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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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
June 30, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 000-28687
DIGITALTHINK, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 94-3244366
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION
INCORPORATION OR ORGANIZATION) NUMBER)
1098 HARRISON STREET, SAN FRANCISCO, CALIFORNIA 94103
(Address of principal executive offices) (Zip code)
(415) 625-4000
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
As of August 9, 2000, Registrant had outstanding 34,140,751 Common Stock, $0.001
par value.
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TABLE OF CONTENTS
PART I: FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited):
Condensed Statements of Operations - three months ended June 30,
2000 and June 30, 1999
Condensed Balance Sheets - June 30, 2000 and March 31, 2000
Condensed Statements of Cash Flows - three months ended
June 30, 2000 and June 30, 1999
Notes to Condensed Financial Statements
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations, including Factors Affecting Future Results
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
PART II: OTHER INFORMATION
ITEM 1. Legal Proceedings
ITEM 2. Changes in Securities and Use of Proceeds
ITEM 3. Defaults Upon Senior Securities
ITEM 4. Submission of Matters to a Vote of Security Holders
ITEM 5. Other Information
ITEM 6. Exhibits and Reports on Form 8-K
Signatures
<PAGE> 3
PART I: FINANCIAL INFORMATION
ITEM I: FINANCIAL STATEMENTS
DIGITALTHINK, INC.
BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
2000 2000
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 27,302 $ 54,854
Marketable securities 66,489 43,644
Accounts receivable, net of allowance for
doubtful accounts of $250 and $105, respectively 7,292 5,322
Prepaid expenses and other current assets 1,600 792
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Total current assets 102,683 104,612
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Property and equipment, net 7,600 5,564
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Total assets $ 110,283 $ 110,176
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Deferred revenue $ 10,905 $ 7,035
Accounts payable 4,010 2,243
Accrued liabilities 3,499 3,018
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Total liabilities 18,414 12,296
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Stockholders' equity (deficit):
Common stock - at $0.001 per share value; shares
authorized: 100,000 shares; issued and outstanding:
33,788 in March 2000 and 33,931 in June 2000 149,249 149,160
Deferred stock compensation (6,403) (7,953)
Accumulated deficit (50,977) (43,327)
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Total stockholders' equity 91,869 97,880
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Total liabilities and stockholders' equity $ 110,283 $ 110,176
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</TABLE>
<PAGE> 4
DIGITALTHINK, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED JUNE 30,
-----------------------
2000 1999
-------- --------
<S> <C> <C>
Revenues:
Delivered Learning fees $ 2,395 $ 458
Learning Solution services 3,867 716
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Total revenues 6,262 1,174
Costs and expenses:
Cost of Delivered Learning fees 1,012 318
Cost of Learning Solution services 2,281 374
Content research and development 2,820 616
Technology research and development 2,142 443
Selling and marketing 3,921 1,351
General and administrative 1,174 288
Depreciation and amortization 562 108
Stock-based compensation * 1,549 143
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Total costs and expenses 15,461 3,641
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Loss from operations (9,199) (2,467)
Interest and other income 1,549 92
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Net loss $ (7,650) $ (2,375)
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Basic and diluted loss per common share $ (0.23) $ (0.90)
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Shares used in basic and diluted loss per common share 33,867 4,145
Pro forma basic and diluted loss per common share $ (0.23) $ (0.16)
======== ========
Shares used in pro forma basic and diluted net
loss per common share 33,867 22,874
(*) Stock-based compensation:
Cost of Delivered Learning fees 41 15
Cost of Learning Solution services 159 13
Content research and development 25 7
Technology research and development 243 20
Selling and marketing 429 65
General and administrative 652 23
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Total 1,549 143
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</TABLE>
<PAGE> 5
DIGITALTHINK, INC.
STATEMENTS OF CASHFLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED JUNE 30,
-----------------------
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (7,650) $ (2,375)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 562 108
Amortization of deferred stock compensation 1,549 143
Changes in assets and liabilities:
Accounts receivable (1,970) 27
Other current assets (809) (234)
Other current liabilities 2,248 426
Deferred revenue 3,870 554
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Net cash used in operating activities (2,200) (1,351)
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Cash flows from investing activities:
Purchases of property and equipment (2,597) (272)
Purchases of marketable securities (33,345) -
Proceeds from maturities of marketable securities 10,500 -
Other assets 0 (16)
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Net cash used in investing activities (25,442) (288)
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Cash flows from financing activities:
Proceeds from sale of common stock 90 3
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Net cash provided by financing activities 90 3
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Net decrease in cash and equivalents (27,552) (1,636)
Cash and equivalents, beginning of quarter 54,854 9,455
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Cash and equivalents, end of quarter $ 27,302 $ 7,819
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</TABLE>
<PAGE> 6
Notes to Condensed Financial Statements (Unaudited)
1 - Basis of Presentation
The condensed financial statements included herein have been prepared by
DigitalThink, Inc., (the Company), without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes the disclosures which are made are adequate to make the
information presented not misleading. It is suggested that this document be
read in conjunction with the financial statements and the notes thereto
included in the Company's Annual Report to Stockholders for the fiscal year
ended March 31,2000.
The unaudited condensed financial statements included herein reflect all
adjustments (which include only normal, recurring adjustments) which are, in
the opinion of management, necessary to state fairly the results for the
periods presented. The results for such periods are not necessarily
indicative of the results to be expected for the entire fiscal year ending
March 31, 2001.
2 - Loss per Common Share
Basic loss per common share excludes dilution and is computed by dividing
loss attributable to common stockholders by the weighted average number of
common shares outstanding during the period. Diluted loss per common share
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common
stock. Common share equivalents are excluded from the computation in loss
periods as their effect would be anti-dilutive.
The Company's historical capital structure is not indicative of its
prospective structure due to the automatic conversion of all shares of
redeemable convertible preferred stock into common stock concurrent with the
closing of the Company's initial public offering occurring in February 2000.
Accordingly, a pro forma calculation is presented assuming the conversion of
all outstanding shares of redeemable convertible preferred stock into common
stock using the if-converted method from their respective dates of issuance.
The following table presents the calculation of actual and pro forma net
loss per common share (in thousands, except per share data):
<PAGE> 7
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------
JUNE 30, JUNE 30,
2000 1999
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<S> <C> <C>
Net Loss $ (7,650) $ (2,375)
Basic:
Weighted average shares of common stock outstanding used
in computing basic and diluted net loss per share 33,867 4,145
Basic and diluted net loss per share $ (0.23) (0.90)
Pro forma:
Net loss $ (7,650) $ (2,375)
Weighted average shares used in computing basic and diluted
net loss per share (from above) 33,867 4,145
Adjustment to reflect the effect of the assumed conversion of
preferred stock to common stock from the date of issuance -- 18,729
Weighted average shares used in computing pro forma basic
and diluted net loss per share 33,867 22,874
Pro forma basic and diluted net loss per common share $ (0.23) $ (0.16)
</TABLE>
3 - Revenue Recognition
Delivered Learning fees allow access to training systems, courses hosted by
the Company, tutor support, and other learning materials for a fixed period,
typically six months. Delivered Learning fees are recognized ratably over
this access period. Revenues for Learning Solution services (custom course
development) are recognized as earned in accordance with Statement of
Position (SOP) 81-1, Accounting for Performance of
Construction/Production - Type Contracts, as development progresses based on
percentage of completion method. We measure the percentage of completion
based on the ratio of actual custom development costs incurred to date on
each course to total estimated costs to complete the custom course.
Provisions for estimated losses on incomplete contracts will be made on a
contract by contract basis and recognized in the period in which such losses
become probable and can be reasonably estimated. To date, there have been no
such losses. Custom contracts typically call for non-refundable payments due
upon achievement of certain milestones in production of the courses.
Deferred revenues represent customer prepayments for both Delivered Learning
fees and Learning Solution services.
4 - Subsequent Events
On July 5, 2000, the Company, through a wholly owned subsidiary, purchased
all of the issued and outstanding shares of Arista Knowledge Systems, a
Delaware corporation, for a purchase price of approximately $20 million in
DigitalThink common stock and the payment of $3.5 million of Arista's debt.
<PAGE> 8
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This Management's Discussion and Analysis of Financial Condition and Results of
Operations and other parts of this Form 10-Q contain forward-looking statements
that involve risks and uncertainties. All forward-looking statements included in
this document are based on information available to the Company on the date
hereof, and the Company assumes no obligation to update any such forward-looking
statements. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth in "Factors Affecting Future Results".
REVENUES
Revenues increased from $1.2 million in the three months ended June 30, 1999 to
$6.3 million in the three months ended June 30, 2000. For the three months ended
June 30, 2000, Delivered Learning fees represented 38% of revenues and Learning
Solution services represented 62% of revenues. This is compared to the three
months ended June 30, 1999, during which Delivered Learning fees represented 39%
of revenues and Learning Solution services represented 61% of revenues.
Delivered Learning fees
Delivered Learning fees increased from $458,000 in the three months ended June
30, 1999 to $2.4 million in the three months ended June 30, 2000 as the number
of customers increased from approximately 120 to 271 and the number of courses
increased from 110 to 240. We expect that the number of courses and customers
will continue to increase as we expand our distribution channels and course
offerings.
Learning Solution services
Learning Solution services revenue increased from $716,000 in the three months
ended June 30, 1999 to $3.9 million in the three months ended June 30, 2000 as
the number of courses under development and the dollar size of the projects
increased. We expect that Delivered Learning fees and Learning Solution services
revenues will continue to account for a similarly significant portion of our
total revenues in the near term.
We market our products primarily through our direct sales channel and our
reseller system integrator partners in the United States. We also market our
products through resellers, customers, co-developers, and Internet portals.
Internationally, we opened our European operations headquartered in London in
May 2000 and have begun developing relationships with third party resellers. To
date, international revenues have been insignificant.
COSTS AND EXPENSES
Cost of Delivered Learning fees
Cost of Delivered Learning fees include personnel related costs, maintenance and
facility costs required to operate our Web site and to provide interactive tutor
support to participants in our courses. Cost of Delivered Learning fees
increased from $318,000 in the three months ended June 30, 1999 to $1.0 million
in the three months ended June 30, 2000. This increase was attributable to
increased personnel and equipment related expenses required for a greater number
of courses and an increased number of participants. In addition, a greater
number of customers and courses required additional support from tutors to
provide timely online responses to participants. Headcount, which excludes
third-party tutors related to cost of Delivered Learning fees, increased from 10
at June 30, 1999 to 24 at June 30, 2000.
<PAGE> 9
Cost of Learning Solution Services
Cost of Learning Solution services consists primarily of personnel related costs
and contractor expenses to develop custom and tailored courses for specific
customers. Cost of Learning Solution services increased from $374,000 in the
three months ended June 30, 1999 to $2.3 million in the three months ended June
30, 2000. This increase was primarily attributable to the need for additional
headcount to meet demand for the development of custom courses. Headcount, which
excludes third party tutors, related to cost of Learning Solution services
increased from 26 employees at June 30, 1999 to 76 employees at June 30, 2000.
Content Research and Development
Content research and development expenses represent costs to develop catalog
courses, including personnel related costs, content acquisition costs, royalties
paid to authors and content editing. Content research and development expenses
increased from $616,000 in the three months ended June 30, 1999 to $2.8 million
in the three months ended June 30, 2000. This increase was due to higher content
acquisition related fees related to the purchase of new content, in particular
costs associated with significantly revising our e-commerce product offerings,
and the hiring of additional personnel to expand the number of courses offered
in our catalog. Headcount in content research and development increased from 27
employees at June 30, 1999 to 36 employees at June 30, 2000. Management believes
that continued investment in content development and content acquisition is
essential to expand our business. As a result, we expect these expenses to
increase substantially in future periods.
Technology Research and Development
Technology research and development expenses consist primarily of personnel
related costs in connection with product development efforts of underlying
technology. Technology research and development expenses increased from $443,000
in the three months ended June 30, 1999 to $2.1 million in the three months
ended June 30, 2000. This increase was primarily attributable to the hiring of
software engineers. Headcount increased from 13 employees at June 30, 1999 to 46
employees at June 30, 2000. Management believes that continued investment in
technology research and development is essential to our future success and
expects these expenses to increase in future periods.
Selling and Marketing
Selling and marketing expenses consist primarily of personnel related costs,
commissions, advertising and other promotional expenses, and travel and
entertainment expenses. Selling and marketing expenses increased from $1.4
million in the three months ended June 30, 1999 to $3.9 million in the three
months ended June 30, 2000. This increase reflects the costs associated with the
hiring of additional personnel and increased promotional activities. Headcount
in selling and marketing increased from 31 at June 30, 1999 to 63 at June 30,
2000. We expect selling and marketing expenses will continue to increase as we
continue to expand our selling and marketing efforts, establish additional sales
territories and increase our promotional activities.
General and Administrative
General and administrative expenses consist primarily of personnel related
costs, occupancy costs, insurance related costs, and professional services fees.
General and administrative expenses increased from $288,000 in the three months
ended June 30, 1999 to $1.2 million in the three months ended June 30, 2000.
This increase was due to an increase in personnel related costs, higher
occupancy costs and fees related to insurance and professional services.
Headcount increased from 8 employees at June 30, 1999 to 25 employees at June
30, 2000. Management expects general and administrative expenses will continue
to increase in the future as we expand our staff and incur additional costs to
support the targeted growth of our business.
<PAGE> 10
Stock-Based Compensation
Stock-based compensation expense increased from $143,000 in the three months
ended June 30, 1999 to $1.5 million in the three months ended June 30, 2000.
Net Loss
The net loss increased from $2.4 million in the three months ended June 30, 1999
to $7.7 million in the three months ended June 30, 2000.
Liquidity and Capital Resources
Net cash used in operating activities totaled $2.2 million for the three months
ended June 30, 2000 and $1.4 million for the comparable prior year period. Cash
used in operating activities for the current period resulted from net operating
losses and increases in accounts receivable, offset in part by increases in
deferred revenue and current liabilities. To date, we have met our operating
expense requirements primarily from the proceeds of offerings. Accounts
receivable increased from $5.3 million at March 31, 2000 to $7.3 million at June
30, 2000, due to increased sales. Deferred revenue increased from $7.0 million
at March 31, 2000 to $10.9 million at June 30, 2000. Deferred revenue results
from customer prepayments of Delivered Learning fees and Learning Solution
services. In both cases, prepayments remain in deferred revenue until revenue
recognition criteria have been met. Other current liabilities have increased
from $5.3 million at March 31, 2000 to $7.5 million on June 30, 2000. This
increase is due to our continuing expansion and increasing headcount.
Net cash used in investing activities totaled $25.4 million in the three months
ended June 30, 2000 and $288,000 for the comparable prior year period. The
increase resulted from the acquisition of capital assets, including hardware for
our Website, and computer and office related equipment and the purchase ($33.3
million) and sale ($10.5 million) of marketable securities.
Cash provided by financing activities totaled $90,000 in the three months ended
June 30, 2000 and $3,000 in the three months ended June 30, 1999. The amounts
provided in both periods were the result of the proceeds generated from exercise
of employee options.
We believe our existing cash resources are sufficient to finance our presently
anticipated operating expenses and working capital requirement for at least the
next twelve months. Our future liquidity and capital requirements will depend on
numerous factors. The rate of expansion of our operations in response to
potential growth opportunities and competitive pressures will affect our capital
requirements as will funding of continued net losses and substantial negative
cash flows. Additionally, we may need additional capital to fund acquisitions of
complementary businesses, products, and technologies. Our forecast of the period
of time through which our financial resources will be adequate to support
operations is a forward-looking statement that involves risks and uncertainties.
Actual resources sought may differ materially. We may seek to sell additional
equity or debt securities or secure a bank line of credit. Currently, we have no
other immediately available sources of liquidity. The sale of additional equity
or other securities could result in additional dilution to our stockholders.
Arrangement for additional financing may not be available in amounts or on terms
acceptable to us, if at all.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities, which defines derivatives, requires that all
derivatives be carried at fair value, and provides for hedge accounting when
certain conditions are met. SFAS No. 133 is effective for us in fiscal 2002. We
do not believe that the adoption of this statement will have a material impact
on our financial position or results of operations.
<PAGE> 11
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin (SAB) No. 110, "Revenue Recognition in Financial Statements," which
provides the SEC staff's views on selected revenue recognition issues. The
guidance in SAB 101 must be adopted by the Company's fourth quarter of fiscal
year 2001 and the effects, if any, are required to be recorded through a
retroactive, cumulative-effect adjustment as of the beginning of the fiscal
year, with a restatement of all prior interim quarters in the year. Management
has not completed it's evaluation of the effects, if any, that SAB 101 will have
on the Company's income statement presentation, operating results or financial
position.
Subsequent Events
On July 5, 2000, the Company, through a wholly owned subsidiary, purchased all
of the issued and outstanding shares of Arista Knowledge Systems, Inc. (Arista),
a Delaware corporation, for a purchase price of approximately $20 million in
DigitalThink common stock and the payment of $3.5 million of Arista's debt. The
Company expects to record an after-tax charge related to in-process research and
development in connection with this acquisition in the second quarter of fiscal
2001. The amount of such charge cannot presently be estimated.
On July 11, 2000 the Company entered into an agreement with Electronic Data
Systems Corporation (EDS) pursuant to which EDS has been issued two separate
performance warrants to purchase shares of DigitalThink common stock. Under the
terms of the first warrant, EDS can earn warrants to purchase up to 850,000
shares of DigitalThink common stock exercisable at $29 per share. The warrant is
earned when EDS delivers third-party customers from the United States prior to
July 31, 2003, which generate a total of $50 million of contractually committed
revenue to DigitalThink recognizable by July 31, 2005. The warrants must be
exercised by October 31, 2003. This warrant contains a significant disincentive
for non-performance. If EDS fails to deliver the full $50 million of contracted
United States, revenue by July 31, 2003, EDS has agreed to pay DigitalThink $5
million.
Under the terms of the second warrant, EDS can earn warrants for up to 680,000
shares of DigitalThink common stock exercisable at $29 per share. The warrant is
earned when EDS delivers third-party customers from outside the United States
prior to July 31, 2003, which generate a total of $50 million of contractually
committed revenue to DigitalThink recognizable by July 31, 2005. The warrants
must be exercised by October 31, 2003. This warrant contains a significant
disincentive for non-performance. If EDS fails to deliver the full $50 million
of contracted revenue , non-United States revenue by July 31, 2003, EDS has
agreed to pay DigitalThink $5 million.
The Company expects to incur a fixed non-cash charge of $30 million to $40
million over the next three years related to this transaction. This estimate of
the charge is based on the fair value of the warrants issued. The exact amount
of this charge is expected to be determined by the end of the second quarter of
fiscal 2001.
FACTORS AFFECTING FUTURE RESULTS.
WE COMMENCED OPERATIONS IN APRIL 1996 AND OUR LIMITED OPERATING HISTORY AND THE
NEW AND EMERGING E-LEARNING MARKET MAKES IT DIFFICULT TO EVALUATE OUR BUSINESS
AND FUTURE PROSPECTS.
We commenced operations in April 1996 and did not begin to generate
significant revenues until fiscal 1999, which ended on March 31, 1999. In fiscal
2000, we had revenues of $10.8 million. We are still in the early stages of our
development, which, when combined with the new and emerging market for Web-based
delivery of learning programs, or e-learning market, make it difficult to
evaluate our business or our prospects. Because of our limited operating
history, we have a limited and unproven ability to predict the trends that may
emerge in the e-learning market and affect our business. The uncertainty of our
<PAGE> 12
future performance, in general, and the uncertainty regarding the acceptance of
e-learning, in particular, increases the risk that we will be unable to build a
sustainable business and that our stockholder value will decline.
WE HAVE A HISTORY OF LOSSES AND A LARGE ACCUMULATED DEFICIT OF $51 MILLION AT
JUNE 30, 2000. WE EXPECT FUTURE LOSSES AND WE MAY NOT ACHIEVE OR MAINTAIN
PROFITABILITY.
We have experienced losses in each quarter since our inception and
expect that our losses will increase in each quarter at least through the end of
fiscal 2001. Our accumulated deficit as of June 30, 2000 was $51 million. We
have never achieved a profitable quarter and we expect to continue to incur
increasing quarterly losses as we expand our operations and fund our growth. We
plan to increase our operating expenses to market, sell and support our
e-learning solutions, build infrastructure and hire additional staff. We also
plan to invest heavily to develop and acquire new course offerings with new
areas of expertise, which will increase operating expenses in absolute dollars.
We currently expect our total costs and expenses to be at least $55.0 million in
fiscal 2001. As a result, we will need to significantly increase our quarterly
revenues to achieve profitability. If we do not generate sufficient revenues or
become profitable within a timeframe expected by public market analysts or
investors, the market price of our common stock will likely decline. Even if we
do achieve profitability, we may not be able to sustain or increase
profitability on a quarterly or annual basis in the future.
OUR QUARTERLY OPERATING RESULTS ARE SUBJECT TO FLUCTUATIONS WHICH COULD
ADVERSELY AFFECT OUR STOCK PRICE.
Our revenue and operating results are volatile and difficult to predict
and may be susceptible to declines in future periods. Our quarterly results of
operations may fluctuate significantly in the future due to shortfalls in
revenues or orders. We therefore believe that quarter to quarter comparisons of
our operating results may not be a good indication of our future performance. In
the event of a revenue or order shortfall or unanticipated expenses in some
future quarter or quarters, our operating results may be below the expectations
of public market analysts or investors. In such an event, the price of our
common stock may decline significantly. Due to the factors discussed in this
risk factors section and because we are engaged in a relatively new and emerging
business, revenue and operating results for the foreseeable future are difficult
to forecast. Our current and future expense estimates are largely fixed and
based, to a significant degree, on our estimates of future revenue. We will
likely be unable to, or may elect not to, reduce spending quickly enough to
offset any unexpected revenue shortfall. Therefore, any significant shortfall in
revenue in relation to our expectations would cause our quarterly results for a
particular period to decline.
OUR RECOGNITION OF REVENUE IS DEPENDENT UPON THE ACHIEVEMENT OF VARIOUS
MILESTONES, AND OUR INABILITY TO RECOGNIZE REVENUE IN ACCORDANCE WITH OUR
EXPECTATIONS WILL HARM OUR OPERATING RESULTS.
In accordance with our revenue recognition policy, our ability to record
revenues depends upon several factors. These factors include acceptance by our
customers of new courses and the pace of participant registrations in courses
once they are completed and made available on our Web site. All of our customer
contracts provide that at least a portion of our revenues depend on either
course completion or participant registration, or both. Revenues from
custom-tailored courses accounted for approximately 54% of our total revenues
for the fiscal year ended March 31, 2000. Custom-tailored course revenues are
dependent upon customers providing us with the subject matter expertise to be
incorporated into the course as well as our completion of production and
customer sign-off. Accordingly, if customers do not provide us with the specific
subject matter content in a timely manner, our ability to recognize revenues
will be harmed, which would harm our operating results. In addition, if
participant registration, which requires the participants to come to our Web
site to sign up for a course, does not proceed as expected, our ability to
recognize revenues will be delayed, which will also harm our operating results.
Participant registration depends in large part on the promotional activities of
our customers. If customers fail to take necessary measures to require employee
enrollment in courses or if they fail to promote the course effectively to
<PAGE> 13
persons outside their organization, our ability to recognize revenues, and
therefore our operating results, could be harmed.
WE HAVE RELIED, AND EXPECT TO CONTINUE TO RELY, ON A LIMITED NUMBER OF CUSTOMERS
FOR THE MAJORITY OF OUR REVENUES, AND ANY DELAY IN RECEIVING REVENUES FROM THESE
CUSTOMERS COULD HARM OUR FINANCIAL PERFORMANCE IN ANY QUARTER.
During fiscal 2000, we derived more than 50% of our revenues from six
customers. As a result, our operating results could suffer if we lost any of
these customers or if revenues from these customers are delayed in any future
fiscal period. For example, in fiscal 2000, KPMG, LLP accounted for 32% of our
total revenues. No other single customer has accounted for more than 10% of our
revenues in fiscal 2000. In fiscal 1999, no customer accounted for more than 10%
of our revenues although our five largest customers accounted for 40% of our
revenues. We expect that we will continue to depend upon a small number of
customers for a significant portion of our revenues.
OUR FUTURE GROWTH DEPENDS ON SUCCESSFUL HIRING AND RETENTION, INCLUDING HIRING
AND RETENTION OF THIRD-PARTY TUTORS, AND WE MAY BE UNABLE TO HIRE AND RETAIN THE
SKILLED PERSONNEL WE NEED TO SUCCEED.
Our future growth depends on successful hiring and retention, and we may
be unable to hire and retain the skilled personnel we need to succeed. The
growth of our business and revenues will depend in large part upon our ability
to attract and retain sufficient numbers of highly skilled employees,
particularly course content developers, Web designers and technical and sales
personnel. Additionally, we primarily rely on individual third parties to
provide the majority of our tutoring and our ability to adequately support our
courses is directly tied to the availability and competency of these third-party
tutors. Qualified personnel are in great demand throughout education and
Internet-related industries and we require personnel with both educational
course design experience as well as experience in Web design. The number of
potential candidates with experience in both these areas is limited. The demand
for qualified personnel is particularly acute in the San Francisco Bay Area
market in which we compete for a majority of these personnel due to the large
number of Internet companies and the low unemployment rate in the region. We
also face non-geographically based competition for tutors because we can utilize
the services of any individual with the requisite course subject matter
knowledge and e-mail communication skills, as well as reliable Internet access
and the ability to work as a self-managed contractor. Currently, we contract
with individual tutors throughout the United States, as well as in the United
Kingdom, New Zealand and Australia. Our failure to attract and retain sufficient
skilled personnel and tutors may limit the rate at which we can grow, which will
harm our business and financial performance.
OUR BUSINESS WILL SUFFER IF E-LEARNING IS NOT WIDELY ACCEPTED.
The market for e-learning solutions is new and rapidly evolving. We
expect that we will engage in intensive marketing and sales efforts to educate
prospective customers about the benefits of our e-learning solutions. There are
a number of factors that could impact the acceptance of our e-learning
solutions, which are new and largely untested compared to more established
educational methods, including:
- companies that have historically relied on, or invested in,
traditional educational methods may be reluctant or slow to adopt
Web-based e-learning solutions;
- many of our potential customers have allocated only a limited
portion of their education budgets to e-learning; and
- end users may not use online learning solutions effectively.
If the market for e-learning fails to develop or develops more slowly than we
expect, we will not achieve our growth and revenue targets and the value of our
common stock will likely decline.
THE VARIABILITY AND LENGTH OF OUR SALES CYCLE FOR OUR E-LEARNING SOLUTIONS MAY
MAKE OUR OPERATING RESULTS UNPREDICTABLE AND VOLATILE.
The period between our initial contact with a potential customer and the
first purchase of our solution by that customer typically ranges from three to
nine months, and in some cases has extended for close to two years. Because we
rely on large sales for a substantial portion of our revenues, these long sales
<PAGE> 14
cycles can have a particularly significant effect on our financial performance
in any quarter. Factors which may contribute to the variability and length of
our sales cycle include: - the time required to educate potential customers
about the benefits of our e-learning solutions;
- the time it takes our potential customers to assess the value of
online solutions compared to more traditional educational
solutions;
- the time it takes our potential customers to evaluate competitive
online solutions;
- our potential customers' internal budget and approval processes;
and
- the extended periods most large corporations require to make
purchasing decisions.
As a result of our lengthy sales cycle, we have only a limited ability
to forecast the timing and size of specific sales. This, in turn, makes it more
difficult to predict quarterly financial performance.
THE E-LEARNING MARKET IS HIGHLY COMPETITIVE AND WE MAY NOT HAVE ADEQUATE
RESOURCES TO COMPETE EFFECTIVELY, ACQUIRE AND RETAIN CUSTOMERS AND ATTAIN FUTURE
GROWTH.
The e-learning market is evolving quickly and is subject to rapid
technological change, shifts in customer demands and evolving learning
methodologies. The recent shift in customer demand from CD-ROM delivered
training to the use of the Internet for providing interactive courses is one
example of a technological change that has affected the e-learning market.
Future evolutions may include such technology innovations as increased bandwidth
connections to the home, the adoption of a standard for receiving voice or video
transmissions over the Internet, and development of new online learning
methodologies that achieve better knowledge results for adult learners. Our
failure to adapt to changes in our industry could cause us to lose existing
customers or fail to gain new customers. Although the e-learning market is
highly fragmented with no single competitor accounting for a dominant market
share, competition is intense. We compete primarily with:
- third-party suppliers of instructor-led education and learning;
- internal education departments; and
- other suppliers of technology-based learning solutions.
Due to the high market fragmentation, we do not often compete
head-to-head with any particular company. On occasion, our customers may
evaluate our end-to-end solution by comparison with point solutions offered
by other e-learning companies. These companies may include click2learn.com,
Inc., NETg (a unit of Harcourt), SmartForce Corporation and SmartPlanet (a
division of Ziff-Davis, Inc.). We may not provide solutions that compare
favorably with traditional or new instructor-led techniques or other
technology-based learning methodologies.
Our competitors vary in size and in the scope and breadth of the courses
and services they offer. Several of our competitors have longer operating
histories and significantly greater financial, technical and marketing
resources. In addition, larger companies may enter the e-learning market through
the acquisition of our competitors. We anticipate that the lack of significant
entry barriers to the e-learning market will allow other competitors to enter
the market, increasing competition. To succeed, we must continue to expand our
course offerings, upgrade our technology and distinguish our solution. We may
not be able to do so successfully. Any failure by us to anticipate or respond
adequately to changes in technology and customer preferences, or any significant
delays in course development or implementation, could impact our ability to
capture market share. As competition continues to intensify, we expect the
e-learning market to undergo significant price competition. We also expect to
face increasing price pressures from customers as they demand more value for
their learning related expenditures. Increased competition or our inability to
compete successfully against current and future competitors could result in
reduced operating margins, as well as loss of market share and reduction in
brand recognition.
WE MUST DELIVER COURSES THAT MEET THE NEEDS OF OUR CUSTOMERS OR OUR BUSINESS
WILL SUFFER.
To be competitive, we must develop and introduce on a timely basis new
course offerings which meet the needs of companies seeking to use our e-learning
<PAGE> 15
solutions. Furthermore, the quality of our learning solutions depends in large
part on our ability to frequently update our courses and develop new content as
the underlying subject matter changes. We create courses both by using subject
matter expertise provided by our customers, which we then incorporate into an
educational course format, and through material obtained from third-party
content developers. The quality of our courses depends on our receiving content
and cooperation from the following sources:
- customers, who provide us with specific subject matter expertise
for incorporation into many of our courses; and
- third-party content developers, who provide us with much of the
content for our catalog courses.
If we do not receive materials from the above sources in a timely
manner, we may not be able to develop or deliver specialized courses for our
customers in the time frame they are expecting. Even if we do receive necessary
materials from third parties, if our employees and consultants, upon whom we
rely for instructional and Web design expertise, fail to complete their work in
a timely manner, we will be unable to meet customer expectations. In the past,
we have experienced delays in obtaining access to our customers' expertise. Any
prolonged delays, even when caused by our customers, can damage our reputation
and lead to a failure to satisfy a customer's demands.
OUR PLANS TO EXPAND THE SCOPE OF OUR COURSES TO FIELDS OTHER THAN INFORMATION
TECHNOLOGY MAY DEPEND ON OUR ABILITY TO ATTRACT EXPERTS OR SPECIALISTS, AND IF
WE ARE UNABLE TO ATTRACT THE NECESSARY EXPERTISE, WE WILL NOT BE ABLE TO ENTER
NEW FIELDS.
Our strategy involves broadening the fields presently covered by our
courses. In particular, to date we have been primarily focused on courses in the
information technology area, and we are currently planning to develop and
introduce new course offerings in healthcare and other fields. These new course
offerings may encompass areas in which we have little or no experience or
expertise. Therefore, our ability to expand our courses into these areas may
require us to locate and evaluate third-party experts or specialists who would
develop or assist us in developing the course content. If we are unable to
locate and evaluate these experts, we may fail to develop the courses our
customers demand or be unable to pursue new market opportunities. Any failure of
ours to expand our course offerings to new fields could constrain our revenue
growth and harm our future prospects.
TO REMAIN COMPETITIVE, WE MUST KEEP PACE WITH RAPID TECHNOLOGICAL CHANGES IN OUR
INDUSTRY.
The e-learning market is characterized by rapidly changing technologies,
frequent new service introductions, short development cycles and evolving
standards. We must adapt to rapidly changing technologies by maintaining and
improving the performance features and reliability of our courses. We may
experience technical difficulties that could delay or prevent the successful
development, introduction or marketing of new courses and related services. For
instance, adding capabilities to deliver video over the Internet to our courses
may be desired by some customers and may nevertheless pose a serious technical
challenge and could have a negative impact on our ability to develop and deliver
courses on a profitable basis. In addition, any new enhancements to our courses
must meet the requirements of our current and prospective customers and
participants. We could incur substantial costs to modify our services or
infrastructure to adapt to rapid technological change.
WE ARE GROWING RAPIDLY AND IF WE FAIL TO MANAGE OUR GROWTH EFFECTIVELY, WE MAY
NOT BE ABLE TO TAKE ADVANTAGE OF MARKET OPPORTUNITIES, WHICH WOULD SEVERELY
IMPACT OUR ABILITY TO COMPETE.
Our recent rapid growth has placed, and future anticipated growth is
likely to continue to place, a considerable strain on our managerial resources.
We have grown from 33 employees on January 1, 1998 to 270 employees on June
30, 2000. We plan to continue to expand our sales and marketing, administration,
content and technology development and tutoring organizations. In order to
<PAGE> 16
manage this growth effectively, we will need to improve our financial and
managerial controls, our reporting systems and procedures. In addition, we will
need to expand, train and manage our work force, which we anticipate will expand
significantly. If we fail to manage our growth effectively, we will not be able
to capitalize on attractive business opportunities and may fail to adequately
support our existing customer base. Should this occur, our reputation and
competitive position could be seriously damaged.
IF WE DO NOT DEVELOP OUR INDIRECT SALES CHANNELS, WE WILL BE LESS LIKELY TO
INCREASE OUR REVENUES.
If we do not develop our indirect sales channels, we will be less likely
to increase our revenues. To date, more than 90% of our sales have been made
through direct sales efforts. We believe that we will need to diversify our
sales efforts if we are to be successful. If we do not develop indirect sales
channels, we may miss sales opportunities that might be available through these
other channels. For example, domestic and international resellers may be able to
reach new customers more quickly or more effectively than our direct sales
force. We are currently investing in personnel and marketing activities to
develop indirect sales channels including instructor-led training companies that
are seeking to provide an e-learning product offering, e-commerce Web sites that
sell Web-based learning, and other market participants such as software
producers and systems integrators who provide learning as an additional service
to their clients. Although we are currently investing to develop these indirect
sales channels, we may not succeed in establishing a channel that can
effectively market our e-learning solutions on a profitable basis. In addition,
our direct sales force may compete with these resellers, and we may not be able
to manage conflicts across our direct and indirect sales channels. Our focus on
increasing sales through our indirect channel may divert management resources
and attention from direct sales. Conflicts across sales channels could cause us
to encounter pricing pressures and lose revenue opportunities, which could harm
our business and cause our operating results to decline.
IN ORDER TO ADDRESS THE EXPECTED GROWTH IN OUR BUSINESS WE MUST CONTINUE TO
IMPROVE THE CAPACITY OF OUR COMPUTER NETWORK; ANY FAILURE OF OUR NETWORK WOULD
DIRECTLY IMPACT OUR ABILITY TO DELIVER COURSES AND WOULD LIKELY LEAD TO
SIGNIFICANT LOSSES AND CUSTOMER DISSATISFACTION.
In order to address the expected growth in our business we must continue
to improve the capacity of our computer network. The continuing and
uninterrupted performance of our internal computer network and Internet course
servers is critical to our success. Any system failure that causes interruptions
or delays in our ability to make our courses accessible to customers could
reduce customer satisfaction and, if sustained or repeated, could reduce the
attractiveness of our courses and services and result in significant revenue
losses. We are particularly vulnerable to network failures during periods of
rapid growth when our roster of courses and participants can outpace our network
capacity. The continued viability of our business requires us to support
multiple participants concurrently and deliver fast response times with minimal
network delays. We are continuing to add system capacity, but we may not be able
to adequately address network capacity, especially during periods of rapid
growth. Any failure to meet these capacity requirements could lead to additional
expenditures, lost business opportunities and damage to our reputation and
competitive position.
ANY FAILURE OF, OR CAPACITY CONSTRAINTS IN, THE SYSTEMS OF THIRD PARTIES ON
WHICH WE RELY COULD ADVERSELY AFFECT OUR BUSINESS.
Our communications hardware and some of our other computer hardware
operations are located at the facilities of Exodus Communications, Inc. in Santa
Clara, California. Unexpected events such as natural disasters, power losses and
vandalism could damage our systems. Telecommunications failures, computer
viruses, electronic break-ins, earthquakes, fires, floods, other natural
disasters or other similar disruptive problems could adversely affect the
operation of our systems. Despite precautions we have taken, unanticipated
problems affecting our systems in the future could cause interruptions or delays
in the delivery of our courses. The failure of our telecommunications provider
or Exodus, which together provide us with our Internet connection, to provide
sufficient and timely data communications capacity and network infrastructure
could cause service interruptions or slower response times, and reduce customer
<PAGE> 17
demand for our courses and services. Our insurance policies may not adequately
compensate us for any losses that may occur due to any damages or interruptions
in our systems. Accordingly, we could be required to make capital expenditures
in the event of damage. We do not currently have fully redundant systems or a
formal disaster recovery plan. Our Web site must accommodate a high volume of
traffic and deliver courses and other information in a timely manner. Our Web
site has experienced in the past, and may experience in the future, slow
response times for a variety of reasons. We periodically experience unscheduled
system downtime, which results in our Web site being inaccessible to
participants. Since September 1, 1999, we have experienced 19 instances of
unscheduled system downtime which on average have resulted in our Web site being
entirely inaccessible to course participants for approximately 1.5 hours.
Although we have not suffered material losses during these downtimes, if we
experience extended downtime in the future, customers and our course
participants could lose confidence in our services.
WE CURRENTLY INTEND TO EXPAND INTERNATIONALLY AND, AS A RESULT, WE COULD BECOME
SUBJECT TO NEW RISKS.
Our strategy includes international expansion of our business. To date,
however, we have not received revenues from customers outside of the United
States. Our current plans include expansion into the United Kingdom, which began
during the first quarter of fiscal 2001 and possible expansion into Japan during
fiscal 2001. Our prospects in Japan could be affected by recessionary economic
conditions, which prevailed for much of the 1990's. In the United Kingdom, we
could be affected by political and monetary changes, including European
unification and introduction of the Euro. This international expansion will
require significant management attention and financial resources and could harm
our financial performance by increasing our costs. We have very limited
experience in marketing, selling and distributing courses internationally. We
could become subject to additional risks as we expand internationally,
including:
- difficulties in staffing and managing international operations;
- our inability to develop content localized for international
jurisdictions;
- protectionist laws and business practices that favor local
competition;
- multiple, conflicting and changing governmental laws and
regulations;
- slower adoption of e-learning solutions;
- different learning styles;
- longer sales and payment cycles;
- greater difficulties in collecting accounts receivable;
- fluctuations in currency exchange rates;
- political and economic instability;
- potentially adverse tax consequences;
- little or no protection of our intellectual property rights in some
foreign countries, particularly less developed countries; and
- increases in tariffs, duties, price controls or other restrictions
on foreign currencies or trade barriers imposed by foreign
countries.
If we encounter these factors in connection with our current and future
expansions in the United Kingdom and Japan, our revenues could fall below
expectations, which would harm our business and operating results. In this
event, our stock price could decline.
OUR INABILITY TO PROTECT OUR INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS AND
OUR INTERNET DOMAIN NAME COULD LEAD TO UNAUTHORIZED USE OF OUR COURSES OR
RESTRICT OUR ABILITY TO MARKET OUR COURSES.
Our success depends, in part, on our ability to protect our proprietary
rights and technology. We rely on a combination of copyrights, trademarks,
service marks, trade secret laws and employee and third-party nondisclosure
agreements to protect our proprietary rights. Despite our efforts to protect
these rights, unauthorized parties may attempt to duplicate or copy our courses
or our delivery technology or obtain and use information that we regard as
proprietary. In addition, the laws of many countries do not protect our
proprietary rights to as great an extent as do the laws of the United States. As
a consequence, effective trademark, service mark, copyright and trade secret
<PAGE> 18
protection may not be available in every country in which our courses and
services are made available. We have registered the trademark DigitalThink and
we own the domain name digitalthink.com. It is possible, however, that third
parties could acquire trademarks or domain names that are substantially similar
or conceptually similar to our trademarks or domain names. This could decrease
the value of our trademarks or domain names and could hurt our business. The
regulation of domain names in the United States and in foreign countries is
subject to change. The relationship between regulations governing domain names
and laws protecting trademarks and similar proprietary rights is unclear. As a
result, we may not acquire or maintain exclusive rights to our domain names in
the United States or in other countries in which we conduct business. We may
from time to time encounter disputes over rights and obligations concerning
intellectual property. We obtain the content for many of our courses from our
customers and it is possible that the use of this content may subject us to the
intellectual property claims of third parties. Although we generally seek
indemnification from our customers to protect us from these types of claims, we
may not be fully protected from extensive damage claims or claims for injunctive
relief. In addition, our customers may assert that some of the courses we
develop for our general catalog or under contract with other customers may
improperly use their proprietary content. Our involvement in any litigation to
resolve intellectual property ownership matters would require us to incur
substantial costs and divert management's attention and resources. In addition,
we cannot predict the effect of a failure to prevail in any litigation of this
kind.
PROVISIONS OF OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY HAVE ANTI-TAKEOVER
EFFECTS THAT COULD PREVENT A CHANGE IN OUR CONTROL, EVEN IF THIS WOULD BE
BENEFICIAL TO STOCKHOLDERS.
Provisions of our amended and restated certificate of incorporation,
bylaws and Delaware law could make it more difficult for a third party to
acquire us, even if doing so would be beneficial to our stockholders. These
provisions include:
- a classified board of directors, in which our board is divided into
three classes with three year terms with only one class elected at
each annual meeting of stockholders, which means that a holder of a
majority of our common stock will need two annual meetings of
stockholders to gain control of the board;
- a provision which prohibits our stockholders from acting by written
consent without a meeting;
- a provision which permits only the board of directors, the
president or the chairman to call special meetings of stockholders;
and
- a provision which requires advance notice of items of business to
be brought before stockholders meetings. In addition, amending any
of the above provisions will require the vote of the holders of 66
2/3% of our outstanding common stock.
DIRECTORS, EXECUTIVE OFFICERS AND THEIR AFFILIATED ENTITIES HOLD A SUBSTANTIAL
AMOUNT OF OUR STOCK AND ARE ABLE TO CONTROL MATTERS REQUIRING STOCKHOLDER
APPROVAL.
Our directors, executive officers and their affiliated entities own
approximately 49.3% of our outstanding capital stock. As a result, these
stockholders, acting together, are able to control all matters requiring
approval by the stockholders, including the election of all directors and
approval of significant corporate transactions.
WE ARE SUBJECT TO A PENDING LEGAL PROCEEDING AND MAY BECOME SUBJECT TO
ADDITIONAL PROCEEDINGS, AND ADVERSE DETERMINATIONS IN THESE PROCEEDINGS COULD
HARM OUR BUSINESS.
We may be from time to time involved in various lawsuits and legal
proceedings which arise in the ordinary course of business. For example, we are
currently the subject of a lawsuit with one of our former employees which was
filed in the Superior Court of the State of California for the County of San
Francisco. The former employee is seeking commissions and pursuing other claims
against us and our executives. We intend to contest the action vigorously and do
<PAGE> 19
not believe that resolution of this action will materially harm our financial
condition. However, litigation is subject to inherent uncertainties and,
therefore, we cannot assure you that this action or other actions that may be
pursued in the future will not materially harm our business, operating results
or financial condition.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk
The following discusses our exposure to market risk related to changes in
interest rates, foreign currency exchange rates, and equity prices. This
discussion contains forward-looking statements that are subject to risks and
uncertainties. Actual results could vary materially as a result of a number of
factors.
Interest rate risk
As of June 30, 2000, we had cash and cash equivalents of $27.3 million,
consisting of cash and highly liquid short-term investments with original
maturities of three months or less at the date of purchase. Additionally the
Company had marketable securities, classified as available for sale, with
maturities greater than three months totaling $66.5 million. These investments
may be subject to interest rate risk and will decrease in value if market rates
increase. A hypothetical increase in market interest rates of 10% from the
market rates in effect at June 30, 2000 would cause the fair value of the these
investments to decrease by an immaterial amount. Declines in interest rates over
time will result in lower interest income.
Foreign Currency and Exchange Rate Risk
All of our revenues recognized to date have been denominated in U.S. dollars and
are primarily from the United States. However, an increasing portion of our
future revenue may be derived from international customers. Revenues from these
customers may be denominated in the local currency of the applicable countries.
As a result, our operating results could become subject to significant foreign
currency fluctuations based upon changes in exchange rates in relation the U.S.
dollar.
Furthermore, if we engage in business outside the United States, changes in
exchange rates relative to the U.S. dollar could make us less competitive in
international markets. Although we will continue to monitor our foreign currency
exposure, and may use financial instruments to limit this exposure, there can be
no assurance that exchange rate fluctuations will not have a materially negative
impact on our business.
Equity Price Risk
We do not own any equity investments.
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
Report of Use of Proceeds from Initial Public Offering date February 24, 2000
On February 24, 2000, we completed our initial public offering, in which
we sold 5,060,000 shares of common stock at $14 per share. The total aggregate
gross proceeds amounted to $65.2 million. Underwriter's discounts and other
related costs were approximately $5.5 million, resulting in net proceeds of
approximately $59.7 million, plus additional $14 million from a private
placement of common stock the Company completed concurrently with the initial
public offering. From March 1, 2000 to June 30, 2000, the Company estimates
that it has used a portion of the net proceeds of the two offerings as follows:
(i) investments in cash and cash equivalents of $68.3 million; and (ii) working
capital and general corporate purposes of $4.7 million.
We have used these proceeds for capital and general corporate purposes, for
the following:
- the acquisition of Arista Knowledge Systems, Inc.;
- increased learning solutions capacity and capability;
- creation of a platform partner program;
- expanded technology and engineering headcount; and
- investment in content and course development tools and resources.
<PAGE> 20
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER MATTERS
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Forms 8-K
The Company did not file any reports on Form 8-K during the period covered
by this report.
The Company did file a report on Form 8-K on July 21, 2000 with respect to
the acquisition of Arista Knowledge Systems, Inc.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DIGITALTHINK, INC.
(Registrant)
Date: August 11, 2000
/s/ Peter J. Goettner
---------------------------------
Peter J. Goettner
Chairman of the Board
Chief Executive Officer
(Principle Executive Officer)
August 11, 2000 /s/ Michael W. Pope
---------------------------------
Michael W. Pope
Vice President,
Chief Financial Officer
(Principle Financial and Accounting
Officer)
<PAGE> 21
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
----------- -----------------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
