<PAGE>
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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 September 30, 1999.
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
Commission File Number: 0-27741
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Viador Inc.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 94-3234636
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
167 Second Avenue, San Mateo, California 94401
(Address of principal executive offices) (zip code)
</TABLE>
Registrant's telephone number, including area code: (650) 685-3000
----------------
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 [_] No [X]
As of October 31, 1999, there were 16,456,422 shares of the Registrant's
Common Stock outstanding, par value $0.001 per share.
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1
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VIADOR INC.
Form 10-Q Quarterly Report
For the Quarter Ended September 30, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
Number
------
<C> <S> <C>
PART I. Financial Information
Item 1 Condensed Financial Statements (unaudited)
Condensed Balance Sheets as of September 30, 1999 and
December 31, 1998.......................................... 3
Condensed Statements of Operations for the three and nine
month periods ended September 30, 1999 and 1998............ 4
Condensed Statements of Cash Flows for the nine month
periods ended September 30, 1999 and 1998.................. 5
Notes to Condensed Financial Statements..................... 6
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................. 8
Item 3 Quantitative and Qualitative Disclosures About Market Risk.. 24
PART II. Other Information
Item 2 Changes in Securities and Use of Proceeds................... 25
Item 4 Submission of Matters to a Vote of Security Holders......... 26
Item 6 Exhibits and Reports on Form 8-K............................ 27
Signatures............................................................ 28
</TABLE>
2
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PART I: FINANCIAL INFORMATION
ITEM I. Condensed Financial Statements
VIADOR INC.
CONDENSED BALANCE SHEETS
(In thousands, except per share data)
Unaudited
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
ASSETS
------
<S> <C> <C>
Current assets:
Cash and cash equivalents......................... $ 10,383 $ 4,181
Accounts receivable, net.......................... 4,513 2,404
Other current assets.............................. 1,096 --
-------- -------
Total current assets............................ 15,992 6,585
Property and equipment, net......................... 1,234 577
Other assets........................................ 30 23
-------- -------
Total assets.................................... $ 17,276 $ 7,185
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable.................................. $ 1,356 $ 542
Accrued liabilities............................... 1,869 565
Deferred revenue.................................. 3,892 2,707
-------- -------
Total current liabilities....................... 7,117 3,814
Stockholders' equity:
Convertible preferred stock, $0.001 par value:
10,417 and 5,208 shares authorized as of
September 30, 1999 and December 31, 1998,
respectively; 6,803 and 4,307 shares issued and
outstanding as of September 30, 1999 and December
31, 1998, respectively........................... 7 4
Common stock, $0.001 par value: 20,833 and 16,667
shares authorized as of September 30, 1999 and
December 31, 1998, respectively; 4,864 and
4,665 shares issued and outstanding as of
September 30, 1999 and December 31, 1998,
respectively..................................... 5 5
Additional paid-in capital........................ 30,811 14,221
Deferred stock-based compensation................. (2,159) (1,148)
Treasury stock.................................... (34) (34)
Accumulated deficit............................... (18,491) (9,677)
-------- -------
Total stockholders' equity...................... 10,139 3,371
-------- -------
Total liabilities and stockholders' equity.... $ 17,256 $ 7,185
======== =======
</TABLE>
See accompanying notes to condensed financial statements.
3
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VIADOR INC.
CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Unaudited
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
-------------------- ------------------
1999 1998 1999 1998
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Revenue:
License........................... $ 1,664 $ 307 $ 3,795 $ 1,449
Service........................... 997 362 2,156 974
--------- --------- -------- --------
Total revenue................... 2,661 669 5,951 2,423
Cost of revenue..................... 837 391 1,711 1,031
--------- --------- -------- --------
Gross profit.................... 1,824 278 4,240 1,392
--------- --------- -------- --------
Operating expenses:
Research and development.......... 1,643 654 3,514 1,761
Sales and marketing............... 2,860 1,214 7,257 3,020
General and administrative........ 649 529 1,645 903
Amortization of stock-based
compensation..................... 363 158 892 252
--------- --------- -------- --------
Total operating expenses........ 5,515 2,555 13,308 5,936
--------- --------- -------- --------
Operating loss.................... (3,691) (2,277) (9,068) (4,544)
Interest income, net.............. 138 199 254 197
--------- --------- -------- --------
Net loss........................ $ (3,553) $ (2,078) $ (8,814) $ (4,347)
========= ========= ======== ========
Basic and diluted net loss per
share.............................. $ (.76) $ (.59) $ (2.04) $ (1.32)
========= ========= ======== ========
Shares used in computing basic and
diluted net loss per share......... 4,680 3,539 4,313 3,299
========= ========= ======== ========
</TABLE>
See accompanying notes to condensed financial statements.
4
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VIADOR INC.
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands, except per share data)
Unaudited
<TABLE>
<CAPTION>
Nine months ended
September 30,
------------------
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss................................................ $ (8,814) $ (4,347)
Adjustments to reconcile net loss to net cash used in
operating activities:
Cancellation of stockholder notes..................... -- 103
Issuance of options for services performed............ 35 188
Interest on bridge loan............................... -- 63
Warrants issued for services performed................ 37 39
Amortization of discount on bridge loan............... -- 130
Amortization of deferred stock-based compensation..... 892 252
Depreciation and amortization......................... 497 149
Change in operating assets and liabilities:
Accounts receivable................................. (2,109) (198)
Other assets........................................ (1,103) 55
Accounts payable and accrued liabilities............ 2,118 271
Deferred revenue.................................... 1,185 345
-------- --------
Net cash used in operating activities................... (7,262) (2,950)
-------- --------
Net cash flows used in investing activities--purchases of
property and equipment................................... (1,154) (317)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock.................. 75 7
Proceeds from issuance of preferred stock, net.......... 14,543 6,467
Proceeds from bridge loan............................... -- 1,870
Proceeds from issuance of warrants...................... -- 130
Borrowings under line of credit......................... -- 500
Repayment under line of credit.......................... -- (500)
-------- --------
Net cash provided by financing activities............... 14,618 8,474
-------- --------
Net increase in cash and cash equivalents................. 6,202 5,207
Cash and cash equivalents, beginning of period............ 4,181 1,029
-------- --------
Cash and cash equivalents, end of period.................. $ 10,383 $ 6,236
======== ========
Supplemental disclosures of cash flow information:
Cash paid for interest.................................. $ -- $ 20
Noncash financing activities:
Repurchase of common stock in settlement of notes
receivable from stockholders........................... -- 35
Preferred stock issued upon conversion of bridge loan
and accrued interest................................... -- 2,063
-------- --------
Deferred stock-based compensation....................... $ 1,903 $ 1,390
======== ========
</TABLE>
See accompanying notes to condensed financial statements.
5
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VIADOR INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation
In the opinion of management, the unaudited condensed financial statements
reflect all adjustments that are necessary for a fair presentation of the
interim periods presented. The results of operations for the interim periods
presented are not necessarily indicative of the results expected for any
subsequent quarter or for the entire year ending December 31, 1999. These
financial statements and the notes included herein should be read in
conjunction with the Company's audited financial statements and notes for the
year ended December 31, 1998 included in the Company's Registration Statement
on Form S-1 declared effective by the Securities and Exchange Commission on
October 25, 1999.
Note 2. Summary of Significant Accounting Policies
(a) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of expenses during the reporting period.
Actual results could differ from those estimates.
(b) Stock-Based Compensation
The Company uses the intrinsic-value method to account for all of its
employee stock-based compensation plans. Expense associated with stock-based
compensation is being amortized on an accelerated basis over the vesting
period of the individual award consistent with the method described in
Financial Accounting Standards Board (FASB) Interpretation No. 28.
(c) Comprehensive Income (Loss)
Comprehensive income is a measure of all changes in equity of an enterprise
that result from transactions and other economic events of the period other
than transactions with shareholders ("comprehensive income"). Comprehensive
income is the total of net income and all other non-owner changes in equity.
For the three and nine month periods ended September 30, 1999 and September
30, 1998, the Company's comprehensive income (loss) was not materially
different from net loss for each respective period.
Note 3. Reverse Stock Split
On July 20, 1999, the Company's board of directors approved a 1 for 2.4
reverse stock split of the Company's common stock. The Company's accompanying
consolidated financial statements have been restated to give effect to the
stock split.
Note 4. Deferred Stock-Based Compensation
The Company uses the intrinsic value method of accounting for its employee
stock-based compensation plans. Accordingly, no compensation cost is
recognized for any of its stock options when the exercise price of each option
equals or exceeds the fair value of the underlying common stock as of the
grant date for each stock option. With respect to the stock options granted
since inception through September 30, 1999, the Company recorded deferred
stock-based compensation of $3,496,000 for the difference at the grant date
between the exercise price and the fair value of the common stock underlying
the options. This amount is being amortized in accordance with FASB
Interpretation No. 28 over the vesting period of the individual options,
generally 4 years.
6
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VIADOR INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
Note 5. Net Loss Per Share
Basic and diluted net loss per share in each period has been computed using
the weighted average number of shares of common stock outstanding less the
weighted-average number of shares of common stock subject to repurchase. The
effect of outstanding stock options, warrants for common and convertible
preferred stock, and convertible preferred stock has been excluded from the
computation of diluted net loss per share as their inclusion would be
antidilutive, for the periods presented. The total numbers of shares excluded
from the computation of diluted loss per share are as follows (in thousands):
<TABLE>
<CAPTION>
At
September 30,
-------------
1999 1998
------ ------
<S> <C> <C>
Shares of common stock subject to repurchase................. 139 974
Shares issuable under outstanding stock options.............. 3,636 2,910
Shares issuable pursuant to warrants to purchase common and
convertible preferred stock................................. 97 81
Shares of convertible preferred stock on an "as if converted"
basis....................................................... 6,803 4,307
</TABLE>
Note 6. Subsequent Event--Initial Public Offering
The Company completed its initial public offering on October 29, 1999 in
which the Company sold 4,600,000 shares of its common stock at $9.00 per
share, including 600,000 shares sold in connection with the exercise of the
underwriters' over-allotment option. Gross proceeds from the offering were
$41.4 million. The Company expects that the net proceeds of the offering will
be approximately $37.5 million, after deducting underwriter discounts and
commissions, and other offering costs payable by the Company. Upon completion
of the offering, the Company issued approximately 6,807,000 shares of common
stock for all outstanding shares of the Company's preferred stock, including
approximately 4,000 shares issued in connection with the exercise of warrants
to purchase preferred stock. In addition, upon the completion of the offering,
the Company issued approximately 93,000 shares of common stock in connection
with the exercise of all warrants to purchase shares of the Company's common
stock.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1993, as amended and Section
21E of the Securities Exchange Act of 1934, as amended. The Company's actual
results and the timing of certain events could differ materially from those
anticipated in these forward-looking statements as a result of certain
factors, including, but not limited to, those set forth under "risk factors"
and elsewhere in this quarterly report and in our other documents filed by the
Company with the Securities and Exchange Commission, including our
Registration Statement on Form S-1 declared effective by the Securities and
Exchange Commission on October 25, 1999.
Overview
We develop and market internet software that enables businesses to create
enterprise information portals. Our products enable organizations to build
enterprise information portals that permit quick, easy access to all
enterprise information, facilitate the provision of customized and
personalized information and permit the secure sharing of enterprise
information both within the enterprise and with outside partners. We had net
losses of approximately $6.2 million for the year ended December 31, 1998 and
approximately $8.8 million for the nine months ended September 30, 1999. In
addition, the Company had an accumulated deficit of approximately
$18.5 million as of September 30, 1999
Historically, we have focused our selling efforts in North America and
derived a significant majority of our revenue from North America. However, we
believe that our international sales will increase. We currently have
distribution agreements with partners in Japan and Europe, and we have
delivered our products to customers in Latin America.
We were incorporated in 1995 as Infospace, Inc. and changed our name to
Viador Inc. in 1999. Since our inception, we have developed web-based products
designed to permit our customers to search, analyze and deliver relevant
information to users within and outside the enterprise. We delivered our first
product, Web-Charts, in September 1996. Over the next two years, we introduced
more sophisticated web products and a proprietary web security server product.
In the first quarter of 1999, we first shipped a fully integrated web-based
product suite called the Viador E-Portal Suite, which integrated our prior
product offerings and is now our primary licensed product.
We derive our revenue from the sale of software product licenses and from
professional consulting, training, maintenance and support services. In
December 1997, we adopted Statement of Position 97-2, Software Revenue
Recognition. SOP 97-2 generally requires revenue earned on software
arrangements involving multiple elements to be allocated to each element based
on its relative fair value. We recognize product license revenue when
persuasive evidence of an agreement exists, the product has been delivered,
the license fee is fixed or determinable and collection of the fee is
probable. The entire fee related to arrangements that require the Company to
deliver specified additional features or upgrades is deferred until delivery
of the feature and/or upgrade has occurred, because the Company does not have
sufficient vendor-specific objective evidence of fair value to allocate
revenue to the various elements in such arrangements. All of the contract
software revenue related to arrangements involving consulting services that
are essential to the functionality of the software at the customer site is
deferred until the consulting services have been completed and customer
acceptance has been obtained using the completed contract method. Contract
software revenue related to arrangements to maintain the compatibility of the
Company's software products with the software products or platforms of the
customer or other vendor is recognized ratably over the term of the
arrangement. License revenue from OEM and VAR arrangements in which the
Company earns a royalty based on a specified percentage of OEM and VAR sales
to end users incorporating the Company's software is recognized upon delivery
to the end user. Nonrefundable prepaid royalty fees received by the Company
from OEM and VAR customers are deferred and recognized as the end user sales
are reported to the Company by the OEM or VAR, unless the Company has an
arrangement to
8
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maintain the compatibility of its software products with the software products
or platforms of the OEM or VAR. In that case, due to the Company's software
compatibility obligation, the prepaid royalty fees are recognized as the end
user sales are reported to the Company by the OEM or VAR but limited to no
more than the fee that would be recognizable on a cumulative basis if the
entire fee was being recognized ratably over the term of the arrangement.
Service revenue consists of fees from professional services and from
maintenance and support. Professional services include integration of
software, software development, training and software installation. We bill
professional services fees either on a time and materials basis or on a fixed-
price schedule. We recognize professional services fees generally as the
services are performed except, as described above, where such services are
essential to the functionality of software sold as part of the arrangement.
Our clients typically purchase maintenance agreements annually, and we price
maintenance agreements based on a percentage of the product license fee. We
recognize revenue from maintenance and support agreements ratably over the
term of the agreement, which is typically one year. We price telephone support
based on differing contracted levels of support. Customers purchasing
maintenance agreements receive future product upgrades and electronic, web-
based technical support and basic ten hours a day, five days a week telephone
support. Customers can also purchase extended telephone support, which is
available 24 hours a day, seven days a week, for an additional fee. We record
cash receipts from customers and billed amounts due from customers in excess
of revenue recognized as deferred revenue. The timing and amount of revenue
recognized from individual contracts, some of which represent over 10% of
revenue recognized during a particular quarter, can vary significantly.
Furthermore, as discussed above, revenue related to significant transactions
may be recognized over the term of the agreement, which may extend recognition
over a period of 36 to 60 months. This can result in fluctuations in revenue
from one quarter to the next. Furthermore, the timing and amount of cash
receipts from customers can vary significantly depending on specific contract
terms and can therefore have an impact on the amount of accounts receivable
and deferred revenue in any given period.
Our cost of revenue includes salaries and related expenses for our customer
support, implementation and training services organizations and costs of
contracting with third parties to provide consulting services to customers.
Our cost of revenue also includes royalties due to third parties for
integrated technology, the cost of manuals and product documentation,
production media used to deliver our products and shipping costs, including
the costs associated with the electronic transmission of software to new
customers and an allocation of our facilities, communications and depreciation
expenses.
Our operating expenses are classified into four general categories: sales
and marketing, research and development, general and administrative and
amortization of deferred stock-based compensation. We classify all charges to
these operating expense categories based on the nature of the expenditures.
Although each category includes expenses that are category specific, each
category includes expenses that are common to the other three, such as
salaries, employee benefits, incentive compensation, bonuses, travel and
entertainment costs, telephone expenses, communication expenses, rent and
facilities costs and third-party professional service fees. The sales and
marketing category of operating expenses includes expenditures specific to the
marketing group, such as sales commissions, public relations and advertising,
trade shows, marketing collateral materials and web seminars. We allocate the
total costs for overhead and facilities to each of the functional areas that
use the overhead and facilities services based on their estimated usage as
measured primarily by employee headcount. These allocated charges include
facility rent for the corporate office, communication charges and depreciation
expense for office furniture and equipment.
Since our inception, we have incurred substantial costs to develop our
technology and products, to recruit and train personnel for our engineering,
sales and marketing and professional services departments and to establish an
administrative organization. As a result, we have incurred net losses in each
quarter since inception and, as of September 30, 1999, had an accumulated
deficit of approximately $18.5 million. We anticipate that our operating
expenses will increase in future quarters commensurate to or greater than any
revenue increases as we increase sales and marketing operations, develop new
distribution channels, fund greater levels of research and development,
broaden professional services and support, and improve operational and
financial systems.
9
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Accordingly, we expect to incur additional losses for the foreseeable future.
In addition, our limited operating history makes it difficult for us to
predict future operating results and, accordingly, we cannot assure you that
we will achieve or sustain revenue growth or profitability.
We had 136 full-time employees at September 30, 1999, up from 83 at December
31, 1998. This rapid growth places a significant demand on our management and
operational resources. In order to manage growth effectively, we must
implement and improve our operational systems, procedures and controls on a
timely basis. In addition, we expect that future expansion will continue to
challenge our ability to hire, train, motivate and manage our employees.
Results of Operations
The following table sets forth certain statement of operations data as a
percentage of total revenue for the periods indicated:
<TABLE>
<CAPTION>
Three months Nine months
ended ended
September 30, September 30,
--------------- ---------------
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenue:
License.............................. 63 % 46 % 64 % 60 %
Service.............................. 37 54 36 40
------ ------ ------ ------
Total revenue...................... 100 100 100 100
------ ------
Cost of revenue........................ 31 58 29 43
------ ------ ------
Gross profit........................... 69 42 71 57
------ ------ ------ ------
Operating expenses:
Research and development............. 62 98 59 73
Sales and marketing.................. 107 181 122 125
General and administrative........... 24 79 28 37
Amortization of stock-based
compensation........................ 14 24 15 10
------ ------ ------ ------
Total operating expenses........... 207 382 224 245
------ ------ ------ ------
Operating loss......................... (139) (340) (152) (188)
Interest income, net................... 5 30 4 8
------ ------ ------ ------
Net loss............................... (134)% (311)% (148)% (179)%
====== ====== ====== ======
</TABLE>
Amounts may not add due to rounding.
Revenue
Revenue increased by 298% to approximately $2.7 million for the three months
ended September 30, 1999 from approximately $.7 million for the three months
ended September 30, 1998. Revenue increased by 146% to approximately $6.0
million for the nine months ended September 30, 1999 from approximately $2.4
million for the nine months ended September 30, 1998. The increases in revenue
were due to an increase in the number of new customers and increased usage by
existing customers and primarily resulted from a significant increase in our
sales operations personnel and to the introduction of the Viador E-Portal
Suite.
License revenue increased by 442% to approximately $1.7 million for the
three months ended September 30, 1999 from approximately $.3 million for the
three months ended September 30, 1998. License revenue increased by 162% to
approximately $3.8 million for the nine months ended September 30, 1999 from
approximately $1.4 million for the nine months ended September 30, 1998. The
increases in license revenue were due to the addition of new customers
resulting from growing market acceptance of the Viador E-Portal Suite, which
first shipped in the first quarter of 1999 and were complemented by continuing
sales to existing customers.
10
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Service revenue increased by 175% to approximately $1.0 million for the
three months ended September 30, 1999 from approximately $.4 million for the
three months ended September 30, 1998. Service revenue increased by 121% to
approximately $2.2 million for the nine months ended September 30, 1999 from
approximately $1.0 million for the nine months ended September 30, 1998. The
increases in service revenue primarily resulted from an increase in consulting
services provided in connection with increased license sales and to technical
support contracts sold to new customers.
Cost of revenue
Cost of revenue increased by 114% to approximately $.8 million for the three
months ended September 30, 1999 from approximately $.4 million for the three
months ended September 30, 1998. Cost of revenue increased by 66% to
approximately $1.7 million for the nine months ended September 30, 1999 from
approximately $1.0 million for the nine months ended September 30, 1998. Cost
of revenue consists principally of personnel costs related to service revenue
for consulting, technical support and training. Cost of license revenue has
not been significant. Cost of revenue decreased to 31% of revenue for the
three months ended September 30, 1999 from 58% for the three months ended
September 30, 1998. Cost of revenue decreased to 29% of revenue for the nine
months ended September 30, 1999 from 43% for the nine months ended September
30, 1998. The decreases resulted primarily from the increased proportion of
revenue derived from license revenue for which the related cost of license
revenue was insignificant. We anticipate that our cost of revenue will grow in
future periods in order to accommodate planned increases in the number of
customers and greater utilization of our products by existing customers.
Research and Development
Research and development expenses increased by 151% to approximately $1.6
million for the three months ended September 30, 1999 from approximately $.7
million for the three months ended September 30, 1998. Research and
development expenses increased by 100% to approximately $3.5 million for the
nine months ended September 30, 1999 from approximately $1.8 million for the
nine months ended September 30, 1998. The increases in research and
development expenses were principally due the increase in the number of
employees engaged in research and development to 43 employees as of September
30, 1999 from 26 employees as of September 30, 1998. We believe that our
research and development is critical to our future success and we anticipate
that research and development expenses will grow significantly in future
periods.
Sales and Marketing
Sales and marketing expenses increased by 136% to approximately $2.9 million
for the three months ended September 30, 1999 from approximately $1.2 million
for the three months ended September 30, 1998. Sales and marketing expenses
increased by 140% to approximately $7.3 million for the nine months ended
September 30, 1999 from approximately $3.0 million for the nine months ended
September 30, 1998. The increases were primarily attributable to an increase
in the number of employees. The number of employees in sales and marketing
increased to 63 as of September 30, 1999 from 26 employees as of September 30,
1998.
General and Administrative
General and administrative expenses increased by 23% to approximately $.6
million for the three months ended September 30, 1999 from approximately $.5
million for the three months ended September 30, 1998. General and
administrative expenses increased by 82% to approximately $1.6 million for the
nine months ended September 30, 1999 from approximately $.9 million for the
nine months ended September 30, 1998. The increases primarily resulted from
increases in professional services related to increased business activities.
Interest Income, Net
Interest income, net of interest expense, decreased to approximately $.1
million for the three months ended September 30, 1999 from approximately $.2
million for the three months ended September 30, 1998. Interest
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income, net of interest expense, increased to approximately $.3 million for
the nine months ended September 30, 1999 from approximately $.2 million for
the nine months ended September 30, 1998.
Liquidity and Capital Resources
From our inception, we have financed our operations primarily through
private equity placements totaling approximately $26.6 million. At September
30, 1999, we had an accumulated deficit of approximately $18.5 million and
cash and cash equivalents of approximately $10.4 million.
Net cash used in operating activities for the nine months ended September
30, 1999 was approximately $7.3 million and resulted primarily from a net
loss, partial offset by depreciation and amortization. Net cash used in
investing activities for the nine months ended September 30, 1999 was
approximately $1.2 million and resulted from purchases of property and
equipment. Net cash provided by financing activities was approximately $14.6
million and resulted primarily from the issuance of preferred stock.
We have a credit facility with a bank, which includes a $2.0 million line of
credit and a $.5 million equipment loan line. As of September 30, 1999, we had
no amounts outstanding under the credit facility. Borrowings under the line of
credit are based on a percentage of qualified accounts receivables, bear
interest at a rate of 1% over the bank's base rate and are secured by all of
our intellectual property. Borrowings under the equipment loan line bear
interest at a rate of 1.25% over the bank's base rate.
We believe that our existing cash and cash equivalents, funds available
under our existing credit facility and the net proceeds from our initial
public offering will be sufficient to fund our working capital and capital
expenditures for at least 12 months. The execution of our business plan will
require substantial additional capital to fund our operating losses, sales and
marketing expenses, capital expenditures, lease payments and working capital
requirements thereafter. We intend to continue to consider our future
financing alternatives, which may include the incurrence of indebtedness,
additional public or private equity offerings or an equity investment by a
strategic partner. Actual capital requirements may vary based upon the timing
and success of the expansion of our operations. We are currently negotiating a
lease for a new headquarters facility, which will provide space for future
growth. We expect that the monthly lease expense will be significantly higher
than our current monthly lease expense. Our capital requirements may change
based upon technological and competitive developments. In addition, several
factors may affect our capital requirements, including:
. demand for our products and services or our anticipated cash flow from
our operations being less than expected;
. our development plans or projections proving to be inaccurate; or
. our engaging in acquisitions or other strategic transactions.
We have no present commitments or arrangements assuring us of any future
equity or debt financing, and we cannot assure you that any such equity or
debt financing will be available to us on favorable terms, or at all.
Year 2000 Compliance
The "Year 2000 issue" refers generally to the problems that some software
may have in determining the correct century for the year. For example,
software with date-sensitive functions that is not Year 2000 compliant may not
be able to distinguish whether "00" means 1900 or 2000, which may result in
failures or the creation of erroneous results. We have assessed the year 2000
readiness of our products and mission-critical business operations and, based
on that assessment, do not expect to be adversely affected materially by year
2000-related issues.
With regard to our products, we have designed our Viador E-Portal software
and all current Viador products to be year 2000 compliant. We have performed
testing processes to confirm that our current products do not have
identifiable year 2000 problems. We have tested prior products and, based on
the results of these
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tests, we believe that these products are also year 2000 compliant. However, we
cannot be certain that our test processes have detected all possible year 2000
errors in our products. We have publicly disclosed that our products are year
2000 compliant. If our tests and design considerations have failed to identify
and settle all year 2000 problems in our products, we may be liable to
customers for breach of contract, product defects, or otherwise which may
adversely impact the company materially.
Additionally, our products are generally used with sophisticated hardware and
complex software that may not be year 2000 compliant. The accuracy of the
information generated by our products is inherently dependent on the quality of
the source data from these other hardware and software. Although we cannot
control the year 2000 readiness of these products, we may still be subject to
claims of non-compliancy and liability based on our products providing
incorrect data supplied by the third-party products. The costs of these claims
could have a material financial impact and require considerable managerial
attention.
With regards to our information technology and internal management functions,
we have assessed the year 2000 compliancy of our material hardware and software
systems relating to all critical business operations. To date, we have not
encountered any material year 2000 problems with our computer systems or any
other resource that might be subject to such problems. We have inventoried
primary internal applications and determined that few of them are mission-
critical and these mission-critical applications have been tested and
remediated. We have sought compliance verification of key external vendors
supplying products and services to us to determine the readiness of third
parties' remediation of their own year 2000 issues. No vendor has advised us
that they will be unable to complete their year 2000 review, and all vendors
that we have deemed mission-critical have certified their compliancy through
public or private disclosure. Based on the representations of these key vendors
and our own internal testing, we are not currently aware of any material issues
that will create an adverse financial impact due to year 2000 issues. If any of
our critical vendors' representations regarding their compliancy prove
inaccurate, or if we encounter unforeseen year 2000 circumstances that
adversely affect our information technology and internal management functions,
we could suffer material, unanticipated problems and costs to remediate these
circumstances and their consequences. These include, without limitation, delay
or loss of revenues, diversion of development resources, damage to our
reputation, increased service and warranty costs, or liability from our
customers. In addition, some commentators have predicted significant litigation
against software vendors regarding Year 2000 compliance issues. Because of the
unprecedented nature of any existing or future litigation, it is uncertain
whether or to what extent we may be affected by it.
We do not currently have any information concerning the Year 2000 compliance
status of our customers. Our current or future customers may incur significant
expenses to achieve Year 2000 compliance. If our customers are not Year 2000
compliant, they may experience material costs to remedy problems, or they may
face litigation costs. In either case, Year 2000 issues could reduce or
eliminate the budgets that current or potential customers could have for or
delay purchases of our products and services. As a result, our business could
be seriously harmed. We have funded our Year 2000 plan from operating cash
flows and have not separately accounted for these costs in the past. To date,
these costs have not been material.
In the incidence of a year 2000 problem in our products or internal systems,
we will resolve these problems by making remedial changes to our products or
internal systems. We have conducted contingency planning in the areas we have
identified to be critical to our business and in certain non-mission critical
areas, and are currently preparing to respond to pertinent year 2000 scenarios
that might adversely impact our business or operations. However, the effect of
year 2000 on our customers, banking systems, business infrastructure, and on
the stock market at large is unknown. We can not warrant that our products and
services will be unaffected by year 2000, nor can we assure that material
expenses won't be required to respond to liability or unforeseen issues
relating to the year 2000 problem.
For additional discussion of our year 2000-related risks, see "RISK FACTORS
THAT MAY AFFECT FUTURE RESULTS--Our failure and the failure of third parties to
be year 2000 compliant could negatively impact our business" and "--If our
customers defer technology purchases because of year 2000 concerns, our growth
and results of operations for the remainder of 1999 and early 2000 may suffer."
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RISK FACTORS THAT MAY AFFECT FUTURE RESULTS
Risks Related to Viador
We cannot predict whether we will be successful because we have a short
operating and sales history.
We were founded in 1995, and began offering software products in the third
quarter of 1996. Our primary product, the Viador E-Portal Suite, was first
shipped in the first quarter of 1999. The revenue and income potential of our
business and market is unproven, and our limited operating history makes it
difficult to evaluate us and our prospects.
We anticipate making significant investments in our sales and marketing
programs, personnel recruitment, product development and infrastructure.
Therefore, we believe that we will continue to experience significant losses
on a quarterly and annual basis for the foreseeable future. You must consider
us and our prospects in light of the risks and difficulties encountered by
companies in the early stage of development, particularly companies in new and
rapidly evolving markets. Our ability to address these risks depends on a
number of factors, which include our ability to:
. provide software that is reliable, cost-effective and able to
accommodate significant increases in the number of users and amount of
information;
. market the Viador E-Portal Suite, our other products and the Viador
brand name effectively;
. continue to grow our infrastructure to accommodate new developments in
the enterprise information portal software market and increased sales;
. hire, retain and motivate qualified personnel; and
. respond to competition.
We may not be successful in meeting these challenges and addressing these
risks and uncertainties. If we are unable to do so, our business will not be
successful and your investment in our capital stock will decline in value.
Our business currently depends on revenue related to the Viador E-Portal
Suite, and it is uncertain whether the market will increasingly accept this
product.
We generate most of our revenue from licenses and services related to the
products comprising the Viador E-Portal Suite. We expect that these products,
and future upgraded versions of these products, will continue to account for a
large portion of our revenue for the foreseeable future. Our future financial
performance will depend on increasing acceptance of our current products and
on the successful development, introduction and customer acceptance of new and
enhanced versions of our products. Our business could be harmed if we fail to
deliver the enhancements to our products that customers want.
Our services consist of maintenance, support, consulting and implementation.
Service revenue represented 47% and 40% of total revenue for 1997 and 1998,
respectively, and 40% and 36% of total revenue for the nine months ended
September 30, 1998 and September 30, 1999, respectively. We anticipate that
service revenue will continue to represent a significant percentage of total
revenue. Our ability to increase our service revenue will depend in large part
on our ability to increase sales of the Viador E-Portal Suite and to increase
the size of our service organization, including our ability to recruit and
train a sufficient number of qualified service representatives. If service
revenue is less than anticipated, our fixed costs of providing services will
exceed our service revenue and our operating results could be materially
adversely affected.
We have a history of losses and may not be able to achieve profitability in
the future.
Since our inception, we have experienced operating losses, negative cash
flows from operations and net losses in each quarterly and annual period. As
of September 30, 1999, we had an accumulated net deficit of
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approximately $18.5 million. Revenue from our software and related services
may not be sufficient to make us profitable in the future. If we do achieve
profitability, we cannot be certain that we can sustain or increase
profitability on a quarterly or annual basis, particularly to the extent that
we face significant competition. In addition, we expect to significantly
increase our sales and marketing, product development, engineering and
administrative expenses as we grow. As a result, we will need to generate
significant revenue increases to achieve and maintain profitability.
If we do not expand our customer base, we may never become profitable and our
stock price will likely decline.
The market for enterprise information portal software is newly emerging and
there can be no assurance that customers will adopt our products. Accordingly,
we cannot accurately estimate the potential demand for our products and
services. We believe that market acceptance of our products and services
principally depends on our ability to:
. effectively market the Viador E-Portal Suite, our other products and our
services;
. hire, train and retain a sufficient number of qualified sales and
marketing personnel;
. provide high-quality and reliable customer support for our products;
. distribute and price our products and services in a manner that is more
appealing to customers than that of our competitors;
. develop a favorable reputation for Viador among our customers, potential
customers and participants in the software industry; and
. withstand downturns in general economic conditions or conditions that
would slow corporate spending on software products.
Some of the foregoing factors are beyond our control. If our customer base
does not expand, we may never become profitable and our stock price will
likely decline.
Our operating results in one or more future periods are likely to fluctuate
significantly and may fail to meet or exceed the expectations of securities
analysts or investors, causing our stock price to fall.
We expect to experience significant fluctuations in our future results of
operations due to a variety of factors, many of which are outside of our
control, including:
. demand for and market acceptance of our products and services;
. our expansion into international markets;
. introduction of products and services or enhancements by us and our
competitors;
. competitive factors that affect our pricing;
. the mix of products and services we sell;
. the timing and magnitude of our capital expenditures, including costs
relating to the expansion of our operations;
. the size and timing of customer orders, particularly large orders, some
of which represent more than 10% of total revenue during a particular
quarter;
. the hiring and retention of key personnel;
. conditions specific to the enterprise information portal market and
other general economic factors;
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. changes in generally accepted accounting policies, especially those
related to the recognition of software revenue; and
. new government legislation or regulation.
We typically receive 50% to 70% of our orders in the last month of each fiscal
quarter because our customers often delay purchases of products until the end
of the quarter and our sales organization and our individual sales
representatives strive to meet quarterly sales targets. Because a substantial
portion of our costs are relatively fixed and based on anticipated revenue, a
failure to book an expected order in a given quarter will likely not be offset
by a corresponding reduction in costs and, therefore, could adversely affect
our operating results for that quarter. Due to these factors, we believe that
quarter-to-quarter comparisons of our operating results are not a good
indication of our future performance. In future quarters, our operating
results may be below the expectations of public market analysts and investors.
In this event, the price of our common stock may fall significantly.
If our customers defer technology purchases because of year 2000 concerns, our
growth and results of operations for the remainder of 1999 and early 2000 may
suffer.
We may experience reduced revenue from sales of products and services as
customers and potential customers put a priority on correcting year 2000
problems and therefore defer purchases of our products and services until
later in 2000. Our potential customers may have a limited annual budget to
spend on information technology. To the extent that those customers spend
their budget on year 2000 matters, they may not have sufficient budgeted funds
to purchase our software or services. In addition, potential customers may be
unwilling to add complexity to their information technology systems by
installing our software until the year 2000 risk has passed, which would cause
them to delay purchases of our products and services. We believe that during
the fourth quarter of 1999 and the first quarter of 2000, our customers'
information technology personnel will be focused on resolving potential year
2000 issues and may elect to delay the purchase of our products and services.
Accordingly, demand for our products and services may be particularly
volatile, be unpredictable or may decline for the remainder of 1999 and early
2000. As a consequence, our results of operations for the quarters ended
December 31, 1999 and March 31, 2000 may be adversely impacted by a reduction
in demand for our products and services due to our customers' year 2000
concerns.
Because our customers' orders vary substantially in size, our quarterly
operating results are difficult to forecast and may fluctuate.
Customer orders during a particular quarter typically vary considerably in
size, from as low as several thousand dollars to over $500,000. For example,
one customer accounted for 19.6 % of recognized revenue for the three months
ended September 30, 1999 and another customer accounted for 18.5% of
recognized revenue for the three months ended June 30, 1999. No other customer
accounted for more than 10% of recognized revenue during the quarters ended
September 30, 1999 and June 30, 1999. Similarly, for each of the quarters
ended September 30, 1998 and December 31, 1998, we had a single customer that
accounted for over 20% of our revenue for that quarter. In addition, we expect
to recognize revenue from one or more customers during the quarter ending
December 31, 1999 that exceeds 10% of our total revenue for the quarter.
Because of the large size of some individual customer orders relative to total
orders during a quarter, our revenue may fluctuate significantly from one
quarter to the next. If a customer who places a large order cancels or reduces
the order, or if we are unable to fulfill the order in a timely fashion or are
otherwise unable to recognize revenue for the order in the quarter in which it
is anticipated, it could result in increased volatility in our revenue and
stock price.
We plan to increase our operating expenses to bring about and support higher
sales of the Viador E-Portal Suite, which will result in larger net losses if
our revenue does not grow accordingly.
We plan to significantly increase our operating expenses to expand our sales
and marketing operations and consulting and training programs, broaden our
customer support capabilities and fund greater levels of research and
development. Our operating expenses, which include research and development,
sales and marketing, and
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general and administrative expenses, are based on our expectations of future
revenue and are relatively fixed in the short term. If revenue falls below our
expectations in any quarter and we are not able to quickly reduce our spending
in response, our operating results will be adversely affected and our stock
price may fall.
Since our sales cycle is long, unpredictable and subject to seasonal
fluctuations, it is difficult to accurately forecast our revenue; if we fail
to achieve our forecasted revenue, our operating results will suffer and our
stock price may decline.
The typical sales cycle of our products is long and unpredictable and
requires both a significant capital investment decision by our customers and
our education of potential customers regarding the use and benefits of our
products. Our sales cycle is generally between three and nine months. A
successful sales cycle typically includes presentations to both business and
technical decision makers. The implementation of our products involves a
significant commitment of resources by prospective customers. Accordingly, a
purchase decision for a potential customer typically requires the approval of
several senior decision makers. Our sales cycle is also affected by the
business conditions of each prospective customer. Due to the relative
importance of many of our individual product sales, a lost or delayed sale
could adversely affect our quarterly operating results. Our sales cycle is
also affected by seasonal fluctuations as a result of our customers' fiscal
year budgeting cycles and slow summer purchasing patterns overseas. Also, we
expect revenue to be higher in the fourth quarter than in other quarters of
the year since many customers strive to spend unused budgeted dollars before
the end of the year.
If our software contains errors, we may lose customers or experience reduced
market acceptance of our products.
Our software products are inherently complex and may contain defects and
errors that are detected only when the products are in use. In addition, some
of our customers require or may require enhanced customization of our software
for their specific needs, and these modifications may increase the likelihood
of undetected defects or errors. Further, we often render implementation,
consulting and other technical services, the performance of which typically
involves working with sophisticated software, computing and networking
systems, and we could fail to meet customer expectations as a result of any
defects or errors. As a result, we may lose customers, customers may fail to
implement our products more broadly within their organization and we may
experience reduced market acceptance of our products. Our products are
designed to facilitate the secure transmission of sensitive business
information to specified parties outside the business over the internet. As a
result, the reputation of our software products for providing good security is
vital to their acceptance by customers. Our products may be vulnerable to
break-ins, theft or other improper activity that could jeopardize the security
of information for which we are responsible. Problems caused by product
defects, failure to meet project milestones for services or security breaches
could result in loss of or delay in revenue, loss of market share, failure to
achieve market acceptance, diversion of research and development resources,
harm to our reputation, increased insurance costs or increased service and
warranty costs. To address these problems, we may need to expend significant
capital resources that may not have been budgeted.
Product liability claims could harm our business.
Our license agreements with customers typically contain provisions designed
to limit our exposure to potential product liability claims. All domestic and
international jurisdictions may not enforce these limitations. Although we
have not experienced any product liability claims to date, we may encounter
this type of claim in the future. Product liability claims brought against us,
whether or not successful, could divert the attention of our management and
key personnel and could be expensive to defend.
We may be unable to maintain or grow our international operations, which could
slow or undermine our overall growth.
During 1996, 1997, 1998 and for the nine months ended September 30, 1999, we
derived 0%, 14%, 12% and 5%, respectively, of our total revenue from sales
outside the United States. During the past twenty-one
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months, we have derived most of our international revenue from sales in Canada
and Japan. We intend to expand our international operations and anticipate
that in the foreseeable future a significant portion of our revenue may be
derived from sources outside the United States. If we are unable to maintain
or grow our international operations, it could slow or undermine our overall
growth.
We have not identified any material risk associated with doing business in
Canada, other than risk associated with foreign currency fluctuations. In
Japan, we have an exclusive distribution relationship with Mitsui, which
expires in June 2000. To the extent we are unable to favorably renew our
distribution agreement or make alternative arrangements, we may have decreased
revenue in Japan. We also face country-specific risks in Japan, such as
fluctuation in currency, general economic conditions in Japan and regulatory
uncertainties associated with being a foreign company doing business in Japan.
We also expect to commit additional resources to customizing our products
for selected international markets, including German, French and Spanish-
speaking markets, among others, and developing international sales and support
organizations. In addition, even if we successfully expand our international
operations and successfully customize our products, there can be no assurance
that we will be able to maintain or increase international market demand for
our products.
Our international operations are subject to a number of risks, including:
. costs of customizing our products for foreign countries;
. protectionist laws and business practices favoring local competition;
. dependence on the performance of local resellers and other strategic
partners;
. adoption of general internet technologies in each international market;
. compliance with multiple, conflicting and changing governmental laws
and regulations;
. longer sales and payment cycles;
. import and export restrictions and tariffs;
. difficulties in staffing and managing international operations;
. greater difficulty or delay in accounts receivable collection;
. foreign currency exchange rate fluctuations;
. multiple and conflicting tax laws and regulations; and
. political and economic instability.
If our plan to sell the Viador E-Portal Suite directly to customers is not
successful, we may not be able to grow our revenue and our stock price may
suffer.
We sell our products primarily through our domestic direct sales
organization and we support our customers with our technical and customer
support staff in several field offices. Our ability to achieve revenue growth
in the future will depend on our ability to recruit and train sufficient
technical, customer and direct sales personnel. We have in the past and may in
the future experience difficulty in recruiting qualified sales, technical and
support personnel. Our inability to rapidly and effectively expand our direct
sales force and our technical and support staff could reduce or eliminate our
growth and cause our stock price to fall.
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Our failure to manage our growth could adversely affect our business.
The planned expansion of our operations will place a significant strain on
our management, financial controls, operations systems, personnel and other
resources. Our ability to manage our future growth, should it occur, will
depend in large part upon a number of factors including our ability to
rapidly:
. build and train our sales and marketing staff to create an expanding
presence in the evolving enterprise information portal market, and keep
them fully informed over time regarding the technical features, issues
and key selling points of our products;
. develop our customer support capacity as sales of our products grow, so
that we can provide customer support without diverting engineering
resources from product development efforts; and
. expand our internal management and financial controls significantly, so
that we can maintain control over our operations and provide support to
other functional areas within Viador as the number of our personnel and
size of our organization increases.
Our inability to achieve any of these objectives could adversely affect our
business.
We depend on technology licensed from third parties and, if we do not maintain
those license arrangements, this could result in delays in shipping our
products and services, which could harm our business.
We license our search engine technology, which is integrated into the Viador
E-Portal Suite, from Infoseek. This technology provides users of our products
with the ability to search and classify information. We also license software,
that facilitates the retrieval of frequently changing real-time data, from On
Display. This software may not continue to be available on commercially
reasonable terms, or at all. Our loss of or inability to maintain either of
these technology licenses could result in delays in the sale of our products
and services until equivalent technology, if available, is identified,
licensed and integrated, which could harm our business.
In addition, we license various Java-related software from Sun Microsystems,
which is the core technology upon which our products are based. In the event
that Sun were to discontinue or significantly alter its Java product, it would
impair our ability to provide product upgrades and develop new products.
We will need significant additional funds, which we may be unable to obtain on
terms acceptable to us or at all.
The expansion and development of our business will require significant
capital to fund our operating losses, working capital needs and capital
expenditures. During the next twelve months, we expect to meet our cash
requirements with existing cash and cash equivalents and short-term
investments, the net proceeds from our initial public offering, cash flow from
sales of our services and proceeds from existing and future working capital
lines of credit and other borrowings. Our failure to generate sufficient cash
flows from sales of services or to raise sufficient funds may require us to
delay or abandon some or all of our development and expansion plans or
otherwise forego market opportunities.
Future equity or debt financing may not be available to us on favorable
terms or at all. In addition, our credit agreements contain certain covenants
restricting our ability to incur further indebtedness and we have pledged some
of our assets as security for any borrowings thereunder. Future borrowing
instruments such as credit facilities and lease agreements are also likely to
contain similar or more restrictive covenants and will likely require us to
pledge assets as security for borrowings under those future arrangements. Our
inability to obtain additional capital on satisfactory terms may delay or
prevent the expansion of our business, which could cause our business and
prospects to suffer.
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If our plan to sell software services over the internet as a substitute for
licensing our software fails, it could harm our business.
In addition to licensing our software, we plan to sell software services to
customers over the internet. We would price these services on a per-
transaction basis or on a subscription basis to companies seeking to avoid the
upfront cost of licensing software. This business model is unproven and
represents a significant departure from the strategies traditionally employed
by us and other software vendors. Our efforts to develop this business may
require significant management time and attention. In connection with this new
business model, we will contract with third-party service providers to perform
many of the necessary services, and we will be responsible for monitoring
their performance. If any service provider delivers inadequate support or
service to our customers, our reputation could be harmed.
Even if our strategy to sell software services over the internet
successfully attracts customers, some of those internet customers may
otherwise have bought our software services through our traditional licensing
arrangements. Any shift in potential license revenue to our new business
model, which is unproven and potentially less profitable, could harm our
business.
If we are unable to hire and integrate new personnel, it will disrupt our
operations and impair our growth.
We have recently hired a number of key employees and officers, including our
Chief Financial Officer, Raja H. Venkatesh, who has been with us since June
1999. We do not currently have a corporate controller. While we have commenced
a search for a controller and additional financial and accounting personnel,
we have not yet filled these positions. Once hired, these people will need
time to familiarize themselves with Viador and our accounting and sales
practices. In addition, we anticipate switching from our current accounting
software to a more sophisticated accounting and financial information software
system in the near future. In addition, we have grown from 17 employees at
December 31, 1996 to 61 employees at December 31, 1997 to 83 employees at
December 31, 1998 to 136 employees at September 30, 1999, and we expect to
continue to hire additional employees in order to grow our business. The
integration of new personnel has resulted and will continue to result in some
disruption to our ongoing operations. Our failure to complete this integration
in an efficient manner could harm our business and prospects.
We also plan to hire additional personnel to establish and implement
corporate security processes and policies in light of our planned expansion of
our operations. If we are unable to hire and integrate these new personnel in
advance of our planned future growth, our business and prospects could suffer.
We may not be able to recruit and retain the personnel we need, which would
impair our growth.
We are highly dependent on certain members of our management and engineering
staff, including, without limitation, our Chief Executive Officer, our Senior
Vice President of North American Operations and our Chief Financial Officer.
The loss of one or more of these officers might impede the achievement of our
business objectives. Furthermore, recruiting and retaining qualified financial
and technical personnel is critical to our success. If our business grows, we
will also need to recruit a significant number of management, technical and
other personnel for our business. Competition for employees in our industry is
intense. We may not be able to continue to attract and retain skilled and
experienced personnel on acceptable terms.
If we are unable to effectively protect our proprietary rights, our
competitors may be able to copy important aspects of our products or product
presentation, which would undermine the relative appeal of our products to
customers and reduce our sales.
We believe that proprietary rights are important to our business. We
principally rely upon a combination of patent, copyright, trademark and trade
secret laws as well as contractual restrictions to protect our proprietary
technology.
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We have filed applications seeking U.S. patents on two inventions. However,
patents for these inventions may not issue and it is possible that these and
any other patents issued to us may be circumvented by our competitors or
otherwise may not provide significant proprietary protection or commercial
advantage to us. Similarly, our trademark, service mark and copyright rights
may not provide significant proprietary protection or commercial advantage to
us, and the measures we take to maintain the confidentiality of our trade
secrets may be ineffective. If we are unable to effectively protect our
proprietary rights, our competitors may be able to copy important aspects of
our products or product message, which would undermine the relative appeal of
our products to customers and thus reduce our sales.
If our products infringe upon the proprietary rights of others, we may be
forced to pay high prices to license new technology or stop selling our
products.
Our commercial success will also depend in part on our not infringing the
proprietary rights of others and not breaching technology licenses that cover
technology used in our products. It is uncertain whether any third-party
proprietary rights will require us to develop alternative technology or to
alter our products or processes, obtain licenses or cease certain activities.
If any licenses of that type are required, we may not be able to obtain those
licenses on commercially favorable terms, if at all. Our failure to obtain a
license to any technology that we may require to commercialize our products
and services could cause our business and prospects to suffer. Litigation,
which could result in substantial cost to us, may also be necessary to enforce
any patents issued or licensed to us or to determine the scope and validity of
third-party proprietary rights.
Our failure and the failure of third parties to be year 2000 compliant could
negatively impact our business.
Many currently installed computer systems and software products store dates
using only the last two digits of the calendar year. As a result, those
systems may not be able to distinguish whether "00" means 1900 or 2000, which
may cause those systems to fail or produce erroneous results. Year 2000
problems could subject us to liability claims or disrupt our business, either
of which could harm our business.
Based upon our assessment to date, we believe that our software products are
capable of adequately distinguishing 21st century dates from 20th century
dates. The worst case year 2000 scenario for us is if customers using our
products experience product failure on or after January 1, 2000. If our
products do have year 2000 problems, we have a limited number of personnel who
are technically experienced with our year 2000 compliance procedures and, in
the event our systems were to fail as a result of year 2000 problems, these
employees would likely be unable to timely comply with several customers'
requests for year 2000 remediation. Any such delay could impair our business
or prospects or relationships with those customers. The total cost of year
2000 compliance and remediation may be material and may harm our business.
Furthermore, we may in the future be required to defend our products or
services in litigation or arbitration proceedings, or to negotiate resolutions
of claims based upon year 2000 issues. Defending and resolving year 2000
disputes, regardless of the merits of those disputes, and any liability we
have for year 2000-related damages, including consequential damages, could be
expensive to us. In addition, if our internal computer or other systems or our
suppliers experience year 2000 problems, it would disrupt our operations. For
more information regarding the year 2000 risks that we face, see ITEM 2.
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--Year 2000 Compliance" beginning on page 12.
If our strategic relationships are discontinued, it may be more difficult for
us to maintain certain features of our products or reach particular customers
or markets.
We have strategic relationships with IBM, Mitsui and Infoseek. Our strategic
relationship with IBM provides us with marketing assistance. Our strategic
relationship with Mitsui provides us with distribution, marketing and sales
assistance in Japan. Our strategic relationship with Infoseek provides us
access to technology and joint marketing. Although our strategic relationships
are a key factor in our overall business strategy, our strategic partners may
not view their relationships with us as significant to their own businesses.
There is a risk
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that these parties may not perform their obligations as agreed. Our
arrangements with strategic partners generally do not establish minimum
performance requirements but instead rely on the voluntary efforts of our
partners. In addition, most of our agreements with strategic partners may be
terminated by either party with little notice. If our strategic relationships
are discontinued, it may be more difficult for us to maintain certain features
of our products or reach particular customers or markets.
Risks Related to Our Industry
The markets in which we compete are highly competitive and we may not be able
to compete effectively.
The existing enterprise information portal software market is intensely
competitive. There are few substantial barriers to entry and we expect that we
will face additional competition from existing competitors in the future.
Moreover, if our approach is successful, it is likely that additional
competitors will enter the market. Some of these additional competitors may
have significantly more resources than we have, and may be able to devote the
resources necessary to independently develop technology that provides
equivalent or superior functionality compared to our products. For example, we
also compete against larger companies providing a suite of products targeting
business internet applications, including Microsoft and Oracle, who we expect
may provide products as part of their suite that compete with ours. To date,
we have faced competition and sales resistance from potential customers that
have developed or may develop in-house systems that may substitute for those
we offer.
We also compete against providers of software products to businesses. These
providers may expand their technologies or acquire other companies to support
greater functionality and capability, particularly in the areas of query
response time and ability to support large numbers of users.
We cannot assure you that we will be able to successfully compete against
current and future competitors, or that competitive pressures we face will not
materially adversely affect our business, prospects, operating results and
financial condition.
If we fail to manage technological change or effectively respond to changes in
customer needs, demand for our products and services will drop and our
business will suffer.
The market for enterprise information portals is still in an early stage of
development and is characterized by rapidly changing technology, evolving
industry standards, frequent new service and product introductions and changes
in customer demands. Our future success will depend to a substantial degree on
our ability to offer products and services that incorporate leading technology
and respond to technological advances and emerging industry standards and
practices on a timely and cost-effective basis. You should be aware that:
. our technology or systems may become obsolete upon the introduction of
alternative technologies;
. the technological life cycles of our products are difficult to estimate;
. we may not have sufficient resources to develop or acquire new
technologies or to introduce new services capable of competing with
future technologies or service offerings; and
. the price of the products and services we provide may decline as rapidly
as, or more rapidly than, the cost of any competitive alternatives.
We may not be able to effectively respond to the technological requirements
of the changing market for enterprise information portals. To the extent we
determine that new technologies and equipment are required to remain
competitive, the development, acquisition and implementation of those
technologies and equipment are likely to continue to require significant
capital investment by us. We may not have sufficient capital for this purpose
in the future, and even if it is available, investments in new technologies
may not result in commercially viable technological processes and there may
not be commercial applications for those technologies. If we do not develop
and introduce new products and services and achieve market acceptance in a
timely manner, demand for our products and services will drop and our business
will suffer.
22
<PAGE>
Our business and prospects will suffer if we are unable to adequately respond
to customer demands.
We expect that our customers increasingly will demand additional information
and reports with respect to the services we provide. To meet these demands, we
must develop and implement an automated customer service system to enable
future sales growth. In addition, if we are successful in implementing our
marketing strategy, we also expect the demands on our technical support
resources to grow rapidly, and we may experience difficulties in responding to
customer demand for our services and providing technical support in accordance
with our customers' expectations. We expect that these demands will require
not only the addition of new management personnel, but also the development of
additional expertise by existing management personnel and the establishment of
long-term relationships with third-party service vendors. We may not be able
to keep pace with any growth, successfully implement and maintain our
operational and financial systems or successfully obtain, integrate and
utilize the employees, facilities, third-party vendors and equipment, or
management, operational and financial resources necessary to manage a
developing and expanding business in our evolving and increasingly competitive
industry. If we are unable to address these customer demands, our business and
prospects will suffer.
Our future success will depend upon the ability of our products to work with a
large variety of hardware, software, database and networking systems.
We currently serve, and intend to continue to serve, a customer base with a
wide variety of hardware, software, database and networking systems. To gain
broad market acceptance, we believe that we must support an increased number
of systems in the future. We currently develop our products on Microsoft
Windows NT. Therefore, we experience a delay when we adapt our products to be
installed on other major servers. A delay in any rollout of our product onto a
new system could adversely affect our revenues and operating results. There
can be no assurance that we will adequately expand our data source and system
coverage to service potential customers, or that the expansion will be
sufficiently rapid to meet or exceed the system and data source coverage of
our competitors.
The success of our products will depend on various factors, including the
ability of our products to integrate and be compatible with customer systems,
particularly hardware systems, operating systems and data sources, as well as
or better than competitive offerings. The success of our products will also
depend on the ability of our existing products to work well with one another,
with new products we are developing and with new software being developed by
third parties. We cannot assure you that we will successfully develop and
market product enhancements or new products that respond to these
technological changes, shifting customer tastes or evolving industry
standards, or that we will not experience difficulties that could delay or
prevent the successful development, introduction and marketing of these
products. If we are unable to develop and introduce new products or
enhancements of existing products in a timely manner or if we experience
delays in the commencement of commercial shipments of new products and
enhancements, our business will suffer.
If our stock price is volatile or decreases significantly, you may not be able
to sell your stock at a favorable price at any given time or ever.
Stock prices and trading volumes for many internet-related companies
fluctuate widely for a number of reasons, including some reasons which may be
unrelated to their businesses or results of operations. This market
volatility, as well as general domestic or international economic, market and
political conditions, could materially adversely affect the price of our
common stock without regard to our operating performance. In addition, our
operating results may not meet the expectations of public market analysts and
investors. If this were to occur, the market price of our common stock would
likely decrease significantly. Volatility in our stock price may prevent you
from selling our stock at a favorable price at any given time or knowing the
appropriate time to sell our stock. If our stock price drops, it is possible
that you may never be able to sell our stock at a favorable price.
23
<PAGE>
Our officers, directors and affiliates may be able to control all matters
submitted for stockholder approval, and you will be subject to their
decisions.
Some of our stockholders own a large enough stake in us to have a
significant influence on the matters presented to stockholders. As a result,
these stockholders may be able to control all matters requiring stockholder
approval, including the election and removal of directors, the approval of
significant corporate transactions, such as any merger, consolidation or sale
of all or substantially all of our assets, and the control of our management
and affairs. Accordingly, that concentration of ownership may delay, defer or
prevent a change in control of Viador, impede a merger, consolidation,
takeover or other business combination involving Viador or discourage a
potential acquirer from making a tender offer or otherwise attempting to
obtain control of Viador, any of which could have a material adverse effect on
the market price of our common stock.
We have certain anti-takeover defenses that could prevent an acquisition of
our business that you might favor.
Provisions of our certificate of incorporation and bylaws and the provisions
of Delaware law could have the effect of delaying, deferring or preventing an
acquisition of our business. For example, our board of directors is divided
into three classes to serve staggered three-year terms, we may authorize the
issuance of up to 10,000,000 shares of "blank check" preferred stock, our
stockholders may not take actions by written consent and our stockholders are
limited in their ability to make proposals at stockholder meetings.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We develop products in the United States and market our products in North
America, Europe and the Asia-Pacific region. As a result, our financial
results could be affected by factors such as changes in foreign currency
exchange rates or weak economic conditions in foreign markets. As all of our
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 short-term nature of our investments, we believe that there is no material
risk exposure. Therefore, no quantitative tabular disclosures are required.
24
<PAGE>
PART II--OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
(a) Modifications to Instruments Defining the Rights of Common Stockholders.
On October 29, 1999, immediately upon the closing of the Company's initial
public offering, the Company filed an amended and restated certificate of
incorporation with the state of Delaware and adopted amended and restated
bylaws. The amended and restated certificate of incorporation effected a
recapitalization of the Company, authorizing it to issue up to 100,000,000
shares of common stock, $0.001 par value, and 10,000,000 shares of
undesignated preferred stock, par value $0.001. The amended and restated
bylaws substantially revised certain corporate procedures applicable to the
Company, including the mechanisms for effecting written consents of
stockholders, nominating, electing and removing directors, placing resolutions
before a stockholder vote and calling special meetings of stockholders.
(b) Material Limitations or Qualifications on Rights of Common Stockholders
Resulting from the Issuance or Modification of Other Securities. None
(c) Information Required by Item 701 of Regulation S-K.
(1) From July 1, 1999 through September 30, 1999, the Company issued 94,108
shares of common stock for an aggregate consideration of $48,316 upon the
exercise of options under our Amended and Restated 1997 Stock Option/Stock
Issuance Plan.
(2) From July 1, 1999 through September 30, 1999, the Company issued options
to purchase 460,887 shares of common stock at an exercise price of $10.00 per
share.
(d) Use of Proceeds. Paragraph references herein refer to the respective
paragraphs of Item 701(f) of Regulation S-K.
(1) Effective date of the Registration Statement and Commission File No.:
October 25, 1999; 333-84041.
(2) Offering Date: October 26, 1999.
(3) N/A.
(4) Information regarding the offering.
(i) The offering has terminated and all registered shares were sold.
(ii) Managing Underwriters: Bear, Stearns & Co. Inc., CIBC World Markets
Corp. and U.S. Bancorp Piper Jaffray Inc.
(iii) Title of Securities Registered: Common Stock
(iv) 4,600,000 shares were registered, all on behalf of the Company; all
shares were sold for an aggregate offering price of $41,400,000.
(v) Amount of expenses incurred for the Company's account:
. underwriting discount: $2,898,000
. other expenses: estimated at approximated $1,000,000
. total expenses: estimated at approximately $3,898,000
(B) All of such total expenses were payments to others (i.e., not to
directors, officers and 10% stockholders of the Company).
(vi) Net proceeds: $37,502,000
25
<PAGE>
(vii) Actual amount of net proceeds used for:
. construction of plant, building and facilities: $0
. purchase and installation of machinery and equipment: $0
. purchases of real estate: $0
. acquisition of other businesses: $0
. repayment of indebtedness: $0
. working capital: $0
. temporary short-term investments: $0
. Total: $0
(A) N/A. No payments were made from the effective date of the
Registration Statement to the end of the reporting period.
(viii) N/A.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
On July 23, 1999, in a Written Consent in Lieu of a Special Meeting of the
Shareholders of the Company, the following actions were voted upon:
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<C> <S> <C> <C> <C>
1. Approve Reincorporation in Delaware:
Common and Preferred Stock................ 7,834,893 0 3,905,458
2. Approve 1999 Stock Incentive Plan:
Common and Preferred Stock................ 7,834,893 0 3,905,458
3. Approve 1999 Employee Stock Purchase Plan:
Common and Preferred Stock................ 7,834,893 0 3,905,458
4. Approve amendment of Amended and Restated
Certificate of Incorporation and Amended
and Restated Bylaws:
Common and Preferred Stock................ 7,834,893 0 3,905,458
On September 22, 1999, in a Written Consent in Lieu of a Meeting of the
Shareholders of the Company, the following actions were voted upon:
<CAPTION>
For Against Abstain
--- ------- -------
<C> <S> <C> <C> <C>
1. Approve amendment to 1997 Stock
Option/Stock Issuance Plan:
Common and Preferred Stock................ 7,354,470 0 4,415,065
2. Approve amendment to 1999 Stock Incentive
Program:
Common and Preferred Stock................ 7,354,470 0 4,415,065
3. Approve amendment to 1999 Employee Stock
Purchase Plan:
Common and Preferred Stock................ 7,354,470 0 4,415,065
</TABLE>
26
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
<TABLE>
<C> <S>
*3.1 Form of Amended and Restated Certificate of Incorporation
*3.2 Form of Amended and Restated Bylaws
*4.1 Reference is made to Exhibit 3.1
*4.2 Reference is made to Exhibit 3.2
*4.3 Specimen Common Stock certificate
*4.4 Amended and Restated Investors' Rights Agreement, among the
Registrant and the parties listed on Schedule A thereto, dated
May 21, 1999
*10.1 Form of Amended and Restated 1997 Stock Option and Incentive Plan
*10.2 Form of 1999 Stock Incentive Plan
*10.3 Form of 1999 Employee Stock Purchase Plan
*10.4 Form of Indemnification Agreement for Officers and Directors
*10.5 Assignment of Lease, by and between the Registrant and Valley of
California, Inc., and Consent to Assignment, dated as of
December 16, 1997 and related office leases
*10.6 Collateral Assignment, Patent Mortgage and Security Agreement, by
and between the Registrant and Comerica Bank--California, dated
March 4, 1997
*10.7 Revolving Credit Loan and Security Agreement, by and between the
Registrant and Comerica Bank--California, dated March 17, 1999
*10.8 SpaceSQL Version 4.0 License Agreement by and between the
Registrant and IBM Corporation, dated September 18, 1998.
*10.9 Software Marketing and Distributorship Agreement by and between
the Registrant and Mitsui & Co. Ltd, dated June 26, 1997
*10.10 Variable Rate Single Payment Note by and between the Registrant
and Comerica Bank-- California, dated June 29, 1999
27.1 Financial Data Schedule
</TABLE>
- --------
* Incorporated by reference to Form S-1 (File No. 333-84041) filed on October
25, 1999.
(b) Reports on Form 8-K.
The Company did not file any reports on Form 8-K during the quarter ended
September 30, 1999.
27
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Date: December 9, 1999 VIADOR INC.
(Registrant)
/s/ Stan X. Wang
Date: December 9, 1999 By: _________________________________
Stan X. Wang
Chief Executive Officer,
President and Director
(Principal Executive Officer)
Date: December 9, 1999 /s/ Raja H. Venkatesh
By: _________________________________
Raja H. Venkatesh
Chief Financial Officer
(Principal Financial Officer and
Principal
Accounting Officer)
28
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
*3.1 Form of Amended and Restated Certificate of Incorporation
*3.2 Form of Amended and Restated Bylaws
*4.1 Reference is made to Exhibit 3.1
*4.2 Reference is made to Exhibit 3.2
*4.3 Specimen Common Stock certificate
*4.4 Amended and Restated Investors' Rights Agreement, among the
Registrant and the parties listed on Schedule A thereto, dated
May 21, 1999
*10.1 Form of Amended and Restated 1997 Stock Option and Incentive Plan
*10.2 Form of 1999 Stock Incentive Plan
*10.3 Form of 1999 Employee Stock Purchase Plan
*10.4 Form of Indemnification Agreement for Officers and Directors
*10.5 Assignment of Lease, by and between the Registrant and Valley of
California, Inc., and Consent to Assignment, dated as of December
16, 1997 and related office leases
*10.6 Collateral Assignment, Patent Mortgage and Security Agreement, by
and between the Registrant and Comerica Bank--California, dated
March 4, 1997
*10.7 Revolving Credit Loan and Security Agreement, by and between the
Registrant and Comerica Bank--California, dated March 17, 1999
*10.8 SpaceSQL Version 4.0 License Agreement by and between the
Registrant and IBM Corporation, dated September 18, 1998.
*10.9 Software Marketing and Distributorship Agreement by and between
the Registrant and Mitsui & Co. Ltd, dated June 26, 1997
*10.10 Variable Rate Single Payment Note by and between the Registrant
and Comerica Bank--California, dated June 29, 1999
27.1 Financial Data Schedule
</TABLE>
- --------
* Incorporated by reference to Form S-1 (File No. 333-84041) filed on October
25, 1999.
29
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM VIADOR
INC.'S SEPTEMBER 30, 1999 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 10,383
<SECURITIES> 0
<RECEIVABLES> 4,698
<ALLOWANCES> (185)
<INVENTORY> 0
<CURRENT-ASSETS> 15,992
<PP&E> 2,086
<DEPRECIATION> 852
<TOTAL-ASSETS> 17,256
<CURRENT-LIABILITIES> 7,117
<BONDS> 0
0
7
<COMMON> 5
<OTHER-SE> 10,127
<TOTAL-LIABILITY-AND-EQUITY> 17,256
<SALES> 5,951
<TOTAL-REVENUES> 5,951
<CGS> 1,711
<TOTAL-COSTS> 1,711
<OTHER-EXPENSES> 13,308
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 254
<INCOME-PRETAX> (8,814)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8,814)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,814)
<EPS-BASIC> (2.04)
<EPS-DILUTED> (2.04)
</TABLE>
