<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________________________
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended April 1, 2000
Commission file number 000-29309
MATRIXONE, INC.
(Exact name of registrant as specified in its charter)
Delaware 02-0372301
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Two Executive Drive
Chelmsford, Massachusetts 01824
(Address of principal executive offices)
(978) 322-2000
(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.
(1) Yes [X] No [_]
(2) Yes [_] No [X]
As of May 5, 2000 there were 41,867,874 shares of Common Stock outstanding.
<PAGE>
MATRIXONE, INC.
FORM 10-Q
QUARTER ENDED APRIL 1, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements
Condensed Consolidated Balance Sheets as of April 1, 2000
(unaudited) and July 3, 1999....................................... 1
Condensed Consolidated Statements of Operations for the Three and
Nine Months Ended April 1, 2000 and April 3, 1999
(unaudited)........................................................ 2
Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended April 1, 2000 and April 3, 1999 (unaudited)...... 3
Notes to Condensed Consolidated Financial Statements............... 4
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................... 8
Cautionary Statements.............................................. 14
Item 3: Quantitative and Qualitative Disclosure About Market Risk.......... 25
PART II - OTHER INFORMATION
Item 1: Legal Proceedings.................................................. 26
Item 2: Changes in Securities and Use of Proceeds.......................... 27
Item 6: Exhibits and Reports on Form 8-K................................... 27
Signatures......................................................... 28
Exhibit Index...................................................... 29
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements
MATRIXONE, INC.
Condensed Consolidated Balance Sheets
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
April 1, 2000 July 3, 1999
------------- ------------
(unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and equivalents.................................................... $ 151,547 $ 11,036
Accounts receivable, net................................................ 17,039 14,670
Prepaid expenses and other current assets............................... 4,377 1,100
------------- ------------
Total current assets.................................................. 172,963 26,806
Property and Equipment, Net................................................ 4,222 2,973
Other Assets............................................................... 161 108
------------- ------------
$ 177,346 $ 29,887
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Line of credit.......................................................... $ - $ 3,050
Accounts payable........................................................ 5,544 3,968
Accrued expenses........................................................ 12,894 7,270
Deferred revenues....................................................... 8,760 4,626
------------- ------------
Total current liabilities............................................. 27,198 18,914
------------- ------------
Redeemable Convertible Preferred Stock..................................... - 17,015
------------- ------------
Stockholders' Equity (Deficit):
Convertible preferred stock, $.01 par value, 5,000 shares
authorized, no shares issued or outstanding at April 1, 2000; $1.00
par value, 3,552 shares authorized, 3,547 shares issued, and
3,393 shares outstanding at July 3, 1999.............................. - 3,393
Common stock, $.01 par value, 100,000 shares authorized,
41,791 and 5,004 shares issued and outstanding........................ 418 50
Additional paid-in capital.............................................. 205,528 26,637
Notes receivable from stockholders...................................... (765) (117)
Deferred stock-based consideration...................................... (15,641) (3,458)
Accumulated deficit..................................................... (38,786) (32,373)
Accumulated other comprehensive loss.................................... (606) (174)
------------- ------------
Total stockholders' equity (deficit).................................. 150,148 (6,042)
------------- ------------
$ 177,346 $ 29,887
============= ============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE>
MATRIXONE, INC.
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------- --------------------
April 1, April 3, April 1, April 3,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Software license........................................ $ 10,711 $ 4,862 $ 26,572 $ 14,664
Service................................................. 9,126 5,606 23,313 13,535
-------- -------- -------- --------
Total revenues...................................... 19,837 10,468 49,885 28,199
-------- -------- -------- --------
Cost of Revenues:
Software license......................................... 1,135 703 3,029 2,227
Service (1).............................................. 7,148 4,277 18,378 10,351
-------- -------- -------- --------
Total cost of revenues............................... 8,283 4,980 21,407 12,578
-------- -------- -------- --------
Gross Profit................................................ 11,554 5,488 28,478 15,621
-------- -------- -------- --------
Operating Expenses:
Selling and marketing (1)................................ 10,037 5,351 23,708 14,538
Research and development (1)............................. 2,429 1,346 5,543 4,324
General and administrative (1)........................... 1,550 1,249 3,835 3,339
Stock-based compensation (1)............................. 1,042 167 2,534 391
-------- -------- -------- --------
Total operating expenses............................. 15,058 8,113 35,620 22,592
Loss from Operations........................................ (3,504) (2,625) (7,142) (6,971)
-------- -------- -------- --------
Other Income (Expense):
Interest income.......................................... 667 59 845 250
Interest expense......................................... (45) (25) (45) (25)
Other income (expense), net.............................. (33) - (71) 9
-------- -------- -------- --------
Total other income (expense)......................... 589 34 729 234
-------- -------- -------- --------
Net Loss................................................... $ (2,915) $ (2,591) $ (6,413) $ (6,737)
======== ======== ======== ========
Basic and Diluted Net Loss Per Share....................... $ (0.15) $ (0.54) $ (0.64) $ (1.67)
======== ======== ======== ========
Shares Used in Computation................................. 18,907 4,773 9,992 4,026
======== ======== ======== ========
Pro Forma Basic and Diluted Net Loss Per Share............. $ (0.08) $ (0.09) $ (0.19) $ (0.25)
======== ======== ======== ========
Shares Used in Computation.................................. 36,258 28,162 33,618 27,413
======== ======== ======== ========
</TABLE>
___________________________________________________________
(1) The following summarizes the departmental allocation of stock-based
compensation:
<TABLE>
<S> <C> <C> <C> <C>
Cost of Revenues............................................. $ 249 $ 31 $ 562 $ 73
Operating Expenses:
Selling and marketing........................................ 328 68 828 151
Research and development..................................... 204 25 500 64
General and administrative................................... 261 43 644 103
-------- -------- -------- --------
Total stock-based compensation........................ $ 1,042 $ 167 $ 2,534 $ 391
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
2
<PAGE>
MATRIXONE, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------
April 1, 2000 April 3, 1999
------------- -------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net loss................................................................ $ (6,413) $ (6,737)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation............................................................ 985 913
Stock-based consideration............................................... 2,773 391
Provision for doubtful accounts......................................... 148 300
Changes in assets and liabilities:
Accounts receivable.................................................... (2,499) (4,769)
Prepaid expenses and other current assets.............................. (4,090) (132)
Accounts payable....................................................... 1,569 1,181
Accrued expenses....................................................... 6,059 (328)
Deferred revenues...................................................... 4,960 2,249
----------- -----------
Net cash provided by (used in) continuing operations................... 3,492 (6,932)
----------- -----------
Net cash used in discontinued operations............................... (322) (1,148)
----------- -----------
Cash Flows From Investing Activities:
Purchases of property and equipment..................................... (2,280) (815)
Other assets............................................................ (54) (14)
Collection of notes receivable.......................................... 268 4,400
----------- -----------
Net cash provided by (used in) investing activities.................... (2,066) 3,571
----------- -----------
Cash Flows From Financing Activities:
Repayments of debt...................................................... - (185)
Proceeds from line of credit............................................ 1,500 -
Repayments of line of credit............................................ (4,550) -
Proceeds from issuance of common stock, net............................. 142,225 -
Proceeds from stock option exercises.................................... 754 314
----------- -----------
Net cash provided by financing activities.............................. 139,929 129
----------- -----------
Effect of Exchange Rates on Cash and Equivalents........................... (522) 18
----------- -----------
Net Increase (Decrease) in Cash and Equivalents............................ 140,511 (4,362)
Cash and Equivalents, Beginning of Period.................................. 11,036 8,123
----------- -----------
Cash and Equivalents, End of Period........................................ $ 151,547 $ 3,761
=========== ===========
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest.................................................. $ 45 $ 25
=========== ===========
Noncash Financing Activity:
Issuance of common stock in exchange for notes receivable from
stockholders............................................................ $ 916 $ 117
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
MATRIXONE, INC.
Notes to Condensed Consolidated Financial Statements
(In thousands, except per share amounts)
Note 1. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The accompanying condensed consolidated financial statements of MatrixOne,
Inc. (the "Company") have been prepared in accordance with generally accepted
accounting principles. These accounting principles were applied on a basis
consistent with those of the consolidated financial statements contained in the
Company's registration statement on Form S-1 (File No. 333-92731) filed with the
Securities and Exchange Commission ("SEC") in connection with its initial public
offering. The accompanying condensed consolidated financial statements should be
read in conjunction with the consolidated financial statements contained in the
Company's registration statement. In the opinion of management, the accompanying
condensed consolidated unaudited financial statements contain all adjustments
(consisting only of normal, recurring adjustments) necessary for a fair
presentation. The operating results for the three and nine month periods ended
April 1, 2000 may not be indicative of the results expected for any succeeding
quarter or the entire fiscal year ending July 1, 2000.
The Company operates on a 52-to-53 week fiscal year that ends on the Saturday
closest to June 30th. The Company operates on thirteen week fiscal quarters that
end on the Saturday closest to September 30th, December 31st and March 31st. The
consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements. Actual results may
differ from those estimates.
Certain amounts in the prior period financial statements have been
reclassified to conform to the current period presentation.
Cash Equivalents
The Company considers all time deposits and short-term investments with
maturities of 90 days or less to be cash equivalents. The Company's cash
equivalents are primarily comprised of money market mutual funds, which are
reported at cost, and United States Treasury and Agency Securities and
Commercial Paper of United States Corporations, which are reported at amortized
cost. The reported value of the Company's cash equivalents approximates market
value.
Concentrations of Credit Risk
Revenues from one customer were approximately 14.2% of the Company's total
revenues for the three months ended April 1, 2000. Accounts receivable from a
different customer represented approximately 11.7% of the Company's accounts
receivable at April 1, 2000.
Revenues from one customer were approximately 13.4% of the Company's total
revenues for the three months ended April 3, 1999. Accounts receivable from this
customer represented approximately 11.7% of the Company's accounts receivable at
April 3, 1999.
4
<PAGE>
MATRIXONE, INC.
Notes to Condensed Consolidated Financial Statements (continued)
(In thousands, except per share amounts)
Note 2. Line of Credit
On December 28, 1999, the Company extended its line of credit of $7,000
through December 28, 2000. Borrowings under the line of credit are limited to
80% of eligible accounts receivable from customers in the United States, less
amounts reserved for foreign currency contracts, and bear interest at the bank's
prime rate (9.0% at April 1, 2000) plus 0.5%. In addition, on January 21, 2000,
the Company obtained a working capital line of credit of $1,000, which expires
December 28, 2000. Borrowings under the working capital line of credit are
limited to 90% of eligible foreign accounts receivable billed and collected in
the United States.
On April 3, 2000, the Company's wholly owned subsidiary in Germany obtained a
500 DM ($244) line of credit. Borrowings under this line of credit are limited
to 100% of accounts receivable and bear interest at 10.25%.
Note 3. Stockholders' Equity (Deficit)
On August 10, 1999 the Board of Directors (the "Board") voted to approve a 3
for 2 stock split, effected as a 50% stock dividend, provide for a single class
of common stock in lieu of the two classes then outstanding, eliminate the Class
B common stock and increase the number of authorized shares of common stock from
12,000 to 40,000. On December 9, 1999 the Board voted to approve a 3-for-1 stock
split, which was effected as a 200% stock dividend on February 23, 2000. The
condensed consolidated financial statements for all periods presented have been
restated to reflect both stock splits.
On December 9, 1999, the Board approved, effective upon the closing of the
initial public offering, a change in the total number of shares which the
Company is authorized to issue to 105,000 shares, of which 100,000 shares are
common stock and 5,000 shares are preferred stock. Immediately prior to the
consummation of the initial public offering on March 6, 2000, all of the
outstanding shares of convertible preferred stock automatically converted into
26,763 shares of common stock.
On February 1, 2000, the Company entered into software license and maintenance
agreements and a professional services agreement with a customer for the
implementation of our eMatrix solution. In connection with these agreements, a
party related to this customer agreed to purchase 450,000 shares of our common
stock in a private placement. The sale price was the initial public offering
price less underwriters' discounts and commissions, or $23.25 per share. The
proceeds from the private placement were $10,462. The sale of the privately
placed common stock occurred contemporaneously with the closing of the Company's
initial public offering. On February 1, 2000, the Company also issued to this
same related party a warrant to purchase 200,000 shares of common stock, which
is exercisable following the closing of the initial public offering for a term
of 18 months at an exercise price of $31.25 per share. In connection with the
issuance of the warrant, the Company recorded a charge of $1,788, which
represents the fair value of the warrant using the Black-Scholes option pricing
model with an expected volatility of 85%. This charge is included in deferred
stock-based consideration, which is reported as a component of stockholders'
equity (deficit). This deferred consideration will be amortized through charges
to revenues as the elements in the arrangement are delivered. During the three
months ended April 1, 2000, the Company recorded a charge to revenues of $239
relating to the warrant.
5
<PAGE>
MATRIXONE, INC.
Notes to Condensed Consolidated Financial Statements (continued)
(In thousands, except per share amounts)
On March 6, 2000, the Company completed its initial public offering of 5,750
shares of common stock, which includes the exercise of the underwriters' over
allotment option of 750 shares, at $25.00 per share. The proceeds from the
initial public offering were $131,763, after deducting the underwriters'
discounts and commissions and estimated offering expenses payable by us of
$11,987.
During the nine months ended April 1, 2000, the Company issued 2,076 shares of
common stock in exchange for notes receivable from stockholders with principal
balances aggregating $916 upon the exercise of stock options. These notes are
full recourse to the stockholders and are additionally collaterized by the
underlying shares of common stock. The notes receivable are payable in full on
varying dates through December 27, 2002 and bear interest at 8%. During the nine
months ended April 1, 2000, the Company also received payment of notes
receivable aggregating $268. The outstanding notes receivable have been reported
as a reduction to stockholders' equity.
In connection with certain stock option grants to employees, the Company
recorded deferred stock-based compensation of $2,409 and $597 for the three
months ended April 1, 2000 and April 3, 1999, respectively, and $13,574 and
$3,135 for the nine months ended April 1, 2000 and April 3, 1999, respectively.
Deferred stock-based compensation represents the difference between the option
exercise price and the deemed fair value of the Company's common stock on the
date of grant and is included in deferred stock-based consideration, which is
reported as a component of stockholders' equity (deficit). Deferred stock-based
compensation is amortized through charges to operations over the vesting period
of the options, which is generally four years. Stock-based compensation was
$1,042 and $167 for the three months ended April 1, 2000 and April 3, 1999,
respectively, and $2,534 and $391 for the nine months ended April 1, 2000 and
April 3, 1999, respectively.
Note 4. Basic and Diluted and Pro Forma Basic and Diluted Net Income (Loss) Per
Share
Basic net income (loss) per share is computed by dividing net income (loss) by
the weighted average number of common shares outstanding during the period.
Diluted net income (loss) per share is computed by dividing net income (loss) by
the shares used in the calculation of basic net income (loss) per share plus the
dilutive effect of common stock equivalents, such as stock options, warrants and
convertible preferred stock, using the treasury stock method. Common stock
equivalents are excluded from the computation of dilutive net income (loss) per
share if their effect is antidilutive.
Pro forma basic net income (loss) per share is computed by dividing net income
(loss) by the weighted average number of common shares outstanding during the
period plus the assumed conversion of all convertible preferred stock into
common stock, as if the conversion had occurred at the date of issuance. Pro
forma diluted net income (loss) per share is computed by dividing net income
(loss) by the shares used in the calculation of pro forma basic net income
(loss) per share plus the dilutive effect of common stock equivalents, such as
stock options and warrants, using the treasury stock method. Common stock
equivalents are excluded from the calculation if their effect is antidilutive.
6
<PAGE>
MATRIXONE, INC.
Notes to Condensed Consolidated Financial Statements (continued)
(In thousands, except per share amounts)
The calculation of basic and diluted and pro forma basic and diluted net loss
per share is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------- ----------------------
April 1, April 3, April 1, April 3,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Basic and Diluted Net Loss Per Share:
Net loss...................................................... $(2,915) $(2,591) $(6,413) $(6,737)
======= ======= ======= =======
Basic and diluted net loss per share.......................... $ (0.15) $ (0.54) $ (0.64) $ (1.67)
======= ======= ======= =======
Shares used in computing basic and diluted net loss per
share........................................................ 18,907 4,773 9,992 4,026
======= ======= ======= =======
Pro Forma Basic and Diluted Net Loss Per Share:
Shares used in computing basic and diluted net loss
per share.................................................... 18,907 4,773 9,992 4,026
Adjustment to reflect the effect of the conversion of
preferred stock.............................................. 17,351 23,389 23,626 23,387
------- ------- ------- -------
Shares used in computing pro forma basic and diluted net
loss per share............................................... 36,258 28,162 33,618 27,413
======= ======= ======= =======
Pro forma basic and diluted net loss per share................ $ (0.08) $ (0.09) $ (0.19) $ (0.25)
======= ======= ======= =======
</TABLE>
Potentially dilutive common stock options and warrants aggregating 10,977 and
11,582 shares for the periods ended April 1, 2000 and April 3, 1999,
respectively, have been excluded from the computation of basic and diluted and
pro forma basic and diluted net loss per share because their inclusion would be
antidilutive.
Note 5. Comprehensive Loss
Comprehensive loss includes net loss as well as other changes in stockholders'
equity (deficit), except for stockholders' investments and distributions. The
components of comprehensive loss are as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------------------- --------------------------------
April 1, 2000 April 3, 1999 April 1, 2000 April 3, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net loss $(2,915) $(2,591) $(6,413) $(6,737)
Foreign currency
translation adjustment (368) (131) (432) (73)
------- ------- ------- -------
Comprehensive loss $(3,283) $(2,722) $(6,845) $(6,810)
======= ======= ======= =======
</TABLE>
7
<PAGE>
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 contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934, which are subject to a number of risks and uncertainties. These
forward-looking statements are typically denoted in this Report by the phrases
"anticipates," "believes," "expects," "plans" and similar phrases (as well as
other words or expressions referencing future events, conditions or
circumstances). Our actual results could differ materially from those projected
in the forward-looking statements as a result of various factors, including the
factors set forth in "Cautionary Statements" beginning on page 14 of this
Quarterly Report on Form 10-Q. This discussion should be read in conjunction
with the condensed consolidated financial statements and related notes for the
periods specified. Further reference should be made to the Company's
registration statement on Form S-1 (File No. 333-92731).
Overview
We are a provider of Internet business collaboration software. Our eMatrix
suite of products serves as an Internet platform facilitating collaboration
among different departments and geographic locations of global organizations.
Our eMatrix software products also serve as a backbone for an enterprise to
collaborate through the Internet with its customers, suppliers and other
business partners. Enterprises use our eMatrix product line to integrate
different business processes and facilitate the exchange of information, ideas
and knowledge among parties collaborating on business activities, such as
conceptual planning for new products, product design, design for
manufacturability, plant resource utilization, new product introduction and
customer service and support. This collaboration allows our customers to quickly
and cost-effectively bring the right products and services to market.
We generate revenues from licensing our eMatrix software products and
providing professional services and training, maintenance and customer support
services through our offices in the United States, Austria, Canada, England,
France, Germany, Italy, Japan and The Netherlands and indirectly through our
partner network throughout Europe and Asia/Pacific.
In connection with certain stock option grants during the nine months ended
April 1, 2000 and the fiscal year ended July 3, 1999, we recorded deferred
stock-based compensation totaling approximately $17.7 million. Deferred stock-
based compensation represents the difference between the option exercise price
and the deemed fair value of our common stock on the date of the option grant.
Deferred stock-based compensation is included in deferred stock-based
consideration, which is reported as a component of stockholders' equity
(deficit) and is amortized through charges to operations over the vesting period
of the options, which is generally four years. Stock-based compensation was $1.0
million and $0.2 million for the three months ended April 1, 2000 and April 3,
1999, respectively, and $2.5 million and $0.4 million for the nine months ended
April 1, 2000 and April 3, 1999, respectively. We presently expect to record
stock-based compensation of $3.6 million, $4.3 million, $4.3 million, $3.8
million and $0.7 million in fiscal 2000, 2001, 2002, 2003 and 2004,
respectively.
We have incurred significant costs to develop our technology and products,
recruit, hire and train personnel for our engineering, selling and marketing and
services departments, and establish a corporate infrastructure. These costs have
exceeded total revenues. We anticipate that our operating expenses will
substantially increase in future periods and will exceed projected increases in
revenues. We expect to expand our selling and marketing and services
organizations, develop new distribution channels for our products and services,
fund greater levels of research and development, and improve our operational and
financial systems. Accordingly, we anticipate incurring significant net losses
for the foreseeable future. In view of the rapidly changing nature of our
market, we believe that period-to-period comparisons of our revenues and other
operating results are not necessarily meaningful and should not be relied upon
as indications of future performance. Our historic revenue growth rates are not
necessarily sustainable or indicative of our future growth.
8
<PAGE>
Results of Operations
The following table sets forth certain statements of operations data as a
percentage of total revenues for the periods indicated. The data has been
derived from the unaudited condensed consolidated financial statements contained
in this Form 10-Q. The operating results for any period should not be considered
indicative of results for any future period. This information should be read in
conjunction with the Consolidated Financial Statements and Notes thereto
included in the Company's Registration Statement on Form S-1.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------ ------------------------
April 1, April 3, April 1, April 3,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Software license 54.0% 46.4% 53.3% 52.0%
Service 46.0 53.6 46.7 48.0
------ ------ ------ ------
Total revenues.................................................. 100.0 100.0 100.0 100.0
------ ------ ------ ------
Cost of Revenues:
Software license................................................ 5.7 6.7 6.1 7.9
Service......................................................... 36.1 40.9 36.8 36.7
------ ------ ------ ------
Total cost of revenues.......................................... 41.8 47.6 42.9 44.6
------ ------ ------ ------
Gross profit..................................................... 58.2 52.4 57.1 55.4
------ ------ ------ ------
Operating Expenses:
Selling and marketing........................................... 50.6 51.1 47.5 51.6
Research and development........................................ 12.2 12.9 11.1 15.3
General and administrative...................................... 7.8 11.9 7.7 11.8
Stock-based compensation........................................ 5.3 1.6 5.1 1.4
------ ------ ------ ------
Total operating expenses........................................ 75.9 77.5 71.4 80.1
------ ------ ------ ------
Loss from operations............................................. (17.7) (25.1) (14.3) (24.7)
Other income, net................................................ 3.0 0.3 1.4 0.8
------ ------ ------ ------
Net loss......................................................... (14.7)% (24.8)% (12.9)% (23.9)%
====== ====== ====== ======
</TABLE>
Comparison of Three Months Ended April 1, 2000 and April 3, 1999
Software license revenues. We derive our software license revenues
principally from the licensing of our eMatrix suite of products, including
software applications and integration products developed jointly with third
parties, and, to a lesser extent, from providing Oracle database licenses.
Software license revenues increased 120.3% to $10.7 million for the three months
ended April 1, 2000 from $4.9 million for the three months ended April 3, 1999.
The increase was primarily due to a $3.7 million increase in software license
revenues in North America, which includes a $2.2 million export sale, and
software license revenues in our newly formed subsidiaries in Austria, Italy,
and Japan aggregating $1.1 million.
9
<PAGE>
Service revenues. We provide services to our customers and systems
integrators, consisting of professional services and training, maintenance and
customer support services. Our professional services, which include
implementation and consulting services, are provided on a time and materials or
on a fixed-price basis. We also offer training services to our customers,
distributors and systems integrators either in our offices throughout the world
or at customer locations. Customers that license our products generally purchase
annually renewable maintenance contracts, which provide customers with the right
to receive unspecified software upgrades and technical support over the term of
the contract. Service revenues increased 62.8% to $9.1 million for the three
months ended April 1, 2000 from $5.6 million for the three months ended April 3,
1999. The increase was primarily due to a 49.8% increase in professional
services revenues and a 104.4% increase in maintenance revenues from new and
renewed maintenance contracts. Maintenance revenues represented 27.2% and 21.7%
of service revenues for the three months ended April 1, 2000 and April 3, 1999,
respectively.
Cost of software licenses. Cost of software licenses consists of royalties
paid to Oracle for Oracle database licenses and to other third parties for
integration products and applications licensed to our customers. Cost of
software licenses also includes the cost of manuals and product documentation,
production media used to deliver our products, shipping costs and related labor.
Our cost of software licenses fluctuates from period to period due to changes in
the mix of software licensed and the extent to which we pay royalties to third
parties on integration products and applications. Cost of software licenses
increased 61.5% to $1.1 million for the three months ended April 1, 2000 from
$0.7 million for the three months ended April 3, 1999. The increase in cost of
software licenses was primarily due to a 50.6% increase in royalties resulting
from increased licensing of third-party software.
Cost of services. Cost of services includes salaries and related expenses
for services personnel and costs of contracting with third parties to provide
implementation services. Typically, our customers reimburse us for the majority
of our out-of-pocket expenses incurred during the course of a project, which are
recorded as a reduction in cost of services. Cost of services fluctuates based
on the mix of internal professional services personnel and more expensive
systems integrators used for professional services projects. Our gross profit
may fluctuate based on the actual costs incurred to provide professional
services. Cost of services increased 67.1% to $7.1 million for the three months
ended April 1, 2000 from $4.3 million for the three months ended April 3, 1999
primarily due to increased personnel costs to support the growth in our services
organization. We also increased both the use of systems integrators to provide
professional services for our customers and the amount of training we provided
these systems integrators in an effort to increase the number of systems
integrators with eMatrix expertise.
Gross profit. Gross profit increased 110.5% to $11.6 million for the three
months ended April 1, 2000 from $5.5 million for the three months ended April 3,
1999. Gross profit as a percentage of total revenues, or gross margin, increased
to 58.2% for the three months ended April 1, 2000 from 52.4% for the three
months ended April 3, 1999. Gross margin fluctuates from period to period due to
changes in the mix of software license and service revenues, royalties for
licensed third-party software, costs associated with the expansion of our
worldwide services organization, and the use of systems integrators, which are
generally more expensive than our own professional services personnel. Gross
margin on software licenses increased to 89.4% for the three months ended April
1, 2000 from 85.5% for the three months ended April 3, 1999 due to a decrease in
the relative proportion of software we licensed from third parties. Gross margin
from services decreased to 21.7% for the three months ended April 1, 2000 from
23.7% for the three months ended April 3, 1999 due to the increased use of
systems integrators to provide professional services and costs associated with
training both new personnel in our services organization and systems integrators
during the three months ended April 1, 2000.
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Selling and marketing. Selling and marketing expenses include marketing
costs, such as public relations and advertising, trade shows, marketing
materials and customer user group meetings, and selling costs such as sales
training events and commissions. Selling and marketing costs may fluctuate based
on the timing of trade shows and user group events and the amount of sales
commissions, which vary based on revenues. Selling and marketing expenses
increased 87.6% to $10.0 million for the three months ended April 1, 2000 from
$5.4 million for the three months ended April 3, 1999 due to higher commission
expense related to the growth in our revenues and increased personnel costs
related to the expansion of our worldwide sales organization. Selling and
marketing expenses as a percentage of total revenues decreased to 50.6% for the
three months ended April 1, 2000 from 51.1% for the three months ended April 3,
1999 primarily due to increased productivity of our sales organization and a
larger revenues base.
Research and development. Research and development expenses include costs
incurred to develop our intellectual property and are expensed as incurred. To
date, software development costs have been expensed as incurred, because the
costs incurred from the attainment of technological feasibility to general
product release have not been significant. Research and development costs may
fluctuate based on the utilization of domestic and foreign third-party
contractors, which are generally more expensive than our internal engineering
personnel, and the use of third parties to develop specific software
applications and integration products. Research and development expenses
increased 80.5% to $2.4 million for the three months ended April 1, 2000 from
$1.3 million for the three months ended April 3, 1999 primarily due to increased
personnel costs and an increase in the use of third-party contractors to assist
in the development of our software. Research and development expenses as a
percentage of total revenues decreased to 12.2% for the three months ended April
1, 2000 from 12.9% for the three months ended April 3, 1999 due to a larger
revenues base.
General and administrative. General and administrative expenses consist
primarily of compensation of executive, finance, human resource and
administrative personnel, legal and accounting services and allocation of
related facility expenses. General and administrative expenses increased 24.1%
to $1.6 million for the three months ended April 1, 2000 from $1.2 million for
the three months ended April 3, 1999 due to an increase in personnel costs to
support the growth in our business. General and administrative expenses as a
percentage of total revenues decreased to 7.8% for the three months ended April
1, 2000 from 11.9% for the three months ended April 3, 1999 due to a larger
revenues base.
Stock-based compensation. Stock-based compensation relates to the issuance
of stock options with exercise prices below the deemed fair value of our common
stock on the date of grant. Stock-based compensation was $1.0 million and $0.2
million for the three months ended April 1, 2000 and April 3, 1999,
respectively.
Other income (expense), net. Other income (expense), net fluctuates based
on the amount of cash available for investment, borrowings under our line of
credit, interest expense related to our term loan and realized and unrealized
gains and losses on foreign currency transactions. Other income, net was $0.6
million for the three months ended April 1, 2000 and $34,000 for the three
months ended April 3, 1999. The increase was primarily due to higher interest
income from an increase in investable cash from the receipt of the proceeds from
our initial public offering and concurrent private placement.
Income taxes. No provision for income taxes has been recorded for either
the three months ended April 1, 2000 or April 3, 1999 due to accumulated net
losses. We did not record any tax benefits relating to these losses or other tax
benefits due to the uncertainty surrounding the timing of the realization of
these future tax benefits.
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Comparison of Nine Months Ended April 1, 2000 and April 3, 1999
Software license revenues. Software license revenues increased 81.2% to
$26.6 million for the nine months ended April 1, 2000 from $14.7 million for the
nine months ended April 3, 1999. The increase was primarily due to a $5.3
million increase in software license revenues in Europe, a $3.5 million increase
in software license revenues from our newly formed subsidiary in Japan and a
$2.3 million increase in software license revenues in North America.
Service revenues. Service revenues increased 72.2% to $23.3 million for the
nine months ended April 1, 2000 from $13.5 million for the nine months ended
April 3, 1999. The increase was primarily due to a 74.4% increase in
professional services revenues and a 81.3% increase in maintenance revenues
from new and renewed maintenance contracts. Maintenance revenues represented
24.4% and 23.1% of service revenues for the nine months ended April 1, 2000 and
April 3, 1999, respectively.
Cost of software licenses. Cost of software licenses increased 36.0% to
$3.0 million for the nine months ended April 1, 2000 from $2.2 million for the
nine months ended April 3, 1999. The increase in cost of software licenses was
primarily due to a 16.9% increase in royalties resulting from increased
licensing of third-party software and an increase in product documentation and
production media costs.
Cost of services. Cost of services increased 77.5% to $18.4 million for the
nine months ended April 1, 2000 from $10.4 million for the nine months ended
April 3, 1999 primarily due to increased personnel costs to support the growth
in our services organization. The number of employees in our worldwide
professional services organization increased 48.8% from April 3, 1999 to April
1, 2000. We also increased both the use of systems integrators to provide
professional services for our customers and the amount of training we provided
these systems integrators in an effort to increase the number of systems
integrators with eMatrix expertise.
Gross profit. Gross profit increased 82.3% to $28.5 million for the nine
months ended April 1, 2000 from $15.6 million for the nine months ended April 3,
1999. Gross profit as a percentage of total revenues, or gross margin, increased
to 57.1% for the nine months ended April 1, 2000 from 55.4% for the nine months
ended April 3, 1999. Gross margin on software licenses increased to 88.6% for
the nine months ended April 1, 2000 from 84.8% for the nine months ended April
3, 1999 due to a decrease in the relative proportion of software we licensed
from third parties. Gross margin from services decreased to 21.2% for the nine
months ended April 1, 2000 from 23.5% for the nine months ended April 3, 1999
due to the increased use in the fiscal 2000 period of systems integrators to
provide professional services and costs associated with training both new
personnel in our services organization and systems integrators.
Selling and marketing. Selling and marketing expenses increased 63.1% to
$23.7 million for the nine months ended April 1, 2000 from $14.5 million for the
nine months ended April 3, 1999 due to higher commission expense related to the
growth in our revenues and increased personnel costs related to the expansion of
our worldwide sales organization. Selling and marketing expenses as a percentage
of total revenues decreased to 47.5% for the nine months ended April 1, 2000
from 51.6% for the nine months ended April 3, 1999 primarily due to increased
productivity of our sales organization and a larger revenues base.
Research and development. Research and development expenses increased 28.2%
to $5.5 million for the nine months ended April 1, 2000 from $4.3 million for
the nine months ended April 3, 1999 due to increased personnel costs and an
increase in the use of third-party contractors to assist in the development of
our software. Research and development expenses as a percentage of total
revenues decreased to 11.1% for the nine months ended April 1, 2000 from 15.3%
for the nine months ended April 3, 1999 due to a larger revenues base.
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General and administrative. General and administrative expenses increased
14.9% to $3.8 million for the nine months ended April 1, 2000 from $3.3 million
for the nine months ended April 3, 1999 due to an increase in personnel costs to
support the growth in our business. General and administrative expenses as a
percentage of total revenues decreased to 7.7% for the nine months ended April
1, 2000 from 11.8% for the nine months ended April 3, 1999 primarily due to a
larger revenues base.
Stock-based compensation. Stock-based compensation was $2.5 million and
$0.4 million for the nine months ended April 1, 2000 and April 3, 1999,
respectively.
Other income (expense), net. Other income, net was $0.7 million for the
nine months ended April 1, 2000 and $0.2 million for the nine months ended April
3, 1999. The increase was primarily due to higher interest income from an
increase in investable cash from the receipt of the proceeds from our initial
public offering and concurrent private placement.
Income taxes. No provision for income taxes has been recorded for either
the nine months ended April 1, 2000 or April 3, 1999 due to accumulated net
losses. We did not record any tax benefits relating to these losses or other tax
benefits due to the uncertainty surrounding the timing of the realization of
these future tax benefits.
Liquidity and Capital Resources
As of April 1, 2000, we had cash and equivalents of $151.5 million, an
increase of $140.5 million from July 3, 1999. On March 6, 2000, the Company
completed its initial public offering of 5,750,000 shares of common stock at
$25.00 per share and a concurrent private placement of 450,000 shares of common
stock at $23.25 per share. The net proceeds from these sales of common stock
were approximately $142.2 million. Our working capital was $145.8 million and
$7.9 million as of April 1, 2000 and as of July 3, 1999, respectively. The
increase in working capital was primarily attributable to the proceeds received
from our initial public offering and concurrent private placement.
We have a $7.0 million line of credit that bears interest at the bank's
prime rate plus 0.5% and expires December 28, 2000. Borrowings under our line of
credit are limited to 80% of eligible accounts receivable from customers in the
United States less amounts reserved for foreign currency contracts. In addition,
we have a $1.0 million working capital line of credit that bears interest at the
bank's prime rate plus 0.5% and expires on December 28, 2000. Borrowings under
the working capital line of credit are limited to 90% of eligible foreign
accounts receivable billed and collected in the United States. As of April 1,
2000, we had no borrowings outstanding under these lines of credit and $6.9
million available. These lines of credit are collateralized by all of our assets
and have financial and other covenants. We were in compliance with these
financial and other covenants as of April 1, 2000.
Our German subsidiary also has a working capital line of credit of 0.5
million DM ($0.2 million), which was available for borrowing at April 1, 2000.
Borrowings under this line of credit are limited to 100% of accounts receivable
and bear interest at 10.25%.
Net cash provided by continuing operations for the nine months ended April
1, 2000 was $3.5 million resulting from increases in accounts payable, accrued
expenses and deferred revenues, offset by increases in accounts receivable and
prepaid expenses and other current assets. Net cash used by continuing
operations was $6.9 million for the nine months ended April 3, 1999 due to the
net loss incurred from the expansion of our operations and the increase in our
accounts receivable.
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Net cash used by discontinued operations was $0.3 million and $1.1 million
for the nine months ended April 1, 2000 and the nine months ended April 3, 1999,
respectively, and reflects payments of the severance and legal and accounting
fees incurred in connection with the sale of Adra Systems, our legacy design and
manufacturing business.
Net cash used in investing activities was $2.1 million for the nine months
ended April 1, 2000 and reflects our investments in computer hardware and
software, leasehold improvements and other office equipment to support our
growth. Net cash provided by investing activities was $3.6 million for the nine
months ended April 3, 1999 and included the $4.4 million payment of the
promissory note from the sale of assets of Adra Systems, offset in part by
capital expenditures. We expect that capital expenditures for the next 12 months
will be approximately $3.5 million, primarily for the acquisition of data
networking equipment and other computer hardware and software.
Net cash provided by financing activities was $139.9 million for the nine
months ended April 1, 2000 and reflects the proceeds from our initial public
offering and concurrent private placement of $142.2. Net cash provided by
financing activities was $0.1 million for the nine months ended April 3, 1999
and consisted of proceeds from stock option exercises of $0.3 million offset by
$0.2 million of repayments of debt.
We currently anticipate that the net proceeds from the initial public
offering and the concurrent private placement, together with our current cash
and equivalents and available credit facilities, will be sufficient to fund our
anticipated cash requirements for working capital and capital expenditures for
at least the next 12 months. We may need to raise additional funds, however, in
order to fund more rapid expansion of our business, develop new and enhance
existing eMatrix products and services, or acquire complementary products,
businesses or technologies. If additional funds are raised through the issuance
of equity or convertible debt securities, the percentage ownership of our
stockholders may be reduced, our stockholders may experience additional
dilution, and such securities may have rights, preferences or privileges senior
to those of our stockholders. Additional financing may not be available on terms
favorable to us, or at all. If adequate funds are not available or are not
available on acceptable terms, our ability to fund our expansion, take advantage
of unanticipated opportunities or develop or enhance our services or products
would be significantly limited.
Year 2000 Disclosure Statement
We have executed a plan designed to make the Company's products,
information technology systems and equipment Year 2000 ready. To date, the
Company has experienced no significant problems in our products, business
interruptions or material adverse effects from the Year 2000 issue. However, we
could still experience material unanticipated problems and costs caused by
undetected errors or defects from the Year 2000 issue. We cannot guarantee that
our Year 2000 readiness plan has been successfully implemented, and actual
results could still differ materially from our plan.
Cautionary Statements
This Quarterly Report on Form 10-Q contains forward-looking statements
within the meaning of the Securities Litigation Reform Act of 1995 that involve
risks and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth in the following cautionary statements and elsewhere
in this Quarterly Report or Form 10-Q. If any of the following risks were to
occur, our business, financial condition or results of operations would likely
suffer. In that event, the trading price of our common stock would decline.
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Our Future Success Is Uncertain Because We Have Significantly Changed Our
Business
We commercially shipped the first version of our business collaboration
software in November 1993, released our first Internet business collaboration
software product in March 1997 and released the current version of our eMatrix
product line in March 2000. In May 1998, we sold our legacy design and
manufacturing software business, Adra Systems, to focus on our eMatrix suite of
products. To date, our customers have used our eMatrix suite of products
primarily for linking geographically dispersed departments and divisions within
their organizations. Our strategy is to add new customers and have our current
customers expand their use of our eMatrix product line. Our new business focus
and strategy may not be successful. In addition, because we have only recently
begun to focus our business on the development, sale and marketing of our
eMatrix line of products, we may have limited insight into trends that may
emerge and affect our business. We face the many challenges, risks and
difficulties frequently encountered by companies transitioning to a new product
line and using a new business strategy in a rapidly evolving market. If we are
unable to successfully implement our business strategy, our operating results
will suffer.
We May Not Achieve Anticipated Revenues if Market Acceptance of Our eMatrix
Line of Software Products Is Not Forthcoming
We believe that revenues from licenses of our eMatrix suite of products,
together with revenues from related professional services and training,
maintenance and customer support services, will account for substantially all of
our revenues for the foreseeable future. Our future financial performance will
depend on market acceptance of our eMatrix line of products, including our
integration products, and any upgrades or enhancements that we may make to our
products in the future. As a result, if our eMatrix line of products does not
achieve widespread market acceptance, we may not achieve anticipated revenues.
In addition, if our competitors release new products that are superior to our
eMatrix line of products, demand for our products may not accelerate and could
decline. If we are unable to increase the number and scope of our integration
products or ship or implement any upgrades or enhancements to our products when
planned, or if the introduction of upgrades or enhancements causes customers to
defer orders for our existing products, we also may not achieve anticipated
revenues.
The Market for Our eMatrix Software Products Is Newly Emerging and Demand
for Business Collaboration Software May Not Evolve and Could Decline
The market for Internet business collaboration software is newly emerging.
We cannot be certain that this market will continue to develop and grow or that
companies will choose to use our eMatrix products rather than attempting to
develop alternative platforms and applications internally or through other
sources. If we fail to establish a significant base of customer references, our
ability to market and license our eMatrix product suite successfully may be
reduced. Companies that have already invested substantial resources in other
methods of sharing information during the design, manufacturing and supply
process may be reluctant to adopt new technology or infrastructures that may
replace, limit or compete with their existing systems or methods. We expect that
we will continue to need to pursue intensive marketing and selling efforts to
educate prospective customers about the uses and benefits of our eMatrix product
line. Therefore, demand for and market acceptance of our software products is
subject to a high level of uncertainty.
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We Have a History of Losses, Expect to Incur Substantial Losses in the
Future and May Not Achieve or Maintain Profitability
We have incurred substantial net losses from continuing operations in each
of the past five fiscal years and for the nine months ended April 1, 2000. We
incurred net losses from continuing operations of approximately $6.4 million for
the nine months ended April 1, 2000, $7.7 million for fiscal 1999, $10.9 million
for fiscal 1998 and $3.7 million for fiscal 1997. As of April 1, 2000, we had an
accumulated deficit of approximately $38.8 million. We expect to substantially
increase our selling and marketing and research and development expenses, and as
a result, we anticipate incurring significant net losses for the foreseeable
future. We will need to generate significant increases in revenues to achieve
and maintain profitability, and we may not be able to do so. If our revenues
grow more slowly than we anticipate or if our operating expenses increase more
than we expect or cannot be reduced in the event of lower revenues, our business
will be significantly and adversely affected. Even if we achieve profitability
in the future on a quarterly or annual basis, we may not be able to sustain or
increase profitability. Failure to become profitable within the time frame
expected by investors or to sustain profitability may adversely affect the
market price of our common stock.
If We Are Unable to Obtain Additional Capital as Needed in the Future, Our
Business May Be Adversely Affected and the Market Price for Our Common
Stock Could Significantly Decline
We have historically been unable to run our operations by cash generated
from our business operations and have financed our operations principally
through the sale of securities. We may need to raise additional debt or equity
capital to fund the rapid expansion of our operations, to enhance our products
and services, or to acquire or invest in complementary products, services,
businesses or technologies. If we raise additional funds through further
issuances of equity or convertible debt or equity securities, our existing
stockholders could suffer significant dilution, and any new equity securities we
issue could have rights, preferences and privileges superior to those of holders
of our common stock. In addition, we may not be able to obtain additional
financing on terms favorable to us, if at all. If adequate funds are not
available on terms favorable to us, our business may be adversely affected and
the market price for our common stock could significantly decline.
Our Quarterly Revenues and Operating Results Are Likely to Fluctuate and if
We Fail to Meet the Expectations of Securities Analysts or Investors, Our
Stock Price Could Decline
Our quarterly revenues and operating results are difficult to predict, have
varied significantly in the past and are likely to fluctuate significantly in
the future. We typically realize a significant percentage of our revenues for a
fiscal quarter in the second half of the quarter. Accordingly, our quarterly
results may be difficult or impossible to predict prior to the end of the
quarter. Any inability to obtain sufficient orders or to fulfill shipments in
the period immediately preceding the end of any particular quarter may cause the
results for that quarter to fall short of our revenues targets. In addition, we
base our current and future expense levels in part on our estimates of future
revenues. Our expenses are largely fixed in the short term. We may not be able
to adjust our spending quickly if our revenues fall short of our expectations.
Accordingly, a revenues shortfall in a particular quarter would have an adverse
effect on our operating results for that quarter.
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In addition, our quarterly operating results may fluctuate for many reasons,
including, without limitation:
. changes in demand for our eMatrix products and services, including
seasonal differences;
. changes in the mix of our software licensing and services;
. variability in the mix of professional services performed by us and
systems integrators;
. the amount of training we provide to systems integrators and other
business partners related to our eMatrix product line and its
implementation;
. the level of royalty payments on licensed, third-party software and our
integration products and applications; and
. our ability to accurately estimate costs associated with fixed-price
professional services projects.
For these reasons, you should not rely on period-to-period comparisons of
our financial results to forecast our future performance. It is likely that in
some future quarter or quarters our operating results will be below the
expectations of securities analysts or investors. If a shortfall in revenues
occurs, the market price of our common stock may decline significantly.
Our Lengthy and Variable Sales Cycle Makes it Difficult for Us to Predict
When or if Sales Will Occur and Therefore We May Experience an Unplanned
Shortfall in Revenues
Our products have a lengthy and unpredictable sales cycle that contributes
to the uncertainty of our operating results. Customers view the purchase of our
eMatrix line of Internet business collaboration software as a significant and
strategic decision. As a result, customers generally evaluate our software
products and determine their impact on existing infrastructure over a lengthy
period of time. Our sales cycle has historically ranged from approximately one
to nine months based on the customer's need to rapidly implement a solution and
whether the customer is new or is extending an existing implementation. The
license of our software products may be subject to delays if the customer has
lengthy internal budgeting, approval and evaluation processes. We may incur
significant selling and marketing expenses during a customer's evaluation
period, including the costs of developing a full proposal and completing a rapid
proof of concept or custom demonstration, before the customer places an order
with us. Customers may also initially purchase a limited number of server and
user licenses before expanding their implementations. Larger customers may
purchase our software products as part of multiple simultaneous purchasing
decisions, which may result in additional unplanned administrative processing
and other delays in the recognition of our license revenues. If revenues
forecasted from a specific customer for a particular quarter are not realized or
are delayed to another quarter, we may experience an unplanned shortfall in
revenues, which could significantly and adversely affect our operating results.
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We May Not Achieve Our Anticipated Revenues if Large Software and Service
Orders Expected in a Quarter Are Not Placed or Are Delayed
Although we license our eMatrix software products to numerous customers in
any quarter, a single customer often represents more than 10% of our quarterly
revenues. One customer accounted for approximately 14.2% of our revenues for the
three months ended April 1, 2000, and one other customer represented
approximately 13.4% of our revenues for the three months ended April 3, 1999. We
expect that revenues from large orders will continue to account for a large
percentage of our total revenues in future quarters. A customer may determine to
increase its number of licenses and expand its implementation of our eMatrix
product suite throughout its organization and to its customers, suppliers and
other business partners only after a successful initial implementation.
Therefore, the timing of these large orders is often unpredictable. If any large
order anticipated for a particular quarter is not realized or is delayed to
another quarter, we may experience an unplanned shortfall in revenues, which
could significantly and adversely affect our operating results.
We Will Not Succeed Unless We Can Compete in Our Markets
The markets in which we offer our eMatrix line of software products and
services are intensely competitive and rapidly changing. Furthermore, we expect
competition to intensify given the newly emerging nature of the market for
Internet business collaboration software and consolidation in the software
industry in general. We will not succeed if we cannot compete effectively in
these markets. Competitors vary in size and in the scope and breadth of the
products and services they offer. Many of our actual or potential competitors
have significant advantages over us, including, without limitation:
. larger and more established selling and marketing capabilities;
. significantly greater financial and engineering personnel and other
resources;
. greater name recognition and a larger installed base of customers; and
. well-established relationships with our existing and potential
customers, systems integrators, complementary technology vendors and
other business partners.
As a result, our competitors may be in a stronger position to respond
quickly to new or emerging technologies and changes in customer requirements.
Our competitors may also be able to devote greater resources to the development,
promotion and sale of their products and services than we can. Accordingly, we
may not be able to maintain or expand our revenues if competition increases and
we are unable to respond effectively.
As competition in the business collaboration software market intensifies,
new solutions will come to market. Our competitors may bundle their products in
a manner that may discourage users from purchasing our eMatrix products. Also,
current and potential competitors may establish cooperative relationships among
themselves or with third parties. Increased competition could result in
reductions in price and revenues, lower profit margins, loss of customers and
loss of market share. Any one of these factors could materially and adversely
affect our business and operating results.
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If We Are Not Successful in Developing New Products and Services that Keep
Pace with Technology, Our Operating Results Will Suffer
The market for our eMatrix product line is new and emerging, and is
characterized by rapid technological advances, changing customer needs and
evolving industry standards. Accordingly, to realize our expectations regarding
our operating results, we depend on our ability to:
. develop, in a timely manner, new software products and services that
keep pace with developments in technology;
. meet evolving customer requirements; and
. enhance our current product and service offerings and deliver those
products and services through appropriate distribution channels.
We may not be successful in developing and marketing, on a timely and cost-
effective basis, either enhancements to our eMatrix line of software products or
new products which respond to technological advances and satisfy increasingly
sophisticated customer needs. If we fail to introduce new products, our
operating results will suffer. In addition, if new industry standards emerge
that we do not anticipate or adapt to, our software products could be rendered
obsolete and our business could be materially harmed.
If Our Existing Customers Do Not License Additional Software Products From
Us, We May Not Achieve Growth in Our Revenues
Our customers' initial implementations of our eMatrix line of software
products often include a limited number of server and user licenses. Customers
may subsequently add server and user licenses as they expand the implementations
of our products throughout their enterprises or add software applications
designed for specific functions. Therefore, it is important that our customers
are satisfied with their initial product implementations. If we do not increase
licenses to existing customers, we may not be able to achieve anticipated growth
in our revenues.
Our Revenues Could Decline if We Do Not Develop and Maintain Successful
Relationships with Systems Integrators and Complementary Technology Vendors
We pursue business alliances with systems integrators and complementary
technology vendors to endorse our eMatrix line of software products, implement
our software, provide customer support services, promote and resell products
that integrate with our products and develop industry-specific software
products. These alliances provide an opportunity to license our eMatrix products
to our partners' installed customer bases. In many cases, these parties have
established relationships with our existing and potential customers and can
influence the decisions of these customers. We rely upon these companies for
recommendations of our eMatrix line of products during the evaluation stage of
the purchasing process, as well as for implementation and customer support
services. A number of our competitors have stronger relationships with these
systems integrators and complementary technology vendors who, as a result, may
be more likely to recommend our competitors' products and services. In addition,
some of our competitors have relationships with a greater number of these
systems integrators and complementary technology vendors and, therefore, have
access to a broader base of enterprise customers. If we are unable to establish,
maintain and strengthen these relationships, we will have to devote
substantially more resources to the selling and marketing, implementation and
support of our products. Our efforts may not be as effective as these systems
integrators and complementary technology vendors, which could significantly harm
our operating results.
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Our International Operations and Planned Expansion Expose Us to Business
Risks Which Could Cause Our Operating Results to Suffer
Operations outside North America accounted for approximately 32.3% and
40.4% of our revenues for the three and nine months ended April 1, 2000,
respectively, and 26.1% of our revenues in fiscal 1999. Export sales from North
America accounted for approximately 22.8% and 11.9% of our revenues for the
three and nine months ended April 1, 2000, respectively, and 6.3% of our
revenues in fiscal 1999. Many of our customers have operations in numerous
locations around the globe. In order to attract, retain and service multi-
national customers, we have to maintain strong direct and indirect sales and
support organizations in Europe and Asia. Our ability to penetrate Asian markets
may be impaired by resource constraints and the ability to hire qualified
personnel in Asian countries. We face a number of risks associated with
conducting business internationally, which could negatively impact our operating
results, including, without limitation:
. difficulties relating to the management and administration of a
globally-dispersed business;
. longer sales cycles associated with educating foreign customers on the
benefits of our products and services;
. difficulties in providing customer support for our products in multiple
time zones;
. currency fluctuations and exchange rates;
. limitations on repatriation of earnings of our foreign operations;
. the burdens of complying with a wide variety of foreign laws;
. reductions in business activity during the summer months in Europe and
certain other parts of the world;
. multiple and possibly overlapping tax structures;
. language barriers;
. the need to consider numerous international product characteristics;
. different accounting practices;
. changes in import/export duties, quotas and controls;
. complex and inflexible employment laws;
. economic or political instability in some international markets; and
. conflicting international business practices.
We believe that expansion of our international operations will be necessary
for our future success. Therefore, a key aspect of our strategy is to continue
to expand our presence in foreign markets. We may not succeed in our efforts to
enter new international markets and expand our international operations. If we
fail to do so, we may not be able to achieve anticipated growth in our revenues.
This international expansion may be more difficult or time-consuming than we
anticipate. It is also costly to establish international facilities and
operations and promote our eMatrix products internationally. Thus, if revenues
from international activities do not offset the expenses of establishing and
maintaining foreign operations, our operating results will suffer.
20
<PAGE>
We Depend on Licensed Third-Party Technology, the Loss of Which Could
Result in Increased Costs of or Delays in Licenses of Our Products
We license technology from several companies on a non-exclusive basis that
is integrated into our eMatrix product suite, including database technology from
Oracle, Common Object Request Broker Architecture technology, or CORBA, from
IONA Technologies, and security and encryption technology software from RSA
Security. We also license from third parties our eMatrix integration products
and applications. We anticipate that we will continue to license technology from
third parties in the future. This software may not continue to be available on
commercially reasonable terms, or at all. Some of the software we license from
third parties would be difficult and time-consuming to replace. The loss of any
of these technology licenses could result in delays in the licensing of our
eMatrix software products until equivalent technology, if available, is
identified, licensed and integrated. In addition, the effective implementation
of our products may depend upon the successful operation of third-party licensed
products in conjunction with our products, and therefore any undetected errors
in these licensed products may prevent the implementation or impair the
functionality of our products, delay new product introductions and/or injure our
reputation.
If Systems Integrators Are Not Available or Fail to Perform Adequately, Our
Customers May Suffer Implementation Delays and a Lower Quality of Customer
Service, and We May Incur Increased Expenses
Systems integrators often are retained by our customers to implement our
eMatrix line of software products. If experienced systems integrators are not
available to implement our eMatrix products, we will be required to provide
these services internally, and we may not have sufficient resources to meet our
customers' implementation needs on a timely basis. Use of our professional
services personnel to implement our eMatrix product line would also increase our
expenses. In addition, we cannot control the level and quality of service
provided by our current and future implementation partners. If these systems
integrators do not perform to the satisfaction of our customers, our customers
could become dissatisfied with our products, which could adversely affect our
business and operating results.
We May Not Be Able to Increase Revenues if We Do Not Expand Our Sales and
Distribution Channels
We will need to significantly expand our direct and indirect global sales
operations in order to increase market awareness and acceptance of our eMatrix
line of products and generate increased revenues. We market and license our
products directly through our sales organization and indirectly through our
global partner and distributor network. Our ability to increase our global
direct sales organization will depend on our ability to recruit, train and
retain sales personnel with advanced sales skills and technical knowledge.
Competition for qualified sales personnel is intense in our industry. In
addition, it may take up to nine months for a new sales person to become fully
productive. If we are unable to hire or retain qualified sales personnel, or if
newly hired sales personnel fail to develop the necessary skills or reach
productivity more slowly than anticipated, we may have difficulty licensing our
eMatrix software products, and we may experience a shortfall in anticipated
revenues.
In addition, we believe that our future success is dependent upon expansion
of our indirect global distribution channel, which consists of our relationships
with a variety of systems integrators, complementary technology vendors and
distributors. We cannot be certain that we will be able to maintain our current
relationships or establish relationships with additional distribution partners
on a timely basis, or at all. Our distribution partners may not devote adequate
resources to promoting or selling our eMatrix line of products and may not be
successful. In addition, we may also face potential conflicts between our direct
sales force and third-party reselling efforts. Any failure to expand our
indirect global distribution channel or increase the productivity of this
distribution channel could result in lower than anticipated revenues.
21
<PAGE>
We Currently Perform Many Professional Services Projects on a Fixed-Price
Basis, Which Could Cause a Decline in Our Gross Margins
We currently perform many professional services projects on a fixed-price
basis. Prior to performing professional services, we estimate the amount of work
involved for a particular project. We may from time to time underestimate the
amount of time or resources required to complete these projects. If we do not
correctly estimate the amount of time or resources required for these projects,
our gross margins could decline.
Our Rapid Growth Is Placing a Significant Strain on Our Resources, and Our
Business Will Suffer if We Fail to Manage Our Growth Properly
We have rapidly expanded our revenues and operations over the past five
years, which has placed a significant strain on our resources. We have
substantially increased, and plan to further increase, both the number of our
employees and the geographic scope of our operations. In addition, we have hired
several of our key executives in the last two years. Our management team has had
limited experience managing a rapidly growing company. We expect our anticipated
growth will further strain our management, operational and financial resources.
Moreover, our ability to successfully offer our eMatrix line of software
products and services and implement our business strategy in a new and rapidly
evolving market requires effective planning and management. To accommodate our
growth, we must:
. improve existing and implement new management, information, operational
and financial systems, procedures and controls;
. hire, train, manage, retain and motivate qualified personnel; and
. effectively manage relationships with our customers, suppliers and other
business partners.
We may not be able to install and implement additional management,
information, operational and financial systems, procedures and controls in an
efficient and timely manner to support our future operations. The difficulties
associated with installing and implementing these new systems, procedures and
controls may place a significant burden on our management and our internal
resources. In addition, if we continue to grow internationally, we will have to
expand our worldwide operations and enhance our communications infrastructure.
Any delay in the implementation of, or any disruption in the transition to, new
or enhanced systems, procedures or controls could adversely affect our ability
to accurately forecast sales demand, manage our partner relationships, and
record and report financial and management information on a timely and accurate
basis. If we cannot manage our expanding operations, we may not be able to
continue to grow or we may grow at a slower pace. Furthermore, our operating
costs may escalate faster than planned, which would negatively impact our
operating results.
22
<PAGE>
We Depend on Our Key Personnel to Manage Our Business Effectively, and if
We Are Unable to Retain Key Personnel, Our Ability to Compete Could Be
Harmed
Our ability to implement our business strategy and our future success
depends largely on the continued services of our executive officers and other
key engineering, sales, marketing and support personnel who have critical
industry or customer experience and relationships. None of our key personnel,
other than Johannes T.J. Ruigrok, our Vice President of Sales, Europe, Middle
East and Africa, is bound by an employment agreement. We do not have key-man
life insurance on any of our employees. The loss of the technical knowledge and
management and industry expertise of any of these key personnel could result in
delays in product development, loss of customers and sales and diversion of
management resources, which could materially and adversely affect our operating
results. In addition, our future performance depends upon our ability to attract
and retain highly qualified sales, engineering, marketing, services and
managerial personnel, and there is intense competition for such personnel. If we
do not succeed in retaining our personnel or in attracting new employees, our
business could suffer significantly.
Future Acquisitions May Negatively Affect Our Ongoing Business Operations
and Our Operating Results
We may expand our operations or market presence by acquiring or investing
in complementary businesses, products or technologies that complement our
business, increase our market coverage, enhance our technical capabilities or
otherwise offer opportunities for growth. These transactions create risks such
as:
. difficulty assimilating the operations, technology, products and
personnel we acquire;
. disruption of our ongoing business;
. diversion of management's attention from other business concerns;
. one-time charges and expenses associated with amortization of goodwill
and other purchased intangible assets; and
. potential dilution to our stockholders.
Our inability to address these risks could negatively impact our operating
results. Moreover, any future acquisitions, even if successfully completed, may
not generate any additional revenues or provide any benefit to our business.
23
<PAGE>
Our Products May Contain Defects that Could Harm Our Reputation, Be Costly
to Correct, Delay Revenues and Expose Us to Litigation
Despite testing by us, our partners and our customers, errors may be found
in our products after commencement of commercial shipments. We and our customers
have from time to time discovered errors in our software products. In the
future, there may be additional errors and defects in our software. If errors
are discovered, we may not be able to successfully correct them in a timely
manner or at all. Errors and failures in our products could result in loss of or
delay in market acceptance of our products and damage to our reputation and our
ability to convince commercial users of the benefits of our products. In
addition, we may need to make significant expenditures of capital resources in
order to eliminate errors and failures. Since our products are used by customers
for mission-critical applications, errors, defects or other performance problems
could also result in financial or other damages to our customers, who could
assert warranty and other claims for substantial damages against us. Although
our license agreements with our customers typically contain provisions designed
to limit our exposure to potential product liability claims, it is possible that
such provisions may not be effective or enforceable under the laws of certain
jurisdictions. In addition, our insurance policies may not adequately limit our
exposure with respect to such claims. A product liability claim, even if
unsuccessful, would be costly and time-consuming to defend and could harm our
business.
Risks Related to Legal Uncertainty
Failure to Protect Our Intellectual Property Could Harm Our Name
Recognition Efforts and Ability to Compete Effectively
Currently, we rely on a combination of trademarks, copyrights and common
law safeguards including trade secret protection. To protect our intellectual
property rights in the future, we intend to rely on a combination of patents,
trademarks, copyrights and common law safeguards, including trade secret
protection. We also rely on restrictions on use, confidentiality and
nondisclosure agreements and other contractual arrangements with our employees,
affiliates, customers, alliance partners and others. The protective steps we
have taken may be inadequate to deter misappropriation of our intellectual
property and proprietary information. A third party could obtain our proprietary
information or develop products or technology competitive with ours. We may be
unable to detect the unauthorized use of, or take appropriate steps to enforce,
our intellectual property rights. We have registered some of our trademarks in
the United States and have other trademark and patent applications pending.
Effective patent, trademark, copyright and trade secret protection may not be
available in every country in which we offer or intend to offer our products and
services to the same extent as in the United States. Failure to adequately
protect our intellectual property could harm or even destroy our brands and
impair our ability to compete effectively. Further, enforcing our intellectual
property rights could result in the expenditure of significant financial and
managerial resources and may not prove successful.
We Could Incur Substantial Costs Defending Our Intellectual Property from
Claims of Infringement
The software industry is characterized by frequent litigation regarding
copyright, patent and other intellectual property rights. We may be subject to
future litigation based on claims that our products infringe the intellectual
property rights of others or that our own intellectual property rights are
invalid. We expect that software product developers will increasingly be subject
to infringement claims as the number of products and competitors in our industry
grows and the functionality of products overlaps. Claims of infringement could
require us to reengineer or rename our products or seek to obtain licenses from
third parties in order to continue offering our products. Licensing or royalty
agreements, if required, may not be available on terms acceptable to us or at
all. Even if successfully defended, claims of infringement could also result in
significant expense to us and the diversion of our management and technical
resources.
24
<PAGE>
We May Be Adversely Impacted by the Year 2000 Problem
We continue to believe that all versions of our eMatrix line of products
after Version 6.0.3, including the versions of our products that we currently
ship, when configured and used in accordance with the related documentation, are
Year 2000 compliant, but that prior versions of our software are not Year 2000
compliant. We have notified our customers that versions of our software prior to
Version 6.0.4 are not Year 2000 compliant and encouraged them to upgrade to the
latest version. We have not been informed of any Year 2000 related problems,
there is, however, still a small number of our customers using a non-Year 2000
compliant version of our software products. While we believe that third-party
software incorporated in the current versions of our products is Year 2000
compliant, we have not been able to obtain assurances from all our vendors.
Despite testing by us, our products may contain still as yet undetected errors
or defects associated with Year 2000 date compliance. Errors or defects in our
products caused by Year 2000 issues could result in delays or loss of revenues,
diversion of development resources, damage to our reputation, increased service
and warranty costs, or liability to our customers, any of which could
significantly and negatively impact our operating results. We have conducted a
review of and have tested our internal information technology and other systems
and software to identify functions that need correction to be Year 2000
compliant. However, if our testing has been incomplete or faulty, or our
corrective actions are unsuccessful in the future, we may encounter material
unanticipated Year 2000 problems with our business operations. Any material
interruption in our business caused by Year 2000 problems could materially and
adversely affect our operating results. Additionally, future, unanticipated Year
2000 problems may affect us by causing disruptions in the business operations
of, or delaying technology purchases by, companies with whom we do business,
such as customers and suppliers.
Item 3: Qualitative and Quantitative Disclosures About Market Risk
We have international offices in Austria, Canada, England, France, Germany,
Italy, Japan and The Netherlands. At April 1, 2000, approximately 9.4% of our
total assets were located at our international subsidiaries. In addition
approximately 32.3% and 27.7% of our revenues and 22.1% and 22.5% of our
expenses for the three months ended April 1, 2000 and April 3, 1999,
respectively, were from our international operations, and approximately 40.4%
and 26.0% of our revenues and 23.9% and 20.3% of our expenses for the nine
months ended April 1, 2000 and April 3, 1999, respectively, were from our
international operations. These subsidiaries transact business in local currency
or the Euro. Therefore, we are exposed to foreign currency exchange risks. We
enter into foreign currency forward exchange contracts to reduce our exposure to
foreign currency risk due to fluctuations in exchange rates underlying the value
of accounts receivable and accounts payable denominated in foreign, primarily
European and Asian, currencies held until such receivables are collected and
payables are disbursed. A foreign currency forward exchange contract obligates
us to exchange predetermined amounts of specified foreign currencies at
specified exchange rates on specified dates or to make an equivalent U.S. dollar
payment equal to the value of such exchange. These foreign currency forward
exchange contracts, to qualify as hedges of existing assets or liabilities, are
denominated in the same currency in which the underlying foreign currency
receivables or payables are denominated and bear a contract value and maturity
date which approximate the value and expected settlement date, respectively, of
the underlying transactions. For contracts that are designated and effective as
hedges, unrealized gains and losses on open contracts resulting from changes in
the spot exchange rate are recognized in earnings in the same period as gains
and losses on the underlying foreign denominated receivables or payables are
recognized and generally offset. Contract amounts in excess of the carrying
value of our foreign currency denominated accounts receivable or payable
balances are marked to market, with changes in market value recorded in earnings
as foreign exchange gains or losses.
25
<PAGE>
We do not enter into or hold derivatives for trading or speculative
purposes and contract only with highly rated financial institutions. At April 1,
2000, we had four forward foreign exchange contracts denominated in Japanese
yen. The outstanding forward contracts as of April 1, 2000 are presented in the
table below. The table presents the notional amounts, at contract exchange
rates, and the contractual foreign currency exchange rates. Notional exchange
rates are quoted using market conventions where the currency is expressed in
currency units per U.S. dollar.
Table of Forward Contracts:
Notional Notational
Functional Currency Amount Maturity Date Exchange Rate
- ------------------- ------ ------------- -------------
Japanese yen $626,954 04/28/00 105.20
Japanese yen 122,100 04/28/00 104.55
Japanese yen 911,985 07/31/00 103.66
Japanese yen 177,283 08/31/00 103.21
We plan to use foreign exchange forward contracts and other instruments in
the future to reduce our exposure to exchange rate fluctuations, and we may not
be able to do this successfully. Accordingly, we may experience economic loss
and a negative impact on earnings and equity as a result of foreign currency
exchange rate fluctuations. Also, as we continue to expand our operations
outside of the United States, our exposure to fluctuations in currency exchange
rates could increase.
Our interest income is sensitive to changes in the general level of
interest rates in the United States, and to a lesser extent, interest rates in
Europe and Japan, particularly since the majority of our investments are in
short-term instruments. We deposit our cash in highly rated financial
institutions in North America, Europe and Japan and invest in diversified U.S.
money market investments, United States Treasury and Agency Securities, and
Commercial Paper of United States Corporations with remaining maturities of less
than 90 days. Due to the short-term nature of our investments, we believe that
we have minimal market risk.
PART II - OTHER INFORMATION
Item 1: Legal Proceedings
On October 4, 1999, SofTech, Inc. commenced a lawsuit against us in
Middlesex Superior Court alleging fraud, unfair and deceptive trade practices,
and breach of contract in connection with the sale of assets of Adra Systems to
SofTech in 1998. SofTech claimed $2,730,000 in damages resulting from our
allegedly improper recording of Adra Systems' second and third quarter fiscal
1998 income, unspecified contract damages, and treble damages resulting from our
alleged unfair and deceptive acts. On April 27, 2000, the Court granted our
motion to dismiss the litigation on the grounds that the parties' contract
required the dispute to be arbitrated. In light of the Court's ruling, SofTech
may appeal the Court's ruling or commence an arbitration against us raising the
same or similar claims. We intend to defend any such appeal or arbitration
vigorously.
We may from time to time become a party to various other legal proceedings
arising in the ordinary course of our business.
26
<PAGE>
Item 2: Changes in Securities and Use of Proceeds
On February 1, 2000, the Company issued a warrant to GE Capital Equity
Investments, Inc. ("GE Capital") to purchase 200,000 shares of common stock,
exercisable following the Company's initial public offering for an 18-month
term, at an exercise price equal to $31.25 per share (125% of the initial public
offering price). On March 2, 2000, the Company sold to GE Capital, in a private
placement concurrent with the Company's initial public offering, 450,000 shares
of common stock at $23.25 per share, a price equal to the initial public
offering price less underwriters' discounts and commissions. No underwriters
were involved, and therefore no underwriting discounts or commissions were paid,
in connection with the privately placed common stock and warrant, which sales
were made in reliance upon the exemption from the registration provisions of the
Securities Act of 1933, as amended, provided by Section 4(2) thereof for
transactions not involving a public offering. All of the foregoing securities
are deemed restricted securities for purposes of the Securities Act. The
proceeds from this private placement were approximately $10.4 million.
On February 29, 2000, the Securities and Exchange Commission declared
effective the Company's Registration Statement on Form S-1 (File Number 333-
92731), relating to the initial public offering of the Company's common stock,
$.01 par value. The managing underwriters in the initial public offering were
Goldman, Sachs & Co., Dain Rauscher Wessels (a division of Dain Rauscher
Incorporated), U.S. Bancorp Piper Jaffray and Wit SoundView. The offering was
completed on March 6, 2000 and all 5,750,000 shares covered by the Registration
Statement, which includes the exercise of the underwriters' over allotment
option of 750,000 shares, were sold by the Company at $25.00 per share. The
proceeds from the initial public offering were approximately $131.8 million,
after deducting the underwriters' discounts and commissions and estimated
offering expenses payable by us of approximately $12.0 million.
We expect to use the net proceeds from the initial public offering and the
concurrent private placement for general corporate purposes, including to expand
our selling and marketing services organizations, develop new distribution
channels, expand our research and development efforts, improve our operational
and financial systems and for other working capital purposes. We may also use a
portion of the net proceeds to acquire or invest in complementary businesses,
products or technologies. Currently, we have no specific understandings,
commitments or agreements with respect to any such acquisition or investment. We
have not allocated any portion of the net proceeds for any specific purpose. Our
actual use of the net proceeds from the initial public offering and the
concurrent private placement may differ from the uses we have identified.
Pending these uses, the net proceeds of the offering and the concurrent private
placement will be invested in short-term, interest-bearing, investment-grade
securities. Except for the payment of the offering expenses, we have not used
any of the proceeds from the initial public offering or concurrent private
placement.
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit Number
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
No Reports on Form 8-K were filed by the Company during the three
months ended April 1, 2000.
27
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
MATRIXONE, INC.
Dated: May 10, 2000 By: /s/ Maurice L. Castonguay
-----------------------------
Maurice L. Castonguay
Chief Financial Officer,
Vice President of Finance
and Administration and
Treasurer (principal
financial and accounting officer)
28
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
27.1 Financial Data Schedule
29
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED APRIL 1,
2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-01-2000
<PERIOD-START> JUL-04-1999
<PERIOD-END> APR-01-2000
<CASH> 151,547
<SECURITIES> 0
<RECEIVABLES> 17,814
<ALLOWANCES> 775
<INVENTORY> 0
<CURRENT-ASSETS> 172,963
<PP&E> 7,316
<DEPRECIATION> 3,094
<TOTAL-ASSETS> 177,346
<CURRENT-LIABILITIES> 27,198
<BONDS> 0
0
0
<COMMON> 418
<OTHER-SE> 149,730
<TOTAL-LIABILITY-AND-EQUITY> 177,346
<SALES> 26,572
<TOTAL-REVENUES> 49,885
<CGS> 3,029
<TOTAL-COSTS> 21,407
<OTHER-EXPENSES> 35,620
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 45
<INCOME-PRETAX> (6,413)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,413)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,413)
<EPS-BASIC> (0.64)
<EPS-DILUTED> (0.64)
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