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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[Mark One]
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
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: 0-23999
MANHATTAN ASSOCIATES, INC.
(Exact name of registrant as specified in Its charter)
GEORGIA 58-2373424
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
2300 WINDY RIDGE PARKWAY, SUITE 700 30339
ATLANTA, GEORGIA (Zip Code)
(Address of Principal Executive Offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (770) 955-7070
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 [_] No [X]
The number of shares of the issuer's class of capital stock as of June 5, 1998,
the latest practicable date, is as follows: 23,706,674 shares of Common Stock,
$0.01 par value per share.
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Form 10-Q
Page 1 of 24
MANHATTAN ASSOCIATES, INC.
FORM 10-Q
THREE MONTHS ENDED MARCH 31, 1998
TABLE OF CONTENTS
PART I
FINANCIAL INFORMATION
Page
----
Item 1. Financial Statements.
Condensed Consolidated Balance Sheets as of March 31, 1998
(unaudited) and December 31, 1997 3
Condensed Consolidated Statements of Income (Loss) for the Three
Months Ended March 31, 1998 and March 31, 1997 (unaudited) 4
Condensed Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 1998 and March 31, 1997 (unaudited) 5
Notes to Condensed Consolidated Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. 9
PART II
OTHER INFORMATION
Item 1. Legal Proceedings. 13
Item 2. Changes in Securities. 13
Item 3. Defaults Upon Senior Securities. 14
Item 4. Submission of Matters to a Vote of Security Holders. 14
Item 5. Other Information. 14
Item 6. Exhibits and Reports on Form 8-K. 14
Signatures. 15
Form 10-Q
Page 2 of 24
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
MANHATTAN ASSOCIATES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
March 31, 1998 December 31, 1997
----------------- -----------------
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents..................................................... $ 2,114 $ 3,194
Accounts receivable, net of allowance for doubtful accounts of $971 and $970
at March 31, 1998 and December 31, 1997, respectively........................ 11,853 9,242
Prepaid expenses and other current assets..................................... 1,124 384
----------------- -----------------
Total current assets....................................................... 15,091 12,820
----------------- -----------------
Property and equipment, net..................................................... 2,477 1,943
Intangible and other assets..................................................... 1,446 243
----------------- -----------------
Total assets............................................................... $ 19,014 $ 15,006
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities...................................... $ 5,114 $ 3,687
Note payable to stockholder................................................... 1,946 1,019
Deferred revenue.............................................................. 2,389 1,846
----------------- -----------------
Total current liabilities.................................................. 9,449 6,552
----------------- -----------------
Stockholders' equity:
Preferred stock, no par value; 20,000,000 shares authorized, no shares issued
or outstanding at March 31, 1998 and December 31, 1997....................... -- --
Common stock, $.01 par value; 100,000,000 shares authorized, 20,206,674 and
20,000,008 shares issued and outstanding at March 31, 1998 and December 31,
1997, respectively........................................................... 202 200
Additional paid-in capital.................................................... 3,523 1,459
Retained earnings............................................................. 6,441 7,458
Deferred compensation......................................................... (601) (663)
----------------- -----------------
Total stockholders' equity................................................. 9,565 8,454
----------------- -----------------
Total liabilities and stockholders' equity............................... $ 19,014 $ 15,006
================= =================
See accompanying Notes to Condensed Consolidated Financial Statements.
Form 10-Q
Page 3 of 24
ITEM 1. FINANCIAL STATEMENTS (continued)
MANHATTAN ASSOCIATES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(in thousands, except per share amounts)
(unaudited)
Three Months Ended
March 31,
---------------------------------------------
1998 1997
------------------- -------------------
Revenue:
Software license........................................................ $ 2,152 $ 1,494
Services................................................................ 5,284 2,509
Hardware................................................................ 3,934 2,241
------------------- -------------------
Total revenue........................................................ 11,370 6,244
------------------- -------------------
Cost of revenue:
Software license........................................................ 69 89
Services................................................................ 2,519 983
Hardware................................................................ 3,080 1,644
------------------- -------------------
Total cost of revenue................................................ 5,668 2,716
------------------- -------------------
Gross margin.............................................................. 5,702 3,528
------------------- -------------------
Operating expenses:
Research and development................................................ 1,285 428
Acquired research and development....................................... 1,602 --
Sales and marketing..................................................... 1,313 507
General and administrative.............................................. 1,127 398
------------------- -------------------
Total operating expenses............................................. 5,327 1,333
------------------- -------------------
Income from operations.................................................... 375 2,195
Other income, net......................................................... 14 23
------------------- -------------------
Historical income......................................................... $ 389 $ 2,218
=================== ===================
Historical basic net income per share..................................... $ 0.02 $ 0.11
=================== ===================
Historical diluted net income per share................................... $ 0.02 $ 0.11
=================== ===================
Income before pro forma income taxes...................................... 389 2,218
Pro forma income taxes.................................................... 713 804
------------------- -------------------
Pro forma net income (loss)............................................... $ (324) $ 1,414
=================== ===================
Pro forma basic net income (loss) per share............................... $ (0.02)
===================
Pro forma diluted net income (loss) per share............................. $ (0.02)
===================
See accompanying Notes to Condensed Consolidated Financial Statements.
Form 10-Q
Page 4 of 24
Item 1. Financial Statements (continued)
MANHATTAN ASSOCIATES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Three Months Ended
March 31,
----------------------------------------------------
1998 1997
----------------------- ---------------------
OPERATING ACTIVITIES:
Pro forma net income (loss)................................................ $ (324) $ 1,414
Adjustments to reconcile pro forma net income (loss) to net cash provided
by operating activities:
Pro forma income taxes................................................... 713 804
Depreciation and amortization............................................ 218 85
Stock compensation....................................................... 62 --
Acquired research and development........................................ 1,602 --
Accrued interest on note payable to stockholder.......................... 27 13
Changes in operating assets and liabilities:
Accounts receivable, net................................................. (2,517) (1,375)
Other assets............................................................. (719) --
Accounts payable and accrued liabilities................................. 1,051 451
Deferred revenue......................................................... 338 105
--------------------- ---------------------
Net cash provided by operating activities............................. 451 1,497
--------------------- ---------------------
INVESTING ACTIVITIES:
Purchase of property and equipment......................................... (681) (187)
Payments in connection with the acquisition of Performance Analysis
Corporation, net of cash acquired......................................... (1,344) --
--------------------- ---------------------
Net cash used in investing activities................................. (2,025) (187)
FINANCING ACTIVITIES:
Distributions to stockholders.............................................. (1,406) (846)
Borrowings under note payable to stockholder............................... 900 --
Proceeds from issuance of common stock..................................... 1,000 --
--------------------- ---------------------
Net cash provided by (used in) financing activities....................... 494 (846)
--------------------- ---------------------
Net increase (decrease) in cash and cash equivalents....................... (1,080) 464
Cash and cash equivalents at beginning of period........................... 3,194 3,199
--------------------- ---------------------
Cash and cash equivalents at end of period................................. $ 2,114 $ 3,663
===================== =====================
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Issuance of common stock in connection with acquisition of Performance
Analysis Corporation...................................................... $ 1,067 $ --
===================== =====================
See accompanying Notes to Condensed Consolidated Financial Statements.
Form 10-Q
Page 5 of 24
MANHATTAN ASSOCIATES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation of the results of operations have been included.
2. PRINCIPLES OF CONSOLIDATION
The accompanying financial statements include the accounts of the Company
and its wholly-owned subsidiary. All significant intercompany balances and
transactions have been eliminated in consolidation.
3. COMPLETION OF INITIAL PUBLIC OFFERING AND CONVERSION
On April 23, 1998, the Company completed its initial public offering (the
"Offering") of its $.01 par value per share common stock (the "Common Stock").
The Company sold 3,500,000 shares of Common Stock, excluding 525,000 shares sold
by certain selling stockholders as part of the underwriters' over-allotment, for
$52,500,000 less issuance costs of approximately $5,100,000.
In connection with the Offering, the assets and liabilities of Manhattan
Associates, LLC ("Manhattan LLC") were contributed to the Company in exchange
for Common Stock of the Company (the "Conversion"). Manhattan LLC then
distributed the Common Stock of the Company received to its stockholders. Prior
to the completion of the Offering, Manhattan LLC distributed all undistributed
earnings, calculated on a tax basis, to the stockholders of Manhattan LLC. The
amount distributed subsequent to December 31, 1997 and prior to completion of
the Offering was approximately $11,600,000.
4. REVENUE RECOGNITION
Effective January 1, 1998, the Company adopted Statement of Position No.
97-2, "Software Revenue Recognition" ("SOP 97-2"), that supersedes Statement of
Position No. 91-1, "Software Revenue Recognition" ("SOP 91-1"). Under SOP 97-2,
the Company recognizes software license revenue when the following criteria are
met: (1) a signed contract is obtained; (2) shipment of the product has
occurred; (3) the license fee is fixed and determinable; (4) collectibility is
probable; and (5) remaining obligations under the license agreement are
insignificant. Consulting services are generally billed on an hourly basis and
revenue is recognized as the work is performed. Maintenance revenue from
ongoing customer support is billed in advance for a one year period and recorded
as revenue ratably over the billing period. Hardware revenue is billed and
recognized upon shipment. The adoption of SOP 97-2 did not have a significant
impact on the Company's financial statements for the three months ended March
31, 1998.
Form 10-Q
Page 6 of 24
5. NOTE PAYABLE TO STOCKHOLDER
In February 1998, the Company borrowed an additional $900,000 from the
Company's majority stockholder pursuant to a Grid Promissory Note (the "Note").
Total borrowings under the note at March 31, 1998 were approximately $1.8
million. Under the terms of the agreement, the Note is payable on demand and
bears interest payable monthly at a rate of prime plus 1/2 percent adjusted
quarterly. The Company repaid the note, together with accrued interest of
approximately $131,000 as of April 30, 1998.
6. EARNINGS PER SHARE
Pro forma basic net income per share is computed using pro forma net income
divided by (i) the weighted average number of shares of Common Stock outstanding
("Weighted Shares") for the period presented and (ii) pursuant to the Securities
and Exchange Commission Staff Accounting Bulletin 1B.3, the number of shares
that at the assumed public offering price would yield proceeds in the amount
necessary to pay the stockholder distribution discussed in Note 3 that is not
covered by the earnings for the one year period through the date of distribution
("Distribution Shares").
Pro forma diluted net income per share is computed using pro forma net
income divided by (i) Weighted Shares, (ii) the Distribution Shares and (iii)
the treasury stock method effect of common equivalent shares ("CES's")
outstanding for each period presented. Common equivalent shares have been
excluded from the computation because the effect is anti-dilutive.
No adjustment is necessary for historical and pro forma net income for net
income per share presentation. The following is a reconciliation of the shares
used in the computation of net income per share:
Three Months Ended Three Months Ended
March 31, 1998 March 31, 1997
----------------------------------- ---------------------------------
Basic Diluted Basic Diluted
--------------- --------------- -------------- --------------
Historical Historical
----------------------------------- ---------------------------------
(in thousands)
Weighted Share............................ 20,097 20,097 20,000 20,000
Effect of CES's........................... -- 2,241 -- 308
--------------- --------------- -------------- --------------
20,097 22,338 20,000 20,308
=============== =============== ============== ==============
Basic Diluted
--------------- ---------------
Pro Forma
-----------------------------------
Weighted Shares........................... 20,097 20,097
Shares sold to Minority Holder............ 54 54
Distribution Shares....................... 90 90
Effect of CES's........................... -- --
--------------- ---------------
20,241 20,241
=============== ===============
Form 10-Q
Page 7 of 24
7. ACQUISITION
On February 16, 1998, the Company purchased all of the outstanding stock of
Performance Analysis Corporation ("PAC") for $2,200,000 in cash and 106,666
shares of the Company's Common Stock valued at $10.00 per share (the "PAC
Acquisition"). PAC is a developer of distribution center slotting (storage
layout) software. The PAC Acquisition has been accounted for as a purchase.
The purchase price of approximately $3,300,000 has been allocated to the
assets acquired and liabilities assumed of $490,000, acquired research and
development of $1,602,000, purchased software of $500,000, and goodwill of
$750,000. Purchased software will be amortized over an estimated two-year
useful life and other intangible assets will be amortized over a seven-year
useful life. In connection with the PAC Acquisition, the Company recorded a one
time acquired research and development expense of $1,602,000 during the three
months ended March 31, 1998.
8. INCOME TAXES
Prior to the Conversion, the Company elected to report as a limited
liability company that was treated as a partnership for income tax purposes (see
Note 3), and as a result, the Company was not subject to federal and state
income taxes. After the Conversion, the Company became subject to federal and
state income taxes. In connection with the Conversion, the Company recognized a
one-time benefit in April 1998 by recording the asset related to the future
reduction of income tax payments due to temporary differences between the
recognition of income for financial statements and income tax regulations. Pro
forma net income amounts discussed herein include provisions for income taxes on
a pro forma basis as if the Company were liable for federal and state income
taxes as a taxable corporate entity throughout the periods presented. Pro forma
income tax provisions reflect the Company's anticipated effective annual tax
rate of 36% for 1998 and 36% for 1997.
9. NEW ACCOUNTING PRONOUNCEMENTS
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS No. 130") effective January 1, 1998.
SFAS No. 130 requires that items defined as other comprehensive income, such as
foreign currency translation adjustments, be separately classified in the
financial statements and that the accumulated balance of other comprehensive
income be reported separately from retained earnings and additional paid-in
capital in the stockholders' equity section of the balance sheet. The Company
did not have other comprehensive income as defined in SFAS No. 130 for the three
months ended March 31, 1998 and the three months ended March 31, 1997.
The Company adopted Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS No.
131") effective January 1, 1998. SFAS No. 131 requires public companies to
report certain information about operating segments in their financial
statements and establishes related disclosures about products and services,
geographic areas and major customers. SFAS No. 131 does not need to be applied
to interim financial statements in the initial year of application; however,
comparative information for interim periods in the initial year of application
will be reported in the financial statements for interim periods in fiscal 1999.
Form 10-Q
Page 8 of 24
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
The Company provides information technology solutions for distribution
centers that are designed to enable the efficient movement of goods through the
supply chain. The Company's solutions are designed to optimize the receipt,
storage and distribution of inventory and the management of equipment and
personnel within a distribution center, and to meet the increasingly complex
information requirements of manufacturers, distributors and retailers. The
Company's solutions consist of software, including PkMS, a comprehensive and
modular software system; services, including design, configuration,
implementation, training and support; and hardware. The Company currently
provides solutions to manufacturers, distributors and retailers primarily in the
apparel, consumer products, food service and grocery markets.
Effective January 1, 1998, the Company adopted Statement of Position No.
97-2, "Software Revenue Recognition" ("SOP 97-2"), that supersedes Statement of
Position No. 91-1, "Software Revenue Recognition " ("SOP 91-1"). Under SOP 97-
2, the Company recognizes software license revenue when the following criteria
are met: (1) a signed contract is obtained; (2) shipment of the product has
occurred; (3) the license fee is fixed and determinable; (4) collectibility is
probable; and (5) remaining obligations under the license agreement are
insignificant. Consulting services are generally billed on an hourly basis and
revenue is recognized as the work is performed. Maintenance revenue from
ongoing customer support is billed in advance for a one year period and recorded
as revenue ratably over the billing period. Hardware revenue is billed and
recognized upon shipment. The adoption of SOP 97-2 did not have a significant
impact on the Company's financial statements for the three months ended March
31, 1998.
On February 16, 1998, the Company purchased all of the outstanding stock
of Performance Analysis Corporation ("PAC") for approximately $2.2 million in
cash and 106,666 shares of the Company's Common Stock valued at $10.00 per
share. PAC is a developer of distribution center slotting software. The
acquisition has been accounted for as a purchase. The purchase price of
approximately $3,300,000 has been allocated to the assets acquired and
liabilities assumed of $490,000, acquired research and development of
$1,602,000, purchased software of $500,000, and goodwill of $750,000. Purchased
software will be amortized over an estimated two-year useful life and other
intangible assets will be amortized over a seven-year useful life. In connection
with the PAC Acquisition, the Company recorded a one time acquired research and
development expense of $1,602,000 during the three months ended March 31, 1998.
PAC is currently in the process of developing a Windows-NT version of its
existing product, SLOT-IT. In addition, the Company plans to focus development
efforts on integrating the SLOT-IT application into a future product.
Prior to the Conversion, the Company elected to report as a limited
liability company that was treated as a partnership for income tax purposes, and
as a result, the Company was not subject to federal and state income taxes. Pro
forma net income amounts discussed herein include additional provisions for
income taxes on a pro forma basis as if the Company were liable for federal and
state income taxes as a taxable corporate entity throughout the periods
presented. The pro forma tax provision is calculated by applying the Company's
statutory tax rate to pretax income, adjusted for permanent tax differences.
The Company's status as a limited liability company terminated immediately prior
to the effectiveness of the Offering, and the Company will thereafter be taxed
as a business corporation.
Form 10-Q
Page 9 of 24
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
Revenue
Total revenue increased 82% to $11.4 million for the three months ended
March 31, 1998 from $6.2 million for the three months ended March 31, 1997.
Total revenue consists of software license revenue, revenue derived from
consulting, maintenance and other services and revenue from the sale of
hardware.
Software License. Software license revenue increased 44% to $2.2 million
for the three months ended March 31, 1998 from $1.5 million for the three months
ended March 31, 1997. The increase in revenue from software licenses was
primarily due to an increase in the number of licenses of the Company's PkMS
product and, to a lesser extent, new license revenue as a result of the
acquisition of PAC.
Services. Services revenue increased 111% to $5.3 million for the three
months ended March 31, 1998 from $2.5 million for the three months ended March
31, 1997. The increase in revenue from services was principally due to the
increased demand for these services resulting from the increased demand for the
Company's PkMS product.
Hardware. Hardware revenue increased 76% to $3.9 million for the three
months ended March 31, 1998 from $2.2 million for the three months ended March
31, 1997. The increase in revenue from hardware was principally due to the
increased demand for the Company's PkMS product.
Cost of Revenue
Cost of Software License. Cost of software license revenue consists of the
costs of software reproduction and delivery, media, packaging, documentation and
other related costs and the amortization of capitalized software. Cost of
software license revenue decreased to $69,000, or 3% of software license
revenue, for the three months ended March 31, 1998 from $89,000, or 6% of
software license revenue, for the three months ended March 31, 1997. Cost of
software license revenue remained relatively constant for the three months ended
March 31, 1998 as compared to the three months ended March 31, 1997.
Cost of Services. Cost of services revenue consists primarily of
consultant salaries and other personnel-related expenses incurred in system
implementation projects and software support services. Cost of services revenue
increased to $2.5 million, or 48% of services revenue, for the three months
ended March 31, 1998 from $983,000, or 39% of services revenue, for the three
months ended March 31, 1997. The increase in cost of services revenue as a
percentage of services revenue is principally due to increased training and
other cost related to an increase in services personnel.
Cost of Hardware. Cost of hardware revenue increased to $3.1 million, or
78% of hardware revenue, for the three months ended March 31, 1998 from $1.6
million, or 73% of hardware revenue, for the three months ended March 31, 1997.
The increase in the cost of hardware as a percentage of hardware revenue is
principally due to an increase in the sale of hardware products with relatively
lower gross margins as compared to the three months ended March 31, 1997.
Operating Expenses
Research and Development. Research and development expenses principally
consist of salaries and other personnel-related costs related to the Company's
product development efforts. The Company's research and development expenses
increased by 200% to $1.3 million, or 11% of total revenue, for the three months
ended March 31, 1998 from $428,000, or 7% of total revenue, for the three months
ended March 31, 1997. The increase in research and development expenses
resulted from an increase in the number of research and development personnel
during the three months ended March 31, 1998 as compared
Form 10-Q
Page 10 of 24
to the three months ended March 31, 1997. Significant product development
efforts include the continued development of PkMS, the development of a
client/server version of PkMS and, to a lesser extent, the continued development
of SLOT-IT and the development of the Windows-NT based version of SLOT-IT. The
Company believes that a continued commitment to product development will be
required for the Company to remain competitive and expects the dollar amount of
research and development expenses to continue to increase in the near future.
Acquired Research and Development. In February 1998, the Company purchased
all of the outstanding stock of PAC for approximately $2.2 million in cash and
106,666 shares of the Company's Common Stock valued at $10.00 per share. The
acquisition has been accounted for as a purchase. In connection with this
acquisition, approximately $1.6 million of the purchase price was allocated to
acquired research and development and expensed during the quarter.
Sales and Marketing. Sales and marketing expenses include salaries,
commissions and other personnel-related costs, travel expenses, advertising
programs and other promotional activities. Sales and marketing expenses
increased by 159% to $1.3 million, or 12% of total revenue, for the three months
ended March 31, 1998 from $507,000, or 8% of total revenue, for the three months
ended March 31, 1997. The increase in sales and marketing expenses was the
result of additional sales and marketing personnel and expanded marketing
program activities.
General and Administrative. General and administrative expenses consist
primarily of salaries and other personnel-related costs of executive, financial
and human resources and administrative personnel, as well as facilities, legal,
insurance, accounting and other administrative expenses. General and
administrative expenses increased by 183% to $1.1 million, or 10% of total
revenue, for the three months ended March 31, 1998 from $398,000, or 6% of total
revenue, for the three months ended March 31, 1997. The increase in general and
administrative expenses was principally due to increased personnel and other
administrative expenses necessary to support the Company's growth.
Income Taxes
Pro Forma Provision for Income Taxes. The pro forma provision for income
taxes was $713,000 for the three months ended March 31, 1998, as compared to
$804,000 for the three months ended March 31, 1997. The decrease in the pro
forma provision for income taxes is a result of a decrease in income before
income taxes for the three months ended March 31, 1998 compared to the income
for the three months ended March 31, 1997.
Earnings per Share
Pro Forma Net Income (Loss) per Share. Pro forma net income, excluding the
effect of a one-time acquired research and development charge of $1.6 million,
was $1.3 million, or $0.06 per share, for the three months ended March 31, 1998,
compared to pro forma net income of $1.4 million, or $0.07 per share, for the
three months ended March 31, 1997. Including the effect of the one-time
acquired research and development charge, the Company's pro forma net loss was
$324,000, or $0.02 per share, for the three months ended March 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has funded its operations to date primarily
through cash generated from operations. In addition, the Company has also
borrowed money from its majority stockholder. As of March 31, 1998, the Company
had $2.1 million in cash and cash equivalents.
The Company's operating activities provided cash of $451,000 for the three
months ended March 31, 1998 and $1.5 million for the three months ended March
31, 1997. Cash from operating activities arose principally from the Company's
profitable operations and was utilized for working capital
Form 10-Q
Page 11 of 24
purposes, principally increases in accounts receivable. The increase in accounts
receivable was primarily the result of the Company's continued revenue growth.
Cash used for investing activities was approximately $2.0 million for the
three months ended March 31, 1998 and $187,000 for the three months ended March
31, 1997. The Company's use of cash for the three months ended March 31, 1998
was primarily for the acquisition of PAC and the purchase of capital equipment,
such as computer equipment and furniture and fixtures, to support the Company's
growth.
Cash provided by financing activities was approximately $494,000 for the
three months ended March 31, 1998. Cash used for financing activities was
approximately $846,000 for the three months ended March 31, 1997. The principal
source of cash provided by financing activities for the three months ended March
31, 1998 was additional borrowings under a Grid Promissory Note with a
stockholder and proceeds from the issuance of Common Stock, partially reduced by
distributions to the Company's stockholders.
The Company entered into a line of credit with Silicon Valley Bank to fund
its distribution to the Manhattan LLC stockholders and to fund its continuing
working capital needs. The line of credit does not contain any conditions or
restrictive covenants that would materially affect the Company's business,
financial condition or results of operations. In April 1998, the Company
borrowed approximately $7 million under the line of credit. The Company repaid
the borrowings and accrued interest with the proceeds from the initial public
offering (the "Offering"). There can be no assurance that the remaining net
proceeds from the Offering will be sufficient to pay for future acquisitions,
planned research and development projects and other growth-oriented activities,
which could require the Company to incur additional debt or other financing that
could impose restrictive covenants and other terms having a material adverse
effect on the Company's business, financial condition and results of operations.
In April 1998, the Company completed the Offering, in which the Company
received net proceeds of approximately $47.4 million after deducting
underwriting discounts and offering expenses. The Company applied a portion of
the net proceeds to (i) to repay all of the Company's outstanding indebtedness
to Silicon Valley Bank ($7.0 million) and (ii) to repay a note payable to the
Company's Chairman of the Board, Chief Executive Officer and President, Alan J.
Dabbiere ($1.9 million). Prior to the Offering, the Company made payments of
$375,000 to repay stockholder notes, and $4.0 million in distributions to
stockholders. The balance of the net proceeds of the Offering (approximately
$34.1 million) will be utilized for general corporate purposes. Such purposes
may also include possible acquisitions of, or investments in, businesses and
technologies that are complementary to those of the Company.
The Company anticipates that existing cash and cash equivalents will be
adequate to meet its cash requirements for the next twelve months.
FORWARD LOOKING STATEMENTS
Certain statements contained in this filing are "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995,
including but not limited to statements related to plans for future business
development activities, anticipated costs of revenues, product mix and service
revenues, research and development and selling, general and administrative
activities, and liquidity and capital needs and resources. Such forward-looking
statements are subject to risks, uncertainties and other factors which could
cause actual results to differ materially from future results expressed or
implied by such forward-looking statements. For further information about these
and other factors that could affect the Company's future results, please see
Exhibit 99.1 to this report. Investors are cautioned that any forward looking
statements are not guarantees of future performance and involve risks and
uncertainties, and that actual results may differ materially from those
contemplated by such forward looking statements.
Form 10-Q
Page 12 of 24
PART II.
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
No events occurred during the quarter covered by the report that would
require a response to this item.
ITEM 2. CHANGES IN SECURITIES.
In connection with the conversion of the Company from a limited liability
company to a business corporation (the "Conversion"), the Company issued
20,206,674 shares of Common Stock to stockholders of Manhattan Associates
Software, LLC ("Manhattan LLC") on April 23, 1998 in consideration for their
contribution of all of the assets and liabilities of Manhattan LLC to the
Company in a transaction exempt under Section 4(2) of the Securities Act.
In connection with the organization of the Company, in January 1998, the
Company issued an aggregate of 100 shares of its Common Stock to Alan J.
Dabbiere, Deepak Raghavan, Deepak M.J. Rao and Ponnambalam Muthiah at a price of
$1.00 per share in a transaction exempt under Section 4(2) of the Securities
Act. These shares were redeemed simultaneously with the consummation of the
Conversion at their original purchase price.
In connection with an investment by Deepak Raghavan, the Chief Technology
Officer of the Company, of $1,000,000 in Manhattan LLC on February 16, 1998,
Manhattan LLC issued 100,000 shares to Mr. Raghavan in a transaction exempt
under Section 4(2) of the Securities Act.
In connection with the acquisition of all of the outstanding shares of
Performance Analysis Corporation ("PAC") on February 16, 1998, Manhattan LLC
issued 106,666 of its shares valued at an aggregate value of $1,066,660 to
Daniel Basmajian, Sr., the sole stockholder of PAC, a North Carolina
corporation, in a transaction exempt from registration under Rules 505 and 506
of Regulation D and Section 4(2) of the Securities Act.
On April 23, 1998, the Company completed an initial public offering (the
"Offering") of 3,500,000 shares of its Common Stock (the "Common Stock"). The
managing underwriters in the Offering were Deutsche Morgan Grenfell Inc.,
Hambrecht & Quist LLC and SoundView Financial Group, Inc. (the "Underwriters").
The shares of Common Stock were registered under the Securities Act of 1933, as
amended, on a Registration Statement on Form S-1 (the "Registration Statement,"
registration number 333-47095). The Registration Statement was declared
effective by the Securities and Exchange Commission on April 23, 1998.
All of the 3,500,000 shares of Common Stock were sold by the Company, which
resulted in gross proceeds of $52.5 million. The Company received net proceeds
of approximately $47.4 million after deducting underwriting discounts of $3.7
million and Offering expenses of $1.4 million. As of June 1, 1998, the proceeds
of the Offering had been used as follows: (i) to repay all of the Company's
outstanding indebtedness to Silicon Valley Bank ($7.0 million) and (ii) to repay
a Grid Promissory Note payable to the Company's Chairman of the Board, Chief
Executive Officer and President, Alan J. Dabbiere ($1.9 million). The balance
of the net proceeds of the Offering will be utilized to finance potential future
acquisitions and for general corporate purposes.
Form 10-Q
Page 13 of 24
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
No events occurred during the quarter covered by the report that would
require a response to this item.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Effective February 24, 1998, the stockholders of the Company approved by
unanimous written consent (i) the Articles of Incorporation and Bylaws of the
Company; (ii) the Company's 1998 Stock Incentive Plan; and (iii) the form of the
Lockup Agreement by which certain stockholders of the Company agreed not to sell
or dispose of any shares or securities of the Company for a period of 180 days
following the completion of the Offering.
ITEM 5. OTHER INFORMATION.
No events occurred during the quarter covered by the report that would
require a response to this item.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
The following exhibits are filed with this Report:
Exhibit 27.1 Financial Data Schedule
Exhibit 99.1 Certain Risk Factors Related to the Company
(b) Reports to be filed on Form 8-K
No reports on Form 8-K were filed during the quarter ended March
31, 1998.
Form 10-Q
Page 14 of 24
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.
MANHATTAN ASSOCIATES, INC.
Date: June 8, 1998 /s/ Alan J. Dabbiere
--------------------------------------------------
Alan J. Dabbiere
Chairman of the Board, Chief Executive Officer and
President
(Principal Executive Officer)
Date: June 8, 1998 /s/ Michael J. Casey
--------------------------------------------------
Michael J. Casey
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
Form 10-Q
Page 15 of 24