<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-Q
[MARK ONE]
[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: 000-26735
TELEMATE.NET SOFTWARE, INC.
(Exact name of registrant as specified in Its charter)
<TABLE>
<S> <C>
GEORGIA 58-1656726
(State or Other Jurisdiction of Incorporation (I.R.S. Employer Identification No.)
or Organization)
4250 PERIMETER PARK SOUTH, SUITE 200 30341
ATLANTA, GEORGIA (Zip Code)
(Address of Principal Executive Offices)
</TABLE>
Registrant's telephone number, including area code: (770) 936-3700
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
The number of shares of the issuer's class of capital stock as of May 10,
2000, the latest practicable date, is as follows: 7,729,867 shares of Common
Stock, $0.01 par value.
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<PAGE> 2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
TELEMATE.NET SOFTWARE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
----------- ------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $38,467 $42,755
Trade accounts receivable, net of allowance for doubtful
accounts and returns................................... 3,830 3,467
Prepaid expenses and other current assets................. 654 518
------- -------
Total current assets.............................. 42,951 46,740
Property and equipment, net of depreciation and
amortization........................................... 2,173 1,474
Other assets.............................................. 75 60
------- -------
Total assets...................................... $45,199 $48,274
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 982 $ 1,211
Accrued expenses and other liabilities.................... 1,466 1,705
Deferred revenue.......................................... 3,325 3,041
------- -------
Total current liabilities......................... 5,773 5,957
------- -------
Total liabilities................................. 5,773 5,957
------- -------
Commitments and contingencies............................... -- --
Shareholders' equity:
Preferred stock, $.01 par value; 19,700,000 authorized and
undesignated, no shares issued and outstanding......... -- --
Common stock, $.01 par value; 100,000,000 shares
authorized, 7,607,462 shares issued and outstanding at
March 31, 2000 and 7,359,962 issued and outstanding at
December 31, 1999...................................... 76 74
Additional paid in capital................................ 52,774 52,537
Notes receivable and accrued interest from shareholders... (20) (27)
Retained earnings (accumulated deficit)................... (13,404) (10,267)
------- -------
Total shareholders' equity........................ 39,426 42,317
------- -------
Total liabilities and shareholders' equity........ $45,199 $48,274
======= =======
</TABLE>
See accompanying notes to financial statements.
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<PAGE> 3
TELEMATE.NET SOFTWARE, INC
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
2000 1999
----------- -----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C>
Revenue:
Product revenue........................................... $ 1,106 $ 1,365
Services revenue.......................................... 2,012 1,293
---------- ----------
Total revenue..................................... 3,118 2,658
Cost of revenue:
Product costs............................................. 490 265
Service costs............................................. 744 339
---------- ----------
Total cost of revenue............................. 1,234 604
Gross profit...................................... 1,884 2,054
Operating expenses:
Research and development.................................. 731 379
Sales and marketing....................................... 2,984 979
General and administrative................................ 1,824 966
---------- ----------
Total operating expenses.......................... 5,539 2,324
Operating loss.................................... (3,655) (270)
Interest income (expense):
Increase in redeemable stock purchase warrant............. -- (745)
Other interest income..................................... 519 7
Other interest expense.................................... -- (36)
---------- ----------
Total interest income (expense)................... 519 (774)
---------- ----------
Net loss before income taxes...................... (3,136) (1,044)
Provision for (benefit from) income taxes................... -- --
---------- ----------
Net loss.......................................... $ (3,136) $ (1,044)
========== ==========
Net loss per share
Basic..................................................... $ (0.42) $ (0.32)
Diluted................................................... $ (0.42) $ (0.32)
Weighted average shares outstanding:
Basic..................................................... 7,495,425 3,261,813
========== ==========
Diluted................................................... 7,495,425 3,261,813
========== ==========
</TABLE>
See accompanying notes to financial statements.
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<PAGE> 4
TELEMATE.NET SOFTWARE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
2000 1999
-------- --------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(3,136) $(1,044)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization........................ 179 71
Provision for bad debts and returns.................. 50 120
Compensation on stock options........................ 1 --
Accrued interest on shareholder notes................ (1) (6)
Amortization of discount on redeemable stock purchase
warrant............................................. -- 10
Accretion of redeemable stock purchase warrant....... -- 734
Changes in assets and liabilities:
Increase in trade accounts receivables............... (413) (43)
Increase in prepaids expenses and other current
assets.............................................. (136) (36)
(Increase) decrease in other assets.................. (15) 2
Increase (decrease) in accounts payable, accrued
expenses and other liabilities...................... (468) 123
Increase in deferred revenue......................... 284 125
------- -------
Net cash provided by (used in) operating
activities....................................... (3,655) 56
------- -------
Cash flows from investing activities:
Purchases of property and equipment....................... (878) (12)
------- -------
Net cash used in investing activities............. (878) (12)
------- -------
Cash flows from financing activities:
Repayment of credit facility.............................. -- (80)
Proceeds from the exercise of stock options............... 237 --
Payments received on notes receivable from shareholders... 8 --
------- -------
Net cash provided by (used in) financing
activities....................................... 245 (80)
------- -------
Net decrease in cash.............................. (4,288) (36)
Cash and cash equivalents at beginning of period............ 42,755 46
------- -------
Cash and cash equivalents at end of period.................. $38,467 $ 10
------- -------
Supplemental disclosure of cash -- cash paid for interest... $ -- $ 36
======= =======
</TABLE>
See accompanying notes to financial statements.
3
<PAGE> 5
TELEMATE.NET SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles. However, certain information or
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed, or
omitted, pursuant to the rules and regulations of the Securities and Exchange
Commission. In the opinion of management, the statements include all adjustments
necessary (which are of a normal and recurring nature) for the fair presentation
of the results of the interim periods presented. These financial statements
should be read in conjunction with the audited financial statements for the year
ended December 31, 1999, found in filings made by Telemate.Net Software, Inc.
with the Securities and Exchange Commission, including its Annual Report on Form
10-K filed with the Commission on March 30, 2000.
2. SHAREHOLDERS' EQUITY
On October 4, 1999, Telemate.Net Software, Inc. completed an initial public
offering of 3,500,000 shares of common stock including 3,284,000 newly issued
shares sold by Telemate.Net Software and 216,000 outstanding shares sold by
existing shareholders. The offered shares generated net proceeds to Telemate.Net
Software of approximately $42.8 million before offering expenses. Subsequently,
pursuant to the underwriters' exercise of their over-allotment option, the
selling shareholders sold an additional 100,000 shares and Telemate.Net Software
sold 165,000 shares. Telemate.Net Software received $2.1 million from the
proceeds of the sale of the 165,000 shares on November 1, 1999.
3. NET INCOME (LOSS) PER COMMON SHARE
Basic net income per share was computed using the weighted average number
of shares of common stock outstanding during the period. Diluted net income per
share would include the effect of dilutive common stock equivalents. Dilutive
common equivalent shares consist of stock options. However, because the
inclusion of the common stock equivalents would be anti-dilutive, the weighted
average number of common shares outstanding during the period for the basic and
diluted net income per share is the same.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Certain of the information included in this report, including statements
regarding our growth and operating strategy, liquidity and capital expenditures,
and trends in our industry, constitute "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, and we intend that such
forward-looking statements be subject to the safe harbors created thereby.
Examples of words indicating forward-looking statements include "believes,"
"expects" and "will." These forward-looking statements reflect our current views
with respect to future events and financial performance, but are subject to many
uncertainties and factors relating to our operations and business environment
which may cause our actual results to be materially different from any future
results expressed or implied by such forward-looking statements. Please see
Exhibit 99.1 entitled "Safe Harbor Compliance Statement" in our Annual Report on
Form 10-K filed with the Securities and Exchange Commission on March 30, 2000,
for a list of such uncertainties and factors.
OVERVIEW
Telemate.Net provides integrated network usage management solutions. From
our inception in 1986, through 1996, we focused exclusively on providing call
accounting software solutions. By the early 1990's, we had emerged as a call
accounting market leader by evolving our product line to meet the functionality
and price performance requirements of our customers. In 1996, seeking to
capitalize on the opportunity the
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Internet would present, we began researching and developing an Internet usage
management solution. In May 1997, we released the initial version of our
Internet usage management solution, which we believe was the first such product
on the market. In May 1998, we began shipping our latest generation of Internet
usage management software. In November 1998, we introduced our integrated
network usage management products, which can be used by our customers for
Internet usage management only, call accounting only, or a combination of both.
In 1996, our management decided to invest the cash flow from our call
accounting business in the development of an Internet usage management solution.
Our focus on developing an Internet product included sacrificing potential
profits and borrowing $1.0 million in 1998. The refocusing of our business
resulted in reduced call accounting revenue growth. From 1996 through 1998,
average annual call accounting revenue growth was 17%, which is significantly
lower than the call accounting revenue growth from 1990 through 1995. With the
proceeds from our initial public offering we have continued our investment in
Internet products with the release of our eSpective application, which collects
activity data from web servers and translates the data into management analysis
reporting. With our sales force focusing more on these Internet products we
expect our call accounting revenues to continue to decline as a percentage of
overall revenue.
Our revenue consists of product and service revenue. Our product revenue is
derived primarily from licensing our software products. We also resell
complementary hardware, which has historically accounted for less than 10% of
our total annual revenue. In the first quarter of 2000, our hardware sales
represented 14.1% of revenue due to a number of large product sales requiring an
unusually high amount of hardware. We expect this percentage to return to
historical levels during the remainder of the year. Support service revenue
consists of fees paid for maintenance services, product updates, and
professional services. Maintenance services include diagnosis and correction of
errors in the current version of the product and telephone consultation to
discuss general support questions. Product updates include error correction and
minor enhancements to the product models purchased, and periodic updates to
tariff information for call accounting products. Substantially all of our
license agreements are perpetual. Support agreements are typically for a term of
one year and renew automatically upon payment of an annual maintenance fee by
the customer. This support fee typically represents 20% of the current list
price of the products licensed. Professional services includes installation,
training and custom report generation.
We recognize revenue from software licenses in accordance with the American
Institute of Certified Public Accountants Statement of Position 97-2, Software
Revenue Recognition, and Statement of Position 98-9, Modification of SOP 97-2,
Software Revenue Recognition, with Respect to Certain Transactions. Revenue
derived from software license fees and hardware is typically recognized upon
shipment. Revenue derived from software support services primarily involves
annual contracts and is recognized ratably over the service period. Revenue
related to professional services is recognized as services are provided.
Deferred revenue generally represents advance payments received from customers
and billings invoiced to customers for software support and professional
services in advance of the time revenue is recognized.
We identify revenue as call accounting revenue or Internet/integrated
revenue based upon the types of data sources licensed and the delivery of call
accounting product features. If a customer is delivered tariff information for
all data sources they have licensed, the product revenue is identified as call
accounting. All other product revenue is identified as Internet/integrated.
Service revenue is identified based on the associated product identification.
We sell our products through a combination of direct sales by our sales
personnel and indirect sales primarily through resellers and distributors. While
our direct sales force is expected to continue to generate a large proportion of
future revenue, we are increasingly utilizing indirect distribution channels,
such as network resellers, systems integrators and distributors, as an important
complement to our direct sales force. We expect to grow our international
distribution significantly in the next few years. Distributors and resellers
purchase the product for resale at a discount from our standard price list. This
discount ranges
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from 20% to 65% and varies based on a number of factors including their volume
of business, whether they distribute to other resellers and whether they provide
product support.
We also maintain relationships with leading networking and network security
product vendors that help to market and distribute our products. These vendors
assist in the sales and marketing of our products by bundling them with their
own products, selling our products through their sales forces and promoting our
products at trade shows, seminars and through their web sites. For example, on
March 6, 2000 we announced an OEM and Reseller Agreement with Cisco Systems. We
intend to continue to focus sales resources on strengthening existing
relationships and creating new relationships with strategic organizations.
From our inception in 1986 until June 1999, we elected to operate under
subchapter S of the Internal Revenue Code of 1986, as amended, and comparable
provisions of state income tax laws. An S corporation generally is not subject
to income tax at the corporate level. The S corporation's income generally
passes through to shareholders and is taxed on their personal income tax
returns. As a result, our earnings have been taxed directly to our existing
shareholders. On June 16, 1999, we terminated our status as an S corporation
under the tax code upon closing of the sale of 300,000 shares of Series A
redeemable convertible preferred stock. In connection with the termination of
our S corporation status, we distributed $270,000 and we reclassified the
accumulated deficit of $296,000 through the S corporation termination date,
limited to the amount of paid in capital, to additional paid-in capital.
At the time we terminated our S corporation status, we established our net
deferred tax assets and liabilities. In assessing the realizability of deferred
tax assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. As a result of
this assessment we recorded a valuation allowance of 100% of our net deferred
tax asset.
In October 1999, we completed our initial public offering which resulted in
net proceeds to us of approximately $43.0 million before payment of related
expenses. We used $1.0 million of the proceeds from our initial public offering
to repay existing indebtness. We intend to use the remaining net proceeds for
working capital and other general corporate purposes, which may include
increasing our sales and marketing activities, increasing our product
development activities, and pursuing strategic acquisitions and relationships.
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RESULTS OF OPERATIONS
The following tables set forth our Internet/integrated and call accounting
revenue, both in absolute dollars and as a percentage of total revenue:
REVENUE INFORMATION
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
2000 1999
------- -------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
REVENUE:
Internet/integrated:
Product revenue........................................... $ 719 $ 369
Services revenue.......................................... 744 53
------ ------
Total Internet/integrated revenue................. 1,463 422
Call accounting:
Product revenue........................................... 387 996
Services revenue.......................................... 1,268 1,240
------ ------
Total call accounting revenue..................... 1,655 2,236
Total:
Product revenue........................................... 1,106 1,365
Services revenue.......................................... 2,012 1,293
------ ------
Total Revenue..................................... $3,118 $2,658
====== ======
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
2000 1999
------- -------
(UNAUDITED)
<S> <C> <C>
Percentage of total revenue:
Internet/integrated:
Product revenue........................................... 23.1% 13.9%
Services revenue.......................................... 23.9 2.0
------ ------
Total Internet/integrated revenue................. 47.0 15.9
Call accounting:
Product revenue........................................... 12.4 37.4
Services revenue.......................................... 40.6 46.7
------ ------
Total call accounting revenue..................... 53.0 84.1
Total:
Product revenue........................................... 35.5 51.3
Services revenue.......................................... 64.5 48.7
------ ------
Total Revenue..................................... 100.0% 100.0%
====== ======
</TABLE>
Three Months Ended March 31, 2000 and 1999
Revenue. Total revenue was $3.1 million for the three months ended March
31, 2000, representing a 17.3% increase from $2.7 million for the same period in
1999. Total product revenue was $1.1 million, or 35.5% of total revenue in the
three months ended March 31, 2000, representing a 19.0% decrease from $1.4
million, or 51.4% of total revenue, for the same period in 1999. Total service
revenue was $2.0 million, or 64.5% of total revenue, in the three months ended
March 31, 2000, representing a 55.6% increase from $1.3 million, or 48.6% of
total revenue, for the same period in 1999. This increase was the
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result of the increase in Internet/integrated service revenue for the period.
Part of this increase was attributable to one sales agreement with a third party
contractor to provide software, hardware and installation services for 51
different sites. During the quarter this sales agreement represented 18.5% of
revenue. We do not believe this agreement will generate this level of revenue in
the future.
Internet/Integrated Revenue. Total Internet/integrated revenue was $1.5
million, or 46.9% of total revenue, in the three months ended March 31, 2000,
representing a 246.7% increase from $422,000, or 15.9% of total revenue, for the
same period in 1999. Internet/integrated product revenue was $719,000, or 23.1%
of total revenue, in the three months ended March 31, 2000, representing a 94.9%
increase from $369,000, or 13.9% of total revenue, for the same period in 1999.
Internet/integrated service revenue was $744,000, or 23.9% of total revenue, in
the three months ended March 31, 2000, representing a 1303.8% increase from
$53,000, or 2.0% of total revenue, for the same period in 1999. The increase in
Internet/ integrated product revenue and percentage of total revenue was due to
the sales of our integrated product, which was first released in the fourth
quarter of 1998. The increase in Internet/integrated service revenue was driven
by the delivery of professional services, including sites related to the sales
agreement mentioned under Revenue above.
Call Accounting Revenue. Total call accounting revenue was $1.7 million,
or 53.1% of total revenue, for the three months ended March 31, 2000,
representing a 26.0% decrease from $2.2 million, or 84.1% of total revenue for
the same period in 1999. Call accounting product revenue was $387,000, or 12.4%
of total revenue, for the three months ended March 31, 2000, representing a
61.1% decrease from $996,000, or 37.5% of total revenue, for the same period in
1999. Call accounting service revenue was $1.3 million, or 40.7% of total
revenue, in the three months ended March 31, 2000, representing a 2.3% increase
from $1.2 million, or 46.7% of total revenue, for the same period in 1999. The
decline in call accounting revenue and percentage share of total revenue in the
first quarter of 2000 was due to the focus of our sales force on selling
Internet/integrated products. We expect this trend of Call Accounting revenue
declining as a percentage of overall revenue to continue.
Cost of Product Revenue. Cost of product revenue was $490,000, or 44.3% of
total product revenue, in the three months ended March 31, 2000, representing a
84.9% increase from $265,000, or 19.4% of total product revenue, for the same
period in 1999. This increase in cost and the corresponding increase in
percentage of revenue were primarily attributable to higher hardware costs on a
number of large product sales requiring an unusually large amount of hardware
and royalty payments for third-party licensing incurred since the release of our
integrated product in the fourth quarter of 1998.
Cost of Service Revenue. Cost of service revenue was $744,000, or 37.0% of
total service revenue, for the three months ended March 31, 2000, representing a
119.5% increase from $339,000, or 26.2% of total service revenue, for the same
period in 1999. This dollar and percentage of revenue increase was the result of
an increase in service staff necessary to meet the anticipated support and
service requirements.
Research and Development Expenses. Research and development expenses were
$731,000, or 23.4% of total revenue, for the three months ended March 31, 2000,
representing a 92.9% increase from $379,000, or 14.3% of total revenue, for the
same period in 1999. The increase in total research and development expenditures
reflects the increased headcount during the second half of 1999 and the first
quarter of 2000 as we accelerated our new product development. We expect
research and development expenses to increase as we continue to commit
substantial resources to enhancing existing product functionality and to
developing new products.
Sales and Marketing Expenses. Sales and marketing expenses were $3.0
million, or 95.7% of total revenue, for three months ended March 31, 2000,
representing a 204.8% increase from $979,000, or 36.8% of total revenue, for the
same period in 1999. This increase in expenditures and percentage of total
revenue is the result of the addition of Sales and Marketing personnel in the
second half of 1999 and the beginning of 2000. We also initiated significant
advertising and marketing programs in the first quarter of 2000. Expansion of
the sales staff included establishment of additional sales offices both
domestically and in Europe. We expect that the absolute dollar amount of sales
and marketing expenses will continue to increase, due to the planned growth of
our sales force, further increases in advertising and marketing
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expenditures and other promotional activities. It is anticipated that sales and
marketing expenses will vary as a percentage of total revenues from period to
period.
General and Administrative Expenses. General and administrative expenses
were $1.8 million, or 58.5% of total revenue, in the three months ended March
31, 2000, representing a 88.8% increase from $966,000, or 36.3% of total
revenue, for the same period in 1999. This increase was primarily due to
increased recruiting fees, personnel related costs and professional service
fees. We expect general and administrative costs to increase in as we continue
to add infrastructure to support a larger organization and incur costs related
to being a publicly-held company.
Increase in Redeemable Stock Purchase Warrant. Charges for the increase in
value of the redeemable common stock purchase warrant were $745,000, or 28.0% of
total revenue, in the first three months of 1999. There was no similar charge in
2000. This charge represents the increase in the value of the warrant granted in
connection with the $1,000,000 loan. The warrant was exercised and the loan was
repaid in September 1999.
Other Interest Income. Other interest income was $519,000 or 16.6% of
total revenue, for the three months ended March 31, 2000, representing a 7314.3%
increase from $7,000 for the same period in 1999. Proceeds from investment of
the funds received in the initial public offering account for the interest
income.
Other Interest Expense. Other interest expense was zero in the three
months ended March 31, 2000, compared to $36,000 for the same period in 1999. We
repaid all outstanding debt with the proceeds from the initial public offering.
LIQUIDITY AND CAPITAL RESOURCES
Historically, we have funded our operations from cash generated from
operations and the issuance of long-term debt. In October 1999, we completed our
initial public offering that provided us approximately $44.0 million in net cash
proceeds. We had cash and cash equivalents of $38.5 million at March 31, 2000
and $10,000 at March 31, 1999.
Cash used in operating activities during the three months ended March 31,
2000 was $3.7 million. Cash provided by operating activities during the three
months ended March 31, 1999 was $56,000. This change reflects the net impact of
increases in our net loss, accounts receivable and accounts payable, which were
offset by a decrease in deferred revenue and the recording of accretion of the
redeemable common stock put warrant related to our loan in 1999.
Our investing activities primarily include expenditures for fixed assets in
support of our product development activities and infrastructure for our
expanding operations. Net cash used in investing activities increased to
$878,000 in the first three months of 2000, compared to $12,000 for the same
period in 1999. This increase resulted from an increase in fixed assets
purchased.
Net cash provided by financing activities was $245,000 for the three month
period ended March 31, 2000, compared to $80,000 used in financing activities
for the period ended March 31, 1999. This change was due primarily to issuance
of common stock resulting from the exercise of options. Net cash used in
financing activities in 1999 resulted from the repayment of $80,000 on our bank
line of credit, which expired in November 1999.
Because we have not generated significant revenue from sales outside the
United States, we have not sustained material foreign currency exchange losses
and presently do not attempt to hedge our exposure to fluctuations in foreign
currency exchange rates. Should our revenue from international sales increase,
and should such sales be denominated in foreign currencies, we intend to adopt a
hedging strategy against foreign currency fluctuations.
We believe that our existing liquidity and capital resources, including the
proceeds resulting from the sale of our common stock in the initial public
offering, will be sufficient to satisfy our cash requirements for at least the
next 12 months. Beyond the next 12 months, we expect income from operations and
the
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<PAGE> 11
remaining proceeds from the initial public offering to provide sufficient
liquidity and capital resources, and we are not aware of any events that may
cause our liquidity to increase or decrease in a material way. However, our
business strategies will require a substantial increase in expenditures. To the
extent that income from operations is insufficient to implement our business
strategies, or if we identify additional strategic investments in our business,
technology or products, we may be required to raise additional funds through
equity or debt financing. If adequate funds are not available on acceptable
terms or at all, our ability to implement our business strategies or take
advantage of unanticipated opportunities or otherwise respond to competitive
pressures would be limited. There can be no assurance that we will be able to
raise these additional funds on terms acceptable to us, or at all.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are exposed to a number of market risks in the ordinary course of our
business, such as foreign currency exchange risk resulting from our
international operations. These risks arise in the normal course of business
rather than from trading. In addition, some of our traded assets are exposed to
market risks such as interest rate fluctuations. Our management has examined our
exposures to all of these risks and has concluded that none of our exposures in
these areas is material to fair values, cash flows or earnings.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Telemate.Net Software, Inc. was not involved in any material legal
proceedings during the three months ended March 31, 2000.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
No events occurred during the quarter covered by this Report that would
require response to this item.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
No events occurred during the quarter covered by this Report that would
require response to this item.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No events occurred during the quarter covered by this Report that would
require response to this item.
ITEM 5. OTHER INFORMATION.
No events occurred during the quarter covered by this Report that would
require response to this item.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following exhibit is filed with this Report:
Exhibit 27.1 Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended March 31,
2000.
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SIGNATURES
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.
<TABLE>
<S> <C>
TELEMATE.NET SOFTWARE, INC.
Date: May 15, 2000 /s/ RICHARD L. MAURO
-----------------------------------------------
Richard L. Mauro
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 15, 2000 /s/ JANET VAN PELT
------------------------------------------------
Janet Van Pelt
Senior Vice President -- Finance and Operations,
Chief Financial Officer, and Treasurer
(Principal Financial and Accounting Officer)
</TABLE>
11
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0
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