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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
For Quarterly Period Ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
Commission File Number: 001-12267
ROGUE WAVE SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
Delaware 93-1064214
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
850 SW 35th Street, Corvallis, Oregon 97333
(Address of principal executive offices) (Zip Code)
(541) 754-3010
(Registrant's telephone number, including area code)
_______________________________________________________________________________
(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 ___ NO _X_
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Class Outstanding at December 31, 1996
----- --------------------------------
Common Stock, $0.001 par value 7,624,103
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ROGUE WAVE SOFTWARE, INC.
FORM 10-Q
INDEX
Page No.
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PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Condensed Consolidated Balance Sheets at September 30, 1996
and December 31, 1996 . . . . . . . . . . . . . . . . . . . . .3
Consolidated Statements of Operations for the three
months ended December 31, 1995 and 1996 . . . . . . . . . . . .4
Consolidated Statements of Cash Flows for the
three months ended December 31, 1995 and 1996 . . . . . . . . .5
Notes to Consolidated Financial Statements. . . . . . . . . . .6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . .7
PART II - OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . 14
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . 15
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
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PART I - FINANCIAL INFORMATION
ITEM 1. - Consolidated Financial Statements:
ROGUE WAVE SOFTWARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
September 30, December 31,
1996 1996
------------- ------------
(Unaudited)
A S S E T S:
Current assets:
Cash and cash equivalents $ 1,714 $29,713
Accounts receivable,net 4,527 3,602
Prepaid and other current assets 981 658
------- -------
Total current assets 7,222 33,973
Furniture, fixtures and equipment, net 2,718 2,819
Other assets, net 254 229
------- -------
Total assets $10,194 $37,021
------- -------
------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 637 $ 416
Accrued expenses 805 1,226
Deferred revenue 2,881 3,568
Current portion of long-term obligations 217 217
------- -------
Total current liabilities 4,540 5,427
Long-term obligations, less current portion 322 268
------- -------
Total liabilities 4,862 5,695
------- -------
Mandatorily redeemable preferred stock 4,664 -
------- -------
Stockholders' equity:
Common stock 4 8
Additional paid-in capital 676 31,010
Shareholder note receivable (13) (13)
Retained earnings 24 345
Cumulative translation adjustment (23) (24)
------- -------
Total stockholders' equity 668 31,326
------- -------
Total liabilities and stockholders' equity $10,194 $37,021
------- -------
------- -------
See accompanying notes.
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ROGUE WAVE SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share data, unaudited)
Three months ended
December 31,
------------------
1995 1996
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Revenue:
License revenue $2,733 $4,485
Service and maintenance revenue 804 1,394
------ ------
Total revenue 3,537 5,879
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Cost of revenue:
Cost of license revenue 219 342
Cost of service and maintenance revenue 294 502
------ ------
Total cost of revenue 513 844
------ ------
Gross profit 3,024 5,035
------ ------
Operating expenses:
Product development 924 1,484
Sales and marketing 1,606 2,477
General and administrative 472 705
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Total operating expenses 3,002 4,666
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Income from operations 22 369
Other income, net 14 110
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Income before income taxes 36 479
Income tax expense 7 158
------ ------
Net income $ 29 $ 321
------ ------
------ ------
Net income per common share $ 0.01 $ 0.04
------ ------
------ ------
Shares used in per share calculation 6,024 7,395
See accompanying notes.
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ROGUE WAVE SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited)
Three months ended
December 31,
-----------------
1995 1996
------- -------
Cash flows from operating activities:
Net income $ 29 $ 321
Adjustments to reconcile net income to net
cash from operating activities:
Depreciation and amortization 89 334
Changes in assets and liabilities:
Accounts receivable (239) 929
Prepaid and other current assets (46) 323
Other noncurrent assets 39 (23)
Accounts payable and accrued expenses (352) 199
Deferred revenue 247 686
------ -------
Net cash from operating activities (233) 2,769
------ -------
Cash flows from investing activities:
Purchase of furniture, fixtures, and equipment (184) (388)
------ -------
Net cash from investing activities (184) (388)
------ -------
Cash flows from financing activities:
Payments on long-term obligations (25) (54)
Net proceeds from issuance of mandatorily
redeemable preferred stock 3,523 -
Proceeds from issuance of common stock, net - 25,628
Proceeds from exercise of stock options 9 46
------ -------
Net cash from financing activities 3,507 25,620
------ -------
Effect of exchange rate on cash - (2)
------ -------
Net change in cash and cash equivalents 3,090 27,999
Cash and cash equivalents at beginning of period 1,010 1,714
------ -------
Cash and cash equivalents at end of period $4,100 $29,713
------ -------
------ -------
Supplemental disclosure of cash flow information:
Cash paid for interest $ 8 $ 18
Cash paid for taxes - 10
Supplemental disclosure of non-cash financing activities:
Common stock issued for conversion of preferred stock - 4,664
See accompanying notes.
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ROGUE WAVE SOFTWARE, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles. However, certain information or
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed, or omitted, pursuant to the rules and regulations of the
Securities and Exchange Commission. In the opinion of management, the
statements include all adjustments necessary (which are of a normal and
recurring nature) for the fair presentation of the results of the interim
periods presented. These financial statements should be read in
conjunction with the Company's audited consolidated financial statements
for the year ended September 30, 1996, as included in the Company's
Registration Statement on Form SB-2 (Registration No. 333-13517) filed with
the Securities and Exchange Commission.
2. Net Income Per Common and Common Equivalent Share
Net income per common and common equivalent share is computed using the
weighted average number of common and dilutive common equivalent shares
assumed to be outstanding during the period. Common equivalent shares
consist of options to purchase common stock.
3. Use of Estimates in the Preparation of Financial Statements
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
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
4. Stockholders' Equity
On November 21, 1996, the Company completed a public offering of 2,363,890
shares of common stock which generated net proceeds of approximately $25.6
million after deducting applicable issuance costs and expenses. On
December 3, 1996 the Company's underwriters exercised their over-allotment
option resulting in the issuance of an additional 3,750 shares of common
stock which generated net proceeds of approximately $41,850 after deducting
applicable issuance costs and expenses. The net proceeds are expected to
be used for working capital and general corporate purposes, including the
expansion of general sales and customer support and possible future
acquisitions of technologies, products or businesses.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE FOLLOWING
DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM
THOSE DISCUSSED HERE. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN THIS SECTION,
AS WELL AS IN THE SECTION ENTITLED "FACTORS THAT MAY AFFECT FUTURE RESULTS,"
AND THOSE DISCUSSED UNDER THE CAPTION "RISK FACTORS" IN THE COMPANY'S
REGISTRATION STATEMENT ON FORM SB-2 (NO. 333-13517). READERS ARE CAUTIONED
NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS WHICH REFLECT
MANAGEMENT'S ANALYSIS ONLY AS OF THE DATE HEREOF. THE COMPANY UNDERTAKES NO
OBLIGATION TO PUBLICLY RELEASE THE RESULTS OF ANY REVISION TO THESE
FORWARD-LOOKING STATEMENTS WHICH MAY BE MADE TO REFLECT EVENTS OR
CIRCUMSTANCES AFTER THE DATE HEREOF OR TO REFLECT THE OCCURRENCE OF
UNANTICIPATED EVENTS.
OVERVIEW
Rogue Wave was founded in 1989 to provide reusable software parts for
the development of object-oriented software applications. The Company
operated as a Subchapter S corporation until June 1994. In October 1995,
Rogue Wave merged with Inmark Development Corporation ("Inmark"), a privately
held corporation specializing in the development, distribution and support of
an object-oriented graphical user interface library written in the C++
programming language.
To date, the Company's revenue has been derived from licenses of its
software products and related maintenance, training and consulting services.
License revenue is recognized upon execution of a license agreement and shipment
of the product if no significant contractual obligations remain and collection
of the resulting receivable is probable. Allowances for credit risks and for
estimated future returns are provided for upon shipment. Returns to date have
not been material. Service and maintenance revenue consists of fees that are
charged separately from the product licenses. Maintenance revenue consists of
fees for ongoing support and product updates and is recognized ratably over the
term of the contract, which is typically 12 months. Service revenue consists of
training and consulting services and is recognized upon completion of the
related activity. For all periods presented, the Company has recognized revenue
in accordance with Statement of Position 91-1, SOFTWARE REVENUE RECOGNITION.
The Company markets its products primarily through its direct sales force,
and to a lesser extent through the Internet and an indirect channel consisting
of OEMs, VARs, dealers and distributors. The Company's direct sales force
consists of an inside telesales group that focuses on smaller orders ($50,000 or
less), and an outside sales force that focuses on larger site licenses. The
Company makes all of its products available for sale and distribution over the
Internet to customers in the United States. Revenue through this channel has
not been significant to date, and there can be no assurance that the Company
will be successful in marketing its products through this channel.
International revenue accounted for approximately 19% of total revenue in
the first quarter of fiscal 1997. In January 1996, the Company established a
wholly-owned subsidiary in Germany to market and support the Company's products
in Germany and neighboring countries. The Company anticipates establishing or
acquiring similar organizations in other locations in Europe, and possibly in
Asia. The Company expects that international license and service and
maintenance revenue will account for an increasing portion of its total revenue
in the future. The Company has committed and continues to commit significant
management time and financial resources to developing direct and indirect
international sales and support channels. There can be no assurance, however,
that the Company will be able to maintain or
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increase international market demand for its products. To date, other than
revenue generated by the Company's German subsidiary, the Company's
international revenue has been denominated in United States dollars. As a
result of recent fluctuations in international exchage rates, the Company's
Board of Directors has authorized the Company to enter into forward foreign
exchange contracts to minimize the transaction risk associated with such
fluctuations. To date, the Company has not engaged in any hedging
activities. Although exposure to currency fluctuations to date has been
insignificant, to the extent international revenue is denominated in local
currencies, foreign currency translations may contribute to significant
fluctuations in, and could have a material adverse effect upon, the Company's
business, financial condition and results of operations.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage of net
revenues represented by certain line items in the Company's Consolidated
Statements of Operations.
PERCENTAGE OF TOTAL NET REVENUES
Three months ended
December 31,
------------------
1995 1996
---- ----
Revenue:
License revenue 77% 76%
Service and maintenance revenue 23% 24%
--- ---
Total revenue 100% 100%
--- ---
Cost of revenue:
Cost of license revenue 6% 6%
Cost of service and maintenance revenue 9% 8%
--- ---
Total cost of revenue 15% 14%
--- ---
Gross profit 85% 86%
--- ---
Operating expenses:
Product development 26% 25%
Sales and marketing 45% 42%
General and administrative 13% 13%
--- ---
Total operating expenses 84% 80%
--- ---
Income from operations 1% 6%
Other income, net 0% 2%
--- ---
Income before income taxes 1% 8%
Income tax expense 0% 3%
--- ---
Net income 1% 5%
--- ---
--- ---
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REVENUE
The Company's total revenue increased 66% to $5.9 million in the first
quarter of fiscal 1997 from $3.5 million in the first quarter of fiscal 1996.
License revenue increased 64% to $4.5 million in the first quarter of fiscal
1997 from $2.7 million in the first quarter of fiscal 1996. License revenue
increased primarily as a result of an increase in the number of licenses sold to
existing and new customers, reflecting additional product offerings, an
expanding market, increased market awareness and expansion of the Company's
direct sales organization. In particular, the Company introduced its
Threads.h++ and Inter.Net.h++ products in the first quarter of fiscal 1997.
Service and maintenance revenue increased 73% to $1.4 million in the first
quarter of fiscal 1997 from $804,000 in the first quarter of fiscal 1996. The
increase in service and maintenance revenue was generally attributable to the
growing installed base of the Company's products and the associated increase in
demand for support and maintenance services.
COST OF REVENUE
Cost of license revenue increased 56% to $342,000 in the first quarter of
fiscal 1997 from $219,000 in the first quarter of fiscal 1996. The increase was
primarily the result of an increase in the number of licenses sold.
Cost of service and maintenance revenue increased 71% to $502,000 in the
first quarter of fiscal 1997 from $294,000 in the first quarter of fiscal 1996.
The increase was primarily the result of expenses associated with the
development of training programs, utilization of training and mentoring
consultants and the hiring of additional product support personnel.
OPERATING EXPENSES
Product development expense increased 61% to $1.5 million in the first
quarter of fiscal 1997 from $924,000 in the first quarter of fiscal 1996. The
increase in product development expense was primarily attributable to the hiring
of additional product development personnel. The Company anticipates that it
will continue to devote substantial resources to product development and that
product development expenses will increase in dollar amount through fiscal 1997
as the Company continues to increase its product development capacity, although
the Company does not believe such expenses will increase as a percentage of
total revenue.
Sales and marketing expense increased 54% to $2.5 million in the first
quarter of fiscal 1997 from $1.6 million in the first quarter of fiscal 1996. As
a percentage of total revenue, sales and marketing expenses were 42% and 45% in
each respective period. The decrease in sales and marketing expenses as a
percent of revenue was primarily due to the rapid growth in revenues. While the
Company expects that sales and marketing expenses will continue to grow, the
Company does not believe such expenses will increase as a percentage of total
revenue.
General and administrative expense increased 49% to $705,000 in the first
quarter of fiscal 1997 from $472,000 in the first quarter of fiscal 1996. The
increase in general and administrative expenses were primarily due to increased
staffing, investment in infrastructure and associated expenses necessary to
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manage and support the Company's growing operations. The Company believes that
during the near term its general and administrative expenses will continue to
grow in absolute dollars as a result of anticipated expansion.
OTHER INCOME, NET
Other income increased as a result of higher interest income due to higher
investment balances resulting from the infusion of cash from the Company's
initial public offering.
INCOME TAX EXPENSE
The Company's effective tax rate increased to 33.0% of pretax income in the
first quarter of fiscal 1997 from 24.8% percent in the fourth quarter of fiscal
1996. The higher effective tax rate for the first quarter of fiscal 1997 was
primarily due to the decrease in research and experimentation tax credits. The
Company anticipates its fiscal 1997 effective tax rate will be approximately 33%
percent; however, this rate could change based on a change in the percentage of
total revenue derived from international sources.
LIQUIDITY AND CAPITAL RESOURCES
The Company completed an initial public offering of common stock on
November 22, 1996 with net proceeds of approximately $25.6 million. The common
stock is trading on the Nasdaq National Market under the symbol RWAV. The
Company generated cash of $2.8 million from operating activities for the first
quarter of fiscal 1997 compared to cash used in operating activities of $233,000
for the first quarter of fiscal 1996.
FACTORS THAT MAY AFFECT FUTURE RESULTS
IN EVALUATING THE COMPANY'S BUSINESS, PROSPECTIVE INVESTORS SHOULD
CAREFULLY CONSIDER THE FOLLOWING FACTORS IN ADDITION TO THE OTHER INFORMATION
PRESENTED IN THIS REPORT.
UNCERTAINTY OF FUTURE OPERATING RESULTS; FLUCTUATIONS IN QUARTERLY
OPERATING RESULTS. Prior growth rates in the Company's revenue and net income
should not be considered indicative of future operating results. Future
operating results will depend upon many factors, including the demand for the
Company's products, the level of product and price competition, the length of
the Company's sales cycle, the size and timing of individual license
transactions, the delay or deferral of customer implementations, the budget
cycles of the Company's customers, the Company's success in expanding its direct
sales force and indirect distribution channels, the timing of new product
introductions and product enhancements, the mix of products and services sold,
levels of international sales, activities of and acquisitions by competitors,
the timing of new hires, changes in foreign currency exchange rates, and the
ability of the Company to develop and market new products and control costs. A
significant portion of the Company's revenue has been, and the Company believes
will continue to be, derived from relatively large orders, and the timing of
such orders has caused and may continue to cause material fluctuations in the
Company's operating results, particularly on a quarterly basis. The Company
generally ships orders as received and as a result typically has little or no
backlog. Quarterly revenue and operating results therefore depend on the volume
and timing of orders received during the quarter, which are difficult to
forecast. In addition, the Company has historically earned a substantial
portion of its revenue in the last days of each quarter. To the extent this
trend continues, the failure to achieve such revenue during the last days of any
given quarter will have a
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material adverse effect on the Company's business, financial condition and
results of operations.
Service and maintenance revenue tend to fluctuate as consulting contracts,
which may extend over several months, are undertaken, renewed, completed or
terminated. License fee revenue is difficult to forecast due to the fact that
the Company's sales cycle, from initial evaluation to purchase, varies
substantially from customer to customer. As a result of these and other
factors, revenue for any quarter is subject to significant variation, and 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. Because the Company's operating expenses are based on
anticipated revenue trends and because a high percentage of the Company's
expenses are relatively fixed, a delay in the recognition of revenue from a
limited number of transactions could cause significant variations in operating
results from quarter to quarter and could result in significant losses. To the
extent such expenses precede, or are not subsequently followed by, increased
revenue, the Company's operating results would be materially and adversely
affected. Due to all of the foregoing factors, it is likely that in some future
quarter the Company's operating results will be below the expectations of public
market analysts and investors. In such event, the price of the Company's Common
Stock would likely be materially and adversely affected. Fluctuations in
operating results may also result in volatility in the price of the Company's
Common Stock.
DEPENDENCE ON EMERGING MARKET FOR C++ AND JAVA. The Company's product
lines are designed for use in object-oriented software application
development, specifically the C++ programming language, and substantially all
of the Company's revenue has been attributable to sales of products and
related maintenance and consulting services related to C++ programming and
development. The Company believes that while the market for object-oriented
technology in general, and C++ tools and programming applications in
particular, is growing, the Company's growth depends upon broader market
acceptance of object-oriented technology and the C++ programming language.
Even if broader market acceptance is achieved, the object-oriented market may
continue to be characterized by multiple software environments, many of which
are not supported by the Company's products, and numerous competitors in the
areas of tools, methodology and services. Furthermore, the C++ programming
language is very complex. Should the C++ programming language lose market
acceptance or be replaced by another programming language, the Company's
business, financial condition and results of operations would be materially
and adversely affected. The Company's financial performance will depend in
part upon continued growth in the object-oriented technology and C++ markets
and the development of standards that the Company's products address. There
can be no assurance that the market will continue to grow or that the Company
will be able to respond effectively to the evolving requirements of the
market.
The number of software developers using the C++ programming language is
relatively small compared to the number of developers using more traditional
software development technology. The adoption of the C++ programming language
by software programmers who have traditionally used other technology requires
reorientation to significantly different programming methods, and there can
be no assurance that the acceptance of the C++ programming language will
expand beyond the early adopters of the technology. Furthermore, there can
be no assurance that potential corporate customers will be willing to make
the investment required to retrain programmers to build software using C++
rather than structured or other object-oriented programming techniques. Many
of the Company's customers have purchased only small quantities of the
Company's products and there can be no assurance that these or new customers
will broadly implement C++ programming or purchase additional products.
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In addition, the Company has recently introduced several products for use
in the Java market. The Company has spent and will continue to devote resources
to the development of new and enhanced products that address the Java market.
There can be no assurance that the Company will be successful in marketing its
existing or future Java products or that the market for Java products will grow.
If the Java market fails to grow, or grows more slowly than the Company
currently anticipates, the Company's business, financial condition and results
of operations could be materially and adversely affected.
COMPETITION. The market for the Company's products is intensely
competitive, subject to rapid change and significantly affected by new product
introductions and other market activities of industry participants. The
Company's products are targeted at the emerging market for C++ software parts
and programming tools, and the Company's competitors offer a variety of products
and services to address this market. The Company believes that the principal
competitive factors in this market are product quality, flexibility,
performance, functionality and features, use of standards based technology,
quality of support and service, company reputation and price. While price is
less significant than other factors for corporate customers, price can be a
significant factor for individual programmers. Certain of the Company's
competitors have well-established relationships with current and potential
customers and have the resources to enable them to more easily offer a single
vendor solution. Many of these companies have longer operating histories,
significantly greater resources and name recognition and larger installed bases
of customers than the Company. As a result, 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 the Company.
The Company also faces competition from systems integrators and internal
development efforts. Many systems integrators possess industry specific
expertise that may enable them to offer a single vendor solution more easily,
and already have a reputation among potential customers for offering
enterprise-wide solutions to software programming needs. There can be no
assurance that these third parties, many of which have significantly greater
resources than the Company, will not market competitive software products in the
future. It is also possible that new competitors or alliances among competitors
will emerge and rapidly acquire significant market share. The Company also
expects that competition will increase as a result of software industry
consolidation. Increased competition may result in price reductions, reduced
gross margins and loss of market share, any of which could materially and
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 and adversely affect its
business, financial condition and results of operations.
MANAGEMENT OF GROWTH. The Company is experiencing a period of transition
and aggressive product introductions that has placed, and may continue to place,
a significant strain on its resources, including its personnel. Expansion of the
Company's product lines, additional product development and product
introductions, or acquisitions of other technologies or companies, when added to
the day-to-day activities of the Company, will place a further strain on the
Company's resources and personnel. The Company's acquisition of Inmark
Development Corporation in October 1995 has also resulted in the Company's
product development team being distributed in three separate sites across the
country. Managing this distribution requires a significant amount of attention
from management, particularly the Vice President, Development and the Chief
Technology Officer, to ensure that the Company's development efforts are timely,
consistent and well integrated.
Furthermore, the Company believes that its ability to achieve significant
revenue growth in the future will depend in large part on its success in
recruiting and training sufficient direct sales personnel and
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establishing and maintaining relationships with its outside sales
representatives. Although the Company is currently investing, and plans to
continue to invest, significant resources to expand its direct sales force and
to develop distribution relationships with outside sales representatives, the
Company has at times experienced and continues to experience difficulty in
recruiting qualified sales personnel and in establishing necessary sales
representative relationships. The Company believes that the hiring and
retaining of qualified individuals at all levels in the Company is essential
to the Company's ability to manage growth successfully, and there can be no
assurance that the Company will be successful in attracting and retaining the
necessary personnel. If Company management is unable to effectively manage
growth, the Company's business, financial condition and results of operations
will be materially and adversely affected.
RAPID TECHNOLOGICAL CHANGE; DEPENDENCE ON NEW PRODUCTS. The market for
software development tools is characterized by rapid technological advances,
changes in customer requirements and frequent new product introductions and
enhancements. The Company must respond rapidly to developments related to
hardware platforms, operating systems and applicable programming languages.
Such developments will require the Company to continue to make substantial
product development investments. Any failure by the Company to anticipate or
respond adequately to technological developments and customer requirements, or
any significant delays in product development or introduction, could result in a
loss of competitiveness or revenue.
The Company's future success will depend on its ability to continue to
enhance its current product line and to continue to develop and introduce new
products that keep pace with competitive product introductions and technological
developments, satisfy diverse and evolving customer requirements and otherwise
achieve market acceptance. There can be no assurance that the Company will be
successful in continuing to develop and market on a timely and cost-effective
basis fully functional product enhancements or new products that respond to
technological advances by others, or that its enhanced and new products will
achieve market acceptance. In addition, the Company has in the past experienced
delays in the development, introduction and marketing of new or enhanced
products. Such delays were primarily associated with increasing product
functionality and implementing new customer requirements. To date, such delays
have not resulted in a material adverse effect on the Company's business,
financial condition and results of operations. There can be no assurance that
the Company will not experience similar delays in the future. Any failure by
the Company to anticipate or respond adequately to changes in technology and
customer preferences, or any significant delays in product development or
introduction, would have a material adverse effect on the Company's business,
financial condition and results of operations.
FUTURE ACQUISITIONS. The Company frequently evaluates strategic
opportunities available to it and may in the future pursue acquisitions of
complementary technologies, products or businesses. Future acquisitions of
complementary technologies, products or businesses by the Company will result in
the diversion of management's attention from the day-to-day operations of the
Company's business and may include numerous other risks, including difficulties
in the integration of the operations, products and personnel of the acquired
companies. Future acquisitions by the Company may also result in dilutive
issuances of equity securities, the incurrence of debt and amortization expenses
related to goodwill and other intangible assets. Failure of the Company to
successfully manage future acquisitions may have a material adverse effect on
the Company's business, financial condition and results of operations.
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PART II - OTHER INFORMATION
ITEM 1. - LEGAL PROCEEDINGS
On October 30, 1996, Mark Anthony Pinone, a former employee of the Company,
filed a Complaint in Santa Clara Superior Court, alleging cause for claims
against the Company and Thomas Nora, the Company's former Vice President of
Sales, of breach of contract, breach of the implied covenant of good faith and
fair dealing, unlawful disability discrimination, wrongful termination in
violation of public policy, and intentional and negligent infliction of
emotional distress. The Company settled the dispute with Mr. Pinone on December
17, 1996 and the lawsuit has been dismissed.
Item 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The company held its Annual Meeting of Stockholders on October 30, 1996.
The stockholders voted as follows:
The stockholders elected each of the six nominees for director. The
elected directors and the votes cast in favor and against each are as follows:
VOTES IN FAVOR VOTES AGAINST
-------------- -------------
Thomas M. Atwood 6,907,976 72,396
Thomas Keffer, Ph.D. 6,782,976 197,396
Howard M. Love, Jr. 6,890,822 89,550
Richard P. Magnuson 6,907,976 72,396
Thomas H. Peterson 6,907,976 72,396
Dan Whitaker 6,782,976 197,396
The stockholders approved the reincorporation of the Company in Delaware
and related changes to the rights of stockholders with 6,793,495 votes in favor,
200,318 against and 0 abstentions.
The stockholders approved a two-for-three reverse stock split with
6,793,981 votes in favor, 199,832 against and 0 abstentions.
The stockholders approved the Company's 1996 Equity Incentive Plan
with 6,787,745 votes in favor, 205,582 against and 486 abstentions.
The stockholders approved the Company's Employee Stock Purchase Plan
with 6,788,037 votes in favor, 205,290 against and 486 abstentions.
The stockholders' approved a form of Indemnity Agreement to be entered
into by the Company with each of its directors and executive officers with
6,787,204 votes in favor, 205,290 against and 1,319 abstentions.
14
<PAGE>
Item 6. - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
2.1(1) Agreement and Plan of Reorganization between Registrant, Inmark
Development Corporation and RW Acquisitions, Inc., dated as of
September 19, 1995.
2.2(1) Agreement and Plan of Merger between the Registrant and Rogue
Wave Software, Inc., an Oregon corporation.
3.1 Amended and Restated Certificate of Incorporation of Rogue Wave
Software, Inc., a Delaware corporation.
3.2(1) Bylaws of Rogue Wave Software, Inc., a Delaware corporation.
4.1(1) Reference is made to Exhibits 3.1 and 3.2.
4.2(1) Specimen Stock Certificate.
4.3(1) Amended and Restated Investors' Rights Agreement between the
Registrant and certain investors, dated November 10, 1995, as
amended June 27, 1996.
10.1(1) Registrant's 1996 Equity Incentive Plan.
10.2(1) Registrant's Employee Stock Purchase Plan.
10.3(1) Form of Indemnity Agreement to be entered into between the
Registrant and its officers and directors.
10.4(1) Lease Agreement between Registrant and the State of Oregon, dated
May 1, 1996.
10.5(1) Lease Agreement between the Registrant and the Landmark, dated
April 22, 1996.
10.6(1) Loan and Security Agreement between the Registrant and Silicon
Valley Bank, dated October 16, 1996.
10.7(1) Collateral Assignment, Patent Mortgage and Security Agreement
between the Registrant and Silicon Valley Bank, dated October 16,
1996.
27.1 Financial Data Schedule.
(1) Filed as an Exhibit to the Registrant's Registration
Statement on Form SB-2, as amended (No. 333-13517)
(b) Reports on Form 8-K:
15
<PAGE>
No reports on Form 8-K were filed during the quarter ended December 31,
1996
ITEMS 2, 3, AND 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED.
16
<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.
ROGUE WAVE SOFTWARE, INC.
(Registrant)
Date: February 13, 1997 /s/ ROBERT M. HOLBURN, JR.
----------------------------------
ROBERT M. HOLBURN, JR.
CHIEF FINANCIAL OFFICER
<PAGE>
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ROGUE WAVE SOFTWARE, INC.
ROGUE WAVE SOFTWARE, INC., a corporation organized and existing under the
laws of the state of Delaware (the "Corporation") hereby certifies that:
1. The name of the Corporation is Rogue Wave Software, Inc. The
Corporation was originally incorporated under the name Rogue Wave Acquisition
Corporation.
2. The date of filing of the Corporation's original Certificate of
Incorporation was November 6, 1996.
3. The Amended and Restated Certificate of Incorporation of the
Corporation as provided in Exhibit A hereto was duly adopted in accordance with
the provisions of Section 242 and Section 245 of the General Corporation Law of
the State of Delaware by the Board of Directors of the Corporation.
4. Pursuant to Section 245 of the Delaware General Corporation Law,
approval of the stockholders of the Corporation has been obtained.
5. The Amended and Restated Certificate of Incorporation so adopted
reads in full as set forth in Exhibit A attached hereto and is hereby
incorporated by reference.
IN WITNESS WHEREOF, the undersigned have signed this certificate this
22nd day of November, 1996, and hereby affirm and acknowledge under penalty
of perjury that the filing of this Amended and Restated Certificate of
Incorporation is the act and deed Rogue Wave Software, Inc.
Rogue Wave Software, Inc.
By: /s/ Thomas Keffer
-----------------------------------
Thomas Keffer
President, Chief Executive Officer
and Chairman of the Board
ATTEST:
/s/ Robert M. Holburn, Jr.
- ---------------------------------
Robert M. Holburn, Jr.
Secretary and Chief Financial Officer
1
<PAGE>
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ROGUE WAVE SOFTWARE, INC.
I.
The name of this corporation is Rogue Wave Software, Inc.
II.
The address of the registered office of the corporation in the State of
Delaware is 1013 Centre Road, City of Wilmington, County of New Castle, and the
name of the registered agent of the corporation in the State of Delaware at
such address is the Prentice-Hall Corporation System, Inc.
III.
The purpose of this corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
the State of Delaware.
IV.
A. This corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares which the corporation is authorized to issue is forty million
(40,000,00) shares. Thirty five million (35,000,000) shares shall be Common
Stock, each having a par value of one-tenth of one cent ($.001). Five million
(5,000,000) shares shall be Preferred Stock, each having a par value of one-
tenth of one cent ($.001).
B. The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, by filing a certificate
(a "Preferred Stock Designation") pursuant to the Delaware General Corporation
Law, to fix or alter from time to time the designation, powers, preferences
and rights of the shares of each such series and the qualifications,
limitations or restrictions of any wholly unissued series of Preferred Stock,
and to establish from time to time the number of shares constituting any such
series or any of them; and to increase or decrease the number of shares of any
series subsequent to the issuance of shares of that series, but not below the
number of shares of such series then outstanding. In case the number of
shares of any series shall be decreased in accordance with the foregoing
sentence, the shares constituting such decrease shall resume the status that
they had prior to the adoption of the resolution originally fixing the number
of shares of such series.
V.
For the management of the business and for the conduct of the affairs of
the corporation, and in further definition, limitation and regulation of the
powers of the corporation, of its
2
<PAGE>
directors and of its stockholders or any class thereof, as the case may be, it
is further provided that:
A.
1. The management of the business and the conduct of the affairs
of the corporation shall be vested in its Board of Directors. The number of
directors which shall constitute the whole Board of Directors shall be fixed
exclusively by one or more resolutions adopted by the Board of Directors.
2. Subject to the rights of the holders of any series of Preferred
Stock to elect additional directors under specified circumstances, directors
shall be elected at each annual meeting of stockholders for a term of one
year. Each director shall serve until his successor is duly elected and
qualified or until his death, resignation or removal. No decrease in the
number of directors constituting the Board of Directors shall shorten the term
of any incumbent director.
3. Subject to the rights of the holders of any series of Preferred
Stock, no director shall be removed without cause. Subject to any limitations
imposed by law, the Board of Directors or any individual director may be
removed from office at any time with cause by the affirmative vote of the
holders of a majority of the voting power of all the then-outstanding shares
of voting stock of the corporation, entitled to vote at an election of
directors (the "Voting Stock").
4. Subject to the rights of the holders of any series of Preferred
Stock, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors, shall,
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by the stockholders, except as
otherwise provided by law, be filled only by the affirmative vote of a majority
of the directors then in office, even though less than a quorum of the Board of
Directors, and not by the stockholders. Any director elected in accordance with
the preceding sentence shall hold office for the remainder of the full term of
the director for which the vacancy was created or occurred and until such
director's successor shall have been elected and qualified.
B.
1. Subject to paragraph (h) of Section 43 of the Bylaws, the
Bylaws may be altered or amended or new Bylaws adopted by the affirmative vote
of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of
all of the then-outstanding shares of the Voting Stock. The Board of
Directors shall also have the power to adopt, amend, or repeal Bylaws.
2. The directors of the corporation need not be elected by written
ballot unless the Bylaws so provide.
3. No action shall be taken by the stockholders of the corporation
except at an annual or special meeting of stockholders called in accordance
with the Bylaws and following
3
<PAGE>
the closing of the Initial Public Offering no action shall be taken by the
stockholders by written consent.
4. Special meetings of the stockholders of the corporation may be
called, for any purpose or purposes, by (i) the Chairman of the Board of
Directors, (ii) the Chief Executive Officer, or (iii) the Board of Directors
pursuant to a resolution adopted by a majority of the total number of
authorized directors (whether or not there exist any vacancies in previously
authorized directorships at the time any such resolution is presented to the
Board of Directors for adoption), and shall be held at such place, on such
date, and at such time as the Board of Directors shall fix.
5. Advance notice of stockholder nominations for the election of
directors and of business to be brought by stockholders before any meeting of
the stockholders of the corporation shall be given in the manner provided in
the Bylaws of the corporation.
VI.
A. A director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for any breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived an
improper personal benefit. If the Delaware General Corporation Law is amended
after approval by the stockholders of this Article to authorize corporate
action further eliminating or limiting the personal liability of directors,
then the liability of a director shall be eliminated or limited to the fullest
extent permitted by the Delaware General corporation Law, as so amended.
B. Any repeal or modification of this Article VI shall be prospective and
shall not affect the rights under this Article VI in effect at the time of the
alleged occurrence of any act or omission to act giving rise to liability or
indemnification.
VII.
A. The corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner
now or hereafter prescribed by statute, except as provided in paragraph B. of
this Article VII, and all rights conferred upon the stockholders herein are
granted subject to this reservation.
B. Notwithstanding any other provisions of this Certificate of Incorporation
or any provision of law which might otherwise permit a lesser vote or no vote,
but in addition to any affirmative vote of the holders of any particular class
or series of the Voting Stock required by law, this Certificate of
Incorporation or any Preferred Stock Designation, the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting
power of all of the
4
<PAGE>
then-outstanding shares of the Voting Stock, voting together as a single
class, shall be required to alter, amend or repeal Articles V, VI, and VII.
5
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM COMPANY'S
QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 1996 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> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 29,713
<SECURITIES> 0
<RECEIVABLES> 3,895
<ALLOWANCES> 293
<INVENTORY> 219
<CURRENT-ASSETS> 33,973
<PP&E> 4,195
<DEPRECIATION> 1,376
<TOTAL-ASSETS> 37,021
<CURRENT-LIABILITIES> 5,427
<BONDS> 0
0
0
<COMMON> 8
<OTHER-SE> 31,318
<TOTAL-LIABILITY-AND-EQUITY> 37,021
<SALES> 5,879
<TOTAL-REVENUES> 5,879
<CGS> 844
<TOTAL-COSTS> 844
<OTHER-EXPENSES> 4,666
<LOSS-PROVISION> 65
<INTEREST-EXPENSE> 18
<INCOME-PRETAX> 479
<INCOME-TAX> 158
<INCOME-CONTINUING> 321
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 321
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
