<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the period from _______ to _______.
Commission File Number: 000-21751
Evoke Communications, Inc.
(Exact Name of Registrant as specified in its charter)
Delaware 84-1407805
-------- ----------
(State or jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
1157 Century Drive
Louisville, CO 80027
(Address, including zip code, of principal executive offices)
(800) 878-7326
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Applicable Only to Corporate Issuers
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock, $0.0015 Par Value - 46,828,045 as of October 31, 2000.
<PAGE>
Evoke Communications, Inc.
Index
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of December 31, 1999 and September 30, 2000 3
(unaudited)
Condensed Consolidated Statements of Operations for the three and nine months 5
ended September 30, 1999 and 2000 (unaudited)
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 7
1999 and 2000 (unaudited)
Notes to the Condensed Consolidated Financial Statements (unaudited) 9
Item 2. Management's Discussion and Analysis of Financial Condition and Results of 14
Operations
Additional Risk Factors that May Affect Our Operating Results and The Market 19
Price Our Common of Stock
Item 3. Quantitative and Qualitative Disclosures About Market Risk 27
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 27
Item 2. Changes in Securities and Use of Proceeds 28
Item 3. Defaults Upon Senior Securities 28
Item 4. Submission of Matters to a Vote of Security Holders 28
Item 5. Other Information 29
Item 6. Exhibits and Reports on Form 8-K 29
SIGNATURES 30
</TABLE>
2.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
EVOKE COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(unaudited)
<TABLE>
<CAPTION>
December 31, 1999 September 30, 2000
----------------- ------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents............................................................... $ 89,234 $ 63,398
Short term investments.................................................................. -- 1,254
Accounts receivable, net of allowance for doubtful accounts of
$35 and $435 at December 31, 1999 and September 30, 2000,
respectively........................................................................... 805 4,425
Prepaid expenses and other current assets............................................... 709 5,566
-------- --------
Total current assets.................................................................... 90,748 74,643
Property and equipment, net............................................................... 19,539 37,618
Intangible assets, net.................................................................... -- 72,673
Other assets.............................................................................. 121 5,912
-------- --------
Total Assets $110,408 $190,846
======== ========
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable........................................................................ $ 8,519 $ 11,546
Current portion of long term debt....................................................... 1,336 1,470
Accrued expenses........................................................................ 586 1,748
Deferred revenue........................................................................ 317 878
-------- --------
Total current liabilities............................................................... 10,758 15,642
Long term debt, less current portion...................................................... 2,260 1,198
-------- --------
Total Liabilities 13,018 16,840
-------- --------
Mandatorily Redeemable Preferred Stock
Series B................................................................................ 1,064 --
Series C................................................................................ 10,284 --
Series D................................................................................ 99,794 --
Series E................................................................................ -- --
Warrants for the purchase of mandatorily redeemable preferred
stock.................................................................................. 180 --
-------- --------
111,322 --
-------- --------
Stockholders' Equity (Deficit)
Undesignated preferred stock, 964,365 and 10,000,000 shares authorized at
December 31, 1999 and September 30, 2000, respectively; none issued or outstanding..... -- --
Series A preferred stock................................................................ 503 --
Common stock, par value $.0015; 38,000,000 and 130,000,000
shares authorized at December 31, 1999 and September 30, 2000,
respectively; 575,806 and 46,828,045 shares issued and outstanding at
December 31, 1999 and September 30, 2000, respectively................................. 1 59
Additional paid-in capital.............................................................. 11,939 271,300
</TABLE>
3.
<PAGE>
<TABLE>
<CAPTION>
December 31, 1999 September 30, 2000
----------------- ------------------
<S> <C> <C>
Accumulated other comprehensive loss.......................... -- (120)
Note receivable from officer.................................. -- (1,152)
Unearned stock option compensation............................ (9,306) (13,574)
Accumulated deficit........................................... (17,069) (82,507)
-------- --------
Total stockholders' equity (deficit)......................... (13,932) 174,006
-------- --------
Commitments and contingencies
Total Liabilities and Stockholders' Equity (Deficit) $110,408 $190,846
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4.
<PAGE>
EVOKE COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(unaudited)
<TABLE>
<CAPTION>
Three Months ended Nine Months ended
September 30, September 30,
------------------ ------------------------
1999 2000 1999 2000
------- -------- ------- --------
<S> <C> <C> <C> <C>
Revenue....................................................... $ 590 $ 5,574 $ 1,224 $ 10,325
Cost of revenue:
(exclusive of stock based
compensation expense of $22, $117,
$62 and $241, respectively, shown
below)....................................................... 676 4,673 1,865 10,809
------- -------- ------- --------
Gross profit (loss)....................................... (86) 901 (641) (484)
------- -------- ------- --------
Operating expenses:
Sales and marketing (exclusive of
stock based compensation expense of
$102, $238, $523 and $848,
respectively, shown below).................................. 1,356 14,867 3,309 41,204
Research and development (exclusive
of stock based compensation expense
of $37, $225, $46 and $649,
respectively, shown below................................... 216 2,368 516 5,288
General and administrative,
(exclusive of stock based
compensation expense of $507, $980,
$518 and $5,437, respectively, shown
below)...................................................... 430 2,723 1,029 5,962
Amortization of intangible assets............................ -- 6,708 -- 7,826
Stock based compensation expense............................. 668 1,560 1,149 7,175
------- -------- ------- --------
Total operating expenses................................... 2,670 28,226 6,003 67,455
------- -------- ------- --------
Loss from operations....................................... (2,756) (27,325) (6,644) (67,939)
Other income (expense)........................................ (50) 925 (24) 2,501
------- -------- ------- --------
Net loss................................................... (2,806) (26,400) (6,668) (65,438)
Deemed dividend related to beneficial
conversion feature of preferred
stock........................................................ -- -- -- 1,181
Accretion of preferred stock to
redemption value............................................. -- 81 -- 394
Preferred stock dividend...................................... -- 150 -- 150
------- -------- ------- --------
Net loss attributable to common
stockholders................................................ $(2,806) $(26,631) $(6,668) $(67,163)
======= ======== ======= ========
Loss per share--basic and diluted............................. $(5.89) $(0.74) $(16.55) $(5.16)
======= ======== ======= ========
Weighted average number of common
shares outstanding--basic and
diluted...................................................... 476 36,094 403 13,007
======= ======== ======= ========
</TABLE>
5.
<PAGE>
<TABLE>
<CAPTION>
Three Months ended Nine Months ended
September 30, September 30,
------------------ -----------------
1999 2000 1999 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
Pro forma loss per share--basic and
diluted.............................. $(0.24) $(0.59) $(0.57) $(1.75)
======= ======= ======= =======
Weighted average number of pro forma
shares outstanding--basic and
diluted.............................. 11,826 44,972 11,752 38,444
======= ======= ======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6.
<PAGE>
EVOKE COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(unaudited)
<TABLE>
<CAPTION>
Nine Months ended
September 30,
------------------
1999 2000
------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss......................................................... $(6,668) $(65,438)
Adjustments to reconcile net loss to net cash used by operating
activities:
Depreciation and amortization.................................... 853 13,525
Loss on disposition of equipment................................. -- 32
Accrued interest on note receivable for purchase of stock........ -- (27)
Loss on foreign currency exchange................................ -- (11)
Common stock warrants issued for services........................ -- 89
Stock based compensation......................................... 1,150 7,175
Changes in operating assets and liabilities:
Accounts receivable.............................................. (60) (3,274)
Prepaid expenses and other current assets........................ (223) (4,835)
Other assets..................................................... -- (5,746)
Accounts payable and accrued expenses............................ 843 5,068
------- --------
Net cash (used) by operating activities........................... (4,105) (53,442)
------- --------
Cash flows from investing activities:
Purchase of property and equipment............................... (3,723) (24,486)
Proceeds from disposition of equipment........................... 9 77
Proceeds from sales and maturities of investment securities...... 7,511 648
Purchase of investment securities................................ (2,561) --
Investment in AudioTalk Networks, Inc............................ -- (2,000)
Loan to Contigo Software, Inc.................................... -- (300)
Cash paid for acquisition of Contigo, net of cash received....... -- (2,622)
------- --------
Net cash provided (used) by investing activities.................. 1,236 (28,683)
------- --------
Cash flows from financing activities:
Net proceeds from issuance of preferred stock.................... -- 5,013
Proceeds from issuance of common stock........................... 27 52,421
Proceeds from debt............................................... 4,458 --
Payments on debt................................................. (530) (995)
Preferred stock dividend......................................... -- (150)
------- --------
Net cash provided by financing activities......................... 3,955 56,289
------- --------
Increase (decrease) in cash and cash equivalents.................. 1,086 (25,836)
Cash and cash equivalents at beginning of period.................. 1,222 89,234
------- --------
Cash and cash equivalents at end of period........................ $ 2,308 $ 63,398
======= ========
Supplemental cash flow information - interest paid in cash........ $ 154 $ 315
======= ========
Supplemental disclosure of noncash investing and financing
activities:
Short-term debt and accrued interest converted to preferred stock. $ 75 $ --
======= ========
</TABLE>
7.
<PAGE>
Nine Months ended
September 30,
-------------
1999 2000
---- ----
Loan to officer for purchase of common stock........... $ -- $1,125
==== ======
Accounts payable incurred for purchases of property and
equipment.............................................. $230 $3,871
==== ======
See accompanying notes to condensed consolidated financial statements.
8.
<PAGE>
EVOKE COMMUNICATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Summary of Operations
Evoke Communications, Inc. (the "Company"), is an Internet communication
service provider offering integrated tools that enable virtual meetings. The
Company operates in a single segment.
The condensed consolidated financial statements include the accounts of
Evoke Communications and its wholly-owned subsidiaries. All significant
intercompany transactions and balances have been eliminated.
(b) Interim Results
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
The accompanying condensed consolidated financial statements as of
September 30, 2000 and for the three and nine months ended September 30, 1999
and 2000 are unaudited and have been prepared in accordance with generally
accepted accounting principles on a basis consistent with the December 31, 1999
audited financial statements and include normal recurring adjustments which are,
in the opinion of management, necessary for a fair statement of the results of
these periods. These consolidated statements should be read in conjunction with
our financial statements and notes thereto included in our Registration
Statement on Form S-1 (No. 333-30708), declared effective on July 24, 2000.
Operating results for the three and nine months ending September 30, 2000 are
not necessarily indicative of the results that may be expected for the full
year.
(c) Cash, Cash Equivalents and Investments
All highly liquid investments purchased with maturities of three months or
less are considered to be cash equivalents. Cash equivalents consist of money
market accounts at two financial institutions. Short-term investment consists of
an equity investment in a public company. This investment is classified as
"available for sale" in accordance with Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." This investment is carried at fair market value with any unrealized
gain or loss recorded as a separate element of stockholders' equity.
(d) Intangible Assets
Intangible assets consist primarily of goodwill, which is being amortized
on the straight line basis over an estimated useful life of three years.
(e) Revenue Recognition
Evoke Webconferencing customers are charged a per-minute fee based on each
phone participant's and web participant's actual time on the conference, which
is recognized as revenue upon completion of the conference. Customers are
charged a fee to upload visuals or record webcasts for webconferences, which is
also recognized as revenue upon completion of the conference.
Evoke Webcasting customers are charged for content encoding and hosting.
Content encoding is the conversion of the customer's media into formats that can
be accessed over the Internet using widely available media players and, for some
customers, indexing the media to facilitate search and reporting capabilities.
Revenue from content encoding is recognized when the content is available for
viewing over the Internet. Hosting is the maintenance of the content on the
Company's servers and, for some customers, providing access to information about
content usage. Revenue related to content hosting is recognized ratably over the
hosting period.
9.
<PAGE>
EVOKE COMMUNICATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Evoke Collaboration customers are charged either a concurrent user and
usage fee in addition to event fees or, in more limited cases, a software
license fee. Revenue from concurrent user fees is recognized monthly regardless
of usage, while usage fees are based upon either monthly connections or minutes
used. Event fees are generally hourly charges that are recognized as the events
take place. Revenue from software license agreements is recognized upon shipment
of the software when all the following criteria have been met: persuasive
evidence of an arrangement exists; delivery has occurred; the fee is fixed or
determinable; collectibility is probable; and evidence is available of the fair
value of all undelivered elements.
Evoke Talking Email customers are charged based on prices and specific
service terms which are negotiated in advance of service delivery. We recognize
revenue, including any setup fees, ratably over the life of the contract.
(f) Loss Per Share
Loss per share is presented in accordance with the provisions of Statement
of Financial Accounting Standards No. 128, Earnings Per Share (SFAS 128). Under
SFAS 128, basic earnings (loss) per share (EPS) excludes dilution for potential
common stock and is computed by dividing income or loss available to common
stockholders by the weighted average number of common shares outstanding for the
period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issued common stock were exercised or converted
into common stock. Basic and diluted EPS are the same for the three and nine
months ended September 30, 1999 and 2000 as all potential common stock
instruments are antidilutive.
(g) Pro Forma Loss Per Share
Pro forma loss per share has been computed as described above and also
gives effect to the conversion of the shares of convertible preferred stock not
included in the computation of basic and diluted loss per share, which shares
converted upon the completion of the Company's initial public offering effective
July 24, 2000 (using the if-converted method).
(2) INITIAL PUBLIC OFFERING
On July 28, 2000, the Company closed its initial public offering of
7,000,000 shares of common stock at $8.00 per share, for net proceeds, after
deducting underwriting commissions and expenses, of $50.8 million. At closing,
all of the Company's issued and outstanding shares of convertible preferred
stock were converted into shares of common stock.
(3) PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
(a) Mandatorily Redeemable Convertible and Convertible Preferred Stock
At September 30, 2000, the Company did not have any preferred stock
outstanding since each share of preferred stock (Series A, Series B, Series C,
Series D and Series E) was converted to common stock on the closing of the
initial public offering. Prior to that time, the Company had the following
series of preferred stock outstanding that were convertible at any time, at the
option of the holder, into common stock as indicated below (unaudited):
Preferred
Shares Conversion Common
Outstanding Rate Shares
----------- ---------- ----------
Series A 5,025,000 0.67 3,350,000
Series B 10,635 128.21 1,363,461
Series C 9,953,935 0.67 6,635,956
Series D 33,333,333 0.67 22,222,222
Series E 686,813 0.67 457,875
10.
<PAGE>
EVOKE COMMUNICATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Series B, C, D and E shares were mandatorily redeemable. All preferred
stock had voting rights on an as converted basis and liquidation preferences
equal to the stated amount of the preferred shares issued.
Each share of preferred stock converted to common stock at the closing of
the initial public offering.
Series B, Series C and Series D preferred stock were issued in 1997, 1998
and 1999 for $100, $1.04 and $3.00 per share, respectively. All issuances were
for cash, except for 487,355 shares of Series C Preferred stock issued upon
conversion of $506,861 of convertible debt and related accrued interest. Based
on the beneficial conversion features of the Series D preferred stock, assuming
an initial public offering price of $13.50 per share, the Company recorded a
deemed dividend related to the beneficial conversion feature and increased net
loss attributable to common stockholders by approximately $100 million in 1999,
in accordance with Emerging Issues Task Force Bulletin 98-5, "Accounting for
Convertible Securities with Beneficial Conversion Features or Contingently
Adjustable Conversion Ratios (EITF 98-5).
On March 29, 2000, the Company issued 686,813 shares of Series E preferred
stock (457,875 post split common shares) at $7.28 per share and a warrant to
purchase 858,416 shares of Series E preferred stock for an aggregate purchase
price of $5.0 million. The warrant is exercisable upon issuance at the initial
public offering price of the Company's common stock and expires in March 2003.
Upon completion of the Company's initial public offering on July 28, 2000, the
warrants were converted into warrants to purchase 572,277 shares of common stock
at $8.00 per share. The fair value of the warrant was estimated to be $4.1
million, as determined using the Black-Scholes option pricing model with the
following assumptions: no expected dividends, 75% volatility, risk-free interest
rate of 6.5% and a term of 3 years. The fair value of the warrant was separately
recorded as warrants for the purchase of mandatorily redeemable preferred stock
and as a reduction in the Series E preferred stock. In addition, $350,000 was
recorded as prepaid advertising costs related to future services to be provided
to the Company by the preferred stockholder. The preferred stock was accreting
to its issuance price over the period from issuance to redemption in March 2003.
Based on the beneficial conversion terms of the preferred stock, assuming an
initial public offering price of $13.50 per share, the Company recorded a deemed
dividend related to the beneficial conversion feature and increased net loss
attributable to common stockholders for the nine months ended September 30, 2000
by $1,181,318 at the date of issuance in accordance with EITF 98-5.
(b) Stock Purchase Warrants
In January 1999, in the connection with obtaining a $3.0 million loan, the
Company issued warrants to purchase 86,538 shares of Series C preferred stock.
The warrants are exercisable at $1.04 per share and expire on July 24, 2005.
Upon completion of the Company's initial public offering on July 28, 2000, the
warrants were converted into warrants to purchase 57,692 shares of common stock
at $1.56 per share. The fair value of the warrants was $75,000, as determined
using the Black-Scholes option pricing model with the following assumptions: no
expected dividends, 75% volatility, risk-free interest rate of 6% and an
expected life of 10 years. The fair value of the warrants will be included in
interest expense over the term of the agreement.
In September 1999, in connection with obtaining a $1.5 million master loan
and security agreement, the Company issued warrants to purchase 15,026 shares of
Series D Preferred stock. The warrants are exercisable at $3.00 per share and
will expire on September 29, 2004. Upon completion of the Company's initial
public offering on July 28, 2000, the warrants were converted into warrants to
purchase 10,017 shares of common stock at $4.50 per share. The fair value of the
warrants was $105,000, as determined using the Black-Scholes option pricing
model with the following assumptions: no expected dividends, 75% volatility,
risk-free interest rate of 6% and an expected life of 5 years. The fair value of
the warrants will be included in interest expense over the term of the
agreement.
11.
<PAGE>
EVOKE COMMUNICATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In January 2000, the Company issued a warrant to purchase 3,703 shares of
common stock. The warrants are exercisable at $4.50 per share and were scheduled
to expire January 15, 2001. The warrant is in exchange for certain marketing
costs and were expensed as sales and marketing costs at the grant date. The
warrants were exercisable at the date of grant and are not contingent on
counterparty performance. The fair value of the warrant was $21,250 as
determined using the Black-Scholes option pricing model with the following
assumptions: no expected dividends, 75% volatility, risk-free interest rate of
6.5% and a term of one year. This warrant was exercised on April 10, 2000.
In June 2000, the Company issued a warrant to purchase 10,000 shares of
common stock. The warrants are exercisable at $8.00 per share and expire on June
30, 2005. The warrant is in exchange for certain marketing costs and were
expensed as sales and marketing costs at the grant date. The warrants became
exercisable on July 24, 2000. The fair value of the warrant was $89,000 as
determined using the Black-Scholes option pricing model with the following
assumptions: no expected dividends, 75% volatility, risk-free interest rate of
6.5% and a term of five years.
(c) Stock Split
On July 13, 2000, the Company completed a two-for-three reverse split of
all outstanding shares of common stock. Additionally, all preferred stock was
simultaneously adjusted for the split when it was converted to shares of common
stock on July 28, 2000. All shares of common stock and per share information in
the accompanying financial statements have been adjusted to reflect the reverse
split.
(4) JOINT VENTURES AND ACQUISITIONS
On June 9, 2000, the Company entered into an agreement with @viso Limited,
a European-based venture capital firm, to form Evoke Communications, B.V., a
Netherlands corporation (Evoke Communications Europe). Pursuant to this
agreement, the Company will make net cash payments of approximately $5.5 million
to Evoke Communications Europe, approximately $5.3 million of which are to be
repaid under the terms of a promissory note, grant a technology license to Evoke
Communications Europe and be issued common stock representing a 51% ownership
stake in Evoke Communications Europe. This net payment was made in the quarter
ending September 30, 2000. Evoke Communications, B.V. was incorporated on
October 2, 2000 and, commencing in the fourth quarter of 2000, the Company will
use the equity method of accounting to account for this investment.
On June 16, 2000, the Company acquired Contigo Software, Inc. (Contigo) for
cash of $6.1 million and 4,425,176 shares of common stock in exchange for all
the outstanding shares of Contigo capital stock. The Company also issued
1,574,831 common stock options in exchange for outstanding Contigo stock
options. The purchase price of the acquisition was $83.9 million based on the
fair value of the consideration paid plus direct acquisition costs. The
acquisition has been accounted for using the purchase method. Accordingly, the
results of operations of Contigo subsequent to June 16, 2000 have been included
in the Company's statement of operations for the three and nine months ended
September 30, 2000. The purchase price allocation is as follows:
(IN MILLIONS)
Tangible net assets................................... $ 2.8
Assumed unearned stock option compensation............ 0.6
Goodwill and other intangible assets.................. 80.5
-----
Total purchase price allocation....................... $83.9
=====
Goodwill and other intangibles are being amortized on a straight-line basis
over an estimated useful life of three years.
12.
<PAGE>
EVOKE COMMUNICATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The summary table below, prepared on an unaudited pro forma basis, combines
the Company's consolidated results of operations with Contigo's results of
operations as if the acquisition took place on January 1, 1999 (in thousands,
except per share data).
Nine months ended September 30
------------------------------
1999 2000
-------- --------
Revenue....................................... $ 3,495 $ 12,308
Net loss...................................... (7,475) (69,715)
Basic and diluted net loss per share.......... (2.22) (4.44)
The pro forma results for the nine months ended September 30, 2000 combine
the Company's results for the nine months ended September 30, 2000 with the
results of Contigo for the period from January 1, 2000 through the date of
acquisition with the exception of a $5.0 million payment made by Contigo to one
of its officers, which is excluded from the pro forma net loss reflected above.
This payment was made by Contigo upon the acquisition and was related to the
consummation of the acquisition. The pro forma results are not necessarily
indicative of the results of operations that would have occurred if the
acquisition had been consummated on January 1, 1999. In addition, they are not
intended to be a projection of future results and do not reflect any synergies
that might be achieved from the combined operations.
(5) COMMITMENTS AND CONTINGENCIES
(a) Leases
The Company leases office facilities under various operating leases that
expire through 2009. Two of the office facilities are leased from entities that
are controlled by either directors or former directors of the Company. A large
portion of the remaining facilities are satellite sales offices. Total future
minimum lease payments, under all operating leases, approximate $18.1 million.
(b) Purchase Commitments
As of September 30, 2000, purchase commitments, including software licenses
and maintenance agreements and sales and marketing expenses, including
advertising, totaled $25.7 million to be expended over the next two years.
(c) Litigation
From time to time, the Company has been subject to litigation and claims in
the ordinary course of business. In March 2000, a claim was filed against the
Company alleging trademark and service mark infringement. This litigation is
still at an early stage and it is therefore not possible to predict the outcome
of the litigation or any related motion with any degree of certainty.
(6) RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the staff of the Securities and Exchange Commission
released Staff Accounting Bulletin 101, "Revenue Recognition" (SAB 101), to
provide guidance on the recognition, presentation, and disclosure of revenues in
financial statements. On March 24, 2000 Staff Accounting Bulletin No. 101A -
Amendment (SAB101A) was released to effectively delay the implementation of
SAB101. On June 26, 2000, Staff Accounting Bulletin No. 101B- Second Amendment
(SAB101B) was issued and amends the transition provisions of SAB101 and
effectively supersedes the original extension provided for in SAB101A. SAB101B
further delays the required implementation date for SAB101 until the quarter
ending December 31, 2000. We believe that our revenue recognition practices are
currently in conformity with the guidelines in SAB101, as revised, and therefore
these pronouncements will have no impact on our financial statements.
In March 2000, the Financial Accounting Standards Board (FASB), released
FASB Interpretation No. 44, "Accounting for Certain Transactions involving Stock
Compensation, an interpretation of APB Opinion No. 25," which provides
clarification of Opinion 25 for certain issues such as the determination of who
is an employee, the criteria for determining whether a plan qualifies as a
noncompensatory plan, the accounting consequence of various modifications to the
terms of a previously fixed stock option or award, and the accounting for an
exchange of stock compensation awards in a business combination. We believe the
adoption of Interpretation No. 44 will have no impact on our financial
statements.
13.
<PAGE>
EVOKE COMMUNICATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In March 2000, the Emerging Issues Task Force of the FASB (EITF), issued
EITF 00-2, "Accounting for Website Development Costs." This issue addresses how
an entity should account for costs incurred to develop a website. We do not
believe this pronouncement will have a material impact on our financial
statements.
In March 2000, the EITF issued EITF 00-3, "Application of AICPA Statement
of Position 97-2 to Arrangements that Include the Right to Use Software Stored
on Another Entity's Hardware." This issue addresses situations where entities
license software applications to a third party and also host those applications.
We do not expect this pronouncement to have a material impact on our financial
statements.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This Report on Form 10-Q may contain forward-looking statements, including
without limitation, statements containing the words "believes," "anticipates,"
"expects," and words of similar import and statements regarding our strategy,
financial performance, and revenue sources that involve risks and uncertainties.
Our actual results may differ significantly from the results discussed in the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those discussed in the subsection entitled "Additional
Risk Factors that May Affect Our Operating Results and The Market Price of Our
Common Stock." Readers are urged to carefully review and consider the various
disclosures made in this report and in our other reports filed with the SEC that
attempt to advise interested parties of certain risks and factors that may
affect our business.
You should read this analysis in conjunction with our condensed
consolidated financial statements and related notes that begin on page 3.
Overview
We offer a suite of Internet communication services that currently consists
of Evoke Webconferencing and Collaboration, Live and On-Demand Evoke Webcasting,
Evoke Talking Email and Evoke Web Talk. We also recently launched our Evoke
Mobile Webconferencing service for commercial use. We believe that we are the
leading provider of integrated communications services, offering tools for the
delivery of virtual meetings. We market our services through our direct sales
force and indirect sales channels, including through co-branded, private-label
and reseller relationships.
We have incurred losses since commencing operations and as of September 30,
2000, we had an accumulated deficit of $82.5 million. Our net loss was $2.8
million and $26.4 million for the three months ended September 30, 1999 and
2000, respectively and $6.7 million and $65.4 million for the nine months
ended September 30, 1999 and 2000, respectively. We have not achieved
profitability on a quarterly or annual basis. We intend to continue to invest
in developing our proprietary systems and services, and expanding our
infrastructure and marketing and sales efforts. We expect to continue to incur
losses at least through 2002, particularly due to the large amount of goodwill
amortization the Company will record over the next three years. The Internet
communication services market is new and rapidly evolving and, therefore, we
are unable to quantify our competitive position within the market. We will
need to generate significantly higher revenue to support expected expenses and
to achieve and maintain profitability.
On June 16, 2000, we acquired Contigo Software, Inc. We have included the
results of operations of Contigo subsequent to June 16, 2000 in our statements
of operations for the three and nine months ended September 30, 2000. This
acquisition was accounted for using the purchase method of accounting and we
recorded $80.5 million of goodwill in the quarter ending June 30, 2000, which
we will amortize over a period of three years. For the three months ended June
30, 2000 and September 30, 2000, amortization expense pertaining to goodwill
was $1.1 million and $6.7 million, respectively. To the extent we do not
generate sufficient cash flow to recover the amount of the investment
recorded, the investment may be considered impaired and could be subject to
earlier write-off.
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In connection with the Contigo acquisition, we expect amortization expense
for the next four fiscal years as follows (in thousands):
Year Ended December 31, Amortization Expense
----------------------- --------------------
2000........................................... $14,535
2001........................................... 26,833
2002........................................... 26,833
2003........................................... 12,299
We derive revenue from the sale of our Evoke Webconferencing, Evoke
Collaboration, Evoke Webcasting and Evoke Talking Email services. We currently
use Evoke Web Talk to promote brand awareness. At this time, we do not generate
significant revenue from Evoke Web Talk or Evoke Mobile Webconferencing.
. Evoke Webconferencing Revenue. Revenue for Evoke Webconferencing is
based upon the actual time that each participant is logged onto the
conference. Similarly, a customer is charged a per-minute, per-user fee
for each participant listening and viewing a live or recorded web cast.
In addition, we charge customers a one-time fee to upload visuals for a
web conference or a recorded web cast. We recognize revenue from our
Evoke Webconferencing services as soon as a call or web cast is
completed.
. Evoke Collaboration Revenue. Revenue for Evoke Collaboration is derived
from either a concurrent user and usage fee in addition to event fees
or, in more limited cases, a software license fee. Revenue from
concurrent user fees is recognized monthly regardless of usage, while
usage fees are based upon either monthly connections or minutes used.
Event fees are generally hourly charges that are recognized as the
events take place. Revenue from software license agreements is
recognized upon shipment of the software when all the following criteria
have been met: persuasive evidence of an arrangement exists; delivery
has occurred; the fee is fixed or determinable; collectibility is
probable; and evidence is available of the fair value of all undelivered
elements.
. Evoke Webcasting Revenue. Prices and specific service terms are usually
negotiated in advance of service delivery. We recognize revenue from
live event streaming when the content is broadcast over the Internet. We
recognize revenue from encoding recorded content when the content
becomes available for viewing over the Internet. We recognize revenue
from pre-recorded content hosting ratably over the hosting period.
. Evoke Talking Email Revenue. Prices and specific service terms are
negotiated in advance of service delivery. We recognize revenue,
including any setup fees, ratably over the life of the contract.
Our cost of revenue consists primarily of telecommunication expenses,
depreciation of network and data center equipment, Internet access fees and fees
paid to network providers for bandwidth, compensation and benefits for
operations personnel and allocated overhead. Our telecommunication expenses are
variable and directly correlate to the use of our services. Our depreciation,
Internet access and bandwidth expenses and compensation expenses generally
increase as we increase our capacity and build our infrastructure. Since our
infrastructure build-out is nearing completion, we expect a decreasing need for
large-scale capital expenditures, thereby reducing the increases in
depreciation, Internet access and bandwidth expenses over time. Once completed,
we expect our capacity and infrastructure will accommodate our revenue
projections through the first quarter of 2002.
We incur sales and marketing expenses that consist primarily of the
salaries and benefits of our sales and marketing personnel, commissions,
consulting fees, rents for our remote sales offices, tradeshow expenses,
advertising and promotion expenses and allocated overhead. We expect to incur
significant sales and marketing expenses in the near term due to certain
purchase commitments, however, over time we expect these expenses to decrease as
a result of streamlining our sales force, and if we are
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successful, changing certain sales and marketing commitments and consolidating
certain remote sales offices.
We incur research and development expenses that consist primarily of
salaries and benefits for research and development personnel, consulting fees
and allocated overhead. We expense research and development costs as they are
incurred, except for certain capitalized costs associated with internally
developed software. We expect to continue to make investments in research and
development and anticipate that these expenses will increase in absolute
dollars, however, decrease as a percentage of revenue over time.
We incur general and administrative expenses that consist primarily of
expenses for finance, human resources, administrative and general management
activities, including legal, accounting and other professional fees and other
general corporate expenses. We expect general and administrative expenses to
increase in terms of absolute dollars, however, decrease as a percentage of
revenue over time.
Amortization of intangible assets consists of amortization of intangible
assets acquired in business combinations, including goodwill.
Since our inception, we have used stock based compensation for employees
and members of our board of directors to attract and retain strong business and
technical personnel. During the three and nine months ending September 30, 2000
we recorded $(1.9) million and $11.3 million of deferred stock option
compensation, respectively. The decrease for the three months ended September
30, 2000 is a result of a deferred stock option compensation reversal for
employees whose employment was terminated within the quarter. For the three and
nine months ended September 30, 2000, we expensed $1.6 million and $7.2 million,
respectively, related to stock based compensation. Stock based compensation
amounts are based on the deemed excess of the fair value of our common stock on
the date of grant or sale over the option exercise price or stock purchase
price. Compensation expense related to stock options is amortized over the
vesting period of the options, which range from one to four years. We expect to
incur stock based compensation expense of approximately $8.4 million in 2000,
$4.4 million in 2001, $4.4 million in 2002, $3.6 million in 2003 and $.4 million
in 2004 for common stock issued or stock options awarded through September 30,
2000 under our stock compensation plans.
We evaluate operating performance based on several factors, including our
primary financial measure of loss before noncash amortization of intangible
assets and charges. Consistent with our increased focus on controlling capital
spending, we measure operating performance after charges for depreciation. This
analysis eliminates the effects of considerable amounts of noncash amortization
of intangible assets recognized in business combinations accounted for by the
purchase method and the effects of changes in stock based compensation.
The calculation of loss per share before amortization and charges, which
excludes preferred stock dividends and accretion, is as follows:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1999 2000 1999 2000
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net loss............................................... $ (2,806) $(26,400) $ (6,668) $(65,438)
Add: Amortization of intangible assets................. -- 6,708 -- 7,826
Add: Stock based compensation expense.................. 668 1,560 1,149 7,175
-------- -------- -------- --------
Loss before amortization and charges................... $ (2,138) $(18,132) $ (5,519) $(50,437)
======== ======== ======== ========
</TABLE>
Loss before amortization and charges represents 362% and 325% of revenue for the
three months ended September 30, 1999 and 2000, respectively, and 451% and 488%
of revenue for the nine months ended September 30, 1999 and 2000, respectively.
Loss before amortization and charges should be considered in addition to, not as
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a substitute for net loss attributable to common shareholders and other measures
of financial performance reported in accordance with generally accepted
accounting principles. Rather, loss before amortization and charges is a measure
of operating performance and liquidity that is commonly reported and widely used
by analysts, investors and other interested parties because it eliminates
certain non-cash charges to earnings. However, loss before amortization and
charges as used by us may not be comparable to similarly titled measures
reported by other companies.
Results of Operations
Revenue. Total revenue increased by $5.0 million from $0.6 million for the
three months ended September 30, 1999 to $5.6 million for the three months ended
September 30, 2000. Total revenue increased by $9.1 million from $1.2 million
for the nine months ended September 30, 1999 to $10.3 million for the nine
months ended September 30, 2000. The increase was primarily due to increased
customer account penetration and the addition of new customers of our Evoke
Webconferencing service, and partially due to the increased use of our Evoke
Webcasting service. In addition, the quarter ending September 30, 2000 was the
first full quarter in which we reported revenue from our Evoke Collaboration
service and was the first quarter in which we recognized revenue attributable to
Evoke Talking Email. Our customer concentrations continue to decrease as no
single customer accounted for greater than 10% of revenue for the three and nine
months ended September 30, 2000.
Cost of Revenue. Cost of revenue increased $4.0 million from $0.7 million
for the three months ended September 30, 1999 to $4.7 million for the three
months ended September 30, 2000. Cost of revenue increased $8.9 million from
$1.9 million for the nine months ended September 30, 1999 to $10.8 million for
the nine months ended September 30, 2000. Depreciation expense increased $1.5
million in the third quarter of 2000 and $3.9 million in the nine months ended
September 30, 2000 over the respective periods in 1999 as we built out our data
operation centers in both Boulder and Louisville, Colorado. Telecommunication
costs and Internet access costs increased $1.5 million in the third quarter of
2000 and $3.3 million in the nine months ended September 30, 2000 over the
respective periods in 1999 as we incurred phone charges consistent with
increased use of Evoke Webconferencing and also increased our bandwidth to
accommodate additional growth in our business. Salaries and payroll related
expenses increased $0.5 million in the third quarter of 2000 and $0.8 million in
the nine months ended September 30, 2000 over the respective periods in 1999 as
we hired technical support, consulting and education personnel to provide
services to our customers. Maintenance expense increased $0.4 million in the
third quarter of 2000 and $0.7 million in the nine months ended September 30,
2000 over the respective periods in 1999 due primarily to maintenance agreements
that cover equipment located in our data operation facility. In the three months
ended September 30, 2000 we recorded our first positive gross margin quarter,
which is attributable to the service revenue mix in the quarter and the
efficiency of our automated aspects of service delivery.
Sales and Marketing. Sales and marketing expense increased $13.5 million
from $1.4 million for the three months ended September 30, 1999 to $14.9 million
for the three months ended September 30, 2000. Sales and marketing expense
increased $37.9 million from $3.3 million for the nine months ended September
30, 1999 to $41.2 million for the nine months ended September 30, 2000.
Advertising and promotion increased $6.5 million in the third quarter of 2000
and $21.2 million in the nine months ended September 30, 2000 over the
respective periods in 1999 as we focused on creating brand awareness, which
included advertising and promotional programs with partners. $4.8 million of the
increase in the third quarter of 2000 and $10.4 million of the increase in the
nine months ended September 30, 2000 is attributable to personnel and payroll
related expenses of additional sales, marketing and business development
personnel that we hired to expand our sales and distribution network.
Research and Development. Research and development expense increased $2.2
million from $0.2 million for the three months ended September 30, 1999 to $2.4
million for the three months ended September 30, 2000. Research and development
expense increased $4.8 million from $0.5 million for the nine months ended
September 30, 1999 to $5.3 million for the nine months ended September 30, 2000.
The increase was primarily related to personnel and payroll related expenses
resulting from an increase in headcount and to a lesser extent consulting fees.
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General and Administrative. General and administrative expense increased
$2.3 million from $0.4 million for the three months ended September 30, 1999 to
$2.7 million for the three months ended September 30, 2000. General and
administrative expense increased $4.9 million from $1.1 million for the nine
months ended September 30, 1999 to $6.0 million for the nine months ended
September 30, 2000. The increase is primarily due to an increase in professional
fees, particularly the legal fees and expenses related to our pending
litigation, and an increase in personnel and payroll related expenses. We expect
general and administrative expenses to increase in terms of absolute dollars and
will decrease as a percentage of revenue over time.
Goodwill amortization. Goodwill amortization was $6.7 million and $7.8
million in the three and nine months ended September 30, 2000 as result of our
acquisition of Contigo in June 2000.
Stock Based Compensation Expense. Stock based compensation expense
increased $0.9 million from $0.7 million for the three months ended September
30, 1999 to $1.6 million for the three months ended September 30, 2000. Stock
based compensation expense increased $6.0 million from $1.2 million for the nine
months ended September 30, 1999 to $7.2 million for the nine months ended
September 30, 2000. In the nine months ended September 30, 2000 and prior to our
initial public offering, options were granted at less than the estimated initial
public offering price resulting in deferred compensation of $10.7 million which
is being recognized over vesting periods ranging from three to four years. In
addition, in the nine months ended September 30, 2000, and prior to our initial
public offering, stock purchase rights were granted for the purchase of 398,296
shares of common stock with exercise prices below the estimated initial public
offering price, resulting in compensation expense of $3.2 million in the nine
months ended September 30, 2000, which is included in the $7.2 million reflected
above.
Other Income (Expense). Other income (expense) consists primarily of net
interest income. Interest income increased $1.0 million from $0.1 million for
the three months ended September 30, 1999 to $1.1 million for the three months
ended September 30, 2000. Interest income increased $2.7 million from $0.2
million for the nine months ended September 30, 1999 to $2.9 million for the
nine months ended September 30, 2000. The increase was related to higher cash
balances for the three months and nine months ended September 30, 2000 as
compared to September 30, 1999 due to the private equity financing we completed
in the fourth quarter of 1999 and first quarter of 2000, as well as proceeds
received from our initial public offering. Interest expense increased $40,000
for the three months ended September 30, 2000 and $0.2 million for the nine
months ended September 30, 2000 as compared to the respective periods in 1999 as
a result of an increase in our debt.
Liquidity and Capital Resources
Prior to our initial public offering, we financed our operations primarily
from sales of our preferred stock and, to a lesser extent, proceeds from loans.
Upon completion of our initial public offering of common stock, a total of
7,000,000 shares were sold to the public, which resulted in all redeemable
preferred stock converting to common stock and net proceeds to the Company,
after underwriting discounts and expenses of $50.8 million.
As of September 30, 2000, cash and cash equivalents and short-term
investments were $64.7 million, a decrease of $24.6 million compared with cash
and cash equivalents held as of December 31, 1999. Cash and cash equivalents at
September 30, 2000 reflect the receipt of the proceeds from our initial public
offering that took place in July 2000.
Net cash used in operations was $53.2 million for the nine months ended
September 30, 2000, and was related to operating losses and cash expended for
prepaid expenses and other assets and an increase in accounts receivable, and
was partially offset by an increase in accounts payable.
Net cash used by investing activities was $29.0 million for the nine months
ended September 30, 2000. Net cash used by investing activities related
primarily to capital expenditures for equipment and software used in our data
operations center from which we operate our Internet communication platform and
net purchases and sales of investments. In June 2000, we made a cash payment of
$2.6 million, net of cash acquired, for the acquisition of Contigo. We expect
capital expenditure spending to decrease since the build-out of our
infrastructure is nearly complete.
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Net cash provided by financing activities was $56.3 million for the nine
months ended September 30, 2000 and was primarily due to the sale of our Series
E preferred stock and the sale of common stock in our initial public offering,
net of payments made under our debt financing arrangements.
In 1999, we entered into agreements to borrow approximately $4.5 million.
As of September 30, 2000, we had approximately $2.7 million in total debt
obligations outstanding, of which approximately $1.5 million was current.
We also receive funds from time to time from the exercise of options or
similar rights to purchase shares of our common stock. We have no other material
external sources of liquidity.
As of September 30, 2000, our purchase commitments, including software
licenses and maintenance agreements and sales and marketing expenses, including
advertising, totaled $25.7 million, to be expended over the next two years. We
will attempt to change these commitments, and if we are successful, we would
expect these expenses to decrease over time.
We lease office facilities under various operating leases that expire
through 2009. A large portion of these facilities are satellite sales offices
that typically average 3,000 square feet. Total future minimum lease payments,
under all operating leases, approximate $18.1 million. We will attempt to
consolidate certain remote sales offices as a result of streamlining our sales
force, and to the extent we are successful in subleasing or otherwise relieving
ourselves of the lease obligations, these facility lease commitments will
decrease.
We expect that existing cash resources and the net proceeds from our
initial public offering will be sufficient to fund our anticipated working
capital and capital expenditure needs for the next twelve months. If cash
generated from operations is insufficient to satisfy our liquidity requirements,
we may seek to sell additional public or private equity securities or obtain
additional debt financing. Additional financing may not be available at all or,
if available, may not be obtainable on terms favorable to us. If we are unable
to obtain additional financing, we may be required to reduce the scope of our
planned technology and product development and sales and marketing efforts,
which could harm our business, financial condition and operating results.
Additional financing may also be dilutive to our existing shareholders.
Additional Risk Factors That May Affect Our Operating Results and The Market
Price of Our Common Stock
You should carefully consider the risks described below. The risks and
uncertainties described below are not the only ones we face. If any of the
following risks actually occur, our business, financial condition or results of
operations could be materially and adversely affected. In that case, the trading
price of our common stock could decline, and you may lose all or part of your
investment.
We have a history of losses, we expect significant continuing losses and we may
never attain profitability.
If we do not achieve or sustain profitability in the future, we may be
unable to continue our operations. Our operating costs have exceeded our
revenues in each quarter since our inception in April 1997. We have incurred
cumulative net losses of approximately $82.5 million from our inception through
September 30, 2000, and we anticipate significant net losses through at least
2002. Our revenues may not continue to grow and we may not achieve or maintain
profitability in the future. In addition, we expect to incur significant sales
and marketing, research and development, general and administrative and goodwill
amortization expenses in the future. Accordingly, we must significantly increase
our revenue to achieve and maintain profitability and to continue our
operations.
We have a limited operating history, which makes it difficult to evaluate our
business.
We have a limited operating history and you should not rely on our recent
results as an indication of our future performance. We were incorporated in
April 1997 and first recorded revenue from Evoke Webcasting in January 1998. We
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only began commercially offering our flagship service, Evoke Webconferencing, in
April 1999. Due to our limited operating history and the rapidly changing nature
of the Internet communication services market, it is difficult or impossible for
us to predict future results, and you should not expect our future revenue
growth to equal or exceed our recent growth rates. Our business strategy may be
unsuccessful and we may be unable to address the risks we face in a cost-
effective manner, if at all.
We may fail to meet market expectations because of fluctuations in our quarterly
operating results, which would cause our stock price to decline.
As a result of our limited operating history, increased competition, the
rapidly changing market for our services and the other risks described in this
section, our quarterly operating results have varied significantly from period
to period in the past and are likely to continue to vary significantly in future
periods. For example, our quarterly net loss ranged between $17.3 million and
$26.4 million in the three quarters of the nine month period ended September 30,
2000. Our quarterly revenues ranged between $1.9 million and $5.6 million in the
three quarters of the nine month period ended September 30, 2000. Many of the
factors that may cause fluctuations in our quarterly operating results are
beyond our control, such as increased competition and market demand for our
services. Accordingly, our quarterly operating results are difficult to predict
and may not meet the expectations of securities analysts or investors. If this
occurs, the price of our common stock would decline.
Additionally, we expect our results will fluctuate based on seasonal sales
patterns. Our operating results for the year ended 1999 show decreases in the
use of Evoke Webconferencing around the Thanksgiving, Christmas and New Year
holidays. We expect that our revenues during these holiday seasons and during
the summer vacation period will not grow at the same rates as compared to other
periods of the year because of decreased use of our services by business
customers.
We depend on single source suppliers for key components of our infrastructure,
the loss of which could cause significant delays and costs in providing services
to our existing and prospective customers.
We purchase key components of our telephony hardware infrastructure from a
single supplier. Any extended reduction, interruption or discontinuation in the
supply of these components would cause significant delays and costs in providing
services to our existing and prospective customers. These components form the
basis of our audio conferencing infrastructure, upon which the majority of our
services rely. In order to continue to expand our infrastructure capacity, we
must purchase additional components from this supplier. Because we do not have
any guaranteed supply arrangements with this supplier, it may unilaterally
increase its prices for these components, and as a result, we could face higher
than expected operating costs and impaired operating results. We could also
experience difficulties in obtaining alternative sources on commercially
reasonable terms, if at all, or in integrating alternative components into our
technology platform if our single source ceased supplying us with these
components. We also rely on a single supplier for the majority of our storage
hardware, which store critical operations data and maintain the reliability of
our services. If we are required to find alternative sources for such equipment,
we may experience difficulty in integrating them into our infrastructure.
If any of the third party technologies and services that we use become
unavailable to us, our services would be subject to significant delays and
increased costs.
The market for Internet communication services is rapidly evolving and we
need to license or otherwise acquire technologies to remain competitive. Our
inability to obtain any of these technologies could delay the development of our
services until equivalent technology can be identified, licensed or otherwise
acquired and integrated. We are highly dependent on the streaming software that
we license from two suppliers in order to deliver our streaming services. If
these vendors change their streaming software, our software may become
inoperable, the functionality of our services would decline and we would suffer
significant delays and costs in attempting to reengineer our services. In
addition, if either of these vendors terminated their licenses with us or
interrupted these licenses, our streaming services would become inoperable, and
we could be required to pay significant additional expenses to make our services
operable. Any termination or interruption of these licenses would likely cause a
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loss of revenue and loss of customers. We use technology that we license from
HearMe, a provider of voice communication services over the Internet, to provide
our voice chat services. We also rely on third party services, such as Internet
access, transport and long distance providers. These companies may not continue
to provide services to us without disruptions, at the current cost, if at all.
The costs associated with a transition to a new service provider would be
substantial. We may be required to reengineer our systems and infrastructure to
accommodate a new service provider, which would be both expensive and time-
consuming. In addition, in the past, we have experienced disruptions and delays
in our services due to service disruptions from these providers. Any
interruption in the delivery of our services would likely cause a loss of
revenue and a loss of customers.
A small number of our customers account for a high percentage of our revenue and
the loss of a major customer could harm our operating results and cause our
stock price to decline.
The loss of any of our major customers could result in lower than expected
revenue and cause our stock price to decline. Additionally, most customers do
not have any obligation to purchase additional services from us or to continue
to use our current services. As a result, we may face increased downward pricing
pressure that could cause a decrease in our gross margins. Our customers depend
on the reliability of our services and we may lose a customer if we fail to
provide reliable services for even a single communication event.
Our Internet communication services will not generate significant revenue if
businesses do not switch from traditional teleconferencing and communication
services to Internet communication services.
If businesses do not switch from traditional teleconferencing and
communication services, our Internet communication services will not generate
significant revenue. Businesses that have already invested substantial resources
in traditional or other methods of communication may be reluctant to adopt new
Internet communication services. If sufficient demand for our services does not
develop, we will have difficulty selling our services. As a result, the price of
our common stock would decline. Growth in revenue from Evoke Webconferencing
will depend in part on a significant increase in the number of customers using
Evoke Webconferencing's web-based features in addition to its traditional
conferencing features. In the third quarter of 2000, only a small percentage of
Evoke Webconferencing customers used the web in this way.
The growth of our business substantially depends on our ability to successfully
develop and introduce new services in a timely manner.
Our growth depends on our ability to develop leading-edge Internet
communication services. For example, we recently released Evoke Mobile
Webconferencing, a wireless web conferencing service, for commercial use, and
during the quarter began integrating the advanced web collaboration tools we
acquired from Contigo into our platform. We also have several other services in
development. We may not successfully identify, develop and market these and
other new services in a timely and cost-effective manner. If the services we
develop, such as Evoke Mobile Webconferencing, fail to achieve widespread market
acceptance or fail to generate significant revenues to offset development costs,
our net losses will increase. In addition, our ability to introduce new services
may depend on us acquiring technologies or forming relationships with third
parties and we may be unable to identify suitable candidates or come to terms
acceptable to us for any such acquisition or relationship. We may not
successfully alter the design of our systems to quickly integrate new
technologies.
We have experienced development delays and cost overruns in our development
efforts in the past and we may encounter these problems in the future. Delays
and cost overruns could affect our ability to respond to technological changes,
evolving industry standards, competitive developments or customer requirements.
Competition in the Internet communication services market is intense and we may
be unable to compete successfully.
The market for Internet communication services is relatively new, rapidly
evolving and intensely competitive. Competition in our market will continue to
intensify and may force us to reduce our prices, or cause us to experience
reduced sales and margins, loss of market share and reduced acceptance of our
services.
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Many of our current and potential competitors have larger customer bases,
longer operating histories, greater name recognition, more employees and
significantly greater financial, technical, marketing, public relations and
distribution resources than we do. In addition, telecommunication providers, for
example, enjoy lower per-minute long distance costs as a result of their
ownership of the underlying telecommunication network. We expect that many more
companies will enter this market and invest significant resources to develop
Internet communication services. These competitors may offer or develop products
or services that perform better than ours.
In addition, the Internet industry has recently experienced substantial
consolidation and a proliferation of strategic transactions. We expect this
consolidation and strategic partnering to continue. Acquisitions or strategic
partnerships involving our current and potential competitors could harm us in a
number of ways. For example:
. competitors could acquire or partner with companies with which we have
strategic partnerships and discontinue our partnership, resulting in the
loss of distribution opportunities for our services or the loss of
certain enhancements or value-added features to our services;
. a competitor could be acquired by or enter into a strategic relationship
with a party that has greater resources and experience than we do,
thereby increasing the ability of the competitor to compete with our
services; or
. a competitor could acquire or partner with one of our key suppliers.
The termination of strategic partnerships, including with Excite@Home, Work.Com,
Blue Mountain Arts or Lycos, or the failure to form additional strategic
partnerships could limit our access to customers and harm our strategy to
increase brand awareness, thereby causing our revenues to be lower than
expected.
Our strategic partnerships are important to us because they help us
strengthen our brand awareness and reach a broader customer base. The loss of
current strategic partnerships or our inability to partner with others in a
timely manner could result in lower than expected revenues. In addition, the
efforts of any of our strategic partners may not be successful, in which case we
would try to restructure or terminate these partnerships, however, there can be
no assurance that we would be successful in doing so. Excite@Home and Lycos may
terminate our strategic partnerships under various circumstances, some of which
may be beyond our control. Early termination of our partnerships with
Excite@Home, Work.Com or Lycos may harm our reputation, decrease the size of our
user base and cause our stock price to decline. Moreover, Excite@Home is
controlled by AT&T. AT&T's teleconferencing services currently compete with
Evoke Webconferencing, and AT&T may seek to expand its product offerings into
Internet communication in the future. Additionally, the loss of our strategic
relationship with Blue Mountain Arts would significantly harm our strategy to
increase brand awareness using Evoke Talking Email. Our strategic partnerships
with Blue Mountain Arts and Excite@Home currently account for a substantial
majority of the Evoke Talking Email messages processed by our systems. Moreover,
we may become more reliant on strategic partners in the future, which would
increase the risk to our business of losing these partnerships.
Our failure to manage our current and planned rapid growth could cause
substantial increases in our operating costs and harm our profitability and, if
we are not able to obtain adequate funds, we may not be able to compete
effectively.
We have rapidly expanded, and plan to continue to rapidly expand, our
operations and infrastructure. This expansion has placed, and is expected to
place, a significant strain on our managerial, operational and financial
resources, and we may not effectively manage this growth. Expanding our business
requires us to invest significant amounts of capital for our operations and
resources, which substantially increases our operating costs. As a result, our
failure to manage our growth effectively could cause substantial increases in
our operating costs without corresponding increases in our revenue. Also, our
management may have to divert a disproportionate amount of its attention away
from our day-to-day activities and devote a substantial amount of time expanding
into new areas. In order to expand our business we may need to raise additional
funds. Any future financing we require may not be available on a timely basis,
in sufficient amounts or on terms acceptable to us. If we cannot obtain adequate
funds, we may not be able to compete effectively.
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Additionally, our rapid growth requires us to order equipment, some of
which has substantial development and manufacturing lead times. If we do not
order equipment in a timely and efficient manner in order to support our growth,
we may not have enough capacity to support the demand for our services and the
delivery of our services may be interrupted. As a result, our operating results
and reputation would be materially harmed, which could negatively affect our
stock price.
Our current and planned international expansion, including our joint venture
with @viso Limited, may not be successful, which could harm our strategy to
expand internationally and cause our operating losses to increase.
We are expanding into international markets and plan to spend significant
financial and managerial resources to do so. We have no experience in
international operations and may not be able to compete effectively in
international markets. We face certain risks inherent in conducting business
internationally, such as:
. varying technology standards from country to country;
. uncertain protection of intellectual property rights;
. inconsistent regulations and unexpected changes in regulatory
requirements;
. difficulties and costs of staffing and managing international operations;
. fluctuations in currency exchange rates;
. linguistic and cultural differences;
. difficulties in collecting accounts receivable and longer collection
periods;
. imposition of currency exchange controls; and
. potentially adverse tax consequences.
In particular, we recently formed Evoke Communications Europe, a joint
venture with @viso Limited, a European-based venture capital firm, which is
expanding our operations to continental Europe and the United Kingdom. This
joint venture may not be successful and we may not realize any value from the
costs associated with starting up this venture.
In addition, our expansion into international markets may require us to
develop specific technology that will allow our current systems to work with
international telephony systems. We may not develop this technology in a timely
manner, in a way to prevent service disruptions or at all.
We may acquire other businesses, form joint ventures and make investments in
other companies that could negatively affect our operations and financial
results and dilute existing stockholders.
The pursuit of additional business relationships through acquisitions,
joint ventures, or other investment prospects is a key aspect of our business
strategy. We may not identify or complete these transactions in a timely manner,
on a cost effective basis or at all, and we may not realize the benefits of any
acquisition, joint venture, or other investment.
We have limited experience in acquisition activities and may have to devote
substantial time and resources in order to complete acquisitions. There may also
be risks of entering markets in which we have no or limited prior experience.
Further, these potential acquisitions, joint ventures and investments entail
risks, uncertainties and potential disruptions to our business. For example, we
may not be able to successfully integrate a company's operations, technologies,
products and services, information systems and personnel into our business. An
acquisition may further strain our existing financial and managerial controls,
and divert management's attention away from our other business concerns. There
may also be unanticipated costs associated with an acquisition that may harm our
operating results and key personnel may decide not to work for us. These risks
could harm our operating results and cause our stock price to decline.
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In addition, if we were to make any acquisitions, we could:
. issue equity securities that would dilute our stockholders;
. incur debt;
. assume unknown or contingent liabilities; or
. experience negative effects on our reported results of operations from
acquisition-related charges and of amortization of acquired technology,
goodwill and other intangibles.
Our Evoke Webconferencing services may become subject to traditional
telecommunications carrier regulation by federal and state authorities, which
would increase the cost of providing our services and may subject us to
penalties.
We believe our Evoke Webconferencing services are not subject to regulation
by the Federal Communications Commission or any state public service commission
because the services integrate traditional voice teleconferencing and added
value Internet services. The FCC and state public service commissions, however,
may require us to submit to traditional telecommunications carrier regulations
for our Evoke Webconferencing services under the Communications Act of 1934, as
amended, and various state laws or regulations as a provider of
telecommunications services. If the FCC or any state public service commission
seeks to enforce any of these laws or regulations against us, we could be
prohibited from providing the voice aspect of our Evoke Webconferencing services
until we have obtained various federal and state licenses and filed tariffs. We
believe we would be able to obtain those licenses, although in some states,
doing so could significantly delay our ability to provide services. We also
would be required to comply with other aspects of federal and state laws and
regulations. Subjecting our Evoke Webconferencing services to these laws and
regulations would increase our operating costs, could require restructuring of
those services to charge separately for the voice and Internet components, and
would involve on-going reporting and other compliance obligations. We also might
be subject to fines or forfeitures and civil or criminal penalties for non-
compliance.
Our business will suffer if our systems fail or become unavailable.
A reduction in the performance, reliability or availability of our systems
will harm our ability to distribute our services to our users, as well as our
reputation. Some of our customers have experienced interruptions in our services
in the past due to network outages, periodic system upgrades and internal system
failures. Similar interruptions may occur from time to time in the future.
Because our revenue depends largely on the number of users and the amount of
minutes consumed by users, our business will suffer if we experience frequent or
extended system interruptions.
We maintain our primary data facility and hosting servers at our
headquarters in Louisville, Colorado, and a secondary data facility in Boulder,
Colorado. Our operations depend on our ability to protect these facilities and
our systems against damage or interruption from fire, power loss, water,
telecommunications failure, vandalism, sabotage and similar unexpected events.
In addition, a sudden and significant increase in traffic on our systems or
infrastructure could strain the capacity of the software, hardware and systems
that we use. This could lead to slower response times or system failures. The
occurrence of any of the foregoing risks could cause service interruptions and,
as a result, materially harm our reputation and negatively affect our revenue.
If our security system is breached, our business and reputation could suffer.
We must securely receive and transmit confidential information over public
networks and maintain that information on internal systems. Our failure to
prevent security breaches could damage our reputation, and expose us to risk of
loss or liability. Our internal systems are accessible to a number of our
employees. Although each of these employees is subject to a confidentiality
agreement, we may be unable to prevent the misappropriation of this information.
Our servers are vulnerable to computer viruses, physical or electronic break-ins
and similar disruptions, which could lead to interruptions, delays or loss of
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data. We may be required to expend significant capital and other resources to
license encryption technology and additional technologies to protect against
security breaches or to alleviate problems caused by any breach.
Our competitors may be able to create systems with similar functionality to ours
and third-parties may obtain unauthorized use of our intellectual property.
The success of our business is substantially dependent on the proprietary
systems that we have developed. To protect our intellectual property rights, we
currently rely on a combination of trademarks, service marks, trade secrets,
copyrights, confidentiality agreements with our employees and third parties, and
protective contractual provisions. We also acquired a patent that has been
issued as a result of the Contigo acquisition that relates to the web
collaboration software developed by Contigo. These measures may not be adequate
to safeguard the technology underlying our Internet communication services and
other intellectual property. Unauthorized third-parties may copy or infringe
upon aspects of our technology, services or other intellectual property. Except
for the patent we acquired as a result of the Contigo acquisition, our
proprietary systems are not currently protected by any patents and we may not be
successful in our efforts to secure patents for our proprietary systems.
Regardless of our efforts to protect our intellectual property, our competitors
and others may be able to develop similar systems and services without
infringing on any of our intellectual property rights. In addition, employees,
consultants and others who participate in the development of our proprietary
systems and services may breach their agreements with us regarding our
intellectual property and we may not have any adequate remedies. Furthermore,
the validity, enforceability and scope of protection for intellectual property
such as ours in Internet-related industries is uncertain and still evolving. We
also may not be able to effectively protect our intellectual property rights in
certain countries. In addition, our trade secrets may become known through other
means not currently foreseen by us. If we resort to legal proceedings to enforce
our intellectual property rights, the proceedings could be burdensome and
expensive and the outcome could be uncertain.
We may be subject to claims alleging intellectual property infringement.
We may be subject to claims alleging that we have infringed upon third
party intellectual property rights. Claims of this nature could require us to
spend significant amounts of time and money to defend ourselves, regardless of
their merit. If any of these claims were to prevail, we could be forced to pay
damages, comply with injunctions, or halt distribution of our services while we
re-engineer them or seek licenses to necessary intellectual property, which
might not be available on commercially reasonable terms or at all. On March 17,
2000, a trademark infringement suit was filed against us in the United States
District Court for the Northern District of California by Evoke Software
Corporation, alleging, among other things, that our Evoke brand infringes the
trademarks and service marks of the company filing this suit and seeks, among
other relief, an injunction barring us from continuing any use of the
designation Evoke. On August 22, 2000, Evoke Software Corporation filed a motion
for preliminary injunction, which, if granted, could require us to, among other
things, immediately discontinue using the designation Evoke, the domain name
evoke.com and the ticker symbol EVOK. We expect that the court will issue an
order on these motions before the end of the year. Loss of the motion for
preliminary injunction could substantially impair our business operations,
materially and adversely affect our results of operations, diminish our goodwill
among customers, employees and investors, and could adversely affect the market
price of our common stock. We could also be subject to claims for
indemnification resulting from infringement claims made against our customers
and strategic partners, which could increase our defense costs and potential
damages. Any of these events could harm our business.
If we do not increase the capacity of our infrastructure in excess of customer
demand, customers may experience service problems and choose not to use our
services.
We must continually increase our capacity in excess of customer demand. Our
plans to rapidly expand our operations and to add customers also requires a
significant increase in the capacity of our infrastructure. If we fail to
increase our capacity, customers may experience service problems, such as busy
signals, improperly routed calls and messages, and slower-than-expected download
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times. Service problems such as these would harm our reputation, cause us to
lose customers and decrease our revenue. Conversely, if we overestimate our
capacity needs, we will pay for more capacity than we actually use, resulting in
increased costs without a corresponding increase in revenue, which would harm
our operating results.
We rely on the adoption of multimedia technology by corporations and our ability
to transmit our services through corporate security measures.
In order to adequately access the streaming aspects of our services, our
users generally must have multimedia personal computers with certain
microprocessor requirements, at least 28.8 kbps Internet access, a standard
media player and a sound card. For our Collaboration services, minimum
requirements include a Java-enabled browser and a 56 kbps connection. Installing
and configuring the necessary media components may require technical expertise
that some users do not possess. Furthermore, because of bandwidth constraints on
corporate intranets and concerns about security, some information systems
managers may block reception of media within their corporate environments. In
order for users to receive media over corporate intranets and corporate
firewalls, information systems managers may need to reconfigure these intranets
and firewalls. Widespread adoption of media technology depends on overcoming
these obstacles, improving voice and video quality and educating customers and
users in the use of media technology.
We are subject to risks associated with governmental regulation and legal
uncertainties.
It is likely that a number of laws and regulations may be adopted in the
United States and other countries with respect to the Internet that might affect
us. These laws may relate to areas such as:
. changes in telecommunications regulations;
. copyright and other intellectual property rights;
. encryption;
. personal privacy concerns, including the use of "cookies" and individual
user information;
. e-commerce liability; and
. email, network and information security.
Changes in telecommunications regulations could substantially increase the
costs of communicating on the Internet. This, in turn, could slow the growth in
Internet use and thereby decrease the demand for our services. Several
telecommunications carriers are advocating that the Federal Communications
Commission regulate the Internet in the same manner as other telecommunications
services by imposing access fees on Internet service providers. Recent events
suggest that the FCC may begin regulating the Internet in such a way. In
addition, we operate our services throughout the United States and state
regulatory authorities may seek to regulate aspects of our services as
telecommunication activities.
Other countries and political organizations are likely to impose or favor
more and different regulations than those that have been proposed in the United
States, thus furthering the complexity of regulation. The adoption of such laws
or regulations, and uncertainties associated with their validity and
enforcement, may affect the available distribution channels for and costs
associated with our services, and may affect the growth of the Internet. Such
laws or regulations may therefore harm our business.
We may be subject to assessment of sales and other taxes for the sale of our
services, license of technology or provision of services, for which we have not
accounted.
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We may have to pay past sales or other taxes that we have not collected
from our customers. We do not currently collect sales or other taxes on the sale
of our services. Our business would be harmed if one or more states or any
foreign country were to require us to collect sales or other taxes from current
or past sales of services, particularly because we would be unable to go back to
customers to collect sales taxes for past sales and may have to pay such taxes
out of our own funds.
Internet-related stock prices are especially volatile and this volatility may
depress our stock price.
The stock market in general, and the stock prices of Internet-related
companies in particular, have experienced extreme price and volume fluctuations.
This volatility is often unrelated or disproportionate to the operating
performance of these companies. Because we are an Internet-related company, we
expect our stock price to be similarly volatile. These broad market and industry
factors may reduce our stock price, regardless of our operating performance.
You should not rely on forward-looking statements because they are inherently
uncertain.
This document contains certain forward-looking statements that involve
risks and uncertainties. We use words such as "anticipate," "believe," "expect,"
"future," "intend," "plan" and similar expressions to identify forward-looking
statements. These statements are only predictions. Although we believe that the
expectations reflected in these forward-looking statements are reasonable, we
cannot guarantee future results, levels of activity, performance or
achievements. You should not place undue reliance on these forward-looking
statements, which apply only as of the date of this document. Our actual results
could differ materially from those anticipated in these forward-looking
statements for many reasons, including the risks faced by us and described on
the preceding pages and elsewhere in this document.
We believe it is important to communicate our expectations to our
investors. However, there may be events in the future that we are not able to
predict accurately or over which we have no control. The risk factors listed
above, as well as any cautionary language in this document, provide examples of
risks, uncertainties and events that may cause our actual results to differ
materially from the expectations we describe in our forward-looking statements.
Before you invest in our common stock, you should be aware that the occurrence
of the events described in these risk factors and elsewhere in this document
could have a material adverse effect on our business, operating results,
financial condition and stock price.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
At September 30, 2000, we had long-term debt, including current portion, in
the aggregate amount of $2.7 million with interest rates ranging from 7.41% to
13.33% with payments due through 2003. We may incur additional debt in the
future. A change in interest rates would not affect our obligations related to
long-term debt existing as of September 30, 2000, as the interest payments
related to that debt are fixed over the term of the debt. Increases in interest
rates could, however, increase the interest expense associated with future
borrowings. Additionally, the net proceeds from our initial public offering may
be invested in investment vehicles that may decline in value as a result of
changes in equity markets and interest rates.
At September 30, 2000, we had $1.3 million in short-term investments. The
Company is exposed to changes in stock prices as a result of its holdings in
publicly traded securities. Changes in stock prices can be expected to vary as a
result of general market conditions, technological changes, specific industry
changes and other factors.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we have been subject to legal proceedings and claims in
the ordinary course of business. On March 17, 2000, Evoke Software Corporation,
a California corporation, filed a claim against us in the United States District
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Court for the Northern District of California, alleging trademark and service
mark infringement, among other claims, such as trademark and service mark
dilution and unfair competition. Evoke Software seeks punitive and compensatory
damages, an injunction barring us from continuing to use the brand Evoke and
attorneys fees and costs. We believe that we have meritorious defenses to these
claims and intend to defend against them. On May 10, 2000, we filed our answer
to the complaint, denying all material allegations. On August 22, 2000, Evoke
Software Corporation filed a motion for preliminary injunction, which, if
granted, would, among other things, require us to immediately discontinue using
the brand Evoke, domain name evoke.com and ticker symbol EVOK. On August 24,
2000, we filed a motion with the court for leave to file an amended answer to
add affirmative defenses and counterclaims along with the amended answer. On
August 24, 2000, we also filed a motion to enforce a settlement agreement and
related promises and to dismiss the complaint. At a hearing on our August 24,
2000 motion held on November 2, 2000, the judge denied our motion to enforce a
settlement agreement, however, has not yet issued an order with respect to the
related promises claims. There will be a hearing on November 16, 2000 to address
Evoke Software's injunction motion. We expect that the court will issue an order
on these remaining motions before the end of the year. Loss of the motion for
preliminary injunction could substantially impair our business operations,
materially and adversely affect our results of operations, diminish our goodwill
among customers, employees and investors, and could adversely affect the market
price of our common stock. This litigation is still at an early stage, and it is
therefore not possible to predict the outcome of the litigation or any related
motion with any degree of certainty. Other than this matter, we are not
currently involved in any material legal proceedings.
Item 2. Changes in Securities and Use of Proceeds
(a) In the month of July 2000, we issued to employees 772,653 options to
purchase common stock at an average exercise price of $8.00 per share; in the
month of August, 2000, we issued to employees 1,238,774 options to purchase
common stock at an average exercise price of $5.27 per share; in the month of
September, 2000, we issued to employees 167,933 options to purchase common stock
at an average exercise price of $8.00 per share. These securities were issued
under Rule 701 under the Securities Act of 1933. All options issued during the
quarter ended September 30, 2000 have been adjusted for the stock split which
became effective on July 13, 2000.
(b) On July 25, 2000, we commenced our initial public offering, which
consisted of 7,000,000 shares of our Common Stock at $8.00 per share pursuant to
a registration statement (No. 333-30708) declared effective by the Securities
and Exchange Commission on July 24, 2000. The offering has been completed and
all shares have been sold. The managing underwriters for the initial public
offering were Salomon Smith Barney Inc., FleetBoston Robertson Stephens Inc.,
Thomas Weisel Partners LLC and CIBC World Markets Corp. Aggregate gross proceeds
from the offering were $56,000,000.
We incurred the following expenses in connection with the offering:
underwriters' discounts and commissions of $3.9 million and approximately $1.3
million in other expenses, for total expenses of approximately $5.2 million.
After deducting expenses of the offering, we received net offering proceeds of
approximately $50.8 million. The net proceeds were invested in short-term
financial instruments.
No payments constituted direct or indirect payments to any of our
directors, officers or general partners or their associates, to persons owning
10% or more of any class of our equity securities or to any of our affiliates.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
During the fiscal quarter ended September 30, 2000, we solicited written
consent (effective July 21, 2000) from our preferred stockholders regarding the
approval of the automatic conversion of all shares of preferred stock into
common stock immediately prior to the closing of our initial public offering.
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During this quarter, we also solicited written consent (effective July 27,
2000) from our preferred stockholders regarding the approval of a waiver and
amendment of the Amended and Restated Stockholders Agreement such that our
initial public offering was considered for all purposes a "Qualified Public
Offering" under the Amended and Restated Stockholders Agreement and our Restated
Certificate of Incorporation.
Item 5. Other Information
On November 13, 2000, James M. LeJeal, a co-founder of Evoke Communications
entered into an agreement to resign his position as Chief Operating Officer and
as a board member to pursue other interests. Mr. LeJeal will remain with Evoke
Communications through December 31, 2000 to ensure a proper and smooth
transition. Paul Berberian, Evoke Communications, President and Chief Executive
Officer, will oversee the management of the Company's operations.
Item 6. Exhibits and Reports on Form 8-K
(A.) Exhibits
27.1 Financial Data Schedule
(B.) Reports on Form 8-K
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EVOKE COMMUNICATIONS, INC.
Date: November 14, 2000 By: /s/ Terence G. Kawaja
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
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