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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 000-26303
VIANT CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 77-0427302
(State or Other Jurisdiction (I.R.S. Employer
Incorporation or Organization) Identification No.)
89 SOUTH STREET, BOSTON, MA 02111
(Address of Principal Executive Offices) (Zip Code)
617-531-3700
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ].
As of May 5, 2000 there were 47,182,325 shares of Common Stock, $.001
par value, outstanding.
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VIANT CORPORATION
Form 10-Q
Table of Contents
March 31, 2000
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PAGE
NUMBER
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PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Statements of Operations for the Three
Months Ended March 31, 2000 and April 2, 1999............... 1
Consolidated Balance Sheets as of March 31, 2000 and
December 31, 1999........................................... 2
Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 2000 and April 2, 1999............... 3
Notes to Consolidated Financial Statements.................. 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 5
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................ 12
Item 2. Changes in Securities and Use of Proceeds.................... 12
Item 4. Submission of Matters to a Vote of Security Holders.......... 12
Signatures .......................................................... 13
</TABLE>
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PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
VIANT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------
MARCH 31, APRIL 2,
2000 1999
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<S> <C> <C>
Net revenues .............................................................. $ 30,588 $ 7,883
-------- --------
Operating expenses:
Professional services ................................................. 12,616 4,511
Sales and marketing ................................................... 3,417 1,216
General and administrative ............................................ 9,621 3,518
Research and development .............................................. 1,609 690
-------- --------
Total operating expenses .......................................... 27,263 9,935
-------- --------
Income (loss) from operations ..................................... 3,325 (2,052)
Interest income ......................................................... 2,299 168
Interest expense ........................................................ (61) (157)
-------- --------
Net income (loss) ......................................................... $ 5,563 $ (2,041)
======== ========
Net income (loss) per share:
Basic ....................................................... $ 0.12 $ (0.27)
Diluted ..................................................... $ 0.10 $ (0.27)
Shares used in computing net income (loss) per share:
Basic ....................................................... 46,680 7,694
Diluted ..................................................... 55,721 7,694
Pro forma net income (loss) per share:
Basic ....................................................... $ 0.12 $ (0.06)
Diluted ..................................................... $ 0.10 $ (0.06)
Shares used in computing pro forma net income (loss) per share:
Basic ....................................................... 46,680 34,040
Diluted ..................................................... 55,721 34,040
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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VIANT CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
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<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
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ASSETS
Current assets:
Cash and cash equivalents ................................ $ 120,442 $ 66,450
Short-term investments ................................... 51,265 121,726
Accounts receivable, net ................................. 22,871 16,927
Prepaid expenses and other current assets ................ 1,186 1,595
--------- ---------
Total current assets ................................... 195,764 206,698
Property and equipment, net ................................ 7,940 6,767
Long-term investments ...................................... 18,979 500
Other assets ............................................... 245 261
--------- ---------
Total assets ............................................. $ 222,928 $ 214,226
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of capital lease obligations ............. $ 624 $ 608
Accounts payable ......................................... 3,742 2,877
Accrued expenses ......................................... 11,009 13,381
Deferred revenues ........................................ 6,287 2,748
--------- ---------
Total current liabilities .............................. 21,662 19,614
Capital lease obligations, less current portion .......... 1,370 1,533
--------- ---------
Total liabilities ...................................... 23,032 21,147
--------- ---------
Stockholders' equity:
Common stock; $0.001 par value; 200,000,000 and
50,000,000 shares authorized, respectively;
46,937,656 and 46,071,286 shares issued and outstanding,
respectively ........................................... 47 46
Additional paid-in capital ................................. 209,484 208,489
Deferred compensation ...................................... (3,708) (3,958)
Other comprehensive income ................................. 3 (5)
Accumulated deficit ........................................ (5,930) (11,493)
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Total stockholders' equity ................................. 199,896 193,079
--------- ---------
Total liabilities and stockholders' equity ................. $ 222,928 $ 214,226
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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VIANT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
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THREE MONTHS ENDED
---------------------
MARCH 31, APRIL 2,
2000 1999
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ............................................ $ 5,563 $ (2,041)
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Depreciation and amortization .............................. 741 384
Stock compensation expense on employee arrangement ......... 250 --
Changes in operating assets and liabilities:
Accounts receivable, net ................................. (5,944) (4,297)
Prepaid expenses and other assets ........................ 425 (740)
Accounts payable ......................................... 1,022 400
Accrued expenses ......................................... (2,529) (1,528)
Deferred revenues ........................................ 3,539 320
--------- --------
Net cash provided by (used in) operating activities .... 3,067 (7,502)
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments .......................... (43,050) --
Maturities of short-term investments ......................... 113,511 --
Purchases of long-term investments ........................... (18,479) --
Purchases of property and equipment .......................... (1,914) (387)
--------- --------
Net cash provided by (used in) investing activities .... 50,068 (387)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options ...................... 996 --
Proceeds from issuance of convertible preferred stock, net ... -- 45
Proceeds from issuance of common stock, net .................. -- 217
Principal payments on borrowings on lines of credit .......... -- (104)
Principal payments on capital lease obligations .............. (147) (161)
--------- --------
Net cash provided by (used in) financing activities .... 849 (3)
--------- --------
Effect of exchange rate changes on cash and cash equivalents ... 8 --
--------- --------
Net increase (decrease) in cash and cash equivalents ........... 53,992 (7,892)
Cash and cash equivalents at beginning of period ............... 66,450 18,209
--------- --------
Cash and cash equivalents at end of period ..................... $ 120,442 $ 10,317
========= ========
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Cash paid for interest ....................................... $ 61 $ 157
NONCASH INVESTING AND FINANCING ACTIVITIES:
Equipment acquired under capital lease obligations ........... $ -- $ 342
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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VIANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared by Viant Corporation ("Viant" or the "Company") pursuant to the rules
and regulations of the Securities and Exchange Commission regarding interim
financial reporting. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements and should be read in conjunction with the audited
financial statements and notes thereto for the year ended December 31, 1999
included in the Company's Form 10-K, (File No. 000-26303). The accompanying
unaudited consolidated financial statements reflect all adjustments (consisting
solely of normal, recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of results for the interim periods
presented. The results of operations for the three month period ended March 31,
2000 are not necessarily indicative of the results to be expected for any future
period or the full fiscal year.
Viant's fiscal year is the 52-week period ending on the Friday nearest to
the last day of December of that year. Within that fiscal year, Viant's
quarterly periods are the 13 week periods ending on the Friday nearest to the
last day of March, June and September.
2. EARNINGS PER SHARE
Viant computes net income (loss) per share in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." Under
SFAS 128, basic net income (loss) per common share is computed by dividing net
income (loss) by the weighted average number of common shares outstanding for
the period. Diluted income (loss) per common share reflects the maximum dilution
that would have resulted from the assumed exercise and share repurchase related
to dilutive stock options and is computed by dividing net income (loss) by the
weighted average number of common shares and all dilutive securities
outstanding.
Unaudited pro forma net income per share for the three months ended
April 2, 1999 included in the statement of operations is computed using the
weighted average number of common shares outstanding, adjusted to include the
pro forma effects of the conversion of preferred stock to common stock as if
such conversion had occurred on January 2, 1999, or at the date of original
issuance, if later.
3. CASH EQUIVALENTS AND INVESTMENTS
Viant considers all highly liquid instruments with an original maturity
of three months or less to be cash equivalents. All other investments with
original maturities between 91 and 360 days are classified as short-term
investments because they are liquid and are available to meet working
capital needs. Investments with original maturities greater than one year are
classified as long-term investments. At March 31, 2000 and December 31, 1999,
Viant's investments consisted primarily of certificates of deposit and money
market funds secured by U.S. Government-backed securities, commercial paper
and high grade corporate debt obligations.
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4. CAPITAL STOCK
On June 23, 1999, Viant closed its initial public offering of common stock
at a public offering price of $8 per share. The net proceeds to Viant from the
offering were $50.2 million, net of underwriting discounts and offering costs.
On December 13, 1999, Viant closed its secondary public offering of common
stock at a public offering price of $47.3125 per share. The net proceeds to
Viant from the offering were $120.3 million, net of underwriting discounts and
offering costs.
5. COMPREHENSIVE INCOME
Total comprehensive income (loss), which was comprised of net income and
foreign currency translation adjustments, was $5,571,000 for the three months
ended March 31, 2000. Total comprehensive income (loss) was comprised solely of
net income (loss) for the three months ended April 2, 1999.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF VIANT SHOULD BE READ IN CONJUNCTION WITH VIANT'S UNAUDITED
FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, INCLUDED ELSEWHERE IN THIS
REPORT AND THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER
31, 1999. EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE DISCUSSION
IN THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION
27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE EXCHANGE ACT OF 1934.
THESE STATEMENTS INVOLVE RISKS, UNCERTAINTIES AND ASSUMPTIONS AS TO SUCH MATTERS
AS VIANT'S PLANS, OBJECTIVES, EXPECTATIONS AND INTENTIONS. THE CAUTIONARY
STATEMENTS MADE IN THIS REPORT SHOULD BE READ AS BEING APPLICABLE TO ALL RELATED
FORWARD-LOOKING STATEMENTS WHEREVER THEY APPEAR IN THIS REPORT. VIANT'S ACTUAL
RESULTS, LEVELS OF ACTIVITY, PERFORMANCE, ACHIEVEMENTS AND REPORT COULD DIFFER
MATERIALLY FROM THOSE DISCUSSED BELOW. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO
SUCH DIFFERENCES INCLUDE THOSE DISCUSSED IN "FACTORS AFFECTING VIANT'S OPERATING
RESULTS, BUSINESS PROSPECTS AND MARKET PRICE OF STOCK," AS WELL AS THOSE
DISCUSSED ELSEWHERE HEREIN. ALL FORWARD-LOOKING STATEMENTS INCLUDED IN THIS
DOCUMENT ARE MADE AS OF THE DATE HEREOF, BASED ON INFORMATION AVAILABLE TO THE
COMPANY ON THE DATE THEREOF, AND THE COMPANY ASSUMES NO OBLIGATION TO UPDATE ANY
FORWARD-LOOKING STATEMENTS.
OVERVIEW
Viant is a leading Internet professional services firm providing
strategic consulting, creative design and technology services to companies
seeking to capitalize on the Internet. Viant creates value by helping clients
rapidly develop and deploy Internet solutions.
Viant derives substantially all of its revenues from services performed
on a fixed-price, fixed-time basis. Viant generally enters into a Master
Services Agreement with its clients which establishes the legal and general
business terms of the relationship. As specific engagements are identified, the
Company and the client then enter into separate statements of work which outline
the time frame and fees applicable to the specific engagement. Typically these
engagements are of a short predetermined time frame, generally lasting three to
six months. To determine the proposed fixed price for an engagement, Viant uses
an estimation process which takes into account the type and overall complexity
of the project, the anticipated number of consultants needed and their
associated billing rates, and the estimated duration of and risks associated
with the engagement. All fixed-price proposals are approved by a member of
Viant's senior management team. Revenues from fixed-price engagements are
recognized using the percentage of completion method (based on the ratio of
costs incurred to the total estimated project costs). Project costs are based on
the direct payroll and associated fringe benefits of the consultants on the
engagement.
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Additionally, the finance department personnel meet regularly with project
managers to ensure that the budgeted costs to complete, which are used to
calculate revenue recognition, reflect the actual status of the project and the
anticipated costs to complete. Provisions for estimated losses on contracts are
made during the period in which such losses become probable and can be
reasonably estimated. To date, such losses have not been significant. Viant
reports revenue net of reimbursable expenses.
Viant's revenues and earnings may fluctuate from quarter to quarter
based on such factors within and outside its control, including: the variability
in market demand for the Internet and for Internet professional services, the
length of the sales cycle associated with our service offerings, the number,
size and scope of our projects, and the efficiency with which we utilize our
employees. Viant does not track backlog information. Any information regarding
anticipated future revenue from clients would not be meaningful and would be
potentially misleading.
The number of Viant employees increased from 213 as of January 1, 1999
to 405 as of December 31, 1999 and 482 employees as of March 31, 2000. Personnel
compensation and facilities costs represent a high percentage of Viant's
operating expenses and are relatively fixed in advance of each quarter.
Accordingly, if revenues do not increase at a rate equal to expenses, Viant's
business, financial condition or results of operations could be materially and
adversely affected. In addition, Viant's liquidity may also be adversely
affected if revenues do not increase at a rate equal to these additional
expenses, to the extent Viant is unable to reduce operating expenses.
Viant's fiscal year is the 52-week period ending on the Friday nearest to
the last day of December of that year. Within that fiscal year, Viant's
quarterly periods are the 13 week periods ending on the Friday nearest to the
last day of March, June and September. All references below to the results of
operations for 1999 are the actual operating results for the fiscal year ended
December 31, 1999.
RESULTS OF OPERATIONS
The following table sets forth the percentage of revenues of certain items
included in the Company's consolidated statements of operations:
VIANT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS PERCENTAGES
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------
MARCH 31, APRIL 2,
2000 1999
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Net revenues .................... 100% 100%
===== =====
Operating expenses:
Professional services ......... 41 57
Sales and marketing ........... 11 15
General and administrative .... 32 45
Research and development ...... 5 9
----- -----
Total operating expenses... 89 126
----- -----
Income (loss) from operations.... 11 (26)
Interest income ................. 7 2
Interest expense ................ (0) (2)
----- -----
Net income (loss) ............... 18% (26)%
===== =====
</TABLE>
COMPARISON OF THE QUARTERS ENDED MARCH 31, 2000 AND APRIL 2, 1999
NET REVENUES. Revenues increased 288% from $7.9 million for the first
quarter of 1999 to $30.6 million for the first quarter of 2000. The increase in
net revenues reflected growing demand for Internet professional services and
increases in both the size and number of Viant's client engagements. Revenues
derived from Viant's three largest clients, as a percentage of total net
revenues, decreased from 54% for the first quarter of 1999 to 25% for the first
quarter of 2000.
PROFESSIONAL SERVICES. Professional services expenses consist
primarily of compensation and benefits for employees engaged in the delivery
of Internet professional services and non-reimbursable expenses related to
client projects. Professional services expenses increased 180% from $4.5
million for the first quarter of 1999 to $12.6 million for the first quarter
of 2000. This increase was primarily due to an increase in the number of
professional services personnel retained by Viant. Professional services
expenses decreased as a percentage of revenues from 57%
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for the first quarter of 1999 to 41% for the first quarter of 2000. This
decrease was primarily the result of increased utilization of the
professional staff, higher billing rates, better planning and execution on
client engagements and higher revenue growth versus professional services
expenses.
SALES AND MARKETING. Sales and marketing expenses consist primarily
of compensation, benefits and travel costs for employees in the sales and
marketing groups, marketing program costs and an allocation of facilities
costs. Sales and marketing expenses increased $2.2 million or 181% for the
first quarter of 2000 versus the first quarter of 1999. Sales and marketing
expenses decreased as a percentage of revenues from 15% for the first quarter
of 1999 to 11% for the first quarter of 2000. Sales and marketing expense
increase was primarily attributable to an increase in the number of sales and
marketing personnel and an overall increase in Viant's marketing and branding
efforts. Viant expects that the dollar amount of sales and marketing expenses
will continue to increase due to increases in advertising and promotional
activities. The decrease as a percentage of revenues was due to higher
revenues generated per sales employee and an increase in revenues for the
first quarter of 2000 versus the same period in 1999.
GENERAL AND ADMINISTRATIVE. General and administrative expenses
consist primarily of compensation, benefits and travel costs for employees in
Viant's management, human resources, finance and administration groups, and
facilities costs not allocated to sales and marketing or research and
development. General and administrative expenses increased $6.1 million or
173% for the first quarter of 2000 versus the first quarter of 1999. This
increase was the result of an increase in the number of personnel and
facilities costs associated with our offices in London, Atlanta, Chicago, and
Houston. General and administrative expenses decreased as a percentage of
revenues from 45% for the first quarter of 1999 to 31% for the first quarter
of 2000. This decrease was the result of higher revenue growth versus
infrastructure support costs and more efficient operations.
RESEARCH AND DEVELOPMENT. Research and development expenses consist
primarily of compensation, benefits and an allocation of facilities costs for
employees associated with Viant's innovation center. The innovation center
enhances the knowledge and expertise of the strategic consulting, creative
design and technology disciplines. Research and development expenses
increased $.9 million or 133% for the first quarter of 2000 versus the first
quarter of 1999. This increase was primarily the result of increased
headcount. Research and development expenses decreased as a percentage of
revenue from 9% for the first quarter of 1999 to 5% for the first quarter of
2000. This decrease was primarily the result of higher revenue growth versus
research and development expenses.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, Viant has funded its operations and investments in
property and equipment through private and public equity financings, bank
borrowings and capital lease financing arrangements. Viant's cash and cash
equivalents and short-term investments decreased from $188.2 million at December
31, 1999 to $171.7 million as of March 31, 2000. This decrease is primarily due
to the Company's investment of $18.0 million in high grade corporate bonds with
original maturities of greater than one year. Additionally, there was $3.1
million in cash provided by operations.
Viant has a $3.2 million capital lease facility with a leasing company that
is secured by the capital assets purchased with the borrowings. Outstanding
borrowings under the above credit facility totaled $2.0 million as of March 31,
2000.
Viant believes that its current cash, cash equivalents and short-term
investments will be sufficient to meet Viant's working capital and capital
expenditure requirements for at least the next 24 months. However, there can be
no assurance that Viant will not require additional financings within this time
frame or that such additional financing, if needed, will be available on terms
acceptable to Viant, if at all.
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FACTORS AFFECTING VIANT'S OPERATING RESULTS, BUSINESS PROSPECTS AND MARKET
PRICE OF STOCK
The following important factors, among others, could cause actual results
to differ materially from those contained in forward-looking statements made in
this Quarterly Report on Form 10-Q or presented elsewhere by management from
time to time.
OUR LIMITED OPERATING HISTORY IN THE NEW AND EXPANDING INTERNET PROFESSIONAL
SERVICES MARKET INCREASES THE POSSIBILITY THAT THE VALUE OF YOUR INVESTMENT WILL
DECLINE
We were formed in 1996. Our limited operating history in the new and
expanding Internet professional services market makes it difficult to evaluate
our business. The uncertainty of our future performance and the uncertainties
regarding the Internet, such as taxation, technical limitations and competition,
increase the risk that the value of your investment will decline. Our failure to
accurately address the issues facing our business could cause our business
results to significantly decline.
TO SUCCEED IN OUR LABOR INTENSIVE BUSINESS, WE MUST RECRUIT AND RETAIN QUALIFIED
PROFESSIONALS, WHO ARE CURRENTLY IN HIGH DEMAND
The labor-intensive Internet professional services industry currently faces
a shortage of qualified personnel, which is expected to continue. We compete
intensely with other companies to recruit and hire from this limited pool. If we
cannot hire and retain qualified personnel or if a significant number of our
current employees leave, we may be unable to complete or retain existing
projects or bid for new projects of similar scope and revenue. Any inability to
hire and retain employees would cause our business results to suffer.
OUR BUSINESS MAY BE NEGATIVELY IMPACTED IF WE FAIL TO ACCURATELY ESTIMATE THE
TIME AND RESOURCES NECESSARY FOR THE PERFORMANCE OF OUR SERVICES
A key element of our strategy is to enter into fixed-price, fixed-time
contracts, rather than contracts in which the client pays us on a time and
materials basis. If we fail to accurately estimate the resources required for a
project or fail to satisfy our contractual obligations in a manner consistent
with the project plan, then our costs to complete the project could increase
substantially. We have occasionally had to commit unanticipated additional
resources to complete projects, and we may have to take similar action in the
future.
IF CLIENTS DO NOT REHIRE US FOR NEW PROJECTS, OR THEY TERMINATE OR REDUCE THE
SCOPE OF EXISTING PROJECTS OUR REVENUES MAY DECLINE
Substantially all of our revenues are derived from fixed-price, fixed-time
contracts for discrete client engagements. These engagements vary in size and
scope. If clients do not retain us for subsequent engagements, then our revenues
could decline. In addition, while our service model is designed as an integrated
approach, each sequential phase of that process represents a separate
contractual commitment. The client may elect not to proceed to the next phase of
a project. The decision of clients not to proceed to the next phase of a project
could impair our revenues.
Most of our contracts cannot be terminated by a client unless we have
materially breached the contract. However, a client may nevertheless attempt to
cancel or reduce the scope of a project. It is possible that we may agree to the
cancellation or reduction in scope, or that in the event of a dispute over
whether it has the right to cancel or reduce the scope of a project, the client
may prevail. The cancellation, or reduction in scope, of a project could have a
negative impact on our revenues.
OUR REVENUES COULD BE NEGATIVELY AFFECTED BY THE LOSS OF A MAJOR CLIENT
We derive a significant portion of our revenues from large projects for a
limited number of clients. The loss of any major client could dramatically
reduce our revenues. In the first quarter of 1999, our five largest clients
accounted for approximately 65% of our revenues. During such period Compaq
Computer Corporation
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and RadioShack each accounted for more than 10% of our
revenues and three other clients each accounted for more than 5% of our
revenues. In the first quarter of 2000, our five largest clients accounted for
approximately 37% of our revenues. During such period no clients accounted for
more than 10% or our revenues and six clients each accounted for more than 5% of
our revenues.
FLUCTUATIONS IN OUR QUARTERLY REVENUES AND OPERATING RESULTS MAY LEAD TO REDUCED
PRICES FOR OUR STOCK
We believe that period-to-period comparisons of our operating results are
not necessarily meaningful. These comparisons cannot be relied upon as
indicators of future performance. However, if our operating results in any
future period fall below the expectations of securities analysts and investors,
the market price of our securities would likely decline.
Factors that have caused our results to fluctuate in the past and which are
likely to affect us in the future include the following:
- variability in market demand for the Internet and for Internet
professional services;
- length of the sales cycle associated with our service offerings;
- the number, size and scope of our projects; and
- the efficiency with which we utilize our employees, including our ability
to transition employees from completed engagements to new engagements.
In addition, other factors may also affect us, including:
- the introduction of new services by our competitors;
- changes in pricing policies by our competitors; and
- our ability to attract and retain clients.
Some of these factors are within our control and others are outside our
control.
THE INTERNET PROFESSIONAL SERVICES MARKET IS HIGHLY COMPETITIVE AND HAS LOW
BARRIERS TO ENTRY. IF WE CANNOT EFFECTIVELY COMPETE, OUR REVENUES MAY DECLINE
The Internet professional services market is relatively new and intensely
competitive. We expect competition to intensify even further as this market
evolves. Many of our competitors have longer operating histories, more clients,
longer relationships with their clients, greater brand or name recognition and
significantly greater financial, technical, marketing and public relations
resources than we do. As a result, our competitors may be in a stronger position
to respond quickly to new or emerging technologies and changes in client
requirements. They may also develop and promote their products and services more
effectively than we do.
There are relatively low barriers to entry into the Internet professional
services market. In addition, we do not own any patented technology that stops
competitors from entering the Internet professional services market or from
providing services similar to ours. As a result, new and unknown market entrants
pose a threat to our business. Current or future competitors may develop or
offer services that are comparable or superior to ours at a lower price, which
could significantly decrease our revenues.
OUR BUSINESS WILL BE NEGATIVELY AFFECTED IF WE DO NOT KEEP UP WITH THE
INTERNET'S RAPID TECHNOLOGICAL CHANGE, EVOLVING INDUSTRY STANDARDS AND CHANGING
CLIENT REQUIREMENTS
The Internet professional services market is characterized by rapidly
changing technology, evolving industry standards and changing client needs.
Accordingly, our future success will depend, in part, on our ability to meet
these challenges. Among the most important challenges facing us are the need to:
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- effectively use leading technologies;
- continue to develop our strategic and technical expertise;
- influence and respond to emerging industry standards and other
technological changes;
- enhance our current services;
- develop new services that meet changing customer needs; and
- advertise and market our services.
All of these challenges must be met in a timely and cost-effective manner.
We cannot assure you that we will succeed in effectively meeting these
challenges and our failure to do so could harm our business results.
OUR REVENUES MAY DECREASE IF GROWTH IN THE USE OF THE INTERNET DECLINES
Our business is dependent upon continued growth in the use of the
Internet by our clients, prospective clients and their customers and
suppliers. Published reports indicate that capacity constraints caused by
growth in Internet usage may, unless resolved, impede further growth in
Internet use. If the number of users on the Internet does not increase and
commerce over the Internet does not become more accepted and widespread,
demand for our services may decrease and, as a result, our revenues would
decline. The factors that may affect Internet usage or electronic commerce
adoption include:
- actual or perceived lack of security of information;
- lack of access and ease of use;
- congestion of Internet traffic;
- inconsistent quality of service;
- increases in access costs to the Internet;
- excessive governmental regulation;
- uncertainty regarding intellectual property ownership;
- reluctance to adopt new business methods; and
- costs associated with the obsolescence of existing infrastructure.
WE MAY FACE INTELLECTUAL PROPERTY CLAIMS THAT MAY BE COSTLY TO RESOLVE OR LIMIT
OUR ABILITY TO USE INTELLECTUAL PROPERTY IN THE FUTURE
We are obligated under some agreements to indemnify other parties as a
result of claims that we infringe on the proprietary rights of third parties.
Although we do not believe that the solutions that we develop for clients
infringe on any third-party proprietary rights, we cannot assure you that third
parties will not assert infringement claims against us in the future or that
these claims will not be successful. We could incur substantial costs and
diversion of management resources to defend any claims relating to proprietary
rights. These costs and diversions could cause our business results to suffer.
If any party asserts a claim against us relating to proprietary technology or
information, we may need to obtain licenses to the disputed intellectual
property. We cannot assure you, however, that we will be able to obtain these
licenses on commercially reasonable terms or that we will be able to obtain any
licenses at all. The failure to obtain necessary licenses or other rights could
cause our business results to suffer.
Our business often involves the development of software applications for
specific client engagements. We generally retain the right to use any
intellectual property that is developed during a client engagement that is of
10
<PAGE>
general applicability and is not specific to the client's project. We also
develop software applications for our own internal use and we retain ownership
of these applications. There can be no assurance that clients will not demand
assignment of ownership or restrictions on our use of the work that we produce
for clients in the future. Issues relating to the ownership of and rights to use
software can be complicated and there can be no assurance that disputes will not
arise that affect our ability to reuse this software which could harm our
business results.
DIFFICULTIES PRESENTED BY INTERNATIONAL FACTORS COULD NEGATIVELY AFFECT OUR
BUSINESS
One component of our strategy is to expand into international markets, as
evidenced by our London office. We believe that we will face certain risks in
doing business abroad that we do not face domestically. Among the
international risks we believe are most likely to affect us are:
- difficulties in staffing and managing international operations;
- longer payment cycles;
- problems in collecting accounts receivable;
- international currency issues, including fluctuations in currency exchange
rates and the conversion to the euro by all countries of the European
Union by year end 2003; and
- restrictions on the import and export of sensitive U.S. technologies, such
as data security and encryption technologies that we may wish to use in
solutions we develop for customers.
Any of these factors or other factors not enumerated here could damage our
business results.
11
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, Viant may be involved in litigation incidental to the
conduct of its business. Viant is not currently a party to any material legal
proceedings.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The following information is provided as an amendment to the initial report
on Form SR, "Report of Sales of Securities and Use of Proceeds Therefrom,"
regarding the use of proceeds from the sale of common stock under the Company's
Registration Statement on Form S-1 (SEC file number 333-76049), which was
declared effective on June 17, 1999. The information provided is for the period
from May 29, 1999 through March 31, 2000.
During this period the Company had a positive cash flow of $178,739,000. All
proceeds from this offering and Viant's secondary offering, effective December
17, 1999, were invested primarily in certificates of deposit and short-term,
high grade commercial paper, U.S. government backed securities and long-term
high grade corporate debt obligations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On February 2, 2000, the Company held a special meeting of its stockholders
to seek their approval of a certificate of amendment to the Company's
Certificate of Incorporation. The proposed certificate of amendment increased
the authorized number of shares of common stock from 50,000,000 to 200,000,000.
Of the 21,633,854 shares outstanding and available to vote at the special
meeting, 15,582,242 shares voted for the proposed amendment, 449,752 shares
voted against the amendment, 22,852 shares abstained from voting and 5,579,008
shares were not voted.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
27.1 Financial data schedule.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VIANT CORPORATION
By /s/ Robert L. Gett
-------------------------------------
Robert L. Gett
President and Chief Executive Officer
Director
Date: May 12, 2000
By /s/ M. Dwayne Nesmith
-------------------------------------
M. Dwayne Nesmith
Vice President and
Chief Financial Officer
Date: May 12, 2000
13
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<FISCAL-YEAR-END> DEC-28-2000
<PERIOD-END> MAR-31-2000
<CASH> 120,442
<SECURITIES> 51,265
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