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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 APRIL 30, 1999
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____________ TO _____________
COMMISSION FILE NO. 000-25285
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SERENA SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 94-2669809
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
500 AIRPORT BOULEVARD, 2ND FLOOR, BURLINGAME, CALIFORNIA 94010-1904
(Address of principal executive offices, including zip code)
650-696-1800
(Registrant's telephone number, including area code)
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes _X_ No ____
The number of shares of the registrant's Common Stock, par value $0.001,
outstanding as of April 30, 1999 was 25,301,126.
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FORWARD LOOKING STATEMENTS
This quarterly report contains forward-looking statements within the meaning
of Section 27A of the Securities Act and Section 21E of the Securities Exchange
Act. Actual results could differ materially from those projected in the
forward-looking statements as a result of certain factors described herein and
in other documents. Readers should pay particular attention to the section of
this report entitled "Factors that May Affect Future Results" and should also
carefully review the risk factors described in the other documents we file from
time to time with the SEC.
INDEX
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PAGE
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PART I FINANCIAL INFORMATION
Item 1 Financial Statements:
Consolidated Balance Sheets as of April 30, 1999 and January 31, 1999............................ 3
Consolidated Statements of Income for the Three Months Ended April 30, 1999 and 1998............. 4
Consolidated Statements of Cash Flows for The Three Months Ended April 30, 1999 and 1998......... 5
Notes to Consolidated Financial Statements....................................................... 6
Item 2 Management's Discussion and Analysis of Results of Operations and Financial Condition............ 8
Item 3 Quantitative and Qualitative Disclosures About Market Risk....................................... 25
PART II OTHER INFORMATION
Item 1 Legal Proceedings................................................................................ 26
Item 2 Change in Securities and Use of Proceeds......................................................... 26
Item 3 Defaults Upon Senior Securities.................................................................. 26
Item 4 Submission of Matters to a Vote of Security Holders.............................................. 26
Item 5 Other Information................................................................................ 26
Item 6 Exhibits and Reports on Form 8-K................................................................. 26
Signatures....................................................................................... 27
</TABLE>
2
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PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
SERENA SOFTWARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
APRIL 30, JANUARY 31,
1999 1999
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ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents.............................................. $ 61,139,044 $ 21,468,740
Short-term investments................................................. 23,440,894 --
Accounts receivable, net of allowance of $386,000 and $311,000 at April
30 and January 31, 1999, respectively................................ 11,381,177 13,036,551
Due from principal stockholder......................................... -- 196,188
Deferred taxes......................................................... 1,119,531 1,119,531
Prepaid expenses and other current assets.............................. 869,875 565,679
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Total current assets................................................. 97,950,521 36,386,689
Property and equipment, net.............................................. 1,826,449 1,864,535
Due from principal stockholder........................................... -- 420,581
Intangible assets, net................................................... 20,430,244 20,932,685
Other assets............................................................. 91,970 73,431
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TOTAL ASSETS......................................................... $ 120,299,184 $ 59,677,921
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....................................................... $ 142,944 $ 401,026
Income taxes payable................................................... 398,699 1,498,725
Accrued expenses....................................................... 6,794,515 7,142,979
Deferred revenue....................................................... 12,954,552 10,839,084
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Total current liabilities............................................ 20,290,710 19,881,814
Deferred revenue, net of current portion................................. 1,358,008 1,532,905
Deferred taxes........................................................... 158,152 158,152
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Total liabilities.................................................... 21,806,870 21,572,871
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Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.001 par value; 5,000,000 shares authorized; no
shares issued and outstanding
Common stock, $0.001 par value; 60,000,000 shares authorized;
25,301,126 and 20,401,126 shares issued and outstanding at April 30
and January 31, 1999, respectively................................... 25,301 20,401
Additional paid-in capital............................................. 86,403,945 28,517,972
Deferred stock-based compensation...................................... (1,012,863) (1,339,030)
Notes receivable from stockholders..................................... (3,280,114) (3,233,374)
Accumulated other comprehensive losses................................. (2,835) (25,578)
Retained earnings...................................................... 16,358,880 14,164,659
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Total stockholders' equity........................................... 98,492,314 38,105,050
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........................... $ 120,299,184 $ 59,677,921
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</TABLE>
See accompanying notes to consolidated financial statements.
3
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SERENA SOFTWARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED APRIL 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
APRIL 30,
----------------------------
1999 1998
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<S> <C> <C>
Revenue:
Software licenses.................................... $ 6,908,607 $ 4,341,152
Maintenance.......................................... 5,294,079 3,651,632
Professional services................................ 2,018,070 647,064
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Total revenue...................................... 14,220,756 8,639,848
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Cost of revenue:
Software licenses.................................... 688,859 250,670
Maintenance.......................................... 1,335,083 891,781
Professional services................................ 1,557,041 597,203
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Total cost of revenue.............................. 3,580,983 1,739,654
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Gross profit....................................... 10,639,773 6,900,194
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Operating expenses:
Sales and marketing.................................. 4,262,815 2,380,533
Research and development............................. 1,366,357 1,000,344
General and administrative........................... 1,100,801 804,749
Stock-based compensation............................. 314,814 905,528
Amortization of intangible assets.................... 502,441 --
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Total operating expenses........................... 7,547,228 5,091,154
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Operating income....................................... 3,092,545 1,809,040
Interest and other income, net......................... 835,228 150,804
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Income before income taxes........................... 3,927,773 1,959,844
Income taxes........................................... 1,733,551 862,332
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Net income........................................... $ 2,194,222 $ 1,097,512
Translation adjustment................................. 22,743 (2,377)
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Comprehensive income................................. $ 2,216,965 $ 1,095,135
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Net income per share:
Basic................................................ $ 0.09 $ 0.07
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Diluted.............................................. $ 0.09 $ 0.07
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Weighted average shares used in per share calculations:
Basic................................................ 23,469,099 15,564,750
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Diluted.............................................. 24,890,748 16,251,876
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</TABLE>
See accompanying notes to consolidated financial statements.
4
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SERENA SOFTWARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED APRIL 30, 1999 AND 1998
(UNAUDITED)
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<CAPTION>
THREE MONTHS
ENDED APRIL 30,
----------------------------
1999 1998
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................................................... $ 2,194,222 $ 1,097,512
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation.................................................. 184,462 130,157
Deferred income taxes......................................... -- 212,922
Increase in allowance for bad debts........................... 74,854 15,490
Accrued interest on notes receivable.......................... (46,740) --
Amortization of deferred stock-based compensation............. 314,814 905,528
Amortization of intangible assets............................. 502,441 --
Changes in operating assets and liabilities:
Accounts receivable......................................... 1,562,585 1,867,630
Prepaid expenses and other assets........................... (323,564) (144,231)
Accounts payable............................................ (251,635) (33,595)
Income taxes payable........................................ (1,099,891) 275,197
Accrued expenses............................................ (336,077) (2,058,744)
Deferred revenue............................................ 1,958,887 2,296,475
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Net cash provided by operating activities................. 4,734,358 4,564,341
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CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchases of property and equipment............................. (135,674) (93,127)
Purchases of short-term investments............................. (23,440,894) --
Payment of notes due from stockholder........................... 616,769 --
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Net cash used in investing activities..................... (22,959,799) (93,127)
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CASH FLOWS FROM FINANCING ACTIVITIES--ISSUANCE OF COMMON STOCK.... 57,902,226 --
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EFFECT OF EXCHANGE RATE CHANGES ON CASH........................... (6,481) (35,463)
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NET INCREASE IN CASH AND CASH EQUIVALENTS......................... 39,670,304 4,435,751
Cash and cash equivalents at beginning of period.................. 21,468,740 9,024,015
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Cash and cash equivalents at end of period........................ $ 61,139,044 $ 13,459,766
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Income taxes paid................................................. $ 2,854,357 $ 1,365,000
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NONCASH INVESTING AND FINANCING ACTIVITY:
Restricted stock issued in exchange for notes receivable........ $ -- $ 238,813
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</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
SERENA SOFTWARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SERENA Software, Inc. (the "Company") is a leading provider of software
change management, or SCM, products and services for managing and controlling
change throughout the software application lifecycle. Its principal markets are
North America and Europe.
The accompanying unaudited consolidated financial statements have been
prepared on substantially the same basis as the audited consolidated financial
statements, and in the opinion of management include all adjustments, consisting
only of normal recurring adjustments, necessary for their fair presentation.
These unaudited consolidated financial statements and the notes thereto have
been prepared in accordance with the Instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all disclosure required by
generally accepted accounting principles and Regulation S-X for annual financial
statements. For these additional disclosures, readers should refer to the
Company's annual report on Form 10-K for the fiscal year ended January 31, 1999.
The interim results presented are not necessarily indicative of results for any
subsequent quarter or for the fiscal year ended January 31, 2000.
(1) NET INCOME PER SHARE
Basic net income per share is computed using the weighted-average number of
shares of common stock outstanding. Diluted net income per share is computed
using the weighted-average number of shares of common stock outstanding and,
when dilutive, common equivalent shares from restricted stock and options to
purchase common stock using the treasury stock method.
The following is a reconciliation of the shares used in the computation of
basic and diluted net income per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
APRIL 30,
----------------------------
1999 1998
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<S> <C> <C>
Basic net income per share--weighted average number of common
shares outstanding........................................... 23,469,099 15,564,750
Effect of potentially dilutive securities outstanding--
restricted stock and options................................. 1,421,649 687,126
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Shares used in diluted net income per share computation........ 24,890,748 16,251,876
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</TABLE>
(2) SEGMENT REPORTING
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 131, DISCLOSURES ABOUT
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. SFAS No. 131 establishes
standards for the manner in which public companies report information about
operating segments in annual and interim financial statements. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. The method for determining what
information to report is based on the way management organizes the operating
segments within the Company for making operating decisions and assessing
financial performance. The Company's chief operating decision-maker is
considered to be the Company's chief executive officer (CEO). The CEO reviews
financial information presented on an entity level basis accompanied by
disaggregated information about revenues by product type and certain information
about geographic regions for purposes of making operating decisions and
assessing financial performance. The entity level financial information is
identical to the information presented in the accompanying statements of
operations. Therefore, the Company has determined that it operates in a single
operating segment: change management software.
6
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(3) RECENT ACCOUNTING PRONOUNCEMENTS
The FASB recently issued Statement of Financial Accounting Standards
("SFAS") No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES.
SFAS No. 133 addresses the accounting for derivative instruments, including
certain derivative instruments embedded in other contracts. Under SFAS No. 133,
entities are required to carry all derivative instruments in the balance sheet
at fair value. The accounting for changes in the fair value of a derivative
instrument depends on whether it has been designated and qualifies as part of a
hedging relationship and, if so, the reason for holding it. The Company must
adopt SFAS No. 133 by October 1, 1999. The Company does not anticipate that SFAS
No. 133 will have an effect on its financial statements.
In December 1998, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 98-9, SOFTWARE REVENUE RECOGNITION, WITH
RESPECT TO CERTAIN ARRANGEMENTS. SOP 98-9 requires recognition of revenue using
the "residual method" in a multiple-element arrangement when fair value does not
exist for one or more of the delivered elements in the arrangement. Under the
residual method, the total fair value of the undelivered elements is deferred
and subsequently recognized in accordance with SOP 97-2. The Company does not
expect a material change to its accounting for revenues as a result of the
provisions of SOP 98-9.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
THIS SECTION OF THE FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS BASED UPON
CURRENT EXPECTATIONS THAT INVOLVE RISKS AND UNCERTAINTIES, SUCH AS OUR PLANS,
OBJECTIVES, EXPECTATIONS AND INTENTIONS. OUR ACTUAL RESULTS AND THE TIMING OF
CERTAIN EVENTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE
FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET
FORTH IN THIS SECTION UNDER "FACTORS THAT MAY AFFECT FUTURE RESULTS" AND
ELSEWHERE IN, OR INCORPORATED BY REFERENCE INTO, THIS REPORT. IT IS IMPORTANT
THAT THE DISCUSSION BELOW BE READ TOGETHER WITH THE ATTACHED CONSOLIDATED
FINANCIAL STATEMENTS AND NOTES THERETO, WITH THE DISCUSSION OF SUCH RISKS AND
UNCERTAINTIES AND WITH THE AUDITED FINANCIAL STATEMENTS AND NOTES THERETO, AND
THE MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION, CONTAINED IN THE COMPANY'S FORM 10-K FOR FISCAL 1999.
RESULTS OF OPERATIONS
REFERENCES TO THE DOLLAR AND PERCENTAGE INCREASES OR DECREASES SET FORTH
BELOW IN THIS DISCUSSION AND ANALYSIS OF SERENA'S RESULTS OF OPERATIONS ARE
DERIVED FROM COMPARISONS OF SERENA'S CONSOLIDATED STATEMENT OF INCOME FOR THE
THREE MONTHS ENDED APRIL 30, 1999 TO THE CONSOLIDATED STATEMENTS OF INCOME FOR
THE THREE MONTHS ENDED APRIL 30, 1998. HISTORICAL RESULTS INCLUDE THE RESULTS OF
OPTIMA SOFTWARE ("OPTIMA") FROM SEPTEMBER 25, 1998, THE DATE OUR ACQUISITION OF
OPTIMA WAS COMPLETED.
The following table sets forth our historical results of operations
expressed as a percentage of total revenue. These historical operating results
for the periods presented are not necessarily indicative of the results for the
full fiscal year or any other period.
<TABLE>
<CAPTION>
PERCENTAGE OF REVENUE
THREE MONTHS ENDED APRIL 30,
----------------------------
1999 1998
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<S> <C> <C>
Revenue:
Software licenses.................................... 48.6% 50.2%
Maintenance.......................................... 37.2% 42.3%
Professional services................................ 14.2% 7.5%
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TOTAL REVENUE...................................... 100.0% 100.0%
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Cost of revenue:
Software licenses.................................... 4.8% 2.9%
Maintenance.......................................... 9.4% 10.3%
Professional services................................ 11.0% 6.9%
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TOTAL COST OF REVENUE.............................. 25.2% 20.1%
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GROSS PROFIT....................................... 74.8% 79.9%
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Operating expenses:
Sales and marketing.................................. 30.0% 27.6%
Research and development............................. 9.6% 11.6%
General and administrative........................... 7.8% 9.3%
Stock-based compensation............................. 2.2% 10.5%
Amortization of intangible assets.................... 3.5% --
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Total operating expenses........................... 53.1% 59.0%
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OPERATING INCOME....................................... 21.6% 20.9%
Interest and other income, net......................... 5.9% 1.8%
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Income before income taxes........................... 27.5% 22.7%
Income taxes........................................... 12.2% 10.0%
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NET INCOME......................................... 15.3% 12.7%
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</TABLE>
8
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REVENUE
We derive revenue from software licenses, maintenance and professional
services. Our total revenue increased $5.6 million or 65% to $14.2 million in
the current fiscal quarter ended April 30, 1999 from $8.6 million in the same
quarter a year ago.
SOFTWARE LICENSES. Software licenses revenue as a percentage of total
revenue was 49% in the current fiscal quarter ended April 30, 1999 as compared
to 50% in the same quarter a year ago. Software licenses revenue increased $2.6
million or 59% to $6.9 million in the current fiscal quarter from $4.3 million
in the same quarter a year ago. The dollar increase is generally attributed to
increased demand for new licenses of FULL.CYCLE MAINFRAME products as a result
of greater customer awareness of and need for third party SCM solutions and, to
a lesser extent, the acquisition of Optima, an increase in sales force
productivity and personnel, and software license price increases. In particular,
sales of our COMPAREX and STARTOOL products grew significantly. Those products
together with our CHANGE MAN product accounted for $6.4 million or 93% of total
software licenses revenue in the current fiscal quarter as compared to $3.7
million or 86% in the same quarter a year ago.
MAINTENANCE. Maintenance revenue as a percentage of total revenue was 37%
in the current fiscal quarter ended April 30, 1999 as compared to 42% in the
same quarter a year ago. Maintenance revenue increased $1.6 million or 45% to
$5.3 million in the current fiscal quarter from $3.7 million in the same quarter
a year ago. The dollar increase reflects both growth in software license
revenue, as new licenses generally include one year of maintenance, renewals of
maintenance agreements by existing customers and, to a lesser extent,
maintenance price increases. Maintenance revenue decreased as a percentage of
total revenue due to the growth in software license revenue which is generally
recognized upon contract signing and delivery of the software whereas
maintenance revenue is deferred and amortized over the contractual term of the
arrangement, usually one year.
PROFESSIONAL SERVICES. Professional services revenue was 14% of total
revenue in the current fiscal quarter ended April 30, 1999 as compared to 8% in
the same quarter a year ago. Professional services revenue increased $1.4
million or 212% to $2.0 million in the current fiscal quarter from $0.6 million
in the same quarter a year ago. The dollar increase is attributable to greater
consulting opportunities resulting from our larger installed customer base and
our expanded consulting service capabilities resulting from the acquisition of
Optima.
COST OF REVENUE
Cost of revenue, which consists of cost of software licenses, cost of
maintenance and cost of professional services, was $3.6 million or 25% of total
revenue in the current fiscal quarter as compared to $1.7 million or 20% in the
same quarter a year ago. The increase, both in dollar terms and in percentage of
total revenue terms, is due primarily to increased expenses associated with
professional services revenue and maintenance revenue, including personnel
additions and the acquisition of Optima to support professional services and
maintenance revenue growth, and software sublicense fees.
SOFTWARE LICENSES. Cost of software licenses consists principally of
sublicense fees associated with our STARTOOL, STARWARP and DETECT+RESOLVE
MAINFRAME products. Cost of software licenses as a percentage of total software
licenses revenue was 10% in the current fiscal quarter as compared to 6% in the
same quarter a year ago. Cost of software licenses increased $0.4 million to
$0.7 million in the current fiscal quarter from $0.3 million in the same quarter
a year ago. The increase, both in dollar terms and as a percentage of total
software licenses revenue, is attributable to increases in royalty bearing
software licenses--predominantly STARTOOL AND DETECT+RESOLVE MAINFRAME--as a
percentage of total software licenses revenue.
MAINTENANCE. Cost of maintenance consists primarily of salaries, bonuses
and other costs associated with our customer support organizations, and to a
lessor extent, sublicense fees associated with our
9
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STARTOOL, STARWARP AND DETECT+RESOLVE MAINFRAME products. Cost of maintenance as
a percentage of total maintenance revenue was 25% in the current fiscal quarter
as compared to 24% in the same quarter a year ago. Cost of maintenance increased
$0.4 million or 50% to $1.3 million in the current fiscal quarter from $0.9
million in the same quarter a year ago. The dollar increase is predominately due
to increased expenses associated with our customer support organization
including personnel additions needed to support the maintenance revenue growth
and more recently, increases in sublicense fees. Sublicense fees are paid to
owners of third party products for providing maintenance enhancements and code
fixes.
PROFESSIONAL SERVICES. Cost of professional services consists of salaries,
bonuses and other costs associated with supporting our professional services
organization. Cost of professional services as a percentage of total
professional services revenue was 77% in the current fiscal quarter as compared
to 92% in the same quarter a year ago. Cost of professional services increased
$1.0 million or 161% to $1.6 million in the current fiscal quarter from $0.6
million in the same quarter a year ago. The dollar increase is predominately due
to increased expenses associated with the acquisition of Optima which
significantly increased our professional services organization, and personnel
additions and other infrastructure costs needed to support the professional
services revenue growth.
OPERATING EXPENSES
SALES AND MARKETING. Sales and marketing expenses consist primarily of
salaries, commissions and bonuses, payroll taxes, and employee benefits as well
as travel, entertainment and marketing expenses. Sales and marketing expenses as
a percentage of total revenue was 30% in the current fiscal quarter as compared
to 28% in the same quarter a year ago. Sales and marketing expenses increased
$1.9 million or 79% to $4.3 million in the current fiscal quarter from $2.4
million in the same quarter a year ago. The dollar increase and the percentage
of total revenue increase are due primarily to our expansion of our direct sales
and marketing organization which began in fiscal 1998, and to a lesser extent,
the development of our telesales efforts. We expect sales and marketing expenses
to increase as we continue to hire additional sales and marketing personnel as
we continue to transition away from relying primarily on third parties to sell
and market our products.
RESEARCH AND DEVELOPMENT. Research and development expenses consist
primarily of salaries, bonuses, payroll taxes, and employee benefits and costs
attributable to research and development activities. Research and development
expenses as a percentage of total revenue was 10% in the current fiscal quarter
as compared to 12% in the same quarter of a year ago. Research and development
expenses increased $0.4 million or 37% to $1.4 million in the current fiscal
quarter from $1.0 million in the same quarter a year ago. The dollar increase is
primarily due to salary, bonus, payroll tax, and employee benefit costs
associated with the expansion of our research and development efforts to enhance
existing products and develop our new FULL.CYCLE DESKTOP and SERNET ENTERPRISE
products. We expect research and development expenses to increase as we continue
to hire additional research and development personnel to develop our FULL.CYCLE
DESKTOP product suite and our SERNET ENTERPRISE products.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of salaries, bonuses, payroll taxes, and benefits and certain
non-allocable administrative costs, including legal and accounting fees and bad
debts. General and administrative expenses as a percentage of total revenue was
8% in the current fiscal quarter as compared to 9% in the same quarter a year
ago. General and administrative expenses increased $0.3 million or 37% to $1.1
million in the current fiscal quarter from $0.8 million in the same quarter a
year ago. The dollar increase is primarily due to salary, bonus, payroll tax,
profit sharing and employee benefit costs associated with the expansion of our
administrative infrastructure in order to support our increased sales,
marketing, professional services and maintenance activities. We expect general
and administrative expenses to continue to increase as we expand our
infrastructure and incur additional costs as a result of being a public company.
10
<PAGE>
STOCK-BASED COMPENSATION. In total, SERENA recorded aggregate deferred
stock-based compensation of $4.6 million in connection with the issuance of
restricted stock and grants of options to purchase common stock. Deferred
stock-based compensation is generally being amortized over the 36 to 48 month
vesting periods of the related awards. This amortization is being recorded in a
manner consistent with FASB Interpretation No. 28. Of the total deferred
stock-based compensation, $0.3 million and $0.9 million was amortized in the
current fiscal quarter and the same quarter from a year ago, respectively. We
expect the stock-based compensation charge will continue to trend downward
quarter over quarter as the related awards vest or are forfeited. As of April
30, 1999, SERENA had $1.0 million in unamortized stock-based compensation, all
of which is expected to be fully amortized before the end of fiscal 2003.
AMORTIZATION OF INTANGIBLE ASSETS. In the third quarter of fiscal 1999,
SERENA recorded intangible assets of $21.7 million in connection with the
acquisition of Optima in September, 1998. The intangible assets are being
amortized over periods of one year or less on $0.5 million and fifteen years on
the remaining $21.2 million. Of the total intangible assets, $0.5 million was
amortized in the current fiscal quarter ended April 30, 1999. We expect to
amortize an additional $1.1 million in the remaining three quarters of fiscal
2000 and $1.4 million in each fiscal year thereafter until fully amortized in
fiscal 2014.
INTEREST AND OTHER INCOME, NET
Interest and other income, net increased $0.6 million to $0.8 million in the
current fiscal quarter from $0.2 million in the same quarter a year ago. The
dollar increase in interest and other income, net is predominantly due to the
increase in cash and cash equivalent balances and short-term investments
resulting from the Company's initial public offering in the current fiscal
quarter which generated $57.9 million in net proceeds to the Company, and to a
lesser extent, from increases in cash and cash equivalent balances year over
year resulting from accumulation of earnings.
INCOME TAXES
Income taxes were $1.7 million in the current fiscal quarter ended April 30,
1999 as compared to $0.9 million in the same quarter of a year ago, representing
44% of total pretax income. SERENA's effective income tax rate has historically
benefited from the United States research and experimentation tax credit and tax
benefits generated from export sales made from the United States. SERENA's
effective income tax rate did not change when compared to the same quarter a
year ago predominantly due to the fact that total nondeductible charges in both
quarters remained relatively the same as the quarter-over-quarter decrease in
stock-based compensation totaling $0.6 million was almost entirely offset by the
$0.5 million increase in amortization of intangible assets. To a lesser extent,
SERENA has also experienced higher marginal tax rates resulting from
substantially higher pretax profits year over year.
LIQUIDITY AND CAPITAL RESOURCES
From our inception in 1980 until the closing of our initial public offering
of our Common Stock in February 1999, we financed our operations and met our
capital expenditure requirements through cash flows from operations. During the
three months ended April 30, 1999, we completed our initial public offering of
common stock resulting in net proceeds to SERENA of $57.9 million. Net cash
provided by operating activities rose to $4.7 million in the current quarter
from $4.6 million in the same quarter a year ago. Our principal investing
activity during the was the purchase of $23.4 million of short-term investments.
At April 30, 1999, SERENA had $61.1 million in cash and cash equivalents and
another $23.4 million in short-term investments.
At April 30, 1999, we did not have any material commitments for capital
expenditures and did not have any revolving credit agreement or other term loan
agreements with any bank or other financial institution.
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At April 30, 1999, we had working capital of $77.7 million and trade
accounts receivable, net of allowances, of $11.4 million. Our total current and
long term deferred revenues were $14.3 million and we continue to have no debt
financing or venture capital interests.
We believe that the net proceeds from our initial public offering and cash
flows from operations (including prepaid maintenance fees) will satisfy our
working capital and capital expenditure requirements for at least the next
twelve months.
YEAR 2000 COMPLIANCE
Many computer systems and software products are coded to accept only two
digit entries in the date code field. These date code fields will need to accept
four digit entries to distinguish 21st century dates from 20th century dates. As
a result, many companies' software and computer systems may need to be upgraded
or replaced in order to comply with such Year 2000 requirements.
In the ordinary course of our business, we test and evaluate our software
products. We believe that our software products are generally Year 2000
compliant, meaning that the use or occurrence of dates on or after January 1,
2000 will not materially affect the performance of such software products or the
ability of such products to correctly create, store, process and output
information of data involving dates. However, we may learn that certain of our
software products do not contain all necessary software routines and codes
necessary for the accurate calculation, display, storage and manipulation of
data involving dates. In addition, in certain cases, we have warranted that the
use or occurrence of dates on or after January 1, 2000 will not adversely affect
the performance of our products with respect to four digit date dependent data
or the ability to create, store, process and output information related to such
data. If any of our licensees experience Year 2000 problems as a result of their
use of our software products, those licensees could assert claims for damages.
Our standard licensing agreement provides that if our products do not perform to
their specifications, we will correct such problems or issue replacement
software. If these corrective measures fail, we may refund the license fee
associated with the non-performing product. Our standard software license
agreement limits our liability to the amount of the license fee paid, if the
license has been in effect for less than one year, or for the amount of the
license's annual maintenance renewal fee, if the license is more than one year
old. To date we have not received any Year 2000 related claims on our software
products.
Although SERENA does not have a formal plan to address Year 2000 issues,
management is currently addressing Year 2000 problems as they relate to our
internal operating systems. We anticipate that our review of Year 2000 issues
and any remediation efforts will continue throughout calendar 1999. Our Year
2000 review of our internal operating systems is concentrated on our internal
accounting and customer service systems, the systems we believe are most
important to our business. We have found our internal accounting software to be
Year 2000 compliant. We are still reviewing our customer service internal
operating systems. If any Year 2000 issues are uncovered with respect to the
customer service systems or our other internal systems, we believe these
problems will be able to be resolved without material difficulty or cost as
replacement systems are available on commercially reasonable terms.
In view of our Year 2000 review and remediation efforts to date, and the
limited activities that remain to be completed, we do not consider contingency
planning to be necessary at this time. To date costs related to Year 2000 issues
have not been material, and we do not believe such costs will be material in the
future.
We have sought assurances from the suppliers of all third party equipment
and software that we believe are critical to our business that their products
are Year 2000 compliant. While SERENA has received several assurances as to the
Year 2000 compliance of these third party products, we generally do not have any
contractual rights with the third party providers should these equipment or
software fail due to Year 2000 issues. If this third party equipment or software
does not operate properly with regard to the
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Year 2000, we may incur unexpected expenses to remedy any problems. These
expenses could potentially include purchasing replacement hardware and software.
In addition, the purchasing patterns of our customers and potential
customers may be affected by Year 2000 issues. Many companies are spending
significant resources to correct their current software systems for Year 2000
compliance. While sales of certain of our products, in particular STARTOOL,
STARWARP and COMPAREX, have benefited from increased customer spending on Year
2000 readiness, we believe sales of our CHANGE MAN product have been and will
continue to be adversely affected by customer focus on Year 2000 issues.
Customers with limited IT budgets who face material Year 2000 issues are
spending their limited resources remediating these Year 2000 problems instead of
investing in more general IT products such as CHANGE MAN. Market acceptance of
SERENA's products to address general IT business needs as well as resolution of
specific business issues such as Year 2000 readiness is critical to our business
and future success.
For risks concerning SERENA related to Year 2000 see "Factors That May
Affect Future Results"-- "Potential Year 2000 Problems with Our Software or Our
Internal Operating Systems Could Adversely Affect Our Business" and "Reduced
Customer Focus and Spending on Year 2000 Remediation and EMU Conversion Could
Adversely Affect the Sales of Certain of Our Products; Customer Use of Our
Products for Year 2000 and EMU Issues May Not Lead to Increased Sales of Our
Other Products."
FACTORS THAT MAY AFFECT FUTURE RESULTS
THIS REPORT ON FORM 10-Q, INCLUDING THIS MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTAINS
FORWARD-LOOKING STATEMENTS AND OTHER PROSPECTIVE INFORMATION RELATING TO FUTURE
EVENTS. THESE FORWARD-LOOKING STATEMENTS AND OTHER INFORMATION ARE SUBJECT TO
CERTAIN RISKS AND UNCERTAINTIES THAT COULD CAUSE RESULTS TO DIFFER MATERIALLY
FROM HISTORICAL RESULTS OR ANTICIPATED RESULTS, INCLUDING THE FOLLOWING:
THERE ARE MANY FACTORS, INCLUDING SOME BEYOND OUR CONTROL, THAT MAY CAUSE
FLUCTUATIONS IN OUR QUARTERLY OPERATING RESULTS
Our quarterly operating results have varied greatly in the past and may vary
greatly in the future depending upon a number of factors described below and
elsewhere in this "Factors That May Affect Future Results" section of this
quarterly report, including many that are beyond our control. As a result, we
believe that quarter-to-quarter comparisons of our financial results are not
necessarily meaningful, and you should not rely on them as an indication of our
future performance. Factors that may materially affect our quarterly operating
results include the following, as well as others discussed in this Form 10-Q:
- The size, timing and contractual terms of large orders for our software
products
- The budgeting cycles of our customers and potential customers and their
willingness to invest in new SCM solutions or upgrade their existing
solutions
- Market demand for our software products and services, including our
desktop products that are currently under development
- Our ability to develop and introduce on a timely basis and to market new
and enhanced versions of our software, including our desktop products
currently under development
- Seasonal trends in customer purchasing patterns
- Activities by our competitors, including releases of new software
products, changes in pricing policies and acquisitions or strategic
partnership activities
- Any downturn in our customers' businesses, in the domestic economy or in
international economies where our customers do substantial business
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- Changes in the mix of software products and services sold by us, including
the mix between higher margin software products and lower margin
maintenance and services and the percentage of software products sold
which require us to pay a sublicense fee to a third party
- Our ability to hire, integrate and retain technical, sales, marketing and
professional services personnel
- Risks associated with our planned international expansion, including
longer sale cycles and currency fluctuations
- Changes in our pricing policies resulting from competitive pressures or
other factors
- Cancellation of maintenance agreements by customers or any significant
decrease in the percentage of customers who renew their maintenance
agreements with us
- Software defects and other product quality problems
Our software license revenue in any quarter depends on orders booked and
shipped in the last month, weeks or days of that quarter. At the end of each
quarter, we typically have either minimal or no backlog of orders for the
subsequent quarter. If a large number of orders or several large orders do not
occur or are deferred, our revenue in that quarter could be substantially
reduced. This would materially adversely affect our operating results and could
impair our business in future periods. Because we do not know when, or if, our
potential customers will place orders and finalize contracts, we cannot
accurately predict our revenue and operating results for future quarters.
Historically, a majority of our revenue has been attributable to the
licenses of our FULL.CYCLE MAINFRAME software products. Changes in the mix of
software products and services sold by us, including the mix between higher
margin software products and lower margin maintenance and services, could
materially affect our operating results for future quarters as could the
percentage of software products sold which require us to pay a sublicense fee to
a third party.
SEASONAL TRENDS IN SALES OF OUR SOFTWARE PRODUCTS MAY AFFECT OUR QUARTERLY
OPERATING RESULTS
We have experienced and expect to continue to experience seasonality in
sales of our software products. These seasonal trends materially affect our
quarter-to-quarter operating results. Revenue and operating results in our
quarter ending January 31 are typically higher relative to our other quarters,
because many customers make purchase decisions based on their calendar year-end
budgeting requirements. In addition, our January quarter tends to reflect the
effect of the incentive compensation structure for our sales organization, which
is based on satisfaction of fiscal year-end quotas. As a result, we have
historically experienced a substantial decline in revenue in the first quarter
of each fiscal year relative to the preceding quarter. We are also currently
attempting to expand our presence in international markets, particularly in
Europe. We expect our quarter ending October 31 to reflect the effects of summer
slowing of international business activity and spending activity generally
associated with that time of year, particularly in Europe. To the extent that
our revenue in Europe or other parts of the world increase in future periods, we
expect our period-to-period revenues to reflect any seasonal buying patterns in
these markets.
WE EXPECT THAT OUR OPERATING EXPENSES WILL INCREASE SUBSTANTIALLY IN THE FUTURE
AND THESE INCREASED EXPENSES MAY ADVERSELY AFFECT OUR FUTURE OPERATING RESULTS
AND FINANCIAL CONDITION
Although SERENA has been profitable in recent years, we may not remain
profitable on a quarterly or annual basis in the future. We anticipate that our
expenses will increase substantially in the foreseeable future as we:
- Increase our sales and marketing activities, including expanding our
United States and international direct sales forces and extending our
telesales efforts
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- Develop our technology, including our FULL.CYCLE DESKTOP suite of SCM
products for the desktop platform
- Broaden our professional services offerings and delivery capabilities
- Expand our distribution channels
- Pursue strategic relationships and acquisitions
With these additional expenses, in order to maintain our current levels of
profitability, we will be required to increase our revenue correspondingly. Any
failure to significantly increase our revenue as we implement our product,
service and distribution strategies would materially adversely affect our
business, quarterly and annual operating results and financial condition.
Although our revenue has grown in recent years, we do not believe that we will
maintain this rate of revenue growth. In addition, we may not experience any
revenue growth in the future, and our revenue could in fact decline. Our efforts
to expand our software product suites, sales and marketing activities, direct
and indirect distribution channels and professional service offerings and to
pursue strategic relationships or acquisitions may not succeed or may prove more
expensive than we currently anticipate. As a result, we cannot predict our
future operating results with any degree of certainty.
OUR FUTURE REVENUE IS SUBSTANTIALLY DEPENDENT UPON OUR INSTALLED CUSTOMERS
RENEWING MAINTENANCE AGREEMENTS FOR OUR PRODUCTS AND LICENSING ADDITIONAL
SERENA SCM PRODUCTS; OUR FUTURE PROFESSIONAL SERVICE AND MAINTENANCE REVENUE
IS DEPENDENT ON FUTURE SALES OF OUR SOFTWARE PRODUCTS
We depend on our installed customer base for future revenues from
maintenance renewal fees and licenses of additional SCM products. If our
customers do not purchase additional products or cancel or fail to renew their
maintenance agreements, this could materially adversely affect our business and
future quarterly and annual operating results. The terms of our standard license
arrangements provide for a one-time license fee and a prepayment of one year of
software maintenance and support fees. The maintenance agreements are renewable
annually at the option of the customers and there are no minimum payment
obligations or obligations to license additional software. Therefore, our
current customers may not necessarily generate significant maintenance revenue
in future periods. In addition, our customers may not necessarily purchase
additional products, upgrades or professional services. Our professional service
revenue and maintenance revenue are also dependent upon the continued use of
these services by our installed customer base. Any downturn in our software
license revenue would have a negative impact on the growth of our professional
service revenue and maintenance revenue in future quarters.
WE HAVE RELIED AND EXPECT TO CONTINUE TO RELY ON SALES OF OUR FULL.CYCLE
MAINFRAME PRODUCTS FOR OUR REVENUE
Historically, all of our software license revenue has resulted from the sale
of our FULL.CYCLE MAINFRAME products. Any factors adversely affecting the
pricing of, demand for or market acceptance of our FULL.CYCLE MAINFRAME
products, such as competition or technological change, could materially
adversely affect our business and quarterly and annual operating results. In
particular, CHANGE MAN and COMPAREX, two of our FULL.CYCLE MAINFRAME products,
have been responsible for a substantial majority of our revenue. We expect that
these products will continue to account for a large portion of our software
license revenue for the foreseeable future. Our future operating results depend
on the continued market acceptance of our FULL.CYCLE MAINFRAME products,
including future enhancements.
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IF THE SCM MARKET DOES NOT EVOLVE AS WE ANTICIPATE, OUR BUSINESS WILL BE
ADVERSELY AFFECTED
If we fail to properly assess and address the SCM market or if our products
and services fail to achieve market acceptance for any reason, our business and
quarterly and annual operating results would be materially adversely affected.
The SCM market is in an early stage of development. IT organizations have
traditionally addressed SCM needs internally and have only recently become aware
of the benefits of third-party SCM solutions as their SCM requirements have
become more complex. Since the market for our products is still evolving, it is
difficult to assess the competitive environment or the size of the market that
may develop. Our future financial performance will depend in large part on the
continued growth in the number of businesses adopting third-party SCM products
and the expansion of their use on a company-wide basis. The SCM market for
third-party products may grow more slowly than we anticipate. In addition,
technologies, customer requirements and industry standards may change rapidly.
If we cannot improve or augment our products as rapidly as existing
technologies, customer requirements and industry standards evolve, our products
or services could become obsolete. The introduction of new or technologically
superior products by competitors could also make our products less competitive
or obsolete. As a result of any of these factors, our position in existing
markets or potential markets could be eroded.
OUR BUSINESS IS DEPENDENT ON THE CONTINUED MARKET FOR IBM AND IBM-COMPATIBLE
MAINFRAMES
We are substantially dependent upon the continued use and acceptance of IBM
and IBM-compatible mainframes and the growth of this market. If the role of the
mainframe does not increase as we anticipate, or if it in any way decreases,
this would materially adversely affect our business, future quarterly and annual
operating results and financial condition. Additionally, if there is a wide
acceptance of other platforms or if new platforms emerge that provide enhanced
enterprise server capabilities, our business and future operating results may be
materially adversely affected. Substantially all of our software license revenue
to date has been attributable to sales of our FULL.CYCLE MAINFRAME products. We
expect that, for the foreseeable future, substantially all of our software
license revenue will continue to come from sales of our mainframe products. As a
result, future sales of our existing products and associated maintenance revenue
and professional service revenue will depend on continued use of mainframes.
Recently there has been a trend away from the use of centralized mainframes in
enterprise computing environments to more decentralized client/server networks.
Although some IT organizations are using mainframes as large enterprise servers,
this practice is relatively new and still emerging and may not continue.
OUR INTRODUCTION OF SERENA SCM PRODUCTS FOR THE DESKTOP MAY NOT BE SUCCESSFUL
We are currently developing our FULL.CYCLE DESKTOP product suite which is
designed to support the desktop platform. If we do not successfully develop,
market, sell and support our FULL.CYCLE DESKTOP products, this would materially
adversely affect our business and our future quarterly and annual operating
results. Historically, all of our products have been designed for the mainframe
platform, and all of our software license revenue, maintenance revenue and
professional services revenue to date have been attributable to licenses for
these mainframe products. We do not have experience developing, marketing,
selling or supporting desktop products. Developing, marketing and selling our
desktop products will require significant resources that we may not have. Our
sales and marketing organizations have historically focused exclusively on sales
of our products for the mainframe and have limited experience marketing and
selling desktop products. Additionally, we do not have any experience in
providing support services for desktop products. Competition for experienced
software engineers, sales personnel and support staff is intense and if we fail
to attract qualified personnel this would impair our ability to support our
FULL.CYCLE DESKTOP products. Many of our competitors have substantially greater
experience providing desktop compatible software products than we do, and many
also have significantly greater financial and organizational resources.
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WE MAY EXPERIENCE DELAYS IN DEVELOPING OUR PRODUCTS WHICH COULD ADVERSELY AFFECT
OUR BUSINESS
If we are unable, for technological or other reasons, to develop and
introduce new and improved products in a timely manner, this could materially
adversely affect our business and future quarterly and annual operating results.
We have experienced product development delays in new version and update
releases in the past and may experience similar or more significant product
delays in the future. To date, none of these delays has materially affected our
business. Difficulties in product development could delay or prevent the
successful introduction or marketing of new or improved products or the delivery
of new versions of our products to our customers. In particular, we may
experience delays in introducing our FULL.CYCLE DESKTOP product suite. While we
anticipate releasing initial versions of our FULL.CYCLE DESKTOP products, other
than DETECT+RESOLVE which we released in December 1998, before the end of
calendar 1999, any delay in releasing our new desktop products, for whatever
reason, would impair our revenue growth.
WE HAVE EXPERIENCED SIGNIFICANT GROWTH IN OUR BUSINESS IN RECENT PERIODS AND OUR
ABILITY TO MANAGE THIS GROWTH AND ANY FUTURE GROWTH WILL AFFECT OUR BUSINESS
Our ability to compete effectively and to manage our recent growth, any
future growth and our future quarterly and annual operating results will depend
in part on our ability to implement and expand operational, customer support and
financial control systems and to train and manage our employees. We may not be
able to augment or improve existing systems and controls or implement new
systems and controls in response to future growth, if any. Any failure to manage
growth could materially adversely affect our business. Since the beginning of
fiscal 1998 we have significantly expanded our sales, marketing and professional
service activities. This expansion included our September 1998 acquisition of
Optima which significantly increased the size of our sales, marketing and
professional service organizations. This growth has resulted, and any future
growth will result, in new and increased responsibilities for management
personnel.
WE WILL NEED TO EXPAND OUR DISTRIBUTION CHANNELS IN ORDER TO EXPAND OUR BUSINESS
AND A NUMBER OF FACTORS MAY HINDER OUR ABILITY TO ACCOMPLISH THIS GOAL
If we fail to significantly expand our direct sales and telesales force, our
ability to sell our products into new markets and to increase our product
penetration into our existing markets will be impaired. Failure to expand our
distribution channels through any of these means could materially adversely
affect our business and our future quarterly and annual operating results. In
addition, our ability to achieve revenue growth in future periods will be
heavily dependent on our success in recruiting and training sufficient direct
sales personnel. We are planning to significantly expand our direct sales
efforts in North America and Europe and while we are investing, and plan to
continue to invest, substantial resources on this expansion, we have at times
experienced, and expect to continue to experience, difficulty in recruiting and
retaining qualified direct sales personnel. In addition to expanding our direct
sales efforts, we are also currently investing, and we intend to continue to
invest, substantial resources in selling our products through telesales
personnel. We also intend to extend our distribution channels by partnering with
leading helpdesk management, software distribution application and system
framework providers and may also attempt to develop additional sales and
marketing channels through system integrators, original equipment manufacturers
and other partners.
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WE WILL NEED TO EXPAND OUR PROFESSIONAL SERVICES ORGANIZATION IN ORDER TO EXPAND
OUR BUSINESS AND A NUMBER OF FACTORS MAY HINDER OUR ABILITY TO ACCOMPLISH THIS
GOAL
Our existing professional services and customer support organizations may
not be sufficient to manage any future growth in our business. The failure to
expand our professional services and customer support organizations or to
integrate Optima's professional services personnel into our professional
services organization could materially adversely affect our business. While we
intend to significantly expand our professional services and customer support
organizations, including providing these services for both desktop and mainframe
applications and systems, we may not be able to do so. Competition for
additional qualified technical personnel to perform these services is intense.
We believe that providing high quality consulting, training, customer
support and education is essential to maintaining our competitive position. If
we are unable to provide comprehensive consulting and support services to our
existing and prospective customers, this may materially adversely affect our
business and ability to sell our products. Consulting services and customer
support are critical to our future success because the market for third party
SCM solutions is still evolving, and many organizations have limited experience
using third party SCM solutions. Customers have only recently begun to look to
third party providers for SCM solutions as the complexity of computer networks
and number of applications has increased.
WE INTEND TO EXPAND OUR INTERNATIONAL OPERATIONS AND MAY ENCOUNTER A NUMBER OF
PROBLEMS IN DOING SO; THERE ARE ALSO A NUMBER OF FACTORS ASSOCIATED WITH
INTERNATIONAL OPERATIONS THAT COULD ADVERSELY AFFECT OUR BUSINESS
EXPANSION OF INTERNATIONAL OPERATIONS. We intend to expand the scope of our
international operations and currently have subsidiaries in the United Kingdom
and in Germany. If we are unable to expand our international operations
successfully and in a timely manner, this could materially adversely affect our
business and quarterly and annual operating results. Our continued growth and
profitability will require continued expansion of our international operations,
particularly in Europe. In addition, in calendar 1999, we intend to open
additional international offices, including at least one additional European
office. We have only limited experience in marketing, selling and supporting our
products internationally. Additionally, we do not have any experience in
developing foreign language versions of our products. Such development may be
more difficult or take longer than we anticipate. We may not be able to
successfully market, sell, deliver and support our products internationally.
RISKS OF INTERNATIONAL OPERATIONS. Our international revenue is
attributable principally to our European operations. Our international
operations are, and any expanded international operations will be, subject to a
variety of risks associated with conducting business internationally that could
materially adversely affect our business and future quarterly and annual
operating results, including the following:
- Difficulties in staffing and managing international operations
- Problems in collecting accounts receivable
- Longer payment cycles
- Fluctuations in currency exchange rates
- Seasonal reductions in business activity during the summer months in
Europe and certain other parts of the world
- Recessionary environments in foreign economies
- Increases in tariffs, duties, price controls or other restrictions on
foreign currencies or trade barriers imposed by foreign countries
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FLUCTUATIONS IN THE VALUE OF FOREIGN CURRENCIES COULD RESULT IN CURRENCY
TRANSACTION LOSSES FOR SERENA
A majority of our international business is conducted in foreign currencies,
principally the British pound. Fluctuations in the value of foreign currencies
relative to the U.S. dollar have caused and will continue to cause currency
transaction gains and losses. We cannot predict the effect of exchange rate
fluctuations upon future quarterly and annual operating results. We may
experience currency losses in the future. To date, we have not adopted a hedging
program to protect SERENA from risks associated with foreign currency
fluctuations.
SERENA IS SUBJECT TO INTENSE COMPETITION IN THE SCM INDUSTRY AND WE EXPECT TO
FACE INCREASED COMPETITION IN THE FUTURE, INCLUDING COMPETITION IN THE SCM
DESKTOP MARKET
We may not be able to compete successfully against current and/or future
competitors and such inability would materially adversely affect our business,
quarterly and annual operating results and financial condition. The market for
our products is highly competitive and diverse. Moreover, the technology for SCM
products may change rapidly. New products are frequently introduced, and
existing products are continually enhanced. Competition may also result in
changes in pricing policies by SERENA or our competitors which could materially
adversely affect our business and future quarterly and annual operating results.
Competitors vary in size and in the scope and breadth of the products and
services that they offer. Many of our current and potential competitors have
greater financial, technical, marketing and other resources than we do. As a
result, they may be able to respond more quickly to new or emerging technologies
and changes in customer requirements. They may also be able to devote greater
resources to the development, promotion and sale of their products than we can.
EXISTING COMPETITION. We currently face competition from a number of
sources, including:
- Customers' internal IT departments
- Providers of SCM products that compete directly with CHANGE MAN and
COMPAREX such as Computer Associates, PLATINUM technology, IBM and
smaller private companies
- Providers of SCM application development programmer productivity and
system management products such as Compuware, IBM and smaller private
companies
FUTURE COMPETITION. We may face competition in the future from established
companies who have not previously entered the mainframe SCM market or from
emerging software companies. Barriers to entry in the software market are
relatively low. Increased competition may materially adversely affect our
business and future quarterly and annual operating results due to price
reductions, reduced gross margins and reduction in market share. Established
companies may not only develop their own mainframe SCM solutions, but they may
also acquire or establish cooperative relationships with our current
competitors, including cooperative relationships between large, established
companies and smaller private companies. Because larger companies have
significant financial and organizational resources available, they may be able
to quickly penetrate the mainframe SCM market through acquisitions or strategic
relationships and may be able to leverage the technology and expertise of
smaller companies and develop successful SCM products for the mainframe. We
expect that the software industry, in general, and providers of SCM solutions,
in particular, will continue to consolidate. It is possible that new competitors
or alliances among competitors may emerge and rapidly acquire significant market
share.
BUNDLING OR COMPATIBILITY RISKS. Our ability to sell our products also
depends, in part, on the compatibility of our products with other third party
products, particularly those provided by IBM.
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Developers of these third party products may change their products so that they
will no longer be compatible with our products. These third party developers may
also decide to bundle their products with other SCM products for promotional
purposes. If that were to happen, our business and future quarterly and annual
operating results may be materially adversely affected as we may be priced out
of the market or no longer be able to offer commercially viable products.
COMPETITION IN THE DESKTOP SCM MARKET. We anticipate that we will also face
significant competition as we develop, market and sell our FULL.CYCLE DESKTOP
products. If we are unable to successfully penetrate the desktop SCM market, our
business and future quarterly and annual operating results will be materially
adversely affected. We do not have experience in developing, selling, marketing
or supporting desktop products since all of our products to date have been
designed to support the mainframe. Penetrating the existing desktop SCM market
will be difficult. Competitors in the desktop market include PLATINUM
technology, Merant, Microsoft, Novadigm, Novell, Rational Software and other
smaller private companies.
REDUCED CUSTOMER FOCUS AND SPENDING ON YEAR 2000 REMEDIATION AND EMU CONVERSION
COULD ADVERSELY AFFECT THE SALES OF CERTAIN OF OUR PRODUCTS; CUSTOMER USE OF
OUR PRODUCTS FOR YEAR 2000 AND EMU ISSUES MAY NOT LEAD TO INCREASED SALES OF
OUR OTHER PRODUCTS
Our business may be adversely affected if customers focus less on Year 2000
remediation and European Monetary Unit, or EMU, conversion issues and sales of
our STARWARP and COMPAREX products decline as a result. We have derived a
portion of our recent software license revenue and professional services revenue
from products designed to help customers resolve SCM problems for specific
business issues such as those related to Year 2000 remediation and EMU
conversion. Our STARWARP product is our primary Year 2000 and EMU readiness
product. Certain customers have also licensed COMPAREX to assist them in testing
Year 2000 remediations and EMU conversions. Market acceptance of our products
and services will depend, in large part, on whether customers use our products
as part of their overall IT management strategy in addition to using them to
resolve SCM problems related to specific business issues. Market acceptance of
our products to address general IT business needs as well as to resolve specific
business issues, such as Year 2000 remediation or EMU conversion, is critical to
our business and future success. If customers do not expand their use of our
products, implement new software products introduced by us or do not use our
related maintenance and support services to address their general IT business
requirements as well as specific issues, this will materially adversely affect
our business and our ability to sell our products.
ANY DELAYS IN OUR NORMALLY LENGTHY SALES CYCLES COULD RESULT IN SIGNIFICANT
FLUCTUATIONS IN OUR QUARTERLY OPERATING RESULTS
Our sales cycle typically takes six to 18 months to complete and varies from
product to product. Any delay in the sales cycle of a large license or a number
of smaller licenses could result in significant fluctuations in our quarterly
operating results. The length of the sales cycle may vary depending on a number
of factors over which we may have little or no control, including the size of a
potential transaction and the level of competition that we encounter in our
selling activities. Additionally, the emerging market for SCM products and
services contributes to the lengthy sales process in that during the sales cycle
we often have to teach potential customers about the use and benefits of our
products. In certain circumstances, we license our software to customers on a
trial basis to assist the customers in their evaluation of our products. Our
sales cycle can be further extended for product sales made through third party
distributors.
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CERTAIN OF OUR PRODUCTS ARE LICENSED FROM THIRD PARTIES OR ARE JOINTLY-OWNED
WITH THIRD PARTIES; OUR FAILURE TO MAINTAIN THESE ARRANGEMENTS WITH THIRD
PARTIES COULD ADVERSELY AFFECT OUR BUSINESS
STARTOOL AND STARWARP. We license our STARTOOL and STARWARP products on an
exclusive worldwide basis from A. Bruce Leland, one of our employees. The
termination of our licenses for the STARTOOL or STARWARP products would
materially adversely affect our business and quarterly and annual operating
results. Mr. Leland holds all proprietary rights with respect to the STARTOOL
and STARWARP technology, including any derivative works or enhancements of the
existing STARTOOL and STARWARP products. Our licenses for these products are
terminable by Mr. Leland upon 30 days notice in the event certain conditions
occur, including our failure to pay sublicense fees to Mr. Leland on a timely
basis or any other material breach by us of the license agreement. Should the
licenses for the STARTOOL and STARWARP products terminate, we may not be able to
replace these products which could materially adversely affect our business and
future quarterly and annual operating results.
DETECT+RESOLVE MAINFRAME. We share ownership rights in our DETECT+RESOLVE
MAINFRAME technology for mainframe platforms with High Power Software. Although
we have historically had primary responsibility for marketing, licensing and
supporting SYNCTRAC, High Power Software has the ability to jointly direct these
efforts. If in the future we are unable to reach agreement with High Power
Software on the direction or evolution of the product, our ability to market or
promote the product may be compromised. This could have a material adverse
effect on our business and future quarterly and annual operating results.
OUR EXECUTIVE OFFICERS AND CERTAIN KEY PERSONNEL ARE CRITICAL TO OUR BUSINESS
AND SUCH OFFICERS AND KEY PERSONNEL MAY NOT REMAIN WITH SERENA IN THE FUTURE
Our success will depend to a significant extent on the continued service of
our senior executives and certain other key employees, including certain sales,
consulting, technical and marketing personnel. If we lost the services of one or
more of our executives or key employees, including if one or more of our
executives or key employees decided to join a competitor or otherwise compete
directly or indirectly with SERENA, this could materially adversely affect our
business. In particular, we have historically relied on the experience and
dedication of our product authors. With the exception of Douglas D. Troxel,
SERENA's founder, Chief Technology Officer and Chairman of SERENA's board of
directors, the employment of all of our senior and key employees, including key
product authors, is at will. Mr. Troxel's employment is on a year-to-year basis.
In addition, we do not maintain key man life insurance on our employees and have
no plans to do so.
WE MAY NOT BE ABLE TO RECRUIT AND RETAIN THE PERSONNEL WE NEED
Our future success will likely depend in large part on our ability to
attract and retain additional experienced sales, technical, marketing and
management personnel. In addition, we will need to attract and retain sufficient
numbers of qualified software engineers, as well as sales and marketing and
support personnel, and successfully develop, market and support our FULL.CYCLE
DESKTOP product suite which is currently in development. Competition for such
personnel in the computer software industry is intense, and in the past we have
experienced difficulty in recruiting qualified personnel, especially developers
and sales personnel. We expect competition for qualified personnel to remain
intense, and we may not succeed in attracting or retaining such personnel. If we
do not, this could materially adversely affect our business and future quarterly
and annual operating results. In addition, new employees generally require
substantial training in the use of our products. This training will require
substantial resources and management attention.
INTERNATIONAL OPERATIONS. We intend to expand the scope of our
international operations and these plans will require us to attract experienced
management, service, marketing, sales and support personnel
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<PAGE>
for our international offices. Competition for such personnel is intense, and we
may not be able to attract or retain such experienced personnel.
NON-U.S. CITIZENS WORKING IN THE UNITED STATES. To achieve our business
objectives, we may recruit and employ skilled technical professionals from other
countries to work in the United States. Limitations imposed by federal
immigration laws and the availability of visas could materially adversely affect
our ability to attract necessary qualified personnel. This may have a material
adverse effect on our business and future quarterly and annual operating
results.
POTENTIAL YEAR 2000 PROBLEMS WITH OUR SOFTWARE OR OUR INTERNAL OPERATING SYSTEMS
COULD ADVERSELY AFFECT OUR BUSINESS
SERENA SOFTWARE. If any of our licensees experience Year 2000 problems as a
result of their use of our software products, those licensees could assert
claims for damages which, if successful, could materially adversely affect our
business, future operating results and financial condition. In the ordinary
course of our business, we test and evaluate our software products. We believe
that our software products are generally Year 2000 compliant, meaning that the
use or occurrence of dates on or after January 1, 2000 will not materially
affect the performance of our software products or the ability of our products
to correctly create, store, process and output information of data involving
dates. However, we may learn that certain of our software products do not
contain all necessary software routines and codes necessary for the accurate
calculation, display, storage and manipulation of data involving dates. In
addition, in certain cases, we have warranted that the use or occurrence of
dates on or after January 1, 2000 will not adversely affect the performance of
our products with respect to four digit date dependent data or the ability to
create, store, process and output information related to such data.
THIRD PARTY EQUIPMENT AND SOFTWARE. We use third party equipment and
software that may not be Year 2000 compliant. If this third party equipment or
software does not operate properly with regard to the Year 2000, we may incur
unexpected expenses to remedy any problems. These costs may materially adversely
affect our business. In addition, if our key systems, or a significant number of
our systems, failed as a result of Year 2000 problems we could incur substantial
costs and disruption of our business.
CUSTOMER BUYING PATTERNS. In addition, the purchasing patterns of our
customers and potential customers may be affected by Year 2000 issues. Many
companies are spending significant resources to correct their current software
systems for Year 2000 compliance. While sales of certain of our products, in
particular STARWARP and COMPAREX, have benefited from increased customer
spending on Year 2000 readiness, we believe sales of our CHANGE MAN product have
been and will continue to be adversely affected by customer focus on Year 2000
issues. Customers with limited IT budgets who face material Year 2000 issues are
spending their limited resources remediating these Year 2000 problems instead of
investing in more general IT products, such as CHANGE MAN.
For a more detailed description of our Year 2000 preparedness assessment,
see "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000 Compliance."
OUR INDUSTRY CHANGES RAPIDLY DUE TO EVOLVING TECHNOLOGY STANDARDS AND OUR FUTURE
SUCCESS WILL DEPEND ON OUR ABILITY TO CONTINUE TO MEET THE SOPHISTICATED NEEDS
OF OUR CUSTOMERS
Our future success will depend on our ability to address the increasingly
sophisticated needs of our customers by supporting existing and emerging
hardware, software, database and networking platforms. We will have to develop
and introduce enhancements to our existing products and new products on a timely
basis to keep pace with technological developments, evolving industry standards
and changing customer requirements. We expect that we will have to respond
quickly to rapid technological change, changing customer needs, frequent new
product introductions and evolving industry standards that may render existing
products and services obsolete. As a result, our position in existing markets or
potential
22
<PAGE>
markets could be eroded rapidly by product advances. The life cycles of our
products are difficult to estimate. Our growth and future financial performance
will depend in part upon our ability to enhance existing applications, develop
and introduce new applications that keep pace with technological advances, meet
changing customer requirements and respond to competitive products. We expect
that our product development efforts will continue to require substantial
investments. We may not have sufficient resources to make the necessary
investments. Any of these events could have a material adverse effect on our
business, quarterly and annual operating results and financial condition.
THIRD PARTIES IN THE FUTURE COULD ASSERT THAT OUR PRODUCTS INFRINGE THEIR
INTELLECTUAL PROPERTY RIGHTS, WHICH COULD ADVERSELY AFFECT OUR BUSINESS; THERE
COULD BE POTENTIAL ADVERSE EFFECTS OF THE PENDING COMPUWARE CLAIM
Third parties may claim that our current or future products infringe their
proprietary rights. Any claims of this type could affect our relationships with
existing customers and may prevent future customers from licensing our products.
Because we are dependent upon a limited number of products, any such claims,
with or without merit, could be time consuming, result in costly litigation,
cause product shipment delays or require us to enter into royalty or licensing
agreements. Royalty or license agreements may not be available on acceptable
terms or at all. We expect that software product developers will increasingly be
subject to infringement claims as the number of products and competitors in the
software industry segment grows and the functionality of products in different
industry segments overlaps. As a result of these factors, infringement claims
could materially adversely affect our business.
In September 1998, Compuware Corporation, or Compuware, filed suit against
SERENA in the United States District Court for the Eastern District of Michigan
seeking unspecified compensatory damages, costs and attorneys fees, and
injunctive relief based on allegations of copyright infringement, trade secret
misappropriation and various tort claims related to the sale of our STARTOOL and
STARWARP products. Compuware served the complaint on SERENA in November 1998.
Due to the nature of litigation generally and because the lawsuit brought by
Compuware is at an early stage, management cannot ascertain the availability of
injunctive relief or other equitable remedies or estimate the total expenses,
possible damages or settlement value, if any, that may ultimately be incurred in
connection with Compuware's suit. However, management believes, based on the
advice of counsel, that SERENA has meritorious defenses to the allegations
contained in Compuware's complaint. We believe that this matter will not have a
material adverse effect on our results of operations or financial condition.
This litigation could be time consuming and costly, and there can be no
assurance that SERENA will necessarily prevail given the inherent uncertainties
of litigation. In the event that we do not prevail in litigation, we could be
prevented from selling our STARTOOL and STARWARP products or be required to
enter into royalty or licensing agreements or pay monetary damages. Such royalty
or licensing agreements, if required, may not be available on terms acceptable
to SERENA or at all. In the event of a successful claim against us, our
business, future operating results or financial condition could be materially
adversely affected.
ERRORS IN OUR PRODUCTS OR THE FAILURE OF OUR PRODUCTS TO CONFORM TO
SPECIFICATIONS COULD RESULT IN OUR CUSTOMERS DEMANDING REFUNDS FROM US OR
ASSERTING CLAIMS FOR DAMAGES AGAINST US
Because our software products are complex, they often contain errors or
"bugs" that can be detected at any point in a product's life cycle. While we
continually test our products for errors and work with customers through our
customer support services to identify and correct bugs in our software, we
expect that errors in our products will continue to be found in the future.
Although many of these errors may prove to be immaterial, certain of these
errors could be significant. Detection of any significant errors may result in,
among other things, loss of, or delay in, market acceptance and sales of our
products, diversion of development resources, injury to our reputation, or
increased service and warranty costs. These problems could materially adversely
affect our business and future quarterly and annual operating results. In the
past we have discovered errors in certain of our products and have experienced
delays in the shipment of our
23
<PAGE>
products during the period required to correct these errors. These delays have
principally related to new version and product update releases. To date none of
these delays have materially affected our business. However, product errors or
delays in the future, including any product errors or delays associated with the
introduction of our FULL.CYCLE DESKTOP products, could be material. In addition,
in certain cases we have warranted that our products will operate in accordance
with specified customer requirements. If our products fail to conform to such
specifications, customers could demand a refund for the software license fee
paid to us or assert claims for damages.
PRODUCT LIABILITY CLAIMS ASSERTED AGAINST US IN THE FUTURE COULD ADVERSELY
AFFECT OUR BUSINESS
We may be subject to claims for damages related to product errors in the
future. While we carry insurance policies covering this type of liability, these
policies may not provide sufficient protection should a claim be asserted. A
material product liability claim could materially adversely affect our business.
Our license agreements with our customers typically contain provisions designed
to limit exposure to potential product liability claims. SERENA's standard
software licenses provide that if our products fail to perform, we will correct
or replace such products. If these corrective measures fail, we may be required
to refund the license fee for such non-performing product. However, our standard
license agreement limits our liability for non-performing products to the amount
of license fee paid, if the license has been in effect for less than one year,
or to the amount of the licensee's current annual maintenance fee, if the
license is more than one year old. Our standard license also provides that
SERENA shall not be liable for indirect or consequential damages caused by the
failure of our products. Such limitation of liability provisions may, however,
not be effective under the laws of certain jurisdictions to the extent local
laws treat certain warranty exclusions as unenforceable. Although we have not
experienced any product liability claims to date, the sale and support of our
products entail the risk of such claims. In particular, issues relating to Year
2000 compliance have increased awareness of the potential adverse effects of
software defects and malfunctions.
ANY ACQUISITIONS OR INVESTMENTS THAT WE MAY MAKE WILL BE SUBJECT TO A NUMBER OF
FACTORS WHICH COULD ADVERSELY AFFECT OUR BUSINESS; SUCH INVESTMENTS OR
ACQUISITIONS MAY DILUTE EXISTING STOCKHOLDERS
In the future we may make acquisitions of, or large investments in,
businesses that offer products, services and technologies that we believe would
help us better provide SCM products and services or help us expand our
distribution channels. We may not be able to complete any such additional
acquisitions in the future. Any future acquisitions or investments would present
risks commonly encountered in acquisitions of businesses. The following are
examples of such risks:
- Difficulty in combining the technology, operations or work force of the
acquired business
- Disruption of SERENA's on-going businesses
- Difficulty in realizing the potential financial or strategic benefits of
the transaction
- Difficulty in maintaining uniform standards, controls, procedures and
policies
- Possible impairment of relationships with employees and clients as a
result of any integration of new businesses and management personnel
We expect that future acquisitions, if any, could provide for consideration
to be paid in cash, shares of SERENA common stock, or a combination of cash and
SERENA common stock. If the consideration for such transaction is paid in common
stock, this would further dilute existing stockholders. Any amortization of
goodwill or other assets resulting from such acquisition transaction could
materially impair our operating results and financial condition. If an
acquisition or large investment were to take place, the risks described above
could materially adversely affect our business and future operating results.
24
<PAGE>
OUR STOCK WILL LIKELY BE SUBJECT TO SUBSTANTIAL PRICE AND VOLUME FLUCTUATIONS
DUE TO A NUMBER OF FACTORS, CERTAIN OF WHICH ARE BEYOND OUR CONTROL
Stock prices and trading volumes for many technology companies fluctuate
widely for reasons which may be unrelated to their businesses or results of
operations. These fluctuations, as well as general economic, market and
political conditions, could materially adversely affect the market price of
SERENA's common stock.
Future announcements concerning SERENA or our competitors could cause the
market price of the common stock to fluctuate greatly. These type of
announcements may include information concerning:
- Any shortfall in SERENA's revenues or net income from revenues or net
income expected by securities analysts
- Announcements of new products by SERENA or our competitors, including
announcements regarding our FULL.CYCLE DESKTOP products, currently under
development
- Quarterly fluctuations in our financial results or the results of other
software companies, including those of our direct competitors
- Changes in analysts' estimates of our financial performance, the financial
performance of our competitors, or the financial performance of software
companies in general
- Changes in prices of our products or the products of our competitors
- Changes in our revenue growth rates or the growth rates of our competitors
- Sales of large blocks of SERENA common stock
- Conditions in the financial markets in general and the software industry
in particular
ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We do not use derivative financial instruments in our investment portfolio
and have no foreign exchange contracts. Our financial instruments consist of
cash, cash equivalents, short-term investments, trade accounts receivable,
accounts payable, and long-term obligations. Our exposure to market risk for
changes in interest rates relates primarily to our short-term investments and
obligations; thus, fluctuations in interest rates would not have a material
effect on the fair value of these securities.
Sales to customers in foreign countries accounted for approximately 19% of
total revenue during the quarter ended April 30, 1999. Because we invoice
certain of these sales in currencies other than the U.S. dollar, predominately
British pound sterling, and do not hedge these transactions, fluctuations in
exchange rates could adversely affect the translated results of operations of
our foreign subsidiaries.
25
<PAGE>
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not applicable.
ITEM 2. CHANGE IN SECURITIES AND USE OF PROCEEDS.
USE OF PROCEEDS
In February 1999, SERENA completed the sale of 6 million shares of its
Common Stock, including 2 million shares on behalf of selling stockholders, at a
per share price of $13.00 in a firm commitment underwritten public offering
pursuant to a Registration Statement on Form S-1 (File No. 333-67761) which the
Securities and Exchange Commission declared effective on February 11, 1999. The
offering was underwritten by Hambrecht & Quist LLC, SG Cowen Securities
Corporation and Soundview Technology Group Inc. In March 1999, an over-allotment
option granted by SERENA to the underwriters for the purchase of up to 900,000
additional shares of SERENA Common Stock was exercised in full by the
underwriters.
SERENA received aggregate gross proceeds of $63.7 million in connection with
its initial public offering. Of such amount, approximately $4.4 million was paid
to the underwriters in connection with underwriting discounts, and approximately
$1.4 million was paid by SERENA in connection with offering expenses, including
legal, accounting, printing, filing and other fees. There were no direct or
indirect payments to directors or officers of the Company or any other person or
entity. None of the offering proceeds have been used for the construction of
plant, buildings or facilities or other purchase or installation of machinery or
equipment or for purchases of real estate or the acquisition of other
businesses. The Company is currently investing the net offering proceeds for
future use as additional working capital. Such remaining net proceeds may be
used for potential strategic investments or acquisitions that complement
SERENA's products, services, technologies or distribution channels.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT TITLE
- ----------- -----------------------------------------------------------------------------------------------------
<S> <C>
(a) Exhibits.
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
Not applicable.
</TABLE>
26
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SERENA SOFTWARE, INC.
Date: June 14, 1999 By: /s/ ROBERT I. PENDER, JR.
-----------------------------------
Robert I. Pender, Jr.
VICE PRESIDENT, FINANCE AND
ADMINISTRATION, CHIEF FINANCIAL
OFFICER (PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER) AND SECRETARY
27
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S FORM 10Q QUARTERLY REPORT UNDER THE SECURITIES ACT OF 1934 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-2000
<PERIOD-START> FEB-01-1999
<PERIOD-END> APR-30-1999
<CASH> 61,139,044
<SECURITIES> 23,440,894
<RECEIVABLES> 11,767,177
<ALLOWANCES> 386,000
<INVENTORY> 0
<CURRENT-ASSETS> 97,950,521
<PP&E> 1,826,449
<DEPRECIATION> 0
<TOTAL-ASSETS> 120,299,184
<CURRENT-LIABILITIES> 20,280,710
<BONDS> 0
0
0
<COMMON> 25,301
<OTHER-SE> 98,467,013
<TOTAL-LIABILITY-AND-EQUITY> 120,299,134
<SALES> 6,908,607
<TOTAL-REVENUES> 14,220,756
<CGS> 688,859
<TOTAL-COSTS> 10,128,211
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,927,773
<INCOME-TAX> 1,733,661
<INCOME-CONTINUING> 2,194,222
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,194,222
<EPS-BASIC> 0.09
<EPS-DILUTED> 0.09
</TABLE>
