e10vq
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|
|
|
þ |
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended March 31, 2007
OR
|
|
|
o |
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the Transition Period from to
Commission file number 000-26679
ART TECHNOLOGY GROUP, INC.
(Exact name of registrant as specified in its charter)
|
|
|
Delaware
|
|
04-3141918 |
(State or other jurisdiction of incorporation or organization)
|
|
(I.R.S. Employer Identification Number) |
One Main Street, Cambridge, Massachusetts
(Address of principal executive offices)
02142
(Zip Code)
(617) 386-1000
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to
be filed by Sections 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes þ
No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated
filer in Rule 12b-2 of the Exchange Act. (Check One):
Large accelerated filer o Accelerated filer þ Non accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
As of
May 7, 2007 there were 127,916,159 shares of the Registrants common stock outstanding.
ART TECHNOLOGY GROUP, INC.
INDEX TO FORM 10-Q
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ART TECHNOLOGY GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
27,128 |
|
|
$ |
17,911 |
|
Marketable securities |
|
|
10,339 |
|
|
|
13,312 |
|
Accounts receivable, net of reserves of $466 ($447 in 2006) |
|
|
29,949 |
|
|
|
34,554 |
|
Term
receivables, current |
|
|
731 |
|
|
|
55 |
|
Prepaid expenses and other current assets |
|
|
3,604 |
|
|
|
2,446 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
71,751 |
|
|
|
68,278 |
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
|
6,094 |
|
|
|
5,326 |
|
Goodwill |
|
|
59,328 |
|
|
|
59,328 |
|
Intangible assets, net |
|
|
14,787 |
|
|
|
16,013 |
|
Other assets |
|
|
1,311 |
|
|
|
1,036 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
153,271 |
|
|
$ |
149,981 |
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
2,996 |
|
|
$ |
2,607 |
|
Accrued expenses |
|
|
12,827 |
|
|
|
15,791 |
|
Deferred revenue |
|
|
27,744 |
|
|
|
23,708 |
|
Accrued restructuring, short-term |
|
|
1,050 |
|
|
|
1,213 |
|
Capital lease obligations, current portion |
|
|
39 |
|
|
|
56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
44,656 |
|
|
|
43,375 |
|
|
|
|
|
|
|
|
|
|
Accrued restructuring, less current portion |
|
|
866 |
|
|
|
1,031 |
|
Long-term deferred revenue |
|
|
2,688 |
|
|
|
501 |
|
Commitments and contingencies ( Notes 6 and 7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity: |
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value; Authorized
-10,000,000 shares; Issued and outstanding-no shares |
|
|
|
|
|
|
|
|
Common stock, $0.01 par value; Authorized-200,000,000 shares; |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued and outstanding-127,417,194 shares and 127,055,373 shares at
March 31, 2007 and December 31, 2006, respectively |
|
|
1,274 |
|
|
|
1,270 |
|
Additional paid-in capital |
|
|
297,879 |
|
|
|
296,291 |
|
Accumulated deficit |
|
|
(193,019 |
) |
|
|
(191,558 |
) |
Accumulated other comprehensive loss |
|
|
(1,073 |
) |
|
|
(929 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
105,061 |
|
|
|
105,074 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
153,271 |
|
|
$ |
149,981 |
|
|
|
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
ART TECHNOLOGY GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
March 31, |
|
|
|
2007 |
|
|
2006 |
|
Revenues: |
|
|
|
|
|
|
|
|
Product licenses |
|
$ |
6,609 |
|
|
$ |
8,100 |
|
Services |
|
|
22,623 |
|
|
|
15,856 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
29,232 |
|
|
|
23,956 |
|
|
|
|
|
|
|
|
|
|
Cost of Revenues: |
|
|
|
|
|
|
|
|
Product licenses |
|
|
540 |
|
|
|
498 |
|
Services |
|
|
10,741 |
|
|
|
6,665 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues |
|
|
11,281 |
|
|
|
7,163 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit |
|
|
17,951 |
|
|
|
16,793 |
|
|
|
|
|
|
|
|
|
|
Operating Expenses: |
|
|
|
|
|
|
|
|
Research and development |
|
|
5,385 |
|
|
|
4,827 |
|
Sales and marketing |
|
|
9,940 |
|
|
|
6,923 |
|
General and administrative |
|
|
4,603 |
|
|
|
2,680 |
|
Restructuring (benefit) |
|
|
(68 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
19,860 |
|
|
|
14,430 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
|
|
(1,909 |
) |
|
|
2,363 |
|
Interest and other income, net |
|
|
448 |
|
|
|
278 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for income taxes |
|
|
(1,461 |
) |
|
|
2,641 |
|
Provision for income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(1,461 |
) |
|
$ |
2,641 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share |
|
$ |
(0.01 |
) |
|
$ |
0.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share |
|
$ |
(0.01 |
) |
|
$ |
0.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average common shares outstanding |
|
|
127,194 |
|
|
|
110,928 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average common shares outstanding |
|
|
127,194 |
|
|
|
115,774 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
ART TECHNOLOGY GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2007 |
|
|
2006 |
|
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(1,461 |
) |
|
$ |
2,641 |
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
1,854 |
|
|
|
1,050 |
|
Non-cash stock-based compensation expense |
|
|
1,084 |
|
|
|
594 |
|
Changes in current assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
4,605 |
|
|
|
1,034 |
|
Term receivables |
|
|
(676 |
) |
|
|
|
|
Prepaid expenses and other current assets |
|
|
(1,158 |
) |
|
|
(488 |
) |
Deferred costs |
|
|
(284 |
) |
|
|
|
|
Deferred rent |
|
|
|
|
|
|
141 |
|
Accounts payable |
|
|
389 |
|
|
|
491 |
|
Accrued expenses |
|
|
(2,171 |
) |
|
|
(2,080 |
) |
Deferred revenue |
|
|
6,223 |
|
|
|
436 |
|
Accrued restructuring |
|
|
(328 |
) |
|
|
(1,046 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
8,077 |
|
|
|
2,773 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
Purchases of marketable securities |
|
|
(1,678 |
) |
|
|
(3,643 |
) |
Maturities of marketable securities |
|
|
4,650 |
|
|
|
5,851 |
|
Purchases of property and equipment |
|
|
(1,399 |
) |
|
|
(1,001 |
) |
Payment of acquisition costs |
|
|
(793 |
) |
|
|
|
|
Increase (decrease) in other assets |
|
|
9 |
|
|
|
(9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by investing activities |
|
|
789 |
|
|
|
1,198 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options |
|
|
234 |
|
|
|
713 |
|
Proceeds from employee stock purchase plan |
|
|
202 |
|
|
|
150 |
|
Principal payments on notes payable |
|
|
|
|
|
|
(16 |
) |
Payments on capital leases |
|
|
(17 |
) |
|
|
(21 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
419 |
|
|
|
826 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign exchange rate changes on cash and cash equivalents |
|
|
(68 |
) |
|
|
(3 |
) |
Net increase in cash and cash equivalents |
|
|
9,217 |
|
|
|
4,794 |
|
Cash and cash equivalents, beginning of period |
|
|
17,911 |
|
|
|
24,060 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
27,128 |
|
|
$ |
28,854 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
ART TECHNOLOGY GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) Organization, Business and Summary of Significant Accounting Policies
Art Technology Group, Inc. (ATG or the Company) develops and markets a comprehensive suite of
e-commerce software products, as well as provides related services including support and
maintenance, education, application hosting, professional services and proactive conversion
solutions for enhancing online sales and support.
(a) Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements of the Company have been
prepared pursuant to the rules of the Securities and Exchange Commission for quarterly reports on
Form 10-Q. The disclosures do not include all of the information and footnotes required by United
States generally accepted accounting principles, and while the Company believes that the
disclosures presented are adequate to make the information presented not misleading, these
financial statements should be read in conjunction with the audited financial statements and
related notes included in the Companys 2006 Annual Report on Form 10-K. In the opinion of
management, the accompanying unaudited condensed consolidated financial statements and notes
contain all adjustments, consisting of normal recurring accruals, considered necessary for a fair
presentation of the Companys financial position, results of operations and cash flows at the dates
and for the periods indicated. The operating results for the three months ended March 31, 2007 are
not necessarily indicative of the results to be expected for the full year ending December 31,
2007.
The accompanying consolidated financial statements include the accounts of ATG and its wholly owned
subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
Certain
amounts have been reclassified to conform to the current period presentation
such amounts were not material to the financial
statements.
(b) Use of Estimates
The preparation of consolidated financial statements in conformity with United States generally
accepted accounting principles requires management to make estimates
and assumptions. These estimates and assumptions may 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.
(c) Accounts
Receivable
Accounts
receivable represents amounts currently due from customers for which
revenue has been recognized or is being recognized ratably in future
periods, and amounts currently due under contract billings, which
revenue has not been recognized. Term receivables include the remaining
committed amounts due from customers, for which no revenue has been
recognized.
(d) Revenue Recognition
ATG recognizes application hosting revenue and proactive
conversion solutions revenue in accordance with Emerging Issues Task Force (EITF) Issue No. 00-3,
Application of AICPA Statement of Position 97-2 to Arrangements that include the Right to Use
Software Stored on Another Entitys Hardware, the Securities and Exchange Commissions Staff Accounting
Bulletin No. 104, Revenue Recognition, and EITF Issue No. 00-21, Revenue Arrangements with
Multiple Deliverables. Revenue is recognized only when persuasive evidence of an arrangement
exists, the fee is fixed or determinable, the service is performed and collectibility of the
resulting receivable is reasonably assured. In addition, the delivered element must have
stand-alone value and ATG must have specific objective evidence of fair value of the undelivered
elements.
At the
inception of a customer contract, ATG makes a judgment as to the customers ability to pay
for the services provided. This judgment is based on a combination of factors, including the
successful completion of a credit check or financial review, payment history with the customer and
other forms of payment assurance. Upon the completion of these steps and provided all other revenue
recognition criteria are met, ATG recognizes revenue consistent with
its revenue recognition
policies provided below.
ATG also licenses software under perpetual license agreements. ATG applies the provisions of
Statement of Position (SOP, 97-2), Software Revenue Recognition, as amended by SOP 98-9,
Modifications of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions. In
accordance with SOP 97-2 and SOP 98-9, revenues from software product license agreements are
recognized upon execution of a license agreement and delivery of the software, provided that the
fee is fixed or determinable and deemed collectible by management
provided the Company has vendor-specific objective evidence of fair
value of the undelivered elements. If conditions for acceptance are
required subsequent to delivery, revenues are recognized upon customer acceptance if such
acceptance is not deemed to be perfunctory.
In accordance with SOP 97-2 and SOP 98-9, ATG applies the residual method of accounting to its
multiple element arrangements. The residual method requires that the portion of the total
arrangement fee attributable to the undelivered elements based on vendor specific objective
evidence of fair value of those undelivered elements is deferred and subsequently recognized when
delivered. The difference between the total arrangement fee and the amount deferred for the
undelivered elements is recognized as revenue related to the delivered elements, which is generally
the software license, if all other revenue recognition criteria of
SOP 97-2 are met. ATG sells support and maintenance
services at the same time as the license transaction for which it has established vendor specific
objective evidence of fair value of its support and maintenance services based on selling these
services separately. In addition, many of the
Companys software arrangements include consulting implementation services sold separately.
Consulting revenues from these arrangements are generally accounted for separately from software
licenses because the consulting services qualify as a separate element under SOP 97-2. The more
significant factors considered in determining whether the revenue should be accounted for
6
separately include the nature of services (i.e., consideration of whether the services are
essential to the functionality of the licensed product), degree of risk, availability of services
from other vendors, timing of payments and impact of milestones or acceptance criteria on the
realizability of the software license fee. Consequently, in arrangements that do not include
application hosting services or proactive conversion solutions, product license revenue is
generally recognized when the software products are shipped.
Revenues from support and maintenance services are recognized ratably over the term of the
maintenance period, which is typically one year.
ATG derives revenue from the sale of application hosting and proactive conversion solutions by
providing services to customers who have executed contracts with terms of one year or longer. These
contracts generally commit the customer to a minimum monthly level of usage and provide the rate at
which the customer must pay for actual usage above the monthly minimum. For these services, ATG
recognizes the minimum monthly fee as the service is provided. Should a customers usage of these
services exceed the monthly minimum, ATG recognizes revenue for such excess usage in the period of
the usage. ATG typically charges the customer set-up and installation fees, which are recorded as
deferred revenue and recognized as revenue ratably over the estimated life of the customer
arrangement.
In certain instances the Company enters into arrangements to sell perpetual software licenses
that will be hosted by ATG or in conjunction with proactive conversion solutions. In these cases,
ATG recognizes the fee for the entire arrangement ratably over the hosting period or estimated life
of the customer arrangement, whichever is longer. ATG currently estimates the life of the customer arrangement to be four years. In accordance with EITF 00-21, all elements of
the arrangement are considered to be a single unit of accounting. The fees generally include the
software license, set-up and implementation services, support and maintenance services and the
monthly hosting fee, Revenue recognition for the entire arrangement is deferred until the hosting
service commences, which is referred to as the go live date. In addition, the costs incurred for the
set up and implementation are deferred until the start of the hosting
period and are amortized to cost of services revenue ratably over the estimated hosting period.
Deferred costs include incremental direct costs with third parties and certain internal direct
costs related to the set-up and implementation services, as defined under SFAS No. 91, Accounting
for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Indirect Costs
of Leases. These costs include salary and benefits associated with direct labor costs incurred
during trial set up and implementation, as well as third-party subcontract fees and other contract
labor costs. The Company deferred $284,000 of set up and implementation costs during the three
months ended March 31, 2007 and has not amortized any of these costs during the three months ended March 31, 2007. No such costs were deferred in
2006.
Revenues from professional service arrangements are generally recognized on a
time-and-materials basis as the services are performed, provided that amounts due from customers
are fixed or determinable and deemed collectible by management. Amounts collected prior to
satisfying the above revenue recognition criteria are reflected as deferred revenue.
ATG also
sells its software licenses through a reseller channel. Assuming all revenue recognition
criteria are met, ATG recognizes revenue from reseller arrangements
upon shipment. ATG does not grant resellers the right of return or price protection. Deferred
revenue primarily consists of advance payments related to support and
maintenance, hosting, service agreements and deferred product licenses.
(e) Net Income (Loss) Per Share
Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average
number of shares of common stock outstanding during the period. Diluted net income per share is
computed by dividing net income by the weighted average number of shares of common stock
outstanding plus the dilutive effect of common stock equivalents using the treasury stock method.
Common stock equivalents consist of stock options and restricted stock awards. In accordance with
SFAS 123R, the assumed proceeds under the treasury stock method include the average unrecognized
compensation expense of stock options that are in-the-money. This results in the assumed buyback
of additional shares thereby reducing the dilutive impact of stock options.
7
The following table sets forth the computation of basic and diluted net income (loss) per share for
the three month periods ended March 31, 2007 and 2006. (in thousands, except for per share
amounts):
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
|
2007 |
|
|
2006 |
|
Net income (loss) |
|
$ |
(1,461 |
) |
|
$ |
2,641 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding used in
computing basic net income (loss) per share |
|
|
127,194 |
|
|
|
110,928 |
|
|
|
|
|
|
|
|
|
|
Dilutive employee common stock options |
|
|
|
|
|
|
4,846 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total weighted average common stock and common stock
equivalent shares outstanding used in computing diluted
net income (loss) per share |
|
|
127,194 |
|
|
|
115,774 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share |
|
$ |
(0.01 |
) |
|
$ |
0.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share |
|
$ |
(0.01 |
) |
|
$ |
0.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive
common stock options and restricted shares |
|
|
15,484 |
|
|
|
3,148 |
|
|
|
|
|
|
|
|
(f) Income Taxes
ATG expects to have no Federal and minimal foreign income taxes in 2007 due to its projection of
taxable losses in domestic and certain foreign locations in 2007 and the use of net operating loss
carryforwards. Accordingly, no taxes have been recorded for the three months ended March 31, 2007.
As a result of historical net operating losses incurred, and after evaluating its anticipated
performance over its normal planning horizon, the Company has provided for a full valuation
allowance for its net operating loss carry-forwards, research credit carry-forwards and other net
deferred tax assets. The primary differences between book and tax income that give rise to a tax
loss for 2007 are due to the amortization of capitalized research and development expenses and
estimated lease restructuring payments, partially offset by SFAS 123R
stock compensation expenses. ATG adopted FIN No. 48, Accounting for
Uncertainty in Income Taxes on January 1, 2007.
See Note 5.
(g) Stock Based Compensation
On December 16, 2004, the Financial Accounting Standards Board (FASB) issued SFAS 123 (revised
2004), Share-Based Payment (SFAS 123R). SFAS 123R supersedes APB Opinion No. 25, Accounting for
Stock Issued to Employees, and amends SFAS No. 95, Statement of Cash Flows. Generally, the approach
in SFAS 123R is similar to the approach described in SFAS 123. However, SFAS 123R requires all
share-based payments to employees, including grants of employee stock options, to be recognized in
the income statement based on their fair values at the date of grant. Pro forma disclosure is no
longer an alternative. On January 1, 2006 (the first day of its 2006 fiscal year), the Company
adopted SFAS 123R using the modified prospective method as permitted under SFAS 123R. Under this
transition method, compensation cost recognized beginning in the first quarter of fiscal 2006
includes: (a) compensation cost for all share-based payments granted prior to but not yet vested as
of December 31, 2005, based on the grant-date fair value estimated in accordance with the
provisions of SFAS 123, and (b) compensation cost for all share-based payments granted subsequent
to December 31, 2005, based on the grant-date fair value estimated in accordance with the
provisions of SFAS 123R. In accordance with the modified prospective method of adoption, the
Companys results of operations and financial position for prior periods have not been restated.
Equity Compensation Plans
The
Company currently grants stock options, restricted stock, restricted stock units and other stock
based awards under the following equity compensation plans:
1996 Stock Option Plan
In April 1996, the 1996 Stock Option Plan (the 1996 Plan) was approved by ATGs Board of Directors
and stockholders. The purpose of the 1996 Plan is to reward employees, officers and directors and
consultants and advisors to ATG who are expected to contribute to the growth and success of ATG.
The 1996 Plan provides for the award of options to purchase shares of ATGs common stock. Stock
options granted under the 1996 Plan may be either incentive stock options or nonqualified stock
options. In 2004, shareholders approved resolutions to amend and restate the 1996 Plan to allow for
the grant of restricted stock awards, performance share awards and other forms of equity based
compensation that were not previously provided for in the plan and to extend the term of the 1996
Plan to December 31, 2013. On April 5, 2007, ATGs board of directors approved, subject to the
approval of ATGs stockholders at ATGs 2007 annual meeting, the amendment and restatement of the
1996 Plan to: (i) remove the sub-limit on awards other than options and stock appreciation rights;
(ii) reaffirm that the exercise price of options and stock appreciation rights shall not be less
than
the fair market value per share of the common stock on the date of option grant; (iii) indicate
that the full number of shares underlying the exercised portion of a stock appreciation right count
against the pool; (iv) allow for a net exercise, where ATG would withhold
8
shares to satisfy the
exercise price for an award under the 1996 Plan; (v) reaffirm that the maximum term for an option
grant is ten years; (vi) provide that each award authorized under the 1996 Plan after April 5,
2007, excluding options and stock appreciation rights, counts as 1.24 shares against the 1996 Plan
limit; (vii) disallow the repricing of options; and (viii) prohibit stock appreciation rights from
being valued based upon other market growth. On April 19, 2007 the 1996 Plan was amended and
restated to (i) limit the duration of stock appreciation rights to be exercisable no more than 10
years after the date on which they are granted; (ii) remove the boards discretion as to the
transferability of awards in order to clarify that options are not transferable; (iii) remove the
boards ability to substitute another award of the same or different type for an outstanding award
under the plan; (iv) and clarify that the effect of an amendment to the plan has the same impact as
to awards under the plan as an amendment and restatement. The 1996 Plan is administered by the
Board of Directors, which has the authority to designate participants, determine the number and
type of awards to be granted, the time at which awards are exercisable, the method of payment and
any other terms or conditions of the awards. While the Board determines the prices at which options
may be exercised under the 1996 Plan, the exercise price of a stock option shall be at least 100%
(110% for incentive stock options granted to a 10% stockholder) of the fair market value of ATGs
common stock on the date of grant. As of March 31, 2007, there
were 6,304,134 shares available for future grant under the 1996 Plan.
1999 Outside Director Stock Option Plan
The 1999 Outside Director Stock Option Plan (the Director Plan) was adopted by ATGs Board of
Directors and approved by stockholders in May 1999. Under the terms of the Director Plan,
non-employee directors of ATG receive nonqualified options to purchase shares of ATGs common
stock. In 2004, shareholders approved resolutions to amend and restate the Director Plan to allow
for the grant of restricted stock awards, performance share awards and other forms of equity based
compensation that were not previously provided for in the plan and to extend the term of the
Director Plan to December 31, 2013.
On April 4, 2006, the Company amended its
Non-Employee Director Compensation Plan. The changes to the plan provide that (i) the vesting of
the annual stock option awards to the Companys non-employee
directors under the plan changed from
quarterly vesting over one year to quarterly vesting over two years, with full acceleration of
vesting upon a change of control of the Company; and (ii) the amount of the Companys annual
restricted stock awards to the Companys non-employee directors
under the plan increased from issuing shares
of the Companys common stock valued at $2,500 to shares of our common stock valued at $4,500.
On April 5, 2007, ATGs board of directors approved,
subject to the approval of ATGs stockholders at ATGs 2007 annual meeting, the amendment and
restatement of the Director Plan to: (i) increase the common stock authorized under the Director
Plan to 2,000,000 shares; (ii) remove the 100,000 share limit on awards other than options; (iii)
reaffirm that the exercise price of options shall not be less than the fair market value per share
of the common stock on the date of option grant; (iv) allow for a net exercise, where we would
withhold shares to satisfy the exercise price for an award under the Director Plan; (v) provide
that each award authorized under the Director Plan after April 5, 2007, excluding options, counts
as 1.24 shares against the Director Plan limit; and (vi) disallow the repricing of options. On
April 19, 2007 the Director Plan was amended and restated to (i) clarify that the effect of an
amendment to the plan has the same impact as to awards under the plan as an amendment and
restatement; and (ii) remove the boards discretion as to the transferability of awards in order
to clarify that options are not transferable. As of March 31,
2007, there were a total of 91,210 shares of common stock
available for future grant under the Director Plan.
Primus Stock Option Plans
In connection with the acquisition of Primus Knowledge Solutions, Inc., the Company assumed certain
options, pursuant to the terms of the merger agreement, issued under the Primus Solutions 1999
Stock Incentive Compensation Plan (the Primus 1999 Plan) and the Primus Solutions 1999 Non-Officer
Employee Stock Compensation Plan (the Primus 1999 NESC Plan) (together the Primus Stock Option
Plans) subject to the same terms and conditions as set forth in the Primus Stock Option Plans,
adjusted to give effect to the conversion under the terms of the merger agreement. All options
assumed by the Company pursuant to the Primus Stock Option Plans were fully vested upon the closing
of the acquisition and converted to options to acquire ATG common stock. Options granted under the
Primus Stock Option Plans typically vest over four years and remain exercisable for a period not to
exceed ten years.
While the Company may grant to employees options that become exercisable at different times or
within different periods, the Company has generally granted to employees options that vest and
become exercisable in an installment of 25% on the first anniversary of the date of grant
and then vest and become exercisable in installments of 6.25% per
quarter over the following three
years. The maximum contractual term of all options is ten years.
In April 2007, the Primus 1999 Plan was amended to: (i) provide that to the extent applicable, no
stock award may be exercisable more than 10 years after the date of grant; (ii) remove the ability
of the plan administrator to permit assignment or transfer of an award; (iii) reduce the number of
shares issuable under the plan; (iv) clarify that options may only be issued at fair market value;
(v) clarify that no option may have a term longer than 10 years; (vi) allow for the payment of an
option exercise by net exercise; and (vii) prohibit loans to
directors or executive officers. As of March 31, 2007 there were
a total of 1,874,290 shares available for future grant under the
Primus Plan.
1999 Employee Stock Purchase Plan
The 1999 Employee Stock Purchase Plan (the Stock Purchase Plan) was adopted by ATGs Board of
Directors and approved by stockholders in May 1999. The Stock Purchase Plan, as amended, authorizes
the issuance of up to a total of 6,500,000 shares of ATGs common stock to participating employees.
All ATG employees, including directors who are employees, are eligible to
participate in the Stock Purchase Plan. The purchase price is 85% of the closing market price of
ATGs common stock on either: (1) the first business day of the offering period or (2) the last
business day of the offering period, whichever is lower. The Stock
9
Purchase Plan offering period is
quarterly. As such, the first day of each quarter is the beginning of each offering period and is
the grant date for the purposes of recognizing the stock-based compensation expense. Under APB
Opinion No. 25, the Company was not required to recognize stock-based compensation expense for the
cost of stock options or shares issued under the Companys Stock Purchase Plan. Upon adoption of
SFAS 123R, the Company began recording stock-based compensation expense related to the Stock
Purchase Plan. As of March 31, 2007 there are 1,176,813 shares
available under the Stock Purchase Plan.
Grant-Date Fair Value
The Company uses the Black-Scholes option pricing model to calculate the grant-date fair value of
stock options. Information pertaining to stock options granted during the first quarter of 2007
and 2006 and related weighted average assumptions is as follows:
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
Stock Options |
|
2007 |
|
2006 |
Options granted (in thousands) |
|
|
489 |
|
|
|
2,307 |
|
Weighted-average exercise price |
|
$ |
2.36 |
|
|
$ |
2.90 |
|
Weighted-average grant date fair-value |
|
$ |
1.95 |
|
|
$ |
2.51 |
|
Assumptions: |
|
|
|
|
|
|
|
|
Expected volatility |
|
|
101 |
% |
|
|
115 |
% |
Expected term (in years) |
|
|
6.25 |
|
|
|
6.25 |
|
Risk-free interest rate |
|
|
4.75 |
% |
|
|
4.55 |
% |
Expected dividend yield |
|
|
|
% |
|
|
|
% |
Expected volatility The Company has determined that the historical volatility of its common stock
is the best indicator of the future volatility of the Companys common stock. As such, the Company
uses historical volatility to estimate the grant-date fair value of stock options. Historical
volatility is calculated for the period that is commensurate with the stock options expected term.
Expected
term Since adopting SFAS 123R the Company has been unable to use historical
employee exercise and option expiration data to estimate the expected term assumption for the
Black-Scholes grant-date valuation. The Company has utilized the safe harbor provision in Staff
Accounting Bulletin No. 107 to determine the expected term of its stock options.
Risk-free interest rate The yield on zero-coupon U.S. Treasury securities for a period that is
commensurate with the expected term is used as the risk-free interest rate.
Expected dividend yield The Companys Board of Directors historically has not declared cash
dividends and does not expect to issue cash dividends in the future. As such, the Company uses a 0%
expected dividend yield.
Stock-Based Compensation Expense
The
Company uses the straight-line attribution method to recognize stock-based compensation expense
for stock options. The amount of stock-based compensation expense recognized during a period is
based on the value of the portion of the awards that are ultimately expected to vest. SFAS 123R
requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent
periods if actual forfeitures differ from those estimates. The term forfeitures is distinct from
cancellations or expirations and represents only the unvested portion of the surrendered
option. The Company has applied an annual forfeiture rate of 6.9% to all unvested options as of
March 31, 2007. This analysis is re-evaluated quarterly and the forfeiture rate is adjusted as
necessary. Ultimately, the actual expense recognized over the vesting period will only be for those
stock options that vest.
During
the three months ended March 31, 2007 and 2006, stock-based
compensation related to stock options was $932,000 and
$594,000, respectively.
Option Activity
A summary of the activity under the Companys stock option plans as of March 31, 2007 and changes
during the three-month period then ended, is presented below (in thousands, except per share
amounts):
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
Weighted |
|
|
|
|
|
|
|
|
Average |
|
Average |
|
|
|
|
|
|
|
|
Exercise |
|
Remaining |
|
Aggregate |
|
|
Options |
|
Price |
|
Contractual |
|
Intrinsic |
|
|
Outstanding |
|
Per Share |
|
Term in Years |
|
Value |
Options outstanding at December 31, 2006 |
|
|
15,229 |
|
|
$ |
2.55 |
|
|
|
7.70 |
|
|
$ |
11,742 |
|
Options granted |
|
|
489 |
|
|
$ |
2.36 |
|
|
|
|
|
|
|
|
|
Options exercised |
|
|
(209 |
) |
|
$ |
1.12 |
|
|
|
|
|
|
|
|
|
Options forfeited |
|
|
(333 |
) |
|
$ |
2.73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at March 31, 2007 |
|
|
15,176 |
|
|
$ |
2.56 |
|
|
|
7.5 |
|
|
$ |
11,344 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at March 31, 2007 |
|
|
8,722 |
|
|
$ |
2.93 |
|
|
|
6.8 |
|
|
$ |
8,298 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options vested or expected to vest at March 31, 2007 (1) |
|
|
14,593 |
|
|
$ |
2.57 |
|
|
|
8.0 |
|
|
$ |
11,137 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
In addition to the vested options, the Company expects a portion
of the unvested options to vest at some point in the future.
Options expected to vest is calculated by applying an estimated
forfeiture rate to the unvested options. |
During the three months ended March 31, 2007 and 2006, the total intrinsic value of options
exercised (i.e. the difference between the market price at exercise and the price paid by the
employee to exercise the options) was $0.2 and $1.2 million and the total amount of cash received
from exercise of these options was $234,000 and $713,000, respectively.
A summary of the Companys restricted stock award activity as of March 31, 2007 and changes during
the period then ended is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
Restricted |
|
|
Average Grant |
|
|
|
Shares |
|
|
Date Fair Value |
|
|
|
Outstanding |
|
|
Per Share |
|
Non-Vested shares outstanding at December 31, 2006 |
|
|
354 |
|
|
$ |
2.52 |
|
Awards granted |
|
|
|
|
|
|
|
|
Restrictions lapsed |
|
|
(46 |
) |
|
|
2.47 |
|
Awards forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Vested shares outstanding at March 31, 2007 |
|
|
308 |
|
|
$ |
2.53 |
|
|
|
|
|
|
|
|
As of March 31, 2007, there was $10.5 million of total unrecognized compensation cost related to
unvested share-based awards. That cost is expected to be recognized over a weighted-average period
of 1.4 years.
11
(h) Comprehensive Income (Loss)
SFAS No. 130, Reporting Comprehensive Income, requires financial statements to include the
reporting of comprehensive income (loss), which includes net income (loss) and certain transactions
that have generally been reported in the statement of stockholders equity. Comprehensive income
consists of net income (loss) and foreign currency translation adjustments. The components of
comprehensive income (loss) at March 31, 2007 and 2006 are as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
(in thousands) |
|
|
|
2007 |
|
|
2006 |
|
Net income (loss) |
|
$ |
(1,461 |
) |
|
$ |
2,641 |
|
Foreign currency translation adjustment |
|
|
(144 |
) |
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) |
|
$ |
(1,605 |
) |
|
$ |
2,637 |
|
|
|
|
|
|
|
|
(i) Concentrations of Credit Risk and Major Customers
Financial instruments that potentially subject the Company to concentrations of credit risk consist
principally of marketable securities and accounts receivable. ATG maintains cash, cash equivalents
and marketable securities with high credit quality financial institutions. To reduce its
concentration of credit risk with respect to accounts receivable, the Company routinely assesses
the financial strength of its customers through continuing credit evaluations. The Company
generally does not require collateral.
At March 31, 2007 and December 31, 2006 no customer balance accounted for 10% or more of accounts
receivable. No customer in the three-month period ended March 31, 2007 accounted for 10% or more of
total revenues. One customer accounted for 10% of the Companys revenues for the three months ended
March 31, 2006.
(j) New Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, (SFAS 157). SFAS 157
defines fair value, establishes a framework for measuring fair value in generally accepted
accounting principles, and expands disclosures about fair value measurements. SFAS 157 does not
require any new fair value measurements but may change current practice for some entities. SFAS 157
is effective for financial statements issued for fiscal years beginning after November 15, 2007 and
interim periods within those years. The Company is currently evaluating the potential impact of
SFAS 157 on the Companys financial position and results of operations.
(2) Disclosures About Segments of an Enterprise
SFAS No. 131, Disclosures About Segments of an Enterprise and Related Information, establishes
standards for reporting information regarding operating segments in annual financial statements.
SFAS No. 131 also requires related disclosures about products and services and geographic areas.
Operating segments are identified as components of an enterprise about which separate discrete
financial information is available for evaluation by the chief
operating decision maker or
decision-making group in making decisions on how to allocate resources and assess performance. The
Companys chief operating decision maker is its chief executive
officer To date, the Company has
viewed its operations and manages its business as principally one segment with two product
offerings: software licenses and services. The Company evaluates these product offerings based on
their respective gross margins. As a result, the financial information disclosed in the
consolidated financial statements represents all of the material financial information related to
the Companys principal operating segment.
Revenues
from sources outside of the United States were approximately $7.5 million and $4.5 million
for the three months ended March 31, 2007 and March 31, 2006, respectively. ATGs revenues from
international sources were primarily generated from
12
customers located in Europe and the UK region. All of ATGs product sales for the months ended
March 31, 2007 and March 31, 2006, were delivered from its headquarters located in the United
States.
The following table represents the percentage of total revenues by geographic region for the three
months ended March 31, 2007 and March 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
2007 |
|
2006 |
United States |
|
|
74 |
% |
|
|
81 |
% |
United Kingdom (UK) |
|
|
13 |
% |
|
|
11 |
% |
Europe, Middle East and Africa (excluding UK) |
|
|
11 |
% |
|
|
5 |
% |
Asia Pacific |
|
|
|
% |
|
|
|
% |
Other |
|
|
2 |
% |
|
|
3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
(3) Credit Facility and Notes Payable
Credit Facility
At March 31, 2007, the Company maintained a $20.0 million revolving line of credit with Silicon
Valley Bank (the Bank) which provides for borrowings of up to the lesser of $20.0 million or 80%
of eligible accounts receivable. The line of credit bears interest at
the Banks prime rate (8.25%
at March 31, 2007). The line of credit is secured by all of ATGs tangible and intangible
intellectual and personal property and is subject to financial covenants including liquidity
coverage and profitability. At March 31, 2007, the Company was
not in compliance with the profitability covenant in the loan
agreement. The Bank issued the Company a waiver of the
profitability covenant for the quarter ended March 31, 2007. Consequently on May 7, 2007, the Company entered into the Eleventh Loan Modification
Agreement (the Eleventh Amendment) with the Bank, which amended the Amended and Restated Loan and
Security Agreement dated as of June 13, 2002. Under the Eleventh Amendment, the profitability
covenant was revised to require that the Company have net losses of
not more than $2.0 million for
each quarter. The Company is required to maintain unrestricted and unencumbered cash, which
includes cash equivalents and marketable securities, of greater than $20.0 million at the end of
each month through the duration of the credit facility. The line of credit will expire on January
31, 2008. On the date of filing this 10-Q, the Company was in
compliance with all related financial covenants, due to executing the
Eleventh Loan Modification Agreement.
In addition, to avoid additional bank fees and expenses, ATG is required to maintain
unrestricted cash, which includes cash equivalents and marketable securities, at the Bank in an
amount equal to two times the amount of obligations outstanding, which includes letters of credit
that have been issued but not drawn upon, under the loan agreement. In the event the Companys cash
balances at the Bank fall below this amount, then the Company will be required to pay fees and
expenses to compensate the Bank for lost income. In the event ATG does not comply with the
financial covenants within the line of credit or defaults on any of its provisions, then the Banks
significant remedies include: (1) declaring all obligations immediately due and payable, which
could include requiring the Company to cash collateralize its outstanding Letters of Credit (LCs);
(2) ceasing to advance money or extend credit for the Companys benefit; (3) applying to the
obligations any balances and deposits held by the Company or any amount held by the Bank owing to
or for the credit of ATGs account; and, (4) putting a hold on any deposit account held as
collateral. If the agreement expires, and is not extended, the Bank will require outstanding LCs at
that time to be cash secured on terms acceptable to the Bank.
While there were no outstanding borrowings under the facility at March 31, 2007, the bank had
issued letters of credit totaling $3.0 million on ATGs behalf, which are supported by this
facility. The letters of credit have been issued in favor of various landlords to secure
obligations under ATGs facility leases pursuant to leases expiring through December 2011. As of March 31, 2007,
approximately $17.0 million was available under the facility.
(4) Acquisitions
Acquisition of eStara, Inc.
On October 2, 2006, the Company acquired all of the outstanding shares of common stock of privately
held eStara, Inc. The acquisition agreement included provisions for
additional payments of up to $6.0 million provided that eStara meets
certain revenue milestones. If eStaras revenues exceed $25
million but are less than $30 million, ATG will be required to pay $2 million, of which $0.6
million will be distributed to the stockholders and
$1.4 million will be distributed to employees.
In the event eStaras revenues exceed $30 million, ATG will be required to pay an additional $4.0
million, of which $2.5 million will be distributed to
stockholders and an additional $1.5 million will be
distributed to employee stockholders. The payments to stockholders will be recorded as additional purchase
price, and the amounts paid to employees will be accounted for as compensation expense in the
Companys income statement as it relates to amounts paid to eStara
employee stockholders in excess of that paid to non-employee stockholders. These payments may be
made, at the Companys option, in the form of cash or stock, subject to the applicable rules of the
Nasdaq stock market and applicable limitations under the tax rules to
13
permit the transaction to be
categorized as a tax free reorganization. No amounts have been
recorded related to the contingent consideration.
(5) Income Taxes
Effective January 1, 2007, the Company adopted FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes an interpretation of FASB Statement 109 (FIN 48). FIN 48 prescribes
a more likely than-not threshold for financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. This interpretation also provides guidance
on derecognition of income tax assets and liabilities, classification of current and deferred
income tax assets and liabilities, accounting for interest and penalties associated with tax
positions, accounting for income taxes in interim periods and income tax disclosures.
As a result of the adoption on FIN 48, the Company recognized no material adjustment in the
liability for unrecognized income tax benefits. As of January 1, 2007, the Companys unrecognized
tax benefits totaled $1.5 million. The Companys policy is to recognize penalties and interest
related to uncertain tax positions in the provision for income taxes. These amounts are not
material. The total amount of net unrecognized tax benefits that would favorably affect the
effective income tax rate, if ever recognized in the financial statements in future periods, is
$1.4 million. The gross amount of unrecognized benefits at March 31, 2007 has not changed from the
beginning of the year.
The Company is subject to numerous tax filings including U.S. federal, various state and foreign
jurisdictions. The Company has historically generated federal and state tax losses and research
and development tax credits since its inception, which carryforward and expire beginning in 2011
through 2026. The utilization of these loss carryforwards in future periods would subject all
periods since inception in 1991 to examination. Foreign jurisdictions from tax year 2000 through
the current period remain open to audit.
(6) Commitments and Contingencies
Indemnifications
The Company frequently has agreed to indemnification provisions in software license agreements with
customers and in its real estate leases in the ordinary course of its business.
With respect to software license agreements, these indemnifications generally include provisions
indemnifying the customer against losses, expenses, and liabilities from damages that may be
awarded against the customer in the event the Companys software is found to infringe upon the
intellectual property of others. The software license agreements generally limit the scope of and
remedies for such indemnification obligations in a variety of industry-standard respects. The
Company relies on a combination of patent, copyright, trademark and trade secret laws and
restrictions on disclosure to protect its intellectual property rights. The Company believes such
laws and practices, along with its internal development processes and other policies and practices
limit its exposure related to the indemnification provisions of the software license agreements.
However, in recent years there has been significant litigation in the United States involving
patents and other intellectual property rights. Companies providing Internet-related products and
services are increasingly bringing and becoming subject to suits alleging infringement of
proprietary rights, particularly patent rights. From time to time, the Companys customers have
been subject to third party patent claims and the Company has agreed to indemnify such customers
from claims to the extent the claims relate to the Companys products.
With respect to real estate lease agreements or settlement agreements with landlords, these
indemnifications typically apply to claims asserted against the landlord relating to personal
injury and property damage at the leased premises or to certain breaches of the Companys
contractual obligations or representations and warranties included in the settlement agreements.
These indemnification provisions generally survive the termination of the respective agreements,
although the provision generally has the most relevance during the contract term and for a short
period of time thereafter. The maximum potential amount of future payments that the Company could
be required to make under these indemnification provisions is unlimited.
(7) Restructuring
During the years 2001 through 2005 the Company initiated restructuring actions to realign its
operating expenses and facilities with the requirements of its business and current market
conditions and recorded adjustments to prior restructuring charges. These actions have included
closure and consolidation of excess facilities, reductions in the number of its employees,
abandonment or disposal of tangible assets and settlement of contractual obligations. In connection
with each of these actions, the Company has recorded restructuring charges based in part upon
estimates of the costs ultimately to be paid for the actions it has taken. When circumstances
result in changes in ATGs estimates relating to accrued restructuring costs, these changes are
recorded as additional charges or benefits in the period in which the change in estimate occurs. In
the first quarter of 2007, the Company recorded a net benefit of $68,000 in connection with
finalizing a contractual obligation with a landlord offset by changes in estimates resulting in
additional accruals. As of March 31, 2007, the Company had an accrued restructuring liability of
$1.9 million related to facility related costs.
A summary of the Companys changes in estimates and activity of restructuring accruals is as
follows:
14
Restructuring Accrual
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
2003 |
|
|
2001 |
|
|
|
|
|
|
Actions |
|
|
Actions |
|
|
Actions |
|
|
Total |
|
Balance December 31, 2006 |
|
$ |
263 |
|
|
$ |
189 |
|
|
$ |
1,792 |
|
|
$ |
2,244 |
|
|
Facility related payments |
|
|
(66 |
) |
|
|
(72 |
) |
|
|
(338 |
) |
|
|
(476 |
) |
Foreign Currency exchange |
|
|
|
|
|
|
16 |
|
|
|
|
|
|
|
16 |
|
Changes in estimates resulting in
additional accruals/charges |
|
|
|
|
|
|
71 |
|
|
|
61 |
|
|
|
132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance March 31, 2007 |
|
$ |
197 |
|
|
$ |
204 |
|
|
$ |
1,515 |
|
|
$ |
1,916 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For additional information on the Companys restructurings, please see the Companys Annual Report
on Form 10-K for the year ended December 31, 2006.
Abandoned Facilities Obligations
At March 31, 2007, the Company had lease arrangements related to three abandoned facilities whose
lease arrangements are ongoing. The restructuring accrual for all locations is net of the
contractual amounts due under an executed sub-lease agreement. All locations for which the Company
has recorded restructuring charges have been exited, and thus the Companys plans with respect to
these leases have been completed. A summary of the remaining facility locations and the timing of
the remaining cash payments are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease Locations |
|
2007
Remaining |
|
|
2008 |
|
|
2009 |
|
|
Total |
|
Waltham, MA |
|
$ |
1,038 |
|
|
$ |
1,384 |
|
|
$ |
346 |
|
|
$ |
2,768 |
|
San Francisco, CA |
|
|
387 |
|
|
|
|
|
|
|
|
|
|
|
387 |
|
Reading, UK |
|
|
395 |
|
|
|
528 |
|
|
|
88 |
|
|
|
1,011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Facility obligations, gross |
|
|
1,820 |
|
|
|
1,912 |
|
|
|
434 |
|
|
|
4,166 |
|
Contracted and assumed sublet income |
|
|
(975 |
) |
|
|
(1,048 |
) |
|
|
(192 |
) |
|
|
(2,215 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash obligations |
|
$ |
845 |
|
|
$ |
864 |
|
|
$ |
242 |
|
|
$ |
1,951 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8) Goodwill
and Intangible Assets
Goodwill
The Company annually evaluates goodwill for impairment as well as whenever events or changes in
circumstances suggest that the carrying value of goodwill may not be recoverable. No impairment of
goodwill resulted from the Companys most recent evaluation of goodwill for impairment, which
occurred in the fourth quarter of fiscal 2006. No impairment of goodwill resulted in any of the
periods presented. The Companys next annual impairment assessment will be made in the fourth
quarter of 2007 unless indicators arise that would require the Company to reevaluate goodwill for
impairment at an earlier date. The following table presents the changes in goodwill during fiscal
2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
3 Months |
|
|
|
|
|
|
Ended |
|
|
Year Ended |
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2007 |
|
|
2006 |
|
Balance at the beginning of the year |
|
$ |
59,328 |
|
|
$ |
27,347 |
|
Acquisition of eStara |
|
|
|
|
|
|
32,071 |
|
Reversal of reserves related to Primus |
|
|
|
|
|
|
(90 |
) |
|
|
|
|
|
|
|
Total |
|
$ |
59,328 |
|
|
$ |
59,328 |
|
|
|
|
|
|
|
|
Intangible Assets
The Company reviews identified intangible assets for impairment whenever events or changes in
circumstances indicate that the carrying value of the assets may not be recoverable. Recoverability of
these assets is measured by comparison of their carrying value to future undiscounted cash flows
the assets are expected to generate over their remaining economic lives. If such assets are
considered to be impaired, the impairment to be recognized in the
statement of operations equals the amount by which
the carrying value of the assets exceeds their fair market value determined by either a quoted
market price, if any, or a value determined by utilizing a discounted cash flow technique.
15
Intangible assets, which will continue to be amortized, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2007 |
|
|
December 31, 2006 |
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
Carrying |
|
|
Accumulated |
|
|
Net Book |
|
|
Carrying |
|
|
Accumulated |
|
|
Net Book |
|
|
|
Amount |
|
|
Amortization |
|
|
Value |
|
|
Amount |
|
|
Amortization |
|
|
Value |
|
Customer relationships |
|
$ |
11,500 |
|
|
$ |
(4,168 |
) |
|
$ |
7,332 |
|
|
$ |
11,500 |
|
|
$ |
(3,492 |
) |
|
$ |
8,008 |
|
Purchased technology |
|
|
8,900 |
|
|
|
(2,789 |
) |
|
|
6,111 |
|
|
|
8,900 |
|
|
|
(2,336 |
) |
|
|
6,564 |
|
Trademarks |
|
|
1,400 |
|
|
|
(140 |
) |
|
|
1,260 |
|
|
|
1,400 |
|
|
|
(70 |
) |
|
|
1,330 |
|
Non-compete agreements |
|
|
400 |
|
|
|
(316 |
) |
|
|
84 |
|
|
|
400 |
|
|
|
(289 |
) |
|
|
111 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
excluding goodwill |
|
$ |
22,200 |
|
|
$ |
(7,413 |
) |
|
$ |
14,787 |
|
|
$ |
22,200 |
|
|
$ |
(6,187 |
) |
|
$ |
16,013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible
assets are amortized based upon the pattern of estimated economic use or on a straight-line basis over their estimated useful lives, which
range from 1 to 5 years. Amortization expense related to intangibles was $1.2 million and $0.5
million for the three-month periods ended March 31, 2007 and 2006, respectively.
The Company expects amortization expense for these intangible assets to be:
|
|
|
|
|
Remainder of 2007 |
|
$ |
3,679 |
|
2008 |
|
|
4,013 |
|
2009 |
|
|
3,381 |
|
2010 |
|
|
2,709 |
|
2011 |
|
|
1,005 |
|
|
|
|
|
Total |
|
$ |
14,787 |
|
|
|
|
|
(9) Litigation
As previously disclosed, in 2001, the Company was named as a defendant in seven purported class
action suits that were consolidated into one action in the United States District Court for the
District of Massachusetts under the caption In re Art Technology Group, Inc. Securities Litigation.
The case alleges that the Company, and certain of its former officers, violated Sections 10(b) and
20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 promulgated there under. In October
2006, the court ruled in the Companys favor and dismissed the case on summary judgment. The
plaintiffs have appealed the decision. Management believes that none of the claims that the
plaintiffs have asserted has merit, and the Company intends to continue to defend the action
vigorously. While the Company cannot predict with certainty the outcome of the litigation, the
Company does not expect any material adverse impact to our business, or the results of our
operations, from this matter.
As previously disclosed, in December 2001, a purported class action complaint was filed
against the Companys wholly owned subsidiary Primus Knowledge Solutions, Inc., two former officers
of Primus and the underwriters of Primus 1999 initial public offering. The complaints are similar
and allege violations of the Securities Act of 1933, as amended, and the Securities Exchange Act of
1934 primarily based on the allegation that the underwriters received undisclosed compensation in
connection with Primus initial public offering. The litigation has been consolidated in the United
States District Court for the Southern District of New York (SDNY) with claims against
approximately 300 other companies that had initial public offerings during the same general time
period. On February 15, 2005, the court issued an opinion and order granting preliminary approval
of a settlement, subject to certain non-material modifications. The court held a settlement
fairness meeting on April 24, 2006 following which it took under advisement the motion for final
approval of the settlement. In December 2006, the Court of Appeals for the Second Circuit ruled
that the certification of this proceeding as a class action was invalid and remanded the case to
the SDNY. The class plaintiffs have requested the Second Circuit to reconsider. If the settlement
is not approved, we believe we have meritorious defenses and intend to defend the case vigorously.
While we cannot predict the outcome of the litigation or appeal, we do not expect any material
adverse impact to our business, or the results of our operations, from this matter.
The Company is also subject to various other claims and legal actions arising in the ordinary
course of business. In the opinion of management, the ultimate disposition of these matters is not
expected to have a material effect on the Companys business, financial condition or results of
operations.
(10) Subsequent Event
On April 19, 2007 the Companys Board of Directors authorized a stock repurchase program of its
outstanding common stock, in the open market or in privately negotiated transactions, at times and
prices considered appropriate depending on the prevailing market conditions. The program limits
the Company to an aggregate purchase of $20 million of ATG
common stock.
16
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Overview
The following discussion and analysis of our financial condition and results of operations should
be read in conjunction with our consolidated financial statements and the related notes contained
in Item 1 of this Quarterly Report on Form 10-Q. This discussion and analysis contains
forward-looking statements that involve risks, uncertainties and assumptions. Our actual results
may differ materially from those anticipated in these forward-looking statements as a result of a
number of factors, including those referred to in Item 1A,
Risk Factors.
We develop and market a comprehensive suite of e-commerce software products, as well as provide
related services, including support and maintenance, education, application hosting, professional
services and proactive conversion solutions for enhancing online sales and support. Our customers
use our products and services to power their e-commerce websites, attract prospects, convert sales,
and offer ongoing customer care services. Our solutions are designed to provide a scalable,
reliable and sophisticated e-commerce website for our customers to create a satisfied, loyal and
profitable online customer base. We have sold our products and
services to more than 900 customers.
We derive our revenues from the sale of software licenses and related services to consumer-facing
organizations. Our software licenses are priced based on either the size of the customer
implementation or site license terms. Services revenues are derived from fees for professional
services, training, support and maintenance, and on-demand solutions
including application hosting, software as a service and proactive conversion solutions. Professional services include
implementation, custom application development and project and technical consulting. We bill
professional service fees primarily on a time and materials basis or in limited cases, on a
fixed-price schedule defined in our contracts. Support and maintenance arrangements are priced
based on the level of services provided and billed annually in
advance. Generally, licensed software customers are entitled to receive software
updates, maintenance releases as well as on-line and telephone technical support for an annual
maintenance fee. Training is billed as services are provided. Revenue
from on-demand services is recognized monthly as the services are provided. We
market and sell our products and services
worldwide through our direct sales force, systems integrators, technology alliances and original
equipment manufacturers.
As of
March 31, 2007 we had domestic offices in Cambridge,
Massachusetts; Chicago, Illinois; New York, New York; Washington, D.C.; Reston, Virginia; San Francisco, California; and Seattle, Washington; and international
offices in the Canada; France; Northern Ireland; Singapore; and United Kingdom. Revenues from
customers outside the United States accounted for 26% and 19% of our total revenues for the three
months ended March 31, 2007 and 2006, respectively.
Critical Accounting Policies and Estimates
This managements discussion of financial condition and results of operations analyzes our
consolidated financial statements, which have been prepared in accordance with United States
generally accepted accounting principles.
The preparation of these financial statements requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the 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. On an ongoing basis, management evaluates its estimates and
judgments, including those related to revenue recognition, the allowance for doubtful accounts,
research and development costs, restructuring expenses, the impairment of long-lived assets, income
taxes, and assumptions for stock-based compensation. Management bases its estimates and judgments
on historical experience, known trends or events and various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or conditions.
The
Company adopted FIN No. 48, Accounting for Income
Taxes, on January 1, 2007. The impact of FIN 48 on
the Companys financial position is discussed in Note 5 to the
condensed consolidated financial statements.
During the
three months ended March 31, 2007 the Company deferred direct
costs related to set-up and implementation of on-demand application
hosting services for which no revenue had been recognized as of
March 31, 2007, as defined under SFAS No. 91, Accounting
for Nonrefundable Fees and Costs Associated with Originating or
Acquiring Loans and Indirect Costs of Leases. No such costs have
been deferred in previous quarters. See Note 1 (D) to the condensed consolidated
financial statements for our updated revenue recognition policy.
There were no material changes in our judgments or estimates during the first quarter of 2007. For
a more detailed explanation of the other judgments made in these areas, refer to Managements
Discussion and Analysis of Financial Condition and Results of Operations within our Annual Report
on Form 10-K for the year ended December 31, 2006, which is on file with the Securities and
Exchange Commission, or SEC.
Results of Operations
The following table sets forth statement of operations data as percentages of total revenues for
the periods indicated:
17
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
March 31, |
|
|
2007 |
|
2006 |
Revenues: |
|
|
|
|
|
|
|
|
Product licenses |
|
|
23 |
% |
|
|
34 |
% |
Services |
|
|
77 |
% |
|
|
66 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
Cost of Revenues: |
|
|
|
|
|
|
|
|
Product licenses |
|
|
2 |
% |
|
|
2 |
% |
Services |
|
|
37 |
% |
|
|
28 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues |
|
|
39 |
% |
|
|
30 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit |
|
|
61 |
% |
|
|
70 |
% |
|
|
|
|
|
|
|
|
|
Operating Expenses: |
|
|
|
|
|
|
|
|
Research and development |
|
|
18 |
% |
|
|
20 |
% |
Sales and marketing |
|
|
34 |
% |
|
|
29 |
% |
General and administrative |
|
|
16 |
% |
|
|
11 |
% |
Restructuring (benefit) |
|
|
|
% |
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
68 |
% |
|
|
60 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
|
|
(7 |
)% |
|
|
10 |
% |
Interest and other income, net |
|
|
2 |
% |
|
|
1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for income taxes |
|
|
(5 |
)% |
|
|
11 |
% |
Provision for income taxes |
|
|
|
% |
|
|
|
% |
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
(5 |
)% |
|
|
11 |
% |
|
|
|
|
|
|
|
|
|
The following table sets forth, for the periods indicated, the cost of product license revenues as
a percentage of product license revenues and the cost of services revenues as a percentage of
services revenues and the related gross margins:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 31, |
|
|
2007 |
|
2006 |
Cost of product license revenues |
|
|
8 |
% |
|
|
6 |
% |
Gross margin on product license revenues |
|
|
92 |
|
|
|
94 |
|
Cost of services revenues |
|
|
47 |
|
|
|
42 |
|
Gross margin on services revenues |
|
|
53 |
|
|
|
58 |
|
Three Months ended March 31, 2007 and 2006
Revenues
As a result of the acquisition of eStara during the last quarter of
2006 and the increasing demand for our hosted applications, a higher percentage
of our revenue requires recognition on a ratable basis over the life of the customer relationship in accordance with generally
accepted accounting principles. Due to this change in the business model we expect that ratably recognized revenue will significantly increase as a percentage of
total revenue in the future.
Total revenues increased $5.3 million or 22% to $29.2 million for the three months ended March 31,
2007 from $24.0 million for the
three months ended March 31, 2006. The increase is attributable to an increase in services revenue
of $6.7 million primarily due to the acquisition of eStara in October 2006, which contributed $5.2
million in first quarter of 2007, offset by a decrease to product license revenue of $1.5 million
primarily resulting from the deferral of revenue recognition on $2.3 million of product license
deals. There was no such deferral for the three months ended March 31, 2006. Revenues generated from international customers increased to $8.0 million, or 27% of total
revenues, for the three months ended March 31, 2007, from $4.5 million, or 19% of total revenues,
for the three months ended March 31, 2006. We expect full year 2007 revenues in the range of $117
million to $123 million.
No customer accounted for more than 10% of our total revenues for the three months ended March 31,
2007. One customer accounted
18
for 10% of our revenues for the three months ended March 31, 2006.
Product License Revenues
Product license revenues decreased 18% to $6.6 million for the three months ended March 31, 2007
from $8.1 million for the three months ended March 31, 2006. The decrease is primarily attributable
to more license revenue being recognized ratably due to our expanded
on-demand offerings. Product
license revenues generated from international customers was $0.8 million for the three months ended
March 31, 2007 and $1.0 million for the three months ended
March 31, 2006.
Product license revenues as a percentage of total revenues for the three months ended March 31,
2007 and 2006 were 23% and 34%, respectively. We expect this
percentage to continue to decline as more of our business shifts to
on-demand arrangements that are recognized ratably. We expect this percentage to be in
the range of 15%
to 20% by the end of 2007.
Services Revenues
Services revenues increased 43% to $22.6 million for the three months ended March 31, 2007 from
$15.9 million for the three months ended March 31, 2006. The increase was attributable to new
service revenue, primarily from the addition of eStara, which was acquired in October 2006. We expect
services revenues to be higher in 2007 as compared to 2006 and to increase as a percentage of total
revenues due to the effects of increased license revenue being recognized ratably and the addition
of eStara revenues, primarily consisting of subscription based revenues.
Support and maintenance revenues were 44% of total service revenues for the three months ended
March 31, 2007 as compared to 41% for the three months ended March 31, 2006. Support and
maintenance revenues, on a dollar value basis, were slightly higher for the three months ended
March 31, 2007 versus March 31, 2006. The increase in support and maintenance revenue was a result
of maintenance contract renewals on a higher license revenue base.
Revenue
from on demand services (includes application hosting services,
software as a service and proactive
conversion solutions) increased 364% to $7.4 million for the three months ended March 31, 2007 from
$1.6 million for the three months ended March 31, 2006, primarily as a result of the acquisition of
eStara in October 2006. eStara contributed $5.2 million in revenue during the period. Hosting
services represented 33% of service revenue in the three months ended March 31, 2007 as compared to
10% in the comparable period in 2006. We expect on demand service revenue to become a larger
portion of our services revenue as a result of expanding product offerings and the contribution
from eStara.
Revenue from professional services increased 10% to $4.4 million for the three months ended March
31, 2007, from $4.0 million for the three months ended March 31, 2006. The increase is primarily
attributable to an increase in customer demand partially offset by the deferral of revenue for deals
related to on-demand arrangements that are recognized
ratably once the service commences.
Cost of Product License Revenues
Cost of product license revenues includes salary and related benefits costs of fulfillment and
engineering staff dedicated to maintenance of products that are in general release, the
amortization of licenses purchased in support of and used in our products, royalties paid to
vendors whose technology is incorporated into our products and amortization expense related to
acquired developed technology.
Cost of product license revenues increased 8% to $540,000 for the three months ended March 31, 2007
from $498,000 for the three months ended March 31, 2006. The increase was primarily related to an
increase in royalty costs due to the mix of products sold.
Gross Margin on Product License Revenues
For the three months ended March 31, 2007 and 2006, gross margin on product license revenues was
92%, or $6.1 million, and 94%,
or $7.6 million, respectively. This decrease was primarily related to the deferral of license
revenue.
Cost of Services Revenues
Cost of services revenues includes salary and other related costs for our professional services and
technical support staff, as well as third-party contractor expenses. Additionally cost of services
revenue includes fees for hosting facilities, bandwidth costs, and equipment and related
depreciation costs. Cost of services revenues will vary significantly from period to period
depending on the level of professional services staffing, the effective utilization rates of our
professional services staff, the mix of services performed,
19
including product license technical
support services, the extent to which these services are performed by us or by third-party
contractors, the level of third-party contractors fees, and the
amount of telecommunication expense, equipment and hosting
space required.
Cost of services revenues increased 28% to $10.7 million for the three months ended March 31, 2007
from $6.7 million for the three months ended March 31, 2006. The increase was primarily
attributable to higher customer implementation costs resulting from an increase in customer demand
and an increase in costs relating to the eStara acquisition completed in October 2006.
Gross Margin on Services Revenues
For the three months ended March 31, 2007 and 2006, gross margin on services revenues was 53%, or
$11.9 million, and 58%, or $9.2 million, respectively. The increase in gross margin dollars was
primarily attributable to the contribution of the eStara service offerings while the decrease in
the gross margin as a percent of revenues was a result of our hosting services requiring us to make
an upfront fixed investment in both people and capital before we realize economies of scale in our
infrastructure.
We expect gross margin on services revenues in 2007 to be in the range of 54% to 57%.
Research and Development Expenses
Research and development expenses consist primarily of salary and related costs to support product
development. To date, all software development costs have been expensed as research and development
in the period incurred.
Research and development expenses increased 12% to $5.4 million for the three months ended March
31, 2007 from $4.8 million for the three months ended March 31, 2006 and decreased as a percentage
of revenue from 20% to 18%. The increase in spending was primarily attributable to an increase in
cost due to the eStara acquisition. We anticipate that research and development expenses will
increase in 2007, but will remain consistent, as compared with 2006, as a percentage of total
revenues.
Sales and Marketing Expenses
Sales and marketing expenses consist primarily of salaries, commissions and other related costs for
sales and marketing personnel, travel, public relations and marketing materials and events.
Sales and marketing expenses increased 44% to $9.9 million for the three months ended March 31,
2007 from $6.9 million for the three months ended March 31, 2006. The increase is primarily
attributable to an increase in cost as a result of the eStara acquisition, and an
increase in commission expense related to an increase in new business. For the three months ended
March 31, 2007 and 2006, sales and marketing expenses as a percentage of total revenues were 34%
and 29%, respectively. We anticipate that 2007 sales and marketing expenses as a percentage of
total revenues will be consistent with the 2006 level in the mid 30% range. However, sales and
marketing expenses can fluctuate as a percentage of total revenues depending on economic
conditions, level and timing of global expansion, program spending, the rate at which new sales
personnel become productive and the level of revenue.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and other related costs for
operations and finance employees and legal and accounting fees.
General and administrative expenses increased 72% to $4.6 million for the three months ended March
31, 2007 versus the $2.7 million in the three month period ended March 31, 2006. The increase of $1.9
million is primarily attributable to the inclusion of eStara in the first
quarter of 2007 and an increase
in outside professional services primarily due to staff augmentation, internal controls testing and
enhanced disclosure requirements over the prior period.
For the three months ended March 31, 2007 and 2006, general and administrative expenses as a
percentage of total revenues were 16% and 11%, respectively. The increase is primarily
attributable to the one-time increase in professional services. We anticipate that general and
administrative expenses as a percentage of revenue will be consistent with the 2006 level of
approximately 14%.
Stock-based Compensation Expense
During the first quarter of fiscal 2006, on January 1, 2006, we adopted the Financial Accounting
Standards Boards Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based
Payment, or SFAS 123R, using the modified prospective
application method. Compensation cost is calculated on the date of grant using the fair value of
the options as determined by the Black-Scholes valuation model. In the first quarter of fiscal
2007, we recognized $0.9 million as compared to $0.6 million of total stock-based compensation
expense in the period ended March 31, 2006 as a result of SFAS 123R.
Prior to the adoption of SFAS 123R, we accounted for share-based payments to employees using APB
Opinion No. 25s, Accounting for Stock Issued to Employees , intrinsic value method and, as such,
generally recognized no compensation cost for employee stock options. The adoption of SFAS 123R
under the modified prospective application method allowed us to recognize compensation cost
beginning with the effective date (a) based on the requirement of SFAS 123R for all share-based
payments granted after the effective
20
date and (b) based on the requirements of SFAS 123 for all
awards granted to employees prior to the effective date of SFAS 123R that remain unvested on the
effective date. Under the modified prospective application method, prior periods are not restated
for the effect of SFAS 123R. We are using the straight-line attribution method to recognize expense
for all grants.
As of March 31, 2007, the total compensation cost related to unvested awards not yet recognized in
the statement of operations was approximately $10.5 million, which will be recognized over a weighted
average period of 1.4 years.
Restructuring
During 2001 through 2005 we initiated restructuring actions to realign our operating expenses and
facilities with the requirements of our business and current market conditions. These actions have
included closure and consolidation of excess facilities, reductions in the number of our employees,
abandonment or disposal of tangible assets and settlement of contractual obligations. In connection
with each of these actions we have recorded restructuring charges, based in part upon our estimates
of the costs ultimately to be paid for the actions we have taken. When changes or circumstances
result in changes in our estimates relating to our accrued restructuring costs, we reflect these
changes as additional charges or benefits in the period in which the change of estimate occurs. For
detailed information about our restructuring activities and related costs and accruals, see Note 7
to the Condensed Consolidated Financial Statements contained in Item 1 of this Quarterly Report on
Form 10-Q.
We recorded a $0.1 million adjustment to existing restructuring accruals in the three months ended
March 31, 2007. As of March 31, 2007, we had an accrued restructuring liability of $1.9 million
related to facility related costs. The long-term portion of the accrued restructuring liability was
$0.9 million.
Abandoned Facilities Obligations
At March 31, 2007, we had lease arrangements related to three abandoned facilities whose lease
arrangements are ongoing. The restructuring accrual for all locations is net of the contractual
amounts due under an executed sub-lease agreement. All locations for which we have has recorded
restructuring charges have been exited, and thus our plans with respect to these leases have been
completed. A summary of the remaining facility locations and the timing of the remaining cash
payments are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease Locations |
|
2007
Remaining |
|
|
2008 |
|
|
2009 |
|
|
Total |
|
Waltham, MA |
|
$ |
1,038 |
|
|
$ |
1,384 |
|
|
$ |
346 |
|
|
$ |
2,768 |
|
San Francisco, CA |
|
|
387 |
|
|
|
|
|
|
|
|
|
|
|
387 |
|
Reading, UK |
|
|
395 |
|
|
|
528 |
|
|
|
88 |
|
|
|
1,011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Facility obligations, gross |
|
|
1,820 |
|
|
|
1,912 |
|
|
|
434 |
|
|
|
4,166 |
|
Contracted and assumed sublet income |
|
|
(975 |
) |
|
|
(1,048 |
) |
|
|
(192 |
) |
|
|
(2,215 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash obligations |
|
$ |
845 |
|
|
$ |
864 |
|
|
$ |
242 |
|
|
$ |
1,951 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and Other Income, Net
Interest and other income net, increased to $448,000 for the three months ended March 31, 2007 from
$278,000 for the three months ended March 31, 2006. The increase was primarily due to a net
increase in foreign exchange gains over prior period losses offset partially by lower interest
income on invested balances.
Provision for Income Taxes
We expect to have minimal or no Federal or foreign income taxes in 2007 due to our projection of a
taxable loss in our domestic and certain foreign locations for 2007 and the use of net operating
loss carryforwards. As a result of historical net operating losses incurred, and after evaluating
our anticipated performance over our normal planning horizon, we have provided a full valuation
allowance for our net operating loss carryforwards, research credit carryforwards and other net
deferred tax assets.
21
Liquidity and Capital Resources
Our capital requirements relate primarily to facilities, employee infrastructure and working
capital requirements. Historically, we have funded our cash requirements primarily through public
and private sales of equity securities, and commercial credit facilities
and more recently through cash provided by operating
activities. At March 31, 2007, we had $27.1 million in cash and cash equivalents and $10.3 million
in marketable securities.
Cash provided by operating activities was $8.1 million for the three months ended March 31, 2007.
This consisted of a net loss of $1.5 million offset by depreciation and amortization of $1.9 million,
and stockbased compensation expense of $1.1 million. Other changes in working capital items consisted
primarily of a increase in deferred revenue of $6.2 million, a decrease in accounts receivable of
$4.6 million offset by a decrease in accrued expenses of $2.2 million and an increase in prepaid
expenses and other current assets of $1.8 million.
Net cash provided by our investing activities for the three months ended March 31, 2007 was $0.8
million consisting primarily of net proceeds from maturity of marketable securities of $3.0
million, offset by capital expenditures of $1.4 million and payment of eStara acquisition related
cost of $0.8 million.
We expect that capital expenditures will total approximately 5% of revenues for the year ending
December 31, 2007.
Net cash provided by financing activities was $0.4 million for the three months ended March 31,
2007, representing proceeds of $0.4 million from the employee stock purchase plan and the exercise
of stock options, offset by capital leases payments of $17,000.
On
April 19, 2007 the Companys Board of Directors authorized a
stock repurchase program of its outstanding common stock, in the open
market or in privately negotiated transactions, at times and prices
considered appropriate depending on prevailing market conditions. The
program limits the Company to an aggregate purchase of
$20 million of ATG common stock.
Accounts Receivable and Days Sales Outstanding
Our accounts receivable balance and days sales outstanding, or DSO, as of March 31, 2007 and
December 31, 2006 were as follows:
|
|
|
|
|
|
|
|
|
|
|
Quarter Ending |
|
|
March 31, |
|
December 31, |
|
|
2007 |
|
2006 |
|
|
(dollars in thousands) |
DSO |
|
|
92 |
|
|
|
97 |
|
Revenue |
|
$ |
29,232 |
|
|
$ |
32,207 |
|
Accounts Receivable |
|
$ |
29,949 |
|
|
$ |
34,554 |
|
We
evaluate our performance on collections on a quarterly basis, and as of
March 31, 2007, our days sales outstanding decreased from December 31, 2006 due to collections
on support and maintenance renewals as well as the effect of
receiving payments on sales that were made during the previous quarter.
Credit Facility
At March 31, 2007, we maintained a $20.0 million revolving line of credit with Silicon Valley Bank
(the Bank) which provides for borrowings of up to the lesser of $20.0 million or 80% of eligible
accounts receivable. The line of credit bears interest at the
Banks prime rate (8.25% at March 31,
2007). The line of credit is secured by all of our tangible and intangible intellectual and
personal property and is subject to financial covenants including liquidity coverage and
profitability. At March 31, 2007, we were not in compliance with the profitability covenant
in the loan agreement. The Bank issued us a waiver of the profitability covenant for the quarter
ended March 31, 2007. In May 2007, we entered into the Eleventh Loan Modification Agreement (the Eleventh
Amendment) with the Bank, which amended the Amended and Restated Loan and Security Agreement dated
as of June 13, 2002. Under the Eleventh Amendment, the profitability covenant was revised to
require that we have net losses of not more than $2.0 million for each quarter. We are required to
maintain unrestricted and unencumbered cash, which includes cash equivalents and marketable
securities, of greater than $20.0 million at the end of each month through the duration of the
credit facility. The line of credit will expire on January 31, 2008.
In addition, to avoid additional bank fees and expenses, we are required to maintain
unrestricted cash, which includes cash equivalents
and marketable securities, at the Bank in an amount equal to two times the amount of obligations
outstanding, which includes letters of credit that have been issued but not drawn upon, under the
loan agreement. In the event our cash balances at the Bank fall below this amount, then we will be
required to pay fees and expenses to compensate the Bank for lost income. In the event we do not
comply with the financial covenants within the line of credit or defaults on any of its provisions,
then the Banks significant remedies include: (1) declaring all obligations immediately due and
payable, which could include requiring us to cash collateralize our outstanding Letters of Credit
(LCs); (2) ceasing to advance money or extend credit for our benefit; (3) applying to the
obligations any balances and deposits held by us or any amount held by the Bank owing to or for the
credit of our account; and, (4) putting a hold on any deposit account held as collateral. If the
agreement expires, is not extended, the Bank will require outstanding LCs at that time to be cash
secured on terms acceptable to the Bank. At March 31, 2007, we were not in compliance the net
income requirement covenant. The Bank issued a waiver of the net
income covenant for the quarter ended March
31, 2007.
While there were no outstanding borrowings under the facility at March 31, 2007, the bank had
issued letters of credit totaling $3.0 million on our behalf, which are supported by this facility.
The letters of credit have been issued in favor of various landlords to
22
secure obligations under
our facility leases pursuant to leases expiring through December 2011. As of March 31, 2007, approximately
$17.0 million was available under the facility.
Contractual Obligations
On March 31, 2007, our contractual cash obligation, which consists of operating and capital leases,
were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After 5 |
Contractual Obligations |
|
Total |
|
1 year |
|
2-3 years |
|
4-5 years |
|
Years |
|
Operating Leases |
|
$ |
13,935 |
|
|
$ |
3,542 |
|
|
$ |
6,819 |
|
|
$ |
3,574 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On October 2, 2006, we acquired all of the outstanding shares of common stock of privately held
eStara, Inc. The acquisition agreement included provisions for
additional payments of up to $6.0 million provided that eStara meets certain
revenue milestones. If eStaras revenues exceed $25 million but are less
than $30 million, we will be required to pay $2 million, of which $0.6 million will be distributed
to the stockholders and $1.4 million will be distributed to employees. In the event eStaras
revenues exceed $30 million, we will be required to pay an additional $4.0 million, of which $2.5
million will be distributed to stockholders and $1.5 million will be distributed to employees. The
payments to stockholders will be recorded as additional purchase price, and the amounts paid to
employees will be accounted for as compensation expense in our income statement as it relates to
amounts paid to eStara employee stockholders in excess of that paid to non-employee stockholders.
These payments may be made, at our option, in the form of cash or stock, subject to the
applicable rules of the Nasdaq stock market and applicable limitations under the tax rules to
permit the transaction to be categorized as a tax free reorganization.
We believe that our balance of $37.5 million in cash and cash equivalents and marketable securities
at March 31, 2007, along with other working capital and cash expected to be generated by our
operations will allow us to meet our liquidity needs over at least
the next twelve months and beyond. However, our
actual cash requirements will depend on many factors, including particularly, overall economic
conditions both domestically and abroad. We may seek additional external funds through public or
private securities offerings, strategic alliances or other financing sources. There can be no
assurance that if we seek external funding, it will be available on favorable terms, if at all.
Recent Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, (SFAS 157). SFAS
157 defines fair value, establishes a framework for measuring fair value in generally accepted
accounting principles, and expands disclosures about fair value measurements. SFAS 157 does not
require any new fair value measurements but may change current practice for some entities. SFAS 157
is effective for financial statements issued for fiscal years beginning after November 15, 2007 and
interim periods within those years. We are currently evaluating the potential impact of SFAS 157 on
our financial position and results of operations.
FACTORS THAT MAY AFFECT RESULTS
This quarterly report contains forward-looking statements, including statements about our growth
and future operating results. For this purpose, any statement that is not a statement of historical
fact should be considered a forward-looking statement. We often use the words believes,
anticipates, plans, expects, intends and similar expressions to help identify
forward-looking statements.
There are a number of important factors that could cause our actual results to differ materially
from those indicated or implied by
forward-looking statements. Factors that could cause or contribute to such differences include
referred to under heading Risk Factors, as well as those discussed elsewhere in this quarterly
report.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We maintain an investment portfolio consisting mainly of investment grade money market funds,
corporate obligations and government obligations with a weighted average maturity of less than one
year. These held-to-maturity securities are subject to interest rate risk. However, a 10% change in
interest rates would not have a material impact to the fair values of these securities primarily
due to their short maturity and our intent to hold the securities to maturity. There have been no
significant changes to the fair values of these securities since March 31, 2007.
The majority of our operations are based in the U.S., and accordingly, the majority of our
transactions are denominated in U.S. dollars. However, we have foreign-based operations where
transactions are denominated in foreign currencies and are subject to market risk with respect to
fluctuations in the relative value of currencies. Our primary foreign currency exposures relate to
our short-term intercompany balances with our foreign subsidiaries. The primary foreign
subsidiaries have functional currencies denominated in the
23
British pound and Euro that are
remeasured at each reporting period with any exchange gains and losses recorded in our consolidated
statements of operations. Based on currency exposures existing at March 31, 2007, a 10% movement in
foreign exchange rates would not expose us to significant gains or losses in earnings or cash
flows. We may use derivative instruments to manage the risk of exchange rate fluctuations, however,
at March 31, 2007 we held no outstanding derivative instruments. We do not use derivative
instruments for trading or speculative purposes.
Item 4. Controls and Procedures
Our management, with the participation of our chief executive officer and chief
financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under
the Exchange Act) as of March 31, 2007. Disclosure controls and procedures means controls and other procedures that are designed to ensure
that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is (a) recorded, processed,
summarized and reported, within the time periods specified in the Commissions rules and forms and (b) accumulated and communicated to our
management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to
allow timely decisions regarding required disclosure.
Based on this evaluation, our chief executive officer and chief financial
officer concluded that, as of March 31, 2007, our disclosure controls and procedures were ineffective, due to the material weaknesses
in our internal control over financial reporting previously described in our Managements Annual Report on Internal Control over Financial
Reporting included in our Annual Report on Form 10-K for the year ended December 31, 2006, which identified the following material weaknesses
that have not been fully remediated as of March 31, 2007:
1. Inadequate
and ineffective controls over the financial statement close process.
In
conjunction with the year-end financial close, our procedures and controls to
ensure that accurate financial statements in accordance with generally accepted accounting principles could be prepared and reviewed on
a timely basis were not operating effectively. Such ineffective procedures and controls include (a) ineffective review of historical cumulative
translation adjustment balances relative to the timing of substantial liquidation of foreign locations, which resulted in a restatement of
our 2002 and 2003 financial statements; (b) inadequate processes to account for transactions and accounts, such as business combinations,
commissions, restructuring accruals and cumulative translation adjustments; and (c) insufficient documentation of accounting policies and
procedures and retention of historical accounting positions. As a result of the above deficiencies, material and less significant post-closing
adjustments were identified by our independent registered public
accounting firm, Ernst & Young LLP, and recorded in our financial statements
as of and for the year ended December 31, 2006. These adjustments affected the following financial statement account line items: current
liabilities, cumulative translation adjustment, stockholders equity, operating expenses and foreign currency exchange gain. This weakness
could continue to affect the balances in the accounts previously mentioned and affect our ability to timely close our books and review and
analyze our financial statements.
2.
Inadequate staffing within the accounting organization.
During 2006, there were numerous changes in our accounting personnel. This has led
to our not having a sufficient number of experienced personnel in the accounting organization to provide reasonable assurance that
transactions are being recorded as necessary to ensure timely preparation of financial statements in accordance with generally accepted
accounting principles, including the preparation of our Annual Report on Form 10-K and this Quarterly Report on Form 10-Q. We consider this
weakness to be a material weakness in the operation of entity-level controls and operation level controls. The ineffectiveness of such
controls can result in misstatement to assets, liabilities, revenues, and expenses.
Because of its inherent limitations, internal control over financial reporting
cannot provide absolute assurance of achieving financial reporting objectives. Internal control over financial reporting is a process that
involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control
over financial reporting also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk
that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of
changes in conditions or that the degree of compliance with established policies or procedures may deteriorate.
Our managements assessment of and conclusions on the effectiveness of our internal
control over financial reporting did not include the internal controls of eStara, Inc., which we acquired in October 2006. eStaras assets
and liabilities and the results of its operations from the date of acquisition are included in our consolidated financial statements at and
for the quarter ended March 31, 2007. eStaras assets
constituted 35% of our total assets at March 31, 2007, and revenue attributable to
eStara accounted for 18% of our revenue for the quarter then ended.
A material weakness is a control deficiency, or a combination of control
deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements
will not be prevented or detected.
Remedial
actions
As previously described in our Annual Report on Form 10-K for the year ended
December 31, 2006, in an effort to remediate the identified deficiencies, we have commenced, and are continuing to implement, a number
of changes to our internal control over financial reporting. These following changes will be made before the end of 2007:
|
|
|
We are enhancing our existing policies and procedures for accounting review of month-end close, account reconciliation processes,
journal entries, write-offs, restructuring-related entries, purchase accounting-related entries, and impairment reviews; and |
|
|
|
|
We have taken steps to reduce the complexity of our consolidation processes. |
|
Additionally, in response to the identified deficiencies, we intend to implement additional remedial measures, including
but not limited to the following: |
|
|
|
|
Hiring key leadership accounting personnel to focus on our technical accounting issues and managing the monthly close process and
the SEC reporting process; and |
|
|
|
|
Improving our documentation and training related to policies and procedures for the controls related to our significant accounts
and processes. |
Changes
in internal control over financial reporting.
During the fiscal quarter ended March 31, 2007, we hired two new members of our
finance staff to address technical accounting issues and help manage the monthly close process and the SEC reporting process. We plan to
continue to take further remedial actions throughout fiscal 2007. Other than as described above, there has been no change in our internal
control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended March
31, 2007 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
24
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
As previously disclosed, in 2001, we were named as defendants in seven purported class action suits
that were consolidated into one action in the United States District Court for the District of
Massachusetts under the caption In re Art Technology Group, Inc. Securities Litigation. The action
alleges that we, and certain of our former officers, violated Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934 and SEC Rule 10b-5 promulgated there under. In October 2006, the
court ruled in our favor and dismissed the case on summary judgment. The plaintiffs have appealed
the decision. Management believes that none of the claims that plaintiffs have asserted has merit,
and we intend to continue to defend the action vigorously. While we cannot predict with certainty
the outcome of the litigation, we do not expect any material adverse impact to our business, or the
results of our operations, from this matter.
As previously disclosed, in December 2001, a purported class action complaint was filed
against our wholly owned subsidiary Primus Knowledge Solutions, Inc., two former officers of Primus
and the underwriters of Primus 1999 initial public offering. The complaints are similar and allege
violations of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934
primarily based on the allegation that the underwriters received undisclosed compensation in
connection with Primus initial public offering. The litigation has been consolidated in the United
States District Court for the Southern District of New York (SDNY) with claims against
approximately 300 other companies that had initial public offerings during the same general time
period. On February 15, 2005, the court issued an opinion and order granting preliminary approval
of the settlement, subject to certain non-material modifications. The court held a settlement
fairness meeting on April 24, 2006 following which it took under advisement the motion for final
approval of the settlement. In December 2006, the Court of Appeals for the Second Circuit ruled
that the certification of this proceeding as a class action was invalid and remanded the case to
the SDNY. The class plaintiffs have requested the Second Circuit to reconsider. If the settlement
is not approved, we believe we have meritorious defenses and intend to defend the case vigorously.
While we cannot predict the outcome of the litigation or appeal, we do not expect any material
adverse impact to our business, or the results of our operations, from this matter.
We are also subject to various other claims and legal actions arising in the ordinary course of
business. In the opinion of management, the ultimate disposition of these matters is not expected
to have a material effect on our business, financial condition or results of operations.
Item 1A. Risk Factors
In addition to the other information set forth in this report, you should carefully consider the
factors discussed in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year
ended December 31, 2006, which could materially affect our business, financial condition or future
results. To the best of our knowledge, as of the date of this report there has been no material
change in any of the risk factors described in that Annual Report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
Entry into a Material Definitive Agreement
Effective June 13, 2002, we entered into a $15 million revolving line of credit with Silicon
Valley Bank (the Bank) which provided for borrowings of up to the lesser of $15 million or 80% of
eligible accounts receivable. Effective December 24, 2002 the revolving line of credit increased
to $20 million. The line of credit is secured by all of our tangible and intangible personal
property and is subject to financial covenants including liquidity coverage and profitability.
At March 31, 2007, we were not in compliance with the profitability covenant in the loan agreement.
The Bank issued us a waiver of the profitability covenant for the quarter ended March 31, 2007.
On May 7, 2007, the Company entered into the Eleventh Loan Modification Agreement (the Eleventh
Amendment), which amended the Amended and Restated Loan and Security Agreement dated as of June 13,
2002. Under the Eleventh Amendment, the profitability covenant was revised to permit net losses of
not more than $2.0 million for each quarter through the duration
of the credit facility. In the Eleventh Amendment, the Bank also
provided a consent to our repurchase of shares of common stock in an
aggregate amount not to exceed Twenty Million Dollars
($20,000,000.00), provided that we may not make such a repurchase if a default exists or would
exist after giving effect to such a repurchase. We are
required to maintain unrestricted and unencumbered cash, which includes cash equivalents and
marketable securities, of greater than $20.0 million at the end of each month through the duration
of the credit facility. The line of credit will expire on January 31, 2008.
While there were no outstanding borrowings under the facility at March 31, 2007, the bank had
issued letters of credit totaling $3.0 million on our behalf, which are supported by this facility.
The letters of credit have been issued in favor of various landlords to secure obligations under
our facility leases pursuant to leases expiring through December 2011. As of March 31, 2007,
approximately $17.0 million was available under the facility.
Item 6. Exhibits
Exhibits
3.1 Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit
4.1 to our Registration Statement on Form S-8 dated June 12, 2003).
3.2 Amended and Restated By-Laws (incorporated by reference to Exhibit 4.2 to our Registration
Statement on Form S-3 dated July 6, 2001).
4.1 Rights Agreement dated September 26, 2001 with EquiServe Trust Company, N.A. (incorporated
by reference to Exhibit 4.1 to our Current Report on Form 8-K dated October 2, 2001).
* 10.1 2007 Executive Management Compensation Plan (incorporated by reference to Exhibit 99.1 to
our Current Report on Form
25
8-K dated February 27, 2007).
10.2 Amended and Restated 1996 Stock Option Plan* (incorporated by reference to Exhibit 99.1
to our Current Report on Form 8-K dated April 25, 2007).
10.3 Primus Solutions 1999 Stock Incentive Compensation Plan, as amended* (incorporated by
reference to Exhibit 99.3 to our Current Report on Form 8-K dated April 25, 2007).
10.4 Amended and Restated Non-Employee Director Compensation Plea, as amended* (incorporated
by reference to Exhibit 99.2 to our Current Report on Form 8-K dated April 25, 2007).
10.5
Eleventh Loan Modification Agreement between the Registrant and
Silicon Valley Bank, dated May 7, 2007.
31.1 Certifications of Principal Executive Officer Pursuant to Exchange Act Rules 13a-14 and
15d-14, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certifications of Principal Financial and Accounting Officer Pursuant to Exchange Act
Rules 13a-14 and 15d-14, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certifications of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certifications of Principal Financial and Accounting Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
* Management contract or compensatory plan.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
|
|
|
|
|
ART TECHNOLOGY GROUP, INC. |
|
|
|
|
|
|
(Registrant) |
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ ROBERT D. BURKE |
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert D. Burke |
|
|
|
|
|
|
President and Chief Executive Officer |
|
|
|
|
|
|
(Principal Executive Officer) |
|
|
|
|
|
|
|
|
|
|
|
By: |
|
/s/ JULIE M.B. BRADLEY |
|
|
|
|
|
|
|
|
|
|
|
|
|
Julie M.B. Bradley |
|
|
|
|
|
|
Senior Vice President and Chief |
|
|
|
|
|
|
Financial Officer |
|
|
|
|
|
|
(Principal Financial and Accounting Officer) |
|
|
Date: May 10, 2007
26