<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 1
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM________TO________
COMMISSION FILE NUMBER: 0-27358
DOCUMENTUM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-4261421
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
5671 GIBRALTAR DRIVE
PLEASANTON, CALIFORNIA 94588-8547
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
TELEPHONE NUMBER (510) 463-6800
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X] No [_]
The number of outstanding shares of the registrant's Common Stock, par value
$.001 per share, was 14,405,865 on September 30,1997.
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<PAGE>
Amendment No.1 to the Quarterly Report on Form 10-Q, for the quarter ended
September 30, 1997, is filed for the purpose of adding Item 2 to Part II.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 1997 and
December 31, 1996................................................... 3
Condensed Consolidated Statements of Operations for the three and
nine months ended September 30, 1997 and 1996....................... 4
Condensed Consolidated Statements of Cash Flows for the nine months
ended September 30, 1997 and 1996................................... 5
Notes to Condensed Consolidated Financial Statements................. 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................... 8
PART II. OTHER INFORMATION
Item 2. Change in Securities and Use of Proceeds............................. 19
Item 6. Exhibits and Reports on Form 8-K..................................... 19
Signature...................................................................... 21
Exhibit Index.................................................................. 22
</TABLE>
2
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PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DOCUMENTUM, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA; UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 8,915 $ 5,369
Short-term investments............................ 48,226 46,803
Accounts receivable (including $633 and $737
receivable from a stockholder and its
affiliates), net of allowances of $1,145 and
$1,069 .......................................... 15,705 13,531
Other current assets.............................. 4,013 1,519
------- -------
Total current assets............................ 76,859 67,222
Property and equipment, net......................... 9,874 6,339
Other assets........................................ 455 1,383
------- -------
$87,188 $74,944
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................. $ 2,388 $ 1,488
Accrued liabilities............................... 12,415 8,124
Deferred revenue.................................. 6,905 4,956
Current portion of long term obligations.......... 77 833
------- -------
Total current liabilities....................... 21,785 15,401
------- -------
Long term obligations, less current portion -- 211
------- -------
Stockholders' equity:
Preferred stock, $0.001 par value; 5,000 shares
authorized
Common stock, $0.001 par value; 35,000 shares
authorized; 14,406 and 14,187 shares issued and
outstanding...................................... 14 14
Additional paid-in capital........................ 62,995 61,450
Cumulative translation adjustment................. (22) 43
Retained earnings (accumulated deficit)........... 2,416 (2,175)
------- -------
Total stockholders' equity...................... 65,403 59,332
------- -------
$87,188 $74,944
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements
3
<PAGE>
DOCUMENTUM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA; UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- ------------------
1997 1996 1997 1996
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Licenses (including $48, $700,
$1,980 and $4,022 from a
stockholder and its affiliates)... $ 14,215 $ 9,127 $ 37,284 $ 23,768
Services........................... 5,454 2,909 14,732 7,157
--------- --------- -------- --------
Total revenues................... 19,669 12,036 52,016 30,925
--------- --------- -------- --------
Cost of revenues:
Licenses........................... 678 476 1,475 1,397
Services........................... 3,166 1,732 8,567 4,652
--------- --------- -------- --------
Total cost of revenues........... 3,844 2,208 10,042 6,049
--------- --------- -------- --------
Gross profit......................... 15,825 9,828 41,974 24,876
--------- --------- -------- --------
Operating expenses:
Sales and marketing................ 8,926 5,159 24,824 13,765
Research and development........... 2,885 2,175 7,746 5,504
General and administrative......... 1,407 1,074 3,908 2,951
--------- --------- -------- --------
Total operating expenses......... 13,218 8,408 36,478 22,220
--------- --------- -------- --------
Income from operations............... 2,607 1,420 5,496 2,656
--------- --------- -------- --------
Interest and other income, net....... 464 660 1,461 1,577
--------- --------- -------- --------
Income before income tax provision... 3,071 2,080 6,957 4,233
Provision for income taxes........... (1,044) (728) (2,366) (1,482)
--------- --------- -------- --------
Net income........................... $ 2,027 $ 1,352 $ 4,591 $ 2,751
========= ========= ======== ========
Net income per share................. $ 0.14 $ 0.09 $ 0.31 $ 0.19
Shares used to compute net income per
share............................... 14,994 14,923 14,893 14,664
</TABLE>
See accompanying notes to condensed consolidated financial statements
4
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DOCUMENTUM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, UNAUDITED)
<TABLE>
<CAPTION>
FOR THE
NINE MONTHS
ENDED
SEPTEMBER 30,
------------------
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income............................................... $ 4,591 $ 2,751
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 2,376 1,416
Provision for doubtful accounts........................ 302 141
Changes in assets and liabilities:
Accounts receivable.................................. (2,475) (1,547)
Other current assets and other assets................ (1,568) (105)
Accounts payable..................................... 900 509
Accrued liabilities.................................. 4,292 2,116
Deferred revenue..................................... 1,949 1,701
-------- --------
Net cash provided by operating activities................ 10,367 6,982
-------- --------
Cash flows from investing activities
Purchases of short-term investments...................... (46,568) (82,265)
Sales of investments..................................... 45,146 35,300
Purchases of property and equipment...................... (5,911) (3,500)
-------- --------
Net cash used by investing activities.................... (7,333) (50,465)
-------- --------
Cash flows from financing activities
Issuance of common stock................................. 1,544 45,828
Proceeds from term loan.................................. -- 387
Repayments on capital lease obligations.................. (190) (216)
Repayment on term loan................................... (777) (365)
-------- --------
Net cash provided by financing activities................ 577 45,634
-------- --------
Effect of exhange rate on changes in cash.................. (65) 10
-------- --------
Net increase in cash and cash equivalents.................. 3,546 2,161
Cash and cash equivalents at beginning of period........... 5,369 5,978
-------- --------
Cash and cash equivalents at end of period................. $ 8,915 $ 8,139
======== ========
NON CASH TRANSACTIONS
Conversion of preferred stock to common stock............ -- 13,391
</TABLE>
See accompanying notes to condensed consolidated financial statements
5
<PAGE>
DOCUMENTUM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements of Documentum,
Inc. ("Documentum" or the "Company") included herein reflect all adjustments,
consisting only of normal recurring adjustments, which in the opinion of
management are necessary to present fairly the Company's consolidated
financial position, results of operations, and cash flows for the periods
presented. These financial statements should be read in conjunction with the
Company's audited consolidated financial statements as included in the
Company's 1996 Annual Report on Form 10-K. The consolidated results of
operations for the period ended September 30, 1997 are not necessarily
indicative of the results to be expected for any subsequent quarter or for the
entire fiscal year ending December 31, 1997.
2. NET INCOME PER SHARE
Net income per share is computed using the weighted average number of common
stock and common equivalent shares outstanding during the period. Common
equivalent shares consist of convertible preferred stock (using the if
converted method) stock options and warrants (using the treasury method).
Common equivalent shares are excluded from the computation if their effect is
antidilutive. Pursuant to Securities and Exchange Commission Staff Accounting
Bulletins, common and common equivalents shares, options and warrants issued
by the Company during the 12-month period prior to the Company's initial
public offering have been included in the calculation as if they were
outstanding for all periods prior to and including February 5, 1996.
3. RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128").
SFAS 128 is effective for the Company's fiscal year ending December 31, 1997.
Under SFAS 128, primary earnings per share is replaced by basic earnings per
share and fully diluted earnings per share is replaced by diluted earnings per
share. If the Company had adopted SFAS 128 for the three and nine month
periods ended September 30, 1997 and 1996, the earnings per share would have
been as follows:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Basic earnings per share...................... $ .14 $ .10 $.32 $ .20
Diluted earnings per share.................... $ .14 $ .09 $.31 $ .19
</TABLE>
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS 130"). SFAS 130 establishes standards for the reporting of
comprehensive income and its components in a full set of general-purpose
financial statements for periods ending after December 15, 1997.
Reclassification of financial statements for earlier periods for comparative
purposes is required. The Company will adopt SFAS 130 in 1997 and does not
expect such adoption to have a material effect on the consolidated financial
statements.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures About Segments of An
Enterprise and Related Information" ("SFAS 131").
6
<PAGE>
DOCUMENTUM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
SFAS 131 revises information regarding the reporting of operating segments. It
also establishes standards for related disclosures about products and
services, geographic areas and major customers. The Company will adopt SFAS
131 beginning in 1998 and has not evaluated the impact of such adoption on the
notes to its consolidated financial statements.
4. ACCRUED EXPENSE AND OTHER CURRENT LIABILITIES
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
(IN THOUSANDS)
<S> <C> <C>
Compensation and related benefits............... $ 4,877 $3,617
Taxes........................................... 2,529 1,103
Other........................................... 5,009 3,404
------- ------
$12,415 $8,124
======= ======
</TABLE>
5. SUBSEQUENT EVENTS
On October 13, 1997, the Company entered into a definitive agreement to
acquire all the outstanding shares of Workgroup Management, Inc. ("WMI"), a
privately held company, in exchange for $6.7 million of the Company's Common
Stock. The number of shares to be issued will be determined using the market
value of the Company's Common Stock at the closing of the acquisition. WMI is
a professional services firm with 30 employees located in Oakland, California
specializing in the design, development and implementation of document
management systems. The transaction, which is subject to the satisfaction of
certain closing conditions, is expected to be consummated in either the fourth
quarter of 1997 or early in the first quarter of 1998, and will be immaterial
to the Company's historical operations, financial position and net worth. The
Company anticipates merger expenses to be recorded in connection with the
acquisition in the period in which the transaction is consummated.
7
<PAGE>
DOCUMENTUM, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The discussion in this Form 10-Q contains forward-looking statements
regarding the Company, its business, prospects and results of operations that
are subject to certain risks and uncertainties posed by many factors and
events that could cause the Company's actual business, prospects and results
of operations to differ materially from those that may be anticipated by such
forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed herein as well as
those discussed under the captions "Risk Factors" in the Company's 1996 annual
report on Form 10-K and the Company's quarterly report on Form 10-Q for the
three months ended June 30, 1997. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
of this report. The Company undertakes no obligation to revise any forward-
looking statements in order to reflect events or circumstances that may
subsequently arise. Readers are urged to carefully review and consider the
various disclosures made by the Company in this report and in the Company's
other reports filed with the Securities and Exchange Commission that attempt
to advise interested parties of the risks and factors that may affect the
Company's business.
OVERVIEW
Documentum was formed in 1990 to provide object-oriented client/server
software solutions that enable large organizations to effectively manage and
optimize the use of their unstructured business-critical information. From its
inception through December 1992, the Company's activities consisted primarily
of developing its products, establishing its infrastructure and conducting
market research. The Company shipped the first commercial version of its
Documentum Server product in late 1992, and since then substantially all of
the Company's revenues have been from licenses of its family of enterprise
document management system ("EDMS") products and related services, which
include maintenance and support, training and consulting services. The Company
continues to invest in research and development in order to update its family
of products. In the first half of 1997, the Company introduced its first
"DocSolution," the DocSolution for standard operating procedures ("SOPs").
Also during the first nine months of 1997, the Company introduced and shipped
Documentum's DocLink for SAP's R/3, introduced and shipped Documentum's
DocPage Server and WorkSpace products in a localized Kanji version and
expanded its sales efforts in the Asia-Pacific region. The Company expects
that EDMS-related license and service revenues will continue to account for
substantially all of the Company's revenues for the foreseeable future. As a
result, the Company's future operating results are dependent upon continued
market acceptance of EDMS and enhancements thereto.
Since inception, the Company has invested significant resources in
developing its EDMS software and related solutions, as well as building its
sales, marketing and general administrative organizations. As a result, since
inception the Company's operating expenses have increased in absolute dollar
amounts and are expected to continue to increase.
Although the Company has experienced significant revenue growth in recent
years, the Company does not believe that such growth rates are sustainable.
Accordingly, the rate at which the Company has grown in the past should not be
considered to be indicative of future revenue growth, if any, or future
operating results. There can be no assurance that the Company will remain
profitable on a quarterly basis.
8
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain items from the Company's consolidated
statement of operations as a percentage of total revenues for the periods
indicated, except as indicated:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------- ---------------
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues:
Licenses.............................. 72.3% 75.8% 71.7% 76.9%
Services.............................. 27.7% 24.2% 28.3% 23.1%
------ ------ ------ ------
Total revenues...................... 100.0% 100.0% 100.0% 100.0%
------ ------ ------ ------
Cost of revenues.................... 19.5% 18.4% 19.3% 19.6%
------ ------ ------ ------
Gross profit............................ 80.5% 81.6% 80.7% 80.4%
------ ------ ------ ------
Operating expenses:
Sales and marketing................... 45.4% 42.9% 47.7% 44.5%
Research and development.............. 14.7% 18.1% 14.9% 17.8%
General and administrative............ 7.2% 8.9% 7.5% 9.5%
------ ------ ------ ------
Total operating expenses............ 67.3% 69.9% 70.1% 71.8%
------ ------ ------ ------
Income from operations.................. 13.2% 11.7% 10.6% 8.6%
Interest and other income, net.......... 2.4% 5.5% 2.8% 5.1%
------ ------ ------ ------
Income before income tax provision...... 15.6% 17.2% 13.4% 13.7%
Provision for income taxes.............. (5.3%) (6.0%) (4.6%) (4.8%)
------ ------ ------ ------
Net income.............................. 10.3% 11.2% 8.8% 8.9%
====== ====== ====== ======
As a Percentage of Related Revenues:
Cost of license revenues................ 4.8% 5.2% 4.0% 5.9%
====== ====== ====== ======
Cost of services revenues............... 58.0% 59.5% 58.2% 65.0%
====== ====== ====== ======
</TABLE>
Revenues
The Company's revenues are derived from the sale of perpetual licenses for
its document management software and related services, which include
maintenance and support, training and consulting services. License revenues
are recognized upon shipment of the product if no significant vendor
obligations remain and collection of the resulting receivable is probable. In
instances where a significant vendor obligation exists, revenue recognition is
deferred until the obligation has been satisfied. Allowances for estimated
future returns are provided upon shipment. Annual maintenance and support
revenues for providing ongoing support and product updates are recognized
ratably over the term of the contract. Renewals of maintenance contracts are
recorded when collectibility is deemed probable. Revenues from training and
consulting are recognized when the services are performed and collectibility
is deemed probable.
License revenues increased by 56% to $14.2 million for the three months
ended September 30, 1997 from $9.1 million for the three months ended
September 30, 1996, and increased 57% to $37.3 million for the nine months
ended September 30, 1997 from $23.8 million for the nine months ended
September 30, 1996. The growth in license revenues was due to an increase in
the number of initial licenses sold, reflecting increased acceptance of the
Company's EDMS family of products, as well as an increase in the number of
customers who purchased additional product licenses, and the expansion of the
Company's sales organization. During the quarter ended September 30, 1997, the
Company had two sales transactions accounting for $1.9 million and
$1.6 million
9
<PAGE>
or 13.6% and 11.6% of total license revenue, respectively. During the nine
months ended September 30, 1997 a sale of $5.0 million to a single customer
accounted for 13.4% of total license revenues. For the three months ended
September 30, 1997 and 1996 and nine months ended September 30, 1997 and 1996,
license revenues from Xerox and certain Xerox affiliates ("Xerox"), acting as
systems integrators, a VAR and a distributor for the Company's products,
accounted for 0.3%, 7.7%, 5.3% and 16.9% of total license revenues
respectively. Although the Company's customer base has grown as revenues have
increased, a relatively small number of end user customers have historically
accounted for a significant percentage of the Company's revenues, particularly
on a quarterly basis. The loss of a major customer or any reduction or delay
in orders by such customers would have a material adverse effect on the
Company's business, financial condition and results of operation.
Service revenue increased 87% to $5.5 million for the three months ended
September 30, 1997 from $2.9 million for the three months ended September 30,
1996, and increased 106% to $14.7 million for the nine months ended September
30, 1997 from $7.2 million for the nine months ended September 30, 1996. The
growth in service revenues dollar amounts and as a percent of total revenues
was attributable to a larger installed base of customers receiving ongoing
maintenance, delayed maintenance contract renewals, increased demand for
training and support services, and increases in the Company's professional
services consulting staff.
The Company markets its products through its direct sales force and its
indirect channel partners. Historically, the Company has generated the
majority of its revenues from its direct sales force. However, the Company has
also focused on complementing its direct sales channel with indirect channels,
consisting of system integrators and distributors. Revenues from all indirect
channel partners comprised 15.0% and 22.0% of license revenues for the three
months ended September 30, 1997 and 1996, respectively, and 20.8% and 32.0% of
license revenues for the nine months ended September 30, 1997 and 1996,
respectively. The decrease in indirect channel revenues as a percentage of
license revenues was due to an increase in direct sales driven by the
expansion of the Company's direct sales force. Revenues from indirect partners
for any period are subject to significant variations. As a result, the Company
believes that period to period comparisons of indirect revenues are not
necessarily meaningful and should not be relied upon as indications of future
performance. There can be no assurance that the Company's indirect channel
partners will elect to or be able to continue to market or support EDMS
effectively, or that economic conditions or industry demand will not adversely
affect these partners.
International revenues represented 31.6% and 29.7% of license revenues for
the three months ended September 30, 1997 and 1996, respectively, and 28.0%
and 27.2% for the nine months ended September 30, 1997 and 1996, respectively.
A significant portion of the international revenues are derived from the
Company's indirect channel partners and are subject to significant variations.
The Company classifies license revenues as domestic or international based
upon the billing location of the customer. In many instances, especially with
large purchases from multinational companies, the customer has the right to
deploy the licenses anywhere in the world. Thus the percentages discussed
herein represent where licenses were sold, and may or may not represent where
they are used. As a result, the Company believes that period to period
comparison of international revenues are not necessarily meaningful and should
not be relied upon as indications of future performance.
While the Company believes that large multinational organizations represent
a significant opportunity for revenue growth and the Company intends to
continue expansion of its international sales operations, there can be no
assurance that the Company will be successful in meeting the requirements of
these large organizations or that the Company will be able to effectively
support this international expansion. The Company's international sales are
primarily denominated in U.S. dollars and the Company does not currently
engage in hedging activities. Although exposure to currency fluctuations to
date has been insignificant, there can be no assurance that fluctuations in
the currency exchange rates in the future will not have a material adverse
impact on international sales and thus the Company's business, financial
condition and results of operations.
Cost of revenues
Cost of license revenues consists primarily of the royalties paid to third-
party vendors and product costs such as packaging, documentation, production
and freight. Royalties which are paid to third-parties for selected products
include both fixed fees and variable fees. Cost of license revenues increased
by 42% to $678,000 for
10
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the three months ended September 30, 1997 from $476,000 for the three months
ended September 30, 1996, and increased by 6% to $1.5 million for the nine
months ended September 30, 1997 from $1.4 million for the nine months ended
September 30, 1996, representing 4.8% and 5.2% of license revenues for the
three months ended September 30, 1997 and 1996, respectively, and 4.0% and
5.9% of license revenue for the nine months ended September 30, 1997 and 1996,
respectively. The decrease in costs of license revenues as a percentage of
license revenues was principally related to the increase in license revenues.
Cost of service revenues consists primarily of personnel-related costs
incurred in providing consulting services, training to customers and telephone
support. Cost of service revenues increased by 83% to $3.2 million for the
three months ended September 30, 1997 from $1.7 million for the three months
ended September 30, 1996, and increased by 84% to $8.6 million for the nine
months ended September 30, 1997 from $4.7 million for the nine months ended
September 30, 1996, representing 58.0% and 59.5% of related service revenues
for the three months ended September 30, 1997 and 1996, respectively, and
58.2% and 65.0% for the nine months ended September 30, 1997 and 1996,
respectively. The increase in cost of service revenues in dollar amounts was a
result of increased personnel-related costs as the Company expanded its
customer support and training operations to support its increased installed
customer base in both the United States and Europe, as well as payments to
third parties for providing consulting services. The decrease in cost of
service revenues as a percentage of service revenues was primarily due to
economies of scale realized as certain expenses such as technical support grew
proportionately less than maintenance revenues. The Company expects that the
cost of services revenues will increase in dollar amount for the remainder of
the year in order to support and service the growing installed base of
customers.
Operating Expenses
Sales and marketing. Sales and marketing expenses consist primarily of
salaries, benefits, sales commissions and other expenses related to the direct
sales force, various marketing expenses and costs of other market development
programs. Sales and marketing expenses increased by 73% to $8.9 million for
the three months ended September 30, 1997 from $5.2 million for the three
months ended September 30, 1996, and increased by 80% to $24.8 million for the
nine months ended September 30, 1997 from $13.8 million for the nine months
ended September 30, 1996, representing 45.4% and 42.9% of total revenues for
the three months ended September 30, 1997 and 1996, respectively, and 47.7%
and 44.5% of total revenues for the nine months ended September 30, 1997 and
1996, respectively. The increase in dollar amount and the increase as a
percentage of revenues was the result of the Company's strategy to continue to
invest in its sales and marketing infrastructure, including increasing the
number of sales teams and increasing the number of marketing programs. The
Company expects that sales and marketing expenses will increase in dollar
amount for the remainder of the year, as the Company continues to increase its
sales force.
Research and development. Research and development expenses consist
primarily of salaries and benefits for software developers, contracted
development efforts and related facilities costs. Research and development
expenses increased by 33% to $2.9 million for the three months ended September
30, 1997 from $2.2 million for the three months ended September 30, 1996, and
increased by 41% to $7.7 million for the nine months ended September 30, 1997
from $5.5 million for the nine months ended September 30, 1996, representing
14.7% and 18.1% of total revenues for the three months ended September 30,
1997 and 1996, respectively, and 14.9% and 17.8% of total revenues for the
nine months ended September 30, 1997 and 1996, respectively. The increase in
dollar amount reflects the expansion of the Company's engineering staff and
related costs required to support the development of new products and
enhancement of existing products. Based on the Company's research and
development process, costs incurred between the establishment of technological
feasibility and general release have not been material and therefore have not
been capitalized in accordance with Financial Accounting Standards No. 86.
11
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General and administrative. General and administrative expenses consist
primarily of personnel costs for finance, management information systems,
human resources and general management as well as outside professional
services. General and administrative expenses increased by 31% to $1.4 million
for the three months ended September 30, 1997 from $1.1 million for the three
months ended September 30, 1996, and increased by 32% to $3.9 million for the
nine months ended September 30, 1997 from $3.0 million for the nine months
ended September 30, 1996, representing 7.2% and 8.9% of total revenues for the
three months ended September 30, 1997 and 1996, respectively, and 7.5% and
9.5% of total revenues for the nine months ended September 30, 1997 and 1996,
respectively. The increase in dollar amount was primarily due to increased
staffing and professional fees necessary to manage and support the Company's
growth. The decrease in general and administrative expenses, as a percentage
of revenues was primarily due to economies of scale realized as certain
expenses such as management compensation grew proportionately less than
revenues. The Company expects general and administrative expenses to increase
in dollar amount for the remainder of the year in order to support the growing
needs of the Company.
Interest and other income, net
Interest and other income, net consists primarily of interest income earned
on the Company's cash and cash equivalents and short term investments, and
other items including foreign exchange gain and losses and interest expense.
Interest and other income, net decreased 30% to $464,000 for the three months
ended September 30, 1997 from $660,000 for the three months ended September
30, 1996 and decreased 7% to $1.5 million for the nine months ended September
30, 1997 from $1.6 million for the nine months ended September 30, 1996. The
decrease is due to lower returns driven by the Company's purchase of tax-free
investments during the period. To date, the Company's international sales have
been generally denominated in U.S. dollars and the Company has not engaged in
hedging activities as the exposure to currency fluctuations has been
insignificant. In the future, as the Company expands its international
operations, the Company expects to have an increased amount of non-U.S. dollar
denominated contracts. Unexpected changes in the exchange rates for these
foreign currencies could result in significant fluctuation in the foreign
currency transaction gains and losses in future periods.
Provision for income taxes
The provision for income taxes reflects the estimated annualized effective
tax rate of 34% applied to earnings for the nine months ended September 30,
1997 and 35% to earnings for the nine months ended September 30, 1996. The
Company reduced its estimated annualized effective tax from 35% to 34% due to
the establishment of a foreign sales corporation and a shift to tax-free
investments.
LIQUIDITY AND CAPITAL RESOURCES
Since 1993, the Company has financed its operations primarily through the
sale of stock and through cash generated from operations. In February 1996,
the Company completed its initial public offering whereby it sold 2,058,000
shares of its common stock, and received net proceeds of approximately $45
million.
The Company's cash and investments totaled $57.1 million at September 30,
1997 representing 65.5% of total assets. Net cash provided by operating
activities was $10.4 million and $7.0 million for the nine months ended
September 30, 1997 and 1996, respectively. For the nine months ended September
30, 1997, cash generated by operations was primarily attributable to net
income of $4.6 million, an increase in accrued liabilities of $4.3 million, an
increase in deferred revenue of $1.9 million and an increase in accounts
payable of $900,000, which was offset by an increase in accounts receivable of
$2.5 million. For the nine months ended September 30, 1997, capital
expenditures of $5.9 million were primarily for computer equipment and
software, fixed assets and leasehold improvements acquired in conjunction with
the Company's expansion.
The Company currently has a line of credit facility which allows for
borrowings of up to $5.0 million at the bank's prime rate. This facility
expires in November 1997, and the Company presently anticipates that it will
be able to renew the line of credit. At September 30, 1997, the Company had no
outstanding borrowings under its
12
<PAGE>
line of credit. During the nine months ended September 30, 1997, the Company
paid $600,000 to eliminate the two existing term notes relating to equipment
financing. In addition, the Company may borrow up to an additional $1.5
million through November 1997. Interest only is payable on such additional
borrowings at the Bank's prime rate plus 0.25% through November 1997 after
which any outstanding balance is due in 24 equal installments. All obligations
shall bear interest, from and after the occurrence of an event of default, at
a rate equal to 5% points above the interest rate applicable immediately prior
to the occurrence of the event of default. Borrowings under the loan agreement
are secured by substantially all of the assets of the Company.
The Company currently has no significant capital spending or purchase
commitments other than normal purchase commitments and commitments under
facilities and capital leases.
The Company believes that its existing cash balances and short-term
investments, combined with available bank financing and the cash flows
generated from operations, if any, will be sufficient to meet its anticipated
cash needs for working capital and capital expenditures for at least the next
12 months. A portion of the Company's cash could be used to acquire or invest
in complementary technologies, products or businesses that broaden or enhance
the Company's current product offerings.
RISK FACTORS
In evaluating the Company's business, prospective investors should carefully
consider the following factors in addition to the other information presented
in this report and in the Company's other reports filed with the Securities
and Exchange Commission that attempt to advise interested parties of the risks
and factors that may affect the Company's business.
Uncertainty of Future Operating Results; Fluctuations in Quarterly Operating
Results. Prior growth rates in the Company's revenue and operating results
should not be considered indicative of future growth, if any, or of future
operating results. Future operating results will depend upon many factors,
including the demand for the Company's products, the level of product and
price competition, the length of the Company's sales cycle, the size and
timing of individual license transactions, the delay or deferral of customer
implementations, the budget cycles of the Company's customers, the Company's
success in expanding its direct sales force and indirect distribution
channels, the timing of new product introductions and product enhancements by
the Company and its competitors, the mix of products and services sold, levels
of international sales, activities of and acquisitions by competitors, the
timing of new hires, changes in foreign currency exchange rates, the ability
of the Company to develop and market new products and control costs and
general domestic and international economic and political conditions. The
Company believes that fourth quarter revenues and earnings have historically
been positively impacted by year-end customer buying patterns. This
seasonality, which the Company believes is common in the software industry,
typically results in first quarter revenues and earnings in any year being
flat or lower than revenues in the immediately preceding fourth quarter.
Moreover, the Company typically recognizes a substantial amount of its revenue
in the last month, weeks or even days of each quarter. The Company's license
sales generally reflect a relatively high amount of revenues per order and the
number of large individual license sales has continued to increase. The loss
or delay of individual orders, therefore, could have a significant impact on
the revenues and quarterly results of the Company. In addition, the timing of
license revenue is difficult to predict because of the length of the Company's
sales cycle, which is typically six to twelve months from the initial contact.
Because the Company's operating expenses are based on anticipated revenue
trends and because a high percentage of the Company's expenses are relatively
fixed, any shortfall from anticipated revenue or a delay in the recognition of
revenue from a limited number of license transactions could cause significant
variations in operating results from quarter to quarter and could result in
losses. As a result of these factors, operating results for any quarter are
subject to significant variation, and the Company believes that period-to-
period comparisons of its results of operations are not necessarily meaningful
and should not be relied upon as indications of future performance.
Furthermore, due to all of the foregoing factors, it is likely that in some
future quarter the Company's operating results will be below the expectations
of public market analysts or investors. In
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<PAGE>
such event, the market price of the Company's common stock would likely be
materially adversely affected.
Lengthy Sales and Implementation Cycles. The license of the Company's
software products is often an enterprise-wide decision by prospective
customers and generally requires the Company to engage in a lengthy sales
cycle (typically between six and twelve months) to provide a significant level
of education to prospective customers regarding the use and benefits of the
Company's products. Additionally, the size of the transaction and the
complexity of the arrangement can also cause delays in the sales cycle. The
implementation by customers of the Company's products involves a significant
commitment of resources by such customers over an extended period of time and
is commonly associated with substantial business reengineering efforts. For
these and other reasons, the sales and customer implementation cycles are
subject to a number of significant delays over which the Company has little or
no control. Delay in the sale or customer implementation of a limited number
of license transactions could have a material adverse effect on the Company's
business, financial condition and results of operations and cause the
Company's operating results to vary significantly from quarter to quarter.
Product Concentration. To date, substantially all of the Company's revenues
have been attributable to sales of licenses of the Documentum EDMS family of
products and related services. The Company currently expects the Documentum
EDMS family of products, and related services, to account for substantially
all of its future revenues. As a result, factors adversely affecting the
pricing of or demand for the Documentum EDMS products such as competition or
technological change could have a material adverse effect on the Company's
business, financial condition and results of operations. The Company's future
financial performance will depend, in significant part, on the successful
development, introduction and customer acceptance of new and enhanced versions
of the Documentum EDMS family of products. There can be no assurance that the
Company will continue to be successful in developing and marketing the
Documentum EDMS products.
New Products and Rapid Technological Change. The document management
software and services market is characterized by rapid technological change,
changes in customer requirements, frequent new product introductions and
enhancements and emerging industry standards. The introduction of products
embodying new technologies and the emergence of new industry standards can
render existing products obsolete and unmarketable. Accordingly, the life
cycles of the Company's products are difficult to estimate. The Company's
future success will depend in part upon its ability to enhance current
products and to continue to develop and introduce new products that respond to
evolving customer requirements and keep pace with technological developments
and emerging industry standards, such as new operating systems, hardware
platforms, user interfaces, the Internet, corporate intranets and relational
database management system ("RDBMS") software. The Company's future success
will also depend in part on its ability to execute on its strategy to develop
whole-product solutions in certain target vertical industries. In addition,
the Company's future success will depend in part upon its ability to maintain
and enhance relationships with its technology partners, such as RDBMS vendors,
in order to provide its customers with integrated product solutions. There can
be no assurance that the Company will be successful in maintaining these
relationships or in developing and marketing product enhancements or new
products that respond to technological change, updates and enhancements to
third party products used in conjunction with the Company's products, changes
in customer requirements or emerging industry standards; that the Company will
not experience difficulties that could delay or prevent the successful
development, introduction and marketing of new products and enhancements; or
that any new products or enhancements that the Company may introduce will
adequately meet the requirements of the marketplace and achieve market
acceptance. Moreover, the Company has in the past experienced delays in the
release dates of enhancements to its EDMS products. If release dates of any
future EDMS enhancements are delayed or, if when released, fail to achieve
market acceptance, the Company's business, financial condition and results of
operations could be materially adversely affected. To date, the delays the
Company has experienced have been minor in nature and are often the result of
adding enhancements or functionality based upon customer feedback during beta
product versions. These delays have generally not exceeded six months in
duration from the Company's scheduled internal release dates; however, there
can be no assurance that the Company may not experience future delays in
product introduction. The inability of the Company, for technological or other
reasons, to develop and introduce new products or enhancements in a timely
manner in response to changing customer requirements, technological
14
<PAGE>
change or emerging industry standards, would have a material adverse effect on
the Company's business, financial condition and results of operations.
Dependence on Emerging Markets. The market for document management software
and services is intensely competitive, highly fragmented and subject to rapid
change. The Company's future financial performance will depend primarily on
growth in the number of document management applications developed for use in
client/server environments. There can be no assurance that the market for
document management software and services will continue to grow or that, if it
does grow, organizations will adopt the Company's products. The Company has
spent, and intends to continue to spend, significant resources educating
potential customers about the benefits of its products. However, there can be
no assurance that such expenditures will enable the Company's products to
achieve any additional degree of market acceptance, and if the document
management software and services market fails to grow or grows more slowly
than the Company currently anticipates, the Company's business, financial
condition and results of operations would be materially adversely affected.
Intense Competition. The market for the Company's products is intensely
competitive, subject to rapid change and significantly affected by new product
introductions and other market activities of industry participants. The
Company's products are targeted at the emerging market for open, client/server
software solutions, and the Company's competitors offer a variety of products
and services to address this market. The Company currently encounters direct
competition from a number of public and private companies such as OpenText, PC
DOCS, FileNet and Novasoft. Several competitors have longer operating
histories, significantly greater financial, technical, marketing and other
resources, significantly greater name recognition and a larger installed base
of customers than the Company.
In addition, other enterprise software vendors, such as Microsoft, Oracle
and Lotus (a division of IBM), may compete with the Company in the future.
Like the Company's current competitors, many of these companies have longer
operating histories, significantly greater resources and name recognition and
a larger installed base of customers than the Company. Microsoft, Oracle,
Lotus and other potential competitors have well-established relationships with
current and potential customers and strategic partners of the Company, have
extensive knowledge of the enterprise software industry and have the resources
to enable them to more easily offer a single vendor solution. As a result,
these competitors may be able to respond more quickly to new or emerging
technologies and changes in customer requirements, or to devote greater
resources to the development, promotion and sale of their products, than can
the Company.
The Company also faces indirect competition from systems integrators. The
Company relies on a number of systems consulting and systems integration firms
for implementation and other customer support services, as well as
recommendations of its products during the evaluation stage of the purchase
process. Although the Company seeks to maintain close relationships with these
service providers, many of these third parties have similar, and often more
established, relationships with the Company's principal competitors. If the
Company is unable to develop and maintain effective, long-term relationships
with these third parties, the Company's competitive position would be
materially adversely affected. Further, there can be no assurance that these
third parties, many of which have significantly greater resources than the
Company, will not market software products in competition with the Company in
the future or will not otherwise reduce or discontinue their relationships
with or support of the Company and its products.
r The Company also expects that competition will increase as a result of
software industry consolidations. In addition, current and potential
competitors have established or may establish cooperative relationships among
themselves or with third parties to increase the ability of their products to
address the needs of the Company's prospective customers. Accordingly, it is
possible that new competitors or alliances among competitors may emerge and
rapidly acquire significant market share. Increased competition may result in
price reductions, reduced gross margins and loss of market share, any of which
could have a material adverse effect on the Company's business, operating
results and financial condition. There can be no assurance that the Company
will
15
<PAGE>
be able to compete successfully against current and future competitors or that
competitive pressures faced by the Company will not materially and adversely
affect its business, financial condition and results of operations.
End User Customer and Industry Concentration. A relatively small number of
end user customers account for a significant percentage of the Company's
revenues. In addition, the Company's customers are somewhat concentrated in
the process and discrete manufacturing, pharmaceutical and architectural
engineering and construction industries. The Company expects that sales of its
products to a limited number of customers and industry segments will continue
to account for a high percentage of revenue for the foreseeable future. In
addition, the future success of the Company will depend in part on its ability
to obtain orders from new customers and its ability to successfully market its
products to customers in new industry segments. The loss of a major customer
or any reduction or delay in orders by such customers, or the failure of the
Company to successfully market its products outside existing targeted industry
segments, would have a material adverse effect on the Company's business,
financial condition and results of operations.
Reliance on Certain Relationships. The Company has established strategic
relationships with a number of organizations that it believes are important to
its worldwide sales, marketing and support activities. The Company's
relationships with indirect channel partners and other consultants provide
marketing and sales opportunities for the Company's direct sales force, expand
the distribution of its products and broaden its product offerings through
product bundling. These relationships also assist the Company in keeping pace
with the technological and marketing developments of major vendors, and in
certain instances, provide the Company with technical assistance for the
Company's product development efforts. There can be no assurance that any
customer, systems integrator or distributor will continue to market or to
purchase the Company's products. The failure by the Company to maintain these
relationships, or to establish new relationships in the future, could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Management of Growth; Dependence Upon Key Personnel. The Company's ability
to compete effectively and to manage future anticipated growth will require
the Company to expand, train and manage its employee work force. The Company's
plans include hiring a significant number of highly-qualified technical, sales
and managerial personnel. In particular, as part of the Company's strategy of
delivering comprehensive solutions, the Company expects to hire additional
professional service personnel in addition to the employees expected to join
the Company in connection with the Company's pending acquisition of Workgroup
Management, Inc. ("WMI"). Competition for such personnel is intense, and there
can be no assurance that the Company will be able to attract, assimilate or
retain such key employees.
International Operations. The Company's sales are primarily to large
multinational companies. To service the needs of such companies, both
domestically and internationally, the Company and its support partners must
provide worldwide product support services. As a result, the Company intends
to continue expanding its existing international operations and enter
additional international markets, which will require significant management
attention and financial resources and could adversely affect the Company's
operating margins and earnings, if any. The Company has offices in London and
Paris and opened an office in Munich in October 1996. The Company operates its
own European technical support operation, located in the London office, and
recently expanded this operation into Munich. For the three months ended
September 30, 1997 and 1996 international license revenue represented 32% and
30% of the Company's 1996 total license revenues, respectively. For the nine
months ended September 30, 1997 and 1996 international license revenue
represented 28% and 27% of the Company's total license revenues, respectively.
In order to successfully expand international sales, the Company must
establish additional foreign operations, hire additional personnel and develop
relationships with additional international vendors. To the extent that the
Company is unable to do so in a timely manner, the Company's growth, if any,
in international sales will be limited, and the Company's business, financial
condition and results of operations could be materially adversely affected. In
addition, there can be no assurance that the Company will be able to maintain
or increase international market demand for its products.
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<PAGE>
Additional risks inherent in the Company's international business activities
generally include currency fluctuations, unexpected changes in regulatory
requirements, tariffs and other trade barriers, costs of and the Company's
limited experience in localizing products for foreign countries, lack of
acceptance of localized products in foreign countries, longer accounts
receivable payment cycles, difficulties in managing international operations,
potentially adverse tax consequences, including restrictions on the
repatriation of earnings, and the burdens of complying with a wide variety of
foreign laws. To date, a significant portion of the Company's international
revenues has been denominated in U.S. dollars. Although exposure to currency
fluctuations to date has been insignificant, there can be no assurance that
fluctuations in the currency exchange rates in the future will not have a
material adverse impact on revenues from international sales and thus the
Company's business, financial condition and results of operations. There can
be no assurance that such factors will not have a material adverse effect on
the Company's future international operations and, consequently, the Company's
results of operations.
Dependence on Proprietary Technology; Risks of Infringement. The Company's
success is heavily dependent upon proprietary technology. The Company relies
primarily on a combination of copyright and trademark laws, trade secrets,
confidentiality procedures and contractual provisions to protect its
proprietary rights. The Company seeks to protect its software, documentation
and other written materials under trade secret and copyright laws, which
afford only limited protection. The Company presently has no patents or patent
applications pending. Despite the Company's efforts to protect its proprietary
rights, unauthorized parties may attempt to copy aspects of the Company's
products or to obtain and use information that the Company regards as
proprietary. Policing unauthorized use of the Company's products is difficult,
and while the Company is unable to determine the extent to which piracy of its
software products exists, software piracy can be expected to be a persistent
problem. In addition, the laws of some foreign countries do not protect the
Company's proprietary rights to as great an extent as do the laws of the
United States. There can be no assurance that the Company's means of
protecting its proprietary rights will be adequate or that the Company's
competitors will not independently develop similar technology. The Company is
not aware that any of its products infringe the proprietary rights of third
parties. There can be no assurance, however, that third parties will not claim
infringement by the Company with respect to current or future products. The
Company expects that software product developers will increasingly be subject
to infringement claims as the number of products and competitors in the
Company's industry segment grows and the functionality of products in
different industry segments overlaps. Any such claims, with or without merit,
could be time-consuming, result in costly litigation, cause product shipment
delays or require the Company to enter into royalty or licensing agreements.
Such royalty or licensing agreements, if required, may not be available on
terms acceptable to the Company or at all, which could have a material adverse
effect upon the Company's business, operating results and financial condition.
In addition, the Company also relies on certain software that it licenses from
third parties, including software that is integrated with internally developed
software and used in the Company's products to perform key functions. There
can be no assurances that such firms will remain in business, that they will
continue to support their products or that their products will otherwise
continue to be available to the Company on commercially reasonable terms. The
loss or inability to maintain any of these software licenses could result in
delays or reductions in product shipments until equivalent software can be
developed, identified, licensed and integrated, which would adversely affect
the Company's business, financial condition and results of operations.
Product Liability. The Company's license agreements with its customers
typically contain provisions designed to limit the Company's exposure to
potential product liability claims. However, it is possible that the
limitation of liability provisions contained in the Company's license
agreements may not be effective under the laws of certain jurisdictions.
Although the Company has not experienced any product liability claims to date,
the sale and support of products by the Company may entail the risk of such
claims, and there can be no assurance that the Company will not be subject to
such claims in the future. A successful product liability claim brought
against the Company could have a material adverse effect upon the Company's
business, financial condition and results of operations.
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<PAGE>
Risk of Product Defects. Software products as complex as those offered by
the Company frequently contain errors or failures, especially when first
introduced or when new versions are released. Although the Company conducts
extensive product testing, the Company has in the past released products that
contain defects, and has discovered software errors in certain of its new
products and enhancements after their introduction. For example, the Company
experienced certain technical problems in the December 1994 release of its
product that were corrected in its June 1995 release. The Company could in the
future lose or delay recognition of revenues as a result of software errors or
defects. The Company's products are typically intended for use in applications
that may be critical to a customer's business. As a result, the Company
expects that its customers and potential customers have a greater sensitivity
to product defects than the market for software products generally. Although
the Company's business has not been adversely affected by any such errors to
date, there can be no assurance that, despite testing by the Company and by
current and potential customers, errors will not be found in new products or
releases after commencement of commercial shipments, resulting in loss of
revenue or delay in market acceptance, diversion of development resources,
damage to the Company's reputation, or increased service and warranty costs,
any of which could have a material adverse effect upon the Company's business,
financial condition and results of operations.
Risks Associated with Acquisitions. As part of its business strategy, the
Company expects to make acquisitions of, or significant investments in,
businesses that offer complementary products and technologies. For example,
the Company has entered into an agreement to acquire WMI. Such acquisition
will, and any future acquisitions or investments would, expose the Company to
the risks commonly encountered in acquisitions of businesses. Such risks
include, among others, difficulty of assimilating the operations; information
systems and personnel of the acquired businesses; the potential disruption of
the Company's ongoing business; the inability of management to maximize the
financial and strategic position of the Company through the successful
incorporation of acquired employees and customers; the maintenance of uniform
standards, controls, procedures and policies and the impairment of
relationships with employees and customers as a result of any integration of
new management personnel. There can be no assurance that any potential
acquisition will be consummated or, if consummated, that it will not have a
material adverse effect on the Company's business, financial condition and
results of operations.
Possible Volatility of Stock Price. The trading price of the Company's
Common Stock is subject to significant fluctuations in response to variations
in quarterly operating results, the gain or loss of significant orders,
changes in earning estimates by analysts, announcements of technological
innovations or new products by the Company or its competitors, general
conditions in the software and computer industries and other events or
factors. In addition, the stock market in general has experienced extreme
price and volume fluctuations which have affected the market price for many
companies in industries similar or related to that of the Company and which
have been unrelated to the operating performance of these companies. These
market fluctuations may adversely affect the market price of the Company's
Common Stock.
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<PAGE>
PART II. OTHER INFORMATION
ITEM 2. CHANGE IN SECURITIES AND USE OF PROCEEDS
The effective date of the Company's first registration statement, filed on
Form S-1 filed under the Securities Act of 1993 (No. 33-80047), was February
5, 1996 (the "Registration Statement"). The class of securities registered was
Common Stock. The offering commenced on February 5, 1996 and all securities
were sold in the offering. The managing underwriters for the offering were
Morgan Stanley & Co. Incorporated and Alex Brown & Sons Incorporated.
Pursuant to the Registration Statement, the Company sold 2,058,000 shares of
its Common Stock for its own account, for an aggregate offering price of
$49,392,00, and 12,000 shares of its Common Stock for the account of certain
selling stockholders, for an aggregate offering price of $288,000.
The Company incurred expenses of approximately $4,352,440, of which
$3,457,440 represented underwriting discounts and commissions and $895,000
represented estimated other expenses. All such expenses were direct or
indirect payments to others. The net offering proceeds to the issuer after
total expenses was $45,039,560.
The Company has not used any of the net proceeds from the offering. All net
proceeds have been invested in mutual funds, U.S. Government obligations and
corporate bonds. The use of the proceeds from the offering does not represent
a material change in the use of the proceeds described in the prospectus.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
(1)3.1 Registrant's Amended and Restated Certificate of Incorporation
(2)3.2 Registrant's Amended and Restated Bylaws.
4.1 Reference is made to Exhibits 3.1 and 3.2
(2)4.2 Specimen stock certificate
(2)4.3 Amended and Restated Investor Rights Agreement, dated September 20,
1994, between the Registrant and certain investors.
(2)10.1 Registrant's 1993 Equity Incentive Plan, as amended.
(2)10.2 Form of Incentive Stock Option under the Equity Incentive Plan.
(2)10.3 Form of Nonstatutory stock Option under the Equity Incentive Plan.
(2)10.4 Form of Early Exercise Stock Purchase Agreement.
(1)10.5 Registrant's Employee Stock Purchase Plan, as amended.
(2)10.6 Registrant's 1995 Non-Employee Directors' Stock Option Plan.
(2)10.7 Form of Indemnity Agreement between the Registrant and its officers
and directors.
(2)10.8 Industrial Real Estate Lease, dated September 9, 1995, between the
Registrant and Sunol Center Associates.
(2)10.9 Letter Agreement, dated July 27, 1993, between the Registrant and
Jeffrey A. Miller.
(2)10.10 Business Loan Agreement, dated December 23, 1993, between the
Registrant and Silicon Valley Bank.
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
(2)10.11 Promissory Note and Loan modification Agreement, dated October 21,
1994 between the Registrant and Silicon Valley Bank.
(2)10.12 Loan Modification Agreement, dated July 27, 1995, between the
Registrant and Silicon Valley Bank.
Y(2)10.13 International Distributor Agreement, dated December 8, 1993, between
the Registrant and Xerox Canada Ltd.
Y(2)10.14 Agreement for the Supply of Services, dated April 5, 1995, between
the Registrant and Rank Xerox Limited.
(2)10.15 Series C Stock Purchase Agreement, dated September 20, 1994, between
the Registrant and certain other parties named therein.
(2)10.16 Promissory Note and Loan Modification Agreement, dated November 10,
1995, between the Registrant and Silicon Valley Bank.
Y(3)10.17 Services Partner Agreement, dated April 1, 1996, between the
Registrant and Xerox Corporation.
(4)10.18 Registrant's 1996 Non-Officer Equity Incentive Plan.
(5)10.19 Letter of Agreement, dated December 9, 1996 between the Registrant
and Mark S. Garrett.
(5)10.20 Lease agreement between Registrant and Britannia Hacienda IV Limited
Partnership.
(6)11.1 Statement Regarding computation of Earnings Per Share.
(2)22.1 List of Subsidiaries of Registrant.
(6)27.1 Financial Data Schedule.
</TABLE>
- --------
Y Confidential treatment requested and granted for portions of this exhibit.
(1) Filed as an exhibit to the Registrant's Registration Statement on Form S-8
(No. 333-01832) and incorporated herein by reference.
(2) Filed as an exhibit to the Registrant's Registration Statement on Form S-
1, as amended (No. 33-80047) and incorporated herein by reference.
(3) Filed as an exhibit to the Registrant's Form 10-Q for the quarterly period
ended March 31, 1996 and incorporated herein by reference.
(4) Filed as an exhibit to the Registrant's Registration Statement on Form S-8
(No. 333-15239) and incorporated herein by reference.
(5) Filed as an exhibit to the Registrant's annual report on Form 10-K for the
year ended December 31, 1996 and incorporated herein by reference.
(6) Filed as an exhibit to the Registrant's quarterly report on Form 10-Q for
the quarterly period ended September 30, 1997 and incorporated herein by
reference.
(b) NO REPORTS ON FORM 8-K WERE FILED DURING THE QUARTER ENDED SEPTEMBER 30,
1997.
20
<PAGE>
SIGNATURE
Pursuant to the requirements of Securities Exchange Act of 1934, the
registrant has duly caused this amendment to its report on Form 10-Q to be
signed on its behalf by the undersigned, thereunto duly authorized.
DOCUMENTUM, INC.
(Registrant)
Date: October 30, 1997 By: /s/Mark S. Garrett
----------------------------------
Mark S. Garrett
Vice President, and Chief Financial
Officer,
(Duly Authorized Officer and
Principal Financial Officer)
21
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
(1)3.1 Registrant's Amended and Restated Certificate of Incorporation
(2)3.2 Registrant's Amended and Restated Bylaws.
4.1 Reference is made to Exhibits 3.1 and 3.2
(2)4.2 Specimen stock certificate
(2)4.3 Amended and Restated Investor Rights Agreement, dated September 20,
1994, between the Registrant and certain investors.
(2)10.1 Registrant's 1993 Equity Incentive Plan, as amended.
(2)10.2 Form of Incentive Stock Option under the Equity Incentive Plan.
(2)10.3 Form of Nonstatutory stock Option under the Equity Incentive Plan.
(2)10.4 Form of Early Exercise Stock Purchase Agreement.
(1)10.5 Registrant's Employee Stock Purchase Plan, as amended.
(2)10.6 Registrant's 1995 Non-Employee Directors' Stock Option Plan.
(2)10.7 Form of Indemnity Agreement between the Registrant and its officers
and directors.
(2)10.8 Industrial Real Estate Lease, dated September 9, 1995, between the
Registrant and Sunol Center Associates.
(2)10.9 Letter Agreement, dated July 27, 1993, between the Registrant and
Jeffrey A. Miller.
(2)10.10 Business Loan Agreement, dated December 23, 1993, between the
Registrant and Silicon Valley Bank.
(2)10.11 Promissory Note and Loan modification Agreement, dated October 21,
1994 between the Registrant and Silicon Valley Bank.
(2)10.12 Loan Modification Agreement, dated July 27, 1995, between the
Registrant and Silicon Valley Bank.
Y(2)10.13 International Distributor Agreement, dated December 8, 1993, between
the Registrant and Xerox Canada Ltd.
Y(2)10.14 Agreement for the Supply of Services, dated April 5, 1995, between
the Registrant and Rank Xerox Limited.
(2)10.15 Series C Stock Purchase Agreement, dated September 20, 1994, between
the Registrant and certain other parties named therein.
(2)10.16 Promissory Note and Loan Modification Agreement, dated November 10,
1995, between the Registrant and Silicon Valley Bank.
Y(3)10.17 Services Partner Agreement, dated April 1, 1996, between the
Registrant and Xerox Corporation.
(4)10.18 Registrant's 1996 Non-Officer Equity Incentive Plan.
(5)10.19 Letter of Agreement, dated December 9, 1996 between the Registrant
and Mark S. Garrett.
(5)10.20 Lease agreement between Registrant and Britannia Hacienda IV Limited
Partnership.
(6)11.1 Statement Regarding computation of Earnings Per Share.
(2)22.1 List of Subsidiaries of Registrant.
(6)27.1 Financial Data Schedule.
</TABLE>
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Y Confidential treatment requested and granted for portions of this exhibit.
(1) Filed as an exhibit to the Registrant's Registration Statement on Form S-8
(No. 333-01832) and incorporated herein by reference.
(2) Filed as an exhibit to the Registrant's Registration Statement on Form S-
1, as amended (No. 33-80047) and incorporated herein by reference.
(3) Filed as an exhibit to the Registrant's Form 10-Q for the quarterly period
ended March 31, 1996 and incorporated herein by reference.
(4) Filed as an exhibit to the Registrant's Registration Statement on Form S-8
(No. 333-15239) and incorporated herein by reference.
(5) Filed as an exhibit to the Registrant's annual report on Form 10-K for the
year ended December 31, 1996 and incorporated herein by reference.
(6) Filed as an exhibit to the Registrant's quarterly report on Form 10-Q for
the quarterly period ended September 30, 1997 and incorporated herein by
reference.
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