sv3za
As filed with the Securities and Exchange Commission on
April 11, 2005
Registration No. 333-123177
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1 to
Form S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Perficient,
Inc.
(Exact name of registrant as specified in its charter)
1120 South Capital of Texas Highway
Building 3, Suite 220
Austin, Texas 78746
(512) 531-6000
(Address, including zip code, and telephone number, including
area code of registrants principal executive offices)
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Delaware |
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74-2853258 |
(State or other jurisdiction of
incorporation or organization) |
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(I.R.S. Employer
Identification Number) |
John T. McDonald
1120 South Capital of Texas Highway
Building 3, Suite 220
Austin, Texas 78746
(512) 531-6000
(512) 531-6011 (Fax)
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
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J. Nixon Fox III
Vinson & Elkins LLP
The Terrace 7
2801 Via Fortuna, Suite 100
Austin, Texas 78746-7568
(512) 542-8400
(512) 542-8612 (Fax) |
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P. Kevin Trautner
King & Spalding LLP
1100 Louisiana Street
Suite 4000
Houston, Texas 77002-5213
(713) 751-3273
(713) 751-3290 (Fax) |
Approximate date of commencement of proposed sale to the
public: As soon as practicable after the effective date of
this Registration Statement.
If the only securities being registered on this Form are being
offered pursuant to dividend or interest reinvestment plans,
please check the following
box. o
If any of the securities being registered on this Form are being
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933, as amended (the
Securities Act), other than securities offered only
in connection with dividend or interest reinvestment plans,
please check the following
box. o
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
please check the following box and list the Securities Act
registration statement number of the earlier effective
registration statement for the same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, please check the
following box and list the Securities Act registration statement
number of the earlier effective registration statement for the
same
offering. o
If delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following
box. o
The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Securities
and Exchange Commission, acting pursuant to said
Section 8(a), may determine.
The information
in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed
with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities, and it is
not soliciting an offer to buy these securities, in any
jurisdiction where the offer or sale is not
permitted.
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SUBJECT TO COMPLETIONDATED
APRIL 11, 2005
PRELIMINARY PROSPECTUS
5,032,600 Shares
Common Stock
We are offering 4,250,000 shares of our common stock and
the selling stockholders identified in this prospectus are
offering 782,600 shares of our common stock. We will not
receive any proceeds from the sale of the shares by the selling
stockholders.
Our shares of common stock are listed on the Nasdaq National
Market under the symbol PRFT. The last reported sale
price of our common stock on the Nasdaq National Market on
April 7, 2005 was $7.10 per share.
Investing in our common stock involves risks that are
described in the Risk Factors section beginning on
page 7 of this prospectus.
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Per Share | |
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Total | |
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Public offering price
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$ |
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$ |
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Underwriting discounts and commissions
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$ |
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$ |
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Proceeds, before expenses, to us
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$ |
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$ |
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Proceeds, before expenses, to selling stockholders
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$ |
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$ |
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We and some of our existing stockholders have granted the
underwriters a 30-day option to purchase up to 267,390 and
487,500 additional shares, respectively, of our common stock at
the public offering price, less the underwriting discounts and
the commissions, solely to cover over-allotments, if any. In the
event the underwriters exercise their over-allotment option, we
will not receive any of the proceeds from any shares sold by the
selling stockholders. In the event the over-allotment option is
exercised in part, the underwriters will purchase the additional
shares from us and from the selling stockholders on a pro rata
basis.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved these
securities, or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
We expect that the shares of our common stock will be ready for
delivery to purchasers on or
about ,
2005.
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Friedman Billings Ramsey |
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Stifel, Nicolaus & Company |
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Incorporated |
Roth Capital
Partners
Gilford
Securities Incorporated
The date of this prospectus
is ,
2005.
TABLE OF CONTENTS
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Page | |
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Prospectus Summary
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1 |
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Summary Consolidated Financial Data
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4 |
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Risk Factors
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7 |
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Special Note Regarding Forward-Looking Statements
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14 |
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Use of Proceeds
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15 |
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Price Range of Common Stock and Dividend Policy
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16 |
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Capitalization
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17 |
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Dilution
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18 |
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Selected Consolidated Financial Data
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19 |
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Managements Discussion and Analysis of Financial Condition
and Results of Operations
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21 |
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Business
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31 |
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Management
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43 |
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Certain Relationships and Related Transactions
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47 |
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Principal and Selling Stockholders
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48 |
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Description of Capital Stock
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52 |
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Underwriting
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55 |
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Legal Matters
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58 |
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Experts
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58 |
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Where You Can Find More Information
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58 |
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Incorporation of Certain Information by Reference
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59 |
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Index to Financial Statements
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F-1 |
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You should rely only on the information contained or
incorporated by reference in this prospectus. We, the selling
stockholders and the underwriters have not authorized anyone to
provide you with additional information or information different
from that contained in this prospectus. We, the selling
stockholders and the underwriters are not making an offer to
sell these securities in any jurisdiction where any offer or
sale is not permitted. You should assume that the information in
this prospectus is accurate only as of the date of this
prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock.
i
PROSPECTUS SUMMARY
You should read the following summary together with the more
detailed business information and consolidated financial
statements and related notes that appear elsewhere in this
prospectus and in the documents that we incorporate by reference
into this prospectus. This prospectus may contain certain
forward-looking information within the meaning of
the Private Securities Litigation Reform Act of 1995. This
information involves risks and uncertainties. Our actual results
may differ materially from the results discussed in the
forward-looking statements. Factors that might cause such a
difference include, but are not limited to, those discussed in
Risk Factors.
Perficient, Inc.
We are a rapidly growing information technology consulting firm
serving Global 2000 and midsize companies in the central United
States. We help our clients gain competitive advantage by using
Internet-based technologies to make their businesses more
responsive to market opportunities and threats, strengthen
relationships with customers, suppliers and partners, improve
productivity and reduce information technology costs. We design,
build and deliver solutions using a core set of middleware
software products developed by our partners. Our solutions
enable our clients to operate a real-time enterprise that
dynamically adapts business processes and the systems that
support them to the changing demands of an increasingly global,
Internet-driven and competitive marketplace.
We are expanding our business through a combination of organic
growth and acquisitions. We believe that information technology
consulting is a fragmented industry and that there are a
substantial number of privately held information technology
consulting firms in the central United States that can be
acquired on financially accretive terms. We have a track record
of successfully identifying, executing and integrating
acquisitions that add strategic value to our business. Over the
past five years, we have acquired and integrated seven privately
held information technology consulting firms, three of which
were acquired in 2004.
We are addressing a large and growing market. Gartner Dataquest,
an independent market research firm, projects that growth in
middleware software spending, and specifically the integration
broker suites, enterprise portal services, application platform
suites and message-oriented middleware in which we specialize,
will outpace general software spending and increase from
approximately $4.33 billion in 2004 to $6.67 billion
in 2007, a compound annual growth rate of 15.5%. As companies
increase spending on software, their overall spending on
services typically also increases, often by a multiple of each
dollar spent on software.
Our competitive strengths include:
Domain Expertise. Through our experience developing
and delivering solutions for more than 380 Global 2000 and
midsize companies, we have acquired significant domain expertise
in a core set of eBusiness solutions and software platforms.
These solutions include eBusiness infrastructure, enterprise
portals, ecommerce platforms, ecustomer relationship management
and supply chain Web enablement. The platforms on which these
solutions are built include IBM WebSphere®, TIBCO®
BusinessWorks and Microsoft®.NET.
Delivery Model and Methodology. We believe our
significant expertise enables us to provide high-value solutions
through small, expert project teams that deliver measurable
results by working collaboratively with clients through a
user-centered, technology-based and business-driven solutions
methodology. Our eNable Methodology, a unique and proven
execution process map we developed, allows for repeatable, high
quality services delivery.
Client Relationships. We have built a track record
of quality solutions and client satisfaction through the timely,
efficient and successful completion of numerous projects for our
clients. As a result, we have established long-term
relationships with many of our clients who continue to engage us
for additional projects and serve as excellent references for
us. In fiscal years 2002, 2003 and 2004, 81%,
1
85% and 91% of revenue, respectively, excluding from the
calculation for any single period revenue from acquisitions
completed in that single period, was derived from customers that
were clients in the prior year.
Vendor Partnerships and Endorsements. We have built
meaningful partnerships with software vendors, most notably IBM,
whose products we use to design and implement solutions for our
clients. These partnerships enable us to reduce our cost of
sales and sales cycle times and increase win rates through
leveraging our partners marketing efforts and
endorsements. We are a Premier IBM business partner, a TeamTIBCO
partner and a Microsoft Gold Certified Partner.
Geographic Focus. With nine offices spanning the
central United States from Houston, Texas, to Detroit, Michigan,
we focus on Global 2000 and midsize companies that have a
presence in the central United States. We believe this
geographic focus helps position us as the provider of choice for
companies in the area that seek information technology
consulting services and for software vendors that seek
consulting firm partners to sell and deliver solutions that use
their products.
Emerging Offshore Capability. Our recently acquired
subsidiary, Perficient ZettaWorks, Inc., maintains a small
offshore development facility in Bitoli, Macedonia. Through this
facility and our partnerships with offshore providers based in
India, we are developing implementation tools and project
delivery capabilities that we believe will enable us to more
efficiently deliver our solutions.
Our goal is to be the leading independent information technology
consulting firm in the central United States.
To achieve our goal, our strategy is to:
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grow our relationships with existing and new clients; |
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continue making disciplined acquisitions; |
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expand throughout the central United States; |
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enhance brand visibility; |
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invest in our people and culture; |
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leverage existing, and pursue new, strategic alliances; and |
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use offshore services when appropriate to deliver our solutions. |
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General Information
We were incorporated in Texas in September 1997 and
reincorporated in Delaware in May 1999. Our principal executive
offices are located at 1120 South Capital of Texas Highway,
Building 3, Suite 220, Austin, Texas 78746, and our
telephone number is (512) 531-6000. Our website may be
visited at www.perficient.com. The information contained on our
website is not a part of this prospectus.
2
The Offering
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Common stock offered by us |
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4,250,000 shares of common stock |
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Common stock offered by the selling stockholders |
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782,600 shares of common stock |
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Common stock to be outstanding after this offering |
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25,550,172 shares of common stock |
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Use of proceeds |
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We intend to use a substantial portion of the net proceeds from
this offering for future acquisitions. We will also use a
portion of the net proceeds from this offering for repayment of
debt, working capital and other general corporate purposes. See
Use of Proceeds. |
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We will not receive any proceeds from the sale of shares by the
selling stockholders. |
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Nasdaq National Market Symbol |
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PRFT |
Except as otherwise indicated, all information in this
prospectus assumes no exercise of the underwriters
over-allotment option.
The number of shares to be outstanding after this offering is
based on the number of shares outstanding as of March 31,
2005. This number does not include:
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7,042,579 shares issuable under our stock option plan,
consisting of: |
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6,190,928 shares underlying outstanding options at a
weighted average price of $2.91 per share, of which
2,957,981 shares were exercisable; and |
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851,651 shares available for future issuance under our
stock option plan. |
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379,766 shares underlying outstanding options granted
outside of our stock option plan at a weighted average price of
$1.92 per share, 378,184 of which were exercisable. |
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406,188 shares issuable upon the exercise of outstanding
warrants at a weighted average exercise price of $6.56 per
share, all of which are exercisable. |
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The terms Perficient, we,
our and us refer to Perficient, Inc. and
its subsidiaries unless the context suggests otherwise. In
addition, we refer to our employees as colleagues
and will use that term in this prospectus.
3
Summary Consolidated Financial Data
(In thousands, except per share data)
The summary consolidated financial data for the years ended
December 31, 2002, 2003 and 2004 are derived from the
audited consolidated financial statements that appear in this
prospectus.
The pro forma statement of operations data combines the
consolidated historical statements of operations of Perficient
and of the acquired businesses of Genisys Consulting, Inc., or
Genisys, Meritage Technologies, Inc., or Meritage, and
ZettaWorks LLC, or ZettaWorks, as if the Genisys, Meritage and
ZettaWorks acquisitions had been completed on January 1,
2004. The historical results presented are not necessarily
indicative of future results. The pro forma statement of
operations data and pro forma balance sheet data excludes the
assets and liabilities of ZettaWorks Australia Pty. Ltd., a
wholly owned subsidiary of ZettaWorks, that we did not acquire
when we acquired the business of ZettaWorks. The as adjusted
balance sheet data gives effect upon the closing of this
offering to the sale of 4,250,000 shares of common stock,
after deducting underwriting discounts and commissions and
estimated offering expenses, and application of estimated net
proceeds. The pro forma as adjusted consolidated statement of
operations data presented eliminates interest expense related to
the acquisition line of credit we have with Silicon Valley Bank,
which is being repaid with a portion of the net proceeds from
this offering, and includes in the computation of earnings per
share that number of shares issued in this offering from which
we will use the proceeds, net of underwriting discounts and
commissions and estimated offering expenses, to repay that line
of credit.
The financial data presented are not directly comparable between
periods as a result of the acquisitions of Genisys, Meritage and
ZettaWorks in 2004 and the acquisitions of Javelin Solutions,
Inc., or Javelin, and Primary Webworks, Inc. d/b/a Vertecon,
Inc., or Vertecon, in 2002. Stock compensation expense has been
reclassified as part of selling, general and administrative
expense for purposes of this presentation.
You should read the information set forth below in conjunction
with Selected Consolidated Financial Data,
Managements Discussion and Analysis of Financial
Condition and Results of Operations and our historical
consolidated financial statements and the related notes.
4
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Year Ended December 31, | |
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Historical | |
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Pro Forma | |
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2002 | |
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2003 | |
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2004 | |
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2004 | |
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(Unaudited) | |
Consolidated Statements of Operations Data:
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Revenue
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Services
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$ |
20,391,587 |
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$ |
24,534,617 |
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$ |
43,330,757 |
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$ |
69,578,934 |
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Software
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402,889 |
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3,786,864 |
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13,169,693 |
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13,169,693 |
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Reimbursable expenses
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1,655,808 |
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1,870,441 |
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2,347,223 |
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2,846,066 |
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Total revenue
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22,450,284 |
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30,191,922 |
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58,847,673 |
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85,594,693 |
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Cost of revenue(1)
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Project personnel costs
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11,210,272 |
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13,411,762 |
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26,072,516 |
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43,555,403 |
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Software costs
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343,039 |
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3,080,894 |
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11,341,145 |
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11,341,145 |
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Reimbursable expenses
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1,655,808 |
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1,870,441 |
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2,347,223 |
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2,834,788 |
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Other project related expenses
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330,100 |
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453,412 |
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267,416 |
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1,810,857 |
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Total cost of revenue
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13,539,219 |
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18,816,509 |
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40,028,300 |
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59,542,193 |
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Gross margin
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8,911,065 |
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11,375,413 |
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18,819,373 |
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26,052,500 |
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Selling, general and administrative
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8,567,698 |
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7,993,008 |
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11,067,792 |
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18,320,276 |
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Depreciation
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687,570 |
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670,436 |
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512,076 |
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709,221 |
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Amortization of intangibles
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1,285,524 |
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610,421 |
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696,420 |
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1,434,962 |
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Restructuring, severance and other
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579,427 |
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Income (loss) from operations
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(2,209,154 |
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2,101,548 |
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6,543,085 |
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5,588,041 |
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Interest income
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17,732 |
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3,286 |
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2,564 |
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Interest expense
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(203,569 |
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(285,938 |
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(137,278 |
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(312,484 |
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Other
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(53 |
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(13,459 |
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32,586 |
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37,127 |
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Income (loss) before income taxes
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(2,395,044 |
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1,805,437 |
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6,440,957 |
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5,312,684 |
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(Provision) benefit for income taxes
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(755,405 |
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(2,527,669 |
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(2,087,643 |
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Net income (loss)
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$ |
(2,395,044 |
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$ |
1,050,032 |
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$ |
3,913,288 |
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$ |
3,225,041 |
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Beneficial conversion charge on preferred stock
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(1,672,746 |
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Accretion of dividends on preferred stock
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(163,013 |
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(157,632 |
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Net income (loss) available to common stockholders
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$ |
(4,230,803 |
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$ |
892,400 |
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$ |
3,913,288 |
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$ |
3,225,041 |
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Basic net income (loss) per share(2)
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$ |
(0.46 |
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$ |
0.08 |
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$ |
0.22 |
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$ |
0.16 |
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Diluted net income (loss) per share
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$ |
(0.46 |
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$ |
0.07 |
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$ |
0.19 |
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$ |
0.14 |
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Shares used in computing basic net income (loss) per share(2)
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9,173,657 |
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11,364,203 |
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17,648,575 |
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20,214,820 |
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Shares used in computing diluted net income (loss) per share
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9,173,657 |
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15,306,151 |
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20,680,507 |
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23,331,219 |
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Pro Forma As Adjusted:
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Interest expense
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$ |
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Income (loss) before income taxes
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$ |
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(Provision) benefit for income taxes
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$ |
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Net income (loss)
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$ |
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Net income (loss) available to common stockholders
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$ |
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Basic net income (loss) per share(2)
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$ |
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Diluted net income (loss) per share
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$ |
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Shares used in computing basic net income (loss) per share(2)
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Shares used in computing diluted net income (loss) per share
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(1) |
Exclusive of depreciation shown separately below gross margin. |
5
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(2) |
In accordance with the transition provisions of the Emerging
Issues Task Force (EITF) 03-06 Participating Securities
and the Two-Class Method under FASB Statement No. 128,
Earnings Per Share our basic net income per share and
shares used in computing basic net income per share for year
2003 have been conformed for current period presentation for the
year ended December 31, 2004. The impact of the adoption of
this pronouncement is shown retroactively for all periods
presented. |
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As of December 31, 2004 | |
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As | |
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Actual | |
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Adjusted | |
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| |
Balance Sheet Data:
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Cash
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$ |
3,905,460 |
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$ |
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Working capital
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9,233,577 |
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Total assets
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62,582,365 |
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Current portion of long term debt
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1,379,201 |
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Long term debt, net of current portion
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2,902,306 |
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Stockholders equity
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44,622,367 |
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|
6
RISK FACTORS
You should carefully consider the following risk factors
together with the other information contained in or incorporated
by reference into this prospectus before you decide to buy our
common stock. If any of these risks actually occur, our
business, financial condition, operating results or cash flows
could be materially adversely affected. This could cause the
trading price of our common stock to decline and you may lose
part or all of your investment.
Risks Related to Our Business
Prolonged economic weakness in the Internet software and
services market could adversely affect our business, financial
condition and results of operations.
The market for Internet software and services has changed
rapidly over the last six years. The market for Internet
software and services expanded dramatically during 1999 and most
of 2000, but declined significantly in 2001 and 2002. Market
demand for Internet software and services began to stabilize and
improve throughout 2003 and 2004, but this trend may not
continue. Our future growth is dependent upon the demand for
Internet software and services, and, in particular, the
information technology consulting services we provide. Demand
and market acceptance for Internet services are subject to a
high level of uncertainty. Prolonged weakness in the Internet
software and services industry has caused in the past, and may
cause in the future, business enterprises to delay or cancel
information technology projects, reduce their overall budgets
and/or reduce or cancel orders for our services. This, in turn,
may lead to longer sales cycles, delays in purchase decisions,
payment and collection, and may also result in price pressures,
causing us to realize lower revenues and operating margins. If
companies cancel or delay their business and technology
initiatives or choose to move these initiatives in-house, our
business, financial condition and results of operations could be
materially and adversely affected.
We may not be able to attract and retain information
technology consulting professionals, which could affect our
ability to compete effectively.
Our business is labor intensive. Accordingly, our success
depends in large part upon our ability to attract, train,
retain, motivate, manage and effectively utilize highly skilled
information technology consulting professionals. Additionally,
our technology professionals are primarily at-will employees.
Failure to retain highly skilled technology professionals would
impair our ability to adequately manage, staff and implement our
existing projects and to bid for or obtain new projects, which
in turn would adversely affect our operating results.
Our success will depend on retaining our senior management
team and key personnel.
Our industry is highly specialized and the competition for
qualified management and key personnel is intense. We expect
this to remain so for the foreseeable future. We believe that
our success will depend on retaining our senior management team
and key technical and business consulting personnel. Retention
is particularly important in our business as personal
relationships are a critical element of obtaining and
maintaining strong relationships with our clients. If a
significant number of these individuals stop working for us, our
level of management, technical, marketing and sales expertise
could diminish. We may be unable to achieve our revenue and
operating performance objectives unless we can attract and
retain technically qualified and highly skilled sales,
technical, business consulting, marketing and management
personnel. These individuals would be difficult to replace, and
losing them could seriously harm our business.
We may have difficulty in identifying and competing for
strategic acquisition and partnership opportunities.
Our business strategy includes the pursuit of strategic
acquisitions. We may acquire or make strategic investments in
complementary businesses, technologies, services or products, or
enter into
7
strategic partnerships or alliances with third parties in the
future in order to expand our business. We may be unable to
identify suitable acquisition, strategic investment or strategic
partnership candidates, or if we do identify suitable
candidates, we may not complete those transactions on terms
commercially favorable to us, or at all. If we fail to identify
and successfully complete these transactions, our competitive
position and our growth prospects could be adversely affected.
In addition, we may face competition from other companies with
significantly greater resources for acquisition candidates,
making it more difficult for us to acquire suitable companies on
favorable terms.
Pursuing and completing potential acquisitions could divert
managements attention and financial resources and may not
produce the desired business results.
We do not have specific personnel dedicated to pursuing and
making strategic acquisitions. As a result, if we pursue any
acquisition, our management could spend a significant amount of
time and financial resources to pursue and integrate the
acquired business with our existing business. To pay for an
acquisition, we might use capital stock, cash or a combination
of both. Alternatively, we may borrow money from a bank or other
lender. If we use capital stock, our stockholders will
experience dilution. If we use cash or debt financing, our
financial liquidity may be reduced and the interest on any debt
financing could adversely affect our results of operations. From
an accounting perspective, an acquisition may involve
amortization or the write-off of significant amounts of
intangible assets that could adversely affect our results of
operations.
Despite the investment of these management and financial
resources, and completion of due diligence with respect to these
efforts, an acquisition may not produce the anticipated
revenues, earnings or business synergies for a variety of
reasons, including:
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difficulties in the integration of the technologies, services
and personnel of the acquired business; |
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the failure of management and acquired services personnel to
perform as expected; |
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the risks of entering markets in which we have no, or limited,
prior experience; |
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the failure to identify or adequately assess any undisclosed or
potential legal liabilities of the acquired business; |
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the failure of the acquired business to achieve the forecasts we
used to determine the purchase price; or |
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the potential loss of key personnel of the acquired business. |
These difficulties could disrupt our ongoing business, distract
our management and colleagues, increase our expenses and
materially and adversely affect our results of operations.
The market for the information technology consulting services
we provide is competitive, has low barriers to entry and is
becoming increasingly consolidated, which may adversely affect
our market position.
The market for the information technology consulting services we
provide is competitive, rapidly evolving and subject to rapid
technological change. In addition, there are relatively low
barriers to entry into this market and therefore new entrants
may compete with us in the future. For example, due to the rapid
changes and volatility in our market, many well-capitalized
companies, including some of our partners, that have focused on
sectors of the Internet software and services industry that are
not competitive with our business may refocus their activities
and deploy their resources to be competitive with us.
Our future financial performance will depend, in large part, on
our ability to establish and maintain an advantageous market
position. We currently compete with regional and national
information
8
technology consulting firms, and, to a limited extent, offshore
service providers and in-house information technology
departments. Many of the larger regional and national
information technology consulting firms have substantially
longer operating histories, more established reputations and
potential partner relationships, greater financial resources,
sales and marketing organizations, market penetration and
research and development capabilities, as well as broader
product offerings and greater market presence and name
recognition. We may face increasing competitive pressures from
these competitors as the market for Internet software and
services continues to grow. This may place us at a disadvantage
to our competitors, which may harm our ability to grow, maintain
revenue or generate net income.
In recent years, there has been substantial consolidation in our
industry, and we expect that there will be significant
additional consolidation in the near future. As a result of this
increasing consolidation, we expect that we will increasingly
compete with larger firms that have broader product offerings
and greater financial resources than we have. We believe that
this competition could have a significant negative effect on our
marketing, distribution and reselling relationships, pricing of
services and products and our product development budget and
capabilities. Any of these negative effects could significantly
impair our results of operations and financial condition. We may
not be able to compete successfully against new or existing
competitors.
Our business will suffer if we do not keep up with rapid
technological change, evolving industry standards or changing
customer requirements.
Rapidly changing technology, evolving industry standards and
changing customer needs are common in the Internet software and
services market. We expect technological developments to
continue at a rapid pace in our industry. Technological
developments, evolving industry standards and changing customer
needs could cause our business to be rendered obsolete or
non-competitive, especially if the market for the core set of
eBusiness solutions and software platforms in which we have
expertise does not grow or if such growth is delayed due to
market acceptance, economic uncertainty or other conditions.
Accordingly, our success will depend, in part, on our ability to:
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continue to develop our technology expertise; |
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enhance our current services; |
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develop new services that meet changing customer needs; |
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advertise and market our services; and |
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influence and respond to emerging industry standards and other
technological changes. |
We must accomplish all of these tasks in a timely and
cost-effective manner. We might not succeed in effectively doing
any of these tasks, and our failure to succeed could have a
material and adverse effect on our business, financial condition
or results of operations, including materially reducing our
revenue and operating results.
We may also incur substantial costs to keep up with changes
surrounding the Internet. Unresolved critical issues concerning
the commercial use and government regulation of the Internet
include the following:
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security; |
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intellectual property ownership; |
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privacy; |
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taxation; and |
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liability issues. |
9
Any costs we incur because of these factors could materially and
adversely affect our business, financial condition and results
of operations, including reduced net income.
A significant portion of our revenue is dependent upon
building long-term relationships with our clients and our
operating results could suffer if we fail to maintain these
relationships.
Our professional services agreements with clients are in most
cases terminable on 10 to 30 days notice. A client
may choose at any time to use another consulting firm or choose
to perform services we provide through their own internal
resources. Accordingly, we rely on our clients interests
in maintaining the continuity of our services rather than on
contractual requirements. Termination of a relationship with a
significant client or with a group of clients that account for a
significant portion of our revenues could adversely affect our
revenues and results of operations.
If we fail to meet our clients performance
expectations, our reputation may be harmed.
As a services provider, our ability to attract and retain
clients depends to a large extent on our relationships with our
clients and our reputation for high quality services and
integrity. We also believe that the importance of reputation and
name recognition is increasing and will continue to increase due
to the number of providers of information technology services.
As a result, if a client is not satisfied with our services or
does not perceive our solutions to be effective or of high
quality, our reputation may be damaged and we may be unable to
attract new, or retain existing, clients and colleagues.
We may face potential liability to customers if our
customers systems fail.
Our eBusiness integration solutions are often critical to the
operation of our customers businesses and provide benefits
that may be difficult to quantify. If one of our customers
systems fails, the customer could make a claim for substantial
damages against us, regardless of our responsibility for that
failure. The limitations of liability set forth in our contracts
may not be enforceable in all instances and may not otherwise
protect us from liability for damages. Our insurance coverage
may not continue to be available on reasonable terms or in
sufficient amounts to cover one or more large claims. In
addition, a given insurer might disclaim coverage as to any
future claims. If we experience one or more large claims against
us that exceed available insurance coverage or result in changes
in our insurance policies, including premium increases or the
imposition of large deductible or co-insurance requirements, our
business and financial results could suffer.
The loss of one or more of our significant software partners
would have a material adverse effect on our business and results
of operations.
Our partnerships with software vendors enable us to reduce our
cost of sales and increase win rates through leveraging our
partners marketing efforts and strong vendor endorsements.
The loss of one or more of these relationships and endorsements
could increase our sales and marketing costs, lead to longer
sales cycles, harm our reputation and brand recognition, reduce
our revenues and adversely affect our results of operations.
In particular, a substantial portion of our solutions are built
on IBM WebSphere platforms and a significant number of our
clients are identified through joint selling opportunities
conducted with IBM, through sales leads obtained from our
relationship with IBM and through a services agreement we have
with IBM. Revenue from IBM was approximately 35% and 17% of
total revenue for the years ended December 31, 2003 and
2004, respectively. The loss of our relationship with, or a
significant reduction in the services we perform for IBM would
have a material adverse effect on our business and results of
operations.
10
Our quarterly operating results may be volatile and may cause
our stock price to fluctuate.
Our quarterly revenue, expenses and operating results have
varied in the past and may vary significantly in the future. In
addition, many factors affecting our operating results are
outside of our control, such as:
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demand for Internet software and services; |
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customer budget cycles; |
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changes in our customers desire for our partners
products and our services; |
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pricing changes in our industry; |
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government regulation and legal developments regarding the use
of the Internet; and |
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general economic conditions. |
As a result, if we experience unanticipated changes in the
number or nature of our projects or in our employee utilization
rates, we could experience large variations in quarterly
operating results and losses in any particular quarter.
Our services revenues may fluctuate quarterly due to
seasonality or timing of completion of projects.
We may experience seasonal fluctuations in our services
revenues. We expect that services revenues in the fourth quarter
of a given year may typically be lower than in other quarters in
that year as there are fewer billable days in this quarter as a
result of vacations and holidays. In addition, we generally
perform services on a project basis. While we seek wherever
possible to counterbalance periodic declines in revenues on
completion of large projects with new arrangements to provide
services to the same client or others, we may not be able to
avoid declines in revenues when large projects are completed.
Our inability to obtain sufficient new projects to
counterbalance any decreases in work upon completion of large
projects could adversely affect our revenues and results of
operations.
Our software revenue may fluctuate quarterly, leading to
volatility in the price of our stock.
Our quarterly revenues from sales of third-party software have
varied in the past and may vary significantly from quarter to
quarter, making them difficult to predict. This may lead to
volatility in our share price. The factors that are likely to
cause these variations are:
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the business decisions of our clients regarding the investment
in new technology; |
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customer demand in any given quarter; and |
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the stage of completion of existing projects and/or their
termination. |
Our software revenue may fluctuate quarterly and be higher in
the fourth quarter of a given year as procurement policies of
our clients may result in higher technology spending towards the
end of budget cycles. This seasonal trend may materially affect
our quarter-to-quarter revenues, margins and operating results.
Our overall gross margin fluctuates quarterly based on our
services and software revenue mix, which may cause our stock
price to fluctuate.
The gross margin on our services revenue is, in most instances,
greater than the gross margin on our software revenue. As a
result, our gross margin will be higher in quarters where our
services revenue, as a percentage of total revenue, has
increased, and will be lower in quarters where our software
revenue, as a percentage of total revenue, has increased. In
addition, gross margin on software revenue may fluctuate as a
result of variances in gross margin on individual software
products. Our stock price may be negatively affected in quarters
in which our gross margin decreases.
11
Our services gross margins are subject to fluctuations as a
result of variances in utilization rates and billing rates.
Our services gross margins are affected by trends in the
utilization rate of our professionals, defined as the percentage
of our professionals time billed to customers divided by
the total available hours in a period, and in the billing rates
we charge our clients. Our operating expenses, including
employee salaries, rent and administrative expenses are
relatively fixed and cannot be reduced on short notice to
compensate for unanticipated variations in the number or size of
projects in process. If a project ends earlier than scheduled,
we may need to redeploy our project personnel. Any resulting
non-billable time may adversely affect our gross margins.
The average billing rates for our services may decline due to
rate pressures from significant customers and other market
factors, including innovations and average billing rates charged
by our competitors. Also, our average billing rates will decline
if we acquire companies with lower average billing rates than
ours. To sell our products and services at higher prices, we
must continue to develop and introduce new services and products
that incorporate new technologies or high-performance features.
If we experience pricing pressures or fail to develop new
services, our revenues and gross margins could decline, which
could harm our business, financial condition and results of
operations.
If we fail to complete fixed-fee contracts within budget and
on time, our results of operations could be adversely
affected.
We perform a limited number of projects on a fixed-fee, turnkey
basis, rather than on a time-and-materials basis. Under these
contractual arrangements, we bear the risk of cost overruns,
completion delays, wage inflation and other cost increases. If
we fail to estimate accurately the resources and time required
to complete a project or fail to complete our contractual
obligations within the scheduled timeframe, our results of
operations could be adversely affected. We cannot assure you
that in the future we will not price these contracts
inappropriately, which may result in losses.
We may not be able to maintain our level of profitability.
Although we have been profitable for the past six quarters, we
may not be able to sustain or increase profitability on a
quarterly or annual basis in the future. We cannot assure you of
any operating results. In future quarters, our operating results
may not meet public market analysts and investors
expectations. If this occurs, the price of our common stock will
likely fall.
If we do not effectively manage our growth, our results of
operations could be adversely affected.
Our ability to operate profitably depends largely on how
effectively we manage our growth. In order to create the
additional capacity necessary to accommodate the demand for our
services, we may need to implement a variety of new and upgraded
operational and financial systems, procedures and controls, open
new offices or hire additional colleagues. Implementation of
these new systems, procedures and controls may require
substantial management efforts and our efforts to do so may not
be successful. The opening of new offices or the hiring of
additional colleagues may result in idle or underutilized
capacity. We periodically assess the expected long-term capacity
utilization of our offices and professionals. We may not be able
to achieve or maintain optimal utilization of our offices and
professionals. If demand for our services does not meet our
expectations, our revenues will not be sufficient to offset
these expenses and our results of operations could be adversely
affected.
We may be exposed to potential risks resulting from new
requirements under Section 404 of the Sarbanes-Oxley Act of
2002.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002,
we will be required, beginning with our fiscal year ending
December 31, 2005, to include in our annual report our
assessment of the effectiveness of our internal control over
financial reporting as of the end of fiscal 2005. Furthermore,
12
our independent registered public accounting firm, BDO Seidman,
LLP, may be required to attest to whether our assessment of the
effectiveness of our internal control over financial reporting
is fairly stated in all material respects and separately report
on whether it believes we have maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2005. We have not yet completed our
assessment of the effectiveness of our internal control over
financial reporting. We expect to incur additional expenses and
diversion of managements time as a result of performing
the system and process evaluation, testing and remediation
required in order to comply with the management certification
and auditor attestation requirements. If we fail to timely
complete this assessment, or if our independent registered
public accounting firm cannot timely attest to our assessment,
we could be subject to regulatory sanctions and a loss of public
confidence in our internal control. In addition, any failure to
implement required new or improved controls, or difficulties
encountered in their implementation, could harm our operating
results or cause us to fail to timely meet our regulatory
reporting obligations.
Risks Relating to this Offering and Ownership of Our
Common Stock
The trading volume of our common stock has been limited and,
as a result, our stock price may fluctuate widely.
Our common stock is traded on the Nasdaq National Market under
the symbol PRFT. The trading volume of our common
stock has been limited and our stock price has been volatile.
Our stock price may continue to fluctuate widely as a result of
the limited trading volume, announcements of new services and
products by us or our competitors, quarterly variations in
operating results, the gain or loss of significant customers,
changes in public market analysts estimates and market
conditions for information technology consulting firms and other
technology stocks in general.
We periodically review and consider possible acquisitions of
companies that we believe will contribute to our long-term
objectives. In addition, depending on market conditions,
liquidity requirements and other factors, from time to time we
consider accessing the capital markets. These events may also
affect the market price of our common stock.
Our management has broad discretion over the use of proceeds
from this offering and may use the proceeds in ways with which
you do not agree.
We estimate the net proceeds of this offering to us to be
approximately
$ million
after deducting underwriting discounts and commissions and
estimated offering expenses. Our management will maintain broad
discretion to allocate the proceeds of this offering and the
failure of management to apply these funds effectively could
materially harm our results of operations.
Our officers, directors, and 5% and greater stockholders own
a large percentage of our voting securities and their interests
may differ from other stockholders.
Our executive officers, directors and existing 5% and greater
stockholders beneficially own or control approximately 25% of
the voting power of our common stock. This concentration of
ownership of our common stock may make it difficult for our
other stockholders to successfully approve or defeat matters
that may be submitted for action by our stockholders. It may
also have the effect of delaying, deterring or preventing a
change in control of our company.
We may need additional capital in the future, which may not
be available to us. The raising of any additional capital may
dilute your ownership percentage in our stock.
Our existing accounts receivable line of credit expires in
December 2005 and our term loan acquisition facility advance
period expires in June 2005. If we are unable to renew our line
of credit, we
13
may need to obtain an alternate debt financing facility. In the
future we may decide to raise additional funds through public or
private debt or equity financing in order to:
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take advantage of opportunities, including more rapid expansion
or acquisitions of, or investments in, businesses or
technologies; |
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develop new services; or |
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respond to competitive pressures. |
Any additional capital raised through the sale of equity will
dilute your ownership percentage in our stock. Furthermore, we
cannot assure you that any additional financing we may need will
be available on terms favorable to us, or at all. In that case,
our business results would suffer.
It may be difficult for another company to acquire us, and
this could depress our stock price.
Provisions contained in our certificate of incorporation, bylaws
and Delaware law could make it difficult for a third party to
acquire us, even if doing so would be beneficial to our
stockholders. Our certificate of incorporation and bylaws may
discourage, delay or prevent a merger or acquisition that a
stockholder may consider favorable by authorizing the issuance
of blank check preferred stock. In addition,
provisions of the Delaware General Corporation Law also restrict
some business combinations with interested stockholders. These
provisions are intended to encourage potential acquirers to
negotiate with us and allow the board of directors the
opportunity to consider alternative proposals in the interest of
maximizing stockholder value. However, these provisions may also
discourage acquisition proposals or delay or prevent a change in
control, which could harm our stock price.
In addition, under our agreement with IBM, we have granted IBM a
right of first offer and a right to terminate its agreement with
us with respect to any transaction involving a change of control
of us with a company that has a substantial portion of its
business in the web application server product and services
market, other than a systems integrator or professional services
firm. As a result, a potential acquirer may be discouraged from
making an offer to buy us.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements contained in this prospectus that are not
purely historical statements discuss future expectations,
contain projections of results of operations or financial
condition or state other forward-looking information. Those
statements are subject to known and unknown risks, uncertainties
and other factors that could cause the actual results to differ
materially from those contemplated by the statements. The
forward-looking information is based on various
factors and was derived using numerous assumptions. In some
cases, you can identify these so-called forward-looking
statements by words like may, will,
should, expects, plans,
anticipates, believes,
estimates, predicts,
potential or continue or the negative of
those words and other comparable words. You should be aware that
those statements only reflect our predictions. Actual events or
results may differ substantially. Important factors that could
cause our actual results to be materially different from the
forward-looking statements are disclosed under the heading
Risk Factors in this prospectus.
Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee
future results, levels of activity, performance or achievements.
We are under no duty to update any of the forward-looking
statements after the date of this prospectus to conform such
statements to actual results.
14
USE OF PROCEEDS
We estimate that the net proceeds to us from the sale of
4,250,000 shares of our common stock pursuant to this
offering, based upon the public offering price of
$ per
share, will be approximately
$ million after deducting
underwriting discounts and commissions and estimated offering
expenses. We will not receive any proceeds from the sale of
shares offered by the selling stockholders.
We expect to use a substantial portion of the net proceeds from
this offering for expansion of our business, including future
acquisitions of information technology consulting firms.
We will also use a portion of the net proceeds from this
offering to repay all amounts outstanding under our credit
facility with Silicon Valley Bank. Borrowings under the accounts
receivable line of credit bear interest at a rate equal to the
banks prime rate plus 1.00%, or 6.75%, as of
March 31, 2005. As of March 31, 2005, the balance
outstanding under the accounts receivable line of credit was
$2 million. Borrowings under the acquisition line of credit
bear interest at a rate equal to the average four-year
U.S. Treasury Note yield plus 3.50%. As of March 31,
2005, the balance outstanding under this acquisition credit
facility was $3.6 million, of which $2.1 million was
bearing interest at a rate of 7.11%, and $1.5 million was
bearing interest at a rate of 6.90%.
We will use any remaining net proceeds from this offering for
working capital and other general corporate purposes. The
amounts actually spent by us may vary significantly and will
depend upon a number of factors, including our future revenue
and the other factors described under Risk Factors.
Accordingly, our management has broad discretion in the
allocation of the net proceeds from this offering.
15
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Our common stock is quoted on the Nasdaq National Market under
the symbol PRFT. Prior to February 2, 2005, our
common stock was quoted on the Nasdaq SmallCap Market under the
same symbol. The following table sets forth, for the periods
indicated, the high and low sale prices per share of our common
stock as reported on the Nasdaq SmallCap Market prior to
February 2, 2005 and on the Nasdaq National Market
beginning February 2, 2005.
|
|
|
|
|
|
|
|
|
|
|
|
High | |
|
Low | |
|
|
| |
|
| |
Year Ending December 31, 2003:
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$ |
1.07 |
|
|
$ |
0.50 |
|
|
Second Quarter
|
|
|
1.29 |
|
|
|
0.55 |
|
|
Third Quarter
|
|
|
3.03 |
|
|
|
0.94 |
|
|
Fourth Quarter
|
|
|
3.82 |
|
|
|
2.15 |
|
Year Ending December 31, 2004:
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$ |
4.32 |
|
|
$ |
2.36 |
|
|
Second Quarter
|
|
|
5.00 |
|
|
|
3.10 |
|
|
Third Quarter
|
|
|
4.00 |
|
|
|
2.91 |
|
|
Fourth Quarter
|
|
|
6.96 |
|
|
|
3.84 |
|
Year Ending December 31, 2005:
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$ |
9.44 |
|
|
$ |
6.80 |
|
|
Second Quarter (through April 7, 2005)
|
|
$ |
7.16 |
|
|
$ |
6.97 |
|
On April 7, 2005, the last reported sale price of our
common stock on the Nasdaq National Market was $7.10 per
share. There were approximately 110 stockholders of record of
our common stock as of March 31, 2005.
We have never declared or paid any cash dividends on our common
stock and do not anticipate paying cash dividends in the
foreseeable future. Our credit facility currently prohibits the
payment of cash dividends without the prior written consent of
Silicon Valley Bank.
16
CAPITALIZATION
The following table sets forth our capitalization as of
December 31, 2004 on an actual basis and on an as adjusted
basis. The as adjusted data gives effect to the sale of
4,250,000 shares of common stock offered by us at the
public offering price of
$ per
share after deducting underwriting discounts and commissions and
estimated offering expenses, and the application of the net
proceeds to the repayment of long-term debt. See Use of
Proceeds.
Please read this capitalization table together with the sections
of this prospectus entitled Selected Consolidated
Financial Data and Managements Discussion and
Analysis of Financial Condition and Results of Operations
and our consolidated financial statements and the related notes
included elsewhere in this prospectus or incorporated by
reference into this prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2004 | |
|
|
| |
|
|
|
|
As Adjusted | |
|
|
|
|
for the | |
|
|
Actual | |
|
Offering | |
|
|
| |
|
| |
Cash
|
|
$ |
3,905,460 |
|
|
$ |
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Current portion of long term debt
|
|
$ |
1,379,201 |
|
|
$ |
|
|
|
Long-term debt, net of current portion
|
|
|
2,902,306 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,281,507 |
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value; 40,000,000 shares
authorized; 20,913,532 shares issued and outstanding
actual; 25,163,532 shares issued and outstanding as
adjusted
|
|
|
20,914 |
|
|
|
|
|
|
Additional paid-in capital
|
|
|
102,637,699 |
|
|
|
|
|
|
Unearned stock compensation
|
|
|
(1,656,375 |
) |
|
|
|
|
|
Accumulated other comprehensive loss
|
|
|
(57,837 |
) |
|
|
|
|
|
Retained deficit
|
|
|
(56,322,034 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
$ |
44,622,367 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$ |
48,903,874 |
|
|
$ |
|
|
|
|
|
|
|
|
|
17
DILUTION
Purchasers of common stock in this offering will experience
immediate dilution in the net tangible book value of the common
stock from the public offering price. As of December 31,
2004, our net tangible book value was approximately
$7.3 million, or approximately $0.35 per share of
common stock. Net tangible book value per share represents the
amount of total tangible assets less total liabilities of
Perficient, divided by the number of shares of common stock
outstanding. After our sale of common stock in this offering at
the public offering price of
$ per
share and after the deduction of underwriting discounts and
commissions and estimated offering expenses, our as adjusted net
tangible book value as of December 31, 2004 would have been
approximately
$ million,
or
$ per
share. This represents an immediate increase in net tangible
book value of
$ per
share to existing stockholders and an immediate dilution of
$ per
share to new investors in this offering. The following table
illustrates this per share dilution:
|
|
|
|
|
|
|
|
|
|
Public offering price per share
|
|
|
|
|
|
$ |
|
|
|
Net tangible book value per share as of December 31, 2004
|
|
$ |
|
|
|
|
|
|
|
Change attributable to new investors
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
As adjusted net tangible book value per share after this offering
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
Dilution per share to new investors
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
If the underwriters fully exercise their over-allotment option
to purchase additional shares in this offering, the net tangible
book value per share after this offering will be
$ per
share, the pro forma change attributable to new investors
will be
$ and
the dilution to new investors will be
$ per
share.
The foregoing discussion and tables do not assume exercise of
any stock options or warrants after March 31, 2005. As of
March 31, 2005, there were 3,335,865 shares of common
stock issuable upon exercise of exercisable stock options at a
weighted average exercise price of $2.85 per share,
7,042,579 shares of common stock reserved for issuance
under our stock option plan and 406,188 shares of common
stock issuable upon exercise of outstanding warrants, at a
weighted average exercise price of $6.56 per share, all of
which were exercisable. To the extent that these options and
warrants are exercised, there will be further dilution to new
investors.
18
SELECTED CONSOLIDATED FINANCIAL DATA
(In thousands, except per share data)
You should read the selected consolidated financial data set
forth below in conjunction with Managements
Discussion and Analysis of Financial Condition and Results of
Operations and the consolidated financial statements and
related notes included in this prospectus. The following table
sets forth the selected consolidated financial data for each of
the fiscal years indicated.
The pro forma statement of operations data combines the
consolidated historical statements of operations of Perficient
and of the acquired businesses of Genisys, Meritage and
ZettaWorks as if the Genisys, Meritage and ZettaWorks
acquisitions had been completed on January 1, 2004. The
historical results presented are not necessarily indicative of
future results. The pro forma statement of operations data and
pro forma balance sheet data excludes the assets and liabilities
of ZettaWorks Australia Pty. Ltd., a wholly owned subsidiary of
ZettaWorks, that we did not acquire when we acquired the
business of ZettaWorks.
The financial data presented are not directly comparable between
periods as a result of the acquisitions of Genisys, Meritage and
ZettaWorks in 2004, the acquisitions of Javelin and Vertecon in
2002, and the acquisitions of Compete, Inc., or Compete,
LoreData, Inc. and Core Objective, Inc., or Core Objective,
in 2000.
Revenue and cost of revenue are not directly comparable between
periods because revenue and cost of revenue for 2000 and 2001
are shown net of project related expenses, consisting of
reimbursable expenses and other project related expenses.
Revenue and cost of revenue were not reclassified for periods
ended on or before December 31, 2001 because it was
impractical for the individual reimbursable expenses and other
project related expenses to be reasonably identified. The
characterization of project related expenses for 2000 and 2001
has no effect on periods beginning after December 31, 2001.
In addition, stock compensation expense has been reclassified as
part of selling, general and administrative expense for purposes
of this presentation.
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
Historical | |
|
Pro Forma | |
|
|
| |
|
| |
|
|
2000 | |
|
2001 | |
|
2002 | |
|
2003 | |
|
2004 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited) | |
Consolidated Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
$ |
19,963,759 |
|
|
$ |
20,416,643 |
|
|
$ |
20,391,587 |
|
|
$ |
24,534,617 |
|
|
$ |
43,330,757 |
|
|
$ |
69,578,934 |
|
|
Software
|
|
|
|
|
|
|
|
|
|
|
402,889 |
|
|
|
3,786,864 |
|
|
|
13,169,693 |
|
|
|
13,169,693 |
|
|
Reimbursable expenses
|
|
|
|
|
|
|
|
|
|
|
1,655,808 |
|
|
|
1,870,441 |
|
|
|
2,347,223 |
|
|
|
2,846,066 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
19,963,759 |
|
|
|
20,416,643 |
|
|
|
22,450,284 |
|
|
|
30,191,922 |
|
|
|
58,847,673 |
|
|
|
85,594,693 |
|
Cost of revenue(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Project personnel costs
|
|
|
9,931,064 |
|
|
|
11,879,224 |
|
|
|
11,210,272 |
|
|
|
13,411,762 |
|
|
|
26,072,516 |
|
|
|
43,555,403 |
|
|
Software costs
|
|
|
|
|
|
|
|
|
|
|
343,039 |
|
|
|
3,080,894 |
|
|
|
11,341,145 |
|
|
|
11,341,145 |
|
|
Reimbursable expenses
|
|
|
|
|
|
|
|
|
|
|
1,655,808 |
|
|
|
1,870,441 |
|
|
|
2,347,223 |
|
|
|
2,834,788 |
|
|
Other project related expenses
|
|
|
|
|
|
|
|
|
|
|
330,100 |
|
|
|
453,412 |
|
|
|
267,416 |
|
|
|
1,810,857 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
|
9,931,064 |
|
|
|
11,879,224 |
|
|
|
13,539,219 |
|
|
|
18,816,509 |
|
|
|
40,028,300 |
|
|
|
59,542,193 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
10,032,695 |
|
|
|
8,537,419 |
|
|
|
8,911,065 |
|
|
|
11,375,413 |
|
|
|
18,819,373 |
|
|
|
26,052,500 |
|
Selling, general and administrative
|
|
|
10,655,652 |
|
|
|
9,001,405 |
|
|
|
8,567,698 |
|
|
|
7,993,008 |
|
|
|
11,067,792 |
|
|
|
18,320,276 |
|
Depreciation
|
|
|
|
|
|
|
494,586 |
|
|
|
687,570 |
|
|
|
670,436 |
|
|
|
512,076 |
|
|
|
709,221 |
|
Amortization of intangibles
|
|
|
12,941,570 |
|
|
|
15,312,280 |
|
|
|
1,285,524 |
|
|
|
610,421 |
|
|
|
696,420 |
|
|
|
1,434,962 |
|
Restructuring, severance, and other
|
|
|
|
|
|
|
766,477 |
|
|
|
579,427 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment charge
|
|
|
|
|
|
|
26,798,178 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(13,564,527 |
) |
|
|
(43,835,507 |
) |
|
|
(2,209,154 |
) |
|
|
2,101,548 |
|
|
|
6,543,085 |
|
|
|
5,588,041 |
|
Interest income
|
|
|
263,263 |
|
|
|
31,093 |
|
|
|
17,732 |
|
|
|
3,286 |
|
|
|
2,564 |
|
|
|
|
|
Interest expense
|
|
|
(151,086 |
) |
|
|
(122,395 |
) |
|
|
(203,569 |
) |
|
|
(285,938 |
) |
|
|
(137,278 |
) |
|
|
(312,484 |
) |
Other
|
|
|
|
|
|
|
(1,608 |
) |
|
|
(53 |
) |
|
|
(13,459 |
) |
|
|
32,586 |
|
|
|
37,127 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(13,452,350 |
) |
|
|
(43,928,417 |
) |
|
|
(2,395,044 |
) |
|
|
1,805,437 |
|
|
|
6,440,957 |
|
|
|
5,312,684 |
|
(Provision) benefit for income taxes
|
|
|
(175,000 |
) |
|
|
42,261 |
|
|
|
|
|
|
|
(755,405 |
) |
|
|
(2,527,669 |
) |
|
|
(2,087,643 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
(13,627,350 |
) |
|
$ |
(43,886,156 |
) |
|
$ |
(2,395,044 |
) |
|
$ |
1,050,032 |
|
|
$ |
3,913,288 |
|
|
$ |
3,225,041 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial conversion charge on preferred stock
|
|
|
|
|
|
|
|
|
|
|
(1,672,746 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Accretion of dividends on preferred stock
|
|
|
|
|
|
|
|
|
|
|
(163,013 |
) |
|
|
(157,632 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common stockholders
|
|
$ |
(13,627,350 |
) |
|
$ |
(43,886,156 |
) |
|
$ |
(4,230,803 |
) |
|
$ |
892,400 |
|
|
$ |
3,913,288 |
|
|
$ |
3,225,041 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share(2)
|
|
$ |
(2.52 |
) |
|
$ |
(7.01 |
) |
|
$ |
(0.46 |
) |
|
$ |
0.08 |
|
|
$ |
0.22 |
|
|
$ |
0.16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share
|
|
$ |
(2.52 |
) |
|
$ |
(7.01 |
) |
|
$ |
(0.46 |
) |
|
$ |
0.07 |
|
|
$ |
0.19 |
|
|
$ |
0.14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing basic net income (loss) per share(2)
|
|
|
5,409,353 |
|
|
|
6,261,053 |
|
|
|
9,173,657 |
|
|
|
11,364,203 |
|
|
|
17,648,575 |
|
|
|
20,214,820 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing diluted net income (loss) per share
|
|
|
5,409,353 |
|
|
|
6,261,053 |
|
|
|
9,173,657 |
|
|
|
15,306,151 |
|
|
|
20,680,507 |
|
|
|
23,331,219 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Exclusive of deprecation shown separately below gross margin. |
|
|
(2) |
In accordance with the transition provisions of the Emerging
Issues Task Force (EITF) 03-06 Participating Securities
and the Two-Class Method under FASB Statement No. 128,
Earnings Per Share our basic net income per share and
shares used in computing basic net income per share for year
2003 have been conformed for current period presentation for the
year ended December 31, 2004. The impact of the adoption of
this pronouncement is shown retroactivity for all periods
presented. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical | |
|
|
| |
|
|
As of December 31, | |
|
|
| |
|
|
2000 | |
|
2001 | |
|
2002 | |
|
2003 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$ |
842,481 |
|
|
$ |
1,412,238 |
|
|
$ |
1,525,002 |
|
|
$ |
1,989,395 |
|
|
$ |
3,905,460 |
|
Working capital
|
|
|
3,373,522 |
|
|
|
2,494,191 |
|
|
|
1,854,276 |
|
|
|
4,013,373 |
|
|
|
9,233,577 |
|
Property and equipment, net
|
|
|
804,406 |
|
|
|
533,948 |
|
|
|
1,211,018 |
|
|
|
699,145 |
|
|
|
805,831 |
|
Intangible assets, net
|
|
|
45,558,173 |
|
|
|
3,550,100 |
|
|
|
12,380,039 |
|
|
|
11,693,834 |
|
|
|
37,339,891 |
|
Total assets
|
|
|
54,614,942 |
|
|
|
9,117,695 |
|
|
|
19,593,103 |
|
|
|
20,259,983 |
|
|
|
62,582,365 |
|
Line of credit and current portion of long term debt
|
|
|
1,728,307 |
|
|
|
703,144 |
|
|
|
1,025,488 |
|
|
|
366,920 |
|
|
|
1,379,201 |
|
Long term debt, net of current portion
|
|
|
7,232 |
|
|
|
3,667 |
|
|
|
745,318 |
|
|
|
436,258 |
|
|
|
2,902,306 |
|
Stockholders equity
|
|
|
49,973,947 |
|
|
|
6,836,301 |
|
|
|
14,521,483 |
|
|
|
16,016,038 |
|
|
|
44,622,367 |
|
20
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
You should read the following summary together with the more
detailed business information and consolidated financial
statements and related notes that appear elsewhere in this
prospectus and in the documents that we incorporate by reference
into this prospectus. This prospectus may contain certain
forward-looking information within the meaning of
the Private Securities Litigation Reform Act of 1995. This
information involves risks and uncertainties. Our actual results
may differ materially from the results discussed in the
forward-looking statements. Factors that might cause such a
difference include, but are not limited to, those discussed in
Risk Factors.
Overview
We are a rapidly growing information technology consulting firm
serving Global 2000 and midsize companies in the central United
States. We help clients gain competitive advantage by using
Internet-based technologies to make their businesses more
responsive to market opportunities and threats, strengthen
relationships with customers, suppliers and partners, improve
productivity and reduce information technology costs. Our
solutions enable these benefits by integrating, automating and
extending business processes, technology infrastructure and
software applications end-to-end within an organization and with
key partners, suppliers and customers. This provides real-time
access to critical business applications and information and a
scalable, reliable, secure and cost-effective technology
infrastructure.
Our services revenue is derived from professional services
performed developing, implementing, integrating, automating and
extending business processes, technology infrastructure and
software applications. Most of our projects are performed on a
time and materials basis, and a smaller amount of revenue is
derived from projects performed on a fixed fee basis. Fixed fee
engagements represented approximately 10.3% of our services
revenue for the year ended December 31, 2004. For time and
material projects, revenue is recognized and billed by
multiplying the number of hours our professionals expend in the
performance of the project by the established billing rates. For
fixed fee projects, revenue is generally recognized using the
proportionate performance method. Provisions for estimated
profits or losses on uncompleted projects are made on a
contract-by-contract basis and are recognized in the period in
which such profits or losses are determined. Billings in excess
of costs plus earnings are classified as deferred revenues. On
many projects, we are also reimbursed for out-of-pocket expenses
such as airfare, lodging and meals. These reimbursements are
included as a component of revenue. The aggregate amount of
reimbursed expenses will fluctuate depending on the location of
our customers, the total number of our projects that require
travel, and whether our arrangements with our clients provide
for the reimbursement of travel and other project related
expenses.
A smaller but growing portion of our revenue is derived from
sales of third-party software, particularly IBM WebSphere
products. Revenue from sales of third-party software is recorded
on a gross basis provided we act as a principal in the
transaction. In the event we do not meet the requirements to be
considered a principal in the software sale transaction and act
as an agent, the revenue is recorded on a net basis. Software
revenue is expected to fluctuate from quarter to quarter
depending on our customers demand for our partners
software products. Generally, spending on software sales is a
strong indicator of future spending on software services.
21
Cost of revenue consists primarily of salaries and benefits
associated with our technology professionals and subcontractors.
Cost of revenue also includes third-party software costs,
reimbursable expenses and other unreimbursed project related
expenses. Project related expenses will fluctuate generally
depending on outside factors including the cost and frequency of
travel and the location of our customers. Cost of revenue does
not include depreciation of assets used in the production of
revenues.
Our gross margins for services are affected by the utilization
rates of our professionals, defined as the percentage of our
professionals time billed to customers divided by the
total available hours in the respective period, the salaries we
pay our consulting professionals and the average billing rate we
receive from our customers. If a project ends earlier than
scheduled or we retain professionals in advance of receiving
project assignments, or if demand for our services declines, our
utilization rate will decline and adversely affect our gross
margins. As the information technology software and services
industry has recovered from the protracted downturn experienced
in 2001 and 2002, we have seen an improvement in our utilization
rates while our billing, retention and base salary rates have
remained relatively stable. Subject to fluctuations resulting
from our acquisitions, we expect these key metrics of our
services business to remain relatively constant for the
foreseeable future assuming there are no further declines in the
demand for information technology software and services. Gross
margin percentages of third party software sales are typically
much lower than gross margin percentages for services and the
mix of services and software for a particular period can
significantly impact total combined gross margin percentage for
such period. In addition, gross margin for software sales can
fluctuate due to pricing and other competitive pressures.
|
|
|
Selling, General and Administrative Expenses |
Selling, general and administrative expenses consist of cash and
non-cash compensation for sales, executive and administrative
employees, training, sales and marketing activities, investor
relations, recruiting, travel costs and expenses, and
miscellaneous expenses. Non-cash compensation includes stock
compensation expenses arising from various option grants to
employees with exercise prices below fair market value at the
date of grant and compensation expense associated with unvested
stock options assumed in business combinations. Such stock
compensation is generally expensed across the vesting periods of
the related equity grants. We work to minimize selling costs by
focusing on repeat business with existing customers and by
accessing sales leads generated by our software company
partners, most notably IBM, whose products we use to design and
implement solutions for our clients. These partnerships enable
us to reduce our selling costs and sales cycle times and
increase win rates through leveraging our partners
marketing efforts and endorsements.
Our quarterly operating results are subject to seasonal
fluctuations. Our fourth and first quarters include the months
of December and January, when billable services activity by
professional staff, as well as engagement decisions by clients,
may be reduced due to client budget planning cycles. Demand for
our services generally has been lower in the fourth quarter due
to reduced activity during the holiday season. Our results will
also fluctuate, in part, based on whether we succeed in
counterbalancing periodic declines in services revenues when a
project or engagement is completed or cancelled by entering into
arrangements to provide additional services to the same clients
or others. Software sales tend to show some seasonality as well,
in that we tend to see higher software demand during the third
and fourth quarter of the calendar year due to client budget
planning and usage cycles, though this is not always the case.
These and other seasonal factors may contribute to fluctuations
in our operating results from quarter to quarter.
22
|
|
|
Plans for Growth & Acquisitions |
Our goal is to be the leading independent information technology
consulting firm in the central United States through, among
other things, expanding our relationships with existing and new
clients, expanding our operations in the central United States
and continuing to make disciplined acquisitions. We believe the
central United States represents an attractive market for
growth, both organically and through acquisitions. As demand for
our services grows in the central United States, we believe we
will attempt to increase the number of professionals in our nine
central United States offices to meet such demand and, as a
result, increase our services revenue. In addition, we believe
our track record for identifying attractive acquisitions and our
ability to integrate acquired businesses helps us successfully
complete acquisitions efficiently and productively, while
continuing to offer quality services to our clients, including
new clients resulting from the acquisitions.
Consistent with our strategy of growth through disciplined
acquisitions, during 2004 we consummated three acquisitions:
Genisys on April 2, 2004; Meritage on June 18, 2004;
and ZettaWorks on December 20, 2004. The operating results
of these businesses have been included in our consolidated
operating results from the respective dates of acquisition. They
significantly affected the comparability of our 2004 operating
results to those of prior years, and they will continue to
affect the comparability of our results in 2005, when they are
included in our operating results for the full year.
23
Results of Operations
The following table summarizes our results of operations as a
percentage of total services and software revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2002 | |
|
2003 | |
|
2004 | |
|
|
| |
|
| |
|
| |
Services revenue
|
|
|
98.1 |
% |
|
|
86.6 |
% |
|
|
76.7 |
% |
Software revenue
|
|
|
1.9 |
|
|
|
13.4 |
|
|
|
23.3 |
|
Reimbursed expenses
|
|
|
8.0 |
|
|
|
6.6 |
|
|
|
4.2 |
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
108.0 |
|
|
|
106.6 |
|
|
|
104.2 |
|
Cost of revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Project personnel costs
|
|
|
53.9 |
|
|
|
47.4 |
|
|
|
46.1 |
|
Software costs
|
|
|
1.6 |
|
|
|
10.9 |
|
|
|
20.1 |
|
Reimbursable expenses
|
|
|
8.0 |
|
|
|
6.6 |
|
|
|
4.2 |
|
Other project related expenses
|
|
|
1.6 |
|
|
|
1.6 |
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
|
65.1 |
|
|
|
66.4 |
|
|
|
70.8 |
|
|
|
|
|
|
|
|
|
|
|
Services gross margin
|
|
|
43.4 |
|
|
|
43.5 |
|
|
|
39.2 |
|
Software gross margin
|
|
|
14.9 |
|
|
|
18.6 |
|
|
|
13.9 |
|
|
|
|
|
|
|
|
|
|
|
Total gross margin
|
|
|
42.9 |
|
|
|
40.2 |
|
|
|
33.3 |
|
Selling, general and administrative
|
|
|
41.2 |
|
|
|
28.2 |
|
|
|
19.5 |
|
Depreciation and amortization
|
|
|
9.5 |
|
|
|
4.5 |
|
|
|
2.1 |
|
Restructuring, severance, and other
|
|
|
2.8 |
|
|
|
0.0 |
|
|
|
0.0 |
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(10.6 |
) |
|
|
7.4 |
|
|
|
11.6 |
|
Interest expense, net
|
|
|
(0.9 |
) |
|
|
(1.0 |
) |
|
|
(0.2 |
) |
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(11.5 |
) |
|
|
6.4 |
|
|
|
11.4 |
|
Provision for income taxes
|
|
|
0.0 |
|
|
|
2.7 |
|
|
|
4.5 |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(11.5 |
) |
|
|
3.7 |
|
|
|
6.9 |
|
Beneficial conversion charge on preferred stock
|
|
|
(8.0 |
) |
|
|
0.0 |
|
|
|
0.0 |
|
Accretion of dividends on preferred stock
|
|
|
(0.8 |
) |
|
|
(0.6 |
) |
|
|
0.0 |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common stockholders
|
|
|
(20.3 |
)% |
|
|
3.2 |
% |
|
|
6.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2004 compared to Year Ended
December 31, 2003 |
Revenue. Total revenue increased 95% to
$58.8 million for the year ended December 31, 2004
from $30.2 million for the year ended December 31,
2003. Services revenue increased 77% to $43.3 million in
2004 from $24.5 million in 2003. The increase in services
revenue resulted from increases in average project size and
quantity of projects. These increases were largely attributable
to the acquisitions of Genisys, Meritage and ZettaWorks which
accounted for $7.5 million, $6.9 million and
$0.3 million, respectively, of services revenue for the
year ended December 31, 2004. The utilization rate of our
professionals, excluding subcontractors, also increased to 83%
for the year ended December 31, 2004 from 76% for the year
ended December 31, 2003. For the years ended
December 31, 2004 and 2003, 17% and 35%, respectively, of
our revenue was derived from IBM. Software revenue increased
248% to $13.2 million in 2004 from $3.8 million in
2003 due to increased customer demand. Reimbursed expenses
increased 25% to $2.3 million in 2004 from
$1.9 million in 2003.
24
Cost of Revenue. Cost of revenue increased 113% to
$40.0 million for the year ended December 31, 2004
from $18.8 million for the year ended December 31,
2003. The increase in cost of revenue is attributable to an
increase in the number of professionals, due to hiring and the
acquisitions of Genisys, Meritage and ZettaWorks. The average
number of professionals performing services, including
subcontractors, increased to 220 for the year ended
December 31, 2004 from 121 for the year ended
December 31, 2003. Also, costs associated with software
sales increased 268% to $11.3 million in 2004 in connection
with increased software revenue in 2004 compared to 2003.
Gross Margin. Gross margin increased 65% to
$18.8 million for the year ended December 31, 2004
from $11.4 million for the year ended December 31,
2003. Gross margin as a percentage of revenue, excluding
reimbursed expenses, decreased to 33% in 2004 from 40% in 2003.
The decrease in gross margin as a percentage of revenue is
primarily due to the increase in software revenue in proportion
to total revenue, which typically yields a lower margin than our
services revenue. Services gross margin decreased slightly to
39.2% in 2004 from 43.5% in 2003 primarily due to lower gross
margins on consulting services contracts acquired in the
acquisitions of Genisys, Meritage and ZettaWorks. Software gross
margin decreased to 13.9% in 2004 from 18.6% in 2003 primarily
as a result of fluctuation in selling prices to customers based
on competitive pressures and fluctuation in vendor pricing based
on market conditions at the time of the sales.
Selling, General and Administrative. Selling,
general and administrative expenses increased 40% to
$11.1 million for the year ended December 31, 2004
from $8.0 million for the year ended December 31, 2003
due primarily to the increases in sales personnel, management
personnel, support personnel and facilities related to the
acquisitions of Genisys, Meritage and ZettaWorks. However,
selling, general and administrative expenses as a percentage of
revenue decreased to 19.5% for the year ended December 31,
2004 from 28.2% for the year ended December 31, 2003. The
decrease in selling, general and administrative expenses as a
percentage of revenue is the result of an increase in sales of
third party software, for which there are generally less
incremental costs, as well as a general reduction of costs in
proportion to total revenue during the applicable periods.
Depreciation. Depreciation expense decreased 24% to
$512,000 during 2004 from $670,000 during 2003. The decrease is
due to a general decrease in purchases of fixed assets along
with an increasing number of fully depreciated assets.
Intangibles Amortization. Intangibles amortization
expense, arising from acquisitions, increased 14% to
approximately $696,000 for the year ended December 31, 2004
from approximately $610,000 for the year ended December 31,
2003. The increase in amortization expense reflects the
acquisition of intangibles from Genisys and Meritage, partially
off-set by the end of the assigned three-year useful life
relating to intangibles for the acquisition of Compete in May
2000 and the acquisition of Core Objective in November 2000.
Interest Expense. Interest expense decreased 52% to
$137,000 for the year ended December 31, 2004 compared to
$286,000 during the year ended December 31, 2003. The
decrease in interest expense is due to decreases in the
principal balances on the notes payable issued in our
acquisition of Javelin and our accounts receivable line of
credit since the same period in 2003. These decreasing balances
are partially off-set by the interest expense now being incurred
on the newly funded acquisition line of credit which was drawn
down in connection with the acquisitions of Meritage in June
2004 and ZettaWorks in December 2004.
Provision for Income Taxes. We accrue a provision
for federal, state and foreign income tax at the applicable
statutory rates adjusted for non-deductible expenses. Our tax
provision rate decreased to 39% for the year ended
December 31, 2004 from 42% for the year ended
December 31, 2003 as a result of a decrease in
non-deductible expenses. We have deferred tax assets resulting
from net operating losses of acquired companies amounting to
approximately $3.3 million for which we have a valuation
allowance of $3.0 million. The remaining deferred tax asset
of $0.3 million is completely off-set by deferred tax
liabilities of $0.7 million related to identifiable
intangibles and cash to accrual adjustments from the
25
Genisys acquisition. Any reversal of the valuation allowance on
the deferred tax assets will be adjusted against goodwill and
will not have an impact on our statement of operations. All of
the net operating losses relate to acquired entities, and as
such are subject to annual limitations on usage under the
change in control provisions of the Internal Revenue
Code.
Year Ended December 31,
2003 Compared to Year Ended December 31, 2002
Revenue. Total gross revenue increased 34.5% to
$30.2 million for the year ended December 31, 2003
from $22.5 million for the year ended December 31,
2002. Services revenue increased 20.3% to $24.5 million in
2003 from $20.4 million in 2002. The increase in services
revenue resulted from an increase in the average project size
and the number of projects. These increases were largely
attributable to the April 2002 acquisitions of Vertecon and
Javelin, which impacted revenue for the full period in 2003. For
the years ended December 31, 2003 and 2002, 35% of our
revenue was derived from IBM. Software revenue increased 839.9%
to $3.8 million in 2003 from $0.4 million in 2002.
Reimbursable expenses increased slightly to $1.9 million in
2003 from $1.7 million in 2002.
Cost of Revenue. Cost of revenue increased 39.3% to
$18.8 million for the year ended December 31, 2003
from $13.5 million for the year ended December 31,
2002. The increase in cost of revenue is due to the increase in
average salaries of our employees as compared to the same period
in 2002, as well as an increase in the number of billable
employees, and the increase in headcount as a result of the
acquisitions of Vertecon and Javelin in April 2002 being
included in the full year for 2003. In addition, costs
associated with software sales increased by $2.7 million in
connection with the increased software revenue in 2003 compared
to 2002.
Gross Margin. Gross margin increased 27.7% to
$11.4 million for the year ended December 31, 2003
from $8.9 million for the year ended December 31,
2002. Gross margin as a percentage of revenue decreased to 40%
in 2003 from 43% in 2002. The decrease in gross margin as a
percentage of revenue is primarily due to the increase in
software sales revenue in proportion to total revenue, which
typically yields a lower margin than our services revenue.
Services gross margin was 43% in 2003 and 2002. Software gross
margin was 19% in 2003 and 15% in 2002.
Selling, General and Administrative. Selling,
general and administrative expenses decreased 6.7% to
$8.0 million for the year ended December 31, 2003 from
$8.6 million for the year ended December 31, 2002. The
decrease is the result of deliberate cost reductions, including
a $292,000 reduction in administrative salaries and benefits, a
$189,000 reduction in computer equipment leasing costs and other
information technology related expenses, which were partially
offset by a $151,000 increase in office costs resulting from the
inclusion of Javelin and Vertecon expenses for the full period
in 2003, and a $150,000 increase in costs related to the
2003 company meeting. Selling, general and administrative
expenses as a percentage of revenue decreased to 28% for the
year ended December 31, 2003 from 41% for the year ended
December 31, 2002. The decrease in selling, general and
administrative expenses as a percentage of revenue is the result
of an increase in software sales, for which there are generally
less incremental costs, as well as a general reduction of costs
in proportion to total revenue during the applicable periods.
Depreciation. Depreciation expense decreased
slightly to $670,000 during 2003 from $688,000 during 2002. The
decrease is due to a general decrease in purchases along with an
increasing number of fully depreciated assets.
Restructuring. During 2002, we implemented certain
workforce reductions and office closures resulting in charges of
$579,000, consisting of severance pay and related benefits for
former employees, as well as costs associated with the closure
of our London office. We recognized approximately $118,000 in
restructuring expenses during 2002 related to the closure of our
London office, which consisted of severance and benefits, lease
commitments, as well as expected losses on the disposal of fixed
assets, attorney and accounting fees, and other costs. As part
of these restructurings, we reduced our workforce by a total of
30 employees, 17 of which were technology professionals and
13 of which were involved in
26
selling, general administration and marketing. As of
December 31, 2002, approximately $228,000 of restructuring
costs are included in other current liabilities, all of which
were paid during 2003. There was no workforce restructuring
during 2003.
Intangibles Amortization. Intangibles amortization
expense consists of amortization of intangibles arising from our
acquisitions of Compete in May 2000, Core Objective in November
2000, and Vertecon and Javelin in April 2002. Amortization
decreased 52.5% to $610,000 during the year ended
December 31, 2003 from $1.3 million during the year
ended December 31, 2002. The decrease in amortization
expense reflects the end of the assigned three-year useful life
for the Compete and Core Objective intangible assets.
Interest Expense. Interest expense increased 40.5%
to $286,000 for the year ended December 31, 2003 compared
to $204,000 during the year ended December 31, 2002. The
increase in interest expense is due to increases of
approximately $31,000 related to capital leases, approximately
$9,000 related to imputed interest expense on the notes issued
to the Javelin shareholders, and approximately $43,000 in bank
audit fees, letter of credit renewal fees, and other costs
associated with our line of credit.
Provision for Income Taxes. Our 2003 income tax
provision was accrued for federal, state and foreign income
taxes at the applicable statutory rates. The 2003 income tax
provision differed from the statutory rate primarily due to
non-deductible expenses and the use of net operating losses
(other than those related to acquired entities) that were
previously subject to a valuation allowance. All net operating
losses remaining as of December 31, 2003 relate to acquired
entities and as such are subject to annual limitations on usage
under the change in control provisions of the
Internal Revenue Code. Accordingly, a valuation allowance has
been established. Any decrease in the valuation allowance will
be applied first to reduce goodwill and then to reduce other
acquisition related non-current intangible assets to zero. Any
remainder would be recognized a reduction of income tax expense.
There was no income tax provision for 2002 as a result of the
net loss for that period.
Liquidity And Capital Resources
Selected measures of liquidity and capital resources are as
follows:
|
|
|
|
|
|
|
|
|
|
|
As of | |
|
|
December 31, | |
|
|
| |
|
|
2003 | |
|
2004 | |
|
|
| |
|
| |
|
|
(In millions) | |
Cash and cash equivalents
|
|
$ |
2.0 |
|
|
$ |
3.9 |
|
Working capital
|
|
$ |
4.0 |
|
|
$ |
9.2 |
|
|
|
|
Net Cash Provided By Operating Activities |
We expect to fund our operations during 2005 from cash generated
from operations and short-term borrowings as necessary from our
credit facility. We believe that these capital resources will be
sufficient to meet our needs for at least the next twelve
months. Net cash generated by operations for the year ended
December 31, 2004 increased 114% to $4.0 million from
$1.9 million for the year ended December 31, 2003.
Accounts receivable, net of allowance for doubtful accounts,
totaled $20.0 million at December 31, 2004,
representing approximately 65 days of sales outstanding,
excluding end-of-quarter software sales, compared to
$5.5 million, or 64 days at December 31, 2003.
A significant amount of our revenue is derived from IBM.
Accordingly, our accounts receivable generally includes
significant amounts due from IBM. As of December 31, 2004,
approximately 11% of our accounts receivable was due from IBM.
27
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|
|
Net Cash Used in Investing Activities |
For the year ended December 31, 2004, we used
$10.7 million in cash, net of cash acquired, to acquire
Genisys, Meritage and ZettaWorks and used $430,000 to purchase
equipment fixed assets.
|
|
|
Estimated Net Cash from this Stock Offering |
We estimate that the net proceeds from the sale of
4,250,000 shares of our common stock pursuant to this
offering will be approximately
$ million,
after deducting underwriting discounts and commissions and
estimated offering expenses. We expect to use a substantial
portion of the net proceeds from this offering for expansion of
our business, including future acquisitions. We will also use a
portion of the net proceeds from this offering to repay all
amounts outstanding under our credit facility with Silicon
Valley Bank. We will use any remaining net proceeds from this
offering for working capital and other general corporate
purposes.
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|
Availability of Funds from Bank Line of Credit
Facilities |
We have a $13.0 million credit facility with Silicon Valley
Bank which includes a $9.0 million accounts receivable line
of credit and a $4.0 million acquisition term line of
credit. We amended this credit facility on January 31, 2005
to increase the accounts receivable line of credit from
$6.0 million to $9.0 million. The accounts receivable
line of credit, which expires in December 2005, allows us to
borrow up to an amount equal to 80% of eligible accounts
receivable, as defined in the agreement, but in no event more
than $9.0 million. Borrowings under this line of credit
bear interest at the banks prime rate plus 1.00%, or
5.75%, as of December 31, 2004. As of December 31,
2004, there were no amounts outstanding under the accounts
receivable line of credit.
Our $4.0 million term acquisition line of credit with
Silicon Valley Bank provides an additional source of financing
for certain qualified acquisitions. As of December 31, 2004
the balance outstanding under this acquisition line of credit
was approximately $3.8 million. Borrowings under this
acquisition line of credit bear interest equal to the average
four year U.S. Treasury note yield plus 3.50% the
initial $2.5 million draw, of which $2.3 million
remains outstanding, bears interest of 7.11% and the subsequent
$1.5 million draw, all of which remains outstanding, bears
interest of 6.90% as of December 31, 2004 and are repayable
in thirty-six equal monthly installments. We are entitled to
make payments of accrued interest only for the first three
monthly installments.
We are required to comply with various financial covenants under
our Silicon Valley Bank credit facility. We are required to
maintain a minimum tangible net worth of at least $3,000,000, to
maintain a ratio of after tax earnings before interest,
depreciation and amortization, annualized, to current maturities
of long-term debt plus interest of at least 1.50 to 1.00, and,
pursuant to the January 31, 2005 amendment, to maintain a
ratio of cash plus accounts receivable including 50% of unbilled
revenue to all outstanding obligations to the bank of at least
1.50 to 1.00. As of December 31, 2004, we were in
compliance with all covenants under this credit facility.
In connection with certain of our acquisitions, we were required
to establish various letters of credit totaling $550,000 with
Silicon Valley Bank and $65,000 with Key Bank to serve as
collateral for certain office space and equipment leases. We
expect to retire the Key Bank letter of credit in the first half
of 2005. The letters of credit with Silicon Valley Bank reduce
the borrowings available under our line of credit with Silicon
Valley Bank. One letter of credit of $300,000 will remain in
effect through 2005, and the other letter of credit of $250,000
will remain in effect through 2007.
In connection with the acquisition of Javelin, we issued
$1.5 million in notes, $1 million of which was payable
in four equal annual installments on the anniversary of the
closing date of the acquisition in April 2002. The other
$500,000 is payable in eight equal quarterly installments that
commenced in July
28
2002. We paid $125,000 in 2002, $500,000 in 2003 and $375,000 in
2004. Accordingly, annual installments of $250,000 remain to be
paid in each of 2005 and 2006.
We have incurred commitments to make future payments under
contracts such as leases and certain long-term liabilities.
Maturities, excluding interest, under these contracts are set
forth in the following table as of December 31, 2004:
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|
Payment Due by Period | |
|
|
| |
|
|
|
|
Less Than | |
|
|
|
More Than | |
Contractual Obligations |
|
Total | |
|
1 Year | |
|
1-3 Years | |
|
3-5 Years | |
|
5 Years | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Long-term debt obligations, excluding interest
|
|
$ |
4,281 |
|
|
$ |
1,379 |
|
|
$ |
2,765 |
|
|
$ |
137 |
|
|
|
|
|
Operating lease obligations
|
|
$ |
3,677 |
|
|
$ |
1,516 |
|
|
$ |
1,613 |
|
|
$ |
548 |
|
|
|
|
|
If our capital, including proceeds from this offering, is
insufficient to fund our activities in either the short or long
term, we may need to raise additional funds. In the ordinary
course of business, we may engage in discussions with various
persons in connection with additional financing. If we raise
additional funds through the issuance of equity securities, our
existing stockholders percentage ownership will be
diluted. These equity securities may also have rights superior
to our common stock. Additional debt or equity financing may not
be available when needed or on satisfactory terms. If adequate
funds are not available on acceptable terms, we may be unable to
expand our services, respond to competition, pursue acquisition
opportunities or continue our operations.
Critical Accounting Policies
|
|
|
Revenue Recognition and Allowance for Doubtful
Accounts |
Consulting revenues are comprised of revenue from professional
services fees recognized primarily on a time and materials basis
as performed. For fixed fee engagements, revenue is recognized
using the proportionate performance method based on the ratio of
hours expended to total estimated hours. Provisions for
estimated losses on uncompleted contracts are made on a
contract-by-contract basis and are recognized in the period in
which such losses are determined. Billings in excess of costs
plus earnings are classified as deferred revenues. Our normal
payment terms are net 30 days. Our agreement with IBM
provides for net 60 days payment terms. Reimbursements for
out-of-pocket expenses are included in gross revenue. Revenue
from the sale of third-party software is recorded on a gross
basis provided that we act as the principal in the transaction.
In the event we do not meet the requirements to be considered
the principal in the software sale transaction, we record the
revenue on a net basis. There is no effect on net income between
recording the software sales on a gross basis versus a net
basis. We assess our allowance for doubtful accounts at each
financial reporting date based on expected losses on
uncollectible accounts receivable with known facts and
circumstances for the respective period.
|
|
|
Goodwill and Other Intangible Assets |
We adopted Statement of Financial Accounting Standards, or SFAS,
No. 142, Goodwill and Other Intangible Assets
(Statement 142) on January 1, 2002. In
accordance with Statement 142, we replaced the ratable
amortization of goodwill with a periodic review and analysis of
such intangibles for possible impairment. In accordance with
Statement 142, we assess our goodwill on October 1 of
each year or more frequently if events or changes in
circumstances indicate that goodwill might be impaired.
Business acquisitions typically result in goodwill and other
intangible assets, and the recorded values of those assets may
become impaired in the future. The determination of the value of
such intangible assets requires us to make estimates and
assumptions that affect our consolidated financial statements.
We assess potential impairments to intangible assets on an
annual basis or when there is evidence that events or changes in
circumstances indicate that the carrying amount of an asset may
not be recovered. Our judgments regarding the existence of
impairment indicators and future cash flows related to
intangible assets are based on operational performance of the
acquired businesses, market
29
conditions and other factors. Future events could cause us to
conclude that impairment indicators exist and that goodwill
associated with the acquired businesses is impaired. Any
resulting impairment loss could have an adverse impact on our
results of operations by decreasing net income.
|
|
|
Accounting for Stock-Based Compensation |
We account for our employee stock-based compensation using the
intrinsic value method in accordance with Accounting Principles
Board Opinion, or APB, No. 25, Accounting for Stock
Issued to Employees, and related interpretations. We also
make disclosures regarding employee stock-based compensation
using the fair value method in accordance with
SFAS No. 123, Accounting for Stock Based
Compensation. Accordingly, compensation cost is recognized
only when options are granted below market price on the date of
grant. Had compensation cost for our stock compensation plans
been determined based on fair value at the grant dates for
awards under these plans consistent with SFAS 123, our net
income and earnings per share would have been reduced to pro
forma amounts indicated in the notes to our financial statements
included in this prospectus. Option valuation models incorporate
highly subjective assumptions. Because changes in the subjective
assumptions can materially affect the fair value estimate, the
existing models do not necessarily provide a single reliable
measure of the fair value of our employee stock options.
Management believes that our net deferred tax asset should
continue to be reduced by a full valuation allowance. Future
operating results and projections could alter this conclusion,
potentially resulting in an increase or decrease in the
valuation allowance. Since the valuation allowance relates
solely to net operating losses from acquired companies which are
subject to usage limitations, any decrease in the valuation
allowance will be applied first to reduce goodwill and then to
reduce other acquisition related non-current intangible assets
to zero. Any remaining decrease in the valuation allowance would
be recognized as a reduction of income tax expense.
Recent Accounting Pronouncements
On December 16, 2004, the Financial Accounting Standards
Board issued Statement No. 123 (revised 2004),
Share-Based Payment (Statement 123(R)).
Statement 123(R) replaces Statement No. 123,
Accounting for Stock-Based Compensation, supersedes APB
Opinion No. 25, Accounting for Stock Issued to Employees
and amends Statement No. 95, Statement of Cash
Flows. Generally, the approach in Statement 123(R) is
similar to the approach described in Statement No. 123.
However, Statement 123(R) requires all share-based payments
to employees, including grants of employee stock options, to be
recognized in the financial statements based on their fair
values (i.e., pro forma disclosure is no longer an
alternative to financial statement recognition). We are required
to adopt Statement 123(R) for the fiscal quarter ending
September 30, 2005. The pro forma disclosures previously
permitted under SFAS No. 123 will no longer be an
alternative to financial statement recognition of the fair value
of employee stock incentive awards. See Note 2 in our Notes
to the Consolidated Financial Statements for the year ended
December 31, 2004 for the pro forma net income and net
income (loss) per share amounts, for the years ended
December 31, 2003 and 2004 as if we had used a
fair-value-based method similar to the methods required under
Statement 123(R) to measure compensation expense for awards in
those years. Although we have not yet determined whether the
adoption of Statement 123(R) will result in amounts that are
similar to the current pro forma disclosures under
SFAS No. 123, we are evaluating the requirements under
Statement 123(R) and we expect the adoption to have a
significant adverse impact on our consolidated statements of
income and net income per share.
30
BUSINESS
Overview
We are a rapidly growing information technology consulting firm
serving Global 2000 and midsize companies in the central United
States. We help our clients gain competitive advantage by using
Internet-based technologies to make their businesses more
responsive to market opportunities and threats, strengthen
relationships with customers, suppliers and partners, improve
productivity and reduce information technology costs. We design,
build and deliver software solutions using a core set of
software products developed by our partners. These products,
which are based on open standards such as the Java 2 Enterprise
Edition, or J2EE, are commonly referred to as middleware and
include application servers, enterprise application integration
platforms, business process management, business activity
monitoring and business intelligence applications and enterprise
portal software. Using these products, our solutions enable our
clients to operate a real-time enterprise that dynamically
adapts business processes and the systems that support them to
the changing demands of an increasingly global, Internet-driven
and competitive marketplace.
Through our experience in developing and delivering eBusiness
integration solutions for more than 380 Global 2000 and
midsize companies, we have acquired significant domain expertise
that we believe differentiates our firm. We use small, expert
project teams that we believe deliver high-value, measurable
results by working collaboratively with clients and their
partners through a user-centered, technology-based and
business-driven solutions methodology. We believe this approach
enhances return-on-investment for our clients by significantly
reducing the time and risk associated with designing and
implementing eBusiness integration solutions.
We believe that the central United States represents an
attractive geographic market and that our focus on this region
and our network of nine offices throughout the central United
States are additional competitive differentiators. We believe
this geographic focus makes us the partner of choice both for
Global 2000 and midsize companies in the area that seek business
and technology consulting services and for software vendors that
seek consulting firm partners to sell and deliver solutions that
use their products.
We place strong emphasis on building lasting relationships with
clients. In fiscal years 2002, 2003 and 2004, 81%, 85% and 91%
of revenue, respectively, excluding from the calculation for any
single period revenue from acquisitions completed in that single
period, was derived from customers that were clients in the
prior year. We have also built meaningful partnerships with
software providers, most notably IBM, whose products we use to
design and implement solutions for our clients. These
partnerships enable us to reduce our cost of sales and sales
cycle times and increase win rates through leveraging our
partners marketing efforts and endorsements.
We are expanding through a combination of organic growth and
acquisitions and completed three acquisitions in 2004
Genisys in April 2004, Meritage in June 2004 and ZettaWorks in
December 2004. We believe that information technology consulting
is a fragmented industry and that there are a substantial number
of privately held information technology consulting firms in our
target markets that can be acquired on financially accretive
terms. We have a track record of successfully identifying,
executing and integrating acquisitions that add strategic value
to our business. Over the past five years, we have acquired and
integrated seven privately held information technology
consulting firms, three of which were acquired in 2004. We
believe that we can achieve significantly faster growth in
revenues and profitability through a combination of organic
growth and acquisitions than we could through organic growth
alone.
31
Industry Background
A number of factors are shaping the information technology
industry and, in particular, the market for our information
technology consulting services:
United States Economic Recovery. The years 2001 and 2002
saw a protracted downturn in information technology spending as
a result of an economic recession in the United States and the
collapse of the Internet bubble. The information
technology consulting industry began to experience a recovery in
the second half of 2003 which continued through 2004. The
industry is benefiting from the overall improvement in the
United States economy as well as a need by businesses to
continue the transformation that they began in the 1990s with
the commercialization of the Internet. It is expected that
information technology services spending will continue to
increase in the foreseeable future. According to independent
market research firm IDC, total information technology services
spending in the United States is expected to increase 6.4% in
2005 to $272 billion and to achieve a 6.7% compound annual
growth rate through 2008.
Need to Rationalize Complex, Heterogeneous Enterprise
Technology Environments. Over the past 15 years, the
information systems of many Global 2000 and midsize companies
have evolved from traditional mainframe-based systems to include
distributed computing environments. This evolution has been
driven by the benefits offered by distributed computing,
including lower incremental technology costs, faster application
development and deployment, increased flexibility and improved
access to business information. Organizations have also widely
installed enterprise resource planning, or ERP, supply chain
management, or SCM, and customer relationship management, or
CRM, applications in order to streamline internal processes and
enable communication and collaboration.
As a result of investment in these different technologies,
organizations now have complex, heterogeneous enterprise
technology environments with incompatible technologies and high
costs of integration. These increases in complexity, cost and
risk, combined with the business and technology transformation
caused by the commercialization of the Internet, have created
demand for information technology consultants with experience in
enabling the integration of disparate platforms and leveraging
Internet-based technologies to support business and technology
goals.
Increased Competitive Pressures. Over the past five
years, the marketplace has become increasingly global,
Internet-driven and competitive. To gain and maintain a
competitive advantage in this environment, Global 2000 and
midsize companies seek real-time access to critical business
applications and information that enables quality business
decisions based on the latest possible information, flexible
business processes and systems that respond quickly to market
opportunities, improved quality and lower cost customer care
through online customer self-service and provisioning, reduced
supply chain costs and improved logistics through processes and
systems integrated online to suppliers, partners and
distributors and increased employee productivity through better
information flow and collaboration.
Enabling these business goals requires integrating, automating
and extending business processes, technology infrastructure and
software applications end-to-end within an organization and with
key partners, suppliers and customers. This requires the ability
not only to integrate the numerous disparate information
resource types, databases, legacy mainframe applications,
packaged application software, custom applications, trading
partners, people and Web services, but also to manage the
business processes that govern the interactions between these
resources so that organizations can engage in real-time
business. Real-time business refers to the use of current
information in business to execute critical business processes.
These factors are driving increased spending on software and
related consulting services in the areas of application
integration, middleware and portals, or AIMP, as these segments
play critical roles in the integration between new and extant
systems and the extension of those systems to customers,
suppliers and partners via the Internet. Companies are expected
to increase software spending on
32
integration broker suites, enterprise portal services,
application platform suites and message-oriented middleware.
Gartner Dataquest, or Gartner, an independent market research
firm, projects that growth in these specific sub-segments within
the AIMP software area will outpace general software spending.
Gartner expects worldwide spending in these four specific
software sub-segments to increase from approximately
$4.33 billion in 2004 to $6.67 billion in 2007, a
compound annual growth rate of 15.5%. As companies increase
spending on software, their overall spending on services will
also increase, often by a multiple of each dollar spent on
software. For example, IDC projects that in 2005, across
17 industries, spending on services, as a multiple of
software spending, will range from a high of 3.19 to a low of
1.28, with an average of 2.14.
Competitive Strengths
We believe our competitive strengths include:
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Domain Expertise. Through our experience developing
and delivering solutions for more than 380 Global 2000 and
midsize companies, we have acquired significant domain expertise
in a core set of eBusiness solutions, applications and software
platforms. These solutions include eBusiness infrastructure,
enterprise portals, ecommerce platforms, eCRM and supply chain
Web enablement. The applications include enterprise application
integration software, business process management and business
activity monitoring applications and enterprise portal software.
The platforms in which we have significant domain expertise and
on which these solutions are built include IBM WebSphere, TIBCO
BusinessWorks and Microsoft.NET. |
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Delivery Model and Methodology. We believe our
significant domain expertise enables us to provide high-value
solutions through small, expert project teams that deliver
measurable results by working collaboratively with clients
through a user-centered, technology-based and business-driven
solutions methodology. Our eNable Methodology, a unique and
proven execution process map we developed, allows for
repeatable, high quality services delivery. The eNable
Methodology leverages the thought leadership of our senior
strategists and practitioners to support the client project team
and focuses on transforming our clients business processes
to provide enhanced customer value and operating efficiency,
enabled by Web technology. As a result, we believe we are able
to offer our clients the dedicated attention that boutiques
usually provide and the delivery and project management that
larger firms usually offer. |
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Client Relationships. We have built a track record
of quality solutions and client satisfaction through the timely,
efficient and successful completion of numerous projects for our
clients. As a result, we have established long-term
relationships with many of our clients who continue to engage us
for additional projects and serve as excellent references for
us. In fiscal years 2002, 2003 and 2004, 81%, 85% and 91% of
revenue, respectively, excluding from the calculation for any
single period revenue from acquisitions completed in that single
period, was derived from customers that were clients in the
prior year. |
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Vendor Partnerships and Endorsements. We have built
meaningful partnerships with software providers, most notably
IBM, whose products we use to design and implement solutions for
our clients. These partnerships enable us to reduce our cost of
sales and sales cycle times and increase win rates by leveraging
our partners marketing efforts and endorsements. We also
serve as a sales channel for our partners, helping them market
and sell their software products. We are a Premier IBM business
partner, a TeamTIBCO partner and a Microsoft Gold Certified
Partner. |
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Geographic Focus. With nine offices spanning the
central United States from Houston, Texas, to Detroit, Michigan,
we focus on Global 2000 and midsize companies that have a
presence in the central United States. We believe this
geographic focus helps position us as the provider of choice for
these companies in the area that are seeking business and
technology consulting |
33
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services and for software vendors that seek consulting firm
partners to sell and deliver solutions that leverage their
products. |
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Emerging Offshore Capability. Our recently acquired
subsidiary, Perficient ZettaWorks, Inc. maintains a small
offshore development facility in Bitoli, Macedonia. Through this
facility we contract with a team of professionals with expertise
in IBM, TIBCO and Microsoft technologies and with
specializations that include application development, adapter
and interface development, quality assurance and testing,
monitoring and support, product development, platform migration,
and portal development. This expertise, as well as our
partnerships with offshore services providers based in India,
will enable us to more effectively deliver our solutions. |
Our Solutions
We help clients gain competitive advantage by using
Internet-based technologies to make their businesses more
responsive to market opportunities and threats, strengthen
relationships with customers, suppliers and partners, improve
productivity and reduce information technology costs. Our
solutions enable these benefits by developing, integrating,
automating and extending business processes, technology
infrastructure and software applications end-to-end within an
organization and with key partners, suppliers and customers.
This provides real-time access to critical business applications
and information and a scalable, reliable, secure and
cost-effective technology infrastructure that enables clients to:
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give managers and executives the information they need to make
quality business decisions and dynamically adapt their business
processes and systems to respond to client demands, market
opportunities or business problems; |
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improve the quality and lower the cost of customer acquisition
and care through Web-based customer self-service and
provisioning; |
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reduce supply chain costs and improve logistics by flexibly and
quickly integrating processes and systems and making relevant
real-time information and applications available online to
suppliers, partners and distributors; |
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increase the effectiveness and value of legacy enterprise
technology infrastructure investments by enabling faster
application development and deployment, increased flexibility
and lower management costs; and |
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increase employee productivity through better information flow
and collaboration capabilities and by automating routine
processes to enable focus on unique problems and opportunities. |
Our eBusiness integration solutions include the following:
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eBusiness Infrastructure. Our eBusiness
infrastructure solutions use the latest Internet-based
technologies to integrate, leverage and extend our clients
legacy ERP systems. We design, build and deploy infrastructure
solutions that are scalable, reliable, secure and
cost-effective. We deliver eBusiness infrastructure solutions
around all market-leading middleware and EAI platforms/tools. In
particular, we maintain an Advanced Technology Services group,
which is a 53-person team dedicated exclusively to IBM WebSphere
infrastructure solutions. |
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Enterprise Portals. We design, develop, implement
and integrate secure and scalable enterprise portals for our
clients, their customers, suppliers and partners that include
searchable data systems, collaborative systems for process
improvement, transaction processing, unified and extended
reporting and content management and personalization. |
34
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eCommerce Platforms. We develop secure and reliable
ecommerce infrastructures that dynamically integrate with
back-end systems and complementary applications, provide for
transaction volume scalability and sophisticated content
management. |
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eCRM. We create advanced eCRM solutions that
facilitate customer acquisition, service and support, sales, and
marketing by understanding our customers needs through
interviews, facilitated requirements gathering sessions and call
center analysis, developing an iterative, proto-type driven
solution and integrating the solution to legacy processes and
applications. |
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Supply Chain Web Enablement. We help companies
develop secure, standards-based Internet platforms based on
unique design and build requirements to support purchasing,
distribution, sales and service with their trading partners. |
We conceive, build and implement these solutions through a
comprehensive set of services including business strategy,
user-centered design, systems architecture, custom application
development, technology integration, package implementation and
managed services.
The following case studies represent eBusiness integration and
middleware solutions delivered to four of our customers.
eCRM Solution for an Insurance and Financial Services
Company. A Midwestern based division of a large provider of
insurance and other financial services retained us to address
slowing sales of its group variable life products and rising
operating costs due to inefficient customer policy enrollment
and customer service processes.
We designed, developed and delivered an effective eEnrollment
and eService portal that provides the client with critical
online enrollment and customer self-service functionality. Our
solution, built on IBM WebSphere, includes online customer
self-enrollment with full eSignature capability, single sign-on
integration with customer and client portals, enhances case
administration capabilities for the client and intuitive
calculators and forecasting tools for its customers.
We believe our solution enabled the client to enhance its
competitive advantage by offering customers a differentiated
Web-based self-service portal and by reducing customer
provisioning and support costs. Our solution was designed to
eliminate paper forms through paperless workflow capability,
reduce call center volume and enable increased sales volume on
constant headcount. We believe the benefits of our services to
this client included significant cost savings and increased
productivity and growth in customer site satisfaction.
eBusiness Infrastructure Solution for a Television Home
Shopping Channel. A large television home shopping channel
based in the midwestern United States retained us to help
overcome growth constraints and transaction processing
inefficiencies caused by myriad back-end systems serving their
broadcast, Internet and direct mail supply chains.
We designed, developed and delivered an enterprise application
integration solution that linked 70 disparate back-end
distribution, payment and production systems across the company
into an efficient, manageable platform. The solution, built on
TIBCO BusinessWorks, included a standard transaction protocol
across the enterprise, a messaging layer that manages enterprise
information flow and a more robust e-commerce engine and
platform.
We believe our solution enabled the client to overcome growth
constraints and leverage real-time business capabilities to
improve supply-chain efficiency. Our solution was designed to
enable real-time access to one million transactions per
day, including order entry and payment processing tasks and
reduce the cost of future integration, development and data
access.
Web-based Budgeting Solution for a Financial Services Company
and Brokerage Firm. A leading brokerage and financial
services firm based in the Midwest retained us to help them
streamline annual budgeting and planning processes for more than
180 individual branch offices.
35
We designed, built and delivered a Web-enabled enterprise
revenue forecasting and budgeting system. Our solution, built on
Microsoft.NET, establishes multi-year revenue projections and
estimates appropriate budgets for each branch office, creates
scorecards to set compensation metrics for key employees and
aggregates annual revenue projections and goals across the
company. In connection with delivering this solution, we
performed requirements analysis, collected details of data and
process flow, designed an object-oriented component architecture
and created a testing environment for stress testing to ensure
performance under demanding circumstances.
We believe our solution enabled this client to improve its
financial planning and budgeting process and improved market
responsiveness.
eBusiness Strategy Engagement for a Specialty Pharmaceutical
Company. A fully integrated specialty pharmaceutical company
based in the Midwest engaged us to develop and implement a
comprehensive eBusiness strategy for their growing enterprise.
We delivered a three-year eBusiness strategy based on our
clients business strategy and emerging trends in the
pharmaceutical industry. The strategy focused on maximizing
knowledge capital and strengthening customer bonds. We developed
an employee portal to deliver business intelligence through
executive dashboards and foster knowledge sharing through the
aggregation of intellectual assets. We also implemented a
customer self service site that now provides 24-hour support to
customers seven days a week.
We believe we have created a means for the client to have faster
and more in-depth access to key information which will lead to
better business decisions. This will enable our client to
service their customers in an effective and efficient manner.
In addition to our eBusiness solution services, we offer
education and mentoring services to our clients. We operate an
IBM-certified advanced training facility in Chicago, Illinois,
where we provide our clients both customized and established
curriculum of courses and other education services in areas
including object-oriented analysis and design immersion, J2EE,
user experience, MQSeries, VisualAge Generator and Wireless, and
an IBM Course Suite with over 20 distinct courses covering the
IBM WebSphere product suite including WebSphere Application
Server, WebSphere Commerce, WebSphere Portal, and VisualAge for
Java/WebSphere Studio Application Developer. We also leverage
our education practice and training facility to provide
continuing education and professional development opportunities
for our colleagues.
Our Solutions Methodology
Our approach to solutions design and delivery is user-centered,
technology-based and business-driven and is executed through a
methodology, which we refer to as the eNable Methodology, that
is:
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iterative and results oriented; |
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centered around a flexible and repeatable framework; |
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collaborative and customer-centered in that we work with not
only our clients but with our clients customers in
developing our solutions; |
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focused on delivering high value, measurable results; and |
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grounded by industry leading project management. |
The eNable Methodology allows for repeatable, high quality
services delivery through a unique and proven execution process
map. Our methodology is grounded in a thorough understanding of
our clients overall business strategy and competitive
environment. The eNable Methodology leverages the thought
leadership of our senior strategists and practitioners and
focuses on transforming our clients business processes,
applications and technology infrastructure. The eNable
Methodology approach focuses on
36
business value or return-on-investment, with specific objectives
and benchmarks established at the outset.
Our Strategy
Our goal is to be the leading independent information technology
consulting firm in the central United States. To achieve our
goal, our strategy is to:
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Grow Relationships with Existing and New Clients. We
intend to continue to solidify and expand enduring relationships
with our existing clients and to develop long-term relationships
with new clients by providing our customers with solutions that
generate a demonstrable, positive return-on-investment. Our
incentive plan rewards our project managers to work in
conjunction with our sales people to expand the nature and scope
of our engagements with existing clients. |
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Continue Making Disciplined Acquisitions. The
information technology consulting market is a fragmented
industry and we believe there are a substantial number of
smaller privately held information technology consulting firms
that can be acquired on financially accretive terms. We have a
track record of successfully identifying, executing and
integrating acquisitions that add strategic value to our
business. Our established culture and infrastructure positions
us to successfully integrate each acquired company, while
continuing to offer effective solutions to our clients. Over the
past five years, we have acquired and successfully integrated
seven privately held information technology consulting firms. We
continue to actively look for attractive acquisitions that
leverage our core expertise, particularly in the central United
States, and look to expand our capabilities and geographic
presence, including offshore. |
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Expand in the central United States. We believe the
central United States represents an attractive geographic market
for organic growth and we plan on expanding further in this
region. We currently have nine offices in the central United
States and expect to grow the number of professionals in these
offices as our business expands. In addition, we expect to grow
our presence in the central United States through targeted
acquisitions. |
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Enhance Brand Visibility. Our focus on a core set of
eBusiness solutions, applications and software platforms and a
targeted customer and geographic market has given us significant
market visibility for a firm of our size. In addition, we
believe we have in the past year achieved critical mass in size,
which has significantly enhanced our visibility among
prospective clients, employees and software vendors. As we
continue to grow our business, we intend to increase our
marketing activities to highlight our thought leadership in
eBusiness solutions and infrastructure software technology
platforms. |
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Invest in Our People and Culture. We have cultivated
a culture built on teamwork, a passion for technology and client
service, and a focus on cost control and the bottom line. As a
people-based business, we continue to invest in the development
of our professionals and to provide them with entrepreneurial
opportunities and career development and advancement. Our
technology, business consulting and project management councils
ensure that each client team learns best practices being
developed across the company and our recognition program rewards
teams for implementing those practices. We believe this results
in a team of motivated professionals armed with the ability to
deliver high-quality and high-value services for our clients. |
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Leverage Existing and Pursue New Strategic
Alliances. We intend to continue to develop alliances
that complement our core competencies. Our alliance strategy is
targeted at leading business advisory companies and technology
providers and allows us to take advantage of compelling
technologies in a mutually beneficial and cost-competitive
manner. Many of these relationships, and in particular IBM, also
lead to a sales channel whereby our partners, or their |
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clients, utilize us as the services firm of choice to help a
partners client integrate their technology. |
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Use Offshore Services When Appropriate. Our
solutions and services are typically delivered at the customer
site and require a significant degree of customer participation,
interaction and specialized technology expertise which tends to
offset the potential savings from utilizing offshore resources.
However, there are projects in which we can use lower cost
offshore technology professionals to perform less specialized
roles on our solution engagements, enabling us to fully leverage
our United States colleagues while offering our clients a highly
competitive blended average rate. We have established
partnerships with a number of offshore staffing firms from whom
we source offshore technology professionals on an as-needed
basis. Additionally, through our acquisition of ZettaWorks, we
maintain a small offshore development and delivery facility in
Macedonia. |
Sales and Marketing
We have a 21 person direct solutions-oriented sales force
that sells from 9 of our 11 offices. Our sales team is
experienced and connected through a common services portfolio,
sales process and performance management system. Our sales
process utilizes project pursuit teams that include those of our
information technology professionals best suited to address a
particular prospective clients needs. We reward our sales
force for developing and maintaining relationships with our
clients and seeking out follow-on engagements as well as
leveraging those relationships to forge new ones in different
areas of the business and with our clients business
partners. More than 80% of our sales are executed by our direct
sales force.
Our target client base includes companies in the central United
States with annual revenues in excess of $1 billion. We
believe this market segment can generate the repeat business
that is a fundamental part of our growth plan. We pursue only
solutions opportunities where our domain expertise and delivery
track record give us a competitive advantage. We also typically
target engagements of up to $3 million in fees, which we
believe to be below the target project range of most large
systems integrators and beyond the delivery capabilities of most
local boutiques.
We have sales and marketing partnerships with software vendors
including IBM Corporation, TIBCO Software, Inc., Microsoft
Corporation, Art Technology Group, Inc., or ATG, Wily
Technology, Inc., Bowstreet, Adobe Systems Incorporate and
Stellent, Inc. These companies are key vendors of open standards
based software commonly referred to as middleware application
servers, enterprise application integration platforms, business
process management, business activity monitoring and business
intelligence applications and enterprise portal server software.
Our direct sales force works in tandem with the sales and
marketing groups of our partners to identify potential new
clients and projects. Our partnerships with these companies
enable us to reduce our cost of sales and sales cycle times and
increase win rates by leveraging our partners marketing
efforts and endorsements. In particular, the IBM software sales
channel provides us with significant sales lead flow and joint
selling opportunities. Revenue from IBM was approximately 35%
and 17% of total revenue for the years ended December 31,
2003 and 2004, respectively.
As we continue to grow our business, we intend to increase our
marketing activities to highlight our thought leadership in
eBusiness solutions and infrastructure software technology
platforms. Our efforts will include technology white papers,
by-lined articles by our colleagues in technology and trade
publications, media and industry analyst events, sponsorship of
and participation in targeted industry conferences and trade
shows.
Clients
We have developed and delivered eBusiness integration solutions
for more than 380 Global 2000 and midsize companies to date. In
the year ended December 31, 2004, we provided services to
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approximately 180 customers, excluding customers acquired
as a result of the acquisition of ZettaWorks. The following is a
list of our top 10 customers by revenue, for the year ended
December 31, 2004:
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Anheuser-Busch, Inc.; |
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Assurant/ Fortis, Inc.; |
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IBM Corporation; |
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KV Pharmaceutical Company; |
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Paragon Life Insurance Company, a MetLife Company; |
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Penguin Group; |
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ShopNBC; |
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Union Bank of California; |
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Wachovia Corporation; and |
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Zions Bancorporation. |
Competition
The market for the information technology consulting services we
provide is competitive and has low barriers to entry. We believe
that our competitors fall into several categories, including:
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small local consulting firms that operate in no more than one or
two geographic regions; |
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regional consulting firms such as Software Architects, Inc.,
Haverstick Consulting, Inc. and Quilogy, Inc.; |
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national consulting firms, such as Answerthink, Inc., Accenture,
BearingPoint, Inc., Ciber, Inc., Electronic Data Systems
Corporation and Sapient Corporation; |
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in-house professional services organizations of software
companies; and |
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to a limited extent, offshore providers such as Cognizant
Technology Solutions Corporation, Infosys Technologies Limited,
Satyam Computer Services Limited and Wipro Limited. |
We believe that the principal competitive factors affecting our
market include domain expertise, track record and customer
references, quality of proposed solutions, service quality and
performance, reliability, scalability and features of the
software platforms upon which the solutions are based, and the
ability to implement solutions quickly and respond on a timely
basis to customer needs. In addition, because of the relatively
low barriers to entry into this market, we expect to face
additional competition from new entrants. We expect competition
from offshore outsourcing and development companies to increase
in the future.
Some of our competitors have longer operating histories, larger
client bases and greater name recognition and possess
significantly greater financial, technical and marketing
resources than we do. As a result, these competitors may be
better able to attract customers to which we market our services
and adapt more quickly to new technologies or evolving customer
or industry requirements.
Colleagues
As of December 31, 2004, we had 424 colleagues, 369 of
which were billable professionals, including 80 subcontractors
and 55 of which were involved in sales, general administration
and marketing.
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Recruiting. We are dedicated to hiring, developing
and retaining experienced, motivated technology professionals
who combine a depth of understanding of current Internet and
legacy technologies with the ability to implement complex and
cutting-edge solutions.
Our recruiting efforts are an important element of our
continuing operations and future growth. We generally target
technology professionals with extensive experience and
demonstrated expertise. To attract technology professionals, we
use a broad range of sources including on-staff recruiters,
outside recruiting firms, internal referrals, other technology
companies and technical associations, the Internet and
advertising in technical periodicals. After initially
identifying qualified candidates, we conduct an extensive
screening and interview process.
Retention. We believe that our rapid growth, focus
on a core set of eBusiness solutions, applications and software
platforms and our commitment to career development through
continued training and advancement opportunities make us an
attractive career choice for experienced professionals. Because
our strategic partners are established and emerging market
leaders, our technology professionals have an opportunity to
work with cutting-edge information technology. We foster
professional development by training our technology
professionals in the skills critical to successful consulting
engagements such as implementation methodology and project
management. We believe in promoting from within whenever
possible. In addition to an annual review process that
identifies near-term and longer-term career goals, we make a
professional development plan available to assist our
professionals with assessing their skills and developing a
detailed action plan for guiding their career development. Over
the past two years, our voluntary attrition rate has been
approximately 15%, which we believe is well below the industry
average.
Training. To ensure continued development of our
technical staff, we place a high priority on training. We offer
extensive training for our professionals around industry-leading
technologies, including an on-line, Internet-based education and
training program that offers more than 200 topics, including
CORBA, EJB architecture, HTML, J2EE, Linux, Network Security and
XML fundamentals. This web-based education system is offered to
all of our technology professionals to facilitate their ongoing
professional development and increase their technical expertise.
We also utilize our education practice and IBM-certified
advanced training facility in Chicago, Illinois to provide
continuing education and professional development opportunities
for our colleagues.
Compensation. Our colleagues have a compensation
model that includes a base salary and an incentive compensation
component. Our tiered incentive compensation plans help us reach
our overall goals by rewarding individuals for their influence
on key performance factors. Key performance metrics include
client satisfaction, revenue generated, utilization, profit and
personal skills growth. Our colleagues are not represented by
any collective bargaining unit, and we have never experienced a
work stoppage.
Leadership Councils. Our technology leadership
council performs a critical role in maintaining our technology
leadership. Consisting of key employees from each of our
practice areas, the council frames our new strategic partner
strategies and conducts regular Internet webcasts with our
technology professionals on specific partner and general
technology issues and trends. The council also coordinates
thought leadership activities, including white paper authorship
and publication and speaking engagements by our professionals.
Finally, the council identifies services opportunities between
and among our strategic partners products, oversees our
quality assurance programs and assists in acquisition-related
technology due diligence.
Culture
Culture Committee. We continue to build our
corporate culture around a common set of values based on
expertise, honesty and teamwork. Our Culture Committee consists
of a member from each of our offices and focuses on defining and
supporting activities and events that bind our colleagues
together and promote an esprit de corps. We believe in a
strong corporate culture and make a substantial
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investment in supporting activities and events through an annual
budget that our Culture Committee may allocate in its sole
discretion. Some activities have included a rewards and
recognition program, work-life balance programs and internal
social events among our colleagues.
The Perficient Promise. We have codified our
commitments to each other in what we call the Perficient
Promise, which consists of the following six simple
commitments our colleagues make to each other:
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we believe in long-term client and partner relationships built
on investment in innovative solutions, delivering more value
than the competition and a commitment to excellence; |
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we believe in growth and profitability and building meaningful
scale; |
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we believe each of us is ultimately responsible for our own
career development and has a commitment to mentor others; |
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we believe that Perficient has an obligation to invest in our
consultants training and education; |
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we believe the best career development comes on the job; and |
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we love challenging new work opportunities. |
We take these commitments extremely seriously because we believe
that we can succeed only if the Perficient Promise is kept.
Knowledge Management
MyPerficient.comThe Corporate Portal. To
ensure easy access to a wide range of information and tools, we
have created a corporate portal, MyPerficient.com. It is a
secure, centralized communications tool implemented using
IBMs WebSphere Portal Server product. It allows each of
our colleagues unlimited access to information, productivity
tools, time and expense entry, benefits administration,
corporate policies and forms and quality management information
directories and documentation.
Professional Services Automation Technology. We
recently completed the implementation of Primaveras
Professional Services application as the enabling technology for
many of our business processes, including, and perhaps most
importantly, knowledge management. We possess and continue to
aggregate significant knowledge including marketing collateral,
solution proposals, work product and client deliverables.
Primaveras technology allows us to store this knowledge in
a logical manner and provides full-text search capability
allowing our colleagues to deliver solutions more efficiently
and competitively.
Properties
We lease office space in St. Louis, Missouri
(10,517 square feet), Minneapolis, Minnesota
(18,889 square feet), Downers Grove, Illinois
(4,187 square feet), Chicago, Illinois (5,927 square
feet), Franklin, Ohio (6,684 square feet), Denver, Colorado
(5,241 square feet), Carmel, Indiana (5,194 square
feet), Columbus, Ohio (7,550 square feet), Detroit,
Michigan (5,500 square feet), Houston, Texas
(8,135 square feet), and London, Ontario (2,447 square
feet). Our corporate headquarters are located in Austin, Texas
(2,701 square feet).
Legal Proceedings
Although we are a party to litigation and claims arising in the
course of our business, management does not expect the results
of these actions to have a material adverse effect on our
business or financial condition.
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General Information
We were incorporated in Texas in September 1997 and
reincorporated in Delaware in May 1999. Our principal
executive offices are located at 1120 South Capital of
Texas Highway, Building 3, Suite 220, Austin, Texas
78746 and our telephone number is (512) 531-6000. Our stock
is traded on the Nasdaq National Market under the symbol
PRFT. Our website can be visited at
www.perficient.com.
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MANAGEMENT
Our directors and executive officers, including their ages as of
March 31, 2005, are as follows:
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John T. McDonald
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Chairman of the Board and Chief Executive Officer |
Jeffrey S. Davis
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President and Chief Operating Officer |
Michael D. Hill
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Chief Financial Officer |
Ralph C. Derrickson
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Director |
Max D. Hopper
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70 |
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Director |
Kenneth R. Johnsen
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Director |
David S. Lundeen
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Director |
Robert E. Pickering, Jr.
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53 |
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Director |
John T. McDonald joined us in April 1999 as Chief
Executive Officer and was elected Chairman of the Board in
March 2001. From April 1996 to October 1998,
Mr. McDonald was president of VideoSite, Inc., a multimedia
software company that was acquired by GTECH Corporation in
October 1997, 18 months after Mr. McDonald became
VideoSites president. From May 1995 to
April 1996, Mr. McDonald was a Principal with
Zilkha & Co., a New York-based merchant banking
firm. From June 1993 to April 1996, Mr. McDonald
served in various positions at Blockbuster Entertainment Group,
including Director of Corporate Development and Vice President,
Strategic Planning and Corporate Development of NewLeaf
Entertainment Corporation, a joint venture between Blockbuster
and IBM. From 1987 to 1993, Mr. McDonald was an attorney
with Skadden, Arps, Slate, Meagher & Flom in
New York, focusing on mergers and acquisitions and
corporate finance. Mr. McDonald currently serves as a
member of the board of directors of Interstate Connections, Inc.
Mr. McDonald received a B.A. in Economics from Fordham
University and a J.D. from Fordham Law School.
Jeffrey S. Davis became our Chief Operating Officer upon
the closing of the acquisition of Vertecon in April 2002
and was named our President in 2004. He previously served the
same role since October 1999 at Vertecon prior to its
acquisition by Perficient. Mr. Davis has 13 years of
experience in technology management and consulting. Prior to
Vertecon, Mr. Davis was a Senior Manager and member of the
leadership team in Arthur Andersens Business Consulting
Practice starting in January 1999 where he was responsible
for defining and managing internal processes, while managing
business development and delivery of products, services and
solutions to a number of large accounts. Prior to Arthur
Andersen, Mr. Davis worked at Ernst & Young LLP
for two years, Mallinckrodt, Inc. for two years, and spent five
years at McDonnell Douglas in many different technical and
managerial positions. Mr. Davis has a M.B.A. from
Washington University and a B.S. degree in Electrical
Engineering from the University of Missouri.
Michael D. Hill joined us in February 2004 as Chief
Financial Officer. From June 2002 through
February 2004, Mr. Hill served as Director of Finance
and Controller of PerformanceRetail, Inc., a software company.
From February 1999 to June 2002, Mr. Hill served
as a finance executive with several technology companies
including CreditMinders, Inc., Kinetrix Solutions, Inc. and
Agillion, Inc. Prior to February 1999, Mr. Hill was an
Assurance and Advisory Business Services manager with
Ernst & Young LLPs Assurance and Advisory
Business Services practice in Austin. Mr. Hill held various
other positions at Ernst & Young LLP since
December 1991. Mr. Hill received a B.B.A. in
Accounting from The University of Texas at Austin and is a
licensed certified public accountant in the State of Texas.
Ralph C. Derrickson became a member of our board of
directors in July 2004. In 2001, he founded the RCollins Group,
LLC, a management company that specializes in early stage
technology companies, and is currently its Managing Director.
Mr. Derrickson was managing director of venture
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investments at Vulcan Inc., an investment management firm with
headquarters in Seattle, Washington from October 2001 to
July 2004. Mr. Derrickson has more than 20 years
of technology management experience in a wide range of settings
including start-up, interim management and restructuring
situations. He served as a board member of Metricom, Inc., a
publicly traded company, from April 1997 to
November 2001 and as Interim CEO of Metricom from
February 2001 to August 2001. Metricom, Inc.
voluntarily filed a bankruptcy petition in US Bankruptcy Court
for the Northern District of California in July of 2001.
Mr. Derrickson was also a founding partner of Watershed
Capital, a private equity investment management company
established August in 1998. Prior to Watershed,
Mr. Derrickson managed venture investments at Vulcan
Ventures. He served as vice president of product development at
Starwave Corporation, one of the pioneers of the Internet.
Earlier, Mr. Derrickson held senior management positions at
NeXT Computer, Inc. and Sun Microsystems, Inc. He has served on
the boards of numerous start-up technology companies.
Mr. Derrickson is active in the business and
entrepreneurship programs at the University of Washington and is
a member of the advisory board of the Center for Technology
Entrepreneurship. He also serves on the board of the Northwest
Entrepreneur Network, or NWEN. Mr. Derrickson holds a BT in
systems software from the Rochester Institute of Technology.
Max D. Hopper became a member of our board of directors
in September 2002. Mr. Hopper began his information
systems career in 1960 at Shell Oil and served with EDS, United
Airlines and Bank of America prior to joining American Airlines.
During Mr. Hoppers twenty-year tenure at American
Airlines he served as CIO, and as CEO of several business units.
Most recently, he founded Max D. Hopper Associates, Inc., a
consulting firm that specializes in the strategic use of
information technology and eBusiness. Mr. Hopper currently
serves on the board of directors for several companies such as
Gartner Group, United Stationers and Airgate PCS.
Kenneth R. Johnsen became a member of our board of
directors in July 2004. He is the President and Chief Executive
Officer of Parago Inc., a marketing services transaction
processor. Before joining Parago Inc. in 1999, he served as
President, Chief Operating Officer and Board Member of Metamor
Worldwide Inc., an $850 million public technology services
company specializing in information technology consulting and
implementation. Metamor was later acquired by PSINet for
$1.7 billion. At Metamor, Mr. Johnsen grew the
IT Solutions Group revenue from $20 million to over
$300 million within two years. His experience also includes
22 years at IBM where he held general management positions,
including Vice President of Business Services for
IBM Global Services and General Manager of IBM China/Hong
Kong Operations. He achieved record revenue, profit and customer
satisfaction levels in both business units.
David S. Lundeen became a member of our board of
directors in April 1998. From March 1999 through 2002,
Mr. Lundeen was a partner with Watershed Capital, a private
equity firm based in Mountain View, California. From
June 1997 to February 1999, Mr. Lundeen was
self-employed, managed his personal investments and acted as a
consultant and advisor to various businesses. From
June 1995 to June 1997, he served as the Chief
Financial Officer and Chief Operating Officer of BSG. From
January 1990 until June 1995, Mr. Lundeen served
as President of Blockbuster Technology and as Vice President of
Finance of Blockbuster Entertainment Corporation. Prior to that
time, Mr. Lundeen was an investment banker with Drexel
Burnham Lambert in New York City. Mr. Lundeen
currently serves as a member of the board of directors of
Parago, Inc., and as Chairman of the Board of Interstate
Connections, Inc. Mr. Lundeen received a B.S. in
Engineering from the University of Michigan in 1984 and an
M.B.A. from the University of Chicago in 1988. The board of
directors has determined that Mr. Lundeen is an audit
committee financial expert, as such term is defined in the rules
and regulations promulgated by the Securities and Exchange
Commission.
Robert E. Pickering, Jr. became a member of our
board of directors in August 2002. He has held the position
of CEO of IconMedialab International, an information technology
services company with headquarters in The Netherlands beginning
in 2002. Mr. Pickering began his information technology
services career in 1974 at Andersen Consulting, now Accenture,
where he was a partner. After 11 years
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at Andersen, where he managed and directed several system
development and outsourcing projects, Mr. Pickering joined
First City Bankcorp in 1996, as Chief Information Officer. Three
years later in 1999, he became Chief Information Officer of
Continental Airlines. Mr. Pickering was also Chairman and
CEO of Origin from 1998 to 2000, one of the largest information
technology services companies in Europe. Mr. Pickering was
Chairman and CEO of e2i Inc. from May 2000 to December 2001,
which filed for protection under the federal bankruptcy laws in
December 2001. Mr. Pickering also serves on the boards of a
variety of organizations including the American Chamber of
Commerce in The Netherlands, B&J Foodservice in Kansas City,
and Ora Oxygen, a travel spa based in The Netherlands.
Mr. Pickering is a graduate of Baylor University.
All directors hold office until the next annual meeting of our
stockholders and until their respective successors have been
duly elected and qualified or until their earlier death,
resignation or removal. There are no family relationships
between any of our directors and executive officers.
Independent Directors
Our board of directors is comprised of six directors. The board
of directors has affirmatively determined that a majority of the
directors qualify as independent directors as defined by
Securities and Exchange Commission regulations and Nasdaq
National Market listing standards. The independent directors are
Ralph C. Derrickson, Max D. Hopper, Kenneth R. Johnsen, David S.
Lundeen and Robert E. Pickering, Jr.
Committees of the Board of Directors
The board of directors has created a compensation committee, an
audit committee and a nominating committee. Each committee
member is independent as defined by Securities and Exchange
Commission regulations and Nasdaq National Market listing
standards.
The compensation committee establishes salaries, incentives and
other forms of compensation for our directors, executive
officers and key employees and administers our equity incentive
plans and other incentive and benefits plans. The members of the
compensation committee are Max D. Hopper, Kenneth R. Johnsen and
David S. Lundeen. Mr. Lundeen serves as chairman of the
compensation committee.
The audit committee has the sole authority to appoint, retain
and terminate our independent accountants and is directly
responsible for the compensation, oversight and evaluation of
the work of the independent accountants. The independent
accountants report directly to the audit committee. The audit
committee also has the sole authority to approve all audit
engagement fees and terms and all non-audit engagements with our
independent accountants and must pre-approve all auditing and
permitted non-audit services to be performed for us by the
independent accountants, subject to certain exceptions provided
by the Securities Exchange Act of 1934. The members of the audit
committee are, Max D. Hopper, David S. Lundeen and Robert E.
Pickering, Jr. Mr. Lundeen serves as chairman of the
audit committee. The board of directors has determined that
Mr. Lundeen is qualified as our audit committee financial
expert within the meaning of Securities and Exchange Commission
regulations and that he has accounting and related financial
management expertise within the meaning of the listing standards
of the Nasdaq National Market.
The nominating committee was formed in April 2004 and is
responsible for advising the board of directors on appropriate
composition of the board and its committees, evaluating
potential director nominees and nominating directors for
election, approving the compensation for non-employee directors,
advising the board of directors on corporate governance
practices and overseeing new director orientation and the annual
review of the performance of the board of directors. The members
of the nominating committee are David S. Lundeen and Robert E.
Pickering, Jr. Mr. Pickering serves as chairman of the
nominating committee.
45
The nominating committee is responsible for evaluating potential
or suggested director nominees and identifying individuals
qualified to become members of the board of directors. This
committee will also evaluate persons suggested by stockholders
and conduct the appropriate inquiries into the backgrounds and
qualifications of all possible nominees. The nominating
committee will establish criteria for selecting new director
nominees and will determine each proposed nominees
qualifications for service on the board of directors. Each
nominee should be a person of integrity and be committed to
devoting the time and attention necessary to fulfill his or her
duties to Perficient.
Our bylaws include a procedure whereby our stockholders can
nominate director candidates. Our board of directors will
consider director candidates recommended by stockholders in a
similar manner to those recommended by members of management and
other directors, provided the stockholder submitting such
nomination has complied with the notice procedures set forth in
our bylaws.
46
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On June 26, 2002, Perficient entered into a Convertible
Preferred Stock Purchase Agreement with 2M Technology Ventures,
L.P., or 2M, pursuant to which 2M purchased
1,111,000 shares of Series B Preferred Stock for a
purchase price of $0.900090009 per share. Pursuant to the
Certificate of Designation, Rights and Preferences of the
Series B Preferred Stock, on November 10, 2003, all
then outstanding shares of Series B Preferred Stock
automatically converted into shares of common stock. In
connection with its purchase of Series B Preferred Stock,
2M also received a warrant to purchase up to 555,500 shares
of common stock. 2M exercised this warrant on February 3,
2004 and March 29, 2004. We received proceeds of $1,100,000
as a result of the exercise of this warrant. We have registered
2,166,500 shares of our common stock, pursuant to a
Registration Statement on Form S-3 (File
No. 333-100490), for resale by 2M of the shares issued upon
conversion of the shares of Series B Preferred Stock
purchased from us, shares issued upon exercise of the warrant,
and shares acquired upon purchase from certain of our
stockholders in a private transaction
In the acquisition of ZettaWorks, we paid $10.7 million,
consisting of approximately $2.9 million in cash and
1.2 million shares of our common stock. We also granted
certain registration rights in connection with the issuance of
these shares and are registering 482,600 shares in this
offering, and up to an additional 67,500 shares in the
event the over-allotment option is exercised, in partial
satisfaction of those registration rights.
In the acquisition of Meritage, we paid approximately
$7.1 million to the Meritage stockholders consisting of
approximately $2.9 million in cash and 1.2 million
shares of our common stock. In connection with the acquisition
of Meritage, on June 16, 2004 we raised approximately
$2.5 million through a private placement of
800,000 shares of our common stock to a group of
institutional investors led by Tate Capital Partners. The
investors were also issued warrants for the purchase of an
additional 160,000 shares of our common stock. In our
acquisition of Meritage, we granted certain registration rights
to the stockholders of Meritage, and in our private placement we
granted certain registration rights to the investors in the
private placement. As a result, we have registered
1.9 million shares of our common stock, pursuant to a
Registration Statement on Form S-3 (File
No. 333-117216) for resale by the former stockholders of
Meritage and by the investors in the private placement.
In the acquisition of Genisys, we paid approximately
$7.9 million to the Genisys stockholders consisting of
approximately $1.5 million in cash and 1.7 million
shares of our common stock. In our acquisition of Genisys, we
granted certain registration rights to the stockholders of
Genisys. As a result, we have registered 253,116 shares of
our common stock, pursuant to a Registration Statement on
Form S-3 (File No. 333-116549), for resale by the
former stockholders of Genisys.
On December 15, 2004, we granted restricted stock awards
under our 1999 Stock Option/Stock Issuance Plan to John T.
McDonald, our Chief Executive Officer, and Jeffrey S. Davis, our
President and Chief Operating Officer, of 175,000 and
87,500 shares of our common stock, respectively. These
restricted stock awards vest over seven years with 50% of the
vesting in the last two years, subject to partial acceleration
if certain revenue growth and operating profitability targets
are met.
47
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information as of March 31,
2005 regarding the beneficial ownership of our common stock
before and after this offering of:
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each of our directors; |
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each of our executive officers; |
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our executive officers and directors as a group; |
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each person or group known to us to beneficially own five
percent or more of the outstanding shares of our common
stock; and |
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each stockholder selling shares in this offering. |
The percentage of shares beneficially owned prior to this
offering in the following table is based on
21,300,172 shares of common stock outstanding as of
March 31, 2005.
Beneficial ownership is determined under the rules of the
Securities and Exchange Commission. These rules deem common
stock subject to options currently exercisable, or exercisable
within 60 days, to be outstanding for purposes of computing
the percentage ownership of the person holding the options or of
a group of which the person is a member, but they do not deem
such stock to be outstanding for purposes of computing the
percentage ownership of any other person or group. To our
knowledge, except under applicable community property laws, or
as otherwise indicated, each person named in the table has sole
voting and sole investment control with regard to all shares
beneficially owned by such person.
48
Except as noted below, the address of each person listed on the
table is c/o Perficient, Inc., 1120 South Capital of
Texas Highway, Building 3, Suite 220, Austin, Texas
78746.
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Shares Beneficially |
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Owned Prior to |
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Shares Beneficially Owned |
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Offering |
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After Offering(1) |
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Number of Shares |
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Name of Beneficial Owner |
|
Number |
|
Percent |
|
Being Offered |
|
Number |
|
Percent(2) |
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John T. McDonald(3)
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2,283,692 |
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10.2 |
% |
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250,000 |
(4) |
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2,033,692 |
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7.6 |
% |
Jeffrey S. Davis(5)
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437,261 |
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2.0 |
% |
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45,000 |
(4) |
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392,261 |
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1.5 |
% |
Michael D. Hill(6)
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15,625 |
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* |
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15,625 |
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* |
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David S. Lundeen(7)
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451,583 |
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2.1 |
% |
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125,000 |
(4) |
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326,583 |
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1.3 |
% |
Robert E. Pickering, Jr.(8)
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65,500 |
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* |
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65,500 |
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* |
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Max D. Hopper(9)
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20,000 |
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* |
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20,000 |
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* |
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Kenneth R. Johnsen(10)
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10,000 |
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* |
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10,000 |
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* |
|
Ralph C. Derrickson(11)
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5,000 |
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* |
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|
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5,000 |
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* |
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Beekman Ventures, Inc.
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267,342 |
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1.3 |
% |
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267,342 |
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1.0 |
% |
AB Holdings L.L.C.(12)
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1,042,757 |
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4.9 |
% |
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517,500 |
(13) |
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525,257 |
|
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2.0 |
% |
Morton Meyerson(14)
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2,358,013 |
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11.1 |
% |
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2,358,013 |
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9.2 |
% |
2M Technology Ventures, L.P.(15)
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2,166,500 |
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10.2 |
% |
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2,166,500 |
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8.4 |
% |
The Morton Meyerson Family Foundation(16)
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400,000 |
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1.9 |
% |
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300,000 |
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100,000 |
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* |
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Kenneth Neusanger
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55,863 |
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* |
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20,000 |
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35,863 |
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* |
|
Thomas Pash(17)
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55,863 |
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* |
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8,500 |
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47,363 |
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* |
|
Keith Brenton(18)
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6,664 |
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* |
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1,300 |
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5,364 |
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|
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* |
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Douglas Kelly
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5,060 |
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|
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* |
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1,800 |
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3,260 |
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* |
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John Biedermann
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3,771 |
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* |
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1,000 |
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2,771 |
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* |
|
All executive officers and directors as a group (8 persons)
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3,288,661 |
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14.4 |
% |
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420,000 |
(4) |
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2,868,661 |
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10.6 |
% |
TOTAL
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7,216,652 |
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31.6 |
% |
|
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1,270,100 |
(4) |
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5,946,552 |
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21.9 |
% |
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* |
Represents less than 1% of the outstanding shares. |
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(1) |
Assumes the exercise by the underwriters of their over-allotment
option in full and also assumes the selling stockholders dispose
of all the shares of common stock covered by this prospectus and
do not acquire any additional shares. |
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(2) |
The percentage of common stock owned after the offering is based
on total shares outstanding of 21,300,172 as of March 31,
2005, and assumes the exercise of the over-allotment option. |
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(3) |
Includes 1,008,085 shares of common stock issuable upon the
exercise of options, 50,500 shares of common stock issuable
upon exercise of a warrant and 267,342 shares held by
Beekman Ventures, Inc. of which Mr. McDonald is the sole
stockholder. |
|
(4) |
The shares being offered by Mr. McDonald, Mr. Davis
and Mr. Lundeen will only be sold if the underwriters
exercise their over-allotment option. |
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(5) |
Includes 307,526 shares of common stock issuable upon the
exercise of options. Mr. Daviss address is 622
Emerson Road, Suite 400, Creve Coeur, Missouri 63141. |
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(6) |
Includes 15,625 shares of common stock issuable upon the
exercise of options. |
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(7) |
Includes 75,833 shares of common stock issuable upon the
exercise of options. |
|
(8) |
Includes 15,000 shares of common stock issuable upon the
exercise of options. |
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(9) |
Includes 20,000 shares of common stock issuable upon the
exercise of options. |
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(10) |
Includes 10,000 shares of common stock issuable upon the
exercise of options. |
(11) |
Includes 5,000 shares of common stock issuable upon the
exercise of options. |
49
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(12) |
Includes (i) 622,236 shares held by AB Holdings L.L.C. and
(ii) 420,521 shares beneficially held by the trusts
described in this footnote. Robert G. Ackerley and Leland C.
Ackerley are the managers of AB Holdings L.L.C. and have shared
voting and dispositive power with respect to the shares of
common stock held by AB Holdings L.L.C. Robert G. Ackerley and
Leland C. Ackerley disclaim beneficial ownership of such shares.
AB Holdings L.L.C.s address is 2215 B. Renaissance Drive,
Suite 5, Las Vegas, Nevada 89119. Pursuant to powers of
attorney, AB Holdings L.L.C. has been granted the authority to
dispose of the shares held by the following described trusts in
accordance with the instructions of the respective trustees who
retain investment discretion and voting power over such shares.
AB Holdings L.L.C., Robert G. Ackerley and Leland C. Ackerley
each disclaim beneficial ownership of such shares. The
beneficial ownership of the shares held by each of the trusts is
as follows: |
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a. |
70,087 shares of common stock are beneficially owned by the
Eve E. Ackerley 1999 Trust. Bernard Smith, in his capacity as
trustee of the Eve E. Ackerley 1999 Trust may be deemed to have
investment discretion and voting power over the
70,087 shares of common stock beneficially owned by the Eve
E. Ackerley 1999 Trust. Bernard Smith disclaims any such
beneficial ownership of the shares. |
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b. |
70,087 shares of common stock are beneficially owned by the
Sydney E. Ackerley 1999 Trust. Bernard Smith, in his capacity as
trustee of the Sydney E. Ackerley 1999 Trust may be deemed to
have investment discretion and voting power over the
70,087 shares of common stock beneficially owned by the
Sydney E. Ackerley 1999 Trust. Bernard Smith disclaims any such
beneficial ownership of the shares. |
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|
c. |
52,565 shares of common stock are beneficially owned by the
Andrew L. Ackerley 1999 Trust. Margaret Ackerley, in her
capacity as trustee of the Andrew L. Ackerley 1999 Trust may be
deemed to have investment discretion and voting power over the
52,565 shares of common stock beneficially owned by the
Andrew L. Ackerley 1999 Trust. Margaret Ackerley disclaims any
such beneficial ownership of the shares. |
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d. |
52,565 shares of common stock are beneficially owned by the
Leland T. Ackerley 1999 Trust. Margaret Ackerley, in her
capacity as trustee of the Leland T. Ackerley 1999 Trust may be
deemed to have investment discretion and voting power over the
52,565 shares of common stock beneficially owned by the
Leland T. Ackerley 1999 Trust. Margaret Ackerley disclaims any
such beneficial ownership of the shares. |
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e. |
52,565 shares of common stock are beneficially owned by the
William B. Ackerley 1999 Trust. Margaret Ackerley, in her
capacity as trustee of the William B. Ackerley 1999 Trust may be
deemed to have investment discretion and voting power over the
52,565 shares of common stock beneficially owned by the
William B. Ackerley 1999 Trust. Margaret Ackerley disclaims any
such beneficial ownership of the shares. |
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|
f. |
52,565 shares of common stock are beneficially owned by the
Alexis A. Ackerley 1999 Trust. Margaret Ackerley, in her
capacity as trustee of the Alexis A. Ackerley 1999 Trust may be
deemed to have investment discretion and voting power over the
52,565 shares of common stock beneficially owned by the
Alexis A. Ackerley 1999 Trust. Margaret Ackerley disclaims any
such beneficial ownership of the shares. |
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|
g. |
70,087 shares of common stock are beneficially owned by the
Benjamin L. Ackerley 1999 Trust. Bernard Smith, in his capacity
as trustee of the Benjamin L. Ackerley 1999 Trust may be deemed
to have investment discretion and voting power over the
70,087 shares of common stock beneficially owned by the
Benjamin L. 1999 Trust. Bernard Smith disclaims any such
beneficial ownership of the shares. |
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(13) |
67,500 of such shares will only be sold if the underwriters
exercise their over-allotment option. |
(14) |
Includes 2,166,500 shares beneficially owned by 2M
Technology Ventures, L.P. Morton H. Meyersons address is
3401 Armstrong Avenue, Dallas, Texas 75205. |
(15) |
2M Technology Ventures, L.P.s address is 3401 Armstrong
Avenue, Dallas, Texas 75205. |
(16) |
Morton H. Meyerson acts as investment advisor to this selling
stockholder and may be deemed to beneficially own shares owned
by or for the account of this selling stockholder. The board of |
50
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|
the foundation has investment authority over the shares of
common stock held by this selling stockholder. The board
consists of Morton H. Meyerson, A. Reid Heller, Scott Letier,
David Agronin, Roberta Herman, Gary Weinstein and Herbert S.
Rosenthal. The Foundations address is 7800 Northaven Road,
Dallas, Texas 75230. |
(17) |
Mr. Pash is general manager of our wholly owned subsidiary,
Perficient ZettaWorks, Inc. |
(18) |
Mr. Brenton is a business development director for us. |
51
DESCRIPTION OF CAPITAL STOCK
We are authorized to issue 40,000,000 shares of common
stock, par value $0.001 per share, and
8,000,000 shares of preferred stock, par value
$0.001 per share. As of March 31, 2005, we had
outstanding 21,300,172 shares of common stock owned by
approximately 110 holders of record.
Common Stock
The holders of our common stock are entitled to one vote for
each share held of record in the election of directors and in
all other matters to be voted on by the stockholders. There is
no cumulative voting with respect to the election of directors.
As a result, the holders of more than 50 percent of the
shares voting for the election of directors can elect all of the
directors. Holders of common stock are entitled:
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to receive any dividends as may be declared by the board of
directors out of funds legally available for such
purpose; and |
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in the event of our liquidation, dissolution, or winding up, to
share ratably in all assets remaining after payment of
liabilities and after provision has been made for each class of
stock, if any, having preference over the common stock. |
All of the outstanding shares of common stock are, and the
shares of common stock offered through this prospectus will be,
upon issuance and sale, validly issued, fully paid and
nonassessable. Holders of our common stock have no preemptive
right to subscribe for or purchase additional shares of any
class of our capital stock.
Preferred Stock
The board of directors has the authority, within the limitations
stated in our certificate of incorporation, to provide by
resolution for the issuance of shares of preferred stock, in one
or more classes or series, and to fix the rights, preferences,
privileges and restrictions thereof, including dividend rights,
conversion rights, voting rights, terms of redemption,
liquidation preferences and the number of shares constituting
any series or the designation of such series. The issuance of
preferred stock could have the effect of decreasing the market
price of our common stock and could adversely affect the voting
and other rights of the holders of our common stock.
Delaware Anti-Takeover Law and Our Certificate of
Incorporation and Bylaws
Delaware Business Combination Statute. We are
subject to Section 203 of the Delaware General Corporation
Law. Such section provides that, subject to exceptions set forth
therein, an interested stockholder of a Delaware corporation
shall not engage in any business combination, including mergers
or consolidations or acquisitions of additional shares of the
corporation, with the corporation for a three-year period
following the date that such stockholder becomes an interested
stockholder unless:
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prior to such date, the board of directors of the corporation
approved either the business combination or the transaction that
resulted in the stockholder becoming an interested stockholder; |
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upon consummation of the transaction that resulted in the
stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced,
other than statutorily excluded shares; or |
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on or subsequent to such date, the business combination is
approved by the board of directors of the corporation and
authorized at an annual or special meeting of stockholders by
the affirmative vote of at least 66% of the outstanding voting
stock which is not owned by the interested stockholder. |
52
Except as otherwise set forth in Section 203, an interested
stockholder is defined to include:
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any person that is the owner of 15% or more of the outstanding
voting stock of the corporation, or is an affiliate or associate
of the corporation and was the owner of 15% or more of the
outstanding voting stock of the corporation at any time within
three years immediately prior to the date of
determination; and |
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the affiliates and associates of any such person. |
Section 203 may make it more difficult for a person who
would be an interested stockholder to effect various business
combinations with a corporation for a three-year period. The
provisions of Section 203 may encourage persons interested
in acquiring us to negotiate in advance with our board of
directors since the stockholder approval requirement would be
avoided if a majority of the directors then in office approves
either the business combination or the transaction which results
in any such person becoming an interested stockholder. Such
provisions also may have the effect of preventing changes in our
management. It is possible that such provisions could make it
more difficult to accomplish transactions which our stockholders
may otherwise deem to be in their best interests.
Limitation on Call of Special Meetings of
Stockholders. Under the Delaware General Corporation
Law, special meetings of stockholders may be called by our board
of directors or by such other persons as may be authorized by
our certificate of incorporation or bylaws. Our certificate of
incorporation and bylaws provide that special meetings may be
called by the Chairman of the board of directors, the President
or by the board of directors pursuant to a resolution adopted by
a majority of the members of our board of directors. Except as
otherwise required by law or our certificate of incorporation,
no business may be transacted at any special meeting of
stockholders other than the items of business stated in the
notice of such meeting.
Advance Notice Requirements. Our bylaws establish
advance notice procedures with regard to (a) the
nomination, other than by or at the direction of our board of
directors, of candidates for election to our board of directors
and (b) certain business to be brought by a stockholder
before an annual meeting of stockholders.
The provision regarding nomination, by requiring advance notice
of nominations by stockholders, affords our board of directors a
meaningful opportunity to consider the qualifications of the
proposed nominees and, to the extent deemed necessary or
desirable by our board of directors, to inform stockholders
about such qualifications.
The other provision, by requiring advance notice of business
proposed by a stockholder to be brought before an annual
meeting, provides a more orderly procedure for conducting annual
meetings of stockholders and provides our board of directors
with a meaningful opportunity prior to the meeting to inform
stockholders, to the extent deemed necessary or desirable by our
board of directors, of any business proposed to be conducted at
such meeting, together with any recommendation of our board of
directors. This provision does not affect the right of
stockholders to make stockholder proposals for inclusion in
proxy statements for our annual meetings of stockholders
pursuant to the rules of the Securities and Exchange Commission.
Although these bylaw provisions do not give our board of
directors any power to approve or disapprove of stockholder
nominations for the election of directors or of any other
business desired by stockholders to be conducted at an annual
meeting of stockholders if the proper procedures are followed,
these bylaw provisions may have the effect of precluding a
nomination or precluding the conduct of business at a particular
annual meeting, and may make it difficult for a third party to
conduct a solicitation of proxies to elect its own slate of
directors or otherwise attempt to obtain control of us, even if
such a solicitation or attempt might be beneficial to us and our
stockholders.
53
Stock Transfer Agent and Registrar
The stock transfer agent and registrar for our common stock is
Continental Stock Transfer & Trust Company.
Stockholder Reports
We furnish our stockholders with annual reports containing
audited financial statements and may furnish our stockholders
quarterly or semi-annual reports containing unaudited financial
information.
Listing
Our common stock is quoted on the Nasdaq National Market under
the symbol PRFT.
54
UNDERWRITING
The underwriters named below are acting through their
representative, Friedman, Billings, Ramsey & Co., Inc.
Subject to the terms and conditions contained in the
underwriting agreement, we and the selling stockholders have
agreed to sell to the underwriters, and each underwriter has
agreed to purchase, the number of shares set forth opposite its
name below. The underwriting agreement provides that the
obligation of the underwriters to pay for and accept delivery of
our common stock is subject to certain conditions. The
underwriters are obligated to take and pay for all shares of our
common stock offered (other than those covered by the
over-allotment option described below) if any of the shares are
taken.
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Number of | |
Underwriters |
|
Shares | |
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| |
Friedman, Billings, Ramsey & Co., Inc.
|
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|
Stifel, Nicolaus & Company, Incorporated
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|
Roth Capital Partners, LLC
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|
|
|
|
Gilford Securities Incorporated
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|
|
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|
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|
|
Total
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|
|
5,032,600 |
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|
|
|
|
We and some of our existing stockholders have granted the
underwriters an option exercisable for 30 days after the
date of this prospectus to purchase up to 754,890 additional
shares of common stock to cover over-allotments, if any, at the
public offering price less the estimated underwriting discounts
and commissions set forth on the cover page of this prospectus.
The following table shows the per share and total estimated
underwriting discounts and commissions we and the selling
stockholders will pay to the underwriters. The amounts are shown
assuming both no exercise and full exercise of the
underwriters option to purchase 754,890 additional
shares of our common stock to cover over-allotments.
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|
|
|
|
|
|
|
|
|
|
|
Perficient | |
|
Selling Stockholders | |
|
|
| |
|
| |
|
|
No Exercise | |
|
Full Exercise | |
|
No Exercise | |
|
Full Exercise | |
|
|
| |
|
| |
|
| |
|
| |
Per share
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Total
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
The underwriters propose to offer our common stock directly to
the public at
$ per
share and to various dealers at this price less a concession not
in excess of
$ per
share. The underwriters may allow, and the dealers may reallow,
a concession not in excess of
$ per
share to various other dealers.
We expect to incur expenses, excluding underwriting fees, of
approximately $850,000 in connection with this offering,
including fees and expenses of counsel to the underwriters which
we have agreed to pay. Additionally, we have agreed to reimburse
Friedman, Billings, Ramsey & Co., Inc. for its other
out-of-pocket expenses, including road show expenses, in
connection with this offering.
Our common stock is listed on the Nasdaq National Market under
the symbol PRFT.
In connection with this offering the underwriters may engage in
stabilizing transactions, over-allotment transactions, syndicate
covering transactions, penalty bids and passive market making in
accordance with Regulation M under the Exchange Act.
|
|
|
|
|
Stabilizing transactions permit bids to purchase the underlying
security so long as the stabilizing bids do not exceed a
specified maximum. |
|
|
|
Over-allotment involves sales by the underwriters of shares in
excess of the number of shares the underwriters are obligated to
purchase, which creates a syndicate short position. The short
position may be either a covered short position or a naked short
position. In a covered short position, the number of shares
over-allotted by the underwriters is not greater than the number |
55
|
|
|
|
|
of shares that they may purchase in the over-allotment option.
In a naked short position, the number of shares involved is
greater than the number of shares in the over-allotment option.
The underwriters may close out any covered short position by
exercising their over-allotment option and/or purchasing shares
in the open market. |
|
|
|
Syndicate covering transactions involve purchases of the common
stock in the open market after the distribution has been
completed in order to cover syndicate short positions. In
determining the source of shares to close out the short
position, the underwriters will consider, among other things,
the price of shares available for purchase in the open market as
compared to the price at which they may purchase shares through
the over-allotment option. If the underwriters sell more shares
than could be covered by the over-allotment option, a naked
short position, the position can only be closed out by buying
shares in the open market. A naked short position is more likely
to be created if the underwriters are concerned that there could
be downward pressure on the price of the shares in the open
market after pricing that could adversely affect investors who
purchase in this offering. |
|
|
|
Penalty bids permit the representative to reclaim a selling
concession from a syndicate member when the common stock
originally sold by the syndicate member is purchased in a
stabilizing or syndicate covering transaction to cover syndicate
short positions. |
|
|
|
In passive market making, market makers in the common stock who
are underwriters or prospective underwriters may, subject to
limitations, make bids for or purchases of our common stock
until the time, if any, at which a stabilizing bid is made. |
These stabilizing transactions, syndicate covering transactions
and penalty bids may have the effect of raising or maintaining
the market price of our common stock or preventing or retarding
a decline in the market price of the common stock. As a result
the price of our common stock may be higher than the price that
might otherwise exist in the open market. These transactions may
be effected on the Nasdaq National Market or otherwise and, if
commenced, may be discontinued at any time.
We and the selling stockholders have agreed to indemnify the
underwriters against various liabilities, including liabilities
under the Securities Act of 1933, or to contribute to payments
the underwriters may be required to make in respect thereof.
Our officers, directors, holders of five percent or more of our
common stock, and the selling stockholders have agreed with the
underwriters not to, directly or indirectly, offer to sell,
contract to sell, or otherwise sell, dispose of, loan, pledge or
grant any rights with respect to any shares of common stock or
any securities convertible into or exchangeable for shares of
common stock (or to engage in any hedging or other transaction
which is designed to or reasonably expected to lead to or result
in a disposition of any such securities, even if such securities
would be disposed of by someone other than one of our officers,
our directors, holders of five percent or more of our common
stock, or the selling stockholders), for a period continuing
through the 90th day after the date of this prospectus, except
with the prior written consent of Friedman, Billings,
Ramsey & Co., Inc. These transfer restrictions do not
apply to bona fide gifts, provided the donees agree in writing
to be bound by the terms of these transfer restrictions, or
sales or purchases of common stock acquired in the open market.
In addition, we have agreed, for a period continuing through the
90th day after the date of this prospectus, not to, except with
the prior written consent of Friedman, Billings,
Ramsey & Co., Inc., directly or indirectly,
(i) offer, pledge, sell, contract to sell, sell any option
or contract to purchase, purchase any option or contract to
sell, grant any option for the sale of, or otherwise dispose of
or transfer (or enter into any transaction or device which is
designed to, or could be expected to, result in the disposition
by any person at any time in the future of) any share of common
stock or any securities convertible into or exercisable or
exchangeable for common stock, or file any registration
statement under the Securities Act with respect to any of the
foregoing, or (ii) enter into any swap or other agreement
or any transaction that transfers, in whole or in part, directly
or indirectly, the economic
56
consequences of ownership of the common stock, whether any such
swap or transaction described in clause (i) or
(ii) above is to be settled by delivery of common stock or
such other securities, in cash or otherwise. These restrictions
do not apply to the shares to be sold in this offering or any
shares issued by us upon the exercise of outstanding options or
warrants or pursuant to any of our stock plans or any shares
issued by us as consideration for the acquisition of another
business or entity.
A prospectus in electronic format will be made available on
Internet sites or through other online services maintained by
one or more of the underwriters and/or selling group members
participating in this offering, or by their affiliates. In those
cases, prospective investors may view offering terms online and,
depending upon the particular underwriter or selling group
member, prospective investors may be allowed to place orders
online. The underwriters may agree with us to allocate a
specific number of shares for sale to online brokerage account
holders. Any such allocations for online distributions will be
made by the representatives on the same basis as other
allocations.
Other than the prospectus in electronic format, the information
on any underwriters or selling group members web
site and any information contained in any other web site
maintained by an underwriter or selling group member is not part
of the prospectus or the registration statement of which this
prospectus forms a part, has not been approved and/or endorsed
by us or any underwriter or selling group member in its capacity
as underwriter or selling group member and should not be relied
upon by investors.
57
LEGAL MATTERS
The validity of the securities offered by this prospectus will
be passed upon for us by Vinson & Elkins LLP,
Austin, Texas. Legal matters will passed upon for the
underwriters by King & Spalding LLP, Houston,
Texas.
EXPERTS
The consolidated financial statements of Perficient, Inc. at
December 31, 2004 and the year then ended included and
incorporated by reference in this prospectus have been audited
by BDO Seidman, LLP, an independent registered public accounting
firm, to the extent and for the period set forth in their report
appearing elsewhere herein and incorporated herein by reference,
and are included and incorporated herein in reliance upon such
report given upon the authority of said firm as experts in
auditing and accounting.
The consolidated financial statements of Perficient, Inc. and
its subsidiaries at December 31, 2002 and 2003, and for
each of the two years in the period ended December 31, 2003
appearing in this prospectus have been audited by
Ernst & Young LLP, independent registered public
accounting firm, as set forth in their report thereon appearing
elsewhere in this prospectus and are included in reliance upon
such report given on their authority as experts in accounting
and auditing.
The financial statements of Genisys Consulting, Inc. as of
December 31, 2002 and 2003, and for each of the two years
in the period ended December 31, 2003, appearing in this
prospectus have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon
appearing elsewhere in this prospectus, and are included in
reliance upon such report, given on their authority as experts
in accounting and auditing.
The financial statements of Meritage Technologies, Inc. as of
December 31, 2002 and 2003 included in this prospectus have
been audited by Grant Thornton LLP as set forth in their
report appearing elsewhere in this prospectus, and are included
in reliance upon such report, given on their authority as
experts in accounting and auditing.
The financial statements of ZettaWorks LLC as of
December 31, 2002 and 2003 included in this prospectus have
been audited by BKD LLP as set forth in their report
appearing elsewhere in this prospectus, and are included in
reliance upon such report, given on their authority as experts
in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements
and other information with the Securities and Exchange
Commission. We have filed a registration statement to register
with the SEC the shares of our common stock listed in the
prospectus. This prospectus does not contain all the information
contained in the registration statement and the exhibits to the
registration statement. For further information with respect to
us our common stock, we refer you to the registration statement
and to the exhibits to the registration statement. Statements
contained in this prospectus as to the contents of any contract,
agreement or other document to which we make reference are not
necessarily complete, and in each instance, we refer you to the
copy of the contract, agreement or other document filed as an
exhibit to the registration statement. Each of these statements
is qualified in all respects by this reference. You may read and
copy all or any portion of the registration statement or any
reports, statements or other information we file at the
SECs public reference room at 450 Fifth
Street, N.W., Washington, D.C. 20549. Please call
the SEC at 1-800-SEC-0330 for further information on the
operation of the public reference room. You can receive copies
of these documents upon payment of a duplicating fee by writing
to the SEC. Our SEC filings, including the registration
statement, will also be available to you on the SECs
website at www.sec.gov. Our website can be visited at
www.perficient.com. Information contained on our website is not
a part of this prospectus.
58
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
Some of the important business and financial information that
you may want to consider is not included in this prospectus, but
rather is incorporated by reference to documents
that have been filed by us with the Securities and Exchange
Commission pursuant to the Exchange Act of 1934. The information
that is incorporated by reference consists of:
|
|
|
|
|
|
Perficients Annual Report on Form 10-KSB for the year
ended December 31, 2004, as amended by Amendment No. 1; |
|
|
|
|
|
our Current Report on Form 8-K filed on April 8, 2005;
and |
|
|
|
|
|
The description of our common stock contained in the section
entitled Description of Registrants Securities to be
Registered contained in our registration statement on
Form 8-A filed on July 22, 1999 (File
No. 000-15169). |
|
All documents filed by us pursuant to Section 13(a), 13(c),
14 or 15(d) of the Exchange Act, after the date of the
initial registration statement and prior to the effectiveness of
the registration statement and subsequent to the date of this
prospectus and prior to the termination of this offering, shall
be deemed incorporated by reference in this prospectus and made
a part hereof from the date of filing of those documents. Any
statement contained in a document incorporated or deemed
incorporated by reference in this prospectus shall be deemed
modified or superseded for purposes of this prospectus to the
extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed
incorporated by reference herein or in any prospectus supplement
modifies or supersedes that statement. Any statement so modified
or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this prospectus.
We will provide without charge to each person who is delivered a
prospectus, on written or oral request, a copy of any or all of
the documents incorporated by reference herein (other than
exhibits to those documents unless those exhibits are
specifically incorporated by reference into those documents).
Requests for copies should be directed to Investor Relations,
Perficient, Inc., 1120 South Capital of Texas Highway,
Building 3, Suite 220, Austin, Texas 78746,
Telephone: (512) 531-6000.
59
INDEX TO FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Page | |
|
|
| |
CONSOLIDATED FINANCIAL INFORMATION
|
|
|
|
|
Report of Independent Registered Public Accounting Firm dated
February 2, 2005
|
|
|
F-3 |
|
Report of Independent Registered Public Accounting Firm dated
January 9, 2004
|
|
|
F-4 |
|
Consolidated Balance Sheets as of December 31, 2003 and 2004
|
|
|
F-5 |
|
Consolidated Statements of Operations for the years ended
December 31, 2003 and 2004
|
|
|
F-6 |
|
Consolidated Statements of Changes in Stockholders Equity
for the years ended December 31, 2003 and 2004
|
|
|
F-7 |
|
Consolidated Statements of Cash Flows for the years ended
December 31, 2003 and 2004
|
|
|
F-8 |
|
Notes to Consolidated Financial Statements
|
|
|
F-9 |
|
Report of Independent Registered Public Accounting Firm dated
January 9, 2004
|
|
|
F-28 |
|
Consolidated Balance Sheets at December 31, 2002 and 2003
|
|
|
F-29 |
|
Consolidated Statements of Operations for the years ended
December 31, 2002 and 2003
|
|
|
F-30 |
|
Consolidated Statements of Changes in Stockholders Equity
for the years ended December 31, 2002 and 2003
|
|
|
F-31 |
|
Consolidated Statements of Cash Flows for the years ended
December 31, 2002 and 2003
|
|
|
F-32 |
|
Notes to Consolidated Financial Statements
|
|
|
F-33 |
|
|
GENISYS CONSULTING, INC.
|
|
|
|
|
Report of Independent Auditors dated June 10, 2004
|
|
|
F-51 |
|
Balance Sheets at December 31, 2002 and 2003 and
March 31, 2004 (unaudited)
|
|
|
F-52 |
|
Statements of Operations for the years ended December 31,
2002 and 2003, and for the three months ended March 31,
2003 (unaudited) and 2004 (unaudited)
|
|
|
F-53 |
|
Statements of Changes in Stockholders Equity for the years
ended December 31, 2002 and 2003
|
|
|
F-54 |
|
Statements of Cash Flows for the years ended December 31,
2002 and 2003, and for the three months ended March 31,
2003 (unaudited) and 2004 (unaudited)
|
|
|
F-55 |
|
Notes to Financial Statements
|
|
|
F-56 |
|
|
MERITAGE TECHNOLOGIES, INC. AND SUBSIDIARIES
|
|
|
|
|
Index
|
|
|
F-60 |
|
Report of Independent Certified Public Accountants dated
April 13, 2004
|
|
|
F-61 |
|
Consolidated Balance Sheets at December 31, 2002 and 2003
and March 31, 2004 (unaudited)
|
|
|
F-62 |
|
Consolidated Statements of Operations for the years ended
December 31, 2002 and 2003, and for the three months ended
March 31, 2003 (unaudited) and 2004 (unaudited)
|
|
|
F-63 |
|
Statements of Stockholders Equity (Deficit) for the years
ended December 31, 2002 and 2003
|
|
|
F-64 |
|
Consolidated Statements of Cash Flows for the years ended
December 31, 2002 and 2003, and for the three months ended
March 31, 2003 (unaudited) and 2004 (unaudited)
|
|
|
F-65 |
|
Notes to Consolidated Financial Statements
|
|
|
F-66 |
|
F-1
|
|
|
|
|
|
|
Page | |
|
|
| |
|
ZETTAWORKS LLC AND SUBSIDIARIES
|
|
|
|
|
Report of Independent Registered Public Accounting Firm
|
|
|
F-75 |
|
Consolidated Balance Sheets at December 31, 2002 and 2003,
and September 30, 2004 (unaudited)
|
|
|
F-76 |
|
Consolidated Statements of Operations for the years ended
December 31, 2002 and 2003, and for the nine months ended
September 30, 2003 and 2004 (unaudited)
|
|
|
F-77 |
|
Consolidated Statement of Members Equity
|
|
|
F-78 |
|
Consolidated Statements of Cash Flows for the years ended
December 31, 2002 and 2003, and for the nine months ended
September 30, 2003 and 2004 (unaudited)
|
|
|
F-79 |
|
Notes to Consolidated Financial Statements
|
|
|
F-80 |
|
|
PERFICIENT, INC. PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS
|
|
|
|
|
Preliminary Notes
|
|
|
F-88 |
|
Unaudited Pro Forma Condensed Combined Statement of Operations
for the year ended December 31, 2004
|
|
|
F-90 |
|
Notes to Pro Forma Condensed Combined Financial Statements
|
|
|
F-91 |
|
F-2
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Perficient, Inc.
Austin, Texas
We have audited the accompanying consolidated balance sheet of
Perficient, Inc. as of December 31, 2004, and the related
consolidated statements of operations, changes in
stockholders equity and comprehensive income, and cash
flows for the year then ended. These financial statements are
the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included
consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the
circumstances, but not for the purposes of expressing an opinion
on the effectiveness of the Companys internal control over
financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Perficient, Inc. at December 31, 2004, and the
results of its operations and its cash flows for the year then
ended in conformity with accounting principles generally
accepted in the United States of America.
Houston, Texas
February 2, 2005
F-3
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Perficient, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of
Perficient, Inc. and Subsidiaries as of 2003, and the related
consolidated statement of operations, changes in
stockholders equity and cash flows for the year then
ended. These financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. We were not engaged to perform an
audit of the Companys internal control over financial
reporting. Our audit included consideration of internal control
over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of
the Companys internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Perficient, Inc. and Subsidiaries at
December 31, 2003, and the consolidated results of their
operations and their cash flows for the year then ended, in
conformity with accounting principles generally accepted in the
United States.
Austin, Texas
January 9, 2004
F-4
PERFICIENT, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2003 AND 2004
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2003 | |
|
2004 | |
|
|
| |
|
| |
ASSETS |
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
1,989,395 |
|
|
$ |
3,905,460 |
|
|
Accounts receivable, net of allowance for doubtful accounts of
$622,995 in 2003 and $654,180 in 2004
|
|
|
5,534,607 |
|
|
|
20,049,500 |
|
|
Other current assets
|
|
|
297,058 |
|
|
|
336,309 |
|
|
|
|
|
|
|
|
Total current assets
|
|
|
7,821,060 |
|
|
|
24,291,269 |
|
Property and equipment:
|
|
|
|
|
|
|
|
|
|
Hardware
|
|
|
1,685,577 |
|
|
|
2,079,521 |
|
|
Furniture and fixtures
|
|
|
655,662 |
|
|
|
726,570 |
|
|
Leasehold improvements
|
|
|
234,671 |
|
|
|
125,797 |
|
|
Software
|
|
|
263,059 |
|
|
|
427,178 |
|
|
Accumulated depreciation and amortization
|
|
|
(2,139,824 |
) |
|
|
(2,553,235 |
) |
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
699,145 |
|
|
|
805,831 |
|
Goodwill
|
|
|
11,329,000 |
|
|
|
32,818,431 |
|
Other intangible assets, net of amortization
|
|
|
364,834 |
|
|
|
4,521,460 |
|
Other assets
|
|
|
45,944 |
|
|
|
145,374 |
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
20,259,983 |
|
|
$ |
62,582,365 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$ |
775,980 |
|
|
$ |
6,927,523 |
|
|
Current portion of longterm debt
|
|
|
|
|
|
|
1,135,354 |
|
|
Other current liabilities
|
|
|
2,664,787 |
|
|
|
6,750,968 |
|
|
Current portion of note payable to related party
|
|
|
366,920 |
|
|
|
243,847 |
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
3,807,687 |
|
|
|
15,057,692 |
|
Note payable to related party, less current portion
|
|
|
436,258 |
|
|
|
226,279 |
|
Long-term debt, less current portion
|
|
|
|
|
|
|
2,676,027 |
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
4,243,945 |
|
|
|
17,959,998 |
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value; 8,000,000 shares
authorized; no shares issued and outstanding as of
December 31, 2003 and 2004
|
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value; 40,000,000 shares
authorized; 14,033,246 shares issued and outstanding as of
December 31, 2003 and 20,913,532 shares issued and
outstanding as of December 31, 2004
|
|
|
14,033 |
|
|
|
20,914 |
|
|
Additional paid-in capital
|
|
|
76,315,780 |
|
|
|
102,637,699 |
|
|
Unearned stock compensation
|
|
|
(26,623 |
) |
|
|
(1,656,375 |
) |
|
Accumulated other comprehensive loss
|
|
|
(51,830 |
) |
|
|
(57,837 |
) |
|
Retained deficit
|
|
|
(60,235,322 |
) |
|
|
(56,322,034 |
) |
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
16,016,038 |
|
|
|
44,622,367 |
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$ |
20,259,983 |
|
|
$ |
62,582,365 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of consolidated
financial statements.
F-5
PERFICIENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2004
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2003 | |
|
2004 | |
|
|
| |
|
| |
Revenue
|
|
|
|
|
|
|
|
|
|
Services
|
|
$ |
24,534,617 |
|
|
$ |
43,330,757 |
|
|
Software
|
|
|
3,786,864 |
|
|
|
13,169,693 |
|
|
Reimbursable expenses
|
|
|
1,870,441 |
|
|
|
2,347,223 |
|
|
|
|
|
|
|
|
Total revenue
|
|
|
30,191,922 |
|
|
|
58,847,673 |
|
Cost of revenue (exclusive of depreciation shown separately
below)
|
|
|
|
|
|
|
|
|
|
Project personnel costs
|
|
|
13,411,762 |
|
|
|
26,072,516 |
|
|
Software costs
|
|
|
3,080,894 |
|
|
|
11,341,145 |
|
|
Reimbursable expenses
|
|
|
1,870,441 |
|
|
|
2,347,223 |
|
|
Other project related expenses
|
|
|
453,412 |
|
|
|
267,416 |
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
|
18,816,509 |
|
|
|
40,028,300 |
|
|
|
|
|
|
|
|
Gross margin
|
|
|
11,375,413 |
|
|
|
18,819,373 |
|
Selling, general and administrative
|
|
|
7,993,008 |
|
|
|
11,067,792 |
|
Depreciation
|
|
|
670,436 |
|
|
|
512,076 |
|
Intangibles amortization
|
|
|
610,421 |
|
|
|
696,420 |
|
|
|
|
|
|
|
|
Income from operations
|
|
|
2,101,548 |
|
|
|
6,543,085 |
|
Interest income
|
|
|
3,286 |
|
|
|
2,564 |
|
Interest expense
|
|
|
(285,938 |
) |
|
|
(137,278 |
) |
Other income (expense)
|
|
|
(13,459 |
) |
|
|
32,586 |
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
1,805,437 |
|
|
|
6,440,957 |
|
Provision for income taxes
|
|
|
755,405 |
|
|
|
2,527,669 |
|
|
|
|
|
|
|
|
Net income
|
|
$ |
1,050,032 |
|
|
$ |
3,913,288 |
|
|
|
|
|
|
|
|
Accretion of dividends on preferred stock
|
|
|
(157,632 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net income available to common stockholders
|
|
$ |
892,400 |
|
|
$ |
3,913,288 |
|
|
|
|
|
|
|
|
Basic net income per share available to common stockholders
|
|
$ |
0.08 |
|
|
$ |
0.22 |
|
|
|
|
|
|
|
|
Diluted net income per share available to common stockholders
|
|
$ |
0.07 |
|
|
$ |
0.19 |
|
|
|
|
|
|
|
|
Shares used in computing basic net income per share
|
|
|
10,818,417 |
|
|
|
17,648,575 |
|
|
|
|
|
|
|
|
Shares used in computing diluted net income per share
|
|
|
15,306,151 |
|
|
|
20,680,507 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of consolidated
financial statements.
F-6
PERFICIENT, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS
EQUITY
AND COMPREHENSIVE INCOME FOR THE YEAR ENDED DECEMBER 31,
2003 AND 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated | |
|
|
|
|
|
|
Preferred | |
|
Preferred | |
|
Common | |
|
Common | |
|
|
|
|
|
Deferred | |
|
Other | |
|
|
|
Total | |
|
|
Stock | |
|
Stock | |
|
Stock | |
|
Stock | |
|
|
|
Additional | |
|
Stock | |
|
Comprehensive | |
|
Accumulated | |
|
Stockholders | |
|
|
Shares | |
|
Amount | |
|
Shares | |
|
Amount | |
|
Warrants | |
|
Paid-In Capital | |
|
Compensation | |
|
Loss | |
|
Deficit | |
|
Equity | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Balance at January 1, 2003
|
|
|
3,095,000 |
|
|
$ |
3,095 |
|
|
|
10,537,226 |
|
|
$ |
10,537 |
|
|
$ |
603,240 |
|
|
$ |
75,390,104 |
|
|
$ |
(164,773 |
) |
|
$ |
(35,366 |
) |
|
$ |
(61,285,354 |
) |
|
$ |
14,521,483 |
|
Conversion of preferred stock
|
|
|
(3,095,000 |
) |
|
|
(3,095 |
) |
|
|
3,114,840 |
|
|
|
3,115 |
|
|
|
|
|
|
|
(20 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeiture of merger consideration
|
|
|
|
|
|
|
|
|
|
|
(44,787 |
) |
|
|
(45 |
) |
|
|
|
|
|
|
(64,448 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(64,493 |
) |
Series A dividend payment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(45,457 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(45,457 |
) |
Other
|
|
|
|
|
|
|
|
|
|
|
10,327 |
|
|
|
10 |
|
|
|
|
|
|
|
10,215 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,225 |
|
Warrants exercised
|
|
|
|
|
|
|
|
|
|
|
151,500 |
|
|
|
151 |
|
|
|
(64,500 |
) |
|
|
364,349 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
300,000 |
|
Stock options exercised
|
|
|
|
|
|
|
|
|
|
|
264,140 |
|
|
|
265 |
|
|
|
|
|
|
|
133,185 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
133,450 |
|
Deferred stock compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,223 |
) |
|
|
2,223 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of unearned compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
135,927 |
|
|
|
|
|
|
|
|
|
|
|
135,927 |
|
Preferred stock issuance costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,665 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,665 |
) |
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,464 |
) |
|
|
|
|
|
|
(16,464 |
) |
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,050,032 |
|
|
|
1,050,032 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,033,568 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2003
|
|
|
|
|
|
|
|
|
|
|
14,033,246 |
|
|
|
14,033 |
|
|
|
538,740 |
|
|
|
75,777,040 |
|
|
|
(26,623 |
) |
|
|
(51,830 |
) |
|
|
(60,235,322 |
) |
|
|
16,016,038 |
|
Warrants exercised
|
|
|
|
|
|
|
|
|
|
|
1,277,145 |
|
|
|
1,278 |
|
|
|
(477,374 |
) |
|
|
3,015,966 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,539,870 |
|
Stock options exercised
|
|
|
|
|
|
|
|
|
|
|
491,804 |
|
|
|
492 |
|
|
|
|
|
|
|
656,473 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
656,965 |
|
Issuance of stock for Genisys Acquisition
|
|
|
|
|
|
|
|
|
|
|
1,687,439 |
|
|
|
1,687 |
|
|
|
|
|
|
|
6,780,864 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,782,551 |
|
Issuance of stock for Meritage Acquisition
|
|
|
|
|
|
|
|
|
|
|
1,168,219 |
|
|
|
1,168 |
|
|
|
|
|
|
|
4,198,832 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,200,000 |
|
Issuance of stock for ZettaWorks Acquisition
|
|
|
|
|
|
|
|
|
|
|
1,193,179 |
|
|
|
1,193 |
|
|
|
|
|
|
|
7,790,266 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,791,459 |
|
Issuance of stock for private placement
|
|
|
|
|
|
|
|
|
|
|
800,000 |
|
|
|
800 |
|
|
|
388,800 |
|
|
|
1,970,191 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,359,791 |
|
Tax effect of non- qualified stock option exercises
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
341,789 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
341,789 |
|
Deferred stock compensation
|
|
|
|
|
|
|
|
|
|
|
262,500 |
|
|
|
263 |
|
|
|
|
|
|
|
1,656,112 |
|
|
|
(1,656,375 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of unearned compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,623 |
|
|
|
|
|
|
|
|
|
|
|
26,623 |
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,007 |
) |
|
|
|
|
|
|
(6,007 |
) |
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,913,288 |
|
|
|
3,913,288 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,907,281 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004
|
|
|
|
|
|
$ |
|
|
|
|
20,913,532 |
|
|
$ |
20,914 |
|
|
$ |
450,166 |
|
|
$ |
102,187,533 |
|
|
$ |
(1,656,375 |
) |
|
$ |
(57,837 |
) |
|
$ |
(56,322,034 |
) |
|
$ |
44,622,367 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of consolidated
financial statements.
F-7
PERFICIENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2003 | |
|
2004 | |
|
|
| |
|
| |
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
1,050,032 |
|
|
$ |
3,913,288 |
|
Adjustments to reconcile net income to net cash provided by
operations:
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
670,436 |
|
|
|
512,076 |
|
|
Intangibles amortization
|
|
|
610,421 |
|
|
|
696,420 |
|
|
Non-cash stock compensation
|
|
|
135,927 |
|
|
|
26,623 |
|
|
Non-cash interest expense
|
|
|
72,383 |
|
|
|
|
|
|
Loss on disposal of assets
|
|
|
30,954 |
|
|
|
|
|
|
Changes in operating assets and liabilities (net of the effect
of acquisitions):
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(1,577,259 |
) |
|
|
(8,119,521 |
) |
|
|
Other assets
|
|
|
199,753 |
|
|
|
76,261 |
|
|
|
Accounts payable
|
|
|
(297,185 |
) |
|
|
5,296,844 |
|
|
|
Other liabilities
|
|
|
990,015 |
|
|
|
1,635,788 |
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
1,885,477 |
|
|
|
4,037,779 |
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(191,207 |
) |
|
|
(430,169 |
) |
Purchase of businesses, net of cash acquired
|
|
|
|
|
|
|
(10,733,722 |
) |
Payments on Javelin notes
|
|
|
(500,000 |
) |
|
|
|
|
Proceeds from disposal of assets
|
|
|
1,950 |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(689,257 |
) |
|
|
(11,163,891 |
) |
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Payments on capital lease obligation
|
|
|
(569,695 |
) |
|
|
|
|
Proceeds from borrowings
|
|
|
166,282 |
|
|
|
4,000,000 |
|
Payments on borrowings
|
|
|
(706,293 |
) |
|
|
(521,671 |
) |
Preferred stock issuance costs
|
|
|
(8,665 |
) |
|
|
|
|
Payment of dividends
|
|
|
(45,457 |
) |
|
|
|
|
Proceeds from stock issuances, net
|
|
|
433,450 |
|
|
|
5,569,997 |
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(730,378 |
) |
|
|
9,048,326 |
|
Effect of exchange rate on cash and cash equivalents
|
|
|
(1,449 |
) |
|
|
(6,149 |
) |
|
|
|
|
|
|
|
Change in cash and cash equivalents
|
|
|
464,393 |
|
|
|
1,916,065 |
|
Cash and cash equivalents at beginning of period
|
|
|
1,525,002 |
|
|
|
1,989,395 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$ |
1,989,395 |
|
|
$ |
3,905,460 |
|
|
|
|
|
|
|
|
Supplemental disclosures:
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$ |
207,326 |
|
|
$ |
141,456 |
|
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
$ |
449,768 |
|
|
$ |
2,255,987 |
|
|
|
|
|
|
|
|
Non cash activities:
|
|
|
|
|
|
|
|
|
|
Common stock and options issued in purchase of businesses
|
|
$ |
|
|
|
$ |
18,774,010 |
|
|
|
|
|
|
|
|
|
Reduction of goodwill as a result of utilization of net
operating losses from acquisitions which had previously been
fully reserved
|
|
$ |
|
|
|
$ |
644,064 |
|
|
|
|
|
|
|
|
|
Deferred stock compensation from issuance of restricted stock
|
|
$ |
|
|
|
$ |
1,656,375 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of consolidated
financial statements.
F-8
PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
1. |
Description of Business and Principles of Consolidation |
Perficient, Inc. (the Company) is an information
technology consulting firm. The Company helps its clients use
Internet-based technologies to make their businesses more
responsive to market opportunities and threats, strengthen
relationships with customers, suppliers and partners, improve
productivity and reduce information technology costs. The
Company designs, builds and delivers solutions using a core set
of middleware software products developed by third party
vendors. The Companys solutions enable its clients to
operate a real-time enterprise that adapts business processes
and the systems that support them to the changing demands of an
increasingly global, Internet-driven and competitive marketplace.
The Company was incorporated on September 17, 1997 in
Texas. The Company began operations in 1997 and is structured as
a C-corporation. On May 3, 1999 the Company
reincorporated in Delaware. The consolidated financial
statements include the accounts of the Company and its wholly
owned subsidiaries including Perficient Canada, Corp.,
Perficient Genisys, Inc., Perficient Meritage, Inc., and
Perficient Zettaworks, Inc. All material intercompany accounts
and transactions have been eliminated in consolidation. Certain
prior year balances have been reclassified to conform with
current period presentation.
|
|
2. |
Summary of Significant Accounting Policies |
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting periods. Actual results could
differ from those estimates, and such differences could be
material to the financial statements.
Revenues are primarily derived from professional services
provided on a time and materials basis. For time and material
contracts, revenue is recognized and billed by multiplying the
number of hours expended in the performance of the contract by
the established billing rates. For fixed fee projects, revenue
is generally recognized using the proportionate performance
method based on the ratio of hours expended to total estimated
hours. Provisions for estimated losses on uncompleted contracts
are made on a contract-by-contract basis and are recognized in
the period in which such losses are determined. Billings in
excess of costs plus earnings are classified as deferred
revenues. On many projects the Company is also reimbursed for
out-of-pocket expenses such as airfare, lodging and meals. These
reimbursements are included as a component of revenue in
accordance with the Financial Accounting Standards Boards
Emerging Issues Task Force (EITF) 01-14, Income
Statement Characterization of Reimbursements Received for
Out-of-Pocket Expenses Incurred. In accordance
with EITF 99-19, Reporting Revenue Gross as a Principal
versus Net as an Agent, revenue from sales of third-party
software is recorded on a gross basis based on the
Companys role as principal in the transaction. As provided
in EITF 99-19 criteria, to be considered
principal, the Company must be the primary obligator
and bear the associated credit risk in the transaction. In the
event the Company does not meet the requirements to be
considered a principal in the software sale transaction and acts
as an agent, the revenue would be recorded on a net basis.
Software revenue is recognized when persuasive evidence of an
arrangement exists, delivery has occurred, the fee is fixed or
determinable, and collection is deemed probable.
F-9
PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
Cash equivalents consist primarily of cash deposits and
investments with original maturities of ninety days or less when
purchased.
|
|
|
Accounts Receivable and Allowance for Doubtful
Accounts |
Accounts receivable are recorded at cost. The Company maintains
an allowance for doubtful accounts related to its accounts
receivables that have been deemed to have a high risk of
collectibility. Management reviews its accounts receivables on a
monthly basis to determine if any receivables will potentially
be uncollectible. Management analyzes historical collection
trends and changes in its customer payment patterns, customer
concentration, and credit worthiness when evaluating the
adequacy of its allowance for doubtful accounts. The Company
includes any receivables balances that are determined to be
uncollectible, along with a general reserve, in its overall
allowance for doubtful accounts. Based on the information
available, management believes the allowance for doubtful
accounts is adequate; however, actual write-offs might exceed
the recorded allowance.
Property and equipment are recorded at cost. Depreciation of
property and equipment is computed using the straight-line
method over the useful lives of the assets (generally two to
five years). Leasehold improvements are amortized over the
shorter of the life of the lease or the estimated useful life of
the assets. Amortization of assets recorded under capital leases
is computed using the straight-line method and is included in
depreciation expense. All capital leases were fully paid off
during 2003.
Goodwill represents the excess purchase price over the fair
value of net assets acquired, or net liabilities assumed, in a
business combination. On January 1, 2002, the Company
adopted Statement of Financial Accounting Standards
(SFAS) No. 142, Goodwill and Other
Intangible Assets, and no longer amortizes its goodwill. In
accordance with SFAS No. 142, the Company annually
assesses its intangible assets, including goodwill, for
indications of impairment. No impairment of goodwill has been
identified during any of the periods presented in the
accompanying consolidated financial statements.
Other intangible assets, including amounts allocated to customer
relationships, customer backlog, and non-compete arrangements,
are being amortized over the assets estimated useful lives
using the straight-line method. Estimated useful lives range
from nine months to eight years. Amortization of customer
relationships, customer backlog, and non-compete arrangements is
considered operating expense and included in Amortization
of intangible assets in the accompanying consolidated
statements of operations. The Company periodically reviews the
estimated useful lives of its identifiable intangible assets,
taking into consideration any events or circumstances that might
result in a lack of recoverability or revised useful life.
|
|
|
Impairment of Long-Lived Assets |
Business acquisitions typically result in goodwill, and the
recorded values of goodwill may become impaired in the future.
The evaluation of the potential impairment of such goodwill
requires us to make estimates and assumptions that affect the
Companys consolidated financial statements. Management
assesses potential impairments of goodwill on an annual basis or
when there is evidence that events or changes in circumstances
indicate that the carrying amount may not be recovered.
Managements judgments regarding the existence of
impairment indicators and fair values related to goodwill are
based
F-10
PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
on operational performance of the businesses, market conditions
and other factors. Future events could cause management to
conclude that impairment indicators exist and that goodwill
associated with the acquired businesses is impaired. Any
resulting impairment loss could have an adverse impact on the
Companys results of operations. Management assessed
goodwill for impairment at October 1, 2004. This analysis
indicated that there was no impairment of the carrying values of
goodwill.
The Company evaluates its long-lived tangible assets and
intangible assets other than goodwill in accordance with
SFAS No. 144, Accounting for the Impairment of
Long-Lived Assets, which it adopted as of January 1,
2002. Long-lived assets held and used by the Company are
reviewed for impairment whenever events or changes in
circumstances indicate that their net book value may not be
entirely recoverable. When such factors and circumstances exist,
the Company compares the projected undiscounted future cash
flows associated with the related asset or group of assets over
their estimated useful lives against their respective carrying
amounts. Impairment, if any, is based on the excess of the
carrying amount over the fair value of those assets and is
recorded in the period in which the determination was made.
Management has determined that no impairment exists as of
December 31, 2004.
The Company accounts for income taxes in accordance with
SFAS No. 109, Accounting for Income Taxes. This
Statement prescribes the use of the liability method whereby
deferred tax asset and liability account balances are determined
based on differences between financial reporting and tax bases
of assets and liabilities and are measured using the enacted tax
rates and laws that will be in effect when the differences are
expected to reverse. Deferred tax assets are subject to tests of
recoverability. A valuation allowance is provided for such
deferred tax assets to the extent realization is not judged to
be more likely than not.
|
|
|
Foreign Currency Transactions |
For the Companys foreign subsidiaries, the functional
currency has been determined to be the local currency, and
therefore, assets and liabilities are translated at year-end
exchange rates, and income statement items are translated at
average exchange rates prevailing during the year. Such
translation adjustments are recorded in aggregate as a component
of stockholders equity. Gains and losses from foreign
currency denominated transactions, including a $15,800 gain in
2003 and a $3,100 gain in 2004, are included in other income
(expense). Due to the on-going winddown of the United Kingdom
subsidiary, a foreign currency gain of $15,500 was transferred
from cumulative translation adjustments and included as a
component of net income for the year ended December 31,
2003.
The Company follows the provisions of the
SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information. SFAS No. 131
requires a business enterprise, based upon a management
approach, to disclose financial and descriptive information
about its operating segments. Operating segments are components
of an enterprise about which separate financial information is
available and regularly evaluated by the chief operating
decision maker(s) of an enterprise. Under this definition, the
Company operates as a single segment for all periods presented.
The Companys chief operating decision maker is considered
to be the Companys Chief Executive Officer and Chairman of
the Board. The chief operating decision maker allocates
resources and assesses performance of the business and other
activities at the consolidated level.
F-11
PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
The Company follows the provisions of SFAS No. 128,
Earnings Per Share. Basic earnings per share is computed
by dividing net income available to common stockholders by the
weighted-average number of common shares outstanding during the
period. Diluted earnings per share includes the weighted average
number of common shares outstanding and the number of equivalent
shares which would be issued related to the stock options and
warrants using the treasury method, contingently issuance
shares, and convertible preferred stock using the if-converted
method, unless such additional equivalent shares are
anti-dilutive.
SFAS No. 123, Accounting for Stock-Based
Compensation, prescribes accounting and reporting standards
for all stock-based compensation plans, including employee stock
options. As allowed by SFAS No. 123, the Company has
elected to account for its employee stock-based compensation in
accordance with Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees
(APB 25), which allows the use of the
intrinsic value method. The Companys basis for electing
accounting treatment under APB 25 is principally due to the
satisfactory incorporation of the dilutive effect of these
shares in the reported earnings per share calculation and the
presence of pro forma supplemental disclosure of the estimated
fair value methodology prescribed by SFAS No. 123 and
SFAS No. 148, Accounting for Stock-Based
CompensationTransition and Disclosure. The fair value
of options was calculated at the date of grant using the
Black-Scholes pricing model with the following weighted-average
assumptions for the year ended December 31, 2003 and 2004,
respectively: risk free interest rate of 2.98% and 3.61%;
dividend yield of 0%; weighted-average expected life of options
of 5 years; and a volatility factor of 1.515 and 1.388.
The Black-Scholes option valuation model was developed for use
in estimating the fair value of traded options which have no
vesting restrictions and which are fully transferable. In
addition, option valuation models in general require the input
of highly subjective assumptions, including the expected stock
price volatility. Because the Companys employee stock
options have characteristics significantly different than traded
options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in
managements opinion, the existing models do not
necessarily provide a single reliable measure of the fair value
of its stock options.
F-12
PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
The following table illustrates the effect on net income (loss)
and earnings (loss) per share if the Company had applied the
fair value recognition provisions of SFAS No. 123:
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2003 | |
|
2004 | |
|
|
| |
|
| |
Net income available to common stockholders as reported
|
|
$ |
892,400 |
|
|
$ |
3,913,288 |
|
Total stock-based compensation costs included in the
determination of net income available to common stockholders as
reported
|
|
|
135,927 |
|
|
|
26,623 |
|
The stock-based employee compensation cost that would have been
included in the determination of net income available to common
stockholders if the fair value based method had been applied to
all awards
|
|
|
(1,147,235 |
) |
|
|
(1,015,627 |
) |
|
|
|
|
|
|
|
Pro forma net income (loss)
|
|
$ |
(118,908 |
) |
|
$ |
2,924,284 |
|
Earnings (loss) per share
|
|
|
|
|
|
|
|
|
|
Basic as reported
|
|
$ |
0.08 |
|
|
$ |
0.22 |
|
|
|
|
|
|
|
|
|
Diluted as reported
|
|
$ |
0.07 |
|
|
$ |
0.19 |
|
|
|
|
|
|
|
|
|
Basic pro forma
|
|
$ |
(0.01 |
) |
|
$ |
0.17 |
|
|
|
|
|
|
|
|
|
Diluted pro forma
|
|
$ |
(0.01 |
) |
|
$ |
0.14 |
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Financial Instruments |
Cash equivalents, accounts receivable, accounts payable, other
accrued liabilities, and debt are stated at amounts which
approximate fair value due to the fact that maturities of these
instruments are less than three years.
Comprehensive income includes net income and other comprehensive
income (loss) relating to foreign currency translations, and is
presented in the Consolidated Statements of Changes in
Stockholders Equity. SFAS No. 130,
Reporting Comprehensive Income establishes
standards for reporting comprehensive income and its components
in the financial statements. Accumulated other comprehensive
income is presented as a separate component of
stockholders equity in the Companys Consolidated
Balance Sheet.
|
|
|
Recently Issued Accounting Standards |
In October 2004, the FASB issued SFAS No. 123R,
Share-Based Payment. We are required to adopt
SFAS No. 123R in the third quarter of fiscal 2005. The
pro forma disclosures previously permitted under
SFAS No. 123 will no longer be an alternative to
financial statement recognition of the fair value of employee
stock incentive awards. See above for the pro forma net income
and net income (loss) per share amounts, for fiscal 2003 and
fiscal 2004, as if we had used a fair-value-based method similar
to the methods required under SFAS No. 123R to measure
compensation expense for such awards. Although we have not yet
determined whether the adoption of SFAS No. 123R will
result in amounts that are similar to the current pro forma
disclosures under SFAS No. 123, we are evaluating the
requirements under SFAS No. 123R and we do expect the
adoption to have a significant adverse impact on our
consolidated statements of income and net income per share.
F-13
PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
Computations of the net income per share are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2003 | |
|
2004 | |
|
|
| |
|
| |
|
Net income
|
|
$ |
1,050,032 |
|
|
$ |
3,913,288 |
|
|
Accretion of dividends on preferred stock
|
|
|
(157,632 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common stockholders
|
|
|
892,400 |
|
|
|
3,913,288 |
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
Weighted-average shares of common stock outstanding
|
|
|
10,818,417 |
|
|
|
16,963,708 |
|
|
Weighted-average shares of common stock subject to contingency
|
|
|
545,786 |
|
|
|
684,867 |
|
|
|
|
|
|
|
|
|
Shares used in computing basic net income per share
|
|
|
11,364,203 |
|
|
|
17,648,575 |
|
|
|
|
|
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
2,531,436 |
|
|
|
|
|
|
Stock options
|
|
|
1,410,512 |
|
|
|
2,835,672 |
|
|
Warrants
|
|
|
|
|
|
|
196,260 |
|
|
|
|
|
|
|
|
|
Shares used in computing diluted net income per share
|
|
$ |
15,306,151 |
|
|
$ |
20,680,507 |
|
|
|
|
|
|
|
|
|
Basic net income per share
|
|
$ |
0.08 |
|
|
$ |
0.22 |
|
|
|
|
|
|
|
|
|
Diluted net income per share
|
|
$ |
0.07 |
|
|
$ |
0.19 |
|
|
|
|
|
|
|
|
|
|
4. |
Concentration of Credit Risk and Significant Customers |
Cash and accounts receivable potentially expose the Company to
concentrations of credit risk. Cash is placed with highly rated
financial institutions. The Company provides credit, in the
normal course of business, to its customers. The Company
generally does not require collateral or up-front payments. The
Company performs periodic credit evaluations of its customers
and maintains allowances for potential credit losses. Customers
can be denied access to services in the event of non-payment. A
substantial portion of the services the Company provides are
built on IBM WebSphere® platforms and a significant number
of its clients are identified through joint selling
opportunities conducted with IBM, through sales leads obtained
from the relationship with IBM and through a services agreement
with IBM. Revenue from IBM accounted for approximately 35% and
17% of total revenue for 2003 and 2004, respectively, and
accounts receivable from IBM accounted for approximately 37% and
11% of total accounts receivable as of December 31, 2003
and December 31, 2004, respectively. The loss of the
Companys relationship with IBM, or a significant reduction
in the services the Company provides for IBM would result in
significantly decreased revenues and, as with the loss of any
significant customer, management may need to counteract this
type of revenue decrease by reducing headcount to align with the
lower demand for the Companys services. Due to the
Companys significant fixed operating expenses, the loss of
sales to IBM could result in the Companys inability to
generate net income or positive cash flow from operations for
some time in the future.
F-14
PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
The Company has a qualified 401(k) profit sharing plan available
to full-time employees who meet the plans eligibility
requirements. This defined contribution plan permits employees
to make contributions up to maximum limits allowed by the
Internal Revenue Code. The Company, at its discretion, matches a
portion of the employees contribution under a
predetermined formula based on the level of contribution and
years of vesting services. The Company made matching
contributions equal to 25% of the first 6% of employee
contributions totaling $143,000 and $268,000 during 2003 and
2004, respectively, which vest over a three year period of
service.
|
|
6. |
Intangible Assets with Indefinite Lives |
The changes in the carrying amount of intangible assets with
indefinite lives for the year ended December 31, 2004 are
as follows (in thousands):
|
|
|
|
|
|
|
Goodwill | |
|
|
| |
Balance at December 31, 2003 and 2002
|
|
$ |
11,329 |
|
Acquisitions consummated during 2004 ( Note 13)
|
|
|
22,133 |
|
Utilization of net operating loss carryforwards
|
|
|
(644 |
) |
|
|
|
|
Balance at December 31, 2004
|
|
$ |
32,818 |
|
|
|
|
|
In accordance with SFAS No. 142, Goodwill and Other
Intangible Assets, the Company performs an annual impairment
test of goodwill. The Company evaluates goodwill at the
enterprise level as of October 1 each year or more
frequently if events or changes in circumstances indicate that
goodwill might be impaired. As required by
SFAS No. 142, the impairment test is accomplished
using a two-stepped approach. The first step screens for
impairment and, when impairment is indicated, a second step is
employed to measure the impairment. No impairment was indicated
using data as of October 1, 2004. The Company also reviewed
other factors to determine the likelihood of impairment. Based
on these findings, the remaining net goodwill balance of
$32.9 million is not considered impaired at
December 31, 2004.
|
|
|
Intangible Assets with Definite Lives |
Following is a summary of the Companys intangible assets
that are subject to amortization (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2003 | |
|
2004 | |
|
|
| |
|
| |
|
|
Gross | |
|
|
|
Net | |
|
Gross | |
|
|
|
Net | |
|
|
Carrying | |
|
Accumulated | |
|
Carrying | |
|
Carrying | |
|
Accumulated | |
|
Carrying | |
|
|
Amount | |
|
Amortization | |
|
Amount | |
|
Amount | |
|
Amortization | |
|
Amount | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Business combinations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$ |
3,600 |
|
|
$ |
(3,267 |
) |
|
$ |
333 |
|
|
$ |
3,000 |
|
|
$ |
(410 |
) |
|
$ |
2,590 |
|
Non-compete agreements
|
|
|
550 |
|
|
|
(518 |
) |
|
|
32 |
|
|
|
1,950 |
|
|
|
(213 |
) |
|
|
1,737 |
|
Customer backlog
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
400 |
|
|
|
(206 |
) |
|
|
194 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2003 and 2004
|
|
$ |
4,150 |
|
|
$ |
(3,785 |
) |
|
$ |
365 |
|
|
$ |
5,350 |
|
|
$ |
(829 |
) |
|
$ |
4,521 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-15
PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
The estimated useful lives of acquired identifiable intangible
assets are as follows:
|
|
|
Customer relationships
|
|
5 - 8 years |
Non-compete agreements
|
|
3 - 5 years |
Customer backlog
|
|
9 months to 1 year |
The net carrying amount of intangible assets acquired in
business combinations mainly relate to the Genisys Consulting
Inc, Meritage Technologies, Inc., and ZettaWorks LLC
acquisitions consummated during 2004.
Total amortization expense for the years ended December 31,
2003 and 2004 was approximately $610,000 and $696,000,
respectively.
Estimated annual amortization expense for the next five years
ended December 31 is as follows:
|
|
|
|
|
2005
|
|
$ |
1,101,000 |
|
2006
|
|
$ |
908,000 |
|
2007
|
|
$ |
840,000 |
|
2008
|
|
$ |
808,000 |
|
2009
|
|
$ |
556,000 |
|
The Company entered into a Convertible Preferred Stock Purchase
Agreement, dated as of June 26, 2002, with 2M Technology
Ventures, L.P. (2M) under which the Company sold
1,111,000 shares of Series B Convertible Preferred
Stock, par value of $0.001 per share (Series B
Preferred Stock), to 2M for a purchase price of
approximately $0.90 per share. Each share of Series B
Preferred Stock was initially convertible into one share of
Perficient common stock at the election of the holder. The
agreement also stipulated criteria for the automatic conversion
of Series B Preferred Shares into common shares in the
event that the closing price for Perficients common stock
is greater than $3.00 per share for 20 consecutive days
with an average trading volume greater than 50,000 shares
over that same period. As of November 11, 2003, the
criteria for automatic conversion were met, and accordingly, all
outstanding shares of Series B Preferred Stock were
converted to 1,111,000 shares of common stock. The
Series B Preferred Stock accrued dividends payable in
common stock of the Company at an annual rate per share equal to
$0.90 multiplied by an 8% interest rate. Accrued dividends
amounted to approximately $157,000 for the year ended
December 31, 2003. 2M was also given the option to purchase
up to an additional 1,666,500 shares of Series B
Preferred Stock on the same terms as described above; however,
this option was not exercised and expired on June 26, 2003.
The Company entered into a Convertible Preferred Stock Purchase
Agreement, dated as of December 21, 2001, with a limited
number of investors under which the Company sold
1,984,000 shares of Series A Convertible Preferred
Stock (Series A Preferred Stock) to such
investors for a purchase price of $1.00 per share. In
connection with the sales of the Series A Preferred Stock,
the Company also issued warrants to
purchase 992,000 shares of common stock of the Company
with an exercise price of $2.00 per share. Each share of
Series A Preferred Stock was initially convertible into one
share of common stock of the Company based on a conversion ratio
as defined in the agreement, initially set at a $1.00 conversion
price divided by the purchase price per share of Series A
Preferred Stock, as adjusted from time to time based on certain
anti-dilution provisions. As a result of the dilution caused by
the Series B issuance discussed above, the conversion price
for the Series A Preferred Stock
F-16
PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
decreased to approximately $0.99. Additionally, the number of
shares purchasable under the warrants increased to 1,001,920 for
an exercise price of $1.98 per share. Accrued dividends on
the Series A Preferred Stock totaled approximately $210,617
on November 10, 2003, the automatic conversion date. The
Company paid cash dividends totaling $45,457 to certain holders
of Series A Preferred Stock who had voluntarily elected to
convert their Series A Preferred Stock prior to the
automatic conversion date. The accrued dividends on the
Series A Preferred Stock that was not voluntarily converted
prior to November 10, 2003 were forfeited under the terms
of the Series A Preferred Stock designation.
In a private placement on June 16, 2004, the Company raised
approximately $2.5M of additional capital from investors by the
issuance of 800,000 shares of the Companys stock at a
price of $3.09 per share. Under the terms of the Securities
Purchase Agreement, the Company also issued warrants to the
investors to purchase 160,000 shares of the
Companys common stock at a exercise price of
$4.64 per share. These warrants have a term of two years.
The fair value of these warrants of approximately $389,000 was
calculated using the Black-Scholes pricing model with the
following assumptions- risk free interest rate of 2.98%;
dividend yield of 0%; and a volatility factor of 1.515. In
accordance with EITF 00-19, Accounting for Derivative
Financial Instruments Indexed to, and Potentially Settled in, a
Companys Own Stock, these warrants have been accounted
for as permanent equity instruments.
In May 1999, the Companys Board of Directors and
stockholders approved the 1999 Stock Option/ Stock Issuance Plan
(the 1999 Plan). The 1999 Plan contains programs for
(i) the discretionary granting of stock options to
employees, non-employee board members and consultants for the
purchase of shares of the Companys common stock,
(ii) the discretionary issuance of common stock directly to
eligible individuals, and (iii) the automatic issuance of
stock options to non-employee board members. The Compensation
Committee of the Board of Directors administers the 1999 Plan
and determines the exercise price and vesting period for each
grant. Options granted under the 1999 Plan have a maximum term
of 10 years. In the event that the Company is acquired,
whether by merger or asset sale or board-approved sale by the
stockholders of more than 50% of the Companys voting
stock, each outstanding option under the discretionary option
grant program which is not to be assumed by the successor
corporation or otherwise continued will automatically accelerate
in full, and all unvested shares under the discretionary option
grant and stock issuance programs will immediately vest, except
to the extent the Companys repurchase rights with respect
to those shares are to be assigned to the successor corporation
or otherwise continued in effect. The Compensation Committee may
grant options under the discretionary option grant program that
will accelerate in the acquisition even if the options are
assumed or that will accelerate if the optionees service
is subsequently terminated.
The Compensation Committee may grant options and issue shares
that accelerate in connection with a hostile change in control
effected through a successful tender offer for more than 50% of
the Companys outstanding voting stock or by proxy contest
for the election of board members, or the options and shares may
accelerate upon a subsequent termination of the
individuals service.
The Company has granted stock options to various employees under
the terms of their employment agreements. The stock options
generally vest over three years. The term of each option is ten
years from the date of grant.
The Company recognized $135,927 and $26,623 of stock
compensation expense during 2003 and 2004, respectively, as a
result of options granted to employees with exercise prices
below the fair market value of the underlying common stock on
the date of grant.
F-17
PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
On December 15, 2004, the Company granted restricted stock
awards under the 1999 Stock Option/ Stock Issuance Plan to John
T. McDonald, the Companys Chief Executive Officer, and
Jeffrey S. Davis, the Companys President and Chief
Operating Officer, of 175,000 and 87,500 shares of common
stock, respectively. These restricted stock awards vest over
seven years with 50% of the vesting in the last two years,
subject to partial acceleration if certain revenue growth and
operating profitability targets are met.
A summary of changes in common stock options during 2003 and
2004 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- | |
|
|
|
|
|
|
Average | |
|
|
|
|
Range of |
|
Exercise | |
|
|
Shares | |
|
Exercise Prices |
|
Price | |
|
|
| |
|
|
|
| |
Options outstanding at January 1, 2003
|
|
|
4,390,726 |
|
|
$0.02 $26.00 |
|
$ |
2.82 |
|
|
Options granted
|
|
|
2,416,373 |
|
|
$0.50 $ 2.81 |
|
$ |
1.53 |
|
|
Options exercised
|
|
|
(264,140 |
) |
|
$0.03 $ 1.39 |
|
$ |
0.51 |
|
|
Options canceled
|
|
|
(816,767 |
) |
|
$0.03 $26.00 |
|
$ |
2.66 |
|
|
|
|
|
|
|
|
|
|
Options outstanding at December 31, 2003
|
|
|
5,726,192 |
|
|
$0.02 $26.00 |
|
$ |
2.42 |
|
|
Options granted
|
|
|
1,458,700 |
|
|
$3.00 $ 6.31 |
|
$ |
4.67 |
|
|
Options exercised
|
|
|
(491,804 |
) |
|
$0.03 $ 4.50 |
|
$ |
1.34 |
|
|
Options canceled
|
|
|
(253,829 |
) |
|
$0.50 $13.25 |
|
$ |
3.37 |
|
|
|
|
|
|
|
|
|
|
Options outstanding at December 31, 2004
|
|
|
6,439,259 |
|
|
$0.02 $16.94 |
|
$ |
2.97 |
|
|
|
|
|
|
|
|
|
|
Options vested, December 31, 2003
|
|
|
2,684,572 |
|
|
$0.02 $16.94 |
|
$ |
3.46 |
|
|
|
|
|
|
|
|
|
|
Options vested, December 31, 2004
|
|
|
3,226,827 |
|
|
$0.02 $16.94 |
|
$ |
2.85 |
|
|
|
|
|
|
|
|
|
|
The following is additional information related to stock options
outstanding at December 31, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding | |
|
Options Exercisable | |
|
|
| |
|
| |
|
|
|
|
Weighted | |
|
|
|
|
|
|
Weighted | |
|
Average | |
|
|
|
Weighted | |
|
|
|
|
Average | |
|
Remaining | |
|
|
|
Average | |
|
|
|
|
Exercise | |
|
Contractual | |
|
|
|
Exercise | |
Range of Exercise Prices | |
|
Options | |
|
Price | |
|
Life (Years) | |
|
Options | |
|
Price | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
$ 0.02 $ 0.50 |
|
|
|
967,599 |
|
|
$ |
0.40 |
|
|
|
7.26 |
|
|
|
641,406 |
|
|
$ |
0.34 |
|
|
$ 0.74 $ 1.41 |
|
|
|
1,427,714 |
|
|
$ |
1.16 |
|
|
|
7.31 |
|
|
|
1,202,958 |
|
|
$ |
1.16 |
|
|
$ 2.28 $ 4.72 |
|
|
|
3,124,229 |
|
|
$ |
3.07 |
|
|
|
8.18 |
|
|
|
1,083,746 |
|
|
$ |
3.65 |
|
|
$ 5.07 $10.00 |
|
|
|
744,774 |
|
|
$ |
6.79 |
|
|
|
9.19 |
|
|
|
123,774 |
|
|
$ |
9.22 |
|
|
$11.25 $16.94 |
|
|
|
174,943 |
|
|
$ |
14.19 |
|
|
|
5.47 |
|
|
|
174,943 |
|
|
$ |
14.19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ 0.02 $16.94 |
|
|
|
6,439,259 |
|
|
$ |
2.97 |
|
|
|
7.89 |
|
|
|
3,226,827 |
|
|
$ |
2.85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2003 and 2004, the weighted-average
remaining contractual life of outstanding options was 8.31 and
7.89 years, respectively. The weighted-average grant-date
fair value per share of options granted during 2003 and 2004 at
market prices was approximately $1.53 and $4.67 respectively.
During 2003 and 2004 there were no option grants at below market
prices. The weighted-average grant-date fair value per share of
options granted during 2003 at above market prices was
approximately $1.15. During 2004 there were no option grants at
above market prices.
F-18
PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
At December 31, 2004, no shares of common stock were
reserved for future issuance upon conversion of preferred stock,
6,439,259 shares were reserved for future issuance upon
exercise of outstanding options and 428,188 shares were
reserved for future issuance upon exercise of outstanding
warrants.
The following table summarizes information regarding warrants
outstanding and exercisable as of December 31, 2004:
|
|
|
|
|
Warrants Outstanding and Exercisable | |
| |
Exercise Price |
|
Warrants | |
|
|
| |
$21.00
|
|
|
25,000 |
|
$12.00
|
|
|
100,000 |
|
$ 8.00
|
|
|
3,750 |
|
$ 4.64
|
|
|
160,000 |
|
$ 1.98
|
|
|
139,438 |
|
|
|
|
|
$ 1.98 $21.00
|
|
|
428,188 |
|
|
|
|
|
|
|
8. |
Line of Credit and Long Term Debt |
The Company has a $13.0 million credit facility comprising
a $9.0 million accounts receivable line of credit and a
$4.0 million acquisition term line of credit. The credit
facility was amended on January 31, 2005 to increase the
accounts receivable line of credit from $6.0 million to
$9.0 million. The accounts receivable line of credit, which
expires in December 2005, provides for a borrowing capacity of
up to 80% of eligible accounts receivable, subject to certain
borrowing base calculations as defined, but in no event more
than $9.0 million. Borrowings under this line of credit
bear interest at the banks prime rate plus 1.00% (5.75% at
December 31, 2004). There were no amounts outstanding under
this agreement as of December 31, 2003 or 2004.
The Companys $4.0 million term acquisition line of
credit provides an additional source of financing for certain
qualified acquisitions. As of December 31, 2004 the balance
outstanding under this acquisition line of credit was
approximately $3.8 million. Borrowings under this
acquisition line of credit bear interest equal to the average
four year U.S. Treasury note yield plus 3.50%the
initial $2.5 million draw, of which $2.3 million
remains outstanding, bears interest of 7.11% at
December 31, 2004 and the subsequent $1.5 million
draw, all of which remains outstanding, bears interest of 6.90%
at December 31, 2004 and are repayable in thirty-six equal
monthly installments. The Company is entitled to make payments
of accrued interest only for the first three monthly
installments.
The Company is required to comply with various financial
covenants under the $13 million credit facility. It is
required to maintain a minimum tangible net worth of at least
$3 million, to maintain a ratio of after tax earning before
interest, depreciation and amortization, annualized, to current
maturities of long-term debt plus interest of at least 1.50 to
1.00, and, pursuant to the January 31, 2005 amendment, to
maintain a ratio of cash plus accounts receivable including 50%
of unbilled revenue to all outstanding obligations to the bank
of at least 1.50 to 1.00. As of December 31, 2004, the
Company was in compliance with all covenants under this credit
facility.
Notes payable to related party at December 31, 2003 and
2004 consisted of non interest-bearing notes issued to the
shareholders of Javelin Solutions, Inc. (Javelin) in
April 2002 in connection with the Companys acquisition of
Javelin. The notes provide for payments totaling $1,500,000, of
which $470,126 remained outstanding on December 31, 2004.
The Company made payments totaling $62,500 in January 2004 and
$312,500 in April 2004. The Company expects to make subsequent
payments as
F-19
PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
follows: $250,000 in April 2005 and $250,000 in April 2006. For
financial reporting purposes, an imputed interest rate of 7.5%
was used to compute the net present value of the note payments.
These notes are subordinate to the Companys line of credit.
Future minimum debt repayments as of December 31, 2004 are
as follows: (in thousands)
|
|
|
|
|
2005
|
|
$ |
1,620 |
|
2006
|
|
|
1,733 |
|
2007
|
|
|
1,251 |
|
2008
|
|
|
139 |
|
Thereafter
|
|
|
|
|
|
|
|
|
|
|
|
4,742 |
|
Less amount representing interest
|
|
|
(461 |
) |
|
|
|
|
Present value of debt commitments
|
|
|
4,281 |
|
Less current portion
|
|
|
(1,379 |
) |
|
|
|
|
Long term portion
|
|
$ |
2,902 |
|
|
|
|
|
As of December 31, 2004, the Company had tax net operating
loss carry forwards of approximately $9.0 million that will
begin to expire in 2020 if not utilized.
Utilization of net operating losses may be subject to an annual
limitation due to the change in ownership provisions
of the Internal Revenue Code of 1986. The annual limitation may
result in the expiration of net operating losses before
utilization.
Significant components of the provision for income taxes
attributable to continuing operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2003 | |
|
2004 | |
|
|
| |
|
| |
Current:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$ |
386,147 |
|
|
$ |
1,411,771 |
|
|
Foreign
|
|
|
173,730 |
|
|
|
254,952 |
|
|
State
|
|
|
94,343 |
|
|
|
235,552 |
|
|
|
|
|
|
|
|
Total current
|
|
|
654,220 |
|
|
|
1,902,275 |
|
|
|
|
|
|
|
|
Tax benefit on acquired net operating loss carryforwards
|
|
|
101,185 |
|
|
|
312,357 |
|
Tax benefit from stock options
|
|
|
|
|
|
|
341,789 |
|
Deferred:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
|
|
|
|
(26,421 |
) |
|
Foreign
|
|
|
|
|
|
|
|
|
|
State
|
|
|
|
|
|
|
(2,331 |
) |
|
|
|
|
|
|
|
Total deferred
|
|
|
|
|
|
|
(28,752 |
) |
|
|
|
|
|
|
|
|
|
$ |
755,405 |
|
|
$ |
2,527,669 |
|
|
|
|
|
|
|
|
F-20
PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
The components of pretax income for the years ended
December 31, 2003 and 2004 are as follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2003 | |
|
2004 | |
|
|
| |
|
| |
Domestic
|
|
$ |
1,517,251 |
|
|
$ |
5,803,578 |
|
Canada
|
|
|
186,491 |
|
|
|
602,111 |
|
United Kingdom
|
|
|
101,695 |
|
|
|
35,268 |
|
|
|
|
|
|
|
|
Total
|
|
$ |
1,805,437 |
|
|
$ |
6,440,957 |
|
|
|
|
|
|
|
|
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes. Significant components of the
Companys deferred taxes as of December 31, 2003 and
2004 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2003 | |
|
2004 | |
|
|
| |
|
| |
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
Current Deferred Tax Assets:
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities
|
|
$ |
65,828 |
|
|
$ |
146,538 |
|
|
|
Net operating losses
|
|
|
|
|
|
|
326,277 |
|
|
|
Deferred revenue
|
|
|
2,775 |
|
|
|
2,775 |
|
|
|
Bad Debt Reserve
|
|
|
198,189 |
|
|
|
221,459 |
|
|
|
|
|
|
|
|
|
|
|
266,792 |
|
|
|
697,049 |
|
|
|
Valuation Allowance
|
|
|
(201,019 |
) |
|
|
(555,733 |
) |
|
|
|
|
|
|
|
|
Net Current Deferred Tax Assets
|
|
|
65,773 |
|
|
|
141,316 |
|
|
|
|
|
|
|
|
|
Non-current Deferred Tax Assets:
|
|
|
|
|
|
|
|
|
|
|
Net operating losses
|
|
|
463,668 |
|
|
|
2,987,423 |
|
|
|
Fixed assets
|
|
|
134,648 |
|
|
|
112,376 |
|
|
|
Deferred compensation
|
|
|
92,899 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
691,215 |
|
|
|
3,099,799 |
|
|
|
Valuation Allowance
|
|
|
(520,808 |
) |
|
|
(2,471,364 |
) |
|
|
|
|
|
|
|
|
Net Non-current Deferred Tax Assets
|
|
|
170,407 |
|
|
|
628,435 |
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
Current Deferred Tax Liabilities:
|
|
|
|
|
|
|
|
|
|
|
Deferred Income
|
|
|
118,090 |
|
|
|
208,336 |
|
|
Non-current Deferred Tax Liabilities:
|
|
|
|
|
|
|
|
|
|
|
Deferred Income
|
|
|
118,090 |
|
|
|
180,494 |
|
|
|
Intangibles
|
|
|
|
|
|
|
414,140 |
|
|
|
|
|
|
|
|
|
Total Non-current Deferred Tax Liabilities
|
|
|
118,090 |
|
|
|
594,634 |
|
|
|
|
|
|
|
|
|
Net Current Deferred Tax Liability
|
|
|
(52,317 |
) |
|
|
(67,020 |
) |
|
|
|
|
|
|
|
|
Net Non-current Deferred Tax Asset
|
|
$ |
52,317 |
|
|
$ |
33,801 |
|
|
|
|
|
|
|
|
F-21
PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
The Company has established a valuation allowance to offset a
portion of the Companys deferred tax assets due to
uncertainties regarding the realization of deferred tax assets
based on the Companys lack of earnings history and
limitations on the utilization of acquired net operating losses.
The valuation allowance decreased by approximately $330,000
during 2003 and increased by approximately $1,970,000 during
2004. The 2004 increase is primarily due to acquisitions made in
2004 offset by $644,064 benefit of acquired net operating loss
carryforwards. As of December 31, 2004, all of the
valuation allowance relates to acquired entities, and as such,
if realized, will reduce goodwill or other non-current
intangible assets prior to resulting in an income tax benefit.
Undistributed earnings of the Companys foreign
subsidiaries amounted to approximately $600,000 at
December 31, 2004. Those earnings are considered to be
permanently reinvested; accordingly, no provision for US federal
and/ or state income taxes has been provided thereon. Upon
repatriation of those earnings, in the form of dividends or
otherwise, the Company would be subject to both US income
taxes (subject to an adjustment for foreign tax credits) and
potentially withholding taxes payable to the various foreign
countries. Determination of the amount of unrecognized deferred
US income tax liability is not practicable due to the
complexities associated with its hypothetical calculation.
The Companys provision for income taxes differs from the
expected tax expense amount computed by applying the statutory
federal income tax rate of 34% to income before income taxes as
a result of the following:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2003 | |
|
2004 | |
|
|
| |
|
| |
Tax at statutory rate of 34%
|
|
$ |
613,849 |
|
|
$ |
2,189,926 |
|
State taxes, net of federal benefit
|
|
|
125,494 |
|
|
|
180,220 |
|
Intangibles amortization
|
|
|
207,542 |
|
|
|
44,961 |
|
Effect of foreign operations
|
|
|
75,739 |
|
|
|
38,243 |
|
Change in valuation allowance
|
|
|
(330,332 |
) |
|
|
|
|
Other
|
|
|
63,113 |
|
|
|
74,319 |
|
|
|
|
|
|
|
|
|
|
$ |
755,405 |
|
|
$ |
2,527,669 |
|
|
|
|
|
|
|
|
|
|
10. |
Commitments and Contingencies |
The Company leases its office facilities and certain equipment
under various operating and capital lease agreements. The
Company has the option to extend the term of certain of its
office facilities leases. Future minimum commitments under these
lease agreements are as follows:
|
|
|
|
|
|
|
Operating | |
December 31, |
|
Leases | |
|
|
| |
2005
|
|
$ |
1,515,769 |
|
2006
|
|
|
1,043,340 |
|
2007
|
|
|
569,275 |
|
2008
|
|
|
318,598 |
|
2009
|
|
|
229,636 |
|
|
|
|
|
Total minimum lease payments
|
|
$ |
3,676,619 |
|
|
|
|
|
F-22
PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
Rent expense for the years ended December 31, 2003 and 2004
was $1,322,000 and $1,383,000, respectively.
In connection with certain of its acquisitions, the Company was
required to establish various letters of credit totaling
$550,000 with Silicon Valley Bank and $65,000 with Key Bank to
serve as collateral for certain office space and equipment
leases. The Company expects to retire the Key Bank letter of
credit in the first half of 2005. These letters of credit with
Silicon Valley Bank reduce the borrowings available under the
Companys line of credit with Silicon Valley Bank. One
letter of credit of $300,000 will remain in effect through 2005,
and the other letter of credit of $250,000 will remain in effect
through 2007.
|
|
11. |
Segments of Business and Geographic Area Information |
The Company considers its business activities to constitute a
single segment of business. A summary of the Companys
operations by geographic area follows:
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2003 | |
|
2004 | |
|
|
| |
|
| |
Revenue:
|
|
|
|
|
|
|
|
|
|
United States
|
|
$ |
29,169,721 |
|
|
$ |
57,735,199 |
|
|
Canada
|
|
|
905,905 |
|
|
|
1,112,474 |
|
|
United Kingdom
|
|
|
116,296 |
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$ |
30,191,922 |
|
|
$ |
58,847,673 |
|
|
|
|
|
|
|
|
Net income:
|
|
|
|
|
|
|
|
|
|
United States
|
|
$ |
863,929 |
|
|
$ |
3,511,335 |
|
|
Canada
|
|
|
3,630 |
|
|
|
366,685 |
|
|
United Kingdom
|
|
|
182,473 |
|
|
|
35,268 |
|
|
|
|
|
|
|
|
Total net income
|
|
$ |
1,050,032 |
|
|
$ |
3,913,288 |
|
|
|
|
|
|
|
|
Identifiable assets:
|
|
|
|
|
|
|
|
|
|
United States
|
|
$ |
19,935,222 |
|
|
$ |
62,243,063 |
|
|
Canada
|
|
|
243,379 |
|
|
|
300,662 |
|
|
United Kingdom
|
|
|
81,382 |
|
|
|
38,640 |
|
|
|
|
|
|
|
|
Total identifiable assets
|
|
$ |
20,259,983 |
|
|
$ |
62,582,365 |
|
|
|
|
|
|
|
|
F-23
PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
|
|
12. |
Balance Sheet Components |
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2003 | |
|
2004 | |
|
|
| |
|
| |
Accounts receivable:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$ |
4,932,165 |
|
|
$ |
12,426,107 |
|
Unbilled revenue
|
|
|
1,225,437 |
|
|
|
8,277,573 |
|
Allowance for doubtful accounts
|
|
|
(622,995 |
) |
|
|
(654,180 |
) |
|
|
|
|
|
|
|
Total
|
|
$ |
5,534,607 |
|
|
$ |
20,049,500 |
|
|
|
|
|
|
|
|
Other current liabilities:
|
|
|
|
|
|
|
|
|
Accrued bonuses
|
|
$ |
1,150,614 |
|
|
$ |
2,094,987 |
|
Accrued vacation
|
|
|
220,443 |
|
|
|
395,127 |
|
Other payroll liabilities
|
|
|
35,934 |
|
|
|
714,049 |
|
Sales and use taxes
|
|
|
85,187 |
|
|
|
221,249 |
|
Accrued income taxes
|
|
|
425,977 |
|
|
|
170,354 |
|
Other accrued expenses
|
|
|
484,524 |
|
|
|
1,702,853 |
|
Accrued acquisition costs related to ZettaWorks
|
|
|
|
|
|
|
317,982 |
|
Accrued subcontractor fees
|
|
|
|
|
|
|
510,018 |
|
Deferred revenue
|
|
|
262,107 |
|
|
|
624,349 |
|
|
|
|
|
|
|
|
Total
|
|
$ |
2,664,787 |
|
|
$ |
6,750,968 |
|
|
|
|
|
|
|
|
|
|
13. |
Business Combinations |
|
|
|
Acquisition of Genisys Consulting, Inc. |
On April 2, 2004, the Company consummated the acquisition
of Genisys Consulting, Inc, a privately held information
technology consulting company, for approximately
$8.8 million, consisting of approximately $1.5 million
in cash, transaction costs of approximately $0.5 million,
approximately 1.7 million shares of Perficients
common stock valued at $3.77 per share (approximately
$6.4 million worth of Companys common stock) and
stock options valued at approximately $0.4 million. The
total purchase consideration of $8.8 million has been
allocated to the assets acquired and liabilities assumed,
including identifiable intangible assets, based on their
respective fair values at the date of acquisition. Such
preliminary allocation resulted in goodwill of approximately
$7.4 million. Goodwill is assigned at the enterprise level
and is not expected to be deductible for tax purposes. The
purchase price was allocated to intangibles based on an
independent appraisal and managements estimate. Management
expects to finalize the purchase price allocation during the
first quarter of 2005 as certain initial purchase accounting
estimates are resolved such as the collectibility of acquired
accounts receivable. The results of the Genisys operations have
been included in the Companys consolidated financial
statements since April 2, 2004. As a result of the
acquisition, the Company expects to grow its customer base and
revenues, add new IT consulting expertise and increase the
number of its billable consultants, gain a presence in a new and
strategic geographic market and add new domain expertise and
solutions offerings it can offer to customers through its
network of offices.
F-24
PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
The preliminary purchase price allocation is as follows (in
millions):
|
|
|
|
|
|
Intangibles:
|
|
|
|
|
|
Customer relationships
|
|
$ |
1.1 |
|
|
Non-compete agreements
|
|
|
0.4 |
|
|
Customer backlog
|
|
|
0.2 |
|
Goodwill
|
|
|
7.4 |
|
Tangible Assets and Liabilities
|
|
|
|
|
|
Accounts receivable
|
|
|
1.2 |
|
|
Other current assets
|
|
|
0.1 |
|
|
Property and equipment
|
|
|
0.1 |
|
|
Accounts payable and accrued expenses
|
|
|
(0.4 |
) |
|
Deferred income tax liability
|
|
|
(1.0 |
) |
|
Income tax payable
|
|
|
(0.3 |
) |
|
|
|
|
Net assets acquired
|
|
$ |
8.8 |
|
|
|
|
|
The Company believes that the intangible assets acquired have
useful lives of nine months to eight years.
|
|
|
Acquisition of Meritage Technologies, Inc. |
On June 18, 2004, the Company consummated the acquisition
of Meritage Technologies, Inc., a privately held information
technology consulting company for approximately,
$10.4 million, consisting of approximately
$2.9 million in cash, $2.4 of liabilities repaid on behalf
of Meritage Technologies, Inc., transaction costs of
approximately $0.9 million, and approximately
1.2 million shares of the Companys common stock
valued at approximately $3.595 per share (approximately
$4.2 million worth of Companys common stock). The
total purchase price consideration of $10.4 million,
including transaction costs of $0.9 million, has been
allocated to the assets acquired and liabilities assumed,
including identifiable intangible assets, based on their
respective fair values at the date of acquisition. Such
preliminary allocation resulted in goodwill of approximately
$7.4 million. Goodwill is assigned at the enterprise level
and is not expected to be deductible for tax purposes. The
purchase price was allocated to intangibles based on
managements estimate with assistance from an independent
appraisal firm. Management expects to finalize the purchase
price allocation during the second quarter of 2005 as certain
initial accounting estimates are resolved such as the
collectibility of acquired accounts receivable. The results of
the Meritage operations have been included in the Companys
consolidated financial statements since June 18, 2004. As a
result of the acquisition, the Company expects to grow its
customer base and revenues, add new IT consulting expertise and
increase the number of its billable consultants, gain a presence
in a new and strategic geographic market and add new domain
expertise and solutions offerings it can offer to customers
through its network of offices.
F-25
PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
The preliminary purchase price allocation is as follows (in
millions):
|
|
|
|
|
|
Intangibles:
|
|
|
|
|
|
Customer relationships
|
|
$ |
0.3 |
|
|
Non-compete agreements
|
|
|
1.5 |
|
Goodwill
|
|
|
7.4 |
|
Tangible Assets and Liabilities Acquired:
|
|
|
|
|
|
Accounts receivable
|
|
|
2.2 |
|
|
Property and equipment
|
|
|
0.1 |
|
|
Accounts payable and accrued expenses
|
|
|
(1.1 |
) |
|
|
|
|
Net assets acquired
|
|
$ |
10.4 |
|
|
|
|
|
The Company believes that the intangible assets acquired have
useful lives of five years. The Company has accrued exit costs
of approximately $0.2 million, which relates to lease
obligations for excess office space that the Company has vacated
or intends to vacate under the approved facilities exit plan.
The estimated costs of vacating these leased facilities,
including estimated costs to sub-lease, and sub-lease income
were based on market information and trend analysis as estimated
by the Company. It is reasonably possible that actual results
could differ from these estimates in the near term. The Company
has accrued severance of $0.2 million, which relate to
severance and related payroll taxes for certain employees of
Meritage Technologies, Inc. impacted by the approved plan of
termination. The Company acquired deferred tax assets of
approximately $1.9 million. These assets primarily relate
to net losses incurred by Meritage Technologies, Inc. prior to
the acquisition. The Company has placed a full valuation
allowance on these assets given the level of cumulative
historical losses for both Meritage Technologies, Inc. and the
Company.
|
|
|
Acquisition of ZettaWorks LLC |
On December 20, 2004, the Company consummated the
acquisition of ZettaWorks LLC, a privately held information
technology consulting company for approximately,
$11.4 million, consisting of approximately
$2.9 million in cash, transaction costs of approximately
$0.7 million, and approximately 1.2 million shares of
the Companys common stock valued at approximately
$6.537 per share (approximately $7.8 million worth of
Companys common stock). The total purchase price
consideration of $11.4 million, including transaction costs
of $0.7 million, have been allocated to the assets acquired
and liabilities assumed, including identifiable intangible
assets, based on their respective fair values at the date of
acquisition. Such preliminary allocation resulted in goodwill of
approximately $8.2 million. Goodwill is assigned at the
enterprise level and is expected to be deductible for tax
purposes. The purchase price was allocated to intangibles based
on managements estimate with assistance from an
independent appraisal firm. Management expects to finalize the
purchase price allocation within the next twelve months as
certain initial accounting estimates are resolved such as the
collectibility of acquired accounts receivable. The results of
the ZettaWorks operations have been included in the
Companys consolidated financial statements since
December 20, 2004. As a result of the acquisition, the
Company expects to grow its customer base and revenues, add new
IT consulting expertise and increase the number of its billable
consultants, gain a presence in a new and strategic geographic
market and add new domain expertise and solutions offerings it
can offer to customers through its network of offices.
F-26
PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
The preliminary purchase price allocation is as follows (in
millions):
|
|
|
|
|
|
Intangibles:
|
|
|
|
|
|
Customer relationships
|
|
$ |
1.1 |
|
|
Customer backlog
|
|
|
0.2 |
|
|
Non-compete agreements
|
|
|
0.1 |
|
Goodwill
|
|
|
8.1 |
|
Tangible Assets and Liabilities Acquired:
|
|
|
|
|
|
Accounts receivable
|
|
|
3.0 |
|
|
Property and equipment
|
|
|
0.1 |
|
|
Accounts payable and accrued expenses
|
|
|
(1.2 |
) |
|
|
|
|
Net assets acquired
|
|
$ |
11.4 |
|
|
|
|
|
The Company believes that the intangible assets acquired have
useful lives of one to five years.
|
|
|
Pro-forma Results of Operations |
The following presents the unaudited pro-forma combined results
of operations of the Company with Genisys Consulting, Inc.,
Meritage Technologies, Inc, and ZettaWorks LLC, for the years
ended December 31, 2003 and 2004 after giving effect to
certain pro forma adjustments related to the amortization of
acquired intangible assets. These unaudited pro-forma results
are not necessarily indicative of the actual consolidated
results of operations had the acquisitions actually occurred on
January 1, 2003 and 2004 or of future results of operations
of the consolidated entities:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2003 | |
|
2004 | |
|
|
| |
|
| |
Revenues
|
|
$ |
72,916,131 |
|
|
$ |
85,594,693 |
|
Net Income (Loss)
|
|
$ |
(1,707,099 |
) |
|
$ |
3,225,041 |
|
Basic Income (Loss) Per Share
|
|
$ |
(0.10 |
) |
|
$ |
0.16 |
|
Diluted Income (Loss) Per Share
|
|
$ |
(0.10 |
) |
|
$ |
0.14 |
|
The Company has engaged an investment banking firm to act as its
exclusive advisor in an offering to sell the Companys
common stock in a secondary offering. The Company anticipates
raising between $25 million and $50 million.
Underwriting discounts are expected to be between
$1.5 million to $3.0 million depending on the actual
number of shares sold and amount raised.
F-27
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Perficient, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of
Perficient, Inc. and Subsidiaries as of December 31, 2002
and 2003, and the related consolidated statements of operations,
changes in stockholders equity and cash flows for the
years then ended. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes consideration
of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Companys internal control over
financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Perficient, Inc. and Subsidiaries at
December 31, 2002 and 2003, and the consolidated results of
their operations and their cash flows for the years then ended,
in conformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Austin, Texas
January 9, 2004
F-28
PERFICIENT, INC.
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2002 | |
|
2003 | |
|
|
| |
|
| |
ASSETS |
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$ |
1,525,002 |
|
|
$ |
1,989,395 |
|
|
Accounts receivable, net of allowance for doubtful accounts of
$661,248 in 2002 and $622,995 in 2003
|
|
|
3,938,373 |
|
|
|
5,534,607 |
|
|
Other current assets
|
|
|
382,542 |
|
|
|
297,058 |
|
|
|
|
|
|
|
|
Total current assets
|
|
|
5,845,917 |
|
|
|
7,821,060 |
|
Property and equipment:
|
|
|
|
|
|
|
|
|
|
Hardware
|
|
|
1,496,429 |
|
|
|
1,685,577 |
|
|
Furniture and fixtures
|
|
|
726,861 |
|
|
|
655,662 |
|
|
Leasehold improvements
|
|
|
234,285 |
|
|
|
234,671 |
|
|
Software
|
|
|
248,697 |
|
|
|
263,059 |
|
|
Accumulated depreciation
|
|
|
(1,495,254 |
) |
|
|
(2,139,824 |
) |
|
|
|
|
|
|
|
Net property and equipment
|
|
|
1,211,018 |
|
|
|
699,145 |
|
Net intangible assets
|
|
|
12,380,039 |
|
|
|
11,693,834 |
|
Other noncurrent assets
|
|
|
156,129 |
|
|
|
45,944 |
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
19,593,103 |
|
|
$ |
20,259,983 |
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$ |
426,686 |
|
|
$ |
129,895 |
|
|
Line of credit
|
|
|
540,011 |
|
|
|
|
|
|
Current portion of capital lease obligation
|
|
|
235,034 |
|
|
|
|
|
|
Other current liabilities
|
|
|
2,304,433 |
|
|
|
3,310,872 |
|
|
Current portion of note payable to related party
|
|
|
485,477 |
|
|
|
366,920 |
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
3,991,641 |
|
|
|
3,807,687 |
|
Note payable to related party, less current portion
|
|
|
745,318 |
|
|
|
436,258 |
|
Capital lease obligation, less current portion
|
|
|
334,661 |
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
5,071,620 |
|
|
|
4,243,945 |
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value; 8,000,000 shares
authorized; 3,095,000 shares in 2002 and 0 shares in
2003 issued and outstanding
|
|
|
3,095 |
|
|
|
|
|
|
Common stock, $0.001 par value; 40,000,000 shares
authorized; 10,537,226 shares in 2002 and
14,033,246 shares in 2003 issued and outstanding
|
|
|
10,537 |
|
|
|
14,033 |
|
|
Additional paid-in capital
|
|
|
75,993,344 |
|
|
|
76,315,780 |
|
|
Unearned stock compensation
|
|
|
(164,773 |
) |
|
|
(26,623 |
) |
|
Accumulated other comprehensive loss
|
|
|
(35,366 |
) |
|
|
(51,830 |
) |
|
Retained deficit
|
|
|
(61,285,354 |
) |
|
|
(60,235,322 |
) |
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
14,521,483 |
|
|
|
16,016,038 |
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$ |
19,593,103 |
|
|
$ |
20,259,983 |
|
|
|
|
|
|
|
|
See accompanying notes.
F-29
PERFICIENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2002 | |
|
2003 | |
|
|
| |
|
| |
Revenue
|
|
|
|
|
|
|
|
|
|
Services
|
|
$ |
20,391,587 |
|
|
$ |
24,534,617 |
|
|
Software
|
|
|
402,889 |
|
|
|
3,786,864 |
|
|
Reimbursable expenses
|
|
|
1,655,808 |
|
|
|
1,870,441 |
|
|
|
|
|
|
|
|
Total revenue
|
|
|
22,450,284 |
|
|
|
30,191,922 |
|
Cost of revenue
|
|
|
|
|
|
|
|
|
|
Project personnel costs
|
|
|
11,210,272 |
|
|
|
13,411,762 |
|
|
Software costs
|
|
|
343,039 |
|
|
|
3,080,894 |
|
|
Reimbursable expenses
|
|
|
1,655,808 |
|
|
|
1,870,441 |
|
|
Other project related expenses
|
|
|
330,100 |
|
|
|
453,412 |
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
|
13,539,219 |
|
|
|
18,816,509 |
|
|
|
|
|
|
|
|
Gross margin
|
|
|
8,911,065 |
|
|
|
11,375,413 |
|
Selling, general and administrative
|
|
|
8,327,010 |
|
|
|
7,857,081 |
|
Stock compensation
|
|
|
240,688 |
|
|
|
135,927 |
|
Depreciation
|
|
|
687,570 |
|
|
|
670,436 |
|
Intangibles amortization
|
|
|
1,285,524 |
|
|
|
610,421 |
|
Restructuring, severance and other
|
|
|
579,427 |
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(2,209,154 |
) |
|
|
2,101,548 |
|
Interest income
|
|
|
17,732 |
|
|
|
3,286 |
|
Interest expense
|
|
|
(203,569 |
) |
|
|
(285,938 |
) |
Other
|
|
|
(53 |
) |
|
|
(13,459 |
) |
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(2,395,044 |
) |
|
|
1,805,437 |
|
Provision for income taxes
|
|
|
|
|
|
|
755,405 |
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
(2,395,044 |
) |
|
$ |
1,050,032 |
|
|
|
|
|
|
|
|
Beneficial conversion charge on preferred stock
|
|
|
(1,672,746 |
) |
|
|
|
|
Accretion of dividends on preferred stock
|
|
|
(163,013 |
) |
|
|
(157,632 |
) |
|
|
|
|
|
|
|
Net income (loss) available to common stockholders
|
|
$ |
(4,230,803 |
) |
|
$ |
892,400 |
|
|
|
|
|
|
|
|
Basic net income (loss) per share
|
|
$ |
(0.53 |
) |
|
$ |
0.08 |
|
|
|
|
|
|
|
|
Diluted net income (loss) per share
|
|
$ |
(0.53 |
) |
|
$ |
0.07 |
|
|
|
|
|
|
|
|
See accompanying notes.
F-30
PERFICIENT, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unearned | |
|
Accumulated | |
|
|
|
|
|
|
Preferred Stock | |
|
Common Stock | |
|
|
|
|
|
Additional | |
|
Stock | |
|
Other | |
|
|
|
Total | |
|
|
| |
|
| |
|
Subscription | |
|
|
|
Paid-In | |
|
Compen- | |
|
Comprehensive | |
|
Retained | |
|
Stockholders | |
|
|
Shares | |
|
Amount | |
|
Shares | |
|
Amount | |
|
Receivable | |
|
Warrants | |
|
Capital | |
|
sation | |
|
Loss | |
|
Deficit | |
|
Equity | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Balance at January 1, 2002
|
|
|
|
|
|
$ |
|
|
|
|
6,288,566 |
|
|
$ |
6,289 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
66,140,446 |
|
|
$ |
(348,021 |
) |
|
$ |
(72,103 |
) |
|
$ |
(58,890,310 |
) |
|
$ |
6,836,301 |
|
Issuance of common stock and options in purchase of businesses
|
|
|
|
|
|
|
|
|
|
|
4,210,799 |
|
|
|
4,211 |
|
|
|
|
|
|
|
|
|
|
|
7,213,875 |
|
|
|
(266,173 |
) |
|
|
|
|
|
|
|
|
|
|
6,951,913 |
|
Issuance of Series A preferred stock, net of amount held in
escrow
|
|
|
1,984,000 |
|
|
|
1,984 |
|
|
|
|
|
|
|
|
|
|
|
(1,984,000 |
) |
|
|
|
|
|
|
1,982,016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of warrants in connection with Series A preferred
stock issuance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
426,560 |
|
|
|
(426,560 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Release of preferred stock proceeds from escrow
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,984,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,984,000 |
|
Issuance cost for Series A preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,595 |
|
|
|
(109,040 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(102,445 |
) |
Issuance of Series B preferred stock
|
|
|
1,111,000 |
|
|
|
1,111 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
998,889 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000,000 |
|
Issuance cost for Series B preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(38,284 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(38,284 |
) |
Issuance of warrants in connection with Series B preferred
stock issuance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
170,085 |
|
|
|
(170,085 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options exercised
|
|
|
|
|
|
|
|
|
|
|
37,861 |
|
|
|
37 |
|
|
|
|
|
|
|
|
|
|
|
7,580 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,617 |
|
Deferred stock compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(208,733 |
) |
|
|
208,733 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of unearned compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
240,688 |
|
|
|
|
|
|
|
|
|
|
|
240,688 |
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,737 |
|
|
|
|
|
|
|
36,737 |
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,395,044 |
) |
|
|
(2,395,044 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,358,307 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2002
|
|
|
3,095,000 |
|
|
$ |
3,095 |
|
|
|
10,537,226 |
|
|
$ |
10,537 |
|
|
$ |
|
|
|
$ |
603,240 |
|
|
$ |
75,390,104 |
|
|
$ |
(164,773 |
) |
|
$ |
(35,366 |
) |
|
$ |
(61,285,354 |
) |
|
$ |
14,521,483 |
|
Conversion of preferred stock
|
|
|
(3,095,000 |
) |
|
|
(3,095 |
) |
|
|
3,114,840 |
|
|
|
3,115 |
|
|
|
|
|
|
|
|
|
|
|
(20 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeiture of merger consideration
|
|
|
|
|
|
|
|
|
|
|
(44,787 |
) |
|
|
(45 |
) |
|
|
|
|
|
|
|
|
|
|
(64,448 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(64,493 |
) |
Series A dividend payment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(45,457 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(45,457 |
) |
Other
|
|
|
|
|
|
|
|
|
|
|
10,327 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
10,215 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,225 |
|
Warrants exercised
|
|
|
|
|
|
|
|
|
|
|
151,500 |
|
|
|
151 |
|
|
|
|
|
|
|
(64,500 |
) |
|
|
364,349 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
300,000 |
|
Stock options exercised
|
|
|
|
|
|
|
|
|
|
|
264,140 |
|
|
|
265 |
|
|
|
|
|
|
|
|
|
|
|
133,185 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
133,450 |
|
Deferred stock compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,223 |
) |
|
|
2,223 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of unearned compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
135,927 |
|
|
|
|
|
|
|
|
|
|
|
135,927 |
|
Preferred stock issuance costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,665 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,665 |
) |
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,464 |
) |
|
|
|
|
|
|
(16,464 |
) |
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,050,032 |
|
|
|
1,050,032 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,033,568 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2003
|
|
|
|
|
|
$ |
|
|
|
|
14,033,246 |
|
|
$ |
14,033 |
|
|
$ |
|
|
|
$ |
538,740 |
|
|
$ |
75,777,040 |
|
|
$ |
(26,623 |
) |
|
$ |
(51,830 |
) |
|
$ |
(60,235,322 |
) |
|
$ |
16,016,038 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-31
PERFICIENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2002 | |
|
2003 | |
|
|
| |
|
| |
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
(2,395,044 |
) |
|
$ |
1,050,032 |
|
Adjustments to reconcile net income (loss) to net cash provided
by operations:
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
687,570 |
|
|
|
670,436 |
|
|
Intangibles amortization
|
|
|
1,285,524 |
|
|
|
610,421 |
|
|
Non-cash stock compensation
|
|
|
240,688 |
|
|
|
135,927 |
|
|
Non-cash interest expense
|
|
|
63,295 |
|
|
|
72,383 |
|
|
Non-cash interest income
|
|
|
(11,017 |
) |
|
|
|
|
|
Loss on disposal of assets
|
|
|
11,341 |
|
|
|
30,954 |
|
|
Changes in operating assets and liabilities (net of the effect
of acquisitions):
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
887,275 |
|
|
|
(1,577,259 |
) |
|
|
Other assets
|
|
|
(85,167 |
) |
|
|
199,753 |
|
|
|
Accounts payable
|
|
|
149,608 |
|
|
|
(297,185 |
) |
|
|
Other liabilities
|
|
|
(476,737 |
) |
|
|
990,015 |
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
357,336 |
|
|
|
1,885,477 |
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(167,323 |
) |
|
|
(191,207 |
) |
Purchase of businesses, net of cash acquired
|
|
|
(725,848 |
) |
|
|
|
|
Payments on Javelin notes
|
|
|
(125,000 |
) |
|
|
(500,000 |
) |
Advances to Vertecon
|
|
|
(200,000 |
) |
|
|
|
|
Proceeds from disposal of assets
|
|
|
1,700 |
|
|
|
1,950 |
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(1,216,471 |
) |
|
|
(689,257 |
) |
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Payments on capital lease obligation
|
|
|
(352,575 |
) |
|
|
(569,695 |
) |
Proceeds from short-term borrowings
|
|
|
533,641 |
|
|
|
166,282 |
|
Payments on short-term borrowings
|
|
|
(2,089,030 |
) |
|
|
(706,293 |
) |
Payments on long-term debt
|
|
|
(6,903 |
) |
|
|
|
|
Proceeds from issuance of preferred stock
|
|
|
2,984,000 |
|
|
|
|
|
Preferred stock issuance costs
|
|
|
(130,504 |
) |
|
|
(8,665 |
) |
Payment of dividends
|
|
|
|
|
|
|
(45,457 |
) |
Proceeds from stock issuances, net
|
|
|
7,617 |
|
|
|
433,450 |
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
946,246 |
|
|
|
(730,378 |
) |
Effect of exchange rate on cash and cash equivalents
|
|
|
25,653 |
|
|
|
(1,449 |
) |
|
|
|
|
|
|
|
Change in cash and cash equivalents
|
|
|
112,764 |
|
|
|
464,393 |
|
Cash and cash equivalents at beginning of period
|
|
|
1,412,238 |
|
|
|
1,525,002 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$ |
1,525,002 |
|
|
$ |
1,989,395 |
|
|
|
|
|
|
|
|
Supplemental disclosures:
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$ |
176,453 |
|
|
$ |
207,326 |
|
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
$ |
|
|
|
$ |
449,768 |
|
|
|
|
|
|
|
|
Non cash activities:
|
|
|
|
|
|
|
|
|
|
Common stock and options issued in purchase of businesses
|
|
$ |
7,218,086 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
Issuance of note payable in purchase of business
|
|
$ |
1,292,500 |
|
|
$ |
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-32
PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003
1. Business Overview
Perficient, Inc. (the Company) is an eBusiness
solutions provider to large and major midsize companies and
Internet software vendors. The Company enables its clients and
partners to optimize profitability and strengthen customer
relationships through reliable, quick-to-market eBusiness
solutions. The Company provides a broad range of end-to-end
business and technology solutions with a focus on serving the
financial services, healthcare, technology and energy industries.
The Company was incorporated on September 17, 1997 in
Texas. The Company began operations in 1997 and is structured as
a C corporation. On May 3, 1999 the Company
reincorporated in Delaware. The consolidated financial
statements include the accounts of the Company and its
wholly-owned subsidiaries. All material inter-company accounts
and transactions have been eliminated in consolidation.
2. Summary of Significant
Accounting Policies
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those
estimates, and such differences could be material to the
financial statements.
Revenues are primarily derived from professional services
provided on a time and materials basis, with the remaining
revenue derived from fixed fee engagements and software sales.
For time and material contracts, revenue is recognized and
billed by multiplying the number of hours expended in the
performance of the contract by the established billing rates.
For fixed fee projects, revenue is generally recognized using
the proportionate performance method based on the ratio of hours
expended to total estimated hours. Provisions for estimated
losses on uncompleted contracts are made on a
contract-by-contract basis and are recognized in the period in
which such losses are determined. Billings in excess of costs
plus earnings are classified as deferred revenues. On many
projects the Company is also reimbursed for out-of-pocket
expenses such as airfare, lodging and meals. These
reimbursements are included as a component of revenue in
accordance with the Financial Accounting Standards Boards
Emerging Issues Task Force (EITF) 01-14, Income
Statement Characterization of Reimbursements Received for
Out-of-Pocket Expenses Incurred. In accordance
with EITF 99-19, Reporting Revenue Gross as a Principal
versus Net as an Agent, revenue from software resales is
recorded on a gross basis based on the Companys role as
principal in the transaction. As provided in EITF 99-19
criteria to be considered principal, the Company is
the primary obligator and bears the associated credit risk in
the transaction. In the event the Company does not meet the
requirements to be considered a principal in the software resale
transaction and acts as an agent, the revenue would be recorded
on a net basis.
Cash equivalents consist primarily of cash deposits and
investments with original maturities of ninety days or less when
purchased.
F-33
PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
December 31, 2003
The cost of advertising is expensed as incurred. Advertising
costs for the years ended December 31, 2002 and 2003 were
not material.
Property and equipment are recorded at cost. Depreciation of
property and equipment is computed using the straight-line
method over the useful lives of the assets (generally 2 to
5 years). Leasehold improvements are amortized over the
shorter of the life of the lease or the estimated useful life of
the assets. Amortization of assets recorded under capital leases
is computed using the straight-line method and is included in
depreciation expense. The cost and accumulated amortization of
assets recorded under capital leases was approximately $412,000
and $52,000, respectively, at December 31, 2002 and
approximately $412,000 and $134,000, respectively, at
December 31, 2003.
Intangible assets, primarily resulting from purchase business
combinations, are being amortized using the straight-line method
with a life of two to three years for employment and non-compete
agreements and a life of three to five years for customer
relationship intangibles. Intangible assets consist of the
following:
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2002 | |
|
2003 | |
|
|
| |
|
| |
Cost:
|
|
|
|
|
|
|
|
|
Employment and noncompete agreements
|
|
$ |
550,000 |
|
|
$ |
550,000 |
|
Customer relationships
|
|
|
3,600,000 |
|
|
|
3,600,000 |
|
Goodwill
|
|
|
36,384,000 |
|
|
|
36,308,000 |
|
Accumulated amortization:
|
|
|
|
|
|
|
|
|
Employment and noncompete agreements
|
|
|
(370,000 |
) |
|
|
(518,000 |
) |
Customer relationships
|
|
|
(2,805,000 |
) |
|
|
(3,267,000 |
) |
Goodwill
|
|
|
(24,979,000 |
) |
|
|
(24,979,000 |
) |
|
|
|
|
|
|
|
Net Book Value:
|
|
$ |
12,380,000 |
|
|
$ |
11,694,000 |
|
|
|
|
|
|
|
|
Amortization expense for employment, non-compete agreements, and
customer relationships is expected to be approximately $132,237
in 2004, $100,000 in 2005, $100,000 in 2006, and $32,237 in 2007.
On January 1, 2002, the Company adopted Statement of
Financial Accounting Standards (SFAS) 141,
Business Combinations, and SFAS No. 142,
Goodwill and Other Intangible Assets. Under these rules,
ratable amortization of intangibles assets with indefinite
lives, including goodwill, has been replaced with periodic
review and analysis to assess possible impairment. Intangible
assets with definite lives must be amortized over their
estimated useful lives. In accordance with
SFAS No. 142, the Company assesses its goodwill on
October 1 of each year or more frequently if events or changes
in circumstances indicate that goodwill might be impaired. The
goodwill impairment test is a two-step process. The first step
of the impairment analysis compares the fair value to the net
book value. In determining fair value, management utilizes a
blended approach and calculates fair value based on market
capitalization, revenue and earnings multiples based on industry
comparables, and discounted
F-34
PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
December 31, 2003
cash flow analysis. Step two of the analysis compares the
implied fair value of goodwill to its carrying amount. If the
carrying amount of goodwill exceeds its implied fair value, an
impairment loss is recognized equal to that excess.
Business acquisitions typically result in goodwill and other
intangible assets, and the recorded values of those assets may
become impaired in the future. The determination of the value of
such intangible assets requires us to make estimates and
assumptions that affect the Companys consolidated
financial statements. Management assesses potential impairments
to intangible assets on an annual basis or when there is
evidence that events or changes in circumstances indicate that
the carrying amount of an asset may not be recovered.
Managements judgments regarding the existence of
impairment indicators and future cash flows related to
intangible assets are based on operational performance of the
acquired businesses, market conditions and other factors. Future
events could cause management to conclude that impairment
indicators exist and that goodwill associated with the acquired
businesses is impaired. Any resulting impairment loss could have
an adverse impact on the Companys results of operations by
decreasing net income.
|
|
|
Impairment of Long-Lived Assets |
The Company evaluates its long-lived assets in accordance with
SFAS No. 144, Accounting for the Impairment of
Long-Lived Assets. Long-lived assets held and used by the
Company are reviewed for impairment whenever events or changes
in circumstances indicate that their net book value may not be
entirely recoverable. When such factors and circumstances exist,
the Company compares the projected undiscounted future cash
flows associated with the related asset or group of assets over
their estimated useful lives against their respective carrying
amounts. Impairment, if any, is based on the excess of the
carrying amount over the fair value of those assets and is
recorded in the period in which the determination was made. The
Company adopted SFAS No. 144 as of January 1,
2002.
The Company accounts for income taxes in accordance with
SFAS No. 109, Accounting for Income Taxes. This
Statement prescribes the use of the liability method whereby
deferred tax asset and liability account balances are determined
based on differences between financial reporting and tax bases
of assets and liabilities and are measured using the enacted tax
rates and laws that will be in effect when the differences are
expected to reverse.
|
|
|
Foreign Currency Transactions |
For the Companys foreign subsidiaries, the functional
currency has been determined to be the local currency, and
therefore, assets and liabilities are translated at year-end or
period-end exchange rates, and income statement items are
translated at average exchange rates prevailing during the year
or period. Such translation adjustments are recorded in
aggregate as a component of stockholders equity. Gains and
losses from foreign currency denominated transactions, including
a $7,500 loss during 2002 and a $15,800 gain in 2003, are
included in other income (expense). Due to the on-going
liquidation of the United Kingdom subsidiary, a foreign currency
gain of $15,500 was transferred from cumulative translation
adjustments and included as a component of net income for the
year ended December 31, 2003.
F-35
PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
December 31, 2003
The Company follows the provisions of the
SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information. SFAS No. 131
requires a business enterprise, based upon a management
approach, to disclose financial and descriptive information
about its operating segments. Operating segments are components
of an enterprise about which separate financial information is
available and regularly evaluated by the chief operating
decision maker(s) of an enterprise. Under this definition, the
Company operates as a single segment for all periods presented.
The Companys chief operating decision maker is considered
to be the Chief Executive Officer and Chairman of the Board. The
chief operating decision maker allocates resources and assesses
performance of the business and other activities at the
consolidated level.
The Company follows the provisions of SFAS No. 128,
Earnings Per Share. Basic earnings per share is computed
by dividing net income (loss) available to common stockholders
by the weighted-average number of common shares outstanding
during the period. Diluted earnings per share includes the
weighted average number of common shares outstanding and the
number of equivalent shares which would be issued related to the
stock options and warrants using the treasury method,
contingently issuance shares, and convertible preferred stock
using the if-converted method, unless such additional equivalent
shares are anti-dilutive.
SFAS No. 123, Accounting for Stock-Based
Compensation, prescribes accounting and reporting standards
for all stock-based compensation plans, including employee stock
options. As allowed by SFAS No. 123, the Company has
elected to account for its employee stock-based compensation in
accordance with Accounting Principles Board Opinion No. 25,
Accounting For Stock Issued To Employees, (APB
25), which allows the use of the intrinsic value method.
The Companys basis for electing accounting treatment under
APB 25 is principally due to the satisfactory incorporation of
the dilutive effect of these shares in the reported earnings per
share calculation and the presence of pro forma supplemental
disclosure of the estimated fair value methodology prescribed by
SFAS No. 123 and SFAS No. 148, Accounting
for Stock-Based Compensation Transition and
Disclosure. The fair value of options was calculated at the
date of grant using the Black-Scholes pricing model with the
following weighted-average assumptions for the year ended
December 31, 2002 and 2003, respectively: risk free
interest rate of 3.5% and 2.98%; dividend yield of 0%;
weighted-average expected life of options of 5 years; and a
volatility factor of 1.066 and 1.515.
The Black-Scholes option valuation model was developed for use
in estimating the fair value of traded options which have no
vesting restrictions and which are fully transferable. In
addition, option valuation models in general require the input
of highly subjective assumptions, including the expected stock
price volatility. Because the Companys employee stock
options have characteristics significantly different than traded
options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in
managements opinion, the existing models do not
necessarily provide a single reliable measure of the fair value
of its stock options.
F-36
PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
December 31, 2003
The following table illustrates the effect on net income (loss)
and earnings per share if the Company had applied the fair value
recognition provisions of SFAS 123:
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2002 | |
|
2003 | |
|
|
| |
|
| |
Net income (loss) available to common stockholders
as reported
|
|
$ |
(4,230,803 |
) |
|
$ |
892,400 |
|
Total stock-based compensation costs included in the
determination of net income (loss) available to common
stockholders as reported
|
|
|
240,688 |
|
|
|
135,927 |
|
The stock-based employee compensation cost that would have been
included in the determination of net income (loss) available to
common stockholders if the fair value based method had been
applied to all awards
|
|
|
(2,783,044 |
) |
|
|
(1,147,235 |
) |
|
|
|
|
|
|
|
Pro forma net income (loss)
|
|
$ |
(6,773,159 |
) |
|
$ |
(118,908 |
) |
|
|
|
|
|
|
|
Earnings per share
|
|
|
|
|
|
|
|
|
|
Basic as reported
|
|
$ |
(0.53 |
) |
|
$ |
0.08 |
|
|
|
|
|
|
|
|
|
Diluted as reported
|
|
$ |
(0.53 |
) |
|
$ |
0.06 |
|
|
|
|
|
|
|
|
|
Basic and diluted pro forma
|
|
$ |
(0.84 |
) |
|
$ |
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
Fair Value of Financial Instruments |
Cash equivalents, accounts receivable, accounts payable, other
accrued liabilities, and debt are stated at cost which
approximates fair value due to the short-term maturity of these
instruments.
|
|
|
Recently Issued Accounting Standards |
In January 2003, the Financial Accounting Standards Board
(FASB) issued Interpretation No. 46
(FIN 46), Consolidation of Variable Interest
Entities. FIN 46 requires that if an entity has a
controlling financial interest in a variable interest entity,
the assets, liabilities and results of activities of the
variable interest entity should be included in the consolidated
financial statements of the entity. FIN 46 is effective
immediately for all new variable interest entities created or
acquired after January 31, 2003. For variable interest
entities created or acquired prior to February 1, 2003, the
provisions of FIN 46 must be applied for the first interim
or annual period beginning after December 15, 2003.
Management does not believe that the adoption of FIN 46
will have a material impact on the Companys consolidated
results of operations or financial position.
In May 2003, the FASB issued SFAS No. 150,
Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity.
SFAS No. 150 establishes standards on the
classification and measurement of certain financial instruments
with characteristics of both liabilities and equity. The
provisions of SFAS No. 150 are effective for financial
instruments entered into or modified after May 31, 2003,
and to all other instruments that exist as of the beginning of
the first interim financial reporting period beginning after
June 15, 2003. The changes that resulted from the issuance
of SFAS No. 150 did not have a material effect on the
Companys consolidated results of operations or financial
position.
In December 2003, the Securities and Exchange Commission
(SEC) issued Staff Accounting Bulletin (SAB)
No. 104, Revenue Recognition, which codifies,
revises and rescinds certain sections of SAB No. 101,
Revenue Recognition, in order to make this interpretive
guidance consistent with current
F-37
PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
December 31, 2003
authoritative accounting and auditing guidance and SEC rules and
regulations. The changes noted in SAB No. 104 did not
have a material effect on the Companys consolidated
results of operations, consolidated financial position or
consolidated cash flows.
3. Net Income (Loss) Per
Share
Computations of the net income (loss) per share are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2002 | |
|
2003 | |
|
|
| |
|
| |
|
Net income (loss)
|
|
$ |
(2,395,044 |
) |
|
$ |
1,050,032 |
|
|
Beneficial conversion charge on preferred stock
|
|
|
(1,672,746 |
) |
|
|
|
|
|
Accretion of dividends on preferred stock
|
|
|
(163,013 |
) |
|
|
(157,632 |
) |
|
|
|
|
|
|
|
|
Net income (loss) available to common stockholders
|
|
$ |
(4,230,803 |
) |
|
$ |
892,400 |
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
Weighted-average shares of common stock outstanding
|
|
|
9,173,657 |
|
|
|
11,364,203 |
|
|
Weighted-average shares of common stock subject
to contingency
|
|
|
(1,132,506 |
) |
|
|
(545,786 |
) |
|
|
|
|
|
|
|
|
Shares used in computing basic net income (loss) per share
|
|
|
8,041,151 |
|
|
|
10,818,417 |
|
|
|
|
|
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
Weighted-average shares of common stock subject
to contingency
|
|
|
|
|
|
|
545,786 |
|
|
Preferred stock
|
|
|
|
|
|
|
2,531,436 |
|
|
Stock options
|
|
|
|
|
|
|
1,410,512 |
|
|
Warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing diluted net income (loss) per share
|
|
|
8,041,151 |
|
|
|
15,306,151 |
|
|
|
|
|
|
|
|
Basic net income (loss) per share
|
|
$ |
(0.53 |
) |
|
$ |
0.08 |
|
|
|
|
|
|
|
|
Diluted net income per share
|
|
$ |
(0.53 |
) |
|
$ |
0.06 |
|
|
|
|
|
|
|
|
Diluted net loss per share is the same as basic net loss per
share for the year ended December 31, 2002, as the effect
of the assumed exercise of stock options and warrants, the
issuance of contingently issuable shares resulting from business
combinations, and shares of common stock issuable upon the
conversion of convertible preferred stock is anti-dilutive due
to the Companys net loss for that period. Diluted net loss
per share for the year ended December 31, 2002 excludes
common stock equivalents of 4,274,225.
|
|
4. |
Concentration of Credit Risk and Significant Customers |
Cash and accounts receivable potentially expose the Company to
concentrations of credit risk. Excess cash is placed with highly
rated financial institutions. The Company provides credit, in
the normal course of business, to its customers. The Company
generally does not require collateral or up front payments. The
Company performs periodic credit evaluations of its customers
and maintains allowances for potential credit losses. Customers
can be denied access to services in the event of non-payment. In
August 2003, the Company entered into a one-year extension of
its existing services
F-38
PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
December 31, 2003
agreement with IBM under which the Company provides deployment,
integration and training services to IBMs WebSphere
customers which are billed on a time and materials basis. The
agreement will expire on September 1, 2004. The current
contract stipulates that IBM may cancel the contract prior to
its expiration date of September 1, 2004 upon 5 days
written notice. Revenue from IBM accounted for approximately 35%
of total revenue for both 2002 and 2003, and accounts receivable
from IBM accounted for approximately 35% and 37% of total
accounts receivable as of December 31, 2002 and
December 31, 2003, respectively. In the event that IBM is
no longer a customer following the cancellation or termination
of the Companys current agreement, the Companys
revenue would decrease significantly and, as with the loss of
any significant customer, management may need to counteract this
type of revenue decrease by reducing headcount to align with the
lower demand for the Companys services. Due to the
Companys significant fixed operating expenses, the loss of
sales to IBM could result in the Companys inability to
generate net income for some time in the future.
5. Employee Benefit Plan
The Company has a qualified 401(k) profit sharing plan available
to full-time employees who meet the plans eligibility
requirements. This defined contribution plan permits employees
to make contributions up to maximum limits allowed by the
Internal Revenue Code. The Company, at its discretion, matches a
portion of the employees contribution under a
predetermined formula based on the level of contribution and
years of vesting services. The Company made matching
contributions equal to 25% of the first 6% of employee
contributions totaling $130,000 and $143,000 during 2002 and
2003, respectively, which vest over a three year period of
service. The Companys related costs for the plan were
approximately $32,000 and $19,000 during 2002 and 2003,
respectively.
6. Stockholders Equity
The Company entered into a Convertible Preferred Stock Purchase
Agreement, dated as of June 26, 2002, with 2M Technology
Ventures, L.P. (2M) under which the Company sold
1,111,000 shares of Series B Convertible Preferred Stock,
par value $0.001 per share (Series B Preferred
Stock), to 2M for a purchase price of approximately $0.90
per share. The Company used the proceeds from the sale of the
Series B Preferred Stock to strengthen its working capital
position and for other corporate purposes. Each share of
Series B Preferred Stock was initially convertible into one
share of Perficient common stock at the election of the holder.
The agreement also stipulated criteria for the automatic
conversion of Series B preferred shares into common shares
in the event that the closing price for Perficients common
stock is greater than $3 per share for 20 consecutive days with
an average trading volume greater than 50,000 shares over that
same period. As of November 11, 2003, the criteria for
automatic conversion were met, and accordingly, all outstanding
shares of Series B preferred stock were converted to
1,111,000 shares of common stock. The Company has also issued to
2M a Warrant to purchase up to 555,500 shares of Perficient
common stock in connection with this sale of Series B
Preferred Stock.
2M was given the option to purchase up to an additional
1,666,500 shares of Series B Preferred Stock on the same
terms as described above, however, this option was not exercised
and expired on June 26, 2003.
Simultaneously with the sale of shares to 2M by the Company, 2M
purchased from Steven Papermaster, Robert Anderson and Bryan
Menell, 300,000, 100,000 and 100,000 shares of Perficient common
stock, respectively, for $0.75 per share. Mr. Papermaster
was a member of the Companys
F-39
PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
December 31, 2003
Board of Directors at the time of the transaction and each of
Messrs. Papermaster, Menell and Anderson are or had been
significant holders of Perficient common stock.
In addition, the Company entered into Registration Rights
Agreements with 2M pursuant to which the Company filed on
October 10, 2002 a preliminary registration statement with
the Securities and Exchange Commission covering the resale of
the shares of common stock issuable upon the conversion of the
Series B preferred stock (and exercise of the Warrants)
sold in the private placement. Each share of Series B
preferred stock had voting rights equal to the number of shares
of common stock into which the preferred stock could then be
converted. The Series B preferred stock accrued dividends
payable in our common stock at an annual rate per share equal to
$0.90 multiplied by an 8% interest rate. Accrued dividends on
the Series B preferred stock totaled approximately $41,205
as of December 31, 2002 and $110,027 as of
November 10, 2003, the date of the automatic conversion.
The accrued dividends on the Series B preferred stock were
forfeited under the terms of the automatic conversion.
In connection with Series B preferred stock issuance, the
Company recognized a beneficial conversion charge equal to
approximately $459,000, which represents the intrinsic value of
the feature using a fair market value of common stock of $1.16
and an exchange ratio of 1.34:1, in accordance with EITF 98-5,
Accounting for Convertible Securities with Beneficial
Conversion Features or Contingently Adjustable Conversion
Ratios, and EITF 00-27, Application of EITF Issue 98-5,
Accounting for Convertible Securities with Beneficial Conversion
Features, or Contingently Adjustable Conversion Ratios, to
Certain Convertible Instruments. The beneficial conversion
charge was calculated by first deducting the value of the
warrants issued from the proceeds to compute an effective
conversion ratio. The warrants were valued at approximately
$170,000 using the Black-Scholes valuation model, an assumed
volatility of 50%, a risk-free interest rate of 3.5%, a
weighted-average expected life of 4 years, and a dividend
rate of 0%.
The Company entered into a Convertible Preferred Stock Purchase
Agreement, dated as of December 21, 2001, with a limited
number of investors under which the Company sold 1,984,000
shares of Series A Convertible Preferred Stock
(Series A) to such investors for a purchase
price of $1.00 per share, for gross proceeds of $1,984,000. The
Company used the proceeds from the sale of the Series A
Preferred Stock to strengthen its working capital position and
for other corporate purposes. Each share of Series A
preferred stock was initially convertible into one share of
Perficient common stock at the election of the holder, based on
a conversion ratio as defined in the agreement, initially set at
$1 and adjusted from time to time based on certain anti-dilution
provisions. The Company has also issued warrants to purchase
992,000 shares of Perficient common stock in connection with
this sale of Series A preferred stock. For every two shares
of Series A preferred stock purchased by an investor, such
investor received a Warrant to purchase one share of Perficient
common stock at an initial exercise price of $2.00 per share of
common stock. In addition, the Company entered into Registration
Rights Agreements with each of the purchasers pursuant to which
the Company filed a registration statement with the Securities
and Exchange Commission covering the resale of the shares of
common stock issuable upon the conversion of the Series A
preferred stock (and exercise of the Warrants) sold in the
private placement which registration statement was declared
effective by the Securities and Exchange Commission on
October 10, 2002. Each share of Series A preferred
stock had voting rights equal to the number of shares of common
stock into which the preferred stock could then be converted.
The Series A preferred stock accrues dividends at an annual
rate per share equal to $1.00 multiplied by the prime rate plus
150 basis points. Accrued dividends on the Series A
preferred stock totaled approximately $121,808 as of
December 31, 2002 and $210,617 on November 10, 2003,
the automatic conversion date. The company paid cash dividends
totaling $45,457 to certain holders of Series A
F-40
PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
December 31, 2003
Preferred Stock who had voluntarily elected to convert their
holdings to common stock prior to the automatic conversion date.
The accrued dividends on the Series A preferred stock that
was not voluntarily converted prior to November 10, 2003
were forfeited under the terms of the automatic conversion.
In connection with Series A preferred stock issuance, the
Company recognized a beneficial conversion charge equal to
approximately $1,180,000, which represents the intrinsic value
of the feature using a fair market value of common stock of
$1.38 and an exchange ratio of 1.27:1, in accordance with EITF
98-5, Accounting for Convertible Securities with Beneficial
Conversion Features or Contingently Adjustable Conversion
Ratios, and EITF 00-27, Application of EITF Issue 98-5,
Accounting for Convertible Securities with Beneficial Conversion
Features, or Contingently Adjustable Conversion Ratios, to
Certain Convertible Instruments. The beneficial conversion
charge was calculated by first deducting the value of the
warrants issued from the proceeds to compute an effective
conversion ratio. The warrants were valued at approximately
$427,000 using the Black-Scholes valuation model, an assumed
volatility of 50%, a risk-free interest rate of 3.5%, a
weighted-average expected life of 4 years, and a dividend
rate of 0%.
The Company obtained access to $825,000 of the proceeds from the
Series A preferred stock issuance in January 2002. The
remainder of the funds remained in escrow subject to the
completion of the acquisitions of Javelin Solutions, Inc. and
Primary Webworks, Inc. d/b/a Vertecon, Inc. The Company obtained
access to the remaining $1,159,000 in May 2002.
As a result of the Series B issuance discussed above, the
conversion ratio for the Series A preferred stock decreased
to approximately $0.99. Additionally, as a result of the
Series B preferred stock issuance, the number of warrants
issued to the Series A investors increased to 1,001,920 and
the exercise price was adjusted to approximately $1.98 per
share. A beneficial conversion charge of $22,000 related to the
change in the Series A preferred stock conversion ratio and
a beneficial conversion charge of $11,000 related to the
increase in the number of common shares issuable upon the
exercise of the warrants was recognized during the second
quarter of 2002.
In May 1999, the Companys Board of Directors and
stockholders approved the 1999 Stock Option/ Stock Issuance Plan
(the 1999 Plan). The 1999 Plan contains programs for
(i) the discretionary granting of stock options to
employees, non-employee board members and consultants for the
purchase of shares of the Companys commons stock,
(ii) the discretionary issuance of common stock directly to
eligible individuals, and (iii) the automatic issuance of
stock options to non-employee board members. The Compensation
Committee of the Board of Directors administers the 1999 Plan,
and determines the exercise price and vesting period for each
grant. Options granted under the 1999 Plan have a maximum term
of 10 years. In the event that the Company is acquired,
whether by merger or asset sale or board-approved sale by the
stockholders of more than 50% of the Companys voting
stock, each outstanding option under the discretionary option
grant program which is not to be assumed by the successor
corporation or otherwise continued will automatically accelerate
in full, and all unvested shares under the discretionary option
grant and stock issuance programs will immediately vest, except
to the extent the Companys repurchase rights with respect
to those shares are to be assigned to the successor corporation
or otherwise continued in effect. The compensation committee may
grant options under the discretionary option grant program that
will accelerate in the acquisition even if the options are
assumed or that will accelerate if the optionees service
is subsequently terminated. The compensation committee may grant
options and issue shares that accelerate in connection with a
hostile
F-41
PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
December 31, 2003
change in control effected through a successful tender offer for
more than 50% of the Companys outstanding voting stock or
by proxy contest for the election of board members, or the
options and shares may accelerate upon a subsequent termination
of the individuals service.
The Company has granted stock options to various employees under
the terms of the respective employee agreements. The stock
options generally vest over three years. The term of each option
is ten years from the date of grant.
The Company recognized $240,688 and $135,927 of stock
compensation expense during 2002 and 2003, respectively, as a
result of options granted to employees with exercise prices
below the fair market value of the underlying common stock on
the date of grant, certain modifications to existing options,
and the grant of options to certain non-employees. During 2002,
the Company recognized deferred compensation totaling $266,173
related to the acquisition of Javelin that is being amortized
over the vesting period of the related options.
Stock-compensation expense is recognized on a straight-line
basis over the related vesting periods. Stock compensation
expense for option grants to non-employees was determined using
a Black-Scholes pricing model.
A summary of changes in common stock options during 2002 and
2003 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- | |
|
|
|
|
|
|
Average | |
|
|
|
|
Range of | |
|
Exercise | |
|
|
Shares | |
|
Exercise Prices | |
|
Price | |
|
|
| |
|
| |
|
| |
Options outstanding at January 1, 2002
|
|
|
3,290,278 |
|
|
|
$0.02 $26.00 |
|
|
$ |
4.06 |
|
|
Options granted
|
|
|
1,997,825 |
|
|
|
$0.3 $8.62 |
|
|
$ |
1.20 |
|
|
Options exercised
|
|
|
(37,861 |
) |
|
|
$0.03 $0.74 |
|
|
$ |
0.20 |
|
|
Options canceled
|
|
|
(859,516 |
) |
|
|
$0.03 $26.00 |
|
|
$ |
3.91 |
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at December 31, 2002
|
|
|
4,390,726 |
|
|
|
$0.02 $26.00 |
|
|
$ |
2.82 |
|
|
Options granted
|
|
|
2,416,373 |
|
|
|
$0.50 $2.81 |
|
|
$ |
1.53 |
|
|
Options exercised
|
|
|
(264,140 |
) |
|
|
$0.03 $1.39 |
|
|
$ |
0.51 |
|
|
Options canceled
|
|
|
(816,767 |
) |
|
|
$0.03 $26.00 |
|
|
$ |
2.66 |
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at December 31, 2003
|
|
|
5,726,192 |
|
|
|
$0.02 $26.00 |
|
|
$ |
2.42 |
|
|
|
|
|
|
|
|
|
|
|
Options vested, December 31, 2002
|
|
|
2,374,956 |
|
|
|
$0.02 $16.94 |
|
|
$ |
3.61 |
|
|
|
|
|
|
|
|
|
|
|
Options vested, December 31, 2003
|
|
|
2,684,572 |
|
|
|
$0.02 $16.94 |
|
|
$ |
3.46 |
|
|
|
|
|
|
|
|
|
|
|
F-42
PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
December 31, 2003
The following is additional information related to stock options
outstanding at December 31, 2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding | |
|
Options Exercisable | |
|
|
| |
|
| |
|
|
|
|
Weighted- | |
|
|
|
|
|
|
Weighted- | |
|
Average | |
|
|
|
Weighted- | |
|
|
|
|
Average | |
|
Remaining | |
|
|
|
Average | |
|
|
|
|
Exercise | |
|
Contractual | |
|
|
|
Exercise | |
Range of Exercise Prices |
|
Options | |
|
Price | |
|
Life (Years) | |
|
Options | |
|
Price | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
$ 0.02 $ 0.50
|
|
|
1,224,262 |
|
|
$ |
0.40 |
|
|
|
8.33 |
|
|
|
341,624 |
|
|
$ |
0.16 |
|
$ 0.60 $ 1.41
|
|
|
1,634,600 |
|
|
$ |
1.15 |
|
|
|
8.34 |
|
|
|
848,418 |
|
|
$ |
1.14 |
|
$ 2.28 $ 4.50
|
|
|
2,531,277 |
|
|
$ |
2.93 |
|
|
|
8.54 |
|
|
|
1,160,202 |
|
|
$ |
3.64 |
|
$ 5.07 $12.97
|
|
|
211,375 |
|
|
$ |
10.26 |
|
|
|
6.35 |
|
|
|
209,650 |
|
|
$ |
10.28 |
|
$13.25 $26.00
|
|
|
124,678 |
|
|
$ |
15.18 |
|
|
|
6.18 |
|
|
|
124,678 |
|
|
$ |
15.18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ 0.02 $26.00
|
|
|
5,726,192 |
|
|
$ |
2.42 |
|
|
|
8.31 |
|
|
|
2,684,572 |
|
|
$ |
3.46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2002 and 2003, the weighted-average
remaining contractual life of outstanding options was 8.27 and
8.31 years, respectively. The weighted-average grant-date
fair value per share of options granted during 2002 and 2003 at
market prices was approximately $0.90 and $1.53, respectively.
The weighted-average grant-date fair value per share of options
granted during 2002 at below market prices was approximately
$1.31. During 2003 there were no option grants at below market
prices. The weighted-average grant-date fair value per share of
options granted during 2002 and 2003 at above market prices was
approximately $0.95 and $1.15, respectively.
At December 31, 2002 and 2003, 11,500,177 and 9,065,879
shares of common stock were reserved for future issuance (at
December 31, 2002 6,695,003 shares were reserved for
options, 3,114,207 shares were reserved for preferred stock, and
1,690,967 shares were reserved for warrants and at
December 31, 2003 7,526,045 shares were reserved for
options and 1,539,834 shares were reserved for warrants), and
2,304,276 and 1,799,852 options were available for future
grants, respectively.
The following table summarizes information regarding warrants
outstanding and exercisable as of December 31, 2003:
|
|
|
|
|
Warrants Outstanding and Exercisable | |
| |
Exercise Price |
|
Warrants | |
|
|
| |
$21.00
|
|
|
25,000 |
|
$12.00
|
|
|
100,000 |
|
$ 8.00
|
|
|
3,750 |
|
$ 2.00
|
|
|
555,500 |
|
$ 1.98
|
|
|
855,584 |
|
|
|
|
|
$ 1.98 $21.00
|
|
|
1,539,834 |
|
|
|
|
|
|
|
7. |
Line of Credit and Long Term Debt |
The Company has a line of credit facility providing for a
borrowing capacity of up to $6,000,000 or 80% of the eligible
receivables, subject to certain borrowing base calculations as
defined. Borrowings under this agreement, which expires December
2004, bear interest at the banks prime rate plus 1.00%
(5.00% at December 31, 2003). The Company is required to
maintain certain financial covenants under this agreement. The
line of credit is collateralized by substantially all the assets
of the Company. The
F-43
PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
December 31, 2003
Company must pay unused line fee charges equal to 0.12%. The
amount available for borrowing at December 31, 2003 was
$3,072,591.
Notes payable to related party at December 31, 2002 and
2003 consisted of a non interest-bearing note issued to the
shareholders of Javelin Solutions, Inc. (Javelin) in
April 2002 in connection with the Companys acquisition of
Javelin. The note provides for payments totaling $1,500,000, of
which $875,000 remained outstanding on December 31, 2003.
The Company made payments totaling $62,500 in January 2004 and
expects to make subsequent payments as follows: $312,500 in
April 2004, $250,000 in April 2005, and $250,000 in April 2006.
For financial reporting purposes, an imputed interest rate of
7.5% was used to compute the net present value of the note
payments. These notes are subordinate to the Companys line
of credit.
Future minimum debt repayments as of December 31, 2003 are
as follows:
|
|
|
|
|
|
|
Note Payable to | |
|
|
Related Party | |
|
|
| |
2004
|
|
$ |
375,000 |
|
2005
|
|
|
250,000 |
|
2006
|
|
|
250,000 |
|
Thereafter
|
|
|
|
|
|
|
|
|
|
|
|
875,000 |
|
|
|
|
|
Less amount representing interest
|
|
|
(71,822 |
) |
|
|
|
|
Present value of debt commitments
|
|
|
803,178 |
|
Less current portion
|
|
|
(366,920 |
) |
|
|
|
|
Long term portion
|
|
$ |
436,258 |
|
|
|
|
|
As of December 31, 2003, the Company had tax net operating
loss carry forwards of approximately $2.4 million that will
begin to expire in 2019 if not utilized.
Utilization of net operating losses may be subject to an annual
limitation due to the change in ownership provisions
of the Internal Revenue Code of 1986. The annual limitation may
result in the expiration of net operating losses before
utilization.
F-44
PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
December 31, 2003
Significant components of the provision for income taxes
attributable to continuing operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended | |
|
|
December 31, | |
|
|
| |
|
|
2002 | |
|
2003 | |
|
|
| |
|
| |
Current:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$ |
|
|
|
$ |
487,332 |
|
|
Foreign
|
|
|
|
|
|
|
173,730 |
|
|
State
|
|
|
|
|
|
|
94,343 |
|
|
|
|
|
|
|
|
Total current
|
|
|
|
|
|
|
755,405 |
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
|
|
|
|
|
|
|
State
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
755,405 |
|
|
|
|
|
|
|
|
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes. Significant components of the
Companys deferred taxes as of December 31, 2002 and
2003 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2002 | |
|
2003 | |
|
|
| |
|
| |
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
Deferred income
|
|
$ |
(370,901 |
) |
|
$ |
(236,179 |
) |
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(370,901 |
) |
|
|
(236,179 |
) |
|
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
Depreciable assets
|
|
|
57,128 |
|
|
|
134,648 |
|
|
Tax loss carryforwards
|
|
|
1,252,402 |
|
|
|
887,232 |
|
|
Bad debt
|
|
|
210,521 |
|
|
|
198,189 |
|
|
Stock compensation
|
|
|
145,297 |
|
|
|
4,111 |
|
|
Accrued liabilities and other
|
|
|
92,489 |
|
|
|
68,603 |
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
1,757,837 |
|
|
|
1,292,783 |
|
Valuation allowance for deferred tax assets
|
|
|
(1,386,936 |
) |
|
|
(1,056,604 |
) |
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
370,901 |
|
|
|
236,179 |
|
|
|
|
|
|
|
|
Net deferred taxes
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
The Company has established a valuation allowance equal to the
net deferred tax assets due to uncertainties regarding the
realization of deferred tax assets based on the Companys
lack of earnings history. The valuation allowance increased by
approximately $1,152,000 during 2002 and decreased by
approximately $330,000 during 2003. The 2003 decrease is
primarily due to the use of tax attributes
F-45
PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
December 31, 2003
that were not previously benefited. As of December 31,
2003, approximately $693,000 of the valuation allowance relates
to acquired entities, and as such, if realized, will reduce
goodwill or other noncurrent intangible assets prior to
resulting in an income tax benefit.
Undistributed earnings of the Companys foreign subsidiary
are considered to be permanently reinvested and, accordingly, no
provision for US federal and/or state income taxes has been
provided thereon.
The Companys provision for income taxes differs from the
expected tax expense (benefit) amount computed by applying the
statutory federal income tax rate of 34% to income before income
taxes as a result of the following:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2002 | |
|
2003 | |
|
|
| |
|
| |
Tax at statutory rate of 34%
|
|
$ |
(814,315 |
) |
|
$ |
613,849 |
|
State taxes, net of federal benefit
|
|
|
(37,385 |
) |
|
|
125,494 |
|
Goodwill
|
|
|
414,040 |
|
|
|
207,542 |
|
Effect of foreign operations
|
|
|
(12,143 |
) |
|
|
75,739 |
|
Change in valuation allowance
|
|
|
459,685 |
|
|
|
(330,332 |
) |
Other
|
|
|
(9,882 |
) |
|
|
63,113 |
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
755,405 |
|
|
|
|
|
|
|
|
|
|
9. |
Commitments and Contingencies |
The Company leases its office facilities and certain equipment
under various operating and capital lease agreements. The
Company has the option to extend the term of certain of its
office facilities leases. Future minimum commitments under these
lease agreements are as follows:
|
|
|
|
|
|
|
Operating | |
|
|
Leases | |
|
|
| |
2004
|
|
$ |
1,183,158 |
|
2005
|
|
|
1,236,920 |
|
2006
|
|
|
574,126 |
|
2007
|
|
|
242,639 |
|
2008
|
|
|
86,610 |
|
Thereafter
|
|
|
34,671 |
|
|
|
|
|
Total minimum lease payments
|
|
$ |
3,358,124 |
|
|
|
|
|
Rent expense for the years ended December 31, 2002 and 2003
was $1,281,000 and $1,322,000, respectively. The Company expects
to receive sublease income of $220,000 during 2004, $27,000
during 2005 and 2006, and $11,000 during 2005. The expected
sublease amounts are reflected as a reduction of the lease
commitments presented above.
As required by certain of the Companys office and
equipment leases, the Company has established letters of credit
totaling $550,000 to serve as collateral for these certain
leases. These letters of credit reduce the amount of borrowing
available under the Companys line of credit.
The Company signed a new employment agreement with its CEO,
effective January 1, 2004.
F-46
PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
December 31, 2003
|
|
10. |
Segments of Business and Geographic Area Information |
The Company considers its business activities to constitute a
single segment of business. A summary of the Companys
operations by geographic area follows:
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2002 | |
|
2003 | |
|
|
| |
|
| |
Revenue:
|
|
|
|
|
|
|
|
|
|
United States
|
|
$ |
20,309,905 |
|
|
$ |
29,169,721 |
|
|
Canada
|
|
|
748,943 |
|
|
|
905,905 |
|
|
United Kingdom
|
|
|
1,391,436 |
|
|
|
116,296 |
|
|
|
|
|
|
|
|
Total revenue
|
|
$ |
22,450,284 |
|
|
$ |
30,191,922 |
|
|
|
|
|
|
|
|
Net income (loss):
|
|
|
|
|
|
|
|
|
|
United States
|
|
$ |
(2,506,025 |
) |
|
$ |
863,929 |
|
|
Canada
|
|
|
42,125 |
|
|
|
3,630 |
|
|
United Kingdom
|
|
|
68,856 |
|
|
|
182,473 |
|
|
|
|
|
|
|
|
Total net income (loss)
|
|
$ |
(2,395,044 |
) |
|
$ |
1,050,032 |
|
|
|
|
|
|
|
|
Identifiable assets:
|
|
|
|
|
|
|
|
|
|
United States
|
|
$ |
18,898,766 |
|
|
$ |
19,935,222 |
|
|
Canada
|
|
|
256,737 |
|
|
|
243,379 |
|
|
United Kingdom
|
|
|
437,600 |
|
|
|
81,382 |
|
|
|
|
|
|
|
|
Total identifiable assets
|
|
$ |
19,593,103 |
|
|
$ |
20,259,983 |
|
|
|
|
|
|
|
|
During 2002, the Company implemented certain workforce
reductions and office closures resulting in charges of
approximately $579,000, consisting of severance pay and related
benefits for former employees as well as costs associated with
the closure of the London office. The Company recognized
$118,000 of costs during 2002 related to the closure of the
London office, which consisted of severance and benefits, lease
commitments, as well as expected losses on the disposal of fixed
assets, attorney and accounting fees, and other costs. As part
of these restructurings, the Company reduced its workforce by a
total of 30 employees, of which 17 were technology professionals
and 13 were involved in selling, general administration and
marketing. As of December 31, 2002, approximately $228,000
of restructuring costs was included in other current
liabilities, all of which was paid during 2003.
There was no such restructuring during 2003.
F-47
PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
December 31, 2003
|
|
12. |
Balance Sheet Components |
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2002 | |
|
2003 | |
|
|
| |
|
| |
Accounts receivable:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$ |
3,878,380 |
|
|
$ |
4,932,165 |
|
Unbilled revenue
|
|
|
721,241 |
|
|
|
1,225,437 |
|
Allowance for doubtful accounts
|
|
|
(661,248 |
) |
|
|
(622,995 |
) |
|
|
|
|
|
|
|
Total
|
|
$ |
3,938,373 |
|
|
$ |
5,534,607 |
|
|
|
|
|
|
|
|
Other current liabilities:
|
|
|
|
|
|
|
|
|
Accrued bonus
|
|
$ |
634,286 |
|
|
$ |
1,150,614 |
|
Accrued restructuring and severance costs
|
|
|
228,145 |
|
|
|
|
|
Accrued vacation
|
|
|
241,857 |
|
|
|
220,443 |
|
Other payroll liabilities
|
|
|
268,630 |
|
|
|
30,934 |
|
Sales and use taxes
|
|
|
45,792 |
|
|
|
85,187 |
|
Accrued income taxes
|
|
|
136,486 |
|
|
|
425,977 |
|
Other accrued expenses
|
|
|
455,344 |
|
|
|
484,524 |
|
Software cost of sales
|
|
|
|
|
|
|
646,085 |
|
Accrued medical claims
|
|
|
17,705 |
|
|
|
5,000 |
|
Deferred revenue
|
|
|
276,188 |
|
|
|
262,107 |
|
|
|
|
|
|
|
|
Total
|
|
$ |
2,304,433 |
|
|
$ |
3,310,872 |
|
|
|
|
|
|
|
|
|
|
13. |
Related Party Transaction |
During 2002, the Company executed an amendment to a non-compete
agreement with a former employee, and as consideration, the
Company required this individual to sell a portion of his
holdings totaling 400,000 shares of Perficient common stock.
With the consent of the Company, John T. McDonald, the Chairman
and Chief Executive Officer of the Company, purchased 133,333
shares from this individual at a price of $0.375 per share.
|
|
14. |
Business Combinations |
On April 26, 2002, the Company consummated the acquisition
of Primary Webworks, Inc. d/b/a Vertecon, Inc.
(Vertecon), a Missouri corporation, through the
merger of Vertecon with and into a wholly-owned subsidiary,
Perficient Vertecon, Inc., a Delaware corporation. Perficient
Vertecon, Inc. is the surviving corporation to the merger.
Vertecon was a St. Louis based eBusiness Solutions provider that
used advanced technology solutions to create competitive
business advantages for its clients. Vertecon provided its
customers with comprehensive solutions across the e-Business
life cycle, including strategy, architecture, design,
development and implementation services. The Company acquired
Vertecon for an aggregate purchase price of approximately
$3,247,000, subject to certain post-closing adjustments. The
purchase price consisted of 1,994,586 shares of Perficient
common stock, of which approximately 551,985 shares were held in
escrow until April 2003 at which time 44,787 shares of common
stock were forfeited and canceled in accordance with the escrow
agreement, the assumption of outstanding Vertecon options and
direct acquisition costs. The common stock issued in the
Vertecon acquisition was valued at $1.44 per share, which
represents the average close price of the Companys
F-48
PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
December 31, 2003
common stock at the announcement of the acquisition in October
2001. The acquisition of Vertecon was consummated in order to
increase and diversify Perficients revenue base, add
significant and longstanding customer relationships, provide
geographic expansion into the St. Louis market, increase the
number of qualified information technology consultants, and add
experienced members of management among other factors. The
majority of the excess cost over fair value of assets is
attributed to the at-will workforce and, accordingly, is
recorded as goodwill.
On April 26, 2002, the Company consummated the acquisition
of Javelin Solutions, Inc. (Javelin), a Minnesota
S corporation, through the merger of Javelin with
and into a wholly-owned subsidiary, Perficient Javelin, Inc., a
Delaware corporation. Perficient Javelin, Inc. is the surviving
corporation to the merger. Javelin Solutions, Inc. was a
Minneapolis-based professional services firm providing eBusiness
strategy consulting, application design, implementation and
integration services to large and major midsize companies.
Javelin helped its clients define eBusiness strategies to
improve their competitive position and business efficiency and
would then design, architect, develop and implement solutions to
execute those strategies. Javelin would seek to solve complex
eBusiness challenges and create solutions that provided its
clients with significant competitive advantages. Javelin offered
a full range of integrated services consisting of strategic
consulting, design of information architectures, and the
creation, customization and implementation of software
applications. Javelin also provided consulting services to help
clients address security issues and web hosting decisions. As
part of these services, Javelin provided application management
services for its clients. The Company acquired Javelin for an
aggregate purchase price of approximately $5,951,000, subject to
certain post-closing adjustments. The purchase price consists of
2,216,255 shares of Perficient common stock, of which
approximately 1,108,127 shares were held in escrow until
released in April 2003, $1,500,000 in non-interest bearing
promissory notes, the assumption of outstanding Javelin options
and direct acquisition costs. The notes issued consist of
$1,000,000 that are payable in four equal annual installments,
and $500,000 (all unpaid installments of these notes issued to
certain employee shareholders are subject to forfeiture upon the
termination of such employee shareholder for any reason during
the two year period following the closing) that are payable in
eight quarterly installments. The common stock issued in the
Javelin acquisition was valued at $1.70 per share, which
represents the average close price of the Companys common
stock at the announcement of the acquisition in October 2001.
The note payable was discounted using an assumed interest rate
of 7.5%. The acquisition of Javelin was consummated in order to
increase and diversify Perficients revenue base, add
significant and longstanding customer relationships, provide
geographic expansion into the Minneapolis market, increase the
number of qualified information technology consultants, and add
experienced members of management among other factors. The
majority of the excess cost over fair value of assets is
attributed to the at-will workforce and, accordingly, is
recorded as goodwill.
The aggregate purchase price for the acquisitions of Vertecon
and Javelin is as follows:
|
|
|
|
|
|
|
|
|
|
|
Vertecon | |
|
Javelin | |
|
|
| |
|
| |
Common stock
|
|
$ |
2,874,997 |
|
|
$ |
3,777,127 |
|
Note (less imputed interest of $210,000)
|
|
|
|
|
|
|
1,292,500 |
|
Assumption of existing option plan
|
|
|
16,053 |
|
|
|
549,909 |
|
Transaction broker fee
|
|
|
105,500 |
|
|
|
131,000 |
|
Direct acquisition costs
|
|
|
250,479 |
|
|
|
200,249 |
|
|
|
|
|
|
|
|
|
|
$ |
3,247,029 |
|
|
$ |
5,950,785 |
|
|
|
|
|
|
|
|
F-49
PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
December 31, 2003
The allocation of the purchase price for the acquisitions of
Vertecon and Javelin is as follows:
|
|
|
|
|
|
|
|
|
|
|
Vertecon | |
|
Javelin | |
|
|
| |
|
| |
Cash
|
|
$ |
|
|
|
$ |
178,950 |
|
Accounts receivable, net
|
|
|
647,522 |
|
|
|
1,568,958 |
|
Other current assets
|
|
|
26,767 |
|
|
|
55,794 |
|
Other long term assets
|
|
|
53,323 |
|
|
|
|
|
Fixed assets
|
|
|
472,267 |
|
|
|
534,715 |
|
Intangibles
|
|
|
4,860,087 |
|
|
|
5,256,373 |
|
Accounts payable
|
|
|
(322,451 |
) |
|
|
(138,765 |
) |
Other current liabilities
|
|
|
(647,029 |
) |
|
|
(687,219 |
) |
Line of credit
|
|
|
(795,400 |
) |
|
|
(600,000 |
) |
Note and interest payable to Perficient
|
|
|
(814,487 |
) |
|
|
|
|
Capital lease obligation
|
|
|
(193,288 |
) |
|
|
(484,194 |
) |
Accrued severance
|
|
|
(40,282 |
) |
|
|
|
|
Deferred stock compensation
|
|
|
|
|
|
|
266,173 |
|
|
|
|
|
|
|
|
|
|
$ |
3,247,029 |
|
|
$ |
5,950,785 |
|
|
|
|
|
|
|
|
Intangible assets recorded in connection with the acquisitions
of Vertecon and Javelin are as follows:
|
|
|
|
|
|
|
|
|
|
|
Vertecon | |
|
Javelin | |
|
|
| |
|
| |
Customer relationships
|
|
$ |
250,000 |
|
|
$ |
250,000 |
|
Employment and non-compete agreements
|
|
|
100,000 |
|
|
|
100,000 |
|
Goodwill
|
|
|
4,510,087 |
|
|
|
4,906,373 |
|
|
|
|
|
|
|
|
|
|
$ |
4,860,087 |
|
|
$ |
5,256,373 |
|
|
|
|
|
|
|
|
The customer relationship intangibles are being amortized over a
five-year life and the employment and non-compete agreement
intangibles are being amortized over a two-year life.
The acquisitions of Vertecon and Javelin were recorded under the
purchase method of accounting. Accordingly, the results of
operations of Vertecon and Javelin have been included with those
of the Company for periods subsequent to April 26, 2002.
In connection with the acquisitions of Vertecon and Javelin, we
paid a broker fee to WWC Capital Group, LLC of approximately
$236,500. Michael J. Cromwell, III, a director of Perficient at
the time of the transaction, is a partner of WWC Capital Group,
LLC.
|
|
15. |
Subsequent Event (Unaudited) |
During the period January 1, 2004 through March 29,
2004 the Company issued 984,750 shares of common stock pursuant
to the exercise of warrants, with exercise prices ranging from
$1.98 to $2.00, that have been previously issued in connection
in connection with its Series A Preferred Stock and
Series B Preferred Stock financings.
F-50
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Genisys Consulting, Inc.
We have audited the accompanying balance sheets of Genisys
Consulting, Inc. as of December 31, 2002 and 2003, and the
related statements of operations, changes in stockholders
equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require
that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of
material misstatement. An audit includes consideration of
internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Companys internal control over
financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Genisys Consulting, Inc. at December 31, 2002 and 2003,
and the results of its operations and its cash flows for the
years then ended, in conformity with accounting principles
generally accepted in the United States.
/s/ Ernst & Young LLP
Austin, Texas
June 10, 2004
F-51
GENISYS CONSULTING, INC.
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
|
|
| |
|
March 31, | |
|
|
2002 | |
|
2003 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
|
|
|
|
|
(Unaudited) | |
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$ |
4,300 |
|
|
$ |
4,392 |
|
|
$ |
230,033 |
|
|
Accounts receivable
|
|
|
835,172 |
|
|
|
1,390,333 |
|
|
|
1,178,193 |
|
|
Other current assets
|
|
|
63,995 |
|
|
|
65,777 |
|
|
|
2,602 |
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
903,467 |
|
|
|
1,460,502 |
|
|
|
1,410,828 |
|
Property and equipment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Computer Hardware
|
|
|
203,486 |
|
|
|
234,566 |
|
|
|
239,138 |
|
|
Furniture and fixtures
|
|
|
94,865 |
|
|
|
94,865 |
|
|
|
94,865 |
|
|
Accumulated depreciation
|
|
|
(204,694 |
) |
|
|
(248,378 |
) |
|
|
(258,714 |
) |
|
|
|
|
|
|
|
|
|
|
Net property and equipment
|
|
|
93,657 |
|
|
|
81,053 |
|
|
|
75,289 |
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
997,124 |
|
|
$ |
1,541,555 |
|
|
$ |
1,486,117 |
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$ |
65,146 |
|
|
$ |
51,915 |
|
|
$ |
9,750 |
|
|
Current portion of note payable to former shareholder
|
|
|
198,770 |
|
|
|
297,991 |
|
|
|
|
|
|
Other current liabilities
|
|
|
172,954 |
|
|
|
128,241 |
|
|
|
163,177 |
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
436,870 |
|
|
|
478,147 |
|
|
|
172,927 |
|
|
Note Payable to former shareholder, net of current portion
|
|
|
297,991 |
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, no par value; 5,000,000 shares authorized; 480,816
shares issued and outstanding at December 31, 2002 and
2003, and March 31, 2004
|
|
|
873,163 |
|
|
|
873,163 |
|
|
|
873,163 |
|
|
Treasury stock, 100,000 shares of common stock, at cost
|
|
|
(1,200,000 |
) |
|
|
(1,200,000 |
) |
|
|
(1,200,000 |
) |
|
Stockholder receivables
|
|
|
(408,845 |
) |
|
|
(333,680 |
) |
|
|
(329,490 |
) |
|
Retained earnings
|
|
|
997,945 |
|
|
|
1,723,925 |
|
|
|
1,969,517 |
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
262,263 |
|
|
|
1,063,408 |
|
|
|
1,313,190 |
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$ |
997,124 |
|
|
$ |
1,541,555 |
|
|
$ |
1,486,117 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-52
GENISYS CONSULTING, INC.
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
|
Year Ended December 31, | |
|
March 31, | |
|
|
| |
|
| |
|
|
2002 | |
|
2003 | |
|
2003 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
|
(Unaudited) | |
|
(Unaudited) | |
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
$ |
7,976,732 |
|
|
$ |
9,520,474 |
|
|
$ |
1,954,134 |
|
|
$ |
2,656,359 |
|
|
Reimbursable expenses
|
|
|
10,072 |
|
|
|
42,032 |
|
|
|
3,098 |
|
|
|
23,288 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
7,986,804 |
|
|
|
9,562,506 |
|
|
|
1,957,232 |
|
|
|
2,679,647 |
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Project personnel costs
|
|
|
5,346,267 |
|
|
|
5,521,638 |
|
|
|
1,149,803 |
|
|
|
1,784,907 |
|
|
Reimbursable expenses
|
|
|
15,833 |
|
|
|
45,690 |
|
|
|
8,399 |
|
|
|
12,010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
|
5,362,100 |
|
|
|
5,567,328 |
|
|
|
1,158,202 |
|
|
|
1,796,917 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
2,624,704 |
|
|
|
3,995,178 |
|
|
|
799,030 |
|
|
|
882,730 |
|
|
Selling, general and administrative
|
|
|
2,589,890 |
|
|
|
2,842,410 |
|
|
|
658,221 |
|
|
|
636,939 |
|
Depreciation
|
|
|
41,734 |
|
|
|
43,685 |
|
|
|
12,154 |
|
|
|
10,336 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
2,631,624 |
|
|
|
2,886,095 |
|
|
|
670,375 |
|
|
|
647,275 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(6,920 |
) |
|
|
1,109,083 |
|
|
|
128,655 |
|
|
|
235,455 |
|
Interest income
|
|
|
18,142 |
|
|
|
18,255 |
|
|
|
4,327 |
|
|
|
10,977 |
|
Interest expense
|
|
|
(32,912 |
) |
|
|
(22,010 |
) |
|
|
(5,930 |
) |
|
|
(1,764 |
) |
Other, net
|
|
|
907 |
|
|
|
1,468 |
|
|
|
1,467 |
|
|
|
924 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (loss)
|
|
$ |
(20,783 |
) |
|
$ |
1,106,796 |
|
|
$ |
128,519 |
|
|
$ |
245,592 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-53
GENISYS CONSULTING, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock | |
|
|
|
|
|
|
|
Total | |
|
|
| |
|
Stockholder | |
|
Treasury | |
|
Retained | |
|
Stockholders | |
|
|
Shares | |
|
Amount | |
|
Receivables | |
|
Stock | |
|
Earnings | |
|
Equity | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Balance at January 1, 2002
|
|
|
200 |
|
|
$ |
1,500 |
|
|
|
|
|
|
$ |
(1,200,000 |
) |
|
$ |
1,018,728 |
|
|
$ |
(179,772 |
) |
Stock split 2,000 for 1
|
|
|
400,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock to employees
|
|
|
80,616 |
|
|
|
871,663 |
|
|
|
(420,065 |
) |
|
|
|
|
|
|
|
|
|
|
451,598 |
|
Collections on stockholders receivables
|
|
|
|
|
|
|
|
|
|
|
11,220 |
|
|
|
|
|
|
|
|
|
|
|
11,220 |
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,783 |
) |
|
|
(20,783 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2002
|
|
|
480,816 |
|
|
$ |
873,163 |
|
|
$ |
(408,845 |
) |
|
$ |
(1,200,000 |
) |
|
$ |
997,945 |
|
|
$ |
262,263 |
|
Distributions to common stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(380,816 |
) |
|
|
(380,816 |
) |
Collections on stockholder receivables
|
|
|
|
|
|
|
|
|
|
|
75,165 |
|
|
|
|
|
|
|
|
|
|
|
75,165 |
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,106,796 |
|
|
|
1,106,796 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2003
|
|
|
480,816 |
|
|
$ |
873,163 |
|
|
$ |
(333,680 |
) |
|
$ |
(1,200,000 |
) |
|
$ |
1,723,925 |
|
|
$ |
1,063,408 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-54
GENISYS CONSULTING, INC.
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
|
Year Ended December 31, | |
|
March 31, | |
|
|
| |
|
| |
|
|
2002 | |
|
2003 | |
|
2003 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
|
(Unaudited) | |
|
(Unaudited) | |
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
(20,783 |
) |
|
$ |
1,106,796 |
|
|
$ |
128,519 |
|
|
$ |
245,592 |
|
Adjustments to reconcile net income (loss) to net cash
provided by operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
41,734 |
|
|
|
43,685 |
|
|
|
12,154 |
|
|
|
10,336 |
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
15,322 |
|
|
|
(555,161 |
) |
|
|
(144,625 |
) |
|
|
212,140 |
|
|
|
Other assets
|
|
|
(9,907 |
) |
|
|
(1,782 |
) |
|
|
44,628 |
|
|
|
63,175 |
|
|
|
Accounts payable
|
|
|
40,451 |
|
|
|
(13,231 |
) |
|
|
(47,070 |
) |
|
|
(42,165 |
) |
|
|
Other liabilities
|
|
|
46,562 |
|
|
|
(44,714 |
) |
|
|
(56,415 |
) |
|
|
34,936 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
113,379 |
|
|
|
535,593 |
|
|
|
(62,809 |
) |
|
|
524,014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(33,987 |
) |
|
|
(31,081 |
) |
|
|
|
|
|
|
(4,572 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(33,987 |
) |
|
|
(31,081 |
) |
|
|
|
|
|
|
(4,572 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments on note payable to former stockholder
|
|
|
(542,290 |
) |
|
|
(198,769 |
) |
|
|
(34,412 |
) |
|
|
(297,991 |
) |
Proceeds from draws on line of credit
|
|
|
|
|
|
|
|
|
|
|
150,000 |
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
451,598 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution to common stock stockholders
|
|
|
|
|
|
|
(380,816 |
) |
|
|
|
|
|
|
|
|
Proceeds from repayment of stockholder loans
|
|
|
11,220 |
|
|
|
75,165 |
|
|
|
3,983 |
|
|
|
4,190 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(79,472 |
) |
|
|
(504,420 |
) |
|
|
119,571 |
|
|
|
(293,801 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in cash and cash equivalents
|
|
|
(80 |
) |
|
|
92 |
|
|
|
56,762 |
|
|
|
225,641 |
|
Cash and cash equivalents at beginning of period
|
|
|
4,380 |
|
|
|
4,300 |
|
|
|
4,300 |
|
|
|
4,392 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$ |
4,300 |
|
|
$ |
4,392 |
|
|
$ |
61,062 |
|
|
$ |
230,033 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$ |
32,912 |
|
|
$ |
22,010 |
|
|
$ |
5,930 |
|
|
$ |
1,764 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON CASH INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for stockholder receivables
|
|
$ |
420,065 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-55
GENISYS CONSULTING, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
Genisys Consulting, Inc. (the Company) provides
information technology solutions to large and major midsize
companies. The Company enables its clients and partners to
optimize profitability and strengthen customer relationships
through reliable, quick-to-market technology solutions. The
Company provides a broad range of end-to-end business and
technology solutions serving the financial services, healthcare,
technology and energy industries.
The Company was incorporated in March 1990 in the state of
Illinois.
|
|
2. |
Summary of Significant Accounting Policies |
|
|
|
Interim Financial Statements (unaudited) |
In the opinion of management, the unaudited interim financial
statements at March 31, 2004 and for the three months ended
March 31, 2003 and 2004 include all adjustments, consisting
only of normal recurring accruals, necessary to present fairly
the Companys financial position at March 31, 2004,
and results of operations and cash flows for the three months
ended March 31, 2003 and 2004. Results for the three months
ended March 31, 2004 are not necessarily indicative of the
results to be expected for the entire year.
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those
estimates, and such differences could be material to the
financial statements.
Revenues are primarily derived from professional services
provided on a time and materials basis, with the remaining
revenue derived from fixed fee engagements. For time and
material contracts, revenue is recognized and billed by
multiplying the number of hours expended in the performance of
the contract by the established billing rates. For fixed fee
projects, revenue is generally recognized using the
proportionate performance method based on the ratio of hours
expended to total estimated hours. Provisions for estimated
losses on uncompleted contracts are made on a
contract-by-contract basis and are recognized in the period in
which such losses are determined. Billings in excess of costs
plus earnings are classified as deferred revenues. On many
projects the Company is also reimbursed for out-of-pocket
expenses such as airfare, lodging and meals. These
reimbursements are included as a component of revenue.
Cash equivalents consist primarily of cash deposits and
investments with original maturities of ninety days or less when
purchased.
Property and equipment are recorded at cost. Depreciation of
property and equipment is computed using the straight-line
method over the useful lives of the assets (generally 2 to
5 years). Leasehold
F-56
GENISYS CONSULTING, INC.
NOTES TO FINANCIAL STATEMENTS(Continued)
December 31, 2003
improvements are amortized over the shorter of the life of the
lease or the estimated useful life of the assets.
|
|
|
Impairment of Long-Lived Assets |
Long-lived assets held and used by the Company are reviewed for
impairment whenever events or changes in circumstances indicate
that their net book value may not be entirely recoverable. When
such factors and circumstances exist, the Company compares the
projected undiscounted future cash flows associated with the
related asset or group of assets over their estimated useful
lives against their respective carrying amounts. Impairment, if
any, is based on the excess of the carrying amount over the fair
value of those assets and is recorded in the period in which the
determination was made.
The Company is an S Corporation for purposes of
federal and state income taxes. Accordingly, no provision for
U.S. federal and state income taxes is recorded in these
financial statements. Prior to February 2002, the Company was a
C corporation.
|
|
|
Fair Value of Financial Instruments |
Cash equivalents, accounts receivable, accounts payable, other
accrued liabilities, and debt are stated at cost which
approximates fair value due to the short-term maturity of these
instruments.
|
|
|
Recently Issued Accounting Standards |
In January 2003, the Financial Accounting Standards Board
(FASB) issued Interpretation No. 46
(FIN 46), Consolidation of Variable Interest
Entities. FIN 46 requires that if an entity has a
controlling financial interest in a variable interest entity,
the assets, liabilities and results of activities of the
variable interest entity should be included in the consolidated
financial statements of the entity. FIN 46 is effective
immediately for all new variable interest entities created or
acquired after January 31, 2003. For variable interest
entities created or acquired prior to February 1, 2003, the
provisions of FIN 46 must be applied for the first interim
or annual period beginning after December 15, 2003.
Management does not believe that the adoption of FIN 46
will have a material impact on the Companys consolidated
results of operations or financial position.
In May 2003, the FASB issued SFAS No. 150,
Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity.
SFAS No. 150 establishes standards on the
classification and measurement of certain financial instruments
with characteristics of both liabilities and equity. The
provisions of SFAS No. 150 are effective for financial
instruments entered into or modified after May 31, 2003,
and to all other instruments that exist as of the beginning of
the first interim financial reporting period beginning after
June 15, 2003. The changes that resulted from the issuance
of SFAS No. 150 did not have a material effect on the
Companys consolidated results of operations or financial
position.
|
|
3. |
Concentration of Credit Risk and Significant Customers |
Cash and accounts receivable potentially expose the Company to
concentrations of credit risk. Excess cash is placed with highly
rated financial institutions. The Company provides credit, in
the normal course of business, to its customers. The Company
generally does not require collateral or up front payments. The
Company performs periodic credit evaluations of its customers
and maintains
F-57
GENISYS CONSULTING, INC.
NOTES TO FINANCIAL STATEMENTS(Continued)
December 31, 2003
allowances for potential credit losses. Customers can be denied
access to services in the event of non-payment. In the event
that the Company loses a customer, the Companys revenue
could decrease significantly and, as with the loss of any
significant customer, management may need to counteract this
type of revenue decrease by reducing headcount to align with the
lower demand for the Companys services. Due to the
Companys significant fixed operating expenses, the loss of
sales to a customer could result in the Companys inability
to generate net income for some time in the future.
The Company has a qualified 401(k) profit sharing plan available
to full-time employees who meet the plans eligibility
requirements. This defined contribution plan permits employees
to make contributions up to maximum limits allowed by the
Internal Revenue Code. The Company, at its discretion, matches a
portion of the employees contribution under a
predetermined formula based on the level of contribution and
years of vesting services. The Company made matching
contributions equal to 25% of the first 6% of employee
contributions totaling $68,000 and $42,000 during 2002 and 2003,
respectively, and $-0- and $14,000 for the three months ended
March 31, 2003 and March 31, 2004, respectively. These
matching contributions vest over a five year period of service.
During 2002 and 2003, the Company had a line of credit facility
providing for a borrowing capacity of up to $300,000 or 80% of
eligible receivables. Borrowings under this line of credit carry
an interest rate of 4.25% and mature on March 31, 2004. The
Company is required to maintain certain financial covenants
under this arrangement. The line of credit is collateralized by
substantially all the assets of the Company. No amounts were
outstanding under the line of credit as of December 31,
2002 and 2003, and March 31, 2004.
|
|
6. |
Note Payable to Former Shareholder |
During 2001 the Company purchased common stock from a
shareholder for approximately $1.2 million. In
consideration for purchase of common stock, the company issued
two notes payable for a combined total of approximately
$1.2 million. Both notes carried an interest rate of prime
adjusted monthly. The first note for $175,000 was repaid in
early 2002. The second note for $1,025,000 is payable in monthly
installments through 2004. This second note is subordinate to
the Companys line of credit arrangement discussed above in
Note 6. Future payments under this note as of
December 31, 2003 are $297,991 and were paid in full as of
March 3, 2004.
F-58
GENISYS CONSULTING, INC.
NOTES TO FINANCIAL STATEMENTS(Continued)
December 31, 2003
|
|
7. |
Commitments and Contingencies |
The Company leases its office facilities and certain equipment
under various operating and capital lease agreements. The
Company has the option to extend the term of certain of its
office facilities leases. Future minimum commitments under these
lease agreements are as follows:
|
|
|
|
|
|
|
Operating | |
|
|
Leases | |
|
|
| |
2004
|
|
$ |
181,012 |
|
2005
|
|
|
163,818 |
|
2006
|
|
|
153,303 |
|
2007
|
|
|
76,650 |
|
|
|
|
|
Total minimum lease payments
|
|
$ |
574,783 |
|
|
|
|
|
Rent expense for the years ended December 31, 2002 and 2003
was $151,000 and $167,000, respectively.
|
|
8. |
Related Party Transaction |
During 2002, the Company sold 37,725 shares of common stock in
exchange for shareholder notes receivable for an aggregate
amount of $420,065. These notes had no specified term, but
required interest to be paid monthly at prime adjusted monthly
over the life of the loans. The shares of Company stock
purchased with the notes secured the notes and these
shareholders pledged all owner distributions to the Company on
until these notes were paid in full. The notes receivable were
collected in full as of April 2, 2004 in conjunction with
the sale of the Company explained in Note 9 below.
|
|
9. |
Subsequent Event (Unaudited) |
On April 2, 2004, the Company was sold to Perficient, Inc.
by way of merger into Perficients wholly-owned subsidiary,
Perficient Genisys, Inc., a Delaware corporation. Perficient
Genisys, Inc. is the surviving corporation to the merger.
Perficient paid approximately $7.9 million consisting of
approximately $1.5 million in cash and 1.7 million
shares of Perficients common stock, subject to certain
post-closing adjustments. The common stock issued in connection
with the merger included approximately 0.8 million shares
which are restricted from sale through April 1, 2007, and
another 0.4 million shares held in escrow until
April 1, 2005.
F-59
MERITAGE TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
|
|
|
|
|
Report of Independent Certified Public Accountants
|
|
|
F-61 |
|
Consolidated Balance Sheets at December 31, 2002 and 2003
and March 31, 2004 (unaudited)
|
|
|
F-62 |
|
Consolidated Statements of Operations for the years ended
December 31, 2002 and 2003, and for the three months ended
March 31, 2003 (unaudited) and 2004 (unaudited)
|
|
|
F-63 |
|
Consolidated Statements of Changes in Stockholders Equity
for the years ended December 31, 2002 and 2003
|
|
|
F-64 |
|
Consolidated Statements of Cash Flows for the years ended
December 31, 2002 and 2003, and for the three months ended
March 31, 2003 (unaudited) and 2004 (unaudited)
|
|
|
F-65 |
|
Notes to Consolidated Financial Statements
|
|
|
F-66 |
|
F-60
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders of
Meritage Technologies, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of
Meritage Technologies, Inc. (a Delaware corporation) and
Subsidiaries as of December 31, 2002 and 2003, and the
related consolidated statements of operations,
stockholders equity (deficit) and cash flows for the
years then ended. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those
standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Meritage Technologies, Inc. and Subsidiaries as of
December 31, 2002 and 2003, and the results of their
operations and their cash flows for the years then ended in
conformity with accounting principles generally accepted in the
United States of America.
As discussed in Note B to the financial statements, the
Company adopted Statement of Financial Accounting Standards
No. 142, Goodwill and Other Intangible Assets, on
January 1, 2002.
Cincinnati, Ohio
April 13, 2004
F-61
MERITAGE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
March 31, | |
|
|
| |
|
| |
|
|
2002 | |
|
2003 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
|
|
|
|
|
(Unaudited) | |
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$ |
84,672 |
|
|
$ |
67,746 |
|
|
$ |
75,588 |
|
|
Accounts receivable, net of allowance for doubtful accounts of
approximately $546,000, $25,000 and $25,000 in 2002, 2003 and
2004, respectively
|
|
|
3,760,535 |
|
|
|
2,644,398 |
|
|
|
2,341,906 |
|
|
Prepaid expenses and other current assets
|
|
|
172,894 |
|
|
|
25,626 |
|
|
|
30,115 |
|
|
Deferred income tax asset
|
|
|
415,014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
4,433,115 |
|
|
|
2,737,770 |
|
|
|
2,447,609 |
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
651,041 |
|
|
|
279,538 |
|
|
|
232,816 |
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes receivable and stockholder advances
|
|
|
460,861 |
|
|
|
|
|
|
|
|
|
|
Deposits and other
|
|
|
127,014 |
|
|
|
46,437 |
|
|
|
43,469 |
|
|
Deferred income tax asset
|
|
|
1,256,229 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,844,104 |
|
|
|
46,437 |
|
|
|
43,469 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
6,928,260 |
|
|
$ |
3,063,745 |
|
|
$ |
2,723,894 |
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving line of credit
|
|
$ |
2,702,495 |
|
|
$ |
1,700,000 |
|
|
$ |
1,450,000 |
|
|
Accounts payable
|
|
|
1,165,959 |
|
|
|
506,443 |
|
|
|
507,884 |
|
|
Shareholder note payable
|
|
|
81,103 |
|
|
|
|
|
|
|
|
|
|
Accrued payroll
|
|
|
284,052 |
|
|
|
298,361 |
|
|
|
223,575 |
|
|
Accrued payroll tax obligation
|
|
|
|
|
|
|
631,393 |
|
|
|
669,910 |
|
|
Other accrued expenses
|
|
|
218,288 |
|
|
|
113,126 |
|
|
|
183,638 |
|
|
Deferred revenue
|
|
|
23,086 |
|
|
|
384,680 |
|
|
|
155,738 |
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
4,474,983 |
|
|
|
3,634,003 |
|
|
|
3,190,745 |
|
|
|
|
|
|
|
|
|
|
|
Stock issued subject to repurchase guarantee
|
|
|
277,439 |
|
|
|
183,662 |
|
|
|
183,662 |
|
|
|
|
|
|
|
|
|
|
|
Series A redeemable senior cumulative convertible participating
preferred stock
|
|
|
11,535,080 |
|
|
|
9,974,906 |
|
|
|
10,122,847 |
|
|
|
|
|
|
|
|
|
|
|
Series B redeemable senior cumulative convertible participating
preferred stock
|
|
|
3,045,000 |
|
|
|
3,231,852 |
|
|
|
3,280,330 |
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity (deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, 54,000,000 shares authorized, par value$.001;
25,644,039 shares issued and 24,699,702 shares
outstanding at December 31, 2002, 28,097,727 shares
issued and 26,440,217 shares outstanding at
December 31, 2003 and March 31, 2004
|
|
|
25,644 |
|
|
|
28,098 |
|
|
|
28,098 |
|
Paid-in capital
|
|
|
2,085,610 |
|
|
|
4,346,933 |
|
|
|
4,346,933 |
|
Stock subscriptions receivable
|
|
|
(59,906 |
) |
|
|
(59,906 |
) |
|
|
(59,906 |
) |
Accumulated deficit
|
|
|
(14,450,413 |
) |
|
|
(18,254,808 |
) |
|
|
(18,347,820 |
) |
Treasury Stock
|
|
|
(8,995 |
) |
|
|
(20,995 |
) |
|
|
(20,995 |
) |
Accumulated other comprehensive income
|
|
|
3,818 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity (deficit)
|
|
|
(12,404,242 |
) |
|
|
(13,960,678 |
) |
|
|
(14,053,690 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
6,928,260 |
|
|
$ |
3,063,745 |
|
|
$ |
2,723,894 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
financial statements.
F-62
MERITAGE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended | |
|
Three Months Ended | |
|
|
December 31, | |
|
March 31, | |
|
|
| |
|
| |
|
|
2002 | |
|
2003 | |
|
2003 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
|
(Unaudited) | |
|
(Unaudited) | |
REVENUE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
$ |
26,067,675 |
|
|
$ |
18,058,737 |
|
|
$ |
4,856,357 |
|
|
$ |
3,919,200 |
|
|
Reimbursable expenses
|
|
|
322,742 |
|
|
|
411,338 |
|
|
|
94,549 |
|
|
|
110,620 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
26,390,417 |
|
|
|
18,470,075 |
|
|
|
4,950,906 |
|
|
|
4,029,820 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Project personnel costs
|
|
|
18,010,806 |
|
|
|
11,332,602 |
|
|
|
2,757,473 |
|
|
|
2,594,720 |
|
|
Reimbursable expenses
|
|
|
322,742 |
|
|
|
411,338 |
|
|
|
94,549 |
|
|
|
110,620 |
|
|
Other project related expenses
|
|
|
273,288 |
|
|
|
182,192 |
|
|
|
68,322 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
|
18,606,836 |
|
|
|
11,926,132 |
|
|
|
2,920,344 |
|
|
|
2,705,340 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
7,783,581 |
|
|
|
6,543,943 |
|
|
|
2,030,562 |
|
|
|
1,324,480 |
|
Selling, general and administrative
|
|
|
13,150,403 |
|
|
|
7,326,467 |
|
|
|
1,659,523 |
|
|
|
1,137,158 |
|
Depreciation
|
|
|
394,822 |
|
|
|
317,299 |
|
|
|
97,518 |
|
|
|
56,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(5,761,644 |
) |
|
|
(1,099,823 |
) |
|
|
273,521 |
|
|
|
130,922 |
|
Interest income
|
|
|
2,592 |
|
|
|
702 |
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(188,885 |
) |
|
|
(145,308 |
) |
|
|
(30,851 |
) |
|
|
(27,515 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes and change in accounting
principle
|
|
|
(5,947,937 |
) |
|
|
(1,244,429 |
) |
|
|
242,670 |
|
|
|
103,407 |
|
(Provision) benefit for income taxes
|
|
|
24,367 |
|
|
|
(1,683,288 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before change in accounting principle
|
|
|
(5,923,570 |
) |
|
|
(2,927,717 |
) |
|
|
242,670 |
|
|
|
103,407 |
|
Change in accounting principlegoodwill impairment
|
|
|
(1,952,312 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
(7,875,882 |
) |
|
$ |
(2,927,717 |
) |
|
$ |
242,670 |
|
|
$ |
103,407 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
financial statements.
F-63
MERITAGE TECHNOLOGIES, INC. AND SUBSIDIARIES
STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated | |
|
|
|
|
Common Stock | |
|
Treasury Stock | |
|
|
|
|
|
|
|
Other | |
|
|
|
|
| |
|
| |
|
Additional | |
|
Stock | |
|
|
|
Comprehensive | |
|
|
|
|
Shares | |
|
|
|
Shares | |
|
|
|
Paid-In | |
|
Subscriptions | |
|
Accumulated | |
|
Income | |
|
|
|
|
Issued | |
|
Amount | |
|
Issued | |
|
Amount | |
|
Capital | |
|
Receivable | |
|
Deficit | |
|
(Loss) | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Balance December 31, 2001
|
|
|
25,644,039 |
|
|
$ |
25,644 |
|
|
|
|
|
|
$ |
|
|
|
$ |
482,457 |
|
|
$ |
(59,906 |
) |
|
$ |
(4,474,964 |
) |
|
$ |
(1,055 |
) |
|
$ |
(4,027,824 |
) |
Purchases of common stock
|
|
|
|
|
|
|
|
|
|
|
(2,180,123 |
) |
|
|
(75,162 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(75,162 |
) |
Issuance of common shares
|
|
|
|
|
|
|
|
|
|
|
1,235,786 |
|
|
|
66,167 |
|
|
|
93,903 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
160,070 |
|
Issuance of warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,387,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,387,500 |
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,875,882 |
) |
|
|
|
|
|
|
(7,875,882 |
) |
Issuance of stock repurchase guarantee
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(126,318 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(126,318 |
) |
Decrease in stock subject to loan guarantee
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
277,404 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
277,404 |
|
Stock issuance costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(29,336 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(29,336 |
) |
Accretion of preferred stock dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(712,067 |
) |
|
|
|
|
|
|
(712,067 |
) |
Adjustment of preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,387,500 |
) |
|
|
|
|
|
|
(1,387,500 |
) |
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,873 |
|
|
|
4,873 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2002
|
|
|
25,644,039 |
|
|
|
25,644 |
|
|
|
(944,337 |
) |
|
|
(8,995 |
) |
|
|
2,085,610 |
|
|
|
(59,906 |
) |
|
|
(14,450,413 |
) |
|
|
3,818 |
|
|
|
(12,404,242 |
) |
Purchases of common stock
|
|
|
|
|
|
|
|
|
|
|
(713,173 |
) |
|
|
(12,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,000 |
) |
Issuance of common shares
|
|
|
1,474,149 |
|
|
|
1,474 |
|
|
|
|
|
|
|
|
|
|
|
(1,474 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,927,717 |
) |
|
|
|
|
|
|
(2,927,717 |
) |
Preferred stock conversion
|
|
|
979,539 |
|
|
|
980 |
|
|
|
|
|
|
|
|
|
|
|
2,249,020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,250,000 |
|
Decrease in stock subject to loan guarantee
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,777 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,777 |
|
Accretion of preferred stock dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(876,678 |
) |
|
|
|
|
|
|
(876,678 |
) |
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,818 |
) |
|
|
(3,818 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2003
|
|
|
28,097,727 |
|
|
$ |
28,098 |
|
|
|
(1,657,510 |
) |
|
$ |
(20,995 |
) |
|
$ |
4,346,933 |
|
|
$ |
(59,906 |
) |
|
$ |
(18,254,808 |
) |
|
$ |
|
|
|
$ |
(13,960,678 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
financial statements.
F-64
MERITAGE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
|
Year Ended December 31, | |
|
March 31, | |
|
|
| |
|
| |
|
|
2002 | |
|
2003 | |
|
2003 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
|
(Unaudited) | |
|
(Unaudited) | |
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
(7,875,882 |
) |
|
$ |
(2,927,717 |
) |
|
$ |
242,670 |
|
|
$ |
103,407 |
|
|
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
394,822 |
|
|
|
317,299 |
|
|
|
97,519 |
|
|
|
56,400 |
|
|
Impairment of intangible assets
|
|
|
1,952,312 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on disposals of fixed assets
|
|
|
140,525 |
|
|
|
82,110 |
|
|
|
|
|
|
|
|
|
|
Write-down of notes receivable
|
|
|
75,000 |
|
|
|
235,861 |
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
4,873 |
|
|
|
(3,818 |
) |
|
|
18,098 |
|
|
|
|
|
|
Deferred income taxes
|
|
|
(1,721 |
) |
|
|
1,671,243 |
|
|
|
(6,882 |
) |
|
|
|
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
2,017,984 |
|
|
|
1,116,137 |
|
|
|
(531,547 |
) |
|
|
302,492 |
|
|
Prepaid expenses and other current assets
|
|
|
(43,743 |
) |
|
|
147,268 |
|
|
|
119,847 |
|
|
|
(4,489 |
) |
|
Income taxes receivable
|
|
|
175,611 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
2,371 |
|
|
|
80,577 |
|
|
|
8,283 |
|
|
|
2,968 |
|
|
Accounts payable
|
|
|
190,628 |
|
|
|
(659,516 |
) |
|
|
(91,669 |
) |
|
|
1,441 |
|
|
Accrued expenses and other liabilities
|
|
|
(660,394 |
) |
|
|
902,134 |
|
|
|
187,739 |
|
|
|
(194,699 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
(3,627,614 |
) |
|
|
961,578 |
|
|
|
44,058 |
|
|
|
267,520 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment, net
|
|
|
(496,200 |
) |
|
|
(27,906 |
) |
|
|
(31,530 |
) |
|
|
(9,678 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(496,200 |
) |
|
|
(27,906 |
) |
|
|
(31,530 |
) |
|
|
(9,678 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of common stock
|
|
|
(75,162 |
) |
|
|
(12,000 |
) |
|
|
(12,000 |
) |
|
|
|
|
|
Repurchase of stock subject to repurchase guarantee
|
|
|
(25,001 |
) |
|
|
(80,000 |
) |
|
|
(30,000 |
) |
|
|
|
|
|
Sale of Treasury stock
|
|
|
160,070 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of preferred stock, net of issuance cost
|
|
|
2,970,664 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes receivable and advances to/from stockholders, net
|
|
|
250,001 |
|
|
|
143,897 |
|
|
|
215,400 |
|
|
|
|
|
|
Net (repayments) borrowings on line-of-credit
|
|
|
885,866 |
|
|
|
(1,002,495 |
) |
|
|
(2,495 |
) |
|
|
(250,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
4,166,438 |
|
|
|
(950,598 |
) |
|
|
170,905 |
|
|
|
(250,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash
|
|
|
42,624 |
|
|
|
(16,926 |
) |
|
|
183,433 |
|
|
|
7,842 |
|
Cash at beginning of period
|
|
|
42,048 |
|
|
|
84,672 |
|
|
|
84,672 |
|
|
|
67,746 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at end of period
|
|
$ |
84,672 |
|
|
$ |
67,746 |
|
|
$ |
268,105 |
|
|
$ |
75,588 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of noncash activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion of preferred stock dividends
|
|
$ |
712,067 |
|
|
$ |
876,678 |
|
|
$ |
218,701 |
|
|
$ |
196,419 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$ |
188,885 |
|
|
$ |
145,308 |
|
|
$ |
30,851 |
|
|
$ |
27,515 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
financial statements.
F-65
MERITAGE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A The Company
Meritage Technologies, Inc. (the Company) provides professional
services to help Global 3500 enterprises automate business
processes and improve operational performance. Meritage
specializes in developing solutions in the areas of enterprise
portals, content management, custom application development and
in supporting enterprise application frameworks. The Company
provides consulting services to customers throughout the United
States and Canada.
The consolidated financial statements include the accounts of
Meritage Technologies, Inc., a Delaware Corporation, and
its wholly owned subsidiaries, Meritage Technologies,
Inc., an Indiana Corporation, IEC, Ltd., Meritage
Technologies Canada, Inc. and Meritage Technologies Canada
Corp. All significant intercompany accounts and transactions
have been eliminated.
Note B Summary of Significant Accounting Policies
1. Use of Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from those estimates.
2. Concentrations of Credit
Risk
Financial instruments, which potentially subject the Company to
a concentration of credit risk, consist principally of accounts
and notes receivable. The Company provides services to customers
based on an evaluation of the customers financial
condition, generally without requiring collateral. Exposure to
losses on receivables is principally dependent on each
customers financial condition. The Company monitors the
exposure for credit losses and maintains allowances for
anticipated losses.
In 2002, the Company had sales to one customer that comprised
11% of total revenues. Receivables from this customer were 5% of
total receivables at December 31, 2002. In 2003, the
Company had sales to two customers that comprised 29% of total
revenue. Receivables from these customers were 32% of total
receivables at December 31, 2003.
3. Accounting for Long-Lived
Assets
In 2001, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards
No. 142 Goodwill and Other Intangible Assets
(SFAS 142).
SFAS 142 provides that goodwill and other intangible assets
with indefinite lives should not be amortized. Instead, the
carrying value of goodwill is to be evaluated for impairment on
an annual basis utilizing fair value techniques. In accordance
with SFAS 142, the Company ceased amortization of goodwill
as of January 1, 2002 and performed its initial impairment
review.
As a result of its impairment review, the Company deemed its
goodwill to be impaired, and, accordingly, wrote off the
remaining unamortized balance of $1,952,312. The charge is
reflected as a change in accounting principle in the
accompanying consolidated statements of operations.
F-66
MERITAGE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
4. Foreign Currency
Translation
The financial position and results of operations of the
Companys foreign subsidiary are measured using the local
currency as the functional currency. Revenues and expenses are
translated into U.S. dollars using average exchange rates during
the period. Assets and liabilities are translated using rates in
effect as of the date of the balance sheet. Translation gains
and losses are included as a component of comprehensive income.
5. Revenue Recognition
All revenue is recognized as consulting services are performed.
Deferred revenue represents billings in advance of services
performed. Unbilled revenue is included as a component of
accounts receivable. Losses are recognized at such time facts
and circumstances indicate that a loss will be incurred on a
contract. Management has concluded that no such loss contracts
exist at December 31, 2002 and 2003.
6. Advertising Costs
Advertising costs are expensed as incurred. Advertising costs
were not significant in 2002 and 2003.
7. Stock-Based Compensation
The Company accounts for certain stock options according to APB
No. 25, Accounting for Stock Issued to
Employees, under which no compensation expense is
recognized at the time of the grant. Had compensation costs for
the Companys stock options been determined based on fair
values at the grant date consistent with SFAS 123
(Accounting for Stock Based Compensation), the
Companys net income (loss) would have been as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended | |
|
For the three months ended | |
|
|
December 31, | |
|
March 31, | |
|
|
| |
|
| |
|
|
2002 | |
|
2003 | |
|
2003 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
|
(Unaudited) | |
|
(Unaudited) | |
Net income (loss), as reported
|
|
$ |
(7,875,882 |
) |
|
$ |
(2,927,717 |
) |
|
$ |
242,670 |
|
|
$ |
103,407 |
|
Pro-forma stock compensation expense
|
|
|
(176,735 |
) |
|
|
(121,171 |
) |
|
|
(31,222 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro-forma net income (loss)
|
|
$ |
(8,052,617 |
) |
|
$ |
(3,048,888 |
) |
|
$ |
211,448 |
|
|
$ |
103,407 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair values of the options granted are estimated on the date
of grant using the Black-Scholes option pricing model with
assumptions of a risk-free interest rate of 6%, expected lives
of 10 years and no expected volatility. The weighted
average exercise price of options granted in 2002 and 2003 was
$0.73 per share and $0.25 per share, respectively.
8. Reclassifications
Certain reclassifications have been made to the prior year
financial statements to conform with the current year
presentation.
9. Interim Financial Statements
(Unaudited)
The accompanying unaudited interim condensed consolidated
financial statements have been prepared in accordance with
accounting principles generally accepted in the United States
and are presented in accordance with the rules and regulations
of the Securities and Exchange Commission applicable to interim
financial information. Accordingly, certain footnote disclosures
have been
F-67
MERITAGE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
condensed or omitted. In the opinion of management, the
unaudited interim financial statements at March 31, 2004
and for the three months ended March 31, 2003 and 2004
include all adjustments necessary to present fairly the
Companys financial position at March 31, 2004, and
results of operations and cash flows for the three months ended
March 31, 2003 and 2004. Results for the three months ended
March 31, 2004 are not necessarily indicative of the
results to be expected for the entire year.
10. Recently Issued Accounting
Standards
In May 2003, the FASB issued SFAS No. 150,
Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity.
SFAS No. 150 establishes standards on the
classification and measurement of certain financial instruments
with characteristics of both liabilities and equity. The
provisions of SFAS No. 150 are effective for financial
instruments entered into or modified after May 31, 2003,
and to all other instruments that exist as of the beginning of
the first interim financial reporting period beginning after
June 15, 2003. The changes that resulted from the issuance
of SFAS No. 150 did not have a material effect on the
Companys consolidated results of operations or financial
position.
11. Segment Information
The Company operates in one segment for financial reporting
purposes.
Note C Location Closures
During 2002 and 2003, the Company closed offices in several of
its operating locations. As a result of these closures, the
Company incurred costs of approximately $660,000 and $100,000
relating to lease terminations, fixed asset write offs and
severance payments in 2002 and 2003, respectively. These costs
are included as a component of general and administrative
expenses. The rollforward of amounts accrued at year end is as
follows:
|
|
|
|
|
|
|
|
|
|
|
2002 | |
|
2003 | |
|
|
| |
|
| |
Accrued at beginning of year
|
|
$ |
|
|
|
$ |
200,881 |
|
Cost of closures, exclusive of fixed asset write offs
|
|
|
519,881 |
|
|
|
15,697 |
|
Payments
|
|
|
(319,000 |
) |
|
|
(216,578 |
) |
|
|
|
|
|
|
|
Accrued at end of year
|
|
$ |
200,881 |
|
|
$ |
|
|
|
|
|
|
|
|
|
Note D Property and Equipment
Property and equipment consists of the following at year-end:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2002 | |
|
2003 | |
|
Depreciable Lives | |
|
|
| |
|
| |
|
| |
Furniture and fixtures
|
|
$ |
202,535 |
|
|
$ |
119,526 |
|
|
|
5 years |
|
Computer equipment and software
|
|
|
980,760 |
|
|
|
585,102 |
|
|
|
3 years |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,183,295 |
|
|
|
704,628 |
|
|
|
|
|
Accumulated depreciation and amortization
|
|
|
(532,254 |
) |
|
|
(425,090 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$ |
651,041 |
|
|
$ |
279,538 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment are stated at cost. The Company provides
for depreciation and amortization of property and equipment
using the straight-line method.
F-68
MERITAGE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
Maintenance and repair costs are charged to expense as incurred.
When property and equipment are disposed, the cost and related
accumulated depreciation are removed from the respective
accounts, and any gains or losses are included in the statements
of operations.
Note E Revolving Line-of-Credit
The Company maintains a line-of-credit with a bank. At
December 31, 2003, the agreement provides for borrowings up
to $2,215,000 subject to specified borrowing base limitations
and net of any letters of credit outstanding. The agreement
enables the Company to borrow funds at the banks prime
rate plus 2.75% (6.75% at December 31, 2003). The line is
secured by substantially all the business assets of the Company.
As of December 31, 2003, the Company was in default of
certain debt covenants of its revolving credit agreement. On
December 31, 2003, the Company obtained from the bank a
forbearance agreement in effect through October 31, 2004.
The forbearance agreement requires the Company to maintain
minimum levels of earnings before interest and taxes throughout
the term of the agreement. Subsequent to year end, the bank
extended the forbearance agreement to January 4, 2005 and
reduced the available borrowings to $1,615,000 in $200,000
increments through October 1, 2004. The Company believes it
can remain in compliance with the agreement, as amended
throughout 2004. The Company has taken steps to reduce expenses,
improve cash flow and return to profitability, including the
closing and consolidation of offices in 2002 and 2003.
Based on available funds, current plans and business conditions,
management believes that the Companys available cash,
borrowings and amounts generated from operations, will be
sufficient to meet the Companys cash requirements for the
next 12 months. The assumptions underlying this belief
include, among other things, that there will be no material
adverse developments in the business or market in general. There
can be no assurances, however, that those assumed events will
occur. If managements plans are not achieved, there may be
further negative effects on the results of operations and cash
flows, which could have a material adverse effect on the Company.
Note F Preferred Stock
The Company has authorized 1,000,000 shares of preferred stock
at par value of $0.001 per share, of which 10,000 shares are
designated as Series A and 3,000 shares are designated as
Series B. The preferred stock has voting rights based on
the number of common shares into which the accreted value of
preferred stock is convertible. In addition, a majority of
preferred stockholders must approve significant corporate
activities including the merger or sale of the Company, issuance
of additional common or preferred stock, establishment of new
stock option plans, entering into any new line of business,
declaring dividends on the common stock or materially amending
the compensation package of the chief executive officer.
1. Series A
In 2000, the Company issued 10,000 shares of Series A
Senior Cumulative Convertible Participating Preferred Stock (the
Series A). The Series A is convertible to
common stock at an adjusted conversion price of $2.297 subject
to anti-dilution provisions. The Series A is convertible at
any time and automatically converts at the time of a Qualified
Public Offering (as defined). If a Qualified Public Offering
does not occur before August 7, 2005, the Series A
stockholders may mandate the Series A be redeemed or the
Company be sold. Holders of Series A are provided a
preference in liquidation over holders of common stock equal to
the greater of the accreted value of the shares or the value of
the common stock into which the Series A is convertible at
the date of the liquidation.
F-69
MERITAGE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
The Series A accrues dividends at a 6% compounded rate.
Through August 7, 2002, such dividends increase the
accreted value of the Series A. After that date, the
dividends may be paid in cash at the Companys option or
continue to add to the accreted value. No dividends were paid in
2003 or 2002.
In addition, the Series A stockholders received warrants to
purchase up to 828,994 shares of the Companys common stock
at an adjusted amount of $2.297 per share through August 7,
2003. These warrants become exercisable based on the volume of
business referred to the Company by each of the Series A
holders. No referral activity thresholds were reached.
On November 13, 2003, Series A stockholders converted
1,852 shares of Series A with a carrying value of $2,250,000
into 979,539 shares of Common Stock.
2. Series B
In 2002, the Company issued 3,000 shares of Series B Senior
Cumulative Convertible Participating Preferred Stock (the
Series B). The Series B is convertible to
common stock at a conversion price of $1.00 subject to
anti-dilution provisions. The Series B stock is convertible
at any time and automatically converts at the time of a
Qualified Public Offering (as defined). If a Qualified Public
Offering does not occur before September 30, 2007, the
Series B stockholders may mandate the Series B be
redeemed or the Company be sold. Holders of Series B were
provided a preference in liquidation over holders of
Series A and holders of common stock equal to the greater
of 200% of the accreted value of the shares or the value of the
common stock into which the Series B is convertible at the
date of the liquidation. In 2003, the terms of the preference
liquidation of the Series B were amended such that the holders
of Series B are provided a preference in liquidation over
holders of Series A and holders of common stock equal to
the accreted value of the shares or the value of the common
stock into which the Series B is convertible at the date of
the liquidation.
The Series B accrues dividends at a 6% compounded rate.
Through September 30, 2004, such dividends increase the accreted
value of the Series B. After that date, the dividends may
be paid in cash at the Companys option or continue to add
to the accreted value.
In addition, the Series B stockholders received warrants to
purchase up to 11,250,000 shares of the Companys common
stock at various prices as follows:
3,750,000
shares at $0.20 per share
3,750,000
shares at $0.54 per share
3,750,000
shares at $0.84 per share
The Company allocated the estimated fair value of $1,387,500
from the proceeds of the Series B issuance to the warrants.
The Company adjusted the carrying amount of the Series B to
the full redemption value at December 31, 2002.
F-70
MERITAGE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
Note G Income Taxes
The income tax benefit (expense) for the years ended
December 31, 2002 and 2003 consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
2002 | |
|
2003 | |
|
|
| |
|
| |
Current:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$ |
78,550 |
|
|
$ |
|
|
|
State
|
|
|
(55,904 |
) |
|
|
|
|
Deferred
|
|
|
1,721 |
|
|
|
(1,683,288 |
) |
|
|
|
|
|
|
|
|
|
Income tax benefit (expense)
|
|
$ |
24,367 |
|
|
$ |
(1,683,288 |
) |
|
|
|
|
|
|
|
Deferred tax assets and liabilities are determined based on
differences between the financial and tax basis of assets and
liabilities and are measured using the enacted rates and laws
that will be in effect when the differences are expected to
reverse. The components of the net deferred tax asset at
December 31, 2002 and 2003 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2002 | |
|
2003 | |
|
|
| |
|
| |
Short-term deferred taxes:
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$ |
218,519 |
|
|
$ |
10,000 |
|
|
Accrued medical
|
|
|
10,585 |
|
|
|
30,058 |
|
|
Deferred rent
|
|
|
25,320 |
|
|
|
15,192 |
|
|
Other
|
|
|
160,590 |
|
|
|
10,000 |
|
|
|
|
|
|
|
|
|
|
Total short-term deferred tax assets
|
|
|
415,014 |
|
|
|
65,250 |
|
|
|
|
|
|
|
|
Long-term deferred taxes:
|
|
|
|
|
|
|
|
|
|
Amortization of intangible assets
|
|
|
1,008,798 |
|
|
|
929,492 |
|
|
Stock option compensation
|
|
|
126,813 |
|
|
|
126,813 |
|
|
Depreciation
|
|
|
8,722 |
|
|
|
57,559 |
|
|
Net operating losses
|
|
|
3,481,451 |
|
|
|
4,398,335 |
|
|
Other
|
|
|
2,721 |
|
|
|
857 |
|
|
|
|
|
|
|
|
|
|
Net long-term deferred tax assets
|
|
|
4,628,505 |
|
|
|
5,513,056 |
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
5,043,519 |
|
|
|
5,578,306 |
|
Valuation allowance
|
|
|
(3,372,276 |
) |
|
|
(5,578,306 |
) |
|
|
|
|
|
|
|
|
|
Net deferred taxes
|
|
$ |
1,671,243 |
|
|
$ |
|
|
|
|
|
|
|
|
|
At December 31, 2002 and 2003, the Company has available
net operating loss carryforwards of approximately $9,000,000 and
$11,000,000, respectively, which may be applied against future
taxable income. These carry forwards begin to expire in 2021.
Management of the Company periodically reviews the deferred tax
assets for realizability and recognizes a valuation allowance if
it is more likely than not that some or all of a deferred tax
asset may not be realized. As the Company has suffered recurring
losses, management determined a full valuation allowance is
appropriate for the net deferred tax assets at December 31,
2003.
F-71
MERITAGE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
The Companys (provision) benefit for income taxes
differs from the expected tax (provision) benefit amount
computed by applying the statutory federal income tax rate of
34% to income (loss) before income taxes as a result of the
following:
|
|
|
|
|
|
|
|
|
|
|
2002 | |
|
2003 | |
|
|
| |
|
| |
Tax at statutory rate of 34%
|
|
$ |
(2,686,085 |
) |
|
$ |
(423,106 |
) |
State taxes, net of federal benefit
|
|
|
(474,015 |
) |
|
|
(74,666 |
) |
Change in valuation allowance
|
|
|
3,372,276 |
|
|
|
2,206,030 |
|
Other
|
|
|
(187,809 |
) |
|
|
(24,970 |
) |
|
|
|
|
|
|
|
Income tax benefit (expense)
|
|
$ |
24,367 |
|
|
$ |
(1,683,288 |
) |
|
|
|
|
|
|
|
Note H Defined Contribution Plan
The Company sponsors a Salary Savings and Profit Sharing
Trust 401(k) plan that covers substantially all employees.
The plan provides for discretionary matching contributions and
discretionary profit sharing contributions. The Company made no
discretionary matching contributions in the years ended
December 31, 2002 and 2003. There were no discretionary
profit sharing contributions for the years ended
December 31, 2002 and 2003.
Note I Related Party Transactions
At December 31, 2002, the Company had formal and informal
interest bearing and non-interest bearing notes receivable and
advances with various stockholders and employees of $460,861. In
2003, the Company determined that the balance of the notes were
not recoverable and expensed the remaining balance.
Note J Employee Stock Option Plan
On August 7, 2000, the Board of Directors of Meritage
Technologies, Inc. approved the Meritage Technologies, Inc.
Nonqualified Stock Option Plan (the Plan). The number of shares
of stock, which may be issued and sold under the Plan, is
subject to the sole discretion and authority of the Board of
Directors, which also has the authority to determine the
exercise price and the vesting and exercise periods of all
options. The exercise price and the vesting and exercise periods
shall be incorporated into the Stock Option Agreement awarding
such option. All options issued under the Plan to date have a
ten-year exercise period.
|
|
|
|
|
|
|
|
|
|
|
|
2002 | |
|
2003 | |
|
|
| |
|
| |
Outstanding, beginning of year
|
|
|
2,343,791 |
|
|
|
1,372,189 |
|
|
Options granted
|
|
|
383,250 |
|
|
|
1,127,500 |
|
|
Options exercised
|
|
|
|
|
|
|
|
|
|
Options cancelled/surrendered
|
|
|
(1,354,852 |
) |
|
|
(342,705 |
) |
|
|
|
|
|
|
|
Outstanding, end of year
|
|
|
1,372,189 |
|
|
|
2,156,984 |
|
|
|
|
|
|
|
|
At December 31, 2002 and 2003, there were 968,419 shares
and 1,210,047 shares, respectively, which were vested and
eligible to be exercised. The weighted average exercisable price
of these shares were $1.15 per share and $1.43 per share,
respectively. The weighted average fair value of the option
shares granted during 2002 and 2003 were approximately $0.10 per
share and $0 per share, respectively.
F-72
MERITAGE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
Options outstanding as of December 31, 2003 were as follows:
|
|
|
|
|
|
|
|
|
|
|
Exercise |
|
Number of | |
|
|
|
Number | |
Price |
|
Shares | |
|
Expiration Date |
|
Exercisable | |
|
|
| |
|
|
|
| |
$0.036
|
|
|
166,787 |
|
|
August 7, 2010 |
|
|
166,787 |
|
$ 0.10
|
|
|
530,856 |
|
|
June 30, 2011 September 30, 2011 |
|
|
522,230 |
|
$ 0.25
|
|
|
832,500 |
|
|
January 1, 2013 September 29, 2013 |
|
|
|
|
$ 2.50
|
|
|
30,000 |
|
|
July 6, 2011 |
|
|
20,000 |
|
$ 3.00
|
|
|
520,340 |
|
|
August 7, 2010 November 26, 2012 |
|
|
447,363 |
|
$ 5.00
|
|
|
67,033 |
|
|
January 1, 2011 June 25, 2011 |
|
|
46,367 |
|
$ 6.00
|
|
|
9,468 |
|
|
January 29, 2011 May 26, 2011 |
|
|
7,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
2,156,984 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note K Commitments and Contingencies
1. Lease Obligations
The Company leases office facilities under operating leases.
Rent expense related to these leases was approximately
$1,300,000 and $580,000 in 2002 and 2003, respectively.
Approximate future minimum rental commitments, as of year-end,
were as follows:
|
|
|
|
|
Years Ended |
|
|
December 31, |
|
|
|
|
|
2004
|
|
$ |
484,000 |
|
2005
|
|
|
428,000 |
|
2006
|
|
|
40,000 |
|
|
|
|
|
|
|
$ |
952,000 |
|
|
|
|
|
2. Legal Matters
Various lawsuits and claims arising during the normal course of
business are pending against the Company. In the opinion of
management, the ultimate liability, if any, resulting from such
suits and claims will have no material adverse effect on the
Companys statements of operations, cash flows or financial
position.
3. Stockholder Loan and
Repurchase Guarantees
The Company has guaranteed personal stockholder bank loans used
to purchase common stock. As a result, the stock issued was
recorded as a liability and not equity.
In addition, the Company has committed to repurchase certain
common stock sold to an employee for the amount paid by the
employee for the stock. Accordingly, the stock issued is
recorded as a liability and not equity.
Note L Stock Grant
In 2003, the Company granted 1,474,149 shares of unrestricted
common stock to an executive for services rendered. At the time
of the grant, the Company estimated the fair value of the common
stock to be $.01 per share and recorded compensation expense of
$1,474 for the grant.
F-73
MERITAGE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
Note M Subsequent Event (Unaudited)
On June 18, 2004, the Company was sold to Perficient, Inc.
by way of a merger with Perficients wholly-owned
subsidiary, Perficient Meritage, Inc. The name of the surviving
corporation was changed to Perficient Meritage, Inc. Perficient,
Inc. paid approximately $7.1 million for the Company,
consisting of approximately $2.9 million in cash,
liabilities assumed of approximately $2.4 million, and
1.17 million shares of Perficient Inc.s common stock,
subject to certain post-closing adjustments.
F-74
Report of Independent Registered Public Accounting Firm
Managers and Members of
ZettaWorks LLC
Houston, Texas
We have audited the accompanying consolidated balance sheets of
ZettaWorks LLC (ZettaWorks), as of December 31,
2003 and 2002, and the related consolidated statements of
operations, members equity and cash flows for the years
then ended. These financial statements are the responsibility of
ZettaWorks management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. ZettaWorks is not required to
have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included
consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the
circumstances, but not for purposes of expressing an opinion on
the effectiveness of ZettaWorks internal control over
financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of ZettaWorks as of December 31, 2003 and 2002,
and the results of its operations and its cash flows for the
years then ended in conformity with accounting principles
generally accepted in the United States of America.
As explained in Note 11 to the financial statements,
ZettaWorks changed its method of accounting for mandatorily
redeemable units on July 1, 2003.
Houston, Texas
February 1, 2005
F-75
ZettaWorks LLC
Consolidated Balance Sheets as of December 31, 2002 and
2003; and as of
September 30, 2004 (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
December 31, | |
|
September 30, | |
|
|
2002 | |
|
2003 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
|
|
|
|
|
(Unaudited) | |
ASSETS |
Current Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$ |
378,625 |
|
|
$ |
302,504 |
|
|
$ |
45,421 |
|
|
Accounts receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade receivables
|
|
|
2,828,721 |
|
|
|
3,251,985 |
|
|
|
4,025,744 |
|
|
|
Affiliates
|
|
|
342,208 |
|
|
|
|
|
|
|
2,469 |
|
|
|
Members
|
|
|
23,734 |
|
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
|
116,064 |
|
|
|
27,152 |
|
|
|
73,132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
3,689,352 |
|
|
|
3,581,641 |
|
|
|
4,146,766 |
|
|
|
|
|
|
|
|
|
|
|
Property and Equipment-at cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office furniture, fixtures, and equipment
|
|
|
140,786 |
|
|
|
161,105 |
|
|
|
161,105 |
|
|
Leasehold improvements
|
|
|
29,947 |
|
|
|
29,947 |
|
|
|
29,947 |
|
|
Computer equipment
|
|
|
414,535 |
|
|
|
348,406 |
|
|
|
399,607 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
585,268 |
|
|
|
539,458 |
|
|
|
590,659 |
|
|
Less accumulated depreciation
|
|
|
(354,023 |
) |
|
|
(442,244 |
) |
|
|
(477,308 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
231,245 |
|
|
|
97,214 |
|
|
|
113,351 |
|
Other Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits and other assets
|
|
|
24,758 |
|
|
|
24,194 |
|
|
|
17,588 |
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$ |
3,945,355 |
|
|
$ |
3,703,049 |
|
|
$ |
4,277,705 |
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND MEMBERS EQUITY |
Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payables
|
|
$ |
431,220 |
|
|
$ |
486,634 |
|
|
$ |
697,707 |
|
|
Accrued expenses
|
|
|
582,420 |
|
|
|
862,188 |
|
|
|
903,523 |
|
|
Line of credit
|
|
|
1,825,000 |
|
|
|
1,357,369 |
|
|
|
1,924,265 |
|
|
Notes payablemembers
|
|
|
|
|
|
|
|
|
|
|
400,000 |
|
|
Accounts payablesmembers
|
|
|
23,734 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
2,862,374 |
|
|
|
2,706,191 |
|
|
|
3,925,495 |
|
|
Member units subject to mandatory redemption
|
|
|
|
|
|
|
483,561 |
|
|
|
179,414 |
|
Members Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voting units (7,110,000 authorized and issued at
December 31, 2002 and 2003; 7,158,750 at September 30,
2004)
|
|
|
544,715 |
|
|
|
239,325 |
|
|
|
(60,082 |
) |
|
Non-voting units (6,390,000 authorized and issued at
December 31, 2002 and 2003; 6,391,250 at September 30,
2004)
|
|
|
511,797 |
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income
|
|
|
26,469 |
|
|
|
273,972 |
|
|
|
232,878 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total members equity
|
|
|
1,082,981 |
|
|
|
513,297 |
|
|
|
172,796 |
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Members Equity
|
|
$ |
3,945,355 |
|
|
$ |
3,703,049 |
|
|
$ |
4,277,705 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-76
ZettaWorks LLC
Consolidated Statement of Operations For the Years Ended
December 31, 2002 and 2003;
and Nine Months Ended September 30, 2003
(unaudited) and
September 30, 2004 (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months | |
|
Nine Months | |
|
|
Year Ended | |
|
Year Ended | |
|
Ended | |
|
Ended | |
|
|
December 31, | |
|
December 31, | |
|
September 30, | |
|
September 30, | |
|
|
2002 | |
|
2003 | |
|
2003 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
|
(Unaudited) | |
|
(Unaudited) | |
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting services
|
|
$ |
13,764,975 |
|
|
$ |
17,358,431 |
|
|
$ |
13,356,204 |
|
|
$ |
13,426,453 |
|
|
Reimbursable costs
|
|
|
457,201 |
|
|
|
516,419 |
|
|
|
402,225 |
|
|
|
293,406 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
|
14,222,176 |
|
|
|
17,874,850 |
|
|
|
13,758,429 |
|
|
|
13,719,859 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel costs
|
|
|
7,525,611 |
|
|
|
9,555,059 |
|
|
|
7,303,960 |
|
|
|
8,583,552 |
|
|
Reimbursable costs
|
|
|
457,201 |
|
|
|
516,419 |
|
|
|
402,225 |
|
|
|
293,406 |
|
|
Other project related expenses
|
|
|
809,961 |
|
|
|
2,231,353 |
|
|
|
1,770,587 |
|
|
|
1,543,441 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Cost of Revenues
|
|
|
8,792,773 |
|
|
|
12,302,831 |
|
|
|
9,476,772 |
|
|
|
10,420,399 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin
|
|
|
5,429,403 |
|
|
|
5,572,019 |
|
|
|
4,281,657 |
|
|
|
3,299,460 |
|
Selling, general and administrative costs
|
|
|
4,316,404 |
|
|
|
5,712,449 |
|
|
|
4,563,984 |
|
|
|
3,763,693 |
|
Depreciation
|
|
|
149,770 |
|
|
|
103,829 |
|
|
|
82,677 |
|
|
|
73,417 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Expenses
|
|
|
4,466,174 |
|
|
|
5,816,278 |
|
|
|
4,646,661 |
|
|
|
3,837,110 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss)
|
|
|
963,229 |
|
|
|
(244,259 |
) |
|
|
(365,004 |
) |
|
|
(537,650 |
) |
Other Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense (income) from change in fair value of
mandatorily redeemable member units
|
|
|
|
|
|
|
51,248 |
|
|
|
(46,007 |
) |
|
|
(304,148 |
) |
|
Interest expense-other obligations
|
|
|
75,827 |
|
|
|
68,570 |
|
|
|
49,955 |
|
|
|
65,983 |
|
|
Other (income) expense
|
|
|
2,965 |
|
|
|
20,797 |
|
|
|
(7,075 |
) |
|
|
(78 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other (Income) Expense
|
|
|
78,792 |
|
|
|
140,615 |
|
|
|
(3,127 |
) |
|
|
(238,243 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
|
884,437 |
|
|
|
(384,874 |
) |
|
|
(361,877 |
) |
|
|
(299,407 |
) |
Other Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustments
|
|
|
12,715 |
|
|
|
247,503 |
|
|
|
116,262 |
|
|
|
(41,094 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income (Loss)
|
|
$ |
897,152 |
|
|
$ |
(137,371 |
) |
|
$ |
(245,615 |
) |
|
$ |
(340,501 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to members
|
|
$ |
200,000 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Net income (loss) per member unit
|
|
$ |
0.066 |
|
|
$ |
(0.013 |
) |
|
$ |
(0.022 |
) |
|
$ |
(0.048 |
) |
Distributions to members per unit
|
|
$ |
0.015 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Units used in computing net income (loss) and distributions per
member unit
|
|
|
13,500,000 |
|
|
|
10,305,000 |
|
|
|
11,372,130 |
|
|
|
7,158,750 |
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-77
ZettaWorks LLC
Consolidated Statement of Members Equity
Years Ended December 31, 2002 and 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated | |
|
|
|
|
|
|
|
|
Other | |
|
|
|
|
Voting | |
|
Redeemable Units | |
|
Comprehensive | |
|
|
|
|
Class A | |
|
Class B & Class C | |
|
Income | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
Balance as of January 1, 2002
|
|
$ |
199,245 |
|
|
$ |
172,830 |
|
|
$ |
13,754 |
|
|
$ |
385,829 |
|
Transfer voting to non-voting
|
|
|
(15,000 |
) |
|
|
15,000 |
|
|
|
|
|
|
|
|
|
Distribution to members
|
|
|
(105,333 |
) |
|
|
(94,667 |
) |
|
|
|
|
|
|
(200,000 |
) |
Net income
|
|
|
465,803 |
|
|
|
418,634 |
|
|
|
|
|
|
|
884,437 |
|
Currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
12,715 |
|
|
|
12,715 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2002
|
|
|
544,715 |
|
|
|
511,797 |
|
|
|
26,469 |
|
|
|
1,082,981 |
|
Net Loss
|
|
|
(202,702 |
) |
|
|
(182,172 |
) |
|
|
|
|
|
|
(384,874 |
) |
Cumulative effect of change in accounting principle
|
|
|
(102,688 |
) |
|
|
(329,625 |
) |
|
|
|
|
|
|
(432,313 |
) |
Currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
247,503 |
|
|
|
247,503 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2003
|
|
$ |
239,325 |
|
|
$ |
|
|
|
$ |
273,972 |
|
|
$ |
513,297 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-78
ZettaWorks LLC
Consolidated Statements of Cash Flows
Years Ended December 31, 2002 and 2003
Nine Month Periods Ended September 30, 2003
(unaudited) and 2004 (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months | |
|
Nine Months | |
|
|
Year Ended | |
|
Year Ended | |
|
Ended | |
|
Ended | |
|
|
December 31, | |
|
December 31, | |
|
September 30, | |
|
September 30, | |
|
|
2002 | |
|
2003 | |
|
2003 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
|
(Unaudited) | |
|
(Unaudited) | |
Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
884,437 |
|
|
$ |
(384,874 |
) |
|
$ |
(361,877 |
) |
|
$ |
(299,407 |
) |
|
Items not requiring (providing) cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
179,198 |
|
|
|
103,829 |
|
|
|
82,677 |
|
|
|
68,763 |
|
|
|
Increase in allowance for doubtful accounts
|
|
|
79,902 |
|
|
|
23,718 |
|
|
|
32,169 |
|
|
|
13,117 |
|
|
|
(Gain) loss on sale of assets
|
|
|
(426 |
) |
|
|
103,100 |
|
|
|
111,712 |
|
|
|
(4,250 |
) |
|
|
Interest (income) expense for mandatorily redeemable units
|
|
|
|
|
|
|
51,248 |
|
|
|
(46,007 |
) |
|
|
(304,148 |
) |
|
Changes in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivables, trade
|
|
|
(1,772,018 |
) |
|
|
(219,510 |
) |
|
|
146,452 |
|
|
|
(828,517 |
) |
|
|
Accounts receivables, affiliates & members
|
|
|
(342,208 |
) |
|
|
342,208 |
|
|
|
406,754 |
|
|
|
(2,469 |
) |
|
|
Prepaid expenses
|
|
|
|
|
|
|
|
|
|
|
100,450 |
|
|
|
(46,068 |
) |
|
|
Accounts payable and accrued expenses
|
|
|
701,178 |
|
|
|
288,032 |
|
|
|
75,880 |
|
|
|
262,194 |
|
|
|
Other assets
|
|
|
(109,500 |
) |
|
|
108,229 |
|
|
|
6,676 |
|
|
|
6,332 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
(379,437 |
) |
|
|
415,980 |
|
|
|
554,886 |
|
|
|
(1,134,453 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of assets
|
|
|
426 |
|
|
|
650 |
|
|
|
|
|
|
|
4,250 |
|
|
Purchase of property and equipment
|
|
|
(206,269 |
) |
|
|
(73,548 |
) |
|
|
(62,825 |
) |
|
|
(89,696 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(205,843 |
) |
|
|
(72,898 |
) |
|
|
(62,825 |
) |
|
|
(85,446 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings (repayments) under line of credit, net
|
|
|
935,000 |
|
|
|
(467,631 |
) |
|
|
(400,511 |
) |
|
|
566,896 |
|
|
Repayment of borrowings from member
|
|
|
(50,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings from member
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
400,000 |
|
|
Distribution to members
|
|
|
(200,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
685,000 |
|
|
|
(467,631 |
) |
|
|
(400,511 |
) |
|
|
966,896 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign currency exchange on cash
|
|
|
4,420 |
|
|
|
48,428 |
|
|
|
52,175 |
|
|
|
(4,080 |
) |
Increase (decrease) in cash
|
|
|
104,140 |
|
|
|
(76,121 |
) |
|
|
143,725 |
|
|
|
(257,083 |
) |
Cash at beginning of year or period
|
|
|
274,485 |
|
|
|
378,625 |
|
|
|
378,625 |
|
|
|
302,504 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at end of year or period
|
|
$ |
378,625 |
|
|
$ |
302,504 |
|
|
$ |
522,350 |
|
|
$ |
45,421 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$ |
92,221 |
|
|
$ |
71,495 |
|
|
$ |
42,909 |
|
|
$ |
56,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-79
ZettaWorks, LLC
Notes to Consolidated Financial Statements
December 31, 2002 and 2003
September 30, 2003 (unaudited) and 2004
(unaudited)
|
|
Note 1: |
Nature of Operations and Summary of Significant Accounting
Policies |
ZettaWorks LLC (ZettaWorks), provides information
systems consulting services and staffing for customers located
in the United States and Australia. ZettaWorks is a subsidiary
of AB Holdings, LLC. AB Holdings, LLC, owns 100 percent of
the voting interest and 52 percent of equity. ZettaWorks is
a Texas limited liability company. The term of ZettaWorks is the
earlier of dissolution by the members or May 2030.
|
|
|
Principles of Consolidation |
The consolidated financial statements include the accounts of
ZettaWorks and its wholly owned subsidiary, ZettaWorks Australia
Pty. Ltd. All significant inter-company accounts and
transactions have been eliminated in consolidation.
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from those estimates.
Accounts receivable are stated at the amount billed to
customers. ZettaWorks provides an allowance for doubtful
accounts, which is based upon a review of outstanding
receivables, historical collection information and existing
economic conditions. The allowance for bad and doubtful trade
receivables amounted to $96,300 and $125,005 as of
December 31, 2002 and 2003, respectively. Bad debt expense
was approximately $246,000 and $228,000 for the years ended
December 31, 2002 and December 31, 2003, respectively.
Property and equipment are recorded at cost, and are being
depreciated over the estimated useful life of each asset.
Leasehold improvements are amortized over the shorter of the
lease term or the estimated useful lives of the improvements.
Annual depreciation is primarily computed using straight-line
methods.
|
|
|
Foreign Currency Translation |
The financial currency for ZettaWorks foreign subsidiary
is the local currency, the Australian dollar. Assets and
liabilities are translated at the exchange rate in effect on the
last day of the respective year or period. Items impacting the
statements of operations are translated at the average exchange
rate in effect during the respective year or period. The
translation adjustments are recorded as a component of
members equity. Gains and losses from foreign currency
denominated transactions are included in other income on the
statements of operations.
F-80
ZettaWorks, LLC
Notes to Consolidated Financial Statements
December 31, 2002 and 2003
September 30, 2003 (unaudited) and 2004
(unaudited)
|
|
|
Interim Financial Statements (unaudited) |
The accompanying unaudited interim consolidated financial
statements have been prepared in accordance with accounting
principles generally accepted in the United States and are
presented in accordance with the rules and regulations of the
Securities and Exchange Commission applicable to interim
financial information. Accordingly, certain footnote disclosures
have been condensed or omitted. In the opinion of management,
the unaudited interim financial statements at September 30,
2004 and for the nine months ended September 30, 2003 and
2004 include all adjustments necessary to present fairly
ZettaWorks financial position at September 30, 2004,
and results of operations and cash flows for the nine months
ended September 30, 2003 and 2004. Results for the nine
months ended September 30, 2003 and 2004 are not
necessarily indicative of the results to be expected for the
entire year.
ZettaWorks operates in one segment for financial reporting
purposes.
ZettaWorks members have elected to have ZettaWorks
income taxed as a partnership under provisions of the Internal
Revenue Code. Therefore, taxable income or loss is reported to
the individual members for inclusion in their respective tax
returns and no provision for federal income taxes is included in
these financial statements. ZettaWorks is subject to certain
state income taxes and ZettaWorks wholly owned subsidiary
is subject to tax in Australia. Deferred tax assets and
liabilities are recognized for the tax effects of differences in
financial and tax bases of the subsidiary in Australia.
All revenue is recognized as consulting and staffing services
are performed. Deferred revenue represents billings in advance
of services performed. Unbilled revenue is included as a
component of accounts receivable. Losses are recognized at such
time facts and circumstances indicate that a loss will be
incurred on a contract. ZettaWorks has recognized losses on
uncompleted contracts in the amounts of $-0- and $88,466 at
September 30, 2003 and 2004 (unaudited), respectively.
There were no losses recognized at December 31, 2002 and
2003.
Revenue relating to certain fixed-price contracts for consulting
services is generally recognized by applying percentages of
completion for each period to the total estimated revenue for
the respective contracts. The percentages of completion are
determined by relating the number of actual units of work
performed to date to the current estimated number of total units
of work required to complete the respective contracts. Contract
costs include all direct labor and other costs related to
contract performance. Because of the inherent uncertainties in
estimating costs and revenues, it is at least reasonably
possible that estimates could change in the near term.
|
|
|
Unit Appreciation Rights Plan |
ZettaWorks has a unit appreciation rights employee compensation
plan, which is described more fully in Note 9. ZettaWorks
may incur a liability to pay employees an amount to be
determined by the number of units that eventually vest and by
the increase in the unit price from a specified level. Changes
in the amount of the liability due to unit valuation changes are
compensation cost of the period in which the changes occur.
F-81
ZettaWorks, LLC
Notes to Consolidated Financial Statements
December 31, 2002 and 2003
September 30, 2003 (unaudited) and 2004
(unaudited)
Comprehensive
Income
ZettaWorks follows Statement of Financial Accounting Standards
No. 130, Reporting Comprehensive Income, which
established standards for reporting comprehensive income and its
components. ZettaWorks other comprehensive income is from
foreign currency translation.
|
|
|
Fair Value of Financial Instruments |
Fair value is the estimated amount at which financial assets or
liabilities could be exchanged in a current transaction between
willing parties, other than in a forced or liquidation sale.
Because no market exists for certain of these financial
instruments and because management does not intend to sell these
financial instruments, ZettaWorks does not know whether the fair
values shown represent values at which the respective financial
instruments could be sold individually or in the aggregate.
All of ZettaWorks financial instruments are short-term,
thus the carrying amount is a reasonable estimate of fair value.
Earnings
Per Member Unit
ZettaWorks follows the provisions of Statement of Financial
Accounting Standards No. 128, Earnings Per Share.
Earnings per member is computed by dividing net income (loss)
available to members by the weighted average units outstanding
during the period.
Effective July 1, 2003, ZettaWorks adopted Statement of
Financial Accounting Standards No. 150, Accounting For
Certain Financial Instruments With Characteristics of Both
Liabilities and Equity, to account for member units subject
to mandatory redemption. (See Note 11) As of the date of
adoption the member units subject to mandatory redemption
(Class B and Class C member units) are reported as a
liability and are no longer included in the computation of
earnings per member unit. Had the Class B and Class C
member units been excluded from the computation of earnings per
member unit in all periods presented, earnings (loss) per member
unit would have been as follows:
|
|
|
|
|
December 31, 2002
|
|
$ |
0.126 |
|
September 30, 2003
|
|
$ |
(0.035 |
) |
December 31, 2003
|
|
$ |
(0.019 |
) |
ZettaWorks has a $2,000,000 revolving line of credit expiring in
September, 2005. At December 31, 2002 and 2003, there was
$1,825,000 and $1,357,369, respectively, borrowed against this
line of credit. The line of credit is collateralized by
substantially all of ZettaWorks assets and is secured by a
guarantee of a member. Interest is payable monthly at the
greater of the banks prime rate or 5.0 percent. Under
the provisions of the loan agreement, ZettaWorks is required,
among other things, to maintain certain financial ratios and
equity balances. ZettaWorks repaid the balance owed on the line
of credit in December, 2004 in conjunction with an asset
purchase by Perficient Zettaworks, Inc, further discussed in
Note 15.
Operating leases for facilities in Houston, Texas, New York, New
York, Irvine, California, Melbourne, Australia, and Sydney,
Australia are on a month-to-month basis. Rent expense under the
F-82
ZettaWorks, LLC
Notes to Consolidated Financial Statements
December 31, 2002 and 2003
September 30, 2003 (unaudited) and 2004
(unaudited)
agreements was approximately $154,000 and $167,000 for the years
ended December 31, 2002 and 2003, respectively.
The Houston facility and New York facilities are subleased from
an affiliate related through common ownership. Rental expenses
paid to the affiliate for the years ended December 31, 2002
and 2003 totaled approximately $127,000 and $162,000,
respectively.
|
|
Note 4: |
Concentrations of Credit Risk |
Accounting principles generally accepted in the United States of
America require the disclosure of current vulnerabilities due to
certain concentrations of risk. Financial instruments that
potentially subject ZettaWorks to concentrations of credit risk
consist principally of cash and accounts receivable.
ZettaWorks maintains its cash in bank deposit accounts which, at
times, may exceed federally insured limits. ZettaWorks has not
experienced any losses in such accounts. ZettaWorks believes it
is not exposed to any significant credit risk on cash.
ZettaWorks operates and grants credit primarily to commercial
companies in the United States and Australia. ZettaWorks
policy is to evaluate each customers financial condition
and determine the amount of credit to be extended. ZettaWorks
does not, as a matter of policy, require collateral on credit
granted to customers. Sales to the top customer accounted for
approximately 29 percent and 26 percent of 2002 and
2003 revenues, respectively. At December 31, 2002 and 2003,
accounts receivable from one customer were approximately
22 percent and 21 percent of total accounts
receivable, respectively.
The tax effects of temporary differences related to deferred
taxes shown on the balance sheets were:
|
|
|
|
|
|
|
|
|
|
|
|
2002 | |
|
2003 | |
|
|
| |
|
| |
Deferred tax assets, net operating loss
|
|
$ |
10,400 |
|
|
$ |
226,000 |
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
|
10,400 |
|
|
|
226,000 |
|
|
|
|
|
|
|
|
Valuation allowance:
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
|
|
|
|
|
(10,400 |
) |
|
Increase during period
|
|
|
(10,400 |
) |
|
|
(215,600 |
) |
|
|
|
|
|
|
|
|
Ending balance
|
|
|
(10,400 |
) |
|
|
(226,000 |
) |
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$ |
0 |
|
|
$ |
0 |
|
|
|
|
|
|
|
|
ZettaWorks has unused operating loss carryforwards in Australia
of approximately $750,000. The carryforwards do not have an
expiration date. Management of ZettaWorks periodically reviews
the deferred tax assets for realizability and recognizes a
valuation allowance if it is more likely than not that some or
all of a deferred tax asset may not be realized. As ZettaWorks
has suffered recurring losses, management determined a full
valuation allowance is appropriate for the net deferred tax
assets at December 31, 2003.
F-83
ZettaWorks, LLC
Notes to Consolidated Financial Statements
December 31, 2002 and 2003
September 30, 2003 (unaudited) and 2004
(unaudited)
|
|
Note 6: |
Profit Sharing Plan |
ZettaWorks has a 401(k) profit sharing plan (the plan) covering
substantially all employees. ZettaWorks contributions to
the plan are determined annually by the Board of Directors.
Contributions to the plan were approximately $73,000 and $99,000
for 2002 and 2003, respectively.
|
|
Note 7: |
Related Party Transactions |
ZettaWorks had approximately $925,700 and $875,500 in sales to a
commonly controlled affiliate during the years ended
December 31, 2002 and 2003, respectively. The amount
included in ZettaWorks trade accounts receivable balance
from the same affiliate was approximately $39,000 and $16,000 at
December 31, 2002 and 2003, respectively. At
December 31, 2003, ZettaWorks had a payable to the
affiliate of approximately $12,000 that is included in accounts
payable.
ZettaWorks has a management agreement with a commonly controlled
affiliate. Management fee expense recognized under the
management agreement totaled approximately $68,000 and $78,000
for the years ended December 31, 2002 and 2003,
respectively.
ZettaWorks received short-term financing from its controlling
member during 2001. The maximum amount outstanding during 2002
was $450,000.
During 2002, ZettaWorks received approximately $60,000 for
administrative services provided to an affiliate related through
common ownership. From time to time, ZettaWorks paid various
operating expenses for the benefit of the affiliate and was
reimbursed. During 2002, ZettaWorks also provided information
consulting services to this affiliate aggregating $342,000, all
of which was paid in February 2003.
During 2004, ZettaWorks received short term financing from a
member of $400,000. The note payable was repayable in March,
2004 and carried interest rate of Prime. The note was repaid in
full in 2004 resulting in an interest expense of approximately
$14,600 (unaudited).
|
|
Note 8: |
Foreign Operations |
ZettaWorks wholly owned subsidiary, ZettaWorks Australia
Pty. Ltd., was organized under laws of Australia and is located
in Melbourne, Australia. The total assets of ZettaWorks
Australia Pty. Ltd. were approximately $608,000 and $2,956,000
at December 31, 2002 and 2003, respectively. As further
discussed in Note 15, substantially all assets of
ZettaWorks Australia Pty. Ltd. were sold effective
October 29, 2004. Revenue for the years ended
December 31, 2002 and 2003 totaled approximately $1,365,000
and $3,200,000, respectively. Revenues for the nine months ended
September 30, 2003 and 2004 (unaudited) totaled
$2,109,675 and $1,379,758, respectively.
|
|
Note 9: |
Unit Appreciation Rights Plan |
ZettaWorks has an incentive compensation plan in the form of a
unit appreciation rights plan to reward key employees who
contribute to the success of ZettaWorks. The plan provides for
the grant of unit appreciation rights (UARs) to employees as
selected by the administrative committee. UARs vest in
accordance with each individual participants UARs
agreement, generally over a five-year period and expire
10 years from the grant date. Vested UARs can be exercised
in full or in part and converted to cash at the calculated value
beginning after the completion of three years of employment and
ending on the expiration date. Value is determined by a formula
stated in the plan based on ZettaWorks adjusted book
value. These UARs can be only converted to cash payments by
ZettaWorks, and are not
F-84
ZettaWorks, LLC
Notes to Consolidated Financial Statements
December 31, 2002 and 2003
September 30, 2003 (unaudited) and 2004
(unaudited)
convertible to members equity or sold to anyone other than
ZettaWorks. As of December 31, 2002, and 2003, 840,250 and
1,021,500 units were outstanding, respectively. As of
December 31, 2003, there was no liability related to this
plan.
A summary of the status of the plan at December 31, 2002
and 2003 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average | |
|
|
|
|
|
|
|
|
|
|
Number of | |
|
Remaining | |
|
Weighted Average | |
|
Number | |
|
Weighted Average | |
|
|
Range of Exercise | |
|
Units | |
|
Contractual Life | |
|
Exercise Price | |
|
of Units | |
|
Exercise Price | |
|
|
Prices | |
|
Outstanding | |
|
(Years) | |
|
of Units | |
|
Exercised | |
|
of Units | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Units outstanding as of January 1, 2002
|
|
$ |
0.0725-$0.10 |
|
|
|
483,500 |
|
|
|
9.63 |
|
|
$ |
0.07 |
|
|
|
|
|
|
|
|
|
Granted
|
|
$ |
0.0725-$0.10 |
|
|
|
366,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised Forfeited
|
|
$ |
0.0725-$0.10 |
|
|
|
(9,500 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units outstanding as of December 31, 2002
|
|
$ |
0.0725-$0.10 |
|
|
|
840,250 |
|
|
|
9.08 |
|
|
$ |
0.08 |
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
342,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised Forfeited
|
|
|
|
|
|
|
(161,250 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units outstanding as of December 31, 2003
|
|
$ |
0.0725-$0.10 |
|
|
|
1,021,500 |
|
|
|
8.62 |
|
|
$ |
0.09 |
|
|
|
|
|
|
|
|
|
|
|
Note 10: |
Membership Interests |
ZettaWorks is authorized to issue multiple classes of limited
liability interests designated as voting (Class A) and
non-voting (Class B and C) units.
The Class C units have been issued to two key employees of
ZettaWorks, and are subject to vesting and forfeiture provisions
related to their continued employment based on length of
employment. As of December 31, 2003, all units were fully
vested.
Upon death, disability, retirement or termination of employment
without cause from ZettaWorks by a Class B unit holder,
ZettaWorks will be required to redeem the Class B units.
The value of the units will be determined based on a formula
defined in the regulations of ZettaWorks. Payment will consist
of 20 quarterly payments.
Upon termination of employment for any reason by a Class C
unit holder, ZettaWorks will be required to purchase the
Class C units. The value of the units will be equal to the
book value of the capital account of the Class C unit
holder. The purchase price will be paid in cash up to the first
$100,000 with all amounts in excess of $100,000 to be paid out
in five annual installments.
No member is liable for the debts, obligations, or liabilities
of ZettaWorks.
F-85
ZettaWorks, LLC
Notes to Consolidated Financial Statements
December 31, 2002 and 2003
September 30, 2003 (unaudited) and 2004
(unaudited)
The following is a summary of Units authorized, issued and
outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Units | |
|
|
|
|
| |
|
|
|
|
December 31, | |
|
December 31, | |
|
September 30, | |
Class |
|
Voting | |
|
2002 | |
|
2003 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
|
|
|
(Unaudited) | |
A
|
|
|
Yes |
|
|
|
7,110,000 |
|
|
|
7,110,000 |
|
|
|
7,158,750 |
|
B
|
|
|
No |
|
|
|
5,390,000 |
|
|
|
5,390,000 |
|
|
|
5,391,250 |
|
C
|
|
|
No |
|
|
|
1,000,000 |
|
|
|
1,000,000 |
|
|
|
1,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
13,500,000 |
|
|
|
13,500,000 |
|
|
|
13,550,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 11: |
Mandatorily Redeemable Member Units |
Effective July 1, 2003 ZettaWorks adopted Statement of
Financial Accounting Standards No. 150, Accounting for
Certain Financial Instruments With Characteristics of Both
Liabilities and Equity, to account for member units subject
to mandatory redemption by ZettaWorks upon occurrence of certain
events including death, disability, or termination of
employment. The Class B and Class C units are subject
to mandatory redemption, and are to be repurchased at adjusted
book value as defined in the agreement and under the terms
defined in the agreement (See Note 10).
The cumulative effect of the adoption of FAS 150 of
$432,313 has been reflected in the Statement of Members
Equity as of July 1, 2003.
|
|
Note 12: |
Accrued Expenses |
Details of accrued expenses are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
December 31, | |
|
September 30, | |
|
|
2002 | |
|
2003 | |
|
2004 | |
|
|
| |
|
| |
|
| |
Other
|
|
$ |
119,359 |
|
|
$ |
206,045 |
|
|
$ |
268,737 |
|
Compensated absences
|
|
|
38,196 |
|
|
|
68,425 |
|
|
|
157,084 |
|
Contract costs
|
|
|
52,576 |
|
|
|
79,863 |
|
|
|
116,202 |
|
Commissions
|
|
|
129,713 |
|
|
|
68,253 |
|
|
|
62,824 |
|
Compensation and benefits
|
|
|
208,826 |
|
|
|
395,852 |
|
|
|
234,471 |
|
Accounting and legal
|
|
|
33,750 |
|
|
|
43,750 |
|
|
|
13,191 |
|
Deferred revenue
|
|
|
|
|
|
|
|
|
|
|
51,014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
582,420 |
|
|
$ |
862,188 |
|
|
$ |
903,523 |
|
|
|
|
|
|
|
|
|
|
|
ZettaWorks was a defendant in a lawsuit brought by a former
employee alleging breach of an employment agreement and other
causes of action related to his termination. The plaintiff asked
for damages of $200,000. In 2003, ZettaWorks accrued $60,000 as
its estimate of loss on the case. This litigation was settled in
January 2005, resulting in additional expense of $14,000 which
was recorded as of September 30, 2004.
F-86
ZettaWorks, LLC
Notes to Consolidated Financial Statements
December 31, 2002 and 2003
September 30, 2003 (unaudited) and 2004
(unaudited)
|
|
Note 14: |
Derivative Financial Instruments (Unaudited) |
Beginning in 2004, ZettaWorks used foreign exchange contracts to
manage currency risk. Derivatives are recognized as either
assets or liabilities in the financial statements and are
measured at fair value. Subsequent changes in fair value are
recognized in earnings.
At September 30, 2004, ZettaWorks had open offsetting buy
and sell foreign exchange contracts for 1,400,000 Australian
dollars that settled October 1, 2004. The contracts were
settled for a net loss of $27,020 on October 1, 2004. The
loss was included in earnings as of September 30, 2004.
|
|
Note 15: |
Subsequent Events (Unaudited) |
On October 29, 2004 ZettaWorks sold substantially all of
the assets of its wholly owned subsidiary, ZettaWorks Australia
Pty. Ltd., to Aipex Pty. Ltd. by way of an asset purchase
agreement. The assets were sold for $4,480 in cash and potential
future royalties on outstanding work orders as defined in the
agreement.
On December 20, 2004, pursuant to an asset purchase
agreement, substantially all of ZettaWorks assets were
sold to and liabilities were assumed by Perficient ZettaWorks,
Inc, a wholly owned subsidiary of Perficient, Inc. for
approximately $10.7 million. The sale price was paid in
cash of approximately $2.9 million and 1.2 million
shares of Perficient, Inc.s common stock, subject to
certain post-closing adjustments.
F-87
PERFICIENT, INC.
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The unaudited pro forma combined financial information includes
a statement of operations for the year ended December 31,
2004 which assumes the acquisitions for Genisys Consulting,
Inc., Meritage Technologies, Inc. and ZettaWorks LLC occurred on
January 1, 2004.
On December 17, 2004, Perficient, Inc. (the
Company), Perficient ZettaWorks, Inc., a Delaware
corporation and a wholly-owned subsidiary of Perficient (the
Acquisition Sub) and ZettaWorks LLC
(ZettaWorks), a Texas limited liability company,
entered into an Asset Purchase Agreement (the Purchase
Agreement) pursuant to which Acquisition Sub acquired
substantially all of the assets and assumed certain liabilities
of ZettaWorks (the Acquisition). The Acquisition
closed on December 20, 2004. The total consideration paid
in the Acquisition is $11.4 million, which amount includes
approximately $2.9 million in cash and approximately
$7.8 million worth of the Companys common stock
(1,193,179 shares of the Companys common stock),
based on the average closing price of the Companys common
stock for the three trading days immediately preceding the
acquisition, and transaction costs of approximately
$0.7 million. The following unaudited pro forma condensed
combined statement of operations gives effect to the acquisition
by the Company of ZettaWorks. This acquisition was accounted for
as a purchase business combination. The consideration paid in
the Acquisition has been preliminarily allocated to the tangible
and identifiable intangible assets acquired and liabilities
assumed according to their estimated respective fair values,
with the excess purchase consideration being allocated to
goodwill at the closing of the transaction. These unaudited pro
forma condensed combined financial statements have been prepared
from the historical consolidated financial statements of the
Company and ZettaWorks and should be read in conjunction
therewith. The historical operating results of ZettaWorks
reflected in the pro forma statement of operations do not
include amounts of the Australian subsidiary of ZettaWorks.
Those amounts are included in the historical financial
statements of ZettaWorks included elsewhere herein. Operating
results of ZettaWorks are included in operating results of the
Companys condensed combined financial statements as of
December 20, 2004.
On June 18, 2004, the Company consummated the acquisition
of Meritage Technologies, Inc. (Meritage), a
Delaware corporation, by merging our wholly owned subsidiary
Perficient Meritage, Inc., a Delaware corporation, with and into
Meritage. Meritage survived the merger as our direct wholly
owned subsidiary, under the name Perficient Meritage,
Inc. The Company paid approximately $7.1 million
consisting of approximately $2.9 million in cash, assumed
debt of approximately $2.4 million, and issued
1,168,219 shares of the Companys common stock,
subject to adjustments, which are not expected to be material.
The shares of common stock issued in connection with the merger
were ascribed a value of $3.595 per share, which was the
average closing price of the Companys common stock for the
23 consecutive trading days ending on June 15, 2004, which
value is consistent with the valuation under EITF-99-12,
Determination of the Measurement Date for the Market Price of
Acquired Securities Issued in a Purchase Business Combination.
Approximately $0.9 million in transaction costs have
been incurred in relation to the acquisition.
On April 2, 2004, the Company consummated the acquisition
by way of merger of Genisys Consulting, Inc.
(Genisys), an Illinois corporation, with and into
our wholly owned subsidiary, Perficient Genisys, Inc., a
Delaware corporation. Perficient Genisys, Inc. is the surviving
corporation to the merger. The Company paid approximately
$8.3 million consisting of approximately $1.5 million
in cash, issued 1,687,439 shares of the Companys
common stock and granted stock options valued at $400,000. The
shares of common stock issued in connection with the merger were
ascribed a value of $3.77 per share, which was the average
closing price of the Companys common stock for the 30
consecutive trading days ending on April 1, 2004, which
value is consistent with the valuation under EITF-99-12,
Determination of the Measurement Date for the Market Price of
Acquired Securities Issued in a Purchase Business Combination.
The common stock issued in connection with the merger
included 825,459 shares, which are restricted based upon
the continued employment with Perficient of certain
F-88
employees of Genisys through April 1, 2007, and another
352,055 shares held in escrow until April 1, 2005.
Approximately $0.5 million in transaction costs have been
incurred in relation to the acquisition.
The pro forma amounts for the Genisys, Meritage and ZettaWorks
acquisitions are based on the historical financial statements of
Genisys, Meritage and ZettaWorks and should be read in
conjunction with those historical financial statements and
related notes.
The following pro forma condensed combined financial statements
are presented to illustrate the effects of the acquisitions on
the historical operating results of the Company. The unaudited
pro forma condensed combined statements of operations for the
year ended December 31, 2004 give effect to the
acquisitions as if they occurred on January 1, 2004 and
combine the respective statements of operations for the Company
and the above entities for the respective periods. These pro
forma historical results do not reflect operational efficiencies
and cost savings that may be achieved with respect to the
combined companies. Therefore, these pro forma historical
results reflect operating costs which are not indicative or
predictive of future period results.
The pro forma information is presented for illustrative purposes
only and is not necessarily indicative of the operating results
or financial position that would have occurred if the merger had
been consummated on the indicated dates, nor is it necessarily
indicative of future operating results. The pro forma
adjustments are based on information available at the time of
this filing.
F-89
PERFICIENT, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2004 | |
|
|
| |
|
|
|
|
Pro Forma | |
|
|
Perficient | |
|
Genisys | |
|
Meritage | |
|
Zettaworks | |
|
Pro forma | |
|
|
|
Income | |
|
|
(Historical) | |
|
(Historical) | |
|
(Historical) | |
|
(Historical) | |
|
Adjustments | |
|
|
|
Statement | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
| |
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
$ |
43,330,757 |
|
|
$ |
2,656,359 |
|
|
$ |
6,973,058 |
|
|
$ |
16,618,760 |
|
|
$ |
|
|
|
|
|
|
|
$ |
69,578,934 |
|
|
Software
|
|
|
13,169,693 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,169,693 |
|
|
Reimbursed expenses
|
|
|
2,347,223 |
|
|
|
23,288 |
|
|
|
182,149 |
|
|
|
293,406 |
|
|
|
|
|
|
|
|
|
|
|
2,846,066 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
58,847,673 |
|
|
|
2,679,647 |
|
|
|
7,155,207 |
|
|
$ |
16,912,166 |
|
|
|
|
|
|
|
|
|
|
|
85,594,693 |
|
Cost of revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Project personnel costs
|
|
|
26,072,516 |
|
|
|
1,784,907 |
|
|
|
4,553,303 |
|
|
|
11,144,677 |
|
|
|
|
|
|
|
|
|
|
|
43,555,403 |
|
|
Software costs
|
|
|
11,341,145 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,341,145 |
|
|
Reimbursable expenses
|
|
|
2,347,223 |
|
|
|
12,010 |
|
|
|
182,149 |
|
|
|
293,406 |
|
|
|
|
|
|
|
|
|
|
|
2,834,788 |
|
|
Other project related costs
|
|
|
267,416 |
|
|
|
|
|
|
|
|
|
|
|
1,543,441 |
|
|
|
|
|
|
|
|
|
|
|
1,810,857 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
40,028,300 |
|
|
|
1,796,917 |
|
|
|
4,735,452 |
|
|
|
12,981,524 |
|
|
|
|
|
|
|
|
|
|
|
59,542,193 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
18,819,373 |
|
|
|
882,730 |
|
|
|
2,419,755 |
|
|
|
3,930,642 |
|
|
|
|
|
|
|
|
|
|
|
26,052,500 |
|
|
Selling, general and administrative
|
|
|
11,067,792 |
|
|
|
636,939 |
|
|
|
2,411,626 |
|
|
|
4,203,919 |
|
|
|
|
|
|
|
|
|
|
|
18,320,276 |
|
Depreciation
|
|
|
512,076 |
|
|
|
10,336 |
|
|
|
103,551 |
|
|
|
83,258 |
|
|
|
|
|
|
|
|
|
|
|
709,221 |
|
Intangibles amortization
|
|
|
696,420 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
738,542 |
|
|
|
Note 3 |
|
|
|
1,434,962 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
6,543,085 |
|
|
|
235,455 |
|
|
|
(95,422 |
) |
|
|
(356,535 |
) |
|
|
(738,542 |
) |
|
|
|
|
|
|
5,588,041 |
|
|
Interest income (expense), net
|
|
|
(134,714 |
) |
|
|
9,213 |
|
|
|
(49,823 |
) |
|
|
(81,983 |
) |
|
|
(55,177 |
) |
|
|
Note 5 |
|
|
|
(312,484 |
) |
Change in fair value in redeemable member units
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
418,232 |
|
|
|
(418,232 |
) |
|
|
Note 8 |
|
|
|
|
|
Other income (expense)
|
|
|
32,586 |
|
|
|
924 |
|
|
|
(383 |
) |
|
|
4,000 |
|
|
|
|
|
|
|
|
|
|
|
37,127 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
6,440,957 |
|
|
|
245,592 |
|
|
|
(145,628 |
) |
|
|
(16,286 |
) |
|
|
(1,211,951 |
) |
|
|
|
|
|
|
5,312,684 |
|
|
(Provision) benefit for income taxes
|
|
|
(2,527,669 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
440,026 |
|
|
|
Note 6 |
|
|
|
(2,087,643 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
3,913,288 |
|
|
$ |
245,592 |
|
|
$ |
(145,628 |
) |
|
$ |
(16,286 |
) |
|
$ |
(771,925 |
) |
|
|
|
|
|
$ |
3,225,041 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion of dividends on preferred stock
|
|
|
|
|
|
|
|
|
|
|
(589,257 |
) |
|
|
|
|
|
|
589,257 |
|
|
|
Note 7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common stockholders
|
|
$ |
3,913,288 |
|
|
$ |
245,592 |
|
|
$ |
(734,885 |
) |
|
$ |
(16,286 |
) |
|
$ |
(771,925 |
) |
|
|
|
|
|
$ |
3,225,041 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$ |
0.19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
17,648,575 |
|
|
|
425,327 |
|
|
|
540,901 |
|
|
|
1,147,413 |
|
|
|
452,604 |
|
|
|
Note 4 |
|
|
|
20,214,820 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
20,680,507 |
|
|
|
425,327 |
|
|
|
540,901 |
|
|
|
1,147,413 |
|
|
|
537,071 |
|
|
|
Note 4 |
|
|
|
23,331,219 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-90
PERFICIENT, INC.
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Basis of presentation
The accompanying unaudited pro forma statement of operations
presents the pro forma effects of the Genisys, Meritage and
ZettaWorks acquisitions as though the acquisitions occurred on
January 1, 2004.
ZettaWorks
LLC
The Company has recorded total consideration of approximately
$11.4 million, including approximately $0.7 million in
transaction costs for the ZettaWorks acquisition. The
acquisition was completed on December 20, 2004. The
following table shows the components of total consideration:
|
|
|
|
|
The consideration paid is approximately as follows:
|
|
|
|
|
Cash
|
|
$ |
2,900,000 |
|
Common stock (1,193,179 shares at $6.53 per share)
|
|
|
7,800,000 |
|
Acquisition costs
|
|
|
700,000 |
|
|
|
|
|
Total consideration
|
|
$ |
11,400,000 |
|
|
|
|
|
In accordance with SFAS 141, Business Combinations,
the total purchase consideration of approximately
$11.4 million, including transaction costs of approximately
$0.7 million, has been preliminarily allocated to the
assets acquired and liabilities assumed, including identifiable
intangible assets, based on their respective fair values at the
date of acquisition, with excess purchase consideration
allocated to goodwill. Such allocation resulted in goodwill of
approximately $8.1 million. Goodwill is expected to be
deductible for income tax purposes.
Meritage
Technologies, Inc.
The Company has recorded total consideration of approximately
$10.4 million, including approximately $0.9 million in
transaction costs for the Meritage acquisition. The acquisition
was completed on June 18, 2004.
The following table shows the components of total consideration:
|
|
|
|
|
The consideration paid is approximately as follows:
|
|
|
|
|
Cash
|
|
$ |
2,900,000 |
|
Common stock (1,168,219 shares at $3.59 per share)
|
|
|
4,200,000 |
|
Acquisition costs
|
|
|
900,000 |
|
Debt assumed
|
|
|
2,400,000 |
|
|
|
|
|
Total consideration
|
|
$ |
10,400,000 |
|
|
|
|
|
In accordance with SFAS 141, Business Combinations,
the total purchase consideration of approximately
$10.4 million, including transaction costs of approximately
$0.9 million, has been preliminarily allocated to the
assets acquired and liabilities assumed, including identifiable
intangible assets, based on their respective fair values at the
date of acquisition, with excess purchase consideration
allocated to goodwill. Such allocation resulted in goodwill of
approximately $7.4 million. The Company has yet to finalize
the purchase price allocation pending resolution of certain
contingent liabilities. Management expects to finalize the
purchase price allocation within twelve months from acquisition.
Goodwill is assigned at the enterprise level and not expected to
be deductible for income tax purposes.
F-91
PERFICIENT, INC.
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(CONTINUED)
Genisys
Consulting, Inc.
The Company has recorded total consideration of approximately
$8.8 million, including approximately $0.5 million in
transaction costs for the Genisys acquisition. This
consideration has been allocated to the tangible and
identifiable intangible assets acquired and liabilities assumed
according to their respective fair values, with the excess
purchase consideration being allocated to goodwill at the
closing of the transaction. The acquisition was completed on
April 2, 2004.
The following table shows the components of total consideration:
|
|
|
|
|
The consideration paid is as follows:
|
|
|
|
|
Cash
|
|
$ |
1,500,000 |
|
Common stock (1,687,439 shares at $3.77 per share)
|
|
|
6,400,000 |
|
Stock options
|
|
|
400,000 |
|
Acquisition costs
|
|
|
500,000 |
|
|
|
|
|
Total consideration
|
|
$ |
8,800,000 |
|
|
|
|
|
In accordance with SFAS 141, Business Combinations,
the total purchase consideration of approximately
$8.8 million, including transaction costs of approximately
$0.5 million, has been allocated to the assets acquired and
liabilities assumed, including identifiable intangible assets,
based on their respective fair values at the date of
acquisition. Such allocation resulted in goodwill of
approximately $7.4 million. Goodwill is assigned at the
enterprise level and not expected to be deductible for income
tax purposes.
|
|
Note 2 |
Purchase Price Allocations |
ZettaWorks
LLC
The accompanying unaudited condensed consolidated pro forma
income statement reflects the allocation of the purchase price
based on the estimated fair value of the assets acquired and
liabilities assumed. The preliminary allocation of the purchase
price is based on a preliminary evaluation of tangible and
intangible assets acquired and liabilities assumed. The fair
values of the intangible assets acquired are based on
managements estimate with assistance from an independent
appraisal. The excess of purchase price over the fair value of
net assets acquired (goodwill) reflects the benefits from
expansion of the Companys existing line of business and
expected benefits resulting from consolidation and economies of
scale.
F-92
PERFICIENT, INC.
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(CONTINUED)
|
|
|
|
|
Non-compete (5 year useful life)
|
|
$ |
100,000 |
|
Revenue backlog (1 year useful life)
|
|
|
200,000 |
|
Customer relationships (5 year useful life)
|
|
|
1,100,000 |
|
|
|
|
|
Total intangible assets
|
|
|
1,400,000 |
|
Goodwill
|
|
|
8,100,000 |
|
|
|
|
|
Total intangible assets acquired
|
|
|
9,500,000 |
|
Add fair value of net tangible assets in excess of liabilities
acquired, which approximates book value
|
|
|
1,900,000 |
|
|
|
|
|
Net assets acquired
|
|
$ |
11,400,000 |
|
|
|
|
|
The consideration paid is approximately as follows:
|
|
|
|
|
Cash
|
|
$ |
2,900,000 |
|
Common stock
|
|
|
7,800,000 |
|
Acquisition costs
|
|
|
700,000 |
|
|
|
|
|
Total consideration
|
|
$ |
11,400,000 |
|
|
|
|
|
The Company believes that the intangible assets acquired from
ZettaWorks have useful lives of one to five years. In addition,
the Company intends to continue to expand the combined
companys existing lines of business, and take advantage of
synergies that exist between the Company and ZettaWorks to
further strengthen existing lines of business. The Company
believes that it will benefit from the acquisition for a period
of at least five years and, therefore, considers the
amortization periods appropriate. Using this information, the
Company has made an allocation of the purchase consideration,
including allocation to tangible assets and liabilities,
identifiable intangible assets and goodwill.
Meritage
Technologies, Inc.
The accompanying unaudited condensed consolidated pro forma
income statement reflects the allocation of the purchase price
based on the fair value of the assets acquired and liabilities
assumed. The preliminary allocation of the purchase price is
based on a preliminary evaluation of tangible and intangible
assets acquired and liabilities assumed. The fair values of the
intangible assets acquired are based on an independent
appraisal. The excess of purchase price over the fair value of
net assets acquired reflects the benefits from expansion of the
Companys existing line of business and expected benefits
resulting from consolidation and economies of scale.
F-93
PERFICIENT, INC.
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(CONTINUED)
|
|
|
|
|
Non-Compete (5 year useful life)
|
|
$ |
1,500,000 |
|
Customer relationships (5 year useful life)
|
|
|
300,000 |
|
|
|
|
|
Total intangible assets
|
|
|
1,800,000 |
|
Goodwill
|
|
|
7,400,000 |
|
|
|
|
|
Total assets acquired
|
|
|
9,200,000 |
|
Add fair value of net tangible assets in excess of liabilities
acquired, which approximately book value
|
|
|
1,200,000 |
|
|
|
|
|
Net assets acquired
|
|
$ |
10,400,000 |
|
|
|
|
|
The consideration paid is approximately as follows:
|
|
|
|
|
Cash
|
|
$ |
2,900,000 |
|
Liabilities assumed
|
|
|
2,400,000 |
|
Common stock
|
|
|
4,200,000 |
|
Acquisition costs
|
|
|
900,000 |
|
|
|
|
|
Total consideration
|
|
$ |
10,400,000 |
|
|
|
|
|
The Company believes that the intangible assets acquired from
Meritage have useful lives of five years. In addition, the
Company intends to continue to expand the combined
companys existing lines of business, and take advantage of
synergies that exist between the Company and Meritage to further
strengthen existing lines of business. The Company believes that
it will benefit from the acquisition for a period of at least
five years and, therefore, considers the amortization periods
appropriate. Using this information, the Company has made an
allocation of the purchase consideration, including allocation
to tangible assets and liabilities, identifiable intangible
assets and goodwill.
Genisys Consulting, Inc.
The accompanying unaudited condensed consolidated pro forma
income statement reflects the allocation of the purchase price
based on the fair value of the assets acquired and liabilities
assumed. The allocation of the purchase price is based on an
evaluation of tangible and intangible assets acquired and
liabilities assumed. The fair values of the intangible assets
acquired are based on an independent appraisal. The excess of
purchase price over the fair value of net assets acquired
reflects the benefits from expansion of the Companys
existing line of business and expected benefits resulting from
consolidation and economies of scale.
F-94
PERFICIENT, INC.
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(CONTINUED)
|
|
|
|
|
Customer Relationships (8 year useful life)
|
|
$ |
1,100,000 |
|
Non-Compete (5 year useful life)
|
|
|
350,000 |
|
Backlog (9 month useful life)
|
|
|
200,000 |
|
|
|
|
|
Total intangible assets
|
|
|
1,650,000 |
|
Goodwill
|
|
|
7,450,000 |
|
|
|
|
|
Total assets acquired
|
|
|
9,100,000 |
|
Less fair value of net tangible assets in excess of liabilities
acquired, which approximates book value
|
|
|
(300,000 |
) |
|
|
|
|
Net assets acquired
|
|
$ |
8,800,000 |
|
|
|
|
|
The consideration paid is as follows:
|
|
|
|
|
Cash
|
|
$ |
1,500,000 |
|
Common stock
|
|
|
6,400,000 |
|
Stock options
|
|
|
400,000 |
|
Acquisition costs
|
|
|
500,000 |
|
|
|
|
|
Total consideration
|
|
$ |
8,800,000 |
|
|
|
|
|
Based on an independent appraisal, the Company believes that the
intangible assets acquired from Genisys have useful lives of
nine months to eight years. In addition, the Company intends to
continue to expand the combined companys existing lines of
business, and take advantage of synergies that exist between the
Company and Genisys to further strengthen existing lines of
business. The Company believes that it will benefit from the
acquisition for a period of at least eight years and, therefore,
considers the amortization periods appropriate. Using this
information, the Company has made an allocation of the purchase
consideration, including allocation to tangible assets and
liabilities, identifiable intangible assets and goodwill.
The preceding unaudited pro forma condensed combined statement
of operations does not include any pro forma adjustments for the
following:
|
|
|
|
|
|
Any operating efficiencies and cost savings that may be achieved
with respect to the combined companies. As a result, these pro
forma historical results are not indicative or predictive of
future periods. |
|
|
|
|
The combined companies incurred integration-related expenses as
a result of the elimination of duplicate facilities and
functions, operational realignment and related workforce
reductions. Such costs related to the acquired companies were
recognized as a liability assumed as of the acquisition date,
resulting in additional goodwill, while the Companys
related costs are recognized as an expense through the
statements of operations. |
F-95
PERFICIENT, INC.
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(CONTINUED)
|
|
|
|
Note 3 |
Amortization of acquired intangibles is based on the estimated
economic lives as outlined in Note 2 above. |
|
|
|
Note 4 |
Pro forma weighted average shares includes 800,000 shares
of common stock issued by the Company during second quarter to
raise proceeds for the acquisition of Meritage, and proceeds
from the exercise of 550,000 warrants to fund the acquisitions. |
|
|
|
|
Note 5 |
The Company borrowed to finance these acquisitions. The pro
forma adjustment reflects the debt and the incremental interest
on the debt borrowed to finance these acquisitions. |
|
|
|
|
Note 6 |
Tax effects on pro forma income (loss) before income taxes. |
|
|
|
|
Note 7 |
Redeemable Preferred Stock and related obligations on accretion
of dividends were not assumed by the Company as part of the
acquisition. |
|
|
|
|
Note 8 |
To record the elimination of redeemable members units and
changes in the values of those units which were not acquired by
the Company. |
|
F-96
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
|
|
Item 14. |
Other Expenses of Issuance and Distribution |
The following table sets forth all expenses (other than
underwriting discounts and commissions) payable by us in
connection with the issuance and distribution of the securities
being registered. All amounts shown are estimates, except for
the SEC registration fee, the NASD filing fee and the Nasdaq
National Market additional share listing fee.
|
|
|
|
|
|
SEC registration fee
|
|
$ |
5,750 |
|
NASD filing fee
|
|
|
5,385 |
|
Nasdaq National Market additional share listing fee
|
|
|
45,000 |
|
Printing expenses
|
|
|
150,000 |
|
Accounting fees and expenses
|
|
|
200,000 |
|
Legal fees and expenses
|
|
|
400,000 |
|
Transfer agent and registrar fees and expenses
|
|
|
10,000 |
|
Miscellaneous
|
|
|
33,865 |
|
|
|
|
|
|
Total
|
|
$ |
850,000 |
|
We will bear all expenses shown above.
|
|
Item 15. |
Indemnification of Directors and Officers |
Perficient, Inc. is incorporated under the laws of the State of
Delaware. Subsection (a) of Section 145 of the
Delaware General Corporation Law, or DGCL, empowers a
corporation to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or
completed action, suit or proceeding whether civil, criminal,
administrative or investigative (other than an action by or in
the right of the corporation) by reason of the fact that the
person is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys fees),
judgments, fines and amounts paid in settlement actually and
reasonably incurred by the person in connection with such
action, suit or proceeding if the person acted in good faith and
in a manner the person reasonably believed to be in or not
opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had no reasonable
cause to believe the persons conduct was unlawful.
Subsection (b) of Section 145 empowers a
corporation to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation
to procure a judgment in its favor by reason of the fact that
such person acted in any of the capacities set forth above,
against expenses (including attorneys fees) actually and
reasonably incurred by the person in connection with the defense
or settlement of such action or suit if the person acted in good
faith and in a manner the person reasonably believed to be in or
not opposed to the best interests of the corporation, except
that no indemnification shall be made in respect to any claim,
issue or matter as to which such person shall have been adjudged
to be liable to the corporation unless and only to the extent
that the Court of Chancery or the court in which such action or
suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
Section 145 further provides that to the extent a director
or officer of a corporation has been successful on the merits or
otherwise in the defense of any such action, suit or proceeding
referred to in
II-1
subsections (a) and (b) of Section 145 or in the
defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys fees)
actually and reasonably incurred by him in connection therewith;
that the indemnification provided for by Section 145 shall
not be deemed exclusive of any other rights which the
indemnified party may be entitled; that indemnification provided
by Section 145 shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased
to be a director, officer, employee or agent and shall inure to
the benefit of such persons heirs, executors and
administrators; and empowers the corporation to purchase and
maintain insurance on behalf of a director or officer of the
corporation against any liability asserted against him and
incurred by him in any such capacity, or arising out of his
status as such, whether or not the corporation would have the
power to indemnify him against such liabilities under
Section 145.
Section 102(b)(7) of the DGCL provides that a certificate
of incorporation may contain a provision eliminating or limiting
the personal liability of a director to the corporation or its
stockholders for monetary damages for breach of fiduciary duty
as a director, provided that such provision shall not eliminate
or limit the liability of the director:
|
|
|
|
|
For any breach of the directors duty of loyalty to the
corporation or its stockholders; |
|
|
|
For acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; |
|
|
|
Under Section 174 of the DGCL; or |
|
|
|
For any transaction from which the director derived an improper
personal benefit. |
Article 6 of our Certificate of Incorporation provides
that, to the fullest extent permitted by the DGCL, no director
of the registrant shall be liable to us or our stockholders for
monetary damages for breach of fiduciary duty as a director.
Article 11 of our Bylaws provides that we shall indemnify,
to the fullest extent permitted by the DGCL, any and all of our
directors and officers, or former directors and officers, or any
person who may have served at our request as a director or
officer of another corporation, partnership, joint venture,
trust or other enterprise, against expenses, judgments, fines
and amounts paid in settlement actually and reasonably incurred
by such person in connection with any third party proceeding if
such person acted in good faith and in a manner such person
reasonably believed to be in, or not opposed to, our best
interests and, with respect to any criminal third party
proceeding, had no reasonable cause to believe such conduct was
unlawful.
We have indemnification agreements with each of our directors
and executive officers.
We maintain officers and directors liability
insurance.
II-2
The following exhibits are filed herewith or incorporated by
reference herein:
|
|
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
|
1 |
.1* |
|
|
|
Form of Underwriting Agreement |
|
2 |
.1 |
|
|
|
Agreement and Plan of Merger, dated as of April 2, 2004, by
and among Perficient, Inc., Perficient Genisys, Inc., Genisys
Consulting, Inc. and certain shareholders of Genisys Consulting,
Inc. |
|
2 |
.2 |
|
|
|
Agreement and Plan of Merger, dated as of June 18, 2004, by
and among Perficient, Inc., Perficient Meritage, Inc., Meritage
Technologies, Inc., and Robert Honner, as Stockholder
Representative |
|
2 |
.3# |
|
|
|
Asset Purchase Agreement, dated as of December 17, 2004, by
and among Perficient, Inc., Perficient ZettaWorks, Inc. and
ZettaWorks LLC |
|
4 |
.1+ |
|
|
|
Specimen Certificate for shares of common stock |
|
4 |
.2+ |
|
|
|
Warrant granted to Gilford Securities Incorporated |
|
4 |
.3++ |
|
|
|
Form of Common Stock Purchase Warrant |
|
4 |
.4## |
|
|
|
Form of Common Stock Purchase Warrant |
|
4 |
.5### |
|
|
|
Form of Warrant |
|
5 |
.1* |
|
|
|
Opinion of Vinson & Elkins LLP |
|
23 |
.1* |
|
|
|
Consent of BDO Seidman, LLP |
|
23 |
.2* |
|
|
|
Consent of Ernst & Young LLP |
|
23 |
.3* |
|
|
|
Consent of Ernst & Young LLP |
|
23 |
.4* |
|
|
|
Consent of Grant Thornton LLP |
|
23 |
.5* |
|
|
|
Consent of BKD, LLP |
|
23 |
.6* |
|
|
|
Consent of Vinson & Elkins LLP (included in
Exhibit 5.1 hereto) |
|
24 |
.1 |
|
|
|
Power of Attorney |
|
|
* |
Filed herewith. |
|
|
|
Previously filed with the Securities and Exchange Commission as
an Exhibit to our Current Report on Form 8-K filed on
April 16, 2004 and incorporated herein by reference. |
|
|
|
|
Previously filed with the Securities and Exchange Commission as
an Exhibit to our Current Report on Form 8-K filed on
June 23, 2004 and incorporated herein by reference. |
|
|
|
|
Previously filed. |
|
|
# |
Previously filed with the Securities and Exchange Commission as
an Exhibit to our Current Report on Form 8-K filed on
December 22, 2004 and incorporated by reference herein. |
|
## |
Previously filed with the Securities and Exchange Commission as
an Exhibit to the Companys Current Report on Form 8-K
filed on July 18, 2002 and incorporated herein by reference. |
|
|
### |
Previously filed with the Securities and Exchange Commission as
an Exhibit to our Registration Statement on Form S-3 (File
No. 333-117216) filed on July 8, 2004. |
|
|
|
+ |
Previously filed with the Securities and Exchange Commission as
an Exhibit to our Registration Statement on Form SB-2 (File
No. 333-78337) declared effective on July 28, 1999 by
the Securities and Exchange Commission and incorporated herein
by reference. |
|
|
++ |
Previously filed with the Securities and Exchange Commission as
an Exhibit to the Companys Current Report on Form 8-K
filed on January 17, 2002 and incorporated herein by
reference. |
II-3
(a) The undersigned registrant
hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the
registrants annual report pursuant to Section 13(a)
or Section 15(d) of the Securities Exchange Act of 1934
(and, where applicable, each filing of an employee benefits
plans annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by
reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(b) The undersigned registrant
hereby undertakes that:
|
|
|
(1) For purposes of determining any
liability under the Securities Act of 1933, the information
omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective. |
|
|
(2) For the purpose of determining
any liability under the Securities Act of 1933, each
post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof. |
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on
Form S-3 and has duly caused this Registration Statement to
be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Austin, State of Texas, on
April 8, 2005.
|
|
|
|
|
John T. McDonald |
|
Chief Executive Officer |
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons
in the capacities and on the dates indicated.
|
|
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
|
/s/ John T. McDonald
John
T. McDonald |
|
Chief Executive Officer and Chairman of the Board (Principal
Executive Officer) |
|
April 8, 2005
|
|
/s/ Michael D. Hill
Michael
D. Hill |
|
Chief Financial Officer (Principal Financial and Accounting
Officer) |
|
April 8, 2005
|
|
/s/ Ralph C.
Derrickson*
Ralph
C. Derrickson |
|
Director |
|
April 8, 2005
|
|
/s/ Kenneth R. Johnsen*
Kenneth
R. Johnsen |
|
Director |
|
April 8, 2005
|
|
/s/ David S. Lundeen*
David
S. Lundeen |
|
Director |
|
April 8, 2005
|
|
/s/ Robert E.
Pickering, Jr.*
Robert
E. Pickering, Jr. |
|
Director |
|
April 8, 2005
|
|
*By: |
|
/s/ Michael D. Hill
Michael
D. Hill
Attorney-in-Fact |
|
|
|
|
II-5
EXHIBIT INDEX
|
|
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
|
1 |
.1* |
|
|
|
Form of Underwriting Agreement |
|
2 |
.1 |
|
|
|
Agreement and Plan of Merger, dated as of April 2, 2004, by
and among Perficient, Inc., Perficient Genisys, Inc., Genisys
Consulting, Inc. and certain shareholders of Genisys Consulting,
Inc. |
|
2 |
.2 |
|
|
|
Agreement and Plan of Merger, dated as of June 18, 2004, by
and among Perficient, Inc., Perficient Meritage, Inc., Meritage
Technologies, Inc., and Robert Honner, as Stockholder
Representative |
|
2 |
.3# |
|
|
|
Asset Purchase Agreement, dated as of December 17, 2004, by
and among Perficient, Inc., Perficient ZettaWorks, Inc. and
ZettaWorks LLC |
|
4 |
.1+ |
|
|
|
Specimen Certificate for shares of common stock |
|
4 |
.2+ |
|
|
|
Warrant granted to Gilford Securities Incorporated |
|
4 |
.3++ |
|
|
|
Form of Common Stock Purchase Warrant |
|
4 |
.4## |
|
|
|
Form of Common Stock Purchase Warrant |
|
4 |
.5### |
|
|
|
Form of Warrant |
|
5 |
.1* |
|
|
|
Opinion of Vinson & Elkins LLP |
|
23 |
.1* |
|
|
|
Consent of BDO Seidman, LLP |
|
23 |
.2* |
|
|
|
Consent of Ernst & Young LLP |
|
23 |
.3* |
|
|
|
Consent of Ernst & Young LLP |
|
23 |
.4* |
|
|
|
Consent of Grant Thornton LLP |
|
23 |
.5* |
|
|
|
Consent of BKD, LLP |
|
23 |
.6* |
|
|
|
Consent of Vinson & Elkins LLP (included in
Exhibit 5.1 hereto) |
|
24 |
.1 |
|
|
|
Power of Attorney |
|
|
|
* |
|
Filed herewith. |
|
|
|
|
Previously filed with the Securities and Exchange Commission as
an Exhibit to our Current Report on Form 8-K filed on
April 16, 2004 and incorporated herein by reference. |
|
|
|
|
|
Previously filed with the Securities and Exchange Commission as
an Exhibit to our Current Report on Form 8-K filed on
June 23, 2004 and incorporated herein by reference. |
|
|
|
|
Previously filed. |
|
# |
|
Previously filed with the Securities and Exchange Commission as
an Exhibit to our Current Report on Form 8-K filed on
December 22, 2004 and incorporated by reference herein. |
|
## |
|
Previously filed with the Securities and Exchange Commission as
an Exhibit to the Companys Current Report on Form 8-K
filed on July 18, 2002 and incorporated herein by reference. |
|
|
### |
|
Previously filed with the Securities and Exchange Commission as
an Exhibit to our Registration Statement on Form S-3
(File No. 333-117216) filed on July 8, 2004. |
|
|
+ |
|
Previously filed with the Securities and Exchange Commission as
an Exhibit to our Registration Statement on Form SB-2 (File
No. 333-78337) declared effective on July 28, 1999 by
the Securities and Exchange Commission and incorporated herein
by reference. |
|
++ |
|
Previously filed with the Securities and Exchange Commission as
an Exhibit to the Companys Current Report on Form 8-K
filed on January 17, 2002 and incorporated herein by
reference. |