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þ
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QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
|
|
|
o
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|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
|
|
|
Delaware
|
|
No. 74-2853258
|
(State
or other jurisdiction of
incorporation
or organization)
|
|
(I.R.S.
Employer Identification No.)
|
Large
accelerated filer o
|
Accelerated
filer þ
|
Non-accelerated
filer o
|
Part
I.
|
Financial
Information (unaudited)
|
|
Item
1.
|
Financial
Statements
|
|
Condensed
Consolidated Balance Sheets as of December 31, 2005 and March 31,
2006
|
3
|
|
Condensed
Consolidated Statements of Operations for the three months ended
March 31,
2005 and 2006
|
4
|
|
Condensed
Consolidated Statement of Stockholders’ Equity for the three months ended
March 31, 2006
|
5
|
|
Condensed
Consolidated Statements of Cash Flows for the three months ended
March 31,
2005 and 2006
|
6
|
|
Notes
to Unaudited Condensed Consolidated Financial Statements
|
7
|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
16
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
23
|
Item
4.
|
Controls
and Procedures
|
23
|
Part
II.
|
Other
Information
|
24
|
Item
1A.
|
Risk
Factors
|
24
|
Item
6.
|
Exhibits
|
24
|
Signatures
|
25
|
|
|
|
|||||
December
31,
|
March
31,
|
||||||
2005
|
2006
|
||||||
ASSETS
|
|||||||
Current
assets:
|
|||||||
Cash
and cash equivalents
|
$
|
5,096,409
|
$
|
2,336,790
|
|||
Accounts
receivable, net
|
23,250,679
|
23,407,646
|
|||||
Other
current assets
|
2,416,782
|
1,815,267
|
|||||
Total
current assets
|
30,763,870
|
27,559,703
|
|||||
Property
and equipment, net
|
960,136
|
1,069,982
|
|||||
Goodwill
|
46,263,346
|
46,201,848
|
|||||
Intangible
assets, net
|
5,768,479
|
5,391,177
|
|||||
Other
non-current assets
|
1,179,070
|
1,517,585
|
|||||
Total
assets
|
$
|
84,934,901
|
$
|
81,740,295
|
|||
|
|||||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|||||||
Current
liabilities:
|
|||||||
Accounts
payable
|
$
|
3,773,614
|
$
|
2,651,403
|
|||
Note
payable and current portion of long-term debt
|
1,337,514
|
1,361,169
|
|||||
Other
current liabilities
|
8,330,809
|
5,554,233
|
|||||
Current
portion of note payable to related parties
|
243,847
|
248,448
|
|||||
Total
current liabilities
|
13,685,784
|
9,815,253
|
|||||
Long-term
borrowings, net of current portion
|
5,338,501
|
1,989,209
|
|||||
Total
liabilities
|
19,024,285
|
11,804,462
|
|||||
Stockholders’
equity:
|
|||||||
Common
stock
|
23,295
|
23,676
|
|||||
Additional
paid-in capital
|
115,120,099
|
117,450,735
|
|||||
Accumulated
other comprehensive loss
|
(87,496
|
)
|
(97,939
|
)
|
|||
Accumulated
deficit
|
(49,145,282
|
)
|
(47,440,639
|
)
|
|||
Total
stockholders’ equity
|
|
65,910,616
|
|
69,935,833
|
|||
Total
liabilities and stockholders’ equity
|
$
|
84,934,901
|
$
|
81,740,295
|
|
|
|
|||||
|
Three
Months Ended
March
31,
|
||||||
|
2005
|
2006
|
|||||
Revenue:
|
|||||||
Services
|
$
|
17,657,101
|
$
|
25,606,343
|
|||
Software
|
1,406,856
|
2,682,052
|
|||||
Reimbursable
expenses
|
660,193
|
1,355,598
|
|||||
Total
revenue
|
19,724,150
|
29,643,993
|
|||||
|
|||||||
Cost
of revenue (exclusive of depreciation shown separately
below):
|
|||||||
Project
personnel costs
|
10,920,496
|
16,265,590
|
|||||
Software
costs
|
1,179,540
|
2,288,044
|
|||||
Reimbursable
expenses
|
660,193
|
1,355,598
|
|||||
Other
project related expenses
|
243,673
|
447,143
|
|||||
Total
cost of revenue
|
13,003,902
|
20,356,375
|
|||||
Gross
margin
|
6,720,248
|
9,287,618
|
|||||
|
|||||||
Selling,
general and administrative
|
3,734,183
|
5,637,948
|
|||||
Depreciation
|
177,336
|
167,717
|
|||||
Amortization
of intangibles
|
276,876
|
424,891
|
|||||
Total
operating expense
|
4,188,395
|
6,230,556
|
|||||
|
|||||||
Income
from operations
|
2,531,853
|
3,057,062
|
|||||
|
|||||||
Interest
income
|
1,663
|
1,596
|
|||||
Interest
expense
|
(112,504
|
)
|
(84,260
|
)
|
|||
Other
|
(1,163
|
)
|
59,160
|
||||
Income
before income taxes
|
2,419,849
|
3,033,558
|
|||||
Provision
for income taxes
|
931,546
|
1,328,915
|
|||||
Net
income
|
$
|
1,488,303
|
$
|
1,704,643
|
|||
|
|||||||
Basic
net income per share
|
$
|
0.07
|
$
|
0.07
|
|||
|
|||||||
Diluted
net income per share
|
$
|
0.06
|
$
|
0.07
|
|||
Shares
used in computing basic net income per share
|
21,161,659
|
23,537,534
|
|||||
Shares
used in computing diluted net income per share
|
24,804,451
|
26,183,393
|
Accumulated
|
||||||||||||||||||||||
Common
|
Common
|
Common
|
Additional
|
Other
|
Total
|
|||||||||||||||||
Stock
|
Stock
|
Stock
|
Paid-in
|
Comprehensive
|
Accumulated
|
Shareholders’
|
||||||||||||||||
Shares
|
Amount
|
Warrants
|
Capital
|
Loss
|
Deficit
|
Equity
|
||||||||||||||||
Balance
at December 31, 2005
|
23,294,509
|
$
|
23,295
|
$
|
363,357
|
$
|
114,756,742
|
$
|
(87,496
|
)
|
$
|
(49,145,282
|
)
|
$
|
65,910,616
|
|||||||
Warrants
exercised
|
10,000
|
10
|
(24,300
|
)
|
70,690
|
—
|
—
|
46,400
|
||||||||||||||
Stock
options exercised
|
369,296
|
369
|
—
|
646,365
|
—
|
—
|
646,734
|
|||||||||||||||
Purchases
of stock from Employee Stock Purchase Plan
|
1,713
|
2
|
—
|
18,892
|
—
|
18,894
|
||||||||||||||||
Tax
benefit of stock option exercises
|
—
|
—
|
—
|
894,919
|
—
|
—
|
894,919
|
|||||||||||||||
Stock
compensation
|
—
|
—
|
—
|
724,070
|
—
|
—
|
724,070
|
|||||||||||||||
Foreign
currency translation adjustment
|
—
|
—
|
—
|
—
|
(10,443
|
)
|
—
|
(10,443
|
)
|
|||||||||||||
Net
income
|
—
|
—
|
—
|
—
|
—
|
1,704,643
|
1,704,643
|
|||||||||||||||
Total
comprehensive income
|
1,694,200
|
|||||||||||||||||||||
Balance
at March 31, 2006
|
23,675,518
|
$
|
23,676
|
$
|
339,057
|
$
|
117,111,678
|
$
|
(97,939
|
)
|
$
|
(47,440,639
|
)
|
$
|
69,935,833
|
Three
Months Ended
March
31,
|
|||||||
2005
|
2006
|
||||||
OPERATING
ACTIVITIES
|
|||||||
Net
income
|
$
|
1,488,303
|
$
|
1,704,643
|
|||
Adjustments
to reconcile net income to net cash used in operations:
|
|||||||
Depreciation
|
177,336
|
167,717
|
|||||
Amortization
of intangibles
|
276,876
|
424,891
|
|||||
Non-cash
stock compensation
|
59,157
|
724,070
|
|||||
Non-cash
interest expense
|
8,870
|
4,601
|
|||||
Changes
in operating assets and liabilities:
|
|||||||
Accounts
receivable
|
2,484,322
|
(157,783
|
)
|
||||
Other
assets
|
(433,296
|
)
|
324,491
|
||||
Accounts
payable
|
(4,261,345
|
)
|
(1,122,707
|
)
|
|||
Other
liabilities
|
(2,070,366
|
)
|
(2,776,896
|
)
|
|||
Net
cash used in operating activities
|
(2,270,143
|
)
|
(706,973
|
)
|
|||
INVESTING
ACTIVITIES
|
|||||||
Purchase
of property and equipment
|
(171,712
|
)
|
(277,563
|
)
|
|||
Capitalization
of software developed for internal use
|
—
|
(47,589
|
)
|
||||
Net
cash used in investing activities
|
(171,712
|
)
|
(325,152
|
)
|
|||
|
|||||||
FINANCING
ACTIVITIES
|
|||||||
Proceeds
from short-term borrowings
|
4,000,000
|
—
|
|||||
Payments
on short-term borrowings
|
(2,000,000
|
)
|
(3,000,000
|
)
|
|||
Payments
on long-term debt
|
(191,991
|
)
|
(325,637
|
)
|
|||
Deferred
offering costs
|
(565,698
|
)
|
—
|
||||
Tax
benefit on stock options
|
596,931
|
894,919
|
|||||
Proceeds
from exercise of stock options
|
567,848
|
646,734
|
|||||
Proceeds
from exercise of warrants
|
107,143
|
46,400
|
|||||
Proceeds
from stock sales under the Employee Stock Purchase Plan
|
—
|
18,894
|
|||||
Net
cash provided by (used in) financing activities
|
2,514,233
|
(1,718,690
|
)
|
||||
Effect
of exchange rate on cash
|
(19,106
|
)
|
(8,804
|
)
|
|||
Change
in cash
|
53,272
|
(2,759,619
|
)
|
||||
Cash
and cash equivalents at beginning of period
|
3,905,460
|
5,096,409
|
|||||
Cash
and cash equivalents at end of period
|
$
|
3,958,732
|
$
|
2,336,790
|
|||
|
|||||||
Supplemental
disclosures:
|
|||||||
Interest
paid
|
$
|
87,221
|
$
|
110,997
|
|||
Cash
paid for income taxes
|
$
|
92,220
|
$
|
214,655
|
|||
|
|||||||
Non
cash activities:
|
|||||||
Reduction
in goodwill as a result of changes in estimated acquisition
costs
|
$
|
90,000
|
$
|
61,498
|
Three
Months
Ended
March
31,
2005
|
||||
Net
income — as reported
|
$
|
1,488,303
|
||
|
||||
Total
stock-based compensation costs , net of tax, included in the determination
of net income as reported
|
36,382
|
|||
|
||||
The
stock-based employee compensation cost, net of tax, that would have
been
included in the determination of net income if the fair value based
method
had been applied to all awards
|
(478,287
|
)
|
||
Pro
forma net income available to common stockholders
|
$
|
1,046,398
|
||
|
||||
Earnings
per share:
|
||||
Basic
— as reported
|
$
|
0.07
|
||
Basic
— pro forma
|
$
|
0.05
|
||
|
||||
Diluted
— as reported
|
$
|
0.06
|
||
Diluted
— pro forma
|
$
|
0.04
|
Shares
|
Range
of
Exercise
Prices
|
Weighted-Average
Exercise
Price
|
||||||||
Options
outstanding at January 1, 2006
|
5,268,310
|
$
|
0.02
- $ 16.94
|
$
|
3.53
|
|||||
Options
granted
|
—
|
—
|
—
|
|||||||
Options
exercised
|
(369,296
|
)
|
$
|
0.03
- $ 10.00
|
$
|
1.75
|
||||
Options
canceled
|
(13,284
|
)
|
$
|
3.10
- $ 12.13
|
$
|
7.65
|
||||
Options
outstanding at March 31, 2006
|
4,885,730
|
$
|
0.02
- $ 16.94
|
$
|
3.65
|
|||||
Options
vested at March 31, 2006
|
3,168,817
|
$
|
0.02
- $ 16.94
|
$
|
3.16
|
Shares
|
Weighted-Average
Grant
Date Fair Value
|
||||||
Restricted
stock awards outstanding at January 1, 2006
|
613,627
|
$
|
7.69
|
||||
Awards
granted
|
9,500
|
$
|
10.18
|
||||
Awards
released
|
—
|
—
|
|||||
Awards
canceled
|
(6,927
|
)
|
$
|
7.30
|
|||
Restricted
stock awards outstanding at March 31, 2006
|
616,200
|
$
|
7.73
|
Warrants
Outstanding and Exercisable
|
||||
Exercise
Price
|
Warrants
|
|||
$4.64
|
128,000
|
|||
$1.98
|
61,131
|
|||
$1.98
- $4.64
|
189,131
|
Three
months ending
March 31, |
|||||||
2005
|
2006
|
||||||
Net
income
|
$
|
1,488,303
|
$
|
1,704,643
|
|||
Basic:
|
|||||||
Weighted-average
shares of common stock outstanding
|
20,167,800
|
22,287,492
|
|||||
Weighted-average
shares of common stock outstanding subject to contingency (i.e. restricted
stock)
|
993,859
|
1,250,042
|
|||||
Shares
used in computing basic net income per share
|
21,161,659
|
23,537,534
|
|||||
|
|||||||
Effect
of dilutive securities:
|
|||||||
Stock
options
|
3,485,279
|
2,470,179
|
|||||
Warrants
|
157,513
|
125,087
|
|||||
Restricted
stock subject to vesting
|
—
|
135,581
|
|||||
Tax
benefit shares from stock option exercises
|
—
|
(84,988
|
)
|
||||
Shares
used in computing diluted net income per share
|
24,804,451
|
26,183,393
|
|||||
Basic
net income per share
|
$
|
0.07
|
$
|
0.07
|
|||
|
|||||||
Diluted
net income per share
|
$
|
0.06
|
$
|
0.07
|
Operating
|
||||
Leases
|
||||
2006
remaining
|
$
|
820,128
|
||
2007
|
1,131,016
|
|||
2008
|
960,204
|
|||
2009
|
869,645
|
|||
2010
|
622,990
|
|||
Thereafter
|
379,089
|
|||
Total
minimum lease payments
|
$
|
4,783,072
|
December
31,
|
March
31,
|
||||||
2005
|
2006
|
||||||
Accounts
receivable
|
$
|
17,013,131
|
$
|
14,503,148
|
|||
Unbilled
revenue
|
6,580,786
|
9,121,281
|
|||||
Allowance
for doubtful accounts
|
(343,238
|
)
|
(216,783
|
)
|
|||
Total
|
$
|
23,250,679
|
$
|
23,407,646
|
December
31,
|
March
31,
|
||||||
2005
|
2006
|
||||||
Income
tax receivable
|
$
|
1,367,246
|
$
|
631,616
|
|||
Other
current assets
|
1,049,536
|
1,183,651
|
|||||
Total
|
$
|
2,416,782
|
$
|
1,815,267
|
|
|
|
|||||
December
31,
|
March
31,
|
||||||
2005
|
2006
|
||||||
Accrued
bonuses
|
$
|
3,524,847
|
$
|
1,525,254
|
|||
Accrued
subcontractor fees
|
1,841,955
|
2,164,473
|
|||||
Deferred
revenue
|
1,084,129
|
313,532
|
|||||
Other
payroll liabilities
|
502,983
|
355,378
|
|||||
Sales
and use taxes
|
149,442
|
164,510
|
|||||
Accrued
income taxes
|
25,265
|
9,027
|
|||||
Accrued
acquisition costs
|
—
|
411,138
|
|||||
Accrued
vacation
|
—
|
3,023
|
|||||
Other
accrued expenses
|
1,202,188
|
607,898
|
|||||
Total
|
$
|
8,330,809
|
$
|
5,554,233
|
|
|
|
|||||
December
31,
|
March
31,
|
||||||
2005
|
2006
|
||||||
Computer
Hardware & Software
|
$
|
3,181,823
|
$
|
3,821,910
|
|||
Furniture
& Fixtures
|
781,265
|
417,006
|
|||||
Leasehold
Improvements
|
149,892
|
151,413
|
|||||
|
4,112,980
|
4,390,329
|
|||||
less:
Accumulated Depreciation
|
(3,152,844
|
)
|
(3,320,347
|
)
|
|||
Total
|
$
|
960,136
|
$
|
1,069,982
|
|
|
|
|||||
Three
Months Ended
|
|||||||
March
31,
|
|||||||
2005
|
2006
|
||||||
Net
income
|
$
|
1,488,303
|
$
|
1,704,643
|
|||
Foreign
currency translation adjustments
|
(20,800
|
)
|
(10,443
|
)
|
|||
Total
comprehensive net income
|
$
|
1,467,503
|
$
|
1,694,200
|
|
|
|||
Intangibles:
|
||||
Customer
relationships
|
$
|
0.7
|
||
Customer
backlog
|
0.2
|
|||
Non-compete
agreements
|
0.1
|
|||
|
||||
Goodwill
|
7.3
|
|||
|
||||
Tangible
assets and liabilities acquired:
|
||||
Accounts
receivable
|
1.6
|
|||
Property
and equipment
|
0.1
|
|||
Accrued
expenses
|
(0.1
|
)
|
||
|
||||
Net
assets acquired
|
$
|
9.9
|
Intangibles:
|
||||
Customer
relationships
|
$
|
1.0
|
||
Customer
backlog
|
0.1
|
|||
Non-compete
agreements
|
0.1
|
|||
|
||||
Goodwill
|
6.8
|
|||
|
||||
Tangible
assets acquired:
|
||||
Accounts
receivable
|
1.7
|
|||
Property
and equipment
|
0.1
|
|||
|
||||
Net
assets acquired
|
$
|
9.8
|
Three
Months
|
||||
Ended
|
||||
March
31,
|
||||
|
2005
|
|||
Revenues
|
$
|
24,485,977
|
||
|
||||
Net
Income
|
1,677,475
|
|||
|
||||
Basic
Income per Share
|
0.07
|
|||
|
||||
Diluted
Income per Share
|
0.06
|
Balance
at December 31, 2005
|
$
|
46.3
million
|
||
|
||||
Adjustment
to Goodwill related to deferred taxes associated with
acquisitions
|
(0.1
million
|
)
|
||
Balance
at March 31, 2006
|
$
|
46.2
million
|
December
31, 2005
|
|
March
31, 2006
|
|
||||||||||||||||
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
Net
|
|
||||||
|
|
Carrying
|
|
Accumulated
|
|
Net
Carrying
|
|
Carrying
|
|
Accumulated
|
|
Carrying
|
|
||||||
|
|
Amounts
|
|
Amortization
|
|
Amounts
|
|
Amounts
|
|
Amortization
|
|
Amounts
|
|||||||
Customer
relationships
|
$
|
4,820
|
$
|
(1,122
|
)
|
$
|
3,698
|
$
|
4,820
|
$
|
(1,360
|
)
|
$
|
3,460
|
|||||
Non-compete
|
2,073
|
(621
|
)
|
1,452
|
2,073
|
(730
|
)
|
1,343
|
|||||||||||
Customer
backlog
|
130
|
(57
|
)
|
73
|
130
|
(100
|
)
|
30
|
|||||||||||
Internally
developed software
|
599
|
(54
|
)
|
545
|
666
|
(108
|
)
|
558
|
|||||||||||
|
|||||||||||||||||||
Total
|
$
|
7,622
|
$
|
(1,854
|
)
|
$
|
5,768
|
$
|
7,689
|
$
|
(2,298
|
)
|
$
|
5,391
|
Customer
relationships
|
5
- 8 years
|
Non-compete
agreements
|
3
- 5 years
|
Customer
backlog
|
6
months to 1 year
|
Internally
developed software
|
5
years
|
|
As
of
|
As
of
|
|||||
December
31,
|
March
31,
|
||||||
2005
|
2006
|
||||||
(in
millions)
|
|||||||
Cash
and cash equivalents
|
$
|
5.1
|
$
|
2.3
|
|||
Working
capital
|
$
|
17.1
|
$
|
17.7
|
·
|
Lack
of segregation of duties, with certain accounting personnel being
assigned
inappropriate access to the automated general ledger system, such
as in
our procure to pay and order to cash processes;
|
|
·
|
The
design of our internal control structure emphasized significant reliance
on manual detect controls, primarily performed by a single individual,
and
limited reliance on application and prevent controls;
|
|
·
|
Lack
of detail review of key financial spreadsheets, including spreadsheets
supporting journal entries affecting revenue such as unbilled revenue
and
deferred revenue.
|
|
|
|
|
|
PERFICIENT,
INC.
|
|
|
|
Dated:
May 10, 2006
|
|
/s/
John T. McDonald
|
|
|
John
T. McDonald, Chief Executive Officer
(Principal
Executive Officer)
|
|
|
|
Dated:
May 10, 2006
|
|
/s/
Michael D. Hill
|
|
|
Michael
D. Hill, Chief Financial Officer
|
|
|
(Principal
Financial and Accounting Officer)
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
|
3.1
|
|
Certificate
of Incorporation of Perficient, Inc., previously filed with the Securities
and Exchange Commission as an Exhibit to our Registration Statement
on
Form SB-2 (File No. 333-78337) declared effective on
July 28, 1999 by the Securities and Exchange Commission and
incorporated herein by reference
|
|
|
|
3.2
|
|
Certificate
of Amendment to Certificate of Incorporation of Perficient, Inc.,
previously filed with the Securities and Exchange Commission as an
Exhibit
to our Form 8-A filed with the Securities and Exchange Commission
pursuant to Section 12(g) of the Securities Exchange Act of 1934 on
February 15, 2005 and incorporated herein by reference
|
|
|
|
3.3
|
Certificate
of Amendment to Certificate of Incorporation of Perficient, Inc.,
previously filed with the Securities and Exchange Commission as an
Exhibit
to our Registration Statement on form S-8 (File No. 333-130624) filed
on
December 22, 2005 and incorporated herein by reference.
|
|
3.4
|
|
Bylaws
of Perficient, Inc., previously filed with the Securities and Exchange
Commission as an Exhibit to our Registration Statement on Form SB-2
(File No. 333-78337) declared effective on July 28, 1999 by the
Securities and Exchange Commission and incorporated herein by
reference
|
|
|
|
4.1
|
|
Specimen
Certificate for shares of common stock, previously filed with the
Securities and Exchange Commission as an Exhibit to our Registration
Statement on Form SB-2 (File No. 333-78337) declared effective
on July 28, 1999 by the Securities and Exchange Commission and
incorporated herein by reference
|
|
|
|
4.2
|
|
Warrant
granted to Gilford Securities Incorporated, previously filed with
the
Securities and Exchange Commission as an Exhibit to our Registration
Statement on Form SB-2 (File No. 333-78337) declared effective
on July 28, 1999 by the Securities and Exchange Commission and
incorporated herein by reference
|
|
|
|
4.3
|
|
Form
of Common Stock Purchase Warrant, previously filed with the Securities
and
Exchange Commission as an Exhibit to our Current Report on Form 8-K
filed on January 17, 2002 and incorporated herein by
reference
|
|
|
|
4.4
|
|
Form
of Common Stock Purchase Warrant, previously filed with the Securities
and
Exchange Commission as an Exhibit to our Registration Statement on
Form
S-3 (File No. 333-117216) filed on July 8, 2004 and incorporated
herein by reference
|
|
|
|
31.1*
|
|
Certification
by the Chief Executive Officer of Perficient, Inc. as required by
Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
31.2*
|
|
Certification
by the Chief Financial Officer of Perficient, Inc. as required by
Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
32.1†
|
|
Certification
by the Chief Executive Officer and Chief Financial Officer of Perficient,
Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of
2002
|
*
|
|
Filed
herewith.
|
|
||
†
|
|
Included
but not to be considered “filed” for the purposes of Section 18 of
the Securities Exchange Act of 1934 or otherwise subject to the
liabilities of that section.
|