<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number 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) 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 31, 2000 was 23,528,125.
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MARIMBA, INC.
INDEX
Page No.
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 2000
and December 31, 1999 1
Condensed Consolidated Statements of Operations and
Comprehensive Loss for the Three and Nine Months Ended
September 30, 2000 and 1999 2
Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 2000 and 1999 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 17
Part II. Other Information
Item 1. Legal Proceedings 18
Item 2. Changes in Securities and Use of Proceeds 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
Signature 19
Exhibit Index 20
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MARIMBA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
September 30, December 31,
2000 1999 (1)
------------ ------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents ...............................$ 36,032 $ 22,263
Short-term investments ................................ 37,043 42,760
Accounts receivable, net .............................. 7,692 7,399
Prepaid expenses and other current assets ............. 1,273 1,085
------ ------
Total current assets ............................. 82,040 73,507
Property and equipment, net ................................ 3,387 2,955
Long-term investments ...................................... 5,510 13,989
Other assets ............................................... 361 36
------ ------
$ 91,298 $ 90,487
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities ..............$ 5,596 $ 3,143
Accrued compensation .................................. 4,931 3,279
Current portion of capital lease obligations and
equipment advances .................................. 4 59
Deferred revenue ...................................... 12,558 11,319
------ ------
Total current liabilities ........................ 23,089 17,800
Long-term portion of capital lease obligations and equipment
advances, and other long-term liabilities ................ 116 48
Stockholders' equity:
Common stock .......................................... 2 2
Additional paid-in capital ............................ 94,750 93,436
Deferred compensation ................................. (298) (1,680)
Cumulative translation adjustment ..................... (43) (22)
Unrealized loss on investments ........................ (66) (239)
Accumulated deficit ................................... (26,252) (18,858)
------ ------
Stockholders' equity ............................. 62,093 72,639
------ ------
$ 91,298 $ 90,487
See accompanying notes.
(1) Derived from audited financial statements contained in the Marimba's Form
10-K.
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MARIMBA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(in thousands, except per share amounts)
<TABLE>
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
2000 1999 2000 1999
---- ---- ---- ----
(unaudited) (unaudited)
Revenues:
License .................................................. $ 6,560 $ 6,297 $ 23,784 $ 15,735
Service .................................................. 3,548 2,032 9,007 5,612
------ ------ ------ ------
Total revenues ................................................ 10,108 8,329 32,791 21,347
Cost of revenues:
License .................................................. 116 28 443 134
Service .................................................. 1,064 771 2,877 2,180
------ ------ ------ ------
Total cost of revenues ........................................ 1,180 799 3,320 2,314
------ ------ ------ ------
Gross profit .................................................. 8,928 7,530 29,471 19,033
Operating expenses:
Research and development ................................. 2,856 2,305 7,874 6,062
Sales and marketing ...................................... 6,987 5,000 20,611 13,635
General and administrative ............................... 7,691 1,327 10,512 3,517
Amortization of deferred compensation .................... 585 416 1,127 1,045
------ ------ ------ ------
Total operating expenses ...................................... 18,119 9,048 40,124 24,259
------ ------ ------ ------
Loss from operations .......................................... (9,191) (1,518) (10,653) (5,226)
Interest income, net .......................................... 1,205 938 3,409 1,545
------ ------ ------ ------
Loss before income taxes ...................................... (7,986) (580) (7,244) (3,681)
Provision for income taxes .................................... - - 150 30
------ ------ ------ ------
Net loss ...................................................... $ (7,986) $ (580) $ (7,394) $ (3,711)
Other comprehensive loss:
Translation adjustment ................................... (4) 3 (21) (11)
Unrealized gain (loss) on investments .................... 130 20 172 (164)
------ ------ ------ ------
Comprehensive loss ............................................ $ (7,860) $ (557) $ (7,243) $ (3,886)
Basic and diluted loss per share .............................. $ (.34) $ (.03) $ (.32) $ (.21)
Shares used in per share calculation - basic and diluted ...... 23,255 22,336 23,13 17,817
Pro forma basic and diluted net loss per share ................ $ (.18)
Shares used in computing pro forma basic and diluted
net loss per share .......................................... 20,374
</TABLE>
See accompanying notes.
2
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MARIMBA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<S> <C> <C>
Nine Months Ended
September 30,
-----------------
2000 1999
---- ----
(unaudited)
OPERATING ACTIVITIES
Net loss ........................................................ $ (7,394) $ (3,711)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization .............................. 1,184 906
Amortization of deferred compensation ...................... 1,127 1,045
Other ...................................................... (20) (11)
Changes in operating assets and liabilities:
Accounts receivable, net ................................. (293) (6,874)
Unbilled receivables ..................................... - 1,036
Prepaid expenses and other current assets ................ (188) (487)
Other assets ............................................. (258) 298
Accounts payable and accrued liabilities ................. 2,453 170
Accrued compensation ..................................... 1,651 1,381
Deferred revenue ......................................... 1,239 3,996
------ ------
Net cash used in operating activities ................. (499) (2,251)
------ ------
INVESTING ACTIVITIES
Capital expenditures ............................................ (1,616) (1,099)
Purchases of investments ........................................ (21,640) (54,658)
Sales of investments ............................................ 36,010 6,999
------ ------
Net cash provided (used) in investing activities ...... 12,754 (48,758)
------ ------
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 ...... 1,569 1,225
Principal payments on capital lease obligations and
equipment advances ............................................ (55) (894)
------ ------
Net cash provided from financing activities ........... 1,514 68,566
------ ------
Net increase in cash and cash equivalents ....................... 13,769 17,557
Cash and cash equivalents at beginning of period ................ 22,263 3,700
------ ------
Cash and cash equivalents at end of period ...................... $ 36,032 $ 21,257
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Non-cash financing activities:
Conversion of redeemable preferred stock to common
stock .................................................... - $ 18,953
</TABLE>
See accompanying notes.
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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, 1999 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 Annual Report on Form 10-K
for the year ended December 31, 1999 filed with the Securities and Exchange
Commission on March 27, 2000. Results for the interim periods are not
necessarily indicative of results for the fiscal year ending December 31, 2000
or future interim or full-year periods.
Net Loss Per Share
Basic earnings per share is computed using the weighted-average number of
common shares outstanding. Diluted earnings per share includes the
weighted-average number of common share equivalents outstanding during the
period if dilutive. Dilutive common share equivalents consist of employee stock
options and are calculated by using the treasury stock method. 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, have 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>
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
2000 1999 2000 1999
---- ---- ---- ----
(in thousands, except per share data)
Net loss ............................................ $ (7,986) $ (580) $ (7,394) $ (3,711)
Weighted-average shares - Basic:
Weighted-average shares of common stock outstanding .. 23,353 23,018 23,303 18,772
Less weighted-average shares subject to repurchase ... (98) (682) (173) (955)
------ ------ ------ ------
Weighted-average shares - Basic and diluted .......... 23,255 22,336 23,130 17,817
Net loss per share - Basic and diluted ............... $ (.34) $ (.03) $ (.32) $ (.21)
Pro forma:
Shares used above ............................... 17,817
Pro forma adjustment to reflect weighted-average
effect of the assumed conversion of redeemable
convertible preferred stock .................. 2,557
------
Shares used in computing pro forma basic and
diluted net loss per share ................... 20,374
------
Pro forma basic and diluted net loss per share .. $ (.18)
</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 5,395,000 and 4,229,000 shares of common stock for the
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three and nine months ended September 30, 2000, respectively, and 3,050,000 and
2,688,000 shares for the three and nine months ended September 30, 1999,
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 Recognition
License revenues are comprised of perpetual or multiyear license fees which
are primarily derived from contracts with corporate customers and resellers.
Such revenues are recognized 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 or determinable, collectibility is
probable and Marimba has no remaining obligations with regard to installation or
implementation of the software. Revenue on arrangements with customers who are
not the ultimate users (primarily resellers) is not recognized until the product
is delivered to the end user. If the fee due from the customer is not fixed or
determinable, revenue is recognized as payments become due from the customer. If
collectibility is not considered probable, revenue is recognized when the fee is
collected. Advance payments are recorded as deferred revenue until the products
are shipped, services are provided, or obligations are met. Marimba's products
do not require significant customization.
Revenue recognized from multiple-element software arrangements are
allocated to each element of the arrangement based on the fair value of the
elements, such as software products, maintenance and support, and consulting
services. The determination of fair value is based on objective evidence, which
is specific to Marimba.
Service revenues are comprised of revenue from maintenance agreements,
consulting fees and training fees. Software maintenance agreements provide
technical support and the right to unspecified upgrades on an if-and-when
available basis.
Service revenues from training and consulting are recognized upon
completion of the work to be performed. Revenue from maintenance agreements is
deferred and recognized on a straight-line basis over the life of the related
agreement, which is typically one year.
Revenue Concentration
Two customers accounted for 30% and 10% of revenues in the third quarter of
2000. In the third quarter of 1999, three customers accounted for 17%, 16% and
14% of revenues. In the first nine months of 2000, two customers accounted for
10% each of revenues, and in the comparable period of 1999, one customer
represented 11% of revenues.
2. Legal Matters
On March 3, 1997, Novadigm, Inc. filed a complaint against us in the U.S.
District Court for the Northern District of California alleging infringement of
a patent held by Novadigm (U.S. Patent No. 5,581,764, the "Novadigm Patent"). On
July 30, 1999, Marimba filed a complaint against Novadigm in the U.S. 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"). On
November 10, 2000, Marimba and Novadigm executed a memorandum of understanding
(MOU) settling both actions. Pursuant to the MOU, the parties have agreed to
dismiss both actions without prejudice and to enter into a final settlement
agreement to be drafted within a reasonable period of time following the
execution date of the MOU. If no final settlement agreement is executed, the MOU
shall remain binding on both parties. Under the MOU, the other terms of the
settlement are confidential.
3. Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivatives Instruments
and Hedging Activities" ("FAS 133"). In June 1999, the FASB issued Statement of
Financial Accounting Standards No. 137, "Accounting for Derivative Instruments
and Hedging Activities - Deferral of Effective Date of FASB Statement No. 133"
("FAS 137"), which amends FAS 133 to be effective for fiscal quarters of all
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<PAGE>
fiscal years beginning after June 15, 2000. FAS 133, as amended by FAS 137 and
FAS 138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities," requires Marimba to recognize all derivatives on the balance sheet
at fair value. Derivatives that are not hedges must be adjusted to fair value
through net income. If the derivative is a hedge, depending on the nature of the
hedge, changes in the fair value of the derivative are either offset against the
change in fair value of asset, liabilities, or firm commitments through earnings
or recognized in other comprehensive income until the hedged item is recognized
in earnings. Marimba does not currently hold any derivatives and does not expect
this pronouncement to impact the results of its operations.
In April 2000, FASB Interpretation No. 44, "Accounting for Certain
Transactions Involving Stock Compensation - An Interpretation of APB Opinion No.
25" ("FIN 44") was issued. FIN 44 clarifies the application of APB No. 25 for
certain issues, including the definition of an employee for purposes of applying
APB No. 25, the criteria for determining whether a plan qualifies as a
non-compensatory plan, the accounting consequences of various modifications to
the terms of a previously fixed stock option or award, and the accounting for an
exchange of stock compensation awards in a business combination. FIN 44 is
effective July 1, 2000, but certain conclusions in this interpretation cover
specific events that occur after either December 15, 1998 or January 12, 2000.
Marimba believes that upon implementation, FIN 44 will not have a significant
effect on its financial condition or results of operations.
4. Subsequent Event
On November 10, 2000, Marimba settled its pending patent disputes with
Novadigm, Inc. See Note 2.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information in this report 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. Additional information about
factors that could affect future results and events is included in our fiscal
1999 Form 10-K, the Form 10-Q for our first and second quarters of 2000, and
other reports or submissions filed with the Securities and Exchange Commission.
All forward-looking statements in this report are based on information available
to Marimba as of the date hereof, and Marimba undertakes no obligation to
release publicly any updates or revisions to 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.
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In January 1997, we released our first version of Castanet and since that
time have continued to develop and market the Castanet product line and enhance
the core Castanet infrastructure with additional Castanet products. In the first
half of 2000, Marimba released two products in a new product line called
Timbale. The Timbale products are designed to address many of the server
management challenges inherent in thin-client and Web commerce computing
environments today. The first Timbale product, Timbale for Server Management,
was released for sale in March 2000. The second Timbale product, Timbale for
Windows Terminal Services, was released for sale in June 2000. In the second and
third quarters of 2000, revenues from the Timbale products accounted for 21% and
9%, respectively, of total license revenues. There can be no assurance that
revenues from the Timbale product line will grow in the future or that the
Timbale products will gain widespread market acceptance.
Revenues to date have been derived primarily from the license of our
Castanet and Timbale products and to a lesser extent from maintenance and
support, consulting and training services. Customers who license our products
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.
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 or determinable, collectibility is probable, and we have
no remaining obligations with regard to installation or implementation of the
software. 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. Advanced 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.
Since inception, Marimba has made substantial investments in sales,
marketing and research and development to expand and enhance our product lines
and increase the market awareness of Marimba and its products. We have incurred
significant losses since inception and had an accumulated deficit of
approximately $26.3 million at September 30, 2000. We believe that our success
depends on further 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.
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, growth or financial results. Additionally,
we do not believe that historical growth rates or profitability are necessarily
sustainable, nor indicative of future growth or financial results.
Results of Operations
The following table sets forth certain statements of operations data as a
percentage of total revenues for the three and nine month periods ended
September 30, 2000 and 1999. 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 Marimba's Annual Report on Form 10-K
for the year ended December 31, 1999.
7
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Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
2000 1999 2000 1999
---- ---- ---- ----
Consolidated Statement of Operations Data:
Revenues:
License ............................. 64.9% 75.6% 72.5% 73.7%
Service ............................. 35.1 24.4 27.5 26.3
----- ----- ----- -----
Total revenues ........................ 100.0 100.0 100.0 100.0
Cost of revenues:
License ............................. 1.1 0.3 1.3 0.6
Service ............................. 10.6 9.3 8.8 10.2
----- ----- ----- -----
Total cost of revenues ................ 11.7 9.6 10.1 10.8
----- ----- ----- -----
Gross profit .......................... 88.3 90.4 89.9 89.2
Operating expenses:
Research and development ............ 28.3 27.7 24.0 28.4
Sales and marketing ................. 69.1 60.0 62.9 63.9
General and administrative .......... 76.1 15.9 32.1 16.5
Amortization of deferred compensation 5.7 5.0 3.4 4.9
----- ----- ----- -----
Total operating expenses .............. 179.2 108.6 122.4 113.7
----- ----- ----- -----
Loss from operations .................. (90.9) (18.2) (32.5) (24.5)
Interest income, net .................. 11.9 11.2 10.4 7.3
----- ----- ----- -----
Loss before income taxes .............. (79.0) (7.0) (22.1) (17.2)
Provision for income taxes ............ (0.0) (0.0) 0.5 (0.1)
----- ----- ----- -----
Net Loss .............................. (79.0)% (7.0)% (22.6)% (17.4)%
Revenues
Total revenues for the third quarter of 2000 increased 21% to $10.1 million
from $8.3 million in the third quarter of 1999. For the nine months ended
September 30, 2000, total revenues increased 54% to $32.8 million from $21.3
million in the comparable period of 1999.
License Revenues. License revenues increased 4% to $6.6 million in the
third quarter of 2000 from $6.3 million in the third quarter of 1999. Total
license revenues in the nine months ended September 30, 2000 increased 51% to
$23.8 million from $15.7 million in the comparable period of 1999. Prior to
March 31, 2000, substantially all license revenues were derived from sales of
our Castanet products. In the third quarter of 2000, revenues from sales of our
Timbale products accounted for 9% of total license revenues. The growth of
license revenues for the nine month period in 2000 was due to increased product
licenses sold, reflecting higher customer demand for our Castanet products and
the introduction of the Timbale products and growth in our sales organization.
Service Revenues. Service revenues include maintenance and support,
consulting and training. Service revenues increased 75% to $3.5 million in the
third quarter of 2000 from $2.0 million in the third quarter of 1999. As a
percentage of total revenues, service revenues increased to 35% and 27% for the
three and nine month periods ended September 30, 2000, respectively, from 24%
and 26% in the comparable periods of 1999. The increases in service revenues in
absolute amount 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 our Castanet products
and was less than 2% of total revenues in the three and nine month periods ended
September 30, 2000 and 1999.
Cost of Service Revenues. Cost of service revenues increased to $1.1
million in the third quarter of 2000 from $771,000 in the third quarter of 1999,
representing 30% and 38% of service revenue, respectively. In the first nine
months of 2000, cost of service revenues increased to $2.9 million from $2.2
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million for the comparable period in 1999, representing 32% and 39% of service
revenues, respectively. The increases in cost of service revenues in absolute
dollars for the three and nine month periods ended September 30, 2000 from the
comparable periods of 1999 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 24%
to $2.9 million in the third quarter of 2000 from $2.3 million in the third
quarter of 1999. For the first nine months of 2000, research and development
expenses increased 30% to $7.9 million from $6.1 million in the comparable
period of 1999. 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 40% to $7.0
million in the third quarter of 2000 from $5.0 million in the third quarter of
1999. For the first nine months of 2000, sales and marketing expenses increased
51% to $20.6 million from $13.6 million in the comparable period of 1999. The
increases in sales and marketing expenses were due primarily to growth in our
sales and marketing organizations, an increase in sales commissions resulting
from increased sales and expansion of our marketing programs and advertising.
General and Administrative. General and administrative expenses increased
480% to $7.7 million in the third quarter of 2000 from $1.3 million in the third
quarter of 1999. For the first nine months of 2000, general and administrative
expenses increased 199% to $10.5 million from $3.5 million in the comparable
period in 1999. The primary reasons for the increase in both the three and nine
month periods were the settlement of our pending patent disputes with Novadigm,
Inc., a $2.1 million reserve established in the third quarter of 2000 for a
potential credit loss from a customer, and the growth of our administrative
organization in support of the overall growth of Marimba. Additionally, we
incurred significant outside legal costs in connection with our pending patent
disputes with Novadigm (see Part II, Item 1 - Legal Proceedings herein).
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
$2.0 million. Due to cancelled shares, the remaining unamortized deferred
compensation amount was reduced by $257,000 in the first quarter of 2000.
Deferred compensation is being amortized over the vesting periods of the options
using a graded vesting method. We amortized deferred compensation of $1.4
million during fiscal 1999 and $251,000 during fiscal l998. This compensation
expense relates to individuals in all operating expense categories. Amortization
of deferred compensation was $585,000 and $1.1 million for the three and nine
months ended September 30, 2000, respectively.
In connection with a restricted stock bonus granted in July 2000 to an
officer, Marimba recorded additional deferred compensation of approximately $2.1
million, representing the aggregate fair market value of the 100,000 shares of
Marimba common stock on the date of grant. Marimba plans to amortize this
deferred compensation amount over the 24-month vesting period of the restricted
stock bonus grant using a graded vesting method.
The amortization of deferred compensation is anticipated to be
approximately $1,687,000 for 2000, $1,474,000 for 2001, $379,000 for 2002 and
$4,000 for 2003.
Interest Income, Net. Interest income, net, increased to $1.2 million in
the third quarter of 2000 from $938,000 in the third quarter of 1999. For the
first nine months of 2000, interest income, net, increased to $3.4 million from
$1.5 million in the comparable period of 1999. The increases are due to higher
interest income resulting from the invested cash from our initial public
offering completed in May 1999.
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Liquidity and Capital Resources
As of September 30, 2000, our principal sources of liquidity included
approximately $36.0 million of cash and cash equivalents and $42.6 million of
investments in marketable securities. Net cash used by operating activities was
$0.5 million and $2.3 million for the nine month periods ended September 30,
2000 and September 30, 1999, respectively. Net cash used in operating activities
for the nine months ended September 30, 2000 reflects primarily the effect of
our net loss for the period, adjusted for non-cash expenses and a decrease in
accounts payable and accrued liabilities, and offset partially by an increase in
deferred revenue and accrued compensation.
We currently anticipate that our existing 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.
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 May Incur Future Losses
Our failure to significantly increase our revenues would seriously harm our
business and operating results. With the exception of the second quarter of
2000, we have experienced operating losses in each quarter since our inception.
Although Marimba recorded net income in the second quarter of 2000, there is no
assurance that we will again reach profitability. As of September 30, 2000, we
had an accumulated deficit of $26.3 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 offset these increasing expenses and return to 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.
Fluctuations in Quarterly Operating Results and Absence of Significant Backlog
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 may 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.
A substantial portion of our revenues for most quarters has been booked in
the last month of the quarter and the magnitude of quarterly fluctuations in
operating results may not become evident until late in or even at the end of a
particular quarter. 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. A delay in an
anticipated sale past the end of a particular quarter could negatively impact
our operating results.
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Despite our sequential revenue growth from the fourth quarter of 1999
through the first quarter of 2000, 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 the 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 for a particular quarter and are
based, in part, on expectations as to future revenues. As a result, if revenue
levels fall below our expectations for a particular quarter, our operating
results will be adversely affected because only a small portion of our expenses
vary with our revenues. We have historically operated with little product
backlog, because our products are generally delivered as orders are received. As
a result, revenue in any quarter will depend on the volume and timing, and the
ability to fill, orders received in that quarter.
We Expect Significant Increases in Our Operating Expenses
We intend to substantially increase our operating expenses as we:
- Increase our sales and marketing activities, including expanding our
direct sales force;
- Increase our research and development activities;
- Expand our customer support and professional services organizations;
and
- Expand our distribution channels.
With these additional expenses, we must significantly increase our revenues
in order to return to profitability. These expenses will be incurred before we
generate any revenues associated with this increased spending. If we do not
significantly increase revenues from these efforts, our business and operating
results would be adversely affected.
Our Success Depends on Our Castanet Product Family
We expect to continue to derive substantial revenues from our Castanet
product line 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. Furthermore,
new products such as our recently released Timbale product line could fail to
meet customer expectations 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 Grow Our Timbale Product Revenues and Develop and Introduce New
Products and Services
During the third quarter of 2000, revenues from our Timbale product line
accounted for 9% of total license revenues compared to 21% in the second
quarter. There can be no assurance that the revenues from our Timbale product
line will grow, in absolute amount or as a percentage of total license revenues,
or that our Timbale products will meet customer expectations or gain widespread
market acceptance. To provide a comprehensive Internet infrastructure management
solution, we will need to develop and introduce new products and services, 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 infrastructure 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.
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We Depend on the Growth of Our Customer Base and Increased Business from Our
Current Customers
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.
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 our products. In addition, as we deploy new versions of
our products 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.
Implementation of our products by large customers may be complex and customers
could become dissatisfied if implementation of our products proves difficult,
costly or time consuming
Our products must integrate with many existing computer systems and
software programs used by our customers. Integrating with many other computer
systems and software programs can be complex, time consuming and expensive and
cause delays in the deployment of our products for such customers. Customers
could become dissatisfied with our products if implementations prove to be
difficult, costly or time consuming and this could negatively impact our ability
to sell our products.
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, John Olsen, our Chairman and Chief
Strategy Officer, Kim Polese, and our Chief Technology Officer, Arthur van Hoff.
We have in the past lost senior management personnel. For example, in October
2000, Bob Maynard resigned his position as Vice President, Worldwide Sales.
Several members of our senior management are relatively new to Marimba, and our
success will depend in part on the successful assimilation and performance of
these individuals.
We may not be successful in attracting qualified senior management
personnel or be able to attract, assimilate and retain other key personnel in
the future. None of our senior management or other key personnel is bound by an
employment agreement. If we lose additional key employees and are unable to
replace them with qualified individuals, 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 based primarily in the San Francisco Bay Area, we face
intense competition for qualified personnel.
We Have a Long Sales Cycle that Depends upon Factors Outside Our Control
A customer's decision to license our products typically involves a
significant commitment of resources and is influenced by the customer's budget
cycles. In addition, selling our products requires us to educate potential
customers on their 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 of our customers that typically accompany significant
capital expenditures. For example, customers frequently begin by evaluating our
products on a limited basis and devote time and resources to test our products
before they decide whether 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.
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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 competition from a number of sources, including:
- Sellers of enterprise-wide management systems, which include
electronic software distribution;
- Companies that market products that support the distribution of
software applications and content; and
- Desktop software management suites.
In addition, we compete with various methods of application distribution
and management, including thin client systems and 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
infrastructure 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
infrastructure 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 service organizations than we do.
In addition, these companies may adopt aggressive pricing policies which we are
unable to match. In the past, we have lost potential customers to competitors
for various reasons, including lower prices.
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. Such litigation could result in substantial costs
and diversion of resources and could significantly harm our business and
operating results. 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:
- Cease selling, incorporating or using products or services that
incorporate the challenged intellectual property;
- Obtain a license from the holder of the infringed intellectual
property right; and
- Redesign products or services.
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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.
We Depend upon Third-Party Distribution Relationships and Need to Develop New
Relationships
We have a limited number of distribution relationships and we may not be
able to increase our number of distribution relationships or maintain our
existing relationships. For example, Netscape, a former reseller of our
products, accounted for a significant amount of our revenues in 1998 and 1997,
but is no longer a reseller of our products. In addition, our original equipment
manufacturer arrangement with Tivoli has recently accounted for a decreasing
percentage of our revenues. During the first nine months of 2000 and in fiscal
1999, Tivoli accounted for less than 10% of our revenues, as compared to 18% of
our revenues in fiscal 1998.
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 result in lower fees to Marimba 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 our products to a greater
number of enterprises and generate increased revenues. We have historically not
been able to hire employees as quickly as planned. In particular, competition
for qualified sales personnel is intense and we may not be able to hire enough
qualified sales personnel 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, both in
the United States and elsewhere.
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 total service revenues to increase as we continue to provide
support, consulting and training services that complement our products and as
our installed customer base 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 our products.
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 or changes in 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.
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Export clearances, and in some cases, import clearances must be obtained
before our products 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.
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, finance, legal, marketing, sales and operations
organizations. In addition, our growth has resulted, and any future growth will
result, in increased responsibilities for management 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 our products. 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 Our Products 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. Our products extensively utilize
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 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.
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Volatility of Stock Price
The market price of our common stock has been and is likely to continue to
be highly volatile. 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 patents 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 a
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 infrastructure 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 will emerge or be sustainable. If the Internet infrastructure
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 infrastructure management solutions are marked
by rapid technological change, frequent new product introductions and
enhancements, uncertain product life cycles, changes in customer demands and
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evolving industry standards. New solutions based on new technologies or new
industry standards can quickly render existing solutions obsolete and
unmarketable. Any delays in our ability to develop and release enhanced or new
solutions could seriously harm our business and operating results. Our
technology is complex, and new products, enhancements and services 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.
We Face Risks Associated with Potential Acquisitions
We may make acquisitions in the future. Acquisitions of companies, products
or technologies entail numerous risks, including an inability to successfully
assimilate acquired operations and products, diversion of management's
attention, loss of key employees of acquired companies and substantial
transaction costs. Some of the products acquired may require significant
additional development before they can be marketed and may not generate revenue
at anticipated levels. Moreover, future acquisitions by us may result in
dilutive issuances of equity securities, the incurrence of additional debt,
large one-time write-offs and the creation of goodwill or other intangible
assets that could result in significant amortization expense. Any of these
problems or factors could seriously harm our business, financial condition 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.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On March 3, 1997, Novadigm, Inc. filed a complaint against us in the U.S.
District Court for the Northern District of California alleging infringement of
a patent held by Novadigm (U.S. Patent No. 5,581,764, the "Novadigm Patent"). On
July 30, 1999, Marimba filed a complaint against Novadigm in the U.S. 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"). On
November 10, 2000, Marimba and Novadigm executed a memorandum of understanding
(MOU) settling both actions. Pursuant to the MOU, the parties have agreed to
dismiss both actions without prejudice and to enter into a final settlement
agreement to be drafted within a reasonable period of time following the
execution date of the MOU. If no final settlement agreement is executed, the MOU
shall remain binding on both parties. Under the MOU, the other terms of the
settlement are confidential.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
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 July 21, 2000, John F. Olsen was appointed President and Chief Executive
Officer of Marimba and Kim K. Polese became Marimba's Chairman and Chief
Strategy Officer. Mr. Olsen also was appointed a member of the Board of
Directors on such date. Concurrent with Mr. Olsen's addition to the Board of
Directors, Arthur A. van Hoff resigned as a Board member. Mr. van Hoff will
continue in his current role as Chief Technology Officer of Marimba.
On September 14, 2000, Steven P. Williams resigned from Marimba's Board of
Directors.
On October 19, 2000, Kenneth W. Owyang was appointed as the Chief Financial
Officer of Marimba.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Exhibit No. Description
---------- -----------
27.1 Financial Data Schedule for the period ended
September 30, 2000.
(b) Reports on Form 8-K.
On July 25, 2000, Marimba filed a report on Form 8-K to report under Item 5
the appointment of John F. Olsen as President and Chief Executive Officer and a
Board member, as well as the material compensatory terms of his employment with
Marimba.
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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 14, 2000 By: /s/ Kenneth W. Owyang
-------------------------------------------
Kenneth W. Owyang
Vice President, Finance and Chief Financial
Officer
(Principal Financial and Accounting Officer)
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EXHIBIT INDEX
Exhibit No. Description
27.1 Financial Data Schedule for the period ended September 30, 2000.
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