UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended JuneSeptember 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________to _________
Commission file number 0-22292
ACTIONPOINT, INC.
(Exact name of Registrant as specified in its Charter)
1299 Parkmoor Avenue
San Jose, California 95126
(Address of Principal Executive Offices including Zip Code)
(408) 325-3800
(Registrant's Telephone Number, Including Area Code)
(Former name, former address and former fiscal year, if changed since last report)
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 reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of JuneSeptember 30, 2001: 4,324,919
ACTIONPOINT, INC.
QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED JUNESEPTEMBER 30, 2001
Index
| PART I. FINANCIAL INFORMATION | Page No. |
| Item 1. Financial Statements | |
| Condensed Consolidated Balance Sheets at | |
| Condensed Consolidated Statements of Operations and Comprehensive Income for the three and | |
| Condensed Consolidated Statements of Cash Flows for the | |
| Notes to the Condensed Consolidated Financial Statements | |
| Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations | |
| Item 3. Quantitative and Qualitative Disclosures About Market Risk | |
| PART II. OTHER INFORMATION | |
| Item 1. Legal Proceedings | |
| Item 2. Changes in Securities | |
| Item 3. Defaults Upon Senior Securities | |
| Item 4. Submission of Matters to a Vote of Securities Holders | |
| Item 5. Other Information | |
| Item 6. Exhibits and Reports on Form 8-K | |
| Signature Page |
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
ACTIONPOINT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
JuneSeptember 30, December 31,
ASSETS 2001 2000
----------------------- -----------
(Unaudited)
Current assets:
Cash and cash equivalents .................... $4,856$8,854 $2,242
Short-term investments........................ 4,867 --
Accounts receivable, net...................... 3,7362,998 7,912
Deferred income taxes......................... -- 375
Other current assets.......................... 1,048766 1,510
----------------------- -----------
Total current assets........................ 14,50712,618 12,039
Property and equipment, net..................... 1,133974 1,585
Deferred income taxes........................... -- 4,037
Other assets.................................... 142515 140
------------ -----------
-----------
$15,782$14,107 $17,801
======================= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................. $254$455 $414
Deferred revenue.............................. 2,9472,747 3,202
Accrued liabilities........................... 2,3422,372 3,463
----------------------- -----------
Total current liabilities................... 5,5435,574 7,079
Long term deferred revenue...................... 831752 800
----------------------- -----------
Total liabilities 6,3746,326 7,879
------------ -----------
Stockholders' equity:
Common stock.................................. 43 43
Paid in capital............................... 10,06110,062 9,981
Accumulated other comprehensive income........ 157 --
Accumulated deficit........................... (853)(2,324) (102)
----------------------- -----------
Stockholders' equity........................ 9,4087,781 9,922
------------ -----------
-----------
$15,782$14,107 $17,801
======================= ===========
The accompanying notes are an integral part of these condensed consolidated financial statements.
ACTIONPOINT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(UNAUDITED)
(In thousands, except per share amounts)
Three Months Ended SixNine Months Ended
JuneSeptember 30, JuneSeptember 30,
------------------- -------------------
2001 2000 2001 2000
--------- --------- --------- ---------
Net revenues:
License........................... $3,211 $4,715 $8,146 $8,233
Service........................... 1,652 1,311 3,312 2,406License............................ $3,039 $4,509 $11,185 $12,742
Service............................ 1,655 1,458 4,967 3,864
--------- --------- --------- ---------
Total revenues...................... 4,863 6,026 11,458 10,639revenues....................... 4,694 5,967 16,152 16,606
Cost of revenues:
License........................... 211 83 386 166License............................ 204 189 590 355
Service (inclusive of stock
related bonus expense of
$138 in Q1 2000)................ 712 887 1,566 1,770................. 690 1,055 2,256 2,825
--------- --------- --------- ---------
Cost of revenues.................... 923 970 1,952 1,936revenues..................... 894 1,244 2,846 3,180
--------- --------- --------- ---------
Gross profit 3,940 5,056 9,506 8,7033,800 4,723 13,306 13,426
--------- --------- --------- ---------
Research and development
(inclusive of stock related
bonus expense of $710 in Q1 2000.. 1,450 1,821 3,133 4,2782000... 1,289 1,854 4,422 6,132
Sales and marketing
(inclusive of stock related
bonus expense of $638 in Q1 2000.. 3,141 4,106 6,434 8,0722000... 2,751 3,918 9,185 11,990
General and administrative
(inclusive of stock related
bonus expense of $1,090 in Q1 2000 805 916 1,745 2,8782000. 825 876 2,570 3,754
--------- --------- --------- ---------
Operating loss...................... (1,456) (1,787) (1,806) (6,525)loss....................... (1,065) (1,925) (2,871) (8,450)
Interest and other income........... 102 39 137 145income (expense).. 77 (58) 214 87
Gain (loss) on sale of Dialog Server....... 5,021Server
product line....................... (409) -- 5,0214,612 --
Write-off of minority equity
investment........................investment......................... -- -- -- (500)
--------- --------- --------- ---------
Income (loss) before provision
for income taxes................. 3,667 (1,748) 3,352 (6,880)taxes.................. (1,397) (1,983) 1,955 (8,863)
Provision (benefit) for income taxes.......... 4,103 2 4,103 9taxes. 74 (9) 4,177 --
--------- --------- --------- ---------
Net loss............................loss............................. ($436)1,471) ($1,750)1,974) ($751)2,222) ($6,889)8,863)
Other comprehensive income:
UnrealizedReclassification adjustment for gain
on securities.... 157securities included in net loss. (157) -- 157-- --
--------- --------- --------- ---------
Comprehensive loss ($279)1,628) ($1,750)1,974) ($594)2,222) ($6,889)8,863)
========= ========= ========= =========
Basic and diluted EPS:
Net income (loss)..................loss............................ ($0.10)0.34) ($0.42)0.47) ($0.18)0.52) ($1.66)2.12)
========= ========= ========= =========
Shares used in basic and diluted
EPS Calculations................. 4,276Calculations.................. 4,325 4,225 4,292 4,179 4,275 4,157
========= ========= ========= =========
The accompanying notes are an integral part of these condensed consolidated financial statements
ACTIONPOINT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED - IN THOUSANDS)
SixNine Months Ended
JuneSeptember 30
-------------------
2001 2000
--------- ---------
Cash flows from operating activities:
Net income loss........................................loss............................................... ($751)2,222) ($6,889)8,863)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization........................ 424 392672 605
Stock compensation charge............................ -- 5981
Write-off of minority equity investment.............. -- 500
Shares issued for stock related bonus................ -- 346
Net gain on sale of Dialog Server assets............. (2,689)product line....... (2,278) --
ValuationIncrease in valuation allowance on deferred
tax assets...........income taxes....................................... 1,664 --
Change in assets and liabilities:
Accounts receivable................................. 4,176 (233)4,914 749
Other current and noncurrent assets................. 855 (718)764 (461)
Accounts payable.................................... (160) 941 89
Deferred revenue.................................... (168) 578(447) 611
Accrued liabilities................................. (1,631) (25)(1,601) 125
--------- ---------
Net cash provided by (used in)operating activities.. 1,720 (5,981)activities. 1,507 (6,218)
--------- ---------
Cash flows from investing activities:
Property and equipment additions....................... (73) (643)(162) (887)
Proceeds from sale of Dialog Server assets.............product line....... 887 --
Sales of marketable securities......................... 4,299 --
--------- ---------
Net cash provided by (used in) investing activities. 814 (643)5,024 (887)
--------- ---------
Cash flows from financing activities:
Net proceeds from issuance of common stock............. 80 78281 793
--------- ---------
Net cash provided by financing activities........... 80 78281 793
--------- ---------
Net increase (decrease) in cash and cash equivalents.... 2,614 (5,842)6,612 (6,312)
Cash and cash equivalents at beginning of period........ 2,242 9,193
--------- ---------
Cash and cash equivalents at end of period.............. $4,856 $3,351$8,854 $2,881
========= =========
The accompanying notes are an integral part of these condensed consolidated financial statements
ACTIONPOINT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PREPARATION:
Interim Unaudited Financial Information:
The accompanying interim unaudited consolidated condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. The December 31, 2000 balance sheet data was derived from audited financial statements contained in the Company's 2000 Annual Report on Form 10-K but does not include all disclosures required by accounting principles generally accepted in the United States of America. The unaudited financial statements for the three and sixnine month periods ended JuneSeptember 30, 2001 and 2000 include, in the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary to present fairly the financial information set forth herein. The results of operations for the interim periods are not necessarily indicative of the results to be expected for an entire year and should not be relied on as such.
2. RECENT ACCOUNTING PRONOUNCEMENTS:
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities,". It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The Company has adopted SFAS 133 as of January 1, 2001. The adoption of SFAS 133 did not have a material effect on the consolidated financial position or the results of operations of the Company.
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 141 ("SFAS 141"), "Business Combinations." SFAS 141 requires the purchase method of accounting for business combinations initiated after June 30, 2001 and eliminates the pooling-of-interests method.
In July 2001, the FASB issued Statement of Financial Accounting Standards No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets", which is effective for fiscal years beginning after March 15, 2001. SFAS 142 requires, among other things, the discontinuance of goodwill amortization. In addition, the standard includes provisions upon adoption for the reclassification of certain existing recognized intangibles as goodwill, reassessment of the useful lives of existing recognized intangibles, reclassification of certain intangibles out of previously reported goodwill and the testing for impairment of existing goodwill and other intangibles. We believeManagement believes that the adoption of SFAS 142 will not have a significant impact on ourthe consolidated financial position or the results of operations of the Company.
In October 2001, the FASB issued Statement of Financial Accounting Standards No. 144 ("SFAS 144"), "Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS 144 supercedes Statement of Financial Accounting Standards 121, "Accounting for the Impairment of long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS 144 applies to all long-lived assets, including discontinued operations, and consequently amends Accounting Principles Board Opinion No. 30, "Reporting Results of Operations Reporting the Effects of Disposal of a Segment of a Business". SFAS 144 develops one accounting model for long-lived assets that are to be disposed of by sale. SFAS 144 requires that long-lived assets that are to be disposed of by sale be measured at the lower of book value or fair value less selling costs. Additionally, SFAS 144 expands the scope of discontinued operations to include all components of an entity with operations that (1) can be distinguished from the rest of the entity and (2) will be eliminated from the ongoing operations of the entity in a disposal transaction. The provisions of SFAS 144 are required to be adopted during the Company's fiscal year beginning January 1, 2002. The Company does not expect the adoption of SFAS 144 to have a significant impact on its financial position or results of operations.
3. LIQUIDITY:
For the first sixnine months of 2001, the Company incurred a net loss of $751,000$2.2 million but generated positive cash flows from operating activities of $1.7$1.5 million as a result of the sale of the Dialog Server product line and other cost reduction measures. At JuneSeptember 30, 2001, the Company had cash and cash equivalents of $4.9 million and had short-term investments, in the form of Chordiant common stock, of $4.9$8.9 million.
In addition to the sale of the Dialog Server product line management has taken other steps to reduce operating expenditures.
In the event that such measures are not sufficient to meet the Company's obligations, the Company may need to seek additional financing. There can be no assurance that such additional financing will be available or will be available on terms acceptable to the Company, which, as a result, could have a material adverse effect on the Company's business, operating results and financial condition.
4. SALE OF THE DIALOG SERVER PRODUCT LINE:
The Company sold its Dialog Server product line to Chordiant Software on May 17, 2001 for $7.2 million consisting of $2 million in cash and 1.7 million shares of Chordiant common stock and recognized a pretax gain of $5.0 million in the second quarter of 2001. Of these proceeds, $200,000 and 164,000 shares of Chordiant common stock were put in escrow for one year pursuant to the asset sale. Accordingly, these escrowed amounts have not been reflected in the determination of the gain on the sale of the product line. The Chordiant common stock was valued at $3 per share at the transaction date.
All Chordiant common stock, including shares held in escrow, was sold in July 2001 for total proceeds of $4.736 million of which $437,000 is still in escrow. This sale resulted in a loss of $409,000 when compared to the value of the stock at May 17, 2001.
4.5. INCOME TAXES:
The income tax provision of $4.1$4.2 million recorded infor the second quarter ofnine months ended September 30, 2001 represents the recognitiontaxation of benefits attributable to the utilization of net operating loss carry forwards in connection with the gain on the sale of the Dialog Server product line of $2.4$2.5 million and the establishment of a full valuation allowance of $1.7 million against the remaining net deferred tax assets based on management's assessment of the uncertainty of realizing future tax benefits attributable to such assets following the salessale of the Dialog serverServer product line.
4.6. COMPUTATION OF NET LOSS PER SHARE
SHARE:
The following table presents the calculation of basic and diluted net loss per share (in thousands, except per share data):
Three Months Ended SixNine Months Ended
JuneSeptember 30, JuneSeptember 30,
------------------- -------------------
2001 2000 2001 2000
--------- --------- --------- ---------
Net loss............................ ($436)1,471) ($1,750)1,974) ($751)2,222) ($6,889)8,863)
Shares used in basic and diluted
EPS calculation.................... 4,2764,325 4,225 4,292 4,179 4,275 4,157
Basic and diluted EPS............... ($0.10)0.34) ($0.42)0.47) ($0.18)0.52) ($1.66)2.12)
At June
For the period ended September 30, 2001 and 2000, 3,044,5951,837,841 and 2,767,1052,971,931 options outstanding were not included in the computation of diluted EPS because the Company incurred a net loss.
7. STOCK OPTION EXCHANGE PROGRAM:
On August 3, 2001, the company filed a Schedule TO in connection with its offer to exchange all outstanding options under eligible option plans for new options. The program permitted employees to tender outstanding stock option grants to be cancelled in exchange for replacement option grants that will be made at least six months and a day after the expiration of the offer with a strike price at the then current market price. The replacement option will be exercisable for the same number of shares as the tendered option grants. The offer expired on August 31, 2001 and the Company has accepted an aggregate of 1,136,429 stock options for exchange.
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations.
OVERVIEW:
We develop, market and service information capture software. Information capture solutions enable organizations to collect, organize and input paper and fax-based information into their installed computing systems, providing a critical bridge between the paper world and the digital world. The result is improved customer satisfaction, increased productivity and cost control. Our customers have traditionally been large global 1000 businesses and governmental agencies. Our InputAccel family of information capture software helps automate the conversion of paper and fax documents into electronic format thus allowing improved operating efficiencies. Our customers use InputAccel to convert transaction-related documents, such as order forms, claim forms, or loan applications, into an appropriate electronic format and to transport images of and information from these documents to storage on Web sites, compact disks, or internal databases for subsequent search, retrieval or further processing. Additionally, we market software tools under our Pixel Translations brand to various hardware and software providers.
On August 3, 2001, the company filed a Schedule TO in connection with its offer to exchange all outstanding options under eligible option plans for new options. The program permitted employees to tender outstanding stock option grants to be cancelled in exchange for replacement option grants that will be made at least six months and a day after the expiration of the offer with a strike price at the then current market price. The replacement option will be exercisable for the same number of shares as the tendered option grants. The offer expired on August 31, 2001 and the Company has accepted an aggregate of 1,136,429 stock options for exchange.
RESULTS OF OPERATIONS:
This Quarterly Report on Form 10-Q may contain forward-lookingforward- looking statements that involve risks and uncertainties. The Company's actual results may differ materially from the results discussed in any such forward-lookingforward- looking statements. Factors that might cause such a difference include, but are not limited to those discussed below in the section captioned RISK FACTORS and in the Company's most recent Annual Report on Form 10-K.
Revenues
The Company's license revenues decreased 32%33% in the secondthird quarter of 2001 to $3.2$3.0 million from $4.7$4.5 million in the secondthird quarter of 2000. For the sixnine months ended JuneSeptember 30, 2001, license revenues decreased 1%12% to $8.1$11.2 million from $8.2$12.7 million in the first sixnine months of 2000. As a percent of revenue, licenses accounted for 66%65% and 78%76% for the secondthird quarter of 2001 and 2000 respectively and 71%69% and 77% for the sixnine months ended JuneSeptember 30, 2001 and 2000, respectively. The decrease in license revenue in the secondthird quarter is due in part to a weak economy, which led to extended sales cycles and general slowdowns in IT spending for the large global 1000 customers. Additionally, the sale of the Dialog Server product line in mid-quarter necessitated a transition in the Company's sales strategy which had an adverse impact on the revenues for the quarter.spending.
The Company's service revenues increased 26%14% in the secondthird quarter of 2001 to $1.7 million from $1.3$1.5 million in the secondthird quarter of 2000. For the sixnine months ended JuneSeptember 30, 2001, service revenues increased 38%29% to $3.3$5.0 million from revenues of $2.4$3.9 million in the first sixnine months of 2000. As a percent of revenue, services accounted for 34%35% and 22%24% for the secondthird quarter of 2001 and 2000 respectively and 29%31% and 23% for the sixnine months ended JuneSeptember 30, 2001 and 2000, respectively. The increase in service revenues both in absolute and percentage terms was attributable to a larger installed base of customers purchasing annual software maintenance.
Gross Profit
Gross profit decreased 22%20% for the secondthird quarter of 2001 to $3.9$3.8 million from $5.1$4.7 million for the secondthird quarter of 2000. For the sixnine months ended JuneSeptember 30, 2001, gross profit increased 9%decreased 1% to $9.5$13.3 million from gross profit of $8.7$13.4 million in the first sixnine months of 2000. The decrease in gross profit for the secondthird quarter is due primarily to the corresponding decrease in license revenues.
Gross margin increased to 81% from 79% for the third quarter of 2001 compared to the third quarter of 2000 and increased to 82% from 81% for the nine months ended September 30, 2001 compared to the same period for 2000. The increase in gross profit for the six month period is due to the improved margins for service revenues.
Gross margin decreased to 81% from 84% for the second quarter of 2001 and 2000, respectively and increased to 83% from 82% for the six months ended June 30, 2001 and 2000, respectively. The fluctuation in gross margins is generally attributable to the mix of license and service revenues, as license revenues generate substantially higher margin than thoseimproved margins for service revenues. Additionally, there was a one-time charge of stock related bonus expense of $138,000 in the first quarter of 2000. However, service margins have increased significantly in 2001, 57% in the most recent quarter compared to 33% for the same quarter in 2000.
Research and Development
Research and development expenses decreased 20%30% in the secondthird quarter of 2001 to $1.5$1.3 million from $1.8$1.9 million in the secondthird quarter of 2000 and decreased 28% for the sixnine months ended JuneSeptember 30, 2001 decreased 27% to $3.1$4.4 million from $4.3$6.1 million in the first sixnine months of 2000. The decrease is largely related to the sale of the Dialog Server product line in May, 2001, as substantial development expenses were incurred for this product line in 2000. Additionally, there was a one-time charge of stock related bonus expense of $710,000 in the first quarter of 2000.
As a percent of revenue, research and development expenses remained flat at 30%decreased to 27% for the secondthird quarter of 2001, compared tofrom 31% in the secondthird quarter of 2000 and decreased to 27% from 40%37% for the first sixnine months ended JuneSeptember 30, 2001 and 2000, respectively.
Sales and marketingMarketing
Sales and marketing expenses decreased 24%30% in the secondthird quarter of 2001 to $3.1$2.8 million from $4.1$3.9 million in the secondthird quarter of 2000 and for the sixnine months ended JuneSeptember 30, 2001, decreased 20%23% to $6.4$9.2 million from $8.1$12.0 million in the first sixnine months of 2001.
The decrease is largely related to reductions in programmatic and product marketing expenses incurred in 2000 for the launch of the recently sold Dialog Server product line andline. Additionally, there was a one-time stock related bonus expense of $638,000 in the first quarter of 2000.
As a percent of revenue,sales and marketing expenses decreased to 65%59% for the secondthird quarter of 2001, from 68%66% in the secondthird quarter of 2000 and decreased to 56%57% from 76%72% for the first sixnine months ended JuneSeptember 30, 2001 and 2000, respectively.
General and administrative
General and administrative expenses decreased 12%6% for the secondthird quarter of 2001 to $805,000$825,000 from $916,000$876,000 in the secondthird quarter of 2000 and for the sixnine months ended JuneSeptember 30, 2001, decreased 39%32% to $1.7$2.6 million from $2.9$3.8 million in the first sixnine months of 2000.The decrease in the sixnine months period is largely due to the stock related bonus expense of $1.1 million recorded in the first quarter of 2000.
As a percentage of revenue, general and administrative expenses increased to 17%18% for the secondthird quarter of 2001, from 15% for the secondthird quarter of 2000 and decreased to 15%16% from 27%23% for the first sixnine months ended JuneSeptember 30, 2001 and 2000, respectively.
Sale of the Dialog Server product line
The Company sold its Dialog Server product line to Chordiant Software on May 17, 2001 for $7.2 million consisting of $2 million in cash and 1.7 million shares of Chordiant common stock and recognized a pretax gain of $5.0 million in the second quarter of 2001. Of these proceeds, $200,000 and 164,000 shares of Chordiant common stock are being heldwere put in escrow for one year in connection withpursuant to the asset purchase agreement.sale. Accordingly, these escrowed amounts have not been reflected in the determination of the gain on the sale of the product line. The Chordiant common stock was valued at $3 per share at the transaction date.
All Chordiant common stock, including shares held in escrow, was sold in July 2001 for total proceeds of $4.736 million of which $437,000 is still in escrow. This sale resulted in a loss of $409,000 when compared to the value of the stock at May 17, 2001.
Minority Equity Investment
Based on its assessment of the likelihood to realize value, the Company wrote off a $500,000 minority equity interest in the first quarter of 2000, that2000. That minority equity investment was madeobtained in 1998 in conjunction with the sale of the Company's hardware division.
Provision for Income Taxes
The income tax provision of $4.1$4.2 million recorded in the second quarter ofnine months ended September 30, 2001 represents the recognition of benefits attributable to the utilization of net operating loss carry forwards in connection with the gain on the sale of the Dialog Server product line of $2.4$2.5 million and the establishment of a full valuation allowance of $1.7 million against the remaining net deferred tax assets based on management's assessment of the uncertainty of realizing future tax benefits attributable to such assets following the salessale of the Dialog serverServer product line.
Liquidity and Capital Resources
At JuneSeptember 30, 2001, the Company had cash and cash equivalents of $4.9$8.9 million, compared to $2.2 million at December 31, 2000.
Net cash provided by operating activities was $1.7$1.5 million in the first sixnine months of 2001 compared to net cash used by operating activities of $6.0$6.2 million in the first sixnine months of 2000. The increase in net cash provided by operatingactivities in the first sixnine months of 2001 is primarily due to a reduction in operating expenses together with favorable net movements in working capital.
Net cash provided by investing activities was $814,000,$5.0 million, made up of proceeds from the sale of the Dialog serverServer product line and partially offset by additions to property and equipment of $73,000$162,000 for the first sixnine months of 2001. This compares to net cash used exclusively for additions to property and equipment of $643,000$887,000 in the first sixnine months of 2000.
Net cash provided by financing activities was $80,000$81,000 for the first sixnine months of 2001 and $782,000$793,000 for the first sixnine months of 2000, primarily from the employee stock purchase plan and from the proceeds of exercises of employee stock options.
The Company believes that its cash and cash equivalents, together with short-term investments and cash flows from operations will be sufficient to meet the Company's liquidity and capital requirements for at least the next 12 months. The Company may, however, seek additional equity or debt financing to fund further expansion. The timing and amount of such capital requirements cannot be precisely determined at this time and will depend on a number of factors, including demand for the Company's products, product mix and competitive factors. Accordingly, the Company may require additional funds to support its working capital requirements or for other purposes and may seek to raise such additional funds through public or private equity or other sources. There can be no assurance that additional financing will be available at all or that it, if available, will be obtainable on terms favorable to the Company and would not be dilutive.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities,". It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The Company has adopted SFAS 133 as of January 1, 2001. The adoption of SFAS 133 did not have a material effect on the consolidated financial position or the results of operations of the Company.
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 141 ("SFAS 141"), "Business Combinations." SFAS 141 requires the purchase method of accounting for business combinations initiated after June 30, 2001 and eliminates the pooling-of-interests method.
In July 2001, the FASB issued Statement of Financial Accounting Standards No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets", which is effective for fiscal years beginning after March 15, 2001. SFAS 142 requires, among other things, the discontinuance of goodwill amortization. In addition, the standard includes provisions upon adoption for the reclassification of certain existing recognized intangibles as goodwill, reassessment of the useful lives of existing recognized intangibles, reclassification of certain intangibles out of previously reported goodwill and the testing for impairment of existing goodwill and other intangibles. We believeManagement believes that the adoption of SFAS 142 will not have a significant impact on ourthe consolidated financial position or the results of operations of the Company.
In October 2001, the FASB issued Statement of Financial Accounting Standards 144 ("SFAS 144"), "Accounting for the Impairment or Disposal of Long-Lived Assets". Statement of Financial Accounting Standards 144 supercedes SFAS 121, "Accounting for the Impairment of long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS 144 applies to all long-lived assets, including discontinued operations, and consequently amends Accounting Principles Board Opinion No. 30, "Reporting Results of Operations Reporting the Effects of Disposal of a Segment of a Business". SFAS 144 develops one accounting model for long-lived assets that are to be disposed of by sale. SFAS 144 requires that long-lived assets that are to be disposed of by sale be measured at the lower of book value or fair value less selling costs. Additionally, SFAS 144 expands the scope of discontinued operations to include all components of an entity with operations that (1) can be distinguished from the rest of the entity and (2) will be eliminated from the ongoing operations of the entity in a disposal transaction. The provisions of SFAS 144 are required to be adopted during the Company's fiscal year beginning January 1, 2002. The Company does not expect the adoption of SFAS 144 to have a significant impact on its financial position or results of operations.
Subsequent Event:
All Chordiant stocks acquired in conjunction with the sale of Dialog Server product line was sold in July 2001 for total proceeds of $4.7 million.
In August 3, 2001, the company filed a Schedule TO, tender offer to exchange all outstanding options under eligible option plans. The program will permit employees to tender outstanding stock option grants to be cancelled in exchange for replacement option grants that will be made at least six months and a day after the expiration of the offer with a strike price at the then current market price. The replacement options will be for the same number of shares as the exchanged grants.
RISK FACTORS:
In addition to the other information in this Report, the following risk factors should be considered carefully in evaluating us and our business.
Risks Related to our Financial Results
We have recently experienced losses and may continue to incur losses for the foreseeable future, which may harm the market price of our common stock.
We incurred operating losses of $751,000$2.2 million for the first sixnine months of 2001. In recent periods we have not generally generated cash from operations. Our recent net losses, exclusive of those in the most recent quarter, are substantially the result of expenses incurred in developing for the recently sold Dialog Server product family. However, we expect to continue to devote substantial resources to our existing product families and as a result we will need to achieve increased revenues to achieve profitability. Even if we achieve profitability, given the competitive and evolving nature of our industry we may not be able to sustain or increase profitability on a quarterly or annual basis. As a result, we will need to generate higher revenues while containing costs and operating expenses to become and remain profitable. Our failure to do so may cause the price of our stock to decline.
Because of the unpredictability of operating results from our products, we may not accurately forecast our revenues or match our expenses to our revenues, which could harm our quarterly operating results and cause volatility or declines in our stock price.
Our quarterly revenues, expenses and operating results have varied significantly in the past and are likely to vary significantly in the future due to a variety of factors, including:
We operate with virtually no order backlog because our software products are shipped shortly after orders are received. That makes product revenues in any quarter substantially dependent on orders booked and shipped throughout that quarter. In addition, we achieve a significant portion of revenues from indirect sales channels over which we have little control. Moreover, our expense levels are based to a significant extent on our expectations of future revenues and therefore are relatively fixed in the short term. If revenue levels are below expectations, our operating results are likely to be harmed because only a small portion of the expenses vary with revenues.
Also, in recent years, we have had relatively stronger demand for our products during the quarter ending December 31 and relatively weaker demand in the quarter ending March 31. We believe that, adjusting for the negative impact in late 1999 caused by Year 2000 concerns, this pattern will continue. This seasonality makes it more difficult to forecast quarterly revenues. Therefore, it is likely that in some future quarter operating results will fall below expectations and as a result, the price of our common stock may be harmed.
As a result of these factors, we believe that quarter-to- quarter comparisons of our revenue, expenses and operating results are likely to vary significantly in the future and that period-to-period comparisons of our operating results are not necessarily meaningful. In any event, such comparisons should not be relied upon as indications of our future performance. In addition, our operating results in one or more future quarters may fail to meet the expectations of securities analysts or investors. If this occurs, we could experience an immediate and significant decline in the trading price of our stock.
Risks Related to the Information Capture and Interaction Management Software Industry
If we are not able to effectively compete against other software providers in the datainformation capture software industry, our revenues will not increase and may decrease.
The market for our products is intensely competitive and subject to rapid change. In addition, because there are relatively low barriers to entry in the software market, we may encounter additional competition from many established and emerging companies. Many of our competitors have longer operating histories, significantly greater financial, technical, marketing and other resources than us, significantly greater name recognition and a large installed base of customers. As a result, our competitors may be able to respond more quickly to new or emerging technologies and changes in customer requirements, or to devote greater resources to the development, promotion and sale of competitive products than we can. There is also a substantial risk that announcements of competing products by large competitors could result in the delay or postponement of customer orders in anticipation of the introduction of such new products.
In addition, current and potential competitors have established or may establish cooperative relationships among themselves or with third parties to increase the ability of their products to address customer needs. These cooperative relationships may limit our ability to sell our products through particular reseller partners. Accordingly, new competitors or competitive cooperative relationships may emerge and rapidly gain significant market share. We also expect that competition will increase as a result of software industry consolidation. Increased competition is likely to result in price reductions, fewer customer orders, reduced margins and loss of market share, any of which could harm our revenues and business.
If the market for datainformation capture software does not grow, our revenues may not grow.
The marketsmarket for information capture software is fragmented and extremely competitive. We have spent, and intend to continue to spend, considerable resources educating potential customers about our software products and the information capture market generally. Our expenditures may fail to achieve any additional degree of market acceptance for our products. The rate at which organizations have adopted our existing products has varied significantly, and we expect to continue to experience such variations in the future. If the marketsmarket for our products develops more slowly than we currently anticipate, our revenues will not grow and our operating results will suffer.
Risks Related to Our Business
Significantly all of our revenues are currently derived from sales of our InputAccel product and related software tools, and if demand for these products declines or fails to grow as we expect, our revenues will be harmed.
We derive substantially all of our revenues from the InputAccel product family and Pixtools software tools. Therefore, our future operating results depend heavily upon continued and widespread market acceptance for our InputAccel products and enhancements to those products. A decline in the demand for InputAccel products as a result of competition, technological change or other factors, would cause our revenues to suffer.
If we are unable to respond in an effective and timely manner to technological change and new products in our industry, our revenues and operating results will suffer.
The market for information capture is characterized by rapid technological change, frequent new product introductions and enhancements, uncertain product life cycles, changes in customer demands and evolving industry standards. The introduction of products embodying new technologies and the emergence of new industry standards can render existing products obsolete and unmarketable. Our future success will depend upon our ability to continue to enhance our current products and to develop and introduce new products on a timely basis that keep pace with technological developments and satisfy increasingly sophisticated customer requirements. As a result of the complexities inherent in our software, new products and product enhancements can require long development and testing periods. As a result, significant delays in the general availability of such new releases or significant problems in the installation or implementation of such new releases could harm our operating results and financial condition. We have experienced delays in the past in the release of new products and new product enhancements. We may fail to develop and market on a timely and cost effective basis new products or new product enhancements that respond to technological change, evolving industry standards or customer requirements. We may experience difficulties that could delay or prevent the successful development, introduction or marketing of these products or that our new products and product enhancements will achieve market acceptance.
Software defects that are discovered in our products could harm our business by damaging our reputation, causing us to lose customers and resulting in significant costs and liabilities.
Our software products are complex and may contain errors or defects, particularly when first introduced or when new versions or enhancements are released. In the past, we have discovered software errors in certain of our new products after their introduction. In addition, our products are combined with complex products developed by other vendors. As a result, should problems occur, it may be difficult to identify the source of the problem. Defects and errors, or end-user perception of defects and errors, found in current versions, new versions or enhancements of our products after commencement of commercial shipments may result in:
The occurrence of any one or more of these factors could harm our revenues and gross margins.
If we cannot manage and expand our international operations, our revenues may not increase and our business and results of operations would be harmed.
In the first sixnine months of 2001, international sales represented approximately 23% of our revenues, and we anticipate that for the foreseeable future a significant portion of our revenues will be derived from sources outside North America. In addition, we intend to continue to expand our sales and support operations internationally. In order to successfully expand international sales, we may establish additional foreign operations, expand our international sales channel management and support organizations, hire additional personnel, customize our products for local markets, recruit additional international resellers and attempt to increase the productivity of existing international resellers. If we are unable to do these things in a timely and cost-effective manner, our sales growth internationally, if any, will be limited, and our business, operating results and financial condition would be harmed. Even if we are able to successfully expand our international operations, we may not be able to maintain or increase international market demand for our products.
Our international operations are generally subject to a number of risks, including:
To date, the majority of our revenues and costs have been denominated in U.S. dollars. However, we expect that in the future an increasing portion of our revenues and costs will be denominated in foreign currencies. Although we may undertake foreign exchange hedging transactions to reduce our foreign currency transaction exposure, we do not currently attempt to eliminate all foreign currency transaction exposure.
Our future success is dependent on the services of our key management, sales and marketing, technical support and research and development personnel, and those persons' knowledge of our business and technical expertise would be difficult to replace.
Our products and technologies are complex, and we are substantially dependent upon the continued service of our existing key management, sales and marketing, technical support and research and development personnel. WeSubstantially all of our key employees do not have employment agreements with any of our key employees .agreements. The loss of the services of one or more of our key employees could harm our business and slow our product development processes or sales and marketing efforts.
If we fail to recruit and retain a significant number of qualified technical personnel, we may not be able to develop, introduce or enhance our products on a timely basis.
We require the services of a substantial number of qualified technical support and research and development personnel. The market for these personnel is characterized by intense competition, as well as a high level of employee mobility. These factors make it particularly difficult to attract and retain the qualified technical personnel we require. We have experienced, and we expect to continue to experience, difficulty in hiring and retaining highly skilled employees with appropriate technical qualifications. If we are unable to recruit and retain a sufficient number of technical personnel, we may not be able to complete development of, or upgrade or enhance, our products in a timely manner. Even if we are able to expand our staff of qualified technical personnel, it may require greater than expected compensation packages that would increase our operating expenses.
We may need to expand our sales and marketing organization to increase market awareness and sales of our products or our revenues may be adversely affected.
The sale of our products requires long and involved sales efforts targeted at several key departments within our prospective customers' organizations. Sales of our products require the prolonged efforts of executive personnel and specialized systems and applications engineers working together with a small number of dedicated salespersons. We may need to grow our sales force in order to increase market awareness and sales of our products. Competition for these individuals is intense, and we might not be able to hire a sufficient number of qualified sales personnel and applications engineers without incurring higher than expected compensation costs. If we are unable to expand our sales operations, we may not be able to increase market awareness or sales of our products, which could adversely affect our revenues.
If our products fail to perform properly, our customers may assert product liability claims for damages and our reputation and operating results may suffer.
Our products are used in connection with critical business functions and may result in significant liability claims if they do not work properly. Limitation of liability provisions we include in our license agreements may not sufficiently protect us from product liability claims because of limitations in existing or future laws or unfavorable judicial decisions. Although we have not experienced any material product liability claims to date, the sale and support of our products may give rise to claims which may be substantial in light of the use of our products in business-critical applications. Liability claims could require us to spend significant time and money in litigation or to pay significant damages. Any claims for damages, whether or not successful, could seriously damage our reputation and our business.
Risks Related to Our Product's Dependence on Intellectual Property and Our Use of Our Brand
Our reliance upon contractual provisions and domestic copyright and trademark laws to protect our proprietary rights may not be sufficient to protect our intellectual property from others who may sell similar products.
We believe that the steps we have taken to safeguard our intellectual property afford only limited protection. We rely primarily on a combination of copyright, trademark and trade secret laws, confidentiality procedures and contractual provisions to protect our proprietary rights. We license our software products primarily under license agreements. Competitors may develop technologies that are similar or superior to our technology or design that do not infringe our copyrights and trade secrets, and this could reduce demand for our products. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or to obtain and use information that we regard as proprietary. Policing unauthorized use of our products is difficult, and although we are unable to determine the extent to which piracy of our software products exists, software piracy can be expected to be a persistent problem.
In addition, the laws of some foreign countries do not protect our proprietary rights as fully as do the laws of the U.S. In those countries, reverse engineering, unauthorized copying or other misappropriation of our proprietary technology could enable third parties to benefit from our technology without paying us for it, which would significantly harm our business.
We depend upon software we license from third parties, the loss of which could harm our revenues.
We rely upon certain software that we license from third parties, including software that is integrated with our internally developed software and used in our products to perform key functions. There can be no assurance that these third-party software licenses will continue to be available to the Company on commercially reasonable terms, if at all. The loss of or inability to maintain any such software licenses could result in shipment delays or reductions until equivalent software could be developed, identified, licensed and integrated. Such delays would materially adversely affect our business, operating results and financial condition.
We have invested substantial resources in developing our products and our brand, and our operating results would suffer if we were subject to a protracted infringement claim or one with a significant damage award.
Substantial litigation regarding intellectual property rights and brand names exists in our industry. We expect that software product developers increasingly will be subject to infringement claims as the number of products and competitors in our industry segment grows and the functionality of products in different industry segments overlaps. We are not aware that any of our products infringe any proprietary rights of third parties. However, third parties, some with far greater financial resources than us, may claim infringement by our products of their intellectual property rights. Any such claims, with or without merit, could:
If we are required to enter into royalty or licensing agreements to resolve an infringement claim, we may not be able to enter into these agreements on terms acceptable to us, if at all. A successful claim of product infringement against us or our failure or inability to either license the infringed or similar technology or develop alternative technology on a timely basis, may harm our operating results, and our financial condition could be harmed because we would not be able to sell the impacted product without redeveloping it or incurring significant additional expenses.
Risks Related to the Market for Our Common Stock and Our Business
We experience volatility in our share price, and investors may not be able to resell shares of our common stock at or above the purchase price.
The market price of our common stock has historically varied from time to time. An investor in shares of our common stock may not be able to resell those shares at or above the price paid. Our common stock price may fluctuate significantly in the future due to:
In addition, The Nasdaq National Market has experienced extreme volatility in recent years that has often been unrelated to the performance of particular companies. Future market fluctuations may cause our stock price to fall regardless of our performance.
Provisions of our charter documents, Delaware law and our rights plan may have anti-takeover effects that could discourage or prevent a change in control, which may suppress our stock price or cause it to decline.
Provisions of our certificate of incorporation and bylaws and a rights plan adopted by our board of directors may discourage, delay or prevent a merger or acquisition that our common stockholders may consider favorable. Provisions of our Certificate of Incorporation and bylaws:
The rights granted pursuant to the rights agreement entered into as part of our rights plan have anti-takeover effects. The rights may cause substantial dilution to a person or group that attempts to acquire ActionPoint on terms that our board of directors determines are not in the best interests of our stockholders. Certain provisions of Delaware law also may discourage, delay or prevent someone from acquiring or merging with us, which may cause the market price of our common stock to decline.
Item 3- Quantitative and Qualitative Disclosures About Market Risk.
The Company's exposure to market risk for changes in interest rates relates primarily to its investment portfolio. The Company maintains an investment policy, which is intended to ensure the safety and preservation of its invested funds by limiting default risk, market risk and reinvestment risk. The Company does not currently use, nor has it historically used, derivative financial instruments to manage or reduce market risk. The Company mitigates default risk by investing in high credit quality securities such as debt instruments of the United States government and its agencies and high quality corporate issuers, as well as money market funds. The portfolio includes only marketable securities with active secondary or resale markets to ensure portfolio liquidity and maintains a prudent amount of diversification. As of JuneSeptember 30, 2001, the Company had $4.9$8.9 million of cash and cash equivalents. In addition, the Company owned 1.6 million shares of Chordiant stock, obtained in conjunction with the sale of the Dialog Server product line, and valued at $4.8 million on June 30, 2001.
The Company does not currently transact any significant portion of its business in functional currencies other than the United States dollar. To the extent that it continues to transact its business using the United StateStates dollar as its functional currency, the Company does not believe that the fluctuations in foreign currency exchange rates will have a material adverse effect on the Company's results of operations.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of SecuritySecurities Holders
On June 22, 2001, the Company held its Annual Meeting of Stockholders at the Company's headquarters in San Jose, California. At the meeting, the stockholders were asked to: (1) elect Thomas T. van Overbeek, James Crawford III, Kimra Hawley, Johannes Schmidt, Bruce Silver, Daniel D. Tompkins, and John Finegan as members of the Board of Directors for 2001; (2) approve an amendment to the Company's Stock Option/Stock Issuance Plan to increase the number of shares of Common Stock for issuance thereunder by 150,000 shares; (3) approve an amendment to the Company's 1998 Employee Stock Purchase Plan to increase the number of shares of common stock for issuance thereunder by 100,000 shares; and (4) ratify the selection of PricewaterhouseCoopers LLP as the Company's independent auditors for fiscal year 2001.
As of the April 30, 2001 record date established for the annual meeting, there were 4,273,611 shares of common stock issued and outstanding, all of which were entitled to vote. Present in person or by proxy at the meeting were stockholders representing 3,993,994 shares. Such shares represented 93%, a quorum, of the total number of shares outstanding and entitled to vote. All of the proposals, and all of the nominees to the board of directors, were approved by the stockholders. 3,537,136 shares voted for the approval of the nominees to the board of directors, 429,869 withheld, and 26,989 instructed. 901,658 shares voted for the approval of the amendment to the company's 1993 Stock Option/Stock Issuance Plan, 568,107 voted against, and 1,950 shares abstained. 1,344,560 shares voted for the approval of the amendment to the 1998 Employee Stock Purchase Plan, 124,645 shares voted against, and 2,510 shares abstained. 3,964,076 shares voted for ratification of the selection of PricewaterhouseCoopers as the Company's independent auditors, 15,400 shares voted against, and 14,518 shares abstained.
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Exhibit
Number Description
- ------- ------------
3.1+ Amended and Restated Certificate of Incorporation of the Registrant.
3.2 Bylaws of the Registrant (Incorporated by reference to an exhibit
to the Registrant's 8-K filed on September 24, 1997).
4.1 Reference is made to Exhibit 3.1 and 3.2.
4.2+ Form of Investor Rights Agreement dated August 27, 1993 by and
among the Registrant and the investors identified herein.
4.3 Rights Agreement dated September 9, 1997 (Incorporated by reference
to and exhibit to the Registrant's Registration Statement on Form 8-A
filed on September 10, 1997).
4.4 Offer to Exchange (Incorporated by reference to an exhibit to the
Registrant's Schedule TO filed August 3, 2001, as amended).
10.1+ Form of Indemnity Agreement entered into between the Registrant and
its directors and officers
10.2+ Form of the Registrant's 1993 Stock Option/Stock Issuance Plan.
10.3++ Form of 1999 Stock Plan.
10.4++ Form of 1998 Employee Stock Purchase Plan.
10.5++ Lease of Property at 1299 Parkmoor Ave. San Jose, CA
+ Incorporated by reference to an exhibit to the Registrant's Registration Statement of Form S-1 (Registration No. 33-66142), as amended.
++ Incorporated by reference to a similarly numbered exhibit to the Registrant's Annual Report on Form 10-K filed on April 2, 2001.
2. On June 15, 2001, the Company reported(b) Reports on Form 8-k the election of Stephen Francis as President and Chief Executive Officer that occurred on July 4, 2001.8-K - Not Applicable
ACTIONPOINT, INC.
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.
| ACTIONPOINT, INC. |
| (Registrant) |
| By: | /s/ STEPHEN FRANCIS |
| Stephen Francis | |
| President, Chief Executive Officer and Director | |
| (Principal Executive Officer) |
| By: | /s/ JOHN FINEGAN |
| John Finegan | |
| Chief Financial Officer and Secretary | |
| (Principal Financial and Accounting Officer) |