-----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, P5NNuWCVOJXDGbSd4jdPtDW7ZkQgRZko744JEAUv79PFKQsiO/R7ou5JlmXsafTZ /C5D/LcMbxgFyxvl4VP6Gw== 0000909518-98-000596.txt : 19980915 0000909518-98-000596.hdr.sgml : 19980915 ACCESSION NUMBER: 0000909518-98-000596 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980914 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: GIGA INFORMATION GROUP INC CENTRAL INDEX KEY: 0000948263 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ENGINEERING, ACCOUNTING, RESEARCH, MANAGEMENT [8700] IRS NUMBER: 061422860 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-21529 FILM NUMBER: 98708642 BUSINESS ADDRESS: STREET 1: 1 LONG WATER CIRCLE STREET 2: BLDG 1400 W CITY: NORWELL STATE: MA ZIP: 02061 BUSINESS PHONE: 7819829500 MAIL ADDRESS: STREET 1: ONE LONGWATER CIRCLE CITY: NORWELL STATE: MA ZIP: 02061 10-Q 1 10Q FOR PERIOD END 06-30-1998 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended June 30, 1998 or [ ] Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ____ to ____ COMMISSION FILE NUMBER 0-21529 GIGA INFORMATION GROUP, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 06-1422860 - ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) ONE LONGWATER CIRCLE NORWELL, MA 02061 (781) 982-9500 ------------------------------------------- (Address, including zip code, and telephone number, including area code, of principal executive offices) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [ ] Yes [X] No As of September 9, 1998, there were 9,924,468 shares of Common Stock, $.001 par value, of the registrant outstanding. ================================================================================ GIGA INFORMATION GROUP, INC. INDEX
PAGE PART I - FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Statements of Operations for the three and six months ended June 30, 1998 and June 30, 1997 (unaudited) 3. Consolidated Balance Sheets at June 30, 1998 and December 31, 1997 (unaudited) 4. Consolidated Statements of Cash Flows for the six months ended June 30, 1998 and June 30, 1997 (unaudited) 5. Notes to Consolidated Financial Statements (unaudited) 6. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9. PART II - OTHER INFORMATION Item 1. Legal Proceedings 17. Item 2. Changes in Securities and Use of Proceeds 17. Item 3. Defaults Upon Senior Securities 18. Item 4. Submission of Matters to a Vote of Security Holders 18. Item 5. Other Information 18. Item 6. Exhibits and Reports on Form 8-K 18. SIGNATURE PAGE 19. INDEX TO EXHIBITS 20.
2. PART 1 - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS GIGA INFORMATION GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited, in thousands, except share and per share data)
Three Months Ended Six Months Ended June 30, June 30, 1998 1997 1998 1997 ---- ---- ---- ---- Revenues: Continuous information services+B37 $ 7,604 $ 3,234 $ 14,408 $ 5,804 Other services 1,475 1,029 3,168 2,305 Publications 33 81 88 261 ----------- ----------- ------------ ----------- Total revenues 9,112 4,344 17,664 8,370 Costs and expenses: Cost of services 5,148 3,433 9,539 6,635 Cost of publications 83 (44) 154 31 Sales and marketing 6,538 5,295 12,319 9,453 Research and development 299 588 638 1,247 General and administrative 1,678 1,461 3,046 2,522 Depreciation and amortization 414 471 799 1,105 ----------- ----------- ------------ ----------- Total costs and expenses 14,160 11,204 26,495 20,993 ----------- ----------- ------------ ----------- Loss from operations (5,048) (6,860) (8,831) (12,623) ----------- ----------- ------------ ----------- Interest income 122 77 159 175 Interest expense (694) (24) (780) (41) ----------- ----------- ------------ ----------- Loss from operations before income taxes (5,620) (6,807) (9,452) (12,489) ----------- ----------- ------------ ----------- Income tax (benefit) charge (4) 4 - 11 ----------- ----------- ------------ ----------- Net Loss $ (5,616) $ (6,811) $ (9,452) $ (12,500) =========== =========== ============ =========== Results per common share: Historical - basic and diluted $ (2.60) $ (3.28) $ (4.42) $ (6.06) =========== =========== ============ =========== Weighted average number of shares 2,161,542 2,075,628 2,138,815 2,063,457 =========== =========== ============ =========== Pro forma - basic and diluted $ (0.82) $ (1.01) $ (1.38) $ (1.85) =========== =========== ============ =========== Weighted average number of shares 6,848,326 6,762,412 6,825,599 6,750,241 =========== =========== ============ ===========
The accompanying notes are an integral part of the consolidated financial statements. 3. GIGA INFORMATION GROUP, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share data)
June 30, December 31, 1998 1997 ---- ---- (unaudited) Assets Current assets: Cash and cash equivalents $ 6,713 $ 3,539 Trade accounts receivable, net of allowance for uncollectible accounts of $404 and $483 at June 30, 1998 and December 31, 1997, respectively 6,687 8,961 Unbilled accounts receivable 2,942 4,727 Prepaid expenses and other current assets 3,642 3,753 ----------- ----------- Total current assets 19,984 20,980 Property and equipment, net 2,102 1,695 Leasehold intangible - 177 Other assets 169 171 ----------- ----------- Total assets $ 22,255 $ 23,023 =========== =========== Liabilities and Stockholders' Deficit Current liabilities: Accounts payable 763 2,213 Deferred revenues 20,180 20,604 Accrued expenses and other current liabilities 6,245 6,385 Debt - other, current portion 9,579 1,526 Debt - related party, current portion - 448 ----------- ----------- Total current liabilities 36,767 31,176 Long-term debt - other 690 937 ----------- ----------- Total liabilities 37,457 32,113 Stockholders' equity (deficit): Preferred Stock, $.001 par value; 16,500,000 shares authorized: 650,000 shares designated as Series A Convertible Preferred Stock, 570,000 shares issued and outstanding (liquidation preference of $2,850,000) 1 1 9,000,000 shares designated as Series B Convertible Preferred Stock, 8,144,642 shares issued and outstanding (liquidation preference of $28,506,000) 8 8 4,500,000 shares designated as Series C Convertible Preferred Stock, 2,609,491 shares issued and outstanding (liquidation preference of $10,725,000) 3 3 2,000,000 shares designated as Series D Convertible Preferred Stock, 285,715 and 0 shares issued and outstanding at June 30, 1998 and December 31, 1997, respectively (liquidation preference of $2,000,000) - - Common Stock, $.001 par value: 50,000,000 shares authorized, 2,184,345 and 2,093,107 shares issued and outstanding at June 30, 1998 and December 31, 1997, respectively 3 2 Additional paid-in capital 46,687 41,286 Deferred compensation (1,979) - Accumulated deficit (60,381) (50,929) Cumulative translation adjustments 456 539 ----------- ----------- Total stockholders' deficit (15,202) (9,090) ----------- ----------- Total liabilities and stockholders' deficit $ 22,255 $ 23,023 =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. 4. GIGA INFORMATION GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited, in thousands)
Six Months Ended June 30, June 30, 1998 1997 ---- ---- Cash flows from operating activities: Net loss $ (9,452) $(12,500) Adjustments to reconcile net loss to net cash used in continuing operating activities: Depreciation and amortization 799 1,105 Amortization of discount on note payable 337 - Provision for doubtful accounts (80) (15) Interest on long-term debt added to principal - 37 Interest on note receivable added to principal - (5) (Gain) loss on sale of fixed assets 1 (5) Deferred compensation expense 140 - Other non-cash items 18 50 Change in assets and liabilities: Decrease (increase) in accounts receivable 4,046 (101) Decrease (increase) in prepaid expenses and other current assets 218 (590) (Decrease) increase in deferred revenues (311) 3,025 (Decrease) increase in accounts payable and accrued liabilities (1,429) 110 ---------- ---------- Net cash used in operating activities: Net cash used in continuing operations (5,713) (8,889) Net cash used in discontinued operations (288) (245) ---------- ---------- Net cash used in operating activities (6,001) (9,134) ---------- ---------- Cash flows from investing activities: Acquisition of equipment and improvements (1,028) (349) Other, net - 24 ---------- ---------- Cash used in investing activities (1,028) (325) ---------- ---------- Cash flows from financing activities: Proceeds from issuance of Common Stock 163 33 Repurchase of Common Stock - (33) Proceeds from issuance of Series C Convertible Preferred Stock, net of issuance costs of $126 - 7,372 Proceeds from issuance of Series D Convertible Preferred Stock, net of issuance costs of $80 1,920 - Repayments of principal to related parties (400) - Proceeds from stock subscriptions receivable - 25 Net decrease in short-term borrowings - (188) Proceeds from issuance of note payable, net of origination fee of $200 9,800 - Principal payments on long-term debt, current portion (1,211) - ---------- ---------- Cash provided by financing activities 10,272 7,209 ---------- ---------- Effect of exchange rates on cash (69) (38) Net increase (decrease) in cash and cash equivalents 3,174 (2,288) Cash and cash equivalents, beginning of period 3,539 8,286 ---------- ---------- Cash and cash equivalents, end of period $ 6,713 $ 5,998 ========== ========== Supplementary cash flow information: Income taxes paid $ 8 $ 11 Interest paid $ 512 $ 8
The accompanying notes are an integral part of the consolidated financial statements. 5. GIGA INFORMATION GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 1. Summary of Significant Accounting Policies Basis of Presentation The accompanying consolidated financial statements of the Company at June 30, 1998 and for the three and six months ended June 30, 1997 and 1998 are unaudited and have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. All adjustments (consisting only of normal recurring adjustments) have been made which, in the opinion of management, are necessary for a fair presentation. The results of operations for the periods presented are not necessarily indicative of the results that may be expected for any future period. For further information, refer to the Company's audited consolidated financial statements included in the Company's Registration Statement on Form S-1, File No. 333-52899, declared effective by the Securities and Exchange Commission on July 29, 1998. Management's Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities, (ii) disclosure of contingent assets and liabilities at the dates of the financial statements and (iii) the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Stock Split The Company effected a 1 for 3 reverse stock split of its Common Stock, par value $.001 per share (the "Common Stock"), effective July 29, 1998. All share and per share data presented herein have been restated to reflect the Common Stock split. Net Loss Per Share and Pro Forma Net Loss Per Share The Company computes basic and diluted earnings per share in accordance with Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." Basic loss per share is based upon the weighted average number of common shares outstanding during the period. Diluted loss per share is based upon the weighted average number of common shares outstanding during the period and dilutive potential common shares outstanding. Due to the losses incurred by the Company for the three and six months ended June 30, 1997 and 1998, common equivalent shares resulting from the assumed conversion of outstanding convertible notes payable and the assumed exercise of outstanding stock options and warrants have been excluded from the computation of diluted net loss per share as their effect would be anti-dilutive. Common equivalent shares resulting from the assumed conversion of outstanding convertible notes payable at June 30,1998 and 1997 were 0 and 87,479, respectively. Options to purchase 1,278,977 and 1,129,815 shares of Common Stock and warrants to purchase 857,056 and 35,959 shares of Common Stock were outstanding at June 30,1998 and 1997, respectively. Pro-forma net loss per share for the three and the six months ended June 30, 1997 and 1998 is computed assuming the conversion of all outstanding shares of convertible preferred stock into 4,686,784 shares of Common Stock. This conversion occurred upon the completion of the Company's 6. GIGA INFORMATION GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Initial Public Offering of 3,000,000 shares of its Common Stock (the "Offering") in August 1998. (See Note 4.) Comprehensive Income (Loss) The Company has adopted SFAS No. 130, "Reporting Comprehensive Income," which establishes standards for the reporting and display of comprehensive income and its components in general purpose financial statements for the year ended December 31, 1998 and interim periods. The table below sets forth "Comprehensive Income (Loss)" as defined by SFAS No. 130 (in thousands):
Three Months Ended Six Months Ended June 30, June 30, 1998 1997 1998 1997 ---- ---- ---- ---- Net loss $ (5,616) $ (6,811) $ (9,452) $(12,500) Other Comprehensive income (loss), net of tax: Foreign currency translation adjustment (157) 98 (83) 342 ---------- ---------- ---------- ---------- Comprehensive loss $ (5,773) $ (6,713) $ (9,535) $(12,158) ========== ========== ========== ==========
New Accounting Pronouncements In June 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 131, "Disclosures about Segments of an Enterprise and Related Information." This statement supercedes SFAS No. 14, "Financial reporting for Segments of a Business Enterprise." SFAS No. 131 includes requirements to report selected segment information quarterly and entity-wide disclosures about products and services, major customers, and the countries in which the company holds material assets and reports material revenues. The statement will be effective for the annual periods beginning after December 15, 1997 and the Company will adopt its provisions for the year ended December 31, 1998. Reclassification for earlier periods is required, unless impraticable, for comparative purposes. The Company is currently evaluating the impact this statement will have on its financial statements; however, because the statement requires only additional disclosure, the Company does not expect the statement to have a material impact on its financial position or results of operations. In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. The Company will adopt the new standard as of January 1, 2000. SFAS No. 133 requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. Management of the Company anticipates that, due to its limited use of derivative instruments, the adoption of SFAS 133 will not have a significant effect on the Company's results of operations or its financial position. 7. GIGA INFORMATION GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 2. Series D Convertible Preferred Stock In April 1998, the Company designated 2,000,000 shares of Preferred Stock as Series D Convertible Preferred Stock ('Series D') and issued and sold for aggregate consideration of $1.5 million, 214,286 shares of Series D and warrants to purchase 115,714 shares of Series D at an exercise price of $9.00 per share. In May 1998, the Company issued and sold an additional 71,429 shares of Series D and warrants to purchase 38,571 shares of Series D for aggregate consideration of $500,000. All of the outstanding shares of the Company's Series D were converted into 190,476 shares of Common Stock upon the consummation of the Offering in August 1998. 3. Loan and Warrant Purchase Agreement In April 1998, the Company entered into a Loan and Warrant Purchase Agreement whereby the Company issued convertible promissory notes with a face value of $10.0 million, at an annual interest rate of 12% (the "Bridge Notes"), and warrants to purchase up to 166,666 shares of Common Stock in exchange for cash proceeds of $10.0 million. The warrants are exercisable at $3.00 per share, for a period of ten years from the date of the grant. The fair market value of the warrants was recorded as a discount of $1,182,158 to the Bridge Notes and such Bridge Notes were recorded at $8,817,842. Accordingly $1,182,158 of accretion will be charged to interest expense, in addition to the stated interest rates, over the term of the Bridge Notes. In August 1998, upon completion of the Offering, a portion of the net proceeds of the Offering was used to repay in full the Bridge Notes in the aggregate amount of $10.0 million plus accrued interest thereon. 4. Subsequent Events Completion of Initial Public Offering On August 4, 1998, the Company consummated the Offering of 3,000,000 shares of its Common Stock at $12.50 per share. Aggregate net proceeds to the Company were approximately $33.9 million after deducting underwriting discounts and offering expenses payable by the Company. A portion of the net proceeds of the Offering was used to repay in full the Bridge Notes in the aggregate principal amount of $10.0 million, plus accrued interest thereon (see Note 3.). Concurrent with the closing of the Offering, all shares of the Company's Series A, B, C and D Convertible Preferred Stock were converted into an aggregate of 4,686,784 shares of Common Stock (see Notes 1. and 2.). On August 4, 1998, warrants to purchase 47,999 shares of Common Stock were exercised for cash of $143,997, at an exercise price of $3.00 per share. These warrants were originally issued in April 1998 pursuant to the Loan and Warrant Purchase Agreement (see Note 3.). 8. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE MATTERS DISCUSSED BELOW CONTAIN FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. SUCH FORWARD LOOKING STATEMENTS, INCLUDING THOSE CONCERNING THE COMPANY'S EXPECTATIONS, INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY, OR INDUSTRY RESULTS, TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE, OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD LOOKING STATEMENTS. IN EVALUATING SUCH STATEMENTS AS WELL AS THE FUTURE PROSPECTS OF THE COMPANY, SPECIFIC CONSIDERATION SHOULD BE GIVEN TO VARIOUS FACTORS INCLUDING THE FOLLOWING: THE COMPANY'S PRIOR LOSSES AND ANTICIPATION OF FUTURE LOSSES; THE COMPANY'S NEED TO ATTRACT AND RETAIN QUALIFIED PERSONNEL; THE COMPANY'S DEPENDENCE ON SALES AND RENEWALS OF SUBSCRIPTION-BASED SERVICES; THE COMPANY'S ABILITY TO MANAGE GROWTH; THE COMPANY'S FUTURE CAPITAL NEEDS AND THE RISKS OF WORKING CAPITAL DEFICIENCY; THE COMPANY'S DEPENDENCE ON KEY PERSONNEL; COMPETITION; THE RISKS ASSOCIATED WITH THE DEVELOPMENT OF NEW SERVICES AND PRODUCTS; THE POTENTIAL FOR SIGNIFICANT FLUCTUATIONS IN QUARTERLY OPERATING RESULTS; UNCERTAINTIES RELATING TO PROPRIETARY RIGHTS; THE COMPANY'S DEPENDENCE ON THE INTERNET INFRASTRUCTURE; THE RISK OF SYSTEM FAILURE; THE RISKS RELATED TO CONTENT; AND THE RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS. FOR FURTHER INFORMATION, REFER TO THE COMPANY'S REGISTRATION STATEMENT ON FORM S-1 (FILE NO. 333-52899), INCLUDING THE MATTERS SET FORTH UNDER THE CAPTION "RISK FACTORS." OVERVIEW Giga sells knowledge which supports enterprise decision making in the field of Information Technology ("IT") with a focus on computing, telecommunications and related industries. The Company's four principal products and services are (i) Unified Advisory Service ("Advisory Service"), (ii) "IT Practice Services," (iii) "Continuous Advisory Consulting" and (iv) organizing and sponsoring a range of events on significant IT industry issues and trends and producing publications based on conference topics or current IT issues (collectively, "Events and Publications"). The Company provides its services primarily through GigaWeb, its intelligent Internet-based information delivery interface. The Company introduced its Advisory Service and GigaWeb in April 1996. In July 1996, the Company introduced its IT Practice Services. Advisory Consulting was introduced in September 1997. The Company's Events and Publications product line was acquired in April 1995. For financial reporting purposes, revenues from (i) Advisory Service, IT Practice Services and Continuous Advisory Consulting are aggregated into Continuous Information Services, (ii) Events and other services, principally consulting, are aggregated into Other Services and (iii) Publications are listed separately. The Company expects that revenues from its Continuous Information Services will continue to increase as a percentage of its total revenues. The Company's Continuous Information Services ("CIS") are typically sold through annual contracts that generally provide for payment at the commencement of the contract period. A small number of CIS contracts, however, are billed quarterly. Amounts received in advance of services provided are reflected in the Company's financial statements as deferred revenues and are recognized monthly on a pro rata basis over the term of the contract. Revenues from Other Services are recognized as 9. follows: events as they occur and consulting as such services are performed. Revenues from Publications are recognized when publications are delivered. Unbilled receivables are primarily generated as a result of contractual quarterly billing terms offered in connection with the Company's Continuous Information Services. The Company also records the related commission obligation upon acceptance of a CIS contract and amortizes the corresponding deferred commission over the contract period in which the related CIS revenues are earned. Essentially all of the Company's current international operations are located in the European Union and Canada. The Company operates in the European Union primarily through wholly-owned subsidiaries in the United Kingdom, France and Germany. These subsidiaries manage direct sales personnel and distributors in other countries in the European Union as well. In Canada, the Company utilizes a full-scale field sales force and provides business support to these salespersons through its operations in the United States. Substantially all of the Company's revenues from the European Union are denominated in foreign currencies, particularly the British pound, while essentially all of the Company's revenues from Canada are denominated in U.S. dollars. The Company has begun marketing in Israel and Korea through representatives. Revenues from these representatives have been and are expected to continue to be denominated in U.S. dollars. To date, however, such revenues have been insignificant. As a result of fluctuations in exchange rates, transactions denominated in foreign currencies inherently have financial risk. To date, however, the Company's cumulative translation adjustments have been slightly favorable, although there can be no assurance that this trend will continue in the future. The Company does not currently hedge its exposure to foreign currency adjustments. The Company believes that a leading measure of the volume of its CIS business is the annualized value ('Annualized Value') of its Continuous Information Services agreements in effect at a given point in time. The Company calculates Annualized Value each month as the cumulative annualized subscription value payable under the agreements without regard to commencement date, duration or risk of cancellation. The Company also measures its performance on the basis of Net Annualized Value Increase ('NAVI') which is calculated on the basis of new agreements plus upgrades, net of downgrades and cancellations. The sum of all past NAVI equals Annualized Value. Historically, a substantial portion of NAVI for a given year is generated by the Company in the last two calendar quarters, and particularly in the last month of the last quarter. The following table sets forth the Annualized Value and NAVI for the three and six month periods ending June 30, 1997 and 1998.
Unaudited (in thousands) ----------------------------------------------------- Three Months Ended Six Months Ended June 30, June 30, 1998 1997 1998 1997 ---- ---- ---- ---- Beginning Annualized Value $ 29,497 $ 11,723 $ 26,619 $ 9,339 Net Annualized Value Increase 3,757 2,865 6,635 5,249 ---------- ---------- ---------- ---------- Ending Annualized Value $ 33,254 $ 14,588 $ 33,254 $ 14,588 ========== ========== ========== ==========
A majority of the Company's annual contracts renew automatically unless the customer cancels the subscription. The Company's experience is that a substantial portion of customers renew expiring contracts for an equal or greater level of total CIS fees each year. The Company believes that a direct comparison of its renewal rates and the renewal rates of its major competitors may not be meaningful due in part to the Company's limited operating history and its Advisory Service model (the focus of which is a unified, integrated approach with fewer contracts/services per customer), in contrast to the multiple-service model of the Company's major competitors. 10. The Company's operating expenses consist of cost of services, cost of publications, sales and marketing, research and development, general and administrative, and depreciation and amortization. Cost of services consists primarily of the direct costs associated with the delivery of the Company's Continuous Information Services and other services including personnel expenses for analysts and other personnel, direct expenses for events and conferences, and royalties to third party information providers. Cost of publications consists of expenses to create, print and distribute publications. Sales and marketing expenses include personnel expenses, promotional expenses, and sales commissions. Sales commissions are typically deferred when paid and expensed as the related revenue is recognized. Research and development expenses consist of personnel, consulting and other expenses to develop, enhance and operate GigaWeb. General and administrative expenses are primarily personnel costs and fees for professional services supporting the administrative functions of the Company. Since its inception, the Company has incurred substantial costs to develop its Continuous Information Services, establish its GigaWeb system, build a management team and recruit, employ and train research analysts, sales personnel and support staff for its business. The Company expects to incur significant losses through at least fiscal 1998 as the Company expands and develops its services and products. The Company has incurred and acquired substantial tax loss carryforwards since its inception. Due to the magnitude of these existing tax loss carryforwards, the continuing anticipated losses through at least 1998 and the substantial uncertainties associated with its business, the Company is unable to conclude that it is more likely than not that the deferred tax associated with these tax loss carryforwards will be realized. Accordingly, this deferred tax asset has been fully reserved. This valuation allowance will be reduced and the deferred tax asset will be recognized when and if it becomes more likely than not that the deferred tax asset will be realized. 11. RESULTS OF OPERATIONS The following table sets forth certain statement of operations data as a percentage of revenues for the periods indicated:
Three Months Ended Six Months Ended June 30, June 30, 1998 1997 1998 1997 ---- ---- ---- ---- Revenues: Continuous information services 84% 74% 82% 69% Other services 16% 24% 18% 28% Publications - 2% - 3% -------- -------- -------- -------- Total revenues 100% 100% 100% 100% -------- -------- -------- -------- Costs and expenses: Cost of services 56% 79% 54% 79% Cost of publications 1% (1%) 1% 1% Sales and marketing 72% 122% 70% 113% Research and development 3% 13% 4% 15% General and administrative 18% 34% 17% 30% Depreciation and amortization 5% 11% 4% 13% -------- -------- -------- -------- Total costs and expenses 155% 258% 150% 251% -------- -------- -------- -------- Loss from operations (55%) (158%) (50%) (151%) Interest income 1% 2% 1% 2% Interest expense (8%) (1%) (4%) - -------- -------- -------- -------- Loss from operations before income taxes (62%) (157%) (53%) (149%) Income tax (benefit) charge - - - - -------- -------- -------- -------- Net Loss (62%) (157%) (53%) (149%) ======== ======== ======== ========
In general, the decreases in the various operating expenses as a percentage of total revenues are primarily due to leveraging those expenses over increased revenues derived from a growing customer base. 12. THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997 Revenues. Total revenues increased 110% to $9.1 million for the three months ended June 30,1998 from $4.3 million for the same period in 1997. The increase in total revenues was primarily due to the increase in revenues from Continuous Information Services. Revenues from Continuous Information Services increased 135% to $7.6 million for the three months ended June 30, 1998 from $3.2 million for the same period in 1997. The increase in revenues was primarily due to growing market acceptance of Giga's services and continued expansion of the Company's sales force. Revenues from Other Services increased 43% to $1.5 million for the three months ended June 30, 1998 from $1.0 million for the same period in 1997. The increase was primarily due to higher revenues generated from the planned expansion of the Company's events and conferences activities and increased attendance at the Company's premier conference, GigaWorld IT Forum, partially offset by a decrease in consulting revenues associated with the phase-out of certain consulting services. Revenues from Publications decreased 59% to $33,000 for the three months ended June 30, 1998 from $81,000 for the same period in 1997. The decrease was due to a de-emphasis on this business activity and the discontinuance of two publications in the second quarter of 1997. Cost of services. Cost of services increased 50% to $5.1 million for the three months ended June 30, 1998 from $3.4 million for the same period in 1997. The increase in costs was primarily due to the expansion of analyst staff and additional staff hired for newly created field analyst positions to support an increased customer base, increased costs in support of expanded offerings of events and conferences, and other expenses associated with providing Continuous Information Services. Cost of publications. Cost of publications increased 289% to $83,000 for the three months ended June 30, 1998 from ($44,000) for the same period in 1997. The increase in expense was primarily attributable to non-recurring gains recorded in the second quarter of 1997 resulting from the disposition of two publications. Sales and marketing. Sales and marketing expenses increased 24% to $6.5 million for the three months ended June 30, 1998 from $5.3 million for the same period in 1997. The increase was principally due to the continued expansion of the Company's direct sales organization, higher sales commission expense resulting from increased revenues, and increased emphasis on performing briefings and other lead generating activities. Research and development. Research and development expenses decreased 49% to $299,000 for the three months ended June 30, 1998 from $588,000 for the same three-month period in 1997. The decrease was primarily due to the completion of the development of the basic functionality of GigaWeb in 1997. General and administrative. General and administrative expenses increased 15% to $1.7 million for the three months ended June 30, 1998 from $1.5 million for the same period in 1997. The increase in expense was primarily due to enhancements to infrastructure such as internal systems, additional personnel and other items to support the Company's growth. Depreciation and amortization. Depreciation and amortization expense decreased 12% to $414,000 for the three months ended June 30, 1998 from $471,000 for the same period in 1997. The decrease was primarily due to lower goodwill and leasehold amortization charges partially offset by increased depreciation costs resulting from computer equipment purchases for new personnel. 13. Interest income and expense. Interest income increased to $122,000 for the three months ended June 30, 1998 from $77,000 for the same period in 1997 due to greater cash balances available for investment. Interest expense increased to $694,000 from $24,000 for the same period in 1997 due to long-term equipment financing entered into by the Company in June 1997, interest accrued and paid pursuant to the Bridge Notes with a face value of $10.0 million issued in April 1998 and bearing interest at a stated rate of 12%, and accretion of the discount recorded to the Bridge Notes in conjunction with the fair market valuation of associated Common Stock warrants. SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997 Revenues. Total revenues increased 111% to $17.7 million for the six months ended June 30,1998 from $8.4 million for the same period in 1997. The increase in total revenues was primarily due to the increase in revenues from Continuous Information Services. Revenues from Continuous Information Services increased 148% to $14.4 million for the six months ended June 30, 1998 from $5.8 million for the same period in 1997. The increase in revenues was primarily due to growing market acceptance of Giga's services and continued expansion of the Company's sales force. Revenues from Other Services increased 37% to $3.2 million for the six months ended June 30, 1998 from $2.3 million for the same period in 1997. The increase was primarily due to higher revenues generated from the planned expansion of the Company's events and conferences activities and increased attendance at the Company's premier conference, GigaWorld IT Forum, partially offset by a decrease in consulting revenues associated with the phase-out of certain consulting services. Revenues from Publications decreased 66% to $88,000 for the six months ended June 30, 1998 from $261,000 for the same period in 1997. The decrease was due to a de-emphasis on this business activity and the discontinuance of two publications in the second quarter of 1997. Cost of services. Cost of services increased 44% to $9.5 million for the six months ended June 30, 1998 from $6.6 million for the same period in 1997. The increase in costs was primarily due to the expansion of analyst staff and additional staff hired for newly created field analyst positions to support an increased customer base, increased costs in support of expanded offerings of events and conferences, and other expenses associated with providing Continuous Information Services. Cost of publications. Cost of publications increased 397% to $154,000 for the six months ended June 30, 1998 from $31,000 for the same period in 1997. The increase in expense was primarily attributable to non-recurring gains recorded in the second quarter of 1997 resulting from the disposition of two publications. Sales and marketing. Sales and marketing expenses increased 30% to $12.3 million for the six months ended June 30, 1998 from $9.5 million for the same period in 1997. The increase was principally due to the continued expansion of the Company's direct sales organization, higher sales commission expense resulting from increased revenues, and increased emphasis on performing briefings and other lead generation activities. Research and development. Research and development expenses decreased 49% to $638,000 for the six months ended June 30, 1998 from $1.2 million for the same six-month period in 1997. The decrease was primarily due to the completion of the development of the basic functionality of GigaWeb in 1997. 14. General and administrative. General and administrative expenses increased 21% to $3.0 million for the six months ended June 30, 1998 from $2.5 million for the same period in 1997. The increase in expense was primarily due to enhancements to infrastructure such as internal systems, additional personnel and other items to support the Company's growth. Depreciation and amortization. Depreciation and amortization expense decreased 28% to $799,000 for the six months ended June 30, 1998 from $1.1 million for the same period in 1997. The decrease was primarily due to lower goodwill and leasehold amortization charges partially offset by increased depreciation costs resulting from computer equipment purchases for new personnel. Interest income and expense. Interest income decreased to $159,000 for the six months ended June 30, 1998 from $175,000 for the same period in 1997 due to lower average cash balances available for investment. Interest expense increased to $780,000 from $41,000 for the same period in 1997 due to long-term equipment financing entered into by the Company in June 1997, interest accrued and paid pursuant to the Bridge Notes with a face value of $10.0 million issued in April 1998 and bearing interest at a stated rate of 12%, and accretion of the discount recorded to the Bridge Notes in conjunction with the fair market valuation of associated Common Stock warrants. LIQUIDITY AND CAPITAL RESOURCES As of June 30, 1998, the Company funded its operations primarily through the private placement of equity securities and borrowings under promissory notes. The Company received aggregate net proceeds of $42.4 million from the private placement of equity securities since its inception, including $1.9 million from the private placement of Series D Convertible Preferred Stock in April and May 1998. The Company also issued the Bridge Notes in April 1998 whereby the Company borrowed $10.0 million at a stated interest rate of 12%. At June 30, 1998, the Company had cash and cash equivalents of $6.7 million. During the six months ended June 30, 1998, the Company's capital expenditures totaled approximately $1.0 million, primarily for computer equipment. The Company expects that additional purchases of computer equipment will be made as the Company's employee base and customer base grows. As of June 30, 1998, the Company had no material commitments for capital expenditures, and the Company does not currently expect the rate of capital spending to vary significantly through the end of 1999. Net cash used by continuing operations was approximately $5.7 million for the six months ended June 30, 1998, resulting primarily from a net loss of $9.5 million and decreases in accounts payable and accrued liabilities of $1.4 million, partially offset by decreases in accounts receivable of $4.0 million. Net cash used in investing activities of approximately $1.0 million for the six months ended June 30, 1998 was primarily due to purchases of computer equipment. Cash provided by financing activities, of approximately $10.3 million for the six months ended June 30, 1998, was primarily generated by issuance of the Bridge Notes, Common Stock warrants, Series D Convertible Preferred Stock, Series D Preferred Stock warrants and Common Stock pursuant to stock option exercises, partially offset by repayments of long-term debt. In April 1998, the Company issued the Bridge Notes in the aggregate principal amount of $10.0 million and warrants to purchase an aggregate of 166,666 shares of Common Stock at an exercise price of $3.00 per share. The Bridge Notes accrued interest at the rate of 12% per annum. The outstanding principal amount of, and any unpaid accrued interest on, the Bridge Notes became due and payable upon the consummation of the Offering. In April and May 1998, the Company also issued an aggregate of $2.0 million of Series D Convertible Preferred Stock and associated Series D warrants. 15. In August 1998, the Company completed its Offering of 3,000,000 shares of Common Stock at $12.50 per share. Net proceeds to the Company aggregated approximately $33.9 million. The Company used $10.2 million of the net proceeds to repay obligations for principal and interest under the Bridge Notes. All outstanding shares of the Company's Series A, B, C and D Convertible Preferred Stock automatically converted into Common Stock upon the consummation of the Offering. The Company believes that the remaining proceeds from the Offering together with existing cash and cash equivalents and cash generated from operations, after the repayment of other debt as it becomes due, will be sufficient to fund the Company's cash needs until at least the end of 1999. In the event that the Company encounters difficulties in collecting accounts receivable, experiences low or reduced subscription renewal rates or otherwise has revenues that are lower than planned, the Company might require additional working capital. The Company has access to an invoice factoring arrangement with a commercial bank under which the Company could borrow up to $3.0 million or 80% of eligible accounts receivable, whichever is less. If necessary, the Company would consider various other sources of financing, including, but not limited to, private placements, the sale of assets and strategic alliances, but there can be no assurance that such financing would be available to the Company on terms that are acceptable, if at all. If adequate funds are not available, the Company may be required to reduce its fixed costs and delay, scale back or eliminate certain of its services, any of which could have a material adverse effect on the Company's business, financial condition and results of operations. YEAR 2000 COMPLIANCE The Company has commenced efforts to ensure that the computer systems and applications upon which it relies for internal operations and external communications with clients and others will function properly beyond 1999. The Company presently believes that the computer systems and programs upon which it relies for its internal operations and external communications, and which the Company presently expects to use following December 31, 1999, are, or will be, Year 2000 compliant. There can be no assurance, however, that further assessment of the Company's internal systems and applications will not reveal that additional efforts to assure Year 2000 compliance are necessary, and such efforts may be costly and may divert the Company's resources from product development or infrastructure improvement programs. In addition, there can be no assurance that the systems operated by other companies upon which the Company relies will be Year 2000 compliant on a timely basis. For example, the Company is dependent on the Internet infrastructure for providing reliable GigaWeb access. GigaWeb is an Internet based information delivery interface and the primary delivery medium for the Company's Continuous Information Services. Year 2000 issues could affect the power grid and communications networks that provide the Internet's infrastructure. The occurrence of such problems would be out of the Company's control and could have a material adverse impact on the Company's ability to deliver its Continuous Information Services. The Company's business, financial condition or results of operations could be materially adversely affected by the failure of either the Company's internal systems and applications or other systems upon which the Company relies to properly operate or manage data beyond 1999. While uncertainty exists concerning the potential effects associated with Year 2000 compliance, the Company does not believe that Year 2000 compliance will result in a material adverse effect on its business, financial condition or results of operations. 16. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS Recent Sales of Unregistered Securities As previously reported in the Company's Registration Statement on Form S-1 (Registration No. 333-52899), as amended, set forth below is information regarding the number of shares of capital stock and other equity securities issued by the Company during the fiscal quarter ended June 30, 1998 which were not registered under the Securities Act of 1933, as amended (the "Securities Act") . Further included is the consideration, if any, received by the Company for such shares of capital stock and other equity securities. The shares of capital stock and other equity securities issued in the following transactions were offered and sold in reliance upon the exemption from registration under Section 4 (2) of the Securities Act or Regulation D relative to sales by an issuer not involving any public offering, or Rule 701 promulgated under the Securities Act. 1. During the fiscal quarter ended June 30, 1998, the Company issued a total of 53,740 shares of Common Stock pursuant to the exercise of options previously granted to employees at a weighted average exercise price of $1.88 per share. 2. In April and May 1998, the Company issued and sold to two accredited investors an aggregate of 285,715 shares of Series D Convertible Preferred Stock at a purchase price of $7.00 per share and warrants to purchase an additional 154,285 shares of Series D Convertible Preferred Stock at an exercise price of $9.00 per share. 3. In April 1998, the Company issued the Bridge Notes (convertible under certain circumstances into Series D Convertible Preferred Stock) in the aggregate principal amount of $10.0 million and warrants to purchase an aggregate of 166,666 shares of Common Stock at an exercise price of $3.00 per share to certain affiliates of Friedman, Billings, Ramsey & Co., Inc. For information with respect to equity securities issued after June 30, 1998, see Note 1. and Note 4. to the Company's Consolidated Financial Statements. Use of Proceeds The Company's Registration Statement on Form S-1 (Registration No. 333-52899), (the "Registration Statement"), relating to the Offering was declared effective by the Securities and Exchange Commission on July 29, 1998. The sale of 3,000,000 shares of the Company's Common Stock, $0.001 par value, at $12.50 per share commenced on July 30, 1998 and has been completed. The managing underwriters for the Offering were Friedman, Billings, Ramsey & Co., Inc. and Prudential Securities Incorporated. The total price to the public was $37.5 million before underwriting discounts and commissions of $2.625 million. Offering expenses are estimated at $950,000. All such expenses are direct or indirect payments to others. None of such expenses were paid directly or indirectly to any director or officer of the Company or their associates, persons owning ten percent or more of any class of equity securities of the Company, or an affiliate of the Company. 17. As of September 9, 1998, the Company had used a portion of the $33.925 million net proceeds from the Offering to repay the Bridge Notes aggregating to $10.0 million of principal plus $210,000 of accrued interest thereon. Furthermore, the Company had added $7.715 million of such net proceeds to the general funds of the corporation for use as working capital and invested the remaining $16.0 million of the net proceeds in short-term, investment-grade interest-bearing obligations. None of the net proceeds of the Offering were paid directly or indirectly to any director or officer of the Company or their associates, persons owning ten percent or more of any class of equity securities of the Company or an affiliate of the Company except to the extent that a portion of the working capital was used for (i) salaries and expenses of officers and expenses of directors and (ii) to meet working capital needs of the Company's subsidiaries, both in the normal course of business. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS None. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 3.1 Amended and Restated Certificate of Incorporation of the Company as filed with the Secretary of State of the State of Delaware on August 4, 1998. 11 Statement of Computation of Per Share Earnings 27 Financial Data Schedule (b) Reports on Form 8-K None. 18. SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. GIGA INFORMATION GROUP, INC. September 11, 1998 By: /s/ Daniel M. Clarke ---------------------------------- Daniel M. Clarke Senior Vice President. Chief Financial Officer, Secretary and Treasurer (Principal Financial and Accounting Officer) 19. EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION OF DOCUMENTS - ------ ------------------------ 3.1 Amended and Restated Certificate of Incorporation of the Company as filed with the Secretary of State of the State of Delaware on August 4, 1998. 11 Statement of Computation of Per Share Earnings 27 Financial Data Schedule 20. EX-3 2 EXHIBIT 3.1 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF GIGA INFORMATION GROUP, INC. Pursuant to Sections 242 and 245 of the General Corporation Law of the State of Delaware GIGA INFORMATION GROUP, INC. (the "Corporation"), a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "General Corporation Law"), hereby certifies as follows: 1. The name of the corporation is Giga Information Group, Inc. Giga Information Group, Inc., was originally incorporated under the name Giga Strategic Decisions, Inc., and the original Certificate of Incorporation was filed with the Secretary of State of Delaware on March 17, 1995. 2. This Restated Certificate of Incorporation restates and integrates and further amends the Amended and Restated Certificate of Incorporation of the Corporation, was duly adopted in accordance with the provisions of Sections 242 and 245 of the General Corporation Law, and was approved by written consent of the stockholders of the Corporation given in accordance with the provisions of Section 228 of the General Corporation Law (prompt notice of such action having been given to those stockholders who did not consent in writing). The resolution setting forth the Restated Certificate of Incorporation is as follows: RESOLVED: That the Amended and Restated Certificate of Incorporation of the Corporation, as amended, be and hereby is amended and restated in its entirety so that the same shall read as follows: FIRST. The name of this Corporation is: Giga Information Group, Inc. SECOND. The address of the Corporation's registered office in the State of Delaware is National Corporate Research, Ltd., 9 East Loockerman Street, County NYFS07...:\54\47954\0009\2041\EXH5018U.450 of Kent, Dover 19901. The name of its registered agent at such address is National Corporate Research, Ltd. THIRD. The nature of the business or purposes to be conducted or promoted by the Corporation is as follows: To engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. FOURTH. The total number of shares of all classes of stock which the Corporation shall have authority to issue is 65,000,000 shares, consisting of (i) 60,000,000 shares of Common Stock, $.001 par value per share ("Common Stock"), and (ii) 5,000,000 shares of Preferred Stock, $.001 par value per share ("Preferred Stock"). The following is a statement of the designations and the powers, privileges and rights, and the qualifications, limitations or restrictions thereof in respect of each class of capital stock of the Corporation. A. COMMON STOCK. 1. General. The voting, dividend and liquidation rights of the holders of the Common Stock are subject to and qualified by the rights of the holders of the Preferred Stock of any series as may be designated by the Board of Directors upon any issuance of the Preferred Stock of any series. 2. Voting. The holders of the Common Stock are entitled to one vote for each share held at all meetings of stockholders (and written actions in lieu of meetings). There shall be no cumulative voting. The number of authorized shares of Common Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the stock of the Corporation entitled to vote, irrespective of the provisions of Section 242(b)(2) of the General Corporation Law of Delaware. 3. Dividends. Dividends may be declared and paid on the Common Stock from funds lawfully available therefor as and when determined by the Board of Directors and subject to any preferential dividend rights of any then outstanding Preferred Stock. 2 4. Liquidation. Upon the dissolution or liquidation of the Corporation, whether voluntary or involuntary, holders of Common Stock will be entitled to receive all assets of the Corporation available for distribution to its stockholders, subject to any preferential rights of any then outstanding Preferred Stock. B. PREFERRED STOCK. Preferred Stock may be issued from time to time in one or more series, each of such series to have such terms as stated or expressed herein and in the resolution or resolutions providing for the issue of such series adopted by the Board of Directors of the Corporation as hereinafter provided. Any shares of Preferred Stock which may be redeemed, purchased or acquired by the Corporation may be reissued except as otherwise provided by law or this Certificate of Incorporation. Different series of Preferred Stock shall not be construed to constitute different classes of shares for the purposes of voting by classes unless expressly provided. Authority is hereby expressly granted to the Board of Directors from time to time to issue the Preferred Stock in one or more series, and in connection with the creation of any such series, by resolution or resolutions providing for the issue of the shares thereof, to determine and fix such voting powers, full or limited, or no voting powers, and such designations, preferences and relative participating, optional or other special rights, and qualifications, limitations or restrictions thereof, including without limitation thereof, dividend rights, conversion rights, redemption privileges and liquidation preferences, as shall be stated and expressed in such resolutions, all to the full extent now or hereafter permitted by the General Corporation Law of Delaware. Without limiting the generality of the foregoing, the resolutions providing for issuance of any series of Preferred Stock may provide that such series shall be superior or rank equally or be junior to the Preferred Stock of any other series to the extent permitted by law and this Certificate of Incorporation. Except as otherwise provided in this Certificate of Incorporation, no vote of the holders of the Preferred Stock or Common Stock shall be a prerequisite to the designation or issuance of any shares of any series of the Preferred Stock authorized by and complying with the conditions of this Certificate of Incorporation, the right to have such vote being expressly 3 waived by all present and future holders of the capital stock of the Corporation. FIFTH. The Corporation shall have a perpetual existence. SIXTH. In furtherance of and not in limitation of powers conferred by statute, it is further provided: 1. Election of directors need not be by written ballot. 2. The Board of Directors is expressly authorized to adopt, amend or repeal the Bylaws of the Corporation. SEVENTH. Except to the extent that the General Corporation Law of the State of Delaware prohibits the elimination or limitation of liability of directors for breaches of fiduciary duty, no director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for any breach of fiduciary duty as a director, notwithstanding any provision of law imposing such liability. No amendment to or repeal of this provision shall apply to or have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment. EIGHTH. 1. Action, Suits and Proceedings Other than by or in the Right of the Corporation. The Corporation shall indemnify each person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation), by reason of the fact that he is or was, or has agreed to become, a director or officer of the Corporation, or is or was serving, or has agreed to serve, at the request of the Corporation, as a director, officer or trustee of, or in a similar capacity with, another corporation, partnership, joint venture, trust or other enterprise (including any employee benefit plan) (all such persons being referred to hereafter as an "Indemnitee"), or by reason of any action alleged to have been taken or omitted in such capacity, against all expenses (including attorneys' fees) judgment, fines and amounts paid in settlement actually and reasonably incurred by him or on his behalf in connection with such action, suit or proceeding and any appeal therefrom, if he acted in good faith and in a manner he reasonably believed 4 to be in, or not opposed to, the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in, or not opposed to, the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. Notwithstanding anything to the contrary in this Article, except as set forth in Section 6 below, the Corporation shall not indemnify an Indemnitee seeking indemnification in connection with a proceeding (or part thereof) initiated by the Indemnitee unless the initiation thereof was approved by the Board of Directors of the Corporation. 2. Actions or Suits by or in the Right of the Corporation. The Corporation shall indemnify any indemnitee who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was, or has agreed to become, a director or officer of the Corporation, or is or was serving, or has agreed to serve, at the request of the Corporation, as a director, officer or trustee of, or in a similar capacity with, another corporation, partnership, joint venture, trust or other enterprise (including any employee benefit plan), or by reason of any action alleged to have been taken or omitted in such capacity, against all expenses (including attorneys' fees) and amounts paid in settlement actually and reasonably incurred by him or on his behalf in connection with such action, suit or proceeding and any appeal therefrom, if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Corporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of such liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses (including attorneys' fees) which the Court of Chancery of Delaware or such other court shall deem proper. 5 3. Indemnification for Expenses of Successful Party. Notwithstanding the other provisions of this Article, to the extent that an Indemnitee has been successful, on the merits or otherwise, in defense of any action, suit or proceeding referred to in Sections 1 and 2 of this Article, or in defense of any claim, issue or matter therein, or on appeal from any such action, suit or proceeding, he shall be indemnified against all expenses (including attorneys' fees) actually and reasonably incurred by him or on his behalf in connection therewith. Without limiting the foregoing, if any action, suit or proceeding is disposed of, on the merits or otherwise (including a disposition without prejudice), without (i) the disposition being adverse to the Indemnitee, (ii) an adjudication that the Indemnitee was liable to the Corporation, (iii) a plea of guilty or nolo contendere by the Indemnitee, (iv) an adjudication that the Indemnitee did not act in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and (v) with respect to any criminal proceeding, an adjudication that the Indemnitee had reasonable cause to believe his conduct was unlawful, the Indemnitee shall be considered for the purposes hereof to have been wholly successful with respect thereto. 4. Notification and Defense of Claim. As a condition precedent to his right to be indemnified, the Indemnitee must notify the Corporation in writing as soon as practicable of any action, suit, proceeding or investigation involving him for which indemnity will or could be sought. With respect to any action, suit, proceeding or investigation of which the Corporation is so notified, the Corporation will be entitled to participate therein at its own expense and/or to assume the defense thereof at its own expense, with legal counsel reasonably acceptable to the Indemnitee. After notice from the Corporation to the Indemnitee of its election so to assume such defense, the Corporation shall not be liable to the Indemnitee for any legal or other expenses subsequently incurred by the Indemnitee in connection with such claim, other than as provided below in this Section 4. The Indemnitee shall have the right to employ his own counsel in connection with such claim, but the fees and expenses of such counsel incurred after notice from the Corporation of its assumption of the defense thereof shall be at the expense of the Indemnitee unless (i) the employment of counsel by the Indemnitee has been authorized by the Corporation, (ii) counsel to the Indemnitee shall have reasonably concluded that there may be a conflict of interest or position on any significant issue 6 between the Corporation and the Indemnitee in the conduct of the defense of such action or (iii) the Corporation shall not in fact have employed counsel to assume the defense of such action, in each of which cases the fees and expenses of counsel for the Indemnitee shall be at the expense of the Corporation, except as otherwise expressly provided by this Article. The Corporation shall not be entitled, without the consent of the Indemnitee, to assume the defense of any claim brought by or in the right of the Corporation or as to which counsel for the Indemnitee shall have reasonably made the conclusion provided for in clause (ii) above. 5. Advance of Expenses. Subject to the provisions of Section 6 below, in the event that the Corporation does not assume the defense pursuant to Section 4 of this Article of any action, suit, proceeding or investigation of which the Corporation receives notice under this Article, any expenses (including attorneys' fees) incurred by an Indemnitee in defending a civil or criminal action, suit, proceeding or investigation or any appeal therefrom shall be paid by the Corporation in advance of the final disposition of such matter; provided, however, that the payment of such expense incurred by an Indemnitee in advance of the final disposition of such matter shall be made only upon receipt of an undertaking by or on behalf of the Indemnitee to repay all amounts so advanced in the event that it shall ultimately be determined that the Indemnitee is not entitled to be indemnified by the Corporation as authorized in this Article. Such undertaking may be accepted without reference to the financial ability of the Indemnitee to make such repayment. 6. Procedure for Indemnification. In order to obtain indemnification or advancement of expenses pursuant to Section 1, 2, 3 or 5 of this Article, the Indemnitee shall submit to the Corporation a written request, including in such request such documentation and information as is reasonably available to the Indemnitee and is reasonably necessary to determine whether and to what extent the Indemnitee is entitled to indemnification or advancement of expenses. Any such indemnification or advancement of expenses shall be made promptly, and in any event within 60 days after receipt by the Corporation of the written request of the Indemnitee, unless with respect to requests under Section 1, 2 or 5 the Corporation determines, by clear and convincing evidence, within such 60-day period that the Indemnitee did not meet the applicable standard of conduct 7 set forth in Section 1 or 2, as the case may be. Such determination shall be made in each instance by (a) a majority vote of a quorum of the directors of the Corporation consisting of persons who are not at that time parties to the action, suit or proceeding in question ("disinterested directors"), (b) if no such quorum is obtainable, a majority vote of a committee of two or more disinterested directors, (c) a majority vote of a quorum of the outstanding shares of stock of all classes entitled to vote for directors, voting as a single class, which quorum shall consist of stockholders who are not at that time parties to the action, suit or proceeding in question, (d) independent legal counsel (who may be regular legal counsel to the Corporation), or (e) a court of competent jurisdiction. 7. Remedies. The right to indemnification or advances as granted by this Article shall be enforceable by the Indemnitee in any court of competent jurisdiction if the Corporation denies such request, in whole or in part, or if no disposition thereof is made within the 60-day period referred to above in Section 6. Unless otherwise provided by law, the burden of proving that the Indemnitee is not entitled to indemnification or advance of expenses under this Article shall be on the Corporation. Neither the failure of the Corporation to have made a determination prior to the commencement of such action that indemnification is proper in the circumstances because the Indemnitee has met the applicable standard of conduct, nor an actual determination by the Corporation pursuant to Section 6 that the Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the Indemnitee has not met the applicable standard of conduct. The Indemnitee's expenses (including attorneys' fees) incurred in connection with successfully establishing his right to indemnification, in whole or in part, in any such proceeding shall also be indemnified by the Corporation. 8. Subsequent Amendment. No amendment, termination or repeal of this Article or of the relevant provisions of the General Corporation Law of Delaware or any other applicable laws shall affect or diminish in any way the rights of any Indemnitee to indemnification under the provisions hereof with respect to any action, suit, proceeding or investigation arising out of or relating to any actions, transactions or facts occurring prior to the final adoption of such amendment, termination or repeal. 8 9. Other Rights. The indemnification and advancement of expenses provided by this Article shall not be deemed exclusive of any other rights to which an Indemnitee seeking indemnification or advancement of expenses may be entitled under any law (common or statutory), agreement or vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in any other capacity while holding office for the Corporation, and shall continue as to an Indemnitee who has ceased to be a director or officer, and shall inure to the benefit of the estate, heirs, executors and administrators of the Indemnitee. Nothing contained in this Article shall be deemed to prohibit, and the Corporation is specifically authorized to enter into, agreements with officers and directors providing indemnification rights and procedures different from those set forth in this Article. In addition, the Corporation may, to the extent authorized from time to time by its Board of Directors, grant indemnification rights to other employees or agents of the Corporation or other persons serving the Corporation and such rights may be equivalent to, or greater or less than, those set forth in this Article. 10. Partial Indemnification. If an Indemnitee is entitled under any provision of this Article to indemnification by the Corporation for some or a portion of the expenses (including attorneys' fees), judgments, fines or amounts paid in settlement actually and reasonably incurred by him or on his behalf in connection with any action, suit, proceeding or investigation and any appeal, therefrom but not, however, for the total amount thereof, the Corporation shall nevertheless indemnify the Indemnitee for the portion of such expenses (including attorneys' fees), judgments, fines or amounts paid in settlement to which the Indemnitee is entitled. 11. Insurance. The Corporation may purchase and maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise (including any employee benefit plan) against any expense, liability or loss incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the General Corporation law of Delaware. 9 12. Merger or Consolidation. If the Corporation is merged into or consolidated with another corporation and the Corporation is not the surviving corporation, the surviving corporation shall assume the obligations of the Corporation under this Article with respect to any action, suit, proceeding or investigation arising out of or relating to any actions, transactions or facts occurring prior to the date of such merger or consolidation. 13. Savings Clause. If this Article or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each Indemnitee as to any expenses (including attorneys' fees) judgments, fines and amounts paid in settlement in connection with any action, suit, proceeding or investigation, whether civil, criminal or administrative, including an action by or in the right of the Corporation, to the fullest extent permitted by any applicable portion of this Article that shall not have been invalidated and to the fullest extent permitted by applicable law. 14. Definitions. Terms used herein and defined in Section 145(h) and Section 145(i) of the General Corporation Law of Delaware shall have the respective meanings assigned to such terms in such Section 145(h) and Section 145(i). 15. Subsequent Legislation. If the General Corporation Law of Delaware is amended after adoption of this Article to expand further the indemnification permitted to Indemnitees, then the Corporation shall indemnify such persons to the fullest extent permitted by the General Corporation Law of Delaware, as so amended. NINTH. The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Restated Certificate of Incorporation, in the manner now or hereafter prescribed by statute and this Restated Certificate of Incorporation, and all rights conferred upon stockholders herein are granted subject to this reservation. TENTH. This Article is inserted for the management of the business and for the conduct of the affairs of the Corporation. 1. Number of Directors. The number of directors shall be fixed from time to time by, or in the manner provided in, the Corporation's Bylaws. 10 2. Classes of Directors. The Board of Directors shall be and is divided into three classes: Class I, Class II and Class III. 3. Election of Directors. Elections of directors need not be by written ballot except as and to the extent provided in the Bylaws of the Corporation. 4. Terms of Office. Each director shall serve for a term ending on the date of the third annual meeting following the annual meeting at which such director was elected and until his successor is duly elected and qualified; provided, that each initial director in Class I shall serve for a term ending on the date of the annual meeting of stockholders in 1999 and until his successor is duly elected and qualified; each initial director in Class II shall serve for a term ending on the date of the annual meeting of stockholders in 2000 and until his successor is duly elected and qualified; and each initial director in Class III shall serve for a term ending on the date of the annual meeting of stockholders in 2001 and until his successor is duly elected and qualified; and provided further, that the term of each director shall be subject to his earlier death, resignation or removal. 5. Allocation of Directors Among Classes in the Event of Increases or Decreases in the Number of Directors. In the event of any increase or decrease in the authorized number of directors, (i) each director then serving as such shall nevertheless continue as a director of the class of which he is a member and (ii) the newly created or eliminated directorships resulting from such increase or decrease shall be apportioned by the Board of Directors among the three classes of directors so as to ensure that no one class has more than one director more than any other class. To the extent possible, consistent with the foregoing rule, any newly created directorships shall be added to those classes whose terms of office are to expire at the latest dates following such allocation, and any newly eliminated directorships shall be subtracted from those classes whose terms of offices are to expire at the earliest dates following such allocation, unless otherwise provided from time to time by resolution adopted by the Board of Directors. 6. Quorum; Action at Meeting. A majority of the directors at any time in office shall constitute a quorum for the transaction of business. In the event one or more of the directors shall be disqualified to vote at any 11 meeting, then the required quorum shall be reduced by one for each director so disqualified, provided that in no case shall less than one-third of the number of directors fixed pursuant to Section 1 above constitute a quorum. If at any meeting of the Board of Directors there shall be less than such a quorum, a majority of those present may adjourn the meeting from time to time. Every act or decision done or made by a majority of the directors present at a meeting duly held at which a quorum is present shall be regarded as the act of the Board of Directors unless a greater number is required by law, by the Bylaws of the Corporation or by this Restated Certificate of Incorporation. 7. Removal. Directors of the Corporation may be removed only for cause by the affirmative vote of the holders of at least two-thirds of the shares of the capital stock of the Corporation issued and outstanding and entitled to vote. 8. Vacancies. Any vacancy in the Board of Directors, however occurring, including a vacancy resulting from an enlargement of the board, shall be filled only by a vote of a majority of the directors then in office, although less than a quorum, or by a sole remaining director. A director elected to fill a vacancy shall be elected to hold office until the next election of the class for which such director shall have been chosen, subject to the election and qualification of his successor and to his earlier death, resignation or removal. 9. Stockholder Nominations and Introduction of Business, Etc. Advance notice of stockholder nominations for election of directors and other business to be brought by stockholders before a meeting of stockholders shall be given in the manner provided by the Bylaws of the Corporation. 10. Amendments to Article. Notwithstanding any other provisions of law, this Restated Certificate of Incorporation or the Bylaws of the Corporation, each as amended, and notwithstanding the fact that a lesser percentage may be specified by law, the affirmative vote of the holders of at least two-thirds of the shares of capital stock of the Corporation issued and outstanding and entitled to vote shall be required to amend or repeal, or to adopt any provision inconsistent with, this Article TENTH. ELEVENTH. Stockholders of the Corporation may not take any action by written consent in lieu of a meeting. 12 Notwithstanding any other provisions of law, the Restated Certificate of Incorporation or the Bylaws of the Corporation, each as amended, and notwithstanding the fact that a lesser percentage may be specified by law, the affirmative vote of the holders of at least two-thirds of the shares of capital stock of the Corporation issued and outstanding and entitled to vote shall be required to amend or repeal, or to adopt any provision inconsistent with, this Article ELEVENTH. TWELFTH. Special meetings of stockholders may be called at any time by only the Chairman of the Board of Directors, the Chief Executive Officer (or if there is no Chief Executive Officer, the President) or the Board of Directors. Business transacted at any special meeting of stockholders shall be limited to matters relating to the purpose or purposes stated in the notice of meeting. Notwithstanding any other provision of law, this Restated Certificate of Incorporation or the Bylaws of the Corporation, each as amended, and notwithstanding the fact that a lesser percentage may be specified by law, the affirmative vote of the holders of at least two-thirds of the shares of capital stock of the Corporation issued and outstanding and entitled to vote shall be required to amend or repeal, or to adopt any provision inconsistent with, this Article TWELFTH. IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be affixed hereto and this Restated Certificate of Incorporation to be signed by its President and Chief Operating Officer this 4th day August, 1998. GIGA INFORMATION GROUP, INC. By: /s/ GIDEON I. GARTNER ------------------------------------------ Gideon I. Gartner President and Chief Operating Officer 13 EX-11 3 Exhibit 11 Statement of Computation of Per Share Earnings NET LOSS PER SHARE Net loss per share is calculated as follows: (Unaudited, in thousands)
Three Months Ended Six Months Ended June 30, June 30, 1998 1997 1998 1997 ---------- ---------- ---------- ---------- Net loss $ (5,616) $ (6,811) $ (9,452) $(12,500) ========== ========== ========== ========== BASIC: Weighted average common shares outstanding 2,162 2,076 2,139 2,064 ========== ========== ========== ========== Net loss per common share $ (2.60) $ (3.28) $ (4.42) $ (6.06) ========== ========== ========== ========== DILUTED: Weighted average common shares outstanding 2,162 2,076 2,139 2,064 Effect of dilutive securities: Convertible notes - - - - Stock options - - - - Warrants - - - - ---------- ---------- ---------- ---------- Weighted average common and common equivalent shares outstanding 2,162 2,076 2,139 2,064 ========== ========== ========== ========== Net loss per common and common equivalent share $ (2.60) $ (3.28) $ (4.42) $ (6.06) ========== ========== ========== ========== PRO FORMA BASIC AND DILUTED: Weighted average common shares outstanding 2,162 2,076 2,139 2,064 Conversion of Convertible Preferred Stock: Series A 760 760 760 760 Series B 2,715 2,715 2,715 2,715 Series C 1,021 1,021 1,021 1,021 Series D 190 190 190 190 ---------- ---------- ---------- ---------- Weighted average pro forma common shares outstanding 6,848 6,762 6,825 6,750 ========== ========== ========== ========== Pro forma net loss per common share $ (0.82) $ (1.01) $ (1.38) $ (1.85) ========== ========== ========== ==========
EX-27 4
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF GIGA INFORMATION GROUP, INC. FOR THE QUARTER ENDED JUNE 30, 1998 AND IS QUALIFIED INITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS 3-MOS DEC-31-1997 DEC-31-1998 JUN-30-1997 JUN-30-1998 5,998 6,713 0 0 4,162 7,091 441 404 0 0 13,938 19,984 4,117 5,125 1,990 3,023 17,515 22,255 18,769 36,767 0 0 0 0 11 12 2 3 (3,003) (15,217) 17,515 22,255 4,344 9,112 4,344 9,112 3,389 5,231 11,204 14,160 0 0 0 0 24 694 (6,807) (5,620) 4 (4) (6,811) (5,616) 0 0 0 0 0 0 (6,811) (5,616) (3.28) (2.60) (3.28) (2.60)
-----END PRIVACY-ENHANCED MESSAGE-----