<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
----- -----
COMMISSION FILE NUMBER 00025683
MARIMBA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 77-0422318
(State of incorporation) (IRS Employer Identification No.)
440 CLYDE AVENUE, MOUNTAIN VIEW, CALIFORNIA 94043
(Address of principal executive offices, including ZIP code)
(650) 930-5282
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former fiscal year,
if changed since last report)
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) Yes [X] No [ ], and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ].
The number of shares outstanding of the Registrant's Common Stock as of
October 29, 1999 was 23,076,997.
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MARIMBA, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Balance Sheets as of September 30, 1999
and December 31, 1998 1
Condensed Consolidated Statements of Operations and Comprehensive
Loss for the Three and Nine Months Ended September 30, 1999
and 1998 2
Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1999 and 1998 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
Item 3. Qualitative and Quantitative Disclosures About Market Risk 19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 2. Changes in Securities 21
Item 3. Defaults Upon Senior Securities 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 22
SIGNATURE 24
EXHIBIT INDEX 25
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARIMBA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
-------- --------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................. $ 21,257 $ 3,700
Short-term investments .................................... 37,045 4,125
Accounts receivable, net .................................. 9,459 2,585
Unbilled receivables ...................................... -- 1,036
Prepaid expenses and other current assets ................. 858 371
-------- --------
Total current assets .............................. 68,619 11,817
Property and equipment, net ................................. 2,940 2,747
Long-term investments ....................................... 14,575 --
Other assets ................................................ -- 298
-------- --------
$ 86,134 $ 14,862
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
Current liabilities:
Accounts payable and accrued liabilities .................. $ 1,566 $ 1,396
Accrued compensation ...................................... 3,085 1,704
Current portion of capital lease obligations and
equipment advances ...................................... 92 286
Deferred revenue .......................................... 9,515 5,519
-------- --------
Total current liabilities ......................... 14,258 8,905
Long-term portion of capital lease obligations and equipment
advances, and other long-term liabilities ................. 47 747
Redeemable convertible preferred stock ...................... -- 18,953
Stockholders' equity (net capital deficiency):
Common stock .............................................. 2 1
Additional paid-in capital ................................ 92,408 2,182
Note receivable from officer .............................. -- (160)
Deferred compensation ..................................... (2,045) (1,116)
Cumulative translation adjustment ......................... (17) (6)
Unrealized loss on investments ............................ (164) --
Accumulated deficit ....................................... (18,355) (14,644)
-------- --------
Stockholders' equity (net capital deficiency) ..... 71,829 (13,743)
-------- --------
$ 86,134 $ 14,862
======== ========
</TABLE>
See accompanying notes.
1
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MARIMBA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ ------------------------
1999 1998 1999 1998
-------- -------- -------- --------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues:
License .............................................. $ 6,297 $ 3,804 $ 15,735 $ 9,450
Service .............................................. 2,032 929 5,612 1,974
-------- -------- -------- --------
Total revenues ......................................... 8,329 4,733 21,347 11,424
Cost of revenues:
License .............................................. 28 16 134 49
Service .............................................. 771 482 2,180 1,366
-------- -------- -------- --------
Total cost of revenues ................................. 799 498 2,314 1,415
-------- -------- -------- --------
Gross profit ........................................... 7,530 4,235 19,033 10,009
Operating expenses:
Research and development ............................. 2,305 1,545 6,062 4,067
Sales and marketing .................................. 5,000 3,638 13,635 8,435
General and administrative ........................... 1,327 596 3,517 1,873
Amortization of deferred compensation ................ 416 73 1,045 73
-------- -------- -------- --------
Total operating expenses ............................... 9,048 5,852 24,259 14,448
-------- -------- -------- --------
Loss from operations ................................... (1,518) (1,617) (5,226) (4,439)
Interest income, net ................................... 938 125 1,545 402
-------- -------- -------- --------
Loss before income taxes ............................... (580) (1,492) (3,681) (4,037)
Provision for income taxes ............................. -- 4 30 4
-------- -------- -------- --------
Net loss ............................................... (580) (1,496) (3,711) (4,041)
======== ======== ======== ========
Other comprehensive loss:
Translation adjustment ............................... 3 -- (11) --
Unrealized gain/(loss) on investments ................ 20 -- (164) --
-------- -------- -------- --------
Comprehensive loss ..................................... $ (557) $ (1,496) $ (3,886) $ (4,041)
======== ======== ======== ========
Basic and diluted net loss per share ................... $ (.03) $ (.15) $ (.21) $ (.45)
======== ======== ======== ========
Weighted-average shares of common stock outstanding
used in computing basic and diluted net loss per share 22,336 10,130 17,817 9,033
======== ======== ======== ========
Pro forma basic and diluted net loss per share ......... $ (.09) $ (.18) $ (.27)
======== ======== ========
Shares used in computing pro forma basic and diluted
net loss per share ................................... 15,884 20,374 14,787
======== ======== ========
</TABLE>
See accompanying notes.
2
<PAGE> 5
MARIMBA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1999 1998
-------- --------
(unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net loss ............................................ $ (3,711) $ (4,041)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization .................. 906 583
Amortization of deferred compensation .......... 1,045 73
Other .......................................... (11) --
Changes in operating assets and liabilities:
Accounts receivable, net ..................... (6,874) 2,021
Unbilled receivables ......................... 1,036 --
Prepaid expenses and other current assets .... (487) 56
Other assets ................................. 298 (185)
Accounts payable and accrued liabilities ..... 170 (979)
Accrued compensation ......................... 1,381 226
Deferred revenue ............................. 3,996 (2,402)
-------- --------
Net cash used in operating activities ..... (2,251) (4,648)
-------- --------
INVESTING ACTIVITIES
Capital expenditures ................................ (1,099) (791)
Purchases of investments ............................ (54,658) (4,115)
Sales of investments ................................ 6,999 --
-------- --------
Net cash used in investing activities ..... (48,758) (4,906)
-------- --------
FINANCING ACTIVITIES
Repayment of note receivable from officer ........... 160 --
Proceeds from sale of common stock in initial public
offering, net ..................................... 68,075 --
Proceeds from issuance of common stock, net of
repurchases ....................................... 1,225 153
Proceeds from equipment advance ..................... -- 811
Principal payments on capital lease obligations and
equipment advances ................................ (894) (92)
-------- --------
Net cash from financing activities ........ 68,566 872
-------- --------
Net increase (decrease) in cash and cash equivalents 17,557 (8,682)
Cash and cash equivalents at beginning of period .... 3,700 14,402
-------- --------
Cash and cash equivalents at end of period .......... $ 21,257 $ 5,720
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Non-cash financing activities:
Conversion of redeemable preferred stock to common
stock ............................................. 18,953 --
</TABLE>
See accompanying notes.
3
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MARIMBA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared by Marimba and reflect all adjustments, consisting only of
normal recurring adjustments, which in the opinion of management are necessary
to present fairly the financial position and the results of operations for the
interim periods. The balance sheet at December 31, 1998 has been derived from
audited financial statements at that date. The financial statements have been
prepared in accordance with the regulations of the Securities and Exchange
Commission, but omit certain information and footnote disclosure necessary to
present the statements in accordance with generally accepted accounting
principles. For further information, refer to the Consolidated Financial
Statements and Notes thereto included in Marimba's Registration Statement on
Form S-1 filed with the Securities and Exchange Commission on April 29, 1999
(the "Registration Statement"). Results for the interim periods are not
necessarily indicative of results for the entire fiscal year.
Net Loss Per Share
Basic and diluted net loss per share have been computed using the
weighted-average number of shares of common stock outstanding during the period,
less shares subject to repurchase. Pro forma basic and diluted net loss per
share, as presented in the statements of operations for the periods prior to
Marimba's initial public offering, has been computed as described above and also
gives effect, under Securities and Exchange Commission guidance, to the
conversion of the redeemable convertible preferred stock (using the if-converted
method) from the original date of issuance.
The following table presents the calculation of basic and diluted and
pro forma basic and diluted net loss per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ------------------------
1999 1998 1999 1998
------ -------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Net loss $ (580) $ (1,496) $ (3,711) $ (4,041)
====== ======== ======== ========
Basic and diluted:
Weighted-average shares of common stock outstanding 23,018 13,069 18,772 13,090
Less weighted-average shares subject to repurchase (682) (2,939) (955) (4,057)
------ -------- -------- --------
Weighted-average shares used in computing
basic and diluted net loss per common share 22,336 10,130 17,817 9,033
------ -------- -------- --------
Basic and diluted net loss per common share $ (.03) $ (.15) $ (.21) $ (.45)
====== ======== ======== ========
Pro forma:
Shares used above 10,130 17,817 9,033
Pro forma adjustment to reflect weighted-average
effect of the assumed conversion of redeemable
convertible preferred stock 5,754 2,557 5,754
-------- -------- --------
Shares used in computing pro forma basic and
diluted net loss per share 15,884 20,374 14,787
-------- -------- --------
Pro forma basic and diluted net loss per share $ (.09) $ (.18) $ (.27)
======== ======== ========
</TABLE>
Marimba has excluded all redeemable convertible preferred stock, warrants,
outstanding stock options and shares subject to repurchase by Marimba from the
calculation of diluted loss per share because all such securities are
antidilutive for all periods presented. Weighted average options and warrants
outstanding to purchase 3,050,000 and
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<PAGE> 7
2,688,000 shares of common stock for the three and nine months ended September
30, 1999, respectively, and 1,535,000 and 1,110,000 shares for the three and
nine months ended September 30, 1998, respectively, were not included in the
computation of diluted net loss per share because the effect would be
antidilutive. Such securities, had they been dilutive, would have been included
in the computation of diluted net loss per share using the treasury stock
method.
Revenue Concentration
Three customers accounted for 17%, 16% and 14% of revenues in the third
quarter of 1999. In the third quarter of 1998, two customers accounted for 40%
and 12% of revenues. In the first nine months of 1999, one customer accounted
for 11% of revenues and in the comparable period of 1998, two customers
represented 27% and 17% of revenues. International revenues accounted for 10% of
total revenues for the first nine months of 1999 and 8% of total revenues for
the comparable period of 1998.
2. LEGAL MATTERS
Novadigm v. Marimba
On March 3, 1997, Novadigm, Inc. filed a complaint against Marimba in
the United States District Court for the Northern District of California,
alleging infringement of a patent held by Novadigm. Novadigm alleges that
Marimba's infringement relates to certain methods for updating data and software
over a computer network used in the Castanet products. In its complaint,
Novadigm requests preliminary and permanent injunctions prohibiting Marimba and
other specified persons from making, using or selling any infringing products,
as well as damages, costs, and attorneys' fees. The complaint also alleges that
Marimba has willfully infringed Novadigm's Patent, and seeks up to triple
damages pursuant to the United States Patent Act.
On July 22, 1999, the court held a pre-trial conference at which the
court canceled the prior September 20, 1999 trial date in this matter. The court
then scheduled a trial on Marimba's defense of inequitable conduct by Novadigm
to begin on November 15, 1999 and stated that at the conclusion of that trial it
would schedule a jury trial for the remaining issues, which would include the
infringement claims against Marimba and Marimba's other defenses. To date, both
parties have substantially completed their factual and expert discovery.
Marimba believes that it has strong defenses against Novadigm's lawsuit.
Accordingly, Marimba intends to defend this suit vigorously. However, Marimba
may not prevail in this litigation. Litigation is subject to inherent
uncertainties, especially in cases such as this where sophisticated factual
issues must be assessed and complex technical issues must be decided. In
addition, cases such as this are likely to involve issues of law that are
evolving, presenting further uncertainty. Marimba's defense of this litigation,
regardless of the merits of the complaint, has been, and will likely continue to
be, time-consuming, costly and a diversion for Marimba's technical and
management personnel. The failure of Marimba to prevail in this litigation could
have a material adverse effect on Marimba's results of operations and financial
condition.
Marimba v. Novadigm
On July 30, 1999 Marimba filed a complaint against Novadigm in the
United States District Court for the Northern District of California alleging
infringement by Novadigm of a patent held by us (U.S. Patent No. 5,919,247, the
"Marimba Patent"). Our complaint seeks monetary damages, as well as an
injunction to prevent Novadigm from making, using or selling infringing software
products. Our complaint also alleges that Novadigm has willfully infringed the
Marimba Patent and seeks up to triple damages under the United States Patent
Act.
5
<PAGE> 8
3. INITIAL PUBLIC OFFERING AND DEFERRED COMPENSATION
Initial Public Offering
On April 30, 1999, Marimba sold 3,548,000 shares of common stock in an
underwritten public offering and on May 4, 1999 sold an additional 188,000
shares through the exercise of the underwriters' over-allotment option for net
proceeds of approximately $68,075,000, after offering expenses. Simultaneously
with the closing of the public offering, all 5,753,566 shares of Marimba's
preferred stock were converted to common stock on a one for one basis.
Additionally, a warrant to purchase 16,865 shares of Series A redeemable
convertible preferred stock was converted to a warrant to purchase the same
number of common shares.
Deferred Compensation
In April 1999, Marimba granted to employees options to purchase
1,047,000 shares of common stock at an exercise price of $15.00 per share.
Marimba recorded deferred compensation of $2,094,000, representing the
difference between the exercise price of options granted to employees and the
deemed fair value of our common stock for financial reporting purposes. This
deferred compensation is in addition to $1,367,000 of deferred compensation
recorded during 1998.
Deferred compensation is being amortized over the vesting periods of the
options on a graded vesting method. This compensation expense relates to options
awarded to individuals in all operating expense categories. The amortization of
deferred compensation will approximate $1,410,000 for 1999, $1,008,000 for 2000,
$530,000 for 2001, $230,000 for 2002 and $33,000 for 2003.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information in this discussion contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Act of 1934, as amended. Such statements are based upon
current expectations that involve risks and uncertainties. Any statements
contained herein that are not statements of historical fact may be deemed to be
forward-looking statements. For example, the words "believes," "anticipates,"
"plans," "expects," "intends" and similar expressions are intended to identify
forward-looking statements. Marimba's actual results and the timing of certain
events may differ significantly from the results discussed in the
forward-looking statements. Factors that might cause such a discrepancy include,
but are not limited to, those discussed in "Other Factors Affecting Operating
Results, Liquidity and Capital Resources" below, as well as Risk Factors
included in the Registration Statement. All forward-looking statements in this
document are based on information available to Marimba as of the date hereof and
Marimba assumes no obligation to update any such forward-looking statements.
OVERVIEW
Marimba is a leading provider of Internet-based software management
solutions that enable companies to expand their market reach, streamline
business processes and strengthen relationships with customers, business
partners and employees. Our Castanet product family provides an efficient and
reliable way for enterprises to distribute, update and manage applications and
related data over corporate networks and the Internet.
In January 1997, we released our first version of Castanet and, to date,
have derived substantially all our revenues from the license of Castanet and
related services. We licensed Castanet in early 1997 to enterprises primarily
for pilot programs that involved limited deployments. In 1997, we grew our
organization by hiring personnel in key areas, particularly sales, research and
development and marketing. During 1998, we continued to
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develop and market our Castanet products and enhance the core Castanet
infrastructure with additional products. Also in 1998, we licensed Castanet to
repeat customers for larger scale production deployments. During this time
period, we continued to make substantial investments in our internal
infrastructure by hiring employees throughout the organization. In March 1999,
we released Castanet 4.0, which provides enhanced Internet services management
capabilities.
Revenues to date have been derived primarily from the license of our
Castanet products and to a lesser extent from maintenance and support,
consulting and training services. Customers who license Castanet generally
purchase maintenance contracts, typically covering a 12-month period.
Additionally, customers may purchase consulting, which is customarily billed by
us at a fixed daily rate plus out-of-pocket expenses. We also offer training
services that are billed on a per student or per class session basis.
We recognize software license revenue in accordance with Statement of
Position 97-2 "Software Revenue Recognition," as amended by Statement of
Position 98-4. In December 1998, the AICPA issued SOP 98-9, Modification of SOP
97-2, Software Revenue Recognition, with respect to Certain Transactions. SOP
98-9 amends SOP 97-2 and SOP 98-4 extending the deferral of the application of
provisions of SOP 97-2 amended by SOP 98-4 through fiscal years beginning on or
before March 15, 1999. All other provisions of SOP 98-9 are effective for
transactions entered into in fiscal years beginning after March 15, 1999. We
have not yet determined the effect of the final adoption of SOP 98-9 on our
financial condition or operating results. However, Marimba believes that SOP
98-9 may require more revenue to be deferred for some types of transactions.
License revenues are comprised of perpetual or multiyear license fees
which are primarily derived from contracts with corporate customers and
resellers. We recognize license revenues after execution of a license agreement
or receipt of a definitive purchase order and delivery of the product to
end-user customers, provided that there are no uncertainties surrounding product
acceptance, the license fees are fixed and determinable, collectibility is
probable and we have no remaining obligations. Revenues on arrangements with
customers who are not the ultimate users, primarily resellers, are not
recognized until the software is sold through to the end user. If the fee due
from the customer is not fixed or determinable, revenues are recognized as
payments become due from the customer. If collectibility is not considered
probable, revenues are recognized when the fee is collected. Advance payments
are recorded as deferred revenue until the products are delivered, services are
provided, or obligations are met. Service revenues are comprised of revenues
from maintenance agreements, consulting and training fees. Revenues from
maintenance agreements are recognized on a straight-line basis over the life of
the related agreement, which is typically one year. We recognize service
revenues from training and consulting as such services are delivered.
We market our products worldwide through a combination of a direct sales
force and channel partners. As a reseller of our product, Tivoli accounted for
approximately 18% of our revenues in 1998. This includes approximately 40% of
our revenues in the third quarter of 1998 and approximately 20% of our revenues
in the fourth quarter of 1998. We also have an original equipment manufacturer
(OEM) agreement with Tivoli under which Tivoli built upon the Castanet
infrastructure to develop a product called Cross-Site, which was released in
April 1999. Revenues from Tivoli under the OEM agreement are derived from per
seat royalties on sales of Cross-Site that contain the Castanet infrastructure.
The decrease in Tivoli revenues as a percentage of total revenues during the
fourth quarter of 1998 was due to the growth in Marimba's direct sales, as well
as the pending release of Cross-Site.
During the first quarter of 1999, Tivoli accounted for less than 10% of
our revenues. In this period Cross-Site had not been released and sales of
Castanet through Tivoli had decreased as Tivoli started to transition from
selling Castanet to selling Cross-Site. In the second quarter of 1999, Tivoli
accounted for 11% of total revenues. This represented a combination of
Cross-Site royalties and revenues from Castanet sales by Tivoli. Tivoli
accounted for 14% of total revenues in the third quarter of 1999, which
consisted primarily of Cross-Site sales. With the launch of Cross-Site, sales
through Tivoli have shifted from Castanet to Cross-Site. The per seat royalties
under the OEM agreement are less than the per seat prices under our reseller
agreement with Tivoli. There is no assurance that royalties from the sale of
Cross-Site will be sufficient to replace Tivoli's sales of Castanet. Any failure
of Cross-Site to achieve widespread market acceptance could significantly harm
our business and operating results.
Despite our revenue growth, we have incurred significant losses since
inception and, as of September 30, 1999, we had an accumulated deficit of
approximately $18.4 million. We believe our success depends on further
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increasing our customer base and on growth in the Internet services management
market. Accordingly, we intend to continue to invest heavily in sales, marketing
and research and development. Furthermore, we expect to continue to incur
substantial operating losses at least through 1999, and given our expected
increases in operating expenses we will require significant increases in
revenues before we become profitable.
In view of the rapidly changing nature of our business and our limited
operating history, we believe that period-to-period comparisons of revenues and
operating results are not necessarily meaningful and should not be relied upon
as indications of future performance. Additionally, despite our sequential
quarterly revenue growth during 1998 and the first three quarters of 1999, we do
not believe that historical growth rates are necessarily sustainable or
indicative of future growth.
RESULTS OF OPERATIONS
The following table sets forth certain statements of operations data as
a percentage of total revenues for the three month and nine month periods ended
September 30, 1999 and 1998. This data has been derived from the unaudited
condensed consolidated financial statements contained in this Form 10-Q which,
in the opinion of management includes all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the financial position and
results of operations for the interim periods. The operating results for any
quarter should not be considered indicative of results of any future period.
This information should be read in conjunction with the Consolidated Financial
Statements and Notes thereto included in the Registration Statement.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
1999 1998 1999 1998
----- ----- ----- -----
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
License 75.6% 80.4% 73.7% 82.7%
Service 24.4 19.6 26.3 17.3
----- ----- ----- -----
Total revenues 100.0 100.0 100.0 100.0
Cost of revenues:
License 0.3 0.3 0.6 0.4
Service 9.3 10.2 10.2 12.0
----- ----- ----- -----
Total cost of revenues 9.6 10.5 10.8 12.4
----- ----- ----- -----
Gross profit 90.4 89.5 89.2 87.6
Operating expenses:
Research and development 27.7 32.7 28.4 35.7
Sales and marketing 60.0 76.9 63.9 73.8
General and administrative 15.9 12.6 16.5 16.4
Amortization of deferred compensation 5.0 1.5 4.9 0.6
----- ----- ----- -----
Total operating expenses 108.6 123.7 113.7 126.5
----- ----- ----- -----
Loss from operations (18.2) (34.2) (24.5) (38.9)
Interest income, net 11.2 2.6 7.3 3.5
----- ----- ----- -----
Loss before income taxes (7.0) (31.6) (17.2) (35.4)
Provision for income taxes (0.0) (0.0) (0.1) (0.0)
----- ----- ----- -----
Net loss (7.0)% (31.6)% (17.4)% (35.4)%
===== ===== ===== =====
</TABLE>
REVENUES
Total revenues for the third quarter of 1999 increased 76%, to $8.3
million from $4.7 million in the third quarter of 1998. For the nine months
ended September 30, 1999, total revenues increased 87% to $21.3 million from
$11.4 million in the comparable period of 1998.
License Revenues. License revenues increased 66%, to $6.3 million in the
third quarter of 1999 from $3.8 million in the third quarter of 1998. Total
license revenues in the nine months ended September 30, 1999 increased 67% to
$15.7 million from $9.5 million in the comparable period of 1998. Substantially
all license revenues were
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derived from sales of our Castanet products. The growth of license revenues was
due to increased product licenses sold, reflecting higher customer demand for
our products, expansion of the Castanet product line and growth in our sales
organization.
Service Revenues. Service revenues include maintenance and support,
consulting and training. Service revenues increased 119%, to $2.0 million in the
third quarter of 1999 from $929,000 in the third quarter of 1998. As a
percentage of total revenues, service revenues increased to 24% and 26% of total
revenues in the three and nine month periods ended September 30, 1999 from 20%
and 17% in the comparable periods of 1998. The increases in service revenues, in
absolute amount and as a percentage of total revenues, were due primarily to
increased maintenance revenues from a larger installed base of customers and
increased revenue from consulting services.
COSTS OF REVENUES
Cost of License Revenues. Cost of license revenues consists primarily of
the fees for third-party software products integrated into Castanet and was less
than 1% of total revenues in the three and nine month periods ended September
30, 1999 and 1998.
Cost of Service Revenues. Cost of service revenues increased to $771,000
in the third quarter of 1999 from $482,000 in the third quarter of 1998,
representing 38% and 52% of service revenue. In the first nine months of 1999,
cost of service revenues increased to $2.2 million from $1.4 million for the
comparable period in 1998, representing 39% and 69% of service revenues. The
increases in cost of service revenues in absolute dollars for the three and nine
month periods ended September 30, 1999 from the comparable periods of 1998 were
due primarily to growth in our customer support organization and an increase in
consulting costs commensurate with the increase in consulting revenues. The
decreases in cost of service revenues as a percentage of service revenues were
primarily due to the economies of scale in our customer support organization,
with costs spread over a larger number of maintenance customers.
OPERATING EXPENSES
Research and Development. Research and development expenses increased
49%, to $2.3 million in the third quarter of 1999 from $1.5 million in the third
quarter of 1998. For the first nine months of 1999, research and development
expenses increased 49%, to $6.1 million from $4.1 million in the comparable
period of 1998. The increases in research and development expenses were due to
increases in engineering personnel and related employee costs, as well as
increases in third-party consulting costs.
Sales and Marketing. Sales and marketing expenses increased 37%, to $5.0
million in the third quarter of 1999 from $3.6 million in the third quarter of
1998. For the first nine months of 1999, sales and marketing expenses increased
62%, to $13.6 million from $8.4 million in the comparable period of 1998. The
increases in sales and marketing expenses were due primarily to growth in our
sales and marketing organizations, including related salaries, sales
commissions, employee benefits and other related costs. We increased the number
of sales and marketing personnel to 82 employees at September 30, 1999 from 51
employees at September 30, 1998. Marimba also opened additional regional sales
offices and, in August 1998, opened a sales office in the United Kingdom. The
increases in sales and marketing in the 1999 periods also reflect an expansion
of our marketing programs and advertising.
General and Administrative. General and administrative expenses
increased 123%, to $1.3 million in the third quarter of 1999 from $596,000 in
the third quarter of 1998. For the first nine months of 1999, general and
administrative expenses increased 88%, to $3.5 million from $1.9 million in the
comparable period in 1998. The increases in general and administrative expenses
were due, in part, to growth of our administrative organizations in support of
the overall growth of Marimba. Additionally, we continued to incur significant
outside legal costs in defense of Novadigm's patent infringement complaint
against us, originally filed in March 1997. During the first nine months of
1999, we incurred significant legal costs associated with several pre-trial
motions and overall trial preparation. We expect to continue to incur
significant costs related to this complaint in the future and expect these costs
to materially increase when we go to trial. The first phase of the trial is
currently scheduled for November 15, 1999. We have also incurred additional
expenses associated with being a public company and expect such costs to
increase in the future.
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Deferred Compensation. We recorded deferred compensation of
approximately $1.4 million in 1998, representing the difference between the
exercise prices of options granted to acquire 940,500 shares of common stock
during 1998 and the deemed fair value for financial reporting purposes of our
common stock on the grant dates. In addition, we granted options to purchase
common stock in April 1999 for which we recorded additional deferred
compensation of approximately $2.1 million. Deferred compensation is amortized
over the vesting periods of the options on a graded vesting method. We amortized
deferred compensation of $251,000 during 1998, and $178,000, $451,000 and
$416,000 in the first, second and third quarters of 1999. The amortization of
deferred compensation recorded will approximate $1.4 million for 1999, $1.0
million for 2000, $530,000 for 2001, $230,000 for 2002 and $33,000 for 2003.
Interest Income, Net. Interest income, net, increased to $938,000 in the
third quarter of 1999 from $125,000 in the third quarter of 1998. For the first
nine months of 1999, interest income, net, increased to $1.5 million from
$402,000 in the comparable period of 1998. The increases are due to higher
interest income resulting from the invested cash from our initial public
offering completed in May 1999.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1999, our principal sources of liquidity included
approximately $21.3 million of cash and cash equivalents and $51.6 million of
investments in marketable securities. In May 1999, we sold shares of our common
stock in our initial public offering, generating net proceeds of approximately
$68 million, after offering expenses. Net cash used in investing activities for
the nine months ended September 30, 1999 reflects investment of approximately
$48 million of the net proceeds from our initial public offering in marketable
securities. Proceeds from other issuances of common stock of approximately $1.2
million for the nine months ended September 30, 1999 is comprised primarily of
employee exercises of stock options. Net cash used in operating activities for
the nine months ended September 30, 1999 reflects the effect of our net loss and
an increase in accounts receivable, offset partially by an increase in deferred
revenue. The increases in accounts receivable and deferred revenue were due
primarily to sales to customers in August and September of 1999 and an advance
due from a customer.
We currently anticipate that our current cash, cash equivalents and
investments will be sufficient to meet our anticipated cash needs for working
capital and capital expenditures for at least the next 12 months. Thereafter,
cash generated from operations, if any, may not be sufficient to satisfy our
liquidity requirements. We may therefore need to sell additional equity or raise
funds by other means. Any additional financings, if needed, might not be
available on reasonable terms or at all. Failure to raise capital when needed
could seriously harm our business and operating results. If additional funds are
raised through the issuance of equity securities, the percentage of ownership of
our stockholders would be reduced. Furthermore, these equity securities might
have rights, preferences or privileges senior to our common stock.
YEAR 2000 COMPLIANCE
Background of Year 2000 Issues
Many currently installed computer and communications systems and
software products are unable to distinguish 21st century dates from 20th century
dates. This situation could result in system failures or miscalculations causing
disruptions in the operations of any business. As a result, many companies'
software and computer and communications systems may need to be upgraded or
replaced to comply with these Year 2000 requirements.
Customer Representations and Warranties
We generally represent and warrant to our customers that the occurrence
of the date January 1, 2000 and any related leap-year issues will not cause our
products to fail to operate properly. This warranty generally includes
representations regarding the ability of our product to store, display,
calculate, compute and otherwise process date- related data. Our warranty
generally applies only to our products and excludes failures resulting from the
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combination of our products with other software or hardware or from the use of
our software in a manner not in accordance with the related documentation.
If we breach this warranty, remedies in most cases include commercially
reasonable efforts to replace the software and to advise the customer how to
achieve substantially the same functionality through different procedures, as
well as payment of monetary damages, subject to limitations.
Our Product Testing and Licensing
We have tested all of our products for Year 2000 compliance. We derived
our testing method from our review and analysis of the Year 2000 testing
practices of other software vendors, relevant industry Year 2000 compliance
standards and the specific functionality and operating environment of our
products. The tests are run on all supported platforms for each release and
include testing for date calculation and internal storage of date information
with test numbers starting in 1999 and going over the Year 2000 boundary. Based
on these tests, we believe our products to be Year 2000 compliant with respect
to date calculations and internal storage of date information.
We have identified one Year 2000 date-related limitation in earlier
versions of Castanet. Versions of Castanet before version 3.2 display date
information to the user in a manner that uses only two digits to represent a
year. A two-digit display of the Year 2000 could cause a user to believe the
year represented was the Year 1900 instead of the Year 2000. This limitation
does not affect either computation of data in our products or operation of the
products. All versions of Castanet currently being shipped use four digits for
the display of date data.
Interaction of Our Products with Third-Party Software
Our products contain, operate with and depend on third-party code that
we may not be able to independently verify is Year 2000 compliant. Substantially
all of our products interface with and depend on Sun's JVM (Java Virtual
Machine). Sun has indicated that the version of the JVM on which Castanet 3.0,
Castanet 4.0, and all later versions depend, is Year 2000 compliant, but Sun has
made no similar statement regarding earlier versions of the JVM. Our products
also contain and depend on software licensed to us from RSA Data Security, Inc.,
Netscape Communications Corporation, VeriSign, Inc. and Phaos Technology
Corporation. Although each of those companies has made representations that the
licensed code is Year 2000 compliant, we may not be able to verify this by
independent testing. Finally, our products also interact with external sources
including other software programs and operating systems which may not be Year
2000 compliant or which may not provide date data to our products in a manner
that is Year 2000 compliant. Any interaction with third-party software which is
not Year 2000 compliant could cause our products to fail to properly operate or
to properly process date information.
Our Internal Systems
Although we do not have a formal contingency plan to address Year 2000
issues, we have assessed our internal risks associated with the Year 2000 issue
and taken corrective action where appropriate. We have inventoried our internal
software and hardware systems, as well as products and services provided by
third-party vendors. These systems include those related to product delivery,
customer service, internal and external communications, accounting and payroll,
which we consider critical areas of our business. We have sought vendor
certification for all third-party systems and have concluded the risk assessment
phase of our Year 2000 project. Additionally, vendor-supplied Year 2000
compliant upgrades have been applied to many of our internal systems. Continuing
phases of our Year 2000 project will include our own tests of critical systems
and application of remaining vendor-supplied Year 2000 compliant upgrades. We
expect these phases to continue through the remainder of 1999.
Costs of Addressing Year 2000 Compliance
To date, our costs to address Year 2000 compliance have not been
significant. Based on our preliminary evaluations, we do not believe we will
incur significant operating expenses or be required to invest heavily in
computer system improvements to be Year 2000 compliant. Although we have not yet
developed an exact estimate of these costs, we expect the total costs to be less
than $100,000. However, significant uncertainty exists concerning the potential
costs and effects associated with Year 2000 compliance. Any Year 2000 compliance
problem
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experienced by us or our customers could decrease demand for our products which
could seriously harm our business and operating results.
OTHER FACTORS AFFECTING OPERATING RESULTS, LIQUIDITY AND CAPITAL RESOURCES
Our Limited Operating History May Prevent Us From Achieving Success in Our
Business
We were founded in February 1996 and have a limited operating history
that may prevent us from achieving success in our business. The revenues and
income potential of our business and market are unproven. We will encounter
challenges and difficulties frequently encountered by early-stage companies in
new and rapidly evolving markets. We may not successfully address any of these
challenges and the failure to do so would seriously harm our business and
operating results. In addition, because of our limited operating history, we
have limited insight into trends that may emerge and affect our business.
We Have Incurred Losses and We Expect Future Losses
Our failure to significantly increase our revenues would seriously harm
our business and operating results. We have experienced operating losses in each
quarterly and annual period since inception and we expect to incur significant
losses in the future. As of September 30, 1999, we had an accumulated deficit of
$18.4 million. We expect to significantly increase our research and development,
sales and marketing and general and administrative expenses. As a result, we
will need to significantly increase our quarterly revenues to achieve and
maintain profitability. We may not be able to sustain our recent revenue growth
rates. In fact, we may not have any revenue growth, and our revenues could
decline.
Our Quarterly Operating Results Are Volatile and Future Operating Results Remain
Uncertain
Our quarterly operating results have varied significantly in the past
and will likely vary significantly in the future. As a result, we believe that
period-to-period comparisons of our operating results are not meaningful and
should not be relied upon as indicators of our future performance. In the
future, our operating results will likely be below the expectations of
securities analysts and investors. Our failure to meet these expectations would
likely seriously harm the market price of our common stock. Operating results
vary depending on a number of factors, many of which are outside our control.
In addition, we anticipate that the size of customer orders may increase
as we focus on larger business accounts. As a result, a delay in recognizing
revenue, even from just one account, could have a significant negative impact on
our operating results. In the past, a significant portion of our sales have been
realized near the end of a quarter. As a result, a delay in an anticipated sale
past the end of a particular quarter could negatively impact our operating
results.
We generally expect that revenues in the first quarter of each year will
be lower than revenues in the fourth quarter of the preceding year due to annual
nature of companies' purchasing and budgeting cycles and the year-to-date
structure of our sales incentive program.
Our expense levels are relatively fixed and are based, in part, on
expectations as to future revenues. As a result, if revenue levels fall below
our expectations, our net loss will increase because only a small portion of our
expenses vary with our revenues.
We Expect Significant Increases in Our Operating Expenses
We intend to substantially increase our operating expenses as we:
o Increase our sales and marketing activities, including expanding
our direct sales force;
o Increase our research and development activities;
o Expand our customer support and professional services
organizations; and
o Expand our distribution channels.
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With these additional expenses, we must significantly increase our
revenues in order to become profitable. These expenses will be incurred before
we generate any revenues by this increased spending. If we do not significantly
increase revenues from these efforts, our business and operating results would
be seriously harmed.
Our Success Depends on Our Castanet Product Family and New Product Development
We expect to continue to derive substantially all of our revenues from
our Castanet software product family and related services. A decline in the
price of Castanet or our inability to increase sales of Castanet would seriously
harm our business and operating results. We cannot predict Castanet's success.
We periodically update Castanet to make improvements and provide additional
enhancements. New versions of Castanet may not provide the benefits we expect
and could fail to meet customers' requirements or achieve widespread market
acceptance.
Our strategy requires Castanet to be highly scalable -- in other words,
able to rapidly increase deployment size from a limited number of end-users to a
very large number of end-users. If we are unable to achieve this level of
scalability, the attractiveness of our products and services would be
diminished.
We Need to Develop and Introduce New Technologies
To provide a comprehensive Internet services management solution, we
will need to develop and introduce new products which offer functionality that
we do not currently provide. We may not be able to develop these technologies
and therefore we may not be able to offer a comprehensive Internet services
management solution. In addition, in the past we have experienced delays in new
product releases, and we may experience similar delays in the future. If we fail
to deploy new product releases on a timely basis, our business and operating
results could be seriously harmed.
We Depend on the Growth of Our Customer Base
Our success is substantially dependent on the continued growth of our
customer base. If we fail to increase our customer base, our business and
operating results would be seriously harmed. Our ability to attract new
customers will depend on a variety of factors, including the reliability,
security, scalability and cost-effectiveness of our products and services as
well as our ability to effectively market our products and services. In the
past, we have lost potential customers to competitors for various reasons,
including lower prices.
We Depend on Increased Business from Our Current Customers
If we fail to generate repeat and expanded business from our current
customers, our business and operating results would be seriously harmed. Many of
our customers initially make a limited purchase of our products and services for
pilot programs. These customers may not choose to purchase additional licenses
to expand their use of Castanet. In addition, as we deploy new versions of
Castanet or introduce new products, our current customers may not require the
functionality of our new products and may not ultimately license these products.
Because the total amount of maintenance and support fees we receive in
any period depends in large part on the size and number of licenses that we have
previously sold, any downturn in our software license revenues would negatively
impact our future service revenues. In addition, if customers elect not to renew
their maintenance agreements, our service revenues could be significantly
adversely affected.
We Have a Long Sales Cycle that Depends upon Factors Outside Our Control
A customer's decision to purchase Castanet typically involves a
significant commitment of resources and is influenced by the customer's budget
cycles. In addition, selling Castanet requires us to educate potential customers
on its use and benefits. As a result, our products have a long sales cycle which
can take over six months. We face difficulty predicting the quarter in which
sales to expected customers may occur. The sale of our products is also subject
to delays from the lengthy budgeting, approval and competitive evaluation
processes that typically accompany significant capital expenditures. For
example, customers frequently begin by evaluating our products on
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a limited basis and devote time and resources to testing our products before
they decide whether or not to purchase a license for deployment. Customers may
also defer orders as a result of anticipated releases of new products or
enhancements by us or our competitors.
We Depend on Our Relationship with Tivoli
Tivoli has been a primary reseller of our products. In March of 1998, we
also entered into an original equipment manufacturer agreement with Tivoli under
which Tivoli built upon the Castanet infrastructure to develop a product called
Cross-Site, which was released in April 1999. During the second quarter of 1999,
we derived 11% of our total revenues from Tivoli. This represented a combination
of Castanet sales by Tivoli, as well as royalties on sales of Cross-Site. In the
third quarter of 1999, Tivoli accounted for 14% of our total revenues. These
revenues resulted primarily from royalties on the sales of Cross-Site as Tivoli
transitioned from selling Castanet to selling Cross-Site. The per seat royalties
under the OEM agreement are less than the per seat prices under our reseller
agreement with Tivoli. There is no assurance that royalties from the sale of
Cross-Site will be sufficient to replace Tivoli's sales of Castanet. Any failure
of Cross-Site to achieve widespread market acceptance could significantly harm
our business and operating results. Additionally, because Cross-Site is built
upon the Castanet infrastructure, we expect Cross-Site to compete with our
Castanet products.
Novadigm Has Claimed that We Infringe Its Intellectual Property
On March 3, 1997, Novadigm filed a complaint against us in the United
States District Court for the Northern District of California, alleging
infringement by us of a patent held by Novadigm (U.S. Patent No. 5,581,764, the
"Novadigm Patent"). Novadigm alleges that our infringement relates to methods
for updating data and software over a computer network that we use in our
Castanet products. The complaint also alleges that we have willfully infringed
the Novadigm Patent and seeks up to triple damages under the United States
Patent Act. On May 2, 1997, we filed our answer to Novadigm's complaint and
filed a counterclaim against Novadigm.
Litigation is subject to inherent uncertainties. In addition, cases like
this generally involve issues of law that are evolving, presenting further
uncertainty. Our defense of this litigation, regardless of the merits of the
complaint, has been, and will likely continue to be, time-consuming and a
diversion for our personnel. In addition, publicity related to this litigation
has in the past, and will likely in the future, have a negative impact on the
sale of our Castanet products.
A failure to prevail in the litigation could result in:
o Our paying monetary damages, which could be tripled if the
infringement is found to have been willful;
o The issuance of a preliminary or permanent injunction requiring
us to stop selling Castanet in its current form;
o Our having to redesign Castanet, which could be costly and
time-consuming and could substantially delay Castanet shipments,
assuming that a redesign is feasible;
o Our having to reimburse Novadigm for some or all of its
attorneys' fees;
o Our having to obtain from Novadigm a license to its patent,
which license might not be made available to us on reasonable
terms, particularly because Novadigm is a competitor; and/or
o Our having to indemnify our customers against any losses they
may incur due to the alleged infringement.
Any of these results would seriously harm our business and operating
results. Furthermore, we expect to continue to incur substantial costs in
defending against this litigation and these costs could increase significantly
increase when our dispute goes to trial. It is possible that these costs could
substantially exceed our expectations in future periods.
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Our Markets Are Highly Competitive
Our markets are new, rapidly evolving and highly competitive, and we
expect this competition to persist and intensify in the future. Our failure to
maintain and enhance our competitive position could seriously harm our business
and operating results. We encounter current or potential competition from a
number of sources, including:
o Sellers of enterprise-wide management systems, which include
electronic software distribution;
o Companies that market products that support the distribution of
software applications; and
o Desktop software management suites.
In addition, we compete with various methods of application distribution
and management, including the web browser, and with application server vendors
and others that have introduced software distribution capabilities into their
products.
Potential competitors may bundle their products or incorporate an
Internet services management component into existing products in a manner that
discourages users from purchasing our products. For example, we expect that
future releases of Microsoft's Windows operating systems, which manage the
programs on a computer, will include components addressing Internet services
management functions. Furthermore, new competitors or alliances among
competitors may emerge and rapidly acquire significant market share. Our
competitors may be able to respond more quickly to new or emerging technologies
and changes in customer requirements than we can.
Some of our competitors have longer operating histories and
significantly greater financial, technical, marketing and other resources than
we do. Many of these companies have more extensive customer bases and broader
customer relationships that they could leverage, including relationships with
many of our current and potential customers. These companies also have
significantly more established customer support and professional services
organizations than we do. In addition, these companies may adopt aggressive
pricing policies.
Protection of Our Intellectual Property Is Limited
We rely on a combination of patent, trademark, trade secret and
copyright law and contractual restrictions to protect the proprietary aspects of
our technology. These legal protections afford only limited protection. Despite
our efforts to protect our proprietary rights, unauthorized parties may attempt
to copy aspects of our products or to obtain and use our proprietary
information. Litigation may be necessary to enforce our intellectual property
rights, to protect our trade secrets and to determine the validity and scope of
the proprietary rights of others. For example, on July 30, 1999 we filed a
complaint against Novadigm alleging patent infringement. Such litigation could
result in substantial costs and diversion of resources and could seriously harm
our business and operating results. The lawsuit is at a preliminary stage, and
we cannot assure that the outcome of this litigation will be favorable to us.
For a description of our action against Novadigm, please see "Legal Proceedings
- - Marimba v. Novadigm." In addition, we sell our products internationally, and
the laws of many countries do not protect our proprietary rights as well as the
laws of the United States.
We May Be Found to Infringe Proprietary Rights of Others
Other companies, including our competitors, may obtain patents or other
proprietary rights that would prevent, or limit or interfere with our ability to
make, use or sell our products. As a result, we may be found to infringe on the
proprietary rights of others. Furthermore, companies in the software market are
increasingly bringing suits alleging infringement of their proprietary rights,
particularly patent rights. We could incur substantial costs to defend any
litigation, and intellectual property litigation could force us to do one or
more of the following:
o Cease selling, incorporating or using products or services that
incorporate the challenged intellectual property;
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o Obtain a license from the holder of the infringed intellectual
property right; and
o Redesign products or services.
In the event of a successful claim of infringement against us and our
failure or inability to license the infringed technology, our business and
operating results would be significantly harmed. For a description of our
current litigation with Novadigm, Inc. please see "Novadigm Has Claimed that We
Infringe Its Intellectual Property."
We Depend upon Third-Party Distribution Relationships and Need to Develop New
Relationships
We have a limited number of distribution agreements and we may not be
able to increase our number of distribution relationships or maintain our
existing relationships. For example, Netscape, a reseller of our products,
accounted for a significant amount of our revenues in 1997 and 1998, but is no
longer a reseller of our products.
Our current agreements with our channel partners do not prevent these
companies from selling products of other companies, including products that may
compete with our products, and do not generally require these companies to
purchase minimum quantities of our products. These distributors could give
higher priority to the products of other companies or to their own products,
than they give to our products. In addition, sales through these channels
generally have a lower price than direct sales. As a result, while the loss of,
or significant reduction in sales volume to any of our current or future
distribution partners could seriously harm our revenues and operating results, a
significant increase in sales through these channels could also negatively
impact our gross margins.
We Need to Develop and Expand Our Sales, Marketing and Distribution Capabilities
We need to expand our marketing and direct sales operations in order to
increase market awareness of our products, market Castanet to a greater number
of enterprises and generate increased revenues. However, competition for
qualified sales personnel is intense and we may not be able to hire enough
qualified individuals in the future. Our products and services require a
sophisticated sales effort targeted at senior management of our prospective
customers. New hires require extensive training and typically take at least six
months to achieve full productivity. In addition, we have limited experience
marketing our products broadly to a large number of potential customers.
We Need to Expand Our Professional Services
We may not be able to attract, train or retain the number of highly
qualified services personnel that our business needs. We believe that growth in
our product sales depends on our ability to provide our customers with
professional services and to educate third-party resellers and consultants on
how to provide similar services. As a result, we plan to increase the number of
our services personnel to meet these needs. However, competition for qualified
services personnel is intense.
We expect our service revenues to increase in dollar amount as we
continue to provide support, consulting and training services that complement
our products and as our installed base of customers grows. This could negatively
impact our gross margin because margins on revenues derived from services are
generally lower than gross margins on revenues derived from the license of
Castanet.
Expanding Internationally Is Expensive, We May Receive No Benefit from Our
Expansion and Our International Operations Are Subject to Governmental
Regulation
We plan to increase our international sales force and operations.
However, we may not be successful in increasing our international sales. In
addition, our international business activities are subject to a variety of
risks, including the adoption of laws, currency fluctuations, actions by third
parties and political and economic conditions that could restrict or eliminate
our ability to do business in foreign jurisdictions. To date, we have not
adopted a hedging program to protect us from risks associated with foreign
currency fluctuations.
Export, and in some cases, import clearances must be obtained before
Castanet can be distributed internationally. Current or new government laws and
regulations, or the application of existing laws and regulations, could expose
us to significant liabilities, significantly slow our growth and seriously harm
our business and operating results.
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We Must Manage Our Growth and Expansion
Our historical growth has placed, and any further growth is likely to
continue to place, a significant strain on our resources. Any failure to manage
growth effectively could seriously harm our business and operating results. To
be successful, we will need to implement additional management information
systems, improve our operating, administrative, financial and accounting systems
and controls, train new employees and maintain close coordination among our
executive, engineering, accounting, finance, marketing, sales and operations
organizations. In addition, our growth has resulted, and any future growth will
result, in increased responsibilities for management personnel.
We Must Retain and Attract Key Personnel
Our success depends largely on the skills, experience and performance of
the members of our senior management and other key personnel, including our
President and Chief Executive Officer, Kim Polese, our Executive Vice President,
Worldwide Sales and Chief Operating Officer, Steven P. Williams and our Chief
Technical Officer, Arthur van Hoff. We may not be successful in attracting,
assimilating or retaining qualified senior management or other personnel in the
future. None of our senior management or other key personnel is bound by an
employment agreement. If we lose one or more of these key employees, our
business and operating results could be seriously harmed. In addition, our
future success will depend largely on our ability to continue attracting and
retaining highly skilled personnel. Like other companies in the San Francisco
Bay Area, we face intense competition for qualified personnel.
We Rely on Third-Party Software and Applications
We integrate third-party security and encryption software and digital
certificates as a component of our software. There are inherent limitations in
the use and capabilities of much of the technology that we license from third
parties. As a result, we face a number of challenges in integrating these
technologies into Castanet. We would be seriously harmed if the providers from
whom we license software ceased to deliver and support reliable products,
enhance their current products or respond to emerging industry standards. In
addition, the third-party software may not continue to be available to us on
commercially reasonable terms or at all. The loss of, or inability to maintain
or obtain this software, could result in shipment delays or reductions.
Furthermore, we might be forced to limit the features available in our current
or future product offerings. Either alternative could seriously harm our
business and operating results.
Almost all of our products are written in Java and require a Java
virtual machine made available by Sun Microsystems, Inc. in order to operate.
Sun may not continue to make these implementations of the Java virtual machines
available at commercially reasonable terms or at all. Furthermore, if Sun were
to make significant changes to the Java language or its Java virtual machine
implementations, or fail to correct defects and limitations in these products,
our ability to continue to improve and ship our products could be impaired. In
the future, our customers may also require the ability to deploy our products on
platforms for which technically acceptable Java implementations either do not
exist or are not available on commercially reasonable terms. Our customers may
also use particular implementations of the Java virtual machine that may not be
technically or commercially acceptable for integration into our products.
Software Defects in Castanet Would Harm Our Business
Complex software products like ours often contain errors or defects,
including errors relating to security, particularly when first introduced or
when new versions or enhancements are released. Castanet extensively utilizes
digital certificates and other complex technology. Our use of this technology
has in the past and may in the future result in product behavior problems which
may not be anticipated by us or our customers. For example, most versions of
Castanet shipped before Castanet 4.0 contain digital certificates that cause
Castanet and any applications being delivered with Castanet to stop running when
the certificate used expires. We have developed an update which avoids this
problem and have distributed the update to customers. It is possible that we may
not have identified all affected customers. Customers that do not install the
update will experience this problem with respect to any
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applications they have deployed with Castanet and signed with a certificate on
the date of expiration of the certificate they elected to use. Defects or errors
in current or future products could result in lost revenues or a delay in market
acceptance, which would seriously harm our business and operating results.
Since many of our customers use our products for business-critical
applications, errors, defects or other performance problems could result in
financial or other damage to our customers and could significantly impair their
operations. Our customers could seek damages for losses related to any of these
issues. For example, we could be subject to claims for losses by customers that
we are unable to identify and notify and, as a result, do not install our update
that avoids the digital certificate problem. A product liability claim brought
against us, even if not successful, would likely be time consuming and costly to
defend and could adversely affect our marketing efforts.
Year 2000 Issues Could Affect Our Business
We have assessed Year 2000 issues with the computer communications,
software and security systems that we use to deliver and manage our products and
to manage our internal operations. If our systems do not operate properly with
respect to date calculations involving the Year 2000 and subsequent dates, we
could incur unanticipated expenses to remedy any problems, which could seriously
harm our business. We may also experience reduced sales of our products as
current or potential customers reduce their budgets for Internet services
management products due to increased expenditures on their own Year 2000
compliance efforts.
We have identified one Year 2000 date-related limitation in earlier
versions of Castanet. Versions of Castanet before 3.2 display date-related data
to the user in a manner that uses only two digits to represent a year. A
two-digit display of the Year 2000 could cause a user to believe the year
represented was 1900 instead of 2000. Despite our testing and correcting, our
products, including Castanet 4.0, may contain errors or faults with respect to
the Year 2000.
Volatility of Stock Price
The market price of our common stock has been and is likely to continue
to be highly volatile. For example, on August 9, 1999 our stock price closed at
$22.50 and on May 3, 1999 our stock price closed at $66.44. The market price of
our common stock may be significantly affected by factors such as actual or
anticipated fluctuations in our operating results, announcements of
technological innovations, new products or new contracts by us or our
competitors, developments with respect to copyrights or proprietary rights and
related litigation, adoption of new accounting standards affecting the software
industry, general market conditions and other factors. In addition, the stock
market has from time to time experienced significant price and volume
fluctuations that have particularly affected the market price for the common
stock of technology companies. These types of broad market fluctuations may
adversely affect the market price of our common stock. In the past, following
periods of volatility in the market price of a company's securities, securities
class action litigation has often been initiated against such company. Such
litigation against Marimba could result in substantial costs and a diversion of
our attention and resources and seriously harm our business and operating
results.
Our Future Capital Needs Are Uncertain
We expect that our current cash, cash equivalents and investments will
be sufficient to meet our working capital and capital expenditure needs for at
least twelve months. After that, we may need to raise additional funds, and
additional financing may not be available on favorable terms, if at all. This
could seriously harm our business and operating results. Furthermore, if we
issue additional equity securities, stockholders may experience dilution, and
the new equity securities could have rights senior to those of existing holders
of our common stock. If we cannot raise funds, if needed, on acceptable terms,
we may not be able to develop or enhance our products, take advantage of future
opportunities or respond to competitive pressures or unanticipated requirements.
We Face Challenges Stemming from Our Emerging Markets
The market for Internet services management software has only recently
begun to develop, is rapidly evolving and will likely have an increasing number
of competitors. We cannot be certain that a viable market for our products
18
<PAGE> 21
will emerge or be sustainable. If the Internet services management market fails
to develop, or develops more slowly than expected, our business and operating
results would be seriously harmed.
Furthermore, in order to be successful in this emerging market, we must
be able to differentiate Marimba from our competitors through our product and
service offerings and brand name recognition. We may not be successful in
differentiating Marimba or achieving widespread market acceptance of our
products and services. Furthermore, enterprises that have already invested
substantial resources in other methods of deploying and managing their
applications and services may be reluctant or slow to adopt a new approach that
may replace, limit or compete with their existing systems.
We Depend on Continued Use of the Internet and Growth of Electronic Business
Rapid growth in the use of and interest in the Internet has occurred
only recently. As a result, acceptance and use may not continue to develop at
historical rates, and a sufficiently broad base of consumers may not adopt, and
continue to use, the Internet and other online services as a medium of commerce.
Demand and market acceptance for recently introduced services and products over
the Internet are subject to a high level of uncertainty, and there exist few
proven services and products.
In addition, the Internet may not be accepted as a long-term commercial
marketplace for a number of reasons, including potentially inadequate
development of the necessary network infrastructure or delayed development of
enabling technologies and performance improvements. Our success will depend, in
large part, upon third parties maintaining the Internet infrastructure to
provide a reliable network backbone with the necessary speed, data capacity,
security and hardware necessary for reliable Internet access and services.
We Must Respond to Rapid Technological Change and Evolving Industry Standards
The markets for our Internet services management solutions are marked by
rapid technological change, frequent new product introductions and enhancements,
uncertain product life cycles, changes in customer demands and evolving industry
standards. New products based on new technologies or new industry standards can
quickly render existing products obsolete and unmarketable. Any delays in our
ability to develop and release enhanced or new products could seriously harm our
business and operating results. Our technology is complex, and new products and
product enhancements can require long development and testing periods. Our
failure to conform to prevailing standards could have a negative effect on our
business and operating results.
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
We develop products in the United States and sell in North America, Asia
and Europe. As a result, our financial results could be affected by various
factors, including changes in foreign currency exchange rates or weak economic
conditions in foreign markets. As all sales are currently made in U.S. dollars,
strengthening of the dollar could make our products less competitive in foreign
markets.
Our interest income is sensitive to changes in the general level of U.S.
interest rates, particularly since the majority of our funds are invested in
instruments with maturities less than two years. Our policy is to limit the risk
of principal loss and ensure the safety of invested funds by limiting market and
credit risk. Funds in excess of current operating requirements are invested in
obligations of the U.S. government and its agencies and investment grade
obligations of state and local governments and large corporations. Due to the
nature of our investments, we have concluded that there is no material market
risk exposure. Therefore, no quantitative tabular disclosures are required.
19
<PAGE> 22
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Novadigm v. Marimba
On March 3, 1997, Novadigm filed a complaint against us in the United
States District Court for the Northern District of California, alleging
infringement by us of a patent held by Novadigm (U.S. Patent No. 5,581,764, the
"Novadigm Patent"). Novadigm alleges that our infringement relates to specific
methods for updating data and software over a computer network that we use in
our Castanet products. Novadigm later identified claims 1, 4, 5, 23, 24, 25, 31,
33 and 34 of the Novadigm Patent as being infringed. In its complaint, Novadigm
requests preliminary and permanent injunctions prohibiting us and other
specified persons from making, using or selling any infringing products, and
claims damages, costs and attorneys' fees. The complaint also alleges that we
have willfully infringed the Novadigm Patent and seeks up to triple damages
under the United States Patent Act.
On May 2, 1997, we filed our answer to Novadigm's complaint and filed a
counterclaim against Novadigm. Our answer denies Novadigm's allegations and
asserts defenses to Novadigm's claim. Our counterclaim seeks a declaratory
judgment that we do not infringe the Novadigm Patent and that the Novadigm
Patent is invalid and unenforceable.
On August 25, 1997 and January 26, 1998, we filed motions for summary
adjudication asking the court to rule that one of the relevant claims of the
Novadigm Patent is invalid because it was anticipated by two prior art
references. The court denied our motions in part because (1) discovery was
ongoing, (2) the court had not had an opportunity to construe the relevant
language in the Novadigm Patent and (3) the court found there were triable
issues of fact as to the disclosures in those references.
On December 17, 1998, the court held a claims construction hearing on
the appropriate interpretation of particular terms in the Novadigm Patent, and
on December 28, 1998, the court issued an order defining those terms.
On February 12, 1999, Novadigm detailed its position as to why certain
versions of Castanet infringe the asserted claims of the Novadigm Patent and
contended that the alleged comparison of file level and channel level checksums
in non-optimized updating and the comparison of channel level checksums and
their associated update commands in optimized updating infringes the claims of
the Novadigm Patent. We do not believe that Novadigm accurately states the
functionality of Castanet or establishes that Castanet infringes the Novadigm
Patent.
During March and April 1999, Marimba and Novadigm each filed three
dispositive motions in advance of the April 9, 1999 deadline for filing
dispositive motions in this case. We filed two motions seeking summary judgment
that different versions of Castanet do not infringe the Novadigm Patent and a
motion seeking summary judgment that the Novadigm Patent is invalid because it
was anticipated by a prior art reference. Novadigm filed three motions seeking
to limit certain defenses we could raise at trial. The court denied all of
Marimba's and all of Novadigm's dispositive motions without a hearing.
On July 22, 1999, the court held a pre-trial conference at which the
court canceled the prior September 20, 1999 trial date in this matter. The court
then scheduled a trial on our defense of inequitable conduct by Novadigm to
begin on November 15, 1999 and stated that at the conclusion of that trial it
would schedule a jury trial for the remaining issues, which would include the
infringement claims against us and our other defenses. To date, both parties
have substantially completed their factual and expert discovery.
We believe that we have strong defenses against Novadigm's lawsuit.
Accordingly, we intend to defend this suit vigorously. However, we may not
prevail in this litigation. Litigation is subject to inherent uncertainties,
especially in cases such as this where sophisticated factual issues must be
assessed and complex technical issues must be decided. In addition, cases
similar to this involve issues of law that are evolving, presenting further
uncertainty. Our defense of this litigation, regardless of the merits of the
complaint, has been, and will likely continue to be, time-consuming, costly and
a diversion for our technical and management personnel. In addition, publicity
related to this litigation has in the past, and will likely in the future, have
a negative impact on the sale of our Castanet products.
20
<PAGE> 23
A failure to prevail in the litigation could result in:
o our paying monetary damages, which could be tripled if the
infringement is found to have been willful, and which may
include paying an ongoing royalty to Novadigm for the sales of
Castanet products or paying lost profits to Novadigm for
particular sales in which we competed with Novadigm and closed a
sale;
o the issuance of a preliminary or permanent injunction requiring
us to stop selling Castanet in its current form;
o our having to redesign Castanet, which could be costly and time
consuming and could substantially delay Castanet shipments,
assuming that a redesign is feasible;
o our having to reimburse Novadigm for some or all of its
attorneys' fees;
o our having to obtain from Novadigm a license to its patent,
which license might not be made available to us on reasonable
terms, particularly because Novadigm is a competitor; and/or
o our having to indemnify our customers against any losses they
may incur due to the alleged infringement.
Any of these results would seriously harm our business and operating
results. Furthermore, we expect to continue to incur substantial costs in
defending against this litigation and these costs could increase significantly
if our dispute goes to trial. It is possible that these costs could
substantially exceed our expectations in future periods.
Marimba v. Novadigm
On July 30, 1999 Marimba filed a complaint against Novadigm in the
United States District Court for the Northern District of California alleging
infringement by Novadigm of a patent held by us (U.S. Patent No. 5,919,247, the
"Marimba Patent"). Our complaint seeks monetary damages, as well as an
injunction to prevent Novadigm from making, using or selling infringing software
products. Our complaint also alleges that Novadigm has willfully infringed the
Marimba Patent and seeks up to triple damages under the United States Patent
Act. The lawsuit is at a preliminary stage, and we cannot assure you that the
outcome of this litigation will be favorable to us. In addition, due to the
inherent uncertainties in litigation we cannot determine the total expense or
other harm that we may incur as a result of litigation, arbitration or
settlement of our dispute with Novadigm.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
On August 6, 1999, Thomas E. Banahan resigned as our Vice President,
Business Development.
21
<PAGE> 24
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
--- -----------
<S> <C>
3.1 Form of Third Amended and Restated Certificate of Incorporation
to be filed upon the closing of the offering made pursuant to
this Registration Statement incorporated herein by reference to
Exhibit 3.3 to the Company's Registration Statement on Form S-1
(File No. 333-72353).
3.2 Amended and Restated Bylaws of the Registrant - incorporated
herein by reference to Exhibit 3.4 to the Company's Registration
Statement on Form S-1 (File No. 333-72353).
4.1 Reference is made to Exhibits 3.1 and 3.2.
4.2 Form of Registrant's Common Stock certificate - incorporated
herein by reference to Exhibit 4.2 to the Company's Registration
Statement on Form S-1 (File No. 333-72353).
4.3 Amended and Restated Investors' Rights Agreement dated August
25, 1997 - incorporated herein by reference to Exhibit 4.3 to
the Company's Registration Statement on Form S-1 (File No.
333-72353).
4.4 Form of Amendment and Waiver of Registration Rights under the
Amended and Restated Investors' Rights Agreement - incorporated
herein by reference to Exhibit 4.4 to the Company's Registration
Statement on Form S-1 (File No. 333-72353).
4.5 Warrant to purchase shares of Series A Preferred Stock of the
Registrant issued to Lighthouse Capital Partners II, L.P. -
incorporated herein by reference to Exhibit 4.5 to the Company's
Registration Statement on Form S-1 (File No. 333-72353).
10.1 Form of Indemnification Agreement entered into by the Registrant
with each of its directors and executive officers - incorporated
herein by reference to Exhibit 10.1 to the Company's
Registration Statement on Form S-1 (File No. 333-72353).
10.2 1999 Omnibus Equity Incentive Plan and forms of agreements
thereunder - incorporated herein by reference to Exhibit 10.2 to
the Company's Registration Statement on Form S-1 (File No.
333-72353).
10.3 Employee Stock Purchase Plan - incorporated herein by reference
to Exhibit 10.3 to the Company's Registration Statement on Form
S-1 (File No. 333-72353).
10.4 1999 Non-Employee Directors Option Plan - incorporated herein by
reference to Exhibit 10.4 to the Company's Registration
Statement on Form S-1 (File No. 333-72353).
10.5 Assignment and Assumption of Sublease between Quickturn Design
Systems, Inc. and ilicon, Inc. dated January 31, 1999 -
incorporated herein by reference to Exhibit 10.5 to the
Company's Registration Statement on Form S-1 (File No.
333-72353).
10.6 Loan and Security Agreement between the Registrant and Silicon
Valley Bank dated May 27, 1998 - incorporated herein by
reference to Exhibit 10.6 to the Company's Registration
Statement on Form S-1 (File No. 333-72353).
10.7+ Original Equipment Manufacturer Agreement between Tivoli Systems
Subsidiary, Inc. and the Registrant dated March 6, 1998 -
incorporated herein by reference to Exhibit 10.7 to the
Company's Registration Statement on Form S-1 (File No.
333-72353).
10.8+ Amendment No. 1 to Original Equipment Manufacturer Agreement
between Tivoli Systems, Inc. and the Registrant dated February
8, 1999 - incorporated herein by reference to Exhibit 10.8 to
the Company's Registration Statement on Form S-1 (File No.
333-72353).
10.9+ Reseller Agreement between Tivoli Systems Subsidiary, Inc. and
the Registrant dated August 14, 1997 - incorporated herein by
reference to Exhibit 10.9 to the Company's Registration
Statement on Form S-1 (File No. 333-72353).
10.10+ Amendment No. 1 to Reseller Agreement between Tivoli Systems,
Inc. and the Registrant dated June 1, 1998 - incorporated herein
by reference to Exhibit 10.10 to the Company's Registration
Statement on Form S-1 (File No. 333-72353).
10.11 Amendment No. 2 to Reseller Agreement between Tivoli Systems,
Inc. and the Registrant dated June 30, 1998 - incorporated
herein by reference to Exhibit 10.11 to the Company's
Registration Statement on Form S-1 (File No. 333-72353).
</TABLE>
22
<PAGE> 25
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
--- -----------
<S> <C>
10.12 Reseller License Guide to Reseller Agreement between Tivoli
Systems, Inc. and the Registrant dated November 23, 1998 -
incorporated herein by reference to Exhibit 10.12 to the
Company's Registration Statement on Form S-1 (File No.
333-72353).
10.13+ Pricing Guide to Reseller Agreement between Tivoli Systems, Inc.
and the Registrant dated November 23, 1998 - incorporated herein
by reference to Exhibit 10.13 to the Company's Registration
Statement on Form S-1 (File No. 333-72353).
10.14 Amendment No. 3 to Reseller Agreement between Tivoli Systems,
Inc. and the Registrant dated February 9, 1999 - incorporated
herein by reference to Exhibit 10.14 to the Company's
Registration Statement on Form S-1 (File No. 333-72353).
10.15 Amendment No. 4 to Reseller Agreement between Tivoli Systems,
Inc. and the Registrant dated April 27, 1999 - incorporated
herein by reference to Exhibit 10.15 to the Company's
Registration Statement on Form S-1 (File No. 333-72353).
10.16 Amendment No. 5 to Reseller Agreement between Tivoli Systems,
Inc. and the Registrant dated June 29, 1999.
27.1 Financial Data Schedule.
99.1 Order of the United States District Court for the Northern
District of California, San Jose Division dated December 28,
1998 - incorporated herein by reference to Exhibit 99.1 to the
Company's Registration Statement on Form S-1 (File No.
333-72353).
</TABLE>
- ----------
+ Confidential treatment requested.
(b) Reports on Form 8-K.
None.
23
<PAGE> 26
MARIMBA, INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MARIMBA, INC.
Date: November 12, 1999 By: /s/ FRED M. GERSON
---------------------------------
Fred M. Gerson
Vice President, Finance and Chief
Financial Officer
(Principal Financial and
Accounting Officer)
24
<PAGE> 27
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
--- -----------
<S> <C>
3.1 Form of Third Amended and Restated Certificate of Incorporation
to be filed upon the closing of the offering made pursuant to
this Registration Statement incorporated herein by reference to
Exhibit 3.3 to the Company's Registration Statement on Form S-1
(File No. 333-72353).
3.2 Amended and Restated Bylaws of the Registrant - incorporated
herein by reference to Exhibit 3.4 to the Company's Registration
Statement on Form S-1 (File No. 333-72353).
4.1 Reference is made to Exhibits 3.1 and 3.2.
4.2 Form of Registrant's Common Stock certificate - incorporated
herein by reference to Exhibit 4.2 to the Company's Registration
Statement on Form S-1 (File No. 333-72353).
4.3 Amended and Restated Investors' Rights Agreement dated August
25, 1997 - incorporated herein by reference to Exhibit 4.3 to
the Company's Registration Statement on Form S-1 (File No.
333-72353).
4.4 Form of Amendment and Waiver of Registration Rights under the
Amended and Restated Investors' Rights Agreement - incorporated
herein by reference to Exhibit 4.4 to the Company's Registration
Statement on Form S-1 (File No. 333-72353).
4.5 Warrant to purchase shares of Series A Preferred Stock of the
Registrant issued to Lighthouse Capital Partners II, L.P. -
incorporated herein by reference to Exhibit 4.5 to the Company's
Registration Statement on Form S-1 (File No. 333-72353).
10.1 Form of Indemnification Agreement entered into by the Registrant
with each of its directors and executive officers - incorporated
herein by reference to Exhibit 10.1 to the Company's
Registration Statement on Form S-1 (File No. 333-72353).
10.2 1999 Omnibus Equity Incentive Plan and forms of agreements
thereunder - incorporated herein by reference to Exhibit 10.2 to
the Company's Registration Statement on Form S-1 (File No.
333-72353).
10.3 Employee Stock Purchase Plan - incorporated herein by reference
to Exhibit 10.3 to the Company's Registration Statement on Form
S-1 (File No. 333-72353).
10.4 1999 Non-Employee Directors Option Plan - incorporated herein by
reference to Exhibit 10.4 to the Company's Registration
Statement on Form S-1 (File No. 333-72353).
10.5 Assignment and Assumption of Sublease between Quickturn Design
Systems, Inc. and ilicon, Inc. dated January 31, 1999 -
incorporated herein by reference to Exhibit 10.5 to the
Company's Registration Statement on Form S-1 (File No.
333-72353).
10.6 Loan and Security Agreement between the Registrant and Silicon
Valley Bank dated May 27, 1998 - incorporated herein by
reference to Exhibit 10.6 to the Company's Registration
Statement on Form S-1 (File No. 333-72353).
10.7+ Original Equipment Manufacturer Agreement between Tivoli Systems
Subsidiary, Inc. and the Registrant dated March 6, 1998 -
incorporated herein by reference to Exhibit 10.7 to the
Company's Registration Statement on Form S-1 (File No.
333-72353).
10.8+ Amendment No. 1 to Original Equipment Manufacturer Agreement
between Tivoli Systems, Inc. and the Registrant dated February
8, 1999 - incorporated herein by reference to Exhibit 10.8 to
the Company's Registration Statement on Form S-1 (File No.
333-72353).
10.9+ Reseller Agreement between Tivoli Systems Subsidiary, Inc. and
the Registrant dated August 14, 1997 - incorporated herein by
reference to Exhibit 10.9 to the Company's Registration
Statement on Form S-1 (File No. 333-72353).
10.10+ Amendment No. 1 to Reseller Agreement between Tivoli Systems,
Inc. and the Registrant dated June 1, 1998 - incorporated herein
by reference to Exhibit 10.10 to the Company's Registration
Statement on Form S-1 (File No. 333-72353).
10.11 Amendment No. 2 to Reseller Agreement between Tivoli Systems,
Inc. and the Registrant dated June 30, 1998 - incorporated
herein by reference to Exhibit 10.11 to the Company's
Registration Statement on Form S-1 (File No. 333-72353).
</TABLE>
25
<PAGE> 28
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
--- -----------
<S> <C>
10.12 Reseller License Guide to Reseller Agreement between Tivoli
Systems, Inc. and the Registrant dated November 23, 1998 -
incorporated herein by reference to Exhibit 10.12 to the
Company's Registration Statement on Form S-1 (File No.
333-72353).
10.13+ Pricing Guide to Reseller Agreement between Tivoli Systems, Inc.
and the Registrant dated November 23, 1998 - incorporated herein
by reference to Exhibit 10.13 to the Company's Registration
Statement on Form S-1 (File No. 333-72353).
10.14 Amendment No. 3 to Reseller Agreement between Tivoli Systems,
Inc. and the Registrant dated February 9, 1999 - incorporated
herein by reference to Exhibit 10.14 to the Company's
Registration Statement on Form S-1 (File No. 333-72353).
10.15 Amendment No. 4 to Reseller Agreement between Tivoli Systems,
Inc. and the Registrant dated April 27, 1999 - incorporated
herein by reference to Exhibit 10.15 to the Company's
Registration Statement on Form S-1 (File No. 333-72353).
10.16 Amendment No. 5 to Reseller Agreement between Tivoli Systems,
Inc. and the Registrant dated June 29, 1999.
27.1 Financial Data Schedule.
99.1 Order of the United States District Court for the Northern
District of California, San Jose Division dated December 28,
1998 - incorporated herein by reference to Exhibit 99.1 to the
Company's Registration Statement on Form S-1 (File No.
333-72353).
</TABLE>
- ----------
+ Confidential treatment requested.
26
<PAGE> 1
EXHIBIT 10.16
TIVOLI - MARIMBA RESELLER AGREEMENT AMENDMENT NO. 5
AMENDMENT TO RESELLER AGREEMENT BETWEEN MARIMBA, INC. AND TIVOLI SYSTEMS, INC.
<TABLE>
<S> <C>
REFERENCE AGREEMENT NUMBER: RES9700332 AMENDMENT NO: 05
MARIMBA NAME AND ADDRESS: RESELLER NAME AND ADDRESS:
Marimba, Inc. ("Marimba") Tivoli Systems, Inc. ("Reseller")
440 Clyde Avenue 9442 Capital of Texas Highway North
Mountain View, CA 94043 Austin, TX 78792
MARIMBA COMPANY CONTACT: RESELLER COMPANY CONTACT:
Todd Smithline Howard J Nicholas
Legal Counsel Manager, Contract Services, Business Operations
Phone: (650) 930-5233 Phone: (512) 436-8616
Fax: (650) 930-5605 Fax: (512) 436-8461
</TABLE>
WHEREAS, the parties desire to amend the Reseller Agreement by and between
Marimba and Reseller dated as of August 14, 1997 (the "Reseller Agreement") for
a fourth time as set forth herein;
NOW THEREFORE, in consideration of agreements reached between the parties, the
Reseller Agreement is hereby amended as follows (this "Amendment"):
1. Definitions. All capitalized terms used and not otherwise defined herein
shall have the meanings ascribed to them in the Reseller Agreement.
2. Section 12. Term and Termination. Add the following provision:
"The parties agree that the Reseller Agreement will be extended automatically
when it reaches its present expiration date until the earlier to occur of (i)
receipt of written notice by Marimba from Reseller of termination or (ii)
December 31, 1999. Reseller agrees to use reasonable commercial efforts to
notify Marimba in advance of its intention to terminate if prior to December 31,
1999."
3. Section 1a. License Grant. Section 1.a. of the License Grant is hereby
amended to add the following to the end of the existing text:
"Notwithstanding the foregoing, the parties agree that Reseller may not
distribute any Copies of any Products to any end-user customer unless a written
request for approval of the sale to the specific customer is submitted to
Marimba from Tivoli's Business Unit Manager for the Internet Business Unit
(currently Chuck Stern) and Marimba has agreed to such end-user customer in
advance in writing."
The parties acknowledge that they have read this Amendment, understand it, and
agree to be bound by its terms and conditions. Further, they agree that this
Amendment and the referenced Reseller Agreement are the complete and exclusive
statement of the agreement between the parties, superseding all proposals or
communications between the parties relating to this subject. Any reproduction of
this Amendment by reliable means will be considered an original of this
document. This Amendment shall be effective as of the date last executed below.
TIVOLI SYSTEMS, INC. MARIMBA, INC.
By: /s/ HOWARD J. NICHOLAS By: /s/ STEVE WILLIAMS
----------------------------- -----------------------------
Name: Howard J. Nicholas Name: Steve Williams
----------------------------- -----------------------------
Title: Dir. Outstanding Procurement Title: Chief Operating Officer
----------------------------- -----------------------------
Date: June 29, 1999 Date: June 29, 1999
----------------------------- -----------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AND THE CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS AND COMPREHENSIVE LOSS FOUND ON PAGES 1 AND 2 OF THE COMPANY'S 10-Q
FOR THE QUARTER ENDED SEP-30-1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 21,257
<SECURITIES> 51,620
<RECEIVABLES> 9,554
<ALLOWANCES> (95)
<INVENTORY> 0
<CURRENT-ASSETS> 68,619
<PP&E> 5,135
<DEPRECIATION> (2,195)
<TOTAL-ASSETS> 86,134
<CURRENT-LIABILITIES> 14,258
<BONDS> 0
0
0
<COMMON> 92,410
<OTHER-SE> (20,581)
<TOTAL-LIABILITY-AND-EQUITY> 86,134
<SALES> 6,297
<TOTAL-REVENUES> 8,329
<CGS> 28
<TOTAL-COSTS> 799
<OTHER-EXPENSES> 9,048
<LOSS-PROVISION> 9
<INTEREST-EXPENSE> 1
<INCOME-PRETAX> (580)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (580)
<EPS-BASIC> (.03)
<EPS-DILUTED> (.03)
</TABLE>
