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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________ TO ________
COMMISSION FILE NO. 0-25297
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ECOMETRY CORPORATION
FLORIDA 65-0090038
(State of Incorporation) (I.R.S. Employer
Identification No.)
1615 SOUTH CONGRESS AVENUE, DELRAY BEACH, FL 33445-6368
Telephone: (561) 265-2700
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: 12,446,122 shares of the
Registrant's Common Stock, par value $0.01 per share, were outstanding as of
May 9, 2001.
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ECOMETRY CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2001
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (unaudited)
a.) Condensed Consolidated Statements of Operations for the
Three Months Ended March 31, 2001 and 2000.................. 2
b.) Condensed Consolidated Balance Sheets as of March 31,
2001 and December 31, 2000.................................. 3
c.) Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 2001 and 2000.................. 4
d.) Notes to Condensed Consolidated Financial Statements.... 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 8
Item 3. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................... 14
Item 2. Changes in Securities and Use of Proceeds................... 14
Item 6. Exhibits and Reports on Form 8-K............................ 14
Signatures............................................................ 15
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PART I. FINANCIAL INFORMATION
ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ECOMETRY CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED
MARCH 31,
-------------------
2001 2000
-------- --------
Revenue:
License fees.............................................. $ 986 $ 4,024
Third party software and hardware......................... 1,266 5,633
Support................................................... 2,865 2,187
Services.................................................. 1,065 1,100
------- -------
Total revenue..................................... 6,182 12,944
Cost of revenue:
License fees.............................................. 782 918
Third party software and hardware......................... 955 4,516
Support................................................... 1,560 1,584
Services.................................................. 785 830
------- -------
Total cost of revenue............................. 4,082 7,848
------- -------
Gross margin................................................ 2,100 5,096
Operating expenses:
General and administrative................................ 2,703 2,204
Sales and marketing....................................... 1,799 1,785
Research and development.................................. 1,287 1,097
------- -------
Total operating expenses.......................... 5,789 5,086
------- -------
Operating (loss) income..................................... (3,689) 10
Interest income, net........................................ 566 545
------- -------
(Loss) income before income tax expense..................... (3,123) 555
Income tax benefit (expense)................................ 666 (235)
------- -------
Net (loss) income........................................... $(2,457) $ 320
======= =======
Basic net (loss) income per share........................... $ (0.20) $ 0.03
======= =======
Diluted net (loss) income per share......................... $ (0.20) $ 0.02
======= =======
Weighted average shares used in basic per share
computation............................................... 12,381 12,322
======= =======
Weighted average shares used in diluted per share
computation............................................... 12,381 13,192
======= =======
See accompanying notes to unaudited condensed consolidated financial statements.
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ECOMETRY CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
MARCH 31, DECEMBER 31,
2001 2000
--------- ------------
ASSETS
Current assets:
Cash and cash equivalents................................. $ 38,685 $ 36,827
Accounts receivable, net of allowance for doubtful
accounts of $971 at March 31, 2001 and $901 at
December 31, 2000...................................... 3,211 7,055
Income tax receivable..................................... 2,119 1,995
Inventory................................................. 33 313
Deferred income taxes..................................... 571 819
Prepaid expenses and other current assets................. 1,001 534
-------- --------
Total current assets.............................. 45,620 47,543
Property and equipment, net................................. 2,871 2,812
Other assets................................................ 191 211
-------- --------
Total assets...................................... $ 48,682 $ 50,566
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $ 4,060 $ 4,768
Deferred revenue.......................................... 2,035 729
Current portion of capital lease obligation............... 31 31
-------- --------
Total current liabilities......................... 6,126 5,528
Long term portion of capital lease obligation............... 107 115
Deferred income taxes....................................... 170 167
-------- --------
Total liabilities................................. 6,403 5,810
Stockholders' equity:
Common stock, $.01 par value. Authorized 50,000,000
shares; issued and outstanding 12,446,122 shares and
12,424,027 at March 31, 2001 and December 31, 2000,
respectively........................................... 124 124
Additional paid in capital................................ 56,539 56,506
Accumulated deficit....................................... (13,873) (11,416)
Accumulated other comprehensive loss...................... (227) (174)
Treasury stock, at cost (65,000 shares at March 31, 2001
and December 31, 2000)................................. (284) (284)
-------- --------
Total stockholders' equity........................ 42,279 44,756
-------- --------
Total liabilities and stockholders' equity........ $ 48,682 $ 50,566
======== ========
See accompanying notes to unaudited condensed consolidated financial statements.
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ECOMETRY CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FOR THREE MONTHS
ENDED
MARCH 31,
-----------------
2001 2000
------- -------
Net (loss) income........................................... $(2,457) $ 320
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities:
Depreciation and amortization expense..................... 206 155
Non-cash compensation expense............................. -- 7
Tax benefit from stock option exercises................... 730
Bad debt expense.......................................... 99 71
Deferred income taxes..................................... 251 --
Change in assets and liabilities:
Accounts receivable.................................... 3,707 (4,561)
Income tax receivable.................................. (124) (710)
Inventory.............................................. 281 131
Prepaid expenses and other current assets.............. (467) (32)
Other assets........................................... 19 (7)
Accounts payable and accrued expenses.................. (711) 1,397
Deferred revenue....................................... 1,312 819
------- -------
Net cash provided by (used in) operating
activities....................................... 2,116 (1,680)
Cash flows used in investing activities:
Capital expenditures...................................... (277) (992)
------- -------
Net cash used in investing activities............. (277) (992)
Cash flows provided by (used in) financing activities:
Proceeds from issuance of common stock.................... 33 414
Payments on capital lease................................. (8) (9)
------- -------
Net cash provided by financing activities......... 25 405
Effect of exchange rates on cash and cash equivalents....... (6) (3)
------- -------
Net increase (decrease) in cash and cash equivalents........ 1,858 (2,270)
Cash and cash equivalents at beginning of period............ 36,827 39,246
------- -------
Cash and cash equivalents at end of period.................. $38,685 $36,976
======= =======
Supplemental cash flow information:
Cash paid for income taxes................................ $ -- $ 976
======= =======
See accompanying notes to unaudited condensed consolidated financial statements.
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ECOMETRY CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
MARCH 31, 2001
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with accounting principles generally accepted in the
United States of America 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 disclosures necessary for a fair
presentation of financial position, results of operations and cash flows in
conformity with generally accepted accounting principles. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation of the results for the periods presented have
been included. These unaudited condensed consolidated financial statements
should be read in connection with the Annual Report on Form 10-K of Ecometry
Corporation ("Company") as of and for the year ended December 31, 2000.
The results of operations for the three months ended March 31, 2001 are not
necessarily indicative of results that may be expected for the full fiscal year.
2. PRINCIPLES OF CONSOLIDATION
The accompanying unaudited condensed consolidated financial statements
include the accounts of the Company and its wholly owned subsidiaries. All
significant intercompany balances and transactions have been eliminated in
consolidation.
3. EARNINGS PER SHARE
Basic net income per share is calculated using the weighted average number
of common shares outstanding during the period. Diluted net income per share is
computed on the basis of the weighted average number of common shares
outstanding plus the dilutive effect of common share equivalents ("CSE's")
outstanding using the treasury stock method. CSE's consisting of approximately
521 stock options were not included in the diluted net loss per share
calculation for the three months ended March 31, 2001 since their effect would
be antidilutive. The numbers presented below are in thousands, except per share
amounts.
THREE MONTHS ENDED
MARCH 31,
-------------------
2001 2000
-------- --------
Basic net (loss) income:
Net (loss) income........................................... $(2,457) $ 320
======= =======
Weighted average common shares outstanding.................. 12,381 12,322
======= =======
Basic net (loss) income per share........................... $ (0.20) $ 0.03
======= =======
Diluted net (loss) income:
Net (loss) income........................................... $(2,457) $ 320
======= =======
Weighted average common shares outstanding.................. 12,381 12,322
Dilutive common stock equivalents........................... -- 870
------- -------
Equivalent shares........................................... 12,381 13,192
======= =======
Diluted net (loss) income per share......................... $ (0.20) $ 0.02
======= =======
4. STOCK REPURCHASE PLAN
On June 28, 2000, the Company announced that its Board of Directors
approved a stock repurchase plan. Under the plan, the Company is authorized to
repurchase up to one million shares of its common stock. The
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ECOMETRY CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
extent to which the Company repurchases its shares and the timing of such
purchases will depend upon market conditions and other corporate considerations.
To date, the Company has repurchased 65,000 shares of the Company's common stock
under the plan. The shares were purchased at an average price of $4.37 per
share, for a total purchase price of $284,000 and recorded as treasury stock. No
shares were repurchased during the first quarter of 2001.
5. REVENUE RECOGNITION
The Company follows SO 97-2, SOFTWARE REVENUE RECOGNITION (as amended by
SOP 98-9). SOP 97-2 generally requires revenue earned on software arrangements
involving multiple elements to be allocated to each element based on vendor
specific objective evidence ("VSOE") of the relative fair values of the
elements. VSOE is determined by the price charged when the element is sold
separately. The revenue allocated to hardware and software products generally is
recognized when the hardware and software have been delivered and installed, the
fee is fixed and determinable and the collectibility is probable. The revenue
allocated to post contract customer support is consistent with fees charged for
renewals and is recognized ratably over the term of the support. Revenue
allocated to service elements is recognized as the services are performed.
6. FOREIGN CURRENCY TRANSLATION
The functional currencies of the Company's foreign subsidiaries are their
respective local currencies. The translation of the applicable foreign
currencies into U.S. dollars is performed for balance sheet accounts using
current exchange rates in effect at the balance sheet date and for revenue and
expense accounts using average rates prevailing during the period. Resulting
translation adjustments are accumulated as a component of stockholder's equity
and comprehensive loss.
7. COMPREHENSIVE INCOME
The Company's total comprehensive (loss) income is as follows (in
thousands):
THREE MONTHS ENDED
MARCH 31,
------------------
2001 2000
------- -------
(UNAUDITED)
Net (loss) income........................................... $(2,457) $ 320
Other comprehensive loss:
Foreign currency translation adjustments.................. (53) (36)
------- -------
Total comprehensive (loss) income................. $(2,510) $ 284
======= =======
8. NEW ACCOUNTING PRONOUNCEMENTS
In June 1999, the FASB issued Statement of Financial Accounting Standards
(SFAS) Nos. 137 and 138, Accounting for Derivative Instruments and Hedging
Activities, which amends the effective date of SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. SFAS No. 133 establishes
accounting and reporting standards for derivative financial instruments and
hedging activities and requires the Company to recognize all derivatives as
either assets or liabilities on the balance sheet and measure them at fair
value. Gains and losses resulting from changes in fair value would be accounted
for based on the use of the derivative and whether it is designated and
qualifies for hedge accounting. SFAS Nos. 133 and 138 are effective for all
fiscal quarters of the fiscal years beginning after June 30, 2000. The effect on
January 1, 2001 of such adoption did not have an impact on the Company's
unaudited consolidated financial statements.
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ECOMETRY CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
In December 1999, the SEC issued Staff Accounting Bulletin No. 101 ("SAB
101"), "Revenue Recognition in Financial Statements." SAB 101 summarizes certain
of the SEC's views in applying accounting principles generally accepted in the
United States of America to revenue recognition in financial statements. In
March 2000, the SEC issued SAB 101A, which delayed the implementation date of
SAB No. 101. In June 2000, the SEC issued SAB 101B, which further delayed the
implementation date of SAB 101. The Company adopted SAB 101 beginning October 1,
2000, effective as of January 1, 2000. The adoption of SAB 101 did not have an
impact on our financial position or results of operations.
9. CONTINGENCIES
Between June 22, 2000 and August 14, 2000, four purported class-action
complaints were filed against the Company and Messrs. Gary G. Hegna, Martin K.
Weinbaum, Allan Gardner and Wilburn Smith, officers of the Company, in the
United States District Court for the Southern District of Florida.
All four complaints were substantially similar and alleged, among other
things that the Company made material misrepresentations and omissions regarding
the Company's future revenues, growth, expenditures, and that the Company failed
to disclose adverse information regarding the collectibility of amounts owed by
a client. The complaints alleged that the defendants violated Section 10(b) of
the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5
thereunder by making untrue statements or omitting to state material facts in
connection with purchases of Company common stock by the plaintiffs and others
in the purported class from October 27, 1999 through June 16, 2000, and that the
defendants violated Section 20(a) of the Exchange Act through the same conduct
by virtue of their allegedly being "controlling persons" of the Company. The
Complaints generally sought, among other things, certification as a class and an
award of damages in an amount to be determined at trial.
On September 11, 2000 the court consolidated all four actions, and
appointed four individuals to serve as "lead plaintiffs." The plaintiffs filed
their Consolidated Amended Complaint on November 20, 2000. On January 4, 2001
the defendants filed a motion to dismiss the consolidated complaint. The
plaintiffs filed an opposition to the defendants' motion to dismiss on February
20, 2001. The Company's reply in support of the motion to dismiss was filed on
March 21, 2001 and oral argument was held on April 2, 2001. The motion to
dismiss is currently under consideration with the Court.
Discovery in this action has not yet commenced and will be stayed pursuant
to statute based on the filing of the motion to dismiss. The stay would be
lifted in the event that the court denies the motion to dismiss. Management
believes these plaintiffs claims are without merit and intends to defend them
vigorously. At this time, the Company cannot reasonably estimate the ultimate
loss, if any, related to this action and, therefore, the Company has not
recorded an accrual for loss as of March 31, 2001.
From time to time, the Company is involved in other legal proceedings
incidental to the conduct of its business. The Company believes that this other
litigation, individually or in the aggregate, to which it is currently a party
is not likely to have a material adverse effect on the Company's business,
financial condition or results of operations.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The Company is a leading provider of enterprise software solutions and
services to the multi-channel commerce industry. The Company's clients include
direct marketing and catalog companies, retailers and manufacturers with
significant direct sales channels, Internet-only companies and fulfillment
houses. The Company's Ecometry family of software products is designed to
automate multi-channel commerce activities, including marketing, advertising
analysis, sales, telemarketing, ordering, customer services, merchandising,
procurement, electronic and Internet commerce, supply chain management,
warehousing, shipping, accounting and systems operation. Ecometry Retail
Enterprise also provides managers and sales personnel with real-time operations,
inventory and customer data to improve both management decision making and
customer service.
The following table sets forth, for the periods indicated, the dollar and
percentage changes of statement of operations items:
THREE MONTHS ENDED CHANGE THREE MONTHS
MARCH 31, ENDED MARCH 31, 2001
------------------- ---------------------
2001 2000 $ %
-------- ------- -------- ----------
Revenue:
License fees................................. $ 986 $4,024 $(3,038) (75.5)%
Third party software and hardware............ 1,266 5,633 (4,367) (77.5)
Support...................................... 2,865 2,187 678 31.0
Services..................................... 1,065 1,100 (35) (3.2)
------- ------ ------- ---------
Total revenue........................ 6,182 12,944 (6,762) (52.2)
Cost of revenue:
License fees................................. 782 918 (136) (14.9)
Third party software and hardware............ 955 4,516 (3,561) (78.9)
Support...................................... 1,560 1,584 (24) (1.5)
Services..................................... 785 830 (45) (5.5)
------- ------ ------- ---------
Total cost of revenue................ 4,082 7,848 (3,766) (48.0)
------- ------ ------- ---------
Gross margin................................... 2,100 5,096 (2,996) (58.8)
Operating expenses:
General and administrative................... 2,703 2,204 499 22.7
Sales and marketing.......................... 1,799 1,785 14 0.8
Research and development..................... 1,287 1,097 190 17.4
------- ------ ------- ---------
Total operating expenses............. 5,789 5,086 703 (13.8)
------- ------ ------- ---------
(Loss) income from operations.................. (3,689) 10 (3,699) (35,824.3)
Interest income, net........................... 566 545 21 4.0
------- ------ ------- ---------
(Loss) income before income tax expense........ (3,123) 555 (3,678) (662.8)
Income tax benefit (expense)................... 666 (235) 901 383.0
------- ------ ------- ---------
Net (loss) income.............................. $(2,457) $ 320 $(2,777) (868.7)%
======= ====== ======= =========
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The following table sets forth, for the periods indicated, the dollar and
percentage changes for new and existing client sales by system component:
THREE MONTHS ENDED CHANGE THREE MONTHS
MARCH 31, ENDED MARCH 31, 2001
------------------ ---------------------
2001 2000 $ %
------- ------- --------- ------
New client system sales:
License fees........................................... $ 445 $1,559 $(1,114) 71.5%
Third party software and hardware...................... 531 1,902 (1,371) 72.1
------ ------ ------- ----
Total new client system sales.................. $ 976 $3,461 $(2,485) 71.8%
====== ====== ======= ====
Existing client system sales:
License fees........................................... $ 542 $2,465 $(1,923) 78.0%
Third party software and hardware...................... 734 3,731 (2,997) 80.3
------ ------ ------- ----
Total existing client system sales............. $1,276 $6,196 $(4,920) 79.4%
====== ====== ======= ====
Three Months Ended March 31, 2001 Compared to Three Months Ended March 31,
2000
Sales of License Fees. License fee sales accounted for approximately 16.0%
of the Company's total revenue for the three months ended March 31, 2001.
License fees sales consist of license fees for the installation of the Company's
Ecometry software and related modules, and additional user license fees for its
existing clients. License fees are based primarily on the number of users.
Computer software license fees decreased 75.5% during the three months ended
March 31, 2001 compared to the same period in 2000. New client computer software
sales decreased 71.5% from $1.6 million for the three months ended March 31,
2000 to $445,000 in 2001, and existing client computer software sales decreased
78.0%, from $2.5 million to $542,000 for the same periods. This decrease in
revenue is primarily attributable to a general slow down in the economy, which
resulted in fewer new system sales and customer upgrade sales.
Sales of Third Party Software and Hardware. Sales of third party software and
hardware accounted for approximately 20.5% of the Company's total revenue for
the three months ended March 31, 2001. Sales of third party software and
computer hardware consist of sales of license fees for third-party operating
system software, computer hardware systems and peripheral hardware components.
Third party software and computer hardware revenue decreased 77.5% for the three
months ended March 31, 2001, compared to the three months ended March 31, 2000.
This decrease in revenue is related to lower software sales. Third party
software and computer hardware revenue relating to new client sales decreased
72.1% to $531,000 for the three months ended March 31, 2001, compared to $1.9
million for the same period in 2000. Third party software and computer hardware
upgrades were $734,000 for the three months ended March 31, 2001 and $3.7
million for the period ending March 31, 2000.
Support. Support revenue accounted for approximately 46.4% of the
Company's total revenue during the three months ended March 31, 2001. Support
revenue consists of fees for technical support services and updates for the
Ecometry software, optional modules, and integrated third-party software
utilities. Support revenue increased 31.0% during the three months ended March
31, 2001, compared to the three months ended March 31, 2000. The increase
resulted from the addition of new clients during 2000, as well as support fee
increases related to software user license upgrades.
Services. Services revenue accounted for approximately 17.2% of the
Company's revenue for the three months ended March 31, 2001. Services revenue
consists principally of revenue derived from consulting, custom programming,
training, and web design. Services revenue decreased 3.2% for the first quarter
of 2001 compared to the same period in 2000. This decrease in revenue was
primarily due to the deterioration of the economy, which resulted in customers
requesting fewer services.
Total Revenue. Total revenue decreased 52.2% for the three months ended
March 31, 2001. New client sales decreased 71.8% to $976,000 from $3.5 million
for the three months ended March 31, 2001. Sales to existing customers decreased
by 79.40% from $1.3 million to $6.2 million due to fewer system upgrades during
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the quarter ended March 31, 2001. The decrease in system sales is primarily due
to the global economic slow-down.
Cost of License Fees. Cost of license fees, which consists of installation
and training salaries directly related to new software sales and subcontractor
fees, decreased 14.9% during the three months ended March 31, 2001, compared to
the three months ended March 31, 2000. This decrease is due to lower personnel
costs during 2001 as a result of fewer installation and training employees. Cost
of computer software as a percentage of software license fees increased to 79.3%
from 22.8% for the three months ended March 31, 2001. This increase is due to
lower software sales of proprietary software combined with fixed salary costs.
Cost of Third Party Software and Hardware. Cost of third party software
and hardware sales, which includes license fees for third-party operating system
software, purchases of computer hardware systems and peripheral hardware
components, decreased 78.9% for the three months ended March 31, 2001, compared
to the same period in 2000. This decrease is attributable to lower sales of
third party software and hardware. Cost of third party software and hardware as
a percentage of third party software and hardware revenue was 75.4% and 80.2%
for the three months ended March 31, 2001 and 2000, respectively. This decrease
was primarily attributable to lower sales discounts on computer hardware
systems.
Cost of Support. Cost of support consists primarily of personnel costs
associated with the support of the Company's software products and third-party
computer software packages, and the cost of user documentation distributed to
clients. Cost of support decreased 1.5% for the three months ended March 31,
2001 from the same period in 2000. The decrease was primarily due to fewer
support personnel in 2001. Cost of support as a percentage of support revenue
decreased to 54.5% from 72.4% for the three months ended March 31, 2001 and
2000, respectively. This decrease is due to new client additions combined with
fewer support personnel.
Cost of Services. Cost of services, which consists of salaries for
professional services employees, allocated salaries for training and programming
personnel, and payments to outside contractors, decreased 5.5% during the three
months ended March 31, 2001, compared to the same period in 2000. Cost of
services as a percentage of services revenue decreased to 73.7% for the three
months ended March 31, 2001 from 75.5% for the same period in 2000. The decrease
in cost resulted primarily from lower personnel costs and increased
efficiencies.
Total Cost of Revenue. Total cost of sales and services decreased by 48.0%
for the three months ended March 31, 2001, compared to the same period in 2000.
The decrease in total cost of sales and services is primarily attributable to
lower system sales and lower personnel costs during the first quarter of 2001.
General and Administrative. General and administrative expenses include
the cost of the Company's facility, finance, human resources, information
services, and administrative functions. General and administrative expenses
increased 22.7% for the three months ended March 31, 2001, compared to the same
period in 2000. This increase was due primarily to increased infrastructure cost
consisting of higher personnel costs, insurance costs, and domestic subsidiary
expenses. General and administrative expenses as a percentage of total revenue
increased to 43.7% for the three months ended March 31, 2001 from 17.0% for the
same period in 2000. The Company has implemented and will continue to implement
cost cutting measures to reduce expenses as necessary, provided such measures
are not detrimental to the Company's goals.
Sales and Marketing. Sales and marketing expenses include personnel costs,
sales commissions related to sales and marketing of the Company's products and
services, and the cost of advertising, and participation in industry conferences
and trade shows. Sales and marketing expenses increased by 0.8% for the three
months ended March 31, 2001, compared to the same period in 2000. Sales and
marketing expenses as a percentage of total revenue increased to 29.1% for the
three months ended March 31, 2001 from 13.8% for the three months ended March
31, 2000. The Company has, and will continue to reduce sales and marketing
expenditures as required.
Research and Development. Research and development expenses include costs
associated with the development of new products. Such expenses consist primarily
of employee salaries and benefits, consulting
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expenses (including amounts paid to subcontractors for development work), and
the cost of development software and hardware. Research and development expenses
increased 17.4% during the three months ended March 31, 2001 compared to the
same period in 2000. This increase was primarily due to ongoing investment in
the development of new and improved products. The Company expects to continue
making significant investments in new and enhanced products in future periods to
ensure competitive positioning as global economic conditions improve.
(Loss) Income from Operations. As a result of the foregoing factors, the
Company experienced a loss of $3.7 million from operations for the three months
ended March 31, 2001 compared to income of $10,000 from operations for the same
period last year.
Interest Income, Net. Net interest income increased by 4.0% for the three
months ended March 31, 2001, compared to the same period in 2000. The increase
was due to slightly higher interest rates earned on cash balances.
Income Tax Expense. The effective income tax rate for the three months
ended March 31, 2001 was 21.3% compared to 42.4% for the first quarter of 2000.
The effective income tax rate differs from the federal statutory rates because
of the following: (i) the establishment of a partial valuation allowance against
federal and state deferred tax assets, (ii) the effect of state income taxes,
and (iii) the full valuation of net losses of foreign subsidiaries. Also,
effective rates vary between periods because of the differing effects the net
income and losses of foreign subsidiaries have on income before income taxes.
Net (Loss) Income. As a result of the above factors, the Company
experienced a net loss of $2.5 million for the three months ended March 31, 2001
compared to net income of $320,000 for the same period in 2000.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2001, the Company's primary sources of liquidity consisted of
cash and cash equivalents totaling $38.7 million.
The Company's operating activities provided cash for the three months ended
March 31, 2001 in the amount of $2.1 million and used cash in the amount of $1.7
million for the same period in 2000. The increase in cash provided was primarily
due to the collection of outstanding account receivable balances during the
three months ended March 31, 2001.
Cash used in investing activities was approximately $277,000 and $992,000,
for the three months ended March 31, 2001 and 2000, respectively. This cash was
used for capital expenditures, which relate primarily to purchases of computers,
printers and software to support the Company's operations, as well as furniture,
fixtures and leasehold improvements. Capital expenditures increased
significantly during the first three months of 2000 due to expenses associated
with an expansion of existing facilities. The Company expects to reduce its
purchases of property and equipment for the remainder of fiscal 2001.
For the three months ended March 31, 2001, cash provided by financing
activities totaled $25,000, which consisted primarily of proceeds from sales of
common stock under the Company's employee stock purchase plan. Cash provided by
financing activities totaled $405,000 for the three months ended March 31, 2000,
which consisted primarily of proceeds from the exercise of employees stock
options.
As of March 31, 2001, the Company had working capital of approximately
$39.5 million as compared to working capital of approximately $43.9 at March 31,
2000.
As described elsewhere in this form 10-Q under "Legal Proceedings," the
Company is party to various legal proceedings including class action lawsuits.
With respect to the class action lawsuits, management believes these class
actions are without merit and intends to defend these lawsuits vigorously. At
this time, the Company cannot reasonably estimate the ultimate loss, if any,
related to these class actions and, therefore, the Company has not recorded an
accrual for loss as of March 31, 2001. A loss in this litigation could have a
material adverse effect on the Company's results of operations and financial
condition.
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In June 2000, the Company announced a stock repurchase plan, under which it
was authorized to purchase up to one million shares of its common stock. To date
the Company has repurchased 65,000 shares totaling to $284,000. The Company does
not believe any purchases under the plan will affect its ability to fund
operations.
Management believes that it has adequate cash to finance operations for the
foreseeable future.
FORWARD LOOKING STATEMENTS
Certain matters discussed in this Form 10-Q may be "forward-looking
statements" as defined in 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 revenue, margins, product mix and
service revenues, research and development and selling, general and
administrative activities, liquidity and capital needs, resources and the
outcome of legal proceedings involving the Company. 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. 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.
Factors that may cause actual future events to differ materially from our
forward-looking statements include, but are not limited to the following:
- the unpredictability of revenues due to the large dollar amounts of the
Company's individual license transactions and the lengthy and
unpredictable sales cycles for these transactions;
- the Company's dependence on the development, introduction and client
acceptance of new and enhanced versions of the Ecometry software
products;
- the Company's ability to control costs, including costs associated with
the expansion of the Company's sales force and infrastructure and
increased research and development expenses;
- the Company's dependence on new product development;
- uncertainties regarding the outcome of pending class action litigation
against the Company;
- the Company's reliance on a combination of trade secrets, copyright and
trademark law, nondisclosure agreements and technical measures to protect
its proprietary technology;
- the Company's ability to sell its products in new markets within the
direct commerce industry;
- the Company's dependence on proprietary technology licensed from third
parties;
- the Company's ability to continue to resell a variety of hardware and
software developed and manufactured by third parties;
- the Company's ability to maintain margins on the sale of hardware and
software developed and manufactured by third parties;
- significant competition in the software and direct industry and
competitive pricing for the Company's products;
- customer concentration;
- fluctuations in demand for the Company's products which are dependent
upon the condition of the software and direct commerce industries;
- the Company's ability to collect receivables; and
- other risks and uncertainties described in the Company's prospectus dated
January 29, 1999, Forms 10-K and 10-Q and other documents filed with the
Securities and Exchange Commission.
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In light of these risks and uncertainties, the forward-looking events discussed
in this Form 10-Q might not occur. The Company undertakes no obligation to
publicly update or revise any forward-looking statements contained in this Form
10-Q.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Management believes the risk of loss arising from adverse changes in
interest rates, foreign currency exchange rates, commodity prices and other
relevant market rates and prices, such as equity prices, if any, is immaterial.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, the Company is involved in legal proceedings incidental
to the conduct of its business. Other than as disclosed below and in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
2000, the Company believes that litigation, individually or in the aggregate, to
which it is currently a party, is not likely to have a material adverse affect
on the Company's business, financial condition or results of operations.
Between June 22, 2000 and August 14, 2000, four purported class-action
complaints were filed against the Company and Messrs. Gary G. Hegna, Martin K.
Weinbaum, Allan Gardner and Wilburn Smith, officers of the Company, in the
United States District Court for the Southern District of Florida.
All four complaints were substantially similar and alleged, among other
things that the Company made material misrepresentations and omissions regarding
the Company's future revenues, growth, expenditures, and that the Company failed
to disclose adverse information regarding the collectibility of amounts owed by
a client. The complaints alleged that the defendants violated Section 10(b) of
the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5 there
under by making untrue statements or omitting to state material facts in
connection with purchases of Company common stock by the plaintiffs and others
in the purported class from October 27, 1999 through June 16, 2000, and that the
defendants violated Section 20(a) of the Exchange Act through the same conduct
by virtue of their allegedly being "controlling persons" of the Company. The
Complaints generally sought, among other things, certification as a class and an
award of damages in an amount to be determined at trial.
On September 11, 2000 the court consolidated all four actions, and
appointed four individuals to serve as "lead plaintiffs." The plaintiffs filed
their Consolidated Amended Complaint on November 20, 2000. On January 4, 2001
the defendants filed a motion to dismiss the consolidated complaint. The
plaintiffs filed an opposition to the defendants' motion to dismiss on February
20, 2001. The Company's reply in support of the motion to dismiss was filed on
March 21, 2001 and oral argument was held on April 2, 2001. The motion to
dismiss is currently under consideration with the Court.
Discovery in this action has not yet commenced and will be stayed pursuant
to statute based on the filing of the motion to dismiss. The stay would be
lifted in the event that the court denies the motion to dismiss. Management
believes these plaintiffs claims are without merit and intends to defend them
vigorously. At this time, the Company cannot reasonably estimate the ultimate
loss, if any, related to this action and, therefore, the Company has not
recorded an accrual for loss as of March 31, 2001.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On January 29, 1999, the Company's Registration Statement on Form S-1, File
No. 333-63125, relating to the Company's initial public offering was declared
effective by the SEC. As of May 9, 2001, the proceeds of the offering have been
used as follows: (i) to redeem in full the Company's outstanding Redeemable
Participating Preferred Stock ($12.0 million) and (ii) to repay accrued interest
related to the Convertible Debentures ($4.7 million). Management expects that
the balance of the net proceeds of the offering will be utilized to finance
potential future acquisitions and for general corporate purposes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
None.
(b) Reports on Form 8-K:
The Company filed a Report on Form 8-K dated February 21, 2001, which noted
that effective March 1, 2001, Gary G. Hegna had resigned as the Chairman and
Chief Executive Officer of the Company.
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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.
ECOMETRY CORPORATION
By: /s/ MARTIN K. WEINBAUM
------------------------------------
Martin K. Weinbaum
Vice President Finance and Chief
Financial Officer
(Principal Financial and Accounting
Officer and Duly Authorized Officer)
Date: May 15, 2001
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