' line of credit with a financial institution, which was repaid in full
during the third quarter of fiscal 2000.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2000, Quintus' principal source of liquidity was
approximately $57.3 million of cash, cash equivalents and short-term
investments.
Cash used in operating activities was $6.3 million and $823,000 in the
first of fiscal 2001 and fiscal 2000, respectively. Cash used in the first
quarter of fiscal 2001 was primarily due to a net loss of $11.5 million, an
increase in accounts receivable, and a decrease in accounts payable, offset in
part by depreciation and amortization expenses. Cash used in the first quarter
of fiscal 2000 was primarily due to an increase in accounts receivable, offset
in part by an increase in accounts payable and depreciation and amortization
expenses.
Cash provided by (used in) investing activities was $1.7 million and
($297,000) in the first quarter of fiscal 2001 and fiscal 2000, respectively.
Cash provided by investing activities in the first quarter of fiscal 2001 was
primarily due to cash acquired from the acquisition of Mustang.com, offset in
part by an increase in other assets due to the letters of credit totaling $6.0
million for collateral on a facility lease. Cash used in investing activities in
the first quarter of fiscal 2000 was primarily due to purchases of property and
equipment.
Cash provided by (used in) financing activities was $1.6 million and
($198,000) in the first quarter of fiscal 2001 and fiscal 2000, respectively.
Cash provided by financing activities in the first quarter of fiscal 2001
consisted primarily of net proceeds from the issuance of common stock, offset in
part by principal repayments of Quintus' bank loans. Cash used in financing
activities in the first quarter of fiscal 2000 was primarily due to principal
repayments of Quintus' bank line of credit, offset in part by bank borrowings.
Quintus may utilize cash resources to fund acquisitions or investments in
complementary businesses, technologies or product lines. Quintus currently
anticipates that its current cash, cash equivalents and investments will be
sufficient to meet its anticipated cash needs for working capital and capital
for at least the next 12 months. Thereafter, Quintus may find it necessary to
obtain additional equity or debt financing. In the event additional financing is
required, Quintus may not be able to raise it on acceptable terms or at all.
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RISK FACTORS
QUINTUS MAY NOT ACHIEVE PROFITABILITY AND, AS A RESULT, THE TRADING PRICE OF ITS
COMMON STOCK COULD DECLINE AND YOU COULD LOSE ALL OR PART OF YOUR INVESTMENT
Quintus has not had a profitable quarter and it cannot assure you that it
will become profitable. Quintus expects to increase its sales and marketing,
research and development, and other expenses as it attempts to grow its
business. As a result, Quintus will need to generate significant revenues to
become profitable, which it may be unable to do. If Quintus fails to become
profitable, the trading price of its common stock could decline significantly.
Quintus has funded its operations through the sale of equity securities,
borrowings and the sale of its products and services. Quintus incurred net
losses of $11.5 million and $690,000 in the first quarter of fiscal 2001 and
2000, respectively. As of June 30, 2000, Quintus had an accumulated deficit of
$61.7 million. In addition, in May 2000, Quintus acquired Mustang.com which had
incurred net losses of $245,000, $906,000, and $1.2 million in the three months
ended March 31, 2000 and in years ended December 31, 1999 and 1998,
respectively. Mustang.com had an accumulated deficit of $7.5 million as of March
31, 2000. In November 1999, Quintus acquired Acuity which had incurred net
losses of $4.6 million, $7.7 million, and $6.6 million in the nine months ended
September 30, 1999 and in years ended December 31, 1998 and 1997, respectively.
Acuity had an accumulated deficit of $25.3 million as of September 30, 1999. In
connection with its acquisitions of Mustang.com and Acuity, Quintus recorded
approximately $305.2 million of goodwill and intangible assets, which will be
amortized on a monthly basis over periods of two and a half to five years. In
connection with the acquisitions of Mustang.com and Acuity, Quintus recognized a
charge for in-process technologies of approximately $606,000 and $3.0 million in
the quarter ending June 30, 2000 and December 31, 1999, respectively.
QUINTUS' RESULTS OF OPERATIONS MAY SUFFER IF IT ENCOUNTERS TECHNICAL
DIFFICULTIES, DELAYS AND UNFORESEEN EXPENSES AS IT FURTHER DEVELOPS ITS ECONTACT
SUITE
Quintus has been selling and implementing its integrated eContact suite and
the components for managing email and Internet-based customer interactions for
only a limited period of time. Quintus has also recently integrated
Mustang.com's Mustang Message Center and Acuity's WebCenter and WebACD products
into its eContact suite. Quintus may encounter technical difficulties, delays
and unforeseen expenses as Quintus integrates these and other functionalities
into its eContact suite and continues its development efforts. Such differences
or delays could harm Quintus' results of operations.
IF IMPLEMENTATIONS OF THE QUINTUS ECONTACT SUITE SUFFER PROBLEMS OR DELAYS,
QUINTUS' REPUTATION AND FUTURE OPERATING RESULTS MAY BE HARMED
To successfully implement its eContact suite, Quintus must integrate
eContact with a wide variety of complex systems currently used by its customers.
If these implementations meet with significant technological obstacles, Quintus
may be forced to spend additional resources, harming its operating results. If
the ease and speed of these implementations do not meet the expectations of its
customers, Quintus' reputation and ability to sell its eContact suite will be
harmed.
BECAUSE QUINTUS' QUARTERLY REVENUES AND OPERATING RESULTS MAY FLUCTUATE
SIGNIFICANTLY, THE TRADING PRICE OF ITS COMMON STOCK IS LIKELY TO BE VOLATILE
It is likely that in some future quarter Quintus' revenues and operating
results will fall below the expectations of market analysts and investors. If
this happens, the trading price of Quintus common stock may fall substantially.
Quintus' revenues and operating results are likely to vary significantly from
quarter to quarter due to a variety of factors, including the risks described in
this section.
Quintus' ability to forecast revenues is limited. Quintus derives
substantially all of its revenues from licenses of Quintus' software and related
services. License revenues in any quarter are substantially dependent on orders
booked and shipped in that quarter, and Quintus cannot predict revenues for any
future quarter with any significant degree of certainty. In addition, Quintus
expects that sales derived through indirect channels,
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which are more difficult to forecast, may increase as a percentage of total
revenues in the future. Quintus' expenses are relatively fixed and are based, in
part, on its expectations of future revenues. Consequently, if revenue levels do
not meet Quintus' expectations, its operating results will suffer.
BECAUSE QUINTUS DEPENDS UPON A LIMITED NUMBER OF LARGE SALES FOR A SUBSTANTIAL
PORTION OF ITS REVENUES, THE FAILURE TO OBTAIN LARGE PROSPECTIVE CUSTOMERS COULD
CAUSE QUINTUS' REVENUES TO FALL QUICKLY AND UNEXPECTEDLY
Quintus depends upon a limited number of large sales for a substantial
portion of its revenues in each quarter. For example, in the first quarter of
fiscal 2001, its three largest customers accounted for 16.2%, 11.8%, and 10.6%
of its total revenues, respectively. Quintus' failure to successfully close one
or more large sales in any particular period could cause its revenues to drop
quickly and unexpectedly. Quintus expects to continue to be dependent upon a
limited number of customers for a significant portion of its revenues, and these
customers are expected to vary from period-to-period. The loss of prospective
major customers could result in its failure to meet quarterly revenue
expectations, causing the trading price of its common stock to fall.
QUINTUS RELIES HEAVILY ON ITS INDIRECT DISTRIBUTION CHANNELS
The loss of a reseller, the failure of a reseller to sell its products, or
its failure to attract and retain qualified new resellers in the future could
harm Quintus' business. Typically its resellers do not have minimum purchase or
resale obligations, can cease marketing Quintus' products at any time, and may
offer competing products. Quintus intends to expand its indirect distribution
channels by establishing additional relationships with resellers and
distribution partners. Competition for these relationships is intense, and
Quintus may be unable to establish relationships on favorable terms, if at all.
Even if Quintus is successful in establishing these relationships, they may not
substantially increase its revenues.
QUINTUS FACES A NUMBER OF RISKS RELATED TO QUINTUS' RECENT ACQUISITIONS OF
MUSTANG.COM AND ACUITY, AND QUINTUS MAY FACE SIMILAR RISKS IN THE FUTURE IF
QUINTUS ACQUIRES OTHER BUSINESSES OR TECHNOLOGIES
In May 2000 and November 1999, Quintus acquired Mustang.com, a company
located in Bakersfield, California and Acuity, a company located in Austin,
Texas, respectively. Quintus previously had no other operations in either of
these two locations. Quintus is currently integrating Mustang.com's products,
personnel, and systems, and unknown complications could arise in the future.
Although Quintus' integration of Acuity's products, personnel and systems is
largely complete, unknown complications could arise in the future. If
difficulties stemming from these integrations arise in the future, Quintus'
business and operating results are likely to suffer. In addition, the
acquisition of Mustang.com was Quintus' fourth acquisition within the last four
years, and it may make more acquisitions in the future. If Quintus is unable to
integrate effectively any newly acquired businesses, technologies or products,
Quintus' operating results could suffer. Integrating any newly acquired
businesses, technologies or products may be expensive and time-consuming. Future
acquisitions could also result in large and immediate write-offs for in-process
research and development, increased amortization charges or the incurrence of
debt and contingent liabilities. To finance acquisitions, Quintus may need to
raise additional funds through public or private financings. Additional funds
may not be available on favorable terms, or at all, and, in the case of equity
financings, may result in dilution to Quintus shareholders. Moreover, Quintus
may not be able to operate any acquired businesses profitably or otherwise
implement its growth strategy successfully.
BECAUSE MANY OF QUINTUS' SALES PEOPLE ARE NEW HIRES AND HIRING ADDITIONAL SALES
PERSONNEL IS PARTICULARLY COMPETITIVE, IT MAY BE UNABLE TO EXPAND ITS BUSINESS
Quintus has replaced a large number of its sales people during the last
year. As a result, many of its sales personnel are new to Quintus. Quintus
expects its new sales personnel will require substantial training in its
products and sales practices. New sales personnel tend to be less productive
than those with greater experience selling its products. Moreover, Quintus
intends to hire additional direct sales force personnel in the United States.
Competition for qualified sales personnel is particularly intense in the
software industry. In the past, Quintus has experienced difficulty hiring
employees with appropriate qualifications in the time frame desired.
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Any delays or difficulties Quintus encounters in these recruiting, training or
retention efforts could impair its ability to attract new customers and enhance
its relationships with existing customers.
BECAUSE THE ECRM MARKET IS HIGHLY COMPETITIVE, QUINTUS MAY NOT BE ABLE TO
SUCCEED AND YOU MAY LOSE PART OR ALL OF YOUR INVESTMENT
If Quintus fails to compete successfully in the highly competitive and
rapidly changing eCRM market, it may not be able to succeed and you may lose
part or all of your investment. Quintus faces competition primarily from
customer relationship management software firms, emerging Internet customer
interaction software vendors and computer telephony software companies. Quintus
also faces competition from traditional call center technology providers, large
enterprise application software vendors, independent systems integrators,
consulting firms and in-house IT departments. Because barriers to entry into the
software market are relatively low, Quintus expects to face additional
competition in the future.
Many of Quintus' competitors can devote significantly more resources to the
development, promotion and sale of products than Quintus can, and many of them
can respond to new technologies and changes in customer preferences more quickly
than Quintus can. Further, other companies with resources greater than Quintus
may attempt to gain market share in the eCRM market by acquiring or forming
strategic alliances with its competitors.
BECAUSE QUINTUS DEPENDS ON THIRD-PARTY SYSTEMS INTEGRATORS TO SELL AND IMPLEMENT
ITS PRODUCTS, ITS REVENUES WILL LIKELY SUFFER IF IT DOES NOT DEVELOP AND
MAINTAIN THESE RELATIONSHIPS
Quintus relies on systems integrators to promote, sell and implement its
solution. If Quintus fails to maintain and develop relationships with systems
integrators, its revenues will likely suffer. Quintus currently relies on
systems integrators such as Ernst and Young, Cambridge Technology Partners and
eLoyalty to recommend its products to their customers and to install its
products. If Quintus is unable to rely on systems integrators to implement its
products, Quintus will likely have to provide these services itself, resulting
in increased costs. As a result, its ability to grow may be harmed. In addition,
systems integrators may develop, market or recommend products that compete with
its products. For this reason, Quintus must cultivate its relationships with
these firms, and its failure to do so could result in reduced sales revenues.
Further, if these systems integrators fail to implement Quintus' products
successfully, its reputation may be harmed.
BECAUSE THE SALES CYCLE FOR QUINTUS' PRODUCTS CAN BE QUITE LENGTHY, IT IS
DIFFICULT FOR QUINTUS TO PREDICT WHEN OR WHETHER A SALE WILL BE MADE
The timing of Quintus' revenues is difficult to predict in large part due
to the length and variability of the sales cycle for its products. Companies
often view the purchase of Quintus' products as a significant and strategic
decision. As a result, companies tend to take significant time and effort
evaluating Quintus' products. The amount of time and effort depends in part on
the size and the complexity of the deployment. This evaluation process
frequently results in a lengthy sales cycle, typically ranging from three to
nine months. During this time Quintus may incur substantial sales and marketing
expenses and expend significant management efforts. Quintus does not recoup
these investments if the prospective customer does not ultimately license its
product.
IF QUINTUS IS UNABLE TO INTRODUCE NEW ECRM PRODUCTS OR PRODUCT ENHANCEMENTS ON A
TIMELY BASIS, OR IF THE MARKET DOES NOT ACCEPT THESE PRODUCTS OR PRODUCT
ENHANCEMENTS, QUINTUS' BUSINESS WILL SUFFER
The eCRM market is new and is likely to change rapidly. Quintus' future
success will depend on its ability to effectively and timely anticipate changing
customer requirements and offer products and services that meet these demands.
Potential customers may seek features that its products do not have. As a
result, Quintus may need to develop these features, and this may result in a
longer sales cycle, increased research and development expenses and reduced
profit margins. In addition, the development of new or enhanced eCRM products is
a complex and uncertain process. Quintus may experience design, development,
marketing and other difficulties that could delay or prevent the introduction of
new products and enhancements. For example,
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Quintus' ability to introduce new products would be impaired if Quintus cannot
continue to attract, hire, train and retain highly skilled personnel.
QUINTUS' FAILURE TO MANAGE ITS RAPID GROWTH COULD INCREASE ITS COSTS AND HARM
ITS BUSINESS
Quintus has experienced rapid growth and plans to continue to significantly
expand its operations. Quintus may not be able to manage this growth
effectively, which would impair its ability to attract and service customers and
cause it to incur higher operating costs. Expanding its operations has placed a
significant strain on its personnel and other resources. Its revenues have grown
to $18.5 million in the first quarter of fiscal 2001 from $10.3 million in the
first quarter of fiscal 2000. Quintus' headcount increased to 402 as of June 30,
2000 from 181 employees as of June 30, 1999. To manage its growth effectively,
Quintus may need to further improve its operational, financial and management
systems. Quintus cannot assure you that it will improve these systems
adequately.
IF QUINTUS DOES NOT SUCCESSFULLY ADDRESS THE RISKS INHERENT IN THE EXPANSION OF
ITS INTERNATIONAL OPERATIONS, ITS OPERATING RESULTS MAY SUFFER
Quintus has limited experience in international operations and may not be
able to compete effectively in international markets. Quintus currently intends
to expend significant financial and management resources to expand its
international operations. Quintus believes that the future expansion of its
international operations is important to the growth of its business. Most of its
international sales are generated through resellers and distributors, and
Quintus expects substantial costs and resources will be required to continue to
train and support these resellers.
Among the various risks Quintus faces in conducting business
internationally are:
- difficulties and costs of staffing and managing foreign operations;
- longer accounts receivable payment cycles and possible difficulties in
collecting accounts receivable, which may increase Quintus' operating
costs and hurt its financial performance;
- technology standards that are different from those on which Quintus
products are designed, which could require expensive redesigns of
Quintus' products;
- political and economic instability;
- unexpected changes in regulatory requirements that could make Quintus'
products and services more expensive and therefore less attractive to
potential customers; and
- fluctuations in currency exchange rates and the imposition of currency
exchange controls.
UNKNOWN SOFTWARE DEFECTS COULD HARM QUINTUS' BUSINESS AND REPUTATION
Quintus' software interacts with other complex systems and software. Its
software products may contain defects, particularly when first introduced.
Despite Quintus' software testing procedures, it may not discover software
defects that affect its products until after they are deployed. These defects
could result in:
- damage to Quintus' reputation;
- product returns or lost sales;
- product liability claims against Quintus;
- delays in or loss of market acceptance of Quintus' products; and
- unexpected expenses and diversion of resources to remedy errors.
The occurrence of any of these events would hurt Quintus' operating results. In
addition, Quintus' customers generally use its products together with products
from other vendors. As a result, when problems occur, it may be difficult to
identify the source of the problem. Therefore, even if these problems are not
caused by Quintus'
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products, they may cause Quintus to incur significant warranty and repair costs,
divert the attention of its engineering personnel and cause significant customer
relations problems.
ALTHOUGH QUINTUS HAS TAKEN MEASURES TO PROTECT ITS INTELLECTUAL PROPERTY, ITS
COMPETITIVE POSITION MAY SUFFER IF THESE MEASURES PROVE TO BE INADEQUATE
Third parties may infringe or misappropriate Quintus' copyrights,
trademarks and similar proprietary rights. Quintus cannot be certain that the
steps it has taken to prevent the misappropriation of its intellectual property
are adequate, particularly in foreign countries where the laws may not protect
its proprietary rights as fully as in the United States. Quintus relies on a
combination of patent, copyright, trademark and trade secret laws and
restrictions on disclosure to protect its intellectual property rights. In
addition, Quintus enters into confidentiality agreements with its employees and
certain customers, vendors and strategic partners. Quintus cannot assure you
that any patents will be issued from applications it has filed or that any of
its issued patent will protect its intellectual property. Furthermore, other
parties may independently develop similar or competing technology or design
around any patents that may be issued to Quintus.
QUINTUS MAY FACE COSTLY INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS
Companies have in the past alleged that Quintus' products infringe their
patents, and others may make similar allegations in the future. Such claims, or
other claims that Quintus' products infringe other intellectual property rights,
may force Quintus to seek expensive licenses, re-engineer its products, engage
in expensive and time-consuming litigation or stop marketing the challenged
product. Further, by contract Quintus typically indemnifies its customers
against infringement claims related to its products. Intellectual property
litigation is expensive and time-consuming and could divert management's
attention away from running Quintus' business. This litigation could also
require Quintus to develop non-infringing technology or enter into royalty or
license agreements. These royalty or license agreements, if required, may not be
available on acceptable terms, if at all. Quintus' failure or inability to
develop non-infringing technology or license the proprietary rights on a timely
basis in a cost-effective manner would harm its business.
SALES OF QUINTUS COMMON STOCK INTO THE PUBLIC MARKET COULD HARM THE MARKET PRICE
OF QUINTUS COMMON STOCK AND ITS ABILITY TO RAISE MONEY THROUGH SALES OF EQUITY
SECURITIES
The value of an investment in Quintus common stock and Quintus' ability to
raise money through the sale of additional equity securities could be adversely
affected if its existing shareholders sell large amounts of their Quintus common
stock into the public market. If significant volumes of Quintus common stock are
sold into the public market, the market price of its common stock, and therefore
the value of your investment, could fall. This could impair Quintus' ability to
raise capital through the sale of additional equity securities. With the
exception of the shares sold in its initial public offering, substantially all
of its currently outstanding shares were subject to transfer restrictions that
recently expired on May 14, 2000. An increase in sales of Quintus' common stock
as a result of the expiration of these transfer restrictions could cause the
trading price of Quintus' common stock to fall.
ANTI-TAKEOVER PROVISIONS IN QUINTUS CHARTER DOCUMENTS, AS WELL AS PROVISIONS OF
EMPLOYMENT AGREEMENTS OF SOME OF ITS KEY EXECUTIVE OFFICERS, COULD PREVENT OR
DELAY A CHANGE IN CONTROL OF QUINTUS
Provisions in Quintus' bylaws and in its certificate of incorporation may
have the effect of delaying or preventing a change of control or changes in
management of Quintus. These provisions include:
- the requirement that a special meeting of shareholders may only be called
by shareholders owning at least a majority of its outstanding shares;
- the ability of its board of directors to issue preferred stock without
shareholder approval; and
- the right of its board of directors to elect a director to fill a vacancy
created by the expansion of the board of directors.
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Some of Quintus' officers have agreements with it that provide for
acceleration of vesting following certain sales or mergers of Quintus. These
provisions could make Quintus' acquisition by a third party more costly and
could delay or prevent a change of control or changes in its management.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At June 30, 2000, Quintus had an outstanding balance of $1.4 million in
loans with interest rates ranging from 8.25% to 10.00%. A 10.00% movement in
market interest rates would not significantly impact Quintus' financial position
or results of operations.
Quintus' interest income is sensitive to changes in the general level of
U.S. interest rates, particularly since the majority of its funds are invested
in instruments with maturity of less than two years. Quintus' policy is to limit
the risk of principal loss and ensure the safety of invested funds by limiting
market and credit risk. Funds in excess of current operating requirements are
primarily invested in obligations of large corporations. Due to the nature of
Quintus' investments, its has concluded that there is no material market risk
exposure. Therefore, no quantitative tabular disclosures are required.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) Changes in Securities
On June 13, 2000, Quintus issued 44,393 shares of common stock pursuant to
the exercise of warrants previously issued to stockholders of Quintus. Quintus
received $99,999 in connection with these warrant exercises.
The sale of the above securities were deemed to be exempt from registration
under the Securities Act in reliance upon Section 4(2) of the Securities Act or
Regulation D promulgated thereunder, as transactions by an issuer not involving
any public offering. With regard to the sales of securities exempted by Section
4(2) of the Securities Act, the recipients of securities in each transaction
represented their intentions to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution and
appropriate legends were affixed to the share certificates issued in these
transactions. All recipients had adequate access, through their relationships
with us, to information about us.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORT ON FORM 8-K
(a) EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
--------- -----------
2.2(2) Agreement and Plan of Merger between the Registrant and
Mustang.com, Inc., dated February 25, 2000.
2.1(3) Agreement and Plan of Reorganization by and among
Registrant, Acuity Corp., Ribeye Acquisition Corp. and
certain stockholders of Acuity Corp., dated September 10,
1999.
3.3(3) Registrant's Restated Certificate of Incorporation.
3.5(3) Registrant's Amended and Restated Bylaws.
4.1(3) Reference is made to Exhibits 3.3 and 3.5.
4.2(3) Specimen Common Stock certificate.
4.3(3) Registrant's Amended and Restated Investors Rights
Agreement, dated November 10, 1999.
10.1(3) Form of Indemnification Agreement entered into between
Registrant and each of its directors and officers.
10.2(3) 1995 Stock Option Plan and forms of agreements thereunder.
10.3(3) 1999 Stock Incentive Plan and forms of agreements
thereunder.
10.4(3) Employee Stock Purchase Plan.
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EXHIBIT
NUMBER DESCRIPTION
--------- -----------
10.5(3) 1999 Director Option Plan.
10.6(3) Light Industrial Lease between Registrant and Teachers
Insurance and Annuity Association of America, dated October
6, 1995.
10.7(3) Sublease between Registrant and Oryx Technology Corporation
and SurgX Corporation, dated October 1, 1999.
10.8(3)+ Software Distribution Agreement dated May 5, 1997, between
Nabnasset Corporation and Lucent Technologies Inc.
10.10(3)+ Authorized OEM/Reseller Agreement dated December 22, 1998,
between Registrant and Brightware, Inc.
10.11(3) Employment agreement between Registrant and Alan Anderson,
dated May 23, 1995 and Notice of Grant of Stock Option.
10.12(3) Employment agreement between Registrant and John Burke,
dated June 11, 1999.
10.13(3) Loan and Security Agreement between Registrant and Silicon
Valley Bank, dated September 18, 1998.
10.14(3) Sublease Agreement between Pavilion Technologies, Inc. and
Acuity Corp., dated December 19, 1996.
10.15(4)+ Authorized OEM/Reseller Agreement between Registrant and
Lipstream Networks, Inc., dated December 3, 1999.
10.16(4) Sublease between Registrant and Advanced Radio Telecom
Corp., dated December 13, 1999, and Corresponding Master
Lease.
10.17(4) Second Amendment to OEM/Reseller Agreement between
Registrant and Brightware, Inc., dated December 22, 1999.
10.18(1)+ Amendment No. 5 to the Software Distribution Agreement
Between Registrant and Lucent Technologies Inc. dated
February 23, 2000.
10.19 Master lease between Registrant and Koll Dublin Corporate
Center L.P., date June 23, 2000.
10.20 Employment agreement between Registrant and Paul Bartlett,
dated April 27, 2000.
10.21 Agreement of Merger Between Registrant and Mustang.com, Inc.
dated May 18, 2000.
10.22 Promissory Note Between Registrant and Paul Bartlett dated
April 27, 2000.
21.1(1) Subsidiaries of the Registrant.
27.1 Financial Data Schedule.
- ---------------
(1) Incorporated herein by reference to the Registrant's 2000 Annual Report on
Form 10-K filed June 2, 2000.
(2) Incorporated herein by reference to the Registrant's Registration Statement
on Form S-4/A filed April 11, 2000.
(3) Incorporated herein by reference to the Registrant's Registration Statement
on Form S-1 declared effective by the Securities and Exchange Commission on
November 15, 1999.
(4) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
filed on February 14, 2000.
+ Portions of these exhibits have been omitted pursuant to requests for
confidential treatment.
19
22
(b) REPORTS ON FORM 8-K
On May 3, 2000, Quintus filed a report on Form 8-K to supplement the proxy
statement filed on April 11, 2000 in connection with the acquisition of
Mustang.com. On May 25, 2000, Quintus filed a report on Form 8-K to announce the
completion of its acquisition of Mustang.com.
20
23
QUINTUS CORPORATION
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by
undersigned, thereunto duly authorized.
QUINTUS CORPORATION
Date: August 14, 2000 By: /s/ SUSAN SALVESEN
------------------------------------
Susan Salvesen
Chief Financial Officer and
Secretary
(Principal Financial and Accounting
Officer)
21
24
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- --------- -----------
2.2(2) Agreement and Plan of Merger between the Registrant and
Mustang.com, Inc., dated February 25, 2000.
2.1(3) Agreement and Plan of Reorganization by and among
Registrant, Acuity Corp., Ribeye Acquisition Corp. and
certain stockholders of Acuity Corp., dated September 10,
1999.
3.3(3) Registrant's Restated Certificate of Incorporation.
3.5(3) Registrant's Amended and Restated Bylaws.
4.1(3) Reference is made to Exhibits 3.3 and 3.5.
4.2(3) Specimen Common Stock certificate.
4.3(3) Registrant's Amended and Restated Investors Rights
Agreement, dated November 10, 1999.
10.1(3) Form of Indemnification Agreement entered into between
Registrant and each of its directors and officers.
10.2(3) 1995 Stock Option Plan and forms of agreements thereunder.
10.3(3) 1999 Stock Incentive Plan and forms of agreements
thereunder.
10.4(3) Employee Stock Purchase Plan.
10.5(3) 1999 Director Option Plan.
10.6(3) Light Industrial Lease between Registrant and Teachers
Insurance and Annuity Association of America, dated October
6, 1995.
10.7(3) Sublease between Registrant and Oryx Technology Corporation
and SurgX Corporation, dated October 1, 1999.
10.8(3)+ Software Distribution Agreement dated May 5, 1997, between
Nabnasset Corporation and Lucent Technologies Inc.
10.10(3)+ Authorized OEM/Reseller Agreement dated December 22, 1998,
between Registrant and Brightware, Inc.
10.11(3) Employment agreement between Registrant and Alan Anderson,
dated May 23, 1995 and Notice of Grant of Stock Option.
10.12(3) Employment agreement between Registrant and John Burke,
dated June 11, 1999.
10.13(3) Loan and Security Agreement between Registrant and Silicon
Valley Bank, dated September 18, 1998.
10.14(3) Sublease Agreement between Pavilion Technologies, Inc. and
Acuity Corp., dated December 19, 1996.
10.15(4)+ Authorized OEM/Reseller Agreement between Registrant and
Lipstream Networks, Inc., dated December 3, 1999.
10.16(4) Sublease between Registrant and Advanced Radio Telecom
Corp., dated December 13, 1999, and Corresponding Master
Lease.
10.17(4) Second Amendment to OEM/Reseller Agreement between
Registrant and Brightware, Inc., dated December 22, 1999.
10.18(1)+ Amendment No. 5 to the Software Distribution Agreement
Between Registrant and Lucent Technologies Inc. dated
February 23, 2000.
10.19 Master lease between Registrant and Koll Dublin Corporate
Center L.P., date June 23, 2000.
10.20 Employment agreement between Registrant and Paul
Bartlett,dated April 27, 2000.
10.21 Agreement of Merger Between Registrant and Mustang.com, Inc.
dated May 18, 2000.
25
EXHIBIT
NUMBER DESCRIPTION
- --------- -----------
10.22 Promissory Note Between Registrant and Paul Bartlett dated
April 27, 2000.
21.1(1) Subsidiaries of the Registrant.
27.1 Financial Data Schedule.
- ---------------
(1) Incorporated herein by reference to the Registrant's 2000 Annual Report on
Form 10-K filed June 2, 2000.
(2) Incorporated herein by reference to the Registrant's Registration Statement
on Form S-4/A filed April 11, 2000.
(3) Incorporated herein by reference to the Registrant's Registration Statement
on Form S-1 declared effective by the Securities and Exchange Commission on
November 15, 1999.
(4) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
filed on February 14, 2000.
+ Portions of these exhibits have been omitted pursuant to requests for
confidential treatment.