SECURITIES AND EXCHANGE COMMISSION
Washington DC 20549
FORM 6-K
REPORT OF FOREIGN ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
GENTIA SOFTWARE PLC
Tuition House
St George's Road
Wimbledon
London SW19 4EU
United Kingdom
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports
under cover Form 20-F or Form 40-F.
Form 20-F X Form 40-F
---------- -----------
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes No X
---------- -----------
If "Yes" is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3-2(b):
82- N.A.
Page 1 of 16 Pages
Exhibit Index Appears on Page 12
GENTIA SOFTWARE PLC
FORM 6-K
TABLE OF CONTENTS
Page
Financial Information:
Condensed Consolidated Balance Sheets as of June 30, 1999 (Unaudited)
and December 31, 1998 (Audited) 3
Condensed Consolidated Statements of Operations for the three months and
six months ended June 30, 1999 and 1998 (Unaudited) 4
Condensed Consolidated Statements of Cash Flows for the six months
Ended June 30, 1999 and 1998 (Unaudited) 5
Notes to Condensed Consolidated Financial Statements (Unaudited) 6
Management's Discussion and Analysis of Financial Condition and Results of Operations. 7
Exhibit Index 12
Exhibit A Second Quarter Press Release 13
2
GENTIA SOFTWARE PLC
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31,
1999 1998
-------- --------
(UNAUDITED) (AUDITED)
(IN THOUSANDS)
US$ US$
ASSETS
Current assets:
Cash and cash equivalents ..................... $ 1,166 $ 5,314
Accounts receivable, net of allowances $ 4,704
( Dec 31, 1998 - $3,801) ................... 6,941 10,565
Prepaid expenses and other current assets ..... 898 1,363
Tax recoverable ............................... -- 212
-------- --------
Total current assets ..................................... $ 9,005 $ 17,454
Property and equipment, net .......................... 1,880 2,192
Goodwill on acquisition, net of amortization of $2,373
(Dec 31, 1998 - $1,789) .......................... 6,353 6,902
-------- --------
Total assets ............................................. $ 17,238 $ 26,548
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of lease obligations .......... $ 88 $ 78
Accounts payable .............................. 2,774 2,203
Accrued liabilities ........................... 4,728 3,778
Deferred revenues ............................. 4,446 4,754
Other accounts payable ........................ 1,406 1,766
-------- --------
Total current liabilities ................................ $ 13,442 $ 12,579
Non current liabilities:
Deferred taxation ............................. -- --
Long-term portion of lease obligations ........ 153 59
-------- --------
Total Liabilities ........................................ $ 13,595 $ 12,638
Shareholders' equity:
Ordinary shares ............................... 2,454 2,445
Additional paid-in capital .................... 28,885 28,881
Retained (deficit) ............................ (26,827) (16,837)
Cumulative translation adjustment ............. (869) (579)
-------- --------
Total shareholders' equity ............................... $ 3,643 $ 13,910
-------- --------
Total liabilities and shareholders' equity ............... $ 17,238 $ 26,548
======== ========
See accompanying notes
3
GENTIA SOFTWARE PLC
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------------- ---------------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1999 1998 1999 1998
-------- -------- -------- --------
US$ US$ US$ US$
Revenues:
License ................................ $ 2,366 $ 4,779 $ 4,660 $ 7,657
Services and other ..................... 3,586 2,960 7,243 5,999
-------- -------- -------- --------
5,952 7,739 11,903 13,656
Cost of revenues:
License ................................ 868 472 1,000 547
Services and other ..................... 2,303 2,045 4,918 3,827
-------- -------- -------- --------
3,171 2,517 5,918 4,374
Gross profit ................................ 2,781 5,222 5,985 9,282
Operating expenses:
Sales and marketing .................... 4,778 4,175 8,436 8,290
Research and development ............... 1,547 2,034 3,134 3,673
General and administrative ............. 1,025 1,021 2,014 2,103
Restructuring costs ..................... 1,376 -- 1,876 --
Goodwill amortization .................. 384 128 584 230
-------- -------- -------- --------
Total operating expenses 9,110 7,358 16,044 14,296
Loss from operations ........................ (6,329) (2,136) (10,059) (5,014)
Other income ................................ 28 215 69 461
-------- -------- -------- --------
Loss before provision for income taxes ...... (6,301) (1,921) (9,990) (4,553)
Provision for income taxes .................. -- -- -- --
-------- -------- -------- --------
Net loss .................................... ($6,301) ($1,921) ($9,990) ($4,553)
======== ======== ======== ========
Basic loss per share ........................ ($0.62) ($0.19) ($0.98) ($0.47)
Diluted loss per share ...................... ($0.62) ($0.19) ($0.98) ($0.47)
Shares used to compute basic EPS ....... 10,214 9,869 10,205 9,753
Shares used to compute diluted EPS ..... 10,214 9,869 10,205 9,753
See accompanying notes
4
GENTIA SOFTWARE PLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
---------------------------
JUNE 30, JUNE 30,
1999 1998
-------- --------
(IN THOUSANDS)
US$ US$
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) ........................................................ $ (9,990) $ (4,553)
Adjustments to reconcile net (loss) to net cash (used in) operating
activities:
Depreciation ............................................. 615 483
Goodwill amortization .................................... 549 230
(Gain) on disposal of assets ............................. (2) 483
Loss on disposal of subsidiary ........................... 2 230
Changes in operating assets and liabilities:
Accounts receivable .................................. 2,721 (2,984)
Provision for bad debts .............................. 903 (481)
Prepaid expenses and other receivables ............... 677 (437)
Accounts payable ..................................... 571 1,246
Accrued liabilities and other expenses ............... 590 85
Deferred revenues .................................... 308 1,080
-------- --------
Net cash (used in) operating activities .................................... (3,056) (5,331)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cost of acquisition ...................................... -- (1,032)
Proceeds on sale of assets ............................... 72 --
Forgiveness of debt on sale of subsidiary ................ (821) --
Purchases of assets ...................................... (373) (871)
-------- --------
Net cash used in investing activities ...................................... (1,122) (1,903)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds on shares issued ............................ 13 493
Generation (repayment) of capital lease obligations ...... 104 (33)
-------- --------
Net cash provided by financing activities .................................. 117 460
-------- --------
Effect of exchange rate changes on cash ........................... (87) (103)
-------- --------
Net (decrease) in cash ............................................ (4,148) (6,877)
Cash at beginning of period ....................................... 5,314 20,332
-------- --------
Cash at end of period ............................................. $ 1,166 $ 13,455
======== ========
See accompanying notes
5
GENTIA SOFTWARE PLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Gentia Software plc (the "Company") is incorporated in England and Wales. The
Company is a leading supplier of analytical applications that enable clients
to maximize their competitive position through enterprise-wide deployment of
strategic management and predictive decision making solutions.
BASIS OF PRESENTATION
The consolidated financial statements are stated in United States dollars and
are prepared under United States generally accepted accounting principles.
INTERIM FINANCIAL INFORMATION
The financial information at June 30, 1999 and the results of operations for the
three months and six months ended June 30, 1999, and 1998 are unaudited but
include all adjustments which the Company considers necessary for a fair
presentation of the financial position at such date and the operating results
and cash flows for those periods. Results for the three month period ended June
30, 1999 are not necessarily indicative of results that may be expected for the
entire year. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with United States generally
accepted accounting principles have been condensed or omitted pursuant to the
Securities and Exchange Commission Rules and Regulations. In accordance with SOP
98-1, the Company has capitalized computer software obtained for internal use.
PRINCIPLES OF CONSOLIDATION
The accompanying financial statements consolidate the accounts of the Company
and its wholly and majority owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
FOREIGN EXCHANGE
The consolidated balance sheets of the Company and its foreign subsidiaries are
translated from their respective functional currencies to United States dollars
at period-end exchange rates and the statements of operations and cash flows at
average exchange rates for the relevant periods. Gains and losses resulting from
translation are accumulated as a separate component of shareholders' equity. Net
gains and losses resulting from foreign exchange transactions, which are not
material in any of the reporting periods, are included in the consolidated
statement of operations.
PER SHARE INFORMATION
Net income per share information is computed based on the weighted average
number of shares outstanding, as described in FAS 128.
2 LITIGATION
The Company is involved in one material legal action relating to patent issues
in the United States. While the outcome of this matter is currently not
determinable, the Company is vigorously pursuing its defence and is confident
that it will prevail in the litigation.
3 SALE OF SUBSIDIARY
The Company sold its South African subsidiary, Gentia South Africa, effective
June 23, 1999 for a consideration of SAR 2,000 (South African Rand). The
Company made a loss on the sale of the subsidiary of $2,000. The Company has
entered into an agency agreement with the purchasers who will continue to
sell the Gentia products on the Company's behalf.
6
GENTIA SOFTWARE PLC
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
THREE MONTHS ENDED JUNE 30, 1999 AND THREE MONTHS ENDED JUNE 30, 1998.
REVENUES
Revenues were $6.0 million in the 3 months ended June 30, 1999, a decrease of
approximately 23.1% compared to revenues of $7.7 million for the 3 months ended
June 30, 1998. License revenues were $2.4 million in the 3 months ended June 30,
1999, a decrease of 50.5% compared to license revenues of $4.8 million for the 3
months ended June 30, 1998. The decrease in license revenue is a result of the
Company's global restructuring program within world-wide sales, which commenced
in December 1998. It was anticipated that as a result of the restructuring
within the sales division, revenue would initially decline. The Company has now
had two consecutive quarters of $6.0 million total revenue. With the new
structure in place and stability within the organisation established, it is
anticipated that the Company will be able to achieve future revenue growth.
Services and other revenues were $3.6 million in the 3 months ended June 30,
1999 an increase of approximately 21.1% compared to $3.0 million for the 3
months ended June 30, 1998. Last years second quarter did not include the full
benefit of the acquisition of the TCMS business that was acquired in late May.
GROSS PROFIT
Gross profit was $2.8 million or 46.7% of revenues for the 3 months ended
June 30,1999, compared to $5.2 million or 67.5% of revenues for the 3 months
ended June 30, 1998. The decrease in gross margin was due to a combination of
the decline in higher margin license revenue and the resulting higher
proportion of lower margin services and other revenues as well as the move
towards increased channel sales in the 3 months ended June 30, 1999. It is
anticipated that growth within license revenue will be regained in the
future, through a combination of both direct and channel sales. In addition
we anticipate that the gross margin on service revenue will increase due to
higher productivity per consultant. It is anticipated a combination of the
above will result in improved gross margin percentage. Services and other
revenue comprised 60.2% of total revenues for the three months ended June
30,1999, compared to 38.2% for the three months ended June 30, 1998.
SALES AND MARKETING
Sales and marketing costs were $4.8 million in the 3 months ended June 30, 1999,
an increase of 14.4% compared to $4.2 million in the 3 months ended June 30,
1998. The increase in expenditure is a result of an allowance for doubtful
accounts of $1.7 million. Excluding this amount reduces the sales and marketing
costs to $3.1 million, a $0.6 million decrease from the cost of the prior years
corresponding quarter. This decrease reflects the results of the Company's
strategic actions to reduce costs, with the majority of the cost saving
resulting from a reduction in employee costs. The Company expects these expenses
will continue to decrease as a result of the move towards increased channel
sales and a continued focus on reducing operating costs in the following two
quarters.
RESEARCH AND DEVELOPMENT
Research and development costs were $1.5 million in the 3 months ended June 30,
1999, lower than the $2.0 million recorded in the 3 months ended June 30, 1998.
It is anticipated that the Company's research and development costs will
continue to decrease. Research and development continues to focus on building
the analytical applications that surround the Scorecard. The Company's research
and development expenditure is predominantly incurred in pounds sterling.
GENERAL AND ADMINISTRATIVE
General and administrative costs were $1.0 million in the 3 months ended June
30, 1999, compared to $1.0 million for the 3 months ended June 30, 1998. The
finance function of the Company has been centralised and it is anticipated that
future cost savings will be achieved. As a result of costs relating to the
centralisation of this function, it is anticipated that the expenditure will
remain at the current level in the short term with savings in the early part of
2000.
OTHER INCOME
7
Other income was $28,000 in the 3 months ended June 30, 1999 compared to
$215,000 in the 3 months ended June 30,1998. Other income was primarily interest
income earned on bank deposits. The decrease is due to declining cash balances
on deposit.
8
GENTIA SOFTWARE PLC
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
SIX MONTHS ENDED JUNE 30, 1999 AND SIX MONTHS ENDED JUNE 30, 1998.
REVENUES
Revenues were $11.9 million in the 6 months ended June 30, 1999, a decrease of
approximately 12.8% compared to revenues of $13.7 million for the 6 months ended
June 30, 1998. License revenues were $4.7 million in the 6 months ended June 30,
1999, a decrease of 39.1% compared to license revenues of $7.7 million for the 6
months ended June 30, 1998. The overall decrease in license revenue is a result
of the Company's global restructuring program within world-wide sales, which
commenced December 1998. It was anticipated that as a result of the
restructuring within the sales division, revenue would initially decline. The
Company has now had two consecutive quarters of $6.0 million total revenue. With
the new structure in place and stability within the organisation established, it
is anticipated that the Company will be able to achieve future revenue growth.
Services and other revenues were $7.2 million in the 6 months ended June 30,
1999 an increase of approximately 20.7% compared to $6.0 million for the 6
months ended June 30, 1998. Last years second quarter did not include the full
benefit of the acquisition of the TCMS business that was acquired in late May.
GROSS PROFIT
Gross profit was $6.0 million or 50.3% of revenues for the 6 months ended June
30, 1999, compared to $9.3 million or 68.0% of revenues for the 6 months ended
June 30, 1998. The decrease in gross margin was due to a combination of the
decline in higher margin license revenue and the resulting higher proportion of
lower margin services and other revenues as well as a move towards channel sales
in the 6 months ended June 30, 1999. It is anticipated that growth within
license revenue will be regained in the future, through a combination of both
direct and channel sales. It is anticipated that a combination of the above will
result in improved gross margin percentage. Services and other revenue comprised
60.9% of total revenues for the six months ended June 30,1999, compared to 43.9%
for the six months ended June 30, 1998.
SALES AND MARKETING
Sales and marketing costs were $8.4 million in the 6 months ended June 30, 1999,
an increase of 1.8% compared to $8.3 million in the 6 months ended June 30,
1998. During the second quarter of 1999, an allowance for doubtful accounts of
$1.7 million was made, excluding this amount from the total expenses, reduces
the sales and marketing costs to $6.7 million, a $1.6 million decrease from the
prior years corresponding period. This decrease reflects the results of the
Company's strategic actions to reduce costs, with the majority of the cost
saving resulting from a reduction in employee costs. The Company expects these
expenses will continue to decrease as a result of the move towards channel sales
and a continued focus on reducing operating costs in the following two quarters.
RESEARCH AND DEVELOPMENT
Research and development costs were $3.1 million in the 6 months ended June 30,
1999, lower than the $3.7 million recorded in the 6 months ended June 30, 1998.
It is anticipated that the Company's research and development costs will
continue to decrease. Research and development focuses on building the
analytical applications that surround the Scorecard. The Company's research and
development expenditure is predominantly incurred in pounds sterling.
GENERAL AND ADMINISTRATIVE
General and administrative costs were $2.0 million in the 6 months ended June
30, 1999, compared to $2.1 million for the 3 months ended June 30, 1998. The
finance function of the Company has been centralised and it is anticipated that
future cost savings will be achieved. As a result of costs relating to the
centralisation of this function, it is anticipated that the expenditure will
remain at the current level in the short term with savings in the early part of
2000.
OTHER INCOME
Other income was $69,000 in the 6 months ended June 30, 1999 compared to
$461,000 in the 6 months ended June 30,1998. Other
9
income was primarily interest income earned on bank deposits. The decrease is
due to declining cash balances on deposit.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1999, the Company had cash and cash equivalents of $1.2 million
compared to $5.3 million at December 31, 1998. In the six months ended June 30,
1999 the Company's operating activities consumed cash of $3.0 million compared
to $5.3 million in the six months ended June 30, 1998.
Accounts receivable at June 30, 1999 were $6.9 million, a decrease of 34.3%
compared to $10.6 million at December 31, 1998 reflecting the lower levels of
license revenue achieved in the first six months of 1999 of $4.7 million
compared to $7.7 million in quarter four, 1998 and the additional provision of
$1.7 million for doubtful receivables.
Investing activities utilized $1.1 million in the six months ended June 30, 1999
compared to the utilization of $1.9 million in the six months ended June 30,
1998. Investing activities primarily represent the forgiveness of debt on the
sale of the South African subsidiary of $821,000 and the purchase of assets of
$373,000.
Financing activities generated $117,000 in the six months ended June 30, 1999
compared to $460,000 in the six months ended June 30, 1998.
The Company's ability to satisfy its cash requirements for the remainder of the
year is dependent on meeting certain projected revenue targets, cash collection
targets, containing operating expenses and receiving an additional equity
investment. The Company has, at times in the past, been unable to meet similar
targets, particularly license revenue targets. The Company is reliant on
receiving additional investment and has a letter of intent for an equity
investment. The letter of intent relates to an equity investment of $1.0 million
that will fund its working capital needs for the foreseeable future. There can
be no assurance that the Company will meet its projected revenue targets or that
the equity investment will be received even with a letter of intent, and the
failure of the Company to do so (or to obtain additional sources of financing,
which may not be available on suitable terms to the Company, if at all) will
have a material adverse effect on the Company's business and financial condition
and the value of the Company's American Depositary Shares.
This Report contains "forward-looking statements" within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. All statements, other than statements of
historical facts, included in this Report (or incorporated herein by reference)
regarding the Company's financial position and business strategy may constitute
forward-looking statements. Although the Company believes that the expectations
reflected in, and the assumptions underlying, such forward-looking statements
are reasonable, it can give no assurance that such expectations will prove to
have been correct. Important factors that could cause actual results to differ
materially from the Company's expectations are included in the documents filed
by the Company with the Securities and Exchange Commission, including the
matters contained in the caption "Business Factors" in the Company's most recent
Annual Report on Form 20-F. In light of the foregoing, readers of this Report
are cautioned not to place undue reliance on the forward-looking statements
contained or incorporated by reference herein.
10
The information contained in Exhibit 1 hereto, consisting of the registrant's
unaudited financial statements for the six months ended June 30, 1999, has been
distributed to its security holders and is furnished to the Commission pursuant
to Rule 13a-16 under the Securities Exchange Act of 1934, as amended (the
"Act"). This report and the information furnished herewith shall not be deemed
to be "filed" for the purposes of Section 18 of the Act or otherwise subject to
the liabilities of that section.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused the Report to be signed on its behalf by the
undersigned, thereunto duly authorised.
GENTIA SOFTWARE plc
By: /s/ Nicholas P.S. Bray
Nicholas P. S. Bray
Chief Financial Officer
Date: August 27, 1999
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EXHIBIT INDEX
Page
Exhibit A Second Quarter Press Release - (1999) 13
12