<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000.
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 0-27741
_______________
Viador Inc.
(Exact name of Registrant as specified in its charter)
_______________
Delaware 94-3234636
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2000 Charleston Road, Suite 1000, Mountain View, CA 94043
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (650) 645-2000
_______________
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports),
Yes [X] No [ ]
and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
As of May 8, 2000, there were 17,328,754 shares of the Registrant's Common Stock
outstanding, par value $0.001 per share.
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VIADOR INC.
Form 10-Q Quarterly Report
For the Quarter Ended March 31, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
PART I. Financial Information Number
------
<S> <C>
Item 1 Condensed Consolidated Financial Statements (unaudited)
Condensed Consolidated Balance Sheets as of March 31, 2000
and December 31, 1999......................................... 3
Condensed Consolidated Statements of Operations
for the three months ended March 31, 2000 and 1999............ 4
Condensed Consolidated Statements of Cash Flows
for the three months ended March 31, 2000 and 1999............ 5
Notes to Condensed Consolidated Financial Statements.......... 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations........................... 7
Item 3 Quantitative and Qualitative Disclosures About Market Risk.... 22
PART II. Other Information
Item 2 Changes in Securities and Use of Proceeds..................... 23
Item 6 Exhibits and Reports on Form 8-K.............................. 24
Signatures.............................................................. 25
</TABLE>
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PART I: FINANCIAL INFORMATION
ITEM I. Condensed Consolidated Financial Statements
VIADOR INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
Unaudited
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,417 $ 44,720
Short-term investment 31,536 --
Accounts receivable, net of allowance of $258, and 7,526 5,435
$208, respectively --
Other current assets 1,064 320
---------- ----------
Total current assets 41,543 50,475
Property and equipment, net 4,021 1,413
Capitalized software development costs 1,589 --
Goodwill and other intangibles, net 1,922 --
Other assets 4,356 290
---------- ----------
Total assets $ 53,431 $ 52,178
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,126 $ 942
Accrued liabilities 4,549 2,258
Accrued vacation 659 548
Notes payable 1,012 --
Deferred revenue 4,957 4,972
---------- ----------
Total liabilities 13,303 8,720
Stockholders' equity:
Common stock, $0.001 par value: 100,000,000 shares
authorized as of March 31, 2000 and December 31, 1999;
17,185,365 and 16,559,238 shares issued and outstanding as
of March 31, 2000 and December 31, 1999, respectively. 18 17
Additional paid-in capital 69,817 68,255
Deferred stock-based compensation (1,462) (1,796)
Treasury stock (34) (34)
Accumulated deficit (28,196) (22,984)
Accumulated other comprehensive income (loss) (15) --
---------- ----------
Total stockholders' equity 40,128 43,458
---------- ----------
Total liabilities and stockholders' equity $ 53,431 $ $52,178
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
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VIADOR INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Unaudited
<TABLE>
<CAPTION>
Three months ended
March 31,
------------------
2000 1999
---- ----
<S> <C> <C>
Revenue:
License $ 4,193 $ 866
Service 1,125 362
---------- ---------
Total revenue 5,318 1,228
Cost of revenue 1,617 353
---------- ---------
Gross profit 3,701 875
---------- ---------
Operating expenses:
Sales and marketing 6,256 1,968
Research and development 1,306 820
General and administrative 1,452 305
Amortization of stock-based compensation 334 253
---------- ---------
Total operating expenses 9,348 3,346
---------- ---------
Operating loss (5,647) (2,471)
Interest income, net 435 35
---------- ---------
Net loss $ (5,212) $ (2,436)
========== =========
Basic and diluted net loss per share $ (0.31) (0.61)
========== =========
Shares used in computing basic and diluted net
loss per share 17,023 3,979
========== =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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VIADOR INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Unaudited
<TABLE>
<CAPTION>
Three months ended March 31,
<S> <C> <C>
2000 1999
------- -------
Cash flows from operating activities:
Net loss $(5,212) $(2,436)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 478 94
Amortization of deferred stock-based compensation 334 253
Warrants issued for services performed -- 32
Changes in operating assets and liabilities:
Accounts receivable (2,070) 2,404
Other current assets (740) (2,537)
Other assets (360) (46)
Accounts payable, accrued liabilities and accrued vacation 3,465 176
Deferred revenue (15) 14
------- -------
Net cash used in operating activities (4,120) (2,046)
------- -------
Cash flows from investing activities:
Capital expenditures (2,997) (234)
Purchase of short-term investment (31,551) --
Rent paid in advance (500) --
Security deposit (1,697) --
Capitalization of software development costs (1,589) --
Acquisition of business (883) --
------- --------
Net cash used in investing activities (39,217) (234)
------- --------
Net cash provided by financing activities:
Proceeds from issuance of common stock 34 11
------- --------
Net decrease in cash and cash equivalents (43,303) (2,269)
Cash and cash equivalents, beginning of period 44,720 4,181
------- -------
Cash and cash equivalents, end of period $ 1,417 $ 1,912
------- --------
Supplemental disclosures of cash flow information:
Cash paid for interest $ 13 $ 2
======= ========
Non-cash financing activities:
Warrants issued $ 1,529 $ --
======= ========
Notes payable in partial payment for business acquisition $ 1,000 $ --
======= ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
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VIADOR INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair presentation
have been included. 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, 2000. These condensed
consolidated 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, 1999 included in the Company's Annual Report on Form 10K
for the fiscal year ended December 31, 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 applies the intrinsic value-based method of accounting
prescribed by Accounting Principles Board ("APB") Opinion No.25, "Accounting for
Stock Issued to Employees," and related interpretations, in accounting for its
employee stock option plans. As such, compensation expense would be recorded on
the date of grant only if the current market price of the underlying stock
exceeded the exercise price. SFAS No. 123, "Accounting for Stock-Based
Compensation," established accounting and disclosure requirements using a fair
value-based method of accounting for stock-based employee compensation plans. As
allowed by SFAS No.123, the Company has elected to continue to apply the
intrinsic value-based method of accounting described above, and has adopted the
disclosure requirements of SFAS No. 123.
(c) Comprehensive Income (Loss)
Comprehensive income (loss) 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 (loss)
is the total of net income and all other non-owner changes in equity. The
items of other comprehensive income (loss) which the Company currently reports
are primarily unrealized loss on short-term investments. The Company has no
material components of other comprehensive income (loss) for the three months
ended March 31, 2000 and 1999.
(d) Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No.
133 establishes accounting and reporting standards for derivative financial
instruments and hedging activities related to those instruments, as well as
other hedging activities. In June 1999, the FASB issued SFAS No. 137, Accounting
for Derivative Instruments and Hedging Activities - Deferral of the Effective
Date of FASB Statement No. 133, an Amendment of FASB Statement No. 133, which
defers the effective date of SFAS No. 133 from fiscal years beginning after June
15, 1999 to fiscal years beginning after June 15, 2000. Earlier application of
SFAS No. 133, as amended, is encouraged but it should not be applied
retroactively to financial statements of prior periods. Because the Company
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does not currently hold any derivative instruments and does not engage in
hedging activities, the Company expects that the adoption of SFAS No. 133 will
not have a material impact on its financial position, results of operations, or
cash flows. The Company will be required to adopt SFAS No. 133 in fiscal 2001.
(e) Software Development Costs
The Company capitalizes internally generated software development costs
in compliance with SFAS No. 86, "Accounting for the Costs of Computer Software
to be Sold, Leased or Otherwise Marketed." Capitalization of computer software
development costs begins upon the establishment of technological feasibility
for the product. Capitalized software development costs amounted to $1,589,000
as of March 31, 2000.
Amortization of capitalized software development costs is being computed
based on the straight-lined method over the economic life of the product
(generally two years).
Note 3. Initial Public Offering and Reverse Stock Split
On October 25, 1999, the Company completed an initial public offering (IPO) of
4,600,000 shares at a price of $9.00 per share; proceeds net of direct issuance
costs amounted to $37,232,000. On the IPO date, the Company effected a 1-for-
2.4 reverse stock split of its common stock. The accompanying financial
statements have been retroactively restated to give effect to the 1-for-2.4
reverse stock split.
Note 4. Stock-Based Compensation
The Company uses the intrinsic-value method in accounting for its employee
stock-based compensation plans. Accordingly, no compensation cost has been
recognized for any of its stock options granted or restricted stock sold because
the exercise price of each option or purchase price of each share of restricted
stock equaled or exceeded the fair value of the underlying common stock as of
the grant date, except for stock options granted and restricted stock sold from
September 1998 through June 1999. With respect to the stock options granted and
restricted stock sold from September 1998 to June 1999, the Company recorded
deferred stock compensation of $3,496,000 for the difference at the grant or
issuance date between the exercise price of each stock option granted or
purchase price of each restricted share sold and the fair value of the
underlying common stock. This amount is being amortized on an accelerated basis
over the vesting period, generally 48 months.
The amortization of deferred stock compensation relates to the following
items in the accompanying statements of operations (in thousands):
<TABLE>
<CAPTION>
Three months ended
March 31,
------------------
2000 1999
------ ------
<S> <C> <C>
Cost of revenue $ 30 $ 23
Research and development 113 86
Sales and marketing 164 124
General and administrative 27 20
------ ------
Total $334 $253
====== ======
</TABLE>
Note 5. Net Loss Per Share
Basic net loss per share is computed using the weighted-average number of
outstanding shares of common stock excluding shares of restricted stock subject
to repurchase summarized below. Diluted net loss per share is computed using
the weighted-average number of shares of common stock outstanding excluding
shares of restricted stock subject to repurchase and, when dilutive, potential
common shares from restricted stock options and warrants to purchase common
stock using the treasury stock method and from convertible securities using the
"as if converted" basis. The following potential common shares have been
excluded from the computation of diluted net loss per share for all periods
presented because the effect would have been antidilutive (in thousands):
<TABLE>
<CAPTION>
As of March 31, As of December
2000 31, 1999
------------- --------------
<S> <C> <C>
Shares issuable under stock options................................ 4,200 3,966
Shares of restricted stock subject to repurchase................... 69 925
Shares issuable pursuant to warrants to purchase common stock...... 100 --
</TABLE>
The weighted-average exercise price of stock options was $10.60 per share for
three month ended March 31, 2000. The weighted-average purchase price of
restricted stock was $1.90 per share for three month ended March 31, 2000.
Note 6. Business Acquisition
On January 20, 2000, the Company acquired a distributor in Switzerland (the
acquired company). The acquisition, recorded under the purchase method of
accounting, including the purchase of all outstanding shares of the acquired
company which, plus acquisition costs, resulted in a total purchase price of
$2 million. the company paid $1 million in cash on the effective date of the
acquisition and issued notes payables of $1 million at 6 percent interest per
annum (due no later than one year following the anniversary of the acquisition
date). A portion of the purchase price has been allocated to assets acquired
and liabilities assumed based on estimated fair market value at the date of
acquisition. The balance of $1.9 million was recorded as goodwill. Goodwill,
which represents the excess of purchase price over fair value of net assets
acquired, is amortized on a straight-line basis over the expected period to be
benefited, which is 5 years. The Company assesses the recoverability of this
intangible asset by determining whether the amortization of the goodwill
balance over its remaining life can be recovered through undiscounted future
operating cash flows of the acquired operation. The amount of goodwill
impairment, if any, is measured based on projected discounted future operating
cash flows using a discount rate reflecting the Company's average cost of
funds. The assessment of the recoverability of goodwill will be impacted if
estimated future operating cash flows are not achieved. The operating results
of the acquired company have been included in the accompanying condensed
consolidated financial statements from the date of the acquisition.
Note 7. Segment Information
The Company has adopted Statement of Financial Accounting Standards (SFAS)
No. 131, Disclosures about Segments of an Enterprise and Related Information.
SFAS No. 131 establishes standards for the manner in which public companies
report information about operating segments in annual and interim financial
statements. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. The method for
determining what information to report is based on the way management
organizes the operating segments within the Company for making operating
decisions and assessing financial performance.
The Company's chief operating decision-maker is considered to be the chief
executive officer (CEO). The CEO reviews financial information presented on an
entity level basis accompanied by disaggregated information about revenues by
product type and certain information about geographic regions for purposes of
making operating decisions and assessing financial performance. The entity
level financial information is identical to the information presented in the
accompanying statements of operations. Therefore, the Company has determined
that it operates in a single operating segment: Enterprise information portal
systems.
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 "risks factors" and elsewhere in this
quarterly report and in our other documents filed by the Company with the
Securities and Exchange Commission, including the Annual Report on Form 10-K for
the fiscal year ended December 31, 1999 and 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 for both business-to-business, or B2B, and
business-to-employee, or B2E use. An enterprise information portal gives
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users a single browser-based interface with which to quickly and easily access
information from a variety of enterprise data sources. We believe the Viador E-
Portal Suite offers a comprehensive and integrated enterprise information portal
that is specifically designed for the web and works with a customer's existing
hardware and software systems, without the need for additional technology
expenditures. It provides our customers with the ability to manage and share
information on a secure and cost-effective basis that can accommodate
significant increases in the number of users and amount of information. As more
users contribute increasing amounts of information to the portal, we believe our
customers are able to increase business productivity and efficiency.
Historically, we have focused our selling efforts in North America and derived
a significant majority of our revenue from North America. However, we believe
it is important to have an international presence and intend to continue to
conduct business in markets outside the United States through a combination of
subsidiaries and distributors. We conduct business internationally through a
variety of distribution and service partners. We use distributors in the
Netherlands, Germany, United Kingdom, Canada, Hong Kong, and Japan and plan to
expand our distributor channel to other international markets. In January
2000, we acquired a European distributor. See Note 6 of Notes to Condensed
Consolidated Financial Statments.
We were incorporated as Infospace Inc. in California in December 1995. In
January 1999, the Company changed its name to Viador, Inc. and we reincorporated
in the state of Delaware. 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. In the fourth quarter of 1999, we introduced the Business-
to-Business E-Portal, a product and services offering that will allow
personalized communication and information exchange between businesses.
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 (SOP) 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 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.
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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.
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 March 31, 2000, had an accumulated deficit of
approximately $28.2 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. 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 187 full-time employees as of March 31, 2000, up from 152 as of
December 31, 1999. 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. We believe that our future success will depend in part on our
continued ability to attract, hire and retain qualified personnel. The
competition for those personnel is intense, and there can be no assurance that
we will be able to identify, attract and retain those personnel in the future.
None of our employees is represented by a labor union, and management believes
that our employee relations are good.
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 ended
March 31,
---------------------
<S> <C> <C>
2000 1999
---- ----
Revenue:
License........................................... 79% 71%
Service........................................... 21% 29%
-----------------------
Total revenue................................. 100% 100%
----- -----
Cost of revenue.................................... (30%) (29%)
----- -----
Gross profit....................................... 70% 71%
----- -----
Operating expenses:
Sales and marketing............................... (118%) (160%)
Research and development.......................... (25%) (67%)
General and administrative........................ (27%) (25%)
Amortization of stock-based compensation.......... (6%) (21%)
----- -----
Total operating expenses...................... (176%) (273%)
----- -----
Operating loss..................................... (106%) (202%)
Interest income, net............................... 8% 3%
----- -----
Net loss........................................... (98%) (199%)
=======================
</TABLE>
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Revenue
Revenue increased by 333% to approximately $5.3 million for the three months
ended March 31, 2000 from approximately $1.2 million for the three months ended
March 31, 1999. For the three months ended March 31, 2000, license revenues and
service revenues accounted for 79% and 21% of total revenues, respectively. The
increases in revenue were due to an increase in the number of new customers and
increased usage by existing customers and were generated by an increase in sales
personnel.
License revenue increased by 384% to approximately $4.2 million for the three
months ended March 31, 2000 from approximately $866,000 for the three months
ended March 31, 1999. The increases in license revenue were due to the addition
of new customers, in both domestic and international markets, and the
introduction of new software products for three months ended March 31, 2000,
compared to the corresponding quarter in 1999.
Service revenue increased by 211% to approximately $1.1 million for the three
months ended March 31, 2000 from approximately $362,000 for the three months
ended March 31, 1999. The increases in service revenue primarily resulted from
an increase in consulting services provided in connection with an increased
customer base.
Cost of revenue
Our cost of revenue includes salaries and related expenses for our customer
maintenance and support, professional consulting and 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, and depreciation expenses.
The cost of license revenue has not been significant to date.
Cost of revenue increased by 358% to approximately $1.6 million for the three
months ended March 31, 2000 from approximately $353,000 for the three months
ended March 31, 1999. Cost of revenue increased to 30% of revenue for the three
months March 31, 2000 from 29% for the three months ended March 31, 1999. The
increase resulted primarily from the increase in labor force in the service
area. 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 and for amortization of
capitalized software development costs.
Operating 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 and depreciation expense for office furniture and equipment.
Sales and Marketing
Sales and marketing expenses increased by 218% to approximately $6.3 million
for the three months ended March 31, 2000 from approximately $2.0 million for
the three months ended March 31, 1999. The increases were
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primarily due to increased staffing, sales commissions, trade show events and
increased investment in international costs.
Research and Development
Research and development expenses increased by 59% to approximately $1.3
million for the three months ended March 31, 2000 from approximately $820,000
for the three months ended March 31, 1999. The increases in research and
development expenses were principally due to the increased number of engineers,
the launching of new products and the establishment of quality assurance
programs. We believe that our research and development is critical to our
future success and we anticipate that research and development expenses will
grow in future periods.
General and Administrative
General and administrative expenses increased by 376% to approximately $1.5
million for the three months ended March 31, 2000 from approximately $305,000
for the three months ended March 31, 1999. The increases are primarily due to
an increase in staffing and professional services for legal and accounting
reflecting increased business activity and support requirements.
Amortization of Stock-based Compensation
Amortization of stock-based compensation primarily consists of charges
incurred for employee stock options issued at less than the fair market value at
the date of grant. During the three months ended March 31, 2000, amortization
of deferred stock compensation totaled approximately $334,000.
Interest Income, Net
Interest income, net, increased to approximately $435,000 for the three months
ended March 31, 2000 from approximately $35,000 for the three months ended March
31,1999. Increase was due to investment of proceeds from our initial public
offering for the three month period ended March 31, 2000.
Provisions of Income Taxes
Because Viador has not generated any taxable income, Viador has provided no
income tax provision for the three months periods ended March 31, 2000 and
1999.
Net Loss
For the three months ended March 31, 2000 and 1999, net loss was $(5.2)
million, $(2.4) million, respectively or (98)% and (199)% of total revenues.
Liquidity and Capital Resources
From our inception, we have financed our operations primarily through an
initial public offering in which we raised money and private equity placements
totaling approximately $63.8 million. As of March 31, 2000, we had an
accumulated deficit of approximately $28.2 million and cash, cash equivalents
and short-term investments of approximately $33.0 million.
Net cash used in operating activities for the three months ended March 31,
2000 was approximately $4.1 million and resulted primarily from a net loss and
other negative changes in working capital. Net cash used in investing
activities for the three months ended March 31, 2000 was approximately $39.2
million and resulted from capital expenditures, purchase of short-term
investments, capitalization of software development costs, security deposit
and acquisition of business. Net cash provided by financing activities for the
three months ended March 31, 2000 was approximately $34,000 and resulted
primarily from the issuance of common stock.
As of March 31, 2000, Viador's principal source of liquidity was $33.0 million
in cash, cash equivalents, and short-term investments, representing a $11.8
million decrease from the December 31, 1999 balance of $44.7 million.
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Viador's cash, cash equivalents and short-term investments are managed to be
available for working capital, strategic investment opportunities, or other
potential cash needs in the future. Viador had $1 million notes payable as of
March 31, 2000, which was issued in connection with its acquisition of a
European distribution. See Note 6 of Notes to Condensed Consolidated Financial
Statements. Deferred revenue primarily consists of the unrecognized portion of
license and service revenues received pursuant to subscription and support
contracts, consulting and prepaid license royalties. Deferred revenue was
approximately $5 million as of March 31, 2000 and as of December 31, 1999.
Viador's principal commitments as of March 31, 2000 consisted of obligations
under noncancelable operating leases for monthly rent. Viador has $2.5 million
line of credit with a commercial bank for the purpose of financing working
capital requirements and equipment purchases. As of March 31, 2000, no amount
was outstanding thereunder. The loan contains certain standard covenants, is
based on a percentage of qualified outstanding accounts receivables and is
secured by a security interest in all of our intellectual property. Interest on
borrowing thereunder accrues at the rate of 1% over the bank rate, as announced
by the bank from time to time, for the line of credit and 1.25% over the bank
rate, as announced by the bank from time to time, for the equipment loan.
We believe that our existing cash, cash equivalents, short-term investments
and funds available under our existing credit facility 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 have
negotiated a lease for a new headquarters facility, which will provide space for
future growth. The monthly lease expense is significantly higher than our
previous 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 Disclosure
Since entering the year 2000, the Company has not experienced any major year
2000-related disruption in the operation of its systems. Although most year
2000 problems should have become evident on January 1, 2000, additional year
2000-related problems may become evident only after that day. The Company will
continue to monitor its operations and systems over the next couple of months
but does not expect to encounter any significant impacts to its business due to
year 2000 exposures. The Company has incurred no costs to date associated with
year 2000 remediation efforts and expects to incur only minimal expenses going
forward. See "Risk Factors That May Affect Future Results --- Risks Related to
Viador --- We are at risk for Year 2000 issues" on page 20.
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. We introduced the Business-to-
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Business E-Portal in the fourth 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.
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
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. 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 services consist of maintenance, support, consulting and implementation.
Service revenue represented 21% and 29% of total revenue for the three months
ended March 31, 2000 and 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 B2B E-Portal 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 March
31, 2000, we had an accumulated net deficit of approximately $28.2 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:
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. 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;
. 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.
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,
there were two customers whose revenues exceeded 10% of our total revenue for
each of the quarters ended December 31, 1999, September 30, 1999 and March 31,
1999. Another customer accounted for 18% of recognized revenue for the quarter
ended June 30, 1999. No customer accounted for more than 10% of quarterly
recognized revenue for the quarter ended March 31, 2000. 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 general and administrative expenses, are based on our
expectations of future revenue and are relatively fixed in the short
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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 1999, 1998 and 1997, and for the three months ended March 31, 2000 we
derived 6%, 12% and 14% and 17%, respectively, of our total revenue from sales
outside the United States. During the past three years, we have derived our
international revenue primarily from sales in Canada, Europe and Asia Pacific.
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.
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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. 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 Europe and Asia Pacific region (the region), such as
fluctuation in currency, general economic conditions in Japan and regulatory
uncertainties associated with being a foreign company doing business in the
region.
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.
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:
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. 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 Microsystems 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, 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.
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-
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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 are in the process of hiring a number of financial and accounting
personnel. 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 61 employees at December 31, 1997 to 85 employees
at December 31,1998 to 152 employees at December 31, 1999 to 187 employees at
March 31, 2000 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
Executive Vice President and General Manager, our Chief Technology Officer,
our Vice President of Worldwide Marketing, our Vice President of International
Business Development, 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. 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
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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.
We are at risk for Year 2000 issues.
We have not experienced any Year 2000-related disruption in the operation of
our systems. Although most Year 2000 problems should have become evident on
January 1, 2000, additional Year 2000-related problems may become evident in the
future and have a material adverse effect on our business and operations. See
Item 2, "Management's Discussion and Analysis of Financial Condition and Results
of Operations --- Year 2000 Disclosure" 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, Infoseek, Broden, Deloitte
consulting and others. 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 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
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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.
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
21
<PAGE>
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.
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
Investment Portfolio
Viador places its investments in instruments that meet high credit quality
standards, as specified in Viador's investment policy guidelines; the policy
also limits the amount of credit exposure to any one issue, issuer, or type of
instrument. Our interest income is sensitive to changes in the general level of
U.S. interest rates, particularly since the majority of our cash or cash
equivalent and short-term investments are in short-term instruments. Due to
the short-term nature of our investments, we believe that there is no material
risk exposure. As of March 31, 2000, our cash and short-term investments had a
weighted average interest rate of 6.1%. The fair value of our cash and short-
term investments approximates the book value as of March 31, 2000 and December
31, 1999 of $33.0 million, and $44.7 million, respectively. We have limited
exposure to financial market risks, including changes in interest rates. The
fair value of our investment portfolio and the related income would not be
significantly impacted by a 10% increase or decrease in interest rates due
mainly to the short-term nature of our investment portfolio.
22
<PAGE>
Impact of Foreign Currency Rate Change
We develop products in the United States and market our products in North
America, Europe and 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. We acquired a distributor
in Switzerland in January 2000 and are exposed to foreign exchange movement of
the Swiss Franc. As the majority 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. We also have
limited exposure to risk of changes in foreign currency exchange rates.
Consequently, our financial position and results of operations would not be
materially impacted by a 10% change in exchange rates.
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
(a) Modification to Instruments Defining the Rights of Common
Stockholders.
None
(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. On January 6, 2000, we issued a warrant to purchase 50,000
shares of our common stock at an exercise price of $45.00 per
share to Affiliated Computer Services, Inc. We received no
cash consideration for the warrant.
2. On January 31, 2000, we issued a warrant to purchase 50,000
shares of our common stock at an exercise price of $17.875
per share to Alza Corporation in connection with the
execution of a sublease. We received no cash consideration
for the warrant.
(d) Use of Proceeds. Paragraph references herein refer to the
respective paragraphs of Item 701(f) of Regulation S-K.
(4) Information regarding the offering.
(v) Amount of expenses incurred for the Company's account:
. underwriting discount: $2,898,000
. other expenses: estimated at approximated $1,270,000
. total expenses: estimated at approximately $4,168,000
(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: $37,232,000
(vii) Estimated amount of net proceeds used for:
. construction of plant, building and facilities: $ 0
. purchase and installation of machinery and equipment:
$ 3,000,000
. purchases of real estate: $0
. acquisition of other businesses: $1,000,000
. repayment of indebtedness: $0
23
<PAGE>
. working capital: $1,732,000
. short-term investments including certificates of
deposit, corporate bonds, federal $31,500,000 bonds,
money market funds and commercial paper:
. Total: $37,232,000
(A) On March 2, 2000 Steven C. Dille, our Vice
President of Worldwide Marketing, exercised some of
his stock options and delivered to us a full-recource
secured promissory note in the principal amount of
$7,875 for the purchase of such shares. We incorporate
by reference the information relating to compensation
paid to our directors and executives officers,
contained in our proxy statement which is Annex A to
our Annual Report on Form 10-K/A which was filed with
the Securities and Exchange Commission on May 1, 2000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
*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
**10.11 Alza Corporation Sublease to Viador Inc., by and between the
Registrant and Alza Corporation, dated January 31, 2000
**10.12 Stock Purchase Agreement, by and among Messrs. Andreas
Zwimpfer, David Keat, Charles Fraefel, Chula de Silva and Tim
Moser and the Registrant, dated January 20, 2000
27.1 Financial Data Schedule
- --------------------------------------------------------------------------------
* Incorporated by reference to Form S-1 (File No. 333-84041) filed on
October 25, 1999.
** Incorporated by reference to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1999, filed with the
Securities and Exchange Commission on March 30, 2000.
(b) Reports on Form 8-K.
The Company did not file any reports on Form 8-K during the quarter
ended March 31, 2000.
24
<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: May 15, 2000 VIADOR INC.
(Registrant)
Date: May 15, 2000 By: /s/ Stan X. Wang
---------------------
Stan X. Wang, Chief Executive Officer,
President, and Chairman of the Board of
Directors (Principal Executive Officer)
Date: May 15, 2000 By: /s/ Raja H. Venkatesh
---------------------
Raja H. Venkatesh, Vice President, Chief
Financial Officer and Secretary (Principal
Financial Officer and Principal Accounting
Officer)
25
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
*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
**10.11 Alza Corporation Sublease to Viador Inc., by and between the
Registrant and Alza Corporation, dated January 31, 2000
**10.12 Stock Purchase Agreement, by and among Messrs. Andreas Zwimpfer,
David Keat, Charles Fraefel, Chula de Silva and Tim
Moser and the Registrant, dated January 20, 2000
27.1 Financial Data Schedule
- --------------------------------------------------------------------------------
* Incorporated by reference to Form S-1 (File No. 333-84041) filed on
October 25, 1999.
** Incorporated by reference to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1999, filed with the
Securities and Exchange Commission on March 30, 2000.
(b) Reports on Form 8-K.
The Company did not file any reports on Form 8-K during the quarter
ended March 31, 2000.
26
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<PAGE>
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