Financial Woes Follow Divine, Exchange

Financial problems continue to plague CRM software companies as Divine and Exchange Applications find themselves battling Nasdaq delisting.

Financial problems continue to plague CRM software companies as Divine Inc. and Exchange Applications Inc. both find themselves battling Nasdaq delisting.

Divines board last week approved a 1-for-25 reverse split of the companys stock, designed to increase the price per share of the stock, which now trades at about 22 cents. This happened after the company received a Staff Determination letter from Nasdaq earlier this month, notifying the company that its stock is trading at too low a price for it to remain listed on the national market.

Such letters are typically issued to companies after their stock has been trading at less than $1 per share for more than 90 consecutive days.

The reverse split, which would give Divine shareholders one share of stock for every 25 they own, would effectively increase the stock price by a factor of 25.

The reverse split will take effect Wednesday.

Divine has built a portfolio of e-business software for CRM as well as content management and collaboration, largely by acquiring struggling companies in those spaces since early last year.

In its most recent quarter ended March 31, the company lost $70.9 million on $146.3 million in revenues. Divine, in Chicago, has also burned through about $65 million in cash in each of the last two quarters, a rate that would deplete the companys cash reserves in less than four months.

In an apparent effort to slow the second quarter cash burn rate, Divine reportedly mandated paycuts of 3.85 percent earlier this month for all employees making over $60,000 per year, with the cuts condensed into two pay periods, ending May 31 and June 14. Affected employees will receive just half of their normal paychecks on those days.

Chairman and CEO of Divine Andrew "Flip" Filipowski said in a statement that Divine was "working diligently to eliminate excess costs" so it could be profitable by the end of the year.

"We continue to believe in the fundamental strength of our business and the extended enterprise market focus," said Filipowski.

Exchange, also known as Xchange Inc., which has already tried a reverse stock split, was issued a delisting letter from the Nasdaq last Thursday because it doesnt meet Nasdaqs net tangible assets and shareholders equity requirements. While Exchanges stock price had been trading over $1, its market capitalization has shrunk to just $1.1 million.

The Boston-based company issued a statement saying that it would file a plan of compliance with Nasdaq and a request that it be given time to implement this plan. Thats if Exchange even remains public. The companys board of directors has formed a committee to study an offer from Insight Venture Partners to take the company private.

Insight, already an investor in the company, made a preliminary offer earlier this month to acquire the companys outstanding shares of common stock.

Exchange also announced Friday, in a form 8K filed with the Securities and Exchange Commission, that it was dismissing beleaguered accounting firm Arthur Andersen LLP as its independent auditor, though the company said it had no disagreements with Andersen on accounting principles or practices, financial statement disclosure or auditing scope or procedure during the past two fiscal years.

Several other software vendors in the CRM space have recently dismissed Andersen as well, including E.piphany Inc., Firepond Inc. and Art Technology Group Inc.

In its most recent quarter ended March 31, Exchange lost $1.2 million on $6.4 million in revenues. Revenues were down from $15.8 million in the same period a year ago.

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