UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-15946
EBIX.COM, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 77-0021975
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1900 E. GOLF ROAD
SCHAUMBURG, IL 60173
- -------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 847-789-3047
------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes /X/ No / /
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date. 11,372,237 Shares as
of June 12, 2000.
EBIX.COM, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2000
INDEX
Part I - FINANCIAL INFORMATION PAGE
----
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets at March 31, 2000
(unaudited) and December 31, 1999 ......................................................... 3
Consolidated Statements of Operations for the Three Months
Ended March 31, 2000 and 1999 (unaudited) ................................................. 4
Consolidated Statements of Stockholders Equity (Deficit) for the Three
Months Ended March 31, 2000 and 1999 (unaudited) .......................................... 5
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 2000 and 1999 (unaudited) ................................................. 6
Notes to Consolidated Financial Statements (unaudited) ..................................... 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................................. 9
Item 3. Quantitative and Qualitative Disclosures About
Market Risk .......................................................................15
PART II - OTHER INFORMATION
Item 2. Changes to Securities and Use of Proceeds .............................................16
Item 6. Exhibits and Reports on Form 8-K .......................................................16
SIGNATURES...........................................................................................17
2
EBIX.COM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except for share amounts)
(Unaudited)
MARCH 31, DECEMBER 31,
ASSETS 2000 1999
---- ----
CURRENT ASSETS:
Cash and cash equivalents $ 9,231 $ 7,055
Accounts receivable, less allowance of $1,004
Unbilled receivables 120 120
Trade receivables 3,075 2,977
------------ --------------
Total accounts receivable 3,195 3,097
------------ --------------
Other receivables 134 332
Other current assets 87 169
------------ --------------
TOTAL CURRENT ASSETS 12,647 10,653
Property and equipment, net 1,882 2,059
Purchased software, net 73 97
Goodwill, net 456 503
Other assets 77 77
------------ --------------
TOTAL ASSETS $ 15,135 $ 13,389
============ ==============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current portion of long term debt $ 197 $ 217
Accounts payable and accrued expenses 2,829 3,166
Accrued payroll and related benefits 476 827
Current portion of capital lease obligation 92 97
Deposit liability 2,281 2,324
Deferred revenue 3,176 3,046
------------ ---------------
TOTAL CURRENT LIABILITIES 9,051 9,677
Long term debt, less current portion - 106
Long term capital lease obligation, less current portion 610 623
------------ ---------------
TOTAL LIABILITIES 9,661 10,406
------------ ---------------
STOCKHOLDERS' EQUITY (DEFICIT):
Convertible Series D Preferred stock, $.10 par value, 2,000,000
shares authorized, 221 shares of issued and outstanding 49 49
Common stock, $.10 par value,
20,000,000 shares authorized,
11,366,124 and 10,763,548 issued and
outstanding, respectively 1,136 1,076
Additional paid-in capital 81,800 76,687
Deferred compensation (1,271) (1,549)
Accumulated deficit (76,121) (73,166)
Accumulated other comprehensive loss (119) (114)
------------ ---------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 5,474 2,983
------------ ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $15,135 $13,389
============ ===============
See accompanying notes to consolidated financial statements.
3
EBIX.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
THREE MONTHS ENDED
MARCH 31,
------------------
2000 1999
---- ----
REVENUE:
Software $ 366 $ 352
Services and other 2,489 3,314
----------- ----------
TOTAL REVENUE 2,855 3,666
OPERATING EXPENSES:
Software costs 70 195
Services and other costs 1,696 2,644
Product development 1,069 958
Sales and marketing 1,332 630
General and administrative 1,582 1,786
Amortization of goodwill
and non-compete agreement 95 94
----------- ----------
TOTAL OPERATING EXPENSES 5,844 6,307
----------- ----------
OPERATING LOSS (2,989) (2,641)
Interest income 61 -
Interest expense 14 107
----------- ----------
Loss before income taxes (2,942) (2,748)
Income tax provision 13 7
----------- ----------
Net loss ($2,955) ($2,755)
=========== ==========
Basic net loss per common share ($0.26) ($0.35)
=========== ==========
Diluted net loss per common share ($0.26) ($0.35)
=========== ==========
Weighted average shares outstanding:
Basic 11,262 7,859
=========== ==========
Diluted 11,262 7,859
=========== ==========
See accompanying notes to consolidated financial statements.
4
EBIX.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(In thousands, except share amounts)
(unaudited)
Preferred Stock Common Stock
------------------------------- ------------------------ Additional
Paid-in
Shares Amount Shares Amount Capital
---------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999 221 $ 49 10,763,549 $ 1,076 $ 76,687
---------------------------------------------------------------------------
Net loss - - - - -
Translation adjustment - - - - -
Other comprehensive loss
Exercise of stock options - - 6,875 1 22
Exercise of stock warrants - - 595,700 59 4,408
Deferred compensation related to the
issuance of options and warrants 683
---------------------------------------------------------------------------
BALANCE, MARCH 31, 2000 (UNAUDITED) 221 $ 49 11,366,124 $ 1,136 $ 81,800
---------------------------------------------------------------------------
Accumulated
Other
Deferred Accumulated Comprehensive
Compensation Deficit (loss)Income Total
--------------------------------------------------------
BALANCE, DECEMBER 31, 1999 ($1,549) ($73,166) ($114) $2,983
--------------------------------------------------------
Net loss - ( 2,955) - (2,955)
Translation adjustment - - (5) (5)
Other comprehensive loss
Exercise of stock options - - 23
Exercise of stock warrants - 4,467
Deferred compensation related to the
issuance of options and warrants 278 961
--------------------------------------------------------
BALANCE, MARCH 31, 2000 ($1,271) ($76,121) ($119) $5,474
--------------------------------------------------------
See accompanying notes to consolidated financial statements.
5
EBIX.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
THREE MONTHS ENDED
MARCH 31,
--------------------------
2000 1999
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($2,955) ($2,755)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET
CASH USED IN OPERATING ACTIVITIES:
Depreciation and amortization 177 154
Amortization of purchased software 24 79
Amortization of goodwill 47 46
Amortization of non-compete agreement 48 47
Stock based compensation 961 -
CHANGES IN ASSETS AND LIABILITIES:
Accounts receivable, net (98) 734
Unbilled receivables, other receivables, and other current assets 232 (381)
Accounts payable and accrued expenses (337) (219)
Accrued payroll and related benefits (351) 290
Deposit liability and deferred revenue 87 (738)
--------------- -------------
Net cash used in operating activities (2,165) (2,743)
--------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures - 119
Purchase of minority interest - (50)
--------------- -------------
Net cash used in investing activities - 69
--------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of debt (126) (2,536)
Repayments of capital lease obligation (18) -
Proceeds from exercise of common stock warrants 4,467 4,874
Proceeds from exercise of common stock options 23 358
--------------- -------------
Net cash provided by financing activities 4,346 2,696
--------------- -------------
Effect of foreign exchange rates on cash (5) 6
Net change in cash and cash equivalents 2,176 28
Cash and cash equivalents at the beginning of the period 7,055 1,053
--------------- -------------
Cash and cash equivalents at the end of the period 9,231 1,081
--------------- -------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $14 $116
Income taxes paid 14 7
See accompanying notes to consolidated financial statements.
6
ebix.com, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(All dollar amounts in thousands, except per share data)
Note 1. BASIS OF PRESENTATION
These financial statements are unaudited and reflect all adjustments (consisting
only of normal recurring adjustments) which are, in the opinion of management,
necessary for a fair presentation of the results of the interim periods.
These financial statements should be read in conjunction with the financial
statements, and accompanying notes thereto, included in the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1999.
The results of operations for the current interim period are not necessarily
indicative of results to be expected for the entire current year.
Certain prior period amounts have been reclassified to conform to the current
presentation. These changes had no impact on previously reported earnings or
stockholders' equity.
Note 2. RESTATEMENT
In its Form 10-K for the fiscal year ended December 31, 1999 ("Fiscal 1999"),
the Company has restated and reclassified its consolidated financial
statements for the nine month transition period ended December 31, 1998
("Transition Period 1998") and the fiscal year ended March 31, 1998 ("Fiscal
1998").
Unaudited quarterly financial data for Fiscal 1999 has been restated and
reclassified. The effect of such reclassifications and the restatements on the
first quarter of Fiscal 1999 statement of operations line items is shown in
the following table:
Q1 Q1
AS FILED RESTATED
3/31/99 ADJ 3/31/99
--------- ------ --------
REVENUE:
Software $1,500 $1,148 (a) $ 352
Services and other 3,588 274 3,314
------------ ----------
TOTAL REVENUE 5,088 3,666
OPERATING EXPENSES:
Software costs 921 (726) 195
Services and other costs 2,617 27 2,644
Product development 902 56 958
Sales and marketing 630 630
General and administrative 2,021 (235) 1,786
Amortization of goodwill, customer lists and
noncompete agreements 48 46 94
------------ ----------
TOTAL OPERATING EXPENSES 7,139 6,307
------------ ----------
OPERATING LOSS (2,051) (2,641)
Interest expense 107 107
------------ ----------
Loss before income taxes (2,158) (2,748)
Income tax provision 7 7
------------ ----------
Net loss ($2,165) ($2,755)
============ ==========
Basic net loss per common share ($0.28) ($0.35)
============ ==========
Diluted net loss per common share ($0.28) ($0.35)
============ ==========
Weighted average shares outstanding:
Basic 7,859 7,859
============ ==========
Diluted 7,859 7,859
============ ==========
(a) $763 of this adjustment represents the reversal of revenue which was
reflected in the Company's 1999 Form 10-K as reversed in the second and third
quarters of 1999 rather than the first quarter of 1999.
Note 3. WARRANTS
In conjunction with the May 1996 and January 1997 private equity placements and
conversion of a $1,500 outstanding promissory note, the Company issued units,
each consisting of one share of common stock and one redeemable warrant to
purchase one share of common stock at an exercise price of $7.50 per share,
subject to certain anti-dilutive adjustments.
Between January 1, 2000 and January 16, 2000, all remaining such warrants,
which were due to expire on January 16, 2000, were exercised for 595,700
shares of common stock generating approximately $4,467 in cash.
7
In connection with the May 1996 private equity placement described above, the
Company issued a warrant to the placement agent (the "Agent's Warrant") to
purchase 200,000 shares of the Company's common stock at $5.00 per share. The
Agent's Warrant is not subject to redemption and expires May 1, 2001. At
March 31, 2000, 11,450 shares may still be purchased under this warrant.
Note 4 - STOCK OPTIONS AND WARRANTS
During 1999, the Company granted selected executives and key employees 466,000
incentive stock option awards whose vesting is contingent upon increases in the
Company's stock price and other performance based measures, such as achieving
specified revenues for new products. For these options, vesting generally occurs
when the Company's stock price equals $9.00, $12.00, $15.00 and $20.00 per
share. The exercise price of each option, which has a ten year life, is equal to
the market price of the Company's stock on the date of grant. Compensation cost
is measured and recorded for these options using variable plan accounting as
prescribed by APB Opinion No. 25 at the end of each quarterly reporting period
and is subsequently adjusted for increases or decreases in the Company's stock
price until the exercise date. Compensation expense related to these incentive
options of approximately $395 was recognized during the three month period ended
March 31, 2000. At March 31, 2000, 181,125 of the incentive options were vested.
The Company has granted nonstatutory and incentive options outside the
Company's stock option plan to persons who were not directors, officers or
employees to purchase up to an aggregate of 74,333 shares. These options are
granted at prices determined by the Board of Directors (no less than 100
percent of the market price). The options must be exercised within ten years
of the date of the grant. Included in these options are 30,000 options which
the Company granted in the first quarter of 2000, 43,333 options which the
Company granted in 1999 and 1,000 options granted prior to 1999.
These non-employee options were valued using the fair value method as
prescribed by SFAS No. 123. The majority of these options are performance
based awards, with no service commitment and subject to vesting only if the
Company's stock price reaches a certain level. At March 31, 2000, 31,668 of
the non-employee options were vested. The Company has recognized compensation
expense of approximately $123 related to these options during the three month
period ended March 31, 2000. Assumptions used in valuing the options are the
same as those for employee options except the 10-year contractual life was
substituted for the expected life of the option as required by SFAS No. 123.
On August 20, 1999, the Company granted a two year warrant to Hewlett -Packard
to purchase 4.9% of the Company's outstanding common stock for $15.00 per share
during the first year of the warrant and $20.00 per share during the second year
of the warrant. The Company also granted a second warrant to Hewlett-Packard
under the same agreement for the purchase of 4.5% of the Company's outstanding
common stock during the second year of the term of the agreement for $20.00 per
share. The number of shares purchased upon exercise of the warrants will be
measured based on the outstanding common stock as of the most recent quarter or
year-end as
8
reported on the Company's report on Form 10-Q or Form 10-K. At March 31, 2000,
the warrants issued to Hewlett - Packard represent the rights to purchase
527,414 and 484,360 shares, respectively. For both warrants, if the fair value
of the common stock is greater than the purchase price, Hewlett-Packard may
elect to receive shares equal to the value of the warrant in lieu of exercising
the warrant with cash.
The Company also issued warrants in connection with the InfoSpace.com Internet
Promotion Agreement dated August 31, 1999. The first warrant is for the purchase
of 250,000 shares of the Company's common stock at a price of $15.00 per share
if exercised during the first year of the agreement or $20.00 per share if
exercised during the second year of the agreement. The warrant vests as follows:
62,500 on September 30, 1999, 62,500 on December 31, 1999 and 125,000 on March
31, 2000. The Company also granted a second warrant to InfoSpace.com under the
same agreement for the purchase of 4.9% of the Company's outstanding common
stock at August 31, 1999, on a fully diluted basis including conversion of this
warrant. This warrant issued to Infospace.com represents the rights to purchase
526,572 shares at a price of $15.00 per share if exercised during the first year
of the agreement or $20.00 per share if exercised during the second year of the
agreement. The second warrant is exercisable in lieu of the Company paying
invoices rendered by InfoSpace.com.
Expense of $443 was recognized during the three month period ended March 31,
2000 related to these warrants.
Note 5. EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share ("EPS") is equal to net income (loss) divided
by the weighted average number of shares of common stock outstanding for the
period. The weighted average number of common shares outstanding for the
three months ended March 31, 2000 and March 31, 1999 were 11,262,276 and
7,859,000, respectively. Diluted EPS recognizes the dilutive effect of common
stock equivalents and is equal to net income divided by the sum of the
weighted average number of shares outstanding and common stock equivalents.
The Company's common stock equivalents consist of stock options, common stock
warrants, and convertible preferred stock. Consistent with previous
standards, SFAS No. 128 prohibits inclusion of the impact of common stock
equivalents in the calculation of EPS when inclusion results in antidilution.
Accordingly, for the three months ended March 31, 2000 and March 31, 1999,
basic and diluted EPS are equal because all potentially issuable common
shares would be antidilutive. For the three months ended March 31, 2000 and
March 31, 1999, there were 231,506, and 715,730 shares, respectively,
potentially issuable with respect to stock options, warrants and convertible
preferred stock, which could dilute Basic EPS in the future.
Note 6. COMPREHENSIVE LOSS
Three Months Ended
March 31,
2000 1999
-------- --------
Net loss ($2,955) ($2,755)
Other comprehensive income (loss)
Foreign currency translation adjustment (5) 70
-------- --------
Comprehensive loss ($2,960) ($2,095)
======== ========
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following information should be read in conjunction with the unaudited
financial statements and the notes thereto included in Part 1 Item 1 of this
Quarterly Report and the financial statements and notes thereto, and
Management's Discussion and Analysis of Financial Condition and Results of
Operations contained in the Company's Annual Report on Form 10-K, for the
9
fiscal year ended December 31, 1999. All dollar amounts in this Management
Discussion and Analysis are in thousands. As more fully described in the Notes
to the Consolidated Financial Statements, certain financial information in
this filing has been restated to correct previously issued financial
statements. The discussion in this item reflects those restatements.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended March 31, 2000 the Company experienced negative
operating cash flow of $2,165. The Company funded cash used in operating
activities and investing activities primarily through the use of cash proceeds
from the exercise of stock warrants and employee stock options of
approximately $4,490.
Although the cash proceeds resulting from the exercise of stock warrants and
options provide the Company with unused sources of capital, the Company
continues to experience operating losses as well as negative cash flows. In
addition, the Company's current product strategy has added the design and
development of ebix.com, which was launched on September 8, 1999; the Company is
pursuing the successful commercialization of this e-commerce insurance portal.
Although transactions have occurred on the website in 1999 and 2000, because the
Company has not processed the charges, which are de minimis in amount, no
revenue has been recognized to date. Transactions have not occurred on the
website for ebix.link. Because the Company does not have capital at this time to
promote the website, the Company cannot predict whether, when or how the product
will generate substantial revenues.
The Company believes its cash balances, available credit facility and funds from
operations will be sufficient to meet all of its anticipated cash requirements
for at least the next 12 months. However, the Company is currently faced with
liquidity concerns. In order to meet the projected cash requirements of the
business, it will be necessary for the Company to increase its revenue sources
beyond those accessed during the past two years or secure financing sources,
beyond those currently available, in order to continue as a going concern after
the 2000 fiscal year.
Management believes that the required financing sources to operate the business
as a going concern will be secured, although there can be no assurances that
such financing will be available or that it will be available on terms
satisfactory to the Company.
Management believes that there may be additional infusions of cash from the
exercise of outstanding stock warrants although recent declines in the Company's
stock price make this improbable. Management will endeavor to secure the
necessary financing from other sources. Such sources could include one or more
equity investors. Management intends to seek the required financing sources that
are necessary in order to continue to operate the business.
PROFESSIONAL SERVICES COSTS - The Company has incurred substantial professional
services costs related to the restatement of its financial statements for the
years ended December 31, 1998 and March 31, 1998 as filed in the Company's
Form 10-K for the year ended December 31, 1999 on June 1, 2000. Such costs
which will exceed $1,000 are anticipated to be recognized in the second quarter
of 2000.
DEFERRED REVENUE - The Company traditionally invoices software maintenance and
support in advance of providing the service. The software maintenance fees are
recorded as deferred
10
revenue and recognized ratably over the term of the software maintenance
agreement. The Company's current liabilities at March 31, 2000 include deferred
revenue of $3,176 and deposit liabilities of $2,281. The liability is satisfied
through normal ongoing operations of the Company's service organization and
generally does not require payment to third parties.
PRODUCT DEVELOPMENT - At March 31, 2000, the Company employed 29 full-time
employees engaged in product development activities. These activities
include research and development of software enhancements, improving usefulness,
adaptation to newer software and hardware technologies, and increasing
responsiveness. Product development expenditures were $1,069 for the three month
period ended March 31, 2000.
BANK LINE OF CREDIT - Effective January 1997, the Company established a line of
credit up to $4,000 subject to borrowing base limits. Borrowings are secured by
accounts receivable and certain other assets. The agreement provides for a
minimum monthly interest at the bank's prime lending rate plus two and one-half
percent (2.5%) on the greater of the actual amount outstanding or $1,600. The
agreement contains certain covenants including the maintenance of a minimum net
worth of $2,000 and restrictions upon certain activities by the Company without
the approval of the bank including the incurrence of senior debt, certain
mergers or acquisitions, and the payment of dividends. The October 1999
amendment to the bank line of credit provides for a forbearance period until the
maturity date. Since July 1999 the Company has had no borrowings but, the
Company is nevertheless obligated, until the January 31, 2001 maturity date, to
pay to the lender minimum interest on the sum of $1,600 at prime plus 2.5%.
NON-COMPETE NOTE PAYABLE - The Company, in the first quarter of 2000 paid a $120
installment (principal and interest) on an 11.75% interest bearing unsecured
note. The remaining installment of $120 is due in the first quarter of 2001.
WARRANTS - Between January 1, 2000 and January 16, 2000, the remaining warrants
related to the January 1997 private placement issue of warrants to acquire
1,126,100 shares of common stock, which were due to expire on January 16, 2000,
were exercised resulting in the issuance of 595,700 shares of common stock
generating approximately $4,467 in cash.
In connection with a May 1996 private equity placement, the Company issued a
warrant to the placement agent (the "Agent's Warrant") to purchase 200,000
shares of the Company's common stock at $5.00 per share. The Agent's Warrant is
not subject to redemption and expires May 1, 2001. At March 31, 2000, 11,450
shares may still be purchased under this warrant.
On August 20, 1999, the Company granted a two year warrant to Hewlett -Packard
to purchase 4.9% of the Company's outstanding common stock for $15.00 per share
during the first year of the warrant and $20.00 per share during the second year
of the warrant. The Company also granted a second warrant to Hewlett-Packard
under the same agreement for the purchase of 4.5% of the Company's outstanding
common stock during the second year of the term of the agreement for $20.00 per
share. The number of shares purchased upon exercise of the warrants will be
measured based on the outstanding common stock as of the most recent quarter or
year-end as reported in the Company' s report on Form 10-Q or Form 10-K. At
March 31, 2000, the warrants issued to Hewlett-Packard represent the rights to
purchase 527,414 and 484,360 shares, respectively. For both warrants, if the
fair value of the common stock is greater than the
11
purchase price, Hewlett-Packard may elect to receive shares equal to the value
of the warrant in lieu of exercising the warrant with cash.
The Company also issued warrants in connection with the InfoSpace.com Internet
Promotion Agreement dated August 31, 1999. The first warrant is for the purchase
of 250,000 shares of the Company's common stock at a price of $15.00 per share
if exercised during the first year of the agreement or $20.00 per share if
exercised during the second year of the agreement. The warrant vests as follows:
62,500 on September 30, 1999, 62,500 on December 31, 1999 and 125,000 on March
31, 2000. The Company also granted a second warrant to InfoSpace.com under the
same agreement for the purchase of 4.9% of the Company's outstanding common
stock at August 31, 1999, on a fully diluted basis including conversion of this
warrant. This warrant issued to Infospace.com represents the rights to purchase
526,572 shares at a price of $15.00 per share if exercised during the first year
of the agreement or $20.00 per share if exercised during the second year of the
agreement. The second warrant is exercisable in lieu of the Company paying
invoices rendered by InfoSpace.com.
COMMON STOCK OPTIONS - During the three months ended March 31, 2000, the Company
received approximately $23 from the exercise of outstanding stock options. As of
March 31, 2000, there are outstanding vested options to purchase approximately
433,335 shares of common stock at an average exercise price of $5.75 per share.
The majority of outstanding options have expiration dates in excess of five
years from March 31, 2000.
NEW ACCOUNTING STANDARDS - In June 1999, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 133 ("Statement
133"), "Accounting for Derivative Instruments and Hedging Activities." This
standard requires that an entity recognize derivatives as either assets or
liabilities on its balance sheet and measure those instruments at fair value. As
a result of Statement of Financial Accounting Standards No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of Statement 133," the Company will adopt this standard in the first quarter of
2001. Based on current circumstances, the Company does not believe that the
application of Statement 133 will have a material effect on the Company's
financial condition or results of operations.
EURO CONVERSION - Effective January 1, 1999, eleven of the fifteen member
countries of the European Union (the "participating countries") have agreed to
adopt a new common legal currency (the "euro"). The participating countries
established fixed conversion rates between their existing sovereign currencies
(the "legacy currencies") and the euro. Following the introduction of the euro,
the legacy currencies are scheduled to remain legal tender in the participating
countries as denominations of the euro between January 1, 1999 and January 1,
2002 (the "transition period"). During the transition period transactions may be
settled using either the euro or the participating country's legacy currency on
a "no compulsion, no prohibition" basis. Conversion rates will no longer be
computed directly from one legacy currency to another but rather will utilize a
"triangulation" method specified by European Union regulations whereby payments
made in a legacy currency are converted to the euro and subsequently converted
to the recipient's desired legacy currency. Beginning January 1, 2002, the
participating countries will issue new euro-denominated bills and coins for use
in cash transactions. No later than July 1, 2002, the participating countries
will withdraw all bills and
12
coins denominated in legacy currencies such that legacy currencies will no
longer be legal tender for any transactions, completing the euro conversion.
The Company currently has no bank accounts denominated in any legacy currency
and has not entered into any material transactions denominated in any legacy
currency. The Company has produced enhancements to certain software products
marketed in Europe to accommodate the euro conversion process (the "euro
module"). The cost to develop the euro module was not material and it will be
provided at minimal cost to existing customers under maintenance agreements.
Management believes the euro module allows for the continued marketing and sale
of the Company's products to customers requiring euro conversion capabilities.
RESULTS OF OPERATIONS
TOTAL REVENUE - The Company's revenue is derived from the licensing and sale of
proprietary software and third party software ("Software") and from professional
services, maintenance services, and support services ("Services"). Professional
services include consulting, implementation, training and project management
provided to the Company's customers with installed systems and those in the
process of installing systems. Total revenue is comprised of software revenue
and service revenue. No revenue has yet been recorded for the Company's ebix.com
website.
Total revenue for the quarter ended March 31, 2000 decreased $811 or 22.1% from
the comparable quarter of the prior year.
SOFTWARE REVENUE - The Company's current product strategy is centered on a new
generation of products, collectively referred to as the ebix (formerly "cd")
product line and are comprised of ebix.global (formerly "cd.global"), a modular,
state of the art, agency management solution providing flexibility and the
ability to handle unstructured data and complex risk, ebix.com, a website, and
ebix.one (formerly "cd.one"), a structured system utilizing many features of the
Company's previous products.
The Company also has six "legacy" products including: INfinity, INSIGHT,
PC-ELITE, Insurnet, SMART, and Vista. The legacy products provide basic
functions such as policy administration, claims handling, accounting, and
financial reporting. Current legacy products will be maintained and supported as
long as there is adequate economic and strategic justification. Customers
utilizing legacy products will continue to be encouraged to migrate to newer
products.
Software revenue is comprised of revenue from the sale of ebix (formerly "cd")
products, current legacy products, and other third party software. During the
second quarter of Fiscal 1997, the Company discontinued the sale and marketing
of computer hardware. The sale of hardware was discontinued in order to focus
the Company's resources on the development and sale of software and services.
Subsequent to the Company's exit from the hardware sector, the Company continues
to receive commissions from hardware vendors for product referrals although this
is not a material source of revenue for the Company. This commission is included
in other income.
13
ebix.mall is expected to generate revenues through transaction fees and
acceptance fees (currently, charges payable by an agent, broker or carrier, as
the case may be, are $1.00 upon quoting and $20.00 upon processing a sale of a
policy through the Company's site). ebix.link is expected to generate revenues
through transaction fees. Although transactions have occurred on the website in
2000, because the Company has not processed the charges, which are de minimis in
amount, no revenue has been recognized to date. Transactions have not occurred
on the website for ebix.link.
Total software revenue for the quarter increased $14 or 4.0% from the comparable
quarter of the prior year.
SERVICES REVENUE - Total services revenue for the quarter decreased $825 or
24.9% from the comparable quarter of the prior year. This decrease is due to
a decrease in support revenue associated with legacy products and decreases
in consulting and custom programming revenue.
SOFTWARE COSTS - Cost of Software revenue includes the cost of third party
software and the amortization of purchased software cost.
Total software costs for the quarter decreased $125 or 64.1% from the
comparable quarter of the prior year. This decrease is due to a decrease in
third party sales and the costs associated with such sales.
SERVICES AND OTHER COSTS - Cost of Services revenue includes costs associated
with support, consulting, implementation and training services.
Total services and other costs for the quarter decreased $948 or 35.9% from
the comparable quarter of the prior year. This decrease is related to the
reduction in staffing levels for consultants, trainers and support staff.
PRODUCT DEVELOPMENT EXPENSES - Total product development expenses for the
quarter increased $111 or 11.6% from the comparable quarter of the prior
year. This increase is related to the development efforts associated with the
website.
SALES AND MARKETING EXPENSES - Total sales and marketing expenses for the
quarter increased $702 or 111.4 % from the comparable quarter of the prior
year. This increase is attributable to $565 of expense associated with
warrants issued to third parties during 1999 and the ebix.com product
promotion.
GENERAL AND ADMINISTRATIVE EXPENSES - Total general and administrative
expenses for the quarter decreased $204 or 11.4 % from the comparable quarter
of the prior year. This decrease is due to a reduction in staffing levels
partially offset by $396 of compensation expense related to stock options
issued during 1999 and the first quarter of 2000.
AMORTIZATION OF GOODWILL - Total amortization of goodwill for the quarter was
comparable to the comparable quarter of the prior year.
14
INTEREST INCOME - Total interest income of $61 for the quarter represents income
earned on the Company 's investment of surplus cash in short term investments.
There was no interest income for the comparable quarter of the prior year.
INTEREST EXPENSE - Interest expense decreased $93 from the comparable quarter of
the prior year. This decrease is attributable to the fact that the Company had
borrowings under its bank line of credit agreement in the 1999 period but
incurred only minimum interest in the 2000 period because it had no borrowings
under the bank line of credit in that period.
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS UNDER THE SECURITIES LITIGATION
REFORM ACT OF 1995 - This Quarterly Report on Form 10-Q contains various
forward-looking statements and information that are based on management's
beliefs as well as assumptions made by and information currently available to
management, including statements regarding future economic performance and
financial condition, liquidity and capital resources, acceptance of the
Company's products by the market and management's plans and objectives. Such
statements are subject to various risks and uncertainties which could cause
actual results to vary materially from those stated. Should one or more of these
risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those anticipated, estimated,
expected or projected. Such risks and uncertainties include the Company's
ability to overcome its recent history of operating losses and declining
revenues, the availability and amount of future sources of capital and the terms
thereof, the extent to which the Company's ebix.com website can be successfully
developed and marketed, the effects of the Company' s possible delisting from
the NASDAQ Small Cap Market and the effects of the restatement of the Company's
financial statements on the availability and terms of future sources of capital,
the effects of such possible delisting and such restatement on the market for
the Company's common stock, the risks associated with future acquisitions, the
willingness of independent insurance agencies to outsource their computer and
other processing needs to third parties, the Company's ability to continue to
develop new products to effectively address market needs in an industry
characterized by rapid technological change, the Company's dependence on the
insurance industry (and in particular independent agents), the highly
competitive and rapidly changing automation systems market, the Company's
ability to effectively protect its applications software and other proprietary
information, the Company's ability to attract and retain quality management, and
software, technical sales and other personnel, the risks of disruption of the
Company's Internet connections or internal service problems, the possibly
adverse effects of a substantial increase in volume of traffic on the Company's
website, mainframe and other servers, possible security breaches on the
Company's website, and the possible effects of insurance regulation on the
Company's business. Certain of these as well as other risks and uncertainties
are described in more detail in the Company's Registration Statement on Form S-3
filed under the Securities Act of 1933, Registration No. 333-12781, and the
Company's periodic filings pursuant to the Securities Exchange Act of 1934. The
Company undertakes no obligation to update any such factors or to publicly
announce the results of any of the forward-looking statements contained herein
to reflect future events or developments.
15
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
16
There have been no material changes in the Company's market risk during the
three months ended March 31, 2000. For additional information on market risk,
refer to the "Quantitative and Qualitative Disclosures About Market Risk"
section of the Company's Annual Report on Form 10-K for the year ended
December 31, 1999.
Part II - OTHER INFORMATION
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During Fiscal 1999, the Company sold securities that were not registered under
the Securities Act of 1933 as follows:
The Company sold a total of 595,700 shares of its common stock on various dates
in the first quarter of 2000 for an aggregate consideration of $4,468,000 to
persons who held warrants issued in private placements by the Company in 1996
and 1997. The consideration paid per share consisted of the surrender of a
warrant with respect to one share and $7.50 in cash. The exemption claimed from
registration under the Securities Act of 1933 was Section 4(2) thereof,
exempting transactions by an issuer not involving a public offering, based upon
the fact that the sales were made exclusively to holders of warrants that had
been issued in an earlier private placement. The shares issued on exercise of
the warrants were subject to restrictions on resale.
Options were granted to consultants to the Company, to purchase 30,000 shares of
the Company's Common Stock at per share exercise prices of $9.25. The
consideration for such option issuances is services to the Company. The
exemption claimed from registration under the Securities Act of 1933 was Section
4(2) thereof, exempting transactions by an issuer not involving a public
offering, based on the fact that these transactions involved sales to an
institution and a single consultant, respectively, in private transactions.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
See exhibit index.
(b) Reports on Form 8-K
None.
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ebix.com, Inc.
Date: June 15, 2000 By /s/ Richard J. Baum
--------------------------------
Richard J. Baum
Chief Financial Officer
18
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- ------------------------------
27 Financial Data Schedule, which is
submitted electronically to the
Securities and Exchange Commission for
information only and not filed.
27.1 Financial Data Schedule-March 31, 2000.
27.2 Restated Financial Data Schedule-
March 31, 1999