<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 000-27389
----------------
INTERWOVEN, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 77-0523543
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
</TABLE>
1195 West Fremont Avenue, Suite 2000, Sunnyvale, CA 94087
(Address of principal executive offices)
(408) 774-2000
(Registrant's telephone number including area code)
----------------
Indicate by check mark whether the Registrant 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). Yes [X] No [_]
Indicate by check mark whether the Registrant has been subject to such
filing requirements for the past 90 days. Yes [_] No [X]
There were 22,916,775 shares of the Company's Common Stock, par value
$0.001, outstanding on November 5, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
None
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
PART I FINANCIAL INFORMATION
<C> <S> <C>
Item 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets as of September 30, 1999
and December 31, 1998........................................ 3
Condensed Consolidated Statements of Income for the Three and
Nine Months Ended September 30, 1999 and 1998................ 4
Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1999 And 1998..................... 5
Notes to Condensed Consolidated Financial Statements.......... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 10
Item 3. Quantitative and Qualitative Disclosures about Market Risk.... 26
PART II OTHER INFORMATION
Item 1. Legal Proceedings............................................. 27
Item 2. Changes in Securities and Use of Proceeds..................... 27
Item 3. Default upon Senior Securities................................ 28
Item 4. Submission of Matters to a Vote of Securities Holders......... 28
Item 5. Other Information............................................. 28
Item 6. Exhibits and Reports on Form 8-K.............................. 28
SIGNATURE ............................................................ 29
</TABLE>
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
INTERWOVEN, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
(unaudited)
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents......................... $12,576 $ 9,022
Short-term investments............................ 9,419 --
Accounts receivable, net of allowance for doubtful
accounts of $288 and $270, respectively.......... 2,594 2,405
Prepaid expenses.................................. 1,314 179
Other current assets.............................. 122 80
------- -------
Total current assets........................... 26,025 11,686
Property and equipment, net........................ 2,297 1,617
Restricted cash.................................... 605 605
Intangible assets, net............................. 545 --
------- -------
29,472 13,908
======= =======
LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
-----------------------------------------------
Current liabilities:
Accounts payable.................................. $ 1,179 $ 484
Accrued liabilities............................... 2,592 1,473
Debt and leases, current.......................... 500 258
Deferred revenue, current......................... 2,548 627
------- -------
Total current liabilities...................... 6,819 2,842
Debt and leases, long-term......................... 875 1,257
Deferred revenue, long-term........................ -- 97
------- -------
7,694 4,196
Mandatorily redeemable convertible preferred stock
18,763 and 15,163 shares authorized, respectively;
18,455 and 15,060 shares issued and outstanding,
respectively...................................... 52,996 20,464
Stockholders' Deficit:
Preferred stock, $0.001 par value, 5,000 shares
authorized, no shares issued or outstanding; no
shares authorized, issued or outstanding, actual.. -- --
Common Stock, $0.001 par value, 26,667 (unaudited)
and 16,667, respectively; 6,589 (unaudited) and
4,909, issued and outstanding..................... 7 5
Additional paid-in capital......................... (4,590) 881
Notes receivable from stockholders................. (202) (240)
Deferred stock-based compensation.................. (5,114) (1,090)
Accumulated deficit................................ (21,319) (10,308)
------- -------
Total stockholders' deficit.................... (31,218) (10,752)
------- -------
29,472 13,908
======= =======
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
INTERWOVEN, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September Ended September
30, 30,
----------------- -----------------
1999 1998 1999 1998
-------- ------- -------- -------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues:
License............................... $ 2,556 $ 946 $ 5,814 $ 1,570
Services.............................. 1,701 277 3,447 539
-------- ------- -------- -------
Total revenues...................... 4,257 1,223 9,261 2,109
Cost of revenues:
License............................... 28 19 147 19
Services.............................. 2,113 441 3,542 791
-------- ------- -------- -------
Total cost of revenues.............. 2,141 460 3,689 810
Gross profit............................ 2,116 763 5,572 1,299
Operating expenses:
Research and development.............. 1,229 492 2,930 1,227
Sales and marketing................... 3,833 1,603 9,058 2,960
General and administrative............ 833 563 2,077 1,135
Amortization of deferred stock-based
compensation......................... 1,017 217 2,685 564
Amortization of acquired intangible
assets............................... 249 -- 249 --
-------- ------- -------- -------
Total operating expenses............ 7,161 2,875 16,999 5,886
Loss from operations.................... (5,045) (2,112) (11,427) (4,587)
Interest income and other expenses,
net.................................... 262 32 416 89
-------- ------- -------- -------
Net loss................................ (4,783) (2,080) (11,011) (4,498)
======== ======= ======== =======
Accretion of mandatorily redeemable
convertible preferred stock to
redemption value....................... (6,877) (316) (13,227) (463)
======== ======= ======== =======
Net loss attributable to common
stockholders........................... $(11,660) $(2,396) $(24,238) $(4,961)
======== ======= ======== =======
Basic and diluted net loss per share
(Note 1)............................... $ (2.71) $ (0.89) $ (6.51) $ (1.98)
======== ======= ======== =======
Shares used in computing basic and
diluted net loss per share............. 4,297 2,707 3,722 2,505
======== ======= ======== =======
Pro forma basic and diluted net loss per
share (Note 1)......................... $ (0.28) $ (0.21) $ (0.74) $ (0.61)
======== ======= ======== =======
Shares used in computing pro forma basic
and diluted net loss per share......... 16,870 9,821 14,957 7,385
======== ======= ======== =======
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
INTERWOVEN, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------
1999 1998
--------- --------
(unaudited)
<S> <C> <C>
Cash flows used in operating activities:
Net loss................................................. $ (11,011) $ (4,498)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 589 194
Amortization of stock-based compensation................ 2,685 564
Amortization of acquired intangible assets.............. 249 --
Issuance of Common Stock for services................... 27 --
Provisions for doubtful accounts........................ 18 --
Changes in assets and liabilities:
Accounts receivable.................................... (34) (1,192)
Prepaid expenses and other assets...................... (1,177) (61)
Restricted cash........................................ -- (605)
Accounts payable....................................... 695 71
Accrued liabilities.................................... 994 459
Deferred revenue....................................... 1,824 317
--------- --------
Net cash used in operating activities................. (5,141) (4,751)
--------- --------
Cash flows from investing activities:
Purchase of property and equipment...................... (1,269) (1,413)
Purchases of short-term investments..................... (9,428) --
Maturities of short-term investments.................... 9 --
--------- --------
Net cash used in investing activities................. (10,688) (1,413)
Cash flows from financing activities:
Proceeds from (repurchases of) Series A Preferred Stock,
net.................................................... -- (632)
Proceeds from Series C Preferred Stock, net............. -- 6,712
Proceeds from Series E Preferred Stock, net............. 18,462 --
Proceeds from exercise of stock options................. 831 68
Repayment of stockholders loans......................... 240 3
Proceeds from bank borrowings........................... -- 574
Repurchase of Common Stock.............................. (10) --
Principal payments of debt and leases................... (140) (70)
--------- --------
Net cash provided by financing activities............. 19,383 6,655
--------- --------
Net increase in cash and cash equivalents................. 3,554 491
Cash and cash equivalents at beginning of period.......... 9,022 1,019
--------- --------
Cash and cash equivalents at end of period................ $ 12,576 $ 1,510
--------- --------
Supplemental cash flow disclosures:
Cash paid for interest................................... $ 94 $ 19
--------- --------
Supplemental non-cash activity:
Common Stock issued for notes receivable................. $ 202 $ 240
--------- --------
Common Stock issued for services......................... $ 27 $ --
--------- --------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE>
INTERWOVEN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1. The Company and Summary of Significant Accounting Policies:
The Company
Interwoven, Inc. (the "Company") is a leading provider of software products
and services that help businesses and other organizations manage the
information that makes up the content of their web sites. In the Internet
industry this is often referred to as "web content management." Our flagship
software product, TeamSite, is designed to help customers develop, maintain
and extend large web sites that are essential to their businesses. The Company
also markets and sells its software products and services through its wholly
owned subsidiary in the United Kingdom.
Basis of Presentation
The unaudited interim condensed consolidated financial statements have been
prepared on the same basis as the annual financial statements and, in the
opinion of management, reflect all adjustments, which include only normal
recurring adjustments, necessary to present fairly the Company's financial
position, results of operations and cash flows as of September 30, 1999 and
1998. These condensed consolidated financial statements and notes thereto are
unaudited and should be read in conjunction with the Company's audited
financial statements and related notes included in the Registration Statement
on Form S-1. The results of operations for the three and nine months ended
September 30, 1999 are not necessarily indicative of results that may be
expected for any other interim period or for the full fiscal year.
Principles of consolidation
The condensed consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary after elimination of all significant
intercompany accounts and transactions.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
reported amounts of revenues and expenses during the reporting periods. Actual
results could differ from those estimates.
Fair value of instruments
The Company's financial instruments, including cash and cash equivalents,
short-term investments, accounts receivable and accounts payable, are carried
at cost, which approximate fair value due to the short-term maturity of these
instruments. Debt and capital lease obligations are carried at cost, which
approximates fair value due to the proximity of the implicit rates of these
financial instruments and the prevailing market rates for similar instruments.
Net loss per share
The Company computes net loss per share in accordance with SFAS No. 128,
"Earnings per Share" and SEC Staff Accounting Bulletin ("SAB") No. 98. Under
the provisions of SFAS No. 128 and SAB No. 98, basic net loss per share is
computed by dividing the net loss attributed to common stockholders for the
period by the weighted average number of shares of Common Stock outstanding
during the period excluding shares of Common Stock subject to repurchase. Such
shares of Common Stock subject to repurchase aggregated 1,597,862 (unaudited)
and 2,154,779 (unaudited) as of September 30, 1998 and 1999, respectively.
6
<PAGE>
INTERWOVEN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table sets forth the computation of basic and diluted net loss
per share for the periods indicated (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 30,
----------------- -----------------
1999 1998 1999 1998
-------- ------- -------- -------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Numerator:
Net loss available to Common Stock
holders............................... (11,660) (2,396) (24,238) (4,961)
Denominator:
Weighted average shares................ 5,918 4,807 4,900 4,614
Weighted average unvested common shares
subject to
repurchase............................ (1,621) (2,100) (1,178) (2,109)
-------- ------- -------- -------
Denominator for basic and diluted
calculation........................... 4,297 2,707 3,722 2,505
Net loss per share:
Basic and diluted...................... $ (2.71) $ (0.89) $ (6.51) $ (1.98)
======== ======= ======== =======
The following table sets forth potential shares of Common Stock that are not
included in the diluted net loss per share calculation above because to do so
would be anti-dilutive for the periods indicated (in thousands):
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 30,
----------------- -----------------
1999 1998 1999 1998
-------- ------- -------- -------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Weighted average effect of Common Stock
equivalents
Series A mandatorily redeemable
convertible preferred stock........... 747 747 747 921
Series B mandatorily redeemable
convertible preferred stock........... 2,135 2,135 2,135 2,098
Series C mandatorily redeemable
convertible preferred stock........... 4,773 4,161 4,773 1,791
Series D mandatorily redeemable
convertible preferred stock........... 2,494 -- 2,494 --
Series E mandatorily redeemable
convertible preferred stock........... 2,352 -- 1,013 --
Mandatorily redeemable convertible
preferred stock warrants.............. 72 71 72 70
Unvested common shares subject to
repurchase............................ 1,621 2,100 1,178 2,109
Common stock options................... 601 456 545 494
-------- ------- -------- -------
14,795 9,670 12,957 7,483
======== ======= ======== =======
</TABLE>
Pro forma net loss per share (unaudited)
Pro forma net loss per share is computed using the weighted average number
of shares of Common Stock outstanding, including the pro forma effects of the
exercise of warrants to purchase Series B Preferred Stock and automatic
conversion of the Company's Series A, B, C, D and E Preferred Stock into
shares of the Company's Common Stock effective upon the closing of the
Company's initial public offering as if such conversion occurred at the
beginning of the period, or at the date of issuance, if later. The resulting
pro forma adjustment for the three months ended September 30, 1998 and 1999
and the nine months ended September 30, 1998 and 1999 includes (i) an increase
in the weighted average shares used to compute the basic net loss per share of
7,114,362, 12,572,621, 4,879,885 and 11,234,191 (unaudited), respectively, and
(ii) a decrease in the net loss attributable to Common Stock holders for the
accretion of mandatorily redeemable convertible preferred stock of $316,000,
$6,877,000, $463,000 and $13,227,000 (unaudited), respectively. The
calculation of diluted net loss per share excludes potential shares of Common
Stock as their effect would be antidilutive. Pro forma potential Common Stock
consists of Common Stock subject to repurchase rights and incremental shares
of Common Stock issuable upon the exercise of stock options.
7
<PAGE>
INTERWOVEN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Comprehensive income
Effective January 1, 1998, the Company adopted the provisions of SFAS No.
130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for
reporting comprehensive income and its components in financial statements.
Comprehensive income, as defined, includes all changes in equity (net assets)
during a period from non-owner sources. As of September 30, 1998 and September
30, 1999, the Company had not had any transactions that are required to be
reported in comprehensive income.
Segment information
Effective January 1, 1998, the Company adopted the provisions of SFAS No.
131, "Disclosure About Segments of an Enterprise and Related Information." The
Company identifies its operating segment based on business activities,
management responsibility and geographic location. During all periods
presented, the Company operated in a single business segment.
Cash, cash equivalents, and short-term investments
The Company considers all highly liquid investments with a maturity from
date of purchase of three months or less to be cash equivalents. Cash and cash
equivalents consist primarily of cash on deposit with banks and high quality
money market instruments. All other liquid investments are classified as
short-term investments. Short-term investments consist of commercial paper and
corporate bonds.
Management determines the appropriate classification of investment
securities at the time of purchase and reevaluates such designation as of each
balance sheet date. At September 30, 1999, all investment securities were
designated as available-for-sale. Available-for-sale securities are carried at
fair value, using available market information and appropriate valuation
methodologies, with unrealized gains and losses reported in stockholders'
equity.
Realized gains and losses and declines in value judged to be other-than-
temporary on available-for-sale securities are included in the statements of
income. There have been no such transactions in the nine months ended
September 30, 1999. The cost of securities sold is based on the specific
identification method. Interest and dividends on securities classified as
available-for-sale are included in interest income.
At September 30, 1999, the Company's available-for-sale securities consisted
of the following: Commercial paper $11.9 million; corporate notes $2.0
million, corporate bonds $.5 million, medium term notes $1.0 million and
United States government agencies $1.0 million and money market funds $3.8
million. Of these securities, $10.8 million and $9.4 million was classified as
cash equivalents and short-term investments, respectively.
As of September 30, 1999 the difference between the fair value and the
amortized cost of available-for-sale securities was insignificant; therefore,
no unrealized gains or losses were recorded in stockholders' equity. For the
nine months ended September 30, 1999, realized gains and losses were not
material. As of September 30, 1999 the contractual maturity of the investments
did not exceed one year.
Acquisition
Effective July 1, 1999, the Company acquired all the assets and liabilities
of Lexington Software Associates Incorporated, which is a provider of
configuration management solutions and development methodologies, including
consulting and education. The acquisition has been accounted for using the
purchase method of accounting. The total purchase price for this acquisition
was approximately $800,000. The purchase price was allocated to the tangible
and intangible assets acquired and liabilities assumed based upon their
respective fair
8
<PAGE>
INTERWOVEN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
values at the acquisition date. The purchase price consisted of 88,339 shares
of the Company's Series E Preferred Stock (estimated fair value of $500,000),
seven-year warrants to purchase 17,668 shares of Series E Preferred Stock at
$5.66 per share (estimated fair value of $77,000) and acquisition-related
expenses (including legal and accountancy fees) of approximately $223,000. The
allocation of the purchase price was as follows:
<TABLE>
<S> <C>
Allocation of Purchase Price
Tangible Assets.................................................. $ 385,000
Intangible Assets
Workforce.......................... ........................... $ 500,000
Goodwill....................................................... $ 300,000
Liabilities.................................................... $(385,000)
---------
$ 800,000
=========
</TABLE>
The amortization of the acquired intangible assets will occur over the
estimated periods to be benefited. The workforce asset will be amortized on a
straight- line basis over two years from the acquisition date, however,
retention of the acquired employees will be evaluated in future periods to
assess whether accelerated amortization of this asset is warranted. The
goodwill is expected to be amortized on a straight-line basis over three years
from the acquisition date. Amortization of acquired intangible asset was
$249,000 for the nine months ended September 30, 1999.
SUBSEQUENT EVENT
Intial public offering
On October 14, 1999 the Company completed its initial public offering of
Common Stock. A total of 3,622,500 shares were sold by the Company at a price
of $17.00 per share. The offering resulted in net proceeds to the Company of
approximately $56.2 million, net of an underwriting discount of $4.3 million
and estimated offering expenses of $1.2 million.
Conversion of Preferred Stock
Effective upon the closing of the Company's initial public offering, the
outstanding shares of Series A, B, C, D and E Preferred Stock were converted
into 746,664, 2,134,548, 4,773,161, 2,494,142, and 2,263,136 shares of Common
Stock, respectively.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition and results
of operations should be read in conjunction with our Financial Statements and
Notes appearing elsewhere in this Form 10-Q.
Overview
Interwoven was incorporated in March 1995 to provide software products and
services for web content management. Designed specifically for the web, our
products allow large teams of people across an enterprise to contribute and
edit web content on a collaborative basis, reducing the time-to-web for
critical eBusiness initiatives. From March 1995 through March 1997, we were a
development stage company conducting research and development for our initial
products. In May 1997, we shipped the first version of our principal product,
TeamSite. We have subsequently developed and released enhanced versions of
TeamSite and have introduced related products. We market and sell our products
primarily through a direct sales force and augment our sales efforts through
relationships with systems integrators and other strategic partners. We are
headquartered in Sunnyvale, California and maintain additional offices in the
metropolitan areas of Atlanta, Boston, Chicago, Dallas, Los Angeles, Seattle
and Washington, D.C. Our revenues to date have been derived exclusively from
accounts in North America. In May 1999, we opened an office in the United
Kingdom.
We derive revenues from the license of our software products and from
services we provide to our customers. To date, we have derived virtually all
of our license revenues from licenses of TeamSite. License revenues are
recognized when persuasive evidence of an agreement exists, the product has
been delivered, no significant post-delivery obligations remain, the license
fee is fixed or determinable and collection of the fee is probable. Services
revenues consist of professional services and maintenance fees. Professional
services primarily consist of software installation and integration, business
process consulting and training. We generally bill our professional services
customers on a time and materials basis and recognize revenues as the services
are performed. Maintenance agreements are typically priced based on a
percentage of the product license fee, and typically have a one-year term that
is renewable annually. Services provided to customers under maintenance
agreements include technical product support and an unspecified number of
product upgrades as released by us during the term of a maintenance agreement.
Revenues from maintenance support agreements are recognized ratably over the
term of the agreement.
Since inception, we have incurred substantial costs to develop our
technology and products, to recruit and train personnel for our engineering,
sales and marketing and services organizations, and to establish an
administrative organization. As a result, we have incurred net losses in each
quarter since inception and, as of September 30, 1999, had an accumulated
deficit of $21.3 million. We anticipate that our cost of services revenues and
operating expenses will increase substantially in future quarters as we grow
our services organization to support an increased level and expanded number of
services offered, increase our sales and marketing operations, develop new
distribution channels, fund greater levels of research and development, and
improve operational and financial systems. Accordingly, we expect to incur
additional losses for the foreseeable future as we continue to expand our
operations. In addition, our limited operating history makes the prediction of
future results of operations difficult and, accordingly, there can be no
assurance that we will achieve or sustain profitability.
Results of Operations
Our license and services revenues have grown in each of the seven quarters
in the period ended September 30, 1999, except that our license revenues
declined in the three month period ended March 31, 1999 from that in the three
month period ended December 31, 1998. This decline reflected the unusually
high revenues in the prior period, due in part to a few large license sales in
that period. In addition, many companies that license enterprise-scale
software products to large customers experience seasonal declines in the first
fiscal quarter following the end of their fiscal year. Because of our limited
operating history, we do not know whether this pattern was responsible for the
declines in the three months ended March 31, 1999, or whether it will apply to
future quarterly results. As a general matter, we depend on sales to a
relatively few large customers. As a result, our revenues are subject to
period-to-period fluctuations reflecting the impact of a few large sales.
10
<PAGE>
Increased services revenues in the three-month and nine-month periods ended
September 30, 1999 reflect an increase in both professional services and
maintenance fees generated from an expanded number of customers which had
licensed our products in prior periods, and an increase in the number of
professional services staff and a higher effective staff utilization rate.
As a result of our limited operating history and the emerging nature of the
market for web content management software and services in which we compete,
it is difficult for us to forecast our revenues or earnings accurately. It is
possible that in some future periods our results of operations may not meet or
exceed the expectations of public market analysts and investors. If this
occurs, the price of our common stock is likely to decline. Factors that have
caused our results to fluctuate in the past, and are likely to cause
fluctuations in the future, include:
. the size of customer orders and the timing of product and service
deliveries;
. variability in the mix of products and services sold;
. our ability to retain our current customers and attract new customers;
. the amount and timing of operating costs relating to expansion of our
business, including our planned international expansion;
. the announcement or introduction of new products or services by us or our
competitors;
. our ability to attract and retain personnel, particularly management,
engineering and sales personnel and technical consultants;
. our ability to upgrade and develop our systems and infrastructure to
accommodate our growth; and
. costs related to acquisition of technologies or businesses.
As a result of these and other factors, we believe that period-to-period
comparisons of our results of operations may not be meaningful and should not
be relied upon as indicators of our future performance.
The following table lists, for the periods indicated, each line as a
percentage of total revenues:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 30,
------------- -------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
License................................... 60 % 77 % 63 % 74%
Services.................................. 40 23 37 26
------ ------ ------ ------
Total revenues.......................... 100 100 100 100
Cost of revenues:
License................................... 1 2 2 1
Services.................................. 49 36 38 37
------ ------ ------ ------
Total cost of revenues.................. 50 38 40 38
Gross profit................................ 50 62 60 62
Operating expenses:
Research and development.................. 29 40 32 58
Sales and marketing....................... 90 131 98 140
General and administrative................ 19 46 22 54
Amortization of deferred stock-based
compensation............................. 24 18 29 27
Amortization of acquired intangible
assets................................... 6 0 3 0
------ ------ ------ ------
Total operating expenses................ 168 235 184 279
------ ------ ------ ------
Loss from operations........................ (118) (173) (124) (217)
Interest income and other expenses, net..... 6 3 5 4
------ ------ ------ ------
Net loss.................................... (112) (170) (119) (213)
====== ====== ====== ======
</TABLE>
11
<PAGE>
Three Months Ended September 30, 1998 and 1999
Revenues
Total revenues increased 248% from $1.2 million for the three months ended
September 30, 1998 to $4.3 million for the three months ended September 30,
1999. This increase was attributable to greater market acceptance of our
products and services after their introduction in 1997 and increased sales and
marketing staff, resulting in a larger number of customers.
License. License revenues increased 170% from $946,000 for the three months
ended September 30, 1998 to $2.6 million for the three months ended September
30, 1999. License revenues represented 77% and 60% of total revenues,
respectively, in those periods. The increase in license revenues reflects our
growing customer base. The decline in the percentage of total revenues
represented by license revenues reflects the more rapid growth of services
revenues from a relatively smaller customer base.
Services. Services revenues increased 514% from $277,000 for the three
months ended September 30, 1998 to $1.7 million for the three months ended
September 30, 1999. Services revenues represented 23% and 40% of total
revenues, respectively, in those periods. The increase in services revenues
reflects a $1.0 million increase in professional services fees and a $400,000
increase in maintenance fees. The increase in services revenues reflects an
increase in both professional services and maintenance fees generated from an
expanded number of customers who licensed our products.
Cost of Revenues
License. Cost of license revenues includes expenses incurred to manufacture,
package and distribute our software products and related documentation, as
well as costs of licensing third-party software sold in conjunction with our
software products. Cost of license revenues was $19,000 for the three months
ended September 30, 1998 and increased to $28,000 for the three months ended
September 30, 1999. Cost of license revenues represented 2% and 1%,
respectively, of license revenues in the three months ended September 30, 1998
and September 30, 1999, respectively.
Services. Cost of services revenues consists primarily of salary and related
costs of our professional services, training, maintenance and support staffs,
as well as subcontractor expenses. Cost of services revenues increased 379%
from $441,000 for the three months ended September 30, 1998 to $2.1 million
for the three months ended September 30, 1999. Cost of services revenues
represented 159% and 124% of services revenues, respectively, in those
periods. This increase in cost of services revenues was attributable to an
increase in the number of in-house staff from 10 to 43 due to our acquisition
of Lexington Software Associates, Inc. and a $264,000 increase in
subcontractor expenses.
We expect our cost of services revenues to increase for the forseeable
future as we continue to expand our services staff and consulting
organizations. Since services revenues have substantially lower margins than
license revenues, this expansion will reduce our gross margins if our license
revenues do not increase significantly. We expect cost of services revenues as
a percentage of services revenues to vary from period to period depending on
the mix of services we provide, whether the services are performed by our in-
house staff or subcontractors, and the overall utilization rates of our
professional services staff.
Gross Profit
Gross profit increased 177% from $763,000 for the three months ended
September 30, 1998 to $2.1million for the three months ended September 30,
1999. Gross profit represented 62% and 50% of total revenues, respectively, in
those periods. This increase in absolute dollar amounts reflects increased
license and services revenues from a growing customer base. The decrease in
gross profit percentage was a result of the expansion of our professional
services organization. The Company has made and will continue to make
investments in our
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professional services organization to increase the capacity of that
organization to meet the demand for services from our customers. We expect
gross profit as a percentage of total revenues to fluctuate from period to
period as a result of changes in the relative proportion of license and
services revenues.
Operating Expenses
Research and Development. Research and development expenses consist
primarily of personnel and related costs to support product development.
Research and development expenses increased 150% from $492,000 for the three
months ended September 30, 1998 to $1.2 million for the three months ended
September 30, 1999, representing 40% and 29% of total revenues, respectively,
in those periods. This increase in absolute dollar amounts was due to
increases in the number of product development personnel. We believe that
continued investment in research and development is critical to our strategic
objectives, and we expect that the dollar amounts of research and development
expenses will increase in future periods. To date, all software development
costs have been expensed in the period incurred.
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries and related costs for sales and marketing personnel, sales
commissions, travel and marketing programs. Sales and marketing expenses
increased 139% from $1.6 million for the three months ended September 30, 1998
to $3.8 million for the three months ended September 30, 1999, representing
131% and 90% of total revenues, respectively, in those periods. This increase
in dollar amounts reflects increases in the number of our sales and marketing
personnel costs of $1.1 million, higher sales commissions and bonuses of $.5
million and increased marketing-related costs of $100,000. We expect to
continue to invest heavily in sales and marketing in order to expand our
customer base and increase brand awareness. We also anticipate that the
percentage of total revenues represented by sales and marketing expenses will
fluctuate from period to period primarily depending on when we hire new sales
personnel, the timing of new marketing programs and the levels of revenues in
each period.
General and Administrative. General and administrative expenses consist
primarily of salaries and related costs for accounting, human resources, legal
and other administrative functions, as well as provisions for doubtful
accounts. General and administrative expenses increased 48% from $563,000 for
the three months ended September 30, 1998 to $833,000 for the three months
ended September 30, 1999, representing 46% and 19% of total revenues,
respectively. This increase in dollar amounts was due to additional staffing
of these functions to support expanded operations during this same period. We
expect general and administrative expenses to increase in absolute dollars in
1999 as we add personnel to support expanding operations, incur additional
costs related to the growth of our business, and assume the reporting
requirements of a public company.
Amortization of Deferred Stock-Based Compensation. In 1998 and the first
nine months of 1999, we recorded deferred stock-based compensation of $1.9
million and $6.7 million in connection with stock options granted during 1998
and 1999, respectively. These amounts represent the difference between the
exercise price of stock options granted during those periods and the deemed
fair value of our common stock at the time of the grants. Amortization of
deferred stock-based compensation was $217,000 and $1.0 million for the three
months ended September 30, 1998 and 1999, respectively. We expect per quarter
amortization related to these options of approximately $1.0 million during the
remainder of 1999, between $500,000 and $750,000 during 2000, between $270,000
and $400,000 during 2001, between $100,000 and $185,000 during 2002 and
$50,000 in the quarter ended March 31, 2003.
Amortization of Acquired Intangible Assets. In July of 1999, we recorded
intangible assets of approximately $800,000 in connection with the acquisition
of Lexington Software Associates Incorporated. Goodwill related to this
transaction approximated $300,000 and intangible assets related to the
workforce of Lexington Software approximated $500,000 of the purchase price.
The total purchase price for this acquisition was approximately $800,000. The
purchase price was allocated to the tangible and intangible assets acquired
and liabilities assumed based upon their respective fair values at the
acquisition date. Amortization of acquired intangible assets was $249,000 for
the three months ended September 30, 1999.
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Interest Income and Other Expenses, Net
Interest income and other expenses, net, increased from $32,000 for the
three months ended September 30, 1998 to $262,000 for the three months ended
September 30, 1999 due to higher average cash balances.
Nine Months Ended September 30, 1998 and 1999
Revenues
Total revenues increased 339% from $2.1 million for the nine months ended
September 30, 1998 to $9.3 million for the nine months ended September 30,
1999. This increase was attributable to greater market acceptance of our
software products after their introduction in 1997 and an increase in the
number of sales and marketing staff, resulting in an increased number of
customers.
License. License revenues increased 270% from $1.6 million for the nine
months ended September 30, 1998 to $5.8 million for the nine months ended
September 30, 1999. License revenues represented 74% and 63% of total
revenues, respectively, in those periods. The increase in license revenues
reflects continued growth from the low level of revenue in 1998, our first
full year in which we licensed our products.
Services. Services revenues increased 540% from $539,000 for the nine months
ended September 30, 1998 to $3.4 million for the nine months ended September
30,1999. Services revenues represented 26% and 37% of total revenues,
respectively, in those periods. The increase in services revenues reflects an
increase in both professional services and maintenance fees generated from an
expanded number of customers who licensed our products.
Cost of Revenues
License. Cost of license revenues increased 674% from $19,000 for the nine
months ended September 30, 1998 to $147,000 for the nine months ended
September 30, 1999. Cost of license revenues represented 1% and 2% of license
revenues in the nine months ended September 30, 1998 and 1999, respectively.
The increase as a percentage of license revenue and absolute dollars in cost
of license revenues reflects increased sales of our product.
Services. Cost of services revenues increased 348% from $791,000 for the
nine months ended September 30, 1998 to $3.5 million for the nine months ended
September 30, 1999. Cost of services revenues represented 147% and 103% of
services revenues, respectively, in those periods. This increase in absolute
dollar amounts was due to an increase in the number of in-house staff from 10
to 43, and a $370,000 increase in subcontractor expenses.
Gross Profit
Gross profit increased 329% from $1.3 million for the nine months ended
September 30 ,1998 to $5.6 million for the nine months ended September 30
,1999 representing 62% and 60% of total revenues, respectively, in those
periods. This increase in absolute dollars reflected increased license and
services revenues from a growing customer base.
Operating Expenses
Research and Development. Research and development expenses increased 139%
from $1.2 million for the nine months ended September 30, 1998 to $2.9 million
for the nine months ended September 30, 1999. Research and development
expenses represented 58% and 32% of total revenues, respectively, in those
periods. This increase in dollar amounts was due to increases in the number of
product development personnel.
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Sales and Marketing. Sales and marketing expenses increased 206% from $3.0
million for the nine months ended September 30 ,1998 to $9.1 million for the
nine months ended September 30, 1999. Sales and marketing expenses represented
140% and 98% of total revenues, respectively, in those periods. The increase
in dollar amounts reflects increases in sales and marketing personnel costs of
$2.7 million, higher sales commissions and bonuses of $1.5 million and
increased marketing related costs of $300,000.
General and Administrative. General and administrative expenses increased
83% from $1.1 million for the nine months ended September 30, 1998 to $2.1
million for the nine months ended September 30, 1999, representing 54% and 22%
of total revenues, respectively, in those periods. This increase in absolute
dollar amounts reflects additional staffing of these functions to support
expanded operations during this same period.
Amortization of Deferred Stock-Based Compensation. Amortization of deferred
stock-based compensation was $564,000 and $2.7 million for the nine months
ended September 30, 1998 and 1999, respectively.
Amortization of Acquired Intangible Assets. Amortization of acquired
intangible assets was $249,000 for the nine months ended September 30, 1999.
Interest Income and Other Expense, Net
Interest income and other expense, net, increased 367% from $89,000 for the
nine months ended September 30, 1998 to $416,000 for the nine months ended
September 30, 1999. The increase was due to increased interest income earned
from higher cash balances on hand as a result of sales of our preferred stock
in June 1999, partially offset by increased interest expense.
Liquidity and Capital Resources
In October 1999, we completed the initial public offering of our common
stock and realized net proceeds from the offering of approximately $56.2
million. Prior to the offering we funded our operations through private sales
of equity securities. We raised a total of $37.0 million, net of offering
costs, from the issuance of preferred stock. At September 30, 1999, our
sources of liquidity consisted of $22.6 million in cash, cash equivalents,
short-term investments and restricted cash and $19.2 million in working
capital. We have a $3.0 million line of credit and a $1.5 million equipment
line of credit with Silicon Valley Bank, each of which bear interest at the
bank's prime rate, which was 7.75% at September 30, 1999, plus 0.25%. At
September 30, 1999, the line of credit was unused and $1.375 million was
outstanding under the equipment line of credit. The lines of credit are
secured by all of our tangible and intangible assets, and contain financial
covenants including; a quick asset ratio, excluding deferred maintenance
revenue, of at least 2:1; a liquidity ratio of unrestricted cash plus 80% of
eligible accounts receivable minus outstanding advances divided by loans
outstanding of not less than 1.5:1; and a covenant that quarterly net losses
will not exceed a threshold based on projected annual revenues. We intend to
maintain both lines of credit. As of September 30, 1999, we were in compliance
with all related financial covenants and restrictions under these lines of
credit.
Net cash used in operating activities was $4.8 million and $5.1 million in
the nine months ended September 30, 1998 and 1999, respectively. Net cash used
in operating activities in both periods primarily reflect increasing net
losses.
From inception, our investing activities have consisted primarily of
purchases of property and equipment, principally computer hardware and
software for our growing number of employees. We expect that capital
expenditures will increase with our anticipated growth in operations,
infrastructure and personnel. As of September 30, 1999 we had no material
capital expenditure commitments. We do not expect to incur significant costs
to make our products or internal information systems Year 2000 compliant as we
believe these products and information systems are designed to function
properly through and beyond year 2000.
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During the nine months ended September 30, 1998 and September 30, 1999, the
Company's investing activities have consisted of purchases of short-term
investments and property and equipment. To date, the Company has not invested
in derivative securities or any other financial instruments that involve a
high level of complexity or risk. Management expects that, in the future, cash
in excess of current requirements will continue to be invested in high credit
quality, interest-bearing securities.
Cash used to purchase property and equipment was $1.4 million and $1.3
million during the nine months ended September 30, 1998 and September 30,
1999, respectively, primarily for purchases of property and equipment,
principally computer hardware and software for our growing number of
employees. We expect that capital expenditures will increase with our
anticipated growth in operations, infrastructure and personnel.
Net cash provided by financing activities in nine months ended September 30,
1998 and 1999 was $6.7 million and $19.4 million, respectively. Net cash
provided by financing activities reflected primarily the proceeds of issuances
of preferred stock in each of these periods, and, in 1998, included proceeds
from a bank equipment loan.
We believe that the current cash, cash equivalents, short-term investments,
and funds available under existing credit facilities and the net proceeds from
the sale of the common stock in our initial public offering, will be
sufficient to meet our working capital requirements for at least the next 12
months. Thereafter, we may require additional funds to support our working
capital requirements or for other purposes and may seek to raise additional
funds through public or private equity financing or from other sources. There
can be no assurance that additional financing will be available on acceptable
terms, if at all. If adequate funds are not available or are not available on
acceptable terms, we may be unable to develop or enhance our products, take
advantage of future opportunities, or respond to competitive pressures or
unanticipated requirements, which could have a material adverse effect on our
business, financial condition and operating results.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivatives and
Hedging Activities" ("SFAS No. 133"). SFAS No. 133 is effective for all fiscal
quarters beginning with the quarter ending June 30, 2000. SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including derivative instruments embedded in other contracts, and for hedging
activities. We will adopt SFAS No. 133 in the quarter ending June 30, 2000 and
do not expect its adoption to have an impact on our results of operations,
financial position or cash flows.
Year 2000 Compliance
The Year 2000 issue refers generally to the problems that some software may
have in determining the correct century for the year. For example, software
with date-sensitive functions that is not Year 2000 compliant may not be able
to distinguish whether "00" means 1900 or 2000, which may result in system
failures or erroneous results.
We have conducted a Year 2000 readiness review for the current and prior
versions of our products. The review includes:
. assessment;
. implementation, including remediation, upgrading and replacement of
non-compliant product versions;
. validation testing; and
. contingency planning.
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We have completed all phases of our plan, except for contingency planning,
with respect to the current and prior versions of all of our products. As a
result, the current and prior versions of each of our products are Year 2000
compliant when configured and used in accordance with the related
documentation, and provided that the underlying operating system of the host
machine and any other software used with or in the host machine or our
products are also Year 2000 compliant.
We define "Year 2000 compliant" as the ability to:
. correctly handle date information needed for the December 31, 1999 to
January 1, 2000 date change;
. function according to the product documentation provided for this
date change, without changes in operation resulting from the advent
of a new century, assuming correct configuration;
. where appropriate, respond to two-digit date input in a way that
resolves the ambiguity as to century in a disclosed, defined, and
predetermined manner;
. store and provide output of date information in ways that are
unambiguous as to century if the date elements in interfaces and data
storage specify the century; and
. recognize year 2000 as a leap year.
We have not tested our products on all platforms or all versions of
operating systems that our products
currently support.
We are testing licensed software, shareware and freeware obtained from third
parties that is incorporated into our products or sold in conjunction with our
products, and have assurances from our vendors that this licensed software is
Year 2000 compliant. Despite our testing, our products may contain undetected
errors or defects associated with Year 2000 date functions. Known or unknown
errors or defects in our products could result in:
. delay or loss of revenue;
. diversion of development resources;
. damage to our reputation;
. increased service and warranty costs; or
. liability from our customers.
Accordingly, errors or defects in our products could seriously harm our
business.
Some commentators have predicted significant litigation regarding Year 2000
compliance issues, and we are aware of lawsuits against other software
vendors. Because of the unprecedented nature of this litigation, it is
uncertain whether or to what extent we will be affected by it.
Our internal systems include both our computer and network systems and other
systems. We have initiated an assessment of our most important computer and
network systems and expect to complete the assessment by December 1999. We
have not yet begun to assess the Year 2000 compliance of our other systems,
but we expect to complete this assessment by December 1999. To the extent that
we are not able to assess the technology provided by third-party vendors, we
are seeking assurances from them that their systems are Year 2000 compliant.
Although we are not currently aware of any material operational issues or
costs associated with preparing these systems for the Year 2000, we may
experience unanticipated problems and costs caused by undetected errors or
defects in the technology used in these systems.
We currently have only limited information concerning the Year 2000
compliance status of our customers. As is the case with other similarly
situated software companies, if our current or future customers fail to
achieve Year 2000 compliance or if they divert technology expenditures,
especially technology expenditures that were reserved for enterprise software,
to address Year 2000 compliance problems, our business could be harmed.
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We have funded our Year 2000 plan from available cash and have not
separately accounted for these costs in the past. To date, these costs have
not been material. We expect to incur additional costs related to the
Year 2000 plan for:
. administrative personnel to manage the project;
. outside contractor assistance;
. technical support for our products; and
. product engineering and customer satisfaction.
We may experience material problems and costs with Year 2000 compliance that
could harm our business.
We have not yet developed a contingency plan to address situations that may
result if we are unable to achieve Year 2000 readiness of our critical
operations and do not anticipate the need to do so. The cost of developing and
implementing a plan may itself be material. Finally, we are also subject to
external forces that might generally affect industry and commerce, such as
utility or transportation company Year 2000 compliance failures and related
service interruptions.
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RISK FACTORS
Some of the statements under "Risk Factors," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and elsewhere in
this Form 10Q constitute forward-looking statements. In some cases, you can
identify forward-looking statements by terms such as "may," "will," "should,"
"expect," "plan," "anticipate," "believe," "estimate," "predict," "potential,"
"continue" or the negative of these terms or other comparable terminology. The
forward-looking statements contained in this Form 10-Q involve known and
unknown risks, uncertainties and other factors that may cause industry trends
or our actual results, level of activity, performance or achievements to be
materially different from any future results, levels of activity, performance
or achievements expressed or implied by these statements. These factors
include those listed under "Risk Factors" and elsewhere in this Form 10-Q.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other
person assumes responsibility for the accuracy and completeness of these
statements. We are under no duty to update any of the forward-looking
statements after the date of this Form 10-Q to conform these statements to
actual results. You should not place undue reliance on these forward-looking
statements, which apply only as of the date of this Form 10-Q.
The risks and uncertainties described below are not the only risks we face.
These risks are the ones we consider to be significant to your decision
whether to invest in our common stock at this time. We might be wrong. There
may be risks that you in particular view differently than we do, and there are
other risks and uncertainties that are not presently known to us or that we
currently deem immaterial, but that may in fact impair our business
operations. If any of the following risks actually occur, our business,
results of operations and financial condition could be seriously harmed, the
trading price of our common stock could decline and you may lose all or part
of your investment.
Our operating history is limited, so it will be difficult for you to evaluate
our business in making an investment decision.
We were incorporated in March 1995 and have a limited operating history. We
are still in the early stages of our development, which makes the evaluation
of our business operations and our prospects difficult. We shipped our first
product in May 1997. Since that time, we have derived substantially all of our
revenues from licensing our TeamSite product and related services. You should
consider the risks and difficulties frequently encountered by early stage
companies in new and rapidly evolving markets, particularly those companies
whose businesses depend on the Internet. These risks and difficulties, as they
apply to us in particular, include:
. potential fluctuations in operating results and uncertain growth rates;
. limited market acceptance of our products;
. concentration of our revenues in a single product;
. our dependence on a small number of orders for most of our revenue;
. our need to expand our direct sales forces and indirect sales channels;
. our need to manage rapidly expanding operations; and
. our need to attract and train qualified personnel.
If we do not increase our license revenues significantly, we will fail to
achieve profitability.
We have incurred net losses in each quarter since our inception, and we
expect our net losses to increase. We incurred net losses of approximately
$510,000 in 1996, $2.9 million in 1997, $6.3 million in 1998 and $11.0 million
for the nine months ended September 30, 1999. As of September 30, 1999, we had
an accumulated
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deficit of approximately $21.3 million. To compete effectively, we plan to
continue to invest aggressively to expand our sales and marketing, research
and development, and professional services organizations. As a result, if we
are to achieve profitability we will need to increase our revenues
significantly, particularly our license revenues. We cannot predict when we
will become profitable, if at all.
Our operating results fluctuate widely and are difficult to predict, so we may
fail to satisfy the expectations of investors or market analysts and our stock
price may decline.
Our quarterly operating results have fluctuated significantly in the past,
and we expect them to continue to fluctuate unpredictably in the future. It is
possible that in some future periods our results of operations may not meet or
exceed the expectations of public market analysts and investors. If this
occurs, the price of our common stock is likely to decline.
Our quarterly results depend on a small number of large orders, so the loss of
any single large order could harm those results and cause our stock price to
drop.
Each quarter, we derive a significant portion of our license revenues from a
small number of relatively large orders. As a result, our operating results
could suffer if any large orders are delayed or cancelled in any future
period. In the first, second and third quarters of 1999, our top five
customers accounted for 41%, 30% and 30%, respectively, of the total revenue
in those quarters. We expect that we will continue to depend upon a small
number of large orders for a significant portion of our license revenues.
Acquisitions may harm our business by being more difficult than expected to
integrate or by diverting management's attention.
In July 1999, we acquired Lexington Software Associates, Inc., a software
consulting company, to help support our existing customer base and to help
attract and retain new customers. We may be unable to integrate this company
into ours successfully, and our business may not benefit as expected. As part
of our business strategy, we may seek to acquire or invest in additional
businesses, products or technologies that we feel could complement or expand
our business. If we identify an appropriate acquisition opportunity, we might
be unable to negotiate the terms of that acquisition successfully, finance it,
or integrate it into our existing business and operations. We may also be
unable to select, manage or absorb any future acquisitions successfully.
Further, the negotiation of potential acquisitions, as well as the integration
of an acquired business, would divert management time and other resources. We
may have to use a substantial portion of our available cash, including
proceeds of our initial public offering, to consummate an acquisition. On the
other hand, if we consummate acquisitions through an exchange of our
securities, our stockholders could suffer significant dilution. In addition,
we cannot assure you that any particular acquisition, even if successfully
completed, will ultimately benefit our business.
We face significant competition, which could make it difficult to acquire and
retain customers and inhibit any future growth.
We expect the competition in the market in which we operate to persist and
intensify in the future. Competitive pressures may seriously harm our business
and results of operations if they inhibit our future growth, or require us to
hold down or reduce prices, or increase our operating costs. Our competitors
include:
. potential customers that utilize in-house development efforts;
. developers of software that directly addresses the need for web content
management, such as Vignette.
In addition, we face potential competition from companies--for example,
Microsoft and IBM--that may decide in the future to enter our market. Many of
our existing and potential competitors have longer operating histories greater
name recognition, larger customer bases and significantly greater financial,
technical and marketing resources than we do. Many of these companies can also
leverage extensive customer bases and adopt
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aggressive pricing policies to gain market share. Potential competitors may
bundle their products in a manner that discourages users from purchasing our
products. Barriers to entering the web content management software market are
relatively low.
Because the market for our products is new, we do not know whether existing
and potential customers will purchase our products in sufficient quantity for
us to achieve profitability.
The market for web content management software in which we sell is new and
rapidly evolving. While we have licensed our products to over 108 customers,
we expect that we will continue to need intensive marketing and sales efforts
to educate prospective clients about the uses and benefits of our products and
services. Various factors could inhibit the growth of the market, and market
acceptance of our products and services. In particular, potential customers
that have invested substantial resources in other methods of conducting
business over the Internet may be reluctant to adopt a new approach that may
replace, limit or compete with their existing systems. We cannot be certain
that a viable market for our products will emerge, or if it does emerge, that
it will be sustainable.
Our lengthy sales cycle makes it particularly difficult for us to forecast
revenue, requires us to incur high costs of sales, and aggravates the
variability of quarterly fluctuations.
The time between our initial contact with a potential customer and the
ultimate sale, which we refer to as our sales cycle, typically ranges between
three and nine months depending largely on the customer. If we do not shorten
our sales cycle, it will be difficult for us to reduce sales and marketing
expenses. In addition, as a result of our lengthy sales cycle, we have only a
limited ability to forecast the timing and size of specific sales. This makes
it more difficult to predict quarterly financial performance, or to achieve
it, and any delay in completing sales in a particular quarter could harm our
business and cause our operating results to vary significantly.
We rely heavily on sales of one product, so if it does not achieve market
acceptance we are likely to experience larger losses.
Since 1997, we have generated substantially all of our revenues from
licenses of, and services related to, our TeamSite product. We believe that
revenues generated from TeamSite will continue to account for a large portion
of our revenues for the foreseeable future. A decline in the price of
TeamSite, or our inability to increase license sales of TeamSite, would
seriously harm our business and operating results more seriously than it would
if we had several different products and services to sell. In addition, our
future financial performance will depend upon successfully developing and
selling enhanced versions of TeamSite and the products. If we fail to deliver
product enhancements or new products that customers want it will be more
difficult for us to succeed.
We depend on our direct sales force to sell our products, so future growth
will be constrained by our ability to hire and train new sales personnel.
We sell our products primarily through our direct sales force, and we expect
to continue to do so in the future. Our ability to sell more products is
limited by our ability to hire and train direct sales personnel, and we
believe that there is significant competition for direct sales personnel with
the advanced sales skills and technical knowledge that we need. Some of our
competitors may have greater resources to hire personnel with that skill and
knowledge. If we are not able to hire experienced and competent sales
personnel, our business would be harmed. Furthermore, because we depend on our
direct sales force, any turnover in our sales force can significantly harm our
operating results. Sales force turnover tends to slow sales efforts until
replacement personnel can be recruited and trained to become productive. See
"--We must attract and retain qualified personnel, which is particularly
difficult for us because we compete with other Internet-related software
companies and are located in the San Francisco Bay area where competition for
personnel is intense."
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If we do not develop our indirect sales channel, we will be less likely to
increase our revenues.
If we do not develop indirect sales channels, we may miss sales
opportunities that might be available through these other channels. For
example, domestic and international resellers may be able to reach new
customers more quickly or more effectively than our direct sales force.
Although we are currently investing and plan to continue to invest significant
resources to develop these indirect sales channels, we may not succeed in
establishing a channel that can market our products effectively and provide
timely and cost-effective customer support and services. In addition, we may
not be able to manage conflicts across our various sales channels, and our
focus on increasing sales through our indirect channel may divert management
resources and attention from direct sales.
If we do not improve our operational systems on a timely basis, we will be
more likely to fail to manage our growth properly.
We have expanded our operations rapidly in recent years. We intend to
continue to expand our operational systems for the foreseeable future to
pursue existing and potential market opportunities. This rapid growth places a
significant demand on management and operational resources. In order to manage
our growth, we need to implement and improve our operational systems,
procedures and controls on a timely basis. If we fail to implement and improve
these systems in a timely manner, our business will be seriously harmed.
Difficulties in introducing new products and upgrades in a timely manner will
make market acceptance of our products less likely.
The market for our products is characterized by rapid technological change,
frequent new product introductions and Internet-related technology
enhancements, uncertain product life cycles, changes in customer demands and
evolving industry standards. We expect to add new content management
functionality to our product offerings by internal development, and possibly
by acquisition. Content management technology is more complex than most
software, and new products or product enhancements can require long
development and testing periods. Any delays in developing and releasing new
products could harm our business. New products or upgrades may not be released
according to schedule or may contain defects when released. Either situation
could result in adverse publicity, loss of sales, delay in market acceptance
of our products or customer claims against us, any of which could harm our
business. If we do not develop, license or acquire new software products, or
deliver enhancements to existing products on a timely and cost-effective
basis, our business will be harmed.
Our products might not be compatible with all major platforms, which could
limit our revenues.
Our products currently operate on the Microsoft Windows NT and Sun Solaris
operating systems. In addition, our products are required to interoperate with
leading web content authoring tools and web application servers. We must
continually modify and enhance our products to keep pace with changes in these
applications and operating systems. If our products were to be incompatible
with a popular new operating system or Internet business application, our
business would be harmed. In addition, uncertainties related to the timing and
nature of new product announcements, introductions or modifications by vendors
of operating systems, browsers, back-office applications, and other Internet-
related applications, could also harm our business.
We have no significant experience conducting operations internationally, which
may make it more difficult than we expect to expand overseas and may increase
the costs of doing so.
To date, we have derived all of our revenues from sales to North American
customers. We plan to expand our international operations in the future. There
are many barriers to competing successfully in the international arena,
including:
. costs of customizing products for foreign countries;
. restrictions on the use of software encryption technology;
. dependence on local vendors;
22
<PAGE>
. compliance with multiple, conflicting and changing governmental laws and
regulations;
. longer sales cycles; and
. import and export restrictions and tariffs.
As a result of these competitive barriers, we cannot assure you that we will
be able to market, sell and deliver our products and services in international
markets.
If we fail to establish and maintain strategic relationships, the market
acceptance of our products, and our profitability, may suffer.
To offer products and services to a larger customer base our direct sales
force depends on strategic partnerships and marketing alliances to obtain
customer leads, referrals and distribution. If we are unable to maintain our
existing strategic relationships or fail to enter into additional strategic
relationships, our ability to increase our sales and reduce expenses will be
harmed. We would also lose anticipated customer introductions and co-marketing
benefits. Our success depends in part on the success of our strategic partners
and their ability to market our products and services successfully. In
addition, our strategic partners may not regard us as significant for their
own businesses. Therefore, they could reduce their commitment to us or
terminate their respective relationships with us, pursue other partnerships or
relationships, or attempt to develop or acquire products or services that
compete with our products and services. Even if we succeed in establishing
these relationships, they may not result in additional customers or revenues.
We must attract and retain qualified personnel, which is particularly
difficult for us because we compete with other Internet-related software
companies and are located in the San Francisco Bay area where competition for
personnel is intense.
Our success depends on our ability to attract and retain qualified,
experienced employees. We compete for experienced engineering, sales and
consulting personnel with Internet professional services firms, software
vendors, consulting and professional services companies. It is also
particularly difficult to recruit and retain personnel in the San Francisco
Bay area, where we are located. In addition, our customers generally purchase
consulting and implementation services. While we have recently established
relationships with some third-party service providers, we continue to be the
primary provider of these services. It is difficult and expensive to recruit,
train and retain qualified personnel to perform these services, and we may
from time to time have inadequate levels of staffing to perform these
services. As a result, our growth could be limited due to our lack of capacity
to provide those services, or we could experience deterioration in service
levels or decreased customer satisfaction, any of which would harm our
business.
If our services revenues do not grow substantially, our total revenues are
unlikely to increase.
Our services revenues represent a significant component of our total
revenues--21% of total revenues for 1998 and 37% of total revenues for the
nine months ended September 30, 1999. We anticipate that services revenues
will continue to represent a significant percentage of total revenues in the
future. To a large extent, the level of services revenues depends upon our
ability to license products which generate follow-on services revenue.
Additionally, services revenues growth depends on ongoing renewals of
maintenance and service contracts. Moreover, if third-party organizations such
as systems integrators become proficient in installing or servicing our
products, our services revenues could decline. Our ability to increase
services revenues will depend in large part on our ability to increase the
capacity of our professional services organization, including our ability to
recruit, train and retain a sufficient number of qualified personnel.
We might not be able to protect and enforce our intellectual property rights,
a loss of which could harm our business.
We depend upon our proprietary technology, and rely on a combination of
patent, copyright and trademark laws, trade secrets, confidentiality
procedures and contractual provisions to protect it. We currently do not have
any issued United States or foreign patents, but we have applied for one U.S.
patent. It is possible that a patent
23
<PAGE>
will not issue from our currently pending patent application or any future
patent application we may file. We have also restricted customer access to our
source code and required all employees to enter into confidentiality and
invention assignment agreements. Despite our efforts to protect our
proprietary technology, unauthorized parties may attempt to copy aspects of
our products or to obtain and use information that we regard as proprietary.
In addition, the laws of some foreign countries do not protect our proprietary
rights as effectively as the laws of the United States, and we expect that it
will become more difficult to monitor use of our products as we increase our
international presence. In addition, third parties may claim that our products
infringe theirs.
Our failure to deliver defect-free software could result in greater losses and
harmful publicity.
Our software products are complex and have in the past and may in the future
contain defects or failures that may be detected at any point in the product's
life. We have discovered software defects in the past in some of our products
after their release. Although past defects have not had a material effect on
our results of operations, in the future we may experience delays or lost
revenue caused by new defects. Despite our testing, defects and errors may
still be found in new or existing products, and may result in delayed or lost
revenues, loss of market share, failure to achieve acceptance, reduced
customer satisfaction, diversion of development resources and damage to our
reputation. As has occurred in the past, new releases of products or product
enhancements may require us to provide additional services under our
maintenance contracts to ensure proper installation and implementation.
Moreover, third parties may develop and spread computer viruses that may
damage the functionality of our software products. Any damage to or
interruption in the performance of our software could also harm our business.
Defects in our products may result in customer claims against us that could
cause unanticipated losses.
Because customers rely on our products for business critical processes,
defects or errors in our products or services might result in tort or warranty
claims. It is possible that the limitation of liability provisions in our
contracts will not be effective as a result of existing or future federal,
state or local laws or ordinances or unfavorable judicial decisions. We have
not experienced any product liability claims like this to date, but we could
in the future. Further, although we maintain errors and omissions insurance,
this insurance coverage may not be adequate to cover us. A successful product
liability claim could harm our business. Even defending a product liability
suit, regardless of its merits, could harm our business because it entails
substantial expense and diverts the time and attention of key management
personnel.
Year 2000 problems with our products may increase our costs.
Our products are generally integrated into enterprise computer systems
involving sophisticated hardware and complex software products, which may not
be Year 2000 compliant. We may in the future be subject to claims based on
Year 2000 problems in other parties' products, Year 2000 problems alleged to
be found in our products, Year 2000-related issues arising from the
integration of multiple products within an overall system, or other similar
claims. We also need to ensure Year 2000 compliance of our own internal
computer and other systems, to continue testing our software products, to
audit the Year 2000 compliance status of our suppliers and business partners,
and to conduct a legal audit. We have not conducted a comprehensive Year 2000
investigation of our internal systems and do not intend to do so. The total
cost of Year 2000 compliance may be material and may harm our business.
If widespread Internet adoption does not continue, or if the Internet cannot
accommodate continued growth, our business will be harmed because it depends
on growth in the use of the Internet.
Acceptance of our products depends upon continued adoption of the Internet
for commerce. As is typical in the case of an emerging industry characterized
by rapidly changing technology, evolving industry standards and frequent new
product and service introductions, demand for and acceptance of recently
introduced products and services are subject to a high level of uncertainty.
To the extent that businesses do not consider the Internet a viable commercial
medium, our customer base may not grow. In addition, critical issues
concerning the
24
<PAGE>
commercial use of the Internet remain unresolved and may affect the growth of
Internet use. The adoption of the Internet for commerce, communications and
access to content, particularly by those who have historically relied upon
alternative methods, generally requires understanding and accepting new ways
of conducting business and exchanging information. In particular, companies
that have already invested substantial resources in other means of conducting
commerce and exchanging information may be particularly reluctant or slow to
adopt a new, Internet- based strategy that may render their existing
infrastructure obsolete. If the use of the Internet fails to develop or
develops more slowly than expected, our business may be seriously harmed.
To the extent that there is an increase in Internet use, an increase in
frequency of use or an increase in the required bandwidth of users, the
Internet infrastructure may not be able to support the demands placed upon it.
In addition, the Internet could lose its viability as a commercial medium due
to delays in development or adoption of new standards or protocols required to
handle increased levels of Internet activity. Changes in, or insufficient
availability of, telecommunications or similar services to support the
Internet also could result in slower response times and could adversely impact
use of the Internet generally. If use of the Internet does not continue to
grow or grows more slowly than expected, or if the Internet infrastructure,
standards, protocols or complementary products, services or facilities do not
effectively support any growth that may occur, our business would be seriously
harmed.
There is substantial risk that future regulations could be enacted that either
directly restrict our business or indirectly impact our business by limiting
the growth of Internet commerce.
As Internet commerce evolves, we expect that federal, state or foreign
agencies will adopt new legislation or regulations covering issues such as
user privacy, pricing, content and quality of products and services. If
enacted, these laws, rules or regulations could indirectly harm us to the
extent that they impact our customers and potential customers. We cannot
predict if or how any future legislation or regulations would impact our
business. Although many of these regulations may not apply to our business
directly, we expect that laws regulating or affecting commerce on the Internet
could indirectly harm our business.
Our existing stockholders hold a majority of our stock and will be able to
control matters requiring stockholder approval.
After the closing of our initial public offering, approximately 48% of our
outstanding capital stock will be owned by our directors and executive
officers or their affiliated entities. As a result, these stockholders, acting
together, would be able to control all matters requiring approval by the
stockholders, including the election of all directors and approval of
significant corporate transactions.
We have various mechanisms in place to discourage takeover attempts, which
might tend to suppress our stock price.
Provisions of our certificate of incorporation and bylaws that may
discourage, delay or prevent a change in control include:
. we are authorized to issue "blank check" preferred stock, which could be
issued by our board of directors to increase the number of outstanding
shares and thwart a takeover attempt;
. we provide for the election of only one-third of our directors at each
annual meeting of stockholder, which slows turnover on the board of
directors;
. we limit who may call special meetings of stockholders;
. we prohibit stockholder action by written consent, so all stockholder
actions must be taken at a meeting of our stockholders; and
. we require advance notice for nominations for election to the board of
directors or for proposing matters that can be acted upon by stockholders
at stockholder meetings.
25
<PAGE>
In addition, Section 203 of the Delaware General Corporations Law and our
stock incentive plans may discourage, delay or prevent a change in control of
us. See our prospectus "Description of Capital Stock--Anti-Takeover
Provisions."
If a significant number of shares become available for sale and are sold in a
short period of time, the market price of our stock could decline.
If our stockholders sell substantial amounts of our common stock in the
public market following our initial public offering, the market price of our
common stock could fall. The total shares outstanding as of November 5, 1999,
was 22,916,775 shares of common stock outstanding. Other than the 3,622,500
shares of common stock sold in the initial public offering, no shares will be
eligible for sale in the public market immediately. The limited number of
shares available for resale may affect the liquidity of the market for those
shares. Our stockholders are subject to agreements with the underwriters or us
that restrict their ability to transfer their stock for 180 days from the date
of our prospectus. After these agreements expire, an additional 14,999,776
shares will be eligible for sale in the public market. If many of these shares
are sold when they become available for resale, the market price of our common
stock may decline.
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
We develop products in the United States and market our products in North
America, and, to a lesser extent in Europe. As a result, our financial results
could be affected by factors such as changes in foreign currency exchange
rates or weak economic conditions in foreign markets. Since all of our revenue
is currently denominated in U.S. Dollars, a strengthening of the Dollar could
make our products less competitive in foreign markets. Our interest income and
expense is sensitive to changes in the general level of U.S. interest rates,
particularly since the majority of our financial investments are in cash
equivalents and short-term investments. Due to the short-term nature of our
financial investments, we believe that there is no material risk exposure.
Therefore, no quantitative tabular disclosures are required.
26
<PAGE>
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) Changes in Securities.
During the period covered by this report, we granted stock options to
purchase 561,897 shares of our common stock at exercise prices ranging from
$7.64 to $10.01 per share to our employees, consultants, directors, and other
service providers under our 1998 Stock Option Plan. During the period covered
by this report, we issued and sold an aggregate of 392,303 shares of our
common stock to employees, consultants, directors, and other service providers
at exercise prices ranging from $0.18 to $10.01 per share under direct
issuances or exercises of options granted under our 1996 Stock Option Plan and
1998 Stock Option Plan. These securities were not registered under the
Securities Act of 1933, as amended (the "Securities Act") in reliance upon the
exception provided by Section 4(2) of the Securities Act and/or Rule 701
promulgated thereunder for transactions by an issuer not involving a public
offering. All shares purchased under our 1996 Stock Option Plan and 1998 Stock
Option Plan are subject to our right to repurchase such shares at their
original exercise price. The repurchase feature generally expires for 25% of
the shares after the first year of service then expires ratably over the next
36 months.
(d) Use of Proceeds.
On October 14, 1999, Interwoven, Inc. completed the initial public offering
of its common stock, The managing underwriters in the offering were Credit
Suisse First Boston, Robertson Stephens, and Dain Rauscher Wessels (a division
of Dain Rausher Incorporated). The shares of the common stock sold in the
offering were registered under the Securities Act of 1933, as amended, on a
Registration Statement on Form S-1 (No. 333-83779). The Securities and
Exchange Commission declared the Registration Statement effective on October
7, 1999.
The offering commenced on October 8, 1999 and terminated on October 14, 1999
after we had sold all of the 3,622,500 shares of common stock registered under
the Registration Statement (including 472,500 shares sold in connection with
the exercise of the underwriters' over-allotment option). The initial public
offering price was $17 per share for an aggregate initial public offering of
$61,582,500.
In conjunction with the Company's initial public offering, Interwoven paid a
total of $4,310,775 in underwriting discounts and commissions. In addition,
the following table sets forth the estimated costs and expenses, other than
underwriting discounts and commissions, incurred in connection with the
offering. None of the amounts shown was paid directly or indirectly to any
director, officer, general partner of Interwoven, Inc. or their associates,
persons owning 10 percent or more of any class of equity securities of
Interwoven, Inc or an affiliate of Interwoven, Inc.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.............. $ 13,900
NASD filing fee.................................................. 5,500
Nasdaq National Market filing fee................................ 95,000
Accounting fees and expenses..................................... 225,000
Legal fees and expenses.......................................... 425,000
Road show expenses............................................... 35,000
Printing and engraving expenses.................................. 250,000
Blue sky fees and expenses....................................... 10,000
Transfer agent and registrar fees and expenses................... 10,000
Miscellaneous.................................................... 120,600
----------
Total.......................................................... $1,190,000
==========
</TABLE>
After deducting the underwriting discounts and commissions and the offering
expenses, the estimated net proceeds to Interwoven, Inc. from the offering
were approximately $56.2 million.
27
<PAGE>
We intend to use the net proceeds from the initial public offering for
additional working capital and other general corporate purposes, including
increased sales and marketing expenditures, increased research and development
expenditures and capital requirements.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
In September 1999, the Company obtained written consent of shareholders to
the following proposals:
<TABLE>
<CAPTION>
Votes Received Per Proposal
--------------------------------------------
For* Against* Abstain* Broker Non-Vote
---------- -------- -------- ---------------
<S> <C> <C> <C> <C>
to change the state of
incorporation of the Company from
California to Delaware and to
effect a two-for-three reverse
stock split...................... 16,826,678 21,041 23,500 N/A
to approve the form of Indemnity
Agreement proposed to be entered
into by the Company with its
officers and directors........... 8,975,334 74,166 30,253 N/A
to adopt the 1999 Equity
Incentive Plan and reserve
2,900,000 shares of common stock
for issuance thereunder.......... 16,836,788 6,422 28,010 N/A
to adopt the 1999 Employee Stock
Purchase Plan and reserve 300,000
shares of common stock for
issuance thereunder.............. 16,769,288 75,588 26,344 N/A
to adopt the form of Amended and
Restated Certificate of
Incorporation to be filed
following the closing of the
Company's initial public
offering......................... 16,832,144 0 39,076 N/A
</TABLE>
- --------
* The number of votes set forth below are adjusted to reflect a two-for-three
reverse stock split with respect to the capital stock of Interwoven, Inc.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits
<TABLE>
<CAPTION>
Number Exhibit Description
------ -------------------
<C> <S>
27.1 Financial Data Schedule (Filed Electronically)
</TABLE>
(b) Reports on Form 8-K: None
28
<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 the
undersigned thereunto duly authorized.
INTERWOVEN, INC.
/s/ Martin W. Brauns
Dated: November 9, 1999 By: _________________________________
Martin W. Brauns
President and Chief Executive
Officer
(Duly Authorized Officer)
Dated: November 9, 1999 /s/ David M. Allen
By: _________________________________
David M. Allen
Vice President and Chief
Financial Officer
(Principal Financial and
Accounting Officer)
29
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM INTERWOVEN,
INC.'S QUARTERLY REPORT ON FORM 10Q FOR THE PERIOD ENDED SEPTEMBER 30, 1999 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 12,576
<SECURITIES> 9,419
<RECEIVABLES> 2,882
<ALLOWANCES> 288
<INVENTORY> 0
<CURRENT-ASSETS> 26,025
<PP&E> 3,256
<DEPRECIATION> 959
<TOTAL-ASSETS> 29,472
<CURRENT-LIABILITIES> 6,819
<BONDS> 0
52,996
0
<COMMON> 7
<OTHER-SE> 31,225
<TOTAL-LIABILITY-AND-EQUITY> 29,472
<SALES> 5,814
<TOTAL-REVENUES> 9,281
<CGS> 147
<TOTAL-COSTS> 3,689
<OTHER-EXPENSES> 16,999
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 94
<INCOME-PRETAX> (11,011)
<INCOME-TAX> 0
<INCOME-CONTINUING> (11,011)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,011)
<EPS-BASIC> (0.74)
<EPS-DILUTED> (0.74)
</TABLE>
