<PAGE> 1
================================================================================
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 MARCH 31, 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) 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
April 28, 2000 was 23,309,909.
================================================================================
<PAGE> 2
MARIMBA, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Balance Sheets as of March 31, 2000
and December 31, 1999 1
Condensed Consolidated Statements of Operations for the
Three Months Ended March 31, 2000 and 1999 2
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 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 Disclosure About Market Risk 18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 2. Changes in Securities 20
Item 3. Defaults Upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 21
SIGNATURE 23
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARIMBA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PAR VALUE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
----------- ------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................. $ 22,286 $ 22,263
Short-term investments ................................ 44,696 42,760
Accounts receivable, net .............................. 10,554 7,399
Prepaid expenses and other current assets ............. 724 1,085
-------- --------
Total current assets ............................. 78,260 73,507
Property and equipment, net ................................ 3,142 2,955
Long-term investments ...................................... 9,845 13,989
Other assets ............................................... 361 36
-------- --------
$ 91,608 $ 90,487
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities .............. $ 2,732 $ 3,143
Accrued compensation .................................. 2,992 3,279
Current portion of capital lease obligations and
equipment advances .................................. 26 59
Deferred revenue ...................................... 13,058 11,319
-------- --------
Total current liabilities ........................ 18,808 17,800
Long-term portion of capital lease obligations and equipment
advances, and other long-term liabilities ................ 48 48
Stockholders' equity:
Common stock .......................................... 2 2
Additional paid-in capital ............................ 93,645 93,436
Deferred compensation ................................. (1,087) (1,680)
Cumulative translation adjustment ..................... (28) (22)
Unrealized loss on investments ........................ (263) (239)
Accumulated deficit ................................... (19,517) (18,858)
-------- --------
Stockholders' equity ............................. 72,752 72,639
-------- --------
$ 91,608 $ 90,487
======== ========
</TABLE>
See accompanying notes.
1
<PAGE> 4
MARIMBA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------
2000 1999
-------- --------
(unaudited)
<S> <C> <C>
Revenues:
License ..................................................... $ 8,061 $ 4,509
Service ..................................................... 2,506 1,622
-------- --------
Total revenues ................................................... 10,567 6,131
Cost of revenues:
License ..................................................... 132 29
Service ..................................................... 891 635
-------- --------
Total cost of revenues ........................................... 1,023 664
-------- --------
Gross profit ..................................................... 9,544 5,467
Operating expenses:
Research and development .................................... 2,542 1,839
Sales and marketing ......................................... 6,915 4,256
General and administrative .................................. 1,346 856
Amortization of deferred compensation ....................... 336 178
-------- --------
Total operating expenses ......................................... 11,139 7,129
-------- --------
Loss from operations ............................................. (1,595) (1,662)
Interest income, net ............................................. 1,055 44
-------- --------
Loss before income taxes ......................................... (540) (1,618)
Provision for income taxes ....................................... 119 2
-------- --------
Net loss ......................................................... (659) (1,620)
Other comprehensive loss:
Translation adjustment ...................................... (6) (7)
Unrealized loss on investments .............................. (24) --
-------- --------
Comprehensive loss ............................................... $ (689) $ (1,627)
======== ========
Basic and diluted net loss per share ............................. $ (.03) $ (.13)
======== ========
Weighted-average shares of common stock outstanding
used in computing basic and diluted net loss per share ......... 22,994 12,203
======== ========
Pro forma basic and diluted net loss per share ................... $ (.09)
========
Shares used in computing pro forma basic and diluted
net loss per share ............................................. 17,956
========
</TABLE>
See accompanying notes.
2
<PAGE> 5
MARIMBA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------
2000 1999
-------- --------
(unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net loss ............................................................. $ (659) $ (1,620)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization ................................... 365 278
Amortization of deferred compensation ........................... 336 178
Other ........................................................... (6) (7)
Changes in operating assets and liabilities:
Accounts receivable, net ...................................... (3,155) (5,260)
Unbilled receivables .......................................... -- 1,036
Prepaid expenses and other current assets ..................... 361 73
Other assets .................................................. (325) 108
Accounts payable and accrued liabilities ...................... (411) 263
Accrued compensation .......................................... (287) 95
Deferred revenue .............................................. 1,739 1,922
-------- --------
Net cash used in operating activities ...................... (2,042) (2,934)
-------- --------
INVESTING ACTIVITIES
Capital expenditures ................................................. (552) (322)
Purchases of investments ............................................. (6,316) --
Sales of investments ................................................. 8,500 1,099
-------- --------
Net cash provided by investing activities .................. 1,632 777
-------- --------
FINANCING ACTIVITIES
Repayment of note receivable from officer ............................ -- 160
Prepaid offering expenses ............................................ -- (442)
Proceeds from issuance of common stock, net of repurchases............ 466 759
Principal payments under capital lease obligations ................... (33) (20)
-------- --------
Net cash from financing activities ......................... 433 457
-------- --------
Net increase (decrease) in cash and cash equivalents ................. 23 (1,700)
Cash and cash equivalents at beginning of period ..................... $ 22,263 3,700
-------- --------
Cash and cash equivalents at end of period ........................... $ 22,286 $ 2,000
-------- ========
Supplemental disclosure of noncash investing and financing activities:
Deferred compensation reduction due to cancelled shares.... $ 257 --
======== ========
</TABLE>
See accompanying notes.
3
<PAGE> 6
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 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, 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
MARCH 31,
---------------------------
2000 1999
-------- --------
(in thousands, except
per share data)
<S> <C> <C>
Net loss ........................................................ $ (659) $ (1,620)
-------- --------
Basic and diluted:
Weighted-average shares of common stock
Outstanding .............................................. 23,258 13,410
Less weighted-average shares subject to repurchase ......... (264) (1,207)
-------- --------
Weighted-average shares used in computing
basic and diluted net loss per common share .............. 22,994 12,203
-------- --------
Basic and diluted net loss per common share ................ $ (.03) $ (.13)
======== ========
Pro forma:
Shares used above .......................................... 12,203
Pro forma adjustment to reflect weighted-average
effect of the assumed conversion of redeemable
convertible preferred stock .............................. 5,753
--------
Shares used in computing pro forma basic and
diluted net loss per share ............................... 17,956
--------
Pro forma basic and diluted net loss per share ............. $ (.09)
========
</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 3,539,217
4
<PAGE> 7
and 1,972,500 shares of common and redeemable convertible preferred stock for
the three months ended March 31, 2000 and 1999, 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
Two customers accounted for 25% and 15% of total revenues in the first
quarter of 2000. Three customers accounted for 18%, 11% and 10% of total
revenues in the first quarter of 1999.
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.
The trial in this case is scheduled to commence on November 7, 2000. The
trial date was set following a preliminary trial held in November 1999 in which
the court held that there was insufficient evidence to find that Novadigm had
engaged in "inequitable conduct" in the submission of its patent application. 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. There also can be no assurance that Novadigm will not assert
additional claims against Marimba in the future under the Novadigm Patent or any
other patent later issued to Novadigm.
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
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. 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 are designed to 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 and 1999, we continued to develop and
market our Castanet products and enhance the core Castanet infrastructure with
additional products. Also, 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 February 2000, Marimba announced the Timbale product family, which
includes two new products 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, is scheduled for release later in 2000. Timbale is licensed based on
the number of servers and the servers' configuration. There can be no assurance
that Timbale for Windows Terminal Services will be released as scheduled, or
once released, that the Timbale products will gain widespread market acceptance.
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 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.
We recognize revenue in accordance with Statement of Position or SOP No.
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
6
<PAGE> 9
transactions entered into in fiscal years beginning after March 15, 1999.
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 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. 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 primarily through a direct sales force
and also through channel partners and system integrators. Pursuant to an
agreement that expired in December 1999, Tivoli was a reseller of our products.
In addition, 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 per seat royalties
under the OEM agreement are less than the per seat prices under our reseller
agreement with Tivoli.
Tivoli has recently accounted for a decreasing percentage of our
revenues. During the first quarter 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. The decrease in Tivoli revenues as a percentage of total revenues was due
primarily to the growth in Marimba's direct sales compared to a relatively
smaller revenue contribution from Tivoli. There is no assurance that royalties
from the sale of Cross-Site will be sufficient to replace Tivoli's sales of
Castanet or that such revenues will be sustained or grow in the future. 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 March 31, 2000, we had an accumulated deficit of
approximately $19.5 million. We believe our success depends on further
increasing our customer base and on growth in the Internet infrastructure
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, 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 to date we do not believe that historical growth rates
are necessarily sustainable nor 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 months ended March 31, 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 include 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
<PAGE> 10
<TABLE>
<CAPTION>
THREE MONTHS
MARCH 31,
----------------------
2000 1999
----- -----
<S> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
License ............................. 76.3% 73.5%
Service ............................. 23.7 26.5
----- -----
Total revenues ........................ 100.0 100.0
Cost of revenues:
License ............................. 1.2 0.5
Service ............................. 8.4 10.4
----- -----
Total cost of revenues ................ 9.6 10.9
----- -----
Gross profit .......................... 90.4 89.1
Operating expenses:
Research and development ............ 24.1 30.0
Sales and marketing ................. 65.4 69.4
General and administrative .......... 12.7 14.0
Amortization of deferred compensation 3.2 2.9
----- -----
Total operating expenses .............. 105.4 116.3
----- -----
Loss from operations .................. (15.0) (27.2)
Interest income, net .................. 10.0 0.8
----- -----
Loss before income taxes .............. (5.0) (26.4)
Provision for income taxes ............ (1.2) (0.0)
----- -----
Net loss .............................. (6.2)% (26.4)%
===== =====
</TABLE>
REVENUES
Total revenues increased $4.5 million, or 72%, to $10.6 million in the
first quarter of 2000 from $6.1 million in the first quarter of 1999. Two
customers accounted for 25% and 15% of total revenues in the first quarter of
2000. Three customers accounted for 18%, 11% and 10% of total revenues in the
first quarter of 1999.
License Revenues. License revenues have been derived primarily from
sales of our Castanet products. License revenues increased $3.6 million, or 79%,
to $8.1 million in the first quarter of 2000 from $4.5 million in the first
quarter of 1999. The growth of license revenues was due to increased product
licenses sold, reflecting higher customer demand for our products, growth in our
sales organization and expansion of the Castanet product line.
Service Revenues. Service revenues include maintenance and support,
consulting and training. Service revenues increased $884,000, or 55%, to $2.5
million in the first quarter of 2000 from $1.6 million in the first quarter of
1999. As a percentage of total revenues, service revenues decreased to 23.7% in
the first quarter of 2000 from 26.5% in the first quarter of 1999. The decrease
in service revenues as a percentage of total revenues was due to relatively
higher year over year growth in license revenues, as compared to services. The
increase in service revenues, in absolute dollars, was 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 cost of third-party software products that were either integrated into our
products or resold by Marimba. Cost of license revenues were 1.2% and 0.5% of
revenues in the first quarter of 2000 and 1999. The increase in percentage from
1999 to 2000 was due primarily to the cost of a third party product resold by
Marimba in the first quarter of 2000. We expect cost of license revenues to
increase in absolute dollar amount during 2000, but to remain a relatively small
percentage of total revenues.
Cost of Service Revenues. Cost of service revenues increased to $891,000
in the first quarter of 2000 from $635,000 in the first quarter of 1999,
representing 36% and 39% of service revenue. The increase in absolute dollars of
cost of service revenues in the first quarter of 2000 compared to the first
quarter of 1999 was due primarily to growth in our customer support organization
and an increase in consulting costs commensurate with the increase in
8
<PAGE> 11
consulting revenues. The decrease in cost of service revenues as a percentage of
service revenues was due primarily 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 to
$2.5 million in the first quarter of 2000 from $1.8 million in the first quarter
of 1999. The increase in research and development expenses was due to an
increase in engineering personnel and related costs, as well as an increase in
third-party consulting costs.
Sales and Marketing. Sales and marketing expenses increased to $6.9
million in the first quarter of 2000 from $4.3 million in the first quarter of
1999. The increase in sales and marketing expenses was 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. For example, we increased the number of sales and marketing
personnel to 79 employees at March 31, 2000 from 66 employees at March 31, 1999.
In addition, during the first quarter of 2000, Marimba incurred referral fees
due to system integrators for two contracts concluded during the quarter.
General and Administrative. General and administrative expenses
increased to $1.3 million in the first quarter of 2000 from $856,000 in the
first quarter of 1999. The increase in general and administrative expenses was
due 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. 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 trial is currently scheduled to commence on
November 7, 2000. Additionally, we have incurred legal expenses related to our
patent infringement complaint against Novadigm and expect these expenses to
increase in the future. We have also incurred additional expenses associated
with being a public company and expect such costs to increase in the future.
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. Deferred compensation is being
amortized over the vesting periods of the options on a graded vesting method. We
amortized deferred compensation expense of $1.4 million during fiscal 1999 and
$251,000 during fiscal 1998. This compensation expense relates to options
awarded to individuals in all operating expense categories. The amortization of
deferred compensation, net of reductions of $257,000 in February 2000 due to
cancelled shares, will approximate $892,000 for 2000, $414,000 for 2001 and
$114,000 for 2002.
Interest Income, Net. Interest income, net increased to $1.1 million in
the first quarter of 2000 from $44,000 in the first quarter of 1999 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 March 31, 2000, our principal sources of liquidity included
approximately $22.3 million of cash and cash equivalents and $54.5 million of
investments in marketable securities. Net cash used in operating activities for
the first quarter of 2000 and 1999 reflects our net losses in these periods and
increases in accounts receivable of $3.2 million and $5.3 million, partially
offset by increases in deferred revenue of $1.7 million and $1.9 million.
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
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of our stockholders would be reduced. Furthermore, these equity securities might
have rights, preferences or privileges senior to our common stock.
YEAR 2000 COMPLIANCE
Our Product Testing and Licensing
We have tested all of our products for Year 2000 compliance and
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
and we are not aware of any material problems related to versions of Castanet
prior to version 3.2.
Our Internal Systems
Our remediation of internal systems included 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 applied vendor-supplied Year
2000 compliant upgrades to many of our internal systems.
Results of Year 2000 Remediation
We are not aware of any material problems resulting from Year 2000
issues, either with our products, our internal systems, or the products and
services of third parties. We will continue to monitor our mission critical
computer applications and those of our suppliers and vendors throughout the year
2000 to ensure that any latent Year 2000 matters that may arise are addressed
promptly.
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 March 31, 2000, we had an accumulated deficit of
$19.5 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
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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.
Despite our sequential revenue growth from the fourth quarter of 1999 to
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 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:
- 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 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
We expect to continue to derive our revenues primarily from our Castanet
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. Furthermore,
new products such as DocService and our recently released Timbale for Server
Management 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 Develop and Introduce New Products
To provide a comprehensive Internet infrastructure 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
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
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could be seriously harmed. Furthermore, new products such as DocService and our
recently released Timbale for Server Management could fail to meet customer
expectations or achieve widespread market acceptance.
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.
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 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 Have a Long Sales Cycle that Depends upon Factors Outside Our Control
A customer's decision to purchase 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 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 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
Pursuant to an agreement that expired in December 1999, Tivoli was a
reseller of our products. In addition, 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 per seat royalties under the OEM agreement are less than the
per seat prices under our reseller agreement with Tivoli.
Tivoli has recently accounted for a decreasing percentage of our
revenues. During the first quarter 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. The decrease in Tivoli revenues as a percentage of total revenues was due
primarily to the growth in
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Marimba's direct sales compared to a relatively smaller revenue contribution
from Tivoli. There is no assurance that royalties from the sale of Cross-Site
will be sufficient to replace Tivoli's sales of Castanet or that such revenues
will be sustained or grow in the future. 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:
- Our paying monetary damages, which could be tripled if the
infringement is found to have been willful;
- The issuance of a preliminary or permanent injunction requiring
us to stop selling Castanet in its current form;
- Our having to redesign Castanet, which could be costly and
time-consuming and could substantially delay Castanet shipments,
assuming that a redesign is feasible;
- Our having to reimburse Novadigm for some or all of its
attorneys' fees;
- 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
- 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. These same results could also occur with respect to our other products
which rely on or are built upon the Castanet infrastructure. 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. There also can be no assurance that
Novadigm will not assert additional claims against Marimba in the future under
the Novadigm Patent or any other patent later issued to Novadigm.
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
- Desktop software management suites.
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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 services
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. 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 you 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:
- 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.
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 former reseller of our
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products, accounted for a significant amount of our revenues in 1998 and 1997,
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 our products to a greater
number of enterprises and generate increased revenues. Recently, we have 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 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 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 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 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, 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.
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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, and our Chief Technical
Officer, Arthur van Hoff. Effective May 1, 2000, Steve Williams relinquished his
position as Executive Vice President, Worldwide Sales and Chief Operating
Officer to pursue another career opportunity. Although Mr. Williams will be
joining Marimba's board of directors, at this time we have not named a
replacement for Mr. Williams in his capacity as the Chief Operating Officer.
Also, in April 2000, we announced that our Chief Financial Officer, Fred Gerson,
would resign in October 2000, to be replaced at that time by the current Vice
President of Finance.
We may not be successful in attracting a qualified senior management
individual to replace Mr. Williams 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 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 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 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. 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.
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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 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. 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.
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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
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.
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 levels anticipated by us. 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,
a 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 investments
are in short-term instruments. Due to the nature of our short-term investments,
we have concluded that there is no material market risk exposure. Therefore, no
quantitative tabular disclosures are required.
Our investment policy requires us to invest funds in excess of current
operating requirements in obligations of the U.S. government and its agencies
and investment grade obligations of state and local governments and U.S.
corporations.
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PART II. OTHER INFORMATION
MARIMBA, INC.
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.
The trial in this case is scheduled to commence on November 7, 2000. The
trial date was set following a preliminary trial held in November 1999 in which
the court held that there was insufficient evidence to find that Novadigm had
engaged in "inequitable conduct" in the submission of its patent application. 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-
19
<PAGE> 22
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 products.
A failure to prevail in the litigation could result in:
- 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 successfully competed with Novadigm
for a sale;
- the issuance of a preliminary or permanent injunction requiring
us to stop selling Castanet in its current form;
- our having to redesign Castanet, which could be costly and time
consuming and could substantially delay Castanet shipments,
assuming that a redesign is feasible;
- our having to reimburse Novadigm for some or all of its
attorneys' fees;
- 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
- 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. These same results could also occur with respect to our other products
which rely on or are built upon the Castanet infrastructure. 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. There also can be no assurance that Novadigm
will not assert additional claims against Marimba in the future under the
Novadigm Patent or any other patent later issued to Novadigm.
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. A hearing by the court to construe the meaning of the claims of the Marimba
Patent has been scheduled for October 2, 2000. 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.
None.
20
<PAGE> 23
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).
10.5 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(1) 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(1) 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(1) 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(1) 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).
10.12 Reseller License Guide to Reseller Agreement between Tivoli
Systems, Inc. and the Registrant dated
</TABLE>
21
<PAGE> 24
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
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(1) 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 - incorporated
herein by reference to the Company's Quarterly Report on Form
10-Q filed on August 12, 1999.
10.17 Lease between ilicon, Inc. and Registrant dated February 27,
2000 incorporated herein by reference to the Company's Annual
Report on Form 10-K filed on March 27, 2000.
27.1 Financial Data Schedule (electronic filing only).
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>
- --------------
(1) Confidential treatment requested.
(b) Reports on Form 8-K.
None.
22
<PAGE> 25
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: May 11, 2000 By: /s/ Fred M. Gerson
-----------------------------
Chief Financial Officer
(Principal Financial and
Accounting Officer)
23
<PAGE> 26
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).
10.5 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(1) 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(1) 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(1) 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(1) 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).
10.12 Reseller License Guide to Reseller Agreement between Tivoli
Systems, Inc. and the Registrant dated
</TABLE>
<PAGE> 27
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
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(1) 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 - incorporated
herein by reference to the Company's Quarterly Report on Form
10-Q filed on August 12, 1999.
10.17 Lease between ilicon, Inc. and Registrant dated February 27,
2000 incorporated herein by reference to the Company's Annual
Report on Form 10-K filed on March 27, 2000.
27.1 Financial Data Schedule (electronic filing only).
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>
- --------------
(1) Confidential treatment requested.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CONTAINED IN MARIMBA'S 10-Q FOR THE
QUARTERLY PERIOD ENDED MARCH 31, 2000 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-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 22,286
<SECURITIES> 54,541
<RECEIVABLES> 10,670
<ALLOWANCES> (116)
<INVENTORY> 0
<CURRENT-ASSETS> 78,260
<PP&E> 6,030
<DEPRECIATION> (2,888)
<TOTAL-ASSETS> 91,608
<CURRENT-LIABILITIES> 18,808
<BONDS> 0
0
0
<COMMON> 93,647
<OTHER-SE> (20,895)
<TOTAL-LIABILITY-AND-EQUITY> 91,608
<SALES> 8,061
<TOTAL-REVENUES> 10,567
<CGS> 132
<TOTAL-COSTS> 1,023
<OTHER-EXPENSES> 11,139
<LOSS-PROVISION> 12
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (540)
<INCOME-TAX> 119
<INCOME-CONTINUING> (659)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (659)
<EPS-BASIC> .03
<EPS-DILUTED> .03
</TABLE>
