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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended December 31, 1999 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 0-28041
IMANAGE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-4043595
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2121 SOUTH EL CAMINO REAL, SUITE 400, SAN MATEO, CALIFORNIA 94403
(Address of principal executive offices, zip code)
(650) 356-1166
(Registrant's Telephone Number, including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.001 PAR VALUE NASDAQ
(Title of Class) (Names of Each Exchange on which Registered)
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Aggregate market value of the voting stock held on March 6, 2000 by
non-affiliates of the registrant: $249,855,360.
Number of shares of Common Stock outstanding at March 6, 2000:
21,953,955.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statements for the 2000 Annual Meeting are
incorporated by reference into Part III hereof.
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IMANAGE, INC.
1999 ANNUAL REPORT ON FORM 10-K
Table of Contents
PAGE
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PART I
Item 1. Business 3
Item 2. Properties 10
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Security Holders 10
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 11
Item 6. Selected Financial Data 12
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations 13
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 25
Item 8. Consolidated Financial Statements and Supplementary Data 26
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 26
PART III
Item 10. Directors and Executive Officers of the Registrant 27
Item 11. Executive Compensation 28
Item 12. Security Ownership of Certain Beneficial Owners and Management 28
Item 13. Certain Relationships and Related Transactions 28
PART IV
Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K 29
Signatures
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PART I
ITEM 1. BUSINESS
Certain statements contained in this Annual Report on Form 10-K,
including statements containing the words "believes," "anticipates,"
"estimates," "intends," "expects," and words of similar meaning, are
forward-looking statements within the meaning of the Private Securities Reform
Act of 1995. Actual results could vary materially from those expressed in the
statements. Readers are referred to the "Sales and Marketing," "Customer
Service, Training and Support," "Research and Development," "Competition,"
"Intellectual Property," "Management's Discussion and Analysis of Financial
Condition and Results of Operation" and "Factors That May Impact Future Results"
sections contained in this Annual Report on Form 10-K, which identify some of
the important factors or events that could cause actual results or performances
to differ materially from those contained in the forward-looking statements.
COMPANY OVERVIEW
We provide e-business content and collaboration management software. Our
software provides a web-based unified content platform that manages, organizes
and delivers relevant information from a variety of sources in a centralized
manner throughout the extended enterprise. We believe that our solution features
a highly scalable, reliable and robust platform designed to provide security,
accountability and the timely delivery of relevant information, content and
documents. Our core technology architecture has been developed over the last
four years and licenses have been sold to over 500 customers.
We were originally incorporated in Illinois in October 1995 under the
name NetRight Technologies, Inc. and we reincorporated in Delaware in December
1996. In April 1999, we changed our name to iManage, Inc. During 1999, we formed
a subsidiary in the United Kingdom, iManage Limited. Our principal offices are
located at 2121 South El Camino Real, Suite 400, San Mateo, California 94403,
and our telephone number is (650) 356-1166.
INDUSTRY BACKGROUND
The Internet is having a dramatic and pervasive impact on the way that
many organizations conduct business. Organizations worldwide are looking for new
and innovative ways to use the Internet to gain competitive advantages. For
example, organizations are employing web-based technologies to disseminate,
exchange and manage information internally through corporate intranets to enable
collaboration among employees. Organizations are also using web-based
technologies to develop corporate extranets that extend the enterprise and
enable it to collaborate directly with its partners, customers and service
providers. According to a recent survey from the Delphi Group, collaborative
information management, that is, the dissemination, exchange and management of
information across an extended enterprise, is the number one priority of
corporate information technology departments. The use of web-based technologies
has led to the development of an electronic business environment, or e-business,
where the dynamic exchange, timely dissemination and use of information is
essential to conducting business.
The development of e-business has led to a dramatic increase in the
amount of information available to the average employee. This increase in
information has not only transformed the business world but has also introduced
new complexities and challenges as employees struggle to cope with the volume
and diversity of information that they are required to process on a daily basis.
The average employee receives a broad range of information, content and
documents through a variety of sources including email, voicemail, enterprise
and desktop applications, facsimiles and photocopies, the Internet, and intranet
and extranet web sites. In addition, the growth of e-business has resulted in a
proliferation of the various forms in which employees receive and exchange
information. These new forms include media such as graphics, video, text, audio
and data. The e-business requirement that the right information be delivered to
the right person at the right time is threatened by the overwhelming amount and
variety of information that is now disseminated through these disparate media
sources.
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Most companies have ineffective approaches for addressing the challenge
of ensuring that the right information gets to the right person at the right
time. In the absence of a comprehensive e-business solution, organizations have
generally adopted one of two approaches. Organizations have either developed a
custom approach through a combination of email and intranet and extranet web
sites or used packaged applications that are not specifically designed to meet
the requirements of e-business. Organizations that have implemented a custom
approach often fail to achieve the integrated delivery and management of
critical information and content for several reasons. Email, while easy-to-use
and convenient, lacks effective collaboration and project management, control,
accountability and security, and is not integrated with intranet information and
content. Intranets and extranets, while more effective mechanisms for
disseminating information, typically lack the scalable content management
infrastructure to ensure that posted information is accurate, up-to-date,
organized and actually viewed by the intended audience.
Alternatively, other organizations have attempted to address the
information challenges of e-business by deploying a variety of packaged
applications, including enterprise information portals, web-based information
delivery systems, and knowledge and document management solutions. Enterprise
information portals and web-based information delivery systems are effective
means of accessing and distributing information. However, they lack the
comprehensive infrastructure to manage and organize all forms of information,
content and documents and to enable collaboration and project management across
the extended enterprise. Client-server based knowledge and document management
systems are capable of organizing and storing documents but are expensive to
maintain and are not designed to deliver and exchange information over the web
to thousands of concurrent users. As the custom approach and use of packaged
applications demonstrate, we believe there is no comprehensive solution that
addresses the key aspects of content and collaboration management to enable more
effective information management, organization and delivery across the extended
enterprise.
SOLUTION
We provide e-business content and collaboration management software. Our
solution provides a web-based unified content platform that manages, organizes
and delivers relevant information from a variety of sources in a centralized
manner throughout the extended enterprise.
Our solution provides the following key benefits:
Comprehensive E-business Content and Collaboration Management. Our
iManage infoCommerce Server provides a comprehensive e-business content and
collaboration management solution that addresses key aspects of managing,
organizing and delivering information and content to the right person at the
right time throughout the extended enterprise. Our server provides users with a
centralized online location to access content, such as graphics, video, text,
audio and data. In addition to offering a robust underlying content management
infrastructure, our solution is designed to ensure effective content access,
delivery and notification based on relevance to particular projects, processes
and individuals. We believe our comprehensive solution enables our customers to
more effectively collaborate and exchange information over the web.
Highly Scalable, Reliable and Robust Platform. We believe our solution
features a highly scalable, reliable and robust platform. Our software has been
designed to accommodate the demands of e-business and to scale to tens of
thousands of concurrent users and millions of information objects.
Timely Delivery of Relevant Information. Our solution ensures the timely
delivery of relevant information by notifying the appropriate users of the
information and providing them with access to the information through the web
and email. Through the use of rules and profiles, a user can limit the
information he receives to meet his specified criteria. The delivery of and
access to relevant information is immediate through our automatic publication
and notification features. This functionality is designed to ensure that the
right information is delivered to the right person at the right time.
Security and Accountability. Our solution offers the ability to
centrally enforce security privileges based on individual or group access level
permissions within an organization or across the extended enterprise. For
example, rather than attaching documents to email, which is a highly insecure
method of distributing information, our solution only sends a link to the
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content which resides on a secure content server. This approach enhances
security in contrast to other forms of information distribution. The use of
links also ensures accountability by preserving control of the content in a
single location. As a result, organizations using our solution can now track
when documents were sent, when they were received and reviewed, when project
folders were accessed and who accessed them.
Our solution has been designed to address the needs of a broad range of
markets, such as financial services, retail, manufacturing and distribution,
banking and professional services. Initially, we targeted substantially all of
our sales and marketing efforts on the legal applications market. The customers
in this market require management and organization of a large volume of critical
information in a scalable and secure environment. We now intend to leverage on
our success and experience in the legal applications market to market our
solution to other markets.
STRATEGY
Our objective is to become the leading provider of e-business content
and collaboration management software. Key elements of our strategy to achieve
this objective include:
Capture Market Share. Our strategy is to become the market leader in
providing software to enable unified e-business content and collaboration
management over the Internet. As our customers deploy our solution, their
customers, partners and service providers will be exposed to the benefits and
functionality of our products. We believe that the introduction of our products
to these non-customers will accelerate industry recognition and adoption of our
products. As more and more organizations deploy our e-business solution, we
believe that the management, organization and delivery of relevant information
will improve, which will drive greater usage.
Leverage Installed Customer Base. We believe there are significant
opportunities to leverage the use of our products throughout our current
customer base. Our corporate customers generally deploy our products initially
on a departmental basis and we believe that initial customer satisfaction with
these deployments will lead to significant opportunities for enterprise-wide
adoption. In addition, most companies and professional service firms, including
our customers, are just beginning to exploit the business opportunities that the
web has created. As they increasingly migrate their business processes to the
web, we believe they will need additional licenses of our software to support
and enable e-business content and collaboration applications.
Expand and Leverage Key Business Relationships. To accelerate the
acceptance of our solution and to promote the adoption of e-business content and
collaboration management over the web, we intend to develop over the next 12
months additional cooperative alliances and relationships with leading
information technology consultants, system integrators and unified messaging
original equipment manufacturers. We believe that these alliances and
relationships will provide additional marketing and sales channels for our
products, enable us to more rapidly incorporate additional functions and
platforms into our e-business suite of products, and facilitate the successful
deployment of customer applications.
Maintain Technological Leadership. We believe that we offer the most
complete e-business content and collaboration management solution available
today. We have devoted significant resources to developing our solution over the
last four years. We intend to extend our leadership position by continuing to
enhance our technology through significant investment in research and
development activities. We also plan over the next 12 months to expand our
unified content platform by integrating content from new media sources including
facsimile machines, photocopiers, voicemail systems and scanners.
Strengthen International Presence. We believe that there will be
significant international opportunities for our products and services and intend
to strengthen our global sales, marketing and distribution efforts to address
the range of markets and applications for our e-business content and
collaboration management solution. We currently have a direct sales presence in
Canada, the United Kingdom and the United States. In the Asia/Pacific region, we
sell our products through third-party distributors. During the next 12 months,
we intend to aggressively strengthen our international presence by adding direct
sales personnel and increasing our indirect sales channels to fully capitalize
on international market opportunities.
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IMANAGE PRODUCTS
Our iManage suite of e-business content and collaboration management
products, which we have developed over the last five years, provides a
comprehensive set of application modules that work in concert with each other
and the same underlying server. Our current product line consists of the iManage
infoCommerce Server and iManage infoLink, iManage infoLook and iManage infoRite
application modules.
The following table describes the major features and benefits of our
iManage suite of products.
PRODUCT FEATURES BENEFITS
- ------- -------- --------
iManage infoCommerce Application server Ensures server uptime by splitting server
Server failover processes across multiple servers so that if
Content and any one server fails, users are
collaboration server automatically routed to the next available
server.
Transaction processing Ensures all server transactions are
completed in full or the information is
restored to the previous state before
the transaction commenced.
Content indexing Allows users to use search
criteria to find specific information.
Roles-based security Protects content from unauthorized
access and allows users to be assigned
security privileges based on
their role in an
organization.
iManage infoLook Auto-notification Automatically alerts subscribers when new
Microsoft Outlook content has been contributed to a project
integration module folder.
Auto-publishing Automates the process of publishing content
to an intranet, extranet or Internet web site.
Link/URL routing Allows users to email links and uniform
resource locators, or URLs, to specific
server content instead of physically
transferring content by email, ensuring
system security, accountability and network
efficiency.
Rules-based processing Provides the ability to route to
specific project folders incoming
email, content and facsimiles
based on specific user defined rules.
iManage infoLink Security-based navigation Enables navigation through project folders
Web-portal module and review of content based on security
privileges.
User-definable search Allows content from multiple projects to be
folders dynamically grouped together using search
criteria.
Secured content Allows secure content contribution into
contribution iManage repositories securely over the
Internet.
iManage infoRite Content profiling and Adds context to content and enables users to
Content-authoring module history track usage of content and access history.
Integrated online Allows users to search the content of
research iManage repositories and online information
services.
Microsoft Office Provides access to iManage repositories and
integration the ability to submit content directly from
within Microsoft Word, Excel and PowerPoint
products.
Content relationship Enables information to be grouped so that
grouping users can track information that is relevant
to a project, process or individual.
Our iManage infoCommerce Server provides the core functionality of our
content and collaboration management solution. Each of our application modules,
iManage infoLook, iManage infoLink and iManage infoRite, works in conjunction
with the iManage infoCommerce Server and with one another. Each of these modules
delivers additional functionality for different client configurations and
applications. An organization can elect to use any combination of iManage
infoLink, iManage infoLook and iManage infoRite with the iManage infoCommerce
Server as its needs dictate. Additionally, multiple organizations using iManage
infoLink with iManage infoCommerce Server enjoy the benefits of using an iManage
virtual private network upon which they can collaborate and share information.
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iManage infoLook integrates with Microsoft Outlook and enables users to
manage, organize and deliver e-business information, content and documents
through the familiar, easy-to-use Outlook environment. iManage infoLink is a
web-based user interface that provides full access to all iManage infoCommerce
Server content through a web browser. iManage infoRite is a dedicated
content-authoring interface that integrates with Microsoft Office publishing
tools, such as Excel, Word and PowerPoint and is designed for heavy publishing
uses. These application modules allow different users with different interfaces
to share and exchange information and content. The overall objective in the
design of each element of the iManage suite of products is to provide a
simplified mechanism to enable intra-business and business-to-business content
and collaboration management capabilities for organizations over their existing
email, intranet and Internet networks.
We also provide the following products:
iManage Notes Module. The iManage Notes Module enables users of the
Lotus Notes application environment to integrate their Notes content and email
correspondence directly into an iManage e-business Server repository.
iManage GroupWise Module. The iManage GroupWise Module enables users of
the Novell GroupWise application environment to integrate their GroupWise
content and email correspondence directly into an iManage e-business Server
repository.
iManage Software Development Kit, or SDK. iManage SDK is a software
development kit developed primarily for third-party developers who wish to
integrate their applications with iManage infoCommerce Server repositories.
Software integrators also use the iManage SDK to develop their own applications
based on the iManage suite of e-business content and collaboration management
products.
Our products are licensed to customers on a per server and a per user
basis. We do not license our products on a concurrent user basis, nor are they
currently available on a rental or service basis. However, during the fourth
quarter, we implemented a subscription licensing model for a newly released
product whereby the customer licenses the product for one year to 18 month
subscription periods and we are reviewing the model for possible adoption in
future product offerings.
SALES AND MARKETING
We sell our software products through our direct sales force and a
network of strategic partners and systems integrators. Our distribution network
of over 150 reseller partners and systems integrators complements our direct
sales force and represents us in Australia, Canada, New Zealand, the United
Kingdom and the United States. Our application specialists provide pre-sales
support and post-sales implementation for our customers.
Our marketing programs focus on creating overall awareness of e-business
content and collaboration management. To generate market awareness, we
participate in market research, industry analyst product and strategy updates,
trade shows and seminars and engage in web site marketing to generate qualified
sales leads. We utilize market research in a formal feedback process to
determine specific industry segment needs, which we use to define and direct our
product development efforts.
Our sales process consists of engaging senior management, primarily
chief information and chief technology officers, at our potential customers to
explain the benefits of our solution. With our technical professionals and
systems integration partners, we assess the specific needs of the enterprise and
create demonstrations and proposals to satisfy customer requirements. We have
certified and trained approximately 500 third-party consultants to assist our
customers in the technical implementation of our solution.
We believe that strategic alliances will be increasingly important in
marketing and selling our solution and developing customer applications. Over
the next 12 months, we intend to broaden the number of alliances we have with
key systems integrators. Furthermore, we intend during the next 12 months to
aggressively expand our sales, professional services, and marketing staff and
devote substantial resources to our sales and marketing activities.
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We have licensed our products to over 500 customers. To date, we have
focused our sales and marketing resources primarily on law firms. We derived
84.0%, 89.0% and 93.3% of our total revenues for the years ended December 31,
1997, 1998 and 1999, respectively, from the sale of licenses to law firms and
professional service firms. There were no customers that accounted for more than
10% of our total revenues for 1997, 1998 or 1999.
CUSTOMER SERVICE, TRAINING AND SUPPORT
We believe that customer satisfaction is essential for our long-term
success. Our technical support group provides dependable and timely resolution
of customer technical inquiries and is available to customers by telephone,
email and over the web. We use a customer service automation system to track
each customer's inquiry until it is resolved. Our training services group
delivers education and training to our customers and partners. We offer a
comprehensive series of classes to our customers to provide them with the
knowledge and skills to successfully deploy, use and maintain our products.
These courses focus on the technical aspects of our products as well as related
business issues and processes. We regularly hold our classes in various
locations throughout the United States and in our training facilities at our
research and development headquarters in Chicago, Illinois.
RESEARCH AND DEVELOPMENT
We believe that our future success will depend in large part on our
ability to enhance our product family, develop new products, maintain
technological leadership, and satisfy an evolving range of customer requirements
for large-scale interactive online content and collaboration management
applications. Our product development organization is responsible for product
architecture, core technology, product testing, quality assurance, documentation
and expanding the ability of our products to operate with leading hardware
platforms, operating systems, database management systems, and key electronic
commerce transaction processing standards.
We believe that our product development team and core technologies
represent a significant competitive advantage. Our product development team
includes key members of other past research and development organizations that
have developed scalable, reliable, critical online applications. We believe our
technically skilled, quality-oriented and highly productive development
organization is a key component of the success of our new product offerings. We
must attract and retain highly qualified employees to further our product
development efforts. Our business and operating results could be seriously
harmed if we are not able to hire and retain a sufficient number of these
individuals.
Our research and development expenditures were approximately $935,000
for 1997, $2.4 million for 1998 and $4.2 million for 1999. All research and
development expenditures have been expensed as incurred. We expect to continue
to devote substantial resources to our research and development activities.
COMPETITION
We have experienced and expect to continue to experience increased
competition from current and potential competitors. Many of these companies have
greater name recognition, longer operating histories, larger customer bases and
significantly greater financial, technical, marketing, public relations, sales,
distribution and other resources than we have. We expect to face competition
from these and other competitors, including:
- companies addressing segments of our market including Agile
Software Corp., BackWeb Technologies Ltd., Documentum, Inc.,
Hummingbird Communications Ltd., Marimba, Inc., Niku
Corporation, Open Text Corporation and Tumbleweed Communications
Corp.;
- intranet and groupware companies including IBM and its
subsidiary, Lotus Development Corporation, Microsoft and Novell;
and
- in-house development efforts by our customers and potential
customers or partners.
We believe that we may face additional competition from operating system
vendors, online service providers, client/server applications and tools
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vendors and enterprise information portal companies. If any of our competitors
were to become the industry standard or were to enter into or expand
relationships with significantly larger companies through mergers, acquisitions
or other similar transactions, our business could be seriously harmed. In
addition, potential competitors may bundle their products or incorporate
functionality into existing products in a manner that discourages users from
purchasing our products.
We believe that the principal competitive factors in the e-business
content and collaboration management market are:
- product performance, features, functionality and reliability;
- price/performance characteristics;
- timeliness of new product introductions;
- adoption of emerging industry standards;
- brand name; and
- access to customers.
We believe we compete favorably with our competitors on each of the
above factors. However, because many of our existing and potential competitors
have greater name recognition, longer operating histories, larger customer bases
and significantly greater financial, technical, marketing, public relations,
sales, distribution and other resources, they may have stronger brand names and
access to more customers than we do. These competitors may be able to undertake
more extensive marketing campaigns, adopt more aggressive pricing policies and
make more attractive offers to distribution partners than we can. To remain
competitive, we believe we must invest significant resources in enhancing our
current products and developing new ones, and maintain customer satisfaction. If
we fail to do so, our products will not compete favorably with those of our
competitors and our business will be significantly harmed.
We expect that competition will continue to increase and that our
primary competitors may not have entered the market yet. Increased competition
could result in price reductions, fewer customer orders, reduced gross margin
and loss of market share, any of which could cause our operating results to
suffer.
INTELLECTUAL PROPERTY
We believe that our success and ability to compete is dependent on our
ability to develop and protect our technology. To protect our proprietary
technology, we rely primarily on patent, trademark, service mark, trade secret
and copyright laws and contractual restrictions.
Most of our customers' use of our software is governed by shrink-wrap or
signed written license agreements. We also enter into written agreements with
each of our channel partners for the distribution of our products. In addition,
we seek to avoid disclosure of our trade secrets by requiring each of our
employees and others with access to our proprietary information to execute
confidentiality agreements with us. We protect our software, documentation and
other written materials under trade secret and copyright laws, which afford only
limited protection.
We currently have one U.S. patent issued, we have applied for two other
U.S. patents and we have one pending foreign patent application. It is possible
that no patents will be issued from our currently pending patent applications
and that our potential future patents may be found invalid or unenforceable, or
may be successfully challenged. It is also possible that any patent issued to us
may not provide us with any competitive advantages or that we may not develop
future proprietary products or technologies that are patentable. Additionally,
we have not performed any comprehensive analysis of patents of others that may
limit our ability to do business.
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Despite our efforts to protect our proprietary rights, we may be unable
to prevent others from infringing upon or misappropriating our intellectual
property. Any steps we take to protect our intellectual property may be
inadequate, time consuming and expensive. In addition, the laws of some foreign
countries do not protect our proprietary rights to as great an extent as the
laws of the United States.
Substantial litigation regarding intellectual property rights exists in
the software industry. To date, we have not been notified that our technologies
infringe the proprietary rights of anyone. We cannot assure you that others will
not claim that we have infringed proprietary rights relating to past, current or
future technologies. We expect that we could become subject to intellectual
property infringement claims as the number of our competitors grows and our
services overlap with competitive offerings. These claims, even if without
merit, could be expensive, time-consuming to defend, divert management's
attention from the operation of iManage and cause product shipment delays. If we
become liable for infringing intellectual property rights, we would be required
to pay a substantial damage award and to develop non-infringing technology,
obtain a license or cease selling the products that contain the infringing
intellectual property. We may be unable to develop non-infringing technology or
obtain a license on commercially reasonable terms, if at all.
We license indexing and searching technologies from third parties. We
cannot assure you that these technology licenses will not infringe the
proprietary rights of others or will continue to be available to us on
commercially reasonable terms, if at all. We license Search '97 from Verity,
Inc. for search functionality in the iManage infoCommerce Server. This agreement
expires in January 2003 and is renewable with the written agreement of the
parties. Either party may terminate the agreement for cause before the
expiration date with 90 days written notice. In addition, we license Outside In
Viewer Technology and Outside In HTML Export from INSO Corporation for file
viewing functionality in our solution. This agreement expires in December 2001
and is renewable with the written consent of the parties. Either party may
terminate the agreement for cause before the expiration date. If we cannot renew
these licenses, shipments of our products could be delayed until equivalent
software could be developed or licensed and integrated into our products. These
types of delays could seriously harm our business.
EMPLOYEES
As of December 31, 1999, we had 119 full-time employees. Of these
employees, 33 were in product development, 47 in sales, marketing and business
development, 22 in customer support and training and 17 in finance and
administration. None of our employees is subject to a collective bargaining
agreement. We believe our relations with our employees are good. Our future
success depends on our ability to attract, motivate and retain highly qualified
technical and management personnel. From time to time we also employ independent
contractors to support our product development, sales, marketing and business
development organizations.
ITEM 2. PROPERTIES
Our principal offices are located in a leased facility in San Mateo,
California and consists of approximately 24,000 square feet under leases that
expire from 2001 to 2003. Our engineering and customer support personnel and our
training facility are located in a leased facility in Chicago, Illinois. This
facility consists of approximately 22,000 square feet and our lease is
non-cancelable through 2004 and expires in 2009. We believe that our existing
facilities are adequate for our current needs and that suitable additional or
alternative space will be available in the future on commercially reasonable
terms.
ITEM 3. LEGAL PROCEEDINGS
We are not presently involved in any legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is traded on the Nasdaq National Market under the
symbol "IMAN." Our initial public offering of stock was November 17, 1999 at
$11.00 per share for an aggregate initial public offering of $45.5 million. The
price range per share from November 17, 1999 through December 31, 1999 was
$40.06 at the highest and $20.00 at the lowest sale price for our stock as
reported by the Nasdaq National Market. Our present policy is to retain
earnings, if any, to finance future growth. We have never paid cash dividends
and have no present intention to pay cash dividends. On March 6, 2000, there
were approximately 4,218 stockholders of record.
The managing underwriters in our initial public offering were Robertson
Stephens International, U.S. Bancorp Piper Jaffray and C.E. Unterberg, Towbin.
We registered the shares of the common stock sold in the offering under the
Securities Act of 1933, as amended, on a registration statement on Form S-1 (No.
333-86353). The Securities and Exchange Commission declared the registration
statement effective on November 17, 1999.
We paid a total of $3.2 million in underwriting discounts and
commissions and approximately $1.1 million has been or will be paid for costs
and expenses related to the offering. None of the costs and expenses related to
the offering were paid directly or indirectly to any of our directors, officers,
general partners or their associates, persons owing 10% or more of any class of
our equity securities or any of our affiliates.
After deducting the underwriting discounts and commissions and the
offering expenses, we received net proceeds from the offering of approximately
$41.2 million. The net offering proceeds have been used for general corporate
purposes, to provide working capital to develop products and to expand our
operations. Funds that have not been used have been invested in money market
funds, certificate of deposits and other investment grade securities. We also
may use a portion of the net proceeds to acquire or invest in businesses,
technologies, products or services.
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ITEM 6. SELECTED FINANCIAL DATA
PERIOD FROM
OCTOBER 10, 1995 YEARS ENDED DECEMBER 31,
(INCEPTION) TO -----------------------------------------------------
DECEMBER 31, 1995 1996 1997 1998 1999
----------------- -------- -------- -------- --------
(in thousands, except per share amounts)
Total revenues ........................................... $ -- $ 74 $ 1,530 $ 7,741 $ 18,570
Loss from operations ..................................... (64) (688) (3,609) (2,979) (3,461)
Net loss ................................................. (64) (692) (3,596) (2,840) (2,775)
Net loss per share -- basic and diluted ................. $ (0.01) $ (0.12) $ (0.57) $ (0.38) $ (0.28)
Shares used in net loss per share -- basic and diluted ... 6,000 6,004 6,292 7,455 9,988
Total assets ............................................. $ 44 $ 511 $ 3,260 $ 13,495 $ 63,921
Long-term obligations .................................... $ -- $ -- $ -- $ -- $ 1,388
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with "Selected Financial
Data" and our consolidated financial statements and related notes appearing
elsewhere in this report. This discussion and analysis contains forward-looking
statements that involve risks, uncertainties and assumptions. The actual results
may differ materially from those anticipated in these forward-looking statements
as a result of certain factors, such as those set forth under "Factors That May
Impact Future Results" and the risks discussed in our other SEC filings,
including our registration statement on Form S-1 declared effective November 17,
1999 by the SEC (File No. 333-86353).
OVERVIEW
We supply e-business content and collaboration management software that
provides organizations with a web-based unified content platform that manages,
organizes and delivers relevant information from a variety of sources in a
centralized manner throughout the extended enterprise. We believe we are a
leading provider of e-business content and collaboration management software,
based on the number of customers we serve and the features our software
provides. Since 1996, we have licensed our products to over 500 customers for
use by over 100,000 end users.
We were incorporated in October 1995 and commenced operations shortly
after that time. During the period October 1995 through September 1996 we were a
development stage company and had no revenues. Our operating activities during
this period related primarily to developing our product, building our corporate
infrastructure and raising capital. In October 1996, we released the first
version of our iManage infoCommerce Server and iManage infoRite, and sold them
through a small sales force and support staff. In June 1997, we enhanced our
iManage suite of products and shipped iManage infoLink. In March 1998, we
released an enhanced version of iManage infoCommerce Server. We began shipping
our iManage infoLook in August 1999.
Through December 31, 1999, substantially all of our total revenues were
derived from licenses of the iManage infoCommerce Server, iManage infoRite and
iManage infoLink and related services. We currently expect that substantially
all of our total revenues will continue to be derived from our iManage
infoCommerce Server, iManage infoRite and iManage infoLink product lines and
related services. Our license revenues are based on the number of users and
servers. Support and services revenues consist of customer support, training and
consulting. Customers who license our products generally purchase support
contracts, which are billed on a subscription basis typically covering a
12-month period. Training services are billed on a per student or per class
session basis and consulting is customarily billed at a fixed daily rate plus
our out-of-pocket expenses.
We market our software and services primarily through our direct sales
organization, resellers and system integrators in Canada, the United Kingdom and
the United States, and through distributors in Australia and New Zealand.
Revenues from iManage infoCommerce Server, iManage infoRite and iManage infoLink
licenses and services to customers outside the United States and Canada have
been insignificant to date.
Through 1997, we recognized revenues based on the American Institute of
Certified Public Accountants Statement of Position 91-1. Commencing in 1998, we
began recognizing revenues based on the American Institute of Certified Public
Accountants Statement of Position 97-2, Software Revenue Recognition, or SOP
97-2, as amended by Statement of Position 98-4. Further implementation
guidelines relating to these standards may result in unanticipated changes in
our revenue recognition practices, and these changes could affect our future
revenues and earnings.
We recognize license revenues upon shipment of a product master if a
signed contract exists, the fee is fixed and determinable, collection of
resulting receivables is probable and product returns can be reasonably
estimated and if applicable, acceptance criteria have been met. During the
fourth quarter of 1999, we implemented a subscription licensing model for a
newly released product whereby the customer licenses the product for one year to
18 month subscription periods under an arrangement that includes customer
support and software updates during the term of the license. Revenues
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associated with this software product and related services are recognized
ratably over the applicable license period. Provisions for estimated warranty
costs and sale returns are recorded at the time of shipment.
For contracts with multiple obligations, for example, deliverable and
undeliverable products, support and other service, we allocate revenues to the
undelivered element of the contract based on objective evidence of its fair
value. This objective evidence is the sales price of the element when sold
separately by us or the renewal rate specified in the arrangement for licensing
arrangements with terms of one year to 18 months that include customer support
and software updates. We generally do not allow the right of return but have
accepted returns in isolated instances when resellers, system integrators and
distributors have incorrectly ordered product. We recognize revenues allocated
to undelivered products when the criteria for license revenues described above
are met. We recognize support and services revenues, including amounts allocated
from contracts with multiple obligations and for ongoing customer support,
ratably over the period of the support contract. Our support and service
arrangements entitle customers to telephone support and unspecified upgrades and
enhancements. Payments for support and services are generally made in advance
and are non-refundable. For revenues allocated to training and consulting
services or derived from the separate sales of these services, we recognize
revenues as the related services are performed.
Our cost of license revenues includes royalties due to third parties for
integrated technology, the cost of manuals and product documentation, production
media used to deliver our products and packaging costs. Our cost of support and
services revenues includes salaries and related expenses for the customer
support, professional services and training organization and an allocation of
overhead expenses.
Our operating expenses are classified as sales and marketing, research
and development, general and administrative and stock-based compensation. We
classify all charges to these operating expense categories based on the nature
of the expenditures. Although each category includes expenses that are unique to
the category type, there are common recurring expenditures that are typically
included in all operating expense categories, including salaries, employee
benefits, incentive compensation, bonuses, travel costs, professional fees,
telephone, communication and rent and allocated facilities costs. The sales and
marketing category of operating expenses includes additional expenditures
specific to the sales group, such as commissions, and expenditures specific to
the marketing group, including public relations and advertising, trade shows and
marketing collateral materials. In the development of our new products and
enhancements of existing products, the technological feasibility of the software
is not established until substantially all product development is complete.
Historically, software development costs eligible for capitalization have been
insignificant, and we have expensed all costs related to internal research and
development as we have incurred them.
In connection with the granting of stock options to our employees and
consultants, we have recorded deferred stock-based compensation totaling
approximately $10.4 million through December 31, 1999, of which approximately
$4.0 million remains to be amortized. This amount represents the difference
between the exercise price and the current estimated fair value of our common
stock on the date these stock options were granted. This amount is included as
part of stockholders' equity and is being amortized by charges to operations
over the vesting period of the options, consistent with the method described in
Financial Accounting Standards Board, or FASB, Interpretation No. 28. We
recognized stock-based compensation expense of approximately $2.1 million in
1997, $1.1 million in 1998 and $3.6 million in 1999, which includes stock-based
compensation expense amounts for services provided before the grant date of the
options. Future compensation expense from options granted through December 31,
1999 is estimated to be approximately $2.5 million for 2000, $1.0 million for
2001, $399,000 for 2002 and $57,000 for 2003.
We anticipate that our operating expenses will increase substantially as
we intend to continue to incur significant research and development costs and
invest heavily in the expansion of our sales, marketing and support
organizations to build an infrastructure to support our long-term growth
strategy. The number of our full-time employees increased from 59 as of December
31, 1998 to 119 as of December 31, 1999. We will seek to hire additional
employees in the future. As a result of investments relating to the expansion of
our business, we have incurred net losses in each quarter since inception and,
as of December 31, 1999, had an accumulated deficit of $10.0 million. To achieve
profitability, we will have to increase our total revenues significantly. We
cannot assure
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you that we will ever attain or maintain profitability.
In view of the rapidly changing nature of our market and our limited
operating history, we believe that period-to-period comparisons of our revenues
and operating results are not necessarily meaningful and should not be relied
upon as indicative of future performance. Our historic revenue growth rates are
not necessarily sustainable or indicative of our future growth. Our prospects
must be considered in light of the risks, expenses and difficulties frequently
encountered by companies in early stages of development, particularly companies
in new and rapidly evolving markets. We cannot assure you we will be successful
in addressing these risks and difficulties.
REVENUES
% CHANGE
1997 1998 1999 97/98 98/99
------- ------- ------- ----- -----
(IN THOUSANDS)
License $ 1,172 $ 6,509 $14,257 455.4% 119.0%
Support and services 358 1,232 4,313 244.1% 250.1%
------- ------- -------
Total revenues $ 1,530 $ 7,741 $18,570 405.9% 139.9%
======= ======= =======
Sources of revenue as a percent of total revenue
1997 1998 1999
------- ------- -------
License 76.6% 84.1% 76.8%
Support and services 23.4% 15.9% 23.2%
License Revenues. Our license revenues increased $5.3 million, or
455.4%, from 1997 to 1998, and $7.7 million, or 119.0%, from 1998 to 1999. The
increase in our license revenues from 1997 to 1998 and from 1998 to 1999 was
primarily due to increased market acceptance of iManage infoCommerce Server,
iManage infoRite and iManage infoLink and increased prices for these products
for the period from 1997 to 1999.
Support and Services Revenues. Our support and services revenues
increased $874,000, or 244.1%, from 1997 to 1998, and $3.1 million, or 250.1%,
from 1998 to 1999. Support and services revenues consisted primarily of customer
support and, to a lesser extent, training and consulting services, associated
with the increasing license revenues during these periods. The increase in
absolute dollars in support and services revenues for the above periods reflects
the increasing customer installation base of our iManage infoCommerce Server,
iManage infoRite and iManage infoLink.
COST OF REVENUES
% CHANGE
1997 1998 1999 97/98 98/99
---- ----- -------- -------- --------
(IN THOUSANDS)
License $136 $ 414 $ 773 204.4% 86.7%
Support and services 163 1,213 2,732 644.2% 125.2%
Cost of revenues as a percent of related revenue
1997 1998 1999
---- ----- --------
License 11.6% 6.4% 5.4%
Support and services 45.5% 98.5% 63.3%
Cost of License Revenues. Cost of license revenues increased $278,000,
or 204.4%, from 1997 to 1998, and $359,000, or 86.7%, from 1998 to 1999. The
increase in 1997 to 1998 was a result of increased royalties to third parties
for technology integrated into our iManage infoCommerce Server in the fourth
quarter of 1997 and the first quarter of 1998. The increase from 1998 to 1999
was primarily the result of increased costs of media associated with the
increasing license revenues during this period.
Cost of Support and Services Revenues. Cost of support and services
revenues increased $1.0 million, or 644.2%, from 1997 to 1998 and $1.5
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million, or 125.2%, from 1998 to 1999. The increases from 1997 to 1998 resulted
primarily from an increase of $689,000 in personnel-related expenses from
increases in technical support and training personnel and an increase of
$213,000 in increased travel-related costs to manage and support our growing
customer base. The increases from 1998 to 1999 were primarily the result of an
increase of $742,000 in personnel-related expenses from increases in technical
support, professional services personnel and training personnel and an increase
of $538,000 in facilities-related expenses.
OPERATING EXPENSES
% CHANGE
1997 1998 1999 97/98 98/99
------ ------ -------- ------ ------
(IN THOUSANDS)
Sales and marketing $1,120 $4,393 $ 8,530 292.2% 94.2%
Research and development 935 2,351 4,180 151.4% 77.8%
General and administrative 706 1,295 2,227 83.4% 72.0%
Net interest income 13 139 718 969.2% 416.5%
Provision for income taxes -- -- 32 -- --
Operating expenses as a percent of total revenue
1997 1998 1999
------ ------ --------
Sales and marketing 73.2% 56.7% 45.9%
Research and development 61.1% 30.4% 22.5%
General and administrative 46.1% 16.7% 12.0%
Net interest income 0.8% 1.8% 3.9%
Provision for income taxes -- -- 0.2%
Sales and Marketing. Sales and marketing expenses increased $3.3 million
from 1997 to 1998 and $4.1 million from 1998 to 1999. The increases from 1997
through 1999 primarily reflected investments in our sales and marketing
infrastructure, which included an increase of $2.3 million in 1998 and an
increase of $2.2 million in 1999 related to significant personnel-related
expenses including salaries, benefits and commissions, recruiting fees, and
related costs of hiring sales management, sales representatives, sales engineers
and marketing personnel. Sales and marketing employees totaled nine as of
December 31, 1997, 23 as of December 31, 1998 and 47 as of December 31, 1999,
representing increases of 155.6% from 1997 to 1998 and 104.3% from 1998 to 1999.
The increase in sales and marketing expenses from 1997 to 1998 also reflected an
increase of $399,000 in travel and entertainment expenses, an increase of
$340,000 in public relations and trade show expenses, and an increase of
$201,000 in facility-related overhead costs. The increase in sales and marketing
expenses from 1998 to 1999 reflected an increase of $483,000 in travel and
entertainment expenses, $475,000 in facilities related expenses, $434,000 in
professional services costs, and an increase of $238,000 in public relations and
trade show expenses. The decreases in sales and marketing expenses as a
percentage of total revenues from 1997 through 1999 results from more rapid
growth of our total revenues compared to the growth of sales and marketing
expenses in these periods.
Research and Development. Research and development expenses increased
$1.4 million from 1997 to 1998 and $1.8 million from 1998 to 1999. The increases
from 1997 through 1999 were primarily related to increased personnel costs
resulting from the increase in the wage rates, benefits and the number of
software developers and quality assurance personnel and third-party consultants
to support our product development and testing activities related to the
development of iManage infoRite, iManage infoLink and iManage infoLook, as well
as enhancements to iManage infoCommerce Server. Our research and development
employees totaled 12 as of December 31, 1997, 16 as of December 31, 1998 and 33
as of December 31, 1999, representing increases of 33.3% from 1997 to 1998 and
106.3% from 1998 to 1999. The increase from 1998 to 1999 is also due to
increased facility costs. The decreases in research and development expenses as
a percentage of total revenues from 1997 through 1999 results from increases in
our total revenues.
General and Administrative. General and administrative expenses
increased $589,000 from 1997 to 1998 and $932,000 from 1998 to 1999. The
increases from 1997 through 1999 were primarily the result of increased
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personnel costs of $339,000 in 1998 and $450,000 in 1999 resulting from
additional finance, executive and administrative personnel and increases of
$245,000 in 1998 in professional service costs, primarily accounting and legal,
to support the growth of our business during these periods. The increase from
1998 to 1999 is also due to increased facility costs.
Net Interest Income. Net interest income increased $126,000 from 1997 to
1998 and $579,000 from 1998 to 1999. The increases from 1997 through 1999 were
primarily related to higher invested cash balances as a result of proceeds
received from the issuance of our series A, B and C preferred stock and our
initial public offering in the fourth quarter of 1999, offset by interest
expense from our equipment line of credit.
Provision for Income Taxes. Income taxes are accounted for in accordance
with Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" which requires recognition of deferred tax liabilities and assets for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax liabilities
and assets are determined based on the temporary difference between the
financial statement and tax bases of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amounts expected to be realized. Income tax expense is the tax
payable and the change during the period in deferred tax assets and liabilities.
LIQUIDITY AND CAPITAL RESOURCES
In November 1999, we completed the initial public offering of our common
stock and realized net proceeds from the offering of approximately $41.2
million. Prior to the offering, we had funded our operations primarily through
sales of convertible preferred stock, resulting in net proceeds of $10.9 million
through September 30, 1999. To a lesser extent, we have financed our operations
through lending arrangements. As of December 31, 1999, we had cash, cash
equivalents and short-term investments of $51.0 million and approximately $3.6
million of available borrowings under a line of credit.
Net cash used in operating activities was $1.8 million in 1997 and
$622,000 in 1998; $5.9 million was provided by operating activities in 1999. For
the 1997, 1998 and 1999 periods, cash used by operating activities was primarily
a result of funding ongoing operations. Cash provided by operations in 1997,
1998 and 1999 was primarily the result of increasing sales of our iManage suite
of products, receipt of cash associated with license and support and service
revenues in advance of revenue recognition and non-cash charges associated with
stock-based compensation expense.
For the last 3 years, our investing activities have consisted of
purchases of property and equipment and, in 1999, the purchase of short-term and
long-term investments. Net cash used in investing activities totaled $192,000 in
1997, $431,000 in 1998 and $8.3 million in 1999. We finance the acquisition of
property and equipment primarily through a line of credit. Our property and
equipment largely consists of computer hardware and software and furniture and
fixtures for our increasing employee base as well as for our management
information systems. We anticipate that we will experience an increase in our
capital expenditures consistent with our anticipated growth in operations,
infrastructure and personnel.
Our financing activities provided $3.4 million in 1997, $6.9 million in
1998 and $42.7 million in 1999. In 1997, cash provided by financing activities
consisted primarily of $3.4 million received in connection with the sale of
series A and series B preferred stock. In 1998, cash provided by financing
activities consisted primarily of $7.0 million received in connection with the
sale of series B and series C preferred stock. In 1999, cash provided by
financing activities consisted primarily of $41.2 million generated from our
initial public offering.
As of December 31, 1999, we had a revolving line of credit with a bank
for $5.0 million, which bears interest at the lending bank's prime rate plus
0.25%. Borrowings were limited to the lesser of 80% of eligible accounts
receivable or $5.0 million and were secured by substantially all of our assets.
As of December 31, 1999, we could have borrowed approximately $3.6 million but
had not borrowed any amount as of that date. In addition, as of December 31,
1999, we had an equipment line of credit with a bank for $2.0 million, which
bears interest at the lending bank's prime rate plus 0.5%. As of December 31,
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1999, we had borrowed the full $2.0 million under the equipment line of credit.
Both lines of credit include covenant restrictions requiring us to:
(a) maintain a monthly quick assets to current liabilities ratio of at
least two to one;
(b) maintain a minimum profitability level requiring that we not incur
a net loss, as defined, in all quarters of a fiscal year, except we are
permitted to incur a loss of $150,000 in one quarter per fiscal year, and
(c) limit our ability to declare and pay dividends.
The net loss is determined based upon our operating results, excluding
charges for software development and non-cash charges for amortization of
stock-based compensation. We were in compliance with these covenants at December
31, 1999.
We currently anticipate that the net proceeds of our initial public
offering, together with our existing lines of credit and available funds, will
be sufficient to meet our anticipated needs for working capital and capital
expenditures at least through the next 12 to 24 months. However, we may be
required, or could elect, to seek additional funding before that time. Our
future capital requirements will depend on many factors, including our future
revenue, the timing and extent of spending to support product development
efforts and expansion of sales, general and administrative activities, the
timing of introductions of new products and market acceptance of our products.
We cannot assure you that additional equity or debt financing, if required, will
be available on acceptable terms or at all.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are
unable to distinguish between twentieth century dates and twenty-first century
dates because the systems were developed using two digits rather than four to
determine the applicable year. For example, computer programs that have
date-sensitive software may recognize a date using 00 as the year 1900 rather
than the year 2000. This error could result in system failures or
miscalculations causing disruptions of operations, including a temporary
inability to process transactions, send invoices or engage in similar normal
business activities. As a result, many companies' software and computer systems
may need to be upgraded or replaced to comply with these year 2000 requirements.
To date, we have had no issues relating to our products due to year 2000
compliance issues. We have not encountered any material year 2000 problems with
our internal management information or computer systems or any other equipment
that might be subject to these problems.
To date, the total cost of year 2000 problems has not been material to
our business.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 1998, the American Institute of Certified Public Accountants
released Statement of Position 98-9 or SOP 98-9, Modification of SOP 97-2,
Software Revenue Recognition. SOP 98-9 amends SOP 97-2 to require that an entity
recognize revenue for multiple element arrangements by means of the residual
method when (a) there is no vendor-specific objective evidence ("VSOE") of the
fair values of all the undelivered elements that are not accounted for by means
of long-term contract accounting, (b) VSOE of fair value does not exist for one
or more of the delivered elements and (c) all revenue recognition criteria of
SOP 97-2, other than the requirement for VSOE of the fair value of each
delivered element, are satisfied. The provisions of SOP 98-9 that extend the
deferral of various paragraphs of SOP 97-2 became effective December 15, 1998.
These paragraphs of SOP 97-2 and SOP 98-9 will be effective for transactions
that are entered into in fiscal years beginning after March 15, 1999.
Retroactive application is prohibited. We currently anticipate that there will
be no significant impact on our financial position or results of operations for
the implementation of the requirements of SOP 98-9.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, or SFAS 133, Accounting for
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Derivative Instruments and Hedging Activities. SFAS 133 establishes new
standards of accounting and reporting for derivative instruments and hedging
activities. SFAS 133 requires that all derivatives be recognized at fair value
in the statement of financial position, and that the corresponding gains or
losses be reported either in the statement of operations or as a component of
comprehensive income, depending on the type of hedging relationship that exists.
In July 1999, the Financial Accounting Standard Boards issued SFAS No. 137, or
SFAS 137, Accounting for Derivative Instruments and Hedging Activities --
Deferral of the Effective Date of SFAS No. 133. SFAS 137 deferred the effective
date of SFAS 133 until the first fiscal quarter beginning after June 15, 2000.
We do not currently hold derivative instruments or engage in hedging activities.
We currently anticipate that there will be no significant impact on our
financial position or results of operations for the implementation of the
requirements of SFAS No. 133 and SFAS No. 137.
In November 1999, the SEC issued Staff Accounting Bulletin 100, or SAB
100, which clarifies the SEC's views on accounting for and disclosing certain
expenses incurred in connection with exit activities and business combinations.
In December 1999, SAB 101 was issued which summarizes the SEC's views in
applying generally accepted accounting principles to revenue recognition in
financial statements. We do not expect SAB 100 to have a material effect on our
financial position, results of operation, or cash flow. We are currently
evaluating the impact SAB 101 will have on our financial position and results of
operations.
FACTORS THAT MAY IMPACT FUTURE RESULTS
Our limited operating history may prevent us from achieving success in
our business.
We were founded in October 1995 and began shipping our first product in
October 1996. Because of our limited operating results, we have limited insight
into trends that may emerge and affect our business. As a result, an evaluation
of our prospects is difficult to make. The potential revenues and income of our
business and many of the markets we intend to target are unproven.
We face significant risks because of our limited operating history,
including:
- we have a limited number of product offerings and will need to
successfully introduce new products and enhance our existing
offering, with, for example, an enhanced version of iManage
infoLink, which we released in the fourth quarter of 1999 and an
enhanced version of iManage infoCommerce Server, which we
released in the first quarter of 2000;
- we need to sell additional licenses and software products to our
existing customers and expand our customer base beyond legal and
other professional service firms; and
- we need to expand our sales and marketing and customer support
organization to focus on a broad range of markets and build
strategic relationships with information technology consultants,
systems integrators and unified messaging original equipment
manufacturers to increase sales.
If we do not successfully address any of these and other challenges, our
business and operating results will be seriously harmed.
We have an accumulated deficit of approximately $10.0 million as of
December 31, 1999 and may not be able to achieve profitability.
Our failure to significantly increase our total revenues would seriously
harm our business and operating results. To increase our revenues, we must incur
significant expenses to increase our research and development, sales and
marketing and general and administrative resources. If our revenues do not grow
to offset these increased expenses, we will not be profitable. We may not be
able to sustain our recent revenue growth rates. In fact, we may not have any
revenue growth, and our revenues could decline.
Our quarterly operating results are volatile and difficult to predict.
If we fail to meet the expectations of public
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market analysts or investors, the market price of our common stock may decrease
significantly.
Our quarterly operating results have varied significantly in the past
and will likely vary significantly in the future. As a result, we believe that
period-to-period comparisons of our operating results are not meaningful and
should not be relied upon as indicators of our future performance. In the
future, our operating results may be below the expectations of securities
analysts and investors. Our failure to meet these expectations would likely
cause the price of our common stock to decline. Operating results vary depending
on a number of factors, including:
- the size, timing, terms and fluctuations of customer orders; and
- the timing of the introduction or enhancement of products by us.
In addition, depending on the manner in which we sell existing or future
products, this could have the effect of extending the length of time over which
we recognize revenues. Our quarterly revenues could be significantly affected
based on how applicable accounting standards are amended or interpreted over
time.
Also, the adoption of our subscription licensing model, which requires
the recognition of license revenue over the term of the agreement, may result in
lower quarterly revenues in the period when the products were sold when compared
to quarters in which subscription licenses were not sold.
Furthermore, our expense levels are relatively fixed and are based, in
part, on expectations of future revenues. Therefore, if revenue levels fall
below our expectations, our net loss will increase because only a small portion
of our expenses vary with our revenues.
Our revenues will decline significantly if the market does not continue
to accept our iManage suite of products.
In 1998 and 1999, we derived substantially all of our license revenues
from the sale of licenses for our iManage infoCommerce Server, iManage infoRite
and iManage infoLink products. We currently expect to continue to derive a
majority of our license revenues from these products. If the market does not
continue to accept these products, our revenues will decline significantly and
this could negatively affect our operating results. Factors that may affect the
market acceptance of these products include the performance, price and total
cost of ownership of our products and the availability, functionality and price
of competing products and technologies. Many of these factors are beyond our
control.
We have always been heavily dependent upon law firm customers. If we do
not expand sales of our products to other customers, we may not be able to grow
our revenues consistent with past growth rates and our operating results will
suffer.
We derived 89.0% and 93.3% of our total revenues in 1998 and 1999,
respectively, from the sale of licenses to law firms and professional service
firms. Our future success is substantially dependent on our ability to sell a
significant number of licenses to customers in other businesses, particularly
large multi-national corporations. To sell a significant number of licenses to
these businesses, we must devote time and resources to train our sales employees
to work in industries outside law firms and professional service firms. We may
not be successful in our efforts. Unlike law firms and professional service
organizations, customers in other industries, including large multi-national
corporations, may not require or perceive the value of our content and
collaboration management solution. If we cannot license our products to
customers in other industries, our business could be significantly adversely
affected.
We may be unable to penetrate additional markets and grow our revenues
if we do not successfully obtain leads or referrals from our customers.
To increase sales of our e-business content and collaboration management
solution and grow our total revenues, we will try to obtain leads or referrals
from our current customers. If we are unable to maintain these existing customer
relationships, or fail to establish additional relationships, we will have to
devote substantially more
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resources, both financial and personnel, to the sales and marketing of our
products. As a result, our success depends in part on the ultimate success of
these current relationships and the willingness of our customers to provide us
with these introductions, referrals and leads. Our current customer
relationships do not, and any future relationships we establish may not, afford
us any exclusive marketing or distribution rights. In addition, at any time, our
customers may terminate their relationships with us, pursue other relationships
with our competitors or develop or acquire products that compete with our
products. Even if our customers provide us with leads and introductions, we may
not penetrate additional markets or grow our revenues.
If the emerging market for e-business content and collaboration
management software does not develop as quickly as we expect, our business will
suffer.
The market for e-business content and collaboration management software
has only recently begun to develop, is rapidly evolving and will likely have an
increasing number of competitors. We cannot be certain that a viable market for
our products will emerge or be sustainable. If the e-business content and
collaboration management market fails to develop, or develops more slowly than
expected, demand for our products will be less than anticipated and our business
and operating results would be seriously harmed.
Furthermore, to be successful in this emerging market, we must be able
to differentiate our business from our competitors through our product and
service offerings and brand name recognition. We may not be successful in
differentiating our business or achieving widespread market acceptance of our
products and services. In addition, enterprises that have already invested
substantial resources in other methods of managing their content and
collaborative process may be reluctant or slow to adopt a new approach that may
replace, limit or compete with their existing systems.
Due to our lengthy and variable sales cycle, we may not be able to
predict when or if sales will be made and we may experience unplanned shortfalls
in revenues.
Our products have an unpredictable sales cycle that contributes to the
uncertainty of our future operating results. Customers often view the purchase
of our products as a significant and strategic decision, and this decision
typically involves a considerable commitment of resources and is influenced by
the customers' budget cycles. Selling our products also requires us to educate
potential customers on their use and benefits because our e-business content and
collaboration management software is a new category of product. As a result, our
products have a lengthy sales cycle, which has historically ranged from
approximately two to six months.
As potential customers evaluate our products and before they place an
order with us, we typically expend significant sales and marketing expenses.
Larger customers may purchase our products as part of multiple, simultaneous
purchasing decisions, which may result in additional unplanned administrative
processing and other delays in our product sales. If sales forecasted from a
specific customer for a particular quarter are not realized, we may experience
unplanned shortfalls in revenues. As a result, we have only a limited ability to
forecast the timing and size of sales of our products.
Competition from providers of software enabling content and
collaboration management among businesses may increase, which could cause us to
reduce our prices, and result in reduced gross margins or loss of market share.
The market for products that enable companies to manage and share
content and collaborate throughout an extended enterprise is new, highly
fragmented, rapidly changing and increasingly competitive. We expect competition
to continue to intensify, which could result in price reductions for our
products, reduced gross margins and loss of market share, any of which would
have a material adverse effect on our business and financial condition.
If our efforts to enhance existing products and introduce new products
are not successful, we may not be able to generate demand for our products.
Our future success depends on our ability to provide a comprehensive
e-business content and collaboration
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management solution. To provide this comprehensive solution, we must continually
develop and introduce high quality, cost-effective products as well as product
enhancements on a timely basis. If the market does not accept new products, our
business will suffer and our stock price will likely fall.
In addition, while our current product offerings have the ability to
manage many types of content, such as graphics, video, text, audio and data, we
are dependent upon third parties to develop additional interfaces that will
enable the deposit of other types of structured relational data, particularly
data generated by enterprise resource planning systems, into the iManage
infoCommerce Server. These third parties may not be able to develop these
technologies, and we may therefore not be able to continue to offer a
comprehensive e-business content and collaboration management solution. Our
failure to offer a comprehensive solution would seriously harm our business.
If our products cannot scale to meet the demands of thousands of
concurrent users, our targeted customers may not license our solutions, which
will cause our revenue to decline.
Our strategy is to target large organizations that, because of the
significant amounts of information and content that they generate and use,
require our e-business content and collaboration management solution. For this
strategy to succeed, our software products must be highly scalable; that is,
they must be able to accommodate thousands of concurrent users. If our products
cannot scale to accommodate a large number of concurrent users, our target
markets will not accept our products and our business and operating results will
suffer.
While we and independent test laboratories have tested the scalability
of our products in simulations, we have not had the opportunity to observe the
performance of our products in the context of an actual large-scale, that is,
tens to hundreds of thousands of concurrent users, customer implementation. If
our customers cannot successfully implement large-scale deployments, or if they
determine that our products cannot accommodate large-scale deployments, our
customers will not license our solutions and this will materially adversely
affect our financial condition and operating results.
Our products might not be compatible with all major platforms, which
could inhibit sales and harm our business.
We must continually modify and enhance our products to keep pace with
changes in computer hardware and software and database technology, as well as
emerging technical standards in the software industry. For example, we have
designed our products to work with databases and servers such as Informix,
Oracle and SQL Server and software applications including Microsoft Office,
Lotus Notes and Novell GroupWise. Any changes to these platforms could require
us to modify our products and could cause us to delay releasing a product until
the updated version of that platform or application has been released. As a
result, customers could delay purchases until they determine how our products
will operate with these updated platforms or applications.
In addition, our iManage infoCommerce Server runs on the Windows NT
platform. If a customer does not currently use the Windows NT platform and does
not choose to adopt this platform, we will be unable to license our products to
this customer. Furthermore, some of our products do not run on other popular
operating systems, such as the UNIX operating system. If another platform
becomes more widely used, we could be required to convert our product to that
platform. We may not succeed in these efforts, and even if we do, potential
customers may not choose to license our product.
Defects in our software products could diminish demand for our products.
Our software products are complex and may contain errors that may be
detected at any point in the life of the product. We cannot assure you that,
despite testing by us, our implementation partners and our current and potential
customers, errors will not be found in new products or releases after shipment,
resulting in loss of revenues, delay in market acceptance and sales, diversion
of development resources, injury to our reputation or increased service and
warranty costs. If any of these were to occur, our business would be adversely
affected and our stock price could fall.
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23
Because our products are generally used in systems with other vendors'
products, they must integrate successfully with these existing systems. System
errors, whether caused by our products or those of another vendor, could
adversely affect the market acceptance of our products, and any necessary
revisions could cause us to incur significant expenses.
If we are unable to respond to rapid market changes due to changing
technology and evolving industry standards, our future success will be adversely
affected.
The market for our products is characterized by rapidly changing
technology, evolving industry standards, frequent new service and product
introductions and changes in customer demands. Our future success will depend to
a substantial degree on our ability to offer products and services that
incorporate leading technology, and respond to technological advances and
emerging industry standards and practices on a timely and cost-effective basis.
You should be aware that:
- our technology or systems may become obsolete upon the
introduction of alternative technologies, such as products that
better manage various types of content; and
- we may not have sufficient resources to develop or acquire new
technologies or to introduce new products or services capable of
competing with future technologies or service offerings.
Our products may lack essential functionality if we are unable to obtain
and maintain licenses to third-party software and applications.
We rely on software that we license from third parties, including
software that is integrated with internally developed software and used in our
products to perform key functions. For example, we license Search '97 from
Verity, Inc. and we license Outside In Viewer Technology and Outside In HTML
Export from INSO Corporation. The functionality of our products therefore
depends on our ability to integrate these third-party technologies into our
products. Furthermore, we may license additional software from third parties in
the future to add functionality to our products. If our efforts to integrate
this third-party software into our products are not successful, our customers
may not license our products and our business will suffer.
In addition, we would be seriously harmed if the providers from whom we
license software ceased to deliver and support reliable products, enhance their
current products or respond to emerging industry standards. Moreover, the
third-party software may not continue to be available to us on commercially
reasonable terms or at all. Our license agreement with Verity terminates in
January 2003 and our agreement with INSO terminates in December 2001. Each of
these license agreements may be renewed only with the other party's written
consent. The loss of, or inability to maintain or obtain licensed software,
could result in shipment delays or reductions. Furthermore, we might be forced
to limit the features available in our current or future product offerings.
Either alternative could seriously harm our business and operating results.
If we are unable to protect our intellectual property, we could lose
market share, incur costly litigation expenses or lose valuable assets.
We believe that our continued success depends on protecting our
proprietary technology. We rely on a combination of patent, trademark, service
mark, trade secret and copyright law and contractual restrictions to protect the
proprietary aspects of our technology. In addition, we enter into
confidentiality or license agreements with our employees and consultants, and
control access to and distribution of our software, documentation and other
proprietary information. These legal and practical protections afford only
limited protection. Despite our efforts to protect our proprietary rights,
unauthorized parties may attempt to copy aspects of our products or to obtain
and use our proprietary information. These attempts, if successful, could cause
us to lose market share and thus harm our business and operating results.
Litigation may be necessary to enforce our intellectual property rights, to
protect our trade secrets and to determine the validity and scope of the
proprietary rights of others. Any litigation could result in substantial costs
and diversion of resources and could seriously harm our business and operating
results. In addition, as we expand our international sales, we may find that the
laws of many countries, particularly those in the
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Asia/Pacific region, do not protect our proprietary rights to as great an extent
as the laws of the United States.
Others may bring infringement claims against us which could be time
consuming and expensive for us to defend.
Other companies, including our competitors, may obtain patents or other
proprietary rights that would prevent, limit or interfere with our ability to
make, use or sell our products. For example, we may discover that third parties
have developed similar or competing technologies to manage, organize and deliver
information and content. As a result, we may be found to infringe on the
proprietary rights of others. Furthermore, companies in the software market are
increasingly bringing suits that allege infringement of their proprietary
rights, particularly patent rights. We could incur substantial costs to defend
any litigation, and intellectual property litigation could force us to do one or
more of the following:
- cease using key aspects of our e-business content and
collaboration management solution that incorporate the
challenged intellectual property;
- obtain a license from the holder of the infringed intellectual
property right; and
- redesign some or all of our products to avoid infringing.
In the event of a successful claim of infringement against us and our
failure or inability to license the infringed technology, our business and
operating results would be significantly harmed.
We could be subject to product liability claims if our customers'
information or content is damaged through the use of our products.
If software errors or design defects in our products cause damage to
customers' data and our agreements do not protect us from related product
liability claims, our business, financial condition and operating results may be
materially adversely affected. Errors, bugs or viruses may result in the loss of
market acceptance or the loss of customer data. Our agreements with customers
that attempt to limit our exposure to product liability claims may not be
enforceable in jurisdictions where we operate.
We may be unable to retain our current key personnel and attract
additional qualified personnel to operate and expand our business.
Our success depends largely on the skills, experience and performance of
the members of our senior management and other key personnel, such as Mahmood
Panjwani, our president and chief executive officer, and Rafiq Mohammadi, our
chief technology officer. We may not be successful in attracting, assimilating
or retaining qualified personnel in the future. None of our senior management or
other key personnel is bound by an employment agreement. If we lose one or more
of these key employees, our business and operating results could be seriously
harmed. In addition, our future success will depend largely on our ability to
continue attracting and retaining highly skilled personnel. Like other
high-technology companies, we face intense competition for qualified personnel.
Our total revenues will not increase if we fail to successfully manage
our growth and expansion.
Our historical growth has placed, and any further growth is likely to
continue to place, a significant strain on our limited resources. We have grown
from 29 employees at January 1, 1998 to 119 employees at December 31, 1999. To
be successful, we will need to implement additional management information
systems, improve our operating, administrative, financial and accounting systems
and controls, train new employees and maintain close coordination among our
executive, research and development, accounting, finance, marketing, sales and
operations organizations. Any failure to manage growth effectively could
seriously harm our business and operating results.
As we expand our operations internationally, we will face significant
risks in doing business in foreign
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countries.
A key component to our business strategy is to expand our existing sales
and marketing activities internationally, particularly in Asia, Australia,
Europe, New Zealand and the United Kingdom. If our efforts are successful, we
will be subject to a number of risks associated with international business
activities, including:
- costs of customizing our products for foreign countries,
including localization, translation and conversion to
international and other foreign technology standards;
- compliance with multiple, conflicting and changing governmental
laws and regulations, including changes in regulatory
requirements that may limit our ability to sell our software in
particular countries;
- import and export restrictions, tariffs and greater difficulty
in collecting accounts receivable; and
- foreign currency-related risks if a significant portion of our
revenues become denominated in foreign currencies.
Our failure to successfully address any of these risks will hurt our operations
and may prevent our total revenues from growing.
Future acquisitions may be difficult to integrate, disrupt our business,
dilute stockholder value or divert management attention.
As part of our business strategy, we may find it necessary to acquire
additional businesses, products or technologies that we feel could complement or
expand our business, increase our market coverage, enhance our technical
capabilities or offer other types of growth opportunities. If we identify an
appropriate acquisition candidate, we may not be able to successfully negotiate
the terms of the acquisition, finance the acquisition, or integrate the acquired
business, products or technologies into our existing business and operations.
Furthermore, completing a potential acquisition and integrating an acquired
business will cause significant diversions of management time and other
resources. Since we have never acquired another business, we may experience
unexpected difficulties and obstacles in acquiring and integrating new
operations.
If we consummate a significant acquisition in which the consideration
consists of stock or other securities, your equity could be significantly
diluted. If we were to proceed with a significant acquisition in which the
consideration included cash, we could be required to use a substantial portion
of our available cash to consummate that acquisition. Acquisition financing may
not be available on favorable terms, if at all. In addition, we may be required
to amortize significant amounts of goodwill and other intangible assets in
connection with future acquisitions, which would seriously harm our operating
results.
We may be unable to meet our future capital requirements which would
limit our ability to grow.
We may need to seek additional funding in the future. We do not know if
we will be able to obtain additional financing on favorable terms, if at all. In
addition, if we issue equity securities, stockholders may experience additional
dilution or the new equity securities may have rights, preferences or privileges
senior to those of existing holders of common stock. If we cannot raise funds on
acceptable terms, if and when needed, we may not be able to develop or enhance
our products, take advantage of future opportunities or respond to competitive
pressures or unanticipated requirements, which could seriously harm our
business.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We develop products in the United States and market our products in
North America, and to a lesser extent in Europe and Asia/Pacific regions. As a
result, our financial results could be affected by changes in foreign currency
exchange rates or weak economic conditions in foreign markets. Because
substantially all of our revenues are currently denominated in U.S. dollars, a
strengthening of the dollar could make our products less competitive in
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foreign markets. Our interest income is sensitive to changes in the general
level of U.S. interest rates, particularly since the majority of our investments
are in short-term instruments, including money market funds and commercial
paper, and long-term investments mature between one and two years. Our interest
expense is also sensitive to changes in the general level of U.S. interest rates
because the interest rate charged varies with the prime rate. Due to the nature
of our investments, we believe that there is not a material risk exposure.
ISSUES RELATED TO THE EUROPEAN MONETARY CONVERSION
On January 1, 1999, member states of the European Economic Community, or
the EEC, fixed their currencies to a new currency, the euro. On that day, the
euro became a functional legal currency within these countries. Furthermore,
during the three years beginning on January 1, 1999, business in these EEC
member states will be conducted in both the existing national currency, such as
the Netherlands guilder, French franc or Deutsche mark, and the euro. Companies
operating in or conducting business in EEC member states will need to ensure
that their financial and other software systems are capable of processing
transactions and properly handling the existing currencies, as well as the euro.
We are still assessing the impact that the euro will have on our internal
systems and products. While we believe our enterprise-wide information systems
will be euro-compliant, we have not tested these systems. We have not determined
the costs related to any euro-related problems that may arise in the future.
These problems may materially adversely affect our business, operating results
and financial condition.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and Supplementary Data required by
this Item are set forth at the pages indicated in Item 14(a).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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PART III
The SEC allows us to include information required in this report by
referring to other documents or reports we have already filed or soon will be
filing. This is called "Incorporation by Reference." We intend to file our
definitive Proxy Statement pursuant to Regulation 14A not later than 120 days
after the end of the fiscal year covered by this report, and certain information
therein is incorporated in this report by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table provides information concerning executive officers
of iManage as of December 31, 1999:
NAME AGE POSITION
- ---- --- --------
Mahmood Panjwani............... 41 President, Chief Executive Officer and Chairman of the Board
of Directors
Owen Carton.................... 35 Vice President, Marketing and Strategic Planning
Mark Culhane................... 40 Chief Financial Officer and Secretary
Rafiq Mohammadi................ 39 Chief Technology Officer, Vice President, Engineering and
Director
Shamshad Rashid................ 39 Vice President, Business Development
Philip Uchno................... 44 Vice President, Worldwide Sales
- ----------
Mahmood Panjwani is a co-founder of iManage and has served as our
president, chief executive officer and chairman of our board of directors since
October 1995. In August 1988, Mr. Panjwani founded Q-Image Corporation, a
consulting services company, and served as its president and chairman of the
board of directors until December 1997.
Owen Carton has served as our vice president, marketing and strategic
planning since July 1998. Before joining iManage, from November 1996 to June
1998, Mr. Carton was vice president, marketing at FrontOffice Technologies,
Inc., a messaging and knowledge management software company. From 1993 to 1996,
Mr. Carton was vice president, marketing for Timeline Inc., a financial
analysis, budgeting and reporting systems company. From 1985 to 1993, Mr. Carton
held various senior level product marketing positions for Microsoft Corporation.
Mark Culhane has served as our chief financial officer and secretary
since September 1998. From June 1992 to December 1997, Mr. Culhane held various
positions at SciClone Pharmaceuticals, a publicly-held life science company, his
last position being that of SciClone's chief financial officer, vice president,
finance and administration and secretary from May 1994 through December 1997.
From 1982 to the time that Mr. Culhane joined SciClone, he held various
positions at Price Waterhouse LLP, now known as PricewaterhouseCoopers LLP, most
recently as senior manager. Mr. Culhane is a certified public accountant.
Rafiq Mohammadi is a co-founder of iManage and has served as our chief
technology officer and director since October 1995. Between 1985 and 1995, Mr.
Mohammadi co-founded and served as president of M/H Manage, a company that
developed and distributed software that converted documents between different
platforms and formats.
Shamshad Rashid is a co-founder of iManage and has served as our vice
president, business development since October 1995. Ms. Rashid served as vice
president, operations at Q-Image, and has served as its president since December
1997.
Philip Uchno has served as our vice president, worldwide sales since May
1999. From 1989 to the time he joined iManage, Mr. Uchno was employed by Silicon
Graphics, Inc. where he began as a regional sales manager and then director,
telecommunications marketing. In July 1997, Mr. Uchno became Silicon Graphics'
vice-president, Asia-Pacific field operations and held that position until July
1998 when he was appointed vice president, manufacturing industry marketing.
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The information regarding directors required by this Item is
incorporated by reference from the section entitled "Proposal No. 1 - Election
of Directors" in our definitive Proxy Statement.
The information required by this Item with respect to compliance with
Section 16(a) of the Securities Exchange Act of 1934 is incorporated by
reference to information set forth in the section entitled "Executive
Compensation" in our definitive Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference from
the section entitled "Executive Compensation" in our definitive Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference from
the section entitled "Security Ownership of Certain Beneficial Owners and
Management" in our definitive Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference from
the section entitled "Certain Transactions" in our definitive Proxy Statement.
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29
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements:
Index to Consolidated PAGE
Financial Statements NUMBER
--------------------- ------
Report of Independent Accountants....................................... 30
Consolidated Balance Sheets as of December 31, 1998 and 1999............ 31
Consolidated Statements of Operations and Other Comprehensive
Loss for the years ended December 31, 1997, 1998 and 1999............ 32
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1997, 1998 and 1999..................................... 33
Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1998 and 1999.................................................. 34
Notes to Consolidated Financial Statements.............................. 35
2. Financial Statement Schedule:
See Exhibit 27.1 filed as part of this report.
All other schedules are omitted because they are not required or
the required information is shown in the financial statements or notes thereto.
3. Exhibits:
See Index to Exhibits on page 50 hereof. The exhibits listed in
the accompanying Index to Exhibits are filed as part of this report.
(b) Reports on Form 8-K:
None.
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30
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of iManage, Inc.
In our opinion, the consolidated financial statements listed in the
index appearing under Item 14(a)(1) on page 29 present fairly, in all material
respects, the financial position of iManage, Inc. and its subsidiary at December
31, 1998 and 1999, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1999 in conformity with
accounting principles generally accepted in the United States. In addition, in
our opinion, the financial statement schedule listed in the index appearing
under Item 14(a)(2) on page 29 presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements and financial
statement schedule are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
San Jose, California
January 19, 2000
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31
IMANAGE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31,
-------------------------
1998 1999
-------- --------
ASSETS
Current assets:
Cash and cash equivalents $ 7,617 $ 47,985
Short-term investments -- 3,028
Trade accounts receivable, net of allowance for doubtful accounts
of $175 in 1998 and $135 in 1999 4,194 5,704
Other current assets 443 831
-------- --------
Total current assets 12,254 57,548
Property and equipment, net 483 1,913
Long-term investments -- 3,223
Other assets 758 1,237
-------- --------
Total assets $ 13,495 $ 63,921
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 595 $ 1,627
Accrued liabilities 2,190 2,398
Equipment line of credit, current portion -- 612
Deferred revenue 3,350 9,068
-------- --------
Total current liabilities 6,135 13,705
Equipment line of credit, less current portion -- 1,388
-------- --------
Total liabilities 6,135 15,093
-------- --------
Commitments
Stockholders' Equity:
Preferred stock; $0.001 par value; authorized: 8,154 shares in
1998 and 2,000 shares in 1999; issued and outstanding: 8,033
shares in 1998 and no shares in 1999 8 --
Common stock, $0.001 par value; authorized: 20,000 shares in
1998 and 100,000 shares in 1999; issued and outstanding: 8,198
shares in 1998 and 21,916 shares in 1999 7 22
Additional paid-in capital 15,679 63,863
Deferred stock-based compensation (770) (4,046)
Notes receivable for common stock (372) (1,002)
Accumulated other comprehensive loss -- (42)
Accumulated deficit (7,192) (9,967)
-------- --------
Total stockholders' equity 7,360 48,828
-------- --------
Total liabilities and stockholders' equity $ 13,495 $ 63,921
======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
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32
IMANAGE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE LOSS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31,
------------------------------------------
1997 1998 1999
-------- -------- --------
Revenues:
Licenses $ 1,172 $ 6,509 $ 14,257
Support and services 358 1,232 4,313
------- -------- --------
Total revenues 1,530 7,741 18,570
------- -------- --------
Cost of revenues:
Licenses 136 414 773
Support and services 163 1,213 2,732
------- -------- --------
Total cost of revenues 299 1,627 3,505
------- -------- --------
Gross profit 1,231 6,114 15,065
------- -------- --------
Operating expenses:
Sales and marketing 1,120 4,393 8,530
Research and development 935 2,351 4,180
General and administrative 706 1,295 2,227
Stock-based compensation 2,079 1,054 3,589
------- -------- --------
Total operating expenses 4,840 9,093 18,526
------- -------- --------
Loss from operations (3,609) (2,979) (3,461)
Interest income 22 153 813
Interest expense (9) (14) (95)
------- -------- --------
Loss before provision for income taxes (3,596) (2,840) (2,743)
Provision for income taxes -- -- 32
------- -------- --------
Net loss $ (3,596) $ (2,840) $ (2,775)
Other comprehensive loss:
Unrealized loss on investments -- -- (42)
------- -------- --------
Comprehensive loss $ (3,596) $ (2,840) $ (2,817)
======= ======== ========
Net loss per share -- basic and diluted $ (0.57) $ (0.38) $ (0.28)
======= ======== ========
Shares used in net loss per share -- basic and
diluted 6,292 7,455 9,988
======= ======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
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33
IMANAGE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
PREFERRED STOCK COMMON STOCK
-------------------------- --------------------------
PAR VALUE AND PAR VALUE
CAPITAL IN AND CAPITAL
EXCESS IN EXCESS
SHARES OF PAR SHARES OF PAR
-------- --------------- -------- -------------
Balances, December 31, 1996 886 $ 624 6,291 $ 222
Issuance of Series A preferred stock,
net of issuance costs of $17 1,968 1,379 -- --
Issuance of Series B preferred stock,
net of issuance costs of $11 1,274 1,989 -- --
Exercise of common stock options -- -- 225 45
Options issued in exchange for services -- -- -- 47
Deferred stock-based compensation -- -- -- 2,368
Amortization of deferred stock-based compensation -- -- -- --
Deferred non-employee stock-based compensation -- -- -- 146
Amortization of non-employee stock-based
compensation -- -- -- --
Net loss -- -- -- --
------ ------- ------ --------
Balances, December 31, 1997 4,128 3,992 6,516 2,828
Issuance of Series B Preferred Stock,
net of issuance costs of $17 1,926 3,007 -- --
Issuance of Series C preferred stock,
net of issuance costs of $4 1,879 3,943 -- --
Issuance of Series C preferred stock to prepay rent 100 210 -- --
Exercise of common stock options -- -- 1,682 372
Options issued in exchange for services -- -- -- 89
Deferred stock-based compensation -- -- -- 1,204
Amortization of deferred stock-based compensation -- -- -- --
Deferred non-employee stock-based compensation -- -- -- 49
Amortization of non-employee stock-based
compensation -- -- -- --
Net loss -- -- -- --
------ ------- ------ --------
Balances, December 31, 1998 8,033 11,152 8,198 4,542
Exercise of common stock options -- -- 1,712 917
Options issued in exchange for services -- -- -- 208
Deferred stock-based compensation -- -- -- 6,612
Amortization of deferred stock-based compensation -- -- -- --
Deferred non-employee stock-based compensation -- -- -- 47
Amortization of non-employee stock-based
compensation -- -- -- --
Purchase of treasury stock -- -- (167) (750)
Conversion of preferred to common upon initial
public offering (8,033) (11,152) 8,033 11,152
Stock issued on initial public offering, including
treasury stock, net of expenses -- -- 4,140 41,157
Other comprehensive loss -- -- -- --
Net loss -- -- -- --
------ ------- ------ --------
Balances, December 31, 1999 -- $ -- 21,916 $ 63,885
====== ======= ====== ========
ACCUMULATED
OTHER
DEFERRED COMPRE-
STOCK-BASED NOTES RECEIVABLE HENSIVE ACCUMULATED
COMPENSATION FOR COMMON STOCK LOSS DEFICIT TOTAL
------------ ---------------- ----------- ----------- ---------
Balances, December 31, 1996 $ -- $ -- $ -- $ (756) $ 90
Issuance of Series A preferred stock,
net of issuance costs of $17 -- -- -- -- 1,379
Issuance of Series B preferred stock,
net of issuance costs of $11 -- -- -- -- 1,989
Exercise of common stock options -- -- -- -- 45
Options issued in exchange for services -- -- -- -- 47
Deferred stock-based compensation (2,368) -- -- -- --
Amortization of deferred stock-based compensation 1,951 -- -- -- 1,951
Deferred non-employee stock-based compensation (146) -- -- -- --
Amortization of non-employee stock-based
compensation 81 -- -- -- 81
Net loss -- -- -- (3,596) (3,596)
-------- -------- -------- -------- --------
Balances, December 31, 1997 (482) -- -- (4,352) 1,986
Issuance of Series B Preferred Stock,
net of issuance costs of $17 -- -- -- -- 3,007
Issuance of Series C preferred stock,
net of issuance costs of $4 -- -- -- -- 3,943
Issuance of Series C preferred stock to prepay rent -- -- -- -- 210
Exercise of common stock options -- (372) -- -- --
Options issued in exchange for services -- -- -- -- 89
Deferred stock-based compensation (1,204) -- -- -- --
Amortization of deferred stock-based compensation 866 -- -- -- 866
Deferred non-employee stock-based compensation (49) -- -- -- --
Amortization of non-employee stock-based
compensation 99 -- -- -- 99
Net loss -- -- -- (2,840) (2,840)
-------- -------- -------- -------- --------
Balances, December 31, 1998 (770) (372) -- (7,192) 7,360
Exercise of common stock options -- (630) -- -- 287
Options issued in exchange for services -- -- -- -- 208
Deferred stock-based compensation (6,612) -- -- -- --
Amortization of deferred stock-based compensation 3,355 -- -- -- 3,355
Deferred non-employee stock-based compensation (47) -- -- -- --
Amortization of non-employee stock-based
compensation 28 -- -- -- 28
Purchase of treasury stock -- -- -- -- (750)
Conversion of preferred to common upon initial
public offering -- -- -- -- --
Stock issued on initial public offering, including
treasury stock, net of expenses -- -- -- -- 41,157
Other comprehensive loss -- -- (42) -- (42)
Net loss -- -- -- (2,775) (2,775)
-------- -------- -------- -------- --------
Balances, December 31, 1999 $ (4,046) $ (1,002) $ (42) $ (9,967) $ 48,828
======== ======== ======== ======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
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IMANAGE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEARS ENDED DECEMBER 31,
------------------------------------------
1997 1998 1999
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (3,596) $ (2,840) $ (2,775)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization 61 313 545
Amortization of prepaid rent -- 12 216
Amortization of deferred stock-based compensation 2,032 965 3,383
Stock issued for services 47 89 208
Provision for doubtful accounts 65 100 40
Changes in operating assets and liabilities:
Trade accounts receivable (1,170) (3,195) (1,550)
Other current assets -- -- (604)
Other assets (99) (1,021) (479)
Accounts payable 6 407 1,032
Accrued liabilities 284 1,868 208
Deferred revenue 589 2,680 5,718
-------- -------- --------
Net cash provided by (used in) operating activities (1,781) (622) 5,942
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (192) (431) (1,975)
Purchases of investments -- -- (6,293)
-------- -------- --------
Net cash used in investing activities (192) (431) (8,268)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of advances and loans from stockholders (10) (69) --
Proceeds from equipment line of credit -- -- 2,000
Purchases of treasury stock -- -- (750)
Issuance of common stock, net 45 -- 41,444
Issuance of preferred stock, net 3,368 6,950 --
-------- -------- --------
Net cash provided by financing activities 3,403 6,881 42,694
-------- -------- --------
Net increase in cash and cash equivalents 1,430 5,828 40,368
Cash and cash equivalents at beginning of period 359 1,789 7,617
-------- -------- --------
Cash and cash equivalents at end of period $ 1,789 $ 7,617 $ 47,985
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 2 $ 17 $ 96
======== ======== ========
Cash paid for income taxes $ 3 $ 2 $ 111
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF NONCASH FINANCING ACTIVITIES:
Issuance of common stock in exchange for notes receivable $ -- $ 372 $ 630
======== ======== ========
Issuance of Series C preferred stock to prepay rent $ -- $ 210 $ --
======== ======== ========
Deferred stock based compensation $ 2,514 $ 1,253 $ 6,659
======== ======== ========
Conversion of preferred stock to common stock $ -- $ -- $ 11,152
======== ======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
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IMANAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ORGANIZATION AND NATURE OF OPERATIONS
iManage, Inc. (the "Company") supplies e-business content and
collaboration management software that provides organizations with a web-based
unified content platform that enables them to manage, organize and deliver
information in a centralized manner throughout the extended enterprise. The
Company markets and sells its software and services primarily through its direct
sales organization, resellers and system integrators in the United States,
Canada and the United Kindom, and through distributors in Australia and New
Zealand. In 1997, 1998 and 1999, 58.0%, 55.0% and 61.0%, of revenues,
respectively, were through resellers. The Company's license and support and
services revenues to date have substantially been derived from the sale of
iManage's suite of products, including iManage infoCommerce Server, iManage
infoLink, iManage infoLook and iManage infoRite, to customers primarily located
in the United States.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its subsidiary after elimination of intercompany accounts and
transactions. The functional currency of the Company's subsidiary is the U.S.
dollar. All gains and losses arising from the translation into U.S. dollars of
amounts denominated in foreign currencies are included in net loss.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
FINANCIAL INSTRUMENTS
Cash equivalents represent commercial paper, money market funds,
government agencies, cash and time deposits with original or remaining
maturities at the date of purchase of three months or less. The carrying amounts
reported for cash and cash equivalents are considered to approximate fair values
based upon the short maturities of those financial instruments.
The Company's investments comprise commercial paper and corporate debt
obligations and are accounted for as available for sale. Investments with
maturities of less than one year are classified as short-term investments and
investments with maturities greater than one year are classified as long-term
investments. Realized gains and losses are calculated using the specific
identification method. There were no realized gains and losses in 1997, 1998 or
1999. Unrealized gains and losses are included as a separate component of other
comprehensive income and stockholders' equity. See "Balance Sheet Accounts" for
the fair value of the Company's short-term and long-term investments.
The carrying amounts of certain of the Company's other financial
instruments including accounts receivable, accounts payable and accrued
liabilities approximate fair value due to their short maturities. The carrying
amounts of notes payable under the equipment line of credit approximates fair
value based on the terms of similar borrowing arrangements available to the
Company.
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CERTAIN RISKS AND CONCENTRATIONS
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and cash equivalents,
short-term investments, accounts receivable and long-term investments. The
Company maintains substantially all of its cash and cash equivalent balances and
short- and long-term investments with two major financial institutions domiciled
in the United States. The Company performs ongoing credit evaluations of its
customers, generally does not require collateral of its customers and maintains
allowances for potential credit losses.
Two different customers accounted for 33.0% of trade accounts receivable
at December 31, 1998. Additionally, 84.0%, 89.0% and 93.3% of the Company's
revenues for 1997, 1998 and 1999, respectively, were derived from law firms.
The Company relies on software licensed from third parties, including
software that is integrated with internally developed software and used in the
Company's products to perform key functions. The functionality of the Company's
products, therefore, depends on its ability to integrate these third party
technologies into its products.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated using the
straight-line method over estimated useful lives of three years. Depreciation
for leasehold improvements is recorded using the straight-line method over the
lesser of the estimated useful lives of the assets or the lease term, generally
three years. Upon sale or retirement of assets, cost and related accumulated
depreciation are removed from the balance sheet and the resulting gain or loss
is reflected in operations.
LONG-LIVED ASSETS
The Company reviews property and equipment for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability is measured by comparison of its carrying
amount to future net cash flows the assets are expected to generate. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the
projected discounted future cash flows arising from the asset.
SOFTWARE DEVELOPMENT COSTS
Costs related to research and development of new software products are
charged to research and development expenses as incurred. Software development
costs are capitalized beginning when a product's technological feasibility has
been established, which to date has been when the Company has a working model of
the software, and ending, when a product is available for general release to
customers. Substantially all development costs are incurred prior to
establishing a working model. As a result, the Company has not capitalized any
software development costs since such costs have not been significant.
REVENUE RECOGNITION
The Company's revenues are derived from two sources as follows: (i)
software license revenue, derived primarily from product sales on a per server
and per user basis, including software modules, to end users, resellers, systems
integrators and distributors and (ii) support and services revenue, derived
primarily from providing customer support and software updates and training and
consulting services to end users. The Company adopted the provisions of
Statement of Position 97-2, or SOP 97-2, "Software Revenue Recognition," as
amended by Statement of Position 98-4, "Deferral of the Effective Date of
Certain Provisions of SOP 97-2," effective January 1, 1998. SOP 97-2 supersedes
Statement of Position 91-1, "Software Revenue Recognition," and delineates the
accounting for software license and support and services revenues. Under SOP
97-2, the Company recognizes license revenues upon shipment of a product master,
which allows the customer to make the number of copies specified in the contract
if a signed contract exists, the fee is fixed and determinable, collection of
resulting receivables is probable and product returns can be reasonably
estimated and, if applicable, acceptance criteria have been met. During the
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37
fourth quarter of 1999, the Company implemented a subscription licensing model
for a newly released product whereby the customer licenses the product for one
year to 18 months under an arrangement that includes customer support and
software updates during the term of the license. Revenues associated with this
software product and related services are recognized ratably over the applicable
subscription license period. Provisions for estimated warranty costs and sales
returns are recorded at the time of shipment.
For contracts with multiple obligations (e.g. deliverable and
undeliverable products, support and other services), the Company allocates
revenues to the undelivered element of the contract based on objective evidence
of its fair value. This objective evidence is the sales price of the element
when sold separately by the Company or the renewal rate specified in the
arrangement for licensing arrangements with terms of one year to 18 months that
include customer support and software updates. The Company generally does not
allow the right of return but has accepted returns in isolated instances when
resellers, system integrators and distributors have incorrectly ordered product.
The Company recognizes revenues allocated to undelivered products when the
criteria for license revenues set forth above are met. The Company recognizes
support and services revenues, including amounts allocated from contracts with
multiple obligations and for ongoing customer support, ratably over the period
of the support contract. The Company's support and service arrangements entitle
customers to telephone support and unspecified upgrades and enhancements.
Payments for support and services are generally made in advance and are
non-refundable. For revenues allocated to training and consulting services or
derived from the separate sales of these services, the Company recognizes
revenues as the related services are performed.
Through 1997, the Company recognized license revenues upon shipment if
remaining obligations were insignificant, collection of the resulting receivable
was probable and if applicable, acceptance criteria were met. Provisions for
estimated warranty costs, estimated sales returns and insignificant vendor
obligations were recorded at the time products were shipped. Service and support
revenues, including revenues allocated from contracts including software
licenses, were recognized ratably over the period of the service and support
agreements. Training and consulting revenues were recognized as the related
services were performed.
As of December 31, 1998 and 1999, deferred revenue included advance
payments received for support and services and license revenues received or due
under the terms of the contracts for which customer acceptance had not been
received or vendor specific objective evidence was not available for elements of
the contracts.
INCOME TAXES
Income taxes are accounted for using the liability method under which
deferred tax assets and liabilities are determined based on differences between
the financial statement and tax bases of assets and liabilities using enacted
tax rates in effect for the period in which the differences are expected to
affect taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized.
STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation using the intrinsic
value method prescribed by Accounting Principles Board Opinion No. 25 or APB 25,
"Accounting for Stock Issued to Employees" and has elected to adopt the
disclosure-only provisions of Statement of Financial Accounting Standards No.
123, or SFAS 123, "Accounting for Stock-Based Compensation."
ADVERTISING
The Company expenses advertising costs as incurred. During 1997, 1998
and 1999, the Company incurred $88,000, $286,000 and $540,000, respectively, of
advertising cost.
SEGMENTS
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 131, or SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information." The Company operates in one
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38
disclosable segment, using one measurement of profitability for its business.
Although the Company has sales outside North America, such sales are not
significant. All long-lived assets are maintained in the United States.
COMPREHENSIVE LOSS
Comprehensive income is defined as the change in equity of a business
enterprise during a period from transactions and other events and circumstances
from non-owner sources.
INTERNAL USE SOFTWARE COSTS
Effective January 1, 1999, the Company adopted Statement of Position
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." Through December 31, 1999, the Company capitalized all required
costs under the provisions of this standard.
START-UP COSTS
Effective January 1, 1999, the Company adopted the provisions of
Statement of Position 98-5, or SOP 98-5, "Reporting on the Costs of Start-Up
Activities." The adoption of SOP 98-5 had no impact on the Company's financial
statements as the Company has expensed all costs of start-up activities and
organizational costs as incurred.
NET LOSS PER SHARE
Basic net loss per share is computed based on the weighted average
number of shares outstanding during the period. Diluted net loss per share is
also computed based on the weighted average number of shares outstanding during
the period. Diluted net loss per share does not include the weighted average
effect of dilutive potential common shares including convertible preferred
stock, options to purchase common stock and common stock subject to repurchase
in any period presented because the effect is antidilutive.
The following table presents information necessary to reconcile basic
and diluted net loss per common and common equivalent share (in thousands):
1997 1998 1999
------- ------- -------
Net loss $(3,596) $(2,840) $(2,775)
Shares used in net loss per share -- basic and diluted 6,292 7,455 9,988
------- ------- -------
Net loss per share -- basic and diluted $ (0.57) $ (0.38) $ (0.28)
======= ======= =======
Anti-Dilutive Securities:
Convertible preferred stock 4,128 8,033 --
Options to purchase common stock 2,174 1,620 1,567
Common stock subject to repurchase 150 346 697
------- ------- -------
6,452 9,999 2,264
======= ======= =======
RECENT ACCOUNTING PRONOUNCEMENTS
In December 1998, AcSEC released Statement of Position 98-9 or SOP 98-9,
Modification of SOP 97-2, "Software Revenue Recognition." SOP 98-9 amends SOP
97-2 to require that an entity recognize revenue for multiple element
arrangements by means of the "residual method" when (a) there is no
vendor-specific objective evidence ("VSOE") of the fair values of all the
undelivered elements that are not accounted for by means of long-term contract
accounting, (b) VSOE of fair value does not exist for one or more of the
delivered elements, and (c) all revenue recognition criteria of SOP 97-2 (other
than the requirement for VSOE of the fair value of each delivered element) are
satisfied. The provisions of SOP No. 98-9 that extend the deferral of certain
paragraphs of SOP 97-2 became effective December 15, 1998. These paragraphs
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of SOP 97-2 and SOP 98-9 will be effective for transactions that are entered
into in fiscal years beginning after March 15, 1999. Retroactive application is
prohibited. The Company currently anticipates that there will be no significant
impact on the Company's financial position or results of operations for the
implementation of the requirements of SOP 98-9.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, or SFAS 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS 133 establishes new
standards of accounting and reporting for derivative instruments and hedging
activities. SFAS 133 requires that all derivatives be recognized at fair value
in the statement of financial position, and that the corresponding gains or
losses be reported either in the statement of operations or as a component of
comprehensive income, depending on the type of hedging relationship that exists.
In July, 1999, the Financial Accounting Standard Boards issued SFAS No. 137, or
"SFAS 137," "Accounting for Derivative Instruments and Hedging Activities --
Deferral of the Effective Date of SFAS No. 133." SFAS 137 deferred the effective
date of SFAS 133 until the first fiscal quarter beginning after June 15, 2000.
The Company does not currently hold derivative instruments or engage in hedging
activities. The Company currently anticipates that there will be no significant
impact on the Company's financial position or results of operations for the
implementation of the requirements of SFAS No. 133 and SFAS No. 137.
In November 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin 100, or SAB 100, which clarifies the SEC's views on
accounting for and disclosing certain expenses incurred in connection with exit
activities and business combinations. In December 1999, SAB 101 was issued which
summarizes the SEC's views in applying generally accepted accounting principles
to revenue recognition in financial statements. The Company does not expect SAB
100 to have a material effect on its financial position, results of operations
or cash flow. The Company is currently evaluating the impact SAB 101 will have
on its financial position and results of operations.
BALANCE SHEET ACCOUNTS
FINANCIAL INSTRUMENTS
DECEMBER 31,
-------------------------------------------------
1998 1999
--------------------- ---------------------
COST FAIR VALUE COST FAIR VALUE
------- ---------- ------- ----------
(IN THOUSANDS)
CASH AND CASH EQUIVALENTS
Cash $ 57 $ 57 $ 91 $ 91
Time deposits 4,842 4,842 -- --
Money market 2,718 2,718 2,037 2,037
Government agencies -- -- 3,480 3,480
Commercial paper -- -- 42,377 42,377
------- ------- ------- -------
$ 7,617 $ 7,617 $47,985 $47,985
======= ======= ======= =======
INVESTMENTS
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
DECEMBER 31, 1999 COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------
(IN THOUSANDS)
U.S. government agencies $ 1,499 $ $ (5) $ 1,494
Corporate notes and bonds 4,794 (37) 4,757
------- ---- ------- -------
$ 6,293 $ -- $ (42) $ 6,251
======= ==== ======= =======
Reported as:
Short-term investments $ 3,028
Long-term investments 3,223
-------
$ 6,251
=======
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Long-term investments mature one year through two years.
PROPERTY AND EQUIPMENT, NET
DECEMBER 31,
-----------------------
1998 1999
------- -------
(IN THOUSANDS)
Furniture and fixtures $ 198 $ 625
Computer software and equipment 550 1,602
Leasehold improvements -- 496
------- -------
748 2,723
Less accumulated depreciation (265) (810)
------- -------
$ 483 $ 1,913
======= =======
Depreciation expense was $60,000, $185,000 and $545,000 for 1997, 1998
and 1999, respectively.
OTHER ASSETS
DECEMBER 31,
-----------------------
1998 1999
------- -------
(IN THOUSANDS)
Technology licenses $ 725 $ 844
Less accumulated amortization (128) (302)
------- -------
597 542
161 695
------- -------
$ 758 $ 1,237
======= =======
In 1998, the Company entered into technology license agreements
including non-cancelable minimum payments. The present value of payments under
these agreements is recorded as an asset and amortized over the terms of the
agreements (generally three years) as the technological feasibility had been
established for the product, which included the technology. Each of these
license agreements may be renewed only with the other party's written consent.
The loss of, or inability to maintain or obtain licensed software, could result
in shipping delays or reductions. Furthermore, the Company may be forced to
limit the features available in our current or future product offerings. Either
alternative could seriously harm the Company's business and operating results.
ACCRUED LIABILITIES
DECEMBER 31,
--------------------
1998 1999
------ ------
(IN THOUSANDS)
Technology licenses $ 425 $ --
Payroll and related 1,276 1,451
Other 489 947
------ ------
$2,190 $2,398
====== ======
COMMITMENTS
The Company leases its office facilities in San Mateo, California and
Chicago, Illinois under non-cancelable operating leases which expire on March
31, 2003 and April 30, 2009, respectively.
Under the terms of the San Mateo lease, the Company issued 100,000
shares of series C preferred stock in lieu of future rental payments (see
accompanying notes). In addition, the lease has two one-year options to extend
upon six months written notice to the landlord.
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Future minimum payments under the non-cancelable operating leases as of
December 31, 1999 are as follows (in thousands):
YEAR
2000 $ 984
2001 1,140
2002 736
2003 377
2004 263
and thereafter 1,239
------
$4,739
======
Rent expense was $111,000, $216,000 and $684,000 for 1997, 1998 and
1999, respectively. See accompanying notes for sublease income received.
LINE OF CREDIT AGREEMENT
In March 1999, the Company entered into a line of credit agreement with
a bank, comprised of a revolving line of credit and an equipment line of credit.
The line of credit agreement, which is collateralized by substantially all of
the Company's assets, intangible assets and intellectual property, includes
covenant restrictions requiring the Company to maintain certain minimum
financial ratios and profitability levels and limits the Company's ability to
declare and pay dividends. The Company was in compliance with these covenants at
December 31, 1999.
The revolving line of credit provides for borrowings of up to
$5,000,000, which can be used at the discretion of the Company through March 31,
2000. Borrowings are limited to the lesser of 80% of eligible accounts
receivable or $5,000,000, ($3,600,000 was available at December 31, 1999) bear
interest at prime plus 0.25% and are due at March 31, 2000. At December 31,
1999, no amounts have been drawn against this facility.
The equipment line of credit, which bears interest at prime plus 0.50%,
provides for borrowings of up to $2,000,000 to finance the Company's purchases
of property and equipment. At December 31, 1999, the line has been fully drawn.
Principal repayment begins in February 2000 and continues through February 2002
in equal monthly installments of principal and interest.
Principal payments due under the facility as of December 31, 1999 are as
follows (in thousands):
YEAR ENDING DECEMBER 31,
2000 $ 612
2001 666
2002 666
2003 56
------
$2,000
======
STOCKHOLDERS' EQUITY
COMMON STOCK
In November 1998, the Company issued 100,000 shares of preferred stock,
which converted to common stock due to the initial public offering, in
conjunction with an office lease agreement. The Company determined the fair
value of the stock was $210,000, which was the price paid per share by third
party investors for the Series C preferred stock (described below) in November
1998 multiplied by the number of shares issued. This amount was recorded as
prepaid rent and was fully amortized as of December 31, 1999.
At December 31, 1998 and 1999, 346,000 shares and 697,000 shares of
common stock were subject to the Company's right of repurchase at the shares'
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original issuance price, respectively. Weighted average original issuance price
of these shares was $0.20 per share and the Company's right to repurchase these
shares lapses ratably over periods through September 2003.
On November 17, 1999, the Company completed an initial public offering
in which it sold 4.1 million shares of common stock, including 540,000 shares in
connection with the exercise of the underwriters' over-allotment option, at
$11.00 per share. The Company received $41.2 million of cash, net of
underwriting discounts, commissions and other offering costs.
CONVERTIBLE PREFERRED STOCK
In 1996 and 1997, the Company issued 2.9 million shares of Series A
convertible preferred stock at $0.71 per share. In 1997 and 1998, the Company
issued 3.2 million shares of Series B convertible preferred stock at $1.56 per
share. In 1999, the Company issued 2.0 million shares of Series C convertible
preferred stock at $2.10 per share. All outstanding shares of the Company's
convertible preferred stock automatically converted into common stock on a
one-for-one basis upon completion of the Company's initial public offering.
STOCK OPTION PLAN
The Company has reserved 6,000,000 shares of common stock for issuance
under the 1997 Stock Incentive Plan (the "Plan"). Automatic annual increases
occur beginning in 2001 equal to the lesser of (i) 1,200,000 common shares, (ii)
5% of the outstanding common shares of the Company at the last day of the
preceding year, or (iii) a lesser amount as determined by the Board. Under the
Plan, automatic grants for non-employee directors are as follows: (i) initial
grants of options to purchase common shares to vest over three years for any
newly elected directors following the initial public offering and (ii) annual
grants of options to purchase common stock to be granted at the Company's annual
meeting which will vest over one year. Under the Plan, the Board of Directors
issued incentive stock options to employees and nonqualified stock options to
consultants or nonemployee directors of the Company, and stock purchase rights
to employees or nonemployee directors of, or consultants to, the Company.
The Board of Directors has the authority to determine to whom options
will be granted, the number of shares, the term and exercise price. The options
vest and are exercisable at times and increments as specified by the Board of
Directors, and expire ten years from date of grant. Options granted under the
Plan generally vest and become exercisable 25% one year after the date of the
optionholders' date of employment and thereafter ratably over three years.
Activity under the Plan does not include options to purchase 180,000
shares of common stock granted outside the plan in 1998 and is as follows (in
thousands, except per share data):
OUTSTANDING OPTIONS
WEIGHTED
SHARES AVERAGE
AVAILABLE NUMBER EXERCISE EXERCISE
FOR GRANT OF SHARES PRICE PRICE
--------- --------- ------------- --------
Shares reserved at plan inception 3,600 -- -- --
Options granted (2,401) 2,401 $ 0.20 $ 0.20
Options exercised -- (225) 0.20 0.20
Options canceled 2 (2) 0.20 0.20
------ ------
Balances, December 31, 1997 1,201 2,174 0.20 0.20
Additional shares reserved 400 -- -- --
Options granted (967) 967 0.30--0.40 0.32
Options exercised -- (1,502) 0.20 0.20
Options canceled 19 (19) 0.20--0.30 0.28
------ ------
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Balances, December 31, 1998 653 1,620 0.20--0.40 0.27
Additional shares reserved 2,000 -- -- --
Options granted (1,740) 1,740 0.60--33.31 3.63
Options exercised -- (1,712) 0.20--1.65 0.53
Options canceled 81 (81) 0.30--1.80 0.86
------ ------
Balances, December 31, 1999 994 1,567 $0.20--$33.10 $ 3.69
====== ======
The options outstanding and currently exercisable by exercise price at
December 31, 1999 are as follows:
OPTIONS CURRENTLY
OPTIONS OUTSTANDING EXERCISABLE
WEIGHTED
AVERAGE
REMAINING WEIGHTED WEIGHTED
NUMBER OF CONTRACTUAL AVERAGE AVERAGE
EXERCISE SHARES LIFE IN EXERCISE NUMBER EXERCISE
PRICE OUTSTANDING YEARS PRICE EXERCISABLE PRICE
-------------- ----------- ----------- -------- ----------- --------
$0.20 - $1.00 637,000 8.44 $0.39 146,000 $0.27
$1.50 - $2.00 237,000 9.56 $1.77 9,000 $1.80
$4.50 302,000 9.66 $4.50 2,000 $4.50
$9.00 - $10.00 388,000 9.87 $9.46 310,000 $9.56
$33.31 3,000 9.95 $33.31 -- --
--------- -------
1,567,000 467,000
========= =======
At December 31, 1997, 1998 and 1999, options to purchase 1,152,000,
775,000 and 467,000 shares of the Company's common stock, respectively, were
exercisable at weighted average exercise prices of $0.20, 0.24 and $6.46 per
share, respectively.
During 1998, the Company granted options to purchase 180,000 shares of
the Company's common stock at an exercise price of $0.40 per share to an officer
of the Company, which were issued outside the terms of the Plan and were
immediately exercisable. The weighted average fair value of these options was
$1.80 per common stock option. Shares issued upon exercise of these options are
subject to the Company's right of repurchase, which lapse as to 25% of the
shares one year from the date of grant and thereafter ratably over three years.
The options expire ten years from the date of grant. During November 1998 and as
permitted by the option agreement, these options were exercised in exchange for
a full recourse note receivable from the officer totaling $72,000 due November
12, 2002.
In February 1998, two other non-officer employees exercised options
issued under the Plan to purchase 1,500,000 shares of the Company's common stock
at $0.20 per share in exchange for full recourse notes receivable totaling
$300,000 that are payable in equal installments through September 1, 2001. These
notes receivable bear interest at 4.5% to 4.83% per annum.
In March 1999, a non-officer of the Company exercised options to
purchase 172,000 common shares in exchange for a full recourse note receivable
of approximately $34,000, which is due in March 2003 and bears interest at
4.57%.
In April and May 1999, an officer of the Company exercised options to
purchase approximately 178,000 and 127,000 common shares, respectively, in
exchange for two full recourse notes receivable of approximately $53,000 and
$39,000, respectively. These notes receivable are due in March and May 2003 and
bear interest at 4.71% and 4.83%, respectively.
In July 1999, two officers of the Company exercised options to purchase
230,000 and 180,000 shares of common stock, respectively, in exchange for full
recourse notes receivable of approximately $207,000 and $297,000, respectively.
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These notes receivable are due in July 2003 and July 2001 and bear interest at
5.22% and 4.90%, respectively. Additionally, three non-officers exercised
options to purchase common shares in exchange for full recourse notes receivable
totaling approximately $100,000. These notes receivable are due in July through
August 2003 and bear interest at rates ranging between 5.22% and 5.37%.
STOCK-BASED COMPENSATION
The Company has adopted the disclosure only provision of SFAS 123. Had
compensation cost been determined for options issued under the Plan and outside
the Plan based on the fair value of the options at the grant date consistent
with the provisions of SFAS 123, the Company's net loss would have been
increased to the pro forma amounts indicated below (in thousands, except per
share amounts):
1997 1998 1999
------- ------- -------
Net loss:
As reported $(3,596) $(2,840) $(2,775)
======= ======= =======
Pro forma $(3,686) $(2,882) $(3,067)
======= ======= =======
Net loss per share -- basic and diluted as reported $ (0.57) $ (0.38) $ (0.28)
======= ======= =======
Net loss per share -- basic and diluted pro-forma $ (0.59) $ (0.39) $ (0.31)
======= ======= =======
As the provisions of SFAS 123 have only been applied to stock options
granted since the Plan's inception in 1997, the impact of the pro forma stock
compensation cost will likely continue to increase as the vesting period for the
Company's options and the period over which the stock compensation is charged to
expense is generally four to five years.
The estimated weighted average value of options granted during 1997,
1998 and 1999 was $0.05, $0.06 and $1.02 per share, respectively. The value of
each option grant is estimated on the date of grant using the minimum value
method prior to the effective date of the Company's initial public offering and
the Black-Scholes fair value method thereafter, with the following
weighted-average assumptions:
1997 1998 1999
------- ------- -------
Expected life of option 5 years 5 years 5 years
Risk-free interest rate 5.66% 4.96% 5.68%
Dividend yield 0% 0% 0%
Volatility (used in the Black-Scholes model) -- -- 70%
DEFERRED STOCK COMPENSATION
During 1997, 1998 and 1999, the Company issued options to purchase its
common stock to certain employees totaling 2.4 million, 967,000 and 1.7 million
respectively, under the Plan and outside the Plan with weighted average exercise
prices of $0.20, $0.32 and $3.63 per share, respectively, which are below the
deemed fair value of the Company's common stock at the date of grant. The
weighted average deemed fair value of the underlying common stock was $1.26,
$1.47 and $7.02 in 1997, 1998 and 1999, respectively. In accordance with the
requirements of APB 25, the Company has recorded deferred stock based
compensation for the difference between the exercise price of the stock options
and the deemed fair value of the Company's stock at the date of grant. This
deferred compensation is amortized to expense over the period during which the
Company's right to repurchase the stock lapses or options become exercisable,
generally four or five years consistent with the method described in FASB
Interpretation No. 28. At December 31, 1999, the Company had recorded deferred
compensation related to these options in an amount of $10.2 million, of which
$2.0 million, $866,000, and $3.4 million had been amortized to expense during
1997, 1998, and 1999, respectively.
Future compensation expense from options granted through December 31,
1999 is estimated to be $2.5 million, $1.0 million, $399,000, and $57,000 for
the remainder of 2000, 2001, 2002 and 2003, respectively.
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DEFERRED NON-EMPLOYEE STOCK-BASED COMPENSATION
In November 1997, the Company granted 165,000 options to purchase common
stock at an exercise price of $0.20 per share to various non-employee engineers
for consulting services, when the deemed fair market value of the Company's
common stock was $1.26 per share. Approximately 40,000 of these options were
100% vested upon grant and were valued at $47,000 using the Black-Scholes
pricing model with the following assumptions: 10 year term, 55% volatility,
5.73% discount rate and 0% dividend rate. This $47,000 was expensed immediately
as these options related to services provided prior to the grant date. The
remaining options were 50% vested at the grant date with the other 50% vesting
monthly over the next two years. Accordingly, these shares were valued under the
Black-Scholes pricing model with the same assumptions as those above at
$146,000, which was amortized in accordance with the vesting terms. Subsequent
to the initial valuation, these remaining options have been accounted for under
variable accounting, which requires that the fair value of the options be
remeasured at each balance sheet date using the Black-Scholes pricing model. An
additional $11,000 and $4,000 in deferred compensation has been recorded in 1998
and 1999, respectively, related to these options.
In 1998, the Company granted approximately 76,000 options to purchase
common stock at exercise prices ranging between $0.30 and $0.40 per share to
various non-employee engineers for consulting services, when the deemed fair
market value of the Company's common stock ranged from $1.30 to $1.90 per share.
Approximately 51,000 of these options were 100% vested upon grant and were
valued at a total of $89,000 using the Black-Scholes pricing model with the
following assumptions: 5 -- 10 year terms, 55% volatility, 5.73% discount rate
and 0% dividend rate. This $89,000 was expensed immediately as these options
related to services provided prior to the grant date. The remaining options were
50% vested at the grant date with the other 50% vesting monthly over the next
two years. Accordingly, these shares were valued under the Black-Scholes pricing
model with the same assumptions as those above at $39,000, which was amortized
in accordance with the vesting terms. Subsequent to the initial valuation, these
remaining options have been accounted for under variable accounting, which
requires their fair value to be remeasured at each balance sheet date using the
Black-Scholes pricing model. An additional $43,000 in deferred compensation has
been recorded in 1999 related to these options.
During 1999, the Company granted options to purchase common stock at
exercise prices ranging from $0.60 to $1.50 per share to various non-employee
engineers for consulting services, when the deemed fair market value of the
Company's common stock ranged from $4.29 to $7.41 per share. These options were
100% vested upon grant and were valued at a total of $208,000 using the
Black-Scholes pricing model with the following assumptions: 10 year terms, 55%
volatility, 5.73% discount rate and 0% dividend rate. This $208,000 was expensed
immediately as these options related to services provided prior to the grant
date.
EMPLOYEE STOCK PURCHASE PLAN
In November 1999, the Company adopted an Employee Stock Purchase Plan
("ESPP"). Under the terms of the ESPP, the maximum aggregate number of shares of
stock that may be issued under the ESPP is five hundred thousand (500,000),
cumulatively increased on January 1, 2001 and each January 1 thereafter until
and including January 1, 2009 by an amount equal to the lesser of (a) two
percent (2%) of the issued and outstanding shares of stock as of the preceding
December 31, (b) five hundred thousand (500,000) shares, or (c) a lesser amount
of shares determined by the Board. During each six month offering period,
employees can choose to have up to 15% of their annual base earnings withheld to
purchase the Company's common stock. The purchase price of the common stock is
85% of the lesser of the fair value as of the beginning or ending of the
offering period. The first offering period ends July 31, 2000.
OTHER
In November 1999, the Company purchased approximately 167,000 shares of
outstanding common stock from an officer of the Company for approximately
$750,000. These shares were recorded as treasury shares by the Company and
subsequently reissued in the initial public offering.
INCOME TAXES
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The tax effects of temporary differences that give rise to significant
portions of deferred tax assets are as followed (in thousands):
DECEMBER 31,
-----------------------
1998 1999
------- -------
Net operating loss carryforwards $ 991 $ 1,620
Deferred compensation 140 --
Depreciation 64 99
Allowance for doubtful accounts 87 75
Accrued liabilities 265 248
Research and development credit 195 195
------- -------
Total deferred tax assets $ 1,742 $ 2,237
Less valuation allowance (1,742) (2,237)
------- -------
Net deferred tax asset $ -- $ --
======= =======
The valuation allowance increased by $683,000, $1.0 million and $495,000
for 1997, 1998 and 1999, respectively.
Due to uncertainty surrounding the realization of the favorable tax
attributes in future tax returns, the Company has placed a valuation allowance
against its deferred tax assets. At such time as it is determined that it is
more likely than not that the deferred tax assets are realizable, the valuation
allowance will be reduced.
The principal items accounting for the difference between income tax
benefit at the U.S. statutory rate and the provision for income taxes reflected
in the statement of operations are as follows:
1997 1998 1999
---- ---- ----
Federal statutory rate 34% 34% 34%
State taxes 6 5 5
Tax credits 2 5 --
Other -- 4 4
Deferred compensation (22) (12) (44)
Net operating losses and tax credits, not benefited (20) (36) --
--- --- ---
--% --% (1)%
=== === ===
At December 31, 1999, the Company has federal and state net operating
loss carryforwards of approximately $4.1 million and $3.8 million available to
reduce future taxable income. Deferred tax assets and the related valuation
allowance include approximately $2.5 million related to certain U.S. operating
loss carryforwards resulting from the exercise of stock options, the tax benefit
of which, when recognized, will be accounted for as a credit to additional
paid-in capital rather than a reduction of its income tax provision. These
carryforwards expire 2002 to 2018. In addition, the Company has research and
development tax credit carryforwards of approximately $136,000 for federal
income tax purposes and $88,000 for Illinois purposes at December 31, 1999,
which expire in 2012 to 2018.
Pursuant to the provisions of Section 382 of the Internal Revenue Code,
utilization of the NOLs are subject to annual limitations due to a greater than
50% change in the ownership of the Company which occurred during 1997 and 1998.
RELATED PARTY TRANSACTIONS
In 1995 and 1996, the Company borrowed a total of $29,000 from one of
its stockholders for working capital purposes at a 10% interest rate and
received advances from another stockholder totaling $50,000. Such notes and
advances and the related accrued interest were repaid $10,000 in 1997 and
$69,000 in 1998.
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One of the founders and shareholders of the Company is the owner of a
consulting company which subleased space to the Company and provided other
services including accounting and payroll assistance and employee recruitment in
1997, 1998 and 1999. In addition, the Company reimbursed the consulting company
for certain travel expenses and janitorial services incurred on its behalf and
for the use of certain assets in 1997, 1998 and 1999. In 1999, the Company
subleased office space to this consulting company. Additionally, the Company
hired certain of the consulting company's consultants to provide software
development services in 1999.
Amounts included in net loss which were paid, received or due to or from
this related party are as follows (in thousands):
1997 1998 1999
---- ---- ----
Sublease rent expense $ 45 $ 54 $--
Sublease rent income -- -- 85
Consulting and other service expense 284 467 757
At December 31, 1999, the Company has a receivable from this consulting
company of $1,000.
401(k) PLAN
The Company sponsors an employee savings and retirement plan intended to
qualify under section 401(k) of the Internal Revenue Code. Eligible employees,
at least 21 years old and having completed 1 hour of service, may contribute up
to 20% of eligible compensation, subject to annual limitations, and are fully
vested in their own contributions. Beginning in 2000, the Company will make
matching contributions of 25% up to the first 6% of the employees' salary which
is contributed and vests ratably over a four-year period.
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Schedule II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN THOUSANDS)
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COSTS AND END OF
DESCRIPTION PERIOD EXPENSES DEDUCTIONS PERIOD
------------ ---------- ----------- ----------
Allowance for doubtful accounts:
Year Ended December 31, 1997 $ 10 $ 65 $-- $ 75
Year Ended December 31, 1998 75 100 -- 175
Year Ended December 31, 1999 175 40 80 135
Allowance for sales returns:
Year Ended December 31, 1997 -- 40 -- 40
Year Ended December 31, 1998 40 122 87 75
Year Ended December 31, 1999 75 2 -- 77
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the City of Palo
Alto, County of Santa Clara, State of California, on the 22nd day of March,
2000.
iMANAGE, INC.
By: /s/ Mahmood Panjwani
--------------------------------------
Mahmood Panjwani
President, Chief Executive Officer and
Chairman of the Board
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Mahmood Panjwani and Mark Culhane,
and each of them, his true and lawful attorney-in-fact and agent, with full
power of substitution, each with power to act alone, to sign and execute on
behalf of the undersigned any and all amendments to this Report on Form 10-K,
and to perform any acts necessary in order to file the same, with all exhibits
thereto and other documents in connection therewith with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent full power
and authority to do and perform each and every act and thing requested and
necessary to be done in connection therewith, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorney-in-fact and agent, or their or his or her substitutes, shall
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
--------- ----- ----
/s/ MAHMOOD PANJWANI President, Chief Executive March 22, 2000
- --------------------------------- Officer
Mahmood Panjwani and Chairman of the Board
(Principal Executive Officer)
/s/ MARK CULHANE Chief Financial Officer and March 22, 2000
- --------------------------------- Secretary
Mark Culhane (Principal Financial and
Accounting Officer)
/s/ RAFIQ MOHAMMADI* Chief Technology Officer, Vice March 22, 2000
- --------------------------------- President, Engineering and
Rafiq Mohammadi Director
/s/ MARK PERRY* Director March 22, 2000
- ---------------------------------
Mark Perry
/s/ MOEZ VIRANI* Director March 22, 2000
- ---------------------------------
Moez Virani
/s/ DUWAYNE PETERSON* Director March 22, 2000
- ---------------------------------
Duwayne Peterson
*By /s/ MARK CULHANE March 22, 2000
-------------------------
Mark Culhane
Attorney-in-Fact
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iMANAGE, INC.
EXHIBITS
TO
FORM 10-K ANNUAL REPORT
FOR THE YEAR ENDED
DECEMBER 31, 1999
Exhibit
Number Description of Document
- ------- -----------------------
3.1* Restated Certificate of Incorporation of iManage, Inc.
3.2* Amended and Restated Bylaws of iManage, Inc.
3.3 Charter Documents of iManage Limited.
4.1* Rights Agreement dated December 27, 1996, as amended to date.
4.2* Right of First Refusal and Co-Sale Agreement dated December 27, 1996,
as amended to date.
10.1* Form of Indemnification Agreement for directors and executive
officers.
10.2* 1997 Stock Option Plan and forms of Incentive Stock Option Agreement
and Nonstatutory Stock Option Agreement thereunder.
10.3* 1999 Employee Stock Purchase Plan and form of subscription agreement
thereunder.
10.4* Loan and Security Agreement dated March 31, 1999 between Silicon
Valley Bank and the Company, as amended to date.
10.5 Office Lease for 2121 S. El Camino Real, San Mateo, California between
Cornerstone Properties I, LLC and the Company dated November 30, 1998,
as amended to date.
10.6* Office Building Lease for 55 East Monroe Street between TST 55 East
Monroe, LLC and the Company dated January 1999, as amended to date.
10.7* Sublease between the Company and Q-Image Corporation dated December 5,
1998.
24.1 Power of Attorney (see signature page).
27.1 Financial Data Schedule.
- ---------------
* As filed with the Registrant's Registration Statement on Form S-1 (File
No. 333-86353) on September 1, 1999, as amended
50