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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the quarterly period ended
September 30, 1998
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 0-21529
GIGA INFORMATION GROUP, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 06-1422860
----------------------- ---------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE LONGWATER CIRCLE
NORWELL, MA 02061
(781) 982-9500
-------------------------------------------
(Address, including zip code, and telephone
number, including area code, of principal
executive offices)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [ ] Yes [X] No
As of November 9, 1998, there were 9,926,788 shares of Common Stock, $.001 par
value, of the registrant outstanding.
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<PAGE>
GIGA INFORMATION GROUP, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<S> <C>
Consolidated Statements of Operations for the three and nine months
ended September 30, 1998 and September 30, 1997 (unaudited) 3.
Consolidated Balance Sheets at September 30, 1998 and December 31, 1997
(unaudited) 4.
Consolidated Statements of Cash Flows for the nine months ended
September 30, 1998 and September 30, 1997 (unaudited) 5.
Notes to Consolidated Financial Statements (unaudited) 6.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9.
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 18.
Item 6. Exhibits and Reports on Form 8-K 19.
SIGNATURE PAGE 20.
INDEX TO EXHIBITS 21.
</TABLE>
2
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
GIGA INFORMATION GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except share and per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Continuous information services $ 8,235 $ 3,743 $ 22,643 $ 9,547
Other services 442 546 3,610 2,851
Publications 73 42 161 303
--------- --------- ---------- ---------
Total revenues 8,750 4,331 26,414 12,701
Costs and expenses:
Cost of services 4,433 3,130 13,972 9,765
Cost of publications 146 69 300 100
Sales and marketing 6,739 5,500 19,055 14,938
Research and development 402 523 1,040 1,770
General and administrative 1,628 1,159 4,727 3,365
Depreciation and amortization 321 490 1,120 1,595
--------- --------- ---------- ---------
Total costs and expenses 13,669 10,871 40,214 31,533
--------- --------- ---------- ---------
Loss from operations (4,919) (6,540) (13,800) (18,832)
--------- --------- ---------- ---------
Interest income 270 48 429 223
Interest expense (432) (88) (1,212) (129)
Foreign exchange gain/(loss) 195 29 245 (302)
--------- --------- ---------- ---------
Loss from continuing operations before income taxes (4,886) (6,551) (14,338) (19,040)
Income tax (benefit) charge 36 (17) 36 (6)
--------- --------- ---------- ---------
Loss from continuing operations (4,922) (6,534) (14,374) (19,034)
--------- --------- ---------- ---------
Income from disposal of discontinued BIS Shrapnel
business, net of applicable taxes of $21 - 41 - 41
--------- --------- ---------- ---------
Income from discontinued operations - 41 - 41
--------- --------- ---------- ---------
Loss before extraordinary item (4,922) (6,493) (14,374) (18,993)
--------- --------- ---------- ---------
Extraordinary item (Note 5.), net of applicable
taxes of $0. (707) - (707) -
--------- --------- ---------- ---------
Net Loss $ (5,629) $ (6,493) $(15,081) $(18,993)
========= ========= ========== =========
Results per common share:
Historical - basic and diluted:
Loss from continuing operations $ (0.69) $ (3.15) $ (3.76) $ (9.20)
========= ========= ========== =========
Extraordinary item $ (0.10) $ - $ (0.18) $ -
========= ========= ========== =========
Net loss $ (0.79) $ (3.13) $ (3.94) $ (9.18)
========= ========= ========== =========
Weighted average number of shares 7,142,319 2,077,397 3,824,978 2,068,155
========= ========= ========== =========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
3
<PAGE>
GIGA INFORMATION GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
---- ----
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 22,486 $ 3,539
Marketable securities 4,209 -
Trade accounts receivable, net of allowance for uncollectible accounts of $410
and $483 at September 30, 1998 and December 31, 1997, respectively 7,756 8,961
Unbilled accounts receivable 3,775 4,727
Prepaid expenses and other current assets 4,148 3,753
------------ -----------
Total current assets 42,374 20,980
Property and equipment, net 2,421 1,695
Leasehold intangible - 177
Other assets 168 171
------------ -----------
Total assets $ 44,963 $ 23,023
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable 1,317 2,213
Deferred revenues 23,264 20,604
Accrued expenses and other current liabilities 6,532 6,385
Debt - other, current portion 442 1,526
Debt - related party, current portion - 448
------------ -----------
Total current liabilities 31,555 31,176
Long-term debt - other 566 937
------------ -----------
Total liabilities 32,121 32,113
Stockholders' equity (deficit):
Preferred Stock, $.001 par value; 5,000,000 and 16,500,000 shares authorized
at September 30, 1998 and December 31, 1997, respectively:
650,000 shares designated as Series A Convertible Preferred Stock, 0 and 570,000
shares issued and outstanding at September 30, 1998 and December 31, 1997,
respectively (liquidation preference of $2,850,000) - 1
9,000,000 shares designated as Series B Convertible Preferred Stock, 0 and 8,144,642
shares issued and outstanding at September 30, 1998 and December 31, 1997,
respectively (liquidation preference of $28,506,000) - 8
4,500,000 shares designated as Series C Convertible Preferred Stock, 0 and 2,609,491
shares issued and outstanding at September 30, 1998 and December 31, 1997,
respectively (liquidation preference of $10,725,000) - 3
2,000,000 shares designated as Series D Convertible Preferred Stock, 0 shares
issued and outstanding (liquidation preference of $2,000,000) - -
Common Stock, $.001 par value: 60,000,000 shares authorized, 9,926,788 and 2,093,107
shares issued and outstanding at September 30, 1998 and December 31, 1997, respectively 10 2
Additional paid-in capital 80,497 41,286
Deferred compensation (1,747) -
Accumulated deficit (66,010) (50,929)
Cumulative translation adjustments 92 539
------------ -----------
Total stockholders' equity (deficit) 12,842 (9,090)
------------ -----------
Total liabilities and stockholders' equity (deficit) $ 44,963 $ 23,023
============ ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
4
<PAGE>
GIGA INFORMATION GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $(15,081) $(18,993)
Adjustments to reconcile net loss to net cash used in continuing operating
activities:
Income from disposal of discontinued operations - (62)
Depreciation and amortization 1,120 1,595
Amortization of discount on note payable 1,182 -
Net loss on write-down of investments - 244
Provision for doubtful accounts (74) (137)
Interest on long-term debt added to principal - (28)
Interest on note receivable added to principal - (5)
(Gain) loss on sale of fixed assets (9) (11)
Deferred compensation expense 238 -
Other non-cash items 18 50
Change in assets and liabilities:
Decrease (increase) in accounts receivable 2,236 (2,166)
Decrease (increase) in prepaid expenses and other current assets (454) (811)
(Decrease) increase in deferred revenues 2,693 6,202
(Decrease) increase in accounts payable and accrued liabilities (829) 496
---------- ---------
Net cash used in operating activities:
Net cash used in continuing operations (8,960) (13,626)
Net cash used in discontinued operations (296) (578)
---------- ---------
Net cash used in operating activities (9,256) (14,204)
---------- ---------
Cash flows from investing activities:
Acquisitioniofoequipmentpandtimprovementsments (1,660) (454)
Investments purchased (4,209) -
Proceedsefromesale of Shrapnel - 293
Other, net 10 37
---------- ---------
Cash used in investing activities (5,859) (124)
---------- ---------
Cash flows from financing activities:
Proceeds from Initial Public Offering of Common Stock, net of offering
costs of $3,725 33,775 -
Proceeds from issuance of Common Stock under option plans 181 37
Proceeds from issuance of Common Stock due to exercise of warrants 144 -
Repurchase of Common Stock - (33)
Proceeds from issuance of Series C Convertible Preferred Stock, net of
issuance costs of $148 - 7,352
Proceeds from issuance of Series D Convertible Preferred Stock, net of
issuance costs of $80 1,920 -
Repayments of principal to related parties (400) -
Proceeds from stock subscriptions receivable - 25
Net decrease in short-term borrowings - (187)
Proceeds from long-term debt - 1,465
Proceeds from issuance of note payable, net of origination fee of $200 9,800 -
Principal repaid on note payable (10,000) -
Principal payments on long-term debt, current portion (1,318) (84)
---------- ---------
Cash provided by financing activities 34,102 8,575
---------- ---------
Effect of exchange rates on cash (40) (73)
Net increase (decrease) in cash and cash equivalents 18,947 (5,826)
Cash and cash equivalents, beginning of period 3,539 8,286
---------- ---------
Cash and cash equivalents, end of period $ 22,486 $ 2,460
========== =========
Supplementary cash flow information:
Income taxes paid $ 49 $ 15
Interest paid $ 770 $ 75
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
5
<PAGE>
GIGA INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements of the Company at
September 30, 1998 and for the three and nine months ended September 30, 1997
and 1998 are unaudited and have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. All adjustments
(consisting only of normal recurring adjustments) have been made which, in the
opinion of management, are necessary for a fair presentation. The results of
operations for the periods presented are not necessarily indicative of the
results that may be expected for any future period. For further information,
refer to the Company's audited consolidated financial statements included in the
Company's Registration Statement on Form S-1, File No. 333-52899, declared
effective by the Securities and Exchange Commission on July 29, 1998.
Management's Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect (i) the reported amounts of assets and liabilities, (ii)
disclosure of contingent assets and liabilities at the dates of the financial
statements and (iii) the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
Cash Equivalents and Marketable Securities
Cash equivalents consist primarily of liquid investments, with original
maturities of 90 days or less, in money market funds which are convertible to a
known amount of cash and bear insignificant risk of change in value.
At September 30, 1998, marketable securities primarily consisted of
Euro dollar bonds stated at amortized cost of $ 4.2 million, which approximates
fair value. These marketable securities have original maturities in excess of
three months. The Company intends to hold these investments to maturity and has
classified these marketable securities as current assets because of contractual
maturities of one year or less.
Stock Split
The Company effected a 1 for 3 reverse stock split of its Common Stock,
par value $.001 per share (the "Common Stock"), effective July 29, 1998. All
share and per share data presented herein have been restated to reflect the
Common Stock split.
Net Loss Per Share
The Company computes basic and diluted earnings per share in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share." Basic loss per share is based upon the weighted average number of common
shares outstanding during the period. Diluted loss per share is based upon the
weighted average number of common shares outstanding during the period and
6
<PAGE>
dilutive potential common shares outstanding. Due to the losses incurred by the
Company for the three and nine months ended September 30, 1997 and 1998, common
equivalent shares resulting from the assumed exercise of outstanding stock
options and warrants and the assumed conversion of outstanding convertible notes
payable at September 30, 1997 have been excluded from the computation of diluted
net loss per share as their effect would be anti-dilutive. Options to purchase
1,294,384 and 1,027,310 shares of Common Stock and warrants to purchase 809,057
and 35,959 shares of Common Stock were outstanding at September 30,1998 and
1997, respectively. Common equivalent shares resulting from the assumed
conversion of outstanding convertible notes payable at September 30,1998 and
1997 were 0 and 90,336 shares, respectively.
Comprehensive Income (Loss)
The Company has adopted SFAS No. 130, "Reporting Comprehensive Income,"
which establishes standards for the reporting and display of comprehensive
income and its components in general purpose financial statements for the year
ended December 31, 1998 and interim periods. The table below sets forth
"Comprehensive Income (Loss)" as defined by SFAS No. 130 (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net loss $(5,629) $(6,493) $(15,081) $(18,993)
Other Comprehensive income (loss), net of tax:
Foreign currency translation adjustment (364) 14 (447) 356
--------- --------- ---------- ----------
Comprehensive loss $(5,993) $(6,479) $(15,528) $(18,637)
========= ========= ========== ==========
</TABLE>
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 131, "Disclosures about
Segments of an Enterprise and Related Information." This statement supercedes
SFAS No. 14, "Financial Reporting for Segments of a Business Enterprise." SFAS
No. 131 includes requirements to report selected segment information quarterly
and entity-wide disclosures about products and services, major customers, and
the countries in which the company holds material assets and reports material
revenues. The statement will be effective for the annual periods beginning after
December 15, 1997 and the Company will adopt its provisions for the year ended
December 31, 1998. Reclassification for earlier periods is required, unless
impraticable, for comparative purposes. The Company is currently evaluating the
impact this statement will have on its financial statements; however, because
the statement requires only additional disclosure, the Company does not expect
the statement to have a material impact on its financial position or results of
operations.
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 is effective for
all fiscal quarters of fiscal years beginning after June 15, 1999. The Company
will adopt the new standard as of January 1, 2000. SFAS No. 133 requires that
all derivative instruments be recorded on the balance sheet at their fair value.
Changes in the fair value of derivatives are recorded each period in current
earnings or other comprehensive income, depending on whether a derivative is
designated as part of a hedge transaction and, if it is, the type of hedge
transaction. Management of the Company anticipates that, due to its limited use
of derivative instruments, the adoption of SFAS 133 will not have a significant
effect on the Company's results of operations or its financial position.
7
<PAGE>
GIGA INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
2. Completion of Initial Public Offering
On August 4, 1998, the Company consummated its Initial Public Offering
(the "Offering") of 3,000,000 shares of its Common Stock at $12.50 per share.
Aggregate net proceeds to the Company were approximately $33.8 million after
deducting underwriting discounts and offering expenses payable by the Company. A
portion of the net proceeds of the Offering was used to repay in full the Bridge
Notes in the aggregate principal amount of $10.0 million, plus accrued interest
thereon (see Note 4.). Concurrent with the closing of the Offering, all shares
of the Company's Series A, B, C and D Convertible Preferred Stock were converted
into an aggregate of 4,686,784 shares of Common Stock.
3. Series D Convertible Preferred Stock
In April and May 1998, the Company issued and sold 285,715 shares of
Series D Convertible Preferred Stock ('Series D') and warrants to purchase
154,285 shares of Series D at an exercise price of $9.00 per share for aggregate
consideration of $2.0 million.
All of the outstanding shares of the Company's Series D were converted
into 190,476 shares of Common Stock upon the consummation of the Offering in
August 1998.
4. Loan and Warrant Purchase Agreement
In April 1998, the Company entered into a Loan and Warrant Purchase
Agreement whereby the Company issued convertible promissory notes with a face
value of $10.0 million, at an annual interest rate of 12% (the "Bridge Notes"),
and warrants to purchase up to 166,666 shares of Common Stock in exchange for
cash proceeds of $10.0 million. The warrants are exercisable at $3.00 per share,
for a period of ten years from the date of the grant. The fair market value of
the warrants was recorded as a discount of $1,182,000 to the Bridge Notes and
such Bridge Notes were recorded at $8,818,000. In August 1998, upon completion
of the Offering, and in accordance with the terms of the Bridge Notes, a portion
of the net proceeds of the Offering was used to repay in full the Bridge Notes
in the aggregate amount of $10.0 million plus accrued interest thereon.
A total of $844,000 and $1,182,000 was charged to expense for the
three and nine month periods ended September 30, 1998, respectively, to accrete
the discount to the Bridge Notes. $707,000 of accretion was accelerated from
future periods due to repayment of the Bridge Notes on August 4, 1998 (see Note
5.).
On August 4, 1998, warrants to purchase 47,999 shares of Common Stock,
originally issued in April 1998 pursuant to the Loan and Warrant Purchase
Agreement for the Bridge Notes, were exercised for cash of $143,997, at an
exercise price of $3.00 per share.
5. Extraordinary Item
$707,000 of accretion, net of taxes of $0, was accelerated from future
periods due to repayment of the Bridge Notes on August 4, 1998 (see Note 4.).
The accelerated accretion would have been recognized ratably over the six month
period ending February 1, 1999 had the Company not completed the Offering and
retired the Bridge Notes as required under the terms of the Loan and Warrant
Purchase Agreement for the Bridge Notes.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Except for the historical information contained herein, the matters
discussed below contain forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Such forward looking
statements, including those concerning the Company's expectations, involve known
and unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company, or industry results, to be
materially different from any future results, performance, or achievements
expressed or implied by such forward looking statements. In evaluating such
statements as well as the future prospects of the Company, specific
consideration should be given to various factors including the following: the
Company's prior losses and anticipation of future losses; the Company's need to
attract and retain qualified personnel; the Company's dependence on sales and
renewals of subscription-based services; the Company's ability to manage growth;
the Company's future capital needs and the risks of working capital deficiency;
the Company's dependence on key personnel; competition; the risks associated
with the development of new services and products; the potential for significant
fluctuations in quarterly operating results; continued market acceptance and
demand for Giga services; uncertainties relating to proprietary rights; the
Company's dependence on the Internet infrastructure; the risk of system failure;
the risks related to content; and the risks associated with international
operations. For further information, refer to the Company's Registration
Statement on Form S-1 (File No. 333-52899), including the matters set forth
under the caption "Risk Factors."
OVERVIEW
Giga sells knowledge which supports enterprise decision making in the field
of Information Technology ("IT") with a focus on computing, telecommunications
and related industries. The Company's four principal products and services are
(i) Unified Advisory Service ("Advisory Service"), (ii) "IT Practice Services,"
(iii) "Continuous Advisory Consulting" and (iv) organizing and sponsoring a
range of events on significant IT industry issues and trends and producing
publications based on conference topics or current IT issues (collectively,
"Events and Publications"). The Company provides its services primarily through
GigaWeb, its intelligent Internet-based information delivery interface.
The Company introduced its Advisory Service and GigaWeb in April 1996. In
July 1996, the Company introduced its IT Practice Services. Advisory Consulting
was introduced in September 1997. The Company's Events and Publications product
line was acquired in April 1995. For financial reporting purposes, revenues from
(i) Advisory Service, IT Practice Services and Continuous Advisory Consulting
are aggregated into Continuous Information Services, (ii) Events and other
services, principally consulting, are aggregated into Other Services and (iii)
Publications are listed separately. The Company expects that revenues from its
Continuous Information Services will continue to increase as a percentage of its
total revenues.
The Company's Continuous Information Services ("CIS") are typically sold
through annual contracts that generally provide for payment at the commencement
of the contract period. A small number of CIS contracts, however, are billed
quarterly. Amounts received in advance of services provided are reflected in the
Company's financial statements as deferred revenues and are recognized monthly
on a pro rata basis over the term of the contract. Revenues from Other Services
are recognized as follows: events as they occur and consulting as such services
9
<PAGE>
are performed. Revenues from Publications are recognized when publications are
delivered. Unbilled receivables are primarily generated as a result of
contractual quarterly billing terms offered in connection with the Company's
Continuous Information Services. The Company also records the related commission
obligation upon acceptance of a CIS contract and amortizes the corresponding
deferred commission over the contract period in which the related CIS revenues
are earned.
Essentially all of the Company's current international operations are
located in the European Union and Canada. The Company operates in the European
Union primarily through wholly-owned subsidiaries in the United Kingdom, France
and Germany. These subsidiaries manage direct sales personnel and distributors
in other countries in the European Union as well. In Canada, the Company
utilizes a full-scale field sales force and provides business support to these
salespersons through its operations in the United States. Substantially all of
the Company's revenues from the European Union are denominated in foreign
currencies, particularly the British pound, while essentially all of the
Company's revenues from Canada are denominated in U.S. dollars. The Company has
begun marketing in Israel and Korea through representatives. Revenues from these
representatives have been and are expected to continue to be denominated in U.S.
dollars. To date, however, such revenues have been insignificant. As a result of
fluctuations in exchange rates, transactions denominated in foreign currencies
inherently have financial risk. The Company does not currently hedge its
exposure to foreign currency adjustments.
The Company believes that a leading measure of the volume of its CIS
business is the annualized value ('Annualized Value') of its Continuous
Information Services agreements in effect at a given point in time. The Company
calculates Annualized Value each month as the cumulative annualized subscription
value payable under the agreements without regard to commencement date, duration
or risk of cancellation. The Company also measures its performance on the basis
of Net Annualized Value Increase ('NAVI') which is calculated on the basis of
new agreements plus upgrades, net of downgrades and cancellations. The sum of
all past NAVI equals Annualized Value. Historically, a substantial portion of
NAVI for a given year is generated by the Company in the last two calendar
quarters, and particularly in the last month of the last quarter.
The following table sets forth the Annualized Value and NAVI for the three
and nine month periods ending September 30, 1998 and 1997.
<TABLE>
<CAPTION>
Unaudited (in thousands)
------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Beginning Annualized Value $ 33,254 $ 14,588 $ 26,619 $ 9,339
Net Annualized Value Increase 5,093 4,599 11,728 9,848
---------- ---------- ---------- ---------
Ending Annualized Value $ 38,347 $ 19,187 $ 38,347 $ 19,187
========== ========== ========== =========
</TABLE>
Annualized Value at September 30, 1998 increased 99% to $38.3 million from
$19.2 million at September 30, 1997. The number of clients grew 51% to 894 at
September 30, 1998 from 592 at September 30, 1997. Annualized Value per client
increased 32% to $42,900 at September 30, 1998 from $32,400 at September 30,
1997.
NAVI for the quarter ended September 30, 1998, $5.1 million, was the second
highest quarterly NAVI recorded in the Company's limited history. However,
business from new customers declined during the third quarter as selling cycles
lengthened and new opportunities were postponed in response to uncertainties in
financial markets and economic indicators. Price pressure has also increased as
the Company's competitors have adjusted their prices in response to what Giga
10
<PAGE>
believes is the superior value of its services. The Company expects this slowing
trend to continue through at least the first half of 1999, especially in light
of anticipated slowdowns for software and hardware vendors as companies attempt
to stabilize their IT and computing environments in response to the Y2K issue.
A majority of the Company's annual contracts renew automatically unless the
customer cancels the subscription. The Company's experience is that a
substantial portion of customers renew expiring contracts for an equal or
greater level of total CIS fees each year. Contract retention rates have
improved during each of the first three quarters of 1998, with the third quarter
reaching a high in excess of 75%. Likewise, upgrades were at their highest level
ever during the third quarter of 1998, at approximately $3.5 million.
The Company believes that a direct comparison of its renewal rates and the
renewal rates of its major competitors may not be meaningful due in part to the
Company's limited operating history and its Advisory Service model (the focus of
which is a unified, integrated approach with fewer contracts/services per
customer), in contrast to the multiple-service model of the Company's major
competitors.
The Company's operating expenses consist of cost of services, cost of
publications, sales and marketing, research and development, general and
administrative, and depreciation and amortization. Cost of services consists
primarily of the direct costs associated with the delivery of the Company's
Continuous Information Services and other services including personnel expenses
for analysts and other personnel, direct expenses for events and conferences,
and royalties to third party information providers. Cost of publications
consists of expenses to create, print and distribute publications. Sales and
marketing expenses include personnel expenses, promotional expenses, and sales
commissions. Sales commissions are typically deferred when paid and expensed as
the related revenue is recognized. Research and development expenses consist of
personnel, consulting and other expenses to develop, enhance and operate
GigaWeb. General and administrative expenses are primarily personnel costs and
fees for professional services supporting the administrative functions of the
Company.
Since its inception, the Company has incurred substantial costs to develop
its Continuous Information Services, establish its GigaWeb system, build a
management team and recruit, employ and train research analysts, sales personnel
and support staff for its business. The Company expects to incur significant
losses through at least the first half of fiscal 1999 as the Company expands and
develops its services and products.
The Company has incurred and acquired substantial tax loss carryforwards
since its inception. Due to the magnitude of these existing tax loss
carryforwards, anticipated losses continuing through at least the first half of
1999, and the substantial uncertainties associated with its business, the
Company is unable to conclude that it is more likely than not that the deferred
tax associated with these tax loss carryforwards will be realized. Accordingly,
this deferred tax asset has been fully reserved. This valuation allowance will
be reduced and the deferred tax asset will be recognized when and if it becomes
more likely than not that the deferred tax asset will be realized.
11
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain statement of operations data as a
percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Continuous information services 94% 86% 86% 75%
Other services 5% 13% 13% 23%
Publications 1% 1% 1% 2%
-------- -------- ------- -------
Total revenues 100% 100% 100% 100%
-------- -------- ------- -------
Costs and expenses:
Cost of services 51% 72% 53% 77%
Cost of publications 2% 2% 1% 1%
Sales and marketing 77% 127% 72% 118%
Research and development 4% 12% 4% 14%
General and administrative 18% 27% 18% 26%
Depreciation and amortization 4% 11% 4% 12%
-------- -------- ------- -------
Total costs and expenses 156% 251% 152% 248%
-------- -------- ------- -------
Loss from operations (56%) (151%) (52%) (148%)
Interest income 3% 1% 1% 1%
Interest expense (5%) (2%) (4%) (1%)
Foreign exchange gain/(loss) 2% 1% 1% (2%)
-------- -------- ------- -------
Loss from operations before income taxes (56%) (151%) (54%) (150%)
Income tax (benefit) charge - - - -
-------- -------- ------- -------
Loss from continuing operations (56%) (151%) (54%) (150%)
Income from discontinued operations - 1% - -
-------- -------- ------- -------
Loss before extraordinary item (56%) (150%) (54%) (150%)
Extraordinary item (8%) - (3%) -
-------- -------- ------- -------
Net loss (64%) (150%) (57%) (150%)
======== ======== ======= =======
</TABLE>
In general, the decreases in the various operating expenses as a percentage
of total revenues are primarily due to leveraging those expenses over increased
revenues derived from a growing customer base.
12
<PAGE>
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1997
Revenues. Total revenues increased 102% to $8.8 million for the three months
ended September 30,1998 from $4.3 million for the same period in 1997. The
increase in total revenues was primarily due to the increase in revenues from
Continuous Information Services.
Revenues from Continuous Information Services increased 120% to $8.2 million
for the three months ended September 30, 1998 from $3.7 million for the same
period in 1997. The increase in revenues was primarily due to growing market
acceptance of Giga's services and continued expansion of the Company's sales
force.
Revenues from Other Services decreased 19% to $442,000 for the three months
ended September 30, 1998 from $546,000 for the same period in 1997. The decrease
was primarily due to a decrease in consulting revenues associated with the
phase-out of certain consulting services.
Revenues from Publications increased 74% to $73,000 for the three months
ended September 30, 1998 from $42,000 for the same period in 1997. The increase
was due to new reports issued on IT industry trends.
Cost of services. Cost of services increased 42% to $4.4 million for the
three months ended September 30, 1998 from $3.1 million for the same period in
1997. The increase in costs was primarily due to the expansion of analyst staff
and additional staff hired for newly created field analyst positions to support
an increased customer base, increased costs in support of expanded offerings of
events and conferences, and other expenses associated with providing Continuous
Information Services.
Cost of publications. Cost of publications increased 112% to $146,000 for
the three months ended September 30, 1998 from $69,000 for the same period in
1997. The increase in expense was primarily attributable to consulting, copying,
and printing costs for new reports issued on IT industry trends.
Sales and marketing. Sales and marketing expenses increased 23% to $6.7
million for the three months ended September 30, 1998 from $5.5 million for the
same period in 1997. The increase was principally due to the continued expansion
of the Company's direct sales organization, higher sales commission expense
resulting from increased revenues, and increased emphasis on performing
briefings and other lead generating activities.
Research and development. Research and development expenses decreased 23%
to $402,000 for the three months ended September 30, 1998 from $523,000 for the
same three-month period in 1997. The decrease was primarily due to the
completion of the development of the basic functionality of GigaWeb in 1997.
General and administrative. General and administrative expenses increased
40% to $1.6 million for the three months ended September 30, 1998 from $1.2
million for the same period in 1997. The increase in expense was primarily due
to enhancements to infrastructure such as internal systems, additional personnel
and other items to support the Company's growth.
Depreciation and amortization. Depreciation and amortization expense
decreased 34% to $321,000 for the three months ended September 30, 1998 from
$490,000 for the same period in 1997. The decrease was primarily due to
cessation of goodwill and leasehold amortization charges in 1998 partially
offset by increased depreciation costs resulting from computer equipment
purchases for new personnel.
Interest income and expense. Interest income increased to $270,000 for the
three months ended September 30, 1998 from $48,000 for the same period in 1997
13
<PAGE>
due to greater cash balances available for investment. Interest expense
increased to $1.1 million from $88,000 for the same period in 1997 due to
long-term equipment financing entered into by the Company in September 1997,
interest paid pursuant to $10.0 million in Bridge Notes issued in April 1998,
and a non-cash charge of $137,000 for accretion of the discount recorded to the
Bridge Notes in conjunction with the fair market valuation of associated Common
Stock warrants.
Foreign exchange gain/(loss). Foreign exchange gains increased to $195,000
for the three months ended September 30, 1998 from $29,000 for the same period
in 1997 due primarily to unrealized gains caused by strengthening of the British
Pound, the German Mark and the French Franc versus the U.S. Dollar.
Extraordinary item. An Extraordinary, non-cash charge of $707,000, net of
taxes of $0, was recorded in the quarter ended September 30, 1998 for
accelerated accretion of the discount recorded to the Bridge Notes in
conjunction with the fair market valuation of associated Common Stock warrants.
The accretion charges were accelerated from future periods due to repayment of
the Bridge Notes on August 4, 1998, upon completion of the Offering and in
accordance with the terms of the Loan and Warrant Purchase Agreement for the
Bridge Notes.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1997
Revenues. Total revenues increased 108% to $26.4 million for the nine months
ended September 30,1998 from $12.7 million for the same period in 1997. The
increase in total revenues was primarily due to the increase in revenues from
Continuous Information Services.
Revenues from Continuous Information Services increased 137% to $22.6
million for the nine months ended September 30, 1998 from $9.5 million for the
same period in 1997. The increase in revenues was primarily due to growing
market acceptance of Giga's services and continued expansion of the Company's
sales force.
Revenues from Other Services increased 27% to $3.6 million for the nine
months ended September 30, 1998 from $2.9 million for the same period in 1997.
The increase was primarily due to higher revenues generated from the planned
expansion of the Company's events and conferences activities and increased
attendance at the Company's premier conference, GigaWorld IT Forum, partially
offset by a decrease in consulting revenues associated with the phase-out of
certain consulting services.
Revenues from Publications decreased 47% to $161,000 for the nine months
ended September 30, 1998 from $303,000 for the same period in 1997. The decrease
was due to a de-emphasis on this business activity and the discontinuance of two
publications in the second quarter of 1997.
Cost of services. Cost of services increased 43% to $14.0 million for the
nine months ended September 30, 1998 from $9.8 million for the same period in
1997. The increase in costs was primarily due to the expansion of analyst staff
and additional staff hired for newly created field analyst positions to support
an increased customer base, increased costs in support of expanded offerings of
events and conferences, and other expenses associated with providing Continuous
Information Services.
Cost of publications. Cost of publications increased 200% to $300,000 for
the nine months ended September 30, 1998 from $100,000 for the same period in
1997. The increase in expense was primarily attributable to non-recurring gains
recorded in the second quarter of 1997 resulting from the disposition of two
publications.
Sales and marketing. Sales and marketing expenses increased 28% to $19.1
million for the nine months ended September 30, 1998 from $14.9 million for the
14
<PAGE>
same period in 1997. The increase was principally due to the continued expansion
of the Company's direct sales organization, higher sales commission expense
resulting from increased revenues, and increased emphasis on performing
briefings and other lead generation activities.
Research and development. Research and development expenses decreased 41%
to $1.0 million for the nine months ended September 30, 1998 from $1.8 million
for the same nine-month period in 1997. The decrease was primarily due to the
completion of the development of the basic functionality of GigaWeb in 1997.
General and administrative. General and administrative expenses increased
40% to $4.7 million for the nine months ended September 30, 1998 from $3.4
million for the same period in 1997. The increase in expense was primarily due
to enhancements to infrastructure such as internal systems, additional personnel
and other items to support the Company's growth.
Depreciation and amortization. Depreciation and amortization expense
decreased 30% to $1.1 million for the nine months ended September 30, 1998 from
$1.6 million for the same period in 1997. The decrease was primarily due to
cessation of goodwill and leasehold amortization charges in 1998 partially
offset by increased depreciation costs resulting from computer equipment
purchases for new personnel.
Interest income and expense. Interest income increased to $429,000 for the
nine months ended September 30, 1998 from $223,000 for the same period in 1997
due to higher average cash balances available for investment, particularly in
the third quarter of 1998. Interest expense increased to $1.9 million from
$129,000 for the same period in 1997 due to long-term equipment financing
entered into by the Company in September 1997, interest paid pursuant to $10.0
million in Bridge Notes issued in April 1998, and a non-cash charge of $475,000
for accretion of the discount recorded to the Bridge Notes in conjunction with
the fair market valuation of associated Common Stock warrants.
Foreign exchange gain/(loss). Foreign exchange gain/(loss) improved to a
$245,000 gain for the nine months ended September 30, 1998 from a $302,000 loss
for the same period in 1997 due primarily to unrealized gains caused by
strengthening of the British Pound, the German Mark and the French Franc versus
the U.S. dollar.
Extraordinary item. An Extraordinary, non-cash charge of $707,000, net of
taxes of $0, was recorded in the quarter ended September 30, 1998 for
accelerated accretion of the discount recorded to the Bridge Notes in
conjunction with the fair market valuation of associated Common Stock warrants.
The accretion charges were accelerated from future periods due to repayment of
the Bridge Notes on August 4, 1998, upon completion of the Offering and in
accordance with the terms of the Loan and Warrant Purchase Agreement for the
Bridge Notes.
LIQUIDITY AND CAPITAL RESOURCES
Prior to August 1998, the Company funded its operations primarily through
the private placement of equity securities and borrowings under promissory
notes. The Company received aggregate net proceeds of $42.4 million from the
private placement of equity securities since its inception, including $1.9
million (net of issuance costs of $80,000) from the private placement of Series
D Convertible Preferred Stock and associated Series D warrants in April and May
1998. In April 1998, the Company also issued the Bridge Notes in the aggregate
principal amount of $10.0 million and warrants to purchase an aggregate of
166,666 shares of Common Stock at an exercise price of $3.00 per share. The
Bridge Notes were issued at a stated interest rate of 12% per annum. The
outstanding principal and interest on the Bridge Notes became due and payable
upon the consummation of the Offering. On August 4, 1998, warrants to purchase
47,999 shares of Common Stock were exercised for cash of $143,997, at an
15
<PAGE>
exercise price of $3.00 per share. These warrants were originally issued in
April 1998 pursuant to the Loan and Warrant Purchase Agreement for the Bridge
Notes.
In August 1998, the Company completed its Offering of 3,000,000 shares of
Common Stock at $12.50 per share. Net proceeds to the Company aggregated
approximately $33.8 million. The Company used $10.2 million of the net proceeds
to repay obligations for principal and remaining accrued interest under the
Bridge Notes issued in April 1998. Also upon the consummation of the Offering,
all outstanding shares of the Company's Series A, B, C and D Convertible
Preferred Stock automatically converted into 4,686,784 shares of Common Stock.
At September 30, 1998, the Company had cash, cash equivalents and
investments of $26.7 million. During the nine months ended September 30, 1998,
the Company's capital expenditures totaled approximately $1.7 million, primarily
for computer equipment and applications software. The Company expects that
additional purchases of computer equipment will be made as the Company's
employee base and customer base grows. As of September 30, 1998, the Company had
no material commitments for capital expenditures, and the Company does not
currently expect the rate of capital spending to vary significantly through the
end of 1999.
Net cash used by continuing operations was approximately $9.0 million for
the nine months ended September 30, 1998, resulting primarily from a net loss of
$15.1 million and decreases in accounts payable and accrued liabilities of
$829,000, partially offset by a decrease in accounts receivable of $2.2 million
and an increase in deferred revenues of $2.7 million. Net cash used in investing
activities of approximately $5.9 million for the nine months ended September 30,
1998 was primarily due to purchases of investments in Euro bonds and acquisition
of computer equipment and applications software. Cash provided by financing
activities of approximately $34.1 million for the nine months ended September
30, 1998, was primarily generated from proceeds of the Offering, issuance of the
Bridge Notes and Common Stock warrants, issuance of Series D Convertible
Preferred Stock and Series D Preferred Stock warrants and issuance of Common
Stock pursuant to stock option exercises, partially offset by repayments of
principal on outstanding debt in the amount of $11.7 million, including the
repayment of $10.0 million in Bridge Notes.
The Company believes that the remaining proceeds from the Offering (cash,
cash equivalents and investments) and cash generated from operations, after the
repayment of debt as it becomes due, will be sufficient to fund the Company's
cash needs until at least the end of 1999.
In the event that the Company encounters difficulties in collecting accounts
receivable, experiences low or reduced subscription renewal rates or otherwise
has revenues that are lower than planned, the Company might require additional
working capital. The Company has access to an invoice factoring arrangement with
a commercial bank under which the Company could borrow up to $3.0 million or 80%
of eligible accounts receivable, whichever is less. If necessary, the Company
would consider various other sources of financing, including, but not limited
to, private placements, the sale of assets and strategic alliances, but there
can be no assurance that such financing would be available to the Company on
terms that are acceptable, if at all. If adequate funds are not available, the
Company may be required to reduce its fixed costs and delay, scale back or
eliminate certain of its services, any of which could have a material adverse
effect on the Company's business, financial condition and results of operations.
YEAR 2000 COMPLIANCE
The Company has commenced a readiness program to ensure that the computer
systems and applications upon which it relies for internal operations and
external communications with clients and others will function properly beyond
1999. This program is an extension of the Company's ongoing effort to upgrade
systems, applications and infrastructure that have been rendered obsolete due to
advances in technology and the Company's high growth.
16
<PAGE>
Prior to the commencement of the Company's Y2K readiness initiative, certain
internal business systems critical to the continuing operations of the Company
had been identified for replacement due to advances in technology and the
Company's growth. In addition, as a result of the Company's Y2K readiness
program, internal business systems that may require remediation or replacement
specifically due to the Y2K issue have been identified. In either case, the
systems ranked highest in priority have either been replaced or scheduled for
replacement. The Company estimates that, as of November 4, 1998, the replacement
effort was approximately 66% complete for software applications and
approximately 33% complete for computer hardware. The Company's objective is to
substantially complete the replacement of internal business systems by September
1999. Replacement systems have been developed internally and/or purchased from
third party vendors. Internally developed systems have been tested for
compliance using simulated Y2K conditions including leap year conditions. Newly
purchased systems are or will be verified as Y2K compliant by the vendors.
The Company is behind in its schedule to review older computer hardware,
mainly desk-top systems, particularly in its European operations. This equipment
is not critical to ongoing business operations. Plans are underway to take
inventory of the hardware and assess its compliance. The Company currently
estimates that this review will be completed by March 1999 and that the costs of
remediation will not be material.
The Company is in the process of identifying significant service providers,
vendors, suppliers and customers believed to be critical to its business
operations. The Company plans to take steps to determine their stage of Y2K
readiness through questionnaires and other available means.
The Company presently believes that it may experience some disruption in its
business due to the Y2K issue. The Company is dependent on the Internet
infrastructure for providing reliable GigaWeb access. GigaWeb is an Internet
based information delivery interface and the primary delivery medium for the
Company's Continuous Information Services. Year 2000 issues could affect the
power grid and communications networks that provide the Internet's
infrastructure. The occurrence of such problems would be beyond the Company's
control. The possible consequences of the Company or its key suppliers or
customers not being Y2K compliant include, but are not limited to, (1) delays in
delivery or an inability to deliver its Continuous Information Services, (2)
vendor or supplier delays in delivery or an inability to deliver goods or
services critical to the Company's continuing operation, (3) delays in or an
inability to bill and collect amounts due from customers, and (4) delays in or
an inability to remit on the part of Giga's customers. As a result, the business
and results of operations could be materially adversely affected by a temporary
inability to conduct ordinary business for a period of time after January 1,
2000. However, the Company believes that its actions and plans should
significantly reduce the adverse effects of any disruptions.
Concurrent with its readiness program, the Company is in the process of
developing contingency plans in the event of possible interruptions in business
operations. These plans may include the complete back up of GigaWeb for quick
restoration at alternate geographic sites, and the development of internal
diagnostic procedures to quickly identify work-arounds and solutions. Once
developed, contingency plans and their related costs will be continuously
evaluated and refined as new and additional information becomes available.
It is currently estimated that the cost of the Company's Y2K efforts will be
approximately $315,000 of which $15,000 are costs incurred for the services of
outside consultants and advisors, and $300,000 are payroll costs for the
Company's systems support and development and asset management groups incurred
exclusively in connection with its Y2K efforts. This estimate does not include
costs associated with systems previously scheduled for upgrade or replacement.
As of September 30, 1998, approximately $80,000 has been spent for the Y2K
effort of which $10,000 are costs incurred for the services of outside
consultants and advisors, and $70,000 are payroll costs for the Company's
systems support and development and asset management groups incurred exclusively
in connection with its Y2K efforts. These costs are being expensed as incurred
and funded through operating cash flow. These cost estimates do not include the
costs associated with contingency plans under development or the costs for
computer hardware and software replacement which would normally be capitalized,
estimated to be less than $150,000. The estimated costs of the Company's
readiness program are subject to change as the program progresses.
17
<PAGE>
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Recent Sales of Unregistered Securities
Set forth below is information regarding the number of shares of capital
stock and other equity securities issued by the Company during the fiscal
quarter ended September 30, 1998 which were not registered under the Securities
Act of 1933, as amended (the "Securities Act") . Further included is the
consideration, if any, received by the Company for such shares of capital stock
and other equity securities. The shares of capital stock and other equity
securities issued in the following transactions were offered and sold in
reliance upon the exemption from registration under Section 4 (2) of the
Securities Act or Regulation D relative to sales by an issuer not involving any
public offering, or Rule 701 promulgated under the Securities Act.
1. During the fiscal quarter ended September 30, 1998, the Company issued a
total of 5,327 shares of Common Stock pursuant to the exercise of options
previously granted to employees under the Company's stock option plans. The
weighted average exercise price was $2.42 per share.
2. In August 1998, the Company issued 47,999 shares of Common Stock upon the
exercise of warrants at an exercise price of $3.00 per share for cash
proceeds of $143,997. These warrants were originally issued in April 1998
pursuant to the Loan and Warrant Purchase Agreement for the Bridge Notes.
Use of Proceeds
The Company's Registration Statement on Form S-1 (Registration No.
333-52899), (the "Registration Statement"), relating to the Offering was
declared effective by the Securities and Exchange Commission on July 29, 1998.
The sale of 3,000,000 shares of the Company's Common Stock, $0.001 par value, at
$12.50 per share commenced on July 30, 1998 and has been completed. The managing
underwriters for the Offering were Friedman, Billings, Ramsey & Co., Inc. and
Prudential Securities Incorporated. The total price to the public was $37.5
million before underwriting discounts and commissions of $2.625 million.
Offering expenses are estimated at $1.1 million. All such expenses are direct or
indirect payments to others. None of such expenses were paid directly or
indirectly to any director or officer of the Company or their associates,
persons owning ten percent or more of any class of equity securities of the
Company, or an affiliate of the Company.
As of November 2, 1998, the Company had used a portion of the $33.8
million net proceeds from the Offering to repay the Bridge Notes aggregating to
$10.0 million of principal plus $210,000 of accrued interest thereon.
Furthermore, the Company had added $13.9 million of such net proceeds to the
general funds of the corporation for use as working capital and invested the
remaining $9.7 million of the net proceeds in short-term, investment-grade
interest-bearing obligations. None of the net proceeds of the Offering were paid
directly or indirectly to any director or officer of the Company or their
associates, persons owning ten percent or more of any class of equity securities
of the Company or an affiliate of the Company except to the extent that a
portion of the working capital was used for (i) salaries and expenses of
officers and expenses of directors and (ii) to meet working capital needs of the
Company's subsidiaries, both in the normal course of business.
18
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11 Statement of Computation of Per Share Earnings
27 Financial Data Schedule
(b) Reports on Form 8-K
The registrant filed a copy of the Giga Information Group, Inc. Press
Release, dated August 13, 1998, announcing its results of operations
for the three and six months ended June 30, 1998 on Form 8-K on August
14, 1998.
19
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
GIGA INFORMATION GROUP, INC.
November 12, 1998 By: /s/ Daniel M. Clarke
-----------------------------
Daniel M. Clarke
Senior Vice President.
Chief Financial Officer,
Secretary and Treasurer
(Principal Financial and
Accounting Officer)
20
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENTS
- ------ ------------------------
11 Statement of Computation of Per Share Earnings
27 Financial Data Schedule
Exhibit 11 Statement of Computation of Per Share Earnings
NET LOSS PER SHARE
Net loss per share is calculated as follows:
(Unaudited, in thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net loss $(5,629) $(6,493) $(15,081) $(18,993)
========= ========= ========== ==========
BASIC:
Weighted average common shares outstanding 7,142 2,077 3,825 2,068
========= ========= ========== ==========
Net loss per common share $ (0.79) $ (3.13) $ (3.94) $ (9.18)
========= ========= ========== ==========
DILUTED:
Weighted average common shares outstanding 7,142 2,077 3,825 2,068
Effect of dilutive securities:
Convertible notes - - - -
Stock options - - - -
Warrants - - - -
--------- --------- ---------- ----------
Weighted average common and common
equivalent shares outstanding 7,142 2,077 3,825 2,068
========= ========= ========== ==========
Net loss per common and common
equivalent share $ (0.79) $ (3.13) $ (3.94) $ (9.18)
========= ========= ========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF GIGA INFORMATION GROUP, INC. FOR THE
QUARTER ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JUL-01-1997 JUL-01-1998
<PERIOD-END> SEP-30-1997 SEP-30-1998
<CASH> 2,460 22,486
<SECURITIES> 0 4,209
<RECEIVABLES> 5,099 8,166
<ALLOWANCES> 318 410
<INVENTORY> 0 0
<CURRENT-ASSETS> 12,820 42,374
<PP&E> 4,183 5,777
<DEPRECIATION> 2,264 3,356
<TOTAL-ASSETS> 16,008 44,963
<CURRENT-LIABILITIES> 22,488 31,555
<BONDS> 0 0
0 0
11 0
<COMMON> 2 10
<OTHER-SE> (9,243) 12,832
<TOTAL-LIABILITY-AND-EQUITY> 16,008 44,963
<SALES> 4,331 8,750
<TOTAL-REVENUES> 4,331 8,750
<CGS> 3,199 4,579
<TOTAL-COSTS> 10,871 13,669
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 88 432
<INCOME-PRETAX> (6,551) (4,886)
<INCOME-TAX> (17) 36
<INCOME-CONTINUING> (6,534) (4,922)
<DISCONTINUED> 41 0
<EXTRAORDINARY> 0 (707)
<CHANGES> 0 0
<NET-INCOME> (6,493) (5,629)
<EPS-PRIMARY> (3.13) (0.79)
<EPS-DILUTED> (3.13) (0.79)
</TABLE>
