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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1999
Commission File Number 0-24339
INKTOMI CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 94-3238130
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1900 South Norfolk Street, San Mateo, California 94403
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (650) 653-2800
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
The number of shares outstanding of the Registrant's common stock as of April
30, 1999 was 48,851,543.
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INKTOMI CORPORATION
FORM 10-Q
For The Quarter Ended March 31, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Part I. Financial Information
Item 1. Financial Statements (unaudited) Page
----
<S> <C>
a) Condensed Consolidated Statements of Operation
For the three and six months ended March 31,
1999 and 1998.......................................................... 1
b) Condensed Consolidated Balance Sheets as of
March 31, 1999 and September 30, 1998.................................. 2
c) Condensed Consolidated Statements of Cash Flows
For the six months ended March 31, 1999
and 1998............................................................... 3
d) Notes to Unaudited Condensed Consolidated Financial Statements............ 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................................... 7
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders........................... 21
Item 6. Exhibits and Reports on Form 8-K.............................................. 21
Signature....................................................................................... 24
</TABLE>
1
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Part I. Financial Information
Item 1. Financial Statements
Inktomi Corporation
Condensed Consolidated Statements of Operation
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
-------------------------------- ---------------------------------
For the Three For the Six
Months Ended Months Ended
March 31, March 31,
-------------------------------- ---------------------------------
1999 1998 1999 1998
-------------------------------- ---------------------------------
<S> <C> <C> <C> <C>
Revenues
Network products $ 8,193 $ 621 $ 13,702 $ 691
Portal services 6,419 2,834 11,638 5,185
---------- --------- ---------- ---------
Total revenues 14,612 3,455 25,340 5,876
Operating expenses
Cost of revenues 2,639 901 4,886 1,695
Sales and marketing 10,782 3,939 20,100 6,925
Research and development 5,296 2,507 9,678 4,694
General and administrative 1,370 894 2,581 1,689
---------- --------- ---------- ---------
Total operating expenses 20,087 8,241 37,245 15,003
---------- --------- ---------- ---------
Operating loss (5,475) (4,786) (11,905) (9,127)
Interest income (expense), net 907 (33) 1,552 (91)
---------- --------- ---------- ---------
Net loss $ (4,568) $ (4,819) $ (10,353) $ (9,218)
========== ========= ========== =========
Basic and diluted net loss per share $ (0.09) $ (0.13) $ (0.21) $ (0.25)
========== ========= ========== =========
Shares used in calculating basic and
diluted net loss per share 48,690 38,177 48,191 36,929
========== ========= ========== =========
</TABLE>
See Notes to Unaudited Condensed Consolidated Financial Statements
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Inktomi Corporation
Condensed Consolidated Balance Sheets
(In thousands, except share amounts)
<TABLE>
<CAPTION>
----------------- ------------------------
March 31, 1999 September 30, 1998
----------------- ------------------------
(Unaudited)
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 41,802 $ 28,944
Short-term investments 77,131 18,492
-------- --------
Total cash, cash equivalents and short-term investments 118,933 47,436
Accounts receivable, net 11,467 5,081
Prepaid expenses and other current assets 1,504 551
-------- --------
Total current assets 131,904 53,068
Property and equipment, net 19,981 17,362
Other assets 1,713 211
-------- --------
Total assets $153,598 $ 70,641
======== ========
Liabilities and Stockholders' Equity
Current liabilities
Current portion of notes payable 4,171 3,820
Current portion of capital lease obligations 2,340 2,054
Accounts payable 6,495 4,884
Accrued liabilities 6,657 6,601
Deferred revenue 3,060 1,316
-------- --------
Total current liabilities 22,723 18,675
Notes payable 3,499 4,050
Capital lease obligations, less current portion 3,353 4,646
-------- --------
Total liabilities 29,575 27,371
Stockholders' equity
Preferred stock, $0.001 par value; 10,000,000
authorized; none issued and outstanding at
March 31, 1999 and September 30, 1998 - -
Common stock, $0.001 par value; 300,000,000 and 100,000,000 authorized at
March 31, 1999 and September 30, 1998; 48,737,065 and 46,776,744
oustanding at March 31, 1999 and September 30, 1998 49 47
Additional paid-in capital 172,904 82,361
Deferred compensation and other (2,310) (2,871)
Accumulated deficit (46,620) (36,267)
-------- --------
Total stockholders' equity 124,023 43,270
-------- --------
Total liabilities and stockholders' equity $153,598 $ 70,641
======== ========
</TABLE>
See Notes to Unaudited Condensed Consolidated Financial Statements
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Inktomi Corporation
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
---------------------------------
For the Six
Months Ended
March 31,
---------------------------------
1999 1998
---------------------------------
<S> <C> <C>
Cash flows from operating activities
Net loss $ (10,353) (9,218)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 2,160 1,399
Amortization of deferred compensation 300 51
Changes in assets and liabilities:
Accounts receivable (6,386) (356)
Prepaid expenses and other assets (2,455) (267)
Accounts payable 1,611 306
Deferred revenue 1,744 79
Accrued liabilities 56 878
--------- ---------
Net cash used in operating activities (13,323) (7,128)
Cash flows from investing activities
Purchases of property and equipment (4,779) (563)
Proceeds from sale of equipment - 928
Purchases of short term investments (78,767) -
Proceeds from the sale of short term investments 19,878 -
--------- ---------
Net cash (used in) provided by investing activities (63,668) 365
Cash flows from financing activities
Payments on notes payable (200) (286)
Payments on obligations under capital leases (1,007) (120)
Proceeds from note receivable 488 -
Proceeds from exercise of stock options and warrants 1,531 4,298
Proceeds from issuance of Preferred Stock,
net of issuance costs - 13,295
Proceeds from issuance of Common Stock,
net of issuance costs 89,014 -
--------- ---------
Net cash provided by financing activities 89,826 17,187
Effect of exchange rates on cash and cash equivalents 23 (4)
--------- ---------
Increase in cash and cash equivalents 12,858 10,420
Cash and cash equivalents at beginning of period 28,944 7,183
--------- ---------
Cash and cash equivalents at end of period $ 41,802 17,603
========= =========
Supplemental cash flow information
Cash paid for interest $ 901 $ 203
========= =========
Assets acquired under capital leases $ - $ 525
========= =========
</TABLE>
See notes to Unaudited Condensed Consolidated Financial Statements
3
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INKTOMI CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements include the
accounts of Inktomi Corporation ("Inktomi") and its wholly owned subsidiary,
Inktomi Ltd. located in London, England. All intercompany accounts and
transactions have been eliminated in the accompanying condensed consolidated
financial statements.
In the opinion of management, the condensed consolidated financial
statements reflect all adjustments that are necessary for the fair
presentation of results for the periods shown. The results of operations for
such periods are not necessarily indicative of the results expected for the
full fiscal year or for any future period. These financial statements should
be read in conjunction with Inktomi's audited consolidated financial
statements and notes thereto included in Inktomi's annual report on Form 10-K
for the year ended September 30, 1998 filed with the Securities and Exchange
Commission on December 24, 1998 and as amended by Inktomi's current report on
Form 8-K dated May 13, 1999.
NOTE 2. PUBLIC OFFERINGS OF COMMON STOCK
On November 19, 1998, Inktomi completed a secondary offering of its common
stock in which it sold 1,332,536 shares raising $87.9 million net of issuance
costs and underwriters' discounts.
On June 11, 1998, Inktomi completed an initial public offering in which it
sold 4,712,994 shares of common stock at $9.00 per share. Upon the closing of
this offering, all then outstanding shares of preferred stock converted into
common stock.
NOTE 3. CALCULATION OF PRO FORMA NET LOSS PER SHARE
Shares used in computing basic and diluted net loss per share are based on
the weighted average shares outstanding in each period. The effect of
outstanding stock options and warrants are excluded from the calculation of
diluted net loss per share, as their inclusion would be antidilutive. At March
31, 1999 options to purchase 6,431,634 shares of common stock and warrants to
purchase 1,437,460 shares of common stock were outstanding.
Earnings per share
(In thousands except per share amounts)
<TABLE>
<CAPTION>
---------------------- --------------------
For the Three Months For the Six Months
Ended March 31, Ended March 31,
---------------------- ---------------------
1999 1998 1999 1998
---------------------- ---------------------
<S> <C> <C> <C> <C>
Net loss $ (4,568) $ (4,819) $ (10,353) $ (9,218)
======== ======== ========= ========
BASIC AND DILUTED NET LOSS PER SHARE
Weighted average shares outstanding 48,690 38,177 48,191 36,929
-------- -------- --------- --------
Shares used in computing
per share amounts 48,690 38,177 48,191 36,929
======== ======== ========= ========
Basic and diluted net loss per share $ (0.09) $ (0.13) $ (0.21) $ (0.25)
======== ======== ========= ========
</TABLE>
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NOTE 4. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting
Comprehensive Income," which was adopted by Inktomi in the quarter ended
December 31, 1998. SFAS 130 establishes standards for reporting comprehensive
income and its components in a financial statement. Comprehensive income as
defined includes all changes in equity (net assets) during a period from non-
owner sources. Examples of items to be included in comprehensive income, which
are excluded from net income, include foreign currency translation adjustment
and unrealized gains and losses on available-for-sale securities. The
components of comprehensive income are as follows (in thousands):
<TABLE>
<CAPTION>
----------------------- -------------------------
Three months ended Six months ended
March 31, March 31,
----------------------- -------------------------
1999 1998 1999 1998
-------- -------- ----------- ----------
<S> <C> <C> <C> <C>
Net Loss $(4,568) $(4,819) $(10,353) $(9,218)
Unrealized loss on available-for-sale securities (10) - (250) -
Foreign currency translation gains and (losses) (41) 21 23 (4)
-------- -------- ----------- ----------
Comprehensive net loss $(4,619) $(4,798) $(10,580) $(9,222)
======== ======== =========== ==========
</TABLE>
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131") which is effective for the fiscal year beginning October 1, 1998.
Inktomi is currently determining the disclosures that may be required under this
pronouncement.
In October 1998, Inktomi adopted American Institute of Certified Public
Accountants ("AICPA") Statement of Position No. 97-2 ("SOP 97-2"), "Software
Revenue Recognition," which was amended by Statement of Position 98-4 ("SOP 98-
4"), "Deferral of the Effective Date of Certain Provisions of SOP 97-2" and
Statement of Position 98-9 ("SOP 98-9"), "Software Revenue Recognition". Inktomi
has evaluated the requirements of these pronouncements and does not believe they
will have a significant impact on current revenue recognition policies.
NOTE 5. SUBSEQUENT EVENT
On April 30 1999, Inktomi completed a merger with Impulse! Buy Network,
Inc., a developer of online merchandising software. Under the terms of the
merger agreement, Inktomi acquired all outstanding shares of capital stock and
assumed all outstanding warrants, stock options and stock purchase rights of
Impulse! Buy in exchange for 899,967 shares of Inktomi common stock. The
transaction was accounted for as a pooling of interests.
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Presented below is unaudited selected pro forma financial information
reflecting the merger of Inktomi and Impulse! Buy Network for the three and six-
month periods ended March 31, 1999 and 1998 (in thousands except per share
amounts). The pro forma impact of the merger on revenues was not significant
for the periods presented.
<TABLE>
<CAPTION>
----------------------- -------------------------
Three months ended Six months ended
March 31, March 31,
----------------------- -------------------------
1999 1998 1999 1998
-------- -------- ----------- ----------
<S> <C> <C> <C> <C>
Pro forma net loss $(6,331) $(5,223) $(12,972) $(9,749)
======== ======== =========== ==========
Basic and diluted pro forma
net loss per share $ (0.13) $ (0.14) $ (0.27) $ (0.26)
======== ======== =========== ==========
Weighted average common shares
used in computing pro forma
basic and diluted net loss per share 49,100 38,587 48,601 37,339
======== ======== =========== ==========
</TABLE>
Inktomi estimates that it will record acquisition costs of approximately $1.1
million as a result of the merger, primarily for legal, accounting and certain
other expenses in the quarter ended June 30, 1999.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Except for historical information, the discussion in this report contains
forward-looking statements that involve risks and uncertainties. Such forward-
looking statements include, among others, those statements including the words,
"expects", "anticipates", "intends", "believes" and similar language. Inktomi's
actual results could differ materially from those discussed herein. Factors
that could cause or contribute to such differences include, but are not limited
to, the risks discussed in the section titled "Factors Affecting Operating
Results" in this Form 10-Q.
Overview
Inktomi was incorporated in February 1996 to develop and market scalable
software applications designed to significantly enhance the performance and
intelligence of large-scale networks. From February 1996 to May 1996, Inktomi's
operations consisted primarily of start-up activities, including research and
development of Inktomi's core coupled cluster software architecture and dataflow
technology, personnel recruiting and capital raising. In May 1996, Inktomi
released the first commercial application based on its core technology, an
Internet search engine that enables customers to provide a variety of online
search services to end users. In December 1997, Inktomi began licensing Traffic
Server, Inktomi's second application, a large-scale network cache designed to
address capacity constraints in high-traffic network routes. In September 1998,
Inktomi acquired C\\2B Technologies, a developer of online shopping technology,
to accelerate its entry into the online comparison shopping business. The
transaction was accounted for as a pooling of interests. Financial results for
all periods have been restated to reflect the combined operations. In April
1999, Inktomi acquired Impulse! Buy Network, Inc., a developer of online
merchandizing software, to supplement functionality of its shopping engine. The
acquisition of Impulse! Buy Network was accounted for as a pooling of interests.
Inktomi estimates that it will record acquisition costs of approximately $1.1
million as a result of the merger, primarily for legal, accounting and certain
other expenses in the quarter ended June 30, 1999.\\
Network products revenues are composed of Traffic Server license, consulting,
support and maintenance fees. Traffic Server license fees are generally
recognized upon shipment of the software. Consulting, support and maintenance
fees are recognized ratably over the service period. Portal services revenues
are composed of revenues generated through the Inktomi search engine and the
Inktomi shopping engine. Inktomi generates revenues from its search engine
through a variety of contractual arrangements, which include per-query search
fees, search service hosting fees, advertising revenue, license fees and/or
maintenance fees. Per-query, hosting and maintenance fees revenues are
recognized in the period earned, and advertising revenues are recognized in the
period that the advertisement is displayed. Inktomi is still developing the
business model for its shopping engine and anticipates that revenues will be
generated by revenue sharing arrangements with online merchants, and by per-
query search fees, advertising revenue and license, support and maintenance fees
from Internet portals and other web site customers. Revenues from online
shopping have not been significant to date and are expected to be modest for the
next few quarters.
Inktomi has a limited operating history. Inktomi incurred a net loss of $3.5
million for the period from inception through September 30, 1996, $10.4 million
for the year ended September 30, 1997, $22.4 million for the year ended
September 30, 1998, and $10.4 million for the six months ended March 31, 1999.
As of March 31, 1999, Inktomi had an accumulated deficit of $46.6 million.
Inktomi has not achieved profitability on a quarterly or annual basis, and
Inktomi anticipates that it will incur net losses for at least the next several
quarters. Inktomi expects to continue to incur significant sales and marketing,
product development and administrative expenses across all lines of business,
and in particular in the shopping engine business as Inktomi continues to
develop and enhance its technology, integrate Impulse! Buy into its operations
and initiate new sales and marketing efforts. As a result, Inktomi will need to
generate significant revenues to achieve and maintain profitability.
Inktomi has generated a substantial portion of its historical search services
revenues and network applications revenues from a limited number of customers.
Inktomi expects that a small number of customers will continue to account for a
substantial portion of revenues for the foreseeable future.
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Accordingly, the loss of a major customer, or in the case of the search engine
business, a decline in the usage of the search service, could adversely affect
revenues.
RESULTS OF OPERATIONS
REVENUES
Total revenues were $14.6 million in the quarter ended March 31, 1999, an
increase of $11.2 million or 323% over revenues of $3.5 million in the quarter
ended March 31, 1998. Revenue from one customer exceeded 10% of total revenues
recorded by Inktomi in the quarter ended March 31, 1999.
Network products revenues totaled $8.2 million in the quarter ended March 31,
1999, an increase of $7.6 million or 1219% over revenues of $0.6 million in the
quarter ended March 31, 1998.
Portal services revenues totaled $6.4 million in the quarter ended March
31, 1999, representing an increase of $3.6 million or 126% over portal
services revenues of $2.8 million in the quarter ended March 31, 1998. Most of
these increases came from existing customers and to a lesser extent, from the
addition of new search customers. Increases in portal services revenues were
offset by a decrease in revenues recorded from the HotBot site as discussed
below.
A significant portion of search revenues have been derived from the HotBot
search service maintained by Inktomi and marketed by Wired Digital, Inc. During
the second quarter, Wired Digital assumed the status of maintaining the HotBot
site, a function previously performed by Inktomi. In prior periods, as primary
operator of the HotBot site, Inktomi recorded the gross value of advertising
revenues generated on the site and recorded amounts due to Wired Digital as
marketing expense. Due to the change in Inktomi's status as operator of the
HotBot site during the quarter, Inktomi recorded only the net advertising
revenues generated at HotBot in the quarter ended March 31, 1999.
EXPENSES
Cost of Revenues
Cost of revenues consists primarily of expenses related to the operation of
Inktomi's search and shopping services, which are primarily depreciation and
network charges. Cost of revenues was $2.6 million for the quarter ended March
31, 1999, an increase of $1.7 million or 189% from $0.9 million in the
comparable period of fiscal 1998. The increase was due primarily to increased
depreciation and network charges resulting from expansions of Inktomi's data
center in California during fiscal 1998, and the addition of a new service
facility in Virginia in the third quarter of fiscal 1998. Inktomi expects cost
of revenues to increase substantially in absolute dollars in the next few
quarters as a result of expanded cluster operation costs.
Sales and Marketing Expenses
Sales and marketing expenses consist of personnel and related costs for
Inktomi's direct sales force and marketing staff and marketing programs,
including trade shows and advertising. Sales and marketing expenses were $10.8
million for the quarter ended March 31, 1999, an increase of $6.8 million or
174% from $3.9 million in the comparable period in fiscal 1998. This increase
was primarily due to an increase in the number of sales and marketing personnel
in the United States, other customer-related costs, and expenses incurred in
connection with attendance at trade shows and additional marketing programs,
partially offset by lower HotBot marketing expenses. Inktomi expects that sales
and marketing expenses will increase substantially in absolute dollars over the
next few quarters as Inktomi hires additional sales and marketing personnel,
initiates additional marketing programs to support its Traffic Server and online
shopping engine products, and establishes sales offices in additional domestic
and international locations.
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Research and Development Expenses
Research and development expenses consist primarily of personnel and related
costs for Inktomi's development and technical support efforts. Research and
development expenses were $5.3 million in the quarter ended March 31, 1999, an
increase of $2.8 million or 111% over expenses of $2.5 million in the comparable
period in fiscal 1998. The increase was primarily due to an increase in the
number of research and development personnel to support expansion of Inktomi's
search engine and network application businesses, online shopping development,
and increases in quality assurance, technical support and technical publications
personnel. Inktomi believes significant investment in research and development
is essential to its future success and expects that research and development
expenses will increase in absolute dollars in future periods. Inktomi has not
capitalized any software development expenses to date.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel and related
costs for general corporate functions, including finance, accounting, human
resources, facilities and legal. General and administrative expenses totaled
$1.4 million in the quarter ended March 31, 1999, an increase of $0.5 million or
53% over expenses of $0.9 million in the comparable period in fiscal 1998. This
increase was due primarily to an increase in the number of general and
administrative personnel.
Interest Income and Expense, Net
Interest income and expense, net includes income on Inktomi's cash and short-
term investments net of expenses related to Inktomi's financing obligations.
Interest income, net totaled $0.9 million of income in the quarter ended March
31, 1999 compared to net expense of $33,000 in the comparable period in fiscal
1998. Most of this increase was generated from interest income on proceeds from
Inktomi's June 1998 and November 1998 public offerings of common stock,
partially offset by increased interest charges on debt and capital lease
obligations. Proceeds from Inktomi's recent public offerings are expected to
increase the interest income generated in the near term, partially offset by an
expected increase in interest expense.
Liquidity and Capital Resources
Cash, cash equivalents and short-term investments totaled $118.9 million at
March 31, 1999, up from $47.4 million at fiscal year-end September 30, 1998.
Most of the increase came from the November 1998 public offering of common
stock, partially offset by cash used in operations and the purchase of property
and equipment.
Inktomi used $13.3 million in cash for operations in the six months ended
March 31, 1999, an increase of $6.2 million from the $7.1 million used in the
comparable period in fiscal 1998. The increase in cash used in operations was
primarily due to an increase in Inktomi's net loss to $10.4 million from $9.2
million in the first six months of fiscal 1999 and fiscal 1998, respectively, as
well as increases in accounts receivable and other assets, partially offset by
increased depreciation and a reduction in the change in other accrued expenses
in the six months ended March 31, 1999.
Inktomi has made significant investments in equipment since its inception.
This equipment consists largely of computer servers, workstations and networking
equipment. Inktomi invested $4.8 million in the six months ended March 31, 1999
as compared to $0.6 million in the six months ended March 31, 1998. These
investments were made primarily to expand Inktomi's search engine service
capacity.
Inktomi has used debt and capital leases to partially finance its operations
and capital purchases and plans to continue this practice until it begins
generating cash from operations. At March 31, 1999 Inktomi had $13.3 million in
loans and capitalized lease obligations outstanding. The bank loans include
certain covenants requiring minimum liquidity, tangible net worth and
profitability over time.
In July 1997, Inktomi and Microsoft entered into a series of agreements
whereby Microsoft selected Inktomi's technology as the basis for Internet search
services to be provided by Microsoft. Under the
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agreements, Inktomi is responsible for developing and adding certain features to
its core search engine technology and providing search results to Microsoft
using the customized search engine technology. In addition, Inktomi is
responsible for hosting the search engine software and purchasing and operating
the cluster on which the software runs. Among other matters, Microsoft is
obligated to loan the price of new workstations and related hardware and
software purchased to service Microsoft's capacity needs. At March 31, 1999,
loans totaling $1.9 million were outstanding.
In January 1999, Microsoft announced that it had signed an agreement to
license certain online communications technologies to a third party and in
exchange would adopt the search technology provided by the third party as the
primary search engine for the MSN Network, replacing Inktomi's search engine.
Microsoft has the right under its hosting agreement with Inktomi to terminate
hosting services by giving Inktomi 30 days prior written notice. Upon such
termination, Inktomi may either repay Microsoft 50% of the then outstanding
loans and keep all workstations and related hardware and software which were
purchased with the loan amounts, or return all workstations and related hardware
and software which were purchased with outstanding loan amounts in complete
satisfaction of the loans. As of this date, Microsoft has not notified Inktomi
that it intends to terminate the hosting agreement.
Inktomi has raised approximately $90.5 million, net of issuance costs, from
equity sales in the first six months of fiscal 1999. This includes approximately
$87.9 million, from Inktomi's November 1998 public offering, approximately $1.5
million from the exercise of stock options and $1.1 million from the issuance of
common stock to employees under Inktomi's employee stock purchase plan.
Inktomi's capital requirements depend on numerous factors, including market
acceptance of Inktomi's products, the resources Inktomi devotes to developing,
marketing, selling and supporting its products, the timing and extent of
establishing international operations, and other factors. Inktomi expects to
devote substantial capital resources to hire and expand its sales, support,
marketing and product development organizations, to expand marketing programs,
to establish additional facilities worldwide and for other general corporate
activities. Although Inktomi believes that its current cash balances will be
sufficient to fund its operations for at least the next 12 months, there can be
no assurance that Inktomi will not require additional financing within this time
frame or that such additional funding, if needed, will be available on terms
acceptable to Inktomi, or at all.
Year 2000 Compliance
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. As a result, software that
records only the last two digits of the calendar year may not be able to
distinguish whether "00" means 1900 or 2000. This may result in software
failures or the creation of erroneous results.
Inktomi utilizes a significant number of computer software programs and
operating systems across the company. Such programs and operating systems
include both proprietary and third party provided applications used in its
online search and shopping services, Traffic Server products and internal
systems. To the extent that these applications contain source codes that are
unable to appropriately process dates in the calendar year 2000, some level of
modification or replacement may be necessary.
Inktomi is currently conducting testing of the current versions of its Traffic
Server and Internet search engine software to determine Year 2000 compliance.
Inktomi has reviewed the software code for each of these applications and
believes that it has identified all instances where date specific information is
required. Inktomi has further investigated whether these date fields contain two
or four digits, and has initiated efforts to upgrade its software when date
fields that contain only two digits are discovered. Based on its preliminary
review of the software code and the results of limited testing, Inktomi believes
that its Traffic Server and search engine applications, when configured and used
in accordance with its documentation, correctly recognize and function when used
with Year 2000 date codes. Inktomi has recently acquired certain components of
its shopping engine application and has not yet reviewed the software code of
this application for Year 2000 compliance. Inktomi is currently in process of
performing more extensive testing of its Traffic Server application to correct
any areas of deficiency not discovered during the review of the software code.
Completion of this testing is expected by the third quarter of fiscal
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1999 whereby Inktomi will proceed with similar testing for its search engine and
review of software code and related testing of its shopping engine. Inktomi's
search engine and shopping engine services run on the Sun Microsystems Solaris
operating system. Inktomi is currently in the early stages of updating its
computers that host the search engine and shopping engine to versions of the
Solaris operating system that Sun Microsystems has declared to be Year 2000
compliant. This upgrade is expected to be completed by October of 1999.
Inktomi's software applications run on several hardware platforms and
associated operating systems, including those provided by Sun Microsystems,
Digital Equipment and Silicon Graphics. In addition, Inktomi's software operates
in accordance with several external Internet protocols, such as HTTP and NNTP.
Inktomi's software is therefore dependent upon the correct processing of dates
by these systems and protocols. Inktomi has reviewed information made publicly
available by its hardware platform partners regarding Year 2000 compliance and
researched the date handling capabilities of applicable Internet protocols.
Based on this research, Inktomi does not believe that the underlying systems and
protocols that operate in conjunction with its software applications contain
material Year 2000 deficiencies. However, Inktomi has not conducted its own
tests to determine to what extent its software running on any of its hardware
platforms and in accordance with any of its supported Internet protocols fails
to properly recognize Year 2000 dates.
Equipment used in Inktomi's portal services is hosted by a third party at
various locations. This equipment is reliant on security, climate control and
internet connectivity, all of which is controlled, provided and maintained by
the third party host. Inktomi has contacted the third party to obtain
affirmative documentation as to their year 2000 readiness and is awaiting a
final response. In the event that systems at the third party experience failure
or are unable to appropriately process dates in the calendar year 2000, Inktomi
may suffer interruption of its search and shopping services which may have a
material adverse effect on the results on operations.
Inktomi uses multiple software systems for its internal business purposes,
including accounting, email, development, human resources, customer service and
support, and sales tracking systems. All of these applications have been
purchased within the preceding 18 months. Inktomi has made inquiries of vendors
of the systems that Inktomi believes are mission critical to its business
regarding their Year 2000 readiness. Each of these vendors has indicated to
Inktomi that it believes its applications are Year 2000 compliant. However,
Inktomi has not received affirmative documentation in this regard from some of
these vendors. Inktomi is in the process of performing operational tests on its
internal systems.
Inktomi has several different desktop, laptop and server hardware
configurations, most of which have been purchased in the last 18 months.
Inktomi is currently in the process of conducting an inventory to assess the
ability of these systems to process Year 2000 date logic. This includes review
of BIOS, CMOS and embedded systems. The vendors of each of these systems has
been contacted in order to confirm Year 2000 readiness. Inktomi is waiting for
final responses from several vendors.
To date, the costs incurred to perform the assessment of Inktomi's Year 2000
readiness have not been significant. Despite preliminary investigation and
testing by Inktomi and its partners, Inktomi's software applications and the
underlying hardware systems and protocols running the software may contain
undetected errors or defects associated with Year 2000 date functions. Inktomi's
software applications operate in complex network environments and directly and
indirectly interact with a number of other hardware and software systems.
Inktomi is unable to predict to what extent its business may be affected if its
software or the systems that operate in conjunction with its software experience
a material Year 2000 failure. Known or unknown errors or defects that affect the
operation of Inktomi's software could result in delay or loss of revenue,
interruption of search or shopping services, cancellation of customer contracts,
diversion of development resources, damage to Inktomi's reputation, increased
service and warranty costs, and litigation costs, any of which could adversely
affect Inktomi's business, financial condition and results of operation. Inktomi
is currently in process of formulating its contingency plans in the event that
it is unable to attain Year 2000 readiness.
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Factors Affecting Operating Results
This report on Form 10-Q contains forward looking statements which involve
risks and uncertainties. Inktomi's actual results could differ materially from
those anticipated by such forward looking statements as a result of certain
factors, including those set forth below.
Limited Operating History
Inktomi was founded in February 1996 and has a limited operating history. An
investor in our Common Stock must consider the risks and difficulties frequently
encountered by early stage companies in new and rapidly evolving markets. These
risks include our:
. substantial dependence on products with only limited market acceptance;
. need to expand our sales and support organizations;
. competition;
. need to manage changing operations;
. customer concentration;
. reliance on strategic relationships; and
. dependence upon key personnel.
We also depend on the growing use of the Internet for commerce and
communication and on general economic conditions. We cannot be certain that our
business strategy will be successful or that we will successfully address these
risks.
History of Losses and Expectation of Future Losses
We incurred net losses of $3.5 million for the period from inception through
September 30, 1996, $10.4 million for the year ended September 30, 1997, $22.4
million for the year ended September 30, 1998 and $10.4 million for the six
months ended March 31, 1999. As of March 31, 1999, we had an accumulated deficit
of $46.6 million. We have not achieved profitability and expect to continue to
incur net losses for at least the next several quarters. We expect to continue
to incur significant sales and marketing, product development and administrative
expenses across all lines of business, and in particular in our shopping engine
business as we continue to develop and enhance our shopping technology,
integrate Impulse! Buy into our operations and initiate new sales and marketing
efforts. As a result, we will need to generate significant revenues to achieve
and maintain profitability. Although our revenues have grown in recent quarters,
we cannot be certain that this growth will continue at the same rates or that we
will achieve sufficient revenues for profitability. If we do achieve
profitability, we cannot be certain that we can sustain or increase
profitability on a quarterly or annual basis in the future.
Substantial Dependence on Traffic Server; Uncertainty of Market Acceptance
Our future growth substantially depends on the commercial success of our
Traffic Server network cache product, which we have licensed to only a small
number of customers. We are initially targeting telecommunications carriers and
Internet service providers for our Traffic Server product, although we are
expanding our customer prospects to include Internet hosting providers, OEM
customers and large enterprise customers. Our ability to generate substantial
and sustained revenues from our Traffic Server product is dependent upon
achieving sales penetration in each of these market segments. The market for
large-scale network caching is in its infancy, and we are not certain our target
customers will widely adopt and deploy caching technology throughout their
networks. Even if they do so, they may not choose our Traffic Server network
cache product for technical, cost, support or other reasons. Although we have
tested our Traffic Server product prior to making it available to customers, we
cannot be certain that we have found and fixed all significant performance
errors. If our target customers do not widely adopt and
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purchase our Traffic Server product, our business, financial condition and
results of operations will be adversely affected.
Long Sales Cycle for Traffic Server
To date, our customers have taken a long time to evaluate Traffic Server and
many people have been involved in the process. Along with our distribution
partners, we spend a lot of time educating and providing information to our
prospective customers regarding the use and benefits of Traffic Server. Even
after purchase, our customers tend to deploy Traffic Server slowly and
deliberately, depending on the skill set of the customer, the size of the
deployment, the complexity of the customer's network environment, and the
quantity of hardware and the degree of hardware configuration necessary to
deploy Traffic Server. The long sales and implementation cycles for Traffic
Server may cause license revenues and operating results to vary significantly
from period to period.
Risks Associated with Internet Search Engine Service
Our search services revenues result primarily from the number of end-user
searches that are processed by our search engine and the level of advertising
revenue generated by our Internet portal and other web site customers. Our
agreements with customers do not require them to direct end users to our search
services or to use the search service at all. For example, In January 1999,
Microsoft announced that it had signed an agreement to license certain online
communications technologies to a third party and in exchange would adopt the
search technology provided by the third party as the primary search engine for
the MSN Network, replacing our search engine. Accordingly, revenues from search
services are highly dependent upon the willingness of customers to promote and
use the search services we provide, the ability of our customers to attract end
users to their online services, the volume of end-user searches that are
processed by our search engine, and the ability and willingness of customers to
sell advertisements on the Internet pages viewed by end users.
Our search contracts require us to meet specific requirements, including the
features provided, performance, the size of the Internet database maintained,
the frequency of updating the search database and reliability. In addition, we
believe it important to maintain features and functionality that are not
explicitly covered in our search agreements, such as high relevance of search
results. The volume of search queries processed by our search engine has grown
significantly, which has placed some strain on our operational capability to
meet customer requirements. If we do not meet these requirements, customers may
cancel our service or choose to use a separate service. We provide our search
engine services from multiple data centers, all of which are housed at
facilities operated by a single source hosting provider. Circumstances outside
of our control such as fires, earthquakes, power failures, telecommunications
failures, sabotage, unauthorized intrusions to our databases and similar events
could occur that may bring down one or more of our data centers. For example, in
June 1998, lightning struck the facility housing our data center in Virginia and
interrupted service from this center. In addition, our data center hosting
provider has experienced network failures from time to time, which has also
interrupted our service. Service interruptions for any reason would reduce our
revenues and could result in contract cancellations.
Risks Associated with Internet Shopping Engine
In September 1998, we acquired C2B Technologies, Inc. to accelerate our entry
into the online comparison shopping business. Our Internet shopping engine is
still under development and is available only in "preview" versions. Like our
Internet search engine, we plan to make our Internet shopping engine available
to Internet portals and other web site customers and will not develop our own
branded online shopping site. We are developing the shopping engine to enable
Internet portals to provide shopping services to their end users. In April
1999, we acquired Impulse! Buy Network, Inc. to supplement the functionality of
our shopping engine.
We are still developing the business model for our shopping engine and
anticipate that revenues will be generated by revenue sharing arrangements with
online merchants, and by per-query search fees, advertising revenue and license,
support and maintenance fees from Internet portals and other web site
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customers. The success of our shopping engine will depend on our ability to
establish and maintain strong relationships with customers and online merchants,
the dollar volume of online purchases generated by participating merchants, and
the level of advertising revenues generated by customers. In addition, the
shopping engine will need to collect and organize vast amounts of electronic
information from online merchants and publishers of comparative product
information, which is a highly complex task. Developing these capabilities and
other required features for the shopping engine will require significant
additional expenses and management and development resources. Much of this
investment is required in advance of generating revenues, which have not been
significant to date and are expected to be modest for the next few quarters. We
cannot be certain that our entry into the online shopping business will be
successful.
Quarterly Financial Results are Subject to Significant Fluctuations
Our revenues and operating results may vary significantly from quarter to
quarter due to a number of factors, including:
. demand for our products and services;
. the timing of sales of our products and services;
. loss of customers
. changes in the growth rate of Internet usage;
. delays in introducing new products and services;
. new product introductions by competitors;
. changes in our pricing policies or the pricing policies of our competitors;
. the mix of products and services sold;
. the mix of sales channels through which our products and services are sold;
. the mix of domestic and international sales;
. costs related to acquisitions of technology or businesses; and
. economic conditions generally as well as those specific to the Internet and
related industries.
We expect that a significant portion of our future revenues will come from
licenses of Traffic Server. We further expect that such revenues will come from
licenses of Traffic Server to a small number of customers. The volume and timing
of orders are difficult to predict because the market for Traffic Server is in
its infancy and the sales cycle may vary substantially from customer to
customer. The cancellation or deferral of even a small number of licenses of
Traffic Server would reduce our expected revenues, which would adversely affect
our quarterly financial performance. To the extent significant sales occur
earlier than expected, operating results for later quarters may not compare
favorably with operating results from earlier quarters.
Quarterly revenues and operating results generated by our search engine business
generally depend on per-query fees and shared advertising revenues received from
our search engine customers within the quarter. Advertising revenues generated
by our customers are pursuant to short-term contracts and are subject to
seasonal trends in advertising sales. Revenues from per-query fees depend on the
volume of end-user search queries processed by our search engine. Reduced
advertising sales, a low level of usage by end users or the cancellation or
deferral of any customer contract would reduce our expected revenues, which
could adversely affect our quarterly financial performance.
Inktomi is still developing the business model for its shopping engine and
anticipates that revenues will be generated by revenue sharing arrangements with
online merchants, and by per-query search fees, advertising revenue and license,
support and maintenance fees from Internet portals and other web site customers.
Revenues from online shopping have not been significant to date and are expected
to be modest for the next few quarters.
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We plan to significantly increase our operating expenses to launch and support
our online shopping business, expand our sales and marketing operations, broaden
our customer support capabilities, establish new search engine and shopping
engine data centers, develop new distribution channels, and fund greater levels
of research and development. Our operating expenses are largely based on
anticipated revenue trends and a high percentage of our expenses are fixed in
the short term. As a result, a delay in generating or recognizing revenue for
the reasons set forth above or for any other reason could cause significant
variations in our operating results from quarter to quarter and could result in
substantial operating losses.
Due to the foregoing factors, we believe that quarter-to-quarter comparisons
of our operating results are not a good indication of our future performance. It
is likely that in some future quarter, our operating results may be below the
expectations of public market analysts and investors. In this event, the price
of our Common Stock may fall.
Need to Expand Sales and Support Organizations
We will need to substantially expand our direct and indirect sales operations,
both domestically and internationally, in order to increase market awareness and
sales of our products. Our products and services require a sophisticated sales
effort targeted at several people within our prospective customers. We have
recently expanded our direct sales force and plan to hire additional sales
personnel. Competition for qualified sales personnel is intense, and we might
not be able to hire the kind and number of sales personnel we are targeting. In
addition, we believe that our future success is dependent upon establishing and
maintaining productive relationships with a variety of distribution partners,
including resellers, master distributors and OEM partners. We seek to sign up
distribution partners that have a substantial amount of technical expertise in
the computer network and telecommunications industry. Even with this expertise,
our distribution partners generally require a significant amount of training and
support. We cannot be certain that we will be successful in signing up desired
distribution partners on a timely basis or at all or that our distribution
partners will devote adequate resources or have the technical and other sales
capabilities to sell our products.
Similarly, the complexity of our products and the difficulty of installing
them require highly trained customer service and support personnel. We currently
have a small customer service and support organization and will need to increase
our staff to support new customers, new product lines (such as the recent
addition of our shopping engine) and the expanding needs of existing customers.
Hiring customer service and support personnel is very competitive in our
industry due to the limited number of people available with the necessary
technical skills and understanding of the Internet.
Our Markets are Highly Competitive
We compete in markets that are new, intensely competitive, highly fragmented
and rapidly changing. We face competition in the overall network
infrastructure market as well as the network cache and Internet search and
online shopping segments of this market. We have experienced and expect to
continue to experience increased competition from current and potential
competitors, many of which have significantly greater financial, technical,
marketing and other resources.
Competition in the network cache market continues to intensify as new
solutions are coming on the market and several companies are forming technology
alliances and OEM relationships to sell their products. In the network cache
market, we compete with several companies, including CacheFlow, Inc., Cisco
Systems, Inc., InfoLibria, Inc., Microsoft Corporation, Mirror Image Internet,
Inc., Netscape Communications Corp., Network Appliance, Inc., Novell, Inc., and
Spyglass, Inc. We also compete against freeware caching solutions including
CERN, Harvest and Squid. We are aware of numerous other major software
developers as well as smaller entrepreneurial companies that are focusing
significant resources on developing and marketing products and services that
will compete with Traffic Server. We believe that Traffic Server may face
competition from other providers of hardware and software offering competing
solutions to network infrastructure problems, including networking hardware and
companion software manufacturers such as Ascend Communications, Inc., Bay
Networks, Inc., Ciena Corporation, IBM Corporation and Lucent Technologies,
Inc.; hardware manufacturers such as Compaq Computer Corp., Dell Computer Corp.,
Hewlett-Packard Company, Intel Corporation, Motorola, Inc. and Sun
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Microsystems, Inc.; telecommunications providers such as AT&T, Inc., MCI
Worldcom, Inc., and regional Bell operating companies; cable TV/communications
providers such as Continental Cablevision, Inc., TimeWarner, Inc. and regional
cable operators; software database companies such as Informix Corporation,
Oracle Corporation and Sybase, Inc.; and large diversified software and
technology companies including Microsoft, Netscape and others. Cisco Systems,
Microsoft and Netscape provide or have announced their intentions to provide a
range of software and hardware products based on Internet protocols and to
compete in the broad Internet/intranet software market as well as in specific
market segments in which we compete.
We compete with a number of companies to provide Internet search services,
many of which have operated services in the market for a longer period, have
greater financial resources, have established marketing relationships with
leading online services and advertisers, and have secured greater presence in
distribution channels. Traditionally, these companies have provided search
services directly to end users through their own web sites and have supplied
serach services to third party web sites as a supplement to this business.
However, we are facing increased competition from several newer competitors that
are following our business model of providing Internet search services primarily
to Internet portals and other web site customers. These newer competitors have
focused on search result relevance and ease of use in providing their service.
We currently compete with companies including Ask Jeeves, Inc., Compaq Computer
Corporation (Alta Vista), Direct Hit Technologies, Inc., Excite, Inc., Google,
Inc., Infoseek Corporation, Lycos Corporation, and Northern Light, Inc. In
addition, large media companies such as The Walt Disney Company and NBC
Enterprises, and other Internet-based companies such as America Online, Inc. and
At Home Corporation have recently made investments in or acquired Internet
search engine companies and we believe that other large media enterprises may
enter or expand their presence in the Internet search engine market, either
directly or indirectly through collaborations or other strategic alliances.
The market for our shopping engine application is rapidly evolving and
intensely competitive. Our current and potential competitors include other
providers of shopping technologies and services including Jango.com, owned by
Excite, Junglee, recently acquired by Amazon.com, Inc., and mySimon.com, Inc.;
and various online retailers and aggregators of merchandise including
Amazon.com, Bottom Dollar, owned by WebCentric, Inc., eBay, Inc., InfoSpace.com,
Inc. and Yahoo! Inc. We believe the principal factors that will draw end users
to an online shopping application include brand availability, selection,
personalized services, convenience, price, accessibility, customer services,
quality of search tools, quality of content, and reliability and speed of
fulfillment for products ordered. We will have little or no control over many of
these factors.
Our competitors may be able to respond more quickly to new or emerging
technologies and changes in customer requirements than we can. In addition, our
current and potential competitors may bundle their products with other software
or hardware, including operating systems and browsers, in a manner that may
discourage users from purchasing products offered by us. Also, current and
potential competitors have greater name recognition, more extensive customer
bases that could be leveraged, and access to proprietary content. Increased
competition could result in price reductions, fewer customer orders, fewer
search queries served, reduced gross margins and loss of market share.
Need to Manage Changing Operations
Our ability to successfully offer products and services and implement our
business plan in a rapidly evolving market requires an effective planning and
management process. We continue to increase the scope of our operations
domestically and internationally and have grown our headcount substantially. At
September 30, 1997, we had a total of 67 employees and at March 31, 1999 we had
a total of 261 employees. This growth has placed, and our anticipated future
operations will continue to place, a significant strain on our management
systems and resources. We expect that we will need to continue to improve our
financial and managerial controls and reporting systems and procedures, enhance
our internal and external security systems, and will need to continue to expand,
train and manage our work force worldwide. Furthermore, we expect that we will
be required to manage multiple relationships with various customers, merchants
and other third parties.
In October 1998, we entered into an 11-year lease for 177,000 square feet of
new office space in Foster City, California. We anticipate that the lease will
commence in June 1999. The lease is for more
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space than we will need for the next several years. The commercial real estate
market in San Mateo County, California is volatile and unpredictable in terms of
rental fees, occupancy rates and preferred locations. If we fail to sublease a
significant portion or all of our existing space or a substantial portion of our
new space, we will incur substantial additional operating expense during the
lease term.
Dependence Upon Key Personnel
We intend to hire a significant number of additional sales, support,
marketing, and research and development personnel in calendar 1999 and beyond.
Competition for these individuals is intense, and we may not be able to attract,
assimilate or retain additional highly qualified personnel in the future. Our
future success also depends upon the continued service of our executive officers
and other key sales, marketing and support personnel. In addition, our products
and technologies are complex and we are substantially dependent upon the
continued service of our existing engineering personnel, and especially our
founders. None of our officers or key employees is bound by an employment
agreement for any specific term. Our relationships with these officers and key
employees are at will. We do not have "key person" life insurance policies
covering any of our employees.
Customer Concentration
We have generated a substantial portion of our historical search services
revenues and network applications revenues from a limited number of customers.
We expect that a small number of customers will continue to account for a
substantial portion of revenues for the foreseeable future. As a result, if we
lose a major customer, or in the case of our search engine business, if there is
a decline in usage of any customer's search service, our revenues would be
adversely affected. In addition, we cannot be certain that customers that have
accounted for significant revenues in past periods, individually or as a group,
will continue to generate revenues in any future period.
Risks of Infringement and Proprietary Rights
Our products and services operate in part by making copies of material
available on the Internet and other networks and making this material available
to end users from a central location. This creates the potential for claims to
be made against us (either directly or through contractual indemnification
provisions with customers) for defamation, negligence, copyright or trademark
infringement, personal injury, invasion of privacy or other legal theories based
on the nature, content or copying of these materials. These claims have been
threatened against us from time to time, and have been brought, and sometimes
successfully pressed, against online service providers in the past. It is also
possible that if any information provided through our search engine or shopping
engine, or information that is copied and stored by customers that have deployed
Traffic Server, such as stock quotes, analyst estimates or other trading
information, contains errors, third parties could make claims against us for
losses incurred in reliance on this information. Although we carry general
liability insurance, our insurance may not cover potential claims of this type
or may not be adequate to protect us from all liability that may be imposed.
Our success and ability to compete are substantially dependent upon our
internally developed technology, which we protect through a combination of
patent, copyright, trade secret and trademark law. We generally enter into
confidentiality or license agreements with our employees, consultants and
corporate partners, and generally control access to and distribution of our
software, documentation and other proprietary information. Despite our efforts
to protect our proprietary rights, unauthorized parties may attempt to copy or
otherwise obtain and use our products or technology. Policing unauthorized use
of our products is difficult, and we cannot be certain that the steps we have
taken will prevent misappropriation of our technology, particularly in foreign
countries where the laws may not protect our proprietary rights as fully as in
the United States.
Substantial litigation regarding intellectual property rights exists in the
software industry. We expect that software products may be increasingly subject
to third-party infringement claims as the number of competitors in our industry
segments grows and the functionality of products in different industry segments
overlaps. Lycos has announced that it is the exclusive licensee of a patent
covering a method of crawling information on the Internet, and that it may bring
actions against companies that it believes are infringing
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this patent in the future. We also believe that many of our competitors in the
network cache business have filed or intend to file patent applications covering
aspects of their technology that they may claim our technology infringes. We
cannot be certain that Lycos or other third parties will not make a claim of
infringement against us with respect to our products and technology. Any claims,
with or without merit, could be time-consuming to defend, result in costly
litigation, divert management's attention and resources, cause product shipment
delays or require us to enter into royalty or licensing agreements. These
royalty or licensing agreements, if required, may not be available on acceptable
terms, if at all. A successful claim of product infringement against us and our
failure or inability to license the infringed or similar technology could
adversely affect our business.
Rapid Technological Change
The network infrastructure market is characterized by rapid technological
change, frequent new product introductions, changes in customer requirements and
evolving industry standards. The introduction of products embodying new
technologies and the emergence of new industry standards could render our
existing products obsolete. Our future success will depend upon our ability to
develop and introduce a variety of new products and product enhancements to
address the increasingly sophisticated needs of our customers. The increasing
scope of our business has led us to allocate additional resources on executing
against our current business opportunities and fewer resources on longer term
projects. We have experienced delays in releasing new products and product
enhancements and may experience similar delays in the future. Material delays in
introducing new products and enhancements may cause customers to forego
purchases of our products and purchase those of our competitors.
Dependence on Strategic Relationships
We believe that our success in penetrating our target markets depends in part
on our ability to develop and maintain strategic relationships with key hardware
and software vendors, distribution partners and customers. We believe these
relationships are important in order to validate our technology, facilitate
broad market acceptance of our products, and enhance our sales, marketing and
distribution capabilities. If we are unable to develop key relationships or
maintain and enhance existing relationships, we may have difficulty selling our
products and services.
We have from time to time licensed minor components from others such as
reporting functions and security features and incorporated them into our
products. If these licensed components are not maintained, it could impair the
functionality of our products and require us to obtain alternative products from
other sources or to develop this software internally, either of which could
involve costs and delays as well as diversion of engineering resources.
Risks Associated with International Operations
We market and sell our products in the United States and internationally. We
have established a subsidiary located in England to market and sell our products
in Europe. We have offices in Germany, Korea and Japan to market and sell our
products in those countries and surrounding regions. We plan to establish
additional facilities in other parts of the world. The expansion of our existing
international operations and entry into additional international markets will
require significant management attention and financial resources. We cannot be
certain that our investments in establishing facilities in other countries will
produce desired levels of revenue. We currently have limited experience in
developing localized versions of our products and marketing and distributing our
products internationally. In addition, international operations are subject to
other inherent risks, including:
. the impact of recessions in economies outside the United States;
. greater difficulty in accounts receivable collection and longer collection
periods;
. unexpected changes in regulatory requirements;
. difficulties and costs of staffing and managing foreign operations;
. reduced protection for intellectual property rights in some countries;
. potentially adverse tax consequences; and
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. political and economic instability.
Our international expenses are generally denominated in local currencies. We
do not currently engage in currency hedging activities. Although exposure to
currency fluctuations to date has been insignificant, future fluctuations in
currency exchange rates may adversely affect results of international
operations.
Year 2000 Risks
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. As a result, software that
records only the last two digits of the calendar year may not be able to
distinguish whether "00" means 1900 or 2000. This may result in software
failures or the creation of erroneous results.
We are in the early stages of assessing our Year 2000 readiness. We have only
conducted a preliminary investigation and performed limited testing to determine
whether our Traffic Server and search engine software are Year 2000 compliant.
We have not performed any evaluation regarding our shopping engine application.
Our software products operate in complex network environments and directly and
indirectly interact with a number of other hardware and software systems.
Despite preliminary investigation and testing by us and our partners, our
software products and the underlying systems and protocols running our products
may contain errors or defects associated with Year 2000 date functions. We are
unable to predict to what extent our business may be affected if our software or
the systems that operate in conjunction with our software experience a material
Year 2000 failure. Known or unknown errors or defects that affect the operation
of our software could result in delay or loss of revenue, interruption of search
or shopping services, cancellation of customer contracts, diversion of
development resources, damage to our reputation, increased service and warranty
costs, and litigation costs, any of which could adversely affect our business,
financial condition and results of operations.
Risks Associated with Potential Acquisitions
We have purchased two companies during the last three quarters and intend to
continue to make investments in complementary companies, products or
technologies in the future. If we buy a company, we could have difficulty in
assimilating that company's personnel and operations. In addition, the key
personnel of the acquired company may decide not to work for us. If we make
other types of acquisitions, we could have difficulty in assimilating the
acquired technology or products into our operations. These difficulties could
disrupt our ongoing business, distract our management and employees and increase
our expenses. Furthermore, we may have to incur debt or issue equity securities
to pay for any future acquisitions, the issuance of which could be dilutive to
Inktomi or our existing stockholders.
Government Regulation and Legal Uncertainties
Laws and regulations directly applicable to communications and commerce over
the Internet are becoming more prevalent. The most recent session of the United
States Congress resulted in Internet laws regarding children's privacy,
copyrights, taxation and the transmission of sexually explicit material. The
European Union recently enacted its own privacy regulations. The law of the
Internet, however, remains largely unsettled, even in areas where there has been
some legislative action. It may take years to determine whether and how existing
laws such as those governing intellectual property, privacy, libel and taxation
apply to the Internet. In addition, the growth and development of the market for
online commerce may prompt calls for more stringent consumer protection laws,
both in the United States and abroad, that may impose additional burdens on
companies conducting business online. The adoption or modification of laws or
regulations relating to the Internet could adversely affect our business.
Potential Volatility of Stock Price
The market price of our Common Stock has fluctuated in the past and is likely
to fluctuate in the future. In addition, the securities markets have experienced
significant price and volume fluctuations and the market prices of the
securities of Internet-related companies have been especially volatile.
Investors may be unable to resell their shares of our Common Stock at or above
the offering price. In the past,
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companies that have experienced volatility in the market price of their stock
have been the object of securities class action litigation. If we were the
object of securities class action litigation, it could result in substantial
costs and a diversion of management's attention and resources.
20
<PAGE>
Part II. Other Information
Item 2. Changes in Securities
(a) Modification of Rights of Security Holders
At the Annual Meeting of Stockholders of the Company held March 10, 1999, the
stockholders of the Company approved an amendment to the Certificate of
Incorporation of the Company increasing the authorized number of shares of
Common Stock from 100,000,000 shares to 300,000,000 shares. The amendment was
filed with the Delaware Secretary of State on April 7, 1999. The amendment to
the Certificate of Incorporation enables the Board of Directors to issue or
reserve for issuance up to 300,000,000 shares of Common Stock without further
action or authorization by the stockholders, except as required by applicable
law or the rules of any stock exchange or national securities association
trading system on which the Common Stock is then listed or quoted.
Item 4. Submission of Matters to a Vote of Stockholders
At the Annual Meeting of Stockholders of the Company held on March 10, 1999, the
following proposals were adopted by the margins indicated below. There were
24,262,954 shares of Common Stock entitled to vote at the meeting and a total of
14,183,460 shares were represented at the meeting.
1. To elect a Board of Directors to hold office until their successors are
elected and qualified.
<TABLE>
<CAPTION>
Number of Shares
---------------------------------
For Withhold
--------------- ------------
<S> <C> <C>
David C. Peterschmidt 14,154,350 29,110
Eric A. Brewer 14,154,550 28,910
Frank Gill 14,154,300 29,160
Fredric W. Harman 14,154,534 28,926
John A. Porter 14,154,550 28,910
Alan F. Shugart 14,153,974 29,486
</TABLE>
2. To amend Inktomi's Certificate of Incorporation to increase the authorized
number of shares of Common Stock from 100,000,000 to 300,000,000.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
For 13,114,896 Against 1,053,633 Abstain 14,931 Broker Non-Vote 0
---------- --------- ------ -
</TABLE>
3. To ratify the appointment of PricewaterhouseCoopers as Inktomi's independent
auditors for fiscal 1999.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
For 14,163,307 Against 2,351 Abstain 17,802 Broker Non-Vote 0
---------- ----- ------ -
</TABLE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit
Number
- ------
2.1 (2) Agreement and Plan of Reorganization dated August 31, 1998 by andamong
Inktomi, IC Merger Corp. and C2B Technologies Inc.
21
<PAGE>
2.2 (5) Agreement and Plan of Reorganization by and among Inktomi, IC
Acquisition Corp. and Impulse! Buy Network, Inc.
3.2 (3) Amended and Restated Certificate of Incorporation of Inktomi.
3.2a Amendment to Amended and Restated Certificate of Incorporation of
Inktomi
3.4 (3) Bylaws of Inktomi.
4.1 (3) Specimen Common Stock Certificate.
10.1(3) Form of Indemnification Agreement between Inktomi and each of its
directors and officers.
10.2(3) 1998 Stock Plan and form of agreement thereunder.
10.3(3) 1998 Employee Stock Purchase Plan and form of agreements thereunder.
10.4(3) 1996 Equity Incentive Plan and form of agreement thereunder.
10.5(3) Fifth Amended and Restated Investors' Rights Agreement dated as
February 13, 1998 among Inktomi and certain of its security holders
named therein.
10.6(3) Executive Employment Agreement dated as of July 1, 1996 between
Inktomi and David C. Peterschmidt.
10.7(1) Amended and Restated Loan and Security agreement dated as of September
2, 1998 between Inktomi and Silicon Valley Bank.
10.8(3) Sublease Agreement dated November 27, 1996 between Inktomi and
Macromedia, Inc.
10.9(3) Office Lease dated July 31, 1997 between Inktomi and Norfolk Atrium, a
California limited partnership.10.10(3) Reserved for future use.
10.11+(3) Information Services Agreement dated as of April 1, 1998 between
Inktomi and Wired Digital, Inc.
10.12+(3) Information Services Agreement dated as of July 27, 1997 between
Inktomi and Microsoft Corporation.
10.13+(3) Software Development Agreement dated as of July 27, 1997 between
Inktomi and Microsoft Corporation.
10.14+(3) Software Hosting Agreement dated as of July 27, 1997 between
Inktomi and Microsoft Corporation.
10.15+(3) Loan Agreement dated as of July 27, 1997 between Inktomi and
Microsoft Corporation.
10.16(3) Security Agreement dated as of July 27, 1997 between Inktomi and
Microsoft Corporation.
10.17+(3) Escrow Agreement dated as of July 29, 1997 among Inktomi, Data
Base, Inc., and Microsoft Corporation.
10.18 Reserved for future use.
10.19(1) First Amendment dated July 13, 1998 to Office Lease dated July 31,
1997 between Inktomi and Norfolk Atrium, a California limited
partnership.
10.20(1) Office Lease dated October 9, 1998 between Inktomi and WHFST Real
Estate Limited Partnership, a Delaware limited partnership.
10.21(1) C2B Technologies Inc. (formerly BeyondNews, Inc.) 1997 Stock Plan
and form of agreement thereunder.
10.22(2) Registration Rights Agreement dated September 25, 1998 between
Inktomi and former stockholders of C2B Technologies Inc. (included in
Exhibit 2.1)
10.23(4) 1998 Nonstatutory Stock Option Plan and form of agreement thereunder
10.24(5) Declaration of Registration Rights dated April 30, 1999 for the
benefit of former Impulse! Buy Network, Inc. stockholders (included in
Exhibit 2.2).
10.25 Amendment to Amended and Restated Loan and Security Agreement dated as
of September 2, 1998 between Inktomi and Silicon Valley Bank.
27.1 Financial Data Schedules.
_______________
(1) Incorporated by reference from Inktomi's Registration Statement on Form S-
1(Reg. No. 333-66661), as amended.
(2) Incorporated by reference from Inktomi's Current Report on Form 8-K filed
with the Commission on October 9, 1998, as amended.
(3) Incorporated by reference from Inktomi's Registration Statement on Form S-
1(Reg. No. 333-50247), as amended.
(4) Incorporated by reference from Inktomi's Registration Statement on Form S-
8(Reg. No. 333-71037)
22
<PAGE>
(5) Incorporated by reference from Inktomi's Current Report on Form 8-K filed
with the Commission on May 13, 1999.
+ Certain portions of this exhibit have been granted confidential treatment
by the Commission. The omitted portions have been separately filed with
the Commission.
(b) Reports on Form 8-K
Inktomi filed a Current Report on Form 8-K dated May 13, 1999 to report
under Item 2 thereof the acquisition of Impulse! Buy Network, Inc.
Financial Statements were not required to be filed as part of the report.
23
<PAGE>
Signature
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
undersigned, thereunto duly authorized.
Inktomi Corporation
Date: May 17, 1999 By: /s/ Jerry M. Kennelly
___________________________________
Jerry M. Kennelly,
Vice President of Finance and
Chief Financial Officer
(duly authorized officer and
principal financial officer)
24
<PAGE>
INDEX TO EXHIBITS
(a) Exhibits
Exhibit
Number
- ------
2.1(2) Agreement and Plan of Reorganization dated August 31, 1998 by and
among Inktomi, IC Merger Corp. and C2B Technologies Inc.
2.2(5) Agreement and Planned Reorganization by and among Inktomi, IC
Acquisition Corp. and Impulse! Buy Network, Inc.
3.2(3) Amended and Restated Certificate of Incorporation of Inktomi.
3.2a Amendment to Amended and Restated Certificate of Incorporation of
Inktomi.
3.4(3) Bylaws of Inktomi.
4.1(3) Specimen Common Stock Certificate.
10.1(3) Form of Indemnification Agreement between Inktomi and each of its
directors and officers.
10.2(3) 1998 Stock Plan and form of agreement thereunder.
10.3(3) 1998 Employee Stock Purchase Plan and form of agreements thereunder.
10.4(3) 1996 Equity Incentive Plan and form of agreement thereunder.
10.5(3) Fifth Amended and Restated Investors' Rights Agreement dated as
February 13, 1998 among Inktomi and certain of its security holders
named therein.
10.6(3) Executive Employment Agreement dated as of July 1, 1996 between
Inktomi and David C. Peterschmidt.
10.7(1) Amended and Restated Loan and Security agreement dated as of September
2, 1998 between Inktomi and Silicon Valley Bank.
10.8(3) Sublease Agreement dated November 27, 1996 between Inktomi and
Macromedia, Inc.
10.9(3) Office Lease dated July 31, 1997 between Inktomi and Norfolk Atrium,
a California limited partnership.
10.10 Reserved for future use.
10.11+(3) Information Services Agreement dated as of April 1, 1998 between
Inktomi and Wired Digital, Inc.
10.12+(3) Information Services Agreement dated as of July 27, 1997 between
Inktomi and Microsoft Corporation.
10.13+(3) Software Development Agreement dated as of July 27, 1997 between
Inktomi and Microsoft Corporation.
10.14+(3) Software Hosting Agreement dated as of July 27, 1997 between
Inktomi and Microsoft Corporation.
10.15+(3) Loan Agreement dated as of July 27, 1997 between Inktomi and
Microsoft Corporation.
10.16(3) Security Agreement dated as of July 27, 1997 between Inktomi and
Microsoft Corporation.
10.17+(3) Escrow Agreement dated as of July 29, 1997 among Inktomi, Data
Base, Inc., and Microsoft Corporation.
10.18 Reserved for future use.
10.19(1) First Amendment dated July 13, 1998 to Office Lease dated July 31,
1997 between Inktomi and Norfolk Atrium, a California limited
partnership.
10.20(1) Office Lease dated October 9, 1998 between Inktomi and WHFST Real
Estate Limited Partnership, a Delaware limited partnership.
10.21(1) C2B Technologies Inc. (formerly BeyondNews, Inc.) 1997 Stock Plan and
form of agreement thereunder.
10.22(2) Registration Rights Agreement dated September 25, 1998 between
Inktomi and former stockholders of C2B Technologies Inc. (included in
Exhibit 2.1)
10.23(4) 1998 Nonstatutory Stock Option Plan and form of agreement thereunder.
10.24(5) Declaration of Registration Rights dated April 30, 1999 for the
benefit of former Impulse! Buy Network, Inc. stockholders (included in
Exhibit 2.2).
10.25 Amendment to Amended and Restated Loan and Security Agreement dated as
of September 2, 1998 between Inktomi and Silicon Valley Bank.
27.1 Financial Data Schedules.
25
<PAGE>
_______________
(1) Incorporated by reference from Inktomi's Registration Statement on Form S-
1(Reg. No. 333-66661), as amended.
(2) Incorporated by reference from Inktomi's Current Report on Form 8-K filed
with the Commission on October 9, 1998, as amended.
(3) Incorporated by reference from Inktomi's Registration Statement on Form S-1
(Reg. No. 333-50247), as amended.
(4) Incorporated by reference from Inktomi's Registration Statement on Form S-8
(Reg. No. 333-71037)
(5) Incorporated by reference from Inktomi's Current Report on Form 8-K filed
with the Commission on May 13, 1999.
+ Certain portions of this exhibit have been granted confidential treatment
by the Commission. The omitted portions have been separately filed with
the Commission.
26
<PAGE>
Exhibit 3.2a
CERTIFICATE OF AMENDMENT
TO THE
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF
INKTOMI CORPORATION
The undersigned, David C. Peterschmidt and Timothy Stevens, hereby certify
that:
1. They are the duly elected and acting President and Assistant Secretary,
respectively, of Inktomi Corporation, a Delaware corporation, which was
originally incorporated in the State of Delaware on November 12, 1996.
2. Article IV of the Amended and Restated Certificate of Incorporation is
hereby amended and restated in its entirety to read as follows:
"Article IV
The Company is authorized to issue two classes of shares of stock to be
designated, respectively, Common Stock, $0.001 par value, and Preferred Stock,
$0.001 par value. The total number of shares that the Company is authorized to
issue is 310,000,000 shares. The number of shares of Common Stock authorized is
300,000,000. The number of shares of Preferred Stock authorized is 10,000,000.
The Preferred Stock may be issued from time to time in one or more series
pursuant to a resolution or resolutions providing for such issue duly adopted by
the Board of Directors (authority to do so being hereby expressly vested in the
Board). The Board of Directors is further authorized to determine or alter the
rights, preferences, privileges and restrictions granted to or imposed upon any
wholly unissued series of Preferred Stock and to fix the number of shares of any
series of Preferred Stock and the designation of any such series of Preferred
Stock. The Board of Directors, within the limits and restrictions stated in any
resolution or resolutions of the Board of Directors originally fixing the number
of shares constituting any series, may increase or decrease (but not below the
number of shares in any such series then outstanding) the number of shares of
any series subsequent to the issue of shares of that series.
The authority of the Board of Directors with respect to each such class or
series shall include, without limitation of the foregoing, the right to
determine and fix:
<PAGE>
a) the distinctive designation of such class or series and the number
of shares to constitute such class or series;
b) the rate at which dividends on the shares of such class or series
shall be declared and paid, or set aside for payment, whether dividends at the
rate so determined shall be cumulative or accruing, and whether the shares of
such class or series shall be entitled to any participating or other dividends
in addition to dividends at the rate so determined, and if so, on what terms;
c) the right or obligation, if any, of the Company to redeem shares of
the particular class or series of Preferred Stock and, if redeemable, the
price, terms and manner of such redemption;
d) the special and relative rights and preferences, if any, and the
amount or amounts per share, which the shares of such class or series of
Preferred Stock shall be entitled to receive upon any voluntary or involuntary
liquidation, dissolution or winding up of the Company;
e) the terms and conditions, if any, upon which shares of such class
or series shall be convertible into, or exchangeable for, shares of capital
stock of any other class or series, including the price or prices or the rate
or rates of conversion or exchange and the terms of adjustment, if any;
f) the obligation, if any, of the Company to retire, redeem or
purchase shares of such class or series pursuant to a sinking fund or fund of
a similar nature or otherwise, and the terms and conditions of such
obligation;
g) voting rights, if any, on the issuance of additional shares of such
class or series or any shares of any other class or series of Preferred Stock;
h) limitations, if any, on the issuance of additional shares of such
class or series or any shares of any other class or series of Preferred Stock;
and
i) such other preferences, powers, qualifications, special or relative
rights and privileges thereof as the Board of Directors of the Company, acting
in accordance with this Amended and Restated Certificate of Incorporation, may
deem advisable and are not inconsistent with law and the provisions of this
Amended and Restated Certificate of Incorporation."
3. The Board of Directors has duly approved the foregoing Amendment.
4. The foregoing Amendment has been duly approved by the required vote of
shareholders in accordance with Sections 242 of the Delaware General Corporation
Law. The total number of outstanding shares of Common Stock of this corporation
as of the record date
2
<PAGE>
was 24,314,409 shares. No shares of Preferred Stock were outstanding. The
number of shares voting in favor of the Amendment equaled or exceeded the vote
required. The percentage vote required was a majority of the outstanding
shares of Common Stock.
The undersigned further certify under penalty of perjury that they have
read the foregoing Amendment and know the contents thereof, and that the
statements therein are true.
IN WITNESS WHEREOF, the undersigned have executed this certificate at San
Mateo, California on April 2, 1999.
-----------------------------------------
David C. Peterschmidt, President
-----------------------------------------
Timothy Stevens, Assistant Secretary
3
<PAGE>
Exhibit 10.25
AMENDMENT TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
-------------------------------------------------------------
This Amendment to Amended and Restated Loan and Security Agreement (this
"Amendment") is entered into as of January 28, 1999, by and between Silicon
Valley Bank ("Bank") and Inktomi Corporation ("Borrower").
RECITALS
--------
Borrower and Bank are parties to that certain Amended and Restated Loan and
Security Agreement dated as of September 2, 1998 (the "Agreement"). Borrower
and Bank desire to amend the Agreement in accordance with the terms of this
Amendment.
NOW, THEREFORE, the parties agree as follows:
1. Amendments to Agreement. The Agreement is hereby amended as follows:
-----------------------
(a) The following definitions in Section 1.1 are amended to read as
follows:
"Committed Line" means Six Million Five Hundred Thousand
Dollars ($6,500,000).
"Revolving Maturity Date" means June 30, 1999.
(b) The following terms are added to Section 1.1 in their proper
alphabetical order:
"Equity Issuance" means, as applied to any Person, the sale or
issuance by such Person of (i) any capital stock of such Person, (ii) any
options, warrants or other similar rights exercisable in respect of such
capital stock, or (iii) any other security or instrument representing an
equity interest (or the right to obtain an equity interest) in such Person.
"Net Proceeds" means, with respect to any Equity Issuance, the gross
proceeds received by the issuer from the issuance less all legal and
accounting expenses, commissions and other fees and expenses incurred or to
be incurred and all federal, state, local and foreign taxes assessed in
connection therewith.
(c) Section 6.10 is amended in its entirety to read as follows:
6.10 Tangible Net Worth. Borrower shall maintain, as of the last day
------------------
of each fiscal quarter, a Tangible Net Worth of not less than $30,000,000
plus (i) 75% of net income (but not loss) for each fiscal quarter of the
Borrower commencing with the quarter ending March 30, 1999, plus (ii) 100%
of the Net Proceeds of any Equity Issuance by the Borrower after the date
hereof.
(d) Exhibit C is replaced with Exhibit C hereto.
--------- ---------
2. Conditions Precedent to Effectiveness. The effectiveness of this
-------------------------------------
Amendment is subject to the further conditions precedent that Bank shall have
received a facility fee in the amount of Eight Thousand Three Hundred Eighty
Dollars ($8,380), plus an amount equal to the Bank Expenses incurred in
connection with this Amendment.
3. Representation and Warranties. Borrower represents and warrants that
-----------------------------
the Representations and Warranties contained in the Agreement are true and
correct as of the date of this Amendment, and that no Event of Default has
occurred and is continuing.
<PAGE>
4. MISCELLANEOUS.
--------------
(a) Successors and Assigns. This Amendment shall be binding upon
----------------------
and shall inure to the benefit of Borrower and Bank and their respective
successors and assigns; provided, however, that the foregoing shall not
authorize any assignment by Borrower of its rights or duties hereunder.
(b) Entire Agreement. This Amendment and the Loan Documents
----------------
contain the entire agreement of the parties hereto and supersede any other
oral or written agreements or understandings.
(c) Course of Dealing; Waivers. No course of dealing on the part
--------------------------
of Bank or its officers, nor any failure or delay in the exercise of any right
by Bank, shall operate as a waiver thereof, and any single or partial exercise
of any such right shall not preclude any later exercise of any such right.
Bank's failure at any time to require strict performance by Borrower of any
provision shall not affect any right of Bank thereafter to demand strict
compliance and performance. Any suspension or waiver of a right must be in
writing signed by an officer of Bank.
(d) Legal Effect. Except as amended by this Amendment, the Loan
------------
Documents remain in full force and effect. If any provision of this Amendment
conflicts with applicable law, such provision shall be deemed severed from
this Amendment, and the balance of this Amendment shall remain in full force
and effect. Unless otherwise defined, all capitalized terms in this Amendment
shall have the meaning set forth in the Agreement.
(e) Counterparts. This Amendment may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one instrument.
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the
first date above written.
INKTOMI CORPORATION
By
----------------------------------
Title
-------------------------------
SILICON VALLEY BANK
By
----------------------------------
Title
-------------------------------
<PAGE>
EXHIBIT C
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
FROM: INKTOMI CORPORATION
The undersigned authorized officer of Inktomi Corporation hereby certifies
that in accordance with the terms and conditions of the Amended and Restated
Loan and Security Agreement between Borrower and Bank (the "Agreement"), (i)
Borrower is in complete compliance for the period ending ___________ with all
required covenants except as noted below and (ii) all representations and
warranties of Borrower stated in the Agreement are true and correct in all
material respects as of the date hereof. Attached herewith are the required
documents supporting the above certification. The Officer further certifies
that these are prepared in accordance with Generally Accepted Accounting
Principles (GAAP) and are consistently applied from one period to the next
except as explained in an accompanying letter or footnotes.
Please indicate compliance status by circling Yes/No under "Complies" column.
<TABLE>
<CAPTION>
Reporting Covenant Required Complies
- ------------------ -------- --------
<S> <C> <C>
10-Q & CC Quarterly within 45 days Yes No
10-K & CC FYE within 120 days Yes No
A/R & A/P Agings Within 20 days of request Yes No
</TABLE>
<TABLE>
<CAPTION>
Financial Covenant Required Actual Complies
- ------------------ -------- ------ -------
<S> <C> <C> <C>
Maintain on a Quarterly Basis:
Minimum Quick Ratio 2.0:1.0(1) _____:1.0 Yes No
Liquidity Ratio(2) 2.0:1.0 _____:1.0 Yes No
Debt Service Coverage(3) 1.5:1.0 _____:1.0 Yes No
Minimum Tangible Net Worth $_________(4) $________
</TABLE>
(1) Quick Assets excludes Microsoft Accounts that service Microsoft Debt;
Current Liabilities excludes deferred revenues and Microsoft Debt.
(2) Converts to Debt Service Coverage upon two consecutive quarters of DSC of at
least 1.50:1.0.
(3) Tested after conversion of Liquidity Ratio.
(4) $30,000,000 plus (i) 75% of net income (but not loss) for each fiscal
quarter commencing with quarter ended March 30, 1999, plus (ii) 100% of the Net
Proceeds of any Equity Issuance after the date hereof.
Comments Regarding Exceptions: See Attached.
Sincerely,
- -----------------------------
SIGNATURE
- -----------------------------
TITLE
- -----------------------------
DATE
<PAGE>
CORPORATE RESOLUTIONS TO BORROW
Borrower: Inktomi Corporation
I, the undersigned Secretary or Assistant Secretary of Inktomi Corporation
(the "Corporation"), HEREBY CERTIFY that the Corporation is organized and
existing under and by virtue of the laws of the state of California.
I FURTHER CERTIFY that the Articles of Incorporation and By Laws previously
delivered to Silicon Valley Bank (the "Bank") remain in full force and effect
and have not been amended, restated or modified.
I FURTHER CERTIFY that at a meeting of the Directors of the Corporation
duly called and held, at which a quorum was present and voting (or by other duly
authorized corporate action in lieu of a meeting), the following resolutions
were adopted.
BE IT RESOLVED, that any one (1) of the following named officers,
employees, or agents of this Corporation, whose actual signatures are shown
below:
NAMES POSITIONS ACTUAL SIGNATURES
----- --------- -----------------
acting for an on behalf of this Corporation and as its act and deed be, and they
hereby are, authorized and empowered:
Borrow Money. To borrow from time to time from Bank, on such terms as may
be agreed upon between the officers, employees, or agents and Bank, such sum or
sums of money as in their judgment should be borrowed, without limitation,
including such sums as are specified in that certain Amendment to Amended and
Restated Loan and Security Agreement dated as of January 28, 1999 (the
"Amendment").
Execute Notes. To execute and deliver to Bank the Amendment and also to
execute and deliver to Bank one or more renewals, extensions, modifications,
refinancings, consolidations, or substitutions for one or more of the notes, or
any portion of the notes.
Grant Security. To grant a security interest to Bank in the Collateral
described in the Loan Agreement, which security interest shall secure all of the
Corporation's Obligations, as described in the Loan Agreement.
Negotiate Items. To draw, endorse, and discount with Bank all drafts, trade
acceptances, promissory notes, or other evidences of indebtedness payable to or
belonging to the Corporation or in which the Corporation may have an interest,
and either to receive cash for the same or to cause such proceeds to be credited
to the account of the Corporation with Bank, or to cause such other disposition
of the proceeds derived therefrom as they may deem advisable.
Letters of Credit; Foreign Exchange. To execute letters of credit
applications, foreign exchange agreements and other related documents pertaining
to Bank's issuance of letters of credit and foreign exchange contracts.
<PAGE>
Further Acts. In the case of lines of credit, to designate additional or
alternate individuals as being authorized to request advances thereunder, and in
all cases, to do and perform such other acts and things, to pay any and all fees
and costs, and to execute and deliver such other documents and agreements as
they may in their discretion deem reasonably necessary or proper in order to
carry into effect the provisions of these Resolutions.
BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to these
resolutions and performed prior to the passage of these resolutions are hereby
ratified and approved, that these Resolutions shall remain in full force and
effect and Bank may rely on these Resolutions until written notice of their
revocation shall have been delivered to and received by Bank. Any such notice
shall not affect any of the Corporation's agreements or commitments in effect at
the time notice is given.
I FURTHER CERTIFY that the officers, employees, and agents named above are
duly elected, appointed, or employed by or for the Corporation, as the case may
be, and occupy the positions set forth opposite their respective names; that the
foregoing Resolutions now stand of record on the books of the Corporation; and
that the Resolutions are in full force and effect and have not been modified or
revoked in any manner whatsoever.
IN WITNESS WHEREOF, I have hereunto set my hand on _________________, 1999
and attest that the signatures set opposite the names listed above are their
genuine signatures.
CERTIFIED TO AND ATTESTED BY:
X
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM INKTOMI
CORP. 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-30-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 41,802
<SECURITIES> 77,131
<RECEIVABLES> 12,849
<ALLOWANCES> 1,382
<INVENTORY> 0
<CURRENT-ASSETS> 131,904
<PP&E> 29,759
<DEPRECIATION> 9,778
<TOTAL-ASSETS> 153,598
<CURRENT-LIABILITIES> 22,723
<BONDS> 0
0
0
<COMMON> 49
<OTHER-SE> 123,974
<TOTAL-LIABILITY-AND-EQUITY> 153,598
<SALES> 0
<TOTAL-REVENUES> 14,612
<CGS> 0
<TOTAL-COSTS> 2,639
<OTHER-EXPENSES> 17,448
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 907
<INCOME-PRETAX> (4,568)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,568)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,568)
<EPS-PRIMARY> (0.09)
<EPS-DILUTED> (0.09)
</TABLE>
