-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DKuTyzlFP3bEtpbop766gJ8mJw31Bve7juAKa4lKgwAFGQhlFjChtuftsVk33y7C VEs9FefZV3nfVvNrjJ2j1A== 0001047469-99-024120.txt : 19990615 0001047469-99-024120.hdr.sgml : 19990615 ACCESSION NUMBER: 0001047469-99-024120 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990430 FILED AS OF DATE: 19990614 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SERENA SOFTWARE INC CENTRAL INDEX KEY: 0001073967 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 942669809 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-25285 FILM NUMBER: 99646112 BUSINESS ADDRESS: STREET 1: 500 AIRPORT BLVD 2ND FLOOR CITY: BURLINGTON STATE: CA ZIP: 54010 BUSINESS PHONE: 6506961800 10-Q 1 FORM 10-Q - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-Q /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED APRIL 30, 1999 / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____________ TO _____________ COMMISSION FILE NO. 000-25285 ------------------------ SERENA SOFTWARE, INC. (Exact name of registrant as specified in its charter) DELAWARE 94-2669809 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.)
500 AIRPORT BOULEVARD, 2ND FLOOR, BURLINGAME, CALIFORNIA 94010-1904 (Address of principal executive offices, including zip code) 650-696-1800 (Registrant's telephone number, including area code) ------------------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No ____ The number of shares of the registrant's Common Stock, par value $0.001, outstanding as of April 30, 1999 was 25,301,126. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- FORWARD LOOKING STATEMENTS This quarterly report contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act. Actual results could differ materially from those projected in the forward-looking statements as a result of certain factors described herein and in other documents. Readers should pay particular attention to the section of this report entitled "Factors that May Affect Future Results" and should also carefully review the risk factors described in the other documents we file from time to time with the SEC. INDEX
PAGE ----- PART I FINANCIAL INFORMATION Item 1 Financial Statements: Consolidated Balance Sheets as of April 30, 1999 and January 31, 1999............................ 3 Consolidated Statements of Income for the Three Months Ended April 30, 1999 and 1998............. 4 Consolidated Statements of Cash Flows for The Three Months Ended April 30, 1999 and 1998......... 5 Notes to Consolidated Financial Statements....................................................... 6 Item 2 Management's Discussion and Analysis of Results of Operations and Financial Condition............ 8 Item 3 Quantitative and Qualitative Disclosures About Market Risk....................................... 25 PART II OTHER INFORMATION Item 1 Legal Proceedings................................................................................ 26 Item 2 Change in Securities and Use of Proceeds......................................................... 26 Item 3 Defaults Upon Senior Securities.................................................................. 26 Item 4 Submission of Matters to a Vote of Security Holders.............................................. 26 Item 5 Other Information................................................................................ 26 Item 6 Exhibits and Reports on Form 8-K................................................................. 26 Signatures....................................................................................... 27
2 PART I--FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. SERENA SOFTWARE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
APRIL 30, JANUARY 31, 1999 1999 ------------- ------------ ASSETS Current assets: Cash and cash equivalents.............................................. $ 61,139,044 $ 21,468,740 Short-term investments................................................. 23,440,894 -- Accounts receivable, net of allowance of $386,000 and $311,000 at April 30 and January 31, 1999, respectively................................ 11,381,177 13,036,551 Due from principal stockholder......................................... -- 196,188 Deferred taxes......................................................... 1,119,531 1,119,531 Prepaid expenses and other current assets.............................. 869,875 565,679 ------------- ------------ Total current assets................................................. 97,950,521 36,386,689 Property and equipment, net.............................................. 1,826,449 1,864,535 Due from principal stockholder........................................... -- 420,581 Intangible assets, net................................................... 20,430,244 20,932,685 Other assets............................................................. 91,970 73,431 ------------- ------------ TOTAL ASSETS......................................................... $ 120,299,184 $ 59,677,921 ------------- ------------ ------------- ------------ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable....................................................... $ 142,944 $ 401,026 Income taxes payable................................................... 398,699 1,498,725 Accrued expenses....................................................... 6,794,515 7,142,979 Deferred revenue....................................................... 12,954,552 10,839,084 ------------- ------------ Total current liabilities............................................ 20,290,710 19,881,814 Deferred revenue, net of current portion................................. 1,358,008 1,532,905 Deferred taxes........................................................... 158,152 158,152 ------------- ------------ Total liabilities.................................................... 21,806,870 21,572,871 ------------- ------------ Commitments and contingencies Stockholders' equity: Preferred stock, $0.001 par value; 5,000,000 shares authorized; no shares issued and outstanding Common stock, $0.001 par value; 60,000,000 shares authorized; 25,301,126 and 20,401,126 shares issued and outstanding at April 30 and January 31, 1999, respectively................................... 25,301 20,401 Additional paid-in capital............................................. 86,403,945 28,517,972 Deferred stock-based compensation...................................... (1,012,863) (1,339,030) Notes receivable from stockholders..................................... (3,280,114) (3,233,374) Accumulated other comprehensive losses................................. (2,835) (25,578) Retained earnings...................................................... 16,358,880 14,164,659 ------------- ------------ Total stockholders' equity........................................... 98,492,314 38,105,050 ------------- ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........................... $ 120,299,184 $ 59,677,921 ------------- ------------ ------------- ------------
See accompanying notes to consolidated financial statements. 3 SERENA SOFTWARE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED APRIL 30, 1999 AND 1998 (UNAUDITED)
THREE MONTHS ENDED APRIL 30, ---------------------------- 1999 1998 ------------- ------------- Revenue: Software licenses.................................... $ 6,908,607 $ 4,341,152 Maintenance.......................................... 5,294,079 3,651,632 Professional services................................ 2,018,070 647,064 ------------- ------------- Total revenue...................................... 14,220,756 8,639,848 ------------- ------------- Cost of revenue: Software licenses.................................... 688,859 250,670 Maintenance.......................................... 1,335,083 891,781 Professional services................................ 1,557,041 597,203 ------------- ------------- Total cost of revenue.............................. 3,580,983 1,739,654 ------------- ------------- Gross profit....................................... 10,639,773 6,900,194 ------------- ------------- Operating expenses: Sales and marketing.................................. 4,262,815 2,380,533 Research and development............................. 1,366,357 1,000,344 General and administrative........................... 1,100,801 804,749 Stock-based compensation............................. 314,814 905,528 Amortization of intangible assets.................... 502,441 -- ------------- ------------- Total operating expenses........................... 7,547,228 5,091,154 ------------- ------------- Operating income....................................... 3,092,545 1,809,040 Interest and other income, net......................... 835,228 150,804 ------------- ------------- Income before income taxes........................... 3,927,773 1,959,844 Income taxes........................................... 1,733,551 862,332 ------------- ------------- Net income........................................... $ 2,194,222 $ 1,097,512 Translation adjustment................................. 22,743 (2,377) ------------- ------------- Comprehensive income................................. $ 2,216,965 $ 1,095,135 ------------- ------------- ------------- ------------- Net income per share: Basic................................................ $ 0.09 $ 0.07 ------------- ------------- ------------- ------------- Diluted.............................................. $ 0.09 $ 0.07 ------------- ------------- ------------- ------------- Weighted average shares used in per share calculations: Basic................................................ 23,469,099 15,564,750 ------------- ------------- ------------- ------------- Diluted.............................................. 24,890,748 16,251,876 ------------- ------------- ------------- -------------
See accompanying notes to consolidated financial statements. 4 SERENA SOFTWARE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED APRIL 30, 1999 AND 1998 (UNAUDITED)
THREE MONTHS ENDED APRIL 30, ---------------------------- 1999 1998 ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income...................................................... $ 2,194,222 $ 1,097,512 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation.................................................. 184,462 130,157 Deferred income taxes......................................... -- 212,922 Increase in allowance for bad debts........................... 74,854 15,490 Accrued interest on notes receivable.......................... (46,740) -- Amortization of deferred stock-based compensation............. 314,814 905,528 Amortization of intangible assets............................. 502,441 -- Changes in operating assets and liabilities: Accounts receivable......................................... 1,562,585 1,867,630 Prepaid expenses and other assets........................... (323,564) (144,231) Accounts payable............................................ (251,635) (33,595) Income taxes payable........................................ (1,099,891) 275,197 Accrued expenses............................................ (336,077) (2,058,744) Deferred revenue............................................ 1,958,887 2,296,475 ------------- ------------- Net cash provided by operating activities................. 4,734,358 4,564,341 ------------- ------------- CASH FLOWS USED IN INVESTING ACTIVITIES: Purchases of property and equipment............................. (135,674) (93,127) Purchases of short-term investments............................. (23,440,894) -- Payment of notes due from stockholder........................... 616,769 -- ------------- ------------- Net cash used in investing activities..................... (22,959,799) (93,127) ------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES--ISSUANCE OF COMMON STOCK.... 57,902,226 -- ------------- ------------- EFFECT OF EXCHANGE RATE CHANGES ON CASH........................... (6,481) (35,463) ------------- ------------- NET INCREASE IN CASH AND CASH EQUIVALENTS......................... 39,670,304 4,435,751 Cash and cash equivalents at beginning of period.................. 21,468,740 9,024,015 ------------- ------------- Cash and cash equivalents at end of period........................ $ 61,139,044 $ 13,459,766 ------------- ------------- ------------- ------------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Income taxes paid................................................. $ 2,854,357 $ 1,365,000 ------------- ------------- ------------- ------------- NONCASH INVESTING AND FINANCING ACTIVITY: Restricted stock issued in exchange for notes receivable........ $ -- $ 238,813 ------------- ------------- ------------- -------------
See accompanying notes to consolidated financial statements. 5 SERENA SOFTWARE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SERENA Software, Inc. (the "Company") is a leading provider of software change management, or SCM, products and services for managing and controlling change throughout the software application lifecycle. Its principal markets are North America and Europe. The accompanying unaudited consolidated financial statements have been prepared on substantially the same basis as the audited consolidated financial statements, and in the opinion of management include all adjustments, consisting only of normal recurring adjustments, necessary for their fair presentation. These unaudited consolidated financial statements and the notes thereto have been prepared in accordance with the Instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all disclosure required by generally accepted accounting principles and Regulation S-X for annual financial statements. For these additional disclosures, readers should refer to the Company's annual report on Form 10-K for the fiscal year ended January 31, 1999. The interim results presented are not necessarily indicative of results for any subsequent quarter or for the fiscal year ended January 31, 2000. (1) NET INCOME PER SHARE Basic net income per share is computed using the weighted-average number of shares of common stock outstanding. Diluted net income per share is computed using the weighted-average number of shares of common stock outstanding and, when dilutive, common equivalent shares from restricted stock and options to purchase common stock using the treasury stock method. The following is a reconciliation of the shares used in the computation of basic and diluted net income per share:
THREE MONTHS ENDED APRIL 30, ---------------------------- 1999 1998 ------------- ------------- Basic net income per share--weighted average number of common shares outstanding........................................... 23,469,099 15,564,750 Effect of potentially dilutive securities outstanding-- restricted stock and options................................. 1,421,649 687,126 ------------- ------------- Shares used in diluted net income per share computation........ 24,890,748 16,251,876 ------------- ------------- ------------- -------------
(2) SEGMENT REPORTING In June 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. SFAS No. 131 establishes standards for the manner in which public companies report information about operating segments in annual and interim financial statements. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. The method for determining what information to report is based on the way management organizes the operating segments within the Company for making operating decisions and assessing financial performance. The Company's chief operating decision-maker is considered to be the Company's chief executive officer (CEO). The CEO reviews financial information presented on an entity level basis accompanied by disaggregated information about revenues by product type and certain information about geographic regions for purposes of making operating decisions and assessing financial performance. The entity level financial information is identical to the information presented in the accompanying statements of operations. Therefore, the Company has determined that it operates in a single operating segment: change management software. 6 (3) RECENT ACCOUNTING PRONOUNCEMENTS The FASB recently issued Statement of Financial Accounting Standards ("SFAS") No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No. 133 addresses the accounting for derivative instruments, including certain derivative instruments embedded in other contracts. Under SFAS No. 133, entities are required to carry all derivative instruments in the balance sheet at fair value. The accounting for changes in the fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and, if so, the reason for holding it. The Company must adopt SFAS No. 133 by October 1, 1999. The Company does not anticipate that SFAS No. 133 will have an effect on its financial statements. In December 1998, the American Institute of Certified Public Accountants issued Statement of Position (SOP) 98-9, SOFTWARE REVENUE RECOGNITION, WITH RESPECT TO CERTAIN ARRANGEMENTS. SOP 98-9 requires recognition of revenue using the "residual method" in a multiple-element arrangement when fair value does not exist for one or more of the delivered elements in the arrangement. Under the residual method, the total fair value of the undelivered elements is deferred and subsequently recognized in accordance with SOP 97-2. The Company does not expect a material change to its accounting for revenues as a result of the provisions of SOP 98-9. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION THIS SECTION OF THE FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS BASED UPON CURRENT EXPECTATIONS THAT INVOLVE RISKS AND UNCERTAINTIES, SUCH AS OUR PLANS, OBJECTIVES, EXPECTATIONS AND INTENTIONS. OUR ACTUAL RESULTS AND THE TIMING OF CERTAIN EVENTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH IN THIS SECTION UNDER "FACTORS THAT MAY AFFECT FUTURE RESULTS" AND ELSEWHERE IN, OR INCORPORATED BY REFERENCE INTO, THIS REPORT. IT IS IMPORTANT THAT THE DISCUSSION BELOW BE READ TOGETHER WITH THE ATTACHED CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO, WITH THE DISCUSSION OF SUCH RISKS AND UNCERTAINTIES AND WITH THE AUDITED FINANCIAL STATEMENTS AND NOTES THERETO, AND THE MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION, CONTAINED IN THE COMPANY'S FORM 10-K FOR FISCAL 1999. RESULTS OF OPERATIONS REFERENCES TO THE DOLLAR AND PERCENTAGE INCREASES OR DECREASES SET FORTH BELOW IN THIS DISCUSSION AND ANALYSIS OF SERENA'S RESULTS OF OPERATIONS ARE DERIVED FROM COMPARISONS OF SERENA'S CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED APRIL 30, 1999 TO THE CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED APRIL 30, 1998. HISTORICAL RESULTS INCLUDE THE RESULTS OF OPTIMA SOFTWARE ("OPTIMA") FROM SEPTEMBER 25, 1998, THE DATE OUR ACQUISITION OF OPTIMA WAS COMPLETED. The following table sets forth our historical results of operations expressed as a percentage of total revenue. These historical operating results for the periods presented are not necessarily indicative of the results for the full fiscal year or any other period.
PERCENTAGE OF REVENUE THREE MONTHS ENDED APRIL 30, ---------------------------- 1999 1998 ------ ------ Revenue: Software licenses.................................... 48.6% 50.2% Maintenance.......................................... 37.2% 42.3% Professional services................................ 14.2% 7.5% ----- ----- TOTAL REVENUE...................................... 100.0% 100.0% ----- ----- Cost of revenue: Software licenses.................................... 4.8% 2.9% Maintenance.......................................... 9.4% 10.3% Professional services................................ 11.0% 6.9% ----- ----- TOTAL COST OF REVENUE.............................. 25.2% 20.1% ----- ----- GROSS PROFIT....................................... 74.8% 79.9% ----- ----- Operating expenses: Sales and marketing.................................. 30.0% 27.6% Research and development............................. 9.6% 11.6% General and administrative........................... 7.8% 9.3% Stock-based compensation............................. 2.2% 10.5% Amortization of intangible assets.................... 3.5% -- ----- ----- Total operating expenses........................... 53.1% 59.0% ----- ----- OPERATING INCOME....................................... 21.6% 20.9% Interest and other income, net......................... 5.9% 1.8% ----- ----- Income before income taxes........................... 27.5% 22.7% Income taxes........................................... 12.2% 10.0% ----- ----- NET INCOME......................................... 15.3% 12.7% ----- ----- ----- -----
8 REVENUE We derive revenue from software licenses, maintenance and professional services. Our total revenue increased $5.6 million or 65% to $14.2 million in the current fiscal quarter ended April 30, 1999 from $8.6 million in the same quarter a year ago. SOFTWARE LICENSES. Software licenses revenue as a percentage of total revenue was 49% in the current fiscal quarter ended April 30, 1999 as compared to 50% in the same quarter a year ago. Software licenses revenue increased $2.6 million or 59% to $6.9 million in the current fiscal quarter from $4.3 million in the same quarter a year ago. The dollar increase is generally attributed to increased demand for new licenses of FULL.CYCLE MAINFRAME products as a result of greater customer awareness of and need for third party SCM solutions and, to a lesser extent, the acquisition of Optima, an increase in sales force productivity and personnel, and software license price increases. In particular, sales of our COMPAREX and STARTOOL products grew significantly. Those products together with our CHANGE MAN product accounted for $6.4 million or 93% of total software licenses revenue in the current fiscal quarter as compared to $3.7 million or 86% in the same quarter a year ago. MAINTENANCE. Maintenance revenue as a percentage of total revenue was 37% in the current fiscal quarter ended April 30, 1999 as compared to 42% in the same quarter a year ago. Maintenance revenue increased $1.6 million or 45% to $5.3 million in the current fiscal quarter from $3.7 million in the same quarter a year ago. The dollar increase reflects both growth in software license revenue, as new licenses generally include one year of maintenance, renewals of maintenance agreements by existing customers and, to a lesser extent, maintenance price increases. Maintenance revenue decreased as a percentage of total revenue due to the growth in software license revenue which is generally recognized upon contract signing and delivery of the software whereas maintenance revenue is deferred and amortized over the contractual term of the arrangement, usually one year. PROFESSIONAL SERVICES. Professional services revenue was 14% of total revenue in the current fiscal quarter ended April 30, 1999 as compared to 8% in the same quarter a year ago. Professional services revenue increased $1.4 million or 212% to $2.0 million in the current fiscal quarter from $0.6 million in the same quarter a year ago. The dollar increase is attributable to greater consulting opportunities resulting from our larger installed customer base and our expanded consulting service capabilities resulting from the acquisition of Optima. COST OF REVENUE Cost of revenue, which consists of cost of software licenses, cost of maintenance and cost of professional services, was $3.6 million or 25% of total revenue in the current fiscal quarter as compared to $1.7 million or 20% in the same quarter a year ago. The increase, both in dollar terms and in percentage of total revenue terms, is due primarily to increased expenses associated with professional services revenue and maintenance revenue, including personnel additions and the acquisition of Optima to support professional services and maintenance revenue growth, and software sublicense fees. SOFTWARE LICENSES. Cost of software licenses consists principally of sublicense fees associated with our STARTOOL, STARWARP and DETECT+RESOLVE MAINFRAME products. Cost of software licenses as a percentage of total software licenses revenue was 10% in the current fiscal quarter as compared to 6% in the same quarter a year ago. Cost of software licenses increased $0.4 million to $0.7 million in the current fiscal quarter from $0.3 million in the same quarter a year ago. The increase, both in dollar terms and as a percentage of total software licenses revenue, is attributable to increases in royalty bearing software licenses--predominantly STARTOOL AND DETECT+RESOLVE MAINFRAME--as a percentage of total software licenses revenue. MAINTENANCE. Cost of maintenance consists primarily of salaries, bonuses and other costs associated with our customer support organizations, and to a lessor extent, sublicense fees associated with our 9 STARTOOL, STARWARP AND DETECT+RESOLVE MAINFRAME products. Cost of maintenance as a percentage of total maintenance revenue was 25% in the current fiscal quarter as compared to 24% in the same quarter a year ago. Cost of maintenance increased $0.4 million or 50% to $1.3 million in the current fiscal quarter from $0.9 million in the same quarter a year ago. The dollar increase is predominately due to increased expenses associated with our customer support organization including personnel additions needed to support the maintenance revenue growth and more recently, increases in sublicense fees. Sublicense fees are paid to owners of third party products for providing maintenance enhancements and code fixes. PROFESSIONAL SERVICES. Cost of professional services consists of salaries, bonuses and other costs associated with supporting our professional services organization. Cost of professional services as a percentage of total professional services revenue was 77% in the current fiscal quarter as compared to 92% in the same quarter a year ago. Cost of professional services increased $1.0 million or 161% to $1.6 million in the current fiscal quarter from $0.6 million in the same quarter a year ago. The dollar increase is predominately due to increased expenses associated with the acquisition of Optima which significantly increased our professional services organization, and personnel additions and other infrastructure costs needed to support the professional services revenue growth. OPERATING EXPENSES SALES AND MARKETING. Sales and marketing expenses consist primarily of salaries, commissions and bonuses, payroll taxes, and employee benefits as well as travel, entertainment and marketing expenses. Sales and marketing expenses as a percentage of total revenue was 30% in the current fiscal quarter as compared to 28% in the same quarter a year ago. Sales and marketing expenses increased $1.9 million or 79% to $4.3 million in the current fiscal quarter from $2.4 million in the same quarter a year ago. The dollar increase and the percentage of total revenue increase are due primarily to our expansion of our direct sales and marketing organization which began in fiscal 1998, and to a lesser extent, the development of our telesales efforts. We expect sales and marketing expenses to increase as we continue to hire additional sales and marketing personnel as we continue to transition away from relying primarily on third parties to sell and market our products. RESEARCH AND DEVELOPMENT. Research and development expenses consist primarily of salaries, bonuses, payroll taxes, and employee benefits and costs attributable to research and development activities. Research and development expenses as a percentage of total revenue was 10% in the current fiscal quarter as compared to 12% in the same quarter of a year ago. Research and development expenses increased $0.4 million or 37% to $1.4 million in the current fiscal quarter from $1.0 million in the same quarter a year ago. The dollar increase is primarily due to salary, bonus, payroll tax, and employee benefit costs associated with the expansion of our research and development efforts to enhance existing products and develop our new FULL.CYCLE DESKTOP and SERNET ENTERPRISE products. We expect research and development expenses to increase as we continue to hire additional research and development personnel to develop our FULL.CYCLE DESKTOP product suite and our SERNET ENTERPRISE products. GENERAL AND ADMINISTRATIVE. General and administrative expenses consist primarily of salaries, bonuses, payroll taxes, and benefits and certain non-allocable administrative costs, including legal and accounting fees and bad debts. General and administrative expenses as a percentage of total revenue was 8% in the current fiscal quarter as compared to 9% in the same quarter a year ago. General and administrative expenses increased $0.3 million or 37% to $1.1 million in the current fiscal quarter from $0.8 million in the same quarter a year ago. The dollar increase is primarily due to salary, bonus, payroll tax, profit sharing and employee benefit costs associated with the expansion of our administrative infrastructure in order to support our increased sales, marketing, professional services and maintenance activities. We expect general and administrative expenses to continue to increase as we expand our infrastructure and incur additional costs as a result of being a public company. 10 STOCK-BASED COMPENSATION. In total, SERENA recorded aggregate deferred stock-based compensation of $4.6 million in connection with the issuance of restricted stock and grants of options to purchase common stock. Deferred stock-based compensation is generally being amortized over the 36 to 48 month vesting periods of the related awards. This amortization is being recorded in a manner consistent with FASB Interpretation No. 28. Of the total deferred stock-based compensation, $0.3 million and $0.9 million was amortized in the current fiscal quarter and the same quarter from a year ago, respectively. We expect the stock-based compensation charge will continue to trend downward quarter over quarter as the related awards vest or are forfeited. As of April 30, 1999, SERENA had $1.0 million in unamortized stock-based compensation, all of which is expected to be fully amortized before the end of fiscal 2003. AMORTIZATION OF INTANGIBLE ASSETS. In the third quarter of fiscal 1999, SERENA recorded intangible assets of $21.7 million in connection with the acquisition of Optima in September, 1998. The intangible assets are being amortized over periods of one year or less on $0.5 million and fifteen years on the remaining $21.2 million. Of the total intangible assets, $0.5 million was amortized in the current fiscal quarter ended April 30, 1999. We expect to amortize an additional $1.1 million in the remaining three quarters of fiscal 2000 and $1.4 million in each fiscal year thereafter until fully amortized in fiscal 2014. INTEREST AND OTHER INCOME, NET Interest and other income, net increased $0.6 million to $0.8 million in the current fiscal quarter from $0.2 million in the same quarter a year ago. The dollar increase in interest and other income, net is predominantly due to the increase in cash and cash equivalent balances and short-term investments resulting from the Company's initial public offering in the current fiscal quarter which generated $57.9 million in net proceeds to the Company, and to a lesser extent, from increases in cash and cash equivalent balances year over year resulting from accumulation of earnings. INCOME TAXES Income taxes were $1.7 million in the current fiscal quarter ended April 30, 1999 as compared to $0.9 million in the same quarter of a year ago, representing 44% of total pretax income. SERENA's effective income tax rate has historically benefited from the United States research and experimentation tax credit and tax benefits generated from export sales made from the United States. SERENA's effective income tax rate did not change when compared to the same quarter a year ago predominantly due to the fact that total nondeductible charges in both quarters remained relatively the same as the quarter-over-quarter decrease in stock-based compensation totaling $0.6 million was almost entirely offset by the $0.5 million increase in amortization of intangible assets. To a lesser extent, SERENA has also experienced higher marginal tax rates resulting from substantially higher pretax profits year over year. LIQUIDITY AND CAPITAL RESOURCES From our inception in 1980 until the closing of our initial public offering of our Common Stock in February 1999, we financed our operations and met our capital expenditure requirements through cash flows from operations. During the three months ended April 30, 1999, we completed our initial public offering of common stock resulting in net proceeds to SERENA of $57.9 million. Net cash provided by operating activities rose to $4.7 million in the current quarter from $4.6 million in the same quarter a year ago. Our principal investing activity during the was the purchase of $23.4 million of short-term investments. At April 30, 1999, SERENA had $61.1 million in cash and cash equivalents and another $23.4 million in short-term investments. At April 30, 1999, we did not have any material commitments for capital expenditures and did not have any revolving credit agreement or other term loan agreements with any bank or other financial institution. 11 At April 30, 1999, we had working capital of $77.7 million and trade accounts receivable, net of allowances, of $11.4 million. Our total current and long term deferred revenues were $14.3 million and we continue to have no debt financing or venture capital interests. We believe that the net proceeds from our initial public offering and cash flows from operations (including prepaid maintenance fees) will satisfy our working capital and capital expenditure requirements for at least the next twelve months. YEAR 2000 COMPLIANCE Many computer systems and software products are coded to accept only two digit entries in the date code field. These date code fields will need to accept four digit entries to distinguish 21st century dates from 20th century dates. As a result, many companies' software and computer systems may need to be upgraded or replaced in order to comply with such Year 2000 requirements. In the ordinary course of our business, we test and evaluate our software products. We believe that our software products are generally Year 2000 compliant, meaning that the use or occurrence of dates on or after January 1, 2000 will not materially affect the performance of such software products or the ability of such products to correctly create, store, process and output information of data involving dates. However, we may learn that certain of our software products do not contain all necessary software routines and codes necessary for the accurate calculation, display, storage and manipulation of data involving dates. In addition, in certain cases, we have warranted that the use or occurrence of dates on or after January 1, 2000 will not adversely affect the performance of our products with respect to four digit date dependent data or the ability to create, store, process and output information related to such data. If any of our licensees experience Year 2000 problems as a result of their use of our software products, those licensees could assert claims for damages. Our standard licensing agreement provides that if our products do not perform to their specifications, we will correct such problems or issue replacement software. If these corrective measures fail, we may refund the license fee associated with the non-performing product. Our standard software license agreement limits our liability to the amount of the license fee paid, if the license has been in effect for less than one year, or for the amount of the license's annual maintenance renewal fee, if the license is more than one year old. To date we have not received any Year 2000 related claims on our software products. Although SERENA does not have a formal plan to address Year 2000 issues, management is currently addressing Year 2000 problems as they relate to our internal operating systems. We anticipate that our review of Year 2000 issues and any remediation efforts will continue throughout calendar 1999. Our Year 2000 review of our internal operating systems is concentrated on our internal accounting and customer service systems, the systems we believe are most important to our business. We have found our internal accounting software to be Year 2000 compliant. We are still reviewing our customer service internal operating systems. If any Year 2000 issues are uncovered with respect to the customer service systems or our other internal systems, we believe these problems will be able to be resolved without material difficulty or cost as replacement systems are available on commercially reasonable terms. In view of our Year 2000 review and remediation efforts to date, and the limited activities that remain to be completed, we do not consider contingency planning to be necessary at this time. To date costs related to Year 2000 issues have not been material, and we do not believe such costs will be material in the future. We have sought assurances from the suppliers of all third party equipment and software that we believe are critical to our business that their products are Year 2000 compliant. While SERENA has received several assurances as to the Year 2000 compliance of these third party products, we generally do not have any contractual rights with the third party providers should these equipment or software fail due to Year 2000 issues. If this third party equipment or software does not operate properly with regard to the 12 Year 2000, we may incur unexpected expenses to remedy any problems. These expenses could potentially include purchasing replacement hardware and software. In addition, the purchasing patterns of our customers and potential customers may be affected by Year 2000 issues. Many companies are spending significant resources to correct their current software systems for Year 2000 compliance. While sales of certain of our products, in particular STARTOOL, STARWARP and COMPAREX, have benefited from increased customer spending on Year 2000 readiness, we believe sales of our CHANGE MAN product have been and will continue to be adversely affected by customer focus on Year 2000 issues. Customers with limited IT budgets who face material Year 2000 issues are spending their limited resources remediating these Year 2000 problems instead of investing in more general IT products such as CHANGE MAN. Market acceptance of SERENA's products to address general IT business needs as well as resolution of specific business issues such as Year 2000 readiness is critical to our business and future success. For risks concerning SERENA related to Year 2000 see "Factors That May Affect Future Results"-- "Potential Year 2000 Problems with Our Software or Our Internal Operating Systems Could Adversely Affect Our Business" and "Reduced Customer Focus and Spending on Year 2000 Remediation and EMU Conversion Could Adversely Affect the Sales of Certain of Our Products; Customer Use of Our Products for Year 2000 and EMU Issues May Not Lead to Increased Sales of Our Other Products." FACTORS THAT MAY AFFECT FUTURE RESULTS THIS REPORT ON FORM 10-Q, INCLUDING THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTAINS FORWARD-LOOKING STATEMENTS AND OTHER PROSPECTIVE INFORMATION RELATING TO FUTURE EVENTS. THESE FORWARD-LOOKING STATEMENTS AND OTHER INFORMATION ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES THAT COULD CAUSE RESULTS TO DIFFER MATERIALLY FROM HISTORICAL RESULTS OR ANTICIPATED RESULTS, INCLUDING THE FOLLOWING: THERE ARE MANY FACTORS, INCLUDING SOME BEYOND OUR CONTROL, THAT MAY CAUSE FLUCTUATIONS IN OUR QUARTERLY OPERATING RESULTS Our quarterly operating results have varied greatly in the past and may vary greatly in the future depending upon a number of factors described below and elsewhere in this "Factors That May Affect Future Results" section of this quarterly report, including many that are beyond our control. As a result, we believe that quarter-to-quarter comparisons of our financial results are not necessarily meaningful, and you should not rely on them as an indication of our future performance. Factors that may materially affect our quarterly operating results include the following, as well as others discussed in this Form 10-Q: - The size, timing and contractual terms of large orders for our software products - The budgeting cycles of our customers and potential customers and their willingness to invest in new SCM solutions or upgrade their existing solutions - Market demand for our software products and services, including our desktop products that are currently under development - Our ability to develop and introduce on a timely basis and to market new and enhanced versions of our software, including our desktop products currently under development - Seasonal trends in customer purchasing patterns - Activities by our competitors, including releases of new software products, changes in pricing policies and acquisitions or strategic partnership activities - Any downturn in our customers' businesses, in the domestic economy or in international economies where our customers do substantial business 13 - Changes in the mix of software products and services sold by us, including the mix between higher margin software products and lower margin maintenance and services and the percentage of software products sold which require us to pay a sublicense fee to a third party - Our ability to hire, integrate and retain technical, sales, marketing and professional services personnel - Risks associated with our planned international expansion, including longer sale cycles and currency fluctuations - Changes in our pricing policies resulting from competitive pressures or other factors - Cancellation of maintenance agreements by customers or any significant decrease in the percentage of customers who renew their maintenance agreements with us - Software defects and other product quality problems Our software license revenue in any quarter depends on orders booked and shipped in the last month, weeks or days of that quarter. At the end of each quarter, we typically have either minimal or no backlog of orders for the subsequent quarter. If a large number of orders or several large orders do not occur or are deferred, our revenue in that quarter could be substantially reduced. This would materially adversely affect our operating results and could impair our business in future periods. Because we do not know when, or if, our potential customers will place orders and finalize contracts, we cannot accurately predict our revenue and operating results for future quarters. Historically, a majority of our revenue has been attributable to the licenses of our FULL.CYCLE MAINFRAME software products. Changes in the mix of software products and services sold by us, including the mix between higher margin software products and lower margin maintenance and services, could materially affect our operating results for future quarters as could the percentage of software products sold which require us to pay a sublicense fee to a third party. SEASONAL TRENDS IN SALES OF OUR SOFTWARE PRODUCTS MAY AFFECT OUR QUARTERLY OPERATING RESULTS We have experienced and expect to continue to experience seasonality in sales of our software products. These seasonal trends materially affect our quarter-to-quarter operating results. Revenue and operating results in our quarter ending January 31 are typically higher relative to our other quarters, because many customers make purchase decisions based on their calendar year-end budgeting requirements. In addition, our January quarter tends to reflect the effect of the incentive compensation structure for our sales organization, which is based on satisfaction of fiscal year-end quotas. As a result, we have historically experienced a substantial decline in revenue in the first quarter of each fiscal year relative to the preceding quarter. We are also currently attempting to expand our presence in international markets, particularly in Europe. We expect our quarter ending October 31 to reflect the effects of summer slowing of international business activity and spending activity generally associated with that time of year, particularly in Europe. To the extent that our revenue in Europe or other parts of the world increase in future periods, we expect our period-to-period revenues to reflect any seasonal buying patterns in these markets. WE EXPECT THAT OUR OPERATING EXPENSES WILL INCREASE SUBSTANTIALLY IN THE FUTURE AND THESE INCREASED EXPENSES MAY ADVERSELY AFFECT OUR FUTURE OPERATING RESULTS AND FINANCIAL CONDITION Although SERENA has been profitable in recent years, we may not remain profitable on a quarterly or annual basis in the future. We anticipate that our expenses will increase substantially in the foreseeable future as we: - Increase our sales and marketing activities, including expanding our United States and international direct sales forces and extending our telesales efforts 14 - Develop our technology, including our FULL.CYCLE DESKTOP suite of SCM products for the desktop platform - Broaden our professional services offerings and delivery capabilities - Expand our distribution channels - Pursue strategic relationships and acquisitions With these additional expenses, in order to maintain our current levels of profitability, we will be required to increase our revenue correspondingly. Any failure to significantly increase our revenue as we implement our product, service and distribution strategies would materially adversely affect our business, quarterly and annual operating results and financial condition. Although our revenue has grown in recent years, we do not believe that we will maintain this rate of revenue growth. In addition, we may not experience any revenue growth in the future, and our revenue could in fact decline. Our efforts to expand our software product suites, sales and marketing activities, direct and indirect distribution channels and professional service offerings and to pursue strategic relationships or acquisitions may not succeed or may prove more expensive than we currently anticipate. As a result, we cannot predict our future operating results with any degree of certainty. OUR FUTURE REVENUE IS SUBSTANTIALLY DEPENDENT UPON OUR INSTALLED CUSTOMERS RENEWING MAINTENANCE AGREEMENTS FOR OUR PRODUCTS AND LICENSING ADDITIONAL SERENA SCM PRODUCTS; OUR FUTURE PROFESSIONAL SERVICE AND MAINTENANCE REVENUE IS DEPENDENT ON FUTURE SALES OF OUR SOFTWARE PRODUCTS We depend on our installed customer base for future revenues from maintenance renewal fees and licenses of additional SCM products. If our customers do not purchase additional products or cancel or fail to renew their maintenance agreements, this could materially adversely affect our business and future quarterly and annual operating results. The terms of our standard license arrangements provide for a one-time license fee and a prepayment of one year of software maintenance and support fees. The maintenance agreements are renewable annually at the option of the customers and there are no minimum payment obligations or obligations to license additional software. Therefore, our current customers may not necessarily generate significant maintenance revenue in future periods. In addition, our customers may not necessarily purchase additional products, upgrades or professional services. Our professional service revenue and maintenance revenue are also dependent upon the continued use of these services by our installed customer base. Any downturn in our software license revenue would have a negative impact on the growth of our professional service revenue and maintenance revenue in future quarters. WE HAVE RELIED AND EXPECT TO CONTINUE TO RELY ON SALES OF OUR FULL.CYCLE MAINFRAME PRODUCTS FOR OUR REVENUE Historically, all of our software license revenue has resulted from the sale of our FULL.CYCLE MAINFRAME products. Any factors adversely affecting the pricing of, demand for or market acceptance of our FULL.CYCLE MAINFRAME products, such as competition or technological change, could materially adversely affect our business and quarterly and annual operating results. In particular, CHANGE MAN and COMPAREX, two of our FULL.CYCLE MAINFRAME products, have been responsible for a substantial majority of our revenue. We expect that these products will continue to account for a large portion of our software license revenue for the foreseeable future. Our future operating results depend on the continued market acceptance of our FULL.CYCLE MAINFRAME products, including future enhancements. 15 IF THE SCM MARKET DOES NOT EVOLVE AS WE ANTICIPATE, OUR BUSINESS WILL BE ADVERSELY AFFECTED If we fail to properly assess and address the SCM market or if our products and services fail to achieve market acceptance for any reason, our business and quarterly and annual operating results would be materially adversely affected. The SCM market is in an early stage of development. IT organizations have traditionally addressed SCM needs internally and have only recently become aware of the benefits of third-party SCM solutions as their SCM requirements have become more complex. Since the market for our products is still evolving, it is difficult to assess the competitive environment or the size of the market that may develop. Our future financial performance will depend in large part on the continued growth in the number of businesses adopting third-party SCM products and the expansion of their use on a company-wide basis. The SCM market for third-party products may grow more slowly than we anticipate. In addition, technologies, customer requirements and industry standards may change rapidly. If we cannot improve or augment our products as rapidly as existing technologies, customer requirements and industry standards evolve, our products or services could become obsolete. The introduction of new or technologically superior products by competitors could also make our products less competitive or obsolete. As a result of any of these factors, our position in existing markets or potential markets could be eroded. OUR BUSINESS IS DEPENDENT ON THE CONTINUED MARKET FOR IBM AND IBM-COMPATIBLE MAINFRAMES We are substantially dependent upon the continued use and acceptance of IBM and IBM-compatible mainframes and the growth of this market. If the role of the mainframe does not increase as we anticipate, or if it in any way decreases, this would materially adversely affect our business, future quarterly and annual operating results and financial condition. Additionally, if there is a wide acceptance of other platforms or if new platforms emerge that provide enhanced enterprise server capabilities, our business and future operating results may be materially adversely affected. Substantially all of our software license revenue to date has been attributable to sales of our FULL.CYCLE MAINFRAME products. We expect that, for the foreseeable future, substantially all of our software license revenue will continue to come from sales of our mainframe products. As a result, future sales of our existing products and associated maintenance revenue and professional service revenue will depend on continued use of mainframes. Recently there has been a trend away from the use of centralized mainframes in enterprise computing environments to more decentralized client/server networks. Although some IT organizations are using mainframes as large enterprise servers, this practice is relatively new and still emerging and may not continue. OUR INTRODUCTION OF SERENA SCM PRODUCTS FOR THE DESKTOP MAY NOT BE SUCCESSFUL We are currently developing our FULL.CYCLE DESKTOP product suite which is designed to support the desktop platform. If we do not successfully develop, market, sell and support our FULL.CYCLE DESKTOP products, this would materially adversely affect our business and our future quarterly and annual operating results. Historically, all of our products have been designed for the mainframe platform, and all of our software license revenue, maintenance revenue and professional services revenue to date have been attributable to licenses for these mainframe products. We do not have experience developing, marketing, selling or supporting desktop products. Developing, marketing and selling our desktop products will require significant resources that we may not have. Our sales and marketing organizations have historically focused exclusively on sales of our products for the mainframe and have limited experience marketing and selling desktop products. Additionally, we do not have any experience in providing support services for desktop products. Competition for experienced software engineers, sales personnel and support staff is intense and if we fail to attract qualified personnel this would impair our ability to support our FULL.CYCLE DESKTOP products. Many of our competitors have substantially greater experience providing desktop compatible software products than we do, and many also have significantly greater financial and organizational resources. 16 WE MAY EXPERIENCE DELAYS IN DEVELOPING OUR PRODUCTS WHICH COULD ADVERSELY AFFECT OUR BUSINESS If we are unable, for technological or other reasons, to develop and introduce new and improved products in a timely manner, this could materially adversely affect our business and future quarterly and annual operating results. We have experienced product development delays in new version and update releases in the past and may experience similar or more significant product delays in the future. To date, none of these delays has materially affected our business. Difficulties in product development could delay or prevent the successful introduction or marketing of new or improved products or the delivery of new versions of our products to our customers. In particular, we may experience delays in introducing our FULL.CYCLE DESKTOP product suite. While we anticipate releasing initial versions of our FULL.CYCLE DESKTOP products, other than DETECT+RESOLVE which we released in December 1998, before the end of calendar 1999, any delay in releasing our new desktop products, for whatever reason, would impair our revenue growth. WE HAVE EXPERIENCED SIGNIFICANT GROWTH IN OUR BUSINESS IN RECENT PERIODS AND OUR ABILITY TO MANAGE THIS GROWTH AND ANY FUTURE GROWTH WILL AFFECT OUR BUSINESS Our ability to compete effectively and to manage our recent growth, any future growth and our future quarterly and annual operating results will depend in part on our ability to implement and expand operational, customer support and financial control systems and to train and manage our employees. We may not be able to augment or improve existing systems and controls or implement new systems and controls in response to future growth, if any. Any failure to manage growth could materially adversely affect our business. Since the beginning of fiscal 1998 we have significantly expanded our sales, marketing and professional service activities. This expansion included our September 1998 acquisition of Optima which significantly increased the size of our sales, marketing and professional service organizations. This growth has resulted, and any future growth will result, in new and increased responsibilities for management personnel. WE WILL NEED TO EXPAND OUR DISTRIBUTION CHANNELS IN ORDER TO EXPAND OUR BUSINESS AND A NUMBER OF FACTORS MAY HINDER OUR ABILITY TO ACCOMPLISH THIS GOAL If we fail to significantly expand our direct sales and telesales force, our ability to sell our products into new markets and to increase our product penetration into our existing markets will be impaired. Failure to expand our distribution channels through any of these means could materially adversely affect our business and our future quarterly and annual operating results. In addition, our ability to achieve revenue growth in future periods will be heavily dependent on our success in recruiting and training sufficient direct sales personnel. We are planning to significantly expand our direct sales efforts in North America and Europe and while we are investing, and plan to continue to invest, substantial resources on this expansion, we have at times experienced, and expect to continue to experience, difficulty in recruiting and retaining qualified direct sales personnel. In addition to expanding our direct sales efforts, we are also currently investing, and we intend to continue to invest, substantial resources in selling our products through telesales personnel. We also intend to extend our distribution channels by partnering with leading helpdesk management, software distribution application and system framework providers and may also attempt to develop additional sales and marketing channels through system integrators, original equipment manufacturers and other partners. 17 WE WILL NEED TO EXPAND OUR PROFESSIONAL SERVICES ORGANIZATION IN ORDER TO EXPAND OUR BUSINESS AND A NUMBER OF FACTORS MAY HINDER OUR ABILITY TO ACCOMPLISH THIS GOAL Our existing professional services and customer support organizations may not be sufficient to manage any future growth in our business. The failure to expand our professional services and customer support organizations or to integrate Optima's professional services personnel into our professional services organization could materially adversely affect our business. While we intend to significantly expand our professional services and customer support organizations, including providing these services for both desktop and mainframe applications and systems, we may not be able to do so. Competition for additional qualified technical personnel to perform these services is intense. We believe that providing high quality consulting, training, customer support and education is essential to maintaining our competitive position. If we are unable to provide comprehensive consulting and support services to our existing and prospective customers, this may materially adversely affect our business and ability to sell our products. Consulting services and customer support are critical to our future success because the market for third party SCM solutions is still evolving, and many organizations have limited experience using third party SCM solutions. Customers have only recently begun to look to third party providers for SCM solutions as the complexity of computer networks and number of applications has increased. WE INTEND TO EXPAND OUR INTERNATIONAL OPERATIONS AND MAY ENCOUNTER A NUMBER OF PROBLEMS IN DOING SO; THERE ARE ALSO A NUMBER OF FACTORS ASSOCIATED WITH INTERNATIONAL OPERATIONS THAT COULD ADVERSELY AFFECT OUR BUSINESS EXPANSION OF INTERNATIONAL OPERATIONS. We intend to expand the scope of our international operations and currently have subsidiaries in the United Kingdom and in Germany. If we are unable to expand our international operations successfully and in a timely manner, this could materially adversely affect our business and quarterly and annual operating results. Our continued growth and profitability will require continued expansion of our international operations, particularly in Europe. In addition, in calendar 1999, we intend to open additional international offices, including at least one additional European office. We have only limited experience in marketing, selling and supporting our products internationally. Additionally, we do not have any experience in developing foreign language versions of our products. Such development may be more difficult or take longer than we anticipate. We may not be able to successfully market, sell, deliver and support our products internationally. RISKS OF INTERNATIONAL OPERATIONS. Our international revenue is attributable principally to our European operations. Our international operations are, and any expanded international operations will be, subject to a variety of risks associated with conducting business internationally that could materially adversely affect our business and future quarterly and annual operating results, including the following: - Difficulties in staffing and managing international operations - Problems in collecting accounts receivable - Longer payment cycles - Fluctuations in currency exchange rates - Seasonal reductions in business activity during the summer months in Europe and certain other parts of the world - Recessionary environments in foreign economies - Increases in tariffs, duties, price controls or other restrictions on foreign currencies or trade barriers imposed by foreign countries 18 FLUCTUATIONS IN THE VALUE OF FOREIGN CURRENCIES COULD RESULT IN CURRENCY TRANSACTION LOSSES FOR SERENA A majority of our international business is conducted in foreign currencies, principally the British pound. Fluctuations in the value of foreign currencies relative to the U.S. dollar have caused and will continue to cause currency transaction gains and losses. We cannot predict the effect of exchange rate fluctuations upon future quarterly and annual operating results. We may experience currency losses in the future. To date, we have not adopted a hedging program to protect SERENA from risks associated with foreign currency fluctuations. SERENA IS SUBJECT TO INTENSE COMPETITION IN THE SCM INDUSTRY AND WE EXPECT TO FACE INCREASED COMPETITION IN THE FUTURE, INCLUDING COMPETITION IN THE SCM DESKTOP MARKET We may not be able to compete successfully against current and/or future competitors and such inability would materially adversely affect our business, quarterly and annual operating results and financial condition. The market for our products is highly competitive and diverse. Moreover, the technology for SCM products may change rapidly. New products are frequently introduced, and existing products are continually enhanced. Competition may also result in changes in pricing policies by SERENA or our competitors which could materially adversely affect our business and future quarterly and annual operating results. Competitors vary in size and in the scope and breadth of the products and services that they offer. Many of our current and potential competitors have greater financial, technical, marketing and other resources than we do. As a result, they may be able to respond more quickly to new or emerging technologies and changes in customer requirements. They may also be able to devote greater resources to the development, promotion and sale of their products than we can. EXISTING COMPETITION. We currently face competition from a number of sources, including: - Customers' internal IT departments - Providers of SCM products that compete directly with CHANGE MAN and COMPAREX such as Computer Associates, PLATINUM technology, IBM and smaller private companies - Providers of SCM application development programmer productivity and system management products such as Compuware, IBM and smaller private companies FUTURE COMPETITION. We may face competition in the future from established companies who have not previously entered the mainframe SCM market or from emerging software companies. Barriers to entry in the software market are relatively low. Increased competition may materially adversely affect our business and future quarterly and annual operating results due to price reductions, reduced gross margins and reduction in market share. Established companies may not only develop their own mainframe SCM solutions, but they may also acquire or establish cooperative relationships with our current competitors, including cooperative relationships between large, established companies and smaller private companies. Because larger companies have significant financial and organizational resources available, they may be able to quickly penetrate the mainframe SCM market through acquisitions or strategic relationships and may be able to leverage the technology and expertise of smaller companies and develop successful SCM products for the mainframe. We expect that the software industry, in general, and providers of SCM solutions, in particular, will continue to consolidate. It is possible that new competitors or alliances among competitors may emerge and rapidly acquire significant market share. BUNDLING OR COMPATIBILITY RISKS. Our ability to sell our products also depends, in part, on the compatibility of our products with other third party products, particularly those provided by IBM. 19 Developers of these third party products may change their products so that they will no longer be compatible with our products. These third party developers may also decide to bundle their products with other SCM products for promotional purposes. If that were to happen, our business and future quarterly and annual operating results may be materially adversely affected as we may be priced out of the market or no longer be able to offer commercially viable products. COMPETITION IN THE DESKTOP SCM MARKET. We anticipate that we will also face significant competition as we develop, market and sell our FULL.CYCLE DESKTOP products. If we are unable to successfully penetrate the desktop SCM market, our business and future quarterly and annual operating results will be materially adversely affected. We do not have experience in developing, selling, marketing or supporting desktop products since all of our products to date have been designed to support the mainframe. Penetrating the existing desktop SCM market will be difficult. Competitors in the desktop market include PLATINUM technology, Merant, Microsoft, Novadigm, Novell, Rational Software and other smaller private companies. REDUCED CUSTOMER FOCUS AND SPENDING ON YEAR 2000 REMEDIATION AND EMU CONVERSION COULD ADVERSELY AFFECT THE SALES OF CERTAIN OF OUR PRODUCTS; CUSTOMER USE OF OUR PRODUCTS FOR YEAR 2000 AND EMU ISSUES MAY NOT LEAD TO INCREASED SALES OF OUR OTHER PRODUCTS Our business may be adversely affected if customers focus less on Year 2000 remediation and European Monetary Unit, or EMU, conversion issues and sales of our STARWARP and COMPAREX products decline as a result. We have derived a portion of our recent software license revenue and professional services revenue from products designed to help customers resolve SCM problems for specific business issues such as those related to Year 2000 remediation and EMU conversion. Our STARWARP product is our primary Year 2000 and EMU readiness product. Certain customers have also licensed COMPAREX to assist them in testing Year 2000 remediations and EMU conversions. Market acceptance of our products and services will depend, in large part, on whether customers use our products as part of their overall IT management strategy in addition to using them to resolve SCM problems related to specific business issues. Market acceptance of our products to address general IT business needs as well as to resolve specific business issues, such as Year 2000 remediation or EMU conversion, is critical to our business and future success. If customers do not expand their use of our products, implement new software products introduced by us or do not use our related maintenance and support services to address their general IT business requirements as well as specific issues, this will materially adversely affect our business and our ability to sell our products. ANY DELAYS IN OUR NORMALLY LENGTHY SALES CYCLES COULD RESULT IN SIGNIFICANT FLUCTUATIONS IN OUR QUARTERLY OPERATING RESULTS Our sales cycle typically takes six to 18 months to complete and varies from product to product. Any delay in the sales cycle of a large license or a number of smaller licenses could result in significant fluctuations in our quarterly operating results. The length of the sales cycle may vary depending on a number of factors over which we may have little or no control, including the size of a potential transaction and the level of competition that we encounter in our selling activities. Additionally, the emerging market for SCM products and services contributes to the lengthy sales process in that during the sales cycle we often have to teach potential customers about the use and benefits of our products. In certain circumstances, we license our software to customers on a trial basis to assist the customers in their evaluation of our products. Our sales cycle can be further extended for product sales made through third party distributors. 20 CERTAIN OF OUR PRODUCTS ARE LICENSED FROM THIRD PARTIES OR ARE JOINTLY-OWNED WITH THIRD PARTIES; OUR FAILURE TO MAINTAIN THESE ARRANGEMENTS WITH THIRD PARTIES COULD ADVERSELY AFFECT OUR BUSINESS STARTOOL AND STARWARP. We license our STARTOOL and STARWARP products on an exclusive worldwide basis from A. Bruce Leland, one of our employees. The termination of our licenses for the STARTOOL or STARWARP products would materially adversely affect our business and quarterly and annual operating results. Mr. Leland holds all proprietary rights with respect to the STARTOOL and STARWARP technology, including any derivative works or enhancements of the existing STARTOOL and STARWARP products. Our licenses for these products are terminable by Mr. Leland upon 30 days notice in the event certain conditions occur, including our failure to pay sublicense fees to Mr. Leland on a timely basis or any other material breach by us of the license agreement. Should the licenses for the STARTOOL and STARWARP products terminate, we may not be able to replace these products which could materially adversely affect our business and future quarterly and annual operating results. DETECT+RESOLVE MAINFRAME. We share ownership rights in our DETECT+RESOLVE MAINFRAME technology for mainframe platforms with High Power Software. Although we have historically had primary responsibility for marketing, licensing and supporting SYNCTRAC, High Power Software has the ability to jointly direct these efforts. If in the future we are unable to reach agreement with High Power Software on the direction or evolution of the product, our ability to market or promote the product may be compromised. This could have a material adverse effect on our business and future quarterly and annual operating results. OUR EXECUTIVE OFFICERS AND CERTAIN KEY PERSONNEL ARE CRITICAL TO OUR BUSINESS AND SUCH OFFICERS AND KEY PERSONNEL MAY NOT REMAIN WITH SERENA IN THE FUTURE Our success will depend to a significant extent on the continued service of our senior executives and certain other key employees, including certain sales, consulting, technical and marketing personnel. If we lost the services of one or more of our executives or key employees, including if one or more of our executives or key employees decided to join a competitor or otherwise compete directly or indirectly with SERENA, this could materially adversely affect our business. In particular, we have historically relied on the experience and dedication of our product authors. With the exception of Douglas D. Troxel, SERENA's founder, Chief Technology Officer and Chairman of SERENA's board of directors, the employment of all of our senior and key employees, including key product authors, is at will. Mr. Troxel's employment is on a year-to-year basis. In addition, we do not maintain key man life insurance on our employees and have no plans to do so. WE MAY NOT BE ABLE TO RECRUIT AND RETAIN THE PERSONNEL WE NEED Our future success will likely depend in large part on our ability to attract and retain additional experienced sales, technical, marketing and management personnel. In addition, we will need to attract and retain sufficient numbers of qualified software engineers, as well as sales and marketing and support personnel, and successfully develop, market and support our FULL.CYCLE DESKTOP product suite which is currently in development. Competition for such personnel in the computer software industry is intense, and in the past we have experienced difficulty in recruiting qualified personnel, especially developers and sales personnel. We expect competition for qualified personnel to remain intense, and we may not succeed in attracting or retaining such personnel. If we do not, this could materially adversely affect our business and future quarterly and annual operating results. In addition, new employees generally require substantial training in the use of our products. This training will require substantial resources and management attention. INTERNATIONAL OPERATIONS. We intend to expand the scope of our international operations and these plans will require us to attract experienced management, service, marketing, sales and support personnel 21 for our international offices. Competition for such personnel is intense, and we may not be able to attract or retain such experienced personnel. NON-U.S. CITIZENS WORKING IN THE UNITED STATES. To achieve our business objectives, we may recruit and employ skilled technical professionals from other countries to work in the United States. Limitations imposed by federal immigration laws and the availability of visas could materially adversely affect our ability to attract necessary qualified personnel. This may have a material adverse effect on our business and future quarterly and annual operating results. POTENTIAL YEAR 2000 PROBLEMS WITH OUR SOFTWARE OR OUR INTERNAL OPERATING SYSTEMS COULD ADVERSELY AFFECT OUR BUSINESS SERENA SOFTWARE. If any of our licensees experience Year 2000 problems as a result of their use of our software products, those licensees could assert claims for damages which, if successful, could materially adversely affect our business, future operating results and financial condition. In the ordinary course of our business, we test and evaluate our software products. We believe that our software products are generally Year 2000 compliant, meaning that the use or occurrence of dates on or after January 1, 2000 will not materially affect the performance of our software products or the ability of our products to correctly create, store, process and output information of data involving dates. However, we may learn that certain of our software products do not contain all necessary software routines and codes necessary for the accurate calculation, display, storage and manipulation of data involving dates. In addition, in certain cases, we have warranted that the use or occurrence of dates on or after January 1, 2000 will not adversely affect the performance of our products with respect to four digit date dependent data or the ability to create, store, process and output information related to such data. THIRD PARTY EQUIPMENT AND SOFTWARE. We use third party equipment and software that may not be Year 2000 compliant. If this third party equipment or software does not operate properly with regard to the Year 2000, we may incur unexpected expenses to remedy any problems. These costs may materially adversely affect our business. In addition, if our key systems, or a significant number of our systems, failed as a result of Year 2000 problems we could incur substantial costs and disruption of our business. CUSTOMER BUYING PATTERNS. In addition, the purchasing patterns of our customers and potential customers may be affected by Year 2000 issues. Many companies are spending significant resources to correct their current software systems for Year 2000 compliance. While sales of certain of our products, in particular STARWARP and COMPAREX, have benefited from increased customer spending on Year 2000 readiness, we believe sales of our CHANGE MAN product have been and will continue to be adversely affected by customer focus on Year 2000 issues. Customers with limited IT budgets who face material Year 2000 issues are spending their limited resources remediating these Year 2000 problems instead of investing in more general IT products, such as CHANGE MAN. For a more detailed description of our Year 2000 preparedness assessment, see "Management's Discussion and Analysis of Financial Condition and Results of Operations--Year 2000 Compliance." OUR INDUSTRY CHANGES RAPIDLY DUE TO EVOLVING TECHNOLOGY STANDARDS AND OUR FUTURE SUCCESS WILL DEPEND ON OUR ABILITY TO CONTINUE TO MEET THE SOPHISTICATED NEEDS OF OUR CUSTOMERS Our future success will depend on our ability to address the increasingly sophisticated needs of our customers by supporting existing and emerging hardware, software, database and networking platforms. We will have to develop and introduce enhancements to our existing products and new products on a timely basis to keep pace with technological developments, evolving industry standards and changing customer requirements. We expect that we will have to respond quickly to rapid technological change, changing customer needs, frequent new product introductions and evolving industry standards that may render existing products and services obsolete. As a result, our position in existing markets or potential 22 markets could be eroded rapidly by product advances. The life cycles of our products are difficult to estimate. Our growth and future financial performance will depend in part upon our ability to enhance existing applications, develop and introduce new applications that keep pace with technological advances, meet changing customer requirements and respond to competitive products. We expect that our product development efforts will continue to require substantial investments. We may not have sufficient resources to make the necessary investments. Any of these events could have a material adverse effect on our business, quarterly and annual operating results and financial condition. THIRD PARTIES IN THE FUTURE COULD ASSERT THAT OUR PRODUCTS INFRINGE THEIR INTELLECTUAL PROPERTY RIGHTS, WHICH COULD ADVERSELY AFFECT OUR BUSINESS; THERE COULD BE POTENTIAL ADVERSE EFFECTS OF THE PENDING COMPUWARE CLAIM Third parties may claim that our current or future products infringe their proprietary rights. Any claims of this type could affect our relationships with existing customers and may prevent future customers from licensing our products. Because we are dependent upon a limited number of products, any such claims, with or without merit, could be time consuming, result in costly litigation, cause product shipment delays or require us to enter into royalty or licensing agreements. Royalty or license agreements may not be available on acceptable terms or at all. We expect that software product developers will increasingly be subject to infringement claims as the number of products and competitors in the software industry segment grows and the functionality of products in different industry segments overlaps. As a result of these factors, infringement claims could materially adversely affect our business. In September 1998, Compuware Corporation, or Compuware, filed suit against SERENA in the United States District Court for the Eastern District of Michigan seeking unspecified compensatory damages, costs and attorneys fees, and injunctive relief based on allegations of copyright infringement, trade secret misappropriation and various tort claims related to the sale of our STARTOOL and STARWARP products. Compuware served the complaint on SERENA in November 1998. Due to the nature of litigation generally and because the lawsuit brought by Compuware is at an early stage, management cannot ascertain the availability of injunctive relief or other equitable remedies or estimate the total expenses, possible damages or settlement value, if any, that may ultimately be incurred in connection with Compuware's suit. However, management believes, based on the advice of counsel, that SERENA has meritorious defenses to the allegations contained in Compuware's complaint. We believe that this matter will not have a material adverse effect on our results of operations or financial condition. This litigation could be time consuming and costly, and there can be no assurance that SERENA will necessarily prevail given the inherent uncertainties of litigation. In the event that we do not prevail in litigation, we could be prevented from selling our STARTOOL and STARWARP products or be required to enter into royalty or licensing agreements or pay monetary damages. Such royalty or licensing agreements, if required, may not be available on terms acceptable to SERENA or at all. In the event of a successful claim against us, our business, future operating results or financial condition could be materially adversely affected. ERRORS IN OUR PRODUCTS OR THE FAILURE OF OUR PRODUCTS TO CONFORM TO SPECIFICATIONS COULD RESULT IN OUR CUSTOMERS DEMANDING REFUNDS FROM US OR ASSERTING CLAIMS FOR DAMAGES AGAINST US Because our software products are complex, they often contain errors or "bugs" that can be detected at any point in a product's life cycle. While we continually test our products for errors and work with customers through our customer support services to identify and correct bugs in our software, we expect that errors in our products will continue to be found in the future. Although many of these errors may prove to be immaterial, certain of these errors could be significant. Detection of any significant errors may result in, among other things, loss of, or delay in, market acceptance and sales of our products, diversion of development resources, injury to our reputation, or increased service and warranty costs. These problems could materially adversely affect our business and future quarterly and annual operating results. In the past we have discovered errors in certain of our products and have experienced delays in the shipment of our 23 products during the period required to correct these errors. These delays have principally related to new version and product update releases. To date none of these delays have materially affected our business. However, product errors or delays in the future, including any product errors or delays associated with the introduction of our FULL.CYCLE DESKTOP products, could be material. In addition, in certain cases we have warranted that our products will operate in accordance with specified customer requirements. If our products fail to conform to such specifications, customers could demand a refund for the software license fee paid to us or assert claims for damages. PRODUCT LIABILITY CLAIMS ASSERTED AGAINST US IN THE FUTURE COULD ADVERSELY AFFECT OUR BUSINESS We may be subject to claims for damages related to product errors in the future. While we carry insurance policies covering this type of liability, these policies may not provide sufficient protection should a claim be asserted. A material product liability claim could materially adversely affect our business. Our license agreements with our customers typically contain provisions designed to limit exposure to potential product liability claims. SERENA's standard software licenses provide that if our products fail to perform, we will correct or replace such products. If these corrective measures fail, we may be required to refund the license fee for such non-performing product. However, our standard license agreement limits our liability for non-performing products to the amount of license fee paid, if the license has been in effect for less than one year, or to the amount of the licensee's current annual maintenance fee, if the license is more than one year old. Our standard license also provides that SERENA shall not be liable for indirect or consequential damages caused by the failure of our products. Such limitation of liability provisions may, however, not be effective under the laws of certain jurisdictions to the extent local laws treat certain warranty exclusions as unenforceable. Although we have not experienced any product liability claims to date, the sale and support of our products entail the risk of such claims. In particular, issues relating to Year 2000 compliance have increased awareness of the potential adverse effects of software defects and malfunctions. ANY ACQUISITIONS OR INVESTMENTS THAT WE MAY MAKE WILL BE SUBJECT TO A NUMBER OF FACTORS WHICH COULD ADVERSELY AFFECT OUR BUSINESS; SUCH INVESTMENTS OR ACQUISITIONS MAY DILUTE EXISTING STOCKHOLDERS In the future we may make acquisitions of, or large investments in, businesses that offer products, services and technologies that we believe would help us better provide SCM products and services or help us expand our distribution channels. We may not be able to complete any such additional acquisitions in the future. Any future acquisitions or investments would present risks commonly encountered in acquisitions of businesses. The following are examples of such risks: - Difficulty in combining the technology, operations or work force of the acquired business - Disruption of SERENA's on-going businesses - Difficulty in realizing the potential financial or strategic benefits of the transaction - Difficulty in maintaining uniform standards, controls, procedures and policies - Possible impairment of relationships with employees and clients as a result of any integration of new businesses and management personnel We expect that future acquisitions, if any, could provide for consideration to be paid in cash, shares of SERENA common stock, or a combination of cash and SERENA common stock. If the consideration for such transaction is paid in common stock, this would further dilute existing stockholders. Any amortization of goodwill or other assets resulting from such acquisition transaction could materially impair our operating results and financial condition. If an acquisition or large investment were to take place, the risks described above could materially adversely affect our business and future operating results. 24 OUR STOCK WILL LIKELY BE SUBJECT TO SUBSTANTIAL PRICE AND VOLUME FLUCTUATIONS DUE TO A NUMBER OF FACTORS, CERTAIN OF WHICH ARE BEYOND OUR CONTROL Stock prices and trading volumes for many technology companies fluctuate widely for reasons which may be unrelated to their businesses or results of operations. These fluctuations, as well as general economic, market and political conditions, could materially adversely affect the market price of SERENA's common stock. Future announcements concerning SERENA or our competitors could cause the market price of the common stock to fluctuate greatly. These type of announcements may include information concerning: - Any shortfall in SERENA's revenues or net income from revenues or net income expected by securities analysts - Announcements of new products by SERENA or our competitors, including announcements regarding our FULL.CYCLE DESKTOP products, currently under development - Quarterly fluctuations in our financial results or the results of other software companies, including those of our direct competitors - Changes in analysts' estimates of our financial performance, the financial performance of our competitors, or the financial performance of software companies in general - Changes in prices of our products or the products of our competitors - Changes in our revenue growth rates or the growth rates of our competitors - Sales of large blocks of SERENA common stock - Conditions in the financial markets in general and the software industry in particular ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK We do not use derivative financial instruments in our investment portfolio and have no foreign exchange contracts. Our financial instruments consist of cash, cash equivalents, short-term investments, trade accounts receivable, accounts payable, and long-term obligations. Our exposure to market risk for changes in interest rates relates primarily to our short-term investments and obligations; thus, fluctuations in interest rates would not have a material effect on the fair value of these securities. Sales to customers in foreign countries accounted for approximately 19% of total revenue during the quarter ended April 30, 1999. Because we invoice certain of these sales in currencies other than the U.S. dollar, predominately British pound sterling, and do not hedge these transactions, fluctuations in exchange rates could adversely affect the translated results of operations of our foreign subsidiaries. 25 PART II--OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. Not applicable. ITEM 2. CHANGE IN SECURITIES AND USE OF PROCEEDS. USE OF PROCEEDS In February 1999, SERENA completed the sale of 6 million shares of its Common Stock, including 2 million shares on behalf of selling stockholders, at a per share price of $13.00 in a firm commitment underwritten public offering pursuant to a Registration Statement on Form S-1 (File No. 333-67761) which the Securities and Exchange Commission declared effective on February 11, 1999. The offering was underwritten by Hambrecht & Quist LLC, SG Cowen Securities Corporation and Soundview Technology Group Inc. In March 1999, an over-allotment option granted by SERENA to the underwriters for the purchase of up to 900,000 additional shares of SERENA Common Stock was exercised in full by the underwriters. SERENA received aggregate gross proceeds of $63.7 million in connection with its initial public offering. Of such amount, approximately $4.4 million was paid to the underwriters in connection with underwriting discounts, and approximately $1.4 million was paid by SERENA in connection with offering expenses, including legal, accounting, printing, filing and other fees. There were no direct or indirect payments to directors or officers of the Company or any other person or entity. None of the offering proceeds have been used for the construction of plant, buildings or facilities or other purchase or installation of machinery or equipment or for purchases of real estate or the acquisition of other businesses. The Company is currently investing the net offering proceeds for future use as additional working capital. Such remaining net proceeds may be used for potential strategic investments or acquisitions that complement SERENA's products, services, technologies or distribution channels. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. ITEM 5. OTHER INFORMATION. Not applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
EXHIBIT NO. EXHIBIT TITLE - ----------- ----------------------------------------------------------------------------------------------------- (a) Exhibits. 27.1 Financial Data Schedule (b) Reports on Form 8-K. Not applicable.
26 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SERENA SOFTWARE, INC. Date: June 14, 1999 By: /s/ ROBERT I. PENDER, JR. ----------------------------------- Robert I. Pender, Jr. VICE PRESIDENT, FINANCE AND ADMINISTRATION, CHIEF FINANCIAL OFFICER (PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER) AND SECRETARY 27 EX-27.1 2 EX-27.1
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REGISTRANT'S FORM 10Q QUARTERLY REPORT UNDER THE SECURITIES ACT OF 1934 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS JAN-31-2000 FEB-01-1999 APR-30-1999 61,139,044 23,440,894 11,767,177 386,000 0 97,950,521 1,826,449 0 120,299,184 20,280,710 0 0 0 25,301 98,467,013 120,299,134 6,908,607 14,220,756 688,859 10,128,211 0 0 0 3,927,773 1,733,661 2,194,222 0 0 0 2,194,222 0.09 0.09
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