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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 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 July 31,
1999 was 50,318,265.
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INKTOMI CORPORATION
FORM 10-Q
For The Quarter Ended June 30, 1999
TABLE OF CONTENTS
Part I. Financial Information
Item 1. Financial Statements (unaudited) Page
----
a) Condensed Consolidated Statements of Operation
For the three and nine months ended June 30,
1999 and 1998...................................... 1
b) Condensed Consolidated Balance Sheets as of
June 30, 1999 and September 30, 1998............... 2
c) Condensed Consolidated Statements of Cash Flows
For the nine months ended June 30, 1999
and 1999........................................... 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 6. Exhibits and Reports on Form 8-K......................... 20
Signature............................................................... 22
<PAGE>
Part I. Financial Information
Item 1. Financial Statements (unaudited)
Inktomi Corporation
Condensed Consolidated Statements of Operation
(in thousands, except per share data)
<TABLE>
<CAPTION>
-------------------------- --------------------------
For the Three For the Nine
Months Ended Months Ended
June 30, June 30,
-------------------------- ---------------------------
1999 1998 1999 1998
-------------------------- ---------------------------
<S> <C> <C> <C> <C>
Revenues
Network products $ 11,818 $ 3,062 $ 25,520 $ 3,753
Portal services 7,794 3,233 19,477 8,419
----------- ----------- ------------ ------------
Total revenues 19,612 6,295 44,997 12,172
Operating expenses
Cost of revenues 3,324 1,276 8,265 2,971
Sales and marketing 13,102 6,574 34,110 13,621
Research and development 7,679 3,682 18,890 8,697
General and administrative 1,590 1,109 4,362 2,885
Acquisition related cross 1,110 - 1,110 -
----------- ----------- ------------ ------------
Total operating expenses 26,805 12,641 66,737 28,174
----------- ----------- ------------ ------------
Operating loss (7,193) (6,346) (21,740) (16,002)
Interest income (expense), net 870 91 2,445 (2)
----------- ----------- ------------ ------------
Net loss $ (6,323) $ (6,255) $ (19,295) $ (16,004)
=========== =========== ============ ============
Basic and diluted net loss per share $ (0.13) $ (0.15) $ (0.39) $ (0.44)
=========== =========== ============ ============
Shares used in calculating basic and
diluted net loss per share 49,977 $ 42,041 $ 49,268 $ 36,539
=========== =========== ============ ============
</TABLE>
See Notes to Unaudited Condensed Consolidated Financial Statements.
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Inktomi Corporation
Condensed Consolidated Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
--------------- ---------------
September 30,
June 30, 1999 1998
--------------- ---------------
(Unaudited)
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 29,838 $ 29,267
Short-term investments 82,645 19,690
--------------- ---------------
Total cash, cash equivalents and short-term investments 112,483 48,957
Accounts receivable, net 14,277 5,089
Prepaid expenses and other current assets 1,307 588
--------------- ---------------
Total current assets 128,067 54,634
Property and equipment, net 27,156 17,516
Other assets 2,201 211
--------------- ---------------
Total assets $ 157,424 $ 72,361
=============== ===============
Liabilities and Stockholders' Equity
Current liabilities
Current portion of notes payable $ 4,635 $ 3,832
Current portion of capital lease obligations 2,623 2,054
Accounts payable 6,839 4,938
Accrued liabilities 8,206 6,764
Deferred revenue 5,313 1,370
--------------- ---------------
Total current liabilities 27,616 18,958
Notes payable, less current portion 5,540 4,236
Capital lease obligations, less current portion 2,549 4,646
--------------- ---------------
Total liabilities 35,705 27,840
Stockholders' equity
Preferred stock, $0.001 par value; 10,000
authorized; none issued and outstanding at
March 31, 1999 and September 30, 1998 - -
Common stock, $0.001 par value; 300,000 and
100,000 authorized at June 30, 1999 and
September 30, 1998; 50,283 and 47,476
outstanding at June 30, 1999 and September 30, 1998 50 47
Additional paid-in capital 181,791 86,106
Deferred compensation and other (2,381) (3,186)
Accumulated deficit (57,741) (38,446)
--------------- ---------------
Total stockholders' equity 121,719 44,521
--------------- ---------------
Total liabilities and stockholders' equity $ 157,424 $ 72,361
=============== ===============
</TABLE>
See Notes to Unaudited Condensed Consolidated Financial Statements
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Inktomi Corporation
Condensed Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
(In thousands) --------------------------
(Unaudited) For the Nine
Months Ended
June 30,
--------------------------
1999 1998
--------------------------
<S> <C> <C>
Cash flows from operating activities
Net loss $ (19,295) (16,004)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 7,774 2,347
Amortization of deferred compensation 850 232
Changes in assets and liabilities
Accounts receivable (9,188) (1,380)
Prepaid expenses and other assets (2,709) (322)
Accounts payable 1,901 1,892
Deferred revenue 3,943 1,138
Accrued liabilities 1,442 2,816
----------- --------
Net cash used in operating activities (15,282) (9,281)
Cash flows from investing activities
Purchases of property and equipment (17,414) (4,332)
Proceeds from sale of equipment - 928
Purchases of short term investments (108,140) (18,810)
Proceed from the sale of short term investments 45,920 1,751
----------- --------
Net cash used in investing activities (79,634) (20,463)
Cash flows from financing activities
Payments on notes payable 2,107 1,356
Payments on obligations under capital leases (1,528) (210)
Proceeds from note receivable 488 -
Proceeds from exercise of stock options and warrants 3,121 5,016
Proceeds from issuance of Preferred Stock,
net of issuance costs - 13,887
Proceeds from issuance of Common Stock,
net of issuance costs 91,431 39,938
----------- --------
Net cash provided by financing activities 95,619 59,987
Effect of exchange rates on cash and cash equivalents (132) -
----------- --------
Increase in cash and cash equivalents 571 30,243
Cash and cash equivalents at beginning of period 29,267 7,044
----------- --------
Cash and cash equivalents at end of period $ 29,838 37,287
=========== ========
Supplemental cash flow information
Cash paid for interest $ 1,256 $ 396
=========== ========
Assets acquired under capital leases $ - $ 1,705
=========== ========
</TABLE>
See notes to Unaudited Condensed Consolidated Financial Statements
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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 subsidiaries.
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 Registration Statement on Form S-3 (No. 333-82687), initially filed
with the Securities and Exchange Commission on July 12, 1999.
NOTE 2. ACQUISITION OF IMPULSE! BUY NETWORK
On April 30, 1999, Inktomi acquired Impulse! Buy Network, Inc. ("Impulse!
Buy"), 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. As a result of the
acquisition, Inktomi recorded acquisition costs of approximately $1.1 million in
the quarter ended June 30, 1999 primarily for accounting, legal and other
expenses. At June 30, 1999, approximately $540,000 of such acquisition costs
are included in accrued liabilities.
Impulse! Buy revenues since inception (August 5, 1997) have not been
significant. Impulse! Buy raised $4.3 million through various stock issuances
since inception. Impulse! Buy had net losses of $2.2 million and $2.6 million
in the period from inception (August 5, 1997) to September 30, 1998 and the six
months ended March 31, 1999 (unaudited), respectively. Prior period amounts
have been restated to reflect the results of Impulse! Buy.
NOTE 3. CALCULATION OF 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 June 30, 1999 options
to purchase 7,476,764 shares of common stock and warrants to purchase 1,036,516
shares of common stock were outstanding.
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<TABLE>
<CAPTION>
Loss per share
(In thousands except per share amounts)
-------------------- --------------------
For the Three Months For the Nine Months
Ended June 30, Ended June 30,
-------------------- --------------------
1999 1998 1999 1998
------- -------- ------- -------
<S> <C> <C> <C> <C>
Net loss $ (6,323) $(6,255) $(19,295) $(16,004)
======== ======= ======== ========
Basic and diluted net loss per share
Weighted average shares outstanding 49,977 42,041 49,268 36,539
-------- ------- -------- --------
Shares used in computing
per share amounts 49,977 42,041 49,268 36,539
======== ======= ======== ========
Basic and diluted net loss per share $ (0.13) $ (0.15) $ (0.39) $ (0.44)
======== ======= ======== ========
</TABLE>
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 adjustments
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 Nine months ended
June 30, June 30,
------------------ ---------------------
1999 1998 1999 1998
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Net loss $ (6,323) $ (6,255) $(19,295) $(16,004)
Unrealized gain on available-for-sale securities 985 - 735 -
Foreign currency translation losses (155) - (132) -
-------- -------- -------- ---------
Comprehensive net loss $ (5,493) $ (6,255) $(18,692) $(16,004)
======== ======== ======== =========
</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". The
adoption of SOP 97-2 did not have a significant impact on the Company's revenue
recognition policies. Inktomi has evaluated the requirements of SOP 98-4 and
SOP 98-9 and does not believe they will have a significant impact on current
revenue recognition policies.
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5
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NOTE 5. SUBSEQUENT EVENT
On August 10, 1999 Inktomi completed the sale of 2,447,275 shares of common
stock to the public raising $216.2 million net of issuance costs and
underwriting discounts.
6
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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 formed in February 1996 to develop and market scalable software
applications designed to significantly enhance the performance and intelligence
of large-scale networks, particularly the Internet. Our applications fall into
two broad categories: network products and portal services. Our network products
offerings currently consist of our Traffic Server network cache and associated
Media Cache Option applications, and our portal services offerings currently
consist of our search engine, shopping engine and directory engine applications.
Network products revenues are composed of Traffic Server and Media Cache
Option license, consulting, support and maintenance fees. Traffic Server and
Media Cache Option license fees are based on the number of CPUs running the
software and 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 our search
engine, directory engine and shopping engine. We generate revenues from our
search engine and directory engine through a variety of contractual
arrangements, which include per-query search fees, search service hosting fees,
advertising revenue, license fees and 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. To
date, revenues from the directory engine have not been significant. 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 customers.
Revenues from online shopping have not been significant to date and are expected
to be modest for the next few quarters.
We have not achieved profitability on a quarterly or annual basis 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 Network 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.
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RESULTS OF OPERATIONS
REVENUES
Total revenues were $19.6 million in the quarter ended June 30, 1999, an
increase of $13.3 million or 212% over revenues of $6.3 million in the quarter
ended June 30, 1998. Revenue from one customer, consisting of a one-time
license fee, exceeded 10% of total revenues recorded by Inktomi in the quarter
ended June 30, 1999. Three customers represented 89% of revenues recorded by
Inktomi in the quarter ended June 30, 1998.
Network products revenues totaled $11.8 million in the quarter ended June 30,
1999, an increase of $8.8 million or 286% over revenues of $3.1 million in the
quarter ended June 30, 1998. Most of this increase came from new Traffic Server
licenses.
Portal services revenues totaled $7.8 million in the quarter ended June 30,
1999, representing an increase of $4.6 million or 141% over portal services
revenues of $3.2 million in the quarter ended June 30, 1998. Most of these
increases came from new search customers and to a lesser extent from existing
search customers. The increase in portal services revenues was partially offset
by a decrease in revenues recorded from the HotBot site as discussed below.
Historically, a significant portion of portal services revenues has been
derived from the HotBot search service. From our inception through the first
three months of fiscal 1999, HotBot was maintained by us and marketed by Wired
Digital. During this period, we recorded the gross value of advertising
revenues, including barter revenues, generated on the site and recorded amounts
due to Wired Digital as marketing expense. In the second quarter of fiscal 1999,
Wired Digital assumed maintenance of the HotBot site. Due to the change in our
status as operator of the HotBot site, we recorded net revenues from HotBot in
the three month periods ended March 31, 1999 and June 30, 1999.
EXPENSES
Cost of Revenues
Cost of revenues consists primarily of expenses related to the operation of
our search and shopping services, which are primarily depreciation and network
charges. Cost of revenues was $3.3 million for the quarter ended June 30, 1999,
an increase of $2.0 million or 161% from $1.3 million in the comparable period
of fiscal 1998. The increase was due primarily to increased depreciation and
network charges resulting from expansions of our data center in California
during fiscal 1998, and the addition of a new service facility in Virginia in
the third quarter of fiscal 1998. We expect 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 our
direct sales force and marketing staff and marketing programs, including trade
shows and advertising. Sales and marketing expenses were $13.1 million for the
quarter ended June 30, 1999, an increase of $6.5 million or 99% from $6.6
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 and overseas and expenses incurred in connection with attendance at trade
shows and additional marketing programs. The increase was partially offset by
lower HotBot marketing expenses since we no longer record HotBot advertising
revenues on a gross basis as a marketing expense, as described above. We expect
that sales and marketing expenses will increase substantially in absolute
dollars over the next few quarters as we hire additional sales and marketing
personnel, initiate additional marketing programs to support our Traffic Server
and online shopping engine products, and establish 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 our development and technical support efforts. Research and
development expenses were $7.7 million in the quarter ended June 30, 1999, an
increase of $4.0 million or 109% over expenses of $3.7 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 our search
engine and network products businesses, online shopping development, and
increases in quality assurance, technical support and technical publications
personnel. We believe significant investment in research and development is
essential to our future success and expect that research and development
expenses will increase in absolute dollars in future periods. We have 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
$1.6 million in the quarter ended June 30, 1999, an increase of $0.5 million or
43% over expenses of $1.1 million in the comparable period in fiscal 1998. This
increase was due primarily to an increase in the number of general and
administrative personnel.
Acquisition Related Costs
In April 1999, we acquired Impulse! Buy Network, a developer of online
merchandising software, to supplement the functionality of our shopping engine.
We accounted for the acquisition as a pooling of interests. This discussion
reflects our acquisition of Impulse! Buy Network. We recorded acquisition costs
of approximately $1.1 million in the quarter ended June 30, 1999 as a result of
the acquisition, primarily for accounting, legal and other expenses. At June
30, 1999, approximately $540,000 of such acquisition costs are included in
accrued liabilities.
Interest Income and Expense, Net
Interest income and expense, net includes income on our cash and short-term
investments less expenses related to our debt and capital lease obligations.
Interest income, net totaled $0.9 million of income in the quarter ended June
30, 1999 compared to interest income, net of $91,000 in the comparable period in
fiscal 1998. Most of this increase was generated from interest income on
proceeds from our June 1998 and November 1998 public offerings of common stock,
partially offset by increased interest charges on debt and capital lease
obligations.
Liquidity and Capital Resources
Cash, cash equivalents and short-term investments totaled $112.5 million at
June 30, 1999, up from $49.0 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.
We used $15.3 million in cash for operations in the nine months ended June 30,
1999, an increase of $6.0 million from the $9.3 million used in the comparable
period in fiscal 1998. The increase in cash used in operations was primarily due
to an increase in our net loss to $19.3 million from $16.0 million in the first
nine months of fiscal 1999 and fiscal 1998, respectively, as well as increases
in accounts receivable and other assets, partially offset by increased
depreciation, a reduction in the change in other accrued expenses and an
increase in deferred revenue in the nine months ended June 30, 1999.
We have made significant investments in equipment since inception. This
equipment consists largely of computer servers, workstations and networking
equipment. We invested $17.4 million in the nine months ended June 30, 1999 as
compared to $4.3 million in the nine months ended June 30, 1998. These
investments were made primarily to expand our search and shopping engine service
capacity.
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We have used debt and capital leases to partially finance our operations and
capital purchases and plan to continue this practice until we begin generating
cash from operations. At June 30, 1999 we had $15.3 million in loans and
capitalized lease obligations outstanding. The bank loans include certain
covenants requiring minimum liquidity, tangible net worth and profitability over
time.
We have raised approximately $94.6 million, net of issuance costs, from equity
sales in the first nine months of fiscal 1999. This includes approximately $91.4
million from the sale of common stock and $3.1 million from stock option and
warrant exercises.
Our capital requirements depend on numerous factors, including market
acceptance of Inktomi's products, the resources we devote to developing,
marketing, selling and supporting our products, the timing and extent of
establishing international operations, the extent and timing of investments,
acquisition costs, and other factors. We expect to devote substantial capital
resources to hire and expand our sales, support, marketing and product
development organizations, to expand marketing programs, to establish additional
facilities worldwide and for other general corporate activities.
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.
We utilize a significant number of computer software programs and operating
systems across our company. These programs and operating systems include both
proprietary and third party applications used in our Traffic Server network
cache product, our search, directory and online shopping services, and our
internal systems. To the extent that these applications are unable to
appropriately process dates in the calendar year 2000, some level of
modification or replacement may be necessary.
We initiated our year 2000 compliance program in early 1998 by conducting a
preliminary review of our Traffic Server and search engine software code and by
performing preliminary tests on these applications to determine Year 2000
compliance. We also began making inquiries of the vendors of our essential
internal business systems to assess their Year 2000 readiness. Since this time,
we have increased the scope of our business operations, developed new versions
of our Traffic Server and search engine software, acquired and enhanced our
online shopping engine software, and developed and released the first version of
our directory engine software. This expansion led us to hire a full time Year
2000 project coordinator in early 1999 to manage our Year 2000 efforts. Under
his direction, we have developed a comprehensive Year 2000 compliance plan
covering each of our software products, our search, directory and shopping
services operations, and our internal business systems.
We have recently completed a code review and testing of a current version of
our Traffic Server software to ensure Year 2000 readiness. Based on this review
and testing, we believe that this version of our Traffic Server software, when
configured and used in accordance with its documentation, correctly functions
when used with Year 2000 date codes. We have initiated a similar code review and
testing process for the most current version of our Traffic Server software and
expect to complete the testing process by October 1999. Although we have
reviewed the software code and tested earlier versions of our Traffic Server
software and believe them to be Year 2000 compliant, we do not currently intend
to perform our suite of tests on these versions. We are recommending that our
customers upgrade to our later Traffic Server versions.
We have reviewed the software code for our search engine software and
performed limited testing on this application. We believe we have identified all
instances where date specific information is required. Based on this limited
review and testing, we believe our search engine correctly functions when used
with Year 2000 date codes. We are in the process of developing a suite of tests
to more thoroughly evaluate our search engine software for Year 2000 compliance
and expect to complete these tests by October 1999.
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10
<PAGE>
We initiated development of our directory engine software in 1998 and focused
on Year 2000 compliance throughout the development process. We are currently in
the process of developing a suite of tests to evaluate our directory engine
software for Year 2000 compliance and expect to complete these tests by October
1999.
We acquired the software that serves as the foundation for our shopping engine
application. We are currently in the process of reviewing the software code to
identify areas in need of updating for Year 2000 compliance. We are also in the
process of developing a suite of tests to more thoroughly evaluate our shopping
engine software for Year 2000 compliance. We expect to complete our software
review and all testing by October 1999.
Our Traffic Server software runs on several hardware platforms and associated
operating systems, including those provided by Sun, Compaq and Silicon Graphics,
and those based on Intel-architecture. Our Traffic Server software is therefore
dependent upon the correct processing of dates by these systems. We have
reviewed information made publicly available by our hardware platform partners
regarding Year 2000 compliance. Based on this review, we do not believe the
underlying systems that operate in conjunction with our Traffic Server software
contain material Year 2000 deficiencies in their latest releases. Most of our
customers have deployed Traffic Server running on Sun workstations. As part of
the testing and evaluation process for Traffic Server, we are also testing
whether the combination of Traffic Server running on Sun workstations operating
the Solaris operating system is Year 2000 compliant. Based on our tests, we
believe that a current version of Traffic Server running on Sun workstations
operating the Solaris 7 operating system correctly recognizes and functions when
used with Year 2000 date codes. We are currently testing the latest version of
Traffic Server running on Sun workstations and expect to complete this testing
by October 1999. We intend to test the combination of Traffic Server with other
selected hardware and associated operating system platforms.
Our software applications operate in accordance with several external Internet
protocols, such as HTTP and NNTP, and are therefore dependent upon the correct
processing of dates by these protocols. We have researched the date handling
capabilities of these protocols and do not believe they contain material Year
2000 deficiencies.
Our search engine, directory engine and shopping engine software run primarily
on Sun workstations operating the Solaris operating system. We are currently in
the process of upgrading the workstations that run our software to versions of
the Solaris operating system that Sun has declared to be Year 2000 compliant. We
currently expect to complete this upgrade by October 1999. We have also taken an
inventory of the equipment and systems under our control that are involved in
providing search, directory and shopping services to our customers and have
identified those components that we believe need to be upgraded. We have
developed an action plan to upgrade these components and currently expect to
complete this upgrade by October 1999.
We provide our search, directory and shopping services from multiple computer
clusters, all of which are housed at facilities operated by a single-source
hosting provider. Our computer clusters are reliant on security, climate control
and Internet connectivity, all of which is provided and maintained by the
hosting provider. We have contacted our hosting provider to obtain affirmative
documentation as to their Year 2000 readiness. Our hosting provider is currently
investigating its Year 2000 readiness and upgrading its systems as necessary. We
are awaiting a final response from the hosting provider.
We use multiple software systems for our internal business purposes, including
accounting, e-mail, development, human resources, customer service and support,
and sales, most of which have been purchased in the last 18 months. We have
recently completed an inventory of our internal systems and are reviewing the
web sites of the vendors of these systems to determine whether they have been
declared to be Year 2000 compliant. We are in the process of contacting those
vendors that have not publicly declared their systems to be Year 2000 compliant
to obtain affirmative documentation.
We have several different desktop, laptop and server hardware configurations
of BIOS, CMOS and embedded systems. We have contacted the vendors of each of
these systems in order to confirm Year 2000 readiness. We are awaiting final
responses from several vendors.
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To date, the costs incurred to perform the assessment of our Year 2000
readiness have not been material, and have consisted primarily of the cost of
our project manager and labor costs for our quality assurance, software
development and information technology personnel. We expect that our personnel
will continue to spend time assessing our Year 2000 readiness and updating and
upgrading our software and systems where necessary. Despite 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 associates 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.
Factors Affecting Operating Results
This report on Form 10-Q contains forward looking statements which involve
risks and uncertainties. Our actual results could differ materially from those
anticipated by such forward looking statements as a result of certain factors,
including those set forth below. You should carefully consider the risks
described below in connection with any evaluation of our business and prospects.
Additional risks and uncertainties not presently known to us or that we
currently deem immaterial may also impair our business operations. If any of
the following risks actually occur, our business, financial condition or results
of operation could be materially adversely affected. In that case, the trading
price of our common stock could decline.
We have a history of operating losses, expect to incur future losses, and cannot
be certain that we will become a profitable company.
Inktomi was founded in February 1996 and has a limited operating history. As
of June 30, 1999, we had an accumulated deficit of $57.7 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
our business, and in particular in our shopping engine business as we continue
to develop and enhance our shopping technology, integrate Impulse! Buy Network
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
sure that this growth will continue at the same rate or that we will achieve
sufficient revenues for profitability. If we do achieve profitability, we cannot
be sure that we can sustain or increase profitability on a quarterly or annual
basis in the future.
Our business substantially depends upon the success of our Traffic Server
product.
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 early stages, and we are not sure 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, because it does not include the features they require, or
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
sure that we have found and fixed all significant performance errors. If our
target customers do not widely adopt and purchase our Traffic Server product,
our business, financial condition and results of operations will be adversely
affected.
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Our business would be harmed if customers choose not to use or promote our
search and directory services.
Revenues from our search and directory services result primarily from the
number of end-user searches that are processed by our search engine and
directory 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 or directory services or to use
the search or directory service at all. For example, in January 1999, Microsoft
announced that it had signed an agreement to license 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 and directory
services are highly dependent upon the willingness of customers to promote and
use the search and directory 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 directory engine, and the ability
and willingness of customers to sell advertisements on the Internet pages viewed
by end-users.
Our entry into the online shopping business will require us to develop
significant new capabilities and may not be successful.
Our Internet shopping engine is still under development and is available only
in "preview" versions. 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 customers. The success of our shopping engine will
depend on our ability to establish and maintain strong relationships with
customers and online merchants, the ability and willingness of our customers to
promote our shopping services on their web sites, 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. The shopping engine
will also need the capability to track and confirm purchases made by end-users
of our customers' services and to generate invoices for our online merchants to
pay revenue-sharing amounts to us. These are highly complex tasks. Developing
these capabilities and other 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 sure that our entry into the online shopping business
will be successful.
The markets in which we operate are highly competitive and we may be unable to
compete successfully against new entrants and established companies with greater
resources.
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, Internet search/directory 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 to market and several companies are forming technology
alliances and OEM relationships to sell their products. We directly compete
primarily against several companies including CacheFlow, Cisco Systems,
InfoLibria, Microsoft, Netscape, Network Appliance, Novell and Spyglass. We
also compete against freeware caching solutions including CERN and, Harvest and
Squid. In addition, 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 also believe that Traffic Server may face competition
from other providers of competing solutions to network infrastructure problems,
including networking hardware and software manufacturers, content distribution
providers, traditional hardware manufacturers, telecommunications providers,
cable TV/communications providers, software database companies, and large
diversified software and technology companies. Many of these companies provide
or have announced their intentions to provide a range of software and hardware
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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 and directory
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, our competitors have
provided search/directory services directly to end-users through their own web
sites and have supplied search/directory 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/directory 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 services. We currently compete with companies
including Alta Vista, Ask Jeeves, Direct Hit Technologies, Excite@Home, Google,
Infoseek, LookSmart, Lycos, Netscape Open Directory and Northern Light. In
addition, large media companies, such as The Walt Disney Company and NBC
Enterprises, and other Internet-based companies such as America Online and
Excite@Home, 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 and directory 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@Home, Junglee, owned by Amazon.com, and mySimon.com. and various online
retailers and aggregators of merchandise. 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 service, 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 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.
The loss of a key customer could adversely affect our revenues and be perceived
as a loss of momentum in our business.
We have generated a substantial portion of our historical 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, potential
customers of Inktomi and public market analysts or investors may perceive any
such loss as a loss of momentum in our business, which may adversely affect
future opportunities to sell our products and services and cause our stock price
to decline. Also, we cannot be sure 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.
If we do not meet performance requirements in our portal services agreements,
customers may cancel our service or choose a different service.
Our search engine, directory engine and shopping engine agreements typically
include specific performance requirements, including the features provided,
reliability, processing speed, size of the Internet database maintained, and
frequency of updating the database. In addition, we believe it is important to
maintain features and functionality that are not explicitly covered in our
agreements, such as high relevance of search and product results. The growing
volume of search queries processed by our search engine and the frequency with
which we update our portal services to include additional functionality have
placed
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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 different service.
Circumstances beyond our control may result in service interruptions which could
cause our business to suffer.
We provide our portal 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 into our
databases and similar events 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, interrupting 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.
Our quarterly operating results may fluctuate significantly, and these
fluctuations may cause our stock price to fall.
We expect that a significant portion of our future revenues will come from
licenses of Traffic Server. We further expect that these 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 early stages and the sales cycle varies 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.
Our operating expenses are largely based on anticipated revenue trends and a
high percentage of our expenses are fixed in the short term. 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 data centers, develop new
distribution channels, and fund greater levels of research and development. 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 these 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 or investors, and the price of our common
stock may fall.
Our operating results may fluctuate because the sales cycle for Traffic Server
is long.
To date, our customers have taken a long time to evaluate Traffic Server, and
many people within our customers' organizations have been involved in the
process. Along with our distribution partners, we spend a significant amount 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.
Our success depends on our ability to expand our 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'
organizations. We have recently expanded our direct sales force and plan to hire
additional sales personnel.
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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
OEMs, resellers, systems integrators and joint marketing 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 from us. We cannot be sure that we will be successful in
signing up desired distribution partners 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 directory engine) and the expanding needs of
existing customers. Competition for customer service and support personnel is
intense in our industry due to the limited number of people available with the
necessary technical skills and understanding of the Internet.
Our success depends on our ability to manage growing and 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
June 30, 1998, we had a total of 130 employees and at June 30, 1999 we had a
total of 376 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 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.
The legal environment in which we operate is uncertain and claims against us
could cause our business to suffer.
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. It is also possible that
if any information provided through any of our portal services or facilitated by
our Traffic Server product contains errors, third parties could make claims
against us for losses incurred in reliance on this information. Further, there
is the potential for product liability claims to be asserted against us by end-
users who purchase goods and services through our shopping engine. Although we
carry general liability insurance, our insurance may not cover potential claims
of this type or be adequate to protect us from all liability that may be
imposed.
Internet-related laws could adversely affect our business.
Laws and regulations which apply 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, and is currently
considering copyright legislation that may extend the right of reproduction held
by copyright holders to include the right to make temporary copies for any
reason. 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
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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, or interpretations
of existing law, could adversely affect our business.
The network infrastructure market is rapidly changing and we must develop and
introduce new products and technologies to remain competitive.
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 to our current
business opportunities and fewer resources to 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 or purchase those of our competitors.
If we are unable to maintain our relationships with customers and the companies
that supply and distribute our products, we may have difficulty selling our
products and services.
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 components from others such as reporting
functions and security features and incorporated them into our products and
services. If these licensed components are not maintained, it could impair the
functionality of our products and services 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.
We may not be able to recruit and retain the personnel we need to succeed.
We intend to hire a significant number of additional sales, support,
marketing, and research and development personnel. Competition for these
individuals is intense, and we may not be able to attract 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.
Any acquisitions that we make could adversely affect our operations or financial
results.
We have purchased two companies during the past twelve months and intend to
continue to invest in or acquire 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. Also, we could
have difficulty in integrating 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 our stockholders.
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Our efforts to increase our presence in markets outside of the United States may
be unsuccessful and could result in losses.
We market and sell our products in the United States and internationally. We
have offices in England, France, Germany, Japan and Korea 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
sure 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, other inherent risks may apply to
international operations, 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;
. potentially adverse tax consequences; and
. 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.
Our failure to protect our intellectual property rights could adversely affect
our ability to compete.
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 sure 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.
Intellectual property claims against us could cause our business to suffer.
Substantial litigation regarding intellectual property rights exists in the
software industry. We expect that software products may be increasingly
vulnerable 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
this patent in the future. We also believe that many of our competitors in the
network cache business and the portal services business have filed or intend to
file patent applications covering aspects of their technology that they may
claim our technology infringes. We cannot be sure 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, and could cause product shipment delays or require us to
reengineer our products or enter into royalty or licensing agreements. These
royalty or licensing agreements, if required, may not be available on acceptable
terms, if at all.
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If our products or the products upon which we depend malfunction because of Year
2000 problems, our operations may be interrupted and we may be subject to
warranty and product liability claims.
Our software products operate in complex network environments and directly and
indirectly interact with a number of other hardware and software systems.
Despite 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.
Our stock price is volatile.
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. In the
past, companies that have experienced volatility in the market price of their
stock have been the subject of securities class action litigation. If we were
the subject of securities class action litigation, it could result in
substantial costs and a diversion of management's attention and resources.
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Part II. Other Information
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 and
among Inktomi, IC Merger Corp. and C2B Technologies Inc.
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 (6) 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
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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 (6) Amendment dated January 28, 1999 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)
(5) Incorporated by reference from Inktomi's Current Report on Form 8-K filed
with the Commission on May 13, 1999.
(6) Incorporated by reference from Inktomi's Quarterly Report on form 10-Q
filed with the Commission on May 17, 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.
- --------------------------------------------------------------------------------
21
<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: August 16, 1999 By: /s/ Jerry M. Kennelly
-------------------------------
Jerry M. Kennelly,
Vice President of Finance and
Chief Financial Officer
(duly authorized officer and
principal financial officer)
- -------------------------------------------------------------------------------
22
<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 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 (6) 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 (6) Amendment dated January 28, 1999 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.
- --------------------------------------------------------------------------------
<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.
(6) Incorporated by reference from Inktomi's Quarterly Report on form 10-Q
filed with the Commission on May 17, 1999.
+ Certain portions of this exhibit have been granted confidential treatment
by the Commission. The omitted portions have been separately filed with
the Commission.
(c) 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.
- ------------------------------------------------------------------------------
<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.
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<SECURITIES> 82,645
<RECEIVABLES> 15,645
<ALLOWANCES> 1,368
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<CURRENT-ASSETS> 128,067
<PP&E> 39,625
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0
0
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<OTHER-SE> 121,669
<TOTAL-LIABILITY-AND-EQUITY> 157,424
<SALES> 0
<TOTAL-REVENUES> 19,612
<CGS> 0
<TOTAL-COSTS> 3,324
<OTHER-EXPENSES> 23,481
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 870
<INCOME-PRETAX> (6,323)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,323)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,323)
<EPS-BASIC> (0.13)
<EPS-DILUTED> (0.13)
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