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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended December 31, 2001
[_] 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: 00025683
MARIMBA, INC.
(Exact name of registrant as specified in its charter)
Delaware 77-0422318
(State of incorporation) (IRS Employer Identification No.)
440 Clyde Avenue, Mountain View, California 94043
(Address of principal executive offices, including ZIP code)
(650) 930-5282
(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, $.0001 par value
(Title of class)
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. [_]
The aggregate market value of the Registrant's common stock, $.0001 par
value, held by non-affiliates of the Registrant on February 28, 2002 was
approximately $53 million. As of February 28, 2002, there were 24,228,892
shares of Registrant's common stock, $.0001 par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's definitive proxy statement (the "Proxy Statement")
to be mailed to stockholders in connection with its 2002 annual meeting of
stockholders scheduled to be held on June 6, 2002 are incorporated by reference
into Part III of this report. Except as expressly incorporated by reference,
the Registrant's Proxy Statement shall not be deemed to be part of this report.
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MARIMBA, INC.
TABLE OF CONTENTS
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............. 11
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters....................................................... 12
Item 6. Selected Consolidated Financial Data............................ 13
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations......................................... 15
Item 7a. Quantitative and Qualitative Disclosures About Market Risk...... 32
Item 8. Consolidated Financial Statements and Supplementary Data........ 33
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosures......................................... 55
PART III
Item 10. Directors and Executive Officers of the Registrant.............. 56
Item 11. Executive Compensation.......................................... 56
Item 12. Security Ownership of Certain Beneficial Owners and Management.. 56
Item 13. Certain Relationships and Related Transactions.................. 56
PART IV
Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K. 56
Signatures................................................................ 57
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PART I
This report contains forward-looking statements that involve risks and
uncertainties. The statements contained in this report that are not purely
historical are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. When used in this report, words such as
"may," "might," "will," "should," "expects," "plans," "anticipates,"
"believes," "estimates," "predicts," "potential", "intend", "continue," and
similar expressions, are intended to identify forward-looking statements. These
forward-looking statements might include, without limitation, projections of
our future financial performance, our anticipated growth and anticipated trends
in our businesses; the features, benefits and advantages of our products; the
development of new products, enhancements or technologies; business and sales
strategies; developments in our target markets; matters relating to
distribution channels, proprietary rights, facilities needs, competition and
litigation; future gross margins and operating expense levels; and capital
needs. These statements reflect the current views of Marimba or its management
with respect to future events and are subject to risks, uncertainties and
assumptions. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, our actual results, performance
or achievements in fiscal 2002 and beyond could differ materially from those
expressed in, or implied by, these forward-looking statements. Factors that
could cause or contribute to material differences include, but are not limited
to, those discussed below in Item 7 under the heading "Other Factors Affecting
Operating Results, Liquidity and Capital Resources" and the risks discussed in
our other filings with the Securities and Exchange Commission. We encourage you
to read that section carefully. You should not regard the inclusion of
forward-looking information as a representation by us or any other person that
the future events, plans or expectations contemplated by us will be achieved.
Marimba undertakes no obligation to release publicly any updates or revisions
to any forward-looking statements that may reflect events or circumstances
occurring after the date of this report.
ITEM 1. BUSINESS
Marimba, Inc. was incorporated in Delaware in February 1996. Marimba is a
leading provider of systems management software built for e-business. We
develop, market and support end-to-end change and configuration management
software solutions. Our Desktop/Mobile Management, Server Management and
Embedded Management product families provide an efficient and reliable way for
enterprises to distribute, update and manage applications and related data to
desktops, laptops, servers and devices. Our products help customers reduce
their total cost of ownership and improve quality of service by streamlining
the distribution and management of software applications and content. Our
customer base spans multiple industry segments including financial services,
healthcare, insurance, manufacturing and telecommunications. We market our
products worldwide through a combination of a direct sales force and resellers.
See "Management Discussion and Analysis of Financial Condition and Results
of Operations" and our "Consolidated Financial Statements and Supplementary
Data," appearing on pages 15 and 33, respectively, for additional financial
information regarding our business.
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Marimba Products
Marimba's change and configuration management products allow companies to
perform policy-based distributions, updates, and repairs of software
applications on desktops, laptops and mobile systems. Additional functionality
includes the ability to collect and track system, hardware and software
configuration data. Our products help IT organizations to provide their
end-user community with higher service levels while reducing the cost of
managing their IT assets. Our bandwidth management, scalability,
personalization and built-in security functionality allow corporations to
leverage the Internet as a key component in reducing the complexity and cost of
distributing, managing and updating their software applications and data on
endpoints that are both inside and outside their corporate firewall. Marimba's
product families include the following:
Desktop/Mobile Management Product Family
Marimba's Desktop/Mobile Management product family is an enterprise-level
change management solution that allows corporations to control their
increasingly dynamic desktop, laptop and mobile applications environment. Our
desktop solution includes the ability to distribute, update and repair software
applications as well as collect hardware and software configuration information
from desktop endpoints.
Server Management Product Family
Marimba's Server Management product family addresses the unique
distribution, installation and configuration requirements presented by large
amounts of server data and complex server-based software applications. Server
Management enables customers to control how, when and where content and
software applications are distributed and activated across large numbers of
servers with heterogeneous Windows NT, Linux, Solaris and other UNIX server
platforms.
Embedded Management Product Family
Marimba's Embedded Management products allow device and software vendors to
transparently deliver software fixes, new features and new services over the
Internet or another network by embedding Marimba management capabilities into
their devices or software applications.
Architecture
The Marimba infrastructure is designed to distribute software and data
efficiently over networks based upon TCP/IP (Transmission Control
Protocol/Internet Protocol), the basic communication protocol of the Internet.
Marimba packages an application as a channel and publishes the application to a
transmitter, which then distributes the channel and subsequent updates across a
network to tuners on client desktop computers, servers and devices.
Channel. A channel is the application and/or related data that is
distributed using Marimba's products. For example, a channel could consist of a
stock-trading application written in Java or a shrink-wrapped application. Each
channel has an associated list of properties that describes its features,
including application type, author, copyright notice, update schedule and entry
point. Marimba's application packager prepares the channel for distribution and
inserts a channel adapter that installs and launches the application in a
platform and application-specific manner. The application packager is designed
to accommodate a range of application types, shrink-wrapped applications, Java
applets, Visual Basic, C and C++ applications, and applications packaged using
the Windows Installer format (MSI). Using OSD (Open Software Description), a
format for describing the way software programs relate to one another, the
application packager creates a description of the installation process which is
based on XML (eXtensible Markup Language), a format commonly used on the
Internet to describe data and documents. Using this technology, both
shrink-wrapped and custom applications can be installed, updated and repaired
without requiring changes to the original application and without relying on
the original application installer. After the application is packaged as a
channel, it is published to the transmitter for distribution over the network.
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Transmitter. The transmitter is the server component of the Marimba
infrastructure. It distributes channels and subsequent updates to the tuner,
the Marimba client. The tuner and transmitter communicate using the Marimba
protocol, which is designed to minimize bandwidth requirements for updates over
HTTP (Hyper-Text Transfer Protocol), the protocol used to distribute web pages.
The Marimba protocol uses compression technology that compresses data and
applications, and differential updating which identifies changes in code and
updates only the changed portion. All updates are transactional, interruptible
and atomic, which means that channels on the tuner are always in a functional
state even if the most recent update failed or was interrupted. In addition,
interrupted downloads can be restarted automatically at the point of
interruption. Marimba's technology provides functionality to identify and
verify each channel resource and installed applications. Additional transmitter
features include synchronization, replication, personalization, client
feedback, bandwidth management and policy administration. Transmitter mirrors
provide synchronization of server content. Mirroring provides the ability to
replicate transmitter content so that an external load balancer can be used to
distribute service requests to multiple transmitters. Marimba products
implement user authentication and access control using passwords or client-side
certificates and by leveraging directory services, including LDAP (Lightweight
Directory Access Protocol), or Microsoft's Active Directory.
Tuner. The tuner is the client component of the Marimba infrastructure. The
tuner subscribes to channels located on the transmitter and downloads and
installs updates of each channel. Once received from a transmitter, channels
are stored locally on the tuner, making the downloaded channel resources
instantly accessible regardless of whether the user is connected to the
network. The tuner is typically configured to run in the background and can
manage multiple channels simultaneously without end-user interaction, updating
them as necessary to present the user with the most recent version. In
addition, the tuner's user interface can be customized to include the brand,
logo and other look and feel elements desired by the customer. The tuner
provides a set of features for modem support, bandwidth management, security
controls, certificate management, update scheduling and support for corporate
network security mechanisms.
Using the Marimba protocol, tuners can be redirected automatically to
additional transmitters, serving as repeaters, in order to reduce the load on
the main transmitter and to make more efficient use of available bandwidth. By
adding repeaters, it is possible to provide faster download times and to
service thousands of simultaneous downloads. Repeaters can be added and removed
dynamically without disrupting the overall service, allowing for a high level
of scalability, improved service quality and availability. In addition, the use
of a caching proxy server, which stores frequently accessed files on a local
disk, can improve the efficiency of downloads through corporate network
security barriers in an intranet or network into the enterprise.
In addition to the basic Marimba components, a variety of features are
available for reporting deployment status, asset tracking, license compliance,
policy-based distribution, staging updates, application signing, resource
planning, certificate management, license installation, transmitter
administration, tuner administration and deploying tuner updates. All of these
features are distributed as Marimba channels, and together with the basic
infrastructure components, provide the necessary functionality to distribute,
manage and maintain mission critical software applications and services. Where
appropriate, we provide programming interfaces and software development kits
for customized extensions, allowing customers to tailor the Marimba solution to
their specific needs or to embed Marimba technology into existing applications.
Technology
We believe that our investment in engineering has resulted in technology
that provides us with a strategic advantage. Marimba products have been built
from the ground up to provide a robust Internet-based solution. Marimba
provides a lightweight, cross-platform and easy-to-deploy solution that helps
solve complex software application deployment and management problems which we
believe are not addressed adequately by existing client-server distribution and
management tools.
Marimba products make extensive use of a broad range of technologies,
including Java, TCP/IP, HTTP, LDAP, XML, SSL (Secure Socket Layer, a protocol
for secure transmissions over the Internet), and various
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digital security technologies. In addition, we have worked with partners to
submit several standards proposals to the World Wide Web Consortium, including
the OSD format jointly developed with Microsoft and the DRP protocol (HTTP
Distribution and Replication Protocol), a protocol which efficiently
distributes data on the Internet, jointly developed with Netscape, Sun
Microsystems, Novell, Inc. and Excite@Home.
The Marimba protocol is designed to distribute applications and data to
multiple intermittently connected endpoints. The protocol is layered on HTTP so
that it can be used from within most secure corporate intranets and networks by
tunneling through an HTTP proxy server. When the user is online, the tuner
initiates update requests either when requested by the user or automatically
using a predefined update schedule. When an update request is received, the
transmitter quickly determines which files in the channel have changed, and if
a change has occurred, Marimba's technology determines exactly which bytes
within those files have changed. The tuner then downloads the resulting
changes, and compression algorithms are used to further reduce the total
download overhead. The efficiency of the Marimba protocol makes it possible to
distribute frequent updates to large software applications and application
files with relatively low bandwidth utilization. The protocol also provides
features for user authentication, personalization of content, the distribution
of events and data from the tuner to the transmitter and the automatic
redirection of requests to repeaters.
Our OSD-based software installation technology provides a cross-platform
framework for installing, updating and verifying applications in an operating
system specific manner. Applications are delivered with an OSD file that
defines the platforms on which the software runs, as well as the libraries and
resources it requires. In addition, the OSD file contains platform specific
extensions that define the exact installation requirements. For example, on the
Microsoft Windows platform, the OSD file describes exactly which files need to
be installed, which libraries that contain application code need to be updated,
which registry entries need to be set and which system scripts need to be
updated. Once an application is installed, the OSD file can be used to upgrade,
verify and uninstall the application. OSD files are generated automatically
using an installation capture technology, which eliminates the use of the
original application installer. Information technology managers can customize
the OSD script to control the level of user involvement in the resulting
installation.
We have invested significant resources in developing Marimba's security
implementation. Marimba's security features currently include end user
authentication, digital certificates to verify application authenticity, and
SSL communications to help protect the integrity and confidentiality of data
transmitted via Marimba's products. We offer a standard 56-bit encryption
implementation for international use and a 128-bit encryption implementation
for domestic use. Our security implementation represents a combination of
software written by us and security code licensed to us by various vendors,
including encryption modules licensed from RSA Data Security and an SSL
implementation from Netscape. To further enhance the breadth of our security
offerings, we also licensed a Java-based security implementation. In addition,
we have an arrangement with VeriSign for the provision of digital certificates
specifically for Marimba products. See "Other Factors Affecting Operating
Results, Liquidity and Capital Resources--We Rely on Third-Party Software and
Applications."
Most of our products are implemented using Sun Microsystems' Java
programming language. As a result, we believe that our products are portable,
easily reconfigured and efficient. The use of Java has proven to be an
advantage in developing portable components without significantly increasing
the engineering overhead as additional platform support is required. We believe
that our use of and expertise in Java provides us a competitive advantage. See
"Other Factors Affecting Operating Results, Liquidity and Capital Resources--We
Rely on Third-Party Software and Applications."
Sales and Marketing
We market our products worldwide through a combination of a direct sales
force and resellers. Our worldwide direct sales and marketing organizations
consisted of 110 individuals as of December 31, 2001, 34 of whom were located
at our Mountain View, California headquarters, 65 in regional offices located
in California, Georgia, Illinois, Kentucky, Minnesota, New York and Texas, and
11 in our European office in the United Kingdom.
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Our sales and marketing approaches are designed to help customers understand
both the business and technical benefits of the products. We have built an
experienced consulting services organization to facilitate the successful
deployment of our products. Over the long term, we intend to expand our
consulting services organization and direct sales force and to establish
additional sales offices domestically and internationally. Competition for
sales personnel is intense, and we may not be able to attract, assimilate or
retain additional qualified personnel in the future. See "Other Factors
Affecting Operating Results, Liquidity and Capital Resources--We Need to
Develop and Expand Our Sales and Marketing Capabilities."
We conduct a variety of marketing programs worldwide to educate our target
market, create awareness and generate leads for our products. To achieve these
goals, we have engaged in marketing activities including telemarketing, direct
mailings, print and online advertising campaigns and trade shows. These
programs are targeted at key information technology and financial executives as
well as general managers of business units. In addition, we conduct
comprehensive public relations programs that include establishing and
maintaining relationships with key trade press, business press and industry
analysts.
Markets outside the United States are currently served by our direct sales
office in the United Kingdom, as well as independent resellers covering
countries in Europe and Asia. Our resellers generally purchase our products at
discounts from end-user list prices. Sales under these agreements are generally
denominated in U.S. dollars. For the years ended December 31, 2001, 2000 and
1999, export sales to customers outside of the United States were approximately
8%, 5% and 8% of total revenue. Foreign sales are subject to risks, including
exchange rate fluctuations, internal monetary conditions, tariffs, import
licenses, trade policies and domestic and foreign tax policies. For more
information on risks related to foreign sales, see "Other Factors Affecting
Operating Results, Liquidity and Capital Resources--Expanding Internationally
Is Expensive, We May Receive No Benefit from Our Expansion and Our
International Operations are Subject to Governmental Regulation."
We may not be able to enter into agreements or establish relationships with
desired resellers on a timely basis, or at all, and our resellers may not
devote adequate resources to selling our products. For more information on
risks related to third-party distribution channels, see "Other Factors
Affecting Operating Results, Liquidity and Capital Resources--We Need to
Develop Third-Party Distribution Relationships."
Customer Support and Training
Our customer support and training organization consisted of 23 employees as
of December 31, 2001. We offer several annual support and maintenance programs
for our products. Our support and maintenance programs are generally priced as
a percentage of the software license fees and provide customers with telephone
and email support, as well as software updates to the products.
Customers that license our products typically engage our professional
services organizations to assist with support, training and consulting. We
believe that growth in our product sales depends upon our ability to provide
our customers with these services and to educate third-party resellers and
consultants on how to provide similar services. As a result, over the long
term, we plan to increase the number of our service personnel to meet these
needs as we see an increase in product revenues.
Research and Development
As of December 31, 2001, our engineering organization was comprised of 52
employees responsible for product development, quality assurance,
documentation, internationalization and porting. Our product development
organization is divided into three development groups organized along our
product lines, namely: Desktop/Mobile Management, Server Management and
Embedded Management.
. The Desktop/Mobile Management development group is focused on developing
enterprise-level change management products that address application and
content distribution, deployment and management.
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. The Server Management development group is focused on developing products
that provide centralized control of efficient content replication across
the intranet, extranet and Internet for server-based computing
environments.
. The Embedded Management development group is focused on developing
products that allow device vendors, enterprise and consumer software
developers to implement a scalable update and management infrastructure
that can help improve quality of service to their customers and reduce
distribution and support costs.
These three development groups are supported by the quality assurance,
documentation, internationalization and porting groups. The quality assurance
group works with development to identify software defects through the entire
development cycle. The documentation group is responsible for end user,
administrator and developer documentation for our products. The
internationalization group is responsible for making sure our products are
internationalized. The porting group is responsible for any changes to the
source code required to allow a product to run on platforms other than the two
core development platforms of Sun Microsystems Solaris and Microsoft Windows
operating system.
We believe that our software development team and core technologies
represent a significant competitive advantage. A technically skilled, quality
oriented and highly productive development organization will be a key component
to the success of new product offerings. We must continue to attract and retain
highly qualified employees to further our research and development efforts. Our
business and operating results could be seriously harmed if we are not able to
hire and retain a strong development team.
Research and development expenses were $10.5 million in 2001, $11.1 million
in 2000 and $8.5 million in 1999. To date, substantially all software
development costs have been expensed as incurred and developed by our
employees. We believe that significant investments in research and development
are required to remain competitive. As a consequence, we intend to continue to
increase the absolute amount of our research and development expenditures in
the future. For more information on our research and development expenses, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
We cannot be sure that existing and future development efforts will be
completed within our anticipated schedules or that they will have the features
to make them successful. Future delays or problems in the development of
product enhancements or new products could seriously harm our business and
operating results. Furthermore, despite our testing and testing by our
customers, errors might be found in our products, which we are unable to
successfully correct in a timely and cost-effective manner. If we are not able
to develop new products, enhancements to existing products or correct errors on
a timely and cost-effective basis, or if these new products or enhancements do
not have the features necessary to make them successful, our business and
operating results will be seriously harmed. Furthermore, we currently license
externally developed technology and will continue to evaluate externally
developed technologies for integration into our product lines. Our business and
operating results would be harmed if we are not able to continue licensing such
third party products on commercially reasonable terms. See "Other Factors
Affecting Operating Results, Liquidity and Capital Resources--We need to Grow
Our Server Management and Embedded Management Product Revenues and Develop New
Product and Services," "--We Rely on Third Party Software and Applications,"
"--We Must Respond to Rapid Technological Change and Evolving Industry
Standards."
Competition
The market for our products is intensely competitive and rapidly evolving.
We expect competition to continue to increase both from existing competitors
and new market entrants. We believe that our ability to compete depends on many
factors both within and beyond our control, including:
. the ease of use, performance, features, price and reliability of our
solutions as compared to those of our competitors;
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. the timing and market acceptance of new solutions and enhancements to
existing solutions developed by us and our competitors;
. the quality of our customer service; and
. the effectiveness of our sales and marketing efforts.
We encounter competition from a number of different sources, including
sellers of enterprise-wide management systems, which include electronic
software distribution, including Tivoli and Computer Associates; companies such
as Novadigm, and XcelleNet, which market products that support the distribution
of software applications; and desktop software management suites, such as
Microsoft's SMS and Intel's LanDesk.
In addition, we compete with various methods of application and content
distribution and management, including thin client systems and the web browser,
and with application server vendors and others, which have introduced software
distribution capabilities into their products.
Most of our competitors have longer operating histories and significantly
greater financial, technical, marketing and other resources than we do. Many of
these companies have broader relationships with existing and potential
customers that could be leveraged, to effectively compete against us. These
companies also have more established customer support and professional services
organizations than we do. In addition, these companies may adopt aggressive
pricing policies. As a result, we may not be able to maintain a competitive
position against current or future competitors.
As new participants enter the market, we will face increased competition.
Potential competitors may bundle their products or incorporate additional
components into existing products in a manner that discourages users from
purchasing our products. Furthermore, it is possible that new competitors or
alliances among competitors may emerge and rapidly acquire significant market
share. Our competitors may be able to respond more quickly to new or emerging
technologies and changes in customer requirements than we can.
Proprietary Rights and Licensing
Our success and ability to compete are dependent on our ability to develop
and maintain the proprietary aspects of our technology. We rely on a
combination of patent, trademark, trade secret, and copyright law and
contractual restrictions to protect the proprietary aspects of our technology.
We presently have two U.S. patents and six U.S. patent applications pending,
and several trademark registrations and applications in the United States and
some foreign countries. Our patent and trademark applications might not result
in the issuance of any additional valid patents or trademarks.
We seek to protect our source code for our software, documentation and other
written materials under trade secret and copyright laws. We license our
software under license agreements, which impose restrictions on the licensee's
ability to utilize the software. Finally, we seek to avoid disclosure of our
intellectual property by requiring employees and consultants with access to our
proprietary information to execute confidentiality agreements with us and by
restricting access to our source code. Despite our efforts to protect our
proprietary rights, unauthorized parties may attempt to copy aspects of our
products or to obtain and use information that we regard as proprietary. In
addition, we sell our products internationally. The laws of many countries do
not protect our proprietary rights to as great an extent as do the laws of the
United States.
Litigation may be necessary in the future to enforce our intellectual
property rights, to protect our trade secrets, and to determine the validity
and scope of the proprietary rights of others. Such litigation could result in
substantial costs and diversion of resources, could seriously harm our business
and operating results and there can be no assurance that the outcome of this
litigation will be favorable to us.
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Our success and ability to compete are also dependent on our ability to
operate without infringing upon the proprietary rights of others. 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.
Employees
At December 31, 2001, we had a total of 212 employees, 201 of whom were
based in the United States and 11 of whom were based in the United Kingdom. Of
the total, 52 were in research and development, 110 were engaged in sales and
marketing, 23 were engaged in customer support and training, and 27 were in
administration and finance. None of our employees are subject to a collective
bargaining agreement, and we believe that our relations with our employees are
good.
ITEM 2. PROPERTIES
Our principal administrative, sales, marketing, and research and development
facility occupies approximately 47,500 square feet in Mountain View, California
under a lease which expires in April 2005. We also lease regional offices
located in California, Georgia, Illinois, Minnesota, New York, Texas and
Kentucky and a European office in the United Kingdom. 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 as needed.
ITEM 3. LEGAL PROCEEDINGS
Securities Litigation
Beginning in April 2001, a number of substantially identical class action
complaints alleging violations of the federal securities laws were filed in the
United States District Court for the Southern District of New York naming
Marimba, Inc., certain of its officers and directors, and certain underwriters
of the company's initial public offering (Morgan Stanley & Co., Inc., Credit
Suisse First Boston Corp. and Bear Stearns & Co., Inc.) as defendants. The
complaints have since been consolidated into a single action. The complaints
allege, among other things, that the underwriters of our initial public
offering violated the securities laws by failing to disclose certain alleged
compensation arrangements (such as undisclosed commissions or stock
stabilization practices) in the offering's registration statement. Marimba and
certain of its officers and directors are named in the complaints pursuant to
Section 11 of the Securities Act of 1933, and one of such complaints includes a
claim against the Company and such officers and directors under Section 10(b)
of the Securities Exchange Act of 1934. Similar complaints have been filed
against over 300 other issuers that have had initial public offerings since
1998 and all such actions have been included in a single coordinated
proceeding. Marimba intends to defend these actions vigorously. However, due to
the inherent uncertainties of litigation, we cannot accurately predict the
ultimate outcome of the litigation. Any unfavorable outcome of this litigation
could have an adverse impact on our business, financial condition and results
of operations.
Beck Systems, Inc. vs. Marimba Software, Inc.
On July 6, 2001, Beck Systems, Inc. filed a complaint against Marimba, Inc.
and two of its customers in the United States District Court for the Northern
District of Illinois (Beck Systems, Inc. v. Marimba, Inc. et al., Civil Action
No. 01 C 5207), alleging infringement of two patents held by Beck Systems. Beck
Systems alleges that Marimba's infringement relates to the manufacture and
marketing of Marimba's desktop/mobile management and server management
products. On August 29, 2001, Marimba filed its answer to Beck Systems'
complaint, denying any liability to Beck Systems, asserting various affirmative
defenses, and seeking the court's determination that the patents in suit are
not infringed, are invalid, and/or are unenforceable. Marimba further requested
the court for an award of attorneys' fees, costs and expenses. The parties are
currently engaged in discovery for this suit, and a trial date has not been
set. Marimba intends to defend this suit vigorously. However, due to the
inherent uncertainties of litigation, we cannot accurately predict the ultimate
outcome of the litigation,
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particularly in cases such as this where sophisticated factual issues must be
assessed and complex technical issues must be decided. Any unfavorable outcome
of this litigation could have an adverse impact on our business, financial
condition and results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of the fiscal year ended December 31, 2001.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Price Range of Common Stock
Our common stock is traded publicly on The Nasdaq National Market under the
symbol "MRBA." The following table sets forth for the periods indicated the
highest and lowest sales prices of the common stock during each quarter of the
last two fiscal years:
High Low
------ ------
Fiscal 2001:
Fourth Quarter...................... $ 3.50 $ 1.15
Third Quarter....................... $ 3.67 $ 1.29
Second Quarter...................... $ 3.95 $ 1.87
First Quarter....................... $ 8.31 $ 3.03
Fiscal 2000:
Fourth Quarter...................... $12.69 $ 3.13
Third Quarter....................... $27.00 $11.88
Second Quarter...................... $43.50 $11.50
First Quarter....................... $68.88 $37.50
On February 28, 2002, the closing price of our common stock on The Nasdaq
National Market was $3.00 per share. As of February 28, 2002, there were
approximately 285 holders of record (not including beneficial holders of our
common stock held in street name) of our common stock.
Dividend Policy
We did not declare nor pay any cash dividends on our capital stock since
inception and do not expect to do so in the foreseeable future. We anticipate
that all future earnings, if any, generated from operations will be retained by
us to develop and expand our business. Any future determination with respect to
the payment of dividends will be at the discretion of our Board of Directors
and will depend upon, among other things, our operating results, financial
condition and capital requirements, the terms of then-existing indebtedness,
general business conditions and such other factors as the Board of Directors
deems relevant.
12
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following is a summary of our selected consolidated financial data as of
and for the five years ended December 31, 2001. This data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our Consolidated Financial Statements and the
Notes thereto appearing elsewhere in this report.
Year Ended December 31,
---------------------------------------------
2001 2000 1999 1998 1997
-------- -------- ------- ------- -------
(in thousands, except per share data)
Consolidated Statements of Operations Data:
Revenues:
License................................................ $ 27,801 $ 31,329 $23,637 $13,901 $ 5,011
Service................................................ 16,229 12,718 7,776 3,184 552
-------- -------- ------- ------- -------
Total revenues..................................... 44,030 44,047 31,413 17,085 5,563
Cost of revenues:
License................................................ 595 681 402 75 13
Service................................................ 5,940 4,256 3,036 1,964 621
-------- -------- ------- ------- -------
Total cost of revenues............................. 6,535 4,937 3,438 2,039 634
-------- -------- ------- ------- -------
Gross profit.............................................. 37,495 39,110 27,975 15,046 4,929
Operating expenses:
Research and development............................... 10,508 11,114 8,497 5,773 2,410
Sales and marketing.................................... 31,965 27,758 19,625 12,371 8,054
General and administrative............................. 7,934 12,570 5,066 2,779 2,367
Restructuring costs.................................... 789 -- -- -- --
Amortization of deferred compensation.................. 2,226 1,702 1,410 251 --
-------- -------- ------- ------- -------
Total operating expenses........................... 53,422 53,144 34,598 21,174 12,831
-------- -------- ------- ------- -------
Loss from operations...................................... (15,927) (14,034) (6,623) (6,128) (7,902)
Interest income and other expenses, net................... 2,774 4,541 2,506 488 338
-------- -------- ------- ------- -------
Loss before income taxes.................................. (13,153) (9,493) (4,117) (5,640) (7,564)
Provision for income taxes................................ 199 179 97 41 154
-------- -------- ------- ------- -------
Net loss.................................................. $(13,352) $ (9,672) $(4,214) $(5,681) $(7,718)
======== ======== ======= ======= =======
Basic and diluted net loss per share...................... $ (.56) $ (.42) $ (.22) $ (.59) $ (1.57)
======== ======== ======= ======= =======
Weighted-average shares of common stock outstanding used
in computing basic and diluted net loss per share....... 23,943 23,200 19,029 9,606 4,912
======== ======== ======= ======= =======
December 31,
-----------------------------------------------
2001 2000 1999 1998 1997
(in thousands)
Consolidated Balance Sheet Data:
Cash, cash equivalents and short-term investments......... $ 42,390 $ 64,529 $ 65,023 $ 7,825 $14,402
Working capital........................................... 35,001 58,176 55,707 2,912 8,036
Total assets.............................................. 73,851 87,408 90,487 14,862 21,898
Long-term obligations..................................... 265 153 48 747 211
Redeemable convertible preferred stock.................... -- -- -- 18,953 18,953
Accumulated deficit....................................... (41,882) (28,530) (18,858) (14,644) (8,963)
Total stockholders' equity (net capital deficiency)....... 57,242 66,803 72,639 (13,743) (8,471)
13
Supplementary Data
Quarterly Consolidated Financial Information (unaudited)
(In thousands, except per share data)
The following table presents our operating results for each of the eight
quarters in the two-year period ended December 31, 2001. The information for
each of these quarters is unaudited but has been prepared on the same basis as
the audited consolidated financial statements appearing elsewhere in this
report. In the opinion of management, all necessary adjustments (consisting of
normal recurring adjustments) have been included to present fairly the
unaudited quarterly results when read in conjunction with the audited
consolidated financial statements of our company and the notes thereto
appearing in this report. These operating results are not necessarily
indicative of the results for any future periods.
Q1 Q2 Q3 Q4
2001 ------- ------- ------- -------
Revenues................................................... $11,004 $12,185 $10,006 $10,835
Gross profit............................................... 9,016 10,586 8,538 9,355
Net loss................................................... (4,816) (3,716) (3,274) (1,546)
Net loss per basic and diluted common share................ $ (.20) $ (.16) $ (.14) $ (.06)
Q1 Q2 Q3 Q4
2000 ------- ------- ------- -------
Revenues................................................... $10,567 $12,116 $10,108 $11,256
Gross profit............................................... 9,544 10,999 8,928 9,639
Net income (loss).......................................... (659) 1,252 (7,986) (2,279)
Net income (loss) per basic and diluted common share....... $ (.03) $ .05 $ (.34) $ (.10)
14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Consolidated Financial Data" and our Consolidated Financial
Statements and Notes thereto included elsewhere in this report. This report
contains forward-looking statements that involve risks and uncertainties. Our
actual results may differ materially from the results discussed in such
forward-looking statements. For a more complete understanding of our financial
condition and results of operations, and some of the risks that could affect
future results, see "Other Factors Affecting Operating Results, Liquidity and
Capital Resources" which begins on page 22 and the risks discussed in our most
recent filings with the Securities and Exchange Commission.
Overview
Marimba is a leading provider of systems management software built for
e-business. We develop, market and support end-to-end change and configuration
management software solutions. Our Desktop/Mobile Management, Server Management
and Embedded Management product families provide an efficient and reliable way
for enterprises to distribute, update and manage applications and related data
to desktops, laptops, servers and devices. Our products help customers reduce
their total cost of ownership and improve quality of service by streamlining
the distribution and management of applications and content.
In January 1997, we released our first version of the Desktop/Mobile
Management products and since that time have continued to develop and market
that product line and enhance the core Desktop/Mobile Management infrastructure
with additional functionality and complimentary add-on products. In the first
half of 2000, Marimba introduced a new product line called Server Management.
The Server Management products are designed to address many of the server
management challenges inherent in thin client and Web commerce computing
environments today. Additionally, Marimba offers Embedded Management products
that allow device and software vendors to deliver software fixes, new features
and services by embedding Marimba software management capabilities into their
devices or applications. During 2001, revenues from the Desktop/Mobile, Server
and Embedded Management products lines accounted for 76%, 18% and 6% of total
license revenues, respectively.
Revenues to date have been derived primarily from the license of our
products and to a lesser extent from support and maintenance, consulting and
training services. Customers who license our products generally purchase
maintenance contracts, typically covering a 12-month period. Additionally,
customers may purchase consulting services, which are customarily billed at a
fixed daily rate plus out-of-pocket expenses. We also offer training services
that are billed on a per student or per class session basis.
Since inception, we have made substantial investments in sales, marketing
and research and development to expand and enhance our product lines and
increase the market awareness of Marimba and our products. We have incurred
significant losses since inception and had an accumulated deficit of
approximately $41.9 million at December 31, 2001. We believe that our success
depends on further increasing our customer base and on growth in our market
overall. Accordingly, over the long term, we intend to continue to invest
heavily in sales, marketing and research and development.
In view of the rapidly changing nature of our business and our limited
operating history, we believe that period-to-period comparisons of revenues and
operating results are not necessarily meaningful and should not be relied upon
as indications of future performance, growth or financial results.
Additionally, we do not believe that historical growth rates or profitability
are necessarily sustainable, nor indicative of future growth or financial
results.
15
Critical Accounting Policies and Estimates
General. Discussion and analysis of Marimba's financial condition and
results of operations are based upon our consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these financial statements
requires us to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and related disclosure of
contingent liabilities. On an on-going basis, we evaluate these estimates and
judgments, including those related to revenue recognition, bad debts and
litigation. Estimates are based on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ materially from these estimates under different
assumptions or conditions.
We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our consolidated
financial statements.
Revenue Recognition. Our revenue recognition policy is significant because
our revenue is a key component of our results of operations. We follow detailed
guidelines discussed below and in note 1 to the consolidated financial
statements in measuring revenue; however, certain judgments affect the
application of our revenue policy. We are required to exercise judgment in
evaluating the risk of concession when our payment terms are outside of our
customary credit period of 90 days or less. Assessment of collectibility is
particularly critical in determining whether or not revenue should be
recognized in the current difficult economic environment. We also record small
provisions for estimated sales returns and warranty claims in the same period
as the related revenues are recorded. These estimates are based on historical
sales returns and warranty claims, which have been relatively limited. If the
historical data we use to calculate these estimates does not properly reflect
future returns or warranty claims, revenue could be overstated or cost of
revenues could be understated.
Marimba derives its revenues primarily from two sources (i) license
revenues, which consist of software license fees and (ii) service revenues,
which are comprised of fees for maintenance and support, consulting and
training. Maintenance and support agreements provide technical support and the
right to unspecified upgrades on an if-and-when available basis. Significant
management judgments and estimates must be made and used in connection with the
revenue recognized in any accounting period. Material differences may result in
the amount and timing of our revenue for any period if our management made
different judgments or utilized different estimates.
Marimba applies the provisions of Statement of Position 97-2 ("SOP 97-2"),
"Software Revenue Recognition", as amended by Statement of Position 98-9 ("SOP
98-9"), "Modification of SOP 97-2, Software Revenue Recognition, With Respect
to Certain Transactions" to all transactions involving the sale of software
products.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" ("SAB 101"), which provides guidance on the recognition,
presentation and disclosure of revenue in financial statements filed with the
SEC. SAB 101 outlines the basic criteria that must be met to recognize revenue
and provides guidance for disclosures related to revenue recognition policies.
Marimba applied the provisions of SAB 101 to all revenue transactions for
fiscal 2001 and 2000. SAB 101 has not had a material impact on our results of
operations, financial position or cash flows.
In accordance with the provisions of Accounting Principles Board Opinion No.
29 ("APB 29"), "Accounting for Nonmonetary Transactions", Marimba records
barter transactions at the fair value of the goods or services provided or
received, whichever is more readily determinable in the circumstances. To date,
revenues from barter transactions have been insignificant and represent less
than 1% of net revenues.
16
Marimba licenses software products to corporate customers, OEM partners and
resellers on a perpetual basis or a term basis. We recognize revenue from the
sale of software licenses when persuasive evidence of an arrangement exists,
the product has been delivered, the fee is fixed and determinable and
collection of the resulting receivable is probable.
Marimba uses either a definitive customer purchase order or signed license
agreement as evidence of an arrangement. License revenues in arrangements with
customers who are not the ultimate users, primarily resellers, are not
recognized until the software is sold through to the end-user. Advance payments
from resellers for guaranteed minimum commitments are deferred until the
software is sold through to the end-user or upon expiration of the specified
commitment time period if the minimum commitments have not been met. Delivery
generally occurs when license keys and passwords have been made available to
the customer through e-mail.
At the time of the transaction, Marimba assesses whether the fee associated
with revenue transactions is fixed and determinable and whether or not
collection is probable. We assess whether the fee is fixed and determinable
based on the payment terms associated with the transaction and our history with
the customer or with similar customers. If a significant portion of a fee is
due after our normal payment terms, we generally account for the fee as not
being fixed and determinable. In these cases, Marimba recognizes revenue as the
fees become due.
Marimba assesses the probability of collection based on a number of factors,
including past transaction history with the customer and the credit-worthiness
of the customer. We do not request collateral from our customers. If we
determine that collection of a fee is not probable, we defer the fee and
recognize revenue at the time collection becomes probable, which is generally
upon receipt of cash.
For arrangements with multiple obligations (for example, undelivered
maintenance and support), Marimba allocates revenue to each component of the
arrangement using the residual value method based on vendor specific objective
evidence of the fair value of the undelivered elements, which is specific to
Marimba. This means that we defer revenue from the arrangement fee equivalent
to the fair value of the undelivered elements. Fair values for the ongoing
maintenance and support obligations for our licenses are based upon separate
sales of renewals to other customers. Fair value of services, such as training
or consulting, is based upon separate sales by us of these services to other
customers. Most of our arrangements involve multiple obligations.
Marimba's arrangements do not generally include acceptance clauses. However,
if an arrangement includes an acceptance provision, acceptance occurs upon the
earlier of receipt of a written customer acceptance or expiration of the
acceptance period.
Marimba recognizes revenues for maintenance and support ratably over the
maintenance term, which is generally one year. Consulting services are
generally billed based on daily rates and training services are generally
billed on per student or per class session basis. We generally recognize
consulting and training revenues as the services are performed.
Allowance for Doubtful Accounts. The allowance for doubtful accounts is
established through a charge to the general and administrative expenses. This
allowance is for estimated losses resulting from the inability of our customers
to make required payments. It is a significant estimate and is regularly
evaluated by us for adequacy by taking into consideration factors such as past
experience, credit quality of the customer base, age of the receivable
balances, both individually and in aggregate, and current economic conditions
that may affect a customer's ability to pay or suggest that a particular market
sector is more prone to liquidity issues. The use of different estimates or
assumptions could produce different allowance balances. If the financial
condition of our customers were to deteriorate, subsequent to the date of our
arrangements with them, this could result in an impairment of their ability to
make payments and additional allowances would be required.
Litigation Contingencies. We are a party to the two legal actions described
in note 8 to the consolidated financial statements. We are required to assess
the likelihood of any adverse judgments or outcomes to these
17
matters, as well as potential ranges of probable losses. Marimba has not
provided for reserves for potential losses in these actions due to an adverse
judgment or outcome, because such events have not been determined to be
probable nor can the contingent losses be reasonably estimated at this time.
The requirement to provide for future reserves, if any, may change due to new
developments in each action.
Results of Operations
The following table presents selected financial data for the periods
indicated as a percentage of total revenues.
Year Ended December 31,
---------------------
2001 2000 1999
----- ----- -----
Consolidated Statement of Operations Data:
Revenues:
License................................ 63.1% 71.1% 75.2%
Service................................ 36.9 28.9 24.8
----- ----- -----
Total revenues..................... 100.0 100.0 100.0
Cost of revenues:
License................................ 1.4 1.5 1.3
Service................................ 13.4 9.7 9.7
----- ----- -----
Total cost of revenues............. 14.8 11.2 11.0
----- ----- -----
Gross margin.............................. 85.2 88.8 89.0
Operating expenses:
Research and development............... 23.9 25.2 27.0
Sales and marketing.................... 72.5 63.0 62.5
General and administrative............. 18.0 28.5 16.1
Restructuring costs.................... 1.8 -- --
Amortization of deferred compensation.. 5.1 3.9 4.5
----- ----- -----
Total operating expenses........... 121.3 120.6 110.1
----- ----- -----
Loss from operations...................... (36.1) (31.8) (21.1)
Interest income and other expenses, net... 6.3 10.3 8.0
----- ----- -----
Loss before income taxes.................. (29.8) (21.5) (13.1)
Provision for income taxes................ (0.5) (0.4) (0.3)
----- ----- -----
Net loss.................................. (30.3)% (21.9)% (13.4)%
===== ===== =====
18
Years Ended December 31, 2001, 2000 and 1999
Revenues
Total revenues in 2001 were $44.0 million, comparable to revenues in 2000 of
$44.0 million. Total revenues increased $12.6 million, or 40%, to $44.0 million
in 2000 from $31.4 million in 1999.
License Revenues. To date, the majority of Marimba's license revenues have
been derived from sales of our Desktop/Mobile management products. For the year
ended December 31, 2001, revenues from sales of our Desktop/Mobile, Server and
Embedded Management products lines accounted for approximately 76%, 18% and 6%
of total license revenues, respectively. For the year ended December 31, 2000,
revenues from sales of our Desktop/Mobile and Server Management products
represented 88% and 12% of license revenues. Prior to 2001, Marimba did not
separately account for its Embedded Management products and sales of these
products were included with the Desktop/Mobile Management product line. License
revenues decreased $3.5 million, or 11%, to $27.8 million in 2001 from $31.3
million in 2000. License revenues increased $7.7 million, or 33%, to
$31.3 million in 2000 from $23.6 million in 1999.
The decrease in license revenues from 2000 to 2001 was due primarily to
delays in anticipated customer purchases and generally longer sales cycles
caused by the general economic weakness in the Unites States and Europe. Also,
Marimba experienced generally low productivity from its sales force and
replaced many unproductive sales personnel. We typically expect that a new
sales representative will take six months or longer to achieve full
productivity. License revenues increased from 1999 to 2000 due primarily to
increased product licenses sold, reflecting higher customer demand for our
Desktop/Mobile Management products, the introduction of our Server Management
products in 2000, additional sales to existing customers and overall growth of
our sales organization.
Service Revenues. Service revenues include maintenance and support,
consulting and training. Service revenues increased $3.5 million, or 28%, to
$16.2 million in 2001 from $12.7 million in 2000. Service revenues in 2000
increased $4.9 million, or 64%, to 12.7 million from $7.8 million in 1999.
As a percentage of total revenues, service revenues were 37%, 29% and 25% of
total revenues in 2001, 2000 and 1999, respectively. The increase in service
revenues was due primarily to increased revenues from maintenance and support
contracts as Marimba's customer base has grown. Also, we increased our
consulting revenues as customers elected to utilize our consulting organization
to assist them with their implementation of our products.
Costs of Revenues
Cost of License Revenues. Cost of license revenues consists primarily of
the cost of third-party software products that were either integrated into our
products or resold by us. Cost of license revenues was $595,000, $681,000 and
$402,000 in 2001, 2000 and 1999, respectively. The higher cost of license
revenues in 2000 was due primarily to the costs of a third-party product resold
by us. We expect cost of license revenues to remain a relatively small
percentage of total revenues.
Cost of Service Revenues. Cost of service revenues includes:
. salaries and related expenses of our customer service and training
organizations;
. salaries and related expenses of our consultants for billable consulting
engagements;
. cost of third parties contracted to provide consulting services to our
customers; and
. an allocation of our facilities and depreciation expenses.
19
Cost of service revenues was $5.9 million, $4.3 million and $3.0 million in
2001, 2000 and 1999, representing 37%, 33% and 39% of service revenue,
respectively. The year-to-year increases in absolute dollars of cost of service
revenues were due primarily to growth in our customer service and training
organizations, higher fees paid to a third party that provides after hours
telephone support for our customers and an increase in the costs of providing
our consulting services, commensurate with the increase in consulting revenues.
Operating Expenses
Research and Development. Research and development expenses, which are
expensed as incurred, consist primarily of:
. salaries and related costs of our engineering organization;
. fees paid to third-party consultants, if any; and
. an allocation of our facilities and depreciation expenses.
We believe that our success is dependent in large part on continued
enhancement of our current products and the ability to develop new,
technologically advanced products that meet the sophisticated requirements of
our customers. Research and development expenses were $10.5 million, $11.1
million and $8.5 million in 2001, 2000 and 1999, respectively. The decrease in
research and development expenses from 2000 to 2001 was due primarily to our
decision to focus on Marimba's core change and configuration management
products and the resulting discontinuance of Marimba.net, a distribution
hosting service and closure of our Houston, Texas development facility that had
previously been dedicated to performance management product development. The
increase in research and development expenses from 1999 to 2000 was due
primarily to an increase in engineering personnel and related costs. Over the
long term, we plan to increase our investment in research and development.
Sales and Marketing. Sales and marketing expenses consist primarily of:
. salaries and related costs of our sales and marketing organizations;
. sales commissions;
. costs of our marketing programs, including public relations, advertising,
trade shows, collateral sales materials, and seminars;
. rent and facilities costs associated with our regional and international
sales offices; and
. an allocation of our facilities and depreciation expenses.
Sales and marketing expenses were $32.0 million, $27.8 million and $19.6
million in 2001, 2000 and 1999, respectively. From 2000 to 2001, sales and
marketing expenses increased due primarily to growth in the sales organization
during the first half of 2001, expansion of Marimba's sales operation in the
United Kingdom and telemarketing expenses. From 1999 to 2000, the increase in
sales and marketing expenses was due primarily to growth in our sales and
marketing organizations, an increase in sales commissions as sales increased,
an increase in the number of regional sales offices and expansion of our
marketing programs. Over the long term, we expect to continue to invest heavily
in sales and marketing in order to grow revenues and expand our brand awareness.
General and Administrative. General and administrative expenses consist
primarily of:
. costs of our finance, human resources and legal services organizations;
. insurance premiums and third-party legal and other professional services
fees; and
. an allocation of our facilities and depreciation expenses.
20
General and administrative expenses were $7.9 million, $12.6 million and
$5.1 million in 2001, 2000 and 1999, respectively. General and administrative
expenses were higher in 2000 compared with 1999 and 2001 due primarily to the
settlement of our patent disputes with Novadigm, Inc., and an increase in the
bad debt provision of approximately $2.1 million. Both of these events occurred
in 2000. Additionally, from 1999 through 2001 we have grown our administrative
organizations in support of the overall company growth.
Restructuring. In April 2001, Marimba announced a restructuring plan. The
plan involved the elimination of approximately 20% of the workforce, or 60
employees and independent contractors. Marimba recorded a charge of $789,000 in
the second quarter of 2001 related to the restructuring plan, which consisted
of personnel costs of $583,000, facilities and equipment impairments of
$136,000 and other costs of $70,000.
Deferred Compensation. We recorded deferred compensation of approximately
$1.4 million in 1998, representing the difference between the exercise prices
of options granted to acquire 940,500 shares of common stock during 1998 and
the deemed fair value for financial reporting purposes of our common stock on
the grant dates. In addition, we granted options to purchase common stock in
April 1999 for which we recorded additional deferred compensation of
approximately $2.0 million. In 2000, we recorded deferred compensation of
approximately $1.9 million (net of reduction of $703,000 due to cancelled
shares), which represented the intrinsic value of certain stock awards. In
2001, we recorded deferred compensation of approximately $1.9 million (net of
reduction of $564,000 due to cancelled shares), which represented the intrinsic
value of certain stock awards. Deferred compensation is being amortized over
the vesting periods of the options and stock on a graded vesting method. We
amortized deferred compensation expense of $2.2 million, $1.7 million and
$1.4 million for fiscal years 2001, 2000 and 1999, respectively. This
compensation expense relates to options awarded to individuals in all operating
expense categories. The amortization of deferred compensation, assuming no
further reductions due to cancelled shares, is expected to approximate $1.2
million in 2002 and $301,000 in 2003.
In July 2001, Marimba granted an option to purchase 50,000 shares of common
stock at an exercise price of $2.45 per share to a non-employee in exchange for
consulting services. The option was fully vested at the date of grant and is
exercisable for ten years. We estimated the fair value of the option granted
for services using the Black-Scholes option pricing model with the following
assumptions: risk-free interest rate of 5%, an expected life of 10 years,
dividend yield of zero and volatility of 140%. In connection with this option
to purchase common stock, Marimba recorded a non-cash charge to sales and
marketing expense of $120,000 in 2001.
Interest Income and Other Expenses, Net
Interest income, net, consists primarily of interest earned on our cash,
cash equivalents and investments offset by other miscellaneous expenses.
Interest income, net was $2.8 million, $4.5 million and $2.5 million in 2001,
2000 and 1999, respectively. The decrease in interest income, net, from 2000 to
2001 was due primarily to lower invested cash balances and lower interest
rates. The increase in interest income, net, from 1999 to 2000 was due
primarily to increased invested cash balances from the sale of common stock in
our initial public offering in April 1999.
Provision for Income Taxes
Marimba's provision for income taxes for the years ended December 31, 2001
and 2000, consists of state income and franchise taxes and foreign taxes. For
the year ended December 31, 1999 our provision for income taxes is comprised
entirely of foreign taxes. No provision for Federal taxes has been recorded,
because we have experienced operating losses from inception through 2001.
As of December 31, 2001, we had Federal net operating loss carryforwards of
approximately $35.0 million. We also had a Federal research and development tax
credit carryforward of approximately $1.0 million at that date. The net
operating loss and credit carryforwards will expire at various dates beginning
in 2011 through 2021 if not utilized.
21
Utilization of the net operating losses and credits may be subject to a
substantial annual limitation due to the ownership change limitations contained
in the Internal Revenue Code of 1986 and similar state provisions. The annual
limitation may result in the expiration of the net operating loss and credits
before utilization.
Liquidity and Capital Resources
As of December 31, 2001, our principal sources of liquidity included
approximately $26.1 million of cash and cash equivalents and $16.2 and $18.2
million of short-term and long-term investments in marketable securities,
respectively. In April 1999, we sold shares of our common stock in our initial
public offering, generating net proceeds of approximately $68.1 million after
offering expenses. Net cash used in investing activities for the year ended
December 31, 1999 reflects the investment of approximately $65.9 million of the
net proceeds from our initial public offering in marketable securities.
Proceeds from other issuances of common stock of approximately $1.3 million,
$1.9 million and $2.3 million for the years ended December 31, 2001, 2000 and
1999, respectively, are comprised primarily of employee exercises of stock
options. Net cash used in operating activities for the year ended December 31,
2001 is the result of the net loss for the year and a decrease in deferred
revenue, partially offset by a decrease in accounts receivable and adjustments
for non-cash depreciation and amortization. Net cash used in operating
activities for the year ended December 31, 2000 is primarily the result of the
net loss for the year and an increase in accounts receivable, partially offset
by an increase in deferred revenue.
Marimba's contractual obligations consist of noncancellable operating lease
agreements. As of December 31, 2001, future minimum lease payments under
noncancellable operating leases for the period 2002 through 2005 are expected
to be approximately $6.5 million, as presented in the table below:
Operating
Leases
--------------
(in thousands)
--------------
Year ending December 31:
2002................................. 1,855
2003................................. 1,934
2004................................. 1,960
2005................................. 728
------
Total minimum lease payments..... $6,477
======
We currently anticipate that our current cash, cash equivalents and
investments will be sufficient to meet our anticipated cash needs for working
capital and capital expenditures for at least the next 12 months. Thereafter,
cash generated from operations, if any, may not be sufficient to satisfy our
liquidity requirements. We may therefore need to sell additional equity or
raise funds by other means. Any additional financings, if needed, might not be
available on reasonable terms or at all. Failure to raise capital when needed
could seriously harm our business and operating results. If additional funds
are raised through the issuance of equity securities, the percentage of
ownership of our stockholders would be reduced. Furthermore, these equity
securities might have rights, preferences or privileges senior to our common
stock.
Related Party Transactions
In July 2000, Marimba provided a loan facility of up to $1,000,000 to one of
its executive officers to assist him in paying withholding taxes incurred upon
the purchase of restricted stock. The note bore interest at the rate of 6.6%,
had an outstanding principal amount of $751,093 and became due and payable in
full on October 9, 2001, which was three months from the executive officer's
employment termination date with Marimba on July 9, 2001. No amounts were drawn
in 2000. The outstanding principal amount due under the note was repaid by the
executive officer on October 10, 2001.
In September 2001, Marimba executed a software license agreement in the
amount of $443,000 with a customer, whose chief executive officer is a member
of Marimba's board of directors. As of December 31, 2001, there were no amounts
due.
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Recent Accounting Pronouncements
In May 2000, the Emerging Issues Task Force (EITF) issued EITF Issue No.
00-14 ("EITF 00-14"), "Accounting for Certain Sales Incentives", effective for
periods beginning after December 15, 2001. EITF 00-14 addresses the
recognition, measurement, and income statement classification for sales
incentives that a vendor voluntarily offers to customers (without charge),
which the customer can use in, or exercise as a result of, a single exchange
transaction. Sales incentives that fall within the scope of EITF 00-14 include
offers that a customer can use to receive a reduction in the price of a product
or service at the point of sale. We expect to adopt EITF-00-14 during the first
quarter of fiscal 2002, and we do not believe that it will have a material
effect on our operating results or financial position.
In June 2001, the EITF issued EITF Issue No. 00-25 ("EITF 00-25"), "Vendor
Income Statement Characterization of Consideration Paid to a Reseller of the
Vendor's Products", effective for periods beginning after December 15, 2001.
EITF 00-25 addresses whether consideration from a vendor to a reseller is (a)
an adjustment of the selling prices of the vendor's products and, therefore,
should be deducted from revenue when recognized in the vendor's statement of
operations or (b) a cost incurred by the vendor for assets or services received
from the reseller and, therefore, should be included as a cost or expense when
recognized in the vendor's statement of operations. Upon application of EITF
00-25, financial statements for prior periods presented for comparative
purposes should be reclassified to comply with the income statement display
requirements. We expect to adopt EITF 00-25 during the first quarter of fiscal
2002, and we do not believe that it will have a material effect on our
operating results or financial position.
In September 2001, the EITF issued EITF Issue No. 01-09 ("EITF 01-09"),
"Accounting for Consideration Given by Vendor to a Customer or a Reseller of
the Vendor's Products", which is a codification of EITF 00-14, EITF 00-25 and
EITF 00-22, "Accounting for Points and Certain Other Time-or Volume-Based Sales
Incentive Offers and Offers for Free Products or Services to be Delivered in
the Future". Marimba is currently assessing the impact of the adoption of these
issues on our financial statements.
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 141, Business Combinations
("FAS 141"). FAS 141 establishes new standards for accounting and reporting
business combinations and requires that the purchase method of accounting be
used for all business combinations initiated after June 30, 2001. Use of the
pooling-of-interests method will be prohibited. We expect to adopt this
statement during the first quarter of fiscal 2002, and we do not believe that
FAS 141 will have a material effect on our operating results or financial
positions.
In July 2001, the FASB issued Statement of Financial Accounting Standards
No. 142 ("FAS 142"), "Goodwill and Other Intangible Assets", which supersedes
Accounting Principles Board Opinion No. 17 ("APB 17"), "Intangible Assets". FAS
142 establishes new standards for goodwill, including the elimination of
goodwill amortization to be replaced with methods of periodically evaluating
goodwill for impairment. We expect to adopt this statement during the first
quarter of fiscal 2002, and we do not believe that SFAS 142 will have a
material effect on our operating results or financial position.
In August 2001, the FASB issued Statement of Financial Accounting Standards
No. 144 ("FAS 144"), "Accounting for the Impairment or Disposal of Long-Lived
Assets", which addresses financial accounting and reporting for the impairment
or disposal of long-lived assets and supersedes Statement of Financial
Accounting Standards No. 121 ("FAS 121"), "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of", and the
accounting and reporting provisions of Accounting Principles Board Opinion No.
30 ("APB 30"), "Reporting the Results of Operations" for a disposal of a
segment of a business. FAS 144 is effective for fiscal years beginning after
December 15, 2001, with earlier application encouraged. We plan to adopt FAS
144 as of January 1, 2002 and expect that the adoption of the Statement will
have an insignificant impact on our financial position or results of operations.
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In November 2001, the FASB issued a Staff Announcement, Topic D-103, which
concluded that the reimbursement of "out-of-pocket" expenses should be
classified as revenue in the statement of operations for financial reporting
periods beginning after December 15, 2001and comparative financial statements
for prior periods should be reclassified to comply with the guidance in this
Announcement. Marimba currently records reimbursement of "out-of-pocket"
expenses in cost of services. Effective January 1, 2002, we will apply this
Announcement. The announcement will have no impact on gross profit or net loss,
but will increase services revenue and cost of services revenue.
Other Factors Affecting Operating Results, Liquidity and Capital Resources
The factors discussed below are cautionary statements that identify
important factors that could cause actual results to differ materially from
those anticipated by the forward-looking statements contained in this report.
For more information regarding the forward-looking statements contained in this
report, see the introductory paragraph to Part I on page 3 above.
Our Limited Operating History May Prevent Us From Achieving Success in Our
Business
We were founded in February 1996 and have a limited operating history that
may prevent us from achieving success in our business. The revenues and income
potential of our business and market are unproven. We will encounter challenges
and difficulties frequently encountered by early-stage companies in new and
rapidly evolving markets. We may not successfully address any of these
challenges and the failure to do so would seriously harm our business and
operating results. In addition, because of our limited operating history, we
have limited insight into trends that may emerge and affect our business.
We Have Incurred Losses and May Incur Future Losses
Our failure to significantly increase our revenues would seriously harm our
business and operating results. There is no assurance that we will reach
sustained profitability. As of December 31, 2001, we had an accumulated deficit
of approximately $41.9 million. We expect over the long term to increase our
research and development, sales and marketing and general and administrative
expenses. As a result, we will need to increase our quarterly revenues to
offset these increasing expenses and return to profitability. We may not be
able to sustain our historical revenue levels. In fact, we may not have any
revenue growth, and our revenues could decline.
Fluctuations in Quarterly Operating Results and Absence of Significant Backlog
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
harm the market price of our common stock. Operating results vary depending on
a number of factors, many of which are outside our control. Our operating
results may also depend on general economic factors, including an economic
slowdown or recession.
A substantial portion of our revenues for most quarters has been booked in
the last month of the quarter and the m agnitude of quarterly fluctuations in
operating results may not become evident until late in or even at the end of a
particular quarter. As a result, a delay in recognizing revenue, even from just
one account, could have a significant negative impact on our operating results.
In the past, a significant portion of our sales have been realized near the end
of a quarter. A delay in an anticipated sale past the end of a particular
quarter could negatively impact our operating results.
We generally expect that revenues in the first quarter of each year will not
substantially increase over, and may be lower than, revenues in the fourth
quarter of the preceding year due to the annual nature of companies' purchasing
and budgeting cycles and the year-to-date structure of our sales incentive
program.
24
Our expense levels are relatively fixed for a particular quarter and are
based, in part, on expectations as to future revenues. As a result, if revenue
levels fall below our expectations for a particular quarter, our operating
results will be adversely affected because only a small portion of our expenses
vary with our revenues. We have historically operated with little product
backlog, because our products are generally delivered as orders are received.
As a result, revenue in any quarter will depend on the volume and timing, and
the ability to fill, orders received in that quarter.
We Expect Significant Increases in Our Operating Expenses
Despite recent cost cutting measures implemented by Marimba, we intend over
the long term to substantially increase our operating expenses as we:
. Increase our sales and marketing activities, including expanding our
direct sales force;
. Increase our research and development activities;
. Expand our customer support and professional services organizations; and
. Expand our distribution channels.
With these additional expenses, we must significantly increase our revenues
in order to achieve and sustain profitability. These expenses will be incurred
before we generate any revenues associated with this increased spending. If we
do not significantly increase revenues from these efforts, our business and
operating results would be adversely affected.
Our Success Depends on our Desktop/Mobile Management Product Family
We expect to continue to derive a substantial portion of our revenues from
our Desktop/Mobile Management product line and related services. A decline in
the price of our Desktop/Mobile Management products or our inability to
increase sales of these products would seriously harm our business and
operating results. We cannot predict the success of Desktop/Mobile Management
products. We periodically update our Desktop/Mobile Management products to make
improvements and provide additional enhancements. New versions of this product
line may not provide the benefits we expect and could fail to meet customers'
requirements or achieve widespread market acceptance.
Our strategy requires our Desktop/Mobile Management products to be highly
scalable--in other words, able to rapidly increase deployment size from a
limited number of end-users to a very large number of end-users. If we are
unable to achieve this level of scalability, the attractiveness of our products
and services would be diminished.
We Need to Grow Our Server Management and Embedded Management Product
Revenues and Develop New Products and Services
During 2001, revenues from our Server Management and Embedded Management
product lines accounted for 18% and 6% of total license revenues, respectively.
There can be no assurance that the revenues from each of these product lines
will grow, in absolute amount or as a percentage of total license revenues, or
that our Server Management products and Embedded Management products will meet
customer expectations or gain widespread market acceptance. To provide
comprehensive systems management solutions, we will need to develop and
introduce new products and services which offer functionality that we do not
currently provide. We may not be able to develop these technologies, and
therefore, we may not be able to offer a comprehensive systems management
solution. In addition, in the past we have experienced delays in new product
releases, and we may experience similar delays in the future. If we fail to
release new product on a timely basis, our business and operating results could
be seriously harmed.
We Depend on the Growth of Our Customer Base and Increased Business from Our
Current Customers
Our success is substantially dependent on the continued growth of our
customer base. If we fail to increase our customer base, our business and
operating results would be seriously harmed. Our ability to attract new
customers will depend on a variety of factors, including the reliability,
security, scalability and cost-effectiveness of our products and services, as
well as our ability to effectively market our products and services.
25
If we fail to generate repeat and expanded business from our current
customers, our business and operating results would be seriously harmed. Many
of our customers initially make a limited purchase of our products and services
for pilot programs. These customers may not choose to purchase additional
licenses to expand their use of our products. In addition, as we deploy new
versions of our products or introduce new products, our current customers may
not require the functionality provided by our new products and may not
ultimately license these products.
Because the total amount of maintenance and support fees we receive in any
period depends in large part on the size and number of licenses that we have
previously sold, any downturn in our software license revenues would negatively
impact our future service revenues. Our support and maintenance programs are
sold on an annual basis. Renewal of annual support and maintenance is generally
at the customer's election. If customers elect not to renew their support and
maintenance agreements, our services revenues could be significantly adversely
impacted. If support and maintenance revenues were to decline, or not grow as
rapidly as expected, Marimba would need to increase its license revenues and
other service revenues in order to make up for the decline in support and
maintenance revenues.
Implementation of Our Products by Large Customers May Be Complex and
Customers Could Become Dissatisfied if Implementation of Our Products Proves
Difficult, Costly or Time Consuming
Our products must integrate with many existing computer systems and software
programs used by our customers. Integrating with many other computer systems
and software programs can be complex, time consuming and expensive and can
cause delays in the deployment of our products for such customers. Customers
could become dissatisfied with our products if implementations prove to be
difficult, costly or time consuming, and this could negatively impact our
ability to sell our products.
We Must Retain and Attract Key Personnel
Our success depends largely on the skills, experience and performance of the
members of our senior management and other key personnel, including our
president and chief executive officer, Richard Wyckoff, our chief financial
officer, Mark Garrett, and our vice president of worldwide sales, Matt
Thompson. We have in the past lost senior management personnel. Several members
of our senior management are relatively new to Marimba, including Messrs.
Wyckoff, Garrett and Thompson, and our success will depend in part on the
successful assimilation and performance of these individuals.
We may not be successful in attracting qualified senior management personnel
or be able to attract, assimilate and retain other key personnel in the future.
None of our senior management or other key personnel is bound by an employment
agreement. If we lose additional key employees and are unable to replace them
with qualified individuals, 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 companies based primarily in the software industry, we face intense
competition for qualified personnel.
We Have a Long Sales Cycle that Depends upon Factors Outside Our Control
A customer's decision to license our products typically involves a
significant commitment of resources and is influenced by the customer's budget
cycles. In addition, selling our products requires us to educate potential
customers on our product's use and benefits. As a result, our products have a
long sales cycle which can take over six months. We face difficulty predicting
the quarter in which sales to expected customers may occur. The sale of our
products is also subject to delays from the lengthy budgeting, approval and
competitive evaluation processes of our customers that typically accompany
significant capital expenditures. For example, customers frequently begin by
evaluating our products on a limited basis and devote time and resources to
test our products before they decide whether to purchase a license for
deployment. Customers may also defer orders as a result of anticipated releases
of new products or enhancements by us or our competitors.
We Are Exposed to General Economic Conditions and Reductions in Corporate IT
Spending, and the Current Economic Downturn May Continue to Adversely Impact
Our Business
Our business is subject to the effects of general economic conditions and,
in particular, market conditions in the industries that we serve. We believe
that our operating results are being adversely impacted by recent unfavorable
general economic conditions and reductions in corporate IT spending. Finally,
since many of our
26
customers may be suffering adverse effects of the general economic slowdown, we
may find that collecting accounts receivable from existing or new customers
will take longer than we expect or that some accounts receivable will become
uncollectable. If these economic conditions do not improve, or if we experience
a worsening in general economic conditions or corporate IT spending, our
business and operating results could continue to be adversely impacted.
Our Markets Are Highly Competitive
Our markets are highly competitive, and we expect this competition to
persist and intensify in the future. Our failure to maintain and enhance our
competitive position could seriously harm our business and operating results.
We encounter competition from a number of sources, including:
. Sellers of enterprise-wide management systems, which include electronic
software distribution;
. Companies that market products that support the distribution of software
applications and content; and
. Desktop software management products.
In addition, we compete with various methods of software distribution
(including thin client systems and web browsers) and with application server
vendors and others that have introduced software distribution capabilities into
their products.
Potential competitors may bundle their products or incorporate additional
components into existing products in a manner that discourages users from
purchasing our products. Furthermore, new competitors or alliances among
competitors may emerge and rapidly acquire significant market share. Our
competitors may be able to respond more quickly to new or emerging technologies
and changes in customer requirements than we can.
Most of our competitors have longer operating histories and significantly
greater financial, technical, marketing and other resources than we do. Many of
these companies have more extensive customer bases and broader customer
relationships that they could leverage, including relationships with many of
our current and potential customers. These companies also have significantly
more established customer support and professional service organizations than
we do. In addition, these companies may adopt aggressive pricing policies which
we are unable to match. In the past, we have lost potential customers to
competitors for various reasons, including lower prices.
Protection of Our Intellectual Property Is Limited
We rely on a combination of patent, trademark, trade secret and copyright
law and contractual restrictions to protect the proprietary aspects of our
technology. These legal 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.
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. Such litigation could result in substantial costs
and diversion of resources and could significantly harm our business and
operating results. In addition, we sell our products internationally, and the
laws of many countries do not protect our proprietary rights as well as the
laws of the United States.
We Are Involved in Patent Infringement Litigation and May Be Found to
Infringe Proprietary Rights of Others
We are a defendant in the patent infringement litigation described in Part
II, Item 1--"Legal Proceedings" of this report. We intend to defend this
litigation vigorously. However, due to the inherent uncertainties of
litigation, we cannot accurately predict the ultimate outcome of the
litigation, particularly in cases such as this where sophisticated factual
issues must be assessed and complex technical issues must be decided. Our
defense of this litigation, regardless of the merits of the complaint, has
been, and will likely continue to be, time-
27
consuming, costly and a diversion for Marimba's technical and management
personnel. Any unfavorable outcome of this litigation could have an adverse
impact on our business, financial condition and results of operations.
Other companies, including our competitors, may obtain patents or other
proprietary rights that could prevent, limit or interfere with our ability to
make, use or sell our products. As a result, we may be found to infringe the
proprietary rights of others. Furthermore, companies in the software market are
increasingly bringing suits alleging infringement of their proprietary rights,
particularly patent rights.
We could incur substantial costs to defend any intellectual property
litigation (including the one described above), and intellectual property
litigation could result in one or more of the following:
. Our paying monetary damages, which could be tripled if the infringement
is found to have been willful;
. The issuance of a preliminary or permanent injunction requiring us to
stop selling one or more of our products in their current forms;
. Our having to redesign one or more of our products, which could be costly
and time-consuming and could substantially delay shipments, assuming that
a redesign is feasible;
. Our having to reimburse the holder of the infringed intellectual property
for some or all of its attorneys' fees and costs;
. Our having to obtain from the holder licenses to its intellectual
property, which licenses might not be made available to us on reasonable
terms; or
. Our having to indemnify our customers against any losses they may incur
due to the alleged infringement.
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 Are Involved in a Securities Class Action Litigation and Are At Risk of
Additional Similar Litigation
In the past, securities class action litigation has often been brought
against a company following periods of volatility in the market price of its
securities. We are a party to the securities class action litigation described
in Part II, Item 1--"Legal Proceedings" of this report. The defense of this
litigation may increase our expenses and divert our management's attention and
resources, and an adverse outcome in this litigation could seriously harm our
business and results of operations. In addition, we may in the future be the
target of other securities class action or similar litigation.
We Need to Develop Third-Party Distribution Relationships
We have a limited number of distribution relationships and we may not be
able to increase our number of distribution relationships or maintain our
existing relationships. Our current agreements with our distribution partners
do not prevent these companies from selling products of other companies,
including products that may compete with our products, and do not generally
require these companies to purchase minimum quantities of our products. These
distributors could give higher priority to the products of other companies or
to their own products, than they give to our products. In addition, sales
through these channels generally result in lower fees to Marimba than direct
sales. As a result, while the loss of, or significant reduction in, sales
volume to any of our current or future distribution partners could seriously
harm our revenues and operating results, a significant increase in sales
through these channels could also negatively impact our gross margins.
28
We Need to Develop and Expand Our Sales and Marketing Capabilities
We need to expand our direct sales and marketing operations in order to
increase market awareness of our products, market our products to a greater
number of enterprises and generate increased revenues. Competition for
qualified sales personnel is intense and we may not be able to hire enough
qualified sales personnel in the future. Our products and services require a
sophisticated sales effort targeted at senior management of our prospective
customers. New hires require extensive training and typically take at least six
months to achieve full productivity. There is no assurance that new sales
representatives will ultimately become productive. In prior quarters, Marimba's
license revenues have often resulted from contracts closed by just a few sales
representatives. If Marimba were to lose qualified and productive sales
personnel, our revenues would be adversely impacted. Furthermore, the cost of
hiring and training replacement sales personnel could be significant. In
addition, we have limited experience marketing our products broadly to a large
number of potential customers, both in the United States and elsewhere.
We Need to Expand Our Professional Services
We may not be able to attract, train or retain the number of highly
qualified services personnel that our business needs. We believe that growth in
our product sales depends on our ability to provide our customers with
professional services and to educate third-party resellers and consultants on
how to provide similar services. Over the long term, we plan to increase the
number of our services personnel to meet these needs. However, competition for
qualified services personnel is intense.
Over the long term, we expect our total service revenues to increase as we
continue to provide support, consulting and training services that complement
our products and as our installed customer base grows. This could negatively
impact our gross margin because margins on revenues derived from services are
generally lower than gross margins on revenues derived from the license of our
products.
Expanding Internationally Is Expensive, We May Receive No Benefit from Our
Expansion and Our International Operations Are Subject to Governmental
Regulation
We plan to increase our international sales force and operations, and
expanding internationally is expensive. However, we may not be successful in
increasing our international sales force or sales revenue. In addition, our
international business activities are subject to a variety of risks, including
the adoption of or changes in laws, currency fluctuations, actions by third
parties and political and economic conditions that could restrict or eliminate
our ability to do business in foreign jurisdictions. To date, we have not
adopted a hedging program to protect us from risks associated with foreign
currency fluctuations.
Export clearances, and in some cases, import clearances must be obtained
before our products can be distributed internationally. Current or new
government laws and regulations, or the application of existing laws and
regulations, could expose us to significant liabilities, significantly slow our
growth and seriously harm our business and operating results.
We Must 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 resources. Any failure to manage
growth effectively could seriously harm our business and operating results. 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, engineering, finance, legal, marketing, sales and operations
organizations. In addition, our growth has resulted, and any future growth will
result, in increased responsibilities for management personnel.
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We Rely on Third-Party Software and Applications
We integrate third-party software and digital certificates as a component of
our software. There are inherent limitations in the use and capabilities of
much of the technology that we license from third parties. As a result, we face
a number of challenges in integrating these technologies into our products. 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. In addition, the third-party software
may not continue to be available to us on commercially reasonable terms or at
all. The loss of, or inability to maintain or obtain this 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.
Almost all of our products are written in Java and require a Java virtual
machine in order to operate. Vendors offering these Java virtual machines may
not continue to make these implementations of the Java virtual machines
available at commercially reasonable terms or at all. Furthermore, if Sun
Microsystems, Inc. were to make significant changes to the Java language, if
significant changes were to be made to Java virtual machine implementations of
Sun Microsystems, Inc. and other vendors or if they fail to correct defects and
limitations in these products, our ability to continue to improve and ship our
products could be impaired. In the future, our customers may also require the
ability to deploy our products on platforms for which technically acceptable
Java implementations either do not exist or are not available on commercially
reasonable terms. Our customers may also use particular implementations of the
Java virtual machines that may not be technically or commercially acceptable
for integration into our products.
Software Defects in Our Products Would Harm Our Business
Complex software products like ours often contain errors or defects,
including errors relating to security, particularly when first introduced or
when new versions or enhancements are released. Our products extensively
utilize digital certificates and other complex technology. Our use of this
technology has in the past and may in the future result in product behavior
problems which may not be anticipated by us or our customers. Defects or errors
in current or future products could result in lost revenues or a delay in
market acceptance, which would seriously harm our business and operating
results.
Since many of our customers use our products for business-critical
applications, errors, defects or other performance problems could result in
financial or other damage to our customers and could significantly impair their
operations. Our customers could seek damages for losses related to any of these
issues. A product liability claim brought against us, even if not successful,
would likely be time consuming and costly to defend and could adversely affect
our marketing efforts.
Our Stock Price Is Likely to Continue to be Volatile
The market price of our common stock has been and is likely to continue to
be highly volatile. The market price of our common stock may be significantly
affected by factors such as actual or anticipated fluctuations in our operating
results, announcements of technological innovations, new products or new
contracts by us or our competitors, developments with respect to patents or
proprietary rights and related litigation, other material litigation involving
Marimba, changes in our management or other key employees, adoption of new
accounting standards affecting the software industry, general market conditions
and other factors. In addition, the stock market has from time to time
experienced significant price and volume fluctuations that have particularly
affected the market price for the common stock of technology companies. These
types of broad market fluctuations may adversely affect the market price of our
common stock.
30
Our Future Capital Needs Are Uncertain
We expect that our current cash, cash equivalents and investments will be
sufficient to meet our working capital and capital expenditure needs for at
least twelve months. After that, we may need to raise additional funds, and
additional financing may not be available on favorable terms, if at all. This
could seriously harm our business and operating results. Furthermore, if we
issue additional equity securities, stockholders may experience dilution, and
the new equity securities could have rights senior to those of existing holders
of our common stock. If we cannot raise funds, if needed, on acceptable terms,
we may not be able to develop or enhance our products, take advantage of future
opportunities or respond to competitive pressures or unanticipated requirements.
We Have Experienced Recent Credit-Related Issues with Certain of Our
Customers and We May Not Achieve Anticipated Revenue if We Need to Defer a
Significant Amount of Revenue
We have experienced recent credit-related issues with certain of our
existing and proposed customers, primarily due to the economic slowdown in the
United States. Certain of these customers are in the process of obtaining
funding, and in certain cases, we have deferred a portion or all of the
revenues from these customers until they have achieved adequate levels of
financing and are able to pay us. Should we have more customers than we
anticipate with liquidity issues, or if payment is not received on a timely
basis, our business, operating results and general financial condition could be
seriously harmed.
We Face Challenges Stemming from Our Emerging Markets
The market for certain of our products 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 these products will emerge or be
sustainable. If this market fails to develop, or develops more slowly than
expected, our business and operating results would be seriously harmed.
Furthermore, in order to be successful in this emerging market, we must be
able to differentiate Marimba from our competitors through our product and
service offerings and brand name recognition. We may not be successful in
differentiating Marimba or achieving widespread market acceptance of our
products and services. In addition, enterprises that have already invested
substantial resources in other methods of deploying and managing their
applications, content and/or services may be reluctant or slow to adopt a new
approach that may replace, limit or compete with their existing systems.
We Must Respond to Rapid Technological Change and Evolving Industry Standards
The markets for our systems management solutions are characterized by rapid
technological change, frequent new product introductions and enhancements,
uncertain product life cycles, changes in customer demands and evolving
industry standards. New solutions based on new technologies or new industry
standards can quickly render existing solutions obsolete and unmarketable. Any
delays in our ability to develop and release enhanced or new solutions could
seriously harm our business and operating results. Our technology is complex,
and new products, enhancements and services can require long development and
testing periods. Our failure to conform to prevailing standards could have a
negative effect on our business and operating results.
We Face Risks Associated with Potential Acquisitions
We may make acquisitions in the future. Acquisitions of companies, products
or technologies entail numerous risks, including an inability to successfully
assimilate acquired operations and products, diversion of management's
attention, loss of key employees of acquired companies and substantial
transaction costs. Some of the products acquired may require significant
additional development before they can be marketed and may not generate revenue
at anticipated levels. Moreover, future acquisitions by us may result in
dilutive issuances of equity securities, the incurrence of additional debt,
large one-time write-offs and the creation of goodwill or other intangible
assets that could result in significant amortization expense. Any of these
problems or factors could seriously harm our business, financial condition and
operating results.
31
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Sensitivity
Our interest income is sensitive to changes in the general level of U.S.
interest rates, particularly since most of our investments are in marketable
securities with maturities less than two years.
Our investment policy requires us to invest funds in excess of current
operating requirements in:
. obligations of the U.S. government and its agencies;
. investment grade state and local government obligations;
. securities of U.S. corporations rated A1 or AA by Standard and Poors or
the Moody's equivalent; and
. money market funds, deposits or notes issued or guaranteed by U.S. and
non-U.S. commercial banks meeting particular credit rating and net worth
requirements with maturities of less than two years.
The following table presents the amounts of cash equivalents and investments
that are subject to market risk and the weighted average interest rates, by
year of expected maturity, for our investment portfolio as of December 31, 2001
and 2000. This table does not include money market funds, because those funds
are not subject to market risk.
Maturing during
----------------
2002 2003
------- -------
(in thousands)
December 31, 2001:
Cash equivalents................................. $20,843 $ --
Weighted average interest rate................ 1.77% --
Investments...................................... $16,249 $18,246
Weighted average interest rate................ 3.74% 3.88%
Total............................................ $37,092 $18,246
Weighted average interest rate................ 2.63% 3.88%
Maturing during
----------------
2001 2002
------- -------
(in thousands)
December 31, 2000:
Cash equivalents................................. $29,300 $ --
Weighted average interest rate................ 6.46% --
Investments...................................... $31,407 $ 4,146
Weighted average interest rate................ 6.50% 6.90%
Total............................................ $60,707 $ 4,146
Weighted average interest rate................ 6.48% 6.90%
Exchange Rate Sensitivity
We develop products in the United States, and sell our products and services
primarily in North America, Europe and Asia. As a result, our financial results
could be affected by various factors, including changes in foreign currency
exchange rates or weak economic conditions in foreign markets. As sales are
generally made in U.S. dollars, a strengthening of the dollar could make our
products less competitive in foreign markets. To date, however, because we
operate primarily in the United States and as sales have been generally made in
U.S. dollars, we have had no material exposures to foreign currency rate
fluctuations. Accordingly, we have no basis to quantify the risk from
hypothetical changes in foreign currency exchange rates.
32
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
MARIMBA, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Ernst & Young LLP, Independent Auditors.............................. 34
Consolidated Balance Sheets.................................................... 35
Consolidated Statements of Operations.......................................... 36
Consolidated Statements of Stockholders' Equity (Net Capital Deficiency)....... 37
Consolidated Statements of Cash Flows.......................................... 38
Notes to Consolidated Financial Statements..................................... 39
33
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Marimba, Inc.
We have audited the accompanying consolidated balance sheets of Marimba,
Inc. as of December 31, 2001 and 2000, and the related consolidated statements
of operations, stockholders' equity (net capital deficiency) and cash flows for
each of the three years in the period ended December 31, 2001. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. These standards 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. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Marimba, Inc.
at December 31, 2001 and 2000, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended December 31,
2001, in conformity with accounting principles generally accepted in the United
States.
/s/ ERNST & YOUNG LLP
Palo Alto, California
January 10, 2002
34
MARIMBA, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except par value data)
December 31,
------------------
2001 2000
-------- --------
ASSETS
Current assets:
Cash and cash equivalents............................................................. $ 26,141 $ 33,122
Short-term investments................................................................ 16,249 31,407
Accounts receivable, net of allowances of $2,358 and $2,223 at December 31, 2001
and 2000............................................................................ 7,791 12,500
Prepaid expenses and other current assets............................................. 1,164 1,599
-------- --------
Total current assets.............................................................. 51,345 78,628
Property and equipment, net.............................................................. 3,900 4,274
Long-term investments.................................................................... 18,246 4,146
Other assets............................................................................. 360 360
-------- --------
$ 73,851 $ 87,408
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities.............................................. $ 2,378 $ 2,881
Accrued compensation.................................................................. 3,408 4,055
Deferred revenue...................................................................... 10,558 13,516
-------- --------
Total current liabilities......................................................... 16,344 20,452
Long-term liabilities.................................................................... 265 153
Commitments and contingencies............................................................
Preferred stock; $.0001 par value, 10,000 shares authorized, no shares designated, issued
and outstanding........................................................................ -- --
Stockholders' equity:
Common stock; $.0001 par value, 80,000 shares authorized, 24,142 and 23,585
shares issued and outstanding at December 31, 2001 and 2000, respectively........... 2 2
Additional paid-in capital............................................................ 100,523 97,222
Deferred compensation................................................................. (1,542) (1,882)
Accumulated other comprehensive income (loss)......................................... 141 (9)
Accumulated deficit................................................................... (41,882) (28,530)
-------- --------
Stockholders' equity.............................................................. 57,242 66,803
-------- --------
$ 73,851 $ 87,408
======== ========
See accompanying notes.
35
MARIMBA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Year Ended December 31,
---------------------------
2001 2000 1999
-------- -------- -------
Revenues:
License........................................................... $ 27,801 $ 31,329 $23,637
Service........................................................... 16,229 12,718 7,776
-------- -------- -------
Total revenues................................................ 44,030 44,047 31,413
Cost of revenues:
License........................................................... 595 681 402
Service........................................................... 5,940 4,256 3,036
-------- -------- -------
Total cost of revenues........................................ 6,535 4,937 3,438
-------- -------- -------
Gross profit......................................................... 37,495 39,110 27,975
Operating expenses:
Research and development.......................................... 10,508 11,114 8,497
Sales and marketing............................................... 31,965 27,758 19,625
General and administrative........................................ 7,934 12,570 5,066
Restructuring costs............................................... 789 -- --
Amortization of deferred compensation............................. 2,226 1,702 1,410
-------- -------- -------
Total operating expenses...................................... 53,422 53,144 34,598
-------- -------- -------
Loss from operations................................................. (15,927) (14,034) (6,623)
Interest income...................................................... 2,817 4,562 2,536
Interest and other expenses.......................................... (43) (21) (30)
-------- -------- -------
Loss before income taxes............................................. (13,153) (9,493) (4,117)
Provision for income taxes........................................... 199 179 97
-------- -------- -------
Net loss............................................................. $(13,352) $ (9,672) $(4,214)
======== ======== =======
Basic and diluted net loss per share................................. $ (.56) $ (.42) $ (.22)
======== ======== =======
Weighted-average shares of common stock outstanding used in computing
basic and diluted net loss per share............................... 23,943 23,200 19,029
======== ======== =======
See accompanying notes.
36
MARIMBA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
(in thousands)
Note Accumulated Equity (Net
Common Stock Additional Receivable Other Stockholders'
-------------- Paid-in From Deferred Comprehensive Accumulated Capital Comprehensive
Shares Amount Capital Officer Compensation Income (Loss) Deficit Deficiency) Income (Loss)
------ ------ ---------- ---------- ------------ ------------- ----------- ------------- -------------
Balances at January 1,
1999.................... 13,053 1 $ 2,182 $(160) $(1,116) $ (6) $(14,644) $(13,743)
Sale of common stock in
initial public offering,
net..................... 3,736 -- 68,075 -- -- -- -- 68,075
Conversion of Series A
and Series B redeemable
preferred stock to
common stock............ 5,753 1 18,952 -- -- -- -- 18,953
Issuance of common stock
upon exercise of stock
options and warrant..... 632 -- 1,561 -- -- -- -- 1,561
Issuance of common stock
under employee
stock purchase plan..... 42 -- 719 -- -- -- -- 719
Repurchases of common
stock................... (70) -- (27) -- -- -- -- (27)
Translation adjustment... -- -- -- -- -- (16) -- (16) $ (16)
Repayment of note
receivable from an
officer................. -- -- -- 160 -- -- -- 160
Unrealized loss on
investments............. -- -- -- -- -- (239) -- (239) (239)
Deferred compensation.... -- -- 1,974 -- (1,974) -- -- --
Amortization of deferred
compensation............ -- -- -- -- 1,410 -- -- 1,410
Net loss................. -- -- -- -- -- -- (4,214) (4,214) (4,214)
------ --- -------- ----- ------- ----- -------- -------- --------
Balances at December 31,
1999.................... 23,146 2 93,436 -- (1,680) (261) (18,858) 72,639 $ (4,469)
========
Issuance of common stock
upon exercise of stock
options................. 459 -- 1,099 -- -- -- -- 1,099
Issuance of common stock
under employee
stock purchase plan..... 89 -- 924 -- -- -- -- 924
Repurchases of common
stock................... (109) -- (140) -- -- -- -- (140)
Translation adjustment... -- -- -- -- -- (20) -- (20) $ (20)
Unrealized gain on
investments............. -- -- -- -- -- 272 -- 272 272
Deferred compensation,
net of
cancellation adjustment. -- -- 1,903 -- (1,903) -- -- --
Amortization of deferred
compensation............ -- -- -- -- 1,701 -- -- 1,701
Net loss................. -- -- -- -- -- -- (9,672) (9,672) (9,672)
------ --- -------- ----- ------- ----- -------- -------- --------
Balances at December 31,
2000.................... 23,585 2 97,222 -- (1,882) (9) (28,530) 66,803 $ (9,420)
========
Issuance of common stock
upon exercise of stock
options................. 323 -- 594 -- -- -- -- 594
Issuance of common stock
under employee
stock purchase plan..... 338 -- 715 -- -- -- -- 715
Issuance of stock option
for services............ -- 120 -- -- -- -- 120
Repurchases of common
stock................... (104) -- (14) -- -- -- -- (14)
Deferred compensation,
net of
cancellation adjustment. -- -- 1,886 -- (1,886) -- -- --
Translation adjustment... -- -- -- -- -- (9) -- (9) $ (9)
Unrealized gain on
investments............. -- -- -- -- -- 159 -- 159 159
Amortization of deferred
compensation............ -- -- -- -- 2,226 -- -- 2,226
Net loss................. -- -- -- -- -- -- (13,352) (13,352) (13,352)
------ --- -------- ----- ------- ----- -------- -------- --------
Balances at December 31,
2001.................... 24,142 $ 2 $100,523 $ -- $(1,542) $ 141 $(41,882) $ 57,242 $(13,202)
====== === ======== ===== ======= ===== ======== ======== ========
See accompanying notes.
37
MARIMBA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended December 31,
----------------------------
2001 2000 1999
-------- -------- --------
Operating activities:
Net loss...................................................................... $(13,352) $ (9,672) $ (4,214)
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities:
Depreciation............................................................... 2,096 1,599 1,233
Amortization of deferred compensation...................................... 2,226 1,701 1,410
Issuance of stock option for services...................................... 120 -- --
Loss on disposal of property and equipment................................. 64 49 --
Effect of exchange rate.................................................... (9) (20) (16)
Changes in operating assets and liabilities:
Accounts receivable, net............................................... 856 (5,101) (4,814)
Prepaid expenses and other current assets.............................. 435 (514) 322
Other assets........................................................... -- (324) 262
Accounts payable and accrued liabilities............................... (503) (262) 1,747
Accrued compensation................................................... (647) 776 1,575
Deferred revenue....................................................... (2,958) 2,197 5,800
Other liabilities...................................................... 112 105 13
-------- -------- --------
Net cash provided by (used in) operating activities........................... (11,560) (9,466) 3,318
-------- -------- --------
Investing activities:
Capital expenditures, net.................................................. (1,786) (2,966) (1,441)
Purchases of investments................................................... (63,820) (31,592) (65,863)
Proceeds from matured investments.......................................... 65,037 53,060 13,000
-------- -------- --------
Net cash provided by (used in) investing activities........................... (569) 18,502 (54,304)
-------- -------- --------
Financing activities:
Proceeds from issuance of common stock, net of repurchases................. 1,295 1,883 2,253
Proceeds from sale of common stock in initial public offering, net......... -- -- 68,075
Repayment of note receivable from officer.................................. -- -- 160
Proceeds from transfer of financial assets................................. 3,853 -- --
Principal payments under capital lease obligations......................... -- (60) (939)
-------- -------- --------
Net cash provided by financing activities..................................... 5,148 1,823 69,549
-------- -------- --------
Net increase (decrease) in cash and cash equivalents.......................... (6,981) 10,859 18,563
Cash and cash equivalents at beginning of year................................ 33,122 22,263 3,700
-------- -------- --------
Cash and cash equivalents at end of year...................................... $ 26,141 $ 33,122 $ 22,263
======== ======== ========
Supplemental disclosure of cash flow information:
Interest paid.............................................................. $ 4 $ 1 $ 30
======== ======== ========
Income taxes paid.......................................................... $ 199 $ 179 $ 97
======== ======== ========
Supplemental disclosure of non-cash investing and financing activities:
Conversion of redeemable preferred stock to common Stock................... $ -- $ -- $ 18,953
======== ======== ========
Deferred compensation, net of cancellation adjustment...................... $ 1,886 $ 1,903 $ 1,974
======== ======== ========
See accompanying notes.
38
MARIMBA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Basis of Presentation
Marimba was incorporated in Delaware on February 21, 1996. Marimba develops,
markets and supports end-to-end change and configuration management software
solutions. Marimba's Desktop/Mobile Management, Server Management and Embedded
Management product families provide an efficient and reliable way for
enterprises to distribute, update and manage applications and related data to
desktops, laptops, servers and devices. Marimba's products help customers
reduce their total cost of ownership and improve quality of service by
streamlining the distribution and management of software applications and
content. Marimba markets its products worldwide through a combination of a
direct sales force, resellers and OEM partners.
The consolidated financial statements include the accounts of Marimba and
its wholly-owned subsidiary in the United Kingdom. Intercompany accounts and
transactions have been eliminated in consolidation.
Marimba has incurred operating losses to date and had an accumulated deficit
of $41.9 million at December 31, 2001. Marimba's activities have been primarily
financed through its initial public offering of common stock and earlier
private placements of equity securities. If Marimba is ultimately unable to
achieve profitability and positive cash flows from operations, it may need to
raise additional capital through the issuance of debt or equity securities.
Such financing may not be available on terms satisfactory to Marimba, if at all.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. On an on-going basis, we evaluate these estimates and
judgments, including those related to revenue recognition, bad debts and
litigation. Actual results could differ materially from those estimates.
Revenue Recognition
Marimba derives its revenues primarily from two sources (i) license
revenues, which consist of software license fees and (ii) service revenues,
which are comprised of fees for maintenance and support, consulting and
training. Maintenance and support agreements provide technical support and the
right to unspecified upgrades on an if-and-when available basis. Significant
management judgments and estimates must be made and used in connection with the
revenue recognized in any accounting period. Material differences may result in
the amount and timing of our revenue for any period if our management made
different judgments or utilized different estimates.
Marimba applies the provisions of Statement of Position 97-2 ("SOP 97-2"),
"Software Revenue Recognition", as amended by Statement of Position 98-9 ("SOP
98-9"), "Modification of SOP 97-2, Software Revenue Recognition, With Respect
to Certain Transactions" to all transactions involving the sale of software
products.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" ("SAB 101"), which provides guidance on the recognition,
presentation and disclosure of revenue in financial statements filed with the
SEC. SAB 101 outlines the basic criteria that must be met to recognize revenue
and provides guidance for disclosures related to revenue recognition policies.
Marimba applied the provisions of SAB 101 to all revenue transactions for
fiscal 2001 and 2000. SAB 101 has not had a material impact on our results of
operations, financial position or cash flows.
39
MARIMBA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In accordance with the provisions of Accounting Principles Board Opinion No.
29 ("APB 29"), "Accounting for Nonmonetary Transactions", Marimba records
barter transactions at the fair value of the goods or services provided or
received, whichever is more readily determinable in the circumstances. To date,
revenues from barter transactions have been insignificant and represent less
than 1% of net revenues.
Marimba licenses software products to corporate customers, OEM partners and
resellers on a perpetual basis or a term basis. We recognize revenue from the
sale of software licenses when persuasive evidence of an arrangement exists,
the product has been delivered, the fee is fixed or determinable and collection
of the resulting receivable is probable.
Marimba uses either a definitive customer purchase order or signed license
agreement as evidence of an arrangement. License revenues in arrangements with
customers who are not the ultimate users, primarily resellers, are not
recognized until the software is sold through to the end-user. Advance payments
from resellers for guaranteed minimum commitments are deferred until the
software is sold through to the end-user or upon expiration of the specified
commitment time period if the minimum commitments have not been met. Delivery
generally occurs when license keys and passwords have been made available to
the customer through e-mail.
At the time of the transaction, Marimba assesses whether the fee associated
with revenue transactions is fixed or determinable and whether or not
collection is probable. We assess whether the fee is fixed or determinable
based on the payment terms associated with the transaction and our history with
the customer or with similar customers. If a significant portion of a fee is
due after our normal payment terms, we generally account for the fee as not
being fixed or determinable. In these cases, Marimba recognizes revenue as the
fees become due.
Marimba assesses the probability of collection based on a number of factors,
including past transaction history with the customer and the credit-worthiness
of the customer. We do not request collateral from our customers. If we
determine that collection of a fee is not probable, we defer the fee and
recognize revenue at the time collection becomes probable, which is generally
upon receipt of cash.
For arrangements with multiple obligations (for example, undelivered
maintenance and support), Marimba allocates revenue to each component of the
arrangement using the residual value method based on vendor specific objective
evidence of the fair value of the undelivered elements, which is specific to
Marimba. This means that Marimba defers revenue from the arrangement fee
equivalent to the fair value of the undelivered elements. Fair values for the
ongoing maintenance and support obligations for our licenses are based upon
separate sales of renewals to other customers. Fair value of services, such as
training or consulting, is based upon separate sales by us of these services to
other customers. Most of our arrangements involve multiple obligations.
Marimba's arrangements do not generally include acceptance clauses. However,
if an arrangement includes an acceptance provision, acceptance occurs upon the
earlier of receipt of a written customer acceptance or expiration of the
acceptance period.
Marimba recognizes revenues for maintenance and support ratably over the
maintenance term, which is generally one year. Consulting services are
generally billed based on daily rates and training services are generally
billed on per student or per class session basis. We generally recognize
consulting and training revenues as the services are performed.
Research and Development
Research and development expenditures are generally charged to operations as
incurred. Statement of Financial Accounting Standards No. 86 ("FAS 86"),
"Accounting for the Costs of Computer Software to Be
40
MARIMBA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Sold, Leased or Otherwise Marketed," requires the capitalization of certain
software development costs subsequent to the establishment of technological
feasibility, which, for Marimba, is established upon completion of a working
model. To date, costs incurred by Marimba between completion of the working
model and the point at which the product is ready for general release have been
insignificant and charged to expense as incurred.
Advertising
Marimba expenses advertising costs as incurred. Advertising expense was
$819,000, $1.2 million and $562,000 for the years ended December 31, 2001, 2000
and 1999, respectively.
Cash, Cash Equivalents and Investments
Cash equivalents consist of financial instruments, which are readily
convertible to cash and have original maturities of three months or less at the
time of acquisition. Marimba's cash and cash equivalents as of December 31,
2001 and 2000 consist primarily of commercial paper, corporate and municipal
bonds, and demand deposits and money market funds held by large financial
institutions in the United States. The carrying value of cash and cash
equivalents approximates fair value at December 31, 2001 and 2000.
Marimba classifies, at the date of acquisition, its marketable securities as
available-for-sale in accordance with the provisions of Statement of Financial
Accounting Standards No. 115 ("FAS 115"), "Accounting for Certain Investments
in Debt and Equity Securities". Available-for-sale securities are reported at
fair market value with the related unrealized gains and losses included in
stockholders' equity. Realized gains and losses and declines in value of
securities judged to be other than temporary are included in interest income.
Interest and dividends on all securities are included in interest income.
Investments with remaining maturities of less than one year are considered
short-term investments. Investments with remaining maturities longer than one
year are considered long-term investments. All investments classified as
long-term mature during 2003.
41
MARIMBA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Available-for-sale investments are summarized as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -------
(in thousands)
December 31, 2001:
Corporate notes..................................... $22,540 $182 $(15) $22,707
Market auction rate preferred stock................. 1,150 -- -- 1,150
Debt securities from U.S. Government and government
agencies.......................................... 10,613 25 -- 10,638
------- ---- ---- -------
Total investments............................... $34,303 $207 $(15) $34,495
======= ==== ==== =======
Short-term investments.............................. $16,204 $ 46 $ (1) $16,249
Long-term investments............................... 18,099 161 (14) 18,246
------- ---- ---- -------
Total investments............................... $34,303 $207 $(15) $34,495
======= ==== ==== =======
December 31, 2000:
Corporate notes..................................... $26,355 $ 20 $(10) $26,365
Debt securities from U.S. Government and government
agencies.......................................... 9,165 32 (9) 9,188
------- ---- ---- -------
Total investments............................... $35,520 $ 52 $(19) $35,553
======= ==== ==== =======
Short-term investments.............................. $31,420 $ 6 $(19) $31,407
Long-term investments............................... 4,100 46 -- 4,146
------- ---- ---- -------
Total investments............................... $35,520 $ 52 $(19) $35,553
======= ==== ==== =======
The cost of securities sold is based on the specific identification method.
Property and Equipment
Marimba records property and equipment at cost and calculates depreciation
using the straight-line method over the estimated useful lives of the assets,
generally three to five years. Leasehold improvements are amortized over the
shorter of the estimated useful lives of the respective assets or the term of
the lease.
Income taxes
Marimba accounts for income taxes using the asset and liability method in
accordance with Statement of Financial Accounting Standards No. 109 ("FAS
109"), "Accounting for Income Taxes." Under the asset and liability method, a
current tax asset or liability is recognized for the estimated taxes payable or
refundable on tax returns for the current year. A deferred tax asset or
liability is recognized for the estimated future tax effects attributable to
temporary differences and carryforwards. Marimba has recorded a full valuation
allowance as of December 31, 2001, because we believe it is more likely than
not that our deferred tax assets will not be realized in the foreseeable future.
Accounting for Stock-Based Compensation
Marimba has elected to follow Accounting Principles Board Opinion No. 25
("APB 25"), "Accounting for Stock Issued to Employees", and related
interpretations in accounting for its employee stock options because, as
42
MARIMBA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
discussed in Note 6, the alternative fair value accounting provided for under
Statement of Financial Accounting Standards No. 123 ("FAS 123"), "Accounting
for Stock-Based Compensation", requires use of option valuation models that
were not developed for use in valuing employee stock options. Under APB 25,
when the exercise price of Marimba's employee stock options equals the market
price of the underlying stock on the date of grant, no compensation expense is
recognized. See the pro forma disclosures of applying FAS 123 included in Note
6.
Stock options issued to non-employees are accounted for in accordance with
FAS 123 and Emerging Issues Task Force Issue No. 96-18 ("EITF 96-18"),
"Accounting for Equity Instruments That Are Issued to Other Than Employees for
Acquiring, or in conjunction With Selling, Goods or Services."
Concentrations of Credit Risk and Other Risks
Financial instruments that subject Marimba to credit risk consist primarily
of uninsured cash, cash equivalents and short-term and long-term investment
balances held at commercial banks and institutions primarily in the United
States and trade receivables from Marimba's customers. Marimba sells to
customers in many different industries. Marimba performs ongoing credit
evaluations of customers, but does not generally require collateral. We grant
credit terms to most customers ranging from 30 to 90 days, however in some
instances Marimba may provide longer payment terms. During the years ended
December 31, 2001, 2000 and 1999, Marimba added approximately $171,000, $2.1
million and $36,000, respectively, to its bad debt reserves. Total write-offs
of uncollectible accounts were $326,000, $0 and $2,000 in those periods. During
fiscal 2000, Marimba established a sales return allowance reserve. During the
years ended December 31, 2001 and 2000, $290,000 and $237,000, respectively,
was added to this reserve.
For the years ended December 31, 2001, 2000 and 1999, no single customer
represented more than 10% of total revenues. At December 31, 2001, four
customers represented 18%, 13%, 13% and 13% of accounts receivable and at
December 31, 2000, two customers represented 40% and 14% of accounts receivable.
Financing
In June 2001, Marimba entered into a $5 million receivables purchase
facility with a bank, pursuant to which Marimba may transfer qualifying
accounts receivables to the bank on a non-recourse basis. The purchase facility
with the bank expires in June 2002. Transfers under this facility are recorded
as sales and accounted for in accordance with Statement of Financial Accounting
Standards No. 140 ("FAS 140"), "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities." During the second quarter
of 2001, Marimba transferred to the bank accounts receivable totaling
approximately $3.9 million, which approximated fair value. The transfer of
accounts receivable for cash were reported in the consolidated statement of
cash flows as a financing activity. There were no transfers of accounts
receivable during the third or fourth quarters of 2001. During the fourth
quarter of 2001, the amount outstanding under the facility was repaid in full.
Segment Information
Marimba operates in one operating segment, the development and marketing of
systems management software and has operations primarily in the United States.
We also operate in the following geographies: the United States and Europe. For
the years ended December 31, 2001, 2000 and 1999, sales in Europe were
approximately 6%, 3% and 7% of total revenue, respectively. For the years ended
December 31, 2001, 2000 and 1999, export sales to customers outside of the
United States were $3.4 million, $2.1 million and $2.5 million, respectively.
These export sales were primarily made to customers located in Western Europe
and Asia.
43
MARIMBA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Net Loss Per Share
Basic and diluted net loss per common share are presented in conformity with
Statement of Financial Accounting Standards No. 128 ("FAS 128"), "Earnings Per
Share", for all periods presented. In accordance with FAS 128, basic and
diluted net loss per share have been computed by dividing the net loss by
weighted-average shares of common stock outstanding during the periods, less
weighted average shares subject to repurchase.
The following table presents the calculation of basic and diluted net loss
per share:
Year Ended December 31,
--------------------------
2001 2000 1999
-------- ------- -------
(in thousands,
except per share data)
Net loss................................................................. $(13,352) $(9,672) $(4,214)
-------- ------- -------
Basic and diluted:
Weighted-average shares of common stock outstanding................... 24,012 23,391 19,855
Less weighted-average shares subject to repurchase.................... (69) (191) (826)
-------- ------- -------
Weighted-average shares of common stock outstanding used in computing
basic and diluted net loss per share................................ 23,943 23,200 19,029
======== ======= =======
Basic and diluted net loss per share.................................. $ (.56) $ (.42) $ (.22)
======== ======= =======
Marimba has excluded all outstanding stock options from the calculation of
diluted loss per share because all such securities are antidilutive for all
periods presented. Weighted-average options outstanding to purchase 6,220,000,
4,714,000, and 2,861,000 shares of common stock for the years ended December
31, 2001, 2000 and 1999, respectively, were not included in the computation of
diluted net loss per share because the effect would be antidilutive. Such
securities, had they been dilutive, would have been included in the computation
of diluted net loss per share using the treasury stock method.
Accumulated Other Comprehensive Income (Loss)
As of January 1, 1998, we adopted Statement of Financial Accounting
Standards No. 130 ("FAS 130"), "Reporting Comprehensive Income." FAS 130
established rules for the reporting and display of comprehensive income and its
components. Comprehensive income is defined as the change in equity such as
foreign currency translation adjustment and unrealized gains and losses that
have historically been excluded from net income and reflected instead in equity.
As of December 31, the components of accumulated other comprehensive income
(loss) reflected in the Statement of Stockholders' Equity (Net Capital
Deficiency) were as follows:
2001 2000 1999
---- ---- -----
(in thousands)
Unrealized gain (loss) on available-for-sale securities.... $192 $ 33 $(239)
Foreign currency translation adjustment.................... (51) (42) (22)
---- ---- -----
Accumulated other comprehensive income (loss)........... $141 $ (9) $(261)
==== ==== =====
Recent Accounting Pronouncements
In May 2000, the Emerging Issues Task Force (EITF) issued EITF Issue No.
00-14 ("EITF 00-14"), "Accounting for Certain Sales Incentives", effective for
periods beginning after December 15, 2001. EITF 00-14
44
MARIMBA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
addresses the recognition, measurement, and income statement classification for
sales incentives that a vendor voluntarily offers to customers (without
charge), which the customer can use in, or exercise as a result of, a single
exchange transaction. Sales incentives that fall within the scope of EITF 00-14
include offers that a customer can use to receive a reduction in the price of a
product or service at the point of sale. We expect to adopt EITF 00-14 during
the first quarter of fiscal 2002, and we do not believe that it will have a
material effect on our operating results or financial positions.
In June 2001, the EITF issued EITF Issue No. 00-25 ("EITF 00-25"), "Vendor
Income Statement Characterization of Consideration Paid to a Reseller of the
Vendor's Products", effective for periods beginning after December 15, 2001.
EITF 00-25 addresses whether consideration from a vendor to a reseller is (a)
an adjustment of the selling prices of the vendor's products and, therefore,
should be deducted from revenue when recognized in the vendor's statement of
operations or (b) a cost incurred by the vendor for assets or services received
from the reseller and, therefore, should be included as a cost or expense when
recognized in the vendor's statement of operations. Upon application of EITF
00-25, financial statements for prior periods presented for comparative
purposes should be reclassified to comply with the income statement display
requirements. We expect to adopt EITF 00-25 during the first quarter of fiscal
2002, and we do not believe that it will have a material effect on our
operating results or financial positions.
In September 2001, the EITF issued EITF Issue No. 01-09 ("EITF 01-09"),
"Accounting for Consideration Given by Vendor to a Customer or a Reseller of
the Vendor's Products", which is a codification of EITF 00-14, EITF 00-25 and
EITF 00-22, "Accounting for Points and Certain Other Time- or Volume-Based
Sales Incentive Offers and Offers for Free Products or Services to be Delivered
in the Future". Marimba is currently assessing the impact of the adoption of
these issues on our financial statements.
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 141, Business Combinations
("FAS 141"). FAS 141 establishes new standards for accounting and reporting
business combinations and requires that the purchase method of accounting be
used for all business combinations initiated after June 30, 2001. Use of the
pooling-of-interests method will be prohibited. We expect to adopt this
statement during the first quarter of fiscal 2002, and we do not believe that
FAS 141 will have a material effect on our operating results or financial
positions.
In July 2001, the FASB issued Statement of Financial Accounting Standards
No. 142 ("FAS 142"), "Goodwill and Other Intangible Assets", which supersedes
Accounting Principles Board Opinion No. 17 ("APB 17"), "Intangible Assets". FAS
142 establishes new standards for goodwill, including the elimination of
goodwill amortization to be replaced with methods of periodically evaluating
goodwill for impairment. We expect to adopt this statement during the first
quarter of fiscal 2002, and we do not believe that SFAS 142 will have a
material effect on our operating results or financial position.
In August 2001, the FASB issued Statement of Financial Accounting Standards
No. 144 ("FAS 144"), "Accounting for the Impairment or Disposal of Long-Lived
Assets", which addresses financial accounting and reporting for the impairment
or disposal of long-lived assets and supersedes Statement of Financial
Accounting Standards No. 121 ("FAS 121"), "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of", and the
accounting and reporting provisions of Accounting Principles Board Opinion No.
30 ("APB 30"), "Reporting the Results of Operations" for a disposal of a
segment of a business. FAS 144 is effective for fiscal years beginning after
December 15, 2001, with earlier application encouraged. We plan to adopt FAS
144 as of January 1, 2002 and expect that the adoption of the Statement will
have an insignificant impact on our financial position or results of operations.
45
MARIMBA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In November 2001, the FASB issued a Staff Announcement, Topic D-103, which
concluded that the reimbursement of "out-of-pocket" expenses should be
classified as revenue in the statement of operations for financial reporting
periods beginning after December 15, 2001and comparative financial statements
for prior periods should be reclassified to comply with the guidance in this
Announcement. Marimba currently records reimbursement of "out-of-pocket"
expenses in cost of services. Effective January 1, 2002, we will apply this
Announcement. The Announcement will have no impact on gross profit or net loss,
but will increase services revenue and cost of services revenue.
2. Property and Equipment
Property and equipment consist of the following:
December 31,
----------------
2001 2000
------- -------
(in thousands)
Furniture and equipment............................... $ 1585 $ 746
Computer equipment.................................... 5,819 5,152
Purchased software.................................... 1,321 1,353
Leasehold improvements................................ 1,141 1,061
------- -------
9,866 8,312
Accumulated depreciation.............................. (5,966) (4,038)
------- -------
Property and equipment, net........................... $ 3,900 $ 4,274
======= =======
3. Commitments
Marimba's contractual obligations consist of noncancellable operating lease
agreements. As of December 31, 2001, future minimum lease payments under
noncancelable operating leases are as follows:
Operating Leases
----------------
(in thousands)
Year ending December 31:
2002.................................................. 1,855
2003.................................................. 1,934
2004.................................................. 1,960
2005.................................................. 728
------
Total minimum lease payments....................... $6,477
======
Marimba's headquarters facility lease expires in April 2005. Rent expense
under operating leases totaled approximately, $3.1 million, $2.4 million and
$1.8 million for the years ended December 31, 2001, 2000 and 1999, respectively.
4. Deferred Compensation
We recorded deferred compensation of approximately $1.4 million in 1998,
representing the difference between the exercise prices of options granted to
acquire 940,500 shares of common stock during 1998 and the deemed fair value
for financial reporting purposes of our common stock on the grant dates. In
addition, we granted options to purchase common stock in April 1999 for which
we recorded additional deferred
46
MARIMBA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
compensation of approximately $2.0 million. In 2000, we recorded deferred
compensation of approximately $1.9 million (net of reduction of $703,000 due to
cancelled options), which represented the intrinsic value of certain stock
awards. In 2001, we recorded deferred compensation of approximately $1.9
million (net of reduction of $564,000 due to cancelled shares), which
represented the intrinsic value of certain stock awards. Deferred compensation
is being amortized over the vesting periods of the options and stock on a
graded vesting method. We amortized deferred compensation expense of $2.2
million, $1.7 million and $1.4 million for fiscal years 2001, 2000 and 1999,
respectively. This compensation expense relates to options awarded to
individuals in all operating expense categories. The amortization of deferred
compensation, assuming no further reductions due to cancelled shares, will
approximate $1.2 million in 2002 and $301,000 in 2003.
In July 2001, Marimba granted an option to purchase 50,000 shares of common
stock at an exercise price of $2.45 per share to a non-employee in exchange for
consulting services. The option was fully vested at the date of grant and is
exercisable for ten years. We estimated the fair value of the option granted
for services using the Black-Scholes option pricing model with the following
assumptions: risk-free interest rate of 5%, a contractual life of 10 years,
dividend yield of zero and volatility of 140%. In connection with this option
to purchase common stock, Marimba recorded a non-cash charge to sales and
marketing expense of $120,000 in 2001.
5. Stockholders' Equity
In 1999, Marimba sold 3,736,000 shares of common stock in an underwritten
public offering for net proceeds of approximately $68.1 million, after offering
expenses. Simultaneously with the closing of the public offering, all 5,753,566
shares of Marimba's preferred stock were converted to common stock on a
one-for-one basis. Additionally, a warrant to purchase 16,865 shares of Series
A convertible preferred stock was converted to a warrant to purchase the same
number of shares of common stock. In December 1999, the warrant was exercised.
As of December 31, 2001, our authorized capital stock consisted of
80,000,000 shares of common stock and 10,000,000 shares of undesignated
preferred stock. The following is a summary description of our capital stock:
Common Stock
The holders of common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Holders of common stock do not
have cumulative voting rights, and, therefore, holders of the remaining shares
voting for the election of directors can elect all of the directors. Subject to
preferences that may be applicable to any outstanding preferred stock, the
holders of common stock are entitled to receive dividends, if any, as may be
declared from time to time by the board of directors out of funds legally
available. In the event of the liquidation, dissolution or winding up of
Marimba, the holders of common stock are entitled to share ratably in all
assets remaining after payment of liabilities, subject to prior distribution
rights of preferred stock, if any, then outstanding. The common stock has no
preemptive or conversion rights or other subscription rights. There are no
redemption or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock are fully paid and nonassessable.
Marimba has reserved shares of common stock for future issuance as follows:
December 31,
2001
--------------
(in thousands)
Exercise of options................................... 10,530
Issuance of common stock under the 1999 ESPP.......... 494
------
Total.............................................. 11,024
======
47
MARIMBA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Preferred Stock
Marimba's Board of Directors has the authority to issue the preferred stock
in one or more series and to fix the rights, preferences, privileges and
related restrictions, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting any series or the designation
of the series, without further vote or action by the stockholders. The issuance
of preferred stock may have the effect of delaying, deferring or preventing a
change in control of us without further action by the stockholders and may
adversely affect the voting and other rights of the holders of common stock.
The issuance of preferred stock with voting and conversion rights may adversely
affect the voting power of the holders of common stock, including the loss of
voting control to others.
Dividend Policy
Marimba did not declare nor pay any cash dividends on our capital stock
during the fiscal years ended December 31, 2001, 2000 and 1999 and do not
expect to do so in the foreseeable future. Marimba anticipates that all future
earnings, if any, generated from operations will be retained by us to develop
and expand our business. Any future determination with respect to the payment
of dividends will be at the discretion of our Board of Directors and will
depend upon, among other things, our operating results, financial condition and
capital requirements, the terms of then-existing indebtedness, general business
conditions and such other factors as the Board of Directors deems relevant.
6. Stock Option and Other Employee Benefit Plans
1996 Stock Option Plan
In November 1996, the Board of Directors adopted the 1996 Stock Plan (the
"1996 Plan") for issuance of common stock to eligible participants. A total of
6,474,603 shares of common stock were reserved for issuance to eligible
participants under the 1996 Plan. Effective in April 1999 (concurrently with
Marimba's initial public offering), Marimba ceased granting awards under the
1996 Plan. Incentive stock options and nonstatutory stock options could be
granted under the 1996 Plan at prices not less than 100% and 85% of the fair
value on the date of grant. Options granted under the 1996 Plan expire after 10
years. Options under the plan are immediately exercisable; however, shares
issued are subject to Marimba's right to repurchase such shares at the original
issuance price, which right lapses in a series of installments measured from
the vesting commencement date of the option. As of December 31, 2001, 20,100
shares were subject to repurchase. Options generally vest and the repurchase
rights lapse ratably over a period of three or four years from the date of
grant.
1999 Omnibus Equity Incentive Plan
In March 1999, stockholders approved the adoption of Marimba's 1999 Omnibus
Equity Incentive Plan (the "1999 Omnibus Plan"), and a total of 1,250,000
shares of common stock were originally reserved for issuance to eligible
participants under the 1999 Omnibus Plan. As of January 1/st/ of each plan
year, annual increases to the share reserve are equal to the lesser of
1,250,000 shares or 4% of the outstanding common stock of Marimba on such
date.Effective in September 2001, the stockholders approved an amendment to the
1999 Omnibus Plan which increased the number of shares reserved for issuance
under the 1999 Omnibus Plan by the number of shares that are available for
issuance under the Company's 1996 Stock Plan, up to a maximum of
2,103,973 shares. A total of 2,175,810 shares of common stock were reserved for
issuance under the 1999 Omnibus Plan as of December 31, 2001, and an additional
965,658 shares of common stock were added to the reserve on January 1, 2002.
The types of awards that may be made under the 1999 Omnibus Plan to eligible
participants are options to purchase shares of common stock, stock appreciation
rights, restricted shares and stock units. The exercise price for incentive
stock options may not be less than 100% of the fair market value of
48
MARIMBA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Marimba's common stock on the date of grant (and 85% for nonstatutory options).
In the event of a change in control of Marimba, an option or award under the
1999 Omnibus Plan will become fully exercisable and fully vested if the option
or award is not assumed by the surviving corporation or the surviving
corporation does not substitute comparable awards for the awards granted under
the 1999 Omnibus Plan.
2000 Supplemental Stock Plan
In March 2000, the Board of Directors adopted the 2000 Supplemental Stock
Plan (the "2000 Plan"). A total of 3,500,000 shares of common stock have been
reserved for issuance to eligible participants under the 2000 Plan, and
officers and directors of Marimba are not eligible to participate in the 2000
Plan. The types of awards that may be made under the 2000 Plan are nonstatutory
options to purchase shares of common stock and restricted shares. The exercise
price for nonstatutory options may not be less than 85% of the fair market
value of Marimba's common stock on the date of grant. In the event of a change
in control of Marimba, an option or award under the 2000 Plan will become fully
exercisable and fully vested if the option or award is not assumed by the
surviving corporation or the surviving corporation does not substitute
comparable awards for the awards granted under the 2000 Plan.
In 2001, Marimba issued 900,000 restricted shares under the 1999 Omnibus
Plan (and repurchased 75,000 of such shares) and issued 100,000 restricted
shares under the 2000 Plan.
1999 Non-Employee Directors Option Plan
In March 1999, stockholders approved the adoption of Marimba's Non-Employee
Directors Option Plan (the "Directors Plan"), and a total of 150,000 shares of
common stock were originally reserved for issuance under the Directors Plan. As
of January 1/st/ of each plan year, the number of shares reserved for issuance
is increased automatically to restore the total number of shares available
under the Directors Plan to 150,000 shares. An additional 85,000 and 37,500
shares of common stock were added to the reserve on January 1, 2002 and 2001,
respectively. Under the Directors Plan, each non-employee director who became a
member of the Board of Directors before 1999 received a fully-vested option to
purchase 7,500 shares of the Company's common stock on the effective date of
the Company's initial public offering; the exercise price per share of these
options was the initial price offered to the public in the Company's initial
public offering. Between the Company's IPO and September 5, 2001, each
non-employee director who first became a member of the Board of Directors after
the date of the Company's initial public offering received a fully-vested
option to purchase 15,000 shares of the Company's common stock on the date such
individual joined the Board, and, at each annual meeting of stockholders of the
Company, each individual who was a non-employee director after each such annual
meeting during the period received an additional fully vested option to
purchase 7,500 shares of common stock. Pursuant to an amendment to the
Directors Plan approved by the stockholders in September 2001: (i) each
non-employee director who first commences service on or after September 6, 2001
(the date of the Company's 2001 annual stockholder meeting) will be
automatically granted an option to purchase 30,000 shares upon becoming a
director; (ii) each incumbent non-employee director will be automatically
granted an option to purchase 10,000 shares at the date of each annual
stockholders meeting beginning with the meeting in 2001 if the director is
serving on the Board of Directors at the time of such meeting (except that any
non-employee director who was first appointed to the Board of Directors between
July 19, 2001 and September 5, 2001 was granted, on the date of the 2001 annual
stockholders meeting, an option to purchase 15,000 shares); and (iii) each
incumbent non-employee director who is a member of a committee of the Board
will automatically be granted an option to purchase 2,500 shares for each
committee on which the director is serving. Each of the options granted under
the Directors Plan on or after September 6, 2001 will be subject to vesting
restrictions. Each director who receives an initial option grant under the
Directors Plan will first be eligible to receive an annual option grant in the
calendar year that is two years after the calendar year in which the director
received the initial option grant. Unless
49
MARIMBA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
otherwise specified above, the exercise price for each option grant will be
equal to the fair market value per share of common stock on the option grant
date.
Stock Option Exchange
During the period from April 27 to July 23, 2001, Marimba offered a
voluntary stock option exchange program to its employees, and a total of
1,369,500 shares of the Marimba's common stock were accepted for exchange under
the program. Members of our Board of Directors and our executive officers,
however, were not eligible to participate in the program. Under the program,
Marimba employees were given the opportunity, if they so chose, to cancel
outstanding stock options previously granted to them at an exercise price of at
least $7.50 per share, in exchange for new options to be granted no earlier
than six months and one day after July 23, 2001; provided, however, that
options granted on or after January 23, 2001 (even if they had an exercise
price under $7.50 per share) had also to be exchanged if the option holder
chose to exchange one or more options granted prior to January 23, 2001 at an
exercise price of at least $7.50 per share. The number of shares subject to the
new options were determined by applying an exchange ratio in the range of 1:1
to 1:2 (i.e., one new option share for every two canceled option shares) based
on the exercise price of the canceled option. On January 25, 2002, new options
to purchase a total 829,452 shares of Marimba's common stock were granted under
the 2000 Plan in exchanged for the canceled options accepted for exchange under
the program. The exercise price of these new options is $3.10 per share, the
closing price of Marimba's common stock on the Nasdaq National Market on the
date of grant. The exchange program was designed to comply with Financial
Accounting Standards Board Interpretation No. 44 ("FIN 44"), "Accounting for
Certain Transactions Involving Stock Compensation", and is expected not to
result in any additional compensation charges or variable plan accounting.
Non-Plan Grant
In March 2001, the Board of Directors approved a 400,000 share option grant
to an employee outside of any of Marimba's stock option plans. The option will
become exercisable in a series of forty-eight (48) successive equal monthly
installments upon completion of each month of continuous service by the
employee with the Company from February 5, 2001. The options have a maximum
term of ten years measured from the date of grant and are exercisable at
$4.3125 per share, which is equal to the market price of Marimba's shares on
the date of grant.
50
MARIMBA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A summary of Marimba's stock option activity for all of its option plans and
other option grants is as follows:
Options Outstanding
---------------------
Weighted-
Shares Average
Available Number of Exercise
for Grant Shares Price
---------- ---------- ---------
Balance at January 1, 1999............................ 1,229,773 2,192,568 $ 3.16
Authorized......................................... 1,400,000 -- --
Granted............................................ (2,252,750) 2,252,750 20.59
Exercised.......................................... -- (615,171) 2.49
Repurchased........................................ 70,309 -- --
Canceled........................................... 367,352 (367,352) 10.75
---------- ----------
Balance at December 31, 1999.......................... 814,684 3,462,795 13.84
Authorized......................................... 5,440,810 -- --
Granted............................................ (5,979,392) 5,979,392 17.41
Exercised.......................................... -- (458,964) 2.40
Repurchased........................................ 108,546 -- --
Canceled........................................... 2,383,870 (2,383,870) 19.00
---------- ----------
Balance at December 31, 2000.......................... 2,768,518 6,599,353 $16.01
Authorized......................................... 1,380,879
Granted............................................ (4,614,250) 4,614,250 2.83
Exercised.......................................... (322,574) 1.84
Repurchased........................................ 103,693 -- --
Canceled........................................... 4,599,805 (4,599,805) 17.42
---------- ----------
Balance at December 31, 2001.......................... 4,238,645 6,291,224 $ 5.77
========== ==========
The following table details outstanding and exercisable options as of
December 31, 2001:
Outstanding Exercisable
------------------------------------------- --------------------------
Weighted-Average
Range of Number of Remaining Weighted-Average Number of Weighted-Average
Exercise Price Shares Contractual Life Exercise Price Shares Exercise Price
- -------------- --------- ---------------- ---------------- --------- ----------------
$.0001- 2.00 1,140,911 9.45 $ 21 36,177 $ 1.36
2.45- 3.50 1,977,046 9.38 2.56 205,125 2.92
4.31- 5.25 2,120,917 8.99 4.80 690,776 4.95
7.63-10.00 327,500 8.82 7.82 39,187 9.11
13.00-18.06 359,600 8.25 15.34 204,976 15.52
20.00-29.00 92,250 7.66 22.19 58,477 21.45
31.38-46.00 273,000 8.11 41.42 126,007 41.11
--------- ---------
Total..... 6,291,224 9.09 $ 5.77 1,360,725 $10.32
========= =========
As of December 31, 2001 and 2000, 758,353 and 217,048 options were vested
and exercisable with weighted average exercise prices of $18.16 and $42.53 per
share, respectively. No options were vested and exercisable at December 31,
1999.
51
MARIMBA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1999 Employee Stock Purchase Plan
In March 1999, stockholders approved the adoption of Marimba's 1999 employee
stock purchase plan (the "1999 Purchase Plan"), and a total of 500,000 shares
of common stock was originally reserved for issuance under the Directors Plan.
As of January 1/st/ of each plan year, annual increases to the share reserve
are to equal the lesser of 500,000 shares or 2% of the outstanding common stock
of Marimba on such date. A total of 493,712 shares of common stock were
reserved for issuance under the 1999 Purchase Plan as of December 31, 2001, and
an additional 482,829 shares of common stock were added to the reserve on
January 1, 2002. The 1999 Purchase Plan permits eligible employees to acquire
shares of Marimba's common stock through periodic payroll deductions of up to
10% of base cash compensation. No more than 1,500 shares may be purchased by
each employee on any purchase date. Each offering period will have a maximum
duration of 24 months. The price at which the common stock may be purchased is
85% of the lesser of the fair market value of Marimba's common stock on the
first day of the applicable offering period or on the last day of the
respective purchase period. The initial offering period commenced on April 30,
1999. A total of 338,076 shares at an average price of $2.12, 88,811 shares at
a price of $10.41 and 42,306 shares at a price of $17.00 were issued under the
1999 Purchase Plan for the years ended December 31, 2001, 2000 and 1999,
respectively.
Pro Forma Disclosures of the Effect of Stock-Based Compensation
We utilize the intrinsic value-based method to account for all of our
stock-based benefit plans. Pro forma information regarding net loss and net
loss per share is required by FAS 123, and has been determined as if Marimba
had accounted for its employee stock-based benefit plans under the fair value
method of that statement.
The fair value of each option granted through December 31, 2001 was
estimated on the date of grant using the minimum value (before Marimba went
public) or the Black-Scholes method. The Black-Scholes option valuation model
was developed for use in estimating the fair value of traded options that have
no vesting restrictions and are fully transferable. The Black-Scholes model
requires the input of highly subjective assumptions including the expected
stock price volatility. Because Marimba's stock-based awards have
characteristics significantly different from those in traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its stock
based awards. The fair value of Marimba's stock-based awards was estimated
using the following assumptions:
Year Ended
December 31,
-------------------------
2001 2000 1999
------- ------- -------
Risk-free interest rate................ 4% 5% 6%
Expected life.......................... 3 years 3 years 3 years
Volatility............................. 126% 140% 101%
Dividend yield......................... -- -- --
The weighted average fair value of options granted was $3.36 in 2001, $17.85
in 2000 and $20.59 in 1999.
The fair value of Marimba's ESPP purchases was estimated using the following
assumptions:
Year Ended
December 31,
-------------------------
2001 2000 1999
------- ------- -------
Risk-free interest rate................ 4% 5% 6%
Expected life.......................... 2 years 2 years 2 years
Volatility............................. 126% 140% 101%
Dividend yield......................... -- -- --
52
MARIMBA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The weighted-average fair market value of shares granted under the 1999
Employee Stock Purchase Plan were $2.49, $12.24 and $13.68 for the years ended
December 31, 2001, 2000 and 1999, respectively.
For purposes of pro forma disclosures, the estimated fair value at grant
date for awards under all stock-based benefit plans is amortized to pro forma
expense over the options vesting period using the graded vesting method. Pro
forma information is as follows:
Year Ended December 31,
------------------------------------
2001 2000 1999
-------- -------- --------
(in thousands, except per share data
Net loss:
As reported....................... $(13,352) $ (9,672) $ (4,214)
======== ======== ========
Pro forma......................... $(15,315) $(36,900) $(10,532)
======== ======== ========
Basic and diluted net loss per share:
As reported....................... $ (.56) $ (.42) $ (.22)
======== ======== ========
Pro forma......................... $ (.64) $ (1.59) $ (.55)
======== ======== ========
The effects of applying FAS 123 for pro forma disclosures are not likely to
be representative of the effects on reported net loss for future years.
7. Income Taxes
Marimba's provision for income taxes for the years ended December 31, 2001
and 2000, consists of state income and franchise taxes and foreign taxes. For
the year ended December 31, 1999 the provision for income taxes is comprised
entirely of foreign taxes.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of Marimba's deferred tax assets are as follows:
December 31,
------------------
2001 2000
-------- --------
(in thousands)
Deferred tax assets:
Net operating loss carryforwards........... $ 12,700 $ 7,900
Research credit carryforwards.............. 1,500 1,300
Deferred revenue........................... 1,300 1,800
Capitalized research and development costs. 800 --
Other...................................... 2,900 3,600
-------- --------
Total deferred tax assets.............. 19,200 14,600
Valuation allowance........................... (19,200) (14,600)
-------- --------
Net deferred tax assets....................... $ -- $ --
======== ========
Realization of deferred tax assets is dependent upon future earnings, if
any, the timing and amount of which are uncertain. Accordingly, the net
deferred tax assets have been fully offset by a valuation allowance. The
valuation allowance increased by $4.6 million and $6.3 million during 2001 and
2000, respectively.
53
MARIMBA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of December 31, 2000, Marimba had net operating loss carryforwards for
federal income tax purposes of approximately $35.0 million, which expire in the
years 2011 through 2021 and federal research and development tax credits of
approximately $1.0 million, which expire in the years 2011 through 2021.
Utilization of Marimba's net operating loss may be subject to substantial
annual limitations due to the ownership change limitations provided by Internal
Revenue Code and similar state provisions. Such an annual limitation could
result in the expiration of the net operating loss before utilization.
8. Legal Matters
Securities Litigation
Beginning in April 2001, a number of substantially identical class action
complaints alleging violations of the federal securities laws were filed in the
United States District Court for the Southern District of New York naming
Marimba, Inc., certain of its officers and directors, and certain underwriters
of the company's initial public offering (Morgan Stanley & Co., Inc., Credit
Suisse First Boston Corp. and Bear Stearns & Co., Inc.) as defendants. The
complaints have since been consolidated into a single action. The complaints
allege, among other things, that the underwriters of our initial public
offering violated the securities laws by failing to disclose certain alleged
compensation arrangements (such as undisclosed commissions or stock
stabilization practices) in the offering's registration statement. Marimba and
certain of its officers and directors are named in the complaints pursuant to
Section 11 of the Securities Act of 1933, and one of such complaints includes a
claim against the Company and such officers and directors under Section 10(b)
of the Securities Exchange Act of 1934. Similar complaints have been filed
against over 300 other issuers that have had initial public offerings since
1998 and all such actions have been included in a single coordinated
proceeding. Marimba intends to defend these actions vigorously. However, due to
the inherent uncertainties of litigation, we cannot accurately predict the
ultimate outcome of the litigation. Any unfavorable outcome of this litigation
could have an adverse impact on our business, liquidity, financial condition
and results of operations.
Beck Systems, Inc. vs. Marimba, Inc.
On July 6, 2001, Beck Systems, Inc. filed a complaint against Marimba, Inc.
and two of its customers in the United States District Court for the Northern
District of Illinois (Beck Systems, Inc. v. Marimba, Inc. et al., Civil Action
No. 01 C 5207), alleging infringement of two patents held by Beck Systems. Beck
Systems alleges that Marimba's infringement relates to the manufacture and
marketing of Marimba's desktop/mobile management and server management
products. On August 29, 2001, Marimba filed its answer to Beck Systems'
complaint, denying any liability to Beck Systems, asserting various affirmative
defenses, and seeking the court's determination that the patents in suit are
not infringed, are invalid, and/or are unenforceable. Marimba further requested
the court for an award of attorneys' fees, costs and expenses. The parties are
currently engaged in discovery for this suit, and a trial date has not been
set. Marimba intends to defend this suit vigorously. However, due to the
inherent uncertainties of litigation, we cannot accurately predict the ultimate
outcome of the litigation, particularly in cases such as this where
sophisticated factual issues must be assessed and complex technical issues must
be decided. Any unfavorable outcome of this litigation could have an adverse
impact on our business, liquidity, financial condition and results of
operations.
9. Related Party Transactions
In July 2000, Marimba provided a loan facility of up to $1,000,000 to one of
its executive officers to assist him in paying withholding taxes incurred upon
the purchase of restricted stock. The note bore interest at the rate of 6.6%,
had an outstanding principal amount of $751,093 and became due and payable in
full on October 9,
54
MARIMBA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2001, which was three months from the executive officer's employment
termination date with Marimba on July 9, 2001. No amounts were drawn in 2000.
The outstanding principal amount due under the note was repaid by the executive
officer on October 10, 2001.
In September 2001, Marimba executed a software license agreement in the
amount of $443,000 with a customer, whose chief executive officer is a member
of Marimba's board of directors. As of December 31, 2001, there were no amounts
due.
10. Restructuring
In April 2001, Marimba announced a restructuring plan. The plan involved the
elimination across all company departments of approximately 20% of the
workforce, or 60 employees and independent contractors. Marimba recorded a
charge of $789,000 in the second quarter of 2001 related to the restructuring
plan, which consisted of personnel costs of $583,000, facilities and equipment
costs of $136,000 and other costs of $70,000. The remaining accrual was
$123,000 at December 31, 2001, and is expected to be paid during 2002.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
55
PART III
The information required by this Part III will be provided in our definitive
proxy statement for our 2002 Annual Meeting of Stockholders (involving the
election of directors), which definitive proxy statement will be filed pursuant
to Regulation 14A not later than 120 days following our fiscal year ended
December 31, 2001, and is incorporated herein by this reference to the
following extent:
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 is incorporated herein by reference from
the section entitled "Proposal No. 1--Election of Directors" of the Proxy
Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated herein by reference from
the section entitled "Executive Compensation and Related Information" of the
Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is incorporated herein by reference from
the section entitled "Stock Ownership of Certain Beneficial Owners and
Management" of the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated herein by reference from
the section entitled "Certain Relationships and Related Transactions" of the
Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULE, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
See the Consolidated Financial Statements and Supplementary Data
beginning on page 33 of this Form 10-K.
(2) Financial Statement Schedules
No schedules have been filed because the information required to be set
forth therein is not applicable or is shown in the consolidated
financial statements or notes thereto.
(3) Exhibits required by Item 601 of Regulation S-K.
See Exhibit Index of this Form 10-K for the exhibits filed as part of or
incorporated by reference into this Form 10-K.
(b) Reports on Form 8-K
During the quarter ended December 31, 2001, the Company did not file any
reports on Form 8-K.
(c) See Exhibit Index of this Form 10-K for the exhibits filed as part of or
incorporated by reference into this Form 10-K.
56
SIGNATURES
Pursuant to the requirements of the 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.
MARIMBA, INC.
Date: March 27, 2002 By: /s/ MARK S. GARRETT
----------------------------------
Mark S. Garrett
Vice President, Finance and Chief
Financial Officer (Principal
Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons, on behalf of the
Registrant in the capacities and on the dates indicated:
Title Date
----- ----
/s/ RICHARD C. WYCKOFF President, Chief Executive March 27, 2002
- ----------------------------- Officer and Director
Richard C. Wyckoff
/s/ MARK S. GARRETT Vice President, Finance and March 27, 2002
- ----------------------------- Chief Financial Officer
Mark S. Garrett
/s/ KIM K. POLESE Chairman and Director March 27, 2002
- -----------------------------
Kim K. Polese
/s/ ANEEL BHUSRI Director March 27, 2002
- -----------------------------
Aneel Bhusri
/s/ STRATTON D. SCLAVOS Director March 27, 2002
- -----------------------------
Stratton D. Sclavos
/s/ RAYMOND J. LANE Director March 27, 2002
- -----------------------------
Raymond J. Lane
/s/ ERIC J. KELLER Director March 27, 2002
- -----------------------------
Eric J. Keller
/s/ DOUGLAS J. MACKENZIE Director March 27, 2002
- -----------------------------
Douglas J. Mackenzie
/s/ ANTHONY ZINGALE Director March 27, 2002
- -----------------------------
Anthony Zingale
57
EXHIBIT INDEX
Exhibit
No. Description
- ------- -----------
3.1 Third Amended and Restated Certificate of Incorporation of the Registrant--incorporated herein by
reference to Exhibit 3.3 to the Company's Registration Statement on Form S-1 (File No. 333-72353).
3.2 Amended and Restated Bylaws of the Registrant--incorporated herein by reference to Exhibit 3.2 to
the Company's Form 10-K for the fiscal year ended December 31, 2000, filed with the Commission
on March 28, 2001.
4.1 Reference is made to Exhibits 3.1 and 3.2.
4.2 Form of Registrant's Common Stock certificate--incorporated herein by reference to Exhibit 4.2 to
the Company's Registration Statement on Form S-1 (File No. 333-72353).
10.1 Form of Indemnification Agreement entered into by the Registrant with each of its directors and
executive officers--incorporated herein by reference to Exhibit 10.1 to the Company's Registration
Statement on Form S-1 (File No. 333-72353).
10.2 1999 Omnibus Equity Incentive Plan and forms of agreements thereunder, as amended to date--
incorporated herein by reference to Exhibit 10.1 to the Company's Form 10-Q for the quarterly period
ended September 30, 2001 filed with the Commission on November 1, 2001.
10.3 1999 Employee Stock Purchase Plan, as amended to date--incorporated herein by reference to
Exhibit 10.3 to the Company's Form 10-K for the fiscal year ended December 31, 2000, filed with the
Commission on March 28, 2001.
10.4* International Employee Stock Purchase Plan, as amended to date.
10.5 1999 Non-Employee Directors Option Plan, as amended to date--incorporated herein by reference to
Exhibit 10.2 to the Company's Form 10-Q for the quarterly period ended September 30, 2001 filed
with the Commission on November 1, 2001.
10.6 Lease between ilicon, Inc. and Registrant dated February 27, 2000--incorporated herein by reference
to Exhibit 10.17 to the Company's Form 10-K for the fiscal year ended December 31, 1999 file with
the Commission on March 27, 2000.
10.7 Non-Recourse Receivables Purchase Agreement between Silicon Valley Bank and the Company
dated as of June 25, 2001--incorporated herein by reference to Exhibit 10.1 to the Company's Form
10-Q for the quarterly period ended June 30, 2001 filed with the Commission on August 6, 2001.
21.1* List of Subsidiaries of the Registrant.
23.1* Consent of Ernst & Young LLP, Independent Auditors.
- --------
* Filed with this Form 10-K