SECURITIES AND EXCHANGE COMMISSION
Washington DC 20549
FORM 6-K
REPORT OF FOREIGN ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
GENTIA SOFTWARE PLC
Tuition House
St George's Road
Wimbledon
London SW19 4EU
United Kingdom
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports
under cover Form 20-F or Form 40-F.
Form 20-F / X / Form 40-F / /
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes / / No / X /
If "Yes" is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3-2(b):
82- N.A.
Page 1 of 16 Pages
Exhibit Index Appears on Page 12
GENTIA SOFTWARE PLC
FORM 6-K
TABLE OF CONTENTS
Page
Financial Information:
Condensed Consolidated Balance Sheets as of September 30, 1999 (Unaudited)
and December 31, 1998 (Audited) 3
Condensed Consolidated Statements of Operations for the three months and nine
months ended September 30, 1999 and 1998 (Unaudited) 4
Condensed Consolidated Statements of Cash Flows for the nine months
Ended September 30, 1999 and 1998 (Unaudited) 5
Notes to Condensed Consolidated Financial Statements (Unaudited) 6
Management's Discussion and Analysis of Financial Condition and Results of Operations. 7
Exhibit Index 12
Exhibit A. Third Quarter Press Release 13
2
GENTIA SOFTWARE PLC
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1999 1998
------------- ------------
(Unaudited) (Audited)
(In Thousands)
US$ US$
ASSETS
Current assets:
Cash and cash equivalents .......................... $ 760 $ 5,314
Accounts receivable, net of allowances of $4,329
( Dec 31, 1998 - $3,801) ........................ 6,575 10,565
Prepaid expenses and other current assets .......... 1,087 1,363
Tax recoverable .................................... 0 212
-------- --------
Total current assets .......................................... $ 8,422 $ 17,454
Property and equipment, net ............................... 1,542 2,192
Intangible assets:
Purchase software, net of amortization of $478
(Dec 31, 1998 - $25) ........................ 2,131 2,585
Goodwill on acquisition, net of amortization of $2,156
(Dec 31, 1998 - $1,764) ..................... 3,961 4,317
-------- --------
Total assets .................................................. $ 16,056 $ 26,548
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of lease obligations ............... $ 57 $ 78
Accounts payable ................................... 2,902 2,203
Accrued liabilities ................................ 3,337 3,778
Deferred revenues .................................. 3,678 4,754
Other accounts payable ............................. 1,232 1,766
Short Term Loans ................................... 1,060 --
-------- --------
Total current liabilities ..................................... $ 12,266 $ 12,579
Non current liabilities:
Deferred taxation .................................. -- --
Long-term portion of lease obligations ............. 121 59
-------- --------
Total Liabilities ............................................. $ 12,387 $ 12,638
Shareholders' equity:
Ordinary shares .................................... 2,454 2,445
Additional paid-in capital ......................... 28,885 28,881
Retained (deficit) ................................. (26,772) (16,837)
Cumulative translation adjustment .................. (898) (579)
-------- --------
Total shareholders' equity .................................... $ 3,669 $ 13,910
-------- --------
Total liabilities and shareholders' equity .................... $ 16,056 $ 26,548
======== ========
See accompanying notes
3
GENTIA SOFTWARE PLC
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Ended Nine Months Ended
-------------------------------- --------------------------------
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
-------------- --- ------------- -------------- --- -------------
US$ US$ US$ US$
Revenues:
License .................................... $ 2,760 $ 4,419 $ 7,420 $ 12,076
Services and other ......................... 3,367 3,588 10,610 9,587
-------- -------- -------- --------
6,127 8,007 18,030 21,663
Cost of revenues:
License .................................... 575 452 1,575 999
Services and other ......................... 1,523 2,140 6,441 5,967
-------- -------- -------- --------
2,098 2,592 8,016 6,966
Gross profit .................................... 4,029 5,415 10,014 14,697
Operating expenses:
Sales and marketing ........................ 2,134 4,351 10,570 12,641
Research and development ................... 948 1,512 4,082 5,185
General and administrative ................. 632 1,106 2,646 3,209
Restructuring costs ........................ -- -- 1,876 --
Goodwill amortization ...................... 260 153 844 383
-------- -------- -------- --------
Total operating expenses ........................ 3,974 7,122 20,018 21,418
Income / (loss) from operations ................. 55 (1,707) (10,004) (6,721)
Other income .................................... -- 144 69 605
-------- -------- -------- --------
Income / (loss) before provision for income taxes 55 (1,563) (9,935) (6,116)
Provision for income ............................ -- -- -- --
taxes
-------- -------- -------- --------
Net income / (loss) ............................. $ 55 $ (1,563) $ (9,935) $ (6,116)
======== ======== ======== ========
Basic income / (loss) per share ................. $ 0.01 $ (0.15) $ (0.97) $ (0.62)
Diluted income / (loss) per share ............... $ 0.01 $ (0.15) $ (0.94) $ (0.62)
Shares used to compute basic EPS ........... 10,232 10,116 10,232 9,874
Shares used to compute diluted EPS ......... 10,560 10,116 10,560 9,874
See accompanying notes
4
GENTIA SOFTWARE PLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
---------------------------------
September 30, September 30,
1999 1998
------------- -------------
(In Thousands)
US$ US$
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) ........................................................ ($ 9,935) $ (6,116)
Adjustments to reconcile net (loss) to net cash (used in) operating
activities:
Depreciation ............................................. 833 703
Goodwill amortization .................................... 844 383
(Gain) on disposal of assets ............................. (4) 2
Loss on disposal of subsidiary ........................... 2 --
Changes in operating assets and liabilities:
Accounts receivable .................................. 3,462 (3,735)
Provision for bad debts .............................. 528 (429)
Prepaid expenses and other receivables ............... 488 (382)
Accounts payable ..................................... 699 631
Accrued liabilities and other expenses ............... (975) 464
Deferred revenues .................................... (1,076) 709
-------- --------
Net cash (used in) operating activities .................................... (5,134) (7,770)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cost of acquisition ............................................... -- (1,032)
Proceeds on sale of assets ........................................ 69 25
Proceeds on sale of subsidiary .................................... 202 --
Purchases of assets ............................................... (378) (1,060)
-------- --------
Net cash used in investing activities ...................................... (107) (2,067)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds on shares issued ..................................... 13 572
Short term loan acquired .......................................... 1,060
Generation (repayment) of capital lease obligations ............... 41 (74)
-------- --------
Net cash provided by financing activities .................................. 1,114 498
-------- --------
Effect of exchange rate changes on cash ........................... (427) (92)
-------- --------
Net (decrease) in cash ............................................ (4,554) (9,431)
Cash at beginning of period ....................................... 5,314 20,332
-------- --------
Cash at end of period ............................................. $ 760 $ 10,901
======== ========
See accompanying notes
5
GENTIA SOFTWARE PLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Gentia Software plc (the "Company") is incorporated in England and Wales. The
Company is a leading supplier of analytical applications that enable clients to
maximize their competitive position through enterprise-wide deployment of
strategic management and predictive decision making solutions.
BASIS OF PRESENTATION
The consolidated financial statements are stated in United States dollars and
are prepared under United States generally accepted accounting principles.
INTERIM FINANCIAL INFORMATION
The financial information at September 30, 1999 and the results of operations
for the three months and nine months ended September 30, 1999, and 1998 are
unaudited but include all adjustments which the Company considers necessary for
a fair presentation of the financial position at such date and the operating
results and cash flows for those periods. Results for the three month period
ended September 30, 1999 are not necessarily indicative of results that may be
expected for the entire year. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with United
States generally accepted accounting principles have been condensed or omitted
pursuant to the Securities and Exchange Commission Rules and Regulations. In
accordance with SOP 98-1, the Company has capitalized computer software obtained
for internal use.
PRINCIPLES OF CONSOLIDATION
The accompanying financial statements consolidate the accounts of the Company
and its wholly and majority owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
FOREIGN EXCHANGE
The consolidated balance sheets of the Company and its foreign subsidiaries are
translated from their respective functional currencies to United States dollars
at period-end exchange rates and the statements of operations and cash flows at
average exchange rates for the relevant periods. Gains and losses resulting from
translation are accumulated as a separate component of shareholders' equity. Net
gains and losses resulting from foreign exchange transactions, which are not
material in any of the reporting periods, are included in the consolidated
statement of operations.
PER SHARE INFORMATION
Net income per share information is computed based on the weighted average
number of shares outstanding, as described in FAS 128.
2 LITIGATION
The Company is involved in one material legal action relating to patent issues
in the United States. While the outcome of this matter is currently not
determinable, the Company is vigorously pursuing its defence and is confident
that it will prevail in the litigation.
3 SALE OF SUBSIDIARY
The Company sold its Australian subsidiary, (Gentia Software Pacific (Pty) Ltd)
effective August 31,1999 for a consideration of US$202,000. The Company made a
profit on the sale of the subsidiary of UD$101. The Company has entered into an
agency agreement with the purchasers who will continue to sell the Gentia
products on the Company's behalf.
6
GENTIA SOFTWARE PLC
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE THREE MONTHS AND NINE MONTHS
ENDED SEPTEMBER 30, 1999 AND 1998
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND THREE MONTHS ENDED SEPTEMBER 30, 1998.
REVENUES
Revenues were $6.1 million in the 3 months ended September 30, 1999, a decrease
of approximately 23.5% compared to revenues of $8.0 million for the 3 months
ended September 30, 1998. The decrease is attributed to the decrease in license
revenue sales in the 3 months ended September 30, 1999. License revenues were
$2.8 million in the 3 months ended September 30, 1999, a decrease of 37.5%
compared to license revenues of $4.4 million for the 3 months ended
September 30, 1998. The decrease in license revenue is a result of the Company's
global restructuring program within world-wide sales, which commenced in
December 1998. The Company has now achieved three consecutive quarters of $6.0
million total revenue and licensed revenues increased 17% for the three months
ended September 30, 1999 compared to the three months ended June 30, 1999.
Services and other revenues were $3.4 million in the 3 months ended September
30, 1999 a decrease of approximately 6.2% compared to $3.6 million for the 3
months ended September 30, 1998. The decrease can be attributed to the sale of
the South African operation in June 1999 and the Australian operation in August
1999. We anticipate service revenues to decline further in the three months
ended December 31, 1999 as a result of the full quarter effects of the sale of
the Australian operation combined with the impact of additional vacation due to
the millennium. Services and other revenue comprised 55.0% of total revenues for
the three months ended September 30, 1999, compared to 44.8% for the three
months ended September 30, 1998. The change is attributable to a decrease in
license revenue sales relative to total revenue.
GROSS PROFIT
Gross profit was $4.0 million or 65.8% of revenues for the 3 months ended
September 30, 1999, compared to $5.4 million or 67.6% revenues for the 3 months
ended September 30, 1998. The decrease in gross margin is attributed to the
lower gross margin percentage achieved on license revenue sales. Gross margins
on license revenue decreased from 89.8% for the three months ended September 30,
1998 to 79.2% for the same period in 1999. The decrease is attributed to a move
towards increased channel sales and resultant lower gross margins on license
revenue. Margins on service and other revenues increased to 54.8% for the three
months ended September 30, 1999, compared to 40.4% for the same period in 1998.
The increase can be attributed to improved utilisation of our consulting group
as well as the cost savings made from the changes to our support services.
SALES AND MARKETING
Sales and marketing costs were $2.1 million in the 3 months ended September 30,
1999. A decrease of 51.0% compared to $4.4 million in the 3 months ended
September 30, 1998. The decrease in expenditure is attributed to the strategic
actions taken through the restructure program. The costs savings are attributed
to a reduction in head count in the sales and marketing organization,
centralization of the world-wide marketing function and sale of the Australian
and South African operation. Following the sale of both the Australian and South
African operations, both have subsequently been converted to agencies and as
such continue to sell products on behalf of the Company. These operations can
now only contribute positively to the bottom line. The Company has commenced an
aggressive direct sales recruitment program, primarily in our United States
market place, and has implemented targeted and focused direct market lead
generating events. We do not anticipate a significant element of costs relating
to these activities will be seen until quarter one of 2000 and as such we expect
the sales and marketing costs to remain relatively flat for the three months
ended December 30, 1999.
RESEARCH AND DEVELOPMENT
Research and development costs were $0.9 million in the 3 months ended
September 30, 1999, lower than the $1.5 million recorded in the 3 months ended
September 30, 1998. The decrease in research and development costs can be
attributed to the costs savings relating to reduction in legal costs relating to
the Arbour dispute and consolidation of facilities. It is anticipated that the
Company's research and development costs will remain constant in the next
quarter and will then be increased in line with future revenues. The increased
expenditure will relate to the development of new applications. During the
quarter, our R&D
7
investments will focus on adding intelligence into our existing applications
along with building the new intelligent analytical applications that complement
these existing applications. The Company's research and development expenditure
is predominantly incurred in pounds sterling.
OTHER INCOME
Other income reduced from $144,000 in the 3 months ended September 30,1998 to
zero in the three months ended September 30, 1999. The decrease is due to lower
operating cash levels for the period. Other income was primarily interest income
earned on bank deposits in the prior periods.
8
GENTIA SOFTWARE PLC
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE THREE MONTHS AND NINE MONTHS
ENDED SEPTEMBER 30, 1999 AND 1998
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND NINE MONTHS ENDED SEPTEMBER 30, 1998.
REVENUES
Revenues were $18.0 million in the 9 months ended September 30, 1999, a decrease
of approximately 16.8% compared to revenues of $21.7 million for the 9 months
ended September 30, 1998. The decrease in revenues is due to the decrease in
license revenue sales in 1999. License revenues were $7.4 million in the 9
months ended September 30, 1999, a decrease of 38.6% compared to license
revenues of $12.1 million for the 9 months ended September 30, 1998. The Company
has achieved constant revenue levels in 1999 averaging $6.0 million per quarter
in 1999, down from $7.2 million average in 1998. The decrease in license revenue
sales is a result of the Company's global restructuring program within
world-wide sales, which commenced in December 1998. Services and other revenues
were $10.6 million in the 9 months ended September 30, 1999 an increase of
approximately 10.7% compared to $9.6 million for the 9 months ended
September 30, 1998. Last years first and second quarter results did not include
the full benefit of the acquisition of the TCMS business that was acquired in
late May 1998. Services and other revenue comprised 58.8% of total revenues for
the nine months ended September 30,1999, compared to 44.3% for the nine months
ended September 30, 1998. The change is attributable to a decrease in license
revenue sales relative to total revenue.
GROSS PROFIT
Gross profit was $10.0 million or 55.5% of revenues for the 9 months ended
September 30, 1999, compared to $14.7 million or 67.8% of revenues for the 9
months ended September 30, 1998. The decrease in gross profit margin is
attributed to the lower margin percentage achieved on license revenue sales.
Gross profit margins on license revenue decreased from 91.7% for the nine months
ended September 30, 1998 to 78.8% for the nine months ended September 30, 1999.
This decrease is attributable to a move towards channel sales in the 9 months
ended September 30, 1999. Gross profit margin on service and other revenue
increased from 37.8% for the nine months ended September 30, 1998 to 39.3% for
the same period in 1999. The increase can be attributed to improved utilisation
of our consulting group as well as the cost savings made from the changes to our
support services.
SALES AND MARKETING
Sales and marketing costs were $10.6 million in the 9 months ended September 30,
1999, a decrease of 16.4% compared to $12.6 million in the 9 months ended
September 30, 1998. Excluding the provision for doubtful accounts of $1.7
million made in the three months ended June 30, 1999 the sales and marketing
expenditure is reduced to $9.0 million for the nine months ended September 30,
1999. The decrease in expenditure is attributed to the strategic actions taken
through the restructure program. The cost savings are attributable to a
reduction in head count in the sales and marketing organization, centralization
of the world-wide marketing function and sale of the Australian and South
African operation. Following the sale of both the Australian and South African
operations, both have subsequently been converted to agencies and as such
continue to sell products on behalf of the Company. These operations can now
only contribute positively to the bottom line. The Company has commenced an
aggressive direct sales recruitment program, primarily in our United States
market place, and has implemented targeted and focused direct market lead
generating events. We do not anticipate a significant element of costs relating
to these activities will be seen until quarter one of 2000 and as such we expect
the sales and marketing costs to remain relatively flat for the three months
ended December 30, 1999.
RESEARCH AND DEVELOPMENT
Research and development costs were $4.1 million in the 9 months ended
September 30, 1999, lower than the $5.2 million recorded in the 9 months ended
September 30, 1998. The decrease in research and development costs can be
attributed to the costs savings relating to reduction in legal costs relating to
the Arbour dispute and consolidation of facilities. It is anticipated that the
Company's research and development costs will remain constant in the next
quarter and will then be increased in line with future revenues. The increased
expenditure will relate to the development of new applications. During the
quarter, our R&D investments will focus on adding intelligence into our existing
applications along with building the new intelligent analytical applications
that complement these existing applications. The Company's research and
development expenditure is predominantly incurred in pounds sterling.
9
GENERAL AND ADMINISTRATIVE
General and administrative costs were $2.6 million in the 9 months ended
September 30, 1999, compared to $3.2 million for the 9 months ended
September 30, 1998. The reduction in costs can be attributed to the
centralisation of the finance function in the United Kingdom with significant
savings being made through the closure of facilities and termination of staff.
OTHER INCOME
Other income was $69,000 in the 9 months ended September 30, 1999 compared to
$605,000 in the 9 months ended September 30,1998. Other income was primarily
interest income earned on bank deposits.
RESTRUCTURING COSTS AND PROVISION
In three months ended December 30, 1998 the Company wrote off $2.9 million in
restructuring costs. The restructure cost comprised employee severance of
$618,000, goodwill impairment of $733,000 and facility closure costs and costs
to exit certain businesses of $1,5 million. In the three months ended March 30,
1999 the Company provided a further $500,000 for employee severance costs. In
the three months ended June 30, 1999 the Company provided a further $1.4 million
restructure charge comprised of $1,1 million for employee severance and $300,000
for facility closure costs.
Of the provisions made $714,000 remains of the severance provision and $502,000
of the facility closure provision.
NASDAQ LISTING
The Company has been notified that it no longer meets the listing requirements
for the Nasdaq National Market System. The Company is exploring options that
will enable it to maintain its National Market listing in addition to other
listing alternatives such as the Nasdaq Small Cap.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1999, the Company had cash and cash equivalents of $760,000
compared to $5.3 million at December 31, 1998. In the nine months ended
September 30, 1999 the Company's operating activities consumed cash of $5.1
million compared to $7.8 million in the nine months ended September 30, 1998.
Accounts receivable at September 30, 1999 were $6.6 million, a decrease of 37.8%
compared to $10.6 million at December 31, 1998. This decrease reflects the
improved accounts receivable days, lower levels of license revenue relative to
1998 and the additional provision of $1.7 million for doubtful receivables made
in the three months ended June 30, 1999.
Investing activities utilized $107,000 in the nine months ended September 30,
1999 compared to the utilization of $2.1 million in the nine months ended
September 30, 1998. Investing activities primarily represent the proceeds on the
sale of the subsidiaries of $202,000 and the purchase of assets of $378,000.
Financing activities generated $1.1 million in the nine months ended September
30, 1999 compared to $498,000 in the nine months ended September 30, 1998. The
increased in funds primarily represents a short loan of $1.1 million. This loan
is currently being converted to equity through the relevant registration
process.
The Company's ability to satisfy its cash requirements for the remainder of the
year is dependent on meeting certain projected revenue targets, cash collection
targets, raising additional sources of short term finance and containing
operating expenses. The Company has, at times in the past, been unable to meet
similar targets, particularly license revenue targets. There can be no assurance
that the Company will meet its projected revenue targets and the failure of the
Company to do so (or to obtain additional sources of financing, which may not be
available on suitable terms to the Company, if at all) will have a material
adverse effect on the Company's business and financial condition and the value
of the Company's American Depositary Shares.
This Report contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements, other than
statements of historical facts, included in this Report (or incorporated herein
by reference) regarding the Company's financial position and business strategy
may constitute forward-looking statements. Although the Company believes that
the expectations reflected in, and the assumptions underlying, such
forward-looking statements are reasonable, it can give no assurance that such
expectations will prove to have been
10
correct. Important factors that could cause actual results to differ materially
from the Company's expectations are included in the documents filed by the
Company with the Securities and Exchange Commission, including the matters
contained in the caption "Business Factors" in the Company's most recent Annual
Report on Form 20-F. In light of the foregoing, readers of this Report are
cautioned not to place undue reliance on the forward-looking statements
contained or incorporated by reference herein.
The information contained in Exhibit 1 hereto, consisting of the registrant's
unaudited financial statements for the nine months ended September 30, 1999, has
been distributed to its security holders and is furnished to the Commission
pursuant to Rule 13a-16 under the Securities Exchange Act of 1934, as amended
(the "Act"). This report and the information furnished herewith shall not be
deemed to be "filed" for the purposes of Section 18 of the Act or otherwise
subject to the liabilities of that section.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused the Report to be signed on its behalf by the
undersigned, thereunto duly authorised.
GENTIA SOFTWARE plc
By: /s/ Nicholas P.S. Bray
Nicholas P. S. Bray
Chief Financial Officer
Date: November 19, 1999
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EXHIBIT INDEX
Page
Exhibit A Third Quarter Press Release - (1999) 13
12