UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-15946
EBIX.COM, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
---------------------------------
(State or other jurisdiction of
incorporation or organization)
1900 E. GOLF ROAD
SCHAUMBURG, IL
--------------
(Address of principal executive offices)
77-0021975
----------
(I.R.S. Employer
Identification No.)
60173
-----
(Zip Code)
Registrant's telephone number, including area code: 847-789-3047
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X| No |_|
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date. 11,382,182 Shares as of
November 8, 2000.
EBIX.COM, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2000
INDEX
Part I - FINANCIAL INFORMATION PAGE
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets at September 30, 2000
(unaudited) and December 31, 1999.................................. 3
Consolidated Statements of Operations for the Three and Nine
Months Ended September 30, 2000 and 1999 (unaudited)............... 4
Consolidated Statements of Stockholders' Equity (Deficit) for the Three
and Nine Months Ended September 30, 2000 (unaudited)............. 5
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 2000 and 1999 (unaudited)...................... 6
Notes to Consolidated Financial Statements (unaudited).................. 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................... 10
Item 3. Quantitative and Qualitative Disclosures About
Market Risk...................................................... 17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings................................................... 18
Item 2. Changes to Securities and Use of Proceeds........................... 18
Item 5. Other Information................................................... 18
Item 6. Exhibits and Reports on Form 8-K................................... 19
SIGNATURES....................................................................... 19
2
EBIX.COM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except for share amounts)
(Unaudited)
SEPTEMBER 30, DECEMBER 31,
2000 1999
---- ----
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $4,937 $7,055
Accounts receivable, less allowance of $1,004
Unbilled receivables 118 120
Trade receivables 2,590 2,977
--------------- -----------------
Total accounts receivable 2,708 3,097
--------------- -----------------
Other receivables 118 332
Other current assets 236 169
--------------- -----------------
TOTAL CURRENT ASSETS 7,999 10,653
Property and equipment, net 1,438 2,059
Purchased software, net 25 97
Goodwill, net 360 503
Other assets 47 77
--------------- -----------------
TOTAL ASSETS $9,869 $13,389
=============== =================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current portion of long term debt $214 $217
Accounts payable and accrued expenses 4,655 3,166
Accrued payroll and related benefits 407 827
Current portion of capital lease obligation 172 97
Deposit liability 2,225 2,324
Deferred revenue 2,472 3,046
--------------- -----------------
TOTAL CURRENT LIABILITIES 10,145 9,677
Long term debt, less current portion - 106
Long term capital lease obligation, less current portion 413 623
Other liabilites 252 -
--------------- -----------------
TOTAL LIABILITIES 10,810 10,406
--------------- -----------------
STOCKHOLDERS' EQUITY (DEFICIT):
Convertible Series D Preferred stock, $.10 par value, 2,000,000
shares authorized, no shares issued and outstanding at - 49
September 30, 2000: 221 shares issued and outstanding at
December 31, 1999
Common stock, $.10 par value,
20,000,000 shares authorized,
11,382,182 and 10,763,548 issued and
outstanding 1,138 1,076
Additional paid-in capital 80,715 76,687
Deferred compensation (627) (1,549)
Accumulated deficit (81,958) (73,166)
Accumulated other comprehensive loss (209) (114)
--------------- -----------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (941) 2,983
--------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $9,869 $13,389
=============== =================
See accompanying notes to consolidated financial statements.
3
EBIX.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
---- ---- ---- ----
REVENUE:
Software $545 $674 $1,380 $1,771
Services and other 2,338 2,389 7,351 8,675
----- ----- ----- -----
TOTAL REVENUE 2,883 3,063 8,731 10,446
OPERATING EXPENSES:
Software costs 65 117 243 421
Services and other costs 1,564 2,649 4,907 7,626
Product development 867 1,873 2,969 4,424
Sales and marketing 1,330 1,740 4,071 3,346
General and administrative 1,480 1,014 5,258 5,756
Amortization of goodwill
and non-compete agreement 47 95 189 283
----- ----- ------ ------
TOTAL OPERATING EXPENSES 5,353 7,488 17,637 21,856
----- ----- ------ ------
OPERATING LOSS (2,470) (4,425) (8,906) (11,410)
Interest income 81 14 325 14
Interest expense (27) (21) (77) (187)
----- ----- ------ ------
Loss before income taxes (2,416) (4,432) (8,658) (11,583)
Income tax provision (59) (1) (134) (26)
----- ----- ------ ------
Net loss ($2,475) ($4,433) ($8,792) ($11,609)
======= ======= ======= ========
Basic and Diluted net loss per common share ($0.22) ($0.43) ($0.78) ($1.30)
====== ====== ====== ======
Basic and Diluted weighted average shares outstanding 11,377 10,213 11,337 8,910
====== ====== ====== =====
See accompanying notes to consolidated financial statements.
4
EBIX.COM, INC. AND SUBSIDIARIES
CONSOIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Deficit)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
Preferred stock COMMON STOCK
--------------- ------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------
BALANCE, DECEMBER 31, 1999 221 $49 10,763,549 $1,076
Net loss -- -- -- --
Translation adjustment -- -- -- --
Other comprehensive loss
Conversion of preferred stock (221) (49) 9,945 1
Exercise of stock options -- -- 12,988 2
Exercise of stock warrants -- -- 595,700 59
Deferred compensation and amortization
related to options and warrants
----------------------------------------------------------
BALANCE, SEPTEMBER 30, 2000 (UNAUDITED) 0 $0 11,382,182 $1,138
----------------------------------------------------------
ACCUMULATED
ADDITIONAL OTHER
PAID-IN DEFERRED ACCUMULATED COMPREHENSIVE
CAPITAL COMPENSATION DEFICIT (LOSS) INCOME TOTAL
-----------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999 $76,687 ($1,549) ($73,166) ($114) $2,983
-----------------------------------------------------------------------
Net loss -- -- (8,792) -- (8,792)
Translation adjustment -- -- -- (95) (95)
Other comprehensive loss
Conversion of preferred stock 48 --
Exercise of stock options 50 -- -- 52
Exercise of stock warrants 4,408 -- 4,467
Deferred compensation and amortization
related to options and warrants (478) 922 444
------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 2000 (UNAUDITED) $80,715 ($627) ($81,958) ($209) ($941)
------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
5
EBIX.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
NINE MONTHS ENDED
SEPTEMBER 30,
2000 1999
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($8,792) ($11,609)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET
CASH USED IN OPERATING ACTIVITIES:
Depreciation and amortization of property and equipment 621 453
Amortization of intangibles 263 165
Stock-based compensation 444 1,556
CHANGES IN ASSETS AND LIABILITIES:
Trade receivable, net 387 831
Unbilled receivables, other receivables, and other current assets 131 (192)
Accounts payable and accrued expenses 1,489 (838)
Accrued payroll and related benefits (420) (1,077)
Deposit liability, deferred revenue and other liabilities (421) 334
---------- ----------
Net cash used in operating activities (6,298) (10,377)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures - (722)
Purchase of minority interest - (50)
---------- ----------
Net cash used in investing activities - (772)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of debt (109) (3,979)
Repayments of capital lease obligations (135) 313
Proceeds from exercise of common stock warrants 4,467 19,565
Proceeds from exercise of common stock options 52 753
---------- ----------
Net cash provided by financing activities 4,275 16,652
---------- ----------
Effect of foreign exchange rates on cash (95) (31)
Net change in cash and cash equivalents (2,118) 5,472
Cash and cash equivalents at the beginning of the period 7,055 1,053
---------- ----------
Cash and cash equivalents at the end of the period $ 4,937 $ 6,525
---------- ----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 54 $ 231
Income taxes paid 14 7
See accompanying notes to consolidated financial statements.
6
ebix.com, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(All dollar amounts in thousands, except share data)
Note 1. BASIS OF PRESENTATION
These financial statements are unaudited and reflect all adjustments (consisting
only of normal recurring adjustments) which are, in the opinion of management,
necessary for a fair presentation of the results of the interim periods.
These financial statements should be read in conjunction with the consolidated
financial statements, and accompanying notes thereto, included in the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1999.
The results of operations for the current interim period are not necessarily
indicative of results to be expected for the entire current year.
Certain prior period amounts have been reclassified to conform to the current
presentation.
Note 2. RESTATEMENT
In its Form 10-K for the fiscal year ended December 31, 1999 ("Fiscal 1999"),
the Company restated and reclassified its consolidated financial statements for
the nine month transition period ended December 31, 1998 ("Transition Period
1998") and the fiscal year ended March 31, 1998 (`Fiscal 1998").
Unaudited quarterly financial data for Fiscal 1999 has been restated and
reclassified. The effect of such reclassifications and the restatements on the
third quarter of Fiscal 1999 statement of operations line items is shown in the
following table:
Q3 Q3
AS FILED RESTATED
9/30/1999 ADJ 9/30/1999
--------- --- ---------
REVENUE:
Software $536 (138) (a) $674
Services and other 2,656 267 2,389
--------------- ---------------
TOTAL REVENUE 3,192 3,063
OPERATING EXPENSES:
Software costs 648 (531) 117
Services and other costs 2,134 515 2,649
Product development 1,364 509 1,873
Sales and marketing 1,740 - 1,740
General and administrative 1,232 (218) 1,014
Amortization of goodwill and non-compete -
agreements 49 46 95
--------------- ---------------
TOTAL OPERATING EXPENSES 7,167 7,488
--------------- ---------------
OPERATING LOSS (3,975) (4,425)
Interest income 14 14
Interest expense - (21) (21)
--------------- ---------------
Income loss before income taxes (3,961) (4,432)
Income tax provision 1 1
--------------- ---------------
Net loss ($3,962) ($4,433)
=============== ===============
Basic and Diluted net loss per common share ($0.39) ($0.43)
=============== ===============
Basic and Diluted weighted average shares outstanding 10,213 10,213
=============== ===============
(a) ($135) of this adjustment represents the reversal of revenue which was
reflected in the Company's 1999 Form 10-K as reversed in the first and second
quarters of 1999 rather than the third quarter of 1999.
Note 3. WARRANTS
In conjunction with the May 1996 and January 1997 private equity placements and
conversion of a $1,500 outstanding promissory note, the Company issued units,
each consisting of one share of common stock and one redeemable warrant to
purchase one share of common stock at an exercise price of $7.50 per share,
subject to certain anti-dilutive adjustments.
Between January 1, 2000 and January 16, 2000, all remaining such warrants, which
were due to expire on January 16, 2000, were exercised for 595,700 shares of
common stock generating approximately $4,467 in cash.
In connection with the May 1996 private equity placement described above, the
Company issued a warrant to the placement agent (the "Agent's Warrant") to
purchase 200,000 shares of the Company's common stock at $5.00 per share. The
Agent's Warrant is not subject to redemption and expires May 1, 2001. At
September 30, 2000, 11,450 shares may still be purchased under this warrant.
7
Note 4 - STOCK OPTIONS AND WARRANTS
During 1999, the Company granted selected executives and key employees 466,000
incentive stock option awards whose vesting is contingent upon increases in the
Company's stock price and other performance based measures, such as achieving
specified revenues for new products. During 2000, the Company granted an
additional 40,000 stock option incentive awards. For these options, vesting
generally occurs when the Company's stock price equals $9.00, $12.00, $15.00 and
$20.00 per share. The exercise price of each option, which has a ten year life,
is equal to the market price of the Company's stock on the date of grant.
Compensation cost is measured and recorded for these options using variable plan
accounting as prescribed by APB Opinion No. 25 at the end of each quarterly
reporting period and is subsequently adjusted for increases or decreases in the
Company's stock price until the exercise date. A credit to compensation expense
related to these incentive options of approximately $708 was recognized during
the nine month period ended September 30, 2000. This benefit offsets expense
previously recorded under variable plan accounting. A credit is recognized in
periods where the strike price exceeds the stock price to the extent of expense
previously recognized. At September 30, 2000, 196,125 of the incentive options
were vested.
The Company has granted nonstatutory and incentive options outside the Company's
stock option plan to persons who were not directors, officers or employees to
purchase up to an aggregate of 79,333 shares. These options are granted at
prices determined by the Board of Directors (no less than 100 percent of the
market price). The options are exercisable within ten years of the date of the
grant. Included in these options are 5,000 options which the Company granted in
the second quarter of 2000, 30,000 options which the Company granted in the
first quarter of 2000, 43,333 options which the Company granted in 1999, and
1,000 options granted prior to 1999. No such options were granted in the third
quarter of 2000.
These non-employee options were valued using the fair value method as prescribed
by SFAS No. 123. The majority of these options are performance based awards,
with no service commitment and subject to vesting only if the Company's stock
price reaches a certain level. At September 30, 2000, 69,958 of the non-employee
options were vested. The Company has recognized compensation expense of
approximately $154 related to these options during the nine month period ended
September 30, 2000.
On August 20, 1999, the Company granted a two year warrant to Hewlett-Packard to
purchase 4.9% of the Company's outstanding common stock for $15.00 per share
during the first year of the warrant and $20.00 per share during the second year
of the warrant. The Company also granted a second warrant to Hewlett-Packard
under the same agreement for the purchase of 4.5% of the Company's outstanding
common stock during the second year of the term of the agreement for $20.00 per
share. The number of shares eligible to be purchased upon exercise of the
warrants will be measured based on the outstanding common stock as of the most
recent quarter or year-end as reported on the Company's report on Form 10-Q or
Form 10-K. At September 30, 2000, the warrants issued to Hewlett - Packard
represent the rights to purchase 557,240 and 511,751 shares, respectively. For
both warrants, if the fair value of the common stock is greater than the
purchase price, Hewlett-Packard may elect to receive shares equal to the value
of the warrant in lieu of exercising the warrant with cash.
8
The Company also issued warrants in connection with the InfoSpace.com Internet
Promotion Agreement dated August 31, 1999. The first warrant is for the purchase
of 250,000 shares of the Company's common stock at a price of $15.00 per share
if exercised during the first year of the agreement or $20.00 per share if
exercised during the second year of the agreement. The warrant vested 62,500
shares on September 30, 1999, 62,500 shares on December 31, 1999 and 125,000
shares on March 31, 2000. The Company also granted a second warrant to
InfoSpace.com under the same agreement for the purchase of 4.9% of the Company's
outstanding common stock at August 31, 1999, on a fully diluted basis including
conversion of this warrant. This warrant issued to Infospace.com represents the
rights to purchase 526,572 shares at a price of $15.00 per share if exercised
during the first year of the agreement or $20.00 per share if exercised during
the second year of the agreement. The second warrant is exercisable in lieu of
the Company paying invoices rendered by InfoSpace.com.
Expense of $961 was recognized during the nine month period ended September 30,
2000 related to these warrants.
Note 5. EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share ("EPS") is equal to net income (loss) divided by
the weighted average number of shares of common stock outstanding for the
period. The weighted average number of common shares outstanding for the three
and nine months ended September 30, 2000 were 11,377,155 and 11,337,023,
respectively. The weighted average number of common shares outstanding for the
three and nine months ended September 30, 1999 were 10,212,650 and 8,909,553,
respectively. Diluted EPS recognizes the dilutive effect of common stock
equivalents and is equal to net income divided by the sum of the weighted
average number of shares outstanding and common stock equivalents. The Company's
common stock equivalents consist of stock options, common stock warrants, and
convertible preferred stock. Consistent with previous standards, SFAS No. 128
prohibits inclusion of the impact of common stock equivalents in the calculation
of EPS when inclusion results in antidilution. Accordingly, for the three and
nine months ended September 30, 2000 and September 30, 1999, basic and diluted
EPS are equal because all potentially issuable common shares would be
antidilutive. As of September 30, 2000 there were approximately 2,820,000 shares
potentially issuable with respect to stock options, warrants and convertible
preferred stock, which could dilute Basic EPS in the future.
Note 6. COMPREHENSIVE LOSS
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
--------- -------- -------- --------
Net loss ($ 2,475) ($ 4,433) ($ 8,792) ($11,609)
Other comprehensive income (loss):
Foreign currency translation adjustment (102) 13 (95) (31)
-------- -------- -------- --------
Comprehensive loss ($ 2,577) ($ 4,420) ($ 8,887) ($11,640)
======== ======== ======== ========
9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following information should be read in conjunction with the unaudited
financial statements and the notes thereto included in Part 1 Item 1 of this
Quarterly Report and the financial statements and notes thereto, and
Management's Discussion and Analysis of Financial Condition and Results of
Operations contained in the Company's Annual Report on Form 10-K, for the fiscal
year ended December 31, 1999. All dollar amounts in this Management Discussion
and Analysis are in thousands. As more fully described in the Notes to the
Consolidated Financial Statements, certain financial information in this filing
has been restated to correct previously issued financial statements. The
discussion in this item reflects those restatements.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended September 30, 2000, the Company experienced
negative operating cash flow of $6,298. The Company funded cash used in
operating activities and investing activities primarily through the use of cash
proceeds from the exercise of stock warrants and employee stock options of
$4,519.
Although the cash proceeds resulting from the exercise of stock warrants and
options have provided the Company with unused sources of capital, the Company
continues to experience operating losses as well as negative cash flows. In
addition, the Company's current product strategy has added the design and
development of ebix.com, which was launched on September 8, 1999; the Company is
pursuing the successful commercialization of this e-commerce insurance portal.
Although transactions have occurred on ebix.mall in 1999 and 2000, because the
Company has not processed the charges, which are de minimis in amount, no
revenue has been recognized to date. Transactions have not occurred on the
website for ebix.link. However, the Company expects to generate increased
traffic to its website, having just entered into an agreement whereby ebix.com
becomes the exclusive online insurance services provider for AltaVista, (See
exhibit 99, press release dated November 7, 2000 re: Agreement with AltaVista
incorporated herein by reference). However, there can be no assurance of the
volume of traffic or amount of revenue that the ebix.com website will generate.
The Company is currently faced with liquidity concerns. In order to meet the
projected cash requirements of the business, and to continue as a going concern
after the next twelve months, it will be necessary for the Company to increase
its revenue sources beyond those accessed during the past two years or secure
financing sources, beyond those currently available. Furthermore, the Company
believes its cash balances, available credit facility and funds from
10
operations will be sufficient to meet all of its anticipated cash requirements
for at least the next 12 months only if supplemented with potential strategic
equity investments.
Management believes that the required financing sources to operate the business
as a going concern will be secured, although there can be no assurances that
such financing will be available or that it will be available on terms
satisfactory to the Company.
Management will endeavor to secure necessary financing sources, which could
include one or more equity investors, in order to continue to operate the
business.
PROFESSIONAL SERVICE COSTS - The Company has incurred substantial professional
services costs related to the restatement of its financial statements for the
transition period ended December 31, 1998 and fiscal year ended March 31, 1998,
as filed on June 1, 2000 in the Company's Form 10-K for the year ended December
31, 1999. Such costs, which totaled approximately $1,100, were recognized in the
second quarter of 2000.
DEFERRED REVENUE - The Company traditionally invoices software maintenance and
support in advance of providing the service. The software maintenance fees are
recorded as deferred revenue and recognized ratably over the term of the
software maintenance agreement. The Company's current liabilities at September
30, 2000 include deferred revenue of $2,472 and deposit liabilities of $2,225.
The liability is satisfied through normal ongoing operations of the Company's
service organization and generally does not require payment to third parties.
PRODUCT DEVELOPMENT - At September 30, 2000, the Company employed 19 full-time
employees engaged in product development activities. These activities include
research and development of software enhancements, improving usefulness,
adaptation to newer software and hardware technologies, and increasing
responsiveness. Product development expenditures were $867 and $2,969 for the
three and nine month periods ended September 30, 2000, respectively.
BANK LINE OF CREDIT - Effective January 1997, the Company established a line of
credit up to $4,000, subject to borrowing base limits. Borrowings are secured by
accounts receivable and certain other assets. The agreement provides for a
minimum monthly interest at the bank's prime lending rate plus two and one-half
percent (2.5%) on the greater of the actual amount outstanding or $1,600. The
agreement contains certain covenants including the maintenance of a minimum net
worth of $2,000, and restrictions upon certain activities by the Company without
the approval of the bank including the incurrence of senior debt, certain
mergers or acquisitions, and the payment of dividends. The October 1999
amendment to the bank line of credit provides for a forbearance period until the
maturity date. Since July 1999 the Company has had no borrowings under the bank
line of credit but the Company is nevertheless obligated, until the January 31,
2001 maturity date, to pay to the lender minimum interest on the sum of $1,600
at prime plus 2.5%.
NON-COMPETE NOTE PAYABLE - The Company, in the first quarter of 2000 paid a $120
installment (principal and interest) on an 11.75% interest bearing unsecured
note. The remaining installment of $120 is due in the first quarter of 2001.
11
PREFERRED STOCK CONVERSION - On August 1, 2000, the Company's only preferred
stockholder converted 221 shares of the Company's Series D Preferred Stock to
9,945 shares of the Company's Common Stock.
WARRANTS - Between January 1, 2000 and January 16, 2000, the remaining warrants
related to the January 1997 private placement issue of warrants to acquire
1,126,100 shares of common stock, which were due to expire on January 16, 2000,
were exercised resulting in the issuance of 595,700 shares of common stock
generating approximately $4,467 in cash.
In connection with a May 1996 private equity placement, the Company issued a
warrant to the placement agent (the "Agent's Warrant") to purchase 200,000
shares of the Company's common stock at $5.00 per share. The Agent's Warrant is
not subject to redemption and expires May 1, 2001. At September 30, 2000, 11,450
shares may still be purchased under this warrant.
On August 20, 1999, the Company granted a two year warrant to Hewlett -Packard
to purchase 4.9% of the Company's outstanding common stock for $15.00 per share
during the first year of the warrant and $20.00 per share during the second year
of the warrant. The Company also granted a second warrant to Hewlett-Packard
under the same agreement for the purchase of 4.5% of the Company's outstanding
common stock during the second year of the term of the agreement for $20.00 per
share. The number of shares eligible to be purchased upon exercise of the
warrants will be measured based on the outstanding common stock as of the most
recent quarter or year-end as reported in the Company's report on Form 10-Q or
Form 10-K. At September 30, 2000, the warrants issued to Hewlett-Packard
represent the rights to purchase 557,240 and 511,751 shares, respectively. For
both warrants, if the fair value of the common stock is greater than the
purchase price, Hewlett-Packard may elect to receive shares equal to the value
of the warrant in lieu of exercising the warrant with cash.
The Company also issued warrants in connection with the InfoSpace.com Internet
Promotion Agreement dated August 31, 1999. The first warrant is for the purchase
of 250,000 shares of the Company's common stock at a price of $15.00 per share
if exercised during the first year of the agreement or $20.00 per share if
exercised during the second year of the agreement. The warrant vested 62,500 on
September 30, 1999, 62,500 on December 31, 1999 and 125,000 on March 31, 2000.
The Company also granted a second warrant to InfoSpace.com under the same
agreement for the purchase of 4.9% of the Company's outstanding common stock at
August 31, 1999, on a fully diluted basis including conversion of this warrant.
This warrant issued to Infospace.com represents the rights to purchase 526,572
shares at a price of $15.00 per share if exercised during the first year of the
agreement or $20.00 per share if exercised during the second year of the
agreement. The second warrant is exercisable in lieu of the Company paying
invoices rendered by InfoSpace.com.
The Company's common stock has traded at prices from $3.56 to $2.00 from
September 29, 2000 to October 31, 2000, rendering it improbable that the
warrants held by Hewlett-Packard and InfoSpace.com will be exercised.
COMMON STOCK OPTIONS - During the nine months ended September 30, 2000, the
Company received approximately $52 from the exercise of outstanding stock
options. As of September 30, 2000, there are outstanding vested options to
purchase approximately 482,828 shares of common
12
stock at an average exercise price of $5.77 per share. The majority of
outstanding options have expiration dates in excess of five years from September
30, 2000.
NEW ACCOUNTING STANDARDS - In June 1999, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 133 ("Statement
133"), "Accounting for Derivative Instruments and Hedging Activities." This
standard requires that an entity recognize derivatives as either assets or
liabilities on its balance sheet and measure those instruments at fair value. As
a result of Statement of Financial Accounting Standards No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of Statement 133," the Company will adopt this standard in the first quarter of
2001. Based on current circumstances, the Company does not believe that the
application of Statement 133 will have a material effect on the Company's
financial condition or results of operations.
EURO CONVERSION - Effective January 1, 1999, eleven of the fifteen member
countries of the European Union (the "participating countries") have agreed to
adopt a new common legal currency (the "euro"). The participating countries
established fixed conversion rates between their existing sovereign currencies
(the "legacy currencies") and the euro. Following the introduction of the euro,
the legacy currencies are scheduled to remain legal tender in the participating
countries as denominations of the euro between January 1, 1999 and January 1,
2002 (the "transition period"). During the transition period transactions may be
settled using either the euro or the participating country's legacy currency on
a "no compulsion, no prohibition" basis. Conversion rates will no longer be
computed directly from one legacy currency to another but rather will utilize a
"triangulation" method specified by European Union regulations whereby payments
made in a legacy currency are converted to the euro and subsequently converted
to the recipient's desired legacy currency. Beginning January 1, 2002, the
participating countries will issue new euro-denominated bills and coins for use
in cash transactions. No later than July 1, 2002, the participating countries
will withdraw all bills and coins denominated in legacy currencies such that
legacy currencies will no longer be legal tender for any transactions,
completing the euro conversion.
The Company currently has no bank accounts denominated in any legacy currency
and has not entered into any material transactions denominated in any legacy
currency. The Company has produced enhancements to certain software products
marketed in Europe to accommodate the euro conversion process (the "euro
module"). The cost to develop the euro module was not material and it will be
provided at minimal cost to existing customers under maintenance agreements.
Management believes the euro module allows for the continued marketing and sale
of the Company's products to customers requiring euro conversion capabilities.
RESULTS OF OPERATIONS
THREE MONTH PERIODS ENDED SEPTEMBER 30, 2000 AND 1999
TOTAL REVENUE - The Company's revenue is derived from the licensing and sale of
proprietary software and third party software ("Software") and from professional
services, maintenance services, and support services ("Services"). Professional
services include consulting, implementation, training and project management
provided to the Company's customers with
13
installed systems and those in the process of installing systems. Total revenue
is comprised of software revenue and service revenue. No revenue has yet been
recorded for the Company's ebix.com website.
Total revenue for the quarter ended September 30, 2000 decreased $180 or 5.9%
from the comparable quarter of the prior year.
SOFTWARE REVENUE - The Company's current product strategy is centered on a new
generation of products, collectively referred to as the ebix (formerly "cd")
product line and are comprised of ebix.global (formerly "cd.global"), a modular,
state of the art, agency management solution providing flexibility and the
ability to handle unstructured data and complex risk, ebix.com, a website, and
ebix.one (formerly "cd.one"), a structured system utilizing many features of the
Company's previous products.
The Company also has six "legacy" products including: INfinity, INSIGHT,
PC-ELITE, Insurnet, SMART, and Vista. The legacy products provide basic
functions such as policy administration, claims handling, accounting, and
financial reporting. Current legacy products will be maintained and supported as
long as there is adequate economic and strategic justification. Customers
utilizing legacy products will continue to be encouraged to migrate to newer
products.
Software revenue is comprised of revenue from the sale of ebix (formerly "cd")
products, current legacy products, and other third party software. During the
second quarter of Fiscal 1997, the Company discontinued the sale and marketing
of computer hardware. The sale of hardware was discontinued in order to focus
the Company's resources on the development and sale of software and services.
Subsequent to the Company's exit from the hardware sector, the Company continues
to receive commissions from hardware vendors for product referrals although this
is not a material source of revenue for the Company. These commissions are
included in other income.
ebix.mall is expected to generate revenues through transaction fees and
acceptance fees (currently, charges payable by an agent, broker or carrier, as
the case may be, are $1.00 upon quoting and $20.00 upon processing a sale of a
policy through the Company's site). ebix.link is expected to generate revenues
through transaction fees. Although transactions have occurred on ebix.mall in
2000, because the Company has not processed the charges, which are de minimis in
amount, no revenue has been recognized to date. Transactions have not occurred
on the website for ebix.link. However, the Company expects its sales to
increase, having recently entered into the agreement with the AltaVista Company
described above under "Liquidity and Capital Resources," incorporated herein by
reference.
Total software revenue for the quarter decreased $129 or 19.1% from the
comparable quarter of the prior year. This decrease reflects the shifting of the
Company's focus away from the agency management legacy products and towards the
website which has not yet begun generating revenues.
SERVICES REVENUE - Total services revenue for the quarter decreased $51 or 2.1 %
from the comparable quarter of the prior year. This decrease is due to a
decrease in support revenue associated with legacy products.
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SOFTWARE COSTS - Cost of Software revenue includes the cost of third party
software and the amortization of purchased software.
Total software costs for the quarter decreased $52 or 44.4% from the comparable
quarter of the prior year. This decrease is due to a decrease in third party
sales and the costs associated with such sales.
SERVICES AND OTHER COSTS - Cost of Services revenue includes costs associated
with support, consulting, implementation and training services.
Total services and other costs for the quarter decreased $1,085 or 41.0% from
the comparable quarter of the prior year. This decrease is related to the
reduction in staffing levels for consultants, trainers and support staff.
PRODUCT DEVELOPMENT EXPENSES - Total product development expenses for the
quarter decreased $1,006 or 53.7% from the comparable quarter of the prior year.
This decrease reflects a change in the Company's focus from the agency
management products to the website which at this time requires less product
development.
SALES AND MARKETING EXPENSES - Total sales and marketing expenses for the
quarter decreased $410 or 23.6 % from the comparable quarter of the prior year.
This decrease is attributable to a decrease in the amount of ebix promotion in
third quarter 2000 as compared to third quarter 1999 when ebix was launched. The
Company expects its sales and marketing expenses to increase, having recently
entered into the agreement with the AltaVista Company described above under
"Liquidity and Capital Resources," incorporated herein by reference.
GENERAL AND ADMINISTRATIVE EXPENSES -Total general and administrative expenses
for the quarter increased $466 or 46.0 % from the comparable quarter of the
prior year. This increase is due to a $389 loss related to the sublease of
property and a $285 of expense related to a legal settlement partially offset
by a reduction in staffing levels and rent expense.
AMORTIZATION OF GOODWILL AND NON-COMPETE AGREEMENT -Total amortization of
goodwill and non-compete agreement for the quarter decreased $48 or 50.5% from
the comparable quarter of the prior year. This decrease is due to the
non-compete agreement being fully amortized as of March 31, 2000.
INTEREST INCOME - Total interest income for the quarter increased $67 for the
quarter and represents income earned on the Company's investment of surplus cash
in short term investments.
INTEREST EXPENSE - Interest expense increased $6 from the comparable quarter of
the prior year.
NINE MONTH PERIODS ENDED SEPTEMBER 30, 2000 AND 1999
TOTAL REVENUE - Total revenue for the nine month period ended September 30, 2000
decreased $1,715 or 16.4% from the comparable period of the prior year.
15
SOFTWARE REVENUE - Total software revenue for the nine month period decreased
$391 or 22.1% from the comparable quarter of the prior year. This decrease
reflects the shifting of the Company's focus away from the agency management
legacy products and towards the website which has not yet begun generating
revenues. However, the Company expects its sales to increase, having recently
entered into the agreement with AltaVista Company described above under
"Liquidity and Capital Resources," incorporated herein by reference.
SERVICES REVENUE - Total services revenue for the period decreased $1,324 or
15.3 % from the comparable period of the prior year. This decrease is due to a
decrease in support revenue associated with legacy products and decreases in
consulting and custom programming revenue.
SOFTWARE COSTS - Total software costs for the period decreased $178 or 42.3%
from the comparable period of the prior year. This decrease is due to a decrease
in third party sales and the costs associated with such sales.
SERVICES AND OTHER COSTS - Total services and other costs for the period
decreased $2,719 or 35.7% from the comparable period of the prior year. This
decrease is related to the reduction in staffing levels for consultants,
trainers and support staff.
PRODUCT DEVELOPMENT EXPENSES - Total product development expenses for the period
decreased $1,455 or 32.9% from the comparable period of the prior year. This
decrease reflects a change in the Company's focus from the agency management
products to the website, which at this time requires less product development.
SALES AND MARKETING EXPENSES - Total sales and marketing expenses for the period
increased $725 or 21.7 % from the comparable period of the prior year. This
increase is attributable to $758 of expense associated with warrants issued to
third parties during 1999 partially offset by a decrease in ebix.com product
promotion. The Company expects its sales and marketing expenses to increase,
having recently entered into the agreement with AltaVista Company described
above under "Liquidity and Capital Resources," incorporated herein by
reference.
GENERAL AND ADMINISTRATIVE EXPENSES -Total general and administrative expenses
for the period decreased $498 or 8.7% from the comparable period of the prior
year. This decrease is due to a reduction in staffing levels partially offset by
professional services costs related to the restatement of its financial
statements for the transition period ended December 31, 1998 and fiscal year
ended March 31, 1998 as filed on June 1, 2000 in the Company's Form 10-K for the
year ended December 31, 1999, a $389 loss related to the sublease of property
and a $285 of expense related to a legal settlement.
AMORTIZATION OF GOODWILL AND NON-COMPETE AGREEMENT -Total amortization of
goodwill and non-compete agreement for the period decreased $94 or 33.2% from
the comparable period of the prior year. This decrease is due to the non-compete
agreement being fully amortized as of March 31, 2000.
INTEREST INCOME - Total interest income for the period increased $311 from the
comparable period of the prior year due to the Company's investment of surplus
cash in short term investments.
INTEREST EXPENSE - Interest expense for the period decreased $110 from the
comparable period of the prior year. This decrease is attributable to the fact
that the Company had borrowings under its bank line of credit agreement in the
1999 period but incurred only minimum interest in the 2000 period because it had
no borrowings under the bank line of credit in that period.
16
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS UNDER THE SECURITIES LITIGATION
REFORM ACT OF 1995 - This Quarterly Report on Form 10-Q contains various
forward-looking statements and information that are based on management's
beliefs as well as assumptions made by and information currently available to
management, including statements regarding future economic performance and
financial condition, liquidity and capital resources, acceptance of the
Company's products by the market and management's plans and objectives. Such
statements are subject to various risks and uncertainties which could cause
actual results to vary materially from those stated. Should one or more of these
risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those anticipated, estimated,
expected or projected. Such risks and uncertainties include the Company's
ability to overcome its recent history of operating losses and declining
revenues, the availability and amount of future sources of capital and the terms
thereof, the extent to which the Company's ebix.com website can be successfully
developed and marketed, the effects of the restatement of the Company's
financial statements and the possible delisting from the NASDAQ SmallCap Market
on the availability and terms of future sources of capital, the effects of such
restatement and such possible delisting on the market for the Company's common
stock, the possible effects of the Securities and Exchange Commission's
investigation of the Company's financial reporting, the risks associated with
future acquisitions, the willingness of independent insurance agencies to
outsource their computer and other processing needs to third parties, the
Company's ability to continue to develop new products to effectively address
market needs in an industry characterized by rapid technological change, the
Company's dependence on the insurance industry (and in particular independent
agents), the highly competitive and rapidly changing automation systems market,
the Company's ability to effectively protect its applications software and other
proprietary information, the Company's ability to attract and retain quality
management, and software, technical sales and other personnel, the risks of
disruption of the Company's Internet connections or internal service problems,
the possibly adverse effects of a substantial increase in volume of traffic on
the Company's website, mainframe and other servers, possible security breaches
on the Company's website, and the possible effects of insurance regulation on
the Company's business. Certain of these as well as other risks and
uncertainties are described in more detail in the Company's Registration
Statement on Form S-3 filed under the Securities Act of 1933, Registration No.
333-12781, and the Company's periodic filings pursuant to the Securities
Exchange Act of 1934. The Company undertakes no obligation to update any such
factors or to publicly announce the results of any of the forward-looking
statements contained herein to reflect future events or developments.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in the Company's market risk during the nine
months ended September 30, 2000. For additional information on market risk,
refer to the "Quantitative and Qualitative Disclosures About Market Risk"
section of the Company's Annual Report on Form 10-K for the year ended December
31, 1999.
17
Part II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
In IN THE MATTER OF THE ARBITRATION BETWEEN DELEWARE VALLEY UNDERWRITING AGENCY,
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INC., AND APEX INSURANCE AGENCY, INC. AND DELPHI INFORMATION SYSTEMS, INC., NOW
- -------------------------------------------------------------------------------
KNOWN AS EBIX.COM, the arbitrator has issued an award against the Company,
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including costs, of approximately $285,000, related to claims with respect to
the functionality of a system sold by the Company in 1995.
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During Fiscal 2000, the Company sold securities (all in the first quarter of
Fiscal 2000 unless otherwise noted) that were not registered under the
Securities Act of 1933 as follows:
The Company sold a total of 595,700 shares of its common stock on various dates
in the first quarter of 2000 for an aggregate consideration of $4,467,000 to
persons who held warrants issued in private placements by the Company in 1996
and 1997. The consideration paid per share consisted of the surrender of a
warrant with respect to one share and $7.50 in cash. The exemption claimed from
registration under the Securities Act of 1933 was Section 4(2) thereof,
exempting transactions by an issuer not involving a public offering, based upon
the fact that the sales were made exclusively to holders of warrants that had
been issued in an earlier private placement. The shares issued on exercise of
the warrants were subject to restrictions on resale.
Options were granted to consultants to the Company to purchase 30,000 shares of
the Company's common stock at per share exercise prices of $9.25, and in the
second quarter of Fiscal 2000, 5,000 shares of the Company's common stock at a
per share exercise prices of $5.09. The consideration for such option issuances
is services to the Company. The exemption claimed from registration under the
Securities Act of 1933 was Section 4(2) thereof, exempting transactions by an
issuer not involving a public offering, based on the fact that these
transactions involved sales to an institution and a single consultant,
respectively, in private transactions.
Item 5. OTHER INFORMATION
On October 2, 2000, October 4, 2000, and October 10, 2000, Roy L. Rogers,
Douglas C. Chisholm, and Dennis Drislane, respectively, were appointed as
Directors of the Company.
As stated in Note 2 to the consolidated financial statements in this Form 10-Q
the Company restated and reclassified its consolidated financial statements for
the 1998 transition period and fiscal 1998, which were included as reaudited and
restated, in the Company's annual report on Form 10-K for the fiscal year ended
December 31, 1999. On August 11, 2000, the Company was advised that the
Securities and Exchange Commission had issued a formal Order of Investigation
and subpoenaed documents relating to the Company's financial reporting since
April 1, 1997, including, in particular, revenue recognition, software
development cost capitalization, royalty costs, and classification of cash
receipts, which were affected by the restatement.
18
The Company has received a request dated October 27, 2000 of the NASDAQ Stock
Market Staff to furnish it with the Company's plan to achieve and sustain
compliance with the NASDAQ SmallCap Market Listing requirements. The NASDAQ
request was made in connection with its current review of the Company's
eligibility for continued listing in light of its present failure to meet the
NASDAQ requirement that a Company satisfy any one of NASDAQ's minimum net
tangible assets, market capitalization, or earnings standards.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
See exhibit index.
(b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ebix.com, Inc.
Date: November 8, 2000 By: /s/ Richard J. Baum
--------------------------------------------
Richard J. Baum
Chief Financial Officer
19
EXHIBIT INDEX
----------------------
EXHIBIT NO. DESCRIPTION
- ----------- --------------------------------------------
3 Amendment to the by-laws (adopted by October
10, 2000 Board of Directors Resolution).
10 Richard J. Baum Severance Agreement*
27.1 Financial Data Schedule, which is submitted
electronically to the Securities and Exchange
Commission for information only and not filed
- September 30, 2000.
27.2 Restated Financial Data Schedule, which is
submitted electronically to the Securities
and Exchange Commission for information only
and not filed - September 30, 1999.
99 Press release dated November 7, 2000 re:
Agreement with AltaVista
* Management contract.
20