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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 March 31, 1999.
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 0-25265
ALLAIRE CORPORATION
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 41-1830792
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
ONE ALEWIFE CENTER, CAMBRIDGE, MASSACHUSETTS 02140
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(Address of Principal Executive Offices) (Zip Code)
(617) 761-2000
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(Registrant's Telephone Number, Including Area Code)
NOT APPLICABLE
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(Former Name, Former Address and Former Fiscal Year,
If Changed Since Last Report)
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 .
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
TITLE OF CLASS SHARES OUTSTANDING AT APRIL 30, 1999
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Common Stock, $.01 par value 11,225,095
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ALLAIRE CORPORATION
FORM 10-Q
FOR THE THREE MONTHS ENDED MARCH 31, 1999
TABLE OF CONTENTS
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<TABLE>
<CAPTION>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet
as of March 31, 1999 and December 31, 1998 3
Consolidated Statement of Operations
for the Three Months Ended March 31, 1999 and 1998 5
Consolidated Statement of Cash Flows
for the Three Months Ended March 31, 1999 and 1998 6
Notes to Unaudited Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures about Market Risk 17
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 18
Exhibit Index 18
</TABLE>
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ALLAIRE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $53,246 $ 1,847
Accounts receivable, net of allowance for doubtful accounts
and returns of $440 and $479 at March 31, 1999 and
December 31, 1998, respectively 2,982 3,142
Prepaid expenses and other current assets 648 1,060
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Total current assets 56,876 6,049
Property and equipment, net 4,092 3,484
Other assets, net 405 420
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TOTAL ASSETS $61,373 $ 9,953
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LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED
STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of capital lease obligations $ 346 $ 340
Current portion of notes payable 435 418
Accounts payable 2,172 3,256
Accrued expenses 3,605 3,712
Accrued employee compensation and benefits 2,403 2,189
Deferred revenue 6,487 4,647
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Total current liabilities 15,448 14,562
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Capital lease obligations 70 159
Note payable 919 1,034
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Total liabilities 16,437 15,755
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Redeemable convertible preferred stock $.01 par value;
Authorized: no shares at March 31, 1999 and 3,183,506 shares
at December 31, 1998
Issued and outstanding: no shares at March 31, 1999
and 3,020,415 shares at December 31, 1998 -- 12,673
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</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
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<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
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<S> <C> <C>
Stockholders' equity (deficit):
Preferred stock, $.01 par value;
Authorized: 5,000,000 shares at March 31, 1999 -- --
Series A convertible preferred stock, $.01 par value;
Authorized: no shares at March 31, 1999 and 200,000 shares
at December 31, 1998
Issued and outstanding: no shares at March 31, 1999 and
88,463 shares at December 31, 1998 -- 751
Common stock, $.01 par value;
Authorized: 35,000,000 shares
Issued and outstanding: 10,875,877 shares issued and
10,861,523 shares outstanding at March 31, 1999 and
4,148,586 shares issued and 4,145,169 shares
outstanding at December 31, 1998 109 41
Additional paid-in capital 67,622 1,804
Deferred compensation (906) (850)
Accumulated deficit (21,889) (20,205)
Stock subscriptions receivable -- (16)
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Total Stockholders' equity (deficit) 44,936 (18,475)
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Total liabilities, redeemable convertible preferred
stock and stockholders' equity (deficit) $ 61,373 $ 9,953
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-------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
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ALLAIRE CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1999 1998
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<S> <C> <C>
REVENUE:
Software license fees $ 6,124 $ 3,568
Services 1,712 464
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Total revenue 7,836 4,032
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COST OF REVENUE:
Cost of software license fees 454 421
Cost of services 1,505 699
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Total cost of revenue 1,959 1,120
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GROSS PROFIT 5,877 2,912
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OPERATING EXPENSES:
Research and development 1,630 1,024
Sales and marketing 5,138 3,115
General and administrative 1,052 868
Stock-based compensation 67 161
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Total operating expenses 7,887 5,168
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LOSS FROM OPERATIONS (2,010) (2,256)
Interest income, net 326 45
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NET LOSS $ (1,684) $ (2,211)
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NET LOSS PER SHARE:
Basic and diluted net loss per share $ (0.19) $ (0.89)
Pro forma basic and diluted net loss per share $ (0.17) $ (0.32)
WEIGHTED AVERAGE SHARES OUTSTANDING:
Shares used in computing basic and diluted net loss per share 8,819 2,477
Shares used in computing pro forma basic and diluted net loss per share 9,757 6,804
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
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ALLAIRE CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1999 1998
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<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Cash flows from operating activities:
Net loss $ (1,684) $ (2,211)
Adjustments to reconcile net loss to net cash provided by (used for)
operating activities:
Depreciation and amortization 463 337
Stock-based compensation 67 161
Changes in assets and liabilities, net of effects from acquisitions:
Accounts receivable 160 (295)
Prepaid expenses and other current assets 412 (38)
Other assets (31) (49)
Accounts payable (1,084) (553)
Accrued expenses 107 749
Deferred revenue 1,840 601
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Total adjustments 1,934 913
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Net cash provided by (used for) operating activities 250 (1,298)
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Cash flows from investing activities:
Purchases of property and equipment (1,025) (486)
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Net cash used for investing activities
(1,025) (486)
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Cash flows from financing activities:
Principal payments on capital lease obligations (83) (77)
Principal payments on notes payable (98) --
Proceeds from sale of common stock, net of issuance costs 52,347 529
Payments to acquire treasury stock (8) --
Payments received on stock subscriptions receivable 16 5
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Net cash provided by financing activities 52,174 457
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Net increase (decrease) in cash and cash equivalents 51,399 (1,327)
Cash and cash equivalents, beginning of period 1,847 5,521
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Cash and cash equivalents, end of period $ 53,246 $ 4,194
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 87 $ 15
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
Conversion of Series A convertible preferred stock to common stock $ 751 $ --
Conversion of redeemable convertible preferred stock to common stock $ 12,673 $ --
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
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ALLAIRE CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Allaire
Corporation and its subsidiaries. All significant intercompany balances
and transactions have been eliminated in consolidation. Allaire
Corporation and its subsidiaries are collectively referred to as the
"Company" or "Allaire." Certain 1998 amounts have been reclassified to
conform to the 1999 method of presentation.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. Accordingly, they do not include all
financial information and disclosures required by generally accepted
accounting principles for complete financial statements. In the opinion
of management, these financial statements include all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the results of operations for the interim periods
reported and of the financial condition of the Company as of the date of
the interim balance sheet. The results of operations for interim periods
are not necessarily indicative of the results to be expected for the full
year. These financial statements should be read in conjunction with the
Company's audited financial statements and related notes included in the
Company's Annual Report on Form 10-K for the year ended December 31,
1998.
2. NET LOSS PER SHARE
Net loss per share is computed under Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings Per Share." Basic net loss
per share is computed using the weighted average number of shares of
common stock outstanding, excluding shares of common stock subject to
repurchase. Diluted net loss per share does not differ from basic net
loss per share since potential common shares from conversion of preferred
stock, stock options and warrants and outstanding shares of common stock
subject to repurchase are anti-dilutive for all periods presented. Pro
forma basic and diluted net loss per share have been calculated assuming
the conversion of all outstanding shares of preferred stock into common
stock, as if the shares had converted immediately upon their issuance.
3. COMPREHENSIVE INCOME
Effective January 1, 1998, Allaire adopted SFAS No. 130 "Reporting
Comprehensive Income." This statement requires that a full set of general
purpose financial statements be expanded to include the reporting of
"comprehensive income". Comprehensive income is comprised of two
components, net income and other comprehensive income. During the
quarters ended March 31, 1999 and 1998, Allaire had no items qualifying
as other comprehensive income.
4. INITIAL PUBLIC OFFERING
In January 1999, Allaire sold 2,875,000 shares of its common stock
through an initial public offering. Net proceeds from the offering were
approximately $52.3 million after deducting the underwriting discount and
other offering expenses. At the time of the initial public offering, all
of Allaire's outstanding preferred stock automatically converted into
3,848,941 shares of common stock.
5. SUBSEQUENT EVENT
In April 1999, the Company completed a merger with Bright Tiger
Technologies. Inc. ("Bright Tiger") by issuing approximately 300,000
shares of Allaire common stock in exchange for all of the outstanding
equity securities of Bright Tiger. Bright Tiger provides software
designed to enhance the performance, availability and manageability of
large-scale Internet sites and Web applications. The Company had
previously licensed technology from Bright Tiger that was incorporated
in certain Allaire ColdFusion products. The transaction will be
accounted for as a pooling of interests. Allaire expects to incur a
non-recurring charge of approximately $2.2 million in the quarter ended
June 30, 1999 primarily related to professional fees, severance packages
and related risks associated with the acquisition.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Form 10-Q contains "forward-looking statements' within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, the words "believes," "anticipates," "plans," "expects" and
similar expressions are intended to identify forward-looking statements. The
forward-looking statements involve known and unknown risks, uncertainties and
other factors, including the factors set forth below in "Item 2A. Risk Factors,"
that may cause the actual results, performance and achievements of Allaire to
differ materially from those indicated by the forward-looking statements.
OVERVIEW
Allaire develops, markets and supports software for a wide range of Web
development, from building static Web pages to developing high-volume,
interactive Web applications. Allaire derives a majority of its revenue from its
two primary products, ColdFusion and HomeSite. In November 1998, Allaire
released versions 4.0 of its primary products, along with the introduction of a
new application server version, ColdFusion Enterprise Server.
Allaire's revenue is derived principally from license fees for software products
and, to a lesser extent, fees for a range of services complementing these
products, primarily training and technical support. Software license fees
include sales of licenses for the then-current version of Allaire's products,
product upgrades and subscriptions. Subscriptions entitle the customer to all
new releases for a specific product during the subscription period, generally 12
months.
Revenue from sales of licenses to use Allaire's software products and product
upgrades is recognized upon delivery to customers, provided no significant
post-delivery obligations or uncertainties remain and collection of the related
receivable is probable. Revenue under arrangements where multiple products or
services are sold together under one contract is allocated to each element based
on their relative fair values, with these fair values being determined using the
price charged when that element is sold separately. For agreements with
specified upgrade rights, the revenue related to such upgrade rights is deferred
until the specified upgrade is delivered. Allaire provides most of its
distributors with rights of return. An allowance for estimated future returns is
recorded at the time revenue is recognized based on Allaire's historical
experience. Revenue from subscription sales is recognized ratably over the term
of the subscription period. Services revenue is recognized as services are
rendered or ratably over the term of the service agreement.
Allaire generates its revenue through direct sales of licenses to end users and
through its indirect distribution channel. Revenue generated by the indirect
distribution channel accounted for 54% and 39% of total revenue for the quarters
ended March 31, 1999 and 1998, respectively. Allaire anticipates that revenue
derived from the indirect distribution channel will continue to represent a
significant percentage of total revenue. Allaire primarily derives its
international revenue through its indirect distribution channel. International
revenue accounted for 16% and 13% of total revenue for the quarters ended March
31, 1999 and 1998, respectively.
In April 1999, Allaire completed a merger with Bright Tiger by issuing
approximately 300,000 shares of Allaire common stock for all of the outstanding
equity securities of Bright Tiger. Bright Tiger provides software designed to
enhance the performance, availability and manageability of large-scale
Internet sites and Web applications. Allaire had previously licensed
technology from Bright Tiger that was incorporated in certain Allaire
ColdFusion products. Allaire expects to incur a non-recurring charge of
approximately $2.2 million in the quarter ended June 30,1999 primarily
related to professional fees, severance packages and related costs associated
with the acquisition.
Allaire has experienced substantial net losses in each fiscal period since
its inception and, as of March 31, 1999, had an accumulated deficit of $21.9
million. Such net losses and accumulated deficit resulted primarily from the
significant costs incurred in the development of Allaire's products and in
the preliminary establishment of Allaire's infrastructure. Allaire expects to
increase its expenditures in all areas in order to execute its business plan,
particularly in research and development and sales and marketing. The planned
increase in sales and marketing expense will primarily result from the hiring
of additional sales force personnel to focus on major account sales, and
marketing programs to increase brand awareness.
Allaire's limited operating history and the undeveloped nature of the market for
Web development products make predicting future revenue difficult. Allaire's
expense levels are based, in part, on its expectations regarding future revenue
increases, and to a large extent such expenses are fixed, particularly in the
short term. There can be no assurance that Allaire's expectations regarding
future revenue are accurate. Moreover, Allaire may be unable to
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adjust spending in a timely manner to compensate for any unexpected revenue
shortfall. Accordingly, any significant shortfall of revenue in relation to
Allaire's expectations would likely cause significant declines in Allaire's
quarterly operating results.
Allaire is also increasing its sales and marketing efforts focused on larger
purchases by larger customers. Such transactions are generally more complex and
may increase the length of Allaire's average sales cycle. Allaire anticipates
that an increasing portion of its revenue could be derived from large orders, in
which case timing of receipt and fulfillment of any such orders could cause
fluctuations in Allaire's operating results, particularly on a quarterly basis.
Due to the foregoing factors, Allaire's operating results are difficult to
forecast. Allaire believes that period-to-period comparisons of its historical
operating results are not meaningful and should not be relied upon as an
indication of future performance. Also, Allaire's operating results may fall
below its expectations or the expectations of securities analysts or investors
in some future quarter. In such event, the market price of Allaire's common
stock would likely be materially adversely affected.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
REVENUE
Total revenue increased 94% to $7.8 million for the quarter ended March 31, 1999
from $4.0 million for the quarter ended March 31, 1998.
SOFTWARE LICENSE FEES. Revenue from software license fees increased 72% to $6.1
million for the quarter ended March 31, 1999 from $3.6 million for the quarter
ended March 31, 1998. This increase was primarily due to an increase in the
number of licenses sold to use Allaire's ColdFusion software products and from
an increase in product price associated with the release of new versions of
Allaire's products during the fourth quarter of 1998.
SERVICES. Revenue from services increased 269% to $1.7 million in the quarter
ended March 31, 1999 from $464,000 for the quarter ended March 31, 1998. The
increase was primarily attributable to growth in training revenue resulting from
an increase in Allaire's installed customer base.
COST OF REVENUE
COST OF SOFTWARE LICENSE FEES. Cost of software license fees includes costs of
product media duplication, manuals, packaging materials, licensed technology and
fees paid to third-party vendors and agents for order fulfillment. Cost of
software license fees increased 8% to $454,000 for the quarter ended March 31,
1999 from $421,000 for the quarter ended March 31, 1998. The increase in
absolute dollars was due to higher unit sales volume. The improvement in
software license fees gross margins to 93% for the quarter ended March 31, 1999
from to 88% for the quarter ended March 31,1998 was primarily attributable to
economies of scale achieved with Allaire's higher sales volume.
COST OF SERVICES. Cost of services consists primarily of personnel costs. Cost
of services increased 115% to $1.5 million for the quarter ended March 31, 1999
from $699,000 for the quarter ended March 31, 1998. The increase in absolute
dollars resulted primarily from the hiring of additional employees and the use
of contract trainers to support increased customer demand for training classes
and technical support. The improvement in services gross margins to 12% for the
quarter ended March 31, 1999 from (51)% for the quarter ended March 31,1998 was
primarily attributable to the substantial growth in training revenue. Continued
improvement in services gross margins is dependent upon the future demand for
the services offered by Allaire.
Overall gross margins are primarily affected by the mix of products licensed,
sales through direct versus indirect distribution channels, software license
fees revenue versus services revenue, and international versus domestic
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revenue. Allaire typically realizes higher gross margins on direct sales
relative to indirect distribution channel sales and higher gross margins on
software license fees relative to services revenue. As services revenue or
revenue derived through indirect distribution channels increase as a
percentage of total revenue, Allaire's gross margins may be adversely
affected.
OPERATING EXPENSES
RESEARCH AND DEVELOPMENT. Research and development expenses consist primarily of
employee salaries, fees for outside consultants and related costs associated
with the development of new products, the enhancement and localization of
existing products, quality assurance and testing. Research and development
expenses increased 59% to $1.6 million for the quarter ended March 31, 1999 from
$1.0 million for the quarter ended March 31, 1998. The increase primarily
resulted from salaries associated with newly hired development personnel.
Allaire anticipates that research and development expenses will increase
significantly due to the addition of employees in the second quarter of 1999
in connection with the Bright Tiger acquisition and increased product
development consulting costs.
SALES AND MARKETING. Sales and marketing expenses consist primarily of employee
salaries, commissions, and costs associated with marketing programs such as
trade shows, seminars, advertising and new product launch activities. Sales and
marketing expenses increased 65% to $5.1 million for the quarter ended March 31,
1999 from $3.1 million for the quarter ended March 31, 1998. The increase was
primarily attributable to costs associated with additional direct sales,
pre-sales support and marketing personnel, and an increase in marketing
programs, including promotions and advertising. Allaire anticipates that sales
and marketing expenses will continue to increase in absolute dollars as it
continues to expand its marketing programs and sales force to support its brand
awareness, product launches, international expansion and increased focus on
major account sales.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of employee salaries and other personnel related costs for executive
and financial personnel, as well as legal, accounting and insurance costs.
General and administrative expenses increased 21% to $1.1 million for the
quarter ended March 31, 1999 from $868,000 for the quarter ended March
31, 1998. The increase was primarily attributable to salaries associated with
newly hired personnel and related costs required to manage Allaire's growth and
facilities expansion. Allaire expects that its general and administrative
expenses will increase in absolute dollars as it continues to expand its
staffing to support expanded operations and facilities, and incurs expenses
relating to its new responsibilities as a public company.
STOCK-BASED COMPENSATION. The amount that the estimated fair market value of
Allaire's common stock exceeds the exercise price of stock options on the
date of grant is recorded as deferred compensation and amortized to
stock-based compensation expense as the options vest. Allaire recognized
$67,000 of stock based compensation for the quarter ended March 31, 1999
compared to $161,000 for the quarter ended March 31, 1998. The decrease was
primarily attributable to the grant of a fully vested option with an exercise
price substantially below fair market value during the quarter ended March
31, 1998.
INTEREST INCOME (EXPENSE), NET. Interest income, net of interest expense,
increased to $326,000 for the quarter ended March 31, 1999 from $45,000 for the
quarter ended March 31, 1998. The increase was due to interest income earned
from the investment of the net cash proceeds from Allaire's initial public
offering in January 1999.
PROVISION FOR INCOME TAXES. Allaire incurred significant operating losses for
all periods from inception through March 31, 1999. Allaire has recorded a
valuation allowance for the full amount of its net deferred tax assets as the
future realization of the tax benefit is not sufficiently assured.
LIQUIDITY AND CAPITAL RESOURCES
In January 1999, Allaire sold 2,875,000 shares of its common stock through an
initial public offering. Net proceeds from the offering were approximately $52.3
million after deducting the underwriting discount and offering expenses. Prior
to its initial public offering, Allaire had funded its operations primarily
through net cash proceeds from private placements of preferred stock totaling
$12.8 million.
At March 31, 1999, Allaire had cash and cash equivalents totaling $53.2
million, an increase of $51.4 million from December 31, 1998. The increase
was attributable to the net proceeds from the initial public offering and an
increase in deferred revenue, partially offset by the net loss, capital
expenditures and a decrease in accounts payable. The significant increase in
deferred revenue primarily related to deferral of revenue on ColdFusion
Enterprise Server shipments. Allaire was obligated to provide certain
additional functionality to its customers which was not delivered by March
31, 1999. Allaire expects that such functionality will be delivered within
the next two fiscal quarters. Capital expenditures primarily related to
purchases of equipment and leasehold improvements to support Allaire's
additional personnel.
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In April 1999, Allaire completed a merger with Bright Tiger by issuing
approximately 300,000 shares of Allaire common stock for all of the
outstanding equity securities of Bright Tiger. In connection with the merger,
Allaire assumed and paid off Bright Tiger debt obligations totaling
approximately $2.6 million.
Allaire expects to experience significant growth in its operating expenses for
the foreseeable future in order to execute its business plan, particularly
research and development and sales and marketing expenses. As a result, Allaire
anticipates that such operating expenses, as well as planned capital
expenditures, will constitute a material use of its cash resources. In addition,
Allaire may utilize cash resources to fund acquisitions or investments in
complementary businesses, technologies or product lines. Allaire believes that
its current cash and cash equivalents will be sufficient to meet its
anticipated cash requirements for working capital and capital expenditures for
the foreseeable future.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish 21st century dates from
20th century dates. The use of software and computer systems that are not
Year 2000 compliant could result in system failures or miscalculations
causing disruptions of operations including, among other things, a temporary
inability to process transactions, send invoices or engage in similar normal
business activities. As a result, many companies' software and computer
systems may need to be upgraded or replaced in order to comply with Year 2000
requirements. Because ColdFusion does not involve data storage, the ability
of a Web application built with ColdFusion to comply with Year 2000
requirements is largely dependent on whether the database underlying the
application is Year 2000 compliant. If ColdFusion is connected to a database
that is not Year 2000 compliant, the information received by a ColdFusion
application may be incorrect. Therefore, although Allaire believes its
products are Year 2000 compliant, there can be no assurance that Web
applications developed using its products will comply with Year 2000
complaints.
The purchasing patterns of customers or potential customers may be affected
by Year 2000 issues as companies expend significant resources to correct
their current systems for Year 2000 compliance. These expenditures may result
in reduced funds available for Web development activities, which could have a
material adverse effect on Allaire's business, operating results and
financial condition. Year 2000 complications may disrupt the operation,
viability or commercial acceptance of the Internet, which could have a
material adverse impact on Allaire's business, operating results and
financial condition.
In connection with Allaire's installation of new internal software systems in
October 1998, Allaire received verbal confirmations from software vendors
that the software it installed is Year 2000 complaint, and it is in the
process of obtaining written certifications from such vendors to the same
effect. Based on the foregoing, Allaire currently has no reason to believe
that its internal software systems are not Year 2000 compliant. To date,
Allaire has not incurred significant incremental costs in order to comply
with Year 2000 requirements and does not believe it will incur significant
incremental costs in the foreseeable future. However, there can be no
assurance that Year 2000 errors or defects will not be discovered in
Allaire's internal software systems and, if such errors or defects are
discovered, there can be no assurance that the costs of making such systems
Year 2000 compliant will not have a material adverse effect on Allaire's
business, operating results and financial condition.
Allaire relies on third party vendors which may not be Year 2000 complaint
for certain equipment and services. In addition, many of Allaire's
distributors are dependent on commercially available operating systems, which
may be impacted by Year 2000 complications. To date, Allaire has not conducted
a Year 2000 review of its vendors or distributors. Failure of systems
maintained by Allaire's vendors or distributors to operate properly with
regard to the Year 2000 and thereafter could require Allaire to incur
significant unanticipated expenses to remedy any problems or replace affected
vendors, could reduce Allaire's revenue from its indirect distribution
channel and could have a material adverse effect on Allaire's business,
operating results and financial condition.
ITEM 2A: RISK FACTORS
ALLAIRE HAS A LIMITED OPERATING HISTORY ON WHICH TO EVALUATE ITS PROSPECTS
Allaire commenced operations in May 1995 and recorded its first revenue upon
delivery of ColdFusion 1.5 to customers in February 1996. Accordingly, Allaire
has only a limited operating history on which to base an evaluation of Allaire's
business and prospects. In addition, Allaire's prospects must be considered in
light of the risks and uncertainties encountered by companies in an early stage
of development in new and rapidly evolving markets.
ALLAIRE MAY NOT BE PROFITABLE IN THE FUTURE
Since Allaire began operations, it has incurred substantial net losses in every
fiscal period. Allaire cannot be certain when it will become profitable, if at
all. Failure to achieve profitability may adversely affect the market price of
Allaire's common stock. At March 31, 1999, Allaire had an accumulated deficit of
$21.9 million. Allaire has generated relatively small amounts of revenue until
recent fiscal quarters, while increasing expenditures in all areas, particularly
in research and development and sales and marketing, in order to execute its
business plan. Although Allaire has experienced revenue growth in recent
periods, the growth has been off of a small base, and it is unlikely that such
growth rates are sustainable.
ALLAIRE'S QUARTERLY RESULTS MAY FLUCTUATE
Allaire's quarterly revenue and operating results are difficult to predict and
may fluctuate significantly from quarter to quarter. If Allaire's quarterly
revenue or operating results fall below the expectations of investors or public
market analysts, the price of its common stock could fall substantially.
Allaire's quarterly revenue may fluctuate for several reasons, including the
following:
- - the market for Web development products is in an early stage of
development and it is therefore difficult to accurately predict
customer demand; and
- - the sales cycle for Allaire's products and services varies
substantially from customer to customer and, if Allaire's average sales
price increases as Allaire expects, Allaire expects the sales cycle to
lengthen. As a result, Allaire has difficulty determining whether and
when it will receive license revenue from a particular customer.
In addition, because Allaire's revenue from training services is largely
correlated with Allaire's license revenue, a decline in license revenue could
also cause a decline in Allaire's services revenue in the same quarter or in
subsequent quarters. Other factors, many of which are outside Allaire's control,
could also cause variations in Allaire's quarterly revenue and operating
results.
11
<PAGE>
Most of Allaire's expenses, such as employee compensation and rent, are
relatively fixed. Moreover, Allaire's expense levels are based, in part, on
Allaire's expectations regarding future revenue increases. As a result, any
shortfall in revenue in relation to Allaire's expectations could cause
significant changes in Allaire's operating results from quarter to quarter and
could result in quarterly losses.
THE DEVELOPMENT OF A MARKET FOR ALLAIRE'S PRODUCTS IS UNCERTAIN
If the market for Web development products does not grow at a significant rate,
Allaire's business, operating results and financial condition will be materially
adversely affected. Web technology has been used widely for only a short time,
and the market for Web development products is new and rapidly evolving. As is
typical for new and rapidly evolving industries, demand for recently introduced
products is highly uncertain.
ALLAIRE'S PERFORMANCE WILL DEPEND ON THE GROWTH AND COMMERCIAL ACCEPTANCE OF THE
INTERNET
Allaire's future success will depend substantially upon the widespread adoption
of the Internet as a primary medium for commerce and business applications. If
the Internet does not become a viable and substantial commercial medium,
Allaire's business, operating results and financial condition will be materially
adversely affected. The Internet has experienced, and is expected to continue to
experience, significant user and traffic growth, which has, at times, caused
user frustration with slow access and download times. The Internet
infrastructure may not be able to support the demands placed on it by continued
growth. Moreover, critical issues concerning the commercial use of the Internet,
such as security, reliability, cost, accessibility and quality of service,
remain unresolved and may negatively affect the growth of Internet use or the
attractiveness of commerce and business communication on the Internet. In
addition, the Internet could lose its viability due to delays in the development
or adoption of new standards and protocols to handle increased activity or due
to increased government regulation and taxation of Internet commerce.
ALLAIRE COMPETES WITH MICROSOFT WHILE SIMULTANEOUSLY SUPPORTING MICROSOFT
TECHNOLOGIES
Allaire currently competes with Microsoft in the market for Web development
products while simultaneously maintaining a working relationship with Microsoft.
Microsoft has a longer operating history, a larger installed base of customers
and substantially greater financial, distribution, marketing and technical
resources than Allaire. As a result, Allaire may not be able to compete
effectively with Microsoft now or in the future, and Allaire's business,
operating results and financial condition may be materially adversely affected.
Allaire expects that Microsoft's commitment to and presence in the Web
development products market will substantially increase competitive pressure in
the market. Allaire believes that Microsoft will continue to incorporate Web
application server technology into its operating system software and certain of
its server software offerings, possibly at no additional cost to its users.
Allaire believes that it must maintain a working relationship with Microsoft to
achieve success. Most of Allaire's customers use Microsoft-based operating
platforms, so it is critical to Allaire's success that Allaire's products be
closely integrated with Microsoft technologies. Notwithstanding Allaire's
historical and current support of the Microsoft platform, Microsoft may in the
future promote technologies and standards more directly competitive with or not
compatible with Allaire's technology.
ALLAIRE FACES SIGNIFICANT COMPETITION FROM OTHER TECHNOLOGY COMPANIES
The Web development products market is intensely competitive. Many of Allaire's
current and potential competitors have longer operating histories and
substantially greater financial, technical, marketing, distribution and other
resources than Allaire does and therefore may be able to respond more quickly
than Allaire can to new or changing opportunities, technologies, standards or
customer requirements. In addition to Microsoft, Allaire competes with other
large Web and database platform companies that offer a variety of software
products. Allaire also competes with a number of medium-sized and start-up
companies that have introduced or that are developing Web development products.
In addition, Allaire has strategic relationships with NetObjects, a
majority-owned subsidiary of IBM, and Macromedia. In some cases, these vendors
compete with Allaire, and there can be no assurance that these strategic
relationships will continue.
12
<PAGE>
Allaire expects that additional competitors will enter the market with competing
products as the size and visibility of the market opportunity increases.
Increased competition could result in pricing pressures, reduced margins or the
failure of Allaire's products to achieve or maintain market acceptance.
If, in the future, a competitor chooses to bundle a competing Web development
product with other products, the demand for Allaire's products might be
substantially reduced. In addition, new technologies will likely increase the
competitive pressures that Allaire faces. The development of competing
technologies by market participants or the emergence of new industry standards
may adversely affect Allaire's competitive position. As a result of these and
other factors, Allaire may not be able to compete effectively with current or
future competitors, which would have a material adverse effect on Allaire's
business, operating results and financial condition.
ALLAIRE'S SUCCESS DEPENDS ON ITS ABILITY TO EXPAND ITS SALES FORCE AND
DISTRIBUTION CHANNELS
To increase Allaire's revenue, Allaire must increase the size of its sales force
and the number of its indirect channel partners, including original equipment
manufacturers, value-added resellers and systems integrators. A failure to do so
could have a material adverse effect on Allaire's business, operating results
and financial condition. There is intense competition for sales personnel in
Allaire's business, and there can be no assurance that Allaire will be
successful in attracting, integrating, motivating and retaining new sales
personnel. Allaire's existing or future channel partners may choose to devote
greater resources to marketing and supporting the products of other companies.
In addition, Allaire will need to resolve potential conflicts among its sales
force and channel partners.
ALLAIRE'S SUCCESS DEPENDS ON ONGOING SALES THROUGH A LIMITED NUMBER OF
DISTRIBUTORS
Allaire derives a substantial portion of its revenue from a limited number of
distributors. For the quarter ended March 31, 1999, revenue from Allaire's
indirect distribution channel accounted for approximately 54% of Allaire's total
revenue, and one distributor, Ingram Micro, accounted for approximately 31% of
Allaire's total revenue. The loss of, or a reduction in orders from, Ingram
Micro or any other significant distributor could have a material adverse effect
on Allaire's business, operating results and financial condition. Because
Allaire does not deal directly with end users when selling through distributors,
Allaire is dependent upon the ability of distributors to accurately forecast
demand and maintain appropriate levels of inventory. If a distributor purchases
excess product, Allaire may be obligated to accept the return of some products.
ALLAIRE MAY EXPERIENCE LOST OR DELAYED SALES AS ITS SALES CYCLE LENGTHENS
A longer sales cycle reduces Allaire's ability to forecast revenue levels. Any
delay or loss in sales of Allaire's products could have a material adverse
effect on Allaire's business, operating results and financial condition, and
could cause its operating results to vary significantly from quarter to quarter.
As Allaire increases its marketing focus on larger purchases by larger
customers, Allaire expects that increased executive-level involvement of
information technology officers and other senior managers of Allaire's customers
will occur. Potential large sales may be delayed, or lost altogether, because
Allaire will have to provide a more comprehensive education to prospective
customers regarding the use and benefits of Allaire's products. Allaire's
customers' purchase decisions may be subject to delays over which Allaire may
have little or no control, including budgeting constraints, internal purchase
approval review procedures and the inclusion or exclusion of Allaire's products
on customers' approved standards list.
ALLAIRE'S PERFORMANCE WILL DEPEND ON CONTINUED MARKET ACCEPTANCE OF ITS PRODUCTS
If Allaire's products do not continue to satisfy the Web developer community or
otherwise fail to sustain sufficient market acceptance, its business, operating
results and financial condition would be materially adversely affected. Allaire
believes that a significant contributing factor to Allaire's initial growth has
been its ability to create and maintain strong relationships with the community
of Web developers that initially adopted Allaire's products. This community of
early adopters demands rapid improvements in the performance, features and
reliability of Allaire's products, as well as a high level of customer service.
Due in part to the emerging nature of the Web development products market and
the substantial resources available to many market participants, Allaire
believes there is a time-limited opportunity to achieve and maintain market
share in the Web development products market.
ALLAIRE'S EFFORTS TO DEVELOP BRAND AWARENESS MAY BE UNSUCCESSFUL
Allaire believes that developing and maintaining awareness of the "Allaire,"
"ColdFusion" and "HomeSite" brand names is critical to achieving widespread
acceptance of Allaire's products. If Allaire fails to promote and maintain
13
<PAGE>
its brands or incurs significant related expenses, Allaire's business,
operating results and financial condition could be materially adversely
affected. To promote its brands, Allaire may find it necessary to increase
its marketing budget or otherwise increase its financial commitment to
creating and maintaining brand awareness among potential customers. Although
Allaire has obtained a United States registration of the trademark "Cold
Fusion," Allaire is aware of other companies, including competitors, that use
the word "Fusion" in their marks alone or in combination with other words,
and Allaire does not expect to be able to prevent third party uses of the
word "Fusion" for competing goods and services. For example, NetObjects
markets its principal products for designing, building and updating Web sites
under the names "NetObjects Fusion" and "NetObjects Team Fusion." Competitors
that use marks that are similar to Allaire's brand names may cause confusion
among actual and potential customers, which could prevent Allaire from
achieving significant brand recognition.
ALLAIRE'S PERFORMANCE DEPENDS ON THE SUCCESS OF COLDFUSION AND HOMESITE
Allaire derives almost all of its revenue from licenses of Allaire's ColdFusion
and HomeSite software products and related services. Any competitive pressures
or other factors that adversely affect market acceptance of ColdFusion or
HomeSite software would have a material adverse effect on Allaire's business,
operating results and financial condition.
ALLAIRE'S FUTURE SUCCESS WILL DEPEND ON ALLAIRE'S ABILITY TO ENHANCE EXISTING
PRODUCTS AND DEVELOP NEW PRODUCTS
To be competitive, Allaire must develop and introduce product enhancements and
new products which increase Allaire's customers' ability to build and deploy Web
applications. In the past, Allaire has been forced to delay introduction of
several new products. If Allaire fails to develop and introduce new products and
enhancements successfully and on a timely basis, it could have a material
adverse effect on Allaire's business, operating results and financial condition.
The emerging nature of the Web development products market requires that Allaire
continually improve the performance, features and reliability of Allaire's
products, particularly in response to competitive offerings and evolving
customer needs. Allaire must also introduce enhancements to existing products as
quickly as possible and prior to the introduction of competing products.
ALLAIRE DEPENDS ON THIRD PARTIES FOR TECHNOLOGY IN ITS PRODUCTS
Allaire licenses technology that is incorporated into Allaire's products from
third parties. The loss of access to such technology could result in delays in
Allaire's development and introduction of new products or enhancements until
equivalent or replacement technology could be accessed, if available, or
developed internally, if feasible. These delays could have a material adverse
effect on Allaire's business, operating results and financial condition. In
light of the rapidly evolving nature of Web technology and Allaire's strategy to
pursue industry partnerships, Allaire believes that it will increasingly need to
rely on technology from third party vendors, such as Microsoft, which may also
be competitors. There can be no assurance that technology from others will
continue to be available to Allaire on commercially reasonable terms, if at all.
Moreover, although Allaire is generally indemnified against claims that such
third party technology infringes the proprietary rights of others, such
indemnification is not always available for all types of intellectual property
rights (for example, patents may be excluded) and in some cases the scope of
such indemnification is limited. Even if Allaire receives broad indemnification,
third party indemnitors are not always well capitalized and may not be able to
indemnify Allaire in the event of infringement, resulting in substantial
exposure to Allaire. There can be no assurance that infringement or invalidity
claims arising from the incorporation of third party technology, and claims for
indemnification from Allaire's customers resulting from such claims, will not be
asserted or prosecuted against Allaire. Such claims, even if not meritorious,
could result in the expenditure of significant financial and managerial
resources in addition to potential product redevelopment costs and delays, all
of which could materially adversely affect Allaire's business, operating results
and financial condition.
ALLAIRE MAY HAVE DIFFICULTY MANAGING ITS GROWTH
Allaire has been experiencing a period of rapid growth that has been placing a
significant strain on all of Allaire's resources. The number of Allaire's
employees increased from 95 at December 31, 1997 to 181 at March 31, 1999. To
manage future growth effectively Allaire must maintain and enhance its financial
and accounting systems and controls, integrate new personnel and manage expanded
operations. Any failure to do so could have a material adverse effect on the
quality of Allaire's products, Allaire's ability to retain key personnel and
Allaire's business, operating results and financial condition.
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<PAGE>
ALLAIRE IS DEPENDENT ON JOSEPH ALLAIRE AND DAVID ORFAO
Allaire's future success depends to a significant degree on the skills,
experience and efforts of Joseph J. Allaire, Allaire's founder, Chairman of the
Board, Chief Technology Officer and Executive Vice President, and David J.
Orfao, Allaire's President and Chief Executive Officer. The loss of the services
of Mr. Allaire or Mr. Orfao could have a material adverse effect on Allaire's
business, operating results and financial condition. Allaire also depends on the
ability of its executive officers and other members of senior management to work
effectively as a team. Allaire does not have employment agreements with any of
its executive officers, and does not have any key person life insurance other
than for Mr. Allaire and Mr. Orfao.
ALLAIRE MUST HIRE AND RETAIN SKILLED PERSONNEL IN A TIGHT LABOR MARKET
Qualified personnel are in great demand throughout the software industry.
Allaire's success depends in large part upon Allaire's ability to attract,
train, motivate and retain highly skilled employees, particularly sales and
marketing personnel, software engineers and other senior personnel. Allaire's
failure to attract and retain the highly trained technical personnel that are
integral to its direct sales, product development, service and support teams may
limit the rate at which Allaire can generate sales and develop new products or
product enhancements. This could have a material adverse effect on Allaire's
business, operating results and financial condition.
ALLAIRE'S SUCCESS DEPENDS ON ITS ABILITY TO PROTECT ITS PROPRIETARY TECHNOLOGY
Allaire's success depends to a significant degree upon the protection of its
software and other proprietary technology. The unauthorized reproduction or
other misappropriation of Allaire's proprietary technology could enable third
parties to benefit from Allaire's technology without paying Allaire for it. This
could have a material adverse effect on Allaire's business, operating results
and financial condition.
Although Allaire has taken steps to protect its proprietary technology, they may
be inadequate. Existing trade secret, copyright and trademark laws offer only
limited protection. In addition, Allaire relys in part on "shrinkwrap" and
"clickwrap" licenses that are not signed by the end user and, therefore, may be
unenforceable under the laws of certain jurisdictions. Moreover, the laws of
other countries in which Allaire markets its products may afford little or no
effective protection of Allaire's intellectual property.
If Allaire resorts to legal proceedings to enforce its intellectual property
rights, the proceedings could be burdensome and expensive and could involve a
high degree of risk.
OTHER COMPANIES MAY CLAIM THAT ALLAIRE INFRINGES THEIR PROPRIETARY TECHNOLOGY
Although Allaire attempts to avoid infringing known proprietary rights of third
parties, Allaire is subject to the risk of claims alleging infringement of third
party proprietary rights. If Allaire were to discover that any of its products
violated third party proprietary rights, there can be no assurance that Allaire
would be able to obtain licenses on commercially reasonable terms to continue
offering the product without substantial reengineering or that any effort to
undertake such reengineering would be successful. Allaire does not conduct
comprehensive patent searches to determine whether the technology used in its
products infringes patents held by third parties. In addition, product
development is inherently uncertain in a rapidly evolving technological
environment in which there may be numerous patent applications pending, many of
which are confidential when filed, with regard to similar technologies.
Any claim of infringement could cause Allaire to incur substantial costs
defending against the claim, even if the claim is invalid, and could distract
Allaire's management from Allaire's business. Furthermore, a party making such a
claim could secure a judgment that requires Allaire to pay substantial damages.
A judgment could also include an injunction or other court order that could
prevent Allaire from selling its products. Any of these events could have a
material adverse effect on Allaire's business, operating results and financial
condition.
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<PAGE>
ALLAIRE'S BUSINESS COULD BE ADVERSELY AFFECTED IF ALLAIRE'S PRODUCTS
CONTAIN ERRORS
Software products as complex as Allaire's may contain undetected errors or
"bugs," which result in product failures. Errors in certain of Allaire's
products have been detected after commercial release of the products. The
occurrence of errors could result in loss of or delay in revenue, loss of
market share, failure to achieve market acceptance, diversion of development
resources, injury to Allaire's reputation, or damage to Allaire's efforts to
build brand awareness, any of which could have a material adverse effect on
Allaire's business, operating results and financial condition.
ALLAIRE COULD BE SUBJECT TO PRODUCT LIABILITY CLAIMS RELATING TO ITS CUSTOMERS'
CRITICAL BUSINESS OPERATIONS
Many of the Web applications developed and deployed with Allaire's products are
critical to the operations of Allaire's customers' businesses. Any failure in a
customer's Web application could result in a claim for substantial damages
against Allaire, regardless of Allaire's responsibility for such failure.
Although Allaire maintains general liability insurance, including coverage for
errors and omissions, there can be no assurance that such coverage will continue
to be available on reasonable terms or will be available in amounts sufficient
to cover one or more large claims, or that the insurer will not disclaim
coverage as to any future claim.
ALLAIRE MAY BE SUBJECT TO RISKS ASSOCIATED WITH FUTURE ACQUISITIONS
From time to time, Allaire may pursue acquisitions to obtain complementary
products, services and technologies. An acquisition may not produce the revenue,
earnings or business synergies that Allaire anticipated, and an acquired
product, service or technology might not perform as Allaire expected. If Allaire
pursues any acquisition, Allaire's management could spend a significant amount
of time and effort in identifying and completing the acquisition. If it
completes an acquisition, Allaire would probably have to devote a significant
amount of management resources to integrating the acquired business with
Allaire's existing business.
To pay for an acquisition, Allaire might use capital stock or cash, including
proceeds of the initial public offering. Alternatively, Allaire might borrow
money from a bank or other lender. If Allaire uses capital stock, Allaire's
stockholders would experience dilution of their ownership interests. If Allaire
uses cash or debt financing, Allaire's financial liquidity will be reduced.
ALLAIRE MAY BE AFFECTED BY UNEXPECTED YEAR 2000 PROBLEMS
Many existing computer systems and software products do not properly recognize
dates after December 31, 1999. This "Year 2000" problem could result in
miscalculations, data corruption, system failures or disruptions of operations.
Allaire is subject to potential Year 2000 problems affecting its products,
internal systems and the systems of its vendors and distributors, any of which
could have a material adverse effect on Allaire's business, operating results
and financial condition.
Because ColdFusion does not involve data storage, the ability of a Web
application built with ColdFusion to comply with Year 2000 requirements is
largely dependent on whether the database underlying the application is Year
2000 compliant. Therefore, there can be no assurance that Web applications
developed using Allaire products will comply with Year 2000 requirements. For
example, if ColdFusion is connected to a database that is not Year 2000
compliant, the information received by a ColdFusion application may be
incorrect.
Changing purchasing patterns of customers impacted by Year 2000 issues may
result in reduced funds available for Web development activities.
In addition, there can be no assurance that Year 2000 errors or defects will not
be discovered in Allaire's internal software systems and, if such errors or
defects are discovered, there can be no assurance that the costs of making such
systems Year 2000 compliant will not be material.
Year 2000 errors or defects in the internal systems maintained by Allaire's
vendors or distributors could require Allaire to incur significant unanticipated
expenses to remedy any problems or replace affected vendors and could reduce
Allaire's revenue from its indirect distribution channel.
ALLAIRE'S EXISTING STOCKHOLDERS WILL EXERCISE SIGNIFICANT CONTROL OVER ALLAIRE
Allaire's officers, directors and greater than 10 percent stockholders
together control approximately 49% of the outstanding common stock as of
March 2, 1999. As a result, these stockholders, if they act together, are
able to influence Allaire's management and affairs and all matters requiring
stockholder approval, including the election of directors and approval of
significant corporate transactions. This concentration of ownership may have
the effect of delaying or preveting a change in control of Allaire that may
affect the market price of the common stock.
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<PAGE>
CERTAIN PROVISIONS OF ALLAIRE'S CHARTER AND OF DELAWARE LAW MAKE A TAKEOVER OF
ALLAIRE MORE DIFFICULT
Allaire's corporate documents and Delaware law contain provisions that might
enable its management to resist a takeover of Allaire. These provisions might
discourage, delay or prevent a change in the control of Allaire or a change in
Allaire's management. These provisions could also discourage proxy contests and
make it more difficult for stockholders to elect directors and take other
corporate actions. The existence of these provisions could limit the price that
investors might be willing to pay in the future for shares of common stock.
FUTURE SALES BY EXISTING SECURITY HOLDERS COULD DEPRESS THE MARKET PRICE OF THE
COMMON STOCK
Immediately after the initial public offering in January 1999, the public market
for the common stock included only the 2,875,000 shares that Allaire sold in the
offering. At that time, there were an additional 7,958,260 shares of common
stock outstanding. The persons that hold these shares are able to sell some of
them in the public market following the offering. If these stockholders sell a
large number of shares, the market price of the common stock could decline
significantly. Moreover, the perception in the public market that these
stockholders might sell shares of common stock could depress the market price of
the common stock.
Of the 7,958,260 additional shares held by Allaire's existing stockholders,
7,860,524 shares are subject to "lock-up" agreements with the representatives of
the underwriters. When the 180-day "lock-up" period expires (or earlier with the
consent of Credit Suisse First Boston), Allaire's existing stockholders and
optionholders will be able to sell approximately an additional 7,525,000 shares
in the public market.
Some of Allaire's existing stockholders have the right to force Allaire to
register their shares of common stock with the Securities and Exchange
Commission. If Allaire registers their shares of common stock, they can sell
those shares in the public market.
Allaire has registered approximately 2,900,000 shares of common stock and
intends to register 2,100,000 shares of common stock that Allaire has issued
or may issue under Allaire's stock plans. Once Allaire registers these
shares, they can be sold in the public market upon issuance, subject to the
"lock-up" agreements described above.
ALLAIRE WILL HAVE BROAD DISCRETION IN USING THE PROCEEDS FROM THE INITIAL PUBLIC
OFFERING
Allaire has not identified specific uses for the majority of the proceeds from
the offering, and Allaire will have broad discretion in how it uses them.
Investors will not have an opportunity to evaluate the economic, financial or
other information on which Allaire bases its decisions on how to use the
proceeds.
INVESTORS WILL BE SUBJECT TO MARKET RISKS
The stock market in general has recently experienced extreme price and volume
fluctuations. The market prices of securities of technology companies,
particularly Internet-related companies, have been extremely volatile, and have
experienced fluctuations that have often been unrelated or disproportionate to
the operating performance of such companies. These broad market fluctuations
could adversely affect the market price of the common stock.
Recently, when the market price of a stock has been volatile, holders of that
stock have often instituted securities class action litigation against the
company that issued the stock. If any of Allaire's stockholders brought such a
lawsuit against Allaire, Allaire could incur substantial costs defending the
lawsuit. The lawsuit could also divert the time and attention of Allaire
management.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
CASH AND CASH EQUIVALENTS
As of March 31, 1999, Allaire is exposed to market risks which primarily include
changes in U.S. interest rates. Allaire maintains a significant portion of its
cash and cash equivalents in financial instruments with purchased maturities of
three months or less. These financial instruments are subject to interest rate
risk and will decline in value if interest rates increase. Due to the short
duration of these financial instruments, an immediate increase in interest rates
would not have a material effect on Allaire's financial condition or results of
operations.
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PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Allaire is furnishing the following information with respect to the
use of proceeds from its initial public offering of common stock, $0.01 par
value per share, in January 1999:
(1) The effective date of the registration statement of the
offering and the commission file number were January 22, 1999
and 333-68639, respectively.
(4)(v) Underwriting discount................... 4,025,000
Other offering expenses................. 1,175,000
-----------
Total ......................... 5,200,000
Payment of expenses were to persons other than directors,
officers, general partners of the Company or their associates,
persons owning 10% or more of the equity securities of the
Company or affiliates of the Company.
(4)(vi) The net offering proceeds to the Company after expenses were
approximately $ 52,300,000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
By a written consent of stockholders dated January 15, 1999, the
stockholders of Allaire consented to the following actions:
1. To amend Article Fourth of the Company's Certificate of
Incorporation to increase the Company's authorized capital
stock;
2. To amend and restate the Company's Certificate of Incorporation
to, among other things, effect certain changes relating to
corporate governance and other matters;
3. To approve and adopt the Company's 1998 Stock Incentive Plan;
and
4. To approve and adopt the Company's 1998 Employee Stock Purchase
Plan.
Holders representing 6,158,766 shares of Allaire capital stock out of
7,994,110 shares outstanding signed the written consent.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 11. Statement re computation of unaudited net loss
per share and pro forma net loss per share
(filed herewith)
Exhibit 27. Financial Data Schedule (filed herewith)
(b) No reports were filed on Form 8-K by the Company during the quarter ended
March 31, 1999.
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.
Dated: May 17, 1999
Allaire Corporation
By: /S/ DAVID A. GERTH
--------------------
David A. Gerth
Vice President, Finance and Operations,
Treasurer and Chief Financial Officer
(Principal Financial and Accounting Officer)
EXHIBIT INDEX
Exhibit 11. Statement re computation of unaudited net loss
per share and pro forma net loss per share
(filed herewith)
Exhibit 27. Financial Data Schedule (filed herewith)
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<PAGE>
ALLAIRE CORPORATION
EXHIBIT 11
STATEMENT RE: COMPUTATION OF UNAUDITED NET LOSS PER SHARE
AND PRO FORMA NET LOSS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
- -----------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1999 1998
---- ------
<S> <C> <C>
Basic and diluted net loss per share:
Net loss $(1,684) $(2,211)
------- -------
------- -------
Basic and diluted weighted average
common shares outstanding 8,819 2,477
------- -------
------- -------
Basic and diluted net loss per share $ (0.19) $ (0.89)
------- -------
------- -------
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1999 1998
----- ------
<S> <C> <C>
Pro forma basic and diluted net loss per share:
Net loss $(1,684) $(2,211)
------- -------
------- -------
Pro forma basic and diluted weighted average shares
outstanding
Shares attributable to common stock (1) 8,859 2,987
Shares attributable to the assumed conversion of
convertible preferred stock upon closing of the
initial public offering 898 3,817
------- -------
Pro forma basic and diluted weighted average shares outstanding 9,757 6,804
------- -------
------- -------
Pro Forma basic and diluted loss per share $ (0.17) $ (0.32)
------- -------
------- -------
</TABLE>
(1) Includes outstanding common stock subject to repurchase under a stock
restriction agreement which lapsed upon the consummation of the initial public
offering in January 1999.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ALLAIRE
CORPORATION FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 53,246
<SECURITIES> 0
<RECEIVABLES> 3,422
<ALLOWANCES> (440)
<INVENTORY> 104
<CURRENT-ASSETS> 56,876
<PP&E> 6,118
<DEPRECIATION> (2,026)
<TOTAL-ASSETS> 61,373
<CURRENT-LIABILITIES> 15,448
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0
0
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<CGS> 454
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<INCOME-CONTINUING> (1,684)
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<CHANGES> 0
<NET-INCOME> (1,684)
<EPS-PRIMARY> (0.19)
<EPS-DILUTED> (0.19)
</TABLE>
