<PAGE>
FILED PURSUANT TO RULE 424(b)(3)
REGISTRATION NO. 333-83491
PROSPECTUS SUPPLEMENT DATED
OCTOBER 14, 1999 TO PROSPECTUS
DATED JULY 22, 1999
On October 12, 1999, TIBCO Software Inc. filed a quarterly report on Form
10-Q for the quarter ended August 27, 1999. This prospectus supplement is being
filed to incorporate into the prospectus dated July 22, 1999 the financial
information contained in TIBCO Software's quarterly report on 10-Q.
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TIBCO SOFTWARE INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
August November 30,
31, 1999 1998
-------- ------------
(unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents.............................. $ 16,344 $ 547
Deposits held by Reuters............................... -- 15,423
Short-term investments................................. 110,326 --
Accounts receivable, net of allowances................. 23,426 13,234
Due from related parties............................... 2,799 1,829
Other current assets................................... 2,743 1,853
-------- --------
Total current assets................................. 155,638 32,886
Property and equipment, net.............................. 9,893 3,171
Other assets............................................. 797 232
-------- --------
$166,328 $ 36,289
======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable....................................... $ 5,535 $ 3,190
Accrued liabilities.................................... 14,157 7,834
Deferred revenue....................................... 5,972 3,561
-------- --------
Total current liabilities............................ 25,664 14,585
-------- --------
Stockholders' equity:
Convertible Preferred Stock............................ -- 27
Common Stock........................................... 60 22
Additional paid in capital............................. 181,053 46,499
Unearned compensation.................................. (9,881) (7,230)
Accumulated other comprehensive loss................... (66) --
Accumulated deficit.................................... (30,502) (17,614)
-------- --------
Total stockholders' equity........................... 140,664 21,704
-------- --------
$166,328 $ 36,289
======== ========
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
1
<PAGE>
TIBCO SOFTWARE INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months
Ended Nine Months Ended
August 31, August 31,
---------------- ------------------
1999 1998 1999 1998
------- ------- -------- --------
(unaudited)
<S> <C> <C> <C> <C>
License revenue:
Non-related parties.................... $ 8,239 $ 2,853 $ 22,906 $ 8,995
Related parties........................ 4,917 493 12,308 2,205
------- ------- -------- --------
Total license revenue................ 13,156 3,346 35,214 11,200
------- ------- -------- --------
Service and maintenance revenue:
Non-related parties.................... 10,238 6,900 25,567 21,834
Related parties........................ 642 626 2,326 2,692
------- ------- -------- --------
Total service and maintenance
revenue............................. 10,880 7,526 27,893 24,526
------- ------- -------- --------
Total revenue........................ 24,036 10,872 63,107 35,726
Cost of revenue.......................... 9,738 6,537 25,978 19,719
------- ------- -------- --------
Gross profit............................. 14,298 4,335 37,129 16,007
------- ------- -------- --------
Operating expenses:
Research and development............... 7,032 4,050 18,943 10,107
Sales and marketing.................... 8,093 3,994 21,022 10,416
General and administrative............. 1,756 958 5,291 2,592
Stock compensation..................... 2,021 1,465 5,429 3,535
------- ------- -------- --------
Total operating expenses............. 18,902 10,467 50,685 26,650
------- ------- -------- --------
Loss from operations..................... (4,604) (6,132) (13,556) (10,643)
Other income, net........................ 675 315 668 885
------- ------- -------- --------
Net loss................................. $(3,929) $(5,817) $(12,888) $ (9,758)
======= ======= ======== ========
Net loss per share:
Basic and diluted...................... $ (0.10) $ (0.29) $ (0.49) $ (0.50)
======= ======= ======== ========
Weighted average shares................ 37,857 20,129 26,511 19,653
======= ======= ======== ========
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
2
<PAGE>
TIBCO SOFTWARE INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
August 31,
-------------------
1999 1998
--------- --------
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss................................................. $ (12,888) $ (9,758)
Adjustments to reconcile net loss to net cash used for
operating activities:
Depreciation and amortization.......................... 1,343 720
Amortization of unearned compensation.................. 5,429 3,535
Changes in assets and liabilities:
Accounts receivable.................................. (10,192) (1,510)
Due from related parties............................. (970) 2,380
Other assets......................................... (1,463) 254
Accounts payable..................................... 2,345 (461)
Accrued liabilities.................................. 6,323 (50)
Deferred revenue..................................... 2,411 (551)
--------- --------
Net cash used for operating activities............. (7,662) (5,441)
--------- --------
Cash flows from investing activities:
Deposits held by Reuters............................... 15,423 (10,911)
Purchases of investments............................... (110,384) --
Purchases of property and equipment.................... (8,065) (1,640)
--------- --------
Net cash used for investing activities............. (103,026) (12,551)
--------- --------
Cash flows from financing activities--
Proceeds from issuance of capital stock................ 126,485 12,367
--------- --------
Net change in cash and cash equivalents.................. 15,797 (5,625)
Cash and cash equivalents at beginning of period......... 547 8,059
--------- --------
Cash and cash equivalents at end of period............... $ 16,344 $ 2,434
========= ========
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
3
<PAGE>
TIBCO SOFTWARE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation
The accompanying unaudited financial statements have been prepared by TIBCO
Software Inc. (the "Company") in accordance with the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted in
accordance with such rules and regulations. In the opinion of management, the
accompanying unaudited financial statements reflect all adjustments, consisting
only of normal recurring adjustments, necessary to present fairly the financial
position of the Company, and its results of operations and cash flows. These
financial statements should be read in conjunction with the audited financial
statements and notes thereto for the fiscal year ended November 30, 1998, the
eleven months ended November 30, 1997 and the year ended December 31, 1996,
included in the Company's Registration Statement on Form S-1.
The Company's fiscal year ends on November 30th and its quarters end on the
last Friday of February, May and August. For ease of readership throughout this
report, the Company has indicated its interim fiscal periods as having ended on
the last day of the month in which such period actually ended.
The results of operations for the three months and nine months ended August
31, 1999 are not necessarily indicative of results that may be expected for any
other interim period or for the full fiscal year ending November 30, 1999.
In June 1999, the Company's Board of Directors approved a one for two
reverse stock split of the Company's outstanding shares which became effective
on July 13, 1999. All share and per share information included in these
financial statements have been retroactively adjusted to reflect this reverse
stock split.
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All intercompany accounts and transactions have been
eliminated in consolidation.
2. Initial Public Offering
On July 13, 1999, the Company completed an initial public offering, which
consisted of approximately 9,162,000 shares of Common Stock (including
1,095,000 shares purchased by the underwriters over-allotment option, 500,000
sold directly to Sun Microsystems, and 266,667 shares sold directly to Yahoo!
Inc.) at $15.00 per share. Net proceeds aggregated approximately $123.6
million.
Upon closing of the initial public offering, all of the Company's
Convertible Preferred Stock converted to Common Stock. After the offering, the
Company's authorized capital consisted of 300,000,000 shares of Common Stock,
of which 60,360,563 shares were outstanding at August 31, 1999 and 25,000,000
shares of Preferred Stock, none of which were outstanding at August 31, 1999.
3. Cash, Cash Equivalents and Investments
The Company considers all highly liquid investment securities with original
maturities of three months or less to be cash equivalents. Short-term
investments consist primarily of highly liquid debt securities.
Management determines the appropriate classification of marketable
securities at the time of purchase and evaluates such designation as of each
balance sheet date. To date, all marketable securities have been classified as
available-for-sale and are carried at fair value with unrealized gains and
losses, if any, included in stockholders' equity. Unrealized gains and losses
were not material for all periods presented. Realized gains and losses and
declines in value of securities judged to be other than temporary are included
in interest income. Interest and dividends on all securities are included in
interest income.
4
<PAGE>
4. Comprehensive Net Loss
Comprehensive loss is comprised of net loss, foreign currency translation
gains or losses and unrealized gains or losses on available-for-sale marketable
securities. The Company's unrealized gains and losses on available for sale
marketable securities and foreign currency translation gains or losses have
been insignificant for all periods presented.
5. Revenue Recognition
License revenue consists principally of revenue earned under software
license agreements and is generally recognized when the software has been
shipped, there are no significant obligations remaining, and collection is
probable. When contracts contain multiple elements wherein vendor specific
objective evidence exists for all undelivered elements, the Company accounts
for the delivered elements in accordance with the "residual method" prescribed
by Statement of Position ("SOP") 98-9. Any maintenance included in these
arrangements is recognized ratably over the term of the arrangement. Revenue
from subscription license agreements, which include software, rights to future
software and maintenance, is deferred and recognized ratably over the term of
the subscription period. Software royalties and product fees earned through our
distribution and reseller partners are generally recognized when the partner
sells through to its customer.
Service revenue consists primarily of revenue received for performing
product development, implementation of system solutions, on-site support,
consulting and training. Service revenue is generally recognized as the
services are performed or on the percentage-of-completion method of accounting,
depending on the nature of the project. Under the percentage-of-completion
method, revenue recognized is that portion of the total contract price equal to
the ratio of costs expended to date to the anticipated final total costs, based
on current estimates of the costs to complete the project. To the extent that
these arrangements include license fees, such fees are recorded as license
revenue based on the percentage-of-completion ratio. If the total estimated
costs to complete a project exceed the total contract amount, indicating a
loss, the entire anticipated loss would be recognized currently.
Maintenance revenue consists of fees for providing software updates and
technical support for software products (post-contract support or "PCS").
Maintenance revenue is recognized ratably over the term of the agreement.
Payments received in advance of services performed are recorded as deferred
revenue. Allowances for estimated future returns and discounts are provided for
upon recognition of revenue.
6. Net Loss per Share
Basic net loss per share is computed using the weighted average number of
shares of Common Stock. Diluted net loss per share is computed using the
weighted average number of shares of Common Stock and common equivalent shares
outstanding during the period if their effect is dilutive. Common equivalent
shares consist of Common Stock subject to repurchase and incremental shares of
Common Stock issuable upon the exercise of stock options (using the treasury
stock method) and upon the conversion of Convertible Preferred Stock.
5
<PAGE>
The following table sets forth the computation of basic and diluted net loss
per share for the periods indicated (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Three Months
Ended Nine Months
August 31, Ended August 31,
---------------- -----------------
1999 1998 1999 1998
------- ------- -------- -------
(unaudited)
<S> <C> <C> <C> <C>
Net loss................................. $(3,929) $(5,817) $(12,888) $(9,758)
======= ======= ======== =======
Basic and diluted:
Weighted average shares outstanding.... 39,928 21,980 28,565 21,313
Weighted average shares subject to
repurchase............................ (2,071) (1,851) (2,054) (1,660)
------- ------- -------- -------
Weighted average shares used to compute
basic and diluted net loss per share.... 37,857 20,129 26,511 19,653
======= ======= ======== =======
Net loss per share--basic and diluted.... $ (0.10) $ (0.29) $ (0.49) $ (0.50)
======= ======= ======== =======
</TABLE>
The following table sets forth potential common equivalent shares that are
not included in the diluted net loss per share calculation above because to do
so would be anti-dilutive for the periods indicated (in thousands):
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
August 31, August 31,
------------- -------------
1999 1998 1999 1998
------ ------ ------ ------
(unaudited)
<S> <C> <C> <C> <C>
Weighted average effect of potential common
equivalent shares:
Series A Preferred Stock........................ 11,429 20,000 17,143 20,000
Series B Preferred Stock........................ 2,494 4,365 3,741 4,365
Series C Preferred Stock........................ 1,635 2,861 2,453 2,526
Common Stock subject to repurchase.............. 2,071 1,851 2,054 1,660
Stock options................................... 8,855 5,359 7,831 3,767
------ ------ ------ ------
26,484 34,436 33,222 32,318
====== ====== ====== ======
</TABLE>
7. Related Party Transactions
The Company has transactions with Cisco Systems, Inc., a principal
stockholder of the Company, and with Reuters Group PLC, including its wholly-
owned subsidiaries (collectively, "Reuters"), a majority stockholder of the
Company. In addition to the related party information disclosed in the
financial statements, the Company purchased $4.9 million in fixed assets,
incurred $0.5 million for administrative services and incurred $0.4 million for
fixed asset and building rental from Reuters during the third quarter of fiscal
1999.
8. Subsequent Event
In September 1999, the Company agreed to acquire InConcert, Inc., a
subsidiary of Xerox Corporation and a developer of business integration
solutions for telecommunication companies, in a $34 million cash transaction.
Completion of the acquisition is subject to customary regulatory review. The
Company expects to close the transaction during the fourth quarter of fiscal
1999 and to account for the acquisition using the purchase method of
accounting.
The Company will evaluate the allocation of the purchase price to the net
assets acquired, which may include in-process technology that will be written-
off in the period acquired and goodwill and other intangibles that will be
amortized over their period of benefit. The allocation of the Company's
aggregate purchase price to the tangible and identifiable intangible net assets
acquired will be based on independent appraisals and estimates of fair values.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Words such as
"anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates"
and similar expressions identify such forward-looking statements. These
forward-looking statements are subject to risks and uncertainties that could
cause actual results to differ materially from those indicated in the forward-
looking statements. Factors which could cause actual results to differ
materially include those set forth in the following discussion, and, in
particular, the risks discussed below under the subheading "Additional Risk
Factors that Could Affect Operating Results and Market Price of Stock." Unless
required by law, the Company undertakes no obligation to update publicly any
forward-looking statements.
Overview
TIBCO Software Inc. ("TIBCO Software" or the "Company") develops and markets
a suite of software products that enables businesses to link internal
operations, business partners and customer channels in real-time. Our
TIB/ActiveEnterprise product suite facilitates the distribution of information
and integration of business processes by connecting applications to a network
through a technology called The Information Bus or the TIB. We are the
successor to a portion of the business of Teknekron Software Systems, Inc.
("Teknekron"). Teknekron developed software for the integration and delivery of
market data, such as stock quotes, news and other financial information, in
trading rooms of large banks and financial services institutions. In 1992,
Teknekron expanded its development efforts to include solutions designed to
enable complex and disparate manufacturing equipment and software
applications--primarily in the semiconductor fabrication market--to communicate
within the factory environment. Teknekron was acquired by Reuters, the global
news and information group, in 1994. Following the acquisition, continued
development of the TIB technology was undertaken to expand its use in the
financial services markets. In January 1997, our company, TIBCO Software, was
established as an entity separate from Teknekron.
We were formed to create and market software solutions for use in the
integration of business information, processes and applications in diverse
markets and industries outside the financial services sector.
During fiscal 1998, we expanded our product development activities and
continued to invest in creating a product marketing organization, engaging in
advertising programs to build our corporate brand identity, building our
domestic and international direct sales force and creating a general and
administrative infrastructure. During the second half of fiscal 1998, we began
initial shipments of our TIB/ActiveEnterprise products, to companies such as
PageNet, Philips Medical, Compaq and 3Com. We also formally introduced our
TIBCO.net product and service offering for creating and managing e-business
activities, and generated revenue from Yahoo! and Netscape for enabling their
stock quotation services. We intend to continue to fund the development of
additional TIB/ActiveEnterprise products and to increase our sales and
marketing activities at least through the end of fiscal 2000.
Our revenue today consists primarily of license and product fees from our
customers and distributors, including Reuters pursuant to our license agreement
with them, both of which are primarily attributable to sales of our
TIB/ActiveEnterprise product suite. In addition, we receive fees from our
customers for providing project integration services. We also receive revenue
from our TIBCO.net customers. Revenue from these customers is a combination of
fixed service charges, a percentage of the advertising fees generated from
their TIBCO.net-enabled web pages and a charge for each user visit to these web
pages. We also receive a limited amount of revenues from our strategic
relationships with hardware vendors and systems integrators.
We recognize revenue from software license fees upon shipment of our
software products to our customers as long as we have no significant
obligations remaining and we believe that collection of the resulting
receivable is probable. When contracts contain multiple elements wherein vendor
specific objective
7
<PAGE>
evidence exists for all undelivered elements, the Company accounts for the
delivered elements in accordance with the "residual method" prescribed by
Statement of Position ("SOP") 98-9. Any maintenance included in these
arrangements is recognized ratably over the term of the arrangement. Revenue
from subscription license agreements, which include software, rights to future
software and maintenance, is deferred and recognized ratably over the term of
the subscription period. Software royalties and product fees earned through our
distribution and reseller partners are generally recognized when the partner
sells the software through to its customer.
Service revenue is generally recognized as the services are performed or on
the percentage-of-completion method. Revenue recognized is that portion of the
total contract price equal to the ratio of costs expended to date to the
anticipated final total costs, based on current estimates of the costs to
complete the project. To the extent that these arrangements include license
fees, such fees are recorded as license revenue based on the percentage-of-
completion ratio. If the total estimated costs to complete a project exceed the
total contract amount, indicating a loss, the entire anticipated loss would be
recognized currently.
Maintenance revenue consists of fees for providing software updates and
technical support for software products (post-contract support or "PCS").
Maintenance revenue is recognized ratably over the term of the agreement.
Payments received in advance of services performed are recorded as deferred
revenue. Allowances for estimated future returns and discounts are provided for
upon recognition of revenue.
Our distributors generally pay us negotiated royalties on their sales of our
products. Reuters distributes our products to customers in the financial
services market segment. Through December 2001, Reuters must pay us product
fees based on a percentage of the revenue it derives from the sale of licenses
and maintenance for our products. Under our license agreement with Reuters,
this includes minimum guaranteed product fees of $16 million payable in
calendar 1999, with $7.1 million payable in the remainder of calendar 1999,
$18 million payable in calendar 2000 and $20 million payable in calendar 2001.
We will recognize revenue in the amount of these guaranteed product fees
ratably over the contractual period. In any period where actual product fees
exceed the minimum guaranteed product fees for the year, the difference between
the actual product fees and minimum guaranteed product fees will be recognized
as revenue.
Results of Operations
The following table sets forth our results of operations expressed as
percentages of revenue:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
August 31, August 31,
---------------- --------------
1999 1998 1999 1998
------ ------ ----- -----
<S> <C> <C> <C> <C>
Revenue:
License................................. 55 % 31 % 56 % 31 %
Service and maintenance................. 45 69 44 69
------ ------ ----- -----
Total revenue......................... 100 100 100 100
Cost of revenue........................... 41 60 41 55
------ ------ ----- -----
Gross profit.............................. 59 40 59 45
------ ------ ----- -----
Operating expenses:
Research and development................ 29 37 30 28
Sales and marketing..................... 34 37 33 29
General and administrative.............. 7 9 8 7
Stock and other compensation............ 8 14 9 11
------ ------ ----- -----
Total operating expenses.............. 78 97 80 75
------ ------ ----- -----
Loss from operations...................... (19) (57) (21) (30)
Other income, net......................... 3 3 1 3
------ ------ ----- -----
Net loss.................................. (16)% (54)% (20)% (27)%
====== ====== ===== =====
</TABLE>
8
<PAGE>
Total Revenue. Total revenue increased by $13.1 million, or 121%, from $10.9
million in the third quarter of fiscal 1998 to $24.0 million in the third
quarter of fiscal 1999. In the third quarter of fiscal 1998, Cedel Global
Services accounted for 21% of total revenue. In the third quarter of fiscal
1998, revenue from Reuters accounted for 10% of our total revenue, while in the
corresponding period of fiscal 1999, revenue from Reuters accounted for 24% of
our total revenue. Total revenue increased by $27.4 million, or 77%, from
$35.7 million in the first nine months of fiscal 1998 to $63.1 million in the
first nine months of fiscal 1999. In the first nine months of fiscal 1998, NEC
Electronics and Cedel Global Services accounted for 10% and 18% of total
revenue, while in the corresponding period of 1999 Cedel Global Services
accounted for 10% of total revenue. In the first nine months of fiscal 1998,
revenue from Reuters accounted for 14% of our total revenue, while in the
corresponding period of fiscal 1999, revenue from Reuters accounted for 20% of
our total revenue. In fiscal 1998, revenue from Reuters consisted primarily of
maintenance and consulting fees for services we performed for Reuters, while in
fiscal 1999, revenue from Reuters consisted primarily of product fees from
Reuters, on its sales of our products. Beginning in April 1999, under our
license agreement with Reuters, minimum guaranteed product fees from Reuters
will be approximately $1.8 million per month for the remainder of calendar
1999.
License Revenue. License revenue increased by $9.9 million, or 293%, from
$3.3 million or 31% of total revenue in the third quarter of fiscal 1998 to
$13.2 million or 55% of total revenue in the third quarter of fiscal 1999.
License revenue increased by $24.0 million, or 214%, from $11.2 million or 31%
of total revenue in the first nine months of fiscal 1998 to $35.2 million or
56% of total revenue in the first nine months of fiscal 1999. This increase was
due primarily to increased sales of our TIB/ActiveEnterprise products, which
were introduced during the second half of fiscal 1998. The growth in license
revenue as a percentage of total revenue reflects our strategy of pursuing a
license-driven business model. We believe that license revenue will continue to
grow moderately as a percentage of total revenue for the remainder of fiscal
1999.
Service and Maintenance. Total service and maintenance revenue increased
$3.4 million or 45%, from $7.5 million or 69% of total revenue for the third
quarter of fiscal 1998 to $10.9 million, or 45% of total revenue for the third
quarter of fiscal 1999. Total service and maintenance revenue increased $3.4
million or 14%, from $24.5 million or 69% of total revenue for the first nine
months of fiscal 1998 to $27.9 million, or 44% of total revenue in the first
nine months of fiscal 1999.
Cost of Revenue. Cost of revenue consists primarily of salaries and third-
party contractor and associated expenses primarily related to providing project
implementation services and, to a lesser extent, the cost of providing
maintenance and customer support services. The majority of our cost of revenue
is directly related to our service revenue. Cost of revenue increased by $3.2
million, or 49%, from $6.5 million or 60% of total revenue in the third quarter
of fiscal 1998 to $9.7 million or 41% of total revenue in the third quarter of
fiscal 1999. Cost of revenue increased by $6.3 million, or 32%, from $19.7
million or 55% of total revenue in the first nine months of fiscal 1998 to
$26.0 million or 41% of total revenue in the first nine months of fiscal 1999,
primarily as a result of using third-party contractors to support our contract
with Cedel Global Services and hiring additional technical staff to support our
growing installed base of customers. The decrease in cost of revenue as a
percentage of total revenue was due primarily to the increase in license
revenue as a percentage of total revenue.
Research and Development Expenses. Research and development expenses consist
primarily of personnel and related costs associated with the development of our
TIB/ActiveEnterprise product suite. Research and development expenses increased
by $3.0 million, or 74%, from $4.0 million or 37% of total revenue in the third
quarter of fiscal 1998 to $7.0 million or 29% of total revenue in the third
quarter of fiscal 1999. Research and development expenses increased by $8.8
million, or 87%, from $10.1 million or 28% of total revenue in the first nine
months of fiscal 1998 to $18.9 million or 30% of total revenue in the first
nine months of fiscal 1999. This increase was due primarily to increases in our
development staff as we continued to expand the TIB/ActiveEnterprise product
suite as well as upgrading the performance of existing products. We believe
that continued investment in research and development is critical to attaining
our strategic objectives and, as a result, expect that spending on research and
development will continue to increase moderately in absolute dollars but remain
relatively stable as a percentage of total revenue for the remainder of fiscal
1999.
9
<PAGE>
Sales and Marketing Expenses. Sales and marketing expenses consist primarily
of personnel and related costs of our direct sales force and marketing staff
and marketing programs, including advertising, trade shows, promotional
materials and customer conferences. Sales and marketing expenses increased by
$4.1 million, or 103%, from $4.0 million or 37% of total revenue for the third
quarter of fiscal 1998 to $8.1 million or 34% of total revenue in the third
quarter of fiscal 1999. Sales and marketing expenses increased by $10.6
million, or 102%, from $10.4 million or 29% of total revenue in the first nine
months of fiscal 1998 to $21.0 million or 33% of total revenue in the first
nine months of fiscal 1999. This increase resulted primarily from the expansion
of our domestic and international direct sales force devoted to selling our
expanding suite of TIB/ActiveEnterprise products initially released in the
second half of fiscal 1998. We intend to continue to increase staff in our
direct sales organization and develop product marketing and branding campaigns
and, accordingly, expect that sales and marketing expenditures will continue to
increase substantially in absolute dollars and will increase moderately as a
percentage of total revenue over the remainder of fiscal 1999.
General and Administrative Expenses. General and administrative expenses
consist primarily of personnel and related costs for general corporate
functions, including executive, finance, accounting, human resources and
information systems. General and administrative expenses increased by $0.8
million, or 83%, from $1.0 million in the third quarter of fiscal 1998 to $1.8
million in the third quarter of fiscal 1999. General and administrative
expenses increased by $2.7 million, or 104%, from $2.6 million in the first
nine months of fiscal 1998 to $5.3 million in the first nine months of fiscal
1999, primarily as a result of increased staffing and associated operational
costs related to building our general and administrative infrastructure. We
believe that general and administrative expenses will increase moderately in
absolute dollars and increase slightly as a percentage of total revenue for the
remainder of fiscal 1999 as we expand our infrastructure to support a larger,
more global organization and continue our transition to operating as a stand-
alone entity.
Stock and Other Compensation. In connection with the grant of stock options
to employees and non-employee directors during fiscal 1997 and 1998 and the
first nine months of fiscal 1999, we recorded unearned compensation of $23.5
million, representing the difference between the deemed fair value of our
Common Stock at the date of grant and the exercise price of such options. Such
an amount, net of amortization, is presented as a reduction of stockholders'
equity and amortized over the vesting period of the applicable option. As a
result, we expect to amortize $1.4 million, $4.1 million, $2.4 million, $1.3
million, $0.5 million and $0.2 million of deferred compensation in the fourth
quarter of fiscal 1999, and in 2000, 2001, 2002, 2003 and 2004, respectively.
Stock and other compensation increased from $3.5 million in the first nine
months of fiscal 1998 to $5.4 million in the first nine months of fiscal 1999
due primarily to the grant of stock options to new employees. In addition, the
compensation expense related to options granted to consultants is revalued at
each period end using the Black-Scholes option pricing model. As a result,
fluctuations in our stock price will result in fluctuations in the
corresponding option valuation, thereby increasing or decreasing the
compensation expense for the period.
Other Income, Net. Other income, net includes interest and other
miscellaneous income and expense items. Other income, net decreased from
$885,000 in the first nine months of fiscal 1998 to $668,000 in the first nine
months of fiscal 1999. This decrease was due primarily to a lower average
investment balance, a loss on the disposal of fixed assets and a foreign
currency translation loss related to our foreign sales offices.
Liquidity and Capital Resources
Prior to our initial public offering, we funded our operations primarily
through the sale of our capital stock. On July 13, 1999, we completed an
initial public offering, which consisted of 9,161,667 shares of our common
stock (including 1,095,000 shares purchased by the underwriters pursuant to
their over-allotment option, 500,000 shares sold directly to Sun Microsystems,
and 266,667 shares sold directly to Yahoo! Inc.) at $15.00 per share. Net
proceeds aggregated approximately $123.6 million (net of underwriters'
commission and offering expenses of $13.8 million).
Net cash used for operating activities in the nine months ended August 31,
1998 was $5.4 million, resulting primarily from our net loss. Net cash used for
operating activities in the nine months ended
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August 31, 1999 was $7.7 million, primarily reflecting the net loss reported
for the period as well as an increase in accounts receivable.
Net cash used in investing activities in the nine months ended August 31,
1998 was $12.6 million. Net cash used in investing activities in this period
was related primarily to the purchase of property and equipment, principally
desktop and network hardware and software. Net cash used for investing
activities for the nine months ended August 31, 1999 was $103 million,
primarily related to the purchase of short-term investments and to a lesser
extent purchase of property and equipment. The increase in purchases of
property and equipment relates primarily to the purchase of $4.9 million of
equipment and leasehold improvements from Reuters.
Net cash provided by financing activities in the nine months ended August
31, 1998 and the nine months ended August 31, 1999 was $12.4 and $126.5
million, respectively. Cash provided by financing activities was the result of
net proceeds from the sale of our capital stock.
During the remainder of fiscal 1999, we anticipate capital expenditures of
approximately $1.5 million. Our capital expenditures may increase in the future
consistent with our anticipated growth in operations, infrastructure and
personnel.
We anticipate continued growth in our operating expenses for the foreseeable
future, particularly in sales and marketing expenses and, to a lesser extent,
research and development and general and administrative expenses. As a result,
we expect our operating expenses and capital expenditures to constitute the
primary use of our cash resources. In addition, we may require cash resources
to fund acquisitions or investments in complementary businesses, technologies
or product lines. We believe that the net proceeds from our initial public
offering, together with our current cash and cash equivalents, will be
sufficient to meet our anticipated cash requirements for working capital and
capital expenditures through the end of fiscal 2000.
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