UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------- FORM 10-Q/A No. 1 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITITES EXCHANGE ACT OF1934 For the Quarterly Period Ended March 31, 2000 ----------- Commission File number 000-30654 --------- APROPOS TECHNOLOGY, INC. (Exact name of registrant as specified in its charter) ----------- Illinois 36-3644751 (State or other (I.R.S. Employer jurisdiction of Identification No.) incorporation or organization) ----------- One Tower Lane, 28th Floor Oakbrook Terrace, Illinois 60181 (630) 472-9600 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) ----------- 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. X Yes No On April 18, 2000, approximately 15,593,993 of the Registrant's Common Shares, $0.01 par value, were outstanding. EXPLANATORY NOTE: THIS 10Q/A NO. 1 IS BEING FILED TO CHANGE THE NUMBER OF SHARES OUTSTANDING SET FORTH ON THE COVER PAGE OF THIS FORM 10-Q, IN PART I - ITEM 1 AND IN EXHIBITS 11 AND 27, DUE TO THE INADVERTENT OMISSION OF STOCK OPTIONS EXERCISED IN THE FIRST QUARTER OF 2000. AS A RESULT, THE BASIC AND DILUTED NET LOSS PER SHARE SET FORTH IN PART I - ITEM 1 AND IN EXHIBITS 11 AND 27 HAS ALSO CHANGED. PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS APROPOS TECHNOLOGY, INC. CONDENSED CONSOLIDATED BALANCE SHEETS IN THOUSANDS, EXCEPT PER SHARE DATA March 31, December 31, 2000 1999 Assets (Unaudited) (Note 1) ----------- -------- Current assets : Cash and cash equivalents $ 70,117 $ 3,467 Accounts receivable, less allowance for doubtful accounts of $462 in 1999 and $492 in 2000 9,498 8,942 Inventory 474 364 Prepaid and other current assets 578 371 -------- -------- Total current assets 80,667 13,144 Equipment, net 1,934 1,618 Note receivable from shareholder 57 54 Other assets 91 618 -------- -------- Total assets $ 82,749 $ 15,434 ======== ======== Liabilities and shareholders' equity (deficit) Current liabilities : Revolving line of credit $ -- $ 3,216 Subordinated convertible promissory notes 28 1,474 Bridge loan -- 3,485 Accounts payable 1,626 1,094 Accrued expenses 1,553 1,808 Accrued compensation and related accruals 1,227 1,292 Advance payments from customers 625 584 Deferred revenues 1,606 1,355 Current portion of capital lease obligations 121 122 Current portion of long-term debt -- 186 -------- -------- Total current liabilities 6,786 14,616 Capital lease obligations 29 54 Long-term debt, less current portion -- 314 Convertible preferred shares, $0.01 par value, none authorized, issued and outstanding at March 31, 2000, 3,995,483 authorized, issued and outstanding at December 31 , 1999 -- 16,079 Shareholders' equity (deficit) : Preferred shares, $0.01 par value, 5,000,000 authorized, no shares issued and outstanding -- -- Common shares, $0.01 par value, 60,000,000 authorized, 15,419,336 issued and outstanding at March 31, 2000, 3,055,883 issued and outstanding at December 31, 1999 140 53 Additional paid-in capital 98,736 2,932 Accumulated deficit (22,942) (18,614) -------- -------- Total shareholders' equity (deficit) 75,934 (15,629) -------- -------- Total liabilities and shareholders' equity $ 82,749 $ 15,434 ======== ======== See notes to condensed consolidated financial statements. APROPOS TECHNOLOGY, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) IN THOUSANDS, EXCEPT PER SHARE DATA Three Months Ended March 31, 2000 1999 ---- ---- Revenue : Software licenses $ 3,502 $ 1,710 Services and other 2,340 1,582 Total revenue 5,842 3,292 Costs and expenses : Cost of software 100 36 Cost of services and other 1,896 1,219 Research and development 1,643 869 Sales and marketing 3,218 2,408 General and administrative 1,991 905 ------- ------- Total costs and expenses 8,848 5,437 Loss from operations (3,006) (2,145) Other income (expense) : Interest income 455 22 Interest expense (1,778) (16) ------- ------- Total other income (expense) (1,323) 6 ------- ------- Net loss $(4,329) $(2,139) ======= ======= Basic and diluted net loss per share $ (0.46) $ (0.72) ======= ======= Shares used in computing basic and diluted net loss per share 9,370 2,975 ======= ======= See notes to condensed consolidated financial statements. APROPOS TECHNOLOGY, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) IN THOUSANDS Three Months Ended March 31, 2000 1999 ---- ---- Cash flows from operating activities : Net loss $ (4,329) $ (2,139) Adjustments to reconcile net loss to net cash used for operating activities : Depreciation and amortization 165 132 Provision for doubtful accounts 30 16 Stock compensation expense 254 -- Amortization of debt discount 1,577 -- Changes in operating assets and liabilities : Accounts receivable (585) (240) Inventory (110) (69) Prepaid expenses and other current assets (207) (14) Other assets 518 25 Notes receivable from shareholder (2) (1) Accounts payable 532 491 Accrued expenses (256) 202 Accrued compensation and related accruals (64) (94) Advanced payments from customers 42 275 Deferred revenue 251 20 -------- -------- Net cash used for operating activities (2,184) (1,396) -------- -------- Cash flows from investing activities : Purchases of equipment (481) (285) -------- -------- Net cash used for investing activities (481) (285) -------- -------- Cash flows from financing activities : Payment on revolving line of credit (3,216) -- Payment on bridge loan (5,000) -- Payment on subordinated promissory notes (1,500) -- Repayments of notes payable (500) -- Principal payments of capital lease obligations (26) -- Proceeds from exercise of options 212 2 Net proceeds from issuance of common shares 79,345 -- -------- -------- Net cash provided by financing activities 69,315 2 -------- -------- Net change in cash and cash equivalents 66,650 (1,679) Cash and cash equivalents, beginning of period 3,467 3,170 -------- -------- Cash and cash equivalents, end of period $ 70,117 $ 1,491 ==================== See notes to condensed consolidated financial statements. APROPOS TECHNOLOGY, INC. Notes to Condensed Consolidated Financial Statements (Unaudited) March 31, 2000 1. NATURE OF BUSINESS AND BASIS OF PRESENTATION Apropos Technology, Inc. ("the Company") is engaged in the business of developing and selling software, implementation, maintenance, and training services to companies in diversified industries. The Company's product enables customer interaction management for multimedia contact centers. The Company's core competency is its skill in developing advanced software applications and successfully linking those applications to a number of telephone systems, networks, and databases. Principal operations of the Company commenced during 1995. The Company currently derives substantially all of its revenues from licenses of its product and related services. On June 9, 1997, the Company established a wholly owned subsidiary in the United Kingdom, Apropos Technology, Limited. The purpose of this entity is to market the Company's product throughout Europe. The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed, or omitted, pursuant to the rules and regulations of the Securities and Exchange Commission. In our opinion, the statements include all adjustments necessary (which are of a normal and recurring nature) for the fair presentation of the results of the interim periods presented. The balance sheet at December 31, 1999 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. These financial statements should be read in conjunction with our audited consolidated financial statements for the year ended December 31, 1999, included in the Company's Registration Statement on Form S-1 declared effective by the Securities and Exchange Commission on February 16, 2000. Our results of operations for the interim periods presented are not necessarily indicative of the results of operations to be expected for any other interim period or for the full fiscal year. 2. LOSS PER SHARE Basic loss per share is calculated based on the weighted-average number of outstanding common shares. Diluted loss per share is calculated based on the weighted-average number of outstanding common shares plus the effect of dilutive potential common shares. The Company's calculation of diluted loss per share excludes potential common shares as the effect would be antidilutive. Potential common shares are composed of common shares of the Company issuable upon the exercise of stock options. Options to purchase 2,129,354 common shares with exercise prices of $0.10 to $5.94 per share were outstanding as of March 31, 2000 and options to purchase 2,979,004 common shares with exercise prices of $0.10 to $0.91 per share were outstanding as of March 31, 1999. 3. SHAREHOLDERS' EQUITY On February 23, 2000, the Company completed an initial public offering of 3,977,500 shares at an offering price of $22.00 per share. The net proceeds to the Company from the public offering after deducting the underwriting discounts and commissions and offering expenses payable by the Company, were approximately $79.3 million. The Company used approximately $10.5 million to repay principal and interest on debt. The balance of the net proceeds were predominantly held in short-term municipal securities and commercial paper at March 31, 2000. 4. STOCK COMPENSATION The Company uses the intrinsic value method of accounting for its employee stock-based compensation plans. Accordingly, no compensation cost is recognized for any of its stock options when the exercise price of each option equals or exceeds the fair value of the underlying common shares as of the grant date for each stock option. The Company has recorded stock compensation of $552,000 since inception through March 31, 2000 for the difference at the grant date between the exercise price and the fair value of the common shares underlying the options. The Company recorded $254,000 of stock compensation for the three months ended March 31, 2000. This amount is being amortized in accordance with Financial Accounting Standards Board (FASB) Interpretation No. 28 over the vesting period of the individual options, generally 4 years. 5. GEOGRAPHIC INFORMATION Revenues derived from customers outside of North America accounted for approximately 30.5% and 17.5% of the Company's total revenues for the three months ended March 31, 2000 and 1999, respectively. The Company attributes its revenues to countries based on the country in which the client is located. The Company's long-lived assets located outside the United States are not considered material. 6. CONTINGENCIES The Company had a dispute with a former reseller in which the reseller alleged that the Company had breached a contract between the two companies. The dispute was submitted to a binding resolution by an arbitrator. On September 15, 1999, the arbitrator ruled that the Company had breached its contract with a former reseller. The Company is awaiting the ruling of the damages phase by the arbitrator. The Company has recorded a provision for the settlement of this arbitration. Management believes this amount is not material. Management does not believe this arbitration will have a material adverse affect on the Company's financial condition. Beginning in June 1999, the Company received letters from Rockwell Electronic Commerce Corporation claiming that the Company's product utilizes technologies pioneered and patented by that competitor and suggesting that the Company discuss the terms of a potential license of their technologies. On January 5, 2000, Rockwell filed a complaint in the United States District Court for the Northern District of Illinois asserting that the Company had infringed four of its patents identified in Rockwell's previous correspondence. The complaint seeks a permanent injunction and unspecified damages. Based upon the initial review by its patent counsel of the claims being asserted by Rockwell, the Company believes that it likely has meritorious defenses to such claims and it intends to vigorously defend its position. As part of the Company's initial public offering of common shares, the Company and its underwriters made available up to 370,000 common shares at the initial public offering price for directors, business associates and related persons associated with the Company (the "directed share program"). On November 24, 1999, prior to effectiveness of the Company's registration statement, the Company sent an electronic mail message with respect to the proposed directed share program to all of the Company's 147 employees setting forth procedural aspects of the directed share program and informing the recipients that their immediate families might have an opportunity to participate in the proposed directed share program. The Company did not deliver a preliminary prospectus prior to distribution of this electronic mail as required by the Securities Act of 1933. In addition, the electronic mail message may have constituted a non-conforming prospectus under the Securities Act of 1933. As a result, the Company may have a contingent liability under Section 5 of the Securities Act of 1933. Any liability would depend upon the number of common shares purchased by the recipients of the electronic mail. The recipients of the electronic mail message who purchased common shares in the initial public offering may have a right for a period of one year from the date of the purchase to obtain recovery of the consideration paid in connection with their purchase of common shares or, if they had already sold the shares, file a claim against the Company for damages resulting from their purchase of the common shares. If any liability is asserted with respect to the electronic mail message, the Company will contest the matter vigorously. However, if all of the purchasers in the directed share program are awarded damages after an entire or substantial loss of their investment, the damages could total up to approximately $8.1 million plus interest based on the initial public offering price of $22.00 per share. Although there can be no assurance as to the ultimate disposition of this matter, it is the opinion of the Company's management, based upon the information available at this time, that the expected outcome of this matter will not have a material adverse effect on the results of operations and financial condition of the Company. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a)The following exhibits are included herein : (11) Statement Regarding Computation of Per Share Earnings (27) Financial Data Schedule (b)The Company did not file any reports on Form 8-K during the three months ended March 31, 2000. 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. APROPOS TECHNOLOGY, INC. ------------------------ (REGISTRANT) Date : August 11, 2000 By : /s/ Francis J. Leonard --------------------- ------------------------------ Francis J. Leonard Chief Financial Officer