<PAGE>
- -------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant To Section 13 Or 15(d) Of The Securities
Exchange Act Of 1934
For the quarterly period ended September 30, 1997
OR
[_] Transition Report Pursuant To Section 13 Or 15(d) Of The Securities
Exchange Act Of 1934
For the transition period from _______ to _______
Commission file number: 0-27310
RED BRICK SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 77-0145392
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
485 ALBERTO WAY
LOS GATOS, CALIFORNIA 95032
(Address of principal executive offices, including zip code)
(408) 399-3200
(Registrant's Telephone No., including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days:
Yes [X] No [_]
As of October 31, 1997 there were 12,235,306 shares of the Registrant's Common
Stock outstanding.
- -------------------------------------------------------------------------------
<PAGE>
RED BRICK SYSTEMS, INC.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
<S> <C>
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets
As of September 30, 1997 and December 31, 1996................... 3
Condensed Consolidated Statements of Operations For the Three
Months and Nine Months Ended September 30, 1997 and 1996......... 4
Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 1997 and 1996............ 5
Notes to Condensed Consolidated Financial Statements............. 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS............................................ 9
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................................. 22
SIGNATURES................................................................ 23
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RED BRICK SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
ASSETS (unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 14,468 $14,552
Short-term investments 13,611 20,599
Accounts receivable, net 7,741 13,106
Prepaid expenses and other current assets 795 1,213
Deferred tax assets 850 850
-------- -------
Total current assets 37,465 50,320
Property and equipment, net 2,533 2,693
Intangible assets 406 --
Deposits and other assets 301 205
Deferred tax assets 150 150
-------- -------
Total assets $ 40,855 $53,368
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,032 $ 316
Accrued expenses 3,430 2,565
Accrued compensation 2,081 2,191
Deferred revenue 4,733 4,180
Capital lease obligations due within one year 488 760
-------- -------
Total current liabilities 11,764 10,012
Capital lease obligations 113 396
Minority interest -- 36
Stockholders' equity:
Common stock 1 1
Additional paid in capital 56,005 51,570
Accumulated deficit (26,944) (8,507)
Deferred compensation -- (36)
Translation adjustment 4 4
Unrealized losses on marketable securities (13) --
-------- -------
29,053 43,032
Notes receivable from stockholders (75) (108)
-------- -------
Total stockholders' equity 28,978 42,924
-------- -------
Total liabilities and stockholders' equity $ 40,855 $53,368
======== =======
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements
3
<PAGE>
RED BRICK SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data; unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- -------------------
1997 1996 1997 1996
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Revenues:
Software license $ 8,143 $ 7,319 $ 19,189 $19,065
Maintenance and service 3,546 1,694 9,434 4,492
-------- ------- -------- -------
Total revenues 11,689 9,013 28,623 23,557
-------- ------- -------- -------
Cost of revenues:
Software license 449 317 1,139 779
Maintenance and service 2,210 851 6,164 1,911
-------- ------- -------- -------
Total cost of revenues 2,659 1,168 7,303 2,690
-------- ------- -------- -------
Gross margin 9,030 7,845 21,320 20,867
-------- ------- -------- -------
Operating expenses:
Sales and marketing 5,772 5,153 19,813 13,361
Research and development 2,354 1,465 7,130 4,393
General and administrative 863 717 3,019 2,018
In-process technology 10,984 -- 10,984 500
-------- ------- -------- -------
Total operating expenses 19,973 7,335 40,946 20,272
-------- ------- -------- -------
Income (loss) from operations (10,943) 510 (19,626) 595
Interest and other income 464 459 1,491 1,223
Interest and other expense (27) (86) (93) (239)
-------- ------- -------- -------
Income (loss) before provision for income
taxes and minority interest (10,506) 883 (18,228) 1,579
Provision for income taxes 100 102 305 172
-------- ------- -------- -------
Income (loss) before minority interest (10,606) 781 (18,533) 1,407
Minority interest 64 37 96 37
-------- ------- -------- -------
Net income (loss) $(10,542) $ 818 $(18,437) $ 1,444
======== ======= ======== =======
Net income (loss) per share $(0.89) $0.06 $(1.59) $0.11
======== ======= ======== =======
Shares used to compute
net income (loss) per share 11,849 12,770 11,591 12,635
======== ======= ======== =======
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements
4
<PAGE>
RED BRICK SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands; unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1997 1996
-------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(18,437) $ 1,444
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization 1,269 1,043
In-process technology 10,984 --
Minority interest (36) 84
Changes in assets and liabilities:
Accounts receivable 5,365 (3,420)
Prepaid expenses and other current assets 418 (440)
Accounts payable 716 (413)
Accrued expenses and compensation 717 1,132
Deferred revenue 553 437
-------- --------
Net cash provided by (used in) operating activities 1,549 (133)
-------- --------
Cash flows from investing activities:
Purchases of short-term investments (18,990) (34,106)
Proceeds from sales of short-term investments 25,978 13,493
Acquisition of property and equipment (1,109) (1,389)
Acquisition of certain assets and technology (9,543) --
Deposits and other assets (96) (51)
-------- --------
Net cash used in investing activities (3,760) (22,053)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of stock, net 2,662 35,275
Payment on notes receivable 33 --
Payment on notes payable to stockholders -- (33)
Principal payments on capital lease obligations (555) (766)
Unrealized gains (losses) on marketable securities (13) 45
Translation adjustment -- 5
-------- --------
Net cash provided by financing activities 2,127 34,526
-------- --------
Net increase (decrease) in cash and cash equivalents (84) 12,340
Cash and cash equivalents at beginning of period 14,552 2,998
-------- --------
Cash and cash equivalents at end of period $ 14,468 $ 15,338
======== ========
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements
5
<PAGE>
RED BRICK SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation
---------------------
The unaudited condensed consolidated financial statements included herein
reflect all adjustments, consisting only of normal recurring adjustmentsccruals,
which in the opinion of management are necessary to fairly present the Company's
consolidated financial position, results of operations, and cash flows for the
periods presented. These financial statements should be read in conjunction
with the Company's audited consolidated financial statements included in the
Company's fiscal year 1996 Annual Report on Form 10-K. The consolidated results
of operations for the three and nine months ended September 30, 1997, are not
necessarily indicative of the results to be expected for any subsequent period
or for the entire fiscal year ending December 31, 1997. The December 31, 1996,
balance sheet was derived from audited financial statements, but does not
include all disclosures required by generally accepted accounting principles.
The preparation of financial statements in conformity with generally accepted
accounting principles 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. Such
estimates relate to the useful lives of fixed assets, allowances for doubtful
accounts and customer returns, other reserves, and income tax valuation
allowances. Actual results inevitably will differ from those estimates, and
such differences may be material to the financial statements.
On July 1, 1996, the Company entered into an agreement with Productivity
Software Group Limited ("PSG") to form a joint venture to distribute the
Company's products and services in Australia and New Zealand. The Company owns
approximately 50.1% of the voting stock of the joint venture and is
consolidating this entity. The minority interest shown on the financial
statements represents PSG's proportionate share in the net assets and operating
activity of the Australian subsidiary. Beginning in 1999, the Company may be
obligated to purchase the remaining stock owned by PSG at a pre-determined
price, not to exceed $5 million, based on 1998 revenue for the joint venture.
Red Brick Japan Co., Ltd., a wholly-owned subsidiary of Red Brick Systems,
Inc., was incorporated in Japan on January 16, 1997, for the purpose of
assisting the Company and its distributors in the licensing and sale of Red
Brick products and services in Japan.
2. Net Income (Loss) Per Share
---------------------------
Net loss per share is computed using the weighted average number of common
shares outstanding during the period.
Net income per share is computed using the weighted average number of common
and dilutive common equivalent shares outstanding during the period. Dilutive
common equivalent shares consist of shares issueable upon the exercise of stock
options and warrants (using the treasury stock method).
6
<PAGE>
3. Recent Pronouncements
---------------------
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 128, Earnings per Share, which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per share,
the dilutive effect of stock options, warrants, convertible preferred stock, and
common and common equivalent shares issued will be excluded. The impact is
expected to result in an increase in primary earnings per share for the three
and nine months ended September 30, 1996, of $0.01 and $.02 per share,
respectively, and is expected to result in no change in primary loss per share
for the three and nine months ended September 30, 1997. The impact of Statement
128 on the calculation of fully diluted earnings per share for these quarters is
not expected to be material.
On July 1, 1997, the FASB issued Statement No. 130, Reporting Comprehensive
Income. This statement establishes standards for reporting and displaying
comprehensive income and its components (including revenues, expenses, gains and
losses) in a full set of general purpose financial statements. This statement
is effective for fiscal years beginning after December 15, 1997, with earlier
application permitted.
The FASB has issued Statement No. 131, Disclosures About Segments of an
Enterprise and Related Information ("SFAS No. 131"), which supersedes SFAS No.
14, Financial Reporting for Segments of a Business Enterprise. SFAS No. 131
changes current practice under SFAS No. 14 by establishing a new framework on
which to base segment reporting and also requires interim reporting of segment
information. SFAS No. 131 is effective for fiscal years beginning after
December 15, 1997.
4. Purchase of Certain Assets and Technology
-----------------------------------------
On August 29, 1997, the Company executed a technology purchase agreement with
CMG Information Services, Inc., a Delaware corporation ("CMGI"), and its wholly-
owned subsidiary, Engage Technologies, Inc., a Delaware corporation ("Engage"),
whereby the Company acquired the source code and related documentation to the
Engage software technology "Engage.Fusion" and "Engage.Discover," and such
products' shared, object-oriented, metadata facility, all of which are currently
technology under development. Additionally, the Company purchased certain
assets, including unidentified goodwill ($126,193), and incurred certain
expenses associated with hiring of a portion of Engage's workforce ($280,448).
In the third quarter of 1997 the Company took a charge of approximately $11
million for in-process technology based upon an independent appraisal. The
Company paid CMGI $9.5 million in cash and issued to CMGI 238,160 shares of
unregistered common stock valued at $1,773,399. At the time of the purchase by
the Company, the acquired in-process technology had not yet reached
technological feasibility and did not have alternative future uses.
7
<PAGE>
5. Repricing
---------
In April 1997, the Company offered employees, excluding executive officers,
the option to exchange options to purchase 489,775 shares of Common Stock with
an aggregate exercise price of $10,782,088 for new options to purchase 489,775
shares of Common Stock with an exercise price of $6.00 per share and an
aggregate exercise price of $2,938,650. All options that were repriced begin
vesting six months after the vesting start date under the original terms of the
option grant.
8
<PAGE>
RED BRICK SYSTEMS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The discussion in this report contains forward-looking statements that involve
risks and uncertainties including, without limitation, statements made in the
sections entitled "Results of Operations" "--Revenues", "--Cost of Revenues", "-
- -Operating Expenses", "--Interest and Other Income and Interest Expense", "--
Provision for Income Taxes", "--Minority Interest, Net Income and Net Income
(Loss) Per Share", and "Liquidity and Capital Resources" regarding the Company's
revenues and associated costs and expenses. The Company's actual results could
differ materially from those discussed herein. Factors that could cause or
contribute to such differences include, but are not limited to, those discussed
in the section below entitled "Risk Factors That May Affect Future Results," as
well as those risks discussed in this section and elsewhere in this report.
RESULTS OF OPERATIONS
REVENUES
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ ---------------------------
1997 CHANGE 1996 1997 CHANGE 1996
------- ------ ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Software license $ 8,143 11% $7,319 $19,189 1% $19,065
Percentage of total revenues 70% 81% 67% 81%
Maintenance and service $ 3,546 109% $1,694 $ 9,434 110% $ 4,492
Percentage of total revenues 30% 19% 33% 19%
Total revenues $11,689 30% $9,013 $28,623 22% $23,557
</TABLE>
The Company's revenues are derived from (i) license fees for its software
products and (ii) fees for services complementing its products, including
software maintenance and support, training, consulting and development
agreements. Fees for service revenues are charged separately from the Company's
software products. The Company recognizes revenue in accordance with the
American Institute of Certified Public Accountants Statement of Position 91-1 on
Software Revenue Recognition. Revenue from software licensing is generally
recognized after execution of a licensing agreement and shipment of the product.
Maintenance revenue is recognized over the term of the maintenance period, which
is typically 12 months. Consulting and training revenues are recognized at the
time the services are performed. Revenue under software development agreements
is recognized using the percentage-of-completion method, based on the ratio that
incurred costs bear to total estimated costs. The Company's license agreements
generally do not provide a right of return; however, reserves are maintained for
potential credit losses.
Software License Revenues. The Company currently derives substantially all of
its software license revenues from licenses of Red Brick Warehouse, a relational
database management system that is specifically designed for serving data
warehouse applications. Software license revenues increased slightly for the
nine months ended September 30, 1997, compared to the nine months ended
September 30, 1996. Software license revenues for the three months ended
September 30, 1997, increased over the year earlier period because of an
increase in licensing activity. Prior growth
9
<PAGE>
rates of the Company's software license revenues may not be indicative of future
software license revenue and may not be sustainable in the future.
Maintenance and Service Revenues. The growth in maintenance revenues for the
three and nine month periods ended September 30, 1997, was primarily
attributable to the renewal of maintenance contracts after the initial one-year
term. Service revenues increased as a result of additional consulting and
training engagements. The Company expects that prior growth rates of the
Company's maintenance and service revenues may not be sustainable in the future.
For the three month period ended September 30, 1997, sales to HBS,
International, Inc., accounted for 12% of total revenue. For the nine month
period ended September 30, 1997, no one customer accounted for 10% or more of
total revenues. For the three month period ended September 30, 1996, sales to
Aerial Communications, Inc., (formerly American Portable Telecom, Inc.),
accounted for 16% of total revenues and sales to Kraft Foods, Inc., accounted
for 11% of total revenues. For the nine month period ended September 30, 1996,
no one customer accounted for 10% or more of total revenues. The Company expects
that licenses of its products to a limited number of customers and resellers
will continue to account for a significant percentage of revenue for the
foreseeable future. There can be no assurance that any customer or reseller
will continue to license the Company's products. The loss of a major customer
or reseller or any reduction in orders by such customers or resellers, including
reductions due to market or competitive conditions, would have a materially
adverse effect on the Company's business, financial condition, and results of
operations.
The Company's revenues outside of North America for the three and nine month
periods ended September 30, 1997, were 13% and 14% of total revenues,
respectively. The Company's revenues outside of North America for the three and
nine month periods ended September 30, 1996, were less than 10% of total
revenues. The Company intends to continue to expand its international operations
and to enter additional international markets.
COST OF REVENUES
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ----------------------------
1997 CHANGE 1996 1997 CHANGE 1996
-------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Software license $ 449 42% $ 317 $1,139 46% $ 779
Percentage of total revenues 4% 4% 4% 3%
Maintenance and service $2,210 160% $ 851 $6,164 223% $1,911
Percentage of total revenues 19% 9% 22% 8%
Total cost of revenues $2,659 128% $1,168 $7,303 171% $2,690
Percentage of total revenues 23% 13% 26% 11%
</TABLE>
Cost of Software License Revenues. Cost of software license revenues
consisted primarily of the cost of royalties paid to third-party vendors,
product media and duplication, shipping expenses, manuals and packaging
materials.
Cost of Maintenance and Service Revenues. Cost of maintenance and service
revenues consisted primarily of personnel-related costs incurred in providing
telephone support, consulting services, and training to customers. Cost of
maintenance and service revenues for the three and nine month periods ended
September 30, 1997, increased over such costs for the same periods ended
September
10
<PAGE>
30, 1996, as a result of increased personnel-related costs as the Company
continued to expand its customer service and consulting organizations to support
an expected increase in sales. The Company believes that the cost of maintenance
and service revenues will increase in dollar amount and may increase as a
percentage of total revenues in the future as the Company continues to build its
customer service and consulting organizations.
OPERATING EXPENSES
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- --------------------------
1997 CHANGE 1996 1997 CHANGE 1996
------- ------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Sales and marketing $ 5,772 12% $5,153 $19,813 48% $13,361
Percentage of total revenues 49% 57% 69% 57%
Research and development $ 2,354 61% $1,465 $ 7,130 62% $ 4,393
Percentage of total revenues 20% 16% 25% 19%
General and administrative $ 863 20% $ 717 $ 3,019 50% $ 2,018
Percentage of total revenues 7% 8% 11% 9%
In-process technology $10,984 * $ -- $10,984 2,097% $ 500
Percentage of total revenues 94% 38% 2%
Total operating expenses $19,973 172% $7,335 $40,946 102% $20,272
Percentage of total revenues 171% 81% 143% 86%
</TABLE>
- --------------
* Not meaningful
Sales and Marketing. Sales and marketing expenses consisted primarily of
personnel-related costs, including sales commissions, as well as promotional
expenses including advertising, public relations, seminars, and trade shows.
The increase in dollar amount in sales and marketing expenses was primarily due
to the expansion of the Company's sales operations and increased marketing
activities, partially offset by the reversal of accruals recorded during the
first quarter for bonuses and for the closing of the UK office. The reversals,
which totaled approximately $500,000 or $0.04 per share, were required since the
Company determined that bonuses were going to be paid at a lower rate than
originally estimated. In addition, original estimates of costs to restructure
the UK office were higher than actual expenses incurred. The Company believes
that sales and marketing expenses will increase in dollar amount and may
increase as a percentage of total revenues in the future as the Company expands
its sales and marketing activities.
Research and Development. Research and development expenses consisted
primarily of salaries and other personnel-related expenses, and depreciation of
development equipment. The increase in dollar amount in research and
development expenses was primarily attributable to the increased staffing of
software engineers required to expand and enhance the Company's product line,
work on the development of the in-process technology acquired, and the expensing
of technology and software that had not met technological feasibility. In
accordance with SFAS No. 86, the Company capitalizes eligible computer software
costs upon the achievement of technological feasibility, subject to net
realizable value considerations. The Company has defined technological
feasibility as completion of a working model. As of September 30, 1997, such
capitalizable costs were insignificant. Accordingly, the Company has charged
all such costs to research and development expense in the accompanying condensed
consolidated statements of operation. The Company believes that research and
development expenses will continue to increase in dollar amount and may increase
as a percentage of total revenues in the future as the Company works on the in-
process technology acquired from Engage and continues to update and expand its
product line.
11
<PAGE>
General and Administrative. General and administrative expenses consisted
primarily of personnel costs for finance and general management, as well as
insurance and professional expenses. The increase in dollar amount of general
and administrative expenses was primarily attributable to increased staffing and
professional fees necessary to manage and support the Company and to provide the
infrastructure required, partially offset by the reversal of accruals related to
the restructuring of the UK office recorded in the first quarter of the current
fiscal year The reversal, which totaled approximately $100,000 or less than
$0.01 per share, was required since actual costs incurred were less than
previously accrued. The Company believes that its general and administrative
expenses will continue to increase in dollar amount in the future as the Company
expands its administrative staff and adds infrastructure.
Cost of In-Process Technology. The cost of in-process technology was $11.0
million for the current quarter. These costs were for the purchase on August 29,
1997, of certain technology under development from Engage. The acquisition
provided technology the Company is working to integrate into Red Brick
Warehouse, the Company's relational database specialized for data warehouse
applications, to create a next-generation, end-to-end data warehouse platform of
products. In the second quarter of 1996, the Company also acquired in-process
technology, associated with a $500,000 licensing arrangement. At the time
purchased by the Company, this acquired in-process technology had not yet
reached technological feasibility and did not have alternative future uses.
INTEREST AND OTHER INCOME AND INTEREST EXPENSE
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ----------------------------
1997 CHANGE 1996 1997 CHANGE 1996
------- ------ ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Interest and other income $ 464 1% $ 459 $1,491 22% $1,223
Percentage of total revenues 4% 5% 5% 5%
Interest expense $ (27) (69%) $ (86) $ (93) (61%) $ (239)
Percentage of total revenues (0%) (1%) (0%) (1%)
</TABLE>
Interest and other income primarily represented interest income earned on the
Company's cash, cash equivalents, and short-term investments. Interest and
other income increased during the nine month period ended September 30, 1997,
compared to the year earlier period primarily because of the compounding of
funds where the income was reinvested.
PROVISION FOR INCOME TAXES
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- ---------------------------
1997 CHANGE 1996 1997 CHANGE 1996
------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
Provision for income taxes $ 100 (2%) $ 102 $ 305 77% $ 172
Percentage of total revenues 1% 1% 1% 1%
</TABLE>
The income tax provision for the nine month period ended September 30, 1997,
of $305,000 is attributable to current income taxes, and consists principally of
foreign withholding taxes and other foreign income taxes and state minimum
taxes. No income tax benefit has been recognized for the loss incurred in the
first nine months of 1997. Although realization is not assured, the Company
12
<PAGE>
continues to believe it is "more likely than not" that it will generate future
taxable income sufficient to realize the benefit of the $1 million net deferred
tax asset previously recognized. The amount of the net deferred tax asset
considered realizable, however, could be reduced in the near term if estimates
of future taxable income are reduced. Management intends to evaluate the
realizability of the net deferred tax asset each quarter to assess the need for
the valuation allowance.
The effective tax rate for the nine month period ended September 30, 1996, was
11%, which differed from the federal statutory tax rate of 34%, primarily due to
the utilization of net operating loss carryforwards, offset by adjustments of
the valuation allowance, alternative minimum taxes, and foreign taxes.
As of December 31, 1996, the Company had federal and state net operating loss
carryforwards of approximately of $4.4 million and $3.6 million, respectively,
and federal and state research credit carryforwards of $430,000 and $290,000,
respectively. Utilization of approximately $1.5 million of the net operating
loss carryforwards is limited to approximately $100,000 per year, due to the
ownership change provisions provided by the Tax Reform Act of 1986 and similar
state provisions. These carryforwards will expire from 1998 to 2009.
MINORITY INTEREST, NET INCOME, AND NET INCOME (LOSS) PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- ---------------------------
1997 CHANGE 1996 1997 CHANGE 1996
------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
Minority Interest $ 64 73% $ 37 $ 96 159% $ 37
Percentage of total revenues 1% 0% 0% 0%
Net income (loss) $(10,542) * $ 818 $(18,437) * $1,444
Percentage of total revenues (90)% 9% (64)% 6%
Net income (loss) per share $ (0.89) * $0.06 $ (1.59) * $ 0.11
</TABLE>
- -----------
* Not meaningful
Net loss per share for the nine-month period ended September 30, 1997, was
primarily the result of the revenue shortfall for the three months ended March
31, 1997, and of the purchase of the in-process technology in August 1997.
Software license revenues for the three-month period ended March 31, 1997,
decreased from the year earlier period during which time the Company's expense
levels remained relatively fixed and were based, in part, on expectations as to
future revenues. Consequently, since revenue fell below expectations, operating
results were adversely affected and net income (loss) was disproportionately
affected because a proportionately smaller amount of the Company's expenses
varies with its revenues. This, coupled with the purchase of the in-process
technology, accounted for most of the loss.
13
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 CHANGE 1996
------------ ------ ------------
<S> <C> <C> <C>
Working capital $25,641 (36%) $40,308
Cash and cash equivalents and short-term investments $28,079 (20%) $35,151
</TABLE>
Working capital decreased at September 30, 1997, compared to that at December
31, 1996, primarily due to cash used for the acquisition of in-process
technology and other assets from CMGI, offset by a decrease in accounts
receivable.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------------
1997 CHANGE 1996
------ ------ -------
<S> <C> <C> <C>
Cash provided by (used in) operating activities $ 1,549 * $ (133)
Cash used in investing activities $(3,760) (83%) $(22,053)
Cash provided by financing activities $ 2,127 (94%) $ 34,526
- -----------
* Not meaningful
</TABLE>
For the nine months ended September 30, 1997, net cash provided by operating
activities resulted primarily from a decrease in accounts receivable and
increases in accrued expenses and compensation, accounts payable, and deferred
revenue partially offset by the net loss adjusted for non-cash items including
the in-process technology. For the nine months ended September 30, 1996, net
cash used in operating activities resulted primarily from an increase in
accounts receivable and a decrease in accounts payable and prepaid expenses and
other current assets, partially offset by increases in accrued expenses and
compensation, deferred revenue, and by net income.
For the nine months ended September 30, 1997, the Company's investing
activities consisted of purchases of in-process technology and property and
equipment partially offset by purchases and sales of investment grade, interest-
bearing securities. For the nine months ended September 30, 1996, the Company's
investing activities consisted of purchases and sales of investment grade,
interest-bearing securities, and purchases of property and equipment. Capital
expenditures were $1.1 million in the nine months ended September 30, 1997,
compared to $1.4 million in the nine months ended September 30, 1996. The
Company expects that its capital expenditures will remain constant or increase
as the Company's employee base grows. The Company's principal commitments
consist primarily of leases on facilities and equipment.
The cash provided by financing activities during the nine months ended
September 30, 1997, was primarily from the issuance of common stock through the
Company's Employee Stock Purchase Plan. The cash provided by financing
activities during the nine months ended September 30, 1996, was primarily from
the initial public offering.
The Company has a $3,000,000 unsecured line of credit which expires April 30,
1998. Borrowings under this line bear interest at the lender's current index.
The credit agreement requires the Company to maintain certain financial ratios,
minimum working capital, and minimum tangible net worth. The agreement also
restricts the payment of dividends. At September 30, 1997, there were no
borrowings outstanding under this line of credit.
14
<PAGE>
The Company believes that the current cash balance, credit facility, and cash
flow provided by operations, if any, will be sufficient to meet anticipated
working capital and capital expenditure requirements for at least the next 12
months. Thereafter, the Company may find it necessary to obtain additional debt
or equity financing. There can be no assurance that, in the event additional
financing is required, the Company will be able to raise such additional
financing on acceptable terms or at all.
15
<PAGE>
RISK FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company operates in a rapidly changing environment that involves a number
of risks, some of which are beyond the Company's control. The following
discussion highlights some of these risks.
Potential Fluctuations in Quarterly Results; Seasonality. The Company's
quarterly operating results have varied significantly in the past, and may vary
significantly in the future, depending on factors such as increased competition,
size and timing of significant orders, timing of new product announcements and
pricing policy changes by the Company and its competitors, market acceptance of
new and enhanced versions of the Company's products, changes in operating
expenses, changes in personnel, mix of direct and indirect sales, general
economic factors, and foreign currency exchange rates. The Company currently
operates with virtually no order backlog because its software products typically
are shipped shortly after orders are received. The Company derives a
substantial portion of its revenues from licenses of its Red Brick Warehouse, a
relational database management system that is specifically designed for serving
data warehouse applications and typically has a selling price in excess of
$100,000. As a result, the timing of the receipt and shipment of a single order
can have a significant impact on the Company's revenues and results of
operations for a particular period. In the first quarter of 1997, for example,
the Company received significantly fewer orders than expected, which had an
immediate adverse impact on operating results for the period. Historically, the
Company has often recognized a substantial portion of its revenues in the last
month of a quarter, with these revenues frequently concentrated in the last two
weeks of a quarter. As a result, product revenues in any quarter are
substantially dependent on orders booked and shipped in that quarter, and
revenues for any future quarter are not predictable with any significant degree
of certainty. Product revenues are also difficult to forecast because the
market for data warehouse software products is rapidly evolving, and the
Company's sales cycle, which may last many months, varies substantially from
customer to customer. The Company's expense levels are relatively fixed and are
based, in part, on expectations as to future revenues. Consequently, if revenue
levels fall below expectations, operating results will likely be adversely
affected, and net income (loss) may be disproportionately affected because a
proportionately smaller amount of the Company's expenses varies with its
revenues, as occurred during the quarter ended March 31, 1997. In addition, the
Company expects that sales derived through indirect channels, which are harder
to forecast and have lower gross margins than direct sales, will increase as a
percentage of total revenues. Due to all of the foregoing factors, the Company
believes that period-to-period comparisons of its results of operations are not
necessarily meaningful and should not be relied upon as indications of future
performance. As occurred during the quarter ended March 31, 1997, and as may
occur in some future quarters, the Company's operating results were and/or may
be below the expectations of public market analysts and investors. Should this
occur, the price of the Company's Common Stock would be materially adversely
affected.
The Company's business has experienced, and is expected to continue to
experience, significant seasonality, largely due to customer buying patterns.
In recent years, the Company has generally had stronger demand for its software
products during the quarters ending in June and December, and weaker demand in
the quarters ending in March and September. The Company believes this pattern
will continue.
Competition. The market for the Company's products is intensely competitive
and subject to rapid change. The Company primarily encounters competition from
large public companies, including Oracle, Informix, Sybase, IBM, and
NCR/Teradata. In addition, because there are relatively low barriers to entry
in the software market, the Company expects additional competition from other
established and emerging companies if the data warehouse software market
continues to develop and expand. Most of the Company's competitors have longer
operating histories,
16
<PAGE>
significantly greater financial, technical, marketing, and other resources,
significantly greater name recognition, and a larger installed base of
customers. In addition, many of the Company's competitors have well-established
relationships with current and potential customers of the Company, extensive
knowledge of the relational database industry, and are capable of offering a
single vendor solution. As a result, the Company's competitors may be able to
respond more quickly to new or emerging technologies and changes in customer
requirements, or to devote greater resources to the development, promotion, and
sale of their products than can the Company. In addition, current and potential
competitors have established, or may establish, cooperative relationships among
themselves or with third parties to increase the ability of their products to
address customer needs. Accordingly, it is possible that new competitors or
alliances among competitors may emerge and rapidly acquire significant market
share. The Company also expects that competition will increase as a result of
software industry consolidations. Increased competition is likely to result in
price reductions, reduced gross margins, and loss of market share, any of which
could materially adversely affect the Company's business, operating results, and
financial condition. There can be no assurance that the Company will be able to
compete successfully against current and future competitors or that competitive
pressures faced by the Company will not materially adversely affect its
business, operating results and financial condition.
Limited Profitability; Accumulated Deficit; Future Operating Results
Uncertain. As of September 30, 1997, the Company had an accumulated deficit of
$26.9 million. The Company had a $10.5 million loss in the third quarter of
1997, a $1.5 million loss in the second quarter of 1997, a $6.4 million loss in
the first quarter of 1997, an $18.4 million loss for the nine month period ended
September 30, 1997, and was only marginally profitable in 1996. There can be no
assurance that the Company will return to profitability on a quarterly basis or
on an annual basis. The Company began shipping its principal product, Red Brick
Warehouse, in December 1991. Future operating results will depend on many
factors, including the demand for the Company's products, the level of product
and price competition, the Company's success in expanding its direct sales force
and indirect distribution channels, the ability of the Company to successfully
complete development of in-process technology acquired, the ability of the
Company to develop and market new products and control costs, and the percentage
of the Company's revenues derived from indirect channels, which have lower gross
margins than direct sales, and general economic conditions.
Dependence on Continued Growth of the Data Warehouse Market. Although demand
for data warehouse software has grown in recent years, the market is still
emerging. The Company's future financial performance will depend to a large
extent on continued growth in the number of organizations adopting data
warehouses and existing customers expanding their use of data warehouses. There
can be no assurance that the market for data warehouses will continue to grow.
If the data warehouse market fails to grow, or grows more slowly than the
Company currently anticipates, the Company's business, operating results, and
financial condition would be materially adversely affected.
Product Concentration. Substantially all of the Company's revenues have been
attributable to sales of licenses of Red Brick Warehouse. These products are
currently expected to account for a significant part of the Company's revenues
for the foreseeable future. As a result, a decline in demand for, or failure to
achieve broad market acceptance of, Red Brick Warehouse as a result of
competition, technological change or otherwise, would have a materially adverse
effect on the business, operating results, and financial condition of the
Company. A decline in sales of Red Brick Warehouse would also have a materially
adverse effect on licensing of other Company products that may be licensed to
Red Brick Warehouse customers. The Company's future financial performance will
depend in part on the successful development, introduction, and customer
acceptance of new and enhanced versions of Red Brick Warehouse and other
products. There can be no assurance that
17
<PAGE>
the Company will continue to be successful in marketing Red Brick Warehouse or
any new or enhanced products.
Dependence on New Products and Rapid Technological Change; Feasibility of In-
Process Technology. The market for the Company's software is characterized by
rapid technological change, frequent new product introductions, and evolving
industry standards. The introduction by others of products embodying new
technologies and the emergence of new industry standards can render the
Company's existing products obsolete and unmarketable. The life cycles of the
Company's products are difficult to estimate. The Company's future success
depends on its ability to enhance its current products, to develop and introduce
new products that keep pace with technological developments and emerging
industry standards on a timely basis, and to address the increasingly
sophisticated needs of its customers. There can be no assurance that the
Company will be successful in developing and marketing product enhancements or
new products that respond to technological change or evolving industry
standards, that the Company will not experience difficulties that could delay or
prevent the successful development, introduction, and marketing of these new
products and product enhancements, or that the Company's new products and
product enhancements will adequately meet the requirements of the marketplace
and achieve market acceptance. Any potential new products or product
enhancements would likely be subject to significant technical risks. If the
Company experiences delays in the commencement of commercial shipments of new
products and enhancements, the Company could experience delays or loss of
product revenues. If the Company is unable, for technological or other reasons,
to develop and introduce new products or enhancements of existing products in a
timely manner in response to changing market conditions or customer
requirements, the Company's business, operating results, and financial condition
will be materially adversely affected.
The Company is currently working to integrate the in-process technology it
acquired from Engage into Red Brick Warehouse to create an end-to-end data
warehouse solution. This development effort involves complex tasks and may take
several quarters to complete. There can be no assurance that the Company will
be able to complete the development of such an end-to-end data warehouse
solution on a timely basis, or at all, that such solution will operate as
expected, or that the Company will be able to successfully market and license
such solution. The occurrence of any of these events could have a materially
adverse effect on the Company's business, operating results, and financial
condition.
Customer Concentration. A relatively small number of customers and resellers
account for a significant percentage of the Company's revenues. The Company
expects that licenses of its products to a limited number of customers and
resellers may continue to account for a high percentage of revenue for the
foreseeable future. There can be no assurance that any customer or reseller will
continue to purchase the Company's products. The loss of a major customer or
reseller or any reduction in orders by such customers or resellers, including
reductions due to market or competitive conditions, would have a materially
adverse effect on the Company's business, financial condition, and results of
operations.
Risk of Product Defects. Software products as complex as those offered by the
Company may contain undetected errors or failures when first introduced or when
new versions are released. The Company has previously discovered software
errors in certain of its new products after their introduction. Although the
Company has not experienced materially adverse effects resulting from any such
errors to date, there can be no assurance that, despite testing by the Company
and by current and potential customers, errors will not be found in new versions
of Red Brick Warehouse or administration tools after commencement of commercial
shipments, resulting in loss of or delay in
18
<PAGE>
market acceptance which could have a materially adverse effect upon the
Company's business, financial condition, and results of operations.
Dependence Upon Key Personnel; Need to Increase Sales and Technical Personnel.
The Company's future performance depends in a significant part upon the
continued service of its key technical, sales, and senior management personnel,
none of whom is bound by an employment agreement. In September 1997, Robert C.
Hausmann, who had been serving as the Company's Chief Financial Officer and Vice
President of Finance and Administration, left the Company. Christopher G.
Erickson, President and Chief Executive Officer of the Company, began acting as
the Company's Chief Financial Officer until the successful conclusion of an
executive search for Mr. Hausmann's replacement. Mr. Hausmann will remain in an
advisory role through the end of 1997. In November, the Company announced the
appointment of Margaret Brauns to Chief Financial Officer and Vice President of
Finance and Administration, effective December 3, 1997. From 1990 to October
1997, Ms. Brauns was employed by Informix Corporation, a database software
company, and since 1992 served as Vice President and Treasurer. The loss of the
services of one or more of the Company's key employees in the future could have
a materially adverse effect on the Company's business, operating results, and
financial condition. The Company's future success also depends on its
continuing ability to attract, train, and retain highly qualified technical,
sales, and managerial personnel. The Company may hire a number of additional
sales and technical personnel in 1997. Competition for such personnel is
intense, and there can be no assurance that the Company can retain its key
technical, sales, and managerial employees or that it can attract, assimilate,
or retain other highly qualified technical, sales, and managerial personnel in
the future. Because of the complexity of RDBMS technology and the differences
between OLTP and data warehouse systems, the Company has experienced in the
past, and expects to experience in the future, a time lag between the date
technical and sales personnel are hired and the date such personnel become fully
productive. Although the Company increased the size of its direct sales force
and its research and development groups in 1997 and 1996, the Company
experienced difficulty in recruiting a sufficient number of sales and technical
personnel during this period. If the Company is unable to hire such personnel
on a timely basis in the future, the Company's business, operating results, and
financial condition could be materially adversely affected.
Management of Changing Business. The Company experienced a period of
significant growth in its employee base and a growth in its revenue during 1997
and 1996 that placed a serious strain upon its management systems and resources.
The Company implemented and expanded upon a number of financial and management
controls, reporting systems, and procedures. The Company's ability to compete
effectively and to manage future growth, if any, will require the Company to
continually improve its financial and management controls, reporting systems,
and procedures on a timely basis, implementing new systems as necessary, and
expanding, training, and managing its employee work force. There can be no
assurance that the Company will be able to do so successfully. The Company's
failure to do so could have a materially adverse effect upon the Company's
business, operating results, and financial condition.
Expansion of Indirect Channels. An integral part of the Company's strategy is
to further develop a channel of distributors, value added resellers (VARs),
application partners, and system integrators, and to increase the proportion of
the Company's customers licensed through this indirect channel. The Company is
currently investing, and intends to continue to invest, significant resources in
developing this channel, which could adversely affect the Company's operating
results if the Company's efforts do not generate significant license revenues.
There can be no assurance that the Company will be able to attract distributors,
VARs, application partners, and system integrators that will be able to market
the Company's products effectively and will be qualified to provide timely and
cost-effective customer support and service. The inability to recruit important
distributors, VARs,
19
<PAGE>
application partners, or system integrators could adversely affect the Company's
results of operations. In addition, if it is successful in selling products
through this channel, the Company's gross margins will be negatively impacted
due to the lower unit prices the Company expects to receive when selling through
indirect channels.
International Operations. The Company's international revenues in the nine
month period ended September 30, 1997 and 1996, accounted for 14% and less than
10% of total revenues, respectively. The Company intends to continue to expand
its existing international operations and enter additional international
markets. This will require significant management attention and financial
resources, and could adversely affect the Company's business, operating results,
and financial condition. In order to expand international sales successfully in
1997 and subsequent periods, the Company believes it may need to establish
additional foreign operations, hire additional personnel, and recruit additional
international resellers and distributors. To the extent that the Company is
unable to do so in a timely manner, the Company's growth in international sales,
if any, will be limited, and the Company's business, operating results, and
financial condition could be materially adversely affected. In addition, there
can be no assurance that the Company will be able to maintain or increase
international market demand for the Company's products. Additional risks
inherent in the Company's international business activities generally include
unexpected changes in regulatory requirements, tariffs and other trade barriers,
costs of localizing products for foreign countries, lack of acceptance of
localized products in foreign countries, longer accounts receivable payment
cycles, difficulties in managing international operations, potentially adverse
tax consequences including restrictions on the repatriation of earnings, weaker
intellectual property protection, and the burdens of complying with a wide
variety of foreign laws. There can be no assurance that such factors will not
have a materially adverse effect on the Company's future international sales
and, consequently, the Company's results of operations.
Limited Protection of Proprietary Technology; Risks of Infringement. The
Company relies primarily on a combination of copyright and trademark laws, trade
secrets, confidentiality procedures, and contractual provisions to protect its
proprietary technology. For example, the Company licenses rather than sells its
software and requires licensees to enter into license agreements, which impose
certain restrictions on licensees' ability to utilize the software. In
addition, the Company seeks to avoid disclosure of its trade secrets, including,
but not limited to, requiring those persons with access to the Company's
proprietary information to execute confidentiality agreements with the Company
and restricting access to the Company's source code. The Company seeks to
protect its software, documentation, and other written materials under trade
secret and copyright laws, which afford only limited protection. The Company
has filed provisional patent applications in the United States with respect to
certain aspects of its software. None of these patents have been granted and
there can be no assurance that a patent or patents will be issued pursuant to
any of these applications or that, if granted, such patent or patents would
survive a legal challenge to its validity or provide significant protection to
the Company. Despite the Company's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy aspects of the Company's products or to
obtain and use information that the Company regards as proprietary. Policing
unauthorized use of the Company's products is difficult, and while the Company
is unable to determine the extent to which piracy of its software products
exists, software piracy can be expected to be a persistent problem. In
addition, the laws of some foreign countries do not protect the Company's
proprietary rights to as great an extent as do the laws of the United States.
There can be no assurance that the Company's means of protecting its proprietary
rights will be adequate or that the Company's competitors will not independently
develop similar technology. There can be no assurance that third parties will
not claim infringement by the Company with respect to current or future
products, including any future products based on in-process technology acquired.
The Company expects that software product developers will increasingly be
subject to infringement
20
<PAGE>
claims as the number of products and competitors in the Company's industry
segment grows and the functionality of products in different industry segments
overlaps. Any such claims, with or without merit, could consume time, result in
costly litigation, cause product shipment delays, or require the Company to
enter into royalty or licensing agreements. Such royalty or licensing
agreements, if required, might not be available on terms acceptable to the
Company, or at all, which could have a materially adverse effect upon the
Company's business, operating results and financial condition.
The Company licenses Open Server and Open Client products from Sybase, a
competitor of the Company, pursuant to a non-exclusive, royalty bearing reseller
agreement, which expires on November 27, 1997. The Open Server and Open Client
products provide client/server access to the Company's data warehouse. The
Company has developed alternative technology to replace the products licensed
from Sybase. Replacement connectivity software achieved general availability
with the release of Red Brick Warehouse version 5.0.12 on July 7, 1997 for
certain UNIX computer platforms, on September 2, 1997 for all remaining UNIX
computer platforms, on July 24, 1997 for the Windows NT/Intel computer platform
and on September 2, 1997 for the newly supported Windows NT/Digital Alpha
platform. The Company believes that the replacement connectivity product is
generally available on all currently supported hardware platforms, except for
certain low volume client platforms which the Company does not expect will have
a materially adverse effect and for which alternative solutions are available.
The replacement connectivity software has only been available for shipment for a
short period of time. Software as complex as the replacement connectivity
software may contain errors or failures that may not be discovered until after
its introduction. If so, the Company may experience delays or lost revenues
during the period required to correct these errors. There can be no assurance
that despite testing by the Company and by current and potential customers,
errors will not be found in the replacement connectivity software, resulting in
loss of or delay in market acceptance, which could have a material adverse
effect upon the Company's business, operating results and financial condition.
Product Liability. The Company's license agreements with its customers
typically contain provisions designed to limit the Company's exposure to
potential product liability claims. Although the Company has not experienced
product liability claims to date, the license and support of products by the
Company may entail the risk of such claims. A successful product liability
claim brought against the Company could have a materially adverse effect on the
Company's business, operating results, and financial condition.
Potential Volatility of Stock Price. The trading price of the Company's
Common Stock is highly volatile, as was demonstrated during the nine month
period ended September 30, 1997, and may be subject to wide fluctuations in
response to quarterly variations in operating results, announcements of
technological innovations or new products by the Company or its competitors,
changes in financial estimates by securities analysts, and other events or
factors. In addition, the stock market has experienced volatility, often
unrelated to operating performance, that particularly affected market prices of
equity securities of many high technology companies. Market fluctuations may
adversely affect the market price of the Company's Common Stock. There can be no
assurance that prices and price/earnings ratios will be sustained.
21
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 11.1: Statement Regarding Computation of Earnings (Loss)
Per Share
Exhibit 27: Financial Data Schedule (EDGAR version only)
(b) Reports on Form 8-K
With respect to the three month period ended September 30, 1997,
the Company filed a Current Report on Form 8-K dated August 29,
1997, which included information reported under Item 2
(Acquisition or Disposition of Assets) relating to its
acquisition of in-process technology from Engage.
22
<PAGE>
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.
Date: November 12, 1997 RED BRICK SYSTEMS, INC.
(Registrant)
By: /s/ Christopher G. Erickson
---------------------------
Christopher G. Erickson
President, Chief Executive Officer, and Chairman
of the Board of Directors
(Duly authorized officer and acting principal
financial and accounting officer)
23
<PAGE>
EXHIBIT 11.1
RED BRICK SYSTEMS, INC.
STATEMENT REGARDING
COMPUTATION OF EARNINGS (LOSS) PER SHARE
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- --------------------------
1997 1996 1997 1996
------------ ---------- ------------ -----------
<S> <C> <C> <C> <C>
Net income (loss) $(10,541,712) $ 817,347 $(18,436,844) $ 1,443,723
Computations of weighted average
common and common equivalent
shares outstanding:
Weighted average common
shares outstanding 11,848,722 11,188,350 11,591,448 10,770,116
Weighted average common equi-
valent shares attributable to
stock options and warrants -- 1,581,662 -- 1,864,632
------------ ---------- ------------ -----------
Shares used in computing
net income per share 11,848,722 12,770,012 11,591,448 12,634,748
============ =========== ============ ===========
Net income (loss) per share $ (0.89) $ 0.06 $ (1.59) $ 0.11
============ =========== ============ ===========
</TABLE>
Fully diluted computation not presented since such amounts differ by less than
3% of the net income per share amount shown above.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> JUL-01-1997 JAN-01-1997
<PERIOD-END> SEP-30-1997 SEP-30-1997
<CASH> 14,468 14,468
<SECURITIES> 13,611 13,611
<RECEIVABLES> 8,953 8,953
<ALLOWANCES> 1,212 1,212
<INVENTORY> 0 0
<CURRENT-ASSETS> 37,465 37,465
<PP&E> 6,762 6,762
<DEPRECIATION> 4,229 4,229
<TOTAL-ASSETS> 40,855 40,855
<CURRENT-LIABILITIES> 11,824 11,824
<BONDS> 0 0
0 0
0 0
<COMMON> 56,006 56,006
<OTHER-SE> (27,028) (27,028)
<TOTAL-LIABILITY-AND-EQUITY> 40,855 40,855
<SALES> 11,689 28,623
<TOTAL-REVENUES> 11,689 28,623
<CGS> 2,659 7,303
<TOTAL-COSTS> 2,659 7,303
<OTHER-EXPENSES> 19,973 40,946
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 27 93
<INCOME-PRETAX> (10,442) (18,132)
<INCOME-TAX> 100 305
<INCOME-CONTINUING> (10,542) (18,437)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (10,542) (18,437)
<EPS-PRIMARY> (0.89) (1.59)
<EPS-DILUTED> (0.89) (1.59)
</TABLE>
